4E Damai PRELIMS 2022 P1 - Question

DAMAI SECONDARY SCHOOL Preliminary Examination 2022 CANDIDATE NAME CLASS INDEX NUMBER PRINCIPLES OF ACCOUNTS Paper 1 Secondary 4 Express / 5 Normal (Academic) Setter: Miss Cristy Lin 7087/01 25 August 2022 1 hour 40 Marks Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your index number, name and class in the spaces at the top of this page. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE ON ANY BARCODES. Answer all questions. The businesses described in this question paper are entirely fictitious. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 9 printed pages. [Turn over

2 Answer all questions 1 Osmond runs a textile business with a financial year end of 31 March. He has provided the following information about the business’ motor vehicles. Motor vehicles account Date Particulars Debit Credit Balance 2019 $ $ $ Apr 1 Balance b/d 80 000 Dr 2020 Jan 1 Trade payable – Ozark Motors 45 000 125 000 Dr 2020 Apr 1 Balance b/d 125 000 Dr Accumulated depreciation – motor vehicles account Date Particulars Debit Credit Balance 2019 $ $ $ Apr 1 Balance b/d 16 000 Cr 2020 Mar 31 Depreciation of motor vehicles ? REQUIRED (a) Interpret the entry on 1 January 2020 in the motor vehicles account. [1] (b) Calculate the depreciation expense for the year ended 31 March 2020 given that the business provides depreciation at a rate of 20% per annum on net book value. [3]

3 On 18 March 2020, Osmond purchased cutting equipment from Cut ty Trading and incurred the following amounts. $ Payment by Cost of cutting equipment 23 000 On credit Delivery fee to transport cutting equipment 300 Cheque Installation of cutting equipment 200 Cheque Electricity to run cutting equipment 700 Bank transfer Replacement of faulty screws on the cutting equipment 20 Cash REQUIRED (c) Prepare the equipment account for the month of March 2020 to record the purchase on 18 March 2020. This is the business’ first equipment purchase. Equipment account Date Particulars Debit $ Credit $ Balance $ [3] [Total: 7]

4 2 Nadine sells shoes. She has provided the following information relating to her business for the year ended 31 March 2022. $ Premises 132 300 Trade payables 11 000 Inventory 23 450 Capital 144 610 Sales revenue 46 000 Loan to employee 8 000 Cost of sales 7 300 Cash at bank (overdraft) 5 000 Drawings 360 General expenses 2 200 Trade receivables ? REQUIRED (a) Use the expanded accounting equation to calculate trade receivables. [5]

5 (b) State and explain the type of business Nadine is operating. [2] (c) Explain two reasons for a business’ owner’s equity to decrease over the year. [2] Asher is one of Nadine’s business competitors. The following information is provided by both businesses for the two years ended 31 March 2021 and 31 March 2022. Nadine’s Business Asher’s Business 31 March 2021 31 March 2022 31 March 2021 31 March 2022 Rate of inventory turnover 6.21 times 8.91 times 5.23 times 6.55 times REQUIRED (d) Evaluate the rate of inventory turnover for both businesses for both years. [6] [Total: 15]

6 3 Sue owns a medical supplies business. She discovered the following errors in the business’ financial statements for the year ended 31 December 2021. 1 A credit sale, $5 000, to Shanice had been posted to the account of Shernice. 2 Equipment repairs of $300 were posted to the equipment account. REQUIRED (a) Prepare the journal entries to correct errors 1 and 2. Debit $ Credit $ Error 1 Error 2 [4] (b) Complete the following table by placing a tick (✓) to show the effect of errors 1 and 2 on the profit before correction. Overstated Understated No effect Error 1 Error 2 [2]

7 (c) For each of the following transaction, identify the source document used to record the information. Transaction Source Document (i) Sold medical supplies on credit. (ii) Sue informed Tom, a credit customer, that he has been undercharged. (iii) Received cash for medical supplies sold. (iv) Purchased a printer on credit. [2] (d) Use an accounting theory to explain the importance of source documents. [2] [Total: 10]

8 4 Ralph is a credit customer of Lauren. Ralph is entitled to a trade discount of 10% on all purchases and a cash discount of 5% if invoices are fully paid within 7 days. On 1 January 2021, the balance owed by Ralph is $10 670. Lauren had the following transactions during January 2021. REQUIRED (a) Prepare journal entries to record the above transactions in the books of Lauren. Narrations are not required. [5] (b) State one reason why Lauren is offering a trade discount to Ralph. [1] January 9 Ralph purchased goods with a list price of $5 000. The cost of the goods is $1 000. 13 Ralph fully settled his account by cheque.

9 (c) Explain why Ralph buys goods on credit instead of paying for them immediately. [1] (d) Explain the going concern theory. [1] [Total: 8] End of paper