Please complete this box: Candidate number: as indicated on your admission slip Desk number: If you are using a calculator, please enter the make and model number: Make (company name): Model number: Subject no. 50B Paper 2 Accounting Tuesday morning, 28 November 2017 Time allowed: 1 hour 30 minutes Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. The examination paper contains 18 questions and is divided into three sections. You must attempt all questions in Section A and Section B, and two questions in Section C. Section A contains 15 marks, Section B contains 30 marks and Section C contains 30 marks. There are 75 marks available in total for the paper. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 30 minutes in total to answer the questions in Section B, and 20 minutes for each of the questions attempted in Section C. You may continue your answers on a separate sheet of paper if necessary. Separate answer sheets are available from the invigilator. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation. ICSA, 2017 Page 1 of 21
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Section A Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 1 Which of the following items of expenditure would be classified as capital expenditure? (Tick one box only) A B C 5,344 on coach hire for a staff outing 7,125 on replacing flood-damaged stock 7,600 on new computers D 9,500 on rent (1 mark) 2 Explain why published accounts should follow the prudence concept. (2 marks) 3 When an organisation receives a product delivery, it creates a source document to send to its accounts department so that the invoice can be paid. What is the name of this document? (1 mark) ICSA, 2017 Page 3 of 21
4 The following balances were extracted from the books of a sole trader, Zennon, at 31 October 2017. Sales 57,000 Cost of sales 34,500 Operating expenses 13,650 Inventories 7,725 Trade receivables 2,280 Bank 9,180 Trade payables 13,629 Showing your workings in the box below, calculate Zennon s trade receivables ratio. Trade receivables = (2 marks) 5 Explain what a prepayment is. (2 marks) ICSA, 2017 Page 4 of 21
6 Give an example of a type of company which, under FRS 102, is now likely to use the term statement of financial position rather than balance sheet. (1 mark) 7 What is the generic name for organisations such as health authorities, charities and local sports clubs? (1 mark) 8 A customer pays a supplier for goods they previously purchased on credit. Show the correct book entries for the supplier to record this payment. Dr Account Cr Account (2 marks) ICSA, 2017 Page 5 of 21
9 At the end of the financial year, the following extract was taken from the books of Maxine Sylvar, a sole trader. Sales 79,800 Cost of sales 48,300 Gross profit 31,500 Debtors 9,580 Bank 12,852 Maxine s books did not reflect an unrecoverable bad debt of 1,120. In addition, she always makes a 5% provision for doubtful debt. Showing your workings in the box below, calculate Maxine s revised debtors balance as at the financial year end. Debtors balance = (2 marks) 10 The method of depreciation which a company must use is specified in an accounting standard. Is this true or false? (Tick one box only) True False (1 mark) Total for Section A = 15 marks ICSA, 2017 Page 6 of 21
Section B Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 11 Complete the missing entries in the following statement of financial position. Year ended 31 October Noncurrent assets Current assets Current liabilities Net current assets Noncurrent liabilities 2017 35,750 13,050 (500) 17,060 Equity 2016 15,655 12,575 25,550 20,430 2015 49,335 16,575 1,120 24,405 (6 marks) 12 Using examples, explain what each of these books of original entry is used for. (a) Sales returns daybook (3 marks) (b) Purchase daybook (3 marks) ICSA, 2017 Page 7 of 21
13 The following transactions were carried out by Gibbz production last month. Complete the grid below to identify which accounts will receive the debit and credit entry. Transactions Debit Credit i. Purchased a car on credit from Gyant Karz ii. iii. iv. Sold stock for cash Purchased goods on credit from Jennings Sold goods on credit to De Lane v. Disposed of some fixture and fittings for cash vi. Knowles Partnership, a new client, returned goods purchased on credit 10 days ago (6 marks) 14 If they are read in isolation, financial statements may give a limited perspective of an organisation s financial position. Explain how the use of accounting ratios can help overcome this problem. (6 marks) ICSA, 2017 Page 8 of 21
15 Explain three elements of internal controls within the double-entry bookkeeping system. i ii iii (6 marks) _ Total for Section B = 30 marks ICSA, 2017 Page 9 of 21
Section C Answer two questions only. Continue your answers on a separate sheet of paper if necessary. 16 The trial balance of Byrne s Electronics for the year ended 31 October 2017 is shown below: Sales 131,250 Inventories at 1 November 2016 18,375 Purchases 36,250 Salaries 16,250 Telephone 3,750 Travel expenses 9,750 Office administration 1,225 Rent 28,750 Computers at cost 17,500 Fixtures and fittings at cost 20,000 Provision for doubtful debtors 625 Debtors 6,000 Creditors 20,500 Bank 1,950 Cash 775 Drawings 13,750 Capital 7,750 Provision for depreciation: Computers 7,000 Fixtures and fittings 7,200 174,325 174,325 Notes (i) Inventories at 31 October 2017 were valued at 5,775. (ii) Telephone charges for the year to 31 January 2018 were 3,500. (iii) Computers are depreciated on cost at 25% per annum. (iv) A repairs and maintenance bill of 1,055 was unpaid on 31 October 2017. (v) (vi) An unpaid debt of 1,250 is to be written off. Fixtures and fittings are depreciated at 20% on the reducing balance basis. (vii) Provision for doubtful debts is to be maintained at 10% of debtors. Prepare the income statement for Byrne s Electronics for the year ended 31 October 2017. (15 marks) ICSA, 2017 Page 10 of 21
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17 The following comparative information has been extracted from the financial statements of Mullery Telecoms Ltd. 31 October 2017 31 October 2016 Turnover 130,000 120,000 Cost of sales 110,000 96,000 Gross profit 20,000 24,000 Retained profit 10,000 15,000 Non-current assets 10,000 14,000 Inventories 15,000 16,500 Trade receivables 25,000 30,000 Bank 5,000 2,500 Current liabilities 8,000 10,000 Total equity and liabilities 55,000 63,000 Showing your workings in the boxes below, calculate the following ratios for 2017 and 2016, and provide a comment on the effect of each ratio: Gross profit margin. Acid test. Inventory holding days. (15 marks) ICSA, 2017 Page 14 of 21
Gross profit margin 2017 2016 Comments: ICSA, 2017 Page 15 of 21
Acid test 2017 2016 Comments: ICSA, 2017 Page 16 of 21
Inventory holding days 2017 2016 Comments: ICSA, 2017 Page 17 of 21
18 StoreCo plc ( StoreCo ) began as a small, family business 30 years ago and has grown into a multinational fashion business, with 105 retail outlets across three continents. It has 12 distribution centres, employing 10,000 people in total. Family members still own 30% of the company. StoreCo prides itself on providing its customers with the latest in high quality fashion wear across all age groups and works closely with its local suppliers. The company seeks to source at least 40% of its products from local suppliers in the host countries. Over the last five years, StoreCo has successfully reduced its level of external debt. However, StoreCo no longer offers new employees access to its pension scheme. StoreCo s management is optimistic about the business environment for the next three years. Using the scenario above, identify five groups who may use StoreCo s annual financial statements. For each group, discuss the decisions that they could make using this accounting information. (15 marks) ICSA, 2017 Page 18 of 21
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_ Total for Section C = 30 marks Total for paper = 75 marks The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental. END ICSA, 2017 Page 21 of 21
Do not write on this page examiner use only Section A Section B Section C Question Question Question 1 11 16 2 12 17 3 13 18 4 14 Total 5 15 6 Total 7 8 9 10 Total Total marks for paper: Marker (full name): Reviewer (full name): Clerical check (full name): Examiner review: