2023 SMSS POA 4E5N PRELIM P2 WITH ANS

ST. MARGARET’S SECONDARY SCHOOLPreliminary Examinations 2023CANDIDATE NAMECLASSREGISTER NUMBERPRINCIPLES OF ACCOUNTSPaper 2 Secondary 4 Express / 5 Normal (Academic)7087/0229 August 20232 hours Additional Materials: Writing papersREAD THESE INSTRUCTIONS FIRSTWrite your name, class and index number on all the work you hand in.Write in dark blue or black pen on both sides of the paper.Do not use staples, paper clips, highlighters, glue or correction fluid.You may use an approved calculator.Answer all questions.The businesses described in this question paper are fictitious.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.All calculations must be shown adjacent to the answer.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.The total of the marks for this paper is 60.This document consists of 6 printed pages and a blank page.

2Answer all questions.1Dream Home is a business selling home accessories. The following balances were extracted from the books on 30 June 2022. $Share capital, 100 000 ordinary shares200 000Retained Earnings, 1 July 202155 9005% Bank Loan 100 000Motor vehicles 100 000Accumulated depreciation - Motor vehicles20 000Premise300 000Cash at bank 38 200Discount allowed2 180Trade receivables63 200Trade payables51 550Insurance expense17 500Sales revenue273 890Salaries expense42 800Sales returns23 400Cost of sales110 500Utilities expense13 840Rent income33 000Allowance for impairment of trade receivables7 400Inventory 27 620Interest on loan2 500Additional information:1Rent income of $3 000 was earned but not yet collected.2Insurance expense includes $7 500 for the three months ending 31 July 2022.3Utilities expense still outstanding stood at $800.4Interest on loan was not fully paid.5The premise carries a lease of 20 years.6Motor vehicles are depreciated at 20% per annum using the reducing balance method.7One of the credit customers who owed $2500 was declared bankrupt. The debt has yet to be written off.8The business reviewed its trade receivables and decided that 5% of the outstanding balance may be uncollectible.9The company declared a dividend of $0.15 per share. The dividend will be paid on 12 September 2022.REQUIRED(a)Prepare the statement of financial performance for the year ended 30 June 2022. [9](b)Prepare the statement of financial position as at 30 June 2022. [11] [Total: 20]

32The following information relates to Happy Games as at 31 July 2020, 2021 and 2022.202020212022$$$Non-current assets (net book value)188 800200 900220 000Net trade receivables 31 25044 60050 350Inventory 48 20054 68063 920Cash at bank 15 000 1 200-Rent income receivable 2 500-Long term borrowing--15 000Current portion of long-term borrowing--5 000Commission expense payable-3 6004 800Trade payables 32 10039 78048 960Bank overdraft --9 800Working capital 6485057100?Current ratio3.021.76?Quick ratio1.441.05?REQUIRED(a)Explain what is meant by liquidity of a business. [1](b)State one reason why it is important for Happy Games’ business to be liquid. [1] (c)Calculate the working capital, current ratio and quick ratio for the year ended 31 July 2022. Show your answers to two decimal places. [4](d)Evaluate the liquidity of Happy Games over the three years ended 31 July 2020, 2021, and 2022. Use the given information and your answers in (c). [6] [Total: 12]

43Perline runs a retail shop selling used handbags. She sublets part of her shop to earn extra income. She provided the following information for the year ended 31 July 2023.At 1 August 2022$Prepaid promotional expenseRent income receivable 7 5002 000The business had the following transactions.Date$2023Mar 31Received rental income by cheque 26 000May 3Paid for promotional expense by cheque 6 800Additional information1Rent income of $2 000 received was meant for the month of August 2023.2Promotional expense of $1 100 has yet to be paid as at 31 July 2023.REQUIRED(a)Explain what is meant by income received in advance. [2](b)State the amount and account for the closing entry where the total rental income earned for the year ended 31 July 2023 should be transferred to. [2](c)Prepare the journal entries to record the transaction on 31 March 2023. A narration is not required. [2](d)Prepare the journal entries to adjust for rent income and promotional expense as

5at 31 July 2023. A narration is not required. [4] [Total: 10]4Mr Lloyd operates a furniture retail business, whose financial year ends on 31 July.The following account appears in Mr Lloyd’s ledger.Allowance for impairment of trade receivables accountDateParticularsDebit$Credit$Balance$2022Aug 1Balance b/d32 000 Cr2023Mar 23Trade receivable – May Supplies3 00029 000 CrJul 31Impairment loss on trade receivables1 500 27 500 CrAug 1Balance b/d27 500 CrThe total trade receivables amounted to $550 000 on 31 July 2023.REQUIRED(a)Explain what is meant by trade receivables. [1](b)Interpret the entries in the allowance for impairment of trade receivables account on:(i) 23 March 2023 [1](ii) 31 July 2023 [2](c)Calculate the rate of the allowance for impairment of trade receivables as a

6percentage. [1](d)Prepare the journal entry to record the write off of the debt owed by May Supplies on 23 March 2023. A narration is not required. [2](e)Prepare the journal entry to adjust the balance for allowance for impairment of trade receivables for the year ended 31 July 2023. A narration is not required. [2](f)Using an appropriate accounting theory, explain why it is necessary for a business to account for impairment loss on trade receivables. [2] Mr Lloyd is a distributor of furniture made in Singapore and he only sells on credit to his customers. His credit policy to its customers is shown below.1The credit period is 25 days.2The credit limit is $15 000. Two existing customers of Mr Lloyd have approached Mr Lloyd to negotiate for a longer credit period of 30 days. Due to the challenging economic conditions, Mr Lloyd intends to extend a longer credit period to only one business. The details of the two customers are shown below.MF Pte Ltd B&W BrothersNature of businessHas 5 outlets in Singapore ●Has 3 outlets in Singapore●It is planning to open outlets in neighboring countries in the following year Average trade receivable balance$11 500$18 300Annual sales revenue for 2022$245 000 $310 000Repayment history over the past year●Average collection period of 28 days●2 occurrences of late payment●Average collection period of 34 days ●5 occurrences of late payment

7Reputation of business●Popular among senior citizens due to discounts provided●Popular with customers as it provides installment payment services●Has been in business for 12 years●One-third of B&W Brother’s sales revenue were generated from online sales●Has received positive reviews on social media platforms●Increasing orders from neighboring countries●Has been in business for 5 yearsAdditional information1There is an increasing trend of orders for furniture via online platforms.2There is an increasing demand for Singapore made furniture from the neighboring countries.REQUIRED(g)Advise Mr Lloyd which customer he should grant a longer credit period to. Justify your decision with three reasons. [7][Total: 18]End Of PaperMarking Scheme2023 4E5N Prelim Paper 2Question 1(a)Dream HomeStatement of financial performance for the year ended 30 June 2022Sales revenue273890Less: sales returns(23400)Net sales revenue250490Less: cost