Ben runs a small business but does not maintain a full set of accounting records. He has provided the following information: 31 March 2024 $ 1 April 2023 $ Premises at cost 140000 140000 Machinery at cost 106000 92000 Accumulated depreciation on machinery 36000 10000 Inventory 42000 24600 Trade receivables 43400 39600 Trade payables 19700 24750 Bank 13000 debit 3200 credit Other receivables 1200 1650 During the year ended 31 March 2024, Ben withdrew goods for his own use, $620. He also deposited an additional $10000 cash into the business bank account from his personal funds. As his business is growing, Ben is considering maintaining a full set of accounting records. To allow him to do this, he believes he would need to employ an experienced book-keeper at a salary of $18000. Ben has reviewed the age and level of his trade receivables and believes he should provide for possible doubtful debts.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2024). The mark or mark type is shown in brackets.

1. [2] Capital at 1 April 2023: 140000 + 92000 - 10000 + 24600 + 39600 - 24750 - 3200 + 1650 = 259900 (1) Capital at 31 March 2024: 140000 + 106000 - 36000 + 42000 + 43400 - 19700 + 13000 + 1200 = 289900 (1)
2. [4] Capital at 1 April 2023: $259900 Capital Introduced: $10000 (1) (Added to opening capital) Drawings: $620 (1) (Deducted from opening capital) Profit for the year: $20620 (1)OF (Added to opening capital) Total adjustments: Added $30620, Deducted $620 Capital at 31 March 2024: $289900 (1)OF* * For both opening and closing capital figures
3. [3] Either: Payments to credit suppliers: $224700 Add closing trade payables: $19700 Less opening trade payables: (24750) *(1) both opening & closing figures Less drawings: (620) (1) Credit purchases: $219030 (1)OF Or: Bank: $224700 (Credit) Balance c/d: $19700 *(1) (Credit) Balance b/d: $24750 * (Debit) Drawings: $620 (1) (Debit) Purchases: $219030 (1)OF (Debit)
4. [3] Either: Payments received from credit customers: $452000 Add closing trade receivables: $43400 Less opening trade receivables: ($39600) *(1) both opening & closing figures Total credit sales: $455800 Cash Sales: $21000 (1) Total sales for the year: $476800 (1)OF Or: Balance b/d: $39600 * (Debit) Sales: $476800 (1)OF (Debit) Bank: $452000 (Credit) Cash sales: $21000 (1) (Credit) Balance c/d: $43400 *(1) (Credit)
5. [5] Advantages (2) Preparation of financial statements would be quicker / easier Better control over business activities / able to track transactions / income and expenses Chances of fraud reduced / errors may be reduced Comparison with previous years / aids decision making Information required by a bank/investor readily available Allow Ben time to concentrate on other business activities Accept other valid points Max 2 Disadvantages (2) Salary of book-keeper to pay Profit may not be adequate to cover the cost of employing the book-keeper. Additional costs on top of salary paid. Problems of recruiting suitable / trained candidate Accept other valid points Max 2 Recommendation (1)
6. [1] Prudence Or Matching / accruals
7. [2] Profit for the year: Decrease (✔) (1) Trade receivables: Decrease (✔) (1) Cash at bank: No effect (✔)