TECK WHYE 2016 4E SA1 Paper2 ANSWERS
1(a)
Fine Deli
Income Statement for the year ended 30 June 2015
$ $
Sales revenue 225 420 0.5
Less Sales returns (2 800) 0,5
Net sales revenue 222 620
Less: Cost of sales (110 200 ) 0.5
Gross profit 112 420 0.5 OF
Add: Other income
Rental income ( 4530 +720) 5 250 1
Discount received 660 0.5
118 330
Less: Expenses
Insurance [8400 –(3600/6 x 3)] 6 600 1
Interest on bank loan [( 8% x 20 000) /2] 800 1
Salaries 50 430 0.5
Equipment maintenance expenses 300 1
Depreciation of equipment [15% x (68500-300) -23700)] 6 675 2
64 805
Profit for the year 53 525
(a) Fine Deli
Balance Sheet as at 30 June 2015
$ $ $ $
Assets
Non-current assets Cost Accumulated
depreciation
Net book value
Fixture & fittings 34 300 - 34 300 0.5
Equipment 68 200
(68500-300)
30 375 (23700+6675)
37 825 1.5
Total non-current assets 102 500 30 375 72 125 0.5 OF
Current assets
Inventory 27 900 0.5
Trade receivables 15 300 0.5
Rental income receivable 720 0.5
Prepaid insurance 1 800 0.5
Cash at bank (25280 + 10000)
35 280 1
Total current assets 81 000
Total assets 153 125
Equity and Liabilities Owner’s equity
Beginning balance 1 Jul 2014 64 800 0.5
Add: Additional capital 10 000 1
Add: Profit for the year 53 525 0.5 OF
Less: Drawings (6 000) 0.5
Total equity 122 325
Non-current liabilities
Long-term borrowing (20 000-15000)
15 000 0.5
Total non-current liabilities 15 000
Current liabilities
Current portion of long-term borrowing
5 000 1
Trade payables 10 600 0.5
Accrued interest on bank loan (800-600) 200 1
Total current liabilities 15 800
Total equity and liabilities 153 125
Date Particulars Debit $
Credit $ 2014
Nov 18 Cash at bank (0.50 x 860) Allowance for impairment of trade receivables
Trade receivable – David
430 430 860 0.5 0.5 1
(b)
Allowance for Impairment of Trade Receivables Account
Date Particulars Debit
$ Credit $ Balance $ 2012 Apr 1 2013 Mar 31 2013 Apr 1 2014 Mar 31 2014 Apr 1 Jul 12 Nov 18 2015 Mar 31 2015 Apr 1 Balance b/d
Impairment loss on trade receivables
Balance b/d
Impairment loss on trade receivables
Balance b/d
Trade receivable – Ju Bin Trade receivable – David
Impairment loss on trade receivables
Balance b/d
230 430 (0.5 x 860)
80 240 370 480 Cr 720 Cr 720 Cr
1 090 Cr
1 090 Cr 860 Cr 430 Cr 350 Cr 350 Cr 0.5 1 0.5 OF 1 0.5 OF 1 1 1 0.5
(c
)(i) Rajan ElectronicsIncome Statement for the year ended 31 March 2015 (extract)
$ $
Less Expenses 0.5
Reversal of impairment loss on trade receivables (80) 1 OF
(ii) Rajan Electronics
$ $ Assets
Current Assets 0.5
Trade receivables 31 600 0.5
Less: Allowance for impairment of trade receivables
(350) 1
31 250 0.5
(a) No effect 1
(b) Matching concept [1] - states that as allowance for impairment of trade receivables is a likely expense, it has to be recorded so that the sales revenue earned during an
accounting period can be matched with the expenses associated with earning that sales revenue [0.5] to reflect a true and fair profit of the business [0.5].
OR
Prudence concept [1] – states that a business must adjust the book value of any asset, in this case trade receivables, if its value is likely to be reduced [0.5] so that assets are not overstated [0.5].
Hence when there is objective evidence that a debtor may not pay up, a business must adjust and record the likely loss though it is not confirmed yet [0.5]. max 2 [2]
3(a)
Insurance account
Date Particulars Dr Cr Balance
2015 $ $ $
Jan 1 Accrued Insurance 400 400 Cr 1
Jul 7 Cash at bank 1 800 1 400 Dr 1
Dec 31 Prepaid insurance ( 1800 x 2) 6
600 800 Dr 1
Profit ad Loss 800 - 1
Commission Income account
Date Particulars Dr Cr Balance
2015 $ $ $
Jan 1 Commission Income receivable
920 920 Dr 1
Nov 15 Cash at bank 2 000 1 080 Cr 1
Dec 31 Commission income received in advance
340 740 Cr 1
Profit ad Loss 740 - 1
Balance Sheet (extract) as at 31 December 2015 (extract) $
Current Assets [0.5]
Prepaid insurance 600 [0.5 OF]
Current liabilities [0.5]
Commission income received in advance 340 [0.5 OF]
(c)
Adjustments for prepayments and accruals are must be made to comply with the matching concept [1] which states that expenses incurred must be matched with the income earned for the same period [ 0.5] so as to determine a true and fair profit for the period [0.5]
OR
Adjustments for prepayments and accruals are made to comply with the accrual concept [1] which states that expenses are recorded when incurred, regardless of when payment is made [0.5], while income is recorded when earned, regardless of when it is received [0.5].
4(a) Accrued interest = (200 000 x 6% x 6/12) = $6 000 1 (b) Accrued interest = (160 000 x 6% x 6/12) = $4 800 1
(c)
Interest Expense account
Date Particulars Dr Cr Balance
2014 $ $ $
Dec 31 Accrued interest expense (200 000 x 6% x 6/12)
6 000 [1] 6 000 Dr
Profit ad Loss 6 000 [1]
-2015
Jan 1 Accrued interest expense 6 000 [1] 6 000 Cr
Jun 30 Cash at bank 12 000 [1] 6 000 Dr
Dec 31 Accrued interest (160 000 x 6% x 6/12)
4 800 [1] 10 800 Dr
-(d)
Yan Decor
Income Statement for the year ended 31 December 2015 (extract)
$
Less: Expenses
Interest expense 10 800 [1]
(e)
Yan Decor
Balance Sheet as at 31 December 2015 (extract)
$ Non-current liabilities
Long-term borrowing 120,000 [1]
-term borrowings 240,000 [1]
Current liabilities
Current portion of long-term borrowing 40 000 [1] Accrued interest expense 4 800 [1]
[12]
5(a)
Trade Receivables Control account
Date
Dr Cr Balance
$ $ $
2015
Jun 1 Balance b/d 0.5 15 300 Dr
30 Sales revenue 1 36 900 52 200 Dr
Sales returns 1 1 200 51 000 Dr
Cash at bank (2 0250 – 4800) 1 15 450 35 550 Dr
Discount allowed 1 710 34 840 Dr
Allowance for impairment of trade receivables ] 1 360 33 480 Dr
Interest income 1 64 33 544 Dr
Trade payables control (Contra) 1 800 32 744 Dr
Jul 1 Balance b/d 0.5 32 744 Dr
(b) Any one of the following:
1 Since the entries of the trade receivables control account are in aggregates, information like total amount owed by trade debtors can be easily and quickly accessed for management’s use.
2 It facilitates easy preparation of the Trial Balance and the Balance Sheet as the total trade receivables balance is readily available from the control account.
3 It helps to locate errors because the entries in the trade receivables control account should tally with the related totals of the entries in the individual accounts in the Sales Ledger.
1
(c) (i) Sales Journal (ii) Cash Book (iii) General Journal
1 x 3 [12]
