Paper 1 :

a) To allow segregation of duties

b) 1 – Flexibility 2 – Reduction in mistakes

ci) – $150

cii) – $55

d) It states that every transaction must be supported by a source document that is verifiable.

e) Payment voucher/Invoice/Receipt

f) It states that the accountant must be straightforward and honest in the recording of all business transactions.

a) Accrual theory. It states that revenue is recognized when it is earned, regardless of when it was received.

Particulars	Dr $	Cr $
Consultancy fee receivable	2800
Consultancy fee		2800
Being adjustment for commission fee receivable at year end

Consultancy Fee Income

Date	Particulars	Dr $	Cr $	Bal $
2021
Mar 31	Cash at bank		62,220	62,220
	Commission receivable		2,800	65,020
	Profit and loss (income summary)	65,020

d) sales journal

Calculate, for the year ended 31 January 2021:

(i) Total sales revenue:

Percentage of expense = Expense/Net sales revenue x 100% = 35%

35% (expense) -> $28,000
100% (net sales revenue) = $28,000/35*100 =$80,000

Net sales revenue = total sales revenue – sales returns

$80,000 = Total sales revenue – 3500

Total sales revenue = $83 500

(ii) total credit sales:

100% -> $83 500.
Credit sales = 100% – 45% = 65%

Total credit sales = 0.55*83500 = $45 925

(iii) Cost of sales:

Net sales revenue – Cost of sales – expenses = Profit

$80,000 – Cost of sales – 28,000= 5600

Cost of sales=$46,400

Double entry rule: Every business transaction is recorded using the double-entry recording. Every transaction will have at least one debit entry to one account and at least one credit entry to another account.

> The total debit value must equal to the total credit value for each transaction

Two uses of trial balance:

1. To facilitate the preparation of financial statements

2. To check for arithmetical errors in recording of the transactions

Stakeholders- Government/Employees/Shareholders/…

Reason for interest: Government – to know how much tax should they collect from the business

	31 July 2020	31 July 2021
Workings	(9785+8325)÷ 2= 9055	(8325+78054)÷ = 8065
Inventory turnover rate (times)	68,000÷9055=7.50966 =7.51(2.d.p)	65,000÷8065=8.0595 =8.06(2d.p)

b) The rate of inventory turnover for mia’s business has improved from 7.51 times in 2020 to 8.06 times in 2021. This indicates that the business is not able to manage it’s inventory efficiently over the years.

Suggest one measure a business can take to improve the rate of inventory turnover

•Review the types of goods sold so as to improve sales volume
Organize sales promotion to increase sales volume

•Review the quality of services provided in order to improve the sale volume “

•Increasing sales by attracting more customers through advertising and marketing.
Reducing selling prices for slower moving items.

•Offering discounts and special promotions to encourage customers buying in bulk or make frequent purchases.

•Decreasing inventory on hand by keeping just sufficient goods to meet customers’ demands and not holding excessive inventory.

•A business can sell more by using advertisements to attract customers or offer sales promotions and discounts.

Statement of financial position as at 31 July 2021 (extract)

Current asset	$	$
Inventory	600

Paper 2 :

Michelle

Income statement for the year ended 30 September 2021

	$	$
Sales revenue	97,200
Less: Sales returns	(3400)
Net sales revenue		93,800
Less: Cost of sales(58300-420)		57,880
Gross profit		35920

Other income
Discount received	1400

Less: Other expenses
Impairment loss on trade receivables	450
Depreciation of fixtures and fittings(10%x33000)	3300
Depreciation of motor vehicles [(24000-10500) x 25%]	3375
Interest	600
General expense(8110+185)	8295
Wages and salaries	15700
Discount allowed	1875
Rent expense (11250-2250)	9000	42595

Loss for the period		5275

Michelle

Balance sheet as at 30 September 2021

	$	$	$
Non-current assets	Cost	Accumulateddepreciation	Net book value
Fixtures and fittings	33000	13200	19800
Motor Vehicles	24000	13875	10125
			29925
Current assets
Inventory			9750
Trade receivables		10820
Less: Allowance for impairment of trade receivables (700-250)		(700)
Net trade receivables			10120
Prepaid rent expense			2250
Cash at bank			3200
Total Assets			55245

Equity & Liabilities
Owner’s equity
Beginning Capital(-5800-420-5275)		47615
Less: Loss for the year		(5275)
Less: Drawings		(6220)	36120
Non-current liabilities
Long-term borrowings			10000

Current liabilities
Trade payables		8340
General expense payable		185
Accrued interest expense		600	9125
Total equity and liabilities			55245

(a) The value of owner’s equity changes when there’s contribution of assets by its owner, profit and losses in a year and owner’s drawing of resources from the business for personal use.

(b) Profit = Ending capital + drawings – beginning capital.

35,000 = (105,000+16,000+11,000+2250-29000-3250-32000) + Drawings – 55,000

35,000=70,000 + Drawings -55,000
Drawings = 35,000+55,000-70,000
=$20,000

(a)

Journal

Date	Particulars	Dr	Cr
2020		$	$
May	Allowance for impairment of trade receivables	2100
	Trade receivables – Ami		2100

(b) The business allocates a portion of trade receivables as allowance for impairment of trade receivables as debts that are likely to be uncollectible, this is to ensure that the business does not overstate its assets in accordance to prudence theory.

(c)

Allowance for impairment of trade receivables account

Date	Particulars	Dr	Cr	Balance
2020		$	$	$
June 1	Balance b/d (2100+4200+3520)			9820 Cr
2021
May 31	Trade receivables – Ami	2100		7720 Cr
	Trade receivables – Eugene	2200		5520 Cr
	Impairment loss on trade receivable	5520		0

(d) Impairment loss on trade receivables will be recorded as an expense.

(e) Evaluate:
He can evaluate the likelihood based on the fact that he is in the second year of business and has a history of the payment behavior of his customers. He should also do so to follow the prudence concept and avoid overstating assets by recording allowance for impairment on trade receivable should some credit customer be unable to pay in near future.

(a)

Trade payable – Chang

Date	Particulars	Dr	Cr	Balance
2021		$	$	$
Feb 8	Inventory		3500	3500 Cr
Feb 12	Inventory	500		3000 Cr
Feb 16	Inventory (90% x 6000)		5400	8400 Cr
Feb 21	Cash at bank (98%x 8400)	8232		168 Cr
	Discount received (2%x 8400)	168		–

(b) Trade discount is given to encourage bulk purchase
Trade discount is given at the point of sale

Cash discount is given to encourage early/prompt payment

Cash discount is given at the point of payment

(c) The financial statement of a trading business includes the sales revenue, sales returns and cost of sales account while a service business does not have a trading account and starts its financial statements with a service fee revenue account.

(d) The accounting period theory divides the life of a business into equal time periods for financial reporting.

Non current assets are assets owned and controlled by the business and bought for the business use to generate income. It is not meant for resale.

i) Depreciation is the allocation of the cost of non-current asset over its useful life

ii) Accumulated depreciation refers to the total depreciation of a non-current asset to date.

(c) Prudence and matching concept
Note: Consistency concept is not appropriate. This concept is for the use of the same depreciation methods across accounting periods.

(d) Gain or Loss on Sale of NCA:
Net book value of nca = 80%*80%*30,000 = $19,200
Sold for $15,000. Loss on sale of non-current asset = $19,200 – $15,000 = $4,200.

(e) Dr Cash at bank 15,000 Cr SALE OF NON- CURRENT ASSET
Note: It’s not credit Motor Vehicle. See page 54 of MPOA study guide for explanation.