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6001/01 Examiner’s use only

London Examinations GCE Team Leader’s use only

Accounting (Modular Syllabus)


Advanced Subsidiary/Advanced Level Question Leave
Number Blank
Unit 1: The Accounting System and
1
Costing
2
Monday 18 January 2010 – Morning 3
Time: 3 hours 4
5

Materials required for examination Items included with question papers 6


Nil Source booklet 7



Instructions to Candidates
In the boxes above, write your centre number, candidate number, your surname, initial(s) and signature.
Answer FIVE questions, choosing TWO from Section A and THREE from Section B.
Indicate which question you are answering by marking the box ( ).
If you change your mind, put a line through the box ( ) and then indicate your new question with
a cross ( ).
All calculations must be shown.
Write your answers in the spaces provided in this question paper.

Do not return the source booklet with the question paper.

Information for Candidates


The marks for individual questions and the parts of questions are shown in round brackets: e.g. (2).
The total mark for this paper is 200.
There are 36 pages in this question paper. Any blank pages are indicated.
Calculators may be used.
The source material for use with questions 1 to 7 is in the enclosed source booklet.

Advice to Candidates
Write your answers neatly and in good English.
Total
This publication may be reproduced only in accordance with

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Edexcel Limited copyright policy.

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Printer’s Log. No.

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SECTION A

Answer TWO questions from this section.

If you answer question 1, put a cross in this box ( ).

Source material for question 1 is on pages 2 and 3 of the source booklet.

1. (a) Prepare for Highflyer, for the year ended 31 December 2009, the:

(i) manufacturing account

(ii) trading and profit and loss account.

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(b) Prepare the balance sheet as at 31 December 2009.

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(c) Calculate for the year the cost of production of one solar powered calculator.

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(2)

(d) Highflyer’s cost of production includes fixed costs and semi-fixed costs.

(i) Define the terms fixed costs and semi-fixed costs.

(ii) Using the manufacturing account of Highflyer, give one example of a fixed cost
and one example of a semi-fixed cost.

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An overseas supplier of solar powered calculators has offered to supply Highflyer at a
price which is 10% lower than the current cost of production of Highflyer. If Highflyer
accepts this offer, it would close its manufacturing unit and concentrate on the sale of solar
powered calculators.

(e) Evaluate whether Highflyer should accept the offer made by the overseas supplier.

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(8) Q1

(Total 52 marks)


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If you answer question 2, put a cross in this box ( ).

Source material for question 2 is on pages 4 and 5 of the source booklet.

2. (a) Prepare the:

(i) journal entries to correct the errors in the accounts

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(ii) suspense account.

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(b) Re-draft the trial balance after all errors have been corrected.

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(c) Prepare the profit and loss account for the year ended 30 November 2009.

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(9)

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(d) Evaluate the role of the trial balance in ensuring that all transactions have been
correctly recorded in the books.

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(8) Q2

(Total 52 marks)

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If you answer question 3, put a cross in this box ( ).

Source material for question 3 is on pages 6 to 8 of the source booklet.

3. (a) Prepare the departmental trading and profit and loss account, in columnar format,
showing clearly the profit or loss for each department for the year ended 31 December
2009. A total column is not required.

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(b) Using the accounts of Chin, explain why each of the following is an application of the
accounting term or concept stated:

Application in accounts Accounting term or concept

(i) Provision for doubtful debts Prudence concept

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(4)

Application in accounts Accounting term or concept

(ii) Cost of sales Accruals concept

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Application in accounts Accounting term or concept

(iii) Premises extension Capital expenditure

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(4)

Application in accounts Accounting term or concept

(iv) Wages Allocation

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In the years 2007 and 2008, the timber department had made losses. If the losses continue,
Chin would consider closing the timber department.

(c) Evaluate the likely impact on Chin’s business of a decision to close the timber
department.

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(8) Q3
(Total 52 marks)

TOTAL FOR SECTION A: 104 MARKS

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SECTION B

Answer THREE questions from this section.

If you answer question 4, put a cross in this box ( ).

Source material for question 4 is on pages 9 and 10 of the source booklet.

4. (a) Calculate for both 2008 and 2009 the:

(i) gross profit to sales percentage

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(4)

(ii) rate of stock turnover

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(iii) debtors collection period in days

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(iv) return on capital employed

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(v) liquid (acid test) ratio.

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(4)

(b) Comment upon:

(i) the adequacy of liquidity for Tan’s business

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(ii) how Tan might improve the liquidity of his business.

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(c) Evaluate the usefulness of ratios when considering the future of a business.

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(4) Q4
(Total 32 marks)

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If you answer question 5, put a cross in this box ( ).

Source material for question 5 is on page 11 of the source booklet.

5. (a) Calculate the:

(i) total salary and wage cost (including employers’ government taxes) paid by
Smith & Co for one year

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(ii) total cost of operating Smith & Co for one year

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(iii) rate to be charged to clients for one hour for the services of:

• a partner
• a junior.
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(b) Identify four business activities likely to be undertaken by a partner which would not
be directly charged to a client.

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(c) Evaluate the use of hourly rates as a method of charging clients.

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(4) Q5
(Total 32 marks)

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If you answer question 6, put a cross in this box ( ).

Source material for question 6 is on pages 12 and 13 of the source booklet.

6. (a) Explain why goodwill is not normally recorded in the books of a business.

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(4)
(b) Prepare the:
(i) appropriation account of Chong and Dey for the year ended 30 November 2009

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(ii) capital accounts of Chong, Dey and Elva recording the year end appropriations
and the admission of the new partner.
You are required to balance the accounts at 30 November 2009, and again after
the introduction of the new partner.

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(iii) balance sheet of the new partnership on 1 December 2009.

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(7)
(c) Evaluate the decision to admit a new partner to the business, from the view of Chong
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(4) Q6

(Total 32 marks)

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If you answer question 7, put a cross in this box ( ).

Source material for question 7 is on page 14 of the source booklet.

7. (a) Explain the term net realisable value.

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(4)

(b) Calculate the:


(i) purchases for the period 1 November to 17 November 2009

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(ii) sales for the period 1 November to 17 November 2009

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(iii) value of the lost and fire damaged stock.

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(12)

34
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H36389A_Paper_GCE_AS_Accounting_34 34 03/09/2009 09:14:10
Leave
blank
“Valuing stock at net realisable value does not comply with accounting concepts and
conventions.”

(c) Evaluate this view.

........................................................................................................................................

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(4) Q7
(Total 32 marks)

TOTAL FOR SECTION B: 96 MARKS


TOTAL FOR PAPER: 200 MARKS

END

35
*H36389A03536*
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36
*H36389A03636*
H36389A_Paper_GCE_AS_Accounting_36 36 03/09/2009 09:14:10
Paper Reference(s)

6001/01
London Examinations GCE
Accounting (Modular Syllabus)
Advanced Subsidiary/Advanced Level
Unit 1 – The Accounting System and Costing
Monday 18 January 2010 – Morning

Source booklet for use with Questions


1 to 7.

Do not return this booklet with the


question paper.

*H36389A*
Printer’s Log. No.

H36389A Turn over


W850/6001/57570 1/1/1/1/

This publication may be reproduced only in accordance with Edexcel Limited copyright policy. ©2010 Edexcel Limited.

H36389A_Source_GCE_AS_Accounting1 1 03/09/2009 09:20:45


SECTION A

SOURCE MATERIAL FOR USE WITH QUESTION 1

1. Highflyer manufactures and sells solar powered calculators. The following balances remained in
the books of Highflyer at 31 December 2009.

£
Purchases of raw materials 72 500
Production wages 109 200
Office wages 33 450
Salaries:
Production manager 25 000
Office manager 17 500
Rent 18 000
Sundry factory expenses 31 700
Sales 350 000
Carriage outwards 3 800
Bad debts 8 100
Fixed assets:
Plant and machinery at cost 68 000
Fixtures and fittings at cost 26 000
Provisions for depreciation on:
Plant and machinery 32 000
Fixtures and fittings 7 100
Provision for doubtful debts 2 900
Debtors 45 000
Creditors 36 000
Bank overdraft 5 350
Capital 85 000
Drawings 20 600
Stock at 1 January 2009:
Raw materials 4 700
Work in progress 9 200
Finished goods 25 600

H36389A 

H36389A_Source_GCE_AS_Accounting2 2 03/09/2009 09:20:45


Additional information:
• Stock at 31 December 2009:
Raw materials £3 750
Work in progress £14 000
Finished goods £30 400
• Production wages £3 850 are accrued and carriage outwards £650 is prepaid.
• Rent is apportioned on the basis of floor area occupied. Manufacturing occupies 2 000 sq m
and the office occupies 500 sq m.
• Office wages include a £750 interest free loan to a member of the office staff, repayable on
28 February 2010.
• Depreciation is charged as follows:
– plant and machinery, 20% per annum using the straight line method
– fixtures and fittings, 15% per annum using the straight line method.
• On 30 December 2009, a debtor owing £4 000 had ceased trading and the decision was made
by Highflyer to write off the amount as a bad debt. No entries had been made in the books by
31 December 2009.
• The provision for doubtful debts is to be maintained at 6% of the remaining debtors.
• During the year Highflyer manufactured 111 000 solar powered calculators.
Required:

(a) Prepare for Highflyer, for the year ended 31 December 2009, the:

(i) manufacturing account

(ii) trading and profit and loss account.


(21)

(b) Prepare the balance sheet as at 31 December 2009.


(15)

(c) Calculate for the year the cost of production of one solar powered calculator.
(2)

(d) Highflyer’s cost of production includes fixed costs and semi-fixed costs.

(i) Define the terms fixed costs and semi-fixed costs.

(ii) Using the manufacturing account of Highflyer, give one example of a fixed cost and one
example of a semi-fixed cost.
(6)

An overseas supplier of solar powered calculators has offered to supply Highflyer at a price which
is 10% lower than the current cost of production of Highflyer. If Highflyer accepts this offer, it
would close its manufacturing unit and concentrate on the sale of solar powered calculators.

(e) Evaluate whether Highflyer should accept the offer made by the overseas supplier.
(8)

(Total 52 marks)

Answer space for question 1 is on pages 2 to 6 of the question paper.

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H36389A_Source_GCE_AS_Accounting3 3 03/09/2009 09:20:45


SOURCE MATERIAL FOR USE WITH QUESTION 2

2. The trial balance below was extracted from the books of Khimja on 30 November 2009 following
the preparation of the trading account:

£ £
Gross profit 170 000
Capital 36 000
Wages 39 400
Salaries 80 000
Rent 15 500
General expenses 11 700
Debtors and Creditors 21 300 16 500
Bank 8 100
Stock 19 000
Fixed assets:
Motor vehicles 30 000
Office furniture 18 000
Provisions for depreciation:
Motor vehicles 16 000
Office furniture 9 170
Suspense 4 670        
247 670 247 670

Following the preparation of the trial balance and the trading account the following errors were
discovered:

• Goods costing £3 500 on sale or return from a supplier, Raihan, had been returned on 1 October
2009. No entry had been made in the books of Khimja to record the return.
• The stocktake sheets on 30 November 2009 had been overcast by £500.
• A payment for general expenses of £980 had been correctly entered in the bank account, but
had been credited to the general expenses account as £890.
• A rent payment of £1 500 had been correctly entered in the bank account, but no entry had been
made in the rent account.
• A wage bonus of £3 000 had been correctly entered in the bank account, but had been entered
as £3 300 in the wages account.
• A salary bonus of 2% of salaries had been paid, but no entry had been made in the salaries
account.
• All fixed assets are depreciated at the rate of 15% using the straight line method. A motor
vehicle purchased on 1 December 2006 for £14 000, was sold on 30 November 2009, a cheque
being received for £4 000. No entries had been made in the books to record the sale. Khimja
uses a disposal account.

H36389A 

H36389A_Source_GCE_AS_Accounting4 4 03/09/2009 09:20:45


Required:

(a) Prepare the:

(i) journal entries to correct the errors in the accounts


(18)

(ii) suspense account.


(5)

(b) Re-draft the trial balance after all errors have been corrected.
(12)

(c) Prepare the profit and loss account for the year ended 30 November 2009.
(9)

(d) Evaluate the role of the trial balance in ensuring that all transactions have been correctly
recorded in the books.
(8)

(Total 52 marks)

Answer space for question 2 is on pages 8 to 12 of the question paper.

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H36389A_Source_GCE_AS_Accounting5 5 03/09/2009 09:20:45


SOURCE MATERIAL FOR USE WITH QUESTION 3

3. Chin is a builders’ merchant with three departments: plumbing, electrical and timber.

The following balances were extracted from the books on 31 December 2009:

£ £
Purchases:
Plumbing 58 000
Electrical 65 000
Timber 55 000
Sales:
Plumbing 110 000
Electrical 148 000
Timber 96 000
Wages:
Plumbing 18 000
Electrical 27 000
Timber 35 000
Managers’ salaries 30 000
Stock at 1 January 2009:
Plumbing 14 000
Electrical 16 700
Timber 18 200
Administration expenses 13 300
Rent and heat 8 500
Vehicle running expenses 20 000
Premises extension 45 000
Fixed assets:
Premises 100 000
Equipment 60 000
Delivery vehicle 16 000
Provisions for depreciation:
Premises 15 000
Equipment 27 000
Delivery vehicle 6 000
Debtors and Creditors 59 000 36 000
Provision for doubtful debts 1 950

H36389A 

H36389A_Source_GCE_AS_Accounting6 6 03/09/2009 09:20:46


Additional information:

• Stock at 31 December 2009:


Plumbing £12 800
Electrical £14 300
Timber £21 100
• During the year, Chin contracted a builder to carry out a premises extension. In addition to the
£45 000 paid to the builder, Chin supplied timber costing £5 000 for the extension. No entries
had been made in the books to record the transfer of timber.
• Depreciation is charged on cost using the straight line method, as follows:
– premises at the rate of 2%
– equipment 15%
– delivery vehicle 20%.
A full year’s depreciation is charged on assets owned at the end of the year.
• A provision for doubtful debts is to be maintained at the following rates:
Debtors Debtors Rate
1 January 31 December
Plumbing £10 000 £15 000 5%
Electrical £18 000 £21 000 3%
Timber £13 000 £23 000 7%
• Managers’ salaries, administration expenses, rent and heat, vehicle running expenses and
depreciation are apportioned to departments on the most appropriate basis from the following
information:
Plumbing Electrical Timber
Staff (number) 3 5 7
Use of administration (%) 35 40 25
Use of delivery vehicle (%) 20 20 60
Use of equipment (%) 25 25 50
Area occupied (sq m) 300 250 450

Required:

(a) Prepare the departmental trading and profit and loss account, in columnar format, showing
clearly the profit or loss for each department for the year ended 31 December 2009. A total
column is not required.
(28)

(b) Using the accounts of Chin, explain why each of the following is an application of the
accounting term or concept stated:

Application in accounts Accounting term or concept

(i) Provision for doubtful debts Prudence concept


(4)

(ii) Cost of sales Accruals concept


(4)

(iii) Premises extension Capital expenditure


(4)

(iv) Wages Allocation


(4)

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In the years 2007 and 2008, the timber department had made losses. If the losses continue, Chin
would consider closing the timber department.

(c) Evaluate the likely impact on Chin’s business of a decision to close the timber department.
(8)

(Total 52 marks)

Answer space for question 3 is on pages 14 to 19 of the question paper.

H36389A 

H36389A_Source_GCE_AS_Accounting8 8 03/09/2009 09:20:46


SECTION B

SOURCE MATERIAL FOR USE WITH QUESTION 4

4. Tan is in business buying and selling goods on credit. He is having difficulty paying his creditors
and the bank refuses to allow him an overdraft. The following information relates to the last two
trading years ended 31 December 2008 and 31 December 2009:

2008 2009
£ £
Sales 400 000 380 000
Cost of sales 280 000 285 000
Expenses 85 000 90 000
Net profit 35 000 5 000

Fixed assets 120 000 130 000


Stock 35 000 40 000
Debtors 40 000 55 000
Creditors 30 000 85 000
10% Loan repayable 2015 25 000 25 000
Capital 150 000 120 000
Bank 10 000 5 000

Additional information:

Stock at 1 January 2008, £30 000.

Required:

(a) Calculate for both 2008 and 2009 the:

(i) gross profit to sales percentage


(4)

(ii) rate of stock turnover


(4)

(iii) debtors collection period in days


(4)

(iv) return on capital employed


(4)

(v) liquid (acid test) ratio.


(4)

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H36389A_Source_GCE_AS_Accounting9 9 03/09/2009 09:20:46


(b) Comment upon:

(i) the adequacy of liquidity for Tan’s business


(2)

(ii) how Tan might improve the liquidity of his business.


(6)

(c) Evaluate the usefulness of ratios when considering the future of a business.
(4)

(Total 32 marks)

Answer space for question 4 is on pages 20 to 23 of the question paper.

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H36389A_Source_GCE_AS_Accounting10 10 03/09/2009 09:20:46


SOURCE MATERIAL FOR USE WITH QUESTION 5

5. Smith & Co is a firm of accountants. The firm employs two grades of accounting staff: partners
and juniors. The firm charges for the services of partners and juniors on the basis of hours worked
in preparing the accounts of clients.

The following information is available:

• Smith & Co employs 2 partners and 3 juniors.


• Salaries paid: Partners £40 000
Juniors £16 000
• Smith & Co pays an additional 25% of salaries in the form of employers’ government taxes.
• The partners and juniors are supported by one administrative assistant who is paid a wage of
£1 000 per month. To this is added 25% of wages in the form of employers’ government
taxes.
• The administrative assistant spends an equal amount of time supporting each partner and each
junior.
• Other expenses for one year are £35 000. The hourly rate charged to clients for each partner
and each junior would be increased by £7 per hour for these expenses.
• It is estimated that hours chargeable to clients in the year will be:
Partners 1 000 hours each partner
Juniors 1 150 hours each junior

Required:

(a) Calculate the:

(i) total salary and wage cost (including employers’ government taxes) paid by Smith & Co
for one year
(4)

(ii) total cost of operating Smith & Co for one year


(2)

(iii) rate to be charged to clients for one hour for the services of:

• a partner
• a junior.
(14)

(b) Identify four business activities likely to be undertaken by a partner which would not be
directly charged to a client.
(8)

(c) Evaluate the use of hourly rates as a method of charging clients.


(4)

(Total 32 marks)

Answer space for question 5 is on pages 24 to 27 of the question paper.

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H36389A_Source_GCE_AS_Accounting11 11 03/09/2009 09:20:46


SOURCE MATERIAL FOR USE WITH QUESTION 6

6. Chong and Dey are in partnership sharing profits and losses 3:2. Interest is allowed on capital at
the rate of 4% per annum and Dey is paid a salary of £7 000 per annum. No interest is charged on
drawings. The following balances remained in the books after the preparation of the trading and
profit and loss account for the year ended 30 November 2009:

£
Net profit 21 000 DR
Drawings:
Chong 8 000 DR
Dey 14 500 DR
Land and buildings 30 000 DR
Office equipment 11 000 DR
Debtors 6 250 DR
Creditors 13 750 DR
Bank 2 000 DR
Stock 13 150 DR
Prepaid expenses 600 DR
Accrued expenses 750 DR
Capital:
Chong 30 000 DR
Dey 20 000 DR

Additional information:

• Chong and Dey operate fluctuating capital accounts.


• On 1 December 2009 Chong and Dey agreed to admit Elva as a partner. Elva would bring the
following assets and liabilities into the partnership on that date:
Delivery vehicle £6 000
Stock £8 200
Debtors £4 000
Creditors £3 200
Bank cheque £10 000
• Goodwill was valued by Chong and Dey on 30 November 2009 at £60 000. Goodwill is not to
be recorded in the books of the new partnership.
• It was agreed that Chong would reduce his capital by £15 000, taking this sum by cheque on
1 December 2009.
• The new partnership would share profits and losses in the ratio of Chong, Dey and Elva 2:2:1
respectively.

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H36389A_Source_GCE_AS_Accounting12 12 03/09/2009 09:20:46


Required:

(a) Explain why goodwill is not normally recorded in the books of a business.
(4)

(b) Prepare the:

(i) appropriation account of Chong and Dey for the year ended 30 November 2009
(4)

(ii) capital accounts of Chong, Dey and Elva recording the year end appropriations and the
admission of the new partner.

You are required to balance the accounts at 30 November 2009, and again after the
introduction of the new partner.
(13)

(iii) balance sheet of the new partnership on 1 December 2009.


(7)

(c) Evaluate the decision to admit a new partner to the business, from the view of Chong and
Dey.
(4)

(Total 32 marks)

Answer space for question 6 is on pages 28 to 30 of the question paper.

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SOURCE MATERIAL FOR USE WITH QUESTION 7

7. A fire occurred at the business premises of Leila on 17 November 2009. Leila did not keep her
records at the business premises and can therefore provide the following information:

• Balances at 1 November 2009:


Stock at cost £14 700
Debtors £16 650
Creditors £12 500
• Transactions between 1 November and 17 November 2009:
Receipts from debtors £117 400
Payments to creditors £79 000
Cash purchases £2 800
• Balances at 17 November 2009:
Remaining stock at
net realisable value £4 850
Debtors £19 250
Creditors £14 700
• Leila uses a ‘mark up’ of 50%
Required:

(a) Explain the term net realisable value.


(4)

(b) Calculate the:

(i) purchases for the period 1 November to 17 November 2009


(6)

(ii) sales for the period 1 November to 17 November 2009


(6)

(iii) value of the lost and fire damaged stock.


(12)

“Valuing stock at net realisable value does not comply with accounting concepts and
conventions.”

(c) Evaluate this view.


(4)

(Total 32 marks)

Answer space for question 7 is on pages 32 to 35 of the question paper.

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