PCSS 2022 POA P2 ANS

1 Answer Scheme- POA Sec 4Exp/ 5NA Paper 2 Prelim 2022 1(a) Toys Paradise Pte Limited Statement of Financial Performance for the year ended 31 July 2022 $ $ Sales revenue 80 000 Less Sales returns 7 650 Net sales revenue 72 350 (1m) Less Cost of sales 26 300 Gross profit 46 050 (1m) Other Income Commission income (3700 + 140) 3 840 (1m) 49 890 (1m) Less Other Expenses Rent expense (15000 – 1800) 13 200 (1m) General expenses 10 200 Wages and salaries 16 600 Interest on bank loan (8% X 9/12 X 40000) 2 400 [1m] Impairment loss on trade receivables (2150 – 1000) 1 150 (1m) Depreciation of fixtures and fittings 5% X (35000 – 1000) 1 700 (1m) 45 250 Profit for the year 4 640

2 1(b) Toys Paradise Pte Limited Statement of Financial Position as at 31 July 2022 $ $ $ Assets Non-current assets Cost Accumulated depreciation Net book value Fixtures and fittings 35 000 3 150 31 850 (1m) (1450 + 1700) Current assets Inventory 37 000 Prepaid rent expense (9000/15 X 3) 1 800 (1m) Commission income receivable 140 (1m) Trade receivables 43 000 Less Allowance for impairment of trade receivables (5% X 43000) 2 150 Net trade receivables 40 850 (1m) 79 790 Total assets 111 640 Equity and Liabilities Shareholders’ equity Share capital, 20 000 ordinary shares Retained earnings [19000 + 4640 (OF1m) - 0.10 X 20000 (1m)] 20 000 21 640 41 640 Non-current liabilities Long-term borrowings 40 000 (1m) Current liabilities Dividends payable (0.10 X 20000) 2 000 (1m) Bank overdraft (1m) (7900 + 2400) 10 300 (1m) Interest on bank loan payable 2 400 (1m) Trade payables (17700 – 2400) 15 300 (1m) 30 000 Total equity and liabilities 111 640

3 2(a) the ability of a business to convert current assets into cash to pay current liabilities (1m) (b)(i) Current ratio = Current assets/ Current liabilities = (25600 + 5400 + 19300 - 3300 + 7800 + 1200)/ (24300 + 5000 + 2550) = 56 000(1m)/ 31850 (1m) = 1.76 (ii) Quick ratio = Quick assets/ Current liabilities = 56000 – 25600 – 1200/ 31850 = 29200 (1m)/ 31850 = 0.92 (c) TechnoTrends’s current ratio of 1.76 is worse than Top In Tech’s current ratio of 3.96. (1m) Any 1 of the 2 points 1m: The current ratio of TechnoTrends is below the general benchmark of 2. Both businesses are still able to pay the short-term debts using current assets when they fall due. TechnoTrends’s quick ratio of 0.92 is worse than Top In Tech’s quick ratio of 2.75. (1m) Any 1 of the 2 points 1m: The quick ratio of TechnoTrends is below the general benchmark of 1. This shows that TechnoTrends is not able to pay its short-term debts using quick assets when they fall due. Any 2 of the 4 points 1m each: Inventory holdings of TechnoTrends is worse than Top In Tech. TechnoTrends’s higher level of inventory of $25 600 as compared to Top In Tech of $17 200 means more of TechnoTrend’s funds are tied up in inventory. The cash balance of TechnoTrends is worse than Top In Tech since TechnoTrends ’s cash balance of $5 400 is lower than Top In Tech of $10 100. The bank balance of TechnoTrends is worse than Top In Tech since TechnoTrends ’s bank balance of $7 800 is lower than Top In Tech of $20 800. Trade payables position of TechnoTrends is worse than Top In Tech since TechnoTrends’s higher trade payables of $24 300 as compared to Top In Tech of 11 200 will add on to the financial burden of TechnoTrends in the short-term. (d) Any 2 of the 3 points 1m each: Obtain cash contributions from owner Sell excess non-current assets for cash Obtain additional bank loan Accept any plausible answers. (e)(i) cost less accumulated depreciation/ net book value (1m)

4 (ii) trade receivables less allowance for impairment of trade receivables/ net trade receivables (1m) 3(a) Estimated amount of debts likely to be uncollectible from customers. (1m) (b) Prudence (1m) The accounting treatment chosen should be the one that least overstates assets, in this case trade receivables, when recording allowance for impairment of trade receivables. (1m) (c) 2019 $ (i) Dec 1 The amount of estimated debts likely to be uncollectible from trade customers. (1m) 1 800 2020 (ii) Nov 30 Increase in the allowance for impairment of trade receivables from $1800 to $4300. (1m) 2 500 (d) Journal 2021 Dr ($) Cr ($) (i) Jul 14 Allowance for impairment of trade receivables (0.6 X 6300) (1m) Trade receivable- Rainbow (1m) 3 780 3 780 (ii) Nov 30 Impairment loss on trade receivables (1m) Allowance for impairment of trade receivables (1m) 3 080 3 080 Workings: AFIOTR as at 1 Dec 2020 = 4300 AFIOTR during the year = 4300 – 3780 = 520 AFIOTR as at 30 Nov 2021 = 9% X 40000 = 3600 Increase in AFIOTR = 3600 – 520 = + 3080 (e) Profit will decrease by $3 080. (1m) (f) Stage 2 Journal (1m); Stage 3 Ledger (1m)

5 4(a) Accumulated depreciation of the motor vehicles to be sold = (10% X 15000) + 10% X (15000 – 1500) = 1500 + 1350 = $2 850 Gain on the sale of motor vehicles = Selling price – Net book value = 13 000 – (15000 – 2850) (1m) = $850 (1m) (b) Depreciation expense for the year ended 28 February 2022 = 10% X [50000 – 15000 – (20000 – 2850)] + 10% X 19000 = 1785 (1m) + 1900 (1m) = $3 685 (c) Motor vehicles Account 2021 Dr ($) Cr ($) Balance ($) Mar 1 Balance b/d 50 000 Dr Aug 22 Sale of non-current asset (1m) 15 000 35 000 Dr Oct 18 Cash at bank (1m) 19 000 54 000 Dr 2022 Mar 1 Balance b/d (1m) 54 000 Dr

6 (d) Buy Photocopier (1m) Rent Photocopier (1m) Buy photocopier: Toner cost per month: = [0.01(2000) + 0.1(500)] = $70 Rent photocopier: Copier charges per month: = [0.15(2000 + 500)] = $375 The printing related cost is cheaper by $305 per month to buy a photocopier as compared to renting a photocopier. (1m) The cost savings can be used to pay other day to day expenses. (1m) Prints 10 more pages per minute (1m) The faster printing speed will increase customers’ satisfaction leading to a recurring income stream esp when customers help to spread positive word-of- mouth through their social networks. Ultimately profit will increase. (1m) There is additional feature for faxing which is missing if one chooses to rent the photocopier. (1m) Baker’s Delight can save on the cost to buy a fax machine in the long run and such cost savings can be used to pay other day to day expenses. (1m) In the event machine breaks down, another photocopier will be provided as replacement. (1m) This will ensure continuity of business operations. (1m) The photocopier bought is a new machine. (1m) There will be lesser frequency of machine breakdown which will disrupt the business operations, hence affecting the stream of income. (1m) Rental contract has a number of freebies thrown in: servicing, toners, consumables, spare parts, repairs and maintenance. (1m) This will lower the expenses of the business and increase profits for the year concerned. (1m) Warranty is provided for the first three years. (1m) This gives business a peace of mind when operating the machine as the machine will be repaired at the very least without business incurring any additional cost if there is hardware defects. (1m) Accept any plausible answers.

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