1

NAME
DATE

Paper 2 December 2015

1 hour 45 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
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Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in the Question Paper are fictitious.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or
part question.
For

Examiners

Use
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Total

1
Shilpa Gandhi is a trader. Her financial year ends on 31 January.
On 31 January 2010, the balances in her books included the following:
$
Bad debts written of
Trade receivables (trade debtors)

210
15 530

On 31 January 2010, Shilpa Gandhi decided to:

1. Write of $90 owed by K Singh;
2. Create a provision for doubtful debts of 2% of the remaining trade receivables
(trade debtors).
REQUIRED
(a)Calculate the amount of the provision for doubtful debts.
Show your workings.
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(b)Prepare the entries in Shilpa Gandhis journal to record the following transactions.
(i) Writing of the bad debt.
(ii)Transferring the balance of the bad debts account to the income statement
(profit and loss account).
(iii)
Creating the provision for doubtful debts.
Narratives are required.
Journal
Debit $
Credit $
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[9]
(c) Prepare a relevant extract from Shilpa Gandhis balance sheet at 31 January 2010.
Shilpa Gandhi
Extract from Balance Sheet at 31 January 2010
Current Assets
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Shilpa Gandhi deals in two types of inventory (stock).
She provided the following information about her inventory (stock) on 31 January 2010.
Type

Number of units

Cost per unit $

A
B

360
520

22
14

Selling price per unit

$
24
12

The following additional information is available at 31 January 2010.

Carriage inwards of $1 per unit was charged on Type A. This is not included in the above
figures. 40 units of Type B were found to be damaged and had to be destroyed.

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REQUIRED
(d)Calculate the total value of Shilpa Gandhis inventory (stock) on 31 January 2010.
Show your workings.
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(e)Name the accounting principle you have applied in (d) above when valuing Shilpa
Gandhis inventory (stock).
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[Total: 19]
2
Helmut Lang is a trader. All his sales and purchases are made on credit terms.
He provided the following information for the year ended 30 April 2010.
$
Revenue (sales)
430
Inventory (stock) 1 March 2009
500
Inventory (stock) 30 April 2010
25
Ordinary goods purchased
200
(purchases)
28
000
347
200
REQUIRED
(i) Explain the meaning of each of the following terms.
(i) Mark-up
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(ii)Margin
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(ii)
(i) Calculate the percentage mark-up.
Show your workings.
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(ii)Calculate the percentage margin.

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Show your workings.
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(iii)
Suggest two ways in which Helmut Lang could improve his profit margin.
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Helmut Lang provided the following information at 30 April 2010.

$
Inventory (stock)
28
000
Trade
receivables
(trade 36
debtors)
300
Trade
payables
(trade 29
creditors)
600
Petty cash
10
0
Bank overdraft
13
200
REQUIRED
(iv) Calculate the current ratio. The calculation should be correct to two decimal places.
Show your workings.
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(v)Calculate the quick ratio. The calculation should be correct to two decimal places.
Show your workings.
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Helmut Langs quick ratio at 30 April 2009 was 1.25:1.
REQUIRED
(vi) State and explain whether you think that Helmut Lang will be satisfied with the
change in the quick ratio.

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Will
he
be
satisfied? .........................................................................................................................
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Explanation .....................................................................................................................
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(vii) In the table below place a tick () under the correct heading to show how each of
the following transactions would afect Helmut Langs working capital. The first one
has been completed as an example.
efect on working capital
Transaction
increase
decrease
no efect
(i) introduction of further
capital
(ii)payment of creditor in
cash
(iii) repayment of long
term loan
[2]
[Total: 21]
3
The following trial balance was extracted from the books of Robbie McDonald at 30
September 2010.
Dr $
Cr $
Capital
85 000
Drawings
5 100
Premises at cost
58 000
Motor vehicle at cost
6 000
Equipment at valuation
3 000
Provision for depreciation of motor vehicle
1 200
Provision for doubtful debts
372
Trade receivables (debtors)
17 600
Bad debts recovered
160
Trade payables (creditors)
16 250
Bank overdraft
7 728
Inventory (stock) 1 October 2009
19 500
Revenue (sales)
216 000
Purchases
176 000
Wages
28 200
Property tax and insurance
8 900
Administration expenses
4 410
326 710
326 710
Additional information
1 Because of an oversight the inventory (stock) on 30 September 2010 was not
valued. Robbie marks up all his stock by 25%.
2 During the year ended 30 September 2010 Robbie took goods costing $1900 for his
own use. No entries have been made in the accounting records.
3 The motor vehicle is being depreciated at 20% per annum using the reducing
balance method.
4 Equipment was valued at $2340 on 30 September 2010. There were no sales or
purchases of equipment during the year.
5 The provision for doubtful debts is to be maintained at 2% of the trade receivables
(debtors).
6 A bank statement received on 30 September 2010 included an entry for bank
interest of $1550. No entries have been made in the accounting records.

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The property tax and insurance includes $2400 for insurance of the premises. This
represents insurance cover for the sixteen months to 31 January 2011.

REQUIRED
Prepare the income statement (trading and profit and loss account) of Robbie McDonald
for the year ended 30 September 2010.
The value of the inventory (stock) on 30 September 2010 should be clearly shown in the
income statement (trading and profit and loss account).
Robbie McDonald
Income Statement (Trading and Profit and Loss Account) for the
year ended 30 September 2010
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[Total: 20]
4
Suzie Chow is a trader. She maintains a full set of books of prime (original) entry and
prepares a sales ledger control account and a purchases ledger control account at the
end of each month.
REQUIRED
(a)State two advantages of preparing control accounts
.
(i) ....................................................................................................................................
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(ii) ....................................................................................................................................
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[2]
Suzie Chow provided the following information for the month of September 2010.
$
September 1 Debit balances in sales ledger
21 976
Credit balance in sales ledger
54
September 30 Totals for the month
24 585
Cheques paid to credit suppliers
21 860
Cheques received from credit customers
Cheque received from a credit customer (included in the cheques 610
received shown above) later dishonoured
Discounts allowed
488
Discounts received
532
Returns to credit suppliers
414
Returns by credit customers
391
Credit sales
22 800
Bad debts written of
100
Provision for doubtful debts
550
Contra entry
78
REQUIRED
(b)Select the relevant figures and prepare Suzie Chows sales ledger control account for
the month ended 30 September 2010.
There is only one balance on the account at the end of the month.
Where a traditional T account is used it should be balanced and the balance
brought
down on 1 October 2010.
Where a three column running balance account is used the balance column should be
up-dated after each entry.

Suzie Chow
Sales ledger control account

[11]

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(c) Explain the meaning of a contra entry in connection with control accounts and explain
why such an entry may be made.
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(d)Explain why the information used to write up Suzie Chows sales ledger control
account is obtained from books of prime (original) entry and not from the sales ledger.
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Suzie Chows financial year ended on 30 September 2010. Her total sales for the year
were as follows.
$
Cash sales
95 000
Credit sales
275 000
She allows her credit customers a period of 21 days in which to pay their accounts.
REQUIRED
(e)Using the closing balance on the sales ledger control account you prepared in (b) and
the above information, calculate the debtors collection period. Your answer should be
rounded up to the next whole day.
Show your workings.
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(f) Suggest three ways in which the collection period for debtors may be improved.
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[3]

5
Anna DSouza is a trader. She buys and sells on both cash and credit terms.
Anna DSouza allows her credit customers 21 days credit and her credit suppliers allow
her 30 days credit.
The following information is available.
For the year ended 31 March 2011
Purchases
$
8 700
42 500

Cash
Credit

Sales
$
11 400
52 800

At 31 March 2011:
Trade receivables
Trade payables
Inventory
Bank overdraft

$
4100
5300
3800
2900

REQUIRED
(a)Calculate the payment period for trade payables. Your answer should be rounded up to
the next whole day.
Show your workings.
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(b)State and explain whether Anna DSouzas credit suppliers will regard the payment
period as satisfactory. Will they be satisfied?
Explanation: ....................................................................................................................
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(c) Calculate the collection period for trade receivables. Your answer should be rounded
up to the next whole day.
Show your workings.
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(d)The collection period for trade receivables for the year ended 31 March 2010 was 24
days.
State and explain whether the change in the collection period is an advantage or a
disadvantage to Anna DSouza.
Advantage or disadvantage?
Explanation: ....................................................................................................................
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(e)Explain two ways in which Anna DSouza could improve the collection period for trade
receivables.
(i) .....................................................................................................................................
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(ii) .....................................................................................................................................
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(f) Calculate the current ratio. The calculation should be correct to two decimal places.
Show your workings.
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(g)State and explain whether Anna DSouza will be satisfied with the ratio you calculated
in (f).
Will she be satisfied?
Explanation: ....................................................................................................................
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(h)Explain two ways in which Anna DSouza could increase her current ratio.
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[2]
[Total: 18]

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6
Grace is a trader. Her financial year ends on 31 August.
The bank columns of her cash book for the month of August 2011 were as follows:

2011
Aug 1 Balance b/d
1300
11 Paul Nlovu
30 Sales
31 Balance c/d

Cash Book (bank columns only)

$
2011
54
117
490
1052
1713

$
Aug

4 Equipment

17 Jane Abbasi
28 Omega Supply Co

129
284

Sept 1 Balance b/d

1713
1052

Graces business bank statement for August 2011 was as follows:

Bank Statement at 31 August 2011
Debit
Balance
2011
Aug 1 Balance
2 Rent received (credit transfer)
7 ABC Insurance Co
10 Equipment
18 Paul
22 Jane
30 Bank charges

$
154
200

50
1300
117
129
39

Credit
$
154 Cr
354 Cr
304 Cr
996 Dr
879 Dr
1008 Dr
1047 Dr

The following errors were discovered.

1 The cash book balance brought forward on 1 August 2011 should have been $154.
2 The bank has debited $50 for an insurance premium to Graces business account
instead of her personal account.
REQUIRED
(a)Update Grace s cash book. Bring down the updated cash book balance on 1
September 2011.

Cash Book (bank columns only)

[7]

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(b)Prepare a bank reconciliation statement for Grace at 31 August 2011.

Bank Reconciliation Statement at 31 August 2011

[8]
Graces bank overdraft has increased during the year ended 31 August 2011. She is
concerned that this is afecting the rate at which she pays her suppliers.
Grace s purchases for the year ended 31 August 2011 were as follows.
$
Credit purchases 15 500
Cash purchases
4 800
Her credit suppliers allow her one month in which to pay their accounts.
On 31 August 2011 Grace owed her credit suppliers $1790.
REQUIRED
(c) Calculate the payment period for trade payables. Your answer should be rounded up to
the next whole day. Show your workings.
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[2]
(d)State two possible advantages to Grace Ngema of paying her credit suppliers before
the due date.
(i).....................................................................................................................................
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[2]
(e)State one possible disadvantage to Grace Ngema of paying her credit suppliers before
the due date.
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[1]
[Total: 20]