Meridian Sec 2024 POA P1 MS

2024 4E5N Prelim Exam Paper 1 Marking Scheme1 (a) (i) Accountants -Prepare and provide accounting information for decision-making / set up an accounting information system [1]-act as stewards of the business in managing the resources of the business on behalf of the owners. [1](ii)An accountant with integrity [1] is straightforward and honest in all professional relationships. [1]ORAn accountant who is objective [1] will not let bias, conflict of interest or the undue influence of others override his or her professional judgement. [1](b)StakeholdersDecision stakeholder may makeOwners and shareholdersWhether to continue to invest in the business or sell the business, depending on the risks and returns related to the businessManagersWhether to consider ways to improve the performance of the businessEmployeesWhether to continue working at the businessLendersWhether to grant loans to the business, depending on the business’ ability to repay the loan principal and pay interestSuppliersWhether to sell to the business on credit, depending on its ability to payCustomersWhether to buy from the business, depending on the business’ ability to provide the goods and/or services that they need and good after-sales serviceGovernmentWhether the business complies with the tax regulations and decides the amount of tax to collect from the businessCompetitorsWhether they are comparable to the business and how to improve their own performanceAny one of the stakeholders above [1] with the explanation. [1](c)2. Journals [1]3. Ledgers [1]4. Trial balance [1](d) Accounting entity theory. [1] The activities of a business are separate from the actions of the owner. [1] OR All transactions are recorded from the point of view of the business. [1]

2(a) Cash at bank accountDateParticularsDebit (+)$Credit (-)$Balance$2023Sep 30Balance b/d19 000 Dr [1]Rent expense (Error)810 [1]Marianne Ho 4 170 [1]Interest income40 [1]Oct 1Balance b/d15 680 Dr(b) Bank Reconciliation statement as at 30 September 2023 $Balance as per bank statement 11 090 [1]Add: Deposit in transit – CH Agency[1] 7 540Less: Unpresented cheques – Utilities expense [0.5] (550) - WK Retail [0.5] (2 400)Adjusted balance as per cash at bank account [1] of 15 680(c)Adjusted profit = $8 400 + $810 [1] + $40 [1] = $9 250

3 (a)Capital ExpenditureRevenue ExpenditureCost to buy and bring the non-current asset to a ready-to-use conditionCost to operate, repair and maintain the non-current asset in working conditionProvides benefits that last for more than one yearProvides benefits which will be used up within one year Recorded as a non-current asset in the statement of financial position Recorded as an expense in the statement of financial performanceAny pair of difference above. [2](b) (i)Matching theory [1]When a business uses non-current assets to generate income, a portion of the cost of the non-current asset has to be recorded as depreciation expense so as to match this expense against the income earned in the same financial period to arrive at the profit for the period. [1]ORPrudence theory [1]Non-current assets are depreciated so as not to overstate the profit and asset. [1](ii)Gain or loss on sale of non-current asset = Sale proceeds – Net book valueNet book value = Cost – Accumulated depreciation = $60 000 – (20% x $60 000) [1] = $48 000 [1]Loss on sale of non-current asset = $48 000 - $10 000 = $38 000 [1] (iii)Profit will be overstated by $38 000. [1] of (iv) Motor vehicles accountDateParticularsDebit (+)$Credit (-)$Balance$2023Jan 1Balance b/d120 000 Dr [1]Feb 7Sale of non-current asset60 000 [1]Apr 1Trade payable - Lee Motors 88 000 [1]2024Jan 1Balance b/d148 000 Dr 4 (a) (i) Working capital = Current assets – Current liabilities

= ($9 000 + $7 400) – ($2 100 + $10 000 + $16 000 + $1 000) = $16 400 - $29 100 = - $12 700 [1](ii) Current ratio = CA / CL = $16 400 / $29 100 = 0.56 [1](iii) Quick ratio = (CA – Inventory – Prepayments) / CL = $9 000 / $29 100 = 0.31 [1](b)*Working capital has worsened from - $1 850 to -$12 700 over the two years, 2022 to 2023. [1] *Current ratio has worsened from 1.62 to 0.56 from 2022 to 2023. [1] This implies the business has lesser assets to cover the liabilities. [1]For both 2022 and 2023, the business’ current ratio falls below the benchmark of 2. [1]*Quick ratio has worsened from 0.85 to 0.31 over the two years, 2022 to 2023. [1]This implies that the business has lesser quick assets to cover its liabilities. [1]For both 2022 and 2023, the business’ quick ratio falls below the benchmark of 1. [1]Hence, the liquidity has been bad and deteriorated from 2022 to 2023. [1]