SWISS COTTAGE 2022 4E5N EXAM POA PRELIM P1 MARKING SCHEME

1 1 DazzlingHomeSuppliesisinabusinessofsellinghouseholdlights.On31December2021,thebusinesshadaninventorybalanceof$15000.Unfortunately,thestorehadexperiencedafireduetoelectricalfaultsandsomeoftheinventorywasdamaged.Thesellingpriceoftheremaininginventorywas$8200. TheinsurancecompanyhadinformedDazzlingHomeSuppliesthatthebusinesswouldbeabletoreceiveacompensationof$5000.Asat31December2021,theclaimhadnotyetbeenreceived. REQUIRED(a) Statethevaluationruleofinventory Inventoryisvaluedatthelowerofcostornetrealisablevalue.[1] (b)Nametheaccountingtheoryappliedtothevaluationofinventory.Prudencetheory[1] (c)Calculatetheamountofinventorylossduetothefire.Showallworkings.Impairmentlossoninventory=$15000-$8200[1]=$6800[1] (d)Preparethejournalentriestoadjustthevalueoftheinventoryon31December2021.Narrationsarenotrequired.[3] JournalDate Particulars Debit Credit2021 $ $Dec31 Impairmentlossoninventory 1800[1] Insurancereceivable 5000[1]Inventory 6800[1] (e) Statetheeffectontheprofitfortheyeariftheinventorywasnotadjustedasat31December2021.Profitwillbeoverstatedby$1800.[1] [Total: 8]

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3 2 Thefollowinginformationisextractedfromthebooksof KittyPalacePteLtdforthefinancialyearended30June2021and2022. 2021$ 2022$Inventory 7800 21500Tradereceivables 6550 10900Cashinhand 3180 2900Cashatbank 15890 -Bankoverdraft - 4210Tradepayables 4900 5100Currentportionoflongtermborrowing 10000 10000LongTermborrowing 50000 40000 Currentratio 2.24 ?Quickratio 1.72 ? REQUIRED(a)Calculate,totwodecimalplaces,thefollowingfortheyearended30June2022: (i) Currentratio Currentassets/Currentliabilities=(21500+10900+2900)/(4210+5100+10000)= 1.83[1] (ii) Quickratio Quickassets/Currentliabilities=(10900+2900)/(4210+5100+10000)=0.71[1] (b)IdentifyonestakeholderwhowouldbeinterestedinKittyPalacePteLtd’sliquidity.Explainwhythestakeholderidentifiedisinterestedintheinformation.Anyoftheanswersbelow:Stakeholder ReasonBanks/creditsuppliers/othercreditors willwanttofindoutifKittyPalacePteLtdwillberepaycurrent/potentialdebts Current/potentialShareholders Willneedtofindoutwhethertoinvestmore/divestfromthebusiness. Managers willneedtoplanhowtorunthebusiness

4 Employees WillneedtofindoutwhethertocontinueworkingforthebusinessdependingonwhetherthebusinesscanpaytheirsalariesCurrentandpotentialcustomers Whethertobuyfromthebusiness/prepayforpurchasesdependingonwhetherthebusinesscancontinuetooperate WhethertheycantakeadvantageofKittyPalacePteLtd’sadversesituationtonegotiatebetterdeals (c)CommentonKittyPalacePteLtd’sliquidityfortheyearsended30June2021and2022. ● KittyPalacePteLtd’sliquiditypositionisworsein2022than2021● KittyPalacePteLtd’scurrentratiohasworsenedfrom2.24:1in2021to1.83:1in2022,whichislowerthanthepreferredratioof2:1.● ThismeansthatKittyPalacePteLtdhas$2.24currentassetstopayoffeverydollarofcurrentliabilityin2021ascomparedto$1.83in2022.● KittyPalacePteLtd’squickratiohasalsoworsenedfrom1.72:1in2021to0.71:1in2022,whichislowerthanthepreferredratioof1:1.● Thismeansthatforeverydollarofcurrentliability,Tuneshas$1.72quickassetstopaythemoffin2021ascomparedto$0.71in2022.● Thebusinesshasinsufficientquickassetstomeethershort-termdebtsat30June2022.● KittyPalacePteLtdisholdingontoalargeamountofinventoryin2022ascomparedto2021.Holdingontomoreinventorieswillmeanthatcashistiedupininventory.Goodsmayalsobecomeobsoleteandhavetobesoldataloss.Holdingontomoreinventorieswillalsoincreasewarehousecost.Allthesewillworsentheliquidityposition. (d)Suggest twowaystoimprovetheliquidityofKittyPalacePteLtd.● Sellsmoresharestogetmoreinvestorstoinvestinthecompany● Advertisingorsalestosellmoreinventory● Selloffunnecessarynoncurrentassets [Total: 9]

5 3 KellystartedasoleproprietorshipSoGoodBakingSupplies,abakingsuppliesbusinessin2020. Thebusinessprovidedthefollowingledgeraccountsfortheyearended31March2022. Drawingsa/cDate Particulars Debit Credit Balance2021 $ $ $Dec1 Cashatbank 500 500Dr2022Jan1 Inventory 450 950DrMar31 Capital 950 - Capitala/cDate Particulars Debit Credit Balance2021 $ $ $Apr1 Balanceb/d 10500CrDec31 Cashatbank 5000 15500Cr2022Mar31 Incomesummary 9400 24900Cr31 Drawings 950 23950Cr REQUIRED (a)Describethetransactionsinthedrawingsaccountonthefollowingdates(i) 1December2021 On1December2021,theownertookoutmoney$500,fromthebankforpersonaluse.[1](ii) 31March2022 On31March2021,thetotaldrawingsfortheyearended31March2022$950wastransferredtocapitalaccount.[1] (b)Describethetransactioninthecapitalaccounton31December2021.Theownerputinadditionalcapitalworth$5000intothebusinessbankaccount.[1] (c)Statewhetherthebusinesshadmadeaprofitoralossfortheyearended31March2022. Thebusinessmadeaprofitof$9400.[1]

6 ExtremelyGoodBakersPteLtdprovidedthefollowingaccountbalanceson1April2020. $Sharecapital,10000ordinaryshares 50000Retainedearnings 25450 ThefinancialyearofExtremelyGoodBakersPteLtdendson31March.Thefollowingtransactionstookplacein2021and2022.Date Transaction2021Feb1 Dividendsof$0.05pershareweredeclared.Mar31 Profitfortheyearwas$9300.Apr5 ThedividendsdeclaredonFebruary1werepaid.Oct10 10000shareswereissuedat$2pershare.2022Jan31 Dividendsat$0.05pershareweredeclaredandpaidinfull.Mar31 Lossfortheyearwas$1000. REQUIRED (d)Preparethesharecapitalaccountfortheyearsended31March2021and2022.Sharecapitala/cDate Particulars Debit Credit Balance2020 $ $ $Apr1 Balanceb/d 50000Cr [1/2]2021Apr1 Balanceb/d 50000Cr[1]Oct10 Cashatbank($10000x$2) 20000 70000Cr [1]2022Apr1 Balanceb/d 70000Cr[1/2]

7 (e)Preparetheretainedearningsaccountfortheyearsended31March2021and2022.Retainedearningsa/cDate Particulars Debit Credit Balance2020 $ $ $Apr1 Balanceb/d 25450Cr [1]2021Mar31 Incomesummary 9300 34750Cr[1]Mar31 Dividends($0.05x10000) 500 34250Cr [1] Apr1 Balanceb/d 34250Cr[1]2022Mar31 Incomesummary 1000 33250Cr [1]Mar31 Dividends($0.05x20000) 1000 32250Cr [1]Apr1 Balanceb/d 32250Cr [1] (f)Statetwoadvantagesofaprivatelimitedcompany.- It haseasieraccesstofunds. Forexample, it ismorelikelyforbanksandotherlenderstolendmoneytoaprivatelimitedcompany.Thecompanymayalsoissuemoresharestoraisefunds.[1]- Whenthecompanyincursdebtsandlosses, shareholdersarenotobligedtopaythemusingtheirpersonalassets.Intheworst-casescenario,theywillonlyneedtoforfeittheirinvestments.[1] [Total: 16]

8 4 After preparing the trial balance, the accountant of KokoTradingpreparedthefinancial statementsfortheyearended31December2021. Thefollowingerrorswerediscovered. 1 A motor vehicle repairs invoice $150 was postedtothemotor vehiclesaccount.2 Creditsalesof$1500toPangPangwasrecordedinPongPong’saccount.3 Debit noteof $800issuedtoacustomerhasbeenrecordedinthedebitcolumn of the salerevenueaccount andthecredit columnof thetradereceivablesaccount. Theprofitfortheyearbeforediscoveringtheerrorwas$25000. REQUIRED(a)Preparejournalentriestocorrecttheerrors.Narrationsarenotrequired.JournalParticulars Debit Credit$ $1 Motorvehiclerepairsexpense 150 [1]Motorvehicles 1502 Tradereceivables–PangPang 1500 [1]Tradereceivables–PongPong 15003 Tradereceivables 1600 [1]Salesrevenue 1600 (b)Prepareastatementtoshowadjustedprofitfortheyearended31December2021.KokoTradingStatementtoshowadjustedprofitfortheyearended31December2021$Unadjustedprofitfortheyear 25000[1]Less:Motorvehiclesrepairexpenseunderstated (150) [1]Add:Salesrevenueunderstated 1600[1]Adjustedprofitfortheyear 26450[1] [Total: 7]

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