Cain and Les are in partnership providing book-keeping and general administration services to small businesses. They share profits and losses in the ratio of 3:2 respectively. Interest on drawings is charged at 4%, while interest on capital is allowed at the rate of 5% per annum. Les receives an annual salary of $16000. The following balances were extracted from their books on 30 September 2013: Capital accounts 1 October 2012 $ Cain 90000 Les 60000 Current accounts 1 October 2012 Cain 700 Cr Les 15500 Dr Drawings Cain 12000 Les 15000 Premises at cost 118000 Office equipment at cost 60000 Motor vehicles at cost 22000 Provision for depreciation Premises 7080 Office equipment 21600 Motor vehicles 7200 Fees (Revenue) 103769 Staff salaries 14170 General expenses 23460 Heat and light 4760 Communication expenses 7680 Motor vehicle expenses 3650 Discounts allowed 3400 Discounts received 1400 Bank loan interest paid 3000 8% Bank loan (repayable 30 June 2019) 40000 Trade payables 1960 Trade receivables 10720 Provision for doubtful debts 520 Bank 20889 Dr Additional information 1 Commission received, $2400, had been credited to the communication expenses account in error. 2 Heat and light, $150, were outstanding and general expenses $1010 were prepaid on 30 September 2013. 3 Bank charges, $123, had not been recorded in the books. 4 Motor vehicle expenses, $2000, had been recorded in the motor vehicles account. 5 The provision for doubtful debts is to be maintained at 5% of trade receivables. 6 Depreciation is charged on premises and office equipment at the rate of 6% and 12% respectively using the straight line method. 7 Motor vehicles are depreciated at the rate of 20% per annum using the diminishing (reducing) balance method. 8 On 1 October 2012 Cain reduced his capital account balance by $10000. This sum was to be left in the business as an interest free loan, to be repaid on 31 March 2018.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2013). The mark or mark type is shown in brackets.

1. [1] (a) Income statement for the year ended 30 September 2013 (1)
2. [1] (a) Revenue $103769 (1)
3. [1] (a) Commission received $2400 (1)
4. [1] (a) Discount received $1400 (1)
5. [1] (a) Staff salaries $14170 (1)
6. [1] (a) General expenses $22450 (1) (23460 – 1010)
7. [1] (a) Heat and light expenses $4910 (1) (4760 + 150)
8. [1] (a) Communication expenses $10080 (1) (7680 + 2400)
9. [1] (a) Motor vehicle expenses $5650 (1) (3650 + 2000)
10. [1] (a) Discounts allowed $3400 (1)
11. [1] (a) Bank loan interest $3200 (1) (3000 + 200)
12. [1] (a) Bank charges $123 (1)
13. [1] (a) Provision for doubtful debts $16 (1) (10720*0.05-520 = 16)
14. [1] (a) Depreciation Premises $7080 (1) (118000 * 0.06)
15. [1] (a) Depreciation Office equipment $7200 (1) (60000 * 0.12)
16. [1] (a) Depreciation Motor vehicles $2560 (1) ((22000 - 7200) * 0.20)
17. [1] (a) Interest in drawings: Cain $480
18. [1] (a) Interest in drawings: Les $600 (1 both)
19. [1] (a) Interest on capital: Cain $4000
20. [1] (a) Interest on capital: Les $3000 (1 both)
21. [1] (a) Salary Les $16000 (1)
22. [1] (a) Share of profit: Cain $2886 (1of)
23. [1] (a) Share of profit: Les $1924 (1of)
24. [1] (b) Cain Current Balance b/d $700 (1)
25. [1] (b) Les Current Balance b/d $15500 (1)
26. [1] (b) Cain Interest on drawings $480
27. [1] (b) Les Interest on drawings $600 (1 of)
28. [1] (b) Cain Drawings $12000
29. [1] (b) Les Drawings $15000 (1)
30. [1] (b) Les Salary $16000 (1)
31. [1] (b) Cain Interest on capital $4000
32. [1] (b) Les Interest on capital $3000 (1 of)
33. [1] (b) Cain Share of profit $2886
34. [1] (b) Les Share of profit $1924 (1 of)
35. [1] (b) Cain Balance c/d $4894
36. [1] (b) Les Balance c/d $10176
37. [1] (c) Non-current assets: Premises NBV $103840 (1) of (118000 - 14160)
38. [1] (c) Non-current assets: Office equipment NBV $31200 (1) of (60000 - 28800)
39. [1] (c) Non-current assets: Motor vehicles NBV $10240 (1) of (22000 - 9760)
40. [1] (c) Trade receivables $10720
41. [1] (c) Provision for doubtful debts $(536) (1) (10720 * 0.05)
42. [1] (c) Other receivables $1010 (1) (prepaid expenses)
43. [1] (c) Bank $20766 (1) (20889 - 123)
44. [1] (c) Trade payables $1960 (1)
45. [1] (c) Other payables $350 (1) (Bank interest $200 (1of) + Heat and light $150 (1))
46. [1] (c) Less Non-current liabilities (1)
47. [1] (c) 8% bank loan repayable 30 June 2019 $40000 (1 both)
48. [1] (c) Cain loan repayable 31 March 2018 $10000
49. [1] (c) Capital accounts: Cain $80000 (1 both)
50. [1] (c) Capital accounts: Les $60000
51. [1] (c) Current accounts: Cain $4894 Dr (1 of)
52. [1] (c) Current accounts: Les $10176 Dr (1 of)