2025 Cambridge IGCSE Accounting (0452) Practice Paper with Answers

Error 1: Goods taken for personal use should be debited to drawings and credited to purchases. Instead, drawings was credited and purchases was debited. Correcting this requires a credit of $800 to the purchases account (reducing purchases and thereby increasing profit by $800). The corresponding debit to drawings has no effect on profit. Error 2: Carriage inwards (part of cost of sales) was debited to carriage outwards (an expense). Both items reduce the overall profit for the year by $150. Correcting this error has a net-zero effect on the profit for the year. Corrected profit = $14,200 + $800 = $15,000.

Award 1 mark for the correct option (C). Correct calculation: $14,200 + $800 = $15,000.

Number of ordinary shares = $100,000 / $0.50 = 200,000 shares. Interim dividend = 200,000 shares * $0.02 = $4,000. Proposed final dividend = 200,000 shares * $0.04 = $8,000. Total dividends paid and proposed = $4,000 + $8,000 = $12,000. Debenture interest of $2,000 (5% * $40,000) is a finance cost and is excluded from dividends.

Award 1 mark for the correct option (C). Correct calculation of shares (200,000) and applying dividend amounts.

The list price of the returned goods is $600 (half of $1,200). A 15% trade discount must be deducted: $600 * 15% = $90. The net value of the returned goods = $600 - $90 = $510. Zain is returning goods to a supplier (purchases returns), which reduces his liability to Alaa. Therefore, Zain debits Alaa's account and credits the Purchases Returns account.

Award 1 mark for the correct option (A). Both the accounts and the net amount ($510) must be correct.

Prime Cost = Direct Materials + Direct Labor. Direct Materials = Cost of raw materials consumed = $85,000. Direct Labor = Direct factory wages = $42,000. Prime Cost = $85,000 + $42,000 = $127,000. The other costs (supervisor's salary, depreciation of machinery, factory rent and rates) are factory overheads.

Award 1 mark for the correct option (A). Prime Cost includes only direct costs.

Depreciation for year 2021 = 20% of $24,000 = $4,800. Net Book Value (NBV) on 31 December 2021 = $24,000 - $4,800 = $19,200. Depreciation for year 2022 = 20% of $19,200 = $3,840. Net Book Value on 31 December 2022 = $19,200 - $3,840 = $15,360. No depreciation is charged in 2023 (year of disposal). Loss on disposal = NBV $15,360 - Disposal proceeds $14,500 = $860.

Award 1 mark for the correct option (A). Correctly calculates the reducing balance depreciation over two years and determines the net book value.

Electricity Expense = Cash paid during the year - Opening unpaid (accrued) + Closing unpaid (accrued) = $1,850 - $240 + $310 = $1,920.

Award 1 mark for the correct option (C). Expense must adjust correctly for opening and closing accruals.

Gross Profit = 25% of $300,000 = $75,000. Profit for the year = Gross Profit - Expenses = $75,000 - $45,000 = $30,000. Profit margin = (Profit for the year / Revenue) * 100 = ($30,000 / $300,000) * 100 = 10%.

Award 1 mark for the correct option (A). Profit margin is calculated as (Profit for the year / Revenue) * 100.

Motor vehicle is a non-current asset. Purchasing it increases assets, requiring a debit entry to the Motor Vehicles account. Buying on credit increases the liability to the supplier, requiring a credit entry to Auto Motors' account.

Award 1 mark for the correct option (B). The correct asset and supplier ledger accounts must be debited and credited respectively.

To correct the error, vehicle repair expenses must be debited by $450, which reduces profit by $450. Additionally, the incorrect depreciation of 20\% on the $450 (which is $90) must be reversed, which increases profit by $90. The net effect on profit is a decrease of $360 ($450 - $90).

1 mark for the correct option. Award 1 mark for identifying the net reduction of $360.

The ending equity is calculated as follows: Opening Equity ($150,000) + Profit for the year ($45,000) - Dividends paid ($12,000) = $183,000. The transfer of $10,000 to the general reserve is a movement within equity and does not change the total equity.

1 mark for the correct option. Award 1 mark for correctly omitting the general reserve transfer and calculating $183,000.

A credit note sent to a customer means that the customer has returned goods to the business. This transaction represents sales returns and is recorded in the sales returns journal.

1 mark for identifying the sales returns journal.

Cost of production is calculated as: Prime Cost ($120,000) + Factory Overheads ($45,000) + Opening Work in Progress ($8,000) - Closing Work in Progress ($6,500) = $166,500.

1 mark for the correct option. Award 1 mark for calculating $166,500.

Year 1 depreciation = $20,000 * 25\% = $5,000. NBV at start of Year 2 = $15,000. Year 2 depreciation = $15,000 * 25\% = $3,750. NBV at disposal = $11,250. Loss on disposal = NBV ($11,250) - Sale proceeds ($11,000) = $250 loss.

1 mark for the correct option. Award 1 mark for calculating the loss of $250.

Gross Profit = 25\% * $240,000 = $60,000. Profit for the year = Gross Profit ($60,000) - Operating expenses ($36,000) = $24,000. Profit margin = ($24,000 / $240,000) * 100 = 10\%.

1 mark for the correct option. Award 1 mark for calculating the profit margin of 10\%.

Inventory is valued at the lower of cost and net realizable value (NRV). Cost = $12. NRV = Selling price ($15) - Repair cost ($3) - Carriage outwards ($1) = $11. The lower value is $11. Total inventory value = 100 units * $11 = $1,100.

1 mark for the correct option. Award 1 mark for applying the lower of cost and NRV rule to get $1,100.

Closing Balance = Opening Debit Balance ($12,400) + Credit Sales ($35,000) - Cash Received ($31,500) - Contra Entries ($800) - Irrecoverable Debts ($400) = $14,700.

1 mark for the correct option. Award 1 mark for arriving at the correct closing balance of $14,700.

The purchases journal entry was correct, which means the debit entry of \( \$300 \) in the purchases account was made correctly. However, only \( \$30 \) was credited to the supplier's account. This caused an imbalance of \( \$300 - \$30 = \$270 \) between the total debits and credits. To correct this, the supplier's account must be credited with \( \$270 \). Since the debit entry was already correct, the corresponding debit must be made to the Suspense account to eliminate this part of the trial balance difference. Therefore, the correct entry is: Debit Suspense \( \$270 \), Credit Supplier \( \$270 \).

Award 1 mark for selecting the correct journal entry option. No partial marks are available.

Total equity and reserves on 1 January 2022 = \( \$200,000 + \$40,000 + \$85,000 = \$325,000 \).

During the year:
- Profit for the year increases retained earnings (and thus total equity) by \( \$65,000 \).
- The paid interim dividend of \( \$12,000 \) reduces retained earnings (and thus total equity) by \( \$12,000 \).
- The transfer of \( \$15,000 \) from retained earnings to the general reserve has zero net effect on total equity, as both are components of equity.
- The proposed final dividend of \( \$18,000 \) has not yet been approved, so it is not recognised in the financial statements and does not affect equity.

Therefore, total equity on 31 December 2022 = \( \$325,000 + \$65,000 - \$12,000 = \$378,000 \).

Award 1 mark for the correct calculation and option selection.

When a customer returns goods, the supplier issues a credit note to confirm that the customer's account has been credited. The value of the returned goods must reflect any trade discount originally received.
List price of returned goods = \( \frac{1}{2} \times \$800 = \$400 \).
Trade discount on returned goods = \( 15\% \times \$400 = \$60 \).
Net amount = \( \$400 - \$60 = \$340 \).
Therefore, the supplier issues a credit note for \( \$340 \).

Award 1 mark for identifying the correct document type and net amount.

First, calculate the Prime Cost:
\( \text{Prime Cost} = \text{Cost of raw materials consumed} + \text{Direct wages} \)
\( \text{Prime Cost} = \$124,000 + \$68,000 = \$192,000 \)

Second, calculate Factory Overheads:
\( \text{Factory Overheads} = \text{Factory supervisors' salaries} + \text{Depreciation of factory machinery} \)
\( \text{Factory Overheads} = \$32,000 + \$14,000 = \$46,000 \)

Third, calculate Total Factory Cost:
\( \text{Total Factory Cost} = \text{Prime Cost} + \text{Factory Overheads} \)
\( \text{Total Factory Cost} = \$192,000 + \$46,000 = \$238,000 \)

Finally, calculate Cost of Production:
\( \text{Cost of Production} = \text{Total Factory Cost} + \text{Opening Work in Progress} - \text{Closing Work in Progress} \)
\( \text{Cost of Production} = \$238,000 + \$8,000 - \$11,000 = \$235,000 \).

Award 1 mark for the correct calculation and option selection.

1. Depreciation for 2021 (Year 1) = \( 20\% \times \$24,000 = \$4,800 \).
Net Book Value (NBV) on 31 December 2021 = \( \$24,000 - \$4,800 = \$19,200 \).
2. Depreciation for 2022 (Year 2) = \( 20\% \times \$19,200 = \$3,840 \).
NBV on 31 December 2022 = \( \$19,200 - \$3,840 = \$15,360 \).
3. Since no depreciation is charged in the year of disposal (2023), the NBV of the machine at the disposal date remains \( \$15,360 \).
4. Disposal Profit/Loss = \( \text{Sale Proceeds} - \text{NBV} = \$14,800 - \$15,360 = -\$560 \) (which is a loss of \( \$560 \)).

Award 1 mark for the correct calculation of depreciation and disposal loss.

To find the electricity expense for the year, we must adjust the actual payments for opening and closing accruals. Prepaid rent is a completely separate expense category and is ignored.
\( \text{Electricity expense} = \text{Cash paid during the year} - \text{Opening unpaid electricity} + \text{Closing unpaid electricity} \)
\( \text{Electricity expense} = \$2,950 - \$340 + \$410 = \$3,020 \).

Award 1 mark for the correct calculation and option selection.

1. Calculate Gross Profit: \( 25\% \times \$180,000 = \$45,000 \).
2. Calculate Cost of Sales: \( \text{Revenue} - \text{Gross Profit} = \$180,000 - \$45,000 = \$135,000 \).
3. Since this is the first year of trading, opening inventory is \( \$0 \).
4. Calculate Average Inventory: \( \frac{\text{Opening Inventory} + \text{Closing Inventory}}{2} = \frac{\$0 + \$15,000}{2} = \$7,500 \).
5. Calculate Inventory Turnover: \( \frac{\text{Cost of Sales}}{\text{Average Inventory}} = \frac{\$135,000}{\$7,500} = 18 \text{ times} \).

Award 1 mark for the correct calculation and option selection.

According to IAS 2, inventory must be valued at the lower of cost and net realisable value (NRV).

1. For the damaged goods:
- Original cost = \( \$1,200 \).
- \( \text{NRV} = \text{Estimated selling price} - \text{estimated costs to complete/sell} = \$800 - \$150 = \$650 \).
- Lower of cost and NRV is \( \$650 \). Therefore, inventory valuation must be reduced by \( \$1,200 - \$650 = \$550 \).

2. For the consignment goods:
- Goods held on consignment do not belong to the business and must be completely excluded from inventory. This requires a deduction of \( \$1,400 \).

Correct inventory valuation = \( \text{Original cost } \$18,500 - \text{Damaged goods write-down } \$550 - \text{Consignment goods } \$1,400 = \$16,550 \).

Award 1 mark for the correct calculation and option selection.

To correct the first error, the rent account must be debited to record the expense, and the water rates account must be credited to remove the incorrect entry. To correct the second error, the office equipment account must be debited to record the asset purchase, and the repairs account must be credited to remove the incorrect expense. Combining these gives: Debit Rent $150 and Office equipment $800; Credit Water rates $150 and Repairs $800.

1 mark for the correct combination of debit and credit entries.

Dividends are paid only on issued share capital. Total dividends = \( 300,000 \text{ shares} \times \$0.04 = \$12,000 \). The authorized share capital is the maximum limit of shares the company can issue and is not used in calculating dividend payments.

1 mark for the correct calculation of dividend payment on issued shares.

Trade discount must be deducted from the list price before transactions are recorded in the books of prime entry. Sales journal entry = \( \$1,200 - (15\% \times \$1,200) = \$1,020 \). Priya returned half the goods at list price ($600). The trade discount of 15% must also be applied to returns: \( \$600 - (15\% \times \$600) = \$510 \), which is entered in the Sales returns journal.

1 mark for the correct calculations of sales and returns net of trade discount.

Prime cost consists of the total of direct costs: Cost of raw materials consumed ($84,000) + Direct wages ($36,500) = $120,500. Indirect wages, factory rent, and depreciation are part of factory overheads and are excluded from prime cost.

1 mark for identifying and adding direct costs only.

Depreciation for 2021 = \( 20\% \times \$24,000 = \$4,800 \). Carrying value on 31 Dec 2021 = \( \$24,000 - \$4,800 = \$19,200 \). Depreciation for 2022 = \( 20\% \times \$19,200 = \$3,840 \). Carrying value on 31 Dec 2022 = \( \$19,200 - \$3,840 = \$15,360 \). No depreciation is charged in 2023 (year of disposal). Disposal proceeds = $14,500. Loss on disposal = Carrying value of $15,360 - Proceeds of $14,500 = $860 loss.

1 mark for calculating correct carrying value and resulting loss on disposal.

The bank account is debited with the amount received ($450). Discount allowed is an expense and is debited with $15. The customer's account is credited with the total of $465 to clear the outstanding balance.

1 mark for the correct double entry showing debit of bank and discount allowed, and credit of customer's account.

Gross Profit = Revenue ($180,000) - Cost of sales ($110,000) = $70,000. Adjusted Insurance expense = \( \$4,500 - \$500 \text{ (prepaid)} = \$4,000 \). Total expenses = Rent ($12,000) + Insurance ($4,000) + Carriage outwards ($3,000) = $19,000. Profit for the year = Gross Profit ($70,000) - Total expenses ($19,000) = $51,000.

1 mark for calculating correct expenses after prepayments and subtracting from gross profit.

Advertising expense = Paid during the year ($4,200) + Prepaid at start ($600) + Accrued at end ($800) = $5,600.

1 mark for applying accruals concept correctly to calculate the annual expense.

Retained earnings balance is calculated as: Opening retained earnings \(\$18,000\) + Profit for the year \(\$75,000\) - Transfer to general reserve \(\$15,000\) - Interim dividend paid \(\$10,000\) = \(\$68,000\). Proposed dividends are not recognized as a liability or deducted from retained earnings at the reporting date because they have not yet been approved by shareholders.

1 mark for the correct option B. Method: \(\$18,000\) (opening) + \(\$75,000\) (profit) - \(\$15,000\) (reserve transfer) - \(\$10,000\) (interim dividend) = \(\$68,000\). Option A incorrectly deducts the proposed final dividend of \(\$20,000\). Option C fails to deduct the general reserve transfer. Option D incorrectly adds the dividend and fails to deduct the transfer.

Corrected profit is calculated as: Draft profit \(\$45,000\) + Sales journal undercast correction \(\$500\) - Rent paid correction \(\$1,200\) - Overstated closing inventory correction \(\$800\) = \(\$43,500\). Correcting the rent error requires transferring \(\$1,200\) from premises to rent expense, which reduces profit. Correcting the overstated closing inventory increases the cost of sales, which also reduces profit.

1 mark for the correct option A. Method: \(\$45,000 + \$500 - \$1,200 - \$800 = \$43,500\). Option B incorrectly adds the closing inventory correction. Option C incorrectly adds the rent correction. Option D applies all corrections in the opposite direction.

First, calculate the Prime Cost: Direct materials used (\(\$45,000\)) + Direct factory wages (\(\$32,000\)) + Royalties paid (\(\$2,500\)) = \(\$79,500\). Next, calculate the Cost of Production: Prime Cost (\(\$79,500\)) + Factory overheads (\(\$18,000\)) + Opening Work in Progress (\(\$6,000\)) - Closing Work in Progress (\(\$4,500\)) = \(\$99,000\).

1 mark for the correct option D. Method: \(\$79,500\) (prime cost) + \(\$18,000\) (factory overheads) + \(\$6,000 - \$4,500\) (WIP adjustment) = \(\$99,000\). Option A incorrectly subtracts opening WIP and adds closing WIP. Option B incorrectly omits royalties from the prime cost. Option C incorrectly omits the work in progress adjustments.

**(a) Miriam - Sales Journal**

| Date | Customer | Invoice No. | Amount ($\) |
| :--- | :--- | :--- | :--- |
| **2023** | | | |
| Oct 3 | Tariq (\(\$800 \times 85\%\)) | 401 | 680 |
| Oct 8 | Fatima | 402 | 500 |
| Oct 19 | Tariq (\(\$400 \times 90\%\)) | 403 | 360 |
| Oct 31 | Transfer to Sales Account | | **1,540** |

**Miriam - Sales Returns Journal**

| Date | Customer | Credit Note No. | Amount ($\) |
| :--- | :--- | :--- | :--- |
| **2023** | | | |
| Oct 12 | Tariq (\(\$100 \times 85\%\)) | 89 | 85 |
| Oct 31 | Transfer to Sales Returns Account | | **85** |

***

**(b) Sales Ledger - Tariq Account**

| Date | Details | Amount ($\) | Date | Details | Amount ($\) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **2023** | | | **2023** | | |
| Oct 3 | Sales | 680.00 | Oct 12 | Sales returns | 85.00 |
| Oct 19 | Sales | 360.00 | Oct 28 | Bank (W1) | 583.10 |
| | | | Oct 28 | Discount allowed (W1) | 11.90 |
| | | | Oct 31 | Balance c/d | 360.00 |
| | | **1,040.00** | | | **1,040.00** |
| **Nov 1** | Balance b/d | **360.00** | | | |

**Working 1 (Oct 28 transaction):**
* Original balance from 3 Oct: \(\$680.00\)
* Less returns on 12 Oct: \(\$85.00\)
* Net amount due: \(\$595.00\)
* Cash discount (2%): \(\$595.00 \times 2\% = \$11.90\)
* Amount received by cheque (Bank): \(\$595.00 - \$11.90 = \$583.10\)

***

**(c) Difference between Trade and Cash Discounts:**

* **Trade discount** is a reduction in the list price given to trade customers (e.g., for bulk buying or to businesses in the same industry). It is deducted on the invoice and is **not** recorded in the ledger accounts.
* **Cash discount** is a reduction in the amount due given to encourage prompt payment of a credit account within a specified period. It **is** recorded in the ledger accounts (as Discount Allowed or Discount Received).

***

**(d) Benefits of maintaining books of prime entry:**

1. **Prevents clutter in the general ledger:** Individual transactions are compiled in journals first, and only totals are posted to control and nominal accounts, keeping the general ledger organized.
2. **Division of labor:** Different journals can be maintained by different employees simultaneously, improving administrative efficiency.
3. **Reduces errors:** Transactions are pre-sorted and categorized before ledger posting, which facilitates checking and reconciliation.

**(a) Journals: [6 Marks]**
* **Sales Journal:**
* Oct 3: Tariq \(\$680\) **(1 mark)**
* Oct 8: Fatima \(\$500\) & Oct 19: Tariq \(\$360\) **(1 mark for both correct)**
* Total \(\$1,540\) with correct transfer detail **(1 mark)**
* **Sales Returns Journal:**
* Oct 12: Tariq \(\$85\) **(2 marks - deduct 1 mark if \(\$100\) is used instead of net of 15% trade discount)**
* Total \(\$85\) with correct transfer detail **(1 mark)**

**(b) Tariq Account: [6 Marks]**
* Oct 3: Sales \(\$680\) on Debit **(1 mark)**
* Oct 19: Sales \(\$360\) on Debit **(1 mark)**
* Oct 12: Sales returns \(\$85\) on Credit **(1 mark)**
* Oct 28: Bank \(\$583.10\) on Credit **(1 mark - OF from calculated remaining balance)**
* Oct 28: Discount allowed \(\$11.90\) on Credit **(1 mark - OF from calculated discount)**
* Nov 1: Balance b/d \(\$360\) on Debit **(1 mark for correct balancing and bringing down on correct side)**

**(c) Trade vs Cash Discount: [4 Marks]**
* **Trade Discount:** Description (e.g., bulk buying/trade customer) **(1 mark)** + Accounting treatment (not recorded in double-entry) **(1 mark)**.
* **Cash Discount:** Description (e.g., prompt payment incentive) **(1 mark)** + Accounting treatment (recorded in accounts as Discount Allowed/Received) **(1 mark)**.

**(d) Benefits: [4 Marks]**
* **Benefit 1:** \(2\) marks for a fully developed reason (e.g., acts as a check to reduce errors, keeps ledger uncluttered).
* **Benefit 2:** \(2\) marks for a second distinct developed reason (e.g., permits division of labor, groups similar transactions together for easier analysis).

### **Part (a) Calculations**

**(i) Profit/Loss on Disposal of Vehicle A**
* **Step 1: Calculate annual depreciation for Vehicle A** (reducing balance method, 20% p.a.)
* **2019 (Year 1):** \( \$25,000 \times 20\% = \$5,000 \)
* **2020 (Year 2):** \( (\$25,000 - \$5,000) \times 20\% = \$4,000 \)
* **2021 (Year 3):** \( (\$20,000 - \$4,000) \times 20\% = \$3,200 \)
* **2022 (Year of disposal):** No depreciation is charged per policy.
* **Step 2: Total Accumulated Depreciation on Vehicle A** = \( \$5,000 + \$4,000 + \$3,200 = \$12,200 \)
* **Step 3: Net Book Value (NBV) at disposal** = \( \$25,000 - \$12,200 = \$12,800 \)
* **Step 4: Loss on disposal** = \( \text{NBV } \$12,800 - \text{Proceeds } \$12,000 = \$800 \text{ (Loss)} \)

**(ii) Total Depreciation Charge for 2022**
* **Remaining Vehicles (Vehicle B):**
* Cost = \( \$80,000 - \$25,000 = \$55,000 \)
* Accumulated Depreciation on 1 Jan 2022 = \( \$32,000 - \$12,200 = \$19,800 \)
* Net Book Value on 1 Jan 2022 = \( \$55,000 - \$19,800 = \$35,200 \)
* Depreciation charge for 2022 = \( \$35,200 \times 20\% = \$7,040 \)
* **New Vehicle (Vehicle C):**
* Cost = \( \$30,000 \)
* Depreciation charge for 2022 (full year) = \( \$30,000 \times 20\% = \$6,000 \)
* **Total Depreciation Charge** = \( \$7,040 + \$6,000 = \$13,040 \)

---

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

**Delivery Vehicles Provision for Depreciation Account**

| Date | Details | $ | Date | Details | $ |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **2022** | | | **2022** | | |
| Oct 1 | Disposal of Delivery Vehicles | 12,200 | Jan 1 | Balance b/d | 32,000 |
| Dec 31 | Balance c/d | 32,840 | Dec 31 | Income statement | 13,040 |
| | | **45,040** | | | **45,040** |
| | | | **2023** | | |
| | | | Jan 1 | Balance b/d | 32,840 |

---

### **Part (c) Disposal Account**

**Disposal of Delivery Vehicles Account**

| Date | Details | $ | Date | Details | $ |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **2022** | | | **2022** | | |
| Oct 1 | Delivery Vehicles (cost) | 25,000 | Oct 1 | Provision for Depreciation | 12,200 |
| | | | Oct 1 | Cash | 12,000 |
| | | | Dec 31 | Income Statement (Loss) | 800 |
| | | **25,000** | | | **25,000** |

---

### **Part (d) Statement of Financial Position Extract**

**Kofi - Statement of Financial Position (Extract) at 31 December 2022**

| Non-current assets | Cost ($) | Accumulated Depreciation ($) | Net Book Value ($) |
| :--- | :--- | :--- | :--- |
| Delivery Vehicles | 85,000 | 32,840 | 52,160 |

*(Note: Cost = $80,000 - $25,000 + $30,000 = $85,000)*

---

### **Part (e) Theoretical Application**

* The accruals (matching) principle dictates that expenses of a financial year must be matched against the revenues earned in the same period.
* Since a non-current asset provides benefit and helps generate revenue over multiple years, its cost cannot be fully written off in the year of purchase (which would distort profits).
* Depreciation acts as a mechanism to systematically allocate the cost of the asset (less any residual value) over its estimated useful economic life, matching this usage expense against the periodic revenues generated.

### **Part (a) [Total: 4 marks]**
* (i) Accumulated depreciation calculation: $12,200 (1 mark)
* Loss on disposal: $800 (1 mark)
* (ii) Remaining vehicle depreciation: $7,040 (1 mark)
* New vehicle depreciation: $6,000 (1 mark)

### **Part (b) [Total: 6 marks]**
* Balance b/d on 1 Jan 2022 (Cr): $32,000 (1 mark)
* Transfer to Disposal Account (Dr): $12,200 (1 mark)
* Income Statement charge (Cr): $13,040 (1 mark - accept OF from a(ii))
* Balance c/d (Dr): $32,840 (1 mark)
* Balance b/d on 1 Jan 2023 (Cr): $32,840 (1 mark - OF)
* Correct dates and details throughout: (1 mark)

### **Part (c) [Total: 4 marks]**
* Transfer of original cost (Dr): $25,000 (1 mark)
* Transfer of accumulated depreciation (Cr): $12,200 (1 mark - OF)
* Cash disposal proceeds (Cr): $12,000 (1 mark)
* Income Statement loss transfer (Cr): $800 (1 mark - OF)

### **Part (d) [Total: 3 marks]**
* Cost: $85,000 (1 mark)
* Accumulated Depreciation: $32,840 (1 mark - OF from part b)
* Net Book Value: $52,160 (1 mark - OF)

### **Part (e) [Total: 3 marks]**
* Explanation of matching revenue with expenses: (1 mark)
* Application to non-current assets (spreading the depreciable cost over its useful life): (1 mark)
* Impact of not matching (understating profit in Year 1 / overstating in later years): (1 mark)

Part (a) Journal Entries:
1. Debit Suspense Account $90, Credit Rent Account $90
2. Debit Suspense Account $380, Credit J. Patel $380
3. Debit Office Equipment $1,200, Credit Purchases $1,200
4. Debit Irrecoverable Debts $300, Credit S. Lin $300
5. Debit Discount Allowed $60, Debit Discount Received $60, Credit Suspense Account $120

Part (b) Suspense Account:
Debit side:
- Rent: $90
- J. Patel: $380
Total Debit: $470

Credit side:
- Difference on trial balance (Balance b/d): $350
- Discount Allowed: $60
- Discount Received: $60
Total Credit: $470

Part (c) Statement of Corrected Profit:
Draft Profit: $14,200
Add:
- Rent overstatement: $90
- Purchases overstatement (Equipment capitalized): $1,200
Less:
- Depreciation on new equipment (\(20\% \times \$1,200\)): $240
- Irrecoverable debts write-off correction: $300
- Discount allowed understatement: $60
- Discount received overstatement: $60
Corrected Profit for the Year: $14,830

Part (a) - 8 marks total:
- rent correction (Debit Suspense $90, Credit Rent $90) [1 mark]
- J. Patel correction (Debit Suspense $380, Credit J. Patel $380) [1 mark]
- Office equipment correction (Debit Office Equipment $1,200 [1 mark], Credit Purchases $1,200 [1 mark])
- Irrecoverable debts correction (Debit Irrecoverable Debts $300 [1 mark], Credit S. Lin $300 [1 mark])
- Discount correction (Debit Discount Allowed $60 and Debit Discount Received $60 [1 mark], Credit Suspense $120 [1 mark])

Part (b) - 5 marks total:
- Credit opening balance/difference on trial balance $350 [1 mark]
- Debit Rent $90 [1 mark]
- Debit J. Patel $380 [1 mark]
- Credit Discount Allowed $60 [1 mark]
- Credit Discount Received $60 [1 mark]

Part (c) - 7 marks total:
- Rent overstatement correction (add $90) [1 mark]
- Purchases overstatement correction (add $1,200) [1 mark]
- Depreciation on new equipment (less $240) [1 mark]
- Irrecoverable debts adjustment (less $300) [1 mark]
- Discount allowed adjustment (less $60) [1 mark]
- Discount received adjustment (less $60) [1 mark]
- Corrected profit of $14,830 (1 OF mark based on candidate figures) [1 mark]

### Part (a) Statement of Changes in Equity

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

| Details | Ordinary Share Capital ($) | General Reserve ($) | Retained Earnings ($) | Total ($) |
| :--- | :---: | :---: | :---: | :---: |
| **On 1 January 2023** | 200,000 | 30,000 | 45,000 | 275,000 |
| Issue of ordinary shares | 50,000 | - | - | 50,000 |
| Profit for the year | - | - | 52,000 | 52,000 |
| Dividends paid (see Note) | - | - | (27,000) | (27,000) |
| Transfer to General Reserve | - | 15,000 | (15,000) | - |
| **On 31 December 2023** | **250,000** | **45,000** | **55,000** | **350,000** |

*Note on Dividends Paid:*
* Final dividend for 2022: $12,000
* Interim dividend: 500,000 shares \(\times\) $0.03 = $15,000
* Total Dividends: $12,000 + $15,000 = $27,000

---

### Part (b) Statement of Financial Position (Extract)

**Vandervelde Ltd**
**Statement of Financial Position (Equity Section) at 31 December 2023**

| **Equity** | **$** |
| :--- | :---: |
| Ordinary Share Capital (500,000 shares of $0.50 each) | 250,000 |
| General Reserve | 45,000 |
| Retained Earnings | 55,000 |
| **Total Equity** | **350,000** |

---

### Part (c) Ratio Calculations

**(i) Return on Capital Employed (ROCE)**
$$\text{ROCE} = \frac{\text{Profit before interest}}{\text{Capital employed}} \times 100$$
* $$\text{Profit before interest} = \text{Profit for the year (after interest)} + \text{Debenture interest}$$
$$\text{Profit before interest} = \$52,000 + (8\% \times \$50,000) = \$52,000 + \$4,000 = \$56,000$$
* $$\text{Capital employed} = \text{Total Equity} + \text{Non-Current Liabilities} = \$350,000 + \$50,000 = \$400,000$$
* $$\text{ROCE} = \frac{56,000}{400,000} \times 100 = 14.00\%$$

**(ii) Liquid (acid test) ratio**
$$\text{Liquid ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$$
$$\text{Liquid ratio} = \frac{\$80,000 - \$35,000}{\$50,000} = \frac{\$45,000}{\$50,000} = 0.90 : 1$$

---

### Part (d) Differences between Ordinary Shares and Debentures

1. **Ownership vs. Creditorship**: Ordinary shares represent part-ownership of the company (equity), whereas debentures represent a long-term loan (debt/creditor).
2. **Return/Reward**: Ordinary shares receive dividends (variable and not guaranteed, paid out of profits), whereas debentures receive interest (fixed rate, must be paid regardless of whether profits are made).
3. **Voting Rights**: Ordinary shareholders have voting rights at general meetings, whereas debenture holders do not have voting rights.
4. **Priority on Winding Up**: Debenture holders are repaid in priority before ordinary shareholders in the event of liquidation.

### Part (a) Statement of Changes in Equity [Total: 10 marks]
* Opening balances row correct [1 mark]
* Issue of ordinary shares row ($50,000 in Share Capital and Total) [2 marks]
* Profit for the year ($52,000 in Retained Earnings and Total) [2 marks]
* Dividends paid ($27,000 in Retained Earnings and Total) [2 marks] (1 mark for working: $12k + $15k)
* Transfer to general reserve ($15,000 in General Reserve, ($15,000) in Retained Earnings, nil in Total) [2 marks]
* Closing balances row (all columns correct, matching OF) [1 mark]

### Part (b) Statement of Financial Position Extract [Total: 4 marks]
* Ordinary Share Capital: $250,000 (must state 500,000 shares of $0.50 each) [1 mark]
* General Reserve: $45,000 (or OF) [1 mark]
* Retained Earnings: $55,000 (or OF) [1 mark]
* Total Equity: $350,000 (or OF) [1 mark]

### Part (c) Ratio Calculations [Total: 4 marks]
* **(i) Return on Capital Employed (ROCE)**
* Formula/Working: \(\frac{56,000}{400,000} \times 100\) [1 mark]
* Answer: 14.00% (or 14%) (or OF based on part a/b) [1 mark]
* **(ii) Liquid (acid test) ratio**
* Working: \(\frac{45,000}{50,000}\) [1 mark]
* Answer: 0.90 : 1 (or 0.9 : 1) [1 mark]

### Part (d) Theory [Total: 2 marks]
* Any two differences stated clearly [1 mark each, max 2 marks]:
* Ordinary shares are equity/ownership; debentures are a loan.
* Ordinary shares receive dividends (variable/discretionary); debentures receive fixed interest (mandatory).
* Ordinary shareholders have voting rights; debenture holders do not.
* In liquidation, debenture holders are repaid before ordinary shareholders.

### (a) Manufacturing Account

**Oakwood Furniture Manufacturers**
**Manufacturing Account for the year ended 31 December 2023**

| | $ | $ |
| :--- | :--- | :--- |
| **Cost of Raw Materials Consumed** | | |
| Opening inventory of raw materials | 18,400 | |
| Add: Purchases of raw materials | 115,600 | |
| Add: Carriage inwards | 3,200 | |
| | 137,200 | |
| Less: Closing inventory of raw materials | (16,900) | 120,300 |
| **Direct Factory Wages** ($84,300 + $2,100) | | 86,400 |
| **PRIME COST** | | **206,700** |
| | | |
| **Factory Overheads** | | |
| Factory supervisor's salary | 28,000 | |
| Factory power | 14,600 | |
| Rent and rates (75% \(\times\) $24,000) | 18,000 | |
| Depreciation on factory machinery | 12,500 | 73,100 |
| | | **279,800** |
| Add: Opening work in progress | | 11,200 |
| | | 291,000 |
| Less: Closing work in progress | | (12,600) |
| **COST OF PRODUCTION** | | **278,400** |

---

### (b) Difference between Direct and Indirect Costs

* **Direct costs:** These are costs that can be directly identified and traced to a specific unit of production.
* *Example from Oakwood Furniture Manufacturers:* Raw materials (wood/timber) or direct factory wages.
* **Indirect costs:** These are costs that are incurred in the production process but cannot be directly traced to a specific unit of production; they are overhead expenses.
* *Example from Oakwood Furniture Manufacturers:* Factory supervisor's salary, factory power, factory rent, or depreciation on factory machinery.

---

### (c) Inventory Valuation and Principles

* **Accounting Principle:** Prudence.
* **Explanation:** Prudence ensures that profits and assets are not overstated, and liabilities and losses are not understated. Valuing inventory at the lower of cost and net realizable value ensures that if inventory loses value, the loss is recognized immediately in the current financial year.

### Part (a) [Total: 14 marks]
* **Opening raw materials + Purchases** [1 mark]
* **Carriage inwards** added [1 mark]
* **Closing raw materials** deducted to give raw materials consumed of $120,300 [1 mark]
* **Direct factory wages** calculation: $84,300 + $2,100 adjustment shown [1 mark]
* **Direct factory wages** final figure $86,400 [1 mark]
* **Prime Cost** ($206,700) [1 mark] *(O/F - only if Raw Materials Consumed + Direct Wages)*
* **Factory supervisor's salary** ($28,000) listed under overheads [1 mark]
* **Factory power** ($14,600) listed under overheads [1 mark]
* **Rent and rates apportionment calculation** (75% \(\times\) $24,000) [1 mark]
* **Rent and rates** value of $18,000 shown in overheads [1 mark]
* **Depreciation on factory machinery** ($12,500) listed under overheads [1 mark]
* **Opening work in progress** ($11,200) added [1 mark]
* **Closing work in progress** ($12,600) deducted [1 mark]
* **Cost of Production** ($278,400) [1 mark] *(O/F - own figure)*

### Part (b) [Total: 4 marks]
* **Direct cost definition:** Costs directly traceable to a specific unit of production. [1 mark]
* **Indirect cost definition:** General factory costs not directly traceable to individual units. [1 mark]
* **Direct cost example:** Raw materials / Direct wages. [1 mark]
* **Indirect cost example:** Factory supervisor's salary / Factory power / Factory rent / Depreciation. [1 mark]

### Part (c) [Total: 2 marks]
* **Principle name:** Prudence [1 mark]
* **Explanation:** To prevent overstating assets/profits OR to ensure anticipated losses are recognized immediately. [1 mark]