Nikolas is a manufacturer. The following balances were extracted from his books on 31 July 2014. Capital $80000 Drawings $20000 Machinery (cost) $125000 Office fixtures (cost) $55000 Provisions for depreciation: Machinery $75000 Office fixtures $16500 Bank $27700 Dr Purchases of raw materials $132500 Inventory at 1 August 2013: Raw materials $15000 Work in progress $31400 Finished goods $40000 Revenue $505000 Royalties $15000 Indirect factory expenses $12750 Factory wages $90800 Insurance $6200 Rent $11000 Production managers' salaries $38250 Office wages and salaries $56000 Selling expenses $19600 Distribution costs $31500 Sundry office expenses $19800 8% Loan (repayable 31 May 2024) $60000 Loan interest paid $3500 Provision for doubtful debts $1500 Trade receivables $58000 Trade payables $71000 Additional information at 31 July 2014 1 Inventory was valued as follows: Raw materials $17500 Work in progress $26000 Finished goods $42500 2 Sundry office expenses prepaid $1400. 3 Insurance included a payment of $4800 for the year ended 31 October 2014. 4 Insurance and rent are to be apportioned 80% to the factory and 20% to the office. 5 Depreciation is to be charged as follows: (i) machinery at 20% per annum using the diminishing (reducing) balance method (ii) office fixtures at 10% using the straight-line method. 6 Nikolas took $7500 of finished goods for his own use. 7 A debt of $3000 was considered irrecoverable. A provision for doubtful debts is to be maintained at 4%. REQUIRED

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [1] Inventory of raw materials at 1 August 2013 $15000
2. [1] Purchases of raw materials $132500
3. [1] Less: Inventory of raw materials at 31 July 2014 ($17500)
4. [1] Cost of raw materials consumed $130000
5. [1] Factory wages $90800
6. [1] Royalties $15000
7. [1of] Prime cost $235800
8. [1] Indirect factory expenses $12750
9. [1] Rent ($11000 x 80%) $8800
10. [1] Production managers' salaries $38250
11. [1] Insurance (($6200 – $1200) = $5000 x 80%) $4000
12. [1] Provision for depreciation of machinery $10000
13. [1] Increase in work in progress ($31400 – $26000) $5400
14. [1] Production cost $315000
15. [1] Revenue $505000
16. [1] Inventory of finished goods at 1 August 2013 $40000
17. [1of] Production cost $315000
18. [1] Drawings by owner ($7500)
19. [1] Inventory of finished goods at 31 July 2014 ($42500)
20. [1of] Cost of sales ($305000)
21. [1] Insurance (($6200 – $1200) = $5000 x 20%) $1000
22. [1] Rent ($11000 x 20%) $2200
23. [1] Office wages and salaries $56000
24. [1] Selling expenses $19600
25. [1] Sundry office expenses ($19800 – $1400) $18400
26. [1] Loan interest ($3500 + $1300) $4800
27. [1] Provision for depreciation on office equipment $5500
28. [1] Bad debts $3000
29. [1] Increase in provision for doubtful debts $700
30. [1of] Profit for the year $57300
31. [1] Non-current assets: Machinery Cost $125000
32. [1] Non-current assets: Office fixtures Cost $55000
33. [1] Non-current assets: Machinery Aggregate depreciation $85000
34. [1] Non-current assets: Office fixtures Aggregate depreciation $22000
35. [1of] Non-current assets: Machinery NBV $40000
36. [1of] Non-current assets: Office fixtures NBV $33000
37. [1] Current assets: Inventory (sum of Raw materials, Work in progress, Finished goods) $86000
38. [1] Current assets: Trade receivables $55000
39. [1] Current assets: Provision for doubtful debts ($2200)
40. [1of] Current assets: Trade receivables (net) $52800
41. [1] Current assets: Other receivables ($1400 + $1200) $2600
42. [1] Current assets: Bank $27700
43. [1] Current liabilities: Trade payables $71000
44. [1] Current liabilities: Other payables $1300
45. [1] Non-current liabilities: 8% loan (repayable 31 May 2024) ($60000)
46. [1] Capital $80000
47. [1] Plus: Profit for the year $57300
48. [1] Less: Drawings ($20000 + $7500) ($27500)
49. [1of] Capital (final) $109800