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Capital expenditure includes costs incurred in purchasing and preparing a non-current asset for its intended use. This includes the purchase price of \( \$18,000 \), delivery costs of \( \$350 \), and the cost of painting the logo on the vehicle of \( \$1,200 \). Road tax of \( \$420 \) is a recurring expense (revenue expenditure). Total capital expenditure = \( \$18,000 + \$350 + \$1,200 = \$19,550 \).

1 mark for correct option c.

The materiality concept states that items of very low value do not need to be treated as non-current assets and depreciated over time, even if they last longer than one year, as the impact on the financial statements is negligible. Instead, they can be charged directly as an expense in the year of purchase.

1 mark for correct option b.

Irrecoverable debts written off reduce the amount owed by customers (trade receivables) and are therefore credited to the Trade Receivables Control Account. Cash sales are not recorded in the control account. Interest charged and credit sales are debited to the account.

1 mark for correct option b.

An error of principle occurs when a transaction is entered in the wrong class of account (in this case, capital expenditure on office equipment was incorrectly debited to a revenue expenditure account, repairs to equipment).

1 mark for correct option d.

Average inventory = \( \frac{\$8,000 + \$12,000}{2} = \$10,000 \). Rate of inventory turnover = \( \frac{\text{Cost of sales}}{\text{Average inventory}} = \frac{\$80,000}{\$10,000} = 8 \text{ times} \).

1 mark for correct option b.

To find the corrected cash book balance: \( \$3,100 - \$85 \text{ (bank charges)} - \$420 \text{ (dishonoured cheque)} = \$2,595 \) (debit balance). Both transactions reduce the bank balance and require credit entries in the cash book, reducing the debit balance.

1 mark for correct option a.

When goods are returned to a credit supplier, the transaction is recorded in the purchases returns day book (also known as the returns outwards book).

1 mark for correct option b.

A major advantage of a limited company is that it has a separate legal identity from its owners (shareholders), which protects them with limited liability. In contrast, ordinary partnerships do not have a separate legal identity.

1 mark for correct option b.

Capital expenditure includes costs incurred in purchasing and bringing a non-current asset into use, as well as increasing its earning capacity.

* Purchase price: $15 000 (Capital)
* Delivery charges: $400 (Capital - necessary to bring the asset to its location)
* Cost of installing customized storage rack: $750 (Capital - improvement/addition that increases the asset's usefulness)

$$\text{Total Capital Expenditure} = \$15 000 + \$400 + \$750 = \$16 150$$

Fuel for the first journey ($80) and annual road tax ($200) are revenue expenditures as they relate to the day-to-day running costs of the vehicle.

1 mark for the correct option (C).

* Option A ($15 000) incorrectly excludes delivery charges and the storage rack.
* Option B ($15 400) incorrectly excludes the storage rack.
* Option C ($16 150) is correct.
* Option D ($16 430) incorrectly includes fuel and road tax (revenue expenditure).

To find the closing balance of the trade payables control account, we calculate as follows:

$$\begin{align*} \text{Closing Balance (Cr)} &= \text{Opening Balance} + \text{Credit Purchases} - \text{Returns Outwards} \\ &\quad - \text{Payments to Suppliers} - \text{Discount Received} - \text{Contra Entry} \\ &= \$8 400 + \$14 200 - \$850 - \$11 500 - \$350 - \$400 \\ &= \$9 500 \end{align*}$$

Note: Cash purchases ($3 100) are not recorded in the trade payables control account because they do not affect credit suppliers.

1 mark for the correct option (B).

* Option A ($9 100) is incorrect.
* Option B ($9 500) is correct.
* Option C ($9 850) incorrectly excludes the discount received.
* Option D ($12 600) incorrectly includes the cash purchases of $3 100.

Let us compute each value step-by-step: (i) Gross Goods Total = $1,000 + $500 = $1,500. (ii) Trade Discount = 15% of $1,500 = $225. (iii) Net Goods Total = Gross Goods Total - Trade Discount = $1,500 - $225 = $1,275. (iv) Carriage = Total Invoice Amount - Net Goods Total = $1,325 - $1,275 = $50. (v) Orion Office Supplies is the seller issuing a sales invoice for a credit sale, so this transaction is recorded in the Sales Day Book (or Sales Journal).

Award 1 mark for each correct answer: (i) $1,500 [1] (ii) $225 [1] (iii) $1,275 [1] (or follow-through of (i) - (ii)) (iv) $50 [1] (or follow-through of 1,325 - (iii)) (v) Sales Day Book / Sales Journal [1] (do not accept Sales Ledger or Debtor's Ledger)

Let us classify each item: 1. Paid $1,200 for the installation of an air conditioning system: Capital Expenditure (cost incurred on the acquisition/improvement of non-current assets). 2. Received $4,500 from the sale of an old delivery van: Capital Receipt (cash received from disposal of a non-current asset). 3. Paid $350 for annual computer servicing: Revenue Expenditure (regular maintenance expense to keep non-current assets in working condition). 4. Received $8,000 bank loan: Capital Receipt (receipt of long-term finance, not from normal trading). 5. Received $1,500 cash from credit customers: Revenue Receipt (receipt from regular trading/revenue activities).

Award 1 mark for each correctly classified row: Row 1: Capital Expenditure [1] Row 2: Capital Receipt [1] Row 3: Revenue Expenditure [1] Row 4: Capital Receipt [1] Row 5: Revenue Receipt [1]

**(i) Updated Cash Book Balance**

$$\begin{array}{lr} & £ \\ \text{Original cash book balance (debit)} & 1,240 \\ \text{Less: Bank charges} & (45) \\ \text{Less: Direct debit (insurance)} & (120) \\ \hline \textbf{Updated cash book balance} & \mathbf{1,075} \text{ (debit)} \\ \hline \end{array}$$

$$\text{Updated cash book balance} = \(1,240 - 45 - 120 = 1,075\) (debit)

**(ii) Balance as per Bank Statement**

Using the bank reconciliation formula:
$$\text{Adjusted Cash Book Balance} = \text{Bank Statement Balance} + \text{Uncredited deposits} - \text{Unpresented cheques}$$

$$\text{Bank Statement Balance} = \text{Adjusted Cash Book Balance} - \text{Uncredited deposits} + \text{Unpresented cheques}$$

$$\text{Bank Statement Balance} = \(1,075 - 540 + 310 = 845\) (credit)

Alternatively, starting from the bank statement balance:
$$\begin{array}{lr} & £ \\ \textbf{Balance as per bank statement (credit)} & \mathbf{845} \\ \text{Add: Uncredited deposits} & 540 \\ \text{Less: Unpresented cheques} & (310) \\ \hline \text{Updated balance as per cash book} & 1,075 \\ \hline \end{array}$$

- Deducting bank charges of £45 from the cash book (1)
- Deducting direct debit of £120 from the cash book (1)
- Correct updated cash book balance of £1,075 debit (1)
- Correct application of unpresented cheques (£310) and uncredited deposits (£540) to reconcile to the bank statement (1)
- Correct bank statement balance of £845 credit (accept positive/favourable) (1)

### Part (a) Sales Day Book (Sales Journal)

| Date | Customer Name | Invoice No. | List Price ($) | Discount ($) | Net Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2023 |
| May 4 | J. Sterling | INV401 | 1 200 | 180 (15%) | 1 020 |
| May 12 | M. Rashford | INV402 | 800 | 80 (10%) | 720 |
| May 25 | J. Sterling | INV403 | 500 | - | 500 |
| May 31 | **Total Transfer to Sales Account** | | | | **2 240** |

*Calculations:*
- May 4: \( \$1 200 \times (1 - 0.15) = \$1 020 \)
- May 12: \( \$800 \times (1 - 0.10) = \$720 \)

### Part (b) J. Sterling Account (Sales Ledger)

| Date | Details | Amount ($) | Date | Details | Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2023 | | | 2023 | | |
| May 4 | Sales | 1 020 | May 28 | Bank | 800 |
| May 25 | Sales | 500 | May 31 | Balance c/d | 720 |
| | | **1 520** | | | **1 520** |
| Jun 1 | Balance b/d | **720** | | | |

### Part (c) Evaluation of Trade Discounts

**Arguments in favor:**
- **Customer Loyalty:** Encourages repeat orders from high-value credit customers like J. Sterling and M. Rashford.
- **Bulk Purchasing:** Encourages buyers to purchase larger quantities to secure the higher percentage discounts.
- **Competitive Advantage:** Helps Sasha stay competitive in the market where rival businesses are likely offering trade discounts.

**Arguments against:**
- **Reduced Profit Margins:** Trade discounts directly reduce the net sales revenue and gross profit earned per unit sold.
- **Expectation:** Regular credit customers may demand discounts on all purchases, making it difficult to maintain full pricing.
- **Administration:** Increases the accounting work required to compute discounts and record correct transaction totals.

**Conclusion:**
Sasha should continue to offer trade discounts but should formalize the process. It should only be given for bulk orders above a specific volume threshold rather than a standard flat rate. This ensures margins are protected while still retaining key credit customers.

### Part (a) [5 Marks]
- **1 Mark:** Correct net calculation for J. Sterling on May 4 ($1 020).
- **1 Mark:** Correct net calculation for M. Rashford on May 12 ($720).
- **1 Mark:** Correct entry for J. Sterling on May 25 ($500).
- **1 Mark:** Correct layout, dates, and invoice reference columns.
- **1 Mark:** Correct summation of the book ($2 240) with the label 'Transfer to Sales Account' (or 'Sales' / 'General Ledger').

### Part (b) [5 Marks]
- **1 Mark:** May 4 entry (Debit side) showing Sales $1 020.
- **1 Mark:** May 25 entry (Debit side) showing Sales $500.
- **1 Mark:** May 28 entry (Credit side) showing Bank $800.
- **1 Mark:** Balance b/d on 1 June 2023 (Debit side) showing $720.
- **1 Mark:** Correct format, inclusion of all dates, matching ledger details, and double balancing lines.

### Part (c) [5 Marks]
- **Max 2 Marks:** For describing benefits (e.g., maintaining loyal trade clients, stimulating bulk orders, competitive alignment).
- **Max 2 Marks:** For describing disadvantages (e.g., lower gross profit margins, credit risk remains unchanged, administrative overhead).
- **1 Mark:** For providing a balanced, logical conclusion/recommendation based on the analysis.

Part (a): Fiona - Trade Receivables Control Account for the month ended 30 April 2023. Debit Side: Apr 1 Balance b/d £14,250; Apr 30 Credit sales £24,800; Apr 30 Interest charged £70; Apr 30 Bank (Refund) £150; Apr 30 Balance c/d (Credit balance) £180. Total Debits = £39,450. Credit Side: Apr 1 Balance b/d £120; Apr 30 Sales returns £950; Apr 30 Bank/Cash (Receipts) £21,300; Apr 30 Discount allowed £450; Apr 30 Irrecoverable debts £380; Apr 30 Contra/Set-off £400; Apr 30 Balance c/d (Debit balance) £15,850. Total Credits = £39,450. May 1 Balance b/d (Debit) £15,850; May 1 Balance b/d (Credit) £180. Part (b): Advantages of maintaining control accounts: 1. Locating Errors: It acts as an independent check on the accuracy of the ledger. If the balance on the control account does not agree with the total of the individual ledger accounts, it indicates an error, limiting the search. 2. Deterring Fraud: Since the control account is maintained by a different person from the subsidiary ledger clerk, it acts as an internal check to deter and detect fraud and errors.

Part (a): [11 Marks Total] - 1 mark for Debit Balance b/d £14,250 on Apr 1; - 1 mark for Credit Balance b/d £120 on Apr 1; - 1 mark for Credit sales £24,800 on Debit side; - 1 mark for Interest charged £70 on Debit side; - 1 mark for Refund £150 on Debit side; - 1 mark for Credit balance c/d of £180 on Debit side (and shown as Balance b/d of £180 on Credit side on May 1); - 1 mark for Sales returns £950 on Credit side; - 1 mark for Bank/Cash (Receipts) £21,300 on Credit side; - 1 mark for Discount allowed £450 on Credit side; - 1 mark for Irrecoverable debts £380 on Credit side; - 1 mark for Contra £400 on Credit side; - 1 mark for Debit balance c/d of £15,850 on Credit side (and shown as Balance b/d of £15,850 on Debit side on May 1). Part (b): [4 Marks Total] - 2 marks for first advantage (1 mark for identifying, e.g., helps locate errors, and 1 mark for development/explanation); - 2 marks for second advantage (1 mark for identifying, e.g., deters fraud or provides quick totals, and 1 mark for development/explanation).

### Part (a) Journal Entries

| Date / Error | Account Details | Debit (£) | Credit (£) |
|---|---|---|---|
| **1** | Motor Repairs | 250 | |
| | Motor Vehicles | | 250 |
| | *(To correct error of principle: motor repairs incorrectly capitalised)* | | |
| **2** | Sales | 300 | |
| | Suspense | | 300 |
| | *(To correct overcasting of sales day book)* | | |
| **3** | Suspense | 140 | |
| | J. Patel | | 140 |
| | *(To record payment from credit customer not posted)* | | |
| **4** | Suspense | 540 | |
| | Equipment Supplies Ltd | | 540 |
| | *(To correct transposition error on supplier's account: \(600 - 60 = 540\))* | | |

### Part (b) Suspense Account

$$\begin{array}{lr|lr}
\textbf{Debit} & \textbf{\pounds} & \textbf{Credit} & \textbf{\pounds} \\ \hline
\text{J. Patel} & 140 & \text{Difference on Trial Balance (b/f)} & 380 \\
\text{Equipment Supplies Ltd} & 540 & \text{Sales} & 300 \\
\hline
\textbf{Total} & \textbf{680} & \textbf{Total} & \textbf{680} \\ \hline
\end{array}$$

### Part (c) Evaluation of Trial Balance

* **Usefulness:** A trial balance is a valuable tool for confirming the mathematical accuracy of the double-entry records. It instantly highlights errors that cause an imbalance between total debits and credits, such as single-entry errors, transposition errors, or extraction errors, which then prompts the use of a suspense account.
* **Limitations:** However, it has significant limitations. It will not reveal errors where the double-entry is completed incorrectly but with equal debit and credit values. These include errors of omission, commission, principle, original entry, compensating errors, and complete reversal.
* **Conclusion:** Therefore, while a trial balance is essential for checking basic arithmetic accuracy, it cannot be fully relied upon to guarantee that all accounting records are error-free.

**Part (a) Journal Entries [8 marks total]**
- **Error 1:** 1 mark for Debit Motor Repairs, 1 mark for Credit Motor Vehicles (with correct amount £250). [2 marks]
- **Error 2:** 1 mark for Debit Sales, 1 mark for Credit Suspense (with correct amount £300). [2 marks]
- **Error 3:** 1 mark for Debit Suspense, 1 mark for Credit J. Patel (with correct amount £140). [2 marks]
- **Error 4:** 1 mark for Debit Suspense, 1 mark for Credit Equipment Supplies Ltd (with correct amount £540). [2 marks]

**Part (b) Suspense Account [4 marks total]**
- 1 mark for correct opening credit balance of £380 (Difference on Trial Balance b/f).
- 1 mark for Debit side: J. Patel £140.
- 1 mark for Debit side: Equipment Supplies Ltd £540.
- 1 mark for Credit side: Sales £300.
*(Note: No marks if account does not balance on £680).*

**Part (c) Evaluation [3 marks total]**
- 1 mark for explaining a strength/usefulness (e.g. checks arithmetic accuracy of double entry, detects single-entry errors).
- 1 mark for explaining a limitation (e.g. lists errors that do not affect the trial balance balance such as omission, principle).
- 1 mark for an overall conclusion/judgment on its reliability.

**Part (a)**

**Aisha**
**Cash Book for the month of May 2023**

| Date (2023) | Details | Discount Allowed (£) | Cash (£) | Bank (£) | Date (2023) | Details | Discount Received (£) | Cash (£) | Bank (£) |
|---|---|---|---|---|---|---|---|---|---|
| May 1 | Balance b/d | | 250 | 3,100 | May 3 | Rent | | | 650 |
| May 8 | Henry | 20 | | 380 | May 19 | Zhang | 15 | | 585 |
| May 12 | Sales | | 200 | 1,000 | May 24 | Drawings | | | 150 |
| May 28 | Cash (C) | | | 300 | May 28 | Bank (C) | | 300 | |
| | | | | | May 31 | Balance c/d | | 150 | 3,395 |
| | | **20** | **450** | **4,780** | | | **15** | **450** | **4,780** |
| Jun 1 | Balance b/d | | 150 | 3,395 | | | | | |

*Working notes:*
- May 8: Discount Allowed = \( 400 \times 5\% = \pounds 20 \). Bank receipt = \( 400 - 20 = \pounds 380 \).
- May 12: Total sales £1,200. Bank receives £1,000, Cash receives £200.
- May 19: Discount Received = \( 600 \times 2.5\% = \pounds 15 \). Bank payment = \( 600 - 15 = \pounds 585 \).
- May 24: Aisha's personal withdrawal is Drawings. Credit Bank £150.
- May 28: Contra entry. Debit Bank £300, Credit Cash £300.

**Part (b)**
- **Accounting Concept**: Business Entity Concept (1)
- **Explanation**: This concept states that the transactions of the business must be kept separate from the personal transactions of the owner (Aisha). Therefore, the £150 withdrawal must be treated as Drawings and not as a business expense. (2)
- **Evaluation**:
- If the personal withdrawal were recorded as a business expense, the profit for the year would be understated, leading to inaccurate financial performance measurements.
- It ensures that the assets and liabilities shown in the Statement of Financial Position represent only those of the business, presenting a true and fair view to stakeholders. (2)

**Part (a) [10 Marks in total]**
- **1 mark** for correct Cash and Bank opening balances on 1 May (Debit side).
- **1 mark** for Henry Cash discount (£20) and **1 mark** for Henry Bank receipt (£380).
- **1 mark** for Sales transaction: split correctly into Cash (£200) and Bank (£1,000).
- **1 mark** for Zhang Cash discount (£15) and **1 mark** for Zhang Bank payment (£585).
- **1 mark** for May 3 Rent bank payment (£650).
- **1 mark** for Drawings bank payment (£150) on May 24.
- **1 mark** for correct Contra entry handling on May 28 (Debit Bank £300, Credit Cash £300 with "C" reference).
- **1 mark** for bringing down correct ending balances on 1 June: Cash £150 and Bank £3,395.

**Part (b) [5 Marks in total]**
- **1 mark** for identifying the Business Entity Concept.
- **2 marks** for explaining the application: business is distinct from owner (1) and drawings must be recorded separately from business expenses (1).
- **2 marks** for evaluating the importance: preventing distortion of profits/expenses (1) and ensuring a true and fair view of capital and financial position (1).

### **Part (a) Classification of Expenditure**
* **(i) Sign-writing and branding (£1,200):** Capital expenditure. It is a one-off expense required to prepare the non-current asset for its intended use, adding long-term value to the vehicle.
* **(ii) Motor vehicle insurance (£900):** Revenue expenditure. It is a recurring operational expense necessary for the daily running of the business and does not increase the earning capacity or value of the non-current asset.

---

### **Part (b) Ledger Account Calculations**

**1. Cost of Delivery Van 1:**
$$\text{Cost} = \text{Purchase Price} + \text{Sign-writing} + \text{Cargo Refrigeration Unit}$$
$$\text{Cost} = £20,000 + £1,200 + £3,800 = £25,000$$
*(Note: Insurance and fuel are revenue expenditures and are excluded from the capital cost).*

**2. Year Ended 31 March 2023:**
* **Van 1 Depreciation Charge:** $20\% \times £25,000 = £5,000$
* **Closing Provision Balance:** £5,000

**3. Year Ended 31 March 2024:**
* **Van 1 NBV:** $£25,000 - £5,000 = £20,000$
* **Van 1 Depreciation Charge:** $20\% \times £20,000 = £4,000$
* **Van 2 Cost:** £15,000
* **Van 2 Depreciation Charge:** $20\% \times £15,000 = £3,000$
* **Total Year 2 Depreciation Charge:** $£4,000 + £3,000 = £7,000$
* **Closing Provision Balance:** $£5,000 + £7,000 = £12,000$

**4. Year Ended 31 March 2025:**
* **Van 1 Disposal:** Sold on 30 September 2024. No depreciation is charged in the year of disposal.
* **Van 1 Accumulated Depreciation Removed:** $£5,000 \text{ (Year 1)} + £4,000 \text{ (Year 2)} = £9,000$
* **Van 2 NBV:** $£15,000 - £3,000 = £12,000$
* **Van 2 Depreciation Charge:** $20\% \times £12,000 = £2,400$
* **Closing Provision Balance:** $£12,000 - £9,000 \text{ (disposal)} + £2,400 \text{ (charge)} = £5,400$

### **Provision for Depreciation of Delivery Vans Account**

| Date | Details | £ | Date | Details | £ |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **2023** | | | **2023** | | |
| 31 Mar | Balance c/d | 5,000 | 31 Mar | Income Statement | 5,000 |
| | | **5,000** | | | **5,000** |
| | | | **2023** | | |
| | | | 1 Apr | Balance b/d | 5,000 |
| **2024** | | | **2024** | | |
| 31 Mar | Balance c/d | 12,000 | 31 Mar | Income Statement | 7,000 |
| | | **12,000** | | | **12,000** |
| | | | **2024** | | |
| | | | 1 Apr | Balance b/d | 12,000 |
| **2024** | | | **2025** | | |
| 30 Sep | Disposal of Delivery Van | 9,000 | 31 Mar | Income Statement | 2,400 |
| **2025** | | | | | |
| 31 Mar | Balance c/d | 5,400 | | | |
| | | **14,400** | | | **14,400** |
| | | | **2025** | | |
| | | | 1 Apr | Balance b/d | 5,400 |

---

### **Part (c) Evaluation of Reducing Balance Method**
* Delivery vans experience rapid loss in economic value and efficiency during their initial years of life.
* Over time, maintenance and repair costs increase. High depreciation charges in early years combined with low repair costs, and low depreciation in later years combined with high repair costs, helps to balance the total annual operational cost of the asset in the Income Statement.
* This treatment matches the revenues earned by the asset (which are usually higher when the van is new and most reliable) with its expenses, adhering to the accruals (matching) concept.

### **Part (a): 4 Marks**
* **(i) Sign-writing and branding (£1,200):**
* **1 mark** for identifying it as **Capital Expenditure**.
* **1 mark** for the reason: It is a non-recurring cost necessary to prepare the non-current asset for its intended business usage / increases its operating capability.
* **(ii) Motor vehicle insurance (£900):**
* **1 mark** for identifying it as **Revenue Expenditure**.
* **1 mark** for the reason: It is a recurring expense associated with daily operations that does not increase the asset's capacity.

### **Part (b): 8 Marks**
* **1 mark** for Credit: 31 Mar 2023 Income Statement £5,000.
* **1 mark** for Debit/Credit: Balance c/d 31 Mar 2023 (£5,000) and Balance b/d 1 Apr 2023 (£5,000).
* **1 mark** for Credit: 31 Mar 2024 Income Statement £7,000 (calculated as $£4,000 + £3,000$).
* **1 mark** for Debit/Credit: Balance c/d 31 Mar 2024 (£12,000) and Balance b/d 1 Apr 2024 (£12,000).
* **2 marks** for Debit: 30 Sep 2024 Disposal of Delivery Van £9,000 (**1 mark** for correct transfer entry, **1 mark** for the correct calculation of $£5,000 + £4,000$).
* **1 mark** for Credit: 31 Mar 2025 Income Statement £2,400 (calculated as $20\% \times (15,000 - 3,000)$).
* **1 mark** for Debit/Credit: Balance c/d 31 Mar 2025 (£5,400) and Balance b/d 1 Apr 2025 (£5,400).

### **Part (c): 3 Marks**
* **1 mark** for noting that delivery vans lose more value in early years / fall in market value quickly.
* **1 mark** for pointing out that higher early depreciation balances out rising repair/maintenance costs over time, ensuring a fairer spread of total vehicle cost across years.
* **1 mark** for connecting this to the **accruals (matching) concept** by aligning high asset productivity/revenue in early years with higher expense.

Part (a): Haris - Income Statement for the year ended 30 June 2023. Revenue: $185,000. Less Cost of Sales: Opening inventory $14,200 + Purchases $98,400 + Carriage inwards $1,800 - Closing inventory $16,500 = Cost of Sales $97,900. Gross Profit: $185,000 - $97,900 = $87,100. Less Expenses: Carriage outwards $2,100; Wages and salaries ($24,500 + $1,200) = $25,700; Rent and rates ($12,000 - $1,500) = $10,500; General expenses $6,300; Irrecoverable debts $800; Depreciation on equipment [20% * ($40,000 - $16,000)] = $4,800; Increase in allowance for doubtful debts [New allowance 4% * ($18,000 - $800) = $688; Increase = $688 - $540 = $148]. Total Expenses = $50,348. Profit for the year = $87,100 - $50,348 = $36,752. Part (b): Haris - Statement of Financial Position (Extract) as at 30 June 2023. Current Assets: Inventory $16,500; Trade receivables ($18,000 - $800) = $17,200 less Allowance for doubtful debts ($688) = $16,512; Other receivables (Prepaid rent) $1,500; Cash and bank $3,240. Total Current Assets = $37,752. Current Liabilities: Trade payables $11,500; Other payables (Accrued wages) $1,200. Total Current Liabilities = $12,700. Part (c): The Prudence concept is applied. This concept ensures that assets and profits are not overstated, and liabilities and losses are not understated. Writing off irrecoverable debts and maintaining an allowance for doubtful debts ensures that trade receivables are presented at their realistic realizable value, and potential losses are recognized in the period they occur. (Note: Accruals/matching concept is also acceptable as it ensures expenses are matched against the revenues of the period).

Part (a): 14 marks. Revenue $185,000 (1); Opening inventory $14,200 + Purchases $98,400 (1); Carriage inwards $1,800 (1); Closing inventory $16,500 (1); Gross Profit calculation $87,100 (1of); Carriage outwards $2,100 (1); Wages and salaries $25,700 (1); Rent and rates $10,500 (1); General expenses $6,300 (1); Irrecoverable debts $800 (1); Depreciation on equipment $4,800 (1); Increase in allowance for doubtful debts $148 (2); Profit for the year calculation $36,752 (1of). Part (b): 7 marks. Closing Inventory $16,500 (1); Net Trade receivables $16,512 (2) (1 mark for $17,200 and 1 mark for deducting $688); Other receivables $1,500 (1); Cash and bank $3,240 (1); Trade payables $11,500 (1); Other payables $1,200 (1). Part (c): 4 marks. Identify Prudence concept or Accruals/Matching concept (1); Define the identified concept (1); Explain application to irrecoverable debts / allowance (2).

(a) Ava and Ben Partnership
Appropriation Account for the year ended 31 December 2023

Details$$Profit for the year85,000Add: Interest on DrawingsAva600Ben4001,00086,000Less: Interest on CapitalAva (5% of $120,000)(6,000)Ben (5% of $80,000)(4,000)(10,000)Less: SalaryBen(12,000)Residual Profit to share64,000Share of Profit:Ava (60%)38,400Ben (40%)25,60064,000

(b) Partners' Current Accounts

DateDetailsAva ($)Ben ($)DateDetailsAva ($)Ben ($)20232023Jan 1Balance b/d-2,100Jan 1Balance b/d4,500-Dec 31Drawings15,00010,000Dec 31Interest on Capital6,0004,000Dec 31Interest on Drawings600400Dec 31Salary-12,000Dec 31Balance c/d33,30029,100Dec 31Share of Profit38,40025,600Total48,90041,600Total48,90041,6002024Jan 1Balance b/d33,30029,100

(c) Return on Capital Employed (ROCE) Calculation

• Total Capital Employed = Capital Accounts + Current Accounts at start of the year (1 January 2023)

• Capital Employed = $120,000 (Ava Capital) + $80,000 (Ben Capital) + $4,500 (Ava Current Cr) - $2,100 (Ben Current Dr) = $202,400

• ROCE = \( \frac{\text{Profit for the year}}{\text{Total Capital Employed}} \times 100 \)

• ROCE = \( \frac{85,000}{202,400} \times 100 = 42.00\% \)

(d) Evaluation of Ben's Investment

• Ben should be highly satisfied with the financial performance and position of his investment.

• Performance: Ben's total return for the year is $41,600 (Salary $12,000 + Interest on Capital $4,000 + Profit Share $25,600), which yields a personal return of 52% on his initial $80,000 capital investment. Additionally, the partnership's overall ROCE is an exceptionally high 42.00%, showing highly efficient use of capital.

• Position: Ben's current account position has drastically improved. He started the year with a deficit (Debit balance) of $2,100, meaning he owed money to the partnership. By 31 December 2023, due to high earnings and moderate drawings, his current account has a strong positive surplus (Credit balance) of $29,100.