Mark Scheme (Results)

January 2008

GCE Level

GCE Accounting (6002) Paper 1

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January 2008
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General Marking Guidance

All candidates must receive the same treatment. Examiners must

mark the first candidate in exactly the same way as they mark
the last.

Mark schemes should be applied positively. Candidates must be

rewarded for what they have shown they can do rather than
penalised for omissions.

Examiners should mark according to the mark scheme not

according to their perception of where the grade boundaries may
lie.

There is no ceiling on achievement. All marks on the mark

scheme should be used appropriately.

All the marks on the mark scheme are designed to be awarded.

Examiners should always award full marks if deserved, i.e. if the
answer matches the mark scheme. Examiners should also be
prepared to award zero marks if the candidates response is not
worthy of credit according to the mark scheme.

Where some judgement is required, mark schemes will provide

the principles by which marks will be awarded and
exemplification may be limited.

When examiners are in doubt regarding the application of the

mark scheme to a candidates response, the team leader must be
consulted.

Crossed out work should be marked UNLESS the candidate has

replaced it with an alternative response

6002/01 Mark Scheme January 2008

Question
Number
1(a)

Answer

Mark
(20)

(a) Notes to Mark Scheme (on following page)

Called up share capital not paid 900 may appear under C II Current assets (Debtors)
Prepayments 2700 and Rent received 1200 may appear under D Prepayments and
Accrued Income.
Items marked with a letter or Roman Numeral should appear on the face of the
balance sheet.

Peninsular Film Studio plc

Balance sheet as at 31 December 2007
A Called up share capital not paid
B Fixed assets
I Intangible assets
Patents
Goodwill

900

65000
120000

185000

II Tangible Assets
Buildings
Machinery

600000
215000

815000
1000000

C Current Assets
I Stocks
Stocks of Consumables
Work in progress
II Debtors
Trade debtors
Prepayments
Rent received
IV Cash at bank and in hand
Cash In Hand

O/F

6600
340000

6000
2700
1200

28000

O/F

384500
D Prepayments and Accrued Income
E Creditors: Amounts falling due within one year
Overdraft
Trade Creditors
Debenture interest

14000
57000
24000
289500

O/F
O/F

1290400

O/F

95000
F Net current assets (liabilities)
G Total assets less current liabilities
H Creditors: amounts falling due after more than one year
Debentures

400000

I : Provisions for liabilities and charges

Taxation Provision

178000

J : Accruals and deferred income

712400
K :Capital and reserves
I Ordinary share capital called up
II Share premium account
III Revaluation reserve
V Profit and loss account

490910
100000
170000
-48510
712400

11 x
Total

40 x =

O/F

O/F
29 x
20
marks

Question
Number
1(b)

Answer

Mark

FOR Importance
Auditors are independent scrutineers of the accounts.
who report that the accounts have been prepared
correctly in accordance with company law or
rather, give a True and Fair view. or do not .
Auditors are reporting on how Directors have used the
funds invested by shareholders. . The auditors duty is
to the shareholders.
Auditors may give tax authorities more confidence that
the tax computation is correct.
Professional supervisory bodies exist to give guidelines
to auditors , eg Auditing Practices Board. Auditors
should be professionally qualified eg Chartered
Accountants.
AGAINST Importance
Auditors may not be very independent, going along
with the wishes of clients, in order to keep their
custom. which may include non-audit work.
Auditors could be misled by the directors and provide
an inaccurate report.
Auditors do not guarantee that material fraud has not
occurred.
Maximum of 4 marks (8 x ) for argument on one side
CONCLUSION
Should relate to points made above.
Eg Auditors Report is important and of value.

(6)

Question
Number
2(a)(i)

Answer

Mark
(6)

Materials Price Variance

= (Actual Price - Standard Price) x Actual Usage

= ( 0.08 - 0.07 ) x 51 500
= 515 Adverse

Material Usage Variance

= (Actual Usage - Standard Usage) x Standard Price

= (51 500 - 48 000) x 0.07
= 245 Adverse

Material Cost Variance

= (Actual Usage x Actual Price) - (Standard Usage x Standard Price)

= (51 500 x 0.08) - (48 000 x 0.07)
= 4120 - 3360 = 760 Adverse

Question
Number
2(a)(ii)

Answer

Labour Efficiency Variance

Mark
(6)
= (Actual Hours - Standard Hours) x Standard Rate
= (822 - 800) x 5.60
= 123.20 Adverse

Labour rate Variance

= (Actual Rate - Standard Rate) x Actual Hours

= (5.686 - 5.6) x 822
= (0.086 x 822) = 70.70 Adverse

Total Labour Variance

= (Actual Hours x Actual Rate) - (Standard Hours x Standard Rate)

= (822 x 5.686) - (800 x 5.6)
= 4674 - 4480 = 194 Adverse

Question
Number
2(b)

Answer

(3)
ACTUAL
15840

Sales
Materials
Labour
Fixed Costs
Total Production Cost
Profit

Question
Number
2(c)

Mark

4120
4674
1600
10394
5446
Total 6 x =

O/F C
3 marks

Answer

Mark
(5)

Per Unit
BUDGET

ACTUAL DEC
& JANUARY

Sales

4.95

Materials
Labour
Fixed Costs
Total Production Cost

1.05
1.40
0.50
2.95

1.29
1.46
0.50
3.25

O/F C

Profit

2.00

2.00

O/F

New Price

5.25

O/F C

Total 10 x =

5 marks

Question
Number
2(d)

Answer

Mark

FOR Passing on the increase in production cost

Need to maintain profit margin, cannot keep same
selling price for ever.
Customers may be quite willing to pay the higher price.

New price may still be below that of rival firms.

AGAINST Passing on the increase in production cost
Could absorb rising costs by increasing efficiency.
Customer could be unhappy and go to a rival supplier.

New price could make firms price higher than rivals.

CONCLUSION
Should relate to above eg passing on increased costs is
wrong/right
Maximum of 10 if only one side of argument.

(6)

Question
Number
3(a)

Answer

(6)

Examples
Formed by
Used for dividends ?
Question
Number
3(b)
Dec 1 Bank

Mark

Capital Reserves
Share Capital Revaluation
Capital Redemption Reserve etc
Eg Issue of shares, Capital redemption
No

Revenue Reserves
Profit + Loss A/c
General Reserve etc
From Profit + Loss Account
Yes

Answer

Mark
(3)

10% 1 Preference Share Capital Account

Jan 1 2007 Balance b/d
125 000
125 000

Dec 31 Balance c/d

1 Ordinary Share Capital Account

Jan 1 2007 Balance b/d
850 000
Dec 1 Bank
850 000
Jan 1 2008 Balance b/d

Dec 31 Balance c/d

Share Premium Account

Jan 1 2007 Balance b/d
170 000
Dec 1 Bank
170 000
Jan 1 2008 Balance b/d

160 000
10 000
170 000
170 000

if ALL dates correct

if SOME dates correct

Answer

Return on Capital Employed

800 000
50 000
850 000
850 000

Capital Redemption Reserve Account

Jan 1 2007 Balance b/d
190 000 o/f Dec 1 Profit + Loss
190 000
Jan 1 2008 Balance b/d

Dec 31 Balance c/d

Question
Number
3(c)

125 000
125 000

Mark
(6)
= Net profit after Tax x 100
Capital Employed

= 146 000 x 100 = 9.14 %

1 597 000
Alternative figures for Capital Employed acceptable

125 000
65 000
190 000 o/f
190 000 o/f

Question
Number
3(d)

Answer

Mark

Answers may include :

FOR Decision
Preference shares carry high return at 10% Ordinary
return will probably be lower
This will leave more funds in the business that can be
used to expand/generate profits.
ROCE will improve as capital employed is reduced
this will please shareholders and
institutions
Gearing ratio will improve as fixed interest debt is
replaced by equity capital
AGAINST Decision
Possible dilution of ownership of existing shareholders
if any sales on open market.
Issue costs eg lawyers, accountants
Maximum of 8 x for argument of one side
CONCLUSION
Should relate to points above eg Decision is a good one

(6)

Question
Number
4(a)

Answer

Mark
(10)

CASH BUDGET
Month
1

Month
2

Income
Share Capital
Bank Loan
Sales - Cash
Sales - Credit
Total Income

50500

Expenditure
Shop Premium
Fixtures and Fittings
Purchases
Expenses
Directors Drawings
Total Expenditure

12500
13000
22000
4000
3200
54700

7000
4000
3200
14200

Monthly Balance
Opening Balance
Closing Balance

-4200
0
-4200

1900
-4200
-2300

Question
Number
4(b)

20000
20000
10500

12600
3500
16100

Month
3

Month
4

Per row

18144
5040
23184

8400
4000
3200
15600

10080
4000
3200
17280

3720
-2300
1420

5904
1420
7324

15120
4200
19320

o/f
o/f
o/f

Answer

Mark
(2)

DEBTORS BUDGET
Month 1
3500

Debtors

Question
Number
4(c)

Month 2
4200

Month 3
5040

Month 4
6048

Answer

o/f

Mark

FOR the level of drawings

Closing balance is healthy in months 3 and 4.
As long as overdraft agreed for months 1 + 2
AGAINST the level of drawings
Negative Cash Flow in month 1 + 2 means may have to
arrange overdraft.
Could reduce drawings for months 1 + 2
Figures are only predictions, what if sales are much
lower?
CONCLUSION
Should relate to above eg drawings are at correct level.

Maximum of 6 if only one side of argument.

o/f Rule Applies

(4)

Question
Number
5(a)

Answer

Mark
(12)

Net Profit after interest and tax for year

= 625 000 x 11 = 68 750

Earnings per Ordinary share

= 97 500 = 11.47 pence

850 000

Ordinary Dividend paid for year

= 68 750 o/f = 28 646 o/f

2.4

Dividend Cover

= 97 500 = 1.91 times

51 000

Share Price

= 12 x 11 = 1.32 pence

Price/Earnings Ratio

= 1.03 = 8 98 times o/f

11.47p o/f

Dividend paid per share

= 51 000 = 6 pence per share

850 000

Dividend Yield

= 4.58 = 3.47 % o/f

1.32 o/f

Units required for third per calculation

Question
Number
5(b)

Answer

Mark

FOR Grapefruit
Higher dividend yield by 2.36 % points
Higher dividend paid per share by 1.42 pence per share

EPS higher by 0.47 pence per share

May argue that market price lower, so can buy more
shares.
More generous to shareholders with dividend cover policy
by 0.49 times.
FOR Hallway
Safer dividend cover policy by 0.49 times
P/E Ratio is higher by 3.02 times. Does the market
know something good about Hallway, or bad about
grapefruit.?
Maximum of 4 x for argument for one side.
o/f Rule applies
CONCLUSION
Recommend investing in Grapefruit

(4)

Question
Number
6(a)

Answer

Mark
(6)

(a)
Sales Revenue

Al Quarat
4200000

Jenberouk
10500000

Sudamis
1400000

Total
16100000

Direct Labour
Direct Materials
Fixed Costs

1800000
600000
2880000
All costs
-1080000

2400000
900000
4200000
All costs
3000000

1000000
480000
240000
All costs
-320000
12 x = 6 marks

5200000
1980000
7320000

Profit (Loss)

Question
Number
6(b)

Answer

Mark
(6)

Per Barrel
Sales Revenue

Al Quarat
35

Jenberouk
35

Sudamis
35

Direct Labour
Direct Materials
Fixed Costs
Profit (Loss)

15
5
24
All costs
-9

8
3
14
All costs
10

25
12
6
All costs
-8

Contribution

15

24

-2
12 x = 6 marks

1600000

Question
Number
6(c)

Answer

(c )
Future

Mark
(4)
Al Quarat
Continue
Short Term

Plus Comment
Positive Contribution

Jenberouk
Continue
Long Term
Profitable
Positive Contribution

Sudamis
Close Now
Loss making
Negative Contribution
Running out of oil

Question
Number
7(a)

Answer

Mark
(9)

Reconciliation of operating profit to net cash flow from operating activities

Net Profit
Add Interest - Overdraft
Bank loan 12 x 2/3 x 15 000
Loss on sale of fixed asset
Profit on sale of fixed asset
Depreciation on machinery
Depreciation on computer
Increase in stock of parts
Decrease in debtors
Increase in accrued expenses
Decrease in trade creditors
Net Cash Flow from Operating Activities

Question
Number
7(b)

Answer

27680
415
1200
810
-1500
20000
900
-728
509
80
-56
49310

o/f C

Mark
(3)

Analysis of changes in Cash and Bank Balances during year ended December 1st 2007
Change in
31-Dec-06
31-Dec-07 Year
Cash
765
987
222
Bank
-2853
(4096)
-1243
Total
-2088
(3109)
-1021
Need first
two
columns for
first tick
Other formats acceptable but only one
per number.

Question
Number
7(c)

Answer

Mark

Answers may include:

FOR Importance
Firm needs to be liquid in order to pay its own bills
to continue trading eg wages, suppliers.
Failure to pay bills eg tax, could result in closure
of firm, or extra financial penalties.
Firm could have profit in books but lack of liquidity
could force firm to cease trading.
AGAINST Importance
It is profit that determines the long term survival of
a business. Sources of funds are available to help
firms survive short term liquidity problems eg
overdrafts, loans.
Maximum if argue for only one side 4 x = 2 Marks
CONCLUSION
Should relate to above. Eg Liquidity is important to a
business.

(4)

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