2025 HKDSE Business, Accounting and Financial Studies Practice Paper | DSE Mock

Under the Closer Economic Partnership Arrangement (CEPA) between Mainland China and Hong Kong, which of the following statements about trade in goods is/are correct? (1) All goods of Hong Kong origin can enjoy zero tariff when imported into the Mainland, provided they meet the CEPA rules of origin. (2) CEPA eliminates all non-tariff barriers, such as import quotas, for Hong Kong origin goods entering the Mainland. (3) The zero-tariff treatment applies to all foreign goods re-exported from Hong Kong to the Mainland.

Compared with a partnership, which of the following is/are the advantage(s) of a private limited company? (1) Easier transfer of ownership of shares. (2) Continuance of the business is not affected by the death or bankruptcy of any shareholder. (3) Greater confidentiality in financial affairs.

Which of the following statements about Hong Kong Government bonds (e.g., iBond or Silver Bond) and corporate bonds is correct?

Which of the following statements about credit cards and Annualized Percentage Rate (APR) is/are correct? (1) The APR calculation must include interest expenses and all basic non-refundable fees (such as annual fees and service fees). (2) If a credit cardholder pays only the 'minimum payment' by the due date every month, no interest will be charged on the outstanding balance. (3) A consumer with a poor credit score is likely to be offered a lower APR by financial institutions.

Miss Chan plans to save \$10,000 at the end of each year for the next 3 years in a bank account. The bank offers an annual interest rate of 4%, compounded annually. What is the total amount Miss Chan will have in her account at the end of the third year?

During a weekly meeting, a sales manager notices that the department's actual monthly sales revenue is 15% lower than the pre-set target. The manager then investigates the causes of this variance and decides to launch an emergency promotional campaign to boost sales. Which management function is the manager primarily performing?

Which of the following is/are the typical characteristics of small and medium enterprises (SMEs) in Hong Kong? (1) They are highly adaptable to changing market environments due to their flexible organizational structures. (2) They usually face higher borrowing costs and credit constraints compared to large enterprises. (3) They employ fewer than 100 persons in manufacturing businesses, and fewer than 50 persons in non-manufacturing businesses.

A business bought a computer on credit from Mega Office Equipment Ltd for office use. Which of the following shows the correct double entry to record this transaction?

On 31 December 2022, a business paid \$24,000 for a 12-month insurance policy covering the period from 1 January 2023 to 31 December 2023. The bookkeeper recorded the entire \$24,000 as an expense in the statement of annual profit or loss for the year ended 31 December 2022. Which accounting principle did the bookkeeper violate?

A business has a gross profit margin of 20%. If the cost of goods sold for the year is \$160,000, what is the sales revenue?

Under the Closer Economic Partnership Arrangement (CEPA) between mainland China and Hong Kong, which of the following statements are correct? (1) All goods of Hong Kong origin can enjoy zero-tariff treatment when imported into the Mainland, subject to the CEPA rules of origin. (2) Hong Kong service suppliers enjoy preferential access to the Mainland market in various service sectors. (3) Only business entities owned by Hong Kong permanent residents of Chinese nationality can benefit from CEPA service provisions.

Which of the following statements about a 'limited partnership' in Hong Kong is correct?

Mr. Chan is a risk-averse investor who plans to retire in one year. He wants to invest a sum of money to obtain stable income with minimal risk of capital loss. Which of the following is the most suitable investment tool for him?

Ms. Wong deposits \(\$10,000\) in a bank at an annual interest rate of \(4\%\) per annum. The interest is compounded quarterly. What is the total interest she will receive at the end of 2 years (to the nearest dollar)?

Which of the following statements about credit card cash advance in Hong Kong is correct?

In a company, the production manager and sales manager have different operational tasks. However, the Chief Executive Officer ensures that all department activities are coordinated towards the singular corporate goal of expanding market share. Which of Fayol's management principles is best illustrated here?

Which of the following are the typical characteristics of Small and Medium Enterprises (SMEs) in Hong Kong? (1) They have higher flexibility in responding to market changes than multinational corporations. (2) They usually face greater difficulty in obtaining bank loans due to a lack of collateral. (3) They are defined as manufacturing enterprises employing fewer than 100 persons, or non-manufacturing enterprises employing fewer than 50 persons.

A sole trader returned goods previously purchased on credit to a supplier, Mr. Cheung. Which of the following shows the correct double entry in the sole trader's books?

A company purchased a delivery van for \(\$200,000\). At the financial year-end, its market value dropped to \(\$150,000\). However, the company continues to value the van at cost less accumulated depreciation rather than its liquidation value. Which accounting assumption/concept is most relevant to this practice?

Which of the following pairs correctly matches the users of financial statements with their primary information needs? (1) Trade creditors: The short-term liquidity and short-term repayment ability of the firm. (2) Inland Revenue Department: The profitability of the firm to assess profits tax liability. (3) Bank lenders: The long-term solvency and interest repayment ability of the firm.

Which of the following statements about the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Mainland are correct?

(1) Goods of Hong Kong origin can enjoy zero tariff when imported into the Mainland if they meet the relevant rules of origin.
(2) Hong Kong service providers enjoy market access commitments in the Mainland that are more favourable than those under the World Trade Organization (WTO) agreements.
(3) It allows all foreign companies established in Hong Kong to automatically enjoy the same preferential treatment in the Mainland as local Hong Kong companies without any residency requirements.

Mr. Chan plans to invest $100,000 today for his child's future education in 5 years. He is considering the following two investment options:

Option X: A fixed deposit account paying a nominal annual interest rate of 6%, compounded quarterly.
Option Y: A corporate bond paying an annual interest rate of 6.1%, compounded annually.

Which option should Mr. Chan choose and how much more interest (to the nearest dollar) will he earn at the end of Year 5 compared to the other option?

Which of the following statements about organizational structures and span of control is/are correct?

(1) A wider span of control is usually associated with a flat organizational structure with fewer management levels.
(2) A flat organizational structure generally allows for quicker decision-making and better communication between top management and front-line staff.
(3) In a tall organizational structure, managers tend to delegate more authority to subordinates to reduce their own workload.

On 1 June 2023, a company purchased a new machine for $200,000 on credit from Apex Limited. The company also incurred the following costs in cash on the same day:

- Delivery and installation charges: $12,000
- Testing costs before the machine was ready for use: $4,000
- Insurance premium for the first year: $6,000

What are the correct ledger entries to record the above transactions?

(a) Explain two characteristics of the Hong Kong economy that make it an attractive international business hub. (4 marks)\n(b) Explain two benefits of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) to Hong Kong's service industries. (4 marks)

A chain restaurant manager notices that the food wastage in recent months has exceeded the target level.\n(a) Explain the first three steps of the controlling process that the manager should adopt to handle this issue. (6 marks)\n(b) Suggest one corrective action the manager can take if the food wastage is found to be caused by improper storage. (2 marks)

Chris wants to purchase a high-end laptop costing $15,000. He is considering whether to pay by credit card or to apply for a personal bank loan.\n(a) Explain two advantages of using a credit card instead of a personal bank loan for this purchase. (4 marks)\n(b) State and explain two factors that a bank would consider when evaluating Chris's creditworthiness for a personal loan application. (4 marks)

Alan and Bill are in partnership sharing profits and losses in the ratio of 3:2. On 1 January 2022, they agreed to admit Chris as a new partner. The profit and loss sharing ratio became 3:2:1. Goodwill was valued at \( \$120,000 \), but no goodwill account is to be maintained in the books. Chris brought in \( \$80,000 \) cash and office equipment valued at \( \$40,000 \) as his capital.

Before Chris's admission, the capital balances of Alan and Bill were \( \$200,000 \) and \( \$150,000 \) respectively.

Required:
(a) Prepare the journal entries to record the adjustments for goodwill upon Chris's admission. (3.6 marks)
(b) Calculate the capital account balances of Alan, Bill, and Chris immediately after Chris's admission. (4 marks)

The trial balance of Delta Company failed to agree on 31 December 2022, and the difference was entered into a suspense account. Later, the following errors were discovered:
(1) A payment of \( \$4,500 \) for insurance was recorded in the insurance account as \( \$5,400 \).
(2) Credit sales of \( \$8,200 \) to Mr. Tong was entered in the sales journal as \( \$2,800 \). No posting error occurred in Mr. Tong's personal account.
(3) Return of goods outwards of \( \$1,200 \) to a supplier, Ms. Lee, was completely omitted from the books.
(4) A purchase of motor van of \( \$45,000 \) on credit was entered in the purchases journal.

Required:
(a) Prepare the journal entries to correct the above errors (narrations are not required). (5.6 marks)
(b) Identify which of the above error(s) would NOT affect the agreement of the trial balance. (2 marks)

Zenith Ltd produces a single product. The budgeted and actual production for 2022 was 10,000 units, while sales was 8,500 units. There was no opening inventory.

The cost and price details are as follows:
- Selling price per unit: \( \$150 \)
- Direct materials per unit: \( \$40 \)
- Direct labour per unit: \( \$30 \)
- Variable manufacturing overheads per unit: \( \$10 \)
- Fixed manufacturing overheads: \( \$200,000 \) per year
- Variable selling and administrative overheads per unit sold: \( \$5 \)
- Fixed selling and administrative overheads: \( \$80,000 \) per year

Required:
(a) Calculate the unit product cost under:
(i) Marginal costing. (1 mark)
(ii) Absorption costing. (1.6 marks)
(b) Prepare the income statement for the year ended 31 December 2022 under marginal costing. (5 marks)

Gary, a sole trader, does not keep proper accounting records. The following information is available for the year ended 31 December 2022:

- 1 January 2022:
Equipment (net book value): \( \$85,000 \)
Inventory: \( \$24,000 \)
Trade receivables: \( \$18,000 \)
Bank balance (Dr): \( \$12,500 \)
Trade payables: \( \$15,000 \)

- 31 December 2022:
Equipment (net book value): \( \$76,500 \)
Inventory: \( \$29,500 \)
Trade receivables: \( \$21,500 \)
Bank balance (Dr): \( \$19,800 \)
Trade payables: \( \$13,200 \)

During the year, Gary introduced \( \$20,000 \) cash as additional capital and withdrew goods costing \( \$4,000 \) for private use. No other drawings were made.

Required:
(a) Prepare a statement of affairs to calculate Gary's capital as at 1 January 2022. (2.6 marks)
(b) Calculate the net profit or loss of Gary's business for the year ended 31 December 2022 using the capital comparison method. (5 marks)

On 1 January 2022, Sunny Ltd had 500,000 ordinary shares in issue, and a retained profits balance of \( \$450,000 \). During the year ended 31 December 2022, the following transactions occurred:
(1) On 1 March 2022, a final dividend of \( \$0.15 \) per share for the year 2021 was paid.
(2) On 1 June 2022, the company made a bonus issue of 1 share for every 5 shares held, capitalizing \( \$200,000 \) from the retained profits.
(3) On 1 October 2022, the company issued 100,000 ordinary shares at \( \$2.5 \) per share.
(4) Net profit for the year ended 31 December 2022 was \( \$180,000 \).

Required:
(a) Calculate the retained profits of Sunny Ltd as at 31 December 2022. (5.6 marks)
(b) Explain one reason why a limited company might choose to make a bonus issue instead of paying cash dividends. (2 marks)

Yummy Bakery produces two types of specialty cakes: Matcha Delight (M) and Choco Dream (C). Both products require the use of a specialized mixing machine.\n\nThe following monthly information is available:\n- Selling price per unit: Matcha Delight = \$120; Choco Dream = \$150\n- Variable cost per unit: Matcha Delight = \$40; Choco Dream = \$60\n- Machine hours required per unit: Matcha Delight = 0.5 hours; Choco Dream = 1.5 hours\n- Maximum demand per month: Matcha Delight = 1,200 units; Choco Dream = 800 units\n- Total available machine hours per month: 1,200 hours\n- Monthly fixed costs are \$30,000.\n\nRequired:\n(a) Determine the contribution margin per machine hour for each type of cake. (2 marks)\n(b) Calculate the optimal product mix to maximize profit and the resulting total contribution margin. (5 marks)\n(c) The supplier of the mixing machine offers to lease an additional machine that provides 300 additional machine hours for \$4,000 per month. Explain, with calculations, whether Yummy Bakery should accept this lease offer. (3.6 marks)

Alan and Ben were in partnership sharing profits and losses in the ratio of 3:2. As of 31 December 2022, their capital account balances were Alan \$180,000 and Ben \$120,000. \n\nOn 1 January 2023, they agreed to admit Chris into partnership on the following terms:\n1. Chris brings in \$100,000 cash as capital and is to receive a 1/5 share of profits. The new profit-sharing ratio among Alan, Ben, and Chris is to be 12:8:5.\n2. Equipment is revalued upwards by \$30,000.\n3. Inventory is written down by \$5,000.\n4. Goodwill is valued at \$50,000. No goodwill account is to be maintained in the books of the partnership.\n\nRequired:\n(a) Prepare the Revaluation Account. (3 marks)\n(b) Prepare the partners' Capital Accounts in columnar form to show the admission of Chris. (5.6 marks)\n(c) State two reasons why a partnership might decide not to maintain a goodwill account in its books. (2 marks)

The trial balance of Sunny Trading as at 31 December 2023 failed to agree, and the difference was entered into a suspense account. The draft net profit for the year was \$142,800. Subsequent investigation revealed the following errors:\n1. A payment of \$3,200 for office equipment repairs had been correctly entered in the cash book, but debited to the Office Equipment account. Depreciation of office equipment is charged at 20% per annum on cost at year-end.\n2. Sales on credit to Mr. Lee of \$6,500 were recorded in the sales journal as \$5,600.\n3. A discount received of \$800 had been correctly entered in the cash book, but posted to the debit side of the Discount Received account.\n4. Returns outwards of \$1,200 to supplier ABC Ltd had been debited to ABC Ltd's account, but no entry had been made in the returns outwards account.\n5. The total of the purchases journal had been undercast by \$2,000.\n\nRequired:\n(a) Prepare the journal entries to correct the above errors (narratives are not required). (5 marks)\n(b) Prepare the Suspense Account to find the opening balance of the suspense account. (2.6 marks)\n(c) Prepare a statement to calculate the corrected net profit for the year ended 31 December 2023. (3 marks)

Alex and Billy have been in partnership for several years, sharing profits and losses in the ratio of \(3:2\). The statement of financial position of the partnership as at 31 December 2022 was as follows:

$$
\begin{array}{lrr}
\text{Non-current Assets:} & \$ & \$
\\ \quad \text{Equipment at cost} & 200,000 \\
\quad \text{Less: Accumulated depreciation} & (80,000) & 120,000
\\ \text{Current Assets:} \\
\quad \text{Inventory} & 64,000 \\
\quad \text{Trade receivables} & 45,000 \\
\quad \text{Bank} & 31,000 & 140,000 \\
\hline
\text{Total Assets} && 260,000 \\
\hline\hline
\text{Financed by:} \\
\text{Capital Accounts:} \\
\quad \text{Alex} && 120,000 \\
\quad \text{Billy} && 80,000 \\
\text{Current Accounts:} \\
\quad \text{Alex} && 18,000 \\
\quad \text{Billy} && 12,000 \\
\text{Current Liabilities:} \\
\quad \text{Trade payables} && 30,000 \\
\hline
\text{Total Equity and Liabilities} && 260,000 \\
\hline\hline
\end{array}
$$

On 1 January 2023, Charles was admitted into the partnership on the following terms:
1. The new profit-sharing ratio among Alex, Billy, and Charles was to be \(5:3:2\).
2. Assets were to be revalued as follows:
- Equipment was revalued at \$145,500.
- Inventory was valued at its net realisable value of \$58,000.
- An allowance for doubtful debts of 10% was to be created on trade receivables.
3. Goodwill of the partnership was valued at \$100,000, but no Goodwill account was to be maintained in the books.
4. Charles was to introduce cash of \$120,000 as his capital.
5. The partners agreed that the capital accounts of the partners should be adjusted in proportion to their new profit-sharing ratio, with Charles's final capital balance (after goodwill adjustment) being used as the base. Any surplus or deficit on the capital accounts of Alex and Billy was to be settled in cash.

**Required:**
(a) Prepare the Revaluation Account of the partnership on 1 January 2023. (4 marks)
(b) Prepare the Partners' Capital Accounts (in columnar form) to record the admission of Charles and the subsequent adjustments. (8 marks)
(c) Define 'Goodwill' in accounting and explain why the partners chose not to maintain a Goodwill account in the books. (4 marks)
(d) State the accounting principle applied when inventory is valued at its net realisable value of \$58,000 instead of its cost of \$64,000, and explain how it applies in this scenario. (2 marks)