Yip Sin is a manufacturer. The following balances were extracted from the books on 30 April 2011. $ Inventory at 1 May 2010 Raw materials 20 900 Work in progress 30 800 Finished goods 40 750 Purchases of raw materials 147 200 Royalties paid 10 000 Direct factory wages 85 960 Factory indirect expenses 23 450 Rent 30 000 Factory management salaries 36 000 Office salaries 28 500 Revenue 450 000 Advertising 20 940 Distribution costs 18 650 General office expenses 11 300 6% Loan - repayable 31 December 2020 50 000 Loan interest paid 1 500 Plant and machinery (cost) 75 000 Office equipment (cost) 24 000 Provisions for depreciation Plant and machinery 25 000 Office equipment 9 000 Provision for doubtful debts 2 400 Trade receivables 64 000 Trade payables 61 750 Bank 4 200 Dr Capital 100 000 Drawings 25 000 Additional information: 1 Inventory at 30 April 2011 Raw materials $ 28 100 Work in progress 34 250 Finished goods 42 350 2 At 30 April 2011 Direct factory wages, $4 040, were accrued. Advertising, $1 700, was prepaid. 3 Rent is to be apportioned four fifths (4/5) to the factory and one fifth (1/5) to the administration. 4 A purchase of office equipment, $2 000, had been debited in error to the general office expenses account. No entries have been made in the books to correct the error. 5 Depreciation is to be charged as follows: Factory plant and machinery at 20% per annum using the diminishing (reducing) balance method. Office equipment at 10% on cost using the straight-line method. A full year's depreciation is to be charged on all non-current assets owned at the end of the year. 6 The provision for doubtful debts is to be maintained at 5% of trade receivables. REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2011). The mark or mark type is shown in brackets.

1. [14] (a) Yip Sin Manufacturing Account for the year ended 30 April 2011 $ $ Inventory of raw materials at 1 May 2010 20 900 (1) Purchases of raw materials 147 200 (1) 168 100 Less: Inventory of raw materials at 30 April 2011 28 100 (1) Cost of raw materials consumed 140 000 (1) Direct factory wages (85 960 + 4040) 90 000 (1) Royalties 10 000 (1) Prime cost (1) 240 000 (1) Factory overheads: Indirect factory expenses 23 450 (1) Rent 24 000 (1) Factory management salaries 36 000 (1) Provision for depreciation of plant and machinery 10 000 (1) 93 450 333 450 Add increase in work in progress (30 800 – 34250) (3 450) (1) Cost of production (1) 330 000
2. [13] (b) Income Statement for the year ended 30 April 2011 $ $ Revenue 450 000 (1) Inventory of finished goods at 1 May 2010 40 750 Cost of production 330 000 (1of) 370 750 Inventory of finished goods at 30 April 2011 42 350 (1) Cost of sales 328 400 Gross profit 121 600 Rent 6 000 (1) Office salaries 28 500 (1) Advertising (20 940 – 1 700) 19 240 (1) Distribution costs 18 650 (1) General office expenses (11 300 – 2000) 9 300 (2) Loan interest (1500 + 1500) 3 000 (1) Provision for depreciation on office equipment 2 600 (2) Increase in provision for doubtful debts 800 (1) 88 090 Profit for the year 33 510
3. [13] (c) Balance sheet as at 30 April 2011 Cost Depreciation NBV $ to date $ $ Non-current assets Plant and machinery 75 000 35 000 40 000 (1)OF Office equipment 26 000 11 600 14 400 (1)OF 101 000 46 600 54 400 Current assets Inventory: Raw materials 28 100 Work in progress 34 250 Finished goods 42 350 104 700 (1) Trade receivables 64 000 Less: provision for doubtful debts 3 200 60 800 (2) Other receivables 1 700 (1) Bank 4 200 (1) 171 400 Less: Current liabilities Trade payables 61 750 (1) Other payables (accrued expenses) (4040 + 1500) 5 540 (2) 67 290 Net current assets 104 110 158 510 Non-current liabilities 6% loan repayable 31 December 2020 50 000 (1) 108 510 Financed by: Capital 100 000 (1) Plus: Profit for the year 33 510 (1) 133 510 Less: Drawings 25 000 (1of) 108 510