chij tpy 2023 m/s prelims

2023 4E5N Prelim Paper 2 Mark Scheme Q1(a) $ $ Sales revenue 195 430 Less: Sales returns (4 150) Net sales revenue 191 280 [1] Less: Cost of sales (70 200) Gross profit 121 080 [1] Add: Other income Commission income (+1 500) 13 800 [1] Less: Other expenses Rent expense (-600) 18 000 [1] Wages and salaries (+950) 23 400 [1] Utilities expense (-300) 9 500 [1] Depreciation on office equipment (10% of 53 000) 5 300 [1] Depreciation on motor vehicles [(80 000 - 24 000) x 30%] 16 800 [1] Interest on bank loan (25 000 x 5%) 1 250 (74 250) [1] Profit for the year 60 630 [1] OF Penalize up to one mark for wrong format or headings. Q1(b) Assets $ $ $ Non-current assets Cost Accumulated depreciation Net book value Office equipment 53 000 15 900 37 100 [1] Motor vehicles 80 000 40 800 39 200 [1] 76 300 Current assets Trade receivables 23 250 Inventory 30 500 Commission income receivable (+1 500) 1 500 [1] Prepaid rent expense 600 55 850 [1] Total assets 132 150 Equity and liabilities Owner's equity Capital (7 240 + 60 630 - 4 900 - 300) 62 670 [1] Non-current liabilities Long-term borrowings (4/5 x 25 000) 20 000 [1] Current liabilities Trade payables 35 180 [1] Bank overdraft 7 100 [1] Current portion of long-term borrowings 5 000 Interest on bank loan payable 1 250 [1] Wages and salaries payable 950 49 480 [1] Total equity and liabilities 132 150 Penalize up to one mark for wrong format or headings. Jacob Statement of financial performance for the year ended 31 December 2022 Jacob Statement of financial position as at 31 December 2022

Q2 (a) Date Particulars Dr ($) Cr ($) 2022 Jun-30 Sale of non-current asset 90 000 [1] Motor vehicle 90 000 [1] Jun-30 Accumulated depreciation of motor vehicle 32 400 [1] Sale of non-current asset 32 400 [1] Jun-30 Other receivable - Mr Ong 60 000 [1] Sale of non-current asset 60 000 [1] (b) Net book value = 90 000 - 32 400 = $57 600 [1] Gain on sale of non-current asset = 60 000 - 57 600 = $2 400 [1] (c ) It will be shown under the section of Add: Other Income as a gain on sale of non-current asset. [1] (d) Non-current assets are valued at cost less accumulated deprecation. [1] (e ) Purpose of non-current asset [2] Features of non-current asset Customer reviews of non-current asset Warranty Choose any two. Journal

Q3 (a) Days sales in inventory = Average inventory / Cost of sales X 365 days Average inventory = (16 000 + 25 000) / 2 = $20 500 [1] Days sales in inventory (2023) = 20 500 / 175 200 X 365 days = 42.71 days [1] (b) 2021 30.21 days 2022 37.49 days 2023 42.71 days The days sales in inventory for Larry's business is on a worsening trend over the three years ended 30 June [1] 2021, 2022 and 2023. The days sales has increased from 30.21 days in 2021 to 37.49 days in 2022 and to [1] 42.71 days in 2023. This means that the business is taking a longer time to sell all its inventory and is less efficient as managing [1] its inventory over the three years. This could be due to the business increasing the amount of inventory held on hand as it can be seen holding on to $9 000 more inventory from 2022 to 2023 while cost of sales only increased by $6 700 over the same period. This shows that inventory held on hand is increasing at a faster rate than the cost of sales. [1] The business could be holding on to more slow-moving goods which are now selling at a slower rate and [1] causing them to hold a larger amount of inventory, driving up the days sales in inventory. Accept other possible answers to show an increase in days sales in inventory. (c ) Larry could try to sell its inventory faster or try to keep sufficient inventory on hand. [2] Larry could sell inventory faster by providing trade discounts to encourage customers to buy in bulk and regularly. [1] (d) If the business does not have sufficient goods on hand, it will result in a loss of sales. [1] If the business holds / buys too much inventory and is unable to sell them, it will result in higher storage costs and increase the risk of goods becoming obsolete. [1]

Q4 (a) Date Particulars Dr ($) Cr ($) 2021 (i) Nov-04 Cash at bank (0.4 x 1 200) 480 [1] Allowance for impairment of trade receivables 720 [1] Trade receivable - Kylian 1200 [1] 2022 (ii) Mar-31 Allowance for impairment of trade receivables 885 [1] Impairment loss on trade receivables 885 [1] Working = 3730 - 720 - 2 125 (5% of 42 500) = 885 (Reversal) (b) Current assets: $ $ Trade receivables 42,500 Less: Allowance for impairment of trade receivables (2,125) [1] Net trade receivables 40,375 [1] (c ) (i) On 10 May 2022, business made credit sales worth $9 500 to customer Gerald. [1] (ii) On 12 May 2022, credit customer Gerald returned $100 worth of goods to business. [1] (d) SBQ Decision - IKEO [1] IKEO has collection period of 33 days and has repaid Maria late twice while MUJEE has a [1] collection period of 39 days and repaid Maria late 7 times. Maria should give the longer repayment period to IKEO as they have only repaid late twice and their collection period of 33 days is more reassuring. This means that IKEO is able to manage their repayment better and is less likely to exceed the 40 days if it was extended to them. Maria would [1] receive the repayment from IKEO on a timelier basis and enjoy better cashflow as well. IKEO has been in business for 15 years as compared to MUJEE which has only been around for [1] 2 years. IKEO's business would be more stable and reputable as they have been around longer with a more secure customer base. Maria would feel more comfortable extending their repayment period knowing [1] that even if the industry is not doing well, IKEO would be able to repay the trade receivables within 40 days. There's a strong demand for affordable and practical goods for home use and exercise from IKEO [1] whereas MUJEE does not sell such affordable exercise goods nor such a wide variety of goods. Maria would face less default risk from IKEO as IKEO sells a wider range of goods, ranging from [1] Journal Maria Statement of financial position as at 31 March 2022 (Extract)

household products, home appliances and exercise equipment at affordable prices. This means that even if the exercise equipment sales are slow, IKEO can leverage / tap on the sales of other areas of its business to make repayment to Maria. Decision - MUJEE [1] MUJEE has a higher average trade receivables balance of $50 000 as compared to IKEO's [1] $30 000. This means that MUJEE is a major client and Maria would gain more standing and would be able to better preserve that relationship with them if she were to extend their repayment period to [1] 40 days. This would ensure more sales to them and more profits for her business. MUJEE is popular among small gym businesses and exercise enthusiasts while IKEO is only [1] popular amoung families. MUJEE would be able to sell a larger quantity of higher end / more expensive exercise equipment as they mainly sell to gym businesses and enthusiasts who are willing to spend on it. Maria would be able to gain more sales to them in the future if the demand picks up or when the industry recovers. [1] The exercise culture is growing and more people are exercising and going to gyms, unlikely to get the [1] same exposure to exercise equipment in their own homes. This means that MUJEE is likely to gain more sales of exercise equipment from gyms and this would translate to more sales for Maria's business. There is also less default risk from MUJEE as their business [1] would be expanding and gaining more sales. Accept other reasonable answers that do not contradict the Decision mark.