2018 Accounting Higher Finalised Marking Instructions

NationalQualifications20182018 AccountingHigherFinalised Marking Instructions Scottish Qualifications Authority 2018The information in this publication may be reproduced to support SQA qualifications only on anon-commercial basis. If it is reproduced, SQA should be clearly acknowledged as the source. Ifit is to be used for any other purpose, written permission must be obtained frompermissions@sqa.org.uk.Where the publication includes materials from sources other than SQA (secondary copyright),this material should only be reproduced for the purposes of examination or assessment. If itneeds to be reproduced for any other purpose it is the centre’s responsibility to obtain thenecessary copyright clearance. SQA’s NQ Assessment team may be able to direct you to thesecondary sources.These marking instructions have been prepared by examination teams for use by SQA appointedmarkers when marking external course assessments. This publication must not be reproduced forcommercial or trade purposes.

General marking principles for Higher AccountingThis information is provided to help you understand the general principles you must apply whenmarking candidate responses to questions in this paper. These principles must be read inconjunction with the detailed marking instructions, which identify the key features required incandidate responses.(a)Marks for each candidate response must always be assigned in line with these generalmarking principles and the detailed marking instructions for this assessment.(b)Marking should always be positive, ie marks should be awarded for what is correct and notdeducted for errors or omissions.(c)If a specific candidate response does not seem to be covered by either the principles ordetailed marking instructions, and you are uncertain how to assess it, you must seekguidance from your team leader.(d)Consequentiality subsequent to a calculative error must be followed through, with creditbeing given for any errors in subsequent calculations or working.(e)Scored out or erased working which has not been replaced should be marked where stilllegible. However, if the scored out or erased working has been replaced, only the workwhich has not been scored out should be marked.(f)(i)For questions that ask candidates to “Describe ”Candidates must make a number of relevant factual points, which may becharacteristics and/or features, as appropriate to the question asked. These pointsmay relate to a concept, process or situation.Candidates may provide a number of straightforward points or a smaller number ofdeveloped points, or a combination of these.Up to the total mark allocation for this question:1 mark should be given for each relevant factual point.1 mark should be given for any further development of a relevant point, includingexemplification when appropriate.(ii)For questions that ask candidates to “Outline ”Candidates must make a number of brief statements appropriate to the questionasked. These may include facts, features or characteristics.Up to the total mark allocation for this question:1 mark should be given for each accurate statement.page 02

Detailed marking instructions for each questionSection 1Question1.(a)Expected answer(s)(i)MaxmarkIncome Statement for the Year Ended 31 December Year 6 for Grant plc 000Sales RevenueLESS: Cost of SalesOpening InventoryADD: PurchasesADD: Carriage InwardsLESS: Purchase Returns 000Additional guidance19 0002,024 (1)1,505351,54040153 (1)(1)Closing InventoryADD: Rates for Warehouse (10%*110)COST OF SALESGROSS PROFIT LESS: ExpensesBad DebtsInsuranceFinance Costs - DebenturesAuditors’ FeesRates (90%*110)Selling and Distribution Expenses (60 3 (5% x 60))Wages and Salaries (132 4)Depreciation: Motor Vehicles (44 24)*25%Depreciation: Fittings (120*15%)1,500 (1)1,6531201,53311 (1)1,544480381669957136518page 03Award2 marks for 4 correctand1 mark for 3 correct(2)(1)(1)(1)(1)(1)348132

QuestionExpected answer(s)MaxmarkADD: IncomesNet DiscountsDividend on Quoted Investments (4 2)Reduction in Provision for Doubtful DebtsProfit for the Year Before Tax Corporation Tax (25%)Profit for the Year After TaxADD: Unappropriated Profit from Previous Year16 (1)6 (1)2 (1)LESS: DividendsOrdinary DividendPreference Dividend2415639 (1)11754*17126*12*(2)Unappropriated Profit 38133Headings, Labels, Arithmetic and no Extraneous Items(1)page 04Additional guidance*If any one of the 3figures are missing orincorrectly treated,award 1 mark.

QuestionExpected answer(s)(ii)MaxmarkStatement of Financial Position as at 31 December Year 6 for Grant plc Non-Current AssetsPropertyMotor VehiclesFittingsInvestments 000AtCost50044120 000AggDepn 402940Current AssetsClosing InventoryCash and Cash EquivalentsTrade Receivables (80 4)Dividend on Investments ReceivableSelling and Distribution ReceivableLESS: Current LiabilitiesTrade PayablesVATCorporation TaxAuditors' Fees PayableWages and Salaries Payable120250762345111844396419 000NBV540158078713(1)(1)(1)(1) (1)(1)(1)(1)211240953160793page 05All 3 entries must bepresent and correctto gain markAward3 marks for all 5correct,2 marks for 4 correctand1 mark for 3 correct(3)WORKING EQUITYNET ASSETS EMPLOYEDLESS: Non-Current Liabilities10% DebenturesNET ASSETSAdditional guidance(1)

QuestionExpected answer(s)MaxmarkEQUITY:357,000 Ordinary Shares of 1200,000 6% Preference Shares of 1357200Value or no of sharesmissing award 1mark.(2)557RESERVES:Unappropriated ProfitShare Premium 80 - 10 (1) -7 (1)Property Revaluation1336340If Ordinary Shares 350and Preference shares200 award 1 mark.(1)(2)(1)236793Headings, Arithmetic and no Extraneous Items (1)If share premium 70, 73, 77 or 83 award 1 markOnly award Preliminary Expenses adjustment to Share Premium if it is not shownelsewhere in the SoFP(b) Additional finance can be obtained as shares can be freely sold on the stock market (1)Shareholders in a PLC benefit from limited liability as they only lose the value of theirinvestment if the business fails (1)Share ownership is transferable which enables continuity of the business (1)page 06Additional guidance2

Section 2QuestionExpected answer(s)2.Depreciation 400,000*7·5% 30,000 per annum (1)(a)MaxmarkInflows 175,000 142,000 120,000 112,000 100,000Outflows 25,000 27,000 28,000 30,000 33,000 (1)(b) (i)4( 60,000 30,000)( 45,000 30,000)( 30,000 30,000)( 24,000 30,000)( 15,000 30,000)Profit 60,000 40,000 32,000 28,000 22,000(1)(1)Accounting Rate of Return (ARR)ARR ( 15,200/ 180,000) x 100 8·44% (2)Project 2Average Profits (60,000 40,000 32,000 28,000 22,000)/5 36,400ARR ( 36,400/ 400,000) x 100 9·10% (2)page 07If Depreciation ismissing award 2marksDo not award Profitmark if ‘000 is notused4Project 1Average Profits (4,000 8,000 16,000 24,000 24,000)/5 15,200Additional guidanceIf arithmeticerror in profitcalculation or %calculation award 1mark

QuestionExpected answer(s)(ii)PaybackMaxmarkProject 1 – Investment 180,000InflowsYearYearYearYearYear12345 32,000 44,000 60,000 92,000 100,0006Cumulative Inflows 32,000 76,000 136,000 228,000Payback in Year 4To nearest day: 3 years plus (180,000 – 136,000 44,000 (1)/ 92,000 (1)) *365 days) 3 years 175 days (1)Project 2 – Investment 400,000Cash InflowsYearYearYearYearYear 175,000( 25,000 60,000) 142,000( 27,000 45,000) 120,000( 28,000 30,000) 112,000( 30,000 24,000) 100,000( 33,000 15,000)(1)(1)Therefore, Project 2 does not pay back (1)(c)12345CostsNet CashCumulativeInflowsInflows 90,000 90,000 70,000 160,000 62,000 222,000 58,000 280,000 52,000 332,000Advice Project 1 should be accepted (1)Justification Project 1 gives the best Payback (1)2Consequential based on 2bpage 08Additional guidanceDays must berounded up

Question(d)Expected answer(s)Payback Advantages MaxmarkAdditional guidance2Award MAX 1 markfor advantage and 1mark fordisadvantageSimple to understand and calculate (1)Allows comparison of mutually exclusive projects (1)Favours quick return projects which may produce faster growth for the business (1)Payback Disadvantages (e) Does not measure profitability on projects (1)Total amounts invested not taken into account (1)Ignores cash flow after payback period (1)Time value of money ignored unless discounted (1)Difficult to calculate net cash flows when they arise (1)Potential shareholders can draw conclusions on the financial wellbeing of a business (1)Shareholders can use investment ratios to compare the viability of investing in differentbusinesses (1)Shareholders can use investment ratios to interpret financial statements (1)Dividend Yield can tell an investor the % return they will receive in relation to the currentmarket price of the shares (1)Dividend Cover can tell an investor how much profit the business is retaining which couldpotentially be paid out as dividends to the ordinary shareholder (1)Gearing ratios can be used by potential ordinary shareholders to establish if they wish toinvest in a high or a low geared company (1)Earnings per share is useful to potential shareholders to compare with another investment (1)Price/Earnings ratio gives an indication of how expensive a share is compared with itsearning potential (1)page 092

QuestionExpected answer(s)3Inventory Record Card for Material X DetailsOpeningbalancePurchasesIssues toProcess 1PurchasesIssues toProcess 2ReturnsMaxmark6ReceiptsKgCPU1508·00 CPU150 8·00 366118·4017641 21501208·451014400280708·60602210page 10MarksAdditionalguidance*Award 1 mark forcorrect heading andopening balanceIf no dates areincluded, do notaward 1st mark

Question(b) (i)Expected answer(s)MaxmarkProcess 2 Account 12TransferfromProcess 1Issues ofMaterial XLabourFixed OHsDRQTY CPUValue75 13·009751208·45CRQTYCPUBALANCEQTY CPU 894,725875If any quantity isentered otherthan materials,do not awardmarkAbnormal Loss Account DRQTY CPU ValueFrom1030300Process Value440260 (1)Account Names, Running Balance and no arithmetical errors in balance column (1)page 110·00 BALANCEQTY CPUValue1030300(1)If completereversal, awardhalf marksIf nomenclatureerror, do notaward mark onfirst GoodsAbnormalLossAdditionalguidance2600If CPU iscalculatedcorrectly andapplied to bothFinished Goodsand AbnormalLoss but Balanceis incorrect,award 1 mark

QuestionExpected answer(s)(ii)4(a)MaxmarkCost per Kg 30·00Profit Margin 40% (30·00 x 4)/6 20·00Selling Price 30·00 20·00 50·00 (2)2Production Budget (for the 6 months July to December Year 2) 5Cash SalesCredit SalesSalesLess OpeningInventoryAdd ge 121205,8801405,860400140 (1)**6,0206,260*11 bothrows(2)Additionalguidance*award 1 markfor the headingand Sales row1 mark forcorrect Julyopening and Decclosing.2 marks forDeductingOpeningInventory ANDAdding ClosingInventory

Question(b)Expected answer(s)MaxmarkCash Budget for 2 months October to November Year 2 OctoberOpening Balance Marks15November20,000 Marks50,250ADD RECEIPTS Cash SalesCredit Sales 1 MonthCredit Sales 2 MonthsProceeds – Sale of MachineryTOTAL RECEIPTSLESS PAYMENTS Raw MaterialsLabourBonusVariable OverheadsFixed OverheadsSelling ExpensesTOTAL PAYMENTSCLOSING BALANCE nalguidance15,00096,00019,000(1)(1)(2)(1)(1)(1)If Cash Discountshown, do notaward CreditSales (1 month)for both months(1)(1)(1)(1)(1)(1)If Bad Debtsshown, do notaward CreditSales (2 months)for both 08,58014,3402,0006,80099,70071,670 50,250Heading, labels, layout, opening and closing balance (1)[END OF MARKING INSTRUCTIONS]page 13

2018 Accounting Higher Finalised Marking Instructions Scottish Qualifications Authority 2018 The information in this publication may be reproduced to support SQA qualifications only on a non-commercial basis. If it is reproduced, SQA should be clearly acknowledged as the source. If it is to be used for any other purpose, written permission must be obtained from permissions@sqa.org.uk. Where .