HKDSE

BAFS
(Mar 2019)
Paper 2A

Business, Accounting and Financial Studies

Mock Exam Paper (Mar 2019)

Paper 2A
Accounting Module

Time allowed: 2 hours and 15 minutes

This paper must be answered in English.

Instructions:

1 There are THREE sections in this paper.

2 All questions in Sections A and B are compulsory. You are required to answer
ONE of the two questions in Section C.
SECTION A (24 marks)
Answer ALL questions in this section.

1 Joyce Lau is a sole trader. Her business produces and sells a single product. The cost
information related to the product is as follows:

Direct materials (per gram) $55

Direct labour (per hour) $100
Variable overheads (per unit produced) $200

The selling price of the product is $2,000 per unit. Thirty minutes of direct labour and
20 grams of direct materials are to be used to produce a unit. The estimated demand for the
product for the coming year is 4,400 units. Budgeted fixed overheads for the year amount to
$3,900,000.

Required:
(a) Calculate the following for the current year:
(i) Break-even sales in units (2 marks)
(ii) Contribution margin ratio (2 marks)
(Calculations to two decimal places)
(b) Suppose the estimated demand for the product decreases by a certain amount while
other factors remain unchanged. How would this affect the break-even sales in units?
(1 mark)
(Total: 5 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.2 © Pearson Education Asia Limited 2019
2 Chan, Lee and Cheung had been partners for 15 years, sharing profits and losses in the ratio
of 40% : 40% : 20%. You are given the following information on the partnership for the year
ended 31 December 2018:

(i) The net profit for the year amounted to $2,200,000.

(ii) Interest on capital was to be calculated based on the capital account balances at the
beginning of the financial year. The interest rate applied was 2% per annum.

(iii) Chan and Lee were entitled to a monthly salary of $10,000 and $8,000, respectively.

(iv) Current account balances as at 1 January 2018: Chan $30,000 Cr, Lee $12,000 Cr,
Cheung $22,000 Dr. Interest at 5% per annum was to be charged on accounts with a
debit balance at the beginning of the financial year.

(v) Capital account balances as at 1 January 2018: Chan $1,400,000, Lee $450,000,
Cheung $100,000.

Required:
Prepare for the partnership the appropriation account (vertical format) for the year ended
31 December 2018. (6 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.3 © Pearson Education Asia Limited 2019
3 Jason Wong operates a trading firm. On 15 December 2018, he found that one of the
business’s cash boxes was stolen. Upon investigation, he determined that the cash balance
as at 30 November 2018 was $12,345.

He also confirmed that the following cash transactions were made during the first two weeks
of December 2018:
$
Receipts from trade debtors 59,630
Cash contributed by Jason 2,000
Payments to trade creditors 35,120
Cash purchases 1,250
Water and electricity fees paid in cash 600
Cash taken by Jason 5,000
Cash banked 5,500

Following the loss of the cash box, cash on hand amounted to $1,234.

Required:
Prepare a statement to determine the amount of cash stolen. (6 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.4 © Pearson Education Asia Limited 2019
4 Natalie Ho found that the following transactions were omitted from the books, after she had
prepared an income statement and a statement of financial position for the year ended 31
December 2018. State how each of the following omitted events affected
(increased/decreased/not affected) the net profit for the year and working capital as at the
year-end date. The first one has been done for you as an example. (7 marks)

Net profit for the

Working capital as at
year ended
31 December 2018
31 December 2018

Example: Natalie Ho, owner of the firm, took

cash of $1,000 from the business on Not affected Decreased
12 December 2018.

(a) Tom Co, a trade debtor, settled the

account of $1,000 by cheque. Natalie
used the amount received to buy a gift for
her daughter.

(b) On 3 January 2018, Natalie used her own

money to pay the firm’s water charges for
the four months ended 31 December
2017.

(c) On 5 February 2018, the electricity bill for

Natalie’s private apartment for the two
months ended 31 January 2018 was paid
for from the business bank account.

(d) A motor vehicle which was bought on

15 April 2006 was sold for $8,000. The
original cost and accumulated
depreciation of the vehicle were both
$200,000.

(e) Bank interest revenue of $100 was

received on 31 December 2018.

(f) An inventory item with a cost of $100 was

damaged. It could only be sold for $120
after $100 was spent to repair it.

(g) Cheques totalling $52,000 were

deposited into the business bank account
on 30 December 2018 but were not
cleared by the bank until 3 January 2019.

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.5 © Pearson Education Asia Limited 2019
Section B (36 marks)
Answer ALL questions in this section.

5 You are given the following figures for Gary Chung’s business for the year ended
28 February 2019:

Capital, 1 March 2018 $4,000,000

Capital introduced during the year:
Bank $200,000
Motor vehicles $500,000
Drawings made during the year:
Goods (at cost) $120,000
Cash $30,000
Return on capital employed 10%

Additional information for the year:

(i) The inventory turnover ratio for the year was 20 times.
(ii) The opening inventory was valued at $60,000.
(iii) Rent and rates amounted to 20% of sales. Other operating expenses (excluding
depreciation) amounted to 10% of total expenses.
(iv) The gross profit ratio was 40%.
(v) The net profit ratio was 10%.

Required:
(a) Prepare a statement of financial position extract as at 28 February 2019, showing the
equity section. (4 marks)
(b) Prepare an income statement for the year ended 28 February 2019. (8 marks)
(Total: 12 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.6 © Pearson Education Asia Limited 2019
6 Humble Co Ltd produced 152,000 units of a single product during the year ended 31 October
2018. There was no opening inventory, while 5% of the units manufactured during the year
remained unsold at the year-end.

Price and cost information relating to the product is as follows:

Selling price $350 per unit

Direct materials $13,376,000
Direct labour ($25 per hour) 3.5 hours per unit produced
Variable manufacturing overheads $12 per unit produced
Fixed manufacturing overheads $12,000 per day (365 days for the year)
Variable marketing costs $25 per unit sold
Fixed marketing costs $2,000,000 per quarter

Required:
(a) Prepare income statements for the year ended 31 October 2018 using the following
approaches:
(i) Absorption costing (5 marks)
(ii) Marginal costing (5 marks)
(b) State two advantages of using marginal costing as compared with absorption costing.
(2 marks)
(Total: 12 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.7 © Pearson Education Asia Limited 2019
7 The following information concerns the bank column of the cash book of Joey Lam’s business
for October 2018. The credit balance shown in the bank statement failed to agree with the
credit balance of $30,588 shown in the cash book as at 31 October 2018. The difference was
due to the following:
(i) A cheque for $12,300 that was deposited into the bank and recorded in the cash book
was not yet credited by the bank.
(ii) The following cheques issued by Joey were not presented to the bank:
Amount
To Eddie Lau, a trade creditor $288
To Linda Cheung, a non-trade creditor $6,560
To Eric Lam, Joey’s uncle who had lent
money to her business $50,000
(iii) A cheque payment of $555 to Gabriel Co, a trade creditor, was entered in the cash book
as $5,555.
(iv) The bank statement showed that a commission of $9,130 was paid directly into the
business bank account, but no record was made in the books.
(v) A standing order to pay electricity fees of $10,200 was not entered in the cash book.
(vi) A cheque for $21,600, after deducting a cash discount of 10%, was received from Amy
Li, a trade debtor, during the month. Joey recorded the gross amount in the cash book.
(vii) The debit side of the cash book was overcast by $255.
(viii) A cheque for $3,100 drawn by Joey to pay for office furniture was recorded as $1,300
in the cash book.
(ix) No entry was made in the cash book for bank charges of $2,120 shown in the bank
statement.
(x) A cheque for $2,600 drawn on 18 February 2018 to settle the account of AC & Co, a
supplier, was not presented to the bank.
(xi) The bank returned a cheque for $15,150 drawn by Lily Kwan, a trade debtor. This
cheque was marked ‘Please refer to drawer’. Joey did not record the dishonoured
cheque in the books.
(xii) The bank charged interest of $789 against the business bank account and this amount
appeared in the bank statement. This charge was not entered in the cash book.
(xiii) Cyrus Chan, a trade debtor, paid $6,000 by credit transfer. This transaction was not
recorded in the cash book.

Required:
(a) Update the cash book for Joey Lam’s business and show the adjusted balance
as at 31 October 2018. (7 marks)
(b) Prepare a bank reconciliation statement as at 31 October 2018. (2 marks)
(c) State three possible reasons as to why the cheque from Lily Kwan was
dishonoured by the bank. (3 marks)
(Total: 12 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.8 © Pearson Education Asia Limited 2019
Section C (20 marks)
Answer ONE question in this section.

8 The following trial balance was prepared from the books of Joseph Ltd as at 30 November
2018 and it failed to agree.
Dr Cr
$ $
Office equipment 5,900,000
Office equipment: Accumulated depreciation 1,230,000
Motor vehicles 500,000
Motor vehicles: Accumulated depreciation 200,000
Purchases and sales 3,580,293 7,654,388
Rent 240,000 120,000
Trade payables and trade receivables 92,000 31,780
Wages and salaries 680,000
Inventory, 1 December 2017 125,000
Bank 63,000
Auditor’s fees 60,000
Discounts allowed and discounts received 12,511 31,227
Ordinary share capital 1,434,909
Retained profits 384,500
General reserve 120,000
Commission revenue 40,000
Allowance for doubtful debts 6,000
11,192,804 11,312,804

Additional information:

(i) Income tax expense was estimated to be $118,022.

(ii) Depreciation on office equipment was to be charged using the reducing-balance

method. The depreciation rate was 10% per annum. Depreciation on motor vehicles
was to be charged using the straight-line method. The depreciation rate was 20% per
annum.

(iii) The board of directors resolved to make a transfer of $300,000 to the general reserve.

(iv) The allowance for doubtful debts was to be maintained at 7% of trade receivables.

(v) Wages of $23,588 were owed as at the year-end date.

(vi) Closing inventory had a cost of $101,375 but could only be sold for $99,000.

Required:
(a) Given that all the balances listed in the trial balance are correct (before
accounting for the additional information above). State why the trial
balance did not agree. (1 mark)
(b) Prepare an income statement for the year ended 30 November 2018. (10.5 marks)
(c) Prepare a statement of financial position as at 30 November 2018. (8.5 marks)
(Total: 20 marks)

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.9 © Pearson Education Asia Limited 2019
9 You are given the following account balances of Peter Ltd as at 31 December:
2017 2018
$ $
Trade receivables 250,000 180,000
Trade payables 80,000 68,000
Bank/(Bank overdraft) 31,500 (8,000)
Cash 690 1,300
5% loan, repayable on 30 June 2019 50,000 50,000
10% loan, repayable on 31 October 2020 100,000 100,000
Inventory 82,000 99,000
Ordinary share capital 200,000 200,000
Property, plant and equipment (net) 500,000 600,000
Retained earnings 434,190 454,300

Additional information:

(i) Peter Ltd did not have any cash sales transactions in 2017 and 2018.

(ii) At at 31 December 2016, trade receivables and inventory were $101,100 and $50,500,
respectively.

(iii) Sales in 2017 and 2018 amounted to $2,500,000 and $3,500,000, respectively, while
gross profit amounted to $900,000 and $1,250,000, respectively.

(iv) The amount of ordinary share capital has been $200,000 since 1 January 2000, when
the company was incorporated. No dividends were paid in 2017 and 2018. Retained
earnings were $400,000 as at 31 December 2016.

Required:
(a) Calculate the following ratios for 2017 and 2018:
(i) Current ratio (3 marks)
(ii) Acid test ratio (3 marks)
(iii) Days’ sales in trade receivables (3 marks)
(iv) Gross profit ratio (3 marks)
(v) Net profit ratio (3 marks)
(vi) Inventory turnover (3 marks)
(Calculations to two decimal places)
(b) Comment on the profitability of the business. (2 marks)
(Total: 20 marks)

END OF PAPER 2A

Mock Exam Paper (Mar 2019): Paper 2A (Questions) p.10 © Pearson Education Asia Limited 2019