2024-DSE

BAFS TAUTHORITY
AND ASSESSMEN
PAPER 2A HONG KONG EXAMINATIONS EXAMINATION 2024
H DARY EDUCATION
ONG KONG DIPLOMA OF SECON

TING AND FINAN CIAL STUDIES PAPER 2A

BUSINESS, ACCOUN
Accounting Module

minutes)
10:30 am - 12:45 pm (2 hours 15
lish
This paper must be answered in Eng

INSTRUCTIONS

er.
(1) There are three sections in this pap
wer two of the
pulsory. You are required to ans
(2) All questions in Section A are com
ns in Section C.
th ree questions In Section B and one of the two questio
t part of a
book. Start EACH question (no
(3) Write your answers in the answer
question) on a NEW page.

Not to be taken away before the

end of th e examination session

2024-DSE-BAFS 2A-I

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 SECTION A (24 marks, weighting 30%)

Answer ALL questions in this section.

I. The ~~ancifalthyear of a gift shop ends on 31 December. The shop manager found the following errors in the
recor mg o e transactions made in 2023:

(i) A credit sale of $6 900 was wrongly recorded as $6 600.

(ii) The shop bought a display cabinet for $20 000 by cheque, but it was wrongly recorded as sundry
expenses.

(iii) Travelling expenses of $850 was mistakenly entered in the electricity expenses account.

(iv) The shop signed a one-year tenancy agreement to sublet part of its warehouse starting from
1 November 2023. The monthly rent was $10 000. The tenant paid 12 months' rent by cheque on
31 December 2023. No entries for the above were made in the books.

REQUIRED:

(a) Identify the type of accounting error for each of the transactions (i) to (iv) above. The foJlowing are
some types of accounting errors:
• compensating errors • error of omission
• error of complete reversal of entries • error of original entry
• error of commission • error of principle
(4 marks)

(b) Prepare the journal entries for transaction (iv) above. Narrations are not required. (2 marks)

(c) The salespeople of the gift shop are entitled to 5% commission basing on the sales amount. Sales for
the year 2023 were $500 000 and commission of $25 000 was recorded in the income statement for
the year ended 31 December 2023.

State the most relevant accounting principle or concept, and explain how it is applied to the recording
of the commission above. (2 marks)

(Total: 8 marks)

2024-DSE-BAFS 2A-2

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 I

2. 000 000 and made the following re1atCd

On J JanllJ I~ 20 ses at $9
d. - J 2 2, Tracy Company acquired office premi
f'!'lrfta
-,.,..n •tures:
$
Reno vation cost 700 000
Agen cy fee 18 000
10 000
Mana geme nt fee deposit 8 700
Annu al fire insurance
Legat fee 20 000
35 000
Remo val cost of old fixtures in the premises
REQUIRED:
(a) for the office premises. (4 marks)
Prepare a statement to calculate the cost to be capitalised

of
at a cost of $120 000, with an expected residual value
On I April 2022, Tracy Comp any acquired a van annua lly on vans using the reduc ing-ba lance
ciation of20%
S 15 000. It is the comp any's policy to charge depre
th od. The financial year of the company ends on 31 December.
me
for $60 000. The buyer would settle the amount
on
On I Septe mber 2023 the comp any sold the van
5 Janua ry 2024. '

REQUIRED:
the depreciation expen se and the disposal of
(b) Prepa re the journ al entries on J September 2023 to record (4 marks)
th e van. Narrations arc not required.
(Total: 8 marks)

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J. Nice Company manufactures and sells a single product which is sold at a unit price of $100. It maintains a
variable cost to sales ratio of 70%. The company does not keep inventory of the product.

Budgeted infonnation for May 2024 is extracted below:

Sales: $1200000
Production overheads: $5 per unit
Salary of factory supervisors: Production quantity (unit} Monthly salary
0 to 7 000 $100 000
7 001 to 14 000 $120 000
14 001 to 21 000 $140 000

Factory rent: $150 000 per month

Administrative expenses: Sales quantity (unit) Monthly expenses
7 000 $36 240
14 000 $53 740
21 000 $78 240

REQUIRED:

(a) With reference to the above infonnation, classify each of the following cost items (I) to (4) into fixed
cost, variable cost, mixed cost or step cost:

(1) Production overheads

(2) Salary of factory supervisors
(3) Factory rent
(4) Administrative expenses
(2 marks)

(b) Use the high-low method to calculate the variable component and the fixed component of the
administrative expenses. (2 marks)

(c) Calculate the breakeven sales amount for May 2024. (2 marks)

(d) Calculate the margin of safety (in unit) for May 2024. (2 marks)

(Total: 8 marks)

2024-DSE-BAFS 2A-4

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 SECTION B (24 marks, weighting 45%)

Answer TWO questions in this section. d from the cash book as at

extracte • . M
. The balances II wing transactions m arch
4. Macy operates a shop which sells computer accessories. Th hop made the fo 0
l March 2024 are: cash $28 000 and bank overdraft $8 500. e 5
2024:

March
I b
Sold eight scanners at $700 each to Mr Chan fior cash
202 3 becarne sta Ie and was cancelled.
3 A cheque of $4 000 issued to a supplier on 2 Septe~ .;rd credit. . Kenn Com an
4 Sold computer accessories for $75 000 to Ocean Lum e 00 Company on credit. Y P Y
5 Purchased 100 wireless keyboards at $50 each from Ke~tfun 15 days.
offers a cash discount of 5% if Macy repays the amount WI id by cheque #S44101.
7 Ordered a motor vehicle for $50 000. A deposit of 4o% wKas pay Company. The balance of Kenny
17 Issued a cheque #544102 to settle all the debts owing to enn
Company account on 1 March 2024 was $2 500. March by cheque, with a 4% cash
25 Ocean Limited settled the amount owing for the sales made on 4
discount. fl t After her withdrawal, there was
30 •
Macy withdrew cash from the cash box to pay fior the rent of her a •
$7 000 left in the cash box. tstanding amount for the purchase
31 A cheque #544103 dated 3 April 2024 was issued to settle the ou
of the motor vehicle.

REQUIRED:
(5 marks)
(a) Prepare a three-column cash book for March 2024.

On 2 April 2024, Macy received the following bank statement:

2024 Description Withdrawal($) Deposit($) Balance($)

March 1 Balance b/d 4 500 (Dr.)
1 Overdraft interest 45 4 545 (Dr.)
1 Refer to drawer 1 500 6 045 (Dr.)
5 Bank transfer 25 000 18 955
8 Cheque - 54410 l 20 000 l 045 (Dr.)
15 Direct debit - Internet fee 420 l 465 (Dr.)
26 Cheque deposit 72 000 70 535
30 Salary 8 000 78 535

Additional infonnation:

(i) The difference in the opening balances of the bank statement and the bank account was due to the
cheque $4 000 issued on 2 September 2023.
;
I
(ii) The bank transfer on 5 March 2024 was from a customer.
I
(iii) The bank wrongly credited the salary of another client to the business bank account of Macy. The bank
subsequently made the correction in early April.

REQUIRED:

(b) Update the bank column of the cash book, commencing with the closing balance in (a).
(3 marks)
(c) Prepare a bank reconciliation statement as at 31 March 2024, commencing with th d db
per cash book. e up ate alance as
(3 marks)
(d) What is a stale cheque?
(l mark)

(Total: 12 marks)
2024-DSE-BAFS 2A-5

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5. Betty Limited started its ~perations on 1 January
2022 . On January , there was a flood in the office which
damaged mllI\y accounting records. The accounts clerk7 drafted 2024
the stateme nt of financial position as at
31 December 2023 as below. However, she could not find out the
amounts for some of the items.

Betty Limited
Statement of financial position as at 3 1 December 2023
Assets
t:Jon-current assets $ $
Furniture, net
?
current assets
Inventory
Trade receivables 166 500
Bank ?
Total assets ? ?
?
Equity and liabilities
Equity
Ordinary share capital (507 500 shares issued)
Retained profits ?
543 750
Non-current liabilities ?
3% bank loan
500 000
Current liabilities ?
Trade payables
Interest payable ?
Total equity and liabilities ? ?
?
Before the flood, the accounts clerk calculated some accounting ratios
are shown below: and confirmed some infonnation. Details

(i) All furniture was acquired on 1 January 2022. It is the company's

policy to depreciate its non-current
assets over five years using the straight-line method. On 31
December 2023, the accumulated
depreciation of the furniture was $1 167 000.

(ii) Total sales for 2023 amounted to $2 700 000, of which 80% were
credit sales. The trade receivables
account balance as at 1 January 2023 was $360 000. Trade receiva
bles turnover for 2023 was 8 times.
(iii) The total assets turnover for 2023 was 1.2 times.

(iv) The 3% bank loan was obtained on 1 April 2023. Interest is payabl
e half-yearly on 31 March and
30 September.

(v) The shareholders' fund on 1 January 2023 was $921 250, while
the net profit for the year ended
31 December 2023 was $361 250. The return on capital employ
ed for 2023 was 25%.
REQUIRED:
(a) Use the fonnat given above, prepare the statement of financial
position as at 31 December 2023 for
Betty Limited.
(6 marks)
(b) Calculate (to two decimal places) the following ratios for 2023:
( l) earnings per share
(2) gearing ratio (4 marks)
(c) Betty Limited is planning to issue preference shares. What will be
the effect on its gearing ratio? State
the main difference between preference shares and ordinary shares
in tenns of dividend rate.
(2 marks)
(Total: 12 marks)

2024-DSE-BAFS 2A--f,

20

J
 Product Y, on I January 2023. The
8
·ogle product,
6. Joey Company commenced business to manufacture st
following infonnation for the year 2023 is available:

(i) Actual production cost per unit of Product Y:

$
5.3
J3.5
Direct material cost
Direct labour cost ($45 per direct labour hour) 6
Variable production overheads ?
b h
Fixed production overheads $5 per direct 1a our our. Actual
d 8 b orption rate was
(ii) The predetermined fixed production overhea s the budgeted amount.
fixed production overhead s for 2023 were the same as
. d 7 000 units respectively.
. 45 000 units an 4
(iii) The budgeted and actual production quantity were

(iv) The budgeted and actual sales quantity were the same.

(v) The contribution margin ratio was 35%.

(vi) The closing inventory was 3 500 units.

Th'1 as the same as budgeted. The variable
2023 were $138 7 50: .s :varied with the sales level.
(vii) Actual selling expenses for
component of the selling expenses was $2.5 per umt, whic

REQUIRED:
b 2023 using the marginal costing system.
(6 marks)
(a) Prepare the income statement for the year ended 31 Decem er

· · · · I • h th net profit of2023 wiJI be affected with

(b) If the absorption costmg system 1s used mstead, exp am ow e (2 marks)
·
• g calcu Iatton.
supportm

the company received a one-

Joey Company used only 80% of the production capacity in 2023. In April 2024,
to sell 20 000 units of Product Y at $41 each. The company is required to pay
time order from a customer
will be paid.
$5 000 for delivery of goods to the customer, but no variable selling expenses
same as 2023. The projected
In 2024, the unit selling price of Product Y is $48 and the unit variable costs are the
accepts this one-time order, it
annual demand from the existing customers is 50 000 units. If Joey Company
due to insufficient production capacity.
has to give up some of the orders from the existing customers

REQUIRED:
one-time order.
(c) With supporting calculations, explain whether Joey Company should accept this
(4 marks)

(Total: 12 marks)

2024-DSE-BAFS 2A-7

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 sECTION C (20 marks, wel&htlng 25'1.)

Answer ONE question in this section.

7. Ann and Ben ~ere in partnership, sharing profits and losses in the ratio of 2: I. The trial balance as at
31 March 2023 1s as follows:
Dr Cr
$ $
Capital accounts:
- Ann 200 000
- Ben 100 000
Current accounts:
- Ann 650
- Ben 22 355
Office equipment, net
120 000
Furniture, net
30 000
Inventory
20 500
Trade receivables
10 800
Trade payables 3 000
Prepaid operating expenses 5 400
Bank
138 005
325 355 325 355

Additional infonnation:

After preparing the trial balance, it was found that the electricity expenses of $1 200 for March 2023 had not
yet been paid and recorded in the books.

On 1 April 2023, Ann retired and Alvin was admitted to the partnership with the following arrangements:

(i) Ben and Alvin would share profits and losses equally.

(ii) Office equipment was to be revalued to $111 000.

(iii) Inventory costing $3 900 was obsolete and could only be sold for $2 600 after paying a selling
expense of$200.

(iv) The partnership confirmed that there would be a bad debt recovery of $3 000 in early May 2023.

(v) Goodwill was to be valued at $60 000. No goodwill account would be kept in the books. Adjustments
for goodwill between partners would be made in the capital accounts directly.

(vi) Alvin brought in a piece of furniture valued at $25 000, together with funds by cheque so as to
maintain a balance of $100 000 in his capital account.

(vii) The amount owing to Ann would be retained as a two-year 4% loan to the new partnership.

(viii) Ben withdrew $8 000 from the partnership's bank account to purchase a gift for Ann in his own name.

REQUIRED:

(a) Prepare the revaluation account. (2 marks)

(b) Prepare the partners' capital accounts in columnar form, showing necessary adjustments for the
retirement of Ann and the admission of Alvin. (4 marks)

(c) Give one reason why goodwill adjustments should be made when Ann retired. (2 marks)

2024-DSE-BAFS 2A-8

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 f$IS0 ooo. Operating expenses of
During the nd rship made a gross profit O ets at 20% per annum using
$98 500 year ~ ed 31 March 2024, the partne to be provided on non-current ass
~ere paid by cheque. Depreciation was
the reducing-balance method.
2024 :
books as at 31 March
The following account balances were extracted from the
$
Inventory 20 805
Trade receivables 25 000
Trade payables 17 000
. The reIevant infonnation is as follows:
. decided to dissolve the partnership.
On 3 I March 202 4, Ben and Alvm

(i) Ben took over the furniture at 90% of the net book value.
th
of the loan owed to her by e partnership.
(ii) Ann took over the office equipment as a settlement of half
settled by cheque.
The remaining loan amount and accrued loan interest were
to collect all the debts from trade receivables.
(iii) Ben appointed a debt collection agency for the partnership 2
t collected. Apart from a debt o~$ OOO
The agency charges a commission of 4% based on the amoun th
The agency deposited the net amount mto e
which was uncollectible, all other debts were settled.
bank account of the partnership.
nt was received.
(iv) The trade payables were settled by cheque and a 5% discou

(v) All the inventory was sold at a mark-up of20%.

of $2 400 for the partnership.
(vi) Alvin agreed to personally bear the realisation expenses

REQUIRED:

Prepare for the partnership:

(starting from the gross profit) (3 marks)
(d) the income statement for the year ended 31 March 2024
(6 marks)
(e) the realisation account
the necessary adjustments for the dissolution
(f) the partners' capital accounts in columnar form, showing (3 marks)

(Total: 20 marks)

2024-DSE-BAFS 2A-9
23
►

8. Mnblc Limited prepared the closing entries and then drafted

follows: the trial balance as at 3 l December 2023 as

Dr Cr
Re~ined profits, 3 t December $ $
Ordinary share capital 2023 680 000
General reserve 2 000 000
Trade payables 125 000
Bank 158 000
Equipment 945 600
Accumulated depreciation _equipment 2 076 500
Trade receivables 500 000
Inventory [note (ii)] 240 000
Allowance for doubtful accounts [note (v)] 227 500
Suspense 9 600
17 000
3 489 600 ~ 489 600
Additional information:

(i) All sales were made at a gross profit margin of %.

60
(ii) The ~u~l physical inventory count was postponed and conduc
ted on 4 January 2024. Based on t~e
physical mven!ory count, the inventory was valued at $227
500. The accounts clerk recorded this
amount as the inventory value as at 31 December 2023.

The following information is related to the period from 1 Januar

y to 4 January 2024:
$
Total purchases
13 200
Total sales
40 000
Total returns outwards 900
On 2 January 2024, sales of $10 000 were made to staff at SO%
of the normal selling price. Goods
costing $1 500 were sent to a customer on 3 January 2024 on
a sale-or-return basis. The customer
confirmed that he would accept two-thirds of the goods on 9
January 2024.
(iii) On 5 December 2023, a credit customer returned goods with
a list price of $17 000 to Mable Limited.
The accounts clerk only recorded the transaction in the returns
inwards account.
(iv) Goods costing $6 500 were found damaged. The damaged
goods were scrapped on 15 December
2023. On 31 December 2023, the insurance company agreed
to pay 80% of the cost of the damaged
goods as compensation. No.records were made in the books
for the insurance compensation.
(v) The company provided 4% allowance for doubtful accounts
on the amount of trade receivables on
31 December 2023. However, an allowance of 3% should have
been made this year as the economy
was recovering.

(vi) On l April 2023, a piece of old equipment was traded in for a

new model at a trade-in value of$5 000.
The cost of the old equipment was $30 000 and it was fully
depreciated in 2022, but the company
still provided a full year depreciation for the equipment in 2023.
The company also paid $45 000 for
the new equipment by cheque. However, no entries were made
for the above trade-in arrangement.
It is the company's policy to provide depreciation on equipm
ent at an annual rate of 20% using the
straight-line method.

2024-DSE-BAFS 2A-10

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 The 23 However, no entries were
20
(vii) c~mpany issued 5% debentures of$ I 800 000 on 31 December •
made m the books.
~ ~• 31 December 2023, the board of directors resolved to mcrease the general reserve to ~47 000.
owever, no entries were made in the books.

REQUIRED:
2023 (5 marks)
(a) Prepare a statement to calculate the inventory value as at 31 December •

(b) Prepare e necessary journal entries to correct items (ii) to (viii) above. Narrations are not(11
required.
marks)
th

23 (4 marks}
(c) Prepare a statement to calculate the working capital as at 31 December 20 •
(Total: 20 marks)

END OF PAPER

2024-DSE-BAFS 2A-l l

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