2016 O Level POA Answers Paper 2
Azman Ltd
Statement of financial performance for the year ended 31 July 2016
| $ | $ | |
| Sales revenue | 325000 | |
| Less: sales returns | 2400 | |
| Net sales revenue | 322600 | |
| Less : cost of sales | 94300 | |
| Gross profit | 228300 | |
| Add: Other Income | ||
| Interest on bank deposit (15000 x 10%) | 1500 | |
| Less: Other Expenses | ||
| Salaries and wages | 78960 | |
| Machine repairs (5600 + 3000) | 8600 | |
| General expenses (39700 – 350 + 560) | 39910 | |
| Depreciation on plant and machinery ((193000 – 68000) x 20%) | 25000 | |
| Depreciation on motor vehicles (84000 x 25%) | 21000 | |
| Impairment loss on trade receivables (800 – 600) | 200 | |
| 173670 | ||
| Profit of the year | 56130 |
Azman Ltd
Statement of financial position as at 31 July 2016
| Assets | $ | $ | $ |
| Non-current asset | cost | Acc. dep. | N.B.V |
| Plant and machinery | 193000 | 93000 | 100000 |
| Motor vehicles | 84000 | 53000 | 31000 |
| Total non-current assets | 131000 | ||
| Current assets | |||
| 10% bank deposit | 15000 | ||
| Trade receivables | 18500 | ||
| Less: allowance for impairment on trade receivables | (800) | 17700 | |
| Cash at bank | 14300 | ||
| Inventory | 36320 | ||
| Prepaid general expense | 350 | ||
| Interest on bank deposit receivables | 500 | ||
| Total current assets | 84170 | ||
| Total assets | 215170 | ||
| Equity and liabilities | |||
| Shareholder’s equity | |||
| Issued share capital, 100,000 ordinary shares | 100000 | ||
| Retained earnings | 89130 | ||
| Total equity | 189130 | ||
| Current liabilities | |||
| Trade payables | 13480 | ||
| General expenses payable | 560 | ||
| Dividend payables (100000 x 0.1) | 12000 | ||
| Total current liabilities | 26040 | ||
| Total equity and liabilities | 215170 |
a) Reasons why is it important that a business is profitable:
- To pay suppliers and expenses
- For expansion
- To attract investments
b) Return on equity = (Profit of the year / average equity) x 100%
| 2014 | 2015 | |
| Return on equity | (15400/85000) x 100%=18.12% | (23200/100000) x 100%=23.20% |
c) Vicky Ng’s sales revenue increased from $90000 in 2014 to $130000 in 2015 and gross profit increased from $35000 in 2014 to $44000 in 2015. However, gross profit margin has declined from 38.9% to 33.9%. Vicky could have reduced the selling price in order to attract more customers and resulted in higher sales revenue. Despite the drop in gross profit margin, Vicky’s profit for the year increased from $15400 in 2014 to $23200 in 2015 and profit margin increased from 17.1% in 2014 to 17.9% in 2015. This is due to the better cost control as seen by the decrease in percentage of expenses to net sales revenue from 21.8% (38.9% – 17.1%) in 2014 to 16.0% (33.9% – 17.9%) in 2015. Vicky has also increased the return on equity from 18.12% in 2014 to 23.20% in 2015, indicating that from every hundred dollars a shareholder invested, he is able to get back $23.20 in 2015 as compared to only $18.12 in 2016. Based on the improved profitability and return on equity, Rachael should invest in Vicky’s business.
a) Reasons to prepare a bank reconciliation statement
- To identify errors and omissions
- To explain the difference in balances between cash at bank account and bank statement.
b)
Accumulated depreciation of motor vehicles account
| Date | Particulars | Dr | Cr | Bal |
| 2016 | $ | $ | $ | |
| Aug 31 | Balance b/d | 663 Dr | ||
| 31 | Utilities | 250 | 413 Dr | |
| 31 | Trade receivables – B Ling | 1460 | 1873 Dr | |
| 31 | Bank Charges | 60 | 1813 Dr | |
| Sept 1 | Balance b/d | 1813 Dr |
c) Bank reconciliation statement as at 31 August 2019
| $ | $ | |
| Debit balance as per bank statement | 1813 | |
| Add : Deposit in transit | ||
| Adi | 1214 | |
| Insurance | 350 | |
| Trade payable – Yee | 280 | |
| 1844 | ||
| Less : Cheques not yet presented | ||
| Teo | 253 | |
| Credit balance as per adjusted cash at bank account | 3404 |
di) An overdrawn cash at bank balance would appear in the current liabilities as short-term borrowings.
dii) Cash in hand would appear in current assets.
a)
| Capital expenditure | Revenue expenditure | |
| Purchase price of delivery van | ✔️ | |
| Special shelves fitted into the delivery van | ✔️ | |
| Annual insurance premium | ✔️ | |
| Replacement of tyre damage during the year | ✔️ |
b)
Accumulated depreciation of motor vehicles account
| Date | Particulars | Dr | Cr | Bal |
| 2015 | $ | $ | $ | |
| Nov 1 | Balance b/d | 5600 Cr | ||
| 2016 | ||||
| Oct 31 | Depreciation | 1800 | 7400 Cr | |
| Oct 31 | Balance b/d | 7400 | – |
c)
Sale of non-current asset account
| Date | Particulars | Dr | Cr | Bal |
| 2016 | $ | $ | $ | |
| Oct 31 | Equipment | 12800 | 12800 Dr | |
| 31 | Accumulated depreciation | 7400 | 5400 Dr | |
| 31 | Cash at bank | 4500 | 900 Dr | |
| 31 | Income summary | 900 | – |
a) Reasons for preparing a trial balance:
- To check for arithmetical accuracy
- To assists the preparation of financial statements
b)
General journal
| Date | Particulars | Dr | Cr |
| 2016 | $ | $ | |
| Jun 30 | Trade receivables – Li Thiam | 740 | |
| Trade receivables – Lee Sun | 740 | ||
| Jun 30 | Fixtures and fittings | 1500 | |
| Maintenance expense | 1500 | ||
| Jun 30 | Drawings | 200 | |
| Capital | 200 | ||
| Jun 30 | Trade payables – Chan Yin (460 x 2) | 920 | |
| Cash at bank | 920 |
c) 1. Errors of commission
2. Errors of principle
