2021 O Level 7087 Answer

Suggested Solution O-Level 2021 Principles of Accounts Paper 1 Q1 (a) On 1 July 2019, Xu’s business took a bank loan of $40 000. [1] On 30 June 2020, Xu’s business repaid $8 000 of the bank loan by cheque. [1] (b) On 1 January 2020, Xu’s business r eversed the entry of interest expense incurred in the year ended 31 Dec 2019 but not paid. [1] On 30 June 2020, Xu’s business paid $2 400 interest by cheque. [1] (c) Extract of Statement of Financial Performance for the year ended 31 December 2020 Less: Expenses $ Interest expense 2160 [1] (d) Extract of Statement of Financial Position as at 31 December 2020 Non-current liabilities $ $ Long term borrowing 24 000 [1] Current liabilities Current portion of long term borrowing 8 000 [1] Interest payable 960 [1] 8 960 (e) One difference between loan and overdraft:  The amount borrowed is fixed in a bank loan but the amount borrowed for an overdraft is not fixed but it must not exceed the limit agreed with the bank.  Cash is transferred to the business for a bank loan but no cash is transferred to the business for an overdraft. Instead, the overdraft is due to the business withdrawing more than its bank balance.  Bank loan usually requires regular fixed cash repayment but bank overdraf t does not involve cash repayment. Any deposit into the bank account reduces the overdraft.  Bank loan is presented as long term borrowing under non-current liabilities but bank overdraft is recorded as a current liability. [2] (f) Accrual basis of accounting [1] Interest expense should be recognised in the financial period incurred whether or not it has been paid. [1] [Total: 12]

Q2 (a) Assets are resources a business owns or controls that are expected to generate future benefits. [1] Liabilities are obligations owed by a business to others that are expected to be settled in the future. [1] Income is the earnings from selling goods or providing services. [1] Expense are costs incurred to earn income in the same accounting period. [1] (b) Assets = Liabilities + Equity [1] = 7 800 + 1 200 + 10 000 + 50 000 + 80 000 = 149 000 [1] Net book value of non-current assets = 149 000 – 13 500 – 12 000 = $123 500 [1] (c) The consistency theory states that an accounting method once chosen, should be applied to future accounting periods [1] to enable meaningful comparison of the financial performance of the business. [1] [Total: 9] Q3 (a) Debit $ Credit $ Equipment 900 [1] Trade payable Bernardo 900 [1] (b) Effect of error on Profit Overstated $ Understated $ No effect Error 2 60 [1] Error 3 ✓ [1] Error 4 75 [1] (c) The accounting entity theory states that the activities of a business are separate from the actions of the owner. [1] All transactions are recorded from th e point of view of the business. [1] [Total: 7]

Q4 (a) 30 Sep 2020 30 Sep 2021 Workings Average net TR = (17 200 + 25 500)/2 = 21 350 TR collection period = Average net TR / Net sales revenue x 365 days = 21 350 / 278 500 x 365 = 27.98 days [1] Average net TR = (25 500 + 34 000)/2 = 29 750 TR collection period = Average net TR / Net sales revenue x 365 days = 29 750 / 299 250 x 365 = 36.29 days [1] Trade receivables collection period (days) 27.98 days [1] 36.29 days [1] (b) The trade receivables collection period has worsened [1] from 27.98 days to 36.29 days over the two years. This means that Ping’s business was taking a longer time [1] to collect payment from its credit customers in 2021 compared to the earlier year. This also means that Ping’s business has become less efficient [1] in managing its trade receivables over the two years. (c) Two ways to improve TR collection period:  Ensure credit is granted to customers who are financially able  Offer cash discounts to encourage credit customers to pay early  Send regular reminders to credit customers who delay payment or refuse to pay  Engage professional debt recovery agencies to collect payment from financially distressed credit customers [2] (d) Two sources of non-accounting information to grant credit to customer: - Customer’s repayment history - Number of days the debts are overdue - Trade receivables balance - Customer reputation - Outlook of the industry the customer is in - Economic outlook [2] (e) Prudence theory [1] [Total: 12]

Suggested Solution O-Level 2021 Principles of Accounts Paper 2 1(a) Jordan Statement of Financial Performance for the year ended 31 December 2020 $ $ Advertising fee revenue (186 750 – 12 700) [1] 174 050 Other income Commission income [1] 1 300 Less: Other Expenses Rent expense (22 500 – 750) [1] 21 750 Wages and salaries 38 500 General expenses (12 350 – 950) [1] 11 400 Printing expenses (23 460 + 1 800) [1] 25 260 Depreciation on office equipment (10% X 85 000) [1] 8 500 Depreciation on motor vehicles [25% X (40 000 – 10 000)] [1] 7 500 Impairment loss on trade receivables [(2%x23 250) – 195 ] [1] 270 Interest on loan (4% x 15 000) [1] 600 113 780 Profit for the year [1OF] 61 570 [10] 1(b) Jordan Statement of Financial Position as at 31 December 2020 Assets $ $ $ Non-current assets Cost Accumulated Depreciation Net book value Office equipment (17 000 + 8 500) 85 000 25 500 [1] 59 500 Motor vehicle (10 000 + 7 500) 40 000 17 500 [1] 22 500 82 000 Current assets Trade receivables 23 250 Less: Allowance for impairment of trade receivables (2% x 23 250) 465 [1] 22 785 Cash at bank [1] 5 670 Prepaid rent expense [1] 750 29 205 Total assets 111 205 Equity and Liabilities Owner’s Equity Capital (27 685 + 61 570 – 19 500 – 950) [1OF] 68 805 Non-current liabilities Long-term borrowings [1] 15 000 Current liabilities Trade payables 12 300 Printing expenses payable [1] 1 800 Advertising fee revenue received in advance [1] 12 700 Interest on loan payable [1] 600 27 400 Total equity and liabilities 111 205 [10]

Q2 (a) Journal Date Debit Credit 2021 $ $ Mar 3 Trade receivable Joel (3 000 x 95%) [1] 2 850 Sales revenue [1] 2 850 Cost of sales [1] 2 100 Inventory [1] 2 100 14 Discount allowed (2% x 2 850) [1] 57 Cash at bank (98% x 2 850) [1] 2 793 Trade receivable Joel [2] 2 850 (b) To encourage customers to buy in bulk [1] (c) To encourage credit customers to pay promptly, by a specified date [1] (d) Two roles of accountants:  Through providing accounting information for stakeholders’ decision -making, accountants act as stewards of businesses. Accountants do not own the business but are given the responsibility to manage the business.  Accountants set up the accounting information system to collate, record, organise and report accounting information so that owners and other stakeholders can make decisions regarding the management of resources and the performance of businesses.  They think critically, solve problems, adapt and meet the need for sophisticated accounting and business information.  In the face of an evolving business environment and rapid technological advancement, accountants have to provide relevant information in a timely manner for decision-making and insights that are easily and appropriately understood by owners and other stakeholders based on accounting theories. [2] [Total: 12]

Q3 (a) Tasty Cakes Fancy Gateaux (i) Gross profit margin = GP/NSR x 100% (68 000 – 44 000) / 68 000 x 100% = 35.29% [1] (92 000 – 53 000) / 92 000 x 100% = 42.39% [1] (ii) Profit margin = Profit/NSR x 100% (68 000 – 44 000 – 9 500) / 68