Book-keeping And Accounts Level 2 - Edexcel

LCCI International QualificationsBook-keeping and AccountsLevel 2Model AnswersSeries 3 2012 (2007)For furtherinformationcontact us:Tel. 44 (0) 8707 202909Email. enquiries@ediplc.comwww.lcci.org.uk

Book- Keeping and Accounts Level 2Series 3 2012How to use this bookletModel Answers have been developed by EDI to offer additional information and guidance to Centres,teachers and candidates as they prepare for LCCI International Qualifications. The contents of thisbooklet are divided into 3 elements:(1)Questions– reproduced from the printed examination paper(2)Model Answers– summary of the main points that the Chief Examiner expected tosee in the answers to each question in the examination paper,plus a fully worked example or sample answer (where applicable)(3)Helpful Hints– where appropriate, additional guidance relating to individualquestions or to examination techniqueTeachers and candidates should find this booklet an invaluable teaching tool and an aid to success.EDI provides Model Answers to help candidates gain a general understanding of the standardrequired. The general standard of model answers is one that would achieve a Distinction grade. EDIaccepts that candidates may offer other answers that could be equally valid. Education Development International plc 2012All rights reserved; no part of this publication may be reproduced, stored in a retrieval system ortransmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwisewithout prior written permission of the Publisher. The book may not be lent, resold, hired out orotherwise disposed of by way of trade in any form of binding or cover, other than that in which it ispublished, without the prior consent of the Publisher.ASE2007/3/12/MAPage 1 of 15

QUESTION 1The following details were extracted from the books of Petro Ltd at 31 December 2011:Net profit for the year ended 31 December 2011(after deducting debenture interest of 4,000)8% debentures (repayable 2012)Interim ordinary dividend paidInterim preference dividend paid5% loan from Brank’s Bank (repayable 2018)Share premiumIssued and fully paid share capital:500,000 1 ordinary shares300,000 5% 1 preference sharesGeneral reserveRetained profits at 31 December 2010 020,000175,000Additional information:Following the calculation of the net profit it was discovered that:(1)The stock at 31 December 2011 had been undervalued by 5,200(2)A full year’s interest on the loan from Brank’s Bank remained unpaid at 31 December 2011 and noentries had been made in the accounts(3)No allowance had been made for accrued directors’ fees of 35,000(4)The directors propose:a final dividend of 0.20 per ordinary sharepayment of the final preference share dividendto transfer 30,000 to the general reserveREQUIRED(a)Commencing with 500,200, prepare a statement to show the adjusted net profit of Petro Ltd forthe year ended 31 December 2011.(5 marks)(b)Commencing with the adjusted net profit, prepare the Profit & Loss Appropriation Account for theyear ended 31 December 2011.(8 marks)Prepare a Balance Sheet extract at 31 December 2011, from the information available.(12 marks)(c)(Total 25 marks)ASE2007/3/12/MAPage 2 of 15

MODEL ANSWER TO QUESTION 1Syllabus Topic 3: Limited liability companies (3.2.1), (3.2.2), (3.2.3), (3.2.4), (3.2.5), (3.2.6), (3.2.7),(3.2.8), (3.2.10)(a)Petro LtdStatement of adjusted net profit for the year ended 31 December 2011 500,2005,200 1505,400Original net profitAdd: undervalued closing stockLess:Interest on Brank's loan ( 25,000 x 5%)Directors' feesDebenture interest1,250 135,000 14,000 140,250465,150 1ofAdjusted net profit(5 marks)(b)Petro LtdProfit & Loss Appropriation Account for the year ended 31 December 2011 465,150 1ofNet profit b/dInterim preference share dividendProposed final preference share dividendInterim ordinary share dividendProposed final ordinary share dividendTransfer to general reserve11111195,000270,150 1of175,000 1445,150(8 marks)Retained profit for the yearRetained profit b/fwdRetained profit age 3 of 15

MODEL ANSWER TO QUESTION 1 CONTINUED(c)Petro LtdBalance Sheet extract at 31 December 2011Creditors: amount falling due within one year1Proposed dividends (7,500 100,000)8% Debentures repayable 201211 1107,500100,00011Accruals (1,250 35,000 4,000)40,250Creditors: amount falling due after more than one year25,0001500,000300,0001Share premium50,0001General reserve50,00015% Loan from Brank's BankIssued and fully paid share capital500,000 1 Ordinary shares300,000 5% 1 preference sharesProfit and loss account445,150Total shareholders' funds11of1,345,150(12 marks)(Total 25 marks)(Total 25 marks)ASE2007/3/12/MAPage 4 of 15

QUESTION 2Garcia and Martino are in partnership sharing profits and losses in the ratio 2:1. At 30 June 2011, theirBalance Sheet was as follows:Fixed AssetsGoodwillPremisesOffice equipmentFixtures and fittings Current AssetsStockDebtorsBank ,000Creditors: amounts falling due within one yearCreditors13,000Net Current 00180,000Zarita was admitted into the partnership on 1 July 2011 and it was agreed that all future profits andlosses would be shared equally. Zarita introduced into the partnership, stock valued at 40,000, debtorsof 5,000 and sufficient cash to cover his share of goodwill.At the same time, some assets and liabilities of the old partnership were revalued as follows:GoodwillPremisesOffice equipmentStockCreditors 60,000120,00015,00012,60013,900REQUIRED(a)The Revaluation Account of Garcia and Martino.(7 marks)(b)(c)(d)The Capital Accounts of Garcia, Martino and Zarita, following the revaluation of assets andliabilities and the admission of Zarita. It was decided that goodwill would not be retained in thebooks of the new partnership.(9 marks)The opening Balance Sheet of Garcia, Martino and Zarita.(6 marks)State three items to be found in a partnership agreement other than profit sharing ratios.(3 marks)(Total 25 marks)ASE2007/3/12/MAPage 5 of 15

MODEL ANSWER TO QUESTION 2Syllabus Topic 2: Partnerships (2.1.2), (2.1.9),(2.2.6),(2.5.2),(2.4.1)(a)Revaluation Account Office equipment110,000Creditors1900Garcia(2/3rd)39,800 1OfMartino(1/3rd)19,900 ,60070,60070,600(7 marks)Capital Accounts(b)GoodwillBalance c/dGarciaMartinoZaritaGarciaMartinoZarita ance b/d45,0001ofRevaluation ,90065,000Bank/cashBalance b/d1of40,000Debtors159,8001 both5,00079,9 001 all1 of All(9 marks)ASE2007/3/12/MAPage 6 of 15

MODEL ANSWER TO QUESTION 2 CONTINUED(c)Garcia, Martino and ZaritaBalance Sheet at 1 July 2011Fixed Assets Premises120,000Office equipment15,000Fixtures & fittings20,000155,0001Current AssetsStock (12,600 40,000)52,6001Debtors (18,000 5,000)23,0001Bank (8,000 20,000)28,0001103,600Creditors: amount falling due within one yearCreditors13,900Net Current Assets89,7001of244,700Financed of all244,700(6 marks)(d)Any three items for 1 mark each e.g.Amount of capital each partner will introduceInterest allowable on capital accountsInterest chargeable on drawingsPartners' salariesInterest allowable on current accountsInterest on current accountsAny other reasonable items(3 marks)(Total 25 marks)ASE2007/3/12/MAPage 7 of 15

QUESTION 3The following information relates to Lucy Ling’s Debtors Account:(1)The Balance Sheet at 31 January 2010 included the following entry:DebtorsLess Provision for doubtful debts(2)The debtors’ figures before the deduction of provision for doubtful debts were:At 31 January 2011At 31 January 2012(3) 40,5001,21539,285 44,40039,150The bad debts figures were:For the year ended 31 January 2011For the year ended 31 January 2012 1,8002,100The bad debts had been written off throughout the year.(4)At the end of financial years 2011 and 2012, Lucy Ling made provision for doubtful debts of 4% ofher debtors.REQUIRED(a)Prepare the following accounts for the year’s ended 31 January 2011 and 31 January 2012:(i)Bad Debts(ii)Provision for Doubtful Debts.(4 marks)(9 marks)(b)Prepare the entries for Lucy Ling’s debtors in her Balance Sheet at 31 January 2012.(2 marks)(c)State two reasons why a provision for doubtful debts is made at the financial year end.(4 marks)(d)In February 2012, the bad debts incurred in 2011 are recovered. Prepare the Journal entries thatneed to be made in Lucy Ling’s books, including the year end transfer. Narratives are notrequired.(6 marks)(Total 25 marks)ASE2007/3/12/MAPage 8 of 15

MODEL ANSWER TO QUESTION 3Syllabus Topic 1: Advanced aspects of the syllabus for L1 Book-keeping (1.4), (1.4.3), (1.4.5), (1.4.6)Bad Debts Account(a) (i)2010 - 2011 Jan 31Debtors1,800201112011 - 2012Jan 31 P&L1,8001P&L2,10012012Jan 31Debtors2,1001Jan 31(4 marks)Provision for Doubtful Debts Account(ii)2011 Jan 31Balance c/d1,776201011,776Feb 12011Jan 31 Balance b/d1,21515611P&L 11,7761,77620122011Jan 31P&L 1Jan 31Balance c/d21011,5661Feb 1Balance b/d1,7761,7761of1,7762012Feb 1Balance b/d1,5661of(9 marks)Lucy Ling(b)Balance Sheet extract at 31 January 2012Current Assets DebtorsLess provision for doubtful debts39,1501,5661Of37,5841Of(2 marks)(c)To charge possible bad debts as an expense in the Profit and Loss Account2To show a realistic debtors figure on the Balance Sheet2To show a true and fair value of debtor on the balance sheet(4 marks)ASE2007/3/12/MAPage 9 of 15

MODEL ANSWER TO QUESTION 3 CONTINUEDSyllabus Topic 1: Advanced aspects of the syllabus for L1 Book-keeping (1.4.2)(d)JournalCash/Bank DrCr11,800Debtors1,800Debtors11,800Bad debts recovered1,800Bad debts recovered111,800P&L11,8001(6 marks)(Total 25 marks)ASE2007/3/12/MAPage 10 of 15

QUESTION 4The following financial statements relate to Sorby Ltd:Trading and Profit & Loss Account for the year ended 30 September 2011 000Sales800Less: Cost of sales300Gross profit500Less: expenses (including debenture interest)383Net profit117Balance Sheet at 30 September 2011 000Fixed AssetsCurrent Assets:StockTrade debtorsBank 00045070200180450Creditors falling due within one year:Trade creditorsNet Current Assets(200)250700Creditors falling due after more than one year:6% debentures - issued 2008Capital and Reserves:350,000 Ordinary shares of 1 eachRetained profits(150)550350200550Additional information:Stock at 1 October 2010 was 80,000REQUIRED(a)Calculate the following ratios for Sorby Ltd for the year ended 30 September 2011. All calculationsshould be to one decimal place. Show the formula for each ratio.(i)Gross profit as a % of sales (margin)(ii)Rate of stock-turnover (number of times per year)(iii)Current/working capital ratio(iv)Liquidity/acid test ratio(v)Return on total capital employed. Use net profit before interest.(3 marks)(2 marks)(2 marks)(3 marks)(3 marks)When preparing their financial plans for the year ending 30 September 2012, the directors ofSorby Ltd made the following assumptions:(1)(2)(3)Sales would increase by 20% if selling prices were reduced by 5%.Cost of sales would increase in line with sales but purchase prices would reduce by 3%.Expenses, before debenture interest, would increase by 4%.REQUIRED(b)Prepare a planned Trading and Profit & Loss Account for the year ending 30 September 2012.All workings must be shown.(12 marks)(Total 25 marks)ASE2007/3/12/MAPage 11 of 15