MI 2022 PU3 Prelimininary Examination 1 QP

2022 Preliminary Examination Pre-university 3 PRINCIPLES OF ACCOUNTING 9593/01 Paper 1 15 September 2022 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 answer 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 Gotham Supplies Limited deals in parts used for maintenance of motor vehicles. The business has the year-end date of 30 June 2022. At the end of June 2022, their accountant had calculated a net profit for the year of $60 884. No adjustments had been made for the following transactions. i. Closing inventory was valued at a cost of $12 760. On inspection, it had a net realisable value of $9 420. ii. Inventory costing $4 000 had been sent out on a sale or return basis to Joko Pte Limited, had been included in cost of sales. The accountant had also recorded it as a credit sale at a gross margin of 20%. iii. The business paid $480 to settle a bill of $500 from Black & Yellow, its supplier. iv. The business issued 100 000 ordinary shares of $0.50 each. REQUIRED a Copy the following table into your answer booklet and analyse transactions (i) to (iv) to show the effect upon the appropriate categories. Categories Transaction Total assets Profit Working capital Equity Increase Decrease Increase Decrease Increase Decrease Increase Decrease $ $ $ $ $ $ $ $ (i) (ii) (iii) (iv) [8] Gotham obtained the following information on two other business in the same industry with the same long-term finance: Gotham Hot Wheels Gears N Such $ $ $ 6% Bonds 400 000 300 000 - 8% Preference shares 400 000 300 000 400 000 $1 ordinary shares 200 000 400 000 600 000 Net profit before calculation of interest is $100 000 in each case.

3 REQUIRED b Assume that all of Gotham’s profits are to be distributed, how much ordinary dividend is payable by Gotham altogether? [2] c Which of the three companies is most highly geared? Support your answer with computation of relevant ratios. [2] d Explain the risks associated with high gearing. [4] e In years of high profits, is it better to be an ordinary shareholder or bond holder? Why? [2] f Apart from shareholders and investors, suggest two other stakeholde