JYSS 4E5N POA PRELIM 2022 P2 Solution

Preliminary Examination 2022 Sec 4E5N P2 Answer Key 1(a) Stephen Statement of Financial Performance for the year ended 31 August 2022 $ $ Accounting fee revenue # 246 752 Other income Discount received #[1] 690 Less: Other Expenses Rent expense (44 000 + 4 000) [1] 48 000 Wages (99 000 – 1 900) [1] 97 100 Utilities expense (5 141 -360) [1] 4 781 Interest on loan (30 000 X 3% X 8/12) [1] 600 Depreciation of motor vehicles [10% X (75 000 – 14 250)] [1] 6 075 Depreciation of equipment (25% X 250 000) [1] 62 500 Impairment loss on trade receivables [5%X(48 600-1800) – (250 – 1000)] [1] 3 090 222 146 Profit for the year # [1OF] 25 296 [9]

2 7087/02/4E5N/PRELIM/22 1(b) Stephen Statement of Financial Position as at 31 August 2022 Assets $ $ $ Non-current assets Cost Accumulated Depreciation Net book values Motor vehicle (14 250 + 6 075) 75 000 20 325 [1] 54 675 Equipment (125 000 + 62 500) 250 000 187 500 [1] 62 500 117 175 Current assets Trade receivables (48 600 – 1 800) [1] 46 800 Less: Allowance for impairment of trade receivables (5% X 46 800) [1OF] 2 340 44 460 Prepaid wages [1] 1 900 46 360 Total assets 163 535 Equity and Liabilities Owner’s Equity Capital (103 099 + 25 296 – [1] 360) [1OF] 128 035 Non-current liabilities Long-term borrowings (4/5 X 30 000) # 24 000 Current liabilities Bank overdraft (2 200 -800) [1] 1 400 Rent payable [1] 4 000 Interest payable (600-500) [1] 100 Current portion of long-term borrowings (1/5 X 30 000) # [1] 6 000 11 500 Total equity and liabilities 163 535 [11]

3 7087/02/4E5N/PRELIM/22 2(a) Ace Technology (AT) Best Global (BG) (i) Current ratio [Current assets / Current liabilities] (59 500+20 780+900) / (10 000+25 800+1 500) = 81 180/ 37 300 = 2.18 [1] (16 200+18 800+700+2 600) / 19 000 = 38 300/ 19 000 = 2.02 [1] (ii) Quick Ratio [(Current assets – Inventory – Prepayments) / Current liabilities] 20 780 / (10 000+25 800+1 500) = 20 780/ 37 300 = 0.56 [1] (18 800 + 700) / 19 000 = 19 500/ 19 000 = 1.03 [1] 2(b) [Any 6- 6 marks] ▪ The current ratio 2.18 of Ace Technology (AT) is better than Best Global (BG) of 2.02. [1] ▪ However, the quick ratio 0.56 of AT is worse than BG of 1.03. [1] ▪ The worse quick ratio of AT is due to the following reasons: ✓ trade payables of AT $25 800 is higher than BG $19 000. [1] ✓ the $10 000 current portion of long-term borrowing of AT.[1] ▪ The quick ratio of AT is below benchmark of 1 as the result of too much current ass ets tied up in inventory ($59 500 out of $81 180). [1] ▪ AT has low cash holding as supported by the bank overdraft of $1 500 and AT might be unable to pay immediate debts and operating expenses on time. [1] ▪ Overall, liquidity of AT is worse than BG. [1] 2(c) [Any 2- 2 marks] ▪ Rich b