MI 2022 MYE Paper 1 QP

Section A Answer all questions in this section 1 Wheels & Deals Private Limited trades in premium motorcycles. On 30 April 2021, there was a fire in its warehouse and only one unit of motorcycle costing of $14 000 located in its showroom was salvaged. I ts accounting records for inventory which were kept in the warehouse were also destroyed. The following information has been pieced together: Balance sheet extracts at 31 December 2020: $ Inventory 153 000 Trade receivables 162 000 Trade payables 124 000 Other information for the accounting period 1 January 2021 to 30 April 2021: $ Cash sales 70 000 Receipts from credit customers 420 000 Payments to credit suppliers 288 000 The following balances at 30 April 2021 are available: $ Trade receivables 154 000 Trade payables 130 000 The firm sells its goods at a margin of 20% on sales. REQUIRED a A calculation of the cost of the inventory destroyed. [8] Additional Information The company uses the first – in first - out method of valuing its inventory. The cost price of its inventory, motorcycles, has been steadily increasing in the recent months. The director proposes that the company should change to the weighted average cost method instead. Below are its transactions for May to December 2021. 2021 Purchases Sales May 2 at $20 000 each June 1 at $30 000 September 3 at $23 000 each October 3 at $36 000 each November 2 at $24 000 December 1 at $37 000

2 REQUIRED b Compute the value of its inventory as at 31 December 2021 using: (i) First-in first out (ii) Weighted average cost [6] c Explain the impact of rising prices on cost of inventory and gross profit when using the first – in first – out method of valuing inventory [4] d Explain an advantage of using the weighted average cost method of valuing inventory in times of rising prices. [2] [Total: 20] [Turn over

3 2 Wanderlust Pte Limited provides travel services in the form of tour packages to Asia. The trainee accountant has extracted the following balances for the year ended 30 June 2022. $ Computer and office equipment: Cost 260 000 Accumulated depreciation at 1 July 2021 54 000 Sales of holiday packages 1 269 300 Payments to travel companies 650 000 Rental of shop premises 220 600 Staff salaries 90 500 Share capital 80 300 Retained losses at 1 July 2021 10 000 Dividends 18 100 Operating costs 192 700 Trade receivables 35 100 Trade payables 17 900 Bank overdraft 46 500 The following additional information is to be taken into account before preparing the final accounts for the year. 1 New office equipment cost ing $8 000 was purchased just before the year end. This had been debited in error to the operating costs account. Wanderlust’s policy is to charge depreciation at th