Marking Scheme

This document was prepared for markers' reference. It should not be regarded as a set of model answers.
Candidates and teachers who were not involved in the marking process are advised to interpret its contents with
care.
The examination emphasises the testing of understanding, the practical application of knowledge and the use of
processing skills. Candidates are advised to study this document in conjunction with the examiner's comments
on candidates' performance in this booklet.
SECTION A
QUESTION 1 Marks
(A) (a) . Consistency principle
The accounting treatment of similar items within each accounting period and from
one period to the next should be consistent /the same.
Example
The same method of calculating depreciation on a particular type of fixed asset
should be adopted from one year to another unless there are changes in
circumstances which warrant another method.
(b) Accrual concept
Under the accrual concept, revenues and expenses are accrued, Le. revenues and
expenses are recognised and included in the financial statements when they are
earned or incurred, not when they are received or paid in cash.
Example
Rates prepaid for the first quarter of next accounting period should not be included
as expenses in the current accounting period.
(B) (a) Business entity principle
A business is considered as a separate entity distinguishable from its owner.
A separate set of accounting records is maintained for the business and the
financial statements represent the financial position and results of operations
of the business only.
The antique motor car is a personal asset of Thomas Chan and should not be
included in the financial statements of his business.
(b) Realisation principle 4
Revenue for a financial year is determined by applying the realisation
principle, which requires that revenue be recognised in the period when goods
are sold or when services are rendered.
The sales revenue for the year ended 31 March 2007 should not include the
ticket sales for the concert to be held in April 2007. The revenue should only
be recognised upon the completion of the concert in April 2007.
OR
Accrual concept
Revenues and expenses are accrued, Le. revenues and expenses are recognised
and included in the financial statements when they are earned or incurred, not
when they are received or paid in cash.
The financial statements for the year ended 31 March 2007 should include
neither the sales revenue received nor any expenses paid for the concert to be
held in April 2007.
Total: 14 marks
37
QUESTION 2
(A) Cost of the new machine
Acquisition cost ($55000 + $10 000)
Delivery charges
Insurance
Steel case
Installation cost
(B)
QUESTION 3 Marks
(a) Statement to show the revised balances total of sales ledger balance as at 3I March 2007
$
65000
4000
1000
8000
2000
80000
Marks
IY,
Y,
y,
y,
y,
2V,
(6)
2
2
2
2
Net balances total before adjustments
Add: Debit balance wrongly treated as a credit balance
($3600 x 2) (ii)
Dishonoured cheque (v)
Less: Sales returns omitted ($5300 x 140% x 95%) (iii)
Discount allowed ($7200.,. 90% x 10"10) (iv)
Bad debts (vii)
Revised balances total
(b)
Y, Balance bid (balancing figure)
I Sales day book undercast (i)
I Cash receipts ($7800-$7200)(iv)
V, Bank - dishonoured cheque (v)
$ $
233 549 v,
7200
7500 14700
y,
248249
7049 IV,
800 IV,
2400 10249 Y,
238000 Y,
(6)
$
Net profit for the year ended
31 March 2007
Working capital as at
3I March 2007
(a) Increase Increase
(b) No change No change
(c) Decrease Decrease
(d) No change Decrease
(8)
Total: 14 marks
Debtors control
$
237 149
4000
600
7500
249249
(c) Journal
Profit and loss
Provision for doubtful debts
($238 000 x 10% - $20 000)
39
38
Sales returns (iii) 7049 Y,
Discount allowed (iv) 800 V,
Contra with purchases ledger (vi) 1000
Bad debts (vii) 2400 Y,
Balance cld 238000 Y,
249249 (6)
Debit
$
3800
Credit
$
3800
I
I
(2)
Total: 14 marks
..
QUESTION 4 Marks
(a) Cash book
2007 Cash Bank 2007 Cash Bank
$ $ $ $
It, Mar I Balance bid 16400 Mar I Balance bid - 4590 It,
y,
3 Debtors - 100480 4 Creditors ($2000x98%) 1960 It,
y,
8 Creditors - 3000 16 Drawings 9600 - It,
It, 10 Sales 15600 - 16 Bank 6000 It,
It, 16 Cash - 6000 21 Rent 23000 It,
y,
30 Debtors - 1650 26 Furniture-deposit - \ 000 It,
($5000 x 20%)
3\ Petty cash 3900
3\ Balance cld \2500 80580
32 000
-
1T113O
--
32 000
--
1T113O
---
(8)
(b) Bank reconciliation statement as at 31 March 2007
$ $
Balance as per cash book in (a) 80580 It,
Add: Unpresented cheques (iii) 9050 \
Direct deposit by customer (v) 2800 II 850
92430
Less: Cheque honoured by bank (i) 3000
Lodgement not yet recorded by bank (ii) \ 650
Autopay for rates (iv) 860 5510
Balance as per bank statement 86920 It,
(6)
Total: 14 marks
SECTION B
QUESTION 5 Marks
(a)
Y, Balance bid
Trade debtors (WI)
Bank
$
107750
2345000
2452750
Trade creditors
Selling expenses
Administrative expenses
Drawings
Balance cld
$
\ 839000
182240
109120
18000
304390
2452750
y,
It,
y,
It,
y,
(6)
41 40
QUESTION 5 (Cont'd.) Marks
(c) George Ho
Balance sheet as at 31 March 2007 y,
Fixed assets
Motor vehicles (420 000 + 180 000)
Less: Accumulated depreciation (252 000 + 43 500)
Current assets
Stock
Trade debtors
Prepaid administrative expenses
Bank
Less: Current liabilities
Trade creditors
Other creditors
Accrued selling expenses
Working capital
Capital, as at I April 2006 (W3)
Add: Net profit for the year
Less: Drawings (18 000 + 20 000)
Workings:
WI Trade debtors
$ $ $
600000
295500 304500
212000 Y,
181440 Y,
3360 Y,
304390 Y,
701 190
98000 Y,
180000 I
7020 285020 Y,
416170
720670
609500 2Y,
149170 y,
758670
38000 y,
720670
(10)
Total: 29 marks
Y, Balance bid
I Y, Sales (560 000 + 530000 +
620 000 + 680000)
W2
y, { Discounts received
{ Bank
y, [ Balance cld
$
157500 Bank (balallcillgjigure)
2390000 Discounts allowed
Balance cld
2547500
Trade creditors
$
16 000 Balance bid
I 839000 Purchases (balallcillgjigure)
98000
I 953000
$
2345000
21060
181440
2547500
Y,
Y,
--$
105000
1848000
1 953000
W3 Statement to show the calculation of capital as at I April 2006
$ $
Motor vehicles, at cost 420000 } y,
Stock, at cost 284000 }
Trade debtors 157500 1y,
Prepaid administrative expenses 3000
1
Bank 107750 } y,
972 250
Less: Accumulated depreciation 252000 }
Trade creditors 105000 lY,
Accrued selling expenses 5750 362750
1
609500
QUESTION 6 Marks
(a) Ernest and Fred
Manufacturing account for the year ended 31 March 2007
Opening stock
Add: Purchases ($1 005 600 + $5200)
Carriage inwards
Less: Closing stock
Raw materials consumed
Direct labour ($200 000 - $2500)
Prime cost
Factory overheads
Indirect labour
Salaries to factory supervisor
Repairs to machinery
Rent and rates [($275 800 + $4200) x V.l
Depreciation - machinery ($751 500 x 20%)
Add: Opening work in progress
Less: Closing work in progress
Production cost of finished goods
$ $
81 100
y,
y,
1010800
y,
19020 1029820
I 110920
67490 y,
1043430 y,
197500 y,
1240930
y,
80040 y,
72 000 'j,
5320 'j,
70000
y,
y,
150300 377 660
1618590
46610
y,
1665200
52140 'j,
1613060 I
(8)
42 43
QUESTION 7 Marks
QUESTION 6 (Conl'd.) Marks
(b)
(c)
Y,
2
Ernest and Fred
Trading, profit and loss and appropriation account for the year ended 31 March 2007
$ $
Sales ($2 741200 + $1000) 2742200 I
Less: Returns inwards 26120 V,
2716080
Less: Cost of goods sold
Opening stock 163750 V,
Add: Production cost of finished goods 1613060 V,
1776810
Less: Closing stock (S170 300 - $280) 170020 I 606790 1
Gross profit I 109290
Add: Gain on sale of office equipment
{$30 000 [$84 000 $S6 000 ($84 000 SS6 000). 10%)) 4 800 IV,
1 114090
Less: Administrative expenses 120930 V,
Selling expenses 92690 V,
Increase in provision for doubtful debts ($136 3060 I
Interest on loan ($150 000.8%.6/12) 6000 I
Rent and rates [($275 800 +$4200) Yo] 210000 V,
Carriage outwards 13 840 V,
Depreciation - office equipment [(SS02 80Q-S2S4 800).10%] 24800 I
Salaries 143 200 614520 Y,
Net profit 499570
Less: Interest on capital
Ernest ($180 000.5%) 9000 Y,
Fred ($150000.5%) 7500 16500 V,
Salaries - Ernest 80000 V,
- Fred 100000 180000 V,
Bonus - Fred 50000 246500 Y,
253070
Share of profit - Ernest (315) 151842 V,
- Fred (2/5) 101228 253070 V,
(14)
Current
Erne.t Fred Erne.t Fred
S S S $
Balance bId 20000 - Balance bId - 30000 Y,
Drawings (1 S000 nOO) 9800 13000 Interest on capital 9 000 7500 1
(12000 + 1000) Bonus - 50000 I
Balance cld 131042 175728 Share of profit 151 842 101228 I
160842 188728 160842 188728
(7)
I
!
!
i
I
(a)
(b)
Bamboo Limited
Adjusted trial balance as at 31 March 2007
Debit
$
Ordinary share capital, 1 April 2006
Retained profits, 1 April 2006
Plant and equipment, at cost 692460
Bank loan, repayable in 20 I0
Sales
Debtors 105690
Cost of goods sold 538600
Administrative expenses 123700
Selling expenses 187500
Interest on bank loan 5 000
Deposits received from debtors
Share application money received
Cash at bank 47400
Creditors
Stock, 31 March 2007 22100
Prepaid selling expenses, 31 March 2007 8000
Accumulated depreciation - plant and equipment, 3 I March 2007
Suspense 3800
1 734250
Journal
Debit
S
(i) Suspense 1600
Interest income
Prepaid selling expenses
(ii) Bank (Cash) 40
Debtors 4844
Sales
(iii) Administrative expenses 300
Creditors
(iv) Administrative expenses 16 000
Plant and equipment
Suspense
Accumulated depreciation - plant and equipment 2120
Administrative expenses (SIO 600.20%)
Credit
S
180000
20000
120000
985000
16000
70000
96710
246540
1 734250
Credit
S
800
800
4884
300
I
10600
5400
2120 I
V,
} 'I,
}
I v,
I
I v,
I
I 'I,
I
I v,
I
I v,
I
IV,
I
IV,
I
I V,
I
(5)
Y,
V,
'I,

'I,
Y,
Y,
Y,
y,
Y,
Y,
Y,
Total: 29 marks (v) Stock
Cost of goods sold
6000
6000
V,
'I,
(vi) Interim dividend
Deposits received from debtors
12000
12 000
Y,
'I,
45
44
QUESTION 7 (Cont'd.)
Marks
(bl
Journal
Debit Credit
$ $
(vii) Share application money
70000
Va
Ordinary share capital
40000 Va
Share premium ($0.4 )( 40 000)
16000 Yo
Bank ($1.4 )( 10 000)
14 000 y,
(10)
Bamboo Limited
Balance sheet as at 31 March 2007
(cl
$
Fixed assets
Plant and equipment (692 460 - 10600)
Less: Accumulated depreciation (246540 - 2120)
Current aSsets
Stock (22 100 + 6000)
Debtors (105690 + 4844)
Prepaid selling expenses (8000 - 800)
Cash at bank (47 400 + 40 - 14 000)
Less: Current liabilities
Creditors (96 710 + 300)
97010
Deposits received from debtors (16 000 + 12 000)
28 000 _._-._
Working capital
Capita. and reserves
Ordinary share capital (180 000 + 40 000)
I
Share premium
y,
Retained profits (workings)
4
Long-term liabilities
Bank loan
y,
(14)
Total: ~
Workings:
$
Sales (985 000 + 4884)
989884 Va
Cost of goods sold (538 600 - 6000)
(532 600) ,/,
Gross profit
457284
Interest income
800 y,
Administrative expenses (123 700 + 16 000 - 2120 + 300)
(137880) 1.
Selling expenses
(187500) Y,
Interest on bank loan
y,
~
Net profit for the year
127704
Retained profits as at 1 April 2006
20000 y,
Interim dividend
(12000) Y,
Retained profits as at 31 March 2007
135704
END OF PAPER
46
Candidates' Performance
An overall impression of candidates' performance this year was that both the bookkeeping side and theoretical
side were attempted in a reasonable fashion. Although the questions in Section B are more complicated, the
general standard in this section was on the whole higher than that of Section A. Questions on the earlier parts
of the syllabus such as cash book, trial balance, etc were less satisfactorily attempted. One common weakness
was that candidates did not read instructions with care and often failed to comply with the requirements fully.
In addition, it is important for candidates to write the particulars clearly and correctly in the books or statements.
Abbreviations and acronyms will not be accepted.
Section A(A choice of 3 out of 4 questions)
Question
Number
Popularity Performance in General
1 (A)
(B)
58% This question was in the main fairly well done. Most candidates were well
prepared and able to point out the essence of the two concepts and support their
answers with relevant examples.
Many candidates did well here. The main error was regarding the matching
concept as synonymous with the realisation or accrual concept. In add ition,
candidates should not simply list the concept that had been violated but also explain
by pointing out the proper way to deal with the transactions in question.
Not too many candidates could accurately work out the cost of the new machine,
clearly distinguishing between the capital and revenue expenditures. Also, they
did not realise that acquisition cost comprises the trade-in value of the old machine
and the cash for the exchange. Clear descriptions of calculations helped many
candidates to gain step marks.
2 (A) 82%
(B) Many candidates were able to state the effect of the corrections on the company's
net profit but encountered difficulties when they tried to figure out how the
corrections would affect the working capital.
This is a routine control account problem with a slight variation in that only the net
balances total from the sales ledger was available. Some candidates did not fully
understand control accounts and tried to include as many figures from the question
as they could. Many candidates did not know how the balance before adjustments
could be worked out. Nor were they able to find the correct amounts for discounts
allowed and sales returns.
3 (a)(b) 71%
(c) Satisfactory. Many candidates could correctly journalise the change in the
provision.
Candidates performed satisfactorily with respect to the entries in the two-column
cash book. In a few cases, candidates revealed a lack of knowledge of the way to
restore the petty cash imprest amount.
4 (a) 89%
(b) Some candidates were confused with the opening balance of the bank reconciliation
statement. They had a vague notion of the reasons for preparing the statement.
Quite a number of candidates ignored the instruction of commencing the statement
with the balance as per cash book in (a) and ending it with the balance as per bank
statement.
49
- . 1
1
- - _ . _ - ~ - - ~
, . ; ~
Section B (A choice of2 out of3 questions)
Question
Popularity I Performance in General
Number
5 61 % ICandidates apparently had difficulties in sorting out this problem. Many were
unable to produce a bank account, make use of the trade debtors and trade creditors
accounts to work out the sales and purchases, and find out the cost of goods sold
using the stock turnover rate. Others failed to apply the realisation concept in
determining the amount of sales for the year. Some candidates ignored the fact that
the motor vehicle was purchased on credit and the purchases cost should be recorded
as other creditors in the company's balance sheet.
6 (a)(b) 93% ICandidates in general scored well on this question. There were, however, some
common errors. Candidates failed to provide depreciation on the office equipment
in the year of sale, compute the provision for doubtful debts for the year, and accrue
for only 6 months' interest for the loan. Not many candidates were able to treat the
cash proceeds retained by Fred as his drawings.
(c) The current accounts were not well prepared. Candidates did not realise that
salaries were already paid to partners and hence should not appear in the current
accounts. Others omitted the bonus to Fred.
7 (a) 46% Candidates appeared to be unfamiliar with an adjusted trial balance. Very few
could list all the items in the correct column, particularly the 'deposits received
from debtors'. Nor did they realise that 'suspense account' has to be inserted to
make the debit and credit totals agree.
(b) This part was designed to test the candidates' knowledge of share issues and their
ability to draw up correcting entries. Both were found to be wanting. In addition,
candidates often failed to distinguish the errors affecting the suspense account from
those that did not.
(c) This part requires candidates' comprehensive understanding of the problems
involved and was not well answered. Quite a number of candidates who correctly
prepared the journal entries ignored them when preparing the company's balance
sheet. Besides, many failed to close off the revenue and expenses accounts in
order to report the amount of retained profits at year end.
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E06747
50