4E Damai PRELIMS 2022 P2 - Question

DAMAI SECONDARY SCHOOL Preliminary Examination 2022 CANDIDATE NAME CLASS INDEX NUMBER PRINCIPLES OF ACCOUNTS Paper 2 Secondary 4 Express / 5 Normal (Academic) Setter: Miss Cristy Lin 7087/02 26 August 2022 2 hours 60 Marks No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional paper, ask the invigilator for a continuation booklet. Answer all questions. 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. All questions in this paper carry equal marks. This document consists of 6 printed pages. [Turn over

2 1 White House Pte Ltd has the following balances extracted from the books of its business on 31 October 2021. $ 6-Year Bank loan (repayable every 31 Dec) 60 000 Sales revenue 90 000 Cost of sales 22 000 Sales returns 4 000 General expenses 2 000 Salaries 80 900 Inventory 28 670 Trade receivables 14 000 Trade payables 7 500 Cash at bank 14 000 Rent income 11 000 Allowance for impairment of trade receivables 5 000 Motor vehicles at cost 55 000 Accumulated depreciation – Motor vehicles 11 000 Fixtures and fittings at cost 12 000 Accumulated depreciation – Fixtures and fittings 2 000 Land 140 000 Retained earnings 36 070 Share capital, 150,000 ordinary shares 150 000 Additional information 1. Inventory $7 000 was damaged and only 50% is claimable from the insurance company. This claim will be received by cheque on 12 December 2021. No records were made in the books. 2. Depreciation policy: • Motor vehicles – 10% per annum using the reducing balance method • Fixtures and fittings – 5 years using the straight-line method 3. A trade receivable owing $2 000 went bankrupt but has not been written off yet. 4. Following a review of the trade receivables, 5% of the trade receivables were estimated to be uncollectible. 5. Rent income $500 was received in advance, and commission income $700 for September 2021 was not received yet. 6. Salaries $3 300 were owing, and general expenses $150 were paid for five months ending 31 December 2021. 7. A credit purchase for goods with a list price $3 000, less 4% trade discount was debited to the inventory account and credited to the sales revenue account. 8. 50 000 ordinary shares at $1.00 each were issued and fully paid up during the year. 9. Dividends at $0.05 per share were declared and will be paid on 4 November 2021. 10. Interest on bank loan $1 800 has not been paid. REQUIRED (a) Prepare the statement of financial performance for the year ended 31 October 2021. [10] (b) Prepare the statement of financial position as at 31 October 2021. [10] [Total: 20]

3 2 Lois owns a clothing shop. For the year ended 31 December 2021, she has provided the following information. 1 January 2021 31 December 2021 $ $ Rent income receivable 1 200 Rent income received in advance 1 500 Advertising expense payable 400 Prepaid advertising expense 600 Allowance for impairment of trade receivables 2 000 1 600 Trade receivables 100 000 80 000 Additional information 1 During the year, the business received $19 000 for rent income, and paid $8 800 in advertising expenses. All transactions were by cheques. 2 On 16 March 2021, Michelle Trading confirmed that it was ceasing its business and could only pay Lois 70 cents for every dollar of its outstanding debt of $3 000. A cheque from Michelle Trading was received on the same day. 3 Net credit sales revenue for the year ended 31 December 2021 was $690 000. 4 The rate of trade receivables turnover for the year ended 31 December 2020 was 6.80 times. REQUIRED (a) Prepare the journal entries to account for rental income for the year ended 31 December 2021, including the closing entry. Narrations are not required. [4] (b) Calculate the advertising expense incurred for the year ended 31 December 2021. [2] (c) Prepare a journal entry for the transaction on 16 March 2021 in the books of Lois. A narration is not required. [2] (d) Calculate the rate of trade receivables turnover for the year ended 31 December 2021. Show your answers to two decimal places. [2] (e) Evaluate the efficiency of the business’ trade receivables management over the two years ended 31 December 2020 and 2021. [5] [Total:15]

4 3 Sami Pte Ltd has the following information taken from its books. Share capital Date Particulars Debit $ Credit $ Balance $ 2021 Jun 1 Balance b/d 200 000 Cr Nov 30 Cash at bank 100 000 300 000 Cr REQUIRED (a) Interpret the entry on 30 November 2021. [1] The business has provided the following purchases and sales transactions for the month of April 2022. It uses the First-In-First-Out method to record its inventory. Purchases (on credit from Cece Trading) Apr 10 100 units at $5 000 25 70 units at $3 500 Sales Apr 12 130 units for $12 000 Inventory as at 1 April 2022 is $2 000 (30 units). REQUIRED (b) Prepare the inventory account for the month of April 2022. [3] [Turn over

5 Sami Pte Ltd extracted the following information of its business as at 31 May 2020, 2021 and 2022. 2020 2021 2022 Trade receivables 25 460 33 000 36 000 Inventory 11 000 32 120 38 900 Cash at bank 89 000 43 500 (10 800) Rent payable 3 000 4 600 14 000 Trade payables 18 000 27 000 53 000 Profit for the year 14 000 11 980 (12 000) Current ratio 5.97 ? ? Quick ratio 5.45 ? ? REQUIRED (c) Calculate the current ratio for the two years ended 31 May 2021 and 2022. Show your answers to two decimal places. [2] (d) Calculate the quick ratio for the two years ended 31 May 2021 and 2022. Show your answers to two decimal places. [2] (e) Evaluate the trend in liquidity of the business over the three years ended 31 May 2020, 2021 and 2022. [6] (f) Suggest two ways a business can improve its liquidity. [2] [Total: 16]

6 4 Fei owns a gym. She has just started her business and is looking to purchase five treadmills for her gym. She has provided the following information about the treadmills she is considering. Brand Hammer Strength (Based overseas in Australia) Pro Muscle (Based locally in Singapore) Price per unit $2 000 $1 500 Delivery Free $100 Warranty 2 years 1 year Returns 30 days return for an exchange or refund with no additional charges. 14 days return for an exchange only, with additional charge of $120 per treadmill. Payment terms 30 days credit period Only by cash, cheques or bank transfers upon confirmation of order. Client feedback New machine so no feedback available. Positive feedback from 90% of its clients. REQUIRED (a) Recommend whether Fei’s gym should buy Hammer Strength or Pro Muscle. Justify your decision with three reasons. [7] Cash is highly portable and has a high chance of getting stolen. REQUIRED (b) State one internal control a business can implement to safeguard its cash. [1] (c) Name one item which can cause a difference between the ending balances of a bank statement and a business cash at bank account at the end of the month. [1] [Total: 9] End of paper