Edexcel IAS-Level · thinka 原創模擬試題

2024 Edexcel IAS-Level Accounting (XAC11) 模擬試題連答案詳解

Thinka Oct 2024 Cambridge International A Level-Style Mock — Accounting (XAC11)

400 分360 分鐘2024

An original Thinka practice paper modelled on the structure and difficulty of the Oct 2024 Cambridge International A Level Accounting (XAC11) paper. Not affiliated with or reproduced from Cambridge.

WAC11 甲部

Answer BOTH questions in this section. Show all calculations clearly.

2 題目 · 110 分

題目 1 · Statement Preparation and Cost Calculation

55 分

Symphony Sounds is a manufacturing business making premium audio speakers. The following trial balance was extracted from the books of account on 30 April 2023:

| Account Balances | Debit (£) | Credit (£) |
|---|---|---|
| Revenue (Sales) of finished goods | | 780,000 |
| Inventory at 1 May 2022: | | |
| - Raw materials | 34,500 | |
| - Work in progress | 18,200 | |
| - Finished goods (at transfer value) | 38,500 | |
| Purchases of raw materials | 245,000 | |
| Carriage inwards on raw materials | 8,500 | |
| Factory wages (Direct) | 120,000 | |
| Factory wages (Indirect) | 48,000 | |
| Office salaries | 72,000 | |
| Rent and rates | 40,000 | |
| Electricity and power | 36,000 | |
| Machinery (at cost) | 180,000 | |
| Office equipment (at cost) | 60,000 | |
| Provision for depreciation at 1 May 2022: | | |
| - Machinery | | 54,000 |
| - Office equipment | | 18,000 |
| Selling expenses | 29,500 | |
| Trade receivables | 84,000 | |
| Trade payables | | 46,000 |
| Provision for doubtful debts at 1 May 2022 | | 3,200 |
| Bank balance | 15,600 | |
| Capital | | 128,600 |
| Total | 1,029,800 | 1,029,800 |

Additional information at 30 April 2023:

1. Inventory was valued as follows:
- Raw materials: £31,200
- Work in progress: £21,500
- Finished goods (valued at transfer value): £44,000
2. At 30 April 2023, direct factory wages of £4,200 were accrued. Rent and rates of £2,000 were prepaid.
3. Expenses are to be allocated as follows:
- Rent and rates: Factory 75%, Administration 25%
- Electricity and power: Factory 80%, Administration 20%
4. Depreciation is to be charged as follows:
- Machinery at 15% per annum using the reducing balance method. (All machinery is used in the factory).
- Office equipment at 10% per annum using the straight-line method.
5. Trade receivables of £2,000 are to be written off as irrecoverable. The provision for doubtful debts is to be adjusted to 5% of trade receivables.
6. Finished goods are transferred from the factory to the warehouse at cost of production plus 10% factory profit.

Required:

(a) Prepare the Manufacturing Account of Symphony Sounds for the year ended 30 April 2023, showing clearly the Prime Cost, Cost of Production, and the transfer value of finished goods. (18 marks)

(b) Prepare the Income Statement of Symphony Sounds for the year ended 30 April 2023. (18 marks)

(c) (i) Explain the difference between direct costs and indirect costs, giving one example of each from Symphony Sounds. (4 marks)
(c) (ii) Calculate the unit cost of producing a speaker if Symphony Sounds produced 3,000 units during the year. Calculate this both at cost of production and at transfer value. (3 marks)

(d) Evaluate the use of introducing a factory profit loading when transferring finished goods. (12 marks)

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解題

### (a) Manufacturing Account of Symphony Sounds for the year ended 30 April 2023

| Details | £ | £ |
|---|---|---|
| Opening inventory of raw materials | | 34,500 |
| Add: Purchases of raw materials | 245,000 | |
| Add: Carriage inwards | 8,500 | |
| | 253,500 | |
| Less: Closing inventory of raw materials | (31,200) | 222,300 |
| Cost of raw materials consumed | | 256,800 |
| Direct wages ($ £120,000 + £4,200 $) | | 124,200 |
| PRIME COST | | 381,000 |
| Factory Overheads: | | |
| Factory wages (Indirect) | 48,000 | |
| Rent & rates ($ [£40,000 - £2,000] \times 75\% $) | 28,500 | |
| Electricity & power ($ £36,000 \times 80\% $) | 28,800 | |
| Depreciation of machinery ($ [£180,000 - £54,000] \times 15\% $) | 18,900 | 124,200 |
| | | 505,200 |
| Add: Opening Work in Progress | | 18,200 |
| Less: Closing Work in Progress | | (21,500) |
| COST OF PRODUCTION | | 501,900 |
| Add: Factory Profit ($ 10\% \times £501,900 $) | | 50,190 |
| Value of production transferred to warehouse | | 552,090 |

---

### (b) Income Statement of Symphony Sounds for the year ended 30 April 2023

| Details | £ | £ |
|---|---|---|
| Revenue | | 780,000 |
| Cost of Sales: | | |
| Opening inventory of finished goods | 38,500 | |
| Add: Finished goods transferred (at transfer value) | 552,090 | |
| | 590,590 | |
| Less: Closing inventory of finished goods | (44,000) | (546,590) |
| Gross Profit on trading | | 233,410 |
| Add: Factory Profit | | 50,190 |
| Total Gross Profit | | 283,600 |
| Expenses: | | |
| Office salaries | 72,000 | |
| Rent & rates ($ [£40,000 - £2,000] \times 25\% $) | 9,500 | |
| Electricity & power ($ £36,000 \times 20\% $) | 7,200 | |
| Depreciation of Office equipment ($ £60,000 \times 10\% $) | 6,000 | |
| Selling expenses | 29,500 | |
| Irrecoverable debt | 2,000 | |
| Increase in provision for doubtful debts (W1) | 900 | |
| Increase in provision for unrealised profit (W2) | 500 | (127,600) |
| Profit for the year | | 156,000 |

#### Working 1: Provision for Doubtful Debts
- Net Trade Receivables = $ £84,000 - £2,000 = £82,000 $
- Required Provision = $ 5\% \times £82,000 = £4,100 $
- Current Provision = $ £3,200 $
- Increase in Provision = $ £4,100 - £3,200 = £900 $

#### Working 2: Provision for Unrealised Profit (PUP)
- Finished goods are at cost + 10% mark-up (i.e., 110% of cost).
- Opening PUP = $ £38,500 \times \frac{10}{110} = £3,500 $
- Closing PUP = $ £44,000 \times \frac{10}{110} = £4,000 $
- Increase in PUP = $ £4,000 - £3,500 = £500 $

---

### (c) (i) Direct vs. Indirect Costs
- Direct Cost: A cost that can be easily and directly attributed to a specific unit of production. Example from Symphony Sounds: Raw materials or direct factory wages (e.g., assembly line worker salaries).
- Indirect Cost: A cost that cannot be directly traced to a specific unit of production and must be allocated or apportioned to cost centres. Example from Symphony Sounds: Indirect factory wages, factory rent and rates, or depreciation of factory machinery.

### (c) (ii) Unit Cost Calculations
- At cost of production:
$ \text{Unit Cost} = \frac{\text{Cost of Production}}{\text{Units Produced}} = \frac{£501,900}{3,000} = £167.30 \text{ per unit} $
- At transfer value:
$ \text{Unit Cost} = \frac{\text{Transfer Value}}{\text{Units Produced}} = \frac{£552,090}{3,000} = £184.03 \text{ per unit} $

---

### (d) Evaluation of Factory Profit Loading
- Arguments in favour:
- It allows the manufacturing department to be treated as an independent profit centre. This enables management to evaluate whether it is more cost-effective to manufacture products in-house or buy them from external suppliers.
- It can motivate the factory manager to control costs and improve efficiency to ensure the factory records a high profit.
- It ensures finished goods are stored in the warehouse and recorded at a realistic market value.
- Arguments against:
- It creates additional accounting complexities, such as the need to calculate and adjust the Provision for Unrealised Profit (PUP) on unsold inventories at year-end to avoid overstating profits.
- Internal profits are not actual realised cash gains and must be eliminated upon consolidation, which could mislead external users if not adjusted correctly.
- Setting an artificial transfer price can lead to internal disputes between the manufacturing department and the retail/warehouse departments over the allocation of profits.
- Conclusion:
- Overall, introducing a factory profit is highly beneficial for internal decision-making and performance appraisal, provided that the accounting adjustments for unrealised profit are correctly executed so that the statement of financial position reflects realistic inventory values.

評分準則

### Part (a) Marking Scheme (Total: 18 Marks)
- Opening inventory of raw materials: (1)
- Purchases + Carriage inwards: (1)
- Closing inventory of raw materials: (1)
- Correct raw materials consumed ($ £256,800 $): (1)
- Direct wages adjusted for accrual ($ £124,200 $): (2) (1 mark for direct wages + 1 mark for adding accrual)
- Prime Cost ($ £381,000 $): (1) (must match their calculated material and labour sum)
- Indirect factory wages: (1)
- Rent & rates allocation ($ £28,500 $): (2) (1 mark for deducting prepayments, 1 mark for 75% calculation)
- Electricity & power allocation ($ £28,800 $): (1)
- Depreciation of machinery ($ £18,900 $): (2) (1 mark for reducing balance calculation, 1 mark for allocation to overheads)
- Work in Progress adjustments ($ +£18,200 $ and $ -£21,500 $): (2) (1 mark for opening WIP, 1 mark for closing WIP)
- Cost of Production ($ £501,900 $): (1)
- Factory Profit ($ £50,190 $): (1)
- Value of production transferred ($ £552,090 $): (1)

### Part (b) Marking Scheme (Total: 18 Marks)
- Revenue: (1)
- Opening finished goods inventory: (1)
- Finished goods transferred (carrying through transfer value from (a)): (1)
- Closing finished goods inventory: (1)
- Calculated Gross Profit on trading ($ £233,410 $): (1)
- Factory Profit added (carrying through factory profit from (a)): (1)
- Total Gross Profit ($ £283,600 $): (1)
- Office salaries: (1)
- Rent & rates ($ £9,500 $): (1) (for correct 25% allocation)
- Electricity & power ($ £7,200 $): (1) (for correct 20% allocation)
- Depreciation of office equipment ($ £6,000 $): (1)
- Selling expenses: (1)
- Irrecoverable debt: (1)
- Increase in provision for doubtful debts ($ £900 $): (2) (1 mark for new provision $ £4,100 $, 1 mark for change calculation)
- Increase in provision for unrealised profit ($ £500 $): (2) (1 mark for opening and closing PUP calculations, 1 mark for net change)
- Profit for the year ($ £156,000 $): (1) (of own figures)

### Part (c) Marking Scheme (Total: 7 Marks)
- (i) 1 mark for definition of direct cost, 1 mark for definition of indirect cost. 1 mark for direct example from scenario (materials/direct labor), 1 mark for indirect example from scenario (depreciation/factory rent/indirect labor). (4 marks)
- (ii) 1 mark for formula/method, 1 mark for unit cost at cost of production ($ £167.30 $), 1 mark for unit cost at transfer value ($ £184.03 $). (3 marks)

### Part (d) Marking Scheme (Total: 12 Marks)
- Level 1 (1–3 Marks): Basic knowledge shown. Identifies simple advantages or disadvantages with minimal explanation.
- Level 2 (4–6 Marks): Reasonable discussion. Explains advantages (e.g., comparing to external suppliers) or disadvantages (complexities in accounting) but lacks balanced development.
- Level 3 (7–9 Marks): Good development. A balanced argument presenting both benefits and limitations of factory profit, with clear references to Provision for Unrealised Profit (PUP).
- Level 4 (10–12 Marks): High-level evaluation. Provides a comprehensive and balanced assessment. Offers a clear and justified recommendation/conclusion based on the arguments discussed.

題目 2 · Journal Correction and Statement Revision

55 分

Harlan, a sole trader, prepared draft financial statements for the year ended 31 December 2023. The draft profit for the year was £43,200. The trial balance did not balance, and the difference was entered into a suspense account.

The following errors and omissions were later discovered:

1. No entry had been made in the books for bank interest received of £450.
2. A purchase of equipment costing £8,000 on credit from Apex Ltd had been correctly entered in the supplier's account but had been debited to the repairs and maintenance account. Depreciation is charged on equipment at 20% per annum using the reducing balance method. A full year's depreciation is charged in the year of purchase.
3. A cheque for £1,200 paid to a trade creditor, J. Miller, had been debited to J. Miller's account as £2,100. The bank entry was correct.
4. Sales of £3,600 on credit to K. Shah had been entered in the sales account as £6,300. The entry in K. Shah's account was correct.
5. The sales day book had been undercast by £1,500.
6. Cash drawings of £2,400 had been debited to the bank account and credited to the drawings account.
7. Goods taken by Harlan for personal use, cost price £900 (selling price £1,200), had not been recorded in the books.

Required

(a) Prepare the journal entries to correct each of the errors (1) to (7) above. Narratives are required. (21 marks)

(b) Prepare the Suspense Account to clear the balance, showing the original draft balance on trial balance as a balancing figure. (8 marks)

(c) Prepare a statement to show the correction of the draft profit for the year ended 31 December 2023, starting with the draft profit of £43,200. (14 marks)

(d) Evaluate the usefulness of ICT (Information and Communication Technology) in an accounting system compared to manual accounting in reducing the occurrence of errors and improving control procedures. (12 marks)

查看答案詳解

解題

### (a) Journal Entries to Correct Errors (21 marks)

1.
- Debit: Bank $£450$ (1)
- Credit: Interest Received $£450$ (1)
- Narrative: Correction of omission of bank interest received. (1)

2.
- Debit: Equipment $£8,000$ (0.5)
- Credit: Repairs and Maintenance $£8,000$ (0.5)
- Narrative: Correction of capital expenditure incorrectly treated as revenue expense. (0.5)
- Debit: Depreciation Expense $£1,600$ (0.5)
- Credit: Provision for Depreciation (Equipment) $£1,600$ (0.5)
- Narrative: Charge of 20% depreciation on equipment purchased during the year $(20\% \times £8,000)$. (0.5)

3.
- Debit: Suspense $£900$ (1)
- Credit: J. Miller $£900$ (1)
- Narrative: Correction of over-debiting creditor's account $(£2,100 - £1,200)$. (1)

4.
- Debit: Sales $£2,700$ (1)
- Credit: Suspense $£2,700$ (1)
- Narrative: Correction of overstatement of credit sales in sales account $(£6,300 - £3,600)$. (1)

5.
- Debit: Suspense $£1,500$ (1)
- Credit: Sales $£1,500$ (1)
- Narrative: Correction of undercast in Sales Day Book. (1)

6.
- Debit: Drawings $£4,800$ (1)
- Credit: Bank $£4,800$ (1)
- Narrative: Correction of cash drawings incorrectly entered in reverse $(£2,400 \times 2)$. (1)

7.
- Debit: Drawings $£900$ (1)
- Credit: Purchases $£900$ (1)
- Narrative: Correction of goods taken by owner for personal use not recorded. (1)

---

### (b) Suspense Account (8 marks)

| Date | Details | Amount (£) | Date | Details | Amount (£) |
|---|---|---|---|---|---|
| 31 Dec | Balance b/d (balancing figure) | 300 (2) | 31 Dec | Sales (Error 4) | 2,700 (2) |
| 31 Dec | J. Miller (Error 3) | 900 (2) | | | |
| 31 Dec | Sales (Error 5) | 1,500 (2) | | | |
| | Total | 2,700 | | Total | 2,700 |

(Note: The opening balance of the suspense account was a debit balance of £300.)

---

### (c) Statement of Corrected Profit for the year ended 31 December 2023 (14 marks)

| Item / Description | Adjustments (£) | Profit (£) |
|---|---|---|
| Draft Profit | | 43,200 |
| Add: Bank interest received (Error 1) | +450 (2) | |
| Add: Repairs and maintenance adjustment (Error 2) | +8,000 (2) | |
| Less: Depreciation on equipment (Error 2) | -1,600 (2) | |
| Less: Overstatement of credit sales (Error 4) | -2,700 (2) | |
| Add: Undercast of Sales Day Book (Error 5) | +1,500 (2) | |
| Add: Adjustment for drawings of goods (Error 7) | +900 (2) | |
| Corrected Profit for the year | | 49,750 (2) |

---

### (d) Evaluation of ICT vs Manual Accounting (12 marks)

Arguments for ICT:
- Reduction in arithmetic errors: Computer systems calculate daybooks, ledgers, and trial balances automatically, completely eliminating casting (summing) errors (such as Error 5).
- Automatic double entry: Posting a transaction automatically updates both the debit and credit accounts, reducing single-entry errors and mismatches that lead to suspense accounts (such as Errors 3 and 4).
- Speed and Efficiency: Financial statements and reconciliations (like Bank Reconciliations) are generated in real-time, which improves the timing of control procedures.
- Built-in validation checks: ICT packages can have rules (e.g., date formats, mandatory fields) that prevent half-complete inputs.

Arguments against ICT / Limitations:
- Does not eliminate all errors: ICT systems are still subject to human error of entry ("Garbage In, Garbage Out"). Specifically:
- Error of Omission: If a transaction is completely forgotten (like Error 1 or 7), the computer cannot detect or fix it.
- Error of Principle: Treating capital expenditure as revenue (like Error 2) is done by human selection of accounts. The system will process it without realizing it violates accounting principles.
- Error of Commission/Original Entry: If a human posts a journal entry with incorrect numbers or to a wrong similar account, the system will execute it accurately but incorrectly.
- Cost and Training: Implementing ICT software involves high acquisition and setup costs, along with the need for ongoing staff training.
- Security risks: System crashes, cyber threats, and power failures can lead to data loss if backups are not maintained.

Conclusion:
While ICT dramatically reduces simple clerical and calculation errors (such as casting and posting discrepancies), it does not act as a total substitute for internal controls. Human monitoring, proper authorization, and reconciliation controls are still essential to prevent errors of omission, principle, and original entry.

評分準則

### Part (a) [Total: 21 Marks]
- Error 1: 3 marks (1 mark for Dr Bank, 1 mark for Cr Interest, 1 mark for narrative).
- Error 2: 3 marks (0.5 mark for Dr Equipment, 0.5 mark for Cr Repairs, 0.5 mark for narrative; 0.5 mark for Dr Depreciation, 0.5 mark for Cr Provision, 0.5 mark for narrative).
- Error 3: 3 marks (1 mark for Dr Suspense, 1 mark for Cr J. Miller, 1 mark for narrative).
- Error 4: 3 marks (1 mark for Dr Sales, 1 mark for Cr Suspense, 1 mark for narrative).
- Error 5: 3 marks (1 mark for Dr Suspense, 1 mark for Cr Sales, 1 mark for narrative).
- Error 6: 3 marks (1 mark for Dr Drawings, 1 mark for Cr Bank, 1 mark for narrative).
- Error 7: 3 marks (1 mark for Dr Drawings, 1 mark for Cr Purchases, 1 mark for narrative).

### Part (b) [Total: 8 Marks]
- Balance b/d: 2 marks (must be on debit side to balance, using correct terminology).
- J. Miller: 2 marks (on debit side).
- Sales (Error 5): 2 marks (on debit side).
- Sales (Error 4): 2 marks (on credit side).

### Part (c) [Total: 14 Marks]
- Draft Profit: Starting point (no marks, given in question).
- Interest received: 2 marks for adding £450.
- Repairs and maintenance: 2 marks for adding £8,000.
- Depreciation: 2 marks for subtracting £1,600.
- Sales (Error 4): 2 marks for subtracting £2,700.
- Sales (Error 5): 2 marks for adding £1,500.
- Purchases (Error 7): 2 marks for adding £900.
- Corrected Profit: 2 marks for final correct total of £49,750 (consequential marks allowed if adjustments are correct based on student calculations).

### Part (d) [Total: 12 Marks] (Levels-based Mark Scheme)
- Level 1 (1–3 marks): Candidate identifies simple points of ICT benefits vs manual accounting, with little or no link to types of errors.
- Level 2 (4–6 marks): Candidate discusses some benefits (e.g., accuracy, casting error reduction) and limitations, with weak connections to error types. Minimal structure.
- Level 3 (7–9 marks): Candidate provides a balanced analysis of how ICT resolves specific errors (such as casting/transposition) but fails to resolve others (such as omission/principle). Well-structured.
- Level 4 (10–12 marks): Candidate offers an excellent, comprehensive critique, analyzing both sides in depth, utilizing specific error classifications (principle, omission, etc.) with illustrative examples, and concludes with a logical, reasoned judgement.

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WAC11 乙部

Answer THREE questions from this section.

4 題目 · 120 分

題目 1 · essay

30 分

Vanguard Manufacturing Ltd operates a factory with two production departments (Machining and Assembly) and two service departments (Maintenance and Canteen).

The following budgeted overhead costs have been estimated for the year ending 31 December 2023:
- Indirect materials: $24,000 (allocated as: Machining $12,000, Assembly $8,000, Maintenance $3,000, Canteen $1,000)
- Rent and Rates: $36,000
- Heat and Light: $18,000
- Depreciation of Machinery: $20,000
- Power: $15,000
- Employer's National Insurance: $10,000

The following departmental information is also available:

| Basis | Machining | Assembly | Maintenance | Canteen | Total |
| :--- | :---: | :---: | :---: | :---: | :---: |
| Floor Area (sq. metres) | 4,000 | 3,000 | 1,000 | 1,000 | 9,000 |
| Value of Machinery ($) | 120,000 | 60,000 | 20,000 | - | 200,000 |
| Kilowatt hours (kWh) | 8,000 | 4,000 | 2,000 | 1,000 | 15,000 |
| Number of Employees | 25 | 15 | 6 | 4 | 50 |
| Budgeted Machine Hours | 15,000 | 1,200 | - | - | 16,200 |
| Budgeted Direct Labour Hours | 2,000 | 6,000 | - | - | 8,000 |

**Re-apportionment agreement:**
- Canteen costs are to be apportioned: 50% to Machining, 40% to Assembly, and 10% to Maintenance.
- Maintenance costs are then to be apportioned: 75% to Machining and 25% to Assembly.

**Required:**

**(a)** Prepare the overhead analysis sheet showing the allocation and apportionment of overheads to the four departments for the year ending 31 December 2023. (10 marks)

**(b)** Re-apportion the service department costs to the production departments using the step-down method described. (4 marks)

**(c)** State, with a reason, the most appropriate overhead absorption base (machine hours or direct labour hours) for:
(i) the Machining Department
(ii) the Assembly Department.
Calculate the predetermined overhead absorption rate (OAR) for each department, rounding your answers to two decimal places. (6 marks)

**(d)** During the year ending 31 December 2023, the actual results recorded were:
- **Machining Department:** Actual overheads incurred: $78,500; Actual machine hours worked: 14,800 hours.
- Assembly Department: Actual overheads incurred: $45,800; Actual direct labour hours worked: 6,150 hours.

Calculate the under-absorbed or over-absorbed overheads for each department. (4 marks)

(e) Evaluate the use of predetermined overhead absorption rates versus actual overhead absorption rates in product costing. (6 marks)

查看答案詳解

解題

(a) Overhead Analysis Sheet for the year ending 31 December 2023

| Cost Item | Basis of Apportionment | Total ($) | Machining ($) | Assembly ($) | Maintenance ($) | Canteen ($) |
| :--- | :--- | :---: | :---: | :---: | :---: | :---: |
| **Indirect Materials** | Direct Allocation | 24,000 | 12,000 | 8,000 | 3,000 | 1,000 |
| **Rent and Rates** | Floor Area (4:3:1:1) | 36,000 | 16,000 | 12,000 | 4,000 | 4,000 |
| **Heat and Light** | Floor Area (4:3:1:1) | 18,000 | 8,000 | 6,000 | 2,000 | 2,000 |
| **Depreciation** | Value of Machinery (6:3:1:0) | 20,000 | 12,000 | 6,000 | 2,000 | - |
| **Power** | Kilowatt hours (8:4:2:1) | 15,000 | 8,000 | 4,000 | 2,000 | 1,000 |
| **Employer's NI** | Number of Employees (25:15:6:4) | 10,000 | 5,000 | 3,000 | 1,200 | 800 |
| **Total** | | **123,000** | **61,000** | **39,000** | **14,200** | **8,800** |

*Workings for Apportionment ratios:*
- Floor Area: Total $9,000 \text{ sq.m.}$. Share value = $\$36,000 / 9 = \$4,000$ and $\$18,000 / 9 = \$2,000$.
- Value of Machinery: Total $\$200,000$. Ratio 120 : 60 : 20 : 0 = 6:3:1:0. Share value = $\$20,000 / 10 = \$2,000$.
- Kilowatt hours: Total $15,000$. Ratio 8:4:2:1. Share value = $\$15,000 / 15 = \$1,000$.
- Number of Employees: Total 50. Ratio 25:15:6:4. Share value = $\$10,000 / 50 = \$200$.

---

(b) Re-apportionment of Service Department Costs (Step-Down Method)

- **Step 1: Re-apportion Canteen costs ($\$8,800$)**
- To Machining (50%): $\$8,800 \times 0.50 = \$4,400$
- To Assembly (40%): $\$8,800 \times 0.40 = \$3,520$
- To Maintenance (10%): $\$8,800 \times 0.10 = \$880$

- Step 2: Update Maintenance total
- New Maintenance Total = $\$14,200$ (allocated) + $\$880$ (from Canteen) = $\$15,080$.

- **Step 3: Re-apportion Maintenance costs ($\$15,080$)**
- To Machining (75%): $\$15,080 \times 0.75 = \$11,310$
- To Assembly (25%): $\$15,080 \times 0.25 = \$3,770$

| Department | Machining ($) | Assembly ($) |
| :--- | :---: | :---: |
| Primary Allocation (from part a) | 61,000 | 39,000 |
| Re-apportion Canteen | 4,400 | 3,520 |
| Re-apportion Maintenance | 11,310 | 3,770 |
| Total Production Overheads | 76,710 | 46,290 |

---

(c) Overhead Absorption Bases and Rates

- (i) Machining Department:
- Appropriate Base: Machine Hours.
- Reason: The department is highly automated/capital-intensive, as shown by the budgeted machine hours (15,000) being far greater than the direct labour hours (2,000).
- Predetermined OAR:
$$\text{OAR} = \frac{\$76,710}{15,000 \text{ Machine Hours}} = \$5.114 \approx \$5.11 \text{ per machine hour}$$

- (ii) Assembly Department:
- Appropriate Base: Direct Labour Hours.
- Reason: The department is labour-intensive, as shown by the budgeted direct labour hours (6,000) being far greater than the machine hours (1,200).
- Predetermined OAR:
$$\text{OAR} = \frac{\$46,290}{6,000 \text{ Direct Labour Hours}} = \$7.715 \approx \$7.72 \text{ per direct labour hour}$$

---

(d) Under-absorbed or Over-absorbed Overheads

*Option A: Using Rounded OARs ($5.11 and $7.72)*
- Machining Department:
- Overheads absorbed = $14,800 \text{ hours} \times \$5.11 = \$75,628$
- Overheads incurred = $\$78,500$
- Under-absorbed overheads = $\$78,500 - \$75,628 = \$2,872$
- Assembly Department:
- Overheads absorbed = $6,150 \text{ hours} \times \$7.72 = \$47,478$
- Overheads incurred = $\$45,800$
- Over-absorbed overheads = $\$47,478 - \$45,800 = \$1,678$

*Option B: Using Exact/Unrounded OARs ($5.114 and $7.715)*
- Machining Department:
- Overheads absorbed = $14,800 \text{ hours} \times \$5.114 = \$75,687.20$
- Overheads incurred = $\$78,500$
- Under-absorbed overheads = $\$78,500 - \$75,687.20 = \$2,812.80$
- Assembly Department:
- Overheads absorbed = $6,150 \text{ hours} \times \$7.715 = \$47,447.25$
- Overheads incurred = $\$45,800$
- Over-absorbed overheads = $\$47,447.25 - \$45,800 = \$1,647.25$

---

(e) Evaluation

Arguments for using Predetermined Overhead Absorption Rates:
- Timeliness of Information: Predetermined rates are calculated at the beginning of the financial period based on budget projections. This allows management to estimate the total production cost of jobs, products, or batches immediately when they are completed, facilitating prompt pricing and quoting decisions.
- Pricing Stability: Using a predetermined rate irons out seasonal or short-term fluctuations in actual overhead spending and activity levels. This prevents prices from fluctuating wildly month-to-month.
- Cost Control: Budgeted benchmarks are established, allowing for variance analysis (such as calculating under- or over-absorption) which highlights operational inefficiencies.

Arguments for using Actual Overhead Absorption Rates:
- Accuracy: Actual rates use historical costs and actual activity levels, meaning they reflect the actual cost incurred. There is no risk of under- or over-absorption at the year-end, making the final accounts technically more precise without adjustment.
- No reliance on estimates: Predetermined rates rely heavily on the accuracy of sales forecasts and output expectations. If estimations are significantly off, the OAR will be misleading.

Conclusion/Recommendation:
- Predetermined overhead absorption rates are vastly superior for management control, pricing, and decision-making during the period.
- The issue of under/over-absorption is easily resolved by adjusting the cost of sales at the end of the year. Therefore, Vanguard Manufacturing Ltd should continue using predetermined rates.

評分準則

(a) Overhead Analysis Sheet (10 Marks)
- 1 mark for correct basis of apportionment listed for all rows.
- 1 mark for allocated Indirect Materials correct for all departments.
- 1 mark for Rent and Rates calculations (Machining $\$16,000$, Assembly $\$12,000$, Maintenance $\$4,000$, Canteen $\$4,000$).
- 1 mark for Heat and Light calculations (Machining $\$8,000$, Assembly $\$6,000$, Maintenance $\$2,000$, Canteen $\$2,000$).
- 2 marks for Depreciation of Machinery (Machining $\$12,000$, Assembly $\$6,000$, Maintenance $\$2,000$, Canteen $\$0$) [Deduct 1 mark for any incorrect entry].
- 2 marks for Power calculations (Machining $\$8,000$, Assembly $\$4,000$, Maintenance $\$2,000$, Canteen $\$1,000$) [Deduct 1 mark for any incorrect entry].
- 1 mark for Employer's NI calculations (Machining $\$5,000$, Assembly $\$3,000$, Maintenance $\$1,200$, Canteen $\$800$).
- 1 mark for correct department totals (Machining $\$61,000$, Assembly $\$39,000$, Maintenance $\$14,200$, Canteen $\$8,800$).

(b) Re-apportionment (4 Marks)
- 1 mark for correct re-apportionment of Canteen costs ($\$4,400$, $\$3,520$, $\$880$).
- 1 mark for updating Maintenance total to $\$15,080$ ($\$14,200$ + $\$880$).
- 2 marks for correct re-apportionment of updated Maintenance costs to Machining ($\$11,310$) and Assembly ($\$3,770$) [1 mark for each department].

(c) Overhead Absorption Bases and Rates (6 Marks)
- 1 mark for stating Machining should use Machine Hours with the reason (machine-intensive/more machine hours than labour hours).
- 1 mark for calculating Machining OAR of $\$5.11$ per machine hour (accept unrounded $\$5.114$) [OFT applies if totals in part b were incorrect].
- 1 mark for stating Assembly should use Direct Labour Hours with the reason (labour-intensive/more labour hours than machine hours).
- 1 mark for calculating Assembly OAR of $\$7.72$ per direct labour hour (accept unrounded $\$7.715$) [OFT applies].
- 2 marks for showing appropriate formulas/workings for both departments.

(d) Under-absorbed or Over-absorbed Overheads (4 Marks)
- 1 mark for calculating Machining absorbed overheads ($\$75,628$ or $\$75,687.20$).
- 1 mark for stating Machining is under-absorbed by $\$2,872$ (or $\$2,812.80$).
- 1 mark for calculating Assembly absorbed overheads ($\$47,478$ or $\$47,447.25$).
- 1 mark for stating Assembly is over-absorbed by $\$1,678$ (or $\$1,647.25$).
(Note: Full marks are awarded if candidates use their rounded/unrounded rates from part c correctly).

(e) Evaluation (6 Marks)
- 1–2 marks (Level 1): Identifies basic differences between predetermined and actual rates (e.g. predetermined rates use estimates; actual rates use real figures).
- 3–4 marks (Level 2): Explains the advantages/disadvantages of both (e.g., predetermined rates allow quick quotes but cause under/over-absorption; actual rates are accurate but delayed).
- 5–6 marks (Level 3): Evaluates both methods thoroughly, provides a balanced argument, and offers a reasoned conclusion recommending predetermined rates for business operations.

題目 2 · Ratio Analysis and Expansion Forecast

30 分

Arnav runs a wholesale trading business. The following summarized financial information is available for his business for the year ended 30 April 2023:

Statement of Profit or Loss for the year ended 30 April 2023
* Revenue: £400,000
* Cost of sales: £280,000
* Gross profit: £120,000
* Expenses:
* General administrative expenses: £64,000
* Depreciation on non-current assets: £12,000
* Interest on bank loan: £4,000
* Total expenses: £80,000
* Profit for the year: £40,000

Statement of Financial Position as at 30 April 2023
* Non-current assets (carrying value): £150,000
* Current assets:
* Inventory: £45,000
* Trade receivables: £35,000
* Bank: £10,000
* Total current assets: £90,000
* Total assets: £240,000

* Capital:
* Opening capital: £130,000
* Add: Profit for the year: £40,000
* Less: Drawings: (£20,000)
* Closing capital: £150,000
* Non-current liabilities:
* 8% Bank loan: £50,000
* Current liabilities:
* Trade payables: £40,000
* Total capital and liabilities: £240,000

Expansion Proposal:
Arnav is planning to expand his business operations on 1 May 2023. To finance this expansion, he has arranged:
1. An additional 10% bank loan of £30,000, to be received on 1 May 2023.
2. The purchase of new delivery equipment costing £25,000 on 1 May 2023. The equipment is to be depreciated at 20% per annum using the straight-line method.
3. The remaining £5,000 from the loan will be retained in the bank to support working capital.

For the year ending 30 April 2024, Arnav forecasts the following:
* Revenue will increase by 25% compared to the 2023 level.
* The Gross profit percentage will increase to 32% of revenue due to trade discounts on bulk purchasing.
* General administrative expenses (excluding depreciation and interest) will increase by 15% compared to the 2023 level.
* Depreciation on existing non-current assets will remain unchanged at £12,000.
* Interest must be paid on both the existing and new bank loans.
* Drawings are expected to be £25,000 for the year.

Required:

(a) Calculate the following ratios for Arnav's business for the year ended 30 April 2023. Show your workings and state the formula used in each case (round percentages/ratios to two decimal places):
1. Gross profit percentage
2. Profit for the year as a percentage of revenue (Net profit margin)
3. Return on capital employed (ROCE)
4. Current ratio
5. Liquid (acid test) ratio
(10 marks)

(b) Prepare a Forecast Statement of Profit or Loss for the year ending 30 April 2024. Show all your workings.
(12 marks)

(c) Evaluate Arnav's proposed expansion plan. Refer to your calculations in parts (a) and (b), and consider both financial and non-financial factors. Make a recommendation on whether Arnav should proceed with the expansion.
(8 marks)

查看答案詳解

解題

Part (a) Ratio Calculations (10 marks)

1. Gross profit percentage:
$\text{Formula} = \frac{\text{Gross Profit}}{\text{Revenue}} \times 100$
$\text{Working} = \frac{120,000}{400,000} \times 100 = 30.00\%$

2. Profit for the year as a percentage of revenue:
$\text{Formula} = \frac{\text{Profit for the Year}}{\text{Revenue}} \times 100$
$\text{Working} = \frac{40,000}{400,000} \times 100 = 10.00\%$

3. Return on capital employed (ROCE):
$\text{Formula} = \frac{\text{Profit before Interest}}{\text{Capital Employed}} \times 100$
Note: Capital Employed = Closing Capital + Non-current Liabilities = £150,000 + £50,000 = £200,000.
Note: Profit before Interest = Profit for the year £40,000 + Interest £4,000 = £44,000.
$\text{Working} = \frac{44,000}{200,000} \times 100 = 22.00\%$
*(Accept: $\frac{40,000}{200,000} \times 100 = 20.00\%$ if formula uses profit for the year instead of profit before interest).*

4. Current ratio:
$\text{Formula} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$
$\text{Working} = \frac{90,000}{40,000} = 2.25 : 1$

5. Liquid (acid test) ratio:
$\text{Formula} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$
$\text{Working} = \frac{90,000 - 45,000}{40,000} = \frac{45,000}{40,000} = 1.13 : 1$ (or $1.125 : 1$)

---

Part (b) Forecast Statement of Profit or Loss for the year ending 30 April 2024 (12 marks)

| Item | Working | Amount (£) |
| :--- | :--- | :--- |
| Revenue | $400,000 \times 1.25$ | 500,000 |
| Cost of sales | Balancing figure (or $500,000 \times 68\%$) | (340,000) |
| Gross Profit | $500,000 \times 32\%$ | 160,000 |
| Expenses: | | |
| General administrative expenses | $64,000 \times 1.15$ | (73,600) |
| Depreciation - Existing | Remaining unchanged | (12,000) |
| Depreciation - New Equipment | $25,000 \times 20\%$ | (5,000) |
| Finance Costs (Interest) | Existing $4,000$ + New $30,000 \times 10\% = 3,000$ | (7,000) |
| Forecast Profit for the Year | | 62,400 |

Workings summary:
* Revenue: £500,000 (1 mark)
* Gross profit: £160,000 (2 marks)
* Cost of sales: £340,000 (1 mark)
* General admin expenses: £73,600 (2 marks)
* Existing depreciation: £12,000 (1 mark)
* New equipment depreciation: £5,000 (1 mark)
* Interest expense: £7,000 (2 marks)
* Total expenses: £97,600 (1 mark)
* Net profit for the year: £62,400 (1 mark)

---

Part (c) Evaluation of the Expansion Plan (8 marks)

Financial factors (positive):
* Profitability increases significantly from £40,000 to £62,400 (a 56% increase).
* Net profit margin improves from 10.00% to 12.48% ($62,400 / 500,000 \times 100$).
* Bulk-buying power improves the gross profit margin from 30.00% to 32.00%.
* Forecast ROCE: Profit before interest = $62,400 + 7,000 = 69,400$. Capital employed = Closing Capital $150,000 + 62,400 - 25,000$ (drawings) $= 187,400$ plus non-current liabilities $80,000 = 267,400$. ROCE = $69,400 / 267,400 \times 100 = 25.95\%$, which is an improvement on 22.00%.

Financial risks and concerns (negative):
* Gearing and debt commitments increase: Non-current liabilities rise from £50,000 to £80,000.
* Interest costs rise from £4,000 to £7,000, which increases financial risk.
* The new loan carries a higher interest rate (10%) than the existing loan (8%).
* Overtrading risks: A 25% increase in revenue will likely require more investment in inventory and trade receivables, which could deteriorate the healthy 2023 liquidity ratios (Current ratio: 2.25:1; Acid test: 1.13:1).

Non-financial factors:
* Reliability of bulk discounts: Can suppliers guarantee these prices over the long term?
* Demand volatility: Will the market support a 25% increase in volume?
* Efficiency: New delivery equipment could improve delivery speed and customer satisfaction.

Conclusion/Recommendation:
* Arnav should proceed with the expansion as the financial returns (higher net profit, better margins, and higher ROCE) strongly justify the risks. However, he must closely monitor cash flow and ensure working capital is managed to avoid liquidity issues.

評分準則

Part (a) Marking Scheme (10 marks)
* Ratio 1 (Gross profit %): 2 marks (1 mark for formula/working, 1 mark for correct answer).
* Ratio 2 (Net profit %): 2 marks (1 mark for formula/working, 1 mark for correct answer).
* Ratio 3 (ROCE): 2 marks (1 mark for correct Profit before Interest and Capital Employed, 1 mark for correct percentage). Accept 20.00% with a 1-mark deduction if Profit after Interest is used.
* Ratio 4 (Current ratio): 2 marks (1 mark for working, 1 mark for correct ratio format of x.xx : 1).
* Ratio 5 (Liquid ratio): 2 marks (1 mark for working, 1 mark for correct ratio format of x.xx : 1).

Part (b) Marking Scheme (12 marks)
* Revenue: 1 mark for correct calculation (£500,000).
* Gross Profit: 2 marks for £160,000 (or 1 mark for correct method if error is carried forward).
* Cost of sales: 1 mark for £340,000 (balancing figure/working).
* General admin expenses: 2 marks for £73,600 (or 1 mark for correct 15% calculation on £64,000).
* Depreciation - Existing: 1 mark for £12,000.
* Depreciation - New Equipment: 1 mark for £5,000 (showing 20% on £25,000).
* Interest expense: 2 marks for £7,000 (showing existing £4,000 + new loan interest £3,000).
* Total expenses & Net Profit: 2 marks (1 mark for total expenses check, 1 mark for correct net profit of £62,400 or correct consecutive carry-forward calculation).

Part (c) Marking Scheme (8 marks)
* Level 3 (7-8 marks): Detailed and balanced evaluation addressing both profitability metrics (margins, profit levels, ROCE) and liquidity/risk indicators (interest rates, gearing, working capital). Appropriate non-financial commentary included with a clear, well-supported recommendation.
* Level 2 (4-6 marks): Reasonable analysis of financial figures with some reference to calculations. Gearing/interest risks or non-financial factors are touched upon. Recommendation is present but lacks full depth.
* Level 1 (1-3 marks): Weak/simplistic evaluation. Only refers to profit increasing without calculating ratios or analyzing liquidity/risk. No clear recommendation.

題目 3 · essay

30 分

Vanguard Manufacturers produces a single specialized product. The business uses the First In First Out (FIFO) perpetual inventory method to value its raw materials.

The following details are available for Raw Material X for the financial year ended 31 March 2024:

* 1 April 2023: Opening inventory of 500 kg valued at $£4.00$ per kg.
* 12 June 2023: Purchased 1,200 kg at $£4.50$ per kg.
* 18 September 2023: Issued 1,000 kg to production.
* 5 November 2023: Purchased 1,500 kg at $£4.80$ per kg.
* 22 January 2024: Issued 1,400 kg to production.
* 15 March 2024: Purchased 600 kg at $£5.00$ per kg.

The following additional financial information is available for the year ended 31 March 2024:

* Direct factory wages: $£8,500$ was paid. On 31 March 2024, $£450$ was outstanding.
* Factory supervisor salary: $£6,000$.
* Indirect factory expenses: $£3,200$ was paid. On 31 March 2024, $£200$ was prepaid.
* Factory machinery: Cost $£40,000$. Accumulated depreciation on 1 April 2023 was $£16,000$. Factory machinery is depreciated using the reducing balance method at 15% per annum.
* Work-in-progress:
* 1 April 2023: $£1,800$
* 31 March 2024: $£2,150$
* Finished goods:
* Finished goods are transferred from the factory to the warehouse at a transfer price of cost plus 20% factory profit.
* Inventory of Finished Goods (at transfer price):
* 1 April 2023: $£4,800$
* 31 March 2024: $£6,000$
* Revenue from sales of finished goods: $£48,000$
* Office and distribution expenses: $£9,500$

Required:

(a) Prepare a statement showing the valuation of Raw Material X issues during the year and the closing inventory of Raw Material X at 31 March 2024 using the First In First Out (FIFO) perpetual inventory method. (8 marks)

(b) Prepare the Manufacturing Account for Vanguard Manufacturers for the year ended 31 March 2024, showing clearly the Prime Cost, the Cost of Production (at actual cost), and the Transfer Price (including factory profit). (12 marks)

(c) Prepare the Statement of Profit or Loss for Vanguard Manufacturers for the year ended 31 March 2024. (4 marks)

(d) Evaluate whether Vanguard Manufacturers should continue to manufacture its own products or buy them from an external supplier who has offered to supply equivalent finished goods at a fixed annual price of $£30,000$. (6 marks)

查看答案詳解

解題

### (a) FIFO Perpetual Inventory Statement

| Date | Transaction | Qty (kg) | Price ($£$) | Value ($£$) | Balance Inventory (kg @ price) | Total Balance Value ($£$) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 1 Apr 2023 | Opening Stock | - | - | - | 500 @ $£4.00$ | $£2,000$ |
| 12 Jun 2023| Purchase | 1,200 | $£4.50$ | $£5,400$ | 500 @ $£4.00$
1,200 @ $£4.50$ | $£7,400$ |
| 18 Sep 2023| Issue | 1,000 | | **$£4,250$** (1)
(500 @ $£4.00$ = $£2,000$) (1)
(500 @ $£4.50$ = $£2,250$) (1) | 700 @ $£4.50$ | $£3,150$ (1) |
| 5 Nov 2023 | Purchase | 1,500 | $£4.80$ | $£7,200$ | 700 @ $£4.50$
1,500 @ $£4.80$ | $£10,350$ |
| 22 Jan 2024| Issue | 1,400 | | **$£6,510$** (1)
(700 @ $£4.50$ = $£3,150$) (1)
(700 @ $£4.80$ = $£3,360$) (1) | 800 @ $£4.80$ | $£3,840$ |
| 15 Mar 2024| Purchase | 600 | $£5.00$ | $£3,000$ | 800 @ $£4.80$
600 @ $£5.00$ | **$£6,840$** (1) |

* Total Value of Raw Materials Issued/Used: $£4,250 + \£6,510 = £10,760$
* Closing Inventory Value (31 March 2024): $£6,840$

---

### (b) Manufacturing Account for Vanguard Manufacturers for the year ended 31 March 2024

| | $£$ | $£$ |
| :--- | :--- | :--- |
| Direct Materials: | | |
| Cost of Raw Materials Issued (from part a) | | 10,760 (1of) |
| Direct Wages: ($£8,500 + £450$ outstanding) | | 8,950 (1) |
| Prime Cost | | 19,710 (1) |
| Factory Overheads: | | |
| Factory supervisor salary | 6,000 (1) | |
| Indirect factory expenses ($£3,200 - £200$ prepaid) | 3,000 (1) | |
| Depreciation of factory machinery ($15\% \times (£40,000 - £16,000)$) | 3,600 (2) | 12,600 |
| | | 32,310 |
| Add: Opening work-in-progress | 1,800 | |
| Less: Closing work-in-progress | (2,150) | (350) (1) |
| Cost of Production (at actual cost) | | 31,960 (1of) |
| Add: Factory Profit (20% of Cost of Production) ($£31,960 \times 20\%$) | | 6,392 (2of) |
| Transfer Price to Statement of Profit or Loss | | 38,352 (1of) |

*Note on Factory Machinery Depreciation Calculation: $(£40,000 - £16,000) \times 0.15 = £3,600$.*

---

### (c) Statement of Profit or Loss for Vanguard Manufacturers for the year ended 31 March 2024

| | $£$ | $£$ |
| :--- | :--- | :--- |
| Revenue | | 48,000 |
| Cost of Sales: | | |
| Opening inventory of finished goods (at transfer price) | 4,800 | |
| Add: Cost of production (at transfer price) | 38,352 (1of) | |
| Less: Closing inventory of finished goods (at transfer price) | (6,000) | |
| Cost of Sales | | (37,152) (1) |
| Gross Profit from trading | | 10,848 |
| Add: Factory Profit | 6,392 (1of) | |
| Less: Increase in Provision for Unrealised Profit (W1) | (200) (1) | 6,192 |
| Total Gross Profit | | 17,040 |
| Less: Office and distribution expenses | | (9,500) |
| Net Profit for the year | | 7,540 |

W1: Provision for Unrealised Profit (PUP):
* PUP in Opening Stock: $£4,800 \times \frac{20}{120} = £800$
* PUP in Closing Stock: $£6,000 \times \frac{20}{120} = £1,000$
* Increase in PUP: $£1,000 - £800 = £200$

---

### (d) Evaluation

Arguments for continuing to manufacture in-house:
* Cost comparison: The actual cost of production is currently $£31,960$. While the external supplier's price is $£30,000$, suggesting a theoretical saving of $£1,960$, some of the factory costs may be unavoidable. For example, depreciation of machinery ($£3,600$) will continue unless the machinery is sold, which could result in a loss on disposal.
* Quality control: Vanguard has direct control over the quality of raw materials and the manufacturing process. Buying from an external supplier could lead to inferior product quality, affecting customer reputation.
* Delivery & supply reliability: In-house production ensures orders can be met timely. Relying on an outside supplier introduces delivery delay risks.
* Staff impacts: Closing down the production facility will require laying off factory employees and the supervisor, which would involve redundancy costs and lower the morale of remaining office staff.

Arguments for buying from the external supplier:
* Financial savings: A direct cost saving of $£1,960$ ($£31,960 - £30,000$) on production operations could be achieved. If the factory supervisor ($£6,000$) is redundant and indirect factory expenses are fully saved, total cash outflows will drop significantly.
* Focus on core competence: The business can close the factory and focus exclusively on sales, marketing, and distribution of goods, potentially expanding revenue.
* Reduction of operational risk: No longer needing to manage raw material price changes (e.g. material X price increased from $£4.00$ to $£5.00$ during the year), machinery breakdowns, or labor issues.

Conclusion/Decision:
Vanguard should only outsource if they can guarantee the quality is equivalent and can eliminate the major fixed overheads (like supervisor salaries and factory space). Otherwise, maintaining control over quality and avoiding redundancy costs suggests they should continue manufacturing in-house.

評分準則

### Marking Scheme

(a) FIFO Inventory Statement (8 marks)
* 1 mark: Value of first issue on 18 Sep 2023 ($£4,250$)
* 1 mark: Break-down of first issue (500 kg @ $£4.00$)
* 1 mark: Break-down of first issue (500 kg @ $£4.50$)
* 1 mark: Balance value on 18 Sep 2023 ($£3,150$)
* 1 mark: Value of second issue on 22 Jan 2024 ($£6,510$)
* 1 mark: Break-down of second issue (700 kg @ $£4.50$)
* 1 mark: Break-down of second issue (700 kg @ $£4.80$)
* 1 mark: Final closing inventory value at 31 March 2024 ($£6,840$)

(b) Manufacturing Account (12 marks)
* 1 mark (of): Correct raw materials issued amount carried from (a)
* 1 mark: Direct wages adjusted for outstanding amount ($£8,950$)
* 1 mark: Prime Cost correct addition of materials and wages
* 1 mark: Factory supervisor salary ($£6,000$)
* 1 mark: Indirect factory expenses adjusted for prepayment ($£3,000$)
* 2 marks: Depreciation of machinery calculation ($15\% \times (£40,000 - £16,000) = £3,600$). Award 1 mark if cost value of $£40,000$ was used without subtracting previous accumulated depreciation.
* 1 mark: Work-in-progress adjustment showing net reduction of $£350$
* 1 mark (of): Cost of Production calculated correctly ($£31,960$)
* 2 marks (of): Factory profit calculated at 20% on Cost of Production ($£6,392$)
* 1 mark (of): Final transfer price calculated correctly ($£38,352$)

(c) Statement of Profit or Loss (4 marks)
* 1 mark (of): Cost of production included at transfer price in cost of sales
* 1 mark: Cost of sales calculation correct ($£37,152$)
* 1 mark (of): Correct entry of factory profit added ($£6,392$)
* 1 mark: Correct adjustment for increase in provision for unrealised profit ($£200$)

(d) Evaluation (6 marks)
* 2 marks: Financial arguments (e.g., potential savings compared to unavoidable overheads such as depreciation/supervisor salary redundancy).
* 2 marks: Non-financial factors (e.g., quality control issues, supplier reliability, staff redundancies).
* 2 marks: Clear, reasoned recommendation supported by arguments.

題目 4 · structured

30 分

Maya is a sole trader who does not maintain full double-entry accounting records. The following information is available for the financial year ended 31 March 2023:

Assets and Liabilities1 April 2022 (£)31 March 2023 (£)Equipment (at cost)40 00048 000Accumulated depreciation on equipment12 000?Inventory8 5009 200Trade receivables6 200?Trade payables4 9005 300Rent accrued400600Insurance prepaid300500

Summary of Bank Transactions for the year ended 31 March 2023:

Bank balance at 1 April 2022 (Debit): £16 150
Receipts from trade receivables: £42 400
Cash sales banked: £22 600
Sale of old equipment: £1 500
Payments to trade payables: £36 200
Purchase of new equipment: £13 000
Rent paid: £4 800
Insurance paid: £2 400
General expenses paid: £6 950
Drawings (cash): £10 400

Additional Information:

1. During the year, Maya withdrew goods costing £800 for her personal use. No entry has been made in the books.

2. Maya maintains a constant gross profit margin of 50% on all sales.

3. Bad debts of £450 were written off during the year.

4. Discounts allowed to credit customers were £1 150, and discounts received from suppliers were £900.

5. On 1 October 2022, old equipment was sold for £1 500 cash. This equipment had an original cost of £5 000 and a net book value of £1 800 on 1 April 2022. No depreciation is charged in the year of disposal.

6. Depreciation is charged at 15% per annum on the cost of equipment held at the end of each financial year.

Required:

(a) Calculate for the year ended 31 March 2023:
(i) Total purchases (4 marks)
(ii) Total sales (4 marks)

(b) Prepare the Statement of Profit or Loss for the year ended 31 March 2023. (12 marks)

(c) Calculate:
(i) The closing balance of Trade Receivables as at 31 March 2023. (3 marks)
(ii) The closing Bank balance as at 31 March 2023. (3 marks)

(d) Evaluate Maya's proposal to switch from her current incomplete records system to a computerized double-entry accounting system. (6 marks)

查看答案詳解

解題

(a) Calculations

(i) Total Purchases:
Trade Payables Control Account:
$\text{Credit Purchases} = \text{Payments to Payables} + \text{Discount Received} + \text{Closing Payables} - \text{Opening Payables}$
$\text{Credit Purchases} = £36,200 + £900 + £5,300 - £4,900 = £37,500$
Since there are no cash purchases, Total Purchases = £37,500.

(ii) Total Sales:
First, calculate adjusted Cost of Sales:
$\text{Cost of Sales} = \text{Opening Inventory} + \text{Purchases} - \text{Drawings of Goods} - \text{Closing Inventory}$
$\text{Cost of Sales} = £8,500 + £37,500 - £800 - £9,200 = £36,000$
Since gross profit margin is 50%, Cost of Sales represents 50% of Sales.
$\text{Total Sales} = \frac{\text{Cost of Sales}}{0.50} = \frac{£36,000}{0.50} = £72,000$
Total Sales = £72,000.

(b) Maya - Statement of Profit or Loss for the year ended 31 March 2023

Revenue (Sales)£72,000Cost of SalesOpening Inventory£8,500Purchases£37,500Less: Drawings of goods(£800)£45,200Less: Closing Inventory(£9,200)(£36,000)Gross Profit£36,000Add: Discount received£900£36,900ExpensesRent ($£4,800 - £400 + £600$)£5,000Insurance ($£2,400 + £300 - £500$)£2,200General expenses£6,950Bad debts written off£450Discount allowed£1,150Loss on disposal of equipment ($£1,800 - £1,500$)£300Depreciation on equipment ($15\% \times £48,000$)£7,200(£23,250)Profit for the year£13,650

(c) Balances

(i) Closing Trade Receivables:
First, calculate Credit Sales:
$\text{Credit Sales} = \text{Total Sales} - \text{Cash Sales Banked} = £72,000 - £22,600 = £49,400$
Trade Receivables Control Account:
$\text{Closing Receivables} = \text{Opening Receivables} + \text{Credit Sales} - \text{Receipts} - \text{Bad Debts} - \text{Discount Allowed}$
$\text{Closing Receivables} = £6,200 + £49,400 - £42,400 - £450 - £1,150 = £11,600$

(ii) Closing Bank Balance:
$\text{Opening Bank Balance} = £16,150 \text{ (Debit)}$
$\text{Total Receipts} = £42,400 + £22,600 + £1,500 = £66,500$
$\text{Total Payments} = £36,200 + £13,000 + £4,800 + £2,400 + £6,950 + £10,400 = £73,750$
$\text{Closing Bank Balance} = £16,150 + £66,500 - £73,750 = £8,900 \text{ (Debit/Positive Balance)}$

(d) Evaluation of Proposal to Computerize:
Arguments for computerization:
- Speed and Accuracy: Transactions are recorded quickly, and the system automatically updates the ledgers and balances, eliminating manual calculations and balancing errors.
- Reporting: Financial statements (Profit or Loss, Statement of Financial Position) and management reports can be generated instantly, aiding decision-making.
- Debt Control: Allows tracking of aged debtors, sending automatic reminders, which reduces the potential for bad debts.
- Security & Backup: Financial records can be safely stored on cloud-based drives with secure access levels.
Arguments against computerization:
- Cost: Software licensing, compatible hardware, and system maintenance represent a significant cash outflow for a sole trader.
- Training: Maya will need to invest time and resources in training herself or her staff to use the software.
- Vulnerability: System crashes, cyber-attacks, or power failures can disrupt accounting operations unless adequate backup systems are maintained.
Recommendation: Maya should implement the computerized system. The growth in her operations (evidenced by the acquisition of new assets and credit transactions) demands stronger financial oversight that simple incomplete records cannot provide. The long-term gains in time-saving, error reduction, and customer control will outweigh the initial cash setup costs.

評分準則

(a) (i) Total Purchases (4 Marks)
- Correct setup of Payables control with Opening Payables £4,900 (1 mark)
- Addition of Payments £36,200, Discount Received £900, and Closing Payables £5,300 (1 mark)
- Calculation and final figure of £37,500 (2 marks)

(a) (ii) Total Sales (4 Marks)
- Correct adjustment for drawings of goods ($£37,500 - £800 = £36,700$) (1 mark)
- Accurate cost of sales of £36,000 (1 mark)
- Applying the 50% margin formula ($£36,000 / 0.50$) to arrive at £72,000 (2 marks)

(b) Statement of Profit or Loss (12 Marks)
- Revenue of £72,000 (1 OF mark)
- Cost of sales section shown in full with drawings adjusted (2 marks)
- Gross Profit of £36,000 (1 OF mark)
- Discount received of £900 (1 mark)
- Rent adjusted to £5,000 (1 mark)
- Insurance adjusted to £2,200 (1 mark)
- General expenses of £6,950 (1 mark)
- Bad debts £450 and Discount allowed £1,150 (1 mark for both)
- Loss on disposal of equipment of £300 (1 mark)
- Depreciation charge of £7,200 (1 mark)
- Correct calculation of Profit for the year of £13,650 (1 OF mark)

(c) (i) Closing Trade Receivables (3 Marks)
- Calculating credit sales of £49,400 (1 mark)
- Full equation including bad debts and discount allowed (1 mark)
- Correct final balance of £11,600 (1 mark)

(c) (ii) Closing Bank Balance (3 Marks)
- Sum of Receipts of £66,500 (1 mark)
- Sum of Payments of £73,750 (1 mark)
- Correct final balance of £8,900 (1 mark)

(d) Evaluation (6 Marks)
- Up to 2 marks for advantages of transitioning to a computerized double-entry system.
- Up to 2 marks for disadvantages/challenges of the transition.
- Up to 2 marks for a clear, supported recommendation based on Maya's business context.

WAC12 甲部

Answer BOTH questions in this section. Show all calculations clearly.

2 題目 · 110 分

題目 1 · Production Cost Budgeting and Break-Even Planning

55 分

Velo-Tech Ltd manufactures high-performance bicycle helmets, selling a single model called the 'Aero-Helmet' for $\$25$ per unit.

The following budgeted information is available for the upcoming months of April, May, June, and July:

1. Budgeted Sales (units):
- April: 5,000 units
- May: 6,000 units
- June: 7,000 units
- July: 8,000 units

2. Inventory Policies:
- Finished Goods: Closing inventory at the end of each month must equal 20% of the next month's budgeted sales. The opening inventory on 1 April is budgeted to be 1,000 units.
- Raw Materials: Closing inventory at the end of each month must equal 10% of the next month's production requirements. The opening inventory on 1 April is budgeted to be 260 kg.

3. Production Inputs (Current Setup):
- Direct Materials: Each helmet requires 0.5 kg of polycarbonate material at a cost of $\$16$ per kg.
- Direct Labour: Each helmet requires 15 minutes of direct labor. Direct labor is paid at $\$18$ per hour.
- Variable Overheads: Budgeted at $\$2.50$ per unit produced.
- Fixed Overheads: Budgeted at $\$30,000$ per month.

Required:

(a) Prepare the Production Budget (in units) for each of the months of April, May, and June. (6 marks)

(b) Prepare the Raw Materials Purchases Budget (in kg and $\$$) for each of the months of April and May. (10 marks)

(c) Prepare the Production Cost Budget for each of the months of April and May, clearly showing Direct Materials, Direct Labour, Prime Cost, Variable Overheads, Fixed Overheads, and Total Production Cost. (12 marks)

(d) Calculate for the month of April:
(i) The break-even point in units. (4 marks)
(ii) The margin of safety as a percentage of budgeted sales. (3 marks)

Proposal for June Automation:
From June onwards, the management of Velo-Tech Ltd is considering an automation proposal. If implemented, the following changes would occur:
- Advanced machinery will be rented, which will increase fixed overheads by $\$9,000$ per month.
- Direct labor time per helmet will be reduced by 40% (hourly wage rates remain at $\$18$ per hour).
- Direct material cost will be reduced by $\$1.20$ per unit due to reduced material wastage.
- Variable overheads per unit and the selling price will remain unchanged.

(e) Calculate for the month of June under this automation proposal:
(i) The new break-even point in units. (5 marks)
(ii) The budgeted profit. (3 marks)

(f) Evaluate whether Velo-Tech Ltd should implement the proposed automation. (12 marks)

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解題

### (a) Production Budget (in units) for April, May, and June

| Budget Detail | April (units) | May (units) | June (units) |
| :--- | :---: | :---: | :---: |
| Budgeted Sales | 5,000 | 6,000 | 7,000 |
| Add: Budgeted Closing Inventory (20% of next month's sales) | 1,200 (20\% \times 6,000) | 1,400 (20\% \times 7,000) | 1,600 (20\% \times 8,000) |
| Total Required | 6,200 | 7,400 | 8,600 |
| Less: Opening Inventory | (1,000) | (1,200) | (1,400) |
| Budgeted Production | 5,200 | 6,200 | 7,200 |

---

### (b) Raw Materials Purchases Budget (kg and $\$$) for April and May

First, calculate production usage requirements in kg:
- April: $5,200 \text{ units} \times 0.5 \text{ kg} = 2,600 \text{ kg}$
- May: $6,200 \text{ units} \times 0.5 \text{ kg} = 3,100 \text{ kg}$
- June: $7,200 \text{ units} \times 0.5 \text{ kg} = 3,600 \text{ kg}$

| Budget Detail | April (kg) | May (kg) |
| :--- | :---: | :---: |
| Production Usage Requirement | 2,600 | 3,100 |
| Add: Budgeted Closing Inventory (10% of next month's usage) | 310 (10\% \times 3,100) | 360 (10\% \times 3,600) |
| Total Requirement | 2,910 | 3,460 |
| Less: Budgeted Opening Inventory | (260) | (310) |
| Budgeted Purchases (kg) | 2,650 | 3,150 |
| Purchase Cost per kg | $\$16$ | $\$16$ |
| **Budgeted Purchases ($)** | **$\$42,400$** | **$\$50,400$** |

---

### (c) Production Cost Budget for April and May

Unit costs (Current Setup):
- Direct Materials: $0.5 \text{ kg} \times \$16 = \$8.00$ per unit
- Direct Labour: $15 \text{ mins} / 60 \text{ mins} \times \$18 = \$4.50$ per unit
- Variable Overheads: $\$2.50$ per unit

| Budget Detail | April ($) | May ($) |
| :--- | :---: | :---: |
| Production Level (units) | 5,200 | 6,200 |
| Direct Materials | 41,600 *(5,200 \times $8)* | 49,600 *(6,200 \times $8)* |
| Direct Labour | 23,400 *(5,200 \times $4.50)* | 27,900 *(6,200 \times $4.50)* |
| Prime Cost | 65,000 | 77,500 |
| Variable Overheads | 13,000 *(5,200 \times $2.50)* | 15,500 *(6,200 \times $2.50)* |
| Fixed Overheads | 30,000 | 30,000 |
| Total Production Cost | 108,000 | 123,000 |

---

### (d) Calculations for April

(i) Break-even point (units):
- Selling Price (SP) = $\$25.00$
- Total Variable Cost per unit (VC) = $\$8.00 + \$4.50 + \$2.50 = \$15.00$
- Contribution per unit = $SP - VC = \$25.00 - \$15.00 = \$10.00$
- Fixed Costs = $\$30,000$

$$\text{Break-even point} = \frac{\text{Fixed Costs}}{\text{Contribution per unit}} = \frac{\$30,000}{\$10.00} = 3,000 \text{ units}$$

(ii) Margin of safety as a percentage of budgeted sales:
- Budgeted Sales for April = 5,000 units
- Margin of Safety (units) = $5,000 - 3,000 = 2,000$ units

$$\text{Margin of Safety (\%)} = \left( \frac{2,000}{5,000} \right) \times 100\% = 40\%$$

---

### (e) June Automation Proposal Calculations

(i) New break-even point in units:
- New Fixed Costs = $\$30,000 + \$9,000 = \$39,000$
- New Direct Labor Cost per unit:
- New labor time = $15 \text{ mins} \times (1 - 0.40) = 9 \text{ mins}$ (or $0.15 \text{ hours}$)
- New labor cost = $0.15 \text{ hours} \times \$18 = \$2.70$ per unit
- New Direct Material Cost per unit = $\$8.00 - \$1.20 = \$6.80$
- Variable Overhead = $\$2.50$ per unit (unchanged)
- New Total Variable Cost per unit = $\$6.80 + \$2.70 + \$2.50 = \$12.00$
- New Contribution per unit = $\$25.00 - \$12.00 = \$13.00$

$$\text{New Break-even point} = \frac{\text{New Fixed Costs}}{\text{New Contribution per unit}} = \frac{\$39,000}{\$13.00} = 3,000 \text{ units}$$

(ii) June Budgeted Profit under proposal:
- Budgeted Sales in June = 7,000 units
- Budgeted Profit = $(\text{Sales} \times \text{New Contribution}) - \text{New Fixed Costs}$
- Profit = $(7,000 \times \$13.00) - \$39,000 = \$91,000 - \$39,000 = \$52,000$

*(Comparison context: Under old system, June profit would be: $(7,000 \times \$10) - \$30,000 = \$40,000$. Automation increases June profit by $\$12,000$.)*

---

### (f) Evaluation of the Automation Proposal

Arguments for implementing the proposal:
- Profitability Increase: Monthly profit for June rises significantly from $\$40,000$ to $\$52,000$ (an increase of $30\%$).
- Higher Contribution Margin: The unit contribution increases from $\$10$ to $\$13$, indicating a more cost-efficient production structure.
- Risk Profile (BEP): Despite fixed costs increasing by $\$9,000$ per month, the break-even point remains unchanged at 3,000 units. The company's risk exposure at low volumes is not elevated because of the improved contribution margin.
- Wastage and Labour Savings: Reduced material waste is environmentally friendly and aligns with modern sustainability expectations. Reduced labor dependence protects the firm against potential labor shortages.

Arguments against implementing the proposal:
- Labor Impact: A 40% reduction in labor hours may lead to redundancies, lowering workforce morale, or requiring union negotiations.
- Implementation Risks: Potential technical challenges, installation downtime, and retraining costs for the remaining staff to run advanced machinery.
- High Operating Leverage: Since fixed costs are higher ($\$39,000$ instead of $\$30,000$), if demand drops below the break-even point (3,000 units), the business will accumulate losses faster than before.

Conclusion:
On balance, Velo-Tech Ltd should accept the proposal. It enhances profitability significantly and improves the margin of safety (which increases from 57.1% to 57.1% — actually, since sales are 7,000 and BEP is 3,000, MoS remains solid). The transition must be managed carefully by addressing workers' concerns and scheduling installation during off-peak windows to minimize operational disruptions.

評分準則

### Part (a) [6 Marks]
- April Production (5,200 units): 2 marks (1 mark for correct treatment of closing stock, 1 mark for correct treatment of opening stock).
- May Production (6,200 units): 2 marks (1 mark for closing stock, 1 mark for opening stock).
- June Production (7,200 units): 2 marks (1 mark for closing stock, 1 mark for opening stock).

### Part (b) [10 Marks]
- Usage in kg (April 2,600 kg; May 3,100 kg): 2 marks (1 mark for each month).
- Closing Stock of Raw Materials (April 310 kg; May 360 kg): 2 marks (1 mark for each month).
- Opening Stock of Raw Materials (April 260 kg; May 310 kg): 2 marks (1 mark for each month).
- Budgeted Purchases in kg (April 2,650 kg; May 3,150 kg): 2 marks (1 mark for each month).
- **Purchases in $ (April $42,400; May $50,400):** 2 marks (1 mark for each month).

### Part (c) [12 Marks]
- **Direct Materials (April $41,600; May $49,600):** 2 marks (1 mark for each month).
- **Direct Labour (April $23,400; May $27,900):** 2 marks (1 mark for each month).
- **Prime Cost (April $65,000; May $77,500):** 2 marks (Of / follow-through allowed).
- **Variable Overheads (April $13,000; May $15,500):** 2 marks (1 mark for each month).
- **Fixed Overheads (April $30,000; May $30,000):** 2 marks.
- **Total Production Cost (April $108,000; May $123,000):** 2 marks (Of / follow-through allowed).

### Part (d) [7 Marks]
- **(i) Break-even point (3,000 units):** 4 marks (1 mark for identifying variable cost per unit of $15; 1 mark for contribution of $10; 2 marks for final BEP with formula).
- **(ii) Margin of Safety % (40%):** 3 marks (1 mark for Margin of Safety in units of 2,000; 2 marks for correct percentage calculation).

### Part (e) [8 Marks]
- **(i) New Break-even point (3,000 units):** 5 marks (1 mark for new fixed overheads of $39,000; 1 mark for new direct labor cost of $2.70; 1 mark for new direct material cost of $6.80; 1 mark for new contribution per unit of $13.00; 1 mark for new BEP).
- **(ii) June Budgeted Profit ($52,000):** 3 marks (1 mark for calculation of June revenue/variable costs or contribution ($91,000); 2 marks for final profit figure).

### Part (f) [12 Marks]
- Level 1 (1-3 marks): Identifies basic financial impacts or simple pros/cons of automation. Quality of writing is weak.
- Level 2 (4-6 marks): Offers some analysis of the change in cost structures, break-even consistency, or employee issues, utilizing scenario figures. Structure is clear.
- Level 3 (7-9 marks): Provides a balanced analysis exploring both financial arguments (profit increase, identical BEP risk profile) and non-financial factors (wastage, implementation risk, labor relations).
- Level 4 (10-12 marks): High-quality, balanced evaluation with a well-justified recommendation that addresses both quantitative advantages and qualitative risks of the project.

題目 2 · Corporate Merger and Consolidated Statements

55 分

Plover plc acquired 800,000 of the 1,000,000 ordinary shares ($1 each) of Swift Ltd on 1 January 2022. The purchase consideration consisted of:

A share exchange of 2 ordinary shares in Plover plc for every 5 shares acquired in Swift Ltd. The market price of an ordinary share in Plover plc at the date of acquisition was $2.50.
A cash payment of $0.50 per share acquired, payable immediately.

The Retained Earnings of Swift Ltd at the date of acquisition (1 January 2022) were $300,000. On 1 January 2022, the fair value of Swift Ltd's land and buildings exceeded their carrying value by $150,000. This revaluation has not been recorded in the individual books of Swift Ltd.

It was decided that the Non-controlling Interest (NCI) would be valued at its fair value of $320,000 at the date of acquisition. By 31 December 2022, goodwill on the acquisition of Swift Ltd was determined to be impaired by 20%.

The draft Statements of Financial Position of both companies as at 31 December 2022 are as follows:

Plover plc ($)Swift Ltd ($)Non-current assets:Property, plant & equipment3,200,0001,100,000Investment in Swift Ltd (at cost)1,200,000-Current assets:Inventories450,000260,000Trade and other receivables380,000190,000Cash and cash equivalents120,00050,000Total Assets5,350,0001,600,000Equity:Ordinary shares ($1 each)2,500,0001,000,000Share premium800,000-Retained earnings1,350,000420,000Current liabilities:Trade and other payables700,000180,000Total Equity and Liabilities5,350,0001,600,000

Additional information:

During the year, Swift Ltd sold goods to Plover plc for $100,000. Swift Ltd applies a constant markup of 25% on cost. At 31 December 2022, half of these goods remained in Plover plc's inventory.
At 31 December 2022, Swift Ltd's books showed a trade receivable from Plover plc of $35,000. This agreed with the trade payable balance shown in Plover plc's books.

Required:

(a) Calculate the purchase consideration paid by Plover plc to acquire the shares in Swift Ltd. (4 marks)

(b) Calculate the goodwill on acquisition of Swift Ltd at 1 January 2022. (6 marks)

(i) Unrealised profit in inventory. (3 marks)
(ii) Consolidated retained earnings. (8 marks)
(iii) Non-controlling interest. (6 marks)

(d) Prepare the Consolidated Statement of Financial Position for Plover plc as at 31 December 2022. (16 marks)

(e) Evaluate the benefits and drawbacks to a company of growing through acquiring subsidiaries (mergers/acquisitions) rather than organic growth. (12 marks)

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解題

(a) Purchase Consideration

Shares issued: $ (800,000 \text{ shares} / 5) \times 2 = 320,000 \text{ shares} $
Value of shares: $ 320,000 \times \$2.50 = \$800,000 $
Cash payment: $ 800,000 \times \$0.50 = \$400,000 $
Total Purchase Consideration: $ \$800,000 + \$400,000 = \$1,200,000 $

(b) Goodwill on Acquisition

Purchase consideration: $ \$1,200,000 $
Non-controlling interest (fair value): $ \$320,000 $
Total value: $ \$1,520,000 $
Less: Fair value of Swift Ltd's net assets at 1 January 2022:
- Ordinary Shares: $ \$1,000,000 $
- Retained Earnings: $ \$300,000 $
- Revaluation Surplus (Land & Buildings): $ \$150,000 $
- Total net assets: $ \$1,450,000 $
Goodwill on acquisition: $ \$1,520,000 - \$1,450,000 = \$70,000 $

(c) Balances as of 31 December 2022

(i) Unrealised Profit (URP) in Inventory:

Remaining goods in Plover plc's inventory: $ \$100,000 \times 50\% = \$50,000 $
Profit element (markup of 25%): $ \$50,000 \times (25 / 125) = \$10,000 $

(ii) Consolidated Retained Earnings:

Plover plc's own retained earnings: $ \$1,350,000 $
Swift Ltd's post-acquisition retained earnings: $ \$420,000 - \$300,000 = \$120,000 $
Less: Unrealised profit (Swift was the seller): $ (\$10,000) $
Adjusted post-acquisition retained earnings: $ \$110,000 $
Plover's share of Swift's post-acquisition earnings: $ 80\% \times \$110,000 = \$88,000 $
Less: Plover's share of Goodwill impairment: $ 80\% \times (20\% \times \$70,000) = 80\% \times \$14,000 = (\$11,200) $
Consolidated Retained Earnings: $ \$1,350,000 + \$88,000 - \$11,200 = \$1,426,800 $

(iii) Non-controlling Interest (NCI) at 31 December 2022:

NCI at acquisition: $ \$320,000 $
Add: NCI share of Swift's adjusted post-acquisition profit: $ 20\% \times \$110,000 = \$22,000 $
Less: NCI share of Goodwill impairment: $ 20\% \times \$14,000 = (\$2,800) $
NCI at 31 December 2022: $ \$320,000 + \$22,000 - \$2,800 = \$339,200 $

(d) Consolidated Statement of Financial Position for Plover plc as at 31 December 2022

Assets / Equity & LiabilitiesCalculationsAmount ($)Non-current assets:Property, plant & equipment$ 3,200,000 + 1,100,000 + 150,000 $ (revaluation)4,450,000Intangible assets (Goodwill)$ 70,000 - 14,000 $ (impairment)56,0004,506,000Current assets:Inventories$ 450,000 + 260,000 - 10,000 $ (URP)700,000Trade and other receivables$ 380,000 + 190,000 - 35,000 $ (intra-group)535,000Cash and cash equivalents$ 120,000 + 50,000 $170,0001,405,000Total Assets5,911,000Equity:Ordinary shares ($1 each)Plover plc only2,500,000Share premiumPlover plc only800,000Consolidated retained earningsFrom part (c)(ii)1,426,800Non-controlling interestFrom part (c)(iii)339,200Total Equity5,066,000Current liabilities:Trade and other payables$ 700,000 + 180,000 - 35,000 $ (intra-group)845,000Total Equity and Liabilities5,911,000

(e) Evaluation of acquiring subsidiaries (external) vs organic growth

Benefits of External Growth (Acquisitions/Mergers):

Speed: Acquiring an existing company (like Swift Ltd) provides instant market share, access to customers, and operational capacity, compared to the slow process of organic expansion.
Synergy and Scale: Potential cost savings through shared overheads, centralized services, and bulk-buying power.
Reduced Competition: Directly acquiring a competitor or complementary business increases market strength and pricing power.

Drawbacks of External Growth:

High Costs: Requires significant capital (either cash or diluting ownership through share issues). Goodwill can be impaired if overpaid (as seen with the $14,000 impairment).
Integration Risks: Potential for cultural clashes, incompatible systems, and loss of key staff, which can damage performance.

Benefits and Drawbacks of Organic Growth:

Controlled and Lower Risk: Funded gradually (often from retained profits), preserving current culture and management structure.
Slow Pace: May lose the first-mover advantage in fast-growing markets.

Conclusion: A balanced conclusion summarizing whether external acquisition is optimal (e.g., if speed and market dominance are vital, then acquisition is preferred despite the higher risk and costs; otherwise, organic growth is safer).

評分準則

(a) Purchase Consideration [Total: 4 marks]
- Calculation of shares issued (320,000 shares) [1 Mark]
- Value of shares issued ($800,000) [1 Mark]
- Cash paid ($400,000) [1 Mark]
- Total consideration of $1,200,000 [1 Mark]

(b) Goodwill on Acquisition [Total: 6 marks]
- Addition of purchase consideration ($1,200,000) & NCI ($320,000) to get $1,520,000 [2 Marks]
- Correct net assets of Swift Ltd at acquisition ($1,450,000) showing Ordinary shares, Retained earnings and Revaluation surplus [3 Marks]
- Net Goodwill of $70,000 [1 Mark]

(c)(i) Unrealised Profit [Total: 3 marks]
- Identification of remaining goods in stock ($50,000) [1 Mark]
- Correct application of markup fraction (25/125) [1 Mark]
- Unrealised profit of $10,000 [1 Mark]

(c)(ii) Consolidated Retained Earnings [Total: 8 marks]
- Plover plc's own retained earnings ($1,350,000) [1 Mark]
- Post-acquisition retained earnings of Swift ($120,000) [1 Mark]
- Deducting URP from Swift's earnings ($110,000 adjusted) [1 Mark]
- Plover's share (80% of $110,000 = $88,000) [2 Marks]
- Goodwill impairment allocation (80% of $14,000 = $11,200) [2 Marks]
- Final consolidated retained earnings ($1,426,800) [1 Mark]

(c)(iii) Non-controlling Interest [Total: 6 marks]
- NCI at acquisition ($320,000) [1 Mark]
- NCI share of adjusted post-acquisition profit (20% of $110,000 = $22,000) [2 Marks]
- NCI share of Goodwill impairment (20% of $14,000 = $2,800) [2 Marks]
- NCI at 31 December 2022 ($339,200) [1 Mark]

(d) Consolidated Statement of Financial Position [Total: 16 marks]
- PPE: $4,450,000 (including revaluation of $150,000) [3 Marks]
- Goodwill: $56,000 [2 Marks]
- Inventories: $700,000 (after deducting $10,000 URP) [3 Marks]
- Trade Receivables: $535,000 (after deducting $35,000 intra-group) [2 Marks]
- Cash and cash equivalents: $170,000 [1 Mark]
- Equity Share Capital ($2,500,000) and Share Premium ($800,000) [2 Marks]
- Consolidated Retained Earnings and NCI correctly placed [1 Mark]
- Trade Payables: $845,000 (after deducting $35,000 intra-group) [1 Mark]
- Statement balances and is formatted correctly [1 Mark]

(e) Evaluation [Total: 12 marks]
- Level 1 (1-3 marks): Identifies basic points for/against mergers or organic growth. Weak structure.
- Level 2 (4-6 marks): Provides arguments for both sides, but unbalanced or lacks depth in business context.
- Level 3 (7-9 marks): Balanced evaluation using appropriate business and accounting terminology. Clear assessment of benefits and limitations.
- Level 4 (10-12 marks): Excellent balanced evaluation. Demonstrates deep understanding of risks (goodwill impairment, cultural integration) versus speed of entry. Includes a clear, justified conclusion relevant to the business.

WAC12 乙部

Answer THREE questions from this section.

4 題目 · 120 分

題目 1 · open-ended

30 分

Zetaforce plc has provided the following extracts from its financial records for the year ended 31 December 2023. Issued Share Capital: $5,000,000$ ordinary shares of $£0.50$ each ($£2,500,000$); $1,000,000$ $5\%$ preference shares of $£1.00$ each ($£1,000,000$). Profit and Dividend Information: Profit for the year after tax: $£450,000$; Total ordinary dividend proposed and paid: $£120,000$. Share Price Information: Market price per ordinary share on 31 December 2023: $£1.80$. Comparative ratios for the year ended 31 December 2022: Earnings per share (EPS): $7.2\text{p}$; Price earnings (P/E) ratio: $15.0$; Dividend yield: $2.5\%$; Dividend cover: $2.4$ times. Required: (a) Calculate the following investment ratios for Zetaforce plc for the year ended 31 December 2023: (i) Earnings per share (3 marks), (ii) Price earnings (P/E) ratio (3 marks), (iii) Dividend per share (3 marks), (iv) Dividend yield (3 marks), (v) Dividend cover (3 marks). (b) Explain the meaning and significance of the: (i) Price earnings (P/E) ratio (3 marks), (ii) Dividend cover ratio (3 marks). (c) Evaluate whether a potential investor should purchase ordinary shares in Zetaforce plc. (9 marks).

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解題

Part (a): (i) Earnings per share (EPS) = (Profit after tax - Preference dividend) / Number of ordinary shares. Preference dividend = $5\% \times £1,000,000 = £50,000$. Earnings attributable to ordinary shares = $£450,000 - £50,000 = £400,000$. EPS = $£400,000 / 5,000,000$ shares = $£0.08$ or $8\text{p}$. (ii) Price earnings (P/E) ratio = Market price per share / Earnings per share = $£1.80 / £0.08 = 22.5$ times. (iii) Dividend per share (DPS) = Total ordinary dividend / Number of ordinary shares = $£120,000 / 5,000,000$ shares = $£0.024$ or $2.4\text{p}$. (iv) Dividend yield = (Dividend per share / Market price per share) * 100 = $(£0.024 / £1.80) \times 100 = 1.33\%$. (v) Dividend cover = Earnings attributable to ordinary shares / Total ordinary dividend = $£400,000 / £120,000 = 3.33$ times (or EPS / DPS = $8\text{p} / 2.4\text{p} = 3.33$ times). Part (b): (i) Price earnings (P/E) ratio: Meaning: The market price of a share divided by its earnings per share. It indicates how much investors are willing to pay for each pound of current earnings. Significance: A higher P/E ratio of $22.5$ (compared to $15.0$ last year) shows that market confidence and expectations for the company's future growth have risen. (ii) Dividend cover ratio: Meaning: The number of times the profit attributable to ordinary shareholders covers the ordinary dividend paid. Significance: A higher cover of $3.33$ times (compared to $2.4$ times last year) indicates that the dividend is very secure and the company is retaining more earnings to reinvest in future growth. Part (c): Evaluation: Arguments for investing: 1. Improved profitability: EPS has grown from $7.2\text{p}$ to $8.0\text{p}$, signaling stronger underlying business performance. 2. Growing market confidence: The P/E ratio has increased from $15.0$ to $22.5$, which shows significant investor optimism and potential for capital gains. 3. Increased dividend security: Dividend cover has increased to $3.33$ times, meaning there is minimal risk of dividend cuts and plenty of retained earnings for future projects. Arguments against investing: 1. Falling dividend yield: The yield has declined from $2.5\%$ to $1.33\%$, which is low compared to other market alternatives, making it less suitable for income-seeking investors. 2. High valuation risk: A P/E ratio of $22.5$ might indicate that the shares are currently expensive or overvalued, exposing buyers to capital losses if growth targets are missed. Conclusion: For growth-oriented investors, Zetaforce plc is an attractive purchase due to the rising EPS, strong reinvestment rate, and positive market sentiment. However, income-seeking investors should look elsewhere because of the very low dividend yield.

評分準則

Part (a) [Total 15 marks]: (i) EPS: 1 mark for calculating preference dividend ($£50,000$), 1 mark for calculating earnings attributable ($£400,000$), 1 mark for final answer of $8\text{p}$ or $£0.08$. (ii) P/E ratio: 1 mark for formula/substitution, 1 mark for calculation, 1 mark for final answer of $22.5$ times. (iii) DPS: 1 mark for formula/substitution, 1 mark for calculation, 1 mark for final answer of $2.4\text{p}$ or $£0.024$. (iv) Dividend yield: 1 mark for formula/substitution, 1 mark for calculation, 1 mark for final answer of $1.33\%$. (v) Dividend cover: 1 mark for formula/substitution, 1 mark for calculation, 1 mark for final answer of $3.33$ times. Part (b) [Total 6 marks]: (i) P/E ratio: 1-2 marks for explaining meaning, 1 mark for explaining significance (rising confidence/growth expectations). (ii) Dividend cover: 1-2 marks for explaining meaning, 1 mark for explaining significance (retained profits/dividend safety). Part (c) [Total 9 marks]: Level 1 (1-3 marks): Identifies basic points or lists calculated ratios without analysis. Level 2 (4-6 marks): Analytical comparison of 2023 vs 2022 performance, discussing growth (EPS, P/E) and income (dividend yield, cover). Level 3 (7-9 marks): Balanced and comprehensive evaluation with arguments for and against, leading to a logical and justified decision based on the type of investor (growth vs income).

題目 2 · practical

30 分

Halifax Engineering plc is considering investing in a new computerized manufacturing system. The project details are as follows:

- Initial cost of the system: £600 000, payable immediately (Year 0).
- The system has an expected useful life of 4 years, with an estimated scrap value of £80 000 at the end of Year 4.
- Annual operating revenues are expected to be:
- Year 1: £350 000
- Year 2: £420 000
- Year 3: £450 000
- Year 4: £300 000
- Annual operating expenses (excluding depreciation) are expected to be:
- Year 1: £120 000
- Year 2: £140 000
- Year 3: £150 000
- Year 4: £110 000
- The company's cost of capital is 10%.

Discount factors:
Year | 10% | 30%
1 | 0.909 | 0.769
2 | 0.826 | 0.592
3 | 0.751 | 0.455
4 | 0.683 | 0.350

Required:
(a) Calculate the net cash flows for Years 0 to 4. (4 marks)
(b) Calculate the Net Present Value (NPV) of the project at the company's cost of capital of 10%. (8 marks)
(c) Calculate the Net Present Value (NPV) of the project at a discount rate of 30%. (6 marks)
(d) Calculate the Internal Rate of Return (IRR) of the project using your results from (b) and (c). (6 marks)
(e) Evaluate whether Halifax Engineering plc should go ahead with the investment. Consider both financial and non-financial factors in your answer. (6 marks)

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解題

(a) Calculation of Net Cash Flows:
- Year 0: Initial cost = $-£600 000$
- Year 1: Operating Revenue $£350 000$ - Operating Expenses $£120 000$ = $£230 000$
- Year 2: Operating Revenue $£420 000$ - Operating Expenses $£140 000$ = $£280 000$
- Year 3: Operating Revenue $£450 000$ - Operating Expenses $£150 000$ = $£300 000$
- Year 4: Operating Revenue $£300 000$ - Operating Expenses $£110 000$ + Scrap Value $£80 000$ = $£270 000$

(b) Net Present Value (NPV) at 10%:
- Year 0: $-£600 000 \times 1.000 = -£600 000$
- Year 1: $£230 000 \times 0.909 = £209 070$
- Year 2: $£280 000 \times 0.826 = £231 280$
- Year 3: $£300 000 \times 0.751 = £225 300$
- Year 4: $£270 000 \times 0.683 = £184 410$
- Total Present Value (PV) = $209 070 + 231 280 + 225 300 + 184 410 = £850 060$
- NPV at 10% = $£850 060 - £600 000 = +£250 060$

(c) Net Present Value (NPV) at 30%:
- Year 0: $-£600 000 \times 1.000 = -£600 000$
- Year 1: $£230 000 \times 0.769 = £176 870$
- Year 2: $£280 000 \times 0.592 = £165 760$
- Year 3: $£300 000 \times 0.455 = £136 500$
- Year 4: $£270 000 \times 0.350 = £94 500$
- Total Present Value (PV) = $176 870 + 165 760 + 136 500 + 94 500 = £573 630$
- NPV at 30% = $£573 630 - £600 000 = -£26 370$

(d) Internal Rate of Return (IRR):
Using the interpolation formula:
$\text{IRR} = L + \left[ \frac{NPV_L}{NPV_L - NPV_H} \times (H - L) \right]$
Where:
- $L = 10\%$
- $H = 30\%$
- $NPV_L = +£250 060$
- $NPV_H = -£26 370$

$\text{IRR} = 10\% + \left[ \frac{250 060}{250 060 - (-26 370)} \times (30\% - 10\%) \right]$
$\text{IRR} = 10\% + \left[ \frac{250 060}{276 430} \times 20\% \right]$
$\text{IRR} = 10\% + (0.9046 \times 20\%)$
$\text{IRR} = 10\% + 18.09\% = 28.09\%$ (or $28.1\%$)

(e) Evaluation:
- From a financial perspective, the project has a positive NPV of $£250 060$ at the company's cost of capital of 10%, which means it is expected to increase shareholder wealth.
- The IRR is $28.09\%$, which is substantially higher than the company's hurdle rate of 10%. This indicates a high margin of safety.
- Non-financial considerations: The installation of a computerized manufacturing system could require significant training, disrupt current production, and potentially lead to staff anxieties regarding redundancies.
- Recommendation: The project should be accepted due to its strong financial viability, provided that a clear change management plan is put in place to train and support staff.

評分準則

(a) Net Cash Flows (Total 4 marks):
- Year 0: -£600 000 (1 mark)
- Years 1 & 2: £230 000 and £280 000 (1 mark for both)
- Year 3: £300 000 (1 mark)
- Year 4: £270 000 (including scrap value) (1 mark)

(b) NPV at 10% (Total 8 marks):
- PV for Years 1 to 4: £209 070 (1 mark), £231 280 (1 mark), £225 300 (1 mark), £184 410 (1 mark)
- Correct summation of PVs: £850 060 (2 marks)
- Final NPV: +£250 060 (2 marks)

(c) NPV at 30% (Total 6 marks):
- PV for Years 1 to 4: £176 870 (1 mark), £165 760 (1 mark), £136 500 (1 mark), £94 500 (1 mark)
- Sum of PVs: £573 630 (1 mark)
- Final NPV: -£26 370 (1 mark)

(d) IRR Calculation (Total 6 marks):
- Stating or using correct interpolation formula (1 mark)
- Correct substitution of values: 10% + [250 060 / (250 060 + 26 370)] * 20% (2 marks)
- Calculation of difference in NPVs: 276 430 (1 mark)
- Final IRR: 28.09% or 28.1% (2 marks)

(e) Evaluation (Total 6 marks):
- Up to 2 marks for financial arguments (NPV positive, IRR high compared to cost of capital).
- Up to 2 marks for non-financial arguments (staff resistance, training, redundancy issues, system implementation disruption).
- Up to 2 marks for a balanced, justified recommendation based on the preceding arguments.

題目 3 · essay

30 分

Veloce Cycles Ltd manufactures premium carbon fiber bicycle frames, Model Apex-1. The company uses a standard costing system. The standard cost card for one unit of Model Apex-1 is as follows: Direct Materials: 4 kg at $35 per kg = $140. Direct Labour: 6 hours at $15 per hour = $90. Fixed Overhead: 6 hours at $8 per hour = $48 (based on budgeted monthly production of 1,000 units and budgeted fixed overheads of $48,000). During October, actual production was 950 units. The actual costs incurred were: Direct materials purchased and used: 3,900 kg costing $132,600. Direct labour: 5,800 hours worked and paid, total cost $84,100. Actual fixed overheads: $46,500. Required: (a) Calculate the following variances for October, clearly stating whether each variance is Favourable (F) or Adverse (A): (i) Material Price Variance (3 marks), (ii) Material Usage Variance (3 marks), (iii) Labour Rate Variance (3 marks), (iv) Labour Efficiency Variance (3 marks), (v) Fixed Overhead Expenditure Variance (2 marks), (vi) Fixed Overhead Volume Variance (2 marks). (b) Prepare a statement reconciling the Standard Cost of Actual Production with the Actual Cost of Production for October (8 marks). (c) Evaluate the usefulness of standard costing and variance analysis for a business like Veloce Cycles Ltd, specifically discussing the possible relationships between the variances computed in part (a) (6 marks).

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解題

Part (a) Variance Calculations: (i) Material Price Variance: $ (\text{Standard Price} - \text{Actual Price}) \times \text{Actual Quantity} $. Actual Price = $ \$132,600 / 3,900\text{ kg} = \$34\text{ per kg} $. Variance = $ (\$35 - \$34) \times 3,900\text{ kg} = \$3,900 \text{ Favourable (F)} $. (ii) Material Usage Variance: $ (\text{Standard Quantity} - \text{Actual Quantity}) \times \text{Standard Price} $. Standard Quantity for actual production = $ 950\text{ units} \times 4\text{ kg} = 3,800\text{ kg} $. Variance = $ (3,800\text{ kg} - 3,900\text{ kg}) \times \$35 = \$3,500 \text{ Adverse (A)} $. (iii) Labour Rate Variance: $ (\text{Standard Rate} - \text{Actual Rate}) \times \text{Actual Hours} $. Actual Rate = $ \$84,100 / 5,800\text{ hours} = \$14.50\text{ per hour} $. Variance = $ (\$15.00 - \$14.50) \times 5,800\text{ hours} = \$2,900 \text{ Favourable (F)} $. (iv) Labour Efficiency Variance: $ (\text{Standard Hours} - \text{Actual Hours}) \times \text{Standard Rate} $. Standard Hours for actual production = $ 950\text{ units} \times 6\text{ hours} = 5,700\text{ hours} $. Variance = $ (5,700\text{ hours} - 5,800\text{ hours}) \times \$15 = \$1,500 \text{ Adverse (A)} $. (v) Fixed Overhead Expenditure Variance: $ \text{Budgeted Fixed Overhead} - \text{Actual Fixed Overhead} $. Variance = $ \$48,000 - \$46,500 = \$1,500 \text{ Favourable (F)} $. (vi) Fixed Overhead Volume Variance: $ (\text{Actual Production} - \text{Budgeted Production}) \times \text{Standard Rate per unit} $. Variance = $ (950\text{ units} - 1,000\text{ units}) \times \$48 = \$2,400 \text{ Adverse (A)} $. Part (b) Reconciliation Statement: Standard Cost of Actual Production (950 units): Materials (950 * $140) = $133,000; Labour (950 * $90) = $85,500; Fixed Overhead (950 * $48) = $45,600; Total Standard Cost = $264,100. Favourable Variances: Material Price = $3,900; Labour Rate = $2,900; Fixed Overhead Expenditure = $1,500; Total Favourable = $8,300. Adverse Variances: Material Usage = $3,500; Labour Efficiency = $1,500; Fixed Overhead Volume = $2,400; Total Adverse = $7,400. Net Favourable Variance = $900. Actual Cost of Production: Materials = $132,600; Labour = $84,100; Fixed Overhead = $46,500; Total Actual Cost = $263,200. Verification: Standard Cost ($264,100) - Net Favourable Variance ($900) = Actual Cost ($263,200). Part (c) Evaluation: The variances computed suggest potential operational relationships: 1. Buying cheaper carbon fiber materials (Favourable Material Price Variance of $3,900) may have compromised raw material quality, leading to higher wastage and scrap (Adverse Material Usage Variance of $3,500). 2. Substandard raw materials could also be more difficult for workers to manipulate, which explains why they took longer to manufacture the frames, resulting in an Adverse Labour Efficiency Variance ($1,500). 3. Alternatively, hiring lower-skilled workers at a lower wage rate (Favourable Labour Rate Variance of $2,900) could have caused both the slower assembly time (Adverse Labour Efficiency) and increased material wastage (Adverse Material Usage). Standard costing is useful for Veloce Cycles as it assists in budgeting, pricing decisions, cost control, and managing by exception. However, setting standard costs can be time-consuming, standards may quickly become obsolete in dynamic industries, and pushing for favourable variances could lead to negative consequences like compromised product quality. In conclusion, while standard costing provides valuable control benchmarks, management must view variances holistically rather than in isolation to avoid sub-optimal decisions.

評分準則

Part (a) [Total: 16 marks]: (i) Material Price Variance: 1 mark for calculating actual price ($34), 1 mark for correct variance ($3,900), 1 mark for 'Favourable' direction. (ii) Material Usage Variance: 1 mark for standard quantity (3,800 kg), 1 mark for correct variance ($3,500), 1 mark for 'Adverse' direction. (iii) Labour Rate Variance: 1 mark for calculating actual rate ($14.50), 1 mark for correct variance ($2,900), 1 mark for 'Favourable' direction. (iv) Labour Efficiency Variance: 1 mark for standard hours (5,700 hours), 1 mark for correct variance ($1,500), 1 mark for 'Adverse' direction. (v) Fixed Overhead Expenditure Variance: 1 mark for correct variance ($1,500), 1 mark for 'Favourable' direction. (vi) Fixed Overhead Volume Variance: 1 mark for correct variance ($2,400), 1 mark for 'Adverse' direction. Part (b) [Total: 8 marks]: 1 mark for calculating total standard cost ($264,100), 1 mark for each of the six variances correctly placed as Favourable or Adverse in the statement (6 marks total), 1 mark for calculating the correct total actual cost ($263,200) that perfectly reconciles. Part (c) [Total: 6 marks]: 1-2 marks: Identifies basic advantages/disadvantages of standard costing. 3-4 marks: Discusses the relationships between variances (e.g., cheaper materials causing poor efficiency and usage, or cheaper labour causing inefficiency and waste). 5-6 marks: Provides a balanced evaluation of standard costing with a clear judgment/conclusion on its overall usefulness for Veloce Cycles Ltd.

題目 4 · Statement of Changes in Equity and Reserves Review

30 分

Vanguard PLC is a manufacturing company. The following information relates to the company's equity and reserves for the financial year ended 31 March 2023.

On 1 April 2022, the equity balances were:
- Ordinary shares (£0.50 nominal value): £400,000
- Share premium: £120,000
- Revaluation reserve: £80,000
- Retained earnings: £145,000

During the year ended 31 March 2023, the following transactions and events occurred:
1. On 1 June 2022, the directors made a bonus issue of 1 ordinary share for every 4 shares held. The bonus issue was funded using the share premium account.
2. On 1 October 2022, the company made a rights issue of 1 share for every 5 shares held at a price of £0.80 per share. The rights issue was fully subscribed.
3. On 1 December 2022, an interim ordinary dividend of £0.02 per share was paid on all shares in issue.
4. On 15 January 2023, the company's land and buildings were revalued upwards by £45,000.
5. The profit for the year ended 31 March 2023 before interest and tax was £185,000. Interest paid on the company's long-term bank loan was £12,000, and the corporation tax charge for the year was estimated at £34,000.
6. On 31 March 2023, the directors decided to transfer £20,000 from retained earnings to a newly created General Reserve.
7. On 28 March 2023, the directors proposed a final ordinary dividend of £0.03 per share. This proposed dividend has not yet been approved by shareholders.

Required:
(a) Prepare the Statement of Changes in Equity for Vanguard PLC for the year ended 31 March 2023. Columns should be provided for: Ordinary Shares, Share Premium, Revaluation Reserve, General Reserve, Retained Earnings, and Total. (16 marks)
(b) Explain the accounting treatment of the proposed final ordinary dividend of £0.03 per share, referencing IAS 10 (Events after the Reporting Period). (4 marks)
(c) Evaluate the decision of Vanguard PLC's directors to fund expansion using a rights issue rather than obtaining a long-term bank loan. (10 marks)

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解題

### Part (a) Statement of Changes in Equity for Vanguard PLC for the year ended 31 March 2023

Workings:

1. Shares in issue at 1 April 2022:
$$\text{Shares} = \frac{£400,000}{£0.50} = 800,000\text{ shares}$$

2. Bonus Issue (1 June 2022):
$$\text{Bonus shares} = 800,000 \times \frac{1}{4} = 200,000\text{ shares}$$
$$\text{Value} = 200,000 \times £0.50 = £100,000$$
This is debited to Share Premium and credited to Ordinary Shares.

3. Rights Issue (1 October 2022):
$$\text{Shares in issue before rights} = 800,000 + 200,000 = 1,000,000\text{ shares}$$
$$\text{Rights shares} = 1,000,000 \times \frac{1}{5} = 200,000\text{ shares}$$
$$\text{Nominal value (Ordinary Shares)} = 200,000 \times £0.50 = £100,000$$
$$\text{Share Premium} = 200,000 \times (£0.80 - £0.50) = 200,000 \times £0.30 = £60,000$$
$$\text{Total cash received} = 200,000 \times £0.80 = £160,000$$

4. Interim Dividend Paid (1 December 2022):
$$\text{Total shares in issue} = 1,000,000 + 200,000 = 1,200,000\text{ shares}$$
$$\text{Dividend} = 1,200,000 \times £0.02 = £24,000$$ (debited to Retained Earnings)

5. Profit for the Year:
$$\text{Profit before interest and tax} = £185,000$$
$$\text{Less: Finance costs (Interest)} = -£12,000$$
$$\text{Less: Taxation} = -£34,000$$
$$\text{Profit for the year} = £139,000$$ (credited to Retained Earnings)

6. General Reserve Transfer:
£20,000 is transferred from Retained Earnings to General Reserve (no net effect on total equity).

Statement of Changes in Equity Table:

| Details | Ordinary Shares (£0.50) | Share Premium | Revaluation Reserve | General Reserve | Retained Earnings | Total |
| :--- | :---: | :---: | :---: | :---: | :---: | :---: |
| Balance at 1 April 2022 | £400,000 | £120,000 | £80,000 | £0 | £145,000 | £745,000 |
| Profit for the year | - | - | - | - | £139,000 | £139,000 |
| Revaluation surplus | - | - | £45,000 | - | - | £45,000 |
| Bonus issue | £100,000 | (£100,000) | - | - | - | £0 |
| Rights issue | £100,000 | £60,000 | - | - | - | £160,000 |
| Interim dividend paid | - | - | - | - | (£24,000) | (£24,000) |
| Transfer to General Reserve | - | - | - | £20,000 | (£20,000) | £0 |
| Balance at 31 March 2023 | £600,000 | £80,000 | £125,000 | £20,000 | £240,000 | £1,065,000 |

---

### Part (b) Explanation of Proposed Dividend

- Under IAS 10 (Events after the Reporting Period), dividends proposed or declared after the reporting period but before the financial statements are authorised for issue are classed as non-adjusting events.
- This is because no present obligation existed at the statement of financial position date (31 March 2023), as the dividend had not been formally approved by shareholders at that date.
- Therefore, the proposed dividend of £36,000 ($1,200,000 \text{ shares} \times £0.03$) is not recognised as a liability in the statement of financial position and not deducted from retained earnings in the Statement of Changes in Equity.
- Instead, the proposed dividend must be disclosed in the notes to the financial statements.

---

### Part (c) Evaluation: Rights Issue vs. Long-term Bank Loan

Arguments for choosing a Rights Issue:
- No Repayment Burden: Equity capital is permanent. Unlike a bank loan, there is no obligation to repay the principal, reducing future liquidity stress on Vanguard PLC.
- No Interest Expenses: A rights issue does not incur interest charges. This protects the company's operating cash flows and helps maintain a higher interest cover ratio.
- Improves Financial Gearing: Securing equity instead of debt reduces the company's gearing ratio. A lower gearing ratio lowers the company's financial risk profile, potentially making it easier and cheaper to borrow in the future.
- Preservation of Control: Offering shares to existing shareholders proportionately (rights issue) allows them to retain their percentage of ownership and voting power, preventing external dilution of control.

Arguments against a Rights Issue / in favor of a Bank Loan:
- Dilution of EPS: A rights issue increases the number of ordinary shares in issue (from 1,000,000 to 1,200,000 shares), which dilutes Earnings Per Share (EPS) unless profits rise proportionally.
- High Setup Costs: Preparing prospectus, underwriting fees, and legal costs of a rights issue are typically much higher than the administrative fees for a bank loan.
- Tax Shield Lost: Bank loan interest is a tax-deductible expense, which reduces the company's taxable profit and tax liability. Dividends on shares are not tax-deductible.
- Shareholder Dissatisfaction: If existing shareholders do not have the liquid cash to buy their rights, they may feel forced to sell their rights, or face dilution of their stakes.

Conclusion / Recommendation:
For Vanguard PLC, the choice depends on its existing gearing levels and cash flow stability. Given that Vanguard PLC already has a long-term bank loan (evidenced by the £12,000 interest paid), opting for a rights issue is a prudent choice. It strengthens the equity base (increasing it from £745,000 to £1,065,000) and keeps financial risk under control, which is vital for a manufacturing business that may face cyclical demand. Therefore, the directors' decision to issue shares via a rights issue was highly appropriate.

評分準則

### Part (a) Statement of Changes in Equity (16 marks)

- Title & Column Headings (1 mark): Proper format with columns: Ordinary Shares, Share Premium, Revaluation Reserve, General Reserve, Retained Earnings, Total Equity.
- Opening Balances (1 mark): Correctly listing opening balances from 1 April 2022.
- Profit for the Year (2 marks): Correct calculation of net profit after tax and interest: £185,000 - £12,000 - £34,000 = £139,000 (1 mark for calculation, 1 mark for correct entry in Retained Earnings and Total).
- Revaluation of Land and Buildings (2 marks): £45,000 added to Revaluation Reserve and Total columns (1 mark each).
- Bonus Issue (2 marks): Correct entry of £100,000 added to Ordinary Shares and deducted from Share Premium (1 mark each). No effect on Total column.
- Rights Issue (3 marks): 200,000 shares * £0.80 = £160,000 total (1 mark). £100,000 added to Ordinary Shares (1 mark), and £60,000 added to Share Premium (1 mark).
- Interim Dividend Paid (2 marks): 1,200,000 shares * £0.02 = £24,000 deducted from Retained Earnings and Total columns (1 mark each).
- Transfer to General Reserve (2 marks): £20,000 added to General Reserve and deducted from Retained Earnings (1 mark each). No effect on Total column.
- Closing Balances (1 mark): Correct summation of all columns (Ordinary Shares: £600,000; Share Premium: £80,000; Revaluation Reserve: £125,000; General Reserve: £20,000; Retained Earnings: £240,000; Total: £1,065,000).

### Part (b) Explanation of Proposed Dividend (4 marks)

- Non-adjusting event explanation (1 mark): Stating that under IAS 10, proposed dividends are non-adjusting events because they represent no formal liability at the balance sheet date.
- Treatment in Equity/SFP (1 mark): Identifying that they are NOT recognised as a liability or deducted from equity as of 31 March 2023.
- Disclosure requirement (1 mark): Stating that they are disclosed in the notes to the financial statements.
- Calculation (1 mark): Showing correct calculation: 1,200,000 shares * £0.03 = £36,000.

### Part (c) Evaluation (10 marks)

- Level 1 (1-2 marks): Basic identification of pros/cons of rights issue or bank loan (e.g., 'A bank loan has interest but a rights issue does not').
- Level 2 (3-5 marks): Explanation of points on both sides with some attempt to apply to Vanguard PLC (e.g., explaining impact on gearing or ownership control, showing how rights issue avoids interest payments).
- Level 3 (6-8 marks): Clear and detailed comparison of both options, referencing specific facts such as Vanguard PLC's current interest payment of £12,000, potential dilution of EPS (increasing shares to 1,200,000), or security requirements on land and buildings.
- Level 4 (9-10 marks): Balanced discussion culminating in a logical recommendation for Vanguard PLC, noting how a rights issue is highly appropriate to avoid cash drain and reduce gearing despite EPS dilution and high setup costs.

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