Cambridge Assessment International Education

Cambridge Ordinary Level

* 8 6 2 3 0 7 5 4 2 9 *

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 October/November 2019
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams or graphs.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 19 printed pages and 1 blank page.

DC (ST) 167586/4
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1 Sairah is a retailer of garden furniture. The following ledger account appeared in her books on
31 August 2019.

Wootton account

Date Details Debit Credit Balance

2019 $ $ $
August 1 Balance b/d 263 Dr
8 Sales 70 333 Dr
10 Sales returns 9 324 Dr
15 Bank 144 180 Dr
15 Discount 6 174 Dr

REQUIRED

(a) (i) Name the type of ledger accounts prepared by Sairah showing a balance after each
transaction.

..................................................................................................................................... [1]

(ii) Name the subdivision of Sairah’s ledger in which the account of Wootton would appear.

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(iii) Name the document sent by Sairah to Wootton on 10 August.

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(iv) Name the type of discount taken by Wootton on 15 August.

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(v) Calculate the percentage discount taken by Wootton on 15 August.

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(vi) Name the document which would be sent by Sairah to Wootton on 31 August detailing
the transactions for the month.

..................................................................................................................................... [1]

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(b) Complete the following table. For each transaction name the book of prime (original entry),
the account to be debited, the account to be credited and the effect on capital.
The first item has been completed as an example.

book of prime account account effect on capital

(original) entry debited credited $
sold goods on credit to Sales journal Win Sales +90
Win, $300 (cost $210)

paid wages in cash, $750

purchased a new
computer system, $1500,
on credit from CW Limited

received goods returned

which had been sold on
credit to Wendy, $150
(cost $80)
[12]

Sairah uses ICT (Information Communication Technology) to maintain her book-keeping records.

REQUIRED

(c) State two advantages of using ICT (Information Communication Technology).

1 ................................................................................................................................................

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2 ................................................................................................................................................

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[2]

[Total: 20]

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2 Karthik extracted the following trial balance from his books on 30 September 2019.

Trial Balance at 30 September 2019

Debit Credit
$ $
Revenue 18 000
Purchases 15 500
Capital 1 200
Drawings 1 050
General expenses 1 720
Rent payable 200
Fixtures (at cost) 700
Provision for depreciation of fixtures 420
Trade receivables 1 750
Trade payables 2 100
Balance at bank 200
Inventory 1 October 2018 600

21 720 21 720

On inspection of the books Karthik found the following errors.

1 Purchases on credit from Hannah, $600, had been recorded in the book of prime (original)
entry and the account of Hannah as $900.

2 Rent payable of $450 had been posted to the general expenses account.

3 The purchase of fixtures, $800, had been recorded in the general expenses account.

4 A sale of goods on credit to Roy, $500, had been debited to the sales account and credited to
Roy’s account.

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REQUIRED

(a) Name the type of error in 1–4.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ................................................................................................................................................

4 ................................................................................................................................................
[4]

(b) Prepare the journal entries to correct the errors 1 to 4. Narratives are not required.

General Journal

Debit Credit
$ $

[8]

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(c) Prepare the corrected trial balance at 30 September 2019.

Corrected Trial Balance at 30 September 2019

Debit Credit
$ $
Revenue

Purchases

Capital

Drawings

General expenses

Rent payable

Fixtures (at cost)

Provision for depreciation of fixtures

Trade receivables

Trade payables

Balance at bank

Inventory 1 October 2018

[8]

[Total: 20]

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3 ABC Limited has ordinary share capital consisting of 150 000 shares of $1 each.

The following is an extract from the statement of changes in equity for ABC Limited for the year
ended 31 August 2019.

ABC Limited
Statement of Changes in Equity for the year ended 31 August 2019

Ordinary General Retained

Total
share capital reserve earnings
$ $ $ $
Balance 1 September 2018 150 000 25 000 56 000 ?
Profit for the year 32 000 32 000
Interim dividend for the year (3 000) (3 000)
Final dividend for the year (4 500) (4 500)
Transfer to general reserve 20 000 (20 000)
Balance 31 August 2019 ? ? ? ?

Additional balances at 31 August 2019

$
Trade payables 17 500
Current assets 72 500
Other payables 3 000
5% Debentures (repayable 2025) 50 000
Non-current assets 280 000
4% Bank loan (repayable 2022) 20 000
Bank overdraft 6 500

REQUIRED

(a) State the difference between called-up share capital and paid-up share capital.

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(b) State three differences between debentures and ordinary shares.

1 ................................................................................................................................................

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2 ................................................................................................................................................

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3 ................................................................................................................................................

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[6]

(c) Calculate the total:

(i) equity of ABC Limited on 1 September 2018

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [1]

(ii) dividend paid on ordinary shares in cents per share.

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(d) State one possible reason why ABC Limited would make a transfer to the general reserve.

...................................................................................................................................................

............................................................................................................................................. [1]

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(e) Prepare an extract from the statement of financial position at 31 August 2019 to show the
equity and liabilities.

ABC Limited
Extract from the Statement of Financial Position at 31 August 2019

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[Total: 20]

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4 Rani is in business buying and selling goods on credit.

She provided the following information.

At 1 October 2017 $
Capital 75 000
Bank loan (repayable 2023) 40 000

For the year ended 30 September 2018

Expenses 65 000
Profit for the year 15 000

Mark-up 25%

Rani did not make any drawings during the year.

REQUIRED

(a) Calculate the following for the year ended 30 September 2018.

Workings Answer
Revenue

Percentage of profit for the

year to revenue
(to two decimal places)

Percentage return on
capital employed
(to two decimal places)

Use the capital employed

at 30 September 2018
[6]

Rani is concerned about the level of her profitability. She decided to increase the mark-up to 50%
on her goods for the year ended 30 September 2019.

The following information is available for the year ended 30 September 2019.

$
Purchases 212 000
Expenses 60 000
Inventory at 1 October 2018 36 000
Inventory at 30 September 2019 28 000

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(b) Calculate the following for the year ended 30 September 2019.

Workings Answer
$
Cost of sales

Revenue

Profit for the year

[6]

(c) Comment on the profitability of Rani’s business over the two years.

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(d) Name the accounting principle/concept being applied by Rani in the following situations.

Principle/concept

Rani always ensures that her personal transactions are not recorded
in the business accounting records.

Rani does not calculate annual depreciation on low-value office

equipment items such as staplers.

Rani requires reports on the progress of the business at regular

intervals.

Rani’s assets and expenses are recorded in the ledger accounts at

their actual cost.

[4]

[Total: 20]

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PLEASE TURN OVER

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5 The following balances were extracted from the books of B Manufacturing on 30 September 2019.

$
Inventory at 1 October 2018
Raw materials 7 900
Work in progress 18 000
Finished goods 31 000
Capital 160 000
Drawings 50 000
Revenue 475 000
Purchases of raw materials 47 000
Purchases of finished goods 71 000
Production management salaries 29 500
Administrative wages and salaries 117 550
Factory wages 55 300
Insurance 9 000
Rent payable 30 000
Commission receivable 8 750
Direct expenses 10 100
General expenses 12 000
Building repairs 18 000
Selling and distribution expenses 14 200
Trade payables 21 900
Bank 11 100 Debit
Non-current assets (at cost)
Factory machinery 90 000
Office fixtures 70 000
Provisions for depreciation at 1 October 2018
Factory machinery 26 000
Office fixtures 36 000
Provision for doubtful debts 6 000
Trade receivables 42 000

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Additional information at 30 September 2019

1 Inventory
$
Raw materials 6 400
Work in progress 20 200
Finished goods 34 300

2 Expenses are to be apportioned to the factory and the office as follows:

Factory Office
Insurance 60% 40%
Rent payable 75% 25%
General expenses 10% 90%
Building repairs 70% 30%

3 Commission receivable of $1200 was due.

4 Selling and distribution expenses prepaid were $750.

5 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows.
factory machinery at 20% per annum using the diminishing (reducing) balance method
office fixtures at 10% per annum using the straight-line method.

6 The provision for doubtful debts is to be maintained at the rate of 5%.

7 A cheque, $2800, paid to a trade payable had not been recorded in the books.

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REQUIRED

(a) Prepare the manufacturing account for the year ended 30 September 2019.
Show clearly the prime cost and the cost of production.

B Manufacturing
Manufacturing Account for the year ended 30 September 2019

$ $

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(b) Prepare the income statement for the year ended 30 September 2019.

B Manufacturing
Income Statement for the year ended 30 September 2019

$ $

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[13]

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(c) Prepare the statement of financial position at 30 September 2019.

B Manufacturing
Statement of Financial Position at 30 September 2019

$ $ $

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$ $ $

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[12]

[Total: 40]

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BLANK PAGE

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2019 7110/22/O/N/19