Book-Keeping

& Accounts
Level 2

Model Answers
Series 3 2008 Hong Kong (Code 2507)

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Book-Keeping & Accounts Level 2

Series 3 2008

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Page 1 of 15

Page 2 of 15

Book-Keeping & Accounts Level 2

Series 3 2008
QUESTION 1
A, B and C have been in partnership for a number of years, sharing profits and losses in the ratio 3:2:1
respectively.
The summarised partnership balance sheet at 30 September 2007 is shown below:

Fixed assets
Bank
Other Current assets
Current liabilities

2,000
56,000
58,000
48,000

Capital Accounts: A
B
C

120,000

10,000
130,000
80,000
40,000
10,000
130,000

B retired from the partnership on 30 September 2007. A and C continued in partnership; they shared
profits in the ratio 2:1 respectively. The three partners agreed that the following asset valuations
applied at 30 September:
Fixed assets
Goodwill
Current assets (excluding bank)

260,000
150,000
54,000

It was further agreed that goodwill would not be retained in the books. A and C were unsure how any
debt owed to B should be settled. In the short-term, the amount was transferred to a loan account.

REQUIRED
(a) Prepare the Revaluation Account.

(5 marks)

(b) Prepare the partners Capital Accounts at 30 September 2007, showing the effects of Bs
retirement.
(11 marks)

2507/3/08/MA

Page 3 of 15

QUESTION 1 CONTINUED
The following details regarding subscriptions received during the year ended 31 December 2007 have
been extracted from the cash book of the Cantley Social Club:
Subscriptions received for the year ended
31 December 2006
31 December 2007
31 December 2008

576
31,296
384

Additional information
(i)

At 31 December 2006, subscriptions of 1,248 remained unpaid, while subscriptions totalling

480 had been paid for the year ended 31 December 2007

(ii)

Members whose subscriptions for the year ended 31 December 2006 remained unpaid at
31 December 2007 had their membership withdrawn, and their subscriptions were to be
written off

(iii) Nine members subscriptions for 2007, amounting to 864, remained unpaid at the year
ended 31 December 2007.

REQUIRED
(c) Prepare a Subscriptions Account for the year ended 31 December 2007.

(9 marks)
(Total 25 marks)

2507/3/08/MA

Page 4 of 15

MODEL ANSWER TO QUESTION 1

Revaluation Account

(a)
Current Assets
Capital:
A
B
C

2,000
69,000
46,000
23,000
140,000

(138 x 3/6)
(138 x 2/6)
(138 x 1/6)

(b)
A

100,000

Goodwill
Loan

124,000
224,000

8,000
136,000

40,000

10,000

Revaluation a/c

69,000

46,000

23,000

Goodwill

75,000

50,000

25,000

224,000

136,000

58,000

58,000

124,000

Subscriptions Account

Balance b/d
I & E A/c
Balance c/d

Balance b/d
Workings

2507/3/08/MA

[1]

1,248
32,640
384
_____
34,272
864

140,000

80,000

Balances b/d

(c)

(260 - 120)

______
140,000

Capital Accounts
C

50,000 Balances b/d

136,000

Balance c/d

Fixed Assets

Balance b/d
Cash
Subscriptions written off
Balance c/d
Balance b/d

(31,296 + 576 + 384)

Page 5 of 15

8,000

480
32,256
672
864
34,272
384

QUESTION 2
P Chang asks her book-keeper to prepare a trial balance at 31 December 2007 from the list of
balances which are shown below:
Purchases
Sales
Carriage in
Carriage out
Rent & rates
General expenses
Capital
Motor vehicle
Debtors
Creditors
Cash
Provision for depreciation
Stock at 1 January 2007
Drawings
Bank overdraft
Salaries

93,000
155,250
750
600
18,000
5,400
81,300
83,700
18,000
7,500
300
10,800
6,000
12,000
3,600
21,900

As she determines that the trial balance does not balance, P Chang opens a Suspense Account for
the difference. She subsequently finds and corrects the following errors:
(i)

Capital of 375 introduced during the year was correctly entered in the Capital Account but
entered on the wrong side in the Cash Book.

(ii)

P Chang had taken 1,800 of goods at cost for her own use. This transaction was correctly
entered in the Drawings Account but no other entries were made.

(iii) An invoice for the purchase of a new motor vehicle for 3,000 was incorrectly entered in the
Purchases Account. It was correctly entered in the Bank Account.
(iv) In extracting the creditors balance, one suppliers balance of 1,620 was omitted.
(v) General expenses of 525 were correctly entered in the Cash Book but were debited as
255 in the General Expenses Account.
(vi) A customer had gone into liquidation owing P Chang 1,200. The debtors figure had been
reduced by that amount but no other entries had been made.

REQUIRED
(a) Prepare the Suspense Account.

(13 marks)

(b) Prepare a corrected Trial Balance for P Chang at 31 December 2007.

(12 marks)
(Total 25 marks)

2507/3/08/MA

Page 6 of 15

MODEL ANSWER TO QUESTION 2

Suspense Account

(a)

Purchases
Creditors

1,800
1,620
_____
3,420

(b)

Balance b/d
Bank
General expenses
Bad debts

1,200
750
270
1,200
3,420

Trial Balance at 31 December 2007

Purchases (93,000 - 1,800 - 3,000)

Sales
Carriage in
Carriage out
Rent & rates
General expenses (5,400 + 270)
Capital
Motor vehicle (83,700 + 3,000)
Debtors
Creditors (7,500 + 1,620)
Cash
Provision for depreciation
Stock at 1 January 2007
Drawings
Bank overdraft (3,600 - 750)
Salaries
Bad debts

2507/3/08/MA

88,200

155,250

750
600
18,000
5,670
81,300
86,700
18,000
9,120
300
10,800
6,000
12,000
2,850
21,900
1,200
259,320

Page 7 of 15

_______
259,320

QUESTION 3
Choo plc has an authorised share capital of 400,000 ordinary shares of 0.50 each, of which 320,000
are issued and fully paid, and an authorised capital of 160,000 5% preference shares of 1 each, of
which 120,000 are issued and fully paid. It has 80,000 of 5% debentures with interest being paid
half-yearly in arrears on 30 June and 31 December. It also has a loan of 60,000 with interest being
paid at 8% on the same terms as the debentures. The debentures and loan are repayable in 2014.
The following information is available for the year ended 31 December 2007:

Directors salaries
Wages
Sales
Cost of sales
General expenses

56,000
184,000
1,070,000
580,000
128,200

Additional information at 31 December 2007:

Premises at net book value

Debtors
Creditors
Machinery at net book value
Bank
Stock
Share premium

480,000
37,600
23,600
360,000
52,400 Dr
122,000
120,000

General reserve at 1 January 2007

Profit & Loss at 1 January 2007

80,000
295,400

The directors have proposed that a dividend of 0.05 per share is paid on the ordinary shares.
Dividends are also to be paid on the preference shares. 20,000 is to be transferred to the General
Reserve. All interest payments were made on their due dates.

REQUIRED
Prepare:
(a) Trading, Profit & Loss and Appropriation Account for the year ended 31 December 2007.
(8 marks)
(b) Balance Sheet at 31 December 2007.

(17 marks)
(Total 25 marks)

2507/3/08/MA

Page 8 of 15

MODEL ANSWER TO QUESTION 3

(a)
Choo plc
Trading, Profit & Loss and Appropriation Account
for the year ended 31 December 2007

Sales
Cost of sales
Gross profit
Directors' salaries
Wages
General expenses
Debenture interest
Loan interest

56,000
184,000
128,200
4,000
4,800
377,000
113,000

Net profit
Proposed ordinary dividend
Proposed preference dividend
Transfer to General reserve
Retained profit for the year
Retained profit b/fwd
Retained profit c/fwd

2507/3/08/MA

1,070,000
580,000
490,000

16,000
6,000
20,000

Page 9 of 15

42,000
71,000
295,400
366,400

MODEL ANSWER TO QUESTION 3 CONTINUED

(b)

Balance Sheet at 31 December 2007

Fixed Assets
Premises
Machinery

480,000
360,000
840,000

Current Assets
Stock
Debtors
Bank

122,000
37,600
52,400

Creditors due in less than 12 months

Proposed dividends (16,000 + 6,000)
Creditors

212,000

22,000
23,600
45,600
166,400
________
1,006,400

Net Current Assets

Total Assets less Current Liabilities
Creditors due in more than 12 months
5% debentures repayable in 2014
Loan repayable in 2014

80,000
60,000

Authorised capital
400,000 ordinary shares at 0.50 each
160,000 preference shares at 1 each

200,000
160,000
360,000

Issued share capital

320,000 ordinary shares at 0.50 each
120,000 5% preference shares at 1 each

Reserves
Share premium
Profit & Loss
General reserve (80,000 + 20,000)

2507/3/08/MA

140,000
866,400

160,000
120,000
280,000

120,000
366,400
100,000

Page 10 of 15

586,400
866,400

QUESTION 4
RST has a year end of 30 April and provides for doubtful debts at a rate of 3%. The following debtors
balances are available:
Debtors
at 30 April 2006
at 30 April 2007
at 30 April 2008

37,400
42,800
39,200

The following bad debts were written off:

Debtor
A
B
C
D
E
F

Date written off

15 May 2006
16 August 2006
7 January 2007
21 May 2007
13 June 2007
30 October 2007

120
218
84
202
74
58

The debt of D, which had been written off, was partially recovered on 31 March 2008 when 48 was
received by RST.

REQUIRED
Prepare for each of the years ended 30 April 2007 and 30 April 2008:
(a) Provision for Doubtful Debts Account

(9 marks)

(b) Bad Debts Account.

(4 marks)

REQUIRED
Prepare for the year ended 30 April 2008:
(c) Ds Account

(4 marks)

(d) Bad Debts Recovered Account.

(2 marks)

REQUIRED
Prepare at 30 April 2006, 2007 and 2008:
(e) Balance Sheet extracts.

(6 marks)
(Total 25 marks)

2507/3/08/MA

Page 11 of 15

MODEL ANSWER TO QUESTION 4

Provision for Doubtful Debts

(a)
30.4.07

Balance c/d (42,800 x 3%)

1,284

1.5.06
30.4.07

Balance b/d (37,400 x 3%)

1,122

P&L A/c

162
____
1,284

Balance b/d

1,284

____
1,284
30.4.08

P&L A/c

30.4.08

Balance c/d (39,200 x 3%)

108

1.5.07

1,176
_____
1,284

____
1,284
1.5.08

(b)
A
B
C

120
218
84
422

21.5.07
13.6.07
30.10.07

D
E
F

202
74
58
334

Balance b/d
Bad Debts Recovered

30.4.07

P&L A/c

422
422

30.4.08

P&L A/c

334
334

21.5.07
31.3.08

Bad Debts
Bank

Bad Debts Recovered

(d)
30.4.08

202
48
250

P&L A/c

2507/3/08/MA

48

Page 12 of 15

1,176

Ds Account

(c)
1.5.07
31.3.08

Balance b/d

Bad Debts

15.5.06
16.8.06
7.1.07

31.3.08

202
48
250

48

MODEL ANSWER TO QUESTION 4 CONTINUED

(e)

Balance Sheet Extracts

30 April 2006
Debtors
Less provision for doubtful debts

37,400
1,122
36,278

30 April 2007
Debtors
Less provision for doubtful debts

42,800
1,284
41,516

30 April 2008
Debtors
Less provision for doubtful debts

2507/3/08/MA

39,200
1,176
38,024

Page 13 of 15

QUESTION 5
The following ledger balances appeared in the books of M Woo for April 2008:

Dr
25,200
200
?
160

Sales Ledger balances at 1 April

Purchases Ledger balances at 1 April
Sales Ledger balances at 1 May
Purchases Ledger balances at 1 May

Cr
180
18,320
260
?

The following information was also available:

Credit purchases
Credit sales
Discounts allowed
Discounts received
Purchases returns
Sales returns
Payments to suppliers
Receipts from credit customers
Refund received from supplier
Transfer of balance from Sales Ledger to Purchases Ledger
Bad Debts

233,000
304,700
760
580
2,220
14,640
202,020
283,220
800
660
240

REQUIRED
In the books of M Woo for April 2008, prepare:
(a) Purchases Ledger Control Account.

(11 marks)

(b) Sales Ledger Control Account.

(11 marks)

REQUIRED
(c) State three advantages of preparing Control Accounts.

(3 marks)
(Total 25 marks)

2507/3/08/MA

Page 14 of 15

MODEL ANSWER TO QUESTION 5

Purchases Ledger Control Account

(a)
Balance b/d
Discounts Received
Purchases Returns
Bank
Contra
Balance c/d

Balance b/d

200
580
2,220
202,020
660
46,600
252,280

Balance b/d
Purchases
Bank
Balance c/d

160

Balance b/d

18,320
233,000
800
160
_______
252,280
46,600

Sales Ledger Control Account

(b)

Balance b/d
Sales
Balance c/d

25,200
304,700
260

_______
330,160
Balance b/d

30,460

Balance b/d
Bad Debts
Discounts Allowed
Sales Returns
Bank
Contra
Balance c/d

Balance b/d

180
240
760
14,640
283,220
660
30,460
330,160
260

(c) The identification of errors in the sales and purchases ledger.

The location of errors via control accounts eliminates the need to consider the sales and
purchases ledgers when errors are revealed by the trial balance.
An audit of staff efficiency where control accounts are prepared independently by a senior
member of staff.
For management purposes, control account balances can be taken to equal debtors and creditors
without the extraction of individual balances.

2507/3/08/MA

Page 15 of 15

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