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 i