2024 CTSS Prelim 4E5N P1 Ans

1 CTSS 2024 4E5N Prelim Paper 1 Suggested SolutionsQuestion 1a)Trading business ✔b) Source document6 JuneInvoice ✔9 JuneCredit note ✔15 JuneReceipt/ remittance advice/ payment voucher ✔c)The purpose of a trade discount is to encourage (Any one of the following ✔): ●Customer to buy in bulk●Customer’s patronage●Customer’s loyalty d)Amount owing = (3000 – 600) x 90% = 2160 ✔Percentage of discount received= 2160 – 1836)/ 2160 x 100% = 15% (For correct answer ✔)e)Any two of the following ✔✔:●Payer’s bank account has insufficient funds / is closed / is frozen●Cheque has expired●Cheque is post-dated●Incomplete information on the cheque (missing date / signature / amount paid)●Inconsistent information on the cheque (amount written in figures does not match amount written in words)[Total: 9]

2 Question 2(a)Revenue recognition theory. ✔ Revenue is earned when goods have been delivered or services have been provided. ✔(b)JournalDate2024Debit$Credit$Jun 30Plumbing fee income (86400+1760)88 160 ✔ Income summary88 160 ✔(c)Extract of Statement of Financial Position as at 30 June 2024Current asset ✔$Plumbing fee income receivable 1 760✔(d)(i)1 July 2023Rent expense payable of $3 000 was still owing from the previous financial year ending 30 June 2023 to be paid in this financial year ✔.(ii)23 March 2024There is a cheque payment ✔ of $23 000 for rent expense.(iii)30 June 2024 Rent expense of $5 000 incurred but not yet paid ✔for the current financial year ending 30 Jun 2024.(e)(i)Profit for the year will be overstated by $5000. ✔(ii)The current liabilities will be understated by $5000. ✔[Total: 11]

3 Question 3(ai)CA = 14200 +25000 -1700 +800 +1500 = $39800 CL = 2300 +9100 +10000= $21400 Current ratio = current assets / current liabilities ✔= 39800 / 21400= 1.86 ✔(aii)Quick ratio= current assets – inventory – prepayments / current liabilities ✔= 39800 – 14200 – 1500/ 21400= 1.13 ✔(b)PThe current ratio has worsened from the three years from 2.13 in 2022 to 1.92 in 2023 to 1.86 in 2024. ✔EThis is below the general benchmark of 2 in 2024, which suggest that the business have insufficient current assets to pay for its immediate debts in 2024. ✔PHowever, the quick ratio of the business has improved over the three years from 0.72 in 2022 to 0.98 in 2023 to 1.13 in 2024. ✔ EThis is above the bench of 1 in 2024, which suggest that the business is has sufficient quick assets to pay for its immediate debts in 2024. ✔LIn conclusion, the liquidity of the business has improved from 31 July 2022 to 31 July 2024. ✔(c)Sofia could: 1) Increase sources of cash by obtaining cash contribution from owner or shareholders/ obtain a long-term loan/ sell excess non-current assets for cash. ✔2) Manage cash outflow by reducing operating expenses/ Negotiating for better credit terms from supplier. ✔ [Total: 11]Question 4(a)When the sole proprietor, incurred debts and losses incurred, the sole owner is obliged to pay them using his personal assets. ✔(b)Any one of the f