CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 23
Accounting in context
Oldcastle Cricket Club
Learners’ answers may include:
• The main objectives of Oldcastle Cricket Club could include:
• Providing cricketing activity for men, women and children – this could consist of cricket matches,
training and coaching.
• Providing other social activities for its members, their families and friends and members of the
local community.
The main objective of most of Majid’s clients at work is to maximise their profit and this will represent
most of all of the personal income whereas organisations like Oldcastle Cricket Club exist to provide
facilities. The success of the teams in terms of winning championships and getting promoted to a
higher standard of cricket will also be important.
• It is important that the financial affairs of organisations like Oldcastle Cricket Club be kept tightly
under control because although profit is not the main objective, the club needs to generate enough
money to be able to pay the day-to-day running costs and occasionally purchase non-current assets,
e.g. practice nets or bowling machines to replace or improve those that have reached the end of their
useful lives. The club may even want to expand and this might involve building extensions to pavilions
or changing rooms.
• Oldcastle Cricket Club may need to produce full and accurate financial statements because:
• It is a requirement if the club is registered as a charity.
• The members have a right to see whether club officials are looking after the resources of the
club properly.
• The club may be applying for loans or grants – funding bodies or lenders may need to see evidence
of sound financial management before they award any money.
• The fact that information will be in the public domain may act as a deterrent to dishonest club
members who might be tempted to steal from the bar or the club shop (if it has one).

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Activities
Activity 23.1
a Subscriptions account
Debit Credit
$ $
1 Jan 19 Balance b/d 1 950 1 Jan 19 Balance b/d 2 275
31 Dec 19 Income and expenditure 58 500 31 Dec 19 Bank 56 550
(180 × 325)
31 Dec 19 Balance c/d 1 300 31 Dec 19 Balance c/d 2 925
61 750 61 750
1 Jan 20 Balance b/d 2 925 1 Jan 20 Balance b/d 1 300

b The closing debit balance is an asset and represents the nine members whose subscriptions were still
outstanding at the year end. The credit balance is a liability and represents four members who had paid
their subscriptions in advance at the year end.

Activity 23.2
a Subscriptions account
Debit Credit
$ $
1 Apr 19 Balance b/d 3 000  1 Apr 19 Balance b/d 1 440
31 Mar 20 Income and expenditure 36 000 31 Mar 20 Receipts and payments 37 320
31 Mar 20 Balance c/d 2 040 31 Mar 20 Balance c/d 2 280
41 040 41 040
1 Apr 20 Balance b/d 2 280 1 Apr 20 Balance b/d 2 040

b Life subscriptions account

Debit Credit
$ $
31 Mar 20 Income and expenditure 2 454 1 Apr 19 Balance b/d 3 870
31 Mar 19 Balance c/d 9 816 31 Mar 20 Bank 8 400
12 270 12 270
1 Apr 20 Balance b/d 9 816

c Bar trading account Shop trading account

$ $ $ $
Revenue (takings) 23 195 Revenue (takings) 18 045
Less: Cost of sales: Less: Cost of sales:
Opening inventory 585 Opening inventory 3 105
Purchases 15 240 Purchases 22 310
15 825 25 415
Closing inventory (710) (15 115) Closing inventory (2 875) (22 540)
Bar profit 8 080 Shop loss (4 495)

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d Income and expenditure account

$ $ $
Income:
Subscriptions: General 36 000
Life   2 454 38 454
Bar profit (income and expenditure account) 8 080
Dinner dance – ticket sales 5 820
Dinner dance – catering costs (1 960)
Dinner dance – cost of band   (545) 3 315
Quiz income 3 215
Quiz cost of prizes   (890)   2 325
52 174
Expenditure:
Wages and salaries 18 600
Shop loss 4 495
Heat and light (2 065 + 720) 2 785
Water rates 1 790
Rent, rates and insurance (5 240 – 1 420) 3 820
Depreciation – equipment and furniture 2 740
Depreciation – motor vehicles 1 625
Motor expenses   6 835 (42 690)
Surplus of income over expenditure    9 484

Activity 23.3
a Statement of affairs
$ $
Assets:
Bank 1 830
Bar inventory 585
Equipment and furniture (27 400 – 18 200) 9 200
Motor vehicles (16 100 – 9 600) 6 500
Shop inventory 3 105
Subscription (in arrears)   3 000
24 220
Liabilities:
Life subscriptions 3 870
Subscriptions (in advance) 1 440 (5 310)
Accumulated fund 18 910

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b Statement of financial position

Cost Accumulated Net book
depreciation value
$ $ $
Non-current assets:
Equipment and furniture 27 400 20 940 6 460
Motor vehicles 16 100 11 225   4 875
43 500 32 165 11 335
Current assets:
Bar inventory 710
Shop inventory 2 875
Subscriptions owing 2 280
Bank 22 350
Other receivables   1 420 29 635
Total assets 40 970
Accumulated fund at 1 April 2019 18 910
Add: Surplus of income over expenditure   9 484
Accumulated fund at 31 March 2020 28 394
Life subscriptions 9 816
Current liabilities:
Subscriptions prepaid 2 040
Other payables    720 2 760
Total accumulated fund and liabilities 40 970

Activity 23.4
a Statement of affairs
$ $
Assets:
Bank 3 480
Bar inventory 1 245
Equipment (24 170 – 13 255) 10 915
Motor vehicles (17 600 – 12 200) 5 400
Premises 130 000
Prepaid expenses 1 125
Shop inventory 2 065
Subscription (in arrears)   1 050
155 280
Liabilities:
Accrued expenses 325
Life subscriptions 5 120
Subscriptions (in advance)   760 (6 205)
Accumulated fund 149 075

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b Receipts and payments account

Debit Credit
$ $
Opening balance b/d 3 480 Administration costs 16 430
Bar takings 13 295 Bar purchases 8 735
Club lottery income 3 080 Club lottery prizes 1 415
Events: ticket sales 7 230 Events: costs 8 160
General subscriptions 18 210 Heat, light and insurance 6 595
Life subscriptions 4 930 Purchase of equipment 4 500
Shop takings 11 010 Shop purchases 9 485
Closing balance c/d 5 915
61 235 61 235
Closing Balance b/d 5 915

c General subscriptions account

Debit Credit
$ $
1 Apr 19 Balance b/d 1 050 1 Apr 19 Balance b/d 760
31 Mar 20 Income and expenditure 18 620 31 Mar 20 Receipts and payments 18 210
31 Mar 20 Balance c/d 940 31 Mar 20 Balance c/d 1 640
20 610 20 610
1 Apr 20 Balance b/d 1 640 1 Apr 20 Balance b/d 940

Life subscriptions account

Debit Credit
$ $
31 Mar 20 Income and expenditure 2 010 1 Apr 19 Balance b/d 5 120
31 Mar 19 Balance c/d 8 040 31 Mar 20 Receipts and payments 4 930
10 050 10 050
1 Apr 20 Balance b/d 8 040

d Bar Shop
$ $ $ $
Revenue (takings) 13 295 Revenue (takings) 11 010
Less: Cost of sales: Less: Cost of sales:
Opening inventory 1 245 Opening inventory   2 065
Purchases 8 735 Purchases   9 485
9 980 11 550
Closing inventory (1 760)   (8 220) Closing inventory   (2 290)   (9 260)
Bar profit   5 075 Shop profit   1 750

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e Heat, light and insurance account

Debit Credit
$ $
1 Apr 19 Balance b/d 1 125 1 Apr 19 Balance b/d 325
31 Mar 20 Receipts and payments 6 595 31 Mar 20 Income and expenditure 7 035
31 Mar 20 Balance c/d 510 31 Mar 20 Balance c/d 870
8 230 8 230
1 Apr 20 Balance b/d 870 1 Apr 20 Balance b/d 510

f Income and expenditure account

$ $ $
Income:
Subscriptions: General 18 620
Life   2 010 20 630
Bar profit (income and expenditure account) 5 075
Shop profit 1 750
Club lottery – ticket sales 3 080
Club lottery – cost of prizes   (1 415)   1 665
29 120
Expenditure:
Administration costs 16 430
Depreciation – equipment[1] 5 734
Depreciation – motor vehicles[2] 1 620
Events: costs 8 160
Events: ticket sales (7 230) 930
Heat, light and insurance   7 035 (31 749)
Surplus of expenditure over income    2 629

Notes:
[1] Depreciation: equipment = 20% × (24 170 + 4 500) = $5 734
[2] Motor vehicles = 30% × (17 600 − 12 200) = $1 620

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g Statement of financial position

Cost Accumulated Net book
depreciation value
$ $ $
Non-current assets:
Premises 130 000 – 130 000
Equipment   28 670 18 989   9 681
Motor vehicles   17 600  13 820   3 780
176 270 32 809 143 461
Current assets:
Bar inventory   1 760
Shop inventory   2 290
Subscriptions owing   1 640
Bank   5 915
Other receivables    870   12 475
Total assets 155 936
Accumulated fund at 1 April 2019 149 075
Less: Surplus of expenditure over income   (2 629)
Accumulated fund at 31 March 2020 146 446
Life subscriptions   8 040
Current liabilities:
Subscriptions prepaid    940
Other payables    510   1 450
Total accumulated fund and liabilities 155 936

Exam-style questions
1 B Members of a club are not allowed to draw out money for their own use.
2 B The club owes money for an expense that it has already had the benefit of
The club has received money that it has yet to earn – the member is ‘owed their money back’ until
they have had the membership that they have paid for.
3 C $ $
Sales of equipment to members 3 650
Opening inventory of equipment 680
Purchases of equipment 2 430
Closing inventory of equipment   (540) (2 570)
Profit on equipment sales 1 080

Income = 12 600 + 1 080 = 13 680

Expenses   5 200
Surplus of income   8 480

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4 a Subscriptions account
Debit Credit
$ $
1 Jun 19 Balance b/d 240 1 Jun 19 Balance b/d 320
31 May 20 Income and expenditure 4 320 31 May 20 Receipts and payments 4 360
31 May 20 Balance c/d 440 31 May 20 Irrecoverable debts 40
31 May 20 Balance c/d 280
5 000 5 000
1 Jun 20 Balance b/d 280 1 Apr 20 Balance b/d 440

b Snack bar account

$ $
Revenue (takings) 9 211
Less: Cost of sales:
Opening inventory   327
Purchases 4 298
4 625
Closing inventory    (285) (4 340)
Gross profit 4 871
Wages (2 250)
Profit for the year 2 621

c Income and expenditure account

$ $ $
Income:
Subscriptions: General 4 320
Snack bar profit (income and expenditure account) 2 621
Presentation night – ticket sales 3 215
Presentation night – costs (1 963) 1 252
Raffles – ticket sales 2 039
Raffles – cost of prizes (1 321)   718
8 911
Expenditure:
Administrative expenses 1 842
Depreciation – equipment [1] 1 070
Loss on disposal of equipment   220
Travelling expenses 1 329 (4 461)
Surplus of expenditure over income 4 450

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Notes:
[1] Depreciation

$
Opening net book value 7 420
Purchases 2 210
Less: Disposal   (370)
9 260
Less: Closing net book value (8 190)
Depreciation for the year 1 070

[2] Depreciation

$
Net book value of equipment disposal 370
Proceeds from disposal (150)
Loss on disposal of equipment 220

d Differences include:
• Not-for-profit organisations refer to a ‘surplus of income over expenditure’ rather than the
‘profit for the year’ for the trading business.
• Not-for-profit organisations have an ‘accumulated fund’ rather than ‘owner’s capital’ for the
trading business.
• The owner of a trading business takes drawings from her or his business whereas members of
a club do not tend to remove money for their own use.
e If a life membership scheme is introduced, the club will instantly receive potentially large sums
from those members who can afford it and this might be useful if the club is looking to make a
major purchase or do building work on a clubhouse.
However, the club will not receive any further subscriptions from these life members and so, long
term, may lose out on future income. New members would be needed to keep the club going.
Pricing a life membership may be difficult. If it is set too high, no-one will take up this option.
If it is too low, there will be lots of takers, which will not only harm future income but may upset
those who are only willing or able to pay yearly.
Unless there is an urgent need for funds that can be raised in no other way, the club should not
consider introducing a life membership.

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9 © Cambridge University Press 2021