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O-LevelAccountingPreparation of financial statements7707/21 · Oct/Nov 2019 · Q540 Marks

Feng is a sole trader. The following balances were extracted from the books on 30 September 2019. Non-current assets (at cost) Land and buildings $170000 Motor vehicles $30000 Fixtures and fittings $7000 Provisions for depreciation at 1 October 2018 Land and buildings $18600 Motor vehicles $10000 Fixtures and fittings $1400 Disposal account $8500 Credit Revenue $326000 Purchases $135000 Returns inwards $4300 Carriage of goods $9000 Wages and salaries $90000 Motor vehicle expenses $11250 Insurance $2700 Rent receivable $14500 6% Bank loan (repayable 30 May 2022) $40000 Bank interest paid $2400 Capital $160000 Drawings $25000 Inventory at 1 October 2018 $30000 Electricity and water $6050 Marketing expenses $17300 General expenses $14000 Bank $27450 Debit Trade payables $36550 Trade receivables $35000 Provision for doubtful debts $900 Additional information at 30 September 2019 1 On 15 August 2019 goods had been purchased on credit for $1950. The transaction had not been recorded in the books. 2 Carriage of goods included $2700 for carriage on purchases. 3 Inventory was valued at $35550. 4 Rent receivable, $1500, was due. 5 The insurance included an annual payment of $800 made on 1 January 2019. 6 $750 was owing for water. 7 A new motor vehicle costing $16000 was purchased on 19 September 2019. Payment was made by cheque. No entries had been made in the books. 8 Depreciation is to be charged on all non-current assets owned at the end of the year as follows. (i) Land costing $60000 is not depreciated. The buildings are depreciated at 2% per annum on cost. (ii) Motor vehicles are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method. (iii) Fixtures and fittings are depreciated at the rate of 10% per annum on cost, using the straight-line method. 9 Trade receivables of $7000 are irrecoverable. The provision for doubtful debts is to be maintained at 5% on the remaining trade receivables. REQUIRED

  1. (a)Prepare the income statement for the year ended 30 September 2019. Feng Income Statement for the year ended 30 September 2019[20]
  2. (b)Prepare the statement of financial position at 30 September 2019. Feng Statement of Financial Position at 30 September 2019[20]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

  1. [1] Revenue 326 000
  2. [1] Returns inwards (4 300)
  3. [1] Net Revenue 321 700 (1)
  4. [1] Inventory at 1 October 2018 30 000
  5. [1] Purchases 135 000 + 1950 = 136 950 (1)
  6. [1] Carriage inwards 2700 (1)
  7. [1] Inventory at 30 September 2019 (35 550)
  8. [1] Cost of sales (134 100) (1)+w
  9. [1] Gross profit 187 600 (1of)+w
  10. [1] Rent receivable 14 500 + 1500 = 16 000 (1)
  11. [1] Profit on disposal 8500 (1)
  12. [1] Carriage outwards 6 300 (1)
  13. [1] Wages and salaries 90 000 (1)
  14. [1] Motor vehicle expenses 11 250 (1)
  15. [1] Insurance 2 700-200 = 2 500 (1)
  16. [1] Bank interest 2 400 (1)
  17. [1] Electricity and water 6 050 + 750 = 6 800 (1)
  18. [1] Marketing expenses 17 300 (1)
  19. [1] General expenses 14 000 (1)
  20. [1] Bad debt 7 000 (1)
  21. [1] Increase provision for doubtful debts 500 (1)
  22. [1] Provisions for depreciation Land and buildings 2 200 (1)
  23. [1] Provisions for depreciation Motor vehicles 9000 (1)
  24. [1] Provisions for depreciation Fixtures and fittings 700 (1)
  25. [1] Profit for the year 42 150
  26. [1] Non-current assets: Cost, Accumulated depreciation, Net book value
  27. [1] Land and buildings Cost 170 000, Acc dep 20 800, NBV 149 200 (1)OF
  28. [1] Motor vehicles Cost 46 000 (1), Acc dep 19 000, NBV 27 000 (1)OF
  29. [1] Fixtures and fittings Cost 7 000, Acc dep 2 100, NBV 4 900 (1)OF
  30. [1] Current assets: Inventory 35 550 (1)
  31. [1] Trade receivables (35 000 – 7000) = 28 000 (1)
  32. [1] Less Provision for doubtful debts (1400) (1)OF
  33. [1] Other receivables 1500 (1) + 200 (1) = 1700
  34. [1] Bank 27450 (1) – 16 000 (1) = 11 450
  35. [1] Capital: Capital 160 000
  36. [1] Plus Profit for the year 42 150 (1)OF
  37. [1] Drawings (25 000)
  38. [1] Capital (end) 177 150 (1)OF
  39. [1] Non-current liabilities/Long term liabilities (1): 6% loan 40 000 (1)
  40. [1] Current liabilities: Trade payables 36 550 (1) + 1950 (1) = 38 500
  41. [1] Other payables 750 (1)
  42. [1] Total capital and liabilities 256 400

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About this question

Topic
Preparation of financial statements, O-Level Accounting (syllabus 7707). Structured question, 40 marks.
Source
O-Level Accounting, Oct/Nov 2019 Paper 2 Variant 1, question 5.

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