All rights reserved. No part of this publication may be reproduced by any means without prior permission of the New Zealand Qualifications Authority. Assessment Schedule 2005
Accounting: Analyse and interpret information and make recommendation(s) for a sole proprietor (90225)
Evidence Statement
Codes: C = Correctly calculated analysis measure I = Interpret R = Recommend J = Justify
Question Evidence Code
ONE
(a)
Analysis Measure Working Answer Administration Expenses %
57 000 380 000 ! 100 1 15% C Gross Profit %
228 000 380 000 ! 100 1
60%
C
(b)
Award I for idea of managing administration expenses (ie he is making a decision, carrying out an action) eg it will tell him how well he is managing / controlling the administration expenses it will tell him whether he needs to reduce his spending on administration expenses to see if they are doing a good job at managing their administration expenses. compare with industry average / previous years administration expense.
I
(c)
Award I for link that identifies increase in sale of toys with higher mark-ups
more toys with a higher mark-up have been sold (compared with toys having lower mark-ups).
I
(d) (i)
52 000 520 000 ! 100 1 = 10%
C
(ii)
Award I for a reason that equity is increasing at a rate faster than net profit
the increase in equity ratio was due to an increase in equity in the business. This increase in equity is at a rate faster than the increase in net profit, which means the return on average owners equity falls.
I
NCEA Level 2 Accounting (90225) 2005 page 2 of 5
Question Evidence Code
TWO (a)
Analysis Measure Working Answer Current Ratio
110 000 50 000
2.2:1 C Inventory Turnover
150 000 50 000
3 times C Equity Ratio
143 000 260 000
0.55:1 C
(b)
Award I for the link between owners equity decreasing and drawings being greater than net profit
owners equity decreased as a result of Shelleys drawings in 2005 being greater than the net profit.
I
(c)
Award R and J Award R for a valid recommendation that will improve the equity ratio. Award J (justification) for a link between the recommendation and how it improves the equity ratio eg Shelly invests more cash / assets into the business (R): - more of the businesss assets are financed by Shelly as she has increased the equity in the business (J) and - the cash can be used to repay debt, meaning fewer assets are financed by external sources (J) increase the net profit through reduced expenses / being more efficient (R) - enables more equity to be retained in the business, meaning more of the assets are financed by the owner (J) - enables more equity to be retained in the business, which can be used to repay debt, meaning fewer assets are financed by external debt (J) keep drawings less than net profit each year (R) - allows more equity to be retained in the business, meaning more assets are financed by the owner (J)
Note: reduced drawings is insufficient unless linked to being less than net profit. Note: if the candidate uses increased advertising there must be a clear explanation that sales increases in a greater proportion. Note: can achieve J without R if recommendation not clearly expressed.
R and J
NCEA Level 2 Accounting (90225) 2005 page 3 of 5
Question Evidence Code
THREE (a)
Award I for reason that uses the resource to explain why the current liabilities increased
cash from the overdraft was used to pay for new equipment.
I
(b)
Award I for an explanation of the relationship between liquid and current ratio and overdraft. Award another I for recognising the increase in the overdraft and the impact it has in the context of this question
the bank overdraft is not a liquid liability so it is not included in the liquid ratio (but it is included in the current ratio as it is a current liability,) (I); because the overdraft has increased it has made the current ratio worse without affecting the liquid ratio (I).
Note: for (I) + I, there must be a link.
I and I
(c)
Award J (justification) for a link between the loan and how it improves the current ratio
the cash from the loan will reduce the overdraft and not increase current liabilities further as the loan is not due until 2010 use loan to buy more inventory thereby increasing current assets and not affecting current liabilities, so the current ratio will improve
Note: answer must lead to increase in current ratio.
J
NCEA Level 2 Accounting (90225) 2005 page 4 of 5
Question Evidence Code
FOUR (a)
Award I identifying a reason that causes the inventory turnover to improve
eg (increase in sales) the inventory turnover has improved because the hardware that is being ordered is of a good quality / brand that customers wish to purchase, meaning the inventory is selling better than in the past (lower stock levels) the inventory turnover has improved because less hardware is being ordered, which means stock is not being accumulated .
I
(b) (i)
Award I for explanation that identifies cash is not available from accounts receivable to pay debts. Award another I for link identifying that slow payment means the overdraft needs to be used to pay debt.
because it is taking longer to collect the money owed from credit customers, there is less cash available to pay Handy Havens debts (I); thus the overdraft was increased to allow Tim to meet his current debts (I).
I and I
(ii)
Award R (recommendation) for a valid recommendation that will improve the age of accounts receivable. Award J (justification) for a link between the recommendation and how it improves the age of accounts receivable.
offer a discount for early payment / payment on time (R): - this will reduce the age of accounts receivable as the discount will reduce what people have to pay and they will want to take advantage of this (J) charge overdue fees for late payment (R): - this will reduce the age of accounts receivable as the overdue fee will increase what customers will have to pay, so to avoid this they will pay on time (J) send reminders out to OVERDUE accounts asking for payment (R) - this will remind customers that they owe money, and they are likely to pay as they are aware that Handy Haven has not forgotten that they owe the business money (J).
Note: do not accept the idea of credit check; this does not mean debtors will pay early, it just decreases the likelihood of bad debts.
R and J
NCEA Level 2 Accounting (90225) 2005 page 5 of 5
Question Evidence Code
FIVE
Award I for explanation of meaning of 8% (or 4%).
Award another I for linking the businesss financial expense % being greater than the industry average and its impact on profitability (look for the idea that increasing financial expenses caused the Net Profit % to be lower than the industry average) eg an 8% financial expenses % means eight cents (or 8%) of each sales dollar is spent on financial expenses (I) the financial expenses percentage is 4% higher than the industry average, which has contributed to Extreme Sports net profit percentage being lower than the industry average, ie it is less profitable than the industry average (I). Award R for a valid recommendation that will improve the financial expenses percentage the answer must relate to the loan, ie refer to the information supplied. Award J (justification) for a link between the recommendation and how it improves the financial expenses percentage eg the business needs to repay some of its loan (R): - repayment of the loan will reduce the interest on loan expense, as there will be less loan for interest to be charged on (J) the business negotiates a new interest rate with the bank (R): - the new interest rate will be lower, which will reduce the interest payments on the loan (J).
I and I
R and J
Judgement Statement
Criteria Achievement Achievement with Merit Achievement with Excellence One 3 ! C 4 ! C 5+ ! C Two 6 7 ! I or R (at least 5 ! I) (at least 1 ! R) 8 10 ! I or R (at least 2 ! R) 11+ ! I or R (at least 2 ! R) 2+ ! J
Codes C = Correctly calculated analysis measure I = Interpret R = Recommend J = Justify