Cambridge Assessment International Education

Cambridge Ordinary Level

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 Structured October/November 2019
MARK SCHEME
Maximum Mark: 120

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge International will not enter into discussions about these mark schemes.

Cambridge International is publishing the mark schemes for the October/November 2019 series for most
Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level
components.

This document consists of 14 printed pages.

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Generic Marking Principles

These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.

GENERIC MARKING PRINCIPLE 1:

Marks must be awarded in line with:

• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.

GENERIC MARKING PRINCIPLE 2:

Marks awarded are always whole marks (not half marks, or other fractions).

GENERIC MARKING PRINCIPLE 3:

Marks must be awarded positively:

• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.

GENERIC MARKING PRINCIPLE 4:

Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.

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GENERIC MARKING PRINCIPLE 5:

Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).

GENERIC MARKING PRINCIPLE 6:

Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.

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Question Answer Marks

1(a)(i) Running balance (1) 1

1(a)(ii) Trade receivables/sales ledger (1) 1

1(a)(iii) Credit note (1) 1

1(a)(iv) Cash discount (1) 1

1(a)(v) 6 1
× 100 = 4% (1)
150

1(a)(vi) Statement of account (1) 1

1(b) 12
Book of prime Account Debited Account Credited Effect on capital
(original) entry $

Sold goods on credit to Sales journal Win Sales +90

Win, $300 (cost $210)

Paid wages in cash, Cash book (1) Wages (1) Cash (1) –750 (1)
$750

Purchased a new General journal Office equipment (1) CW Limited (1) 0 (1)
computer system, $1500, (1)
on credit from CW
Limited

Goods returned which Sales returns Sales returns (1) Wendy (1) –70 (1)
had been sold on credit journal (1)
to Wendy, $150
(cost $80)

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Question Answer Marks

1(c) Speed of processing (1) 2

Accuracy/reduction in errors (1)
Security of data (1)
Reduced storage space required (1)
Manage high volume of data (1)
Prepares exception reports and reconciliation (1)
Automatic trial balance and financial statements (1)
Accept other valid points
Max 2

Question Answer Marks

2(a) 1 Original entry (1) 4

2 Commission (1)
3 Principle (1)
4 Reversal (1)

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Question Answer Marks

2(b) General Journal 8

Dr Cr

$ $

Hannah 300 (1)

Purchases 300 (1)

Rent payable 450 (1)

General expenses 450 (1)

Fixtures 800 (1)

General expenses 800 (1)

Roy 1000 (1)

Sales 1000 (1)

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Question Answer Marks

2(c) Trial Balance at 30 September 2019 8

Dr Cr
$ $
Revenue 19 000 (1)OF
Purchases 15 200 (1)OF
Capital 1 200 (1)
Drawings 1 050 (1)
General expenses 470
Rent payable 650
Fixtures (at cost) 1 500 (1)
Provision for depreciation of Fixtures 420 (1)
Trade receivables 2 750
Trade payables 1 800
Balance at bank 200 (1)
Inventory 1 October 2018 600 (1)
       
22 420 22 420

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Question Answer Marks

3(a) Called-up share capital is the total amount requested from the shareholders. (1) 2
Paid-up share capital is that part of the called-up capital for which the company has actually received cash from the
shareholders. (1)

3(b) 6
Debentures Ordinary shares

Long term lenders Owners

No right to vote Right to vote at meetings

Fixed rate of interest Variable dividend

Preferential claim in winding up Last call on assets in winding up

Accept other valid differences

(1) debenture + (1) ordinary shares any differences × 3

3(c)(i) 150 000 + 25 000 + 56 000 = 231 000 (1) 1

3(c)(ii) 3 000 + 4 500 2

[1] = 5 ( $0.05 ) cents per ordinary share [1]
150 000

3(d) Retain cash in the business (1) 1

Fund expansion/future growth (1)
Fund future dividends (1)
Contingency (1)
Improve working capital (1)
Accept other valid points
Max 1

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Question Answer Marks

3(e) ABC Limited 8

Extract from the Statement of Financial Position at 31 August 2019.
$ $
Equity and liabilities
Ordinary shares 150 000 (1)
General reserve 45 000 (1)
Retained earnings 60 500 (1)
255 500 (1)OF
Non-current liabilities
5% Debentures 50 000 (1)
4% Bank loan   20 000
70 000(1)
Current liabilities
Trade payables 17 500 }
Other payables 3 000 } (1)
Bank overdraft 6 500 }
27 000
Total equity and liabilities 352 500 (1)OF

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Question Answer Marks

4(a) 6
Workings Answer

Revenue 65 000+15 000=80 000 (gross profit) (1) $400 000 (1)
125
80 000 × = 400 000
25

Percentage of profit for the year to 15 000} (1)OF 3.75% (1)OF

revenue (to two decimal points) × 100 =
400 000}

Percentage return on capital 15 000 × 100 (1) 11.54% (1)OF

(to two decimal points) employed ( 90 000 + 40 000 )

4(b) 6
Answer
Workings
$

Cost of sales 36 000 (1)+212 000–28 000= 220 000 (1)

Revenue 150} [1] 330 000 (1)OF

220 000[OF] ×
100}

Profit for the 110 000 (OF)–60 000 (1)= 50 000 (1)OF
year

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Question Answer Marks

4(c) Own figure rule applies 4

Increased the gross profit from $80 000 to $110 000 (1)
1
Increased the gross profit to revenue ratio from 20% to 33 (1)
3
The profit for the year increased/improved (1) from $15 000 to $50 000 (1)
Profitability has improved (1)
The profit for the year to revenue ratio increased (1)
The ROCE has increased. (1)
The expenses reduced/controlled (1) helping the increase in profit for the year (1)
Customers may go elsewhere for cheaper goods (1)

Max 4
Accept other valid points.

4(d) Accounting/business entity (1) 4

Materiality (1)
Accounting year (1)
Historical cost (1)

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Question Answer Marks

5(a) B Manufacturing 15
Manufacturing Account for the year ended 30 September 2019
$ $
Raw materials inventory 1 October 2018 7 900
Purchases of raw material 47 000
54 900
Raw materials inventory 30 September 2019 (6 400)
Cost of raw materials consumed 48 500 (1)
Factory wages 55 300 (1)
Direct expenses 10 100 (1)
Prime cost (1) 113 900 (1)OF
Factory overheads
Insurance 5 400(1)
Rent 22 500 (1)
General expenses 1 200 (1)
Building repairs 12 600 (1)
Production management salaries 29 500 (1)
Depreciation-machinery 12 800 (1)
84 000
197 900 (1)
Work in progress
At 1 October 2018 18 000
At 30 September 2019 (20 200)
(2 200) (1)
Cost of production (1) 195 700 (1)OF

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Question Answer Marks

5(b) B Manufacturing 13
Income Statement for the year ended 30 September 2019.
$ $
Revenue 475 000 (1)
Less
Inventory of finished goods 1 October 2018 31 000
Cost of production 195 700 (1)OF
Purchases of finished goods 71 000 (1)
297 700
Inventory of finished goods 30 September 2019 (34 300)
Cost of sales (263 400) (1)OF

Gross profit 211 600

Commission receivable 8 750+1 200 9 950 (1)
Decrease in provision for doubtful debts 3 900 (1) 13 850
225 450
Less expenses:
Insurance 3 600 (1)
Rent 7 500 (1)
General expenses 10 800 (1)
Building repairs 5 400 (1)
Administrative wages and salaries 117 550 (1)
Selling and distribution expenses 14 200–750 13 450 (1)
Depreciation – office fixtures 7 000 (1)
(165 300)
Profit for the year 60 150

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Question Answer Marks

5(c) B Manufacturing 12
Statement of Financial Position at 30 September 2019
Non-current assets Cost Accumulated Net book
depreciation value
$ $ $
Machinery 90 000 38 800 51 200 (1)OF
Office fixtures 70 000 43 000 27 000 (1)OF
160 000 81 800 78 200
Current assets
Inventory Raw materials 6 400}
Work in progress 20 200}
Finished goods 34 300}
60 900 (1)

Trade receivables 42 000

Provision for doubtful debts (2 100) (1)OF
39 900 (1)OF
Other receivables 1 200 (1) + 750 (1) 1 950
Bank 11 100 (1) – 2 800 (1) 8 300
111 050
Total assets 189 250

Capital 160 000
Profit for the year 60 150
220 150
Drawings (50 000)
170 150 (1)OF
Current liabilities
Trade payables 21 900 (1) – 2 800 (1) 19 100
Total capital and liabilities 189 250

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