HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED

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

1. Show the entries required to record the following transactions and the effects on the accounting equation
(Assets = Liabilities + Capital).
Transactions Entries required Effects in the accounting
equation
(i) Proprietor took goods worth $700 for
his personal use
(ii) Took $200 out of the petty cash and
deposited it into the bank
(iii) Sold surplus stationery for $500 in
cash
(iv) Proprietor paid a creditor $3000
from his own bank account
(v) Received part of the amount owing
from Mr Wai by cheque for $1800

2. The draft balance sheets of Rita Limited as at 31 March 1994 and 1995 are shown below:
Balance Sheets as at 31 March
1994 1995
$ $ $ $
Fixed assets (at net book value)
Plant and equipment 57500 98000
Vehicles 21000 40500
Fixtures and fittings 25000 24000
103500 162500

Current assets
Stock 43000 88500
Debtors 24500 31000
Prepayments 6500 5000
Bank 20000 94000 10000 134500
197500 297000

Ordinary share capital 125000 125000

Reserves 26500 41000
151500 166000
Long tern liabilities
Loan -- 50000

Current liabilities
Creditors 36000 66000
Accruals 10000 46000 15000 81000
197500 297000

Sales were $270500 and $337500 for the years ended 31 March 1994 and 1995 respectively. Corresponding
figures for cost of sales were $184500 and $240500 respectively. Purchases for 1994 amounted to $194500.
Required:
Calculate the flowing ratios for 1994 and 1995:
a. gross profit ratio
b. stock turnover rate
c. current ratio
d. quick ratio
e. credit period received from trade creditors (in months)
HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED

(Calculations to one decimal place)

3. On 1 January 1995, Carmen purchases goods amounting to $15000 from Bob and settled the account by
means of three bills of exchange for $5000 each due respectively in two, three and four months.
On 8 January 1995, Bob discounted the first bill with his bank, receiving $4970. the first two bills were paid on
maturity. Carmen was unable to meet the third bill. She agreed to pay $1000 in cash and accepted another bill
for three months to cover the balance with interest of $50. bob then discounted the bill one 7 May 1995 for
$4022.
On 1 August 1995, Bob was notified that Carmen became bankrupt and the bill had been dishonoured. He
then sent a cheque to the bank for the full amount of the bill plus $25 charges.
Required:
Record the above transactions in the following accounts in Bob’s books:
a. Carmen’s account
b. Bills receivable account
c. Discounting charges account

4. On 1 April 1995, the balances of the debtors and creditors control accounts in the books of Diamond Limited
were $68886 and $46920 respectively. The following summary of transactions is for the months of April 1995.
$
Bad debts 270
Bills receivable dishonoured 2363
Cash sales 3060
Amount due from customers settled by contra with their accounts in the
purchases Ledger 396
Cash received from debtors 61848
Returns outwards 350
Discounts allowed 1107
Bills payable to creditors 5490
Bills receivable from customers 5625
Credit sales 57780
Interest charged on overdue customers’ accounts 180
Cash paid to creditors 40612
Credit purchases 33330
Cash purchases 570
Bad debts recovered (included in cash received from debtors) 114
Discounting charges on bills receivable 76
Carriage inwards 127

Required to prepare:
a. debtors control account
b. creditors control account

5. On 1 May 1994, Sung and Tang entered into a joint venture to sell goods through an agent. They agreed to
share profits and losses in the ratio of Sung 1: Tang 2. Sung supplied goods to the value of $6000 and
incurred freight charges amounting to $400. Tang supplied goods of $3000 and paid for freight $500.
Due to defects in packaging, 5% of all the goods was damaged in transit to the to the agent. The partners
agreed to share this stock loss according to the profit/loss sharing ratio. One month later, Sung promised to
take over the damaged stock at a valuation of $300.
By 30 April 1995, the agent had sold two-thirds of the remaining goods for $10000 and remitted the proceeds to
HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED

Tang after deducting 5% commission on sales. An interim settlement was effected between Sung and Tang on
the same date.
Required:
Prepare for the year ended 30 April 1995:
a. in Sung’s books, joint venture with Tang account
b. in Tang’s books, joint venture with Sung account
c. a memorandum joint venture account

6. On 31 March 1992, Star Limited, which prepared its accounts annually to 30 September, paid a deposit of
$6000 to Sun Limited to acquire a printing machine on hire purchase terms. The cash price of the machine
was half-yearly instalments of $3994 each, payable on 31 March and 30 September. These instalments were
calculated taking into account interest at the rate of 5% per annum. The first instalment was paid on 30
September 1992. the other 5 instalments were paid on the due dates.
Required:
Prepare the following accounts in the books of Star Limited to record the above transactions:
a. Sun Limited account
b. Interest suspense account
(Calculations to the nearest dollar)

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

7. The following trial balance had been extracted from the books of Wilson Limited at 31 March 1995:
$ $
800000 ordinary shares of $1 each, fully paid 800000
250000 10% preference shares of $1 each, fully paid 250000
Stock, 1 April 1994 215000
Office equipment, at cost 1000000
Furniture and fittings, at cost 900000
Provision for depreciation, 1 April 1994
Office equipment 375000
Furniture and fittings 105250
General reserves 35000
12% debentures 300000
Trade debtors 252000
Trade creditors 327150
Cash at bank 518900
Sales 2875000
Purchases 1735000
Interim preference dividend 10000
Interim ordinary dividend 20000
Bad debts 18400
Provision for doubtful debts, 1 April 1994 5250
Debenture interest 36000
Share premium 24000
Retained profits 153000
Share issue 260000
Rent and rates 150000
Wages and salaries 257000
Sundry expenses 25600
Discounts 2700 1950
HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED
Administration expenses 98000
5511600 5511600

Additional information:
i. The authorised share capital comprised 1500000 ordinary shares of $1 each and 300000 10%
preference shares of $1 each.
ii. Stock as at 31 March 1995 amounted to $350000.
iii. Depreciation was to be charged as follows:
Office equipment – 10% per annum on a straight-line basis
furniture and fittings – 10% per annum on a reducing balance basis
iv. The following adjustments were to be made on 31 March 1995:
$
Accrued wages and salaries 4000
Prepaid rent and rates 3000
Provision for doubtful debts was to be maintained at 2% of trade debtors.
v. The directors resolved to transfer $80000 to the general reserve and to propose a final dividend of 5%
on ordinary shares.
vi. In March 1995, 200000 ordinary shares were offered to the public at $1.30 per share. The company
had only debited the cash at bank account and credited the share issue account in respect of this
issue. The new shares were not entitled to the dividend proposed for the year ended 31 March 1995.
Required:
a. Prepare the trading, profit and loss and appropriation account of Wilson Limited for the year ended 31
March 1995 (10 marks)
b. The balance sheet of Wilson Limited as at the same date. (10 marks)

8. Chan, Lee and Wong, having carried on business as toys and stationery retailer for a number of years, decided
to dissolve their partnership on 30 April 1995. They had been sharing profits and losses equally.
At the date of dissolution, their draft balance sheet was as follows:
Balance sheet as at 30 April 1995
$ $ $
Goodwill 6000 Capital accounts:
Leasehold premises 21000 Chan 30000
Equipment: Lee 25000
Toys department 7250 Wong 2900
Stationery department 4400 11650 57900

Stock: Creditors 16400

Toys department 4800
Stationery department 5600 10400
Debtors 6250
Bank 9000
Consignment to Flash Limited 10000
74300 74300

During the year to the date of dissolution, the partnership had consigned goods costing $10000 to Flash
Limited. On 30 April 1995, the partnership received an account sales showing that all goods had been sold for
$8000 and Flash Limited had paid freight of $200. Flash Limited was entitled to a commission of 10% on
sales. A cheque for the net amount was entitled to a commission of 10% on sales. A cheque for the net
amount was enclosed with the account sales. No entries had yet been made in the partnership books in
HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED

respect of the information supplied by the consignee.

It was further agreed that the partnership be dissolved on the following terms:
i. Goodwill was to be written off.
ii. Dissolution expenses amounted to $2200.
iii. Chan was to take over the leasehold premises at $18000, toys stock at $5200 and toys equipment at
$5700.
iv. Lee was to take over the stationery stock at $6100 and the equipment of that department at $3890.
v. The debtors realised $5550; the proceeds being retained by Chan. The loss on debtors was to be
shared by Chan, Lee and Wong in the ratio of 3:2:2.
vi. The creditor were to be paid by Chan.
vii. Since Wong was insolvent, he was only required to contribute $500 towards his share of partnership
loss.
Required to prepare:
a. the realisation account (6 marks)
b. the bank account (3 marks)
c. the partners’ capital accounts, including the final settlement among them (11 marks)

9. Mr Ho started a retail business on 1 April 1994. the only records he kept consisted of entries in a notebook. An
analysis of his bank statements for the year ended 31 March 1995 was as follows:
$
Paid into bank:
Capital 200000
Receipts from debtors 108200
Cash sales 140800

Payments:
Office equipment 98000
Fixtures and fittings 38000
Purchases 237000
Rent and rates 18000
Electricity 6000
Sundry expenses 13500

Apart from the following cash payments, the cash sales were all banked:
$
Drawings 38000
Travelling expenses 2100
Wages 23000
Sundry expenses 3200

The record in his notebook showed that cash discounts allowed to credit customers were $2800 and discounts
received from suppliers amounted to $2100. Bad debts written off during the year were $1200.
On 31 March 1995, Mr Ho estimated that $28200 was owed by customers while liabilities to suppliers
amounted to $33500. Stock on hand was valued at $29350 and depreciation of office equipment and fixtures
and fittings was to be provided at 20% per annum and 10% per annum respectively.
Required to prepare:
a. the cash account and the bank account (7 marks)
b. the trading and profit and loss account for the year ended 31 March 1995 (8 marks)
HKCEE PRINCIPLES OF ACCOUNT – 1995 ALL RIGHTS RESERVED

c. the balance sheet as at 31 March 1995 (5 marks)

10 The draft accounts of Rose Limited for the year 30 April 1995 showed a net profit of $47627.
At the draft stage, there was a net difference of $190 in the trial balance. A suspense account was opened to
record this. During subsequent investigations, the following errors were discovered:
i. The company has acquired additional office space from 1 November 1994 at an annual rental of
$30000, payable quarterly in advance. The first two payments were made on 1 November 1994 and 1
February 1995 respectively, but in preparing the draft accounts for the year ended 30 April 1995 the
bookkeeper mistakenly thought that, these payments were made in arrear and had raised an accruals
account.
ii. The company has sub-let part of the office referred to (i) above at a quarterly rental of $4000, payable
in advance from 1 February 1995. The tenant paid the rental for the first three months on 1 February
1995. The bookkeeper had debited it to the bank account and credited it to the premises account.
iii. Trade debtors were shown as $55210. however, a bad debt of $610 had not been written off. The
existing provision for doubtful debts, $1300 should have been adjusted to purchases account. It was
the company’s policy to depreciate equipment at 10% per annum on cost.
iv. A piece of equipment costing $12000 and acquired on 1 May 1994 for used in the business had been
debited to purchases account. It was the company’s policy to depreciate equipment at 10% per annum
on cost.
v. Items valued at $1175 had been completely omitted from the closing stock figure.
vi. The debit side of the wages account had been over-added by $100.
vii. Credit purchases of $2980 had been correctly debited to the purchases account but had been credited
to the supplier’s account as $2890.
Required:
a. Show the journal entries necessary to correct the above errors. [No narration is required] (13 marks)
b. Prepare a statement correcting the draft net profit for the year ended 30 April 1995. (5 marks)
c. Draw up the suspense account. (2 marks)
(Calculations to the nearest dollar)