Tampines Sec 4E Prelim 2023 Paper 1 (Answers)

Debit $ Credit $ Error 1 Trade receivable – Ling Ling 2 500 [1] Trade receivable – Ming Ming 2 500 [1] Error 2 Cash at bank 600 [1] Commission income 600 [1] 2023 Sec 4E/5NA Prelim Exam Suggested Answers 1(a) 1(b) Shirley Statement to show adjusted profit for the year ended 31 December 2022 $ Unadjusted profit for the year 12 360 Add: Commission income – was understated 600 [1] Less: Utilities expense – was understated 18 [1] Adjusted profit for the year 12 942 [1]

2(a) Transaction Source document (i) Interest expense on bank overdraft. Bank statement [1] (ii) Purchase inventory on credit. Invoice [1] (iii) Correct an undercharge for sales made to a credit customer. Debit note [1] 2(b) A source document provides evidence [1] and this is consistent with the objectivity theory which states that accounting information recorded must be supported by reliable and verifiable evidence. [1] 2(c) Assets = 22 500 + 4 000 + 20 100 + 9 200+ 1 800 = $57 600 [1] Liabilities = 15 600 + 10 000 = $25 600 [1] Equity = A – L = $57 600 – $25 600 = $32 000 [1] 2(d)(i) On 14 July 2021, A debtor, Emily Trading, was unable to pay its debt of $2 400 and Flora Cosmetics wrote off that amount. [1] 2(d)(ii) On 31 March 2022, Flora Cosmetics reviewed its trade receivables balance and increased its allowance for impairment of trade receivables by $760 to $2,760.[1] 2(e) Prudence theory states that the accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses.[1] Accounting for allowance for impairment of trade receivables as a deduction against trade receivables will ensure that trade receivables balance (asset) is not overstated. [1]

3(a) Profitability is the ability of a business to generate excess income to cover its expenses. [1] 3(b) A business can improve its profitability by  Selling goods at higher selling price  Buying goods in bulk to enjoy trade discount  Paying early to suppliers to take advantage of cash discounts  Reducing operating costs (Any 2 ways – 1 way 1 mark) 3(c)(i) Gross profit margin = 149 350 / 250 600 x 100 = 59.6% [1] 3(c)(ii) Profit margin = 57 970 / 250 600 x 100 = 23.1% [1] 3(d) Dannie’s gross profit margin of 59.6% is better than Terrie’s 51.7%. [1] This shows that Dannie’s sales are more profitable than Terrie’s. Dannie is able to buy his goods at a lower price or sell them at a higher price as compared to Terrie. [1] However, Dannie’s profit margin of 23.1% is worse than Terrie’s 28.9%. [1] Dannie’s final profit is only $0.23 for every dollar of net sales revenue whereas Terrie’s final profit is $0.29 for every dollar of net sales revenue. Dannie is not able to manage his operating expenses as well as Terrie.[1] Hence, Terrie is a more profitable business as he is able to manage his expenses better than Dannie. [1] 4(a) Features of a private limited company:  Owned by 50 or fewer shareholders where each shareholder buys shares and contributes capital.  More likely for banks and other lenders to lend money as there are more business assets of high value to serve as collaterals.  Hires professionals to manage the business on behalf of shareholders  Exists forever until wound up or struck off.  Needs to comply with statutory requirements and file annual financial reports. (Any 2 features from pages 4 and 5 of textbook – 1 feature 1 mark) 4(b) Managers/ employees/ lenders/ suppliers/ customers/ government/ competitors [1] (Any 1 stakeholder except shareholders) 4(c)(i) Retained earnings - accumulation of profits and losses that has not been distributed to shareholders yet since operation [1]

4(c)(ii) Dividends - a portion of retained earnings that was distributed to shareholders [1] 4(d) Total share capital = 200 000 + (100 000 x 2.50) [1] = $450 000 [1] 4(e) Retained Earnings Account Date Debit $ Credit $ Balance $ 2022 Jan 1 Balance b/d 130 800 Cr [1] Dec 31 Income summary 30 580 [1] Dividends (200000x0.05) 10 000 [1] 151 380 Cr 2023 Jan 1 Balance bld 151 380 Cr [1]