© Queen Mary, University of London, 2020

SAMPLE EXAM PAPER
ECN120 Elements of Accounting
Duration: 3 hours
Answer ONE question in Section A, and ALL questions in
Section B. Section A carries 40 marks, and Section B carries 60
marks.
If you answer more questions than specified, only the first answers (up to the
specified number) will be marked. Delete any answers that you do not wish to be
marked. The final submission on QMplus is the version that will be marked.
This examination paper MUST NOT be shared with anyone else. Doing so will be considered a
very serious assessment offence under the Queen Mary Academic Misconduct Policy.
This examination is an individual assessment and must be entirely your own work. All work will be
run through the plagiarism software, Turnitin. The software will also compare your script against all
other student submissions. Any evidence of plagiarism or collusion will be taken forward as
acacemic misconduct.
Calculators are permitted in this examination.
Please ensure that your working is clearly shown with all steps of your calculation included in your
answer document, including any formula used.
When writing formulas, please note the following:
 It is acceptable to use the standard alphabet rather than greek letters. The following are
recommended: m for , s for , w for , r for , d for , b for 
 For mathematical operators: add +, subtract -, multiply *, and divide /
 Where appropriate, use an underscore to indicate a subscript, Eg r_f for rf
 Use the ^ character for power, eg x^2 for x2, x^0.5 for √x
 As an alternative to x^.5 you may type sqrt(x).
 Use brackets as necessary. To make your answer clearer use different brackets where appropriate, eg
[] {} ()

Examiner: Dr Rachel Male
Page 2 ECN120 (SAMPLE EXAM PAPER)
Continues on next page...

Section A (Answer ONE Question)

Question 1
The following is the Statement of Financial Position for Klerks Ltd. as at 31st December
2010:
Statement of Financial Position for Klerks
Ltd. as at 31-Dec
2010
£
Assets
Non-current Fixtures and Fittings 75,000
Machinery 76,250
Vehicles 45,000
Current Inventories 210,000
Trade Receivables 200,500
Prepaid Expenses 4,125
Cash 374,700
Total Assets 985,575
Liabilities
Current Trade Payables 102,900
Accrued Expenses 5,135
Current Tax Payable 27,270
Proposed Dividends 17,894
Non-current Bank Loan 350,000
Total Liabilities 503,199
Equity
Share Capital 250,000
Capital and Reserves 130,980
Retained Earnings 101,396
Total Equity 482,376
Total Liabilities and Equity 985,575
Between 1st January 2011 and 31st December 2011, the following transactions took place:
1. Premises were rented at an annual rent of £36,000. During the year, rent of £37,000
was paid to the owners of the premises.
2. Rates of £5,400 were paid during the year, for the period 01-Apr-2011 to 31-Mar-
2012.
3. Klerks Ltd. employs four members of staff, each of which has an annual salary of
£32,500. At the end of the year, the business owed each employee one week’s
wages.
4. Utility bills totalling £11,100 were paid during the year. At the end of the year, the
business owed £2,950 in utility bills.
5. The business purchased some machinery on 01-Jan-2010 for £85,000, which it
expected to keep for 6 years and then to trade it in for £32,500. However, Klerks Ltd.
decided to purchase a new machine on 01-Jan-2011 and used the old machine as
part-exchange. Klerks Ltd. paid a cash amount of £90,000 for the new machine,
which would have cost £150,000 without the part-exchange. The business expects to
keep the new machine for 10 years and then to trade it in for £25,000.
6. Inventories totalling £47,520 were bought for cash and £566,280 on credit.
7. Sales revenue on credit totalled £734,349 (cost of sales = £367,175) and cash sales
revenue totalled £197,098 (cost of sales = £98,549).
ECN120 (SAMPLE EXAM PAPER) Page 3
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8. Receipts from trade receivables totalled £246,978.
9. Payments to trade payables totalled £314,360.
10. Vehicle running expenses totalled £23,200.
11. The business took out a bank loan to the value of £350,000 on 01-Jan-2010. The
bank loan is to be paid back in equal instalments over a 5 year period. The bank loan
is interest free.
12. As of 31-Dec-2011 the business owes corporation tax to the value of 30% on any
profits made over the period 01-Jan-2011 to 31-Dec-2011.
13. Klerks Ltd. proposes a dividend payment of 15% of any profits made over the period
01-Jan-2011 to 31-Dec-2011.

Notes:
a) At the end of the year, it was clear that a customer owing £6,500 would not be able to
pay any part of the debt.
b) During the year, Klerks Ltd. issued £100,000 in bonus shares.
c) The business uses the straight line depreciation method. Annual depreciation on
fixtures and fittings is £7,500 and on vehicles is £2,500.
d) As at 31-Dec-2010, pre-paid expenses consist of £3,000 in rent and £1,125 in rates.
e) As at 31-Dec-2010, accrued expenses consist of £2,885 in wages and £2,250 in
utility bills.
f) Klerks Ltd. pay their taxation 50% in arrears.

REQUIRED:
a) Prepare an Income Statement for the year ending 31st December 2011.
[20 marks]
b) Prepare a Cash Flow Statement for the year ending 31st December 2011.
[20 marks]
Page 4 ECN120 (SAMPLE EXAM PAPER)
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Question 2
Delia, Daniel and Dominic are in a partnership sharing profits and losses in the ratio 5:3:2.
The following is their trial balance as at 31st December 2017:
Trial Balance at 31st December 2017 DR CR
£ £
Sales 1,485,000
Returns Inwards 32,400
Purchases 850,500
Carriage Inwards 7,020
Stock at 31-Dec-2016 256,500
Discounts Allowed 1,412
Salaries and Wages 122,310
Bad Debts 5,400
Provision for bad debts at 31 Dec-2016 9,450
General Expenses 8,424
Rent and Rates 22,950
Postage 12,150
Motor Expenses 4,200
Vehicles at cost 101,250
Office equipment at cost 54,000
Provision for depreciation at 31 Dec-2016
Vehicles 20,250
Office equipment 13,500
Creditors 113,705
Debtors 184,140
Bank 32,409
Drawings: Delia 64,800
Daniel 45,900
Dominic 44,550
Current Accounts: Delia 10,800
Daniel 2,700
Dominic 16,200
Capital Accounts: Delia 70,470
Daniel 56,940
Dominic 51,300
1,850,315 1,850,315

Notes:
1. Stock at 31 Dec-2017 = £325,250.
2. Rates paid in advance = £1,200.
3. Accrued motor expenses = £1,575.
4. Salaries: Delia = £30,000, Daniel = £0, Dominic = £22,500.
5. Interest on drawings: Delia = £2,160, Daniel = £1,484, Dominic = £1,540.
6. Interest on capital to be paid at 15%.
7. Depreciation (per year): vehicles = £2,500, office equipment = £2,000.
8. Provision for bad debt is to be increased to £10,500.
ECN120 (SAMPLE EXAM PAPER) Page 5
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REQUIRED:
a) Prepare an Income Statement for the year ending 31st March 2018.
[20 marks]
b) Prepare a Balance Sheet for the year ending 31st March 2018.
[20 marks]
Page 6 ECN120 (SAMPLE EXAM PAPER)

Section B (Answer ALL Questions)

Question 3. [12 marks]

Business A and Business B are both retailers. The following information has been
obtained from their accounting records:

A B
£ £
Sales 1,200,000 1,000,000
Cost of Goods Sold 840,000 580,000
Expenses 200,000 300,000
Average Stock 120,000 140,000
Debtors 300,000 200,000
Bank and Cash 60,000 40,000
Creditors 240,000 220,000
Share Capital and Reserves 40,000 80,000
Long Term Loans 200,000 80,000


Using accountancy ratios, write a brief report comparing the two businesses looking at
Solvency, Profitability and Efficiency. Use sufficient ratios to give a detailed answer.
[12 marks]





Question 4. [13 marks]

A business purchases a new machine for £50,000 on 01 March 2016. It expects to keep
the machine for 6 years and then to trade it in for £26,000. The business uses straight line
depreciation. The purchase was made using a balance transfer from the business bank
account.

a) Use double entry bookkeeping to record the purchase of the machine.
[5 marks]

b) If the business sells the machinery for £44,000 on 01 March 2018, does the business
make a profit or a loss? Record the transaction using double entry bookkeeping.
[8 marks]


ECN120 (SAMPLE EXAM PAPER) Page 7

Question 5. [15 marks]

Rebecca’s company hires out specialist digging machinery, together with a operator, to
builders and farmers. She charges £500 per day. On average, customers pay the
company 2 months after the work is done.

Estimated sales during year 3:
10 days a month in January and February
20 days a month in March, April, May and June
12 days a month in July and August
20 days a month in September, October and November
5 days a month in December

Operating expenses amount to £100 per day; they are paid in the month that they are
incurred.
Fixed overheads (including depreciation) are £3,000 per month.
The machine cost £140,000 and is expected to have a 5 year life, with a residual value of
£20,000.

At the end of year 2, the business had £1,000 in the bank and debtors owed the company
£5,000, of which £2,500 is expected to be paid in January and £2,500 is expected to be
paid in February.

a) Prepare a cash budget for year 3.
[10 marks]

b) Will total expected profit for year 3 equal expected closing cash? Explain your answer.
[5 marks]

Page 8 ECN120 (SAMPLE EXAM PAPER)

Question 6. [20 marks]
Consider the following statements. For each one state whether the statement is true or
false and provide a brief explanation to support your answer.
a) An increase in pre-paid expenses is shown as an outflow of cash on the cash flow
statement.
[5 marks]

b) Issue of ordinary shares increases cash and profit.
[5 marks]

c) The Chairman of a football club cannot be included as an asset on the balance
sheet, but a football player owned by the club can.
[5 marks]

d) In double entry bookkeeping, if a business receives payment from a credit customer
it will debit the cash account and credit the creditors account.
[5 marks]

End of Paper