4E5N Fajar PRELIMS 2022 PAPER 1 ANSWERS

4E5N PRELIMS 2022 PAPER 1 1(a) Accounting provides accounting information for stakeholders to make informed decisions. [1] 1(b) i. Integrity is being straightforward and honest in all professional business relationships. [1] ii. Objectivity is not letting bias, conflict of interest or undue influence of others to override professional judgment.[1] 1(c) A business is assumed to have indefinite economic life [1] unless there is credible evidence that it may close down. [1] 1(d) i. Date 2021 Particulars Debit $ Credit $ Dec 31 Capital [1] 500+800 1 300 Drawings [1] 1 300 ii. Date 2021 Particulars Debit $ Credit $ Dec 31 Income summary [1] 65 000 Capital [1] 65 000 1(e) Sanjith Statement of financial position as at 31 December 2021 Owner’s equity $ Capital (50000+65000-1300) [1] 113 700

2(a) Payment is made immediately during a cash sale or purchase for cash transactions while payment is delayed during a credit sale or purchase for credit transactions. 2(b) 6 June: Krystal returned goods worth $1 000 to Valerie Supplies. [1] 16 June: Paid Valerie Supplies $6 080 by cheque [1] and received a discount of $ 320.[1] 2(c) 320 / (6800+320) X 100 = 5% [1] 2(d) Source documents are evidence that transactions have taken place. [1] According to the objectivity theory, transactions must be supported by reliable and verifiable evidence to ensure that financial statements are free from opinions and biases. [1] 2(e) 3 June: Invoice [1] 6 June: Credit note [1] 3(a) i. Date 2021 Particulars Debit $ Credit $ May 1 Cash at bank [1] 150 000 Loan from bank [1] 150 000 ii. Date 2022 Particulars Debit $ Credit $ Apr 30 Interest expense (4% X 150 000) [1] 6 000 Cash at bank [1] 6 000 iii. Date 2022 Particulars Debit $ Credit $ Apr 30 Loan from bank [1] 30 000 Cash at bank [1] 30 000 3(b) (4% X 150 000 X 4/12) [1] + (4% X 120000 X 8/12) [1] = $5200.

3(c) Business activities that have occurred, regardless of whether cash is paid or received [1] should be recorded in the relevant accounting period. [1] 4(a) i. Current ratio: (9900 + 14000 + 1200) / (500 + 7100 + 5000) = 1.99 [1] ii. Quick ratio: 9900 / (500 + 7100 + 5000) = 0.79 [1] 4(b) Current ratio has worsened from 2.54 in 2020 to 2.20 in 2021 to 1.99 in 2022. [1]* Quick ratio has worsened from 1.62 in 2020 to 0.91 in 2021 to 0.79 in 2022. [1]* Therefore, the liquidity position of the business has worsened over the three years.[1]* Reasons why liquidity has worsened Buying goods in bulk may lead to funds being tied up in inventory. [1] Trade payables position has worsened due to bulk purchases on credit. [1] The business could be facing difficulties collecting payment from their trade receivables. [1] Cash at bank could have deteriorated to a bank overdraft due to the purchase of motor vehicles. [1] A portion of long-term borrowings is now due within the next one year. [1] * + any 3 reasons 4(c) The owner could contribute additional capital in the form of cash. [1] The business could sell excess non-current assets for cash. [1]