Gok is a wholesaler. He prepares his financial statements to the end of February each year. At 29 February 2020, Gok's ledger account balances included the following. $ Revenue 420000 Purchases 311400 Sales returns 12000 Discount allowed 9000 Wages 12360 Rent and rates 11750 General expenses 4220 Irrecoverable debts 8600 Insurance 4500 Telephone expenses 4565 Inventory at 1 March 2019 26700 Drawings 9500 Fixtures and equipment at cost 120000 Provision for depreciation of fixtures and equipment 43200 Additional information 1 Gok did not have time to count and value his inventory at 29 February 2020. His margin is 25%. 2 A loan of $60000 was obtained from the bank on 1 July 2019. Interest is charged at 7% per annum. 3 The fixtures and equipment are being depreciated at 20% per annum using the reducing balance method. 4 The insurance includes $1500 which covers the period from 1 March to 30 September 2020. 5 Drawings include a payment of $1660 for Gok's personal telephone expenses. One quarter of this amount was for business use. REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [1] Revenue - Sales returns = 408000
2. [1] Closing inventory = 32100 (OF)
3. [1] Cost of sales = 306000 (OF)
4. [1] Gross profit = 102000 (OF)
5. [1] Discount allowed 9000
6. [1] Wages 12360 / Rent and rates 11750 / General expenses 4220 (grouped for 1 mark if all correct)
7. [1] Irrecoverable debts 8600
8. [1] Insurance (4500 – 1500) = 3000
9. [1] Telephone expenses (4565 + [1660/4]) = 4980
10. [1] Depreciation on Fixtures and equipment (20% × 76 800) = 15360 (OF)
11. [1] Total Expenses = 69270 (OF)
12. [1] Profit from operations = 32730 (OF)
13. [1] Loan interest (60 000 × 7%)
14. [1] × 8/12 = 2800
15. [1] Profit for the year = 29930 (OF)
16. [1] Advantages: Gok would no longer need to pay wages to Aiman as he would not be an employee
17. [1] Advantages: Aiman may invest capital into the business
18. [1] Advantages: Gok would consider how much capital would be introduced by Aiman
19. [1] Advantages: The risks and responsibilities would be shared with Aiman
20. [1] Advantages: Aiman may have skills which could be used in the business, other than those which he currently uses as a warehouse assistant
21. [1] Advantages: Aiman may be prepared to work longer hours in the business if he became a partner
22. [1] Advantages: Currently Gok has not had time to carry out an inventory count so it seems that any extra hours which Aiman may work would be helpful
23. [1] Disadvantages: Gok would no longer be able to take all the decisions on his own
24. [1] Disadvantages: Aiman would be entitled to a share of the profits
25. [1] Disadvantages: Gok would consider how profits and losses are to be shared
26. [1] Disadvantages: Aiman would expect to take drawings from the business
27. [1] Recommendation (1)