PSS 2024 POA 4E5N Prelim Paper 2 answer key

EXP/NA PUNGGOL SECONDARY SCHOOL SECONDARY 4/5 EXPRESS / NORMAL ACADEMIC 2024 PRELIMINARY EXAMINATION ANSWER KEY NAME CLASS INDEX NUMBER Principles of Accounts Paper 2 7087/02 27 August 2024 2 hours READ THESE INSTRUCTIONS FIRST Write your class, register number and name on all the work you hand in. Write in dark blue or black ink on both sides of the paper. You may use a soft pencil for any diagrams, graphs, tables or rough working. Do not use staples, paper clips, glue or correction fluid. Answer ALL questions Write your answers in the spaces provided. 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. The use of an approved scientific calculator is expected, where appropriate. For Examiner’s use Parent’s Signature - - - - - - Total /60 This paper consists of 11 printed pages and 1 blank page. Setter(s) : Ms Ng Fulia Vetter : Mr Liao Haoyu

Answer all questions. 1 Refer to the Insert for data for Question 1. REQUIRED (a) Prepare the statement of financial performance for the year ended 30 June 2024. Bradyen Pte Ltd Statement o f Financial Performance for the year ended 30 June 2024 $ $ Sales revenue 960 000 Less: sales return (23 350) Net sales revenue 936 650 [1] Less: cost of sales (405 700) Gross profit 530 950 [1] Add: other income Discount received 12 800 Rent income ($2500 x 6 + $2800 x 6) 31 800 [1] 44 600 575 550 Less: Expenses Discount allowed 21 900 Salaries expense (39 000 /15 x 12) 31 200 [1] Insurance expense 12 500 Utilities expense 12 000 Depreciation – Premises [10% x (450000-80800) 36 920 [1] Depreciation – Motor vehicle (20% x 208000) 41 600 [1] Impairment loss on trade receivables (reversal/0 (1 345) [1] Interest expense 2 700 [1] Impairment loss on inventory (6870-5000) 1 870 [1] (159 345) Profit for the year 416 205 [1] [10]

3 (b) Prepare the statement of financial position as at 30 June 2024. Bradyen Pte Ltd Statement of Financial Position as at 30 June 2024 Cost $ Less: Accumulated Depreciation $ Net book value $ Assets Non-current asset Motor vehicle 208 000 (58 400) 149 600 [0.5] Premises 450 000 (117 720) 332 280 [0.5] Total non-current assets 658 000 (176 120) 481 880 Current assets Cash at bank 10 000 Trade receivables (97 600 – 2700) 94 900 Less: Allowance for impairment of trade receivables (4 745) [1] Net trade receivables 90 155 [1] Inventory (70% x 22 900) 16 030[1] Insurance receivables 5 000 [1] Prepaid Salaries expense (3/12 x 39000) 7800 [1] Total current assets 128 985 Total assets 610 865* Shareholders equity and liabilities Shareholders equity Share capital, 100 000 ordinary shares 100 000 Retained earnings (-900+416 205 -2000 [0.5] 413 305 Total shareholders equity 513 305 Non current liabilities Long term borrowings (2/3 x 90000) 60 000 Current liabilities Trade payable 1 660 Dividends payable ($0.02 x $100 000) 2 000 [0.5] Interest payable 2 700 [1] Current portion of long term borrowings 30 000 [1] Rent income received in advance 1 200 [1] Total current liablities 37 560

4 Total shareholders equity and liabilities 610 865 [10] [Total: 20] 2. Izzah is a sole trader and the following information was extracted from her books on 30 September 2023. $ Inventory 30 000 Trade receivables 7 000 Prepaid rent 1 000 Trade payables 12 000 Bank overdraft 2 000 Bank loan payable 2028 20 000 REQUIRED (a) Explain the difference between profitability and liquidity. Liquidity measures the business’s ability to repay its current liabilities [1] while profitability measures the its ability to generate profit.[1] [2] (b) Explain the importance of being liquid. Any 2 points, 1 mark each, maximum 2 marks Cash is always required for daily business operations like buying of goods, paying of rent, salaries, utilities and making payments to creditors, etc.[1] If a business has poor liquidity, business might not be able to buy goods for resale, credit suppliers might not want to supply goods to business for the fear of default in payment and business might not be able to pay salaries on time, causing workers to leave.[1] It is also important to measure and have liquidity in business because loans or interest on loans need to be repaid in cash and owners expect to withdraw cash from their investments in the business.[1] [2]

5 (c) Calculate the following for the year ended 30 September 2023. Correct to two decimal places if necessary: (i) Current Ratio: 2.71 [1] (ii) Quick Ratio: 0.50 [1] [2] Izzah also supplied the following information for his previous two years ended 30 September 2021 and 2022. Year ended 30 September 2021 2022 Current ratio 3.0 2.85 Quick ratio 1.3 1.1 REQUIRED (d) Evaluate the trend in liquidity of the business over the three years ended 30 September 2021, 2022 and 2023. Use the given information and your answer to (c). The liquidity of the business has worsened from 2020 to 2023 as seen from the decreasing trend of their current ratio which has worsened from 3.0 in 2020 to 2.71 in 2023.[1] However, the current ratio is still higher than the general benchmark of 2.0.[1] So based on current ratio for 2023 as 2.71, the liquidity of the business can still be considered normal/good. [1] However, if we use a more stringent quick ratio, we can see that the liquidity is getting worse over the three years as it decreased from a 1.3 in 2021 to a low 0.50 in 2023. [1] In fact, the liquidity is really very bad as it is 0.50 in 2021 which is lower than the general benchmark of 1.[1] The business might have problem paying for their short-term debts as it has only 50 cents of quick assets for every dollar of current liabilities.[1] [6]

6 (e) Advise Izzah on two ways to improve liquidity of her business. Any 2 points. Increasing sources of cash • Business can take up a long-term loan which is a non-current liabilities, while increasing its cash at bank which is a liquid current assets.[1] • Additional capital from owners/shareholders in terms of cash.[1] • Making more sales so that cash or trade receivables can be increased.[1] • Sell off excess non-current assets.[1] Reducing cash outflows • Reducing operating expenses[1] • Negotiate better credit terms with suppliers[1] Reducing current liabilities • Holding only enough inventory for resale and not buying more than that. In this way, business need not incur extra payables due to the purchase of goods. At the same time, cash is not held up as inventory.[1] [1] [Total: 14] 3 Printer Pte Limited buys and sells food printing equipment on credit and manages its inventory using the FIFO method. On 1 July 2023, the company had 30 units of grinding equipment, each costing $2 100. During the month of July 2023, the following sales and purchases transactions took place: Sales transactions Jul 17 Sold 30 units for $9 500 Jul 29 Sold 30 units for $8 500 Purchases transactions Jul 5 Bought 30 units for $3 200 Jul 12 Bought 40 units for $4 400 Jul 20 Bought 20 units for $2 300 REQUIRED (a) Explain how the ending inventory is valued with an appropriate accounting theory. Ending inventory is valued at cost or net realizable value [1] whichever is lower in accordance to prudence concept so as not to overstate assets and profits. [1] [2]

7 (b) Calculate the gross profit for the year ending 31 July 2023. Sales revenue = $9500 + $8 500 = $18 000 [0.5] Cost of Sales = $2100 + $3200 = $5300 [1] Gross Profit = $18000 - $5300 = $12700 [0.5] [2] On 15 August 2023, the company realised that three printers had rusty parts and needed replacement of those parts before they could be sold for $1 050. The three printers cost $500 and the replacement parts cost $120. REQUIRED (c)