MSS Prelim 2022 4E5N P2

This question paper consists of 7 printed pages, including the cover page. Marsiling Secondary School GCE O-Level Preliminary Examination 2022 Subject: Principles of Accounts Paper 2 (7087/02) Level: Sec 4/5 Stream: Express/ Normal (Academic) Date: 31 August 2022 Duration: 2 hours Name: Index No: Class: No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Answer all questions. The use of an approved calculator is allowed. The businesses described in this question paper are entirely fictitious. Start each question on a separate page. All calculations must be shown adjacent to the answer. The number of marks is given in brackets [ ] at the end of each question or part question. FOR EXAMINER’S USE TOTAL Setter: Mr Alfred Wee 60

2 Answer all questions 1 The following balances were taken from the books of Jander Limited on 31 July 2022: $ Share capital, 100 000 ordinary shares 100 000 Retained earnings, 1 August 2021 37 000 Cost of sales 175 610 Sales returns 4 100 Sales revenue 350 900 8% Mortgage loan repayable on 20 May 2027 20 000 Interest on mortgage loan 1 300 Inventory 49 500 General expenses 63 800 Wages and salaries 46 000 Repairs and maintenance 8 600 Allowance for impairment of trade receivables 2 200 Trade receivables 29 400 Trade payables 7 700 Fixtures and fittings 58 000 Motor vehicles 160 000 Accumulated depreciation Fixtures and fittings 21 500 Motor vehicles 54 600 Bank overdraft 810 Commission received 1 600 Additional information 1 At 31 July 2022: i) Annual wages and salaries amounted to $48 000. ii) Interest on mortgage loan was still not fully paid. iii) Commission received but not earned was $250. 2 2 Included in general expenses was an insurance expense of $15 400 which covers a period of 14 months from 1 August 2021. 3 4 Motor vehicle repairs, $2 000, had been incorrectly debited to the motor vehicles account. Annual depreciation is to be charged as follows: i) Fixtures and fittings, at 10% per annum using the straight-line method. The fixtures and fittings has a residual value of $3 000, ii) Motor vehicles at 20% per annum using the reducing-balance method.

3 [Turn over 5 The allowance for impairment of trade receivables is to be maintained at 5% of the trade receivables. 6 7 A repayment, one-fifth of the 8% mortgage loan, will be due during the year ended 31 July 2023. A dividend of 3 cents per share was declared on 16 July 2022. It is to be paid out to shareholders on 31 August 2022. REQUIRED (a) Prepare the statement of financial performance for the year ended 31 July 2022. [10] (b) Prepare the statement of financial position as at 31 July 2022. [10] [Total: 20]

4 2 The following information is taken from the books of Syafiq’s business. 2020 2021 Non-current assets $ 68 000 $ 72 000 Inventory 8 500 12 200 Prepaid insurance - 5 700 Cash at bank 1 400 - Bank overdraft - 3 800 Cash in hand 800 450 Trade receivables 6 800 10 600 Allowance for impairment of trade receivables 1 300 2 450 Trade payables 3 900 4 200 Interest expense payable 900 900 REQUIRED (a) Define working capital. [1] (b) Calculate the following ratios, correct to two decimal places, for Syafiq’s business for year 2020 and 2021. (i) Current ratio (ii) Quick ratio [4] (c) Why would a bank, which is considering granting a loan to the business, be interested in the ratios in (b)? [2] (d) Based on your calculations in (b), and any other information given, would the bank grant the loan to Syafiq’s business? Support your answers with reasons. [5] (e) Suggest two ways that Syafiq could improve the liquidity position of his business. [2] [Total: 14]

5 [Turn over 3 Javier runs an advertising agency. His business has a financial year end 31 July. The following information has been provided. $ Account balances at 1 August 2021 Utilities payable 1 364 Commission income receivable 1 500 During the year ended 31 July 2022 Payments for utilities through direct debit 8 700 Commission received by cheque 16 000 Additional information 1 Included in the payments for utilities was the sum of $568 in respect of August 2022. 2 Commission income, $800, had not been received on 31 July 2022. REQUIRED (a) Calculate the amount for utilities expense to be included in the statement of financial performance of the business for the year ended 31 July 2022. [3] (b) Prepare journal entries to account for commission income for the year ended 31 July 2022 including the closing entry. Narrations are not required. [4] (c) Name and explain the accounting theory being applied when calculating the amounts for utilities expense and commission income. [2] (d) State two types of transactions or items when bank statement is used as the source document in accounting. [2] (e) State two measures of internal control a business may use to safeguard its cash resource. [2] [Total: 13]

6 4 Benson runs a trading business. He has provided the following information. 1 All sales are made on credit. 2 The business’s terms of trade with customers are for payment in full within 30 days. 3 No discount is offered for early settlement. 4 The business’s trade receivables collection period is 35 days on average. Jerry is a prospective new customer. The following information has been made available about Jerry’s business. 1 Jerry operates his business overseas in a developing country where there is fluctuating economic growth as the economy is still growing. 2 Jerry started his business selling electrical items a year ago. Based on reviews by industrial experts, his business is very promising and that its sales revenue is expected to triple in the second year of its business operations. 3 The electrical items that Jerry’s business are selling are becoming a need in the country although for some, such electrical items are still luxury items. 4 Jerry’s business pays its suppliers on average within 40 days. 5 Jerry can provide details of three of his current suppliers who are willing to give a reference as to his reliability and payment history. 6 There is no negative news about Jerry being in debt or not paying his suppliers. REQUIRED (a) Recommend whether or not Benson should agree to make sales on credit to Jerry. Justify your decision with three reasons. [7]

7 [Turn over The following transactions took place during the financial year ended 30 June 2022 between Benson’s business and one of its existing credit customer, Kelly. 2022 Feb 9 Goods at list price $6 000 less 10% trade discount were sold to Kelly on credit. 12 Kelly returned defective goods costing $1 000 to Benson’s business. These were previously bought on Feb 9. 27 Kelly paid $4 000 by cheque for full settlement of amount owing on this date. Mar 3 The bank returned Kelly’s cheque due to insufficient funds. On 30 June 2022, Kelly declared bankrupt. Benson’s business only