HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

SECTION A
Answer any FOUR questions from this section. Each question carries 10 marks.

1. Ronald Limited has the following assets as at 31 Match 1999:

i. A piece of equipment was purchased for $180000 less a trade discount of $5000.
Ronald Limited paid transportation expenses of $2000 and insurance of $1800 for
transporting the equipment to the office. The company also purchased consumables
costing $500 for operating the equipment. Accumulated depreciation to 31 March 1999
amounted to $38000. The equipment can be sold for $128000.
ii. Cash in hand amounted to $78000.
iii. Debtors amounted to $216000, with $6400 being considered as doubtful.
iv. Ronald Limited purchased office premises for $2328000 and paid solicitor’s fees of
$19700. A valuation of $2200000 is quoted by the bank on 31 March 1999.
Required:
Prepare the balance sheet extracts as at 31 March 1999 to report the above items assuming
that:
a. Ronald Limited continues as a going concern. (6 marks)
b. Ronald Limited goes out of business in the next few months. (4 marks)

2. On 28 February 1999, the bank statement for Jade Limited showed a credit balance of $12848
and the cash book showed a debit balance of the same amount on the same date. At 31 March
1999, the cash book showed totals of cash receipts and cash payments of $147980 and
$152408 respectively.
The entries in the cash book were checked against the bank statement for the month of March
and the following were found:
i. Cheques issued amounting to $15098 had not been presented to the bank for payment.
ii. Lodgments totalling $4972 for March were not recorded by the bank until 2 April.
iii. A cheque of $10050 banked on 6 March was recorded as $10500 in the cash book.
iv. These items were shown on the bank statement but not in the cash book:
(1) Bank charges of $87;
(2) A direct deposit of $8919 lodged by Charles Limited;
(3) Dividend on investment of $275;
(4) Dishonoured cheques from Better Limited in the amount of
$964; and
(5) An autopay item of $2462 for a gas bill.

v. $643 paid into the bank had been entered twice in the cash book.
Required:
a. Show the necessary adjustments to be made in the cash book on 31 March 1999.
(7 marks)
b. Prepare a bank reconciliation statement as at 31 March 1999, commencing with the
adjusted cash book balance. (3 marks)
1
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

3. The financial statements of Global Limited are presented below:

Profit and Loss Accounts for the years ended 31 March
1999 1998

$ $
Credit sales 800400 718800

Less: Cost of goods sold 453600 339600

Gross profit 346800 379200
Less: Operating expenses 264000 289200
Net profit 82800 90000

Balance Sheets as at 31 March

1999 1998 1997

$ $ $
Fixed assets (at net book value) 344400 331200 350500

Current assets
Stock 422400 383200 220800
Debtors (net) 249600 181200 165600
Bank 50400 32000 64300
722400 596400 450700
1066800 927600 801200
Capital and reserves
$1 Ordinary shares 190000 170000 170000
Retained earnings 238000 155200 65200
428000 325200 235200
Long-term liabilities 295600 282000 256000
Current liabilities
Creditors 321800 303500 301400
Accruals 21400 16900 8600
343200 320400 310000
1066800 927600 801200
Required:
a. Compute the following ratios for 1999 and 1998:
(i) Net profit ratio
(ii) Return on shareholders’ fund
(iii) Quick ratio
(iv) Debtors’ collection period (in months)
(Calculations to two decimal places.) (7 marks)

b. Comment briefly on the profitability and liquidity of Global Limited for 1999. (3 marks)

4. The annual stocktaking of Wilson Limited did not take place on the day of the company’s year
2
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

end, 31 March 1999. However, stock was taken on 10 April 1999 when the business closed for
the weekend. The stock value of $38625 as at 10 April 1999 was used in the calculation of total
current assets at 31 March 1999, which amounted to $69864.
Subsequent investigation revealed the following:
i. During the period from 1 to 10 April 1999, the company recorded the following:
$
Sales 12600

Sales returns 600

Purchases 10500
Purchases returns 700
ii. A gross profit margin of 20% was achieved on all normal sales.
iii. Included in sales was an amount of $1000 sales to employees. A special discount of
$200 had been given on this sale.
iv. A quantity of stock included at cost of $850 on 10 April 1999 should have been treated
as worthless on 31 March 1999.
v. A stock sheet prepared to 10 April 1999 had been undercast by $410.
Required:
a. Compute the amount of stock as at 31 March 1999. (8 marks)
b. Show the corrected total current assets at 31 March 1999.
(2 marks)

5. Discount Store started selling goods on hire purchase terms on 1 January 1997. During 1997,
goods costing $250000 were sold for $400000. A deposit of 20% of the hire purchase price
was received upon each hire purchase sale and instalments amounting to $90000 were duly
received.
In 1998, Discount Store recorded the following:
$
Hire purchase sales 550000

Cost of hire purchase sales 343750

Deposits received – 20% on hire purchase sales ?
Instalments received in respect of 1997 sales 120000
Instalments received in respect of 1998 sales 140000
It is the store’s policy to recognise profit on hire purchase sales in proportion to cash actually
received during the year.
Required to prepare for the year ended 31 December 1998:
a. a hire purchase debits account. (4 marks)
b. a provision for unrealised profit account. (3 marks)
c. a hire purchase trading account (3 marks)

3
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

6. Tam and Lam entered into a joint venture to buy and sell second-hand office equipment. It was
agreed that each would be entitled to a commission of 5% on sales satisfactorily completed by
the respective venturer, and that the joint venture profits and losses would be share, Lam 3/5
and Tam 2/5.
The following transactions took place in 1999:
January 1 Tam sent Lam a cheque for $20000.
15 Lam purchased a photocopying machine for $18500 and Tam
spent $1880 on re-conditioning the machine. The
transportation cost of $300 was to be paid by Tam.
20 Tam purchased a computer for $10200.
February 1 The photocopying machine was sold by Lam for $30000. The
transportation cost of $500 was paid and borne by the buyer.
8 Tam sold the computer for $13000.
12 The computer was returned as defective and $12000 was paid
by Lam to the customer as full settlement.
March 1 Lam bought spares, components and other materials for $1050
to repair the defective computer. He was to charge wages of
$450 to the joint venture for his work.
15 Tam sold the computer for $13400. The sales proceeds were
collected by Lam.
31 Tam and Lam decided to terminate the joint venture and settle
their accounts.

Required to prepare:
a. the joint venture with Tam account in Lam’s books. (4 marks)
b. the joint venture with Lam account in Tam’s books. (3 marks)
c. a memorandum joint venture account. (3 marks)

SECTION B
Answer any THREE questions from this section. Each question carries 20 marks.

7. The trial balance of Adrian Limited as at 31 March 1999 failed to agree and the total balances
extracted from the sales ledger amounting to $28634 was not in agreement with the balance of
$26743 in the debtors control account.
Subsequent checking of the records revealed the following:
i. A receipt of $4000 from K. Yu, a debtor, had been treated as cash sales.
ii. Credit sales of $2000 to A. Fu had been recorded only in the personal account in the
sales ledger.
iii. A debit balance of $935 in the bank account had been included in the trial balance as an
overdraft.
iv. A prepayment of rates of $1000 was wrongly adjusted at year end as an accrual.
v. The debtors’ accounts of C. Au $375 and K. Choi $637 were considered doubtful and the
provision for bad debts was to be adjusted accordingly.
vi. The returns inwards book was undercast by $109.
vii. Consumable goods costing $1200 were taken from the showroom for office use, but it
was recorded as credit sales of $1500 to B. Lee.
4
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

viii. The discounts allowed account was overcast by $84.

Required:
a. Prepare journal entries to correct the above. (Narrations are not required.) (11 marks)
b. Draw up the debtors’ control account to correct the balance and prepare a statement to
reconcile this corrected balance with the total balances of the sales ledger. (6 marks)
c. Draw up the suspense account. (3 marks)

8. Edmond and Fred were in partnership sharing profits and losses in the ratio of 2:1. They made
up their accounts annually to 31 March.
The following trial balance was extracted on 31 March 1999:
$ $
Partners’ capital accounts

Edmond 68200
Fred 22000
Loose tools, valued as at 31 March 1998 48400
Leasehold premises 110000
Motor vehicle - at cost
79800
- provision for depreciation as at 31 March 1998 37920
Stock as at 31 March 1999 13640
Debtors 3960
Loan – Edmond at 8% p.a. 74000
Bank overdraft 57640
Creditors 14080
Gross profit 120120
Operating expenses 114400
Partners’ drawings
Edmond 13200
Fred 10560
393960 393960
On 31 March 1999, loose tools were valued at $39600. Provision of $15960 was to be made for
depreciation of the motor vehicle and $2640 was to be accrued for operating expenses.
The partnership was dissolved on 1 April 1999 on the following terms:
i. Edmond took over the stock for $11000.
ii. Fred took over the motor vehicle for $24000 and part of the loose tools for $16500.
iii. The leasehold premises were sold for $143000.
iv. The remaining loose tools were sold for $18700.
v. $3800 was collected from debtors, the balance being taken over by Edmond.
vi. Edmond’s loan and interest for the year were repaid.
vii. Other liabilities were paid in full.
viii. Realisation expenses amounted to $4201.
5
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

Required to prepare:
a. a profit and loss account for the year ended 31 March 1999. (3 marks)
b. a realisation account. (8 marks)
c. the bank account. (5 marks)
d. the partners’ capital accounts (in columnar form) showing the final settlement on
dissolution. (4 marks)
9. The following trial balance was extracted from the books of Rock Limited, a candy manufacturer,
on 30 April 1999:
$ $
Ordinary share capital of $1 each 240000

General reserve 50000

Retained profits 48423
Machinery – at cost 873800
- accumulated depreciation as at 1 May 1998 167180
Motor vehicles – at cost 134240
- accumulated depreciation as at 1 May 1998 74280
Stock as at 1 May 1998
Raw materials 165300
Work in progress 27200
Finished goods 72910
Debtors and creditors 127500 83920
Sales 2186400
Purchases of raw materials 936440
8% debentures (issued in 1990) 200000
Bank 70560
Wages 60790
Salaries 240680
Rent and rates (3/5 office; 2/5 factory) 243620
Selling expenses 97163
3050203 3050203
Additional information:
i. Stock as at 30 April 1999:
$
Raw materials 97200

Work in progress 30200

Finished goods 88400
ii. Depreciation was to be provided for:
Machinery 20% on cost
Motor vehicles 25% on net book value

iii. Analysis of the wages figure revealed:

6
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED
$
Debenture interest 48632

Factory maintenance 12158

iv. Accruals at 30 April 1999 were:
$
Debenture interest ?

Rent 4380
v. Rock Limited recently agreed to act as the consignee for Mountain Sweet Limited at a
commission of 10% on sales. Consignment sales of $115000 were credited to the sales
account and consignment expenses of $26500 were included in selling expenses. The
unsold consignment goods were included in the closing stock of finished goods at
$25000. No information about the sales has been given to the consignor and no
settlement has yet been made.
vi. The directors proposed to transfer $20000 of the profits to general reserve and declare
a final dividend of 30%.
Required to prepare:
a. a manufacturing trading and profit and loss account (with the section on appropriations) for
the year ended 30 April 1999. (11 marks)
b. a balance sheet as at the same date. (9 marks)

10. Ben Wong operates a small retail business which closes on Sundays. Every Monday morning,
he deposits cash takings of the previous week into the bank. His shop was broken into on the
night of Monday, 15 March 1999, and all the cash was stolen.
Subsequent investigation revealed the following:
i. On 1 March 1999, after banking the cash takings of the previous week, Ben Wong
extracted the following account balances from the books:
$
Bank 98627.60

Cash 4276.80
Petty cash 503.60
ii. The cost of sales to customers were:
Cash Credit
1999 $ $
1 to 6 March 39317.00 169400.00

8 to 13 March 45223.00 208500.00

15 March 7132.00 32470.00
iii. The following had been paid out of cash before the takings were banked:
1999 $
2 March Salaries 15000

10 March Electricity expenses 3180

7
HKCEE-PRINCIPLES OF ACCOUNTS-1999 ALL RIGHTS RESERVED

iv. All the trade debtors as at 28 February 1999, amounting to $46103.80, and 70% of the
credit customers who made purchases during the period 1 to 13 March 1999, settled
their accounts by cheque.
v. Trade creditors amounting to $414905.80 were settled by cheque during 1 to 15 March
1999 and cash discounts of $26245.30 were received.
vi. Rent of $81000 for 3 months 31 May 1999 was paid on 5 March 1999 by cheque.
vii. The petty cash imprest account as restored to $1000 on 1 March 1999 by a withdrawal
from the bank. Subsequent disbursements to 15 March 1999 amounted to $401.70.
Required to prepare statements to show:
a. the amount of cash stolen on 15 March 1999. (11 marks)
b. the balance on the bank account as at 15 March 1999. (9 marks)

END OF PAPER