Deyi P2(ans) 4E5NA Prelim 2022 (sharing)

Deyi Secondary School Principles of Accounts Secondary 4E5NA Prelim Exam 2022 Mark Scheme : Paper 2 Question 1 1(a) [10] Karen Tours Statement of financial performance for the year ended 31 March 2022 $ $ Service fee revenue 55 140 [1] Other income: Commission income ($3 000 - $600) 2 400 [1] 57 540 Less: Other expenses Depreciation of office equipment 19 500 [1] Depreciation of motor vehicles 15 900 [1] Interest expense ($5 000 + $4 500) 9 500 [1] Wages and salaries ($2 400 + $9 000) 11 400 [1] Rent expense (48 000 - $9 600) 38 400 [1] Reversal [1] of impairment loss on trade receivables (1 310) [1] General expense 1 200 [1] 94 590 Loss for the year (37 050)

1b. [10] Karen Tours Statement of financial position as at 31 March 2022 $ Cost $ Accumulated Depreciation $ Net Book Value Assets Non-current assets Office equipment 195 000 79 500 (60 000 + 19 500) 115 500 [1] Motor vehicles 190 000 99 900 (84 000 + 15 900) 90 100 [1] 205 600 Current assets Trade receivables ($20 700 - $800) 19 900 Less: Allowance for impairment of trade receivables ($4 100 - $800 - $1 310) (1 990) 17 910 [1] Prepaid rent expense 9 600 [1] Cash in hand 3 200 30 710 Total Assets 236 310 Equity and liabilities Shareholder’s equity Share capital, 100 000 ordinary shares 100 000 Retained earnings ($53 160 -$3 000 – 37 050) 13 110 [1] 113 110 Non-current liabilities Long-term borrowings (95 000 – 19 000) 76 000 [1] Current liabilities Trade payables 19 100 Commission income received in advance 600 [1] Interest expense payable 4 500 [1] Dividend payable 3 000 [1] Bank overdraft ($8 000 - $9 000) 1 000 [1] Current portion of long-term borrowings 19 000 47 200 Total equity and liabilities 236 310

Question 2 2(a) [5] Cash at bank account Date Particulars Dr $ Cr $ Balance $ 2022 Apr 30 Balance b/d 10 006 Cr Trade payable Sammy (correction of error) 18 [1] 9 988 Cr Insurance expense 105 [1] 10 093 Cr Trade receivable- Gilbert Retailer (dishonoured cheque) 1 776 [1] 11 869 Cr Trade receivable-Cliff Success 1 776 [1] 10 093 Cr May 1 Balance b/d 10 093 Cr 2(b) [4] Marcus Trading Bank Reconciliation Statement as at 30 April 2022 $ $ Balance as per bank statement (12 731) [1] Add: Deposit in transit Trade receivable -Nic & Tom Trading 7 780 [1] (4 951) Less: Cheques not yet presented Repair expense 672 [1] Salaries 4 470 [1] 5 142 Adjusted balance as per cash at bank account (10 093) 2(c) [1] Adjusted profit = $9 320 - $105 = $9 215 [1]

2(d) [1] On 1 May 2021, Marcus Trading recorded a reverse entry for insurance expense paid but not yet incurred last year. The amount will be added to the current year’s insurance expense. [1]. 2(e) [1] Insurance expense incurred for the year ended 30 April 2022: $900 + $4 000 + $300 + $800 = $6000 [1]. 2(f) [1] Accrual basis of accounting concept states that income is recorded in the financial period when it is earned, regardless of when it is received. Expenses are recorded in the financial period that they are incurred, regardless of when payment is made. [1m for complete correct answer ] OR Matching theory states that expenses must be matched against income earned in the same period to determine the profit for that period. [1m for complete correct answer ] 2(g) [2] General Journal Date Particulars Dr $ Cr $ 2022 May 1 Insurance expense payable 800 [1] Insurance expense 800 [1] Question 3

Timeline: 1 May 2020 28 February 2021 30 April 2021 OE: $45000 New OE (Unit A): $14000 Depn (existing) = $5 280 Acc Depn: $9800 Depn (Unit A) = $2 100 1 May 2021 30 April 2022 OE: $59 000 Depn (existing) = $19 568 Acc Dep: 9800 +5280+2100 Depn (Unit A) = $1 785 Depn (Unit B) = $780 New OE (Unit B) $5 200 (1 Jul 2021) Working: End of Year Depn Remarks 2021 Mar 30 Depreciation for existing= 15% x (45 000 – 9 800) = $5 280 Depreciation for Unit A= 15% x 14 000 x 2/12= $350 Depn for 30 April 2021 = $5 280 + $350 = $5 630 Acc. Depn (existing) = 9 800 + 5 280 = $15 080 Acc. Depn (Unit A) = $350 2022 Mar 30 Depreciation for existing= 15% x (45 000 – 9 800 – 5 280) = $4 488 Depreciation for Unit A= 15% x (14 000 – 350) = $2 048 Depreciation for Unit B= 15% x 5 200 x 10/12= $650 Depn for 30 April 2022 = $4488 + $2 048 + $650 = $7186 Acc. Depn (existing) = 9 800 + 5 280 + 4488 = $19 568 Acc. Depn (Unit A) = $350 + $2 048= $2 398 Acc. Depn (Unit B) = $650 3(a) [2] Depreciation for 30 April 2021 = $5 280 + $350 = $5630 [1] Depreciation for 30 April 2022= $4 488 + $2048 + $650 = $7 186 [1] 3(b) Non- current assets will be overstated. [1] 3(c) [2] (i) Current assets = $10 000 + $15 000 + $800 = $25 800

Current liabilities = $3 500 + $200 +$6 800 =$10 500 Current ratio = 25 800 / 10 500 = 2.46 [1] (ii) Quick assets = $10 000 Current Liabilities = $3 500 + $200 +$6 800 =$10 500 Quick ratio = 10 000 / 10 500 = 0.95 [1] 3(d) [7] SA Design’s current ratio of 2.46 is better than Great Design’s current ratio of 1.75 . This means that SA Design has increased excess of current assets over current liabilities [1]. This could be due to SA Design having more inventory, trade receivables that Great Design. [1] But since both businesses’ current ratios are above the general benchmark of 2, this suggests that both businesses have sufficient current assets to meet their short-term commitments. [General Info] However, SA Design’s quick ratio of 0.96 is worse than Great Design’s of 1.12 This means than SA Design has lesser quick assets to cover its immediate debts[1] . This could due to higher inventory held by SA Design which resulted in the business having lesser liquid assets to pay off its short term debts. [1] SA Design’s quick ratio is below the general benchmark of 1 while Great Design’s is above the benchmark. [General Info] In terms of cash, SA Design is in a worse position that Great Design due to its bank overdraft of $3 500. [1] This indicates that SA Design will have problem paying its immediate debts and operating expenses on time [1] In conclusion, SA Design’s liquidity is worse than Great Design’s for the year ended 30 April 2022[1] 3(e) [2] SA Design’s rate of trade receivables turnover of 23.25 times is worse than Great Design’s rate of trade receivables turnover of 34 times. This means that SA Design is less efficient [1] in collecting outstanding amount from trade receivables and use the funds to to pay for its immediate debts and operating expenses [1] SA Design should consider the following to improve its efficiency in the management of its trade receivables: • Offer cash discount • Charge interest for all overdue amount • Offer different credit limit to different customers, based on repayment records. [1m for any of the following points]

Question 4 4(a) [4] Trade payable – Focus Trading 4(b) [7] Joseph Security should buy from Genesis Ausie. [1] [Any 3 basic statements and developments below] Genesis Ausie provides lower delivery cost if Joseph Security is able to order the security cameras in larger batches since it offers free delivery for 100 units or more, compared to Aimee Trading that charges a flat rate of $100 [1m for ba