Ce Principles Of Accounts 2002 Paper

2002-CE P ACCT

HONG KONG EXAMINATIONS AUTHORITY HONG KONG CERTIFICATE OF EDUCATION EXAMINATION 2002

PRINCIPLES OF ACCOUNTS 8.30 am – 11.00 am (2½ hours) This paper must be answered in English

Answer FIVE questions: THREE from Section A (42%), and TWO from Section B (58%). All workings must be shown.

香港考試局

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2002-CE-P ACCT–1

SECTION A Answer any THREE questions from this section. Each question carries 14 marks. 1.

On 30 April 2002, the following balances were extracted from the books of Wilson Manufacturing Company: $ 9 890 400 4 372 000 58 000 83 840

Sales Purchases of raw materials Carriage inwards Carriage outwards Stocks, 1 May 2001 Raw materials Work in progress Finished goods Plant and machinery, at cost Office equipment, at cost Rent and rates Electricity and water Wages and salaries Direct labour Indirect labour Administrative staff Repairs to machinery Other production expenses Other administrative expenses

225 522 30 180 194 500 980 000 385 000 395 250 134 400 491 100 240 000 910 150 18 928 326 400 198 685

Additional information: (i) Stocks as at 30 April 2002: Raw materials Work in progress Finished goods (ii)

$ 115 290 94 840 181 900

Depreciation was to be provided for: Plant and machinery Office equipment

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15% on cost 20% on cost

(iii)

Salaries of administrative staff included an amount of $100 000 paid to the factory manager.

(iv)

Electricity and water was to be apportioned as follows: Factory Administration

(v)

75% 25%

Rent and rates was to be apportioned as follows: Factory Administration

80% 20%

Required: (a)

Briefly explain the difference between direct costs and indirect costs. (2 marks)

(b)

Calculate the following for Wilson Manufacturing Company for the year ended 30 April 2002:

(c)

(i)

prime cost;

(3 marks)

(ii)

total factory overheads; and

(3 marks)

(iii)

production cost of each unit of finished goods, assuming that Wilson Manufacturing Company had produced 400 000 units of finished goods during the year. (3 marks)

Prepare the trading account of Wilson Manufacturing Company for the year ended 30 April 2002. (3 marks)

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2.

(A)

A sole trader notices that there is an overdraft balance in his business bank account. He wants to include his personal bank balance on the balance sheet of his business. What is your advice and why would you give such advice? (2 marks)

(B)

On the date of the financial year end, 31 March 2002, the bank statement of Don Limited showed a credit balance of $108 916 and the cash book showed a debit balance of $104 337. An examination of the bank column in the cash book and the bank statement disclosed the following: (i)

The following cheques had not yet been presented to the bank for payment: Cheque Number 102331 102345

(ii)

$ 4 000 7 400

On 31 March 2002, the company instructed the bank to stop payment of the cheque numbered 102331, which was issued to a supplier. A service charge of $60 had been debited by the bank for this service on the same date. These had not been recorded in the books. A lodgement of $9437 on 30 March 2002 was not recorded by the bank until 1 April 2002.

(iii)

A cheque for $1470, after deduction of a cash discount of 2%, was issued to a supplier on 20 March 2002. The cashier recorded the gross amount in the cash book.

(iv)

Other items shown on the bank statement, but not in the cash book, included: (1)

A dishonoured cheque of $5200 from a customer;

(2)

Interest of $85 charged by the bank;

(3)

An autopay item of $3015 for an electricity bill; and

(4)

A direct deposit of $10 946 lodged by a customer.

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Required: (a)

Show the necessary adjustments to be made in the cash book on 31 March 2002. (8 marks)

(b)

Prepare a bank reconciliation statement as at 31 March 2002, commencing with the adjusted cash book balance. (3 marks)

(c)

State the amount of the bank balance that should be shown on the balance sheet of Don Limited at 31 March 2002. (1 mark)

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3.

The financial information of Grand View Limited for the year ended 31 December 2001 is presented below: Profit and loss account for the year ended 31 December 2001 $ $ Cash sales 252 000 Credit sales 1 008 000 1 260 000 Less: Cost of sales Opening stock 210 000 Purchases 955 500 1 165 500 Less: Closing stock 385 000 780 500 Gross profit 479 500 Less: Operating expenses 360 500 Net profit 119 000

Balance sheet as at 31 December 2001 Assets Office equipment Furniture and fittings Stock Debtors Bank

$ 1 145 000 381 000 385 000 262 500 451 500 2 625 000

Liabilities and shareholders’ fund Creditors Accruals Ordinary share capital Retained profits

$ 420 000 119 000 1 925 000 161 000 2 625 000

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Grand View Limited had also produced the following ratios for the year 2000. Current ratio Quick ratio Stock turnover rate Debtors’ collection period Net profit ratio Return on capital employed

1.93 : 1 1.01 : 1 3.02 times 3.26 months 10.07% 6.11%

Required: (a)

Compute the following ratios for the year 2001: (i)

Current ratio

(ii)

Quick ratio

(iii)

Stock turnover rate

(iv)

Debtors’ collection period (in months)

(v)

Net profit ratio

(vi)

Return on capital employed

(Calculations to two decimal places) (9 marks) (b)

Based on the ratios for the year 2000, comment briefly on the liquidity and profitability of the company for the year 2001. (5 marks)

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4.

(A)

State any two causes of depreciation.

(3 marks)

(B)

On 1 January 1998, Johnny Manufacturing Company purchased a new machine for $262 500 and paid freight charges of $7500, installation cost of $15 000 and annual maintenance fee of $1650. The company estimated that the machine would have a useful life of 8 years and a scrap value of $21 384. The financial year of the company ends on 31 December. Required: (a)

Calculate the cost of the machine to be capitalised by Johnny Manufacturing Company. (2 marks)

(b)

Calculate the annual depreciation on the machine for the years 1998, 1999 and 2000 if the company adopted the reducing balance method and a depreciation rate of 30% per annum. (3 marks)

(c)

Suppose the company decided to use the straight-line method of depreciation. (i)

Calculate machine.

the

annual

depreciation

on

the

(2 marks) (ii)

Prepare the necessary journal entries to record the disposal of the machine if it was sold for $155 000 on 31 March 2002. (Narrations are not required.) (4 marks)

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SECTION B Answer any TWO questions from this section. Each question carries 29 marks. 5.

(A)

List six types of errors that do not affect the agreement of the debit and credit totals of a trial balance. (3 marks)

(B)

The trial balance of May Limited at 31 March 2002 did not agree and a suspense account was debited with the difference. The draft net profit for the year amounted to $67 246. Subsequent checking of the records revealed the following: (i)

A credit purchase of furniture for $5000 had been recorded in the purchases day book. The company provides for depreciation at the rate of 25% on the cost of furniture held at the end of each financial year.

(ii)

The closing stock at 31 March 2002 was over-valued by $1347.

(iii)

Free samples received from the suppliers had been wrongly recorded as credit purchases of $1000.

(iv)

A partial loan repayment of $6000 had been recorded correctly in the cash book. However, it was recorded as $600 in the loan interest account.

(v)

The sales day book was overcast by $1870.

(vi)

Discounts allowed of $460 had been debited to sales as $640.

(vii)

An increase in the provision for doubtful debts of $900 had been treated as a bad debt on 31 March 2002.

(viii)

A payment for telephone expenses of $540 had been recorded twice in the insurance account.

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Required: (a)

Prepare the necessary journal entries to correct the above. (Narrations are not required.) (12 marks)

(b)

Draw up the suspense account.

(c)

Prepare a statement to correct the draft net profit for the year ended 31 March 2002. (9 marks)

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(5 marks)

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6.

The trial balance of Star Limited at 31 March 2002 was as follows: $ $ 3 000 000 ordinary shares of $0.5 each, fully paid 1 500 000 8% loan (borrowed in 2000 and repayable in 750 000 2005) Office equipment, at cost 3 000 000 Furniture and fittings, at cost 3 300 000 Provision for depreciation, 1 April 2001 Office equipment 625 000 Furniture and fittings 1 125 000 General reserve 105 000 Retained profits 310 912 Trade debtors 910 500 Trade creditors 574 908 Stock, 1 April 2001 42 650 Share premium 125 000 Provision for doubtful debts, 1 April 2001 19 865 Loan interest 30 000 Sales 6 062 500 Purchases 2 235 614 Sales returns 33 725 Carriage inwards 8 400 Wages and salaries 800 000 Rent and rates 768 450 Cash at bank 69 446 Interim dividend 60 000 Administration expenses 597 100 Selling and distribution expenses 442 300 Shares issue 1 100 000 12 298 185 12 298 185 Additional information: (i)

Stock as at 31 March 2002 amounted to $48 050.

(ii)

The following adjustments were to be made on 31 March 2002: Accrued wages and salaries Prepaid rates

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$ 10 600 3 900

(iii)

Trade debts amounting to $85 000 were to be written off and a provision for doubtful debts was to be maintained at 3% of trade debts.

(iv)

A piece of fully depreciated office equipment costing $92 000 was sold for $6000. The company only recorded the proceeds from the sale in the bank account and the sales account.

(v)

Depreciation was to be charged as follows: Office equipment − 10% on cost Furniture and fittings − 20% on net book value

(vi)

In October 2001, 1 000 000 ordinary shares were offered to the public at $1.10 per share. The company only debited the cash at bank account and credited the shares issue account. The new shares were also entitled to the final dividend proposed for the year.

(vii)

The board of directors proposed transferring $150 000 to the general reserve and to declare a final dividend of $0.03 per share.

Required to prepare: (a)

the trading, profit and loss and appropriation accounts of Star Limited for the year ended 31 March 2002, and (16 marks)

(b)

the balance sheet of Star Limited as at the same date.

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(13 marks)

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7.

Au, Fok and Mak were partners sharing profits and losses in the ratios of 2:1:2 respectively. The balance sheet of their business as at 30 April 2002 was as follows: $

$

Fixed assets Plant and machinery Furniture Motor vehicles

272 250 60 750 96 750 429 750

Current assets Stock Debtors Bank Less:

Current liabilities Loan – Fok Creditors

108 000 31 500 78 975 218 475 90 000 72 000

162 000

Capital accounts Au Fok Mak Current accounts Au Fok Mak

$

56 475 486 225 195 750 117 000 144 000 456 750

16 325 12 600 550

29 475 486 225

On 1 May 2002, the partners decided to dissolve the partnership on the following terms: (i)

Au was made responsible for collecting the debts due to the firm. He was entitled to a commission of 2% on all sums received. Consequently, a cash discount of $1000 was allowed and debts amounting to $3500 proved to be uncollectible.

(ii)

Plant and machinery were sold at a price of 20% below book value.

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(iii)

The furniture was taken over by Au and Fok at agreed values of $29 000 and $20 000 respectively.

(iv)

Mak took over the motor vehicles at only $10 000, but he was also personally responsible for paying off 60% of the creditors.

(v)

The remaining creditors were settled by the firm and a discount of 5% was received.

(vi)

A customer bought the stock at a price of 75% of the book value.

(vii)

Fok’s loan was repaid.

(viii)

Realisation expenses amounted to $29 600.

Required to prepare: (a)

the realisation account;

(14 marks)

(b)

the bank account; and

(7 marks)

(c)

the partners’ capital accounts in columnar form, showing the final settlement among them. (8 marks)

END OF PAPER

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