ACSBR 2022 POA 4E5NA P1 and P2 Answers

2022 Principles of Accounts Preliminary Examination 4E / 5N(A) Paper 2 Answer Key 1 (a) Drawings DateParticulars Debit $ Credit $Balance $ 2021 Dec-15Cash in hand 360 2022 Jan-22Inventory 324 Aug-09Cash at bank 905 Oct-31Capital 1589 0 (b) Accounting Entity theory states that the transactions of a business should be separated from its owners. Hence, when an owner draws out cash or goods, drawings need to be recorded to represent a decrease in owner's capital. (c) No effect (d) 1. Easier and less expensive to set up and maintain. 2. Entire / 100% of the profit of the business belongs to the sole proprietor. (e) 1. The maximum amount that the shareholders lose is their investment. 2. Banks are more willing to lend to a company. 3. A company is also able to issue its shares to raise funds. 4. Easier for a shareholder in a company to transfer his ownership to another. It is especially easy for a listed company where the shares are traded on the stock exchange as there are many people willing to buy over his ownership of the company.

2 (a)To facilitate the preparation of financial statements (1) as this is a list of all account balances at a particular date and can also be a proof of arithmetic accuracy. (1) (b)A trial balance is not an absolute proof of accuracy of transactions recorded in ledger accounts (1) because there may be errors which would not affect the balancing of the trial balance and thus would not be revealed (1). (c) Profit is understated [1] by $54 [1]. (d) Integrity Integrity is being straightfoward and honest in all professional and business relationships.[1] or Objectivity Objectivity is not letting bias, conflict of interest or undue influence of others override professional judgement. (e)Going concern

3 (a) (i)The original cost of equipment sold in the period (ii)The total depreciation to date on the equipment sold in the period (iii)Disposal proceeds of the equipment sold on credit to DJ Equipment (iv) Loss made on sale of equipment in the year (b) (i)Profit for the year has been understated (1) by $17 000 (1) (ii)The value of non-current assets has been understated (1) by $17 000 (1)

2022 Principles of Accounts Preliminary Examination 4E / 5N(A) Paper 2 Answer Key 1 Ruth Pte Limited Statement of Financial Peformance for the year ended 31 July 2022 $ $ Sales revenue 337000 Less: Sales returns -12400 Net sales revenue 324600 Less: Cost of sales -93300 Gross Profit 231300 Add: Other Income Interest income(1000+800) 1800 233100 Less: Expenses Wages and salaries(79960+460) 80420 Machinery repairs(7600+2000) 9600 General expenses(37700-250) 37450 Depreciation of machinery(0.25 X 194000) 48500 Depreciation of motor vehicles (0.2 X 53760) 10752 Impairment loss on trade receivables 450 187172 Profit for the year 45928 Ruth Pte Ltd Statement of Financial Position as at 31 July 2022 Assets Non-current assets Cost Accum. Dep Net Book ValueMachinery (196000-2000) 194000-146500 47500 Motor vehicles 84000 -40992 43008 90508 Current assets Inventory 41320 Trade Receivables 21000 Less: Allowance for impairment of trade receivables1050 19950 Cash at bank 24300 Prepaid general expenses 250 Interest income receivable 800 86620 Total assets 177128 Equity and liabilities Owner's equity Issued Share Capital, 100000 ordinary shares 100000 Retained earnings (18260+45928[1]-10000[1]) 54188 Total equity 154188 Non-current liabilities Current liabilities Trade payables 12480

Dividends payable(0.10 X 100000) 10000 Wages and salaries owing 460 22940 Total equity and liabilities 177128

4 (a) (i) Inventory Date Particulars Debit $ Credit $Balance $ 2021 Sep-02Trade receivables - Gwen { 54700 54700Dr Sep-10Cost of sales 28000 Sep-22Cash at bank Both (1) { 21000 Sep-29Cost of sales Both (1) 25600 22100Dr Oct-01Balance b/d 22100Dr [2] (ii) Sales Revenue Date Particulars Debit $ Credit $ +Balance $ 2021 Sep-10Trade Receivables - Phillipe 49800 49800Cr Sep-29Cash at bank 52000 101800Cr [1] Income summary 101800 - (b) Prudence (1) The prudence theory states that assets and profits should not be overstated and liabilities and losses should not be understated. (1) Hence, when the net realisable value has fallen below the original cost, inventory should be valued at the net realisable value. (1) (c) En Xin’s rate of trade receivables turnover has improved from 10.27 to 12.41 times (1) which means that En Xin’s business is managing trade receivables more efficiently/ collecting amounts due from credit customers on a more timely basis than last year. (1) Cem’s rate of trade receivables turnover has improved from 7.35 to 9.81 times (1) which means that Cem’s business is managing trade receivables more efficiently/ collecting amounts due from credit customers on a more timely basis than last year. (1) En Xin’s rate of trade receivables turnover is better than that of Cem's in both years which means that En Xin is better at managing trade receivables efficiently. (1) There is not sufficient information to say why this might be the case, but En Xin and Cem are in the same industry so it is appropriate to make a comparison. (1) Reasons why En Xin has a better rate of receivables turnover may be because: · he offers cash discounts for early settlement (1) · he charges interest on overdue accounts (1)

· he charges interest on overdue accounts (1)he has strict credit control procedures (1) 1 mark per suitable comment to a maximum of 5 marks

2 a. Bank 9500 (1) – 582 (1) opening expense payable – 384 (1) closing prepaid expense = $8534 (1) b. Bank 8000 (1) – 600 (1) opening income receivable + 700 (1) closing income receivable = $8100 (1) c. Accrual basis of accounting /matching theory [1] d. Segregation of duties (1) Custody over cash (1) Authorisation (1) Bank reconciliation (1) Max. 2 marks d. Direct debit (1) Electronic transfers (1) Direct credits (1) Bank charges (1) Interest paid (1) Interest received (1) Dishonoured cheques (1) Max. 2 marks

3a. Liquidity is the ability of the business to repay its current liabilities when they fall due. (1)Liquidity measures how able a business is to convert current assets into cash to pay for current liabilities. (1) b.2020 202189600/32750 = 2.74 104750 / 56345=1.86 [2] c. The current ratio has deteriorated from 3.40 in 2019, to 2.74 in 2020 and 1.86 in 2021. (1) Current assets are greater than current liabilities for each of the three years. (1) Current liabilities have increased to a greater extent than current assets over the period. (1) Inventory holdings have increased from $40 625 in 2019 to $59 850 in 2021. (1) Increasing inventory may mean funds are tied up. (1) The quick ratio has deteriorated over the three years from 1.69 to 1.34 to 0.80. (1) This is because the amount of inventory as a proportion of current assets has increased over the years. (1) The trade receivables position has worsened as trade receivables have increased each year from $27 000 in 2019 to $44 900 in 2021. (1) Increasing trade receivables runs the risk of a possible loss on impairment of trade receivables. (1) Increasing trade receivables may mean that funds are less readily available. (1) The bank balance has deteriorated each year from $13 125 in 2019 to an overdraft of $3 050 in 2021. (1) The trade payables position has worsened as it has increased each year from $20 000 in 2019 to $27 750 in 2021. (1) An increase in trade payables may affect the ability to obtain credit. (1) An increase in trade payables may affect the relationship with suppliers if unable to pay invoices on time. (1) A portion of long-term borrowings has now become current as the status has changed from being due in over 1 year to falling due within the next 12 months. (1) Cash may have been used over the period to purchase or place a deposit on non-current assets.