Pearson Edexcel International Advanced Level

Thursday 7 January 2021

Afternoon (Time: 3 hours) Paper Reference WAC11/01

Accounting
International Advanced Level
Paper 1: The Accounting System and Costing

Source Booklet
Do not return this Booklet with the question paper.

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©2021 Pearson Education Ltd.

1/1/1/1/1/1
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 SECTION A

Answer BOTH questions in this section.

1 Borin and Priti are in partnership. The partnership agreement states that:

• interest is paid on capital at the rate of 5% per annum

• interest is charged on drawings at the rate of 10% per annum on balances
at 31 December 2020
• partnership salaries are paid per year: Borin £9 000, Priti £6 000
• the profit sharing ratio: Borin three fifths, Priti two fifths.

Balances in the books at 31 December 2020 were

£
Capital accounts:
Borin 40 000
Priti 50 000
Current accounts – 1 January 2020
Borin 200 Dr
Priti 2 500 Cr
Drawings: Borin 4 000
Priti 5 000
Revenue 370 000
Purchases 180 000
Non-current assets:
Motor vehicles (Cost) 55 000
Office fixtures (Cost) 20 000
Provisions for depreciation:
Motor vehicles 30 000
Office fixtures 8 000
Wages and salaries 97 000
General expenses 27 100
Allowance for irrecoverable debts 2 700
Inventory at 1 January 2020 38 000
Carriage inwards 4 200
Carriage outwards 19 000
Bank 17 500 Dr
8% bank loan 30 000
Bank loan interest paid 1 200
Insurance 6 000
Rent payable 21 000
Rent receivable 4 000
Motor vehicles running expenses 11 000
Trade receivables 50 000
Trade payables 19 000

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 Additional information at 31 December 2020.

(1) Inventory £41 000

(2) Insurance includes the annual insurance renewal of £2 000 paid on 1 April 2020.
(3) Rent payable of £3 000 was prepaid.
(4) Rent receivable of £2 000 was owed.
(5) The 8% bank loan was taken out on 1 January 2020 and the capital is repayable
by five equal instalments on 1 January each year, starting in 2021.
(6) Wages and salaries included partnership salaries paid during the year to Borin
£9 000 and to Priti £6 000
(7) No entries had been made in the books for a cheque, £3 800 paid to Moween, for
goods purchased on credit.
(8) Depreciation is charged at the rate of:
– 20% on motor vehicles using the reducing balance method
– 15% on office fixtures using the straight line method.
(9) The allowance for irrecoverable debts is to be maintained at 4%.

Required

(a) Prepare the Statement of Profit or Loss and Other Comprehensive

Income (including the appropriation of profit or loss) for the year ended
31 December 2020.
(19)

(b) Calculate the current account balances of Borin and Priti at 31 December 2020.
(5)

(c) Prepare the Statement of Financial Position at 31 December 2020.

(14)

During the year ended 31 December 2020 the partners had agreed the following
changes to their capital accounts.

On 1 March 2020 Priti had introduced new capital of £20 000 in cash.

On 1 April 2020 Borin had withdrawn £25 000 of his capital by cheque.

(d) Prepare the Capital Accounts of Borin and Priti as they would appear in the books
for the year ended 31 December 2020.
(5)

Javid is a manager in the partnership. He now wishes to join the partnership as a

partner of Borin and Priti. He can introduce £5 000 cash as capital.

(e) Evaluate whether Borin and Priti should admit Javid to the partnership.
(12)

(Total for Question 1 = 55 marks)

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2 Teemu extracted the following balances from his books of account on
31 December 2020. He was aware that there were errors in the books of account,
some of which would affect the balancing of the trial balance.

£
Equipment (cost) 4 000
Equipment – provision for depreciation 1 600
Sundry expenses 1 900
Wages 26 330
Inventory 6 750
Purchases 52 000
Revenue 89 000
Equipment repairs 1 120
Discount allowed 300
Discount received 730
Bank (overdraft) 700
Electricity and water 2 800
Trade receivables 7 800
Trade payables 4 700
Capital 8 000
Drawings 900

Required

(a) Prepare Teemu’s Trial Balance at 31 December 2020 including the balancing figure
required in the Suspense Account.
(10)

On inspection of the books of account Teemu discovered the following errors.

(1) Equipment repairs, £470, had been posted to the Equipment Account.
(2) Discount of £60 given to Dominic, a credit customer, had been debited in
Dominic’s account and credited to the Discount Allowed Account.
(3) A cheque received from Robin, £290, had been recorded in the account of Riaz.
(4) No entry had been made in the books of account for a £800 sale of goods on
credit to Tower Industries.
(5) A purchase of goods on credit from Collinge was correctly recorded in the
Purchases Day Book as £580. This had been posted to the accounts in the ledger
as £850.
(6) The Sundry Expenses Account had been debited with the correct figure of £600
and the Bank Account credited with £650.
In another transaction the Wages Account had been debited with £900 and the
Bank Account credited with the correct figure of £850.
(7) A cheque received from Richard, £950, had been correctly recorded in the Richard
Account, but no entry had been made in the Bank Account.
(8) Drawings by cheque of £120 had been recorded in the Drawings Account but no
entry had been made in the Bank Account.

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 Required

(b) Identify the type of error in each of (1) to (5).

(5)

(c) Prepare the journal entries to correct the errors in (1) to (8). Narratives are not
required.
(18)

(d) Prepare the Suspense Account after the correction of all errors.
(5)

(e) Calculate the balance of the Bank Account after the correction of all errors.
(5)

A friend of Teemu has advised him that if he completes his books of account using
Information Communication Technology (ICT) this will ensure that there are no errors
in the books of account.

(f ) Evaluate the friend’s advice that the use of Information Communication

Technology (ICT) will ensure that there are no errors in the books of account.
(12)

(Total for Question 2 = 55 marks)

TOTAL FOR SECTION A = 110 MARKS

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 SECTION B

Answer THREE questions from this section.

3 (a) Explain the accounting concepts.

(i) Going concern

(2)

(ii) Business entity

(2)

Eva is in business selling food and magazines from her shop. The following
information is available for the year ended 31 December 2020.

Food Magazines

£ £

Purchases 46 500 44 000

Revenue 65 000 50 000

Inventory 1 January 2020 3 500 5 000

Inventory 31 December 2020 3 000 5 500

Purchase returns – 1 000

Required

(b) Prepare the Departmental Trading Account, in columnar format, showing the
gross profit or loss made on food and on magazines. A total column is not
required.
(6)

During the year ended 31 December 2020, there has been a rise in theft from the
shop by customers who leave without paying for the food or magazines.

Eva operates on the following terms:

• a 30% gross profit margin on food
• a 20% gross profit margin on magazines.

Required

(c) Calculate the value of goods stolen from the shop in the year ended
31 December 2020.
• Food
• Magazines
• In total
(10)

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 Eva is considering the installation of a security system. The details are:

Purchase price £9 000. Estimated life of 5 years. No residual value.

Installation £2 000
Annual maintenance £1 500

Required

(d) Calculate the total annual cost of the security system.

(4)

(e) Evaluate whether Eva should purchase the security system.

(6)

(Total for Question 3 = 30 marks)

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4 (a) Explain the term capital expenditure.
(2)

(b) Indicate whether each of the following are examples of capital expenditure or
revenue expenditure for a motor vehicle.

• Delivery cost of a new motor vehicle.

• 10 000 kilometre service.
• New tyres.
• Signwriting the business name on the motor vehicle.
(4)

Lanzo Services is in business delivering goods to customers. On 1 January 2020 the

following balances were in their books of account.

Motor vehicles (at cost) £80 000

Motor vehicles provision for depreciation £18 000
Motor vehicles maintenance £2 400 accrued

During the year ended 31 December 2020 the following transactions occurred.

1 April A motor vehicle which had cost £10 000 and with accumulated
depreciation of £2 000 was sold for £4 500. Payment was received
by cheque.

1 May Motor vehicles costing £52 000 were purchased. Payment was
made by cheque.

Motor vehicles which had cost £30 000 and with a carrying value
of £21 000 were given in part exchange for an agreed value of
£12 500. The balance was paid by cheque.

1 January – Motor vehicle maintenance payments totalling £16 300 had been
31 December paid to suppliers during the year.

• Lanzo Services depreciates all motor vehicles held at the end of the year at the
rate of 10% using the straight line method.
• Motor vehicle maintenance of £1 500 was prepaid.

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 Required

(c) Prepare the following accounts for the year ending 31 December 2020, including
appropriate year end transfers to the financial statements.

(i) Motor Vehicle Account

(4)

(ii) Motor Vehicle – Provision for Depreciation Account

(4)

(iii) Motor Vehicles Disposal Account

(6)

(iv) Motor Vehicles Maintenance Account

(4)

(d) Evaluate the policy of depreciating motor vehicles at the rate of 10% using the
straight line method.
(6)

(Total for Question 4 = 30 marks)

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5 (a) Explain two reasons why a business would use apportionment for some of its
overheads.
(4)

Deli is the owner of an electrical installation business. He employs five electricians

who complete jobs for customers. Each electrician works 40 hours per week for 50
weeks of the year. Deli estimates that 65% of each electrician’s working hours is
directly chargeable to customer’s jobs.

Required

(b) Calculate the total hours that Deli can directly charge to customer’s jobs in 2020.
(3)

(c) Identify two activities undertaken by the electricians that would not be directly
chargeable to customer’s jobs.
(2)

Deli costs jobs on the following basis.

• Materials are charged at cost plus a mark-up of 15%.
• Labour at £10 per hour
• Overheads at £15 per labour hour worked.

Required

(d) Calculate the total cost for Job 73, which requires materials costing £80 and
12 hours of labour to complete.
(4)

For the year ended 31 December 2020 the following information is available.
• Total materials charged to customers’ jobs £9 200
• Total labour hours charged to customers’ jobs 6 700
• Total actual wages paid to the five electricians £58 000
• Actual overheads paid £104 000

Required

(e) Calculate for the year ended 31 December 2020 the:

(i) profit made on materials

(2)

(ii) profit or loss made on labour

(4)

(iii) over absorption or under absorption of overheads

(3)

(iv) total profit made by Deli’s business.

(2)

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 Deli remunerates (pays) his electricians on a day work basis for hours worked. He is
considering changing his remuneration to a piecework basis.

(f ) Evaluate whether Deli should change his method of remuneration for electricians
to a piecework basis.
(6)

(Total for Question 5 = 30 marks)

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6 (a) Explain the following accounting terms:

(i) liquidity
(2)

(ii) capital employed.

(2)

Mila wishes to purchase a retail business. She is considering two businesses with
potential for the future. These businesses are Alfah Retail and Zulu Shopping. The
following information is available for the year ended 31 December 2020.

Alfah Retail Zulu Shopping

£000 £000
Revenue 500 500
Cost of sales 300 300
Rent – 50
Other running expenses 140 140
Bank loan interest 5 –

Balances at 31 December 2020

Non-current assets 120 30

Inventory 40 35
Trade receivables 30 35
Bank 10 Cr 5 Dr
Trade payables 30 25
Capital 50 80
5% Bank loan (repayable 2023) 100 –

Note

Alfah Retail owns the premises from which it trades.

Zulu Shopping rents the premises from which it trades.

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 Required

(b) Calculate for each business the:

(i) net profit for the year as a percentage of revenue

(4)

(ii) revenue to non-current assets

(4)

(iii) percentage return on capital employed

(4)

(iv) current ratio

(4)

(v) liquid (acid test) ratio.

(4)

(c) Evaluate which business, if either of them, Mila should purchase.

(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

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