BPGHS POA 7087 Paper 2 (Marking Scheme)

1 Bukit Panjang Government High School 2022 Prelim Examination Paper 2 – Secondary 5NA (Syllabus 7087) Answer Key 1(a) Hanz Pte Limited Statement of financial performance for the year ended 31 July 2022 $ $ Sales revenue 358 000 Less: Sales returns (15 500) [1] Net sales revenue 342 500 Less: Cost of sales (32 920) Gross profit 309 580 [1] Add: Other incomes Discount received 739 Commission income (250 - 150) 100 [1] 839 Less: Other expenses Depreciation expense of motor vehicles (25% x [198 000 - 11 200]) 46 700 [1] Depreciation expense of fixtures and fittings (10% x 4 000) 400 [1] Impairment loss on inventory (62 350 - 62 000) 350 [1] Reversal of impairment loss on trade receivables ([4% x (20 000 – 1 800)] - [2 800 - 1 800]) (272) [1] Advertising expenses (8 889 + 889) 9 778 [1] Wages and salaries (46 920/15 x 12) 37 536 [1] Discount allowed 3 030 General expenses 13 500 (111 022) Profit for the year 199 397 [1]

2 1(b) Hanz Pte Limited Statement of financial position as at 31 July 2022 $ $ $ Cost Accumulated Net book Assets depreciation value Non-current assets Motor vehicles 198 000 57 900 140 100 [1] Fixtures and fittings 4 000 2 400 1 600 [1] 141 700 Current assets Inventory 62 000 [1] Trade receivables (20 000 - 1 800) 18 200 [1] Less: Allowance for impairment of trade receivables (4% x [20 000 – 1800]) (728) [1] Net trade receivables 17 472 Prepaid wages and salaries (46 920/15 x 3) 9 384 [1] Cash at bank 38 800 127 656 Total assets 269 356 Equity and Liabilities Shareholders' equity Share capital, 10 000 ordinary shares 10 000 Retained earnings (34 520 + 199 397 - 2 100) 231 817 [1] OF* 241 817 Non-current liabilities Long-term borrowings 12 000 Current liabilities Trade payables 12 400 Advertising expenses payable 889 [1] Commission income received in advance 150 [1] Dividend payables 2 100 [1] 15 539 Total equity and liabilities 269 356 *OF – Students will still be awarded the mark as long as the right working is used even if the profit for the year figure used from part (a) is calculated wrongly to avoid double-penalisation.

3 2(a) (i) Journal Particulars Date Particular Debit Credit 2020 $ $ May 6 Allowance for impairment of trade receivables 450 [1] Trade receivable – Ali Mama Services 450 [1] (ii) Journal Particulars Date Particular Debit Credit 2020 $ $ Dec 20 Cash at bank (0.35 x 10 600) 3 710 [1] Allowance for impairment of trade receivables (0.65 x 10 600) 6 890 [1] Trade receivables – Lozada Trading 10 600 [1] Note: Marks will still be awarded to student can combine journal entries into a single journal (i.e. students can display answer for each components using 1 single journal) 2(b) Lesla Holdings Statement of financial position as at 30 June 2021 (extract) $ $ Current assets Trade receivables (102 000 – 10 600) 91 400 [1] Less: Allowance for impairment of trade receivables (9% x 102 000) 9 180 [1] 82 220 2(c) It is valued at trade receivables less allowance for impairment of trade receivables (net trade receivables). [1]

4 2(d) (i) On 1 July 2021, MediaCrop Ltd owed $9 600 to Lesla Holdings. [1] (ii) On 19 August 2021, Lesla Holdings provided services to MediaCrop Ltd at $1 000 on credit. [1] (iii) On 11 November 2021, Lesla Holdings received a cheque of $1 950 [1] and gave a cash discount of $50 [1] for full settlement of debts by MediaCrop Ltd. (iv) On 10 February 2022, Lesla Holdings written off Media Crop Ltd's remaining debts of $8 600. [1]

5 3(a) Year ended 30 April 2020 Quick ratio = (CA - Inventory - Prepayment) / CL = (10 450 + 15 000) / 12 100 = 2.10 (2 d.p) [1] Year ended 30 April 2021 Quick ratio = (CA - Inventory - Prepayment) / CL = (18 900 + 8 900) / 26 780 = 1.04 (2 d.p) [1] Year ended 30 April 2022 Quick ratio = (CA - Inventory - Prepayment) / CL = 30 150 / (3 300 + 28 960 + 2 200 + 12 000) = 0.65 (2 d.p) 3(b) Note: Students have to identify that they can only evaluate using current ratio and quick ratio. No marks will be awarded if students evaluate working capital figure as evaluation using absolute value provides no comparison between two variables. Current ratio • The current ratio has worsened from 3.61 in 2020 to 1.70 in 2022. [1] • This means that for every $1 of short-term debts, the company has $3.61 and $1.70 of net current assets to cover its debts in 2020 and 2022 respectively. [1] Quick ratio • The quick ratio has worsened from 2.10 in 2020 to 0.65 in 2022. [1] • This means that for every $1 of short-term debts, the company has $2.10 and $0.65 of quick assets to cover its debts in 2020 and 2022 respectively. [1] Reasons for the decline in liquidity (Any one of the reasons below to gain the next 1 mark) Reason #1: Increasing inventory • The reason was the increasing inventory of the business from $18 200 to $48 920 in 2022 which suggests that the company is overstocking or have difficulties in selling its goods which worsens its liquidity of the business [1]

6 Reason #2: Decrease in cash at bank due to net trade receivables • The increase of net trade receivables from $10 450 in 2020 to $30 150 in 2022 which suggests that the business has difficulties in collecting payment from its credit customer. [1] Reason #3: Increase in trade payables • The increase of trade payables from $12 100 in 2020 to $28 960 in 2022also suggests that the business may have insufficient funds to pay its credit suppliers. [1] Conclusion In conclusion, the liquidity of GiveTea Trading has worsened from 2020 to 2022 as the quick ratio falls below 1. [1] 3(c) Any two of the following [2]: (1) Increase cash by obtaining long-term loan. (2) Increase cash by selling excess non-current assets. (3) Increase cash by obtaining cash contribution from owners. (4) Decrease cash outflow by reducing negotiating better credit terms from supplier. (5) Decrease cash outflow by reducing operating expenses. 3(d) Any one of the following [1]: (1) Having integrity / being straightforward and honest (2) Being objective 3(e) Objectivity theory means that accounting information recorded must be supported by reliable and verifiable evidence [1] so that financial statements will be free from opinions and biases [1].

7 4(a) Journal Particulars Date Particular Debit Credit 2021 $ $ Sep 30 Trade receivables - Bryan 2 000 [1] Sales revenue 2 000 [1] Sep 30 Insurance expense 480 [1] General expense 480 [1] Note: Accept answer if student do the 'long' method for Error 2 as shown below. Alternative solution for Error 2: Cash at bank 480 General expense 480 Insurance expense 480 Cash at bank 480 4(b) (i) Profit for the year will be understated by $2 000. [1] (ii) Profit for the year will not be affected / No effect to profit for the year. [1]

8 4(c) Note: Both options are acceptable so long as students provide the following reasonable evidence and explanation to support their choice. Marks allocation: • 1 mark for decision • 3 evidences to be provided (1 mark for each evidence) • 3 corresponding explanation to be provided (1 mark for each explanation) Decision: I would set up as a sole proprietorship [1]. Evidence Explanation Transferability of ownership: Krit would like to transfer the ownership of this new business (Aroy Aroy Mak) to his children if they are interested in running this business when they grow up. [1] Setting up as a sole proprietorship allows