MetadataPastPaper.sampleTitle

1. Calculate Ben's share of the revaluation surplus: \( \$20,000 \times \frac{2}{5} = \$8,000 \). Capital after revaluation = \( \$40,000 + \$8,000 = \$48,000 \). 2. Calculate Ben's goodwill adjustment: Goodwill to be written off under the new ratio \( (5:3:2) \) results in a debit of \( \$30,000 \times \frac{3}{10} = \$9,000 \). Goodwill credited to old partners in the old ratio \( (3:2) \) results in a credit of \( \$30,000 \times \frac{2}{5} = \$12,000 \). The net goodwill adjustment for Ben is \( \$12,000 - \$9,000 = +\$3,000 \). 3. Calculate Ben's final capital balance: \( \$48,000 + \$3,000 = \$51,000 \).

1 mark for the correct option. Method breakdown: 1 method mark for calculating the revaluation share of \( \$8,000 \), 1 method mark for calculating the net credit goodwill adjustment of \( \$3,000 \), and 1 accuracy mark for the final balance of \( \$51,000 \).

To maximize profit with a limiting factor, rank the products based on contribution per unit of limiting factor. 1. Unit contribution: X = \( \$50 - \$30 = \$20 \); Y = \( \$60 - \$36 = \$24 \); Z = \( \$40 - \$22 = \$18 \). 2. Contribution per labor hour: X = \( \frac{\$20}{2} = \$10 \); Y = \( \frac{\$24}{3} = \$8 \); Z = \( \frac{\$18}{1.5} = \$12 \). 3. Ranking from highest to lowest: Z (\( \$12 \)), X (\( \$10 \)), Y (\( \$8 \)). Therefore, the production order is Z, X, Y.

1 mark for the correct option. Method breakdown: 1 method mark for computing unit contribution of each product, 1 method mark for computing contribution per hour, and 1 accuracy mark for ordering correctly.

1. Original shares = \( \frac{\$200,000}{\$0.50} = 400,000 \) shares. 2. Rights issue: \( \frac{400,000}{4} = 100,000 \) new shares. Premium per share = \( \$1.20 - \$0.50 = \$0.70 \). Premium increase = \( 100,000 \times \$0.70 = \$70,000 \). Share premium balance = \( \$80,000 + \$70,000 = \$150,000 \). Total shares after rights issue = \( 500,000 \) shares. 3. Bonus issue: \( \frac{500,000}{10} = 50,000 \) bonus shares. Funded from share premium = \( 50,000 \times \$0.50 = \$25,000 \). 4. Final share premium balance = \( \$150,000 - \$25,000 = \$125,000 \).

1 mark for the correct option. Method breakdown: 1 method mark for rights premium of \( \$70,000 \), 1 method mark for total shares of \( 500,000 \), and 1 accuracy mark for final balance of \( \$125,000 \).

1. Corrected cash book balance: Draft balance (credit/overdraft) of \( -\$1,240 \) - Bank charges of \( \$85 \) - Dishonoured cheque of \( \$310 \) = \( -\$1,635 \) (overdrawn). 2. Reconciliation to bank statement: Let \( B \) be the bank statement balance. \( B + \text{Uncredited deposits} - \text{Unpresented cheques} = \text{Corrected cash book balance} \). Therefore, \( B + \$980 - \$1,450 = -\$1,635 \) which gives \( B - \$470 = -\$1,635 \), so \( B = -\$1,165 \) (overdrawn).

1 mark for the correct option. Method breakdown: 1 method mark for correct cash book balance of \( -\$1,635 \), 1 method mark for correct algebraic formula setting, and 1 accuracy mark for \( \$1,165 \) overdrawn.

Only errors affecting the control account are corrected within it. Error 2 (discount of \( \$80 \) omitted from the control account) requires a credit entry to the control account. Corrected Control Account Balance = \( \$42,500 - \$80 = \$42,420 \). Error 1, Error 3, and Error 4 only affect individual customer balances and thus the schedule of trade receivables (which reconciles: \( \$42,780 - \$90 - \$120 - \$150 = \$42,420 \)).

1 mark for the correct option. Method breakdown: 1 method mark for identifying that only the discount allowed error of \( \$80 \) affects the control account balance, and 1 accuracy mark for obtaining \( \$42,420 \).

Data integrity involves ensuring the accuracy, completeness, and validity of input data. Validation checks, such as limit checks, ensure erroneous data is rejected at input, safeguarding integrity. Passwords, encryption, and firewalls are controls designed to maintain confidentiality by restricting unauthorized access.

1 mark for the correct option. Method breakdown: 1 method mark for identifying validation controls as integrity safeguards, and 1 accuracy mark for distinguishing them from security/access controls.

1. Calculate Predetermined Overhead Absorption Rate (OAR) = \( \frac{\$180,000}{15,000} = \$12 \) per direct labor hour. 2. Calculate Absorbed Overheads = Actual hours \( \times \) OAR = \( 15,500 \times \$12 = \$186,000 \). 3. Compare with actual overheads: Absorbed (\( \$186,000 \)) - Actual (\( \$192,000 \)) = \( -\$6,000 \). Since actual overheads are higher, the overheads are under-absorbed by \( \$6,000 \).

1 mark for the correct option. Method breakdown: 1 method mark for calculating the OAR of \( \$12 \), 1 method mark for calculating absorbed overheads of \( \$186,000 \), and 1 accuracy mark for determining the under-absorption of \( \$6,000 \).

Let \( P \) be the selling price per unit. The required total contribution is \( \text{Fixed Costs} + \text{Target Profit} = \$45,000 + \$15,000 = \$60,000 \). The required contribution per unit is \( \frac{\$60,000}{5,000} = \$12 \). Since \( \text{Contribution per unit} = P - \text{Variable Cost per unit} \), we have \( \$12 = P - \$18 \), which gives \( P = \$30 \).

1 mark for the correct option. Method breakdown: 1 method mark for calculating total required contribution of \( \$60,000 \), 1 method mark for required unit contribution of \( \$12 \), and 1 accuracy mark for calculating the selling price of \( \$30 \).

Current Contribution per unit = $50 - $30 = $20. Current Profit = (6,000 units \times $20) - $80,000 = $40,000. New Selling Price = $50 \times 0.90 = $45. New Contribution per unit = $45 - $30 = $15. Target Contribution required = Fixed Costs + Target Profit = $80,000 + $40,000 = $120,000. New Sales Volume required = $120,000 / $15 = 8,000 units.

1 mark for the correct calculation of new sales volume of 8,000 units.

Draft Sales Ledger Control Account balance: $45,600. Adjustment 1: Sales day book overstatement ($2,100 - $1,200) = -$900. Adjustment 2: Customer individual account error does not affect the Control Account (as the cash book total is correct) = $0. Adjustment 3: Omission of discount allowed from cash book means control account was not credited = -$150. Corrected balance = $45,600 - $900 - $150 = $44,550.

1 mark for calculating the corrected balance of $44,550.

Goodwill share before admission (3:2): A gets $30,000, B gets $20,000 (credit). Goodwill share after admission (5:3:2): A is debited $25,000, B is debited $15,000, C is debited $10,000. Net adjustment for B: $20,000 Cr - $15,000 Dr = $5,000 Credit.

1 mark for the correct net adjustment of $5,000 credit to Partner B's capital account.

Existing number of shares = $500,000 / $0.50 = 1,000,000 shares. Bonus shares to be issued = 1,000,000 \times 1/4 = 250,000 shares. Nominal value of bonus shares = 250,000 \times $0.50 = $125,000. New Share Capital = $500,000 + $125,000 = $625,000. The Share Premium account is reduced by the value of the bonus issue: $200,000 - $125,000 = $75,000.

1 mark for correct balances: Share Capital $625,000 and Share Premium $75,000.

Predetermined Overhead Absorption Rate (OAR) = $180,000 / 45,000 hours = $4.00 per direct labor hour. Overheads absorbed = 46,500 actual hours \times $4.00 = $186,000. Actual overheads incurred = $192,000. Since actual overheads exceed absorbed overheads, there is an under-absorption of $192,000 - $186,000 = $6,000.

1 mark for identifying the correct amount of $6,000 under-absorbed.

Accumulated depreciation up to 31 December 2022 (2 years) = $200,000 \times 10\% \times 2 = $40,000. Carrying value on 1 January 2023 = $160,000. Revalued amount = $240,000. Remaining useful life = 8 years. Depreciation for 2023 = $240,000 / 8 = $30,000. Carrying value on 31 December 2023 (before sale) = $240,000 - $30,000 = $210,000. Sale proceeds = $220,000. Profit on disposal = $220,000 - $210,000 = $10,000 profit.

1 mark for the correct calculation of $10,000 profit on disposal.

Capital expenditure includes all costs incurred to bring a non-current asset to its working condition for its intended use. This includes: Purchase price ($15,000) + Delivery charge ($400) + Repairs to make it roadworthy ($1,200) = $16,600. Annual road tax and insurance ($800) are revenue expenditure.

1 mark for identifying and adding capitalisable items to get $16,600.

Hacking and cyber-security breaches are risks unique to computerised systems. Manual systems are vulnerable to physical theft, human calculation errors, and omission of cash receipts.

1 mark for identifying hacking as a security risk specific to computerised accounting systems.

First, determine the contribution per unit:

\(\text{Contribution per unit} = \text{Selling price} - \text{Variable cost} = \$40 - \$25 = \$15\)

Now, test the break-even volume under both fixed cost conditions:
1. If fixed costs are $84,000 (volume \le 5,000 units):
\(\text{Break-even units} = \frac{\$84,000}{\$15} = 5,600\) units.
Since 5,600 units is greater than the limit of 5,000 units, the fixed costs would increase to $99,000, meaning this is not a valid break-even point.

2. If fixed costs are $99,000 (volume > 5,000 units):
\(\text{Break-even units} = \frac{\$99,000}{\$15} = 6,600\) units.
Since 6,600 units is greater than 5,000 units, the fixed costs are indeed $99,000, making this the correct break-even point.

1 mark for the correct answer of 6,600 units.

To record the goodwill adjustment without opening a goodwill account:
1. Credit the existing partners' capital accounts in their old profit sharing ratio (3:2):
- A: \(\$50,000 \times \frac{3}{5} = +\$30,000\)
- B: \(\$50,000 \times \frac{2}{5} = +\$20,000\)

2. Debit all partners' capital accounts in the new profit sharing ratio (5:3:2):
- A: \(\$50,000 \times \frac{5}{10} = -\$25,000\)
- B: \(\$50,000 \times \frac{3}{10} = -\$15,000\)
- C: \(\$50,000 \times \frac{2}{10} = -\$10,000\)

3. Calculate A's updated capital account balance:
- \(\text{Opening balance} = \$60,000\)
- \(\text{Add: Share of goodwill (old ratio)} = +\$30,000\)
- \(\text{Less: Write-off of goodwill (new ratio)} = -\$25,000\)
- \(\text{Closing balance} = \$60,000 + \$30,000 - \$25,000 = \$65,000\)

1 mark for the correct answer of $65,000.

1. Calculate the number of original shares:
\(\text{Original shares} = \frac{\$200,000}{\$0.50} = 400,000\) shares.

2. Rights issue (1 for 4):
- \(\text{Number of rights shares} = \frac{400,000}{4} = 100,000\) shares.
- \(\text{Increase in Share Capital} = 100,000 \times \$0.50 = \$50,000\).
- \(\text{Increase in Share Premium} = 100,000 \times (\$1.20 - \$0.50) = 100,000 \times \$0.70 = \$70,000\).
- \(\text{Post-rights Share Capital} = \$200,000 + \$50,000 = \$250,000\).
- \(\text{Post-rights Share Premium} = \$80,000 + \$70,000 = \$150,000\).
- \(\text{Post-rights shares in issue} = 400,000 + 100,000 = 500,000\) shares.

3. Bonus issue (1 for 5):
- \(\text{Number of bonus shares} = \frac{500,000}{5} = 100,000\) shares.
- \(\text{Value of bonus shares (at par)} = 100,000 \times \$0.50 = \$50,000\).
- This value is transferred from the share premium account to ordinary share capital.
- \(\text{Final Share Capital} = \$250,000 + \$50,000 = \$300,000\).
- \(\text{Final Share Premium} = \$150,000 - \$50,000 = \$100,000\).

1 mark for the correct answer showing Share Capital of $300,000 and Share Premium of $100,000.

1. Update the cash book balance first:
- \(\text{Unadjusted cash book balance} = \$8,400\) (debit)
- Less: Bank charges = \(-\$150\)
- Less: Dishonoured cheque = \(-\$1,200\)
- \(\text{Adjusted cash book balance} = \$8,400 - \$150 - \$1,200 = \$7,050\) (debit)

2. Reconcile to find the bank statement balance (\(X\)):
\(\text{Adjusted Cash Book Balance} = \text{Bank Statement Balance} + \text{Uncredited Deposits} - \text{Unpresented Cheques}\)
\(\$7,050 = X + \$3,100 - \$2,300\)
\(\$7,050 = X + \$800\)
\(X = \$7,050 - \$800 = \$6,250\)

Since the adjusted cash book is a debit (positive asset) balance, the bank statement balance of $6,250 must be a credit (favourable) balance.

1 mark for the correct bank statement balance of $6,250 credit.

Let's analyze the impact of each error on the original trial balance:
1. Credit sale of $450 to X:
- Sales account credited with $450 (correct).
- X's account debited with $540 (overstated by $90).
- This results in the trial balance debit total being $90 too high.

2. Returns outwards of $200:
- Supplier's account debited with $200 (correct).
- Returns inwards account debited with $200 (incorrect debit; should be a credit to returns outwards of $200).
- This results in two debits of $200 and no credits, making the trial balance debit total $400 too high.

Total effect: The debit total of the trial balance was overstated by $90 + $400 = $490. To make the trial balance agree originally, a credit entry of $490 in the suspense account was required. Hence, the opening balance of the suspense account was $490 credit.

1 mark for the correct answer of $490 credit.

Computerised systems use relational databases and integrated modules. When a transaction is entered (e.g., a credit sale), the system automatically posts the dual entry to both the trade receivables ledger and the general ledger simultaneously, saving time and reducing mathematical processing errors. It does not, however, eliminate input errors (garbage in, garbage out), nor does it remove the need for reconciliations or knowledge of accounting principles.

1 mark for selecting the correct benefit of automatic and simultaneous updates.

1. Calculate the predetermined overhead absorption rate (OAR):
\(\text{OAR} = \frac{\text{Budgeted Overheads}}{\text{Budgeted Direct Labour Hours}} = \frac{\$120,000}{15,000} = \$8.00\) per direct labour hour.

2. Calculate the overheads absorbed:
\(\text{Overheads Absorbed} = \text{Actual Hours worked} \times \text{OAR} = 16,200 \times \$8.00 = \$129,600\).

3. Determine the over or under absorption:
\(\text{Over/Under Absorption} = \text{Overheads Absorbed} - \text{Actual Overheads Incurred} = \$129,600 - \$126,000 = \$3,600\) (over-absorbed, because absorbed overheads exceed actual overheads incurred).

1 mark for the correct calculation showing $3,600 over-absorbed.

1. Calculate depreciation and carrying value (CV) over the periods:
- Year 2021 (Full year depreciation): \(20\% \times \$40,000 = \$8,000\).
- CV at 31 December 2021: \(\$40,000 - \$8,000 = \$32,000\).
- Year 2022 (Full year depreciation): \(20\% \times \$32,000 = \$6,400\).
- CV at 31 December 2022: \(\$32,000 - \$6,400 = \$25,600\).
- Year 2023 (Year of disposal): No depreciation is charged in accordance with the business policy.
- CV at disposal (30 September 2023): \(\$25,600\).

2. Calculate the profit or loss on disposal:
- \(\text{Profit/Loss on disposal} = \text{Disposal proceeds} - \text{Carrying value} = \$22,000 - \$25,600 = -\$3,600\) (Loss of $3,600).

1 mark for the correct calculation of $3,600 loss on disposal.

Y's opening capital balance is $30,000. Goodwill of $50,000 is first credited to the old partners' capital accounts in their old profit-sharing ratio (3:2), meaning X is credited with $30,000 and Y is credited with $20,000. Goodwill is then written off by debiting the new partners' capital accounts in the new profit-sharing ratio (5:3:2), meaning X is debited with $25,000, Y is debited with $15,000, and Z is debited with $10,000. Therefore, Y's closing capital balance = $30,000 + $20,000 - $15,000 = $35,000.

1 mark for the correct calculation of the final capital balance of Y.

New Variable Cost per unit = $25 \times (1 - 0.20) = $20. New Contribution per unit = $40 - $20 = $20. New Fixed Costs = $90,000 + $18,000 = $108,000. New Break-Even Point = New Fixed Costs / New Contribution per unit = $108,000 / $20 = 5,400 units.

1 mark for calculating the correct break-even point of 5,400 units.

First, adjust the cash book balance: $4,850 (debit) - $120 (bank charges) - $450 (dishonoured cheque) = $4,280 (adjusted debit balance). Next, perform the bank reconciliation to find the bank statement balance (X): Bank Statement Balance (X) + Uncleared Deposits ($1,650) - Unpresented Cheques ($1,100) - Bank Error ($80) = Adjusted Cash Book Balance ($4,280). X + $470 = $4,280, so X = $3,810. Since the adjusted cash book is a debit (positive asset) balance, the bank statement balance must be a credit (positive) balance of $3,810.

1 mark for the correct bank statement balance of $3,810 credit.

Number of shares at 1 January 2023 = $300,000 / $0.50 = 600,000 shares. Interim dividend paid = 600,000 \times $0.05 = $30,000. Bonus shares issued = 600,000 / 6 = 100,000 shares. Nominal value of bonus issue = 100,000 \times $0.50 = $50,000. This is funded first by utilizing the entire Share Premium balance of $35,000, leaving $15,000 ($50,000 - $35,000) to be funded from Retained Earnings. Retained earnings balance at 31 December 2023 = $140,000 (opening) + $95,000 (profit) - $30,000 (dividend) - $20,000 (general reserve) - $15,000 (bonus issue) = $170,000.

1 mark for calculating the correct closing balance of retained earnings of $170,000.

Annual depreciation for 2019 to 2021 (3 years) = $500,000 / 25 = $20,000 per year. Accumulated depreciation on 31 December 2021 = $20,000 \times 3 = $60,000. Carrying amount on 1 January 2022 before revaluation = $500,000 - $60,000 = $440,000. Remaining useful life = 22 years (25 - 3). New annual depreciation for 2022 and 2023 = $550,000 / 22 = $25,000 per year. Carrying amount on 31 December 2023 = $550,000 - ($25,000 \times 2) = $500,000. Profit on disposal = Disposal proceeds - Carrying amount = $580,000 - $500,000 = $80,000.

1 mark for the correct calculation of profit on disposal of $80,000.

Predetermined Overhead Absorption Rate (OAR) = Budgeted Overheads / Budgeted Hours = $240,000 / 40,000 = $6.00 per direct labour hour. Overheads Absorbed = Actual direct labour hours \times OAR = 41,500 \times $6.00 = $249,000. Actual Overheads incurred = $258,000. Under-absorbed overheads = Actual Overheads - Absorbed Overheads = $258,000 - $249,000 = $9,000 under-absorbed.

1 mark for calculating the correct under-absorbed overheads of $9,000.

### **(a) Calculations**

#### **(i) Total Sales**
$$\begin{array}{lr}
\text{Trade Receivables Control Account:} & \text{\$} \\
\hline
\text{Closing Balance (unadjusted)} & 14,100 \\
\text{Less: Bad debts written off} & (800) \\
\hline
\text{Corrected Closing Balance (31 Dec 2023)} & 13,300 \\
\text{Add: Receipts from credit customers} & 94,800 \\
\text{Add: Bad debts written off} & 800 \\
\text{Less: Opening Balance (1 Jan 2023)} & (12,400) \\
\hline
\text{Credit Sales} & \mathbf{96,500} \\
\text{Add: Cash sales} & 15,300 \\
\hline
\text{\textbf{Total Sales}} & \mathbf{111,800} \\
\end{array}$$

#### **(ii) Total Purchases**
$$\begin{array}{lr}
\text{Trade Payables Control Account:} & \text{\$} \\
\hline
\text{Closing Balance (31 Dec 2023)} & 8,900 \\
\text{Add: Payments to trade payables} & 52,100 \\
\text{Less: Opening Balance (1 Jan 2023)} & (9,600) \\
\hline
\text{\textbf{Total Purchases (Credit)}} & \mathbf{51,400} \\
\end{array}$$

---

### **(b) Income Statement and Appropriation Account**

$$\begin{array}{lrr}
\text{\textbf{Alan and Becky}} & & \\
\text{\textbf{Income Statement and Appropriation Account for the year ended 31 Dec 2023}} & & \\
\hline
& \text{\$} & \text{\$} \\
\text{Revenue (Sales)} & & 111,800 \\
\text{Cost of Sales:} & & \\
\quad \text{Opening inventory} & 18,200 & \\
\quad \text{Purchases (51,400 - 1,500 goods drawings)} & 49,900 & \\
\hline
& 68,100 & \\
\quad \text{Less: Closing inventory} & (21,400) & (46,700) \\
\hline
\text{\textbf{Gross Profit}} & & \mathbf{65,100} \\
\text{Less: Expenses} & & \\
\quad \text{Rent (12,000 + 1,200 - 1,500)} & 11,700 & \\
\quad \text{Electricity (4,800 - 400 + 600)} & 5,000 & \\
\quad \text{Sundry expenses} & 6,300 & \\
\quad \text{Bad debt written off} & 800 & \\
\quad \text{Depreciation: Equipment (45,000 + 10,000) \times 15\%} & 8,250 & (32,050) \\
\hline
\text{\textbf{Profit for the year}} & & \mathbf{33,050} \\
\hline \\
\text{\textbf{Appropriation Account:}} & & \\
\text{Profit for the year} & & 33,050 \\
\text{Less: Interest on Capital} & & \\
\quad \text{Alan (5\% \times 80,000)} & 4,000 & \\
\quad \text{Becky (5\% \times 50,000)} & 2,500 & (6,500) \\
\text{Less: Partner Salary (Becky)} & & (8,000) \\
\hline
\text{\textbf{Residual Profit for distribution}} & & \mathbf{18,550} \\
\hline
\text{Share of Profit:} & & \\
\quad \text{Alan (3/5)} & 11,130 & \\
\quad \text{Becky (2/5)} & 7,420 & (18,550) \\
\hline
\end{array}$$

---

### **(c) Partners' Current Accounts**

$$\begin{array}{lrr|lrr}
\text{\textbf{Dr}} & \text{\textbf{Alan (\$)}} & \text{\textbf{Becky (\$)}} & \text{\textbf{Cr}} & \text{\textbf{Alan (\$)}} & \text{\textbf{Becky (\$)}} \\
\hline
\text{1 Jan Balance b/d} & - & 800 & \text{1 Jan Balance b/d} & 1,400 & - \\
\text{Cash Drawings} & 18,000 & 12,000 & \text{Interest on Capital} & 4,000 & 2,500 \\
\text{Goods Drawings} & - & 1,500 & \text{Partner Salary} & - & 8,000 \\
\text{31 Dec Balance c/d} & - & 3,620 & \text{Share of Profit} & 11,130 & 7,420 \\
& & & \text{31 Dec Balance c/d} & 1,470 & - \\
\hline
& \mathbf{18,000} & \mathbf{17,920} & & \mathbf{18,000} & \mathbf{17,920} \\
\hline
\text{1 Jan 2024 Balance b/d} & 1,470 & - & \text{1 Jan 2024 Balance b/d} & - & 3,620 \\
\end{array}$$

---

### **(d) Advantages of separate capital and current accounts**
1. It helps to keep the original capital investment intact/fixed, showing the long-term commitment of each partner.
2. It easily identifies if a partner is making excessive drawings in relation to their profit share (e.g., if the current account goes into debit).
3. It facilitates the calculation of interest on capital based on a stable/fixed amount.
4. It clearly separates the permanent capital investment from the day-to-day profit appropriations and drawings.

### **Marking Scheme Breakdown**

**Part (a) [Total: 6 Marks]**
- **(i) Total Sales:**
- Correct adjusted Closing Trade Receivables ($13,300) [1]
- Credit Sales ($96,500) [1]
- Cash Sales added ($15,300) [1]
- Total Sales of $111,800 [1 (accuracy mark)]
- **(ii) Total Purchases:**
- Credit Purchases calculation ($52,100 + $8,900 - $9,600) [1 (method)]
- Correct Total Purchases of $51,400 [1 (accuracy)]

**Part (b) [Total: 14 Marks]**
- Revenue / Sales: $111,800 [1 (of)] *(from part a)*
- Purchases adjusted for goods drawings ($49,900) [1]
- Cost of Sales calculation ($46,700) [1 (method)]
- Gross Profit of $65,100 [1 (accuracy)]
- Rent expense adjusted ($11,700) [1]
- Electricity expense adjusted ($5,000) [1]
- Bad debt written off ($800) [1]
- Depreciation expense calculation ($8,250) [1]
- Correct Profit for the year of $33,050 [1 (of)]
- Interest on Capital: Alan $4,000 and Becky $2,500 [1]
- Becky's Salary: $8,000 [1]
- Correct Residual Profit ($18,550) [1 (of)]
- Profit Share: Alan ($11,130) and Becky ($7,420) [1 (of)]

**Part (c) [Total: 6 Marks]**
- Correct opening balances (Alan Cr $1,400; Becky Dr $800) [1]
- Interest on Capital credited to partners [1 (of)]
- Becky's Salary and both partners' profit share credited [1 (of)]
- Cash drawings debited (Alan $18,000; Becky $12,000) [1]
- Goods drawings debited to Becky ($1,500) [1]
- Correct closing balances brought down (Alan Dr $1,470; Becky Cr $3,620) [1 (of)]

**Part (d) [Total: 4 Marks]**
- State any 4 valid advantages (1 mark per point up to max 4):
- Keeps capital fixed/intact [1]
- Helps prevent partners from withdrawing more than profits earned [1]
- Easier to monitor if drawings are excessive [1]
- Assists in the accurate calculation of interest on capital [1]

### (a) Journal Entries

1.
- Debit: A. Wright $1,200
- Debit: Suspense Account $900
- Credit: A. Weight $2,100
*(To correct credit sale recorded in wrong account at incorrect amount)*

2.
- Debit: Office Equipment $3,500
- Credit: Repairs and Maintenance $3,500
*(To correct error of principle where capital expenditure was treated as revenue expenditure)*

- Debit: Depreciation Expense (Office Equipment) $700
- Credit: Provision for Depreciation (Office Equipment) $700
*(To charge depreciation for the year: $3,500 \times 20\% = $700)*

3.
- Debit: Rent Expense $560
- Debit: Suspense Account $90
- Credit: Rent Income (Received) $650
*(To correct rent received incorrectly credited to rent expense account)*

4.
- Debit: Purchases $400
- Credit: Suspense Account $400
*(To correct undercast of the purchase day book)*

5.
- Debit: Cash / Bank $980
- Credit: Trade Receivables $980
*(To correct cash sales incorrectly entered in sales journal and posted to receivables)*

---

### (b) Suspense Account

$$
\begin{array}{lr|lr}
\textbf{Debit} & \boldsymbol{\$} & \textbf{Credit} & \boldsymbol{\$}\\
\hline
\text{A. Weight/A. Wright (Error 1)} & 900 & \text{Opening balance (difference)} & 590 \\
\text{Rent correction (Error 3)} & 90 & \text{Purchases undercast (Error 4)} & 400 \\
\hline
\textbf{Total} & \mathbf{990} & \textbf{Total} & \mathbf{990} \\
\hline
\end{array}
$$

*(Note: The opening balance was a credit balance of $590.)*

---

### (c) Statement of Corrected Profit

$$
\begin{array}{lrr}
\text{Draft Profit for the year} & & 48,600 \\
\mathbf{\text{Add:}} & & \\
\text{Correction of Repairs and Maintenance (Error 2)} & 3,500 & \\
\text{Correction of Rent Received (Error 3)} & 90 & 3,590 \\
\hline
& & 52,190 \\
\mathbf{\text{Less:}} & & \\
\text{Depreciation on Office Equipment (Error 2)} & (700) & \\
\text{Undercast of Purchases (Error 4)} & (400) & (1,100) \\
\hline
\textbf{Corrected Profit for the Year} & & \mathbf{51,090} \\
\hline
\end{array}
$$

*(Note: Error 1 and Error 5 do not affect profit.)*

---

### (d) Types of errors that do not affect the agreement of a trial balance (any two):
1. Error of Omission (complete transaction omitted from books)
2. Error of Commission (correct amount debited/credited to wrong person's account within same class)
3. Error of Principle (entry made in wrong class of account, e.g. capital asset as expense)
4. Error of Original Entry (incorrect figure entered initially in both journals)
5. Compensating Error (errors on debit and credit sides cancel each other out)
6. Reversal of Entries (debit and credit entries are completely reversed)

(a) Journal Entries [6 marks]:
- Error 1: 1 mark for correct accounts and amounts (Dr Wright $1,200, Dr Suspense $900, Cr Weight $2,100).
- Error 2 (Asset correction): 1 mark for Dr Office Equipment $3,500 and Cr Repairs $3,500.
- Error 2 (Depreciation): 1 mark for Dr Depreciation $700 and Cr Provision for Depreciation $700.
- Error 3: 1 mark for Dr Rent Expense $560, Dr Suspense $90, Cr Rent Income $650.
- Error 4: 1 mark for Dr Purchases $400 and Cr Suspense $400.
- Error 5: 1 mark for Dr Cash/Bank $980 and Cr Trade Receivables $980.

(b) Suspense Account [3 marks]:
- 1 mark for debit side entries (Error 1: $900 and Error 3: $90).
- 1 mark for credit entry (Error 4: $400).
- 1 mark for balancing figure (Credit opening balance of $590).

(c) Statement of Corrected Profit [4 marks]:
- 1 mark for adding Repairs ($3,500).
- 1 mark for deducting Depreciation ($700).
- 1 mark for adding under-recorded Rent ($90) and deducting Purchases ($400).
- 1 mark for correct final profit of $51,090 (or own figure from previous parts).

(d) Types of Errors [2 marks]:
- 1 mark for each valid type named (max 2 marks).

### **Part (a) Workings and Calculations**

**1. Opening Balances (1 January 2023):**
* Ordinary Share Capital (OSC) = \(\$400,000\)
* Number of shares initially issued = \(\$400,000 / \$0.50 = 800,000\) shares.

**2. Rights Issue (1 March 2023):**
* Ratio: 1 for every 4 held.
* Number of rights shares = \(800,000 \times 1/4 = 200,000\) shares.
* Issue Price = \(\$0.80\) per share.
* Nominal Value (OSC increase) = \(200,000 \times \$0.50 = \$100,000\).
* Premium per share = \(\$0.80 - \$0.50 = \$0.30\).
* Share Premium increase = \(200,000 \times \$0.30 = \$60,000\).
* Total Cash Received = \(200,000 \times \$0.80 = \$160,000\).

**3. Bonus Issue (1 July 2023):**
* Total shares outstanding before bonus issue = \(800,000 + 200,000 = 1,000,000\) shares.
* Ratio: 1 for every 5 held.
* Number of bonus shares = \(1,000,000 \times 1/5 = 200,000\) shares.
* Nominal value = \(200,000 \times \$0.50 = \$100,000\).
* Funded from Share Premium: Share Capital increases by \(\$100,000\), and Share Premium decreases by \(\$100,000\).

**4. Interim Dividend (1 October 2023):**
* Total shares outstanding = \(1,000,000 + 200,000 = 1,200,000\) shares.
* Interim Dividend paid = \(1,200,000 \text{ shares} \times \$0.04 = \$48,000\).
* This is deducted from Retained Earnings.

**5. Transfer to General Reserve & Profit:**
* Profit for the year of \(\$135,000\) added to Retained Earnings.
* Transfer of \(\$25,000\) to General Reserve: General Reserve increases by \(\$25,000\), and Retained Earnings decreases by \(\$25,000\).

### **Statement of Changes in Equity for the year ended 31 December 2023**

| Details | Ordinary Share Capital ($\) | Share Premium ($\) | General Reserve ($\) | Retained Earnings ($\) | Total ($\) |
| :--- | :---: | :---: | :---: | :---: | :---: |
| **Balances at 1 January 2023** | 400,000 | 120,000 | 50,000 | 180,000 | 750,000 |
| Profit for the year | - | - | - | 135,000 | 135,000 |
| Rights issue | 100,000 | 60,000 | - | - | 160,000 |
| Bonus issue | 100,000 | (100,000) | - | - | - |
| Dividends paid | - | - | - | (48,000) | (48,000) |
| Transfer to general reserve | - | - | 25,000 | (25,000) | - |
| **Balances at 31 December 2023** | **600,000** | **80,000** | **75,000** | **242,000** | **997,000** |

---

### **Part (b) Differences between ordinary and preference shares (from company perspective)**

1. **Dividend Commitment:** The company has no legal obligation to pay a dividend to ordinary shareholders if profits are low or reinvestment is preferred. However, preference shareholders are entitled to a fixed rate of dividend which must be paid before any ordinary dividends are distributed.
2. **Dilution of Control/Voting Rights:** Issuing ordinary shares dilutes the voting power and control of existing owners because ordinary shares carry voting rights at general meetings. In contrast, preference shares generally do not carry voting rights, allowing the company to raise capital without diluting control.

### **Part (a) Marking Scheme (Max 11 marks)**
* **Opening balances row:** Correctly stated [1 mark]
* **Profit for the year row:** \(\$135,000\) in Retained Earnings and Total column [1 mark]
* **Rights issue row:**
* \(\$100,000\) in Ordinary Share Capital [1 mark]
* \(\$60,000\) in Share Premium and \(\$160,000\) in Total column [1 mark]
* **Bonus issue row:**
* \(\$100,000\) in Ordinary Share Capital [1 mark]
* \((\$100,000)\) in Share Premium [1 mark]
* **Dividends paid row:**
* \((\$48,000)\) in Retained Earnings and Total column (must show workings/correct share count of 1.2m) [2 marks]
* **Transfer to general reserve row:**
* \(\$25,000\) in General Reserve and \((\$25,000)\) in Retained Earnings [1 mark]
* **Closing Balances row (31 Dec 2023):**
* All column totals mathematically correct based on candidates' figures [2 marks]

### **Part (b) Marking Scheme (Max 4 marks)**
For each difference stated and explained from the perspective of the company:
* **1 mark** for identifying the difference.
* **1 mark** for explaining the impact/perspective on the company.
* *Maximum of 2 differences x 2 marks = 4 marks.*

**Acceptable points:**
* **Voting Rights / Ownership Control:** Ordinary shares carry voting rights (potential dilution of management control); preference shares typically do not.
* **Cost of Capital / Dividends:** Ordinary dividends are flexible/discretionary; preference dividends are fixed (predictable cost, but higher obligation expectation).
* **Winding up / Risk:** On liquidation, preference shareholders have a higher priority of claim on assets over ordinary shareholders, meaning ordinary equity is riskier but cheaper to default on.

**Part (a)**

**Contribution per unit:**

* **Pro:**
Selling Price: \( $120 \)
Less Variable Costs:
- Direct Materials (\( 4 \text{ kg} \times $5 \)): \( $20 \)
- Direct Labour (\( 3 \text{ hours} \times $12 \)): \( $36 \)
- Variable Overheads: \( $8 \)
\( \text{Contribution} = $120 - ($20 + $36 + $8) = $56 \)

* **Gaming:**
Selling Price: \( $150 \)
Less Variable Costs:
- Direct Materials (\( 5 \text{ kg} \times $5 \)): \( $25 \)
- Direct Labour (\( 4 \text{ hours} \times $12 \)): \( $48 \)
- Variable Overheads: \( $12 \)
\( \text{Contribution} = $150 - ($25 + $48 + $12) = $65 \)

* **Slim:**
Selling Price: \( $90 \)
Less Variable Costs:
- Direct Materials (\( 3 \text{ kg} \times $5 \)): \( $15 \)
- Direct Labour (\( 2 \text{ hours} \times $12 \)): \( $24 \)
- Variable Overheads: \( $6 \)
\( \text{Contribution} = $90 - ($15 + $24 + $6) = $45 \)

---

**Part (b)**

1. **Limiting Factor Verification:**
* Material required for maximum demand:
* Pro: \( 1,200 \text{ units} \times 4 \text{ kg} = 4,800 \text{ kg} \)
* Gaming: \( 800 \text{ units} \times 5 \text{ kg} = 4,000 \text{ kg} \)
* Slim: \( 1,500 \text{ units} \times 3 \text{ kg} = 4,500 \text{ kg} \)
* **Total material required:** \( 4,800 + 4,000 + 4,500 = 13,300 \text{ kg} \)
* Since only \( 11,000 \text{ kg} \) is available, material is the limiting factor.

2. **Contribution per kg of Material and Ranking:**
* **Slim:** \( \frac{$45}{3 \text{ kg}} = $15.00 \text{ per kg} \) (Rank 1)
* **Pro:** \( \frac{$56}{4 \text{ kg}} = $14.00 \text{ per kg} \) (Rank 2)
* **Gaming:** \( \frac{$65}{5 \text{ kg}} = $13.00 \text{ per kg} \) (Rank 3)

3. **Optimal Production Plan:**
* **Slim (Rank 1):** Produce full demand of \( 1,500 \text{ units} \).
* Material used: \( 1,500 \times 3 \text{ kg} = 4,500 \text{ kg} \).
* Remaining material: \( 11,000 - 4,500 = 6,500 \text{ kg} \).
* **Pro (Rank 2):** Produce full demand of \( 1,200 \text{ units} \).
* Material used: \( 1,200 \times 4 \text{ kg} = 4,800 \text{ kg} \).
* Remaining material: \( 6,500 - 4,800 = 1,700 \text{ kg} \).
* **Gaming (Rank 3):** Use the remaining material.
* Units to produce: \( \frac{1,700 \text{ kg}}{5 \text{ kg per unit}} = 340 \text{ units} \).

---

**Part (c)**

**Calculation of Maximum Net Profit:**

| Product | Units | Contribution per Unit | Total Contribution |
|---|---|---|---|
| Slim | 1,500 | $45 | $67,500 |
| Pro | 1,200 | $56 | $67,200 |
| Gaming | 340 | $65 | $22,100 |
| **Total Contribution** | | | **$156,800** |
| Less: Fixed Overheads | | | ($60,000) |
| **Net Profit** | | | **$96,800** |

---

**Part (d)**

Possible strategic actions include:
1. **Sourcing alternative suppliers:** Search for secondary suppliers of plastic alloy, even if at a slightly premium price, to avoid production bottlenecks.
2. **Material substitution / Product Redesign:** Research alternative materials or redesign keyboards to use less plastic alloy without compromising quality.
3. **Improve material utilization:** Audit the manufacturing process to minimize wastage and scrap levels of the plastic alloy.
4. **Pricing adjustments:** Increase the selling price of the lowest-ranked product (Gaming) to manage demand down while keeping total contribution high, or increase its contribution margin.

**Part (a) [6 Marks]**
* **Pro contribution:** $56 (2 marks: 1 mark for calculating total variable cost of $64, 1 mark for correct subtraction from selling price).
* **Gaming contribution:** $65 (2 marks: 1 mark for calculating total variable cost of $85, 1 mark for correct subtraction from selling price).
* **Slim contribution:** $45 (2 marks: 1 mark for calculating total variable cost of $45, 1 mark for correct subtraction from selling price).

**Part (b) [12 Marks]**
* Identification that material is the limiting factor with proof (total demand 13,300 kg > 11,000 kg available) (2 marks).
* Contribution per kg calculated for all three products (3 marks: 1 mark each):
* Slim: $15.00/kg
* Pro: $14.00/kg
* Gaming: $13.00/kg
* Correct ranking (1st: Slim, 2nd: Pro, 3rd: Gaming) (1 mark).
* Optimal plan allocation (6 marks total):
* Slim: 1,500 units (2 marks)
* Pro: 1,200 units (2 marks)
* Gaming: 340 units (2 marks: 1 method mark for 1,700 kg / 5 kg, 1 accuracy mark for 340 units).

**Part (c) [6 Marks]**
* Total contribution calculations (3 marks: 1 mark for each product contribution):
* Slim: $67,500 (1 mark)
* Pro: $67,200 (1 mark)
* Gaming: $22,100 (1 mark)
* Total contribution of $156,800 (1 mark).
* Deduction of Fixed Overheads of $60,000 (1 mark).
* Net Profit of $96,800 (1 mark - OF applies from previous parts).

**Part (d) [6 Marks]**
* Award 2 marks for each of the three discussed actions (1 mark for identifying the action, 1 mark for explanation/development).
* Accept: Finding alternative suppliers, redesigning product to reduce material use, reducing material wastage/increasing efficiency, adjusting prices to control demand/margins.