The following information was available from the books of Linrae. Totals for the year ended 30 September 2017 Revenue $240000 Cost of sales $180000 Expenses (excluding depreciation) $35000 Depreciation $10000 Balance at 30 September 2017 Linrae's capital $100000

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [6] (a) Percentage mark-up: (Gross profit × 100) / Cost of sales = (240000 - 180000) (1) / 180000 × 100 = 33.33% (1)of Percentage profit for the year to revenue (profit margin): (Profit × 100) / Revenue = ((240000 - 180000) - 35000 - 10000) (1) / 240000 × 100 = 6.25% (1)of Return on capital employed (ROCE): (Profit × 100) / Capital employed = 15000 (1) / 100000 (1) × 100 = 15.00% (1)of
2. [4] (b) Linrae Income Statement for the year ended 30 September 2018: Revenue 308 000 Cost of sales (220000) (1) Gross profit 88 000 (1)of Expenses (35 000 + 4 000 + 5000) 44 000 (1) Depreciation (10 000 + 2000) 12 000 (1) Profit for the year 32 000
3. [2] (c) The $32 000 profit for the year ended 30 September 2018 would increase the capital. (1) Reduced drawings would increase capital (1).
4. [4] (d) Percentage profit for the year to revenue (profit margin): (Profit × 100) / Revenue = 32000 (1)of / 308000 × 100 = 10.39% (1)of Return on capital employed (ROCE): (Profit × 100) / Capital employed = 32000 (1)of / (110000 + 50000) (1) × 100 = 20.00% (1)of
5. [4] (e) Comments based upon own figures: The mark-up has increased (1) Increased profit may be the result of increased sales. (1) The profit for the year has increased. (1) The percentage profit for the year to revenue has improved (1) The ROCE percentage has improved (1) even though the capital employed now includes a $50 000 bank loan. (1) Accept other valid points. Max 4.