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.