‘A’ LEVEL ACCOUNTING

ZIMSEC 6001/2 JUNE 2023

SUGGESTED MARKING SCHEME

QUESTION 1

(a) (i) Annual cash flows:

Plant A

Year Sales Revenue Cash expenses Scrape Value Net Cash Flows
$ $ $ $
1 48 000 (38 500) – 9 500
2 60 000 (45 400) – 14 600
3 68 250 (51 200) – 17 050
4 77 700 (58 100) – 19 600
5 78 400 (66 300) – 12 100

Plant B

Year Sales Revenue Cash expenses Scrape Value Net Cash Flows
$ $ $ $
1 47 250 (41 100) – 6 150
2 65 400 (53 000) – 12 400
3 84 750 (65 500) – 19 250
4 105 300 (78 600) – 26 700
5 129 150 (90 300) 10 000 48 850

(ii) Payback Period for Plant A

Year Annual Cash flow Cumulative Cash flow
$ $
0 (45 000) (45 000)
1 9 500 (35 500)
2 14 600 (20 900)
3 17 050 (3 850)
4 19 600 15 750
5 12 100

3 850
Payback period = 3 years + × 12 months
19 600
= 3 years 2,36 months or
= 3,20 years
 Payback Period for Plant B
Year Annual Cash flow Cumulative Cash flow
$ $
0 (60 000) (60 000)
1 6 150 (53 800)
2 12 400 (41 450)
3 19 250 (22 200)
4 26 700 4 500
5 48 850

22 200
Payback period = 3 years + × 12 months
26 700
= 3 years 10 months or
= 3,83 years

(iii) Net Present Values:

Plant A Plant B
Year DF (12%) Cash flow Present value Cash flow Present value
$ $ $ $
0 1,00 (45 000) (45 000) (60 000) (60 000)
1 0,893 9 500 8 484 6 150 5 492
2 0,797 14 600 11 636 12 400 9 883
3 0,712 17 050 12 140 19 250 13 706
4 0,636 19 600 12 466 26 700 16 981
5 0,567 12 100 6 861 48 850 27 698
Net Present Value 6 587 13 760

(b) Eva Limited should purchase plant A because:

– it has a shorter Payback period as compared to plant B.
– also, its initial cost is relatively lower as compared to plant B.

(c) Internal rate of return enables decision makers to easily determine the feasibility of an
investment and assess its value to the organization.
 QUESTION 2
(a) Double entry system is a system that ensures that each and every business transaction must
be recorded twice in the books of accounts, once as a debit and once as a credit.
(b) K. Dube’s Income Statement for the year ended 31 March 2016
$ $
Sales 284 580
Less cost of sales
Opening inventory 24 900
Add: Purchases 234 000
258 900
Less: Closing inventory (9 300)
Inventory destroyed by fire (12 450)
Cost of sales (237 150)
Gross profit 47 430

Less expenses
Rates 6 000
General expenses (13 500 + 1 050 – 390) 14 160
Wages (360 ×52) 18 720
Rent 7 500
Loss on inventory destroyed by fire 12 450
Loss on disposal of furniture 500
Depreciation of furniture (9 000 + 18 000 – 21 000 – 5 000) 1 000
Total expenses (60 330)
Net loss (12 900)

(c) Statement of financial position as at 31 March 2016

Cost Depreciation NBV
$ $ $
Non-current assets
Premises 30 000 – 30 000
Furniture (27 000 – 5 000 = 22 000) 22 000 1 000 21 000
52 000 1 000 51 000
Current assets
Inventory 9 300
Bank 7 860
17 160
Less current liabilities
Trade payables 10 830
Other payables 8 550 19 380 (2 220)
48 780
Financed by
Capital (54 480 + 15 000) 69 480
Less net loss (12 900)
56 580
Less drawings (150 × 52) (7 800)
48 780
 QUESTION 3

(a) (i) Realisation account

$ $
Premises 400 000 Bank account:
Fixtures and fittings 250 000 Premises 420 000
Motor vehicles 180 000 Fixtures and fittings 230 000
Inventory 100 000 Motor vehicles 125 000
Discount allowed 6 000 Inventory 95 000
Dissolution costs 6 000 Capital account: Ozleen 20 000
Rejoice 30 000
Discount received 3 000
Loss on realisation: Ozleen 11 400
Rejoice 7 600
942 000 942 000

(ii) Capital account

Ozleen Rejoice Ozleen Rejoice
$ $ $ $
Current account 80 000 Balance b/d 500 000 300 000
Motor vehicles 20 000 30 000 Current account 150 000
Loss on Realisation 11 400 7 600 10% Loan 100 000
Bank 618 600 282 400
650 000 400 000 650 000 400 000

(iii) Bank Account

$ $
Balance b/d 30 000 Trade payables 67 000
Realisation Account: Dissolution costs 6 000
Premises 420 000 Capital Account:
Fixtures and fittings 230 000 Ozleen 618 600
Motor vehicles 125 000 Rejoice 282 400
Inventory 95 000
Trade receivables 74 000
974 000 974 000

(b) Reasons could be:

– death of one business partner.
– ownership changes
 QUESTION 4

(a) Statement of cash flows for the year ended 30 June 2017
$ $
Cash flows from operating activities
Operating profit 208 800
Depreciation 56 250
Profit on disposal of buildings (6 390)
Operating cash flows before adjustments in working capital 258 660
Increase in inventory (106 530 – 86 190) (20 340)
Decrease in trade receivables (88 710 – 80 040) 8 670
Decrease in trade payables (85 950 – 44 760) (41 190)
Cash generated from operations 205 800
Less: Interest paid (3 600)
Tax paid (47 400)
Net cash flow from operating activities 154 800

Cash flows from investing activities

Purchase of buildings (239 040)
Dividend received 2 550
Proceeds from disposal of buildings 13 830
Net cash flow from investing activities (222 660)

Cash flows from financing activities

Issue of ordinary share capital 64 000
Issue of debentures 45 000
Dividends paid (5 700)
Net cash flow from financing activities 103 300
Increase in cash and cash equivalents 35 440
Add opening cash and cash equivalents (2 820)
Closing cash and cash equivalents 32 620

(b) Purposes of preparing statement of cash flows to a business

– to provide information on the liquidity, viability and financial adaptability of the business.

– to show the quality of profit earned.

Workings
1. Tax payable account
$ $
Tax paid 47 400 Balance b/d 47 400
Balance c/d 103 500 Income statement 103 500
150 900 150 900
2. Disposal account
$ $
Buildings at cost 12 900 Depreciation 5 460
Profit on disposal 6 390 Bank/Cash (balancing figure) 13 830
19 290 19 290

3. Buildings at NBV account

$ $
Balance b/d 323 550 Disposal (12 900 – 5 460) 7 440
Additions (balancing figure) 239 040 Depreciation 56 250
Balance c/d 498 900
562 590 562 590
 ‘A’ LEVEL ACCOUNTING

ZIMSEC 6001/3 JUNE 2023

SUGGESTED MARKING SCHEME

QUESTION 1

(a) (i) Machinery Account

2016 $ 2016 $
Jul 1 Balance b/d 200 000 Sep 30 Disposal – Machinery 2 15 000
Oct 1 Bank – Machinery 5 30 000 Dec 31 Disposal – Machinery 1 40 000
2017 2017
Apr 1 Bank – Machinery 6 20 000 Mar 31 Disposal – Machinery 3 20 000
May1 Creditor – Wellington co. 45 000 Jun 30 Balance c/d 220 000
295 000 295 000
2017
Jul 1 Balance b/d 220 000

(ii) Machinery Provision for Depreciation Account

2016 $ 2016 $
Sep 30 Disposal – Machinery 2 8 250 Jul 1 Balance b/d 50 000
Dec 31 Disposal – Machinery 1 34 000
2017 2017
Mar 31 Disposal – Machinery 3 11 000 Jun 30 Income statement 39 750
Jun 30 Balance c/d 36 500
89 750 89 750
2017
Jul 1 Balance b/d 36 500
 (iii) Machinery Disposal Account
2016 $ 2016 $
Sep 30 Machinery 2 15 000 Sep 30 Depreciation – Machinery 2 8 250
Dec 31 Machinery 1 40 000 Bank 5 000
2017 2017
Mar 31 Machinery 3 20 000 Dec 31 Depreciation – Machinery 1 34 000
Bank 2 500
Mar 31 Depreciation – Machinery 3 11 000
Bank 2 000
Jun 30 Income statement 12 250
75 000 75 000

(b) – To make provision for replacement of a non-current asset.

– To apply the prudence concept so that profits and assets will not be overstated.
– To spread the depreciation cost over the asset’s useful life.

(c) A business would use straight line method to calculate depreciation if the asset is expected to decline in
value at constant rate each year or when the asset has a long useful life and its residual value is expected
to be low.

(d) It is possible for Wise Ltd to change its method of depreciation. The accounting concept of consistency
states that a company should use the same accounting method for similar transactions from period to
period, but allows for changes if the change is justifiable and disclosed properly.

Workings:

Depreciation on machinery disposed:

Disposal – Machinery 2 = 20% × 15 000 × 2 years 9 months

9
= 20% × 15 000 × 2
12
= $8 250

Disposal – Machinery 1 = 20% × 40 000 × 4 years 3 months

3
= 20% × 40 000 × 4
12
= $34 000

Disposal – Machinery 3 = 20% × 20 000 × 2 years 9 months

9
= 20% × 20 000 × 2
12
= $11 000
Charge for the year:

Machinery 1 = 20% × 40 000 × 6 months (1 Jul 2016 to 31 Dec 2016)

6
= 20% × 40 000 ×
12
= $4 000

Machinery 2 = 20% × 15 000 × 3 months (1 Jul 2016 to 30 Sept 2016)

3
= 20% × 15 000 ×
12
= $750

Machinery 3 = 20% × 20 000 × 9 months (1 Jul 2016 to 31 Mar 2017)

9
= 20% × 20 000 ×
12
= $3 000

Machinery 4 = 20% × (200 000 – 75 000) × 1 year

= 25 000

Machinery 5 = 20% × 30 000 × 9 months (1 Oct 2016 to 30 Jun 2017)

= $4 500

Machinery 6 = 20% × 20 000 × 3 months (1 Apr 2017 to 30 Jun 2017)

= $1 000

Machinery 7 = 20% × 45 000 × 2 months (1 May 2017 to 30 Jun 2017)

= $1 500

Income Statement = 4 000 + 750 + 3 000 + 4 500 + 1 000 + 1 500 + 25 000

= $39 750
 QUESTION 2

(a) Ace Ltd: Statement of financial position as at 31 December 2017

$000 $000
ASSETS
Non-current Assets
Premises 1 500
Plant and machinery 735
Office equipment 475
2 710
Current Assets
Inventory (450 000 + 50 000) 500
Trade receivables (200 000 + 10 000) 210
Cash and cash equivalents 766 1476
TOTAL ASSETS 4 186

EQUITY & LIABILITIES

Equity
Ordinary shares 1 800
Share premium account 450
Revaluation reserve 550
General reserve 350
Retained earnings 380
3 530
Non-current Liabilities
10% Debentures (250 000 – 45 000) 205

Current Liabilities
Trade payables (196 000 – 35 000) 161
Taxation 290 451
TOTAL EQUITY & LIABILTIES 4 186

(b) Difference between statement cash flows and income statement

Statement cash flows Income Statement

Prepared based on cash basis Prepared based on accrual basis
Measures the liquidity of the business Measures the profitability of the business
It records capital expenditure Capital expenditures are not recorded

(c) Helps in assessing the liquidity position of the business.

WORKINGS

1. Premises, Plant and Machinery and Office Equipment Schedule as at 31 December 2017
Premises Plant & Machinery Office Equipment
Cost $ $ $
Balance at 01/01/17 1 100 000 800 000 550 000
New additions – 180 000 50 000
Revaluation 400 000 – –
Disposal – (55 000) –
Balance at 31/12/17 1 500 000 925 000 600 000

Depreciation
Balance at 01/01/17 150 000 90 000 45 000
Charge for the year – 130 000 80 000
Revaluation (150 000) – –
Disposal depreciation – (30 000) –
Depreciation at 31/12/17 – 190 000 125 000
Net book value at 31/12/17 1 500 000 735 000 475 000
Net book value at 01/01/17 950 000 710 000 505 000

2. Statement of Changes in Equity

Ordinary Share Revaluation General Retained
Shares Premium Reserve Reserve Earnings
$ $ $ $ $
Balance at 01/01/17 1 500 000 300 000 – 300 000 365 000
Profit for the year 105 000
Transfer to general reserves 50 000 (50 000)
Dividends paid (40 000)
Revaluation of premises 550 000
Issue of ordinary shares 300 000 150 000
Balance at 01/12/17 1 800 000 450 000 550 000 350 000 380 000

3. Taxation Account
$ $
Tax paid 60 000 Balance b/d 150 000
Balance c/d 290 000 Income statement 200 000
350 000 350 000
 QUESTION 3

(a) Misheck Ltd Company: Schedule of non-current assets as at 31 December 2015

Fixtures & Fittings Motor Vehicles Buildings
Cost $ $ $
Balance at 01/01/15 800 000 500 000 600 000
New additions – 150 000 –
Revaluation – – 120 000
Disposal (300 000) – –
Balance at 31/12/15 500 000 650 000 720 000

Depreciation
Balance at 01/01/15 190 000 50 000 260 000
Charge for the year 70 000 105 000 33 000
Revaluation – – (275 000)
Disposal depreciation (40 000) – –
Depreciation at 31/12/15 220 000 155 000 18 000
Net book value at 31/12/15 280 000 495 000 702 000
Net book value at 01/01/15 610 000 450 000 340 000

(b) Five items that should be included in the directors’ report:

– names of the directors of the company.

– the dividends proposed.
– the principal activities of the company.
– post balance events
– the amount transferred to reserves.

(c) Four items to be covered by external auditors’ report:

– the financial statements of the company, including the statements of financial position, income
statement and cash flow statement.
– the auditors’ assessment of the company’s compliance with the companies’ acts and all current,
relevant accounting standards.
– the auditor’s opinion on the accuracy and fairness of the financial statements.
– any material weaknesses in the company’s internal controls over financial reporting.
Workings

Charge for the year:

1. Buildings = (5% × $600 000 ×6⁄12) + (5% × $720 000 × 6⁄12)

= $18 000 + $15 000
= $33 000

2. Fixtures & fittings = (10% × $500 000) + (10%× $300 000 × 8⁄12)
= $70 000

3. Motor Vehicles = (20% × $450 000) + (20% × $150 000 × 6⁄12)

= $105 000

4. Journal entry:
$ $
Provision for depreciation (260 000 + 15 000) 275 000
Buildings 120 000
Revaluation reserve 395 000

QUESTION 4

(a) Overhead Analysis Sheet

Overhead cost Basis Production departments Service departments
Machining Finishing Maintenance Canteen
$ $ $ $
Indirect materials Allocated 8 000 6 000 2 100 400
Indirect labour Allocated 2 200 900 550 200
Supervision salaries No. of employees 3 000 4 000 1 500 1 500
Rent and rates Floor area 9 000 16 000 2 000 1 000
Consumable stores No. of stores 3 000 4 000 2 000 –
Electricity Kilowatt hours 4 800 6 400 1 600 3 200
Depreciation Dep rate (%) 12 000 8 000 2 000 2 000
42 000 45 300 11 750 8 300
Re-apportionment
Canteen No. of employees 2 929 3 906 1 465 (8 300)
44 929 49 206 13 215 –
Maintenance Maintenance hours 7 929 5 286 (13 215) –
Budgeted overhead 52 858 54 492 – –
 Total Budgeted Overheads
(b) Overhead Absorption Rate (OAR) =
Budgeted Level of Activity

$52 858
Machining = = $17,62/machine hour
3 000

$54 492
Finishing = = $54,49/direct labour hour
1 000

(c) Maroon Ltd: Job ABC cost card

Machining Finishing Total
$ $ $
Direct materials 1 300 700 2 000
Direct labour (20 × 8 & 25 × 6) 160 150 310
Prime cost 1 460 850 2 310
Overheads (40 × 17,62 & 25 × 54,49) 704,8 1 362,25 2 067,05
Total cost 2 164,8 2 212,25 4 377,05
Profit (25% × total cost) 541,2 553,06 1 094,26
Selling price 2 706 2 765,31 5 471,31

(d) Causes of under absorption of overheads

– Actual activity below the budget.

– Actual expenditure above the budget.

(e) Under absorption should be deducted as an expense in income statement.