Question 1 P&Y Enterprises Pte Ltd (PYE) was started in 2020 by two friends, Peter Phua and Edwin Yeo, after they graduated from the University. The company imports household appliances and distributes them to local retailers. Over the years, the company has grown rapidly and is prepared for a listing on the local stock exchange. Many friends and family members were enthusiastic about its prospect and have invested in the company. However, the current economy was not doing well, and the company was experiencing some sales difficulties this year. After looking at the accounts for the year ending 31 December 2024, Peter, the managing director, was concerned about the performance of the company. An adverse financial statement might jeopardize the opportunity for the company to go for public listing. The following are the instructions that Peter gave to the accountant: (i) (a) (iii) (iv) There was a purchase order of $180,000 from a regular customer on 2 December 2024 to be delivered in January 2025. He would like to recognize the sales for the current year since this is a confirmed order and the delivery is only a few weeks away. This will help to boost the profit for the year. The company was planning to place an advertisement in a local magazine in December 2024 costing $20,000. The quotation was already being received by the company. The accountant had made preparation to pay for the advertisement. Although Peter firmly believes that the advertisement will greatly help to improve sales, he wants the advertisement to be cancelled. This will cut down on the expense and increase the reported profit. He was also concerned with the high depreciation of the two forklifts that the company owned. Currently the useful life is 10 years. He wants to change it to 20 years so that the depreciation expense could be half. Alternatively, he suggested using only one of the forklifts and made the other idle and skip the depreciation for the idle forklift. This will help greatly to increase the report profit for the year. The forklifts are accounted for as machinery in the company ledger. COGS is a major part of the income statement, and he was wondering whether the number can be reduced by using either LIFO or the FIFO method for inventory management. The company is currently using the weighted average method. The reduction will increase the gross profit. PYE adopts the Singapore Financial Reporting Standards (FRSs). 31 December is the company's financial year end, and the company is exempt from paying tax. The trial balance of the company as 31 December 2024 is as follows: P&Y Pte Ltd Trial Balance 31 December 2024 Account Title Debit ($) _Credit (3) Cash 302,920 Inventory 182,400 Account receivable 77,000 Allowance for impairment of AR 3,080 Purchases 122,000 Prepaid rental 240,000 Prepaid insurance 20,700 Machinery 200,000 Accumulated depreciation 76,000 Share capital 320,000 Retained earning 80,200 Sales revenue 631,000 Unearned revenue 180,000 Rental expense 120,000 Salaries expense 155,500 Utilities expense 16,700 Transport expense 22,790 Bank loan 150,000 Accounts payable 19,730 1,460,010 1,460,010 Besides the instructions by the Managing Director, the following additional information is to be read in conjunction with the trial balance as at 31 December 20X4 provided above: (1) (2) (3) (4) The insurance for the coverage of the office and warehouse expired by the end of March 2024, On 24 March, the company paid $18,000 to renew the insurance for another 2 years starting from April 2024. The purchase for the insurance coverage was recorded. On 1 August 2024, the company took a 4-year bank loan of $150,000. The interest of 4% to be paid annually every 31 July. On 23 September, the company received full payment of $4,850 from a customer with outstanding amount of $5,000. The discount was given for early payment. The receipt of the payment was recorded but discount was not captured in the account. On 23 November 2024, the company received a quotation from a magazine for advertisement $20,000. The company intended to place the advertisement in December. (5) On 12 December, a utilities bill for $860 was received, The account clerk debit utilities expense and credit cash. The bill will be paid the following month. (6) To cope with a last-minute order, the company made a purchase on 13 December of $200,000 amount of inventory. The company made a downpayment of $80,000 and the rest to be paid upon receipt of goods, The delivery will be in early January 2025. (7) | The company adopted the straight-line depreciation method for the machinery. Item Useful life (years) Residual value ($) Machinery 10 10,000 (8) On 18 December, the company received news that one of its regular customers was in financial distress and likely to file for bankruptcy. Peter and the MD of that company were close friends, and he believed the amount of $2,000 outstanding receivable will be paid before the friend winds up the company. (9) In accounting for impairment of accounts receivable, the analysis from the expected credit loss schedule determined that 4% of the total account receivable will be impaired. (10) Acount on 31 December 2024 revealed $14,000 of inventory still available. Required: {a) &) (c) Discuss the instructions given by the Managing Director, highlight any possible violation of the accounting principles and explain the correct method of accounting treatment that should be adopted including its underlying concept or rationale, (28 marks) Analyse the transactions and apply the accrual basis of accounting to prepare the necessary adjusting journal entries as required based on the additional data provided in points (1) to (10) above to aid in the preparation of the financial statements for P&Y Pte Ltd. Dates, narratives and relevant workings must be clearly shown. The sequence and numbering system of the journal entries are to follow the order and number system given in the question. (31 marks) After incorporating the necessary journal entries, present: (i) The statement of comprehensive income of P&Y Pte Ltd, for the year ending 31 December 2024 and (9 marks) (ii) The statement of financial position of P&Y Pte Ltd as at 31 December 2024. (10 marks)