Deyi 4EXP Prelim Paper 1 2024 Answers

Deyi Secondary School Secondary 4E/5NA Prelim Paper 1 MARK SCHEME 1 Frosty Slushies has a financial year end on 31 March 2024. The following ledger account has been prepared. REQUIRED (a) Interpret each of the entries in the sale of equipment account. (i) Equipment On 31 March 2024, the original cost of the equipment sold is $20 000. [1]/ On 3 March 2024, the business sold an equipment that cost $20 000. [1]. (ii) Accumulated depreciation of equipment The equipment being sold on 1 January 2024, had a total depreciation of $3 800 to date. [1] (iii) Other receivables- Freezie The disposal proceeds of the equipment sold on credit to Freezie was $24 500. [1] OR The equipment sold to Freezie on credit was for $24 500. [1] (b) State the effect and amount of the sale of equipment on the following: (i) The net book value of the non-current assets will decrease by $16 200. [1] (ii) Profit will increase by $8 300. [1] (c) Define ‘depreciation’. Depreciation is the allocation of cost of a non-current asset over its estimated useful life. [1] Sale of equipment Date Particulars Debit $ Credit $ Balance $ 2024 Mar 31 Equipment 20 000 20 000 Dr Accumulated depreciation of equipment 3 800 16 200 Dr Other receivable-Freezie 24 500 8 300 Cr Income summary 8 300 -

2 (d) Name and explain an accounting theory why Frosty Slushies needs to provide for depreciation on its non-current assets. According to the matching theory [1], expenses incurred must be matched against the income earned in the same period to determine the profit for the period (Definition). As the non-current assets are being used to generate income, a portion of the cost of using the non- current asset (depreciation expense) should be matched to the income earned in the same financial period to determine the profit for the period(Link). [1] OR According to prudence theory [1], the business should not overstate the value of its assets and profits (Definition), hence the business should record the loss in value of the assets by providing for depreciation (Link). [1] (e) State two non-accounting information a business should consider when deciding to purchase a non-current asset. Purpose of non-current assets [1] Features of non-current assets [1] Customer reviews of the non-current assets [1] Warranty of non-current assets [1] Any 2 of the above. [Total : 10]

3 2 Evermore Gym took up a $150 000 loan from Infinity Bank at an interest rate of 2% per annum