Cambridge IGCSE Accounting 0452/22 October/November 2025 Detailed Study Notes

Examination Overview and Instructions

• Exam Series: Cambridge IGCSE™ Accounting 0452/22 Paper 2 Structured Written Paper, October/November 2025.
• Duration: 1 hour 45 minutes.
• Total Marks: 100 marks.
• Requirements:
  • Answer all questions.
  • Use a black or dark blue pen; HB pencil permitted for diagrams.
  • International accounting terms and formats must be used.
  • Workings should be shown clearly.
  • A calculator is permitted.

Question 1: Bank Reconciliation and Cash Book Management

Financial Status on 31 March 2025 (Initial)

• Bank Statement Balance: Overdrawn balance of $1665$.
• Cash Book (Bank Column) Balance: Debit balance of $825$.

Investigation Results: Items per Bank Statement (not in Cash Book)

• March 20: Payment received via bank transfer from Zoe (credit customer): $310$.
• March 23: Electricity charges paid via direct debit: $936$.
• March 25: Bank charges: $58$.
• March 29: Standing order for insurance deducted in error (by the bank): $1121$.
• March 30: Interest received: $45$.

Investigation Results: Items per Cash Book (not on Bank Statement)

• March 27: Cheque payable to AC Motors not yet presented: $480$.
• March 30: Cash and cheques deposited but not yet credited: $1210$.

Dishonoured Cheque Details

• Date Notified: 5 April.
• Event: A cheque for $128$ from Ali, a credit customer (originally paid into the account in March), was dishonoured.

Accounting Theory and Advice

• Bank Reconciliation Frequency: Zac currently reconciles twice a year and is considering moving to every three months.
• Dishonoured Cheque Definition: A cheque that the bank refuses to pay, typically due to insufficient funds in the drawer's account.
• Process Requirements:
  • Update Zac’s cash book and bring down the new balance as of 1 April 2025.
  • Prepare a bank reconciliation statement starting with either the updated cash book balance or the bank statement balance.
  • Evaluate the frequency change (3 months vs. 6 months) by considering factors like error detection, fraud prevention, and administrative time.

Question 2: Correction of Errors and Suspense Accounts

Trader Profile: Jaya

• Financial Year End: 31 July 2025.
• Initial Status: The trial balance totals did not agree, requiring the opening of a temporary account.

Account Identification

• Required Account: Suspense Account.
• Primary Purpose: To allow the financial statements to be prepared temporarily while errors are being located and to balance the trial balance totals mathematically.

Errors Discovered

1. Omission: No entry made for distribution costs of $320$ paid by bank transfer.
2. Inventory Valuation: Closing inventory recorded as $12200$; the correct figure was $12900$.
3. Error of Commission/Posting: Purchase returns of $95$ recorded correctly in the supplier's account but debited to Sales Returns account instead of credited to Purchase Returns account.
4. Single Entry: A cheque for $225$ from ABC Wholesalers (credit customer) entered in the cash book only; no entry in the customer's account.
5. Error of Principle: Property maintenance costs (revenue expenditure) of $1220$ charged to Land and Buildings account (capital expenditure).

Analysis Requirements

• Journal entries to correct errors 1 through 5.
• Identification of error types not revealed by a trial balance (e.g., error of original entry, error of complete omission, error of commission, error of principle, error of reversal of entries, or compensating errors).
• Calculation of the effect of these errors on the Profit for the Year (Overstated/Understated/No effect).

Question 3: Non-Current Assets, Depreciation, and Disposal

Asset Details: Recovery Vehicle

• Owner: Ahmed (vehicle breakdown recovery business).
• Purchase Date: 1 October 2021.
• Purchase Price: $80000$ (paid by bank transfer).
• Residual Value (Estimated): $30000$.
• Useful Life (Estimated): 5 years.
• Financial Year End: 30 April.

Depreciation Policy

• Method: Reducing balance method at $20\%$ per annum.
• Timing: Full year’s depreciation in the year of purchase; zero depreciation in the year of disposal.

Calculations and Disposals

• Calculate annual depreciation charges based on the reducing balance formula:     $Annual\,Depreciation = (Cost - Accumulated\,Depreciation) \times 20\%$
• Disposal Scenario: A dealer offered $35000$ cash for the vehicle on 1 February 2025.
• Requirement: Calculate the profit or loss on disposal and prepare the Motor Vehicles and Disposal of Motor Vehicles ledger accounts.

Comparison of Depreciation Methods

• Reducing Balance Method Advantage: Higher depreciation in early years matches the asset’s higher productivity and declining maintenance costs.
• Reducing Balance Method Disadvantage: More complex to calculate than the straight-line method.

Future Business Decisions

• Ahmed is currently hiring a larger vehicle and considers purchasing an upgraded model.
• Financing: Use proceeds from the sale of the old vehicle plus a 5-year bank loan.
• Constraint: Estimated delivery in 6 months.

Question 4: Ratio Analysis and Provision for Doubtful Debts

Performance Data for AY Limited

Operating Context

• All sales and purchases are on credit.
• Credit Period: 30 days.

Provision for Doubtful Debts

• Reason for Change: Deterioration of trade receivables turnover.
• Policy Shift: Increased provision from $2\%$ to $3\%$.
• Balances:
  • 31 March 2024: $346000$
  • 31 March 2025: $399000$
• Theory: A provision for doubtful debts is an estimate of the amount of trade receivables that a business expects will not be collected. It applies the Prudence Principle (ensuring assets and profits are not overstated).

Equipment Purchase Proposal

• Equipment Cost: $75000$.
• Supplier Offer: $15\%$ discount for immediate cash purchase.
• Accountant’s Suggestion: Finance the purchase by delaying payments to trade payables.
• Evaluation: Directors must weigh the benefit of the discount against the risks of delaying payments (e.g., loss of set discounts, damage to supplier relationships, interest charges).

Question 5: Manufacturing Accounts and Income Statements

Data for GH Company (Year Ended 31 March 2025)

• Revenue: $1107272$
• Raw Materials:
  • Inventory (1 April 2024): $21700$
  • Inventory (31 March 2025): $16400$
  • Purchases: $280050$
• Finished Goods:
  • Inventory (1 April 2024): $76370$
  • Inventory (31 March 2025): $49660$
  • Purchases: $122430$
  • Carriage In: $2242$
• Work in Progress (WIP):
  • 1 April 2024: $83440$
  • 31 March 2025: $92510$
• Direct/Indirect Costs:
  • Operatives' Wages: $241200$
  • Factory Supervisors' Salaries: $48240$
  • Office Staff Salaries: $64350$
  • Factory General Expenses: $27640$
• Assets and Overheads:
  • Factory Machinery at Cost: $427000$
  • Accumulated Depreciation (Opening): $187000$
  • Rent and Rates: $10060$
  • Electricity Charges: $9344$
  • Insurance: $18400$

Apportionment and Adjustments

1. Depreciation: Provide $15\%$ on factory machinery using the reducing balance method.
2. Rent and Rates: $60\%$ Factory, $40\%$ Office.
3. Electricity Charges: Ratio of $5:3$ (Factory:Office).
4. Insurance: Split equally ($50\%$ Factory, $50\%$ Office).

Required Financial Statements

• Manufacturing Account: Must show Prime Cost (Direct Materials + Direct Labour) and Cost of Production (Prime Cost + Factory Overheads + Adjustment for WIP).
• Trading Section of Income Statement: Must show Gross Profit (Revenue - Cost of Sales, where Cost of Sales includes Cost of Production and adjustments for Finished Goods inventory).