A Trial Balance

A Trial Balance
1 Answer all the questions. 2 3 4 5 6
Read each question carefully. Write your answers in the answer book provided. Candidates should start each question on a new page in the answer book. Calculators may be used. Check that Worksheets for Questions 3(a) and 4(a) have been provided.
Apply VAT where appropriate at 20% throughout the paper.
1. (a) Using the information below, make the necessary entries in the ledger of Fraser Forbes. Ledger balances at 1 April 2012 Bank Sales Debtor – D Allan Stock April 8 April 12 April 15 £3,500 £8,450 £420 £1,275
S Hardie purchased goods on credit costing £270 plus VAT. Goods worth £305 were taken from the business by Fraser Forbes for his own use. D Allan has been declared bankrupt and can only pay 45p in the £. This amount was received by cheque and the remainder is to be written off. S Hardie returned goods worth £50 plus VAT as they were damaged. 19

(b) “A Trial Balance has limited use as a checking device.” Explain this statement and outline 2 examples which support your explanation. 6

(c) Fraser operates as a sole trader but is considering going into partnership in order to expand his business. Suggest 3 limitations of operating as a partnership rather than a sole trader
2. The Ardtun Art Club has provided the following financial information. Assets and Liabilities as at 1 April 2011 Bank Premises at cost Equipment at cost Cleaner’s wages due Subscriptions paid in advance Electricity prepaid £ 1,900 35,000 9,500 230 400 40
Receipts and Payments for year ended 31 March 2012 Art Exhibition entry fees Cleaner’s wages Sponsorship from Deeview Homes Honorarium Purchase of new equipment Advertising – Art Exhibition Electricity Art Exhibition prizes Subscriptions Insurance Donations – Art Exhibition Notes at 31 March 2012 • • • • All club equipment is to be depreciated by 10% on cost Electricity prepaid £50 Art Exhibition advertising due £25 Subscriptions due £250 £ 1,300 2,000 1,800 400 500 200 560 800 3,900 375 80

(a) From the above information you are required to prepare for the year ended 31 March 2012: (i) Income Statement for Art Exhibition (ii) Income and Expenditure Account. 22

(b) The art club would like to create a new workshop for pottery classes. Suggest 3 possible methods of raising the finance for this workshop, other than by obtaining a loan. Justify your choices giving different reasons for each. (c) State where Subscriptions due at 31 March would be shown in the Balance Sheet and explain why.

3. The Bank Statement and Bank Account of Deaconberry plc are shown below.

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TORRIDON BANK plc
Glen Road EDINBURGH EH22 5YP
Deaconberry plc Unit 2 Webster Industrial Estate KINROSS KY13 9XW Date 1/4/12 4/4/12 5/4/12 5/4/12 8/4/12 12/4/12 13/4/12 15/4/12 16/4/12 17/4/12 18/4/12 21/4/12 23/4/12 26/4/12 27/4/12 Description Balance Deposit 00256 DD – Electricity 00257 Deposit BGC – Rent Received 00258 Cash SO – Insurance Deposit 00259 Deposit Bank Charges Cash 50 120 300 240 250 100 160 400 270 180 320 550 330 DR £ Account No: 60653900 Branch Code: 29–12–62 Date: 30 April 2012 CR £ 2,200 450 Balance £ 2,200 2,650 2,380 2,200 1,880 2,430 2,760 2,510 2,410 2,250 2,650 2,350 2,590 2,540 2,420

BANK ACCOUNT
Date 1/4/12 2/4/12 4/4/12 8/4/12 12/4/12 12/4/12 13/4/12 16/4/12 17/4/12 17/4/12 18/4/12 21/4/12 22/4/12 27/4/12 28/4/12 Note: Details Balance Sales Repairs Purchases Sales Sales Travel Expenses Cash Sales Advertising Purchases Petrol Sales Cash Sales 235 240 120 400 130 300 60 350 200 50 100 DR £ 2,200 450 270 320 CR £ Balance £ 2,200 2,650 2,380 2,060 2,410 2,610 2,560 2,460 2,860 2,730 2,430 2,370 2,610 2,490 2,725

An error has been detected relating to the cheque presented for payment on 15 April. It has been wrongly entered in the Bank Account of Deaconberry plc.

(a) On the Worksheet provided: (i) update and correct the bank account of Deaconberry plc at 30 April 2012; (ii) prepare a Bank Reconciliation Statement as at 30 April 2012. 6 7 7

(b) Bank charges have been applied to the Deaconberry plc account by its bank. Explain 3 reasons why this may have happened. (c) Deaconberry plc has chosen to pay its electricity by Direct Debit. State 2 reasons why this is the most suitable bank service to use. (d) Explain what a debit balance on its Bank Statement would mean to Deaconberry plc. Justify your answer.
4. (a) Tamara Rose operates as a sole trader. Her business, MediaMass, specialises in video, audio and IT equipment used at outdoor events. On 31 January 2012 MediaMass sent a Statement of Account to customer Eddie Law Promotions. From the following information, complete the Statement of Account (on the Worksheet provided) to be sent to Eddie Law Promotions on 31 January 2012. 1 January 12 January Eddie Law Promotions owed MediaMass £650·45. Sold goods on credit to Eddie Law Promotions. The catalogue price of the goods was £240 (excluding VAT).

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20% Trade Discount was allowed and Terms of Payment were 5% – 30 days 24 January Some of the goods sold on 12 January were damaged in transit and returned by Eddie Law Promotions. They were valued at £85·68 (including VAT). Eddie Law Promotions paid £629·95 by cheque in full settlement of the amount owed to MediaMass on 1 January. 6

 
(b) Name the documents that MediaMass would have sent on 12 and 24 January and explain their uses.
(c) Tamara is concerned that in the future some of her debtors may be unable to pay. Suggest how she may be able to prepare for this happening and explain how your suggestion will affect her final accounts.

 
5. (a) The accountant at Imprint plc has just prepared a Cash Budget. Explain 2 benefits of preparing this financial statement.
(b) Imprint plc intends to buy new laptops for their 5 salesmen next month and pay for the purchase by cheque. Suggest and justify an alternative method of financing this new equipment.
(c) A Cash Budget contains both Capital Expenditure and Revenue Expenditure. Explain these terms.
(d) Imprint plc has recently issued Preference Shares. Explain one benefit of this type of share to:
(i) preference shareholders;

(ii) Imprint plc.
6. Murray and Khan operate a partnership selling sports equipment. They have provided the following financial information for year ending 29 February 2012. Opening Stock Closing Stock Net Sales Purchases Gross Profit Expenses £3,600 £2,400 £45,000 £27,300 £16,500 £10,300

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(a) Murray and Khan have calculated the Expenses Ratio to analyse the business’s performance. Calculate 3 other appropriate ratios.
(b) Murray and Khan also use their Balance Sheet to calculate the following ratios: Working Capital Ratio (Current Ratio) Return on Capital Invested 8 5
Explain 2 ways to improve each of these ratios.
(c) Name the document that is drawn up when a partnership is formed. Explain the importance of this document.

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