2023 HKDSE Business, Accounting and Financial Studies Practice Paper | DSE Mock

Alan and Betty are partners sharing profits and losses in the ratio of 3:2. Their capital account balances are $120,000 and $80,000 respectively. They agree to admit Carl as a partner for a 1/5 share of profits. Goodwill is to be valued at $50,000, but no goodwill account is to be maintained in the books. Carl is to bring in $60,000 cash as his capital. What is the capital account balance of Alan after Carl's admission?

A sole trader, Mr. Chan, maintains a gross profit margin of 25% on sales. During the year, some inventory was destroyed by fire. The records show: Opening inventory of $45,000, Purchases of $280,000, Closing inventory (undamaged) of $38,000, and Sales during the year of $360,000. What was the cost of the inventory destroyed by fire?

Before correcting the following errors, a business reported a gross profit of $120,000 and a net profit of $50,000. (1) Sales of $3,500 on credit had been completely omitted from the books. (2) A purchase of equipment costing $8,000 had been debited to the purchases account. Depreciation of equipment is provided at 20% per annum on cost. What are the corrected gross profit and net profit of the business?

A limited company issued 500,000 ordinary shares of $2 each at a premium of $0.5 per share. The terms of payment were: $0.8 per share on application, $1.2 per share on allotment (including the premium of $0.5), and the balance on first and final call. Applications were received for 600,000 shares. The directors rejected applications for 100,000 shares and refunded the application money. All subsequent allotments and calls were made and fully received, except for a shareholder who failed to pay the first and final call on 5,000 shares. What is the amount of cash received from the first and final call?

At the beginning of the month, a firm has a current ratio of 1.5:1 and a quick ratio of 0.8:1. Which of the following transactions would increase BOTH ratios? (1) Selling inventory costing $10,000 for $12,000 on credit. (2) Selling office equipment (carrying value $20,000) for $15,000 cash. (3) Paying cash $5,000 to trade creditors.

A company paid $36,000 for a 3-year insurance policy on 1 October 2022. The company's financial year ends on 31 December. For the year ended 31 December 2022, the accountant recorded $3,000 as insurance expense in the statement of profit or loss, and $33,000 as prepayments in the statement of financial position. Which accounting principle is best demonstrated by this practice?

On 31 December 2022, the cash book of a firm showed a credit balance (bank overdraft) of $12,500. The following information was discovered: (1) Bank charges of $450 shown on the bank statement had not been entered in the cash book. (2) An unpresented cheque of $3,800. (3) An uncredited deposit of $6,200. (4) A cheque received from a customer for $1,200 was returned by the bank marked 'refer to drawer', but no entry was made in the cash book. What is the balance shown on the bank statement on 31 December 2022?

An investor wants to choose between two mutually exclusive projects, Project X and Project Y. Project X requires an immediate outlay of $100,000 and will generate a single cash inflow of $121,000 at the end of Year 2. Project Y requires an immediate outlay of $100,000 and will generate an annual cash inflow of $58,000 at the end of Year 1 and Year 2. Assume the cost of capital is 8% per annum. Which project should the investor choose based on the Net Present Value (NPV) criterion?

Which of the following statements about a partnership and a private limited company in Hong Kong is/are correct? (1) A partnership does not have a separate legal entity from its owners, whereas a private limited company does. (2) Partners in a general partnership have unlimited liability, whereas shareholders of a private limited company have limited liability. (3) Both partnerships and private limited companies are required by law to publish their annual financial statements to the public.

A toy manufacturing company in Hong Kong voluntarily recalls a batch of products after discovering a potential safety hazard, even though no injuries have been reported and there is no legal requirement to do so. This action demonstrates: (1) The company's commitment to social responsibility towards its customers. (2) Ethical business behavior that prioritizes public safety over short-term profits. (3) Compliance with the statutory requirements of the Hong Kong government.

Andy and Bobby are in partnership sharing profits and losses in the ratio of 3:2. On 1 January 2022, their capital account balances were $100,000 and $80,000 respectively. Bobby is entitled to a partner's salary of $12,000 per annum. Interest on capital is allowed at 5% per annum. During the year ended 31 December 2022, the partnership made a net profit of $96,000 before any appropriations. Andy's drawings were $15,000 and Bobby's drawings were $10,000. What is the total amount credited to Bobby's current account for the year ended 31 December 2022?

Mr. Chan does not keep proper accounting records. On 1 January 2022, his trade receivables and trade payables were $24,000 and $18,000 respectively. On 31 December 2022, they were $31,000 and $15,000 respectively. During the year, cash received from trade receivables was $145,000, and cash paid to trade payables was $98,000. Discount allowed and discount received were $4,000 and $3,000 respectively. Goods returned to suppliers were $2,500. All sales and purchases were on credit. What were the credit sales and credit purchases for the year ended 31 December 2022?

The draft net profit of a firm for the year ended 31 December 2022 was $148,000. Subsequently, the following errors were discovered: (1) Depreciation of motor vehicles had been over-provided by $6,000. (2) A purchase of equipment for $25,000 on credit had been entered in the purchases book. (3) Repair expenses of $3,500 for office equipment had been debited to the Office Equipment account. What is the corrected net profit for the year ended 31 December 2022?

On 1 January 2022, Starry Limited had 1,000,000 ordinary shares in issue, and a retained profits balance of $450,000. During the year, the following events occurred: (1) On 1 March 2022, the company declared and paid a final dividend of $0.05 per share for the year 2021. (2) On 1 June 2022, the company made a 1-for-5 bonus issue of ordinary shares, capitalizing $200,000 from the retained profits. (3) On 1 October 2022, the company issued 200,000 new ordinary shares at $2.5 per share. (4) The net profit for the year ended 31 December 2022 was $380,000. What is the balance of retained profits as at 31 December 2022?

The following information relates to the financial statements of Gary Limited for the year 2022: (1) Cost of goods sold: $273,750 (2) Gross profit margin: 25% (3) Closing trade receivables: $40,000 What is the trade receivables collection period for the year 2022 (using the closing trade receivables and assuming 365 days in a year)?

Chris and Donald are partners sharing profits and losses in the ratio of 2:1. Their balance sheet showed goodwill of $30,000 (which is to be written off) and capital account balances of Chris: $120,000 and Donald: $80,000. They agree to admit Elsa as a partner. The new profit-sharing ratio is Chris: 2, Donald: 2, Elsa: 1. Goodwill of the firm is valued at $45,000, but no goodwill account is to be maintained in the books. What is the capital account balance of Chris immediately after the admission of Elsa?

A fire destroyed most of the inventory of a retail shop on 15 November 2022. The following information is available: (1) Inventory on 1 January 2022: $35,000 (2) Purchases from 1 January to 15 November 2022: $240,000 (3) Sales from 1 January to 15 November 2022: $320,000 (4) Goods salvaged from the fire: $8,000 (at cost) (5) The shop sells all goods at a mark-up of 25%. What is the cost of inventory destroyed by the fire?

The trial balance of a company did not agree, and the difference was entered in a suspense account. Later, the following errors were discovered: (1) A payment of $1,200 for insurance was recorded in the insurance account as $2,100. (2) Cash sales of $4,500 were completely omitted from the books. (3) The sales day book was undercast by $800. (4) A credit sale of $3,000 to Mr. Lee was correctly entered in the sales day book but posted to Mr. Lai's account. Which of the above errors would require correction using the suspense account?

Anson Limited was incorporated with 500,000 ordinary shares. In 2022, the company issued 200,000 ordinary shares at $3 per share, payable $1 on application, $1 on allotment, and $1 on call. Applications were received for 240,000 shares. The directors decided to reject applications for 40,000 shares and refund the application money to these unsuccessful applicants. All allotment and call monies were subsequently received in full. What is the journal entry to record the refund of application money to unsuccessful applicants?

At the end of the financial year, a firm had a current ratio of 2.0:1 and a liquid (acid-test) ratio of 0.8:1. Which of the following transactions would increase the liquid (acid-test) ratio? (1) Selling inventory of cost $10,000 for $12,000 cash. (2) Receiving cash of $5,000 from a trade receivable. (3) Paying a trade payable of $8,000 by cash. (4) Purchasing inventory of $6,000 on credit.

Andy and Bobby are partners sharing profits and losses in the ratio of 3:2. Their capital accounts were $120,000 and $80,000 respectively. They agreed to admit Candy as a new partner. The new profit sharing ratio among Andy, Bobby and Candy is 5:3:2. Goodwill was valued at $50,000. Candy was to bring in cash of $60,000 as her capital. No goodwill account is to be maintained in the books of the partnership. What is the capital balance of Andy after the admission of Candy?

A sole trader, Mr. Chan, does not keep proper accounting records. On 1 January 2022, his net assets were $150,000. During the year, he withdrew goods costing $8,000 for personal use. He also introduced additional capital of $30,000 in cash. On 31 December 2022, his total assets were $280,000 and total liabilities were $60,000. What was the net profit or loss of Mr. Chan for the year ended 31 December 2022?

The trial balance of a company did not agree, and the difference was posted to a suspense account. Later, the following errors were discovered: (1) A payment of rent of $1,200 was posted twice to the rent account (the bank entry was correct). (2) Credit sales of $3,500 to Mr. Wong were entered in the sales journal as $5,300. (3) A purchase of equipment of $8,000 was debited to the repairs account. Which of the above errors would affect the suspense account?

On 1 January 2022, a limited company had 500,000 ordinary shares in issue, fully paid up. On 1 April 2022, the company made a 1-for-5 bonus issue. On 1 October 2022, the company made a rights issue of 1 share for every 6 shares held at a price of $2 per share. All rights were fully subscribed. How many ordinary shares did the company have in issue on 31 December 2022?

The following figures relate to a trading company for the year ended 31 December 2022: Sales (all on credit): $800,000; Gross profit margin: 25%; Opening inventory: $40,000; Closing inventory: $60,000. What is the inventory turnover rate (in times) for the year?

Which of the following statements about a private limited company and a partnership in Hong Kong is/are correct? (1) Both must register under the Business Registration Ordinance. (2) Shareholders of a private limited company have limited liability, while partners in a general partnership have unlimited liability. (3) Both private limited companies and partnerships must publish their annual financial statements to the general public.

An investor deposits $20,000 in a bank account that pays an annual interest rate of 6%, compounded semi-annually. What is the total balance of the account at the end of 2 years (to the nearest dollar)?

A company is considering policies to manage its working capital. Which of the following actions would increase the company's cash conversion cycle? (1) Offering longer credit periods to customers. (2) Taking advantage of early payment discounts offered by suppliers. (3) Implementing a just-in-time (JIT) inventory system to reduce average inventory.

Which of the following describes the management function of "controlling"?

A company bought a machine for $100,000. Although its current market value has risen to $120,000, the company still records the machine at its cost of $100,000, less accumulated depreciation. Which of the following accounting concepts is the company applying?

Ken and Leo operate a successful partnership business, "KL Stationery", in Hong Kong. Due to rapid business expansion, they are considering converting their business into a private limited company.

(a) Explain two benefits to Ken and Leo of converting their partnership into a private limited company. (4 marks)
(b) State and explain one limitation of a private limited company compared to a partnership. (1.5 marks)
(c) Explain the difference between "limited liability" and "unlimited liability" in terms of the owners' personal assets in the event of business liquidation. (2 marks)

Arthur has saved \( \text{HK}\$100,000 \) and wants to invest it for 3 years to prepare for his university tuition. He is comparing two investment plans:
- **Option A:** A 3-year fixed deposit offering an annual interest rate of \( 4\% \), compounded annually.
- **Option B:** A 3-year savings plan offering an annual interest rate of \( 3.8\% \), compounded semi-annually.

(a) Calculate the accumulated amount (Future Value) of Option A at the end of Year 3. (Round your answer to the nearest dollar.) (2 marks)
(b) Calculate the accumulated amount (Future Value) of Option B at the end of Year 3. (Round your answer to the nearest dollar.) (3 marks)
(c) Based on financial calculations, which option should Arthur choose? Explain. (1.5 marks)
(d) State one non-financial factor Arthur should consider before making his investment decision. (1 mark)

Lily owns a retail business, "Lily Traders". During the financial year ended 31 December 2022, the following events occurred:
1. Lily paid the monthly rent of her personal residence, \( \$15,000 \), using the business bank account. This transaction was recorded as "Rent Expense" of the business.
2. A commercial motor vehicle bought for \( \$120,000 \) on 1 January 2022 was written down to a net book value of \( \$30,000 \) in the balance sheet, because its liquidation resale value would be \( \$30,000 \) if the business closed down immediately. However, the business is highly profitable and expected to continue operating for many years.
3. Lily Traders received an order from a regular customer for goods valued at \( \$8,000 \) on 23 December 2022. The goods will be delivered to the customer in January 2023. Lily recognized this \( \$8,000 \) as sales revenue for the year ended 31 December 2022.

Questions:
For each of the three events above, identify the relevant accounting principle or concept that has been **violated**, and explain the correct accounting treatment for each case. (7.5 marks)

Chris is the Managing Director of "Modern Fashion Ltd.", a fashion retail chain in Hong Kong. He is currently executing the following management tasks:
- **Task 1:** He sets a target to increase the company's annual sales revenue by \( 15\% \) in the next financial year.
- **Task 2:** He designs a new organizational chart, grouping staff into departments (Marketing, Finance, Operations) and assigning specific authority and responsibilities to the department heads.
- **Task 3:** He reviews the actual quarterly sales figures against the budget and takes corrective actions for those outlets that failed to meet their targets.

Questions:
(a) Identify the management function Chris is performing in each of the three tasks above. (3 marks)
(b) Explain two benefits to Modern Fashion Ltd. of performing Task 1. (3 marks)
(c) In the context of Task 2, distinguish between "line authority" and "staff authority". (1.5 marks)

Ken, a sole trader, prepared a trial balance on 31 December 2022 which did not balance. The debit total exceeded the credit total by $7,500. A suspense account was opened.

The following errors were subsequently discovered:
(1) A payment of $4,300 to a creditor, Sam, was correctly entered in the cash book, but posted to Sam's account as $3,400.
(2) Rent received of $2,400 has been debited to the Rent Expenses account.
(3) A credit sale of $1,500 to May was posted to her account as $5,100.
(4) Motor vehicles purchased on credit from Auto Ltd for $28,000 was entered in the Purchases Journal. (Ignore depreciation)

Required:
(a) Prepare the journal entries to correct the above errors (narratives not required). (6 marks)
(b) Prepare the Suspense Account to show how the balance is cleared. (2 marks)

A and B are partners sharing profits and losses in the ratio of 3:2. On 1 January 2022, their capital account balances were: A $200,000, B $150,000.

The partnership agreement provides for:
- Interest on capital at 5% per annum.
- Partner's salary to B of $30,000 per annum.

During the year ended 31 December 2022, the partnership made a net profit of $120,000 before interest on drawings and salaries.
Drawings made during the year: A $20,000, B $15,000.
Interest on drawings is charged at 10% on total drawings.

On 31 December 2022, they decided to admit C as a partner. C introduced $100,000 cash as capital and paid $30,000 cash into the partnership's bank account for his share of goodwill. No goodwill account is to be maintained in the books of the partnership.
The new profit-sharing ratio among A, B, and C is 5:3:2.

Required:
(a) Prepare the Profit and Loss Appropriation Account for the partnership for the year ended 31 December 2022. (4 marks)
(b) Prepare the Capital Accounts of the partners (A, B, and C) in columnar form to record the admission of C. (4 marks)

The following is the summarized financial information of Gold Star Ltd for the year ended 31 December 2022:
- Sales (all on credit): $900,000
- Gross Profit margin: 30%
- Net Profit margin: 8%
- Inventory on 1 January 2022: $60,000
- Inventory on 31 December 2022: $90,000
- Trade Receivables on 1 January 2022: $105,000
- Trade Receivables on 31 December 2022: $75,000
- Trade Payables on 31 December 2022: $50,000
- Cash and bank: $25,000
- Non-current assets: $310,000
- 10% Debentures (long-term): $100,000
- Share Capital and Reserves: $350,000

Note: All purchases are also on credit.
(Assume 365 days in a year)

Required:
Calculate the following financial ratios for Gold Star Ltd for the year ended 31 December 2022 (correct to two decimal places):
(a) Inventory turnover (in times) (2 marks)
(b) Average trade receivables collection period (in days) (2 marks)
(c) Liquid ratio (or Quick ratio) (2 marks)
(d) Return on Capital Employed (ROCE) based on net profit before interest (2 marks)

Alan and Bob are in partnership sharing profits and losses in the ratio of 3:2. On 1 January 2022, their capital account balances were $120,000 and $80,000 respectively. On the same day, they agreed to admit Carl as a partner under the following conditions:\n1. The new profit-sharing ratio among Alan, Bob, and Carl is to be 5:3:2.\n2. Goodwill of the partnership was valued at $100,000, but no goodwill account is to be retained in the books.\n3. Assets are to be revalued before Carl's admission:\n - Equipment (book value $80,000) was revalued at $95,000.\n - Inventory (book value $45,000) was written down to $41,000.\n4. Carl was to bring in $60,000 cash and a motor vehicle valued at $40,000 as his capital contribution.\n\nRequired:\n(a) Prepare the Revaluation Account on 1 January 2022. (3 marks)\n(b) Prepare the Partners' Capital Accounts in columnar form, showing the admission of Carl. (6 marks)\n(c) State three differences between a partnership and a limited company in terms of legal status, liability, and transfer of ownership. (3 marks)

David runs a retail trading business. He does not keep full double-entry books of accounts. The following details are available for the year ended 31 December 2022:\n(i) Receipts and payments during the year:\n- Cash received from trade debtors: $385,000\n- Cash sales: $120,000\n- Cash paid to trade creditors: $242,000\n- Cash drawings by David: $30,000\n- Operating expenses paid: $84,000\n- Purchase of equipment: $40,000\n\n(ii) Assets and liabilities balances:\n- Trade Debtors: 1 Jan 2022: $34,000; 31 Dec 2022: $42,000 (before bad debt write-off)\n- Trade Creditors: 1 Jan 2022: $21,000; 31 Dec 2022: $28,000\n- Inventory: 1 Jan 2022: $15,000; 31 Dec 2022: $18,000\n- Accrued Operating Expenses: 1 Jan 2022: $3,500; 31 Dec 2022: $5,200\n\n(iii) A trade debtor balance of $2,000 is to be written off as bad debts. The trade debtors balance on 31 December 2022 of $42,000 has not yet adjusted for this.\n\nRequired:\n(a) Calculate the total sales and total purchases for the year ended 31 December 2022. (5 marks)\n(b) Prepare the trading and profit and loss account for the year ended 31 December 2022. (5 marks)\n(c) State two reasons why business owners should keep proper accounting records instead of relying on incomplete records. (2 marks)

Alan Chan operates a retail business, Alan's Trading. He does not maintain proper double-entry accounting records, but the following information was extracted from his business records:\n\n(1) Assets and Liabilities:\n- Equipment (net): 1 January 2022: $110,000; 31 December 2022: ?\n- Inventory: 1 January 2022: $56,000; 31 December 2022: $68,000\n- Trade receivables: 1 January 2022: $38,000; 31 December 2022: $44,000\n- Prepaid rent: 1 January 2022: $3,000; 31 December 2022: $4,500\n- Trade payables: 1 January 2022: $42,000; 31 December 2022: $47,000\n- Accrued operating expenses: 1 January 2022: $1,200; 31 December 2022: $1,900\n- Cash in hand: 1 January 2022: $3,500; 31 December 2022: $4,200\n- Bank balance: 1 January 2022: $18,200 (Dr); 31 December 2022: ?\n\n(2) Summary of Bank Account transactions for the year ended 31 December 2022:\n- Receipts from trade receivables: $290,000\n- Cash banked: $126,000\n- Payments to trade payables: $375,000\n- Rent paid: $36,000\n- Purchase of equipment (on 1 July 2022): $25,000\n- Operating expenses paid: $14,800\n\n(3) Additional information:\n- All purchases were made on credit. All sales were made at a uniform gross profit margin of 20% on selling price.\n- During the year, the following cash payments were made from the cash till before the remaining cash was banked:\n - Cash drawings: $12,000\n - Sundry shop expenses: $1,300\n - Wages: $15,000\n- On 15 October 2022, there was a theft of cash from the cash till. The insurance company agreed to compensate 80% of the stolen cash. The claim was still outstanding as at 31 December 2022. No entry has been made in the books for this event.\n- A trade receivable of $2,000 was proved to be uncollectible during the year and should be written off. No entry has been made in the books.\n- Depreciation is to be charged on equipment at 15% per annum on the net book value of equipment held at the end of the year (including additions).\n\nRequired:\n(a) Prepare the Statement of Profit or Loss for Alan's Trading for the year ended 31 December 2022, showing clearly the calculation of sales and purchases. (11 marks)\n(b) Prepare the Statement of Financial Position for Alan's Trading as at 31 December 2022. (7 marks)\n(c) State the accounting principle applied when recording the cash theft and the insurance claim, and explain why. (2 marks)