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$1.72qui