SHSS 2023 Prelims 4E5N POA P1 2 MS

SHSS Principles of Accounts 2023 PRELIMINARY 4E5N 7087 - Mark Scheme Paper 1 Marks Q1 (a) (i) Debit note (ii) Credit note (iii) Payment voucher/bank statement/ remittance advice/receipt 3 (b) Recording using source documents ensures that transactions are recorded based on information that is reliable and verifiable [1] as required by objectivity theory.[1] 2 (d) Any one difference:  Trade discount is given to encourage customers to buy in bulk while cash discount is given to encourage prompt payment by credit customers.  Trade discount are deductions off the list price at the point of sale and cash discount are deducted off the invoice price of goods at the point of payment. 1 (c) Journal Date Particulars Dr $ Cr $ 2022 Aug 19 Trade payable – Caddy Co [(9400-800)x90%+250] [1] 7990 Discount received [1] 90 Cash at bank [1] 7900 3 Total 9 Q2 (a) Journal Date Particulars Dr $ Cr $ (i) 2021 Nov 4 Trade receivable - Kirby [1] 2100 Cash at bank [1] 2100 (ii) 2022 Feb 2 Allowance for impairment on trade receivables [1] 2100 Trade receivable – Kirby [1] 2100 4 (b) Allowance for impairment on trade receivables for year ended 31 December: 5% x 28300 = $1415 [1] 2021 2022 $1820 Less write off: (2100) (280) New: 1415 Adjustment: 1415-(-280) = 1695 Allowance needed to be increased by $1695 [1] 2 (c) Statement of financial performance for year ended 31 December 2022 Less: other expenses $ Impairment loss on trade receivables [1] OF 1695 1 Total 7

Q3 (a) Furniture account represents furniture purchased meant for use by the business. Inventory is used to record furniture purchased for resale to generate revenue for the business. 2 (b) Transaction (ii) 1 (c) Error 1: Dr Furniture [1] Cr Inventory [1] Error 2: Dr Equipment [1] Cr Repairs [1] 4 (d) Adjusted profit = 16500 +590=$17090 [1] 1 Total 8 Q4 (a) (i) Gross profit margin = 200564/691600 x 100 = 29.00% [1] (i) Profit margin = (200564-138320) [1] / 691600 x 100 = 62244 / 691600x100 = 9.00% [1] (ii) Return on equity = 62244/((500000+546000)/2) [1] = 11.90% 5 (b) Return on equity measures how much profit is earned for every dollar of equity invested by the shareholders.[1] It helps shareholders decide whether to buy more or sell their shares in the business.[1] 2 (b) 2021 2022 Gross profit margin 25% 29% Profit margin 12% 9% Return on equity 16% 11.9% Any 6 comments: Kwek Ltd’s gross profit margin improved from 25% for year ended 30 Sep 2021 to 29% for year ended 30 Sep 2022. [1] What This indicates that the business was able to derive more trading profit from its increased sales revenue over the two years. It could be owing to higher selling price or its ability to keep it cost of sales low. [1] So what However, the profit margin worsened from 12% for year ended 30 Sep 2021 to 9% for year ended 30 Sep 2022. [1] This signals that the business was unable to manage its operating expenses and the increased in gross profit is insufficient to cover the increase in operating expenses over the two years. [1] The return on equity also subsequently worsened from 16% for year ended 30 Sep 2021 to 11.9% for year ended 30 Sep 2022. [1] This indicates that business is deriving less profit for every dollar of contribution by shareholders hence making it less attractive to shareholders. [1] Overall, the profitability of Kwek Ltd has worsened from year ended 30 Sep 2021 to 2022. 6 (d) Accumulated depreciation = 25%x25000 x 2=12500 Gain on sale of non-current asset = 15000 – (25000 – 12500) = $2500 [1] 1 (e) Profitability will be improved by the increased in profit by $2500 in other income (Gain on sale of NCA). [1] Liquidity will be improved by increased of $15000 in current assets when sales proceeds are received [1] 2 Total 16 Total for Paper 1 40

4E5N PRELIM POA Paper 2 Marks Q 1 (a) Dong Boutique Statement of financial performance for year ended 31 May 2023 $ $ Sales revenue 832600 Less Sales returns 6470 Net sales revenue [1] 826130 Less Cost of sales 291400 Gross profit [1] 534730 Add: Other income Commission income [1] 3200 Less: other expenses Rent expense 42250 Wages and salaries 132000-5000 [1] 127000 Utilities 16450+1960 [1] 18410 Insurance 22100/13 x 12 [1] 20400 Interest on loan 4%x100000 [1] 4000 Depreciation of fixtures and fittings 10%x(150000-2000) [1] 14800 Depreciation of equipment 20%x(370000-133200) [1] 47360 Impairment loss on inventory 3100-1300 [1] 1800 Impairment loss on trade receivables (5%x216900)-9820 [1] 1025 277045 Profit for the year 260885 [11] 11 (b) Dong Boutique Statement of financial position as at 31 May 2023 $ $ $ Assets Cost Accumulate d depreciation Net book value Non-current assets Fixtures and fittings [1] 15000 0 40800 109200 Equipment [1] 37000 0 180560 189440 298640 Current assets Trade receivables 21690 0 Less allowance for impairment of trade receivables [1] 10845 206055 Cash at bank 9550 Inventory 98420-1800 [1] 96620 Commission income receivables [1] 3200 Prepaid insurance 22100-20400 [1] 1700 317125 Total assets 615765 Equity and Liabilities Owner's equity Capital 110000+260885 [½] -19200- 5000 [½] [1] See workin g 346685 9

Non-current liabilities Long-term borrowing 100000 Current liabilities Trade payables 165200 Utilities payable [1] 1960 Interest payable 4000-2080 [1] 1920 169080 Total equity and liabilities 615765 [9] Total 20

Q2 (a) (i) On 23 May 2023, Uma Store withdrew $1500 from the business bank account for office use. (ii) On 30 May 2023, owner of Uma Store contributed to the business by depositing $4000 in the business bank account. 2 (b) Any one difference: Bank loan is fixed amount borrowed for more than one financial year  money is deposited in business bank account  repayable in equal instalments or one-time lump sum  presented as non-current liabilities as long-term borrowings  Bank overdraft is amount borrowed for less than one financial year  overdrawn on the bank account up to the limit agreed with the bank  Repay by depositing cash into bank account within the year  presented as current liabilities as bank overdraft 1 (c) Cash at bank 2023 Dr $ Cr $ Bal $ May 31 Balance b/d [1] 1170 Cr Insurance expense [1] 860 Trade receivable – Renee Lee [1] 1260 Interest income [1] 35 Rent expense [1] 200 Jun 1 Balance b/d 935 Cr 5 (d) Bank Reconciliation Statement as at 31 May 2023 $ $ Balance as per bank statement [1] 5255 Add: Deposit in transit Trade receivable – Kele Co. [1] 3400 Less: Cheques not yet presented Trade payable – Nano Tech [1] 1290 Salaries [1] 8300 9590 Balance as per adjusted cash at bank (935) 4 (e) Any one explanation of internal controls:  Segregation of duties helps to separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process.  Custody of cash helps to secure cash and cheques in a locked storage and limit access to authorised personnel only. Authorisation ensures that business obtains proper approvals for all payments from authorised personnel by having at least two persons to approve payments supported by valid source documents. 2 Total 14

Q3 (a) Rent income received = 92500 -19700 -18300 = $54500 1 (b) Revenue recognition theory states that revenue is recognised in the period when services have been provided, regardless of whether payments are received or not. [1] Hence, the rent income $18300 earned but not yet received for the year ended 31 August 2022 should be recorded as revenue for that year.[1] 2 (c) Enterprise Ltd Statement of financial position as at 31 August 2021 Current assets [1] $ Rent income receivable [1] 18300 2 (d) (i) Retained earnings are all the retained profit or loss of the company from the beginning of its operations which are not distributed to the shareholders. [1] (ii) Dividends are profits distributed to the shareholders / portions of retained earnings distributed to shareholders [1] 2 (e) Share capital increase by $12000 [½] Retained earnings increased by (183900-20000) = $163900 [½] Sha