Lionel started trading on 1 July 2022. He paid $15 000 of his own personal money into the business bank account. He did not keep full accounting records but has supplied the following information at 30 June 2023. 1. Cash sales of $90000 were made and paid into the bank. No other money was received. Lionel marks up his goods by 50%. 2. Payments from the bank: Purchase of motor vehicle (van) $8000 Payments to credit suppliers $55000 Wages $8060 General expenses $1140 Rent and insurance $5585 Motor expenses $4992 Cash drawn from bank $14600 3. Purchases returns amounted to $3000. 4. Inventory at 30 June 2023 was valued at $4175. 5. One third of the motor expenses paid were for Lionel's private car. 6. A full year's depreciation at 25% is to be charged on the van using the reducing balance method. 7. Lionel withdrew $1000 each month from the business cash, for personal use. The remaining cash drawn from the bank was used to pay wages. REQUIRED

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] (a) Revenue 90000
2. [1] (a) Purchases 67175 OF
3. [1] (a) Less Purchases returns 3000
4. [1] (a) Cost of Sales (64175 OF - 4175) 60000
5. [1] (a) Gross profit 30000
6. [1] (a) Wages (8060 + 2600) 10660
7. [1] (a) Motor expenses (4992 × 2/3) 3328
8. [1] (a) Rent and insurance 5585
9. [1] (a) Depreciation of motor vehicles/van (25% × 8000) 2000
10. [1] (a) Profit for the year 7287 OF
11. [1] (b) July 1 Bank 15000
12. [1] (b) June 30 Profit for the year 7287 OF
13. [1] (b) June 30 Drawings 12000
14. [1] (b) June 30 Drawings 1664
15. [1] (b) June 30 Balance c/d 8623
16. [1] (b) July 1 Balance b/d 8623 OF
17. [1] (c) Full details are available about the assets, liabilities, revenues and expenses of the business
18. [1] (c) The preparation of financial statements is relatively straightforward
19. [1] (c) The profit or loss for the year is more likely to be reliable and accurate / the financial statements are more likely to be reliable and accurate
20. [1] (c) More informed decision-making is possible
21. [1] (c) A greater degree of control over business activities can be exercised
22. [1] (c) The possibility of fraud is reduced
23. [1] (c) Comparisons with the results of previous years and with other businesses are possible
24. [1] (c) Detailed records are available for reference purposes
25. [1] (c) Information required by a bank or other lender is readily available
26. [1] (d) May encourage customers to purchase regularly / place repeat orders (Trade Discount)
27. [1] (d) If successful may increase revenue and gross profit OR If unsuccessful may decrease revenue and gross profit (Trade Discount)
28. [1] (d) Need to record which customers qualify for discount / record discount on invoices (Trade Discount)
29. [1] (d) One-off customers may feel they are being overcharged (Trade Discount)
30. [1] (d) Some credit customers will pay more quickly or encourage prompt payment (Cash Discount)
31. [1] (d) Less money will be received (Cash Discount)
32. [1] (d) Will reduce profit / net profit for the year (Cash Discount)
33. [1] (d) 3% may not be enough to encourage early payment (Cash Discount)
34. [1] (d) May reduce risk of irrecoverable debts (Cash Discount)
35. [1] (d) Recommendation