‘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

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 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.

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 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

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 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

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 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

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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

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