MI 2020 Prelim Paper 1 Answer Guide

1 2020 Preliminary Examination Paper 1 Question 1 (a) Non-current assets are valued at cost less depreciation to date / Accumulated depreciation Net book value (b) Non-current assets will be shown in the balance sheet at the revised / revaluation value. Any increase in value due to revaluation represents a capital reserve /Asset Revaluation Reserve . Future net book value / carrying value will be recalculated / adjusted on revised depreciation (c) Perfect 10 Pte Ltd Draft balance sheet as at 31 December 2019 $ $ $ $ Non-current assets Cost/ Valuation Accumulated depreciation Net book value Property at valuation 510 000 510 000 Office equipment 106 000 54 000 52 000 Total non-current assets 616 000 54 000 562 000 Current assets Inventories 116 590 Trade receivables 13 750 Less: Allowance for impairment of trade receivables (2 250) 11 500 Cash in hand 24 771 152 861 714 861 Equity and liabilities Shareholders capital and reserves 150 441* Asset revaluation reserve (510-140) 370 000 Total equity 520 441 Non-current liabilities Long-term loan 75 000 Total non-current liabilities 75 000 Current liabilities Trade payables 87 100 Short term borrowings/ bank overdraft 32 320 Total current liabilities 119 420 Total equity and liabilities 714 861

2 (d) (i) Capital reserves are available for distribution as bonus issue only Company cannot issue cash dividends from capital reserves (ii) Solvency: Quick assets (11 500 + 24 771) $36 271 are less than current liabilities $119 420 Quick ratio is 0.3:1/ below 1:1/ is unable to meet current liabilities Decision is NOT to pay dividends Decision rationale: either insufficient cash /or bank overdraft / or incorrect usage of capital reserves Allow answers based upon own figures. Question 2 (a) General Journal Date Account name Debit Credit $ $ 2 Cash at bank 67 068 Trade receivables 67 068 3 Wages 60 750 Cash at bank 60 750 4 Inventory *(97.5% X 38 600) 37 635 Cash at bank* 37 635 5 Cash in hand 5 000 Cash at bank 5 000 Marks are one for both correct narratives and figures except where indicated* (b) Computation of updated cash at bank balance as at 30 June 2020. $ Opening cash at bank balance(1) (23 475) Receipts from Trade receivables (2) 67 068 Wages paid (3) (60 750) Inventory purchased with cash (4) (37 635) Transfer to cash in hand (5) (5 000) (59 792) Accept alternative presentation of the answer.

3 (c) (i) 1. No adjustment. 2. No adjustment. 3. No adjustment. 4. Invalid cheque $40 070 needs deducting from bank as debtor has technically not paid 5. Overdraft interest has been charged by bank therefore needs deducting from the account 6. Deduction of $5 000 to bank account