Deyi 4EXP Prelim Paper 1 2024

1 Frosty Slushies has a financial year end o n 31 March 2024. The following ledger account has been prepared. REQUIRED (a) Interpret each of the following entries in the sale of equipment account. (i) Equipment ……………………………………………………………………………………………………... …………………………………………………………………………………………………..[1] (ii) Accumulated depreciation of equipment ……………………………………………………………………………………..………………. …………………………………………………………………………………………………..[1] (iii) Other receivable- Freezie ……………………………………………………………………………………..………………. …………………………………………………………………………………………………..[1] (b) State the effect and amount of the sale of equipment on the following: (i) Non-current assets ……………………………………………………………………………………..……………[1] (ii) Profit for the year ……………………………………………………………………………………..……………[1] (c) Define ‘depreciation’. ……………………………………………………………………………………..……………………. ………………………………………………………………………………………………..………[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. Name…………………………………………………………………………………………………… Explanation……………………………………………………………………………………………. ………………………………………………………………………………………………………….. ………………………………………………………………………………………………………..[2] (e) State two non-accounting information a business should consider when deciding to purchase a non-current asset. ……………………………………………………………………………………………..……………. ……………………………………………………………………………………………..…………[2] [Total : 10] [Turn over 2 Evermore Gym took up a $150 000 loan from Infinity Bank at an interest rate of 2% per annum on 1 May 202 2 and the amount was deposited in the business’ bank account . The loan is to be repaid equally over 5 years. The loan and interest expense are repayable every year on 30 April 202 3.The financial year of Evermore Gym ends on 31 December. REQUIRED

3 (a) Prepare the journal entry to record the borrowing on 1 May 202 2. Narration is not required. Journal Date Particulars Debit $ Credit $ [2] (b) Calculate the interest expense and the interest expense payable for the two years ended 31 December 2022 and 2023. Show all the workings clearly. 31 December Interest expense Interest expense payable 2022 2023 [4] (c) State the effect on profit if interest expense was not adjusted on 31 December 2023. ……………………………………………………………………………………………………….[1] (d) Name one stakeholder other than banks and lenders, who would be interested in the financial performance of the business. Give a reason for your answer. Stakeholder…………………………………………………………………………………………… Reason…………………………………………………………………………………….……… [2]

4 [Total: 9] [Turn over 3 On 1 June 2023, Minion Private Limited provided the following information. The financial year for the business ends on every 31 May. $ Share capital, 150 000 ordinary shares 300 000 Retained earnings 54 000

5 On 20 August 2023, the business issued 20 000 ordinary shares at $2 each. The business declared a dividend of $0.10 per share to be paid on 15 June 2024 and made a profit of $25 300 for the year ended 31 May 2024. REQUIRED (a) Define the following terms: (i) Share capital …...………………………………………………………………………………………………… ………………………….……………………………………………………………………….[1] (ii) Retained earnings …...………………………………………………………………………………………………… …………………….…………………………………………………………………….………[1] (b) Prepare the journal entry to record the transaction on 20 August 202 3. A narration is not required. Journal Date Particulars Debit $ Credit $ [2] (c) Prepare the retained earnings account for the year ended 31 May 2024.

6 Retained earnings account …………………………………………………………………………………………………………... …………………………………………………………………………………………………………... …………………………………………………………………………………………………………... …………………………………………………………………………………………………………... …………………………………………………………………………………………………………... …………………………………………………………………………………………………………... ………………………………………………………………………………………………………….. ………………………………………………………………………………………………………...[3] (d) Complete the table by placing a tick (√) to show the effect on retained earnings for the following items. When there is no effect, tick (√) the “No effect” column. Increase $ Decrease $ No effect $ (i) Dividends (ii) Issuance of additional shares (iii) Profit for the year [3] [Total: 10] [Turn over

7 4 Linda runs a business selling healthy smoothies. She has provided the following information as at 31 December 2022 and 31 December 2023. 2022 2023 $ $ Inventory 12 500 9 200 Trade receivables 14 500 16 300 Cash at bank 5 000 - Prepaid salaries 3 200 2 100 Long-term borrowing 5 000 4 000 Bank overdraft - 2 000 Equipment (net book value) 35 000 10 000 Current portion of long-term borrowing 1 000 Trade payables 11 800 12 200 Current ratio 2.98 ? Quick ratio 1.65 ? REQUIRED (a) Define ‘liquidity’. ………………………………………………………………………………………………………… ……………………………………………………………………………………………………...[1] (b) Calculate the current ratio as at 31 December 2023. Show your answer to two decimal place. .………………………………………………………………………………………………….......... .…………………………………………………………………………………………………..... [1]

8 (c) Calculate the quick ratio as at 31 December 2023. Show your answer to two decimal place. …………………………………………………………………………………………………........... ………………………………………………………………………………………………….......[1] (d) Evaluate the change in the liquidity of Linda’s business between 31 December 2022 and 31 December 2023. Use the information provided and your answer to part (b) and (c). …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... ………………………………………………………………………………………………….......[5] (e) Suggest two ways Linda could improve the liquidity of her business. …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... …………………………………………………………………………………………………........... ………………………………………………………………………………………………….......[2] [Turn over

9 (f) Other than liquidity ratios, name one profitability ratio that Linda’s business can use to evaluate its perfo