Mark Scheme (Results)

January 2015

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International A Level Accounting

WACO1
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January 2015
Publications Code IA040349
All the material in this publication is copyright
© Pearson Education Ltd 2015
General Marking Guidance

• All candidates must receive the same treatment. Examiners must

mark the first candidate in exactly the same way as they mark the
last.
• Mark schemes should be applied positively. Candidates must be
rewarded for what they have shown they can do rather than
penalised for omissions.
• Examiners should mark according to the mark scheme not
according to their perception of where the grade boundaries may
lie.
• There is no ceiling on achievement. All marks on the mark scheme
should be used appropriately.
• All the marks on the mark scheme are designed to be awarded.
Examiners should always award full marks if deserved, i.e. if the
answer matches the mark scheme. Examiners should also be
prepared to award zero marks if the candidate’s response is not
worthy of credit according to the mark scheme.
• Where some judgement is required, mark schemes will provide
the principles by which marks will be awarded and exemplification
may be limited.
• When examiners are in doubt regarding the application of the
mark scheme to a candidate’s response, the team leader must be
consulted.
• Crossed out work should be marked UNLESS the candidate has
replaced it with an alternative response.
 WAC01/01 - Mark Scheme
January 2015

1 (a)

Capital:
Assets £
Inventory 9 800
Warehouse fixtures 15 000
Office computers 24 000
Trade receivables 12 400
Prepaid 1 100
Bank 2 600
64 900 √
Less liabilities
Trade payables 8 750
8% Bank loan 20 000
Accrual 750
29 500 √
Capital 35 400 √√(1of) (4)

An answer of 35 400 is correct and worth four ticks

(b)
Statement of Comprehensive Income for the year ended 31 December 2014
£ £
Revenue 84 000√ + (95 250√ – 12 400√ +13 500√) 180 350
Less
Opening inventory 9 800
Purchases 85 700√ +11 150√ – 8 750√ 88 100
97 900
Less Closing inventory 8 200 – 300 ( 7 900) √√(8050 √of)
Cost of sales (90 000)
Gross profit 90 350
Plus Commission receivable 3 400 + 800 4 200 √
94 550
Less expenses:
Wages 14 250 – 750√ + 500√ 14 000
Rent 6 000 √
Sundry expenses 6 950 + 10 500 17 450 √
Loan interest 1 300 √
Rates and insurance 5 300 + 1 100√ – 1 700√ 4 700
Delivery expenses 15 670 √
Depreciation – Warehouse fixtures 1 200 √
Office computers 3 000 √
Creation of provision for doubtful debts 780 √√(√of)
(64 100)
Profit for the year 30 450 (22)
 Statement of Financial Position at 31 December 2014
Non-current Assets
Book value
£ £ £
Warehouse fixtures 13 800 √
Office computers 25 000 √
38 800
Current Assets
Inventory 7 900 √of
Trade receivables 13 500
Less PDD 780of 12 720 √√(√of)

Other receivables: Rates and insurance 1 700 √

Commission receivable 800 √
2 500
Bank 19 080 √
42 200
81 000

Capital and equity:

Capital 1 January 2014 35 400
Profit for the year 30 450 √of
65 850
Less Drawings (11 500) √
Capital 31 December 2014 54 350

Non-current Liabilities √(correct heading label)

8% Bank loan 15 000 √

Current Liabilities
Trade payables 11 150 √
Other payables: wages 500 √
11 650
81 000
(14)
(c)

Valid answers may include:

• Easier to prepare financial statements / trial balance / establish profit

• Detailed record of each debtor / creditor accounts
• Checking of records is possible / less time consuming to check
• Can monitor business progress
• Can control costs more effectively
• Can manage business more effectively
• Can detect errors but NOT in correct errors
• Useful for authorities / tax authorities / bank
• Enables comparisons
√ x 4 points (4)

Not:
• More accurate
• True and fair view
• Organised
(d)

Valid answers may include:

For the use of revaluation

• Book value will be the same as market value
• Market value of asset may be significantly different from book value if you use straight line
depreciation / not show a realistic book value
• Maintains consistency concept

Against the use of revaluation

• Equal depreciation each year for equal usage of asset
• Total costs of owning the asset will increase as repairs become significant
• Probably high depreciation in early years although usage in each year will be constant
• May be time consuming and difficult to value the assets each year
• Will distort profit from year to year with different depreciation values

√√ x 4 points (MAX two points for revaluation and two points against revaluation) (8)

(Total 52 marks)
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)
(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)
3 (a) Miguel
Statement of Comprehensive Income for the year ended 31 December 2014
£ £
Hire of equipment 573 000 √
Profit on disposal 4 500 √
577 500
Less expenses:
Wages and salaries 185 000 – 1 300 183 700 √
Rent and rates 30 000 √
Administration expenses 17 500 √
Marketing expenses 42 750 √
Delivery expenses 61 200 √
Servicing and repairs 89 750 + 3 200 92 950 √
Bad debts 11 000 √
Depreciation: Fixtures and fittings 16 500 √
Equipment 40 000 √
(495 600)
Profit for the year 81 900
(11)
(b)(i)
Capital expenditure- Money spent on purchasing a non-current asset and improving or
extending existing non-current assets / provide long term benefits√√
Revenue expenditure- Money spent running the business on a day to day basis / provide
benefits for less than one year √√
(4)
(ii)
• Repair of equipment- Revenue expenditure √ day to day expenditure √
• Purchase of new equipment- Capital expenditure √ purchase of non-current asset√
• Purchase of second hand equipment- Capital expenditure √ purchase of non-current
asset√
(6)
(c)
Equipment – Mobile Crane Account
£ £
2012 2012
1 Jan Bank 64 000 √ 31 Dec Balance c/d 64 000 √
64 000 64 000
2013 2013
1 Jan Balance b/d 64 000 31 Dec Balance c/d 64 000 √of
64 000 64 000
2014 2014
1 Jan Balance b/d 64 000 30 June Disposal 64 000 √of
64 000 64 000

Equipment- Mobile Crane provision for depreciation account

£ £
2012 2012
31 Dec Balance c/d 16 000 31 Dec Income statement / depreciation 16 000 √
16 000 16 000
2013 2013
1 Jan Balance b/d 16 000 √of
31 Dec Balance c/d 28 000 31 Dec Income statement/ depreciation 12 000 √of
28 000 28 000
2014 2014
1 Jan Balance b/d 28 000 √ of
30 June Disposal √ 32 500 √of 31 Dec Income statement / depreciation 4 500 √of
32 500 32 500

(11)

(d)(i) £
Depreciation 21 000 √
Operator’s wages 20 000 √√
Transport 16 000 √√
Servicing and repairs 3 000 √
Overheads 15 000 √
Total cost for year 75 000
(ii)
Total cost 75 000 + 15 000√of = £450 √√(√of)
Days of hire 200 √√

(12)
(e)

Valid answers may include:

In favour
• Cash will be generated from general trading profit
• The business may set aside cash for the replacement of a non-current asset

Against
• Depreciation is non-cash
• Depreciating a non-current asset does not enable a replacement to be purchased
• Depreciation is an estimate of the loss in value of an existing non-current asset
• Depreciating a non-current asset does not directly generate cash

√√ x 4 points (MAX two points in favour and two points against) (8)

(Total 52 marks)
 SECTION B

4 (a)
Journal
Dr Cr
£ £
Discount allowed 300 √
Petrus 300 √

Sales 450 √
Petrus 450 √

Petrus 180 √
Suspense 180 √

Potter & Co 2 400 √

Petrus 2 400 √

Petrus 50 √
Bank 50 √

(10)
(b)
Petrus Account
2014 £ 2014 £
1 Nov Balance b/d 6 000 5 Nov Bank 5 850
5 Nov Discount allowed 150 19 Nov Sales returns 530
18 Nov Sales 3 000 30 Nov Discount allowed √ 300 √
23 Nov Sales 2 400 Sales (trade discount) √ 450 √
30 Nov Suspense √ 180 √ Potter & Co 2 400 √
Bank (refund) √ 50 √ Balance c/d 2 250
11 780 11 780

1 Dec Balance b/d 2 250 √of

(10)
(c)
Commission Posted to wrong account of same class
Reversal Accounts correct but double entry reversed
Omission No double entry made in the books
Principle Posted to wrong account in a different class
Compensating Two different errors cancelling each other out
Original entry Incorrect original figure used

√ for naming an error plus √ for a brief description x 4

Not: Transposition (8)

(d)

Valid answers may include:

In favour
• Enables trial balance to balance
• Identifies the net value of errors to be found.
Against
• Errors remain in the accounts until found
• Financial statements prepared will be inaccurate
• Some errors will not be revealed by the suspense account
• Does not help to actually find the error.

Not: Time consuming / correct errors / detects arithmetic errors.

√√ x 2 points (MAX one point in favour and one point against) (4)

(Total 32 marks)
5 (a)
Ryman
Manufacturing Account for the month of November 2014
£ £
Inventory of raw materials 1 November 20 000 √
Purchases of raw materials 44 200 √√
64 200
Less Inventory of raw materials 30 November (19 200) √√
Cost of raw materials 45 000 √of + w
Add:
Factory wages 36 480 √√
Direct general expenses 3 600 √
Prime cost 85 080 √of + w
Plus overheads: (no aliens)
Indirect general expenses 8 400 √
Manager’s salary 3 500 √
Supervisors’ salary 5 000 √
Rent 2 000 √
Depreciation of machinery 4 500 √
Machinery repairs 3 000 √
26 400
111 480
Work in progress (1 000) √
Production cost 110 480 √of + w
Profit on manufacture 39 520 √of
Transfer to trading 150 000 √+w

(20)
(b)
• Transfers from Manufacturing Account to Trading Account are at a mark-up. √√
• At year end the manufacturing profit is removed from the inventory of finished goods √√
• A decrease in the provision will be added and a increase in the provision deducted from the
gross profit in the income statement √√
• The provision balance is deducted from the inventory valuation in the Statement of financial
position √√
• Application of the realisation concept √√

MAX √√ x 2
(4)
(c)
Day-work Workers are paid by the hour Hours worked √ x Rate per hour √
Piecework Workers are paid by the number
of items produced Number produced √ x Rate per item √
(4)
 (d)
Valid answers may include:
In favour
• Greater production
• Cost reduced per unit
• Greater motivation for workers.
Against
• Quality can be reduced if work is rushed
• Greater supervision levels required.

Not: Increased profit

√√ x 2 points (MAX one point for and one point against) (4)

(Total 32 marks)
6 (a)(i)
Capital Accounts
Chok Tamar Lai Chok Tamar Lai
£ £ £ £ £ £
Bank √ 20 000 √ Balance 40 000 40 000 √
Goodwill 60 000 √ 30 000 √ 30 000 √ Goodwill 60 000 √ 60 000 √
Balance c/d 40 000 50 000 26 000 √ Introduced / 56 000 √√
100 000 100 000 56 000 Assets 100 000 100 000 56 000
Balance b/d 40 000 50 000 26 000 √of
(12)

(ii)
Chok, Tamar and Lai
Statement of Financial Position at 1 December 2014 √ Names + title
£ £
Non-current Assets
Premises 60 000 √
Fixtures and fittings 26 000 √
Delivery vehicle 15 000 √
101 000
Current Assets
Inventory 28 500 + 16 000 44 500 √√
Trade receivables 32 400 √
76 900
177 900
Capital:
Chok 40 000 √of if unadjusted
Tamar 50 000 √of if unadjusted
Lai 26 000 √of if unadjusted
116 000
Current Liabilities
Trade payables 42 500 √
Bank 5 600 √+25 000 √ – 15 000 √-20 000 √ 4 400
Non-current Liabilities
Bank loan 15 000 √
177 900
(16)
(b)

Valid answers may include:

In favour
• More capital available
• More skill and knowledge.
Against
• Profits shared between three
• Greater chance of disagreement.

Not: More profit

√√ x 2 points (MAX one point for and one point against) (4)

(Total 32 marks)
7(a)
1. Realisation / Accrual
2. Accrual / matching
3. Consistency
4. Money measurement
5. Historic cost / cost
6. Prudence
√√ x each correct name (12)
(b)
Biman
Statement of Comprehensive Income for the year ended 30 November 2014.
£
Revenue 115 000 – 6 000 109 000 √
Less Cost of sales 63 000 – 4 000 (59 000) √√
Gross profit 50 000
Less
General expenses 15 000 + 3 200 – 450 17 750 √
Depreciation - 9 000 + 3 000 12 000 √√
Provision for doubtful debts 1 500 √
(31 250)
Profit for the year 18 750

Statement of Financial Position at 30 November 2014

£
Non-current Assets
Premises 80 000 √
Equipment 30 000 – 6 000 24 000 √
Staff skill 15 000 – 15 000 0 √
104 000

Current Assets
Inventory 20 000 + 4 000 24 000 √
Trade receivables 18 000 – 6 000 √ – 1 500 √ 10 500
Other incomes 450 √
Bank 11 000
149 950
Equity and capital:
Capital 95 000 – 15 000 – 10 000 70 000 √
Profit for the year 18 750
88 750
Current liabilities
Trade payables 58 000
Other payables 3 200 √
149 950 (16)
(c)
Valid answers may include:
In favour
• Standardises approach / allows comparisons
• Reader can rely upon the information e.g. investors
• True and fair view of profit and valuing assets and liabilities
• Provides a framework to prepare financial statements.
Against
• Requires professional input
• Concepts can contradict each other
• Does not consider non-financial factors e.g. quality of management.

√√ x 2 points (MAX one point for and one point against) (4)

(Total 32 marks)
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