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Pearson LCCI Level 4 Certificate in
Financial Accounting (VRQ)
(ASE20101)
SAMPLE ASSESSMENT MATERIALS
DRAFT
First examination June 2017
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ISBN 978 1 4469 4739 5
All the material in this publication is copyright
© Pearson Education Limited 2017
General marking guidance
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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 candidate’s 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
candidate’s response, the team leader must be consulted.
Crossed out work should be marked unless the candidate has replaced it with an
alternative response.
Where marks are awarded for own figure answers, these marks can only be awarded if
evidence of how the candidate arrived at their values has been provided (their workings).
If candidate's fail to provide their workings when instructed in the paper, it may not be
possible to achieve all marks associated with the question, even if the final answer is
correct.
For calculation questions full marks can be awarded where correct answer is seen with no
workings shown, unless question states that candidate must provide workings.
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Abbreviation
Own Figure rule
Accuracy marks can be awarded where the candidates’ answer does not match the mark
scheme, though is accurate based on their valid method.
cao
Correct Answer Only rule
Accuracy marks will only be awarded if the candidates’ answer is correct, and in line
with the mark scheme.
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of
Pearson LCCI Level 4 Certificate
Financial Accounting
(VRQ)
Sample assessment material for first teaching
May 2017
Time: 3 hours
Paper Reference(s)
ASE20101
You must have:
The resource booklet
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Instructions
 Use black ink or ball-point pen.
 Fill in the boxes at the top of this page with your name, centre number
and candidate number.
 Answer all questions.
 Answer the questions in the spaces provided
- there may be more space than you need.
 Answers should be given to an appropriate degree of accuracy.
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Information
 The total mark for this paper is 100.
 The marks for each question are shown in brackets
– use this as a guide as to how much time to spend on each question.
 Calculators may be used.
Advice
 Read each question carefully before you start to answer it.
 Try to answer every question.
 You are advised to show your workings.
 Check your answers if you have time at the end.
Answer ALL questions. Write your answers in the spaces provided.
1 (a) State two accounting concepts which apply when depreciating non-current assets.
(2)
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Use the data on page 2 in the Resource Booklet before you answer the following questions.
(b) Calculate the depreciation charge for each category of non-current asset for the year
ended 31 May 2017.
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(i) Land and buildings
(2)
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(2)
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(ii) Plant and machinery
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(iii) Motor vehicles
(2)
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(c) Complete the schedule of non-current assets at 31 May 2017.
(10)
Cost / valuation
At 31 May 2016
Land &
buildings
$
170 000
Plant &
machinery
$
410 000
Motor
vehicles
$
144 000
Total
$
724 000
Revaluation
Additions
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Disposals
At 31 May 2016
Charge for year
232 500
68 600
313 100
75 400
410 900
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Disposals
12 000
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Accumulated
depreciation
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At 31 May 2017
Revaluation
At 31 May 2017
Carrying value
At 31 May 2017
At 31 May 2016
158 000
177 500
(d) (i) Define the term intangible asset.
(1)
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(d) (ii) State one example of an intangible asset.
(1)
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(Total for Question 1 = 20 marks)
4
Use the data on page 3 in the Resource Booklet before you answer the following questions.
2 (a) Prepare a reconciliation of profit from operations to the net cash from
operating activities for the year ended 30 June 2017.
(8)
Elabdou Ltd
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(b) Prepare an extract of the statement of cash flows for the year ended 30 June 2017 to
show net cash used in investing activities.
(6)
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(c) Prepare an extract of the statement of cash flows for the year ended 30 June 2017 to
show net cash from financing activities.
(4)
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(d)
Explain how positive and negative cash flows from investing activities may help an
investor assess the future growth potential of the company.
(4)
Positive
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Negative
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(Total for Question 2 = 22 marks)
3 (a) State two differences between ordinary shares and debentures.
(2)
1 .......................................................................................................................................................................................................................................
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(b) State what is meant by the term ‘6% debenture (2020-2023)’.
(2)
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Use the data on page 5 in the Resource Booklet before you answer the following questions.
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(c) Prepare journal entries for Wong Ltd to record each of the transactions in the books of
account. Narratives are not required.
(7)
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(d) Assess the profitability and liquidity of Clirk Ltd over the two years.
(6)
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(e) State two limitations of financial analysis.
(2)
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(Total for Question 3 = 19 marks)
Use the data on page 6 in the Resource Booklet before you answer the following questions.
4 Calculate the values of the following in the consolidated statement of financial position of
Shaqui plc at 31 March 2017:
(i) Goodwill
(3)
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(ii) Retained earnings
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(iii) Non-controlling interest
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(b) Prepare the consolidated statement of financial position of Shaqui plc at 31 March 2017.
(12)
Shaqui plc
Consolidated statement of financial position at 31 March 2017
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(Total for Question 4 = 20 marks)
12
Use the data on page 8 in the Resource Booklet before you answer the following questions.
5 (a) Explain the results in the entries in lines B, C and D.
Write your answers in the table below. Entry A has been completed as an example.
(6)
Entry
A
Explanation
The profit for the year ended 30 June 2017 of $65000 has been posted to
retained earnings account.
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B
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It has been discovered that Company A has a 6% debenture of $750000.
(b) Calculate the gearing ratio for Company A.
(2)
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Ali has noticed that the company’s previous external auditor issued a qualified audit report.
(c) State two situations that may have caused the auditor to take this course of
action.
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Analyse the available data for the two companies.
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(d) Recommend which investment Ali should choose.
Remember to justify your recommendation.
(9)
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(Total for Question 5 = 19 marks)
(TOTAL FOR PAPER = 100 MARKS)
Pearson LCCI Level 4 Certificate
Financial Accounting
(VRQ)
Sample assessment material for first teaching
May 2017
Paper Reference(s)
ASE20101
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RESOURCE BOOKLET
Resource for question 1
The directors of Puell Ltd have provided the following extract from the notes to the financial
statements for the year ended 31 May 2016.
Land and
buildings
$
Cost
Accumulated depreciation
Carrying value
Plant and
machinery
$
Motor
vehicles
$
Total
$
170 000
410 000
144 000
724 000
12 000
232 500
68 600
313 100
158 000
177 500
75 400
410 900
Additional information
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1. The company’s depreciation policy is as follows:
All depreciation is charged on a month-by-month basis.
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Buildings are depreciated on a straight line basis to take account of an estimated
useful life of 50 years.
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Plant and machinery is depreciated at a rate of 15% per annum using the reducing
balance method.

Motor vehicles are depreciated at a rate of 20% per annum using the reducing balance
method.
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2. Land and buildings included land at a cost of $50 000. On 1 June 2016, buildings were
revalued to $180 000. The buildings will now be depreciated equally over the remaining
useful life.
3. On 30 September 2016, a motor vehicle was sold for $25 000. The motor vehicle had
originally been purchased on 1 December 2014 for $40 000.
4. On 31 March 2017, new plant and machinery was purchased for $18 000.
2
Resource for question 2
The following data has been extracted from the financial statements of Elabdou Ltd at
30 June 2017.
Statement of profit or loss for the year ended 30 June 2017
$000
Revenue
1 266
Cost of sales
(780)
Gross profit
486
Operating expenses
(170)
316
Finance costs
(20)
Profit before taxation
296
Taxation
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Profit for the year
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Profit from operations
(126)
170
Extracted from the statements of financial position
30 June
2016
$000
60
Development expenditure
130
85
50
35
290
315
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6
Inventories
340
318
Property plant and equipment
440
510
94
80
510
450
80
35
Taxation payable
145
116
Trade payables
165
176
Trade receivables
216
235
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8% debenture (2021-2023)
30 June
2017
$000
80
Dividends payable
Goodwill
Interest payable
Revaluation reserve
Share capital ($1 ordinary shares)
Share premium
3
Additional information
The following occurred during the year ended 30 June 2017:
Plant with a carrying value of $83 000 was sold for $85 000
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Development expenditure of $60 000 was paid.
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The final dividend for the year ended 30 June 2016 was paid.
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The depreciation charge for the year was calculated at $27 000
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4
Resource for question 3(c)
Wong Ltd have provided you with the following balances from the statement of financial
position at 31 May 2016.
$
Share capital ($1 ordinary shares)
150 000
Share premium
22 000
General reserve
30 000
Retained earnings
38 000
The following transactions took place during the year ended 31 May 2017.
 On 30 June 2016, the company made a bonus issue of shares of two ordinary
shares for every 15 shares held at that date.
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 On 30 September 2016, the company made a rights issue of two ordinary
shares for each five shares held at that date at a premium of 40%. The issue
was fully subscribed and were paid on that date.
Data for question 3(d)
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 On 31 October 2016, the company paid a dividend of $0.15 on all shares in
issue at 30 June 2016.
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The directors of Clirk Ltd calculate the following accounting ratios for the company for the
years ended 30 June 2016 and 2017. They also provide the industry averages for 2017.
Clirk Ltd
2016
Clirk Ltd
2017
Industry
averages
2017
Gross profit margin
44.24%
40.24%
42%
Operating profit margin
16.67%
14.63%
17.5%
Quick ratio
1.60:1
0.60:1
1.15:1
Receivable days
69 days
43 days
48 days
Payable days
56 days
73 days
50 days
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Resource for question 4
Shaqui plc has one subsidiary undertaking, Chamb Ltd.
The following draft financial statements are available for the two companies at
31 March 2017.
Statements of financial position at 31 March 2017
Shaqui plc
$000
Chamb Ltd
$000
1 590
320
372
-
1 962
320
Non-current assets
Property plant and equipment
Current assets
Inventory
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Investment in subsidiary
1 350
840
1 940
610
80
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3 370
1 450
5 332
1 770
2 080
100
Share premium
60
30
Revaluation reserve
90
-
1 042
250
3 272
380
6% debenture (2022-2024)
340
-
8% debenture (2020-2021)
-
300
1 390
770
330
110
-
210
1 720
1 090
5 332
1 770
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Trade and other receivables
Cash and cash equivalents
Total assets
Equity
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Equity and liabilities
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Share capital
Retained earnings
Total equity
Non-current liabilities
Current liabilities
Trade and other payables
Taxation
Cash and cash equivalents
Total equity and liabilities
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Additional information
1. The share capital of both companies consists of ordinary shares of $1 each.
2. Shaqui plc acquired 80 000 ordinary shares in Chamb Ltd on 1 April 2016.
3. The balance of retained earnings of Chamb Ltd at 1 April 2016 was $50 000
4. The fair value of the property plant and equipment of Chamb Ltd at 1 April 2016 was
$380 000. No entry for the revaluation of property plant and equipment has been
made in the books of Chamb Ltd.
5. On 31 March 2017, Shaqui plc invoiced Chamb Ltd with $60 000 for administrative
expenses. This invoice had been correctly included in the books of Shaqui plc but no
entry had been made in the books of Chamb Ltd.
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6. The directors of Shaqui plc are of the opinion that goodwill has been impaired by 10%
during the year ended 31 March 2017.
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Resource for question 5 (a)
Ali has $50,000 to invest in a company. He has asked for advice.
The following information has been extracted from Company A’s statement of
financial position at 1 July 2016.
Equity
$000
Share capital - $1 ordinary
shares
150
Share premium
30
General reserve
15
Revaluation reserve
20
Retained earnings
85
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300
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Company A has produced the following statement of changes in equity for the year
ended 30 June 2017.
$000
A
B
C
150
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At 1 July 2016
Revaluation
reserve
Retained
earnings
$000
$000
$000
30
20
85
Share premium
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Share capital
65
30
(30)
36
18
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At 30 June
2017
8
216
18
(20)
(10)
-
140
Resource for question 5 (d)
Ali decides to invest in the shares of one of two companies. He has a cautious approach to
investment and wishes to plan for his retirement, so the security of his investment is most
important.
He obtains the following recent company data for the two investment opportunities.
Analyse the available data for the two companies.
Company C
Quick ratio (acid test)
0.54:1
1.25:1
Return on capital employed
24.5%
20.8%
Interest cover
2.9 times
8.5 times
Dividend cover
1.5 times
3.8 times
Dividend yield
6%
6%
62%
45%
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Company B
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Gearing
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Mark Scheme
Question
Number
1(a)
Answer AO1 (2)
Mark
Award 1 mark for each of the following:
(2)
Accruals (1)
Consistency (1)
Question
Number
1(b)(i)
Answer AO2 (2)
Mark
Award marks as indicated.
(2)
Land and buildings:
(180 000 / 45 years) (1) = 4 000 (1of)
Answer AO2 (2)
Award marks as indicated.
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Question
Number
1(b)(ii)
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Additional Guidance
Correct answer only scores 2 marks.
Mark
(2)
Plant and machinery
New: 18 000 x 15% x 2/12 = 450 (1)
Old: 177 500 x 15% =
26 625 (1)
27 075
Additional Guidance
Accept 27 075 for 2 marks
Answer
AO2 (2)
Award 1 mark as indicated.
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Question
Number
1(b)(iii)
(2)
Motor vehicles
Old: (75 400 – 28 800) x 20% = 9 320 (1)
Sold: 28 800 x 20% x 4/12 =
Additional Guidance
Accept 11 240 for 2 marks
Mark
1 920 (1)
11 240
Question
Number
1(c)
Answer AO2 (10)
Mark
Award marks as indicated.
(10)
Puell Ltd
Schedule of non-current assets at 31 May 2017
Cost /
valuation
At 31 May
2016
Revaluation
Land &
buildings
Plant &
machinery
Motor
vehicles
170 000
410 000
144 000
60 000
(1)
Additions
18 000
Disposals
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(40 000)
724
000
60
000
18
000
(40
(1)
000)
762
000
230 000
428 000
104 000
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At 31 May
2017
(1)
Total
Accumulated
depreciation
At 31 May
2016
Charge for
year
On disposals
Carrying
value
At 31 May
2017
At 31 May
2016
Question
Number
1(d)(i)
313
100
42
27 075 (1of) 11 240 (1of)
315
(13
(13 120) (1)
120)
(12
000)
330
259 575
66 720 (1)
295
232 500
68 600
226 000
168 425
37 280 (1of)
158 000
177 500
75 400
4 000 (1of)
(12 000)
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On
revaluation
At 31 May
2017
12 000
4 000
Answer
AO1 (1)
A non-monetary asset (1)
(1)
431
705
410
900
Mark
(1)
Question
Number
1(d)(ii)
Answer AO1 (1)
Mark
Award 1 mark for any of the following:
(1)
Goodwill
Patents
Copyright
Accept any other appropriate response.
(Total for Question 1 = 20 marks)
Answer AO2 (8)
Mark
Award marks as indicated.
(8)
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Elabdou Ltd
Reconciliation of profit from operations to net cash flow from
operating activities for the year ended
30 June 2017
Profit from operations
Depreciation
Profit on sale of non-current assets
Amortisation of development expenditure
Goodwill written off
Increase in inventories
Decrease in trade receivables
Decrease in trade payables
Cash from operating activities
Taxation paid
Interest paid
Net cash from operating activities
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Question
Number
2(a)
$000
316
27
(2)
15
25
(22)
19
(11)
367
(97)
(18)
252
(1)
(1)
(1)
}
}(1)
}
(1)
(1)
(1)
(1of)
Question
Number
2(b)
Answer AO2 (6)
Mark
(6)
Award marks as indicated.
$000
Cash from investing activities
Purchase of non-current assets
W1
Proceeds of sale of non-current assets
Development expenditure
Net cash used in investing activities
(26) (4of)
85
(60) (1)
(1) (1of)
W1
510 + 14 (1) – 83 (1) – 27 (1) - 440 = (26) (1of)
Answer AO2 (4)
Mark
Award marks as indicated.
(4)
T
Question
Number
2(c)
$000
105
20
(35)
90
(1)
(1)
(1)
(1of)
Answer AO3 (4)
Award 1 mark for identification and award 1 mark for linked
development. Maximum of 2 marks for Positive and 2 marks
for Negative.
Mark
(4)
D
Question
Number
2(d)
R
AF
Cash from financing activities
Increase in share capital
Increase in 8% debenture
Equity dividend paid
Net cash from financing activities
Positive
It may indicate that the company is in financial difficulties (1)
and is disposing of non-current assets which may not enable
future growth (1).
Negative
It may indicate the company is investing in additional noncurrent assets (1). This indicates that the company is planning
for future growth (1).
Accept any other appropriate response.
(Total for Question 2 = 22 marks)
Question
Number
3(a)
Answer AO1 (2)
Mark
Award 1 mark for each difference up to a maximum of 2
marks.
(2)
Ordinary share capital is part of the equity of the company/
Debentures are a non-current liability (1).
Ordinary shareholders receive dividends/ Debenture holders receive
interest (1).
Ordinary shares are not repayable/ Debentures are repayable (1).
Accept any other appropriate response.
Question
Number
3(b)
Answer AO1 (2)
Mark
Award 1 mark for each correct statement.
(2)
T
The rate of interest payable on the debenture is 6% (1) per annum.
The debenture is repayable between the years (2020-2023) (1).
Answer AO2 (7)
R
AF
Question
Number
3(c) 1 ma
Award 1 mark for each correct figure with appropriate narrative.
D
Share premium
Share capital
Bank
Share capital
Share premium
Dividends paid
Bank
Question
Number
3(d)
Dr
$
20 000 (1)
Mark
(7)
Cr
$
20 000 (1)
95 200 (1)
68 000 (1)
27 200 (1)
25 500 (1)
25 500 (1)
Answer AO4 (6)
Mark
Award up to 3 marks for a valid assessment of profitability.
Award max 2 marks if no conclusion.
(6)
Profitability
Profitability of Clirk Ltd has deteriorated over the two years. This
may be due to an increase in the cost price without the
consequential increase in the selling price (1).
Despite of this the operating profit has increased by 2% which
indicates that the company have better control of their overheads
(1).
However both figures are below that of the industry average which
indicates that the business must take steps to improve their
profitability (1).
Award up to three marks for a valid assessment of liquidity
Award max 2 if no conclusion
Liquidity
The liquidity of Clirk Ltd has deteriorated over two years.
Despite a reduction in trade receivables, the amount of trade
payables has doubled over the two years (1).
The quick ratio is well below the industry average which indicates
that the business is facing problems and is trading below that of
other similar businesses (1).
These problems may result in increased pressure from
suppliers to be paid or maybe unwilling to supply with goods on
credit (1).
Accept any other appropriate responses.
Question
Number
3 (e)
Answer AO1 (2)
Mark
Award 1 mark for any of the following. Maximum 2 marks.
(2)
R
AF
T
Takes no account of qualitative factors
Data can be inaccurate
Historical data
Accept any other appropriate response.
(Total for Question 3 = 19 marks)
Answer AO2 (3)
Mark
Award marks as indicated.
(3)
D
Question
Number
4(a)(i)
Price paid
Share capital
Share premium
Revaluation
Retained earnings
Less: impairment
100
30
60 (1)
50 (1)
240 x 80%
10%
$000
372
192 (1)
180
(18)
162
Question
Number
4(a)(ii)
Answer AO2 (2)
Mark
(2)
Award marks as indicated.
Shaqui plc
Chamb Ltd post-acquisition
Goodwill impairment
Answer AO2 (3)
Mark
(3)
Award marks as indicated.
T
$000
100
30
60 (1)
50 (1)
200 (1)
440
x 20%
88
R
AF
Share capital
Share premium
Revaluation
Retained earnings pre-acquisition
Retained earnings post acquisition
D
Question
Number
4(a) (iii)
$000
1 042
160 (1)
(18) (1)
1 184
Answer AO2 (12)
Mark
Award marks as indicated.
(12)
Shaqui plc
Statement of financial position at 31 March 2017
$000
Current assets
Inventory
Trade and other receivables
2
2
4
6
190 (1)
490 (1)
680
812 (1)
2 080
60
90
1 184
3 414
88
R
AF
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Revaluation reserve
Retained earnings
162 (1of)
1 970 (1)
2 132
Non-controlling interest
Non-current liabilities
6% debenture (2022-2024)
8% debenture (2020-2021)
Current liabilities
Trade and other payables
Taxation payable
Cash and cash equivalents
Total equity and liabilities
(1)
(1)
(1)
(1of)
T
Assets
Non-current assets
Goodwill
Property plant and equipment
D
Question
Number
4(b)
(1of)
340
300
640 (1)
2 100
440
130 (1)
2 670
6 812
(Total for Question 4 = 20 marks)
Mark
Award 1 mark for identification and award 1
mark for linked development. Maximum 2
marks per item.
Item
B
Cause
Bonus issue (1) of shares of two ordinary shares for each
ten shares held (1).
C
Rights issue (1) for shares of one for five ordinary shares
at $1.50 (1).
D
Revaluation of property downwards by $30000 (1). The
balance over the revaluation reserve of $20000 reduces
returned earnings (1).
Answer AO1 (2)
Award marks as indicated.
T
Question
Number
5(b)
Answer AO3 (6)
R
AF
Question
Number
5(a)
(6)
Mark
(2)
750000/ (750000 + 374000) (1)
71.43% (1)
Additional Guidance
Correct answer only scores 2 marks.
Answer AO1 (2)
Mark
Award 1 mark for each correct situation. Maximum 2 marks.
(2)
D
Question
Number
5(c)


The auditor may have considered that the company’s
accounting methods do not follow GAAP (1).
The auditor may have considered that information provided
was limited in scope (1).
Answer AO4 (4) AO5 (5)
Mark
Award 1 mark for any valid points of analysis up to maximum 4
marks.
(9)
Award 1 mark for any valid points of evaluation up to maximum 4
marks.
Award 1 mark for a recommendation that is justified using the
outcome of the analysis and evaluation up to a maximum of 1
mark.
Analysis
Company B has only $0.54
of quickly realisable
assets to repay each $1 of
current liabilities.
Company C has greater
liquidity (1).
Evaluation
As a result Company C is
less likely to collapse
due to insufficient
working capital (1).
Return on
capital
employed
Company B has a 3.7%
better return on capital
employed (1).
This indicates that
Company B is making a
greater profit (for each
$1 of capital employed)
indicating greater
operating efficiency (1).
R
AF
T
Indicator
Quick ratio
Interest
cover
Company C is able to
cover its finance costs 5.6
times more than company
B (1).
D
Question
Number
5(d)
Dividend
cover
Dividend
yield
Company C has a higher
dividend cover than
Company B by 2.3 times.
(1).
This represents the return
on investment to the
investor. Both companies
have an identical yield/
both companies have a
high dividend yield
compared to the market
value of the shares (1).
This indicates that
Company B would be
vulnerable to any
increases in external
borrowing/increases in
the cost of borrowing
(1).
This suggests that
company C is retaining a
higher proportion of its
earnings to meet its
financial requirements/
may result in higher
dividend payments in the
future (1).
As both companies have
an identical dividend
yield this will have no
impact of the investment
decision (1).
Gearing
Company B has higher
gearing than Company C
by 17%. This shows a
higher proportion of a
company’s available
capital provided by
external, interest bearing
sources as distinct from
equity shareholders (1).
The higher gearing of
Company B may lead to
that company having
difficulty in acquiring
external funds for
expansion (1).
E.g. Recommendation.
As Ali is a cautious investor wishing to plan for his
retirement, the recommendation would be to invest in
Company C/Despite the lower return on capital
employed, Company C is a less risky investment to meet
Ali’s needs. (1)
Additional Guidance
R
AF
T
Award 1 mark for any valid analysis or evaluation statement that focuses on the opposite
company/reverse argument from the examples given.
(Total for Question 5 = 19 marks)
D
(TOTAL FOR PAPER = 100 MARKS)