Question 1

Explain what is meant by contingent liability and illustrate with a suitable example.

Question 2

The accounting cash book of AL Pte Ltd showed a balance at the bank of $15,300 on 30 April 20X1. On the same date, the bank statement balance of AL Pte Ltd’s bank account was $12,800. The difference was accounted for as follows:

(i) Outstanding cheques for $4,500 sent to creditors on 30 April were not cleared by the bank until 8 May.

(ii) Cheques amounting to $7,520 deposited into the bank on 30 April were not credited by the bank until 2 May.

(iii) A standing order for a charitable subscription of $200 had been paid by the bank on 19 April but no entry had been made in the cash book.

(iv) A cheque paid by AL Pte Ltd for rent on 7 April reflected on the bank statement as $2,190 had been wrongly entered in the cash book as $2,910.

Required:

Prepare the bank reconciliation statement and provide the necessary journal entries with journal narratives.

Question 3

On 1 January 20X1, Baker Ltd (“BL”) purchases an oven at a cost of $7,800. BL expects the oven to remain useful for four years. At the end of four years, the supplier is willing to take back the oven for $400. BL pays 20% in cash for the oven and finances the remainder with a bank loan obtained on the same day. The bank charges 5% interest on the loan and interest is to be paid subsequently every 1 January. The first interest payment is on 1 January 20X2. The company uses the straight-line method to account for depreciation of the oven.

Required:

(a) Illustrate the accounting described above by preparing journal entries, journal narratives required, for 1 January 20X1 and 31 December 20X1.

(b) At the end of year 20X2, BL disposes the oven to another company for cash of $3,000. Illustrate how gains or losses on disposal of the oven would be different if BL had used the double-declining method to account for the oven’s depreciation? Support your answer with appropriate computations.

Question 4

The trial balance of HT Pte Ltd (“HT”) as at 31 December 20X1 is as follows:

Other information at 31 December 20X1 included the following:

(i) In December 20X1, HT performed a service for a customer amounting to $5,690, but the transaction was not yet recorded.

(ii) The prepaid maintenance of $2,400 was paid in cash on 1 July 20X1 to cover the maintenance of the office for 12 months with effect from 1 July 20X1.

(iii) A customer walked into the store during December 20X1 and paid cash of $4,000 for a job to be performed in the next month. The account clerk recorded the transaction as Debit Cash and Credit Revenue.

(iv) During December 20X1, the company came to know that one of its customers was bankrupt and the amount of $2,000 owed to the company would not be collected. This fact has not been accounted for. The company adopted the direct write-off method.

(v) The account clerk had yet to accrue for current income tax liability amounting to $7,600.

(vi) HT adopted a periodic inventory system. A stock count was done and the inventory at year end was $33,000.

Required:

(a) For each of the points (i) to (vi) above, apply the accrual accounting concepts by passing the necessary adjusting or additional journal entries (journal narrative not required) for the year ended 31 December 20X1.

(b) Prepare the Statement of Financial Position for HT Pte Ltd as at 31 December 20X1, incorporating all the necessary adjustments as given in the additional information.

Question 5

The following are the extracts of the financial statements of FLUE Pte Ltd for the year 20X2 and 20X3

Required:

(a) Compute the following ratios for the year 20X2 and 20X3.

(i) Inventory turnover ratio.

(ii) Payable turnover ratio.

(b) Comment on the changes in the position of the company using the ratios computed in (a) above.

Question 6

The following comparative statements of financial position are for TG Pte Ltd as at 31 December 20X1 and 31 December 20X2.

Additional information:

(i) The equipment, which was sold for cash at a loss on disposal of $7,000, was originally bought at a cost of $80,000.

(ii) During the year, the company purchased additional equipment in cash.

(iii) The total depreciation expense for all equipment recorded in the income statement for the year was $20,000.

(iv) The profit before tax was $130,000 and the income tax expense for the year was $60,000.

Required:

Prepare a statement of cash flows for TG Pte Ltd for the year ended 31 December 20X2.