Mock Exam Paper

HKDSE-BAFS 2A Set 1 Ans (Student House) - 1 -

BAFS (Accounting Module) Paper 2A

Marking Scheme

Set 1 Section A

Question 1 Marks (a) Cash book (bank column only)

$ $ Balance b/f 5 360 Salaries 3 400 0.5 0.5 Accounts payable - stale

cheque 300 Accounts receivable -

post-dated cheque 370 0.5

0.5 Rental income 6 800 Balance c/f 8 690 0.5

12 460 12 460

(2.5) (b) Bank reconciliation statement as at 30 April 2011

$ $ $ Balance as per updated cash book 8 690 Add: Unpresented cheque No. 1314 520 0.5 No. 1320 2 013 2 533 0.5

Autopay of salaries delayed 3 400 5 933 1

14 623 Less: Uncredited cheque 5 200 0.5 Bank’s error 870 6 070 0.5

Balance as per bank statement 8 553 0.5

(3.5)

Total: 6 marks

Question 2 Marks

(a) Comment on bookkeeper’s treatment regarding the purchase order: max. 3 - According to realization concept, profit is earned when goods or services are

passed to the customers and customers incur liabilities once the delivery has been accepted.

- Sales should only be recorded when they are reasonably certain, i.e. delivery of goods has been accepted.

- $700 000 purchase order placed should not be regarded as sales and the recorded double entries should be eliminated.

- Revenue can only be recognized after 4 months when the goods are delivered and received by the customer.

(b) Whether the financial statements lack the qualitative characteristic of max. 3

“understandability”: - Understandability of financial statements means information is appeared in a

useful and intelligent format for users who have reasonable knowledge of accounting and business activities.

- It does not imply they are understandable by everyone. - That Dave failed to understand the financial statements does not mean the

financial statements lack the qualitative characteristic of “understandability” in view of Dave’s training and practice in a different discipline.

Total: 6 marks

Mock Exam Paper

HKDSE-BAFS 2A Set 1 Ans (Student House) - 3 -

Question 4 (Cont’d) Marks

(b) (2) Free Company

Income statement for the month ended 31 January 2011

$ $

Sales (22 × 4000) 88 000

Less: Cost of goods sold

Direct material cost (6 × 4 500) 27 000 0.5

Direct labour cost (4 × 4 500) 18 000

Variable production overheads (3 × 4 500) 13 500 0.5

Fixed production overheads (13 500 ÷ 5 400 × 4 500) 11 250 1

69 750

Less: Closing Inventory [(6 + 4 + 3 + 2.5) × 500] 7 750 62 000 0.5

Gross profit 26 000 Less: Under-absorption of fixed production overheads

(15 120 − 11 250) 3 870 0.5 Sales commission 8 000 11 870 0.5

Net profit 14 130 0.5

(4)

Total: 10 marks

Section B

Question 5 Marks (a) $

Construction materials used 85 000 0.5 Labour cost 55 000 0.5 Installation of lighting system 20 500 0.5

Cost of building 160 500 1

(2.5) (b) Accumulated Depreciation - building

$ $ Balance c/f 74 100 Balance b/f

(600 000 × 2% × 5)

60 000 1

Profit and loss (W1) 14 100 1.5

74 100 74 100

Accumulated Depreciation - machinery

$ $ Balance c/f 324 660 Balance b/f

[480 000 × (1 − 0.83)]

234 240 1

Profit and loss (W2) 90 420 3.5

324 660 324 660

(7) (c) Statement showing the amount of allowance

for doubtful debts to be charged for the year ended 31 December 2010

$ Debit balance of accounts receivable (55 000 + 3 000) 58 000 0.5

Omitted debit balance 1 000 0.5

Corrected debit balance of accounts receivable 59 000 0.5

3% allowance for doubtful debts 1 770 0.5 Balance b/f (1 400)

Amount to be charged for the year 370 0.5

(2.5)

Mock Exam Paper

HKDSE-BAFS 2A Set 1 Ans (Student House) - 7 -

Question 7 (Cont’d) Marks (e) Statement showing all relevant costs

and revenues to ascertain the profit or loss on the order

$

Total revenue 2 100 000 Direct wages (385 000)

0.5

Material C cost (500 000) 0.5 Material D cost (120 000 + 350 000 × 2) (820 000) 1

Variable production overheads [385 000 × (120% − 40%)] (308 000) 0.5

Profit 87 000 0.5

(3)

Total: 17 marks

Section C

Question 8 Marks (a) Dora Limited

Income statement for the year ended 31 March 2011

$ $ $ Sales: Cash sales 797 375 0.5 Credit sales (Bal. fig) 3 360 600 0.5 Credit card sales [550 080 / (1 − 4%)] 573 000 4 730 975 0.5

Less: Returns inwards 210 600

Net Sales (3 616 300 / 80%) 4 520 375 0.5 Less: Cost of goods sold

Opening Inventory 585 000 0.5

Add: Purchases (W1) 3 820 300 1.5

Less: Returns outwards 127 000 3 693 300

4 278 300 Less: Closing inventory (W2) 662 000 3 616 300 2

Gross profit 904 075

Discounts received 9 500 0.5

913 575 Less: Expenses Discounts allowed (W3) 16 000 2.5

Bad debts 13 000 Insurance 22 500

0.5

Credit card companies service charge 22 920 0.5 Administrative expenses (184 000 − 1 000 − 10 000) 173 000 0.5

Directors’ remuneration 12 760 Audit fees 30 000

0.5

Debenture interest 2 000 0.5 Depreciation for machinery 93 000 385 180 1

Profit before tax 528 395

Less: Taxation 81 250

Profit after tax 447 145 Add: Retained profits b/f (W4) 539 700 0.5

986 845 Less: Appropriations Preference share dividend: paid 12 500 proposed 12 500 25 000 0.5

Ordinary share dividend: paid 50 000 75 000 0.5

Retained profit c/f 911 845

(14)

[(700 000 − 180 000 + 100 000) × 0.15]

HKDSE-BAFS 2A Set 1 (Student House) - 2 -

Section A

Answer ALL questions in this section. 1. The cash book of Fernando Company showed a debit balance of $5360 on the bank account, on 30 April

2011 while the bank statement showed a credit balance different from the company’s record. The following information has been obtained:

(i) On 30 April 2011, the following cheques remained unpresented:

Cheque No. Date of cheque Amount ($)1313 18 October 2010 3001314 15 January 2011 5201320 7 February 2011 2 013

(ii) Cheques totaling $5200 were banked on 28 April 2011 but only credited by bank on 2 May 2011,

except for one cheque amounted to $950 was dishonoured. A cheque of $370 dated 15 May 2011 received from a customer was recorded but was still in the hand of the cashier.

(iii) The bank debited the company’s account in error for $870. (iv) Salaries to staff are paid by autopay at the end of each month. However, the autopay for April 2011

salaries amounted to $3400 was not executed until 3 May 2011. The amount had not been accounted for and recorded in the books of the company.

(v) Tenants deposited rent of $6800 directly into the bank account of the company but no entries have

been made regarding this.

REQUIRED:

(a) Update the cash book of Fernando Company. (2.5 marks) (b) Prepare a bank reconciliation statement as at 30 April 2011, commencing with updated cash book

balance. (3.5 marks)

(Total: 6 marks) 2. Bookkeeper of BAFS Company recorded a purchase order of $700 000 from a reliable customer for

delivery 4 months later. The customer has already been doing business with the company for 15 years. Financial statements are also prepared at the end of current financial year. However, the son of the owner, Dave, who is an engineering student, failed to understand the financial statements prepared by the accountant.

REQUIRED:

(a) Comment on bookkeeper’s treatment regarding the purchase order with reference to an appropriate

accounting principle. (3 marks) (b) Explain whether the financial statements prepared lack the qualitative characteristic of

“understandability”. (3 marks)

(Total: 6 marks)

HKDSE-BAFS 2A Set 1 (Student House) - 5 -

Section B

Answer ALL questions in this section.

5. The following is the extract of the trial balance before the preparation of financial statements of Original Company as at 31 December 2010.

Dr ($) Cr ($) Building 600 000 Machinery 480 000 Accumulated depreciation - Building ? - Machinery ? Accounts receivable (net of minority balance of $3000) 55 000 Bad debts 4 000 Allowance for doubtful debts 1 400

The following information is related to non-current assets and accounts receivable of Original Company:

(i) The existing allowance for doubtful debts should be adjusted to 3% of debtors.

(ii) The company's building was acquired on 1 January 2005. On 1 June 2010, the building was extended and the following expenditures were incurred. No entry has been made with regard to this extension.

$ Construction materials used 85 000Labour cost 55 000Installation of lighting system 20 500Furniture: movable desks 26 750

Total payment made by cheque 187 250

(iii) A machine was bought on 1 March 2010 and the following costs were incurred. It is expected that the scrap value of this machine is $1000. No entry has been made for this acquisition.

$ List price (net of trade discount $5000) 95 000Delivery expenses 6 000Cash discount received 1 000Repair expenses incurred due to an accident happened during delivery 5 000

(iv) From January 2010 onwards, depreciation policy on machinery will be changed from reducing balance method of 20% to straight-line method of 15%. Existing machinery, which was bought on 1 January 2007, was estimated to have a remaining useful life of 3 years with a scrap value of $12 000. Depreciation rate of building is 2% on cost. Depreciation is provided on a pro-rata basis.

(v) It was discovered that a debtor balance of $1000 has been omitted from the list of debtors and has not been included in accounts receivable in the trial balance.

REQUIRED:

(a) Compute the cost of building to be capitalized. (2.5 marks)

(b) Prepare the accumulated depreciation accounts of building and machinery for the year ended 31 December 2010. (7 marks)

(c) Use a statement to show the amount of allowance for doubtful debts to be charged against the profit for the year ended 31 December 2010. (2.5 marks)

(d) Briefly explain the accounting concept applying to both providing allowance for doubtful debts and depreciation for non-current assets. (3 marks)

(Total: 15 marks)

HKDSE-BAFS 2A Set 1 (Student House) - 9 -

Section C Answer ONE question in this section. 8. The authorized share capital of Dora Limited consists of 1 000 000 ordinary shares at $2 each and 100 000

10% preference shares at $10 each. Up to 31 March 2011, one-fourth of them have been issued. The following information is related to the receipts and payments of the company during the year ended 31 March 2011.

Receipts $ Payments $ Proceeds from debtors 2 934 000 Payments to creditors 3 455 500 Cash sales 797 375 Administrative expenses 184 000 Proceeds from issue of 20 000 ordinary shares 44 000 Directors’ remuneration 12 760 Receipts from credit card companies 550 080 Audit fees 30 000 Tax paid for last year 57 300 Insurance 22 500 Ordinary share dividends 50 000 Preference share dividends 12 500

Extract of Trial Balance as at 31 March 2010 is given below:

Dr ($) Cr ($) Machinery 700 000Bank 240 000General Reserve 130 000Accrued Administrative expenses 1 000Accounts Receivable and Payable 484 000 245 000Accumulated Depreciation-machinery 180 000Share premium 146 000

Additional information: (i) Credit notes and debit notes received were amounted to $127 000 and $210 600 respectively.

Discounts received for early payments were $9500.

(ii) Credit card companies will give the amount net of 4% service charge to the company when customers use credit cards to pay for goods bought.

(iii) Dora Limited maintains a margin of 20% for all goods sold and the inventory turnover was 5.8

months. Inventory as at 31 March 2010 was $585 000.

(iv) Bad debts written off during the year was $13 000 and average accounts receivables’ collection period was 2.2 months. The amount owed to suppliers was $473 300.

(v) Administrative expenses paid for next year was $10 000.

(vi) $100 000 8% Debentures were issued on 1 January 2011 to finance the purchase of machinery.

Debenture interests are to be paid on 30 June and 31 December every year.

(vii) Tax on profit for the year of $81 250 is to be provided.

(viii) Depreciation on machinery is to be provided at 15% per annum at net book value. A full year’s charge is to be made in year in which a machine is purchased, but none in the year of sale.

(ix) On 15 April 2011, the board of directors declared an ordinary dividend of $0.1 per share for the year

ended 31 March 2011.