Q1

Orange Ltd
Statement to calculate value of inventory as at 31 December 2014
$ $
Value of inventory as at 5 January 2015 550000
Add: Cost of net sales [(8400 – 1800) × 80%] 5280 1½
555280
Less: Inventory sheet over-added 870 ½
Good received on sale-or-return basis 1200 1
Free sample treated as inventory 600 ½
Net purchases (5400 – 1200) 4200 1 6870
Value of inventory as at 31 December 2014 548410 ½
(5)
Q2
2013 2014
(i) Total asset turnover

489660 544500
69870 + 99000 + 76940 + 233500 74350 + 132820 + 88410 + 266200 2

= 1.02 times = 0.97 times

(ii) Inventory turnover (in times)

489660 – 107725 544500 – 157900 + 20000

(62480 + 76940) ÷ 2 (76940 + 88410) ÷ 2 2½

= 5.48 times = 4.92 times

(iii) Trade payables repayment period (in months)

(47500 + 57910) ÷ 2 (57910 + 63320 + 20000) ÷ 2

×12 ×12 2½
489660 – 62480 + 76940 – 107725 (544500 – 76940 + 88410 – 157900) + 20000

= 1.60 months = 2.03 months

(iv) Gross profit ratio

107725 157900 – 20000

× 100% × 100% 1½
489660 544500
= 22.00% = 25.33%

(v) Net profit ratio

121400 – 55000 198460 – 121400 – 20000

× 100% × 100% 2½
489660 544500
= 13.56% = 10.48%

(vi) Earnings per share

121400 – 55000 198460 – 121400 – 20000

2
50000 50000
= $1.33 per share = $1.14 per share

(vii) Return on capital employed

121400 – 55000 + 100000 × 5% 198460 – 121400 – 20000 + 100000 × 5% 3

× 100% × 100%
100000 + 200000 + (55000 + 121400) ÷ 2 100000 + 200000 + (121400 + 198460 - 20000) ÷ 2

= 18.39% = 13.79%
 (16)

(b)
Profitability of 2014 had deteriorated compared with 2013 1
Other comments: Max 2
― net profit ratio dropped from 13.56% to 10.48%
― this might be the result of poorer control over the operating expenses, evidenced by more significant difference
between gross profit ratio and net profit ratio
― returned on capital was decreased by 4.6%, meaning less efficient use of capital to generate profit
― earnings per share, which is a yardstick for the performance of the company, was decreased by $0.19
(1 mark for each relevant comment, max 2 marks) (3)

Q3

2015 2016
(a) Working capital ratio
383000 + 262000 + 642200 (422000 + 55000) + 358000 + 607960
135000 + 62000 + 266000 188000 + 33000 + 307000 2½
= 2.78:1 = 2.73:1

(b) Inventory turnover (in times)

242000 + 871280 – 262000 262000 + 898580 – 358000
(242000+ 262000) ÷ 2 (262000 +358000) ÷ 2 2
= 3.38 times = 2.59 times

(c) Total asset turnover

1528200 1697160 + 55000
383000 + 262000 + 642200 + 632500 (422000 + 55000) + 358000 + 607960 + 729600 2½
=0.80 times = 0.81 times

(d) Trade receivables collection period

(383000 + 392000) ÷ 2 (383000 + 422000 + 55000) ÷ 2
× 365 × 365
1528200 1697160 + 55000 2½
= 92.55 days = 89.58 days

(e) Earnings per share

256700 – 102000 389560 – 256700 + 55000
2½
500000 500000
= $0.31 per share = $0.38 per share
(12)
Q4

(a) Journal
Particulars Dr Cr
$ $
(i) Short-term loan (360000 – 334800) 25200 ½
Office equipment 25200 ½

Retained profits (25200 ÷ 7) 3600 ½

Interest payables 3600 ½

Accumulated depreciation – office equipment 420 ½

Retained profits (25200 ÷ 5 × 1/12) 420 ½

(ii) Retained profits [190000 – (218000 – 38000)] 10000 ½

Inventory 10000 ½

(iii) Share issue 600000 ½

Ordinary share capital (100000 × 5) 500000 ½
Cash at bank (20000 × 5) 100000 ½

(iv) Inventory (42000 × 2/3) 28000 ½

Retained profits 7000 ½
Trade receivables (42000 × 125% × 2/3) 35000 ½
(7)
(b) Keating Limited
Statement of financial position as at 31 December 2016
$ $ $
Non-current assets
Premises 1000000
Less: Accumulated depreciation 200000 800000 ½
Office equipment (856000 – 25200) 830800 ½
Less: Accumulated depreciation (458000 - 420) 457580 ½ 373220
1173220

Current assets
Inventories (323000 + 28000 - 10000) 341000 1½
Trade receivables (497250 - 35000) 462250 1
Cash at bank (520750 - 100000) 420750 1
1224000
Less Current liabilities
Trade payables 389500 ½
Unearned revenue 3500 ½
Short-term loan 334800 ½
Interest payables 3600 ½ 731400
Net current assets 492600
1665820
Less Non-current liabilities
Long-term bank loan 150000 ½
1515820
Financed By:
Equity
Ordinary share capital (500000 + 500000) 1000000 1
Retained profits (536000 – 3600 + 420 – 10000 – 7000) 515820 1½
1515820
(10)
(b) The prudence principle should be applied. 1
Explanation: Max 2
― when choosing among accounting alternatives, the best choice is one that is least likely to overstate asset and profits
― the company should adopt lower of cost or net realisation value in the valuation of inventory, the inventory that cannot
pass new regulation should be valued at net realisation value
(1 mark for each relevant point, max 2 marks) (3)
Q5
(a) Reasons:
— Provide indicators of the financial capacity of a firm to meet its commitments
— Eliminate effect of scale and size of different year of the same firm so comparisons can be made
— Explore ways in which the firm’s operations are conducted, providing information for financial analysis
(2 marks for each relevant reason, 4 marks) (4)

(b) Comment on profitability of Sam Ltd: (max 5)

— Profitability of the business worsened in 2012, evidenced by decreasing return on capital employed and net
profit ratio. 1
— The decreasing return on capital employed means a less efficient use of capital to generate profit. 1
— The possible reason of lower net profit ratio is increasing purchasing cost, decreasing selling price or less
efficient
operating expenses control 3
— Operating expenses control is getting worse, evidenced by a more significant difference between gross profit
ratio
and net profit ratio than last year. 1

(c) Comment on liquidity of Sam Ltd: (max 6)

— Current ratio of Sam Ltd is higher than that of Shine Ltd which indicates its greater ability to
meet short-term obligations. 1
— Quick ratio of Sam Ltd is lower than that of Shine Ltd which means it is less able to pay its immediate
debt. 1
— However, as the current ratio of Shine Ltd is more comparable to the industrial average, the higher
current ratio of Sam Ltd might imply its inability of using available resources to grasp
investment opportunity. 2
— Besides, the significant difference between the quick ratio and current ratio of Sam Ltd as compared
with Shine Ltd might imply Sam Ltd is tied up with excessive inventories. 2
— The inventory turnover rate is lower than industry average, which means the company was slower in
selling inventory. 1
— The trade receivable collection period is shorter than industry average, which means the company was
quicker in collecting receivable. 1
Q6

Woody Kitchen
Income Statement for the month ended 31 August 2018
$ $
Sales (W1) 62 400 0.5
Less Returns inwards (W2) (600) 0.5
61 800
Less Cost of goods sold:
Purchases (W3) 16 350 0.5
Less Returns outwards (W4) (350) 0.5
16 000
Less Closing inventory (W5) (160) (15 840) 1.5
Gross profit 45 960 0.5
Less: Expenses
Operating expenses (3 000) 0.5
Net profit 42 960 0.5

(W1) Total sales = $30 x 800 + $32 x 1 200 = $62 400

(W2) Returns inwards = $30 x 20 = $600
(W3) Total purchases = $7 x 550 + $8 x 500 + $8.5 x 1 000 = $16 350
(W4) Returns outwards = $7 x 50 = $350
(W5)
Date Total quantity of inventory available
for sales (units) Total cost of inventory ($)
Aug 1 550 550 x $7 = 3 850
Aug 7 500 500 x $8 = 4 000
Aug 20 1 000 1 000 x $8.5 = 8 500
2 050 16 350
Aug 8 (500) 50 x $7 = 350
2 000 16 000

Unit weighted average cost = $16 000 / 2 000 = $8

Closing inventory = $8 x (2 000 - 800 + 20 – 1 200) = $160
Q7
(a)
Johnny Choi
Statement of Affairs as at 1 January 2018
$ $
Total Assets
Land 863 000 0.5
Inventory 82 490 0.5
Trade receivables 256 000 0.5
Prepaid insurance 1 200 0.5
Bank 12 000 0.5
11 214 690
Less Total liabilities:
Trade payables 218 700 0.5
Accrued salaries 11 400 (230 100) 0.5
Capital as at 1 January 2018 984 590 0.5

(b)
(W1)
Cash
$ $
Sales (balancing figure) 341 100 Bank 87 000 0.5
Motor expenses 4 500 0.5
Purchases 155 000 0.5
Drawings ($1 800 × 52) 93 600 0.5
Balance c/f 1 000 0.5
341 100 341 100
(W2)
Trade Receivables
$ $
0.5 Balance b/f 256 000 Bank 194 000 0.5
Sales (balancing figure) 168 000 Balance c/f 230 000 0.5

424 000 424 000

Total sales = Cash sales + Credit sales
= $341 100 (from W1) + $168 000 (from W2)
= $509 100 1
(c)
(W3)
Trade Payables
$ $
0.5 Bank 115 800 Balance b/f 218 700 0.5
0.5 Balance c/f 123 000 Purchases (balancing figure) 20 100
238 800 238 800

Total purchases = Cash purchases + Credit purchases – Goods taken by the owner
= $155 000 + $20 100 (W3) – $2 100 × 52
= $65 900 1.5
Q8
Journal
2011 Dr Cr
Dec 31 $ $
(i) Retained profits 26356 ½
Allowance for doubtful debts 26356 ½

(ii) Inventory (3500 × 60% × 70%) 14700 1

Retained profits 9800 ½
Trade receivables (35000 × 70%) 24500 ½

(iii) Cash at bank (150000 × 5) 750000 ½

Ordinary share capital (100000 × 5) 500000 ½
Share application refundable (50000 × 5) 250000 ½

(iv) Cash at bank 200000 ½

3% debenture 200000 ½

Retained profits (200000 × 3% × 1/12) 500 ½

Interest payables 500 ½

(v) Accumulated depreciation – property, plant and equipment 954000 ½

Retained profits 409000 ½
Property, plant and equipment 1300000 ½
Cash at bank (181000 – 118000) 63000 ½

(vi) Retained profits 50000 ½

General reserve 50000 ½

(vii) Retained profits {11280 – (11280 ÷60% × 50% - 450)} 2330 1

Inventory 2330 ½
(11)
(b) Chemistry Ltd
Statement of financial position as at 31 December 2011
$ $ $
Non-current assets
Property, plant and equipment (3 913 000 – 1 300 000) 2 613 000 ½
Less: Accumulated Depreciation (1 500 000 – 954 000) 546 000 ½
2 067 000
Current assets
Inventory (628000 + 14700 – 2330) 640 370 1
Trade receivables (658900 – 24500) 634 400 ½
Less Allowance for doubtful debts 26 356 ½ 608 044
Cash at bank (317820 + 750000 – 63000 + 200000) 1 204 820 1½
2453234
Less Current liabilities
Trade payables 625 200 ½
Interest payables 500 ½
Share application refundable 250 000 ½ 875 700
Net current assets 1 577 534
3 644 534

Less Non-current liabilities

3% Debenture 200 000 ½
3 444 534
Equity:
Ordinary share capital (2135280 + 500000) 2 635 280 ½
General reserve 50 000 ½
Retained profits (W) 751 254 1½
3 444 534
W = (1 257 240 - 26 356 – 9800 - 500 – 409000 - 50000 – 2330)
Q9