Paper 1 :

General ledger

Discount allowed account

Date	Particulars	Dr ($)	Cr ($)	Balance
2016
Jul 31	Total trade receivables	15

Discount received account

Date	Particulars	Dr ($)	Cr ($)	Balance
2016
Jul 31	Total trade payable		3

Sales ledger

Jin Ma account

Date	Particulars	Dr ($)	Cr ($)	Balance
2016
Jul 10	Cash at bank		485
	Discount allowed		15

Purchases ledger

Lu Lan account

Date	Particulars	Dr ($)	Cr ($)	Balance
2016
Jul 10	Cash at bank	117
	Discount received	3

b) The objectivity concept states that all business transactions must be supported by verified evidence that is free from personal bias. The transaction written in the cash book must be supported by source documents such as the bank statement and invoice which contains information of payment terms, amounts and conditions for cash discounts.

c) any from:

Sales journal
Sales returns journal
Purchases journal
Purchases returns journal

Trading business	Service business
A business that buys and sells goods for profit.	A business that earns revenue through the provision of service to customers. It does not engage in any merchandising operations.

b) Trading: Stationery/Fruits/Bookstore/Provision shop

(any business that involves buying/selling of goods)

Service business: Consultancy/Advertising/Tuition/Hair salon

(any business that involves providing a service for income)

		True	False
i)	A service business shows gross profit in the trading section of its income statement		✔
ii)	A trading business can calculate gross profit margins as a measure of profitability	✔
iii)	A service business has no inventory in its Statement of financial position	✔
iv)	A trading business can only earn revenue from sale of goods		✔

Drawings (contra-equity)

Date	Particulars	Dr ($)+	Cr ($)-	Balance
2015
Nov 15	Cash in hand	240		240 Dr
Dec 22	Inventory	264		504 Dr
2016
Jun 16	Cash at bank	326		830 Dr
Aug 31	Capital		830	–

b) Accounting/Business entity. The business and the owner are separate entities and as such, any drawings of resources belong to the business is recorded as a transaction in the books.

c) Drawings has no effect on the profit for the year.

d) General ledger

ai) Working capital = Current assets – Current liabilities

= (Inventory + trade receivables + other receivables + Cash in hand) – (trade payables + bank overdraft)

= (8 340 + 25630 + 1 450 + 250) – (19 640 + 7 200)

= 35 670 – 26 840

=$8 830

aii) Working capital ratio:

Current asset/Current liabilities

= 35 670/26 840

= 1.33

aiii) Quick ratio:

Current assets – Prepayment – Inventory/Current liabilities

=25 650 + 1 450 + 250/26 840

= 1.02

b) Any 3 from:

Owner withdrew funds from the business for personal use]
Allowance for impairment increased significantly due to an economic downturn
A significant amount of trade receivables became insolvent
Too much funds were tied up in purchasing non-current assets

Any other suitable points

1) Action:

Pay suppliers nearer to due date if its longer than 14 days or request supplier for an extended period for due date.

Reason: Improves cashflow as the business has more time to sell the inventory and collect cash from customers to pay for its supplies.

2) Action:

Make the credit policy more stringent for customers who wants to buy on credit.
Encourage prompt payment by giving customers cash discount.

Reason: reduces the risk of bad debts/ impairment loss on trade receivables.

3) Action:

Invest in a Just-in-time (inventory management) software that allows a business to stock up adequately to meet customers’ demands.

Reason:

To avoid goods from going obsolete/expiring and incurring unnecessary storage/insurance cost on inventory.
To reduce funds tied up in inventory.

4) Action:

Engage the services of a debt collection agency to chase trade receivables who are overdue in their accounts
Consider factoring* the trade receivables to another company

Reason:

Financing the business cashflow with bank overdraft causes the business to incur additional interest expense.
Failure to pay off bank overdraft will also result in the bank suing the business to bankruptcy.

*factoring is like selling your trade receivables account for another company to collect at a discount. The business will be able to recover a decent amount of cash instead of writing the whole account as bad.

Paper 2 :

Azman Ltd

Statement of financial performance for the year ended 31 July 2016

	$	$
Sales revenue	325000
Less: sales returns	2400
Net sales revenue		322600
Less : cost of sales		94300
Gross profit		228300

Add: Other Income
Interest on bank deposit (15000 x 10%)		1500

Less: Other Expenses
Salaries and wages	78960
Machine repairs (5600 + 3000)	8600
General expenses (39700 – 350 + 560)	39910
Depreciation on plant and machinery ((193000 – 68000) x 20%)	25000
Depreciation on motor vehicles (84000 x 25%)	21000
Impairment loss on trade receivables (800 – 600)	200
		173670
Profit of the year		56130

Azman Ltd

Statement of financial position as at 31 July 2016

Assets	$	$	$
Non-current asset	cost	Acc. dep.	N.B.V
Plant and machinery	193000	93000	100000
Motor vehicles	84000	53000	31000
Total non-current assets			131000

Current assets
10% bank deposit		15000
Trade receivables	18500
Less: allowance for impairment on trade receivables	(800)	17700
Cash at bank		14300
Inventory		36320
Prepaid general expense		350
Interest on bank deposit receivables		500
Total current assets			84170
Total assets			215170

Equity and liabilities
Shareholder’s equity
Issued share capital, 100,000 ordinary shares		100000
Retained earnings		89130
Total equity			189130

Current liabilities
Trade payables		13480
Accrued general expenses		560
Dividend payables (100000 x 0.1)		12000
Total current liabilities			26040
Total equity and liabilities			215170

a) Reasons why is it important that a business is profitable:

To pay suppliers and expenses
For expansion
To attract investments

b) Return on equity = (Profit of the year / average equity) x 100%

	2014	2015
Return on equity	(15400/85000) x 100%=18.12%	(23200/100000) x 100%=23.20%

c) Vicky Ng’s sales revenue increased from $90000 in 2014 to $130000 in 2015 and gross profit increased from $35000 in 2014 to $44000 in 2015. However, gross profit margin has declined from 38.9% to 33.9%. Vicky could have reduced the selling price in order to attract more customers and resulted in higher sales revenue. Despite the drop in gross profit margin, Vicky’s profit for the year increased from $15400 in 2014 to $23200 in 2015 and profit margin increased from 17.1% in 2014 to 17.9% in 2015. This is due to the better cost control as seen by the decrease in percentage of expenses to net sales revenue from 21.8% (38.9% – 17.1%) in 2014 to 16.0% (33.9% – 17.9%) in 2015. Vicky has also increased the return on equity from 18.12% in 2014 to 23.20% in 2015, indicating that from every hundred dollars a shareholder invested, he is able to get back $23.20 in 2015 as compared to only $18.12 in 2016. Based on the improved profitability and return on equity, Rachael should invest in Vicky’s business.

a) Reasons to prepare a bank reconciliation statement

To identify errors and omissions
To explain the difference in balances between cash at bank account and bank statement.

Accumulated depreciation of motor vehicles account

Date	Particulars	Dr	Cr	Bal
2016		$	$	$
Aug 31	Balance b/d			663 Dr
31	Utilities		250	413 Dr
31	Trade receivables – B Ling	1460		1873 Dr
31	Bank Charges		60	1813 Dr

Sept 1	Balance b/d			1813 Dr

Bank reconciliation statement as at 31 August 2019

	$	$
Debit balance as per bank statement		1813
Add : Deposit in transit
Adi	1214
Insurance	350
Trade payable – Yee	280
		1844
Less : Cheques not yet presented
Teo		253
Credit balance as per adjusted cash at bank account		3404

di) An overdrawn cash at bank balance would appear in the current liabilities as short-term borrowings.

dii) Cash in hand would appear in current assets.

	Capital expenditure	Revenue expenditure
Purchase price of delivery van	✔️
Special shelves fitted into the delivery van	✔️
Annual insurance premium		✔️
Replacement of tyre damage during the year		✔️

Accumulated depreciation of motor vehicles account

Date	Particulars	Dr	Cr	Bal
2015		$	$	$
Nov 1	Balance b/d			5600 Cr
2016
Oct 31	Depreciation		1800	7400 Cr
Oct 31	Balance b/d	7400		–

Sale of non-current asset account

Date	Particulars	Dr	Cr	Bal
2016		$	$	$
Oct 31	Equipment	12800		12800 Dr
31	Accumulated depreciation		7400	5400 Dr
31	Cash at bank		4500	900 Dr
31	Income summary		900	–

a) Reasons for preparing a trial balance:

To check for arithmetical accuracy
To assists the preparation of financial statements

General journal

Date	Particulars	Dr	Cr
2016		$	$
Jun 30	Trade receivables – Li Thiam	740
	Trade receivables – Lee Sun		740
Jun 30	Fixtures and fittings	1500
	Maintenance expense		1500
Jun 30	Drawings	200
	Capital		200
Jun 30	Trade payables – Chan Yin (460 x 2)	920
	Cash at bank		920