2018 POA O Level Answer

2018 O Level POA Answers

Paper 1 :

(a) Materiality concept. Expenditures that should be capitalised as the cost of the non

current assets can be treated as expenses if the value of the item is insignificant (immaterial)

(b) General Journal

(c) Owner purchased equipment from overseas and needs to train staff to operate it. Identify

if the following costs is capital or revenue expenditure:

Capital expenditure Revenue expenditure 
Installation costs
Staff training
Import duties


                     Statement to show corrected profit for year ended 31 August 2018

Profit before adjustment240000
i) Less: repairs for existing warehouse*(5,000)
ii) Add: Legal fees related to gaining building permission1,250
Adjusted profit236,250


1. Decision-making.

2. Stewardship

(a) Total sales = Cash sales credit sales

Cash sales = $4,800 + ($1,000 X 12 months)= $16,800

Credit sales = $27,000 + $87,800 $22,000 = $92,800

Total sales = $16,800 + $92,800 = $109,600


(i) If gross profit margin = 40%

and Net sales revenue cost of sales = Gross profit,


100% 60% = 40%

Cost of sales = $109,600 x 60% =$65,760

Expected inventory at 30 June 2018 = ($4,300 + $67,100 $980) $65,760 = $4,660

(ii) Value of inventory destroyed = Expected inventory actual inventory = $4,660 $2600

(c) Going concern concept

(a) Examples of income of SERVICE business

Any one of the following:

-Advertising income

-Consultancy income

-Tuition fee income

-Hair salon services

(ii) Examples of expenses of a SERVICE business

Any two of the following:

-Rent expense

-Advertising expense

-Wages expense

-Depreciation expense


Formula for expense to(Expenses/Net Sales Revenue) X 100%

Workings Expenses= $582,000 $361,000= $221,000
% expenses to NSR$(221,000/582,000) x100%= 37.97%
Expenses= $685,000 $452,000$233,000
% expenses to NSR=$(233,000/685,000) x100%34.01%
Expenses$655,000 $413,00$242,000
% expenses to NSR$(242,000/655,000) x100%: 36.94%
Expenses to net sales revenue %37.97% 34.01%36.94%


-Changes in profitability over 3 years (+ evidence from question)**

Sales revenue has increased steadily from $582,000 in 2016 to $685,000 in 2017 to $655,000 in 2018.

-In absolute terms, the business’ profits have fluctuated from 2016 to 2018. Business profits has increased from $361,000 in 2016 to $452,000 in 2017 and decreased to $413,000 in 2018.

-Although the number of bus tours has decreased from 650 in 2016 to 600 in 2017, the profit has increased this suggests that the business was more efficient in managing its resources. The percentage of expense to turnover supports this observation. The percentage of expenses has fallen steadily from 37.97% in 2016 to 34.01% in 2017.

-This suggests that the tour company was able to book more revenue per bus which could mean they were either able to charge higher price per seat (better brand name) or was able to pack more tourists in each bus tour. However, the percentage of expenses has worsen from 34.01% in 2017 to 36.94% in 2018. This suggests that they were less efficient in managing its resources. Possible reasons could be a rise in competition resulting in a price war or increased cost of operations such as a fuel hike or toll charges.


1. Sole proprietorship only has 1 owner while a limited company has a maximum of 50


2. In a sole proprietorship, the owner has total control over business operations while a shareholder in a limited company has minimum or no involvement in the business.

3. In s sole proprietorship, all profits are enjoyed by the owner while in a limited

company, the profits made will be shared as dividends to shareholders.

Paper 2 :

Somule Pte Limited

Statement of financial performance for the year ended 30 April 2019

Sales revenue 379150
Less: sales returns 24550
Net sales revenue 354600
Less : cost of sales 149900
Gross profit 204700
Less : expenses 
Interest on bank loan (35000 x 10%)3500
Rent (31000-6000)25000
Wages and salaries (86950+1350)88300
General expenses 27800
Depreciation on equipment (27500×10%)27500
Depreciation on motor vehicles ((48000-21000)x25%)6750
Reversal of impairment loss on trade receivables (850-650)(200)
Profit  for the year26050

Somule Pte Limited

Statement of financial position as at 30 April 2019

Non-current asset costAcc. dep.    N.B.V
Equipment 27500082500192500
Motor vehicles480002775020250
Total non-current assets212750
Current assets 
Inventory 32300
Trade receivables30700
Less: allowance of impairment on trade receivables(650)
Prepaid rent 6000
Total current assets68350
Total assets281100
Equity and liabilities
Shareholder’s equity
Issued share capital, 300,000 ordinary shares150000
Retained earnings (40625-15000+21400)51675
Total equity 201675
Non-current liabilities
Long term borrowings (35000-5000) 300000
Current liabilities 
Trade payables20900
Short-term borrowings6300
Accrued wages and salaries1350
Current portion of long term borrowings 5000
Accrued interest on bank loan (3500-2625)875
Dividends payable (300000x$0.05) 15000
Total current liabilities 49425
Total equity and liabilities 281100

a) Dr sale of non-current asset

      Cr motor vehicles

      Dr accumulated depreciation

      Cr sale of non-current asset

      Dr other receivable 

      Cr sale of non-current asset

b)                                              Accumulated depreciation of motor vehicles account

Date Particulars Dr Cr Bal 
Apr 1 Balance b/d 25600 Cr
Mar 31Depreciation (12800-25600) x 20%2048046080 Cr
Apr 1 Balance b/d 46080 Cr
Nov 30 Sale of non-current asset1008036000 Cr
Mar 31Depreciation (132500 – 36000) x 20%1930055300 Cr
Apr 1Balance b/d 55300 Cr

c) Loss on sale of motor vehicle = $17900 – $14500

                                                    = $3420

d) Business charges depreciation due to normal wear and tear and obsolescence. 

a) Return on equity measures the efficiency of the business in generating profit from equity.

b)                                                                          2017                                                  2018

Average equity(196150 + 368550)/2 =282350(368550 + 563850)/2=466200 
Return on equity(87400/282350) x 100%= 30.95%(125300/466200) x 100%= 26.88%

c) The return on equity decreased from 30.95% in 2017 to 26.88% in 2018. This shows that in

(2018, Daxoq is not as efficient in using its equity to generate profit as 2017.

However, comparing the percentage of dividend payout to average equity calculated in (w1)

above, it has increased from 5.31% in 2017 to 6.44% in 2018. Similarly, the percentage of

dividends paid to profit for the year calculated in (w2) also increased from 19.63% in 2017 to

23.94% in 2018. These show that Daxoq is paying out more dividend to shareholders per

dollar of equity and from profit for the year.

As business expansion usually take some times to start contributing to the business profit,

the shareholders should be satisfied with the return on their investment.


The difference in gross profit margin could be due to:

1) the use of many different trade suppliers by Palzo that affect his ability to buy in bulk and

take advantage of trade discount

2) the use of many different trade suppliers by Palzo will also affect his ability to negotiate

for a cheaper price

3) the frequent sales promotions from Palzo that lead to lower selling price

e) bankers

ai) Impairment loss on trade receivables is the estimation by the business that a trade receivable may not be able to pay.

aii) Prudence. 

aiii) When the customer starts to have frequent delays in payments. 

      When the customer’s warehouse caught fire and all inventory was destroyed. 

b)                               Allowance for impairment on trade receivables account

Date Particulars Dr Cr Bal 
Jun 1Balance b/d3450 Cr
May 31Trade receivables – Cheng 3000450 Cr
May 31Impairment loss on trade receivables 32503680 Cr
Jun 1Balance b/d 3680 Cr


                                                                                  General journal 

DateParticularsDr Cr 
July 10 Cash in hand1700
          Trade receivables – Wesley 1700
Being cash received from Wesley for partial payment of debt.  
July 10 Allowance for impairment on trade receivables1000 
          Trade receivables – Wesley1000
Being wrote off of balance outstanding from Wesley 


Books of Cheejun’s businessBooks of Dorothy’s business
Account to be debitedAccount to be creditedAccount to be debitedAccount to be credited
Invoice DorothySales revenueInventoryCheejun 
Cheque Cash at bankDorothy CheejunCash at bank
Credit noteSales returns / inventory Dorothy / cost of salesCheejun Inventory 

b) Cash transaction is a transaction that makes immediate payment whereas credit transaction is transaction that pays on a future date. 

c) Cheque may be dishonoured due to post-dated cheque and inconsistent signature. 

d)                                                                       General journal 

DateParticularsDr Cr 
July 9Cash in hand (1000 x 95% x 98% )931
Discount allowed (950 x 2%) 190 
              Trade receivables – Dorothy 950

e) To encourage Dorothy to buy in bulk. 

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