PastPaper.question 1 · preparation_and_evaluation
55 PastPaper.marksAlistair and Beatrice are in partnership sharing profits and losses in the ratio of 60% and 40% respectively. The following trial balance was extracted from their books on 31 December 2022:
$$\begin{array}{lrr}
\text{Account} & \text{Debit (\pounds)} & \text{Credit (\pounds)} \\
\hline
\text{Capital Account - Alistair} & & 80,000 \\
\text{Capital Account - Beatrice} & & 60,000 \\
\text{Current Account (1 January 2022) - Alistair} & & 4,500 \\
\text{Current Account (1 January 2022) - Beatrice} & 5,000 & \\
\text{Revenue} & & 480,000 \\
\text{Purchases} & 240,000 & \\
\text{Inventory (1 January 2022)} & 38,000 & \\
\text{Trade Receivables / Trade Payables} & 60,000 & 31,000 \\
\text{Bank} & & 14,300 \\
\text{Premises (Cost)} & 130,000 & \\
\text{Equipment (Cost)} & 50,000 & \\
\text{Accumulated Depreciation (1 January 2022):} & & \\
\quad \text{- Premises} & & 12,000 \\
\quad \text{- Equipment} & & 20,000 \\
\text{Wages and Salaries} & 65,000 & \\
\text{Administrative expenses} & 35,000 & \\
\text{Distribution costs} & 32,000 & \\
\text{Allowance for doubtful debts} & & 1,200 \\
\text{Drawings - Alistair} & 22,000 & \\
\text{Drawings - Beatrice} & 26,000 & \\
\hline
\textbf{Total} & \mathbf{703,000} & \mathbf{703,000} \\
\hline
\end{array}$$
**Additional information at 31 December 2022:**
1. Inventory at 31 December 2022 was valued at cost £41,500. This includes some damaged items that cost £3,000, which can be repaired for £500 and then sold for £2,200.
2. Wages and salaries unpaid at 31 December 2022 were £2,400. Administrative expenses prepaid were £1,600.
3. Depreciation is to be charged as follows:
* Premises: 2% per annum on cost using the straight-line method.
* Equipment: 15% per annum using the reducing balance method.
4. Trade receivables include a debt of £2,000 from a customer who has gone into liquidation. This is to be written off. The allowance for doubtful debts is to be adjusted to 5% of the remaining trade receivables.
5. The partnership agreement provides for:
* Interest on Capital at 5% per annum.
* Salaries of £12,000 per annum to Beatrice.
* Interest on Drawings: Alistair £1,100, Beatrice £1,300.
* Profit and loss sharing ratio: Alistair 60%, Beatrice 40%.
**Required:**
(a) Prepare the Statement of Profit or Loss and Partnership Appropriation Account for the year ended 31 December 2022. *(20 marks)*
(b) Prepare the Partners' Current Accounts for the year ended 31 December 2022. *(10 marks)*
(c) Prepare the Statement of Financial Position as at 31 December 2022. *(13 marks)*
(d) Alistair and Beatrice want to expand the business and require additional funding of £50,000. They are considering two options:
* **Option 1:** Admit Alistair's cousin, Charles, as a partner. Charles would contribute £50,000 capital and would receive a 20% share of profits, with interest on capital at 5% per annum.
* **Option 2:** Obtain an 8% per annum bank loan of £50,000, repayable over 5 years.
Evaluate these two funding options and make a recommendation to the partners. *(12 marks)*
$$\begin{array}{lrr}
\text{Account} & \text{Debit (\pounds)} & \text{Credit (\pounds)} \\
\hline
\text{Capital Account - Alistair} & & 80,000 \\
\text{Capital Account - Beatrice} & & 60,000 \\
\text{Current Account (1 January 2022) - Alistair} & & 4,500 \\
\text{Current Account (1 January 2022) - Beatrice} & 5,000 & \\
\text{Revenue} & & 480,000 \\
\text{Purchases} & 240,000 & \\
\text{Inventory (1 January 2022)} & 38,000 & \\
\text{Trade Receivables / Trade Payables} & 60,000 & 31,000 \\
\text{Bank} & & 14,300 \\
\text{Premises (Cost)} & 130,000 & \\
\text{Equipment (Cost)} & 50,000 & \\
\text{Accumulated Depreciation (1 January 2022):} & & \\
\quad \text{- Premises} & & 12,000 \\
\quad \text{- Equipment} & & 20,000 \\
\text{Wages and Salaries} & 65,000 & \\
\text{Administrative expenses} & 35,000 & \\
\text{Distribution costs} & 32,000 & \\
\text{Allowance for doubtful debts} & & 1,200 \\
\text{Drawings - Alistair} & 22,000 & \\
\text{Drawings - Beatrice} & 26,000 & \\
\hline
\textbf{Total} & \mathbf{703,000} & \mathbf{703,000} \\
\hline
\end{array}$$
**Additional information at 31 December 2022:**
1. Inventory at 31 December 2022 was valued at cost £41,500. This includes some damaged items that cost £3,000, which can be repaired for £500 and then sold for £2,200.
2. Wages and salaries unpaid at 31 December 2022 were £2,400. Administrative expenses prepaid were £1,600.
3. Depreciation is to be charged as follows:
* Premises: 2% per annum on cost using the straight-line method.
* Equipment: 15% per annum using the reducing balance method.
4. Trade receivables include a debt of £2,000 from a customer who has gone into liquidation. This is to be written off. The allowance for doubtful debts is to be adjusted to 5% of the remaining trade receivables.
5. The partnership agreement provides for:
* Interest on Capital at 5% per annum.
* Salaries of £12,000 per annum to Beatrice.
* Interest on Drawings: Alistair £1,100, Beatrice £1,300.
* Profit and loss sharing ratio: Alistair 60%, Beatrice 40%.
**Required:**
(a) Prepare the Statement of Profit or Loss and Partnership Appropriation Account for the year ended 31 December 2022. *(20 marks)*
(b) Prepare the Partners' Current Accounts for the year ended 31 December 2022. *(10 marks)*
(c) Prepare the Statement of Financial Position as at 31 December 2022. *(13 marks)*
(d) Alistair and Beatrice want to expand the business and require additional funding of £50,000. They are considering two options:
* **Option 1:** Admit Alistair's cousin, Charles, as a partner. Charles would contribute £50,000 capital and would receive a 20% share of profits, with interest on capital at 5% per annum.
* **Option 2:** Obtain an 8% per annum bank loan of £50,000, repayable over 5 years.
Evaluate these two funding options and make a recommendation to the partners. *(12 marks)*
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PastPaper.workedSolution
### Part (a): Statement of Profit or Loss and Partnership Appropriation Account for the year ended 31 December 2022
**Workings:**
1. **Closing Inventory:**
$$\text{Cost} = \pounds 41,500 - \pounds 3,000 = \pounds 38,500$$
$$\text{Net Realisable Value (NRV) of damaged items} = \pounds 2,200 - \pounds 500 = \pounds 1,700$$
$$\text{Total Inventory Value} = \pounds 38,500 + \pounds 1,700 = \pounds 40,200$$
2. **Expenses Adjustments:**
* **Wages and Salaries:**
$$\pounds 65,000 + \pounds 2,400\text{ (accrued)} = \pounds 67,400$$
* **Administrative Expenses:**
$$\text{Paid}: \pounds 35,000$$
$$\text{Less Prepayment}: -\pounds 1,600$$
$$\text{Add Bad Debt written off}: +\pounds 2,000$$
$$\text{Add Increase in Allowance for Doubtful Debts}: +\pounds 1,700 \text{ (see W3)}$$
$$\text{Total Administrative Expenses} = \pounds 35,000 - \pounds 1,600 + \pounds 2,000 + \pounds 1,700 = \pounds 37,100$$
3. **Allowance for Doubtful Debts:**
$$\text{Remaining Receivables} = \pounds 60,000 - \pounds 2,000 = \pounds 58,000$$
$$\text{Required Allowance} = 5\% \times \pounds 58,000 = \pounds 2,900$$
$$\text{Increase in Allowance} = \pounds 2,900 - \pounds 1,200\text{ (existing)} = \pounds 1,700$$
4. **Depreciation Charges:**
* **Premises:**
$$2\% \times \pounds 130,000 = \pounds 2,600$$
* **Equipment:**
$$15\% \times (\pounds 50,000 - \pounds 20,000) = 15\% \times \pounds 30,000 = \pounds 4,500$$
---
**AB Merchandising**
**Statement of Profit or Loss for the year ended 31 December 2022**
$$\begin{array}{lrr}
& \pounds & \pounds \\
\hline
\text{Revenue} & & 480,000 \\
\text{Cost of Sales:} & & \\
\quad \text{Opening Inventory} & 38,000 & \\
\quad \text{Purchases} & 240,000 & \\
& 278,000 & \\
\quad \text{Less: Closing Inventory (W1)} & (40,200) & (237,800) \\
\hline
\textbf{Gross Profit} & & \mathbf{242,200} \\
\text{Expenses:} & & \\
\quad \text{Wages and Salaries} & 67,400 & \\
\quad \text{Administrative Expenses (W2)} & 37,100 & \\
\quad \text{Distribution Costs} & 32,000 & \\
\quad \text{Depreciation - Premises} & 2,600 & \\
\quad \text{Depreciation - Equipment} & 4,500 & (143,600) \\
\hline
\textbf{Profit for the year} & & \mathbf{98,600} \\
\hline
\end{array}$$
**Partnership Appropriation Account for the year ended 31 December 2022**
$$\begin{array}{lrr}
& \pounds & \pounds \\
\hline
\text{Profit for the year} & & 98,600 \\
\text{Add: Interest on Drawings} & & \\
\quad \text{- Alistair} & 1,100 & \\
\quad \text{- Beatrice} & 1,300 & 2,400 \\
\hline
& & 101,000 \\
\text{Less: Interest on Capital} & & \\
\quad \text{- Alistair } (5\% \times 80,000) & 4,000 & \\
\quad \text{- Beatrice } (5\% \times 60,000) & 3,000 & (7,000) \\
\text{Less: Partnership Salary - Beatrice} & & (12,000) \\
\hline
\textbf{Residual Profit} & & \mathbf{82,000} \\
\hline
\text{Share of Profit:} & & \\
\quad \text{- Alistair (60\%)} & 49,200 & \\
\quad \text{- Beatrice (40\%)} & 32,800 & 82,000 \\
\hline
\end{array}$$
### Part (b): Partners' Current Accounts
$$\begin{array}{lrr|lrr}
\textbf{Dr} & \textbf{Alistair (\pounds)} & \textbf{Beatrice (\pounds)} & \textbf{Cr} & \textbf{Alistair (\pounds)} & \textbf{Beatrice (\pounds)} \\
\hline
\text{Balance b/d} & - & 5,000 & \text{Balance b/d} & 4,500 & - \\
\text{Drawings} & 22,000 & 26,000 & \text{Interest on Capital} & 4,000 & 3,000 \\
\text{Interest on Drawings} & 1,100 & 1,300 & \text{Salary} & - & 12,000 \\
\text{Balance c/d} & 34,600 & 15,500 & \text{Share of Profit} & 49,200 & 32,800 \\
\hline
\textbf{Total} & \mathbf{57,700} & \mathbf{47,800} & \textbf{Total} & \mathbf{57,700} & \mathbf{47,800} \\
\hline
& & & \text{Balance b/d} & \mathbf{34,600} & \mathbf{15,500} \\
\end{array}$$
### Part (c): Statement of Financial Position as at 31 December 2022
$$\begin{array}{lrrr}
& \text{Cost (\pounds)} & \text{Accum. Dep. (\pounds)} & \text{Carrying Value (\pounds)} \\
\hline
\textbf{Non-Current Assets} & & & \\
\text{Premises} & 130,000 & 14,600 & 115,400 \\
\text{Equipment} & 50,000 & 24,500 & 25,500 \\
\hline
& \mathbf{180,000} & \mathbf{39,100} & \mathbf{140,900} \\
\hline
\textbf{Current Assets} & & & \\
\text{Inventory (W1)} & & 40,200 & \\
\text{Trade Receivables } (58,000 - 2,900) & & 55,100 & \\
\text{Prepayments} & & 1,600 & 96,900 \\
\hline
\textbf{Total Assets} & & & \mathbf{237,800} \\
\hline
\textbf{Capital and Liabilities} & & & \\
\textbf{Capital Accounts:} & & & \\
\quad \text{- Alistair} & & 80,000 & \\
\quad \text{- Beatrice} & & 60,000 & 140,000 \\
\textbf{Current Accounts:} & & & \\
\quad \text{- Alistair} & & 34,600 & \\
\quad \text{- Beatrice} & & 15,500 & 50,100 \\
\hline
& & & 190,100 \\
\textbf{Current Liabilities} & & & \\
\text{Trade Payables} & & 31,000 & \\
\text{Bank Overdraft} & & 14,300 & \\
\text{Accruals} & & 2,400 & 47,700 \\
\hline
\textbf{Total Capital and Liabilities} & & & \mathbf{237,800} \\
\hline
\end{array}$$
### Part (d): Evaluation of Funding Options
* **Option 1: Admit Charles as a partner**
* **Pros:**
* The £50,000 capital contributed does not have to be repaid (unlike a bank loan), improving the long-term solvency of the business.
* There is no mandatory fixed charge on profits (interest on capital is only paid if there is profit, and profit share is variable). This reduces financial risk compared to fixed loan repayments.
* Charles may bring new skills, fresh energy, and management expertise to the business, which can help drive growth.
* **Cons:**
* Alistair and Beatrice will dilute their control. Decisions will now need to be negotiated among three people instead of two.
* They will permanently give up a 20% share of future profits. If the expansion is highly successful, the cost of giving up 20% of profits could far exceed the cost of loan interest.
* **Option 2: Obtain an 8% per annum bank loan of £50,000**
* **Pros:**
* Alistair and Beatrice maintain 100% control of the business and do not have to consult a third partner on strategic decisions.
* All residual profits generated from the expansion stay with Alistair and Beatrice (60:40). Once the loan is paid off in 5 years, the business owes nothing further.
* Interest expense of 8% (£4,000 in year 1) is tax-deductible (though not directly relevant to partnership taxation, it represents a fixed, predictable cost).
* **Cons:**
* The loan interest must be paid regardless of whether the business makes a profit or a loss, raising the break-even point and financial risk.
* The loan principal must be repaid over 5 years (approximately £10,000 per year plus interest). This creates a heavy cash outflow burden on a business that already has a £14,300 bank overdraft.
* The bank may require personal guarantees or security over partnership assets (e.g., premises).
* **Conclusion/Recommendation:**
* *Recommendation 1:* If the partners prioritize keeping control and expect profits to grow significantly, they should opt for the **Bank Loan**, provided they can manage the cash flow outflows. However, given their current cash and overdraft position, this might be very risky.
* *Recommendation 2:* Given that the partnership already has a bank overdraft of £14,300, taking on an additional £50,000 bank loan with strict repayment schedules could severely strain liquidity. Therefore, **admitting Charles** is the safer financial option because it provides equity capital with no immediate obligation to repay, improving the liquidity of the business despite the loss of some control and profit share.
**Workings:**
1. **Closing Inventory:**
$$\text{Cost} = \pounds 41,500 - \pounds 3,000 = \pounds 38,500$$
$$\text{Net Realisable Value (NRV) of damaged items} = \pounds 2,200 - \pounds 500 = \pounds 1,700$$
$$\text{Total Inventory Value} = \pounds 38,500 + \pounds 1,700 = \pounds 40,200$$
2. **Expenses Adjustments:**
* **Wages and Salaries:**
$$\pounds 65,000 + \pounds 2,400\text{ (accrued)} = \pounds 67,400$$
* **Administrative Expenses:**
$$\text{Paid}: \pounds 35,000$$
$$\text{Less Prepayment}: -\pounds 1,600$$
$$\text{Add Bad Debt written off}: +\pounds 2,000$$
$$\text{Add Increase in Allowance for Doubtful Debts}: +\pounds 1,700 \text{ (see W3)}$$
$$\text{Total Administrative Expenses} = \pounds 35,000 - \pounds 1,600 + \pounds 2,000 + \pounds 1,700 = \pounds 37,100$$
3. **Allowance for Doubtful Debts:**
$$\text{Remaining Receivables} = \pounds 60,000 - \pounds 2,000 = \pounds 58,000$$
$$\text{Required Allowance} = 5\% \times \pounds 58,000 = \pounds 2,900$$
$$\text{Increase in Allowance} = \pounds 2,900 - \pounds 1,200\text{ (existing)} = \pounds 1,700$$
4. **Depreciation Charges:**
* **Premises:**
$$2\% \times \pounds 130,000 = \pounds 2,600$$
* **Equipment:**
$$15\% \times (\pounds 50,000 - \pounds 20,000) = 15\% \times \pounds 30,000 = \pounds 4,500$$
---
**AB Merchandising**
**Statement of Profit or Loss for the year ended 31 December 2022**
$$\begin{array}{lrr}
& \pounds & \pounds \\
\hline
\text{Revenue} & & 480,000 \\
\text{Cost of Sales:} & & \\
\quad \text{Opening Inventory} & 38,000 & \\
\quad \text{Purchases} & 240,000 & \\
& 278,000 & \\
\quad \text{Less: Closing Inventory (W1)} & (40,200) & (237,800) \\
\hline
\textbf{Gross Profit} & & \mathbf{242,200} \\
\text{Expenses:} & & \\
\quad \text{Wages and Salaries} & 67,400 & \\
\quad \text{Administrative Expenses (W2)} & 37,100 & \\
\quad \text{Distribution Costs} & 32,000 & \\
\quad \text{Depreciation - Premises} & 2,600 & \\
\quad \text{Depreciation - Equipment} & 4,500 & (143,600) \\
\hline
\textbf{Profit for the year} & & \mathbf{98,600} \\
\hline
\end{array}$$
**Partnership Appropriation Account for the year ended 31 December 2022**
$$\begin{array}{lrr}
& \pounds & \pounds \\
\hline
\text{Profit for the year} & & 98,600 \\
\text{Add: Interest on Drawings} & & \\
\quad \text{- Alistair} & 1,100 & \\
\quad \text{- Beatrice} & 1,300 & 2,400 \\
\hline
& & 101,000 \\
\text{Less: Interest on Capital} & & \\
\quad \text{- Alistair } (5\% \times 80,000) & 4,000 & \\
\quad \text{- Beatrice } (5\% \times 60,000) & 3,000 & (7,000) \\
\text{Less: Partnership Salary - Beatrice} & & (12,000) \\
\hline
\textbf{Residual Profit} & & \mathbf{82,000} \\
\hline
\text{Share of Profit:} & & \\
\quad \text{- Alistair (60\%)} & 49,200 & \\
\quad \text{- Beatrice (40\%)} & 32,800 & 82,000 \\
\hline
\end{array}$$
### Part (b): Partners' Current Accounts
$$\begin{array}{lrr|lrr}
\textbf{Dr} & \textbf{Alistair (\pounds)} & \textbf{Beatrice (\pounds)} & \textbf{Cr} & \textbf{Alistair (\pounds)} & \textbf{Beatrice (\pounds)} \\
\hline
\text{Balance b/d} & - & 5,000 & \text{Balance b/d} & 4,500 & - \\
\text{Drawings} & 22,000 & 26,000 & \text{Interest on Capital} & 4,000 & 3,000 \\
\text{Interest on Drawings} & 1,100 & 1,300 & \text{Salary} & - & 12,000 \\
\text{Balance c/d} & 34,600 & 15,500 & \text{Share of Profit} & 49,200 & 32,800 \\
\hline
\textbf{Total} & \mathbf{57,700} & \mathbf{47,800} & \textbf{Total} & \mathbf{57,700} & \mathbf{47,800} \\
\hline
& & & \text{Balance b/d} & \mathbf{34,600} & \mathbf{15,500} \\
\end{array}$$
### Part (c): Statement of Financial Position as at 31 December 2022
$$\begin{array}{lrrr}
& \text{Cost (\pounds)} & \text{Accum. Dep. (\pounds)} & \text{Carrying Value (\pounds)} \\
\hline
\textbf{Non-Current Assets} & & & \\
\text{Premises} & 130,000 & 14,600 & 115,400 \\
\text{Equipment} & 50,000 & 24,500 & 25,500 \\
\hline
& \mathbf{180,000} & \mathbf{39,100} & \mathbf{140,900} \\
\hline
\textbf{Current Assets} & & & \\
\text{Inventory (W1)} & & 40,200 & \\
\text{Trade Receivables } (58,000 - 2,900) & & 55,100 & \\
\text{Prepayments} & & 1,600 & 96,900 \\
\hline
\textbf{Total Assets} & & & \mathbf{237,800} \\
\hline
\textbf{Capital and Liabilities} & & & \\
\textbf{Capital Accounts:} & & & \\
\quad \text{- Alistair} & & 80,000 & \\
\quad \text{- Beatrice} & & 60,000 & 140,000 \\
\textbf{Current Accounts:} & & & \\
\quad \text{- Alistair} & & 34,600 & \\
\quad \text{- Beatrice} & & 15,500 & 50,100 \\
\hline
& & & 190,100 \\
\textbf{Current Liabilities} & & & \\
\text{Trade Payables} & & 31,000 & \\
\text{Bank Overdraft} & & 14,300 & \\
\text{Accruals} & & 2,400 & 47,700 \\
\hline
\textbf{Total Capital and Liabilities} & & & \mathbf{237,800} \\
\hline
\end{array}$$
### Part (d): Evaluation of Funding Options
* **Option 1: Admit Charles as a partner**
* **Pros:**
* The £50,000 capital contributed does not have to be repaid (unlike a bank loan), improving the long-term solvency of the business.
* There is no mandatory fixed charge on profits (interest on capital is only paid if there is profit, and profit share is variable). This reduces financial risk compared to fixed loan repayments.
* Charles may bring new skills, fresh energy, and management expertise to the business, which can help drive growth.
* **Cons:**
* Alistair and Beatrice will dilute their control. Decisions will now need to be negotiated among three people instead of two.
* They will permanently give up a 20% share of future profits. If the expansion is highly successful, the cost of giving up 20% of profits could far exceed the cost of loan interest.
* **Option 2: Obtain an 8% per annum bank loan of £50,000**
* **Pros:**
* Alistair and Beatrice maintain 100% control of the business and do not have to consult a third partner on strategic decisions.
* All residual profits generated from the expansion stay with Alistair and Beatrice (60:40). Once the loan is paid off in 5 years, the business owes nothing further.
* Interest expense of 8% (£4,000 in year 1) is tax-deductible (though not directly relevant to partnership taxation, it represents a fixed, predictable cost).
* **Cons:**
* The loan interest must be paid regardless of whether the business makes a profit or a loss, raising the break-even point and financial risk.
* The loan principal must be repaid over 5 years (approximately £10,000 per year plus interest). This creates a heavy cash outflow burden on a business that already has a £14,300 bank overdraft.
* The bank may require personal guarantees or security over partnership assets (e.g., premises).
* **Conclusion/Recommendation:**
* *Recommendation 1:* If the partners prioritize keeping control and expect profits to grow significantly, they should opt for the **Bank Loan**, provided they can manage the cash flow outflows. However, given their current cash and overdraft position, this might be very risky.
* *Recommendation 2:* Given that the partnership already has a bank overdraft of £14,300, taking on an additional £50,000 bank loan with strict repayment schedules could severely strain liquidity. Therefore, **admitting Charles** is the safer financial option because it provides equity capital with no immediate obligation to repay, improving the liquidity of the business despite the loss of some control and profit share.
PastPaper.markingScheme
### Part (a) Statement of Profit or Loss and Appropriation Account [Total: 20 Marks]
* **Closing Inventory**: 2 marks (1 mark for normal stock £38,500; 1 mark for NRV of damaged stock £1,700).
* **Cost of Sales Structure**: 1 mark for correct format (Opening Inventory + Purchases - Closing Inventory).
* **Wages and Salaries**: 1 mark for adding accrual (\pounds 67,400).
* **Administrative Expenses**: 3 marks (1 mark for subtracting prepayment, 1 mark for adding bad debts written off, 1 mark for adjusting allowance correctly).
* **Depreciation**: 2 marks (1 mark for Premises £2,600; 1 mark for Equipment £4,500).
* **Gross Profit & Net Profit calculation accuracy**: 2 marks.
* **Interest on Drawings**: 2 marks (1 mark for Alistair £1,100; 1 mark for Beatrice £1,300).
* **Interest on Capital**: 2 marks (1 mark for Alistair £4,000; 1 mark for Beatrice £3,000).
* **Partnership Salary**: 1 mark for Beatrice's salary of £12,000.
* **Residual Profit calculation**: 1 mark.
* **Share of profit distribution**: 3 marks (2 marks for Alistair £49,200; 1 mark for Beatrice £32,800).
### Part (b) Partners' Current Accounts [Total: 10 Marks]
* **Opening Balances**: 2 marks (1 mark for Alistair Cr balance £4,500; 1 mark for Beatrice Dr balance £5,000).
* **Drawings entries**: 1 mark (both must be correct).
* **Interest on Drawings**: 1 mark (both correct).
* **Interest on Capital**: 2 marks (1 mark each).
* **Beatrice Salary entry**: 1 mark.
* **Share of Profit entries**: 1 mark (both correct).
* **Closing balances c/d and b/d**: 2 marks (1 mark for each partner's balance calculated correctly and shown on correct sides).
### Part (c) Statement of Financial Position [Total: 13 Marks]
* **Non-Current Assets section**: 3 marks (1 mark for Cost, 1 mark for Accum. Dep, 1 mark for correct Carrying Value for both assets).
* **Inventory**: 1 mark (must match adjusted valuation from part a).
* **Trade Receivables**: 3 marks (1 mark for £60,000 cost, 1 mark for subtracting £2,000 bad debt, 1 mark for subtracting £2,900 allowance).
* **Prepayments**: 1 mark (£1,600).
* **Capital accounts presentation**: 1 mark (both listed separately, total £140,000).
* **Current accounts integration**: 1 mark (must match closing balances from part b, total £50,100).
* **Current liabilities section**: 3 marks (1 mark for Trade payables £31,000; 1 mark for Bank overdraft £14,300; 1 mark for Accrued wages £2,400).
### Part (d) Evaluation of Funding Options [Total: 12 Marks]
* **Level 1 (1-3 Marks)**: Candidate lists basic points for and against the options. Little or no analysis of terms, focus is narrow (e.g., just mentioning interest vs profit share).
* **Level 2 (4-6 Marks)**: Candidate explains advantages and disadvantages of one or both options. Some business terms used correctly. Analysis is present but lacks depth.
* **Level 3 (7-9 Marks)**: Candidate provides a balanced, structured analysis of both options. Clear discussion of ownership control, financial risk (such as interest payment vs profit dilution), and cash flow implications (mentioning the current bank overdraft).
* **Level 4 (10-12 Marks)**: Thorough evaluation of both options leading to a clear, logical, and fully supported recommendation that is justified based on the financial and non-financial context of the firm.
* **Closing Inventory**: 2 marks (1 mark for normal stock £38,500; 1 mark for NRV of damaged stock £1,700).
* **Cost of Sales Structure**: 1 mark for correct format (Opening Inventory + Purchases - Closing Inventory).
* **Wages and Salaries**: 1 mark for adding accrual (\pounds 67,400).
* **Administrative Expenses**: 3 marks (1 mark for subtracting prepayment, 1 mark for adding bad debts written off, 1 mark for adjusting allowance correctly).
* **Depreciation**: 2 marks (1 mark for Premises £2,600; 1 mark for Equipment £4,500).
* **Gross Profit & Net Profit calculation accuracy**: 2 marks.
* **Interest on Drawings**: 2 marks (1 mark for Alistair £1,100; 1 mark for Beatrice £1,300).
* **Interest on Capital**: 2 marks (1 mark for Alistair £4,000; 1 mark for Beatrice £3,000).
* **Partnership Salary**: 1 mark for Beatrice's salary of £12,000.
* **Residual Profit calculation**: 1 mark.
* **Share of profit distribution**: 3 marks (2 marks for Alistair £49,200; 1 mark for Beatrice £32,800).
### Part (b) Partners' Current Accounts [Total: 10 Marks]
* **Opening Balances**: 2 marks (1 mark for Alistair Cr balance £4,500; 1 mark for Beatrice Dr balance £5,000).
* **Drawings entries**: 1 mark (both must be correct).
* **Interest on Drawings**: 1 mark (both correct).
* **Interest on Capital**: 2 marks (1 mark each).
* **Beatrice Salary entry**: 1 mark.
* **Share of Profit entries**: 1 mark (both correct).
* **Closing balances c/d and b/d**: 2 marks (1 mark for each partner's balance calculated correctly and shown on correct sides).
### Part (c) Statement of Financial Position [Total: 13 Marks]
* **Non-Current Assets section**: 3 marks (1 mark for Cost, 1 mark for Accum. Dep, 1 mark for correct Carrying Value for both assets).
* **Inventory**: 1 mark (must match adjusted valuation from part a).
* **Trade Receivables**: 3 marks (1 mark for £60,000 cost, 1 mark for subtracting £2,000 bad debt, 1 mark for subtracting £2,900 allowance).
* **Prepayments**: 1 mark (£1,600).
* **Capital accounts presentation**: 1 mark (both listed separately, total £140,000).
* **Current accounts integration**: 1 mark (must match closing balances from part b, total £50,100).
* **Current liabilities section**: 3 marks (1 mark for Trade payables £31,000; 1 mark for Bank overdraft £14,300; 1 mark for Accrued wages £2,400).
### Part (d) Evaluation of Funding Options [Total: 12 Marks]
* **Level 1 (1-3 Marks)**: Candidate lists basic points for and against the options. Little or no analysis of terms, focus is narrow (e.g., just mentioning interest vs profit share).
* **Level 2 (4-6 Marks)**: Candidate explains advantages and disadvantages of one or both options. Some business terms used correctly. Analysis is present but lacks depth.
* **Level 3 (7-9 Marks)**: Candidate provides a balanced, structured analysis of both options. Clear discussion of ownership control, financial risk (such as interest payment vs profit dilution), and cash flow implications (mentioning the current bank overdraft).
* **Level 4 (10-12 Marks)**: Thorough evaluation of both options leading to a clear, logical, and fully supported recommendation that is justified based on the financial and non-financial context of the firm.