2025 Cambridge IAS-Level Accounting (9706) 模擬試題連答案詳解

First, the existing goodwill of \(\$40,000\) is credited to the old partners' capital accounts in their old profit-sharing ratio (3:2):
- X: \(\$40,000 \times \frac{3}{5} = +\$24,000\)
- Y: \(\$40,000 \times \frac{2}{5} = +\$16,000\)

Next, because goodwill is not to be retained in the books, the goodwill of \(\$40,000\) is written off to all partners' capital accounts in the new profit-sharing ratio (12:8:5, total parts = 25):
- X: \(\$40,000 \times \frac{12}{25} = -\$19,200\)
- Y: \(\$40,000 \times \frac{8}{25} = -\$12,800\)
- Z: \(\$40,000 \times \frac{5}{25} = -\$8,000\)

The net adjustment to X's capital account is \(\$24,000 - \$19,200 = +\$4,800\).
Therefore, X's capital account balance after the adjustments is \(\$50,000 + \$4,800 = \$54,800\).

1 mark for the correct option B.
Method of calculation:
- Old goodwill share: \(\$24,000\) (credit)
- New goodwill share: \(\$19,200\) (debit)
- Net adjustment: \(\$4,800\) (credit)
- Final balance: \(\$54,800\)

Calculate the Predetermined Overhead Absorption Rate (OAR):
\(\text{OAR} = \frac{\text{Budgeted Overheads}}{\text{Budgeted Labor Hours}} = \frac{\$180,000}{45,000 \text{ hours}} = \$4\) per direct labor hour.

Calculate the absorbed overheads:
\(\text{Absorbed Overheads} = \text{Actual Labor Hours} \times \text{OAR} = 47,000 \text{ hours} \times \$4 = \$188,000\).

Calculate the under/over-absorbed overheads:
\(\text{Overheads Incurred} = \$195,000\)
\(\text{Overheads Absorbed} = \$188,000\)
\(\text{Under-absorbed Overheads} = \$195,000 - \$188,000 = \$7,000\).

1 mark for the correct option A.
Method of calculation:
- OAR calculation: \(\$4\) per hour
- Absorbed overheads: \(\$188,000\)
- Comparison leading to \(\$7,000\) under-absorbed

To find the corrected profit:
- Draft Profit: \(\$48,500\)
- Adjustment 1: Deduct incorrect capitalization of motor vehicle repairs: \(-\$1,200\). Add back the incorrect depreciation charged on this capitalized repairs: \(20\% \times \$1,200 = +\$240\). Net adjustment to profit is \(-\$960\).
- Adjustment 2: Deduct omitted purchase invoice (expense): \(-\$450\).

Corrected Profit = \(\$48,500 - \$960 - \$450 = \$47,090\).

1 mark for correct option B.
Method of calculation:
- Draft profit: \(\$48,500\)
- Repair expense adjustment: \(-\$1,200\)
- Depreciation adjustment: \(+\$240\)
- Omitted invoice adjustment: \(-\$450\)
- Corrected profit: \(\$47,090\)

1. Find the number of current shares:
\(\text{Number of shares} = \frac{\$200,000}{\$0.50} = 400,000\) shares.

2. Find the number of bonus shares:
\(\text{Bonus shares} = \frac{400,000}{4} = 100,000\) shares.

3. Find the nominal value of the bonus issue:
\(\text{Nominal value} = 100,000 \times \$0.50 = \$50,000\).

4. Allocate reserves:
Using share premium first, we utilize \(\$50,000\) of the \(\$60,000\) available. No retained earnings are needed.

- New Share Premium balance = \(\$60,000 - \$50,000 = \$10,000\).
- New Retained Earnings balance = \(\$140,000\) (remains unchanged).

1 mark for the correct option A.
Method of calculation:
- Determine total shares: \(400,000\)
- Determine bonus shares: \(100,000\)
- Find value of bonus issue: \(\$50,000\)
- Deduct from share premium to leave \(\$10,000\); retained earnings unaffected.

Contribution per unit = \(\text{Selling price} - \text{Variable cost} = \$25 - \$15 = \$10\).

Target Sales Units = \(\frac{\text{Fixed costs} + \text{Target profit}}{\text{Contribution per unit}} = \frac{\$80,000 + \$30,000}{\$10} = \frac{\$110,000}{\$10} = 11,000\) units.

1 mark for correct option C.
Method of calculation:
- Contribution per unit: \(\$10\)
- Target contribution required: \(\$110,000\)
- Target units: \(11,000\) units

First, update the cash book balance (overdraft / credit):
- Draft cash book balance: \(-\$4,200\)
- Less: Bank charges: \(-\$150\)
- Less: Dishonoured cheque: \(-\$800\)
- Adjusted cash book balance: \(-\$5,150\) (Credit / Overdrawn)

Next, reconcile to the bank statement:
\(\text{Bank Statement Balance} = \text{Adjusted Cash Book Balance} + \text{Unpresented Cheques}\)
\(\text{Bank Statement Balance} = -\$5,150 + \$1,100 = -\$4,050\) (Debit / Overdrawn).

1 mark for correct option B.
Method of calculation:
- Adjusted Cash Book balance: \(\$5,150\) credit / overdrawn
- Reversing unpresented cheques: \(+\$1,100\)
- Bank Statement balance: \(\$4,050\) overdrawn

1. Determine years of depreciation charged:
- 2021: Full year charge
- 2022: Full year charge
- 2023: No charge (year of disposal)
Total depreciation periods = 2 years.

2. Calculate accumulated depreciation:
\(\text{Annual depreciation} = 15\% \times \$120,000 = \$18,000\).
\(\text{Accumulated depreciation} = \$18,000 \times 2 = \$36,000\).

3. Calculate carrying value (net book value) at disposal:
\(\text{Carrying value} = \$120,000 - \$36,000 = \$84,000\).

4. Calculate profit/loss on disposal:
\(\text{Loss on disposal} = \text{Carrying value} - \text{Proceeds} = \$84,000 - \$74,000 = \$10,000\) loss.

1 mark for correct option C.
Method of calculation:
- Calculated 2 years of depreciation: \(\$36,000\)
- Net book value at disposal: \(\$84,000\)
- Difference between NBV and proceeds: \(\$10,000\) loss

1. Calculate Interest on Capital:
- P: \(5\% \times \$80,000 = \$4,000\)
- Q: \(5\% \times \$60,000 = \$3,000\)
Total Interest on Capital = \(\$7,000\).

2. Add salary:
- Salary to Q = \(\$12,000\).

3. Calculate Total Appropriations:
\(\text{Total Appropriations} = \$7,000 + \$12,000 = \$19,000\).

4. Calculate Residual Profit:
\(\text{Residual Profit} = \$94,000 - \$19,000 = \$75,000\).

5. Calculate P's share of residual profit:
\(\text{P's share} = \frac{2}{3} \times \$75,000 = \$50,000\).

1 mark for correct option A.
Method of calculation:
- Calculate total interest on capital: \(\$7,000\)
- Subtract interest on capital and salary from Net Profit: \(\$94,000 - \$7,000 - \$12,000 = \$75,000\)
- Apply profit sharing ratio for P: \(\frac{2}{3} \times \$75,000 = \$50,000\)

First, prepare the partnership profit appropriation account to determine the residual profit: \(\text{Profit for the year} = \$45,000\), Less: \(\text{Interest on capital} = (\$2,500 + \$1,500) = (\$4,000)\), Less: \(\text{Partner salary (B)} = (\$8,000)\), Add: \(\text{Interest on drawings} = \$600 + \$400 = \$1,000\). This gives a \(\text{Residual profit} = \$45,000 - \$4,000 - \$8,000 + \$1,000 = \$34,000\). B's share of residual profit is \(\frac{2}{5} \times \$34,000 = \$13,600\). Now, calculate B's closing current account balance: Opening credit balance $4,000 + Interest on capital $1,500 + Partner salary $8,000 + Share of profit $13,600 - Drawings $10,000 - Interest on drawings $400 = $16,700\) (Credit).

1 mark for the correct answer of B ($16,700 credit). No marks for other options.

First, calculate the predetermined overhead absorption rate (OAR): \(\text{OAR} = \frac{\$180,000}{45,000\text{ hours}} = \$4.00\text{ per direct labor hour}\). Next, calculate the overhead absorbed based on actual hours worked: \(\text{Overheads absorbed} = 46,500\text{ hours} \times \$4.00 = \$186,000\). Finally, compare absorbed overheads with actual overheads incurred: \(\text{Actual overheads} = \$192,000\) and \(\text{Overheads absorbed} = \$186,000\). Since absorbed overheads are less than actual overheads, overheads are under-absorbed by \(\$192,000 - \$186,000 = \$6,000\).

1 mark for the correct option B.

Adjust the draft profit: 1. Omitted credit sales increase sales revenue and profit by \(+\$1,800\). 2. A rent prepayment of $900 treated as an accrual means profit was reduced by $900 instead of increased by $900. To correct this, we must add back \(\$1,800\) (\(+\$900\) to remove the incorrect accrual expense and \(+\$900\) to record the prepayment). 3. Unadjusted bad debt is an expense and reduces profit by \(-\$450\). Corrected Profit = \(\$64,200 + \$1,800 + \$1,800 - \$450 = \$67,350\).

1 mark for the correct option C.

1. Calculate the number of existing ordinary shares: \(\frac{\$400,000}{\$0.50} = 800,000\text{ shares}\). 2. Calculate the bonus shares to be issued: \(\frac{800,000}{4} = 200,000\text{ shares}\). 3. Calculate the nominal value of the bonus issue: \(200,000 \times \$0.50 = \$100,000\). 4. Distributable reserves (Retained earnings) are more flexible than non-distributable reserves (Share premium). To maintain reserves in their most flexible form, the company must utilize the non-distributable reserve (Share premium) first to fund the bonus issue. New Share Capital = \(\$400,000 + \$100,000 = \$500,000\). New Share Premium = \(\$120,000 - \$100,000 = \$20,000\).

1 mark for the correct option A.

1. Calculate the current contribution per unit: \(\text{Selling price} - \text{Variable cost} = \$25 - \$15 = \$10\). 2. Calculate the current monthly profit: \(\text{Current Contribution} = 8,000\text{ units} \times \$10 = \$80,000\), so \(\text{Current Profit} = \$80,000 - \$60,000 = \$20,000\). 3. Determine the target profit and new fixed costs: \(\text{Target profit} = \$20,000 + \$10,000 = \$30,000\), and \(\text{New fixed costs} = \$60,000 + \$5,000 = \$65,000\). 4. Calculate the required contribution: \(\text{Required contribution} = \text{Target profit} + \text{New fixed costs} = \$30,000 + \$65,000 = \$95,000\). 5. Calculate the required sales volume: \(\frac{\$95,000}{\$10\text{ per unit}} = 9,500\text{ units}\).

1 mark for the correct option C.

First, update the bank ledger account (cash book): \(\text{Draft balance} = \$3,450\text{ (debit)}\), Less: Bank charges = \((\$80)\), Less: Dishonoured cheque = \((\$420)\). This results in a \(\text{Corrected bank ledger balance} = \$3,450 - \$80 - \$420 = \$2,950\text{ (debit)}\). Next, perform the bank reconciliation to find the bank statement balance (X): \(X + \text{Uncredited deposits} - \text{Unpresented cheques} = \text{Corrected bank ledger balance}\), so \(X + \$750 - \$1,200 = \$2,950\), which simplifies to \(X - \$450 = \$2,950\), giving \(X = \$3,400\) (credit balance on the bank statement).

1 mark for the correct option C.

1. Depreciation for year ended 31 Dec 2021: \(20\% \times \$24,000 = \$4,800\); \(\text{NBV at 31 Dec 2021} = \$24,000 - \$4,800 = \$19,200\). 2. Depreciation for year ended 31 Dec 2022: \(20\% \times \$19,200 = \$3,840\); \(\text{NBV at 31 Dec 2022} = \$19,200 - \$3,840 = \$15,360\). 3. Depreciation for year of disposal (2023): None is charged in the year of disposal per company policy. So \(\text{NBV at disposal date} = \$15,360\). 4. Calculate profit/loss on disposal: \(\text{Loss on disposal} = \text{NBV} - \text{Proceeds} = \$15,360 - \$14,000 = \$1,360\) loss.

1 mark for the correct option C.

The formula for the liquid ratio is: \(\text{Liquid Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}\). 1. Calculate Liquid Assets: \(\text{Trade Receivables} + \text{Cash and bank} = \$45,000 + \$5,000 = \$50,000\). 2. Calculate Current Liabilities: \(\text{Trade Payables} + \text{Bank Overdraft} = \$30,000 + \$10,000 = \$40,000\). 3. Calculate Liquid Ratio: \(\frac{\$50,000}{\$40,000} = 1.25 : 1\).

1 mark for the correct option A.

1. Credit \(X\) with his share of goodwill in the old ratio:
$25,000 \times \frac{3}{5} = +$15,000

2. Debit \(X\) with his share of goodwill in the new ratio:
$25,000 \times \frac{5}{10} = -$12,500

3. Net change on \(X\)'s capital = $15,000 - $12,500 = +$2,500

4. New balance on \(X\)'s capital account = $50,000 (opening) + $2,500 (goodwill) = $52,500.

1 mark for the correct final capital account balance of $52,500. Reject other options which represent incorrect goodwill calculations or failing to write off goodwill in the new ratio.

1. Calculate the Predetermined Overhead Absorption Rate (OAR):
\text{OAR} = \frac{$180,000}{15,000 \text{ hours}} = $12 \text{ per direct labour hour}

2. Calculate the absorbed overheads:
\text{Absorbed Overheads} = 15,800 \text{ actual hours} \times $12 = $189,600

3. Determine the over/under absorption:
\text{Actual Overheads} = $195,000

\text{Under-absorbed Overheads} = \text{Actual Overheads} - \text{Absorbed Overheads} = $195,000 - $189,600 = $5,400\text{ under-absorbed}.

1 mark for the correct value and direction of absorption ($5,400 under-absorbed).

1. Calculate the remaining trade receivables after the write-off of the bad debt:
\text{Remaining Receivables} = $84,500 - $1,500 = $83,000

2. Calculate the updated provision for doubtful debts:
\text{New Provision} = 4\% \times $83,000 = $3,320

3. Calculate the net trade receivables:
\text{Net Trade Receivables} = $83,000 - $3,320 = $79,680.

1 mark for the correct net trade receivables calculation after deducting the bad debt and updated provision.

1. Calculate initial number of shares:
\text{Initial Shares} = \frac{$300,000}{$0.50} = 600,000 \text{ shares}

2. Rights issue:
- \text{Number of rights shares issued} = \frac{600,000}{3} = 200,000 \text{ shares}

- \text{Premium per share} = $1.20 - $0.50 = $0.70

- \text{Premium generated} = 200,000 \times $0.70 = $140,000

- \text{Share premium balance after rights issue} = $80,000 + $140,000 = $220,000

- \text{Total shares after rights issue} = 600,000 + 200,000 = 800,000 \text{ shares}

3. Bonus issue:
- \text{Number of bonus shares issued} = \frac{800,000}{5} = 160,000 \text{ shares}

- \text{Nominal value of bonus shares} = 160,000 \times $0.50 = $80,000

- \text{Decrease in share premium to fund bonus issue} = $80,000

- \text{Final share premium balance} = $220,000 - $80,000 = $140,000.

1 mark for the correct calculation of the final share premium balance of $140,000.

1. Calculate contribution per unit:
\text{Contribution per unit} = \text{Selling price} \times \text{C/S ratio} = $40 \times 0.40 = $16

2. Calculate required total contribution to meet fixed costs and target profit:
\text{Required Contribution} = \text{Fixed costs} + \text{Target profit} = $120,000 + $30,000 = $150,000

3. Calculate required sales in units:
\text{Required Sales (units)} = \frac{$150,000}{$16} = 9,375 \text{ units}.

1 mark for calculating the target sales units of 9,375.

1. Update the cash book balance (remembering a credit balance in the cash book represents an overdraft of -$1,450):
\text{Adjusted Cash Book Balance} = -$1,450 - $75 \text{ (bank charges)} - $430 \text{ (dishonoured cheque)} = -$1,955

2. Use the bank reconciliation formula:
\text{Adjusted Cash Book Balance} = \text{Bank Statement Balance} + \text{Unpresented Cheques} - \text{Uncredited Deposits}

-$1,955 = \text{Bank Statement Balance} + $820 - $640

-$1,955 = \text{Bank Statement Balance} + $180

\text{Bank Statement Balance} = -$1,955 - $180 = -$2,135

A negative bank statement balance is a debit balance (overdrawn). Therefore, the balance is $2,135 debit.

1 mark for the correct bank statement balance of $2,135 debit.

1. Calculate annual depreciation:
- Year ended 31 Dec 2021 depreciation: 20% of $40,000 = $8,000. Carrying value = $32,000.
- Year ended 31 Dec 2022 depreciation: 20% of $32,000 = $6,400. Carrying value = $25,600.
- Year of disposal (2023): No depreciation is charged, so carrying value at disposal is $25,600.
2. Compare carrying value to sale proceeds:
- \text{Loss on disposal} = \text{Carrying value} - \text{Proceeds} = $25,600 - $22,500 = $3,100 loss.

1 mark for calculating the correct carrying value of $25,600 and the resulting loss of $3,100.

1. Calculate contribution per unit:
\text{Contribution per unit} = $50 - $30 = $20

2. Calculate break-even point in units:
\text{Break-even units} = \frac{$150,000}{$20} = 7,500 \text{ units}

3. Calculate margin of safety in units:
\text{Margin of Safety} = 10,000 \text{ units (budgeted)} - 7,500 \text{ units (break-even)} = 2,500 \text{ units}

4. Calculate margin of safety as a percentage:
\text{Margin of Safety %} = \left(\frac{2,500}{10,000}\right) \times 100\% = 25\%.

1 mark for calculating the correct margin of safety percentage of 25%.

To record goodwill adjustments without keeping a goodwill account in the ledger: 1. Credit the old partners with the value of goodwill in their old profit-sharing ratio: A: $50,000 \times \frac{3}{5} = $30,000 (Credit), B: $50,000 \times \frac{2}{5} = $20,000 (Credit). 2. Debit all partners (including the new partner) with the value of goodwill in the new profit-sharing ratio: A: $50,000 \times \frac{5}{10} = $25,000 (Debit), B: $50,000 \times \frac{3}{10} = $15,000 (Debit), C: $50,000 \times \frac{2}{10} = $10,000 (Debit). 3. Calculate the net adjustment for B: B's Capital Account = $20,000 (Credit) - $15,000 (Debit) = $5,000 (Credit).

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

1. Calculate the Overhead Absorption Rate (OAR): OAR = \frac{\text{Budgeted Overheads}}{\text{Budgeted Machine Hours}} = \frac{$120,000}{15,000\text{ hours}} = $8\text{ per machine hour}. 2. Calculate the overhead absorbed: Absorbed Overheads = \text{Actual Machine Hours} \times \text{OAR} = 14,600\text{ hours} \times $8 = $116,800. 3. Compare with actual overheads incurred: Over/(Under) Absorption = \text{Absorbed Overheads} - \text{Actual Overheads} = $116,800 - $118,500 = -$1,700 (Under-absorbed).

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

1. Omission of Sales Returns: Since the goods are already included in the closing inventory, the cost of sales is correct. However, sales revenue needs to be reduced by the sales return value of $2,400. This decreases profit by $2,400. 2. Insurance Error: Insurance expense was recorded as $8,100 instead of $1,800. This means expenses were overstated by $8,100 - $1,800 = $6,300. Correcting this error will reduce the insurance expense by $6,300, which increases profit by $6,300. 3. Calculation of Corrected Profit: Corrected Profit = Draft Profit - Sales Returns + Overstated Insurance Expense = $94,500 - $2,400 + $6,300 = $98,400.

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

1. Determine initial number of shares: \frac{$300,000}{$0.50} = 600,000\text{ shares}. 2. Rights Issue on 1 May 2023: Shares issued = 600,000 \times \frac{1}{4} = 150,000\text{ shares}. Nominal value of rights shares = 150,000 \times $0.50 = $75,000. Share premium per share = $0.80 - $0.50 = $0.30. Total share premium created = 150,000 \times $0.30 = $45,000. Total shares after rights issue = 600,000 + 150,000 = 750,000\text{ shares}. Share premium balance after rights issue = $60,000 + $45,000 = $105,000. 3. Bonus Issue on 1 November 2023: Shares issued = 750,000 \times \frac{1}{10} = 75,000\text{ shares}. Nominal value of bonus shares = 75,000 \times $0.50 = $37,500. Share premium balance after bonus issue = $105,000 - $37,500 = $67,500.

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

1. Calculate the Contribution per unit: Contribution per unit = $25 - $15 = $10. 2. Calculate the Break-even Point (units): Break-even units = \frac{$40,000}{$10} = 4,000\text{ units}. 3. Calculate the Target Sales (units): Target Sales units = \frac{$40,000 + $15,000}{$10} = 5,500\text{ units}. 4. Calculate the Margin of Safety (units): Margin of Safety = Target Sales units - Break-even units = 5,500 - 4,000 = 1,500\text{ units}.

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

1. Calculate original annual depreciation: \frac{$80,000 - $10,000}{5} = $14,000\text{ per year}. 2. Calculate Carrying Amount as of 1 January 2023: Accumulated Depreciation (2 years) = $28,000. Carrying Amount = $80,000 - $28,000 = $52,000. 3. Calculate revised annual depreciation for 2023: Revised Annual Depreciation = \frac{$52,000 - $6,000}{2} = $23,000.

1 mark for the correct answer. No partial marks are awarded for multiple-choice questions.

### (a) Revaluation Account

$$
\begin{array}{lc|lc}
\text{Debit} & \text{\$} & \text{Credit} & \text{\$}
\\ \hline
\text{Inventory write-down} & 3,000 & \text{Non-current assets} & 15,000 \\
\text{Profit on revaluation:} & & & \\
\text{-- Alistair (3/5)} & 7,200 & & \\
\text{-- Beatrice (2/5)} & 4,800 & & \\
\hline
& \mathbf{15,000} & & \mathbf{15,000} \\
\hline
\end{array}
$$

### (b) Goodwill Adjustment Calculation

* **Goodwill raised in old ratio (3:2):**
* Alistair: $30,000 \times 3/5 = $18,000 (Cr)
* Beatrice: $30,000 \times 2/5 = $12,000 (Cr)
* **Goodwill written off in new ratio (5:3:2):**
* Alistair: $30,000 \times 5/10 = $15,000 (Dr)
* Beatrice: $30,000 \times 3/10 = $9,000 (Dr)
* Charles: $30,000 \times 2/10 = $6,000 (Dr)
* **Net Adjustment:**
* Alistair: $3,000 Cr
* Beatrice: $3,000 Cr
* Charles: $6,000 Dr

### (c) Partners' Capital Accounts (Columnar Form)

$$
\begin{array}{lrrr|lrrr}
\text{Debit} & \text{Alistair (\$)} & \text{Beatrice (\$)} & \text{Charles (\$)} & \text{Credit} & \text{Alistair (\$)} & \text{Beatrice (\$)} & \text{Charles (\$)} \\
\hline
\text{Goodwill (write-off)} & 15,000 & 9,000 & 6,000 & \text{Balance b/f} & 90,000 & 60,000 & - \\
\text{Bank (cash withdrawal)} & 200 & 7,800 & - & \text{Revaluation Profit} & 7,200 & 4,800 & - \\
\text{Balance c/d} & 100,000 & 60,000 & 40,000 & \text{Goodwill (raised)} & 18,000 & 12,000 & - \\
& & & & \text{Bank (cash intro.)} & - & - & 46,000 \\
\hline
\text{Total} & \mathbf{115,200} & \mathbf{76,800} & \mathbf{46,000} & \text{Total} & \mathbf{115,200} & \mathbf{76,800} & \mathbf{46,000} \\
\hline
\end{array}
$$

### (d) Four reasons to maintain separate Capital and Current Accounts
1. It keeps the initial capital investment of partners fixed and intact, signaling stability to creditors and external parties.
2. It allows the partnership to easily track and monitor each partner's day-to-day transactions and drawings against their profits.
3. It helps prevent partners from overdrawing and eroding the firm's core capital base.
4. It simplifies the calculation of interest on capital, which is usually based on fixed capital balances.

**(a) Revaluation Account: [4.5 marks total]**
* 1.5 marks for Inventory write-down on Debit side.
* 1.5 marks for Non-current assets revaluation on Credit side.
* 1.5 marks for splitting the profit of $12,000 in 3:2 ratio (Alistair: $7,200; Beatrice: $4,800).

**(b) Goodwill Calculation: [4 marks total]**
* 1 mark for correct Goodwill raised balances (Alistair: $18,000; Beatrice: $12,000).
* 1 mark for correct Goodwill written-off balances (Alistair: $15,000; Beatrice: $9,000; Charles: $6,000).
* 2 marks for showing correct net adjustment (or correct dual entry approach).

**(c) Partners' Capital Accounts: [10 marks total]**
* 1 mark for correct opening balances.
* 1.5 marks for correct revaluation profit shares.
* 2.5 marks for correct goodwill entries on both debit and credit sides.
* 2 marks for calculating bank adjustment (Alistair receives $200; Beatrice receives $7,800; Charles pays in $46,000).
* 1.5 marks for correct closing balances (Alistair $100,000; Beatrice $60,000; Charles $40,000).
* 1.5 marks for general format and double-entry balancing.

**(d) Theory: [4 marks total]**
* 1 mark per valid, distinct reason explained (up to a maximum of 4 marks).

### (a) Reciprocal Reapportionment

Let \(M\) = total Maintenance overheads, and \(C\) = total Canteen overheads.

$$
\begin{aligned}
M &= 44,000 + 0.20C \quad [1] \\
C &= 25,000 + 0.10M \quad [2]
\end{aligned}
$$

Substitute \(C\) in \([1]\):

$$
\begin{aligned}
M &= 44,000 + 0.20(25,000 + 0.10M) \\
M &= 44,000 + 5,000 + 0.02M \\
0.98M &= 49,000 \\
M &= 50,000
\end{aligned}
$$

Now find \(C\):

$$
\begin{aligned}
C &= 25,000 + 0.10(50,000) \\
C &= 25,000 + 5,000 = 30,000
\end{aligned}
$$

Reapportion to production departments:

* **From Maintenance ($50,000):**
* Machining (50%): $25,000
* Assembly (40%): $20,000
* **From Canteen ($30,000):**
* Machining (60%): $18,000
* Assembly (20%): $6,000

* **Total Budgeted Overheads:**
* **Machining:** $250,000 + $25,000 + $18,000 = $293,000
* **Assembly:** $150,000 + $20,000 + $6,000 = $176,000

### (b) Predetermined Overhead Absorption Rates (OAR)

* **(i) Machining OAR:**
$$\text{OAR} = \frac{\$293,000}{58,600\text{ machine hours}} = \$5.00\text{ per machine hour}$$

* **(ii) Assembly OAR:**
$$\text{OAR} = \frac{\$176,000}{44,000\text{ direct labour hours}} = \$4.00\text{ per direct labour hour}$$

### (c) Over-/Under-absorption of Overheads

* **Machining Department:**
* Overheads Absorbed = \(61,000\text{ actual hours} \times \$5.00 = \$305,000\)
* Actual Overheads = $315,000
* **Under-absorbed overheads:** $315,000 - $305,000 = $10,000

* **Assembly Department:**
* Overheads Absorbed = \(42,500\text{ actual hours} \times \$4.00 = \$170,000\)
* Actual Overheads = $165,000
* **Over-absorbed overheads:** $170,000 - $165,000 = $5,000

### (d) Differences in Overhead Treatment

* **Allocation:** The process of charging whole items of overhead costs directly to a specific cost centre (e.g., salaries of a department manager).
* **Apportionment:** The process of sharing overhead costs among multiple cost centres on a fair and reasonable basis because they cannot be directly allocated to a single cost centre (e.g., rent shared based on floor area).
* **Absorption:** The process of charging the final cost units with their share of the apportioned/allocated overheads using an appropriate overhead absorption rate (OAR) (e.g., per machine hour or labour hour).

**(a) Reciprocal Reapportionment: [8 marks total]**
* 2 marks for formulating correct simultaneous equations.
* 2 marks for solving equations to get \(M = \$50,000\) and \(C = \$30,000\).
* 2 marks for reapportioning and finding final Machining overhead ($293,000).
* 2 marks for reapportioning and finding final Assembly overhead ($176,000).

**(b) Overhead Absorption Rates: [4 marks total]**
* 2 marks for Machining OAR of $5.00 with working.
* 2 marks for Assembly OAR of $4.00 with working.

**(c) Over-/Under-absorption: [6.5 marks total]**
* 1.5 marks for calculating absorbed overheads in Machining ($305,000).
* 1.5 marks for calculating absorbed overheads in Assembly ($170,000).
* 1.75 marks for identifying Machining is under-absorbed by $10,000.
* 1.75 marks for identifying Assembly is over-absorbed by $5,000.

**(d) Theory Definitions: [4 marks total]**
* 1.5 marks for Allocation definition.
* 1.5 marks for Apportionment definition.
* 1 mark for Absorption definition.

### (a) Correcting Journal Entries

$$
\begin{array}{|l|l|rr|}
\hline
\textbf{No.} & \textbf{Details} & \textbf{Debit (\$)} & \textbf{Credit (\$)} \\
\hline
1(a) & \text{Motor vehicle repairs} & 1,200 & \\
& \quad\text{Motor Vehicles (cost)} & & 1,200 \\
1(b) & \text{Provision for depreciation - Motor Vehicles} & 240 & \\
& \quad\text{Depreciation expense } (\$1,200 \times 20\%) & & 240 \\
\hline
2 & \text{Trade receivables (David)} & 360 & \\
& \quad\text{Sales } (\$950 - \$590) & & 360 \\
\hline
3 & \text{Drawings} & 800 & \\
& \quad\text{Purchases / Cost of sales} & & 800 \\
\hline
4 & \text{Purchases} & 1,500 & \\
& \quad\text{Suspense} & & 1,500 \\
\hline
5 & \text{Suspense} & 900 & \\
& \quad\text{Discount Allowed} & & 450 \\
& \quad\text{Discount Received} & & 450 \\
\hline
6 & \text{Rent Payable} & 600 & \\
& \quad\text{Rent Received} & & 600 \\
\hline
\end{array}
$$

*(Note: Rent correction is a transfer of credit, which does not affect suspense because both debits/credits in the original entry balanced, but were in the wrong accounts.)*

### (b) Statement of Corrected Profit

$$
\begin{array}{lrr}
& \text{\$} & \text{\$} \\
\text{\textbf{Draft profit for the year}} & & \mathbf{34,800} \\
\text{\textbf{Adjustments:}} & & \\
\text{1. Motor vehicle repairs} & (1,200) & \\
\text{\quad Reverse incorrect depreciation} & 240 & (960) \\
\text{2. Understated credit sales} & & 360 \\
\text{3. Goods withdrawn for personal use (cost)} & & 800 \\
\text{4. Undercast purchases} & & (1,500) \\
\text{5. Reversal of discount allowed} & 450 & \\
\text{\quad Record discount received} & 450 & 900 \\
\text{6. Rent received / Rent payable transfer} & & 0 \\
\hline
\text{\textbf{Corrected Profit for the year}} & & \mathbf{34,400} \\
\hline
\end{array}
$$

*(Explanation for Rent: Crediting rent payable reduced expenses by $600; transferring it to rent received increases rent payable expenses by $600 and increases rent received income by $600. The net effect on profit is nil.)*

### (c) Four Errors Not Affecting Trial Balance
1. **Error of Omission:** A transaction is completely omitted from the ledger books.
2. **Error of Commission:** An entry is made to the correct side of the correct type of account, but the wrong personal account (e.g., debiting A. Smith instead of B. Smith).
3. **Error of Principle:** An entry is made to the wrong class of account (e.g., debiting an asset account instead of an expense account).
4. **Error of Original Entry:** An incorrect figure is entered in the prime documents and posted to both accounts.

**(a) Correcting Journal Entries: [12 marks total]**
* 2 marks for Error 1 (1 mark for Repairs/Asset correction; 1 mark for Depreciation adjustment).
* 2 marks for Error 2 (David / Sales).
* 2 marks for Error 3 (Drawings / Purchases at cost).
* 2 marks for Error 4 (Purchases / Suspense).
* 2 marks for Error 5 (Suspense / Discount Allowed / Discount Received).
* 2 marks for Error 6 (Rent Payable / Rent Received).

**(b) Corrected Profit Statement: [6.5 marks total]**
* 0.5 marks for starting with $34,800.
* 1 mark for Error 1 adjustments ($-1,200 + $240).
* 1 mark for Error 2 ($+360).
* 1 mark for Error 3 ($+800).
* 1 mark for Error 4 ($-1,500).
* 1 mark for Error 5 ($+900).
* 1 mark for Error 6 (correctly identifying $0 net impact).

**(c) Theory: [4 marks total]**
* 1 mark per correct type of error identified and explained (up to 4 marks).

### (a) Preliminary Calculations

* **(i) Rights Issue (1 March 2023):**
* Existing shares = 600,000
* Rights shares issued = \(\frac{600,000}{5} = 120,000\text{ shares}\)
* Price per share = \(\$0.50\text{ nominal} + \$0.15\text{ premium} = \$0.65\)
* Total funds raised = \(120,000 \times \$0.65 = \$78,000\)
* Increase in Share Capital = \(120,000 \times \$0.50 = \$60,000\)
* Increase in Share Premium = \(120,000 \times \$0.15 = \$18,000\)

* **(ii) Interim Dividend (15 June 2023):**
* Shares in issue = \(600,000 + 120,000 = 720,000\text{ shares}\)
* Dividend paid = \(720,000 \times \$0.04 = \$28,800\)

* **(iii) Bonus Issue (1 September 2023):**
* Shares in issue = 720,000
* Bonus shares issued = \(\frac{720,000}{10} = 72,000\text{ shares}\)
* Capital required = \(72,000 \times \$0.50 = \$36,000\)
* Fully funded from Share Premium (as balance is \(\$80,000 + \$18,000 = \$98,000\)).

### (b) Statement of Changes in Equity (for the year ended 31 December 2023)

$$
\begin{array}{|l|rrrr|r|}
\hline
\textbf{Details} & \begin{array}{c} \textbf{Ordinary} \\ \textbf{Shares (\$)} \end{array} & \begin{array}{c} \textbf{Share} \\ \textbf{Premium (\$)} \end{array} & \begin{array}{c} \textbf{Revaluation} \\ \textbf{Reserve (\$)} \end{array} & \begin{array}{c} \textbf{Retained} \\ \textbf{Earnings (\$)} \end{array} & \textbf{Total (\$)} \\
\hline
\textbf{Balance at 1 Jan 2023} & 300,000 & 80,000 & 50,000 & 145,000 & 575,000 \\
\text{Rights Issue} & 60,000 & 18,000 & - & - & 78,000 \\
\text{Interim Dividend} & - & - & - & (28,800) & (28,800) \\
\text{Bonus Issue} & 36,000 & (36,000) & - & - & - \\
\text{Revaluation of Land} & - & - & 45,000 & - & 45,000 \\
\text{Profit for the year} & - & - & - & 95,000 & 95,000 \\
\hline
\textbf{Balance at 31 Dec 2023} & \mathbf{396,000} & \mathbf{62,000} & \mathbf{95,000} & \mathbf{211,200} & \mathbf{764,200} \\
\hline
\end{array}
$$

*(Workings for revaluation of land: $165,000 - $120,000 = $45,000 increase)*

### (c) Rights Issue vs Bonus Issue

* **From Company's Perspective:**
* **Rights Issue:** Raises new cash capital for the business to expand or pay off debt. It increases total equity.
* **Bonus Issue:** Does not raise any cash (it is a capitalization of reserves). Total equity remains unchanged, only shifting balances from non-distributable reserves to share capital.
* **From Shareholders' Perspective:**
* **Rights Issue:** Requires shareholders to pay cash to acquire new shares. Dilutes their ownership if they choose not to take up the rights.
* **Bonus Issue:** Shareholders receive additional shares completely free of charge. Their percentage ownership remains the same, though the market value per share typically drops proportionally.

**(a) Calculations: [6.5 marks total]**
* (i) 1.5 marks for 120,000 shares; 1 mark for $78,000 funds raised.
* (ii) 2 marks for calculating dividend as $28,800 (based on 720,000 shares).
* (iii) 1 mark for 72,000 bonus shares; 1 mark for identifying Share Premium as the source.

**(b) Statement of Changes in Equity: [12 marks total]**
* 1 mark for opening balances.
* 2 marks for Rights Issue entries.
* 2 marks for Interim Dividend entry.
* 2 marks for Bonus Issue entries.
* 2 marks for Revaluation of Land entry ($45,000).
* 1 mark for Profit for the year entry.
* 2 marks for correct final balances in all columns.

**(c) Theory: [4 marks total]**
* 2 marks for explaining differences from the company's perspective (cash flow / equity impact).
* 2 marks for explaining differences from the shareholder's perspective (cost / dilution / share value impact).