Model Practice-1

for the batch of -2022

Accounting (Paper-II)
Bangladesh International School & College
 2
1 Jad is a furniture wholesaler. He maintains a three column cash book.

On 1 March the bank column of his cash book showed a debit balance brought down of £2750. On the
same day the bank statement showed a credit balance of £2750.

REQUIRED

(a) State why the bank statement balance is on the opposite side to that shown in the cash book.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

The following transactions took place in March 2020.

March 6 Paid £950 by cheque. This included £790 for a new computer system, and the balance was
for repairs to existing office equipment

13 Received a cheque from XY Limited for £196 to settle its account after deducting 2% cash discount

21 Paid Furniture Store a cheque for £351 in full settlement of the balance owing of £360

29 Made cash sales, £2148

30 Paid cash into bank, £2000

Jad received his bank statement for March 2020.

The following items appeared on the bank statement but had not been recorded in his accounting
records.
£
Bank charges 29
Insurance paid directly by the bank 50
A credit customer, Idris, had paid his account by credit transfer 474

The bank had not yet recorded the transactions which took place on 21 March and 30 March.

REQUIRED

(b) Complete Jad’s cash book on the page opposite.

Balance the cash book and bring down the balances on 1 April 2020. [13]
3
 4
(c) Prepare a bank reconciliation statement for Jad at 31 March 2020 to determine the balance on the
bank statement.

Jad Bank Reconciliation Statement at 31 March 2020

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[6]

Jad wishes to compare his financial statements with those of another furniture wholesaler. He has been
told that financial statements have limitations and will not reveal everything about the other business.

REQUIRED

(d) Explain why Jad should consider the following when he is looking at the financial statements of the
other business.

(i) Historical cost

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) Non-financial aspects

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2
 5

2 Arum is a trader. All goods are bought and sold on credit terms.

On 1 March 2020 Kalgi, a credit customer, owed Arum £520.

The following took place during March 2020.

March 4 Arum sold goods on credit to Kalgi, list price £280, less 20% trade discount

10 Kalgi paid the balance due on 1 March by cheque

12 Kalgi returned goods, list price £120, purchased on 4 March

18 The bank returned Kalgi’s cheque received on 10 March because of insufficient funds in his
account.

28 Kalgi paid £600 in cash

30 Arum wrote off the balance on Kalgi’s account

REQUIRED

(a) Name the source document which Arum would use to record the following:
Document

March 4 Sold goods on credit to Kalgi

….........................................................
12 Kalgi returned goods ….........................................................
[2]

(b) Name the book of prime (original) entry in which Arum would record the following:
Book of prime (original) entry

March 18 The bank returned Kalgi’s cheque

30 The balance of Kalgi’s account ….........................................................

was written off ….........................................................
[2]

(c) Write up the account of Kalgi as it would appear in the ledger of Arum for the month of March 2020.
 6
Arum
Kalgi account
Date Details £ Date Details £

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

[6]

(d) Suggest two ways in which Arum could reduce the possibility of bad debts.

1 ................................................................................................................................................

2 ............................................................................................................................................[2]

The totals of Arum’s trial balance prepared on 31 March 2020 did not agree. Arum recorded the difference
in a suspense account.
On checking the accounting records various errors were discovered.

REQUIRED
(e) Complete the following table to show the entries required to correct each error.
The first one has been completed as an example.

Entry required to correct the error

Error Debit Credit

Account £ Account £
 7
Goods returned, £310, to Ali, a credit
supplier, had been entered into the
account of Alam. Ali 310 Alam 310

Wages paid in cash, £1200, had been

correctly entered in the cash book but
posted to the wages account as £2100.
................... .......... ................... ..........
The total of the general expenses
column in the petty cash book, £48, had
not been posted to the general
expenses account.
................... .......... ................... ..........
The total of the discount received
column in the cash book, £114, had
been debited to the discount allowed
account.
................... .......... ................... ..........

................... .......... ................... ..........

[7]
Arum knows that he should consider four objectives when selecting accounting policies.

REQUIRED

(f) Name four objectives Arum should apply. The first one has been completed as an example.

1 Relevance

2 ….................................................

3 ….................................................

4 …................................................. [3]
 8
Question 3 is on the next page. 3

Reena and Rafah are in partnership. Their financial year ends on 30 April.

When they started the business they drew up a partnership agreement which provided for:

Interest on capital at 3% per annum

Interest on drawings at 4% per annum
An annual salary of £6000 for Reena
Sharing of residual profits and losses in the ratio 2 : 1

On 1 May 2020 the balances on the partners’ capital accounts were as follows:
Meena Rafah
£ £
Capital account 40 000 20
000
On 1 November 2020 Rafah introduced a further £10 000 into the business as capital.

The partners agreed that Reena’s salary should be increased by £1000 per annum starting on 1 November
2016.

Drawings and interest on drawings during the year ended 30 April 2021 were as follows:
Reena Rafah
£ £
Drawings 7300 5100
Interest on drawings 292 204

The profit for the year ended 30 April 2021 was £7534.

REQUIRED

(a) Prepare the profit and loss appropriation account for the year ended 30 April 2021.
 9
Reena and Rafah Profit and Loss Appropriation Account for the year ended 30 April 2021
£ £

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

............................................................................... ....................... .......................

[8]
(b) Prepare the current account of Reena for the year ended 30 April 2021. Balance the account and
bring down the balance on 1 May 2021.
 10
Reena Current account
Date Details £ Date Details £

2020
May 1 Balance b/d 1490 .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

[5]
The partners provided the following information.
At 30 April 2020 At 30 April 2021
Current ratio 1.85 : 1 1.68 : 1
Quick (acid test) ratio 1.01 : 1 0.78 : 1

£
Inventory 19 400
Trade receivables 16 900
Trade payables 17 450
Bank overdraft 4 100
REQUIRED

(c) Explain why the partners calculated the quick (acid test) ratio as well as the current ratio.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

(d) Suggest two reasons for the change in the current ratio.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]

The partners later discovered that no entry had been made for a cheque received from a credit
customer for £1800.
 11
REQUIRED

(e) Calculate the current ratio after this transaction had been recorded in the accounting records.

The calculation should be correct to two decimal places.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

(f) Suggest two possible problems the partners may encounter if the working capital is inadequate.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]

(g) Suggest two ways in which the partners could increase the working capital.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]
 12

4 The financial year of Samati Manufacturing ends on 31 January.

The following is the summarised manufacturing account for the year ended 31 January 2020.
£
Prime cost 505
650
Factory overheads

Change in work in progress (12

090)
Cost of production 669 950

REQUIRED

(a) Explain the meaning of the term ‘prime cost’.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

(b) (i) Explain the meaning of the term ‘factory overheads’.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) Suggest two items which may be included in the factory overheads.

1 ........................................................................................................................................

2 ....................................................................................................................................[2]

(c) (i) State the meaning of the term ‘work in progress’.

...........................................................................................................................................

.......................................................................................................................................[1]

(ii) State whether the closing work in progress was greater or smaller than the opening work in
progress.

…...................................................... [1]
 13
Samati Manufacturing provided the following information for the year ended 31 January 2020.
£
Revenue 816
370
Purchases of finished goods 17
200
Commission received 2 700
Administration expenses 38
160
Selling expenses 28
270
Inventory of finished goods 1 February 2016 56
120
Office equipment at cost 32
000
Delivery vehicles at cost 68
Provision for depreciation 000
Office equipment 14
400
Delivery vehicles 17
000
Loan from A1 Loans received 1 April 2019 15
000
At 31 January 2020
Inventory of finished goods 61
340
Commission receivable outstanding 130
Loan interest at 5% per annum is outstanding
During the year ended 31 January 2020 the owner of the business took finished goods costing £1620 for

his own use.

Depreciation is charged as follows:

Office equipment at 15% per annum using the straight line (equal instalment) method

Delivery vehicles at 25% per annum using the reducing (diminishing) balance method.

REQUIRED

(d) Prepare the income statement for the year ended 31 January 2020.
 14
Samati Manufacturing Income Statement for the year ended 31 January 2020
£ £ £

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

 15
....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

....................................................................................... .................... .................... ....................

[10]
(e) Explain how the accruals (matching) principle has been applied in the preparation of the income
statement. Illustrate your answer by reference to one of the items in your answer to 4(d).

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]
 16
The owner of Samati Manufacturing is disappointed with the results for the year ended 31 January 2020.
He is looking for ways to increase the gross profit and profit for the year.

REQUIRED

(f) Discuss the possible effects on the gross profit of each of the following proposals:

(i) increase the selling price of the finished goods

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) reduce the wages of the factory employees

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

(g) Suggest two ways in which the profit for the year could be increased.

1 ................................................................................................................................................

2 ............................................................................................................................................[2]
 17

5 Radley is a wholesaler. His financial year ends on 31 December.

On 1 January 2020 Radley had a delivery vehicle A which had cost £35 000 and had been depreciated
by £13 125.

On 1 October 2020 he purchased delivery vehicle B for £40 000 by cheque.

On 1 July 2021 he purchased delivery vehicle C on credit from XZ Motors for £28 000.

All the delivery vehicles are depreciated by 25% per annum on cost calculated from the date of
purchase.

REQUIRED

(a) Prepare the following accounts for each of the years ended 31 December 2020 and 31 December
2021.

Balance the accounts and bring down the balances on 1 January 2021 and 1 January 2022.

Radley Delivery vehicles account

Date Details £ Date Details £

2020
Jan 1 Balance A b/d 35 000 .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

 18
Provision for depreciation of delivery vehicles account
Date Details £ Date Details £

2020
.......... ................................. .............. Jan 1 Balance A b/d 13125

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

.......... ................................. .............. .......... ................................. ..............

[12]

On 1 January 2022 it was decided that delivery vehicle C (purchased on 1 July 2021) was unsuitable. The
delivery vehicle was sold on credit to DDE Transport for £25 500.

REQUIRED

(b) Prepare journal entries on 1 January 2022 to record the disposal of delivery vehicle C.
Narratives are not required.
 19
Radley Journal
Debit Credit
£ £

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

........................................................................ ...................... ......................

[6]

Radley makes all purchases on credit terms and sells on both cash and credit terms.

If credit customers pay their accounts within 30 days they are allowed a cash discount. If the accounts of
credit suppliers are paid within 40 days Radley is entitled to a cash discount.
The following information is available.
31 December 2020 31 December 2021

Payment period for trade payables 41 days 38 days

Collection period for trade receivables 34 days 28 days
 20

REQUIRED

(c) Suggest two reasons for the change in the trade receivables collection period.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]

(d) State two effects of the change in the trade payables payment period.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]

The credit suppliers are proposing to reduce the credit period to 30 days.

REQUIRED

(e) Suggest two ways in which this may affect Radley.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...............................................................................................................................................[2]