2021 POA Solutions 8087

2021 O Level POA Answers 7087

Paper 1 :

ai) 1 July 2019- The business obtained a bank loan of $40,000.

(ii)30 June 2020- The business repaid $8000 of the bank loan by cheque 

(b)(i) 1 January 2020- The business reversed the adjustment made for $1200 owed in the previous financial year

(ii)30 june 2020- The business paid interest expense of $2400 by cheque 

(c) Statement of financial performance (extract) for the year ended 31 December 2020 

Less : other expense $$
Interest expense 2,160

(d) Statement of financial position (extract) as at 31 December 2020

Non-current liabilities $
Long term borrowings (32,000-8000)24,000
Current liabilities 
Current portion of long term borrowings 8,000
Interest expense payable 960

(e) A bank loan is recorded as a non-current liability in the statement of financial position while a bank overdraft is recorded as a current liability in the statement of financial position.

(f) Name:  Accrual basis of accounting 

Explanation: According to accrual basis of accounting expenses are represented in the financial period that the services have been used in/that the expense is incurred regardless of when payment is made 

ai) Asset- Resources a business owns or controls that are expected to provide future benefits 

ii) liability- Obligations owed by a business to other that are expected to be settled in the future 

iii) Income- Amounts earned from the activities of a business 

iv) Expense- Cost incurred to earn the income in the same accounting period 

b) Total equity= 50,000 + 80,000 =$130,000

Total liabilities= 7,800 + 1,200 + 10,000 =$19,000

Total assets= 130,000 +19,000 =$149,000

Net book value= 149,000 – 13,500 – 12,000  =$123,500

c) In accordance to the consistency theory, once an accounting method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison 



DateParticularsDr Cr 
Equipment (5,400-4,500)900
Trade payable – Bernardo 900


Overstated $Understated $No effect $
Error 260
Error 3
Error 475

(c) Accounting entity theory states that the activities of a business and the actions of the owner are separate entities. All transactions should be recorded from the point of view of the business.


30 september 202030 september 2021
Workings [(17,200+25,500)÷2] _______________  x 365        278,500[(25,500+34,000) ÷2]________________ x 365      299,250
Trade receivables collection period (days)27.98 days36.29 days

(b) The trade receivables collection period has worsened from 27.98 days in 2020 to 36.29 days in 2021. This shows that the business is taking a longer time to collect payment from it’s credit customers this year as compared to last year. In fact the trade receivables collection period on 30 September 2021 has exceeded the credit terms of the business of 30 days. This would also mean that over the two years, Ping’s business runs a higher credit risk as the business might be facing difficulties in collecting payments from its trade receivable and hence is less efficient in managing its trade receivables.

(c) 1. Offer cash discounts to encourage credit customers to pay early.

2. Ensure credit is granted to customers who are financially able

(d) Any two from:

Economic outlook

Industry outlook

Reputation of customers

Repayment history

(e)Prudence theory

Paper 2 :


Statement of financial performance for the year ended 30 April 2019

Advertising fee revenue (186750-127000) 174050
Add: other income
Commission income 1300
Less: other expenses
Impairment loss on trade receivables (465-195) 270
Depreciation of office equipment (25% x [40000-10000] 8500
Depreciation of motor vehicles (10% x 75000) 7500
Interest expense (4% x 15000) 600
General expense (12350-950) 11400
Rent expense (22500-750)21750
Wages and salaries 38500
Printing expense (23460+1800) 25260113780
Profit for the year61570


Statement of financial position as at 30 April 2019

Non-current asset costAcc. dep.    N.B.V
Office equipment 850002550059500
Motor vehicles 400001750022500
Current assets
Trade receivables23250
Less: allowance for impairment on trade receivables(465) 22785
Prepaid rent expense750
Cash at bank5670
Total assets111205
Equity and liabilities
Owner’s equity
Capital (27685-19500-950+61570)68805
Non-current liabilities 
Long-term borrowings15000
Current liabilities 
Trade payables 12300
Printing expense payable1800
Advertising fee revenue received in advance12700
Interest expense payable 600
Total equity and liabilities111205


                                                                          General journal 

DateParticularsDr Cr 
Mar 3Cost of sales 2100
Inventory 2100
Trade receivable – Joel (95% x 3000) 2850 
Sales revenue 2850
Mar 14Cash at bank2793 
Discount allowed57 
Trade receivable – Joel 2850

b) The business offers a trade discount to encourage customer loyalty/bulk purchase. 

c) The business offers a cash discount to encourage early/prompt payment.


  • Accountants prepare and provide accounting information to stakeholders of the business for decision making. 
  • Accountants set up an accounting information system and become the stewards of the business. 


Tasty cakesFancy gateaux 
i) gross profit margin$68000-$44000 = $24000 ($24000/$68000) x 100% = 35.29%$92000-$53000 = $39000($39000/$92000) x 100%= 42.39%
ii) profit margin $24000-$9500 = $14500($14500/$68000) x 100%= 21.33% $39000-$22400 = $16600($16600/$92000) x 100% = 18.05% 


Fancy gateaux gross profit margin is better than tasty cakes. Fancy is selling goods at a higher price than tasty cakes and fancy can buy cheaper goods. However, tasty cakes had a better profit margin as compared to Fancy gateaux. Tasty cakes is better at managing its operating expenses. Comparing only margins, tasty is more profitable than Fancy. Tastys return on equity is better than fancy, hence, overall tasty is more profitable.

(c) For investors, the most important criteria is the return on equity. Zander should invest in tasty cakes as it has a higher return on equity than fancy. 20.52-15.34=$5.18. Tasty can earn $5.18 more for every $1 invested.

(d) Profitability is important to a business to ensure that the business can sustain on its own in the long run without a need for constant capital injection from its owner (s) to stay as a going concern.


March 31: Bought a motor vehicle worth $15000 on credit from Naomi. 

March 31: Owner contributed a motor vehicle worth $9000 into the business. 

The last part has been modified in 2021 due to removal of common last topic  (CLT) : Sale of non-current assets.

Original : March 31 : Sold motor vehicle costing $20000 (original) 

Modified for CLT: Purchased motor vehicle for $20000 by cheque. 

bi) Capital expenditure is the cost incurred to bring the non-current asset to their intended use, it provides benefits that last for more than a year and is recorded as non-current assets. 

bii) Revenue expenditure is the cost incurred to repair and maintain the non-current assets to keep it in working condition. The benefits will be used within one financial year and is recorded as an expense. 


Decision [1] Khalid should buy machine Alpha.
Evidence [1] It has a larger capacity and is able to pack 10000 units per week as compared to machine Omega which can only pack 9000 units per week. 
Explanation [1]The owner is assured of stock availability and is able to meet the demands of the customers without being short of stock. 
Evidence [1] It requires one full-time supervisor compared to machine Omega that requires two. 
Explanation [1] This allows the business to reduce the cost of salaries which will increase the profitability of the business. 
Evidence [1] Machine alpha also has a longer warranty of 5 years while machine Omega has a warranty of 3 years. 
Explanation [1] This allows the business to attract more customers as they are assured of the quality of the product and the availability of should they need after-sales support. 


Decision [1] Khalid should buy machine Omega. 
Evidence [1] It has a cheaper cost price compared to machine alpha. 
Explanation [1]Assuming the number of sales remains the same, the business is able to earn more revenue with a machine omega as it has a lower cost. 
Evidence [1] Machine Omega also has a cheaper annual service cost of $500 compared to $750 for machine Alpha. 
Explanation [1] This allows the business to invest the money on other things and help to improve the performance of the business. 
Evidence [1] Machine Omega also has positive feedback from 80% of customers as compared to machine alpha that is a new machine with no reviews. 
Explanation [1] This will attract more customers as they are assured of the quality of the machine, which will lead to more profit for the business. 

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