CAIE AS and A Level Accounting 会计练习册新大纲原版 hodder

Ca ss sm WITH al E YEARS es on m bridge A 25 ducation W king for ove or r ent Intern i at Cambridge International AS & A Level Accounting David Horner 9781398317543_Cam Int Acc WB.indd 1 16/10/21 12:16 PM Contents Introduction 3 A level AS level 1 Financial accounting 1.1 1.2 1.3 1.4 1.5 1.6 Types of business entity The accounting system Accounting for non-current assets Reconciliation and verification Preparation of financial statements Analysis and communication of accounting information 4 4 6 14 18 27 38 2 Cost and management accounting 43 2.1 Costs and cost behaviour 2.2 Traditional costing methods 43 46 Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked, the Publishers will be pleased to make the necessary arrangements at the first opportunity. Although every effort has been made to ensure that website addresses are correct at time of going to press, Hodder Education cannot be held responsible for the content of any website mentioned in this book. It is sometimes possible to find a relocated web page by typing in the address of the home page for a website in the URL window of your browser. Hachette UK’s policy is to use papers that are natural, renewable and recyclable products and made from wood grown in well-managed forests and other controlled sources. The logging and manufacturing processes are expected to conform to the environmental regulations of the country of origin. Orders: please contact Hachette UK Distribution, Hely Hutchinson Centre, Milton Road, Didcot, Oxfordshire, OX11 7HH. Telephone: +44 (0)1235 827827. Email: education@hachette.co.uk Lines are open from 9 a.m. to 5 p.m., Monday to Friday. You can also order through our website: www.hoddereducation.com ISBN: 978 1 3983 1754 3 © David Horner 2021 2 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 2 3 Financial accounting 3.1 3.2 3.3 3.4 3.5 Preparation of financial statements Regulatory and ethical considerations Business acquisition and merger Computerised accounting systems Analysis and communication of accounting information 51 51 60 63 69 71 4 Cost and management accounting 78 4.1 4.2 4.3 4.4 Activity based costing Standard costing Budgeting and budgetary control Investment appraisal 78 81 86 90 First published in 2021 by Hodder Education, An Hachette UK Company Carmelite House 50 Victoria Embankment London EC4Y 0DZ www.hoddereducation.co.uk Impression number 10 9 8 7 6 5 4 3 2 1 Year 2025 2024 2023 2022 2021 All rights reserved. Apart from any use permitted under UK copyright law, no part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or held within any information storage and retrieval system, without permission in writing from the publisher or under licence from the Copyright Licensing Agency Limited. Further details of such licences (for reprographic reproduction) may be obtained from the Copyright Licensing Agency Limited, www.cla.co.uk Cover photo © Valery Evlakhov – stock.adobe.com Typeset in India Printed in Great Britain by Hobbs the Printers Ltd A catalogue record for this title is available from the British Library. Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM Introduction Welcome to the Cambridge International AS & A Level Accounting Workbook. The aim of this Workbook is to provide you with further opportunity to demonstrate the skills you have acquired through using the Cambridge International AS & A Level Accounting Student Book. It is designed to complement the second edition of the textbook and to provide additional exercises to help you in your preparation for your examinations. The chapters in this Workbook reflect the topics in the Student Book and syllabus. There is no set way to approach using this Workbook. You may wish to use it to supplement your learning of different topics as you work through each chapter of the Student Book, or you may prefer to use it to reinforce your understanding as you prepare for your examination. The Workbook is intended to be sufficiently flexible to suit whatever you feel is the best approach for your needs. Space has been left to write your answers in where the answers are short. However, there are many calculations to perform and extra paper may be helpful as you plan out and work through solutions. Please complete your longer answers on a separate sheet of paper. The answers can be downloaded for free by visiting https://www.hoddereducation.com/cambridgeextras Disclaimers All questions and sample answers within this book have been written by the author. In examinations, the way marks are awarded may be different. References to assessment and/or assessment preparation are the publisher’s interpretation of the syllabus requirements and may not fully reflect the approach of Cambridge Assessment International Education. Cambridge International recommends that teachers consider using a range of teaching and learning resources in preparing learners for assessment, based on their own professional judgement of their students’ needs. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 3 Photocopying prohibited 3 16/10/21 12:16 PM AS LEVEL 1 Financial accounting 1.1 Types of business entity Multiple choice questions Choose the ONE correct answer. 1 An advantage of operating as a partnership instead of a sole trader would include: A Ability to raise capital through share issues B Limited liability for all partners C Quicker decision-making D Wider range of expertise 2 Which of the following sources of finance is not available to a partnership? A Long-term loans C Share issues B Overdrafts D Trade credit 3 If no partnership agreement exists, which of the following would not apply? A All profits and losses would be shared equally B Interest on drawings would be charged at 5 per cent C No interest on the agreed capital contributions would be allowed D Partners would be entitled to 5 per cent interest on any loans made by partners to the partnership 4 Describe two advantages of operating as a sole trader compared with operating as a partnership. [4 marks] i �� ii �� 5 Explain three reasons why a sole trader may wish to convert his or her business into a partnership. [6 marks] i �� ii �� iii �� 4 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 4 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 6 State five features of the Partnership Act 1890 that apply if no partnership agreement exists. i [5 marks] �� ii �� iii �� iv �� v �� 7 Describe two reasons why a partnership may convert into a limited company. i [4 marks] �� ii �� 8 Describe two differences between a private and a public limited company. i [4 marks] �� ii �� 9 Explain the term security in the context of sources of finance. [2 marks] �� 10 State two internal and two external methods (sources) of finance. [4 marks] Internal 1:........................................................ Internal 2: .......................................................... External 1:........................................................ External 2: .......................................................... 11 Explain two advantages of raising finance through a share issue compared with a debenture issue.[4 marks] i �� ii �� 12 A business has two shareholders, who each own 50% of the ordinary share capital. They wish to expand and are looking to borrow money. Gregory – one of the shareholders – believes that the company should use the overdraft facility the bank has agreed to. Ware – the other shareholder – disagrees and believes a loan would be a better idea. Advise them whether or not the company should use an overdraft as the source of finance. [5 marks] Please use a separate sheet to answer this question and subsequent questions which require longer answers. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 5 Photocopying prohibited 5 16/10/21 12:16 PM AS LEVEL 1.2 The accounting system Multiple choice questions 3 A furniture retailer buys tables for cash for use in head office. How is this recorded in the books of account? Choose the ONE correct answer. 1 Sale of goods on credit to K Duguid should be recorded as: Account to be debited Account to be credited A Bank Sales B K Duguid Sales C Sales Bank D Sales K Duguid 2 Walsh purchased goods from Baker on credit and later returned them. How did Baker record this return of goods in his books of account? Account to be debited Account to be credited A Baker Purchases returns B Sales returns Baker C Sales returns Walsh D Walsh Purchases returns Account to be debited Account to be credited A Cash Office furniture B Cash Purchases C Office furniture Cash D Purchases Cash 4 A purchase of computer equipment was recorded as an expense in the statement of profit or loss. Which accounting concept was being applied? A Business entity B Going concern C Materiality D Prudence 5 Which statement below the ledger account is not correct? Capital account 2022 $ 2022 31 Dec Drawings 31 Dec Balance c/d $ 4 020 1 Jan 10 440 31 Mar 31 Dec Balance b/d 10 500 Bank 1 870 Statement of profit or loss 2 090 14 460 A Capital has decreased from 1 January 2022 to 31 December 2022 B Capital increased by $60 over the year 14 460 C Drawings taken by the owner were greater than the extra contributions made by the owner D The profit for the year was $2090 6 Darren is a retailer of garden furniture. For each transaction state which accounts should be debited, and which should be credited. Account to be debited 6 a Motor van bought on credit from M Sparks b Machinery bought and payment made by cheque c Owner paid own money into bank account d Credit sale made to C Scanlon e Cheque sent to U Baines in respect of credit purchase f Cash received from B Fanning, a credit customer Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 6 [6 marks] Account to be credited Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 7 For the following transactions state which accounts should be debited, and which should be credited. Account to be debited a Cash taken out of the bank account but kept available for business use b Insurance paid by cash c Goods returned to K Themen, a credit supplier d Commission income received by cheque e Goods purchased for resale taken by owner for private use f Receipt by bank transfer of money lent to the business by E Poulou Account to be credited 8 Record these transactions in the following ledger accounts. [12 marks] 1 May Owner makes $1400 of her own cash available for business use. 6 May Owner places $800 of the cash into a business bank account. 8 May Equipment bought for business use costing $400. Payment made by bank transfer. 11 May Car purchased for business use on credit from T Friel for $2000. 13 May Equipment which had cost $200 on 8 May is sold for cash for the same amount. 17 May Owner brings her own computer into the business at a valuation of $380. Capital $ Equipment $ Cash $ $ $ Computer $ Bank $ [6 marks] $ $ Car $ $ $ T Friel $ Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 7 $ Photocopying prohibited 7 16/10/21 12:16 PM AS LEVEL 9 Record the following transactions in the double-entry accounts and balance off the accounts at 30 June 2021. [14 marks] 1 June Owner places $1000 of own money into the business bank account. 5 June Goods purchased on credit from S Wolstencroft for $98. 8 June Sales made on credit to S Rogers for $99. 12 June Owner returns goods worth $22 to S Wolstencroft. 18 June Sales made on credit to P Hanley for $178. 20 June P Hanley returns $58 of the goods that he purchased. 28 June Wages of $102 paid by cheque. Capital $ S Wolstencroft $ Bank $ 8 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 8 $ Sales $ Purchases $ $ $ $ Purchases returns $ $ $ Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting S Rogers Sales returns $ $ $ P Hanley Wages $ $ $ 10 Using your knowledge of the accounting equation, calculate the missing information in the following table. Assets ($) a Capital ($) 13 123 87 971 d 61 320 39 808 e 109 091 76 359 5 785 44 550 11 Using your knowledge of the accounting equation, calculate the missing information in the following table. Capital ($) 78 979 c 151 409 d 212 409 e 4 485 55 838 89 808 43 439 28 711 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 9 [5 marks] Liabilities ($) 28 980 b [5 marks] 22 320 c a $ Liabilities ($) 64 742 b Assets ($) $ 70 369 Photocopying prohibited 9 16/10/21 12:16 PM AS LEVEL 12 For each of the following, state in which book of prime entry the transaction would be recorded. [6 marks] Book of prime entry a Purchases made on credit. b Goods previously purchased by the business sent back to the supplier. c A computer taken out of the business for private use. d Bank transfer to settle an amount owing relating to the purchase of goods for resale. e Cheque received on sale of motor vehicle. f Sale on credit of machinery bought for resale. 13 Jack provided the following information. Balances on 1 March $ Bank (Debit) 635 Cash (Debit) 110 Transactions for March $ 2 Mar Paid rent by cheque. 315 4 Mar Sold goods for cash. 213 7 Mar Paid M Bright – a credit supplier – by cheque. 175 9 Mar Paid cheque from own private account into business account. 500 12 Mar Paid wages by bank transfer. 199 13 Mar Received commission in cash. 85 18 Mar Purchased goods paid for immediately by bank transfer. 76 22 Mar Paid electricity by cash. 41 Prepare the cash book for the month of March. Bring down the balances on 1 April. [10 marks] Cash book 10 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 10 Cash Bank Cash Bank $ $ $ $ Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 14 The following balances were extracted from the books of account on 1 July. $ Balance at bank (overdrawn) 209.50 Cash in hand 87.00 Credit customers: C Woods 280.00 D Hirst 340.00 N Jemson 480.00 Credit suppliers: C Palmer 360.00 J Sheridan 180.00 N Pearson 120.00 Additional information – The three credit customers all settled their accounts on 5 July by cheque after taking a cash discount of 2 per cent. – Sundry expenses of $46.90 were paid in cash on 8 July. – The amount owing to C Palmer was settled by cheque on 9 July after taking a cash discount of 4 per cent. – The accounts of J Sheridan and N Pearson were settled by bank transfer on 20 July after taking a 3 per cent cash discount. – Rent of $250.00 was paid by cheque on 25 July. Prepare a cash book for July and bring down the balances on 1 August. [18 marks] Cash book Discount allowed Cash Bank Discount received Cash Bank $ $ $ $ $ $ Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 11 Photocopying prohibited 11 16/10/21 12:16 PM AS LEVEL 15 Prepare journal entries to record the following transactions of a business (narratives are required). a Equipment bought on credit from T Crooks for $1250. b Transfer of a debt, $250, recorded as being owed to B Pritchard but actually owed to N Wilding. c Computer taken out of the business for personal use at its book value of $560. d Delivery van bought on credit from SpareVans Ltd for $13 250. e Equipment accepted in return for outstanding debt owed to the business by T Presley $225. [10 marks] General journal Dr Cr $ $ 16 Ahmed runs a stall selling fresh fruit juice. He is preparing his end of year financial statements and wants your advice on the following: a He currently depreciates his juicer – used to make the drinks – using the straight-line method. However, this method means the book value of the juicer in his non-current assets is not always realistic. He wishes to change his method to the reducing balance method. b At the end of the year, he has a very small number of paper cups left over. The value of these cups is small, but Ahmed intends to include these under the heading of current assets. c He is owed $500 from an event he catered for in December. The organiser of the event will pay but wishes – with Ahmed’s agreement – to delay payment until January. As this is in the next financial year, Ahmed intends to include this as a sale in the following year’s statement of profit or loss. Advise Ahmed on the correct procedures in each case, referencing any appropriate concepts that may affect your decision. [9 marks] a �� 12 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 12 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting b �� c �� 17 Coverdale starts up a small business selling imported rare books. As a sole trader, he considers it a major benefit that he does not have to keep full financial records of transactions. However, his best friend, Dickins, advises him that he should keep full financial records. Evaluate whether or not Coverdale should start maintaining full financial records. [5 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 13 Photocopying prohibited 13 16/10/21 12:16 PM AS LEVEL 1.3 Accounting for non-current assets Multiple choice questions Choose the ONE correct answer. Which of the expenses are revenue expenditure? A i and ii only C i, ii and iii B i and iii only D i and iv 1 A furniture retailer buys sofas for cash for use in its reception area. Which entry would record this? Account to be debited Account to be credited A Cash Furniture B Cash Purchases C Furniture Cash D Purchases Cash 2 A bakery incurred the following expenses over the period of one week. i Purchase of flour and sugar ii Purchase of new kitchen equipment iii Carriage inwards on the kitchen equipment iv Wages paid to the bakers 3 Machinery which originally cost $56 000 is depreciated at a rate of 25 per cent per annum using the reducing balance method. What is the book value of this asset at the end of the third year of ownership? A $14 000 C $31 500 B $23 625 D $42 000 4 Tools were valued on 1 January 2021 at $3760. During 2021, more tools costing $419 were purchased. On 31 December 2021, the managers valued the tools at $3425. What was the depreciation of tools for the year ended 31 December 2021? A $84 C $419 B $335 D $754 5 Identify the following expenses either as capital expenditure or revenue expenditure. (Write the letters representing each statement in the boxes.) a Heating expenses for the year Capital [6 marks] Revenue b Costs of installing a new heating system c Carriage inwards on new boiler for the heating system d Annual service cost of the heating system e Repair costs of the heating system f Upgrade of the heating system 6 For the following items, identify in each case whether they are a capital or revenue receipt. (Write the letters representing each statement in the boxes.) a Sales of takeaway coffee by a fast food vendor b Sale of pick-up truck used by a garage Capital [6 marks] Revenue c Injection of share capital by investors d Dividends received e Sale of shelving unit by an office fitter f 14 Sale of machinery bought for resale Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 14 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 7 Identify the following incomes and expenditures as either capital or revenue. (Write the letters representing each statement in the boxes.) a Delivery costs of raw materials [12 marks] Capital expenditure Revenue expenditure b Insurance of motor vehicles used within business c Sales of dining tables by furniture retailer d Installation costs of new machinery e Wages paid for production labour f Interest received on investments Capital income g Sale of cash till by a vehicle retailer Revenue income h Cost of constructing new extension to office block i Repair costs to existing machine j Loan taken out by sportswear retailer k Sale of office furniture used in accountants’ office l Sale of houses by property estate management company 8 A business acquires new machinery. The following costs are associated with the machinery. $ Purchase price of machinery 45 000 Delivery charge for machinery 870 Insurance on machinery 2 340 Installation cost of machinery 990 Power charge for machinery 2 670 Legal fees associated with purchase 1 840 Maintenance costs 3 100 Total costs 56 810 From this data, calculate both the capital expenditure and the revenue expenditure associated with the machinery. [7 marks] 9 A business buys a delivery van for $33 000 and it is expected to last 3 years with an estimated scrap value of $2400. Prepare the following table comparing the depreciation and net book values for each year of the asset’s life using both straight-line and reducing balance methods of depreciation. [5 marks] (Take the rate of 50 per cent for reducing balance). Straight-line method ($) Cost 33 000 Reducing balance method ($) 33 000 Depreciation year 1 Book value at end of year 1 Depreciation year 2 Book value at end of year 2 Depreciation year 3 Book value at end of year 3 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 15 Photocopying prohibited 15 16/10/21 12:16 PM AS LEVEL 10 A business buys equipment for business use. The equipment costs $25 000 and is expected to last 4 years with an estimated scrap value of $1000. Prepare the following table comparing the depreciation and net book values for each year of the asset’s life using both straight-line and reducing balance methods of depreciation. (Take the rate of 30 per cent for reducing balance). [6 marks] Straight-line method ($) Cost Reducing balance method ($) 25 000 25 000 Depreciation year 1 Book value at end of year 1 Depreciation year 2 Book value at end of year 2 Depreciation year 3 Book value at end of year 3 Depreciation year 4 Book value at end of year 4 11 RHK Limited has a financial year end of 31 December. It made the following purchases of plant and equipment: 1 January 2021 $50 000 1 October 2022 $100 000 1 April 2023 $20 000 All plant and machinery is depreciated using the straight-line method at a rate of 20 per cent per annum charged on a monthly basis. Prepare the provision for depreciation of plant and equipment account for the years 2021–23. [8 marks] Provision for depreciation of plant and equipment $ 16 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 16 $ Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 12 Equipment is purchased for $70 000 on 30 September 2021. It is depreciated using straight-line method with no residual value and an expected lifespan of 7 years. Depreciation is based on proportions of years the asset is held for. On 1 April 2024, the equipment was sold on credit to L Tong for $44 000. Prepare the journal entries needed to record the sale of the asset (narratives are required). [8 marks] General journal Dr Cr $ $ 13 A business had a financial year end of 30 June. On 1 July 2021 it purchased a motor vehicle at a cost of $25 000. It was depreciated at the rate of 20 per cent per annum using the reducing balance method. On 30 June 2024 it was offered in part exchange for a new vehicle that cost $20 000. A cheque for $6500 was paid in full settlement of the outstanding balance. Prepare the following ledger accounts: [9 marks] (i) motor vehicle disposal account (ii) motor vehicle account. Motor vehicle disposal account $ Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 17 Motor vehicle account $ $ Photocopying prohibited $ 17 16/10/21 12:16 PM AS LEVEL 1.4 Reconciliation and verification Multiple choice questions Choose the ONE correct answer. 1 Which error would be revealed by the preparation of a trial balance? A A payment made to a supplier is entered in the wrong personal account B A purchase of a non-current asset on credit is debited to the supplier’s account and credited to the non-current asset accounts C A transaction is completely omitted from the books of account D An amount entered for a debit entry is double that made for the credit entry 2 A payment made by cheque of $250 for insurance was credited to the insurance account and debited to the bank account by mistake. The entry needed to correct this in the ledger accounts would be: 3 At 31 May 2026, the balance on the allowance for irrecoverable debts account was $1500. At 31 May 2027, trade receivables totalled $67 560. It was decided to write off $310 of the trade receivables balance as irrecoverable. It was also decided to adjust the balance on the allowance for doubtful debts to 4 per cent of trade receivables. Which amount was included in the statement of profit or loss for the year ended 31 May 2027 to record the change in the allowance for irrecoverable debts? A $310 income C $1500 income B $1190 expense D $2690 expense 4 A trader provided the following information: Balance of trade payables at the start $2950 of the year Balance of trade payables at the end of the year $1180 Debit Credit Cash paid to credit suppliers $13 020 A Insurance $250 Bank $250 B Insurance $250 Suspense $250 C Insurance $500 Bank $500 What was the value of credit purchases? A $8890 C $14 790 B $11 250 D $17 150 D Insurance $500 Suspense $500 5 The following trial balance prepared on 31 December 2022 has a number of errors. Prepare a corrected trial balance. You can assume that the balance on the suspense account will be zero in the correct version. [8 marks] 18 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 18 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting Trial balance at 31 December 2022 Dr Cr $ $ Sales 123 341 Purchases 62 342 Sales returns 432 Purchases returns 342 Machinery at cost 21 000 Provision for depreciation of machinery 1 220 General expenses 989 Land 50 000 Inventory at 1 January 2022 5 523 Inventory at 31 December 2022 6 131 Trade payables 4 536 Trade receivables 8 778 Bank (overdraft) 113 Salaries 52 425 Administration costs 841 Capital 85 000 Drawings 12 222 Suspense 23 673 229 454 229 454 Dr Cr $ $ Trial balance at 31 December 2022 Sales Purchases Sales returns Purchases returns Machinery at cost Provision for depreciation of machinery General expenses Land Inventory at 1 January 2022 Inventory at 31 December 2022 Trade payables Trade receivables Bank (overdraft) Salaries Administration costs Capital Drawings Suspense Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 19 Photocopying prohibited 19 16/10/21 12:16 PM AS LEVEL 6 Describe three errors that could be revealed through the preparation of a trial balance. i [6 marks] �� ii �� iii �� 7 Identify the type of error being made in each case below. [6 marks] a Advertising expenses of $41 were entered in the ledger account and cash book as $71. b Sales on credit to Oakey of $119 were debited to the sales account and credited to Oakey’s account. c A payment received of $55 from Catherall was credited to the account of Sulley. d Motor expenses paid of $240 were debited to the motor vehicles account. e Both the sales returns journal and the purchases returns journal were overcast by $50. f 20 A payment of a utilities invoice for $650 was not entered in the accounts at all. Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 20 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 8 Prepare journal entries to correct the errors below. [10 marks] a Purchases of goods for $400 have been debited to the motor vehicles account. b Cash sales of $130 have not been entered in the ledger accounts. c Purchases returns of $91 to A Wright were entered in both accounts as $19. d Sales returns of $43 from J Callis were debited to Callis’s account and credited to sales returns. e Sales on credit to I Burden for $150 were debited to I Boden’s account by mistake. General journal Dr Cr $ $ 9 A draft loss for the year was calculated as $225. However, a number of errors were discovered. Calculate the profit or loss after all the following errors have been corrected. [6 marks] a The balance on the insurance account was overstated by $425. b Inventory with a cost of $94 taken by the owner for private use was recorded. c The sale of a computer that was used within the business for $250 was treated as a sale of goods (assume no profit or loss was made on its disposal). d Commission received of $90 was treated as a sale. e General expenses of $19 were omitted from the books of account. �� ......................................................................................................................................................... Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 21 Photocopying prohibited 21 16/10/21 12:16 PM AS LEVEL 10 The draft profit for the year for the year ended 31 July 2021 had been calculated as $780. However, the following errors were then discovered. i The purchases journal had been undercast by $164. ii Purchases of $50 included goods with a cost of $24, taken by the owner for his personal use. iii Wages of $50 were credited to the account by mistake. iv Sales returns of $78 from Y Bach were entered in both accounts as $87. v Carriage inwards of $56, paid in cash, was entered in the cash account as $77. Required a Prepare the journal entries to correct the errors above (narratives are required). [10 marks] b Prepare a suspense account showing the corrections which have been made. You should show the opening difference based on the difference in the trial balance before errors are corrected. [4 marks] c Prepare a statement of corrected profit. [5 marks] General journal $ $ Suspense 2021 $ 2021 $ �� ............................................................................................................................................................ �� 22 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 22 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 11 A cash book was prepared for April 2020. Cashbook 2020 $ 2020 $ 1 Apr Balance b/d 67 4 Apr L Wainwright 10 Apr W Tolley 230 12 Apr Y Bach 19 Apr E Nuttall 125 30 Apr Balance c/d 180 57 185 422 422 The following items were included on the bank statement for April. $ Interest paid 31 Bank charges 8 Direct debit: Eastern Electricity 130 Credit transfer received from Ian Yates 85 Prepare an updated cash book using the above information. [5 marks] Cash book 2020 $ 2020 $ 12 The bank columns in the cash book for June 2022 and the bank statement for that month are as follows: Cash book (bank columns only) 2022 $ 2022 $ 2 Jun T Hadley 120 1 Jun Balance b/d 86 5 Jun S Norman 194 4 Jun J Taylor 62 12 Jun G Kemp 34 21 Jun A Ridgley 101 19 Jun J Keeble 205 28 Jun M Harket 145 24 Jun N Rhodes 185 30 Jun Balance c/d 344 738 2022 1 Jun Balance b/d 9 Jun Cheque number 11334 11 Jun Sundries – cheque deposited 12 Jun Bank charges 18 Jun Standing order: S Lebon 19 Jun Sundries – cheque deposited 26 Jun Cheque number 11335 27 Jun Sundries – cheque deposited 30 Jun Dividends Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 23 738 Debit Credit Balance $ $ $ 86 (OD) 62 148 (OD) 120 28(OD) 66 94 (OD) 250 344 (OD) 194 101 150 (OD) 251 (OD) 34 217 (OD) 132 85 (OD) Photocopying prohibited 23 16/10/21 12:16 PM AS LEVEL Required a Prepare an updated cash book at 30 June 2022. [4 marks] b Prepare a bank reconciliation statement at 30 June 2022. [6 marks] Cash book 2022 $ 2022 $ �� 13 From the following data, prepare the sales ledger control account for the month of November 2021. [6 marks] $ Balances of trade receivables at 1 November 2021 3 134 Balances of trade receivables at 30 November 2021 2 109 For the month of November: Credit sales 49 710 Receipts from trade receivables 50 118 Discounts allowed 54 Sales returns 99 Irrecoverable debts 464 Sales ledger control account 2021 24 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 24 $ 2021 $ Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 14 From the following data, prepare the purchases ledger control account for the month of April 2023. [5 marks] $ Balance of trade payables at 1 April 2023 4 980 Balance of trade payables at 30 April 2023 10 131 For the month of April 2023: Credit purchases 101 900 Payments to trade payables 94 131 Discounts received 2 122 Purchases returns 496 Purchases ledger control account 2023 $ 2023 $ 15 From the following data, prepare the sales ledger and purchases ledger control accounts for the [17 marks] month of March 2022 and calculate the missing figures indicated. $ Sales ledger balances at 1 March 2022 42 301 Purchases ledger balances at 1 March 2022 23 808 Credit sales for March 399 808 Credit purchases for March 288 661 Cash sales 131 310 Cash purchases Cash and bank receipts in respect of credit sales Dishonoured cheques Credit balances in sales ledger at 1 March 2022 99 850 417 013 425 1 013 Set-offs from sales ledger against purchase ledger balances 756 Sales returns 442 Irrecoverable debts 870 Payments made for credit purchases 300 980 Discounts allowed 3 314 Discounts received 2 890 Purchases returns 845 Sales ledger balances at 31 March 2022 ? Purchases ledger balances at 31 March 2022 ? Credit balances in sales ledger at 31 March 2022 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 25 730 Photocopying prohibited 25 16/10/21 12:16 PM AS LEVEL Sales ledger control account 2022 $ 2022 $ Purchases ledger control account 2022 $ 2022 $ 16 Beahan is a sole trader. She currently does not use control accounts as part of her verification and reconciliation procedures. She believes that because the business is small, the time taken to produce the control accounts is not worth it. Comment on whether or not she should prepare control accounts. [5 marks] �� 26 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 26 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 1.5 Preparation of financial statements Multiple choice questions Choose the ONE correct answer. Which amount would appear in the statement of profit or loss for the total expense of electricity for the year ended 31 March 2021? A $1378 C $1576 B $1468 D $1666 1 Which errror affects a business’s gross profit? A Completely missing out the entry for payment from a credit customer B Entering payment to a supplier in the wrong trade payable account C Entering the purchase of furniture as an office expense by mistake D Undercasting the sales journal 4 At the start of the year, the balance on Woodley’s capital account was $11 000. At the end of the year, the balance on his capital account was $15 000. During the year he introduced computer equipment valued at $5000 into the business and he also took $50 drawings each week for the full year. 2 Which item would not be found in a partnership appropriation account? A Interest on drawings B Interest on loans made by a partner to the partnership C Partners’ salaries D Shares of profit What is the value of Woodley’s profit earned during the year? A $1600 B $4000 C $4400 D $11 600 3 Information relating to the electricity costs of a business are as follows: ($) Total amount paid in year ended 31 March 2021 1522 Amount owing at 1 April 2020 45 Amount paid in advance at 31 March 2021 99 5 The following transactions took place during the year ended 31 December 2021. In each case, prepare the ledger account and show the transfer to the statement of profit or loss: a Insurance paid during 2021 totalled $994 but $32 was still owing at the end of 2021. [3 marks] b Electricity paid during 2021 totalled $425 of which $52 was for 2022. [3 marks] Insurance 2021 $ 2021 $ Electricity 2021 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 27 $ 2021 $ Photocopying prohibited 27 16/10/21 12:16 PM AS LEVEL 6 Prepare the ledger accounts for 2023 and show the transfer to the statement of profit or loss based on the following data: a Wages paid in advance in 2022 for the year 2023 were $118. Wages paid during 2023 were $9280. Wages owing at 31 December 2023 were $405. [4 marks] b Amount prepaid in 2022 for the following year was $214. Rent received during 2023 was $4650. Amount owing to the business at 31 December 2023 totalled $572. [4 marks] Wages 2023 $ 2023 $ Rent received 2023 $ 2023 $ 7 A new business that started trading on 1 January 2023 wrote the following debts off as irrecoverable on the dates shown below. 22 April G Gregory $56 31 July M Ware $42 19 October I Craig Marsh $101 In addition, goods were sold on credit to P Oakey on 19 October 2023 for $1800. On 15 December, P Oakey was declared bankrupt. A payment of $0.25 for each $1.00 outstanding was received in full settlement and the remainder was written off as irrecoverable. Required Prepare the irrecoverable debts account for the year to 31 December 2023. [6 marks] Irrecoverable debts 2023 28 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 28 $ 2023 $ Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 8 From the following data, calculate the allowance for irrecoverable debts at each year end. State the amount to be included in each year’s statement of profit or loss. In each case, the allowance should be based on 3 per cent of outstanding trade receivables at the year end. No allowance existed at 1 January 2019. Year Trade receivables at 31 December ($) 2019 20 000 2020 24 500 2021 25 800 2022 22 100 Year [8 marks] Value of the allowance ($) Entry in statement of profit or loss ($) 2019 2020 2021 2022 9 The table below contains balances extracted from the trial balance at 31 December for 2022 to 2025. 2022 2023 2024 2025 $ $ $ $ Irrecoverable debts 1 490 1 312 1 620 904 Allowance for irrecoverable debts 1 112 908 1 128 1 052 0 0 200 100 Irrecoverable debts recovered The allowance for irrecoverable debts stood at $914 at 31 December 2021. Calculate the total effect on each year’s profit from the above. [8 marks] 2022 2023 2024 2025 $ $ $ $ Effect on profit 10 The following items are taken from the trial balance of R Becks at 31 March 2026. Prepare a calculation of gross profit for the year ended 31 March 2026. [10 marks] $ Revenue 76 500 Purchases 34 234 Sales returns 241 Purchases returns Opening inventory 139 4 440 Carriage inwards 280 Goods taken for own use 5 142 Closing inventory 3 980 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 29 Photocopying prohibited 29 16/10/21 12:16 PM AS LEVEL 11 From the following trial balance of C Lowe, prepare a statement of profit or loss for the year ended 30 June 2023. C Lowe Trial balance at 30 June 2023 Debit Credit $ $ Revenue Purchases Inventory 98 080 45 435 3 121 Commission received 221 Land and buildings 135 000 Fixtures and fittings 21 000 Wages and salaries 17 200 Office expenses 890 Rent and rates 666 Insurance 420 Motor vehicle expenses 341 Trade payables Trade receivables Cash at bank 7 657 11 311 4554 Capital Drawings 149 460 15 480 255 418 255 418 At 30 June 2023, closing inventory was valued at $4444. 12 The following is an extract from the trial balance of P King, at 31 December 2024. From these entries, prepare a statement of profit or loss for the year ended 31 December 2024. Debit Credit $ $ Revenue Purchases 35 600 Inventory 12 380 Discount received 1 349 Rent received 4 500 Carriage (total) Office equipment 1 700 220 000 Motor vehicles 48 000 Wages and salaries 25 400 Office expenses Motor vehicle expenses 8 725 125 Provision for depreciation of office equipment 45 000 Provision for depreciation of motor vehicles 12 000 Trade receivables Allowance for irrecoverable debts 30 99 700 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 30 19 500 1 250 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting Additional information – At 31 December 2024, inventory was valued at $8978. – The allowance for irrecoverable debts is to be maintained at 4 per cent of trade receivables. – Depreciation of office equipment is to be provided at 10 per cent per annum using the straight-line method. – Depreciation of motor vehicles is to be provided at 20 per cent per annum using the reducing balance method. – Carriage is to be apportioned equally between carriage inwards and carriage outwards. 13 From the following trial balance, prepare a statement of profit or loss for the year ended 31 December 2024, and a statement of financial position at that date. N Tennant Trial balance at 31 December 2024 Debit Credit $ $ Revenue Purchases Sales returns 325 000 149 000 405 Purchases returns Inventory 352 28 070 Discount received 1 110 Land and buildings 225 000 Fixtures and fittings 45 000 Motor vehicles 25 000 Wages and salaries 49 111 Rent and rates 7 123 Electricity 2 090 Motor vehicle expenses 341 Selling expenses 888 Carriage inwards 614 Provision for depreciation of fixtures and fittings 12 800 Provision for depreciation of motor vehicles 8 000 Trade payables Trade receivables 13 288 19 800 Cash at bank Cash on hand 5 234 223 Allowance for irrecoverable debts 250 Capital Drawings 196 431 9 800 562 465 562 465 Additional information – Inventory at the end of the year was valued at $24 560. – Electricity accrued was $600. – Rent and rates prepaid were $950. – Fixtures and fittings are to be depreciated at a rate of 20 per cent per annum using the reducing balance method. – Motor vehicles are to be depreciated at a rate of 20 per cent per annum using the straight-line method. – The allowance for irrecoverable debts is to be maintained at 5 per cent of trade receivables. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 31 Photocopying prohibited 31 16/10/21 12:16 PM AS LEVEL 14 Almond and Ball are in partnership sharing profits in a 2:1 ratio, respectively. For the year ended 31 December 2022, the following information is available: – Interest on drawings: – Almond $900 – Ball $650 – Interest on capital is to be given to partners at a rate of 2.5 per cent per annum. – Capital account balances: – Almond $32 000 – Ball $25 000 – Almond is allowed a salary of $8000 per year. – Profit for the year was $22 500. Prepare an appropriation account for Almond and Ball for the year ended 31 December 2022. 15 Datchler, Hayes and Nocito are in partnership sharing profits in the ratio of 2:1:1, respectively. During the year ended 30 June 2025, the business earned a profit of $124 000. The following information is also available: Drawings Capital account balances $12 000 $85 000 $5 521 Hayes $8 500 $60 000 $6 644 (debit) Nocito $4 000 $50 000 $1 312 Datchler Current account balances at 1 July 2024 – Interest is charged on the full drawings balance at a rate of 4 per cent. – Partners are credited with interest on capital of 4 per cent per annum. – Datchler is given a partnership salary of $15 000 per year. a Prepare a partnership appropriation account for the year ended 30 June 2025. [10 marks] b Prepare the current accounts of each partner at that date. [8 marks] Current accounts 32 Datchler Hayes Nocito Datchler Hayes Nocito $ $ $ $ $ $ Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 32 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 16 Roach Ltd has share capital of 350 000 $1 ordinary shares. It pays a dividend of $0.04 per share. Calculate the value of the dividend paid. [2 marks] �� 17 Butterworth plc issues 800 000 ordinary shares of $0.50 each at a $0.10 premium. The issue is fully subscribed and paid for. State the double-entry needed to record this transaction. [3 marks] �� 18 Sever plc decides to revalue property originally valued at $1 500 000 to $1 900 000. Prepare the journal entries required to record this revaluation. A narrative is required. [2 marks] General journal Dr Cr $ $ 19 A summarised statement of financial position of Lidbury plc at 31 December 2022 is as follows: $ $ ASSETS Non-current assets 600 000 Current assets 130 000 Total assets 730 000 EQUITY AND LIABILITIES Equity Ordinary shares of $1 each 200 000 Share premium account 100 000 Revaluation reserve 30 000 Retained earnings 316 000 Total equity 646 000 Current liabilities Total equity and liabilities Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 33 84 000 730 000 Photocopying prohibited 33 16/10/21 12:16 PM AS LEVEL The directors make a bonus issue of shares on the basis of two bonus shares for every one currently held. Reserves will be utilised so as to leave remaining reserves in their most flexible manner – but the revaluation reserve is not to be used. After the bonus issue, a rights issue is to be raised on the basis of one share for every three held. The shares would be issued at their face value and the bonus shares would qualify for the rights issue. a Prepare the journal entries needed to record both share issues (narratives are not required). i. Prepare the journal entries needed to record the bonus issue (narratives are not required). ii. State the double entry needed to record the rights issue of shares (including the value of the entries). [6 marks] i General journal Dr Cr $ $ ii �� b Redraft the statement of financial position after the share issues had been completed. [6 marks] �� ....................................................................................................................................................... �� 34 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 34 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 20 From the following trial balance, prepare the following. a Statement of profit or loss for the year ended 31 December 2024. [12 marks] b Statement of changes in equity for the year ended 31 December 2024. [4 marks] c Statement of financial position at 31 December 2024. [12 marks] PCHH Ltd Trial balance at 31 December 2024 Debit Credit $ $ Revenue Purchases Inventory 595 000 248 000 64 700 9 500 Rent received Land and buildings 425 000 Fixtures and fittings 95 000 Motor vehicles 32 000 Wages and salaries 89 000 Rent and rates 3 000 Insurance 4 560 Selling expenses Loan interest 888 4 000 22 000 Provision for depreciation of fixtures and fittings Provision for depreciation of motor vehicles 9 000 13 288 Trade payables Trade receivables 48 900 Cash at bank 12 100 Ordinary share capital 300 000 5% Debentures (2029) 80 000 Retained earnings 37 860 Tax Dividends 30 500 9 000 1 066 648 1 066 648 Additional information – Inventory at 31 December 2024 was valued at $59 807. – Fixtures and fittings are to be depreciated at 10 per cent per annum using the reducing balance method. – Motor vehicles are to be depreciated at 20 per cent per annum using the straight-line method. 21 The directors of Alsop plc wish to expand the business. They are considering the best method of financing this expansion. The directors are concerned about diluting the ownership of the company but are also concerned that interest rates on any debenture issue may need to be high to make them attractive to debenture holders. Evaluate whether the directors should use a share issue or a debenture issue to raise the finance for expansion. [5 marks] Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 35 Photocopying prohibited 35 16/10/21 12:16 PM AS LEVEL 22 Ian Yates has not kept proper books of account, but he is able to supply the following information which relates to his financial year ended 31 December 2021. Trade receivables Trade payables 31 December 2021 1 January 2021 $ $ 11 378 8640 5 978 12 476 The following bank transactions took place during the year ended 31 December 2021: – Receipts in respect of trade receivables $69 560 – Payments made in respect of trade payables $55 980 During the year, the following occurred: – A customer, who owed Yates $238, was unable to settle his debt and this amount was written off. – A number of suppliers allowed Yates to deduct a discount from the amounts he was due to pay. This discount totalled $1 210. – Trade receivables were allowed to deduct discounts from the amounts owed to Yates. The discount totalled $1 730. Prepare a sales ledger control account and a purchases ledger control account to determine the total sales and purchases figures for Yates, for the year ended 31 December 2021. [10 marks] �� 36 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 36 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 23 Amina runs a shoe shop. There was a burglary on 29 December 2021 and some shoes were stolen. Amina is aware that a number of pairs of shoes were stolen but was not aware of the exact value. The following information is available: $ Inventory of shoes on 1 December 2021 at cost price 130 Inventory of shoes on 31 December 2021 at cost price 30 Purchases of shoes during December 2021 980 Sale of shoes during December 2021 1 000 Amina uses a uniform mark-up on all shoes of one third on cost. Calculate the cost of the shoes that were stolen on 29 December 2021. [5 marks] �� 24 Sykes is a retailer who does not keep full accounting records. He provided the following information. 31 December 2022 31 December 2021 $ $ 300 000 300 000 Equipment 65 100 72 000 Motor cars 29 100 37 500 Trade payables 27 915 26 268 Trade receivables 32 940 34 362 1 959 1 035 24 450 19 770 261 102 Premises Expenses owing Inventory Insurance prepaid A summary of his bank account for the year ended 31 December 2022 was as follows: Bank account $ Balance b/d Receipts from trade receivables Cash sales $ 19 710 Payments to trade payables 172 959 268 635 Expenses 13 596 84 915 Insurance 6 327 Equipment 13 500 Wages 42 500 Balance c/d 124 378 373 260 Balance b/d 373 260 124 378 Additional information All the cash sales were banked after Hill took personal drawings of $360 per week. (i) Prepare a statement of profit or loss for the year ended 31 December 2022. (ii) Prepare a statement of financial position at 31 December 2022. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 37 [20 marks] [12 marks] Photocopying prohibited 37 16/10/21 12:16 PM AS LEVEL 1.6 Analysis and communication of accounting information Multiple choice questions Choose the ONE correct answer. 1 Inventory is $5000, trade receivables are $3000, trade payables are $4000 and the bank account has a balance of $2000 (Dr). What is the acid test ratio? A 1.25:1 C 2:1 B 1.33:1 D 2.5:1 2 Inventory is $4300, trade receivables are $11 000, trade payables are $9600 and the bank has a balance of $3000 (Cr). What is the current ratio? A 0.56:1 C 1.54:1 B 1.21:1 D 1.91:1 3 A business is having to pay more for its materials without being able to pass on this price increase to its customers. Which ratio changes because of this? A Acid test ratio B Current ratio C Gross profit margin D Trade payables turnover 4 Which of the following could explain why a business selling antiques only makes small profits despite high profit margins? A Low current ratio B Low rate of inventory turnover C High acid test ratio D High return on capital employed 5 Explain one reason why each group of stakeholders below would be interested in the financial statements and performance of a company. [8 marks] a Employees �� b Lenders �� c Existing investors �� d Suppliers �� 38 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 38 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting 6 From the following information, calculate the return on capital employed (ROCE) to one decimal place for each year (2021–23). [3 marks] Profit from operations ($000) 2021 169 2022 199 2023 225 Bridle plc Statement of financial position extracts 2021–23 2023 2022 2021 $000 $000 $000 Ordinary share capital $1 600 500 500 Share premium account 100 - - Retained earnings 117 111 89 5% Debentures 2029 400 400 400 EQUITY & LIABILITIES 2023 2022 2021 ROCE (%) 7 A business provided the following information. 2021 $ Revenue 2020 $ $ $ 123 400 167 650 Less Cost of sales Opening inventory 23 451 28 901 Purchases 78 789 108 020 102 240 136 921 Less Closing inventory 18 901 Gross profit 83 339 31 898 105 023 40 061 62 627 From this data, for each year, calculate to one decimal place: a the mark-up as a percentage b the gross profit margin. [4 marks] 2021 2020 Mark-up Gross profit margin Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 39 Photocopying prohibited 39 16/10/21 12:16 PM AS LEVEL 8 From the statement of profit or loss, calculate the following ratios to two decimal places. $000 Revenue [10 marks] $000 11 980 Less Cost of sales Opening inventory Purchases 231 6 650 6 881 Less Closing inventory 414 Gross profit 6 467 5 513 Less Expenses Selling and distribution costs Administrative expenses Profit from operations Finance costs Profit for the year before tax Tax 890 2 211 3 101 2 412 175 2 237 477 Profit for the year after tax 1 760 a Gross profit margin (%) �� b Mark-up (%) �� c Profit margin (%) �� d Expenses to revenue ratio (%) �� 40 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 40 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 1 Financial accounting e Operating expenses to revenue (%) �� 9 From the following data, for each year, calculate to two decimal places: a the current ratio b the acid test ratio. [6 marks] 2021 2020 2019 $ $ $ Inventory 9 807 13 655 11 500 Trade receivables 6 565 9 991 8 450 2 137 4 890 8 789 7 770 Current assets Bank Current liabilities Trade payables 5 565 Bank overdraft 1 134 2021 2020 2019 Current ratio Acid test ratio 10 Explain two reasons why a high current ratio may be undesirable for a business. i [4 marks] �� ii �� 11 Extracts from the financial statements of Halder Ltd are as follows: Statement of financial position Statement of profit or loss $000 $000 $000 ASSETS Non-current assets 740 Current assets Revenue Less Cost of sales Inventory 55 Opening inventory Trade receivables 99 Purchases Bank 12 Current liabilities Trade payables 67 487 554 Less Closing inventory 71 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 41 890 55 Gross profit 499 391 Photocopying prohibited 41 16/10/21 12:16 PM AS LEVEL Based on this information, calculate the following ratios. [10 marks] a Non-current asset turnover ....................................................................................................................................................... ....................................................................................................................................................... �� b Trade receivables turnover ....................................................................................................................................................... ....................................................................................................................................................... �� c Trade payables turnover ....................................................................................................................................................... ....................................................................................................................................................... �� d Inventory turnover �� ....................................................................................................................................................... ....................................................................................................................................................... e Rate of inventory turnover ....................................................................................................................................................... ....................................................................................................................................................... �� 12 The gross profit margin of Lidz Ltd has fallen steadily from 49 per cent in 2020 to 43 per cent in 2021 and 38 per cent in 2022. One director is concerned with this fall. He believes that the fall needs to be reversed if the company is to generate the same level of profits as it has in the past. Another director is less concerned as she believes that the fall in the ratio is the result of the company adjusting its selling prices in order to match more closely those offered by businesses in the same market. She points to the issue that the profit for the year has fallen but by only 3 per cent over the same period. Evaluate whether the directors should be concerned with the fall in the gross profit margin. 42 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 42 [5 marks] Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM AS LEVEL 2 Cost and management accounting 2.1 Costs and cost behaviour Multiple choice questions Choose the ONE correct answer. 1 Which of these costs is most likely to be variable? A Insurance C Rent B Packaging costs D Salaries 2 A damaged unit of inventory was originally purchased for $16. It can be sold for $18 after spending $4 repairing it. A unit of inventory can be replaced at a cost of $12. Based on this information, this unit of inventory should be valued in the financial statements at: A $12 C $16 B $14 D $18 3 A cost that remains unchanged over a limited range of output before increasing would be best described as which one of the following? A Fixed C Stepped B Semi-variable D Variable 4 What is a feature of just-in-time inventory management? A Goods would be produced with no guaranteed customer B Length of time between order and delivery from suppliers needs monitoring closely C Surplus inventory is held in case of a production failure D The holding of a buffer inventory is common 5 Explain the difference between fixed and variable costs. [2 marks] �� 6 For a takeaway coffee shop, give three examples of relevant a) fixed costs, and b) variable costs. a Fixed cost [6 marks] b Variable cost i ii iii Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 43 Photocopying prohibited 43 16/10/21 12:16 PM AS LEVEL 7 Joel Ford recently valued his end of year inventory at $20 000. The following items have not been included in this valuation. Items Cost Net realisable value Replacement cost $ $ $ SEB1 1 200 1 900 1 500 MSC7 700 880 580 1 600 1 400 960 HAP12 a Explain the term net realisable value. [2 marks] �� b Calculate the total value of Ford’s inventory. [4 marks] ......................................................................................................................................................... �� c State one accounting concept used in the valuation of inventory. [1 mark] ......................................................................................................................................................... �� 8 A business selling domestic ovens had one oven in inventory valued at $600 at 1 June 2025. The following purchases and sales were made in June and July 2025. – Purchases: June: 2 ovens @ $640 each, July: 3 ovens @ $700 each. – Sales: June: 1 oven @ $800, July: 3 ovens @ $1000. Using FIFO, calculate the value of closing inventory on 31 July 2025. [2 marks] �� .............................................................................................................................................................. �� 44 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 44 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 2 Cost and management accounting 9 A business has incurred the following transactions for March 2023. Bought Sold 4 March 20 units at $24 each 13 March 18 units for $68 each 11 March 25 units at $30 each 22 March 9 units for $60 each a Calculate the value of closing inventory using (i) FIFO and (ii) AVCO (perpetual method). [4 marks] �� b From part a, calculate the gross profit for March 2023 using (i) FIFO and (ii) AVCO. [4 marks] �� 10 A business changes from using AVCO to using FIFO for valuing inventory. If inventory prices are generally rising over time, explain the effect of this change in valuation method on gross profit: a in the first year [2 marks] �� b in year two onwards. [2 marks] �� 11 Describe two disadvantages for a business of using the just-in-time system of inventory management. i [4 marks] �� ii �� 12 Jow Ltd is a small manufacturer of folding bicycles. The manager of Jow Ltd wishes to introduce just-in-time management of inventory as he believes it will boost profitability. His deputy disagrees. Advise the manager whether or not the company should introduce just-in-time management of inventory. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 45 [5 marks] Photocopying prohibited 45 16/10/21 12:16 PM AS LEVEL 2.2 Traditional costing methods Multiple choice questions Choose the ONE correct answer. 1 A product sells for $50 per unit. Variable costs are $30 per unit and fixed costs are $14 000. What is the break-even level of sales? A $700 C $21 000 B $14 000 D $35 000 2 An identifiable area of a business that collects costs is usually known as a: A Cost centre C Direct cost B Cost unit D Indirect cost 3 Contribution can be defined as: A Fixed costs less variable costs B Sales revenue less fixed costs C Selling price less variable costs D Variable costs less selling price 4 When deciding to accept a special order at or below the normal selling price a business would consider which cost? A Absorption cost C Marginal cost B Full cost D Overhead cost 5 A business provided the following information about a product: – fixed overheads $80 000 – selling price $6 – variable cost per unit $4, The business plans to increase the selling price by 50 per cent. Calculate the break-even point (in units) after the increase. [3 marks] .............................................................................................................................................................. .............................................................................................................................................................. �� 6 Usher Ltd manufactures one product. The cost of producing one unit is as follows: $ Materials ($4 per metre) 6 Labour ($6 per hour) 12 Other variable costs 1 The fixed costs for the year are expected to be $200 000. Each unit sells for $30 and the business expects to sell 20 000 units each year. The production manager intends to purchase new machinery, which will allow units to be produced in 50 per cent of the time taken previously. Training is needed to operate new machinery and this training will imply a one-off increase to fixed costs of $50 000. a Calculate the contribution per unit, both before and after the introduction of the proposed change. [2 marks] ......................................................................................................................................................... �� 46 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 46 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 2 Cost and management accounting b Calculate the expected total annual contribution if the business’s sales expectations are met – both before and after the proposed change in machinery. [2 marks] ......................................................................................................................................................... �� c Calculate the expected annual profit if the business’s sales expectations are met – both before and after the proposed change in machinery. [4 marks] �� 7 Parsons Ltd manufactures a range of products. One of their products is a scooter used by young adults. Data relating to the costs for May 2023 are as follows: $ Direct labour 7 500 Direct materials Production overheads Selling and distribution costs 15 000 Fixed 2 500 Variable 3 500 Fixed 7 500 Variable 6 000 The fixed costs are of a general nature and are not related to the output of scooters. – Planned output for October is 200 scooters. – Each scooter is sold for $300. – An overseas supplier has offered to supply the fully constructed scooter for $150 each. a On financial grounds alone, justify whether Parsons Ltd should continue to produce scooters or should buy-in the scooter from the overseas supplier. [5 marks] �� b State three additional factors which may be used to make the overall decision. i [3 marks] �� ii �� iii �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 47 Photocopying prohibited 47 16/10/21 12:16 PM AS LEVEL 8 Rhodes Ltd manufactures steel pipes. Each steel pipe requires raw materials costing $12 and requires 3 hours of skilled labour at $8 per hour. Other variable costs per pipe include administration $5 and power costs $6. – Monthly fixed overheads are: – selling and distribution $8000 – administration $3000. – The list price charged by Rhodes Ltd is $60. Rhodes Ltd has been approached by LeBon plc with the following proposals. 1 That Rhodes Ltd produces an additional 2000 pipes per month for LeBon plc but under the condition that the selling price is at a 20 per cent discount on the list price. 2 That the special order be increased to 3000 pipes per month provided that the trade discount is increased to 30 per cent. a Calculate, based on financial grounds only, whether either proposal is worth accepting. [6 marks] �� b State three additional reasons why the proposal should be accepted or rejected. i [3 marks] �� ii �� iii �� 9 M Downs produces three different sizes of dinner plates. Data relating to the production of these plates are as follows: Small Direct materials Direct labour Other direct costs Selling price 48 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 48 Medium Large $ $ $ 5 4 3 12 10 14 2 4 5 32 35 40 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:16 PM 2 Cost and management accounting The wage rate paid for direct labour is $8 per hour. Currently, the business produces 2000 of each size of plate per month. However, there is a shortage of labour used in their production. Only 8000 hours of this labour are available for the month. Prepare a revised production schedule that maximises profits for M Downs. [8 marks] 10 Yates Ltd manufactures two products: XP1 and IJY7. Budgeted production for each product for one month is as follows: Units Direct labour hours per unit XP1 18 000 2.5 IJY7 12 000 1.25 Budgeted overheads for the month are $80 000. Based on this data, calculate: a The amount of overhead absorbed by one unit of each product using the direct labour hour method. [6 marks] �� b The total amount of overheads absorbed by each product if the budget is accurate. [4 marks] �� 11 Henwood Limited manufactures two products JWLH and SHLH. The following budgeted figures are available. Sales (units) Direct labour hours per unit Direct labour costs per hour ($) JWLH SHLH 20 000 10 000 4 2 30 15 Direct materials used per unit 8 kg 6 kg Direct materials cost per kg ($) 5 3 The fixed overheads are forecast as $480 000 and are allocated on the basis of direct labour hours Calculate for each product: (i) the total production costs [3 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 49 Photocopying prohibited 49 16/10/21 12:16 PM AS LEVEL (ii) the production costs per unit [1 marks] �� 12 Whittington runs a chain of bakeries. The business as a whole is profitable but one branch of the chain has made losses for the last three years. One of his advisers suggests that this branch should be closed and the savings invested into expanding the more profitable branches. Evaluate whether or not Whittington should close the loss-making branch. [5 marks] 13 The directors of the Harry Butterworth Manufacturing Ltd provide the following information relating to the budgeted overheads for April 2021 Overhead Total ($) Factory rent 28 000 Heating and lighting for factory 18 500 Machinery maintenance 12 400 Factory supervision 48 800 Machinery insurance 3 650 Additional information relating to the manufacturing aspect of the company is as follows: Department 1 Factory area Electricity used Cost of machinery 2500 Department 2 meters2 7500 meters2 4500 KwH 3000 KwH $240 000 $160 000 25 55 Staff employed (number) Required – Prepare an overhead analysis sheet for April 2021. [12 marks] ............................................................................................................................................................ �� ............................................................................................................................................................ �� ............................................................................................................................................................ 50 9781398317543.indd 50 Photocopying prohibited Cambridge International AS & A Level Accounting Workbook 23/10/21 10:24 AM A LEVEL 3 Financial accounting 3.1 Preparation of financial statements 1 Gahan and Gore have always shared profits in a 2:1 ratio, respectively. They admit Fletcher as a partner on 1 January 2024, who will contribute $40 000 cash as capital. The partners decide to revalue their assets on 31 December 2023. Gahan and Gore Statement of financial position at 31 December 2023 $ $ Non-current assets Premises 190 000 Machinery 24 000 214 000 Current assets Inventory 10 000 6 000 Bank 16 000 230 000 Capitals Gahan 130 000 Gore 100 000 230 000 Assets are to be revalued as follows: – Premises: $240 000 – Machinery: $34 000 – Inventory: $4000. Prepare a) a revaluation account and b) the statement of financial position after the admission of Fletcher on 1 January 2024. [12 marks] Revaluation account $ Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 51 $ Photocopying prohibited 51 16/10/21 12:16 PM A LEVEL 2 Drewery, Connell and Jackson have been in partnership for 10 years. They have always shared profits equally and no goodwill has ever been recorded in the books. Their capital account balances at 31 December 2020 are as follows: $ Drewery 18 000 Connell 12 000 Jackson 9 000 The partners agree that from 1 January 2021 Jackson will take only one-fifth of the profits, owing to spending less time working within the business. Drewery and Connell will each take two-fifths of the profits. Goodwill at 31 December 2020 was valued at $24 000. Goodwill is not to be retained in the books of account. Prepare the capital accounts of the partnership showing the adjustments for goodwill. [6 marks] Capital accounts Drewery Connell Jackson Drewery Connell Jackson $ $ $ $ $ $ 3 Cureton and Iwelumo are in partnership sharing profits in a 4:1 ratio. At 31 December 2021, their non-current assets had the following values: Non-current assets $ Premises 200 000 Equipment 64 000 Motor vehicles 36 000 300 000 Cureton and Iwelumo agree to admit Garcia as a partner on 1 January 2022 when the assets were revalued as follows: $ Premises 350 000 Equipment 50 000 Motor vehicles 25 000 52 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 52 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting Prepare the revaluation account as at 1 January 2022. [5 marks] Revaluation account 2022 $ 2022 $ 4 Consider the following data for the Fillwood Golf Club. On 1 January 2021, members owed $36 for subscriptions for 2020 and subscriptions paid in 2020 for 2021 amounted to $45. During 2021, $1380 cash was received for subscriptions. On 31 December 2021, $135 was still owed for subscriptions for 2021 and the amount paid in advance for 2022 was $96. Prepare a subscriptions account for 2021. [6 marks] Subscriptions account 2021 $ 2021 $ 5 The Crosspool Chess Club has a snack bar. This snack bar is run to provide a contribution to the club’s overall income. The following information is available for the year ended 31 December 2024. Receipts and payments during the year ended 31 December 2024 $ Snack bar sales 890 Payments to snack bar suppliers 455 Snack bar staff wages 202 Balances at 1 January 2024 Balances at 31 December 2024 $ $ Snack bar trade payables 33 27 Snack bar inventory 71 64 Prepare a snack bar statement of profit or loss for the club for the year ended 31 December 2024.[10 marks] Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 53 Photocopying prohibited 53 16/10/21 12:17 PM A LEVEL 6 Birkdale Football Club’s receipts and payments account for the year ended 31 December 2023 is as follows: Receipts and payments account $ Balance b/d Subscriptions Sale of football kits Dance ticket sales $ 87 Repairs to club house 1 450 Dance ticket prizes 299 32 850 Rent 600 85 Electricity 50 Equipment for club house Purchase of football kits 175 1 200 General expenses 76 Balance c/d 40 2 472 2 472 – The club sells football kits to its members. During the year, it purchased 40 full kits but sold only 30 of them. No football kits were held by the club from the previous year. You should assume the unsold kits at the end of 2023 are part of closing inventory. – Members owed subscriptions totalling $275 at the end of the year. – Depreciation to be provided on the equipment for the year is $80. Prepare an income and expenditure account for the year ended 31 December 2023. [12 marks] 7 Classify the following into prime costs, factory overheads or expenses in the statement of profit [10 marks] or loss. – wages of factory supervisory staff – depreciation of office equipment – sales returns – wages of administrative staff – purchases returns of raw materials – insurance of machinery – depreciation of factory machinery – manufacturing royalties – production wages – carriage outwards Prime costs Factory overheads Statement of profit or loss 8 The following balances appeared in the trial balance of a manufacturing company on 31 July 2023. $ Inventory at 1 August 2022 6 454 Purchases of raw materials 87 012 Purchases returns 231 Carriage inwards 544 Carriage outwards 1 190 Direct wages 98 800 Direct expenses 23 800 Manufacturing royalties 6 213 Additional information At 31 July 2023: – Inventory of raw materials $4313 – Direct expenses accrued totalled $677. Prepare an extract from a manufacturing account showing the prime cost for the year ended 31 July 2023. [9 marks] 54 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 54 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 9 The following data were available for Magenty Ltd. $ Inventory of finished goods at 1 January 2021 6 250 Inventory of finished goods at 31 December 2021 7 400 Magenty Ltd transfers manufactured goods to its statement of profit or loss at cost plus 25 per cent. At 1 January 2021, the balance on the provision for unrealised profit account was $1250. a Prepare the ledger account for provision of unrealised profit at 31 December 2021. [4 marks] b Prepare an extract from the statement of financial position at 31 December 2021 to show the valuation of finished goods. [3 marks] Provision for unrealised profit 2021 $ 2021 $ Statement of financial position (extract) at 31 December 2021 Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 55 Photocopying prohibited 55 16/10/21 12:17 PM A LEVEL . 10 The following is an extract from the trial balance of Morton Ltd at 30 June 2022. From the following information, prepare a manufacturing account and calculation of gross profit for the year ended 30 June 2022. [20 marks] Dr Cr $ $ Revenue Purchases of raw material 425 000 124 800 Inventories as at 1 July 2021: Raw materials 11 890 Work in progress 23 133 Finished goods 41 414 Direct wages 65 790 Direct expenses 21 313 Indirect wages 55 900 Factory rent and rates 4 233 Insurance 4 446 Factory fuel and power 8 780 Factory general expenses 9 995 Depreciation of factory machinery 4 500 Additional information – Inventories at 30 June 2022: – Raw materials $8 980 – Work in progress $25 110 – Finished goods $37 760. – Factory profit is calculated as 25 per cent of the production cost of goods completed. – Factory rent and rates prepaid totalled $500. – Insurance is to be allocated between the factory and the office equally. 56 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 56 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 11 The following comes from the statements of financial position for Arcari Ltd at 31 December 2021 and 2022. 2022 2021 $000 $000 400 400 60 60 General reserve 103 89 Retained earnings 199 165 56 67 Equity Ordinary shares Share premium account Current liabilities Tax During the year ended 31 December 2022, dividends were paid totalling $65 000 and debenture interest of $80 000 was paid. Calculate the profit from operations for the year ended 31 December 2022. [6 marks] �� 12 The following is an extract taken from the statements of financial position at 31 December. 2023 Inventories Trade receivables Trade payables 2022 $ $ 5 435 3 123 11 311 15 623 5 748 8 572 The profit from operations for the year ended 31 December 2023 was $99 500. In addition, the following information is available: – Depreciation on non-current assets of $11 000 was provided for the year ended 31 December 2023. – A non-current asset was disposed of during 2023 generating a profit on disposal of $690. Prepare a statement detailing the net cash flow from operating activities for the year ended 31 December 2023. [7 marks] �� ............................................................................................................................................................ �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 57 Photocopying prohibited 57 16/10/21 12:17 PM A LEVEL 13 The following trial balance was extracted from the books of Jow Ltd at 31 December 2023. From this, prepare: a A statement of profit or loss for the year ended 31 December 2023. [16 marks] b A statement of changes in equity for the year ended 31 December 2023. [8 marks] c A statement of financial position at 31 December 2023. [16 marks] Debit Credit $000 $000 Revenue Purchases Inventory Land and buildings 1 180 725 59 2 350 Fixtures and fittings 480 Motor vehicles 180 Wages and salaries 111 Rent and rates 30 Insurance 45 Motor vehicle expenses 23 Selling expenses 66 Debenture interest 25 Provision for depreciation of fixtures and fittings 200 Provision for depreciation of motor vehicles 60 101 Trade payables Trade receivables 203 Cash at bank 99 Cash on hand 3 Ordinary share capital 2 000 Debentures (2030) 500 Retained earnings 256 Revaluation reserve 200 Tax 46 Dividends 52 4 497 4 497 Additional information – Inventory at 31 December 2023 was valued at $81 000. – Depreciation is to be provided as follows: – Fixtures and fittings: 10 per cent per annum using the reducing balance method. – Motor vehicles: 10 per cent per annum using the straight-line method. 58 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 58 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 14 The following statements of financial position for Chan-Kingswood plc for the years ended 31 December were as follows: 2022 2021 $ $ 370 000 250 000 60 000 40 000 430 000 290 000 Inventory 4500 3800 Trade receivables 3600 2600 Cash and cash equivalents 1500 3100 9600 9500 439 600 299 500 180 000 130 000 5000 - Revaluation reserve 70 000 - Retained earnings 83 000 60 000 338 000 190 000 100 000 100 000 1600 2100 - 7400 1600 9500 Total liabilities 101 600 109 500 TOTAL EQUITY AND LIABILITIES 439 600 299 500 ASSETS Non-current assets Premises Plant and equipment Current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Ordinary share capital ($1) Share premium Total equity Non-current liabilities Bank loan Current liabilities Trade payables Taxation The following information for the year ended 31 December 2022 was available. 1 Profit from operations was $40 000 2 Depreciation charged was: • Premises $7000 • Plant and equipment $4000 3 Plant and equipment that has originally cost $25 000 was sold for $10 000 during the year. Accumulated depreciation for the plant and equipment sold totalled $14 000. 4 A share issue of 50 000 shares was made during the year. This was fully subscribed and each share was sold for a premium of $0.10. 5 Premises were revalued by $70 000. 6 Interest on the bank loan was charged at a rate of 8%. 7 Dividends paid during the year totalled $9000. 8 No provision for tax existed at 31 December 2022 Prepare a statement of cash flows for Chan Kingswood plc for the year ended 31 December 2022. [18 marks] Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 59 Photocopying prohibited 59 16/10/21 12:17 PM A LEVEL 3.2 Regulatory and ethical considerations 1 Based on IAS 1, state the five items that provide a complete set of financial statements. i [4 marks] �� ii �� iii �� iv �� v �� 2 Based on IAS 1, state four items that must appear in the statement of profit or loss. i [4 marks] �� ii �� iii �� iv �� 3 Based on IAS 2, state three costs that will be included in the cost of inventory. i [3 marks] �� ii �� iii �� 4 State the three sections of a statement of cash flows based on IAS 7. i �� ii �� iii �� 5 Based on IAS 10, compare an adjusting and a non-adjusting event. [2 marks] �� 60 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 60 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 6 Based on IAS 16, state the four factors that should be considered when estimating the useful life of a non-current asset. [4 marks] i �� ii �� iii �� iv �� 7 State three factors that would provide evidence of asset impairment. i [3 marks] �� ii �� iii �� 8 Explain how contingent liabilities should be disclosed in the financial statements of a business. [2 marks] �� 9 Based on IAS 38, explain the potential difference in treatment of spending on research and spending on development. [2 marks] �� 10 State the five fundamental principles of ethics for professional accountants. i [5 marks] �� ii �� iii �� iv �� v �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 61 Photocopying prohibited 61 16/10/21 12:17 PM A LEVEL 11 Compare a qualified and an unqualified audit report. [2 marks] �� 12 Discuss the differences between the management and stewardship principles when producing financial statements. [4 marks] �� 62 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 62 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 3.3 Business acquisition and merger 1 Compare a business merger and a business acquisition. [2 marks] �� 2 Explain what is meant by goodwill in the context of one business acquiring another business. [2 marks] �� 3 Roach and Morton are two sole traders. They have decided that they will merge their businesses into a partnership. The information relating to the sole traders’ businesses is as follows: Statements of financial position at 31 December Roach Morton $ $ $ $ ASSETS Non-current assets 48 000 24 000 Current assets Inventory 9 980 4 131 Trade receivables 6 495 1 020 Cash and cash equivalents 17 470 995 Total assets 1 313 6 464 65 470 30 464 59 800 24 400 5 670 6 064 65 470 30 464 CAPITAL AND LIABILITIES Capital Current liabilities Trade payables Total capital and liabilities Roach and Morton agree the following values for the assets to be taken over by the partnership. Roach Morton $ $ 35 000 22 000 Inventory 7 800 4 000 Trade receivables 6 000 700 Non-current assets – The partnership would assume responsibility for the current liabilities at 31 December of both sole traders. – Roach and Morton agree that each partner will start in the partnership business with capital of $45 000 and will contribute any amounts needed to bring up their balances to this amount in cash. Prepare a statement of financial position for the partnership as it would appear at the start of trading on 1 January. [18 marks] Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 63 Photocopying prohibited 63 16/10/21 12:17 PM A LEVEL 4 Becks owns a successful recycling business. The latest summarised statement of his financial position shows: $ ASSETS Non-current assets 315 000 Current assets (including $820 cash) 49 520 Total assets 364 520 CAPITAL AND LIABILITIES 325 000 Capital Current liabilities 39 520 Total capital and liabilities 364 520 Harris plc acquires the business (excluding the cash) for a purchase consideration of $400 000. Calculate the value of goodwill which will be recorded in Harris plc’s statement of financial position. [6 marks] 5 A summary of Lambert’s statement of financial position at 31 December 2020 is as follows: $ Non-current assets 57 500 Current assets 21 300 Total assets 78 800 Capital 78 800 A summarised statement of financial position of Parkinson plc on the same date shows: $ ASSETS Non-current assets Current assets Total assets 260 000 65 200 325 200 EQUITY AND LIABILITIES Equity Ordinary shares of $1 each 220 000 Reserves 65 500 Current liabilities 39 700 Total equity and liabilities 325 200 Parkinson plc purchased Lambert’s business on 1 January 2021. The purchase consideration was $140 000 and was made up of $65 000 cash and 50 000 $1 shares. Parkinson plc valued the non-current assets taken over at $80 000 and the current assets at $20 000. Prepare a summarised statement of financial position for Parkinson plc at 1 January 2021, immediately after the acquisition of the business of Lambert. 64 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 64 [10 marks] Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 6 Sole traders, Ruby and Henry, decide to form a limited company, Bainbridge Ltd, which will incorporate both businesses. The company will commence trading on 1 July 2021 and will have an issued share capital of 700 000 ordinary shares of $1 each to be issued at par; the shares will be divided equally between the two sole traders. Statements of financial position for the two separate sole traders’ businesses at 30 June 2021 are as follows: Ruby Henry $ $ Premises 234 000 198 000 Machinery 37 500 27 400 Vehicles 13 200 9 950 284 700 235 350 Assets Non-current assets Current assets 11 880 7 870 Trade receivables 8 885 10 020 Cash 3 500 18 750 24 265 36 640 308 965 271 990 300 000 260 000 8 965 11 990 308 965 271 990 Inventory Total assets Capital and liabilities Capital Current liabilities Trade payables Total capital and liabilities All assets held by the two sole traders will be taken over by Bainbridge Ltd at the following values. The new company will assume responsibility for the payment of current liabilities. Ruby Henry $ $ Premises 250 000 200 000 Machinery 40 000 25 000 Vehicles 10 000 5 000 Inventory 12 000 8 000 8 000 9 500 Trade receivables Prepare the opening statement of financial position for Bainbridge Ltd at 1 July 2021. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 65 [12 marks] Photocopying prohibited 65 16/10/21 12:17 PM A LEVEL 7 Arthur and Luscombe had been in partnership for many years sharing profits and losses in a 2:1 ratio. They decided to dissolve the partnership on 31 March 2021. All the assets were sold except for two of the cars, which were taken over by the partners at the book value as follows: – Arthur $18 000 – Luscombe $12 000. The remaining non-current assets and the inventory were sold to Lisbie Ltd for the purchase consideration of $510 000. This consisted of 150 000 ordinary shares of $1 each in Lisbie Ltd issued to each partner at par value, with the balance being settled in cash. Dissolution costs totalled $15 000. The remaining assets and liabilities were discharged as follows: – From the trade receivables, $21 500 was received in full settlement. – A $3 000 discount in payment was offered in total by the trade payables. The statement of financial position prior to the dissolution was as follows: Arthur and Luscombe Statement of financial position at 31 March 2021 $ $ Non-current assets Property 300 000 Equipment 90 000 Motor cars 60 000 450 000 Current assets Inventory 45 000 Trade receivables 24 000 Bank 18 000 87 000 537 000 Total assets Capital and liabilities Capital accounts Arthur 210 000 Luscombe 240 000 450 000 Current accounts Arthur 27 000 Luscombe 24 000 51 000 501 000 Current liabilities Trade payables Total capital and liabilities 36 000 537 000 From this information, prepare: a A realisation account. [10 marks] b Capital accounts at the close of business. [10 marks] 66 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 66 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting Realisation account $ $ Capital accounts Arthur Luscombe Arthur Luscombe $ $ $ $ Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 67 Photocopying prohibited 67 16/10/21 12:17 PM A LEVEL 8 Explain two advantages for a business of merging with or acquiring another business from the same industry. i [4 marks] �� ii �� 9 The directors of Conway Ltd are considering the acquisition of Arefin Ltd – a business in the same industry. Some directors believe that although the acquisition will mean that the combined size of the business will significantly increase the company’s profits, and that the economies of scale to be gained in terms of improved efficiency would be large, they consider that the businesses are too different in how they are run for the acquisition to be successful. Advise the directors of Conway Ltd whether or not they should proceed with the acquisition. [5 marks] �� 68 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 68 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 3.4 Computerised accounting systems 1 Explain three advantages of introducing a computerised accounting system. i [6 marks] �� ii �� iii �� 2 Explain three disadvantages of introducing a computerised accounting system. i [6 marks] �� ii �� iii �� 3 One benefit of using computer packages is that the input of one transaction will simultaneously record all the appropriate accounting records. a State three entries simultaneously made when a credit sale is recorded. i [3 marks] �� ii �� iii �� b State two entries simultaneously made when the customer’s debt is settled. i [2 marks] �� ii �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 69 Photocopying prohibited 69 16/10/21 12:17 PM A LEVEL 4 Describe what is meant by a business having a period of parallel operation applicable to the introduction of computerised systems. [2 marks] �� 5 State three possible measures that can be taken to ensure the integrity of accounting data when there is a transfer to a computerised accounting system. [3 marks] i �� ii �� iii �� 6 Stobbs is a sole trader. He is contemplating computerising his entire accounting records. However, he has been advised by friends that it is not necessary as he is the only person who works in his business. Evaluate whether or not Stobbs should computerise his business accounting records. [5 marks] �� 70 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 70 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 3.5 Analysis and communication of accounting information This chapter includes questions that also relate to the content of Chapter 1.6. 1 The following are trading accounts for the years ended 31 August. 2025 2024 $000 $000 Revenue $000 $000 324 248 Less Cost of sales Opening inventory Purchases Less Closing inventory 39 27 168 159 207 186 41 166 Gross profit 34 152 158 96 Calculate the following ratios for both years to one decimal place. [4 marks] a Mark-up ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... b Gross profit margin ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... 2 The following data relate to the calculation of gross profit of the year ended 31 March 2021 and an extract from the statement of financial position at 31 March 2021. Calculation of gross profit $000 Revenue Statement of financial position (extract) $000 950 Less Cost of sales Opening inventory Purchases 56 312 $000 Current assets Inventory 47 Trade receivables 84 Bank 25 368 Less Closing inventory 47 Gross profit From this data, calculate the following ratios: 156 321 Current liabilities 629 Trade payables 62 [12 marks] a Trade receivables turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 71 Photocopying prohibited 71 16/10/21 12:17 PM A LEVEL b Trade payables turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... c Inventory turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... d Rate of inventory turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... e Working capital cycle ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... f Net working assets to revenue ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... 3 Using the same data from Question 2, calculate the following ratios to two decimal places: [4 marks] a Current ratio ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... b Acid test ratio ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... 72 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 72 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 4 The following data relate to the calculation of gross profit for the year ended 30 June 2022 and an extract from the statement of financial position at 30 June 2022. Calculation of gross profit $000 Statement of financial position (extract) $000 1 080 Revenue Less Cost of sales Opening inventory Purchases 95 666 $000 Current assets Inventory 267 Trade receivables 214 Bank 44 761 Less Closing inventory 102 Gross profit From this data, calculate the following ratios: 525 659 Current liabilities 421 Trade payables 146 [8 marks] a Trade receivables turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... b Trade payables turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... c Inventory turnover ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... d Working capital cycle ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 73 Photocopying prohibited 73 16/10/21 12:17 PM A LEVEL 5 The following information is available. 2023 Profit for the year after tax 2022 $215 000 $185 000 Dividends paid $40 000 $30 000 Debenture interest paid $50 000 $50 000 $500 000 $500 000 $2.55 $1.97 $1 Ordinary shares Market price per share at year end From this data, calculate the following ratios for 2023 and 2022: [10 marks] 2023 a Earnings per share b Dividends per share c Price earnings ratio d Dividend yield e Dividend cover 2022 6 Based on the following information, calculate the gearing ratio for both years to one decimal place. [4 marks] Dickins Ltd Statement of financial position (extracts) at 30 June 2024 2023 $000 $000 1 000 800 150 – General reserve 87 166 Retained earnings 65 34 950 400 Equity Ordinary shares Share premium account Non-current liabilities Debentures .............................................................................................................................................................. �� 74 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 74 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 7 For Kitchen Ltd, the following information is available. 2025 2024 $000 $000 Ordinary shares 800 800 Retained earnings 145 118 400 300 Equity Non-current liabilities Debentures Additional information 2025 2024 $000 $000 Profit from operations for year 85 69 Finance costs for year 20 15 Based on this data, calculate the following ratios for both years to one decimal place. 2025 a Gearing b Interest cover [4 marks] 2024 8 The following information is available. Statement of profit or loss for the year ended 31 December 2024 $000 Revenue Statement of financial position at 31 December 2024 $000 599 Purchases 41 348 36 Gross profit 1 400 Current assets 389 Less Closing inventory Inventory 36 Trade receivables 69 353 Cash and cash equivalents 246 Total assets 7 112 1 512 EQUITY AND LIABILITIES Less Expenses Distribution costs 49 Administrative expenses 52 Profit from operations Finance costs Profit for the year before tax Equity 101 $1 Ordinary shares 800 145 Retained earnings 264 24 1 064 121 Non-current liabilities Tax 38 6% Debentures (2034) Profit for the year after tax 83 Current liabilities 400 Trade payables 48 Total equity and liabilities Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 75 $000 ASSETS Non-current assets Less Cost of sales Opening inventory $000 Photocopying prohibited 1 512 75 16/10/21 12:17 PM A LEVEL Extract from statement of changes in equity for the year ended 31 December 2024 Retained earnings $000 Balance at 1 Jan 2024 205 Add Profit for the year 83 288 Less Dividends paid Balance at 31 Dec 2024 24 264 The market price of one share at 31 December 2024 was $1.78. Based on this information, calculate the following ratios: [26 marks] a Return on capital employed �� b Gross profit margin �� c Mark-up �� d Profit margin �� e Expenses to revenue ratio �� f Operating expenses to revenue �� g Current ratio �� h Acid test ratio �� i Non-current asset turnover �� j Trade receivables turnover (days) �� k Trade payables turnover (days) �� l Inventory turnover (days) �� m Rate of inventory turnover (times) �� 76 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 76 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 3 Financial accounting 9 Using the same data, calculate the following ratios: [18 marks] a Working capital cycle (days) �� b Net working assets to revenue (%) �� c Interest cover �� d Gearing �� e Earnings per share �� f Price earnings �� g Dividend per share �� h Dividend yield �� i Dividend cover �� 10 The gearing ratio of Meadows Ltd has increased steadily from a low of 23.1 per cent in 2019 to 53.4 per cent in 2021. Some of the directors are worried about this as they think it could lead to financial problems in the next few years – especially if it continues to rise. Other directors are less concerned as profits of Meadows Ltd have continued to rise over this period. Evaluate whether the board of directors should be concerned with the rise in the gearing ratio. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 77 [5 marks] Photocopying prohibited 77 16/10/21 12:17 PM A LEVEL 4 Cost and management accounting 4.1 Activity based costing 1 State the meaning of the term cost driver. [1 mark] �� 2 State the meaning of the term cost pool. [1 mark] �� 3 A business incurs machinery set-up costs of $29 800 in one year. The number of set-ups was 250 for that period. Calculate the cost driver rate for machine set-up costs. [2 marks] .............................................................................................................................................................. �� 4 Eko Ltd produces 2360 units of output. Allocated direct costs are as follows: • Materials $12 800 • Labour $23 400 Apportioned overheads totalled $19 250. Calculate the cost per unit of output. [2 marks] .............................................................................................................................................................. �� 78 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 78 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 5 W Ross Ltd incurs the following overheads in the production of two products: A and B. $ Machinery set-up 65 420 Checking costs 32 950 Selling costs 42 440 140 810 The following information is also available. A B Number of set-ups 25 56 Number of inspections 12 18 Number of orders 24 18 From this information, calculate: a The cost driver rate for each overhead. [3 marks] �� b The total overheads to be apportioned to both products (A and B). [6 marks] �� ......................................................................................................................................................... �� 6 Birtles manufactures two products. She has recently started using activity based costing (ABC) to apportion the overhead costs to these products. The budgeted data for one month are available, as follows: Product S Product T Production (units) 25 000 10 000 Number of orders 40 50 Number of production runs 15 25 Direct labour hours per unit 1 2.5 Machine hours per unit 4 2 Direct costs ($) per unit 250 125 Total factory overhead costs: $ Machine maintenance costs 90 000 Ordering costs 45 000 Production run costs 36 000 171 000 Calculate the full cost per unit for Product S and Product T using ABC. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 79 [10 marks] Photocopying prohibited 79 16/10/21 12:17 PM A LEVEL 7 Seddon plc produces two products: XJ3 and MIM. The following budgeted figures are available. XJ3 MIM 6 000 4 000 Direct labour hours per unit 4 3 Direct labour costs per hour $8 $6 Direct materials used per unit (kgs) 12 10 Direct materials cost per kg $8 $12 Sales (units) Activity based costing is used to apportion overheads. Seddon has pre-prepared the following information about the major activities and the costs of each activity. Overhead ($) XJ3 MIM Inspection and packing 50 000 20 hours 5 hours Machine maintenance costs 24 000 28 hours 12 hours Machine set-up 33 000 5 times 10 times Ordering costs 24 000 6 orders 4 orders 131 000 a Calculate the production overheads apportioned to each product using activity based costing.[10 marks] b Based on a 30 per cent mark-up, calculate the selling price of each product. [4 marks] 8 Using the same data as used in Question 7: a Calculate the overhead absorption rate (OAR) based on labour hours. [4 marks] �� b Calculate the full cost per unit based on absorption costing for each product. [6 marks] �� c Calculate the selling price per unit of each product if a 30 per cent mark-up is used. [2 marks] �� 9 Ian Sharp is the owner of a manufacturing business. He currently uses absorption costing to cost his products and uses this to set the selling price. He has been told that activity based costing would be a more useful method. Comment as to whether or not he should switch methods for costing. 80 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 80 [5 marks] Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 4.2 Standard costing 1 Ellen Beahan has budgeted to use $89 080 of direct materials in May. At the end of the month, she discovers that the actual expenditure was $90 101. Calculate the total direct materials variance for May. [2 marks] .............................................................................................................................................................. .............................................................................................................................................................. �� 2 Esther Nuttall provides the following information for raw materials: Budgeted Actual Materials used 1 210 kg 1 050 kg Materials cost per kg $6 $6 Calculate the direct materials usage sub-variance. [2 marks] .............................................................................................................................................................. .............................................................................................................................................................. �� 3 Yasmin Bach provides the following information for materials used in production: Budgeted Actual Materials used 550 metres 610 metres Materials cost per metre $12.50 $11.00 Calculate the following variances: a Total direct materials variance. [2 marks] ......................................................................................................................................................... �� b Materials price sub-variance. [2 marks] ......................................................................................................................................................... �� c Materials usage sub-variance. [2 marks] ......................................................................................................................................................... �� 4 Will Tolley has budgeted to spend $201 890 on direct labour in April. At the end of the month, he discovers actual labour costs were $189 600. Calculate the total direct labour variance for April. [2 marks] �� .............................................................................................................................................................. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 81 Photocopying prohibited 81 16/10/21 12:17 PM A LEVEL 5 Lewis Wainwright provides the following information for the use of direct labour in production: Budgeted Actual Labour hours used 1 850 hours 1 920 hours Wage rate per hour $9.30 $8.50 Calculate the following variances: a Total direct labour variance. [2 marks] ......................................................................................................................................................... �� b Labour wage rate sub-variance. [2 marks] ......................................................................................................................................................... �� c Labour efficiency sub-variance. [2 marks] ......................................................................................................................................................... �� 6 The managers of Tupper Ltd provide the following information for June: Standard costs: – Direct materials: 1880 kg costing $6.30 per kg. – Direct labour: 250 hours at $8.75 per hour. Actual costs incurred: – Direct materials: 1910 kg costing $6.50 per kg. – Direct labour: 262 hours at $8.25 per hour. From the data, calculate: a Total direct materials variance. [2 marks] �� b Materials price sub-variance. [2 marks] �� c Materials usage sub-variance. [2 marks] �� d Total labour variance. [2 marks] �� e Labour wage rate sub-variance. [2 marks] �� f Labour efficiency sub-variance. [2 marks] �� 82 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 82 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 7 Broadbent Ltd budgeted for sales of 6700 units at a selling price of $15 per unit. Actual sales were 7200 units at $13.50 each. From the data, calculate: a Total sales variance. [2 marks] �� b Sales price sub-variance. [2 marks] �� c Sales volume sub-variance. [2 marks] �� 8 Explain what is meant by the term flexible budget. [2 marks] �� 9 The following information is given for production of output: Standard costs for 500 units Direct materials 150 metres at $3.50 per metre Direct labour 250 hours at $8.50 per hour Actual costs for 630 units Direct materials 190 metres at $3.20 per metre Direct labour 295 hours at $8.30 per hour From the data, calculate: a Total direct materials variance. [2 marks] �� b Materials price sub-variance. [2 marks] �� c Materials usage sub-variance. [2 marks] �� d Total labour variance. [2 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 83 Photocopying prohibited 83 16/10/21 12:17 PM A LEVEL e Labour wage rate sub-variance. [2 marks] �� f Labour efficiency sub-variance. [2 marks] �� 10 The following information is available: Budgeted output 1 200 units Actual production 1 050 units Budgeted fixed overheads for the month $22 000 Actual fixed overheads for the month $18 000 Based on the data, calculate the following: a Total fixed overhead variance. [2 marks] �� b Fixed overhead expenditure variance. [2 marks] �� c Fixed overhead volume variance. [2 marks] �� 11 The following information regarding fixed overheads is available for Burley Ltd for the month of April. Budgeted fixed overhead per unit (5 hours at $5 per hour) $25 Budgeted production level 2 000 units Budgeted fixed overhead $50 000 Actual fixed overhead $48 000 – 1750 units were produced in 8500 hours From the data, calculate the following: a Fixed overhead expenditure variance. [2 marks] �� b Fixed overhead capacity sub-variance. [2 marks] �� 84 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 84 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting c Fixed overhead efficiency sub-variance. [2 marks] �� d Fixed overhead volume variance. [2 marks] �� e Total fixed overhead variance. [2 marks] �� 12 Explain one advantage and one disadvantage of using a system of standard costing. [4 marks] Advantage: �� Disadvantage: �� 13 The following variances have been observed as occurring for the most recent financial period. Materials usage variance Labour wage rate variance $1 000 (Favourable) $10 000 (Adverse) The management team are concerned with the size of the labour wage rate variance. They are considering trying to decrease it by reducing the hourly wage rate paid to workers. Advise the management team whether or not to reduce the hourly wage rate. [5 marks] 14 The following information relates to the budgeted and actual data for September 2021 for IKD Ltd. Budgeted data $ Sales ($2.00 x 10 000 units) Direct materials ($3.50 per kg x 1000 kg) Direct labour ($5 per hour x 800 hours) Fixed overheads ($0.50 per unit) Budgeted profit 3500 4000 5000 $ 20 000 12 500 7 500 Actual data $ Sales ($1.80 x 15 000 units) Direct materials ($3.40 x 1200 kg) Direct labour ($5.30 per hour x 1000 hours) Fixed overheads Actual profit 4080 5300 9000 $ 27 000 18 380 8 620 Based on this data, prepare a statement for IKD Ltd reconciling the budgeted profit to the actual profit for September 2021. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 85 [10 marks] Photocopying prohibited 85 16/10/21 12:17 PM A LEVEL 4.3 Budgeting and budgetary control 1 Explain two advantages of budgeting. [4 marks] �� 2 Explain two disadvantages of budgeting. [4 marks] �� 3 State three features of successful budgetary control. [3 marks] �� 4 Zohaib produces one type of component, the MSC1. The expected sales for the component for the three months ending 30 June are: April May June Budgeted sales (units) 24 28 25 Expected selling price $15.50 $17.00 $18.25 a Prepare a sales budget for the three months ending 30 June. April May [3 marks] June b Zohaib is expected to have an opening inventory of 13 components on 1 April. He requires a closing inventory of 29 components at 30 June. Prepare a production budget based on the budgeted sales from part a. Zohaib requires an even production flow throughout the three months. [9 marks] April 86 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 86 May June Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 5 PCHH Ltd has the following budget for sales of steel pipes: Budgeted sales (units) Jan Feb Mar 320 450 470 The opening inventory on 1 January is expected to be 60 pipes and the closing inventory at 31 March is expected to be 110 units of pipes. The company will purchase the same number of pipes each month. Produce a purchases budget for the three months ending 31 March. [9 marks] �� 6 Clayton Ltd supplies the following budgeted figures relating to sales for September to November: Budgeted sales (units) Sep Oct Nov 1120 1240 1560 – At 31 August, inventory levels were 200 units. – Company policy states that the closing inventory is maintained at a level equal to 20 per cent of the following month’s budgeted sales. – Sales for December are expected to be 1820 units. Prepare a production budget for Clayton Ltd for the three months ending 30 November. [6 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 87 Photocopying prohibited 87 16/10/21 12:17 PM A LEVEL 7 Alex Davenport, a sole trader, provides the following budgeted information: Purchases Sales $ $ Jun 8 704 10 990 Jul 11 290 12 160 Aug 10 410 13 450 Sep 15 148 16 970 Oct 16 444 17 040 The following outgoings each month are expected: $ Wages 900 Insurance 125 Heating and lighting 204 In addition, rent is payable at $400 per month paid in alternate months. A payment for rent is due to be made in July 2022. 80 per cent of the sales are for cash, the remainder are on credit terms – settled two months in arrears. Purchases are equally split between cash and credit purchases. All credit purchases are settled one month in arrears. The bank balance is expected to be $340 on 1 August 2022. Prepare a cash budget for the three months ending 31 October 2022. [12 marks] 8 The managers of Sabkha Ltd provide the following budgeted information for the three months ending 31 March. – Trade receivables at 1 January: $35 000 – Budgeted credit sales for: – January $45 000 – February $55 000 – March$58 000 – Cash sales for: – January $15 000 – February $18 000 – March$22 000 All credit customers are expected to settle their debts in the month following the sale of goods. They are allowed, and will take, 2 per cent cash discount. Prepare a trade receivables budget for the three months ending 31 March. 88 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 88 [9 marks] Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 9 The managers of Nettleship Ltd provide the following budgeted information for the period ending 30 September. Credit purchases $ April 39 900 May 45 650 June 58 300 July 52 600 August 64 700 September 57 850 Nettleship Ltd settles 50 per cent of outstanding payables in the month following purchase of the goods with the remainder settled two months after purchase. Prepare a trade payables budget for the four months ending 30 September. [12 marks] 10 Kevin and Michelle operate a bakery business. They are worried about their cash flow position because they expect to have a bank overdraft of $500 on 1 March. Data relating to expected trading between February and May are as follows: Purchases Sales $ $ February 11 500 15 400 March 13 200 16 200 April 17 400 18 100 May 16 100 16 400 In addition, they have the following outgoings each month: Wages $1100 Drawings $650 General expenses $425 Rent is $600 per month, payable every other month. The first payment in the year will be in February. One quarter of their sales are for cash, the remainder are on credit terms – settled one month in arrears. All purchases are on credit and are settled one month in arrears. Prepare a cash budget for the three months ending 31 May. [12 marks] 11 Paul Hull runs his own business. He has never produced a cash budget as he has never had any problems managing the level of cash in the business. He has a pre-arranged overdraft facility with his bank. Evaluate whether or not Paul Hull should be producing cash budgets on a regular basis. Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 89 [5 marks] Photocopying prohibited 89 16/10/21 12:17 PM A LEVEL 4.4 Investment appraisal 1 Joshua Watts is considering the purchase of a new machine. Two different machines are being considered. Machine 1 Cost $10 000 Estimated cash flow Machine 2 Cost $15 000 Estimated cash flow $ $ Year 1 3 000 4 000 Year 2 5 000 6 000 Year 3 4 000 5 000 Year 4 6 000 3 000 Year 5 4 000 5 000 Calculate the payback period for each of the two machines. [2 marks] �� 2 The following information is available about two pieces of equipment: Equipment 1C Equipment 2D Profits Profits $ $ 20 000 15 000 Year 1 2 000 3 000 Year 2 6 000 4 000 Year 3 7 000 3 000 Year 4 4 000 3 000 Year 5 2 000 5 000 Initial cost Expected profits generated: Additional information The profit for each piece of equipment has been calculated after providing for annual depreciation as follows: Depreciation Equipment 1C Equipment 2D $ $ 2000 1500 Calculate the payback period for each piece of equipment. Evaluate which equipment should be purchased. 90 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 90 [5 marks] Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 3 Explain one advantage and one disadvantage of the payback method used in investment appraisal. [4 marks] Advantage �� Disadvantage �� 4 Tharun Ashok is considering the purchase of one of two machines. All profits are assumed to accrue at the end of the financial year. Machine AGL6 Cost $130 000 Estimated profits Machine AMJ Cost $165 000 Estimated profits $000 $000 Year 1 28 000 32 000 Year 2 31 000 39 000 Year 3 42 000 38 000 Year 4 24 000 21 000 Year 5 16 000 19 000 Based on this data, calculate the accounting rate of return for both machines to two decimal places. [6 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 91 Photocopying prohibited 91 16/10/21 12:17 PM A LEVEL 5 Alex Chan is considering two investment projects. All profits are assumed to accrue at the end of the financial year. Project AC-K Cost $256 000 Estimated profits Project H17 Cost $198 000 Estimated profits $000 $000 Year 1 41 500 33 300 Year 2 34 700 31 200 Year 3 42 900 25 400 Year 4 16 400 22 100 Year 5 13 100 14 500 Based on this data, calculate the accounting rate of return for both projects to two decimal places. [6 marks] �� 6 Explain one advantage and one disadvantage of the accounting rate of return (ARR) method used in investment appraisal. [4 marks] Advantage �� Disadvantage �� 7 A business has a cost of capital of 12 per cent per annum. The following figures give the present value of $1 at 12 per cent. Year 1 0.893 Year 2 0.797 Year 3 0.712 Year 4 0.636 Year 5 0.567 Calculate the present value of: a $890 received in 2 years’ time. [1 mark] �� b $1134 received in 3 years’ time. [1 mark] �� c $2490 received in 5 years’ time. [1 mark] �� 92 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 92 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 8 The directors of Parlby Ltd are considering whether to purchase equipment for their workshop. The equipment costs $80 000 and will be used for four years, after which time it will be scrapped. The following cash flows relate to the machine: $ Year 1 29 500 Year 2 42 342 Year 3 31 315 Year 4 16 790 The current cost of capital is ten per cent. All costs are paid and incomes received on the last day of each financial year. The following extract is taken from the present value tables for $1. 10% Year 1 0.909 Year 2 0.826 Year 3 0.751 Year 4 0.683 Calculate the net present value of the equipment. [6 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 93 Photocopying prohibited 93 16/10/21 12:17 PM A LEVEL 9 The directors of MandANurse Ltd are considering whether to purchase a machine. The machine will cost $25 000 and is to be used for four years, after which time it will be scrapped. The following cash flows relate to the machine: Cash inflow Cash outflow $ $ Year 1 18 070 11 313 Year 2 28 713 19 808 Year 3 41 313 27 873 Year 4 17 434 13 999 The current cost of capital is nine per cent. All costs are paid and incomes received on the last day of each financial year. The following extract is taken from the present value tables for $1. 9% Year 1 0.917 Year 2 0.842 Year 3 0.772 Year 4 0.708 Calculate the net present value of the equipment. [6 marks] �� 10 Explain one advantage and one disadvantage of the net present value method used in investment [4 marks] appraisal. Advantage �� Disadvantage �� 94 Photocopying prohibited 9781398317543_Cam Int Acc WB.indd 94 Cambridge International AS & A Level Accounting Workbook 16/10/21 12:17 PM 4 Cost and management accounting 11 Hadfield is considering the purchase of a machine that would cost $11 000. His current cost of capital is 11 per cent. The net present value of future cash flows for the machine are as follows: – Net present value at 14 per cent = ($446) – Net present value at 9 per cent = $679 Calculate the internal rate of return (IRR) of the machine and advise Hadfield whether he should go ahead with the investment. [4 marks] �� 12 Phil King wishes to buy a new machine. He has made some preliminary calculations based on two options. Cost ($) Payback period Machine A 45 000 5.2 years Machine B 80 000 7.5 years Both machines are expected to last for two years after their respective payback periods. Machine B has a higher accounting rate of return (ARR) than machine A but Phil King is less certain of the stability of the market associated with Machine B. Assess which machine Phil King should buy. [5 marks] �� Cambridge International AS & A Level Accounting Workbook 9781398317543_Cam Int Acc WB.indd 95 Photocopying prohibited 95 16/10/21 12:17 PM Reinforce learning and deepen understanding of the key skills required by the Cambridge International AS & A Level Accounting (9706) syllabus; an ideal course companion or homework book for use throughout the course. » Support students’ learning and develop skills with extra practice questions and activities » Keep track of students’ work with ready-to-go write-in exercises which once completed can also be used to recap learning for revision The answers to questions in this book can be downloaded for free by visiting https://www. hoddereducation.com/cambridgeextras Use with Cambridge International AS & A Level Accounting Student’s Book 2nd Edition 9781398317536 Ca ss WITH on al E m bridge A 9781398317543_Cam Int Acc WB.indd 96 ducation W For over 25 years we have king for ove or r been trusted by Cambridge 25 schools around the world to YEARS i es provide quality support for at sm ent Intern teaching and learning. For this reason we have been selected by Cambridge Assessment International Education as an official publisher of endorsed material for their syllabuses. This resource is endorsed by Cambridge Assessment International Education ✓ Provides learner support for the syllabus for examination from 2023 ✓ Has passed Cambridge International’s rigorous quality-assurance process ✓ Developed by subject experts ✓ For Cambridge schools worldwide 16/10/21 12:17 PM

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