2022 GMSS POA 4E5N PRELIM PAPER 2 ANSWERS

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers 20224E5NPrelimPaper 2AnswersQuestion1a) BeezeePteLimitedStatementoffinancialperformancefortheyearended30September2021$ $ Salesrevenue 161250Less:Salesreturns 900 Netsalesrevenue 160350 1Less:Costofsales 91200Grossprofit 69150 1 OtherincomeCommissionincome(20200-900) 19300 1 Less:OtherexpensesDepreciationofequipment(10%x(122000–2000)) 12000 1Depreciationofmotorvehicles(20%x(100000-20000)) 16000 1Reversalofimpairmentlossontradereceivables(4%x(29500–1300)) (120) 1Interestexpense(5%x60000) 3000 1Impairmentlossoninventory(13500-12500) 1000 1Insuranceexpense(28000-300) 27700 1Wagesandsalaries 9370 68950Profitfortheyear 19500 1

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers b) BeezeePteLimitedStatementoffinancialpositionasat30September2021Assets $ $ $ Non-currentassets Cost Accumulateddepreciation Netbookvalue Equipment 122000 24000 98000 1OF Motorvehicles 100000 36000 64000 1OF162000CurrentassetsTradereceivables 29500Less:Allowanceforimpairmentoftradereceivables (1180) 28320 1Cashatbank 1800Inventory 12500 1Prepaidinsurance 300 42920 1Total assets 204920 EquityandLiabilitiesShareholders'equitySharecapital,100000ordinaryshares 100000 1Retainedearnings(15180+19500-2000) 32680 132680 1 Non-currentliabilityLong-termborrowing 60000 1 CurrentliabilityTradepayables 6340Commissionincomereceivedinadvance 900 1Interestpayable(5%x60000) 3000 1Dividendpayable(0.02x100000) 2000 12240 1Total equityandliabilities 204920 2

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers Question2(a)i.24.00%=Grossprofit/268500x100%Grossprofit=0.24x268500=$64440[1] ii.Costofsales=Netsalesrevenue–Grossprofit=268500–64440=$204060[1OF]Mark-uponcost=Grossprofit/Costofsalesx100%=64440/204060x100%=31.58%(2dp)[1]iii.Profitmargin=Profitfortheyear/Netsalesrevenuex100%=(64440–42100)/268500x100=8.32%[1](b)- FashionRetailgrossprofitmarginof24.00%isbetterthanUptownRetail18.00%.- FashionRetailmark-uponcostof31.58%isbetterthanUptownRetail22.36%.- ThisimpliesthatFashionRetailissellingitsgoodsatahighersellingpriceorbuyingitsgoodsatalowercostprice.- However,FashionRetailprofitmarginis8.32%isworsethanUptownRetail10.39%.- ThisimpliesthatFashionRetailislessefficientinmanagingitsexpensestogeneratenetsalesrevenuecomparedtoUptownRetail.- Overall, FashionRetail islessprofitablethanUptownRetail. (c)HazmishouldinvestinUptownRetail.ThereturnofequityforUptownRetailis53.44%whichisbetterthanthatofFashionRetailwhichis40.68%.Thismeansthatforeverydollarinvested,UptownRetailisabletogeneratemoreprofitsforshareholdersthanFashionRetail. (d)Easierforbusinesstotakeuploansfrombanks/Easiertohireemployees/Possibletodistributeprofitstorewardthemfortheircontributionsandattractinvestors/Expandoperations/Sustainbusinessoperations/Supplierswillingtosellgoodsoncredittobusiness/KeepupwithcompetitorsAny2validpoints–2m Question3(a)i.Cost:$150000Accumulateddepreciation:30000+24000=$54000[1]For31Dec2018:20%x150000=$30000For31Dec2019:20%x(150000–30000)=$24000Netbookvalue=150000–54000=$96000Lossonsale=82000–96000=$14000[1] 3

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers ii.ExistingMV:20%x(150000–30000–24000)=$19200NewMV:20%x95000=$19000[1mforeither$19200or$19000]Depreciationforyearended31Dec2020:19200+19000=$38200[1][OF] (b) Date Particulars Dr($) Cr($) 2020 December31 DrIncomesummary[1] 14000 CrSaleofnon-currentasset[1] 14000 1mdeductedforwrongdate/wrongamount(amountshouldbetakenfromai) (c)Invoice[1] (d)Motorvehiclesprovidemorebenefitsinthefirst fewyearsof usagethenlesserbenefitsinthelateryears.[1] (e) Capital expenditure Revenueexpenditure Referstothecosttobuyandbringthenon-currentassettoitsintendeduse. Referstothecosttooperate,repairandmaintainthenon-currentassetsinworkingcondition.Providesbenefitsformorethanayear Providesbenefitsforlessthanayear Anycontrastingpairofanswersprovided[2m] (f) Costofnewmotorcycle=20320+9500+1500+100=$31420Any2amounts1m.Total2m (g)Profitwillbeunderstated.[1] Non-currentassetswillbeunderstated.[1] Question4(a)Costofsales=128000+86000=$214000[1](b)Valueofendinginventory=112500+47800=$160300[1](c)Valueofendinginventory=$150000[1](d)Profitwillbeoverstatedby$10300[1OF],currentassetswillbeoverstatedby$10300[1OF]. 4

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers 5

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers (e)TriciashouldpurchaseModel ABtosell. Evidence1 ModelABhasalongerbatterylifeby4hours,comparedtoModelYZ. Explanation1 Thiswouldmeetthedemandsofcustomerswhoarelookingfortabletswithlongerbatterylife.Customerscanalsobringthistabletforworkpurposesanditcouldlastthemadayatwork.Thishelpstobringinmoresalesforthebusiness. Evidence2 ModelABhasbothWifiandcellularfunctions. Explanation2 Customerswhoarelookingtousethetabletforworkandleisurepurposescanusethetabletonthego. Evidence3 ModelABcomesin5differentcolours,comparedtoModelYZwhichcomesinonly2colours. Explanation3 Thewidervarietyofcolourchoicesmightattractmorecustomerswhowishtohavemorechoices,hencebringinginmoresalesforthebusiness. Evidence4 ModelABhasalargerscreendisplayof13inch,comparedtoModelYZwhichhasascreendisplayof8.5inch. Explanation4 Customerswhoarelookingforalargerscreendisplayandthiswillcomeinusefulwhentheyareusingitfordisplayofworkpurposesaswell.Hence,thisincreasessalesforthebusiness. TriciashouldpurchaseModel YZtosell. Evidence1 ModelAB:500x10+30=$5030ModelYZ:300x10+50=$3050(lower cost price)Bypurchasing10unitsofModelYZ,itwillcostthebusiness$1980lowerthanModelAB. Explanation1 ThiswouldleaveTriciawithmorecashavailabletospendonotheroperationsofthebusiness. Evidence2 ModelYZis291glighterthanModelAB. Explanation2 Thismakesitevenmoreconvenientforuserstobringthetabletaroundasitislightweight,andattractscustomerswhoarelookingforconvenience. 6

GMS(S)/POA/P2/PRELIM2022/4E/5N/Answers Evidence3 ModelYZhasthefunctiontoadjustthebrightnessofthescreentosuitthelightingoftheroom. Explanation3 Thissuitscustomerswithyoungerkidsasthishelpstoprotecttheeyesofthekids. 7