Mark Scheme

Section A

QUESTION 1

(a) Define "unpresented cheque" (2 marks)

• A cheque that has been issued/written/drawn by the business (1 mark)
• But has not yet been presented to/cleared by the bank/not yet deducted from the bank account (1 mark)

Accept: "not yet cashed", "not yet processed by the bank"

(b) Calculate updated bank balance (4 marks)

Working:

• Bank balance per Cash Book before adjustments: $2,340 + $1,200 - $600 - $785 = $2,155 (1 mark for calculation)
• Less: Bank charges $50 (1 mark)
• Less: Direct debit for insurance $160 (1 mark)
• Updated bank balance: $2,155 - $50 - $160 = $1,945 (1 mark)

Accept alternative layout if correct

(c) Bank Reconciliation Statement (6 marks)

Bank Reconciliation Statement as at June 30, 2024

Award 1 mark for correct format/headings Award 1 mark for correct final answer matching part (b)

Accept: "outstanding cheque" for "unpresented cheque" Accept: "uncredited deposit/cheque" for "uncleared lodgement"

(d) TWO reasons for bank reconciliation (4 marks)

Award 2 marks per valid reason (2 marks for full explanation, 1 mark for partial)

Acceptable reasons:

• To identify errors in the Cash Book or bank statement (1 mark) / enabling correction of mistakes to ensure accurate records (1 mark)
• To detect fraud or unauthorized transactions (1 mark) / helping to identify suspicious or irregular activities (1 mark)
• To ensure the accuracy of the bank balance (1 mark) / confirming the true/actual cash position of the business (1 mark)
• To update the Cash Book with items known only from the bank statement (1 mark) / such as bank charges, direct debits, or interest (1 mark)
• To provide control over cash management (1 mark) / ensuring proper monitoring of receipts and payments (1 mark)

Maximum 4 marks (2 reasons only)

QUESTION 2

(a)(i) Define "accrued expense" (2 marks)

• An expense that has been incurred/used/consumed in the accounting period (1 mark)
• But has not yet been paid/remains unpaid at the end of the period (1 mark)

Accept: "owing", "outstanding expense"

(a)(ii) ONE effect if not recorded (2 marks)

Any ONE of:

• Expenses will be understated (1 mark) leading to overstated profit (1 mark)
• Liabilities/current liabilities will be understated (1 mark) resulting in an inaccurate financial position (1 mark)
• The matching/accruals principle will be violated (1 mark) as expenses not matched to the period in which they were incurred (1 mark)

(b)(i) Depreciation on motor vehicle (3 marks)

Working:

• Net book value at start: $18,000 - $2,300 = $15,700 (1 mark)
• Depreciation: 20% × $15,700 = $3,140 (1 mark for method, 1 mark for answer)

(b)(ii) Adjustment to provision for doubtful debts (3 marks)

Working:

• Required provision: 5% × $9,200 = $460 (1 mark)
• Existing provision: $900 (1 mark)
• Adjustment: Decrease of $440 ($900 - $460) (1 mark)

Accept: "reduction of $440"

(c) Income Statement (10 marks)

Marcus Williams Income Statement for the year ended December 31, 2023

Mark allocation:

• Sales section (net sales): 1 mark
• Cost of sales calculation: 3 marks (1 for opening inventory + purchases - returns, 1 for less closing inventory, 1 for correct total)
• Gross profit: 1 mark
• Rent received adjustment: 1 mark
• Expenses (wages accrued, depreciation, provision adjustment): 2 marks
• Net profit: 1 mark
• Format/presentation: 1 mark

Accept alternative layouts (vertical or horizontal) if correct

QUESTION 3

(a) Purpose of separate Capital and Current Accounts (3 marks)

Award up to 3 marks for valid explanation:

• The Capital Account shows the permanent/fixed capital invested by partners (1 mark)
• It remains constant unless there is additional investment or withdrawal of capital (1 mark)
• The Current Account records appropriations, drawings, interest, and other adjustments (1 mark) / showing the partners' share of profits and changes from year to year (1 mark)

Accept: "Capital account is fixed/static while Current account fluctuates" Maximum 3 marks

(b) Profit and Loss Appropriation Account (8 marks)

Profit and Loss Appropriation Account for the year ended March 31, 2024

Mark allocation:

• Net profit: 1 mark
• Interest on capital (both partners calculated correctly): 2 marks
• Salary: 1 mark
• Interest on drawings: 1 mark
• Profit available for distribution: 1 mark
• Division of profit in correct ratio: 2 marks

(c) Partners' Current Accounts (7 marks)

Current Accounts

Mark allocation:

• Format (T-accounts with correct sides): 1 mark
• Opening balances: 1 mark
• Interest on capital: 1 mark
• Salary: 1 mark
• Share of profit: 1 mark
• Drawings and interest on drawings: 1 mark
• Closing balances: 1 mark

Accept vertical format if correctly presented

QUESTION 4

(a) Distinguish between prime cost and factory overhead cost (4 marks)

Prime cost:

• The direct costs of production/manufacturing (1 mark)
• Including direct materials, direct labour, and direct expenses (1 mark)

Factory overhead cost:

• The indirect costs incurred in the factory/production (1 mark)
• Including indirect materials, indirect labour, and indirect expenses such as factory rent, power, depreciation (1 mark)

Accept: "costs that can be directly traced to a product" vs "costs that cannot be directly traced"

(b)(i) Cost of raw materials consumed (2 marks)

• Opening inventory + Purchases - Closing inventory (1 mark)
• $4,200 + $28,500 - $3,800 = $28,900 (1 mark)

(b)(ii) Prime cost (2 marks)

• Raw materials consumed + Direct labour (1 mark)
• $28,900 + $16,800 = $45,700 (1 mark)

(b)(iii) Factory overhead cost (2 marks)

Working:

• Factory supervisor salary + Factory rent + Factory power + Depreciation + Factory insurance (1 mark)
• $4,200 + $2,400 + $1,800 + $1,500 + $900 = $10,800 (1 mark)

(c) Manufacturing Account (8 marks)

Tropical Manufacturing Ltd. Manufacturing Account for the month ended October 31, 2024

Mark allocation:

• Raw materials consumed: 2 marks
• Prime cost: 1 mark
• Factory overheads (all items): 2 marks
• Work-in-progress adjustments: 2 marks
• Cost of goods manufactured/correct final figure: 1 mark

Note: Administrative and selling expenses are NOT included in manufacturing account

Section B

QUESTION 5

(a) Explain "limited liability" (3 marks)

Award up to 3 marks:

• The liability of shareholders/owners is limited to the amount they have invested/agreed to invest in the company (1 mark)
• Personal assets of shareholders are protected/cannot be used to pay business debts (1 mark)
• In the event of liquidation/insolvency, shareholders can only lose their investment in shares (1 mark) / creditors cannot pursue shareholders' personal wealth (1 mark)

Maximum 3 marks

(b) THREE advantages and THREE disadvantages (12 marks)

Award up to 2 marks per valid point (1 mark for identification, 1 mark for development/application to scenario)

Advantages (any THREE for 6 marks):

• Limited liability protection (1 mark) / Samantha's personal assets (e.g. home, personal savings) would be protected if the business fails or incurs debts (1 mark)

• Easier to raise capital (1 mark) / Patricia's investment would bring in additional funds, and the company structure makes it easier to attract investors or obtain bank loans (1 mark)

• Continuity/perpetual succession (1 mark) / The business can continue to exist even if one shareholder dies or leaves, unlike a sole trader business which ceases on death (1 mark)

• Enhanced credibility/professional image (1 mark) / Operating as a limited company may improve the business's reputation with suppliers, customers, and financial institutions (1 mark)

• Tax planning opportunities (1 mark) / There may be potential tax advantages or ability to retain profits in the company for expansion (1 mark)

• Shared decision-making and expertise (1 mark) / Patricia may bring additional skills, experience, or perspectives to help grow the business (1 mark)

Disadvantages (any THREE for 6 marks):

• Loss of control (1 mark) / Samantha would need to consult Patricia on major decisions as they would each own 50% of shares, unlike her current complete autonomy as sole trader (1 mark)

• Increased costs (1 mark) / Additional annual costs of $4,500 for accounting and legal fees would reduce available profits (1 mark)

• More complex legal/regulatory requirements (1 mark) / Must file accounts with Companies Registry, hold formal meetings, and comply with company law, creating administrative burden (1 mark)

• Public disclosure of financial information (1 mark) / Financial statements become public record, losing the privacy Samantha currently enjoys (1 mark)

• Potential for conflict (1 mark) / With equal shareholding (50/50), disagreements between Samantha and Patricia could lead to deadlock and harm the business (1 mark)

• Restrictions on drawings/profit extraction (1 mark) / Samantha cannot freely withdraw funds as she does now ($24,000); must declare dividends formally and both shareholders treated equally (1 mark)

(c) Evaluation and recommendation (6 marks)

Level 3 (5-6 marks):

• Clear recommendation supported by specific reference to the scenario
• Balanced consideration of both quantitative and qualitative factors
• Evaluation considers both short-term and long-term implications
• Logical reasoning connecting advantages/disadvantages to Samantha's situation

Level 2 (3-4 marks):

• Recommendation given with some supporting reasoning
• Some reference to the scenario but may be generalized
• Lists points without full evaluation
• Limited consideration of different perspectives

Level 1 (1-2 marks):

• Basic recommendation with minimal justification
• Little or no reference to specific information provided
• Descriptive rather than evaluative
• Vague or superficial reasoning

Acceptable points for consideration:

• Current profitability ($38,000) vs additional costs ($4,500)
• Importance of control vs benefit of additional capital
• Risk exposure (current liabilities $62,000)
• Growth ambitions
• Relationship with sister
• Industry considerations (retail clothing)
• Current stage of business development

Accept any justified recommendation (remain sole trader OR incorporate) provided reasoning is sound

QUESTION 6

(a)(i) Explain "incomplete records" (2 marks)

• A system where a business does not maintain a full/complete double-entry bookkeeping system (1 mark)
• Records are informal/partial, such as only keeping receipts, invoices, bank statements, or a simple cash book (1 mark)

Accept: "single-entry records", "informal records"

(a)(ii) TWO reasons for using incomplete records (2 marks)

Award 1 mark each for any TWO valid reasons:

• The business is small and cannot afford to employ a qualified bookkeeper/accountant
• The owner lacks accounting knowledge/training
• The volume of transactions is low and does not justify a full system
• To save time and costs of maintaining detailed records
• The owner considers it sufficient for their needs

(b) Statement of Affairs January 1, 2023 (5 marks)

Statement of Affairs as at January 1, 2023

Mark allocation:

• Correct format/headings: 1 mark
• All assets listed with correct values: 2 marks
• Liabilities: 1 mark
• Capital calculated correctly: 1 mark

(c)(i) Total purchases (2 marks)

• Cash purchases + Credit purchases (1 mark)
• Payments to suppliers + Increase in payables: $86,200 + ($7,400 - $5,800) = $86,200 + $1,600 = $87,800
• OR: Credit purchases + Cash purchases (if given): $64,800 + Cash purchases
• Credit purchases are $64,800 (given)
• Cash purchases: Total purchases - credit purchases
• Alternative approach: $86,200 + $1,600 = $87,800 (1 mark for method, 1 mark for answer)

Correct answer: $87,800 (2 marks)

(c)(ii) Total sales (2 marks)

• Cash/cheques banked + Credit sales (1 mark)
• $142,600 + $38,400 = $181,000 (1 mark)

OR

• Cash sales banked + Cash not banked + Credit sales
• Alternative working if using debtors movement acceptable

Correct answer: $181,000 (2 marks)

(c)(iii) Bank balance December 31, 2023 (4 marks)

Bank Account reconstruction:

|Receipts|$|Payments|$| |---|---|---| |Balance b/d|3,200|Payments to suppliers|86,200| |Cash/cheques banked|142,600|Business expenses|24,600| |Capital introduced|10,000|Drawings|18,000| |||| |Balance c/d (balancing figure)|26,400||| ||156,000||156,000|

OR

Opening balance: $3,200 Add: Bankings $142,600 Add: Capital $10,000 Total receipts: $155,800

Less: Payments to suppliers $86,200 Less: Expenses $24,600 Less: Drawings $18,000 Total payments: $128,800

Closing balance: $27,000

Note: The cash sales of $8,200 not yet banked are NOT in the bank account

Mark allocation:

• Correct opening balance: 1 mark
• All receipts identified: 1 mark
• All payments identified: 1 mark
• Correct closing balance calculated: 1 mark

Correct answer: Bank balance = $27,000

(d) TWO problems with incomplete records and solutions (4 marks)

Award 2 marks per problem-solution pair (1 mark for problem, 1 mark for solution)

Acceptable answers:

Problem: Difficult to determine accurate profit (1 mark) Solution: Proper double-entry records provide a Trial Balance from which accurate Income Statement and Statement of Financial Position can be prepared (1 mark)

Problem: Errors and fraud are difficult to detect (1 mark) Solution: Double-entry system provides cross-checks and an audit trail making errors easier to identify and reducing opportunities for fraud (1 mark)

Problem: Difficult to control accounts receivable and payable (1 mark) Solution: Proper records maintain individual debtor and creditor accounts enabling effective credit control and payment management (1 mark)

Problem: Cannot identify the financial position easily (1 mark) Solution: Regular financial statements prepared from proper records show the true assets, liabilities, and capital of the business (1 mark)

Problem: Poor decision-making due to lack of information (1 mark) Solution: Proper records provide reliable financial data for planning, budgeting, and making informed business decisions (1 mark)

Maximum 4 marks (TWO problems only)

Sample Answers with Examiner Commentary

Question 5 — Sample Answers

Grade I (Distinction) answer

(c) Evaluate whether Samantha should remain as a sole trader or form a private limited company. Justify your recommendation with reference to the information provided.

Based on the information provided, I recommend that Samantha should remain as a sole trader at this stage of her business development.

The current financial position shows that the business is profitable with net profit of $38,000 annually and a healthy equity position ($185,000 - $62,000 = $123,000). Samantha's current liabilities of $62,000 represent only about 33% of total assets, indicating manageable business risk. Given this moderate risk exposure, the primary benefit of incorporation—limited liability protection—is less critical than it would be in a highly leveraged or risky business. Samantha can protect herself through adequate insurance and prudent financial management.

The loss of control is a significant concern. With 50/50 share ownership, Samantha would lose her current autonomy and face potential deadlock situations where she and Patricia disagree on business direction. As the founder who built the business, Samantha currently makes all decisions quickly without consultation. In the clothing retail industry where fashion trends change rapidly, this decision-making speed is a competitive advantage she should not sacrifice.

Financially, the additional costs of $4,500 per year represent approximately 12% of her current net profit, a substantial reduction in returns. While Patricia's investment would bring capital, Samantha is already generating sufficient profit ($38,000) to reinvest in the business without giving up equity. If additional funding is needed, she could consider a business loan which would preserve full ownership and control.

However, if Samantha's long-term goal is significant expansion—such as opening multiple locations across Jamaica—then incorporation would become more appropriate. The ability to raise capital through shares, enhanced credibility, and business continuity would become more important than current autonomy. She could also consider alternative share structures (for example, 51/49) to maintain control while still benefiting from Patricia's investment.

In conclusion, given the current stable financial position, moderate risk level, importance of quick decision-making in retail clothing, and significant cost increase, Samantha should continue as a sole trader in the short term, while keeping incorporation as an option for future expansion when the business reaches a scale where the benefits clearly outweigh the costs.

Mark: 6/6

Examiner commentary: This is an exemplary answer that achieves full marks. The candidate provides a clear, justified recommendation immediately and supports it throughout with specific reference to the data provided ($38,000 profit, $62,000 liabilities, $4,500 costs representing 12% of profit). The answer demonstrates sophisticated analysis by considering both quantitative factors (financial figures) and qualitative factors (control, decision-making speed, industry context). The candidate acknowledges counter-arguments (situations where incorporation would be appropriate) showing balanced evaluation. The answer considers both short-term and long-term perspectives and connects the recommendation logically to multiple advantages and disadvantages identified earlier. The use of subject-specific terminology (equity, leverage, autonomy) is accurate throughout.

Grade III (Pass) answer

(c) Evaluate whether Samantha should remain as a sole trader or form a private limited company. Justify your recommendation with reference to the information provided.

I think Samantha should form a private limited company because it has more advantages.

If she incorporates, Samantha will have limited liability which means she won't lose her personal belongings if the business fails. This is important because businesses can fail and she needs to protect herself. Also, Patricia can invest money into the business which will help it grow bigger. The business will also look more professional as a company rather than just a sole trader.

However, there are some disadvantages. Samantha will have to share control with Patricia because they will both own 50% of shares. This means she can't make all decisions by herself anymore. Also, the costs will go up by $4,500 per year which is quite a lot of money. She will also have to file accounts publicly which she may not want to do.

Looking at the information, the business makes $38,000 profit per year which is good. The assets are $185,000 and liabilities are $62,000 so the business seems stable. The extra cost of $4,500 is significant but not too much compared to the profit.

Overall, I recommend she should incorporate because the advantages like limited liability and getting Patricia's investment outweigh the disadvantages. The business is doing well and incorporating will help it grow even more.

Mark: 3/6

Examiner commentary: This answer achieves a mid-pass grade. The candidate provides a recommendation and identifies several relevant points including limited liability, additional capital, loss of control, and increased costs. Some reference is made to the financial data provided. However, the evaluation lacks depth and sophistication. The answer does not calculate percentages or meaningfully analyze what the figures tell us about risk level. The point about limited liability is not evaluated in context—the answer does not consider whether the current risk exposure actually makes this protection critical. The recommendation favors incorporation but does not adequately address why the significant disadvantages (especially equal shareholding and loss of autonomy) should be accepted. The answer would be strengthened by deeper analysis of the financial implications, consideration of industry factors, discussion of the 50/50 ownership problem, and more critical evaluation of whether the benefits justify the costs in Samantha's specific situation.

Grade V (Near miss) answer

(c) Evaluate whether Samantha should remain as a sole trader or form a private limited company. Justify your recommendation with reference to the information provided.

Samantha should become a private limited company.

A private limited company is better than sole trader because companies are bigger and more successful. If Samantha stays as sole trader she might lose all her money if something goes wrong. But if she becomes a company she has limited liability so she is safe.

Also companies can get more money easier. Patricia wants to invest so Samantha should let her. More money means the business can grow and make more profit.

The only bad thing is that companies have to do more paperwork and it costs $4,500 extra. But this is worth it because the company will make more profit to cover this cost.

As a sole trader Samantha has to do everything herself but as a company she can share the work with Patricia. This will make things easier.

The business has $185,000 assets and makes $38,000 profit so it is a good business. Making it a company will make it even better.

I recommend private limited company because it has more benefits and will help the business grow bigger and be more successful in the future.

Mark: 2/6

Examiner commentary: This answer demonstrates common weaknesses seen in below-pass responses. While the candidate provides a recommendation and mentions limited liability, the understanding is superficial and contains misconceptions. The statement that "companies are bigger and more successful" shows lack of understanding that business form does not automatically determine success. The candidate correctly identifies limited liability but does not explain it accurately in context (Samantha won't "lose all her money" as a sole trader unless the business is very highly leveraged, which these figures don't suggest). The answer fails to engage meaningfully with the specific information provided—figures are mentioned but not analyzed. Critical disadvantages like loss of complete control and the 50/50 deadlock risk are not addressed at all. The candidate makes unsupported assertions ("will make more profit") without logical justification. To improve, the candidate should: explain concepts accurately rather than making generalized statements; analyze the specific financial data to evaluate actual risk; consider and weigh both advantages and disadvantages; discuss the control issue which is central to this scenario; and provide logical reasoning connecting points to the recommendation rather than asserting opinions.

Question 6(c)(iii) — Sample Answers

Calculate the bank balance as at December 31, 2023 (4 marks)

Grade I (Distinction) answer

Calculation of Bank Balance as at December 31, 2023:

Bank balance (December 31, 2023) = $155,800 - $128,800 = $27,000

Note: The cash sales of $8,200 not yet banked are excluded from this calculation as they have not been deposited into the bank account.

Mark: 4/4

Examiner commentary: This answer earns full marks. The candidate demonstrates clear understanding by systematically identifying all receipts (opening balance, bankings, capital introduced) and all payments (suppliers, expenses, drawings). The calculation is laid out logically in a way that is easy to follow and verify. Critically, the candidate recognizes that cash sales not yet banked ($8,200) should not be included in the bank balance calculation and explicitly notes this, showing sophisticated understanding of the difference between cash in hand and bank balance. The final answer of $27,000 is correct. The presentation is professional with clear headings and proper totaling.

Grade III (Pass) answer

Calculation of Bank Balance as at December 31, 2023:

Opening balance = $3,200

Add: Money banked = $142,600 Add: Capital = $10,000

Total = $155,800

Less: Paid to suppliers = $86,200 Less: Expenses = $24,600
Less: Drawings = $18,000

Total payments = $128,800

Bank balance = $155,800 - $128,800 = $27,000

Mark: 3/4

Examiner commentary: This answer achieves most of the available marks. The candidate correctly identifies all the main receipts and payments and arrives at the correct final answer of $27,000. The working is generally clear and the approach is sound. However, one mark is deducted because the presentation could be clearer (missing proper table structure or clear labeling of what each section represents) and the candidate does not explicitly address the cash sales of $8,200 not yet banked. While they correctly excluded it from their calculation (suggesting understanding), they did not explain this decision, leaving some ambiguity about whether they consciously recognized this point or simply overlooked that figure. To achieve full marks, the candidate should organize the answer more formally and demonstrate awareness of why certain items are included or excluded.

Grade V (Near miss) answer

Calculation of Bank Balance as at December 31, 2023:

Bank balance at start = $3,200

Add total sales = $142,600 + $38,400 + $8,200 = $189,200

Total = $192,400

Take away payments to suppliers = $86,200 Take away expenses = $24,600

Balance = $81,600

Answer = $81,600

Mark: 1/4

Examiner commentary: This answer demonstrates a fundamental misunderstanding of the question and achieves only 1 mark (for identifying the opening balance). The candidate has made several critical errors. First, they have added all sales figures ($142,600 + $38,400 + $8,200) to the bank account, failing to recognize that $38,400 represents credit sales (which would be received from debtors over time, not all banked immediately) and $8,200 is explicitly stated as "not yet banked." Only cash and cheques actually banked ($142,600) should be included. Second, the candidate omitted the capital introduced ($10,000), which is an important receipt into the bank. Third, they failed to deduct drawings ($18,000), which is a significant payment that would leave the bank account. These errors demonstrate confusion between sales, cash received, and amounts banked—a common weakness. The answer would be improved by: carefully reading what each figure represents; distinguishing between sales revenue and actual cash/cheques deposited in the bank; ensuring all bank receipts (including capital) and all bank payments (including drawings) are identified; and presenting calculations in an organized format that separately shows receipts and payments.