Rex Ng - MPEP

Rex Ng

DSE BAFS

(Acc

ountin

g Mod

ule)

Road to 5**

Tackle

accounting module with

effective strategies

BAFS-ACCT_扉頁.indd 1 24/6/2019 15:42:02

Rex Ng

BBA (Hons) (Professional Accountancy),

MSc (Marketing), DipEd CUHK

Exam expert

• Currently teaching in a Band 1 school, former subject panel head of Principles of Accounts and former tutor of a leading tuition center

• Former auditor of one of the “Big 4” auditing firms

• Invited by secondary schools to share exam strategies and exam skills

• Interviewed by the media to share teaching experience

This book can effectively point out mistakes that students often make in the DSE BAFS examination. Notes are smart and teaching skills are unique. Practice can help students revise important concepts. I think it is the best and most comprehensive DSE BAFS examination revision guide in the market!

Professor Rita YipAssociate Professor, Department of Accounting, The Hang Seng University of Hong Kong

Contents

Unique Exam Skills and Analysis

Chapter 1 Books of Original Entry and Ledgers ..................................25

Chapter 2 Cash Accounting and Accrual Accounting ..........................43

Chapter 3 Bad Debts and Allowance for Doubtful Debts ....................61

Chapter 4 Depreciation ........................................................................79

Chapter 5 Inventory Valuation ............................................................103

Tour to Capture Stars

PART 1 Powerful Tools in Solving Accounting Problems 10

PART 2 Exam Analysis in BAFS 19 I. DSE Examination overview

II. DSE Paper 2A past paper questions distribution analysis

PART 3 Exam Traps and Common Mistakes in BAFS 22

Chapter 6 Bank Reconciliation Statement .........................................125

Chapter 7 Correction of Errors ...........................................................145

Chapter 8 Partnership – Appropriation and Current Accounts ..........167

Chapter 9 Partnership – Goodwill and Revaluation ...........................177

Chapter 10 Partnership – Dissolution ..................................................197

Chapter 11 Limited Company ..............................................................215

Chapter 12 Accounting Ratios .............................................................233

Chapter 13 Generally Accepted Accounting Principles .......................255

Chapter 14 Incomplete Records ..........................................................271

Chapter 15 Cost Accounting Basic Concepts .....................................291

Chapter 16 Absorption and Marginal Costing .....................................307

Chapter 17 Cost-Volume-Profit Analysis .............................................321

Chapter 18 Decision-making ...............................................................337

Last MinuteNote

before Exam

Books of Original Entryand Ledgers

Short questions (5 marks to 8 marks)

(i) Identify different types of books of original entry and ledgers.

(ii) Record transactions in books of original entry and post to

ledgers.

• Remember the names of 6 Books of original entry and 3 Ledgers.

• Follow the first 3 steps in Accounting Cycle. Enter transactions in books of original entry and post to ledgers.

Transactions

Books of original entry

Ledgers

DSEQuestion

Types &

Marks

Revisionand

Examination

Strategies

Chapter 1

Learning

Points

Section1 Common Mistakes

3. Cash sales transactions are entered in sales journal.

Cash sales transactions are entered in cash book.

6. Total credit purchases got in purchases journal is posted to purchases ledger.

Total credit purchases got in purchases journal is posted to general ledger.

1. Sales transactions are entered in sales journal.

Credit sales transactions are entered in sales journal.

2. Purchases transactions are entered in purchases journal.

Credit purchases transactions are entered in purchases journal.

5. Total credit sales got in sales journal is posted to sales ledger.

Total credit sales got in sales journal is posted to general ledger.

4. Cash purchases transactions are entered in purchases journal.

Cash purchases transactions are entered in cash book.

7. Returns inwards is recorded in returns inwards journal.

Returns inwards by credit customers is recorded in returns inwards journal.

Concept Clarification

Returns inwards can be by credit customers or by customers who are paid. • Returns inwards by credit customers is recorded in returns inwards journal. • Returns inwards by customers who are paid is recorded in cash book as refund

is needed.

26 Chapter 1 Books of Original Entry and Ledgers

8. Returns outwards is recorded in returns outwards journal.

Returns outwards to credit suppliers is recorded in returns outwards journal.

9. Credit purchases of non-current assets for production are entered in purchases journal.

Credit purchases of non-current assets for production are entered in general journal.

10. Credit sales of non-current assets are entered in sales journal.

Credit sales of non-current assets are entered in general journal.

11. Credit notes represent returns inwards.

Issuing credit notes means returns inwards.

Receiving credit notes means returns outwards.

12. Debit notes represent returns outwards.

Issuing debit notes means returns outwards.

Receiving debit notes means returns inwards.


Returns outwards can be to credit suppliers or to suppliers who have been paid. • Returns outwards to credit suppliers is recorded in returns outwards journal. • Returns outwards to suppliers who have been paid is recorded in cash book as

refund is needed.

Concept Clarification • Purchases journal only records credit purchases of goods that are for resale. • Non-current assets for production are not for resale and the credit purchases of

non-current assets are recorded in general journal.

Concept Clarification • Sales journal only records credit sales of goods. • Sales of non-current assets for production are recorded in general journal.

27Chapter 1 Books of Original Entry and Ledgers

Section2 Capture Star Notes

1 Books of original entry (also called Journal)

There are 6 different books of original entry. They are used to record different types of transactions.

Books of original entry (Journal) Uses

Sales day book(Sales journal)

Record credit sales transactions

Purchases day book(Purchases journal)

Record credit purchases transactions

Returns inwards day book (Returns inwards journal)

Record returns inwards by credit customers transactions

Returns outwards day book (Returns outwards journal)

Record returns outwards to credit suppliers transactions

Cash book Record all transactions involving the use of bank or cash

General journal (The journal)

• Record other transactions not listed above• Record period-end adjustments

DSE TipsNo marks will be awarded if names of books of original entry are incorrect.

Sales day book / Sales journal Sales book

Purchases day book / Purchases journal Purchases book

Cash book Cash journal


Ledgers Uses

Sales ledgers(Trade receivables ledgers)

Keep trade receivables accounts

Purchases ledgers(Trade payable ledgers)

Keep trade payables accounts

General ledgers Keep other accounts not mentioned above

DSE Tips

Cash book can be treated as a ledger if it is defined in the question. It is logical to do so as cash book keeps cash and bank accounts. Reference HKDSE 2016 Paper 2A Q2

Concept ClarificationA ledger is like a folder and each folder holds T-accounts of the same type.

2 LedgersThere are 3 different ledgers. Transactions from books of original entry will be posted to T-accounts in ledgers (or called ledger accounts).


Sales Day Book

2019 $

Jan 1 Mr. A 50

Jan 2 Mr. B 100

Jan 3 Mr. C 150

Jan 31 Total credit sales for the month 300

Sales ledger General ledger

Mr. A Sales

$

Jan 1 Sales 50

$ $ $

Jan 31 Trade receivables 300

Mr. B $

Jan 2 Sales 100

$

Mr. C $

Jan 3 Sales 150

$

3 Post transactions from books of original entry to ledgers

(A) Sales day book (Sales journal)Transactions in January 2019: Jan 1, Credit sales of $50 to Mr. A

Jan 2, Credit sales of $100 to Mr. B

Jan 3, Credit sales of $150 to Mr. C


(E) Cash bookThere are 2 types of cash book in DSE BAFS exam:

• three-column cash book (with discount columns);• two-column cash book (without discount columns).

DSE Tips • Cash book is one of the books of original entry. However, in some cases,

cash book is also treated as a ledger to keep cash and bank account.　 Reference HKDSE 2016 Paper 2A Q2

• Students should follow instructions given in the question（跟題目指示）to determine（決定）if bank and cash accounts are kept in general ledger or cash book.

Example (with discounts columns)

Transactions in January 2019:

Jan 1, Balance of cash and bank account are $5,000 and $8,000 respectively

Jan 2, Cash sales of $2,000

Jan 3, Cash purchases of $800

Jan 10, Paid a creditor of balance $1,000 by cheque with 20% cash discount

Jan 12, Receipt from a debtor of balance $2,000 in cash with 5% cash discount

Jan 20, Paid rent of $500 by cheque

Examples of posting transactions from cash book to ledgers


Cash book

2019

Jan 1 Bal b/f

Jan 2 Sales

Jan 12 Trade receivables

Discount $

100

100

Cash $

5,000

2,000

1,900

8,900

Bank $

8,000

8,000

2019

Jan 3 Purchases

Jan 10 Trade payables

Jan 20 Rent

Jan 31 Bal c/f

Discount $

200

200

Cash $

800

8,100

8,900

Bank $

800

500

6,700

8,000

Sales ledger General ledger

Trade receivables Sales

$ $

Jan 12 Cash 1,900 $ $

Jan 2 Cash 2,000

Purchases

$Jan 3 Cash 800

$

Rent

$Jan 20 Bank 500

$

Purchases ledger

Trade payables

$Jan 10 Bank 800

$


Section3 Past Paper Analysis

• Since 2016, this topic has been moved from Paper 1 to Paper 2A. Before 2016, this topic used to appear in the question types of MC and SQ. From 2016 onwards, this topic usually appears as SQ but marks can be up to 8. Thus it is a very important topic in DSE BAFS exam.

• Students must know how to identify different types of books and ledgers.

Key to Success

2012 2013 2014 2015 2016 2017 2018 2019

Identify types of books and ledgers

Paper 1

MC Q28

Paper 1

MC Q3

Paper 1

SQ Q3a

Paper 1

MC Q4

Paper 2A

Q2

Paper 2A

Q1

Enter transactions in books

Paper 1

SQ Q5


Section 4Comprehensive Training

1. (a) ABC Company is a trading company selling furniture.

What is the book of original entry for recording each of the transactions below? (3 marks)

Book of original entry

Bought telephone sets on credit (i)

Sold telephone sets and received cash (ii)

Bought furniture on credit (iii)

Received a credit note from credit supplier for furniture returned (iv)

Accrued for outstanding electricity at year end (v)

Gave full refund to a customer for furniture returned (vi)

(b) Give one example of nominal account mentioned in the above transactions. (1 mark)

(c) Which ledger should the amount of total credit purchases be posted to? (1 mark)

Reference HKDSE 2018 Paper 2A Q1

Answer

(a) (i) The Journal

(ii) Cash book

(iii) Purchases journal

(iv) Returns outwards journal

(v) The Journal

(vi) Cash book (0.5 marks each)


(b) Electricity / returns outwards / sales / purchases (1)

(c) General ledger (1)

2. ABC Company keeps six books of original entry: sales journal, purchases journal, returns inwards journal, returns outwards journal, cash book, the journal and four ledgers: sales ledger, purchases ledger, general ledger and cash book. Complete the following table:

Transactions Books to be recorded

Ledger for debit entry

Ledger for credit entry

e.g. Paid rent in cash Cash book General ledger Cash book

(a) Cash purchases

(b) Received debit notes from credit customers

(c) Goods sold on credit

(d) Electricity expense accrued

(e) Credit purchase of machine for production

(f) Paid water bill by cheque

(9 marks)Reference HKDSE 2016 Paper 2A Q2

Accounting cycle

(i) In this question, the company is selling furniture. Telephone sets are non-current assets. Purchase of telephone sets on credit is entered in the journal.

(ii) Transaction involving cash is entered in cash book.(iii) Purchases of goods on credit are entered in purchases journal.(iv) Receiving credit notes means returns outwards.(v) Period-end adjustment is entered in the journal.(vi) Transaction involving cash or bank is entered in cash book.

Exam key points

Accounting cycleFollow the accounting cycle, total credit purchases amount is posted to general ledger. (Refer to p.31)

Exam key points


Answer

Transactions Books to be recorded

Ledger for debit entry

Ledger for credit entry

(a) Cash purchases Cash book General ledger Cash book

(b) Received debit notes from credit customers

Returns inwards journal

General ledger Sales ledger

(c) Goods sold on credit Sales journal Sales ledger General ledger

(d) Electricity expense accrued The journal General ledger General ledger

(e) Credit purchase of machine for production

The journal General ledger General ledger

(f) Paid water bill by cheque Cash book General ledger Cash book

(0.5 marks each)

Accounting cycleTransactions would be posted to the following T-accounts in ledgers:

Dr Cr

(a) Purchases Cash

(b) Returns inwards Trade receivables

(c) Trade receivables Sales

(d) Electricity expense Accrued electricity expense

(e) Machinery Other payables

(f) Water expense Bank

Exam key points


Last MinuteNote

before Exam

Chapter 6

Long questions (6 marks to 14 marks)

DSEQuestion

Types &

Marks

• Remember the uses of a bank reconciliation statement.

• Use Matching approach2 to tackle “Type 1: Given cash at bank account and bank statement questions”.

• Use CB & BS approach3 to tackle “Type 2: Text questions”.

Revisionand

Examination

Strategies

(i) Explain the uses of a bank reconciliation statement.

(ii) Identify items missing in cash book and update it.

(iii) Prepare a bank reconciliation statement.

Learning

Points

Bank ReconciliationStatement

Section1 Common Mistakes1. A bank reconciliation statement is used to correct errors in bank

statement.

A bank reconciliation statement is used to highlight and explain the difference between cash at bank account balance and the bank statement balance. It can help detect errors but it is not used to correct errors.

2. Cash book bank column balance and bank statement balance match if there are no errors.

The difference between cash at bank account balance and bank statement balance always occurs even when there are no errors because of timing gap in recording transactions.

3. Debit balance in bank statement means positive balance.

Debit balance in bank statement means negative balance.


Cash at bank Bank statement

Receipt / Deposit Debit (Dr) Credit (Cr)

Payment / Withdrawal Credit (Cr) Debit (Dr)

Concept ClarificationBank reconciliation statement is not used to correct errors. It is used to locate and explain difference.

126 Chapter 6 Bank Reconciliation Statement

4. Prepare a bank reconciliation statement as at 31 March 2019, commencing with the cash at bank balance.

XXX LtdBank reconciliation statement as at 31 March 2019

$Balance as per bank statement Add: Uncredited cheques Less: Unpresented cheques Balance as per updated cash at bank account

XXX LtdBank reconciliation statement as at 31 March 2019

$Balance as per updated cash at bank accountAdd: Unpresented cheques

Less: Uncredited chequesBalance as per bank statement

DSE TipsThe question has stated that “commencing with the cash at bank balance”. No marks will be given if students do not follow the requirement.

127Chapter 6 Bank Reconciliation Statement

Section2 Capture Star Notes

1 Uses of a bank reconciliation statement• A bank reconciliation statement is used to highlight and explain the

difference between cash at bank account balance and the bank statement balance. The difference always occurs even when there are no errors because of timing gap in recording transactions.

• A bank reconciliation statement can help detect errors but it is not used to correct errors.

2 Entries in bank statement but not in cash at bank account

• All the items below have been entered in bank statement but are missing in cash at bank account:

Items MeaningsRecorded in bank

statement

Treatment / update

needed in cash at bank

account

Standing order Auto payment with fixed amount deducted Credit

Direct debit Auto payment with non-fixed amount

deducted Credit

Direct credit Auto receipt with non-fixed amount

added Debit

Bank charge Auto payment charged by bank deducted Credit

Interest expense Auto payment charged by bank deducted Credit

Interest revenue Auto receipt from bank added Debit

Dishonoured cheque (Returned cheque)

Cheque not cleared by bank deducted Credit

Post-dated cheque

Cheque not cleared by bank as the cheque is dated in the future

deducted Credit

Stale cheque Cheque cancelled by bank added Debit


• Treatment / update needed in cash at bank account:

Cash at bank

$

Balance b/f (debit balance) X

XXX – Direct credit X

Interest revenue X

XXX – Stale cheque X

Balance c/f (credit balance) X

X

$

Balance b/f (credit balance) X

XXX – Standing order X

XXX – Direct debit X

Bank charge X

Interest expense X

XXX – Dishonoured cheque X

XXX – Post-dated cheque X

Balance c/f (debit balance) X

X

DSE TipsReasons for dishonoured cheque: • The drawer does not have enough money in his account. • There are mistakes on the cheque, for example:

- wrong drawer’s signature - wrong drawee’s name - amount in words does not match amount in number

DSE Tips • Cash at bank is a T-account. Entries found in cash at bank are presented in

account names. No marks will be given if corresponding account names are not given in the entries.

• Standing order, direct debit, direct credit, dishonoured cheque, post-dated cheque, stale cheque are not account names.


Section3 Past Paper Analysis

2012 2013 2014 2015 2016 2017 2018 2019

Uses of a bank reconciliation statement

Update cash at bank account

Paper 2A

Q5a

Paper 2A

Q1b

Paper 2A

Q9a

Paper 2A

Q1a

Paper 2A

Q4a

Paper 2A

Q2a(i)

Paper 2A

Q2a

Prepare a bank reconciliation statement

Paper 2A

Q5b

Paper 2A

Q9b

Paper 2A

Q1b

Paper 2A

Q4b

Paper 2A

Q2a(ii)

Paper 2A

Q2a

Bank reconciliation statement is a hot topic in DSE BAFS exam. Students need to be well prepared for Type 1 and Type 2 questions.

• Type 1 questions appeared in HKDSE 2012, 2015

• Type 2 questions appeared in HKDSE 2013, 2014, 2017, 2018, 2019

Key to Success


Section 4 Comprehensive Training

1. The following information was extracted from the cash book of Peter Ltd for the month ended 31 December 2018:

Cash at bank

2018 $Dec 10 Cheung Ltd 3,000Dec 12 Chan Ltd 8,000Dec 19 Lee Ltd 5,600Dec 25 Wong Ltd 16,230

32,830

2018 Cheque No. $Dec 1 Balance b/d 5,000Dec 13 Salaries 201803 12,000Dec 16 Mary 201804 3,000Dec 21 Ming Ltd 201805 6,000Dec 31 Balance c/d 6,830 32,830

Peter Company received the following bank statement for the month December 2018:Date Description Dr Cr Balance2018 $ $ $Dec 1 Balance b/d 3,000 O/DDec 11 Cheque deposit 3,000 0Dec 13 Cheque 201801 1,500 1,500 O/DDec 20 Cheque 201804 300 1,800 O/DDec 21 Cheque deposit 5,600 3,800Dec 23 Credit transfer 1,500 5,300Dec 25 Cheque 201803 12,000 6,700 O/DDec 31 Direct debit – Water 1,800 8,500 O/DDec 31 Interest charge 150 8,650 O/D

(Note: O/D means overdraft)

Additional information: (i) Credit transfer on 23 December 2018 was made by a customer Pearl Ltd. (ii) The difference between cash at bank and bank statement balance

on 1 December 2018 was due to unpresented cheques 201801 and 201802 being still unpresented in November 2018.

(iii) Cheque number 201804 was wrongly recorded in bank statement.

REQUIRED: (a) Update the cash at bank account of Peter Ltd. (4 marks) (b) Prepare a bank reconciliation statement as at 31 December 2018,

commencing with bank statement balance. (6 marks)

Reference HKDSE 2015 Paper 2A Q1


Matching approach2

Cash at bank

2018 $Dec 10 Cheung Ltd 3,000Dec 12 Chan Ltd 8,000Dec 19 Lee Ltd 5,600Dec 25 Wong Ltd 16,230 32,830

2018 Cheque No. $Dec 1 Balance b/d 5,000Dec 15 Salaries 201803 12,000Dec 16 Mary 201804 3,000Dec 28 Ming Ltd 201805 6,000Dec 31 Balance c/d 6,830 32,830

Date Description Dr Cr Balance2018 $ $ $Dec 1 Balance b/d 3,000 O/DDec 11 Cheque deposit 3,000 0Dec 13 Cheque 201801 1,500 1,500 O/DDec 20 Cheque 201804 300 1,800 O/DDec 21 Cheque deposit 5,600 3,800Dec 23 Credit transfer 1,500 5,300Dec 25 Cheque 201803 12,000 6,700 O/DDec 31 Direct debit – Water 1,800 8,500 O/DDec 31 Interest charge 150 8,650 O/D

Exam strategies

Answer

Uncredited cheques

Unpresented cheque

(a)

Cash at bank

2018 $

(0.5) Dec 31 Balance b/d 6,830

(1) Dec 31 Pearl Ltd 1,500

8,330

2018 $

Dec 31 Water 1,800 (1)

Dec 31 Interest charge 150 (1)

Dec 31 Balance c/d 6,380 (0.5)

8,330

Autopay items

Unpresented cheque in Nov

Error


(b)

Peter LtdBank reconciliation statement as at 31 December 2018

$

Balance as per bank statement (8,650) (0.5)

Add: Uncredited cheque – Wong Ltd 16,230 (1)

Uncredited cheque – Chan Ltd 8,000 (1)

Less: Bank Error – 201804 2,700 (1)

Unpresented cheque – 201802 (5,000 – 3,000 – 1,500) 500 (1)

Unpresented cheque – 201805 6,000 (1)

Balance as per updated cash at bank account 6,380 (0.5)

DSE Tips • Write account name in cash at bank account. • Check if the balance of bank reconciliation statement is equal to cash at

bank balance ($6,380). • Follow the requirement: commencing with bank statement balance. • Cheque number must be written for all unpresented cheques. • Cheque 201802 remains unpresented. It should be put under bank

reconciliation statement.

2. The cash at bank account of Peter Ltd showed a debit balance of $10,000 as at 31 December 2018, which did not match the bank statement balance on the same date. An examination of the cash at bank account and the bank statement disclosed the following:

(i) The following cheques had not yet been presented for payment:

Cheque number Issue date Amount ($)

2018011 10 March 2018 3,000

2018016 30 April 2018 4,000

2018113 18 December 2018 5,000

(ii) A standing order of rent of $1,000 was processed by the bank on 1 May 2018.

(iii) Bank lodgment of $4,800 on 31 December 2018 was not recorded by the bank.


奪星易應試系列Deriving Stars Easily

Speedy Solutions - DSE BAFS (Accounting Module) Road to 5**Author: Rex NgPublishing director: Lau Chi HangPublishing coordinator: Tam Lai SzeExecutive editor: Kwan Wai KwanBook designer: Chan Hoi Ying

Published by Ming Pao Education Publications Limited 15/F, Block A, Ming Pao Industrial Centre, 18 Ka Yip Street, Chai Wan, Hong Kong Tel: (852) 2515 5600 Fax: (852) 2595 1115 Email: [email protected] Website: http://www.mpep.com.hk

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First published: July 2019 Price: HKD138ISBN 978-988-8557-30-1

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