Question 1
Pest Eliminator Pte Ltd is a pest control company started by Ivan Lim in 2020. All its revenue is derived from ad-hoc jobs and annual contracts for pest control work.
Ivan approached you for help to finalise the company’s accounts for the year ending 31 Dec 2021.
Below is the unadjusted trial balance.
You are given the following additional information where none of which has been taken into consideration in arriving at the figures shown in the trial balance above.
(i) On 1 December, the company received from Delight Property Management, a $5,000, 90-day, 8% note in exchange for Delight Property Management’s request to allow additional time to settle the amount owing.
(ii) The 31 Dec 2021 inventory count of pest control supplies showed that $22,800 was still available.
(iii) Three months have expired since the 12-month insurance was paid in advance.
(iv) As at 31 Dec 2021, the salaries payable to employees were $5,125.
(v) The pest control equipment was purchased on 1 January 2021. The cost of the equipment included the purchase price of $14,000 and $2,400 being the cost for the first-year maintenance of the machine.
(vi) No depreciation has been charged for the year ended 31 Dec 2021. The company depreciates non-current assets as follows:
• Pest control equipment at cost – straight line over 5 years. The residual value of the pest control equipment was estimated to be $2,000.
• Office equipment – the double declining balance method. Office equipment are assumed to have useful life of 5 years and residual value at 10% of the cost.
(vii) On 31 December, the amount paid in advance by clients for annual contracts were $10,500. However, this amount has been included in revenue in the unadjusted Trial Balance.
(viii) It was estimated that 7% of outstanding accounts receivable on 31 December were uncollectible.
Required:
Analyse the above information and prepare all necessary adjusting entries. Show narrations and all workings.
Question 2
As most of the COVID-19 safety measures are lifted, many economists expect this will boost growth especially in the retail sector.
You have just joined an investment company and your boss has asked you to take a closer look at some of the retailers in Singapore as potential candidates for investments.
The company selected should be one you are familiar with or any public listed company in which you are able to obtain the latest annual reports.
(a) Compute the below six (6) financial ratios over the two latest periods. Using these financial ratios, comment on the business performance and financial position from the viewpoint of a prospective investor. The ratios must be computed using SUSS Formula Sheet. Show all workings. In addition, the financial statements should be included in the appendix, with the numbers used highlighted in yellow.
• Current ratio.
• Debt-to-equity.
• Return on total assets.
• Profit margin ratio.
• Any two (2) other ratios that would be relevant in your analysis.
(b) Conclude whether the company is a good investment option based on the analysis conducted in part (a).
The write-up must not exceed 1,000 words (excluding the appendix).
Question 3
Your uncle who is a shareholder of Sweet & Sour Ltd has just shown you the company’s latest statement of cash flows.
Sweet & Sour Ltd
Statement of Cash Flows
For the year ended 31 December 2021
Your uncle who is a shareholder of Sweet & Sour Ltd has just shown you the company’s latest statement of cash flows.
He is concerned that the company’s cash balance has decreased from $326,000 at 31 December 2020 to $55,000 at 31 December 2021.
You have also established from the company’s statement of financial position that its total assets were $2,878,000 as at 31 December 2021.
Required:
Examine the statement of cash flows, do you think your uncle’s concern is justified? Comment and explain.
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