Section A

Answer all questions.

1 Edmund, owner of Edmodo Consultancy, provided the following balances for the year ended 31 March 2017.

$

Consultancy fee revenue 43 920

Commission income 10 960

Utilities expense 8 060

Discount allowed 3 260

Insurance expense 3 180

Salaries expense 4 680

Property maintenance expense 1 700

Property 200 000

Office equipment 4 800

Motor vehicle 110 000

Accumulated depreciation – motor vehicle 20 900

Trade receivables 21 700

Cash at bank 17 860

Allowance for impairment of trade receivables 1 700

Long term borrowing 180 000

Capital 117 760

2

Additional information

1 Commission income received in advance amounted to $720.

2 A client who owed $400 was declared bankrupt during the year but the amount was not written off yet.

3 A review of the trade receivables on 31 March 2017 showed that $800 is likely to be uncollectible.

4 Edmund used his personal fund to pay for additional office utilities expense of $1 700. This had not been recorded.

5 Interest on the loan is at 5% per annum.

6 $40 000 of the loan is repayable on 31 May 2017.

7 On 1 April 2016, a new motor vehicle that cost $85 000 was purchased on credit. This was not recorded. Motor vehicles are depreciated at 10% per annum using the reducing balance method.

8 Property is depreciated based on 2% per annum on cost.

9 Office equipment is depreciated at 25% per annum on cost.

REQUIRED

(a) Prepare the income statement for the year ended 31 March 2017. [10]

(b) Prepare the balance sheet as at 31 March 2017. [10]

[Total: 20]

[Turn over

3

2 The following balances were extracted from the books of Stella Deli Café for the month of March 2017.

$

Trade receivables (as at 1 March 2017) 19 000

Trade payables (as at 1 March 2017) 4 200

Discount allowed 600

Discount received 100

Cash sales 11 800

Cash purchases 3 000

Total receipts from credit customers 11 000

Sales returns from credit customers 1 800

Cash payment to credit suppliers 4 700

Write-off of trade receivables 1 000

Trade receivables (as at 31 March 2017) 10 000

Trade payables (as at 31 March 2017) 7 000

REQUIRED

(a) Prepare the trade receivables control account and derive the credit sales revenue for the month of March 2017. [6]

(b) Calculate the total sales revenue for the month of March 2017. [2]

(c) Prepare the trade payables control account and derive the credit purchase of inventory for the month of March 2017. [4]

(d) Calculate the total inventory purchased for the month of March 2017. [2]

[Total: 14]

4

3 Yi Kwang shared the following information with you on 1 July 2016.

$

Commission income received in advance 1 800

Accrued advertising 1 400

The cash at bank account extract for the year ended 30 June 2017 is as follows:

Debit ($) Credit ($)

Commission income 10 500

Advertising 7 500

Additional information

1 On 30 June 2017, commission income receivable was $750.

2 Annual advertising was $6 000.

REQUIRED

(a) Prepare commission income account for the year ended 30 June 2017. [4]

(b) Prepare advertising account for the year ended 30 June 2017. [4]

(c) Prepare the relevant income statement extract for the year ended 30 June 2017. [2]

(d) Prepare the relevant balance sheet extract for the year ended 30 June 2017. [2]

[Turn over

5

Yi Kwang also shared the following extract from the business petty cash book for the first week of July 2017.

Petty Cash Book

Receipts Date Details Total payments

Postage Stationery Sundries

$ 2017 $ $ $ $

200 July 1 Balance b/d

150 1 Cash at bank

2 Marker pens 52 52

4 Stamps 35 35

40 6 Reimbursement from employee

6 Duct tapes 50 50

Total ?

7 Balance c/d ?

? July 8 Balance b/d

? 8 Cash at bank

REQUIRED

(e) Calculate the amount of Yi Kwang’s imprest. [1]

(f) Calculate the amount of reimbursement the petty cashier will receive on July 8. [1]

[Total: 14]

6

Section B

Answer one question.

4 Keith buys and sells shoes. He provided the following information for the financial years ended 31 December 2015 and 2016.

2015 2016$ $

Sales revenue 75 000 80 000Gross profit 15 000 20 000Profit for the year 9 000 4 800Capital, 31 December 51 400 56 200

Gross profit margin 20% 25%Profit margin 12% ?Mark-up on cost 25% ?Percentage of expenses to net sales revenue 8% ?

REQUIRED

(a) Calculate the following for the year ended 31 December 2016, round off answers to two decimal places.

(i) Profit margin [1]

(ii) Expenses [1]

(iii) Percentage of expenses to net sales revenue [1]

(iv) Mark-up on cost [2]

(v) Return on equity [1]

(b) Comment on the change in profitability of Keith’s business over the two years. [6]

[Total: 12]

7

[Turn over5 The following information are extracted from the books of Grace Office Supplies for

the years ended 30 June 2015 to 2017.

2015 2016 2017$ $ $

Current assetsInventory 20 000 20 000 36 500Trade receivables 11 500 15 000 4 500Prepaid rental expenses - - 5 000Cash at bank 500 1 000 -

Current liabilitiesTrade payables 2 000 2 750 5 100Bank overdraft - - 550Commission received in advance - 250 350

Additional information

2015 2016 2017$ $ $

Working capital 30 000 33 000 40 000

REQUIRED

(a) Calculate the following for each of the year ended 30 June 2015, 2016 and 2017, round off answers to two decimal places.

(i) Working capital (current) ratio [3]

(ii) Quick (acid test) ratio [3]

(b) Comment on the changes in Grace Office Supplies’ liquidity position over the three years. Use the information given above and the figures from (a). [4]

(c) Recommend two actions Grace Office Supplies could take to improve the liquidity of the business. [2]

[Total: 12]

8

End of paperMONTFORT SECONDARY SCHOOLSECONDARY 5 NORMAL ACADEMICPRINCIPLES OF ACCOUNTS 7175/02MASTERY REVIEW 2017MARKING SCHEME

1(a)Edmodo Consultancy

Income Statement for the year ended 31 March 2017Income $ $Consultancy fee revenue 43 920Commission income (10960 – 720) 10 240 (1)

54 160Less: ExpensesUtilities expense (8060 + 1700) 9 760 (1)Discount allowed 3 260 (½)Insurance expense 3 180 (½)Salaries expense 4 680 (½)Property maintenance expense 1 700 (½)Reversal of impairment loss on trade receivables [(1700 – 400) – 800] (500) (1)Interest expense (180000 x 0.05) 9 000 (1)Depreciation of motor vehicle [(110000 + 85000) – 20900] x 0.1 17 410 (1)Depreciation of property (200000 x 0.02) 4 000 (1)Depreciation of office equipment (4800 x 0.25) 1 200 (1) 53 690Profit for the year 470 (1) OF

9

1(b)Balance Sheet as at 31 March 2017

Assets $ $ $Non Current Assets Cost Accumulated

depreciationNet book

valueProperty 200 000 4 000 196 000 (1)Motor vehicle (110000 + 85000) 195 000 38 310 156 690 (1)Office equipment 4 800 1 200 3 600 (1)

399 800 43 510 356 290Current AssetsTrade receivables (21700 – 400) 21 300 (½)Less: Allowance for impairment of trade receivables 800 (½) 20 500Cash at bank 17 860 38 360Total assets 394 650

Equity and LiabilitiesOwner’s equityBeginning balance 117 760Add: Additional capital 1 700 (1)Add: Profit for the year 470Total equity 119 930Non Current LiabilityLong term borrowing (180000 – 40000) 140 000 (1)

Current LiabilitiesOther payable 85 000 (1)Commission income received in advance 720 (1)Accrued interest expense 9 000 (1)Current portion of long term borrowing 40 000 (1) 134 720

Total equity and liabilities 394 650

10

2(a)Trade receivables control account

Date Particulars Debit ( + ) Credit ( - ) Balance2017 $ $ $Mar 1 Balance b/d 19 000 Dr(½) 31 Discount allowed 600 (1) 18 400 Dr

Cash at bank 11 000 (1) 7 400 DrSales returns 1 800 (1) 5 600 DrAllowance for impairment of trade receivables

1 000 (1) 4 600 Dr

Sales revenue (credit sales) 5 400 (1)OF 10 000 Dr

Apr 1 Balance b/d 10 000 Dr(½)

2(b)Total sales revenue = Cash sales + Credit sales

= (11800 + 5400) [1]= $17 200 [1] OF

2(c)Trade payables control account

Date Particulars Debit ( - ) Credit ( + ) Balance2017 $ $ $Mar 1 Balance b/d 4 200 Cr(½) 31 Discount received 100 (1) 4 100 Cr

Cash at bank 4 700 (1) 600 DrInventory (credit purchases) 7 600 (1)OF 7 000 Cr

Apr 1 Balance b/d 7 000 Cr(½)

2(d)Total inventory purchased = Cash purchases + Credit purchases

= (3000 + 7600) [1]= $10 600 [1] OF

11

3(a)Commission Income account

Date Particulars Debit ( - ) Credit ( + ) Balance2016 $ $ $Jul 1 Commission income received in advance

1 800 (1) 1 800 Cr2017Jun 30 Cash at bank 10 500 (1) 12 300 Cr

Commission income receivable 750 (1) 13 050 CrProfit and loss 13 050 (1) -

3(b)Advertising account

Date Particulars Debit ( + ) Credit ( - ) Balance2016 $ $ $Jul 1 Accrued advertising 1 400 (1) 1 400 Cr2017Jun 30 Cash at bank 7 500 (1) 6 100 Dr

Prepaid advertising 100 (1) 6 000 DrProfit and loss 6 000 (1) -

3(c)Income Statement for the year ended 30 June 2017 (extract)

Add: Other income (½) $ $Commission income 13 050(½)OF

Less: Expenses (½)Advertising 6 000(½)OF

3(d)Balance sheet as at 30 June 2017 (extract)

Current assets (1) $ $Commission income receivable 750 (½)Prepaid advertising 100 (½)OF

3(e)Imprest amount = (200 + 150)

= $350 (1)

12

3(f)Total payments = (52 + 35 + 50)

= $137 (½)

Balance c/d = (200 + 150 + 40) – 137= $253

Reimbursement = (350 – 253)= $97 (½)

ORReimbursement = (137 – 40) (½)

= $97 (½)

13

4(a)(i)Profit margin = Profit for the year / Sales revenue x 100%

= 4800 / 80000 x 100% (½)= 6% (½)

4(a)(ii)Expenses = Gross profit – Profit for the year

= 20000 – 4800 (½)= $15 200 (½)

4(a)(iii)Percentage of expenses to net sales revenue = Expenses / Sales revenue x 100%

= 15200 / 80000 x 100% (½)= 19% (½)

4(a)(iv)Mark-up on cost = Gross profit / Cost of sales x 100%Cost of sales = Sales revenue – Gross profit

= 80000 – 20000= $60 000

Hence, mark-up = 20000 / 60000 x 100% (1)= 33.33% (1)

4(a)(v)Return on equity = Profit for the year / Average equity x 100%

= 4800 / [(51400 + 56200) / 2] x 100% (½)= 8.92% (½)

14

4(b)1. Both the sales revenue and the gross profit have increased in absolute figures. Sales revenue had gone up from $75 000 in 2015 to $80 000 in 2016, and gross profit had gone up from $15 000 in 2015 to $20 000 in 2016 (1)

2. There was an improvement in the gross profit margin from 20% in 2015 to 25% in 2016, which means that the business earned more gross profit for each dollar of sales revenue earned (1)

3. This increase in gross profit was due to the increase in the selling price of the goods, as can be seen from the increase in the mark-up figure, from 25% in 2015 to 33.33% in 2016 (1)

4. However, the increase in gross profit was not enough to offset against the larger increase in expenses incurred, which had gone up from $6 000 in 2015 to $15 200 in 2016 (1)

5. Expenses had increased as can be seen from the percentage of expenses to net sales revenue. From 8% in 2015 to 19% in 2016 (1)

6. There was a drop in profit for the year from $9 000 in 2015 to $4 800 in 2016. This drop in profitability can be seen from the drop in its profit margin of 12% in 2015 to 6% in 2016, indicating a worsening profitability for the business (1)(6)

15

5(a)(i)2015 2016 2017

Current assetsCurrent liabilities

320002000

360003000

460006000

16 : 1 [1] 12 : 1 [1] 7.67 : 1 [1]

5(a)(ii)2015 2016 2017

Receivables + Cash at bankCurrent liabilities

120002000

160003000

45006000

6 : 1 [1] 5.33 : 1 [1] 0.75 : 1 [1]

5(b)1. Working capital has improved from $30 000 in 2015 to $33 000 in 2016 to $40 000 in 2017 (1)

2. Current ratio is in the acceptable range, 16:1 in 2015 to 12:1 in 2016 to 7.67: 1 in 2017 (1)

3. Quick ratio has deteriorated, 6:1 in 2015 to 5.33:1 in 2016 to 0.75:1 in 2017. In 2017, the business does not have sufficient quick assets to pay off its current debts (1)

4. Funds are tied up in inventory as can be seen from the inventory figures of $20 000 in 2015 and 2016 and then to $36 500 in 2017 (1)

5. Grace Office Supplies has problem paying its operating expenses. This can be seen from the declining cash at bank figure, $500 in 2015 to $1 000 in 2016 to a bank overdraft of $550 in 2017 (1)

6. Funds are tied up in prepayment of rental expenses of $5 000 in 2017 (1)

7. Increase in trade payables from $2 000 in 2015 to $2 750 in 2016 to $5 100 in 2017. This may affect the business ability to obtain credit facility from its suppliers (1)(4) any 4 points

5(c)- sell more goods in cash instead of selling on credit terms (1)- owner to contribute additional capital by bringing in cash (1)- business can take up a long term bank loan (1)(2) any 2 points