MI 2020 Prelim P1 QP

2020 Preliminary Exams Pre-University 3 PRINCIPLES OF ACCOUNTING 9593/01 Paper 1 16 September 2020 3 hours Additional Materials: Answer Booklet READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. Do not use staples, paper clip, glue or correction fluid. You may use a calculator. DO NOT WRITE ON ANY BARCODES Section A and Section B Answer all questions. All calculations must be shown adjacent to the answer. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 10 printed pages [Turn over

2 Section A Answer all questions. 1 Perfect 10 Pte Ltd is a small business that owns retail outlets trading in gifts and novelties for the tourist industry. The accountants have recently advised the company that in 2020 the business’s banking facility will be reviewed and this process will require a revaluation of all the non-current assets being employed in its current operations. You are a bookkeeper for the business. The directors have asked you to provide a range of information in preparation for the banking review. REQUIRED (a) Explain how the non-current assets of the business are currently valued in the accounts. [3] (b) Describe how any increase in the value of the non-current assets upon revaluation would be shown in the existing balance sheet. [3] Additional information The following balances on the ledgers are provided for the existing assets and liabilities on 31 December 2019: $ Property at cost 420 000 Accumulated depreciation on property 280 000 Office equipment at cost 106 000 Accumulated depreciation on office equipment 54 000 Trade receivables 13 750 Allowance for impairment of trade receivables 2 250 Trade payables 87 100 Bank overdraft 32 320 Long-term loan 75 000 Inventory held 116 590 Cash in hand 24 771 The current valuation for property provided by an external surveyor is $510 000. REQUIRED (c) Prepare a draft balance sheet as at 31 December 2019 for the existing business using the surveyor’s latest valuation of non-current assets. Include a separate value for: (i) Shareholders capital and reserves (ii) Asset revaluation reserve [8]

3 Additional information The directors now propose to pay a cash dividend of $200 000 to the shareholders on the basis of the property revaluation. REQUIRED (d) Recommend to the directors whether the dividend should be paid or not. Explain your decision based upon: (i) Uses of reserves upon revaluation [2] (ii) Solvency reasons [4] [Total: 20]

4 2 As an accountant working for Mykaelin, an international food company, you are required to update the cash at bank transactions for the week ended 30 June 2020 using the following information. 1 The opening balance on cash at bank account for the company is $23 475 overdrawn. 2 Credit customer receipts totalling $67 068 paid into the bank. 3 Monthly wages of $60 750 paid by bank transfer into the employees’ personal bank accounts. 4 An invoice for inventory with a list price of $38 600, before claiming a trade discount of 2.5%, has been paid to Mindi Mok on goods purchased. Currently, no credit agreement exists with this company and goods are paid for upon delivery. 5 Transfer of $5 000 from the bank account into the company’s cash in hand account. REQUIRED (a) Record the journal entries for transactions 2 to 5 above. Narratives are not required. [5] (b) Calculate the updated balance on the cash at bank account at 30 June 2020. [2] Additional information A comparison of the cash at bank account and the online bank statement at 30 June 2020 showed the following differences: 1 Cheques paid by the company amounting to $17 435 have been posted t o the ledgers but have not yet been presented to the bank for payment. 2 A customer cheque for $65 010 has been debited to the cash at bank account. This receipt will be credited by the bank on the next working day. 3 The bank has credited $9 525 to the company’s account in error. 4 A cheque from a credit customer for $40 070 has been returned by the bank due to ‘insufficient funds’. 5 Overdraft interest has been charged for the previous three months for $2 167 and is yet to be recorded in the company accounting system. 6 A customer cheque for $3 144 has been entered in the cash at bank account as $8 144. The online bank statement shows the correct amount as $3 144.

5 REQUIRED (c) (i) Analyse 1 to 6 above and separately explain each item that needs updating on the company’s cash at bank account and recalculate the closing balance accordingly. [5] (ii) Reconcile the differences between your updated cash at bank account and the balance being held by the bank. [3] (d) State three reasons why businesses reconcile the difference betw een their updated cash at bank balance and the balance held by the bank. [3] (e) The bank overdraft limit is currently set at $120 000. Refer to you r answer in (c) (ii) and advise the company if they need to make any adjustment to this limit and by how much. [2] [Total: 20]

6 3 Ascendo Pte Ltd is considering raising borrowings to purchase a new building for its distribution business during 2021. 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 2021 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. REQUIRED (a) Calculate the first year’s interest payable on the new 6% long-term loan. [2] (b) Prepare a statement of changes in equity based upon revised balances af