Mark Scheme

November 2016
Results

Pearson LCCI (ASE20101)

Certificate in Financial Accounting (VRQ)
Level 4
LCCI Qualifications

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Publication code: 51706_ms

All the material in this publication is copyright
© Pearson Education Ltd 2016
General Marking Guidance

• All candidates must receive the same treatment. Examiners must mark the
first candidate in exactly the same way as they mark the last.

• Mark schemes should be applied positively. Candidates must be rewarded

for what they have shown they can do rather than penalised for omissions.

• Examiners should mark according to the mark scheme not according to

their perception of where the grade boundaries may lie.

• There is no ceiling on achievement. All marks on the mark scheme should

be used appropriately.

• All the marks on the mark scheme are designed to be awarded. Examiners
should always award full marks if deserved, i.e. if the answer matches the
mark scheme. Examiners should also be prepared to award zero marks if
the candidate’s response is not worthy of credit according to the mark
scheme.

• Where some judgment is required, mark schemes will provide the

principles by which marks will be awarded and exemplification may be
limited.

• When examiners are in doubt regarding the application of the mark

scheme to a candidate’s response, the team leader must be consulted.

• Crossed out work should be marked UNLESS the candidate has replaced it
with an alternative response.

• Where marks are awarded for own figure answers, these marks can only
be awarded if evidence of how the candidate arrived at their values has
been provided (their workings).

• If candidate's fail to provide their workings when instructed in the paper, it

may not be possible to achieve all marks associated with the question,
even if the final answer is correct.

• For calculation questions full marks can be awarded where correct answer
is seen with no workings shown, unless question states that candidate
must provide workings.

ASE20101
3 November 2016
Abbreviation

of Own Figure rule

Accuracy marks can be awarded where the candidates’ answer does not match the
mark scheme, though is accurate based on their valid method.

cao Correct Answer Only rule

Accuracy marks will only be awarded if the candidates’ answer is correct,
and in line with the mark scheme.

ASE20101
4 November 2016
Question Answer (AO1) 4 Mark
1(a) Award 1 mark for each characteristic (max 4)

• Relevance
• Faithful representation
• Comparability
• Verifiability
• Timeliness
• Understandability
(4)

Question Answer (AO1) 4 Mark

1(b) Award 1 mark for each classification.

• Reputational
• Operational
• Environmental
• Financial
(4)

Question Answer (AO3) 3 Mark

1(c)(i) Award marks as indicated.

Company starts off paying a fixed dividend (1) but can

convert to ordinary shares (1) or be redeemed for cash at a
specified time (1).
(3)

Question Answer (AO3) 3 Mark

1(c)(ii) Award marks as indicated.

If the company is unable to pay the dividend in any given

year, the dividend owing to shareholders accumulates (1)
until the company earns sufficient profits to pay the dividend
(1). Accumulated preference share dividends must be paid
before any ordinary share dividends can be paid (1).
(3)

ASE20101
5 November 2016
Question Answer (AO2) 8 Mark
1(d) Award 1 mark for correct labels and figures as indicated.

Ordinary Share Capital Account

$ $
Balance b/f 80 000
Share premium 25 000 (1)
Retained
earnings 15 000 (1)
Bank 80 000 (1)

Share Premium Account

$ $
Ordinary share 25 000 (1) Balance b/f 25 000
capital
Bank 16 000 (1)

Retained Earnings Account

$ $
Ordinary share 15 000 (1) Balance b/f 35 000
capital

Bank Account
$ $
Balance b/f 6 000
Ordinary share 80 000 (1)
capital
Share premium 16 000 (1)

(8)

Question Answer (AO2) 5 Mark

1(e) Award 1 mark for correct figures as indicated.

$000
Cash 100 (1)
Shares (200 000 x 80% x ¾ x1) 120 (1)
Premium (200 000 x 80% x ¾ x 3.80 456 (1)
676
Net assets acquired ((200 + 80) x 80%) 224 (1)
Goodwill 452 (1of)
(5)

ASE20101
6 November 2016
Question Answer (AO2) 13 Mark
2(a) Award 1 mark for correct figures as indicated.

Rowgle plc
Statement of profit or loss
for the year ended 31 August 2016

$000
Revenue 960
Cost of sales 617
W1 (3)
Gross profit ** 343
(1 of)
Distribution costs (78)
Administrative expenses (137)
W2 (3)
Profit from operations ** 128
(1 of)
Finance costs (9)
(1)
Profit before taxation ** 119
(1 of)
Taxation (28)
(1)
Profit for the year ** 91
(1of)

W1 530 + 2 (1) + 90 (1) – 5 (1) = 617

W2 115 + 15 (1) + 2(1) + 5 (1) = 137

+ 1 for correct labels as indicated** (13)

ASE20101
7 November 2016
Question Answer (AO2) 9 Mark
2(b) Award 1 mark for correct labels and figures as indicated.

Rowgle plc
Statement of changes in equity for the year ended
31 August 2016

Share Share Revaluation Retained

capital premium reserve earnings Total
$000 $000 $000 $000 $000
(Balance at) 600 (1) 175 (1) 20 72 867
1 September 2015 (1of)
Revaluation (20) (1) (20)
(Equity) dividend (50) (1) (50)
Ordinary shares 250 (1) 25 (1) 275
(issue)
Profit for the year 91(1of) 91
(Balance at) 850 200 - 113 1163
31 August 2016 (1of) (9)

ASE20101
8 November 2016
Question Answer (AO2) 14 Mark
2(c) Award 1 mark for correct labels and figures as
indicated.

Rowgle plc
Statement of financial position at 31 August 2016

$000
Assets
Non-current assets
Land 775 (1)
Property, plant and 348 W1 (4of)
equipment
1 123
Current assets
Inventories 133 (1)
Trade and other receivables 147 W2 (3of)
Cash and cash equivalents 7 (1)
287
Total assets 1 410

Equity and liabilities

Equity
Ordinary shares of $1 each 850
Share premium 200
Retained earnings 113
1 163 (1of)
Non-current liabilities
8% debentures (2020-2022) 150 (1)

Current liabilities
Trade and other payables 69 (1)
Taxation 28 (1)
97
Total equity and liabilities 1 410

Workings

W1 Property, plant and equipment

Cost brought forward 620

Disposal at cost (20) (1)
Cost carried forward 600

Depreciation brought forward 180

On disposal (18) (1)
For the year 90 (1)
Depreciation carried forward 252

Net book value 348 (1of)

ASE20101
9 November 2016
 W2 Trade and other receivables
Per trial balance 165
Irrecoverable debt (15) (1)
Provision for doubtful debt (3) (1)
147 (1of) (14)

Question Answer (AO2) 13 Mark

3(a) Award 1 mark for correct figures as indicated.

Baligo Ltd
Reconciliation of profit from operations to net cash
flow from operating activities for the year ended 30
June 2016

$000
Profit from operations 1 179
Depreciation for the year 483 (1)
Profit on disposal (2) (1)
Development expenses
amortised 70 (1)
Goodwill impairment 50 (1)
Increase in inventory (24) (1)
Increase in trade receivables (42) (1)
Increase in trade payables 41 (1)
Increase in accrued expenses 3 W1 (3of)
Cash inflow from operating
activities 1 758
Interest paid (45) (1)
Taxation paid (38) (1)
Net cash inflow from
operating activities 1 675 (1of) (labelled)

W1 Increase in accrued expenses

Brought forward 16
Less interest payable (2) 14 (1)
Carried forward 22
Less interest payable 5 17 (1)
(13)
Increase in accrued expenses 3 (1of)

ASE20101
10 November 2016
Question Answer (AO3) 9 Mark
3(b) Award marks as indicated.

Introduction

The statement of cash flows is constructed from the

statement of profit or loss and from the statement of
financial position of the current year and the previous
year.(1)

The statement will be split into two sections –

investing activities (1)

• Property plant and equipment purchase (1)

• Property plant and equipment disposal (1)
• Development expenditure (1)

and financing activities (1)

• Issue of shares (1)

• Issue/repayment of debentures (1)
• Equity dividends paid (1)

(9)

ASE20101
11 November 2016
Question Answer (AO3) 2 Mark
3(c)(i) Award marks as indicated

Statement of profit or loss will inform the prospective

investor of the company’s ability to generate gross profit on
trading activities (1) and its ability to generate profit for the
year after deduction of all operating expenses (1).
(2)

Question Answer (AO3) 2 Mark

3(c)(ii) Award marks as indicated

Statement of financial position will inform prospective

investors of the liquidity and financial stability (1) of the
company which will indicate its ability to continue as a going
concern (1).
(2)

Question Answer (AO3) 2 Mark

3(c)(i) Award marks as indicated

Statement of cash flows will inform the prospective investor

of the company’s ability to generate cash as distinct from
profit (1) which will be an indication as to the company’s
ability to repay future liabilities and maintain future
dividend payments (1).
(2)

ASE20101
12 November 2016
Question Answer (AO1) 8 (AO2) 8 Mark
4(a) Award 1 mark for each correct formula and 1 mark for
each correct ratio.

Ratio Formula 2016

Return on (Operating profit / ((2050 – 1590) / (1200
capital (Equity + long term + 370 + 340 + 220
employed debt)) x 100 + 2350)) x 100

= 10.27%
Interest Operating profit / (2050 – 1590) / 280
cover finance costs
= 1.64 times
Quick ratio Current assets (excluding 880 / (510 + 650 + 150)
(acid test) inventory) / current
liabilities = 0.67 : 1
Receivables (Trade receivables / (880 / 5600) x 365
turnover revenue) x 365
(days) = 58 days
Payables (Trade payables / (650 / 4010) x 365
turnover purchases) x 365
(days) = 60 days
Gearing (Non-current liabilities / ((2350 / (1200 + 370 +
(Equity + non-current 340 + 220 + 2350))
liabilities)) x 100 x 100

= 52.46%
Dividend (Annual dividend per ((12 000 / 1 200 000) /
yield ordinary share / market $1.35) x 100
price of ordinary share)
x 100 = 0.74%
Earnings per Profit after tax / Number 120 / 1 200 000
share of ordinary shares in
issue = $0.10
(16)

ASE20101
13 November 2016
Question Answer (AO4) 6 Mark
4(b)(i) Award 1 mark for each comment based on own figures.
Maximum 6 marks.

• Quick ratio results in only $0.67 current assets available to

settle each $1 of current liability (1) a reduction of $0.52
compared to 2015 (1). This will result in increased pressure
from suppliers for quicker payment. (1)
• Current trade payable turnover days of 60 days whilst
trade receivable days are 58 days. This cash time lag of 2
days (1) compared to a positive difference of 7 days in 2015
(1) will result in an increasing liquidity problem (1).
• Current taxation liability of $150 000 despite current
year’s charge being only $60 000 (1). This is clearly now
overdue and will result in pressure from the tax authorities
for immediate payment (1) and may incur interest costs
and penalties. (1)
• $2 350 000 debenture is due for repayment within the next
19 months. (1) (6)

Question Answer (AO4) 4 Mark

4(b)(ii) Award 1 mark for each comment based on own figures.
Maximum 4 marks

• Gearing has increased/worsened from 36.25% in 2015 to

52.46%. This indicates an increasing reliance on external,
interest bearing capital (1) which increases risk (1).
• As a result, interest in now only covered 1.64 times by
operating profit compared to 6.75 times in 2015 (1) leaving
the company vulnerable to increased interest charges (1). (4)

Question Answer (AO4) 4 (AO5) 4 Mark

4(c) Maximum 4 marks for each option

Option 1
• Making rights issue at a premium of 40% would raise
$2 520 000 enabling the debenture to be repaid (1) but
• Share price has fallen from $3.15 to $1.35 indicating a
lack of investor confidence (1) and the rights issue price is
higher than the current share market price (1).
• Conclusion. It is unlikely that the rights issue would be
taken up in the current climate (1) because dividend yield
has fallen from 3.45% in 2015 to $0.07 (1)
and earnings per share has fallen from $0.32 in 2015 to
£0.10 (1). Both of these makes the shares a less attractive
investment (1).

ASE20101
14 November 2016
 Option 2
• The bank loan would raise sufficient capital to repay the
debenture (1)
• The bank loan would not improve the gearing ratio (1).
• The company already has a bank overdraft of $512 000
(1).
• Efficiency ratios are both worsening indicating a lack of
management control (1)
• Return on capital employed has fallen from 17.65% in 2015
to 10.27% indicating a worsening of profitability (1).

Conclusion. It is unlikely that the bank would approve a loan

of $2.5 million (1) when the company is already indebted to
them for $512 000 and the ratios show no indication of
improved performance. (1)
(8)

TOTAL MARKS FOR PAPER = 125

ASE20101
15 November 2016