2025 Cambridge IGCSE Accounting (0452) Practice Paper with Answers

This is an error of commission where a transaction is posted to the wrong person's account but of the correct class. To correct this, the incorrect debit in J. Tyler's account must be credited, and the correct debit must be made in J. Taylor's account. This error does not affect the agreement of the trial balance, as debits still equal credits.

1 mark for the correct option. Method: Identify error of commission, determine corrective ledger entries, and evaluate effect on trial balance agreement.

Rent expense for the year is calculated by adding the prepaid rent at the start of the year (as it relates to this year) and the accrued rent at the end of the year (as it is also an expense of this year) to the bank payments made during the year. Rent expense = \(9,600 + 800 + 1,000 = 11,400\).

1 mark for the correct calculation. Method: Rent expense = Rent paid + Opening prepayment + Closing accrual.

First, calculate Gross Profit: 25% of $240,000 = $60,000. Next, calculate Profit for the year: Gross Profit - Expenses = \(60,000 - 36,000 = 24,000\). Finally, calculate Profit Margin: \((24,000 / 240,000) \times 100 = 10\%\).

1 mark for correct calculation. Method: Find gross profit, subtract expenses, then express profit as a percentage of revenue.

Capital expenditure includes the purchase price of non-current assets and any costs incurred to bring the asset into its working and usable condition. This includes the delivery charge ($300) and the initial engine repairs/overhaul before first use ($1,500). Insurance ($600) is a revenue expenditure (running cost). Total Capital Expenditure = \(12,000 + 300 + 1,500 = 13,800\).

1 mark for identifying capital expenditure items and summing them correctly.

Goods returned by a customer are recorded in the Sales Returns Journal. The source document created and issued by the seller to the customer to acknowledge the return of goods and reduce their balance due is a Credit Note. Thus, it is a credit note issued.

1 mark for selecting the correct book of prime entry and its corresponding source document.

Proposed final dividend = \(100,000 \text{ shares} \times \$0.05 \text{ per share} = \$5,000\). Interim dividend already paid = $2,000. Total dividend = \(5,000 + 2,000 = 7,000\).

1 mark for calculating total dividends using number of shares and adding interim dividend.

Depreciation for Year 2021 = 20% of $20,000 = $4,000. Net Book Value (NBV) on 1 January 2022 = $16,000. Depreciation for Year 2022 = 20% of $16,000 = $3,200. NBV at disposal date (31 December 2022) = \(16,000 - 3,200 = 12,800\). Profit/Loss on disposal = Sales proceeds - NBV = \(11,500 - 12,800 = -1,300\) (a loss of $1,300).

1 mark for correct calculation of depreciation, NBV, and subsequent loss on disposal.

Prime Cost is the total of direct materials consumed, direct labour, and direct expenses. Direct materials consumed = Opening inventory of raw materials ($8,000) + Purchases ($62,000) + Carriage inwards ($1,500) - Closing inventory of raw materials ($9,500) = $62,000. Direct labor = Wages of factory workers ($34,000). Direct expenses = Royalties ($2,000). Note: Factory supervisor wages ($12,000) is an indirect expense (factory overhead) and is excluded. Prime Cost = \(62,000 + 34,000 + 2,000 = 98,000\).

1 mark for correct selection of direct costs and calculating prime cost.

To correct this error, we need to:
1. Record the asset of office equipment with a debit of $1,200.
2. Remove the incorrect debit from office expenses by crediting the office expenses account with $2,100.
3. Clear the suspense account. Since the trial balance originally had debits ($2,100) exceeding credits ($1,200) by $900, the suspense account would have held a credit balance of $900. To clear this, we must debit the Suspense account with $900.

Therefore, the correcting journal entry is:
- Debit: Office equipment $1,200
- Debit: Suspense $900
- Credit: Office expenses $2,100

1 mark for the correct option (A).
- Reject B: fails to clear the suspense account balance.
- Reject C: credits suspense instead of debiting it.
- Reject D: reverses the required debits and credits.

Using the insurance account equation:
\(\text{Income Statement Charge} = \text{Opening Prepayment} + \text{Payments Made} - \text{Closing Prepayment}\)
\(\text{Income Statement Charge} = \$360 + \$2,400 - \$420 = \$2,340\).

1 mark for the correct option (A).
- Reject B: results from adding closing prepayment and subtracting opening prepayment ($2,400 - $360 + $420 = $2,460).
- Reject C: ignores prepayments entirely ($2,400).
- Reject D: results from incorrect subtraction of opening prepayment and addition of closing prepayment.

The closing balance of retained earnings is calculated as follows:
\(\text{Closing Retained Earnings} = \text{Opening Balance} + \text{Profit for the Year} - \text{Dividend Paid} - \text{Transfer to General Reserve}\)
\(\text{Closing Retained Earnings} = \$45,000 + \$75,000 - \$15,000 - \$10,000 = \$95,000\).

1 mark for the correct option (A).
- Reject B: ignores the transfer to the general reserve ($105,000).
- Reject C: ignores the dividend payment ($110,000).
- Reject D: adds the dividend and transfer instead of subtracting them.

First, calculate the cost of raw materials consumed:
\(\text{Raw Materials Consumed} = \text{Opening Inventory} + \text{Purchases} + \text{Carriage Inwards} - \text{Closing Inventory}\)
\(\text{Raw Materials Consumed} = \$8,000 + \$85,000 + \$3,500 - \$9,500 = \$87,000\)

Next, calculate the Prime Cost:
\(\text{Prime Cost} = \text{Raw Materials Consumed} + \text{Direct Wages} + \text{Royalties}\)
\(\text{Prime Cost} = \$87,000 + \$42,000 + \$4,000 = \$133,000\).
Note: Indirect factory wages are factory overheads and are excluded from the prime cost.

1 mark for the correct option (A).
- Reject B: incorrectly includes indirect factory wages of $18,000.
- Reject C: incorrectly excludes carriage inwards on raw materials of $3,500.
- Reject D: incorrect inventory adjustments.

To find the correct balance of the sales ledger control account:
- Original balance: $14,200
- Add: Undercast of the sales journal: $500 (this correct omission updates the control account since the source journal total was too low).
- Add: Interest on overdue account: $50 (this must be debited to increase control account balance).
- Error 2 (omission of individual balance from the list) does not affect the sales ledger control account because it is an error in the subsidiary list of balances, not in the books of prime entry or control account entries.

\(\text{Corrected Balance} = \$14,200 + \$500 + \$50 = \$14,750\).

1 mark for the correct option (A).
- Reject B: incorrectly ignores the sales journal undercast correction.
- Reject C: incorrectly adds the individual list omission of $350.
- Reject D: subtracts corrections instead of adding them.

1. Depreciation for 2020: \(20\% \times \$18,000 = \$3,600\). Net Book Value (NBV) on 31 Dec 2020 = $14,400.
2. Depreciation for 2021: \(20\% \times \$14,400 = \$2,880\). NBV on 31 Dec 2021 = $11,520.
3. Depreciation for 2022: None, because no depreciation is charged in the year of disposal. NBV at disposal = $11,520.
4. Profit/Loss on disposal = \(\text{Disposal Proceeds} - \text{NBV}\) = \(\$7,500 - \$11,520 = -\$4,020\) (a loss of $4,020).

1 mark for the correct option (A).
- Reject B: identifies the loss as a profit.
- Reject C: results from incorrectly charging a full year's depreciation in 2022.
- Reject D: results from using the straight-line method instead of the reducing balance method.

Liquid assets (Current assets excluding inventory) = \(\text{Trade receivables} + \text{Cash at bank} + \text{Cash in hand}\)
\(\text{Liquid assets} = \$18,000 + \$3,500 + \$500 = \$22,000\).

Current liabilities = \(\text{Trade payables} + \text{Bank overdraft}\)
\(\text{Current liabilities} = \$15,000 + \$5,000 = \$20,000\).

\(\text{Liquid ratio} = \frac{\text{Liquid assets}}{\text{Current liabilities}} = \frac{\$22,000}{\$20,000} = 1.10 : 1\).

1 mark for the correct option (A).
- Reject B: represents the Current Ratio including inventory ($46,000 / $20,000 = 2.30 : 1).
- Reject C: incorrectly excludes bank overdraft from current liabilities ($22,000 / $15,000 = 1.47 : 1).
- Reject D: represents alternative computational errors.

Capital expenditure comprises one-off costs incurred to acquire, improve, or bring a non-current asset into its working condition for business use.
- Purchase price ($15,000): Capital expenditure.
- Delivery charge ($450): Capital expenditure, as it is a necessary cost to bring the asset to its location.
- Painting logo ($300): Capital expenditure, as it is a one-off preparation cost to put the asset into use for the business.
- Annual motor insurance ($600) and Petrol ($80) are revenue expenditures as they relate to the day-to-day running of the asset.

\(\text{Total capital expenditure} = \$15,000 + \$450 + \$300 = \$15,750\).

1 mark for the correct option (A).
- Reject B: incorrectly excludes the cost of painting the company logo ($300).
- Reject C: incorrectly includes the annual motor insurance premium.
- Reject D: incorrectly includes all listed costs.

To calculate the Cost of Production:
1. Calculate Prime Cost:
\(\text{Prime Cost} = \text{Direct Materials Used} + \text{Direct Wages} + \text{Direct Expenses (Royalty)}\)
\(\text{Prime Cost} = \$45,000 + \$32,000 + \$2,500 = \$79,500\)

2. Calculate Cost of Production:
\(\text{Cost of Production} = \text{Prime Cost} + \text{Factory Overheads} + \text{Opening Work in Progress} - \text{Closing Work in Progress}\)
\(\text{Cost of Production} = \$79,500 + \$18,000 + \$6,000 - \$4,500 = \$99,000\).

1 mark for the correct calculation: $99,000 (D). (Award 0 marks for incorrect distractors based on missing the royalty or incorrect work-in-progress adjustments).

To correct the profit:
- Draft Profit: $34,200
- Error 1 (Office Equipment): The equipment was incorrectly treated as a revenue expense (purchases). This must be removed, which increases profit by $2,500. However, we must charge depreciation on this equipment for the year: \(20\% \times \$2,500 = \$500\), which reduces profit by $500. Net effect is \(+\$2,000\).
- Error 2 (Rent Receivable): This is outstanding income that was omitted, so adding it increases profit by $600.

\(\text{Corrected Profit} = \$34,200 + \$2,500 - \$500 + \$600 = \$36,800\).

1 mark for the correct calculation of corrected profit: $36,800 (C).

Retained earnings is adjusted as follows:
- Opening Retained Earnings: $45,000
- Add: Profit for the year: +$32,000
- Less: Transfer to general reserve: -$10,000
- Less: Interim dividend paid: -$5,000
- Proposed dividend: No adjustment is made because proposed dividends do not constitute a liability or reduction of equity at the reporting date as they are not yet approved by shareholders.

\(\text{Retained Earnings at 31 Dec 2023} = \$45,000 + \$32,000 - \$10,000 - \$5,000 = \$62,000\).

1 mark for the correct answer: $62,000 (B). Distractor A subtracts the proposed dividend. Distractors C and D omit the general reserve transfer or include proposed dividends incorrectly.

To find the profit or loss on disposal, we first compute the Net Book Value (NBV) at the date of disposal:
- Year 2021 Depreciation: \(20\% \times \$20,000 = \$4,000\). NBV at end of Year 1 = $16,000.
- Year 2022 Depreciation: \(20\% \times \$16,000 = \$3,200\). NBV at end of Year 2 = $12,800.
- Year 2023 Depreciation: No depreciation is charged in the year of disposal.

Therefore, Net Book Value at date of disposal = $12,800.
- Sale proceeds = $11,500.
- Loss on disposal = \(\text{NBV} - \text{Sale Proceeds} = \$12,800 - \$11,500 = \$1,300\text{ loss}\).

1 mark for the correct option: $1,300 loss (B).

Maya is the supplier. When a customer (Sanjay) returns goods to her, this represents sales returns from Maya's perspective. She will issue a credit note to Sanjay and record the transaction in her sales returns journal.

1 mark for identifying the correct book of prime entry for the supplier: Sales returns journal (D).

To find the expense transfer to the Income Statement for electricity:
\(\text{Income Statement Expense} = \text{Cash Paid} - \text{Opening Accrual} + \text{Closing Accrual}\)
\(\text{Income Statement Expense} = \$4,200 - \$300 + \$450 = \$4,350\).

This represents the cost of electricity consumed purely during the current financial year.

1 mark for the correct calculated option: $4,350 (B).

The Sales Ledger Control Account (SLCA) tracks movements in trade receivables.
- Opening Debit Balance: $12,400
- Add: Credit sales: +$34,800 (Note: Cash sales do not affect the SLCA)
- Less: Receipts from credit customers: -$31,200
- Less: Sales returns: -$1,100
- Less: Contra entry: -$400
- Less: Irrecoverable debts: -$600

\(\text{Closing balance} = \$12,400 + \$34,800 - \$31,200 - \$1,100 - \$400 - \$600 = \$13,900\).

1 mark for the correct calculation: $13,900 (A). (Check that cash sales were excluded and contra/irrecoverable debts were correctly subtracted).

- Gross profit margin measures Gross Profit relative to Revenue. Since it is constant, the relationship between revenue and cost of sales has not changed.
- Profit margin measures Profit for the year (net profit) relative to Revenue. Since this ratio decreased, it indicates that operating/running expenses have increased as a percentage of revenue.

1 mark for identifying the correct reason: Operating expenses increased (B). (Options A, C, and D would affect the Gross Profit Margin).

The closing balance on the sales ledger control account is calculated as: Opening debit balance + Credit sales - Cash received from credit customers - Discount allowed - Sales returns - Irrecoverable debts - Contra entry = \(4,200 + 18,500 - 14,900 - 300 - 400 - 150 - 200 = 6,750\).

1 mark for the correct calculation of the closing control account balance.

This is an error of commission because the transaction has been posted to the incorrect creditor account of the correct category. To correct the error, we must debit Henderson Ltd by $1,200 to cancel the incorrect credit entry and credit Harrison Ltd by $1,200 to record the amount owed to the correct creditor.

1 mark for identifying the correct correcting journal entry.

The rent expense transferred to the Income Statement is calculated as: Rent paid by bank during the year ($5,200) + Rent prepaid at the start of the year ($400) + Rent owing at the end of the year ($600) = \(5,200 + 400 + 600 = 6,200\).

1 mark for the correct calculation of the rent expense transferred to the Income Statement.

Revenue expenditure represents the day-to-day running costs of the business, such as annual road tax and insurance. Capital expenditure includes costs incurred in purchasing non-current assets and preparing them for use, such as the purchase price, sign-writing, and security alarm installation.

1 mark for identifying the correct revenue expenditure item.

When goods are returned by a business to a credit supplier, the transaction is recorded in the purchases returns journal of the business. The credit supplier (James) issues a credit note to acknowledge and confirm the return of the goods.

1 mark for identifying both the correct book of prime entry and the source document issued by the supplier.

Dividends are declared on the number of shares issued, not the share capital amount. Total dividend payment = \(400,000\text{ shares} \times \$0.04 = \$16,000\).

1 mark for the correct calculation of the total dividend payment based on the number of shares.

Depreciation for Year 1 (2021) = \(20\% \times 16,000 = 3,200\). Carrying value at 1 January 2022 = \(16,000 - 3,200 = 12,800\). Depreciation for Year 2 (2022) = \(20\% \times 12,800 = 2,560\). Carrying value at 31 December 2022 = \(12,800 - 2,560 = 10,240\). Loss on disposal = Carrying value - Sale proceeds = \(10,240 - 9,500 = 740\).

1 mark for the correct calculation of the loss on disposal of the machine.

Prime cost is the sum of direct manufacturing costs, which are direct materials and direct labor. Prime cost = Cost of raw materials consumed ($45,000) + Direct wages ($32,000) = \(45,000 + 32,000 = 77,000\). Factory supervisor's salary, factory rent, and depreciation of machinery are factory overheads (indirect costs) and are not included in prime cost.

1 mark for the correct calculation of the prime cost.

To find the closing balance of retained earnings, we use the following formula:

$$\text{Closing Retained Earnings} = \text{Opening Retained Earnings} + \text{Profit for the Year After Tax} - \text{Transfer to General Reserve} - \text{Interim Dividend Paid}$$

First, calculate the profit for the year after tax:
$$\text{Profit after tax} = \$80\,000 - \$15\,000 = \$65\,000$$

Next, calculate the closing balance:
$$\text{Closing Retained Earnings} = \$45\,000 + \$65\,000 - \$10\,000 - \$8\,000 = \$92\,000$$

Note: Proposed final ordinary dividends are not recognized as a liability or deducted from retained earnings at the reporting date because they have not been approved by the shareholders before the end of the financial year. Therefore, the proposed dividend of $12,000 is excluded from the calculation.

1 mark for the correct option B.

We must adjust the draft profit for the year for each error:

1. **Rent paid error**: Rent paid was $1,200 but was debited as $2,100. Rent expense was therefore overstated by $900 ($2,100 - $1,200). This overstated expense understated profit, so we must add back $900.
2. **Payment error**: A payment to J. Smith debited to J. Smythe is an error of commission. It only affects the individual ledger accounts of trade payables and does not impact the profit for the year (adjustment is $0).
3. **Prepaid insurance**: Prepaid insurance of $300 is an expense paid in advance that belongs to the next period. Omitting this adjustment meant that the current year's insurance expense was overstated by $300, which understated profit. We must add back $300.

$$\text{Corrected Profit} = \$34\,200 + \$900 + \$300 = \$35\,400$$

1 mark for the correct option D.

To calculate the cost of production, we follow these steps:

1. **Cost of raw materials consumed**:
$$\text{Opening raw materials} + \text{Purchases} - \text{Closing raw materials} = \$6\,500 + \$85\,000 - \$8\,200 = \$83\,300$$

2. **Prime Cost**:
$$\text{Cost of raw materials consumed} + \text{Direct factory wages} = \$83\,300 + \$42\,000 = \$125\,300$$

3. **Factory Overheads**:
$$\text{Indirect factory wages} + \text{Factory power and heat} + \text{Depreciation of factory machinery} = \$18\,000 + \$12\,000 + \$8\,000 = \$38\,000$$

4. **Work-in-progress adjustments**:
$$\text{Prime Cost} + \text{Factory Overheads} + \text{Opening WIP} - \text{Closing WIP} = \$125\,300 + \$38\,000 + \$4\,100 - \$3\,800 = \$163\,600$$

1 mark for the correct option C.

### Part (a) Journal Entries to Correct Errors

1.
**Debit** Motor vehicle repairs: $320
**Credit** Motor vehicles: $320
*(To correct error of principle: revenue expenditure capitalized as asset)*

2.
**Debit** Hanifa: $650
**Credit** Suspense: $650
*(To correct over-posting of supplier's credit account: $1,100 - $450 = $650)*

3.
**Debit** Cash/Bank: $180
**Credit** Sales: $180
*(To record cash sales omitted from books)*

4.
**Debit** Rent: $410
**Credit** Suspense: $410
*(To record rent payment omitted from rent account)*

5.
**Debit** Suspense: $650
**Credit** Liam: $650
*(To record receipt from customer omitted from debtor's ledger account)*

---

### Part (b) Suspense Account

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Dec 31 | Difference/Balance b/d | 410 | Dec 31 | Hanifa | 650 |
| Dec 31 | Liam | 650 | Dec 31 | Rent | 410 |
| | **Total** | **1,060** | | **Total** | **1,060** |

*Note on original balance:* The credit total of the trial balance exceeded the debit total by $410. Thus, to make the trial balance balance, the difference of $410 was placed on the debit side, resulting in a debit opening balance of $410 in the Suspense Account.

---

### Part (c) Effect on Profit for the Year

* **Error 1**: **Decrease** by **$320** (repairs are an expense; recording them reduces profit).
* **Error 3**: **Increase** by **$180** (sales are revenue; recording them increases profit).
* **Error 4**: **Decrease** by **$410** (rent is an expense; recording it reduces profit).

### Part (a) Journal Entries [10 Marks]
* **Error 1**: Debit Motor vehicle repairs $320 (1), Credit Motor vehicles $320 (1).
* **Error 2**: Debit Hanifa $650 (1), Credit Suspense $650 (1).
* **Error 3**: Debit Cash/Bank $180 (1), Credit Sales $180 (1).
* **Error 4**: Debit Rent $410 (1), Credit Suspense $410 (1).
* **Error 5**: Debit Suspense $650 (1), Credit Liam $650 (1).

### Part (b) Suspense Account [6 Marks]
* Correct opening balance on Debit side: $410 (1 mark).
* Debit entry for Liam: $650 (1 mark).
* Credit entry for Hanifa: $650 (1 mark).
* Credit entry for Rent: $410 (1 mark).
* Accounts balanced and closed to zero with total $1,060 shown (2 marks).

### Part (c) Effect on Profit [4 Marks]
* **Error 1**: Decrease (1) and $320 (1) [combined as 1 mark].
* **Error 3**: Increase (1) and $180 (1) [combined as 1 mark].
* **Error 4**: Decrease (1) and $410 (1) [combined as 1 mark].
* General accuracy mark for overall consistency: (1 mark).

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

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

| Details | Ordinary Share Capital ($) | Share Premium ($) | General Reserve ($) | Retained Earnings ($) | Total ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **On 1 January 2023** | 300,000 | - | 45,000 | 68,000 | 413,000 |
| Rights Issue *(Note 1)* | 50,000 | 30,000 | - | - | 80,000 |
| Profit for the Year *(Note 2)* | - | - | - | 78,000 | 78,000 |
| Dividends Paid *(Note 3)* | - | - | - | (14,000) | (14,000) |
| Transfer to General Reserve | - | - | 15,000 | (15,000) | - |
| **On 31 December 2023** | **350,000** | **30,000** | **60,000** | **117,000** | **557,000** |

**Calculations / Notes:**
* **Note 1 (Rights Issue):** \( 100,000 \text{ shares} \times \$0.50 = \$50,000 \) nominal share capital. Share Premium = \( 100,000 \text{ shares} \times (\$0.80 - \$0.50) = \$30,000 \).
* **Note 2 (Profit for the Year):** Profit before interest is $84,000. Debenture interest is an expense: \( \$100,000 \times 6\% = \$6,000 \). Profit for the year = \( \$84,000 - \$6,000 = \$78,000 \).
* **Note 3 (Dividends Paid):** Shares in issue = \( 600,000 \text{ (opening)} + 100,000 \text{ (rights)} = 700,000 \text{ shares} \). Interim dividend = \( 700,000 \times \$0.02 = \$14,000 \). Proposed final dividend ($21,000) is not recognized under IAS 10 and therefore excluded from the statement.

---

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

**Ypsilon Limited**
**Statement of Financial Position (Equity and Liabilities Section) at 31 December 2023**

**Equity**
* Ordinary Share Capital ($0.50 nominal): $350,000
* Share Premium Account: $30,000
* General Reserve: $60,000
* Retained Earnings: $117,000
* **Total Equity**: **$557,000**

**Non-Current Liabilities**
* 6% Debentures (repayable 2030): $100,000

**Total Equity and Liabilities**: **$657,000**

---

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

1. **Status of holder**: Ordinary shareholders are owners (members) of the company, whereas debenture holders are creditors of the company.
2. **Return received**: Shareholders receive variable dividends (which are paid out of profits and are optional), whereas debenture holders receive fixed interest (which is an expense and must be paid regardless of whether a profit is made).
3. **Voting rights**: Ordinary shareholders have voting rights at general meetings, whereas debenture holders do not have voting rights.

### Part (a) Statement of Changes in Equity [10 Marks]
* Opening balances row correct (1).
* Rights issue row: Share Capital $50,000 (1) and Share Premium $30,000 (1).
* Profit for the year: $78,000 in Retained Earnings (2) [1 mark for method: subtracting debenture interest of $6,000, 1 mark for accuracy].
* Dividends paid: $14,000 in Retained Earnings (1).
* Transfer to General Reserve: $15,000 General Reserve (1) and ($15,000) Retained Earnings (1).
* Excluded proposed dividend (1) [Award if no entry is made for proposed dividend].
* Totals column and closing balances correct (1).

### Part (b) Statement of Financial Position Extract [6 Marks]
* Share capital and share premium shown correctly with closing balances (1).
* General reserve and retained earnings shown correctly with closing balances (1).
* Total equity calculated correctly at $557,000 (1).
* 6% Debentures classified under Non-Current Liabilities (1).
* Correct presentation of total equity and liabilities of $657,000 (2) [1 mark for correct categorization, 1 mark for correct arithmetic totals].

### Part (c) Differences [4 Marks]
* Any two distinct, valid differences stated. Award 2 marks per difference (1 mark for the ordinary share characteristic and 1 mark for the corresponding debenture characteristic).

### Part (a) Cost of Raw Materials Consumed

$$\begin{align*}
\text{Opening Inventory of Raw Materials} & \quad \$24,500 \\
\text{Add: Purchases of Raw Materials} & \quad \$142,600 \\
\text{Add: Carriage Inwards on Raw Materials} & \quad \$3,400 \\
\text{Less: Closing Inventory of Raw Materials} & \quad (\$21,900) \\
\hline
\text{\textbf{Cost of Raw Materials Consumed}} & \quad \mathbf{\$148,600}
\end{align*}$$

---

### Part (b) Prime Cost

$$\begin{align*}
\text{Cost of Raw Materials Consumed} & \quad \$148,600 \\
\text{Add: Direct Factory Wages } (\$94,000 + \$2,800) & \quad \$96,800 \\
\hline
\text{\textbf{Prime Cost}} & \quad \mathbf{\$245,400}
\end{align*}$$

---

### Part (c) Manufacturing Account

**Soren**
**Manufacturing Account for the year ended 30 September 2023**

| Details | Amount ($) | Amount ($) |
| :--- | :---: | :---: |
| **Cost of raw materials consumed** | | 148,600 |
| Direct factory wages ($94,000 + $2,800) | | 96,800 |
| **Prime Cost** | | **245,400** |
| **Factory Overheads:** | | |
| Indirect wages (factory supervisors) | 38,000 | |
| Factory overheads ($41,600 - $1,200) | 40,400 | |
| Depreciation of factory machinery | 18,500 | 96,900 |
| | | **342,300** |
| Add: Opening work in progress | | 18,200 |
| | | **360,500** |
| Less: Closing work in progress | | (19,500) |
| **Cost of Production** | | **341,000** |

*Note on items omitted:* Carriage outwards, office staff wages, and depreciation of office equipment are administrative/selling expenses and are not included in the manufacturing account.

---

### Part (d) Direct vs Indirect Factory Wages

* **Direct Factory Wages**: Wages paid to employees who are directly involved in altering the product during the manufacturing process. Their cost can be easily traced to a specific unit of production.
* *Example*: Cabinet makers, machine operators assembling the furniture.
* **Indirect Factory Wages**: Wages paid to workers in the factory who support production but do not directly work on making the physical products.
* *Example*: Factory supervisors, cleaners, maintenance technicians.

### Part (a) Cost of Raw Materials Consumed [4 Marks]
* Opening inventory + Purchases (1).
* Add Carriage inwards (1) [Carriage outwards must be ignored].
* Deduct closing inventory (1).
* Correct final total of $148,600 (1).

### Part (b) Prime Cost [4 Marks]
* Bring down cost of materials consumed correctly (1).
* Calculate direct wages as $96,800 (including accrual) (2) [1 mark for direct wages, 1 mark for adding accrued].
* Correct Prime Cost total of $245,400 (1).

### Part (c) Manufacturing Account [8 Marks]
* Format showing Prime Cost correctly transferred (1).
* Factory overheads listed: Indirect wages $38,000 (1).
* Factory overhead expenses $40,400 (including adjustment for prepayment) (1).
* Depreciation of factory machinery $18,500 (1) [Office depreciation ignored].
* Correct subtotal of overheads $96,900 and total production cost before WIP adjustment of $342,300 (1).
* Opening WIP added and Closing WIP subtracted correctly (1).
* Correct Cost of Production of $341,000 (2) [1 mark for calculation, 1 mark for correct labeling].

### Part (d) Direct vs Indirect Wages [4 Marks]
* Clear distinction in terms of traceability/direct involvement (2 marks).
* Relevant, accurate example of direct wage (1 mark).
* Relevant, accurate example of indirect wage (1 mark).

### Part (a) Tariq's Three-Column Cash Book

**Tariq - Cash Book for the month of May 2023**

| Date (2023) | Details | Disc. All. ($) | Cash ($) | Bank ($) | Date (2023) | Details | Disc. Rec. ($) | Cash ($) | Bank ($) |
| :--- | :--- | :---: | :---: | :---: | :--- | :--- | :---: | :---: | :---: |
| May 1 | Balance b/d | | 250 | | May 1 | Balance b/d | | | 1,480 |
| May 8 | Yasmin | 15 | | 585 | May 4 | Rent | | | 400 |
| May 12 | Sales | | 240 | 1,000 | May 15 | Drawings | | | 300 |
| | | | | | May 19 | Bilal | 20 | | 580 |
| | | | | | May 25 | Yasmin (Dishon.) | | | 585 |
| | | | | | May 29 | Wages | | 350 | |
| May 31 | Balance c/d | | | 1,760 | May 31 | Balance c/d | | 140 | |
| | **Total** | **15** | **490** | **3,345** | | **Total** | **20** | **490** | **3,345** |
| **Jun 1** | **Balance b/d** | | **140** | | **Jun 1** | **Balance b/d** | | | **1,760** |

*Note on May 12 transaction:* Cash sales directly split into Bank ($1,000) and Cash ($240) columns is accepted. Alternatively, showing total Sales of $1,240 in Cash and then a contra transferring $1,000 from Cash to Bank is also correct.
*Note on May 25 transaction:* The discount allowed of $15 is reversed in the general journal (Dr Yasmin, Cr Discount Allowed), not in the discount column of the cash book (unless shown as a credit entry inside the discount allowed column, but standard practice is reversal via journal).

---

### Part (b) Ledger Accounts

**(i) Yasmin Account**

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| May 1 | Balance b/d | 600 | May 8 | Bank | 585 |
| May 25 | Bank (Dishonoured) | 585 | May 8 | Discount Allowed | 15 |
| May 25 | Discount Allowed (Rev) | 15 | May 31 | Balance c/d | 600 |
| | **Total** | **1,200** | | **Total** | **1,200** |
| **Jun 1** | **Balance b/d** | **600** | | | |

**(ii) Discount Allowed Account**

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| May 31 | Total/Sundry Debtors | 15 | May 25 | Yasmin (reversal) | 15 |

**(iii) Discount Received Account**

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| | | | May 31 | Total/Sundry Creditors | 20 |

### Part (a) Three-Column Cash Book [12 Marks]
* **Debit Side**:
* Correct Cash opening balance ($250) (1).
* Yasmin entry: Bank $585 and Discount Allowed $15 (1).
* Sales entry: Cash $240 and Bank $1,000 (1).
* **Credit Side**:
* Correct Bank opening overdrawn balance ($1,480) (1).
* Rent payment: Bank $400 (1).
* Drawings: Bank $300 (1) [No cash contra; verified as personal drawings].
* Bilal payment: Bank $580 and Discount Received $20 (1).
* Yasmin dishonoured cheque entry: Bank $585 (1).
* Wages payment: Cash $350 (1).
* **Balances b/d** on 1 June: Cash $140 (Debit) and Bank $1,760 (Credit) (2) [1 mark for cash, 1 mark for bank].
* Totals of all columns correctly displayed and balanced (1).

### Part (b) Ledger Accounts [8 Marks]
* **Yasmin Account**: Opening debit balance of $600 (1); correct credit entries on May 8 (1); correct debit entries on May 25 (reinstating the debt and discount) (1); correct closing balance b/d on June 1 (1).
* **Discount Allowed Account**: Debit entry of $15 (1); credit entry of $15 for reversal (1).
* **Discount Received Account**: Credit entry of $20 (2) [1 mark for correct entry, 1 mark for date/details].

### Part 1: Non-Current Assets

**(a) Machinery Account**

| Date (2022) | Details | Amount ($) | Date (2022) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| Jan 1 | Balance b/d | 60,000 | Dec 31 | Balance c/d | 78,000 |
| Jul 1 | Bank | 18,000 | | | |
| | **Total** | **78,000** | | **Total** | **78,000** |
| **2023** | | | **2023** | | |
| Jan 1 | Balance b/d | 78,000 | Sep 30 | Disposal (cost) | 15,000 |
| | | | Dec 31 | Balance c/d | 63,000 |
| | **Total** | **78,000** | | **Total** | **78,000** |
| **2024** | | | | | |
| Jan 1 | Balance b/d | 63,000 | | | |

**(b) Provision for Depreciation of Machinery Account**

| Date | Details | Amount ($) | Date | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| **2022** | | | **2022** | | |
| Dec 31 | Balance c/d | 39,600 | Jan 1 | Balance b/d | 24,000 |
| | | | Dec 31 | Income Statement *(Note 1)* | 15,600 |
| | **Total** | **39,600** | | **Total** | **39,600** |
| **2023** | | | **2023** | | |
| Sep 30 | Disposal *(Note 2)* | 9,000 | Jan 1 | Balance b/d | 39,600 |
| Dec 31 | Balance c/d | 43,200 | Dec 31 | Income Statement *(Note 3)* | 12,600 |
| | **Total** | **52,200** | | **Total** | **52,200** |
| | | | **2024** | | |
| | | | Jan 1 | Balance b/d | 43,200 |

* **Note 1 (2022 Depreciation):** \( 20\% \text{ of } \$78,000 \text{ (total cost)} = \$15,600 \).
* **Note 2 (Disposal Accum. Dep.):** Machine cost $15,000, purchased 1 Jan 2020. Depreciated for 3 full years (2020, 2021, 2022) at 20% p.a. \( \$15,000 \times 20\% \times 3 = \$9,000 \).
* **Note 3 (2023 Depreciation):** remaining cost = \( \$78,000 - \$15,000 = \$63,000 \). Depreciation = \( 20\% \times \$63,000 = \$12,600 \).

**(c) Machinery Disposal Account**

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| Sep 30 | Machinery (Cost) | 15,000 | Sep 30 | Prov. for Depreciation | 9,000 |
| Dec 31 | Income Statement (Profit) | 2,200 | Sep 30 | Cash/Bank | 8,200 |
| | **Total** | **17,200** | | **Total** | **17,200** |

---

### Part 2: Bank Reconciliation

**(d) Updated Cash Book (Bank Column Only)**

| Date (2023) | Details | Amount ($) | Date (2023) | Details | Amount ($) |
| :--- | :--- | :---: | :--- | :--- | :---: |
| | | | Nov 30 | Balance b/d (overdraft) | 2,150 |
| | | | Nov 30 | Bank charges | 85 |
| | | | Nov 30 | Gabor (cheque correction) | 90 |
| | | | Nov 30 | Insurance (standing order) | 120 |
| Nov 30 | Balance c/d | 2,445 | | | |
| | **Total** | **2,445** | | **Total** | **2,445** |
| | | | **Dec 1** | **Balance b/d** | **2,445** |

*Note on Gabor correction:* Cheque recorded as $340 instead of $430, meaning $90 extra must be credited to correct the understated payment.

**(e) Bank Reconciliation Statement at 30 November 2023**

| Details | Amount ($) |
| :--- | :---: |
| **Updated Cash Book Balance (overdrawn)** | **(2,445)** |
| Add: Unpresented cheques | 1,850 |
| | **(595)** |
| Less: Uncleared (uncredited) deposits | (1,200) |
| **Balance as per Bank Statement (overdrawn)** | **(1,795)** |

*(Alternative format starting with Bank Statement balance to reach Cash Book balance is also fully acceptable.)*

### Part (a) Machinery Account [4 Marks]
* 2022 entries and balance c/d of $78,000 (1).
* July 1 Bank addition of $18,000 (1).
* September 30 transfer of cost $15,000 to Disposal (1).
* Balance b/d on 1 January 2024 of $63,000 (1).

### Part (b) Provision for Depreciation Account [5 Marks]
* Opening balance b/d $24,000 (1).
* 2022 depreciation of $15,600 (1).
* 2023 transfer of accumulated depreciation $9,000 to Disposal (1).
* 2023 depreciation of $12,600 (1).
* Correct closing balance b/d of $43,200 on 1 January 2024 (1).

### Part (c) Machinery Disposal Account [3 Marks]
* Debit machinery cost $15,000 (1).
* Credit provision for depreciation $9,000 and bank proceeds $8,200 (1).
* Correct profit of $2,200 transferred to debit of disposal / credit of Income Statement (1).

### Part (d) Updated Cash Book [4 Marks]
* Correct opening overdraft balance of $2,150 on credit side (1).
* Correct bank charges $85 and insurance standing order $120 on credit side (1).
* Correction of Gabor payment error of $90 on credit side (1).
* Correct closing balance b/d on credit side of $2,445 (1).

### Part (e) Bank Reconciliation Statement [4 Marks]
* Correct starting point of updated cash book overdraft balance $2,445 (1).
* Add unpresented cheques $1,850 (1).
* Deduct uncleared deposits $1,200 (1).
* Correctly calculated bank statement overdraft balance of $1,795 (1).