O-LevelAccountingPreparation of financial statements7707/22 · May/June 2025 · Q520 Marks

Rexford is a trader. All his sales and purchases are on credit. He does not keep a full set of accounting records but has provided the following information. Assets and liabilities at 1 January 2024: Fixtures and fittings (cost) $28000 Accumulated depreciation on fixtures and fittings $22400 Inventory $6000 Trade receivables $21750 Insurance prepaid $300 Cash at Bank $3425 Trade payables $5680 Bank payments during the year to 31 December 2024: Trade payables (after deducting cash discount of $380) $68100 Rent and insurance $10120 General expenses $4730 Wages $6400 Drawings $12200 Additional Information 1 The only amounts received during the year to 31 December 2024 were $103200 from trade receivables. 2 Rexford applies a mark-up of 50%. 3 Depreciation is charged at 20% using the straight-line method. 4 Inventory at 31 December 2024 was valued at $400 more than inventory at 1 January 2024. 5 The amount owed to trade payables at 31 December 2024 was 25% more than the amount owed at 1 January 2024.

(a)Prepare Rexford's purchases ledger control account for the year to 31 December 2024. Balance the account and bring down the balance at 1 January 2025.[4]
(b)Prepare Rexford's income statement for the year ended 31 December 2024.[8]
(c)Calculate Rexford's trade receivables at 31 December 2024.[3]
(d)Rexford is considering employing a part-time bookkeeper. The bookkeeper would be paid $5000 per annum. REQUIRED (d) Advise Rexford whether or not he should employ a bookkeeper. Justify your answer by providing two points for and two points against employing a part-time bookkeeper.[5]

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

[1] Jan 1 Balance b/d 5680
[1] Dec 31 Purchases 69900 OF
[1] Dec 31 Bank 68100
[1] Dec 31 Discount received 380
[1] Dec 31 Balance c/d 7100
[1] Jan 1 Balance b/d 7100
[1] Revenue (69 500 × 1.5) 104250 OF
[1] Opening inventory 6000
[1] Purchases 69900 OF
[1] Less Closing inventory 6400
[1] Gross profit 34750 OF
[1] Discount received 380
[1] Rent and insurance (10 120 + 300) 10420
[1] General expenses 4730
[1] Wages 6400
[1] Depreciation on fixtures and fittings (20% × 28 000) 5600
[1] Profit for the year 7980 OF
[1] Use of opening trade receivables (21750)
[1] Addition of Revenue (104250 OF) and subtraction of Receipts from sales (103200)
[1] Closing trade receivables 22800 OF
[1] More reliable records / more accurate records / less errors
[1] More up-to-date figures available, e.g. bank, trade receivables, trade payables
[1] Time freed up for other tasks
[1] Payments to trade payables will be monitored so that more cash discount is claimed
[1] More detailed records would be available for reference purposes / easier to prepare financial statements
[Max 2] Accept other valid points (for advantages)
[1] The salary would reduce profit / increases expenses
[1] There would be a reduction in cash/liquidity.
[1] The money may be better spent elsewhere e.g. new fixtures and fittings
[1] The book-keeper will not prepare the financial statements
[Max 2] Accept other valid points (for disadvantages)
[Max 4] Overall For and Against
[1] Recommendation

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