CE Accounts 91-07 Pp by Topic

CE Analysis 2007

HKCE P/A PAST PAPERS ANALYSIS

91 92 92S 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

1 Accounting Concepts 6a 6 1 1 1 1 1 1 1 1 1 1 1 1 1

2a Double Entries 1 4a 2, 4 3 2b

2b Cash Book 2 4a

2c Petty Cash Book 4

2d Prepayment & Accrual 5

3 Depreciation & Disposal of Fixed Assets 6b,10a-c 6 3 2 4 3 2 2a

4 Bad Debts & Provision for B/D 3 1

5 Bank Reconciliation Statement 5 10ab 4 3 2 2 2 3 5a 4b

6 Correct of Errors & Suspense a/c 3 9 5 8 10bc 10 10 3 10 7a,c 2,10 10 5 5 4b 5b 7

7 Income & Expenditure a/c 7b 5 4 8 8 3 8 7 5 7

8 Control a/c 4 10a 4 6 7b 3 2 3 3

9a Incomplete Records - Final Accounts 10 8,9 9 9 7 4 5

10a - Stock/ Cash Loss 2 10 5 7

10 Manufacturing a/c 9 2 7 7 9 5 1 6 6a

11 Accounting Ratios & Interpretation 2 10c 10c 2 2 3 7 3 4 2 4b

12 Stock Valuation 1 4 8 4

13 Partnership - Final a/c 8b 7 9b 9c 10a,d 9 6b

13 - Admission & Revaluation 8a,c 6 9a 9a,b 10b,c 2 9 6 7 6a,b

13 - Dissolution 8 8 9 7 6c,d 6

14 Limited Co. - Final a/c 7 7 7 7 7 9 8 7 6 6 5

14 - Issue of Shares 7b,c 3 4 4a

Topics out of syllabus since 2002

1 Bills of Exchange 4 3 3 5 6

2 Joint Venture 3 9 5 8 6

3 Consignment 7a 5 5 6 9

4 Hire Purchase 10d 5 6 6 5 4 6

5 Issue of Shares by Instalments 6 4

HKCEE-1-accounting concepts P.1/4

1991 Q.6 Briefly explain the following accounting principles: (i) materiality. (3 marks) (ii) prudence. (3 marks) 1992 Q.6 Identify the accounting concept illustrated in each of the following instances and discuss its importance in the preparation of financial statements: (i) Once a particular depreciation method has been adopted, it will be used to

determine the depreciation charge in each subsequent accounting period. (ii) Summer Hotel contracted to hire 4 coaches to provide their guests with a free

transport service between the airport and the hotel. Rental charges totalling $80,000 were to be paid in arrears on the 15th of each month. On 31 December 1991, Summer Hotel made a year end adjustment by debiting $40,000 to its rental account.

(iii) The fixed assets of Tanna Company were acquired 5 years ago. The cost was

$350,000 and the accumulated depreciation method amounted to $23,400 at the end of the year 1991. These assets could be disposed of at $180,000 net. The net value of the assets reported on the balance sheet as at 31 December 1991 was $326,600.

1992S Q.1 Briefly explain the concepts of accruals. (4 marks) 1993 Q.1 Mr. Chan is the sole owner of a trading company. His accountant recently prepared for him a set of final accounts in accordance with generally accepted accounting principles. Mr. Chan has the following complaints: (i) “I can see that an expense item, ‘Depreciation on Motor Van’, has been

deducted from the year’s income. But to the best of my knowledge, we have not spent a single dollar on motor van depreciation!”

(ii) “The profit you have quoted is so much understated. Why have you recorded the dividend received on the Hong Kong Bank shares owned by my wife and myself and paid into the business bank account as Additional Capital and not as income of the company?”

(iii) “I know you accountants refer to the things we own as ASSETS. But how can

you ignore so big an asset as my years of experience in this trade and the efficient team working under my leadership!”

1994 Q.1 Define the following accounting concepts and for each of them give an example to illustrate its application. (a) consistency (5 marks) (b) prudence (5 marks) 1996 Q.1 Define the following accounting concepts and give an example for each to illustrate its application: (a) going concern (5 marks) (b) quantifiability (5 marks) 1998 Q.1 (amended) For each of the independent situations described below, list the accounting principle or concept that has been violated and prepare the original journal entry that should have been made. (No narrations are required.) (a) Furniture with a market value of $80,000 was acquired on credit at a cost of

$75,000. The following entry was made: Debit Credit $ $ Furniture 80,000 Creditor 75,000 Gain on purchase of furniture 5,000


(b) The owner withdrew $7,000 in cash for his vacation trip to Taiwan. The book-keeper recorded the entry as follows:

Debit Credit $ $ Travel expense 7,000 Cash 7,000

(c) A pocket-sized calculator was purchased for $20 cash. The book-keeper made

the following entry: Debit Credit $ $ Office equipment 20 Cash 20

(d) An insurance premium for the coming financial year was adjusted at year end

as follows: Debit Credit $ $ Profit and loss 1,000 Insurance premium 1,000

(8 marks) 1998 Q.5 (a) Define the going concern concept and give an example to illustrate its

application. (3 marks) 1999 Q.1 Ronald Limited has the following assets as at 31 March 1999: (i) A piece of equipment was purchased for $180,000 less a trade discount of

$5,000. Ronald Limited paid transportation expenses of $2,000 and insurance of $1,800 for transporting the equipment to the office. The company also purchased consumables costing $500 for operating the equipment. Accumulated depreciation to 31 March 1999 amounted to $38,000. The equipment can be sold for $128,000.

(ii) Cash in hand amounted to $78,000. (iii) Debtors amounted to $216,000, with $6,400 being considered as doubtful. (iv) Ronald Limited purchased office premises for $2,328,000 and paid solicitor’s

fees of $19,700. A valuation of $2,200,000 is quoted by the bank on 31 March 1999.

Required: Prepare the balance sheet extracts as at 31 March 1999 to report the above items assuming that: (a) Ronald Limited continues as a going concern, and (6 marks) (b) Ronald Limited goes out of business in the next few months. (4 marks) 2000 Q.1 For each of the independent situations described below, list the accounting principle or concept that has been violated and give your explanation. (10 marks) (i) Raymond Company has been adopting different methods to calculate

depreciation on its motor vehicles for the past 4 years. (ii) In estimating the provision for doubtful debts, the accountant of Peter Limited

prefers to have a provision that is slightly too small rather than slightly too large.

(iii) The current liabilities of Reliable Store are much bigger than its current assets.

In order to present a better liquidity position, the owner decides to include his personal bank account in the Store’s balance sheet.

(iv) Luxury Hotel recognises hotel room rental income on the date that a

reservation is received. For the year 2001, many overseas visitors make reservations one year in advance.


2001 Q.1 (a) Explain the following accounting concepts and illustrate each with an example:

(i) Historical cost (ii) Stable monetary measures (5 marks)

(b) For each of the independent situations described below, list the accounting

principle or concept that has been violated and give your explanation: (i) Andy Company accrued expense on the personal bank loan of the owner

at year end. (ii) Perfect Repairs adopts a policy of charging hand tools with small unit

costs to expense when purchased, even though the tools have a useful life of several years. During the year, Perfect Repairs recorded a revenue of $600,000 and a hand tools expenses of $150,000 in its profit and loss account.

2003 Q.1 (A) Explain the following concepts and illustrate each with an example:

(a) Materiality (b) Accrual (6 marks)

(B) For each of the independent situations described below, list the accounting

principle or concept that has been violated and give your explanation:

(a) The closing stock of Daisy Limited included goods with a cost of $80,000. Since no profit or loss was anticipated from the sale of these goods, the company decided to treat the whole amount as cost of goods sold in the current year.

(b) Yick Man Engineering Company entered into an agreement to repair a machine for a customer at an agreed price of $60,000. Repair work started on 1 December 2002 and was scheduled to end on 31 January 2003. On 31 December 2002, Yick Man Engineering Company received a partial payment of $30,000 from the customer. The company recorded this amount as revenue for the year ended 31 December 2002. (8 marks)

2004 Q.1 (A) Explain the following accounting concepts and illustrate each with an

example: (a) Consistency (b) Quantifiability (6 marks)


principle or concept that has been violated and give your explanation.

(a) Ivan Lee owns four independent firms that trade in clothing, furniture, leather goods and mobile phones respectively. As he is only interested in the overall performance of his investment instead of the performance of individual firms, Ivan keeps one single set of books to record all transactions of the four firms.

(b) An item of office equipment with an original list price of $45,000 was acquired by Carlson Limited for $35,000 in a special sale. Since the office equipment had a market value of $42,000 on the date of purchase, Carlson Limited recorded this amount in the fixed asset account. (8 marks)


2005 Q.1 (A) Explain the following accounting conventions/assumptions and illustrate each

with an example: (a) Conservatism (b) Stable monetary measures (6 marks)

(B) For each of the independent situations below, indicate whether the accounting

treatment is correct or incorrect and accordingly state the accounting principle/assumption that is applied or violated: Correct

or

Incorrect

Accounting

principle/assumption

applied or violated

Example: Ellen Ltd has been adopting different methods to calculate depreciation on its motor vehicles for the past four years.

Incorrect

Consistency

(a) Arnold Ltd recorded the purchase of a calculator paid out of petty cash as an expense.

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(b) Betty Ltd continued to report its fixed assets at net book value at 31 March 2005 although the company would close down in April 2005.

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(c) Cypress Led purchased a delivery van for $300,000. It was estimated that the van would have a physical life of 10 years. The company decided to depreciate this asset at an annual rate of 10% on cost.

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(d) Davis Ltd received an order for the sale of 1000 tables at $300 each on 1 January 2005. The customer paid a 20% deposit on 25 March 2005. Davis Ltd did not record any revenue until 20 April 2005, the date on which the tables were delivered to the customer.

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(8 marks)


example: (a) Realisation (b) Going concern (6 marks)


principle or concept that has been violated and provide an explanation:

(a) Yoyo Limited runs a popular news and search site on the Internet. In view of the high hit rate, the directors estimate that advertising income will increase substantially and so decide to record an intangible asset of $1,000,000 in the accounts.

(b) On 1 January 2005, Beatrice Limited purchased for resale 400 pairs of leather shoes at a cost of $300 per pair. The shoes were sold for $500 per pair and 380 pairs were sold during the year. The company recorded the cost of goods sold at $120 000 for the year 2005. (8 marks)


example: (a) Consistency (b) Accrual (6 marks)


principle or concept that has been violated and provide an explanation:

(a) Thomas Chan bought an antique motor car for his personal use at a cost of $800,000. As at 31 March 2007, this car was shown as a current assets at the market value of $830,000 on his company’s balance sheet.

(b) Merry Notes Entertainment Company organized two mini concerts which were to be held in February 2007 and April 2007 respectively. The tickets for the two concerts were sold in advance in January 2007. In its profit and loss account for the year ended 31 March 2007, Merry Notes Entertainment Company recorded the revenues for both concerts. However, only the expenses for the February 2007 concert were shown. (8 marks)

HKCEE-2-basic entries P.1/5

1995 Q.1 - Accounting Equation Show the entries required to record the following transactions and the effects on the accounting equation (Assets = Liabilities + Capital).

Transactions Entries required Effects on the accounting equation

(i) Proprietor took goods worth $700 for his personal use.

(ii) Took $200 out of the petty cash and deposited it into the bank

(iii) Sold surplus stationery for $500 in cash

(iv) Proprietor paid a creditor $3,000 from his own bank account

(v) Received part of the amount owing from Mr. Wai by cheque for $1,800

(10 marks) 1993 Q.2 - Cash Book The transactions which occurred during the first month of trading of a business are listed below: Jan. 1 Mr. Cheung deposited $10,000 into the business bank account

as the opening capital. 5 Fixtures costing $1,500 were paid for by cheque. 9 $200 was withdrawn from the bank and handed over to the

cashier for all petty cash expenditure below $50. 13 Purchases on credit amounted to $7,500. 14 $30 was paid for stationery.

17 Cash sales were $300. 21 Goods were returned by a customer and a cash refund of $80

was made. 22 Rent of $3,200 was paid by cheque. 24 Credit sales to John, Peter and George were $750, $1,400 and

$2,100 respectively. 26 Cheques of $745 and $1,380 were received from John and

Peter respectively in full settlement of their accounts. 28 $15 was spent on stamps. 30 George paid cash to settle his account. $35 discount was

allowed as discount for prompt payment. 31 Reimbursement was made from the cash till for the month’s

petty cash expenditure. Required: (a) Show the relevant entries in a two-column cash book for the above transactions. (b) Show the discounts allowed account in the general ledger. (10 marks)


1997 Q.4 - Petty Cash The Prince Company Limited operates its petty cash account on the imprest system. It is maintained at a float of $1,500 on the first day of each month. At 31 March 1997, the petty cash box held $240.30 in cash. During April 1997, the following petty cash transactions were made: 1997 $ April 1 Cash received to restore imprest ? 1 Bus fares 4.50 5 MTR common stored value ticket 70.00 8 Postage stamps 15.00 9 Magazines 65.00 11 Pencil sharpener 36.00 12 Parcel postage 58.00 14 Ball pens 50.00 20 Registered letters 41.00 21 Lunch - entertaining customers 280.00 23 Tram fares 3.60 24 Photocopier paper 48.00 24 Wall clock 123.00 26 Note pads 12.00 30 Donations to Hong Kong Committee for UNICEF 300.00 May 1 Cash received to restore imprest ? The company opens the following five accounts in the ledger: travelling expenses, stationery, postage, entertainment and sundries. Required: (a) Record the above transactions for the period 1 April to 1 May in a columnar

petty cash book. (8 marks) (b) Explain the purpose to a business of keeping a petty cash float. (2 marks)

1998 Q.5 - Prepayment & Accrual (b) Desmond Company generates income by letting its flat to tenants. During the year 1996, the company had received in advance $5,200 in respect

of rent for January 1997; and at 31 December 1996, arrears of rent amounted to $18,000.

In 1997, the company received from the tenants cheques amounting to

$248,300 which included rent in advance for 1998 amounting to $13,200. Arrears of rent at 31 December 1997 was $14,500.

Rates were paid by cheques in two half-yearly instalments on 1 January 1997

and 1 July 1997 as follows: $ 6 months to 31 March 1997 972 6 months to 30 September 1997 1,048 2,020

The rates amounting to $1,048 for 6 months to 31 March 1998 had not been

paid by the company on 31 December 1997.

Required: In the books of Desmond Company, show the entries for the year ended 31 December 1997 in the following accounts: (a) the rent al income account, and (3 marks) (b) the rates account. (4 marks)


2004 Q.1 - Trial Balance (a) The accounting records of Mina Company included the following balances as at

31 March 2004. . $ Capital 600,000 Bank overdraft 16,168 Debtors 324,500 Sales 2,875,710 Purchases 1,616,750 Office equipment 1,700,000 Creditors 281,200 Returns outwards 9,000 Discount allowed 20,564 Returns inwards 21,985 Provision for depreciation - office equipment 622,810 Stock, 1 April 2003 30,370 Operating expenses 680,377 Commission revenue 11,200 Suspense ?

You are required to: Draw up the trial balance of Mina Company as at 31 March 2004. (5 marks) 2005 Q.2 - Double Entries (A) For each of the following transactions, show the effects on the accounting

equation (Asset = Liabilities + Capital) and the double entries required. Effects on the

accounting equation

Entries required

Example: The proprietor paid $6000 to a creditor from his own bank account.

Increase capital

Decrease liabilities

Debit: Creditors $6000

Credit: Capital $6000

(a) The proprietor took from the business $50,000 cash and a newly acquired motor van at its recorded cost of $80,000

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(b) Paid $2000 by cheque for repair and maintenance charges. The expense had been recorded in the company’s books two months ago.

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(c) Sold goods for $6400, of which $3000 was received in cash and the balance was due in the following month

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(d) Issued 250,000 $1 ordinary shares at par. The proceeds were partly used to repay a bank loan of $200,000

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(10 marks) (B) The steps in the accounting cycle are performed in sequence in each accounting

period. Some of the steps of the accounting cycle are shown below: You are required to: State the four missing steps in the above accounting cycle. (4 marks)

Step 6:

Prepare an

adjusted trial balance

Step 5: ?

Step 4: Balancing off accounts and

prepare a trial balance (Correct errors where necessary)

Step 1: Identify business

Step 8: ? s

Step 2: ? s

Step 7: Prepare closing entries

Step 3: ? s


2005 Q.4 - Double Entries Leo Lee is the sole proprietor of a real estate agency business. With limited knowledge in accounting, he prepared the following trial balance as at 31 March 2005 $ $ Agency commission revenue 206,040 Office equipment 79,790 Bank overdraft 13,450 Sales staff salaries 24,890 Sales staff bonus 101,230 Agency commission revenue in advance, 31 March 2005 11,180 Administrative expenses 46,830 Agency commission revenue in arrears, 31 March 2005 29,080 Printing of forms and leaflets 4,600 Capital, 1 April 2004 25,000 Drawings 5,000 Provision for depreciation - office equipment, 31 March 2005 49,850 Electricity deposit 8,500 Prepaid administrative expenses, 31 March 2005 _______ 5,600 379,500 231,540

You are required to:

Prepare for Leo Lee

(a) the correct trial balance as at 31 March 2005; (4 marks)

(b) the profit and loss account for the year ended 31 March 2005; and (4 marks)

(c) the balance sheet as at 31 March 2005. (6 marks)

2006 Q.3 - Double Entries (A) Given below is a list of accounting terminology:

(1) Accounting equation (2) Adjusting entries (3) Closing entries (4) Correcting entries (5) Discount received (6) Double entry accounting (7) Factory overheads (8) General journal (9) Liabilities (10) Postings

(11) Raw materials (12) Sales journal (13) Trade discount (14) Trial balance

You are required to:

Selected from (1) to (14) above an appropriate accounting term that best fits each of the definitions/descriptions below: Definitions/descriptions Accounting

terminology Example: Obligations of a firm to transfer assets to other

firms as a result of past transactions. 9

(a) A book of original entry in which credit sales of fixed assets are recorded.

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(b) A deduction from list price upon the purchase of goods.

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(c) A major component of ‘prime cost’. ? (d) A list of all ledger balances as at a particular date

for checking the arithmetic accuracy of accounting entries.

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(e) Business transactions recorded with equal amount of debits and credits.

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(f) Entries made at the end of an accounting period to update expenses, revenue, assets or liability accounts on an accrual accounting basis.

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(g) Entries made to transfer the balances of nominal accounts to the profit and loss account.

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(h) The process of transferring accounting data from the books of original entry to ledger accounts.

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(8 marks) (B) On 1 January 2006, ABC Ltd found that its closing stock had been overstated

by $80 000 at 31 December 2004 and $70 000 at 31 December 2005. You are required to: Indicate how the above errors would have affected the following: (a) the net profit for the year 2004, (b) the net profit for the year 2005, and (c) the retained profits as at 31 December 2005. (6 marks)


2007 Q.2 - Double Entries (B) After preparing its financial statements for the year ended 31 March 2007,

Babel Company found that the following transactions had been omitted from the books. For each of the omissions, state the change (increase/decrease/no change) in the net profit for the year and the working capital as at the year end after the omission had been corrected.

Net profit for

the year ended 31 March

2007

Working capital as at 31 March 2007

Example: Accrued expenses at 31 March 2006 were paid by the proprietor from his own bank account.

No change Increase

(a) A motor vehicle was sold on credit at a profit.

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(b) A short-term bank loan, together with the accrued interest on the loan, was paid.

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(c) Goods were purchased by cash for resale. These goods were sold on credit at a loss.

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(d) A customer settled his account. The amount received was used to pay a creditor and the electricity expenses of the proprietor’s residence.

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(8 marks)

HKCEE-3-depreciation P.1/4

1991 Q.6 Capital & Revenue Expenditure (b) State which class of expenditure (revenue/capital) each of the following items

belongs to: $ (i) Repairs to existing machines 10,000 (ii) Purchase of a high capacity computer-aided controlling unit 200,000 (iii) Wages for installing the controlling unit at (ii) 20,000 (iv) Training courses for staff in operating a new system which

has been installed recently

150,000 (v) Cost of electricity and power for production 130,000 (vi) Extension of the plant for re-structuring the production lines 150,000 (vii) Maintenance expenses 40,000 (viii) Rent and rates 84,000

(4 marks) 1992 Q.4 On 1 February 1989, Longarm Co. bought two personal computers costing $16,000 each to be used by the Marketing and Personnel managers. On the same day, an electronic typewriter costing $6,000 was also purchased for the director’s personal secretary. The computers were to be depreciated at 20% per annum on a reducing balance basis. The electronic typewriter, estimated to have a scrap value of $800 and a useful life of 4 years, was to be depreciated on a straight-line basis. On 6 March 1991, the Marketing Manager’s computer broke down. The company sold the computer for $9,000 after spending $3,000 on repairs. A new one was purchased at a cost of $14,000. The accounting policy of the company was to charge a full year’s depreciation in the year of purchase and no depreciation in the year of disposal. Required:

Show the following for each of the years ended 31 December 1989, 1990 and 1991: (a) the office equipment account; (b) the provision for depreciation account - office equipment; and (c) the disposal account - office equipment. (10 marks) 1992S Q.6 An extract from Large Ltd.’s balance sheet as at 31 December 1990 showed the following: Lorries at cost $

- acquired in 1984 450,000 - acquired in 1989 400,000

850,000 Less: provision for depreciation 610,000 240,000 It is the company’s policy to depreciate its lorries at 20% per annum on cost. A full year’s depreciation is charged in the year of acquisition but none in the year of disposal. During the year ended 31 December 1991, the following transactions took place: 1 March a lorry was purchased at a cost of $80,000. 1 June a lorry acquired in 1984 for $60,000 was sold for $10,000. 1 August a lorry acquired in 1989 for $40,000 was sold for $20,000. Required: Write up the following accounts for the year ended 31 December 1991: (a) lorries account; (b) provision for depreciation account - lorries; and (c) disposal account - lorries. (10 marks)


1994 Q.3 The Pacific Trading Company has allowed for depreciation of its motor vehicles on the straight line basis for the past 3 years, assuming no residual value. On 31 March 1993, the balances extracted from the books were: $

Motor vehicles 230,000 Accumulated depreciation 103,500

Apart from the purchase made on 1 April 1990, no motor vehicles have been purchased or disposed of. On 1 February 1994, one of the motor vehicles costing $57,500 was sold at a value of $36,000. Required: (a) Prepare in the books of the Pacific Trading Company the disposal account to

record the above transaction. (4 marks) (b) Calculate for each of the three years ending 31 March 1991, 1992 and 1993,

the depreciation charge and the effect on profits, if depreciation had been provided at 25% by the reducing balance method, instead of the straight line basis. (6 marks)

(Calculations to the nearest dollar.) 1996 Q.2 Barker Limited, a manufacturing company, purchased a moulding machine from Sakura Company of Japan, the invoice price being $52,500. The machine was received on 16 December 1992 after the purchase price plus import duty of $5,000 and landing charges of $2,000 had been paid. Installation was completed by 1 January 1993 at a further cost of $2,800. The company estimated that the machine would have a useful life of 10 years and a scrap value of $14,300. The financial period ends on 30 September each year and depreciation is to be charged on a straight-line basis. The performance of the machine was not satisfactory and it was sold on 30 April 1996 for $41,625.

Required: Prepare the following accounts to record the above: (a) moulding machine; (2 marks) (b) provision for depreciation - moulding machine; and (5 marks) (c) disposal of moulding machine. (3 marks) 2002 Q.4 (A) State any two causes of depreciation. (3 marks) (B) On 1 January 1998, Johnny Manufacturing Company purchased a new

machine for $262,500 and paid freight charges of $7,500, installation cost of $15,000 and annual maintenance fee of $1,650.

The company estimated that the machine would have a useful life of 8 years and a scrap value of $21,384. The financial year of the company ends on 31 December. Required: (a) Calculate the cost of the machine to be capitalised by Johnny

Manufacturing Company. (2 marks) (b) Calculate the annual depreciation on the machine for the years 1998,1999

and 2000 if the company adopted the reducing balance method and a depreciation rate of 30% per annum. (3 marks)

(c) Suppose the company decided to use the straight-line method of

depreciation (i) Calculate the annual depreciation on the machine. (2 marks) (ii) Prepare the necessary journal entries to record the disposal of the

machine if it is sold for $155,000 on 31 March 2002. (Narrations are not required.) (4 marks)


2004 Q.3 (A) Classify each of the following costs related to the motor vehicles of Godwin

Transportation Company as capital expenditure or revenue expenditure (assume all amounts are material):

(a) Installation of anti−theft systems (b) Replacement of worn out tyres (c) Annual premium on motor insurance policies (d) Freight and insurance upon acquisition of vehicles (e) Painting of company logo on newly purchased vehicles. (5 marks) (B) On 1 July 2001, Godwin Transportation Company purchased a motor van for

$360,000. The company estimated that the motor van would have a useful life of 5 years and a scrap value of $60,000. The financial year of the company ends on 31 March.

On 1 February 2004, the motor van was sold for $165,000 and the company received a partial payment of $120,000. The remaining balance was to be settled by the buyer on 1 April 2004. You are required to: (a) Calculate the annual depreciation on the motor van for the years ended

31 March 2003 and 2004, if the company adopted the straight line method of depreciation. (5 marks)

(b) Suppose the company decided to use the reducing balance method of

depreciation and a depreciation rate of 25% per annum:

(i) Calculate the annual depreciation on the motor van for the years ended 31 March 2002, 2003 and 2004.

(ii) Prepare the necessary journal entries to record the disposal of the

motor van on 1 February 2004. (Narrations are not required.) (4 marks)

(Calculations to the nearest dollar.)

2006 Q.2 (A) State any two causes of depreciation. (4 marks) (B) Valor Company acquired a machine on 1 January 2002. The machine has an

estimated useful life of 5 years. The depreciation charge for the first three years was calculated for this machine using two different depreciation methods as follows:

Year Straight−line method (5 years)

Reducing−balance method (50% per annum)

2002 $12,400 $32,000 2003 $12,400 $16,000 2004 $12,400 $8,000

You are required to: (a) State three causes of depreciation. (3 marks) (b) Calculate the cost of the machine and its estimated residual value. (3 marks) (c) Prepare journal entries to record the disposal of the machine based on the

straight-line method, assuming that the machine was sold on 30 September 2005 for $36,000 on credit.

(Narrations are not required) (4 marks)


2007 Q.2 (A) Nelson Company traded-in a used machine for an advanced model in April

2007. The old machine had a net book value of $12,000 and a trade-in value of $10,000. Nelson Company paid the following expenditures for the new machine during April 2007:

(i) Cash of $55,000 for the exchange. (ii) $5,000 for a training course for workers on the operation of the new

machine. (iii) $4,000 for the delivery of the new machine. (iv) $1,000 for insurance during transportation of the new machine. (v) $8,000 for a specially made steel case to house the new machine. (vi) $2,000 for the installation of the new machine. (vii) Repair cost of $3,800 for accidental damage during installation. (viii) $1,200 for the lubricants to be used with the machine during the first

year of operation. You are required to: Prepare for Nelson Company a statement to calculate the cost of the new

machine. (6 marks)

HKCEE-4-bad debts P.1/1

1992 Q.3 Zolar Co. started its business trading in electronic products on 1 January 1989. During the first two years, the following bad debts were written off: 1989 $ Mar. 3 Wilson Co. 5,000 Apr. 7 A Tang 3,000 Aug. 15 E Ng 800 Oct. 11 Ramsan Co. 11,200 1990 $ Feb. 10 Sunny Electronics 110,000 Mar. 25 C Leung 4,000 Jun. 5 Novel shop 32,000 July 11 K Wong 1,200 The debtors account had the following year-end balances: Year $ 1989 250,000 1990 670,000 1991 432,000 Provision for bad debts was made as follows: Year % on debtors 1989 5% 1990 8% 1991 10% On 20 February 1991, a cheque for $11,200 from Ramsan Co. was received in full settlement of the account previously written off as a bad debt.

Required: Prepare the following for the years ended 31 December 1989, 1990 and 1991: (a) the bad debts account; (3 marks) (b) the provision for bad debts account; and (5 marks) (c) the account of Ramsan Co. (2 marks) 1997 Q.1 The opening provision for doubtful debts is $67,000 in the accounts of Nicam Limited. However, the accountant decides that the closing provision is to be $58,000. Required: (a) Give two reasons why a business might create a provision for doubtful debts. (4 marks) (b) Give one reason why the accountant may wish to reduce this provision. (2 marks) (c) How will the reduction in provision for doubtful debts be shown in the profit

and loss account of Nicam Limited? (1 mark) (d) How will the amount of the new provision be shown in the balance sheet of

Nicam Limited? (1 mark) (e) Identify the two major accounting concepts in the above case. (2 marks)

HKCEE-5-bank reconciliation P.1/5

1991 Q.5 On 30 September 1990, the credit balance of $11,020 in the bank column of Kammy’s cash book did not agree with that shown in the bank statement on the same date. The following items accounted for the difference: (i) On 30 September 1990, overdraft interest of $1,720 charged by the bank had

not been entered in the cash book. (ii) Cheques received on 30 September 1990 amounting to $13,460 were entered

in the cash book on that date but were not credited by the bank until the following day.

(iii) A customer’s cheque for $5,620 was returned by the bank due to insufficient

funds. This had not been recorded in the cash book. (iv) On 10 September 1990, a payment by cheque of $6,600 was recorded on the

debit side of the cash book as $6,060. (v) Kammy had invested $300,000 on 8% debentures of' another company.

Interest for the half year was paid directly into the bank account on 28 September 1990 but no entry was made in the cash book.

(vi) On 15 September 1990, a payment of $4,200 for rates by standing order had

not been recorded in the cash book. (vii) Cheques drawn but not yet presented this month amounted to $3,200. Required: Prepare a bank reconciliation statement at 30 September 1990, beginning with the cash book balance. (10 marks)

1996 Q.3 The cash book of Raymond Limited showed a favourable bank balance of $3,856 at 30 April 1996. An examination of the bank column in the cash book and the bank statement disclosed the following: (i) A customer who received a cash discount of 21/2% on his account of $400,

paid the company a cheque on 20 April. The cashier entered the gross amount in the cash book.

(ii) An amount of $1,500 entered on the debit side of the cash book had not been

banked until 1 May. (iii) Cheques issued amounting to $948 had not been presented to the bank for

payment. (iv) A cheque from Alex Limited for the amount of $1,480 had been returned by

the bank on 29 April marked ‘insufficient funds - refer to drawer’. The returned cheque was not received by Raymond Limited until 1 May.

(v) A standing order for a charitable subscription of $450 had been paid by the

bank on 29 April but no entry had been made in the cash book. (vi) The manager had given the cashier a personal cheque for $800 to pay into his

personal account at the bank on 25 April. The cashier had paid it into the company’s account by mistake, although no entries had been made in the company’s books.

(vii) Interest of $160 had been charged by the bank, but not yet entered in the cash

book.

Required: (a) Show the necessary adjustments in the cash book. (5 marks) (b) Prepare a bank reconciliation statement as at 30 April 1996. (5 marks)


1999 Q.2 On 28 February 1999, the bank statement for Jade Limited showed a credit balance of $12,848 and the cash book showed a debit balance of the same amount on the same date. At 31 March 1999, the cash book showed totals of cash receipts and cash payments of $147,980 and $152,408 respectively. The entries in the cash book were checked against the bank statement for the month of March and the following were found: (i) Cheques issued amounting to $15,098 had not been presented to the bank for

payment. (ii) Lodgments totalling $4,972 for March were not recorded by the bank until 2

April. (iii) A cheque of $10,050 banked on 6 March 1999 was recorded as $10,500 in the

cash book. (iv) These items were shown on the bank statement but not in the cash book:

(1) Bank charges of $87; (2) A direct deposit of $8,919 lodged by Charles Limited; (3) Dividend on investment of $275; (4) Dishonoured cheques from Better Limited in the amount of $964; and (5) An autopay item of $2,462 for a gas bill.

(v) $643 paid into the bank had been entered twice in the cash book. Required: (a) Show the necessary adjustments to be made in the cash book on 31 March

1999. (7 marks) (b) Prepare a bank reconciliation statement as at 31 March 1999, commencing

with the adjusted cash book balance. (3 marks)

2001 Q.2 The cash book of Ronald Limited showed a favourable bank balance of $98,777 at 30 April 2001. An examination of the bank column in the cash book and the bank statement disclosed the following: (i) Dividends amounting to $752 had been credited by the bank but not entered in

the cash book. (ii) The bank had credited the company’s account with $3,725 being the proceeds

of a bills receivable. This amount was recorded as a payment in the cash book.

(iii) Bankings amounting to $8,127 has been entered in the cash book but not

credited by the bank until 1 May 2001.

(iv) A dishonoured cheque for $920 was identified in the bank statement.

(v) Being allowed a cash discount of $15, a customer settled his account with a cheque of $300. However, an amount of $315 was entered in the bank column of the cash book.

(vi) Cheques issued amounting to $2,647 had not been presented to the bank for

payment.

(vii) The company had instructed the bank to transfer $5,000 from the fixed deposit account to the current account. The bank had made the transfer in reverse.

(viii) The company had recorded a payment by standing order of a sum of $1,025

for the management fee of the office premises. The bank had debited the account of another customer.

Required: (a) Show the necessary adjustment in the cash book. (5 marks) (b) Prepare a bank reconciliation statement as at 30 April 2001, commencing with

the adjusted cash book balance. (5 marks)


2002 Q.2 (A) A sole trader notices that there is an overdraft balance in his business bank

account. He wants to include his personal bank balance on the balance sheet of his business. What is your advice and why would you give such advice? (2 marks)

(B) On the date of the financial year end, 31 March 2002, the bank statement of

Don Limited showed a credit balance of $108,916 and the cash book showed a debit balance of $104,337. An examination of the bank column in the cash book and the bank statement disclosed the following:

(i) The following cheques had not yet been presented to the bank for

payment: Cheque Number $

102331 4,000 102345 7,400

On 31 March 2002, the company instructed the bank to stop payment of the cheque numbered 102331, which was issued to a supplier. A service charge of $60 had been debited by the bank for this service on the same date. These had not been recorded in the books.

(ii) A lodgement of $9,437 on 30 March 2002 was not recorded by the bank

until 1 April 2002.

(iii) A cheque for $1,470, after deduction of a cash discount of 2%, was issued to a supplier on 20 March 2002. The cashier recorded the gross amount in the cash book.

(iv) Other items shown on the bank statement, but not in the cash book,

included: (1) A dishonoured cheque of $5,200 from a customer; (2) Interest of $85 charged by the bank; (3) An autopay item of $3,015 for an electricity bill; and (4) A direct deposit of $10,946 lodged by a customer.

Required: (a) Show the necessary adjustments to be made in the cash book on 31

March 2002. (8 marks)

(b) Prepare a bank reconciliation statement as at 31 March 2002, commencing with the adjusted cash book balance. (3 marks)

(c) State the amount of the bank balance that should be shown on the

balance sheet of Don Limited at 31 March 2002. (1 mark) 2003 Q.3 (A) What is a bank overdraft? How should it be classified on the balance sheet? (2 marks) (B) Jenny Cheung is a sole proprietor who keeps records of her cash and bank

transactions in a two−column cash book. The opening balances in the cash book at 1 April 2003 were: cash $6,400 and bank $34,196. Jenny made the following transactions in the month of April 2003:

April 4 A cheque for $28,000 was received from a customer in full

settlement of a debt for $29,000.

9 Jenny settled her outstanding account of $12,000 by cheque and received a cash discount of 5% from the supplier.

10 Paid wages by cheque $21,000.

12 Paid various suppliers by cheques $31,534.

15 Cash sales $44,940.

19 Paid salaries in cash $29,800.

26 Paid cash into bank $10,000.

27 Cash sales amounted to $14,200. Jenny banked the remaining amount after deducting $12,000 for private use.

29 Banked a cash receipt of $2,180 from a debtor in settlement of his account of $2,200.


A bank statement which showed a credit balance of $22,236 at 30 April 2003 was received by Jenny. An examination of the bank column in the cash book and the bank statement disclosed the following:

(i) Issued cheques amounting to $9,264 had not been presented to the bank

for payment. (ii) The lodgement on 29 April 2003 as mentioned above had not yet been

recorded by the bank. (iii) A direct deposit of $4,400 had been lodged by a customer. (iv) An autopay was made by the bank for an electricity bill of $1,890.

You are required to prepare:

(a) the two−column cash book of Jenny Cheung for the month of April 2003,

including the necessary entries to update the bank balance as at 30 April 2003; and (9 marks)

(b) a bank reconciliation statement as at 30 April 2003. (3 marks)

1994 Q.4 The bank account of Prosperous Knitters for the month January 1994 was as follows: Date

Particulars

Cheque No.

Dr

Cr

Balance

$ $ $ Jan 1 Balance 927 (Cr.) 5 C B Ltd. 2,510 1,583 7 Mr. Chang 02892 1,428 155 8 Sunshine Ltd. 02893 85 70 10 Cash deposit 1,324 1,394 13 Mr. L Mok 438 1,832 13 Daniel & Partners 726 2,558 14 Wong & Sons 02894 1,690 868

Date

Particulars

Cheque No.

Dr

Cr

Balance

$ $ $ 16 Mr. Ho 02895 922 54 (Cr.) 20 Cash deposit 1,550 1,496 22 Dishonoured cheque:

Daniel & Partners 726 770

27 Evertrading Company

02896 825 55 (Cr.)

31 Cash deposit 990 935 On 2 February 1994, the bank statement for January was received but the balance shown did not agree with that in the books. A comparison of the bank account and the bank statement revealed the following: (i) Cheques numbered 02894 and 02896 had not been presented to the bank for

payment. (ii) Credit items shown on the bank statement were:

$ 6.1.94 Cheque 2,150

10.1.94 Cash 1,324 14.1.94 Cheque 438 14.1.94 Cheque 726 21.1.94 Cash 1,550 25.1.94 Credit transfer 720

It was discovered that the cheque banked on 5 January 1994 should have been $2,150. (iii) A electricity bill for $416 for the month of January was shown on the bank

statement as an autopay item and had not been recorded in the books. (iv) Interest of $56 was charged by the bank for the overdrafts incurred. Required: Prepare for Prosperous Knitters a bank reconciliation statement as at 31 January 1994. (10 marks)


2007 Q.4 Rex Lai is a sole proprietor who keeps records of his cash and bank transactions in a

two−column cash book. The balances in the cash book at 1 March 2007 were: cash $16,400 and bank overdraft $4,590. In addition, a petty cash imprest amount of $5,000 was also kept on that date. Rex made the following transactions in the month of March 2007: March 3 Cheques for $100,480 were received from customers in full

settlement of debts totalling $102,000.

4 Settled a supplier’s outstanding balance of $2,000 by cheque. A discount of 2% was received for payment made within the discount period.

8 A cheque of $3,000 issued to a supplier in September 2006 was written back as a stale cheque.

10 Cash sales amounted to $15,600.

16 Banked the remaining amount from cash sales on 10 March after deducting $9,600 for Rex’s private use.

21 Paid rent by cheque $23,000.

26 Purchased furniture at a cost of $5,000. A deposit of 20% was paid by cheque. The remaining balance is to be paid on delivery of the furniture in April 2007.

30 Banked cheque of $1,650 from a debtor.

31 The petty cash had a balance of $1,100. Cash was drawn to restore the petty cash imprest amount.

You are required to: (a) Prepare the two−column cash book for the month of March 2007. (8 marks)

Rex received a bank statement which showed a credit balance of $86,920 at 31 March 2007. An examination of the bank column in the cash book and the bank statement disclosed the following: (iv) The cheque written back on 8 March 2007 was honoured by the bank on

9 March 2007. (v) The lodgement on 30 March 2007 had not yet been recorded by the bank. (vi) Cheques drawn totalling $9,050 had not yet been presented to the bank. (iv) An autopay was made by the bank for rates of $860. (v) A direct deposit of $2,800 had been lodged by a customer in respect of a debt

which had been written off in 2006. You are required to: Prepare a bank reconciliation statement as at 31 March 2007 commencing with the balance as per cash book in (a) above and ending with the balance as per bank statement. (6 marks)

HKCEE-6-correction of errors P.1/11

1991 Q.3 The draft trading and profit and loss account of Exbrain Computer Co. for the year ended 30 June 1990 showed a net profit of $160,000. The following facts were subsequently discovered: (i) Goods in the company’s warehouse costing $80,000 were stolen in October

1989 and the amount was written off immediately. A letter was received from the insurance company on the last day of June 1990 acknowledging that $72,000 would be paid for the loss but no entries were made.

(ii) A computer costing $30,000 was taken from the stock on 1 March 1990 to be

used by the sales manager on company business. No entries in the books were made about this, and this computer was not included in the stock valuation at 30 June 1990. The company provides for depreciation on equipment at a rate of 25% per annum on a straight-line basis.

(iii) The company sponsored a graduation ball organised by the student union of a

university by donating 3 line printers as prizes for the lucky draw. The selling price of each line printer was $3,450 at 15% markup. The amount of $10,350 was debited to advertising and credited to sales.

Required: (a) Prepare journal entries to correct the above. Narrations are not required. (5 marks) (b) Prepare a statement showing the revised net profit. (5 marks)

1992S Q.5 (a) Why is a suspense account used? (3 marks) (b) Technic Company prepared the following balance sheet as at 31 March 1992: $ $ Plant and machinery (net) 30,000 Capital as on 1 April 1991 18,000 Add: profit for the year 7,000 Stock 8,000 $ 25,000 Debtors 15,000 Loan 20,000 Bank 1,000 Creditors 9,000 29,000 54,000 54,000 Upon examination of the books, you ascertain that: (i) Additional depreciation on plant and machinery of $500 should be provided. (ii) A doubtful debts provision of 1% on debtors outstanding should be provided. (iii) Sales included goods sold for $500, which was 25% above cost. These goods

awaited collection by customers but had been included in stock. (iv) Loan interest was outstanding for six months at 6% per annum. (v) Bank charges of $50 had not been recorded. Required: Prepare a statement showing the adjustments to the profit for the year. (7 marks)


1997 Q.3 The draft accounts of a sole trader for the year ended 30 April 1997 showed a net profit of $78,500. Subsequent investigation revealed the following errors and omissions: (i) The trader had paid himself a salary of $25,000 over the period and had

charged this sum to wages and salaries. (ii) The book-keeper had been instructed to write off $3,500 from a customer’s

account as a bad debt, and to reduce the provision for doubtful debts by $4,200. By mistake, however, he had written off $4,200 from the customer’s account and increased the provision for doubtful debts by $3,500.

(iii) The plant and equipment has been depreciated at an annual amount of

$32,500. However, a more realistic figure of $48,750 should have been used starting from 1 May 1996.

(iv) Part of the business premises are let out, but rent to the sum of $24,000 has

not been received. No entries in respect of this have been made in the books. (v) An amount of $300 received from a debtor and paid into the bank on 30 April

1997 has been completely omitted from the books. Required: (a) Prepare journal entries to correct the above. (Narrations are not required.) (7 marks) (b) Prepare a statement of adjusted profits for the year ended 30 April 1997. (3 marks)

1992 Q.9 (Amended) The incorrect balance sheet of SLT Computer Co. as shown below was prepared by an inexperienced book-keeper:

Balance Sheet as at 31 March 1992 Fixed Assets $ $ Capital $ Stock 39,950 Balance at 1.4.1991 53,210 Office equipment 95,000 Less: Drawings 20,000 Less: Accumulated 33,210

depreciation 11,400 83,600 Add: Net profit 31,200 64,410 Prepaid rent 5,000 Motor vehicle 153,300 Less: Accumulated

depreciation 54,268 99,032 Liabilities Interest accrued 11,000 Current assets Creditors 93,306 Debtors 22,400 Loan 100,000 Bank 22,300 Suspense 3,566 272,282 272,282 The following errors were subsequently found: (i) A sale of $7,667 was correctly entered in the sales account but was credited to

the debtors account as $6,767. (ii) The only journal entry for the disposal of a motor vehicle on 1 April 1991

with a cost of $50,000 and an accumulated depreciation of $10,000 was as follows:

Bank $35,000 Sales $35,000 (iii) The returns inwards account was overcast by $1,500 and the closing stock

was undervalued by $23,500. (iv) $16,500 for a new computer bought for resale was debited to the office

equipment account but was not recorded in the cash book. (Ignore the depreciation charge) However, the value of the computer had been included in the closing stock.


Required: Prepare the following: (a) journal entries to correct the above errors (narrations are not required); (8 marks) (b) a statement for the revised net profit; and (2.5 marks) (c) a revised balance sheet. (9.5 marks) 1993 Q.8 The balance sheet of Wing Kee Co. as at 31 March 1993 is set out below: FIXED ASSETS $ $ $ $ Plant & machinery 80,000 Capital 90,000 less: accumulated Add: net profit 29,000 depreciation 20,000 60,000 119,000 Fixtures & fittings 75,000 Less: drawings 7,460 less: accumulated 111,540 depreciation 35,000 40,000 100,000 CURRENT LIABILITIES CURRENT ASSETS Creditors 3,340 Stock 8,200 Accrual 120 Debtors 4,150 3,460 Bank 2,650 15,000 115,000 115,000 On checking the accounts of the company, the following information was revealed: (i) It is the policy of the company to depreciate fixed assets by the reducing

balance method. Unfortunately, the accounts clerk had wrongly computed the depreciation for the year (plant & machinery $8,000 and fixtures & fittings $15,000) by the straight-line method although the same rate had been applied. There was no addition or disposal of fixed assets during the year.

(ii) During the physical stock-taking on 31 March 1993, 250 units were wrongly entered at a unit cost of $1.20, instead of $10.20.

(iii) Provision for doubtful debts of 8% on debtors was to be created. In addition,

2% discounts allowed was to be provided for. (iv) The accrual $120 should have been a prepayment. (v) The company failed in court case and $7,500 had to be paid to a customer for

damages. This amount had not been paid at 31 March 1993. Required: (a) Prepare journal entries to correct the above. (Narrations are not required.) (8 marks) (b) Calculate the net profit after adjustments have been made. (5 marks) (c) Prepare a statement to ascertain the amount of working capital as at 31 March

1993. (4 marks) (Calculation to the nearest dollar.)


1995 Q.10 The draft accounts of Rose Limited for the year ended 30 April 1995 showed a net profit of $47,627. At the draft stage, there was a net difference of $190 in the trial balance. A suspense account was opened to record this. During subsequent investigations, the following errors were discovered: (i) The company has acquired additional office space from 1 November 1994 at

an annual rental of $30,000, payable quarterly in advance. The first two payments were made on 1 November 1994 and 1 February 1995 respectively, but in preparing the draft accounts for the year ended 30 April 1995 the bookkeeper mistakenly thought that these payments were made in arrear and had raised an accruals account.

(ii) The company has sub-let part of the office referred to (i) above at a quarterly

rental of $4,000, payable in advance from 1 February 1995. The tenant paid the rental for the first three months on 1 February 1995. The bookkeeper had debited it to the bank account and credited it to the premises account.

(iii) Trade debtors were shown as $55,210. However, a bad debt of $610 had not

been written off. The existing provision for doubtful debts, $1,300 should have been adjusted to 2% of debtors. In addition, a provision of 2% for discounts allowed should have been raised.

(iv) A piece of equipment costing $12,000 and acquired on 1 May 1994 for use in

the business had been debited to purchases account. It was the company’s policy to depreciate equipment at 10% per annum on cost.

(v) Items valued at $1,175 had been completely omitted from the closing stock

figure. (vi) The debit side of the wages account had been over-added by $100. (vii) Credit purchases of $2,980 had been correctly debited to the purchases

account but had been credited to the supplier’s account as $2,890.

Required: (a) Show the journal entries necessary to correct the above errors. (No narrations are required) (13 marks) (b) Prepare a statement correcting the draft net profit for the year ended 30 April

1995. (5 marks) (c) Draw up the suspense account. (2 marks) (Calculations to the nearest dollar) 1996 Q.10 (Amended) The draft accounts of Mabel Company Limited for the year ended 30 April 1996 failed to balance and there was a net debit difference of $2,335 in the suspense account. The net profit for the year before adjustments amounted to $129,380. During subsequent audit, the following details were discovered: (i) The debit balance of $1,500 on Sharp Limited’s account had been brought

forward as $150. (ii) A new piece of furniture costing $3,100 had been debited to the purchases

account. (iii) Depreciation of office equipment had been entered in the profit and loss

account as $1,683 instead of $1,368. (iv) A bad debt of $1,300 had been written off from the account of Modern

Limited, but the double entry had not been completed. (v) In April 1996, Mabel Company Limited had bought goods on credit from

Elegant Limited for $4,521 and had sold goods on credit to the same company for $1,630. These transactions had been correctly recorded in the accounts. The two accounts of Elegant Limited were to be settled in contra at 30 April 1996.


(vi) No entries had been made in the books in respect of a credit purchase from Allen Limited on 29 April 1996. The invoice price was $650 and a trade discount of $40 had been given by the supplier.

(vii) In March 1996, Mabel Company Limited had issued 100,000 $1 ordinary

shares at a premium of $0.50 per share. The proceeds had correctly been debited to the bank account, but the sales account and the general reserve account had been credited with the par value and premium respectively.

(viii) Some goods, costing $840, had been damaged by fire. They had no scrap

value and were written off. A claim of $800 had been agreed with the insurance company.

(ix) Mr. Lee, whose debts had been written off, paid $731 to clear his account in

April 1996. No entry has yet been made. (x) The returns inwards account had been credited with $90 for some goods

returned to a supplier. Required: (a) Show the journal entries necessary to record the above (no narrations are

required). (13 marks) (b) Draw up the suspense account. (3 marks) (c) Calculate the revised net profit for the year ended 30 April 1996.

(4 marks) 1998 Q.10 The trial balance of Debbie Limited at 31 March 1998 did not agree. A suspense account was opened to record the net credit difference of $3,996. The draft net profit for the year amounted to $14,290. Subsequent checking of the records revealed the following errors:

(i) Bank charges of $270 appeared in the cash book but had not been posted to the general ledger.

(ii) Cheques totalling $3,450 were sent to creditors on 31 March 1998 but had not

been recorded in the books. (iii) A credit note from Smith Limited for $880 had been entered correctly in the

returns outwards journal but had been posted to Smith Limited’s account as $1,080.

(iv) The sales proceeds of a fully depreciated motor vehicle had been credited to

the sales account as $8,600. The cost of the motor vehicle was $12,000. (v) A stock loss of $20,000 had been shown in the draft profit and loss account as

‘Loss due to burglary’. Although the insurance company agreed that $14,000 would be paid in settlement, no record in respect of this had been made by the company as at 31 March 1998.

(vi) Office equipment costing $7,500, with a list price of $9,000, was taken from

the showroom for the use of the company, but no entries in respect of this had been made. It was included in the trading stock at cost at 31 March 1998. The company provides for depreciation at the rate of 25% on the cost of office equipment held at the end of each financial year.

(vii) Discounts received of $210 had been credited to purchases as $120. (viii) Credit sales of $1,997 had been correctly recorded in the customer’s account,

but had been debited to the selling expenses account as $1,979. You are required to prepare in the books of Debbie Limited: (a) the journal entries necessary to correct the above errors (No narrations are

required); (11 marks) (b) the suspense account; and (4 marks) (c) a statement correcting the draft net profit for the year ended 31 March 1998.

(5 marks)


2001 Q.10 On 31 March 2001, the trial balance of George Lee, a wholesaler, failed to agree and the difference was entered in a suspense account. After the draft final account had been prepared, the following matters were discovered. The draft profit for the year amounted to $156,403. (i) The credit side of the salaries account had been undercast by $1,000. (ii) Credit sales of $3,812 had been correctly credited to the sale account but had

been debited to the customer’s account as $3,182. (iii) The bookkeeper had been instructed to reduce the provision for doubtful debts

by $1,300. However, an increase of $1,100 in provision for doubtful debts had been made.

(iv) Due to an oversight, a cash discount had been allowed to a credit customer on

an invoiced amount of $8,000 at the rate of 10%. A discount of 7% should have been recorded.

(v) Rent of $6,000 which had been prepaid at 31 March 2000 had not been

brought down in the rent account as an opening balance. (vi) Prepaid insurance of $1,829 had been wrongly accounted for as an accrual. (vii) A cash payment of repairs on a motor vehicle for $9,500 had been recorded as

$5,900 in the motor vehicles account and the cash account. Wages of $40,000 paid for the construction of a store room was debited to the wages account. It is the policy of the company to provide depreciation on the cost of all fixed assets at 10% per annum.

Required: (a) Prepare journal entries to correct the above. (Narrations are not required.) (11 marks) (b) Prepare a statement to correct the draft net profit for the year ended 31 March

2001. (9 marks)

2000 Q.10 (Amended) The trial balance of Classics Company at 31 March 2000 did not agree and a suspense account was credited with a difference of $4,260. The draft net profit for the year amounted to $39,426. Subsequent checking of the records revealed the following: (i) A payment of $2,600 to Tony Company had been posted to the personal

account as $260. (ii) A petty cash balance of $400 had been omitted from the trial balance. (iii) Wages amounting to $1,200 for the installation of office equipment had been

recorded in the wages account. (iv) Cash sales of $2,000 had been correctly entered in the cash book, but the sales

account was credited with $2,020. (v) A provision for doubtful debts of $2,900, which amounted to 2% of the

debtors at year end, was made. However, a provision of 2.5% should have been provided.

(vi) Goods with a list price of $5,000 were purchased and a 10% trade discount

was given by Overseas Ltd. The company was also granted a cash discount of 7% for early settlement of the debt. The amount of $5,000 was recorded both at the time of purchase and at the time of payment to Overseas Ltd.

(vii) Goods with a selling price of $1,500 were taken by the owner. It had only

been credited in the sales account. The mark-up price was 25% above cost. Required: (a) Prepare journal entries to correct the above. (Narrations are not required.) (12 marks) (b) Draw up the suspense account. (4 marks) (c) Prepare a statement to correct the draft net profit for the year ended 31 March

2000. (4 marks)


1994 Q.10 Correction of errors/Control The draft balance sheet of the Oriental Office Equipment Company as at 31 March 1994 was as follows: $ $ $ $ Fixed assets at cost 85,000 Capital 53,000 less: Accumulated Add: net profit 4,025 depreciation 37,500 57,025 47,500 less: drawings 1,110 Current assets 55,915

Stock 6,280 Current liabilities Debtors 3,150 Creditors 2,630 Petty cash 70 9,500 Bank overdraft 1,935

Suspense 3,480 4,565 60,480 60,480 Upon an investigation of the accounts, the following were revealed: (i) The debtors’ control account showed a balance of $6,550. (ii) A debtor’s balance of $810 was omitted from the list extracted on 31 March

1994 which gave the total of $3,150. (iii) The sales day book was undercast by $290. (iv) A credit sale of $1,260 to Mr. Cheng had been credited as $1,620 in his

account. (v) Goods $430 returned by Mr. Ko were wrongly recorded in the purchases day

book and posted to Mr. Kok’s account in the purchase ledger. (vi) The petty cash book showed a payment to a creditor of $80 but the

corresponding entry had not been made in the personal ledger. (vii) During the physical stock-taking at year-end, one of the stock sheets was

overcast by $720. (viii) The owner had taken $350 worth of goods for personal use but the amount

had been recorded as a credit sale.

(ix) A typewriter costing $2,500 was taken from the warehouse for administrative

use, but no entries were made in the books. However, during the year-end stock-taking, this had been treated as trading goods and was included in the company’s closing stock figure. It is the policy of the company to depreciate a full year’s charge at 20% p.a. on the cost of fixed assets.

Required: (a) Draw up the debtors’ control account to correct the balance and prepare a

statement to reconcile this corrected balance with the total of the sales ledger. (7 marks) (b) Draw up the suspense account. (4 marks) (c) Reconstruct the balance sheet of the Oriental Office Equipment Company after

making the corrections. (9 marks)


1999 Q.7 Journal/Control/Suspense The trial balance of Adrian Limited as at 31 March 1999 failed to agree and the total balances extracted from the sales ledger amounting to $28,634 was not in agreement with the balance of $26,743 in the debtors control account. Subsequent checking of the records revealed the following: (i) A receipt of $4,000 from K. Yu, a debtor, had been treated as cash sales. (ii) Credit sales of $2,000 to A. Fu had been recorded only in the personal

account in the sales ledger. (iii) A debit balance of $935 in the bank account had been included in the trial

balance as an overdraft. (iv) A prepayment of rates of $1,000 was wrongly adjusted at year end as an

accrual. (v) The debtors’ accounts of C. Au $375 and K. Choi $637 were considered

doubtful and the provision for bad debts was to be adjusted accordingly. (vi) The returns inwards book was undercast by $109. (vii) Consumable goods costing $1,200 were taken from the showroom for office

use, but it was recorded as credit sales of $1,500 to B. Lee. (viii) The discounts allowed account was overcast by $84. Required: (a) Prepare journal entries to correct the above. (Narrations are not required.) (11 marks) (b) Draw up the debtors’ control account to correct the balance and prepare a

statement to reconcile this corrected balance with the total balances of the sales ledger. (6 marks)

(c) Draw up the suspense account. (3 marks)

2002 Q.5 (A) List six types of errors that do not affect the agreement of the debit and credit

totals of a trial balance. (3 marks) (B) The trial balance of May Limited at 31 March 2002 did not agree and a

suspense account was debited with the difference. The draft net profit for the year amounted to $67,246.

Subsequent checking of the records revealed the following:

(i) A credit purchase of furniture for $5,000 had been recorded in the purchases day book. The company provides for depreciation at the rate of 25% on the cost of furniture held at the end of each financial year.

(ii) The closing stock at 31 March 2002 was over−valued by $1,347.

(iii) Free samples received from the suppliers had been wrongly recorded as credit purchases of $1,000.

(iv) A partial loan repayment of $6,000 had been recorded correctly in the cash book. However, it was recorded as $600 in the loan interest account.

(v) The sales day book was overcast by $1,870.

(vi) Discounts allowed of $460 had been debited to sales as $640.

(vii) An increase in the provision for doubtful debts of $900 had been treated as a bad debt on 31 March 2002.

(viii) A payment for telephone expenses of $540 had been recorded twice in the insurance account.

Required: (a) Prepare the necessary journal entries to correct the above. (Narrations are not

required.) (12 marks) (b) Draw up the suspense account. (5 marks) (c) Prepare a statement to correct the draft net profit for the year ended 31 March

2002. (9 marks)


2003 Q.5 The trial balance of Wang Limited as at 31 March 2003 failed to agree and the difference was debited to a suspense account. The draft net profit for the year amounted to $183,496. Subsequent checking of the records revealed the following: (i) A provision for doubtful debts of $5,200, which amounted to 4% of debtors at

year end, was made. However, a provision of 3% should have been provided. (ii) On 1 April 2002, a cash sale of furniture for $9,150 had been recorded as a

cash sale of goods. No other entries in respect of this transaction had been made. The company had provided for depreciation at the rate of 20% on the cost of this furniture at 31 March 2003. The furniture cost $24,000 and had a provision for depreciation of $14,400 at 31 March 2002.

(iii) Credit sales to T Chan for $20,000 had been correctly recorded in the sales

account but had not been recorded in the personal account. (iv) A payment of interim dividend of $36,000 was wrongly recorded as a

payment of administrative expenses. (iv) Prepaid insurance of $692 at 31 March 2002 had not been brought down as an

opening balance in the insurance account. Prepaid rates of $518 at 31 march 2003 had been omitted from the trial balance.

(vi) Carriage outwards of $1,205 had been recorded as carriage inwards. (vii) The purchases journal had been overcast by $840. (viii) A creditor for $3,020 had been paid twice, Both payments had been posted to

the ledger. However, the refund of the over−payment was recorded as a cash sale.

(ix) Returns outwards of $300 to Y Lee had been recorded only in the personal

account. (x) Cash discounts allowed of $450 had been correctly credited to debtors but

debited to sales as $540. A trade discount received of $494 was recorded only

on the credit side of the discounts received account as $449. You are required to: (a) Prepare the necessary journal entries to correct the above (Narrations are not

required.) (17 marks) (b) Draw up the suspense account. (5 marks) (c) Prepare a statement to correct the draft net profit for the year ended 31 March

2003. (7 marks) 2000 Q.2 “Although the totals of debit and credit balances agree in a trial balance, it does not mean that the books are correct as there are various situations that give rise to errors.” Elaborate on the above statement with examples. (10 marks) 2004 Q.4 Subsequent checking of the records revealed the following: (i) The operating expenses account had been overcast by $600. (ii) $3,000 paid by cheque for the purchase of office equipment had been

recorded only in the bank account. It is the company’s policy to provide no depreciation in the year of acquisition.

(iii) Bad debts written off amounting to $1,232 had been credited to the

commission revenue account only. (iv) Credit purchases of $1,000 had been recorded as a credit sale of $1,100. (v) Drawings of goods amounting to $4,235 had been debited to operating

expenses as $4,325 and credited to sales as $4,235. You are required to: Prepare the journal entries to correct the above. (Narrations are not required.)

(9 marks)


2006 Q.5 Bank Reconciliation/Journal/Suspense The trial balance of Limited as at 31 March 2006 failed to agree and the difference was entered in a suspense account. The draft net profit for the year amounted to $80,260. Additional information: (i) The last month’s bank statement balance at 28 February 2006 showed a credit

balance of $19,900, which was the same as that in the cash on that date. This balance had been wrongly included as the bank balance in the trial balance as at 31 March 2006.

Deposits and cheque payments, totalling $315,000 and $300,700 respectively, had been recorded in the cash book during March 2006.

(ii) The following items were shown on the March bank statement but not in the

cash book: (1) Bank charges of $80; (2) Bank deposit interest of $650; (3) A dishonoured cheque of $10,250 from Stay Ray Limited; and (4) A direct deposit of $2,400 lodged by Kettler Limited.

(iii) Cheques, issued in March, amounting to $16,500 had not been presented to

the bank for payment. (iv) Lodgements, totalling $6,630 for March, were not recorded by the bank until

2 April. You are required to: (a) Show the necessary adjustments to be made in the cash book on 31 March

2006. (6 marks) (b) Prepare a bank reconciliation statement as at 31 March 2006. (3 marks)

Subsequent checking of the records revealed the following: (v) The salaries account had been undercast by $500. (vi) A credit purchase of $2,000 had been completely omitted. (vii) Returns from Jane Limited, amounting to $780, had been recorded in the

accounts as $870. (viii) An electricity bill of $1240 for March 2006 had been paid twice. Both

payments had been posted to the ledger. The excess amount paid was to be used to settle future bills.

(ix) A trade discount of 10% was granted to a customer, Mr. Wu, on a bulk

purchase of $10 000. The sale had been properly recorded in the books. A cash discount of 5% was also allowed to him on his settlement of account in March. However, only the amount received was debited in the cash book and no other entries were made.

(x) $200,000 6% debentures were issued at par on 1 March 2006 to settle a bank

loan. Interest on debenture was to be paid every 6 months. No entries relating to these had been made.

You are required to: (c) Prepare the necessary journal entries to correct items (v) to (x) above.

(Narrations are not required) (15 marks) (d) Prepare a statement to correct the draft net profit for the year ended 31 March

2006. (5 marks)


2007 Q.7 Bamboo Limited is engaged in the trading business. After preparing the adjusting entries, the bookkeeper extracted an adjusted trial balance as at 31 March 2007. However, he found that the debit and credit totals does not agree:

You are required to: (a) Based on the items listed above, rewrite the adjusted trial balance as at

31 March 2007 for Bamboo Limited; (5 marks) Subsequent checking of the records revealed the following errors and omissions: (i) Interest income of $800 had been debited to the cash at bank account and the

prepaid selling expenses account only. (ii) Cash sales of $4,884 had been recorded as a cash settlement of $4,844 from

debtors.

(iii) A payment of administrative expenses of $300 was recorded as a settlement

of credit purchases. (iv) Equipment repairs of $16,000, an administrative expense, had been recorded

as $10,600 in the plant and equipment account. A full year’s depreciation had been calculated at 20% on this amount and was included in administrative expenses.

(v) The closing stock had been undercast by $6,000. (vi) $12,000 cash was received form a customer as the deposit for placing a

purchase order. The cash had been used to pay an interim dividend to the shareholders. Both transactions were entirely omitted from the books.

(vii) In March 2007, 40,000 ordinary shares of the par value of $1 each were

issued to the public at $1.40 each, payable in full on application. There was an over-subscription and the application money received had been correctly recorded. On 31 March 2007, the shares were allotted and at the same time, the excess application money was refunded to the unsuccessful applicants. No entries had been made for the allotment of shares and he refund.

You are required to: (b) Prepared the necessary journal entries to correct the errors and omissions in (i)

to (vii) above. (Narrations are not required.) (10 marks) (c) Draw up the balance sheet of Bamboo Limited as at 31 March 2007 after the

above corrections and the necessary closing entries had been made. (Note: Ignore the proposal of final dividend.) (14 marks)

$ $ Ordinary shares 180,000 Retained profits, 1 April 2006 20,000 Plant and equipment, at cost 692,460 Bank loan, repayable in 2010 120,000 Sales 985,000 Debtors 105,690 Cost of goods sold 538,600 Administrative expenses 123,700 Selling expenses 187,500 Interest on bank loan 5,000 Deposits received from debtors 16,000 Share application money received 70,000 Cash at bank 47,400 Creditors 96,710 Stock, 31 March 2007 22,100 Prepaid selling expenses, 31 March 2007 8,000 Accumulated depreciation - plant and equipment, 31 March 2007

246,540

1,671,300 1,671,300

HKCEE-7-income & expenditure P.1/7

1992 Q.5 The following receipts and payments account for the year ended 31 December 1991 was prepared by the treasurer of the Lockwood Social Club: Receipts $ Payments $ Balance at bank 111,000 Hire of hotel room for 10,000 (1 January 1991) annual dance Proceeds of annual dance 15,000 Fund raising expenses 9,000 Proceeds of fund raising 14,900 Purchase of new equipment 60,000 dinner Wages 12,000 Disposal of motor vehicle 17,000 Stationery & printing expenses 4,500 Subscriptions 28,000 Balance at bank 90,400 185,900 185,900 Additional information: (i) Subscriptions amounted to $1,600 were outstanding at 31 December 1990 and

subscriptions paid in advance at 31 December 1991 amounted to $1,200. (ii) A motor vehicle costing $30,000 with an accumulated depreciation $12,000

was disposed during the year. It was the club’s policy not to charge depreciation at the year of disposal.

(iii) Accrued wages for a part-time staff amounted to $5,000. (iv) On 1 January 1991 the club bought a new equipment on hire-purchase terms

to be paid by 4 half-yearly equal instalments of $30,000 payable on 30 June 1991, 31 December 1991, 30 June 1992 and 31 December 1992. Each instalment already included an amount of $5,000 for interest. Depreciation was to be provided for at 10% per annum on cost.

Required: Prepare an income and expenditure account of Lockwood Social Club for the year ended 31 December 1991. (10 marks)

1992S Q.4 The honorary treasurer of the Social Club presented to its members the income and expenditure account for the year ended 31 December 1991 and the balance sheet as at that date: Income and Expenditure Account Income $ Expenditure $ Subscriptions for -1990 200 Rent 500 -1991 3,000 Heat and light 100 -1992 180 Salaries of part-time secretary 400 Donations received 50 Cost of refreshments 800 Deficit 570 New furniture purchased in 1991 1,800 Depreciation on old furniture 400 4,000 4,000 Balance Sheet $ $ Old furniture at valuation 800 Accumulated fund 1,500 Subscriptions in arrears 200 Cash 500 1,500 1,500 Required: Redraft the club’s income and expenditure account for 1991 and its balance sheet as at 31 December 1991 taking into account the following information: On 31 December 1991, furniture held by the club was valued at $2,000 and no members were in arrears with their subscriptions. (10 marks)


1998 Q.3 The treasurer of the Leisure Club has prepared the following receipts and payments account for the year ended 31 December 1997:

Receipts and Payments Account $ $ Balance b/d 15,330 Bar purchases 61,250 Subscriptions 49,000 Bar wages 7,420 Bank interest 92 Administration expenses 42,270 Bar sales 97,500 Repairs 1,898 Sundry expenses 4,352 Balance c/d 44,732 161,922 161,922 Additional information: (i) The following balances were extracted from the club’s books at 31 December

1996: $ Accrued bar wages 455 Club premises 300,000 Creditors for bar supplies 8,190 Bar stock 9,425 Subscriptions in arrears 2,405 Subscriptions in advance 1,120 (ii) Depreciation is to be charged on the cost of club premises at 5% per annum. (iii) Bar stock at 31 December 1997 amounted to $9,620. (iv) At 31 December 1997, accrued bar wages and creditors for bar supplies

amounted to $390 and $7,215 respectively. (v) At 31 December 1997, subscriptions in advance and in arrears amounted to

$2,600 and $1,360 respectively. Required:

Prepare for the Leisure Club the following accounts for the year ended 31 December 1997: (a) a bar trading account; and (4 marks) (b) an income and expenditure account. (6 marks) 1994 Q.8 The Health-is-Wealth Club was set up to organise activities to promote personal hygiene and good health. On 31 March 1993, the following balances were extracted from its books:

$ Clubhouse (at cost) 800,000 Fitness equipment (cost $34,000) 15,000 Stock of natural food and drinks 2,050 Creditors for supplies 4,300 Subscriptions in arrears 400 The summarized receipts and payments for the year ended 31 March 1994 were as follows: Receipts $ Payments $ Balance 1.4.93 8,700 Purchase of new equipment 8,000 Subscriptions - 93/94 14,250 Sundry expenses for ‘Eat - 94/95 900 for Health Campaign’ 4,120 Admission fees for ‘Eat Creditors for supplies 5,460 for Health Campaign’ 3,800 Electricity 1,170 Sales revenue 12,860 Wages and salaries 2,000 Souvenirs for guests 1,300


Additional information: (i) On 31 March 1994, stock of natural food and drinks amounted to $1,640,

creditors for supplies $3,950, and wages and salaries owing $500. (ii) The new equipment costing $48,000 was bought on 1 January 1994 on hire

purchase terms. The amount paid was the down payment, and the remainder was to be paid by 4 quarterly payments of $10,000 each plus 12% p.a. interest on the outstanding balance. The first instalment was payable on 1 April 1994.

(iii) A full year’s depreciation is to be provided at 20% on the net book value of

all equipment held at the year-end and no depreciation provision is to be made for the clubhouse.

(iv) One quarter of wages and salaries should be apportioned as expenses on the

sales of natural food and drinks. (v) There are 200 members. The annual membership fee of the club has been

$100 each. This year the Club decided to charge the 80 members aged 60 or above half the membership fee. The accrued subscriptions from last year proved to be uncollectable.

Required: (a) Prepare a trading account on the sales of natural food and drinks for the year

ended 31 March 1994. (4 marks) (a) Prepare an income and expenditure account for the year ended 31 March 1994.

(9 marks) (c) Show the balance sheet as at 31 March 1994. (7 marks)

1996 Q.8 The treasurer of the Fit Dancing Club has prepared the following receipts and payments account for the year ended 31 December 1995:

Receipts and Payments Account $ $ Balance b/d 26,400 Purchases - dancing Subscriptions 61,500 shoes and costumes 132,000 Annual dinner - ticket sales 15,100 Purchase of amplifier 16,500 Sale of old amplifier 8,000 Musicians’ fees 13,500 Dancing festival -admission 14,100 Coaching fees 12,300 Sales - dancing shoes and Hall - Rent (for 12 months costumes 156,000 to 30 June 1996) 24,000 - Rates (for 6 months to 31 Dec. 1995) 4,700 - Decoration 1,650 Annual dinner - hotel and catering 16,150 Dancing festival - prizes 2,550 - adjudicator’s fee 1,350 Balance c/d 56,400 281,100 281,100 Additional information: (i) Subscriptions $ $ Received in 1994 for 1995 2,850 Received in 1995 for: 1994 2,250 1995 57,300 1996 1,950 61,500 (ii) An amount of $3,000 was still owing to a stationery supplier as at 31

December 1995 (iii) The amplifier which was sold on 1 January had a net book value of $9,600 on

31 December 1994. A new amplifier was bought on 1 July 1995 to replace the old one.


(iv) Depreciation on the new amplifier is to be provided at the rate of 20% per annum on cost.

(v) The Club’s other assets and liabilities at 31 December 1994 and 1995 were as

follows: 1994 1995 $ $ Stock of dancing shoes and costumes 24,150 25,500 Sundry creditors Annual dinner (catering) 1,050 Purchases - dancing shoes and costumes 13,500 12,500

Required to prepare: (a) a trading account for the year ended 31 December 1995, showing the profit/loss

on the sale of dancing shoes and costumes; (3 marks) (b) an income and expenditure account for the year ended 31 December 1995; and

(10 marks) (c) a balance sheet as at the same date. (7 marks) 2001 Q.8 The treasurer of Relax Club has prepared the following receipts and payments for the year ended 3l December 2000:

Receipts and Payments Account $ $ Balance b/d 1,960 Bar purchases 21,350 Subscriptions 27,700 Bar wages 9,500 Bar takings 33,000 Rent and rates 15,250 Annual dinner 36,585 Electricity 4,240 Income from investment 545 Bar expenses 1,850 Sale of investment 25,000 Annual dinner expenses 26,743 Security guard’s wages 17,000 Purchase of equipment 14,500 Balance c/d 14,357 124,790 124,790

Additional information: (i) Some of the club’s balances as at December were as follows:

1999 2000 $ $ Bar stock 1,600 ? Rent prepaid 1,500 2,250 Bar expenses owing 230 295 Bar debtors 4,600 5,130 Bar creditors 3,750 3,150 Subscription in advance 1,350 1,650 Subscription in arrears 3,375 2,070

(ii) As at 31 December 1999, the club owned equipment with a cost of $36,000

and an accumulated depreciation of $19,500. It is the club’s policy to write off the cost of the equipment.

(iii) All of the investments held at 31 December 1999 costing $16,000 were sold

during the year. (iv) The amount of bar stock had not been ascertained at 31 December 2000. The

bar maintains a gross profit margin of 40% on all bar sales. Required to prepare: (a) a bar trading account for the year ended 31 December 2000; (5 marks) (b) an income and expenditure account for the year ended 31 December 2000;

(8 marks) (c) a balance sheet as at the same date. (7 marks)


2003 Q.7 The following is a summary of the receipts and payments of Champion Cricket Club for the year ended 30 April 2003: $ $ Balance at bank, 1 May 2002 15,680 Bar purchases 146,800 Subscriptions 221,600 Insurance - bar workers 6,326 Bar takings 264,000 Purchase of sports equipment 110,400 Donations 14,000 Training lesson expenses 103,950 Training lesson fees 192,680 Bar wages 76,000 Sales of sports equipment 8,000 Rent and rates 122,000 Bar expenses 14,872 Staff salaries 125,600 Balance at bank, 30 April 2003 10,012 715,960 715,960 Additional information: (i) Some of the club’s balances as at 30 April were as follows:

2002 2003 $ $ Bar stock 9,760 ? Subscriptions in arrears 14,850 12,150 Subscriptions in advance 29,125 22,770 Staff salaries prepaid 4,500 − Bar expenses owing 1,840 2,360 Bar debtors 36,800 41,040 Bar creditors 30,000 21,200 Sports equipment 270,000 ? Provision for depreciation - sports equipment 182,580 ?

(ii) A physical stock-taking on 3 May 2003 showed that the value of bar stock on

that date was $11,490. It was found that goods received from suppliers and returns to suppliers during the 3 days from 1 May 2003 to 3 May 2003 amounted to $1,042 and $195 respectively.

(iii) The sports equipment which had been sold on 1 May 2002 had a cost of

$80,000 and a net book value $10,450.

Additional sports equipment was purchased on 1 September 2002. It is the club’s policy to depreciate sports equipment at 20% per annum using the reducing balance method.

(iii) Subscriptions of $6,000 from two members had long been outstanding, and

therefore the club wrote off this amount in the current year. (v) An amount of $1,400 was still owed to a member who repaired the sports

equipment for the club during the year. You are required to prepare: (a) a bar trading account for the year ended 30 April 2003; (8 marks) (b) an income and expenditure account for the year ended 30 April 2003; and

(11 marks) (c) a balance sheet as at 30 April 2003. (10 marks)


2004 Q.5 The following is a summary of the receipts and payments of Skating Friends Club for the year ended 31 March 2004: $ $ Balance at bank, 1 April 2003 33,175 Bar creditors 203,123 Subscriptions 268,800 Skating course - coach salaries 280,920 Skating course fees 598,600 Rent and rates 309,700 Bar debtors 321,950 Sundry expenses 2,200 Electricity 5,930 Staff salaries 155,000 Bar wages 91,200 Purchase of skating equipment 100,000 Balance at bank, 31 March 2004 60,688 1,222,525 1,222,525

Additional information: (i) On 31 March 2004, a small fire broke out in the bar of Skating Friends Club.

All the unrecorded purchases and sales invoices and some of the bar stock were destroyed. Fortunately, records showing bar purchases of $177,600 and bar sales of $296,000 for the eleven months ended 29 February 2004 were still available and verified correct.

(ii) Bar sales were made at a gross profit rate of 45%. All purchases and sales

were made on credit. Correspondence with the bar’s suppliers and customers revealed purchases of $10,420 and sales of $30,900 respectively during the month of March 2004. A physical count of the bar stock immediately after the fire showed an amount of $12,455.

(iii) Some of the club’s balances as at 1 April 2003 were as follows:

$ Accumulated fund 363,179 Bar stock 11,346 Subscriptions in advance 6,000 Rates prepaid 5,100 Bar expenses owing 720 Bar debtors 31,140 Bar creditors 18,062

Skating equipment 480,000 Provision for depreciation - skating equipment 172,800

(iv) Additional skating equipment was purchased on 1 October 2003. It is the

club’s policy to depreciated skating equipment at 20% per annum using the reducing balance method.

(v) On 31 March 2004, subscriptions in advance amounted to $12,000 and

subscriptions in arrears amounted to $1200. (vi) Rent owing at 31 March 2004 amounted to $42,000. One-tenth of the rent and

rates was to be allocated to the bar. (vii) On 31 March 2004, bar expenses of $930 remained unpaid. You are required to: Prepare for Skating Friends Club (a) the bar trading account for the year ended 31 March 2004; (11 marks) (b) the income and expenditure account for the year ended 31 March 2004;

(9 marks) (c) the balance sheet as at 31 March 2004. (9 marks) 2006 Q.7 The following is a summary of the receipts and payments of Summit Badminton Club for the year ended 31 March 2006: $ $ Balance at bank − 1.4.2005 65,720 Bar creditors 52,700

Subscriptions 254,200 Badminton course − coach salaries

95,000

Bad debtors 141,700 Bar operating expenses 19,450 Bar cash sales 16,000 Electricity 21,500 Badminton course fees 125,000 Rent and rates 174,000 Sales of rackets 48,900 Purchases of rackets 30,600 Sale of office equipment 6,500 Salaries 143,000


Purchase of office equipment

100,000

Balance at bank − 31 3. 2006 21,770 658,020 658,020

Additional information: (i) Some of the club’s balances as at 31 March are as follows:

2005 2006 $ $ Bar stock 18,580 ? Subscriptions in arrears 9,300 10,800 Subscriptions in advance 11,000 7,800 Office equipment at cost 260,000 ? Provision for depreciation − office equipment 135,000 ? Bar debtors 13,200 ? Bar creditors 4,300 ? Rent and rates prepaid 2,500 6,500 Electricity owing 5,000 3,000

(ii) Bar sales were made at a gross profit ratio of 55%. 10% of the bar sales were

for cash. (iii) All bar purchases were on credit and the bar stock turnover rate was 5 times. (iv) Office equipment which had been sold on 1 April 2005 had a cost of $90,000

and a net book value of $8,000. Additional office equipment was purchased on 1 January 2006.

It is the club’s policy to depreciate office equipment at 25% per annum using the reducing balance method.

(v) 10% of the rent and rates was to be allocated to bar. (v) The club started selling rackets as from 1 December 2005. All purchases and

sales were for cash. The rackets were sold at a profit of $20,500 during the four months.

You are required to: (a) a bar trading account for the year ended 31 March 2006; (7 marks) (b) an income and expenditure account for the year ended 31 March 2006;

(10 marks) (c) the balance sheet as at 31 March 2006. (12 marks)

HKCEE-8-control P.1/4

1993 Q.4 Mr. Lee, the accountant of a trading firm, drew up the sales and purchases ledger control accounts on 31 March 1993. But he found that the balances shown below did not agree with the totals of the two ledgers.

$ Sales ledger control account 4,250 Purchases ledger control account 2,380

Upon investigation, the following information was discovered: (i) The purchases day book was overcast by $560. (ii) A sales invoice had been undercast by $20. (iii) Goods purchased from John valued at $920 had been recorded as a sale to

Johnson in the sales day book. (iv) Mr. E. So, who had long been the main supplier, had a closing balance of

$1,390. Recently, he made purchases from the company and an account with a balance of $360 was maintained in the sales ledger. It was decided that only one account should be kept in the books.

(v) The total of the purchases ledger was overstated by $620. Required: (a) Draw up the sales ledger control account and the purchases ledger control

account to find out their correct balances. (7 marks) (b) Prepare a statement to ascertain the total of the purchases ledger before

corrections. (3 marks)

1995 Q.4 On 1 April 1995, the balances of the debtors and creditor control accounts in the books of Diamond Limited were $68,886 and $46,920 respectively. The following summary of transactions are for the month of April 1995. $ Bad debts 270 Cash sales 3,060 Amount due from customers settled by contra with their accounts in the purchases ledger

396

Cash received from debtors 61,848 Returns outwards 350 Discounts allowed 1,107 Credit sales 57,780 Interest charged on overdue customers’ accounts 180 Cash paid to creditors 40,612 Credit purchases 33,330 Cash purchases 570 Bad debts recovered (included in cash received from debtors) 114 Carriage inwards 127

Required to prepare:

(a) debtors control account; and (6 marks) (b) creditors control account. (4 marks)


1997 Q.6 The total balances extracted from the sales ledger of trading firm on 31 December 1996 amounted to $25,374, which did not agree with the balance of $24,801 on the sales ledger control account The following errors were subsequently discovered: (i) Discounts allowed had been correctly posted to individual debtors’ accounts,

but had been over-added by $300 in the discount column in the cash book. (ii) A credit balance of $637 on one debtor’s account had been included in the

debtors’ schedule as a debit balance. (iii) A sales invoice for $425 was entered twice in the sales journal and posted

twice to the personal account of a debtor. (iv) A bad debt recovery of $150 had been correctly recorded in the debtor’s

account, but no entries had been made in the control account. (v) A cheque for $2,567 received from a customer had been posted to his account

as $2,576. (vi) The sales journal was overcast by $892. (vii) The credit side of one debtor’s account had been over-added by $100. Required: (a) Draw up the sales ledger control account to find out the correct balance.

(5 marks) (b) Prepare a statement to show the revised total of the sales ledger balances.

(5 marks)

2001 Q.3 In preparing the accounts for the year to 31 March 2001, the accountant of Man Yee Limited identified from the trial balance a balances total of the purchases ledger of $139,060. However, the purchases ledger control account showed a credit balance of $139,193 and a debit balance of $367. Further investigation revealed the following: (i) A cash discount of $180 from a creditor had been completely omitted from

the accounting records.

(ii) A purchase invoice for $7,542 had been entered in the purchases day book as $5,724.

(iii) Purchases of $250 had been entered on the wrong side of supplier’s account in

the purchases ledger.

(iv) A credit note for $600 had been received and entered as if it was a debit note.

(v) No entry had been made to record a contra of an amount owed to Lam of $6,000 against an amount owed by Lam of $4,000.

(vi) The debit balance of $367 had been listed as a credit balance in the creditors’

schedule. Required: (a) Prepare a statement to adjust the balances total of the purchases ledger. (5 marks) (b) Draw up the purchases ledger control account. (5 marks)


2003 Q.2 (A) State briefly any two advantages of maintaining control accounts. (3 marks) (B) On 31 March 2003, Smith Enterprise found that the net balances total of

$80,210 extracted from the sales ledger did not agree with the balance on the debtors’ control account. Upon investigation, the following errors were found to affect the agreement of the two amounts:

(i) Cash sales of $3,000 had been incorrectly recorded in the sales day

book. (ii) Goods with an invoice price of $695 were returned by a customer on

31 March 2003. No entry had been made in the books of accounts in respect of this transaction.

(iii) A debit balance of $824 had been wrongly treated as a credit balance in

the list of sales ledger balances. (iv) A dishonoured cheque from Tai Yuen Limited, a debtor, for $1,212 had

not been recorded in the books. (iv) Cash receipts of $7,654 had been posted to the debtors’ control account

as $7,645. (vi) Free samples sent to a customer, Vivian Limited, was wrongly recorded

as a credit sale of $750 in the sales day book.

You are required to: (a) Prepare a statement to adjust the original net balances total extracted from the

sales ledger. (5 marks) (b) Update the debtors’ control account showing the required adjustments and the

balance before these adjustments. (6 marks)

2005 Q.3 The following information has been obtained from the records of Big Bang Limited for the year ended 31 March 2005:

$ Purchases ledger control account balance at 1 April 2004 175,578 Credit purchases 1,607,000 Cash purchases 34,688 Returns on credit purchases 171,035 Payments to suppliers by cheque 1,195,500 Discounts received 29,800

You are required to: (a) Prepare the purchases ledger control account for the year ended 31 March

2005. (3 marks) The list of purchases ledger balances showed a net total of $387,223 at 31 March 2005. As this amount did not agree with the control account balance, subsequent checking of the records revealed the following: (i) A cheque payment of $5,000 to Castle limited had been correctly entered in

the cash book but no entry was made in the supplier’s account.

(ii) Goods with a gross invoice price of $2,000 were returned to a supplier on 31 March 2005. No entry had been made in the books in respect of this transaction. These good were originally purchased at a trade discount of 10%.

(iii) The purchases day book had been overcast by $6,000.

(iv) A cheque payment of $8,000 to Sue Limited, a supplier, had been correctly

entered in the cash book but incorrectly credited to Susan Limited’s account in the sales ledger.

(v) An amount of $900 owed by Jean Limited, a supplier, was recorded as a

contra entry in the purchases ledger. Entries had not been made in the control accounts.


(vi) A credit balance of $2560 had been wrongly treated as a debit balance in the list of purchases ledger balances.

(vii) A purchase of furniture for $10,000 had been recorded as a credit purchase of

goods. You are required to: (b) Draw up the purchases ledger control account to show the necessary

adjustments for items (i) to (vii), starting with the balance arrived at in (a) above. (5 marks)

(c) Prepare a statement reconciling the net total of the purchases ledger balances

with the updated purchases ledger control account balance. (6 marks) 2007 Q.3 On 31 March 2007, the net balances total of $233,549 extracted from the sales ledger of Henry Limited not agree with the balance on debtors control account. Upon investigation, the following information was revealed: (i) The sales day book had been undercast by $4,000.

(ii) The only credit balance of $3,600 in the list of sales ledger balances should

have been a debit balance.

(iii) No entries had been made in respect of goods returned by a customer on 31 March 2007. These goods had a cost of $5,300 and were listed at a mark-up of 40%. A trade discount of 5% had been given to the customer.

(iv) Net cash receipts of $7,200 from customers had been posted to the debtors

control account as $7,800. No entries had been made in respect of the cash discount of 10% on the amount receivable.

(v) A dishonoured cheque from a customer for $7,500 had not been recorded.

(vi) A contra entry of $1,000 had been recorded in the sales ledger and purchases

ledger respectively. No entries had yet been made in the control account.

(vii) Bad debts of $2,400 were to be written off on 31 March 2007. (viii) The company had a balance of $20,000 in the provision for doubtful debts

account on 1 April 2006. A provision for 10% on debtors was to be made on 31 March 2007.

You are required to: (a) Prepare a statement to adjust the balances total extracted from the sales ledger.

(6 marks) (b) Update the debtors control account showing the required adjustments and the

balance before these adjustments. (6 marks) (c) Prepare the necessary journal entry to record the estimated doubtful debts as at

31 March 2007. (Narration is not required.) (2 marks)

HKCEE-9-incomplete records P.1/8

1994 Q.2 Cash Shortage Mr. Wong suspected that his newly-employed cashier had been misappropriating cash from the company. The balances verified by Mr. Wong as true were:

30 April 1994 1 April 1994 $ $ Creditors 10,872 12,623 Debtors 15,648 8,139 Cash 2,281 ?

The invoices indicated that credit sales and credit purchases for the month were $64,725 and $21,403 respectively. Of the total payments to creditors, $6,200 was made by cheques whilst all debtors paid their accounts in cash. Cash sales amounted to $4,240. During the month, cash $25,000 was deposited into the bank. Cash was paid for the following items: $

Electricity 528 Cash purchases 1,040 Drawings 3,000

Salary of cashier 5,450 On 30 April 1994, there was $3,305 cash in hand. Required: Calculate the amount of cash shortage. (10 marks)

2000 Q.5 Sales/Stock Stolen Ben Lee is a wholesaler of carpets. On 1 January 2000, he had the following balances in his books:

$ Trade debtors 42,000 Bank 69,300 Stock 84,600 Trade creditors 79,110

All purchases and sales were made on credit. During the three months to 31 March 2000, Ben made a gross profit of 25% on all sales. The business banked all receipts from debtors amounting to $995,000 and paid the following out of the business bank account:

$ Operating expenses 160,400 Trade creditors ?

On 31 March 2000, there was a burglary in the shop and all the stock was stolen. It was also discovered that the cashier had misappropriated cash from the business bank account amounting to $10,000. In order to ascertain the amount of the stock loss, Ben identified the following balances on the same day:

$ Trade debtors 73,500 Bank 55,650 Trade creditors 88,900

Required: (a) Calculate the amount of sales for the three months to 31 March 2000. (2 marks) (b) Draw up the bank account for the period. (3 marks) (c) Calculate the amount of stock stolen. (5 marks)


2001 Q.4 Trading and Profit and Loss Mannix Company commenced business on 1 March 2001. An inexperienced bookkeeper for the company prepared the following profit and loss account based on the cash receipts and payments made during the month of March 2001:

Mannix Company Profit and Loss Account for the month ended 31 March 2001

$ $ Receipts from sales 175,000 Less: Payments for purchases 80,000 Gross profit 95,000 Add: Office equipment 76,000 Rent 21,000 Miscellaneous expenses 13,000 110,000 Net loss 15,000 Additional information: (i) Credit sales amounted to $114,000 and the whole amount had not yet been

received. (ii) Credit purchases amounted to $150,000, of which $110,000 was still owing to

the suppliers. (iii) Unsold goods amounted to $12,000 at cost at 31 March 2001. (iv) The office equipment was purchased for $76,000 cash. It was estimated to

have a useful of 5 years and a residual value of $4,000. (v) Warehouse rent of $5,000 for March was to be paid on 5 April 2001. (vi) Received March electricity bills amounting to $5,900. They were to be paid in

April 2001. Required: Prepare the trading and profit and loss account of Mannix Company for the month ended 31 March 2001. (10 marks)

1992S Q.9 Stock Stolen Che Sang is a retail grocer. On the night of 15 July 1991, there was a burglary in the shop and a quantity of stock was stolen. It was also found that cash in the till which amounted to $680 had been taken. The money was received from customers for goods sold and entries had been made in the books of the shop. The only equipment lost in the burglary was a pair of automatic scales. According to the books of the shop, the scales had a net book value of $650 but the insurance claim in respect of this item was agreed at $550. On enquiry, you are given the following information: (i) The shop was fully covered for insurance purposes. (ii) Stock at 1 January 1991 was $34,760. (iii) Purchases for the period 1 January - 15 July 1991 were $245,950. Sales for

the same period were $375,900. (iv) The average ratio of gross profit to sales for the period was 331/3%. (v) Some stock was left behind by the burglars and this was valued at cost

$12,500. However, some of these goods had been damaged during the burglary and it was decided to write off $2,500 from the cost price.

(vi) The insurance claim was settled by cheque on 31 August 1991. Required: (a) Calculate the value of stock lost in the burglary. (8 marks) (b) Prepare a statement to show the amount to be claimed from the insurance

company. (3 marks) (a) Prepare journal entries to record the necessary adjustments resulting from the

burglary and the insurance settlement in the books of Che Sang. (9 marks)


1992 Q.10 TPL/BS On 1 March 1991, Frankie Lee started a business trading in fancy goods with $170,000 in cash and opened a bank account with overdraft facilities. The following bank transactions were for the year 1991: $ Mar. 1 Cash banked 150,000 Mar. 2 Paid rent for 18 months to 31 August 1992 108,000 June 5 Paid for office equipment 36,000 Oct. 1 Drawings 25,000 Oct. 31 Paid trade creditors 214,620 Dec. 2 Cheques from trade debtors banked 180,000 Additional information: (i) Balances at 31 December 1991 were as follows:

$ Stock in trade (at cost) 64,320 Trade creditors 57,260 Trade debtors 80,780 Cash in hand 18,000

(ii) Overdraft interest of 2% on any outstanding amount at the month end was to

be charged to the account in the following month. (iii) Electricity, water and other expenses for the ten months to 31 December 1991

amounting to $8,000 were paid in cash. (iv) A full year’s depreciation on office equipment was to be provided on a

straight-line basis at 25% on cost. (v) Bad debts for the year amounting to $1,200 were written off and provision for

bad debts was to be allowed at 5% on unsettled amounts. (vi) Sales were made on both a credit and a cash basis but all purchases were paid

for by cheque only. (vii) Half of the rent, electricity, water and other expenses were to be allotted to the

business as the shop space was used partly for business and partly as the Lee family’s residence.

Required: Prepare a trading and profit and loss account for the ten months ended 31 December 1991, and a balance sheet as at that date. (20 marks) (Calculations to the nearest dollar) 1995 Q.9 Bank/TPL/BS Mr. Ho started a retail business on 1 April 1994. The only records he kept consisted of entries in a notebook. An analysis of his bank statements for the year ended 31 March 1995 was as follows: Paid into bank: $

Capital 200,000 Receipts from debtors 108,200 Cash sales 140,800

Payments:

Office equipment 98,000 Fixtures and fittings 38,000 Purchases 237,000 Rent and rates 18,000 Electricity 6,000 Sundry expenses 13,500

Apart from the following cash payments, the cash sales were all banked:

$ Drawings 38,000 Travelling expenses 2,100 Wages 23,000 Sundry expenses 3,200


The record in his notebook showed that cash discounts allowed to credit customers were $2,800 and discounts received from suppliers amounted to $2,100. Bad debts written off during the year were $1,200. On 31 March 1995, Mr. Ho estimated that $28,200 was owed by customers while liabilities to suppliers amounted to $33,500. Stock on hand was valued at $29,350 and depreciation of office equipment and fixtures and fittings was to be provided at 20% per annum and 10% per annum respectively. Required to prepare: (a) the cash account and the bank account; (7 marks) (b) the trading and profit and loss account for the year ended 31 March 1995; and

(8 marks) (c) the balance sheet as at 31 March 1995. (5 marks) 1997 Q.9 Bank/TPL/BS Mr. Lee started business as a retailer on 1 May 1995. He has not kept a full set of books, but all cash transactions are dealt with through an account with a bank. You have been asked to prepare the final accounts in order to ascertain his operating performance and financial status in respect of the year ended 30 April 1997. The following information is available: (i) The assets and liabilities of Mr. Lee at 30 April 1996 and 30 April 1997 were

as follows: 1996 1997

$ $ Furniture and fixtures, at cost 43,500 61,500 Provision for depreciation furniture and fixtures 4,350 ? Stock 63,450 53,400 Trade debtors 56,400 34,650

1996 1997 $ $ Prepaid rates 1,125 1,350 Cash at bank - 17,850 Trade creditors 50,850 58,800 Accrued electricity 750 1,050 Bank overdraft 31,500 - (ii) Some of the business transactions for the year ended 30 April 1997 effected

through the bank account were as follows: $ Wages 81,000 Suppliers of goods 377,100 Rent, rates and electricity 15,150 Sundry expenses 11,190 Proceeds from sale of furniture 37,500 (iii) Goods costing $9,000 were drawn by Mr. Lee for his own use. (iv) Furniture costing $20,000, with a net book value of $18,000, had been

disposed of during the year. The annual depreciation expense is being calculated at the rate of 10% based on the cost of the assets still held in the business at the year end.

(v) The source of all cash received was from trade debtors, except for the

proceeds received on sale of furniture; and all cash received has been banked, except the withdrawals of $80,000 by Mr. Lee.

Required: (a) Draw up the business bank account for the year ended 30 April 1997. (5 marks) (b) Prepare a trading and profit and loss account for the year ended 30 April 1997

and a balance sheet as at that date. (15 marks)


1998 Q.7 Bank/TPL/BS Clara is a wholesaler for children’s clothing. For several years, she has obtained a gross profit margin of 40% on all sales. In a burglary in February 1998, she lost stock costing $60,000 as well as many of her accounting records. However, after a careful investigation, the following information for the year ended 31 March 1998 was made available: (i) Account balances at 31 March 1997 were as follows: $ Capital 227,500 Stock, at cost 28,000 Trade debtors 94,500 Trade creditors 63,000 Office premises, at cost 150,000 Delivery van, at cost 75,000 Provision for depreciation Office premises 90,000 Delivery van 30,000 Prepaid administration expenses 1,800 Bank 64,650 Accrued rent and rates 3,450 (ii) All receipts and payments were made through the bank account. The

following bank payments were made during the year: $ Trade creditors 591,000 Rent and rates 100,800 Drawings 64,500 Administration expenses 110,400 (iii) Stock at cost amounted to $88,000 at 31 March 1998. (iv) Discounts received and discounts allowed amounted to $18,000 and $24,300

respectively. (v) Administration expenses prepaid at 31 March 1998 totalled $1,200.

(vi) Trade debtors at 31 March 1998 were $100,500. (vii) Rent and rates for the year amounted to $105,300. (viii) Trade creditors at 31 March 1998 amounted to $114,000. (ix) Depreciation is provided at the following rates: Office premises - 5% on cost Delivery van - 20% on a reducing balance basis Required to prepare: (a) the bank account showing the balance as at 31 March 1998; (4 marks) (a) the trading and profit and loss account for the year ended 31 March 1998; and (9 marks) (c) the balance sheet as at 31 March 1998. (7 marks)


1999 Q.10 Cash Stolen Ben Wong operates a small retail business which closes on Sundays. Every Monday morning, he deposits cash takings of the previous week into the bank. His shop was broken into on the night of Monday, 15 March 1999, and all the cash was stolen. Subsequent investigation revealed the following: (i) On 1 March 1999, after banking the cash takings of the previous week, Ben

Wong extracted the following account balances from the books: $ Bank 98,627.60 Cash 4,276.80 Petty cash 503.60 (ii) The cost of sales to customers were:

Cash Credit 1999 $ $ 1 to 6 March 39,317.00 169,400.00 8 to 13 March 45,223.00 208,500.00 15 March 7,132.00 32,470.00

Goods were marked up at the rates of 20% and 22% on cash and credit sales respectively.

(iii) The following had been paid out of cash before the takings were banked:

1999 $ 2 March Salaries 15,000 10 March Electricity expenses 3,180

(iv) All the trade debtors as at 28 February 1999, amounting to $46,103.80, and

70% of the credit customers who made purchases during the period 1 to 13 March 1999, settled their accounts by cheque.

(iv) Trade creditors amounting to $414,905.80 were settled by cheque during 1 to

15 March 1999 and cash discounts of $26,245.30 were received. (vi) Rent of $81,000 for 3 months to 31 May 1999 was paid on 5 March 1999 by

cheque.

(vii) The petty cash imprest account was restored to $1,000 on 1 March 1999 by a withdrawal from the bank. Subsequent disbursements to 15 March 1999 amounted to $401.70.

Required to prepare statements to show:

(a) the amount of cash stolen on 15 March 1999; and (11 marks) (b) the balance on the bank account as at 15 March 1999. (9 marks) 2005 Q.7 Cash/Stock Stolen

Dan Tang operates a small business in bed-linen. On 1 April 2004, Dan had the

following balances in his books:

$ Trade debtors 54,000 Trade creditors 27,000 Bank 60,380 Cash 5,120 Stock 30,800

Purchases and sales were made for cash and on credit. A mark-up of 80% on cost was made on all sales. On 31 March 2005, the date of the financial year end, a fire broke out in the business premises and some of the accounting records, stock and cash were destroyed. After investigating all the remaining records, Dan was able to identify the following: (i) Average cash sales of $21,975 per month were recorded. The credit period

allowed to average trade debtors was 1.5 months. The amounts received from trade debtors were all in cash.


(ii) Expenses for the year, after adjustments, were as follows: $ Rent and rates 91,200 Bad debts 8,720 Discounts allowed 20,642 Selling and distribution expenses 10,990 Administrative expenses (including the depreciation of $13,000 on office equipment)

219,700

On 31 March 2005, rates of $1,800 were prepaid and selling and distribution expenses of $490 were accrued.

(iii) A piece of office equipment was sold for cash $30,000 during the year. (iv) The business banked all receipts after paying for expenses, cash purchases of

$10,000 per month and Dan’s drawings of $20,000 for the year. (v) The following payments were made by cheque during the year:

$ Trade creditors 381,000 Purchase of office equipment 28,000

(vi) Correspondences with the customers, suppliers and bank and counting of the

remaining cash and stock revealed the following balances at 31 March 2005: $ Trade debtors 101,700 Trade creditors 31,000 Bank 41,000 Cash 38 Stock 16,300

You are required to: Prepare statements to show (a) the amount of cash loss on 31 March 2005; and (20 marks) (b) the amount of stock loss on 31 March 2005. (9 marks)

2007 Q.5 Bank/TPL/BS George Ho is a sole trader engaged in the trading of clocks and watches. During a burglary in March 2007, George lost some of the stock as well as most of his accounting records. However, after careful investigations, the following information for the year ended 31 March 2007 was made available: (i) Account balances at 31 March 2006 were as follows:

$ Motor vehicles, at cost 420,000 Accumulated depreciation - motor vehicles 252,000 Stock, at cost 284,000 Trade debtors 157,500 Trade creditors 105,000 Prepaid administrative expenses 3,000 Accrued selling expenses 5,750 Bank 107,750 Capital ?

(ii) All receipts and payments were made through the bank account. The bank

transactions during the year were: $ Trade debtors ? Trade creditors 1,839,000 Selling expenses 182,240 Drawings 18,000 Administrative expenses 109,120

(iii) Based on the sales invoices, the following information relating to sales was

available: Date of receipts of order Date of delivery Sales amount $ 28 February 2006 3 April 2006 560,000 15 June 2006 19 June 2006 530,000 25 September 2006 30 September 2006 620,000 30 December 2006 5 January 2007 680,000 31 March 2007 6 April 2007 300,000 2,690,000


(iv) Discounts received and discounts allowed amounted to $16,000 and $21,060 respectively.

(v) In January 2007, George drew stock costing $20,000 for personal use. (vi) On 1 March 2007, a motor vehicle with a cost of $180,000 was purchased on

credit. Depreciation on motor vehicles is to be calculated at 10% per annum on cost.

(vii) The business attained an average stock turnover period of 2 months over the

past few years. Stock at 31 March 2007 had been replenished to the normal level and amounted to $212,000 at cost.

(viii) Account balances at 31 March 2007 were as follows:

$ Trade debtors 181,440 Trade creditors 98,000 Prepaid administrative expenses 3,360 Accrued selling expenses 7,020

You are required to prepare: (a) the bank account; (6 marks) (b) the trading, profit and loss account for the year ended 31 March 2007; and (13 marks) (c) the balance sheet as at 31 March 2007. (13 marks)

HKCEE-10-manufacturing P.1/3

1992S Q.2 Hang Luen Ltd. was a manufacturing company and the following balances relating to production were extracted from the books of the company for the year ended 31 March 1992: $ Stock: 1 April 1991 - raw materials 30,000 - work in progress 40,000 Purchases of raw materials 250,000 Carriage inwards 15,000 Direct wages 300,000 Factory general expenses 8,000 Power, light and water 9,500 Rates and insurance 12,100 Plant and machinery (cost) 400,000 Indirect wages 60,000 Additional information is given below: (i) Direct wages accrued at 31 March 1992 were $5,000. (ii) Prepaid factory general expenses at 31 March 1992 amounted to $700. (iii) Depreciation on plant and machinery was calculated at 20% on cost per

annum. (iv) Stock at 31 March 1992: raw materials $35,000 work in progress $50,000 Required: Prepare for Hang Luen Ltd. a manufacturing account for the year ended 31 March 1992. Your answer should show the following information: (a) cost of raw materials consumed; (b) prime cost; (c) total factory overheads; and (d) production cost of goods completed. (10 marks)

2001 Q.5 The following information is supplied by the bookkeeper of the Overseas Manufacturing Company for the year ended 31 March 2001: $ Stocks, 1 April 2000

Raw materials 3,150,000 Finished goods 4,470,000 Work in progress 2,745,000

Sales 77,280,000 Sales commission 1,512,000 Wages and salaries

Direct labour 24,930,000 Indirect labour 4,890,000 Administrative staff 4,203,000

Purchases of raw materials 16,936,000 Carriage inwards 195,000 Carriage outwards 896,000 Electricity and water 1,035,000 Other production expenses 4,980,000 Other administration expenses 2,565,000 Plant and machinery, at cost 6,000,000 Office equipment, at cost 3,800,000 Stocks, 30 April 2000

Raw materials 2,370,000 Finished goods 2,625,000 Work in progress 2,820,000

Additional information: (i) Depreciation was to be provided:

Plant and machinery 20% on cost Office equipment 25% on cost

(ii) Electricity charges of $165,000 were in arrears at 31 March 2001.


(iii) Electricity and water was to be apportioned as follows: Factory 80% Administration 20%

(iv) Salaries of administrative staff included an amount of $80,000 payable to the

factory manager as a bonus. Required: Prepare the manufacturing and trading accounts of Overseas Manufacturing Company for the year ended 31 March 2001, showing clearly the cost of raw materials consumed, the prime cost, the production cost of finished goods and gross profit. (10 marks) 2002 Q.1 On 30 April 2002, the following balances were extracted from the books of Wilson Manufacturing Company:

$ Sales 9,890,400 Purchases of raw materials 4,372,000 Carriage inwards 58,000 Carriage outwards 83,840 Stocks, 1 May 2001 Raw materials 225,522 Work in progress 30,180 Finished goods 194,500 Plant and machinery, at cost 980,000 Office equipment, at cost 385,000 Rent and rates 395,250 Electricity and water 134,400 Wages and salaries Direct labour 491,100 Indirect labour 240,000 Administrative staff 910,150 Repairs to machinery 18,928 Other production expenses 326,400 Other administrative expenses 198,685

Additional information: (i) Stocks as at 30 April 2002:

$ Raw materials 115,290 Work in progress 94,840 Finished goods 181,900

(ii) Depreciation was to be provided for:

Plant and machinery 15% on cost Office equipment 20% on cost

(iii) Salaries of administrative staff included an amount of $100,000 paid to the

factory manager. (iv) Electricity and water was to be apportioned as follows:

Factory 75% Administration 25%

(v) Rent and rates was to be apportioned as follows:

Factory 80% Administration 20%

Required: (a) Briefly explain the difference between direct costs and indirect costs.(2 marks) (b) Calculate the following for Wilson Manufacturing Company for the year

ended 30 April 2002: (i) prime cost; (3 marks) (ii) total factory overheads; and (3 marks) (iii) production cost of each unit of finished goods, assuming that Wilson

Manufacturing Company had produced 400,000 units of finished goods during the year. (3 marks)

(c) Prepare the trading account of Wilson Manufacturing Company for the year

ended 30 April 2002. (3 marks)


1991 Q.9 Tictac Ltd. manufactured and sold sports shoes. It had also decided to import genuine leather shoes to meet the needs of the local consumers. The following balances were extracted from the books on 31 December 1990: $ Carriage inwards: shoes imported 62,300 Carriage outwards 6,500 Electricity 5,600 Factory expenses 44,000 Manufacturing wages 137,500 Office expenses 19,700 Office furniture & fixtures at cost 121,000 Opening stocks: Finished goods at cost 52,300 Work in progress at cost 23,800 Plant and machinery at cost 308,000 Purchases: shoes imported 352,000 Rates and insurance 8,300 Raw materials consumed 354,900 Returns inwards: shoes manufactured 13,400 Office salaries 146,800 $ Sales: shoes manufactured 925,300 shoes imported 538,600 Selling expenses 36,200 Additional information: (i) Closing stocks valued at cost $ Shoes manufactured NIL Shoes imported 55,400 Work in progress 36,700 (ii) From 1 January 1990 onwards, the manufactured goods are transferred to the

trading account at factory cost plus 25% profit loading.

(iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures

and plant and machinery. (iv) The expenses on electricity, and rates and insurance are chargeable three-fifths

to the factory and the balance to the office. (v) On 1 July 1990, the company issued for cash $300,000 10% debentures

repayable at the end of June 1995. (vi) On 31 December 1990, accrued office salaries amounted to $13,200 and the

prepaid insurance premium was $2,300. Required: Prepare for Tictac Ltd. the following accounts for the year ended 31 December 1990: (a) A manufacturing account showing the prime cost and the total cost of

manufactured shoes transferred to the trading account. (8.5 marks) (b) A trading and profit and loss account showing separately the gross profit on

sales of manufactured shoes and imported shoes. (11.5 marks)

HKCEE-11-accounting ratios P.1/8

1991 Q.2 The following statements refer to the Long Island Company for the year ended 30 June 1990:

Balance sheet as at 30 June 1990 Accumulated Cost Depreciation Net Fixed Assets $ $ $

Furniture & fixtures 380,000 114,000 266,000 Machines & equipment 450,300 180,120 270,180

830,300 294,120 536,180 Current Assets

Stock 26,300 Debtors 260,000 Cash 12,000 298,300

Current liabilities Creditors 135, 000 Accrued expenses 31,600 166,600

Working capital 131,700 Total net assets 667,880 Financed by:

Capital 649,680 Net profit for the year 18,200

667,880

Trading and profit & loss account for the year ended 30 June 1990 $ $ $ Sales 460,000

Stock, 1 July 1989 34,600 Add: purchases 338,200 372,800 Less: Stock, 30 June 1990 26,300 346,500

Gross profit 113,500 Selling expenses 37,000 General expenses 58,300 95,300 Net profit 18,200

Required: (a) Calculate the quick ratio and credit period allowed to trade debtors of the

company and comment on the company’s liquidity position. (b) Calculate the stock turnover rate and explain the importance of this rate. (All calculations should be corrected to one decimal place) (10 marks) 1995 Q.2 The draft balance sheets of Rita Limited as at 31 March 1994 and 1995 are shown below:

Balance Sheets as at 31 March 1994 1995 $ $ $ $ Fixed assets (at net book value)

Plant and equipment 57,500 98,000 Vehicles 21,000 40,500 Fixtures and fittings 25,000 24,000

103,500 162,500 Current assets

Stock 43,000 88,500 Debtors 24,500 31,000 Prepayments 6,500 5,000 Bank 20,000 94,000 10,000 134,500

197,500 297,000 Ordinary share capital 125,000 125,000 Reserves 26,500 41,000 151,500 166,000 Long term liabilities

Loan - 50,000 Current liabilities

Creditors 36,000 66,000 Accruals 10,000 46,000 15,000 81,000

197,500 297,000


Sales were $270,500 and $337,500 for the years ended 31 March 1994 and 1995 respectively. Corresponding figures for cost of sales were $184,500 and $240,500 respectively. Purchases for 1994 amounted to $194,500. Required: Calculate the following ratios for 1994 and 1995: (a) gross profit ratio; (b) stock turnover rate; (c) current ratio; (d) quick ratio; and (e) credit period received from trade creditors (in months). (Calculations to one decimal place) (10 marks) 1997 Q.2 The financial information of Games Limited for the year ended 31 December 1996 is presented below:

$ $ Credit sales 504,000

Opening stock 84,000 Add: Purchases 382,200 466,200 Less: Closing stock 154,000

Cost of sales 312,200 Gross profit 191,800 Net profit 47,600

Balance sheet as at 31 December 1996 $ $ Fixed assets (at net book value)

Plant and equipment 610,400 Furniture and fittings 173,600

784,000 Current assets

Stock 154,000 Debtors 105,000 Bank 7,000 266,000

1,050,000 Shareholders’ fund Share capital ($1 ordinary shares) 770,000 Retained earnings 64,400 834,400 Current liabilities Creditors 168,000 Accruals 47,600 215,600 1,050,000 Required: (a) Calculate the following for 1996:

(i) Working capital; (ii) Return capital employed; (iii) Quick ratio; (iv) Stock turnover rate; (v) Debtors’ collection period (in months); and (vi) creditors’ repayment period (in months). (Calculations to one decimal place.) (6 marks)

(b) Give two possible dangers of having too little working capital. (4 marks)


1999 Q.3 The financial statements of Global Limited are presented below: Profit and Loss Accounts For the years ended 31 March 1999 1998 $ $ Credit sales 800,400 718,800 Less: Cost of goods sold 453,600 339,600 Gross profit 346,800 379,200 Less: Operating expenses 264,000 289,200 Net profit 82,800 90,000

Balance Sheets As at 3l March

1999 1998 1997 $ $ $ Fixed assets (at net book value) 344,400 331,200 350,500 Current assets

Stock 422,400 383,200 220,800 Debtors (net) 249,600 181,200 165,600 Bank 50,400 32,000 64,300

722,400 596,400 450,700 1,066,800 927,600 801,200 Capital and reserves

$1 Ordinary shares 190,000 170,000 170,000 Retained earnings 238,000 155,200 65,200

428,000 325,200 235,200 Long-term liabilities 295,600 282,000 256,000 Current liabilities Creditors 321,800 303,500 301,400 Accruals 21,400 16,900 8,600 343,200 320,400 310,000 1,066,800 927,600 801,200

Required: (a) Compute the following ratios for 1999 and 1998:

(i) Net profit ratio; (ii) Return on shareholders’ fund; (iii) Quick ratio; and (iv) Debtors’ collection period (in months).

Note: Calculations to two decimal places. (7 marks) (b) Comment briefly on the profitability and liquidity of Global Limited for 1999.

(3 marks) 2002 Q.3 The financial information of Grand View Limited for the year ended 31 December 2001 is presented below: Profit and loss account for the year ended 31 December 2001

$ $ Cash sales 252,000 Credit sales 1,008,000 1,260,000 Less: Cost of sales Opening stock 210,000 Purchases 955,500 1,165,500 Less: Closing stock 385,000 780,500 Gross profit 479,500 Less: Operating expenses 360,500 Net profit 119,000

Balance sheet as at 31 December 2001

Assets $ Office equipment 1,145,000 Furniture and fittings 381,000 Stock 385,000 Debtors 262,500 Bank 451,500 2,625,000


Liabilities and shareholders’ fund $ Creditors 420,000 Accruals 119,000 Ordinary share capital 1,925,000 Retained profits 161,000 2,625,000

Grand View Limited had also produced the following ratios for the year 2000. Current ratio 1.93 : 1 Quick ratio 1.01 : 1 Stock turnover rate 3.02 times Debtors’ collection period 3.26 months Net profit ratio 10.07% Return on capital employed 6.11%

Required: (a) Compute the following ratios for the year 2001:

(i) Current ratio (ii) Quick ratio (iii) Stock turnover rate (iv) Debtors’ collection period (in months) (v) Net profit ratio (vi) Return on capital employed

(Calculations to two decimal places) (9 marks) (b) Based on the ratios for the year 2000, comment briefly on the liquidity and

profitability of the company for the year 2001. (5 marks) 2003 Q.4 Hamilton Limited has an issued capital consisting of 100,000 ordinary shares of $1 each. The information below relates to the year 2001:

As at 1 January 2001 $ Current assets 45,000 Total assets 180,000 Long−term liabilities 57,000

Current ratio 3 : 1 As at 31 December 2001 $ Fixed assets 153,000 Total assets 213,000 During the year ended 31 December 2001 $ Increase in working capital 9,000 Net profit for the current year 40,000 Transfer to general reserve 7,000 Retained profit for the current year 20,000

You are required to: (a) Calculate the following figures for Hamilton Limited:

(i) Fixed assets, 1 January 2001 (ii) Current liabilities, 1 January 2001 (iii) Shareholders’ fund, 1 January 2001 (iv) Current assets, 31 December 2001 (v) Current liabilities, 31 December 2001 (vi) Dividends declared for the year 2001 (8 marks)

On 1 January 2002, Hamilton Limited made an additional issue of 200,000 ordinary shares at $1.80 per share, payable in full on application. Applications were received for 220,000 shares and the cash was returned to the unsuccessful applicants on 15 January 2002. The shares were duly allotted to the other applicants on the same date. On 1 July, Hamilton Limited raised additional finance by issuing $600,000 5% debentures at 98. Debenture interest was to be paid half-yearly on 30 June and 31 December. You are required to: (b) Prepare journal entries for Hamilton Limited to record the above transactions

in 2002. (Narrations are not required.) (6 marks)


1993 Q.10 Bank Reconciliation + Ratios Mr. Lee commenced his business with $50,000,000, of which $40,000,000 was used in buying an office. He was engaged in retail trading and all sales were made on a credit basis. After a year’s trading, he was surprised to have a bank overdraft of $8,255,000 as indicated by the bank statement at 30 April 1993 whereas the cash book showed a credit balance of $7,865,300. Upon investigation, he found that: (i) Six cheques (which amounted to $750,000 in total) were deposited on 30 April

1993 but were not yet credited by the bank. (ii) An electricity bill settled by the bank’s autopay system in April 1993

amounted to $6,290. It is the practice of the company to record this expense upon receipt of the bank statement of the month.

(iii) The March balance of $65,870 in the cash book was carried forward as

$56,780. (iv) A debtor settled his account of $87,500 by credit transfer. (v) Interest of $58,000 was charged by the bank on the overdraft. No record of

this had yet been made. (vi) A cheque for $89,000 received from a debtor was returned by the bank marked

“UNPAID”. This amount was deducted from the balance in the bank statement but had not been entered in the books.

(vii) Two cheques drawn by Mr. Lee were not yet presented to the bank for

payment. They were (#80967) $420,000 and (#80973) $75,000. (viii) A debt of $78,000 previously written off as bad was now recovered and a

cheque dated 2 May 1993 was received from the customer concerned. This had been recorded in the cash book but the cheque still remained in the cash till.

Mr. Lee tried to draw up a balance sheet to reveal the financial situation of the business but he was hesitant on most of the figures: $000 $000 $000 $000 Fixed assets Capital 50,000

Premises, net ? Net profit ? Delivery van, net ? ? ?

Drawings ? Current assets ?

Stock ? Current liabilities Debtors ? Creditors ? Cash ? Bank O/D ?

? ? ? ? The following data have been complied for your information: Sales for the year $60,000,000 Gross profit margin 40% Net profit to sales 11% Return on total assets employed 12.5% Depreciation of fixed assets 25% Stock turnover (stock level constant throughout the year) 6 times Credit period allowed to debtors 2 months Current ratio 1.4 : 1 Working capital $5,000,000 Required: (a) Update the bank balance in the hooks of Mr. Lee as at 30 April 1993.

(7 marks) (b) Prepare a bank reconciliation statement as at 30 April 1993. (3 marks) (c) Draw up the balance sheet for Mr. Lee as at 30 April 1993, filling in all the

missing figures. (10 marks)


2000 Q.7 The profit and loss account of Sunny Fashion for the year ended 31 December 1999 is shown below: $ $ $ Sales 1,125,000 Less: Sales returns 45,000 1,080,000 Cost of goods sold Opening stock ? Purchases ?

Less: Purchases returns 28,000 ? ? Less: Closing stock ? 648,000 Gross profit 432,000 Less: Rent and rates 185,500 Salaries 120,000 Selling expenses 18,000 Depreciation of fixed assets 6,500 Sundry expenses 6,000 336,000 Net profit 96,000 Additional information: (i) The closing stock and the opening stock amounted to the same figure. (ii) The stock turnover rate was 8 times. (iii) Debtors’ collection period for the year was two months and creditors’

repayment period was three months. (iv) Sales and purchases accrued evenly throughout the year. (v) All purchases and 90% of the net sales were on credit. (vi) The current ratio was 2.1 : 1. (vii) Current assets consisted of cash at bank, debtors, stock and prepayments.

(viii) Cash at bank amounted to 40% of working capital. (ix) The fixed assets had a cost of $339 800 and a provision for depreciation of

$191 500 at 1 January 1999. There were no additions and disposals of fixed assets during the year.

(x) The return based on the owner’s capital at 31 December 1999 was 30%. (xi) Drawings during the year amounted to $36 000. Required: (a) Calculate the amounts for closing stock and gross purchases. (4 marks) (b) Prepare the balance sheet of Sunny Fashion as at 31 December 1999. (12 marks) (c) Briefly comment on the liquidity and profitability of Sunny Fashion for 1999

if the company had the following figures in 1998:

Current ratio 1.6 : 1 Stock turnover rate 9 times Debtors’ collection period 2½ months Return on owner’s capital 45%

(4 marks)


1992S Q.10 Mr. Chan provided you with the following information relating to his company for the 1990/91 financial year ended on 31 August: (i) The current assets of his company consisted of stock, debtors and cash at bank. (ii) Creditors was his only liability. (iii) He maintained the value of his closing stock at the same level as his opening

stock. (iv) The value of the fixed assets at the beginning of the year was $50,000. (v) He withdrew $40,000 for his own use. (vi) He achieved the following accounting ratios in his operation through the year:

Current ratio 2:1 Liquid ratio 1:1 Sales to fixed assets (valued at the beginning of the year) ratio

8:1

Debtors (at the end of the year) to sales ratio 1:20 Gross profit margin 25% Stock turnover per year 6 times General expenses (excluding depreciation) to sales ratio

1:10

Depreciation on fixed assets (reducing balance method was adopted)

10% p.a.

Required: Prepare for Mr. Chan (a) a trading and profit and loss account for the year ended 31 August 1991; and (b) a balance sheet as at that date. (20 marks)

2004 Q.2 (A) What do the following two types of ratio measures? (a) Liquidity ratios (b) Profitability ratios (4 marks) (B) Selected financial data for Vera Limited is presented below: Profit and loss account data for the year ended 31 March 2004

$ Sales 248,600 Returns inwards 15,200 Cost of goods sold 155,750 Operating expenses 43,390 Net profit 34,260 Balance sheet data as at 31 March 2003 2004 $ $ Furniture and fixtures (net) 18,420 Office equipment (net) 32,480 Stock 28,750 26,400 Trade debtors 29,260 30,340 Bank 660 108,300 Ordinary share capital 50,000 Share premium 12,890 Retained profits 15,500 Trade creditors 26,900 Accruals 3,010 108,300

You are required to: Calculate (to two decimal places) for Vera Limited the following ratios for the year ended 31 March 2004: (a) Quick ratio (b) Stock turnover rate (c) Debtors’ collection period (in months) (d) Gross profit ratio (e) Returns on capital employed (10 marks)


2006 Q.4 The company’s information below relates to the year ended 31 December 2005:

As at 1 January 2005: $ Stock 64,430 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

You are required to: (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 (4 marks)

(c) Calculate the amount of shareholders’ fund as at 31 December 2005. (4 marks)

HKCEE-12-stock valuation P.1/3

1992 Q.1 The closing stock on the balance sheet of MacMac Tool Company prepared on 31 March 1992 showed a total of $467,500. The following information concerning the stock of the company was revealed on 3 April 1992: (i) Five machines bought at a cost of $63,300 each, were found to be defective.

The Engineering Department suggested replacing the defective parts with new ones which could be obtained on the market at $2,500 each. After the repair each machine would be sold at $64,000.

(ii) A stock sheet of component parts totalling $36,600 had been transferred to the

summary sheet as $30,660. (iii) Two electric hand tools which cost $3,400 each were sold on 28 March 1992.

The sales records were properly entered but the goods were not delivered until 2 April 1992.

(iv) Three machines which cost a total of $165,000 were purchased in the last

week of March 1992. However, delivery was only made on 1 April 1992. (v) In January 1992, three electric pumps costing $36,000 each were mistakenly

delivered by the company to one of its showrooms. One pump was severely damaged and should be written off as total loss. All three pumps were returned to the warehouse of MacMac Tool Company in mid-February but the store-keeper did not report the loss.

Required: Prepare a statement for the revised closing stock as at 31 March 1992. (10 marks)

1992S Q.9 Che Sang is a retailer grocer. On the light of 15 July 1991, there was a burglary in the shop and a quantity of stock was stolen. It was also found that cash in the till which amounted to $680 had been taken. The money was received from customers for goods sold and entries had been made in the books of the shop. The only equipment lost in the burglary was a pair of automatic scales. According to the books of the shop, the scales had a net book value of $650 but the insurance claim in respect of this item was agreed at $550. On enquiry, you are given the following information: (i) The shop was fully covered for insurance purpose. (ii) Stock at 1 January 1991 was $34,760. (iii) Purchases for the period 1 January - 15 July 1991 were $245,950. Sales for the

same period were $375,900. (iv) The average ratio of gross profit to sales for the period was 331/3%. (v) Some stock was left behind by the burglars and this was valued at cost

$12,500. However, some of these goods had been damaged during the burglary and it was decided to write off $2,500 from the cost price.

(vi) The insurance claim was settled by cheque on 31 August 1991. Required: (a) Calculate the value of stock lost in the burglary. (b) Prepare a statement to show the amount to be claimed from the insurance

company. (c) Prepare journal entries to record the necessary adjustments resulting from the

burglary and the insurance settlement in the books of Che Sang. (10 marks)


1996 Q.4 The stock of Cindy Limited was taken on 31 March 1996 and the final figure was to be incorporated in the financial reports for the three months ending 31 March 1996. However, the stock sheets were lost and further investigation revealed the following information: (i) Stock at 31 December 1995 was $54,378, at cost. (ii) Goods invoiced to customers in respect of January, February and March 1996

amounted to $65,020. (iii) Selling prices are determined by a 25% mark-up on cost. (iv) Certain items in stock at 31 December 1995 valued at $648 were scrapped in

February 1996. (v) A scrutiny of the stock sheets as at 31 December 1995 revealed that one sheet

had been over-added by $210. (vi) Purchases of $61,632 during the three months ended 31 March 1996 had been

duly entered in the accounting records. (vii) Goods received in March 1996 amounting to $2,050 had not yet been invoiced

by the supplier. (viii) Goods returned to suppliers during the quarter amounted to $374 and goods

returned by customers in this period amounted to $890, at cost. Required: Compute the amount of stock for inclusion in the financial reports for the quarter ending 31 March 1996. (10 marks)

1999 Q.4 The annual stocktaking of Wilson Limited did not take place on the day of the company’s year end, 31 March 1999. However, stock was taken on 10 April 1999 when the business closed for the weekend. The stock value of $38,625 as at 10 April 1999 was used in the calculation of total current assets at 31 March 1999, which amounted to $69,864. Subsequent investigation revealed the following: (i) During the period from 1 to 10 April 1999, the company recorded the

following: $ Sales 12,600 Sales returns 600 Purchases 10,500 Purchases returns 700

(ii) A gross profit margin of 20% was achieved on all normal sales. (iii) Included in sales was an amount of $1,000 sales to employees. A special

discount of $200 had been given on this sale. (iv) A quantity of stock included at cost of $850 on 10 April 1999 should have

been treated as worthless on 31 March 1999. (v) A stock sheet prepared on 10 April 1999 had been undercast by $410. Required : (a) Compute the amount of stock as at 31 March 1999. (8 marks) (b) Show the corrected total current assets at 31 March 1999. (2 marks)


1997 Q.8 The annual stocktaking of Leader Limited did not take place at the company’s year end on 31 March 1997. However, stock had been taken on 31 December 1996 for interim reporting purpose. Subsequent investigation revealed the following information: (i) Stock at 31 December 1996 was $52,673. (ii) Selling prices are determined by a 20% mark-up on cost. (iii) Goods sent to customers in the period January to March 1997 amounting to

$48,000 at selling price had not yet been invoiced. (iv) Goods costing $1,000 included in the stock valuation at 31 December 1996

was found to be worthless on 31 March 1997. (v) The stock valuation of 31 December 1996 included $750 stationery stock and

$1,600 office equipment, both valued at cost. (vi) Goods invoiced to customers in the period January to March 1997 amounted

to $66,000. (vii) One of the stock sheets of 31 December 1996 had been over-added by $1,104. (viii) Goods purchased in the quarter ended 31 March 1997 amounted to $84,226

had been received and recorded. (ix) During the three months ended 31 March 1997, goods returned to suppliers

amounted to $734 and goods returned by customers amounted to $876, at selling price.

(x) Goods with a selling price of $840 were sent on 1 March 1997 on a sale or

return basis to a customer. This transaction had been recorded as sales. (xi) Goods costing $900 were damaged and it would cost $300 to restore them to a

saleable condition. There would be no change in the selling price obtainable.

Required: (a) Draw up a statement to compute the appropriate stock value as at 31 March

1997. (16 marks) (b) What is a stocktaking and how often should it be carried out? (4 marks)

HKCEE-13-partnership (admission & retirement) P.1/17

1991 Q.8 Chan and Wong were partners in a retail business, sharing profits and losses in the ratio of 3:2. The partnership agreement provided that interest should be allowed on capital at the rate of 6% per annum. No interest should be allowed on credit balances of the current accounts but interest of 12% per annum should be charged on any debit balances during the year. The balances on the partners’ capital and current accounts as at 31 December 1989 were:

Capital accounts Current accounts $ $ Chan 50,000 33,100 Wong 30,000 12,500 (Dr)

The partners decided to admit their marketing manager, Cheung, as a new partner, beginning from 1 January 1990. In addition to those set out in the original partnership agreement, the following terms were agreed: (1) Goodwill of the partnership was $30,000 and a goodwill account would not be

maintained in the books. (2) The new profit and loss sharing ratio for Chan, Wong and Cheung was 5:3:2. (3) Cheung was to be credited to his current account a month salary of $7,000 for

managing the business. Additional information: (i) In the year 1989, Cheung had been awarded a cash bonus of $37,800 for

undertaking a successful marketing project. This amount had not been paid at the close of the year. On Cheung’s admission, it was agreed to transfer $30,000 to his capital account and the balance to his current account.

(ii) The net profit before appropriation for the year ended 31 December 1990 was

$121,280.

(iii) Drawings of the partners for the year were as follows: Chan Wong Cheung $ $ $ 1 May 20,000 - - 30 June 20,000 - 2,000 31 August 10,000 - 1,000 Total 50,000 - 3,000

(iv) The balances in the partners’ capital accounts were to remain fixed. All the

entries relating to the partners should be made through the current accounts. Required: (a) Prepare journal entries to record the admission of Cheung. (3 marks) (b) Prepare a profit and loss appropriation account for the year ended

31 December 1990. (10 marks) (c) Prepare the partners’ current accounts for the year ended 31 December 1990. (Calculations to the nearest dollar) (7 marks)


1992S Q.7 Lau, Kwan and Cheung were in partnership sharing profits and losses in the ratio 5:3:2. Given below is the trial balance of the partnership as at 31 March 1992: $ $ Capital accounts: Lau 300,000 Kwan 200,000 Cheung 100,000 Current accounts: Lau 50,000 Kwan 48,000 Cheung 15,000 Drawings: Lau 15,000 Kwan 20,000 Cheung 20,000 Buildings 1,200,000 Motor vehicles 230,000 Provision for depreciation - buildings 24,000 - motor vehicles 138,000 Debtors 180,000 Creditors 70,000 Provision for bad debts 5,000 Cash at bank 10,000 Sales 1,670,000 Purchases 820,000 Stock, 1 April 1991 90,000 Office expenses 5,000 Rent 12,000 Selling expenses 18,000 2,620,000 2,620,000 The following additional information is provided: (i) Stock at 31 March 1992 was valued at $100,000. (ii) Fixed assets were to be depreciated at the following rates:

Buildings 2% per annum on cost Motor vehicles 20% per annum on cost

(iii) The provision for bad debts was to be maintained at 5% of the outstanding debtors.

(iv) Rent was prepared by $1,000 as at 31 March 1992. (v) The partnership agreement covered the following appropriations:

1. Cheung was allowed a salary of $36,000 per annum. 2. Interest of 10% per annum was allowed on the partners’ capital accounts

balances. 3. Interest of 15% per annum was allowed on the partners’ current accounts

balances. 4. Interest of 10% per annum was charged on the partners’ average drawings.

(vi) The average drawings on the partners for the year ended 31 March 1992 were:

$ Lau 12,000 Kwan 16,000 Cheung 20,000

(vii) There were no changes in the partners’ capital and current accounts throughout

the year. Required: (a) Prepare the partners’ trading, profit and loss and appropriation account for the

year ended 31 March 1992; and (12 marks) (b) a balance sheet as at 31 March 1992. (8 marks)


1993 Q.6 So and Tam were equal partners of a trading company. The trial balance as at 30 April 1993 was extracted from their books of accounts as follows: $ $ Capital : So 22,560 Tam 13,140 Fixed assets at cost 16,800 Provision for depreciation 3,200 Cash at bank 5,000 Current assets other than cash 19,250 Creditors 2,150 41,050 41,050 On 1 May 1993, Yau was admitted as a partner bringing in $10,000 cash of which $2 000 was paid for his share of goodwill. In setting up the new partnership, it was decided that: (i) The profit and loss sharing ratio for So, Tam and Yau was 4:3:2 respectively. (ii) Except the fixed assets which were revalued at $18,000, all other assets and

liabilities were to be maintained at their book values. (iii) No goodwill account was to be kept in the books. (iv) Fixed capital accounts were to be opened for the partners whose capital

contributions would be made according to the profit and loss sharing ratio. So and Tam would transfer any surplus amounts to their current accounts.

Required : Prepare journal entries to record the above in the books of the new partnership. (10 marks)

(10 marks)

1994 Q.9 Alex and Bob have been partners sharing profits and losses in the ratio of 5:3 respectively. Interest of 6% p.a. was allowed on the credit balances in the capital accounts. The financial year ends on 31 December each year. On 1 January 1993, the balance of their account were as follows:

Capital account Current account $ $ Alex 50,000 2,200 (Cr) Bob 30,000 1,900 (Cr)

On 1 May 1993, their sales manager, Calvin, was admitted as a partner, bringing in $20 000 cash as capital. It was agreed Calvin’s salary would be maintained at $24,000 p.a. (i.e. his pay when he was still the sales manager.) The new profit and loss sharing ratio for Alex, Bob and Calvin was 5:3:2. Interest on the credit balance in the capital accounts was to be maintained at 6% p.a. On Calvin’s admission as a partner, it was decided that the value of land and buildings was to be increased by $80,000 and stock of $12,000 was to be written off as obsolete. The revaluation of assets was to be recorded in the partners’ capital accounts. Goodwill was valued at $15,000 but would not be shown in the books, adjustments being made through the current accounts of the partners. The net profit before the deduction of Calvin’s salary for the year was $71,300. Profits are assumed to accrue evenly throughout the year. Required: (a) Show the journal entries to record the admission of Calvin. (8 marks) (b) Prepare the profit and loss appropriation account for the partnership for the

year ended 31 December 1993. (12 marks) (Calculations to the nearest dollar.)


1996 Q.9 Lau and Chun were in partnership sharing profits and losses in the ratio 1:2 respectively. The balance sheet as at 31 December 1995 was as follows:

Balance sheet as at 31 December 1995 $ $ $ $

Fixed Assets Capital Accounts Buildings, net book value 306,000 Lau 162,000

Equipment, net book value 59,400 Chun 288,000 365,400 450,000 Current Assets Current Accounts Stock 16,200 Lau 2,520 Debtors 36,360 Chun 1,800 4,320 Bank 51,120 103,680 454,320 Current Liabilities Creditors 14,760 469,080 469,080 Lau retried on 30 April 1996 on the following terms: (i) He was to be paid the amount of his capital and current account balances at 31

December 1995, together with his share of profit and loss for the 4 months ending 30 April 1996 and his share of goodwill.

(ii) Goodwill was calculated to have a value of $135,000. No goodwill account

was to remain in the partnership books. (iii) No assets or liabilities were to be revalued on retirement. (iv) It was agreed that Lau should be repaid in four equal instalments, the first

payment being made on 1 May 1996. The balance was to be left temporarily in the partnership as a loan.

After all the nominal accounts had been balanced off, the following position was arrived at on 30 April 1996:

$ Assets Building, net book value 299,880 Equipment, net book value (including additions of $7,200)

62,640

Bank 60,660 Stock 21,600 Debtors 44,460 489,240 Liabilities Creditors 17,640

There were no entries to the capital accounts during the four months. However, the following drawings had been made:

$ Lau 36,000 Chun 61,200

Kwok was admitted as a new partner on 1 May 1996. He brought in $92,000 as his capital, and additional cash for his share of goodwill. The new profit-sharing ratio was: Chun, four-fifth; and Kwok, one-fifth. Required: (a) Calculate the profit of the partnership for the period from 1 January 1996 to

30 April 1996. (3 marks) (b) Prepare the partners’ capital and current accounts to reflect the above

arrangements. (11 marks) (c) Draw up the balance sheet of the new partnership as a 1 May 1996. (6 marks)


1997 Q.10 Cheung and Wong were partners sharing profits and losses in the ratio of 1:3 respectively. The following trail balance as at 31 March 1997 was extracted from the books of the partnership:

$ $ Net profit for the year 40,000 Capital accounts:

Cheung 870,000 Wong 800,000

Current accounts: Cheung 8,500 Wong 18,500

Premises 1,080,000 Vehicles 504,000 Furniture 144,000 Stock 272,379 Debtors 320,000 Bank 8,880 Loan - Cheung 360,000 Creditors 249,259 2,337,759 2,337,759

After preparing the above trial balance, the following adjustments to net profit needed to be made: (i) A provision for doubtful debts was to be made at 5% of debtors. (ii) Salaries included $6,000 cash drawings by Wong in March 1997. At the date of the trial balance, Cheung retired and Go was admitted to the partnership with Wong. The following details were agreed on:

(i) The following assets were to be revalued at: $ Premises 1,480,000 Vehicles 380,000 Stock 212,379

(ii) Wong and Ho were to share profits and losses equally. (iii) The goodwill of the old partnership was estimated to be worth $200,000, but

no goodwill account was to be maintained. (iv) Cheung was to take over a vehicle valued at $128,000. The balance owing to

him was to be retained as a loan to the new partnership, except for $445,000 which was to be settled in cash.

(v) Wong was to withdraw cash so that his fixed capital balance would be

maintained at $800,000. (vi) Ho was to introduce $650,000 cash as capital, but no extra cash was to be paid

in for his share of goodwill. Required: (a) the partnership profit and loss appropriation account of Cheung and Wong for

the year ended 31 March 1997; (2 marks) (b) revaluation account of the partnership; (3 marks) (c) the partners’ capital and current accounts in columnar form; and (8 marks) (d) a balance sheet for the new partnership of Wong and Ho as at 31 March 1997. (7 marks)


1998 Q.2 Allen and Davis have been partners sharing profits and losses in the ratio of 3:2 respectively. Their balance sheet as at 31 December 1997 was as follows: $ $ $ Goodwill 98,000 Capital account Plant and machinery (net) 50,400 Allen 95,000 Stock 20,000 Davis 85,000 180,000 Debtors 26,000 Creditors 16,680 Cash at bank 2,280 196,680 196,680 They decided to admit Charles as a partner on 1 January 1998. Charles was to contribute $60,000 cash as capital and the new profit and loss sharing ratio for Allen, Davis and Charles was 5:3:2 respectively. Plant and machinery was to be revalued at $76,300 and stock of $2,000 was to be written off as obsolete. Provision was to be made for doubtful debts at 5% of the debts. Goodwill was revalued at $120,000, but would not be shown in the books of the new partnership. Required: Draw up the revaluation account and the partners’ capital accounts (in columnar form) to reflect the admission of Charles. (Show the workings for goodwill adjustments.) (10 marks) 2001 Q.9 Bill and Dick were in partnership sharing profits and losses in the ratio of 2:1 respectively. The balance sheet as at 31 March 2001 was as follows:

Balance Sheet as at 31 March 2001 Fixed Assets $ $ Capital Accounts $ $ Motor vehicles 800,000 Bill 343,000 Less: Provision for Dick 432,000 depreciation 341,000 459,000 775,000 Equipment 160,000 Current Accounts Less: Provision for Bill 3,780 depreciation 70,900 89,100 Dick 2,700 6,480 548,100 781,480

Current Assets $ $ Current Liabilities $ Stock 24,300 Creditors 22,140 Debtors 54,540 Bank 176,680 255,520

803,620 803,620 On 31 March 2001, Bill retired and his son, Tim was admitted to the partnership on the following terms: (i) Goodwill was estimated to have a value of $202,500. No goodwill account

was to remain in the partnership books. (ii) The equipment was to be revalued at $80,000 and motor vehicles were to be

revalued at 5% above the net book value. (iii) An item of stock costing $500 was considered as worthless. (iv) Dick and Tim were to share profits and losses equally. (v) Tim’s capital was agreed at $300,000. This amount was to be transferred from

the amount owing to Bill. A similar transfer was to be made to pay for Tim’s share of goodwill.

(vi) Dick was to withdraw cash so that the capital account balances of Dick and

Tim are in the ratio of 1:1. (vii) The balance owing to Bill was to be retained as a loan to the new partnership. Required to prepare: (a) the revaluation account of the partnership of Bill and Dick; (4 marks) (b) the capital accounts of Bill, Dick and Tim in columnar form; and (11 marks) (c) a balance sheet for the new partnership of Dick and Tim as at 31 March 2001.

(5 marks)


1998 Q.9 (amended) Lee and Wong have been partners sharing profits and losses in the ratio of 3:2 respectively. Interest of 6% per annum was allowed on the credit balances in the capital accounts. The trial balance at 31 March 1998 was as follows: $ $ Capital accounts - Lee 550,000 - Wong 380,000 Drawing - Lee 49,850 - Wong 38,370 Current accounts - Lee 9,275 - Wong 1,350 Equipment - at cost 470,800 - accumulated depreciation 164,270 furniture and fittings - at cost 267,500 - accumulated depreciation 129,500 Motor vehicles - at cost 280,000 Purchases 469,276 Sales 1 261,550 Salaries 240,070 Rent and rates 110,285 Provision for doubtful debts 1,160 Trade debtors 57,250 Trade creditors 218,720 Cash at bank 516,895 Sundry expenses 7,241 Discounts 2,220 1,384 Salary to Lee 84,000 Electricity 26,444 Stock 78,458 2,707,934 2,707,934

The following information was also given: (i) Depreciation is to be charged as follows:

Equipment - 10% per annum on a straight-line basis Furniture and fitting - 10% per annum on a reducing balance basis Motor vehicles - 25% per annum on a straight-line basis

(ii) Stock as at 31 March 1998 amounted to $92,621. (iii) The following adjustments were to be made on 31 March 1998:

$ Accrued salaries 2,330 Prepaid electricity 444

Provision for doubtful debts was to be maintained at 2% of trade debtors. (iv) The sale of furniture for $3,000 had been recorded as cash sales. No other

entry has yet been made. The furniture had cost $4,200 and $1,800 had been provided for depreciation.

Required to prepare: (a) the trading, profit and loss and appropriation account for the partnership for

the year ended 31 March 1998, and (10 marks) (b) the balance sheet as at 31 March 1998. (10 marks)


2003 Q.6 Ted and Sam were in partnership providing employment agency service to clients. They shared profits and losses in the ratio of 4:5. The trial balance as at 31 March 2002 was as follows: $ $ Capital accounts: Ted 194,400 Sam 345,600 Current accounts: Ted 664 Sam 10,510 Office equipment, net 340,160 Accrued commission revenue 12,360 Bank 194,634 Accrued rent 17,000 557,664 557,664 Commission revenue of $3,600 had not yet been accrued in the books at 31 March 2002. On 1 April 2002, Ted retired and Susan was admitted to the partnership on the following terms: (i) Goodwill was estimated to have a value of $180,000. No goodwill account

was to remain in the partnership books. (ii) No other assets or liabilities were to be revalued. (ii) Susan was to bring in furniture and fittings of $200,000 and $100,000 cash as

her capital and share of goodwill. (iv) Sam and Susan were to share profits and losses in the ratio of 3:2. (v) The amount due to Ted was to be repaid in full immediately. (vi) Interest of 5% per annum was to be allowed on the credit balances in capital

accounts of the new partnership. (vii) Susan was entitled to an annual salary of $96,000.

During the year ended 31 March 2003, the partnership had the following receipts and payments:

$ Receipts: Commission revenue 709,360 Payments: Rent 96,000 Staff salaries 276,960 Sundry expenses 7,200 Drawings - Susan 9,000

The balance at bank amounted to $338,170 at 31 March 2003. On 31 March 2003, commission revenue of $4,800 and rent of $10,000 were to be accrued. Depreciation is to be provided on the book value of the fixed assets at 25% per annum. You are required to prepare: (a) the profit and loss and appropriation account of the partnership for the year

ended 31 March 2003; (10 marks) (b) the partners’ capital accounts and current accounts in columnar form for the

year ended 31 March 2003; and (13 marks) (c) the balance sheet of the partnership as at 31 March 2003. (6 marks)


1992 Q.8 Aron, Bob and Carmen were partners, sharing profits and losses in the ratio 3:1:1. The balance sheet as at 31 December 1991 was as follows:

Balance sheets as at 31 December 1991 Fixed assets $ $ Premises 360,000 Less : Accumulated depreciation 20,000 340,000 Motor car 55,000 Less : Accumulated depreciation 11,000 44,000 Current assets Stock 136,500 Debtors 345,000 Less: Provision for doubtful debts 2,530 342,470 Cash 52,130 915,100 Less: Current liabilities Trade creditors 253,500 Bank overdraft 120,000 373,500 Net assets 541,600 Represented by: Capital - Aron 200,000 - Bob 85,000 - Carmen 115,000 400,000 Current account - Aron 53,240 - Bob (120,000) - Carmen 75,600 8,840 Loan from Aron 132,760 541,600 Bob was declared insolvent on 31 December 1991 and the partners decided to dissolve the partnership. Bob’s deficiency was to be borne by Aron and Carmen in the ratio 3:1.

Assets and liabilities were disposed of as follows: (i) The premises was sold at $253,000 and legal charges amounted to $26,000. (ii) Aron took over the stock in trade to set off his loan to the partnership. (iii) It was agreed to give Carmen the motor car as a gift. (iv) The partnership appointed a debt-collecting company to collect the debts on

the books. Except for $56 200, all debts were collected. A commission of 30% on the amount collected was charged by the debt-collecting company.

(v) Carmen settled all the trade creditor accounts at $250,000 out of her own

savings. It was agreed that interest was to be charged at 1% of the amount loaned.

(vi) Realisation expenses of $25,000 were paid. (vii) A sum of $23,400 was recovered from bad debts written off in previous years. (viii) All monies received were banked. Required: Prepare the following accounts in respect of the above dissolution: (a) the realization account; (10 marks) (b) the bank account; and (4 marks) (c) the partners’ capital accounts. (6 marks) (Calculations to the nearest dollar)


1995 Q.8 (amended) Chan, Lee and Wong, having carried on business as toys and stationery retailer for a number of years, decided to dissolve their partnership on 30 April 1995. They had been sharing profits and losses equally. At the date of dissolution, their draft balance sheet was as follows:

Balance sheet as at 30 April 1995 $ $ $ Goodwill 6,000 Capital accounts: Leasehold premises 21,000 Chan 30,000 Equipment: Lee 25,000 Toys department 7,250 Wong 2,900 Stationery department 4,400 11,650 57,900 Stock: Toys department 4,800 Creditors 16,400 Stationery department 5,600 10,400 Debtors 6 250 Bank 19,000 74,300 74,300 It was further agreed that the partnership be dissolved on the following terms: (i) Goodwill was to be written off. (ii) Dissolution expenses amounted to $2,200. (iii) Chan was to take over the leasehold premises at $18,000, toys stock at $5,200

and toys equipment at $5,700. (iv) Lee was to take over the stationery stock at $6,100 and the equipment of that

department at $3,890. (v) The debtors realised $5,550; the proceeds being retained by chan. The loss on

debtors was to be shared by Chan, Lee and Wong in the ratio of 3:2:2. (vi) The creditors were to be paid by Chan.

(vii) Since Wong was insolvent, he was only required to contribute $500 towards

his share of partnership loss. Required to prepare: (a) the realisation account; (6 marks) (b) the bank account; and (3 marks) (c) the partners’ capital account, including the final settlement among them. (11 marks) 1999 Q.8 Edmond and Fred were in partnership sharing profits and losses in the ratio of 2:1. They made up their accounts annually to 31 March. The following trial balance was extracted on 31 March 1999: $ $ Partners’ capital accounts:

Edmond 68,200 Fred 22,000

Loose tools, valued as at 31 March 1998 48,400 Leasehold premises 110,000 Motor vehicle - at cost 79,800 - provision for depreciation 37,920 Stock as at 31 March 1999 13,640 Debtors 3,960 Loan - Edmond at 8% p.a. 74,000 Bank overdraft 57,640 Creditors 14,080 Gross profit 120,120 Operating expenses 114,400 Partners’ drawings

Edmond 13,200 Fred 10,560

393,960 393,960


On 31 March 1999, loose tools were valued at $39,600. Provision of $15,960 was to be made for depreciation of the motor vehicle and $2,640 was to be accrued for operating expenses. The partnership was dissolved on 1 April 1999 on the following terms: (i) Edmond took over the stock for $11,000. (ii) Fred took over the motor vehicle for $24,000 and part of the loose tools for

$16,500. (iii) The leasehold premises were sold for $143,000. (iv) The remaining loose tools were sold for $18,700. (v) $3,800 was collected from debtors, the balance being taken over by Edmond. (vi) Edmond’s loan and interest for the year were repaid. (vii) Other liabilities were paid in full. (viii) Realisation expenses amounted to $4,201. Required to prepare: (a) a profit and loss account for the year ended 31 March 1999; (3 marks) (b) a realisation account; (8 marks) (c) the bank account; and (5 marks) (d) the partners’ capital accounts (in columnar form) showing the final settlement

on dissolution. (4 marks)

2000 Q.9 Chau, Lok and Yeung were partners sharing profits and losses in the ratio of 3:2:1 respectively. They decided to dissolve their partnership on 30 April 2000. At the date of dissolution, their draft balance sheet was as follows: Fixed Assets $ $ Office premises 542,250 Motor vehicles 198,225 740,475

Goodwill 146,000 Current Assets Stock 61,575 Debtors 67,800 Bank 9,525

138,900 Less: Current Liabilities

Creditors 137,600 1,300 887,775 Capital Accounts: Lok 157,105 Chau 700,670 Yeung 30,000 887,775 It was agreed that the partnership be dissolved on the following terms: (i) Goodwill was to be written off. (ii) The motor vehicles were taken over by the partners at agreed values as Chau

$60,000 and Lok $72,000. (iii) The office premises were sold at a profit of $60,600. (iv) Paying by personal cheque, Chau took over at book value stock amounting to

$20,000. The remaining stock was sold for 80% of the book value. (v) The debtors were realised at $54,240. (vi) Realisation expenses amounted to $36,500.


(vii) Lok was to take over the creditors at book value. A discount of 5% was allowed to him by the creditors on settlement.

(viii) Since Yeung was insolvent, he was only required to contribute $1,000 towards

the partnership. His deficiency was to be borne by the other partners in their profit and loss sharing ratio.

Required to prepare: (a) the realisation account; (8 marks) (b) the bank account; and (5 marks) (c) the partners’ capital accounts in columnar form, including the final settlement

among them. (7 marks) 2002 Q.7 Au, Fok and Mak were partners sharing profits and losses in the ratios of 2:1:2 respectively. The balance sheet of their business as at 30 April 2002 was as follows: $ $ $ Fixed assets Plant and machinery 272,250 Furniture 60,750 Motor vehicles 96,750 429,750 Current assets Stock 108,000 Debtors 31,500 Bank 78,975 218,475 Less: Current liabilities Loan - Fok 90,000 Creditors 72,000 162,000 56,475 486,225 Capital accounts: Au 195,750 Fok 117,000 Mak 144,000 456,750

Current accounts: Au 16,325 Fok 12,600 Mak 550 29,475 486,225 On 1 May 2002, the partners decided to dissolve the partnership on the following terms: (i) Au was made responsible for collecting the debts due to the firm. He was

entitled to commission of 2% on all sums received. Consequently, a cash discount of $1,000 was allowed and debts amounting to $3,500 proved to be uncollectible.

(ii) Plant and machinery were sold at a price of 20% below book value. (ii) The furniture was taken over by Au and Fok at agreed values of $29,000 and

$20,000 respectively. (iv) Mak took over the motor vehicles at only $10,000, but he was also personally

responsible for paying off 60% of the creditors. (v) The remaining creditors were settled by the firm and a discount of 5% was

received. (vi) A customer bought the stock at a price of 75% of the book value. (vii) Fok’s loan was repaid. (viii) Realization expenses amounted to $29,600. Required to prepare: (a) the realization account; (14 marks) (b) the bank account; and (7 marks) (c) the partners’ capital accounts in columnar form, showing the final settlement

among them. (8 marks)


2004 Q.7 (A) What is goodwill? Under what circumstances will it be recorded in a

partnership? How should it be classified in a balance sheet? (6 marks) (B) Charles and Don were in partnership sharing profits and losses in the ration of

2:3 respectively. Their balance sheet as at 31 March 2004 was as follows: $ $ $ Fixed Assets Equipment 208,000 Less: Provision for depreciation 92,170 115,830 Motor vehicles 920,000 Less: Provision for depreciation 592,150 327,850 443,680 Current Assets Stock 22,980 Debtors 62,800 Less: Provision for doubtful debts 4,396 58,404 Prepaid insurance 505 Bank 239,245 321,134 Current Liabilities Loan - Charles 250,000 Creditors 40,380 290,380 Net current assets 30,754 474,434

Financed by: Capital Accounts Charles 172,000 Don 280,000 452,000

Current Accounts Charles (43,434) Don 65,868 22,434

474,434

On 31 March 2004, Charles retired and his friend, Eric, was admitted to the partnership on the following terms: (i) Goodwill was estimated to have a value of $126,000. No goodwill

account was to remain in the partnership books. (ii) Stock was to be written down by $650 whereas provisions for doubtful

debts was to be reduced to $3,196. (iii) The prepaid insurance of $505 related to a policy which was not

applicable to the new partnership. (iv) The equipment was to be revalued at $80,000 and motor vehicles were

to be revalued to 40% of the original cost. (v) Don and Eric were to share profits and losses in the ration of 2:1

respectively. (vi) Eric was to repay directly the loan owed to Charles and to bring in cash

for his own share of goodwill. (vii) The balance of Charles’ capital account was to be settled immediately

after his retirement. You are required to prepare: (a) the revaluation account for the partnership of Charles and Don;

(5 marks) (b) the capital accounts of Charles, Don and Eric in columnar form; and

(11 marks) (c) the balance sheet of the new partnership of Don and Eric as at 31 March

2004. (7 marks)


2005 Q.6 Ann, Bill and Carl are in partnership sharing profits and losses in the ratio of 3:2:1 respectively. The balance sheet as at 31 March 2004 was as follows: $ $ $ Fixed Assets Motor vehicles (net) 206,080 Equipment (net) 110,700 316,780 Current Assets Stock 45,780 Debtors 39,016 84,796 Current Liabilities

Bank overdraft 76,500 Creditors 29,376 105,876

(21,080) 295,700

Financed by: Capital Accounts

Ann 128,000 Bill 126,000 Carl 54,000

308,000 Current Accounts

Ann (16,400) Bill 7,200 Carl (3,100) (12,300)

295,700

On 1 April 2004, Carl retires on the following terms: (i) Goodwill was estimated to have a value of $24,000 and a goodwill account

was to be opened in the new partnership. (ii) In order to improve the liquidity of the business, each remaining partner was

to contribute cash amounting to 25% of the total liabilities of the partnership at 31 March 2004.

(iii) Ann and Bill were to share profits and losses equally. (iv) The equipment was to be revalued at $124,000 and motor vehicles were to be

revalued downwards by $31,080. (v) An item of stock costing $800 was estimated to have a net realisable vale of

$580. (vi) The balance of Carl’s capital account was to be settled immediately after his

retirement. You are required to prepare: (a) the revaluation account of the partnership; and (5 marks) (b) the capital accounts of Ann, Bill and Carl in columnar form to record Carl’s

retirement. (6 marks) During the year ended 31 March 2005, the partnership made a net profit of $30,864 and depreciation had been provided on the net book value of the fixed assets at 20% per annum. The following balances were extracted from the books as at 31 March 2005:

$ Bank 11,992 Stock 64,000 Debtors 40,810 Creditors 46,400

On 31 March 2005, the partners decided to dissolve the partnership on the following terms: (i) One of the motor vehicles was taken over by Ann at an agreed value of

$79,000 and the remaining one was sold at 90% of its net book value of $60,900.

(ii) Bill took over the stock at an agreed value of $58,000 and so he was

personally responsible for the partnership’s realisation expense of $4,200.


(iii) The creditors were settled by cash and a 4% discount was received from half of the creditors.

(iv) The equipment was sold for $100,000. (v) A cash discount of $500 was allowed on debtors and debts amounting to

$2750 proved to be uncollectible. You are required to prepare: (a) the realisation account; and (12 marks) (b) the capital accounts of Ann and Bill in columnar form for the year ended 31

March 2005. (6 marks) 2006 Q.6 Ann, Ben and Joe were partners sharing profits and losses in the ratio of 2:2:3. The balance sheet as at 30 April 2006 was as follows: $ $ $ Fixed Assets Office equipment 325,000 Furniture 72,900 Motor vehicle 116,800

514,700 Current Assets Stock 126,000 Debtors 37,000 163,000 Current Liabilities

Loan − Ann 100,000 Creditors 86,000 Bank overdraft 120,400 306,400

Net current assets (143,400) 371,300

Financed by: Capital Accounts

Ann 160,000 Ben 95,000 Joe 80,000

335,000 Current Accounts

Ann 32,800 Ben 19,500 Joe (16,000) 36,300

371,300

The liquidity of the partnership worsened during the past two years and so the partners decided to dissolve the partnership on 1 May 2006. The following information was provided: (i) The office equipment was sold at a price of 30% below book value. (ii) Ann took over the motor vehicle to set off her loan to the partnership. (iii) Most of the furniture was sold at an agreed value of $35,000. The remaining

furniture was denoted to a charitable organisation and Ben paid $200 on behalf of the partnership for transporting the furniture.

(iv) Part of the stock was sold at 90% of its net realisable value of $100,000. The

remaining stock was taken over by Ben at an agreed value of $9,750. (v) A debt of $2,000 was to be written off and a cash discount of 2% was allowed

on the remaining debtors. (vi) The creditors were settled and a discount of 5% was received on 50% of the

creditors. (vii) Realisation expenses amounted to $2,100. (viii) Joe was unable to meet his liability to the partnership. His deficiency was to be

borne by Ann and Ben in their profit and loss sharing ratio.


You are required to prepare: (a) the realisation account; (13 marks) (b) the bank account; and (5 marks) (c) the partners’ capital accounts in columnar form, showing the final settlement

among them. (11 marks) 2007 Q.6 Ernest and Fred are in partnership sharing profits and losses in the ratio of 3:2 respectively. The following balances were extracted from the books as at 31 March 2007:

$ Machinery, at cost 751,500 Office equipment, at cost 502,800 Accumulated depreciation, 1 April 2006

Machinery 333,160 Office equipment 254,800

Stock, 1 April 2006 Raw materials 81,100 Work in progress 46,610 Finished goods 163,750 Sales 2,741,200 Trade debtors 136,400 Trade creditors 196,670 Carriage inwards 19,020 Returns inwards 26,120 Wages and salaries 675,240 Purchases of raw materials 1,005,600 Administrative expenses 120,930 Selling expenses 92,690 Provision for doubtful debts, 1 April 2006 3,760 Cash at bank 72,540 Capital accounts, 1 April 2006 Ernest 180,000 Fred 150,000

Current accounts, 1 April 2006 Ernest 20,000 (Dr) Fred 30,000 Drawings, 1 April 2006 Ernest 15,000 Fred 12,000 8% - Fred (borrowed on 1 October 2006) 150,000 Interest on 8% loan 3,330 Repairs to machinery 5,320 Rent and rates (factory 1/4; office 3/4) 275,800 Carriage outwards 13,840

Additional information: (i) Stock as at 31 March 2007:


A damaged and worthless item with a cost of $280 was included in the

finished goods. (ii) Depreciation is to be charged as follows:

Machinery – 20% per annum on a straight-line basis Office equipment – 10% per annum on a reducing-balance basis

(iii) Interest on partners’ capital is to be calculated at 5% per annum. (iv) Cash purchases of raw materials for the partnership at a cost of $5,200 had

been recorded as Ernest’s drawings. (v) No entries had been made in respect of a cash sale of $1,000, of which the

proceeds were retained by Fred.


(vi) The following adjustments were to be made on 31 March 2007: $ Accrued rent and rates 4,200 Prepaid wages to direct labour 2,500 Bonus to Fred 50,000

Provision for doubtful debts was to be maintained at 5% of trade debtors. (vii) Analysis of the wages and salaries revealed:

$ Direct labour 200,000 Indirect labour 80,040 Factory supervisor 72,000 Office staff 143,200 Salaries to Ernest 80,000 Salaries to Fred 100,000 675,240

(viii) A sale of office equipment on credit for $30,000 on 31 March 2007 had not yet

been recorded. The office equipment had a cost of $84,000 and an accumulated depreciation of $56,000 at 1 April 2006.

You are required to: Prepare the following accounts of the partnership for the year ended 31 March 2007: (a) the manufacturing account, showing clearly the cost of raw materials consumed,

the prime cost and the production cost of finished goods; (8 marks) (b) the trading, profit and loss and appropriation account; and (14 marks) (c) the partners’ current accounts in columnar form. (7 marks)

HKCEE-14-limited company P.1/14

2000 Q.3 Mandy Limited has an authorised share capital consisting of 500,000 ordinary shares of $2.50 each and 50,000 8% preference shares of $10 each. An extract of the share capital and reserves section of its balance sheet at 31 December 1999 is shown below: $ $ Issued and fully paid share capital

19,000 8% preference shares ? ? Ordinary shares 1,000,000

? Reserves

Share premium 600,000 Retained profits 720,800 1,320,800

? Additional information: (i) The shares were all issued on 1 January 1997 and the preference shares

were issued at par. (ii) There were no other transactions affecting the share capital and share

premium accounts after the first issue. (iii) The balance in retained profits at 1 January 1999 was $590,000 and there

were no dividends in arrears. Net profit for the year was $250,000. Required to calculate: (a) the amount of authorised share capital; (1½ marks) (b) the amount of paid-up preference share capital; (1 mark) (c) the amount of issued share capital; (1 mark) (d) the number of ordinary shares issued; (1½ marks) (e) the amount of dividend that should be paid annually to preference

shareholders; (1 mark) (f) the average issue price of an ordinary share; and (2 marks) (g) the amount of ordinary dividend declared during the year 1999. (2 marks)

2003 Q.4 Hamilton Limited has an issued capital consisting of 100,000 ordinary shares of $1 each. The information below relates to the year 2001: As at 1 January 2001 $ Current assets 45,000 Total assets 180,000 Long-term liabilities 57,000 Current ratio 3 : 1 As at 31 December 2001 $ Fixed assets 153,000 Total assets 213,000 During the year ended 31 December 2001 $ Increase in working capital 9,000 Net profit for the current year 40,000 Transfer to general reserve 7,000 Retained profit for the current year 20,000 You are required to: (a) Calculate the following figures for Hamilton Limited:

(i) Fixed assets, 1 January 2001 (ii) Current liabilities, 1 January 2001 (iii) Shareholders’ fund, 1 January 2001 (iv) Current assets, 31 December 2001 (v) Current liabilities, 31 December 2001 (vi) Dividends declared for the year 2001 (8 marks)

On 1 January 2002, Hamilton Limited made an additional issue of 200,000 ordinary shares at $1.80 per share, payable in full on application. Applications were received for 220,000 shares and the cash was returned to the unsuccessful applicants on 15 January 2002. The shares were duly allotted to the other applicants on the same date. On 1 July, Hamilton Limited raised additional finance by issuing $600,000 5% debentures at 98. Debenture interest was to be paid half-yearly on 30 June and 31 December. You are required to: (b) Prepare journal entries for Hamilton Limited to record the above

transactions in 2002. (Narrations are not required.) (6 marks)


1992S Q.8 Happy Ltd. With an authorised capital of $100,000 was incorporated and started its business on 1 January 1991. A summary of the bank statements of the company for the year ended 31 December 1991 is as follows: Paid Received $ $ Issue of shares 140,000 Issue of 10% debentures 100,000 Purchase of fixture 80,000 Trade creditors 190,000 Credit sales 170,000 Cash sales 60,000 Salaries 10,000 Rent and rates 20,500 Insurance 400 General expenses 1,000 The following information is available: (i) All authorised capital of the company was issued at a premium and fully

paid up to 1 January 1991. (ii) The 10% debentures were issued at par on 1 July 1991. (iii) All cash received from cash sales was banked after paying the following

expenses: $ Salaries 1,000 Cash purchases 800 General expenses 700

(iv) Discounts received and allowed were $3,000 and $2,000 respectively. (v) Fixtures were to be depreciated by 25% of the book value at the end of the

year. (vi) All goods were sold at a fixed margin of 25% on sales.

(vii) At 31 December 1991 the following balances were provided: $ Trade creditors 15,000 Trade debtors 25,000 Rates paid in advance 500 Salaries outstanding 400

Required: (a) Prepare a trading and profit and loss account for the year ended 31

December 1991; and (b) A balance sheet as at 31 December 1991. (20 marks)


1993 Q.7 (amended) The authorized capital of Sunrise Ltd. is $3,500,000 consisting of 1,000,000 8.5% preference shares of $2.00 each and 1,500,000 ordinary shares of $1.00 each. The following trial balance was extracted from the books of Sunrise Ltd. on 30 June 1992: $ $ 800,000 8.5% preference shares, fully paid 1,600,000 1,000,000 ordinary shares, fully paid 1,000,000 Share premium 12,600 Fixed assets replacement reserve 20,000 Unappropriated profit 25,900 Buildings (net), 1 July 1991 (cost: $2,000,000) 1,672,000 Plant and machinery (net), 1 July 1991 (cost: $1,780,000) 1,210,000 Stock 93,000 Debtors 79,000 Creditors 34,000 Cash at bank 198,500 Interim dividend paid: preference shares 100,000 ordinary shares 90,000 Sales 1,321,500 Purchases 487,000 Discounts received 9,800 Discounts allowed 10,500 Rent and rates 37,300 Wages and salaries 43,000 Sundry expenses 8,300 Provision for bad and doubtful debts 4,800 4,028,600 4,028,600

You are given additional information as follows: (i) Stock at 30 June 1992 amounted to $85,000. (ii) Provision for bad and doubtful debts was to be maintained at 5% of

debtors. (iii) A full year’s depreciation was to be provided on fixed assets held at the

end of the year on a straight-line basis at the following rates: Buildings 8% Plant and machinery 15% (iv) Rental of $21,000 had been paid for 3 months ending 31 August 1992. (v) The managing director was entitled to a salary equal to 10% of the net

profit (after deduction of his salary). (vi) The board of directors decided to raise the fixed assets replacement reserve

to $28,000 and to propose a final dividend of 5% on ordinary shares. Required: (a) Prepare the trading, profit & loss and appropriation account of Sunrise Ltd.

for the year ended 30 June 1992, and (11 marks) (b) the balance sheet of Sunrise Ltd. as at the same date. (9 marks)


1995 Q.7 The following trial balance had been extracted from the books of Wilson Limited at 31 March 1995:

$ $ 800,000 ordinary shares of $1 each, fully paid 800,000 250,000 10% preference shares of $1 each, fully paid 250,000 Stock 215,000 Office equipment, at cost 1,000,000 Furniture and fitting, at cost 900,000 Provision for depreciation Office equipment 375,000 Furniture and fitting 105,250 General reserves 35,000 12% debentures 300,000 Trade debtors 525,000 Trade creditors 327,150 Cash at bank 518,900 Sales 2,875,000 Purchases 1,735,000 Interim preference dividend 10,000 Interim ordinary dividend 20,000 Bad debts 18,400 Provision for doubtful debts 5,250 Debenture interest 36,000 Share premium 24,000 Retained profits 153,000 Share issue 260,000 Rent and rates 150,000 Wages and salaries 257,000 Sundry expenses 25,600 Discounts 2,700 1,950 Administration expenses 98,000 5,511,600 5,511,600

Additional information: (i) The authorised share capital comprised 1,500,000 ordinary shares of $1

each and 300,000 10% preference shares of $1 each. (ii) Stock as at 31 March 1995 amounted to $350,000. (iii) Depreciation was to be charged as follows:

Office equipment - 10% per annum on a straight-line basis Furniture and fitting - 10% per annum on a reducing balance basis

(iv) The following adjustments were to be made on 31 March 1995:

$ Accrued wages and salaries 4,000 Prepaid rent and rates 3,000

Provision for doubtful debts was to be maintained at 2% of trade debtors.

(v) The directors resolved to transfer $80,000 to the general reserve and to

propose a final dividend of 5% on ordinary shares. (vi) In March 1995, 200 000 ordinary shares were offered to the public at $1.30

per share. The company had only debited the cash at bank account and credited the share issue account in respect of this issue. The new shares were not entitled to the dividend proposed for the year ended 31 March 1995.

Required: (a) Prepare the trading, profit and loss and appropriation account of Wilson

limited for the year ended 31 March 1995, and (10 marks) (b) the balance sheet of Wilson Limited as at the same date. (10 marks)


1997 Q.7 The following trial balance was extracted from the books of Linda Limited at 31 March 1997: $ $ 500,000 8% preference shares of $1 each, fully paid 500,000 500,000 ordinary shares of $1 each, fully paid 500,000 10% debentures (issued in 1994) 100,000 Plant and machinery, at cost 1,700,000 Furniture and fittings, at cost 420,000 Provision for depreciation

Plant and machinery 350,000 Furniture and fittings 150,000

General reserve 42,000 Retained profits 124,365 Trade debtors 480,600 Stock 17,060 Trade creditors 383,272 Debenture interest 5,000 Provision for doubtful debts 12,404 Share premium 50,000 Carriage inwards 5,600 Wages and salaries 320,000 Purchases 1,894,000 Rent and rates 365,000 Sundry expenses 17,210 Discounts received 2,560 Cash at bank 271,931 Interim preference dividend 18,000 Interim ordinary dividend 20,000 Bad debts 7,800 Sales 2,945,000 Suspense account 182,600 5,342,201 5,342,201

Additional information: (i) Depreciation was to be charged as follows:

Plant and machinery - 10% on cost Furniture and fittings - 15% on net book value


$ Accrued wages and salaries 5,000 Prepaid rent and rates 6,000

Provision for doubtful debts was to be maintained at 3% of trade debtors.

(iv) The board of directors proposed to transfer $100,000 to general reserve

and to declare a final dividend of 5% on ordinary shares. (v) In March 1997, 100,000 ordinary shares were offered to the public at

$1.25 per share, and $60,000 10% debentures were issues at 96. The company debited the cash at bank account and credited the suspense account in respect of these issues. The new shares were not entitled to the dividend proposed for the year ended 31 March 1997. One month’s interest was to be paid on the new debentures.

Required to prepare: (a) the trading, profit and loss and appropriation account of Linda Limited for

the year ended 31 March 1997, and (9 marks) (b) the balance sheet of Linda Limited as at the same date. (11 marks)


2000 Q.8 The following trial balance was extracted from the books of Moon Limited at 31 March 2000: $ $ 1,200,000 ordinary shares of $0.50 each, fully paid 600,000Furniture and fittings, at cost 1,500,000 Motor vehicles, at cost 500,000 Provision for depreciation Furniture and fittings 427,000Motor vehicles 118,000Retained profits 93,600General reserve 67,000Trade debtors 364,600 Trade creditors 241,200Stock 26,410 10% loan (borrowed in 1998 and repayable in 2002) 200,000Cash at bank 333,290 Share premium 401,000Provision for doubtful debts 5,400Sales 2,954 300Purchases 1 716,600 Loan interest 15,000 Carriage inwards 6,000 Sales returns 20,000 Purchases returns 9,000Administration expenses 409,150 Selling and distribution expenses 205,450 Interim ordinary dividend 20,000 5,116,500 5,116,500

Additional information: (i) Depreciation was to be charged as follows:

Furniture and fittings - 10% on net book value Motor vehicles - 20% on cost


$ Accrued carriage inwards 400 Prepaid administration expenses 9,600

(iv) An amount of $2,200 owing from a customer was to be settled by contra

with his account as a supplier. Trade debtors amounting to $4,000 were to be written off and a provision

for doubtful debts was to be maintained at 3% of trade debtors. (v) Directors’ fees of $ 35,000 were to be provision for. (vi) The directors resolved to transfer $85,000 to the general reserve and to

propose a final ordinary dividend of $0.05 per share. (vii) On 1 April 1999, $300,000 9% debentures were issued at 98. The company

debited the bank account and credited the share premium account in respect of this issue. Discount on debenture was to be written off against the share premium account evenly over three years. No debenture interest has yet been paid.

Required: (a) Prepare the trading, profit and loss and appropriation account of Moon

Limited for the year ended 31 March 2000, and (10 marks) (b) the balance sheet of Moon Limited as at the same date. (10 marks)


2001 Q.7 The following trial balance was extracted from the books of Kelly Limited at 31 March 2001: $ $ 450,000 ordinary shares of $2 each, fully paid 900,000 Office premises, at cost 4,000,000 Office equipment, at cost 640,000 Provision for depreciation Office premises 1,980,000 Office equipment 280,000 Retained profits 448,365 General reserve 49,675 Trade debtors 125,000 Trade creditors 87,400 Stock 31,270 Debenture interests 32,000 Provision for doubtful debts 4,250 Share premium 45,000 Cash at bank 408,853 Share and debenture issue 925,000 Interim dividend 100,000 Purchases 1,868,200 Sales 3,108,800 Administration expenses 439,400 Selling and distribution expenses 171,562 Bad debts 12,205 7,828,490 7,828,490

Additional information: (i) Office equipment costing $5,000 and with a provision for depreciation of

$2,000 was sold for $1,200. The sale had been recorded as cash sales. (ii) Depreciation was to be charged as follows:

Office premises - 2% per annum on a straight-line basis Office equipment - 20% per annum on a reducing balance basis

(iii) Stock as at 31 March 2001 amounted to $36,420. (iv) The following adjustments were to be made on 31 March 2001: $ Accrued administration expenses 6,400 Prepaid selling and distribution expenses 3,900 Provision for doubtful debts was to be maintained at 5% of trade debtors. (v) $800,000 8% debentures were issued at par on 1 July 2000. The proceeds

had been credited to the share and debenture issue account. Interest on debenture was to be paid half yearly on 30 June and 31 December of each year.

(vi) In April 2000, 50,000 ordinary shares were offered to the public at $2.50

per share. The company credited the share and debenture issue account in respect of this issue.

(vii) The board of directors proposed transferring $120,000 to the general

reserve and declaring a final dividend of $0.30 per share. Required to prepare: (a) the trading, profit and loss and appropriation account of Kelly Limited for

the year ended 31 March 2001; and (10 marks) (b) the balance sheet of Kelly Limited as at the same date. (10 marks)


2002 Q.6 The trial balance of Star Limited at 31 March 2002 was as follows:

$ $

3,000,000 ordinary shares of $0.5 each, fully paid 1,500,000 8% loan (borrowed in 2000 and repayable in 2005) 750,000 Office equipment, at cost 3,000,000 Furniture and fittings, at cost 3,300,000 Provision for depreciation Office equipment 625,000 Furniture and fittings 1,125,000 General reserve 105,000 Retained profits 310,912 Trade debtors 910,500 Trade creditors 574,908 Stock 42,650 Share premium 125,000 Provision for doubtful debts 19,865 Loan interest 30,000 Sales 6,062,500 Purchases 2,235,614 Sales returns 33,725 Carriage inwards 8,400 Wages and salaries 800,000 Rent and rates 768,450 Cash at bank 69,446 Interim dividend 60,000 Administration expenses 597,100 Selling and distribution expenses 442,300 Shares issue 1,100,000 12,298,185 12,298,185

Additional information: (i) Stock as at 31 March 2002 amounted to $48,050. (ii) The following adjustments were to be made on 31 March 2002:

$ Accrued wages and salaries 10,600 Prepaid rates 3,900

(ii) Trade debts amounting to $85,000 were to be written off and a provision

for doubtful debts was to be maintained at 3% of trade debts. (iv) A piece of fully depreciated office equipment costing $92,000 was sold for

$6,000. The company only recorded the proceeds from the sale in the bank account and the sales account.

(v) Depreciation was to be charged as follows:

Office equipment - 10% on cost Furniture and fittings - 20% on net book value

(vi) In October 2001, 1,000,000 ordinary shares were offered to the public at

$1.10 per share. The company only debited the cash at bank account and credited the shares issue account. The new shares were also entitled to the final dividend proposed for the year.

(vii) The board of directors proposed transferring $150,000 to the general

reserve and to declare a final dividend of $0.03 per share. Required to prepare: (a) the trading, profit and loss and appropriation accounts of Star Limited for

the year ended 31 March 2002, and (16 marks) (b) the balance sheet of Star Limited as at the same date. (13 marks)


1994 Q.7 (amended) Manufacturing + Ltd. Co. On 30 April 1994, the following trial balance was extracted from the books of Yue Fat Co. Ltd: $ $ Ordinary share capital 160,000 General reserve 40,000 Retained profits 16,000 6% debentures (issued on 1.5.93) 60,000 Land and buildings 160,000

Accumulated depreciation 38,000 Plant and machinery 95,000

Accumulated depreciation 46,250 Stocks Raw materials 41,212 Work in progress 10,060 Finished goods 31,500 Consumable tools 6,420 Debtors 139,610 Creditors 38,700 Cash at bank 8,332 Cash in hand 2,404 Sales 329,680 Purchase of raw materials 112,400 Purchase of consumable tools 2,300 Carriage inwards 8,600 Carriage outwards 6,128 Manufacturing wages 63,700 Rent and rates: 3/5 office; 2/5 factory 13,175 Repairs to machinery 2,976 Administration expenses 32,895 Interim dividends 8,000 Debenture interest 1,800 Discounts received 1,218 738,180 738,180

Additional information: (i) Stocks as at 30 April 1994:

$ Raw materials 38,430 Work in progress 9,828 Finished goods 27,300 Consumable tools 5,010

(ii) Depreciation to be provided for:

Land and buildings 15% on cost Plant and machinery 20% on net book value

(iii) The Directors’ fee of $15,000 was to be provided for. (iv) The directors proposed to transfer $4,000 of the profits to the general

reserve and to declare a final dividend of 6%. Required: Prepare a manufacturing, trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1994; and a balance sheet as at the same date. (20 marks)


1996 Q.7 Manufacturing + Ltd. Co. Success Limited is a retailer of kitchenware. Most goods it trades are purchased from various suppliers in a finished form. In addition, the company manufactures several types of kettles.

The bookkeeper drew up the following trial balance at 30 April 1996: $ $

Ordinary share capital of $1 each 200,000 General reserve 23,000 Retained profits 164,600 15% long-term loan 120,000 Machinery - at cost 400,000 - accumulated depreciation 100,000 Motor vehicles - at cost 160,000 Stock Raw materials 20,000 Manufactured goods 10,000 Other goods 170,000 Debtors 160,000 Creditors 48,000 Bank 50,000 Sales 2,200,000 Purchases - raw materials 430,000 - other goods 1,150,000 Salaries 257,000 Rent and rates 22,000 Electricity 10,500 Interest on loan 9,000 Sundry expenses 7,100 2,855,600 2,855,600

The following information is also given: (i) Depreciation is to be provided using the reducing-balance method at the

following rates: Motor vehicles - 12½% per annum Machinery - 10% per annum

The motor vehicle was purchased in 1996. It is the company’s policy to charge a full year’s depreciation in the year of acquisition.

(ii) Salaries include wages of $54,000 paid to the kettle-making employees. (iii) Rates prepaid at 30 April 1996 amounted to $2,000. (iv) Accruals at 30 April 1996 were:

$ Electricity 1,500 Interest on loan 9,000

(v) The apportionment of rent and rates and electricity to the kettle-making

department is 25%. (vi) Stocks at 30 April 1996 were:

$ Raw material 40,000 Manufactured goods 12,500 Other goods 215,000

(vii) The directors proposed to transfer $40,000 of the profits to general reserve

and to declare a final dividend of $0.50 per share. Required to prepare: (a) a manufacturing, trading and profit and loss account (with the section on

appropriations) for the year ended 30 April 1996; and (13 marks) (b) a balance sheet as at the same date. (7 marks)


1999 Q.9 (Amended) Manufacturing + Ltd. Co. The following trial balance was extracted from the books of Rock Limited, a candy manufacturer, on 30 April 1999: $ $

Ordinary share capital of $1 each 240,000 General reserve 50,000 Retained profits 48,423 Machinery

- at cost 873,800 - accumulated depreciation 167,180

Motor vehicles - at cost 134,240 - accumulated depreciation 74,280

Stocks Raw materials 165,300 Work in progress 27,200 Finished goods 72,910

Debtors and creditors 127,500 83,920 Sales 2,186,400 Purchases of raw materials 936,440 8% debentures (issued in 1990) 200,000 Bank 70,560 Wages 60,790 Salaries 240,680 Rent and rates (3/5 office; 2/5 factory) 243,620 Selling expenses 97,163 3,050,203 3,050,203

Additional information: (i) Stock as at 30 April 1999:


(ii) Depreciation was to be provided for: Machinery - 20% on cost Motor vehicles - 25% on net book value

(iii) Analysis of the wages figure revealed: $

Direct manufacturing 48,632 Factory maintenance 12,158

(iv) Accruals at 30 April 1999 were: $

Debenture interest ? Rent 4,380

(v) The directors proposed to transfer $20,000 of the profits to general reserve

and declare a final dividend of 30%. Required to prepare: (a) a manufacturing, trading and profit and loss account (with the section on

appropriations) for the year ended 30 April 1999; and (11 marks) (b) a balance sheet as at the same date. (9 marks)


2004 Q.6 Manufacturing + Ltd. Co. The following trial balance was extracted from the books of Bella Garment Manufacturing Limited as at 31 March 2004: $ $ Ordinary shares of $2 each, fully paid 350,000 Machinery, at cost 854,000 Furniture and fittings, at cost 125,700 Provision for depreciation, 1 April 2003 Machinery 332,000 Furniture and fittings 53,160

Sales 2,405,040 Stock, 1 April 2003 Raw materials 101,270 Work in progress 42,375 Finished goods 136,458

Trade debtors and trade creditors 198,400 90,824 Wages and salaries 488,616 Purchase of raw materials 1,030,084 Administrative expenses 175,432 Selling and distribution expenses 90,855 General reserve 110,000 8% loan (borrowed in 2001) 200,000 Loan interest 8,000 Carriage inwards 18,692 Cash at bank 59,678 Retained profits, 1 April 2003 40,116 Ordinary dividend 17,500 Provision for doubtful debts, 1 April 2003 5,920 Rent and rates (factory 2/3; office 1/3) 240,000 3,587,060 3,587,060 Additional information: (i) Stock as at 31 March 2004:

$ Raw materials 116,640 Work in progress 39,260 Finished goods (including a worthless and damaged item costing $50)

123,760

(ii) Depreciation was to be provided for: Machinery - 20% on net book value Furniture and fittings - 20% on cost

(iii) Analysis of the wages and salaries revealed:

$ Direct labour 165,493 Indirect labour 65,000 Salaries to factory manager 108,000 Salaries of office staff 150,123 488,616

(iv) Provision for doubtful debts was to be maintained at 5% of trade debtors. (v) Half of the 8% loan is to be repaid on 31 August 2004. The remaining half

is repayable on 30 April 2005. (vi) The board of directors proposes to declare a final ordinary dividend of

$0.15 per share and to transfer $100,000 of the retained profits to general reserve.

You are required to: Prepare for Bella Garment Manufacturing Limited (a) the manufacturing account for the year ended 31 March 2004, showing

clearly the cost of raw materials consumed, the prime cost and the production cost of finished goods; (8 marks)

(b) the trading, profit and loss and appropriation account for the year ended 31

March 2004; and (11 marks) (c) the balance sheet as at 31 March 2004. (10 marks)


2005 Q.5 Ltd. Co. The following list of balances was extracted from the books of Hoho Limited at 31 March 2005: $ Stock, 1 April 2004 169,370 Office equipment, at cost 4,500,000 Bad debts 55,000 Purchases 3,353,422 Sales returns 50,588 Selling and distribution expenses 663,400 Carriage inwards 12,800 Wages and salaries 1,050,000 Rent and rates 922,240 Cash at bank 305,790 Interim dividend 80,000 Administrative expenses 895,650 Furniture and fittings, at cost 4,950,000 Trade debtors 916,750 Share issue 1,500,000 1,800,000 ordinary shares of $2 each, fully paid 3,600,000 Provision for depreciation, 1 April 2004

Office equipment 937,500 Furniture and fittings 1,687,500

Sales 8,707,707 General reserve 157,500 Provision for doubtful debts, 1 April 2004 29,800 Trade creditors 862,300 Retained profits 249,803 Share premium 187,500 Additional information: (i) Stock as at 31 March 2005 amounted to $175,075. It was discovered that a

transposition error at 1 April 2004 had caused the opening stock to be overstated by $5,400.

(ii) A credit sale of $7200 had been recorded twice in the books. (iii) At 31 March 2005, prepaid rates amounted to $8,900.

(iv) An invoice of $18,000, relating to fire insurance covering the period from

1 February 2005 to 31 January 2006, remained unpaid. (v) A bad debt of $14,000, which was written off in November 2004, was

recovered on 31 March 2005. No entry had yet been made in respect of this transaction. Provision for doubtful dents was to be maintained at 4% of trade debtors.

(vi) Depreciation was to be charged as follows:

Office equipment - 15% on cost Furniture and fittings - 20% on net book value.

(vii) In January 2005, 500,000 ordinary shares were issued at $3 per share. The

proceeds of the issue had been credited to the share issue account. The new shares were also entitled to the final dividend proposed for the year.

(viii) The board of directors proposed to transfer $100,000 to general reserve

and declare a final dividend of $0.05 per share. You are required to: Prepare for Hoho Limited (a) the trading, profit and loss and appropriation account for the year ended 31

March 2005; and (14 marks) (b) the balance sheet as at 31 March 2005. (15 marks) 2006 Q.4 Issue of Shares Ball Limited had an issued share capital consisting of 650,000 ordinary shares of $1 each as at 1 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 applicants on the same day.


You are required to: (a) Prepare journal entries for Ball Limited to record the share issue in July

2005. (Narrations are not required) (6 marks)

Documents

CE Accounts 91-07 Pp by Topic