MI 2023 Prelim Examination P1 QP and Ans

2023 Preliminary Examination Pre-University 3 PRINCIPLES OF ACCOUNTING 9593/1 Paper 1 30 August 2023 3 hours READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional paper, ask the invigilator for a continuation booklet. Section A Answer all questions. Section B Answer all questions. Start each answer on a new page. You may use a calculator. All calculations must be shown adjacent to the answer. The number of marks is given in brackets [ ] at the end of each question or part question. ___________________________________________________________________________ This document consists of 9 printed pages and 1 blank page. [Turn over

2 Section A Answer all questions in this section 1 Kuat Pte Limited imports and programmes components for the electronics industry. On 31 March 2023 , a short -circuit caused an electrical fire which burnt part of the warehouse of Kuat Pte Limited. Only $47 000 worth of inventory was salvaged. The accountant, Riya was able to get the following financial information, based on records kept in the office. 31 December 2022 31 March 2023 Inventory $145 000 ? Trade Receivables $70 000 $55 000 Trade Payables $62 000 $65 000 Riya was also able to provide the following information for the above period, based on records that were kept in another office: $ Cash sales 45 000 Receipts from credit customers 110 000 Payments to credit suppliers 134 000 The company maintains a mark-up of 25% on cost. REQUIRED (a) Determine the value of inventory damaged on 31 March 2023. [7] (b) During a recent meeting between managers in the purchasing department and production department, concerns about holding large quantity of inventory in the warehouse was surfaced. Other than damage to inventory due to fire, state three other concerns which management might have with keeping large amounts of inventory. [3]

3 Additional information Following the preparation of the company’s accounts, it was discovered that some adjustments needed to be made. 1 There were 3 units that had been valued at a cost of $20 00 each. However, these units had not been programmed correctly. Each unit will require an upgrade that will cost $150 to make them into a saleable condition. These units can only be sold for $1500 each. 2 Of the units held in inventory, 2 units that cost $2000 each were damaged and had to be scrapped. 3 The company had received goods on credit to the value $3500 during the last week of April and had recorded them correctly. This inventory, however, had not been included in the inventory count. 4 There were 4 completed units costing $2000 each that had been sent to a customer on a sale or return basis. These units had been included in the closing inventory figure but at a selling price of $3250 per unit. REQUIRED (c) Copy the following table into your answer. Adjustment Inventory Profit 1 2 3 4 Complete the table by placing ‘increase’ or ‘decrease’ to indicate the effect of each adjustment on inventory and profit. [4] Additional information The auditors have highlighted a possible question regarding a contract of $25 000 that has been included in the sales figure for the year ended 31 December 2023. The components already supplied by Kuat Pte Ltd specifically for this contract have been identified as highly flammable and will be returned as faulty goods in the future. REQUIRED (d) (i) Advise the financial director of the possible impact of recording the sales in the income statement for the year. [3] (ii) Recommend three adjustments that should be made to the accounts based upon your advice. [3] [Total: 20] [Turn over

4 2 Hilmy, the finance director of a company is preparing the company’s final accounts. He has produced draft accounts for his company which showed a profit of $ 332 000 for the year ended 31 March 2023. The following two invoices have now been submitted and adjustments will be required to be made to the accounts: 1 An invoice for $36 000, which consists of the purchase of a new machine and $2 500 for the repair of an older machine. 2 A contractor’s invoice totalling $38 900. This is made up of $12 500 for replacing and repairing existing wiring. The balance is for improving and extending the lighting in the loading bay area. REQUIRED (a) Discuss the differences between capital expenditure and revenue expenditure and state how each is treated in the financial statements. [4] (b) Calculate the revised profit figure for the year. There is no charge for depreciation on non-current assets in their year of acquisition. [3] Additional information 1 The company is planning to spend $60 000 on advertising a new product to be launched next year. The marketing director suggests that the advertising should be treated as a capital expenditure and to write off this expenditure in equal instalments over a three year period. 2 The company charges depreciation using the following methods. Land and buildings - no depreciation Plant and machinery - reducing balance method Motor vehicles - straight line method REQUIRED (c) Explain how the above advertising costs should be treated in the final accounts. Support with any relevant accounting concepts. Show the effects of treating this expenditure as a capital expenditure in the company’s financial statements. [5] (d) Explain why different methods of depreciation are used for plant and machinery and motor vehicles. [4] (e) Discuss whether land and buildings should be depreciated. Support with relevant concepts and analysis. [4] [Total: 20]

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6 3 Kayvani Pte Ltd is considering raising borrowings to purchase a new building for its distribution business during 2023. The estimated cost is $1.5 million for the building and an extra $300 000 worth of new inventory to be held inside. The costs will be met from the following funding methods: 1 Raise $750 000 from a 20- year mortgage secured upon the new building. No interest or repayments will be due during the year of commencing the mortgage. 2 Issue additional 400 000 $1 ordinary shares. 3 Take a 6% per annum long-term loan for $350 000. The loan will be repayable in equal instalments over 10 years’ time. Half of the new inventory will be paid from existing company cash and the balance will be raised through increased trade payables. Balances from the previous accounts are as follows: $ Issued share capital $1 ordinary shares 3 000 000 Asset revaluation reserve 1 000 000 Retained earnings 1 700 000 Short-term liabilities 2 400 000 Trade payables 1 200 000 Forecast profit for the year ending 31 December 2023 is $800 000. Forecast dividend to be paid is $0.15 per share for all shares issued. As part of the accounting team, you have been asked to consider the impact the new financing will have upon the company based upon the following questions raised by your financial director.

7 REQUIRED (a) Calculate the first year’s interest payable on the ne