Section A

1. Which of the following accounts will be credited when there is an increase in

amount?
(1) commission received
(2) deposit from customers
(3) bank overdraft
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

2. The following account balances as at 31 December 2020 were extracted from the
books of a firm?
Dr $ Cr $
Purchases and sales 36 500 62 000
Inventory as at 1 January 2020 19 000
Operating expenses 17 500
Trade receivables and trade payables 29 000 27 000
Equipment 60 000
Cash at bank 28 500
Capital 44 500
162 000 162 000
Which of the followings about the trial balance of this firm must be correct?
(1) The account balance of the cash at bank account is incorrect.
(2) All ledger balances in the trial balance are correct.
(3) The trial balance of this form would balance.
A. (1) only
B. (2) only
C. (3) only
D. (1) and (3) only

3. For an aviation company, which of the following is not regarded as an example of

fulfilling its social responsibility?
O
(2) Provide the cheapest flight tickets possible to customers
(3) Invest in carbon offset programs
A. (1) only
B. (2) only
C. (1) and (2) only
D. (1), (2) and (3)

4. Which of the following statements about risk and return is/are correct?
(1) Non-systematic risk cannot be diversified.
(2) The ordinary share of a listed company exposes to both systematic risk and non-
systematic risk.
(3) High-risk financial products can have negative return.
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only

5. Which of the following people is exempted from joining the MPF scheme?
(1) Construction workers
(2) Self-employed hawkers
(3) Domestic employees
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only

6. Which of the following persons are required to join the MPF scheme?
(1) A construction worker who worked at a site for 7 days with a daily wage of $1
100.
(2) A self-employed hawker who earned $10 000 per month.
(3) A clerk with a monthly salary of $7 000.
A. (1) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

7. A trading firm received a trade discount from suppliers. How will the firm’s gross
profit and net profit for the year be affected?
Gross profit Net profit
A. increases increases
B. increases unchanged
C. unchanged increases
D. unchanged unchanged

8. Which of the following cannot improve the business ethics level?

A. organise ethics training regularly
B. compile a code of ethics
C. reward ethical performance
D. encourage employees to do voluntary work

9. At the financial year end, a firm’s accountant prepared a trial balance by balancing
off the accounts. Which of the
following accounting functions did the accountant perform?
A. summarising
B. classifying
C. communicating
D. recording

10. Which of the following is not an example of a nominal account?

A. trade payables account
B. rental expenses account
C. sales account
D. discount received account

11. Which of the following is the right of a share investor?

A. To vote on important matters at the general meeting
B. To receive guaranteed dividends every quarter
C. To manage the daily operations of the company
D. To determine the company’s pricing strategy

12. Which of the following statements about business ethics is/are not correct?
(1) Illegal actions of businesses are generally considered unethical.
(2) In Hong Kong, a ‘code of ethics’ is being published by the Labour Department.
(3) Laws clearly distinguish between ethical and unethical business practices.
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only

13. Which of the following descriptions of the flow of the accounting cycle is/are
correct?
(1) Right after the posting of entries to ledgers, trial balance is prepared.
(2) Right after the confirmation of business transactions, books of original entry are
recorded.
(3) Right after the trial balance is prepared, financial statements are prepared.
A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

14. Which of the following accounts may carry a credit balance in a trial balance?
(1) Deposit from customers
(2) Returns outwards
(3) Cash at bank
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

15. Which of the following financial products carries the highest investment risk?
A. debentures
B. ordinary shares
C. preference shares
D. time deposit

16. Which of the following is a reason why a business chooses to set up in the form
of a public limited company over a private limited company?
A. There is no restriction on the number of shareholders.
B. The existing shareholders can maintain their control of the business.
C. The rules and requirements are more flexible.
D. The business faces less pressure from shareholders to distribute dividends.

17. The owner used his personal cheque to pay water charges for his business. Which
of the following double entries for the business is correct?
A. Dr. Drawings ...... Cr. Water charges
B. Dr. Water charges ...... Cr. Cash at bank
C. Dr. Water charges ...... Cr. Capital
D. No double entry is required.
18. Which of the following is/are the advantage(s) of a private limited company over
a public limited company?
(1) It is easier to raise capital as there can be more shareholders.
(2) It does not need to disclose its financial statements to the public.
(3) It enjoys a lower tax rate in Hong Kong.
A. (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

19. Which of the following about usage of financial statements is correct?

(1) Only external users would use the financial statements produced by companies.
(2) The intra-company comparison of companies in the same industry is difficult as
different companies may use different accounting methods.
(3) All assets must be recorded as their historical costs according to historical cost
concept.
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only

20. Which of the following double entries are incorrect?

Transactions Account to be debited Account to be credited
(1) Purchased stationery for Purchases Cash at bank
office use in cash.
(2) Received interest income Interest Income Loan from Ben
on loan from Ben
(3) A cash refund was provided for Sales Cash at bank
customers returning goods to the firm

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

21. Andy and Benny are partners in a partnership. Only Andy contributed capital and
involved in the daily operations. Benny provided valuable professional advice when
Andy asked for them. Which of the followings about Andy and Benny are correct?
(1) Benny is a nominal partner.
(2) Benny is not allowed to share the profit and loss of the partnership.
(3) Andy must disclose his identity in the partnership.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

22. Mr. Chan, aged 60, is an employee of ABC Company, a limited company in Hong
Kong. He wants to retire. Which of the followings about Mr. Chan are incorrect?
(1) One of Mr. Chan’s financial needs is to insure on earning abilities.
(2) Mr. Chan cannot withdraw his accrued benefits as he has not yet reached the age
of 65.
(3) Mr. Chan’s need for insurance gradually decreases.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

23. Which of the following is not an impact of being a socially responsible business?
A. increase the operating costs in the long run
B. maintain a group of loyal customers
C. improve the company image in public’s perception
D. meet the public expectation

24. Which of the following statements about risks and returns is/are correct?
(1) A high-risk investment is expected to have a high return.
(2) A low-risk investment could bring negative return.
(3) Risk and return are always positively related.
A. (1) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

25. The objectives of preparing a trial balance are ______.

(1) to find out error
(2) to find out the value of business
(3) to prepare financial statements
(4) to check the arithmetical accuracy of all ledger accounts
A. (1), (2) and (3) only
B. (1), (3) and (4) only
C. (2), (3) and (4) only
D. (1), (2), (3) and (4)

Section B
Part1
1. May commenced a trading firm on 1 January 2021. On 3 January 2021, May’s firm
purchased goods for $16 800 on credit. A 10% discount would be received from the
suppliers if the settlements were made within 15 days of purchase. May settled the
account by cheque on 15 January 2021. On 18 January 2021, May’s firm sold goods
for $38 200 on credit.
(a) Prepare the trade receivables account and the trade payables account to record
the above transactions for May’s firm. Balancing off the accounts is not required.
(2 marks)
(b) On 31 January 2021, the inventory of the firm was valued at $6 500. Calculate the
gross profit for the month ended 31 January 2021. (2 marks)

2. Explain two reasons why invest in bonds is better than the share

3. Mr Chan used his savings to start a small business as a chinaware manufacturer

many years ago. For years, Mr Chan's chinaware has been well-regarded for its
traditional hand-made quality. His products are mainly exported to the US and
Europe.
Mrs Chan helps Mr Chan in the daily running of the company. Mr Chan has worked
hard for years, as he has been worried that he would suffer great losses if the
business fails. Mr Chan plans to transfer the business to Patrick. However, Patrick
seems to have no interest in taking over the family business.

(a) Which form of business ownership does Mr Chan's company belong to?
(b) If Patrick does not carry on the business, how will the company be affected after
the retirement of Mr Chan?
(c) Mr Chan is thinking of converting the company into a private limited company.
How can his company benefit from such a decision? Explain two ways.
(d) Suggest reasons why Mr Chan would not prefer changing his company into a
public limited company. L
Part2

4.

(a) Prepare a statement of income statement as at 31 December 20X9. (5 marks)

(b) For each of the following stakeholders, illustrate with one example how Jenny
can ensure that the operation of her firm is socially responsible:
(i) customers (2 marks)
(ii) the government (2 marks)