ESSS 2022 4E5N Prelim P2 ANS

Answer to4E5NMYE2022P2 Question1 (a)GritPteLtdStatementofFinancialPerformancefortheyearended30June2022$ $Salesrevenue 185,000LessSalesreturns (25,700)NetSalesrevenue 159,300LessCostofsales (84,500)Grossprofit [1] 74,800AddOtherIncomeCommissionincome(1150–420) [1] 730Discountreceived 310TotalOtherIncome 1,040TotalIncome 75,840LessOtherExpensesUtilities 11,870Advertising(6130–400) [1] 5,730Interestexpense(8%X50000) [1] 4,000Rentalexpense 8,500Salaries 22,710Depreciationoffixturesandfittings(15%X42000) [1] 6,300Depreciationofofficeequipment20%X(78300–23000)[1] 11,060Reversalofimpairmentlossontradereceivables(6140–1500)–5%X(81500–1500) [1] (640)Totalexpenses (69,530)Profitfortheyear 6,310 [7] 1

(b)GritPteLtdStatementofFinancialPositionasat30June2022Assets $ $ $ Non-currentAssets Cost AccumulatedDepreciation NetBookValue(23,000+11,060)Officeequipment 78,300 (34,060) 44,240[1](8,360+6,300)Fixturesandfittings 42,000 (14,660) 27,340[1]TotalNon-currentAssets 71,580CurrentAssetsInventory 31,640Tradereceivables(81,500–1,500) [1] 80,000LessAllowanceforimpairmentoftradereceivables(5%X80,000) (4,000)NetTradereceivables 76,000 [1]Prepaidadvertising(1200/6X2) [1] 400TotalCurrentAssets 108,040TotalAssets 179,620EquityandLiabilitiesShareholders’EquitySharecapital,180,000ordinaryshares[1] 90,000Retainedearnings(22,390–3,600[1]+6,310[OF1]) 25,100TotalShareholders’Equity 115,100Non-currentLiabilitiesLongtermborrowings(50,000–10,000) [1] 40,000CurrentLiabilitiesBankoverdraft 1,380Tradepayables 8,120Currentportionoflongtermborrowings[1] 10,000Commissionincomereceivedinadvance[1] 420Interestpayable(4,000–3,000) [1] 1,000Dividendspayable(0.02X180,000) [1] 3,600TotalCurrentLiabilities 24,520TotalEquityandLiabilities 179,620[13] 2

Question2 (a) CashatbankAccountDate Particulars Dr Cr Balance2022 $ $ $Apr30 Balanceb/d [1] 5300DrApr30 TradereceivableYuesniTrading(Dishonouredcheque) [1] 1800Apr30 Inventory(1010–1110) [1] 100Apr30 Commissionincome[1] 310Apr30 Bankcharges[1] 25 3885Dr 2022May1 Balanceb/d 3885Dr[5] (b)BankReconciliationStatementasat30April2022$ $CreditbalanceasperBankStatement [1] 2385AddDepositsintransitTradereceivableJoJoTrading [1] 2100LessChequesnotyetpresentedUtilities(3017) [1] (600)UpdatedbalanceasperCashatBankAccount 3885 [3] (c) Anyoneofthefollowing(1mark)- Chequehasexpiredasitwasdatedmorethan6monthsago- Chequeispost-datedasthedateonthechequeisafuturedate- Informationonthechequeisnotconsistent,forexample,theamountwritteninnumbersdoesnotmatchamountwritteninwords(orsignatureisdifferentfromtheauthorizedversioninthebank’srecords)- Informationonchequeisnotcomplete,forexample,thereisnodate(oramounttobepaidorsignature)- Thepayer’sbankaccountdoesnothavesufficientfundstomakethepayment/theaccounthasbeenclosed/frozen [1] (d) Commissionincomeincreasesprofitby$310[1]Bankchargesdecreasesprofitby$25[1] [2] [Total:11] 3

Question3(a) Abusinessneedstobeliquidsothatitcanpayitscurrentliabilitiesandoperatingexpenses[1]toensurethatthebusinesscancontinueitsoperationssmoothly.[1] [2](b) 2021 2022Currentratio=Currentassets/Currentliabilities 9,270/4,120=2.25[1] 12,505/12,260=1.02[1] Quickratio=(Currentassets–Inventory–Prepayments)/Currentliabilities (9,270–2,900–250)/4,120=6,120/4,120=1.49[1] (12,505–4,300–120)/12,260=8,085/12,260=0.66[1] [4] (c) Commentsonliquidity(1markforeachcomment,maximum4marks) - Currentratiohasworsenedfrom2.25in2021to1.02in2022. - Currentratioin2022isbelowthegeneralbenchmarkof2indicatingthatthebusinesshasinsufficientcurrentassetstopayshort-termdebtsin2022. - Quickratiohasworsenedfrom1.49in2021to0.66in2022. - Quickratioin2022isbelowthegeneralbenchmarkof1indicatingthatthebusinesshasinsufficientquickassetstopayshort-termdebts. - Liquiditymayhaveworsenedin2022duetothe5%bankloanof$5,000whichisrepayablein2023andcausedcurrentliabilitiestoincreasein2022. - Anotherreasonfortheworseningliquidityin2022isduetothecashatbankbecominganoverdraftof$1,000in2022. - Onereasonthathascontributedtotheworseningquickratioistheincreaseininventoryfrom$2,900in2021to$4,300in2022. - Onereasonfortheworseningcurrentandquickratioin2022isduetotheincreaseintradepayableof$3,840in2021to$5,940in2022. [4] (d) Proposal1willimprovetheliquidityby$5,000becausethereceiptofcashfromthesalewillincreasecurrentassets. [1] Thelossonthesaleofthemotorvehicleof$3,000($8,000–5,000)willreduceprofitby$3,000asitisanexpense. [1] Proposal2willnotimprovetheliquidityofthebusinessbecausethereceiptofcashwhichincreasescurrentassetsiscancelledoutbytheincreaseincurrentliabilitiesastheloanisashort-termloan. [1] Theloanwillincurinterestexpensewhichwillreduceprofit. [1] [4] 4

[Total:14]Question4 (a)TradepayableZelahAccountDate Particulars Dr Cr Balance2022 $ $ $Jul 1 Balanceb/d 1,500CrJul 3 Inventory[1] 2,600Jul15 Capital(1500+2600) [OF1] 4,100Jul20 Inventory(90%X6,200) [1] 5,580Jul22 Inventory(90%X700) [1] 630Jul28 Cashatbank(4,950X98%) [1] 4,851Jul28 Discountreceived(4,950X2%) [1] 99 - [6] (b) 20July2022–Invoicereceived[1]22July2022–Creditnotereceived[1] [2] (c) JaycelshouldbuythepotsfromRizharTrading. [1] Anythreeofthefollowingpoints: RizharTradingoperatesinSingaporeandthedeliveryfromalocalsupplierwillbemorereliablecomparedtoanoverseassupplier. [1]ThiswillenableJayceltobemoreconfidentofthepotsbeingdeliveredontimetosatisfycustomers’demandsandhelpthebusinessimproveitsreputationtoattractmorecustomerstohelpthebusinessearnmoresalesrevenue.[1] RizharTradingallowspotspurchasedtobereturnedwithinthreemonthswhereaspotspurchasedfromBtriceInternationalcannotbereturned. [1]ThiswillenableJayceltoreturnthepotsifshefindsthemunsuitableordamagedandshewillnotneedtoincurimpairmentlossoninventoryforpotsthatmayneedtobesoldatbelowcostpricebecausetheyarenotattractivetocustomersordamaged.[1] RizharTradinggivesacashdiscountof2%forpaymentsmadewithin7days. [1]ThiswillenableJayceltoearndiscountreceivedasasourceofotherincomeifsheisabletomakethepaymentwithinthediscountperiodwhichwillhelpherearnmoreprofits. [1] RizharTradingisareputablesupplierwhohasbeeninbusinessforalongtime,overtwodecades. [1]ThismeansthatJaycelcantrustRizharTradingtoprovidegoodcustomerservicesanddeliverqualityproductstohelpherrunherbusinessoperationsmoresmoothly. [1] Or 5

JaycelshouldbuythepotsfromBtriceInternational. [1] Anyofthethreefollowingpoints: IfJaycelbuys50potsfromBtriceInternational,thecostis(50X$48)+400=$2,800comparedtothecostofbuying50potsfromRizharTradingwhichis(50X$60)=$3,000. [1]Thereisacostsavingsof$200(3,000–2,800)whichwillenableJayceltoearnmoreprofits. [1]AndifJaycelbuysmorethan50pots,thecostsavingswillbeevenmoreifshebuysfromBtriceInternational. BtriceInternationaldoesnotimposeaminimumquantityforpurchasewhereasRizharTradinghasaminimumquantityof50potsperorder. [1]IfJaycelbuysfromBtriceInternational,shehasmoreflexibilityinthequantityforeachorderandsheneednotbeforcedtoorderatleast50potseachtime.Thiswillhelpherimproveontheefficiencyofherinventorymanagementasshecanorderthequantitythatshedeemsoptimal. [1] BtriceInternationalallowsJayceltoowefor30dayscomparedto21daysbyRizharTrading. [1]Alongerperiodof9dayswillhelpJaycelwithhercashflowasshecanoweforalongerperiodandusehercashformoreurgentuses. [1] BtriceInternationalhasbeentradingforthreeyearsandhasreceivedpositivefeedbackonitsproductsandcustomerservices. [1]JaycelcantrustthatBtriceInternationalisareliablesupplierandcanbereliedupontodeliverqualityproductsandprovidegoodcustomerservicestohelpherrunherbusinessoperationssmoothly. [1] [Total:15] 6