2019 POA O Level Answer

2019 7175 GCE O Level POA Paper 2 Solutions

Hey folks!

Just done up the 2019 GCE O Level Paper 2 Solutions.
Let me know what you think in the comments below!

As predicted in our GCE O Level Webinar last night, these specific chapters came out for Paper 2:

  • Prepayment and accruals
  • Profitability ratios
  • Issued share capital
  • Trade payable subsidiary ledger

If you are keen to join in for the weekend classes tomorrow and sunday, drop me a Whatsapp at 92337246

Paper 1 :

a) Inventory which are purchased first assumed to be sold first. 

b) Basis of valuating inventory : 

i) Either 

– the lower of cost and net realisable value; or 

– Inventory should be valued at cost or net realisable value, whichever is lower 

ii) Concept : Prudence concept 

c) W1 – $375- $50 

    W2 – $12,220 – ($400-$325) = $12,125 (4m) 

d) i) Gross profit: No effect 

    ii) Profit for the year: Overstated by $75 ($400-$325) 

    iii) Current assets at 31 March 2019: Overstated by $75 ($400-$325) – Total 13 marks

a) Working capital is derived from taking current assets less current liabilities 

b) 2 reasons for working capital 

            i) To pay for day-to-day operating expense 

            ii) To pay for short term debts when they fall due 

c) The difference between the current and quick ratios is that the current ratios includes prepayments and inventory while the quick ratio includes only quick assets such as cash in hand, cash at bank and receivables. 

d) $19,879/ ($3250 + $24500 + $3700) = 0.63 

e) Current ratio of the business has worsened from 2.63 in 2017 to 1.96 in 2019 , which is above the general benchmark of 2, in 2015 to 1.95, which is below the general benchmark, in 2016. 

The more stringent test of liquidity, quick ratio, also worsened from 1.78 in 2017 which is above the general benchmark of 1 to 0.63, which is below the general benchmark of 1, in 2019. This indicates that the business does not have sufficient quick assets to repay its current liabilities/ cashflow difficulties. 

f) 1. The decline in liquidity was also in part due to the business locking up funds in the form of inventory, where inventory made up to 64.0% of total current assets. 

2. If suppliers are unable to collect from Nashua in a timely manner, they may stop supplying to Nashua on credit. This will exacerbate the already strained liquidity position and may even the availability of goods for resale.


Bank Loan Bank overdraft
1.Cash transference Cash is transferred from the bank to the business upon acceptance of loan.Cash is not transferred to the business. The business withdrew more than the available balance in the bank.
2. Amount borrowed The amount is agreed before the loan is granted thus it is a fixed amount.The amount borrowed is not fixed however is limited. The amount borrowed must not exceed the maximum overdraft facility offered by the bank.
3. Repayment period The loan is repayable over its term which usually spans over more than a year.The amount is repayable within a few months or days from the withdrawal.
4. Payment method Loan is repayable over its loan term in fixed cash repayments. (Example monthly repayment)No fixed cash payment is required. Any deposits into the bank account will reduce the outstanding balance.
5. Reporting Non-current liability. The current portion (payable within a year) is under current liabilityCurrent liability. Spans over less than a year.
6. Interest expense Subject to interest based on loan amount.Subject to interest if overdraft facility is used more than the agreed period. Example: 3 months overdraft allowed however overdraft goes on for 4 months. The one extra month would be subjected to interest.

b) – Bankers 

– Other lenders 


To see the credit worthiness of the business. 


Date Particulars Dr Cr
Oct 1 Cash at bank 150000
Long term borrowings 150000
Sept 30 Long term borrowing/ Current portion of Long term borrowing Cash at bank3000030000

d) 6/12 x 150000 x 5% + 6/12 x 120000 x 5% = $6750 


Statement of financial position as at 31 March 2018 (extract)
Non-current Liabilities
Long term borrowings 120,000
Current liabilities
Current portion of long term borrowings 30,000
Interest expense payable ($120000 x 5% x 6/12) 3,000

Paper 2 :


Statement of financial performance for the year ended 30 April 2019

Sales revenue (147,215 + 2,000)149,215
Less: sales returns 1280
Net sales revenue 147,935
Less : cost of sales 99,720
Gross profit 48,125
Add : other income 
Commission income (5,470+ 250)5,720
Discount received 450
Less : expenses 
Rental expense (12/18 x 14,400)9600
Wages and salaries (23,000 + 1,250)24,250
Motor van expenses (3,610-1,500)2,110
General expense 3,100
Discount allowed 285
Depreciation on motor vehicle (20% x [62,000-22,320])7,936
Impairment loss on trade receivables (545-340)205
Profit for the year6,899


Statement of financial position as at 30 April 2019

Non-current asset costAcc. dep.    N.B.V
Motor vehicle 62,00030,25631,744
Office equipment 350350
Current assets 
Inventory 15,290
Less: allowance for impairment of trade receivables 545
Net trade receivables 14,745
Commission receivable 250
Prepaid rent expense 4800
Cash at bank 5041
Total current assets35081
Total assets 61,175
Equity and liabilities 
Owner’s equity 
Capital, 1 May 201857,911
Add: profit for the year 6,899
Less : drawings (7,550 + 1,500)9,050
Total equity 55,760
Current liabilities 
Trade payable 9,815
Accrued wages and salaries expense 1,250
Other payable 350
Total current liabilities 11,415
Total equity and liabilities 67,175

 (a) business. Ownership of company that is issued to shareholders to raise capital for the

(b) Advantages of a company:

Investment and returns-Shareholders’ losses are capped at the amount invested.

Ability to raise funds-Banks are more willing to lend a business. It is easier to

raise capital via the issuance of shares.

Transfer of ownership-Easy of transfer. Shares can be transferred easily on

the consent of all partners.

(c) Stewardship: A steward does not own but is given the responsibility to manage the business:

The accounting information system provides the owner with information on how the business


Issued share capital

Date Particulars Dr Cr Bal 
2018 $$$
Apr 1Balance b/d195,000 Cr
Mar 31Cash at bank (50000 shares x $1.30)65,000260,000 Cr
Apr 1Balance b/d 260,000 Cr



DateParticularsDr Cr 
Retained earnings85,800
Profit and loss 85,800

Being the transfer of loss for the year to the retained earning account


31 July 2018                                31 July 2019

Net sales revenue Cost of sales = Gross profit
Net sales revenueGross profit margin = 21%.Therefore, gross profit is 21%and net sales revenue is 100%
87150/21*100 = $415.000
Gross profit margin = 18.5%.Therefore, gross profit is 18.5%and net sales revenue is 100%97125/18.5*100 = $525,000


Gross profit margin • % expenses to net sales revenue = Profit margin
Expenses Expenses = 21%-12% = 9%9% $415,000 = $37,350Expenses = 18.5%-7.5% = 11%11% $525,000 = $57,750


The gross profit is on a downward trend. The gross profit margin has worsen from 21% in

2018 to 18.5% in 2019.

The decreasing trend is likely due to the changing of suppliers many times within the year.

Fatin may not have been able to suggests that the cost of sales has increased

due to a new supplier.

This IS supported by the increase in NSR from 415000 in 2018 to 525000 in 2019

The profit margin has worsen from 12% in 2018 to 7.5% in 2019.

Correspondingly, the percentage of expenses to turnover has increased from 9% in 2018

to 11% in 2019.

This is likely due to the increased rental cost from the expansion as well as the increase in

advertising and promotions undertaken to drive up the sales revenue.

Another reason for the decrease in profitabilitiy is due to the increased amount of

additional staff costs to provide personal services

Overall, even though there is higher gross profit in 2019 at $97125 as compared to

the gross profit in 2018 at $87150,

the profit for the year for 2018 is still higher than the profit for the year in 2019

on absolute terms.

The significant jump is due to the a significant increase in expenses from $37350 in 2018

to $57750 in 2019.


In terms of both absolute and profitability figures, Fatin’s expansion plans is not as

effective at generating profit in 2019 compared to 2018 with the new locations and

increasing cost of goods as well as staff costs.


Any two:

Move to a cheaper location

Narrow down a supplier for a long term relationship

Purchase goods in bulk for trade discount

Evaluate if a retail business truly requires high level of personal service as differentiator

Automate labour-intensive processes to save on staff costs


Rent income $12,500 $950 + $1,200

Wages expense = $21,000 $320 + 410


Wages expense account 

Date Particulars Dr Cr Bal 
Jul 1Accrued wages expense320 320 Cr
Jun 30Cash at bank21001780 Dr
Accrued wages expense4102190 Dr
Profit and loss21900


 Matching concept. Expenses incurred is matched against income earned in the same accounting period to find the accurate profit


General ledger


Uses of general journal (any two from):

Correction of error

Balance day adjustments

Withdrawal of goods for personal use

Contribution of capital in all assets other than cash

(a) Cash discount is given to encourage prompt payment

(b) Invoice

(c) Purchases returns journal


Trade payable control – Yi Ling 

Date Particulars Dr Cr Bal 
Aug 1Balance b/d5,700 Cr
Aug 2 Inventory (90% x 8,000)7,20012,900 Cr
Aug 10 Cash at bank (98% x 5700) 5,5867,314 Cr
Discount received (2% x 5700)1147,200 Cr
Aug 15Inventory (90% x 500)6,7506,750 Cr
Sept 1 Balance b/d6,750 Cr

(e) Owners are two separate entities. Transactions are recorded from the business point of view.

Until next time,


The POA Tutor

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