2022 QTSS 4E5NA Prelims P1 ANS

[Turn over Marking Scheme 2022 Prelims P1 Sec 5NA 1 Wanda runs Scarlet Witch Bakery. She rents a shop to expand her business. Her business has a financial year end of 31 March. The following information has been provided. Rent expense account Date Particulars Debit $ Credit $ Balance $ 2021 Apr 1 Rent expense payable 600 600 Cr 2022 Jan 31 Cash at bank 30 500 29 900 Dr Mar 31 Prepaid rent expense 5 900 24 000 Dr 31 Income summary 24 000 REQUIRED (a) Interpret the entries on the following dates. (i) 1 April 2021 Rent expense payable of $600, incurred for the year ended 31 March 2021/ previous financial year, was reversed and deducted from rent expense in the current year. [1] (ii) 31 March 2022 $5900 of rent expense which was paid in advance but not yet incurred was deducted from the rent expense account in the current year. [1] Scarlet Witch Bakery/ The business incurred rent expense of $24000 and the amount is closed/transferred to income summary account. [1]

2 On 1 April 2021, Scarlet Witch Bakery has $800 of commission received in advance. During the year ended 31 March 2022, the business received cheques amounting to $4 200 for commission income. On 31 March 2022, the business still has not received $1 200 of commission income earned. REQUIRED (b) Calculate the amount of commission income earned for the year ended 31 March 2022. Show your workings clearly. Commission income earned = -800 (commission received in advance) [1] + 4200 (commission received) [1] + 1200 (commission receivables) [1] = 6200 (c) Prepare journal entries to adjust the commission income for the year ended 31 March 2022. A narration is not required. Journal Debit $ Credit $ 2022 Mar 31 Commission receivables 1200 [1] Commission income 1200 [1] (d) State and explain the accounting theory that is applied when adjusting the commission income for the year ended 31 March 2022. Name: Accrual basis of accounting theory [1] Explanation: Income is recorded when it is earned regardless of whether cash has been collected or not. Since commission income is earned although cash has not yet received, it has to be recorded. [1] OR Name : Matching theory [1] Explanation: Income earned is matched against the expense incurred so that profit can be calculated. Since commission income is earned, it has to be recorded. [1] [Total:10]

3 [Turn over 2 The following trial balance was extracted from the books of Dr Strange Ltd on 31 July 2022. $ Sales revenue (I) 51 500 Cost of sales (Ex) 25 600 Motor vehicles (A) 29 700 Bank overdraft (L) 2 900 Share capital (Eq) 10 000 Trade receivables (A) 8 100 Trade payables (L) 2 400 Commission income (I) 300 Motor vehicle expenses (Ex) 5 700 Retained earnings (Eq) 2 000 The following errors were discovered after the trial balance was