NAME REG. NO. CLASS
ANSWERS
S
ERANGOONG
ARDENS
ECONDARYS
CHOOLM
IDY
EARE
XAMINATION2016
SUBJECT: PRINCIPLES OF ACCOUNTS PAPER 1
PAPER: 7175/01
LEVEL: SECONDARY 4 EXPRESS / 5 NORMAL
DATE:
TIME:
DURATION: 1 HOUR
INSTRUCTIONS TO CANDIDATES
1. Write your name, class and index number in the spaces provided on the question booklet.
2. Answer all questions in this question booklet.
3. All calculations must be shown adjacent to the answer. INFORMATION FOR CANDIDATES
The number of marks is given in brackets [ ] at the end of each question or part question.Calculators may be used.
The total marks for this paper is 40 marks.
This question paper consists of printed pages.
Setter: Mrs Pauline Phua Vetter: Ms Gan Hui Ching [Turn over FOR MARKER’S USE
40
____________________________ ________
ANSWER ALL QUESTIONS [40 marks] > ANSWERS 4E5N MIDYEAR 2016
1 Ruben has invested $28 000 into his trading business. He has the following transactions on 30 June 2015, which were not entered in his books.
(i) He took goods worth $1 700 for his personal use.
(ii) He sold his home printer for $3 500 and deposited into the business bank account. REQUIRED:
(a) Prepare journal entries for the above transactions. [4]
DR CR
(i) Drawings 1700
Inventory 1700
(ii) Cash at bank 3500
Capital 3500
(b) Calculate Ruben’s capital in the business after the above transactions. [1] Initial capital - Drawings + additional capital =28000 – 1700 + 3500 = $29 800
(c)State and explain the accounting principle applied for the above transactions. [1] Accounting entity principle states that the business and its owner are considered separate entities. Business activities but not the personal activities of the owner are recorded.
(d) Name the journal from which the following information would be obtained: [4]
Transaction Journal
(i) Bought goods on credit Purchases journal
(ii) Issued cheques for motor expenses Cash book
(iii) Received credit notes from suppliers Purchases returns journal (iv) Bought equipment on credit for office
use
General journal
2 Heman Ltd is a customer as well as a supplier of Mike, a trader. Heman Ltd receives 10% trade discount on all purchases. The following transactions took place during April 2016. 2016
April 1 Heman Ltd owed Mike $4 500.
4 Mike sold goods to Heman Ltd at list price $8 900.
11 Heman Ltd returned part of the goods purchased on 4 April, list price $200, and was sent a credit note by Mike.
20 Transferred $360 from Purchases ledger to Sales ledger
27 Heman Ltd sent a cheque in full settlement for the amount owing on 1 April, less 5% cash discount
REQUIRED:
(a) Write up the ledger account for Herman Ltd in Mike’s Sales ledger. Close and balance the account on 30 April 2016.
Pay special attention to dates and details. [6]
Heman Ltd account
Date Details DR $ CR $
Balance $
2016
April 1 Balance b/d 4 500 Dr
4 Sales revenue (90% x 8 900) 8010
11 Sales returns (90% x 200) 180 20 Trade payable Heman(contra) 360 27 Cash at bank (95% x 4500) 4275
27 Discount allowed(5% x 4500) 225 7470 Dr
May 1 Balance b/d 7470 Dr
(b) Explain two differences between trade discount and cash discount. [2]
Trade discount Cash discount Is a reduction in list price. The amount
less trade discount is the invoiced amount.
Is a reduction in the amount owed/ invoiced. This is the amount to be paid.
To encourage customers to buy in large
quantities / bulk buying To encourage credit customers to settle their debts earlier than the credit period given/ To encourage prompt payment Given at point of sale or purchase of
goods.
(c) Heman Ltd ‘s account will appear in the Sales ledger of Mike’s books.
Name one difference between Sales ledger and Purchases ledger. [1] All the (debtors) trade receivables accounts are recorded in the Sales ledger whereas all the (creditors) trade payables accounts are recorded in the Purchases ledger.
(d) State and explain the accounting principle applied in the use of credit note on11 April. [1]
Principle of Historical Cost states that transactions should be recorded at their original cost shown in the source documents..
OR
Principle of Objectivity states that transactions are recorded from
evidence/proof supported by source documents.
3 Pam Shop’s assets and liabilities at 31 March 2015 and 2016 were as follows: 2015($) 2016($)
Equipment 18 500 16 000
Motor Vehicles 22 000 40 000
Inventory 9 800 15 200
Trade receivables 6 600 5 700
Cash in hand 1 730 500
Bank overdraft - 2 100
Trade payables 5 000 9 000
5-year loan 10 000 15 000
REQUIRED:
(a) Calculate ( to two decimal places) the following [4] (i) working capital ratio (current ratio)
31 March 2015
= Current assets
÷
Current liabilities = (9800 + 6600 +1730)÷
5000 = 18130÷
5000= 3.63
31 March 2016
= Current assets
÷
Current liabilities = (15200 + 5700 +500)÷ (
2100+9000) = 21400÷
11100= 1.93
(ii) quick ratio (acid test ratio) 31 March 2015
= (Current assets – Inventory)
÷
Current liabilities = (18130 - 9800)÷
5000= 8330
÷
5000 = 1.6731 March 2016
= (Current assets – Inventory)
÷
Current liabilities = (21400 - 15200)÷
11100(b) Compare and comment on the liquidity of the business between 2015 and 2016. [4] Working capital ratio was lower in 2016 than 2015. It was 3.63 in 2015 but became 1.93 in 2016.
Business is less able to pay up its immediate debts when due. The amount of cash has decreased from $1730 to only $500. Its funds have become less probably due to buying of inventory.
Quick ratio has also become worse in 2016. It was 1.67 in 2015 but quick ratio became 0.56 in 2015. It has difficulty paying its immediate debts when due. It has $0.56 for every dollar it owes.
This is a stricter measurement of liquidity because it does not include inventory which takes time to sell. Inventory has increased from $9800 to $15200.
Business may be buying more than it can sell.
There is a shortage of cash flow and business is also operating on overdraft facility.
In conclusion, its liquidity position is worse in 2016 than in 2015.
(c) Suggest two ways in which Pam Shop can increase his working capital. [2] 1) Business could sell off surplus (excess) non current assets
2) Business could obtain loan
4 The following errors were discovered after Nutella, a trader, prepared his draft final
accounts on 31 December 2015. His draft profit for the year was $52 780. REQUIRED
(a) In the table below, write down the type of error for each part. [5]
Transactions Type of error
(i) Payment for wages $420 was posted as $240. Error of original entry
(ii) Goods costing $710 returned by TT Ltd. was not
recorded. Error or omission
(iii) Cheque $1 800 received from PCK was posted to VCK’s
account Error of commission
(iv) A cheque received for rent $630 was posted in the books as credit bank and debit rent.
Error of complete reversal
(v) Motor van $9 000 bought for office use was posted to motor expenses
Error of principle
(b) Prepare a statement to show the amended profit after correcting the errors. [4] Profit before correction $52 780
___less error (i)_______________________- 180_______________________
__ less error (ii)_______________________-__710_______________________
____no effect (iii)________________________--_______________________
___add error in (iv)_____________________+_1 260_______________________
___add error in (v)_____________________ +_9 000______________________
___Profit after correction_____________ _62 150___________________
(c) Name a type of error that does not affect profit. [1] _________error of commission_______
