AISS 4E POA Prelims P2 with ANS

AISS PRELIMS 7087/02/2022 AHMAD IBRAHIM SECONDARY SCHOOL GCE O-LEVEL PRELIMINARY EXAMINATION 2022 SECONDARY 4 EXPRESS & 5 NORMAL (ACADEMIC) Name: Class: Register No.: PRINCIPLES OF ACCOUNTS 7087 / 02 Paper 2 25 August 2022 2 hours Additional Materials: Writing paper READ THESE INSTRUCTIONS FIRST Write your name, class and index number on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. The use of an approved calculator is allowed. Answer all questions. The business described in this question paper are fictitious. Start each question on a separate page. All calculations must be shown adjacent to the answer. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. This paper consists of 6 printed pages.

2 AISS PRELIMS 7087/02/2022 [Turn over Answer all questions. 1 The following balances were extracted from the books of Nice Brew Ltd on 31 December 2021. $ Fixtures and fittings at cost 42 000 Motor vehicles at cost 98 000 Accumulated depreciation: Fixtures and fittings 12 600 Motor vehicles 18 620 Sales revenue 368 000 Sales returns 10 050 Cost of sales 158 600 Wages and salaries 90 700 Insurance expense 11 160 Rent income 2 180 Trade receivables 32 900 Trade payables 27 900 Cash at bank 85 830 Allowance for impairment of trade receivables 4 900 Inventory 93 710 Share capital, 100 000 ordinary shares 100 000 Retained earnings,1 January 2021 11 000 5% Bank loan 80 000 Interest expense 2 250 Additional information 1) Insurance expense was paid for eighteen months up to 30 June 2022. 2) Rent income of $620 was earned but not yet collected. 3) A credit note of $1 340 received from a credit supplier had been omitted from the books. 4) Interest expense was not fully paid up yet. 5) One-fifth of the long-term loan is due for repayment on 30 June 2022. 6) Fixtures and fittings is depreciated at a rate of 15% per annum on cost. Motor vehicles are depreciated at a rate of 10% per annum on net book value. 7) A trade receivable who owed $1 600 was declared bankrupt. This has not been recorded in the books. 8) A review of the trade receivables indicated that 8% of the balance is likely to become uncollectible. 9) The company declared a dividend of $0.12 per share. The dividend will be paid on 10 January 2022. REQUIRED (a) Prepare the statement of financial performance for the year ended 31 December 2021. [7] (b) Prepare the statement of financial position at 31 December 2021. [13] [Total: 20]

3 AISS PRELIMS 7087/02/2022 2 Venus Ltd had the following ledger account balances on 1 April 2021. $ Motor vehicles at cost 140 000 Accumulated depreciation of motor vehicles 30 000 / Additional information 1 Depreciation is provided at 10% per annum using the reducing balance method. 2 A full year depreciation is charged in the year of purchase but no depreciation is charged in the year of sale. 3 On 31 January 2022, two lorries were purchased on credit from Nice Cars Ltd for $50 000 each. 4 A van bought for $40 000 in 1 April 2019 was sold for $30 000 on 28 February 2022 on credit to Fast Deals Ltd. REQUIRED (a) Define depreciation. [1] (b) Comment on the suitability of the depreciation method used for motor vehicles by Venus Ltd. [2] (c) Prepare the motor vehicle account for the year ended 31 March 2022. [3] (d) Calculate the gain or loss on sale of non-current asset. [2] (e) Calculate the depreciation expense for the year ended 31 March 2022. [2] (f) Prepare an extract of the statement of financial position as at 31 March 2022. [2] (g) Explain with a relevant accounting concept, why business needs to charge depreciation. [2] [Total: 14]

4 AISS PRELIMS 7087/02/2022 [Turn over 3 Mastercook is a trader in stoves. The following information was taken from the business books on 30 June 2021. Number of ovens (units) $ Inventory, 1 July 2020 175 210 000 Additional information: 1 All purchases for resale are paid by cheque. A summary of the purchases is shown below: 2020 Quantity (units) $ 5 July 50 66 500 19 Oct 90 120 150 2021 23 Jan 85 108 800 4 May 20 28 000 2 3 4 Mastercook uses the FIFO (First In First Out) method of inventory valuation. On 13 April 2021, Mastercook sold 225 ovens on credit to Jin Cook for $310 000. The market value of the inventory on 30 June 2021 was $250 000. REQUIRED (a) Explain, with an accounting concept, how inventory is valued. [2] (b) Prepare the inventory account for the year ended 30 June 2021. [5] (c) Calculate to one decimal place, Mastercook’s inventory turnover rate for the year ended 30 June 2021. [2] Just Stoves, a close competitor of Mastercook, has a rate of inventory turnover of 2.3 times for the same period. REQUIRED (d) Compare and comment on the rate of inventory turnover of both businesses and suggest two reasons for their differences. [3] [Total: 12]

5 AISS PRELIMS 7087/02/2022 4 The financial year of Kane Trading’s business ends on 31 December. On 31 December 2021, Kane Trading decided to create an allowance for impairment of trade receivables. His trade receivables on 31 December were as follows: 2020 2021 $ $ Trade receivables 46 220 46 700 The business maintains an allowance for impairment of trade receivables at 5% of trade receivables at every financial year end. Additional information On 31 August 2021, a credit customer, Bounce Ltd announced its closure. Bounce Ltd paid $0.30 for every dollar of its outstanding debt of $1 500 and the remaining amount was written off. REQUIRED (a) Prepare the journal entries to record the transaction on 31 August 2021. Narrations are not required. [3] (b) Prepare the journal entries to adjust the balance of the allowance for impairment of trade receivables for the year ended 31 December 2021. [2] (c) State the effect on profit and current asset when no allowance for impairment of trade receivables is provided. [2] [Turn over

6 AISS PRELIMS 7087/02/2022 Kane Trading is a wholesale business, which sells a wide range of health -related products and supplements. The following information is provided in regards to sales: 1 The business’s terms of trade with customers are for payment in full within 30 days. 2 Cash discount of 5% if payment is received within 25 days. 3 All sales are made on credit. William is a potential new customer. The following information has been made available about William, who is based overseas. 1 William started a new