Accounting 0452 | Paper 2 Mock 01 | Structured Written Paper

(a) Sales Returns Day Book - July 2025

The sales returns day book records goods returned by credit customers. Each entry is supported by a credit note issued by the business.

(b) General Ledger - Sales Returns Account

The total is posted to the debit side of the sales returns account in the general ledger. [1] Sales returns is a debit entry because it reduces revenue.

(c) Sales Ledger - Individual customer accounts

Each return is posted to the credit side of the customer's account in the sales ledger, reducing what they owe.

(d) Two effects on the financial statements

• Income statement: Revenue (turnover) is reduced by sales returns, which in turn reduces gross profit. [1] Since gross profit is lower, net profit is also reduced by the same amount. [1]
• Statement of financial position: Trade receivables are reduced because the customers owe less after the returned goods are credited to their accounts. [1] [1]

(e) Why a credit note is issued

A credit note is a document sent to the customer acknowledging that goods have been returned and authorising a reduction in the amount they owe. [1] It reduces the customer's balance in the sales ledger. [1] The credit note serves as the source document for recording the transaction in the sales returns day book. [1]

(a) Sales Ledger Control Account - October 2025

The sales ledger control account (SLCA) is a summary account in the general ledger that provides the total balance of all individual debtor accounts. Items that increase what customers owe are debited; items that reduce what they owe are credited.

Closing balance calculation: $12 400 + $48 600 - $45 200 - $1 350 - $2 100 - $530 = $11 820 [1]

(b) Three purposes of a control account

1. To provide a check on the accuracy of the postings to the individual accounts in the sales ledger. If the control account balance agrees with the total of individual balances, the double entry is likely correct. [2]
2. To help locate errors quickly when the trial balance does not agree, since the control account narrows the search to either the individual ledger accounts or the books of prime entry. [2]
3. To provide a total figure for trade receivables for the statement of financial position without needing to add up all individual debtor balances, speeding up the preparation of financial statements. [2]

(c) Difference between the sales ledger and the SLCA

The sales ledger contains individual accounts for each credit customer, showing the detailed transactions (sales, returns, receipts, discounts) for each debtor. [1]

The sales ledger control account is a single summary account in the general ledger that shows the total of all debtor balances combined. It is prepared from the totals of the books of prime entry, not from the individual accounts. [1]

(d) Where the closing balance appears

The closing debit balance of $11 820 would appear as a current asset in the statement of financial position, [1] classified as trade receivables. [1]

(a) Updated cash book (bank column)

The cash book must be updated for items that have not yet been recorded in it. Items 1 through 6 affect the cash book. Items 7 and 8 are timing differences and appear only in the bank reconciliation statement.

Updated balance: $4,930 Dr [1]

The cash book has correct Dr and Cr sides, and the balance is correctly carried down. [1] [1]

The credit transfer and interest received increase the bank balance (Dr entries). Bank charges, direct debit, standing order, and the dishonoured cheque all reduce the bank balance (Cr entries). The dishonoured cheque reverses the original receipt because the cheque from N. Patel was returned unpaid by the bank.

(b) Bank reconciliation statement

The adjusted balance of $4,930 agrees with the updated cash book balance. [1]

Correct layout starting from the bank statement balance and reconciling to the cash book balance. [1]

The unpresented cheque is deducted because Ada has recorded the payment in her cash book, but the cheque has not yet been processed by the bank. The outstanding deposit is added because Ada has recorded the receipt in her cash book, but the bank has not yet credited the amount.

(c) Two reasons why the cash book and bank statement balances may differ

Reason 1: Timing differences occur when items have been recorded in the cash book but not yet processed by the bank. [1] For example, cheques issued to suppliers may not have been presented for payment yet (unpresented cheques), or deposits made shortly before the statement date may not have been credited by the bank (outstanding deposits). [1]

Reason 2: Items may appear on the bank statement before they are recorded in the cash book. [1] For example, bank charges, standing orders, direct debits, and credit transfers are processed by the bank automatically, and the business owner may not be aware of them until the bank statement arrives. [1]

(a) Depreciation charge using the revaluation method

The revaluation method calculates depreciation by comparing the value of the assets at the start of the period (plus any additions) with the value at the end of the period.

The $2 100 difference represents the cost of tools that were used up, lost, broken, or otherwise consumed during the year.

(b) Tools Account for the year ended 31 December 2025

The opening balance plus purchases on the debit side equals the closing balance plus depreciation on the credit side.

(c) When the revaluation method is appropriate

1. The revaluation method is most suitable for small, low-value, numerous items such as loose tools, containers, or livestock, where it would be impractical to maintain individual depreciation records for each item. [1] [1]
2. The assets may be frequently replaced, lost, or broken, and their value is best determined by physical inspection and valuation at the year end rather than by a formula applied to each item. [1] [1]

(d) Depreciation calculations for the machine

Cost = $40 000, Useful life = 8 years, Residual value = $4 000

(i) Straight-line method

Annual depreciation = (Cost - Residual value) / Useful life [1]
= ($40 000 - $4 000) / 8 [1]
= $36 000 / 8
= $4 500 per year [1]

The straight-line method charges an equal amount each year. The residual value is excluded because it represents the portion of cost the business expects to recover at the end of the asset's life.

(ii) Reducing balance method at 20% (first year only)

Depreciation = Net book value at start of year x Rate [1]
= $40 000 x 20% [1]
= $8 000 [1]

The reducing balance method applies the percentage to the remaining book value, so the charge is highest in year one and decreases each subsequent year. In the first year, the net book value equals the original cost.

(a) Depreciation table for the delivery vehicle (reducing balance method at 25%)

Under the reducing balance method, the depreciation charge each year is calculated as a fixed percentage of the net book value at the start of that year, not the original cost. This means the charge decreases each year.

The depreciation charge decreases each year (from $9,000 to $6,750 to $5,062.50) because the reducing balance method applies the percentage to a progressively smaller net book value. This reflects the fact that many assets, particularly vehicles, lose more value in their earlier years.

(b) Disposal calculations

(i) Depreciation charge for the six months to 30 June 2025:

Since the vehicle was sold halfway through the year, depreciation is charged for only 6 months:

\( 25\% \times \$15\,187.50 \times \frac{6}{12} \) [1] \( = \$1\,898.44 \) [1]

(ii) Net book value at the date of disposal:

\( \text{NBV} = \$15\,187.50 - \$1\,898.44 = \$13\,289.06 \) [1] [1]

(iii) Profit or loss on disposal:

Sale proceeds: $12,500

Net book value at disposal: $13,289.06

\( \text{Loss on disposal} = \$13\,289.06 - \$12\,500 = \$789.06 \) [1] [1]

A loss arises because the sale proceeds are less than the carrying value of the asset. This loss is recorded as an expense in the income statement for the year.

(c) Journal entry to record the disposal

Narration: Disposal of delivery vehicle originally costing $36,000, sold for $12,500. [1]

The accumulated depreciation ($9,000 + $6,750 + $5,062.50 + $1,898.44 = $22,710.94) is debited to remove it from the provision account. The vehicle at cost is credited to remove the asset from the books. The bank records the proceeds received. The difference (the loss) is debited as an expense.

(d) Two factors to consider when choosing a method of depreciation

Factor 1: The expected useful life of the asset and the pattern in which it loses value. [1] If the asset is expected to lose value more heavily in its early years (such as a motor vehicle), the reducing balance method is more appropriate. If the loss in value is spread evenly (such as office furniture), the straight-line method is better suited. [1]

Factor 2: The estimated residual (scrap) value at the end of the asset's useful life. [1] The straight-line method works well when there is a clear residual value, as the annual charge is simply (cost minus residual value) divided by the number of years. The reducing balance method naturally approaches but never reaches zero, which may better suit assets that always retain some value. [1]