MADAM LAU KAM LUNG SECONDARY SCHOOL

OF MIU FAT BUDDHIST MONASTERY

Mid-year Examination, 2021-2022
Date: 5th January 2022
Form: 5 Subject : BAFS Time allowed: 2 hours 15 mins
Instructions :
1. Answer ALL questions with ALL workings.
2. Write your answers on the answer book provided.
3. Full mark: 80

Name: ________________________________________( ) Class:___________

1. Mark started his business as a sole proprietor on 1 January 2015. All purchases and sales were
made on credit.

On 31 December 2016, a fire broke out in the warehouse. All inventory, except some goods costing
$15,000, was destroyed. Although many of the records were destroyed in the fire, the following
information was available after investigation:

(i) Information on assets and liabilities was confirmed as follows:

31.12.2015 31.12.2016
$ $
Motor van, net 24,000 ?
Inventory 143,000 15,000
Trade receivables 12,100 13,700
Trade payables 149,700 135,000
Accrued sundry expenses 2,440 2,180
Cash at bank 61,800 ?

(ii) The balance as per bank statement as at 31 December 2016 was $99,180.

(iii) During 2016, receipts from customers $1,404,900 were banked, after payments of part-time
staff salaries $89,400 and Mark's drawings $29,500.

(iv) The bank statements of 2016 showed that total payments made to trade suppliers amounted
to $987,970. A cheque of $1,200 issued in December 2016 for purchase of goods in 2016 was
not presented until 10 January 2017.

(v) Sales were made at a gross profit margin of 30% in 2016, except for some outdated goods,
costing $50,000, which were sold at cost.
F.5 BAFS Mid-year Examination (2021-2022) P.1 of 7
 (vi) A 2% term deposit was made by transferring $20,000 from the cash at bank account on 1 July
2016. The term deposit will mature on 1 July 2019

(vii) The payment for rent and rates of $127,750 in 2016 included a rental deposit of $8,000 for a
short-term tenancy agreement.

(i) During 2016, full-time staff salaries and sundry expenses of $129,000 and $42,800
respectively were paid.

(ix) In 2016, Mark injected $10,000 cash into the business and withdrew $70,000 from the bank
for his personal use.

(x) The motor van was brought in by Mark at the commencement of the business. Depreciation
is to be provided on the motor van at 20% per annum on cost.

REQUIRED:
(a) For Mark's business, prepare
(i) an income statement for the year ended 31 December 2016, and (10 marks)
(ii) a statement of financial position as at 31 December 2016, showing the change in capital
during the year. (7 marks)

(b) Briefly explain the meanings of normal loss and abnormal loss of inventory. Identify the type
of inventory loss caused to Mark's business by the fire. (3 marks)

2. On 1 January 2020, Sophie received goods costing $50,000 from a friend. She then rented a shop
to start a business. She invested $29,285 to decorate her shop. However, she is not familiar with
accounting. For the year ended 31 December 2020, the company’s financial information was as
follows:
(i) As the company could not carry out the inventory-count on 31 December 2020, Sophie
decided to carry it out on 4 January 2021 and the inventory was valued at $65,000.
(ii) The purchases and sales for the period 1 to 4 January 2021 were $850 and $10,000
respectively.
(iii) On 3 January 2021, Sophie withdrew goods for her own use at the selling price of $35,000.
(iv) Three items of damaged goods, costing $3,000 each, were found during the inventory-count.
She replaced the damaged parts at a cost of $400 each. After replacing the damaged parts,
the selling price was 10% lower than the original cost.
(v) The following accounting ratios were calculated for 2020:
(1) The gross profit margin and net profit margin were 75% and 30% respectively.

F.5 BAFS Mid-year Examination (2021-2022) P.2 of 7

 (2) The average trade receivables collection period and average trade payables repayment
period (using the year-end figures) were one month and three months respectively.
(3) The current ratio was 2:1.
(4) The inventory turnover was 8 times.
(vi) Office equipment was the only non-current asset of the company. It was depreciated at 20%
per annum using the straight-line method. It is the company policy to calculate the full
depreciation in the year of purchase and show the depreciation expenses and operating
expenses separately.

REQUIRED:
(a) Prepare for Sophie’s company the income statement for the year ended 31 December
2020 and the statement of financial position as at that date. (12 marks)

Sophie decided to take the following decisions:

Decision 1: To improve customers’ confidence in the company, Sophie plans to launch a refund
scheme in the next financial year. Customers will be guaranteed to be refunded in full if they
return goods within three days of purchase. She thinks that only a few customers will ask for a
refund and she is not making provision for the refunds with the estimated amount of $10,000.

Decision 2: Sophie plans to advertise online in the next financial year. She believes the
advertising can improve the company’s reputation. Therefore, she has capitalised the advertising
expenditure of $20,000 as goodwill and shown this in the statement of financial position.

REQUIRED:
(b) Explain the accounting principle or concept violated in Decision 1 and Decision 2
respectively. (6 marks)
(c) Prepare the adjusting accounting entries for Decision 1 and Decision 2 respectively.
(2 marks)

3. Mrs Kwok, the executive director of a limited company, made the following commentary after
reading the financial statements of the company for the previous years:

(a) “I don’t like the existing straight-line depreciation method. Why don’t we change the
depreciation method to reducing balance method?”

(b) ‘The current market value of our plant is $100,000 higher than the book value. We should
increase the value of plant in the books.’

(c) “Although this project has not been finished, we should recognise all the revenue now to
avoid complicated calculation.”
F.5 BAFS Mid-year Examination (2021-2022) P.3 of 7
 REQUIRED:
State and explain the accounting principle or concept that has been violated in the above
comments of Mrs Kwok. (9 marks)

4. Ken, Mandy and Jasmine were in partnership sharing profits and losses in the ratio of 2:2:1
respectively. The balance sheet as at 31 December 20X7 was as follows:

Ken, Mandy and Jasmine

Balance Sheet as at 31 December 20X7
Cost Accumulated Net book
depreciation value
$ $ $
Non-current Assets
Office furniture 120,000 45,000 75,000
Machinery 90,000 20,000 70,000
210,000 65,000 145,000
Current Assets
Inventory 80,000
Accounts receivable 133,000
Bank 40,000
Cash 20,000
273,000
Less: Current Liabilities
Accounts payable 120,000
Net current assets 153,000
298,000
Financed by:
Capital accounts: Ken 98,000
Mandy 96,000
Jasmine 48,000 242,000

Current accounts: Ken 19,000

Mandy 21,000
Jasmine 16,000 56,000
298,000

On 1 January 20X7, Jasmine retired from the partnership. The following information was
related:
(i) After Jasmine retired from the partnership, Ken and Mandy would share the profits and
losses equally.
F.5 BAFS Mid-year Examination (2021-2022) P.4 of 7
 (ii) Goodwill was estimated at $40,000. No goodwill account would be maintained in the
books of the partnership.
(iii) The partnership prepared to settle the balance due to Jasmine by borrowing a bank loan of
$50,000. The remaining balance would be settled by cheque. The interest rate of the loan
was 5% per annum.

Current accounts would not be maintained in the new partnership. Existing balances of current
accounts would be transferred to partners’ respective capital accounts.

REQUIRED:
(a) Prepare the capital accounts of in columnar form to record Jasmine’s retirement. (5 marks)

During the year ended 31 December 20X8, the partnership made a net loss of $40,000 before
appropriation (including the interest paid for bank loan). Depreciation of $15,000 and $10,000
had been provided on office furniture and machinery respectively. The following balances were
extracted from the books as at 31 December 20X8.

$
Inventory 30,000
Accounts receivable 100,000
Cash 47,000
Accounts payable 61,000

On 1 January 20X9, the partnership was dissolved. You are given the following information of
the dissolution:
(i) Office furniture was sold at $50,000 in cash.
(ii) Ken took over inventory at 90% of the cost and Mandy took over the machinery at book
value.
(iii) Only 85% of accounts receivable were collected in cash and the remaining was treated as
bad debts.
(iv) All accounts payable were settled with 3% discounts given by creditors.
(v) Realisation expenses of $980 were paid by cash.
(vi) The 5% bank loan was settled in cash in full.
(vii) The share of losses was entered into capital accounts directly.

REQUIRED:
(b) Prepare the realisation account. (5 marks)
(c) Prepare the capital accounts in columnar form showing clearly the final settlement upon
dissolution. (4 marks)

F.5 BAFS Mid-year Examination (2021-2022) P.5 of 7

5. Hansan Ltd undertakes electrical work according to customers' requirements. It has prepared the
following budgeted information for the year 2014:
$
Direct material cost 500,000
Direct labour cost 2,850,000
Production overheads 780,000
Administrative overheads 400,000
Budgeted activity levels include:
Machine hours 5,000 hours
Direct labour hours 60,000 hours

Hansan Ltd uses a plant-wide predetermined production overhead absorption rate based on direct
labour hours to allocate production overheads to jobs.

REQUIRED:
(a) Calculate the predetermined production overhead absorption rate for the year 2014.
(2 marks)
(b) State one rationale for Hansan Ltd's choice of using the existing absorption base to calculate
its predetermined production overhead absorption rate. (2 marks)

The company has to price a job that would be started and completed in 2014. Information relating
to the job is as follows:

(i) Direct materials: $250 per metre. 100 metres are required.

(ii) Direct labour - Electricians: $60 per hour. 200 hours are required.
- Apprentices: $35 per hour. 300 hours are required.

Administrative overheads are allocated to the job based on 55% of direct labour cost. The
company maintains a mark-up of 50%.

REQUIRED:
(c) Calculate the selling price of this job, showing separately the amount of:
- prime cost
- production cost
- total cost (6 marks)

F.5 BAFS Mid-year Examination (2021-2022) P.6 of 7

6. The following related to the costs of Peter Manufacturing at activity levels of 85,000 and 115,000
units respectively.
Level of activity
85,000 units 115,000 units
Direct materials $578,000 $782,000
Direct labour $2,057,000 $2,783,000
Water and electricity $14,050 $17,950
Insurance $9,000 $9,000

REQUIRED:
(a) (i) Calculate the direct materials per unit. ,(1 mark)
(ii) Calculate the direct labour per unit. (1 mark)
(iii) State the nature of cost by behavior of the above items. ,(2 marks)

(b) You are further given the production overheads of the company in 20X7:

Month Machine hours Production overhead

$
January 1,560 4,500
February 1,300 3,830
March 1,440 4,180
April 1,580 4,550
May 1,700 4,830
June 1,680 4,790

The budgeted machine hours in July 20X7 are 1,640.

REQUIRED:
Estimate the production overheads for July 20X7 using the high low method. (3 marks)

End of Paper

F.5 BAFS Mid-year Examination (2021-2022) P.7 of 7