SPS POA ANS 2026 4E5NA PRELIMS P1

NAMEFORM CLASSACAD CLASSINDEX NO. ST. PATRICK’S SCHOOLPRELIMINARY EXAMINATION 2026SUBJECT:Principles of AccountsDATE:21 August 2026(7087/01)LEVEL:Secondary 4 Express/5NADURATION:1 hourCandidates answer on the Question Paper. ANSWERSREAD THESE INSTRUCTIONS FIRSTWrite your Name, Form Class, Acad Class and Index No. in the spaces at the top of the page.Write in dark blue or black pen.Do not use staples, paper clips, glue or correction fluid.Answer all questions.If working is needed for any question it must be shown with the answer.The use of an approved scientific calculator is expected, where appropriate.The businesses described in this question paper are entirely fictitious.The number of marks is given in brackets [ ] at the end of each question or part question.The total marks for this paper is 40.For Examiner’s UseScore/40This question paper consists of 10 printed pages including this cover page.

2 Answer all questions.1First Garments provided the following information for two years. 31 July 202531 July 2026$$Inventory58 59075 670Trade receivables44 70053 400Prepaid expenses 5 030 6 850Cash at bank19 800-Cash in hand 3 000 900Trade payables63 50071 000Bank overdraft- 18 900REQUIREDa) Calculate the following for the business for the year ended 31 July 2026. [3]31 July 2026i) Working CapitalCURRENT ASSETS – CURRENT LIABILITIES(75670+53400+6850+900)-(71000+18900)=136820 – 89900=$46920 ii) Current ratioCURRENT ASSETSCURRENT LIABILITIES136820/89900=1.52iii) Quick ratioCASH + TRADE RECEIVABLESCURRENT LIABILITIES900+53400 89900=54300/89900

3 =0.60

4 The information available for the year ended 31 July 2025 were as follows:Working Capital: $67620Current ratio: 2.06Quick ratio: 1.06b) Comment on the liquidity of the business for the two years ended 31 July 2025 and 2026. [7]Working capital has worsened from $67620 in 2025 to $46920 in 2026. Current ratio has worsened from 2.06 in 2025 to 1.52 in 2026, which falls belowthe benchmark of 2. This could be due to the increase in trade payables from$63500 in 2025 to $71000 in 2026.Quick ratio has worsened from 1.06 in 2025 to 0.60 in 2026, which falls below thebenchmark of 1. This indicates that the business does not have enough quickassets to pay for its short-term debts in 2026. The cash position of the business has worsened from Cash at bank of $19800and cash in hand of $3000 in 2025 to a bank overdraft of $18900 and cash in handof only $900 in 2026. This could be due to cash being tied up in inventory as shownby the increase in inventory from $58 590 in 2025 to $75 670 in 2026.Overall, the liquidity of the business has worsened over the two years. c) Give one reason why a business needs to have adequate liquidity. [1]-able to pay for daily business expenses to operate efficiently.-able to pay early to trade payables and get cash discounts thereby lowering cost.-able to pay for current liabilities as and when they fall due and will not run into therisk of insolvency should the trade payables and banks demand payment. Any oned) Suggest one way in which a business can improve its liquidity. [1]-Obtain cash contributions from owner or shareholders.-Sell unused non-current assets for cash.

5 -Take a long-term loan if collateral is available.-Negotiate for longer repayment terms from credit suppliers.Any one [1] [Total: 12]2Muji Store buys and sells designer timepieces. The following information was provided for the year ended 30 April 2026.Inventory as at 1 May 2025 was 90 units at 236 200.Summary of inventory purchases for the year.Purchases2025July 15110 units at $275 000 by cheque.November 1070 units at $135 000 from Watchit Enterprise on credit.2026January 1230 units at $78 000 by cash.April 2450 units at 155 000 on credit from Diamond Timepiece.Muji Store sold 300 units of inventory for the year ended 30 April 2026 for $816 000 on credit. The business uses the FIFO (First-in-First Out) method of inventory valuation. REQUIREDa) Calculate the following for the year ended 30 April 2026.[2] i) Cost of salesCost of sales = 236200(90 units) + 275000(110 units) + 135000(70 units)+ 78000(30 units)= $724200ii) Rate of inventory turnover, rounding your answer to two decimal places.Cost of sales

6 Average inventory= 724200(236200+155000/2=724200/195600 = 3.70 timesThe rate of inventory turnover for the years ended 30 April 2024 and 2025 was 8.98 times and 4.12 times respectively.b) Comment on the rate of inventory turnover of the business over the three years.The rate of inventory turnover has worsened from 8.98 times in 2024 to 4.12 timesin 2025 to 3.70 times in 2026.The business is selling its goods more slowly over the three years and henceis less efficient in managing its inventory. [2] c) Suggest one way for the business to improve its inventory turnover.- Give trade discount to encourage customers to buy more to clear inventory.-Reduce selling price for slow-moving goods.-Attract more customers through promotions and advertising.-Use technological tools to improve the accuracy of demand predictions to know when and how much to order. Any one [1]d) Prepare the inventory account for the above transactions, bringing down the balance to the next financial period, Inventory AccountDateParticularsDebit($)Credit($)Balance ($)[3]

7 2025May 1Balance b/d236200 DrJul 15Cash at bank275000Nov 10Trade payable-Watchit Enterprise1350002026Jan 12Cash in hand78000Apr 24Trade Payable-Diamond Timepiece155000Apr 30Cost of sales724200155000 DrMay 1Balance b/d155000 DrIt was discovered that on 30 April 2026, after the financial reports were prepared, that 10 pieces of inventory, costing $16 000, were damaged beyond repair.e) Explain with an accounting theory the valuation rule for inventory.Inventory is valued at the lower of cost or net realizable value so as not tooverstate profits and assets. The Prudence theory is applied. [2]f) Explain how profit will be affected if the value of inventory is not adjusted for MujiStore for the year ended 30 April 2026.Profit will be overstated by $16000. [1]g) Prepare the journal entry to adjust the inventory for the year ended 30 April 2026.JournalDateParticularsDebit ($)Credit ($)2026April 30Impairment loss on inventory16000[1]

8 Inventory16000 h) State one non-accounting information that a business might use when deciding on choosing a credit supplier.-Local vs overseas suppliers-Online vs brick-and-mortar suppliers-After-sales service-Return policy-Warranty-Reputation of supplierAny one [1] [Total: 13]3A new and inexperienced accountant at Celine Beauty Salon made the following errors on 31 May 2026.ErroriPurchase of a van for business use from Kah Motors for $80 000 has been recorded in the vehicle maintenance account.iiHair service revenue for $8 200 received by cheque has been recorded in the books as $2 800.iiiPayment for salaries $8 000 has been debited to the Cash at bank account and credited to the salaries expense account.ivOwner took goods costing $750 for personal use. This was not recorded.vA receipt issued to a credit customer, Paula, for $500 cash received was omitted. REQUIREDa) Prepare the journal entry to correct error ‘v’. [1]

9 JournalDateParticularsDebit ($)Credit ($)2026May 31Cash in hand500 Trade receivable-Paula500 b) Complete the following table to show the effect of correcting errors i, ii and iii on the profit of the business. If there is no effect, place a tick in the ‘no effect’ column. [3]ErrorIncrease by$Decrease by$No effecti $80 000 ii$5400 iii $16000 c) Name the accounting theory applied when recording transaction ‘iv’.Accounting entity theory [1]d) Explain how an accountant can exercise integrity and be objective.An accountant exercise integrity by being honest and straightforward in all businessrelationships. A