MI 2022 MYE Paper 1 Answer Guide

2022 PU3 Mid-year Examination Paper 1 Mark scheme Question 1 (a) Computation of credit sales Ending balance of Trade receivables = Beginning balance + Credit sales – Receipts from credit customers 154 000 = 162 000 + Credit sales – 420 000 Credit sales = 420 000 + 154 000 – 162 000 = $412 000 Cost of sales = $(70 000 + 412 000) X 80% = $385 600 Computation of purchases Ending balance of trade payables = Beginning balance + Credit purchases – Payments to credit suppliers 130 000 = 124 000 + Credit purchases – 288000 Credit purchases = 130 000 – 124 000 + 288 000 = $294 000 Computation of ending inventory Ending balance of inventory = Beginning balance + Purchases – Cost of sales = 153 000 + 294 000(2m) – 385 600 (4m) = $61 400 9(1m) Cost of inventory destroyed = $(61 400 – 14 000) = $47 400. (1m) (b) Computation of units of closing inventory = (1 + 2 +3 +2) – 5 = 3 (i) Computation of value of inventory under FIFO = (2 units X $24000) + (1 unit X $23 000) = $(48 000 + 23 000) = $71 000 (2m)

(ii) Computation of value of inventory under WAC IN OUT BAL 2021 Units Unit cost($) $ Units Unit cost($) $ Units Unit cost ($) $ May 1 14 000 14 000 2 20 000 40 000 3 18 000 54 000 (1m) June 1 18 000 18 000 2 18 000 36 000 Sept 3 23 000 69 000 5 21 000 105 000 (1m) Oct 3 21 000 63 000 2 21 000 42 000 Nov 2 24 000 48 000 4 22 500 90 000 (1m) Dec 1 22 500 3 22 500 67 500 (1m) Value of inventory under WAC = $67 500. (c) Impact on ending inventory: Higher than under WAC (1m) as the cheaper units bought earlier is assumed to be sold, leaving behind the higher priced units unlike WAC where the prices are averaged. (1m) Impact on gross profit: Higher than under WAC (1m) as the cheaper units are assumed to be cost resulting in a lower cost of sales (1m) and hence a higher gross profit. (d) Advantage of WAC  Averaging of cost smoothens out the monthly ending inventory and profits.  Results in a cost of sales which approximates the current cost of inventory which is a more prudent indicator of future profits in times of rising prices.  More difficult to manipulate profits using WAC. [Any 1 X 2m] Question 2 (a) Wanderlust Pte Limited Income Statement for the year ended 30 June 2022 $ $ Sales of holiday packages (1 269 300 – 31 000) 1 238 300 1m Less: Expenses Payments to travel companies (650 000 – 12000) 638 000 1m Rental of shop premises 220 600 Staff salaries 90 500 Operating costs (192 700 – 8000) 184 700 1m Depreciation [ 20% X (260 000 + 8000)] 53 600 1m Impairment loss on trade receivables 4 200 1m 1 191 600 Net profit 46 700

(b) Balance sheet as at 30 June 2022 $ $ $ $ Non-current Assets Cost Acc Depn Net book value Computer & office equipment 268 000 107 600 160 400 2m Total non current assets 160 400 Current Assets Trade receivables (35 100 +1000)