2022 O Level POA Answers
Paper 1
PAPER 2
| $ | $ | |
| Sales revenue | 438820 | |
| Less: Sales returns | 21300 | |
| Net sales revenue | 417 520 | |
| Less: cost of sales | 265 900 | |
| Gross profit | 151 620 | |
| 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 expense | 7 800 | 124 669 |
| Profit for the year | 53 951 |
Impairment loss on trade receivables:
5%* 28480= 1442.
Adjusting figure: 1050+374=1424
LMN Pte Limited
Statement of financial position as at 31 August 2022
| Assets | $ | $ | $ |
| Non-current asset | cost | Acc. dep. | N.B.V |
| Fixtures and fittings (48,000+24,000) | 270,000 | 72,000 | 198 000 |
| Motor vehicles (63750+18375) | 125,000 | 82125 | 42 875 |
| Total non-current assets | 240,875 | ||
| Current assets | |||
| Trade receivables | 28 480 | ||
| Less: allowance for impairment on trade receivables | (1424) | 27056 | |
| Prepaid rent expense | 500 | ||
| Cash at bank | 11 900 | ||
| Inventory | 42 500 | ||
| Total Assets | 322 831 | ||
| Equity and liabilities | |||
| Share capital, 75 000 ordinary shares | 150000 | ||
| Retained earnings (99510+53951-(0.10*75000) | 145961 | 295961 | |
| Current liabilities | |||
| Trade payables | 17 300 | ||
| Commission received in advance | 1 200 | ||
| Wages and salaries payable | 870 | ||
| Dividends payable | 7500 | 26 870 | |
| Total equity and liabilities | 322 831 |
i) $5000*95%= $4750
ii) 2%*4750=$95
b)
General journal
| Date | Particulars | Dr | Cr |
| 2021 | $ | $ | |
| Trade payable | 4750 | ||
| Cash at bank (98%*4750) | 4655 | ||
| Discount received | 95 |
c) Any from:
| External stakeholders | Reason |
| 1. Shareholders and investors | 1) 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 lenders | 1) 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. Suppliers | 1) To decide whether to grant the business credit or not2) Evaluate whether the business will be able to pay for its credit purchases |
| 4. Customers | To 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. Government | To decide how much tax to collect from the business |
| 6. Managers | To evaluate how the business is doing and how to improve the business performance. |
| 7. Competitors | Competitors may compare their performance against the business and decide how to improve their performance. |
| 8 Employees | To 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
| Date | Particulars | Dr | Cr |
| 2022 | $ | $ | |
| Jan 31 | Impairment loss on inventory (61250-59000) | 2250 | |
| Inventory | 2250 |
b)
General journal
| Date | Particulars | Dr | Cr |
| 2022 | $ | $ | |
| Jan 31 | Insurance receivable | 2250 | |
| Impairment loss on inventory | 2250 |
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)
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. |
- 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
- Capital + Additional capital + Profit – Drawings = Ending Capital
Profit for the year = 60500-42000 = $18500
- Historical cost theory
| Decision | I would recommend Aiden to set up a sole proprietorship |
| Evidence 1 | Aiden enjoys the challenge of being self-employed |
| Explanation 1 | Having a sole trader set up allows him the level of control he desires |
| Evidence 2 | Aiden has expertise and strong understanding of the market needs in the field of F&B |
| Explanation 2 | Hence, this means that Aiden can have control over generating sales for himself |
| Evidence 3 | Although he lacks skills in the other areas of operations, |
| Explanation 3 | He can hire an in-house team for marketing or outsource the non-core areas of the business and save costs |
Or
| Decision | I would recommend Aiden to set up a limited liability partnership with his sister |
| Evidence 1 | Aiden does not have much savings while his sister can contribute capital |
| Explanation 1 | Food 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 2 | Aiden’s sister is strong with marketing skills, which he lacks. |
| Explanation 2 | The 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 3 | It’s easier to raise funds as an LLP |
| Explanation 3 | Banks are more willing to lend to the LLP as there’s personal and business assets to serve as collaterals |
