Aung and Khin are in partnership. The partnership agreement states that they share profits and losses in the ratio 3:2 respectively. Interest is charged on drawings (excluding partnership salary) at the rate of 5%. A salary of $9000 per annum is paid to Khin. The following balances were extracted from the books on 30 September 2018. Capital accounts Aung $50000 Khin $50000 Current accounts at 1 October 2017 Aung $3000 Debit Khin $6000 Credit Drawings Aung $9000 Khin $14000 Land and buildings (at cost) $140000 Motor vehicles (at cost) $42000 Office equipment (at cost) $64000 Provisions for depreciation at 1 October 2017 Land and buildings $29600 Motor vehicles $10000 Office equipment $46000 Provision for doubtful debts $500 8% Bank loan (repayable 31 March 2020) $60000 Bank interest paid $3600 Bank $5200 Debit Revenue $309000 Purchases $174000 Returns inwards $9100 Trade payables $45200 Trade receivables $31000 Inventory at 1 October 2017 $19700 Marketing expenses $25000 Other operating expenses $17250 Wages and salaries $40500 Motor vehicle expenses $9200 Commission receivable $12250 Rent paid $12000 Additional information at 30 September 2018 1 Inventory was valued at $36000. 2 Marketing expenses prepaid were $4000. 3 Commission receivable of $1750 was due. 4 Depreciation is to be charged on all non-current assets as follows: (i) Buildings at the rate of 4% per annum on cost. The land cost $80000 and is not depreciated. (ii) Motor vehicles at the rate of 25% per annum using the diminishing (reducing) balance method (iii) Office equipment at the rate of 10% per annum on cost. 5 The salary of Khin was paid and recorded in the wages and salaries account. 6 A payment of $6800 made by cheque to a trade supplier, had not been recorded in the books. 7 Trade receivables of $5000 were irrecoverable. The provision for doubtful debts is to be maintained at 5%.

Mark scheme

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

1. [20] (a) Aung & Khin Income Statement and Appropriation Account for the year ended 30 September 2018: Revenue 309 000 Less Returns (9 100) Net Revenue 299 900 (1) Opening inventory 19 700 Plus Purchases 174 000 Cost of goods available for sale 193 700 Less Closing inventory (36 000) Cost of sales (157 700) (1) Gross profit 142 200 (1)of Other income: Commission receivable (12 250 + 1 750) 14 000 (1) Total Income 156 200 Less expenses: Marketing expenses (25 000 - 4 000) 21 000 (1) Other operating expenses 17 250 (1) Wages and salaries (40 500 - 9 000) 31 500 (1) Motor vehicle expenses 9 200 (1) Rent 12 000 (1) Bank loan interest (3 600 + 1 200) 4 800 (1) Depreciation: Buildings 2 400 (1) Motor vehicles 8 000 (1) Office equipment 6 400 (1) Bad debts 5 000 (1) Increase in provision for doubtful debts 800 (1) Profit for the year 37 850 Appropriation Account: Interest on drawings: Aung 450 (1) Khin 700 (1) Salary - Khin (9000) (1) Share of profit: Aung 18000 (1)of Khin 12000 (1)of
2. [5] (b) Current accounts: Debit side: Sept 30 Balance b/d 3000 (Aung), Sept 30 Drawings 9000 (Aung) / 14000 (Khin), Sept 30 Int on drawings 450 (Aung) / 700 (1)of (Khin), Sept 30 Salary paid 9000 (1) (Khin), Sept 30 Balance c/d 5550 (Aung) / 3300 (Khin) Totals: 18000 (Aung) / 27000 (Khin) Credit side: Sept 30 Balance b/d 6000 (Khin), Sept 30 Salary 9000 (1) (Khin), Sept 30 Profit share 18000 (Aung) / 12000 (1)of (Khin) Totals: 18000 (Aung) / 27000 (Khin) Bring down: Oct 1 Balance b/d 5550 (Aung) / 3300 (1)of (Khin)
3. [15] (c) Aung and Khin Statement of Financial Position at 30 September 2018: Non-current assets: Land and buildings Cost 140 000, Accumulated depreciation 32 000, Book value 108 000 (1)of Motor vehicles Cost 42 000, Accumulated depreciation 18 000, Book value 24 000 (1)of Office equipment Cost 64 000, Accumulated depreciation 52 400, Book value 11 600 (1)of Total Non-current assets Book value 143 600 Current assets: Inventory 36 000 (1) Trade receivables (31 000 – 5000) 26 000 (1) Less provision for doubtful debts (1300) Net Trade receivables 24 700 (1)of Other receivables (4000 (1) + 1750 (1)) 5750 Total Current assets 66 450 Total assets 210 050 Capital accounts: Aung 50 000 Khin 50 000 Total Capital 100 000 Current accounts: Aung 5 550 Khin 3 300 Total Current accounts 8 850 (1)of Non-current liability (1): 8% Bank loan 60 000 (1) Current liabilities: Trade payables (45 200 – 6 800) 38 400 (1) Bank overdraft (5200 (1) – 6 800 (1)) 1 600 Other payables 1 200 (1) Total Current Liabilities 41 200 Total capital and liabilities 210 050