Ce Principles Of Accounts 1996 Paper

HKCEE-PRINCIPLES OF ACCOUNTS-1996

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SECTION A Answer any FOUR questions from this section. Each question carries 10 marks. 1. Define the following accounting concepts and give an example for each to illustrate its application: a. Going concern. (5 marks) b. Quantifiability. (5 marks) 2. Barker Limited, a manufacturing company, purchased a moulding machine from Sakura Company of Japan, the invoice price being $52500. The machine was received on 16 December 1992 after the purchase price plus import duty of $5000 and landing charges of $2000 had been paid. Installation was completed by 1 January 1993 at a further cost of $2800. The company estimated that the machine would have a useful life of 10 years and a scrap value of $14300. The financial period ends on 30 September each year and depreciation is to be charged on a straight-line basis. The performance of the machine was not satisfactory and it was sold on 30 April 1996 for $41625. Required: Prepare the following accounts to record the above: a. moulding machine. (2 marks)

b. provision for depreciation – moulding machine. (5 marks) c. disposal of moulding machine. (3 marks) 3. The cash book of Raymond Limited showed a favourable bank balance of $3856 at 30 April 1996. An examination of the bank column in the cash book and the bank statement disclosed the following: i.

A customer who received a cash discount of 2.5% on his account of $400, paid the company a cheque on 20 April. The cashier entered the gross amount in the cash book.

ii.

An amount of $1500 entered on the debit side of the cash book had not been banked until 1 May.

iii.

Cheques issued amounting to $948 had not been presented to the bank for payment.

iv.

A cheque from Alex Limited for the amount of $1480 had been returned by the bank on 29 April marked ‘insufficient funds – refer to drawer’. The returned cheque was not received by Raymond Limited until 1 May.

v.

A standing order for a charitable subscription of $450 had been paid by the bank on 29 April but no entry had been made in the cash book.

vi.

The manager had given the cashier a personal cheque for $800 to pay into his personal account at the bank on 25 April. The cashier had paid it into the company’s account by mistake, although no entries had been made in the company’s books.

vii.

Interest of $160 had been charged by the bank, but not yet entered in the cash book.

Required:

HKCEE-PRINCIPLES OF ACCOUNTS-1996

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a.

Show the necessary adjustments in the cash book. (5 marks)

b.

Prepare a bank reconciliation statement as at 30 April 1996. (5 marks)

4. The stock of Cindy Limited was taken on 31 March 1996 and the final figure was to be incorporated in the financial reports for the three months ending 31 March 1996. However, the stock sheets were lost and further investigation revealed the following information: i.

Stock at 31 December 1995 was $54378, at cost.

ii.

Goods invoiced to customers in respect of January, February and March 1996 amounted to $65020.

iii.

Selling prices are determined by a 25% mark-up on cost.

iv.

Certain items in stock at 31 December 1995 valued at $648 were scrapped in February 1996.

v.

A scrutiny of the stock sheets as at 31 December 1995 revealed that one sheet had been over-added by $210.

vi.

Purchases of $61632 during the three months ended 31 March 1996 had been duly entered in the accounting records.

vii.

Goods received in March 1996 amounting to $2050 had not yet been invoiced by the supplier.

viii.

Goods returned to suppliers during the quarter amounted to $374 and goods returned by customers in this period amounted to $890, at cost.

Required: Compute the amount of stock for inclusion in the financial reports for the quarter ending 31 March 1996. (10 marks) 5. Chan consigned 40 boxes of toys, costing $300 per box, to his selling agent Wong on 1 January 1996. Transport charges and sundry expenses paid by Chan amounted to $520 and $120 respectively. On arrival at Wong’s premises, the contents of 5 boxes were found to be damaged and unsaleable. They had not been insured. By the end of March 1996, Wong had sold 30 boxes of toys for $500 per box. He had paid storage expenses of $210, delivery charges of $90 and selling expenses of $580. He sent a cheque for the amount due to Chan after deducting a sales commission of 10%. Required: Record in Chan’s books the above transactions for the three months ended 31 March 1996 in the following accounts: a. consignment to Wong (showing the profit or loss on consignment). (7 marks) b. Wong. (3 marks) 6. Variety Limited started to sell electrical goods on hire purchase terms in 1995. The following hire purchase transactions occurred during the year ended 31 December 1995:

HKCEE-PRINCIPLES OF ACCOUNTS-1996 Item Date of Sales Radio Washing machine Refrigerator

5 Jun 1 Aug 23 Oct

Cost $ 800 3900 6600

Hire Purchase Price $ 1200 5200 8800

ALL RIGHTS RESERVED Deposit Monthly $ Instalment $ 360 84 1200 400 1600 600

Deposits were received on dates of sales and instalments were due at the end of each month, the first being payable at the end of the month following the month of sale. At 31 December 1995, two instalments on radio and one instalment on washing machine were in arrears. The firm recognises profit on hire purchase sales in proportion to cash actually received during the year. Required: Prepare the hire purchase trading account for the year ended 31 December 1995 for Variety Limited, showing clearly the calculation of the unrealised profit for each item sold. (10 marks) SECTION B Answer any THREE questions from this section. Each question carries 20 marks. 7. Success Limited is a retailer of kitchenware. Most goods it trades are purchased from various suppliers in a finished form. In addition, the company manufactures several types of kettles. The bookkeeper drew up the following trial balance at 30 April 1996: Ordinary share capital of $1 each General reserve Retained profits 15% long-term loan Machinery - at cost - accumulated depreciation as at 1 May 1995 Motor vehicles- at cost Stocks as at 1 May 1995 Raw materials Manufactured goods Other goods Debtors Creditors Bank Sales Purchases – Raw materials - Other goods Salaries Rent and rates Electricity Interest on loan Sundry expenses

$

400000 160000 20000 10000 170000 160000 50000 430000 1150000 257000 22000 10500 9000 7100 2855600

$ 200000 23000 164600 120000 100000

48000 2200000

2855600

The following information is also given: i.

Depreciation is to be provided using the reducing-balance method at the following rates: Motor vehicles Machinery

-

12.5% per annum 10% per annum

HKCEE-PRINCIPLES OF ACCOUNTS-1996

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The motor vehicle was purchased in 1996. It is the company’s policy to charge a full year’s depreciation in the year of acquisition. ii.

Salaries include wages of $54000 paid to the kettle-making employees.

iii.

Rates prepaid at 30 April 1996 amounted to $2000.

iv.

Accruals at 30 April 1996 were:

$ 1500 9000

Electricity Interest on loan v.

The apportionment of rent and rates and electricity to the kettle-making department is 25%.

vi.

Stocks at 30 April 1996 were: Raw materials Manufactured goods Other goods

vii.

$ 40000 12500 215000

The directors proposed to transfer $40000 of the profits to general reserve and to declare a final dividend of $0.50 per share.

Required to prepare: a. a manufacturing, trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1996. (13 marks) b. a balance sheet as at the same date. (7 marks) 8. The treasurer of the Fit Dancing Club has prepared the following receipts and payments account for the year ended 31 December 1995: Receipts and Payments Account $ Balance b/d 26400 Purchases – dancing shoes and Subscriptions 61500 costumes Annual dinner – ticket sales 15100 Purchases of amplifier Sale of old amplifier 8000 Musicians’ fees Dancing festival – admission 14100 Coaching fees Sales – dancing shoes and 156000 Hall – Rent (for 12 months to 30 costumes June 1996) - Rates (for 6 months to 31 Dec.1995) - Decoration Annual dinner – hotel and catering Dancing festival - prizes - adjudicator’s fee Balance c/d 281100 Additional information: i.

Subscriptions Received in 1994 for: 1995 Received in 1995 for: 1994 1995 1996

$

$

2250 57300 1950

61500

2850

$ 132000 16500 13500 12300 24000 4700 1650 16150 2550 1350 56400 281100

HKCEE-PRINCIPLES OF ACCOUNTS-1996

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ii.

An amount of $3000 was still owing to a stationery supplier as at 31 December 1995.

iii.

The amplifier which was sold on 1 January 1995 had a net book value of $9600 on 31 December 1994. A new amplifier was bought on 1 July 1995 to replace the old one.

iv.

Depreciation on the new amplifier is to be provided at the rate of 20% per annum on cost.

v.

The Club’s other assets and liabilities at 31 December 1994 and 1995 were as follows: 1994 1995 $ $ Stock of dancing shoes and costumes 24150 25500 Sundry creditors Annual dinner (catering) 1050 Purchases – dancing shoes and costumes 13500 12500

Required to prepare: a. a trading account for the year ended 31 December 1995, showing the profit/loss on the sale of dancing shoes and costumes. (3 marks) b. an income and expenditure account for the year ended 31 December 1995. (10 marks) c. a balance sheet as at the same date. (7 marks) 9. Lau and Chun were in partnership sharing profits and losses in the ratio 1:2 respectively. The balance sheet as at 31 December 1995 was as follows: Balance sheet as at 31 December 1995 $ $ Fixed Assets Capital Accounts Buildings, net book 306000 Lau value 59400 Chun Equipment, net book 365400 value Current Accounts 16200 Lau Current Assets 36360 Chun Stock 51120 103680 Debtors Current Liabilities Bank Creditors 469080

$

$ 162000 288000 450000

2520 1800

4320 454320 14760 469080

Lau retired on 30 April 1996 on the following terms: i.

He was to be paid the amount of his capital and current account balances at 31 December 1995, together with his share of profit and loss for the 4 months ending 30 April 1996 and his share of goodwill.

ii.

Goodwill was calculated to have a value of $135000. No goodwill account was to remain in the partnership books.

iii.

No assets or liabilities were to be revalued on retirement.

iv.

It was agreed that Lau should be repaid in four equal instalments, the first payment being made on 1 May 1996. The balance was to be left temporarily in the partnership as a loan.

After all the nominal accounts had been balanced off, the following position was arrived at on 30 April 1996: Assets

$

HKCEE-PRINCIPLES OF ACCOUNTS-1996 Buildings, net book value Equipment, net book value (including additions of $7200) Bank Stock Debtors Liabilities Creditors

ALL RIGHTS RESERVED 299880 62640 60660 21600 44460 489240 17640

There were no entries to the capital accounts during the four months. However, the following drawings had been made: Lau Chun

$ 36000 61200

Kwok was admitted as a new partner on 1 May 1996. He brought in $92000 as his capital, and additional cash for his share of goodwill. The new profit-sharing ratios was: Chun, fourfifths; and Kwok, one-fifth. Required: a. Calculate the profit of the partnership for the period from 1 January 1996 to 30 April 1996. (3 marks) b. Prepare the partners’ capital and current accounts to reflect the above arrangements. (11 marks) c. Draw up the balance sheet of the new partnership as at 1 May 1996. (6 marks) 10. The draft accounts of Mabel Company Limited for the year ended 30 April 1996 failed to balance and there was a net debit difference of $2335 in the suspense account. The net profit for the year before adjustments amounted to $129380. During subsequent audit, the following details were discovered: i.

The debit balance of $1500 on Sharp Limited’s account had been brought forward as $150.

ii.A new piece of furniture costing $3100 had been debited to the purchases account. iii.

Depreciation of office equipment had been entered in the profit and loss account as $1683 instead of $1368.

iv.

A bad debt of $1300 had been written off from the account of Modern Limited, but the double entry had not been completed.

v.

In April 1996, Mabel Company Limited had bought goods on credit from Elegant Limited for $4521 and had sold goods on credit to the same company for $1630. These transactions had been correctly recorded in the accounts. The two accounts of Elegant Limited were to be settled in contra at 30 April 1996.

vi.

No entries had been made in the books in respect of a credit purchase form Allen Limited on 29 April 1996. the invoice price was $650 and a trade discount of $40 had been given by the supplier.

vii.

In March 1996, Mabel Company Limited had issued 100000 $1 ordinary shares at a premium of $0.50 per share. The issue price was received by two equal instalments in

HKCEE-PRINCIPLES OF ACCOUNTS-1996

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March and April 1996 respectively. The premium in respect of this issue was to be included in the second instalment. Both proceeds had correctly been debited to the bank account, but the sales account and the general reserve account had been credited with the March and April receipts respectively. viii.

Some goods, costing $840, had been damaged by fire. They had no scrap value and were written off. A claim of $800 had been agreed with the insurance company.

ix.

Mr Lee, whose debts had been written off, paid $731 to clear his account in April 1996. No entry has yet been made.

x.

The returns inwards account had been credited with $90 for some goods returned to a supplier.

Required: a.

Show the journal entries necessary to record the above (no narration is required). (13 marks)

b.

Draw up the suspense account. (3 marks)

c.

Calculate the revised net profit for the year ended 30 April 1996. (4 marks) END OF PAPER