Copy of PHSS 2022 POA 4E5N Prelim P2 ANS

PHSS20224EPrelimPaper 2SOLUTIONS Question1(a) MackDonaldStatement of Financial Performancefor theyear ended30November 2021$ $Salesrevenue 43224Less:Salesreturns (433)Netsalesrevenue 42791Less:Costofsales (21280)GrossProfit ✔21511 Add: Other IncomeDiscountreceived ✔510Rentincome(4867+3000) ✔7867 8377Less: ExpensesSalariesexpense(5664–472*) ✔5192Maintenanceexpense ✔10000Depreciation–Property((110000–20000)/100) ✔900Depreciation-Officeequipment((30000–2925)X5%) ✔1425Impairmentlossontradereceivables ✔70Interestexpense(50000X3%X6/12^) ✔750 (18337)Profitfortheyear 11551[9]*5664/12=472^Thebankloanistakenon1June2021,thereforeinterestisowingonlyfor6months(1June2021to30November2021).

(b) MackDonaldStatement of Financial Positionasat 30November 2021$ $ $AssetsNon-CurrentAssets Cost AccumulatedDepreciation NetBookValueProperty(120000-10000) 110000 (10800) ✔99200OfficeEquipment 30000 (2925) ✔27075126275CurrentAssetsTradereceivables(15400–400) 15000Allowanceforimpairmentoftradereceivables(480-400+70) (150) Nettradereceivables ✔14850Cashatbank ✔3422Inventory ✔24228Rentincomereceivable ✔3000Prepaidsalaries ✔472 45928TotalAssets 172247EquityandLiabilitiesOwner'sEquityCapital(101963-2000+11551) ✔111514Non-CurrentLiabilitiesLong-termborrowings ✔50000CurrentLiabilitiesTradepayables ✔9983Interestexpensepayable ✔750 10733TotalEquityandLiabilities 172247[11]

Question2(a) TheCashatbankaccountwillbedebitedby$30000✔,andthesharecapitalaccountwillbecreditedby$30000✔. [2] (b) RetainedEarningsDate Particulars DR$ CR$ Balance$2021Aug1 Balanceb/d ✔33780CR2022Jul31 Dividends(70000sharesX$0.20) ✔14000 19780CRJul31 Incomesummary ✔12120 31900CRAug1 Balanceb/d ✔31900CR[4](c) Accept anyother reasonableanswers PrivateLimitedCompany SoleProprietorshipHarlandshouldkeepKayFCPteLtdasaprivatelimitedcompany. (Stand) ✔ HarlandshouldconvertKayFCPteLtdintoasoleproprietorship. (Stand) ✔ Harlandwouldliketopassthebusinessontohisthreechildren. (Evidence) ✔ Itiseasiertotransferownershipofsharestothreedifferentchildreninaprivatelimitedcompanyascomparedtoasoleproprietorship. (Explanation) ✔ Harlandwouldliketomakebusinessdecisionsquickly. (Evidence) ✔ AsoleproprietorshipwillallowHarlandtohavefullcontroloverbusinessdecisionsashewillbethesoleowner.Hewillnotneedtoanswertoothershareholders.(Explanation) ✔Harlandwouldliketoensurethathispersonalassetsareprotected. (Evidence)✔ Aprivatelimitedcompanyhaslimitedliability,whichpreventscreditorsfromtakingHarland’spersonalassetsshouldthebusinessgobankruptascomparedtoasoleproprietorshipwhichhasunlimitedliability. (Explanation) ✔ Harlandwouldliketoreducereportingrequirements. (Evidence) ✔ Asoleproprietorshiphaslesscomplexreportingrequirementsascomparedtoaprivatelimitedcompany. (Explanation) ✔ Harlandisthinkingofexpandingthenumberofbranchesandwouldliketofindfundingeasily. (Evidence) ✔ ItwillbeeasierforHarlandtofindfundingbyissuingnewsharestoshareholdersunlikeasoleproprietorshipwhereHarlandmayhavetoborrowfromabank.(Harlandhasmorepotentialsourcesoffunding.(Explanation) ✔ Harlandwouldliketomakedrawingswheneverneededforhispersonalhealthexpenses. (Evidence) ✔ AsoleproprietorshipallowsHarlandtomakedrawingswheneverHarlandneedsthemoney,whileaprivatelimitedcompanywouldrequireHarlandtoonlyreceivedividendswhentheyaredeclaredforallshareholders. (Explanation) ✔

[7] Question3(a)(i)GPMargin=GP/NSR=(24600–1400–15400)/(24600–1400) =33.62%✔ (ii)GPMargin=GP/NSR=¼IfGP=1,NSR=4GP=NSR-COSCOS=NSR-GPCOS=4-1=3 Therefore,Mark-uponcost=GP/COS=1/3=33.33%✔ (iii)ProfitMargin=P/NSR=((24600–1400–15400)–2800)/(24600–1400) =21.55%✔ (iv)ROE=P/AvgEquity=((24600–1400–15400)–2800)/34000 =14.71%✔ [4]

(b) Anyofthefollowing(✔each) DoubleUTradingismoreprofitablethanANTrading.(nomarksforstand)DoubleUTrading’sprofitmarginof14.71%wasbetterthanANTrading’sprofitmarginof10.00%. ✔ ThiswaslikelyduetoDoubleUTradingbeingbetteratmanagingitsexpensescomparedtoANTrading,henceimprovingprofit. ✔ DoubleUTrading’sgrossprofitmarginof33.33%isbetterthanANTrading’sgrossprofitmarginof25.00%. ✔ ThiswaslikelyduetoDoubleUTradingbeingabletocommandahighersellingpriceforitsproducts,resultinginabetterproportionofsalesrevenue. ✔ DoubleUTrading’smark-uponcostof50.65%wasbetterthanANTrading’s33.33%. ✔ ThiswaslikelyduetoDoubleUTradingbeingabletosecureacheapersupplier,resultinginalowerproportionofcostofsales. ✔ [4] (c) ANTradingisthebetterinvestment. ✔ ANTrading’sreturnonequityof22.22%wasbetterthanDoubleUTrading’s14.71%.ThisindicatesthatANTradingwasabletogenerateahigherproportionofprofitsincomparisontotheequityofthebusiness. ✔ [2](d) Dayssalesininventory=AvgInventory/COSX365=7600/15400X365 =180.13days✔ Note:Studentsshouldnottaketheinverseoftherateofinventoryturnover(i.e.1/2.03X365)inthiscase.Therateisrounded-off,sotakingtheinverseandmultiplyingby365willexacerbatetheeffectofroundingoff.Theinverserelationshiponlyworksiftherateofinventoryturnoverisanexactfigure. [1](e)ANTradingwasbetteratinventorymanagementascomparedtoDoubleUTrading.(nomarksforstand)ANTrading’srateofinventoryturnoverof2.21timeswasbetterthanDoubleUTrading’s2.02times. ✔ ANTrading’sdayssalesininventoryof165.46dayswasbetterthanDoubleUTrading’s180.13days. ✔ ThiswaslikelyduetoANTradingpracticingbetterinventorymanagementtechniquessuchasjust-in-timeinventorymanagement,whichavoidsoverstockingofinventory. ✔ [3]

Question4(a) JournalDate Particulars DR$ CR$2021Jan1 Interestexpensepayable ✔750Interestexpense ✔750 Mar31 Interestexpense ✔1000Cashatbank ✔1000 Dec31 Incomesummary ✔925Interestexpense ✔925 Dec31 Interestexpense ✔675Interestexpensepayable ✔675[8](b) PopEyesTradingStatementofFinancialPerformancefortheyearended31December2021(extract)✔ $ $Less:ExpensesInterestexpense✔ ✔925 [3](c)Accordingtotheaccrualbasisofaccounting,expensesmustberecordedwhentheyareincurred,regardlessofwhencashispaid. ✔Henceinterestexpensepayableisrecordedtoensurethatinterestexpenseisrecordedintheproperperiod. ✔ ORBasedonthematchingtheory,expensesmustbematchedtotheperiodinwhichtheyareincurred,regardlessofwhencashispaid. ✔Henceinterestexpensepayableisrecordedtoensurethatinterestexpenseisrecordedintheproperperiod. ✔ [2]