Woodlands Sec 4NA POA Prelim Paper 2 QP with Ans

Name: ____________________________( ) Class: ________ WOODLANDS SECONDARY SCHOOL PRELIMINARY EXAMINATION 2022 NORMAL ACADEMIC Level: Sec 4 Normal Academic Marks: 60 Subject: Principles of Accounts Day: Thursday Paper: 7086/02 Date: 11 August 2022 Duration: 2 hours Time: 10 00 – 12 00 Additional Materials: Answer Booklet READ THESE INSTRUCTIONS FIRST _____________________________________________________________________ Answer all questions on the answer booklet 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. DO NOT TURN THE PAGE UNTIL YOU ARE TOLD TO DO SO. NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC

2 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC This document consists of 7 printed pages and 1 blank page. Answer all questions. 1 Christine operates San Bookshop which buys and sells books. The following balances were extracted on 31 May 2022. $ Office equipment at cost 60 000 Motor vehicles at cost 120 000 Accumulated depreciation of office equipment 24 000 Accumulated depreciation of motor vehicles 18 000 Sales revenue 131 370 Sales returns 6 500 Cash at bank 4 780 Trade payables 18 300 Discount received 170 Allowance for impairment of trade receivables 780 Interest expense 2 500 Wages and salaries expenses 12 500 Drawings 1 600 Bank loan repayable in 2027 30 000 Cost of sales 46 280 Inventory 7 620 Rent income 14 840 Trade receivables 13 600 Discount allowed 80 Capital, 1 June 2021 38 000 Additional information as at 31 May 2022: 1 Rent income, $2 400, has been received in advance. 2 Salaries and wages, $5 800, was prepaid.

3 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC 3 Interest expense of $500 is still owing. 4 A review of trade receivables on 31 May 2022 showed that 5% of the trade receivables were estimated to be uncollectible. 5 Christine found $350 worth of books damaged at the end of the year. 6 Depreciation is to be charged on the office equipment at 20% per annum using the straight- line method. 7 Depreciation is to be charged on the motor vehicle at 15% per annum using the reducing balance method. 8 A deposit of $7 000 into the business bank account by Christine was not recorded yet. REQUIRED (a) Prepare the statement of financial performance for the year ended 31 May 2022. [10] (b) Prepare the statement of financial position as at 31 May 2022. [10] [Total: 20]

4 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC 2 Alexandria started the business with $10 000 of capital contribution on 1 April 2019. On 20 September 2019, she contributed $15 000 of inventory to the business. On 13 November 2019, she withdrew $3 000 for her own personal expenses. On 31 March 2020, the business made a profit of $55 100. REQUIRED (a) State and explain the accounting theory for the transaction that occurred on 13 November 2019. [2] (b) Prepare journal entries to record the following transactions. Narrations are not required. (i) Contribution of $15 000 of inventory on 20 September 2019 [2] (ii) Transfer of drawings to capital account on 31 March 2020 [2] (c) Prepare the capital account for the year ended 31 March 2020. [6] (d) Define equity. [1] [Total: 13]

5 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC 3 James buys and sells wooden furniture. He bought a motor vehicle costing $13 600 on credit. REQUIRED (a) Explain the meaning each of the following terms: (i) Capital expenditure [2] (ii) Revenue expenditure [2] During the year ended 31 October 2018, James’ business incurred expenditure in respect of the motor vehicle. REQUIRED (b) Copy the following table onto your answer booklet. Capital expenditure Revenue expenditure Petrol Road tax Delivery charges of motor vehicle from Germany Annual motor vehicle repairs and maintenance Complete the above table by classifying the expenditure by placing a tick ( ) in the appropriate column. [4] (c) Explain materiality theory. [2] Purchase of yearly insurance of $790 for the motor vehicle was wrongly classified as a capital expenditure. REQUIRED (d) State the effect of this on the following: (i) Profit for the year [1] (ii) Non-current asset [1] James has decided to depreciate the motor vehicle using the reducing-balance method. He was advised by the accountant not to change the depreciation method for the following accounting years ahead. REQUIRED

6 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC (e) Explain with a relevant accounting theory why James cannot change the depreciation method. [2] [Total: 14] 4 Taqi buys and sells sunglasses. On 1 September 2020, there was a balance of $1 280 in the allowance for impairment of trade receivables account. On 19 November 2020, Hidayah, a credit customer, announced closure of her business and that she would not be able to repay her $370 debt. This amount was written off by Taqi. On 31 August 2021, the trade receivables amounted to $32 000. Taqi’s business makes an allowance for impairment of trade receivables based on 3% of its trade receivables at the end of each financial year. REQUIRED (a) Explain why a business may decide to make an allowance for impairment of trade receivables. [2] (b) Prepare journal entries to record the following transactions. Narrations are not required: (i) Write off the debt owed by Hidayah [2] (ii) Adjustment of allowance for impairment of trade receivables for the financial year ended 31 August 2020 [2] (c) Prepare an extract of the statement of financial performance for the year ended 31 August 2020, showing the impairment loss on trade receivables. [2]

7 NORMAL ACADEMIC NORMAL ACADEMIC NORMAL ACADEMIC Taqi issues invoices of 30-day credit terms to all his customers. Currently, he is considering granting 35-day credit repayment period to an existing customer. He has to choose between his customers, Devi and Sunny. Details of Devi and Sunny are as follows: Devi Sunny Annual sales revenue $20 000 $13 000 Average trade receivables balance $1 800 $1 000 Repayment history over the past year Repaid late 4 times. Repaid late 2 times. Reputation of business ● Has been in the business for 3 years ● Online reviews rave about the customer service provided by Devi. ● Popular with small to medium enterprises with overseas presence. ● Has been in the business for 7 years ● Outstanding testimonials are given by clients on the prompt delivery of products. ● Popular with small and local businesses. Industry outlook Sales from overseas market is relatively stable but sales from local enterprises are much affected due to Covid restrictions. Small and local businesses are struggling but are able to pull through with reliefs and grants from the government. REQUIRED (d) If you are Taqi, which customer would you grant a 35-day credit repayment period? Explain your answer with two reasons. [5] [Total: 13] END OF PAPER

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