BPGHS POA 7087 Paper 1 (Marking Scheme)

Name of Candidate: _____________________ ( ) Class: ______ Calculator Model: This paper consists of 10 printed pages BUKIT PANJANG GOVERNMENT HIGH SCHOOL PRELIMINARY EXAMINATION 2022 SECONDARY 5 GCE 'O' LEVEL SYLLABUS PRINCIPLES OF ACCOUNTS Paper 1 7087 / 01 Date: 29 August, 2022 Duration: 1h Time: 0750 – 0850 h READ THESE INSTRUCTIONS FIRST Write your name, class and index number 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. The use of an approved calculator is approved. 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. MARKING SCHEME Setter: Mr Alex Yong [Turn over] Additional Materials: NONE

2 1 The accountant of Krusty Ltd provided the following cash at bank account of the business for the month of July 2022. Cash at bank account Date Particular Cheque Number Debit Credit Balance 2022 $ $ $ Jul 1 Balance b/d 3 100 Dr 5 Rui Rui Supplies 22026 857 2 243 Dr 8 Sales revenue 250 2 493 Dr 10 Dong Ding Warehouse 22027 500 1 993 Dr 19 Coriander Producers 22028 1 000 993 Dr 21 Sang Song Retail 375 1 368 Dr 24 Patrick Transport 22029 825 543 Dr 27 Sales revenue 300 843 Dr 30 Ah Meng Equipment 900 1 743 Dr 31 Xiao Ming Trading 22030 3 150 1 407 Cr Aug 1 Balance b/d 1 407 Cr The following bank statement for July 2022 received is as follows: Bank statement Date Particular Withdrawal Deposit Balance 2022 $ $ $ Jul 1 Balance b/d 3 200 Cr 1 Direct deposit – Kai 1 075 4 275 Cr 4 Cheque no. 22025 100 4 175 Cr 8 Cheque deposit 250 4 425 Cr 10 Cheque no. 22026 875 3 550 Cr 17 Cheque no. 22027 500 3 050 Cr 19 Standing order – Rent 2 365 685 Cr 25 Cheque no. 22028 1 000 315 Dr 27 Cheque deposit 375 60 Cr 28 Cheque deposit 300 360 Cr 31 Bank charges 20 340 Cr Additional information: The manager of Krusty Ltd, Gabriel, discovered that the accountant made an error in recording the transaction on 5 July 2022.

3 REQUIRED (a) Explain the purpose of bank reconciliation. The purpose is to check the business’ records (cash at bank account) against the bank’s record (bank statement) so as to deter fraud. [1] (b) Prepare the adjusted cash at bank account for July 2022. Cash at bank account Date Particular Debit Credit Balance 2022 $ $ $ Jul 31 Balance b/d 1 407 Cr 31 Trade payable – Rui Rui Supplies (875 – 857) 18 [1] 1 425 Cr 31 Trade receivable – Kai 1 075 [1] 350 Cr 31 Rent expense 2 365 [1] 2 715 Cr 31 Bank charges 20 [1] 2 735 Cr Aug 1 Balance b/d 2 735 Cr [1] Note: 1 mark will be deducted from the total if date written is wrong. Note: Mark will be awarded even if students did not specify whether the person is a trade receivable/payable. [5]

4 (c) Prepare the bank reconciliation statement as at 31 July 2022. Bank reconciliation statement as at 31 July 2022 $ $ Balance as per bank statement 340 [1] Add: Deposits in transit Trade receivable – Ah Meng Equipment 900 [1] 1240 Less: Cheques not yet presented Trade payable – Patrick Transport (825) [1] Trade payable – Xiao Ming Trading (3 150) [1] (3 975) Adjusted balance as per cash at bank account 2 735 [1] [5] (d) Gabriel have a habit of depositing the sales proceeds at the end of every month. One day, the shop was robbed and the cash register was emptied by the burglar. After a thorough investigation, the police found out that the cash register was not locked at all as there was no attempt by the burglar to force open it. REQUIRED (i) Explain two ways Gabriel can enhance the custody of cash in the business in the future. One of the way is to keep the cash in a safe deposit box daily using combinations or passwords to secure it [1]. Another way is to deposit cash daily to minimize the amount of cash kept overnight [1]. Note: Do not accept the other answer – “limiting access of cash to authorized personnel” as it has no relevance to the scenario given [2]

5 The accountant of Krusty Ltd recently found out that Gabriel also has poor internal control measures in place. It was discovered that Gabriel has been handling all the cash and doing the recording duties by himself. Moreover, Gabriel is also the only one reviewing and approving all the purchases that were made with their supplier. There was also no proper documentation in place upon the receipt of the purchase of the inventory. REQUIRED (ii) Develop two ways Gabriel can do to enhance the internal control of his business. 1. Gabriel can separate the cash handling and recording duties among different employees so that no single person has control over the entire cash process [1]. 2. Gabriel should ensure that at least 2 persons review and approve all payment to ensure segregation of duties [1]. Other point ● Gabriel should keep all supporting documents such as invoice upon the receipt of purchase. [2] [Total: 15]

6 2 Xia Hai Ltd’s financial year end is on 31 March. The following balances were extracted from the books of Xia Hai Ltd. 1 April 2021 31 March 2022 $ $ Prepaid rent expense 1 980 Rent expense payable 1 210 Commission income receivable 2 280 1 870 Additional information: On 1 September 2021, the owner of Xia Hai Ltd paid $8 900 rent by cheque and deposited $6 800 fee income into the business bank account. REQUIRED (a) Using an accounting theory, explain why it is necessary for Xia Hai Ltd to make adjustments for prepaid rent expense. Name: Accrual basis of accounting theory [1], Explanation: Expenses should be recognized in the period where goods have been delivered or services have been provided, regardless of whether they have been paid or not [1]. OR Name: Matching theory [1] Explanation: Expenses incurred must be matched against its related income to determine the profit or loss in the same period [1]. [2] (b) Calculate the rent expense for the year ended 31 March 2022. Rent expense for the year ended 31 March 2022 = $1 980 [1] + $8 900 + $1 210 [1] = $12 090 [1] [3] (c) Calculate the commission income for the year ended 31 March 2022. Commission income for the year ended 2022 = –$2 280 [1] + $6 800 + $1 870 [1] = $6 390 [1] [3] [Total: 8]

7 3 Hot Heels Boutique buys and sells fashionable heels for the ladies. Hot Heels Boutique’s financial year ends on 31 December. On 1 December 2021, the business had inventory valued at $45 000. On 23 December 2021, a fire broke out in the business’ warehouse. After the fire was put out, it was found out that $19 000 of the business inventory was destroyed. On 27 December 2021, an insurance claim of $11 000 was agreed and the amount was to be paid in December 2021. REQUIRED (a) Name the accounting theory which is applied when a business accounts for the loss of inventory. Prudence theory [1]. [1] (b) Prepare the journal entries to account for the insurance claim that took place on 27 December 2021. Narration is not required. Journal Date Particular Debit Credit 2021 $ $ Dec 27 Insurance claim receivable 11 000 [1] Impairment loss on inventory (e-) 11 000 [1] [2] (c) C