Required: Draw up a three-column cash book to record the above transactions and balance off the cash book at the end of the month.

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1 Chapter 1 Books of original entry and ledgers (I) Mary Company had the following transactions during the month November 2014: Nov 3 Credit purchases from: Hilary Lam $13,580, Tammy Yiu $55, Credit sales to: Angel So $31,500, Ken Fung $2, Credit purchases from: Hilary Lam $220, Amy Wu $3, Credit sales to: Ken Fung $5, Credit sales to: Angel So $1,120, Carman Choi $35, Credit purchases from: Amy Wu $2,100. (a) Record the above transactions in the journals, and then post the entries to the sales account and purchases account in the general ledger. (b) Distinguish the difference between trade creditors and non-trade creditors. Chapter 2 Books of original entry and ledgers (I) The following are the cash and bank balances of Tom Lam s business as at 1 July 2016: Cash $3,100 Bank overdraft $12,500 The business had the following transactions during July 2016: Jul 5 The owner contributed a motor vehicle valued at $50,000 into the business. 6 The owner contributed cash of $10,000 into the business. Three-quarter of the sum was banked immediately. 7 Mario Chan, a trade debtor, settled his account by cash of $970. He was given a cash discount of 3%. 9 Tom purchased office furniture of $23,800 on credit. 10 Paid Mary Cheung a cheque of $500 for goods purchased last month. 11 Tom transferred $3,350 from his private savings account into the business bank account. 14 Paid Sammy Au, a trade creditor, cash of $2,200 to settle the outstanding debt. Tom was given a cash discount of $ Kelvin Wong paid cash to settle his account. He purchased goods with a list price of $5,000 last month, and was given a trade discount of 30%. He is given a cash discount of 1%. 31 Overdraft interest of $250 was charged directly to the bank account. Draw up a three-column cash book to record the above transactions and balance off the cash book at the end of the month S.5 BAFS 1 st Examination Page 1 By M. C. WONG

2 Chapter 3 Accruals and Prepayments Rita is a trader selling kid s garment. The following balances were taken from her books of account as at 1 January 2014: Stationery $2,580 Dr Commission expenses $35,000 Cr Rent $50,000 Dr She made the following payments by cheque in 2014: Jan 1 to Dec 31 Total payments for stationery $13,500 Jan 1 to Dec 31 Total payments to the salesmen for commission $46,600 Feb 18 Rent for six months to 31 August 2014 $150,000 Sept 5 Rent for six months to 28 February 2015 $180,000 Other information is as follows: (i) Sales for the year amounted to $237,200. (ii) The amount of stationery charged to the profit and loss account for the year ended 31 December 2014 was $18,000. (iii) Commission received should be 10% of the total sales for the year. (a) Prepare the following accounts for the year ended 31 December Show clearly the amount transferred to the profit and loss account and the balance brought down on 1 January (i) Stationery (ii) Commission (iii) Rent (b) Explain why accrued revenues are usually shown as a current assets in the statement of financial position. Chapter 4 Bad debts and allowance for doubtful accounts Raymond provided the following information relating to his trade receivables at the year-end: $ $ Trade receivables 280, ,000 Allowance for doubtful debts?? The following trade receivables were to be written off as bad: $ Ronald Bao 5,500 written off on 2 March 2014 Lucy Wong 1,290 written off on 18 August 2014 Paul Siu 2,180 written off on 30 January 2015 Ben Chan 670 written off on 30 April 2015 The rate of allowance for doubtful debts was 4% for the year ended 31 March Raymond decided to increase the allowance to 5% for the current year. (a) Draw up the bad debts account and allowance for doubtful debts account for the year ended 31 March (b) Indicate the effect (increase, decrease or no effect) of a reduction in the allowance for doubtful accounts on the following: (i) Profit for the year (ii) Gross amount of trade receivables (iii) Bad debts (c) What is the difference between bad debts and doubtful accounts? S.5 BAFS 1 st Examination Page 2 By M. C. WONG

3 Chapter 5 Depreciation of non-current assets The following information were extracted from the statement of financial position of Simon Wong on 31 December 2013: Cost Accumulated Net book Non-current assets depreciation value $ $ $ Office equipment 500, , ,000 Furniture and fittings 280, , , , , ,000 The following transactions took place during 2014: Jan 31 Office equipment purchased on 1 April 2010 at cost of $128,000 was sold for $50,000 in cash. Feb 1 New furniture was purchased at a cost of $135,000. Jun 1 The old equipment purchased on 1 April 2011 at cost of $100,000 was traded in for a new one. The trade-in value of the old equipment was $10,000 while the cost price of the new equipment was $50,000. The remaining balance was paid by cheque. Dec 1 Furniture and fittings purchased on 1 August 2009 at a cost of $50,000, was sold for $20,000. The buyer agreed to settle the amount in cash on 10 January Company policies on depreciation: (i) Office equipment is depreciated at the rate of 20% per annum using the straight-line method. (ii) Furniture and fittings are depreciated at the rate of 25% per annum using the straight-line method. (iii) A full year s depreciation is charged on all non-current assets in the year of purchase. (iv) No depreciation is charged on non-current assets in the year of disposal. Prepare the following accounts for the year ended 31 December 2014: (a) Accumulated depreciation: Office equipment (b) Accumulated depreciation: Furniture and fittings (c) Disposal: Office equipment (d) Disposal: Furniture and fittings (e) Office equipment S.5 BAFS 1 st Examination Page 3 By M. C. WONG

4 Chapter 6 Valuation of inventory Rose Cho sells only one type of electronic appliance. You are given the following inventory records of goods purchased and sold during 2015: Month Units purchased List price per unit 2015 $ Jan 1,000 3,800 May 800 4,000 Oct 1,200 4,150 Month Units sold Price per unit 2015 $ Feb 500 6,000 May 1,000 6,500 Nov 900 5,500 Dec 300 6,800 Month Units returned List price per unit 2015 $ Jan 100 3,800 (a) Calculate the closing inventory on the year-end date of 31 December 2015 using the weighted average cost method. The following additional information was available after stocktaking at the year-end date: (i) Rose Cho discovered that two pieces of electronic appliance were stolen and 60% of the loss would be covered by insurance. (ii) Three pieces of electronic appliance had been sent to a customer on a sale or return basis on 25 December 2015 at a price of $6,800 each. The customer sold two pieces of electronic appliance on 31 December No entries had been made in books. (b) Taking into account the additional information given above, calculate the corrected value of the closing inventory as at 31 December (c) Show the necessary journal entries to record the closing inventory at the year-end date and the event in (i) and (ii). Narrations are not required. (d) The accountant of Rose Cho estimated that the net realisable value of the closing inventory should be $770,000. Determine the amount of closing inventory reported in the statement of financial position as at 31 December 2015 and briefly explain S.5 BAFS 1 st Examination Page 4 By M. C. WONG

5 Chapter 7 The Bank Reconciliation Statements The following is the bank account and bank statement of Cindy Ho for July 2014: Bank 2014 $ 2014 $ Jul 3 Mandy Mok 87,036 Jul 1 Balance b/d 33,333 " 6 Sales 38,275 " 6 Purchases 12,000 " 15 Sales 13,820 " 11 Henry Ho 2,530 " 18 Ivan Or 4,600 " 18 Peter Pan 39,800 " 28 Clara Chong 35,925 " 21 Furniture and fittings 13,500 " 25 Kelvin Ko 12,345 " 28 Rent 9,740 " 29 Drawings 31,720 " 31 Insurance 6,500 " 31 Balance c/d 18, , ,656 Bank Statement 2014 Dr Cr Balance $ $ $ Jul 1 Balance b/d 33,333 Dr " 4 Cheque 87,036 53,703 Cr " 5 Cheque dishonoured Mandy Mok 87,036 33,333 Dr " 6 Cash deposit 38,275 4,942 Cr " 10 Cheque 12,000 7,058 Dr " 15 Cheque 2,530 9,588 Dr " 16 Cheque 4,600 4,988 Dr " 18 Standing order Hong Ltd 18,500 23,488 Dr " 19 Direct debit Electricity 8,600 32,088 Dr " 20 Cash withdrawal 13,500 45,588 Dr " 21 Cash deposit 13,820 31,768 Dr " 23 Cheque 12,345 44,113 Dr " 26 Credit transfer Rates refund 3,500 40,613 Dr " 28 Cheque 9,740 50,353 Dr " 30 Cheque 6,500 56,853 Dr " 31 Overdraft interest ,033 Dr (a) Update the bank account. (b) Draw up a bank reconciliation statement as at 31 July 2014, starting with the bank statement balance and ending with the updated bank account balance S.5 BAFS 1 st Examination Page 5 By M. C. WONG

6 Chapter 8 Correction of errors (I): Errors Not Affecting Trial Balance Agreement Paul Kwong is a sole proprietor. He found the following errors in his accounting records as at the year-end date, 30 June 2015: (i) During stocktaking at the year-end date, it was found that goods with an invoice value of $18,000 were sent to a customer on a sale or return basis. These goods had a mark-up of 50% on cost. As at 30 June 2015, only 40% of the goods were accepted by the customer. The customer had not paid for the goods yet. No entry regarding the above transactions had been made in the books. (ii) An allowance of 5% for doubtful accounts was to be created. Trade receivables as at the year-end date amounted to $313,500. (iii) Melody Chow, whose debt of $7,400 had been written off in 2012, paid on 22 June 2015 half of the amount owed by cheque. The following entries were made: Dr ($) Cr ($) Bad debts 3,700 Bank 3,700 Profit and loss Bad debts recovered 7,400 (iv) On 30 June 2015, prepaid rates amounted to $1,210, unearned rental income amounted to $2,300. No entry has been made in the books. (v) A credit note of $200 was received from a trade creditor. The transaction was mistakenly recorded as $2,000 in the books. Show the journal entries to correct the errors for items (i) to (v) above. (Narrations are not required.) Chapter 9 Correction of errors (II): Errors Affecting Trial Balance Agreement (a) Show the journal entries to correct each of the following errors discovered at the year-end date of 31 December Narrations are not required. (7.5 marks) (i) The total of the discounts received column in the cash book had been posted to the wrong side of discounts received account in the ledger. The total was $1,240. (ii) The purchases journal was undercast by $5,500. (iii) New equipment of $24,000 was bought in cash for the use of the business at the year-end date. This transaction had been recorded in the purchases journal as a credit purchase of goods. (iv) A debt of $2,348, written off as bad early in current year, was received in full at the year-end date. The records made in the books were debiting bank account and crediting the respective trade receivables account. No other entry had been made. (v) The returns outwards journal total of $5,300 posted to the debit side of the returns inwards account as $3,500. (vi) The bank overdraft of $13,100 had been omitted from the trial balance. (b) If the draft net profit was calculated as $11,788, recalculate the correct net profit and show the calculations S.5 BAFS 1 st Examination Page 6 By M. C. WONG

7 Chapter 10 Financial statements for partnerships Jupiter and Saturn are in partnership, sharing profits and losses in the ratio of 2 : 3. The following information was extracted from their books for the year ended 31 December 2010: $ Net profit 23,500 Capital account: Jupiter 60,000 Saturn 45,000 Current account: Jupiter 16,000 Cr Saturn 11,000 Dr Drawings: Jupiter 8,000 Saturn 13,000 Partners salaries: Jupiter 6,000 Saturn 5,000 Interest to be allowed on capital: 10% Interest to be charged on drawings: 8% (a) Draw up the profit and loss appropriation account for the year ended 31 December (b) Draw up the current accounts of the partners. (c) Why are current accounts prepared in the books of a partnership? S.5 BAFS 1 st Examination Page 7 By M. C. WONG

8 Chapter 12 Partnership revaluation Queenetta, Rose and Simon were partners, sharing profits and losses in the ratio of 2 : 3 : 1. The following balance sheet was prepared on 31 December 2010: Queenetta, Rose and Simon Balance Sheet as at 31 December 2010 $ $ $ Non-current assets Properties 650,000 Less Accumulated depreciation (180,000) 470,000 Furniture and fixtures 200,000 Less Accumulated depreciation (100,000) 100,000 Office equipment 160,000 Less Accumulated depreciation (85,000) 75, ,000 Current assets Inventory 20,000 Accounts receivable 25,000 Less Allowance for doubtful accounts (1,500) 23,500 Bank 23,800 67,300 Less Current liabilities Accounts payable (25,800) Net current assets 41, ,500 Financed by: Capital accounts Queenetta 300,000 Rose 200,000 Simon 100, ,000 Current accounts Queenetta 50,000 Rose 66,500 Simon (30,000) 86, ,500 Tommy was admitted into the partnership on 1 January He contributed $180,000 cash as capital but did not pay an extra amount for his share of goodwill. The new profit and loss sharing ratio for Queenetta, Rose, Simon and Tommy was 2 : 2 : 1 : 1, respectively. Goodwill was valued at $120,000 but would not be shown in the books of the new partnership. The new partners agreed on the following terms: (i) The following assets were to be revalued: properties to 70% of their net book value; furniture and fixtures to $121,000; office equipment to $63,000; inventory to $18,000. (ii) The recoverable amount of accounts receivable was estimated to be $23,100. (a) Prepare the revaluation account. (b) Show the partners capital accounts (in columnar form). (c) Prepare the balance sheet as at 1 January S.5 BAFS 1 st Examination Page 8 By M. C. WONG

9 Chapter 13 Partnership dissolution Alex and Billy were partners, sharing profits and losses in the ratio of 3 : 1. The balance sheet as at 31 December 2010 is shown below: Alex and Billy Balance Sheet as at 31 December 2010 $ $ $ $ Non-current assets Capital accounts Office equipment, at net book value 186,200 Alex 186,000 Motor vehicles, at net book value 98,000 Billy 140, , ,200 Current assets Current liabilities Inventory 25,300 Accounts payable 13,500 Accounts receivable 18,000 Bank 12,000 55, , ,500 On 31 December 2010, the partnership was dissolved on the following terms: (i) The office equipment and the motor vehicles were sold for $200,000 and $80,000, respectively. (ii) Inventory was disposed of for $18,000. (iii) Accounts receivable were taken over by Billy for $16,000. (iv) Accounts payable were settled in full. (v) Dissolution costs amounted to $6,000. Prepare the following accounts to record the above transactions: (a) Realisation account (b) Bank account (c) Partners capital accounts in columnar form Chapter 14 Issue of shares and debentures Purple Ltd has a registered share capital of $400,000, consisting of ordinary shares of $1 each. On 1 Aug 2012, the company offered one-quarter of the capital at $1.5 each, payable in full on application. On 1 Sept 2012, applications were received for 200,000 shares. The shares were allotted on 10 Sept 2012, and the excess application monies were refunded on 30 Oct On the other hand, on 15 Sept 2012, the company offered $100,000 5% debentures at par, payable in full on application and repayable on 30 June The debentures were over-subscribed by 20% and the application monies were received on 20 Sept The debentures were issued on 1 Oct 2012, with the excess application monies refunded on the same date. Interest is payable on 31 December and 30 June of each year. (a) Prepare journal entries to record the above transactions and the interest payment. (b) State two advantages of using ordinary shares as a source of financing for a limited company S.5 BAFS 1 st Examination Page 9 By M. C. WONG

10 Chapter 15 Financial statements for limited companies The following is the trial balance of BBC Ltd as at 30 June 2013: BBC Ltd Trial Balance as at 30 June 2013 Dr Cr $ $ Issued capital, ordinary share of $1 each 750,000 Accounts receivable and accounts payable 285, ,720 Inventory as at 1 July ,150 Bank 162,550 Machinery at cost 450,000 Motor vehicles at cost 280,000 Accumulated depreciation as at 1 July 2012: Machinery 180,000 Motor vehicles 126,000 Sales 975,000 Purchases 513,800 Motor expenses 81,440 Machinery repairs 23,080 Sundry expenses 10,760 Wages and salaries 113,720 Directors remuneration 62,000 Retained earnings 61,380 General reserve 80,000 2,397,100 2,397,100 Additional information: (i) Authorised share capital: $1,000,000 in ordinary shares of $1 each. (ii) Inventory as at 30 June 2013 amounted to $543,000. (iii) Motor expenses of $4,450 were owed on 30 June (iv) Profits tax of 16% was to be provided. (v) A dividend of 20% was proposed. (vi) A transfer of $20,000 to the general reserve. (vii) Depreciation was to be provided on non-current assets at 20% using the reducing-balance method. Draw up an income statement for the year ended 30 June 2013 and a balance sheet as at that date S.5 BAFS 1 st Examination Page 10 By M. C. WONG

FANLING LUTHERAN SECONDARY SCHOOL

FANLING LUTHERAN SECONDARY SCHOOL 2012 2013 2 nd Term Examination S.5 BUSINESS, ACCOUNTING AND FINANCIAL STUDIES Accounting Module Date : 20th June, 2013 Time allowed: 8:30 am - 11:00 am (2 hour 30 minutes)