Deyi 4E5NA Ans Prelim Paper 2 2024

Deyi Secondary School Principles of Accounts Secondary 4E5NA Prelim Exam 2024 Mark Scheme : Paper 2 Question 1 1(a) [10] Clifford Legal Pte Limited Statement of Financial Performance for the year ended 31 March 2024 $ $ Service fee revenue ($35 800 – $500) 35 300 [1] Other income: Commission income ($6 200 - $600) 5 600 [1] Gain on sale of non-current asset 500 [1] 41 400 Less: Other expenses Rent expense (12 000 - $2 400) 9 600 [1] Wages and salaries 18 600 [1] General expense 1 200 [1] Interest expense ($8 000 + $2 500) 10 500 [1] Depreciation of office equipment 14 000 [1] Depreciation of motor vehicles 16 200 [1] Impairment loss on trade receivables 3 775 [1] 73 875 Loss for the year (32 475)

1b. [10] Clifford Legal Pte Limited Statement of Financial Position as at 31 March 2024 $ Cost $ Accumulated Depreciation $ Net Book Value Assets Non-current assets Office equipment 96 000 42 000 (28 000 + 14 000) 54 000 [1] Motor vehicles 248 000 156 200 (140 000 + 16 200) 91 800 [1] 145 800 Current assets Trade receivables ($80 300 - $2 000) 78 300 Less: Allowance for impairment of trade receivables (5% x $78 3000 (3 915) [1] 74 385 Prepaid rent expense 2 400 [1] Cash at bank 8 000 Cash in hand 3 200 87 985 Total Assets 233 785 Equity and liabilities Shareholder’s equity Share capital, 100 000 ordinary shares 100 000 Retained earnings ($50 160 -$3 000 – $32 475) 14 685[1] 114 685 Non-current liabilities Long-term borrowings (105 000 – 21 000) 84 000 [1] Current liabilities Trade payables 8 000 Commission income received in advance 600 [1] Interest expense payable 2 500 [1] Dividend payable 3 000 [1] Current portion of long-term borrowings 21 000 [1] 35 100 Total equity and liabilities 233 785

Question 2 2(a)(i) [1] On 30 November 2022, the business provided services for $21 000 to customers on credit. [1] 2(a)(ii) [2] On 30 September 2023, the business received service fee revenue of $ 1 000 in advance for service that it has not rendered for the accounting year [1]. On 30 September 2023, the business earned service fee revenue of $83 000 for the current accounting year [1]. 2(b) [2] Revenue recognition theory [1]. Revenue is earned when goods have been delivered or when services have been provided [1]. OR Accrual basis of accounting [1] According to the accrual basis of accounting, income is recognised when it is earned rather than when the amount is received [1] OR Matching theory [1] Expenses incurred must be matched against income earned in the same period to determine accurate profit for the period [1] 2(c) [6] Journal Date Debit $ Credit $ 2023 Sep 30 Trade payable Raja 100 [1] Discount received 100 [1] Sep 30 Loan interest expense 5 000 [1] Bank loan / long-term borrowings 5 000 [1] Sep 30 Cash in hand 3 000 [1] Capital 3 000 [1]

2(d) [3] Error 1 : Profit is understated by $100 [1] Error 2 : Profit is overstated by $5 000 [1] Error 3 : No effect [1] 2(e) [1] Adjusted profit = $8 700 + $100 - $5 000 = $3 800 [1]

Question 3 3(a) [5] Trade receivable Jade account Date Particulars Dr $ Cr $ Balance $ 2024 July 1 Balance b/d 500 Dr [1] 4 Cash at bank (98% x $500) 490 [1] 10 Dr Discount allowed (2% x $500) 10 [1] 0 12 Sales revenue (75% x $800) 600 [1] 600 Dr 13 Sales revenue (75% x $120) 90 [1] 690 Dr Aug 1 Balance b/d 690 Dr 3(b) [1] This is because the level of trade receivables will indicate the business’ ability to pay for the goods that it bought from the suppliers on credit [1] OR If trade receivables are high, it may indicate adequate funds to pay trade payables eventually [1] OR If trade receivables are high, it may be a sign of good business and this will give suppliers the confidence to trade with the business. [1] OR Trade payables might be concerned if trade receivable amount is high due to risk of default payments and this will affect the liquidity of the business. [1] 3(c) [1] Rate of inventory turnover for 31 December 2023: Cost of sales / average inventory = 145 000 ------------------------- (12 000 + 5 000)/2 = 17.06 times [1]

3(d) [5] 31 December 2021 31 December 2022 31 December 2023 Rate of inventory turnover 22.67 times 12.22 times 17.06 times The rate of inventory turnover has worsened from 22.67 times in 2021 to 12.22 times in 2022. However, it improved from 12.22 times in 2022 to 17.06 times in 2023. [1] This means that in 2022, business sold and replaced its inventory fewer times compared to 2021. [1] The business may be buying too many goods and was unable to sell them due to reasons such as poor promotion efforts.[1] In 2023, the business’ efficiency in managing its inventory improved slightly and this means that the business was able to sell and replace its inventory faster than in 2022. [1] This could be due to reasons such as lower selling price and better marketing campaigns to increase sales volume. In conclusion, the business’ efficiency in managing its inventory is not consistent over the three years. It got worse in 2022 and improved in 2023. [1] 3(e) [3] [1m for one reasonable and logical explanation, maximum 3 points] Suggestion 1: Offering trade discount will make Adam’s goods attractive to the customers. The business might be able to achieve higher sales volume, and this will have a positive impact of the business’s profitability. [1] However, offering trade discount to all customers may diminish its appeal to loyal customers , as it would no longer be a special privilege for them. This could lead to losing these loyal customers to competitors who provide more attractive incentives to encourage regular patronage and loyalty. [1] Suggestion 2: Offering credit terms to customers can be very attractive, as it allows them to obtain goods without immediate cash payment. This will be an incentive for them to buy more goods, thus leading to higher inventory turnover. [1] However, o ne possible setback is the lack of thorough screening for credi tworthiness of trade receivables. This could lead to higher payment defaults and impairment loss on trade receivables, which will affect profitability and liquidity of the business. [1] Another possible setback is not all customers may prefer buying on credit terms. Some might prefer to pay cash and not worr y about monitoring the payment date and risk incurring interest on late payments. [1]

Question 4 4(a) [2] Cost price of the batch = $ 4 800 Net Realisable value of the batch = $3 000 - $800 = $2 200 So, value of this batch of inventory must be adjusted from $4 800 to $ 2 200. Hence, reduce by $2 600. Overall value of inventory = $15 500 [1] - $2 600 [1] = $12 900 4(b) [1m for full set of double-entry] Dr. Insurance claim receivable $1 900 Cr. Impairment loss on inventory $1 900 4(c) [7] 1m for decision 1m for each basic statement (maximum of 3m) 1m for development of each basic statement (maximum of 3m) Decision : Shona should buy Power X6 to sell. Basic Statement 1: Power X6 has stronger vacuum suction compared to Slim Xtra. Development 1: Although SlimXtra is equipped with a dust brush, it is average in terms of effectiveness. The stronger vacuum suction from Power X6 will appeal more to customers since many have young families and hygiene will be a priority. This will eventually lead to higher sales revenue for the business in the long run. Basic Statement 2: Power X6 has an adaptor that can clean the tight spaces and will be more effecti ve in cleaning compared to Slim Xtra that has a floor head that is big and less versatile for cle