2022 MSHS Prelims S4 POA Paper 2 MS

POA S4 Prelim 2022 Paper 2 Mark Scheme 1(a) Spencer Pte Ltd Statement of financial performance for the year ended 30 June 2021 $ $ Sales revenue 85 800 Less: Sales returns 4 300 Net sales revenue 81 500 ✓ Less: Cost of sales 57 700 Gross profit 23 800 ✓ Add: Other income Rent income (6 000/15 x 12) 4 800 ✓ Less: Other expenses General expenses (3 600+2 700) 6 300 ✓ Salaries and wages expense (11 800 – 900) 10 900 ✓ Depreciation of office equipment (15% x 80 000) 12 000 ✓ Depreciation of motor vehicles [(20% x (105 000 – 17 000) 17 600 ✓ Interest expense (7% x 40 000) 2 800 ✓ Reversal of impairment loss on trade receivables [3% x 23 800 – 1 700] (986) 48 614 ✓ Loss for the year (20 014) ✓ [10✓ x 1m = 10m]

POA S4 Prelim 2022 Paper 2 Mark Scheme 1(b) Spencer Pte Ltd Statement of financial position as at 30 June 2021 Assets $ $ $ Non-current assets Cost Accumulated Depreciation Net book value Office equipment (5 000 + 12 000) 80 000 17 000 63 000 ✓ Motor vehicles (17 000 + 17 600) 105 000 34 600 70 400 ✓ 185 000 51 600 133 400 Current assets Trade receivables 23 800 Less: Allowance for impairment of trade receivables (3% x 23 800) 714 23 086 ✓ Cash at bank 31 500 Inventory 44 900 Prepaid wages and salaries 900 100 386 ✓ Total assets 233 786 Equity and liabilities Shareholder’s equity Share capital, 100 000 ordinary shares 140 000 Retained earnings [49 400 – 20 014 – (0.08 x 100 000) 21 386 161 386 ✓ Non-current liabilities Long-term borrowings 40 000 ✓ Current liabilities Trade payables 17 700 General expenses payable 2 700 ✓ Rent income received in advance (6 000/15 x 3) 1 200 ✓ Interest expense payable 2 800 ✓ Dividends payable (0.08 x 100 000) 8 000 32 400 ✓ Total equity and liabilities 233 786 [10✓ x 1m = 10m] [Total: 20m]

POA S4 Prelim 2022 Paper 2 Mark Scheme 2(a) Yr 1: 20% x 38000 = 7600 Yr 2: 20% x (38000 – 7600) = 6080 Total depreciation = 7600 + 6080 = $13 680 ✓ Loss on sale = 38000 – 13680 – 23700 = $620 ✓ [2m] 2(b) Journal Date Particulars Dr Cr 2021 $ $ Jun 30 Sale of non-current assets ✓ 38 000 Motor vehicles ✓ 38 000 Accumulated depreciation of motor vehicles ✓ OF 13 680 Sale of non-current assets ✓ OF 13 680 Cash at bank ✓ 23 700 Sale of non-current assets ✓ 23 700 [6m] 2(c) Jackson Enterprise Statement of financial performance for the year ended 31 March 2022 (extract) $ Less: Other expenses Depreciation of motor vehicles ✓ 20% x (38000 – 7600 – 6080) 4 864 Loss on sale of non-current asset ✓ OF 620 [2m] 2(d) According to the matching theory, expenses incurred must be matched against the income earned in the same period to determine the profit for the period. ✓ As the non-current assets are being used to generate income, a portion of the cost of using the non-current asset (depreciation expense) should be matched to the income earned in the same financial period to determine the profit for the period. ✓ [2m] 2(e) Motor vehicles are used more in the earlier years and less in the later years as they become inefficient. ✓ The reducing balance method is suitable as higher depreciation is charged in the earlier years. ✓ [2m] [Total: 14m]

POA S4 Prelim 2022 Paper 2 Mark Scheme 3(a) Kongcha Leeho (i) Mark-up on cost = 28500 / (132000 – 28500) x 100 = 27.54% ✓ Mark-up on cost = 19400 / (109000 – 19400) x 100 = 21.65% ✓ (ii) Gross profit margin = 28500 / 132000 x 100 = 21.59% ✓ Gross profit margin = 19400 / 109000 x 100 = 17.80% ✓ (iii) Profit margin = 12345 / 132000 x 100 = 9.35% ✓ Profit margin = 11565 / 109000 x 100 = 10.61% ✓ [6m] 3(b) • The mark-up on cost of Kongcha at 27.54% is better than that of Leeho at 21.65%. ✓ • This could be due to Kongcha selling its goods at a higher selling price, or buying its goods at a lower cost compared to Leeho. ✓ • The gross profit margin of Kongcha at 21.59% is better than that of Leeho at 17.80%. ✓ • The ability of Kongcha to generate profit from buying and selling of goods is better than that of Leeho. ✓ • Kongcha’s profit margin is 9.35%, which is worse than Leeho’s of 10.61%. ✓ • This shows that Kongcha is less efficient at controlling its expenses to generate net sales revenue as compared to Leeho. ✓ • Overall, Kongcha is less profitable as compared to Leeho. ✓ [1m per point, max 6m] [Accept any other reasonable answer] 3(c) • Sublet excess space to another business to earn rental income. ✓ • Pay early to take advantage of cash discounts. ✓ • Buy in bulk to obtain trade discount. ✓ • Switch to another supplier that offers lower prices, without compromising on quality. ✓ • Relocate to another premise that charges lower rental. ✓ • Reduce the use of electrical appliances to lower utilities expenses. ✓ [Any two of the above, 2m] [Accept any other reasonable answer] [Total: 14m]

POA S4 Prelim 2022 Paper 2 Mark Scheme 4(a) I would give Nam Seng a longer repayment period. ✓ Reason 1 Nam Seng is located in the manufacturing industry which is expected to grow by 50% over the next 2 years. ✓ Given that the industry is booming, Nam Seng is expected to do well and thus can be more assured to repay its debts. ✓ Reason 2 Nam Seng has a smaller average trade receivables balance of $65 000 compared to that of Boon Heng average trade receivables of $88 000. ✓ The business will suffer a smaller loss if there is a situation where debts have to be written off.✓ Reason 3 Nam Seng has been in the business for 10 years and has received many positive reviews. ✓ This indicates that Nam Seng is stable and less likely to close down, the business can be assured that Nam Seng can pay its debts. ✓ OR I would give Boon Heng a longer repayment period. ✓ Reason 1 Boon Heng is located in a developed country with a stable economy. ✓ When the economy is doing well, Boon Heng is more likely to able to repay its debts. ✓ Reason 2 Boon Heng has a shorter collection days of 21 days , which is 15 days shorter than Nam Seng.✓ The shorter time to collect debts reduces the risks of non-collection from Boon Heng. ✓ Reason 3 Boon Heng has only repaid late twice compared to Nam Seng, which has repaid late five times.✓ The better track record of making prompt payments gives Wilfred more assurance of Boon Heng’s ability to repay debts. ✓ [7m] (b)(i) On 1 January 2021, the business reversed the rent expense of $900 paid in advance as at 31 December 2020. ✓ (b)(ii) On 31 August 2021, the business paid rent expense of $4 000 by cheque. ✓ (b)(iii) On 31 December 2021, the business adjusted $1 300 of rent expense paid in advance but not incurred this year. ✓ Rent expense incurred for the year amounts to $3 600. ✓ [4m] (c) Business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period. ✓ [1m] [Total: 12m]

POA S4 Prelim 2022 Paper 2 Mark Scheme