MyStudyBro - Revision Exercise Tool

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

Chapters:
Manufacturing - Unit 1 (Pearson Edexcel)
Page 1 (WAC01 or WAC11) 2018 Winter
Page 3 (WAC01 or WAC11) 2018 Winter - Answer
Page 9 (WAC01 or WAC11) 2018 Autumn
Page 11 (WAC01 or WAC11) 2018 Autumn - Answer
Page 14 (WAC01 or WAC11) 2017 Summer
Page 16 (WAC01 or WAC11) 2017 Summer - Answer
Page 19 (WAC01 or WAC11) 2016 Winter
Page 21 (WAC01 or WAC11) 2016 Winter - Answer
Page 25 (WAC01 or WAC11) 2016 Summer
International Accounting Standards

Page 28 (WAC01 or WAC11) 2016 Summer - Answer

Also Includes:
International Accounting Standards
Winter 2018 www.mystudybro.com Accounting Unit 1
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SECTION A
Answer BOTH questions in this section.
1 Wooden Gifts is a manufacturer and online retailer of wooden products.
The following balances were available at 31 December 2017.

£
Non-current assets (at cost):
Leasehold on building – 10 years 60 000
Manufacturing equipment 90 000
Computing equipment 75 000
Fixtures and fittings 15 000
Provisions for depreciation:
Leasehold on building – 10 years 48 000
Manufacturing equipment 45 000
Computing equipment 35 000
Fixtures and fittings 6 000
Provision for unrealised profit 8 000
Inventory – 1 January 2017
Raw materials 20 000
Work in progress 32 300
Finished goods 88 000
Purchases – Raw materials 85 000
Direct packaging costs 23 300
Trade payables 41 100
Trade receivables 8 600
Factory wages 72 000
Distribution wages 59 000
Management salaries 68 000
Power and heating 14 000
Capital 200 000
Drawings 30 000
Cash and bank 37 900
Website consultancy expenses 16 200
Advertising expenses 43 000
Postage on sales 37 000
Revenue 510 000
General expenses 18 800
Additional information at 31 December 2017
(1) Inventory – Raw materials £21 500
Work in progress £26 000
Finished goods £110 000
(2) Factory wages accrued were £4 000
75% of factory wages are direct and 25% are indirect.
(3) Advertising expenses of £5 500 were prepaid.

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(4) Depreciation is charged as follows:

• leasehold on building at an appropriate rate
• manufacturing equipment at the rate of 20% per annum using the reducing
balance method
• computing equipment at the rate of 25% per annum using the reducing
balance method
• fixtures and fittings at the rate of 10% on cost.
(5) The following costs and expenses are to be apportioned to manufacturing.

Cost Manufacturing

Leasehold on building – depreciation 60%

Manufacturing equipment – depreciation 100%

Management salaries 35%

Power and heating 70%

General expenses 25%

(6) Manufactured goods are transferred to the warehouse at cost plus 10% profit.
Required
(a) Prepare, for the year ended 31 December 2017, the:
(i) Manufacturing Account
(13)
(ii) Provision for Unrealised Profit Account
(4)
(iii) Statement of Profit or Loss and Other Comprehensive Income.
(14)
(b) Prepare the Statement of Financial Position at 31 December 2017.
(12)
The owner of Wooden Gifts is planning his business strategy for the next year. He is
considering closing the manufacturing plant and purchasing all finished goods from
an outside supplier.
(c) Evaluate the effects of a possible closure of the manufacturing plant.
(12)

(Total for Question 1 = 55 marks)

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Question Answer Mark

Number
1 (a)(i) AO1:(2), AO2(8), AO3(3)
AO1: One mark for transferring balances
to the manufacturing account.
A02: Eight marks for balances requiring
adjustment.
AO3: Three marks for balances requiring
adjustment and then apportionment.

(13)

Wooden Gifts
Manufacturing Account for the year ended 31 December 2017
£ £
Opening inventory of raw materials 20 000
Purchases of raw materials 85 000
105 000
Closing inventory of raw materials (21 500)
Cost of raw materials consumed 83 500 (1) AO2
Direct factory wages 57 000 (1) AO3
Direct packaging costs 23 300 (1) AO1
Prime cost 163 800 (1of) AO2 + w no aliens
Overheads:
Indirect factory wages 19 000 (1) AO3
Depreciation - Leasehold on building 3 600 (1) AO3
Manufacturing equipment 9 000 (1) AO2
Management salaries 23 800 (1) AO2
Power and heating 9 800 (1) AO2
General expenses 4 700 (1) AO2
69 900
233 700
Work in progress – 1 January 2017 32 300
31 December 2017 (26 000)
6 300 (1) AO2
Cost of production 240 000
Manufacturing profit 10% 24 000 (1of) AO2 + w
Transferred to Trading Account 264 000 (1of) AO1 + w no aliens

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Question Answer Mark

Number
1 (a)(ii) AO1(3), AO3(1)
AO1: Three marks for correctly naming
the transfer and balancing.
AO3: One mark for calculating the closing
balance of unrealised profit.

(4)

Provision for Unrealised Profit Account

Date Details £ Date Details £
2017 2017
Jan 1 Balance b/d 8 000 (1) AO1
Dec 31 Balance c/d 10 000 Dec 31 Income statement(1) AO1 2 000 (1) AO1
10 000 10 000
2018
Jan 1 Balance b/d 10 000 (1of)AO3

On credit side

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Question Answer Mark

Number
1 (a)(iii) AO1(4), AO2(8), AO3 (2)
AO1: Four marks for transferring balances
to the income statement.
A02: Eight marks for balances requiring
adjustment.
AO3: Two marks for balances requiring
adjustment and then apportionment.

(14)

Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2017
£ £
Revenue 510 000
Opening inventory of finished goods 88 000
Goods transferred from manufacture 264 000 (1of) AO4
352 000
Closing inventory of finished goods (110 000)
Cost of sales (242 000) (1of) AO2+w
Gross profit 268 000
Manufactured goods profit 10% 24 000 (1of) AO2
292 000
Less Depreciation:
Leasehold on building 2 400 (1) AO3
Computing equipment 10 000 (1) AO2
Fixtures and fittings 1 500 (1) AO2
Distribution wages 59 000 (1) AO1
Management salaries 44 200 (1) AO2
Power and heating 4 200 (1) AO2
Website consultancy expenses 16 200 (1) AO1
Advertising expenses 43 000–5 500 37 500 (1) AO2
Postage on sales 37 000 (1) AO1
General expenses 14 100 (1) AO2
Provision for unrealised profit 2 000 (1of) AO3
(228 100)
Profit for the year 63 900

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Question Answer Mark

Number
1 (b) AO1(3), AO2(8), AO3 (1)
AO1: Three marks for transferring
balances to the financial position
statement.
A02: Eight marks for balances requiring
adjustment.
AO3: One mark for adjusting the inventory of
finished goods for unrealised profit.

(12)

Statement of Financial Position at 31 December 2017

Non-current assets
CostAccumulated Carrying
depreciation value
£ £ £
Leasehold on building – 10 years 60 000 54 000 6 000 (1of) AO2
Manufacturing equipment 90 000 54 000 36 000 (1of) AO2
Computing equipment 75 000 45 000 30 000 (1of) AO2
Fixtures and fittings 15 000 7 500 7 500 (1of) AO2
240 000 160 500 79 500
Current assets
Inventory – Raw materials 21 500
Work in progress 26 000 (1) AO2 for 3 inventories
Finished goods 110 000
Less Provision for (10 000) (1of) AO3
unrealised profit 100 000
147 500
Trade receivables 8 600 (1) AO1
Other receivables 5 500 (1) AO2
Cash and bank 37 900 (1) AO1
199 500
Total assets 279 000

Capital 200 000

Profit for the year 63 900
263 900
Drawings (30 000)
233 900 (1of) AO2
Current liabilities
Trade payables 41 100 (1) AO1
Other payables 4 000 (1) AO2
45 100
Total Capital and liabilities 279 000

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Question Indicative Content Mark

Number
1 (c) AO1 (1), AO2 (1), AO3 (5), AO4 (5)

Points for continuing manufacturing

The control of the production process will remain with

Wooden Gifts.
The quality of the product being produced can be
assured by Wooden Gifts.
Social accounting considerations should be considered.
Discontinuing manufacturing could result in redundancy
and an impact on the local community and other local
businesses.
Ensuing the continuity of supply of finished goods. If
manufacture is retained the control to deliver the
finished products on time is not passed to the supplier.
The fixed costs are currently shared between
production and administration if production was ceased
costs such as rent would have to be borne by the
administration alone.

Points for discontinuing manufacturing

The problems of manufacturing goods will be passed to

the supplier. Obtaining materials of the required quality
and labour issues will become the responsibility of the
supplier.
If the business is growing, the space requirement for
manufacturing will increase. The majority of the
existing space is occupied by manufacturing. If
manufacturing is discontinued the space could be used
for distribution or the excess space could be sub-let,
costs reduced and income increased.
Time and effort of paying and managing staff and
maintaining non-current assets would be removed.
Manufacturing non-current assets could be sold to
release cash.

Decision
Candidates may conclude that Wooden Gifts should
continue or discontinue manufacture. Candidates
should support that decision with an appropriate
rationale.

(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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Autumn 2018 www.mystudybro.com Accounting Unit 1
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5 Lee Manufacturing makes two products, chairs and tables. Each product is made on a
separate production line. The following information is available for the month of
July 2018.
(1) Raw materials
The tables and chairs are made using the same type of wood raw material.
Different sets of fittings are added to the tables and chairs to make the finished
product.

Wood for table

Table fittings Chair fittings
and chairs
Inventory 200 metres @ £100
90 sets @ £25 each 400 sets @ £10 each
1 July 2018 per metre
200 metres @ £120
Receipts 150 sets @ £30 each 200 sets @ £12 each
per metre

Issues 250 metres 200 sets 300 sets

• Lee Manufacturing uses the First In First Out (FIFO) method of periodic
inventory valuation.
• In July, 150 metres of wood were used in the manufacture of tables and the
remainder was used in the manufacture of chairs.
(2) Labour
• Five workers on the table production line worked 160 hours each in the
month. Workers were each paid £6 per hour of which 90% was recorded as
direct and 10% was recorded as indirect.
• Eight workers on the chair production line worked 175 hours each in the
month. Workers were each paid £6 per hour for 160 hours and time and a
third for 15 hours. 75% was recorded as direct and 25% recorded as indirect.
(3) Overheads
• Production supervisors salary was £3 900 and is to be apportioned on the
numbers of workers supervised.
• Depreciation for the month was £6 600 of which £2 400 was apportioned to
the production of tables.
• Other overheads totalled £7 500 and were apportioned 40% tables,
60% chairs.
(4) Work in progress
Tables Chairs
1 July 2018 £4 000 £5 200
31 July 2018 £3 850 £6 160

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Required
(a) Prepare the Manufacturing Account, in columnar format, for the month of July
2018, showing the cost of production of tables and the cost of production
of chairs. (A total column is not required).
(20)
(b) Explain the difference between inventory valuation and inventory rotation.
(4)
The accountant has advised Lee Manufacturing to use perpetual inventory valuation
instead of periodic inventory valuation for its raw materials.
(c) Evaluate the accountant’s advice.
(6)

(Total for Question 5 = 30 marks)

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Evaluation is balanced and wide ranging, using financial

and perhaps non-financial information and an appropriate
decision is made.
Question Answer Mark
Number
5 (a) AO1 (5), AO2 (12), AO3 (3)
AO1: Five marks for headings or posting
given balances.
A02: Twelve marks for adjusting and
posting balances.
AO3: Three marks for applying inventory
valuation to derive balances.
(20)

Manufacturing Account for the month of July 2018

Tables Chairs
£ £ £ £
Raw materials
Wood 15 600(2)AO3 10 400
(1)AO2
Fittings 5 550(1)AO3 3 000
(1)AO2
Cost of raw 21 150 13 400
materials

Direct labour 4 320 6 480

(1)AO2 (2)AO2
Prime costs 25 470 19 880
(1)AO1
Factory
Overheads:
Indirect labour 480 (1)AO1 2 160
(1of)AO2
Production 1 500 (1)AO2 2 400
supervisor (1)AO2
Depreciation 2 400 (1)AO2 4 200
(1)AO2
Other overheads 3 000(1)AO1 4 500
(1)AO1
7 380 13 260
Work in progress:
1 July 2018 4 000 5 200
31 July 2018 (3 850) (6 160)
150 (960)
(1)AO2 (1)AO2

Production cost 33 000 32 180

(1)AO1

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Workings

Wood for table

Wood (200@£100 + 50@120)=26 000 (1)AO3 x 150 = 15 600 (1)AO3
250

Wood for chairs 26 000 – 15 600 = 10 400

Table fittings
(90 @ £25 + 110@£30)= £5 550
Chair fittings
300@£10 = 3 000

Labour
Table
5 x 160 hrs x £6 = £4 800 x 90% =£ 4 320
Chair
8 x (160@£6 + 15@£8) = 8 640(1)AO2 x 75% = 6 480 (1)AO2

Depreciation
Tables 160 x 5 = 800 x £3 = £2 400
Chairs 175 x 8 = 1 400 x £3 = £4 200
2 200 £6 600

Question Answer Mark

Number
5 (b) AO1 (4)
AO1: Four marks for distinguishing
valuation from rotation.

Inventory valuation – inventory must be valued at

cost. (1)AO1 The valuation of the inventory may
depend upon the assumptions made about the
value of the receipts and issues made in an
accounting period/it is a theoretical value e.g.
FIFO/LIFO. (1)AO1

Inventory rotation – rotation relates to the physical

movement of inventory being received and issued
from the stores. (1)AO1 In this respect a business
will generally issue its oldest inventory first to
avoid deterioration/obsolescence. (1)AO1

(4)

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Question Indicative Content Mark

Number
5 (c) AO2 (1), AO3 (2), AO4 (3)
Points in favour of perpetual

The approach will allow the valuation method to issue

inventory at prices which will vary to each issue
made in line with the method chosen.
Periodic could result in issue prices which do not
reflect replacement cost when prices are rising or
falling rapidly.

Points in favour of periodic

It is a simpler approach because issue prices will

probably be constant for the period.
Issue costs will not be changing every day.

Decision
Candidates may be in favour or against the use of
perpetual inventory valuation. Candidate’s conclusion
should be supported with an appropriate rationale. (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.
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.

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6 Banwell Products manufactures goods using steel. The price of steel is currently
variable.
The following information is available for the year ended 31 March 2017.
• Raw material:
Inventory 1 April 2016 120 tons at £800 per ton

Date Receipts Issues

April – June 2016 80 tons at £750 90 tons

July – September 2016 70 tons at £700 60 tons

October – December 2016 100 tons at £650 80 tons

January – March 2017 60 tons at £600 70 tons

Banwell Products issues raw materials to production using the First In First Out
(FIFO) perpetual inventory valuation method.
• Wages and salaries:
Manufacturing machinist wages £93 000
Production management salaries £84 000
Indirect manufacturing wages £16 800
Administration wages and salaries £102 000
Manufacturing assembly wages £83 500
Manufacturing assembly wages prepaid at 31 March 2017 £6 500
• Other costs and expenses:
Depreciation on manufacturing equipment £45 000
Depreciation on administration equipment £16 000
Rent of premises £37 000
Rent owing at 31 March 2017 £5 500
(80% of the rent relates to the factory)
Insurance £40 000
Insurance prepaid at 31 March 2017 £5 000
(60% of the insurance relates to the factory)
Marketing expenses £60 000
• Inventories at: 1 April 2016 31 March 2017
Raw materials To be calculated To be calculated
Work in progress £55 000 £47 300
Finished goods £82 000 £73 000
• Banwell Products transferred production to finished goods at an agreed value of
£640 000

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Required
(a) Calculate the value of the inventory of raw materials at 31 March 2017 using the
First In First Out (FIFO) perpetual inventory valuation method.
(4)
(b) Prepare the Manufacturing Account for the year ended 31 March 2017.
(14)
(c) Explain how the following would be accounted for in the Statement of Financial
Position at 31 March 2017:
(i) manufacturing assembly wages prepaid
(2)
(ii) depreciation for the year on manufacturing equipment
(2)
(iii) provision for unrealised profit on manufacture.
(2)
The business is considering changing its method of valuing raw materials inventory
to Last In First Out (LIFO).
(d) Evaluate the use of Last In First Out (LIFO) as a method of valuing the inventory of
raw materials.
(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

11
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Question Answer Mark

Number
6 (a) AO2 (4)
A02: Four marks for selecting the units and prices
remaining in the inventory at the end of each quarter.

Date Receipts Issues Balance

Opening 120 @ £800
balance
April - June 80 £750 90@ £800 30@ £800
2016 80@ £750
(1)AO2
July – 70 @ £700 30 @ £800 50 @ £750
September 30 @ £750 70 @ £700
2016 (1)AO2
October – 100 @ £650 50 @ £750 40 @ £700
December 30 @ £700 100 @ £650
2016 (1)AO2
January – 60 @ £600 40 @ £700 70 @ £650
March 2017 30 @ £650 60 @ £600
(1)AO2
Closing balance £81 500

(4)

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Question Answer Mark

Number
6 (b) AO1 (5), AO2 (6), AO3 (3)
A01: Five marks for recording the given expense in the
account without adjustment.
A02: Six marks for calculating the figure and inserting this
correctly in the account.
A03: Three marks for calculating the corrected figure and
then carrying out the correct apportionment before applying
the figure to the correct section of the account.

Banwell Products
Manufacturing Account for the year ended 31 April 2017
£ £
Opening inventory 96 000
Purchases 210 000 (1)AO2
306 000
Closing inventory (81 500) (1)ofA01
Cost of raw materials 224 500
Machinists wages 93 000 (1)AO1
Assembly wages (83 500 – 6 500) 77 000 (1)AO2
Prime cost 394 500 (1of)AO2w+f
Manufacturing overheads:
Production management salaries 84 000 (1)AO1
Indirect manufacturing wages 16 800 (1)AO1
Depreciation on equipment 45 000 (1)AO1
Rent 34 000 (1)AO3
Insurance 21 000 (1)AO3
200 800
595 300 (1)AO2
Work in progress:
Opening inventory 1 April 2016 55 000
Closing inventory 31 March 2017 (47 300)
7 700 (1)AO2
Cost of production 603 000
Manufacturing profit 37 000 (1of)AO3
Transfer to trading account 640 000 (1)AO2w+f
(14)

Question Answer Mark

Number
6 (c)(i) AO1 (4), AO2 (2)
A01: Four marks for demonstrating knowledge of the
treatment of prepaid expenses and depreciation.
A02: Two marks for applying knowledge of unrealised
profits to profits on manufacture.

The value of the prepaid wages would be would be recorded

under the heading of Other receivables (1)AO1 under current
assets. (1)AO1
(2)

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Question Answer Mark

Number
6 (c)(ii) The annual depreciation would be added to the accumulated
depreciation and deducted from the cost (1)AO1 to
establish the carrying (Net Book) value. (1)AO1 (2)

Question Answer Mark

Number
6 (c)(iii) The value of the inventory of finished goods (1)AO2
would be reduced by the balance of the provision for
unrealised profit. (1)AO2 (2)

Question Answer Mark

Number
6 (d) AO2 (1), AO3 (2), AO4 (3)

Potential positive arguments for LIFO

• When prices are falling issues will be close to current
replacement cost
• Product/sales will not be overpriced in current market
conditions.

Potential negative points for LIFO

• Not accepted by tax authorities or IAS
• When prices are falling remaining inventory will
become increasingly over-valued
• LIFO may under state cost of sales which is against
the prudence concept.

NOT
An evaluation of inventory rotation

Decision
Candidates may conclude that the arguments for or against
outweigh the counter arguments. Having reached a decision
the rationale for that position should be developed.
(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.
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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SECTION A
SOURCE MATERIAL FOR USE WITH QUESTION 1
1 Kiddy Kit is a manufacturer of children’s clothing. The following trial balance was
extracted from the books on 31 December 2015:
Dr Cr
£ £
Revenue 700 000
Purchases of raw materials 164 800
Manufacturing wages 147 000
Production management salaries 67 000
Administrative management salaries 96 100
Inventory at 1 January 2015:
Raw materials 32 600
Work in progress 51 500
Finished goods 17 500
Direct production expenses 19 000
Indirect production expenses 16 200
General expenses 27 400
Marketing costs 44 500
Rent and rates 60 000
Non-current assets (at cost)
Manufacturing equipment 206 000
Office fixtures 80 000
Provisions for depreciation:
Manufacturing equipment 154 000
Office fixtures 32 000
Trade receivables 72 000
Trade payables 64 200
Provision for doubtful debts 2 700
Capital 160 000
Drawings 27 800
Bank 16 500
1 129 400 1 129 400

2
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Additional information at 31 December 2015

(1) Inventory:
Raw materials £31 400
Work in progress £48 700
Finished goods £15 500
(2) Manufactured goods are transferred from manufacturing to finished goods at an
agreed transfer price of £5 per item. During the year ended 31 December 2015 a
total of 98 000 items were transferred to finished goods.
(3) Depreciation is charged as follows:
• manufacturing equipment at the rate of 25% per annum reducing balance
• office fixtures at the rate of 15% on costs.
(4) 70% of the rent and rates is apportioned to manufacturing.
(5) General expenses owing £1 100.
(6) The provision for doubtful debts is to be maintained at 5% of trade receivables.
(7) The owner of Kiddy Kit withdrew £1 500 by cheque for his private use on
30 December 2015. No entries had been made in the books.
Required:
(a) Prepare the:
(i) Manufacturing Account for the year ended 31 December 2015
(16)
(ii) Statement of Comprehensive Income for the year ended 31 December 2015
(14)
(iii) Statement of Financial Position at 31 December 2015.
(14)
An overseas supplier has offered to manufacture all the children’s clothing for Kiddy
Kit at the rate of £5 per item of clothing.
(b) Evaluate whether the owner of Kiddy Kit should accept the offer from the
overseas supplier.
(8)

(Total for Question 1 = 52 marks)

Answer space for question 1 is on pages 2 to 8 of the question paper.

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SECTION A

1(a)(i)

Kiddy Kit
Manufacturing Account for the year ended 31 December 2015
£ £
Opening inventory of raw materials 32 600 √
Purchases of materials 164 800 √
197 400
Less Closing inventory of raw materials (31 400) √
Cost of Raw materials 166 000 √ w+f
Manufacturing wages 147 000 √
Direct production expenses 19 000 √
Prime cost √ 332 000 √of if
no aliens
Plus overheads:
Indirect production expenses 16 200 √ must be added
Production management salaries 67 000 √
Depreciation – Manufacturing equipment 13 000 √
Rent and rates 42 000 √
138 200
Work in progress – 1 January 2015 51 500
31 December 2015 (48 700)
2 800 √
Production/manufacturing/factory cost 473 000 √of +w
no aliens
Profit on manufacture 17 000 √of +w
Transferred to Income Statement 490 000 √ +w

(16)

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(ii)

Statement of Comprehensive Income for the year ended 31 December 2015

£ £
Revenue 700 000√
Less Opening inventory 17 500 √
Transfers from Manufacturing Account 490 000 √of +w
507 500
Closing inventory (15 500) √
Cost of sales 492 000 √of +w
Gross profit 208 000
Profit on manufacture 17 000 √of
225 000
Less

Administrative salaries 96 100 √

General expenses 27 400 + 1 100 28 500 √
Marketing 44 500 √
Rent and rates 18 000 √
Depreciation – Office fixtures 12 000 √
Increase in PDD 900 √√ (√of)
(200 000)
Profit for the year 25 000 √ if no aliens
225 000

(14)

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(iii)
Statement of Financial Position at 31 December 2015
Non-current Assets
Cost Accumulated Carry over
depreciation
£ £ £
Manufacturing equipment 206 000 167 000 39 000 √of
Office fixtures 80 000 44 000 36 000 √of
286 000 211 000 75 000 √of
Current Assets
Inventory: Raw materials 31 400
W.I.P 48 700
Finished Goods 15 500
95 600 √
Trade receivables 72 000
Less Provision for doubtful debts (3 600) √
68 400√of
164 000
239 000

Capital: £ £
Capital 1 January 2015 160 000
Net profit 25 000 √of
185 000
Less Drawings 27 800 √+ 1500√ (29 300)
155 700 √of
Current Liabilities
Trade payables 64 200 √
Other payables: General expenses 1 100 √
Bank 16 500 √+ 1 500√ 18 000
83 300
239 000

(14)

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(b) Valid answers may include:

Arguments for
• Fewer manufacturing problems
• Management can concentrate on trading
• Manufacturing assets can be sold to release cash
• Manufacturing space can be used to expand the business
• Manufacturing and admin costs may be reduced
• Might be able to develop other products to extend range.

Arguments against
• Security of supply from overseas
• Exchange rate fluctuations
• Supplier may increase prices in the future
• Social accounting aspects: impact on employment and local
community
• Quality issues
• Cost of redundancies.

Profit and cost considerations (of)

• The factory is currently making a profit/loss
• Buying costs will be higher/lower
• Buying on credit could improve cash flow

√√ per valid point. Maximum two valid points for and two valid points
against.
(8)

(Total: 52 marks)

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2 Holborn Products manufactures parts for the motor industry. The following balances
were extracted from the books on 30 April 2016.
£
Inventories at 1 May 2015:
Raw material 23 400
Work in progress 52 000
Finished goods 72 000
Purchases of raw materials 97 800
Carriage inwards 8 450
Manufacturing wages 81 400
Production management salaries 59 500
Non-current assets:
Manufacturing equipment
Cost 280 000
Provision for depreciation 160 000
Computing equipment
Cost 150 000
Provision for depreciation 90 000
Computing technician wages 40 000
Factory consumables 45 200
Rent and rates 16 000
Electricity and water charges 15 600
General expenses 21 000
Property maintenance expenses 11 000
Provision for unrealised profit 12 000

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Additional information at 30 April 2016

(1) Inventories:
Raw materials £16 950
Work in progress £58 000
Finished goods £90 000
(2) Manufacturing wages of £2 600 were owing.
(3) All of the costs of computing are charged 60% to manufacturing and 40% to
administration.
(4) Depreciation is charged on all non-current assets using the reducing
balance method:
(i) manufacturing equipment at the rate of 20% per annum
(ii) computing equipment at the rate of 30% per annum.
(5) Factory consumables of £35 300 are direct.
(6) Half of the general expenses relate to manufacturing.
(7) Property maintenance expenses of £1 800 are owing.
(8) Rent and rates, electricity and water, property maintenance expenses are
allocated 75% to manufacturing and 25% to administration.
(9) Production is transferred to finished goods at cost plus 20%.
Required
(a) Prepare, for the year ended 30 April 2016, the:
(i) Manufacturing Account
(21)
(ii) Provision for Unrealised Profit on Manufactured Goods Account
(5)
(iii) Manufacturing Wages Account.
(5)

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The owner of Holborn Products is proposing changes to the way in which financial
statements are prepared. There are four proposals.
Proposal 1
Include a sum for the skill of the workforce as a non-current asset in the Statement of
Financial Position.
Proposal 2
Charge the full cost price of non-current assets to the year in which they are
purchased.
Proposal 3
No longer provide for unrealised profit by removing the provision for unrealised
profit on manufactured goods from the accounts.
Proposal 4
Charge the drawings of the owner to the Statement of Profit or Loss and Other
Comprehensive Income.
(b) State, giving reasons for your answer, an accounting principle or concept that
would not be complied with if each of the proposals 1, 2, 3 and 4
were introduced.
(12)
(c) Evaluate the use of International Accounting Standards (IAS) in the preparation of
financial statements.
(12)

(Total for Question 2 = 55 marks)

TOTAL FOR SECTION A = 110 MARKS

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Question Indicative content

Number
4 (a) AO1 (1), AO2 (2), AO3 (1)
A01: One mark for identifying that depreciation relates to age
and usage.
A02: Two marks for explaining the impact upon the income for
the period and non-current asset values in the financial position
statement.
A03: One mark for linking the need for depreciation to the
application of accounting concepts.

• Non-current assets generally fall in value with age and usage

(1)AO1
• The depreciation is a cost/expense of a period of time and
therefore should be charged against income for that
period/profits should not be overstated (1)AO2
• Because the non-current assets are generally falling in value this
should be reflected in the financial position statement
(1)AO2
• Charging depreciation complies with the going concern(1)AO3
• Charging depreciation complies with the accruals concepts.
(1)AO3

Max 4

Not
Prudence concept

Question Indicative content

Number
4 (b) AO2 (2)
A02: One mark for calculating the depreciation on existing non-
current assets and additions. One mark for calculating the
depreciation on disposals.

Cost 30 April 2015 £30 000 + Additions £10 000 = £40 000
- Disposals £5 000 = £35 000 x 20% = £7000 (1)AO2 +
Disposals £5 000 x 20%/2 £500 (1)AO2 = Total £7 500

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Question Indicative content

Number
4 (c) AO1 (4), AO2 (4), AO3 (2)
A01: Four marks for correctly recording the opening balances
and bringing down the balances to the next period.
A02: Four marks for correctly recording the transactions for the
year.
A03: Two marks for calculating the disposal sums and correctly
recording in the accounts.

Computer Account
£ £
2015 2015
1 May Balance b/d 30 000 (1)AO1 Disposal 5 000 (1)AO3
2016
Bank/cash 10 000 (1)AO2 30 April Balance c/d 35 000 (1)AO2
40 000 40 000
2016
1 May Balance b/d 35 000 (1of)AO1

Computer- Provision for Depreciation Account

£ £
2015 2015
Disposal(1)AO2 2 500 (1)AO3 1 May Balance b/d 9 200 (1)AO1
2016 2016
30 April Balance c/d 14 200 30 April Income statement 7 500(1of)AO2
16 700 16 700
1 May Balance b/d 14 200 (1of)AO1

Question Indicative content

Number
4(d) AO1(4), AO2 (4)
A01: Four marks for correctly recording or totalling figures in
the statement.
A02: Four marks for calculating and applying the correct figures
to the statement.

Extract
Non-current assets
Cost Accumulated Carrying
depreciation over
£ £ £
Land & buildings 105 000 (1)AO2 - 9 400 (1)AO2 = 95 600
Computers 35 000 (1)AO2 - 14 200(1of)AO1 = 20 800
Fixtures & fittings 11 000 (1)AO1 - 5 400 (1)AO2 = 5 600
151 000 (1of)AO1 29 000 122 000 (1of)AO1

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Question Indicative content

Number
4(e) AO2 (1), AO3 (2), AO4 (3)
A02: One mark for applying positive or negative aspects of
Jabir’s depreciation policy, drawing out key points.
A03: Two marks for interpreting and analysing possible
solutions to depreciating computers, using a developed chain of
reasoning.
A04: Three marks for evaluating the scenario counterbalancing
the arguments giving weight to a range of financial and non-
financial aspects to arrive at a logical conclusion.

Potential positive arguments for the business

• Depreciation is being charged and therefore the accounting
concepts are being complied with.
• The method will reflect the principle of equal usage equal
charge for each year.
• Does not distort profits.
Potential negative points for the business
• Computers depreciate quickly due to obsolescence and therefore
20% is a fairly low figure for the early years.
• In the early years the computer value in the financial position
statement will be overstated.
• A full year’s depreciation in the year of purchase would result in
high depreciation for non-current assets bought late in the year.

Not
Easier to calculate
Consistent method

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.
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.

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