XMS 2022 4E5N PRELIMS P2 ANS

1(a) Eat Smarter Statement of financial performance for the year ended 31 July 2021 $ $ Sales revenue (120,800 + 1,200) 122,000 [1] Less: Sales returns 22,320 [0.5] Net sales revenue 99,680 Less: Cost of sales 46,600 [0.5] Gross profit 53,080 Other income Commission income 26,000 [0.5] Less: Expenses Interest expense (4% x $15,000) 600 [1] Selling and advertising expense (8,860 – 550) 8,310 [1] Discount allowed 809 [0.5] Rental expense 13,000 [0.5] Wages and salaries 30,800 [0.5] Utilities expense (12,520 – 210) 12,310 [1] Impairment loss on trade receivables (2230- (-660) 2,890 [1] Depreciation of motor vehicles (15% x (60,000 – 12,000)) 7,200 [1] Depreciation of equipment (20% x (14,200 + 550) 2,950 [1] 78,869 Profit for the year 211 -1m for wrong format [10]

2 (b) Eat Smarter Statement of financial position as at 31 July 2021 Assets $ $ $ Non-current assets Cost Accumulated depreciation Net Book value Motor vehicles 60,000 [0.5] 19,200 [0.5] 40,800 Equipment 14,750 [0.5] 5,050 [0.5] 9,700 50,500 [0.5] Current assets Trade receivables (44,400 + 1,200 – 1,000) 44,600 [1] Less: Allowance for impairment of trade receivables (2,230) [0.5] 42,370 Inventory 32,000 [1] Total current assets 74,370 Total assets 124,870 Equity and liabilities Owner’s Equity Capital (80,819 + 211 - 210) 80,820 [1] OF Current liabilities Trade payables 28,000 [1] Bank overdraft 950 [1] Current portion of long-term borrowing 15,000 [1] Interest expense payable (600-500) 100 [1] Total current liabilities 44,050 Total equity and liabilities 124,870 -1m for wrong/improper format [Total: 20] [10]

3 2(a) (b) (c) (d) (i) Non-current assets are resources a business owns or controls that are expected to provide future benefits which last beyond one financial year. [1] (ii) Depreciation is a reduction in the value of non-current assets over time. [1] Jingle Wellness purchased a machine costing $12,000 from Packwell on credit. [1] Depreciation = [$8,574 / ($51,280 – 8,410) [1] x 100] = 20% [1] Journal 2020 Dr ($) Cr ($) Sep 30 Sale of non-current asset 4,040 [1] Income summary [13,000 – (14,000 – 5,040)] 4,040 [1] The business made a gain of $4,040 from the sale of machinery. [1] OF (e) Purpose of non-current assets [1] Features of non-current assets [1] Customer reviews of the non-current assets [1] Warranty of non-current assets [1] Accept any 2 points above. [Total: 10]

4 3(a) (b) The revenue recognition theory states that revenue is earned when goods have been delivered or services have been provided. [1] Service fee revenue earned = $89,000 - $10,200 [0.5] - $14,000 [0.5] = $$64,800 [1] (c) Journal 2021 Dr ($) Cr ($) Aug 31 Service fee revenue 14,000 [1] Service fee revenue received in advance 14,000 [1] (d) (e) (f) (g) (h) (i) A reversal entry was made to add $2,150 to this year’s rent expense as the business had paid rent of $2,150 in advance last year, for rent which will only be incurred this year. [1] (ii) The owner had paid business rent of $1,075 with her personal funds. [1] Income summary [1] Integrity is being straightforward and honest in all professional and business relationships. [1] Objectivity is not letting bias, conflict of interest or undue influence of others override professional judgement. [1] It Is important to be profitable to reinvest the profits into business operations. [1] or It is important to be profitable to distribute the share of profits to the owners or shareholders of the business. [1] Increase the price of its enrichment lessons [1] Decrease other expenses such as negotiating for a lower rent. [1] Increase sources of other income such as commission income by selling assessment or reference books. [1] Accept any two reasonable answers relating to the service business. [Total: 13]

5 4(a) Inventory account 2020 Dr ($) Cr ($) Balance ($) May 1 Balance b/d 3,800 Dr May 30 Trade payable 5,300 [0.5] 9,100 Dr Jun 4 Trade payable 5,300 [0.5] 3,800 Dr Aug 3 Cash at bank 3,000 [0.5] 6,800 Dr Oct 14 Cash in hand 4,600 [0.5] 11,400 Dr 2021 Apr 30 Cost of sales 6,800 [0.5] 4,600 Dr May 1 Balance b/d 4,600 Dr [0.5] OF (b) Credit note [1] (c) ($10 x 1.12) [1] x 50 = $560 [1] (d) Prudence theory [1] states that inventory should be valued at its cost or net realisable value, whichever is lower. [1] (e) Workings: $6 x 50 = $300 Understated Overstated No effect Profit for the year $300 [1] Current assets $300 [1] (f) Rubrics for Scenario-based Question Decision: State the recommendation of action figure brand to buy. [1] Basic Statement 1: State a reason for the choice of inventory. [1] Developmental statement 1: Requires an explanation/justification for basic statement 1. [1] Basic statement 2: State second reason for the choice. [1] Developmental statement 2: Requires an explanation/justification for basic statement 2. [1] Basic statement 3: State third reason for the choice. [1] Developmental statement 3: Requires an explanation/justification for basic statement 3. [1] * No mark given for basic statement if no comparison is made. * No mark given for developmental statement if it does not lead to justification of how it will affect the business income, expenses, profit and qualitative performance of the business. * No mark given for developmental statement if no basic statement is present , or if development is not clearly elaborated. [Total: 17]

6 Example Decision: Jaime Toys should purchase Popomon action figures to sell. Basic statement 1: The cost price of one Popomon action figure of $84 is $38 cheaper than the cost price of one flower fantasy action figure. [1] Development statement 1 : As this is the first time Jaime Toys is selling action figures, purchasing this inventory to sell is less risky as the cost of Popomon action figure is significantly cheaper. This will lead to cost savings and lesser cash outflow at the start. [1] Basic statement 2: The Popomon action figures can be stored in existing storage, whereas Flower Fantasy action figures will require more storage space which needs to be air - conditioned. Development statement 2: As the action figures can be stored anywhere and requires less space, buying Popomon action figures will help Jaime Toys save on storage space and air- conditioning, leading to cost savings and reducing expenses such as rental and utilities. Basic statement 3: The Popomon action figures appeals to both teenagers and adults who are looking for an affordable option. Development statement 3: As the action figures appeal to a larger group of target audience, it is likely that Jaime Toys can sell more quantity of goods for this brand of action figures, thus boosting its sales volume and increasing profits. Example Decision: Jaime Toys should purchase the Flower Fantasy action figures. Basic statement 1: The gross profit to be earned from selling Flower Fantasy action figures of 25% is 10% higher than selling Popomon action figures. [1] Development statement 1: Despite the cost of Flower Fantasy action figures being higher, the gross profit margin to be earned is higher. This means that the business is able to earn higher gross profit from selling Flowe