GESS 5NA Prelim P2 2023 sharing

1 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 Answer all questions.1The following balances were extracted from the books of KVG Pte Ltd at the end of the financial year on 31 December 2022.$Fixtures and fittings at cost32 000Accumulated depreciation of fixtures and fittings9 600Motor vehicles at cost120 000Accumulated depreciation of motor vehicles43 200Sales revenue792 115Sales returns5 935Cost of sales576 026Inventory60 164Wages and salaries110 987Commission income13 265Insurance5 635Utilities3 263Discount received3 150Trade receivables54 800Allowance for impairment of trade receivables3 890Cash at bank5 000Trade payables12 000 6% Bank loan repayable 202635 000Issued share capital, 100 000 ordinary shares50 000 Retained earnings, 1 January 202211 590Additional information on 31 May 20231Insurance, $3 000, was prepaid.2Commission income, $21 200, had not been received.3The allowance for impairment of trade receivables is to be maintained at 6% of trade receivables.4Fixtures and fittings are to be depreciated at 10% per annum using the straight-line method.5Motor vehicles are to be depreciated at 20% per annum using the reducing-balance method.6Loan from the bank was obtained on 1 July 2022 and to be repaid equally over five years.7Interest on the bank loan for the year to 31 December 2022 had not yet been paid. REQUIRED(a)Prepare the statement of financial performance for the year ended 31 December 2022. [10]

2 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 (b)Prepare the statement of financial position as at 31 December 2022. [10][Total: 20]

3 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023[Turn over 2Samuel runs an interior design business. The business has a financial year which ends on 31 December each year. He provided the following information about his business for the years 2020 to 2022. 31 December 202031 December 202131 December 2022AssetsMotor vehicles50 000100 000200 000Trade receivables40 000 90 000100 000Prepaid expenses 1 500 3 500 18 500Cash at bank 5 000 7 000-LiabilitiesTrade payables 11 000 34 00050 000Insurance payable 1 100 4 20010 020Bank overdraft- -42 025Current ratio3.84??Quick ratio3.72??REQUIRED(a)Calculate the current ratio and quick ratio of the business for each of two years ended 31 December 2021 and 2022. [4](b)Evaluate the trend in liquidity of the business over the three years ended 31 December 2020, 2021 and 2022. Use the given information and your answer to (a). [8][Total: 12]

4 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023[Turn over

5 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 3Siva is a sole trader. His business buys and sells kitchen appliances. When preparing the business financial statements for the year ended 31 May 2023, he discovered the following errors: 1Siva took a kitchen appliance worth $1 000 from the business for his personal use but this had been omitted from the books. 2Insurance, $800, paid in cash had been debited to cash in hand and credited to insurance. 3A cheque, $8 900, received from a tenant for rental income, had been recorded as $890. REQUIRED(a)Name the accounting theory that requires error 1 to be corrected. [1](b)Prepare journal entries to correct error 2 and 3. Narrations are not required. [4]The profit for the year ended 31 May 2023 had been calculated as $15 980 before correction of errors. REQUIRED(c)Prepare a statement of adjusted profit for the year ended 31 May 2023 after taking into account the effect of errors 1 to 3 on the profit for the year ended 31 May 2023. [4](d)Distinguish the two differences between a trading business and a service business. [4][Total: 13]

6 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023[Turn over 4Fatimah buys and sells bread and cakes on credit. Her business financial year ends on 31 July. On 1 August 2021, her business had a balance of $2 800 in its allowance for impairment of trade receivables account.Her business reviews its list of trade receivables at the end of every financial year and estimates that 5% of its trade receivables are likely to be uncollectible. Fatimah provided the following balances:31 July 202231 July 2023$$Trade receivables50 00060 000 On 31 December 2021, the business of Perfect Bakes, a credit customer, filed for bankruptcy and Fatimah’s business wrote off $2 000 owed by Perfect Bakes. REQUIRED(a)State and explain the accounting theory which must be applied when accounting for allowance for impairment of trade receivables. [2](b)Prepare journal entries to record the following transactions. Narrations are not required.(i)write-off the debt owed by Perfect Bakes on 31 December 2021 [2](ii)adjustment of allowance for impairment of trade receivables as at 31 July 2023 [2](c)Prepare an extract of the statement of financial performance for the year ended 31 July 2023 showing the impairment loss on trade receivables. [1] (d)Prepare an extract of the statement of financial position as at 31 July 2023 showing the trade receivables and allowance for impairment of trade receivables. [1]

7 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 Fatimah’s business is considering a request from one of its new customers, Efficient Bakes, which traded with Fatimah’s business for the past three months. Efficient Bakes has requested for a 30-day credit period. For the past three months, Efficient Bakes has been buying from Fatimah’s business on an ad hoc cash basis. Efficient Bakes is opening a new bakery in a new town with a large population of youth and young adults. The new town has seen more young families moving into the vicinity. Based on the feasibility studies which Efficient Bakes has shared with Fatimah, the residents moving into the new town generally like to consume bread as their staple meals and cakes as their breakfast and snacks. Currently, the new town has an occupancy rate of 50% and it is set to rise as more families will be moving in upon completion of the renovation of their new homes. Based on an online search conducted on Efficient Bakes, Fatimah gathered information that Efficient Bakes has been in the bakery business for ten years and has always been able to pay its debts when its credit suppliers delivered their orders in the past ten years. No negative comments or reviews surfaced during the online search except a comment which suggested that the estimated trade receivables collection period of Efficient Bakes is 35 days. This is three days longer than that of Fatimah’s business. Recently, some unfavourable reviews of the services provided by the bakery has started to surface online.Separately, due to the last two years of Covid-19 pandemic, several home renovations delays have been highlighted by the press. REQUIRED(e)Advise Fatimah if her business should sell on credit to Efficient Bakes and grant Efficient Bakes a 30-day credit period. Justify your decision with three reasons. [7] [Total: 15]End of paper

8 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023

9 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 Marking scheme for 5NA Prelim Paper 2:1a) KVG Pte LtdStatement of financial performance for the year ended 31 December 2022$$MarkSales revenue792 115Less: Sales returns5 935Net sales revenue786 1801Less: Cost of sales576 026Gross profit210 1541Other incomeDiscount received3 1501Commission income (+21 200)34 46537 6151Less: Other expensesWages and salaries110 987Insurance (-3000)2 6351Utilities3 263Reversal of impairment of trade receivables ((6% ×54800) – 3890) (602)1Depreciation of fixtures and fittings (10% X 32000)3 2001Depreciation of motor vehicles (20% × (120 000 –43 200))15 3601Interest on bank loan (6% × 35 000 × 6/12)1 0501135 893Profit for the year111 8761

10 GESS S5NA POA P2 PRELIM 2023 LSY7087/02/A/S/2023 1b)KVG Pte LtdStatement of financial position as at 31 December 2022Assets$$$Non-current assetsCostAccumulated depreciationNet book valu