hkale pacct question book 2001 paper 1

香港考試局　　保留版權Hong Kong Examinations AuthorityAll Rights Reserved 2001

2001-AL-P ACCT 1–1

HONG KONG EXAMINATIONS AUTHORITYHONG KONG ADVANCED LEVEL EXAMINATION 2001

PRINCIPLES OF ACCOUNTS A-LEVEL PAPER 1

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

Answer FOUR questions.

TWO from Part A (60%), and

TWO from Part B (40%).

All workings must be shown.

2001-ALP ACCTPAPER 1

2001-AL-P ACCT 1−2 − 1 −

Part A

Answer any TWO questions from this section. Each question carries 30 marks.

1. Peter and Paul had been operating trading businesses in their own names. On 1 January 2000, they decidedto amalgamate their businesses and formed a partnership P & P Company. The balance sheets of Peterand Paul at 31 December 1999 were shown as follows:

Peter Paul$ $

Plant and machinery (net book value) 360 000 260 000 Motor vehicles (net book value) 175 000 110 000 Stock 83 300 37 500 Debtors 46 000 22 000 Cash 27 000 4 500 Creditors (33 000) (44 000)

658 300 390 000

Capital 658 300 10 000 Bank loan — 380 000

658 300 390 000

The terms of amalgamation contained in the partnership agreement included:

(i) The initial capital of the partnership would be Peter $600 000 and Paul $400 000, contributed inthe form of net assets and cash. Any excess of net assets over the initial capital would be treatedas a loan to the partnership.

(ii) The net assets taken over by the partnership were as follows:

(1) Plant and machinery was taken over at 10% above the net book value at 31 December1999.

(2) Except for one motor vehicle which was taken over by Peter for his personal use at its netbook value of $75 000, all the remaining motor vehicles were taken over by thepartnership at 20% below the net book value at 31 December 1999.

(3) Stock and creditors (excluding the bank loan) were taken over at their book valueswhereas 5% was to be written off from the debtors.

(4) The goodwill of Peter’s business was valued at the weighted average of the last threeyears’ profits. The profits for 1997, 1998 and 1999 were $60 000, $80 000 and $125 000respectively. The weights assigned to years 1997, 1998 and 1999 were 1, 3 and 4respectively. It was agreed that after the goodwill was taken over by the partnership, thegoodwill account should not be maintained.

(iii) The profit and loss sharing ratio between Peter and Paul would be 3:2 respectively.

(iv) Peter and Paul were entitled to an annual salary of $60 000 and $48 000 respectively.

(v) Interests on loan and capital would be allowed at 10% per annum. They were to be transferred tothe respective partners’ current accounts.

(vi) The financial year of the partnership ends on 31 October.

You are required to prepare:

(a) the balance sheet of the partnership at 1 January 2000. (8 marks)

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The following information relates to the partnership business for the ten months ended 31 October 2000:

(vii) Extract of balances at 31 October 2000:

$ Stock 111 000Debtors 220 000Creditors 286 000Bank overdraft 34 000Net loss (before appropriation) for the financial year 39 000

(viii) A full year’s insurance to 31 December 2000 of $12 000 was charged to the profit and lossaccount.

(ix) Loan(s) owed to partner(s) was/were repaid on 1 July 2000.

(x) Net loss for the year was arrived at before taking into account:

(1) depreciation on fixed assets at 15% per annum;(2) provision for doubtful debts at 5% of the debtors at 31 October 2000;(3) accrued staff salaries $80 000; and(4) interest on loan payable to the partner(s).

(xi) No drawings were made by the partners during the ten months.


(b) the profit and loss appropriation account of the partnership for the financial year ended31 October 2000, and (6 marks)

(c) the balance sheet of the partnership at 31 October 2000. (7 marks)

Unfortunately, Paul had an accident on 1 November 2000 and was severely injured. The business wastherefore closed for two days. The following events occurred afterwards:

(xii) On 3 November 2000, the partners decided to dissolve the partnership.

(xiii) On 4 November 2000:

(1) Peter took over the motor vehicles at a value of $130 000;(2) some items of plant and machinery were sold for $280 000;(3) stock was realised for $120 000;(4) all debtors’ accounts were settled for $200 000;(5) the excess two months’ insurance was refunded; and(6) the accrued salaries were paid.

(xiv) On 10 December 2000, the creditors were paid.

(xv) On 28 January 2001, the remaining plant and machinery was sold for $170 000.


(d) the bank account covering the period from 1 November 2000 to 28 January 2001, showing theamounts of cash distributed to the partner(s) on 4 November 2000 and 28 January 2001. (Note:Ignore interests on bank overdrafts.) (9 marks)

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2. Universe Ltd was incorporated and commenced business on 1 January 1999, issuing at par 200 000ordinary shares of $10 each. On 1 January 2000, the company issued a further 100 000 ordinary shares at$14 per share.

Universe Ltd sells both clocks and watches. The clocks are manufactured by Universe Ltd and watches aresupplied by local manufacturers.

After drafting the final accounts of Universe Ltd, the following information related to the accounting yearended 31 December 2000 was revealed:

Clocks Watches

(i) Sales for the year $13 024 000 $3 612 000

(ii) Gross profit margin 60% 40%

(iii) Stocks at cost – 1 January 2000

Raw materials $168 000 Finished goods $492 800 $226 800Work in progress Nil

Stocks at cost – 31 December 2000

Raw materials − increased by 1/4 Finished goods − increased by 1/7 1/5Work in progress Nil

(iv) Proportion of credit sales to cash sales 3 : 1 2 : 1

(v) Trade debtors’ repayment period One month Two months

(vi) Creditors’ settlement period Three months Two months

Business as a whole

(vii) Current ratio 1.8 : 1

(viii) Ratio of sales to the year-end fixed assets 4 : 1

(ix) Gearing ratio (being long-term liabilities to shareholders' equity) 12.5%

Further information:

(x) Sales of clocks and purchases of raw materials were evenly distributed throughout the year.

(xi) Sales of watches were seasonal. The monthly average sales for January, February, November andDecember were double those of the other months. Purchases of watches were made two monthsin advance.

(xii) It was estimated that the sales level of both clocks and watches for 2001 would be the same as2000.

(xiii) Manufacturing costs of clocks include direct materials, direct labour, direct expenses and factoryoverheads. The proportion of total costs on direct materials, direct labour and direct expenses ofthe total prime cost was 28:23:15 respectively. Factory overheads equal 1/3 of prime cost.

(xiv) The administration expenses are equal to 5 times the factory overheads.


(xv) Selling and distribution expenses for the year amounted to $1 306 000.

(xvi) A bank loan was obtained on 1 January 2000, repayable in 2010. Loan interest accrued at31 December 2000 amounted to $85 000.

(xvii) The company had a bank overdraft at 31 December 2000 and the bank overdraft interest for theyear amounted to $68 200.

(xviii) Cash at 31 December 2000 amounted to $330 890.

(xix) The return on shareholders’ equity for 1999 (based on shareholders’ equity at the year end) was20% and no dividend was declared for that year. A dividend of $1 per share was declared at31 December 2000.


(a) the trading accounts in columnar form for clocks and watches for the year ended 31 December2000; (6 marks)

(b) the manufacturing account for the year ended 31 December 2000; and (5 marks)

(c) the trading and profit and loss account for the business as a whole for the year ended 31 December2000 and the balance sheet as at the same date. (19 marks)

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3. Hope Ltd has an authorised share capital of 5 000 000 ordinary shares of $5 each. The trial balance at31 December 2000 is shown as follows:

$’000 $’000Leasehold properties 4 320Plant and machinery 9 300Motor vehicles 4 000Accumulated depreciation, 1 January 2000

Plant and machinery 2 900Motor vehicles 1 600

Stock, 1 January 2000 2 890Provision for doubtful debts, 1 January 2000 184Cash at bank 4 734Purchases and sales 18 540 38 450Rental income 540Administration expenses 8 326Selling and distribution expenses 5 094Taxation 60Interim dividend 200Application and allotment money received 2 800Trade debtors and trade creditors 7 450 3 123Ordinary shares 10 0008% debentures 3 375Share premium 250Revaluation reserve 500Deposit on the purchase of a motor vehicle 180Rental deposit 120General reserve 320Profit and loss, 1 January 2000 822Accrued audit fee (for the year 2000) 110

65 094 65 094

Additional information:

(i) 400 000 ordinary shares were offered to the public during the year. The issue price was $8 pershare, payable in 3 instalments: $4 (including share premium) on application, $3 on allotment and$1 when called. All shares were allotted on 28 December 2000. The final call was made on 1March 2001.

(ii) $3 375 000 8% debentures were issued at par on 1 September 2000 and repayable in 2020. Thefirst interest payment was due on 1 March 2001.

(iii) Leasehold properties represented a property in Wanchai purchased in early 1999 for $3 820 000.It is the company’s policy that no depreciation is to be provided for leasehold properties butrevaluation has to be made at the end of each year. The value of the property at 31 December1999 was $4 320 000. The value of the property at 31 December 2000 was to be $3 200 000.

The property was leased out and the rental deposit of $120 000 represented two months’ rent.According to the tenancy agreement, the rental deposit would be forfeited and applied to cover therent if the rent was outstanding for more than one month. At 31 December 2000, the tenant owed3 months’ rent.


(iv) Plant and machinery was depreciated on the straight-line basis at an annual rate of 25%. Therewere no additions and disposals of plant and machinery during the year.

(v) All the motor vehicles were purchased on 1 January 1998 for $4 000 000. It was estimated thatthey had a useful life of 5 years with no scrap value. The straight line method of depreciation wasadopted.

On 1 January 2000, there was a change in the accounting policy and the motor vehicles would bedepreciated at an annual rate of 35% using the reducing balance method.

(vi) Details of stock at 31 December 2000 were as follows:

Cost Net Realisable Value$ $

Type A goods 940 000 1 420 000Type B goods 970 000 910 000

(vii) Expenses shown in the trial balance included the following items:

Administration expenses $ Audit fee (not yet paid) 110 000Taxation consultancy fee 20 000Hire of plant 550 000Directors’ fee 980 000Salaries to administrative staff 3 678 000Electricity and water 372 800

Selling and distribution expenses $ Carriage outwards 3 437 000Advertising 836 000

(viii) Besides those listed in (vii) above, the company classified expenses by function as follows:

Administration expenses Finance costDepreciation on plant and machinery Debenture interest

Selling and distribution expenses Other operating expensesDepreciation on motor vehicles All othersProvision for doubtful debts

(ix) Provision for doubtful debts for the year should be made at 2% on the outstanding trade debtors atyear end.

(x) On 25 December 2000, Hope Ltd entered into a non-cancellable contract for the purchase of amotor vehicle at the cost of $850 000. A deposit of $180 000 was made and the motor vehiclewould be delivered to Hope Ltd before 1 June 2001.

(xi) At 31 December 2000, a customer sued Hope Ltd for breaching a sales contract and demanded acompensation of $735 000. Legal advice indicated that the chances of Hope Ltd losing the casewere very high and the amount claimed by the customer was reasonable and certain.

(xii) $320 000 was provided for the 1999 taxation but the actual tax liability was $380 000. Profits taxfor the year 2000 was estimated at $295 000.

(xiii) A final dividend of $0.2 per share was proposed on all fully paid shares.

2001-AL-P ACCT 1−8 − 7 −

You are required to:

Prepare for Hope Ltd the following in a form suitable for publication and in accordance with the TenthSchedule of the Hong Kong Companies Ordinance (Chapter 32):

(a) the profit and loss account for the year ended 31 December 2000; (12 marks)

(b) the balance sheet as at that date; and (7 marks)

(c) the notes to the accounts. (11 marks)


THIS IS A BLANK PAGE

2001-AL-P ACCT 1−10 − 9 −

Part B

Answer any TWO questions from this section. Each question carries 20 marks.

4. Hong Lok Chess Club was formed on 1 April 1999. An inexperienced bookkeeper was employed and thetransactions of the club were mainly recorded on a cash basis. The balance sheet at 31 March 2000 was asfollows:

$Office equipment (at purchase price) 84 000Bar equipment (at purchase price) 260 000Cash 107 400

451 400

Surplus fund 101 400Loan from members 350 000

451 400

The following information relates to the state of affairs at 31 March 2000:

(i) Surplus fund at 31 March 2000 was made up of:

Cash Receipts: $ $Subscription fees 315 000 Bar receipts 242 000

557 000 Cash Payments:

Snack and beverages for bar 126 000Wages of bar waiters 65 000Rent (25% occupied for bar trading) 130 000Insurance (1 April 1999 - 28 February 2001) 50 600Administrative expenses 84 000 (455 600)

101 400

(ii) Amounts outstanding at 31 March 2000:

$Subscription fees owed by members 15 000Rent of April 2000 prepaid 10 000Accrued bar waiters’ wages 8 000Amount owing to snacks and beverages suppliers 35 000

(iii) Stock of snacks and beverages amounted to $12 000.

(iv) Depreciation on fixed assets was to be calculated using the reducing balance method at an annualrate of 30%.


(a) Calculate the accumulated fund of Hong Lok Chess Club as at 31 March 2000 using the accrualbasis of accounting. (4 marks)


The following events relate to the accounting year ended 31 March 2001:

(v) Cash payments made during the year:

$Snacks and beverages suppliers 276 000Wages of bar waiters ($10 500 for the wages of April 2001) 165 000Rent for the 12 months ended 30 April 2001 120 000Insurance from 1 March 2001 to 28 February 2002 28 200Administrative expenses 92 000Additional bar equipment 50 000

(vi) Cash sales from bar trading amounted to $496 000. 1/4 of the sales were made to non-members atcost plus 100% while 3/4 were made to members at cost plus 50%.

(vii) Amount owing to snacks and beverages suppliers at 31 March 2001 amounted to $74 000.

(viii) Closing stock of snacks and beverages amounted to $10 000 only. It was believed that somestock had been stolen by a dismissed waiter. The value of the stock stolen was to be charged tothe income and expenditure account for the year.

(ix) On 1 April 2000, the members who made loans to the club had their status changed from ordinarymembers to life members. The loan from members was to be treated as life membership fees andamortised on a ten-year basis.

(x) Subscription fees received from members amounted to $430 000, of which $44 000 representedthe fees of April 2001.


(b) Prepare a bar trading account for the year ended 31 March 2001. (5 marks)

(c) Prepare an income and expenditure account for the year ended 31 March 2001 and a balance sheetas at that date. (11 marks)

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5. The following balances of Dickson’s trading business were extracted after the profit and loss account forthe year ended 31 March 2001 had been prepared:

$Stock as at 31 March 2001 230 000Trade debtors less 4% provision for doubtful debts 432 000Hire purchase creditors 192 000Hire purchase interest suspense 108 000Bank balance 3 000Profit for the year ended 31 March 2001 76 000Suspense account 28 000

The following events were subsequently discovered:

(i) A return inward of $10 000 had been wrongly treated as a return outward in the trading account.

(ii) The unit cost of stock at 31 March 2001 was wrongly calculated. The value of stock at that dateshould have been $200 000.

(iii) A gross credit sale of $80 000 with 10% trade discount was made in March 2001. The followingaccounting entries were made:

$ $Debtors 80 000

Discounts received 8 000 Sales 80 000

As the credit period for all customers had been extended, Dickson decided to adjust the provisionfor doubtful debts to 5%.

(iv) A new machine with a cash price of $468 000 was purchased on 31 October 2000 on hirepurchase term. Under the hire purchase agreement, Dickson was required to pay 9 monthlypayments of $64 000 each, the first being the deposit and commencing on 31 October 2000.Interest was to be apportioned using the sum-of-digit method. An installation fee of $42 000incurred by Dickson before the machine was put into use had been charged to the profit and lossaccount. Fixed assets were to be depreciated on a monthly basis at an annual rate of 25%.However, a full year’s depreciation had been provided for the machine.

On 1 April 2000, a motor vehicle costing $48 000 and with an accumulated depreciation of$22 000 was sold for $20 000. In calculating the profit and loss on the disposal of the motorvehicle, the accumulated depreciation had not been taken into account, recording a loss ondisposal amounting to $28 000 charged to the profit and loss account.

Apart from the above, there was no other addition or disposal of fixed assets.

(v) On comparing the bank statement with the cash book for the month of March 2001, the followingdiscrepancies were found:

(1) A cheque of $124 000 received from a debtor was marked ‘returned cheque’ on the bankstatement at 31 March 2001.

(2) There was a credit transfer of $54 000 to the business on 28 March 2001. On 31 March2001, a reverse entry of same amount was made and denoted as ‘error correction’.


(3) A cheque of $66 000 issued to a supplier in August 2000 remained unpresented. It was thebank’s practice that cheques unpresented for more than 6 months would become invalid.A new cheque for the same amount was re-issued to the supplier on 8 April 2001.

(4) Salaries to staff were settled by autopay at the end of each month by deducting from thebusiness bank account and crediting the staff ’s individual bank accounts directly. Due toinsufficient funds in the bank account at 31 March 2001, the autopay for the March 2001salaries amounting to $92 000 was not executed until 2 April 2001. The amount had beenaccounted for as being paid by the business.


(a) Prepare the necessary journal entries on 31 March 2001 for correcting the items above. State if nojournal entry is required. (11 marks)

(b) Calculate the adjusted net profit for the year ended 31 March 2001. (7 marks)

(c) Prepare a bank reconciliation statement as at 31 March 2001, commencing with the balance as percash book. (2 marks)

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6. David started his wholesale clock business in Kwun Tong and later set up a retail branch in Mong Kok.All purchases were made by the Kwun Tong office. A transfer price was charged on the branch at astandard mark up of 50% in 1999 and adjusted to 25% in the year 2000. The sales of the head office andthe branch were made at a uniform mark up of 20% on the purchase cost of the head office and the transferprice of the branch respectively.

The trial balances at 31 December 2000 for both the head office and the branch were as follows:

Head Office BranchDr Cr Dr Cr$ $ $ $

Sales 2 592 000 1 734 000Purchases 3 440 000Good sent to branch at transfer price 1 580 000Goods from head office at transfer price 1 480 000General expenses 454 000 106 000Management fee income from branch 80 000Management fee charged by head office 80 000Furniture and fittings (net book value) 312 000 196 000Bank 68 400 150 000 Stock, 1 January 2000 192 000 186 000Provision for unrealised profit, 1 January 2000 62 000Current account with branch 778 000Current account with head office 638 000Capital, 1 January 2000 794 000Debtors 152 000 174 000Creditors 288 400

5 396 400 5 396 400 2 372 000 2 372 000

Further information:

(i) A physical stocktaking was carried out in the Kwun Tong office at 31 December 2000 and thestock sheets revealed a stock value of $208 000 (at cost) for the head office.

(ii) The closing stock of the branch amounted to $165 000 at transfer price and all these goods weretransferred from the head office during the year. Any deficiency in stock occurring in the branchwas to be treated as an abnormal loss.

(iii) Goods at the transfer price of $100 000 were despatched by the head office on 31 December 2000but only received by the branch on 1 January 2001.

(iv) A branch debtor settled his trade debt of $40 000 by directly crediting the head office’s bankaccount. The branch manager had not notified the head office of this.

(v) Depreciation was to be provided on the net book value of furniture and fittings at 20% per annum.

2001-AL-P ACCT 1−15 − 14 −


(a) the trading and profit and loss accounts for the year ended 31 December 2000 in columnar formshowing the net profits of:

(i) the head office,

(ii) the branch,

(iii) the business as a whole; and(16 marks)

(b) the balance sheet for David’s business as a whole at 31 December 2000. (4 marks)

END OF PAPER

hkale pacct question book 2001 paper 1

Documents

reducing balance method

kwun tong office

bank statement

motor vehicles

head office

initial capital

beverages suppliers

direct expenses