2022 SMSS 4E5N PRELIM P1 with ANS

ST. MARGARET’S SECONDARY SCHOOL Preliminary Examinations 2022 CANDIDATE NAME CLASS REGISTER NUMBER PRINCIPLES OF ACCOUNTS Paper 1 Secondary 4 Express / 5 Normal (Academic) 7087/01 25 August 2022 1 hour Additional Materials: Nil READ THESE INSTRUCTIONS FIRST Do not turn over the pages until you are told to do so. Write your name, class and index number on all the work you hand in, including the cover page. Write in dark blue or black pen. Do not use staples, paper clips, highlighters, glue or correction fluid. The use of an approved calculator is allowed. Answer all questions in the spaces provided in the Question Paper. 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. The businesses described in this question paper are entirely fictitious. 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 document consists of 9 printed pages and a blank page. For Examiner’s Use 40

2 Answer all questions. 1 The following information was extracted from the books of Amazing Food Pte Ltd. Advertising expense account Date Particulars Debit ($) Credit ($) Balance ($) 2021 Aug 1 Advertising expense payable (i) 4 000 4 000 CR Oct 8 Cash at bank (ii) 20 000 16 000 DR 2022 May 3 Cash at bank 15 000 31 000 DR Jul 31 Prepaid advertising expense (iii) 2 000 29 000 DR Income summary 29 000 - REQUIRED (a) Explain the following transactions. (i) 1 August 2021 ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... [2] (ii) 8 October 2021 ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... [1] (iii) 31 July 2022 ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………...

3 ……………………………………………………………………………………………... [2] (b) Explain, using an appropriate accounting theory, the need to adjust for prepaid advertising expense for the year ended 31 July 2022. ………………………………………………………………………………………………….... ………………………………………………………………………………………………….... ………………………………………………………………………………………………….... ………………………………………………………………………………………………….... ………………………………………………………………………………………………….... [2] The accounting year of Amazing Pte Ltd ends on 31 July. On 31 July 2021, a machine which was bought on 1 January 2019 for $180 000, was sold on credit for $120 000. Machinery is depreciated using the reducing -balance method, at 20% per annum. A full year’s depreciation is charged in the year of purchase. REQUIRED (c) Calculate the gain or loss on sale of non-current asset. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. [3]

4 (d) Explain why the business uses the reducing-balance method of deprecation, rather than the straight-line method, to depreciate machinery. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. [2] [Total: 12] 2 Hanee is the owner of Sweet Honey, which sells bottled honey. The trial balance of the business was prepared as at 31 July and the followings errors were found. 1 Credit note of $345 received from W&B Brothers for damaged goods had been recorded as $435. 2 Bank interest paid of $50 shown in the bank statement had been recorded on the wrong sides of both accounts. 3 Payment for $3 700 for the Hanee’s personal rent expense had been debited to the business’ rent expense account. 4 A cheque of $3 200 received from a debtor Ms Tan for goods previously sold, had not been recorded. REQUIRED (a) Prepare journal entries to correct each of the errors above on 31 July 2022. Narrations are not required. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. …………………………………………………………………………………………………….

5 ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. [8] (b) Prepare a statement to show adjusted profit for the year ended 31 July 2022. If there is no effect, simply state “No effect”. The profit for the year before discovering the errors was $78 900. ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… ………….………………………………………………………………………………………… [4] [Total: 12m]

6 3 Sky owns a business selling furniture. The following shows an extract of his statement of financial position for the three years ending 31 July. Current assets 2019 ($) 2020 ($) 2021 ($) Inventory 8 300 9 200 23 500 Trade receivables 14 200 16 700 18 100 Prepaid expenses 3 650 2 080 1 630 Cash at bank 12 300 5 400 - Total current assets 38 450 33 380 43 230 Current liabilities Trade payables 6 100 9 800 11 400 Salaries expense payable 2 000 - - Bank overdraft - - 6 550 Commission income received in advance - 600 1 320 Total liabilities 8 100 10 400 19 270 REQUIRED (a) Calculate the following as at 31 July 2021. Show your answers to two decimal places. (i) Current ratio ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... [2] (ii) Quick ratio ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………... ……………………………………………………………………………………………...

7 ……………………………………………………………………………………………... [2] The following information relates to the business on 31 July of each respective year. 2019 2020 2021 Current ratio 4.75 3.21 ? Quick ratio 3.27 2.13 ? REQUIRED (b) Using your answers in (a), comment on the changes in the liquidity position of the business over the three years ended 31 July 2019, 2020 and 2021. Give two possible reasons for the changes. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………