IFA Paper 2 Accounting scheme November 2016 ICSA 2016 Page 1 of 11
Section A 1 A The goods are sent to the customer 1 2 Changes in cost of sales Changes in selling prices Reward other valid responses 2 3 150,000 150,000 + (205,500 + 61,000) x 100 36.00% 2 4 Control account 1 5 The use of Financial Reporting Standards Accept alternative wording accept FRS 1 6 Accrued expenses should be reported under the heading current liabilities. Reward other valid responses 1 7 Transfer to the revenue reserves Reward other valid responses 1 ICSA 2016 Page 2 of 11
8 Dr Profit and loss Cr Provision for depreciation Accept alternative answer for Dr: Depreciation expense 2 9 Award up to two marks for any two of the following: Statement of Financial Position Statement of Profit or Loss and other Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Reward other valid responses 2 10 Dr Stock Cr Trading Accept alternative answer: Dr Inventory Cr Cost of Sales 2 ICSA 2016 Page 3 of 11
Section B s 11 (i) Dr D Paulo 975 Cr B Paul 975 (ii) Dr Fixed asset 1,100 Cr Jurst Supplies 1,100 (iii) Dr Raiss & Co. 3,600 Cr Sales 3,600 For (ii) accept: Dr Office equipment 1,100 Total 6 12 A bad debt is a debt which a supplier will not be able to recover. For example a company that has gone into liquidation owing a supplier money. The debtor is specific and known to the supplier. A provision for doubtful debt is for a debt a supplier does not expect to collect. For example, retailers make an estimate at the end of the accounting period of the proportion of their debtors they think they may not be able to recover. The debtor is unknown and unspecific. Reward other valid responses Total 6 ICSA 2016 Page 4 of 11
13 Ratios do not explain changes shown in financial statements. A declining ratio is not synonymous with bad or poor management. There may be too much focus on a single ratio or group of ratios. Ratios are based upon past performance so not always helpful for future planning. Accounting policies can distort ratios. Ratios do not consider non-financial business factors. Allow up to a maximum of four marks if the answer is a list of points with no explanation. Allow marks for a range of points in list form with some explanation or for fewer points with relevant detailed explanation. Reward other valid responses Total 6 14 Year End Adjustment Impact upon profit and loss account Impact upon balance sheet Utilities overpayment of 1,500 Reduce the utilities expense by 1,500 Report the 1,500 as a prepayment under the current assets eting expenditure underpayment of 2,445 Increase the marketing expense by 2,445 Report the 2,445 as an accrual under the current liabilities Annual depreciation charge of 2,000 Add depreciation as an expense 2,000 Show the fixed asset at cost less the 2,000 Total 6 ICSA 2016 Page 5 of 11
15 Purchase Ledger Account Description Dr Cr Balance s Balance 1 October 2016 5,835 5,835 Payment to suppliers during October Purchases from suppliers in October 5,430 405 8,560 8,965 Discount received 995 7,970 Returns to suppliers in October Balance 31 October 2016 440 7,530 7,530 Full marks can be awarded for entries with dr/cr and balance all correct. Allow full marks if balance is not repeated in final line. s will be capped at 4 if any entries are transposed. Total 6 ICSA 2016 Page 6 of 11
Section C 16 Orders from non-business customers The document sent by a non-business purchaser to a supplier that details the goods/service the purchaser wishes to obtain from the supplier. The bookkeeper would be able to identify the actual quantity and monetary value of the T-shirt orders that were received in the period. This would be useful in the attempt to determine the level of sales for the period. Purchase order The document sent by a business purchaser to a supplier that details the goods/service the purchaser wishes to obtain from the supplier. The purchase order would provide the bookkeeper with the actual T-shirt orders and their respective price. This would enable the determination of the volume of T-shirts purchased. Then the volume of T-shirts purchased less the stock at the end of the period would help determine the cost of T-shirts sold. Supplier s invoice The document sent by a supplier to a buyer of the goods/services that initiates the payment from the buyer to the supplier. The invoices issued by the T-shirt seller would provide the basis for the sales in the period. The invoices would be compared to the sales order to ascertain whether the orders received had been invoiced for the period. Credit Notes A document sent from a supplier to a buyer for goods returned by the buyer. The credit note can be used in full or part against future purchases by the buyer. The bookkeeper would be able to use the credit notes to identify the sales returns and thus be able to have a basis for reporting of the value of sales made during the period. Delivery notes A document that a supplier may send with goods sent to a buyer, detailing the goods despatched. A buyer would use a delivery note to confirm contents of goods received from a supplier. The delivery note would confirm the goods supplied to the customers and they would also be a confirmation of the sales made in the period and thus support the sales invoices and sales orders received from customers. Bank statements The bank statements would provide the bookkeeper with an independent record of the money received and paid out by the T-shirt business owner. The bank statements in conjunction with the other source documents would enable the bookkeeper to produce a statement of the cash position of the business plus report more reliably on its trade receivables and trade payables balances at the end of the period. ICSA 2016 Page 7 of 11
Level Descriptor 0 No rewardable material. Level 1 1 5 A few key points describing how the source documents could be used to create a record are given, or one key point is explained in some detail. The answer is likely to be in the form of a list. The answer may be unbalanced, with explanation focussed on one document and limited explanation for others. Points made are superficial / generic and not applied or directly linked to the requirements of the question to explain how a range of documents could be used. Award up to a maximum of only 5 marks if the answer comprises a list of recalled knowledge on the topic and does not attempt to address the requirements of the question. Level 2 6 10 Some points regarding how the source documents could be used to create a record are given, or a few key points are explained in some detail. The answer may be unbalanced, with more emphasis on explaining some of the documents over others. Most points made are relevant to the requirements of the question but the link is not always clear in particular there may not be full explanation of how the documents would provide insight into what has happened in the business. Level 3 11 15 A range of points regarding how the source documents could be used to create a record are given, or a few key points are explained in depth. The answer is wellbalanced, with equal weight given to a range of documents. The majority of points made are relevant to the requirement of the question, providing clear explanation of how the documents could be used to provide insight into what has happened in the business. ICSA 2016 Page 8 of 11
17 Brenda Lucke T/A Lucke Graphic Designs Profit or Loss Account for the period ended 31 October 2016 Sales 389,108 Less sales returns 16,500 1 372,608 1 Less Cost of goods Opening stock 19,508 Add purchases 250,343 269,851 1 Less closing stock 24,843 1 Cost of sales 245,008 1 Gross Profit 127,600 1 Expenses Wages 45,280 Plus: Unpaid wages 2,243 47,523 2 Heating 1,258 PPS 2,975 Rent 28,000 Less: Prepaid rent 4,000 24,000 2 Depreciation Plant and machinery (4,292 2,818) x 20% 295 2 Bad debts 21,750 97,801 2 29,799 1 For plant and machinery, allow 1 mark for correct process even if the final answer is incorrect. ICSA 2016 Page 9 of 11
18 Current ratio 78,236 = 3.29:1 23,795 Collection of trade receivables 13,135 x365 319, 618 = 15 days Payment of trade payables 23,795 x 365 255.446 = 34 days [Note for information only working for trade payables: 319,618 64,172 = 255,446] Suggested indicative content for the analysis of ratios is shown below other valid responses will be rewarded. The level descriptors, also below, will be used to assess this part of the answer, up to 9 marks: Current Ratio Excessively high current ratio, almost double the industry standard. Blynde may be holding larger amounts of stock and cash balances than required. Excessive stock holdings may expose the company to higher storage and insurance costs if their goods are not fast moving. Collection of trade receivables The collection of trade receivables highlights a serious problem as Blynde is taking over 7 times as long to get paid than the industry standard. This may be a result of a greater proportion of credit sales. This also increases the risk of bad debts and may also explain the reason for the larger cash balances being held. Payment of trade payables The jewellery industry payment to trade creditors is less than half the of days taken by Blynde. This slow payment may arise from its slower collection of receivables. This may result in late payment interest charges as the payment period exceeds the standard 30 day credit terms and this may result in Blynde acquiring a bad name in the industry as slow and late payers. ICSA 2016 Page 10 of 11
Level Descriptor 0 No rewardable material. Level 1 1 3 A few key points regarding the three ratios are explained, or one key point is analysed in some detail. The answer is likely to be in the form of a list. The answer may be unbalanced, with analysis focussed on just one ratio rather than others. Points made are superficial / generic and not applied or directly linked to the requirements of the question to analyse what the ratios tell us about the company s performance. Award up to a maximum of only 5 marks if the answer comprises a list of recalled knowledge on the topic and does not attempt to address the requirements of the question. Level 2 4 6 Some points regarding the three ratios are analysed, or a few key points are analysed in some detail. The answer may be unbalanced, with more emphasis on analysis of some ratios than others. Most points made are relevant to the requirement of the question but the link is not always clear in particular there may not be clear analysis of what the ratios tell us about the business performance in relation to industry benchmarks. Level 3 7 9 A range of points regarding the three ratios are analysed, or a few key points are analysed in depth. The answer is well-balanced, with equal weight given to each of the three ratios. The majority of points made are relevant to the question, providing clear analysis of what the ratios suggest about the performance of the business in relation to industry benchmarks. ICSA 2016 Page 11 of 11