MyStudyBro - Revision Exercise Tool

This Revision Handout includes the Questions and Answers of a total of 2 exercises!

Chapters:
Accruals and Prepayments - Unit 1 (Pearson Edexcel)
Page 1 (WAC01 or WAC11) 2013 Winter
Depreciation

Page 3 (WAC01 or WAC11) 2013 Winter - Answer

Also Includes:
Depreciation

Page 6 (WAC01 or WAC11) 2011 Summer

Concepts and Covenventions

Page 8 (WAC01 or WAC11) 2011 Summer - Answer

Also Includes:
Concepts and Covenventions
Winter 2013 www.mystudybro.com Accounting Unit 1
Past Paper This resource was created and owned by Pearson Edexcel WAC01 or WAC11

SOURCE MATERIAL FOR USE WITH QUESTION 2

2. The following balances were in the ledger of Arpan on 1 January 2012:

£
Sundry expenses 600 Dr
Premises repairs 250 Dr
Rent receivable 300 Dr

The following were the transactions for the year ended 31 December 2012. All payments and
receipts were made by cheque:

1. Sundry expense payments:

£
14 May Paid 500
30 October Paid 900 for the six months to 31 March 2013

2. Premises repairs payments:

£
8 January Paid 450
1 April Paid 900
18 August Paid 875

On 31 December 2012 it was estimated that £340 was owing for premises repairs.

3. Rent receivable:
£
6 February Received 1 200
26 June Received 900

The rent receivable for the year was £1 600.

Required:

(a) Explain the meaning of the debit balance on the Rent receivable account on 1 January 2012.
(4)
(b) Prepare the following accounts for the year ended 31 December 2012, including the appropriate
transfer to the financial statements:

(i) Sundry expenses account

(4)
(ii) Premises repairs account
(4)
(iii) Rent receivable account.
(4)

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Winter 2013 www.mystudybro.com Accounting Unit 1
Past Paper This resource was created and owned by Pearson Edexcel WAC01 or WAC11

On 1 January 2012 Arpan had the following additional balances in his ledger:
£
Machine at cost 36 000
Machine – provision for depreciation ?

All machinery was purchased on 1 January 2010 and has a residual value of £2 000. Arpan has
depreciated his machinery over a five-year period using the straight line method.

He has decided to change his method of depreciation to 25% per annum reducing balance, backdated
to the date of machine purchase. The change and adjustment are to be recorded in the Statement of
Comprehensive Income for the year ended 31 December 2012.

On 1 April 2012 a new machine was purchased:

£
Cost 8 000
Installation 1 600
Staff training 2 000
Annual machine insurance 00 400
12 000

He charges a full year’s depreciation on machines in the year of purchase.

Required:

(c) State one accounting concept which:

(i) supports the change of depreciation method proposed by Arpan

(ii) does not support the change of depreciation method proposed by Arpan.
(4)
(d) Distinguish between capital expenditure and revenue expenditure.
(4)
(e) State, giving your reasons, whether each of the following is capital expenditure or
revenue expenditure:

       
         
(4)
(f) Calculate, showing clearly all workings, the:

(i) adjustment required to the provision for depreciation on the machines to

31 December 2011 to account for the change in depreciation method

(ii) depreciation charge on all the machines for the year ended 31 December 2012.
(8)
(g) Prepare, for the year ended 31 December 2012, the:
(i) Machinery account
(3)
(ii) Machinery – provision for depreciation account.
(5)
(h) Evaluate Arpan’s decision to change the basis of charging depreciation on machines
from the straight line method to reducing balance method.
(8)
(Total 52 marks)

Answer space for question 2 is on pages 8 to 16 of the question paper.

P42221A 5 Turn over
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Winter 2013 www.mystudybro.com Accounting Unit 1
Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Question Answer Mark

Number
2(a) Accrued income √√. A debit balance on the Rent Receivable (4)
Account means that Arpen is owed rent √√ by a tenant who is
therefore a debtor of the business.√√ MAX 4 x √

Question Answer Mark

Number
2(b) (i) Sundry Expenses Account
£ £
1 January Balance b/d 600 31 December Income Statement √ 1 550 √
14 May Bank 500 √ Balance c/d 450
30 October Bank 900
2 000 2 000
1 January Balance b/d 450 √of (if on debit)
(4)

Question Answer Mark

Number
2(b)(ii) Premises Repairs Account
£ £
1 January Balance b/d 250 31 December Income Statement 2 815 √
8 January Bank 450
1 April Bank 900 √
18 August Bank 875
31 December Balance c/d 340 √
2 815 2 815
1 January Balance b/d 340 √of (4)
(if on credit)

Question Answer Mark

Number
2(b)(iii) Rent Receivable Account
£ £
1 January Balance b/d 300 6 February Bank/cash 1 200 √
31 December Income Statement 1 600 √ 26 June Bank/cash 900
Balance c/d 200 √

2 100 2 100
1 January Balance b/d 200 √of (4)
(if on credit)

Question Answer Mark

Number
2(c) (i) Prudence –√√ losses should be charged as soon as they are identified.
The depreciation on machinery will be high in the early years not (4)
evenly spread over the life of the asset.
(ii) Consistency –√√ when a method of depreciation is chosen for a
non-current asset this should be consistently applied over the life of
the asset to ensure that the accounts are not distorted.

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Winter 2013 www.mystudybro.com Accounting Unit 1
Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Question Answer Mark

Number
2(d) Capital expenditure –purchase or enhancement of non-current
assets. √√
Revenue expenditure –day to day expenses which will be used (4)
within an accounting year. √√

Question Answer Mark

Number
2(e) Machine installation – Capital expenditure √√
Annual machine insurance – Revenue expenditure √√

(4)

Question Answer Mark

Number
2(f)(i) £
2(f)(ii) Depreciation charged (straight line) – 2010 6 800 √
2011 6 800
13 600 √
Depreciation (reducing balance) –
2010 (36 000-0) x 25% 9 000 √
2011 (36 000 -9 000) x 25% 6 750 √
15 750 √ (8)
Adjustment Increase in provision 2 150 √
Depreciation charge 2012 7 463 √ √ (√of)

Working 2012 charge – (36 000 + 9 600- 15 750) x 25% = £7 463

Note: if adjustment £2 150 stated award 6 x √ without reviewing workings.

Question Answer Mark

Number
2(g)(i) Machinery Account
£ £
Balance b/d 36 000 Balance c/d 45 600
Bank (of if £12 000 or less) 9 600 √√(√of)
45 600 45 600
Balance b/d 45 600 √of (if on debit) (3)

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Winter 2013 www.mystudybro.com Accounting Unit 1
Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Question Answer Mark

Number
2(g)(ii) Machinery – Provision for Depreciation account
£ £
Balance b/d 13 600 √of
Income Statement-
Adjustment 2 150 √of
Balance c/d 23 213 2012 charge 7 463 √√
23 213 23 213
Balance b/d 23 213 √of
(if on credit)
Note: If Balance b/d stated as £15 750 award √√ (£13 600 + £2 150) (5)
If charge to income statement £9 613 award √√√ (£2 150 + £7 463)

Question Answer Mark

Number
2(h) Valid answers may include:
Points for
• Greater depreciation will be charged in the early years which
reflects the situation with machinery
• Carry over value will be closer to market value resulting in
more accurate financial statement value.
• Evens out total cost of ownership when repair costs are
added to depreciation.
• Provides a more realistic book value
Points against:
• Distorts profit calculation
• Not consistent with previous practice.
• Not appropriate if machine used equally from year to year

√√ per valid point x 4 points. MAX 2 points for and MAX two points
against.

NOT
• Difficult to calculate
• Time consuming (8)
• Costly

Question Answer Mark

Number
3(a)(i) Realisation – Profit is regarded as having been earned when the
goods are passed to the customer and he incurs liability for
them.√√
Breach- The sale or return has not realised the profit as the (3)
customer has not incurred liability for them.√

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Summer 2011 www.mystudybro.com Accounting Unit 1
Past Paper This resource was created and owned by Pearson Edexcel WAC01 or WAC11

SOURCE MATERIAL FOR USE WITH QUESTION 2

2. Haider is in business as a travel consultant. She sells holidays and collects the payment from
customers. She receives from the travel company a commission of 10% of the revenue (sales) value
of the holidays.

Haider operates a single Sales Ledger Control Account for her business. The following information
is available:
£
Trade receivables (Debtors) 1 April 2010 19 900
Receipts from customers 425 000
Refunds to customers 8 350
Dishonoured cheques 1 600
Trade receivables (Debtors) 31 March 2011 24 850

Required:

(a) Prepare the Sales Ledger Control Account for the year ended 31 March 2011, showing the total
value of the revenue (sales) for the year.
(7)

On 1 April 2010, the following balances were in the books of Haider:

£
Commission receivable, owing to Haider: 4 800
Rent, 3 months prepaid: 1 250
Wages, prepaid: 400
Marketing expenses, owing: 750

The following is a summary of some of the transactions of the business for the year ended 31 March
2011:

£
Receipts of commission from the travel company 43 500
Payment of 9 months rent 3 750
Wages paid 17 800
Marketing expenses paid 11 250

At 31 March 2011:

Wages £350 were owing

Marketing expenses – there was a closing inventory (stock) of brochures £2 150

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Summer 2011 www.mystudybro.com Accounting Unit 1
Past Paper This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Required:

(b) Prepare the following ledger accounts for the year ended 31 March 2011, showing the transfers
to the statement of comprehensive income (profit & loss account). Balance the accounts as
necessary.

(i) Commission receivable account

(ii) Rent account
(iii) Wages account
(iv) Marketing expenses account
(23)

In addition to the incomes and expenses above, Haider also incurred the following for the year
ended 31 March 2011:

Sundry expenses £3 600

Depreciation on non-current (fixed) assets £4 600

(c) Prepare the statement of comprehensive income (profit & loss account) for the year ended
31 March 2011.
(8)

At a meeting with her accountant, Haider was informed that her accounts would need to comply
with the accounting concepts of accruals and going concern.

(d) Explain the meaning of:

(i) accounting concepts

(ii) the accounting concept of accruals
(iii) the accounting concept of going concern.
(6)

(e) Evaluate the use of accounting concepts when preparing financial statements (final accounts).
(8)

(Total 52 marks)

Answer space for question 2 is on pages 9 to 15 of the question paper.

P38646A 5 Turn over

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Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Question Answer Mark

Number
2(a) Sales Ledger Control Account
£ £
Balance b/d 19 900 √ Bank 425 000 √
Refunds to customers 8 350 √
Dishonoured cheques 1 600 √
Revenue (sales) 420 000 √√ Balance c/d 24 850
449 850 449 850
Balance b/d 24 850 √ (7)

2 (b) Commission Receivable Account

£ £
Balance b/d 4 800 √ Bank 43 500 √
Income statement (P/L) √ 42 000 √√OF Balance c/d 3 300
46 800 46 800
Balance b/d 3 300 √OF

Rent Account
£ £
Balance b/d 1 250 √ Income statement (P/L)√ 5 000 √√
Bank 3 750 √
5 000 5 000

Wages Account
£ £
Balance b/d 400 √ Income statement (P/L)√18 550 √√
Bank 17 800 √
Balance c/d 350 √ .
18 550 18 550
Balance b/d 350
Marketing Expenses Account
£ £
Bank 11 250 √ Balance b/d 750 √
Income statement (P/L)√ 8 350 √√
Balance c/d 2 150 √
11 250 11 250
Balance b/d 2 150 (23)

2 (c) Statement of comprehensive income (profit and loss account )

for the year ended 31 March 2011
£ £
Revenue (sales) 420 000 x 10% 42 000 √√OF
Less
Rent 5 000 √OF
Wages 18 550 √OF
Marketing 8 350 √OF
Sundry expenses 3 600 √
Depreciation 4 600 √ 40 100
Profit for the year (net profit) 1 900 √OF
42 000 (8)

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Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11

Question Answer Mark

Number
2(d) Accounting concepts - In the search for objectivity, the rules which lay down
the way in which the financial information of the
business is recorded. √√

Accruals concept - Calculates profit for the year on the basis of the
difference between revenues and expenses for the year
rather than the difference between cash receipts and
expenditures. √√

Going concern concept- Unless the opposite is known accounting always

assumes that the business will continue to operate for
an indefinite period. Therefore, it is not necessary to
show what assets would fetch. √√ (6)

Question Answer Mark

Number
2(e) Valid answers may include:
In favour
• Profit figures can be relied upon/asset values are accurate
• Comparison between accounts is possible
• Users can trust the accounts prepared/make decisions based on the
accounts
Against
• Use of concepts often open to a wide interpretation
• Different interpretation in different businesses e.g. materiality
• Concepts can contradict each other
(8)
√√ per point x 2 in favour plus √√ per point x 2 against

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