You are on page 1of 15

2000-CE P ACCT

HONG KONG EXAMINATIONS AUTHORITY HONG KONG CERTIFICATE OF EDUCATION EXAMINATION 2000

PRINCIPLES OF ACCOUNTS
8.30 am – 11.30 am (3 hours) This paper must be answered in English

Answer SEVEN questions: FOUR from Section A (40%), and THREE from Section B (60%). All workings must be shown. Marks are awarded for clarity of expression and neatness of presentation.

©
Hong Kong Examinations Authority All Rights Reserved 2000

2000-CE-P ACCT–1
All Rights Reserved 2000

list the accounting principle or concept that has been violated and give your explanation. the accountant of Peter Limited prefers to have a provision that is slightly too small rather than slightly too large. 1. Luxury Hotel recognises hotel room rental income on the date that a reservation is received. “Although the totals of debit and credit balances agree in a trial balance. The current liabilities of Reliable Store are much bigger than its current assets. the owner decides to include his personal bank account in the Store’s balance sheet. (10 marks) (i) Raymond Company has been adopting different methods to calculate depreciation on its motor vehicles for the past 4 years. many overseas visitors make reservations one year in advance. (10 marks) 2000-CE-P ACCT−2 −1− All Rights Reserved 2000 . In estimating the provision for doubtful debts. For each of the independent situations described below.SECTION A Answer any FOUR questions from this section. In order to present a better liquidity position.” Elaborate on the above statement with examples. it does not mean that the books are correct as there are various situations that give rise to errors. Each question carries 10 marks. (ii) (iii) (iv) 2. For the year 2001.

the amount of issued share capital. Required to calculate: (a) (b) (c) (d) (e) (f) (g) the amount of authorised share capital.3. Mandy Limited has an authorised share capital consisting of 500 000 ordinary shares of $2. the amount of paid-up preference share capital. and (2 marks) the amount of ordinary dividend declared during the year 1999. There were no other transactions affecting the share capital and share premium accounts after the first issue. (1 mark) the average issue price of an ordinary share.50 each and 50 000 8% preference shares of $10 each. the number of ordinary shares issued. (1½ marks) (1 mark) (1 mark) (1½ marks) the amount of dividend that should be paid annually to preference shareholders. 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) (ii) (iii) The shares were all issued on 1 January 1997 and the preference shares were issued at par. Net profit for the year was $250 000. (2 marks) 2000-CE-P ACCT−3 −2− Go on to the next page All Rights Reserved 2000 . The balance in retained profits at 1 January 1999 was $590 000 and there were no dividends in arrears.

which prepares its accounts annually to 31 December. Queen Limited adopted the interest suspense account method in recording the hire purchase transactions. interest suspense account. September and December. after paying the December instalment and the outstanding cash price balance. On 31 December 1999. Depreciation is to be charged on the equipment at the rate of 10% per annum on cost. paid a deposit of $2400 to Prince Limited to acquire a piece of equipment on hire purchase terms. in addition to the deposit. The cash price of the equipment was $31 200. Required: Prepare the following accounts in the books of Queen Limited to record the above transactions: (a) (b) (c) Prince Limited account. On 1 July 1999. and disposal of equipment account. (4 marks) (3 marks) (3 marks) 2000-CE-P ACCT−4 −3− All Rights Reserved 2000 . June. payable on the last days of March.4. the company sold the equipment for $30 000 cash. Queen Limited. eight equal quarterly instalments of $4464 each. Queen Limited was required to pay. The instalments were calculated taking into account interest at the rate of 12% per annum on the balance of the cash price outstanding on 1 July 1999. The first instalment was paid on 30 September 1999.

he had the following balances in his books: $ 42 000 69 300 84 600 79 110 Trade debtors Bank Stock Trade creditors All purchases and sales were made on credit. Ben made a gross profit of 25% on all sales. Ben Lee is a wholesaler of carpets. Ben identified the following balances on the same day: $ 73 500 55 650 88 900 Trade debtors Bank Trade creditors Required: (a) Calculate the amount of sales for the three months to 31 March 2000. (2 marks) Draw up the bank account for the period.5. The business banked all receipts from debtors amounting to $995 000 and paid the following out of the business bank account: $ 160 400 ? Operating expenses Trade creditors On 31 March 2000. Calculate the amount of stock stolen. During the three months to 31 March 2000. It was also discovered that the cashier had misappropriated cash from the business bank account amounting to $10 000. On 1 January 2000. there was a burglary in the shop and all the stock was stolen. (3 marks) (5 marks) (b) (c) 2000-CE-P ACCT−5 −4− Go on to the next page All Rights Reserved 2000 . In order to ascertain the amount of the stock loss.

Kenny made the following transactions: 1999 October 1 Drew a one-month bill on Chan for $4650 to settle a debt of $4690 owed from him. Endorsed Chan’s bill of $4650 over to Au in part settlement of the amount owed to him.) (10 marks) 2000-CE-P ACCT−6 −5− All Rights Reserved 2000 . Chan’s bill was dishonoured. Kenny paid to Au the full amount of the bill by cheque. 22 Required: Prepare journal entries in Kenny’s books to record the above transactions. 15 20 November 1 2 December 15 2000 January February 2 15 Chan’s bill was honoured. Lung’s bill was dishonoured and Kenny paid to the bank the amount of the bill plus a noting charge of $200.6. Drew a four-month bill on Lung for $7200. Lung settled the outstanding amount by cheque. Chan paid $1650 by cheque and accepted a second bill for the remaining balance plus interest at 6% per annum payable in two months. Kenny also sent a cheque of $3350 to Au for the balance. Discounted the bill of $7200 from Lung at 8% per annum with the bank. (Narrations are not required.

THIS IS A BLANK PAGE 2000-CE-P ACCT−7 −6− Go on to the next page All Rights Reserved 2000 .

All purchases and 90% of the net sales were on credit.1:1. 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. The current ratio was 2. Debtors’ collection period for the year was two months and creditors’ repayment period was three months. Sales and purchases accrued evenly throughout the year. 7.SECTION B Answer any THREE questions from this section. Each question carries 20 marks. The stock turnover rate was 8 times. (ii) (iii) (iv) (v) (vi) 2000-CE-P ACCT−8 −7− All Rights Reserved 2000 .

(12 marks) Briefly comment on the liquidity and profitability of Sunny Fashion for 1999 if the company had the following figures in 1998: Current ratio Stock turnover rate Debtors’ collection period Return on owner’s capital 1.6:1 9 times 2½ months 45% (4 marks) (b) (c) 2000-CE-P ACCT−9 −8− Go on to the next page All Rights Reserved 2000 . Drawings during the year amounted to $36 000. Cash at bank amounted to 40% of working capital. (4 marks) Prepare the balance sheet of Sunny Fashion as at 31 December 1999. The fixed assets had a cost of $339 800 and a provision for depreciation of $191 500 at 1 January 1999. debtors. stock and prepayments. The return based on the owner’s capital at 31 December 1999 was 30%. (viii) (ix) (x) (xi) Required: (a) Calculate the amounts for closing stock and gross purchases. There were no additions and disposals of fixed assets during the year.(vii) Current assets consisted of cash at bank.

fully paid Furniture and fittings. $ 600 000 427 000 118 000 93 600 67 000 241 200 200 000 401 000 5 400 2 954 300 9 000 5 116 500 2000-CE-P ACCT−10 −9− All Rights Reserved 2000 . at cost 500 000 Provision for depreciation. 1 April 1999 Furniture and fittings Motor vehicles Retained profits General reserve Trade debtors 364 600 Trade creditors Stock.50 each.8. at cost 1 500 000 Motor vehicles. 1 April 1999 Sales Purchases 1 716 600 Loan interest 15 000 Carriage inwards 6 000 Sales returns 20 000 Purchases returns Administration expenses 409 150 Selling and distribution expenses 205 450 Interim ordinary dividend 20 000 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 (ii) Stock as at 31 March 2000 amounted to $28 500. The following trial balance was extracted from the books of Moon Limited at 31 March 2000: $ 1 200 000 ordinary shares of $0. 1 April 1999 26 410 10% loan (borrowed in 1998 and repayable in 2002) Cash at bank 333 290 Share premium Provision for doubtful debts.

Discount on debentures was to be written off against the share premium account evenly over three years. profit and loss and appropriation account of Moon Limited for the year ended 31 March 2000. The company debited the bank account and credited the share premium account in respect of this issue. $300 000 9% debentures were issued at 98 . and (10 marks) the balance sheet of Moon Limited as at the same date. No debenture interest has yet been paid. On 1 April 1999. (10 marks) (b) 2000-CE-P ACCT−11 − 10 − Go on to the next page All Rights Reserved 2000 .(iii) The following adjustments were to be made on 31 March 2000: $ 400 9 600 Accrued carriage inwards Prepaid administration expenses (iv) An amount of $2200 owing from a customer was to be settled by contra with his account as a supplier. (v) (vi) Directors’ fees of $35 000 were to be provided for.05 per share. (vii) Required: (a) Prepare the trading. The directors resolved to transfer $85 000 to the general reserve and to propose a final ordinary dividend of $0. Trade debtors amounting to $4000 were to be written off and a provision for doubtful debts was to be maintained at 3% of trade debtors.

The motor vehicles were taken over by the partners at agreed values as Chau $60 000 and Lok $72 000. Chau took over at book value stock amounting to $20 000. Lok and Yeung were partners sharing profits and losses in the ratio of 3:2:1 respectively. their draft balance sheet was as follows: $ Fixed Assets Office premises Motor vehicles $ 542 250 198 225 740 475 146 000 Goodwill Current Assets Stock Debtors Bank Less: Current Liabilities Creditors 61 575 67 800 9 525 138 900 137 600 1 300 887 775 157 105 700 670 30 000 887 775 Capital Accounts: Chau Lok Yeung It was agreed that the partnership be dissolved on the following terms: (i) (ii) Goodwill was to be written off. The remaining stock was sold for 80% of the book value.9. Chau. They decided to dissolve their partnership on 30 April 2000. (iii) (iv) 2000-CE-P ACCT−12 − 11 − All Rights Reserved 2000 . Paying by personal cheque. The office premises were sold at a profit of $60 600. At the date of dissolution.

the bank account. His deficiency was to be borne by the other partners in their profit and loss sharing ratio. (7 marks) 2000-CE-P ACCT−13 − 12 − Go on to the next page All Rights Reserved 2000 . Lok was to take over the creditors at book value. he was only required to contribute $1000 towards the partnership.(v) (vi) The debtors were realised at $54 240. Realisation expenses amounted to $36 500. Since Yeung was insolvent. and (8 marks) (5 marks) the partners’ capital accounts in columnar form. (vii) (viii) Required to prepare: (a) (b) (c) the realisation account. A discount of 5% was allowed to him by the creditors on settlement. including the final settlement among them.

Goods with a list price of $5000 were purchased and a 10% trade discount was given by Overseas Ltd. Cash sales of $2000 had been correctly entered in the cash book. A provision for doubtful debts of $2900. which amounted to 2% of debtors at year end. The trial balance of Classics Limited at 31 March 2000 did not agree and a suspense account was debited with a difference of $1260. a provision of 2½% should have been provided. The company has entered into a joint venture with Modern Limited since 1998. was made. The company recorded the reimbursement of transportation expenses of $1000 to a customer of the joint venture as a motor vehicle expense of the company. but the sales account was credited with $2020. Wages amounting to $1200 for the installation of office equipment had been recorded in the wages account. The company was also granted a cash discount of 7% for early settlement of the debt. (ii) (iii) (iv) (v) (vi) (vii) (viii) 2000-CE-P ACCT−14 − 13 − All Rights Reserved 2000 . However. The amount of $5000 was recorded both at the time of purchase and at the time of payment to Overseas Ltd. A petty cash balance of $400 had been omitted from the trial balance. Subsequent checking of the records revealed the following: (i) A payment of $2600 to Tony Company had been posted to the personal account as $260.10. A purchase of goods amounting to $1500 from the joint venture had only been recorded in the purchases account. The draft net profit for the year amounted to $39 426.

(4 marks) (b) (c) Prepare a statement to correct the draft net profit for the year ended 31 March 2000.Required: (a) Prepare journal entries to correct the above.) (12 marks) Draw up the suspense account. (4 marks) END OF PAPER 2000-CE-P ACCT−15 − 14 − All Rights Reserved 2000 . (Narrations are not required.