Su and Li are in partnership sharing profits and losses in the ratio 3:2. Interest is allowed on capital at the rate of 5% per annum. Su is entitled to a salary of $15 000 per annum. The following balances were extracted from the books on 30 April 2012: Land and buildings (cost) $200 000 Equipment (cost) 48 000 Fixtures and fittings (cost) 35 000 Provisions for depreciation: Land and buildings 14 000 Equipment 12 000 Fixtures and fittings 26 000 Revenue 380 000 Inventory at 1 May 2011 53 750 Purchases 170 000 Returns from customers 11 100 Returns to suppliers 8 900 Carriage outwards 6 290 Administration expenses 25 720 Marketing expenses 17 800 Wages and salaries 69 530 Communication expenses 8 900 Loan interest paid 3 600 Building works 24 000 6% Loan repayable 31 December 2020 80 000 Trade receivables 58 000 Provision for doubtful debts 2 500 Trade payables 20 340 Bank deposit 5 000 Bank 9 150 Cr Capital accounts: Su 120 000 Li 100 000 Current accounts: Su 500 Cr Li 2 700 Dr Drawings: Su 20 000 Li 14 000 Additional information 1 Inventory at 30 April 2012, $38 500. 2 The $15 000 salary paid to Su had been posted to the wages and salaries account and not to her drawings account. 3 Building works consisted of an extension to the building, $20 000, and repairs to the existing air conditioning, $4000. 4 At 30 April 2012 communication expenses, $890, were prepaid and marketing expenses, $4000, were accrued. 5 Depreciation is to be charged on all non-current assets owned at the end of the year as follows: (i) Buildings at the rate of 2% per annum on cost. No depreciation is charged on land. On 1 April 2011 the land was valued at $75 000. (ii) Equipment at the rate of 20% per annum using the diminishing (reducing) balance method. (iii) Fixtures and fittings at the rate of 10% using the straight-line method. 6 Trade receivables contain a debt of $3000 which is considered irrecoverable. 7 The provision for doubtful debts is to be maintained at 6% of remaining trade receivables.

Mark scheme

Marking points from the official mark scheme (May/June 2012). The mark or mark type is shown in brackets.

1. [22] (a) Su and Li Income statement (and appropriation account) for the year ended 30 April 2012: Revenue $380000. Less Returns $11100. Net Revenue $368900 (1). Inventory at 1 May 2011 $53750. Purchases $170000. Less Returns $8900 (1). Net Purchases $161100. Cost of Goods Available for Sale $214850. Less Inventory at 30 April 2012 $38500. Cost of sales $176350 (1 cf). Gross profit $192550 (1of). Less Expenses: Carriage outwards $6290 (1). Administration expenses 25720 (1). Marketing (17800 + $4000) $21800 (1). Wages and salaries ($69530 – $15000) 54530 (1). Communication expenses (8900 – $890) $8010 (1). Loan interest ($3600 + $1200) $4800 (1). Building works/Repairs to air con $4000 (1). Bad debt $3000 (1). Increase in provision for doubtful debts $800 (1). Provisions for depreciation: Buildings $2900 (2 or 0). Equipment $7200 (1). Fixtures and fittings $3500 (1). Total Expenses $142550. Profit for the year $50000. Less Appropriations: Interest on capital: Su $6000, Li $5000 (1 for both). Total $11000. Salary Su $15000 (1). Total Appropriations $26000. Profit available for partners $24000. Share of profit: Su $14400 (1of), Li $9600 (1of) (Profit split must be correct ratio). Total Share of Profit $24000.
2. [18] (b) Balance Sheet at 30 April 2012: Non-current assets: Cost (). Accumulated depreciation (). NBV ($). Land and buildings: Cost $220000 (200000+20000), Acc. dep. $16900 (14000+2900), NBV $203100 (1of). Equipment: Cost $48000, Acc. dep. $19200 (12000+7200), NBV $28800 (1of). Fixtures and fittings: Cost $35000, Acc. dep. $29500 (26000+3500), NBV $5500 (1of). Total NBV for non-current assets $237400. Current assets: Inventory $38500. Trade receivables $55000 (58000-3000) (1). Less: provision for doubtful debts $3300 (6% of 55000) (1). Net Trade receivables $51700 (1of). Other receivables (Communication expenses prepaid) $890 (1). Bank deposit $5000 (1). Total Current Assets $96090. Current liabilities: Trade payables $20340. Other payables (Marketing expenses accrued) $4000 (1). Accrued loan interest ($4800-3600) $1200 (1). Bank overdraft $9150 (1). Total Current Liabilities $34690. Net current assets/working capital ($96090 - $34690) $61400 (1of + label). Total assets less current liabilities $298800. Non-current liabilities: 6% loan repayable 31 December 2020 $80000 (1). Total Capital Employed $218800. Financed by: Capital accounts: Su $120000. Li $100000 (1 for both). Total Capital Accounts $220000. Current accounts: Su $900 Cr. Li 2100 Dr (1of for both). Net Current Accounts -1200. Total Equity $218800.