SHAU KEI WAN GOVERNMENT SECONDARY SCHOOL

Mock Examination 2021/22

Business, Accounting and Financial Studies Paper 2

QUESTION PAPER

Sec 6 ( ) Date : 15/2/2022

Time : 10:15 am – 12:30 pm
Max. mark : 68
Name : ________________________

Class No. : ________

Instructions:

1) There are three sections in this paper.

2) All questions in Sections A are compulsory.

3) You are required to answer two of the three questions in Section B.

4) You are required to answer one of the two questions in Section C.

5) Write your answers in the answer book. Start EACH question (not part of a question) on a
NEW page.

BAFS II – Question Paper 1/11

SECTION A (24 marks)

Answer ALL questions in this section.

1. (A) Indicate the accounts to be debited and credited, and the ledgers to be recorded for the following
transactions.

Transaction Debit entry to be recorded Credit entry to be recorded

Account Ledger Account Ledger
e.g., Purchased goods in cash. Purchase General ledger Cash Cash book

(a) Purchased a machine on credit. (1) (2) (3) (4)

(b) Purchased goods by cheque for (5) (6) (7) (8)

owner’s private consumption.
(c) Received a refund from a supplier in (9) (10) (11) (12)
cash.

(d) Issued a credit note for goods (13) (14) (15) (16)
returned.

(e) Made a refund to a customer by (17) (18) (19) (20)

cheque.

(f) An allowance was given by a credit (21) (22) (23) (24)

supplier because of goods damaged
in transit. These goods were returned
to the supplier.

(6 marks)

(B) State the book of original entry for recording item (a), (b), (c) and (d) in part (A). (2 marks)

(Total: 8 marks)

BAFS II – Question Paper 2/11

 2. (A) ‘Fixed production cost can be variable.’ Do you agree with this statement? Explain. (1 mark)

(B) Ms Wong operates a factory that produces Product Z. She is preparing the budget for the next accounting
year and has the following information related to the selling price and production costs:

SP (i) Unit selling price

Direct material cost
$800
0.8 kilograms required per unit of Product Z
Direct labour cost 10 hours required per unit of Product Z
1713 (ii) Each kilogram of direct material costs $30. 7040.8
Yenil 474
DL (iii) Direct labour rate is $45 per hour.
47X 10 450 cnit
(iv) Two types of production overheads would be incurred in the production process. Information
relating to these overheads at different production levels is as follows:
Production level 15,000 units 20,000 units ríooooo30,000 units
25,000 units
6 Type 1 overheads $300,000 $400,000 ? $600,000
Type 2 overheads $325,000 ? $475,000 $550,000

REQUIRED: 紫Absorption costing

(a) Calculate the unit variable production cost of Product Z. (2 marks)

(b) Calculate the budgeted gross profit at a production level of 20,000 units. (3 marks)

In the coming year, the factory will only produce 15,000 units of Product Z due to a decrease in demand.
The maximum capacity for labour hours is 300,000 hours each year. The factory can use the remaining
capacity to produce other products, namely, Z Pro, Z Plus and Z Max. The budgeted information related to
these three products is as follows:

Z Pro Z Plus Z Max

Estimated demand 10,000 units 12,500 units 10,250 units
SPEstimated unit selling price $820 $749.5 $698
Direct labour hours required per unit 8 hours 6.5 hours 7.5 hours
DL Direct labour rate
16 $45/hour 360 $45/hour72115$45/hour
Jin.r
点
Direct material usage required
Direct material price
Variable production overheads per unit
0.5 kg/unit
$30/kg
$20 It0.7 kg/unit
$30/kg
$20
0.35 kg/unit
Ju
$30/kg
$20 Jar
REQUIRED:
(c) To maximise the total contributions of the factory, calculate the production quantity for each of the
three new products. (2 marks)

(Total: 8 marks)

BAFS II – Question Paper 3/11

 3. Harry Limited’s financial information for 2020 and 2021 is as follows:

2020 2021
$ $
Sales 435,100
Interest expense 4,200
Net profit after interest 19,400
Balances as at 31 December:
Non-current assets, net 242,800 287,200
昌 Inventory
Trade receivables
90,000
76,400
89,000
76,000
Trade payables 75,200 77,000
6% Preference share capital 50,000 50,000
Ordinary share capital 130,000 200,000

点 Retained profits
7% Debentures, repayable in 2030
Cash at bank
92,600
60,000
—
109,000
60,000
43,800
Bank overdraft 1,400 —

The total assets turnover of Harry Limited was 0.93 times for 2020.

REQUIRED:
(a) Calculate (to two decimal places) the following ratios for 2021: (4 marks)

(i) Return on capital employed

(ii) Total assets turnover (in times)

(b) Comment on the management efficiency of Harry Limited for 2021. (4 marks)

(Total: 8 marks)

BAFS II – Question Paper 4/11

SECTION B (24 marks)

Answer TWO questions in this section.

4. Amy and Bobby have been in partnership for many years, sharing profits and losses equally. The account
balances as at 31 July 2020 are as follows:

$ $
Property, at cost 2,500,000 Trade payables 750,000
Accumulated depreciation: Property 300,000 Accrued salary [see (iv)] 80,000
Equipment, at cost 1,000,000 Cash at bank 500,000
Accumulated depreciation: Equipment 150,000 Capital – Amy 2,500,000
Inventory 300,000 Capital – Bobby 1,500,000
Trade receivables 1,200,000 Current – Amy 188,000
Allowance for doubtful accounts 36,000 Current – Bobby (4,000)

On 1 August 2020, Carol, the manager, was admitted as a new partner to the partnership. The arrangements were
as follows:

(i) The property was to be revalued at 120% of its cost and the equipment was to be revalued downwards by
20%. The market price of inventory increased by 25%.

(ii) A trade debtor with an outstanding amount of $100,000 had financial difficulty and may go into
liquidation. The partnership estimated that only $40,000 out of the debt could be collected. An allowance
for doubtful accounts was to be provided at 8% on the remaining trade debtors accounts.

(iii) Amy, Bobby and Carol agreed to share profits and losses in the ratio of 3 : 2 : 1.

(iv) Carol would add a $70,000 cheque to the partnership for her share of goodwill on the date of her
admission. She would also contribute her capital account through the following ways upon her admission:

(1) Two months’ salary amounting to $80,000 owed to her would be transferred to her capital account.
(2) She would settle half the trade payables on behalf of the new partnership.

(v) No goodwill account was to be maintained in the books. Goodwill adjustments were to be made in the
partners’ capital accounts.

(vi) The amount of Carol’s salary would remain unchanged, but she would no longer receive the sum in cash
or by cheque.

(vii) All partners are entitled to interest on capital, at 5% per annum.

REQUIRED:
(a) Prepare the following accounts to record Carol’s admission:
(i) the revaluation account (4 marks)

(ii) the partners’ capital accounts in columnar form (4 marks)

(b) Assuming the net profit for the year ended 31 July 2021 was $1,380,150, prepare the profit and loss
appropriation account for the year ended 31 July 2021. (4 marks)

(Total: 12 marks)

Dr.CI
BAFS II – Question Paper 5/11
viiǜěn 8in
niiico
 5.
x PIL
The trial balance of Charlie Company as at 31 December 2021 failed to agree and the credit difference of
$171,060 was posted to a suspense account. Subsequent checking of the records revealed the following:

(i) A credit sale of $6,420 was correctly entered in the personal account but was entered in the nominal
account as $6,240.

(ii) Carriage inwards of $560 was wrongly credited to the carriage outwards account.

(iii) The rental income account of $92,000 as at 31 December 2021 had been omitted from the trial balance.
Short terminvestment Cv Gen Aondjinl onshotterm
(iv) Dr
On 30 December 2021, a disposal of short-term investments at $188,000 had been debited to the cash at

investmen s
bank account and credited to the short-term investments account. The short-term investments were
purchased on 23 December 2021 at $174,900.

(v) The 3% term deposit was made on 1 December 2021. The deposit matures on 30 November 2022.
However, it had been wrongly debited to the cash at bank account and no credit entry had been made.

(vi) The company’s bank statement showed a balance as at 31 December 2021, which did not agree with the
balance shown in the cash at bank account on that date. The following cheques had been recorded in the
books but had not yet been presented to the bank:
cheque
Cheque number
601332
Payee 收款
A&A Limited
y'tale
Date of cheque
22 June 2021
Amount
$15,236
672273 Darkest Limited 30 October 2021 $7,850

It is the practice of the bank not to honour cheques outstanding for more than six months.

REQUIRED: to unprentedcleae.isBakrechtt
(a) Prepare the necessary journal entries to correct the above errors. Narrations are not required. (9 marks)

It was later revealed that Charlie Company had wrongly treated an abnormal inventory loss as a normal inventory
loss in the ledger accounts and the income statement. The company is not able to claim any compensation for
this inventory loss.

REQUIRED:
(b) State and explain the accounting principle or concept that had been violated. (3 marks)

(Total: 12 marks)

BAFS II – Question Paper 6/11

 6. BA Company commenced business in 2020. It uses the absorption costing system and the weighted average cost
method for inventory valuation. The actual data for the year ended 31 December 2020 is given below:

$
Sales 360,000
Variable production costs 150,000
Fixed production overheads 100,000
Administration overheads 32,000
Selling and distribution overheads 62,000

Additional information:

(i) The sales and production units for 2020 and 2021 were:

2020 2021
Sales level 24,000 units 29,000 units
Production level 25,000 units 35,000 units

(ii) Administration overheads are fixed costs. They increased by 35% in 2021.

(iii) Selling and distribution overheads are mixed costs. They were $72,000 in 2021.

(iv) Fixed production overheads are absorbed based on the number of units produced.

(v) There were under-absorbed fixed production overheads of $20,000 in 2020, while the actual fixed
production overheads were the same as the absorbed fixed production overheads in 2021.

(vi) In 2021, unit selling price, unit variable costs and predetermined fixed production overhead absorption
rate were the same as in 2020.

The company was considering using the marginal costing system.

REQUIRED:
(a) Briefly explain why depreciation by the reducing balance method should be classified as a fixed cost.
(1 mark)

(b) For selling and distribution overheads, calculate the variable cost per unit and the fixed cost for 2020.
(2 marks)

(c) Prepare the income statement for the year ended 31 December 2021 using the marginal costing system.
(7 marks)

(d) Explain why the absorption costing system can make managers manipulate profits easily.
(2 marks)

(Total: 12 marks)

BAFS II – Question Paper 7/11

SECTION C (20 marks)

Answer ONE question in this section.

Hi
7. On 31 December 2021, the Chan company’s cash at bank account had a debit balance of $340,850, which
did not agree with the balance shown on the bank statement. Subsequent investigation discovered the
following:

(i) During the year, the following cheques had been recorded in the books but still had not been presented
to the bank on 31 December 2021:
cheque
Cheque number
25777
Payee
Alien Co
_Hole
Date of cheque
1 April 2021
Amount
$20,000

unpnǜ品 25778
25779
25780
Orange Limited
XYZ Company
Donny Co
25 October 2021
5 November 2021
15 March 2022
$12,000
$18,000
$15,000
Lt eB dated
It is the bank’s practice not to honour cheques outstanding for more than post
six months. cheque

(ii) chcredteldep.at
The following information relates to cheques deposited into the company’s bank account in December
2021:
Cheque number Deposit date Credited by bank Amount
CB 32885 27 December 2021 — $30,000
32886 28 December 2021 30 December 2021 $40,000 vDore
32887 29 December 2021 3 January 2022 $70,000
出㗊 32888 30 December 2021 4 January 2022 $25,000

Cheque #32885 was dishonoured on 29 December 2021 because the signature on this cheque did not
match the bank’s record.

(iii) On 25 March 2021, a credit customer settled the outstanding amount of $4,000 by cheque #32559.
The bookkeeper recorded the settlement in the books and put the cheque into a drawer. This cheque
13 was still not presented on 31 December 2021.

(iv) Cheque #32779 for $18,000 dated 20 January 2022 was received from a credit customer on 10 October
B 2021. It had been recorded as a debtor’s settlement.

(v) A dividend of $1,000 was received through bank transfer. No accounting entries had been made for
B this.

(vi) On 1 July 2021, the Chan company bought equipment costing $200,000 on credit. The Chan Company
would settle the amount on 30 June 2022. The equipment supplier charges interest, payable half-yearly
v CR on 31 December 2021 and 30 June 2022, at 5% per annum. No accounting entries had been made for
the above.

cii (vii) Payment to credit suppliers amounting to $11,000 had been debited thrice to the cash at bank account.

(viii) On 30 November 2021, 130a 6-month short-term deposit of $60,000 with a 3% annual interest rate
matured. Half of the amount in the account was renewed on the short-term deposit and the remaining
amount was transferred to the current account. The bookkeeper recorded that the entire amount was
y B transferred to the current account.

(ix) A credit transfer of $3,000 appeared on the bank statement. The company was informed by the bank
ITR that this amount was wrongly credited and would be adjusted in January 2022.

BAFS II – Question Paper 8/11

 REQUIRED:
(a) Update the Chan Company’s cash at bank account. (12 marks)

(b) Prepare a bank reconciliation statement as at 31 December 2021, commencing with the balance of the
bank statement. (4 marks)

(c) Explain the function of a bank reconciliation statement. (2 marks)

(d) (i) Indicate the cheque number on the cheque issued by the Chan Company that became stale from
the above information. (1 mark)

(ii) Indicate from the above information the cheque number of the post-dated cheque that the Chan
Company received. (1 mark)

(Total: 20 marks)

BAFS II – Question Paper 9/11

 8. After preparing the necessary entries to calculate the cost of goods sold, the accountant of Johnny Company
Limited prepared the trial balance as at 31 December 2021 as follows:

Johnny Company Limited

Trial Balance as at 31 December 2021
Dr Cr
$ $
3% Debentures 700,000
Accumulated depreciation: Equipment, 1 January 2021 3,000,000
Administrative expenses 680,000
Cash at bank 1,989,480
Cost of goods sold 2,900,000
Equipment 6,600,000
Final ordinary dividend (2020) 160,000
Finance cost 88,000
General reserve 600,000
Interim ordinary dividend (2021) 138,000
Inventory, 31 December 2021 289,000
Long-term investment 3,276,570
Ordinary share capital ($20 each) 5,000,000
Retained profits, 1 January 2021 850,000
Sales 5,600,000
Selling and distribution expenses 531,000
Share issue 1,025,000
Trade receivables and payables 1,950,100 1,827,150
18,602,150 18,602,150

Additional information:

(i) Depreciation of equipment was to be provided based on 25% of net book value per annum. It is the
company’s practice to classify depreciation expenses as administrative expenses.

(ii) On 31 October 2021, one item of company equipment was destroyed by accident. The equipment was
acquired on 1 January 2019 costing $2,000,000. The company would be able to claim insurance
compensation of $790,000. It is the company’s practice to classify the profit or loss on disposal of
equipment as other revenues or administrative expenses, respectively. No entries had been made for
the above. New equipment of $480,000 had been acquired by cheque on 1 November 2021, which
had been debited to the long-term investment account.

(iii) On 28 December 2021, goods invoiced at $85,100 were sent to a customer on a sale-or-return basis.
These goods had been marked up at 85% on cost and recorded as credit sales for 2021. As at 31
December 2021, only 30% of these goods were accepted by the customer.

(iv) On 1 December 2021, 30,000 ordinary shares were issued at $25 per share. They were oversubscribed.
The amount received was recorded in the cash at bank and share issue accounts. Shares were allotted
on 30 December 2021 and the excess application monies were to be refunded to unsuccessful
applicants on 2 January 2022.

(v) On 1 September 2021, $700,000 5-year 3% debentures were issued, interest being payable half-yearly
on 28 February and 31 August.

(vi) The company started to offer a one-year free warranty to its customers for the units sold in November
2021. As no customers requested the repair service under warranty in 2021, no entry had been made
for the warranty. However, the accountant suggested that an estimated warranty expense of $39,000
should be recognised and classified as selling and distribution expenses in 2021.

BAFS II – Question Paper 10/11

 (vii) Directors’ fees of $88,000 for 2021 had been paid and recorded in the books. However, the amount
had been wrongly classified as finance cost.

(viii) Estimated profits tax of $43,000 for 2021 had not been recorded in the books.

(ix) On 31 December 2021, the directors resolved to increase the general reserve to $900,000.

(x) On 12 March 2022, the company declared a final dividend of $0.42 per ordinary share for 2021.

REQUIRED:
(a) Prepare the following:
(i) The statement to calculate the revised administrative expenses for the year ended 31 December
2021. (4 marks)

(ii) The income statement for the year ended 31 December 2021. (5 marks)

(iii) The statement to calculate the retained profits as at 31 December 2021. (3 marks)

(iv) The statement to calculate the working capital as at 31 December 2021. (6 marks)

(b) Calculate (to two decimal places) the dividend cover for the year ended 31 December 2021. (2 marks)

(Total: 20 marks)

END OF PAPER

BAFS II – Question Paper 11/11