Certificate in

Book-keeping and Accounts

Level 2
Series 3 2004 (Code 2006)

Model Answers
(UK Accreditation No: 100/1449/4) ASP M 1652

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Certificate in Book-keeping and Accounts Level 2

Series 3 2004

How to use this booklet Model Answers have been developed by LCCIEB to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCIEB examinations. The contents of this booklet are divided into 3 elements: (1) (2) Questions Model Answers reproduced from the printed examination paper summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper where appropriate, additional guidance relating to individual questions or to examination technique

(3)

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Certificate in Book-keeping and Accounts Level 2

Series 3 2004
QUESTION 1 The following is the Balance Sheet of Jack Robertson at 30 June 2002. Cost 120,000 25,000 30,000 175,000 Dep'n 15,000 12,000 27,000 44,100 35,600 1,100 600 81,400 NBV 120,000 10,000 18,000 148,000

Fixed Assets Land and Buildings Fixtures and Fittings Motor Vehicles Current Assets Stock Trade Debtors Prepayments - overheads Cash in hand

Current Liabilities: amounts falling due within 12 months Trade Creditors 38,000 Bank Overdraft 28,500 Working Capital Represented by Owners Capital

66,500 14,900 162,900 162,900

Robertson does not maintain double-entry records, and the following is a summary of the transactions in the business bank account for the year ended 30 June 2003.

Receipts Trade Debtors Cash Sales 356,000 197,500 Payments Trade Creditors Staff wages Overheads Bank charges

376,000 116,000 65,000 615

The following information is also available: (1) All cash and cheques are banked daily. The cash in hand float of 600 is maintained at all times. (2) At 30 June 2003: (a) Stock was valued at 48,000 (b) Trade creditors were valued at 41,600 (c) Trade debtors were valued at 38,900 (d) Accrued staff wages amounted to 650 (3) A bad debt of 600 is to be written off the debtor balances at 30 June 2003, and a Doubtful Debts Provision of 2% of the net debtors figure is to be created. (4) Depreciation is to be provided as follows: Fixtures and Fittings 10% pa, reducing balance method Motor Vehicles 20% pa, straight line method

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QUESTION 1 CONTINUED REQUIRED Prepare for Jack Robertson (a) Trading and Profit & Loss Account for the year ended 30 June 2003 (17 marks) (b) Balance Sheet at 30 June 2003. (8 marks) NB All workings to be shown (Total 25 marks)

Model Answer to Question 1 (a) Jack Robertson Trading and Profit & Loss Account for the year ended 30 June 2003 Sales Less: Cost of sales Opening stock Purchases Less: closing stock Gross Profit Overheads (65,000 + 1,100) Staff wages (116,000 + 650) Provision for Doubtful Debts Bad Debts Bank Charges Depreciation Fixtures and Fittings Motor Vehicles Loss carried forward 1 556,800

44,100 379,600 423,700 48,000

375,700 181,100

66,100 116,650 766 600 615 1,000 6,000 7,000 191,731 10,631

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Model Answer to Question 1 continued (b) Jack Robertson Balance Sheet at 30 June 2003 Cost Depreciation 120,000 25,000 16,000 30,000 18,000 175,000 34,000 NBV 120,000 9,000 12,000 141,000

Fixed Assets Land and Buildings Fixtures and Fittings Motor Vehicles

Current Assets Stock Trade Debtors Cash in hand

(38,900 600 - 766)

48,000 37,534 600 86,134

Current Liabilities: amounts falling due within 12 months Trade Creditors 41,600 Accrual 650 Bank Overdraft (28,500 + 557,615 - 553,500) 32,615 Working Capital

74,865 11,269 152,269

Represented by Owners Capital Less loss for the year

162,900 10,631 152,269

Workings 1 Sales Received from Debtors Less Drs, 1.7.02 Add Drs 30.6.03 Cash Sales 356,000 35,600 320,400 38,900 359,300 197,500 556,800

Purchases Payment to Creditors Less Crs 1.7.02 Add Crs 30.6.03 376,000 38,000 338,000 41,600 379,600

QUESTION 2 Sidney Brown extracted a trial balance at 31 August 2003. The trial balance did not agree, as the debit column total exceeded the credit column total by 2,600. During September, Sidney Brown discovered the following errors: (1) An amount of 900 received from J Laker, a credit customer, had been correctly entered in the cash book, but no entry had been made in the account of J Laker. (2) Discounts received amounting to 800 had been correctly entered in the suppliers' accounts and debited to the Discount Allowed Account. (3) A cheque of 100 for petrol had been credited in the Cash Book, and debited to the Motor Vehicle Account. (a) REQUIRED In the books of Sidney Brown: (i) Prepare journal entries to correct the above items. Narratives are not required. (7 marks) (ii) Prepare the Suspense Account, commencing with the original difference, and incorporating any relevant journal entries. The account is to be balanced at 30 September 2003. (7 marks)

There are several types of errors that can occur in the ledger accounts. (b) REQUIRED (i) Name 6 different types of errors that will not affect the ability of the Trial Balance to balance. Give a brief description of each. (6 marks) (ii) Give 5 examples of errors which would cause the trial balance not to balance. (5 marks) (Total 25 marks)

Model Answer to Question 2 (a) (i) In the books of Sidney Brown Journal

(1) Suspense Account J Laker (2) Suspense Account Discounts Allowed Discounts Received (3) Motor Expenses Motor Vehicle Account (ii) Suspense Account 30 Sep 30 Sep 30 Sep 30 Sep J Laker Discounts Allowed Discounts Received Balance c/d 900 800 800 100 2,600 1 Sep Balance b/d 900

900

1,600 800 800 100 100

2,600

2,600

(b) (i)

Six different types of errors that will not affect the ability of the Trial Balance to balance: Principle Where double entries are made, but incorrect account classification used. Compensating Where two errors have been made, each of which offsets the effect of the other. Omission Where transactions are completely omitted from the books. Commission Where double entries are made, but to an incorrect account, of the same type. Original Entry Where a monetary error is made in the prime entry record and followed through into the double entry records. Reversal Where the correct accounts are used, but the entire monetary entry is reversed in both sides.

(ii)

Five examples of errors which would cause the trial balance not to balance: (1) Posting two debits, or two credits in the ledger accounts, instead of posting one debit and one credit. (2) Posting the correct debit entry to a ledger account, but posting a different amount on the credit side. (3) Posting the correct debit entry to a ledger account, but not posting the credit side of the entry. (4) Bringing a balance forward incorrectly from an earlier period. (5) Omitting, or incorrectly listing, account balances when preparing the trial balance.

QUESTION 3 Compton and Edrich have been in partnership, sharing profits and losses in the ratio of 3 : 2 respectively. The partnership Balance Sheet at 30 September 2003 showed the following: Fixed Assets Land and Buildings Motor Vehicles Fixtures and Fittings Goodwill Current Assets Stocks Debtors Cash in hand Current Liabilities Creditors Bank Overdraft Working Capital 60,000 36,000 15,000 30,000 141,000

6,500 29,400 650 36,550 28,100 6,100

34,200 2,350 143,350

Represented by: Capital Accounts Compton Edrich

83,300 60,050 143,350

It was agreed to dissolve the partnership on 30 September 2003. The following details related to the dissolution: (1) Compton and Edrich took over their respective partnership vehicles at book value. Each had a net book value of 18,000. (2) Unpaid bank overdraft interest at 30 September 2003 was 125. (3) The partners agreed to sell the Goodwill and Debtors to Bedser Ltd for 70,000 to be shared equally between the partners. Payment was made by Bedser Ltd direct to the partners' private bank accounts on the dissolution date. (4) The remaining assets were sold for 95,000, and this sum was paid into the partnership bank account on the dissolution date. (5) Dissolution expenses were 650, and these were paid out of the cash in hand. (6) Creditors were settled on the dissolution date for the agreed sum of 27,500.

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QUESTION 3 CONTINUED REQUIRED In the books of the partnership, prepare the following to record the dissolution of the partnership: (a) Dissolution Account (13 marks) (b) Capital Account, in columnar format (4 marks) (c) Bank Account (6 marks) (d) The account of Bedser Limited. (2 marks) (Total 25 marks)

Model Answer to Question 3 (a) In the books of Compton and Edrich Dissolution Account Fixtures and Fittings 15,000 30 Sep Motor Vehicles 36,000 30 Sep Land and Buildings 60,000 30 Sep Goodwill 30,000 30 Sep Stocks 6,500 30 Sep Debtors 29,400 Cash - Dissolution Expenses 650 Bank Interest 125 Profit on Dissolution: Compton 14,355 Edrich 9,570 201,600

Discount - Creditors Bedser Ltd Capital - Compton Capital - Edrich Bank 600 70,000 18,000 18,000 95,000

30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep

201,600

(b) Compton 18,000 35,000 44,655 97,655

30 Sep 30 Sep 30 Sep

Dissolution Account Bedser Limited Bank

Capital Account Edrich 18,000 30 Sep 35,000 30 Sep 16,620 69,620

Bal b/d Diss a/c

Compton 83,300 14,355 97,655

Edrich 60,050 9,570 69,620

(c) 30 Sep Dissolution Account

Bank Account 95,000 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 95,000

Balance b/d Creditors Diss a/c - Interest Capital a/c - Compton Capital a/c - Edrich

6,100 27,500 125 44,655 16,620 95,000

(d) 30 Sep Dissolution Account

Bedser Ltd 70,000 30 Sep 30 Sep 70,000

Capital a/c - Compton Capital a/c - Edrich

35,000 35,000 70,000

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QUESTION 4 The following debtor and creditor account balances appeared in the ledgers of Young and Gray Ltd at 30 June 2003: Debtors S Surridge B Constable Creditors N Yardley J Hampshire 12,000 9,000 11,000 10,000

On 1 July 2003, Young and Gray Ltd drew the following Bills of Exchange, which were accepted on 2 July 2003: S Surridge 12,000 due on 2 September 2003 B Constable 9,000 due on 2 September 2003 On 4 July 2003, Young and Gray Ltd accepted the following Bills of Exchange: N Yardley 11,000 due on 4 September 2003 J Hampshire 9,000 due on 4 September 2003 On 6 July 2003, Young and Gray Ltd discounted the following Bills at their bank: S Surridge 12,000 Net proceeds 11,700 B Constable 9,000 Net proceeds 8,730 It is the practice of the company to show, in the bank account, both the original amount of each discounted bill and the discount charge. On 4 July 2003, Young and Gray Ltd paid 1,000 by cheque to J Hampshire. The Bill drawn on S Surridge was honoured at maturity, but the Bill drawn on B Constable was dishonoured. Young and Gray Ltd duly debited the noting charge of 135 to B Constable's sales ledger account on 2 September 2003. On 2 September 2003, B Constable accepted a new Bill of Exchange drawn on him by Young and Gray Ltd for 9,495, representing the original account balance, plus noting charges and interest. This Bill was due on 2 October 2003. Both bills drawn on Young and Gray Ltd were met on their due date. REQUIRED (a) In the books of Young and Gray Ltd, prepare the following accounts in respect of the above transactions: (i) S Surridge (ii) B Constable (iii) Bills Receivable (balanced at 30 September 2003) (iv) N Yardley (v) J Hampshire (vi) Bills Payable (vii) Bank (extract) (viii) Discounting Charges (ix) Interest Receivable. (18 marks) (b) In the books of B Constable, prepare the following accounts in respect of the above transactions: (i) (ii) (iii) (iv) Young and Gray Ltd Bills Payable (balanced at 30 September 2003) Noting Charges Interest Payable. (7 marks) (Total 25 Marks)

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Model Answer to Question 4 (a) In the books of Young and Gray Limited (i) 1 Jul Balance b/d S Surridge 12,000 2 Jul

Bills Receivable

12,000

(ii) 1 Jul 2 Sep 2 Sep 2 Sep Balance b/d Bills Receivable(dis bill) Bank - noting charges Interest receivable

B Constable 9,000 2 Jul 9,000 2 Sep 135 360 18,495

Bills Receivable Bills Receivable

9,000 9,495

18,495

(iii) 2 Jul 2 Jul 2 Sep 2 Sep S Surridge B Constable Bank(dis bill) B Constable

Bills Receivable 12,000 6 Jul 9,000 6 Jul 9,000 2 Sep 30 Sep 9,495 39,495 9,495

Bank Bank B Constable(dis bill) Balance c/d

12,000 9,000 9,000 9,495 39,495

1 Oct

Balance b/d

(iv) 4 Jul Bills Payable

N Yardley 1 Jul 11,000

Balance b/d

11,000

(v) 4 Jul 4 Jul Bills Payable Bank

J Hampshire 9,000 1 Jul 1,000 10,000

Balance b/d

10,000 10,000

(vi) 4 Sep Bank 4 Sep Bank

Bills Payable 11,000 4 Jul 9,000 4 Jul 20,000

N Yardley J Hampshire

11,000 9,000 20,000

(vii) 6 Jul 6 Jul Bills Receivable Bills Receivable

Bank (Extract) 12,000 4 Jul 9,000 6 Jul 6 Jul 2 Sep 2 Sep 4 Sep 4 Sep

J Hampshire Bill discounting charges Bill discounting charges Bill Receivable B Constable - noting chgs Bills Payable Bills Payable

1,000 300 270 9,000 135 11,000 9,000

(viii) 6 Jul 6 Jul Bank Bank

Discounting Charges 300 270 2 Sep B Constable 360

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Model Answer to Question 4 continued (b) In the books of B Constable (i) 2 Jul Bills payable 2 Sep Bills payable Young and Gray Ltd 9,000 1 Jul 9,495 2 Sep 2 Sep 2 Sep 18,495

Balance b/d Bills payable Noting charges Interest payable

9,000 9,000 135 360 18,495

(ii) 2 Sep Young and Gray Ltd, dis bill 30 Sep Balance c/d

Bills Payable 9,000 2 Jul Young and Gray Ltd 9,495 2 Sep Young and Gray Ltd 18,495 1 Oct Balance b/d

9,000 9,495 18,495 9,495

(iii) 2 Sep Young and Gray Ltd

Bank Noting Charges 135

(iv) Interest payable 2 Sep Young and Gray Ltd

360

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