Business, Accounting and Financial Studies

Mock Exam Paper (Paper 2A) (Set 10)

SECTION A (24 marks)
Answer ALL questions in this section.

1. Sandy is a sole trader of a trading firm which sells Japanese clothes. She records transactions in
the books of original entry before posting to ledgers. However, due to her limited knowledge, she
does not know which books should be used to record for each of the following transactions:

(a) The purchase of clothes from JP Company on credit

(b) The issue of a debit note for returned clothes
(c) Paid management fee via autopay
(d) The acquisition of a notebook on credit

Required:
(a) Identify the books of original entry used to record the above transactions. (4 marks)
(b) From the transactions in (a) above, identify two examples for each type of account:
(i) Real account (1 mark)
(ii) Nominal account (1 mark)
(Total: 6 marks)

2. Mr Wong is the sole owner of a company which sells coffee beans. The bank statement for March
2017 which showed a debit balance of $81,826 did not agree with the balance shown in the cash
at bank account.

Subsequent investigation, the following discrepancies were found:

(i) An autopay of insurance for $12,000 had not been recorded in the books.
(ii) The bank had mistakenly deducted a cheque for $18,000 from the company’s bank account.
(iii) Cheques deposited on 31 March 2017 amounted to $34,500 were recorded in the books but
had not been credited by the bank.
(iv) A cheque for $5,000 had been received from a credit customer but it was shown on the bank
statement as “refer to the drawer”. No entries had been made in the books for the returned
cheque.
(v) Cheques amounting to $44,440 had been issued and recorded in the books but had not yet
been presented to the bank.
(vi) On 29 March 2017, bank charges of $2,450 were debited by the bank but no entry had been
made in the books.
(vii) On 1 October 2016, a 6-month term deposit of $100,000 was made and a 5% per annum of
interest would receive when matured. On 2 April 2017, the bank credited the principal and
interest to the account of Mr Wong’s business for the term deposit matured. However, Mr
Wong recorded the receipt on 31 March 2017.

Required:
(a) Update the cash at bank account of Mr Wong’s business. (5 marks)
(b) Prepare a bank reconciliation statement as at 31 March 2017, commencing with the bank
statement balance. (4 marks)
(Total: 9 marks)

3. Pepper Company only produces and sells one single product, Product A. The monthly maximum
capacity of the company is 45,000 units of Product A. The following is the cost information about
Product A:

15,000 units 30,000 units 45,000 units

Material and labour cost $45,000 $90,000 $135,000
Royalties $10,000 $10,000 $10,000

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
Production overheads $12,500 $20,000 $27,500

Required:
(a) State and describe the cost behaviour of the three types of the above costs. (3 marks)
(b) Calculate the unit variable cost and the total fixed cost of Product A. (4 marks)
(c) Suppose the selling price of Product A is $20 each, calculate the monthly breakeven sales
volume for Pepper Company. (2 marks)
(Total: 9 marks)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
SECTION B (36 marks)
Answer ALL questions in this section.

4. Before preparing the financial statements on 31 December 2017, Jerry Company discovered the
trial balance failed to agree and a suspense account was opened to record the difference.

Subsequent investigation, the following errors and omissions were revealed:

(i) Payment of $2,500 for rent was debited to the rental deposit account.
(ii) Discounts allowed of $1,020 had been debited to the sales account as $10,020.
(iii) On 1 October 2017, the company sold a piece of equipment, which was acquired on 1
January 2016 with a cost of $80,000, for cash $45,000. The bookkeeper had recorded it as a
cash sale and had provided the depreciation for the year ended 31 December 2017. It is the
company’s policy to depreciate the equipment at 25% per annum on net book value.
(iv) A credit note for $5,000 was received and had been correctly entered in the day books.
However, it had been recorded twice in the personal account.
(v) The prepaid salaries of $32,000 on 31 December 2017 had not been listed in the trial
balance.

Required:
(a) Prepare the necessary journal entries to correct the above. Narrations are not required.
(7 marks)
(b) Prepare the suspense account. (3 marks)
(c) Given that the draft net profit of Jerry Company for the year ended 31 December 2017 was
$178,900. Prepare a statement to calculate the correct net profit for the year ended 31
December 2017. (3 marks)
(Total: 13 marks)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
5. Wendy started her business on 1 January 2016 and a fire occurred on 31 December 2017
destroyed some accounting records and inventory. The following balances as at 31 December
were extracted from the remaining records:

2016 2017
$ $
Office equipment, at cost (all purchased on 1 January 2016) 200,000 200,000
Trade payables 77,200 102,000
Trade receivables 114,500 137,300
Inventory 45,000 76,000
Accrued rental expenses 15,000 30,000
Prepaid selling expenses 5,000 6,000

The following information relating to the year ended 31 December 2017 was also available:
(i) Returns inwards and returns outwards for the year ended 31 December 2017 amounted to
$4,000 and $2,500 respectively.
(ii) During the year, rental expenses and selling expenses, amounting to $110,000 and $45,000
respectively, were paid by cheque.
(iii) Depreciation is to be provided at the annual rate of 25% using the reducing-balance method.
(iv) The insurance company agreed to compensate 80% of the inventory loss.
(v) Accounting ratios for 2017 were as follows:
Average trade receivables collection period 50 days
Average trade payables repayment period 3.5 months
Inventory turnover 2.5 times

Required:
(a) Prepare for Wendy’s business the income statement for the year ended 31 December 2017,
showing all the necessary items including sales, purchases and inventory loss. (10 marks)
(b) Calculate (to two decimal places) the net profit ratio for 2017. (2 marks)
(Total: 12 marks)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
6. Willie Company started production of Product Z on 1 January 2017. The following is the cost
information for the year ended 31 December 2017:

$/unit
Direct material 15
Direct labour 8
Variable production overheads 6
Variable selling and administrative expenses 2

Additional information:
(i) Product Z was sold at $50 per unit.
(ii) The budgeted production and sales units for 2017 were both 200,000 units.
(iii) The fixed production overheads were absorbed based on the number of units produced.
(iv) Budgeted and actual fixed production overheads for 2017 were the same at $800,000.
(v) The actual production and sales units for 2017 were 220,000 units and 180,000 units
respectively.
(vi) The actual selling and administrative expenses for 2017 were $120,000.
(vii) Any over- or under-absorption of fixed production overheads should be adjusted in the cost
of goods sold.

Required:
(a) Prepare the income statement for the year ended 31 December 2017 using the absorption
costing system. (7 marks)
(b) Prepare a statement to reconcile the difference in net profit for the year ended 31 December
2017 between the absorption costing and marginal costing systems. (2 marks)
(c) In addition to the difference in net profit, explain one difference between two systems.
(2 marks)
(Total: 11 marks)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
Section C (20 marks)
Answer ONE question in this section.

7. Ada, Bowie and Candy have been in partnership for several years, sharing profits and losses in
the ratio of 2:2:1. Their statement of financial position as at 31 December 2016 was as follows:

$ $
Non-current assets
Office equipment, net 128,000
Motor vehicles, net 105,000 233,000

Current assets
Inventory 75,500
Trade receivables, net 88,000
Cash at bank 67,950
464,450
Capital accounts - Ada 150,000
- Bowie 150,000
- Candy 75,000 375,000

Current accounts - Ada (5,800)

- Bowie 8,000
- Candy (7,500) (5,300)

Current liabilities
Trade payables 61,750
Accrued expenses 33,000 94,750
464,450

On 1 January 2017, Ada retired on the following terms:

(i) Bowie and Candy shared profits and losses equally.
(ii) Goodwill was to be valued at $50,000 and no goodwill account was to be maintained in the

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
books.
(iii) Office equipment was to be revalued upwards by $20,000 while motor vehicles were to be
revalued at $100,000.
(iv) It was agreed that the capital accounts balances were to be maintained at $200,000, sharing
by their new profit and loss sharing ratio. Any surplus or deficit was to be made through
their current accounts.
(v) Inventory with an invoice price of $9,000 had been sent to a customer on a sale-or-return
basis. The customer informed the partnership that only half of the inventory was accepted.
However, the bookkeeper had recorded all the inventory as closing inventory at $9,000. No
other entries had been made in the books. It is the company’s policy to maintain a mark-up
of 50% on all goods sold.
(vi) Half of the balance due to Ada was to be settled by cheque immediately and the remaining
balance was to be left as a three-year interest-free loan to the new partnership.

Required:
(a) Prepare the partners’ capital accounts in columnar form to record the retirement of Ada.
(10 marks)
(b) Prepare the statement of financial position as at 1 January 2017. (6 marks)
(c) Give two reasons why asset revaluation is necessary upon the retirement of a partner.
(4 marks)
(Total: 20 marks)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
8. Before the preparation of the income statement, George Company Limited drafted the trial
balance as at 31 December 2017 as follows:
Dr. Cr.
$ $
Ordinary shares of $2 each, fully paid 1,000,000
Purchases 690,000
Sales 1,180,000
Office equipment 800,000
Accumulated depreciation – office equipment, 1 January 2017 250,000
Cash at bank 666,600
Selling and distribution expenses 197,800
Inventory, 1 January 2017 166,000
Trade receivables, net [note (v)] 304,000
Trade payables 219,900
5% debentures 180,000
Administrative expenses 205,500
Retained profits, 1 January 2017 200,000
3,029,900 3,029,900
Additional information:
(i) Inventory as at 31 December 2017 was valued at $280,000. 10% of the inventory was
slightly damaged and had a net realisable value of $25,500 after paying repair costs
amounting to $500.
(ii) It is the company’s policy to depreciate its non-current assets on a reducing-balance basis at
an annual rate of 20%. Depreciation expenses are classified as administrative expenses.
(iii) On 1 October 2017, $180,000 5% debentures were issued, interest being payable half-yearly
on 1 January and 1 July.
(iv) A purchase order from a customer for goods at an invoice price of $20,000, with a mark-up
of 25%, was received on 30 December 2017. The goods would be delivered to the customer
on 10 January 2018. These goods were not included in the closing inventory as the order had
been recorded as credit sales on 30 December 2017.
(v) Analysis of the trade receivables is shown as follows:
$
Amount due from customers [including the sales of goods in note (iv)] 320,000
Less: 5% allowance for doubtful debts 16,000
304,000
(vi) On 31 December 2017, the board of directors resolved to transfer $20,000 to general
reserve. No dividends were declared for 2017.

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 10)
Required:
(a) Prepare for George Company Limited the income statement for the year ended 31 December
2017 and the statement of financial position as at that date. (14 marks)
(b) Explain, with a relevant accounting principle or concept, the accounting treatment of (i)
above. (4 marks)
(c) Calculate (to two decimal places) the gearing ratio of George Company Limited for 2017.
(2 marks)
(Total: 20 marks)

END OF PAPER

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