QUESTION PAPER. Exam ID 107

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QUESTION PAPER Exam ID 107 Qualification: Level 3 Diploma in Accounting and Advanced Book-keeping Record Adjustments and Prepare Financial Statements (Qualification Accreditation Number 500/3022/x)

1 QUESTION PAPER Exam ID 107 Qualification: Level 3 Diploma in Accounting and Advanced Book-keeping Record Adjustments and Prepare Financial Statements (Qualification Accreditation Number 500/3022/x) Examination: Paper Two / December 2011 Afternoon Sitting Time Allowed: 2 hours Suite 30, 40 Churchill Square, Kings Hill, West Malling, Kent ME19 4YU Tel: , Fax: , education@iab.org.uk

2 THE INTERNATIONAL ASSOCIATION OF BOOK-KEEPERS IAB LEVEL 3 DIPLOMA IN ACCOUNTING AND ADVANCED BOOK-KEEPING UNIT TITLE: RECORD ADJUSTMENTS AND PREPARE FINANCIAL STATEMENTS PAPER TWO GENERAL INFORMATION AND INSTRUCTIONS THIS QUESTION BOOKLET CONTAINS FIVE QUESTIONS WITHIN TWO SECTIONS. YOU MUST ANSWER FOUR QUESTIONS AS FOLLOWS: SECTION A - ANSWER BOTH QUESTIONS IN THIS SECION Question One Carries 25 Marks Question Two Carries 15 Marks SECTION B - ANSWER ANY TWO OF THE QUESTIONS IN THIS SECTION All Questions Carry Equal Marks 30 Marks Each You must enter your Student Number, Candidate Number and Name of Examination Centre on your answers. Time allowed: Two Hours. It is recommended that this time be allocated as follows: SECTION A QUESTIONS - 40 Minutes SECTION B QUESTIONS - 80 Minutes All answers are to be written in ink. Correcting fluid can be used in moderation, otherwise cross out errors neatly. The use of silent non-programmable calculators is permitted. If you answer three questions from Section B, you must cross out the answer you do not want marking - otherwise we will take the marks of your first two answers. NOTE This question booklet has information and data printed on both sides of the pages contained within the booklet. L3 DIP/P2/Dec 11 v2 Page 1

3 SECTION A You must answer both questions in this section Question One You are presented with the following list of balances and additional information at 30 November 2011 for Railton Office Supplies. Railton Office Supplies List of Balances as at 30 November 2011 Sales 147,900 Purchases 54,120 Wages and salaries 47,310 Rent and rates 8,590 Utilities 4,370 Vehicle expenses 6,410 Administration expenses 3,880 Other operating expenses 2,760 Website expenses 6,150 Provision for Doubtful Debts 510 Warehouse Fittings At cost 66,700 Warehouse Fittings Provision for depreciation 20,010 Delivery Vehicle At cost 28,680 Delivery Vehicle Provision for depreciation 12,540 Stock as at 1 December ,900 Trade Debtors 8,400 Trade Creditors 4,230 Bank & cash 2,940 DR Capital 75,000 Drawings 14,980 Additional information as at 30 November 2011: 1. Stock at 30 November 2011 is valued at 5, An accrual of 340 is to be made for Utilities as at 30 November Rent and Rates of 1,280 are prepaid as at 30 November Adjust the Provision for Doubtful Debts to be 5% of Trade Debtors as at 30 November During the year the owner has taken goods to the value of 190 for her own use. 6. Depreciation for the year ended 30 November 2011 is to be provided for as follows: Warehouse Fittings 15% per year using the straight line method Delivery Vehicle 30% per year using the diminishing balance method L3 DIP/P2/Dec 11 v2 Page 2

4 REQUIRED: Prepare an Extended Trial Balance as at 30 November 2011 by: Task A Task B Task C Listing the balances given overleaf in Trial Balance format. Making the necessary adjustments as at 30 November 2011 in respect of items 1 to 6 listed as additional information above. Extending balances to the Profit and Loss and Balance Sheet columns, calculating net profit and balancing the columns. (Total 25 marks) Note: The following proformas are provided for your use in completing the above tasks: An Extended Trial Balance (see page 2 of your answer booklet) L3 DIP/P2/Dec 11 v2 Page 3

5 Question Two The following are statements describing practices that illustrate how the book-keeper of RT Transport complies with accounting concepts: 1. Once agreed, the same method and percentage for calculating depreciation is used for each year of the assets life until the asset is sold or written off. 2. RT Transports policy regarding the treatment of purchases of office equipment is to post items of office equipment valued at 100 or more as capital expenditure, whilst items of office equipment costing less than 100 are classified as revenue expenditure and are charged to the Profit and Loss Account. 3. At the end of the accounting year the book-keeper of RT Transport completes a stock check and calculates a stock valuation. Damaged stock items are always valued at the lower amount of cost or net realisable value. 4. At the end of the accounting period the book-keeper of RT Transport ensures that all income and costs relating to the accounting period have been entered into the books of account for that accounting period. 5. When recording accounting transactions, in particular the valuation of assets, the assumption is made that the business will continue to operate for the foreseeable future. REQUIRED: Task A State the name of the accounting concept the book-keeper of RT Transport is complying with in each of the statements 1 to 5 above. (Total 15 marks) Note: The following proforma is provided for your use in completing the above tasks: A table for stating the name of the accounting concept defined in items 1 to 5 (see page 3 of your answer booklet) L3 DIP/P2/Dec 11 v2 Page 4

6 SECTION B You must answer any two questions from this section Question Three Rhian and Guto have been in partnership for several years running a Wholesale Pet Food business. The following Trial Balance has been drawn up from the accounts in the ledger as at 30 November 2011, after the Profit and Loss Account for the year ended 30 November 2011 had been prepared. Rhian and Guto Trial Balance as at 30 November 2011 Capital Rhian 100,000 Capital Guto 70,000 Current Account Rhian 1,290 Current Account Guto 480 Drawings Rhian 14,800 Drawings Guto 25,000 Bank 3,675 Cash 475 Premises 138,150 Warehouse Fittings 12,100 Motor Van 24,300 Provision for Depreciation Warehouse Fittings 6,050 Provision for Depreciation Motor Van 16,740 Stock as at 30 November ,720 Trade Debtors 14,180 Trade Creditors 6,160 Prepayments 2,920 Accruals 490 Net Profit 41, , ,415 The partnership agreement specifies the following: 1 Interest on Capital is to be paid at a rate of 4% on the balance of each partners Capital Account balance as at 30 November each year. 2 Guto receives a partnership salary of 9, Interest on drawings is to be charged as follows: Rhian Guto L3 DIP/P2/Dec 11 v2 Page 5

7 4 The remaining profits and losses are to be shared equally between the partners. REQUIRED: Task A Prepare the Profit and Loss Appropriation Account of the partnership for the year ended 30 November 2011 Task B Prepare the Current Accounts of each partner for the year ended 30 November 2011 Task C - Prepare the Balance Sheet of the partnership as at 30 November 2011 (Total 30 marks) Note: The following proformas are provided for your use in completing the above tasks: Profit and Loss Appropriation Account (see page 4 of your answer booklet) Current Accounts (page 4 of your answer booklet) Balance Sheet (page 5 of your answer booklet) L3 DIP/P2/Dec 11 v2 Page 6

8 Question Four Beazer Wholesale Building Supplies keep double entry books that include Sales Ledger Control and Purchase Ledger Control Accounts kept in the main ledger and are part of the double entry book-keeping system. The personal accounts of trade debtors and trade creditors are kept in the Sales Ledger and Purchase Ledger respectively. These ledgers are kept as subsidiary ledgers with the personal accounts being maintained as memorandum accounts. As at 30 November 2011 the main ledger contained the following accounts and balances: Provision for Doubtful Debts (balance b/d 1 December 2010) 1,880 Sales Ledger Control Account (balance c/d 30 November 2011) 29,835 Bad Debts Written Off (balance c/d 30 November 2011) 2,475 N.B. Bad Debts Written Off account balance includes trade debtor balances already written off as bad in the year ended 30 November 2011 For the purposes of accounting for year end the Sales Ledger has been reviewed and it has been agreed to write off the account balance of Watson Enterprises value 635 as unrecoverable. It has also been agreed that following the write off the Provision for Doubtful Debts Account should be adjusted to represent an amount equivalent to 5% of the remaining Sales Ledger Debtor Balances. REQUIRED: Task A Task B Task C Enter the balances on the Provision for Doubtful Debts as at 1 Dec 2010 and the Sales Ledger Control Account and Bad Debts Written Off Account as at 30 Nov Prepare the Journal entry to write off the balance on the account of Watson Enterprises. Date your Journal entry 30 November 2011 and include suitable narratives. Post the Journal entry prepared in Task B above to relevant accounts in the main ledger. Task D Calculate the adjustment to the Provision for Doubtful Debts for the year ended 30 November Task E Prepare the Journal entry necessary to account for the adjustment to the balance on the Provision for Doubtful Debts Account as at 30 November Date your Journal entry 30 November 2011 and include a suitable narrative. L3 DIP/P2/Dec 11 v2 Page 7

9 Task F Post the Journal entry prepared in Task E above to the Provision for Doubtful Debts Account N.B. Candidates should note that it will not be possible to post both sides of the Journal entry because a Profit and Loss Account has not been provided. Task G Prepare the Journal entry necessary to transfer the balance on the Bad Debts Written Off Account as at 30 November 2011 to the Profit and Loss Account. Date your Journal entry 30 November 2011 and include a suitable narrative. Task H Post the Journal entry prepared in Task G above to the Bad Debts Written Off Account in the main ledger and close off the account. N.B. Candidates should note that it will not be possible to post both sides of the Journal entry because a Profit and Loss Account has not been provided. Task I Task J Balance off the Provision for Doubtful Debts Account and Sales Ledger Control Account as at 30 November 2011, bringing down the account balances as at that date. Using the Balance Sheet (extract) provided, show the Current Assets section as it would appear to take account of the adjustments above. (Total 30 marks) Note: The following proformas are provided for your use in completing the above tasks: Provision for Doubtful Debts, Sales Ledger Control and Bad Debts Written Off Accounts (see page 6 of your answer booklet) Journal (see page 7 of your answer booklet) An area to calculate the adjustment to provision for doubtful debts (see page 8 of your answer booklet) Balance Sheet (extract) (see page 8 of your answer booklet) L3 DIP/P2/Dec 11 v2 Page 8

10 Question Five Bead Boutique sells beads and jewellery making supplies through their website. They have completed a year end stock valuation and calculated cost and net realisable values for the different classifications of stock they hold. During the stock take the book-keeper came across some unusual items of stock which she did not know how to value and these have not been included in the different classifications listed. You have been given the following list of account balances as at 30 November 2011 together with a list of stock classifications together with their valuations at cost and net realisable value. List of Account Balances as at 30 November 2011 Stock as at 1 December ,640 Sales 32,920 Purchases 10,710 Purchase returns 560 Sales returns 2,020 Carriage inwards 1,040 List of stock classifications and valuations at cost and net realisable value as at 30 November 2011 Stock Classification Valuation at Cost Valuation at Net Realisable Value Wires and threading materials Silver and Gold plate findings Crystal beads Wooden beads Glass Pearls Semi precious beads Tools Miscellaneous items L3 DIP/P2/Dec 11 v2 Page 9

11 Unusual items of stock not included in the classifications given above Item No. Quantity 1 36 packs of Easy Flex 2 15 tubes of Gem Cement Cost Price 3.99 per pack 2.75 per tube Comments A new product supplied by the manufacturer on a sale or return basis for a trial period of 4 months. Bead Boutique can return any unsold items at the end of the trial period. 15 tubes of Gem Cement left by a Sales Representative as a free sample boxes of Czech Crystal Beads 4.99 per box These beads have been ordered wholesale from the Czech Republic. The invoice has been received and entered into the accounts, but the beads have been held up in Customs awaiting clearance boxes of Pearls 5.50 per box The pearls have been received but no invoice has been received from the supplier REQUIRED: Task A - Task B - Calculate a closing stock valuation as at 30 November 2011 using the schedule supplied in your answer booklet. Prepare the Journal entry necessary to account for the closing stock figure as at 30 November Date your Journal entry 30 November 2011 and provide a suitable narrative. Task C - Prepare the Trading Account for the year ended 30 November (Total 30 marks) L3 DIP/P2/Dec 11 v2 Page 10

12 Note: The following proformas are provided for your use in completing the above tasks: Schedule for the calculation of a revised closing stock valuation (see page 9 of your answer booklet) Journal (see page 10 of your answer booklet) Trading Account (see page 10 of your answer booklet) L3 DIP/P2/Dec 11 v2 Page 11

June 2014 Examination Question Paper

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