JYSS 4E5N POA PRELIM 2022 P1 Solution

7087/01/4E5N/PRELIM/2022 Prelim Examination 2022 Sec 4E5N P1 Answer Key 1 (a) (i) Retained earnings is the accumulation of profits that has not been distributed to shareholders. [1] (ii) Dividends are profits distributed to the shareholders based on the amount declared. [1] (b) Particulars Debit $ Credit $ Cash at bank ($2.50 X 50 000 shares) 125 000 Share capital 125 000 [2] (c) Retained earnings Date Particulars Dr $ Cr $ Bal $ 2021 Aug 1 Balance b/d *143 600 Cr 2022 Jul 31 Dividends ($0.03 X 250 000) [1] 7 500 136 100 Cr Jul 31 Income summary [1] 22 790 158 890 Cr Aug 1 Balance b/d *[1OF] *158 890 Cr

2 7087/01/4E5N/PRELIM/2022 (d) Either 1 of the following : [2 marks] Features Sole Proprietorship (SP) Private Limited Company (PLC) Ownership - Owned by one person who contributes capital to set up the SP. Owned by 50 or less shareholders where each shareholder buys shares and contributes capital. Access to funds Less likely for banks and other lenders to lend money to the SP due to the lack of personal assets that can serve as collaterals. Hence, access to funds is usually limited to the personal funds of the owner. More likely for banks and other lenders to lend money to the PLC as there are more business assets of high value to serve as collaterals. Alternatively, the company may issue more shares to raise funds. Extent of liability When the SP incurs debts and losses, the sole owner is obliged to pay them using his personal assets. When the company incurs debts and losses, shareholders are not obliged to pay them using their personal assets and may not receive dividends. In the worst-case scenario, they will only need to forfeit their investments. Level of control The only owner usually runs the business by himself and has absolute control over it. The owner may hire professionals to help him. The shareholders have no control over the running of the business unless they are part of the management team. The company hires professionals to manage the business on behalf of shareholders. Lifespan The SP exists as long as the owner is alive and desires to continue operation. The PLC exists forever until wound up or struck off. Transferability of ownership The sole owner can easily update the particulars of the new owner to notify the corporate regulatory authority of the transfer of ownership. Shareholders can pay a stamp duty to the tax authority to give their shares to another person or organisation. Formalities and procedures The SP has minimal administrative duties to adhere to. The PLC must comply with statutory requirements and file its annual financial reports. [Total: 9]

3 7087/01/4E5N/PRELIM/2022 2 (a) Cost of sales for May 2021 = $9 900 + $7 300 =$17 200 [1] (b) Gross profit = $42 000 – $17 200