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Book-Keeping & Accounts Level 2/series 3 2008 (Code 2006)
Book-Keeping & Accounts Level 2/series 3 2008 (Code 2006)
Book-Keeping & Accounts Level 2/series 3 2008 (Code 2006)
& Accounts
Level 2
Model Answers
Series 3 2008 (Code 2006)
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Book-Keeping & Accounts Level 2
Series 3 2008
Model Answers have been developed by Education Development International plc (EDI) to offer
additional information and guidance to Centres, teachers and candidates as they prepare for LCCI
International Qualifications. The contents of this booklet are divided into 3 elements:
(2) Model Answers – summary of the main points that the Chief Examiner expected to
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plus a fully worked example or sample answer (where applicable)
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Page 1 of 11
Page 2 of 11
Book-Keeping & Accounts Level 2
Series 3 2008
QUESTION 1
Linda and Chesney are in partnership sharing profits and losses in the ratio 2:1 respectively. The
following partial list of balances was extracted from the books on 31 August 2007 after preparation of
the Trading Account:
£
Gross Profit 86,618
Capital Accounts:
Linda 30,000
Chesney 15,000
Current Accounts:
Linda 3,000 Dr
Chesney 1,000 Cr
Drawings Accounts:
Linda 10,000
Chesney 5,000
Trade debtors 9,950
Rent 7,000
Insurance 3,100
Lighting & heating 4,900
Vehicle running costs 6,300
Depreciation expense 8,000
General expenses 1,400
Wages & salaries 50,600
(i) The partners are entitled to interest on their fixed capitals at 6% per annum
(ii) Chesney is to receive an annual salary of £17,000
(iii) Interest is to be charged at 5% of the balance on each partner’s drawings account at the financial
year end
(iv) Accrued lighting and heating expenses amounted to £250 and prepaid insurance amounted to
£600
(v) Vehicle running costs include £1,600 to be shared equally between the partners for private use of
the firm’s vehicles
(vi) The partners decided to create a provision for doubtful debts of 4% of trade debtors.
REQUIRED
From 1 September 2007, the partners decided to share profits and losses equally. All assets and
liabilities at that date were considered to be fairly valued and goodwill was calculated to be worth
£60,000, although no goodwill account was to be opened in the books of the partnership.
REQUIRED
(b) Prepare a journal to record the profit share change. A narrative is not required. (2 marks)
(Total 25 marks)
2006/3/08/MS Page 3 of 11
MODEL ANSWER TO QUESTION 1
(a)
(i) Linda and Chesney
Profit & Loss and Appropriation Account
for the year ended 31 August 2007
£ £ £
Gross Profit b/d 86,618
Less:
Rent 7,000
Insurance (3,100 - 600) 2,500
Lighting & heating (4,900 + 250) 5,150
Vehicle running costs (6,300 - 1,600) 4,700
Depreciation 8,000
General expenses 1,400
Wages & salaries 50,600
Provision for doubtful debts (9,950 x 4%) 398
79,748
Net Profit 6,870
Add:
Interest on drawings: Linda ([10,000 + 800] x 5%) 540
Chesney ([5,000 + 800] x 5%) 290
830
7,700
Less:
Interest on capital: Linda (30,000 x 6%) 1,800
Chesney (15,000 x 6%) 900
2,700
5,000
Salary to Chesney 17,000
-12,000
Share of loss: Linda 8,000
Chesney 4,000
12,000
0
2006/3/08/MS Page 4 of 11
MODEL ANSWER TO QUESTION 1 CONTINUED
(ii)
Current Accounts
L C L C
£ £ £ £
Bal b/d 3,000 Bal b/d 1,000
(b)
Goodwill calculation
Old New Dr Cr
Linda 40,000 30,000 10,000
Chesney 20,000 30,000 10,000
Journal
Dr Cr
£ £
2006/3/08/MS Page 5 of 11
QUESTION 2
On 1 April 2007, Eagle Ltd of Coventry consigned 100 crates of cheese, costing £500 per crate, to
Parker in Hong Kong. Eagle Ltd paid £1,000 by cheque for carriage and insurance.
On 31 July 2007, Parker forwarded an interim Sales Account to Eagle Ltd together with a bank draft.
The Sales Account contained the following details:
(1) Landing charges and import duties for original consignment - £750
(2) Sales - 80 crates at £1,200 each
(3) Selling costs - £40 per case sold
(4) Parker had deducted his commission at the agreed rate of 15% of sales value.
REQUIRED
(a) The Consignment to Parker Account in the books of Eagle Ltd as it would appear when balanced
on 31 July 2007. Show the value of stock carried down to the next period and the relevant
transfer to the Profit and Loss Account.
(13 marks)
Jim extracted a Trial Balance prior to preparing his final accounts for the year ended 31 March 2008.
The trial balance failed to agree and Jim posted the difference to a suspense account. The following
errors were subsequently discovered:
(1) Discounts allowed of £350 had been correctly entered in the debtors’ accounts but had been
credited to the Discounts Received Account
(2) A credit balance of £200 on the Commissions Received Account had been omitted from the Trial
Balance listing
(3) A payment to creditor Barry of £125 had been credited to Perry in the Sales Ledger. Control
accounts are not in use
(4) Cash sales of £9,000 had been correctly entered in the Cash Book and debited to the Purchases
Account.
REQUIRED
(b) Journal entries, without narratives, to record the correction of the above errors. You are not
required to prepare the Suspense Account.
(12 marks)
(Total 25 marks)
2006/3/08/MS Page 6 of 11
MODEL ANSWER TO QUESTION 2
(a)
Consignment to Parker
£ £
Goods on Sales 96,000
consignment 50,000 Stock c/d* 10,350
Bank:
Carriage & insurance 1,000
Parker:
Landing & import 750
Selling costs 3,200
Commission 14,400
Profit & Loss 37,000 ______
106,350 106,350
(b)
Dr Cr
£ £
[1] Discount received 350
Discount allowed 350
Suspense 700
2006/3/08/MS Page 7 of 11
QUESTION 3
The accounts of Sparrow are prepared on a monthly basis. The month end stocktaking for July 2007
did not take place but the following information was subsequently obtained:
(1) The accounts for the month ended 30 June 2007 showed stock in trade, at that date, of £56,800.
Stock is always valued at cost price.
(2) The stock sheets at 30 June 2007 had been over-added by £850.
(3) Sales during July 2007 amounted to £42,600. All sales include a mark-up of 25%.
(4) Goods purchased by Sparrow during July 2007 cost £29,800.
(5) Returns made by customers during July 2007 amounted to £725 at selling price.
(6) Returns of goods to suppliers during July 2007 amounted to £1,350 at cost price.
(7) It was decided that a quantity of stock, valued at full cost at 30 June 2007, and which would
normally sell for £2,400, could now only be sold at half cost price.
(8) Included in the July 2007 sales figure were goods on sale or return with a sales value of £650.
The customer has still not indicated her intention with regard to the goods.
REQUIRED
(a) Commencing with the opening balance of £56,800, prepare a calculation showing Sparrow’s
stock valuation at 31 July 2007.
(15 marks)
(b) Prepare, in vertical format, the Trading Account of Sparrow for the month ended 31 July 2007.
(10 marks)
(Total 25 marks)
2006/3/08/MS Page 8 of 11
MODEL ANSWER TO QUESTION 3
(a)
£ £
Opening stock at 1 July 2007 56,800
Less:
Over added stock 850
(b) Sparrow
Trading Account for the month ended 31July 2007
£ £ £
Sales (42,600 - 650) 41,950
Less: returns 725
41,225
Cost of Sales
** Assumed that June accounts will have been adjusted for stock overvaluation.
2006/3/08/MS Page 9 of 11
QUESTION 4
Carol has a year end of 30 April. The following balances were extracted from her books on
1 April 2008:
Dr Cr
£ £
Purchases Ledger 690 41,280
Sales Ledger 76,900 860
The balance on the Provision for Doubtful Debts Account at 1 May 2007 was £4,250.
During the month of April 2008, the following transactions took place:
£
Sales on credit 69,420
Cash sales 8,900
Credit purchases 39,015
Bad debts written off 700
Returns inwards 6,022
Returns outwards 2,680
Payments to suppliers 42,718
Discounts received 1,400
Receipts from customers 78,445
Discounts allowed 2,180
Legal fees re debt collection charged to customers account 800
Debtor’s cheque dishonoured 200
Cash purchases 3,800
Debit balance on Sales Ledger transferred to Purchases Ledger per contra 6,000
Bill of Exchange issued by Carol and accepted by the debtor 750
REQUIRED
(a) Prepare the Purchases Ledger Control Account for the month of April 2008. (8 marks)
(b) Prepare the Sales Ledger Control Account for the month of April 2008. (13 marks)
(c) Prepare the Provision for Doubtful Debts Account at 30 April 2008. (2 marks)
(d) Prepare the account of Wendy in Carol’s Sales Ledger to record the recovery of the bad debt
previously written off in May 2005. No other entries have been made in this account since the
date of the bad debt write-off.
(2 marks)
(Total 25 marks)
2006/3/08/MS Page 10 of 11
MODEL ANSWER TO QUESTION 4
(a)
Purchases Ledger Control
£ £
Bal b/d 690 Bal b/d 41,280
Bank 42,718 Purchases 39,015
Discount received 1,400 Bal c/d 295
Returns outwards 2,680
Sales Ledger contra 6,000
Bal c/d 27,102 ..
80,590 80,590
Bal b/d 295 Bal b/d 27,102
(b)
Sales Ledger Control
£ £
Bal b/d 76,900 Bal b/d 860
Sales 69,420 Bank 78,445
Legal fees 800 Discount allowed 2,180
Bank - dishonoured cheque 200 Bad debts 700
Bad debts recovered 3,125 Returns inwards 6,022
Bal c/d 62 Purchases Ledger contra 6,000
Bills receivable 750
Bal c/d 55,550
150,507 150,507
Bal b/d 55,550 Bal b/d 62
(c)
Provision for Doubtful Debts
£ £
Profit & Loss 2,028 Bal b/d 4,250
Bal c/d 2,222
4,250 4,250
Bal b/d 2,222
(d)
Wendy
£ £
Bad debts recovered 3,125 Bank 3,125
3,125
3,125