Accounting 9706/32 October/November 2024: question paper and mark scheme

Mark scheme

1(a)(i) Prepare the following for the year ended 30 September 2024: 6 the manufacturing account H plc Manufacturing account for the year ended 30 September 2024 $ $ Raw materials at 1 October 2023 23 000 Purchases 141 000 Carriage inwards 4 900 (1) 145 900 168 900 Raw materials at 30 September 2024 (21 000) Cost of raw materials consumed 147 900 (1)OF Direct labour 180 900 Prime cost 328 800 (1)OF Factory overheads 191 100 (1) Cost of production 519 900 Factory profit 98 781 (1)OF Transfer price of manufactured goods 618 681 (1)OF 1(a)(ii) Prepare the following for the year ended 30 September 2024: 9 the statement of profit or loss. Statement of profit or loss for the year ended 30 September 2024 $ $ Revenue 866 000 Inventory of finished goods at 1 October 2023 28 080 Transfer price of manufactured goods 618 681 646 761 Inventory of finished goods at 30 September 2024 (17 850) (1) Cost of sales 628 911 (1)OF Gross profit 237 089 (1)OF Factory profit 98 781 (1)OF Decrease in provision for unrealised profit W1 1 230 (1) Administrative expenses W2 120 300 (1) Distribution costs W3 99 360 (1) 219 660 Profit from operations 117 440 Finance costs 16 000 (1) Profit for the year 101 440 (1)OF W1 4 080 – (0.19 × 15 000) = $1 230 W2 109 800 + 10 500 = 120 300 W3 87 200 + 12 160 = 99 360 1(b) Suggest why the depreciation correctly charged on factory machinery is only $23 600 when the depreciation is 2 calculated at 10% per annum on cost. Some machinery may have been acquired during the year (1) and depreciation may be based on a time basis / not provided in the year of acquisition (1) 1(c) Calculate, to two decimal places, the rate of factory profit which the company will apply in the year ending 30 3 September 2025. The transfer price is to remain equivalent to the buy-in price. Assume that production volumes and production costs, other than direct labour, will be unchanged. New buy-in price (new transfer price) = 618 681 × 110% = $680 549 (1)OF New cost of production = 519 900 + (180 900 × 20%) = $556 080 (1)OF New rate of profit = (680 549 – 556 080)/556 080 × 100 = 22.38% (1)OF 1(d) Advise the directors whether or not depreciation of premises should be included when calculating factory profit. 5 Justify your answer. Including (max 2) The depreciation charge would increase factory overheads / cost of production (1). Therefore, factory profit would increase (1). If the factory profit is used to set staff bonuses it might mean that they are more realistic (1). It would match the cost of using the premises with the revenue earned from their use (1). It would comply with IAS 16 (1). Not including (max 2) An increase in factory profit does not increase the overall profit of the business (1). If the rate of factory profit is based on the buy-in price, then the increase in factory overheads would be matched with a decrease in the rate of factory profit (1). It would involve the value of the premises being split between land and buildings (1). The life of the buildings would be an estimate (1). Decision supported with a comment (1) Accept other valid responses.

Mark scheme

2(a) Calculate the correct division of profit between the two periods. Assume that revenue and other expenses accrued 3 evenly throughout the year. Adjustments = 13 000 + 5 000 = $18 000 (1) January to June (124 000 + 18 000)/2 = $71 000 (1) OF July to December (124 000 – 18 000)/2 = $53 000 (1) OF 2(b)(i) Prepare: 4 corrected capital accounts for the year Capital accounts Amina Belinda Nigel Amina Belinda Nigel $ $ $ $ $ $ Goodwill 38 000 38 000 38 000 Balance b/d 60 000 60 000 } Bank 80 000}(1) Balance c/d 79 000(1) 79 000(1) 42 000(1) Goodwill 57 000 57 000 117 000 117 000 80 000 117 000 117 000 80 000 2(b)(ii) Prepare: 13 corrected current accounts for the year. Current accounts Amina Belinda Nigel Amina Belinda Nigel $ $ $ $ $ $ Balance 1 100 Balance b/d 4 900 b/d Drawings 38 500 47 100 18 20 Interest on capital 1 500 (1) 1 500 (1) 0 (first period) Interest on capital 1 975 1 975 1 050 (second period) (1)OF (1)OF (1)OF Share of profit 34 000 34 000 (first period) (1)OF (1)OF Share of profit 16 000 16 000 16 000 (second period) (1)OF (1)OF (1)OF Balance 19 87 5 275 Balance c/d 1 150 c/d 5 (1)OF (1)OF (1)O F 58 375 53 475 18 20 58 375 53 475 18 200 0 2(c) Advise the partners whether or not they should appoint a new accountant. Justify your answer. 5 Pyotr will be very familiar with the workings and accounts of the partnership (1). Pyotr may have a good working relationship with the partners (1). Pyotr may work for the partners at a very competitive price / a new accountant may increase costs (1). If Pyotr made these errors inadvertently then he has infringed the fundamental principle of professional competence and due care (1). If he made these errors deliberately to benefit his relation then he has infringed the principles of integrity (independence) / professional behaviour (1). He may have a conflict of interest / be biased (1). Max (4) for comments Decision supported with a comment (1) Accept other valid responses.

Mark scheme

3(a) Calculate for X plc the required year-end balances and the required ratios to two decimal places for each year 2022 14 and 2023. 2022 2023 ordinary share capital ($) 300 000 390 000 (1) both share premium ($) 60 000 (1) 0 (1) retained earnings ($) 187 500 (1) 208 200 (1)OF non-current liabilities ($) 205 000 (1) 395 000 (1)OF gearing ratio 27.24% (1)OF 39.77% (1)OF earnings per share ($) 0.60 (1)OF 0.66 (1)OF dividend per share ($) 0.45 (1)OF 0.40 (1)OF price earnings ratio 4 5 (1) OF both 3(a) workings 2022 2023 ordinary share 100 000 + 50 000 = 150 000 150 000 × 13/10 = 195 000 capital 150 000 × 2 = $300 000 195 000 × 2 = $390 000 share premium 20 000 + [140 000 – (50 000 × 60 000 – 60 000 = $0 2) ] = $60 000 retained earnings 165 000 + 90 000 – 67 500 = 187 500 + 128 700 – 78 000 – $187 500 30 000 = $208 200 non-current liabilities 215 000 – 10 000 (transfer to 205 000 + 190 000 = $395 000 CL) = $205 000 gearing ratio 205 000/(300 000 + 60 000 + 395 000/(390 000 + 208 200 + 187 500 + 205 000) 395 000) earnings per share 90 000/150 000 128 700/195 000 dividend per share 67 500/150 000 78 000/195 000 price earnings ratio 2.40/0.60 3.30/0.66 3(b) Discuss the performance of Vinisha’s investment in relation to each of her three objectives. 8 Objective 1 – risk (max 3) The company’s gearing ratio was 35.83% (1) in 2021. This fell in 2022 but rose in 2023, and was very close to her target limit in 2023 (1). However, the company would still be considered to have low gearing as it is below 50% / a low risk company (1). Objective 2 – dividends (max 3) When Vinisha invested she wanted to receive dividend income of $1600 / $0.32 per share (1). Vinisha received dividends of $2 250 in 2022 and $2 600 in 2023 (1). In both years this was above her target income (1). The dividend per share fell between 2022 and 2023 but because of the bonus issue the number of shares she held was increased which more than compensated (1). Objective 3 – profit on sale (max 3) Vinisha paid $3.20 per share in 2021 (1). If she sold her shares at the end of 2023 she would have made a profit (1). The share price rose despite the bonus issue (1). The PE ratio is increasing which indicates that confidence in the performance of the company is increasing (1) which indicates that the share price may well increase further (1). Overall, Max 8 marks. OF basis Accept other valid responses. 3(c) Suggest another solvency ratio which might be affected as the gearing ratio changes. Give a reason for your 3 answer. Interest cover (1) The investment of the borrowed funds should increase profits (1) and increased interest will be payable (1). Accept other valid responses.