2021 HKDSE Business, Accounting and Financial Studies Practice Paper | DSE Mock

Alan and Bob are partners sharing profits and losses in the ratio of 3:2. On 1 January 2024, they admit Carl into the partnership for a 1/5 share of profits. Carl contributes \$120,000 as capital. Goodwill is valued at \$80,000 but is not to be maintained in the books. The new profit sharing ratio is 2:2:1. An asset revaluation surplus of \$40,000 is also agreed on admission. What is the net adjustment to Alan's capital account upon Carl's admission?

X and Y are in partnership. On 1 January 2023, their capital account balances were X: \$200,000 and Y: \$150,000; and their current account balances were X: \$12,000 (Cr) and Y: \$5,000 (Dr). According to the partnership agreement, interest on capital is 5% p.a., annual salary for X is \$30,000, and profits/losses are shared in the ratio of 2:1. For the year ended 31 December 2023, the net profit was \$120,000, drawings made were X: \$20,000 and Y: \$15,000, and interest on drawings was charged as X: \$1,000 and Y: \$750. What is the closing balance of X's current account on 31 December 2023?

Sunshine Ltd produces component K. The unit costs of producing 10,000 units of K are: Direct materials \$8, Direct labour \$6, Variable manufacturing overheads \$3, and Fixed manufacturing overheads \$5 (based on 10,000 units). An external supplier offers to sell component K to Sunshine Ltd for \$19 per unit. If Sunshine Ltd buys K from the supplier, 60% of the fixed manufacturing overheads can be avoided, and the vacant space can be rented out to another company for \$15,000. Should Sunshine Ltd buy or make? What is the net financial impact?

Target Company sells product X. Currently, the selling price is \$80 per unit, variable cost is \$40 per unit, and fixed costs are \$150,000 per year. Next year, the variable cost per unit is expected to increase by 10%, and annual fixed costs are expected to increase by \$30,000. How many units must the company sell next year to earn a target net profit of \$72,000?

Joy Ltd issued 1,000,000 ordinary shares. The offer was to pay \$1.50 per share. On application, \$0.50 was payable, and on allotment, the remaining \$1.00 was payable. Applications for 1,400,000 shares were received. Application money for 200,000 shares was rejected and refunded. The remaining applications were allocated shares on a pro-rata basis (1,200,000 applied for 1,000,000 shares). The excess application money of these successful applicants was used to offset the amount due on allotment. How much cash did Joy Ltd collect during the allotment stage?

On 1 January 2023, Delta Ltd had a share capital of \$1,200,000 and retained profits of \$350,000. During 2023, the following events occurred: net profit for the year was \$220,000; a revaluation surplus on land of \$80,000 was recognized; an interim dividend of \$40,000 was declared and paid; a final dividend of \$60,000 was proposed; and \$50,000 was transferred to the general reserve. What is the Retained Profits balance of Delta Ltd as of 31 December 2023?

Mr. Chan runs a retail business but does not keep full accounting records. The following information is available for the year ended 31 December 2023: Inventory (1 Jan 2023): \$40,000; Inventory (31 Dec 2023): \$48,000; Trade payables (1 Jan 2023): \$30,000; Trade payables (31 Dec 2023): \$35,000; Payments to suppliers during the year: \$180,000; Cash discount received: \$3,000. All sales are made at a uniform gross profit margin of 25% on selling price. What were Mr. Chan's sales for the year 2023?

On 15 October 2023, a fire destroyed most of the inventory of Zenith Traders. The following records were saved: Inventory (1 January 2023): \$65,000; Purchases (1 Jan to 15 Oct 2023): \$380,000; Sales (1 Jan to 15 Oct 2023): \$450,000; Salvaged inventory after the fire: \$12,000. It was also discovered that goods with a cost of \$5,000 had been withdrawn by the owner for personal use, but no record was made in the books. The firm applies a uniform gross profit mark-up of 25% on cost. What was the cost of the inventory destroyed in the fire?

On 12 November, a trader returned goods bought on credit to a supplier, Messrs. Wong & Co. In which book of original entry should this transaction be recorded first, and in which ledger is the personal account of Messrs. Wong & Co. maintained?

On 5 May, High-Tech Ltd sold goods list-priced at \$20,000 to a credit customer, offering a 10% trade discount. The cash discount terms were 2/10, n/30. On 12 May, the customer settled half of the amount outstanding, and settled the remaining balance on 28 May. How much total cash did High-Tech Ltd receive from this customer in settling this transaction?

Alice and Betty are partners sharing profits and losses in the ratio of 3:2. They admit Carol into the partnership. On that date, the partnership's premises which cost \$500,000 had an accumulated depreciation of \$100,000, and were revalued to \$650,000. What is the share of revaluation surplus credited to Alice's capital account?

At dissolution, the book values of assets (other than cash) and liabilities of a partnership were \$80,000 and \$20,000 respectively. The cash balance was \$5,000. Capital account balances of partners P and Q (who share profits and losses in the ratio of 3:2) were \$45,000 (Cr) and \$20,000 (Cr) respectively. The assets were sold for \$65,000 and the liabilities were settled in full. What was the final cash amount received by Q upon dissolution?

A firm produces component X. The cost per unit of producing 10,000 units of X is as follows: Direct materials \$12, Direct labour \$8, Variable overheads \$5, and allocated Fixed overheads \$10. An outside supplier offers to sell component X for \$28 per unit. If the firm buys X from the supplier, \$4 per unit of the allocated fixed overheads can be avoided. Should the firm buy component X, and what is the financial impact per unit?

Galaxy Ltd has a maximum production capacity of 50,000 units. It currently produces and sells 40,000 units at a price of \$100 each. The unit cost structure is: Variable manufacturing cost \$45, Fixed manufacturing cost \$20, and Variable selling expenses \$5. The company receives a one-off special order for 8,000 units from an overseas client at a special price of \$55 per unit. No variable selling expenses will be incurred for this special order. What is the effect on Galaxy Ltd's net profit if they accept this special order?

On 1 January 2023, Pacific Ltd had 1,000,000 ordinary shares in issue. On 1 April 2023, the company made a 1-for-5 bonus issue of ordinary shares, capitalizing its general reserve. On 1 October 2023, the company issued 200,000 ordinary shares at \$3 each. If a dividend of \$0.15 per share was declared on 31 December 2023 for all shares in issue on that date, what was the total amount of dividend declared?

On 1 January 2023, the retained profits of a limited company were \$180,000. During the year, the company made a net profit after tax of \$320,000. It transferred \$50,000 to general reserves. On 30 June 2023, an interim dividend of \$0.10 per share on 1,000,000 issued ordinary shares was paid. On 31 December 2023, the directors declared a final dividend of \$0.20 per share. What was the retained profits balance of the company as at 31 December 2023?

Mr. Chan, a retail trader, does not keep complete accounting records. All goods are sold at a standard mark-up of 25% on cost. The following information is available for the year:
- Credit sales: \$240,000
- Purchases of goods: \$210,000
- Inventory on 1 January: \$35,000
- Inventory on 31 December: \$45,000
- Cash sales stolen by an assistant before being recorded: \$8,000
What was the amount of cash sales recorded/received (excluding the stolen cash) if all sales were either credit sales or cash sales?

On 5 May 2023, Sunny purchased goods from Mary with a list price of \$10,000, subject to a trade discount of 10% and cash discount terms of 2/10, n/30. Sunny returned 10% of the goods (at list price) on 8 May 2023. Sunny settled the remaining balance on 12 May 2023. What is the amount of discount received by Sunny on 12 May 2023, and in which book of original entry is the payment recorded?

A company bought a heavy-duty stapler for \$50 which is expected to last for 5 years. However, the company decided to write off the entire cost of \$50 as an expense in the current year. Which accounting convention justifies this treatment?

On 31 December 2023, the unadjusted credit balance in the cash book of a firm was \$1,200. The following information was found:
- Bank charges of \$150 had not been recorded in the cash book.
- A cheque for \$900 received from a customer and deposited on 30 December was dishonoured, but no entry was made in the cash book.
- Unpresented cheques amounted to \$2,300.
- Deposits not yet credited by the bank amounted to \$1,700.
What is the balance as per the bank statement on 31 December 2023?

Alan and Billy are in partnership sharing profits and losses in the ratio of 3:2. On 1 January 2023, they admitted Charles into the partnership. The new profit-sharing ratio among Alan, Billy, and Charles is 5:3:2. Goodwill is valued at \$100,000, but no goodwill account is to be maintained in the books of the partnership. What is the net adjustment to Alan's capital account for the goodwill adjustment?

A company manufactures product X. The unit cost of X is as follows:
- Direct materials: \$15
- Direct labour: \$10
- Variable overheads: \$5
- Fixed overheads (allocated): \$8
Total unit cost: \$38

An external supplier offers to supply product X at \$32 per unit. If the company accepts this offer, the factory space currently used for manufacturing X can be rented out for \$12,000 per year. The company's annual production of product X is 3,000 units. Should the company make or buy product X, and what is the financial impact?

On 1 June 2023, Delta Ltd issued 500,000 ordinary shares at \$3 per share, payable in full on application. By 15 June 2023, applications for 600,000 shares had been received. The company decided to refund the money for 100,000 unsuccessful share applications and allot the remaining shares to successful applicants. What is the balance of the Bank account and Ordinary Share Capital account immediately after these transactions are completed?

Mary runs a retail business and does not keep proper accounting records. The following information is available for the year ended 31 December 2022:
- Inventory on 1 January 2022: \$24,000
- Inventory on 31 December 2022: \$28,000
- Cash paid to suppliers: \$115,000
- Trade creditors on 1 January 2022: \$12,000
- Trade creditors on 31 December 2022: \$15,000
- Goods are sold at a uniform markup of 25% on cost.

Calculate the sales for the year 2022.

On 5 April 2023, Zenith Company sold goods with a list price of \$20,000 on credit to a customer, Yahoo Ltd. A trade discount of 10% was given. The terms of payment were 2/10, n/30. Yahoo Ltd settled the payment on 12 April 2023. Which of the following shows the correct entry/entries in Zenith Company's books on 12 April 2023?

In its first year of operations, Venus Ltd produced 10,000 units and sold 8,000 units of its only product. The selling price is \$50 per unit. Costs incurred were:
- Direct materials and direct labour: \$15 per unit
- Variable manufacturing overhead: \$5 per unit
- Fixed manufacturing overhead: \$100,000 per year
- Variable selling and administrative expenses: \$3 per unit

Under absorption costing, the net profit for the year was \$120,000. What is the net profit under marginal costing?

Which of the following statements about a private limited company and a sole proprietorship is/are correct?
(1) Both have a separate legal entity from their owners.
(2) The owners of a private limited company have limited liability, while a sole proprietor has unlimited liability.
(3) Both must publish their annual financial statements to the general public.

An investor wants to receive an annual payment of \$5,000 at the end of each year for the next 3 years. If the annual interest rate is 6% compounded annually, what is the present value of this investment? (Round your answer to the nearest dollar.)

On 30 June 2023, the cash book of Smart Limited showed a debit balance of \$45,000. The following information was discovered:
(i) A cheque of \$1,200 issued to a supplier had not been presented to the bank.
(ii) Bank service charges of \$150 were debited by the bank but not recorded in the cash book.
(iii) A customer's cheque of \$800 was returned by the bank marked "refer to drawer", but no entry was made in the cash book.

What is the corrected balance of the cash book as of 30 June 2023?

A trial balance failed to agree, and the difference was entered into a suspense account. Later, the following errors were discovered:
(i) A purchase of equipment for \$5,000 was entered in the purchases account.
(ii) A cash sale of \$800 was completely omitted from the books.
(iii) A payment of \$350 to a supplier, Ken, was correctly recorded in the cash book but entered as \$530 in Ken's account.

Which of these errors, when corrected, would require an entry in the suspense account?

The following transactions took place in Sunny Company during October 2023: (1) Sold goods on credit to Alan. (2) Returned faulty goods to supplier Betty (originally bought on credit). (3) Purchased a computer on credit from Tech Ltd for office use. For each of the transactions above: (a) Identify the appropriate book of original entry. (3 marks) (b) Identify the ledger (Sales Ledger, Purchases Ledger, or General Ledger) in which the personal account of the counterparty (i.e., Alan, Betty, and Tech Ltd respectively) is maintained. (3 marks) (c) State the source document received by Sunny Company for transaction (2). (0.67 marks)

Amy and Billy are in partnership, sharing profits and losses in the ratio of 3:2. On 1 January 2023, Cathy was admitted as a new partner. The new profit and loss sharing ratio among Amy, Billy, and Cathy was agreed to be 5:3:2. Upon Cathy's admission, goodwill of the partnership was valued at \$120,000. No goodwill account is to be maintained in the books of the partnership. Cathy contributed \$100,000 cash as her capital. Required: (a) Calculate the adjustment (debit/credit and the amount) to the capital accounts of Amy, Billy, and Cathy for the goodwill adjustment. (4 marks) (b) Calculate the balance of Cathy's capital account immediately after her admission. (2.67 marks)

Sigma Limited manufactures two products, X and Y. The details of the products are as follows: - Product X: Selling price \$60, Variable cost \$30, Direct labor hours per unit 3 hours. Maximum demand 300 units. - Product Y: Selling price \$80, Variable cost \$40, Direct labor hours per unit 2 hours. Maximum demand 400 units. The total direct labor hours available next month are limited to 1,250 hours. Required: (a) Calculate the contribution per unit and contribution per direct labor hour for both Product X and Product Y. (3 marks) (b) Determine the optimal production plan (in units) for next month that maximizes the total contribution. (2 marks) (c) Calculate the maximum total contribution next month. (1.67 marks)

Alan and Ben have been operating a partnership called "AB Trading" since 2021, selling organic cosmetics. Due to the increasing scale of the business, they are considering converting "AB Trading" into a private limited company.

(a) Explain two disadvantages to Alan and Ben if they continue to operate as a partnership instead of converting to a private limited company. (4 marks)
(b) Apart from raising capital from existing partners, suggest two sources of short-term financing available to "AB Trading" as a partnership, and explain one limitation for each source. (4 marks)
(c) State one difference between a private limited company and a public limited company in terms of:
(i) ownership transferability
(ii) disclosure of financial information
(2 marks)

Alan and Ben are partners sharing profits and losses in the ratio of 3:2. On 1 January 2023, their capital account balances were $120,000 and $80,000 respectively. On this date, they agreed to admit Carl as a new partner. The new profit-sharing ratio among Alan, Ben, and Carl is 5:3:2.

Upon Carl's admission:
1. Equipment with a carrying value of $50,000 was revalued at $65,000.
2. Goodwill was valued at $40,000. No goodwill account is to be maintained in the books.
3. Carl brought in $60,000 cash as his capital.

Required:
(a) Prepare the partners' Capital Accounts in columnar form to show the admission of Carl. (6 marks)
(b) Explain the accounting treatment of goodwill when no goodwill account is maintained in the books. (2 marks)

Zenith Limited manufactures a single product, Gadget X. The budgeted production for the coming year is 10,000 units. The unit production cost of Gadget X is as follows:

- Direct materials: $15
- Direct labour: $10
- Variable manufacturing overheads: $6
- Fixed manufacturing overheads: $12 (based on 10,000 units)
Total unit cost = $43

An external supplier has offered to supply Gadget X at $33 per unit. If Zenith Limited purchases the product from the supplier:
1. The machinery used for production can be rented out to another company for $18,000 per year.
2. 60% of the fixed manufacturing overheads are avoidable. The remaining fixed manufacturing overheads are unavoidable.

Required:
(a) Prepare a marginal analysis to show whether Zenith Limited should accept the supplier's offer. (6 marks)
(b) Apart from financial factors, state two qualitative factors that Zenith Limited should consider before making the decision. (2 marks)

On 1 May 2023, Novelty Limited was incorporated with an authorized share capital of 1,000,000 ordinary shares. On 10 May 2023, the company made a public issue of 400,000 ordinary shares at $5 per share, payable as follows:
- $2 on application
- $3 on allotment

By 25 May 2023, applications for 480,000 shares had been received. On 31 May 2023, the directors allotted the shares to the successful applicants. The application money for the over-subscribed 80,000 shares was refunded to unsuccessful applicants on the same day.
The allotment money was fully received by 15 June 2023.

Required:
Prepare the following ledger accounts to record the above transactions:
(a) Bank Account (3 marks)
(b) Ordinary Share Application Account (2.5 marks)
(c) Ordinary Share Allotment Account (2.5 marks)

Alan and Billy are in partnership, sharing profits and losses in the ratio of 3:2. On 31 December 2022, their statement of financial position showed the following balances:

* Premises: $400,000
* Equipment: $150,000
* Inventory: $80,000
* Trade Receivables: $60,000
* Bank: $30,000
* Capital Accounts - Alan: $350,000
* Capital Accounts - Billy: $250,000
* Current Accounts - Alan: $20,000 (Cr)
* Current Accounts - Billy: $10,000 (Dr)
* Trade Payables: $110,000

On 1 January 2023, they agreed to admit Charlie into the partnership under the following terms:

1. Profits and losses will be shared among Alan, Billy, and Charlie in the ratio of 4:3:3.
2. Goodwill is valued at $150,000. No goodwill account is to be maintained in the books.
3. Premises are to be revalued at $520,000, and equipment is to be written down by 10%.
4. A provision for doubtful debts is to be created at 5% of trade receivables.
5. Charlie is to introduce $180,000 cash as his capital.
6. The current account balances of the old partners are to be transferred to their respective capital accounts.

Required:
(a) Prepare the Revaluation Account. (4 marks)
(b) Prepare the Capital Accounts of the partners in columnar form to show the effects of the above admission. (6 marks)
(c) State the accounting principle/convention that explains why internally generated goodwill should not be recorded in the books of the partnership. (2 marks)

Zenith Limited manufactures two types of smart gadgets: Elite and Prime. The following information is available for both products:

* Selling price per unit: Elite $450, Prime $300
* Direct materials per unit: Elite $120, Prime $90
* Direct labour per unit: Elite $100, Prime $50
* Variable overheads per unit: Elite $50, Prime $30

The direct labour rate is $20 per hour.

Fixed overheads of the company are $150,000 per year, which are allocated based on direct labour hours.

The maximum annual market demand for the products is:

* Elite: 4,000 units
* Prime: 6,000 units

For the coming year, the total available direct labour hours are limited to 22,000 hours due to a shortage of skilled labor.

Required:
(a) Calculate the contribution margin per unit and contribution margin per direct labour hour for both products. (4 marks)
(b) Determine the optimal production mix (in units) for the coming year to maximize the company's net profit. (4 marks)
(c) Calculate the maximum net profit that can be achieved under this optimal production mix. (4 marks)

Alan and Ben were in partnership sharing profits and losses in the ratio of 3:2. On 31 December 2022, their Statement of Financial Position was as follows:

| | $ | $ |
| :--- | :--- | :--- |
| **Non-current assets** | | |
| Equipment (net) | | 240,000 |
| **Current assets** | | |
| Inventory | 68,000 | |
| Trade receivables | 45,000 | |
| Bank | 17,000 | 130,000 |
| **Total assets** | | **370,000** |
| | | |
| **Capital accounts** | | |
| Alan | | 180,000 |
| Ben | | 120,000 |
| **Current accounts** | | |
| Alan | | 24,000 |
| Ben | | 16,000 |
| **Current liabilities** | | |
| Trade payables | | 30,000 |
| **Total equity and liabilities** | | **370,000** |

On 1 January 2023, they agreed to admit Carl as a new partner. The terms of admission were as follows:

(i) The profit-sharing ratio among Alan, Ben, and Carl would be 5:3:2.
(ii) Carl should bring in $100,000 cash as his capital and also bring in a personal motor vehicle valued at $50,000 for partnership use.
(iii) Equipment was to be revalued downwards by $30,000.
(iv) Inventory was found to include some obsolete items. It was agreed that inventory should be written down by $8,000.
(v) An allowance for doubtful debts of 5% on trade receivables was to be created.
(vi) Goodwill of the firm was valued at $80,000. No goodwill account was to be maintained in the books of the partnership.
(vii) The partnership current accounts are to be transferred to the respective partners' capital accounts before admission.
(viii) The partners agreed that the total capital of the reconstituted firm is to be $360,000, and the capital of each partner is to be in proportion to their new profit-sharing ratio (5:3:2). Any surplus or deficit is to be adjusted through the partners' current accounts.

**Required:**
(a) Prepare the Revaluation Account of the partnership. (4 marks)
(b) Prepare the Partners' Capital Accounts in columnar form. (7 marks)
(c) Prepare the Statement of Financial Position of the new partnership as at 1 January 2023. (6 marks)
(d) Explain the meaning of "Goodwill" in partnership accounting, and briefly discuss why the partners may choose not to maintain a Goodwill account in the books. (3 marks)