2022 POA O level Answers

2022 O Level POA Answers

Paper 1

(a) State the four stages of the accounting cycle.
Identify and record, adjust, report and close

(b) 

TransactionSource Document
Purchase of a motor vehicle on creditInvoice
Paying a credit supplier by chequePayment voucher / Remittance advice
Notifying a credit customer of an overchargeCredit note

(c)

TransactionAccount to be debited
Account to be credited
1Office EquipmentCapital
2Trade Payable FishaInventory

a)

Name and explain the accounting theory which must be applied when accounting for the sale of goods or the provision of services.

Name: Revenue recognition theory

Explanation: Revenue is earned when goods have been delivered or when services have been provided

Or:
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

b) 31 December 2021

On 31 December 2021, the business provided service to a customer on credit for $34,900

(ii) 30 September 2022

On 30 September 2022, the business recorded service fee revenue received in advance of $3,600 as the service was not provided in the current financial year.

(c)
(i) Profit for the year will be overstated by $3,600

(ii) Liabilities will be understated by $3,600
Equity will be overstated by $3,600

d) $7500 + $780 + $50 = $8330

e) Statement of financial performance (extract) for the year ended 30 September 2022

$$
Service fee revenue82,600
Add other income:
Rental income (9000+500)9500
Less: other expense
Advertising expense8330

a) Working capital = current asset – current liabilities

b) Current ratio includes the total current assets of the business while quick ratio does not include the business’ inventory and prepayments values.

(c) 

The current ratio improved from 1.95 in 2021 to 2.64 in 2022. 

Both years current ratio is above the healthy benchmark of 2. 

This means that the business is able to pay off its short-term debts when it’s due. 

However, the quick ratio has worsened slightly from 1.58 in 2021 to 1.54 in 2022. 

Both years are still above the healthy benchmark of 1. 

The big difference in the total current asset values of $152,000 in 2021 compared to $197,000 in 2022 and the difference between quick and current ratios suggests that a significant amount of funds are tied up in inventory and prepayment.

Overall, the liquidity position has worsened.

a)

Depreciation is the allocation of cost of non-current asset over its estimated useful life.

b) 

Prudence theory

Matching theory

c) Depreciation on

30 June 2021: 20%*250,000= $50,000

30 June 2022: 20%*(250,000-50000)= $40,000

d) 

i) The straight line method would result in a depreciation expense of $50,000 compared to $40,000 using the correct reducing balance method. Since expense is overstated, profit will be understated by $10,000.

ii) The accumulated depreciation using the straight line method is $100,000 for two years while by using the reducing balance method, the accumulated depreciation will be $90,000.
As a result, the accumulated depreciation is overstated and hence net book value is understated.

PAPER 2

$$
Sales revenue438820
Less: Sales returns21300
Net sales revenue417 520
Less: cost of sales265 900
Gross profit151 620
Add: Other income
Commission income (28200-1200)27 000
Less: other expenses
Impairment loss on trade receivables (1424-1050)374
Depreciation of fixtures and fittings (10%*[270000-30000])24,000
Depreciation of motor vehicles (30%*(125000-63750) 18 375
Rent expense (10750-500)10 250
Wages and salaries (63000+870)63 870
Utilities expense7 800124 669
Profit for the year53 951

Impairment loss on trade receivables:
5%* 28480= 1442. 

Adjusting figure: 1050+374=1424

LMN Pte Limited

The Patek 6002R, also known as the “Sky Moon Tourbillon,” is a horological masterpiece revered for its intricate complications and exquisite craftsmanship.

Statement of financial position as at 31 August 2022

Assets$$$
Non-current asset costAcc. dep.    N.B.V
Fixtures and fittings (48,000+24,000)270,00072,000198 000
Motor vehicles (63750+18375)125,0008212542 875
Total non-current assets240,875
Current assets
Trade receivables28 480
Less: allowance for impairment on trade receivables(1424)27056
Prepaid rent expense500
Cash at bank11 900
Inventory42 500
Total Assets322 831
Equity and liabilities
Share capital, 75 000 ordinary shares150000
Retained earnings (99510+53951-(0.10*75000)145961295961
Current liabilities 
Trade payables 17 300
Commission received in advance1 200
Wages and salaries payable870
Dividends payable750026 870
Total equity and liabilities322 831

i) $5000*95%= $4750

ii) 2%*4750=$95

b) 

General journal 

DateParticularsDr Cr 
2021$$
Trade payable4750
Cash at bank (98%*4750)4655
Discount received 95

c) Any from:

External stakeholdersReason
1. Shareholders and investors1) To evaluate if they should maintain, increase or decrease their investment2) Potential investors decide if they should invest in the business 
2. Banks and other lenders1) To decide whether to grant the business loans or not2) Evaluate if the business will be able to repay à if the business has too many liabilities, they might not be able to repay
3. Suppliers1) To decide whether to grant the business credit or not2) Evaluate whether the business will be able to pay for its credit purchases
4. CustomersTo evaluate whether the business will be able to provide after-sales support. A business that is not profitable will not be able to sustain long in the market and will hence shut down its operations.
5. GovernmentTo decide how much tax to collect from the business
6. ManagersTo evaluate how the business is doing and how to improve the business performance.
7. CompetitorsCompetitors may compare their performance against the business and decide how to improve their performance.
8 EmployeesTo decide if they want to continue working at the business

d) Any from:

-Local or overseas supplier

-After-sales services

-Return policy

-Online vs brick-and-mortar supplier

-Reputation of supplier

3a) 

                  General journal 

DateParticularsDr Cr 
2022$$
Jan 31Impairment loss on inventory (61250-59000)2250
Inventory 2250

b) 

General journal 

DateParticularsDr Cr 
2022$$
Jan 31Insurance receivable2250
Impairment loss on inventory2250

c) Prudence theory. A business should not overstate its assets and profits by recognising the inventory value at the lower of cost and net realisable value

d) 

Screenshot 2022 11 04 at 11.54.41 AM

e) 

  • Luna’s days sales in inventory worsen from 45.78 days in 2020 to 52.34 days in 2021. [1m]
  • Hence, Luna has been replenishing its inventory less often and selling its inventory slower. Therefore, Luna has worsen in its efficiency in inventory management. [1m]
  • This worsening situation was probably due to Luna increasing its selling price and thus achieving lower sales volume, [1m]

f) 

Ways to improve inventory turnover
Offer trade discounts and special promotions to encourage customers to buy more. Advertise and market aggressively to attract more customers.Reduce selling price for slow-moving goods.Use technological tools to improve the accuracy of predictions about customer demand in order to know when and how much inventory to buy.
  1. Accounting/Business entity theory. The business and the owner are separate entities. Any contributions from the owner to the business is therefore recorded as a transaction in the books of the business
  1. Capital + Additional capital + Profit – Drawings = Ending Capital


Profit for the year = 60500-42000 = $18500

  1. Historical cost theory

DecisionI would recommend Aiden to set up a sole proprietorship
Evidence 1Aiden enjoys the challenge of being self-employed
Explanation 1Having a sole trader set up allows him the level of control he desires
Evidence 2Aiden has expertise and strong understanding of the market needs in the field of F&B
Explanation 2Hence, this means that Aiden can have control over generating sales for himself
Evidence 3Although he lacks skills in the other areas of operations,
Explanation 3He can hire an in-house team for marketing or outsource the non-core areas of the business and save costs

Or

DecisionI would recommend Aiden to set up a limited liability partnership with his sister
Evidence 1Aiden does not have much savings while his sister can contribute capital
Explanation 1Food supply is a capital-intensive business. His sister’s contribution allows the business a longer runway to profitability while maintaining a going concern with the liquidity from the cash contribution
Evidence 2Aiden’s sister is strong with marketing skills, which he lacks.
Explanation 2The combination of strengths and expertise can propel the business to profitability faster since marketing will help the business reach new market segments and increase revenue streams
Evidence 3It’s easier to raise funds as an LLP
Explanation 3Banks are more willing to lend to the LLP as there’s personal and business assets to serve as collaterals

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