Mark Scheme Paper 2

2017 BGSS Sec 4 POA Prelim

Question 1 (20 marks)

(a) 8 marks

Yeo Ltd
Income Statement for the year ended 31 March 2017

  $ $  
15800
Sales revenue  
0  
Less: sales returns 10800    
Net sales revenue   147200  
Less: Cost of sales   75000  
Gross Profit   72200 1
Add: Other Income      
       
Discount received 1020 1020  
    73220  
       
Less: Expenses      
Interest on loan (4%x80000x3/12) 800   1
Rent expense (2500x12) 30000   1
Salaries expense 33000    
Insurance expense [7480-(2400x2/6)] 6680   1
Discount allowed 2390    
Impairment loss on inventory 1800   1
Reversal on impairment loss on trade receivable (4600)   1
Depreciation on motor vehicles [20%x(90000-19500)] 14100   1
Depreciation on office equipment [15%x35000] 5250 89420 1
       
(16200
Loss for the year  
)  

1
(b) 12 marks

Yeo Ltd
Balance Sheet as at 31 March 2017

  $ $ $  
Accumulate Net
  Cost d book  
Depreciation value
         
Assets        
Non-current assets        
Motor vehicles 90000 33600 56400 1 OF
Office equipment 35000 12250 22750 1 OF
  125000 45850 79150  
         
Current assets        
Trade receivables (-1800) 44800     1
Allowance for impairment of trade receivables 2800     1
Net trade receivables   42000    
Cash at bank (-5000)   60600   1
Inventory (49800-48000)   48000   1
Prepaid insurance (2400x2/6)   800 151400 1
         
Total assets     230550  
         
Equity and Liabilities        
Equity        
Issued share capital (50 000 ordinary shares)   75000  
Retained earnings (52150-16200-5000)   30950 105950 1
         
Non-current liabilities        
Long-term borrowings (80000-8000)     72000 1
         
Current liabilities        
Current portion of long-term borrowings   8000   1
Accrued rent [(12x2500)-25000]   5000   1
Accrued interest (800-400)   400   1
Trade payables   39200    
      52600  
         
Total equity and liabilities     230550  

2
Question 2 (Total 16 marks)

(a) 2 marks (1 mark only if no working given)

Cost of sales = 110000 + 135000 + 76000

= $321 000

(b) 4 marks
Inventory
Date Particulars Dr Cr Balance
$ $ $
2016
Jan 1 Balance b/d 110 000 Dr
Mar 31 Trade payable – Comp Blizz 135 000 [1] 245 000 Dr
Jul 10 Trade payable – JR Co. 76 000 [1]
Oct 1 Trade payable – Pop Ltd 93 500 [1]
Dec 31 Cost of sales 321 000 93 500 Dr [1]

2017
Jan 1 Balance b/d 93 500 Dr

(c) 2 marks
Inventory turnover rate = cost of sales / average inventory
= 321000 ÷ (110000+93500)/2
= 3.15 times per year

(d) 2 marks
Any two of the following:
 Oliver may have bought his inventory in bulk to enjoy trade discounts to lower his cost of
sales. As a result, he has higher average inventory in 2016 as compared to 2015.
 Oliver’s inventory may have become obsolete and as a result, he faces more difficulty in
selling them. As a result, he has higher average inventory in 2016 as compared to 2015.
 Oliver’s competitors may have a more attractive sales strategy in 2016, and as a result,
Oliver’s sales have decreased. As a result, he has lower cost of sales in 2016 as
compared to 2015.

(e) 1 mark
Any one of the following: [1]
 Increase the inventory sold by reducing selling prices, especially for slow-moving goods.
 Increase the inventory sold by offering trade discounts to encourage bulk buying.
 Increase the inventory sold by advertising to attract more customers.
 Decrease the inventory on hand by keeping sufficient goods to meet customers’
demand.

(f) 3 marks
Inventory should be valued at cost or net realizable value, whichever is lower. [1] This is due
to the prudence concept [1] which states that the business must adjust and report for losses
that are likely to incur even if they are not confirmed yet. [1]

(g) 2 marks
No effect on gross profit for 2016 [1]
Gross profit understated by $3 500 for 2017 [1]

3
Question 3 (Total 12 marks)

(a) 7 marks
Trade receivables control account

Date Particulars Dr Cr Balance

$ $ $
2016
Aug 1 Balance b/d 15 600 Dr [0.5]

2017
Jul 31 Sales revenue 13 070 [2]
Sales returns 2 380 [1]
Discount allowed 1 240 [1]
Cash at bank 8 800 [1]
Allowance for impairment loss of 2 800 [1]
trade receivables

Aug 1 Balance b/d 13 450 Dr [0.5]

(b) 3 marks

Wuber
Income Statement for the year ended 31 July 2017 (extract)

  $
Sales revenue 20 570 [0.5]
Less: sales returns 2 380 [0.5]
Net sales revenue 18 190 [0.5]
Less: Cost of sales 3 350 [0.5]
Gross Profit 14 840 [1]

(c) 2 marks
A cash transaction is one where cash is paid/received at the same time goods/services are
sold [1], while a credit transaction is one where cash is paid/received at a later date from the
date of purchase/sale of goods/services. [1]

4
Question 4 (Total 12 marks)

(a) 3 marks
Date Details Dr ($) Cr ($)
2017
Jan 12 Cash at bank 270 1
Allowance for impairment of trade receivables 630 1
Trade receivable – Wonder Co 900 1

(b) 6 marks
Allowance for impairment of trade receivables

Date Particulars Dr Cr Balance

$ $ $
2014
Apr 1 Balance b/d 580 Cr

2015
Mar 31 Impairment loss on trade receivables 2 950 [1] 3 530 Cr

Apr 1 Balance b/d 3 530 Cr

Aug 10 Trade receivable – Hulk House 2 500 [1] 1 030 Cr

2016
Mar 31 Impairment loss on trade receivables 2 110 [1] 3 140 Cr

Apr 1 Balance b/d 3 140 Cr

2017
Jan 12 Trade receivable – Wonder Co 630 [1] 2 510 Cr
(900 - $0.30 x 900)
Mar 31 Impairment loss on trade receivables 1 330 [1] 1 180 Cr

Apr 1 Balance b/d 1 180 Cr [1]

(c) 1 mark
Income statement for the year ended 31 March 2017 (extract)
$
Less: expenses
Reversal of impairment of trade receivables (1 330) [1]

(d) 2 marks
According to the matching concept [1], income earned should be recorded in the same
period as the expenses incurred to earn it. Therefore, impairment loss on trade receivable
should be recorded in the same period as the credit sales made. [1] OR

According to the prudence concept [1], profit and asset should not be overstated. Hence, the
expected losses from uncollectible debts must be recorded so that profit for the year and
current asset (trade receivables) would not be overstated. [1]

5
Question 5 (Total 12 marks)

(b) 2 marks
Date Details Dr ($) Cr ($)
2016
Dec 31 Dividends 70 000 1
[(200000 + 150000) x $0.20]
Dividends payable 70 000 1

(c) 3 marks
Issued share capital

Date Particulars Dr Cr Balance

$ $ $
2015 $ $ $
Jan 1 Balance b/d 300 000 Cr

2016
Jan 1 Balance b/d 300 000 Cr [1]
Mar 1 Cash at bank 300 000 [1] 600 000 Cr

2017
Jan 1 Balance b/d 600 000 Cr [1]

(d) 5 marks
Retained earnings

Date Particulars Dr Cr Balance

$ $ $
2015 $ $ $
Jan 1 Balance b/d 180 000 Cr
Dec 31 Profit and loss 9 700 [1] 170 300 Cr
Dividends 20 000 [1] 150 300 Cr
[(200 000 x $0.10]

2016
Jan 1 Balance b/d 150 300 Cr
Dec 31 Profit and loss 13 680 [1] 163 980 Cr
Dividends 70 000 [1] 93 980 Cr
[(200000 + 150000) x $0.20]

2017
Jan 1 Balance b/d 93 980 Cr [1]

(d) 2 marks

Any 2 of the following:

Banks are more willing to lend to a company
Companies can issue shares to raise funds
Easier for a shareholder to transfer ownership to another owner.
Maximum amount a shareholder will lose is their investment