Coimisiún na Scrúduithe Stáit

State Examinations Commission

Leaving Certificate 2020

Marking Scheme

Accounting

Higher Level
Note to teachers and students on the use of published marking schemes
Marking schemes published by the State Examinations Commission are not intended to be
standalone documents. They are an essential resource for examiners who receive training
in the correct interpretation and application of the scheme. This training involves, among
other things, marking samples of student work and discussing the marks awarded, so as to
clarify the correct application of the scheme. The work of examiners is subsequently
monitored by Advising Examiners to ensure consistent and accurate application of the
marking scheme. This process is overseen by the Chief Examiner, usually assisted by a Chief
Advising Examiner. The Chief Examiner is the final authority regarding whether or not the
marking scheme has been correctly applied to any piece of candidate work.

Marking schemes are working documents. While a draft marking scheme is prepared in
advance of the examination, the scheme is not finalised until examiners have applied it to
candidates’ work and the feedback from all examiners has been collated and considered in
light of the full range of responses of candidates, the overall level of difficulty of the
examination and the need to maintain consistency in standards from year to year. This
published document contains the finalised scheme, as it was applied to all candidates’ work.

In the case of marking schemes that include model solutions or answers, it should be noted
that these are not intended to be exhaustive. Variations and alternatives may also be
acceptable. Examiners must consider all answers on their merits, and will have consulted
with their Advising Examiners when in doubt.

Future Marking Schemes

Assumptions about future marking schemes on the basis of past schemes should be
avoided. While the underlying assessment principles remain the same, the details of the
marking of a particular type of question may change in the context of the contribution of
that question to the overall examination in a given year. The Chief Examiner in any given
year has the responsibility to determine how best to ensure the fair and accurate
assessment of candidates’ work and to ensure consistency in the standard of the
assessment from year to year. Accordingly, aspects of the structure, detail and application
of the marking scheme for a particular examination are subject to change from one year to
the next without notice.
Accounting Higher Level 2020 – Marking Scheme 75
Q1 Trading Profit and Loss Account of Heighway for the year ended 31/12/19 [1]
€ € €
Sales 1,867,000 [3]
Less cost of sales
Opening stock 62,900 [3]
Purchases W2 1,061,600 [10]
Less closing stock W1 (80,390) [8] (1,044,110)
Gross profit 822,890
Less Expenses
Distribution Costs
Dep. delivery vans W3 52,400 [5]
Advertising 56,800 [3] 109,200
Administration Expenses
Dep. land and buildings W4 5,657 [6]
Salaries and general exp. W5 381,650 [8] 387,307 496,507
326,383
Add operating Income
Profit on sale of van W6 1,200 [6]
Bad debt recovered 1,500 [4]
Discount 8,500 [2]
Change in the BDP W7 580 [4] 11,780
Operating profit 338,163
Investment income W8 7,500 [4]
Mortgage interest W9 (18,240) [5]
Net profit 327,423 [3]

3
 45
Balance Sheet of Heighway as at 31/12/2019
Cost Acc. Dep NBV
Tangible Fixed Assets
Land and buildings W4 900,000 900,000 [1]
Delivery vans W10 266,000 [3] 93,200 [3] 172,800
Equipment 128,800 [1] 128,800
1,294,800 93,200 1,201,600
Financial Assets
6% Investments 250,000 [1]

Current Assets
Closing stock W1 80,390 [2]
Debtors W11 98,000 [3]
Less BDP W7 (3,920) [1] 94,080
Investment income due W8 5,000 [3]
VAT W12 12,750 [5]
192,220
Creditors: amounts falling due within 1 year
Creditors W13 105,500 [7]
Bank W14 46,200 [4]
Mortgage interest due W9 18,000 [2]
PAYE, PRSI, USC 3,450 [2] (173,150) 19,070
1,470,670
Financed by
Creditors: amounts falling due after 1 year
Mortgage 300,000 [1]

Capital 750,000 [1]

Revaluation reserve W 15 147,807 [3]
Net profit 327,423
Drawings W 16 (54,560) [2] 1,170,670
Capital employed 1,470,670

4
Workings:

1. Closing stock 69,800 – 9,010 + 19,600 = 80,390

2. Purchases 1,080,000 + 19,600 – 38,000 = 1,061,600
3. Dep: delivery vans 250,000 by 20% for 3/12 months
266,000 by 20% for 9/12 months = 52,400
4. Depreciation – L & B 795,000 – 12,150
(782,850 – 500,000[2]) × 2% = 5,657
5. Salaries & general expenses 381,750 + 3,600 – 3,700 = 381,650
6. Profit on van disposal 48,000 – 23,200 – 26,000 = 1,200
Depreciation on disposal 48,000 by 20% for 29/12 months = 23,200
7. Change in BDP 4,500 – 3,920 = 580
Bad debt provision 98,000 × 4% = 3,920
8. Investment income 250,000 by 6% for 6/12 months = 7,500
Investment income due 7,500 – 2,500 = 5,000
9. Mortgage interest 240,000 X 8% X 3/12 22,800
300,000 X 8% X 9/12
Mortgage interest 4,800 +18,000 – 4,560 =
18,240

3,600 + 19,200 -4,560 = 18,240

Mortgage interest due 22,800 + 3,600 – 8,400 = 18,000
10. Delivery vans 250,000 – 48,000 + 64,000 = 266,000
Accumulated dep. vans 64,000 – 23,200 + 52,400 = 93,200
11. Debtors 97,500 + 500 = 98,000
12. VAT 3,100 – 3,700 – 12,150 = (12,750)
13. Creditors 84,300 + 19,600 -900 + 2,500 105,500

14. Bank 48,800 +900 – 1,000 -2,500 = 46,200

32,000 +14,200 = 46,200

15. Revaluation reserve 900,000 – 782,850 = 117,150

25,000 + 5,657 = 30,657 = 147,807

16. Drawings 50,000 + 4,560 = 54,560

5
Q.2 Published Accounts 35
(a)
Profit and Loss Account of Finan plc for the year ended 31/12/2019
€
Turnover 2,380,000 [2]
Cost of sales W1 (1,438,000) [4]
Gross profit 942,000
Distribution costs W2 (465,200) [4]
Administrative expenses W3 (180,800) [6]
296,000
Other operating income W4 119,000 [3]
Operating profit 415,000
Investment income W5 16,000 [2]
Profit on sale of land 65,000 [2]
496,000
Interest payable (18,000) [2]
Profit on ordinary activities before tax [1] 478,000
Taxation (100,000) [2]
378,000
Dividends paid (38,000) [2]
340,000
Profit brought forward at 01/01/2019 81,000 [2]
Profit carried forward at 31/12/2019 421,000 [3]
Penalties are applied where entries are in incorrect sequence
Workings
1. Cost of sales: 85,000 + 1,450,000 – 110,000 + 13,000 = 1,438,000
2. Distribution costs: 378,000 + 3,200 + 84,000 = 465,200
Administration expenses: 92,000 + 12,000 + 14,000 + 50,000
3. = 180,800
+12,800

4. Other operating income: 60,000 + 12,000 + 47,000 = 119,000

5. Investment income:10,500 + 5,500 = 16,000
6. Total dividends paid €38,000
Preference dividends 5% of 200,000 = 10,000
Ordinary dividend €28,000 = 8% of ordinary share capital

Note: depreciation – buildings 2% of 800,000 = 16,000

Distribution: 20% of 16,000 = 3,200
Administration: 80% of 16,000 = 12,800

6
 16
Notes to the Accounts
1. Accounting Policy Notes [4]
Tangible Fixed Assets
Buildings were re-valued at the end of 2019 and have been included in the accounts
at their re-valued amount.
Vehicles are shown at cost.
Depreciation is calculated in order to write off the value or cost of tangible fixed
assets over their estimated useful economic life as follows:
Buildings 2% per annum straight line
Vehicles 20% of cost
Stock is valued on a first in first out basis at
the lower of cost and net realisable value
2. Operating Profit [3]
The operating profit is arrived at after charging:
Depreciation on tangible fixed assets 100,000
Patent amortised 13,000
Director’s remuneration 50,000
Auditors’ fees 14,000
3. Financial Fixed Assets [2]
Quoted Investments cost 250,000 with a market value of 290,000
Unquoted Investments cost 85,000 with a directors’ value of 98,000

4. Tangible Fixed Assets [7]

Land and
Vehicles Total
Buildings
€ € €
Cost as at 01/01/2019 940,000 420,000 1,360,000
Disposal (140,000) (140,000)
Revaluation surplus 200,000 200,000
1,000,000 420,000 1,420,000
Depreciation
Depreciation 01/01/2019 74,000 134,000 208,000
Depreciation charge for year 16,000 84,000 100,000
Revaluation (90,000) (90,000)
218,000 218,000

Net book value 01/01/2019 866,000 286,000 1,152,000

Net book value 31/12/2019 1,000,000 202,000 1,202,000

7
 9
(b)
Explain three reasons why a public limited company publishes its annual report and
accounts.
1. To comply with legal requirements. The companies’ acts require the publication
of a profit and loss account and balance sheet.
2. To report to shareholders, final accounts are prepared along with a directors’
report and an auditor’s report.
3. To attract investors who might be interested in the financial position of the
company to determine whether or not to invest funds.

8
Q.3 Incomplete Records 52
(a)
Balance Sheet of S. Staunton as at 31/12/2019
€ € €
Intangible Assets
Goodwill 17,950 [3]
Tangible Fixed Assets
Premises 545,000 [2] 545,000
Delivery vans 129,000 [2] 19,800 [1] 109,200
674,000 19,800 672,150

4% Investments 25,000 [2]

697,150
Current Assets
Closing stock 32,400 [1]
Stock of heating oil 400 [1]
Debtors 54,000 [1]
Less BDP (1,620) [1] 52,380
Rent prepaid 27,000 [3]
Bank 48,600 [2]
Rates prepaid 2,580 [3]
Investment income due 250 [3] 163,610

Less creditors: amounts falling due within 1 year

Creditors 32,600 [2]
Loan interest due 1,600 [3]
Loan due 18,000 [3]
Light and heat due 960 [2] 53,160 110,450
Total net assets 807,600

Financed by
Long term loan 252,000 [3]
Capital 500,000 [1]
New capital 20,000 [1]
EU grant 18,000 [1]
Net profit 42,804 [4]

Less drawings (25,204) [7]

Capital employed 807,600

9
Workings

1. Premises 300,000
Plus: new premises 245,000 245,000 545,000
2. Delivery vans 84,000
Plus: new van 45,000 129,000
3. Closing Stock 32,800
Less: closing stock heating oil (400) 32,400
4. Bad Debt Provision
Debtors 54,000 × 3% 1,620
5. Rent prepaid 31/12/2019 32,400 × 10/12 27,000
6. Rates 3 months rates prepaid 31/12/2019 10,320 × 3/12 2,580
7. Investment Income P & L: 25,000 @ 4% @ 1 Year 1,000
Less: received (750)
Due 31/12/2019 250
8. Loan - repayable in 30 half yearly payments: - Split 270,000
- 2 payments due in next accounting period 18,000
- Balance = long term loan 252,000
9. Loan Interest 270,000 @ 4% @ 4/12 months 3600
Less 20% drawings (720) 2,880
10. Light and Heat 5,600
Less closing stock oil (400)
Plus: electricity due 31/12/2019 960
Drawings 6,160 × 15% 924
11. Drawings
Purchases 280 × 52 14,560
Cash 150 × 52 7,800
Wages and general expenses 1,200
Light and heat – 15% 924
Interest – 20% 720
25,204

(b) 8
The accruals concept states that all expenses incurred in a particular period are recorded in
that period regardless of whether they are paid or not. For example in the year ending
31/12/2019 electricity due of €960 must be recorded in the accounts of 2019 even though it
won’t be paid until 2020. Also even though rates paid in 2019 is €10,320 only the portion of
this applying to 2019 would be included in the figure for rates in the profit and loss account
and the remainder was shown in the balance sheet as a current asset €2,480.
All incomes earned must be included in the accounts of that period whether received or not.
Investment income €1,000 must be included in the profit and loss account for 2019 even
though €250 of it has yet to be received.

10
Q.4 Farm Accounts 20
(a)
Statement of Capital 01/01/2019
Assets € €
Land and buildings 460,000 [1]
Vehicles and machinery 124,000 [1]
Value of cattle 84,000 [1]
Value of sheep 27,600 [1]
Milk cheque due 2,600 [1]
Medicines prepaid 180 [1]
Stock of fuel 830 [1]
Bank 41,600 [2]
Investments W1 81,600 [2]
2 months investment interest due 340 [1] 822,750

Less Liabilities
Electricity due 440 [1]
Bank loan W2 28,000 [2]
Loan interest due W2 3,325 [3] (31,765)
Capital 01/01/2019 790,985 [2]

(b) 20

Enterprise Analysis Account – Cattle and Milk

Income € €
Sales: Cattle and calves (24,810 + 7,800) 32,610 [1]
Milk W4 32,150 [2]
Single payment - cattle 2,370 [1]
Increase in stock 20,000 [1]
Drawings - milk 650 [1] 87,780
Less Expenditure
Purchases - cattle 16,800 [1]
Dairy wages 4,200 [1]
General farm expenses 13,950 [1]
Fertiliser W5 2,700 [1]
Veterinary and medicine W6 1,560 [1] (39,210)
Profit on cattle and calves 48,570

11
 Enterprise Analysis Account - Sheep
Income € €
Sales: Sheep and lambs (16,800 + 13,500) 30,300 [1]
Wool 1,600 [1]
Single payment – sheep 4,700 [1]
Drawings - lamb 470 [1] 37,070
Less Expenditure
Purchases - sheep 10,400 [1]
Decrease in stock 2,600 [1]
General farm expenses 4,650 [1]
Fertiliser W5 900 [1]
Veterinary and medicine W6 520 [1] (19,070)
Profit on sheep 18,000

(c) 10

General Profit and Loss Account for the year ended 31/12/2019
Income € €
Profit - cattle and milk 48,570
- sheep 18,000
Investment interest W1 2,040 [1]
E.U. GLAS environmental scheme 2,800 [1] 71,410
Less Expenditure
Light and heat W7 1,872 [2]
Repairs W8 1,840 [1]
Loan interest W3 700 [1]
Depreciation - machinery W9 13,600 [1]
- buildings W10 2,080 [1] (20,092)
Net profit 51,318 [2]

12
 4
(d)
Drawings Account
Milk 650 Balance c/d 7,403
Lamb 470 [1]
Loan interest 175 [.5]
Light and heat 468 [.5]
Health insurance 1,260 [.5]
Repairs 460 [.5]
Depreciation – machinery 3,400
Depreciation - buildings 520 [1]
7,403 7,403
6

(e) Implications of an incorrect closing stock valuation

Incorrect valuation of stock affects:

1. The financial statements of two years or two accounting periods i.e. the closing
stock of one accounting period and the opening stock of the next accounting
period.
2. The figures for cost of sales, gross profit, net profit and the farm’s tax liability.
3. In carrying out ratio analysis the figure for stock will affect the stock turnover,
percentage mark-up on cost, gross profit percentage, net profit percentage and
the current ratio.
4. The amount it may be able to borrow.

13
Workings

W1 Investments
Interest for 2 = 340 Interest for 1 month = 170
months = 2,040 @ Rate of 2.5% = investment = €81,600
Interest for 1 Year
W2 Interest for 24 months = 7.5% × 24/12 months = 15%
Repaid loan + 15% = 115% of the loan = 32,200
32,200/115 × 100 = 28,000 = loan
W3 Loan Interest
= 32,200 – 28,000 = 4,200 = 24 months 1 month = 4,200/24 = 175
5 months in this year = 875 19 months b/d 01/01 = 3,325
875 – drawings 20% = 700
W4 Milk Sales 32,000
Add cheque due 31/12/2019 2,750
Less cheque due 01/01/2019 (2,600) 32,150
W5 Fertiliser 3,100
Add due 31/12/2019 500 3,600
75% of 3,600 to cattle 2,700
25% of 3,600 to sheep 900
W6 Veterinary and Medicines 180 + 3,160 - 1,260 2,080
Less drawings
75% of 2,080 to cattle 1,560
25% of 2,080 to sheep 520
W7 Light and Heat 2,600
Add Fuel 01/01/2019 830
Less electricity due
01/01/2019 (440)
Less fuel 31/12/2019 (650) 2,340
2,340 – 20% drawings = 1,872
W8 Repairs 2,300 – 20% drawings = 1,840
W9 Depreciation – Machinery: 124,000 + 12,000 = 136,000
12.5% of 136,000 = 17,000
17,000 – 20% drawings = 13,600
W10 Depreciation – Buildings: land and buildings = 460,000
Less land of 330,000 = buildings of 130,000
2% of 130,000 = 2,600
2,600 – 20% drawings = 2,080

14
Q.5 Interpretation of Accounts 50
(a)
(i) The Opening Stock if the Rate of Stock Turnover is 8 based on Average Stock

Cost of sales = 8 times

Average stock
Average stock × 8 = 536,000
Average stock = 536,000 = 67,000
8
Average stock = ? + 75,000 = 67,000
2
Opening stock = €59,000
[12]

(ii) Interest cover [8]

Profit before interest & tax = 120,000
= 7.5 times
Interest 16,000

(iii) Return on Shareholders’ funds [10]

Net profit – preference dividend 104,000 – 12,000 × 100

= = 15.81%
Shareholders’ funds 582,000

(iv) Market price if the price earnings ratio is 6 times [10]

Price earnings ratio × earnings per share 6 × 20c = 120c

104-12 = 92
92/460 = 20c

(v) Dividend yield [10]

Dividend per share 7.83
Market price per × 100 = 120 × 100 = 6.53%
share
48-12 36/460
=36 =7.83

15
 40
(b)
The Shareholders would be/not be satisfied with the performance, state of affairs and
prospects of the company for the following reasons: [2]
Performance
Profitability [7]
• The return on capital employed for 2019 is 10.15%. In 2018 the return was 9.8%. It
has improved very slightly by 0.35%.
• The return on shareholder’s funds is also very good at 15.81%.
• The company is in a profitable position as the return of 10.15% is better than the
return from risk free investments of 1-2% maximum and is above the debenture
interest rate of 4% and the preference share capital rate of 6%.
• The company is making efficient use of its resources this year.
• The earnings per share have improved by 1.5c per share from 18.5c in 2018 to 20c in
2019.
Dividend Policy [7]
• The dividend per share has disimproved, falling slightly from 8.33c in 2018 to 7.83 cent
in 2019.
• The dividend cover is 2.56 times, the firm is paying out 39.06% of its available profits
in dividends. Last year’s dividend cover was 2.22 times meaning the firm was paying
out 45.03% of available profits to shareholders. This is a small improvement, as
slightly more is being retained for expansion purposes and the repayments of loans.
• The yield is 6.53%, a slight disimprovement from last year’s 6.72% but is higher than
the return from risk free investments of 1-2% and 4% debentures, but similar to the
6% return on preference shares.
State of Affairs
Liquidity [7]
• The acid test (quick ratio) has disimproved slightly from 1.1:1 in 2018 to 1.08:1 in 2019,
above the ideal of 1:1.
• Robinson plc does not have liquidity problems and is able to pay its bills as they arise
because it has 108c available in liquid assets for every euro it owes in the short-term.
• It will not have problems paying dividends and other short-term debts as they fall due.

16
Gearing [7]
• Gearing has improved. It has gone from being highly geared in 2018 at 55.76% down
to 50.76% in 2019, still technically highly geared, but only just. The debt to equity
ratio has disimproved from 55.76% to 103.1%.
• This is a positive trend, Robinson plc are now less dependent on outside borrowing
and would appear to be less of a risk from outside investors. If using the debt to
equity ratio it is a negative trend etc.
• Interest cover has risen slightly from 7 times in 2018 to 7.5 times in 2019. The firm
should not have any difficulty making interest payments.
• These figures should mean that the firm has more money available for paying
dividends, or reinvesting, or paying off debt. However, the debentures are listed for
repayment in 2023/2024. Robinson plc has not put aside sufficient resources to be
able to repay these when the time comes.
• Selling the investments is not going to raise enough to pay off the debentures, and if
the firm delays, the investments may fall further in value.
Investment Policy
• The firm has investments currently valued at €130,000 which is a fall in value from
€200,000. Shareholders would be disappointed with this. This would indicate poor
management of those resources by management.
Prospects
Sector [5]
Robinson plc is in the home renovation and insulation industry.
• In the short term this industry is growing as more people take advantage of
government grants to insulate their homes and reduce the high cost of home heating
fuels.
• In the long term, economic uncertainty may cause some people to delay investing in
their homes. Alternatively it may cause others to invest if moving house is no longer
an affordable option.
Share Performance [5]
• The earnings per share has risen slightly from 18.5c in 20.18 to 20c in 2019.
• The price earnings ratio has dropped slightly in the same period from 6.7 years to 6
years, meaning it will take 6 years to make back the market price of the share at
current performance levels.
• The share price has fallen slightly from €1.24 to €1.20 since 2018.
• This indicates a lack of confidence in the firm by the stock market.

17
(c) 10

Explain how a faster stock turnover can increase the profitability of a business.
• Each time stock is sold, because it contains a mark-up, profitability increases.
• If the cost of buying the extra stock increases at a slower rate than the mark-up then
profitability increases.
• The more times the stock is turned over the greater the mark-up and profit will be
increased.
• Where stock turnover is high less stock may be held resulting in reduced stock holding
costs (insurance, waste etc.) which could lead to an increase in profitability.
• A faster stock turnover means that the firm may enjoy economies of scale, such as
bulk-buying discounts, which will reduce costs and increase profitability.

18
Q.6 Correction of Errors and Suspense Account 52
(a) General Journal
(i) [11 marks] Dr Cr
€ €
Creditors 6,060 [2]
Purchases 6,000 [2]
Suspense 12,060 [2]

Equipment 6,600 [2]

Creditors 6,600 [2]
Being correction of equipment purchased on credit being entered on the incorrect side of
the incorrect accounts. [1]

(ii) [11 marks] € €

Equipment 6,800 [2]
Accumulated depreciation equipment 1,600 [3]
Creditors 5,500 [2]
Discount 300 [3]
Being omission of a creditor accepting equipment in payment of a debt. [1]

(iii) [8 marks] € €
Capital 1,500 [3]
Creditors 1,660 [2]
Discount 160 [2]
Being omission of a private debt owed to Beglin, offset against a business debt owed by
Beglin [1]

(iv) [12 marks] € €

Creditors 1,000 [2]
Insurance 750 [2]
Suspense 3,500 [2]
Repairs 1,000 [2]
Drawings 750 [3]
Being correction of repairs and drawings entered incorrectly in both the creditors and
insurance accounts. [1]

19
 (v) [10 marks] € €
Bank 920 [2]
Creditors 990 [1] 990 [1]
Discount 70 [2]
Capital 990 [3]
Being omission of a dishonoured cheque issued by the firm and new capital introduced to
cover the payment. [1]

(b) Corrected Suspense Account 6

Suspense a/c
Creditors/Purchases 12,060[2] Bal 8,560 [2]
Bank/Cr/Ins 3,500 [2]

14
(c) Statement of Corrected Net Profit

€ €
Net profit 42,700
Add:
(i) Purchases 6,000 [2]
(ii) Discount 300 [2]
(iii) Discount 160 [2] 6,460
49,160
Less:
(iv) Insurance 750 [2]
(iv) Repairs 1,000 [2]
(v) Discount 70 [2] (1,820)
Correct net profit 47,340 [2]

20
 20
(d) Balance Sheet of J. Beglin as at 31/12/2019

Fixed Assets € € €
Premises 740,000 740,000
Vehicles 125,000 40,000 85,000 [1]
Equipment + 6,600 - 6,800 38,500 [2]
Accum.Dep. - 1,600 13,000 [2] 25,500
903,500 53,000 850,500
Current Assets
Stock 84,900 [1]
Debtors + 8,560 74,860 [1]
Cash 3,200 [1] 162,960

Creditors falling due within 1 year

Bank - 1,750 -920 + 1,750 25,680 [3]
VAT 12,000 [1]
Creditors + 12,660
- 5,500- 1,660- 1,000 84,300 [4] (121,980) 40,980
891,480

Creditors: amounts falling due after 1 year

Capital + 1,500 + 990 852,490 [2]
Net profit 47,340 [1]
Drawings + 750 (8,350) [1]
891,480

8
(e) Error of Commission
This is where the correct amount is posted to the correct side of the incorrect
Account. For example sales of €5,000 debited to M O’ Flaherty’s account instead of
D O’ Flaherty.
This will not be revealed by the trial balance as the correct amount has been entered
on the debit side even though in wrong account. The debit side and credit side of the
trial balance will agree so it will not be obvious that an error has been made.

21
Q.7 18
(a)

Statement of Capital and Reserves 01/01/2019

Assets
€ €
Buildings and grounds 611,000 [2]
Equipment 49,000 [2]
Motor vehicles 24,000 [2]
Stock in shop 4,700 [1]
Stock of heating oil 1,900 [1]
5% Investments 80,000 [1]
Contract cleaning prepaid 750 [1]
Bank 93,900 [1] 865,250

Liabilities
Clients deposits paid in advance 5,700 [1]
Creditors for supplies 3,700 [1]
Issued share capital 525,000 [1]
Loan 70,000 [1]
Loan interest 4,200 [2] (608,600)
Reserves 01/01/2019 256,650 [1]
(b) 10
Shop profit and loss a/c for year
ending 31/12/2019
Shop receipts 63,600 [1]
Less cost of sales
Opening stock 4,700 [1]
Purchases 29,100 [1]
33,800
Less closing stock (3,600) [1] (30,200)
Gross profit 33,400

Less expenses
Wages 7,800 [1]
Light and heat 350 [1]
Insurance 850 [1]
Telephone and broadband 400 [1] (9,400)
Net profit 24,000 [2]

22
(c) 32
Profit and Loss a/c for year ended 31/12/2019

Income
Profit from shop 24,000
Clients’ fees 272,400 [4]
Investment income 4,000 [1] 300,400
Expenditure
Light and heat 7,130 [5]
Cleaning 4,875 [3]
Laundry 3,400 [1]
Telephone and broadband 2,200 [1]
Depreciation buildings 15,200 [1]
Insurance 7,850 [1]
Depreciation equipment 8,500 [1]
Depreciation motor vehicles 13,000 [1]
Loss on sale of vehicle 1,000 [3]
Wages and salaries 75,100 [2]
Purchase of supplies 30,050 [3]
Loan interest 1,200 [1] (169,505)
Net profit 130,895
Reserves 01/01/2019 256,650 [1]
Profit and loss balance 31/12/2019 387,545 [3]

23
(d) 30
Balance Sheet as at 31/12/2019
Cost Depreciation NBV
Fixed Assets € € €
Buildings 850,000 850,000 [1]
Equipment 85,000 [2] 29,500 [2] 55,500
Motor vehicles 75,000 [3] 27,000 [3] 48,000
1,010,000 56,500 953,500
Financial Fixed Assets
5% investments 80,000 [1]
1,033,500
Current Assets
Bank 27,200 [2]
Stock - shop 3,600 [1]
Stock - heating oil 700 [1]
Clients’ fees due 900 [2]
Cleaning prepaid 475 [2]
Investment income due 500 [2] 33,375
Less creditors: amounts falling due within 1 year
Creditors for supplies 2,450 [1]
Clients’ fees prepaid 7,300 [1]
Electricity due 380 [1] (10,130) 23,245
1,056,745
Financed by
Creditors amounts falling due after more than 1 year
Authorised Issued
Capital 650,000[1] 525,000 [1]
Revaluation reserve 144,200 [2]
Profit and loss balance 31/12/2019 387,545 [1] 1,056,745

(e) 10
Sell the investments of €80,000 and issue more ordinary shares for €60,000 or
alternatively issue the remaining shares of €125,000 and sell €15,000 investments. The
company has just repaid a loan with interest of €75,400 and still retained a current
account balance of €27,200 and therefore is in a good position to borrow more money if
needs be.
The company still has money in the bank despite having spent a net €163,000 on new fixed
assets which are of a non-recurring nature.
The company has made a net profit this year of €130,895. Therefore, the company has no need
to borrow money to finance the project and this will eliminate any future interest payments.

24
1. Clients’ fees 5,700 +273,100 – 7,300 + 900 272,400
2. Motor vehicles 60,000 + 45,000 – 30,000 75,000
Accumulated depreciation 36,000 + 13,000 – 22,000 27,000
Depreciation P & L 8,000 + 5,000 13,000
Loss on vehicle 30,000 – 22,000 – 7,000 1,000
3. Light and heat 1,900 + 5,900 – 700 – 350 + 380 7,130
4. Cleaning 750 + 4,600 – 475 4,875
5. Creditors for supplies 31,300 – 3,700 + 2,450 30,050
6. Loan interest
5,400 × 4/18 1,200
5,400 × 14/18 4,200

25
Q.8 Marginal and Absorption Costing
(a) 58
(i) High Low Method
Output (units) Production Overheads
High 21,000 148,500
Low 13,800 123,300
Difference 7,200 25,200

25,200
Variable Cost per Unit = = €3.50 [4]
7,200

Total cost at 21,000 Units = 148,500

Less variable cost (21,000 × €3.50) 73,500
Fixed cost €75,000 [4]

(ii) Marginal Costing Statement

€ € €
Per Unit
Sales (26,000 units) 1,040,000 40.00
Less Variable Costs
Direct materials (26,000 × €8.50) 221,000 8.50
Direct labour (26,000 × €14.00) 364,000 14.00
Factory overheads (26,000 × €3.50) 91,000 3.50
Sales commission (26,000 × €2.40) 62,400 (738,400) 2.40 *
Contribution 301,600 11.60
Less Fixed Costs
Administration expenses 115,500
Selling expenses (excl. commission) 25,500
Factory overheads 75,000 (216,000)
Net Profit 85,600

Break Even Point Fixed costs 216,000 [4]

= 18,621 units [4]
CPU 11.60 [5]

Margin of Safety Budgeted sales Less Break-even point

26,000 [2] Less 18,621 [1] = 7,379 units [2]

* While selling price remains at €40.00 per unit and commission remains at 6%

26
(iii) Number of units that must be sold at €45 to provide a profit of 15% of the sales
revenue.

Variable cost per unit (excl. sales commission) = 26.00

At €45 sales price per unit, the 6% commission = 2.70
New variable cost per unit = 28.70

Let number of units = U

Sales revenue = 45U
Profit = 6.75U

Sales = Variable costs + Fixed costs + Profit

45U [2] = 28.7U [4] + 216,000 [2] + 6.75U [4]
9.55U = 216,000
U = 22,617.80 22,618 units [2]
Alternative
Fixed costs = 216,000 [2] = 22,618 units [2]
CPU – 15% 16.30 – 6.75 [10]
(iv) The profit given changes in selling price, units sold, variable and fixed costs.
Sales (31,200 × €38) 1,185,600 [6]
Less variable costs (31,200 × €28.66) * (894,192) [4]
Contribution 291,408
Less fixed costs 216,000 + 8,640 (224,640) [2]
Profit 66,768 [2]

* Variable costs PU = €8.50 + €14.00 + €3.50 + €2.66 = €28.66

(v)

Step fixed costs

Step fixed costs are costs that are fixed within a certain range of activity but change
outside of that range. [2]
E.g. rent could be fixed up to a certain level of production. However, if production
increases and results in the rental of more factory space, then the rent would increase
to a new level. Thus, the fixed costs would increase in steps. [2]

27
(b) 22
(i)
Absorption Costing
Units € €
Sales 12,000 × €4.20 50,400 [1]
Less Production Costs (15,000 units)
Materials 15,000 × €0.70 10,500 [1]
Labour 15,000 × €0.60 9,000 [1]
Variable 15,000 × €0.55= 8,250 [1]
Fixed overheads 8,400 [1]
36,150
Less closing stock 3,000/15,000 = 20% of €36,150 (7,230) [2] (28,920)
Profit 21,480
Marginal Costing
Units € € €
Sales 12,000 × €4.20 50,400 [1]
Less Production Costs (15,000 units)
Materials 15,000 × €0.70 = 10,500 [1]
Labour 15,000 × €0.60 = 9,000 [1]
Variable 15,000 × €0.55 = 8,250 [1]
27,750
Less closing stock 3,000/15,000 = 20% of €27,750 = (5,550) [1] (22,200)
Contribution [1]28,200
Fixed costs (8,400) [1]
Profit 19,800

28
(ii) Marginal v Absorption Costing [8]
There is a different profit figure because closing stock is valued differently.
Marginal costing does not include fixed costs when costing a product whereas
absorption costing does include the fixed costs.
Therefore, closing stock under marginal costing is valued lower than under
absorption costing because a share of fixed costs is included in the value of stock
under absorption costing but not included under marginal costing.
Under absorption costing, closing stock is valued at 20% of the production cost of
€36,150.
Under marginal costing, closing stock is valued at 20% of the production cost of
€27,750.
Closing stock under absorption costing is €7,230.
Closing stock under marginal costing is €5,550.
This is a difference of €1,680.
The profit difference is €21,480 – €19,800 = €1,680

Absorption costing should be used as it agrees with standard accounting practice and
concepts and matches costs with revenues.

29
Q.9 Production and Cash Budgeting 11
(a)

Production Budget
July August Sept. Oct. Nov.
Sales 11,400 [1] 11,600 [1] 11,800 [1] 11,900 [1] 12,200
Add closing stock 6,960 [1] 7,080 [1] 7,140 [1] 7,320 [1] 7,440
Less opening stock 0 (6,960) [1] (7,080) [1] (7,140) [1] (7,320)
Required for production 18,360 11,720 11,860 12,080 12,320
(b) 13
Raw Materials Purchases Budget
July August Sept. Oct. Nov.
Units of production 18,360 [½] 11,720 [½] 11,860 [½] 12,080 [½] 12,320
Materials per unit 4 [½] 4 4 4 4
Required for production 73,440 [½] 46,880 [½] 47,440 [½] 48,320 [½] 49,280
Add closing stock (20%) 9,376 [½] 9,488 [½] 9,664 [½] 9,856 [½]
Less opening stock 0 (9,376) [½] (9,488) [½] (9,664) [½]
Required for Purchases in kg 82,816 [½] 46,992 [½] 47,616 [½] 48,512 [½]
Price per kg €3 [½] €3 €3 €3
Cost of/Purchases Raw
248,448 [½] 140,976 [½] 142,848 [½] 145,536 [1]
Materials in €

30
(c) 35
Cash Budget
Receipts July August September October
Cash sales 216,600 [1] 220,400 [1] 224,200 [1] 226,100 [1]
Credit sales 0 342,000 [1] 348,000 [1] 354,000 [1]
216,600 562,400 572,200 580,100
Payments
Purchases 0 248,448 [1] 140,976 [1] 142,848 [1]
Wages 77,000 [1] 78,000 [1] 79,000 [1] 79,500 [1]
Variable overheads 220,320 [1] 140,640 [1] 142,320 [1] 144,960 [1]
Fixed overheads 18,200 [1] 18,200 18,200 18,200
Equipment 108,000 [1]
Loan repayments 2,000 [2] 2,000 2,000
Interest 480 [1] 470 [1] 460 [1]
423,520 487,768 382,966 387,968
Net monthly cash flow (206,920) [1] 74,632 [1] 189,234 [1] 192,132 [1]
Loan 96,000 [1]
Opening cash balance 0 (110,920) [1] (36,288) [1] 152,946 [1]
Closing cash balance (110,920) (36,288) 152,946 345,078 [2]

31
 (d) 15

Budgeted Trading and Profit and Loss Account for the 4 months ended 31/10/2020
Sales 2,335,000 [1]
Less Cost of Sales
Opening stock 0
Purchases 677,808 [1]
Closing stock
Finished goods Units 7,320[1]
Cost €30[1] 219,600
Raw materials Units 9,856[1]
Cost €3[1] 29,568 (249,168) (428,640)
Gross Profit 1,906,360

Less Expenses
Discount 46,700 [2]
Wages 313,500 [1]
Variable overheads 648,240 [1]
Fixed overheads 72,800 [1]
Depreciation 7,200 [1] (1,088,440)
Operating profit 817,920
Less interest (1,410) [1]
Net profit 816,510 [2]

(e) 6

(i) In July and August the company has a maximum cash deficit of €110,920. The
company needs to arrange a bank overdraft of €110,920 or else take corrective
action by leasing the equipment, saving €12,000, or extending the period of credit
received from one month to two months. The company could also try and get
customers to buy more goods for cash rather than credit.
This shortfall is eliminated in September and October with a cash surplus at the
end of October of €345,078. This could be used to purchase new fixed assets
increasing the productive capacity of the firm or purchase investments which
increase investment income and profit.
(ii) Master Budget
A master budget is a summary of all the other budgets and provides an
overview of the operations for the planned period.
For example; a manufacturing budget, a sales budget, a cash budget.

32