Business, Accounting and Financial Studies

Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines

Marking Guidelines

PAPER 2A
Accounting Module
SECTION A
QUESTION 1 Marks
(a) Bad debts
2016 $ 2016 $
½ Trade receivables 5,600 Profit and loss 5,600
2017 2017
½ Trade receivables 15,200 Bank 4,200 ½
Profit and loss (bal. fig.) 11,000 ½
15,200 15,200
(2)

(b) Allowance for doubtful debts

2016 $ 2016 $
1 Balance c/d (W1) 1,350 Profit and loss 1,350 ½
2017 2017
1 Balance c/d (W2) 6,745 Balance b/d 1,350
Profit and loss 5,395 ½
6,745 6,745
(3)
5 marks

(W1)
Trade receivable as at 31 December 2016:
$334,000 – $5,650 – $9,230 – $5,600 – $268,520 = $45,000
Allowance for doubtful debts for 2016: $45,000 × 3% = $1,350

(W2)
Trade receivable as at 31 December 2017:
$45,000 + $452,000 – $2,100 – $8,300 – $15,200 – $342,100 + $5,600 = $134,900
Allowance for doubtful debts for 2017: $134,900 × 5% = $6,745

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
QUESTION 2 Marks
(a) (i) Net sales = $183,000 / (1 – 40%) = $305,000
Sales = $305,000 + $3,600 = $308,600 1
(ii) Credit sales = $305,000 × 80% = $244,000
Average trade receivables = $244,000 × 146/365 = $97,600 1
(iii) Average trade receivables = $135,000 / 3.6 = $37,500 1
(iv) Average inventories = $183,000 / 3.05 = $60,000 1
(4)
(b) The liquidity of the company is worse than the industry average. 1
– Higher average trade receivables collection period: it takes longer time to collect its debts Max. 1
from customers, showing that it has difficulties in collecting debts.
– Lower inventory turnover: inventory sells slowly, showing that it has a higher inventory
level.
(1 mark for each relevant point, max. 1 mark) (2)
6 marks

QUESTION 3 Marks
Journal
2017 Dr. Cr.
December 31 $ $
(i) Trade receivables 3,000 ½
Sales 3,000 ½

(ii) Sales 8,200 ½

Trade receivables 8,200 ½
Trade payables 2,800 ½
Returns outwards 2,800 ½

(iii) Trade payables ($16,400 × 20%) 3,280 ½

Purchases 3,280 ½
Sales ($16,400 × 125% × 80%) 16,400 ½
Trade receivables 16,400 ½

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
(iv) Other receivables 150,000 ½
Accumulated depreciation - equipment 136,000 ½
Gain on disposal 76,000 ½
Equipment 210,000 ½
(7)
7 marks

QUESTION 4
Marks
(a) Machinery
2016 $ 2016 $
½ Mar 1 Deposit – Machinery 54,000 Dec 31 Balance c/d 273,000
1 Mar 1 Other payables (W1) 219,000
273,000 273,000
2017 2017
½ Jan 1 Balance b/d 273,000 Dec 31 Balance c/d 276,900
1 Apr 1 Cash 3,900
276,900 276,900
(3)

(W1)
$270,000 – $54,000 + $3,000 = $219,000

(b) Accumulated Depreciation - Machinery

2016 $ 2016 $
Dec 31 Balance c/d 45,500 Dec 31 Profit and loss (W2) 45,500 1
2017 2017
½ Dec 31 Balance c/d 91,585 Jan 1 Balance b/d 45,500
Dec 31 Profit and loss (W3) 46,085 1½
276,900 276,900
(3)
6 marks

(W2)
$273,000 × 20% × 10/12 = $45,500
(W3)
[($273,000 – $45,500) × 20% + ($3,900 × 20% × 9/12)] = $46,085

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
SECTION B
QUESTION 5 Marks
(a) Assume the sales quantity of Product Y be y. 1
(i) $22.5 × 3,000 + $35 × y = $487,500
y = 12,000
Ratio of the sales quantity of the two products: 1
3,000:12,000
1:4
Contribution
(ii) = 3,000 × ($22.5 – $18 – $22.5 × 3%) + 12,000 × ($35 – $27 – $35 × 5%)
= $86,475 1
Net profit
= $86,475 – $32,600 – $24,800 = $29,075 1
(4)
(b) Raw materials required to produce a sales mix = 0.5 kg + 4 × 0.9 kg = 4.1 kg
(i) Maximum quantity of sales mix it can produce = 15,000 / 4.1 = 3,658.54 = 3,658

Sales volume of product X = 15,000 / 4.1 = 3,658 units 1

Sales volume of product Y = 15,000 / 4.1 × 4 = 14,634 units 1

Net profit
= 3,658 × ($22.5 – $18 – $22.5 × 3%) + 14,634 × ($35 – $27.5 – $35 × 5%) – $32,600 –
$24,800
= $40,737 1
Contribution per kg of direct material:
(ii) Product X: ($22.5 – $18 – $22.5 × 3%) / 0.5 = $7.65
Product Y: ($35 – $27.5 – $35 × 5%) / 0.9 = $6.39
Product X Product Y
st
Production priority 1 2nd 1
Annual production quantity 6,600 units 13,000 units 1
Direct materials required 3,300 kg 11,700 kg
Net profit
= 6,600 × ($22.5 – $18 – $22.5 × 3%) + 13,000 × ($35 – $27.5 – $35 × 5%) – $32,600 –
$24,800
= $42,595 1
(6)
10 marks

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 Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
QUESTION 6 Marks
(a) Capital
Angel Bob Chris Angel Bob Chris
$ $ $ $ $ $
1½ Goodwill 90,000 90,000 90,000 Balance b/d 132,000 185,000
½ Balance c/d 138,600 288,200 70,000 Gain on 6,600 13,200 1
revaluation (W1)
Goodwill 90,000 180,000 1
Cash 100,000 ½
Motor van 60,000 ½
228,600 378,200 160,000 228,600 378,200 160,000
(5)

(W1)
$
Gain on revaluation of machinery ($395,000 – $350,000) 45,000
Loss on revaluation of motor van ($150,000 × 15%) (22,500)
Increase in allowance for doubtful debts ($82,000 × 5% – $1,400) (2,700)
19,800

(b) Angel, Bob and Chris

Statement of Financial Position as at 31 December 2017
$ $
Non-current assets
Machinery 395,000 ½
Motor van ($150,000 ×85% + $60,000) 187,500 582,500 ½

Current assets
Inventory 8,000 ½
Trade receivables, net ($82,000 - $1,400 - $2,700) 77,900 ½
Cash ($20,000 + $100,000) 120,000 205,900 1
Total assets 788,400

Capital accounts – Angel 138,600

– Bob 288,200 ½
– Chris 70,000
496,800
Non-current liabilities
Bank loan 250,000 ½

Current liabilities
Trade payables 35,000 ½
Bank overdraft 6,600 ½
Total capital and liabilities 788,400
(5)

(c) Capital
Angel Bob Chris Angel Bob Chris
$ $ $ $ $ $
1½ Share of loss 43,968 43,968 43,968 Balance b/d 138,600 288,200 70,000
(1:1:1) (W2) Salary 96,000 ½
½ Drawings 50,000 Interest on 4,158 8,646 2,100 1½
½ Interest on 4,000 capital

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 Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
drawings
½ Balance c/d 194,790 198,878 28,132
238,758 296,846 72,100 238,758 296,846 72,100
(5)
15 marks

(W2)
$
Net loss before appropriations (21,000)
Salary - Angel ($8,000 × 12) (96,000)
Interest on capital [($138,600 + $288,200 + $70,000) × 3%] (14,904)
Share of loss (131,904)

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
QUESTION 7 Marks
(a) Variable costs per square metre of G-Fabric: ½
Direct labour = $44 × 15/60 = $11 1
Direct materials = $90 × 50/1,000 + $15 × 0.5 = $12 ½
Variable production overheads = $14,250 / 1,500 = $9.5
Variable costs per square metre of G-Fabric = $11 + $12 + $9.5 = $32.5

Let the breakeven selling price be y:

($57,700 + $32,600) / (y – $32.5) = 1,400 1
y = $97
(3)

(b) Candice Company

Income Statement for the year ended 31 December 2017 (marginal costing)
$ $
Sales ($120 × 1,400) 168,000 ½
Less: Variable cost of goods sold
Direct materials ($12 × 1,500) 18,000 ½
Direct labour ($11 × 1,500) 16,500 ½
Variable production overheads ($9.5 × 1,500) 14,250 ½
Less: Closing inventory [(1,500 – 1,400) × $32.5] 3,250 45,500 ½
Total contribution margin 122,500
Less: Fixed production overheads 57,700 ½
Fixed administrative overheads 32,600 90,300 ½
Net profit 32,200 ½
(4)

(c) $
Additional sales revenue [$120 × (1,800 – 1,400)] 48,000 ½
Additional variable costs [$32.5 × (1,800 – 1,500)] (9,750) ½
Sales commission ($5 × 1,800) (9,000) ½
Increase in fixed administrative overheads ($32,600 × 15%) (4,890) ½
Purchase cost of machine ($9,000 + $500) (9,500) 1
Additional net profit 14,860 ½

Candice Company should offer the commission as there is an additional profit. ½

(4)
11 marks
SECTION C
QUESTION 8 Marks
(a) Cash at bank
2017 $ 2017 $
Balance b/d 17,970 Cash ($13,240 – $12,340) 900 1
1 Lam Company 6,380 Electricity 2,840 1
1 Cheung Company ($6,960 – $6,660) 300 Rent and rates 33,500 1
1 Red Company 9,120 Bank Charges 3,150 1
1 Chan Company 5,300 Balance c/d 33,980
1 Lee Company 18,800
1 Rental income 16,500
74,370 74,370
(10)

(b) Bank Reconciliation Statement as at 31 July 2017

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 Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
$ $
Balance as per updated cash at bank account 33,980 ½
Add: Unpresented cheque – Useful Equipment Company 120,000 1
Bank error ($12,430 – $12,340) 90 1
Incorrect credit entry 53,120 173,210 1
207,190
Less: Uncredited cheque – Lam Company 6,380 1
Balance as per bank statement 200,810 ½
(5)

(c) Possible reasons: Max. 2

– The signature on the cheque is wrong.
– There are insufficient funds in the drawer’s bank account.
– The cheque is a post-dated cheque.
(1 mark for each relevant possible reason, max 2 marks)
(2)

(d) Accrual concept 1

Expenses should be recognise and included in the financial statements when they are incurred, not
when the cash is paid. 1
The financial performance is not accurate if expenses are recorded on cash basis. 1

(3)
20 marks
QUESTION 9 Marks
(a) Statement to calculate the adjusted retained profit for the year ended 31 December 2017
$ $
Draft retained profit 34,650
Add: Debenture interest overstated ($240,000 × 3% × 6/12) 3,600 1
Allowance for doubtful debts overstated ($3,000 × 5%(W1)) 150 1
Closing inventory omitted [($13,225 / 1.15) × 60%] 6,900 1
Electricity overstated ($2,700 × 2/3) 1,800 12,450 1
47,100
Less: Bad debts omitted 3,000 ½
Rent and rates omitted 16,200 ½
Inventory value written down [$1,725 / 1.15 – ($1,000 - $50)] 550 1
Cash loss omitted 1,800 ½
Repairs omitted 8,200 29,750 ½
Adjusted retained profit 17,350
(7)

(W1)
Allowance for doubtful debts percentage = $3,105 / $62,100 = 5%

(b) William Company Limited

Statement of Financial Position as at 31 December 2017
$ $
Non-current assets
Premises, net ($400,000 – $6,000) 394,000 ½
Motor vans, net ($250,000 – $31,250) 218,750 ½
612,750
Current assets
Inventory ($56,180 + $6,900 - $550) 62,530 1

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Business, Accounting and Financial Studies
Mock Exam Paper (Paper 2A) (Set 8) Marking Guidelines
Trade receivables, net ($62,100 – $3,000 – $3,105 + $150) 56,145 1
Prepaid expense ($2,700 × 2/3) 1,800 ½
Cash at bank ($31,600 – $16,200) 15,400 1
Cash in hand ($44,125 – $1,800) 42,325 178,200 1
Total assets 790,950

Equity
Ordinary share capital 500,000 ½
Retained profit ($17,350 (a) – $15,000) 2,350 1
General reserve 15,000 ½
517,350
Non-current liabilities
5% debentures 240,000 ½

Current liabilities
Trade payables 25,400 ½
Accrued expense 8,200 33,600 ½
Total equity and liabilities 790,950
(9)

Marks
(c) Item (vi)
Net realisable value = $1,000 – $50 = $950 ½
Cost of the damaged inventories = $1,725 / 1.15 = $1,500 ½
Since the cost is higher than the net realisable value, to the value of inventory have to write down
to net realisable value. 1

Item (ix)
The amount was a revenue expenditure and treated as an expense during the year. 1
Repairs should be recorded as an accrual as it was incurred during the year but it will be paid in
the following year. 1
(4)
20 marks

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