Total marks: 60 · Duration: 1 hour 30 minutes
Instructions to candidates
• Answer all questions. • Use black ink or black ball-point pen. • The number of marks is given in brackets [ ] at the end of each question or part question. • You may use a calculator. • Show all your workings; marks may be awarded for a correct method. • The total number of marks for this paper is 60. • All the figures you need are given within the questions.
Paper
Section A — Structured Questions (46 marks)
1. Financial statements
Amara Singh is a sole trader. The following balances were taken from her books for the year ended 31 December 2024:
| $ | |
|---|---|
| Sales (revenue) | 160,000 |
| Purchases | 96,000 |
| Inventory at 1 January 2024 | 14,000 |
| Inventory at 31 December 2024 | 18,000 |
| Returns inwards | 4,000 |
| Carriage inwards | 2,000 |
| Rent and rates | 11,000 |
| Wages | 22,000 |
| Other expenses | 7,000 |
(a) Define the term returns inwards. [2]
(b) Calculate the cost of sales for the year. [5]
(c) Calculate the gross profit for the year. [2]
(d) Calculate the profit for the year (net profit). [5]
(e) Name the financial statement in which the profit for the year is calculated, and name one other financial statement a sole trader would prepare. [2]
2. Double-entry and the trial balance
(a) State the accounts to be debited and credited to record each of the following transactions. [8]
(i) The owner pays $500 cash into the business bank account as capital. (ii) The business buys goods for resale on credit from a supplier, T. Roberts, for $1,200. (iii) The business pays wages of $800 by cheque. (iv) A customer, L. Baptiste, pays $300 by cheque to settle their account.
(b) Explain two reasons why a business prepares a trial balance. [4]
3. Accounting ratios
A business has the following figures for the year:
| $ | |
|---|---|
| Revenue | 200,000 |
| Gross profit | 60,000 |
| Current assets | 45,000 |
| Current liabilities | 30,000 |
(a) Calculate the gross profit margin, giving your answer as a percentage. [3]
(b) Calculate the current ratio. [3]
(c) The current ratio last year was 2.0 : 1. Comment on the change in the current ratio and what it might mean for the business. [4]
4. Accounting concepts
(a) Explain two reasons why it is important for a business to keep accurate accounting records. [4]
(b) Explain the accounting concept of prudence (conservatism), giving an example of how it is applied. [4]
Section B — Extended Response (14 marks)
5. A small business is considering whether to sell goods on credit to its customers, rather than for cash only.
Discuss the advantages and disadvantages of selling on credit, and advise the business on what it should consider before deciding. [14]