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A credit note is issued by a supplier to reduce the amount owed by a customer, representing a correction or refund for overcharging or returned goods.

Award 1 mark for the correct selection of credit note.

Trade discount must be deducted before recording credit transactions in the books of original entry. Net credit sales value is $800 \times (1 - 0.10) = $720. Credit sales are recorded in the Sales journal.

Award 1 mark for selecting the correct book (Sales journal) and the correct calculated amount of $720.

Revenue expenditure represents everyday operating costs incurred to run the business. Annual road tax and insurance are recurring operating expenses. Capital expenditure includes the cost of purchasing non-current assets and any one-off costs required to bring them into their intended use (such as logo painting and security systems installed prior to first use).

Award 1 mark for identifying the recurring annual road tax and insurance as revenue expenditure.

The business entity concept dictates that the transactions of a business must be kept separate from the personal transactions of its owner. Since the computer printer was purchased for personal use, it should have been treated as drawings, not as a business expense.

Award 1 mark for correctly identifying the business entity concept.

A contra entry reduces the liability to the trade payables. Since the Trade Payables Control Account has a normal credit balance, a reduction in the balance owed must be debited.

Award 1 mark for identifying that the contra entry is recorded on the debit side only.

A trial balance will fail to agree if there is a single-entry error (where one side of a transaction is recorded but the other side is omitted). Debiting the supplier's account without a corresponding credit in the cash/bank account will leave the ledger out of balance. The other errors listed are errors of omission, original entry, and principle, which do not disrupt the equality of debits and credits.

Award 1 mark for identifying the single-entry error as the cause of trial balance disagreement.

The residual profit is calculated as the net profit for the year less any partnership salaries: \(\text{Residual Profit} = \$36,000 - \$6,000 = \$30,000\). Partner Y's share is \(\frac{1}{3} \times \$30,000 = \$10,000\).

Award 1 mark for calculating Partner Y's residual profit share of $10,000.

The cost of raw materials consumed is calculated as: \(\text{Opening Inventory of Raw Materials} + \text{Purchases of Raw Materials} + \text{Carriage Inwards} - \text{Closing Inventory of Raw Materials}\). Thus: \(\$12,000 + \$85,000 + \$3,000 - \$14,000 = \$86,000\).

Award 1 mark for calculating the correct cost of raw materials consumed as $86,000.

Capital expenditure includes the purchase cost of the non-current asset and any costs directly incurred to bring the asset into its working location and condition for its intended use.

Capitalized costs:
- Purchase price: $25 000
- Delivery charge: $1 500
- Installation costs: $800

\(\text{Total Capitalized Cost} = \$25\,000 + \$1\,500 + \$800 = \$27\,300\)

Note: Insurance for the first year is a revenue expenditure (recurring operational expense), and the repair of a damaged part is also a revenue expenditure (avoidable repair/maintenance cost).

1 mark for selecting B. 0 marks for all other options.

The materiality concept states that insignificant items do not need to be treated strictly in accordance with standard accounting rules if the cost of doing so outweighs the benefit, and if it does not mislead the users of the financial statements. Recording a very low-value item like a $15 calculator as a non-current asset and depreciating it over five years is immaterial and time-consuming, so it is treated as a revenue expense.

1 mark for selecting C. 0 marks for all other options.

**(i) Trade discount amount**
\(15\% \times \$600 = \$90\)

**(ii) Net cost of returned goods**
\(\$600 - \$90 = \$510\)

**(iii) VAT amount**
\(20\% \times \$510 = \$102\)

**(iv) Total Credit amount**
\(\$510 + \$102 = \$612\)

**(v) Book of prime entry for Orion Ltd**
Orion Ltd is returning goods to a supplier. This is a purchase return, so it is recorded in the **Purchases returns journal** (or **Returns outwards journal**).

Award 1 mark for each correct calculation/identification as follows:

(i) \(\$90\) [1 mark]
(ii) \(\$510\) [1 mark] (Accept own figure: \(\$600\) - own trade discount)
(iii) \(\$102\) [1 mark] (Accept own figure: own net cost \(\times 20\%\))
(iv) \(\$612\) [1 mark] (Accept own figure: own net cost + own VAT)
(v) Purchases returns journal / Returns outwards journal [1 mark] (Do not accept Purchases journal, Sales returns journal, or General journal)

1. **Legal fees incurred in purchasing a new business warehouse**: Classified as **Capital Expenditure**. Legal costs directly associated with acquiring a non-current asset are treated as capital costs because they are necessary to bring the asset into ownership and use.
2. **Cost of redecorating the office staff room**: Classified as **Revenue Expenditure**. Redecorating is a regular maintenance cost that maintains, rather than increases, the value or earning capacity of the asset.
3. **Carriage costs paid to transport a new production machine**: Classified as **Capital Expenditure**. Carriage-in on a non-current asset is a directly attributable cost required to bring the asset to its working location and condition.
4. **Annual maintenance contract fee for the office computers**: Classified as **Revenue Expenditure**. Ongoing service and maintenance agreements represent regular operating expenses of running the business.
5. **Purchase of a new motor vehicle for deliveries**: Classified as **Capital Expenditure**. The purchase of a non-current asset is capital expenditure.

Award 1 mark for each correct classification:
- Legal fees on warehouse: Capital Expenditure (1)
- Redecorating staff room: Revenue Expenditure (1)
- Carriage on machine: Capital Expenditure (1)
- Computer maintenance fee: Revenue Expenditure (1)
- Purchase of motor vehicle: Capital Expenditure (1)

Maximum marks: 5
Accept "Capital" or "Revenue" as abbreviated answers.

1. **Goods sold on credit**: Recorded in the **Sales Journal** (or Sales Day Book). This book is used to record all credit sales of inventory (goods for resale).
2. **Goods returned to a credit supplier**: Recorded in the **Purchases Returns Journal** (or Purchases Returns Day Book). This book is used to record returns of inventory to suppliers.
3. **Purchase of office furniture on credit**: Recorded in the **General Journal** (or Journal). Credit purchases of non-current assets cannot be recorded in the Purchases Journal (which is strictly for inventory), so they must be entered in the General Journal.
4. **Received a cheque from credit customer**: Recorded in the **Cash Book**. All receipts and payments by cheque or bank transfer are processed through the bank columns of the Cash Book.
5. **Cash purchase of stationery**: Recorded in the **Cash Book** (or **Petty Cash Book**). Direct cash expenditures for expenses are entered in either the cash column of the Cash Book or, if minor, the Petty Cash Book.

Award 1 mark for each correct book of original entry identified:
1. Sales Journal / Sales Day Book (1)
2. Purchases Returns Journal / Purchases Returns Day Book / Returns Outwards Book (1)
3. General Journal / Journal (1)
4. Cash Book (1)
5. Cash Book / Petty Cash Book (1)

Maximum marks: 5
Do not accept "Ledger" (e.g., Sales Ledger, Purchases Ledger) as these are ledgers, not books of original entry.

**(a) Partnership Appropriation Account for the year ended 31 December 2022**

| Details | \(£\) | \(£\) |
| :--- | :--- | :--- |
| Profit for the year | | 45,000 |
| **Add: Interest on Drawings** | | |
| - Amelia | 400 | |
| - Ben | 300 | 700 |
| | | 45,700 |
| **Less: Interest on Capital** | | |
| - Amelia \((5\\% \times £60,000)\) | 3,000 | |
| - Ben \((5\\% \times £40,000)\) | 2,000 | (5,000) |
| **Less: Salary** | | |
| - Amelia | | (8,000) |
| **Residual Profit for division** | | **32,700** |
| **Share of Profit** | | |
| - Amelia \((3/5 \times £32,700)\) | 19,620 | |
| - Ben \((2/5 \times £32,700)\) | 13,080 | 32,700 |

**(b) Ben's Current Account**

| Date (2022) | Details | Debit (\(£\)) | Date (2022) | Details | Credit (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 1 Jan | Balance b/d | 1,200 | 31 Dec | Interest on Capital | 2,000 |
| 31 Dec | Drawings | 10,000 | 31 Dec | Share of Profit | 13,080 |
| 31 Dec | Interest on Drawings | 300 | | | |
| 31 Dec | Balance c/d | 3,580 | | | |
| | **Total** | **15,080** | | **Total** | **15,080** |
| | | | 1 Jan 2023 | Balance b/d | 3,580 |

**(c) Differences between a partnership and a sole trader:**
1. **Ownership:** A sole trader is owned by one person, whereas a partnership has 2 or more owners (usually up to 20).
2. **Capital Contribution:** In a sole trader, capital is provided by only one owner, while in a partnership, multiple partners can contribute capital.
3. **Distribution of Profits/Losses:** A sole trader keeps all the profits/losses, whereas in a partnership, profits and losses are shared between the partners according to a partnership agreement.

- (a) Appropriation account: 7 marks. 1 mark for total interest on drawings added (\(£700\)), 1 mark for Amelia interest on capital (\(£3,000\)), 1 mark for Ben interest on capital (\(£2,000\)), 1 mark for Amelia salary (\(£8,000\)), 1 mark for residual profit of \(£32,700\), 1 mark for Amelia's profit share, 1 mark for Ben's profit share.
- (b) Ben's Current account: 5 marks. 1 mark for opening balance b/d on debit side (\(£1,200\)), 1 mark for drawings (\(£10,000\)) + interest on drawings (\(£300\)) on debit side, 1 mark for interest on capital (\(£2,000\)) on credit side, 1 mark for share of profit (\(£13,080\)) on credit side, 1 mark for correct balance c/d and b/d on credit side.
- (c) Differences: 3 marks. 1 mark for each valid difference up to 3.

**(a) Cost of raw materials consumed**

\(\text{Cost of raw materials consumed} = \text{Opening inventory of raw materials} + \text{Purchases of raw materials} + \text{Carriage inwards on raw materials} - \text{Closing inventory of raw materials}\)

\(\text{Cost of raw materials consumed} = £18,500 + £84,600 + £2,400 - £19,200 = £86,300\)

**(b) Manufacturing Account for Zuri for the year ended 31 March 2023**

| Details | \(£\) | \(£\) |
| :--- | :--- | :--- |
| **Direct Materials:** | | |
| Opening inventory of raw materials | 18,500 | |
| Add: Purchases of raw materials | 84,600 | |
| Add: Carriage inwards | 2,400 | |
| | 105,500 | |
| Less: Closing inventory of raw materials | (19,200) | |
| Cost of raw materials consumed | | 86,300 |
| Direct factory wages | | 56,000 |
| **PRIME COST** | | **142,300** |
| **Factory Overheads (Indirect Costs):** | | |
| Indirect factory wages | 14,800 | |
| Factory power and electricity | 8,500 | |
| Depreciation of factory machinery | 12,300 | 35,600 |
| | | 177,900 |
| Add: Opening work in progress | | 11,200 |
| | | 189,100 |
| Less: Closing work in progress | | (12,500) |
| **COST OF PRODUCTION** | | **175,400** |

**(c) Difference between direct and indirect costs:**
- **Direct costs:** Costs that can be directly and easily traced to the production of a specific unit of product (e.g., raw timber wood for furniture, direct wages paid to carpenters).
- **Indirect costs:** Costs that cannot be directly traced to a specific unit of product but are necessary for the factory's overall operation (e.g., factory rent, indirect wages of factory supervisors, depreciation of factory machinery).

- (a) Cost of raw materials consumed: 4 marks. 1 mark for opening inventory + purchases, 1 mark for adding carriage inwards, 1 mark for subtracting closing inventory, 1 mark for correct final amount (\(£86,300\)).
- (b) Manufacturing Account: 8 marks. 1 mark for cost of raw materials consumed transferred (\(£86,300\)), 1 mark for direct wages (\(£56,000\)), 1 mark for correct Prime Cost (\(£142,300\)), 2 marks for listing and summing all factory overheads (\(£35,600\)), 1 mark for adding opening WIP, 1 mark for subtracting closing WIP, 1 mark for correct final Cost of Production (\(£175,400\)).
- (c) Explanation of direct/indirect costs: 3 marks. 1 mark for defining direct costs with a correct example, 1 mark for defining indirect costs with a correct example, 1 mark for highlighting the key distinction of traceability.

**(a) Rohan's Journals**

**Purchases Journal**

| Date (2023) | Supplier | Invoice No. | Amount (\(£\)) |
| :--- | :--- | :--- | :--- |
| May 4 | Tara | T908 | 6,400 |
| May 18 | Tara | T950 | 4,250 |
| | **Total** | | **10,650** |

*Working notes:*
- May 4: \(£8,000 - 20\\% = £6,400\)
- May 18: \(£5,000 - 15\\% = £4,250\)

**Purchases Returns Journal**

| Date (2023) | Supplier | Credit Note No. | Amount (\(£\)) |
| :--- | :--- | :--- | :--- |
| May 10 | Tara | C342 | 1,200 |
| | **Total** | | **1,200** |

*Working notes:*
- May 10: \(£1,500 - 20\\% = £1,200\) (using the same discount rate from May 4)

**(b) Purchases Ledger - Tara Account**

| Date (2023) | Details | Amount (\(£\)) | Date (2023) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| May 10 | Purchases Returns | 1,200 | May 4 | Purchases | 6,400 |
| May 28 | Bank | 5,044 | May 18 | Purchases | 4,250 |
| May 28 | Discount Received | 156 | | | |
| May 31 | Balance c/d | 4,250 | | | |
| | **Total** | **10,650** | | **Total** | **10,650** |
| | | | Jun 1 | Balance b/d | 4,250 |

*Working notes for May 28 payment:*
- Net amount due from May 4 invoice: \(£6,400 - £1,200 = £5,200\)
- Cash discount: \(3\\% \times £5,200 = £156\)
- Net cash paid: \(£5,200 - £156 = £5,044\)

**(c) Difference between trade discount and cash discount:**
- **Trade discount** is a reduction in the list price of goods given to traders in the same line of business. It is deducted before invoicing and is **not** recorded as an entry in the ledger accounts.
- **Cash discount** is a reduction given to encourage quick payment of invoices within a specified timeframe. It is calculated on the net invoice amount and **is** recorded in the ledger accounts (e.g., Discount Received/Allowed accounts).

- (a) Journals: 6 marks.
- Purchases Journal entries: 1 mark for May 4 correct net amount (\(£6,400\)), 1 mark for May 18 correct net amount (\(£4,250\)), 1 mark for correct format with column headings.
- Purchases Returns Journal entry: 2 marks for May 10 with correct net amount of \(£1,200\) (deducting the 20% trade discount), 1 mark for correct format with column headings.
- (b) Tara Account: 6 marks.
- Credit entries: 1 mark for both correct Purchases entries.
- Debit entries: 1 mark for Purchases Returns entry (\(£1,200\)), 1 mark for correct Bank payment (\(£5,044\)), 1 mark for correct Discount Received (\(£156\)).
- Balance c/d and b/d: 1 mark for balancing the account and bringing down the correct balance of \(£4,250\).
- (c) Difference: 3 marks.
- 1.5 marks for Trade discount (definition and that it is not recorded in ledgers).
- 1.5 marks for Cash discount (definition and that it is recorded in ledger accounts).

**(a) Insurance Account**

| Date (2022) | Details | Amount (\(£\)) | Date (2022) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Jan 1 | Balance b/d | 300 | Dec 31 | Income Statement | 1,500 |
| Jul 1 | Bank | 2,400 | Dec 31 | Balance c/d | 1,200 |
| | **Total** | **2,700** | | **Total** | **2,700** |
| Jan 1 2023 | Balance b/d | 1,200 | | | |

*Working notes:*
- Prepaid at 31 Dec 2022: \(£2,400 \times 6/12 = £1,200\) (covering Jan - June 2023)
- Income Statement transfer (balancing figure): \(£300 + £2,400 - £1,200 = £1,500\)

**(b) Rent Receivable Account**

| Date (2022) | Details | Amount (\(£\)) | Date (2022) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Jan 1 | Balance b/d (Arrears) | 600 | Dec 31 | Bank | 8,200 |
| Dec 31 | Income Statement | 7,200 | Dec 31 | Balance c/d (Prepaid) | 400 |
| | **Total** | **8,200** | | **Total** | **8,200** |
| | | | Jan 1 2023 | Balance b/d (Prepaid) | 400 |

*Working notes:*
- Opening arrears is a debit balance (asset).
- Closing prepayment is a liability to be carried forward as credit balance b/d on 1 Jan 2023 (thus a debit balance c/d on 31 Dec 2022).
- Transfer to Income Statement: \(£8,200 - £600 - £400 = £7,200\).

**(c) Accruals (Matching) Concept:**
- **Definition:** The accruals concept states that revenue and expenses should be recorded in the period to which they relate, not when the cash is received or paid.
- **Application to Nadia's insurance:** Nadia paid \(£2,400\) on 1 July 2022 for a 12-month period. Under the accruals concept, only the portion of insurance relating to the current financial year (6 months, i.e., \(£1,200\)) plus the opening prepaid of \(£300\) (total \(£1,500\)) is matched as an expense in the 2022 Income Statement. The remaining \(£1,200\) relates to 2023 and is prepaid/carried forward as a current asset on the Statement of Financial Position.

- (a) Insurance Account: 5 marks.
- 1 mark for Balance b/d on Jan 1 on debit side (\(£300\)).
- 1 mark for Bank payment on July 1 (\(£2,400\)).
- 1 mark for correct prepayment calculation of \(£1,200\).
- 1 mark for Balance c/d on debit side and b/d on credit side correctly positioned.
- 1 mark for correct Income Statement transfer of \(£1,500\).
- (b) Rent Receivable Account: 6 marks.
- 1 mark for Balance b/d on Jan 1 on debit side (\(£600\)).
- 1 mark for Bank receipt on credit side (\(£8,200\)).
- 1 mark for Balance c/d (prepaid) of \(£400\) on the debit side.
- 1 mark for bringing down the Credit balance b/d of \(£400\) on 1 Jan 2023.
- 2 marks for correct calculation and positioning of the Income Statement transfer (\(£7,200\)).
- (c) Accruals concept: 4 marks.
- 2 marks for explaining the core concept of matching expenses and revenues to the correct period.
- 2 marks for explaining why only \(£1,500\) is treated as an expense and \(£1,200\) is carried forward as a current asset.

**(a) Ledger Accounts**

**(i) Irrecoverable Debts Account**

| Date (2023) | Details | Amount (\(£\)) | Date (2023) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Mar 31 | Karim | 800 | Mar 31 | Income Statement | 800 |
| | **Total** | **800** | | **Total** | **800** |

**(ii) Irrecoverable Debts Recovered Account**

| Date (2023) | Details | Amount (\(£\)) | Date (2023) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Mar 31 | Income Statement | 450 | Mar 31 | Bank / Dylan | 450 |
| | **Total** | **450** | | **Total** | **450** |

**(iii) Provision for Doubtful Debts Account**

| Date (2023) | Details | Amount (\(£\)) | Date (2022/23) | Details | Amount (\(£\)) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 31 Mar 2023 | Balance c/d | 2,088 | 1 Apr 2022 | Balance b/d | 1,440 |
| | | | 31 Mar 2023 | Income Statement | 648 |
| | **Total** | **2,088** | | **Total** | **2,088** |
| | | | 1 Apr 2023 | Balance b/d | 2,088 |

*Working notes:*
- Trade Receivables at 31 March 2023 = \(£48,000\) (opening) + \(£220,000\) (credit sales) - \(£215,000\) (receipts) - \(£800\) (Karim write-off) = \(£52,200\).
- New provision: \(4\\% \times £52,200 = £2,088\).
- Increase in provision: \(£2,088 - £1,440 = £648\).

**(b) Trade Receivables Balance and Provision:**
- **Final Trade Receivables balance (31 March 2023):** \(£52,200\)
- **Provision for Doubtful Debts carried forward:** \(£2,088\)

**(c) Credit Control Methods:**
1. **Credit checks:** Perform creditworthiness assessments before offering credit terms to new customers.
2. **Set credit limits:** Limit the maximum amount of credit any single customer can run up.
3. **Regular monitoring / Aging schedule:** Generate aged trade receivables reports and contact late-paying customers promptly.

- (a)(i) Irrecoverable Debts Account: 3 marks. 1 mark for debiting Karim (\(£800\)), 1 mark for crediting Income Statement (\(£800\)), 1 mark for correct formatting.
- (a)(ii) Irrecoverable Debts Recovered Account: 2 marks. 1 mark for crediting Bank/Dylan (\(£450\)), 1 mark for debiting Income Statement (\(£450\)).
- (a)(iii) Provision for Doubtful Debts Account: 5 marks. 1 mark for credit Balance b/d on 1 April 2022 (\(£1,440\)), 1 mark for calculating correct increase in provision of \(£648\), 1 mark for crediting Income Statement with \(£648\), 1 mark for debit Balance c/d of \(£2,088\), 1 mark for bringing down Credit Balance b/d of \(£2,088\) on 1 April 2023.
- (b) Calculations: 2 marks. 1 mark for correct final Trade Receivables (\(£52,200\)), 1 mark for correct closing Provision (\(£2,088\)).
- (c) Credit Control Methods: 3 marks. 1.5 marks for each credit control method explained (maximum 3 marks).

### a) Manufacturing Account of Oakwood Artisans for the year ended 30 June 2023

\begin{array}{lrr}
\textbf{Oakwood Artisans} & & \\
\textbf{Manufacturing Account for the year ended 30 June 2023} & & \\
\hline
& \mathbf{$} & \mathbf{$} \\
\textbf{Opening inventory of raw materials} & & 18,400 \\
\text{Add: Purchases of raw materials} & 142,600 & \\
\text{Add: Carriage inwards} & 3,200 & \\
\hline
& 145,800 & \\
\text{Less: Closing inventory of raw materials} & (19,200) & \\
\hline
\textbf{Cost of raw materials consumed} & & 145,000 \\
\text{Direct factory wages } ($86,400 + $1,600\text{ accrued}) & & 88,000 \\
\hline
\textbf{Prime Cost} & & \mathbf{233,000} \\
\textbf{Factory Overheads:} & & \\
\text{Indirect factory wages} & 34,800 & \\
\text{Factory electricity and power } ($16,500 - $900\text{ prepaid}) & 15,600 & \\
\text{Rent and rates } (75\% \times $20,000) & 15,000 & \\
\text{Depreciation of factory machinery } [15\% \times ($120,000 - $36,000)] & 12,600 & \\
\hline
\text{Total Factory Overheads} & & 78,000 \\
\hline
& & 311,000 \\
\text{Add: Opening work in progress} & & 11,200 \\
\hline
& & 322,200 \\
\text{Less: Closing work in progress} & & (12,500) \\
\hline
\textbf{Cost of Production} & & \mathbf{309,700} \\
\hline
\end{array}

### b) Income Statement of Oakwood Artisans for the year ended 30 June 2023

\begin{array}{lrr}
\textbf{Oakwood Artisans} & & \\
\textbf{Income Statement for the year ended 30 June 2023} & & \\
\hline
& \mathbf{$} & \mathbf{$} \\
\textbf{Revenue (Sales)} & & 412,000 \\
\textbf{Cost of Sales:} & & \\
\text{Opening inventory of finished goods} & 24,500 & \\
\text{Add: Cost of Production} & 309,700 & \\
\hline
& 334,200 & \\
\text{Less: Closing inventory of finished goods} & (26,100) & \\
\hline
\textbf{Cost of Sales} & & (308,100) \\
\hline
\textbf{Gross Profit} & & \mathbf{103,900} \\
\textbf{Expenses:} & & \\
\text{Office salaries} & 42,000 & \\
\text{General office expenses} & 8,900 & \\
\text{Rent and rates } (25\% \times $20,000) & 5,000 & \\
\text{Depreciation of office equipment } (10\% \times $40,000) & 4,000 & \\
\hline
\text{Total Expenses} & & (59,900) \\
\hline
\textbf{Profit for the Year} & & \mathbf{44,000} \\
\hline
\end{array}

### a) Manufacturing Account [15 Marks]
- **Opening inventory + Purchases of raw materials** (1 mark for both correct)
- **Carriage inwards** added (1 mark)
- **Closing inventory of raw materials** deducted (1 mark)
- **Cost of raw materials consumed** correct figure: $145,000 (1 mark)
- **Direct factory wages** adjusted correctly ($86,400 + $1,600 = $88,000) (2 marks, 1 for adjustment, 1 for correct total)
- **Prime Cost** total: $233,000 (1 mark, OF/Owned Figure)
- **Indirect factory wages**: $34,800 (1 mark)
- **Factory electricity and power** adjusted ($16,500 - $900 = $15,600) (2 marks, 1 for adjustment, 1 for correct total)
- **Rent and rates (Factory portion)** (75\% of $20,000 = $15,000) (1 mark)
- **Depreciation of factory machinery** [15\% of ($120,000 - $36,000) = $12,600] (2 marks, 1 for correct method, 1 for correct value)
- **Work in progress adjustments** (1 mark for adding opening, 1 mark for subtracting closing)
- **Cost of Production** total: $309,700 (1 mark, OF)

### b) Income Statement [10 Marks]
- **Revenue**: $412,000 (1 mark)
- **Cost of Sales section structure** (Opening finished goods + Cost of Production - Closing finished goods = $308,100) (3 marks, 1 mark for each line correctly placed/value)
- **Gross Profit**: $103,900 (1 mark, OF)
- **Office salaries & General office expenses**: (1 mark for listing both correctly with trial balance figures)
- **Rent and rates (Office portion)** (25\% of $20,000 = $5,000) (1 mark)
- **Depreciation of office equipment** (10\% of $40,000 = $4,000) (1 mark)
- **Total Expenses sum**: $59,900 (1 mark, OF)
- **Profit for the Year**: $44,000 (1 mark, OF)

### **(a) Calculation of Adjusted Profit**

$$\begin{array}{lr}
\text{Profit before adjustment} & \text{£}42,500 \\
\text{Less: Interest on Bilal's Loan } (\text{£}10,000 \times 6\%) & (\text{£}600) \\
\hline
\textbf{Adjusted Profit for the Year} & \mathbf{\text{£}41,900} \\
\hline
\end{array}$$

*Note: Interest on a partner's loan is an expense in the income statement, not an appropriation of profit.*

---

### **(b) Partnership Appropriation Account**

$$\begin{array}{lrr}
\textbf{Arjun and Bilal} & & \\
\textbf{Partnership Appropriation Account for the year ended 31 December 2023} & & \\
\hline
& \text{£} & \text{£} \\
\text{Adjusted Profit for the year} & & 41,900 \\
\text{Add: Interest on drawings} & & \\
\quad \text{Arjun} & 400 & \\
\quad \text{Bilal} & 300 & 700 \\
\hline
& & 42,600 \\
\text{Less: Interest on Capital} & & \\
\quad \text{Arjun } (5\% \times \text{£}60,000) & 3,000 & \\
\quad \text{Bilal } (5\% \times \text{£}40,000) & 2,000 & (5,000) \\
\text{Less: Partner's Salary - Bilal} & & (6,000) \\
\hline
\textbf{Residual Profit} & & \mathbf{31,600} \\
\hline
\text{Share of Profit:} & & \\
\quad \text{Arjun } (31,600 \times 3/5) & 18,960 & \\
\quad \text{Bilal } (31,600 \times 2/5) & 12,640 & (31,600) \\
\hline
\end{array}$$

---

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

$$\begin{array}{lrr|lrr}
\textbf{Dr} & \textbf{Arjun's Current Account} & \textbf{Cr} & \textbf{Dr} & \textbf{Bilal's Current Account} & \textbf{Cr} \\
\hline
\textbf{Date} & \textbf{Details} & \textbf{£} & \textbf{Date} & \textbf{Details} & \textbf{£} \\
\hline
\text{2023} & & & \text{2023} & & \\
\text{Dec 31} & \text{Drawings} & 15,000 & \text{Jan 1} & \text{Balance b/d} & 1,500 \\
\text{Dec 31} & \text{Interest on Drawings} & 400 & \text{Dec 31} & \text{Drawings} & 12,000 \\
\text{Dec 31} & \text{Balance c/d} & 9,760 & \text{Dec 31} & \text{Interest on Drawings} & 300 \\
& & & \text{Dec 31} & \text{Balance c/d} & 7,440 \\
\hline
& & \mathbf{25,160} & & & \mathbf{21,240} \\
\hline
& & & \text{2023} & & \\
& & & \text{Jan 1} & \text{Balance b/d} & 3,200 \\
& & & \text{Dec 31} & \text{Interest on Capital} & 3,000 \\
& & & \text{Dec 31} & \text{Share of Profit} & 18,960 \\
\hline
& & \mathbf{25,160} & & & \mathbf{21,240} \\
\hline
& & & \text{2024} & & \\
& & & \text{Jan 1} & \text{Balance b/d} & 9,760 \\
\end{array}$$

$$\begin{array}{lrr|lrr}
\textbf{Dr} & \textbf{Bilal's Current Account (Detailed Cr Side)} & \textbf{Cr} & & & \\
\hline
\text{2023} & & & \text{2023} & & \\
\text{Jan 1} & \text{Balance b/d} & 1,500 & \text{Dec 31} & \text{Interest on Capital} & 2,000 \\
\text{Dec 31} & \text{Drawings} & 12,000 & \text{Dec 31} & \text{Partner Salary} & 6,000 \\
\text{Dec 31} & \text{Interest on Drawings} & 300 & \text{Dec 31} & \text{Share of Profit} & 12,640 \\
\text{Dec 31} & \text{Balance c/d} & 7,440 & \text{Dec 31} & \text{Outstanding Loan Interest} & 600 \\
\hline
& & \mathbf{21,240} & & & \mathbf{21,240} \\
\hline
& & & \text{2024} & & \\
& & & \text{Jan 1} & \text{Balance b/d} & 7,440 \\
\end{array}$$

*Note: The outstanding loan interest of \(\text{£}600\) is credited to Bilal's current account because it is an amount owed to him by the partnership and has not yet been paid in cash.*

---

### **(d) Reasons for Maintaining Separate Capital and Current Accounts**

1. **Capital Preservation:** Keeping the capital accounts fixed ensures that each partner's permanent financial contribution/stake is kept intact and not eroded by excessive personal drawings.
2. **Monitoring of Drawings & Performance:** Maintaining a separate current account makes it easier to track the annual earnings (salaries, interest on capital, share of profit) against the amount withdrawn (drawings, interest on drawings). This prevents partners from unintentionally drawing more than their accumulated profits.

### **Marking Scheme Breakdown**

**Part (a) [2 Marks]**
* **1 mark:** Correct calculation of Bilal's loan interest: \(\text{£}10,000 \times 6\% = \text{£}600\).
* **1 mark:** Correct adjusted profit: \(\text{£}42,500 - \text{£}600 = \text{£}41,900\).

**Part (b) [10 Marks]**
* **1 mark (OF):** Net profit of \(\text{£}41,900\) carried down from part (a).
* **1 mark:** Correct interest on drawings details: Arjun \(\text{£}400\) and Bilal \(\text{£}300\) shown and added.
* **1 mark:** Correct total after interest on drawings: \(\text{£}42,600\).
* **1 mark:** Arjun's Interest on Capital: \(\text{£}3,000\).
* **1 mark:** Bilal's Interest on Capital: \(\text{£}2,000\).
* **1 mark:** Bilal's Salary: \(\text{£}6,000\).
* **2 marks (OF):** Arjun's share of profit: \(\text{£}18,960\) (1 method mark for applying 3/5 ratio to remaining profit, 1 accuracy mark).
* **2 marks (OF):** Bilal's share of profit: \(\text{£}12,640\) (1 method mark for applying 2/5 ratio to remaining profit, 1 accuracy mark).

**Part (c) [9 Marks]**
* **1 mark:** Opening balances correctly entered (Arjun \(\text{£}3,200\) on Credit; Bilal \(\text{£}1,500\) on Debit).
* **1 mark:** Correct drawings recorded on Debit side (Arjun \(\text{£}15,000\); Bilal \(\text{£}12,000\)).
* **1 mark:** Correct interest on drawings recorded on Debit side (Arjun \(\text{£}400\); Bilal \(\text{£}300\)).
* **1 mark (OF):** Correct interest on capital recorded on Credit side (Arjun \(\text{£}3,000\); Bilal \(\text{£}2,000\)).
* **1 mark:** Bilal's salary recorded on Credit side (\(\text{£}6,000\)).
* **1 mark (OF):** Share of profits recorded on Credit side (Arjun \(\text{£}18,960\); Bilal \(\text{£}12,640\)).
* **1 mark:** Outstanding loan interest of \(\text{£}600\) credited to Bilal's Current Account.
* **1 mark (OF):** Both accounts balanced with correct closing balances brought down on 1 January 2024 (Arjun \(\text{£}9,760\) Cr; Bilal \(\text{£}7,440\) Cr).
* **1 mark:** Correct dates and ledger account presentation throughout.

**Part (d) [4 Marks]**
* **2 marks:** Point 1 - Max 2 marks (1 mark for stating that it keeps the capital contribution/investment fixed/intact; 1 mark for explanation, e.g., makes it easier to compute interest on capital or determine equity stake).
* **2 marks:** Point 2 - Max 2 marks (1 mark for stating that it separates regular earnings from capital or tracks drawings; 1 mark for explanation, e.g., prevents partners from overdrawing and eroding the capital base).