Beatty 2021 4N Prelim P2

1 2024 4N Diagnostic Assessment – Beatty 2021 4N Prelim Answer all questions. 1 Aliaesoon Legal Co. is a business that provides legal consultancy services. The following balances were extracted from the books of the business on 31 July 2021: $ Cash at bank 6 630 Credit Cash in hand 3 300 Rental income 30 000 Trade receivables 4 480 Allowance for impairment of trade receivables 3 120 Drawings 15 800 Fixtures and fittings 35 200 Accumulated depreciation of fixtures and fittings 2 100 General expenses 5 690 Motor vehicles 92 100 Accumulated depreciation of motor vehicles 9 000 Building 638 000 Insurance expense 4 800 Interest on mortgage loan 8 000 Legal fee revenue 89 330 10% Mortgage loan repayable 2027 367 000 Capital 351 180 Utilities 990 Wages 50 000 Additional information 1. Included in the legal fee revenue was an amount of $24 330 received in advance. 2. Rental income of $2 400 was earned but not yet collected. 3. Utilities, $250, was paid in advance. 4. A review of the trade receivables balance showed that 10% may be uncollectible. 5. Payment for interest on the mortgage loan $1 175, was owing. 6. One-quarter of the mortgage loan is to be repaid on 30 April 2022. 7. The building is to be depreciated at 1% per annum using the straight-line method. 8. Fixtures and fittings are to be depreciated over the useful life of 5 years on a straight- line method. 9. The motor vehicles are to be depreciated at 20% per annum using the reducing- balance method.

2 REQUIRED (a) Prepare the statement of financial performance for the year ended 31 July 2021. [8] (b) Prepare the statement of financial position at 31 July 2021. [12] [Total: 20] 2 The financial year of Edison Trading ends on 31 July. The following information was extracted for the year ended 31 July 2021. 1 On 1 August 2020, the rental income received in advance account had a balance of $2 780. 2 During the year, the business received a cheque of $155 530 as rental income. 3 Annual rental income for the year ended 31 July 2021 amounted to $165 000. REQUIRED Prepare the following: (a) Journal entries to account for rental income for the financial year ended 31 July 2021 including the closing entry. Narrations are required. [8] (b) An extract of the statement of financial performance for the financial year ended 31 July 2021. [1] (c) An extract of the statement of financial position as at 31 July 2021. [1] (d) Explain the effects on profit for the year and current assets if the rental income receivable was not adjusted. [2] (e) Explain the accrual basis of accounting behind the accounting of income and expenses. [2] [Total: 14] [Turn over

3 3 Beng sells electrical appliances. Details from the cash at bank account and bank statement for the business for the month of July 2021 are as follows. Cash at bank account Date Particulars Cheque Debit Credit Balance 2021 number $ $ $ July 1 Balance b/d 960 Dr 2 Abbas 912005 900 60 Dr 8 Sales revenue 3 200 3 260 Dr 14 Fun Store 912006 2 640 620 Dr 16 Top Co 1 460 2 080 Dr 20 Salaries expenses 912007 1000 1 080 Dr 25 Joy Trading 1180 2 260 Dr Bank statement Date Particulars Payments $ Receipts $ Balance $ 2021 July 1 Balance b/d 1000 Cr 2 Cheque 912004 40 960 Cr 6 Cheque 912005 900 60 Cr 9 Cash deposit 3 200 3 260 Cr 16 Cheque 912006 2 640 620 Cr 18 Cheque deposit 1 460 2 080 Cr 21 Cheque returned unpaid 1 460 620 Cr 27 Credit transfer: Moose Pte Ltd 1 600 2 220 Cr 30 Standing order: Utilities 420 1 800 Cr REQUIRED (a) Update the cash at bank account at 31 July 2021. [5] (b) Prepare a bank reconciliation statement at 31 July 2021. [4] (c) Explain the term credit transfer. [1] (d) State two reasons for a dishonoured cheque. [2] (e) Explain why a bank reconciliation is done. [2] (f) Explain the objectivity theory. [2] [Total: 16]

4 4(a) Explain the following terms: (i) Trade receivables [1] (ii) Allowance for impairment of trade receivables [1] 4(b) The following transactions relate to Alison Trading, a credit customer, who buys goods from Deli Snack Store. 2021 Transactions July 2 Deli Snack Store sold goods to Alison Trading at $8 300 list price, less 10% trade discount. The goods cost $5 500. July 5 Alison Trading returned goods worth $1 350, bought on July 2, to the business. The cost of goods sold $770. July 10 The business received a cheque of $6 100 from Alison Trading in full settlement of the amount owing on this date. REQUIRED Prepare Alison Trading’s account in Deli Snack Store’s books for the month of July 2021. [3] 4(c) Jametinga owns Deli Snack store. He wants to continue to sell dumplings after the Dragon Boat Festival in June and he is looking at ordering dumplings from one of the suppliers below. Katong Dumplings Joo Chiat Dumplings Cost price of each dumpling $2.50 $2.20 Product dumpling - Traditional nonya pork dumplings that are popular and highly rated by people. - Factory made. - Packed in a pretty box of 5. - Expire after 10 days from date of production. - Preservatives used. - Besides traditional nonya pork fillings, there are chicken and beef fillings as well as other unique fillings. Able to cater to customers’ requests. - Home made. - Expire after 7 days from date of production. Requires refrigeration. - No preservatives. History of the business The business started in the 1960s. The business started in the year 2000. Credit term 1 week None. Sold on cash basis only. Delivery fee Free $30 per trip. REQUIRED Advise Jametinga which supplier he should choose. Justify your decision with two reasons. [5] [Total: 10] End of Paper

5 SOLUTIONS 1(a) Aliaesoon Legal Co. Statement of Financial Performance for the year ended 31 July 2021 $ $ Legal fee revenue (89 330 – 24 330) 65 000 [1] Add: Other Income Rental income (30 000 + 2 400) 32 400 [1] Less: Other Expenses General expenses 5 690 Insurance expense 4 800 Interest expense (8 000 + 1 175) 9 175 [1] Utilities (990 – 250) 740 [1] Wages 50 000 Reversal of impairment loss on trade receivables (10% x 4 480 – 3 120) (2 672) [1] Depreciation of fixtures and fittings (35 200/5) 7 040 [1] Depreciation of buildings (1% x 638 000) 6 380 [1] Depreciation of motor vehicles [20% x (92 100 – 9 000)] 16 620 [1] 97 773 Loss for the year (373) [8]

6 1(b) Aliaesoon Legal Co Statement of Financial Position as at 31 July 2021 Assets Cost Accumulated depreciation Net book value Non-current assets $ $ $ Fixtures and fittings *(2 100 + 7 040) 35 200 (9 140) 26 060 [1] Building 638 000 (6 380) 631 620 [1] Motor vehicles *(9 000 + 16 620) 92 100 (25 620) 66 480 [1] 724 160 Current assets Cash in hand 3300 Trade receivables 4 480 Less: Allowance for impairment of trade receivables (448) Net trade receivables 4 032 [1] Rent income receivable 2 400 Prepaid utilities 250 [1] 9 982 Total assets 734 142 Equity and Liabilities Owner’s equity Capital (351 180 – 373 – 15 800) [2] 335 007 Non-current liabilities Long-term borrowings (3/4 x 367 000) [1] 275 250