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University Foundation Programme

Accounting Paper 2
2014
August 6th
Marking Scheme
General Comments

Please remember that your marking standards should reflect the levels of performance of
international candidates, writing under examination conditions.
Positive Marking
You should be positive in your marking, giving credit for what is there rather than being too
conscious of what is not. Do not deduct marks for irrelevant or incorrect answers as
candidates penalise themselves in terms of the time they have spent.
Mark Range
You should use the whole mark range available in the mark scheme. Where the candidate's
response to a question is such that the mark scheme permits full marks to be awarded, full
marks must be given. A perfect answer is not required. Conversely, if the candidate's answer
does not deserve credit, then no marks should be given.
Alternative Answers / Layout
The answers given in the mark scheme are not exhaustive and other answers may be valid. If
this occurs, examiners should refer to the Subject Leader for guidance. Similarly, candidates may
set out their accounts in either a vertical or horizontal format. Both methods are acceptable.
Own Rgure Rule
In cases where candidates are required to make calculations, arithmetic errors can be made so that the
final or intermediate stages are incorrect. To avoid a candidate being penalised repeatedly for an
initial error, candidates can be awarded marks where they have used the correct method with their
own (incorrect) figures. Examiners are asked to annotate a script with OF where marks have been
allocated on this basis. OF always makes the assumption that there are no extraneous items.
Similarly, OF marks can be awarded where candidates make correct conclusions or inferences from
their incorrect calculations.

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Question 1

Jane Smith owns a sports shop in Cambridge. One of her best-selling lines is a pair of trainers
made in China. Because exchange rates are continually changing the value of her purchases
are shown below for January 2014, together with her sales.

Purchased Sold
1 Jan. 200 pairs @ £20 each pair
7 Jan 150
10 Jan 200 pairs @ £30 each pair
14 Jan 200
20 Jan 200pairs @ £24 each pair
21 Jan 150

a) Assuming the opening Inventory was zero and no further transactions took piace in
January; calculate the value of the closing Inventory using the AVCO method. All
working should be shown.

Date Inventory received Inventory Ave. Inventory Valuation

No. £ £ issued Cost £ No. E
1/1 200 20 4000 20.00 200 4000(1)

7/1 150 20.00 50 1000(1)

10/1 200 30 6000 28.00 250 7000(2)

14/1 200 28.00 50 1400(1)

20/1 200 24 4800 24.80 250 6200(1)

21/1 150 24.80 100 2480(20F)

Other layouts allowed as long as working shown 8 marks

b) Give one advantage and one disadvantage of using AVCO to Jane's business

Advantage Fluctuations in the price of Inventory are evened out or acceptable to tax
authorities (2)

Disadvantage Average cost has to be recalculated every time new Inventory at different
price purchased or not the same as price paid or harder to calculate than other methods

c) Jane uses a computerised Inventory control system in her business. Give two
advantages and two disadvantages of a computerised system.
Advantages - speed, accuracy, professional image, storage and retrieval speed
Max 2 marks - 1 mark identifying and 1 mark for development
Disadvantages - equipment cost, training cost, system failure, and security.
Max 2 marks - 1 mark identifying and 1 mark for development

Total marks question 1 = /16

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Question 2

London Engineering Ltd is divided into five departments which each are treated as separate
cost centres. Machining, Painting, Assembly, Stores and Canteen. The total overheads of the
company amount to £1,000,000. The main direct cost is labour. Additional information is
shown below.

Machining Painting Assembly Stores Canteen

£ £ £ £ £
Book value of
assets
Direct Labour
Other direct
300,000 600,000

280,000 | 224,000
15,000
200,000

17,000
150,000

322,000
8,000
250,000

350,000
6,000
224,000
4,000
(
costs
Floor area m'' 1,000 1,000 1,000 2,000 3,000

Overheads £

Heat and Light 80,000

Administration 520,000
Cleaning 100,000
Depreciation 300,000
Total 1,000,000

a) Using appropriate bases for apportioning overheads, calculate the cost of operating
each cost centre.
Base for Machining Painting Assembly Stores Canteen Total
apportion £ £ £ £ £ £
Direct labour 280,000 224,000 322,000 350,000 224,000 1,400,000
Other direct 15,000 17,000 8,000 6,000 4,000 50,000
costs
Overheads
Heat and light Floor 1000/8000 10,000 10,000 20,000 30,000 80,000
Area (1) x 80000 = 10,000 Correct
row (2)
Administration Direct 280k x 520k/ 83,200 119,600 130,000 83,200 520,000
Labour 1400k = 104,000 Correct
(1) row (2)

Cleaning Floor 1000 x 12,500 12,500 25,000 37,500 100,000

Area 100000/8000= Correct
(1) 12,500 row (2)

Depreciation Asset 300k x 300k / 120,000 40,000 30,000 50,000 300,000

Book 1500k = 60,000 Correct
Value (1) row (2)

Total f (2) or 10F 466,700 512,100 561,000 428,700 2,450,000

481,500 (2) 10F (2) 10F (2) 10F (2) 10F (2) 10F
Bases for appropriation:- Heat and light: floor area, Admin: direct labour, Cleaning : floor area
and Depreciation: book value of assets. (4 x 1 mark) = 4

Each correct row of calculated totals ( 4 x 2marks) = 8

Each column total (6x2 marks (max)) =12

b) Explain why direct costs must be included when calculating the cost of operating each
department.

Full or Total costs include both direct and indirect costs Any acceptable answer 2

Total Marks Question 2 = /26

Question 3

The following information is provided for Jane Yu:

Trial balance as at 30 November 2013

Dr Cr
£ £
Inventory 1 December 2012 11,461
Purchases 72,384
Sales 156,382
Returns inwards 817
Returns outwards 388
Carriage inwards 278
Carriage outwards 241
Discounts allowed 159
Motor expenses 4,817
Wages 26,481
Rent 4,500
Bad debts 211
Bad debts recovered 179 y
Provision for doubtful debts 450 - ^^S
General expenses 7,919
Telephone 812
Light and heat expenses 1,487
Office equipment at cost 48,700
Motor van at cost 16,000
Provision for depreciation
Office equipment 17,045
Motor van 3,200
Trade receivables 6,780
Bank 4,831
Cash in hand 199
Capital 51,053
Drawings 28,100
Trade payables 7.480
236,177 236.177
 Addition information at year end.
Inventory was valued at £10,177.
•
Motor expenses owing amounted to £130.
• Light and heat expenses had been prepaid £102.
•
Jane had withdrawn goods from the business for her private use £1,200.
Provision for doubtful debts is to be maintained at 10% of trade receivables
outstanding at the yearend.
Depreciation is to be provided for on fixed assets at the following rates:
- office equipment at 5% per annum using the straight line method
- motor van at 20% per annum using the reducing balance method.
f
Working

Accruals = £130 1 Mark

Prepayments = £102 1 Mark

Doubtful debts £6780 x 10% = £678 2 Marks or 10F

Drawings £28100 + £1200 = £29300 1 Mark
Depreciation

Historic Cost Depreciation Net Book Value

Office Equipment 48700 19480 (48700 X 0.05) + 17045 29220 1 Mark
Motor Van 16000 5760 ((16000 - 3200) x .2) +3200 10240 2 Marks Or 10F

3 (a) Jane Yu balance sheet

as at 30 November 2013.
Non-current assets
Office equipment at cost 48,700
Depreciation 19,480 29,220
Motor van at cost 16,000
Depreciation 5,760 10.240
39,460 (10F)
Current assets
Inventory 10,177(1)
Trade receivables 6,780
Provision for doubtful debts 678 6,102
Prepayment 102
Bank 4,831 (1)
Cash in hand 199 a)
21,411
Current liabilities
Trade payables 7,480 (1)
Accruals 130 7,610 13,801 (1)
53,261 (2 or 10F)

Finance by:
Capital 51,053 (1)
Add profit 31.508 (3)0r10F
82,561
Less drawings 29,300
53,261
Net Profit = Net Assets - Capital + Drawings

= 53,261- 51,053 + 29,300 = £31,508 3 Marks or 10F

Marks total for Question workings /8

Completing Balance sheet /12
Correct title no abbreviations /3

4 Correct Headings (1 mark x 4) (4

Q3 Total = 127

Question 4

GZ4 pic produce computer games for the European market. The table below shows GZ4
budgeted sales for the five month period ending 31 July 2014. The Computer games business
is very seasonal and apart from a small increase in summer most of the sale occur before
Christmas.

Budgeted sales

March April May June July

£000 £000 £000 £000 £000
Sales 300 320 360 400 360

Additional Information

a) GZ4 expects hajf-its sale will be paid for in the month of sale and these cash sales will
receive a 5% cash discount. The remained will be paid the following month.
b) Purchases are made so that the Inventory at the end of the month exactly equals the
budgeted sales for the following month. (For example in April the cash purchases
amounted to £162,000).
c) Halilhe purchases are paid for in the month they are received for which the company
gets a 10% discount. The remaining are paid for the following month.
d) General expenses excluding depreciation are £24,000 per month.
e) The closing cash balance for the company at the end of March was £50,000.
a) Prepare a cash budget for GZ4 pic for the three months ending 30 June 2014
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April £000 | May £000 | June £000

Receipts
Cash Sales 152 171 190 (1)
Correct row
Credit Sales 150 160 180(1)
Correct row
Total Sales 302 331 370 (1 OF)
Row totals
Payments
Cash Purchases 162 180 162 (1)
Correct row
Credit Purchases 160 180 200(1)
Correct row
Expenses 24 24 24(1)
Correct row
Total Payments 346 384 386 (1 OF)
Row totals
Net Cash Flow (44) (53) (16)
Opening Balance 50 (1) 6 (47)
Closing Balance 6 (47) (63)
( 2 or 1 OF) ( 2 or 1 OF) (2 or 1 OF)
Total part a) /14

b) What additional information would be useful when analysing the company's cash flow?
It would be useful to know the cash budget for the full year, especially if the positive
period pre-Christmas was enough to cover the negative period April - June. It would
also be good to know of any expenditure on non-current assets in the year.
Max 4 marks - 2 mark identifying and 2 mark for development
Total part b) /4
Q4 Total /18

Question 5

The following information relates to Rafik Khan Limited at 31 December 2013.

Authorised share capital
2 000 000 ordinary shares of 25p each
500 000 8% preference shares of £1 each
Issued share capital
800 000 ordinary shares of 25p each, fully paid
300 000 8% preference shares of £1 each, fully paid
In addition to the share capital, the following balances were extracted from the books of Rafik
Khan Limited at 31 December 2013:
£000
10% Debentures (repayable 31 January 2015) 40
Bank loan (repayable 2014) 15
 Trade trade payables 23
Revaluation reserve 10
Share premium 25
Retained profits before appropriations 73

The directors propose the following:

I. payment of the full dividend due on the 8% preference shares;

11. payment of 3 % dividend on the ordinary shares .

1 (a) Calculate the amount of the proposed preference share dividend.

£0.08p per share (2)

or

300 000 (1)x 8%= 24 000(1) 2 marks

1 (b) Calculate the amount of the proposed ordinary share dividend

£0.075p per share (2)

or

800 000 x 25p = 200 000 (1) x3% = 6 000 (1) 2 marks

(c) Prepare a balance sheet extract at 31 December 2013 to show only the share capital and
reserves section.

Capital and Reserves £000

800 000 ordinary shares of 25p each, fully paid 200 (1)
300 000 8% preference shares of £1 each, fully paid 300 (1)
Share premium 25 (1)
Revaluation reserve 10 (1)
Income Statement (73 (1) - 6 (1 OF) -24 (1 OF)) 43 (1)
578 (1 OF)
1 mark for exact correct order 9 marks

Q5 Total /13

End of Question Paper