PRE-LEAVING CERTIFICATE EXAMINATION, 2012 MARKING SCHEME ACCOUNTING HIGHER AND ORDINARY LEVEL

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1 *WMS15* PRE-LEAVING CERTIFICATE EXAMINATION, 2012 MARKING SCHEME ACCOUNTING HIGHER AND ORDINARY LEVEL 35 Finglas Business Park, Tolka Valley Road, Finglas, Dublin 11 T: , F: , E: W: Page 1 of 40

2 HIGHER LEVEL 1. Company Final Accounts (a) Trading, Profit & Loss Account of Milan Plc for the year ended 31/12/2011 (75) Working Sales (2) - Cost of Sales Opening Stock 75,000 (2) + Purchases 6 696,420 (8) 771,420 - Closing Stock 1-32,150 (4) Cost of Sales Gross Profit + Other Income Discount Received 720 (3) Investment Income 5 4,500 (4) Decrease in Bad Debt Prov (4) Profit on Disposal of Machinery 3 3,300 (4) Total Income Administration Expenses Wages & Gen Exps 5 160,950 (4) Patent write-off 2 7,000 (4) Audit Fees 7,500 (2) Depreciation on Buildings 4 22,000 (6) Depreciation on Machinery 91,800 (6) Debenture Interest 7 16, ,650 (4) 998, , , ,130 Selling & Distribution Expenses Bad Debts (4) Commission 21,500 22,300 (2) Total Expenses Net Loss - Appropriations Preference Dividends paid 6,250 (2) Preference Dividends due 18,750 (3) Ordinary Dividends paid 5,750 (3) Retained Loss Profit & Loss 1/1/2011 (2) Profit & Loss 31/12/2011 ** (2) correct figure only 327,950-59,820 30,750-90, ,400 34,830 Page 2 of 40

3 (b) Balance Sheet of Milan Plc as at 31/12/2011 (45) Working Fixed Assets Cost DEP Land & Buildings 4 1,500,000 (2) 0 (2) Machinery 3 468,000 (2) 111,500 (2) 1,968, ,500 Intangible Assets Patent 2 (3) NBV 1,500, ,500 1,856,500 35,000 Financial Assets 3% Investments Current Assets Stock 1 32,150 (1) accept own fi gure Debtors 7 59,280 (4) Inv Income due (2) 91,930 (2) 200,000 2,091,500 Creditors (Amounts due within 1 year) Bank 5 44,810 (4) Crs 6 28,290 (4) VAT 11,950 (2) Preference dividends due 7 18,750 (2) Debenture Interest due 7 12,800 (3) 116,600 Net Current Assets Total Net Assets FINANCED BY: Creditors (Amounts due after 1 year) 8% Debentures (2) -24,670 2,066, ,000 Capital and Reserves Ordinary Share Capital 900,000 (2) Preference Share Capital 500,000 (2) Revenue Reserves 34,830 (1) Revaluation Reserve 4 382,000 (3) Total Capital Employed 1,816,830 2,066,830 Page 3 of 40

4 Workings (with breakdown of individual marking scheme) ** Penalise 1 mark if headings are left out in final accounts 1. Stock Closing Stock 55,700 [1] - Original Cost -6,500 [1] + Net Realisable value 5,750 [1] 54,950 -Sale or Return Stock -22,800 [1] 32, Patents Patents 40,000 [2] + 3 mths Investment Inc. 2, k x 3% x 4/12 [2] 42,000-6 year write-off to P & L -7,000 [3] 35, Machinery A/C B/d 450,000 Disposal 27,000 [1] Allowance 15,000 [1] Purchases Error 30,000 C/d 468, , ,000 Provision for Depreciation A/C [1] Disposal 15,300 B/d 35,000 [1] C/d 111,500 P & L 91,800 *** [4] 126, ,800 *** 450,000 x 20% x 6/12 = 45, ,000 x 20% x 6/12 = 46,800 91,800 Disposal A/C [1] Machine 27,000 Depreciation 15,300 ** [1] [1] Profit to P & L 3,300 Allowance 15,000 [1] 30,300 30,300 ** 27,000 x 20% / 12 months = 450 x 34 months = 15,300 Purchases A/C [1] B/d 749,220 Error 30,000 [2] Van A/C C/d 719, , ,220 B/d note 6 719, Land & Buildings A/C [1] B/d 1,200,000 [1] Revaluation Res 300,000 C/d 1,500,000 1,500,000 1,500,000 Page 4 of 40

5 Provision for Depreciation A/C [1] Revaluation Res 82,000 B/d 60,000 [1] C/d 0 P & L 22,000 * 1,100,000 x 2% [4] 82,000 82,000 Revaluation Reserve A/C L & B 300,000 [1] C/d 382,000 Depr 82,000 [1] 382, ,000 B/d 382,000 [1] 5. Reconciliation of Bank Bank A/C Chq error 90 Bal B/d 46,650 [1] [1] Investment Income 2,000 Electricity 450 [1] [1] Drs 200 Bal C/d 44,810 47,100 47,100 Bal B/d 44,810 Bank Reconciliation Statement Balance per Bk Statement -42,360 Add: Less: Unpresented Cheque 2,450-2,450 Balance per Bank A/C -44,810 Investment Income A/C Patents error 2,000 [2] Bank 2,000 [2] P&L 4,500 C/d 500 note (vii) 4,500 4,500 Bal B/d 500 Wages & General Expenses A/C [2] B/d 160,500 [2] Bank (Bord Gais) 450 C/d 160, , ,950 B/d 160,950 Debtors A/C B/d 63,400 Bank 200 [1] Bad Debt 800 [1] C/d 62,400 [1] 63,400 63,400 B/d 62,400 Bad Debts A/C [2] Debtors 800 P & L 800 [2] Page 5 of 40

6 Creditors A/C B/d 51,000 [1] C/d 51,090 Chq error 90 [1] 51,090 51,090 B/d 51, Sale or Return Purchases A/C [1] B/d (note 3) 719,220 Crs 22,800 [2] C/d 696, , ,220 [2] B/d 696,420 Creditors A/C Purchases 22,800 [1] B/d (note 5) 51,090 C/d 28,290 [1] 51,090 51,090 B/d 28, Investment Income: 200,000 x 3% x 9/12 = 4,500 P & L Debenture Interest Debenture Interest A/C [1] B/d 3,600 [2] C/d 12,800 P & L 16,400 *** [4] 16,400 16,400 B/d 12,800 *** 190,000 x 8% = 15,200 60,000 x 8% x 3/12 = 1,200 Total 16, Provision for Bad Debts Debtors B/f 62,400 [1] 62,400 x 5% = 3,120 [2] Provision for Bad Debts A/C P & L 380 B/d 3,500 C/d 3,120 3,500 3,500 B/d 3,120 Debtors = 62,400-3,120 = 59,280 [1] 3. Preference Dividends Interim Dividends (1st 3 months) i.e. 500,000 x 5% x 3/12 = 6,250 [2] Due: 500,000 x 5% x 9/12 = 18,750 [3] Page 6 of 40

7 2. Depreciation of Fixed Assets a) Vehicles A/C (8) 1/1/10 Balance B/D [1] 240,000 1/7/10 Disposal [1] 80,000 1/7/10 Trade In 35,000 1/7/10 Bank [2] 60,000 31/12/10 Balance C/D 255, , ,000 1/1/11 Balance B/D 255,000 1/10/11 Disposal [1] 75,000 1/10/11 Trade In 15,000 1/10/11 Bank [2] 49,000 31/12/11 Balance C/D [1] 244, , ,000 1/1/12 Balance B/D 244,000 b) Provision for Depreciation A/C (26) 1/7/10 Disposal W2 43,136 1/1/10 Balance B/D [6] 73,190 W1 *[2] 31/12/10 Balance C/D 69,595 31/12/10 P & L [6] 39,541 W3 112, ,731 1/10/11 Disposal W4 42,508 1/1/11 Balance B/D 69,595 [3] 31/12/11 Balance C/D ***[3] 65,840 31/12/11 P & L [6] 38,753 W5 108, ,348 * Accept correct figure only *** Allow 2 marks for student s own figure 1/1/12 Balance B/D 65,840 c) Vehicles Disposal A/C (16) 1/7/10 Vehicle No.1 [2] 80,000 1/7/10 Depreciation **[1] 43,136 1/7/10 Bank - Compensation [2] 40,000 31/12/10 Profit to **[2] 38,136 1/7/10 Trade In [2] 35,000 P&L 118, ,136 1/10/11 Vehicle No.2 [2] 75,000 1/10/11 Depreciation **[1] 42,508 1/10/11 Trade In [2] 15,000 31/12/11 Loss to P & L **[2] 17,492 ** Accept student s own figure 75,000 75,000 Page 7 of 40

8 d) Profit & Loss Account for year ended 31/12/2011 (extract) (10) Expenses: Depreciation on MV s 38,753 ****[2] Loss on Disposal of Vehicles 17,492 ****[2] Repairs to MV s 3,000 [3] Balance Sheet as at 31/12/2011 (extract) Fixed Assets Cost Acc Dep NBV Motor Vehicles 244,000 65, ,160 ****[1] ****[1] ****[1] **** Accept student s own figure(s) Workings: Schedule of Fixed Assets Asset Cost Dep to 1/1/10 1/1/10 Dep 10 NBV 1/1/11 Dep 11 Total V1 80,000 39,040 40,960 4,096 NA - 43,136 W.2 V2 65,000 23,400 41,600 8,320 33,280 4,992 36,712 + Refrigerator 10,000 2,250 7,750 2,325 5, ,796 42,508 W.4 V3 85,000 8,500 76,500 15,300 61,200 12, ,000 73,190 V4 W1 95,000 9,500 85,500 17,100 V5 64,000 3,200 39,541 38,753 W3 W5 Page 8 of 40

9 3. Correction of Errors and Suspense Account a) General Journal of Brian Ashford (35) Dr ( ) CR ( ) i) Drawings A/C 540 [2] Discount Allowed A/C 20 [1] Debtors A/C 560 [2] Private debt off-set against Business debt [1] ii) VAT A/C 360 [2] Purchases A/C 4,000 [2] Creditor s A/C 360 [1] Equipment A/C 4,360 [2] Suspense A/C 360 [1] VAT of 360 included in Purchases figure, entered in error in Equipment and omitted from Creditor s a/c. [1] iii) Rent A/C 3,000 [2] Rent prepaid A/C 1,000 [2] Capital A/C 4,000 [1] Rent paid from private Bank account for 16 months [1] iv) Bank A/C 4,500 [2] Disc Rec d (dissallowed) A/C 300 [2] Crs A/C 4,800 [1] Crs A/C 800 [1] Cash A/C 800 [1] Omission of dishonoured cheque paid to Creditor and subsequent payment of cash 800. [1] v) Drs A/C 5,400 [2] Sales Returns A/C 3,750 [2] Suspense A/C 1,650 [1] Incorrect recording of Sales Returns and subsequent restocking charge. [1] Page 9 of 40

10 b) Suspense A/C (6) Original Difference [2] 1,290 Purchases/Crs [2] 360 Drs 1,650 [2] 1,650 1,650 Workings: (i) Drawings A/C (iv) Crs A/C S/B 540 S/B 800 Bk/ Disc S/B 4,800 Discount Allowed A/C S/B 20 Debtors A/C S/B 560 Discount Received A/C Crs S/B 300 Bank A/C (ii) Equipment A/C Crs S/B 4,500 4,360 4,360 Cash A/C Crs A/C S/B 800 4,000 S/B 4, Purchases A/C (v) Drs A/C S/B 4,000 S Ret x 5,100 x 1,650 5,400 S/B 1,350 VAT A/C S/B 360 Sales Returns A/C (iii) Rent A/C Drs x 5,100 S/B 3,000 S/B 1,350 3,750 Page 10 of 40

11 c) Statement of Correct Net Profit (10) Original Profit 36,500 ADD: Sales Returns (v) 3,750 [2] 3,750 LESS: 40,250 Discount Allowed (i) 20 [2] Purchases (ii) 4,000 [2] Rent (iii) 3,000 [2] Discount Rec Diss (iv) 300 [2] 7,320 Corrected Net Profit 32,930 d) Errors not revealed by Trial Balance any three, i.e. 3 x [2 + 1] [9] i) Error of omission. Transaction has been completely omitted from the books. ii) Reversal of Entries. E.g. Goods purchased on credit from a creditor entered on debit side of creditors and the credit side of purchases instead of debiting purchases and crediting creditors. iii) Error of Principle. E.g. Buying a fixed asset is entered in the Purchases a/c instead of the Fixed Asset a/c. iv) Error of Original Entry. v) Error of Commission. vi) Compensating Errors. Page 11 of 40

12 4. Incomplete Records a) Trading, Profit & Loss Account of Henry Tudor for the year ended 31/12/2011. (48) Sales W.3 162,900 [6] - Cost of Sales Opening Stock 21,000 [2] + Purchases W.4 72,380 [8] 93,380 - Closing Stock -15,500 [2] Cost of Sales 77,880 Gross Profit 85,020 + Other Income - Total Income 85,020 - Expenses General Expenses W.5 24,400 [4] Insurance W.6 2,600 [6] College Fees 4,000 [4] Light & Heat W.7 3,180 [6] Loan Interest W.8 3,000 [6] Depreciation: Van W.9 1,000 38,180 [4] Net Profit 46,840 Workings: 1 Cash A/C Balance B/D 150 Lgts 55,000 Sales ** 138,100 Purchases 48,000 Exps 26,000 Drawings 9,000 C/D , ,250 2 Bank A/C Cash lgts 55,000 Van 20,000 Drs 29,000 Crs 38,500 Capital 2,000 Annual Insurance 2,400 Loan 120,000 College Fees 4,000 Equipment 14,000 Covenant 3,000 L & H 3,750 Loan Interest 2,200 Premises 100,000 C/D 18, , ,000 3 Sales: Cash 138, ,800 = 162,900 Drs A/C B/D 19,600 Bank 29,000 Sales ** 24,800 C/D 15,400 44,400 44,400 Page 12 of 40

13 4 Purchases Cash 48,000 + Credit 28,800 ** 76,800 - Drawings (85 x 52) -4,420 72,380 Crs A/C Bank 38,500 B/D 25,000 C/D 15,300 Purchases 28,800 ** 53,800 53,800 5 General Exps 26,000 - Wages 1/1-1,600 P & L 24,400 6 Insurance 2, /1 1,000 3, / (i.e. 2,400 x 4/12) P & L 2,600 7 Light & Heat 3,750 + Stock 1/ , / , / USED 4,240 - Drawings -1,060 (i.e. 4,240 x 25%) P & L 3,180 8 Loan Interest 2, /12 1,800 4,000 (i.e. 120,000 x 8% x 5/12) - Drawings -1,000 (i.e. 4,000 x 25%) P & L 3,000 9 Depreciation on Delivery Van Cost 20,000 Depreciation to P & L 1,000 (i.e. 20,000 x 20% x 3/12) NBV 19,000 b) What are four fundamental accounting concepts in accounting? (4 x 2+1) (12) 1 Accruals, i.e. all expenses and gains are recorded in the period in which they were incurred. 2 Consistency, i.e. accounting treatment of items should be the same from period to period. 3 Prudence, i.e. caution should be exercised when preparing accounts. One should anticipate no gains. 4 Going Concern, i.e. that accounts should be prepared on the basis that the business. Page 13 of 40

14 5. Interpretation of Accounts (a) (40) (i) EPS [6] EPS = Earnings (2) No. Shares = 50,000 (2) 800,000 = = 6.25c (2) (ii) Cash Sales Drs Days = Drs x 12 (2) Cr Sales > 23,000 X 12 = 1.5 (2) x > 1.5x = 276,000 (1) > x = 184,000 (Cr Sales) (2) > Cash Sales = 1, = 1,510,000 (2) [9] (iii) Dividend Yield Div Yield = DPS x 100 (2) Mkt Price DPS = Ord Divs = 14,000 = 1.75c (4) No. Shares 800,000 > Div Yield = 1.75 x 100 = (2) 215 = 0.81% (1) [9] (iv) Gearing Ratio Gearing = Loans + Pref Sh Cap x 100% (3) TCE = 200, ,000 x 100% (3) 1,313,000 [8] = 30.46% (2) (v) Current Performance i.e. P/E Ratio [8] = Price = 215 = 34.4 years EPS 6.25 (3) (3) (2) Page 14 of 40

15 (b) Potential shareholder interested in buying shares in Valley Foods plc. (45) SEVEN POINTS REQUIRED AND MUST COVER FIRST FOUR HEADINGS. I have analysed Valley Foods plc under the following headings: Profitability [7] (4 x (2 + 2) + 3) ROCE has decreased from 13.2% to 6.40%. Unsatisfactory trend and poor enough return when compared with risk-free investments (2% - 3%). ROE decreased from 16.7% to 5.48%. Very unsatisfactory trend. Shareholders would be very concerned at significance of decrease. Liquidity [7] (3+4) Current ratio is 2.17:1 in Liquidity Not a problem, above norm of 2:1. Quick ratio has remained the same at 1.3:1. Satisfactory and above accepted standard of 1:1, company should have little difficulty paying off debts as they fall due. Gearing [7] (4 + 3) Capital Gearing has dropped from 45.3% in 2010 to 30.46% in Company is lowly geared, less risky position to be in, should have little difficulty borrowing in the future, etc. Interest Cover has dropped slightly from 6.5 times in 2010 to 5.25 times in Though decrease is a slight cause for concern company is making sufficient profits to cover loan interest payments. Investment/Dividend Policy [7] (4 + 3) EPS has decreased from 16c in 2010 to 6.25c in Demonstrates that the earnings potential of the company has dropped significantly. Shareholders would be concerned. The P/E has increased from 14 years to 34.4 years. In good economic times this can reflect an underlying confidence by shareholders in the price of shares. However, as profitability levels are poor shareholders would probably take the view that it would take too long to recover any investment made in the shares, especially as the annual yield figures do not justify making a capital investment. Dividend Yield has dropped from 5.40% in 2010 to 0.81% in Shareholders would be dissatisfied with decrease and 0.81% is a very poor return when compared to the return to be received from risk-free investments. Market Price [5] Share price has decreased from 2.25 to Indicates lack of shareholder confidence in future of company. Sector [5] Valley Foods Plc is involved in the food industry. Sector has been adversely affected by the recession as consumers not spending as much on food and are also growing their own. However if the company continue to produce high-quality foods and gain a good reputation they could survive the recession. Intangible Assets [5] Intangible assets are valued at 250,000 in the balance sheet. In the present economic climate one would need to know what this figure actually represents and is it realistic at this time. Fixed Assets/Debentures [5] Fixed assets are valued at 980,000. If valued correctly there appears to be ample security for loans of 200,000. Debentures are due to be repaid in 2018 at the latest but how does the company propose to repay this loan as there does not appear to be a Debenture Redemption Reserve fund set up. Page 15 of 40

16 Conclusion [2] Though the Liquidity and Gearing figues are satisfactory, there would be serious concerns over Valley Foods ability to generate sufficient profits and returns that would satisfy shareholders. If sales and revenue cannot be increased then management will have to seriously look at cutting down on the running costs, which may lead to redundancies and other cutbacks in areas like advertising. My advice to a potential shareholder would be that before considering to buy shares in the company to look for a business plan as to how management are going to increase profits into the future. Otherwise I would look for investments elsewhere. Workings ROCE 84,000 x 100% 6.40% 13.20% 1,313,000 ROE 50,000 x 100% 5.48% 16.70% 913,000 Current Ratio : 1-71 Quick :1 1.30:1 71 Capital Gearing 30.46% 45.30% Interest Cover O.P 84K 5.25 times 6.5 times Interest 16K EPS 6.25c 16c P/E Dividend Yield 0.81% 5.40% (c) Users of Financial Statements (15) 1 Banks and Lending Institutions any 3 x [2 (head) + 3 (reason)] 2 Creditors 3 Debenture-holders 4 Existing Shareholders 5 Potential Shareholders 6 Management 7 Employees 8 Competitors 9 Financial Commentators/Media 10 The Revenue Commisioners Page 16 of 40

17 6. Cash Flow Statement a) Abridged Profit & Loss Account for the year ended 31/12/2011 (20) Operating Profit 53,700 [3] correct figure only Interest Payable -21,600 [5] Profit before Tax 32,100 Tax payable -32,000 [4] Profit after Tax 100 Dividends -34,000 [4] Retained Profit (Loss) -33,900 Profit & 1/1/11 155,350 [2] Profit & 31/12/11 121,450 [2] b) Reconciliation of Operating Profit to Net Cash Flow from (26) Operating Activities Operating Profit 53,700 [1] + Depreciation 37,000 [3] - Profit on Disposal -8,000 [4] + Amortisation of Goodwill 16,000 [4] - Decrease in Bad Debt Provision -150 [3] + Drs decrease 3,000 [3] + Stock decrease 10,000 [3] - Crs decrease 1,000 [3] Net Cash inflow from Operating Activities 110,550 [2] Cash Flow Statement of Sharapova Plc. for the year ended 31/12/2011 (34) Operating Activities Net Cash inflow from Operating Activities [2] 110,550 Returns on Investment and Servicing of Finance [1] Interest Paid -21,100 [3] -21,100 Taxation [1] Tax paid -28,500 [3] -28,500 Capital Expenditure and Financial Investment [1] Purchase of Machinery -110,000 [2] Cost of Extension -60,000 [2] Sale of Machinery 36,000 [3] Sale of Quoted Investments 10,000 [3] -124,000 Equity Dividends [1] Dividends paid -34,000 [2] -34,000 Page 17 of 40

18 Net Cash Outflow before Management of Liquid Resources and Financing -97,050 Management of Liquid Resources [1] Purchase of Government Securities -5,000 [3] -5,000 Financing [1] Issue of Shares 50,000 [2] Issue of Debenture 40,000 [2] 90,000 Decrease in Cash [1] -12,050 *** Change in Cash Position Cash Bank 4,500-7,200 5,150-6,900-12,050 *** Reconciliation of Net Cash Flow to movement in Net Debt (8) Decrease in Cash -12,050 [1] Issue of Debenture -40,000 [2] Purchase of Govt. Securities 5,000 [2] Change in Net Debt -47,050 Net 1/1/ ,850 ** [1] Net 31/12/ ,900 ** [2] Net 1/1/ /31/2011 Cash/Bank 5,150-6,900 Debentures -260, ,000 Government Securities 20,000 25, , ,900 c) Why are Cashflow Statements prepared by many businesses (12) 1) CFS are prepared in order to analyse cash inflows and outflows during the previous year. (3 x 4 marks) 2) They are also prepared to emphasise to shareholders, etc. that profits do not equal cash. 3) CFS are used to assess the liquidity of the business and as an aid to management in financial planning. 4) To assist in predicting future future cash flows. 5) It is now a legal requirement for companies to produce a CFS. Page 18 of 40

19 Taxation A/C Bank 28,500 b/d 28,500 c/d 32,000 P & L * 32,000 60,500 60,500 Interest A/C Bank * 21,100 b/d 11,500 c/d 12,000 P & L *** 21,600 33,100 33,100 *** 260,000 x 8% x 9/12= 15, ,000 x 8% x 3/12= 6,000 21,600 Land & Buildings A/C b/d 425,000 Revaluation Res 25,000 Bank *** 60,000 c/d 510, , ,000 Provision for Depreciation A/C b/d 38,000 c/d 65,000 P & L 27,000 65,000 65,000 Revaluation Reserve A/C b/d 0 c/d 25,000 Land 25,000 25,000 25,000 Plant & Machinery A/C b/d 295,000 Disposal 50,000 Bank 110,000 c/d 355, , ,000 Provision for Depreciation A/C Disposal 22,000 b/d 48,000 c/d 36,000 P & L * 10,000 58,000 58,000 Disposal A/C Machinery 50,000 Depreciation 22,000 Profit to P & L 8,000 Bank 36,000 58,000 58,000 Bad Debt Provision 2010: 34,200 x 100/95 = 36,000 Drs Provision = 1, : 31,350 x 100/95 = 33,000 Drs Provision = 1,650 Decrease 150 Page 19 of 40

20 7. Farm Accounts a) Statement of Capital at 1/1/2011 (20) Assets Land & Buildings 450,000 [1] Machinery 90,000 [1] Accum Depreciation -22,500 [1] Cattle 46,000 [1] Sheep 26,000 [1] Milk Cheque due 2,250 [2] Stock of Fuel 450 [1] Stock of Fertiliser 1,050 [1] Bank 2,500 [1] Investments W1 [3] 15, ,750 Liabilities Electricity due 510 [1] Loan W2 27,000 [2] Loan Interest due W2 1,620-29,130 [2] 1/1/ ,620 [2] ** ** Accept correct figure only b) Enterprise Analysis Accounts for the year ended 31/12/2011 (25) Cattle & Milk Sheep Income & Closing Stock Closing Stock 32,000 [2] 20,000 *** Sales: Cattle W3 21,000 [2] Milk W4 37,200 [2] Sheep [1] 18,500 Lambs [1] 12,500 Calves 9,500 [1] Ewe Premium [1] 1,500 Beef Premium 3,600 [1] Wool [1] 1,000 Drawings 1,000 [2] ,300 54,100 Expenses & Opening Stock Opening Stock 46,000 [1] 26,000 *** Purchases: Cattle 8,500 [1] Sheep [1] 19,500 Dairy Wages 4,950 [1] Fertiliser W5 3,140 [3] 785 General Farm Exps W6 22,040 [2] 5,510 Page 20 of 40

21 Vet s Fees W7 3,080 [2] ,710 52,565 Gross Profit 16,590 1,535 *** May include Stock difference as one figure c) General Profit & Loss Account for year ended 31/12/11 (15) Income: Gross Profit: Cattle & Milk 16,590 Sheep 1,535 Investment Interest W1 1,350 [1] Conacre 8,000 [1] Forestry Premium 2,700 [1] Total Income 30,175 Expenses: Light & Heat W7 2,589 [3] Loan Interest W9 648 [2] Depreciation W10 10,500 [2] Loss on Disposal W10 1,250 [3] Repairs W8 3,930 [1] Total Expenses 18,917 Net Profit 11,258 [1] ** d) Balance Sheet as at 31/12/2011 (25) Fixed Assets Cost Acc Dep NBV Land & Buildings 500, ,000 [2] Machinery 78,000-29,250 48,750 [2] 578,000-29, ,750 Financial Assets 9% Investments 15,000 [1] Current Assets Stock: Cattle 32,000 [1] Sheep 20,000 [1] Fuel 475 [1] Fertiliser 1,200 [1] Milk Chq due 1,950 [1] Mart Chq due 1,400 [1] Inv Interest due 675 [2] Bank 3,525 61,225 [1] - Current Liabilities Page 21 of 40

22 Crs for Fertiliser [1] Working Capital 60,800 Total Net Assets 624,550 FINANCED BY: 1/1 [2] 581,620 + Net Profit [1] 11, ,878 - Drawings W12 [5] -18, ,550 Revaluation Reserve 50,000 [2] Total Capital Employed 624,550 ** Accept correct figure only d) Reasons for Farmers preparing Accounts: (15) [ ] > Calculate net profit. > Profitability of different enterprises, helps decision-making. > Calculate Net Worth. > Part of a Business Plan. > In order to calculate Income Tax liability. > Legal requirement. Workings: 1 Investment Interest = mths mths = 1200 x 12/6 = 1,350 P&L > Inv Int due = 675 BS 9% Investments = 1350 / 9% = 15,000 2 Loan + Interest = 29,700 > 110% = 29,700 Loan (100%) = 29,700 x 100/110 = 27,000 Loan Interest 1/1 = 2,700 x 12/20 = 1,620 P & L: 2,700 x 8/20 = 1,080 3 Cattle Mart Sales: 19, ,400 due = 21,000 4 Milk Sales = 37,500-2, ,950 = 37,200 5 Fertiliser = 3, ,050-1, = 3,925 80% = 3,140 20% = General Farm Exps = 27,550 80% = 22,040 20% = 5,510 7 Vet s Fees 4, = 3,850 80% = 3,080 20% = 770 Page 22 of 40

23 8 L & H = 4, = Drawings -1,726 2,589 9 Repairs = 6,550 - (40%) Drawings 2,620 = 3, Loan Interest 1,080 W2-432 Drawings Machinery A/C B/D 90,000 Disposal 12,000 C/D 78,000 90,000 90,000 B/D 78,000 Provision for Dep A/C Disposal 3,750 B/D 22,500 C/D 29,250 P & L 10,500 ** 33,000 33,000 B/D 29,250 Disposal A/C Mach 12,000 Dep 3,750 i.e. 12,000 x 12.5% x 2.5 years Bank 7,000 Loss to P & L 1,250 12,000 12,000 ** 90,000 x 12.5% x 6/12 = 5,625 78,000 x 12.5% x 6/12 = 4,875 10, L & B A/C B/D 450,000 Reval Res 50,000 C/D 500, , ,000 B/D 500,000 Revaluation Reserve A/C Land 50, Drawings Bank 11,200 VHI 750 Milk 1,000 Lamb 600 Loan Int 432 L & H 1,726 Repairs 2,620 18,328 Page 23 of 40

24 8. Product Costing Notes for Examiner * Accept student s own figure from previous calculations. * Full marks for correct answer even if no workings shown. * Accept student s own method, if different from that shown. A) [50] a) Overhead Analysis Sheet (30) Basis of Production Depts Service Depts Overhead Apportionment Total ( ) Canteen costs No. of Employees 24,000 9,600 [1] 6,000 4,800 [1] 3,600 [1] Supervisors s salaries No. of Employees 48,000 19,200 [1] 12,000 9,600 [1] 7,200 [1] General repairs Floor space 3,750 2,250 [1] [1] 250 [1] Rent & Rates Floor space 11,250 6,750 [1] 2,250 1,500 [1] 750 [1] Machinery depreciation Mach. Valuation 9,000 5,400 [1] 3,600 Light & Heat Volume 6,000 2,400 [1] 1,800 1,200 [1] 600 [1] Material Handling costs Direct Materials 5,600 3,360 [1] 2,240 Factory Buildings insurance Floor space 4,500 2,700 [1] [1] 300 [1] Machinery insurance Mach. Valuation 10,500 6,300 [1] 4,200 Administration costs No. of Employees 21,600 8,640 [1] 5,400 4,320 [1] 3,240 [1] 144,200 66,600 39,140 22,520 15,940 Reapportion Serv Dept 1 Machine Hours 13,512 [1] 9,008 [1] -22,520 Reapportion Serv Dept 2 Machine Hours 9,564 [1] 6,376 [1] -15, ,200 89,676 [1] 54,524 [1] 0 0 b) Overhead Absorption Rate * own figure = acceptable (8) i) Production Dept. 1 Total Overheads = 89,676 = Machine Hours 180, per machine hour [4] ii) Production Dept. 2 Total Overheads = 54,524 = Machine Hours 120, per machine hour [4] c) Selling Price of Product XZ 105 (12) Direct Costs Direct Materials Direct Labour 9.00 Prime Cost [2] Overheads: Prod Dept.1: 12 hrs x [3] Prod Dept. 2: 14 hrs x [3] Total Cost of Production % of Selling Price [2] Selling Price [2] Page 24 of 40

25 B) Stock Valuation [16] Stock Record Sheet *** includes all sales IN OUT *** BALANCE Unit Unit Unit Date Qty. Price Qty. Price Qty. Price Value ( ) 1/1/11 1, , ,400 1/1 to 31/3/11 1/4 to 31/6/11 1/7 to 30/9/11 1/10 to 31/12/11 3, , ,300* 7 16,100 1, ,900 4, , ,450** 8 27,600 1, ,450 3, , *** 8 5,200 3, ,400 37,600 2, **** 9 [2] 8,550 [2] 2, ,400 [2] 10 [2] 24,000 3,300 32,550 [2] Closing stock in units IN OUT 15,800-12,450 = 3,350 units units units * 1, ,800-2,900 = 2,300 units ** 2,300 (@7) - 2,300 (@7) + 4,600-1,150 = 3,450 units. *** 3,450-2,800 = 650 units (@8 using FIFO) **** 650 (@8) (@8) + 3,600-2,650 = 950 units (@9 using FIFO) 2) Trading Account for the year ended 31/12/2011 (14) Sales (w1) 175,650 [3] - Cost of Sales Opening Stock (W2) 8,400 [2] + Purchases (W3) 119,800 [3] 128,200 - Closing Stock -32,550 [2] Cost of Sales -95,650 Gross Profit 80,000 [4] Page 25 of 40

26 Workings 1) Sales: 800 x 12 9,600 2,100 x 13 27,300 1,600 x 13 20,800 1,850 x 14 25,900 1,350 x 14 18,900 1,450 x 15 21,750 1,400 x 15 21,000 1,900 x 16 30, ,650 2) Opening Stock = 1400 units x 6 = 8,400 3) Purchases: 3,800 x 7 26,600 4,600 x 8 36,800 3,600 x 9 32,400 2,400 x 10 24, ,800 Page 26 of 40

27 9. Cash Budgeting (a) Cash Budget for the 6 months Jan - June 2012 (40) Jan Feb Mar Apr May June Total Receipts Cr Sales 18,000 27,000 36,000 45,000 27,000 18, ,000 [1x6] (1 mth) Cash Sales 2,850 3,800 4,750 2,850 1,900 2,850 19,000 [1x6]** Loan [3] 13,000 13,000 33,850 30,800 40,750 47,850 28,900 20, ,000 Payments Purchases/Crs 11,000 16,000 21,000 23,000 14,000 11,000 96,000 [1x6]** Machinery 20,000 20,000 [2] Rent 2,800 2,800 [2] Wages 4,000 5,000 6,000 7,000 5,000 4,000 31,000 [6] Loan Repayment 6,500 6,500 [2] Loan [3] Interest W5 35,000 21,000 27,000 32,800 19,000 21, ,560 Net Cash -1,150 9,800 13,750 15,050 9, ,440 Opening Cash [2] 7,000 5,850 15,650 29,400 44,450 54,350 7,000 Closing Cash 5,850 15,650 29,400 44,450 54,350 53,440 53,440 [2]* ** Accept own figure * Accept correct figure only b) Budgeted Trading, Profit & Loss Account for 6 month period ended 30/6/2012 (20) Sales 200,000 [2] - Cost of Sales O Stock 3,000 [1] + Purchases W1 101,000 [2] 104,000 - C Stock -4,000 [1] Cost of Sales 100,000 GROSS PROFIT 100,000 - Expenses Discount Allowed W2 1,000 [2] Depreciation W6 4,000 [2] Rent W3 2,000 [2] Wages W4 31,500 [2] Loan Interest W5 520 [2] Total Expenses 39,020 NET PROFIT 60,980 [2] * P & L 1/1 5,000 [2] P & L 30/6 65,980 * Correct figure only Page 27 of 40

28 Workings: 1 Purchases = Cost of Sales + Closing Stock - Opening Stock Jan 15, ,000** - 3,000 = 16,000 ** i.e. 40,000 (Feb) x 50% x 20%, etc. Feb 20, ,000-4,000 = 21,000 Mar 25, ,000-5,000 = 23,000 Apr 15, ,000-3,000 = 14,000 May 10, ,000-2,000 = 11,000 June 15, ,000-3,000 = 16,000, i.e Crs 30/6 101,000 2 Disc All d = 30K + 40K + 50K + 30K + 30K + 20K + 30K) x 10% x 5% = 1,000 3 Rent Pd 2,800 +P/P 1/ ,400 -P/P 30/6-1,400 i.e. 2,800 x 3/6 P & L 2,000 4 Wages Pd 31,000 - due 1/1-4,000 27,000 + due 30/6 4,500 P & L 31,500 5 Loan Interest = 13,000 x 8% x 6/12 = 520 x 0.5 = 260 i.e. due 6 Depreciation = (20, ,000) x 20% x 6/12 = 4,000 Budgeted Balance Sheet as at 30/6/2012 (12) Fixed Assets Cost Dep NBV * Machinery 40,000 4,000 36,000 [1] Current Assets ** Stock 4,000 [1] ** Drs 27,000 [1] * Rent prepaid 1,400 [1] ** Bank 53,440 85,840 [1] - Crs (amounts due within 1 Year) ** Creditors 16,000 [1] ** Loan Interest due 260 [1] ** Loan **** 6,500 [2] * Wages due 4,500 27,260 [1] Net Current Assets 58,580 Total Net Assets 94,580 Page 28 of 40

29 FINANCED BY: * Capital 28,600 [1] ** Revenue Reserves: 65,980 94,580 [1] Total Capital Employed 94,580 * Accept correct figure only ** Accept own figure **** Deduct one mark if included in Financed By c) What are the main differences between Financial and Cost and Mgt. Accounting. (8) [any 3, i.e ] a) Financial Accounting (FA) is concerned with historical information when preparing accounts. Cost & Management Accounting (CMA) looks forward when preparing forecasts and budgets. b) FA is compulsory by law - companies must prepare Trading, Profit & Loss A/C s. CMA is optional, companies use information to help with decision-making. c) FA must adhere to strict guidelines when being prepared as regards presentation. CMA can be laid out in any way that management require. d) FA reports are prepared for external readers such as shareholders, bankers, stockbrokers, etc. CMA are prepared for internal managers, perhaps every day. Page 29 of 40

30 ORDINARY LEVEL 1. Final Accounts of a Manufacturing Company Manufacturing account for the year ended 31/12/2011 [40] Direct materials: Opening Stock 63,000 (3) +Purchases 175,000 (2) + Carriage on purchases 3,375 (2) 241,375 - Closing Stock 47,000 (2) Cost of Raw Materials Used 194,375 Direct labour: Manufacturing Wages 124,600 (3) Direct expenses Hire of Special Equipment 12,500 (2) Direct Expenses 25,000 (2) PRIME COST 356,475 Factory overheads/expenses Factory Insurance 9,000 (4) Depr. of Plant & Machinery 45,000 (3) Depr. of Factory Buildings 14,400 (3) 68, ,875 Add Work in Progress at 1/1/ ,000 (4) 452,875 Less Work in progress at 31/12/ ,000 (4) 431,875 Less Sale of scrap 13,200 (3) Cost of manufacture 418,675 Add manufacturing profit 231,325 (2) Current market Value to Trading Account 650,000 (1) Trading Profit and Loss Account for the year ended 31/12/2011 [40] Sales (725,000-6,500) 718,500 (6) Less Cost of Sales Stock 1/1/11 45,000 (3) Current market value 650,000 (1) 695,000 Less Closing Stock 39,000 (3) 656,000 Gross profit 62,500 (1) Add Manufacturing profit 231,325 (1) 293,825 Page 30 of 40

31 Less Expenses: Administration: (1) Directors Fees 36,000 (2) Stationery 6,400 (2) 42,400 Selling & Distribution: (1) Advertising 8,500 (3) Carriage 1,125 (3) Depr. Motor vehicles 8,500 (3) 18,125 Operating profit 233,300 Less Debenture Interest 7,500 (2) Net Profit for the year before tax 225,800 Less Taxation 16,500 (2) 209,300 Add Profit & Loss balance at 01/01/ ,000 (2) Profit & Loss balance carried forward 31/12/ ,300 (4) Balance Sheet as on 31/12/2011 [40] Intangible assets Patents 67,500 (1) Fixed Assets Cost Depr. NBV Factory Buildings 480,000 (1) 14,400 (2) 465,600 (1) Plant & Machinery 225,000 (1) 75,000 (2) 150,000 (1) Motor Vevicles 140,000 (1) 63,500 (2) 76,500 (1) Office Equipment 132,600 (1) 132,600 (1) 977, , , , ,200 CURRENT ASSETS: Stock Raw materials 47,000 (2) Work In progress 21,000 (2) Finished Goods 39,000 (2) 107,000 Debtors 49,500 (2) Less provision for bad debts 4,500 (2) 45,000 Insurance prepaid 3,000 (2) 155,000 Creditors: Amounts falling due within one year: Creditors 38,600 (2) PRSI/PAYE 1,800 (2) Debenture Interest due 7,500 (2) Bank 17,500 (2) Taxation 16,500 (2) 81,900 WORKING CAPITAL 73,100 Total Net assets 965,300 FINANCED BY: Creditors : amount falling due after one year 10% Debentures 100,000 (2) Capital and Reserves Authorised Issued Ordinary 1 each 750,000 (1) 600,000 (1) Profit and Loss account 265, ,300 CAPITAL EMPLOYED 965,300 (120 Marks) Page 31 of 40

32 2. Company Profit and Loss. (a) Profit and Loss Account of Harrison Ltd for the year ended 31/12/2011. [35] Net profit for the year 170,000 (2) Less Interest (11,500) (3) Less Taxation (40,000) (3) Profit after taxation 118,500 Less Appropriations: General reserve 15,000 (4) Interim Ordinary Dividend 6c per share 30,000 (4) Final ordinary Dividend 9c per share 45,000 (4) Interim Preference Dividend for half year 5,250 (4) Final preference Dividend 5,250 (4) 100,500 Retained profit for the year 18,000 Profit & Loss balance at 01/01/ ,000 (4) Profit& Loss balance at 31/12/ ,000 (3) (b) Balance Sheet as on 31/12/2011 [25] Fixed Assets/Current assets 899,750 Less Creditors: amounts falling due within one year (1) Taxation due 40,000 (2) Interest due 11,500 (2) Ordinary Dividend Due 45,000 (2) Preference Dividend Due 5,250 (2) 101,750 (4) 798,000 Financed by; Capital & Reserves: (1) Authorised Issued Share Capital Ordinary 1 each 850,000 (1) 500,000 (2) 7% Preference 1 each 200,000 (1) 150,000 (2) 1,050, ,000 (1) General Reserve 95,000 (2) Profit and Loss balance at 31/12/ ,000 (2) Capital Employed 798,000 (60 Marks) Page 32 of 40

33 3. Bank Reconciliation Statement. (a) Dr. Adjusted Bank Account Cr. (35) Mar. 31 Balance 5,615 (6) Mar. 20 SO 1,100 (6) Mar. 2 Interest 120 (6) Mar. 28 Bank Charges 70 (6) Mar. 29 R/D 450 (6) Apr. 1 Balance b/d 4,115 Mar. 31 Balance c/d 4115 (5) 5,735 5,735 (b) Bank Reconciliation Statement on 31 March 2012 (25) Balance as per bank Statement 16,115 (3) Less: Unpresented Cheques: B. Smith 2,950 (3) K. Casey 4,800 (3) R. O Neill 2,500 (3) H. Ryan 8,500 (3) 18,750 (2,635) Add Lodgements not yet credited: Sales 6,400 (3) 3765 Add M.Taylor 350 (5) Balance as per adjusted bank account 4,115 (2) (60 Marks) Page 33 of 40

34 4. Accounts of a Service Firm (a) Statement of Capital at 01/01/2011 (20) Assets: Buildings 450,000 (1) Dental Equipment 120,000 (1) Furniture 95,000 (1) Motor Vehicles 35,000 (1) Amounts due from Private Patients 2,500 (5) Stock of Fuel and Heating Oil 550 (2) Cash at bank 4,800 (2) 707,850 Liabilities Electricity Due 500 (2) Creditors 1,600 (2) 2,100 Capital at 01/01/2011 (1) 705,750 (2 Correct Fig) (b) Income and Expenditure Account for year ended 31/12/2011 (35) Income: Receipts from Private Patients (Note 1) (4) Medical Card Scheme 78,500 (2) 254,150 Expenditure Light, Heat & Fuel (Note 2) 1,500 (4) Magazines 350 (2) Motor Expenses 2,800 (2) Dental Materials (Note 3) 19,200 (4) Telephone 750 (2) Insurance (Note 4) 3,000 (3) Technician s Fees 14,500 (4) Depr. of Dental Equipment (Note 5) 26,400 (2) Depr of Motor Vehicles (Note 6) 3,500 (4) 72,000 Net Profit 182,150 (2) Correct Fig Note 1: 174,500-2, ,650 = Note = 1,500 Note 3: 24,500-5,300 = 19,200 Note 4 4,500 1,500 = 3000 Note 5 120, ,000 = 132,000 x 20% =26,400 Note 6: 35,000 x 10% = 3,500 (c) Bank Balance at 31/12/2011 = 196,450 (5) (60 Marks) Page 34 of 40

35 SECTION 2 5. Interpretation of Accounts. (a) (i) Opening Stock = 364, , ,000 = 49,000 (7) Net profit = 196,000 76,000 = 120,000 (3) (ii) Return On Capital Employed: Net profit + Debenture Interest x 100 = X% Capital Employed 1 = 120, = 15.78% (10) 805,000 (iii) Percentage Mark Up on Cost: Gross Profit x 100 = X% Cost of Sales 1 196,000 = 53.85% (10) 364,000 (iv) Credit given to Debtors = Debtors x 12 = X months Credit Sales 1 31,000 x 12 =.66 Months (10) 560,000 1 (b) Liquid Assets: These are current assets (items of value) that can be turned into cash quickly. Liquid assets are cash/bank and Debtors. Liquid assets are current assets excluding stock. (10) 7% Debentures 2016/2017: Debentures are long-term loans. The fixed annual rate of interest is 7%. Loan must be repaid in one lump sum during the years 2016/2017. Security must be given for the loan. (10) Ordinary Dividend: This is the portion of the profits paid to the ordinary shareholders. The Ordinary Shareholders are the owners of the company. This dividend is paid after the preference shareholders have been paid their dividend. (10) Depreciation: This is the loss in value of a fixed asset due to its use or passage of time or wear and tear. A business will decide on the % amount to write off each year. The method used can be straight line or reducing balance method. Depreciation is an expense for the profit and loss account (10) (c) The Working Capital ratio for Jones Ltd. is 2:1. This means it has 2 available from current assets to cover every 1 it owes. The Acid Test Ratio is 1.52: 1 This means that the firm has 1.52 available immediately for every 1 it owes. This is better than the accepted norm of 1:1. Perhaps it could invest some of this cash to earn interest. Therefore Jones Ltd would not have difficulty in paying its debts as they fall due. (10) (d) The profitability of the firm has improved from 2010 to The Return on Capital employed in 2011 is 15.78%, which is higher than 2010 return of 12.5%. This is very satisfactory and shareholders would be very happy. It is also much higher than current interest rates on risk free investments. The company is performing well. (10) Page 35 of 40 (100 Marks)

36 6. Incomplete Records. (a) Debtors Control Account 1/1/2009 Balance 2,900 (2) Cash 39,200 (2) 31/12/2009 Cr.Sales 39,800 (2) 31/12/2009 Balance 3,500 (2) 42,700 42,700 Credit Sales 39,800 + Cash Sales 205,200 (4) = 245,000(3) = Total Sales. (15) Creditors Control Account Cash 29,500 (2) 1/1/2009 Balance 5,800 (2) 31/12/2003 Balance 4,500 (2) Cr. Purchases 28,200 (2) 34,000 34,000 Credit Purchases 28,200 + Cash Purchases 72,400 (4) = 100,600 (3) = Total Purchases (15) (b) Trading Profit & Loss Account for the year ended 31/12/2011 Sales 245,000 (2) Less Cost of Sales: Opening Stock 7,900 (2) Purchases 100,600 (2) 108,500 Closing Stock 8,300 (2) 100,200 Gross profit 144,800 Add: Rent Received 1800 (4) Commission Rec. ( ) 260 (6) 146,860 Less Expenses: Salaries & General Exp (25, ) 25,290 (6) Depreciation of Van 3000 (6) 28,290 NET PROFIT 118,570 (c) Balance Sheet as on 31/12/2011 [40] Fixed Assets COST DEPR NBV Premises 245,000 (2) 245,000 Delivery Van 28,000 (2) 3000 (3) 25,000 Office Furniture 15,000 (4) 15, ,000 3, ,000 (1) Current Assets Closing Stock 8,300 (3) Debtors 3,500 (3) Bank Balance 96,700 (5) 108,500 Current Liabilities Creditors 4,500 (3) Expenses Due 350 (3) 4,850 Working Capital 103, ,650 Financed By Capital 1/1/ ,580 (8) +Net Profit 118, ,150 - Drawings 9,500 (3) Capital Employed 388,650 (100 Marks) Page 36 of 40

37 7. Cash Flow Statement. (a) Reconciliation of Operating Profit to Net Cash Flow from Operating activities. (30) Operating profit: 85,000 (6) +Depreciation 15,000 (6) +Stock Decrease 8,000 (6) +Debtors Decrease 3,000 (6) -Creditors Decrease (7,000) (6) NET CASH INFLOW FROM OPERATING ACTIVITIES 104,000 (b) Cash Flow Statement for year ended 31/12/2011 (65) OPERATING ACTIVITIES (2) Net Cash Inflow from operating activities 104,000 (2) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (2) Interest paid (9,000) (8) TAXATION (2) Taxation Paid (25,000) (8) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (2) Purchase of Fixed Assets (90,000) (8) EQUITY DIVIDENDS PAID (2) Dividends paid (12,000) (8) NET CASH INFLOW BEFORE LIQUID RESOURCES AND FINANCING (32,000) (1) FINANCING (2) Issue of Ordinary Share Capital 8,000 (8) Issue of debenture 20,000 (8) DECREASE IN CASH (2) (4,000) Proof: Cash 31/12/2010 = 16,000 Cash 31/12/2011= 12,000 Decrease in cash = 4,000 (c ) Reconciliation of Net Cash Flow to Movement in Net Debt. (5) Decrease in cash (4,000) (2) Issue of Debentures (20,000) (1) Change in net debt (24,000) (1) Net Debt at 01/01/2011 (110,000-16,000) (94,000) (1) Net Debt at 31/12/2011 (130, ) (118,000) (100 Marks) Page 37 of 40

38 SECTION 3 8. Marginal Costing. (a) Contribution per unit (10) = Selling price per unit - variable cost per unit. (4) = Contribution per unit = (4) CPU = 15 (2) (b) Break-Even point in units and sales revenue. (15) Break-Even point in units = Fixed Costs (4) CPU = 45, = 3,000 units (3) (1) Break-Even Point in Sales Revenue = 3,000 x 25 = 75,000 (2) (4) (1) (d) The Margin of Safety in units and Sales Revenue. (15) Margin of safety in Units = Actual sales Break-Even Sales (4) = 5,500-3,000 (3) = 2,500 units (1) Margin of Safety in Sales revenue = 2500 units x 25 = 62,500 (7) Page 38 of 40

39 (e) Marginal Costing Statements. (20) 2,500 units 3,500 units 4,500 units Sales 62,500 (1) 87,500 (1) 112,500 (1) Less Variable Costs 25,000 (1) 35,000 (1) 45,000 (1) = Contribution 37,500 (1) 52,500 (1) 67,500 (1) Less Fixed Costs 45,000 (2) 45,000 (2) 45,000 (1) = Net Profit/Loss (7,500) (2) 7,500 (2) 22,500 (2) (f) Calculate the level of production and sales revenue that will yield a profit of 30,000 (20) = Target profit = Fixed Costs + target profit (6) CPU = 45,000 (2) + 30,000 (2) 15 (2) = 5,000 units (4) Sales Revenue = 5,000 units x 25 = 125,000 (4) NOTE: (i) Full marks awarded for correct answer even if no workings or wrong workings are shown. (ii) Figures in brackets show breakdown of marks if answer is incorrect. (80 Marks) Page 39 of 40

40 9. Budgeting. (a) Sales Budget (10) Green Brown Budgeted sales 1,500 (2) 1,100 (2) Expected Selling price 180 (2) 125 (2) Budgeted Sales 270,000 (1) 137,500 (1) (b) Production Budget (16) Green Brown Budget Sales 1,500 (2) 1,100 (2) Add Closing Stock 150 (3) 110 (3) Less Opening Stock (320) (3) (270) (3) Budgeted production 1,330 units 940 units (c) Materials Usage Budget Material A Material B (18) Green 1330 x 8 10,640 (4) 1330 x 12 15,960 (4) Brown 940 x 9 8,460 (4) 940 x 6 5,640 (4) 19,100 kg (1) 21,600 kg (1) (d) Materials Purchases Budget (16) Material A Material B Materials Usage 19,100 (2) 21,600 (2) Add Closing Stock 40 (2) 50 (2) Less Opening Stock (25) (2) (39) (2) Materials Purchased in kg 19,115 kg (2) 21,611kg (2) (e ) Labour Budget (20) Green Brown Budgeted production 1,330 (2) 940 (2) Labour Hrs. 5 (4) 8 (4) Budgeted labour Hrs. 6,650 hrs 7,520 hrs Rate per hour 14 (2) 14 (2) Labour Budget 93,100 (2) 105,280 (2) Total labour Cost: 198,380 (80 Marks) Page 40 of 40