Ce Principles Of Accounts 1998 Paper

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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SECTION A Answer any FOUR questions from this section. Each question carries 10 marks. 1. For each of the independent situations described below, list the accounting principle or concept that has been violated and prepare the original journal entry that should have been made. (No narrations are required.) a. Furniture with a market value of $80000 was acquired on credit at a cost of $75000. The following entry was made:

Furniture

Debit

Credit

$ 80000

Creditor

$ 75000

Gain on purchase of furniture

5000

b. The owner withdrew $7000 in cash for his vacation trip to Taiwan. The book-keeper recorded the entry as follows:

Travel expense

Debit

Credit

$

$

7000

Cash

7000

c. A pocket-sized calculator was purchased for $20 cash. The book-keeper made the following entry:

Office equipment

Debit $

Credit 20

$

Cash

20

d. An insurance premium for the coming financial year was adjusted at year end as follow: Debit Credit Profit and loss

$

1000

$

Insurance premium

1000

e. Goods costing $21000 and with a selling price of $25000 were sent on consignment. The following entry was made:

Consignee Consignment sales

Debit $ 25000

Credit $ 25000 (10 marks)

2. Allen and Davis have been partners sharing profits and losses in the ratio of 3:2 respectively. Their balance sheet as at 31 December 1997 was as follows: 1

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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Goodwill

$ 98000 Capital accounts:

Plant and machinery (net)

50400

Allen

95000

Stock

20000

Davis

85000

Debtors

26000 Creditors

Cash at bank

$

$

180000 16680

2280 196680

196680

They decided to admit Charles as a partner on 1 January 1998. Charles was to contribute $60000 cash as capital and the new profit and loss sharing ratio for Allen, Davis and Charles was 5:3:2 respectively. Plant and machinery was to be revalued at $76300 and stock of $2000 was to be written off as obsolete. Provision was to be made for doubtful debts at 5% of the debtors. Goodwill was revaluated at $120000, but would not be shown in the books of the new partnership. Required: Draw up the revaluation account and the partners’ capital accounts (in columnar form) to reflect the admission of Charles. (Show the workings for goodwill adjustments.) (10 marks) 3. The treasurer of the Leisure Club has prepared the following receipts and payments account for the year ended 31 December 1997. Receipts and payments account $ Balance b/d 15330 Bar purchases Subscriptions Bank interest 49000 Bar wages Bar sales

$ 61250 7420

92 Administration expenses

42270

97500 Repairs

1898

Sundry expenses

4352

Balance c/d

4732

161922

161922

Additional information: i.

The following balances were extracted from the club’s books at 31 December 1996: $ Accrued bar wages 455 Club premises

300000

Creditors for bar supplies

8190

Bar stock

9425

Subscriptions in arrears

2405

Subscriptions in advance

1120

ii.

Depreciation is to be charged on the cost of club premises at 5% per annum.

iii.

Bar stock at 31 December 1997 amounted to $9620.

iv.

At 31 December 1997, accrued bar wages and creditors for bar supplies amounted to 2

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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$390 and $7215 respectively. v.

At 31 December 1997, subscriptions in advance and in arrears amounted to $2600 and $1360 respectively.

Required: Prepare for the Leisure Club the following accounts for the year ended 31 December 1997: a. a bar trading account. (4 marks) b. an income and expenditure account. (6 marks)

4. Maggie Limited had an authorised and issued share capital of 500000 ordinary shares of $1 each, fully paid. On 1 January 1998, the authorised share capital was increased by $400000 divided into ordinary shares of $1 each. On the same date, the company made an issue of the 400000 ordinary shares at $1.5 per share. Under the terms of the issue, payments were due as follows: 1998 1 January On application ( including premium)

Per share $0.70

1 February

On allotment

$0.60

1 May

First and final call

$0.20

The response to the issue is summarised below:

Number of shares Applied for by Allotted to each each applicant applicant

i.

Number of applicants 40

7000

5000

ii.

20

25000

10000

iii.

10

5000

--

The amounts overpaid on application were to be retained by the company to set off sums due on allotment. All refunds were made on 15 February 1998. All monies were received on their due dates. Required: Prepare journal entries for Maggie Limited to record the above transactions. (No narrations are required.) (10 marks) 5. a.

Define the going concern concept and give an example to illustrate its application. (3 marks)

b. Desmond Company generates income by letting its flats to tenants. During 1996, the company had received in advance $5200 in respect of rent for January 1997; and at 31 December 1996, arrears of rents amounted to $18000. In 1997, the company received from the tenants cheques amounting to $248300 which included rent in advance for 1998 amounting to $13200. Arrears of rent at 31 December 1997 was $14500. 3

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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Rates were paid by cheques in two half-yearly instalments on 1 January 1997 and 1 July 1997 as follows: 6 months to 31 March 1997

$ 972

6 months to 30 September 1997

1048 2020

The rates amounting to $1048 for the 6 months to 31 March 1998 had not been paid by the company on 31 December 1997. Required: In the books of Desmond Company, show the entries for the year ended 31 December 1997 in the following accounts: i.

the rental income account. (3 marks)

ii.

the rates account. (4 marks)

6. Tang consigned 400 cartons of video cassette tapes costing $500 each to Chow who was entitled to a 5% selling commission on all sales and an additional 2% as del credere commission. The video cassette tapes were to be sold by Chow at $600 per carton. Tang paid transportation charges and insurance of $8 and $2 respectively for each carton of video cassette tapes. Unfortunately, the contents of 10 cartons were damaged in transit and were sold immediately on arrival by Chow for $1000 cash. The insurance company agreed to pay $3400 as compensation. By the end of March 1998, Chow had sold 110 cartons for cash and 200 cartons on credit at the normal selling price. Chow had paid storage expenses of $1170 and selling expenses of $690. He incurred a bad debts expense of $4510. He then sent a cheque for the amount due to Tang. You are required to prepare for Tang: a. the consignment account (showing the profit or ,loss on consignment). (8 marks) b. the consignee account. (2 marks) SECTION B Answer any THREE questions from this section. Each question carries 20 marks. 7. Clara is a wholesaler for children’s clothing. For several years, she has obtained a gross profit margin of 40% on all sales. In a burglary in February 1998, she lost stock costing $60000 as well as many of her accounting records. However, after a careful investigation, the following information for the year ended 31 March 1998 was made available: i.

Account balances at 31 March 1997 were as follows: Capital Stock, at cost

$ 227500 28000 4

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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Trade debtors

94500

Trade creditors

63000

Office premises, at cost

150000

Delivery van, at cost

75000

Provision for depreciation Office premises

90000

Delivery van

30000

Prepaid administration expenses Bank

64650

Accrued rent and rates ii.

1800 3450

All receipts and payments were made through the bank account. The following bank payments were made during the year: Trade creditors

$ 591000

Rent and rates

100800

Drawings

64500

Administration expenses

110400

iii.

Stock at cost amounted to $88000 at 31 March 1998.

iv.

Discounts received and discounts allowed amounted to $18000 and $24300 respectively.

v.

Administration expenses prepaid at 31 March 1998 totalled $1200.

vi.

Trade debtors at 31 March 1998 were $100500.

vii.

Rent and rates for the year amounted to $105300.

viii.

Trade creditors at 31 March 1998 amounted to $114000.

ix.

Depreciation is provided at the following rates: Office premises

-

5% on cost

Delivery van

-

20% on a reducing balance basis

Required to prepare: a. the bank account showing the balance as at 31 March 1998. (4 marks) b. the trading and profit and loss account for the year ended 31 March 1998. (9 marks) c. the balance sheet as at 31 March 1998. (7 marks) 8. Ng and Lo entered into a joint venture to buy and sell electronic toys. It was agreed that Lo would be entitled to a commission of 5% on all gross sales made by him, and that the joint venture profits and losses be shared equally. The following transactions took place in 1998: January

1.

Lo purchased toys at a cost of $38920, paying $18920 in cash and accepting a bill of exchange for two months for the balance.

2

Lo sent to Ng toys which had cost $11680 and paid delivery charges of $1168.

15

Lo returned toys costing $700 to the supplier and full allowance on the 5

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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returned goods was given.

February

16

Ng purchased toys at a cost of $17630.

17

Ng paid $22000 for rent for the four months ending 30 April 1998.

25

Sales proceeds of $19670 were kept by Ng.

4

Credit sales of $39200 were made by Lo. A bill of $6000 was accepted by a debtor and was then discounted at $5560.

6

Ng sent a cheque for $10000 to Lo to provide him with funds.

10

Goods costing $6000 were stolen in the shop. Half of this loss was to be borne by Ng.

26

Cash sales of $18000 were made by Lo and half of the sales proceeds were collected by Ng.

March

1 4

The bill payable was honoured by Lo. The bill receivable was dishonoured and was renewed with an extended maturity of one month. Interest at 12% per annum was charged on the renewed bill.

April

16

Ng paid wages of $8900.

30

Ng sold the remaining stock for $33400 on credit.

1

Some of the goods sold on 30 March were returned and a credit note of $1400 was sent to the customer.

4

The bill receivable was honoured on maturity.

20

Ng agreed to take over the returned goods at a value of $1126.

30

$1600 of the unsettled debts in Lo’s books was written off.

30

Ng and Lo decided to terminate the joint venture and settle their accounts.

Required to prepare: a. the joint venture with Lo account in Ng’s book. (6 marks) b. the joint venture with Ng account in Lo’s book. (7 marks) c. a memorandum joint venture account. (7marks) 9. Lee and Wong have been partners sharing profits and losses in the ratio of 3:2 respectively. Interest of 6% per annum was allowed on the credit balances in the capital accounts. The trial balance at 31 March 1998 was as follows: Capital accounts – Lee - Wong Drawings – Lee - Wong Current accounts – Lee - Wong Equipment – at cost - accumulated depreciation as at 1 April 1997 Furniture and fittings - at cost - accumulated depreciation as at 1 April 1997 Motor vehicles – at cost

$ 49850 38370 9275 470800

$ 550000 380000

1350 164270

267500

129500

280000 6

HKCEE-PRINCIPLES OF ACCOUNTS-1998 Purchases Sales Salaries Rent and rates Provision for doubtful debts, 1 April 1997 Trade debtors Trade creditors Cash at bank Sundry expenses Discounts Salary to Lee Electricity Stock as at 1 April 1997

ALL RIGHTS RESERVED 469276

1261550

240070 110285 1160

57250 516895 7241 2220 84000 26444 78458 2707934

218720 1384

2707934

The following information was also given: i.

Depreciation is to be charged as follows: Equipment – 10% per annum on a straight-line basis Furniture and fittings – 10% per annum on a reducing balance basis Motor vehicles – 25% per annum on a straight-line basis

ii.

Stock as at 31 March 1998 amounted to $92621.

iii.

The following adjustments were to be made on 31 March 1998: $ Accrued salaries 2330 Prepaid electricity 444 Provision for doubtful debts was to be maintained at 2% of trade debtors.

iv.

The sale of furniture for $3000 had been recorded as cash sales. No other entry has yet been made. The furniture had cost $4200 and $1800 had been provided for depreciation.

v.

The motor vehicle was acquired on 1 April 1997 on hire purchase terms. The cash price of the motor vehicle was $280000. The partnership was required to pay a deposit of $60000 and four annual instalments of $78000 each, payable on 31 March. Each instalment already included an amount of $23000 for interest. The first instalment was paid on 31 March 1998. The partnership had wrongly recorded the above transactions through the trade creditors account.

Required to prepare: a.

the trading, profit and loss and appropriation account for the partnership for the year ended 31 March 1998. (10 marks)

b.

the balance sheet as at 31 March 1998. (10 marks)

10. The trial balance of Debbie Limited at 31 March 1998 did not agree. A suspense account was opened to record the net credit difference of $3996. The draft net profit for the year amounted to $14290. Subsequent checking of the records revealed the following errors: i.

Bank charges of $270 appeared in the cash book but had not been posted to the 7

HKCEE-PRINCIPLES OF ACCOUNTS-1998

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general ledger. ii.

Cheques totalling $3450 were sent to creditors on 31 March 1998 but had not been recorded in the books.

iii.

A credit note from Smith Limited for $880 had been entered correctly in the returns outwards journal but had been posted to Smith Limited ‘s account as $1080.

iv.

The sales proceeds of a fully depreciated motor vehicle had been credited to the sales account as $8600. The cost of the motor vehicle was $12000.

v.

A stock loss of $20000 had been shown in the draft profit and loss account as ‘Loss due to burglary’. Although the insurance company agreed that $14000 would be paid in settlement, no record in respect of this had been made by the company as at 31 March 1998.

vi.

Office equipment costing $7500, with a list price of $9000, was taken from the showroom for the use of the company, but no entries in respect of this had been made. It was included in the trading stock at cost at 31 March 1998. The company provides for trading stock at cost at 31 March 1998. The company provides for depreciation at the rate of 25% on the cost of office equipment held at the end of each financial year.

vii.

Discounts received of $210 had been credited to purchases as $120.

viii.

Credit sales of $1997 had been correctly recorded in the customer’s account, but had been debited to the selling expenses account as $1979.

You are required to prepare in the books of Debbie Limited: a.

the journal entries necessary to correct the above errors (No narrations are required.) (11 marks)

b.

the suspense account. (4 marks)

c.

a statement correcting the draft net profit for the year ended 31 March 1998. (5 marks) END OF PAPER

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