2014 Accounting Higher Solutions Finalised Marking .

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2014 AccountingHigher SolutionsFinalised Marking Instructions Scottish Qualifications Authority 2014The information in this publication may be reproduced to support SQA qualifications only ona non-commercial basis. If it is to be used for any other purposes written permission mustbe obtained from SQA’s NQ Assessment team.Where the publication includes materials from sources other than SQA (secondarycopyright), this material should only be reproduced for the purposes of examination orassessment. If it needs to be reproduced for any other purpose it is the centre’sresponsibility to obtain the necessary copyright clearance. SQA’s NQ Assessment teammay be able to direct you to the secondary sources.These Marking Instructions have been prepared by Examination Teams for use by SQAAppointed Markers when marking External Course Assessments. This publication must notbe reproduced for commercial or trade purposes.

General Marking Principles for: Accounting Higher SolutionsThis information is provided to help you understand the general principles you must applywhen marking candidate responses to questions in this Paper. These principles must beread in conjunction with the specific Marking Instructions for each question.(a)Marks for each candidate response must always be assigned in line with thesegeneral marking principles and the specific Marking Instructions for the relevantquestion. If a specific candidate response does not seem to be covered by either theprinciples or detailed Marking Instructions, and you are uncertain how to assess it,you must seek guidance from your Team Leader/Principal Assessor.(b)Marking should always be positive ie, marks should be awarded for what is correctand not deducted for errors or omissions.GENERAL MARKING ADVICE: Accounting Higher SolutionsThe marking schemes are written to assist in determining the “minimal acceptable answer”rather than listing every possible correct and incorrect answer. The following notes areoffered to support Markers in making judgements on candidates’ evidence, and apply tomarking both end of unit assessments and course assessments.Page 2

Section AQuestion 1(a)Statement of Accumulated Fund as at 1 January Year 2Fixed Assets 000's 000's 000'sClubhouse and courseMachineryBar FixturesAdd5004015555Current AssetsBar StockBankSubs in Arrear (Year 1)36312Less Current LiabilitiesCreditors for Bar SuppliesProfessional’s SalaryElectricity AccruedSubs in Advance (Year 2)(1)(1)(1)4212(1)(1)9Accumulated Fund3558(5)(b) Bar Trading Account for year ending 31 December Year 2 000's 000's(1)Sales60Less Cost of SalesOpening Stock3 (1)1 1Add Purchases* (40 4 5)41 (2)44Less Closing Stock4 (1)Gross ProfitLess Bar Wages & ExpensesDepreciation - Bar Fixtures (20% * 15)Net Profit 402015 (1)3 (2) 182Page 3(8)

(c)Income and Expenditure Account for the year ending 31 December Year 2 IncomeSubscriptions (155 2 (1) 3 (1) 4 (1) 1 (1))Net Profit From BarLife Membership FeesSurplus from Gaming Machines (6 3)LessExpenditureGreenkeepers’ Wages(1) (1)Professional's Salary (33 2 3)Repairs to MachineryPurchase of Grass Seed and Sand (20 3) 000's25341717 000's1572103172(4)(1)(2)(2)(1)(2)(1)(2)(1) (1)Gas and Electricity (12 1 2)General ExpensesDepreciation - Machinery (10%*(40 20))Surplus (d)Balance Sheet as at 31 December Year 2 Fixed AssetsClubhouse and courseMachineryBar FixturesAddLess13 (2)7 (1)6 (3)119Cost5006020Depn068NBV500541258014566Current AssetsBar StockStock of Grass SeedSubs in ArrearsBank (6 271 192)4348596Current LiabilitiesCreditors for Bar SuppliesProfessional’s salary dueSubs in AdvanceElectricity Accrued(21) 535312(1)(1)(1)(1)11(1)(1)(1)(1)(1)(1)(2)85 651Financed byAccumulated FundAdd Life Membership Fees capitalisedAdd Surplus5584053 651(1)(2)(1)(16)(50)Page 4

Question 2(i)AddAddLessDavis plc Manufacturing Account for the year ending 31 December Year 3 000 000Prime Cost247 (1)Factory OverheadsIndirect Wages25 (1)General Expenses30 (2)Lighting and Heating24 (2)Depreciation - Factory Machinery75 (2)154401Work-In-Progress at start15 (1)416Work-In-Progress at end27 (1)Factory Cost of Production 389Market Value of Production (150 x 2·80)420 (2)Factory Profit 31 (2) (14)Page 5

(ii)Davis plc Trading and Profit and Loss Accounts FYE 31 December Year 3 000 000 000Sales of Finished Goods691 (1)AddCost of SalesOpening Stock of Finished GoodsMarket Value of Finished GoodsLessClosing Stock of Finished GoodsAddAddWarehouse ExpensesWagesLighting and HeatingGross Profit Factory ProfitAddDecrease in Provision for Bad DebtsLessExpensesWagesGeneral ExpensesOffice Insurance (6 2)Lighting and HeatingDebenture InterestProvision for Depreciation on Office EquipmentNet Profit Before Tax Corporation TaxNet Profit After TaxProfit and Loss Account Balance 1 January Year 3LessAddLess21 (1)420 (2)44118 (1)42321 (1)16 (1)AppropriationsOrdinary Dividend - InterimOrdinary Dividend - FinalGoodwill written downUnappropriated Profit 37232048105046023131 (2)2621 (2)263(1)(1)(2)(1)(2)(2)30 (1)20 (2)15 (1)(7)(13)11514837 (1)1115 (1)11665 51(6)(26)Page 6

Question 3 Part A(a)Profit or loss on revaluationVehicles decrease in valuePremises increase in valueIncrease in provision for baddebtsRevaluation ExpensesProfit on Revaluation(b)Share of Profit on RevaluationRayFennel 20,000 (1)50,000 (1) 1,000 (1) 3,000 (1)26,0009,750 (1)16,250 (1)(4)(2)(6)(c)New Profit Sharing RatioBishop20%Ray 3/8Fennel 5/830% (1)50% (1)(2)(d)New capital balances of each partnerOriginal CapitalCurrent Account BalancesShare of profit on RevaluationShare of GoodwillLess share of goodwill writtenoffNew Capital balancesRay60,0005,5009,75015,00090,250Fennel(1) 100,000 (1)(1) 3,000 (1)(1)16,250 (1)(1)25,000 (1)138,250Bishop120,000 (1)12,000 (1)20,000 (1)78,250118,2508,000 (1)112,000120,000(12)(20)Page 7

Question 3 Part B(a)(i) Gross Profit30% x 200,000 60,000(ii)(1)(1)Mark-up RatioCost of Sales Sales Gross Profit 200,000 – 60,000 140,000 (1)Mark-up Ratio (iii)Gross Profit .x 100 60,000/140,000 x 100 42·9% (1)Cost of Sales(2)Opening StockRate of Stock Turnover Cost of Sales/Average StockAverage Stock 140,000/10 14,000 (1)Average Stock Opening Stock Closing Stock. C22 x 14,000 28,000 (1) 28,000 12,000 16,000 (1)(3)(iv)Purchases140,000 16,000 12,000 136,000 (2)(2)(v)ExpensesNet Profit 12% x 200,000 24,000 (1)Expenses Gross Profit Net Profit 60,000 24,000 36,000 (1)(2)Page 8

(vi)Debtors’ Collection PeriodAverage Debtors/Credit Sales x 365Credit Sales 80% x 200,000 160,000 (1)Averages Debtors 10,000 18,000/2 14,000 (1) 14,000 (1) 160,000 x 365 (1) 32 days(4)(vii)Acid Test Ratio(Bank Debtors) : Current Liabilities( 4,000 10,000) : 10,000 1·4:1 (2)(2)(b)Decrease in Gross Profit PercentageChange in buying policy – not bulk buyingChange of supplierIncreased purchase pricesTheft, pilferagePoor securityMark downs/lower selling pricesOr any suitable answer(2) x (1)(2)(2) x (1)(2)Shorter Debtors’ Collection PeriodTighter credit controlCustomers being offered discountsFactoring to recover debtsCustomers being invoiced fasterOr any suitable answer(40)Page 9

Question 4(a)Articles of Association (1)Memorandum of Association (1)(2)Articles of Association – featuresDeals with internal regulations (for the management of the proposed company) (1)Subordinate to/controlled by the Memorandum of Association (1)The raising of capital/share allotment/borrowing powersDirectors’ remuneration/powers (1)Holding of meetings (1)The rights of shareholders (1)(max 2)Memorandum of Association – featuresDeals with the external regulations (for the management of the proposed company)(1)Name of the company (to include the term PLC if appropriate) (1)Address in the UK of the Registered Office (1)Statement that the liability of its members is limited (1)Details of the intended amount of Share Capital (1) and types of shares (1)Statement of its objects (1)(max 2)(6)(b)Comparison of Preference Shares with DebenturesPreference SharesDebentures Represent ownership of abusiness May/may not carry votingrights Do not guarantee a return oninvestment Carry a fixed rate of dividend Are long term loans – holdersare creditors Have no voting rights May not be paid their initialinvestment on liquidation Are a more risky investmentthan Debentures Are part of Share Capital Loan is usually repaid if basedon a secured asset Are a less risky investment thanPreference Shares Are a long term liability Interest on Loan must be repaid Carry a fixed rate of interest Preference Dividends are paid Debenture Interest is charged inout of appropriation of profitsthe Profit and Loss Account In event of liquidation Preference Shareholders are paid afterDebenture Holders One mark per line to a maximum of four (must be comparison)(4)(10)Page 10

Question 5(i) Share PremiumThis is the difference between the issue price and the par/nominal value of a share wherethe issue price is higher (1). It is shown in the Balance Sheet as a Reserve (1)It is not available for distribution to shareholders (1)It can be used to write off preliminary expenses (1) or make a bonus issue of shares (1)(max 2)(ii) Rights Issue of SharesMethod of raising finance by issuing shares to existing shareholders in proportion toexisting shareholding (eg 1 for every 4 held) (1)Shareholders have to pay for the shares ie not a bonus issue (1)It is a cheap method of raising finance (1)Usually done at a discount below the current market price to encourage shareholders tobuy (1)Shareholders who do not take up the offer to buy may be able to sell the rights to others (1)(max 2)(iii) RoyaltiesA royalty is a fee paid for the right to use an original idea or an asset (1) which has beengiven a patent or copyright (1)The amount of royalty will usually depend on the usage 1 as agreed in advance by theparties concerned. Royalties are charged as a Direct Cost in the Manufacturing Accountand are part of Prime Cost (1)(max 2)(iv) FactoringThis is a situation where a firm transfers the responsibility for collecting its debts to aFactor (1). In return the factor will pay up to, say, 80% of the value of the firm’s invoices byreturn (1)The factor will handle all the relevant expenses, correspondence and possible legal actionto recover debts (1) they will also provide regular information on the sales ledger accounts(1)By using factoring a business will receive funds for immediate use (1) will have a reductionin its bad debts (1) and will save time in debt collecting (1)(max 2)Page 11

(v) Capital ExpenditureCapital and Revenue Expenditure must be differentiated for the calculation of profit (1)Capital Expenditure is spending on the acquisition of assets which are for long term use(ie more than a year) in the business rather than purchased for resale (1)Items of Capital Expenditure are shown in the Balance Sheet under Fixed Assets in theBalance Sheet (1)Capital Expenditure can also be expenditure which improves (ie increases the value) of anexisting asset eg building an extension or upgrading existing fittings (1)There can be doubt as to whether expenditure is treated as capital or revenue eg fitting newtyres to a vehicle – in such cases of doubt it is prudent to write off the expenditure asrevenue in the Profit and Loss Ac (1)Any example of Capital Expenditure (1 max)(max 2)(10)Page 12

Section BQuestion 6(a) Production Budget for January to May Year 2Sales (units)Add: Stock (end)Less: stock (start)Production (units)Jan1,700180 (1)1,8801701,710Feb1,800200 (3)2,0001801,820Mar2,300185 (1)2,4852002,285Apr1,850190 (1)2,0401851,855May1,900200 (2)2,1001901,910(1) for line(2) for line(11)(b) Cash Budget for February to April Year 2 Opening balanceReceiptsCash salesCredit sales : 1 month: 2 monthsOrdinary SharesShare PremiumDelivery VanPaymentsMaterialLabourProduction bonusVariable overhead – 80%Variable overhead – 20%Fixed overheadClosing balanceFeb 5,300 (1)Mar 5,372Apr 6,8117,200 (1)14,688 (2)12,160 (2)9,200 (1)15,552 (2)10,336 (2)(3)(6)(6)(1)(1)(2)39,34840,4607,400 (1)19,872 (2)10,944 (2)4,000 (1)500 (1)15,500 (2)65,02718,280 (1)9,100 (1)14,840 (1)11,425 (1)2,912 (2)684 (1)3,00033,9763,656 (2)728 (1)3,00033,64915,280 (1)9,275 (1)285 (2)2,968 (2)914 (1)3,00031,722(3)(3)(2)(6)(3)(2 for line)33,305(39)5,3726,811(1)(50)Page 13

Question 7 Part A(a)Statement of Annual CostsCost of Golf (1)(1) (1)5 x 60 x 12 x 30 90 x 12 x 30(1)(1) (1)Accommodation 700 x 12(1)108,000 (3)32,400 (3)x 30(1)252,000 (2)Bus depreciation ( 40,000 - 10,000)/5Fuel(1) (1) (1)(1)980/10 x 30 x 1·506,000 (2)Miles(2 x 100) (6 x 130) 9804,410 (4)Insurance etc1,200Sundry10,706(1)Driver’s wagesTyres 500 x 30 300 x 30 150 x 2215,000 (2)9,000 (2)3,300 (2)(1)(1)(1) (1)(980 x 30)/12,000 x 4 x 80784 (4)442,800TOTAL ANNUAL COST(25)(b)Cost per person 442,800/(30 x 12)Plus profit 1,230 (2)410 (3)1,640(5)(30)Page 14

Question 7 Part A – Alternative – 6 days(a)Statement of Annual CostsCost of Golf (1)(1) (1)5 x 60 x 12 x 30 90 x 12 x 30(1) (1) (1)Accommodation 700 x 12(1)108,000 (3)32,400 (3)x 30(1)252,000 (2)Bus depreciation ( 40,000 - 30,000)/5Fuel(1) (1) (1)(1)780/10 x 30 x 1·506,000 (2)Miles(6 x 130) 7803,510 (4)Insurance etc1,200Sundry10,706(1)Driver’s wagesTyres 500 x 30 150 x 30 150 x2215,000 (2)4,500 (2)3,300 (2)(1)(1)(1) (1)(780 x 30)/12,000 x 4 x 80624 (4)437,240TOTAL ANNUAL COST(25)(b)Cost per person 437,240/(30 x 12)Plus profit 1,215 (2)405 (3)1,620(5)(30)Page 15

Question 7 Part BSOLUTION(1)(1)(1)(i)Selling Price per unit 15 10 5 10 40(ii)Fixed Costs BEP x Contribution per unit 10,000 units x 10 100,000(iii)(3)(2)Profit after Tax 40,000Profit before Tax 40,000 x 54 50,000 (2)Number of Extra Units to be sold 50,000 10 5,000 units (2)Number of units to be sold BEP Extra Units(1) 10,000 5,000 15,000 unitsOR(2) 50,000 100,000 (1) 10 15,000 units(5)(10)Page 16

Question 8 Part A(a)Process 2 AccountProcess 1New MaterialLabourVariable OverheadFixed OverheadLitres400 (1)200124600 4,800 (1)800 (1)1,000 (1)500 (1)660 (2)7,760LitresNormal Loss 30WIP50FG500Ab Loss20 (1)600 260 (1)420 (1)147,00014 (3) 2807,760(13)Cost per litre ( 7,760 480)/520(b)Abnormal LossProcess 22014280 (1)280Cash/Bank20Profit and Loss/Loss240 (1)240 (2)280(4)Alternative solutionDRProcess 1New MaterialLabourVariable OverheadFixed OverheadNormal LossWork in ProgressFinished GoodsAbnormal LossCRQty400 (1)200 124 4,800 (1)800 (1)1,000 (1)500 (1)660 (2)BalQty 305050020 (1)21414(3) Qty40060060 (1)420 (1)7,00028057052020 4,8005,6006,6007,1007,7607,7007,280280 1414(13)Abnormal Loss AccountDRQ Process 2CashProfit and Loss20 14CRQ 280 (1)20240 (1)240 (2)BalQ280240 (4)(c)Cost per litreProfitSelling Price 14 6 (3) 20(3)(20)Page 17

Question 8 Part B(a)(i)A 12,000x100/80 15,000(1)B 3,200x100/80 4,000(1)C 4,800x100/80 6,000(1)Direct material costDirect labour costVariable overhead costTotal variable cost 9,000 15,000 12,000 36,000 2,800 4,000 3,200 10,000 5,200 6,000 4,800 16,000Variable cost per unit 36,000/3,000 12(1) 10,000/2,000 5(1) 16,000/4,000 4(1)(iii)Selling price per unitContribution per unit 15 15 12 3(1) 7.50 7·50 5 2·50(1) 6 6 4 2(1)(iv)Output/Sales (units)3,0003,000 x 34,0004,000 x 2 9,000(1)2,0002,000 x 2·50 5,000(1)A 3/3B 2·50/5C 2/1 1(1) 0·50 (1) 2 (1)(ii)Total labour costTotal contributionLess Fixed CostsProfit/(loss) (b)Contribution per LabourHourORDER OF PRIORITY2Maximum hours:14,000C 8,000(1)34,000 unitsTotal 22,000 20,0002,000 (1) (13)1 (1)4,000 hours(1)A3,000 unitsB200 units9,000 hours(2) 1,000 hours/5 hrs per unit(7)(20)(40)Page 18

Question 9(a)An apportionment of overheads takes place when the overhead cost cannot be identifiedwith a particular department (1). Each department is charged with its share of the totaloverhead using an equitable basis (1) eg Rent according to floor area occupied by eachdepartment (1)(max 2)An allocation of overheads takes place when the overhead cost can be identified with aparticular department (1) it is a cost which is unique to that particular department (1) and thedepartment is charged with the actual overhead it has incurred (1) eg indirect materials,indirect wages (1)(max 2)(4)(b)Methods of calculating Overhead Absorption Rates(Rate per) Direct Labour Hour(Rate per) Machine Hour(Rate per) Units ProducedPercentage of Prime CostPercentage of Direct Material CostPercentage of Direct Labour Cost(1) Overhead CostNo of Direct Labour Hours(1)(1) Overhead CostNo of Machine Hours(1)(1) Overhead CostNo of Units Produced(1)(1) Overhead Cost x 100Prime Cost(1)(1) Overhead Cost x 100Direct Material Cost(1)(1) Overhead Cost x 100Direct Labour Cost(1)Any 3 for 2 marks each(max 6)(10)Page 19

Question 10(i) AVCOAVCO is a method of pricing issues of stock and stock valuation (1)Stores are issued using the average price which has to be recalculated after eachpurchase (1). The cost/quantity of the purchase is added to the value/quantity of thebalance of stock in hand and the total is averaged by dividing by the new quantity (1)It overcomes the problem of over/understating the value of stocks/profits (1) and isrelatively simple to operate (1). It is accepted by the Inland Revenue (1). Although it leadsto additional clerical work in calculating new averages (1)(max 2)(ii) Piece RateThis is a method of paying workers according to the amount of work which they produce.(1)The method is suitable for the production of large quantities of identical products (1) and issometimes used to supplement a low basic pay. (1)It gives workers an incentive to work harder as higher output higher wages (1). Quality ofwork may decline with workers trying to maximise their wages (1).(max 2)(iii) Limiting FactorLimiting Factor is a scarce resource which limits the total production possible (1)Where a firm has a range of products a decision has to be taken on the order of production(1) based on the contribution per unit divided by the limiting factor (1) which can be:machine hours, labour hours, availability of workers or material (1 only example)The product with the highest contribution/limiting factor will be made first in order tomaximise profits (1)(max 2)(iv) PV RatioPV Ratio shows the relationship between contribution and sales /the formula isContribution/Sales % (1)The higher the ratio, the greater the profit (1)The ratio can be improved by higher unit selling prices or lower variable costs (1)The ratio can be used for any level of sales and net profit can be found by deducting fixedcosts from the contribution (1)If a firm sells several products the ratio is useful to compare the profitability of eachproduct (1)(max 2)(v) Cost CentreAny part of a business to which costs can be charged (1) eg department, item of equipment,machine or person (1) Cost centres can be Production or Service (1) Cost centres are usedto collect overheads for charging on to products which use the cost centre (1)(max 2)(10)[END OF MARKING INSTRUCTIONS]Page 20

2014 AccountingHigher Special InstructionsFinalised Marking Instructions Scottish Qualifications Authority 2014The information in this publication may be reproduced to support SQA qualifications only ona non-commercial basis. If it is to be used for any other purposes written permission mustbe obtained from SQA’s NQ Assessment team.Where the publication includes materials from sources other than SQA (secondarycopyright), this material should only be reproduced for the purposes of examination orassessment. If it needs to be reproduced for any other purpose it is the centre’sresponsibility to obtain the necessary copyright clearance. SQA’s NQ Assessment teammay be able to direct you to the secondary sources.These Marking Instructions have been prepared by Examination Teams for use by SQAAppointed Markers when marking External Course Assessments. This publication must notbe reproduced for commerc

GENERAL MARKING ADVICE: Accounting Higher Solutions. The marking schemes are written to assist in determining the “minimal acceptable answer” rather than listing every possible correct and incorrect answer. The following notes are offered to support Markers in making judgements on candidates’ evidence, and apply to marking both end of unit assessments and course assessments. Page 3 .

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