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Paper Reference(s)

6001/01London Examinations GCEAccounting (Modular Syllabus)Advanced Subsidiary/Advanced LevelUnit 1: The Accounting System and CostingMonday 18 January 2010 – MorningTime: 3 hours

Materials required for examination Items included with question papers

Nil Source booklet

Instructions to CandidatesIn 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 CandidatesThe 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 CandidatesWrite your answers neatly and in good English.

Paper Reference

6 0 0 1 0 1

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

Printer’s Log. No.

H36389AW850/6001/57570 1/1/1/1/

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H36389A_Paper_GCE_AS_Accounting_1 1 03/09/2009 09:14:07

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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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(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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(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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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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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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Q3

(Total 52 marks)

TOTAL FOR SECTION A: 104 MARKS

H36389A_Paper_GCE_AS_Accounting_19 19 03/09/2009 09:14:09

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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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(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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(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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(Total 32 marks)

H36389A_Paper_GCE_AS_Accounting_23 23 03/09/2009 09:14:09

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

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

(c) Evaluate this view.

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(Total 32 marks)

TOTAL FOR SECTION B: 96 MARKSTOTAL FOR PAPER: 200 MARKS

END

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H36389A_Paper_GCE_AS_Accounting_36 36 03/09/2009 09:14:10

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Paper Reference(s)

6001/01London Examinations GCEAccounting (Modular Syllabus)Advanced Subsidiary/Advanced LevelUnit 1 – The Accounting System and CostingMonday 18 January 2010 – Morning

Source booklet for use with Questions 1 to 7.

Do not return this booklet with the question paper.

Printer’s Log. No.

H36389A

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

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

*H36389A*

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

H36389A 2

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

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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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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.

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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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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

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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.

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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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(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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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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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 DRDrawings: Chong 8 000 DR Dey 14 500 DRLand and buildings 30 000 DROffice equipment 11 000 DRDebtors 6 250 DRCreditors 13 750 DRBank 2 000 DRStock 13 150 DRPrepaid expenses 600 DRAccrued expenses 750 DRCapital: 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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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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