TECK WHYE 4E MID YEAR 2016
2016 4E5N SA1 Paper 1 ANSWERS
1 Soon Liang opened a retail business dealing in seafood on 1 January 2015. REQUIRED
(a) For each of the following statements below, state the accounting concept/principle and whether it has been followed or violated. An example is shown below.
(i) A calculator bought for $18 was recorded as a non-current asset. (ii) Soon Liang decides to change the business accounting policies on a
yearly basis to show a better profit.
(iii) Soon Liang decides to write off an amount owing by a debtor that was deemed uncollectible. [3]
1 x 3 3
Soon Liang keeps a full set of books. REQUIRED
(b) Complete the following table by naming the source document, the journal and the account to be debited and the account to be credited for each transaction. [6]
Transaction Source
Document
Journal Account to be debited
Account to be Credited (i) Computer bought
on credit from Zenith Machines Invoice (received) General Journal Office equipment Other payable-Zenith Machines
(ii) Returned goods to credit supplier, Max Enterprise Credit note (received) Purchases Returns Journal Trade payable - Max Enterprise Inventory (iii
) Monthly rental paidthrough bank’s standing order
Bank Statement (received)
Cash Book Rent Expense Cash at bank Example
Soon Liang issued a $1 000 cheque from the business bank account to pay for his household rent and recorded the amount in the rent expense account.
Answer: Accounting Entity Concept is violated.
(i) Materiality Concept is violated. (ii) Consistency Concept is violated. (iii
)
(i) Zenith Machines account General Ledger [1]
(ii) Max Enterprise account Purchases Ledger (or Trade Payables Ledger) [1] [2]
During his first year of trading no record was made of the following.
1 On 22 March 2015 goods, list price $6 000, less 6% trade discount was purchased from. Ocean Fresh
2 On 14 August 2015 a credit customer, Crest Trading returned $200 worth of goods. The cost of goods returned was $80.
REQUIRED
(d) Record the above transactions in the General Journal. Narratives are not required.
[3]
General Journal
Date Particulars Debit Credit
2015 $ $
Mar 22 Inventory (6 000 x 94%) 5 640
Trade payable-Ocean Fresh 5 640
Aug 14 Sales returns 200
Trade receivable – Crest Trading 200
Inventory 80
Cost of sales 80
0.5 x 6 [3]
2 Ron Hill purchased a printer for his printing business. He has recorded the cost in the Income Statement
REQUIRED
(a) State the effect of including the cost of the printer in the Income Statement on
(i) Profit for the year [1]
Expenses will be overstated [0.5] and therefore profit will be understated [0.5]. (ii) Balance Sheet [1] Non-current asset will be understated [0.5] and equity will be understated [0.5] since profit is understated.
(b)
In the table below, state the nature of each expenditure (whether capital or revenue) and provide one reason each to support your answer. [6]
Capital or Revenue Expenditure
Reason
(i) Paid legal fees to purchase a new shop
Capital Expenditure The legal fees forms part of the total purchase cost of the new shop, a non-current asset
(ii) Paid decoration material for Christmas Sale
Revenue Expenditure The decoration benefits the business for no more than one year
(iii) Paid installation cost for a new
air-conditioner.
Capital Expenditure Installation of air-conditioner is necessary before the non-current asset can be used.
(iv) Paid for replacement parts for printing machines
Revenue Expenditure Payment for the normal maintenance cost of the machines; only restores their condition with no improvement in quality
Type of expenditure 1
Reason 0.5 1.5 x 4 =6
3 Working:
Equipment sold Other equipment New equipment Depreciation by year
$ $ $ $
Cost $20 000 (1 Jul 2013)
Cost $9 000
(10 Nov 2015) Depreciation
31.12.2013
20% x 20000 = 4 000
20% x 9 000
= 1 800 [0.5] 4732 Depreciation
31.12.2014
20% x (20000- 4000) = 3200
W2Depreciation
31.12.2015
Nil 20%x[(42900-20
000) – (15440-7200)]
W14000+3200= 7200 (Accumulated depn of equipment sold)
= 20% x (22900-8240)
=2932 [1.5]
(a)
Accumulated Depreciation of Equipment account
Dr Cr Balance
2015 $ $ $
Jan 1 Bal b/d 15 440 Cr 0.5
Aug 14 Sale of non-current asset W17 200 [1] 8 240 Cr
Dec 31 Depreciation of equipment W24 732 [2] 12 972 Cr
2016
Jan 1 Bal b/d 12 972 Cr 0.5
[4]
(b)
Sale of Non-current Asset account
Dr Cr Balance
2015 $ $ $
Aug 14 Equipment 20 000 20 000 Dr 1
Accumulated depreciation of equipment 7 200 12 800 Dr 1
Other receivable –Wynn Co, 11 000 1 800 Dr 1
Dec 31 Profit and loss 1 800 - 1
(c) The business should decide on the method based on the benefit provided by the non-current assets.
Straight line method
- for non-current assets that provide equal/constant benefit over their useful lives. [1]
Reducing balance method
- for non-current assets that provide more benefit in the early years of their useful lives [1]
[Total: 10]
4 MaxValue
Trial Balance as at 30 September 2015
Dr Cr
$ $
Motor vehicle 12 000
Fixtures and fittings 18 400
Inventory (40125 +322) 40 447 1
Cost of sales 32 860
Sales revenue (79 510 – 58) 79 452 1
Discount received 930
Discount allowed (1 010 + 100) 1 110 1
General expenses 11 700
Insurance (1650 – 58) 1 592 1
Trade receivables (6 300 – 4 000) 2 300 1
Trade payables (5 700 + 322) 6 022 1
Cash at bank (10 725 +3 900 -45) 14 580 1.5
Drawings 7 000
Capital 55 630
Bank charges 45 0.5
142 034 142 034
[8]
