LCCI International Qualifications

Book-keeping
Level 1

Model Answers
Series 4 2008 (1517) Hong Kong

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English for Business Level 1 (Hong Kong)
Series 4 2008

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(1) Questions – reproduced from the printed examination paper

(2) Model Answers – summary of the main points that the Chief Examiner expected to
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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

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Page 1 of 11
QUESTION 1

Andy Choi prepared a Trial Balance at 30 September 2008:

Dr Cr
£ £
Capital at 1 October 2007 121,050
Drawings 4,500
Purchases 108,000
Sales 179,100
Returns 1,125
Vehicles at cost 19,725
Provision for depreciation – vehicles 3,945
Premises at cost 93,780
Carriage inwards 1,395
Debtors 10,800
Creditors 7,275
Wages and salaries 41,505
Fixtures and fittings at cost 13,500
Provision for depreciation – fixtures and fittings 2,700
General expenses 7,125
Bank 6,315
Cash 225
Stock at 1 October 2007 8,325
315,195 315,195

Additional information at 30 September 2008:

(1) Stock at cost, £7,800.

(2) A debt of £300 is to be written off as a bad debt.

(3) General expenses paid in advance, £600.

(4) Depreciation is to be provided as follows:

Vehicles at 20% using the reducing balance method.

Fixtures and fittings at 10% using the straight line method.

REQUIRED

(a) Prepare a Trading and Profit and Loss Account for the year ended 30 September 2008.
(14 marks)

(b) Prepare a Balance Sheet at 30 September 2008.

(11 marks)

(Total 25 marks)

1517/4/08/MA Page 2 of 11
MODEL ANSWER TO QUESTION 1

(a)

Andy Choi
Trading and Profit & Loss Account for the year ended 30 September 2008

£ £ £
Sales 179,100
Less: Cost of sales
Stock at 1 October 2007 8,325
Add: Purchases 108,000
Less: Returns 1,125
106,875
Add: Carriage inwards 1,395 108,270
116,595
Less: Stock at 30 September 2008 7,800 108,795
Gross Profit 70,305
Depreciation – vehicles (19,725 – 3,945 x 20%) 3,156
Wages and salaries 41,505
Depreciation – fixtures and fittings (13,500 x 10%) 1,350
General expenses (7,125 – 600) 6,525
Bad debts 300 52,836
Net Profit 17,469

(b)

Balance Sheet at 30 September 2008

Fixed Assets Cost Aggregate Net Book

Depreciation Value
£ £ £
Premises 93,780 ------ 93,780
Vehicles 19,725 7,101 12,624
Fixtures and fittings 13,500 4,050 9,450
127,005 11,151 115,854

Current Assets
Stock 7,800
Debtors (10,800 – 300) 10,500
Bank 6,315
Cash 225
Expenses prepaid 600
25,440
Less: Current Liabilities
Creditors 7,275
Net Current Assets 18,165
134,019
Financed by:
Capital 121,050
Add: Net Profit 17,469
138,519

Less: Drawings 4,500

134,019

1517/4/08/MA Page 3 of 11
QUESTION 2

Terry Lee sells a wide range of goods. Items of stock had been in store for over two years. He
reviewed the value of these items on 31 January 2008 as follows:

Item Cost Revised Sale

Price
£ £
1 3,600 2,900
2 7,850 6,000
3 2,390 3,400
4 12,420 10,300
5 18,100 19,600
6 5,750 6,750
7 16,400 15,000
8 20,000 18,000

REQUIRED

(a) Calculate the amount at which stock should now be valued.

(9 marks)

During January 2008 Terry Lee incurred the following expenditure:

(i) Rent of shop and warehouse.

(ii) Redecoration of shop.

(iii) Building costs for the construction of an extension to the warehouse.

(iv) Architect’s fee for the plans of the warehouse extension.

(v) New fire alarm system.

(vi) Insurance premium for his private residence.

(vii) Repairs to shop roof.

(viii) Replacement of a damaged tyre on a delivery vehicle.

(ix) Wages of own staff to decorate the warehouse extension.

(x) Petrol for his car to take his family on a weekend holiday.

REQUIRED

(b) List the above numbers (i) to (x)in your answer book. If the expenditure is revenue, write R
against the number. If it is capital, write C against the number. If you think neither R or C is
appropriate, write neither against the number.
(10 marks)

1517/4/08/MA Page 4 of 11
QUESTION 2 CONTINUED

Terry Lee discovered that in error the cost of a computer, £3,300, had been treated as revenue
expenditure in the final accounts for the year ended 31 January 2008. The Net Profit had been
calculated as £23,460 and the Fixed Assets shown as £78,500 at net book value. Depreciation should
have been calculated on the basis of a life of three years and a nil residual value.

REQUIRED

(c) Calculate the correct:

(i) Net Profit for the year ended 31 January 2008.

(3 marks)

(ii) Fixed Assets at Net Book Value at 31 January 2008.

(3 marks)

(Show your workings)

(Total 25 marks)

1517/4/08/MA Page 5 of 11
MODEL ANSWER TO QUESTION 2

(a)

Item £
1 NRV 2,900
2 NRV 6,000
3 Cost 2,390
4 NRV 10,300
5 Cost 18,100
6 Cost 5,750
7 NRV 15,000
8 NRV 18,000
78,440

(b)

(i) R
(ii) R
(iii) C
(iv) C
(v) C
(vi) Neither
(vii) R
(viii) R
(ix) C
(x) Neither

(c)

(i) £
Net Profit per Final Accounts 23,460
Add: Computer at cost 3,300
26,760
Less: Depreciation 1,100
25,660

Alternative answer
Net profit per final accounts 23,460

Adjustment (3,300 – 1,100) 2,200

25,660

(ii) £
Fixed Assets at Net Book Value 78,500
£
Add: Computer at cost 3,300
Less: Depreciation 1,100 2,200
80,700

Alternative Answer

Fixed Asset at Net Book Value 78,500

Adjustment (3,300 – 1,100) 2,200
80,700

1517/4/08/MA Page 6 of 11
QUESTION 3

Ron Teo extracted a Trial Balance at 31 August 2008:

Dr Cr
£ £
Capital 39,475
Sales 23,625
Commission received 650
Insurance 250
Drawings 1,000
Wages 10,800
Cash 75
Sundry expenses 375
Bank overdraft 3,350
Purchases 16,600
Creditors 5,250
Premises 18,000
Stock at 1 September 2007 2,000
Debtors 3,400
Fixtures and fittings 7,500
Carriage inwards 500
Carriage outwards 700
Salaries 11,150
72,350 72,350

An inspection of the accounts revealed the following errors:

(1) Sundry Expenses included a payment of £50, which should have been debited to a Repairs
Expenses Account.

(2) Carriage Inwards £150, had been debited to the Carriage Outwards Account.

(3) No entry had been made in the books to record a payment by cheque of £350 to M Yong, a
creditor.

(4) Cash sales £200, had been incorrectly debited to the Bank Account instead of the Cash Account.

(5) Wages paid, £210, had been incorrectly debited to the Salaries Account.

(6) A payment of £60 by J Lim, a debtor, had been credited to J Ling’s Account.

REQUIRED

(a) Prepare Journal entries to record adjustments to items (1) to (6) above.
Narratives are not required.
(12 marks)

(b) Extract a corrected Trial Balance at 31 August 2008.

(13 marks)

(Total 25 marks)

1517/4/08/MA Page 7 of 11
MODEL ANSWER TO QUESTION 3

(a)

Dr Cr
£ £
(1) Repairs 50
Sundry Expenses 50

(2) Carriage Inwards 150

Carriage Outwards 150

(3) M Yong 350

Bank 350

(4) Cash 200

Bank 200

(5) Wages 210

Salaries 210

(6) J Ling 60
J Lim 60

(b)

Ron Teo
Trial Balance at 31 August 2008

Dr Cr
£ £
Capital 39,475
Sales 23,625
Commission received 650
Insurance 250
Drawings 1,000
Wages (10,800 + 210) 11,010
Cash (75 + 200) 275
Sundry expenses (375 – 50) 325
Repairs 50
Bank overdraft (3,350 + 350 + 200) 3,900
Purchases 16,600
Creditors (5,250 – 350) 4,900
Premises 18,000
Stock at 1 September 2007 2,000
Debtors 3,400
Fixtures and fittings 7,500
Carriage Inwards (500 + 150) 650
Carriage Outwards (700 – 150) 550
Salaries (11,150 – 210) 10,940
72,550 72,550

1517/4/08/MA Page 8 of 11
QUESTION 4

Maggie Fong had the following balances in her books at 1 July 2008:

£
Sales Ledger
Julie Cheng 5,800 Dr
John Guo 6,600 Dr
Purchases Ledger
Emma Mak 4,400 Cr
Paul Ngan 2,400 Cr
Cash Book
Bank 1,300 Cr
Cash 860 Dr

The following transactions occurred during July 2008:

1 July Paid rent by cash, £230.

2 July Sold goods on credit to Julie Cheng, list price £3,800, less trade discount, 10%.

4 July Cash sales, £2,700, paid into the Bank Account.

10 July Bought goods on credit from Emma Mak, £1,650.

12 July Drawings in cash, £200.

15 July Paid Sundry Expenses in cash, £170.

18 July Paid Paul Ngan by cheque half the balance outstanding at 1 July 2008, less 2½ % cash
discount.

22 July Julie Cheng paid by cheque the balance due at 1 July 2008, less 2½ % cash discount.

23 July John Guo returned goods, £1,000. He also paid by cheque the balance due, less 2½%
cash discount.

25 July Returned goods to Emma Mak, £720.

28 July Bought goods on credit from Paul Ngan, list price £9,600, less trade discount, 15%.

REQUIRED

(a) Prepare a 3-column Cash Book for July 2008 showing the balances brought down at
1 August 2008.
(12 marks)
(b) Prepare relevant accounts in the:

(i) Sales Ledger

(7 marks)

(ii) Purchases Ledger.

(6 marks)

(Total 25 marks)

1517/4/08/MA Page 9 of 11
MODEL ANSWER TO QUESTION 4

(a)

Cash Book
Discount Cash Bank Discount Cash Bank
Allowed Received
2008 £ £ £ 2008 £ £ £
1 July Balance b/d 860 1 July Balance b/d 1,300
4 July Cash sales 2,700 1 July Rent 230
22 July Julie Cheng 145 5,655 12 July Drawings 200
23 July John Guo 140 5,460 15 July Sundry expenses 170
18 July Paul Ngan 30 1,170
31 July Balance c/d 260 11,345
285 860 13,815 30 860 13,815
1 Aug Balance b/d 260 11,345

1517/4/08/MA Page 10 of 11
MODEL ANSWER TO QUESTION 4 CONTINUED

(b)

(i) Sales Ledger

Julie Cheng Account
2008 £ 2008 £
1 July Balances b/d 5,800 22 July Bank 5,655
2 July Sales 3,420 22 July Discount 145
31 July Balance c/d 3,420
9,220 9,220

1 Aug Balance b/d 3,420

John Guo Account

2008
1 July Balance b/d 6,600 23 July Returns 1,000
23 July Bank 5,460
23 July Discount 140
6,600 6,600

(ii) Purchases Ledger

Emma Mak Account
2008 £ 2008 £
25 July Returns 720 1 July Balance b/d 4,400
31 July Balance c/d 5,330 10 July Purchases 1,650
6,050 6,050
1 Aug Balance b/d 5,330

Paul Ngan Account

2008 £ 2008 £
18 July Bank 1,170 1 July Balance b/d 2,400
18 July Discounts 30 28 July Purchases 8,160
31 July Balance c/d 9,360
10,560 10,560
1 Aug Balance b/d 9,360

1517/4/08/MA Page 11 of 11
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1517/4/08/MA Page 11 of 11