1 Shiv is a trader. His financial year ends on 31 August. He does not maintain a full set of accounting records but was able to provide the following information for the year ended 31 August 2021. Total revenue $320 000 Mark-up 25% Bank account summary for the year ended 31 August 2021 $ $ Balance b/d 49 000 Expenses 34 000 Cash sales 3 700 Drawings 4 200 Receipts from trade receivables 312 400 Payments to trade payables 257 700 Equipment 16 000 Balance c/d 53 200 365 100 365 100 Assets and liabilities 1 September 2020 31 August 2021 $ $ Inventory at cost 23 500 ? Trade receivables 22 000 25 900 Expenses owing – 400 Trade payables 32 600 29 600 Equipment at net book value – 12 800 Premises at cost 90 000 90 000 Shiv had withdrawn $900 for a family holiday during the year. He had included this in the expenses. On 31 August 2021 Shiv decided to create a provision for doubtful debts of 3% of trade receivables. REQUIRED (a) Calculate the purchases for the year ended 31 August 2021. … … … … … … … [3] (b) Prepare the income statement for the year ended 31 August 2021. The inventory on 31 August 2021 should be clearly shown within the statement. Shiv Income Statement for the year ended 31 August 2021 $ $ … … … … … … … … … … … … … … … ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… [11] (c) Name the accounting principle Shiv should apply when recording the $900 he had used for a family holiday. … [1] Shiv has always valued his inventory at cost price. He is considering valuing the inventory on 31 August 2021 at selling price as he believes it would result in a higher profit for the year. REQUIRED (d) Discuss the implications of Shiv valuing the inventory on 31 August 2021 at selling price. … … … … … … … … … … … … [5] [Total: 20] PLEASE TURN OVER

1(a) $ Payments to trade payables 257 700 Less Opening trade payables 32 600 (1) 225 100 Add Closing trade payables 29 600 (1) Purchases 254 700 (1) Accept alternative forms of presentation 3 1(b) Shiv Income Statement for the year ended 31 August 2021 $ $ Revenue 320 000 (1) Cost of sales Opening inventory 23 500 Purchases 254 700 (1) OF 278 200 Closing inventory 22 200 (2) CF/(1) OF 256 000 (1) OF Gross profit 64 000 (1) Expenses (34 000 + 400 (1) – 900 (1)) 33 500 Provision for doubtful debts 777 (1) Depreciation of equipment (16 000 – 12 800) 3 200 (1) 37 477 Profit for the year 26 523 (1) OF 11 1(c) Business entity (1) 1 1(d) Inventory should be valued at the lower of cost and net realisable value (1) Cost of sales would be understated (1) The profit will be overstated/profit will not be shown at a realistic level (1) The current assets/inventory will be overstated (1) Prudence principle is not being observed (1) Consistency principle is not being observed (1) Comparison with previous years/competitors would not be accurate (1) Accounting records must present a realistic view of the business (1) Accept other valid points Max (5) 5 (a) To calculate purchases, you need to start with payments to trade payables, subtract the opening trade payables, and then add the closing trade payables. (b) To prepare the income statement, you must correctly calculate the cost of sales by including opening inventory, purchases (your own figure from part a), and a calculated closing inventory. You also need to adjust expenses for items like expenses owing and drawings, calculate provision for doubtful debts, and depreciation of equipment. (c) The specific accounting concept being applied is the business entity concept. (d) To earn marks, you need to state that inventory should be valued at the lower of cost and net realisable value, and explain the impact of not doing so, such as understated cost of sales, overstated profit/current assets, and non-observance of principles like prudence or consistency.

Cambridge O Level Accounting · 7707

O-Level Accounting (7707) Accounting principles and policies past paper questions

Questions on the accounting principles and policies that underpin the financial statements.

18 free questions from 2020–2021, each with its marking scheme. Open the full topical bank to filter by subtopic, paper, and year.

Accounting principles and policies in O-Level Accounting 7707 exams, 2020–2025

Across 2020–2025, Accounting principles and policies accounted for 48 questions worth 122 marks in Cambridge O Level Accounting (7707) papers.

By year
Year	Questions	Marks
2020	12	12
2021	6	23
2022	10	29
2023	6	25
2024	7	26
2025	7	7

Most-tested subtopics

7.1 Accounting principles80 marks
7.2 Accounting policies0 marks

Appears in

Paper 1 · 44 qs
Paper 2 · 4 qs

All most-tested Accounting topics

2021 May/Jun · Paper 1 · Q35
2021 Oct/Nov · Paper 1 · Q35
2021 Oct/Nov · Paper 2 · Q1 · 20 marks
Marking scheme
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2021 May/Jun · Paper 1 · Q34 · 1 mark
Marking scheme
Mark scheme — 2021 Paper 1 Q34
Answer: D
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2021 May/Jun · Paper 1 · Q35 · 1 mark
Marking scheme
Mark scheme — 2021 Paper 1 Q35
Answer: B
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