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LCCI International Qualifications – Book Keeping & Accounts

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LCCI International Qualifications

Book Keeping & Accounts
Level 2

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Model Answers
Series 3 2010 (2007)

For further
information
contact us:

Tel. +44 (0) 8707 202909
Email. [email protected]
www.lcci.org.uk

Book Keeping & Accounts Level 2
Series 3 2010

How to use this booklet
Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements:

(1)

Questions

– reproduced from the printed examination paper

(2)

Model Answers

– summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable)

(3)

Helpful Hints

– where appropriate, additional guidance relating to individual questions or to examination technique

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.

EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade.

EDI accepts that candidates may offer other answers that could be equally valid.

© Education Development International plc 2010
All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher.

2007/3/10MA

Page 1 of 16

QUESTION 1
The following list of balances was extracted from the books of Gregg Ltd on 30 September 2009: Ordinary share capital – issued and fully paid
8% Preference share capital – issued and fully paid
Premises
Motor vehicles
Office equipment
Provision for depreciation on motor vehicles
Provision for depreciation on office equipment
Gross profit
Stock at 30 September 2009
Administrative expenses
Selling expenses
Distribution expenses
5% Debentures (repayable 2017)
Interest paid to debenture holders
Profit on sale of vehicle
Profit & loss account  1 October 2008
6% Deposit account  invested by Gregg Ltd on 1 June 2009
Debtors
Creditors
Cash at bank
Share premium
Interim dividend  ordinary shares
Interim dividend  preference shares
Provision for doubtful debts

£
400,000
80,000
664,000
200,000
70,000
150,000
28,000
504,400
90,000
85,500
60,000
130,000
80,000
2,000
1,500
83,500 (Cr)
50,000
62,000
45,000
6,800 (Cr)
40,000
4,000
3,200
1,500

The following additional information is also available at 30 September 2009: (1)

The first year’s deposit account interest was not due to be received until 30 May 2010.

(2)

The provision for doubtful debts is to be maintained at 2% of debtors.

(3)

Depreciation is to be provided as follows:
Motor vehicles – 25% reducing balance method
Office equipment – 20% per annum on cost.

(4)

The directors propose:
(i)
(ii)

A final dividend to the ordinary shareholders of £0.10 per share To create a general reserve of £25,000.

REQUIRED
(a)

Prepare the Profit and Loss & Appropriation Account for the year ended 30 September 2009. (13 marks)

(b)

Prepare the Balance Sheet at 30 September 2009.
(12 marks)
(Total 25 marks)

2007/3/10MA

Page 2 of 16

MODEL ANSWER TO QUESTION 1
(a)
Gregg Ltd
Profit & Loss and Appropriation Account
For year ended 30 September 2009
£
Gross Profit
Profit on vehicle sale
Deposit interest accrued (50,000 x 6%) x 1/3
Decrease in doubtful debts provision (1,500 – 1,240)
Less:
Administrative expenses
Selling expenses
Distribution expenses
Debenture interest (2,000 + 2,000)
Depreciation:
Vehicles [(200,000 – 150,000) x 25%]
Office equipment (70,000 x 20%)

85,500
60,000
130,000
4,000
12,500
14,000
306,000
201,160

Net Profit
Less:
Preference dividend – interim
Preference dividend – proposed [(80,000 x 0.8) – 3,200)]
Ordinary dividend – interim
Ordinary dividend – proposed (400,000 x 0.10)
Transfer to general reserve
Retained profit for year 1
Retained profit b/fwd
Retained profit c/fwd

2007/3/10/MA

£
504,400
1,500
1,000
260
507,160

3,200
3,200
4,000
40,000
25,000

75,400
125,760
_83,500
209,260

Page 3 of 16

QUESTION 1 CONTINUED
(b)
Gregg Ltd
Balance Sheet at 30 September 2009
£
Cost
664,000
200,000
70,000
934,000

Fixed Assets
Premises
Motor vehicles
Office equipment
Current Assets
Stock
Debtors
Less: Provision
Interest accrued
Deposit account

£
Acc’d Dep’n
162,500
42,000
204,500

90,000
62,000
1,240

Creditors – due within 1 year
Creditors
Accrual
Proposed dividends
(40,000 + 3,200)
Bank overdraft
Net current assets

60,760
1,000
50,000

201,760

45,000
2,000
43,200
6,800

97,000
104,760
834,260

Creditors – due after more than 1 year
5% Debenture loan – 2017

_80,000
754,260

Capital and reserves
Issued and fully paid share capital
400,000 Ordinary shares of £1 each
80,000 8% Preference shares of £1 each

400,000
80,000
480,000

Reserves
Share premium
Profit & loss
General reserve

40,000
209,260
25,000
274,260
754,260

Total shareholders’ funds

2007/3/10/MA

£
NBV
664,000
37,500
28,000
729,500

Page 4 of 16

QUESTION 2
The following balances were extracted from the books of Millward Ltd on 1 May 2010: Dr
£
Purchases ledger
Sales ledger

Cr
£

1,275
84,320

56,200
1,200

In the month of May 2010, the following was a summary of transactions made: £
Refund from supplier for overpayment in April
Debit balance on sales ledger transferred to purchases ledger Cash purchases
Debtor’s cheque dishonoured
Legal fees for debt collection charged to customer’s account Credit sales
Credit purchases
Returns outwards
Returns inwards
Discounts allowed
Discounts received
Payments to credit suppliers
Bad debts written off
Cash sales
Receipts from credit customers

1,275
3,300
7,275
2,400
200
85,300
62,760
2,530
1,060
870
600
55,780
315
12,670
82,370

The provision for doubtful debts at 1 May 2010 was £1,270.
At 1 June 2010, the following information was also available: £
Purchases ledger debit balances
Sales ledger credit balances

480
610

The provision for doubtful debts was to be adjusted to 2% of debtors at 31 May 2010. REQUIRED
(a)

Prepare the Purchases Ledger Control Account for the month of May 2010.

(9 marks)

(b)

Prepare the Sales Ledger Control Account for the month of May 2010.

(c)

Prepare, at 31 May 2010, a Balance Sheet extract showing the debtors and creditors figures under the current assets and liabilities due within 1 year.
(5 marks)

(11 marks)

(Total 25 marks)

2007/3/10/MA

Page 5 of 16

MODEL ANSWER TO QUESTION 2
Purchases Ledger Control Account
£

(a)

1,275
3,300
2,530
600
55,780
57,230
120,715

Balance b/d
Contra
Returns outwards
Discounts received
Bank
Balance c/d

Balance b/d
Bank: refund
Purchases
Balance c/d

(b)
Balance b/d
Bank: Dish’d cheque
Legal fees
Sales
Balance c/d

Balance b/d

Sales Ledger Control Account
£
84,320
Balance b/d
2,400
Contra
200
Returns inwards
85,300
Discounts allowed
610
Bad debts
Bank
______
Balance c/d
172,830
83,715

Balance b/d

Balance b/d

Millward Ltd
Balance Sheet extract at 31 May 2010

(c)

£

£

Current assets
Debtors
(480 + 83,715)
Less provision for doubtful debts
(84,195 x 2%)

84,195
1,684
82,511

Liabilities due within 1 year
Creditors

57,840

(57,230 + 610)

2007/3/10/MA

56,200
1,275
62,760
480

120,715

480

Balance b/d

£

Page 6 of 16

57,230

£
1,200
3,300
1,060
870
315
82,370
83,715
172,830
610

QUESTION 3
The following financial statements relate to Clarke Ltd:
Trading and Profit and Loss Account for the year ended 30 June 2009 £000
Sales
Less: Cost of sales
Opening stock
Purchases
Less: Closing stock

£000
1,500

180
1,140
120
1,200
300
125
175

Gross profit
Less: expenses (including debenture interest)
Net profit
Balance Sheet at 30 June 2009
£000
Fixed assets

£000
675

Current assets:
Stock
Trade debtors
Bank

120
250
30
400

Liabilities due within one year:
Trade creditors
Net current assets

200
200
875

Liabilities due after more than one year:
6% debentures – issued 2005

200
675

Capital and reserves
400,000 ordinary shares at £1 each
Retained profits

400
275
675

REQUIRED
(a)

Calculate the following ratios for Clarke Ltd in respect of the year ended 30 June 2009. All workings must be shown.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Gross profit margin
Current ratio (working capital ratio)
Liquidity ratio (acid test ratio)
Rate of stock turnover (expressed as number of times per year) Return on total capital employed. Use net profit before interest. Debtors’ collection period (expressed in days)
Creditors’ settlement period (expressed in days)
All workings should be to no more than one decimal place.
(14 marks)

2007/3/10/MA

Page 7 of 16

QUESTION 3 CONTINUED
The Directors of Clarke Ltd made the following estimates for the year ending 30 June 2010: 

Sales volume would increase by 20% if selling prices were reduced by 3%

Cost of sales would increase in volume in line with the increase in sales, but purchase prices would reduce by 5%

Expenses, before debenture interest would increase by 2%.

REQUIRED
(b)

Prepare a forecast Trading and Profit & Loss Account for Clarke Ltd for the year ending 30 June 2010. All workings must be shown to the nearest whole number. (11 marks)
(Total 25 marks)

2007/3/10/MA

Page 8 of 16

MODEL ANSWER TO QUESTION 3
Workings
300
x 100
1,500

(a)
Gross profit margin

Answer
20%

400
200

Liquidity ratio

(400 – 120)

2:1

280
200

Current ratio

1.4:1

Rate of stock-turnover

1,200
150

8 times
([120+180]/2)

Return on total capital employed

**187
875

x 100

21.4%

Debtors’ collection period

250
1,500

x 365

60.8 days or 61 days

Creditors’ settlement period

200
1,140

x 365

64 days

** Net profit £175 + debenture interest £12 = £187

(b)

Sales

£1,500 x 1.20 x 0.97 =

£
1,746

Cost of sales

£1,200 x 1.20 x 0.95 =

1,368

(to the nearest whole number)

127

(to the nearest whole number)

Expenses

(£125 – 12 x 1.02) + 12 =

Clarke Ltd
Forecast Trading and Profit & Loss Account
for the year ending 30 June 2010

Sales
Less: Cost of sales
Gross profit
Less: expenses (including debenture interest)
Net profit

2007/3/10/MA

Page 9 of 16

£000
1,746
1,368
378
127
251

QUESTION 4
Joe Bell, whose financial year ends at 31 December, summarised the following information for his last three years of trading:
2007
£

2008
£

2009
£

70,000

80,000

65,000

800

1,500

1,200

300

1,000

700

Doubtful debts:
Specific provision required at 31 December 1,200

800

600

2%

4%

Debtors’ balances at 31 December before
preparation of the final accounts
Bad debts:
Written off during the year
To be written off at 31 December

General provision at 31 December to be
adjusted to

3%

At 1 January 2007, the balance on the provision for doubtful debts account was £1,300. REQUIRED
(a)

Prepare ledger accounts for each of the years 2007, 2008 and 2009 for: (i)
(ii)

Bad debts
Provision for doubtful debts.

(9 marks)
(9 marks)

(b)

Show the Balance Sheet extract recording the debtors at 31 December 2009.

(3 marks)

(c)

Explain the difference between a specific provision for doubtful debts and a general provision for doubtful debts.
(4 marks)
(Total 25 marks)

2007/3/10/MA

Page 10 of 16

MODEL ANSWER TO QUESTION 4
(a)

(i)
2007
Jan 01 Dec 31 Debtors
Dec 31 Debtors

2008
Jan 01 Dec 31 Debtors
Dec 31 Debtors

2009
Jan 01 Dec 31 Debtors
Dec 31 Debtors

(a)

(ii)
2007
Dec 31

Balance c/d

2008
Dec 31
Dec 31

Balance c/d
Profit & Loss A/c

Bad Debts Account
£
2007
800
Dec 31 Profit & Loss A/c
300
1,100

1,500
1,000
2,500

1,200
700
1,900

2008
Dec 31

Profit & Loss A/c

£
1,100
1,100

2,500
2,500

2009
Dec 31

Profit & Loss A/c

1,900
1,900

Provision for Doubtful Debts Account
£
2007
3,255
Jan 01 Balance b/d
Dec 31 Profit & Loss A/c
3,255

£
1,300
1,955
3,255

Balance c/d

2008
Jan 01

£
3,148

2009
Jan 01
Dec 31

Balance b/d
Profit & Loss A/c

£
2,364
784
3,148

2010
Jan 01

2009
Dec 31

£
2,364
891
3,255

Balance b/d

3,148

Balance b/d

3,255

3,148

2007/3/10/MA

£
3,255

Page 11 of 16

QUESTION 4 CONTINUED
Workings
[1]

£
Specific provision required
General provision required:
3% x [70,000 – (300 + 1,200)]

1,200

Provision b/d
Increase/(decrease) in provision
[2]

Specific provision required
General provision required:
2% x [80,000 – (1,000 + 800)]

800

Provision b/d
Increase/(decrease) in provision
[3]

2,055
3,255
1,300
1,955

Specific provision required
General provision required:
4% x [65,000 – (700 + 600)]

1,564
2,364
3,255
-891
600

Provision b/d
Increase/(decrease) in provision

2,548
3,148
2,364
784

Balance Sheet at 31 December 2009
(b)
Current assets
Debtors
(65,000 – 700)
64,300
Less provision for doubtful debts
3,148
61,152
(c)

A specific provision for doubtful debts will be made for individual customer account balances that are unlikely to be recovered.
A general provision for doubtful debts will be made for the remaining customer account balances that are unlikely to be recovered. This is usually calculated as a percentage of outstanding debtors.

2007/3/10/MA

Page 12 of 16

QUESTION 5
Stuart, Tess and Lee have been in partnership sharing profits and losses in the ratio 3:2:1 respectively. The partners have decided to dissolve the partnership with effect from 30 June 2010. The Balance Sheet of the partnership at 30 June 2010 was as follows: £

Fixed assets at net book value
Premises
Machinery
Vehicles

£
200,000
80,000
40,000
320,000

Current assets
Stock
Debtors
Bank

14,000
22,000
10,000
46,000

Creditors due within one year
Creditors

4,000

Net current assets

42,000
362,000

Capital accounts:
Stuart
Tess
Lee

200,000
100,000
62,000
362,000

Additional information at 30 June 2010:
(1)

The debtors settled their outstanding debts for £20,000 by cheques.

(2)

The creditors were settled by cheques, allowing a cash discount of £1,000.

(3)

The premises were sold to McBride Ltd at an agreed purchase price of £280,000, consisting of: 216,000 ordinary shares of £1 each
£36,000 7% debentures and
£28,000 received by cheque.
The shares were divided in the profit sharing ratio and the debentures were shared equally between the partners.

(4)

The machinery was sold for £2,200, receiving payment by cheque.

(5)

One vehicle was taken over by Stuart at an agreed value of £6,000 and a second vehicle was taken over by Tess at an agreed value of £4,000. The third vehicle was sold for £8,000; a cheque was received for this amount.

(6)

Tess took over the stock at an agreed value of £12,000.

(7)

Dissolution expenses amounted to £10,800.

2007/3/10/MA

Page 13 of 16

QUESTION 5 CONTINUED
REQUIRED
Prepare the:
(a)

Realisation Account

(15 marks)

(b)

The Partners’ Capital Accounts

(6 marks)

(c)

McBride Ltd’s Account.

(4 marks)
(Total 25 marks)

2007/3/10MA

Page 14 of 16

MODEL ANSWER TO QUESTION 5
Realisation Account

(a)
£
200,000
80,000
40,000
14,000
22,000
3,000
10,800

Premises
Machinery
Vehicles
Stock
Debtors
Bank: creditors
Dissolution expenses

£
20,000
4,000
280,000
2,200
6,000
4,000

Bank: debtors
Creditors
McBride Ltd
Bank: machinery
Capital: Stuart (vehicle)
Tess (vehicle)

8,000
12,000

Bank: vehicle
Capital: Tess (stock)
Loss on realisation:
Stuart (33,600 x 3/6)
Tess (33,600 x 2/6)
Lee (33,600 x 1/6)

16,800
11,200
5,600
369,800

369,800

(b)

Debentures
Ordinary shares
Realisation (vehicles)
Realisation (stock)
Loss on realisation
Bank

2007/3/10/MS

Stuart
£
12,000
108,000
6,000
16,800
57,200
200,000

Tess
£
12,000
72,000
4,000
12,000
11,200
111,200

Capital Accounts
Lee
£
12,000
36,000

5,600
8,400
62,000

Page 15 of 16

Tess
£
100,000
11,200

Lee
£
62,000

200,000

Balance b/d
Bank

Stuart
£
200,000

111,200

62,000

QUESTION 5 CONTINUED
McBride Ltd

(c)
Realisation: premises

£
280,000

Bank
Debentures

Ordinary shares:

280,000

2007/3/10/MA

Page 16 of 16

Stuart
Tess
Lee
Stuart
Tess
Lee

£
28,000
12,000
12,000
12,000
108,000
72,000
36,000
280,000

EDI
EDI
International House
International East
Siskin Parkway House
Siskin Parkway East
Middlemarch Business Park
Middlemarch Business Park
Coventry CV3 4PE
Coventry CV3 4PE
UK
UK
Tel. +44 (0) 8707 202909
Tel. +44 (0) 8707 202909
Fax. +44 (0) 2476 516505
Fax. +44 (0) 2476 516505
Email. [email protected]
Email. [email protected]
www.ediplc.com
www.ediplc.com

1517/2/10/MA

Page 17 of 12

Cite this LCCI International Qualifications – Book Keeping & Accounts

LCCI International Qualifications – Book Keeping & Accounts. (2016, Oct 09). Retrieved from https://graduateway.com/lcci-international-qualifications-book-keeping-accounts/

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