YCKSS 4E5N 2022 PRELIM POA P2 ANS

Name:ANSWERS Index Number: Class: YIO CHU KANG SECONDARY SCHOOL O-LEVEL PRELIMINARY EXAMINATION 2022 SECONDARY FOUR EXPRESS SECONDARY FIVE NORMAL (ACADEMIC) PRINCIPLES OF ACCOUNTS 7087/02 Paper 2 2 hours Additional materials: Foolscap Paper (4 sheets) 14 September 2022 (Wednesday) READ THESE INSTRUCTIONS FIRST Write your name, index number and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use an HB pencil for rough working. Do not use staples, paper clips, glue or correction fluid. The use of an approved calculator is allowed. Answer all questions. The businesses described in this question paper are fictitious. Start each question on a separate page. All calculations must be shown adjacent to the answer. Where the T account format is used, the account should be balanced. Where applicable, the balance should be brought down to the next financial year. Where the columnar format is used, the running balance column should be updated for the first and last entries. Where applicable, the balance should be brought down to the next financial year. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. For Examiner’s Use 60 Setter: Mr Jude Ang This document consists of 5 printed pages and 3 blank pages.

2 O-LEVEL PRELIM EXAM 2022 7087/02 Answer all questions. 1 (a) Prepare the statement of financial performance for the year ended 31 December 2021. [10] Smiley Statement of financial performance for the year ended 31 December 2021 ($) ($) Sales Revenue 179870 Less: Sales Returns (12150) Net Sales Revenue 167720✓ Less: Cost of Sales (86550) Gross Profit 81170✓ Add: Other Income Rental income 6550✓ Commission income 3240✓ Discount Received 2120✓ 11910 93080 Less: Other Expenses Impairment loss on trade receivables 690✓ Rent expense 9800 Commission expense 4320 Interest expense 6000 Depreciation on MV (10%*90000) 9000✓ Salaries expense 24000✓ Impairment loss on inventory 3000✓ Discount allowed 3130 59940 Profit for the year 33140✓

3 O-LEVEL PRELIM EXAM 2022 7087/02 (b) Prepare the statement of financial position as at 31 December 2021. [10] Smiley Statement of financial position as at 31 December 2021 Non-Current Assets ($) ($) ($) Cost Accumulated Depreciation Net Book Value Machinery 60000 0 60000 Motor Vehicle 100000 19000 81000 141000✓ Current Assets Cash at Bank (+50000) 121700✓ Trade Receivables (-1980) 74000✓ Less: Allowance for impairment of trade receivables: (2220) ✓ 71780 Inventory (-3000) 65800✓ 259280 Total Assets 400280 Shareholder’s Equity Issued share capital 200000✓ Retained earnings (42590+33140-6000) 69730✓ 269730 Non-Current Liabilities Long-term Borrowings – bank loan 72000✓ Current Liabilities Trade Payables 44550 Dividend payable 6000✓ Current portion of long term borrowing 8000✓ 58550 Total equity and liabilities 400280 [Total: 20]

4 O-LEVEL PRELIM EXAM 2022 7087/02 2 The following is a summary of the income statements for Kyrie’s and Bens’ business for the year ended 30 June 2021: Kyrie ($) Ben ($) Net sales revenue 80 000 100 000 Cost of sales 55 800 66 500 Gross profit 24 200 33 500 Net expenses 12 150 25 560 Profit for the year 12 048 7 940 Additional information at 30 June 2021: Kyrie Ben Gross profit margin ? 33.5% Profit margin 15.06% ? Average equity $60 000 $60 000 Rate on inventory turnover (times) 8 6 Rate of trade receivables turnover (times) 5 3 REQUIRED (a) State two differences between liquidity and profitability. [4] LIQUIDITY IS THE ABILITY TO PAY IMMEDIATE DEBTS✓ WHILE PROFITABILITY IS THE ABILITY TO EARN/MAKE PROFITS✓. PROFITABILITY REFERS TO PROFITS EARNED DURING THE YEAR WHICH IS THE DIFFERENCE BETWEEN INCOME AND EXPENSES. ✓ LIQUIDITY REFERS TO THE AVAILABILITY OF CASH TO THE BUSINESS AT ANY POINT OF TIME. ✓

5 O-LEVEL PRELIM EXAM 2022 7087/02 (b) Calculate, to two decimal places, Kyrie’s gross profit margin and Ben’s profit margin for the year ended 30 June 2021. [4] KYRIE GPM: (GP/T)*100%✓ = (24200/80000)*100% = 30.25%✓ BEN PM: (P/T)*100% ✓ = (7940/100000)*100% = 7.94%✓ (c) Calculate, to two decimal places, the return on equity for Kyrie and Ben for the year ended 30 June 2021. [2] KYRIE ROE: (P/AVERAGE EQUITY)*100% = (12050/60000)*100% = 20.01%✓ BEN ROE: (P/AVERAGE EQUITY)*100% = (7940/60000)*100% = 13.23%✓

6 O-LEVEL PRELIM EXAM 2022 7087/02 Rob is considering whether to invest in Kyrie’s or Ben’s business. (d) Advise Rob whose business he should invest in and justify your decision using any ratio and data available. [8] INVEST IN KYRIE’S BUSINESS✓ BECAUSE IT HAS BETTER PROFITABILITY. ✓ KYRIE HAS A BETTER RATE OF INVENTORY TURNOVER OF 8 AS COMPARED TO BEN’S 6. ✓ THIS MEANS THAT ON AVERAGE, KYRIE IS REPLENISHING HIS STOCKS MORE FREQUENTLY IN A YEAR THAN BEN. THIS COULD PROBABLY BE DUE TO BETTER SALES OF INVENTORY FOR KYRIE. ✓ KYRIE HAS A HIGHER PROFIT MARGIN OF 15.06% COMPARED TO BEN’S OF 7.94%.✓ THIS MEANS FOR EVERY DOLLAR OF TURNOVER, KYRIE IS ABLE TO EARN $0.1506 PROFIT TO BEN’S $0.0794. ✓ KYRIE HAS A HIGHER RETURN ON EQUITY OF 20.01% COMPARED TO BEN’S OF 13.23%.✓ THIS MEANS THAT FOR EVERY DOLLAR INVESTED BY ROB, KYRIE IS ABLE TO HELP HIM EARN RETURNS OF $0.2001 COMPARED TO BEN’S $0.1323. ✓ [Total: 18]

7 O-LEVEL PRELIM EXAM 2022 7087/02 3 (a) Prepare the journal entries to record interest expense for the year ended 31 December 2020. Narrations are required. [6] Date Particulars Dr ($) Cr ($) 2020 INTEREST EXPENSE (100000*2%*0.5) 1000✓ DEC 31 INTEREST EXPENSE PAYABLE 1000✓ (INTEREST EXPENSE OWING AT THE END OF THE YEAR) ✓ INCOME SUMMARY 1000✓ INTEREST EXPENSE 1000✓ (INTEREST EXPENSE INCURRED FOR THE YEAR) ✓ (b) Prepare an extract of the statement of financial performance for the year ended 31 December 2020, showing only the expense section. [2] BONDI FLIP FLOPS STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31 DEC 2020 (EXT) ($) LESS: EXPENSE INTEREST EXPENSE✓ 1000✓

8 O-LEVEL PRELIM EXAM 2022 7087/02 (c) Prepare an extract of the statement of financial position as at 31 December 2020, showing only the liabilities section. [5] BONDI FLIP FLOPS STATEMENT OF FINANCIAL POSITION AS AT 31 DEC 2020 (EXT) NON CURRENT LIABILITIES LONG TERM BORROWING – LOAN FROM BANK 80000✓ CURRENT LIABILITIES CURRENT PORTION OF LONG TERM BORROWING✓ 20000✓ INTEREST EXPENSE PAYABLE✓ 1000✓ (d) Explain, using a suitable accounting theory, why expenses such as interest expense is recorded. [2] MATCHING CONCEPT✓. EXPENSES INCURRED FOR THE YEAR NEED TO BE