UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

GCE Ordinary Level

MARK SCHEME for the May/June 2011 question paper for the guidance of teachers

7110 PRINCIPLES OF ACCOUNTS

7110/22 Paper 2 (Structured), maximum raw mark 100

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes must be read in conjunction with the question papers and the report on the examination.

Cambridge will not enter into discussions or correspondence in connection with these mark schemes.

Cambridge is publishing the mark schemes for the May/June 2011 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 1 (a)

Mark Scheme: Teachers version GCE O LEVEL May/June 2011 Three Column Cash Book (Bank columns only)

Syllabus 7110

Paper 22

April 27 Sales April 28 Loula

$ 630 (1) 1920 (1)

April 24 April 25 April 26 April 26 April 29 April 30

Balance b/d Drawings Kerai Susan Wages Balance c/d

2550 (b) May 1 Balance b/d May 1 Dividend May 1 Balance b/d (c) Bank Reconciliation Statement at 1 May 2011 $ Balance as per Bank Statement (804) Dr (1) Add: (2) Cheque banked Loula 1920 1116 Less: (2) Unpresented cheque-wages (430) (1of) Balance as per Cash Book (1) 686 Accept alternative presentations i.e. starting with Cash book balance. (d) Ledger account Book of prime entry 662 24 (1) 686 686 (1of) May 1 Balance b/d

$ 150 200 388 720 430 662 2550 686 686

(1) (1) (1) (1) (1) (1) [8]

[2]

[7]

Both a ledger account and a book of prime entry

Stock Purchase journal Cash book Provision for depreciation (1) [3] [Total: 20] (1) (1)

University of Cambridge International Examinations 2011

Page 3 2

Mark Scheme: Teachers version GCE O LEVEL May/June 2011

Syllabus 7110

Paper 22

(a) To account for cost consumed / used during the financial year To charge a share of the cost to the income statement for the year Reduce the book value of non-current assets in the balance sheet To spread the cost over its useful economic life Wear & tear, passage of time, obsolescence & depletion (2 per point) Comply with accounting principles and concepts, e.g. prudence, matching. (20) 2 points (b) Machinery will lose a high proportion of its value in the early years Low maintenance costs in early years, higher in later years Changes in technology may outdate the machinery (20) 2 points (c) Calculation of depreciation: Machinery $ Cost/value 80 000 Additions 18 000 98 000 Accum Prov 60 000 38 000 Depreciation 25% 9 500 (20) Net book value 28 500 (d) Cost Depreciation Sale price Loss on sale (e) Non-current assets Cost Machinery Office furniture (f) Capital expenditure Purchase of spares for machinery Installation of additional machinery Repairs to office equipment Purchase of additional loose tools (1) (1) (1) $ 98 000 14 000 Accumulated Depreciation $ 69 500 (>60k) 6 200 (>5k) Net book value $ 28 500 (1of) 7 800 (1of) $ 1 000 200 (1) 800 550 (1) 250 (1of)

[max 4]

[2]

Office furniture $ 15 000 (1 000) 14 000 4 800 9 200 1 400 (20) 7 800

Loose tools $ 1 050 630 1 680 280 (20) 1 400

[6]

[3]

[2]

Revenue expenditure (1)

[4] [Total: 21]

University of Cambridge International Examinations 2011

Page 4 3 (a)

Mark Scheme: Teachers version GCE O LEVEL May/June 2011 $ 60 500 8 400 68 900 9 750 59 150 (3)

Syllabus 7110

Paper 22

Bank received Trade receivables 30 April Trade receivables 1 May Sales (b)

Bank payments Trade payables 30 April Trade payables 1 May Purchases

$ 34 900 9 300 44 200 10 500 33 700 (3)

[6]

Tanvir Income Statement for the year ended 30 April 2011 $ Revenue (sales) Less Cost of sales Opening inventory Add purchases Less closing inventory Cost of sales Gross profit Less Wages Light & heat General expenses Loan interest Loss on sale Depreciation Profit for the year 5 250 33 700 (1of) 38 950 (11 000) (27 950) 31 200 (1of) 15 000 3 350 6 000 1 200 250 5 000 (1) (1) (1) (2) (30 800) 400 (1of) [9] $ 59 150 (1of)

University of Cambridge International Examinations 2011

Page 5 (c)

Mark Scheme: Teachers version GCE O LEVEL May/June 2011 Balance Sheet at 30 April 2011 $

Syllabus 7110

Paper 22

Non-current assets Current assets Inventory Trade receivables Current Liabilities Trade payables Accruals Bank overdraft Net Current Assets Long term liabilities 6% Bank loan Capital 1 May 2010 Add Profit for the year Less Drawings 11 000 8 400 (1) 19 400 9 300 1 450 (1) 10 250 21 000

$ 42 000

(1 600) 40 400 (20 000) (1) 20 400 25 000 400 (1of) 25 400 ( 5 000) (1) 20400

[5] [Total: 20]

(a)

(i) Opening inventory Purchases Closing inventory Cost of sales Gross profit (50%) Revenue (ii) Cost of sales Average inventory (iii) Gross profit Operating expenses Net profit (iv)

$ 5 500 72 000 77 500 7 500 70 000 (1) 35 000 (1) 105 000 (1 of) $70 000 (1of) = 10.8 times (1 of) $6 500 (1) (Need times) $ 35 000 23 500 11 500 (2 or 1of) (if use own gross profit in (a)(i))

[3] [3]

[2] [3]

(1of) Net profit 11 500 100 = = 11% (1 of) (accept 10.9%. need % label) 100 (1of) 105 000 Revenue
(1of) Net profit 11 500 100 = = 15.3% (1of) 100 (1) 75 000 Capital

(v)

[3]

University of Cambridge International Examinations 2011

Page 6

Mark Scheme: Teachers version GCE O LEVEL May/June 2011

Syllabus 7110

Paper 22 [2]

(b) The seller will make a small mark up (or low selling price) on each item (1) will have a high volume of sales (1). (c) Increase rate of inventory turnover (i) Hold a Sale and reduce prices by 20%. (ii) Increase the inventory by $20 000. (iii) Raise selling prices by 10%. (1) (1) (1)

Decrease rate of inventory turnover

[3] [Total: 19]

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Page 7 5

Mark Scheme: Teachers version GCE O LEVEL May/June 2011

Syllabus 7110

Paper 22

Fu, Li and Yang Income Statement and Appropriation Account for the year ended 30 April 2011 (1) $ Revenue Opening inventory Add Purchases Less returns Closing inventory Cost of sales Gross profit Discount received Rent (7500 + 2500) Salaries & Wages Heat and light General expenses (16 750 4 200) Marketing DepreciationMotor vehicles Fixtures Increase in PDD Profit for the year Interest on drawings: Fu Li Yang Interest on capital: Fu Li Yang Share of profit: Fu Li Yang 500 (1) 500 (1) 600 (1) 1 600 20 500 1 600 (1) 1 400 (1) 1 000 (1) ( 4 000) 16 500 6 600 (1of) 6 600 (1 of) 3 300 (1of) 30 650 111 200 (4 750) (1) 137 100 28 100 (1) 109 000 (1) 100 500 (1of) 5 300 (1) 105 800 10 000 (1) 42 100 3 890 12 550 (1) 12 050 2 560 (2) 3 000 (2) 750 (2) 86 900 18 900 (1of) $ 209 500

______ 16 500

[24]

University of Cambridge International Examinations 2011

Page 8 (b)

Mark Scheme: Teachers version GCE O LEVEL May/June 2011

Syllabus 7110

Paper 22

Statement of Financial Position at 30 April 2011 $ $ Non-current assets Cost Accumulated Depreciation Premises Motor vehicles Fixtures Current assets Inventory Trade receivables Less PDD Prepaid Bank less Liabilities due in less than one year Trade payables 54 700 Other payables 2 500 (1) 57 200 Net current assets (accept working capital) Financed by: Capital: Current: Opening balance Transfer of capital Interest on capital Share of profit Interest on drawings Drawings Closing balances Fu $ 40 000 2 500 Cr 1 600 6 600 10 700 500 10 000 10 500 200 Li $ 35 000 Yang $ 15 000 (1) 16 000 30 000 46 000 45 000 2 250 5 760 20 500 26 260 28 100

$ Net Book Value 44 750 10 240 (1of) 9 500 (1of) 64 490 (1of)

(1of) (<1500) 42 750 (1of) (providing PDD is deducted) 4 200 (1) 7 560 82 610

25 410 (1 of labelled) 89 900 Total $ 90 000

1 500 Cr (1 000) Dr (1) 10 000 (1) 1 400 1 000 (1of) 6 600 3 300 (1of) 9 500 13 300 500 600 (1of) 10 000 12 000 (1) 10 500 12 600 (1 000) 700 (1of ) 100 Dr 89 900 [16]

University of Cambridge International Examinations 2011

Page 9

Mark Scheme: Teachers version GCE O LEVEL May/June 2011

Syllabus 7110

Paper 22

Alternative presentation accepted Current Accounts Fu $ Balance b/d Int on Drags 500 Drawings 10 000 Balance c/d 200 10 700 Li $ 500 10 000 10 500 Yang Fu Li Yang $ $ $ $ 1 000 (1) Balance b/d 2 500 1 500 600 (1 of) Capital transfer 10 000 (1) 12 000 (1) Int on cap 1 600 1 400 1 000 (1 of) Share of profit 6 600 6 600 3 300 (1 of) 1 000 700 (1 of) Balance c/d 10700 10 500 14 300 14 300 [16] [Total: 40]

University of Cambridge International Examinations 2011