Stella started in business as a retailer on 1 April 2023. She sells one type of good only. She has not kept a full set of accounting records but has provided the following information. 1 Half of Stella's purchases were on cash terms and half on credit terms. During the year ended 31 March 2024, Stella paid $34250 to credit suppliers. On 31 March 2024, she owed $2960 to credit suppliers. 2 Unlike her competitors, Stella made all of her sales for cash. Stella's mark-up was 32%. 3 The following amounts were paid for expenses during the year to 31 March 2024. $ Rent and insurance 6750 Wages 8300 Other expenses 1815 4 At 31 March 2024, $300 was unpaid for wages and $500 was paid in advance for rent. 5 Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance for the following 15 months. 6 Other expenses included $120 paid for vases and flowers. One third of these were for Stella's own home. Stella treats business costs of under $150 as revenue expenditure. 7 Inventory was valued at $6420 at 31 March 2024.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] Payments to credit suppliers $34250
2. [1] Add closing credit suppliers $2960
3. [1] Cash purchases $37210 (OF)
4. [1] Total purchases $74420 (OF)
5. [1] Sales revenue $89760 (OF)
6. [1] Cost of sales $68000 (OF)
7. [1] Gross profit $21760 (OF)
8. [1] Insurance prepaid adjustment ($600)
9. [1] Rent prepaid adjustment ($500)
10. [1] Wages accrued adjustment ($300)
11. [1] Other expenses personal use adjustment ($40)
12. [1] Profit for the year $5735 (OF)
13. [1] For: Should increase sales/attract more customers
14. [1] For: Should lead to higher profit/higher profit margin
15. [1] For: Competitors may allow credit sales/may help Stella to compete
16. [1] For: Increase monthly sales to generate growth
17. [1] Against: Money would come into the business more slowly
18. [1] Against: Liquidity may be reduced
19. [1] Against: Irrecoverable debts can occur
20. [1] Against: Increased bookkeeping/a sales ledger would be required
21. [1] Against: Credit control may be required
22. [1] Recommendation
23. [1] Materiality
24. [1] Time and cost of recording small items outweigh the benefits of treating them as non-current assets
25. [1] Depreciation does not need to be calculated and charged low value non-current assets
26. [1] Advantage: Full details of the assets, liabilities, revenues and expenses are available
27. [1] Advantage: The preparation of financial statements is more straightforward
28. [1] Advantage: The calculation of profit or loss for the year is likely to be more accurate
29. [1] Advantage: More informed decision-making is possible
30. [1] Advantage: A greater degree of control over the business activities can be exercised
31. [1] Advantage: The possibility of fraud is reduced
32. [1] Advantage: Comparisons with the results of previous years and with other businesses are possible
33. [1] Advantage: Detailed records are available for reference
34. [1] Advantage: Information required by a bank or other lender is readily available