MyStudyBro - Revision Exercise Tool

This Revision Handout includes the Questions and Answers of a total of 5 exercises!

Chapters:
Departmental Accounts - Unit 1 (Pearson Edexcel)
Page 1 (WAC01 or WAC11) 2018 Winter
Page 3 (WAC01 or WAC11) 2018 Winter - Answer
Page 7 (WAC01 or WAC11) 2017 Winter
Page 10 (WAC01 or WAC11) 2017 Winter - Answer
Page 15 (WAC01 or WAC11) 2015 Winter
Page 17 (WAC01 or WAC11) 2015 Winter - Answer
Page 19 (WAC01 or WAC11) 2013 Winter
Page 21 (WAC01 or WAC11) 2013 Winter - Answer
Page 25 (WAC01 or WAC11) 2011 Summer
Page 27 (WAC01 or WAC11) 2011 Summer - Answer
Winter 2018 www.mystudybro.com Accounting Unit 1
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6 PC Support has two departments, a shop selling computer accessories and

a workshop used for repairing computers.
The following information relates to the year ended 31 December 2017:
£
Revenue:
Shop accessories sales 75 000
Workshop repairs 45 000
Purchases:
Shop accessories 28 000
Parts for workshop repairs 6 400
Inventory at 1 January 2017:
Shop accessories 25 500
Parts for workshop repairs 1 800
Wages 65 000
Rent and rates 12 000
General expenses 5 100
Marketing expenses 600
Bad debts to be written off – workshop repairs 500
Allowance for doubtful debts at 1 January 2017:
Shop accessories sales 50
Workshop repairs 90
Fixtures and equipment (cost) 7 000
Trade receivables:
Shop accessories sales 6 000
Workshop repairs 4 000
Additional information at 31 December 2017
(1) Inventory – shop accessories £29 000. Parts for workshop repairs £2 000
(2) During the year computer accessories valued at £3 400 were taken from the shop
and used in workshop repairs.
(3) Wages of £2 500 were accrued.
(4) Five staff were employed, three in the shop and two in the workshop.
(5) The floor area occupied is: shop 150 sqm: workshop 90 sqm.
(6) General expenses are allocated, £3 150 shop: £1 950 workshop.
(7) The allowance for doubtful debts is to be maintained at: 2% shop and
4% workshop.
(8) Depreciation on fixtures and equipment is to be charged at 10% per annum on
cost and apportioned to the shop and workshop in the ratio 4:3

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Required
(a) Recommend, giving a reason, the basis on which the following expenses should
be apportioned between the shop and the workshop.
• Rent and rates
• Marketing expenses
(4)
(b) Prepare the Departmental Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2017, showing the profit (loss) for each
department. A totals column is not required.
(20)
The owner of PC Support has been advised by his accountant that he should
specialise by expanding one of the two departments.
(c) Evaluate whether the owner should expand one of the departments.
(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

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financial and perhaps non-financial information, with a

decision.

Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Question Answer Mark

Number
6 (a) AO1 (4)
AO1: Four marks for recommending the
basis of apportionment and providing a
reason.

Rent and rates – Floor area (1) AO1 the expense

will be incurred in relation to the area occupied by
the respective departments. (1) AO1
Marketing expenses – Revenue (1) AO1 marketing
will raise awareness of the goods and services that
PC Sales and Repairs has to offer which should
increase the sales revenue of the respective
departments. (1) AO1 (4)

Question Answer Mark

Number
6 (b) AO1 (5), AO2(12), AO3 (3)
AO1: Five marks for recording the figure
correctly from the data given.
A02: Twelve marks for calculating the figure
and then recording this correctly.
AO3: Three marks for calculating the correct
figure using two calculations and then
recording the figure correctly.

(20)

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PC Support
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2017

Shop Workshop
£ £ £ £

Revenue 75 000 45 000

(1)AO1

Opening inventory 25 500 1 800 (1)

AO1
Purchases 28 000 6 400 (1)
AO1
Transfers (3 400) 3 400
(1)AO2
50 100 11 600
Closing inventory (29 000) (2 000)(1)
AO1
Cost of sales 21 100 9 600
(1of) AO2
Gross profit 53 900 35 400
(1of)
AO1

Wages 40 500 (1) 27 000 (1)

AO3 AO3
Rent and rates 7 500 (1) 4 500 (1)
AO2 AO2
General expenses 3 150 (1) 1 950 (1)
AO2 AO2
Marketing expenses 375 (1) 225 (1)
AO2 AO2
Bad debts - 500 (1)
AO2
Allowance for 70 (1) 70(1)
doubtful debts AO2 AO3
Depreciation – 400 (1) 300 (1)
Fixtures and AO2 AO2
equipment
51 995 34 545
Departmental profit 1 905 855
for the year

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Question Indicative Content Mark

Number
6 (c) AO2 (1), AO3 (2), AO4 (3)
Own figure applies

Potential positive arguments

The owner will be required to concentrate more on

developing one of the activities. The expanded activity
will result in the owner devoting more of his time. He
may need to employ a manager for the other
department.
More floor space will be required to expand whichever
department the owner chooses to expand. Additional
floor space will cost more and may involve the business
moving to new premises.
The goods for sale in the shop or the services of the
workshop could be expanded.

Potential negative arguments

Further materials and labour resources will need to be

acquired. This will require additional capital from the
owner or in the form of a loan.
The provision of a complementary service may need to
be retained. Customers who have computers repaired
may buy the accessories available within the shop. It
may not be possible to expand one department without
putting additional demand on the other department.
The cost of marketing is very low, more concentration on
marketing activities may increase the overall demand for
both services increasing the profitability of the business.
Both departments might naturally expand if the services
that are on offer are presented to the public.
If you close one department all the fixed costs must be
borne by the other department.

Decision
Candidates may conclude that the owner should/ should
not concentrate on a single activity. The candidate’s
decision should be supported by reference to positive
and negative points.

(6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.

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Level 2 3-4 Elements of knowledge and understanding, which are

applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to the
scenario, although these may be incomplete or invalid.
An attempt at an evaluation is presented, using
financial and perhaps non-financial information, with a
decision.

Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.

Pearson Education Limited. Registered company number 872828

with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

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2 Wright Household, a retailer, has three departments:

• Furniture
• Carpets
• Café.
The following balances were extracted from the books at 31 December 2016:
£
Revenue:
Furniture 450 000
Carpets 300 000
Café 50 000
Cost of sales:
Furniture 190 000
Carpets 140 000
Café 30 000
Wages:
Furniture 80 000
Carpets 50 000
Café 20 000
Management salaries 65 000
Delivery vehicle expenses 26 000
Heat and light 10 800
Redecoration of building 13 500
Rates for building 18 900
General expenses 64 000
Non-current assets (cost):
Land and building 260 000
Delivery vehicle 25 000
Fixtures and equipment 40 000
Provisions for depreciation:
Land and building 52 000
Delivery vehicle 5 000
Fixtures and equipment 21 000

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Additional information at 31 December 2016

(1) A purchase of carpets, £11 000, had been recorded in error as a purchase of
furniture for resale.
(2) Wages accrued: Furniture £3 000, Carpets £5 000
(3) Rates for building of £900 were prepaid.
(4) Depreciation is to be charged as follows:
• no depreciation is charged on the land cost of £80 000. Depreciation is
charged on the buildings at the rate of 2% straight line
• delivery vehicle at the rate of 25% per annum reducing balance
• fixtures and equipment at the rate of 15% per annum straight line.
(5) Provide for a:
• doubtful debt of £4 000 for carpets supplied to a customer
• legal claim of £600 for an injury to a customer in the café.
(6) Departmental data:

Furniture Carpets Café

Staff employed (number) 10 7 3

Delivery vehicle use (%) 70 30 Nil

Floor area occupied (sq m) 1 000 600 200

Fixtures and equipment cost (£) 8 000 10 000 22 000

Required
(a) Prepare the Departmental Statement of Profit or Loss and Other Comprehensive
Income, in columnar format, for the year ended 31 December 2016.
(35)
The owner of Wright Household is considering closing the café as he believes that the
department makes a loss.
(b) Evaluate the closure of the café.
(12)

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Wright Household remunerates its staff on a day work basis. It is considering changing
this method of remuneration to a group bonus scheme for each department.
(c) Explain the terms:
(i) day work
(2)
(ii) group bonus scheme.
(2)
(d) State two advantages for Wright Household of remunerating staff by day work.
(2)
(e) Advise whether a group bonus scheme would be appropriate for the café staff.
(2)

(Total for Question 2 = 55 marks)

TOTAL FOR SECTION A = 110 MARKS

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Question Answer Mark

Number
2(a) AO1 (13), AO2 (20), AO3 (2)
A01: Thirteen marks for recording the given expense in
the account without adjustment.
A02: Twenty marks for apportioning the given figure or
calculating the figure and inserting this correctly in the
account.
A03: Two marks for calculating the correct figure,
apportioning the correct figure to the correct section of
the account.

(35)

Departmental Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2016
Furniture Carpets Café
£ £ £
Revenue 450 000 300 000 (1) 50 000

Less Cost of sales 190 000 140 000 30 000

Adjustment (11 000) 11 000 _____
Adjusted Cost of sales (179 000) (1) (151 000) (1) (30 000)
Gross profit 271 000 149 000 20 000

Less expenses
Wages 83 000 (1) 55 000 (1) 20 000 (1)
Management salaries 32 500 (1) 22 750 (1) 9 750 (1)
Delivery vehicle 18 200 (1) 7 800 (1) 0 (1)
expenses
Heat and light 6 000 (1) 3 600 (1) 1 200 (1)
Redecoration of 7 500 (1) 4 500 (1) 1 500 (1)
building
Rates for building 10 000 (1) 6 000 (1) 2 000 (1)
General expenses 36 000 (1) 24 000 (1) 4 000 (1)
Depreciation-
Land and building 2 000 (1) 1 200 (1) 400 (1)
Delivery vehicle 3 500 (1) 1 500 (1) 0 (1)
Fixtures and equipment 1 200 (1) 1 500 (1) 3 300 (1)
Provisions - 4 000 (1) 600 (1)
(199 900) (131 850) (42 750)
Profit/(loss) 71 100 17 150 (22 750)

Note:
Revenue and provisions AO1 x 3
Carpets column (excluding delivery vehicle depreciation) AO2 x 10

Carpet column delivery vehicle depreciation AO3 x 1

Furniture and café columns: delivery vehicle depreciation AO3 x 1

Furniture and café columns: Adjusted cost of sales, wages, rates for
buildings, building and fixtures depreciations, Profit/(loss) AO2 x 10
Furniture and café columns: All other items AO1 x 10

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Question Indicative content Mark

Number
2(b) AO1 (1), AO2 (1), AO3 (5), AO4 (5)

Potential arguments for the proposal

• The loss would be removed
• The space could be used to expand the furniture or carpets
departments or to create a new department
• Capital could be released from the sale of café fixtures and
equipment for general working capital or to fund the
redevelopment of the café space.

Potential arguments against the proposal

• Most of the existing fixed costs will have to be borne by
the other departments, therefore the improvement in total
profit may be minimal or non-existent
• The café may stimulate sales as a place for customers to
decide upon a purchase or generate purchases from
customers who visit the café.
• Social accounting factors of redundancy. Although there
are only three staff there is a personal impact if the staff
cannot be redeployed.

Decision
Candidates may conclude that it is wise or unwise to close the
café. The decision should be supported by reasoned arguments. (12)

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Level Mark Descriptor

0 A completely incorrect response.
Level 1 1-3 Isolated elements of knowledge and understanding recall
based.
Weak or no relevant application to the scenario set.
Generic assertions may be present.
Level 2 4-6 Elements of knowledge and understanding, which are applied
to the scenario.
Chains of reasoning are present, but may be incomplete or
invalid.
A generic or superficial assessment is present.
Level 3 7-9 Accurate and thorough understanding, supported throughout
by relevant application to the scenario.
Some analytical perspectives are present, with developed
chains of reasoning, showing causes and/or effects.
An attempt at an assessment is presented, using financial
and non-financial information, in an appropriate format and
communicates reasoned explanations.

Level 4 10 - 12 Accurate and thorough knowledge and understanding,

supported throughout by relevant and effective application to
the scenario.
A coherent and logical chain of reasoning, showing causes
and effects.
Assessment is balanced, wide ranging and well
contextualised using financial and non-financial information
and makes informed recommendations and decisions.

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Question Answer Mark

Number
2(c) AO1 (4)
A01: Four marks for stating the definitions

(i) Day work – Payment is made by a rate per hour (1) AO1 x
number of hours worked (1) AO1

OR

Workers are paid daily rate (1) AO1 regardless of output

produced (1) AO1

(2)

(ii) Group bonus scheme – Payment is made generally on a day

work basis (1) AO1
Plus a bonus generated by a group of workers (1) AO1
divided by the number of workers

(2)

(4)

Question Answer Mark

Number
2(d) AO1 (2)
A01: Two marks for stating two advantages

• Simple to calculate
• Quality provided as worker is not trying to meet bonus
targets
• Time to spend with customers
• Enable to plan costs
• Absenteeism rate is minimised

NOT
• Motivated to work harder

(1) AO1 x 2
(2)

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Question Answer Mark

Number
2(e) AO3 (2)
A03: Two marks for advice

• Would encourage team work

• Would encourage greater efficiency of staff
• Café does not lend itself to increasing sales by working
more efficiently
• Sales may be limited by physical factors such as the
availability of seating
• Some people may work harder than others and it may be
unfair.

(1) AO3 x 2
(2)

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SOURCE MATERIAL FOR USE WITH QUESTION 2

2 Chai is a trader of children’s clothing. His business has two departments:
• sales to retailers
• on-line sales through his website direct to customers.
The following information is available for the year ended 31 December 2014:

£
Revenue: Sales to retailers 240 000
On-line sales 150 000
Inventory 1 January 2014 76 000
Purchases 244 000
Carriage in 22 000
Postage of on-line sales 6 000
Maintaining website for 1 700
on-line sales
Salaries: Sales to retailers 12 000
On-line sales 9 500
Premises rent 10 000
Premises running costs 5 500
Depreciation on computers 8 400
and fixtures
Selling expenses 7 800
Bad debts on sales to retailers 5 100
Additional information for the year
1. Other balances at 31 December 2014:

£
Inventory 60 000
Trade receivables 32 000
Trade payables 56 000
Cash and bank 48 000
2. Chai has calculated that £90 000 of the cost of sales relates to on-line sales.
3. The floor areas occupied are: sales to retailers 3 000 sqm: on-line sales 2 000 sqm.
4. Computers and fixtures used: sales to retailers £40 000: on-line sales £30 000.
5. All sales to retailers are on credit. All on-line sales are cash with order.

4
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Required:
(a) Prepare the Departmental Statement of Comprehensive Income for the year
ended 31 December 2014, in columnar format, showing the profit or loss for the
year of sales to retailers, on-line sales, and the business as a whole.
(24)
(b) Calculate the departmental gross profit as a percentage of revenue for:
(i) sales to retailers
(ii) on-line sales.
(6)
(c) Suggest one possible reason for the difference between the gross profit as a
percentage of revenue for sales to retailers and on-line sales.
(2)
(d) Calculate the departmental profit for the year as a percentage of revenue for:
(i) sales to retailers
(ii) on-line sales.
(6)
The market for sales to retailers is not increasing, but the market for on-line sales has
been increasing rapidly. Chai is considering expanding his on-line sales business, but has
been advised by a friend about ‘overtrading’.

Required:
(e) Calculate, at 31 December 2014, the:
(i) the trade receivables collection period for sales to retailers.
(ii) current ratio for the whole of Chai’s business.
(6)
(f ) Evaluate Chai’s proposal to expand his on-line sales business.
(8)

(Total for Question 2 = 52 marks)

Answer space for question 2 is on pages 9 to 14 of the question paper.

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2 (a)
Chai
Departmental Statement of Comprehensive Income for the year ended 31 December 2014
Retail On-line Total
sales sales
£ £ £
Revenue 240 000√ 150 000√ 390 000
Less
Inventory 1 January 2014 76 000
Purchases 244 000
Carriage inwards 22 000
342 000
Less Inventory 31 December 2014 (60 000)
Cost of sales 192 000√√ 90 000 282 000 √√of
Gross profit 48 000 60 000 108 000 √√of
Less expenses:
Postage of on-line sales -√ 6 000√ 6 000
Maintaining website for on-line sales -√ 1 700√ 1 700
Salaries 12 000√ 9 500√ 21 500
Premises rent 6 000√ 4 000√ 10 000
Premises running costs 3 300√ 2 200√ 5 500
Depreciation on computers and fixtures 4 800√ 3 600 √ 8 400
Selling expenses 4 800√ 3 000√ 7 800
Bad debts on wholesale sales 5 100√ -√ 5 100
(36 000) (30 000) (66 000)
Departmental profit for the year 12 000 30 000 42 000
(24)

(b)
Retail On-line
sales sales
Gross profit x 100 = 48 000 x 100 = 20% √√(√of) 60 000 x 100 = 40% √√(√of)
Revenue 240 000√ 150 000√
(6)
(c)

Valid answers may include:

• Sales to retailers must offer a discount on list price to enable the retailer to make a profit
• On-line sales has a different product mix of higher mark up products
1 point x 2 marks

Not:
• Incurs higher / lower cost of sales or sales revenue
• Easier to buy online (2)
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(d)
Retail On-line
sales sales
Profit for the year x 100 = 12 000 x 100 = 5% √√(√of) 30 000 x 100 = 20% √√(√of)
Revenue 240 000√ 150 000√
(6)

(e)

Retail sales debtors collection period 32 000 x 365√ = 49 days √

240 000√

Current ratio 60 000 + 32 000 + 48 000√ = 2.5:1 √

56 000√

(6)
(f)
Valid answers may include:
In favour of expansion of on-line sales
• The gross profit and net profit margins are higher
• Existing liquidity is good so can support an expansion
• All online sales are cash sales further increasing liquidity
• No bad debts as all cash sales
• Less costs of debt collection
• Attracts new customers / market share
• Easier to create an international business
• Generally needs less capital to expand
• Can increase the business reputation leading to higher profit

Against expansion of on-line sales

• More resources required to expand such as additional staff and premises
• Business vulnerable to transport/postal strikes /IT breakdowns
• On-line not used by some people e.g older people
• May loose existing retail customers
• Potentially entering a crowded market place
• May result in overtrading unless supported by long term borrowing

Not:
• Just more profit / increase in sales
• Will lead to overtrading without explanation

√√ x 4 points (MAX two points in favour and two points against) (8)
(Total 52 marks)
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SECTION A

SOURCE MATERIAL FOR USE WITH QUESTION 1

1. Organic Farm Shop has three departments: greengrocery, bakery and The Café. The following
balances were extracted from the books for the year ended 31 December 2012:

£
Revenue:
Greengrocery 190 000
Bakery 96 000
The Café 81 000
Inventory 1 January 2012:
Greengrocery 8 150
Bakery 4 700
The Café 850
Purchases:
Greengrocery 126 000
Bakery 60 500
The Café 40 250
Wages:
Greengrocery 32 000
Bakery 21 000
The Café 16 000
Manager’s salary 18 350
Electricity and gas 9 820
General running expenses 2 750
Rent (for 9 months) 8 100
Refurbishment costs of The Café 15 000
Non-current assets at cost:
Equipment 20 000
Fixtures and fittings 10 000
Provisions for depreciation:
Equipment 8 000
Fixtures and fittings 2 000
Trade receivables 32 000
Trade payables 46 870
Bank 43 000 Dr
Capital 60 000
Drawings 16 800
Provision for doubtful debts 1 400

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Additional information at 31 December 2012:

1. Inventory:
Greengrocery £9 450
Bakery £3 600
The Café £1 100

2. During the year, goods were transferred to The Café from the other two departments.
The value, at cost, of the transfers was: Greengrocery £5 700, Bakery £4 300.

3. General running expenses prepaid £250.

4. The refurbishment costs of The Café consisted of new fixtures and fittings £10 000 and
redecoration £5 000.

5. On 1 December 2012 the owner of Organic Farm Shop purchased the shop premises from
Global Property for the purchase price of £250 000. On the same day a 6% Bank loan was
received from Ascot Bank for £200 000, repayable on 30 November 2022. The Bank also
charged an arrangement fee of £4 250 for the loan. No entries had been made in the books to
record these transactions.

6. Depreciation is to be charged on all non-current assets owned at the end of the year, on the
following basis:
Shop premises No depreciation
Equipment 30% per annum reducing balance method
Fixtures and fittings 10% per annum straight line method

7. A debt owed to Organic Farm Shop of £800 was considered irrecoverable. A provision for
doubtful debts is to be maintained at the rate of 5% on the remaining debts.

Required:

(a) Prepare the:

(i) Journal entries to record the purchase of the shop premises in 5. above. Narratives are not
required
(6)

(ii) Departmental Trading Account of Organic Farm Shop showing the profit/loss of each
department for the year ended 31 December 2012
(8)

(iii) Statement of Comprehensive Income for the business as a whole for the year ended
31 December 2012
(16)

(iv) Statement of Financial Position at 31 December 2012.

(14)

(b) Evaluate the owner’s decision to purchase the shop premises as an alternative to renting.
(8)
(Total 52 marks)
Answer space for question 1 is on pages 2 to 7 of the question paper.

P42221A 3 Turn over

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Question Answer Mark

Number
1(a)(i) Journal
Dr Cr
£ £
Shop premises 250 000 √
Global Property 250 000 √

Bank 200 000 √

6% Bank loan – Ascot bank 200 000 √

Arrangement fee expenses/Bank charges 4 250 √

Bank 4 250 √

Global Property 250 000 √

Bank 250 000 √ (6)
MAX 6 x √

Question Answer Mark

Number
1(a)(ii)

Organic Farm Shop

Departmental Trading Account for the year ended 31 December 2012
Green Bakery The Café
Grocery
£ £ £
Revenue 190 000 96 000 81 000√
Less
Opening inventory 8 150 4 700 850
Plus Purchases 126 000 60 500 40 250
Internal transfers (5 700) (4 300) 10 000√√√(√ per entry)
128 450 60 900 51 100
Closing inventory (9 450) (3 600) (1 100)
Cost of sales 119 000 57 300 50 000 √√(√of)
Wages 32 000 21 000 16 000 √
151 000 78 300 66 000
Trading/Gross profit 39 000 17 700 15 000 √of(if no aliens)
190 000 96 000 81 000
Note: Transfers must be stated before Trading/Gross profit for the marks.

(8)

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Question Answer Mark

Number
1(a)(iii) Statement of Comprehensive Income for the year ended 31 December 2012
£ £
Trading profit: Greengrocery 39 000
Bakery 17 700
The Café 15 000
71 700 √of
Less Expenses:
Manager’s salary 18 350 √
Electricity and gas 9 820 √
General running expenses (2 750 – 250) 2 500 √
Rent (8 100 + 1 800) 9 900 √√
Refurbishment – redecoration 5 000 √√
Depreciation – Equipment 3 600 √
Fixtures and fittings 2 000 √√
Bad debt 800 √
Increase in PDD 160 √
Loan arrangement fee 4 250 √
Loan interest 1 000 √√
57 380
Profit for the year 14 320
(16)

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Question Answer Mark

Number
1(a)(iv)
Statement of Financial Position at 31 December 2012
Cost Aggregate Carry over
Depreciation
£ £ £
Non-current assets
Shop premises 250 000 - 250 000 √
Equipment 20 000 11 600 8 400 √of
Fixtures and fittings 20 000 4 000 16 000 √of
290 000 15 600 274 400
Current assets
Inventory (9 450 + 3 600 + 1 100) 14 150 √
Trade receivables (32 000 – 800) 31 200 √
Less PDD (1 560) √of
29 640
Other receivables 250 √
44 040
318 440
£ £
Equity and Capital:
Opening capital 60 000
Profit for the year 14 320
74 320
Less drawings 16 800
57 520 √of

Current liabilities
Trade payables 46 870 √
Other payables (1 000 √ + 1 800 √) 2 800
Bank overdraft (43 000 + 200 000 – 250 000 – 4 250) 11 250 √√(√of)
60 920
Non-current liabilities
6% Bank loan (Repayable 30 November 2022) 200 000 √
318 440 (14)
Note: Bank can be a current asset of but not £43 000.

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Question Answer Mark

Number
1(b) Valid answers may include:
Points for
• Will have ownership control of premises without having to
seek landlord’s permission for renovations
• Security of tenure guaranteed
• An investment for the long term future of the business as
property tends to rise in price
• Savings in rent
Points against:
• Major capital outlay
• Converts a healthy cash balance into an overdraft
• The interest on the loan is greater than the rent
• Capital employed increases and return decreases
• Responsible for maintenance of the premises
• More depreciation (8)
• More bank interest
• Burden of a bank loan

√√ per valid point x 4 points. MAX 2 points for and MAX two points
against.

Note: do NOT accept

• More non-current assets
• Increased profit
• More payment for utilities

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SOURCE MATERIAL FOR USE WITH QUESTION 6

6. Easy Gardening is a business selling and repairing lawn mowers. It has two departments; a shop
selling new lawn mowers and accessories and a workshop repairing used lawn mowers. The following
information relates to the year ended 31 March 2011:

£
Revenue (Sales):
shop sales of new lawn mowers and accessories 120 000
workshop repairs to used lawn mowers 60 000
Ordinary goods purchased (purchases):
purchases of new lawn mowers and accessories 84 000
parts for repairs to used lawn mowers 7100
Inventory (Stock) at 1 April 2010:
new shop lawn mowers and accessories for sale 38 000
workshop parts for repairs to used lawn mowers 2 100
Motor vehicle running costs 16 000
Wages 42 000
Rent and rates 9 000
General expenses (including depreciation) 12 500
Business advertising 10 800
Trade receivables (Debtors):
shop sales of new lawn mowers 11 000
workshop repairs to used lawn mowers 7 500

Additional information at 31 March 2011:

(i) Inventory (stock) of new lawn mowers £47 500. There was no inventory (stock) of parts for
repairs to used lawn mowers
(ii) During the year lawn mower accessories, valued at £5 600, were taken from the shop for use
in the workshop
(iii) It is estimated that 60% of motor vehicle running costs relate to the workshop repairs to used
lawn mowers
(iv) Five staff are employed, two in the shop and three in the workshop
(v) The floor area occupied is: shop 200 sqm: workshop 400 sqm
(vi) It is estimated that general expenses (including depreciation) £7 000 relates to the shop
(vii) A provision for doubtful debts is to be created for trade receivables (debtors) of 4% of shop
sales and 10% of workshop repairs.

P38646A 12
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Required:

(a) (i) Explain the term appropriation of overheads.

(4)

(ii) Advise Easy Gardening how to appropriate the business advertising expense between the
shop and the workshop.
(2)

(b) Prepare the departmental statement of comprehensive income (departmental trading and profit
& loss account) for the year ended 31 March 2011.
(22)

The owners of Easy Gardening are considering closing the repair workshop and using this as
additional space for the shop. The owners believe that this will increase profits.

(c) Evaluate this belief of the owners.

(4)

(Total 32 marks)

Answer space for question 6 is on pages 31 to 34 of the question paper.

P38646A 13 Turn over

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Question Answer Mark

Number
5(d)(i) Low tariff High tariff

Monthly charge £8 √ £20 √

Call charges £30 √ £7.50 √
£38 £27.50

(ii) For the usage that Hinal will make of the mobile phone he is advised to enter
into a High tariff contract. √√ Accept OF recommendation. (6)

Question Answer Mark

Number
5(e) Valid points may include:

Points in favour
• Accepted by the tax authorities/accounting standards
• Is logical in that the oldest stock values are sold/issued first
• Gives a higher closing stock value and higher profits when prices are
rising.

Points against
• Stock is sold/issued at values that may be below current market prices
• Higher profits will mean higher taxes.

√√ per valid point x 2. MAXIMUM one point in favour and one against.
(4)

Question Answer Mark

Number
6(a)(i) Appropriation is the way that overheads are shared/divided between various
departments or cost centres. √√ This could involve allocation and/or
apportionment. √√

The costs may be shared on the most reasonable basis available √√ e.g. floor
area for rent. √√

Any two points x √√ (4)

Business advertising is undertaken to increase sales and therefore it would be

(ii)
best to apportion this cost on the basis of the revenue (sales). √√ (2)

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Question Answer Mark

Number
6(b) Departmental income statement (trading and profit & loss account) for
the year ended 31 March 2011
Shop sales Workshop repairs
£ £
Revenue (sales) 120 000 60 000
Less
Opening inventory (stock) 38 000 √ 2 100 √
Purchases 84 000 √ 7 100 √
Internal transfers (5 600) √ 5 600 √
116 400 14 800
Closing inventory (stock) 47 500 √ 0√
Cost of sales 68 900 14 800
Gross profit 51 100 45 200
Less
Motor running expenses 6 400 √ 9 600 √
Wages 16 800 √ 25 200 √
Rent and rates 3 000 √ 6 000 √
General expenses 7 000 √ 5 500 √
Business advertising 7 200 √ 3 600 √
Provision for doubtful debts 440 √ 750 √
40 840 50 650
Profit /loss for the year (net profit) 10 260 √OF (5 450) √OF
51 100 45 200 (22)

Question Answer Mark

Number
6(c) Valid points may include (accept OF comments):

Points in favour:
• Shop sales are more profitable than workshop repairs
• Costs such as wages may be able to be reduced
• The repair shop makes losses.

Points against:
• Workshop overheads are greater than shop overheads
• Workshop overheads will have to be borne by the shop sales
• Sales may be affected because the business will not offer repair
facilities
• Loss of image/business reputation affected as a result of redundancies
• Cost of redundancies.

√√ per valid point x 2. MAXIMUM one point in favour and one against (4)

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