HIHS 2022 4E5N Paper 2 Solutions.xlsx

4Ex5NA Prelim 2022 Solutions Paper 2 1a Charlie and brothers Pte Ltd Statement of financial performance for the year ended 31 March 2021 $ $ Consultancy service revenue 131 360(1) Add: Other Income Commission income $(7 000 + 2 500) 9 500 (1) Less: Expenses Depreciation of motor vehicles $[(60 000 - 12 000) x 20%](9 600)(1) Depreciation of fixtures and fittings $(8 000 x 10%) (800) (1) Reversal of Impairment loss on trade receivables $[1 800 - (33 300 x 4%)]468 (1) Utilities expense (9 700)(1) Rental expense $[(24 000/15) x 12] (19 200)(1) General expenses (39 800) (78 632) Profit for the year 62 228 [7]

1b Charlie and brothers Pte LtdStatement of financial position as at ended 31 March 2021$ $ $Cost Accumulated Net bookdepreciation valueAssetsNon-current assetsMotor vehicles 60 000 (21 600) 38 400(1) OFFixtures and fittings 8 000 (3 200) 4 800(1) OF68 000 (24 800) 43 200 Current assetsTrade receivables 33 300Less: Allowance for impairment of trade receivables $(33 300 x 4%)(1 332)(1) 31 968(1) OFCash at bank $(117 240 + (2 x 20 000)] 157 240(1)Prepaid rent $[(24 000/15) x 3] 4 800 (1)Commission income receivable 2 500 (1) 196 508 Total assets 239 708 Shareholder's equity Share capital, 60 000 ordinary shares (1) $[40 000 + (2 x 20 000)] 80 000(1) Retained earnings $(47 480 + 62 228 - 2 400) 107 308(1) OF187 308 Non-current liabilities Long-term borrowings $(50 000 - 10 000) 40 000(1) Current liabilities Current portion of long-term borrowings 10 000(1) Dividends payable $(60 000 x 0.04) 2 400 (1) 12 400 Total equity and liabilities 239 708 [13] [Total: 20]

2a According to the matching theory (1) Equipment need to be depreciated so that the portion of the cost of the non-current asset charged as an expense in a given period is matched against the income in the same given period to determine the profit for that period. (1) [2] b Journal Date Particulars Debit Credit 2021 $ $ Feb 15 Sale of non-current aseet 40 000 (1)Equipment 40 000 Feb 15 Accumulated depreciation of equipment8 000 (1)Sale of non-current asset 8 000 Feb 15 Cash at bank 28 000 (1)Sale of non-current asset 28 000 Jun 30 Income summary 4 000 (1)Sale of non-current asset 4 000 [4] c Depreciation expense = (Remaining cost - Remaining accumulated depreciation) x 20% = $[(111 000 - 40 000) - (30 200 - 8 000)] x 20%(1) = $(71 000 - 22 200) x 20% = $9 760 (1) [2]

2d Decision: To buy the equipment (1) Accept any three sets of evidence and explanation Evidence 1: The cost of the equipment is fixed at $50 000. (1) Explanation 1: The business can safely allocate its cashflow to be used to enhance other operations within the business knowing that the $50 000 set aside will be all that is needed to purchase the equipment. (1) Evidence 2: The business will not have to pay any interest charges if it takes up a loan with the bank. (1) Explanation 2: This means that once the business has settled the 20% downpayment it can stretch out the remaining 80% of the payment over a few periods and channel the cashflow to other more urgent needs within the business.(1) Evidence 3: The business can alter the equipment to meet certain specifications.(1) Explanation 3: Making certain alterations to the equipment could help the business in terms of efficiency. For instance, an alteration could be made to save power consumption or increase productivity of the equipment. (1) Evidence 4: The business can resell the equipment to other customers.(1) Explanation 4: This will enable the business to generate cash from the sale of excess non-current assets. Moreoever, the cash received from the sale of the equipment could be used to purchase a new equipment. (1) Alternative answer Decision: To rent the equipment (1) Accept any three sets of evidence and explanation Evidence 1: The business pays small amounts of money monthly.(1) Explanation 1: This does not stretch the financial resources of the business enabling the business to concurrently pay the equipment rent and at the same time settle other needs within the organisation. (1) Evidence 2: Maintenance and repair works are not borne by the business.(1) Explanation 2: The business neither needs to source for its own service providers nor needs to worry about setting money aside for the repair and maintenance of the equipment. (1) Evidence 3: A maximum of three employees can be trained for free.(1) Explanation 3: The business will not have to source for trainers to train their employees and can be assured that quality training is provided as the trainers may be from the rental company. (1) Evidence 4: The business will have access to the latest models. (1) Explanation 4: The business will be able to try out the latest models and has an option to change its current model to another model to better suit the business needs. (1) [7] [Total: 15]

3ai On 1 January 2021, the $500 of interest expense incurred for the year ended 31 December 2020 but not paid yet was reversed and included into the year 2021's interest expense account.(1) aiiOn 30 September 2021, the business issued a cheque of $2 000 to pay for interest expense.(1) [2] b Interest rate per annum = $(2 000 / 50 000) x 100 = 4% Alternative answer: Interest rate per annum = $[(500 / 0.25) / 50 000] x 100 = 4% (1) [1] c Interest expense payable as at 31 December 2021 = $(40 000 x 4% x 3/12)(2) = $400 Amount transferred to income summary = $1 500 + $400 = $1 900 (1) [3] *1 mark for showing $40 000 x 4% *1 mark for showing x3/12 d Accept any two of the following answers > For a bank loan, the business borrows a fixed amount of money and the cash is transferred to the cash at bank account. (1) However, for a bank overdraft, the business withdraws more than what it has deposited into the bank account up to the limit agreed between the business and bank.(1) > For a bank loan, business makes regular cash payments in equal instalments.(1) However, for a bank overdraft, the business deposits cash into the bank account within the year whenever it comes in to reduce the overdraft. (1) > Bank loans are classified in the statement of financial position under non-current liabilities as 'long-term borrowings'. (1) While bank overdraft is classified in the statement of financial position under current liabilities. (1) [2] e $30 000 [1] f Klinton Pte Ltd Statement of financial position as at 31 December 2021 (extract) $ $ Current liabilities Rental income received in advance (1) $(36 000 - 30 000) 6 000 (1) [2] g Integrity (1) Objectivity (1) [2] [Total: 13]

4a The gross profit margin of Hill Pte Ltd of 18% is worse than the gross profit margin of View Pte Ltd of 25%. (1) The profit margin of Hill Pte Ltd of 12% is better than the profit margin of View Pte Ltd of 8%. (1) Accept any two of the following or reasonable alternatives > This could mean that View Pte Ltd's goods are in more demand as compared to Hill Pte Ltd's goods as shown by its better gross profit margins.(1) > This could mean that View Pte Ltd is able to sell its goods at higher mark-up prices as compared to Hill Pte Ltd as shown by its better gross profit margins.(1) > Hill Pte Ltd's is more efficient in managing its operating expenses compared to View Pte Ltd. (1) [4] b Rate of inventory turnover = Cost of sales / Average inventory Hill Pte Ltd = $(9 000 / 2 500) = 3.60 times (1) View Pte Ltd = $(7 500 / 1 600) = 4.69 times (1) [2] c The rate of inventory turnover of 4.69 times for View Pte Ltd