Y11 TERM 1

Question 1

State 5 advantages of preparing control accounts.

Answer 1

1. Can assist in locating errors when the trial balance fails to balance
2. Provides a summary of transactions relating to trade receivables and trade payables for the period
3. Proves the arithmetical accuracy of the ledgers they control
4. Draft of the financial statement can be prepared quickly because of the balances provided by the control account
5. Helps to reduce fraud as the control accounts are prepared by someone who has not been involved in making the entries in those particular ledgers

Question 2

Explain what is meant by a contra entry in connection with control accounts.

Answer 2

An entry which appears on the debit side of the purchases ledger control account and the credit side of the sales ledger control account.

*A contra entry occurs if a business sells goods and also buys goods from the same trader.

Question 3

State 3 reasons why it is possible to have a credit balance brought down on a sales ledger control account.

Answer 3

1. The customer paid in advance for the goods purchased
2. Overpayment by trade receivables
3. Trade receivables returned goods after payment has been made

Question 4

Suggest 2 possible reasons for a difference in balance between the updated cash book and the bank statement. Give an example of each.

Answer 4

1. Incorrect entry in the cash book. eg. Debit or credit side was overcast or undercast.
2. Bank error. eg. Items were recorded in the wrong account.

Question 5

State 3 reasons why a trader should reconcile her cash book with the statement received from the bank.

Answer 5

1. To identify errors in the bank account / on the bank statement
2. To know the true bank balance at a certain date
3. To assist in detecting fraud

Question 6

State and explain 2 advantages of maintaining both a capital and a current account for each partner.

Answer 6

1. Easier to see profit retained by each partner

2. Easier to calculate interest on capital

Question 7

Name 3 financial matters which are/might be included in a partnership agreement.

Answer 7

1. Profit-sharing ratio
2. Interest on drawings
3. Interest on capital

Question 8

State 3 advantages of trading in partnership.

Answer 8

1. The business will have more capital
2. Partners will contribute additional knowledge and skills to the business
3. Losses are shared among partners

Question 9

State 3 disadvantages of trading in partnership.

Answer 9

1. Profits have to be shared among partners
2. Decisions have to be recognised by all partners
3. Disagreements among partners can occur

Question 10

State 3 ways in which the partnership agreement could be changed to recognise the fact that A makes more sales than B.

Answer 10

1. Allow commission on sales
2. Increase A’s salary
3. Change the profit-sharing ratio

Question 11

Suggest why a partner has been credited with a salary.

Answer 11

To compensate for an unequal workload OR in recognition of work done in the business

Question 12

Explain why interest is charged on partners’ drawings.

Answer 12

To discourage the partners from making excessive drawings

Question 13

Limited liability

Answer 13

The liability of the member (shareholders) of a company for the debts of the company is limited to the amount they agree to pay the company for their shares

Question 14

Authorised share capital

Answer 14

The maximum amount of share capital that a limited company may issue to their shareholders

Question 15

Issued share capital

Answer 15

The amount of share capital which is actually issued by a limited company to their shareholders

Question 16

Called-up share capital

Answer 16

The total amount of share capital for which payment has been requested from the company’s shareholders

Question 17

Paid-up share capital

Answer 17

The part of the called-up share capital for which payment has been received from the company’s shareholders

Question 18

State 4 features of preference shares

Answer 18

1. Share capital
2. Receive a fixed rate of dividend
3. Is payable before ordinary share dividend
4. Do not carry voting rights

Question 19

State 3 features of ordinary shares

Answer 19

1. Share capital
2. Receive a variable rate of dividend
3. Carry voting rights

Question 20

State 4 features of debentures

Answer 20

1. Long-term loans
2. Receive a fixed rate of interest
3. Debenture holders are not members of the company
4. Debenture holders are repaid before the shareholders in a winding-up

Question 21

Name 2 interested parties who would use the financial statements of a limited company.

Answer 21

1. Shareholders

2. Potential investors

Question 22

State why a company would make a transfer to general reserve.

Answer 22

To indicate that part of the profit is for long-term use within the company and is not available for distribution

Question 23

Explain why companies pay dividends on shares.

Answer 23

1. To distribute profit to the shareholders
2. Reward shareholders for investment
3. To encourage investment

Question 24

State 2 advantages of being an ordinary shareholder in a limited company compared with being a partner.

Answer 24

1. Limited liability if business becomes bankrupt

2. Partners have to work in the business where shareholders may only invest

Question 25

State 2 ways in which the issue of preference shares/debentures may affect the existing ordinary shareholders.

Answer 25

1. Reduction in profit available for ordinary shareholders | 2. Prior claim on the assets of the company in the event of a winding-up

Question 26

State 5 reasons why a sole trader might wish to turn his business into a limited company.

Answer 26

1. Separate legal identity from its owner 2. Limited liability 3. Can issue shares to raise capital 4. May find it easier to obtain loans/issue debentures 5. Continuity

Question 27

Suggest 2 ways in which a club could raise a large sum of money.

Answer 27

1. Organise fund-raising activities | 2. Obtain long-term loans

Question 28

Why does 'loan from a member' not appear in the Income and Expenditure Account? *it appears in the Receipts and Payments Account (clubs)

Answer 28

Loan from a member is not an income but a non-current liability

Question 29

Why does 'depreciation of equipment' not appear in the Receipts and Payments Account? *it appears in the Income and Expenditure Account (clubs)

Answer 29

Depreciation is a non-monetary expense but included in calculating surplus/deficit for the period

Question 30

Why should partners draw up a partnership agreement?

Answer 30

1. To agree on the profit-sharing ratio | 2. To avoid disagreements among partners in the future

Question 31

Equivalent terms in the financial statements of a club or society

Answer 31

Capital - Accumulated fund Profit for the year - Surplus Loss for the year - Deficit Cash book - Receipts and Payments account Income statement - Income and Expenditure account

Question 32

Subscriptions

Answer 32

An amount paid by members for the right to use the facilities of a club

Question 33

Explain why a subscriptions account can have two opening balances.

Answer 33

Some members of the club may have subscriptions accrued or prepaid subscriptions

Question 34

Explain why there are no drawings in a club or society.

Answer 34

Members have not invested any capital in the organisation, so there can be no drawings which represents amount taken from the return of an investment

Question 35

Suggest two reasons why the sports club's bank balance is not equal to the surplus for the year.

Answer 35

1. Income and expenditure account includes revenue items only eg. depreciation, NOT sports equipment... 2. Income and expenditure account adjusts figures for accruals and prepayments

Question 36

State why the updated cash book balance rather than the balance on the bank statement would appear in the balance sheet.

Answer 36

The balance sheet would not balance if the bank statement balance was included because only balances on the books of the business can be included in the balance sheet of the business

Question 37

Bank statement

Answer 37

A copy of the bank's record of a customer's account that shows the detailed transactions during a period of time

Question 38

Opening balance of accumulated fund

Answer 38

All assets - all liabilities | *use their opening balances

Question 39

Explain why a company might wish to create a general reserve.

Answer 39

1. For reinvestment in the business 2. To plough back profits 3. To set aside profit for paying dividends in the future

Question 40

State how the accumulated fund of a club has arisen.

Answer 40

It is the total of all the surpluses made by the club less all the deficits since the start of the club.

Question 41

Purpose of an appropriation account

Answer 41

To show the distribution of the profit for the year between the partners