2020 7086 N Level POA Answers
Paper 1 :
a) The role of accounting is recording summarizing, analyzing, interpreting and reporting
bi) Assets are resources which are owned or controlled by business.
bii) Liabilities are obligations owed by business to others.
|(iii)||Purchase of non-current asset on credit||Invoice|
|(iv)||Returns of credit sales||Credit note|
|(v)||Payments for credit purchases||Payment voucher|
d) Expenses should be matched to the revenue to determine profits in the same accounting period.
Trial balance as at 30 June 2020
|Dr ($)||Cr ($)|
|Fixtures and fittings||5 650|
|Accumulated depreciation of fixtures and fittings||1 450|
|Trade payables||3 750|
|Cash in hand||25|
|Cash at bank (overdrawn)||375|
|Cost of sales||11 805|
|Sales revenue||15 600|
|General expenses||4 955|
|30 725||30 725|
1. To prevent arithmetical errors
2. To prepare the statement of financial performance and statement of financial position.
Etc. Investors, customers, employees, suppliers
a) To encourage Kai to bulk purchase.
b) Trade discount at July 5 = 15% x 6 280
c) Cash discount at July 28 = 2 425/97 x 100
= $2 500
|Date||Particulars||Dr ($)||Cr ($)||Balance|
|Jul 1||Balance b/d||1 567 Dr|
|5||Sales revenue (6 280 – 942)||5 338||6 905 Dr|
|14||Sales returns||1 950||4 955 Dr|
|28||Cash at bank||2 425||2 530 Dr|
|Discount allowed||75||2 455 Dr|
|Aug 1||Balance b/d||2 455 Dr|
1. Incomplete information on the cheque
2. Cheque was post-dated
3. Balance in the payers account is insufficient
a) Asset = Liabilities + Equity
Assets = (3 000+100+600) = 3 700
Liabilities = (1 000+150) = 1 150
Equity = (3 700-1 150) = 2 550
c) When a business buys an asset, equity will increase. By assets = liabilities + equity, when assets increase, equity also increases. So, when Sahil’s business bought the motor vehicle from Riya Motors, the equity will also increase as he owes his trade payable of $5000.
d) The business and the owner are treated as two separate entities.
Paper 2 :
Statement of Financial Performance for the year ended 31 December 2021
|Service fee revenue (30 270 – 1 800)||28 470|
|Add: Other income|
|Less: Other Expense|
|Rent expense (5 950 – 550)||5 400|
|Insurance expense||2 650|
|Printing and stationery (295 + 66)||361|
|General expense||8 860|
|Motor vehicle expense||1 675|
|Depreciation on Fixtures and fittings (10% x 18 500)||1 850|
|Depreciation on Motor Vehicles (20% x (14 650 – 2 930))||2 344||(23 140)|
|Profit for the year||6 180|
Statement of Financial Position as at 31 December 2021
|Cost||Accumulated Depreciation||Net Book Value|
|Fixtures and fittings (10% x 18 500)+(7 400)||18 500||9 250||9 250|
|Motor vehicles (20% x (14 650 – 2 930))+(2 930)||14 650||5 274||9 376|
|Total non-current assets||33 150||14 524||18 626|
|Trade receivables||2 680|
|Cash in hand||85|
|Prepaid rent expense||550|
|Total current assets||3 315|
|Total assets||21 941|
|Equity and liabilities|
|Capital (25 450+6 180-14 380)||17 250|
|Trade payables||1 580|
|Cash at bank||1 245|
|Stationery expense payable||66|
|Service fee income received in advance||1 800|
|Total Liabilities||4 691|
|Total Equity and liabilities||21 941|
a) General Journal
|Motor vehicles||7 300|
|Trade payable – Exe Motors||7 300|
|Bought motor vehicles costing $7300 on credit from Exe Motors.|
bi) Capital expenditure is the cost to buy and bring non-current assets to their intended use.
bii) Revenue expenditure is the cost to operate, repair and maintain the non-current assets in working condition.
|Diesel for the motor van||✓|
|Painting business name on the motor van||✓|
|Motor van service||✓|
|Motor van insurance||✓|
d) Materiality is relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process.
a) Cash at bank account
|Date||Particulars||Dr ($)+||Cr ($)-||Balance|
|Jul 31||Balance b/d||993 Dr|
|Bank charges||72||921 Dr|
|Aug 1||Balance b/d||921 Dr|
Bank reconciliation statement at 31 July 2020
|Balance as per unadjusted bank statement (credit)||988|
|Add: Deposit in transit|
|Less: Cheques not yet presented|
|Updated bank statement balance||921|
c) To determine the actual cash at bank balance. To deter fraud. To reconcile the differences between the cash at bank account and the bank statement.
d) Objectivity theory states that all business transactions must have a piece of verifiable unbiased evidence to prove that the transaction took place.
a) Inventory account
|Date||Particulars||Dr ($)+||Cr ($)-||Balance|
|Mar 1||Balance b/d||5 000 Dr|
|8||Cost of sales||5 000||–|
|12||Trade payable – LP Supplies||400||400 Dr|
|19||Cost of sales||400||–|
|25||Cost of sales||400||400 Dr|
|Apr 1||Balance b/d||400 Dr|
b) Cost of sales for March 2020 = 5 000 + 400 – 400
= $5 000
c) Advise Eric which supplier he should choose. Justify your decision with two reasons.
I would advise Eric to choose from SK Traders. Firstly, it’s because of its list price of $9 which is cheaper by $1 than the LP Supplies. Lower list price allows the business to have extra cash to pay for other expenses and Eric’s business gross profit, gross profit margin and mark-up on cost. Secondly, Eric can also have the additional incentives from SK Traders. SK Traders provides an additional incentive which is samples of new types of shoes provided monthly to their customers. This will allow Eric to change the types of shoes in his shop more often so people would not think that the pattern is very mundane and would attract more customers too. Hence, I would recommend Eric to choose SK Traders.