SPS 4E Paper 2

NAME CLASS INDEX NO. ST. PATRICK'S SCHOOL PRELIMINARY EXAMINATION 2022 SUBJECT : Principles of Accounts Paper 2 (7087/02) DATE : 12 AUGUST 2022 LEVEL : Secondary 4 Express Secondary 5 Normal (A) DURATION : 2 hours 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 approved calculators is allowed. The number of marks is given in the brackets [ ] at the end of each question or part question The total for this paper is 60 marks. This question paper consists of 7 printed pages, including the cover page.

2 Answer all questions. 1 The following balances were extracted from the books of Shane Gabriel Limited on 31 December 2021. Additional information: 1 At 31 December 2021 (i) Salaries expenses payable amounted to $2 040. (ii) Rental expenses $5 700 was paid for the three months ended 31 January 2022. (iii) Interest on the bank loan was not fully paid up. (iv) Commission earned for the year ended 31 December 2021 amounted to $1 600. $ Issued share capital (100 000 ordinary shares) 150 000 Retained earnings 10 530 Sales revenue 129 920 Sales returns 9 500 Inventory 22 980 Commission income 1 250 Trade payables 13 740 Trade receivables 20 410 Cost of sales 31 480 Salaries expenses 22 960 Interest expenses 1 100 Cash at bank 25 720 Rental expenses 30 500 Fixtures and fittings, at cost 60 200 Motor vehicles, at cost 120 000 Accumulated depreciation: Fixtures and fittings 2 910 Motor vehicles 16 500 8% bank loan (repayable 30 September 2024) 20 000

3 2 Depreciation is to be provided as follows: (i) Fixtures and fittings at 10% per annum using the straight-line method. (ii) Motor vehicles at 20% per annum using the reducing balance method. 3 A credit customer was declared bankrupt and his debt of $410 is to be written off. 4 A review of trade receivables showed that 4% debts may be uncollectible. 5 The following transactions which happened during the year were not recorded: (i) Additional 50 000 ordinary shares at $1.60 each were paid and issued on 1 July 2021. (ii) A dividend of $0.05 cents for each ordinary share was declared on 28 December 2021. Payment will be made on 12 February 2022. 6 A repayment of $5 000 is to be made on the 8% bank loan on 31 March 2022. REQUIRED (a) Prepare the Statement of Financial Performance of Shane Gabriel for the year ended 31 December 2021. [9] (b) Prepare the Statement of Financial Position of Shane Gabriel as at 31 December 2021. [11] [Total:20]

4 2 Lowell sells hearing aids. On 1 January 2021 his business had a balance of $2 450 in its allowance for impairment of trade receivables account. On 4 July 2021 the business of Brandon, a credit customer, ceased operations and Lowell’s business received 10% of the amount owed of $1 800 and wrote off the remaining balance. On 31 December 2021, the trade receivables amounted to $39 500. Lowell’s business makes an allowance for impairment of trade receivables based on of 5% of the trade receivables at the end of each financial year. REQUIRED (a) State the journal entries for (i) cash sales and (ii) credit sales. [2] (b) Prepare journal entries to record the following transactions. Narrations are not needed. (i) Write off the debt owed by Brandon’s business on 4 July 2021. (ii) Adjustment for allowance of trade receivables for the year ended 31 December 2021. [4] (c) Prepare an extract of the Statement of Financial Performance for the year ended 31 December 2021. [2] (d) Explain the following terms: (i) allowance for impairment of trade receivables [1] (ii) impairment loss on trade receivables. [1] (e) State two factors that Lowell must consider when assessing the credit worthiness of credit customers. [2] [Total: 12]

5 3 The following information is extracted from books of Ralph Traders for the financial years ended 31 December 2020 and 2021. 2020 2021 $ $ Fixtures and fittings 12 000 20 000 Inventory 3 800 8 600 Prepaid expenses 4 500 7 300 Trade receivables 5 550 11 620 Cash in hand 1 600 900 Cash at bank 13 600 - Bank overdraft - 6 200 5 year Bank loan 20 000 16 000 Current portion of long-term borrowings - 4 000 Trade payables 4 400 10 800 Working capital ratio 6.60 ? Quick ratio 4.72 ? REQUIRED (a) Define liquidity. [1] (b) Calculate the following for the year ended 3 1 December 2021. Present your answers to 2 decimal places. (i) Current ratio (ii) Quick ratio [2] (c) Comment on the changes in liquidity between the years ended 31 December 2020 and 2021. Use your answers to part (a) as well as the other information provided in the question. [6] Ralph Trading had the following inventory management ratios for the years ended 31 December 2019, 2020 and 2021. 2019 2020 2021 Rate of inventory turnover 9.62 times 7.73 times 6.18 times Days sales in inventory 32.45 days 44.78 days 58.89 days (d) What do these ratios tell you about Ralph Trading’s efficiency in inventory management. [2] (e) Suggest two ways to improve Ralph Trading’s efficiency in inventory management. [2] [Total:13]

6 4 Martin Small is considering adding one more brand of instant coffee sachets. He has shortlisted two brands, Brew Coffee and New Town. Brew Coffee New Town Cost price ● $6 per packet of 15 sachets • 20% discount is given for orders above 500 packets for one variety or a mixture of different varieties ● $5 per packet of 10 sachets ● 25% discount is given for orders above 800 packets for one variety or a mixture of different varieties Nature of product ● Available in 2 varieties – cappuccino, black coffee (kopi-o) ● Has an expiry period of 1 year as preservatives are used to maintain its shelf life. ● Available in 4 varieties – mocha coffee, coffee latte, coffee expresso, coffee americano ● Has an expiry period of 4 months as no preservatives are used. . Consumers’ Preference • Few positive reviews from customers • Several positive reviews especially from younger customers Credit Terms • Cash Discount: 8%/10 days • All outstanding balance must be settled within 30 days • Cash Discount: 10%/5 days • All outstanding balance must be settled within 14 days (a) Advise Martin Small on the brand of coffee he should choose. Justify your decision with three reasons. [7]

7 The following information was extracted from the business of David Gerald, a competitor of Martin Small. David Gerald uses the reducing balance method to depreciate its motor vehicles. Below is one of David Gerald’s account. Accumulated Depreciation on Motor Vehicles Date Particulars Dr Cr Balanc e 2021 $ $ $ Jul 1 Balance b/d 16 400 Cr 2022 Mar 31 Sale of non-current asset 6 400 Jun 30 Depreciation on motor vehicles 3 600 13 600 Cr 2022 Jul 1 Balance b/d 13 600 Cr (b) Interpret the entries on the following dates in the above account (i) 1 July 2021 (ii) 31 March 2022 (iii) 3