2022 Peirce Sec PRELIM 7087 4E POA P2 ANS.xlsx

Peirce Secondary SchoolPrinciples of AccountsSecondary 4 (Express) Preliminary Examination Paper (2) 1a) Mad Hatter Pte LtdStatement of financial performance for the year ended 31 May 2022$ $Sales revenue 315,210Less: Sales returns 3,460Net sales revenue 311,750üLess: Cost of sales 212,720Gross profit 99,030ü Add: other incomeRental income [7 200 - 3 000] 4,200üDiscount received 420ü103,650 Less: expensesCommission expense (2 180 - 1 650) 530 üDiscount allowed 1,456 üGeneral expense 350Salaries 2,430Repairs and maintenance 600Depreciation expense on fixtures and fittings (0.1 * 210 000)21,000 üDepreciation expense on office equipment [0.15* (120 000 - 18 000)]15,300 üInterest expense (0.01 * 40 000) 400 ü42,066 Profit for the year 61,584ü Each ü 1 mark Total: 10 marks 1b) Mad Hatter Pte LtdStatement of financial position as at 31 May 2022

$ $ $Assets Cost Accumulated depreciationNet book valueNon-current assetsFixtures and fittings 210,000 63,000 147,000Office equipment 120,000 33,300 86,700233,700üCurrent assetsTrade receivables (9 080 - 1 200) - 7,880- Less: Allowance for impairment of trade receivables (1 362 - 1 080)- 282- - 7,598- üInventory 5,902Prepaid commission 1,650 ü15,150Total assets 248,850 Equity and liabilitiesEquityShare capital, 100 000 ordinary shares 100,000Retained earnings (34 086 + 61 584 - 3 000) 92,670ü OF Non-current liabilitiesLong-term borrowing 30,000 Current liabilitiesTrade payables 8,190Rental income received in advance 3,000 üInterest expense payable 400 üCurrent portion of long-term borrowing 10,000 üDividends payable (0.03*100 000) 3,000 üBank overdraft (1 710 - 120) 1,590 üTotal current liabilities 26,180Total equity and liabilties 248,850ü Students must balance the statement of financial position correctly to get 1 markEach ü 1 mark Total: 10 marks

2ai) Working capital for 31 March 2022 = (155 000 + 85 000) - (11 500 + 4 200 + 2 300)ü = $222 000 ü Each ü = 1 mark Total: 2 marks 2aii)Current ratio for 31 March 2022 = (155 000 + 85 000)/ (11 500 +4 200 + 2 300)ü = 13.33 ü Each ü = 1 mark Total: 2 marks 2aiii)Quick ratio for 31 March 2022 = 85 000/ (11 500 + 4 200 + 2 300) ü = 4.72 ü Each ü = 1 mark Total: 2 marks 2b) The working capital of the business increased from $154 900 to $199 000 as a result of ü an increase in both trade receivables and inventory which more than offsets the decrease in its cash at bank balance from 2020 to 2021. However, there was an increase in its working capital from $199 000 in 2021 to $222 000 in 2022 as a result of a larger increase in its current assets over its current liabilities over this period. ü In addition, its current ratio has worsened from 22.51 in 2020 to 20.72 in 2021 and further to 13.33 in 2022. Even though the current ratio for all three years is above the generalü benchmark of 2, the business has become less liquid over this period as a result of a greater increase in its current liabilities over current assets. ü Likewise, its quick ratio improved from 5.67 in 2020 to 6.84 in 2021 before worsening to 4.72 in 2022. The increase in its quick ratio from 2020 to 2021 is due to a significant increase in itsü trade receivables balance from $35 000 to $66 000 which more than offsets the increase in its current liabilities. The worsening of its quick ratio from 2021 to 2022 is the result of a larger increase in its current liabilities over its increase in its trade receivables balance from $66 000 to $85 000. ü Each ü = 1 mark

Accept any other plausible answers Total: 6 marks 2c) Firstly, the business can improve its liquidity by issuing more shares to raise additional capitalü in the form of cash from existing owners or potential investors to pay its credit suppliers.ü In addition, the business can review its credit policy to ensure that its credit customers pay on time or does not default on payment. For instance, sell on credit only to customers who have ü a good credit history. ü The business can also manage its cash outflow by reducing significant operating expenses.ü For instance, it can move to a location with cheaper rental. ü Lastly, the business can negotiate for better credit terms from suppliers. For instance, it canü ask suppliers for a longer credit period and higher cash discounts. ü Each ü = 1 mark Accept any other plausible answers Total: 8 marks

3a)According to the accounting entity concept, the owner and business are two different legal entities so all ü transactions must be recorded from the point of view of the business. ü Each ü = 1 mark Total: 2 marks 3b) Drawings account Date Particulars Dr Cr Balance 2020 $ $ $ Jun 18Inventory 58 58Dr ü 2021 Feb 20Cash in hand 960 1018Dr ü Apr 30Capital - 1,018- - -  - ü Each ü = 1 mark Total: 3 marks 3c) Capital account Date Particulars Dr Cr Balance 2020 $ $ $ May 1Balance b/d - 65,800- Cr 2021 Apr 30Drawings - 1,018- - 64,782- Cr ü Income summary - 15,320- - 80,102- Cr ü May 1Balance b/d - 80,102- Cr 2022 Jan 24Office equipment - 1,670- - 81,772- Cr ü Apr 30Income summary - 4,310- - 77,462- Cr ü May 1Balance b/d - 77,462- Cr Each ü = 1 mark Total: 4 marks

4a) Final amount to be recorded = 0.9 * 2 000 ü = $1 800 ü Each ü = 1 mark Total: 2 marks 4b) The purpose of giving trade discounts is to encourage customers to purchase in bulk. ü Each ü = 1 mark Total: 1 mark 4c) Cash discount ü Each ü = 1 mark Total: 1 mark 4d) The business should buy Kobe beef. ü This is because the gross profit per 100g is $2 more than that of Omi beef. This will result in higher net profit which the business ü can revest for expansion plans in further. ü Besides, Kobe beef is popular both overseas and among locals since it is the healthiest choice amongst all types of wagyu beef. This ü means that the business can save on advertising to raise customer awareness since there is already a ready market for this type of beef.ü Lastly, Kobe beef can be eaten in more ways as compared to Omi beef therefore it is able to provide customers a greater variety of ü consumption methods without having to purcase another type of beef. This translates into greater cost savings and convenience for consumers which can help to increase sales revenue and profits for the business in the long run.ü Or The business should buy Omi beef. ü This is because Omi beef has a longer shelf life of 3 more days as compared to that of Kobe beef which would allow the business moreü allowance of time to sell before it expires and minimise any impairment loss on inventory as a result of expiring before it can be sold.ü Moreover, Omi beef is still relatively unknown in the local market therefore although the business may need to spend on advertising to ü raise customer awareness, there is more room for sales since local consumers are likely to purchase due to its novelty.ü Lastly, Omi beef is cheaper than Kobe beef so its budget friendly price is likely to appeal to a larger market as compared to the latter.ü This would translate into more sales revenue and profits for the business in the long run if it is well received.ü Each ü = 1 mark Total: 7 marks