2022_MSHS_Prelims_S4_POA_Paper 1_MS

POA S4 Prelim 2022 Paper 1 Mark Scheme 1(a) Accounting entity theory states that the activities of a business are separate from the actions of the owner and all transactions are recorded from the point of view of the business. ✓ Therefore, the amount withdrawn by the owner from the business for personal use should be recorded as drawings. ✓ [2m] 1(b) Drawings Date Particulars Debit Credit Balance 2021 $ $ $ Nov 28 Inventory ✓ 200 200 Dr 2022 Mar 11 Cash in hand ✓ 520 720 Dr Jun 30 Capital ✓ 720 - [3m] 1(c) Capital Date Particulars Debit Credit Balance 2021 $ $ $ Jul 1 Balance b/d 42 500 Cr Aug 15 Office equipment ✓ 1 380 43 880 Cr 2022 Jun 30 Income summary ✓ 9 300 53 180 Cr Drawings ✓ OF 720 52 460 Cr Jul 1 Balance b/d ✓ 52 460 Cr [4m] 1(d) • Easier to raise funds from issuance of shares. ✓ • Easier to raise funds by obtaining loans as there are more assets to serve as collaterals. ✓ • Lower risk for Julian as the shareholders are not obliged to pay for the company’s debts and losses using their personal assets. ✓ [Any 2 of the above x 1m - 2m] 1(e) It is the accumulation of profits and losses ✓ that has not been distributed to shareholders since it started operation. ✓ [2m] [Total: 13m]

POA S4 Prelim 2022 Paper 1 Mark Scheme 2(a) According to the prudence theory✓, inventory is valued at the lower of cost or net realisable value ✓ to ensure that inventory is not overstated. ✓ [3m] 2(b) Cost of sales = 3800 + 6400 + 1300 + 900 ✓ (at least 3 items) = $12400 ✓ [2m] 2(c) Gross profit = 12000 + 2700 – 12400 = $2300 ✓ OF [1m] 2(d) $4200 ✓ [1m] 2(e) Cost of inventory = 5300 + 150 + 280 + 90 + 120 ✓ (at least 3 items) = $5940 ✓ [2m] 2(f) Journal Date Particulars Debit Credit 2022 $ $ Jun 30 Impairment loss on inventory (12700 – 4600) ✓ 8 100 Inventory ✓ 8 100 [2m] 2(g) Effect on Overstated Understated No effect (i) Gross profit ✓ (ii) Profit for the month ✓ (iii) Current assets ✓ [3m] [Total: 14m]

POA S4 Prelim 2022 Paper 1 Mark Scheme 3(a) • Cash is needed to pay operating expenses on time. If expenses are not paid on time, business operations would be affected. ✓ • Cash is needed to pay creditors on time so that they will continue to supply inventory to the business. ✓ • Early cash payment to creditors enables the business to receive cash discounts from suppliers. ✓ • Cash is needed to pay loans and interest on loans. ✓ • Cash is needed to meet unforeseen emergencies. ✓ [Any 2 of the above x 1m - 2m] 3(b)(i) Current ratio = Current Assets / Current Liabilities = 11200 / 8100 = 1.38 ✓ [1m] 3(b)(ii) Quick ratio = (Current Assets – Inventory – Prepayments) / Current Liabilities = (11200 – 7900 – 1200) / 8100 ✓ = 0.26 ✓ [2m] 3(c) • The current ratio has worsened from 4.57 in 2019 to 3.18 in 2020 to 1.38 in 2021. Similarly, the quick ratio also wors