Name

Date
HIGHEST MARK IN
CLASS
TIME ALLOWED 3 hours
Percentage
Grade

Question Full marks Marks obtained

number
1.
2.
3.
4.
5.
6.
Total marks

Grade A B C D E
Lowest percentage for award of 8 7 65 55 5
grade 0 5 0

Information for candidates:

• The total marks for this paper is 200.

• The paper has six questions.

• Answer all the questions in section A and any three in Section B.

• Write your answers neatly and in good English.

• Please do not talk with each other.

• Understanding the questions is part of the exam.

Marks distribution between maths and theory

Maths 142 61.2

%
Theory 90 38.7
 Page 2 of 13

%
232 100%
TEACHERS COMMENTS:

Section A
Answer all questions.

1. Speedy cycles sells and repairs motor cycles. The business has three
departments: motor cycle sales, parts sales and motor cycle repairs. The
following balances were extracted from the accounts on 30 April 2008.

£
Sales:
Motor cycle sales 311000
Part sales 160000
Motor cycle repairs 68400
Purchases:
Motor cycles 223500
Parts 170500
Motor cycle repairs 8900
Stock 1 May 2007
Motor cycles 64000
Parts 65200
Wages and commission
Motor cycle sales commission 32000
Parts wages 17050
Motor cycle repairs 21200
Management salaries 15400
Lease on premises (10 years) 30000
Heat and light 6700
Debtors:
Motor cycle sales 50000
Motor cycle repairs 6000
Creditors 58350
Bank over draft 37100
Capital 125000
Drawings 19500
Fixtures and fittings at cost 40000
Fixtures and fittings provision for depreciation 12000
Repairs department: loose tools at cost 5900
Repair department: loose tools provision for depreciation 4000

Additional information:
 Page 3 of 13

i. The stock of parts on 1 May 2007 included obsolete parts which cost
£9000. On 1 May 2007 these were revalued to a net realisable value
of £800.

ii. During the year parts costing £14500 were transferred from the
parts sales department to the motor cycle repairs department for
the repair of customer’s motor cycles.

iii. Stock at 30 April 2008: motor cycles £61500, parts £63000.

iv. Parts department’s wages owing on 30 April 2008 were £450.

v. Depreciation is charged on fixtures and equipment at the rate of

15% on cost using the straight line method.

vi. Repair department: loose tools were valued at £1500 on 30 April

2008.

vii. A provision for doubtful debts is to be created at rate of 5% of

debtors.

viii. All costs which cannot be allocated to departments are to be

apportioned on the most appropriate basis:

Further information:

Motor cycle sales Part sales Motor cycle

repairs
Staff (number) 3 2 2
Area occupied (sq m) 300 300 400
Fixtures & equipment 10 12 18
( £000)

Required:

a. Departmental trading, profit and loss account of speedy cycles

for the year ended 30 April 2008, showing clearly the net profit
or net loss of each department. (You are advised to use
columnar format. A total column format is not required.) (16)

b. Balance sheet as at 30 April 2008. (16)

c. The owners of speedy cycles have been considering closing the

parts sales department of the business.

You are advised that the averages for this type of business are:

Mark up on cost 25%

Rate of stock turn over 8 times

 Page 4 of 13

Evaluate whether the Part sales department should be closed.

(6)

d. Evaluate wether, by charging annual depreciation, Speedy

cycles will have sufficient cash to replace their assets with a new
one at the end of its economic life. (6)

e. The management of speedy cycle depreciate their fixed assets

on cost. Discuss with a brief an explanation the other methods
available to them. (8)

Marks distribution between maths and theory

Maths 32 61.5%
Theory 20 38.5%
52 100%

2. Akij furnishings operate a number of manufacturing units

throughout the country. One of those manufacturing units is in
Jinjira, which produces tables, chairs, and benches from natural
wood. After the products have been manufactured they are
transferred to the Akij Furnishings central warehouse at an
agreed factory transfer price.
 Page 5 of 13

i. In the current year, all items manufactured are transferred to the

central warehouse at an agreed factory transfer price of £70/table
and £40/chair and £20/bench.

ii. During the period the following finished items were transferred to
the central warehouse: 1000 tables, 4000 chairs, 2000 benches.

iii. The major item of raw material is wood. On 1st July there were 60
cubic meters in stock which had cost £300/ cubic meter. During the
six months to 31st December 1996 three separate purchases of
wood were made.

Purchase date Cubic meters Price

15th September 1996 80 £320
3rd October 1996 100 £340
10th December 1996 40 £350

On 31st December 1996 the stock of wood amounted to 50 cubic

meters.

Stock is valued at FIRST IN FIRST OUT BASIS.

iv. Material records show that £29000 of material was used in the
manufacture of tables, £8000 of material was used for benches and
the balance was used for chairs.

v. The company employs 15 production workers, 4 of whom work on

the production of tables, 9 on chairs and 2 on benches.

Workers are each paid £800 per month, plus a bonus of £2.50 per
worker, for every unit of output over the production target of 160
tables, 600 chairs, or 400 benches per month.

vi. A royalty of £0.50 per chair is paid to the designer.

vii. Production overheads are categorised under three headings:

Supervision and management £30000

Rent, rates and facilities £28000
Depreciation, and sundry overheads £18000
The floor area is occupied by the production of tables is 600 meters,
chairs 1000 meters and benches 400 meters.

The depreciation and sundry are allocated 40% to the production of

tables, 50% chairs and 10% to benches.

viii. Work in progress had been valued at:

Tables £ Chair £ Benches £

st
1 July 1996 7500 10900 3000
31st December 7700 11300 2000
1996
 Page 6 of 13

Required:

a. Prepare the manufacturing account of Akij Furnishing for

six months ending 31st December 1996. (24)

b. Calculate profit or loss on the manufacture of each

product. (6)

c. The production director is concerned that the cost is very

high and is affecting the firm’s “competitive edge” in the
market. He believes the labour cost should be reduced.
He proposes to scrap the bonus system and pay on piece
rate basis. The payment would be £40, £30, and £35 for
table, chair and bench respectively.

i. Calculate the annual cost savings. (4)

ii. Evaluate the proposal. (6)

d. Another director advised the production director to

improve the labour productivity of the workers.

i. Define productivity. (4)

ii. Discuss some ways to improve labour productivity.

(8)

Marks distribution between maths and theory

Maths 30 57.6%
Theory 22 42.4%
52 100%
 Page 7 of 13

Section B

Answer any three (3) questions.

3. The following trial balance, which failed to agree, was prepared

by the business of Jerome on 30 November 2007.

Debit Credit
£ £
Capital 5000
Debtors 8640
Creditors 6100
 Page 8 of 13

Stock 7900
Bank 850
Rent 1000
Fixtures and fittings 10000
Gross profit 9380
General expenses 4410
Wages 10740
Commission receivable 14960
Drawings 7400 ______
50940 35440

The following errors were found in the books:

• Debtors included the account of J. Williams, whose debt of £450 became a

bad debt on 1 August 2007. On 26 September 2007 a cheque was
received in full settlement for £0.40 in the £. No entries had been in the
account to record the bad debt or the cheque receipt.

• Jerome paid rent of £500 per quarter year in advance, commencing on 1

January 2007. The third quarter rent had been credited to both the rent
and the bank account.

• Commission receivable is received twice yearly. On 30 March 2007,

£16500 had been received and correctly entered in the bank account, but
no entry had been made in the commission receivable account.

On 30 September 2007, a cheque for commission receivable had been

received which had been miscalculated in Jerome’s favour by £630. A
cheque was drawn to refund the over payment.

Required:

a. Prepare for Jerome:

i. The journal entries to correct the errors. (Narrations not

required.)(6)

ii. Suspense account showing clearly the opening balance.

(6)

b. Prepare the following ledgers

i. Rent account

ii. Commission receivable account (10)

c. Evaluate the contribution of trial balance in ensuring accuracy

of ledger account. (4)

d. List and explain in details four errors which are not detected by
a trial balance. (6)
 Page 9 of 13

Marks distribution between maths and theory

Maths 22 68.7%
Theory 10 31.3%
32 100%

4. Salman Khan, Katrina Kaif and Sohel Khan have been in business for
several years sharing profits and losses in the ratio 3:2:1 respectively. The
summarised balance sheet of the partnership as at 28th February 2004
was as follows:

£ £ £ £
Fixed assets Capital accounts
Premises 56000 Salman Khan 5000
0
Machinery 18000 Katrina Kaif 3000
0
Vehicles 27000 Sohel Khan 1800
0
10100 9800
0 0
Current assets Current accounts
Stock 11000 Salman Khan 3100
Debtors 18500 Katrina Kaif 1900
29500 Sohel Khan (1000)
4000
Loan from Kaif 5000
Current liabilities
Creditors 1400
0
_____ Bank overdraft 9500
13050 1305
0 00

• The partners have accepted an offer from a rival Shahrukh Khan of

£105000 to buy all the assets of the business except the debtors
and three of the vehicles which have been used by the partners
over the last year.

• Each partner agreed to take over the personally used vehicle which
he had been using during the year. Details of these vehicles were:

Book value of Agreed take over

vehicle price
Salman £5000 £6000
Khan
Katrina Kaif £5000 £5000
Sohel Khan £7000 £8000
 Page 10 of 13

• Cash collected from the debtors amounted to £17900 and the

partners paid £12500 to creditors in full settlements of the amounts
due to them.

• The cost of dissolution of the partnership amounted to £4500 and

was paid by the partnership.

Required:

a. Realisation account to calculate the profit/loss in dissolution of

the partnership. (8)

b. Prepare the capital accounts.(8)

c. Prepare the bank account.(8)

d. What are the constituents of Partnership Act 1890? (8)

Marks distribution between maths and theory

Maths 24 75%
Theory 8 25%
32 100%

5. The following information relates to Akij holdings fixed assets of

computer equipment.

i. Account balances at 1 January 2005:

• Computer equipment account

£120000

• Computer equipment provision for depreciation

account £40000

ii. Purchases and sales of equipment in 2005:

• On 31 March 2005 computer equipment purchased on

1 January 2004 for £16000 was sold on credit £11500.

• On 1 July 2005 new computer equipment was

purchased on credit at a cost of £10000.

iii. The policy of Akij holdings is to charge depreciation at the

rate of 25% on cost using the straight line method. In the
year of purchase full year’s depreciation will be charged. In
 Page 11 of 13

the year of sale, depreciation will be charged on the

proportion of the year for which the asset had been owned.

Required:

a. Prepare for the year ended 31 December 2005, the:

i. Computer equipment account

ii. Computer equipment provision for depreciation

account;

iii. Disposal account

iv. Profit and loss account (extract)

(14)

b. Distinguish between capital expenditure and revenue

expenditure. (6)

c. Explain how the accounting concept of materiality assists

in determining whether expenditure is classified as
capital expenditure or revenue expenditure. (6)

d. Evaluate whether it would be prudent to consider

training costs for staff to use new equipment as capital
expenditure or revenue expenditure. (6)

Marks distribution between maths and theory

Maths 14 43.75%
Theory 18 56.25%
32 100%

6. Saima has operated a shop selling mountaineering equipment for

several years but has never maintained full book keeping records.
 Page 12 of 13

An analysis of her bank records for the year ended 31 December

1996 is as follows:

£ £
Opening balance 2800 Purchase of goods 66200
Cash banked 86900 New shop fittings 3000
Closing balance 6670 Rent and rates 4000
Light and heat 3900
New Van 4000
Van running expenses 1400
Wages to shop 9070
assistants
Advertising 840
Insurance 560
Sundry expenses 2800
Details of Saima’s assets and liabilities at the start and end of the
year are:

1 January 1996 £ 31 December

1996 £
Debtors 600 850
creditors 2400 3300
Insurance prepaid 80 120
Advertising accrued 140 120
Stock at cost 16800 23700
Van (net book value) 2400 -
Shop fittings at cost 1500 ?
Depreciation on shop fittings 450 ?

Additional information:

i. Saima had banked all the takings, with the exception of personal
drawings of £200 per week for 50 weeks and £500 which she used
to pay for a holiday.

ii. Closing debtors included an amount of £100 which had been

outstanding for over six months. It has now been decided to write it
off as bad debt.

iii. The van owned on 1 January 1996 was traded in for £2000 on a part
exchange deal to purchase a new one.

iv. Depreciation policy is to provide a full year’s depreciation in the

year of purchase but none in the year of sale. Depreciation rates are
25% straight line method on vans and 30% reducing balance
method on shop fittings. No shop fittings had been sold during the
year.

Prepare for Saima:

 Page 13 of 13

a. Trading profit and loss account for the year ended 31 December
1996.

b. A balance sheet as at 31 December 1996. (20)

c. Evaluate the decision by Saima of not maintaining full set of

accounts. (6)

d. Evaluate the role of control accounts in detecting fraud & theft in

a business (6)

Marks distribution between maths and theory

Maths 20 62.5%
Theory 12 37.5%
32 100%