2022 SMSS 4E5N PRELIM P2 with ANS

ST. MARGARET’S SECONDARY SCHOOL Preliminary Examinations 2022 CANDIDATE NAME CLASS REGISTER NUMBER PRINCIPLES OF ACCOUNTS Paper 2 Secondary 4 Express / 5 Normal (Academic) 7087/02 29 August 2022 2 hours Additional Materials: Writing papers 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 on both sides of the paper. Do not use staples, paper clips, highlighters, glue or correction fluid. You may use an approved calculator. Answer all questions. The businesses described in this question paper are fictitious. Where the columnar format is used, the running balance column should be updated for the first and last entries. Where applicable, the balance should be brought down to the next financial year. 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. The total of the marks for this paper is 60. For Examiner’s Use 60

2 This document consists of 5 printed pages and a blank page. Answer all questions. 1 Infocom Pte Ltd is a company providing poster design services. The following balances were extracted from the books on 31 May 2022. $ Share capital, 70 000 ordinary shares 210 000 Retained Earnings, 1 June 2021 45 930 Bank Loan 80 000 Fixtures and fittings 130 000 Motor vehicles 84 000 Accumulated depreciation: Fixture and fittings 52 000 Motor vehicles 15 960 Cash at bank 215 702 (Dr) Discount allowed 2 250 Trade receivables 170 000 Trade payables 44 590 Insurance expense 2 550 Salaries expense 40 000 Design fee revenue 188 450 Utilities expense 13 840 Motor vehicles repair 3 788 Rent income 17 000 Allowance for impairment of trade receivables 8 200 Additional information: (i) Commission income of $1 700 was earned but not yet collected. (ii) Insurance expense had been paid for 15 months up to 31 August 2022. (iii) Motor vehicle repairs of $800 had been incorrectly debited to the utilities expense account. (iv) The bank loan was obtained on 1 June 2021 and will be repaid equally over 10 years. Interest on loan is charged at 5% per annum. (v) Fixtures and fittings are depreciated at 20% per annum on cost. (vi) Motor vehicles are depreciated at 10% per annum using the reducing balance method. (vii) The business reviewed its trade receivables and decided that 3% of the outstanding balance may be uncollectible. (viii) The company declared a dividend of $0.13 per share. The dividend will be paid on 3 November 2022. REQUIRED: (a) Prepare the statement of financial performance for the year ended 31 May 2022. [9] (b) Prepare the statement of financial position as at 31 May 2022. [11] [Total 20m]

3 2 Nick owns CoolAir Pte Ltd, a business that sells air-conditioners. The following information were extracted from his book as at 31 July 2021. $ Credit sales revenue 350 000 Cash sales revenue 167 000 Sales returns 6 500 Cost of sales 189 200 Operating expenses 202 825 Equity, 1 August 2020 450 000 Equity, 31 July 2021 550 000 REQUIRED (a) Calculate the following profitability ratios for the year ended 31 Juy 2021. Show your answers to two decimal places. (i) Mark-up on cost [2] (ii) Gross profit margin [2] (iii) Profit margin [2] (iv) Return on equity [1] Mr Tan, a businessman, wishes to invest in either CoolAir Pte Ltd or Mandarin Pte Ltd, a direct competitor of CoolAir Pte Ltd . The following profitability ratios were extracted from the books of Mandarin Pte Ltd. Mark-up on cost 195.52 % Gross profit margin 64.33% Profit margin 19.38% Return on equity 17.15% REQUIRED (b) Comment on the profitability of CoolAir Pte Ltd against Mandarin Pte Ltd. Use the given information and your answer to (a). [6] (c) Advise which business Mr Tan should consider investing in. Justify your decision with reasons. [2]

4 (d) Suggest one way in which businesses can improve their profitability. [1] [Total 16m] 3 Isabelle owns Sparkle Shop, which sells lights. The business records inventory using the FIFO method. On 1 July 2022, the business had 40 units of inventory valued at $6 800. During the month of July, the following transactions took place: Purchases Date Quantity (Units) Cost price ($) Jul 5 20 2 400 Jul 11 60 8 300 Jul 18 50 7 600 Sales Date Quantity (Units) Selling price ($) Jul 6 40 18 600 Jul 21 80 39 800 Additional information 1 All purchases of inventory were made on credit. 2 During the month of July, credit notes issued amounted to $2 900. The cost of these returns was $1 000. REQUIRED (a) Calculate the following for the month of July 2022: (i) Cost of sales [1] (ii) Net sales revenue [2] (b) Prepare the inventory ledger account for the month ended 31 July 2022. [6] Sparkle Shop sells his products to customers on credit, on a 35 day credit term. The following information relates to the business for the years ended 31 July 2019 to 2021. 2019 2020 2021 Rate of trade receivables turnover 11.06 times 9.61 times 8.69 times Trade receivables collection period (round to the nearest day) 33 days 38 days 42 days

5 REQUIRED (c) Comment on the trend of rate of trade receivables turnover and trade receivables collection period over the three years from 2019 to 2021. [4] (d) Explain how the trend of trade receivables turnover of Sparkle Shop will affect its business’ liquidity position. [2] (e) Suggest two ways to improve Sparkle Shop’s efficiency in the management of its trade receivables. [2] Isabelle decides to enter into the Food and Beverage Industry and set up a café in one of the malls in Orchard. She is considering bringing in cookies to be sold at her café. Due to limited funds, she will only bring in one type of cookies. The information about the two types of cookies are as follows: Bon Bon Jim’s Cost price each bag of cookies $12.50 (300g) $7.50 (300g) Flavors Tasty artisan stuffed cookies with 4 unique flavours Delicious chunky and gooey drool-worthy filled cookies with 16 flavours Gross profit margin 32% 20% Nature of product ● Organic ● No artificial coloring and preservatives ● Offers vegetarian and vegan friendly cookies ● Low sugar ● Low calories ● Gluten free Packaging Comes in paper packaging Comes in beautiful air-tight tins with cartoon characters Isabelle also discovered the following customer preference in her research: ● The café is frequently patronized by tourists who like healthy and organic cookies. These tourists have higher spending power. ● As the café is next to a gym, the weight conscious customer