2024 CTSS Prelim 4E5N P2 Ans

1 CTSS 2024 4E5N PrelimPaper 2 Suggested SolutionsQuestion 1(a)Ping Consultancy Services Pte LimitedStatement of financial performance for year ended 31 December 2023$$Consultancy fee revenue (-8200)106 800Other incomeAdvertising income4 700Less: Other expensesRental expense36 000Utilities expense (-600)23 000Wages and salaries (+2000)29 000Depreciation of fixtures and fittings [(90 000 – 20 000)/10] 7 000Depreciation of office equipment [15% x (22 000 – 8 000)]2 100Reversal of impairment loss on trade receivables [5% x (22 500 -0) – 2 200](1 075)Interest expense (9/12 x 6% x 10000)45096 475Profit for the year15 025

2 (b)Ping Consultancy Services Pte LimitedStatement of financial position as at 31 December 2023AssetsCostAcc DepNBVNon-current assets$$$Fixture and fittings90 000(42 000)48 000Office equipment22 000(10 100)11 90059 900Current assetsTrade receivables 22 500 Less: allowance for impairment of trade receivables(1 125)21 375Prepaid utilities 600 Cash at bank7 40029 375Total assets89 275Equity and liabilitiesShareholder’s equityIssued share capital, 120 000 ordinary shares 30 000Retained earnings (17 700+15 025 OF – 3 600)29 42559 425Non-current LiabilitiesLong term borrowings10 000Current LiabilitiesTrade payables5 900Consultancy fee received in advance8 200Wages and salaries payable 2 000Dividends payables (120 000 x 0.03)3 600Interest payable45019 850Total equity and liabilities89 275 [Total: 20]

3 Question 2(a) Any two of the following: Usage Wear and tearObsolescenceLegal limits(b) Any two of the following: Purpose of non-current assetFeatures of non-current assetCustomer’s reviewWarranty(c)Matching Theory In line with the matching theory, a portion of the original cost of the non-current asset is recorded as depreciation expense, so as to match against the income earned in the same financial period to determine the profit for the period. (d)Depreciation for first year = 10% x (8000 – 0) = 800Depreciation for second year = 10% x (8000 – 800) = 720Total depreciation = 800 + 720 = 1520 Loss on sale of motor vehicle = 4600 – (8000 – 1520) = - 1880 (e)Depreciation expense = 10% x [ (72000 – 8000) – (34000 – 1520) ]  = 3152 (f)Any one of the following: Capital expenditureRevenue expenditureDefinitionExpenditure incurred to increase earning capacity of the businessExpenditure incurred to maintain productive life of non-current assetsConsists ofCosts to buy and bring the non-current assets to their intended useCosts to enhance the non-current assetsCosts to operate, repair and maintain the non-current assets in working conditionBenefits Provides benefits for more than a yearProvides benefits which will be used within one yearRecorded asNon-current assets in the Statement of Financial PositionExpense in the Statement of Financial Performance(g)(i)The profit will be understated by $26700 (ii) The non-current asset will be understated by $26700 [Total: 14]

4 Question 3(a)Rate of inventory turnover= cost of sales / average inventory = 109000 / (42500 + 47400)/2= 2.42 times (b)PLeon’s rate of inventory turnover of 2.42 times is worse than Kid’s World of 3.71 times. EThis will imply that Leon is selling the clothes slower than Kid’s World. ELeon is also more likely to incur excessive storage costs and inventory obsolescence.LIn conclusion, Leon is managing his inventory less efficiently.(c)Any one of the following: Reduce selling price for slow moving goods.Provide trade discounts to encourage customers to buy in bulk and regularly.Attract more customers through marketing campaigns.Use technological tools to implement inventory monitoring system to replace inventory on a timely basis and accurately predict customer demand.(d)Error 1Debit$Credit$Cash at bank180  Salaries180 Error 2Debit$Credit$Cash in hand1400 Interest income1400 (e)Overstated$Understated$No effectError 3270 Error 44700  [Total: 14]

5 Question 4(a)A business buys sufficient inventory to keep on hand to prevent at stock-out situation, which often results in a loss of sales.(b)Account to be debitedAccount to be creditedInventory Trade payables  (c)Cost of sales = $3600 + $6000 + $7000 (for any 2) = $16600 (90) (125) (155)(d)Decision Kalina should buy B Strong. Basic statementThe cost per tin is $25. This is cheaper than HS Energy, which cost $30. DevelopmentThe cost savings can be used for other business expenses or business operations. Basic statementThe days sales in inventory turnover at 12.3 days is better than that of HS Energy at 14.9 days. DevelopmentThis means that B Strong is popular and is selling faster than HS Energy allowing Kalina to have potential increase in sales.Basic statementB Strong contains A2 protein that can help babies to digest easily. DevelopmentAs customers are looking for milk powder that helps with babies digestion, this will suggest that B Strong will have a strong demand and is likely to enjoy strong sales.1 decision + any 3 pairs of basic statement & development points for 7 marks.

6 Alternative:Decision Kalina should buy HS Energy. Basic statementHS Energy’s gross profit margin at 50% which is higher than B Strong’s at 30%. DevelopmentThe higher gross profit margin will mean that Kalina is making more gross profit for every dollar of net sales revenue. ORThis suggests that Kalina can charge a higher selling price for the HS Energy as the customers are willing to pay for the higher price. Basic statementHS Energy must be consumed within 21 days after the container is opened compared with 45 days for B Strong.DevelopmentAs the customers prefer milk powder with a shorter expiry date, this will mean that HS Energy will be a better choice which will translate to higher sales.Basic statementHS Energy contains DHA that helps brain and eye development.DevelopmentAs customers are looking for milk powder that helps with growth development, this will suggest that HS Energy will have a strong demand and is likely to enjoy strong sales.1 decision + any 3 pairs of basic statement & development points for 7 marks. [Total: 12]