Anderson Sec Prelim 2022 P2 - Answer Scheme

Setter: Mdm June Liau O ANDERSON SECONDARY SCHOOL Preliminary Examination 2022 Secondary Five Normal Academic CANDIDATE NAME: ANSWER SCHEME CLASS: / INDEX NUMBER: PRINCIPLES OF ACCOUNTS Paper 2 7087/02 26 August 2022 2 hours No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Answer all the questions. The number of marks is given in brackets [ ] at the end of each question or part question.

2 PRELIM 5NA POA 2022 7087/02 This document consists of __ printed pages and ___ blank pages. Answer all questions. Qn 1 (a) Xin Yi Pte Ltd Statement of financial performance for the year ended 31 March 2022 $ $ Sales Revenue 184 470 Less: Sales Returns 11 000 Net Sales Revenue 173 470✔ Less: Cost of Sales 78 050 Gross Profit 95 420✔ Add: Other Income Discount Received 3 850✔ 99 270 Less: Other Expenses Impairment loss on inventory 1 100✔ Wages expense (-4400) 26 400✔ Depreciation of motor vehicle [15%X (152000-50000)] 15 300✔ Impairment loss on trade receivables [5250 – (5000- 3500)] 3 750✔ Motor vehicle expenses 12 000 Interest on loan 8 000✔ Discount allowed 2 050✔ Rent expense 6 000 74 600 Profit for the year (OF✔) 24 670 [10]

3 PRELIM 5NA POA 2022 7087/02 (b) Xin Yi Pte Ltd Statement of financial position as at 31 March 2022 Assets $ $ $ Non-Current Assets Cost Accumulated Depreciation Net Book Value Motor vehicles 152 000 65 300 86 700✔ Total non-current assets 152 000 65 300 86 700 Current Assets Trade receivables (-3500) 105 000✔ Less: Allowance for impairment of trade receivables 5 250✔ 99 750 Inventory 89 000✔ Prepaid wages 4 400✔ Cash at Bank (+20000) 71 200✔ Total current assets 264 350 Total Assets 351 050 Shareholders’ Equity Issued share capital (+20000) 180 000✔ Retained earnings (36870+24670-9000) 52 540✔ Total shareholders’ equity 232 540✔ Non-Current Liabilities Long-term Borrowings 50 000 Current Liabilities Trade Payables 59 510 Dividend payable 9 000✔ 68 510 Total equity and liabilities 351 050 [10] (c) Two purposes of internal controls are : Safeguard assets of the business

4 PRELIM 5NA POA 2022 7087/02 Ensure that business transactions are recorded accurately Comply with laws and regulations. Detect fraud (Any 2) [2] [Total: 22] Qn 2 (a) Liquidity refers to the ability of the business to convert current assets into cash to pay current liabilities. Or Liquidity measures the ability of the business to meet its short-term obligations. [1] (b) (i) Working Capital = Current assets – Current Liabilities = 24900 – 21900 = $3000 [2] (ii) Current ratio = Current assets / Current liabilities = 24900 / 21900 = 1.14 [2] (iii) Quick ratio = (Current assets - inventory – prepayments)/ Current liabilities = (24900 – 18000 – 500) / 21900 = 0.29 [2] (c) (i) 2020 2021 2022 Current ratio 3.52 2.32k 1.14 Quick ratio 1.83 1.05 0.29 ● The liquidity has worsened over the three years. ● Current ratio has worsened from 3.52 in 2020 to 2.32 in 2021 and to 1.14 in 2022. ● In 2022, current ratio is below the general benchmark of 2. ● This indicates that in 2022, Farhana does not have enough current assets to pay off her current liabilities. ● Quick ratio has also worsened from 1.83 in 2020 to 1.05 in 2021 and to 0.29 to 2022. ● In 2022, the quick ratio fell below the general benchmark of 1. ● This indicates the Farhana does not have sufficient quick assets to pay off her current liabilities. ● In 2022, Farhana has bank overdraft of $900 which might indicate that she is facing cashflow problems. (Any 4 points) [4] (ii) Farhana could be holding on to too much inventory which she has difficulty selling. Farhana has to repay part of her long-term borrowings of $5000 which is repayable within the year. (or any reasonable answer) [1] (d) The rate of inventory turnover has worsened from 8.46 times in 2020 to 6.78 times in 2021 and to 4.46 times in 2022.

5 PRELIM 5NA POA 2022 7087/02 This indicates that the business is taking longer to sell its goods. Or the business is getting less efficient at managing its inventory over the three years. [2] [Total: 14] Qn 3 1 Cheque payment of $660 for marketing expenses has been wrongly recorded in the books as $600. 2 Credit sale of $400 has been debited to the sales revenue account and credited to the trade receivable account. 3 A cheque of $265 received from Tata Store had been recorded in the account of Kaka Store. 4 Purchase of fixtures and fittings, $120 has been debited to the stationery account. (a) Journal Date Particulars Dr Cr 2022 $ $ May 31 (1) Marketing expenses 60 Cash at bank 60 (2) Trade receivables 800 Sales revenue 800 (3) Trade receivables, Kaka 265 Trade receivables, Tata 265 (4) Fixture and Fittings 120 Stationery expense 120 [8] (b) Syahirah Sweets Pte Ltd Statement to show adjusted profit for the year ended 31 May 2022 Unadjusted loss for the year (450) 1 1) Less Marketing expenses understated (60) 1 2) Add Sales revenue understated 800 1 3) No effect - 4) Add Stationery expense overstated 120 1 Adjusted profit for the year 410 1

6 PRELIM 5NA POA 2022 7087/02 [5] [Total: 13] Qn 4 (a) 7marks = Decision [1] + 3 basic points supported by development points [3]x2 Decision Shanice should buy the machine. Basic point 1 If Shanice uses the machine for 5 years, it would be overall cheaper for Shanice to buy the machine than to rent the machine. For 5 years, Cost of buying machine (plus servicing) = $5000+$1250 = $6250 Cost of renting machine = 5 X $1500 = $7500 Development 1 If this cost is done over annual instalments, the cost of buying is still cheaper at $1250 per year as compared to renting this machine for five years. The $1250 saved could be used in its other business operations therefore, it is better to buy the machine than to rent the machine. Basic point 2 If Shanice buys the machine, she will receive a new machine as compared to using a used machine if she were to rent the machine. Development 2 Due to wear and tear, a used machine may not operate as efficiently as compared to the new machine she would receive if she were to buy the machine. Basic point 3 If Shanice buys the machine, it is an asset which can be sold off in the future. Development 3 Shanice would have the freedom to sell the machine and make a profit on sale. Basic point 4 Shanice would be able to customise printing if she buys the machine as compared to renting. Development 4 Business can better cater to customers’ needs/ demands to generate more profit. Conclusion Therefore, Shanice should buy the machine.

7 PRELIM 5NA POA 2022 7087/02 OR Decision Shanice should rent the machine. Basic point 1 Shanice should rent the machine as it is cheaper to rent at $1500 annually as compared to committing to pay $5000 for the machine right from the start. Development 1 The money can be put to better use to generate more profit for the business as instead of making a big upfront payment, it can be spread out over 5 years. or Committing to pay $5000 will lock up the business’s liquidity and th