Total marks: 120 · Duration: 105 minutes
Instructions to candidates
- Answer all questions in both Section A and Section B.
- Write your answers in the spaces provided on the question paper.
- All working must be shown clearly.
- You may use a calculator.
- The number of marks is given in brackets [ ] at the end of each question or part question.
- The businesses mentioned in this question paper are fictitious.
Paper
Section A — Structured Questions (72 marks)
Question 1
Marcus Chen is a sole trader who operates a wholesale stationery business. The following information relates to his business for the year ended 31 December 2023:
| $ | |
|---|---|
| Sales | 185,400 |
| Purchases | 112,800 |
| Inventory at 1 January 2023 | 18,600 |
| Inventory at 31 December 2023 | 21,400 |
| Carriage inwards | 2,800 |
| Carriage outwards | 4,200 |
| Returns inwards | 6,400 |
| Returns outwards | 3,900 |
| Discount received | 1,850 |
| Discount allowed | 2,340 |
| Rent | 12,000 |
| Wages | 24,600 |
| Insurance | 3,200 |
(a) Define the term 'returns inwards'. [2]
(b) Explain why carriage inwards is treated differently from carriage outwards when preparing financial statements. [3]
(c) Calculate the following for Marcus Chen's business for the year ended 31 December 2023:
(i) Cost of sales [4]
(ii) Gross profit [2]
(iii) Net profit [3]
(d) Marcus is considering changing from being a sole trader to forming a partnership with his friend. State two advantages and two disadvantages of operating as a partnership compared to being a sole trader. [4]
[Total: 18 marks]
Question 2
Jessica Tan runs a retail clothing shop. On 1 March 2024, her business had the following balances:
| $ | |
|---|---|
| Premises | 150,000 |
| Fixtures and fittings | 18,000 |
| Inventory | 12,400 |
| Trade receivables | 8,600 |
| Bank (debit balance) | 4,800 |
| Cash | 350 |
| Trade payables | 9,200 |
| Capital | ? |
The following transactions took place during March 2024:
- March 5: Purchased goods on credit from S Watson for $3,200
- March 8: Sold goods on credit to K Rahman for $4,800
- March 12: Paid rent by cheque $1,500
- March 15: K Rahman returned goods valued at $400
- March 18: Withdrew cash from bank for business use $500
- March 22: Paid S Watson by cheque $3,200, having deducted a cash discount of $160
- March 28: K Rahman paid by direct bank transfer $4,400 in full settlement of his account
- March 31: Paid wages in cash $650
(a) Calculate Jessica's capital at 1 March 2024. [2]
(b) Prepare the following accounts in Jessica Tan's ledger for the month of March 2024:
(i) S Watson account [4]
(ii) K Rahman account [4]
(iii) Bank account [5]
(c) State the double entry required to record the transaction on 18 March when cash was withdrawn from the bank. [2]
(d) Explain the purpose of a three-column cash book. [3]
[Total: 20 marks]
Question 3
The following trial balance was extracted from the books of Northern Traders on 31 October 2023:
| Debit $ | Credit $ | |
|---|---|---|
| Purchases | 156,800 | |
| Sales | 289,400 | |
| Returns inwards | 4,200 | |
| Returns outwards | 3,600 | |
| Rent received | 8,400 | |
| Discount allowed | 2,850 | |
| Discount received | 3,120 | |
| Carriage inwards | 1,680 | |
| General expenses | 18,900 | |
| Salaries | 42,600 | |
| Premises | 180,000 | |
| Equipment | 36,000 | |
| Provision for depreciation – equipment | 14,400 | |
| Inventory at 1 November 2022 | 22,400 | |
| Trade receivables | 28,600 | |
| Trade payables | 19,800 | |
| Bank overdraft | 6,420 | |
| Cash | 420 | |
| Drawings | 18,600 | |
| Capital | 167,910 | |
| Total | 513,050 | 513,050 |
Additional information at 31 October 2023:
- Inventory was valued at $26,800
- Salaries of $3,200 were owing
- Rent received of $1,400 had been received in advance
- Equipment is to be depreciated at 20% per annum using the reducing balance method
(a) State two reasons why a trial balance may fail to balance. [2]
(b) State two types of errors that would not prevent a trial balance from balancing. [2]
(c) Calculate the depreciation charge on equipment for the year ended 31 October 2023. [3]
(d) Prepare the income statement for Northern Traders for the year ended 31 October 2023. [12]
[Total: 19 marks]
Question 4
Ahmed owns a small manufacturing business. He provides the following information for the year ended 30 June 2024:
| $ | |
|---|---|
| Net profit for the year | 64,800 |
| Drawings during the year | 28,400 |
| Capital at 1 July 2023 | 142,600 |
During the year, Ahmed introduced additional capital of $20,000 by transferring funds from his personal bank account.
The following balances existed at 30 June 2024:
| $ | |
|---|---|
| Non-current assets at carrying amount | 156,000 |
| Inventory | 18,900 |
| Trade receivables | 24,600 |
| Bank overdraft | 8,200 |
| Cash | 680 |
| Trade payables | 13,980 |
(a) Define the term 'drawings'. [2]
(b) Calculate Ahmed's capital at 30 June 2024. [3]
(c) Prepare Ahmed's statement of financial position at 30 June 2024. [10]
[Total: 15 marks]
Section B — Extended Response (48 marks)
Question 5
Sarah Mitchell operates a successful garden centre as a sole trader. Her accountant has prepared the following summarised financial statements:
Income Statement extracts for the year ended 31 March:
| 2024 $ | 2023 $ | |
|---|---|---|
| Sales | 456,000 | 380,000 |
| Cost of sales | 273,600 | 228,000 |
| Gross profit | 182,400 | 152,000 |
| Expenses | 118,560 | 91,200 |
| Net profit | 63,840 | 60,800 |
Statement of Financial Position extracts at 31 March:
| 2024 $ | 2023 $ | |
|---|---|---|
| Non-current assets | 180,000 | 165,000 |
| Current assets | 89,600 | 72,400 |
| Current liabilities | 52,800 | 38,600 |
| Capital | 216,800 | 198,800 |
Additional information:
- Trade receivables at 31 March 2024: $28,400; at 31 March 2023: $22,800
- Inventory at 31 March 2024: $34,200; at 31 March 2023: $28,600
- Trade payables at 31 March 2024: $31,200; at 31 March 2023: $24,400
Sarah is concerned about the financial performance and position of her business.
(a) Calculate the following accounting ratios for both years (correct to two decimal places):
(i) Gross profit margin [2]
(ii) Net profit margin [2]
(iii) Current ratio [2]
(iv) Rate of inventory turnover [3]
(b) Explain what each ratio calculated in part (a) measures and comment on the changes between the two years. [12]
(c) Sarah is considering whether to continue as a sole trader or to convert her business into a limited company. Evaluate the advantages and disadvantages of converting to a limited company. Recommend whether Sarah should convert her business, justifying your recommendation. [10]
[Total: 31 marks]
Question 6
Daniel and Priya operate a partnership running a computer repair and sales business. They share profits and losses in the ratio 3:2 respectively. The partnership agreement includes the following provisions:
- Interest on capital is allowed at 8% per annum
- Interest on drawings is charged at 5% per annum
- Priya receives a partnership salary of $18,000 per annum
The following information is available for the year ended 31 December 2023:
| Daniel $ | Priya $ | |
|---|---|---|
| Capital accounts at 1 January 2023 | 80,000 | 60,000 |
| Current accounts at 1 January 2023 (credit balance) | 4,200 | 2,800 |
| Drawings during the year | 32,000 | 28,000 |
| Interest on drawings | 800 | 700 |
The net profit for the year ended 31 December 2023 was $74,600.
On 1 July 2023, Daniel introduced additional capital of $20,000 into the business.
(a) Explain the difference between a capital account and a current account in a partnership. [3]
(b) Calculate the interest on capital for each partner for the year ended 31 December 2023. Show all your workings. [4]
(c) Prepare the profit and loss appropriation account for the partnership for the year ended 31 December 2023. [8]
(d) Prepare the current accounts for both partners for the year ended 31 December 2023. [8]
(e) Daniel and Priya are considering admitting a new partner, Chen, who would invest $50,000 and receive a 25% share of profits. Discuss the factors the existing partners should consider before admitting a new partner, and assess whether this would be beneficial for the partnership. [11]
[Total: 34 marks]
Note: Section B total is 65 marks. Adjustment: Question 6 = 31 marks.
Revised Question 6 marks: [Total: 31 marks] Parts remain: (a) 3 marks, (b) 4 marks, (c) 7 marks, (d) 7 marks, (e) 10 marks