O-LevelAccountingThe fundamentals of accounting7707/23 · Oct/Nov 2021 · Q220 Marks

Jas owns a printing business and has recently incurred various expenditures relating to her premises. REQUIRED

(a)Complete the table by inserting a tick (✔) to show how each item of expenditure should be classified. The first one has been completed as an example. Capital expenditure Revenue expenditure Building new extension to warehouse ✔ Rates on new extension Carriage costs for roof tiles for new extension Legal costs for new extension Repairs to office roof[4]
(b)Jas's business is expanding rapidly and she needs more warehousing space. Jas can rent an additional warehouse. The rent for the first six months would be $40000. Alternatively, Jas can purchase a warehouse for $900000. She can obtain a long-term loan of $700000. REQUIRED Advise Jas whether she should rent or purchase a warehouse. Justify your answer.[5]
(c)Prepare the following accounts for the year ended 31 December 2020. Balance each account and bring down the balance on 1 January 2021. Jas Fixtures account Date 2020 Jan 1 Details Balance b/d $ 115000 Date Details $ Provision for depreciation of fixtures account Date 2020 Jan 1 Details Balance b/d $ 77625 Date Details $[8]
(d)Prepare the fixtures disposal account for the year ended 31 December 2020. Jas Fixtures disposal account Date Details $ Date Details $[3]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

[1] Rates on new extension: Revenue expenditure ✓
[1] Carriage costs for roof tiles for new extension: Capital expenditure ✓
[1] Legal costs for new extension: Capital expenditure ✓
[1] Repairs to office roof: Revenue expenditure ✓
[1] No initial outlay (Rent) OR Has to raise an additional $200 000 in order to purchase (Purchase)
[1] Little or no maintenance/repair cost (Rent) OR Will be maintenance/repair costs/depreciation (Purchase)
[1] The non-current asset is not owned (Rent) OR Will own an additional non-current asset/gets fixed asset/owns a warehouse (Purchase)
[1] Loan must be repaid (Purchase disadvantage)
[1] Will have to pay loan interest (Purchase disadvantage)
[1] Warehouse may not be required if trade decreases in future (Purchase disadvantage)
[1] Premises may not be available on a long term basis (Rent disadvantage)
[1] Rent may increase after 6 months (Rent disadvantage)
[1] Can vacate the premises after 6 months (is flexible) (Rent advantage)
[Max 2] Accept other valid points for advantages
[Max 2] Accept other valid points for disadvantages
[1] Recommendation
[1] Fixtures account: Bank 30 000
[1] Fixtures account: Fixtures disposal 20 000
[1] Fixtures account: Balance c/d 125 000 and Balance b/d 125 000
[1] Provision for depreciation of fixtures account: Fixtures disposal 11 250
[1] Provision for depreciation of fixtures account: Income statement 21 375
[1] Provision for depreciation of fixtures account: Income statement 2 250
[1] Provision for depreciation of fixtures account: Income statement 6 750
[1] Provision for depreciation of fixtures account: Balance c/d 96 750 and Balance b/d 96 750 OF
[1] Fixtures disposal account: Fixtures 20 000
[1] Fixtures disposal account: Prov. for Dep. 11 250
[1] Fixtures disposal account: Bank 6 000
[1] Fixtures disposal account: Income statement 2 750 OF