O-LevelAccountingSources and recording of data7707/21 · May/June 2013 · Q226 Marks
The following are some of the transactions carried out by Tay, a retailer, during April 2013. (i) Paid insurance $470 by cheque. (ii) Sold goods on credit to J Dins, cost price $6400 plus 80% mark up. (iii) Paid amount owing to P Lee by cheque, $1800, less 4% cash discount. (iv) Returned damaged goods costing $590 to R & R Ltd. REQUIRED
- (a)Complete the table below for transactions (ii) to (iv). Transaction (i) has been completed as an example. Transaction | Source document | Accounts debited and amount | Accounts credited and amount | Effect on profit for year ---|---|---|---|--- (i) | Cheque counterfoil | Insurance $470 | Bank $470 | -$470 (ii) | | | | (iii) | | | | (iv) | | | |[12]
- (b)Explain why Tay received cash discount from P Lee.[2]
- (c)Tay supplied the following information for year ended 30 April: 1 2013 Revenue $60000 Cost of sales $48000 2 2012 Revenue $58000 Gross profit to sales ratio 33.3% REQUIRED Calculate Tay's gross profit to sales ratio for the year ended 30 April 2013.[2]
- (d)Compare the gross profit to sales ratio in 2012 with your answer in (c) and suggest three possible causes for any changes that may have taken place.[6]
- (e)Make two suggestions on how Tay may use the gross profit to sales ratio.[4]
Mark scheme
Marking points from the official mark scheme (May/June 2013). The mark or mark type is shown in brackets.
- [1] (a)(ii) Source document: Sales invoice
- [1] (a)(ii) Accounts debited and amount: J Dins $11 520
- [1] (a)(ii) Accounts credited and amount: Sales $11 520
- [1] (a)(ii) Effect on profit for year: +$5120
- [1] (a)(iii) Source document: Cheque counterfoil
- [1] (a)(iii) Accounts debited and amount: P Lee $1 800
- [1] (a)(iii) Accounts credited and amount: Bank $1 728
- [1] (a)(iii) Accounts credited and amount: Discount received $72
- [1] (a)(iii) Effect on profit for year: +$72
- [1] (a)(iv) Source document: Credit note
- [1] (a)(iv) Accounts debited and amount: R & R Ltd $590
- [1] (a)(iv) Accounts credited and amount: Purchases returns $590
- [1] (a)(iv) Effect on profit for year: Nil
- [2] (b) To encourage early payment
- [2] (c) Gross profit x 100 = $12 000 / $60 000 = 20%
- [1] (d) Sales revenue has increased by $2000 (or nearly 3.45)
- [1] (d) but the ratio has fallen from 33.3% to 20%
- [2] (d) An increase in profit in absolute terms does not imply a rise in profitability of sales
- [2] (d) A decrease in selling price with no decrease in cost of goods sold
- [2] (d) A decrease in selling price with a less than proportionate decrease in cost of goods sold
- [2] (d) An increase in cost of goods sold with no increase in selling price
- [2] (d) An increase in cost of goods sold with a less than proportionate increase in selling price
- [2] (d) Over valuation of opening inventory
- [2] (d) Under valuation of inventory at close
- [2] (e) Enables business to see how well it has performed
- [2] (e) and how profitable sales for the year are
- [2] (e) Results can be compared with previous years
- [2] (e) It enables comparisons with other like businesses in same industry
- [2] (e) It may act as a warning sign since a fall in the ratio may indicate a fall in profitability of sales
- [2] (e) It shows the percentage gross profit on sales earned
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