2023 HKDSE 企業、會計與財務概論 模擬試題連答案詳解

Statement (1) is correct because Hong Kong is a free port and does not impose customs tariffs on general imports and exports.
Statement (2) is incorrect because Hong Kong adopts a simple and low tax system with a flat (or two-tiered proportional) profits tax system, not an escalating progressive tax bracket system like personal salaries tax.
Statement (3) is correct because CEPA provides preferential treatment and easier market access for eligible Hong Kong service suppliers in Mainland China.
Therefore, only (1) and (3) are correct.

Award 2 marks for option B. Award 0 marks for incorrect options.

Statement (1) is correct: Shareholders of a limited company have limited liability up to the amount unpaid on their shares.
Statement (2) is correct: An incorporated limited company is recognized by law as a separate legal entity.
Statement (3) is incorrect: A private limited company is legally prohibited from offering shares or debentures to the general public; only a public limited company can do so.
Therefore, (1) and (2) only is the correct answer.

Award 2 marks for option A. Award 0 marks for incorrect options.

Unity of Command states that each subordinate should receive orders from and be accountable to only one superior to prevent conflicting instructions and confusion.
Option A describes 'Unity of Direction'.
Option C describes 'Parity of Authority and Responsibility'.
Option D describes 'Esprit de Corps'.

Award 2 marks for option B. Award 0 marks for incorrect options.

Semi-annual interest rate \(r = \frac{6\%}{2} = 3\% = 0.03\).
Number of compounding periods \(n = 2 \times 2 = 4\).
Future Value \(FV = \$120\,000 \times (1 + 0.03)^4 = \$120\,000 \times 1.12550881 = \$135\,061.06\).
Total interest earned \(= FV - PV = \$135\,061.06 - \$120\,000 = \$15\,061.06 \approx \$15\,061\).

Award 2 marks for option B. Award 0 marks for incorrect options.

A. Decreases assets (Cash at bank) and decreases capital (Drawings).
B. Decreases assets (Bank) and decreases liabilities (Trade payables). This is correct.
C. Decreases assets (Trade receivables) and decreases capital/profit (Bad debts expense).
D. Increases assets (Office equipment) and increases liabilities (Bank loan).

Award 2 marks for option B. Award 0 marks for incorrect options.

The accrual concept states that revenues and expenses are recognized in the accounting period in which they are earned or incurred, regardless of when cash is received or paid. Since 3 months (Oct–Dec) belong to the financial year 2022, \(\frac{3}{12} \times \$36\,000 = \$9\,000\) is recognized as expense, and the unexpired portion of $27 000 is treated as a prepayment (asset) under the accrual concept.

Award 2 marks for option C. Award 0 marks for incorrect options.

Quick Assets \(= \text{Current Assets} - \text{Inventory} = \text{Trade receivables} (\$180\,000) + \text{Cash in hand} (\$20\,000) = \$200\,000\).
Current Liabilities \(= \text{Bank overdraft} (\$50\,000) + \text{Trade payables} (\$100\,000) + \text{Short-term bank loan} (\$50\,000) = \$200\,000\).

$$\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} = \frac{\$200\,000}{\$200\,000} = 1.00 : 1$$

Award 2 marks for option B. Award 0 marks for incorrect options.

Statement (1) is correct: Under the MPF scheme, standard mandatory contributions for employer and employee are each 5% of relevant income, within prescribed minimum and maximum income limits.
Statement (2) is correct: If an employee earns less than the statutory minimum income level, the employee is exempt from employee mandatory contributions, but the employer must still contribute 5% of the employee's income.
Statement (3) is incorrect: Mandatory MPF accrued benefits are preserved by law until the employee reaches the retirement age of 65 (with limited specific statutory exceptions like early retirement at age 60, permanent departure from HK, or total incapacity).
Therefore, (1) and (2) only is correct.

Award 2 marks for option C. Award 0 marks for incorrect options.

Statement (1) is correct because the shares of a public limited company can be transferred without restriction and can be listed on a stock exchange. Statement (2) is incorrect because there is no statutory upper limit on the number of shareholders in a public limited company (the 50-member limit applies to private limited companies). Statement (3) is correct because public limited companies are required by law to disclose their audited financial statements to the public.

B (2 marks)
- Correct Option: B [(1) and (3) only]

Statements (1) and (2) correctly describe the principle of unity of command, which states that an employee should receive orders from and be accountable to only one superior, preventing conflicting instructions. Statement (3) describes the principle of 'unity of direction', which requires one manager and one plan for a group of activities having the same objective.

A (2 marks)
- Correct Option: A [(1) and (2) only]

Initial cash outflow \(= \$120\,000 - \$3\,000 = \$117\,000\).
Present value of cash inflows:
Year 1: \(\frac{\$50\,000}{1 + 0.06} = \$47\,169.81\)
Year 2: \(\frac{\$80\,000}{(1 + 0.06)^2} = \$71\,200.60\)
Total present value of inflows \(= \$47\,169.81 + \$71\,200.60 = \$118\,370.41\)
\(\text{NPV} = \$118\,370.41 - \$117\,000 = \$1\,370.41 \approx \$1\,370\).

B (2 marks)
- Correct Option: B [$1 370]

Transaction (1): Office equipment (Asset) increases, Trade/Other payables (Liability) increases. Both total assets and total liabilities increase by the same amount.
Transaction (2): Bank (Asset) increases, Bank loan (Liability) increases. Both total assets and total liabilities increase by the same amount.
Transaction (3): Trade payables (Liability) decreases, Bank (Asset) decreases. Both total assets and total liabilities decrease.

C (2 marks)
- Correct Option: C [(1) and (2) only]

Under the historical cost concept, assets are recorded at their original acquisition cost less accumulated depreciation rather than being adjusted to fluctuating market replacement or resale values.

A (2 marks)
- Correct Option: A [Historical cost concept]

Statement (1) is correct because cash advances typically attract higher interest rates with no interest-free grace period compared to retail purchases. Statement (2) is incorrect because paying only the minimum payment means the remaining outstanding balance will incur finance charges and compound interest. Statement (3) is correct because personal installment loans are structured with fixed regular monthly installments over a set maturity period.

B (2 marks)
- Correct Option: B [(1) and (3) only]

Statements (1) and (2) relate directly to environmental protection and reducing pollution/carbon footprint. Statement (3) is a human resources management reward practice towards employees, not a social responsibility towards the natural environment.

B (2 marks)
- Correct Option: B [(1) and (2) only]

Net profit for the year \(= \text{Gross profit} - \text{Operating expenses} = \$190\,000 - \$75\,000 = \$115\,000\).
Closing Capital \(= \text{Opening Capital} + \text{Capital introduced} + \text{Net profit} - \text{Drawings} = \$380\,000 + \$60\,000 + \$115\,000 - \$45\,000 = \$510\,000\).

C (2 marks)
- Correct Option: C [$510 000]

Statement (1) is correct because a public limited company can offer shares to the public. Statement (2) is incorrect because there is no statutory upper limit on the number of shareholders in a public limited company (a maximum of 50 shareholders applies to private limited companies). Statement (3) is correct because any incorporated company is a separate legal entity from its owners.

Award 2 marks for selecting B. Award 0 marks for incorrect options.

Unity of command states that an employee should receive orders and report to only one direct supervisor/manager, which avoids confusion and conflicting instructions.

Award 2 marks for selecting C. Award 0 marks for incorrect options.

The period covered in the 2022 accounting year is 2 months (November and December). Therefore, the expense recognized is \(\frac{2}{12} \times \$72\,000 = \$12\,000\). According to the accrual concept, revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when cash is paid.

Award 2 marks for selecting A. Award 0 marks for incorrect options.

Present value of Year 1 inflow = \(\frac{\$63\,000}{1 + 0.05} = \$60\,000\).
Present value of Year 2 inflow = \(\frac{\$55\,125}{(1 + 0.05)^2} = \frac{\$55\,125}{1.1025} = \$50\,000\).
Total Present Value of cash inflows = \(\$60\,000 + \$50\,000 = \$110\,000\).
Net Present Value (NPV) = \(\$110\,000 - \$100\,000 = +\$10\,000\).

Award 2 marks for selecting D. Award 0 marks for incorrect options.

Option A: Dr Drawings, Cr Bank — decreases assets and decreases owner's equity.
Option B: Dr Inventory / Purchases on credit (or equipment), Cr Trade payables / Other payables — increases assets (office equipment) and increases liabilities (other payables).
Option C: Dr Trade payables, Cr Bank — decreases liabilities and decreases assets.
Option D: Dr Trade receivables, Cr Sales — increases assets and increases owner's equity.

Award 2 marks for selecting B. Award 0 marks for incorrect options.

Statements (1) and (2) are correct. Statement (3) is incorrect because paying only the minimum payment leaves an outstanding balance that incurs daily compound interest and finance charges on both the remaining balance and new purchases.

Award 2 marks for selecting A. Award 0 marks for incorrect options.

Gross profit = Sales \(\$800\,000 - \$480\,000 = \$320\,000\).
Gross profit ratio = \(\frac{\$320\,000}{\$800\,000} \times 100\% = 40\%\).
Net profit = Gross profit \(\$320\,000 - \$160\,000 = \$160\,000\).
Net profit ratio = \(\frac{\$160\,000}{\$800\,000} \times 100\% = 20\%\).

Award 2 marks for selecting A. Award 0 marks for incorrect options.

SMEs contribute to the economy by: (1) providing substantial employment opportunities (employing a major share of the private sector workforce), (2) nurturing entrepreneurship and meeting specific market niches with flexibility and innovation, and (3) supplying supporting services and complementary products to large corporations.

Award 2 marks for selecting D. Award 0 marks for incorrect options.

Statement (1) is correct: A limited partnership must comprise at least one general partner with unlimited liability and at least one limited partner.
Statement (2) is incorrect: Limited partners cannot participate in the active management of the business; doing so would forfeit their limited liability status.
Statement (3) is incorrect: A partnership (whether general or limited) is not a separate legal entity from its partners under Hong Kong law.

A: 2 marks
Other options: 0 marks

Present Value (PV) of Year 1 inflow = \(\frac{\$55\,000}{1 + 0.05} = \$52\,380.95\)

Present Value (PV) of Year 2 inflow = \(\frac{\$88\,200}{(1 + 0.05)^2} = \frac{\$88\,200}{1.1025} = \$80\,000.00\)

Total Present Value of cash inflows = \(\$52\,380.95 + \$80\,000.00 = \$132\,380.95\)

Net Present Value (NPV) = \(\$132\,380.95 - \$120\,000 = \$12\,380.95 \approx \$12\,381\).

B: 2 marks
Other options: 0 marks

Statement (1) is correct: Specialising in a specific task allows workers to become more proficient and productive over time.
Statement (2) is incorrect: Division of labour often creates functional silos and increases the need for coordination, which may actually create communication barriers rather than eliminate them.
Statement (3) is correct: When workers focus on a single sub-task, time lost in switching tools and shifting between different tasks is eliminated.

B: 2 marks
Other options: 0 marks

When a non-current asset (office equipment) is returned to the supplier:
- The liability owed to the supplier is reduced by debiting Accounts payable / Other payable (Supplier Lee).
- The non-current asset account is reduced by crediting Office equipment.
Note: 'Returns outwards' is only used for trading inventory / goods purchased for resale, not for non-current assets.

B: 2 marks
Other options: 0 marks

According to the accrual concept, revenues and expenses are recognised in the accounting period in which they are earned or incurred, regardless of when cash is received or paid. Since only 2 months (November and December 2022) of insurance coverage were consumed during 2022, the insurance expense for the year is \(\frac{2}{12} \times \$36\,000 = \$6\,000\), while the remaining $30 000 is treated as a prepaid expense (current asset).

C: 2 marks
Other options: 0 marks

Statement (1) is correct: Credit cards offer an interest-free grace period for retail transactions provided the statement balance is paid in full on or before the due date.
Statement (2) is correct: Paying only the minimum payment forfeits the interest-free grace period, and finance charges/interest accrue on all transactions from their transaction/posting dates.
Statement (3) is incorrect: Cash advances do not enjoy an interest-free period; interest and handling fees are charged immediately from the date of the cash withdrawal.

A: 2 marks
Other options: 0 marks

(a) Advantages of forming a joint venture:
1. Sharing of financial burden and risks: SweetDelight can share the large initial capital investment, operational costs, and potential financial losses with the Japanese partner, reducing its overall business risk.
2. Access to proprietary expertise and technology: SweetDelight can leverage the Japanese company's specialized pastry-making techniques, authentic recipes, and established brand reputation without having to develop them from scratch.

(b) Social responsibilities to customers:
1. Product safety and hygiene: Ensuring all pastries are produced under strict food safety and sanitary conditions without harmful additives or contamination.
2. Accurate labeling and disclosure: Providing clear and honest ingredient information, production/expiry dates, and allergen warnings on packaging to protect consumer health.

(c) Concept of limited liability:
- Limited liability means that the liability of the business owners (shareholders) is limited to the amount of capital they have invested in the business. Personal assets of the owners cannot be seized to pay off business debts if the company becomes insolvent.
- Example: Private limited company (or Public limited company).

(a) 2 marks for each well-explained advantage (1 mark for identifying the point, 1 mark for explanation with application), max 4 marks.
- Risk/cost sharing
- Complementary resources/technical expertise/brand reputation
- Faster market entry

(b) 1 mark for each relevant social responsibility to customers, max 2 marks.
- Ensuring food safety/hygiene
- Truthful labeling/allergen disclosure
- Fair pricing / quality assurance

(c)
- Explanation of limited liability (losses limited to invested capital / personal assets protected): 1 mark
- Correct business form (e.g., Limited company / Limited partnership for limited partner): 0.5 mark

(a)
Calculation of amounts:
- Oct 6: Net Purchases = $32 000 \times (1 - 0.05) = $30 400
- Oct 12: Net Returns Outwards = $4 000 \times (1 - 0.05) = $3 800
- Balance before payment = $30 400 - $3 800 = $26 600
- Oct 28: Cash Discount = $26 600 \times 2\% = $532
- Oct 28: Amount paid by cheque = $26 600 - $532 = $26 068

Alpha Traders
| Date | Details | Amount ($) | Date | Details | Amount ($) |
|---|---|---|---|---|---|
| 2023 Oct 12 | Returns outwards | 3 800 | 2023 Oct 6 | Purchases | 30 400 |
| Oct 28 | Discounts received | 532 | | | |
| Oct 28 | Bank | 26 068 | | | |
| | | 30 400 | | | 30 400 |

(b)
- Accounting principle: Business entity concept (The business is treated as a separate legal and financial entity distinct from its owner).

(c)
Any two of the following errors that do not affect trial balance agreement:
1. Error of omission (a transaction is completely omitted from the books)
2. Error of commission (an entry is made in the wrong account of the correct class)
3. Error of principle (an entry is made in the wrong class of account)
4. Error of original entry (an incorrect figure is entered in the books of original entry and posted to ledger)
5. Complete reversal of entries (correct accounts debited and credited in reverse)
6. Compensating errors (errors on debit and credit sides cancel each other out)

(a) Alpha Traders account: 4 marks
- Oct 6 Purchases $30 400 (Cr): 1 mark
- Oct 12 Returns outwards $3 800 (Dr): 1 mark
- Oct 28 Discounts received $532 (Dr): 1 mark
- Oct 28 Bank $26 068 (Dr): 1 mark

(b) 1.5 marks:
- Identification of Business entity concept: 1.5 marks

(c) 2 marks:
- 1 mark for each correctly identified error (max 2 marks).

(a) Application of the four steps of controlling to Summit Logistics:
1. Setting performance standards: Establish a measurable target/benchmark for delivery accuracy (e.g., package loss rate below 0.05%).
2. Measuring actual performance: Collect data and track the actual number and percentage of misplaced/lost parcels over monthly delivery operations.
3. Comparing actual performance with standards: Analyze the variance between the actual loss rate and the preset target to identify significant shortfalls.
4. Taking corrective action: Implement measures to eliminate discrepancies, such as upgrading barcode scanning systems, retraining delivery drivers, or strengthening parcel sorting protocols.

(b)
- Advantage of a wide span of control (1.5 marks):
- Lower management costs: Fewer managerial levels are needed, reducing expenditure on supervisors' salaries and overheads.
- Faster communication: A flatter organizational structure allows quicker flow of operational information between frontline couriers and top management.

- Disadvantage of a wide span of control (2 marks):
- Heavy supervisory burden / Lack of close supervision: Each supervisor must oversee a large number of couriers, making it difficult to monitor parcel handling quality in detail, which may exacerbate parcel handling mistakes or delays.

(a) 4 marks total:
- 1 mark for each of the four steps correctly stated and applied to the scenario (Setting standards, Measuring performance, Comparing against standards, Taking corrective action).

(b) 3.5 marks total:
- Advantage: 1.5 marks (1 mark for identifying the advantage, 0.5 mark for explanation/application).
- Disadvantage: 2 marks (1 mark for identifying the disadvantage, 1 mark for explanation/application).

(a)
$$\text{EAR} = \left(1 + \frac{r}{m}\right)^m - 1 = \left(1 + \frac{0.048}{12}\right)^{12} - 1 = (1.004)^{12} - 1 \approx 0.049070 = 4.91\%$$

(b)
$$\text{Future Value after 2 years} = P\left(1 + \frac{r}{m}\right)^{m \times t} = 120\;000 \times (1 + 0.004)^{24} = 120\;000 \times 1.100611 = \$132\;073.37$$
$$\text{Total Interest} = \text{Future Value} - \text{Principal} = \$132\;073.37 - \$120\;000 = \$12\;073$$

(c)
(i)
$$\text{Gross profit} = \$800\;000 \times 35\% = \$280\;000$$
$$\text{Net profit} = \$800\;000 \times 12\% = \$96\;000$$
$$\text{Operating expenses} = \text{Gross profit} - \text{Net profit} = \$280\;000 - \$96\;000 = \$184\;000$$

(ii)
$$\text{Average capital} = \frac{\$450\;000 + \$510\;000}{2} = \$480\;000$$
$$\text{Return on capital employed} = \frac{\text{Net profit}}{\text{Average capital}} \times 100\% = \frac{\$96\;000}{\$480\;000} \times 100\% = 20.00\%$$

(a) 2 marks:
- Correct formula / substitution \((1 + 0.048/12)^{12} - 1\): 1 mark
- Correct answer \(4.91\%\): 1 mark

(b) 2 marks:
- Correct compound formula/value \(120\;000 \times (1.004)^{24}\): 1 mark
- Total accumulated interest \(\$12\;073\): 1 mark

(c)(i) 2 marks:
- Calculation of Gross profit ($280 000) and Net profit ($96 000): 1 mark
- Operating expenses $184 000: 1 mark

(c)(ii) 1.5 marks:
- Calculation of average capital ($480 000): 0.5 mark
- Correct ROCE \(20.00\%\): 1 mark

### Part (A)
(a) Realisation principle / Revenue recognition concept (1 mark)
- Revenue should only be recognized when goods are delivered or services are performed, and the ownership risks and rewards have been transferred to the buyer (1 mark).
- For Galaxy Limited, the machinery will not be produced or delivered until 2023. Therefore, the deposit is unearned revenue and must be treated as a liability at 31 December 2022 rather than recognized as sales revenue in 2022 (1 mark).

---

### Part (B)
(b)
(1) Prudence (or Realisation) (1 mark)
(2) Cost (1 mark)
(3) Historical cost (or Objectivity) (1 mark)
(4) Cost (1 mark)
(5) Materiality (1 mark)

(A) (a)
- Identification of the realisation / revenue recognition principle (1 mark)
- Explanation of the principle: revenue is earned upon delivery of goods / transfer of risks and rewards (1 mark)
- Application to scenario: production/delivery takes place in 2023, deposit should be recognized as a liability / unearned revenue, not revenue for 2022 (1 mark)

(B) (b)
(1) Prudence (1 mark)
(2) Cost (1 mark)
(3) Historical cost (1 mark)
(4) Cost (1 mark)
(5) Materiality (1 mark)

### (a) Ratio Calculations

(1) Quick ratio (Acid-test ratio):
$$\begin{aligned}
\text{Quick Assets} &= \text{Trade receivables} + \text{Bank} = \$225\,000 + \$75\,000 = \$300\,000 \\
\text{Current Liabilities} &= \text{Trade payables} = \$180\,000 \\
\text{Quick Ratio} &= \frac{\$300\,000}{\$180\,000} = 1.67 : 1 \text{ (or } 1.67 \text{ times)}
\end{aligned}$$
(2 marks)

(2) Inventory turnover (in times):
$$\begin{aligned}
\text{Average Inventory} &= \frac{\$160\,000 + \$200\,000}{2} = \$180\,000 \\
\text{Inventory Turnover} &= \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} = \frac{\$1\,080\,000}{\$180\,000} = 6.00 \text{ times}
\end{aligned}$$
(2 marks)

(3) Earnings per share & Price-earnings ratio:
$$\begin{aligned}
\text{Earnings per Share (EPS)} &= \frac{\text{Net Profit}}{\text{Number of Ordinary Shares}} = \frac{\$250\,000}{200\,000} = \$1.25 \\
\text{Price-earnings Ratio (P/E)} &= \frac{\text{Market Price per Share}}{\text{EPS}} = \frac{\$12.50}{\$1.25} = 10.00
\end{aligned}$$
(2 marks)

---

### (b) Comment on Inventory Management Efficiency
- Nexus Limited's inventory turnover of 6.00 times is lower than the industry average of 8.50 times (1 mark).
- This implies that Nexus Limited holds inventory for longer periods before selling them, indicating less efficient inventory management and higher risks of inventory obsolescence or excessive tied-up working capital (1 mark).

(a) (1) Quick ratio:
- Formula / Substitution: $300 000 / $180 000 (1 mark)
- Correct answer: 1.67:1 (1 mark)

(a) (2) Inventory turnover:
- Formula / Substitution: $1 080 000 / $180 000 (1 mark)
- Correct answer: 6.00 times (1 mark)

(a) (3) Earnings per share and P/E ratio:
- EPS = $1.25 (1 mark)
- P/E ratio = 10.00 (1 mark)

(b) Comment:
- Mentioning Nexus Limited's inventory turnover is lower than the industry average (1 mark)
- Stating that inventory is sold more slowly / efficiency is lower / risk of obsolescence (1 mark)

### (a) Overhead Absorption Rate and Under/Over-Absorption
$$\begin{aligned}
\text{Predetermined overhead absorption rate} &= \frac{\text{Budgeted fixed manufacturing overheads}}{\text{Budgeted machine hours}} \\
&= \frac{\$720\,000}{36\,000 \text{ hours}} = \$20 \text{ per machine hour}
\end{aligned}$$
(1 mark)

$$\begin{aligned}
\text{Absorbed fixed manufacturing overheads} &= 34\,000 \text{ actual hours} \times \$20 \\
&= \$680\,000 \\
\text{Actual fixed manufacturing overheads} &= \$710\,000 \\
\text{Under-absorbed fixed manufacturing overheads} &= \$710\,000 - \$680\,000 = \$30\,000
\end{aligned}$$
(2 marks)

---

### (b) Unit Product Cost under Absorption Costing
$$\begin{aligned}
\text{Total manufacturing cost absorbed} &= \text{Direct materials} + \text{Direct labour} + \text{Absorbed overheads} \\
&= \$640\,000 + \$480\,000 + \$680\,000 = \$1\,800\,000 \\
\text{Unit product cost} &= \frac{\$1\,800\,000}{16\,000 \text{ units}} = \$112.50 \text{ per unit}
\end{aligned}$$
(2 marks)

---

### (c) Income Statement

$$\begin{array}{c}
\textbf{Apex Manufacturing Company} \\
\textbf{Income Statement for the year ended 31 December 2022}
\end{array}$$

$$\begin{array}{lrr}
\hline
& \$ & \$ \\
\text{Sales } (14\,000 \text{ units} \times \$180) & & 2\,520\,000 \\
\text{Less: Cost of Goods Sold} & & \\
\quad \text{Cost of goods manufactured } (16\,000 \times \$112.50) & 1\,800\,000 & \\
\quad \text{Less: Closing inventory } (2\,000 \times \$112.50) & (225\,000) & \\
\cline{2-2}
\quad \text{Cost of goods sold at normal cost } (14\,000 \times \$112.50) & 1\,575\,000 & \\
\quad \text{Add: Under-absorbed fixed overheads} & 30\,000 & (1\,605\,000) \\
\cline{2-3}
\text{Gross Profit} & & 915\,000 \\
\text{Less: Selling and administrative expenses} & & (260\,000) \\
\cline{3-3}
\textbf{Net Profit} & & \mathbf{655\,000} \\
\hline
\end{array}$$
(3 marks)

(a)
- Predetermined overhead rate: $720 000 / 36 000 = $20 / machine hour (1 mark)
- Absorbed overhead = $680 000 (0.5 mark)
- Under-absorbed overhead = $30 000 (1.5 marks)

(b)
- Total absorbed production cost = $1 800 000 (1 mark)
- Unit cost = $1 800 000 / 16 000 = $112.50 (1 mark)

(c)
- Sales revenue = $2 520 000 (0.5 mark)
- Cost of goods sold (unadjusted) = $1 575 000 or closing inventory = $225 000 (1 mark)
- Adjustment for under-absorbed overheads = $30 000 (0.5 mark)
- Selling and administrative expenses = $260 000 (0.5 mark)
- Net profit = $655 000 (0.5 mark)

(a) The Journal

(i)
Debit: Alpha Co (Trade payables) $18 000
Credit: Suspense $18 000
*(Correction of over-credit of $18 000 to supplier's account)*

(ii)
Debit: Repairs and maintenance $6 500
Credit: Office equipment $6 500
*(Reclassification of repair expense from capital expenditure to revenue expenditure)*

Debit: Accumulated depreciation – office equipment $1 300
Credit: Depreciation expense – office equipment ($6 500 \(\times\) 20%) $1 300
(Reversal of excess depreciation on repair)

(iii)
Debit: Suspense $18 000
Credit: Sales $18 000
(Recording omitted credit to sales account)

(iv)
Debit: Bad debts expense ($9 400 \(\times\) 60%) $5 640
Credit: Brian (Trade receivables) $5 640
*(Writing off irrecoverable balance of bankrupt customer)*

(v)
Debit: Returns inwards (Sales returns) $3 200
Credit: Returns outwards (Purchases returns) $2 300
Credit: Suspense $900
(Correction of misposted debit to purchases returns and missing sales returns debit)

(vi)
Debit: Suspense $900
Credit: Bank $900
(Correction of under-stated credit payment in cash book)

---

(b) Suspense Account

| Date | Details | Amount ($) | Date | Details | Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2022 Dec 31 | Difference as per trial balance | 14 600 | 2022 Dec 31 | Alpha Co | 18 000 |
| | Sales | 18 000 | | Returns inwards / Returns outwards | 900 |
| | Bank | 900 | | | |
| | Total | 33 500 | | Total | 33 500 |

(a) Journal entries (9 marks):
- (i) Dr Alpha Co / Trade payables $18 000 (0.5 mark), Cr Suspense $18 000 (0.5 mark).
- (ii) Dr Repairs / Repairs & maintenance $6 500 (0.5 mark), Cr Office equipment $6 500 (0.5 mark); Dr Accumulated depreciation $1 300 (1 mark), Cr Depreciation expense / Profit and loss $1 300 (1 mark).
- (iii) Dr Suspense $18 000 (0.5 mark), Cr Sales $18 000 (0.5 mark).
- (iv) Dr Bad debts $5 640 (1 mark), Cr Brian / Trade receivables $5 640 (1 mark).
- (v) Dr Returns inwards $3 200 (0.5 mark), Cr Returns outwards $2 300 (0.5 mark), Cr Suspense $900 (0.5 mark).
- (vi) Dr Suspense $900 (0.5 mark), Cr Bank / Cash at bank $900 (0.5 mark).

**(b) Suspense Account (3 marks):**
- Opening debit balance: $14 600 (0.5 mark)
- Cr Alpha Co: $18 000 (0.5 mark)
- Dr Sales: $18 000 (0.5 mark)
- Cr Returns inwards / Returns outwards / Error (v): $900 (0.5 mark)
- Dr Bank: $900 (0.5 mark)
- Account balanced / Presentation: (0.5 mark)

(a) Unit Contribution Margin and Contribution Margin Ratio

For Model Standard:
- Unit variable cost = $55 (direct materials) + $40 (direct labour) + $15 (variable overhead) = $110
- Unit contribution margin = $180 - $110 = **$70**
- Contribution margin ratio = \(\frac{\$70}{\$180} \times 100\%\) = **38.89%**

For Model Deluxe:
- Unit variable cost = $80 + $60 + $25 = $165
- Unit contribution margin = $280 - $165 = **$115**
- Contribution margin ratio = \(\frac{\$115}{\$280} \times 100\%\) = 41.07%

---

(b) Multi-product CVP Analysis

(i) Composite package (8 units Standard + 5 units Deluxe):
$$\text{Composite Contribution Margin} = (8 \times \$70) + (5 \times \$115) = \$560 + \$575 = \mathbf{\$1\,135}$$

(ii) Required sales units to achieve target profit of $120 000:
$$\text{Required Composite Packages} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{Composite Contribution Margin}} = \frac{\$240\,000 + \$120\,000}{\$1\,135} = \frac{\$360\,000}{\$1\,135} \approx 317.1806\text{ packages}$$

- Model Standard sales quantity = \(317.1806 \times 8\) = **2 537.44 units** (or **2 538 units**)
- Model Deluxe sales quantity = \(317.1806 \times 5\) = **1 585.90 units** (or **1 586 units**)

*(Alternatively, using monthly demand ratio 4 000 : 2 500 on 1 package = 4 units Standard + 2.5 units Deluxe: \(\text{Package contribution} = (4 \times 70) + (2.5 \times 115) = 280 + 287.5 = \$567.50\); \(\text{Packages} = \frac{\$360\,000}{\$567.50} = 634.361\); Standard = \(634.361 \times 4 = 2\,537.44\text{ units}\); Deluxe = \(634.361 \times 2.5 = 1\,585.90\text{ units}\).)*

---

**(c) Optimal Production Plan with Limiting Factor (Direct Labour Hours)**

Direct labour hours per unit:
- Model Standard = \(\frac{\$40}{\$20} = 2\text{ hours}\)
- Model Deluxe = \(\frac{\$60}{\$20} = 3\text{ hours}\)

Contribution margin per direct labour hour (limiting factor):
- Model Standard = \(\frac{\$70}{2\text{ hours}} = \mathbf{\$35\text{ per hour}}\) (Rank 1)
- Model Deluxe = \(\frac{\$115}{3\text{ hours}} = \mathbf{\$38.33\text{ per hour}}\) (Rank 1)

Ranking:
1. Model Deluxe ($38.33 / hour)
2. Model Standard ($35.00 / hour)

(i) Production allocation:
- Produce maximum demand of Model Deluxe: \(2\,500\text{ units} \times 3\text{ hours} = 7\,500\text{ hours}\)
- Remaining direct labour hours available = \(9\,000 - 7\,500 = 1\,500\text{ hours}\)
- Produce Model Standard with remaining hours: \(\frac{1\,500\text{ hours}}{2\text{ hours/unit}} = 750\text{ units}\)

**Optimal production quantity:**
- **Model Deluxe: 2 500 units**
- **Model Standard: 750 units**

(ii) Maximum Monthly Net Profit:
$$\text{Total Contribution} = (2\,500 \times \$115) + (750 \times \$70) = \$287\,500 + \$52\,500 = \$340\,000$$
$$\text{Net Profit} = \text{Total Contribution} - \text{Fixed Costs} = \$340\,000 - \$240\,000 = \mathbf{\$100\,000}$$

(a) Unit Contribution Margin & CM Ratio (3 marks):
- Unit CM for Model Standard: $70 (1 mark)
- CM ratio for Model Standard: 38.89% (0.5 mark)
- Unit CM for Model Deluxe: $115 (1 mark)
- CM ratio for Model Deluxe: 41.07% (0.5 mark)

(b) Multi-product CVP Analysis (5 marks):
- (i) Composite CM = $1 135 (or $567.50 depending on scale factor) (2 marks: 1 mark for method, 1 mark for answer)
- (ii) Total packages formula = \(\frac{\$240\,000 + \$120\,000}{\text{Composite CM}}\) (1 mark)
- Standard units = 2 537.44 / 2 538 units (1 mark)
- Deluxe units = 1 585.90 / 1 586 units (1 mark)

(c) Limiting Factor Decision (4 marks):
- (i) Direct labour hours per unit (Standard: 2 hrs, Deluxe: 3 hrs) (0.5 mark)
- Contribution per direct labour hour (Standard: $35, Deluxe: $38.33) and correct priority ranking (1 mark)
- Optimal production quantity: Deluxe = 2 500 units (1 mark), Standard = 750 units (0.5 mark)
- (ii) Net profit calculation: $340 000 - $240 000 = $100 000 (1 mark)

(a)

$$\begin{array}{lrr}
\multicolumn{3}{c}{\textbf{Alan and Brian}} \\
\multicolumn{3}{c}{\textbf{Profit and Loss Appropriation Account for the year ended 31 December 2022}} \\
\hline
& \$ & \$ \\
\text{Corrected net profit (Working 1)} & & 302\,000 \\
\text{Add: Interest on drawings - Brian } (\$180\,000 \times 4\% \times 6/12) & & 3\,600 \\
\hline
& & 305\,600 \\
\text{Less: Interest on capital} & & \\
\quad - \text{ Alan } (\$500\,000 \times 6\%) & 30\,000 & \\
\quad - \text{ Brian } (\$700\,000 \times 6\%) & 42\,000 & 72\,000 \\
\text{Salary - Alan } (\$15\,000 \times 12) & & 180\,000 \\
\hline
\text{Share of profit:} & & 53\,600 \\
\quad - \text{ Alan } (\$53\,600 \times 3/5) & 32\,160 & \\
\quad - \text{ Brian } (\$53\,600 \times 2/5) & 21\,440 & 53\,600 \\
\hline
\end{array}$$

Working 1: Corrected Net Profit
$$\text{Draft net profit} = \$65\,000$$
$$\text{Add: Undervaluation of closing inventory} = +\$15\,000$$
$$\text{Less: Unrecorded purchases} = -\$30\,000$$
$$\text{Add: Alan's salary added back} = +\$180\,000$$
$$\text{Add: Interest on capital added back } (\$30\,000 + \$42\,000) = +\$72\,000$$
$$\text{Corrected net profit} = \$65\,000 + \$15\,000 - \$30\,000 + \$180\,000 + \$72\,000 = \$302\,000$$

---

(b)(1)

$$\begin{array}{llr|llr}
\multicolumn{6}{c}{\textbf{Revaluation Account}} \\
\hline
\text{2023} & & \$ & \text{2023} & & \$ \\
\text{Jan 1} & \text{Motor vehicles } (\$450\,000 \times 20\%) & 90\,000 & \text{Jan 1} & \text{Equipment } (\$650\,000 - \$600\,000) & 50\,000 \\
& \text{Allowance for doubtful accounts } (\$220\,000 \times 5\%) & 11\,000 & & \text{Capital: Alan } (\$60\,000 \times 3/5) & 36\,000 \\
& \text{Bank (legal fee)} & 9\,000 & & \text{Capital: Brian } (\$60\,000 \times 2/5) & 24\,000 \\
\hline
& & \underline{\underline{110\,000}} & & & \underline{\underline{110\,000}} \\
\end{array}$$

---

(b)(2)

$$\begin{array}{lrrr|lrrr}
\multicolumn{8}{c}{\textbf{Partners' Capital Accounts}} \\
\hline
\text{2023} & \text{Alan} & \text{Brian} & \text{Carl} & \text{2023} & \text{Alan} & \text{Brian} & \text{Carl} \\
& \$ & \$ & \$ & & \$ & \$ & \$ \\
\text{Jan 1 Revaluation loss} & 36\,000 & 24\,000 & - & \text{Jan 1 Balance b/d} & 500\,000 & 700\,000 & - \\
\text{Goodwill adjustment} & - & 180\,000 & 120\,000 & \text{Goodwill adjustment} & 180\,000 & 120\,000 & - \\
\text{Bank} & 250\,000 & - & - & \text{Current account} & 157\,160 & 27\,840 & - \\
\text{Loan from Alan} & 551\,160 & - & - & \text{Motor vehicles} & - & - & 200\,000 \\
\text{Balance c/d} & - & 900\,000 & 600\,000 & \text{Bank loan} & - & - & 200\,000 \\
& & & & \text{Bank} & - & - & 320\,000 \\
& & & & \text{Current account (deficit)} & - & 256\,160 & - \\
\hline
& \underline{\underline{837\,160}} & \underline{\underline{1\,104\,000}} & \underline{\underline{720\,000}} & & \underline{\underline{837\,160}} & \underline{\underline{1\,104\,000}} & \underline{\underline{720\,000}} \\
\end{array}$$

Working 2: Current Account Balances at 31 December 2022
- Alan: $$125\,000 + \$32\,160 = \$157\,160\$ (Cr)
- Brian: $$190\,000 + $21\,440 - $180\,000 \text{ (drawings)} - $3\,600 \text{ (interest on drawings)} = $27\,840$ (Cr)

*Working 3: Bank Balance as at 1 January 2023*
$$\text{Opening bank balance} = \$290\,000$$
$$\text{Less: Revaluation fee paid} = -\$9\,000$$
$$\text{Less: Paid to Alan on retirement} = -\$250\,000$$
$$\text{Add: Capital introduced by Carl} = +\$320\,000$$
$$\text{Bank balance c/d} = \$351\,000$$

---

**(b)(3)**

$$\begin{array}{lrr}
\multicolumn{3}{c}{\textbf{Brian and Carl}} \\
\multicolumn{3}{c}{\textbf{Statement of Financial Position as at 1 January 2023}} \\
\hline
\textbf{Non-current assets} & \$ & \$ \\
\text{Equipment} & & 650\,000 \\
\text{Motor vehicles } (\$450\,000 - \$90\,000 + \$200\,000) & & 560\,000 \\
\hline
& & 1\,210\,000 \\
\textbf{Current assets} & & \\
\text{Inventory } (\$180\,000 + \$15\,000) & 195\,000 & \\
\text{Trade receivables} & 220\,000 & \\
\text{Less: Allowance for doubtful accounts} & (11\,000) & 209\,000 \\
\text{Current account: Brian (overdrawn)} & & 256\,160 \\
\text{Bank} & & 351\,000 \\
\hline
& & 1\,011\,160 \\
\textbf{Less: Current liabilities} & & \\
\text{Trade payables } (\$140\,000 + \$30\,000) & 170\,000 & \\
\text{Loan from Alan} & 551\,160 & 721\,160 \\
\hline
\textbf{Net current assets} & & 290\,000 \\
\hline
\textbf{Total net assets} & & \underline{\underline{1\,500\,000}} \\
\hline
\textbf{Financed by:} & & \\
\textbf{Capital accounts} & & \\
\quad - \text{ Brian} & & 900\,000 \\
\quad - \text{ Carl} & & 600\,000 \\
\hline
& & \underline{\underline{1\,500\,000}} \\
\end{array}$$

---

(c)
- Historical Cost Principle / Realisation Principle / Objectivity Principle: Non-purchased (inherent) goodwill is not recognised in the accounting records because it is internally generated and has no objective monetary cost or transaction exchange value.
- Under Prudence, recognising an internally generated asset whose value cannot be verified with certainty would lead to an overstatement of assets and capital.

(a) Profit and loss appropriation account (5 marks)
- Corrected net profit $$302\,000\$ (2.5 marks: 0.5 for draft $$65\,000$, 0.5 for inventory $+$15\,000$, 0.5 for purchases $-$30\,000$, 0.5 for salary $+$180\,000$, 0.5 for interest on capital $+$72\,000$)
- Interest on drawings (Brian $$3\,600\$) (0.5 mark)
- Interest on capital (Alan $$30\,000$, Brian $$42\,000\$) (0.5 mark)
- Partner's salary (Alan $$180\,000$) (0.5 mark)
- Share of profit (Alan $$32\,160\$, Brian $$21\,440$) (1 mark)

**(b)(1) Revaluation account** (2 marks)
- Debit items: Motor vehicles reduction $$90\,000\$, Allowance for doubtful accounts $$11\,000$, Bank (legal fee) $$9\,000\$ (1 mark)
- Credit item: Equipment increase $$50\,000$ (0.5 mark)
- Loss on revaluation shared: Alan $$36\,000\$, Brian $$24\,000$ (0.5 mark)

**(b)(2) Partners' capital accounts** (6 marks)
- Opening balance b/d (0.5 mark)
- Goodwill adjustments (Cr old ratio: Alan $$180\,000\$, Brian $$120\,000$; Dr new ratio: Brian $$180\,000\$, Carl $$120\,000$) (1.5 marks)
- Revaluation loss debited (0.5 mark)
- Transfer from current accounts (Alan $$157\,160\$, Brian $$27\,840$) (1 mark)
- Settlement to Alan: Bank $$250\,000\$ and Loan from Alan $$551\,160$ (1 mark)
- Carl's capital contribution: Motor vehicles $$200\,000\$, Bank loan $$200\,000$, Bank $$320\,000\$ (1 mark)
- Brian's deficit transferred to Current account $$256\,160$ and closing balances c/d (0.5 mark)

**(b)(3) Statement of financial position** (5 marks)
- Non-current assets: Equipment $$650\,000\$, Motor vehicles $$560\,000$ (1 mark)
- Current assets: Inventory $$195\,000\$, Net trade receivables $$209\,000$, Brian's current account $$256\,160\$, Bank $$351\,000$ (2 marks)
- Current liabilities: Trade payables $$170\,000\$, Loan from Alan $$551\,160$ (1 mark)
- Capital accounts & Presentation/Balancing (1 mark)

(c) Conceptual explanation (2 marks)
- Identification of relevant principle (e.g. Historical cost / Objectivity / Prudence / Realisation) (1 mark)
- Explanation that inherent/unpurchased goodwill has no objective monetary transaction value and should not be recognized to avoid overstatement of assets/equity (1 mark)