MJR 4E5N PRE POA P2 2023 ANSWER

2023 MJR 4E5N PRELIM PAPER 2 Qi Qi Trading Q1(a) Statement of financial performance for the year ended 30 April 2023 $ $ Sales revenue 294,650 Less Sales returns 11,250 Net sales revenue 283,400 [1] Less Cost of sales 78,230 Gross profit 205,170 [1]OF Add: Other Income Commission income (2150+1200) 3,350 [1] 208,520 Less: Other Expenses Wages and salaries 20,300 Motor vehicle expenses (8960-1600) 7,360 [1] Rent and rates (2500x12) 30,000 [1] Discount allowed 10,630 Insurance expense (19800/15 x 12) 15,840 [1] Depreciation on equipment (20%x80000) 16,000 [1] Depreciation on motor vehicles (25%x[40000-10000]) 7,500 [1] Impairment loss on trade receivables 2,802 [1] (6%x46700) 110,432 Profit for the year 98,088 [1] [10] Qi Qi Trading Q1(b) Statement of financial position as at 30 April 2023 Assets Non-current assets Cost Accumulated Depreciation Net book value Equipment 80,000 28,000 52,000 [1] Motor vehicles 40,000 17,500 22,500 [1] 120,000 45,500 74,500 Current assets Trade receivables 46,700 Less Allowance for impairment of TR 2,802 43,898 [1] Cash at bank 2,890 Inventory 36,200 Prepaid insurance expense (3/15x19,800) 3,960 [1] Commission income receivable 1,200 88,148 [1] Total assets 162,648 Equity and liabilities Owner's equity Capital (40,470+98,088-[15600+1,600]) 121,358 [4] Current liabilities Trade payables 36,290 Rent and rates expense payable 5,000 41,290 [1] Total liabilities and equity 162,648 [10] [20]

2023 MJR 4E5N PRELIM PAPER 2 Q2 Cost of sales is calculated as follows: (a) Units sold Cost of sales $ 80 20,000 [1] 130 29,900 [1] 150 33,000 [1] 110 26,400 [1] 470 109,300 (b) Inventory at 31 March 2023 (90 units unsold) = $22,950 [1] (c) Rate of inventory turnover = Cost of sales/Average inventory '= $109,300 OF from (a) (20,000+22,950)/2 OF from (a) '= $109,300 / 21,475 = 5.09 times [1] (d) The rate of inventory turnover has worsened from 9.25 times in 2021 to 7.17 times in 2022 and 5.09 times in 2023. [1] (e) Decrease in the rate of inventory turnover may be caused by: (i) Decrease in sales quantity , possibly due to high selling price, fall in demand for goods, increased competition (any one possible reason, 1 mark each) (ii) Increase inventory quantity, possibly due to poor inventory control [1] [2] (any two of the above or any reasonable alternative, max 2 marks) (f)(i) Dr Cash at bank $12,100 [1] Cr Sale of non-current asset $12,100 [1] [2] (f)(ii) Dr Motor vehicles $30,000 [1] Cr Trade payable - Siaw Hung Motoring [1] [2] (g) Profit for the year would decrease [1] by $3,260 [1] [2] (h) Materiality theory [1] [16]

2023 MJR 4E5N PRELIM PAPER 2 Q3 (a)(i) Mark-up on cost = Gross profit / Cost of sales x 100 = [45,000 -15,000] - 18,000 [1] /18,000 x 100 = 12,000 / 18,000 x 100 = 66.67% [1] [2] (a)(ii) Gross profit margin = Gross profit / Net sales revenue x 100 = 12,000 / 30,000 x 100 = 40.00% [1] (a)(iii)Profit margin = Profit / Net sales revenue x 100 = 12,000 - 8,000 [1] / 30,000 x 100 = 13.33% [1] [2] (b) [5] [10] The mark-up on cost of Precious Times at 100% is better than that of Great Times at 66.67%. [1] This means Precious Times is able to set a higher selling price on its products .[1] The gross profit margin of Precious Times at 50% is better than that of Great Times at 40%. [1] This could be due to Precious Times being able to sell its goods at a high mark-up or purchase its goods at a lower cost price than Great Times. [1] Moreover, the profit margin for Precious Times at 25% is better than that of Great Times at 13.33%. [1] This can mean that Precious Times is better able to manage its expenses as compared to Great Times. [1] Overall, the Precious Times is more profitable than Great Times.[1] [max 5 marks]

2023 MJR 4E5N PRELIM PAPER 2 Q4 (a) On 7 November 2021, Royson Fashion wrote off $5,460 debts owed by Nabillah. [1] On 30 June 2022, Royson Fashion reviewed its trade receivables and increased the amount of allowance for impairment of trade receivables by$8,190 to $8,960. [1] (b) Journal Date Particulars Debit ($) Credit ($) 2023 Jun-30 Allowance for impairment of trade receivables 1,700 Impairment loss on trade receivables 1,700 [(5%x145,200) - $8,960] [2] (c) According to the prudence theory [1], businesses should choose the accounting treatment that least overstates assets and profits and least understates liabilities and losses. [1] Hence, at the end of every financial period, a business will review its trade receivables and estimates the amount of its trade receivables that will be uncollectible so as not to overstate its expense (impairment loss on trade receivables and asset-trade receivable. [1] [3] (d) Decision: Royson Fashion should grant Grace Ltd the longer credit period. [1] OR 1. Royson Fashion annual sales revenue to Grace Ltd is $45,000 higher than that to Sunny Trading. [1] Hence, Grace Ltd is a larger customer and it is more beneficial to maintain a good business relationship with Grace Ltd. [1] 2. Grace Ltd has been operating its business for 10 years, which is 8 years more than Sunny Trading.[1] Hence, Royson Fashion can be more assured that Grace Ltd is more stable, less likely to close down and can pay its debts.[1] 3. Grace Ltd has a strong and stable customers base who like quality and stylish clothing and accessories.[1] The positive industry outlook will enable Grace Ltd to generate consistent sales and hence she will be better able to pay its debts to Royson Trading. [1] Decision: Royson Fashion should grant Sunny Trading the longer credit period. [1] 1. Sunny Trading operates its business locally while Grace Ltd operates overseas.[1] Thus, it is easier to collect debts from Sunny Trading as there is no potential language problem in the debt collection process; may also mean there are fewer possible delays in receiving payment and/or there is no risk due to currency exchange. [any one, 1 mark]

[7] [14] 2. Sunny Trading usually repays its debts faster to Royson Fashion, average 10 days faster compared to Grace Ltd.[1] Hence, Royson Fashion is assured of Sunny Trading's ability to repay its debts / is able to collect cash earlier for its daily operations. [1] 3. The demand for Sunny Trading's clothing and accessories is increasing among its growing youthful customers who has the ability to spend more.[1] The positive industry outlook will enable Sunny Trading to generate higher sales in the future and hence better able to pay its debts to Royson Trading. [1]