Candidate

Centre Number Number

Candidate Name

CAMBRIDGE INTERNATIONAL EXAMINATIONS

Joint Examination for the School Certificate
and General Certificate of Education Ordinary Level

PRINCIPLES OF ACCOUNTS 7110/2

PAPER 2
OCTOBER/NOVEMBER SESSION 2002
1 hour 45 minutes

Additional materials:
Answer paper
Multi-column accounting paper

TIME 1 hour 45 minutes

INSTRUCTIONS TO CANDIDATES
Write your name, Centre number and candidate number in the spaces provided at the top of this page.
Answer all questions.
Write your answers in the spaces provided on the question paper.
Question 6 should be answered on separate answer paper or multi-column accounting paper. Attach
your answer to Question 6 to this booklet.

INFORMATION FOR CANDIDATES

The number of marks is given in brackets [ ] at the end of each question or part question.
You may use a calculator.
Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this question paper are fictitious.

FOR EXAMINER’S USE

TOTAL

This question paper consists of 11 printed pages and 1 blank page.

(NH) S16052/2
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1 The following errors and omissions were discovered after the preparation of a draft Trading
and Profit and Loss Account on 30 September 2002.

1. The credit sale of goods $424 to K. Watts had been recorded in all the
books as $242.

2. An invoice amount of $370 from Mubonda Garage for repairs had not
been entered in the books.

3. Goods bought from A. Smythe for $700 had been entered in A. Smith’s
account.

4. Purchase of equipment for $10 000 for use in the business had been
debited to the Purchases account.

5. Closing stock had been overvalued by $3000.

Prepare journal entries to correct the above omissions and errors. Narrations are not
required:

Journal

Date Details Dr. Cr.

$ $

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2 Rubble has provided the following information about his business:

Years 2000 2001

$ $
Sales 900 000 840 000
Gross Profit 300 000 210 000
Expenses 150 000 180 000
Net profit 150 000 30 000

(a) (i) Complete each of the following statements:

In 2001, compared to 2000:

1. Gross profit has decreased by $ ............... and net profit has decreased by

$ ............... .

2. Gross profit as a percentage of sales has decreased from ...............%

to ...............% and net profit as a percentage of sales has decreased from

...............% to ...............%.

3. Expenses as a percentage of sales have increased from ...............% to

...............%.
[4]

(ii) Using your answers from (i), suggest three actions Rubble could take to improve
his net profit for 2002.

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Rubble also provides the following information about his stock turnover:

Years 2000 2001

Rate of stock turnover 10 times 8 times

(b) (i) Explain two possible reasons for the fall in the rate of stock turnover.

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(ii) Suggest two reasons why Rubble should calculate his rate of stock turnover every
year.

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(iii) Recommend two courses of action Rubble could take to improve his rate of stock
turnover.

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3 Hill and Dale traded separately until 31 December 2001. At this date their Balance Sheets
were as follows:

Hill Dale Hill Dale

$ $ $ $
Buildings 50 000 40 000 Capital 120 000 66 000
Equipment 35 000 22 000 Loan 20 000
Stock 23 000 14 500 Creditors 10 000 5 000
Debtors 16 000 18 500 Bank 4 000
Bank 6 000

130 000 95 000 130 000 95 000

The two traders agreed to merge the two businesses and become equal partners as from
1 January 2002. In order to do this it was agreed that:

1. The partnership should take over all the assets and liabilities of the two
businesses except the buildings belonging to Hill and the loan owed by
Dale.

2. Goodwill was to be valued at $15 000 for Hill and $12 000 for Dale.

3. Equipment should be revalued at $30 000 for Hill and $25 000 for Dale.

4. $500 should be written off Dale’s debtors as bad debts.

5. All other items were to be taken over by the partnership of Hill and Dale at
their Balance Sheet values.

(a) Draw up the individual capital accounts of each partner showing clearly how the final
balances at 1 January 2002 are obtained.

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(b) Prepare the partnership Balance Sheet of Hill and Dale at 1 January 2002.

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(c) Give a brief explanation of the meaning of Goodwill.

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4 On 30 September 2002 a schedule of debtors extracted from Stone’s sales ledger totalled
$18 100 but the balance on the Sales Ledger Control account was $19 900.

The following errors were found later.

1. The sales day book had been undercast by $200.

2. A debtor’s account had been wrongly balanced as $500 instead of $540.

3. Goods $70 returned by a debtor had been debited to his account.

4. A discount allowed of $60 had been recorded in the cash book but not entered in
the customer’s account.

5. A written off bad debt of $260 had not been entered in the control account.

6. Balances totalling $340 in the purchases ledger had been set off against balances
in the sales ledger but no entries had been made in the control accounts.

7. A debtor’s balance of $1600 had not been listed in the schedule of debtors.

8. $40 interest charged on a debtor’s outstanding account had been recorded in the
sales ledger but not in the control account.

(a) Starting with the original total, make the necessary adjustments to the schedule of
debtors.

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(b) Starting with the original balance, prepare a revised Sales Ledger Control account.

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5 P. Said, a merchant, has the following current assets and current liabilities at 31 December
2001.

$
Current assets:

Stock 290 000

Debtors 122 000
Cash at bank 18 000

430 000

Current liabilities:

Trade creditors 250 000

Accrued expenses 16 000

266 000

Explain and comment on what the figures tell you about P. Said’s financial position at
31 December 2001.

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Answer Question 6 on separate answer paper or multi-column accounting paper.

6 Justine is a manufacturer of beauty products. The following balances were extracted from her
books on 31 December 2001 after the Manufacturing Account had been prepared.

$ $
Stocks Raw Materials (31 December 2001) 3 530
Work in Progress (31 December 2001) 1 450
Finished Products (1 January 2001) 11 200
Cost of products manufactured 103 780
Sales of finished goods 137 560
Carriage on sales 1 230
Advertising 3 410
Sales staff’s commission 8 970
Office expenses 11 860
Bank charges 60
Plant and machinery 51 410
Provision for depreciation on Plant and Machinery 9 030
Trade debtors 13 600
Trade creditors 5 210
Provision for doubtful debts (1 January 2001) 310
Bad debts 460
Cash in hand 90
Bank overdraft 1 740
Capital 60 450
Drawings 3 250

214 300 214 300

The following additional information is available.

1. Stock of finished products at 31 December 2001 was valued at $10 640.

2. During the year, Justine took finished products valued at $600 from the current year’s
production for personal use. No entries had been made in the books.

3. Sales staff’s commission outstanding amounted to $390.

4. The provision for doubtful debts is to be adjusted to 5% of debtors.

5. $50 for bank charges had not been recorded in the books.

(a) Prepare Justine’s Trading and Profit and Loss Accounts for the year ended 31 December
2001. [17]

(b) Prepare the Balance Sheet as at 31 December 2001. [17]

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