2025 Edexcel IAS-Level Accounting (XAC11) Practice Paper with Answers

Part (a): Statement of Profit or Loss calculations: | Revenue: £480,000 | Cost of Sales: Opening Inventory £34,000 + Adjusted Purchases (£290,000 - £1,500 drawings) £288,500 - Corrected Closing Inventory £37,100 = £285,400. (Note: Closing inventory is cost £38,500 less write-down of £1,400 [cost £3,000 - NRV (£1,800 - £200)] = £37,100). | Gross Profit: £480,000 - £285,400 = £194,600. | Expenses: Wages (£46,000 + £3,500) = £49,500; Rent (£24,000 - £2,000) = £22,000; General expenses = £11,400; Irrecoverable debt = £2,000; Increase in allowance for doubtful debts = £800 (New allowance 5% of (£42,000 - £2,000) = £2,000 less opening £1,200); Depreciation on Equipment (10% * £90,000) = £9,000; Depreciation on Motor Vehicles (20% * (£50,000 - £15,000)) = £7,000. | Total Expenses = £101,700. | Profit for the Year = £194,600 - £101,700 = £92,900. || Part (b): Statement of Financial Position: | Non-Current Assets: Equipment Net Book Value (£90,000 - £45,000) = £45,000; Motor Vehicles Net Book Value (£50,000 - £22,000) = £28,000. Total NCA = £73,000. | Current Assets: Inventory = £37,100; Trade Receivables (£42,000 - £2,000 irrecoverable - £2,000 allowance) = £38,000; Prepaid Rent = £2,000; Bank = £7,300. Total CA = £84,400. | Total Assets = £157,400. | Equity: Opening Capital £49,000 + Profit £92,900 - Drawings (£15,000 + £1,500 goods) £16,500 = Closing Capital £125,400. | Current Liabilities: Trade Payables = £28,500; Accrued Wages = £3,500. Total CL = £32,000. | Total Equity and Liabilities = £125,400 + £32,000 = £157,400. || Part (c): Capital expenditure is spending on purchasing, improving, or extending the useful life of non-current assets (e.g., Equipment or Motor Vehicles), which appears on the Statement of Financial Position. Revenue expenditure is the cost incurred in the day-to-day running of the business (e.g., Rent, Wages, or General expenses), which is expensed in the Statement of Profit or Loss. || Part (d): Evaluation of depreciation methods for motor vehicles: Straight-line allocates equal depreciation expense annually. Reducing balance allocates higher depreciation in the early years and lower in later years. This matches the actual economic reality of motor vehicles, which lose value quickest in their first few years. In addition, as vehicles age, repairs and maintenance costs rise, so reducing depreciation over time helps equalise the total annual cost (depreciation + maintenance) of operating the vehicle.

Part (a) [22 marks]: | Revenue £480,000 (1 mark) | Opening Inventory £34,000 (1 mark) | Adjusted Purchases £288,500 (2 marks: 1 for calculation, 1 for subtracting £1,500) | Corrected Closing Inventory £37,100 (3 marks: 1 for cost, 1 for calculating NRV adjustment, 1 for final value) | Gross Profit £194,600 (1 mark OF) | Wages £49,500 (2 marks: 1 for trial balance, 1 for adding accrued) | Rent £22,000 (2 marks: 1 for trial balance, 1 for subtracting prepayment) | General expenses £11,400 (1 mark) | Bad debts £2,000 (1 mark) | Allowance increase £800 (2 marks: 1 for new allowance of £2,000, 1 for net change) | Depreciation Equipment £9,000 (2 marks) | Depreciation Motor vehicles £7,000 (2 marks) | Profit for the Year £92,900 (2 marks OF) || Part (b) [17 marks]: | Equipment NBV £45,000 (2 marks: 1 for cost, 1 for updated accumulated dep) | Motor vehicles NBV £28,000 (2 marks: 1 for cost, 1 for updated accumulated dep) | Inventory £37,100 (1 mark OF) | Trade Receivables £38,000 (2 marks: 1 for writing off bad debt, 1 for deducting allowance) | Prepaid Rent £2,000 (1 mark) | Bank £7,300 (1 mark) | Opening Capital £49,000 (1 mark) | Net Profit added £92,900 (1 mark OF) | Drawings £16,500 deducted (2 marks: 1 for cash drawings, 1 for adding goods drawings) | Trade Payables £28,500 (1 mark) | Accrued Wages £3,500 (1 mark) | Balance match at £157,400 (2 marks OF) || Part (c) [4 marks]: | Definition of Capital Expenditure (1 mark) + Example (1 mark) | Definition of Revenue Expenditure (1 mark) + Example (1 mark) || Part (d) [12 marks]: | Level 1 (1-3 marks): Identifies basic characteristics of straight-line and reducing balance methods. | Level 2 (4-6 marks): Explains how reducing balance works and references the scenario or motor vehicles. | Level 3 (7-9 marks): Detailed analysis of how reducing balance fits motor vehicle value loss and repair expense trends (matching concept). | Level 4 (10-12 marks): Balanced evaluation contrasting both methods and providing a clear, logical, and justified recommendation for Harlan.

Part (a): Statement of Profit or Loss: | Revenue: £350,000 | Cost of Sales: Opening Inventory £28,000 + Purchases £185,000 - Closing Inventory £31,200 = £181,800 | Gross Profit: £350,000 - £181,800 = £168,200 | Expenses: Administrative expenses (£42,000 - £1,500) = £40,500; Selling and distribution expenses (£25,400 + £2,100) = £27,500; Depreciation - Equipment (15% of (£60,000 - £24,000)) = £5,400; Bad debts = £1,000 | Total Expenses = £74,400 | Profit for the Year = £168,200 - £74,400 = £93,800. || Part (b): Appropriation Account: | Profit for the year: £93,800 | Add Interest on drawings: Aisha (5% * £18,000) = £900; Bobby (5% * £12,000) = £600. Total = £1,500. Total Available = £95,300 | Less Interest on capital: Aisha (6% * £100,000) = £6,000; Bobby (6% * £80,000) = £4,800. Total = £10,800 | Less Salaries: Aisha = £15,000; Bobby = £10,000. Total = £25,000 | Residual profit: £95,300 - £10,800 - £25,000 = £59,500 | Profit shares: Aisha (3/5 * £59,500) = £35,700; Bobby (2/5 * £59,500) = £23,800. || Part (c): Current Accounts: | Aisha (Cr): Balance b/d £4,500 + Interest on Capital £6,000 + Salary £15,000 + Share of Profit £35,700 = £61,200. (Dr): Drawings £18,000 + Interest on drawings £900 = £18,900. Balance c/d = £42,300 (Cr). | Bobby (Cr): Interest on Capital £4,800 + Salary £10,000 + Share of Profit £23,800 = £38,600. (Dr): Balance b/d £2,100 + Drawings £12,000 + Interest on drawings £600 = £14,700. Balance c/d = £23,900 (Cr). || Part (d): Capital accounts adjusted for revaluation of premises: Revaluation Surplus = £150,000 - £120,000 = £30,000. Aisha share (3/5) = £18,000. Bobby share (2/5) = £12,000. | Capital Accounts: Aisha £118,000; Bobby £92,000. Total Capital = £210,000. | Current Accounts: Aisha £42,300; Bobby £23,900. Total Current = £66,200. | Total Partners' Funds = £276,200. || Part (e): Partnership vs. Private Limited Company Evaluation: Partnership has unlimited liability, where personal assets are at risk. A private limited company offers limited liability, meaning shareholders only lose their invested capital. It also enhances status and makes raising finance easier. However, setting up a company results in higher administrative costs, legal formalities, and public disclosure of financial accounts. For Aisha and Bobby, with growing profits and high-value non-current assets like premises, incorporating could be beneficial to protect their personal wealth despite the extra regulatory burden.

Part (a) [15 marks]: | Revenue £350,000 (1 mark) | Cost of Sales details: Opening Inventory £28,000 (1 mark) + Purchases £185,000 (1 mark) - Closing Inventory £31,200 (1 mark) | Gross Profit £168,200 (1 mark OF) | Admin expenses £40,500 (2 marks) | Selling & distribution £27,500 (2 marks) | Depreciation Equipment £5,400 (3 marks: 1 for calculating book value, 1 for rate, 1 for answer) | Bad debts £1,000 (1 mark) | Profit for the year £93,800 (2 marks OF) || Part (b) [12 marks]: | Profit for the year b/f £93,800 (1 mark OF) | Interest on Drawings: Aisha £900, Bobby £600 (2 marks) | Interest on Capital: Aisha £6,000, Bobby £4,800 (2 marks) | Salaries: Aisha £15,000, Bobby £10,000 (2 marks) | Residual profit £59,500 (1 mark OF) | Share of Profit: Aisha £35,700 (2 marks OF), Bobby £23,800 (2 marks OF) || Part (c) [10 marks]: | Balances b/d: Aisha £4,500 Cr (1 mark), Bobby £2,100 Dr (1 mark) | Interest on Capital (1 mark OF) | Salaries (1 mark) | Share of Profit (2 marks OF) | Drawings (1 mark) | Interest on Drawings (1 mark OF) | Closing balances c/d: Aisha £42,300 Cr (1 mark OF), Bobby £23,900 Cr (1 mark OF) || Part (d) [6 marks]: | Revaluation calculation £30,000 (1 mark) | Adjusted Capital Aisha £118,000 (1 mark OF) & Bobby £92,000 (1 mark OF) | Closing Current Account balances shown (1 mark OF) | Total Partners' Funds correctly calculated as £276,200 (2 marks OF) || Part (e) [12 marks]: | Level 1 (1-3 marks): Identifies basic advantages/disadvantages of partnership vs. limited company. | Level 2 (4-6 marks): Explains details such as limited liability, access to capital, setup costs, and disclosure requirements. | Level 3 (7-9 marks): Analyzes implications specifically for Aisha and Bobby, considering their capital levels and the revaluation of premises. | Level 4 (10-12 marks): Provides a balanced evaluation and a reasoned, logical recommendation on whether they should incorporate.

**(a) Rohan and Samantha
Partnership Income Statement and Profit and Loss Appropriation Account for the year ended 31 December 2023**

| | £ | £ |
|---|---|---|
| Revenue | | 240,000 |
| **Cost of Sales:** | | |
| Opening Inventory | 18,000 | |
| Purchases | 135,000 | |
| | 153,000 | |
| Less: Closing Inventory | (22,000) | (131,000) |
| **Gross Profit** | | **109,000** |
| **Expenses:** | | |
| Administrative expenses (W1) | 48,100 | |
| Distribution costs (W2) | 21,500 | (69,600) |
| **Profit for the year (Net Profit)** | | **39,400** |
| **Add: Interest on Drawings** | | |
| - Rohan (\(5\% \times £12,000\)) | 600 | |
| - Samantha (\(5\% \times £15,000\)) | 750 | 1,350 |
| | | 40,750 |
| **Less: Interest on Capital** | | |
| - Rohan (\(6\% \times £60,000\)) | (3,600) | |
| - Samantha (\(6\% \times £40,000\)) | (2,400) | (6,000) |
| **Less: Salary** | | |
| - Samantha | | (8,000) |
| **Residual Profit** | | **26,750** |
| **Share of Profit:** | | |
| - Rohan (\(3/5 \times £26,750\)) | 16,050 | |
| - Samantha (\(2/5 \times £26,750\)) | 10,700 | 26,750 |

**Workings:**
* **W1: Administrative expenses:**
\(£42,000 + £1,500 \text{ (accrual)} + £4,200 \text{ (depreciation)} + £400 \text{ (increase in provision)} = £48,100\)
* *Depreciation charge:* Net Book Value of Equipment = \(£50,000 - £15,000 = £35,000\). Total depreciation = \(20\% \times £35,000 = £7,000\). Administrative allocation (60%) = \(£4,200\).
* *Provision for doubtful debts:* New provision = \(5\% \times £32,000 = £1,600\). Old provision = \(£1,200\). Increase charged to expenses = \(£400\).
* **W2: Distribution costs:**
\(£19,500 - £800 \text{ (prepayment)} + £2,800 \text{ (depreciation)} = £21,500\)
* *Depreciation allocation (40%)* = \(40\% \times £7,000 = £2,800\).

***

**(b) Partners' Current Accounts**

| Date | Details | Rohan (£) | Samantha (£) | Date | Details | Rohan (£) | Samantha (£) |
|---|---|---|---|---|---|---|---|
| 1 Jan | Balance b/f | - | 1,800 | 1 Jan | Balance b/f | 4,200 | - |
| | Drawings | 12,000 | 15,000 | | Salary | - | 8,000 |
| | Interest on drawings | 600 | 750 | | Interest on capital | 3,600 | 2,400 |
| | | | | | Share of profit | 16,050 | 10,700 |
| 31 Dec | Balance c/f | 11,250 | 3,550 | | | | |
| | **Total** | **23,850** | **21,100** | | **Total** | **23,850** | **21,100** |
| | | | | 1 Jan 24 | Balance b/f | 11,250 | 3,550 |

***

**(c) Evaluation of admitting Teresa as a partner**

**Arguments for admitting Teresa:**
* **Capital Injection:** Teresa will bring £30,000 capital. This cash can be used to fund business expansion, purchase more modern equipment, or reduce debt liabilities.
* **Skills and Expertise:** A new partner may bring fresh skills, expertise, and management experience, reducing the workload of Rohan and Samantha.
* **Risk Sharing:** Financial risks and general business responsibilities will now be shared among three partners rather than two.

**Arguments against admitting Teresa:**
* **Dilution of Profits:** Future profits must now be shared with a third person, which might reduce the individual income of Rohan and Samantha unless the expansion yields substantial additional revenue.
* **Loss of Control:** Decision-making power will be diluted. Rohan and Samantha may face conflicts and disagreements in management styles and business direction.
* **Restructuring Costs:** The partnership agreement will need to be legally redrawn, and assets (such as goodwill) will need to be valued and adjusted.

**Conclusion/Recommendation:**
If the partnership is in critical need of capital to expand and Rohan and Samantha cannot secure bank loans at competitive interest rates, admitting Teresa is highly advisable. However, if the business is stable and does not require immediate expansion, they should avoid diluting their current healthy profit shares and decision-making control.

**(a) Income Statement & Appropriation [14 Marks Total]:**
* GP calculation showing correct Cost of Sales structure: 2 marks (1 for closing inventory subtraction, 1 for final GP of £109,000)
* Administrative expenses: 3 marks (1 for basic + accrual, 1 for depreciation addition, 1 for increase in provision)
* Distribution costs: 2 marks (1 for basic - prepayment, 1 for depreciation addition)
* Net profit (Profit for the year) of £39,400: 1 mark (OFT)
* Interest on drawings: 1 mark (0.5 mark for Rohan, 0.5 mark for Samantha)
* Interest on capital: 1 mark (0.5 mark for Rohan, 0.5 mark for Samantha)
* Samantha's salary: 1 mark
* Residual profit of £26,750: 1 mark (OFT)
* Share of profits: 2 marks (1 mark for Rohan £16,050, 1 mark for Samantha £10,700)

**(b) Partners' Current Accounts [8 Marks Total]:**
* Opening balances entered on correct sides: 1 mark
* Drawings debited correctly: 1 mark
* Interest on drawings debited correctly: 1 mark (OFT)
* Salary credited correctly to Samantha: 1 mark
* Interest on capital credited correctly: 1 mark (OFT)
* Share of profits credited correctly: 1 mark (OFT)
* Balances carried/brought down correctly: 2 marks (1 mark per partner)

**(c) Evaluation [8 Marks Total]:**
* Up to 3 marks for positive points of admitting a partner (capital, skills, risk sharing).
* Up to 3 marks for negative points of admitting a partner (profit dilution, loss of control, conflicts).
* Up to 2 marks for a reasoned conclusion/recommendation based on balanced arguments.

**(a) General Journal**

| Error | Details | Debit (£) | Credit (£) |
|---|---|---|---|
| **1** | J. White (Receivables ledger) | 3,800 | |
| | J. Whyte (Receivables ledger) | | 3,080 |
| | Suspense | | 720 |
| | | | |
| **2** | Equipment - Cost | 6,000 | |
| | Cash / Bank | | 6,000 |
| | | | |
| **3** | Motor vehicle repairs (Expense) | 450 | |
| | Motor vehicles - Cost | | 450 |
| | | | |
| **4** | Suspense | 2,400 | |
| | Rent expense | | 1,200 |
| | Rent received (Income) | | 1,200 |
| | | | |
| **5** | Discount allowed | 320 | |
| | Suspense | | 320 |
| | | | |
| **6** | Drawings | 1,500 | |
| | Administrative expenses | | 1,500 |

***

**(b) Suspense Account**

| Details | £ | Details | £ |
|---|---|---|---|
| Rent adjustment (Error 4) | 2,400 | Balance b/f (Difference on TB) | 1,360 |
| | | J. White / J. Whyte (Error 1) | 720 |
| | | Discount allowed (Error 5) | 320 |
| **Total** | **2,400** | **Total** | **2,400** |

*(Note: The account balances and has been fully cleared).*

***

**(c) Statement of Corrected Profit for the year ended 31 March 2024**

| Details | Adjustments (£) | Profit (£) |
|---|---|---||
| **Draft Profit for the year** | | **45,200** |
| Error 1: Sales posted to J. Whyte | No effect | - |
| Error 2: Purchase of equipment omitted | No effect | - |
| Error 3: Repairs charged to Asset | Deduct: Repairs expense | (450) |
| Error 4: Rent received debited to Rent expense | Add: Reverse rent expense debit | 1,200 |
| | Add: Include rent received | 1,200 |
| Error 5: Discount allowed omitted | Deduct: Discount allowed | (320) |
| Error 6: Drawings charged to Admin expenses | Add: Reverse admin expense debit | 1,500 |
| **Corrected Profit for the year** | | **48,330** |

***

**(d) Errors Analysis**
* **Error of Commission:** Occurs when a transaction is recorded in the wrong person's account, but of the correct class (e.g. debiting J. Whyte instead of J. White). This is demonstrated in **Error 1**.
* **Error of Principle:** Occurs when a transaction is entered in an account of a completely incorrect class or category (e.g. capital expenditure recorded as revenue expenditure). This is demonstrated in **Error 3** (where the repair of a motor vehicle was debited to the asset account instead of the expense account).

**(a) Journal Entries [12 Marks Total]:**
* Error 1: 2 marks (1 mark for correct debits/credits of personal accounts, 1 mark for correct Suspense credit £720)
* Error 2: 2 marks (1 mark for Dr Equipment, 1 mark for Cr Cash)
* Error 3: 2 marks (1 mark for Dr Repairs, 1 mark for Cr Motor vehicles cost)
* Error 4: 2 marks (1 mark for Dr Suspense £2,400, 1 mark for credits to Rent expense and Rent received)
* Error 5: 2 marks (1 mark for Dr Discount allowed, 1 mark for Cr Suspense £320)
* Error 6: 2 marks (1 mark for Dr Drawings, 1 mark for Cr Admin expenses)

**(b) Suspense Account [8 Marks Total]:**
* Correct opening balance b/f of £1,360 on Credit side: 2 marks
* Rent adjustment of £2,400 on Debit side: 2 marks (OFT)
* J. White/J. Whyte adjustment of £720 on Credit side: 2 marks (OFT)
* Discount allowed adjustment of £320 on Credit side: 2 marks (OFT)

**(c) Statement of Corrected Profit [6 Marks Total]:**
* Starting draft profit of £45,200: 1 mark
* Error 3 deduction (£450): 1 mark
* Error 4 rent corrections (+£1,200 and +£1,200): 2 marks (1 mark per correction)
* Error 5 deduction (£320): 1 mark
* Error 6 addition (£1,500): 1 mark
* Corrected profit calculation of £48,330: 1 mark (OFT)

**(d) Theory Definitions [4 Marks Total]:**
* Error of Commission defined clearly: 1 mark
* Error 1 identified as commission: 1 mark
* Error of Principle defined clearly: 1 mark
* Error 3 identified as principle: 1 mark

**(a) Part 1: Inventory Valuation**

**1. FIFO Method:**
* Total Receipts = \(200 + 300 + 400 = 900\) units.
* Total Issues = \(350 + 250 = 600\) units.
* Closing Inventory in units = \(900 - 600 = 300\) units.
* Under FIFO, issues are assumed to be from the earliest batches on hand.
* Issues on May 15 (350 units) come from:
- 200 units @ £15 (Opening stock)
- 150 units @ £16 (May 8 purchase)
- Stock remaining on 15 May = 150 units @ £16.
* Purchases on May 22 = 400 units @ £18.
- Stock on hand: 150 units @ £16 and 400 units @ £18.
* Issues on May 28 (250 units) come from:
- 150 units @ £16
- 100 units @ £18
- Stock remaining on 31 May = 300 units @ £18.
* **Closing Inventory Value (FIFO)** = \(300 \text{ units} \times £18 = £5,400\).

**2. AVCO Method (Continuous/Perpetual basis):**

| Date | Transaction | Qty | Unit Cost (£) | Total Cost (£) | Balance Qty | Total Bal Value (£) | Weighted Avg Unit Cost (£) |
|---|---|---|---|---|---|---|---|
| 1 May | Balance | - | - | - | 200 | 3,000 | 15.00 |
| 8 May | Purchase | 300 | 16.00 | 4,800 | 500 | 7,800 | **15.60** *(W1)* |
| 15 May| Issue | (350)| 15.60 | (5,460) | 150 | 2,340 | 15.60 |
| 22 May| Purchase | 400 | 18.00 | 7,200 | 550 | 9,540 | **17.35** *(W2)* |
| 28 May| Issue | (250)| 17.35 | (4,337.5) | 300 | 5,202.5 | 17.35 |

* **Workings:**
* *W1:* \(£7,800 / 500 \text{ units} = £15.60\)
* *W2:* \(£9,540 / 550 \text{ units} = £17.345 \approx £17.35\) per unit.
* *W3:* May 31 valuation = \(300 \times £17.35 = £5,205\).
*(Alternative tracking of balance directly without intermediate rounding gives \(£5,203.64\). Both methods are acceptable as long as continuous/perpetual adjustments are correct).*

***

**(b) Impact during rising prices:**
* **Closing Inventory Value:** In a period of rising prices, FIFO values inventory at the most recent, higher prices, resulting in a **higher closing inventory value** (£5,400) compared to AVCO (£5,205).
* **Cost of Production:** Under FIFO, older and cheaper items are issued to production first, resulting in a **lower cost of production** (and higher profit) than under AVCO, which blends newer high prices into the issue cost.

***

**(c) Part 2: Job Costing for Job 404**

| Cost Element | Details / Workings | Cost (£) | Cost (£) |
|---|---|---|---|
| **Direct Materials:** | | | |
| Steel Plate X | \(80 \text{ units} \times £18\) (FIFO unit price on May 31) | 1,440 | |
| Other materials | Given | 450 | 1,890 |
| **Direct Labour:** | | | |
| Machining | \(40 \text{ hours} \times £12\) | 480 | |
| Assembly | \(25 \text{ hours} \times £10\) | 250 | 730 |
| **Prime Cost** | | | **2,620** |
| **Production Overheads:** | | | |
| Machining | \(40 \text{ hours} \times £8\) | 320 | |
| Assembly | \(60\% \times £250\) | 150 | 470 |
| **Total Production Cost** | | | **3,090** |
| Admin & Selling Overheads | \(15\% \times £3,090\) | | 463.50 |
| **Total Cost of Job** | | | **3,553.50** |
| Profit Margin (25% on SP) | \(£3,553.50 \times \frac{25}{75}\) | | 1,184.50 |
| **Selling Price of Job 404**| | | **4,738.00** |

***

**(d) Evaluation of using direct labour hour absorption rates for all departments**

**Arguments for:**
* **Simplicity and Consistency:** Direct labour hours are easy to record, trace, and calculate across all production areas. Consistency makes overhead comparison easier.
* **Relevance to manual departments:** In departments where work is mainly manual, such as Assembly, overheads are driven heavily by labour time, making labour hours an accurate reflection of activity.

**Arguments against:**
* **Inaccuracy in mechanized departments:** The Machining department is capital-intensive and uses heavy machinery. Here, overhead costs (power, depreciation, machine repairs) are driven by machine run-time rather than human labour. Absorbing based on labour hours will cause cost distortions.
* **Incorrect pricing:** Over-absorbing or under-absorbing overheads due to inappropriate bases leads to inaccurate job pricing, which might cause Vanguard Manufacturing to lose orders (if overpriced) or lose money (if underpriced).

**Conclusion:**
Vanguard should adopt a **departmental overhead absorption rate** policy. They should continue using direct labour hours for manual departments (such as Assembly), but change to a **machine-hour basis** for machine-intensive departments (such as Machining) to improve the precision of their product costing.

**(a) Part 1 Valuation [12 Marks Total]:**
* **FIFO Valuation [5 marks]:**
- Correct identification of units remaining (300 units): 1 mark
- Recognition that remaining stock comes from May 22 purchase (@ £18): 2 marks
- Final correct valuation (\(300 \times £18 = £5,400\)): 2 marks
* **AVCO Valuation [7 marks]:**
- Correct average cost after May 8 purchase (£15.60): 1 mark
- Correct inventory value after May 15 issue (£2,340): 1 mark
- Correct total value after May 22 purchase (£9,540): 1 mark
- Correct new average cost after May 22 purchase (£17.35): 2 marks
- Final correct inventory valuation (£5,205 or £5,203.64 depending on rounding): 2 marks

**(b) FIFO vs AVCO Impact [4 Marks Total]:**
* Explanation that FIFO gives higher closing inventory value during inflation: 2 marks
* Explanation that FIFO leads to lower cost of production / higher profit during inflation: 2 marks

**(c) Job Costing calculation [8 Marks Total]:**
* Correct Direct Materials (Steel Plate X at £1,440, other materials £450): 1 mark
* Correct Direct Labour (Machining £480, Assembly £250): 1 mark
* Prime Cost (£2,620): 1 mark
* Production overheads (Machining £320, Assembly £150): 2 marks (1 mark per department)
* Admin & Selling overhead calculation (\(15\% \times £3,090 = £463.50\)): 1 mark (OFT)
* Profit margin calculation (\(25/75 \times \text{Cost}\)): 1 mark (OFT)
* Correct final Selling Price (£4,738): 1 mark (OFT)

**(d) Costing Evaluation [6 Marks Total]:**
* Up to 2 marks for support of current system (simple, suitable for labour-intensive areas).
* Up to 2 marks for criticisms of current system (not suitable for capital-intensive areas, leads to distorted pricing).
* Up to 2 marks for conclusion suggesting a departmental approach.