2016 POA O Level Answer

2016 O Level POA Answers

Paper 1 :

General ledger

Discount allowed account

DateParticularsDr ($)Cr ($)Balance
Jul 31Total trade receivables15

Discount received account

DateParticularsDr ($)Cr ($)Balance
Jul 31Total trade payable3

Sales ledger

Jin Ma account

DateParticularsDr ($)Cr ($)Balance
Jul 10Cash at bank485
Discount allowed15

Purchases ledger

Lu Lan account

DateParticularsDr ($)Cr ($)Balance
Jul 10Cash at bank117
Discount received3

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 businessService 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)


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)

DateParticularsDr ($)+Cr ($)-Balance
Nov 15Cash in hand240240 Dr
Dec 22Inventory264504 Dr
Jun 16Cash at bank326830 Dr
Aug 31Capital830

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.   


  • 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   


  • 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 wages78960
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
Profit of the year 56130

 Azman Ltd 

Statement of financial position as at 31 July 2016

Non-current asset costAcc. dep.    N.B.V
Plant and machinery 19300093000100000
Motor vehicles 840005300031000
Total non-current assets 131000
Current assets
10% bank deposit 15000
Trade receivables18500
Less: allowance for impairment on trade receivables(800)17700
Cash at bank14300
Inventory 36320
Prepaid general expense350
Interest on bank deposit receivables500 
Total current assets 84170
Total assets215170
Equity and liabilities 
Shareholder’s equity
Issued share capital, 100,000 ordinary shares100000
Retained earnings89130
Total equity189130
Current liabilities
Trade payables 13480
Accrued general expenses560
Dividend payables (100000 x 0.1) 12000
Total current liabilities 26040
Total equity and liabilities215170

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% 

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 
Aug 31Balance b/d 663 Dr
31Utilities 250413 Dr 
31Trade receivables – B Ling 14601873 Dr
31Bank Charges601813 Dr
Sept 1Balance b/d 1813 Dr


Bank reconciliation statement as at 31 August 2019 

Debit balance as per bank statement1813
Add : Deposit in transit  
Adi 1214
Insurance 350
Trade payable – Yee280
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 expenditureRevenue 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 
Nov 1 Balance b/d 5600 Cr
Oct 31Depreciation 18007400 Cr
Oct 31Balance b/d 7400


Sale of non-current asset account

Date Particulars Dr Cr Bal 
Oct 31Equipment 1280012800 Dr
31Accumulated depreciation 74005400 Dr
31Cash at bank4500900 Dr
31Income summary900

a) Reasons for preparing a trial balance: 

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


  General journal 

DateParticularsDr Cr 
Jun 30Trade receivables – Li Thiam 740
      Trade receivables – Lee Sun740
Jun 30Fixtures and fittings1500 
      Maintenance expense1500
Jun 30Drawings 200 
      Capital 200
Jun 30Trade payables – Chan Yin (460 x 2) 920 
      Cash at bank920

c) 1. Errors of commission 

    2. Errors of principle

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