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) This paper must be answered in English INSTRUCTIONS: 1. There are three sections in this paper: Section A (30 marks), Section B (50 marks) and Section C (20 marks). 2. All questions in Section A and B are compulsory. You are required to answer one of the two questions in Section C. 3. Write your answers in the answer book. Start each question (not part of a question) on a new page. 4. This paper contains 9 pages. 12-13 S.5 BAFS 2 nd Examination Page 1 By M.C. Wong

Section A Answer ALL questions in this section. 1. The following information for the year ended 31 December 2011 was extracted from the books of Kong s Company: $ Sales ledger control account 1 January 2011 33 500 Allowance for doubtful debts 1 January 2011 2 500 31 December 2011 27 600 Cash sales 64 530 Credit sales 742 070 Credit sales returns 3 200 Cheques received from trade debtors 602 120 Discounts allowed 3 500 Bad debts written off 650 Cheques from trade debtors dishonoured 12 420 Set-off against purchase ledger control account 1 000 (a) Prepare a sales ledger control account for the year ended 31 December 2011. (b) Give one reason why a company would like to prepare control accounts. (Total: 6 marks) 2. The bank statement of Karen & Co for March 2012 is as follows: Bank Statement Date Details Dr Cr Balance 2012 $ $ $ Mar 1 Balance b/d 375,984 Dr " 3 Deposit 498,753 122,769 Cr " 9 Cheque 135,950 13,181 Dr " 11 Direct debit Management fees 7,195 20,376 Dr " 21 Deposit 77,987 57,611 Cr " 25 Direct credit Dividends 2,750 60,361 Cr " 27 Cheque 3,860 56,501 Cr " 31 Overdraft interest 18,756 37,745 Cr The cash book (bank columns) for March 2012 is as follows: Cash Book 2012 $ 2012 $ Mar 4 Easy Co 498,753 Mar 1 Balance b/d 375,984 " 20 Fulton Ltd 77,987 " 7 Citizen Ltd 135,950 " 30 Paul Chan 7,590 " 22 Henry Lau 3,860 " 31 Balance c/d 58,339 " 28 Salem Ltd 126,875 642,669 642,669 (a) Update the cash book. (b) Prepare a bank reconciliation statement as at 31 March 2012. (Total: 6 marks) 12-13 S.5 BAFS 2 nd Examination Page 2 By M.C. Wong

3. A trial balance for the year ended 31 December 20X6 was prepared for a business. It is failed to agree and the difference was recorded in a suspense account. Subsequent check on the accounting books revealed the following errors: (i) On comparing the bank statement with the cash book for the month of December 20X6, the following differences were found: (1) An amount of $8,060, being receipt of dividends, had been credited directly into the bank account. The amount was recorded in the cash book as bank interest charged on the overdraft balance. (2) A cheque of $10,000 issued for paying the deposit to acquire a motor van in February 20X7 was not yet presented to the bank for payment. The amount was recorded as the only motor vehicle of the company. Motor vehicles are depreciated at 25% per annum on cost. (ii) Owing to an oversight, $1,300 prepaid insurance at 31 December 20X5 had been omitted from the general ledger in 20X6. Moreover, rates of $2,750 paid in advance at 31 December 20X6 had appeared as a credit balance in the trial balance. (iii) At 31 December 20X6, a customer with an outstanding debt of $10,800 was declared bankrupt and the amount is to be written off. In addition, the allowance for doubtful debts was to be reduced by $540. (iv) Included in the closing inventories were goods at $10,000 received from Royce Limited on a sale or return basis. No other entries had been made in respect of these goods in the books. Prepare the necessary journal entries to correct the above. Narrations are not required. (Total: 8 marks) 12-13 S.5 BAFS 2 nd Examination Page 3 By M.C. Wong

4. Ball Limited had an issued share capital consisting of 650,000 ordinary shares of $1 each as at January 2005. On 1 July 2005, the company made an additional issue of 250,000 ordinary shares at $1.50 per share, payable in full on application. Applications were received for 260,000 shares on 8 July 2005. The shares were allotted to the successful applicants on 15 July 2005. Cash was returned to the unsuccessful applications on the same day. (a) Prepare journal entries for Ball Limited to record the share issue in July 2005. (Narrations are not required) The company s information below relates to the year ended 31 December 2005: $ As at 1 January 2005: Stock 62,430 Debtors 60,080 Share premium 75,000 Retained profits 213,000 During year 2005: Sales 800,000 Purchases 500,000 Operating expenses 320,000 As at 31 December 2005: Stock 156,230 Debtors 102,400 Cash in bank 168,370 Creditors 184,200 Accruals 4,000 (b) Calculate (to one decimal place) the following for year 2005: (i) Quick ratio (ii) Credit period allowed to debtors (in days) (iii) Stock turnover rate (c) Calculate the amount of shareholders fund as at 31 December 2005. (Total: 10 marks) 12-13 S.5 BAFS 2 nd Examination Page 4 By M.C. Wong

Section B Answer ALL questions in this section. 5 The draft final accounts of Maxi Co for the year ended 30 June 2012 showed a net profit of $1,395,752. However, the trial balance did not agree and the difference was recorded in the suspense account. Upon investigation, the following mistakes were found: (i) (ii) (iii) (iv) (v) (vi) (vii) A cash receipt of $1,790 from a trade debtor had been correctly recorded in the cash book but posted to the debtor s account as $7,190. A trade discount received of $3,900 had been recorded in the discounts received account as $3,990. No other entries had been made. Goods of $7,970 returned from a customer had been recorded as $9,770 in the returns inwards account. Unearned rent revenue of $39,000 as at 30 June 2011 had not been carried forward to next year as an opening balance in the rent revenue account. A trade debtor repaid a debt of $2,950 by cheque. This debt had been written off as bad in the previous year. The cheque was banked but had not been recorded in the books. A cash payment of $520 for courier fees had been recorded twice in the cash book. Goods of $1,600 purchased in cash for the owner s personal use had been credited to the purchases account only. (a) Show the journal entries required for the above. No narrations are required. (b) Draw up the suspense account. (c) Prepare a statement to correct the net profit for the year ended 30 June 2012. (Total: 15 marks) 12-13 S.5 BAFS 2 nd Examination Page 5 By M.C. Wong

6. Alice, Brian and Clara had been in partnership for 10 years, sharing profits and losses in the ratio of 3:2:1 respectively. The balance sheet as at 31 December 2011 of the partnership was as follows: $ $ Premises, net 850,000 Capital accounts Plant and equipment, net 64,000 Alice 276,000 Motor vehicles, net 82,100 Brian 468,000 Inventory 33,600 Clara 395,000 Trade receivables, net 23,800 Accrued expenses 21,400 Bank 135,500 Trade payables 28,600 1,189,000 1,189,000 Alice retired from the partnership on 31 December 2011. Brian and Clara were to share profit and losses equally after Alice s retirement. Additional information was provided as follows: (i) In recognition of Alice s long service to the partnership, a motor vehicle with a net book value of $22,000 was to be given to her free of charge and the amount was to be borne equally by Brian and Clara. (ii) The premises and the plant and equipment were to be revalued to $1,400,000 and $107,000 respectively. (iii) The allowance for doubtful debts was to be increased by $2,600 and inventory costing $2,400 was to be written off due to obsolescence. (iv) Goodwill was to be valued at $420,000. No goodwill account was to be maintained in the books. (v) It was agreed that $100,000 of the amount due to Alice upon her retirement was to be paid by cheque immediately while the remaining balance was to be left as a three-year loan to the new partnership. Prepare (a) the revaluation account; (b) the partners capital accounts, in columnar form, as at 31 December 2011, showing all the adjustments regarding the retirement of Alice; and (c) the balance sheet of Brian and Clara as at 1 January 2012. (Total: 15 marks) 12-13 S.5 BAFS 2 nd Examination Page 6 By M.C. Wong

7. Chris operated a retailing business and the financial year ended on 31 December. On 30 June 2011, one of the motor vehicles purchased on 1 January 2009 at a cost of $300,000 was traded-in with a new motor vehicle at an agreed value of $50,600. The new motor vehicle had a cost of $450,000, with a scrap value of $5,000. The supplier agreed to offer a 5% trade discount. On 5 July 2011, the company paid the balance, annual maintenance fee of $5,000 in cash. Moreover, the company paid $56,000 for installing one more extra headlight in the motor vehicle and $5,500 for the insurance on the new motor vehicle while in transit. It is the company s policy to depreciate motor vehicles at a rate of 30% per annum using the reducing balance method. (a) Calculate the cost of the new motor vehicle to be capitalized. (b) Prepare a journal entry to record the disposal of the motor vehicle. On 31 December 2010, half of the building was sold for $5,000 in cash. The estimated useful life of the building was ten years with zero scrap value and all buildings were bought on 1 January 2001. Accumulated depreciation at 31 December 2002 and at 31 December 2003 was $160,000 and $240,000 respectively. On 1 July 2011, the company acquired one more building by cheque, with an estimated useful life of 20 years and a scrap value of $5,000. It is the company s policy to depreciate buildings on a straight line basis and the depreciation for the new building at 31 December 2011 was $23,862. (c) Draw up a building account for 2011, showing clearly the opening and closing balance. (d) Draw up a disposal of building account. (Total: 10 marks) 12-13 S.5 BAFS 2 nd Examination Page 7 By M.C. Wong

Section C Answer ONE question in this section. 8. Agnes and Ben were in partnership sharing profits and losses in the ratio 2:1. The trial balance as at 31 March 2011 was as follows: $ $ Plant and Machinery 83,000 Premises 180,000 Bank 60,000 Inventory 70,000 Accounts receivable and payable 90,000 48,080 5% loan from Agnes 70,000 Capital Agnes 125,000 Ben 100,000 Current Agnes 23,720 Ben 3,800 On 31 March 2011, Louis was admitted as a partner on the following terms: (i) (ii) (iii) (iv) Goodwill is to be valued at $39,960. No goodwill account will be maintained in the books. Plant and machinery were to be revalued at $75,000 and the book values of premises were revalued upwards by 10%. An electricity bill of $4,640 remained unpaid on 31 March 2011 and hence the liabilities were increased. Further discounts of $610 were allowed by a trade creditor. Louis brought in $70,110 cash and a machine of $8,000 as his capital. (v) The new profit sharing ratio was 2:1:1. (a) Prepare the revaluation account for the partnership. (b) Draw up the capital accounts of the partners in columnar form regarding the admission. The extract of trial balance as at 30 June 2011 was as follows: $ $ Bank 16,152 Inventory 65,000 Accounts receivable and payable 72,000 35,125 5% loan from Agnes 70,000 On 30 June 2011, the partnership was dissolved on the following terms. (i) Ben was to take over all plant and machinery at $84,000. Agnes was to take over the premises at $175,000 (ii) (iii) (iv) and accounts payable were settled by the firm with a discount of $1,200. Louis was responsible for collecting debts from debtors. He agreed to retain the net amount collected as the capital deduction. Bad debts were amounted to $2,600. 5% loan from Agnes was settled by cheque. Inventory was sold at 80% of its book value. Realization expenses of $1,500 were paid by cheque. For the purpose of dissolution, all the balances of the partners current accounts were to be transferred to their respective capital accounts before any adjustment was to be made. (c) Draw up the realisation account of the partnership. (d) Draw up the capital accounts of the partners in columnar form. (e) Draw up the bank account of the partnership. (Total: 20 marks) 12-13 S.5 BAFS 2 nd Examination Page 8 By M.C. Wong

9. Wealthy Limited is a trading limited company, which started the business on 1 January 2011. At the beginning of the business, the methods of raising fund were as follows: (1) Issue 5,000,000 ordinary shares of $1 each. (2) Issue 1,000,000 8% preference shares of $2 each. (3) Issue 5% debentures which worth $1,500,000 in total and redeemable in 2015. (4) $800,000 long-term loan from bank with annual interest rate 6% and repayment is over four years equally. (a) Based on the above information, calculate the following ratios : (Regard the whole amount of bank loan as long-term liabilities when calculating the ratio) (i) Debt-to-equity ratio (ii) Capital gearing ratio The trial balance for the year ended 31 December 2011 is as follows: Wealthy Limited Trial Balance as at 31 December 2011 Debit Credit $ $ Vehicle 300,000 Furniture & fittings 800,000 Accounts receivable 3,500,000 Accounts payable 1,000,000 Bank 7,252,500 5,000,000 Ordinary shares, $1each 5,000,000 1,000,000 8% Preference shares, $2 each 2,000,000 5% Debenture 1,500,000 Bank loan 600,000 Purchases 5,000,000 Sales 9,500,000 Carriage inwards 200,000 Discount received 300,000 Salaries 1,200,000 Director s remuneration 300,000 Office rent 900,000 Office expenses 250,000 Debenture interests 37,500 Preference share dividends 160,000 19,900,000 19,900,000 Other information: (i) Bank loan interest has not yet paid. (ii) Inventory as at 31 December 2011 is $680,000. (iii) Accrued auditor s fee is $100,000. (iv) Prepaid rental expense is $75,000. (v) Provision for doubtful debt is 1% out of the amount of accounts receivable. (vi) Depreciation is calculated based on straight-line method, details are as follows: Vehicles: Expected to be used for 5 years with residual value $20,000. Furniture & fittings: Expected to be used for 10 years without residual value. (vii) The board of directors proposes to transfer $300,000 to the general reserve and declare a dividend of $0.2 for each ordinary share. (viii) The profit tax for this year is expected to be $450,000. Prepare the following financial statements for Wealthy Limited: (b) A trading and profit and loss appropriation account for internal use for the year ended 31 December 2011. (c) A statement of financial position as at 31 December 2011. (Total: 20 marks) END OF PAPER 12-13 S.5 BAFS 2 nd Examination Page 9 By M.C. Wong