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Discounts allowed 550

Irrecoverable debt written off 227

Advanced
Diploma Synoptic

© Osborne Books Limited, 2021

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Assessment information
Read the scenario carefully before attempting the questions.
Complete all six tasks.
Tasks 1 to 6 require you to write your answers in this book.
The total number of marks for this assessment is 80.
Tasks 3 and Task 4 require extended writing as part of your responses to these questions. You should
make sure you allow adequate time to complete these tasks.
Where the date is relevant, it is given in the task data.
Both minus signs and brackets can be used to indicate negative numbers unless task instructions say
otherwise.

Advice
Read each question carefully before you start to answer it.
Attempt all questions.
You will have 2 hours and 30 minutes to answer all parts of the assessment.

Scenario background
Task 1 is based on a work-based scenario separate to the rest of the assessment.
Tasks 2 to 6 are based on the workplace scenario for Finishing Touches.
You are Joe Francis, a part-qualified accountant, who works at Finishing Touches, a business making
curtains, blinds and soft furnishings. The business is owned by Rebecca Pin and Neil Pleat, trading as a
partnership.
You are responsible for all aspects of accounting and bookkeeping.
 practice assessment 2 3

Task 1: 15 marks
This task is based on a workplace scenario separate to the rest of the assessment.

Maya is an accountant who works in a medium-sized accountancy practice, Della, Bright and Philips. She
has recently been discussing the AAT Code of Ethics with a colleague, who made the following
statements. Maya would like to clarify if they are correct or not.
(a) Identify whether the following statements regarding the AAT Code of Ethics are correct.

Statement Correct Not correct

(a) The AAT Code of Ethics sets out very clear principles for
Accounting Technicians to adhere to

(b) Client information is only confidential whilst you work at

Della, Bright and Philips

(2 marks)

In the following situations, identify whether Maya does or does not comply with the principle of professional
behaviour.
(b) Identify whether the behaviour is ethical or unethical:

Behaviour Ethical Unethical

(a) Maya has written some inappropriate remarks about her

manager on a social media site, which she does not think the
manager will see
(b) Maya ensures she complies with all relevant laws that affect
Della, Bright and Philips

(2 marks)

Maya has recently been asked by her uncle, who runs a small chain of newsagents, if she could ask Della,
Bright and Philips to become his accountants. He would like Maya to be included in the team.
(c) If Maya does what her uncle asks, what threat will she be facing to her objectivity?

(a) A familiarity threat

(b) A self-review threat

(c) A self-interest threat

(1 mark)
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(d) What action should Maya take to safeguard against this threat? Tick all that could apply.

Action Tick to do
(a) Inform her uncle she will only be on the team for the first year, to ensure
the firm fully understands his business
(b) Inform her manager of her relationship with the new client
(c) Request any work she is involved in be reviewed in detail by her manager

(3 marks)

Maya is currently working with a client, Beautiful Face, who makes beauty products. During the course of
her work, she has found out that a new product they are about to launch can cause a severe reaction if the
customer is allergic to eggs, which the client is aware of. There is no warning on any packaging currently.
(e) What action must Maya now take?

Action Tick to do
(a) Inform the client that she knows there is a problem
(b) Follow the internal procedures for reporting unethical behaviour within
Della, Bright and Philips

(2 marks)

Maya is considering ‘whistleblowing’ about the problem with the cosmetic product to the relevant regulatory
body.
(f) Complete the following:

Maya will be protected / not be protected from dismissal from Della, Bright and Philips if she
whistleblows, if she is acting in self-interest / good faith. This is because she is breaking
confidentiality due to her duty to the public / employer.

(3 marks)

Maya realises she had accidentally submitted a tax return containing incorrect information. The client does
not want to adjust the mistake and resubmit the return, which means the tax is underpaid by a significant
amount.
(g) Complete the following:

Maya’s client will be guilty of money laundering / failure to disclose if they do not amend the tax
return. Maya must inform the National Crime Agency / Money Laundering Reporting Officer.

(2 marks)
 practice assessment 2 5

Scenario background
For Tasks 2 to 6
You are Joe Francis, a part-qualified accountant who works at Finishing Touches, a business making
curtains, blinds and soft furnishings. The business is owned by Rebecca Pin and Neil Pleat, and trades
as a partnership.
You are responsible for all aspects of accounting and bookkeeping.

Task 2: 12 marks
Today’s date is 16 October 20-6. You are reviewing the VAT control for the quarter ended 30 September
20-6, which is set out below:

£ £
29/07 Bank 16,745.89 01/07 Balance b/d 16,745.89
30/09 Purchases day book 17,245.98 30/09 Sales day book 34,658.21
30/09 Sales returns day book 1,254.39 30/09 Purchases returns day book 2,356.55
30/09 Balance c/d 18,514.39
53,760.65 53,760.65

On reviewing the day books you find two errors:

• a new customer’s account was incorrectly set up so that no VAT was charged on goods value
£1,200, invoiced on 12 September. Rebecca and Neil have agreed to bear the 20% VAT cost
themselves and have asked you to amend the VAT to reflect this.
• you have found that a supplier invoice for goods value £5,800 dated 29 September was wrongly
accounted for with a VAT rate of 5%.

You prepare journals to correct these errors.

(a) After the journal is processed, what will the revised balance carried down be on the VAT control
account?

£
(2 marks)

(b) Indicate which side of the trial balance this VAT account will appear on. Choose one option.

Trial balance Dr Cr

VAT control account

(1 mark)
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Rebecca and Neil have recently travelled to Italy to meet with several fabric suppliers. They have both
submitted their expenses and have analysed all the input VAT, including that on entertaining the suppliers,
as recoverable on their expenses forms. Neil and Rebecca want you to include the input VAT on the
business expenses in the next VAT return and have indicated you might be able to go on the next trip. You
know that the input VAT cannot be reclaimed by the business for business expenses.

(c) Appling the conceptual framework from the ethical code, which of the following best describes the
situation faced by you?

(a) A familiarity threat to professional behaviour

(b) A self-review threat to objectivity
(c) A self-interest threat to objectivity

(1 mark)

(d) What action should you take? Tick all that apply.

(a) Notify the national crime agency as this is money laundering

(b) Prepare the VAT return and amend it without telling Rebecca and Neil
(c) Contact the AAT helpline for advice

(1 mark)

You are preparing the year-end accounts for March 20-7. You have the following information regarding
administrative expenses.
There was an accrual of £750 made in 31 March 20-6, which has now reversed. The cashbook for the year
shows administration costs of £25,645. You have a bill of administrative expenses showing a total cost of
£3,300 for the quarter ending 30 April 20-7. This was received and paid for after the year-end.

(e) (i) Complete the following statement:

The administrative account needs an adjustment for prepaid expenses / accrued expenses
/ prepaid income / accrued income dated 31 March 20-6 / 31 March 20-7 / 30 April 20-7

for £

(3 marks)

(ii) Calculate the balance carried down on the administrative expenses account after this
adjustment.

(1 mark)
 practice assessment 2 7

If you did not account for administrative expenses in this way you would not be complying with the
conceptual framework.
(f) What elements or underlying principles of the framework would you not be complying with? Tick all
options that apply.

(a) Timeliness
(b) Accruals
(c) Verifiability
(d) Going concern
(e) Comparability
(2 marks)

(g) Complete the following statement about the allowance for doubtful debts. Choose one option. The
allowance for doubtful debts:

(a) is calculated to include a percentage of the total of trade receivables

(b) is deducted as an expense in the statement of profit or loss
(c) always relates to specific customers

(1 mark)
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Task 3: 13 marks
(a) Rebecca has been approached by a local hotel to make 50 pairs of identical curtains. Usually, she
quotes based on absorption costing, but as it is a ‘special order’, she is quoting for the job using
marginal costing, plus a markup of 30%.

Complete the job quotation, using the information below:

Quotation for Regency Hotel

Number of pairs of curtains 50

£
Direct materials (£180 per pair)
Direct skilled labour (12 hrs x £20 per hour, per pair)
Variable overheads (£30 per pair)
Marginal cost
Markup (30%)
Price for curtains

(6 marks)

(b) At the year end, Rebecca has completed the Regency Hotel job, but none of the curtains have been
delivered, so 50 pairs of curtains will be in inventory.

• Due to problems finding skilled labour and an increase in the material cost, the actual
marginal cost for the complete order is £27,300.

• Actual direct labour hours totalled 640 hours.

• The actual production overhead absorption rate per labour hour is £4 for the year.

• Delivery costs are £500.

(i) Calculate the actual value of the inventory to include in the year end financial statements,
valuing it under IAS 2 Inventories, using the information above and any other relevant
information in part (a).

(1 mark)
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(ii) Explain how the inventory has been valued for inclusion in the year end financial statements
in part (i). Use calculations to support your answer.

(5 marks)

(c) Rebecca and Neil are due to move to cheaper premises shortly, so the production overhead
absorption rate needs to be revised for 31 March 20-8.

The estimated fixed production overheads for the year ended 31 March 20-8 are:

Budget £
Rent 32,000
Rates 5,000
Insurance 1,000
Heat & light 6,000
Total fixed overheads 44,000

Rebecca and Neil plan to make 2,000 pairs of curtains next year in the new premises and expect to
use 16,000 skilled labour hours.

Calculate the fixed overhead absorption rate per labour hour used to price each job to the nearest
penny.

£ per labour hour (1 mark)

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Task 4: 15 marks
Today’s date is 14 April 20-7. Rebecca and Neil have been reviewing how they deal with their suppliers.
Historically, Finishing Touches have paid a 50% deposit to the supplier for orders of 20 metres or more of
a fabric, which they have then asked customers to pay for. The customers are expressing concern about
this policy and some have gone elsewhere as a result. However, many customers come to Finishing
Touches as they source ‘unique’ fabrics.
Rebecca and Neil have decided that they will inform all their suppliers that they need 30 days credit or will
stop buying from them. Several of their main suppliers are small independent fabric printers, who rely on
Finishing Touches trade. They may be unable to continue operating if they need to give 30 days credit.
You have expressed your doubts about the new supplier policy and Rebecca and Neil have dismissed your
concerns and suggested if you feel strongly about it, you could consider working elsewhere.

(a) Identify and explain the sustainability issues regarding Rebecca and Neil’s request.

(3 marks)

(b) Explain the ethical issues that you face as a consequence of Rebecca and Neil’s actions and identify
what actions you can take to remain ethical in this situation.

(3 marks)
 practice assessment 2 11

You receive the following email from Rebecca Pin.

To: Joe Francis <[email protected]>

From: Rebecca Pin <[email protected]>
Cc: Neil Pleat <[email protected]>
Date: 12 April 20-7
Subject: Limited Company

Hi Joe,
Neil and I are thinking of converting the partnership to a private limited company. I have done some initial
research and was wondering whether you could clarify the following areas, as the information I have found
is a little confusing to me.
1) By changing from a partnership to a limited company, Neil and I would have limited liability, and at the
moment we have unlimited liability. Please explain what this means, illustrating with an example.
2) A limited company produces sets of accounts to comply with accounting standards and accounting
policies. Can you explain the difference between the two, illustrating with an example of each?
3) I have read that the accounts need to be ‘comparable’ and ‘understandable’. Please explain how these
apply to a set of limited company accounts, with an example for each.
As I am not an accountant, I would be grateful if you could communicate your responses in a clear
manner.
Many thanks

Rebecca
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(c) Reply to Rebecca using the email template below, addressing all three points she has raised and
copying Neil Pleat in.

To: Rebecca Pin <[email protected]>

From: Joe Francis <[email protected]>
Cc: Neil Pleat <[email protected]>
Date: 14 April 20-7
Subject: Limited Company

(9 marks)
 practice assessment 2 13

Task 5: 12 marks
Today’s date is 10 February 20-7.
Finishing Touches are planning to open a shop. You produced a budget for it for the next year ending 31
March 20-8. After reviewing it, Rebecca and Neil would like to make some revisions. They have asked you
to calculate the estimated operating profit for 1,500 sales, flexing the budget and incorporating the following
adjustments:
• The average price will be 5% lower.

• Increase skilled labour by an additional 10% to allow for expected overtime.

• Increase shop staff costs by 40%.

• Increase administration by 15%.

(a) Complete the table for the revised output. Show your answers to the nearest £.

Current budget Revised budget

Pairs of curtains 1,000 1,500
Sales £600,000
Materials £150,000
Skilled labour £150,000
Shop staff £37,500
Administration £25,000
Property overheads (fixed) £33,750 £33,750
Operating profit £203,750

(4 marks)

(b) Rebecca and Neil are considering investing in some new sewing machines. They have asked you
to help prepare a capital investment appraisal for the new sewing machines. The sewing machines
will cost £15,000 and are expected to be used for 3 years, then sold for an estimated £3,600. The
sewing machines will cost an additional £1,500 per year to run.

Rebecca and Neil have provided you will the following information:

Year Forecast labour cost saving £

1 7,100
2 7,300
3 7,400
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(i) Complete the following table, rounding numbers to the nearest whole number.

Year Net cash flow £ Discount factor Discounted cash flow £

0 (15,000) 1.000 (15,000)

1 0.877

2 0.769

3 0.675

(6 marks)

(ii) Calculate the net present value of the investment in the sewing machines.

(1 mark)

(iii) Based on your answer in part (ii), would you advise Neil and Rebecca that the investment
should be made?

Yes / No (1 mark)

Task 6: 13 marks

It is 30 April 20-7.
The business is still operating as a partnership.
You are producing the financial statements for the year ended 31 March 20-7 for Finishing Touches. The
profit for the year in the statement of profit or loss currently shows profits of £245,878.
You are given the following information:
• Rebecca has a salary of £35,600 and Neil has a salary of £25,000.

• Interest on the capital accounts is £3,250 for Rebecca and £3,500 for Neil.

• The residual profit after adjustments is shared between Rebecca and Neil in the ratio 4:3.

• Rebecca has taken drawings of £37,800 over the year and Neil has taken £63,000.

• Interest on drawings has been calculated at £2,100 for Rebecca and £3,500 for Neil for the year
ended 31 March 20-7.
 practice assessment 2 15

You are required to prepare the appropriation account and current account for Finishing Touches for the
year ended 31 March 20-7.

(a) Complete the partnership appropriation statement for the year ended 31 March 20-7 in accordance
with the partnership agreement.
Show your answers as positive and to the nearest whole pound. There does not need to be an entry
for every space.

(7 marks)

Partnership appropriation statement for year ended 31 March 20-7

Total Rebecca Neil

£ £ £
Profit for the year
Add

Total
Less appropriation of profits

Total
Profit available for distribution

Profit share
Rebecca
Neil
Total profit distributed

(b) Complete the current accounts (on the next page) for the two partners as at 31 March 20-7 in
accordance with the partnership agreement.

(6 marks)
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Partnership current accounts for year ended 31 March 20-7

Rebecca Neil Rebecca Neil

Debit Debit Credit Credit
£14,200 Balance b/d £27,300

Total
advanced diploma synoptic tutor zone