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HKMU BAFS 2022 P2A Question Eng
HKMU BAFS 2022 P2A Question Eng
BAFS
Accounting Module
2 hours 15 minutes
This paper must be answered in English
INSTRUCTIONS
(2) All questions in Section A are compulsory. You are required to answer two of the three
questions in Section B and one of the two questions in Section C.
(3) Write your answers in the answer book. Start EACH question (not part of a question)
on a NEW page.
1. Star Trading Limited manufactures and sells two products: Gphone and Gwatch. Information of
the two products in 2020 is stated below:
Gphone Gwatch
The total fixed costs shared by all two products are $10 389 600.
REQUIRED:
(a) Determine the breakeven point in sales quantity and in dollars for each individual product
in 2020. (4 marks)
(b) Calculate sales level in dollars that needed to earn a target net profit of $7 800 000 if the
sales mix ratio is maintained. (Tax implications are ignored.) (2 marks)
(Total: 8 marks)
Issue 1:
Mango Limited paid $1 200 000 for 3 years’ rent for the office for the years 2021 to 2023 on
1 January 2021. Mango Limited debited the prepaid expense account when it prepaid its
expenses.
Issue 2:
Mango Limited incurred utilities expense amounted to $12 300 for the month of December 2021.
This amount has not yet been paid as at 31 December 2021.
Issue 3:
Mango Limited purchased a car for $360 000 on 1 July 2021. The car should be depreciated
using straight-line method based on an estimated useful life of 5 years and residual value of
$5 000. The depreciation expense is only calculated at the end of the year.
REQUIRED:
(a) Prepare journal entries to record the necessary adjustments for the above three issues.
(Narrations are not required.) (3 marks)
(b) Prepare an extract of income statement for the year ended 31 December 2021 and an extract
of statement of financial position as at 31 December 2021 in relation to the above issues.
(5 marks)
(Total: 8 marks)
The balance of the allowance for doubtful accounts as at 31 December 2020 was $23 000
(credit). Write-off of bad debts during the year of 2021 totaled $7 100.
REQUIRED:
(a) Determine the balance of the allowance for doubtful accounts and the net accounts
receivable to be presented in the statement of financial position as at 31 December 2021.
(4 marks)
(b) Prepare the journal entries to adjust for the allowance for doubtful accounts for the year
2021. (Narrations are not required.) (2 marks)
(c) Briefly explain the accounting concept or principle in relation to the above adjustment.
(2 marks)
(Total: 8 marks)
4. Anson Limited produced 78 000 units of AL wristband during the year ended 31 December
2020. Of these units, 75 000 were sold for $140 each. There was no inventory on hand as at
31 December 2019.
REQUIRED:
(a) Prepare an income statement for the year ended 31 December 2020 for Anson Limited using
absorption costing. (6 marks)
(b) Explain the difference in net profit between the absorption costing and marginal costing
approaches. You are not required to compute the amount in the explanation. (2 marks)
Anson Limited sold its inventory on hand and all of January’s production by the end of January
2021. On 31 January 2021, a retailer approached Anson Limited with two order options:
The order has to be completed within a month. Anson Limited has idle production capacity of
1 500 units during February 2021, and is able to increase its monthly production capacity by
500 units by hiring additional machinery at a cost of $45 000 per month. Variable costs per unit
in 2021 remain the same as those in 2020.
REQUIRED:
(c) Advise Anson Limited on which order option it should accept. Support your answer with
calculations. (4 marks)
(Total: 12 marks)
(i) $16 900 unearned rent revenue as at 31 December 2020 had not been brought down as an
opening balance.
(ii) In 2021, a batch of inventory costing $36 000 was sent to a sales agent on a sale or return
basis. Coastal Company was informed on 31 December 2021 that one-third of the goods
would be kept and the remaining goods would be returned in January 2022. The gross
profit margin of this batch of goods was 20%. No records had been made for sales
transaction and the goods were not included in the inventory.
(iii) Coastal Company declared and paid cash dividend of $100 000 on 30 June 2021. The
payment had been recorded as interest expense.
(iv) On 1 November 2021, Coastal Company rented out a property for $23 500 per month.
The tenant paid half year’s rent and a deposit of two months’ rent when signing the
agreement. The whole amount had been recorded as rent revenue.
(v) $7 000 interest on bank deposit had been omitted during bank reconciliation.
(vi) A payment of $13 700 was made for an advertising expense. The cheque payment was
recorded twice in the book’s bank account, but the related nominal account was recorded
correctly. The error was not caught during the bank reconciliation.
(vii) The year-end adjustment on the allowance for doubtful accounts had been omitted. The
aging schedule of accounts receivables indicated that an allowance of $9 500 (credit) was
required at the end of 2021. The account balance of allowance for doubtful accounts
before any adjustments on the trial balance was $3 700 (credit).
REQUIRED:
(a) Prepare journal entries to correct the above errors. (Narrations are not required.) (10 marks)
(b) Prepare the suspense account to account for the difference as per trial balance. (2 marks)
(Total: 12 marks)
On 30 December, an accident damaged the remaining goods in the warehouse. Byron Company
estimated that the damaged goods can only be sold for $15 000 after having them repaired for
$2 350.
REQUIRED:
(a) Calculate the following figures of Byron Company for the month of December 2021:
(b) Briefly explain the accounting concept or principle in relation to the adjustment of the
closing inventory. (2 marks)
(Total: 12 marks)
7. Jason Lo Company is engaged in the sale of organic food. On 30 December 2020, the accountant
found that part of the accounting records were lost due to computer system errors. Jason Lo
provided the following information for the year ended 31 December 2020:
(ii) The $306 000 of rent paid represented the 24 months’ rent of office starting from
1 January 2020 to 31 December 2021.
(iii) On 1 October 2020, the company borrowed a 5-year bank loan of $3 840 000 at an
interest rate of 15% per annum.
(iv) The company adopts the following depreciation policies for non-current assets.
The equipment has no residual value. There is no office equipment and motor vehicle
prior to the purchase in the year 2020 and all purchases of office equipment and motor
vehicles in 2020 were paid by bank.
(v) The company could only find the amounts for the following assets and liabilities as at
31 December 2019 and 31 December 2020:
(a) Prepare an income statement for the year ended 31 December 2020 for Jason Lo Company.
(13 marks)
(Total: 20 marks)
The following items have not been included into the above ledger account balances:
(i) On 1 September 2021, the company offered 20 000 ordinary shares to the public at $5
each, payable in full on application. $200 000 were received by the end of the application
period on 15 September 2021. The shares were allotted on 20 September 2021 and the
excess application monies were refunded 10 days later.
(ii) To finance the expansion of the business, a five-year 12% debenture of $900 000 in total
had been issued at par on 1 November 2021. Debenture interest is payable on 31 March
and 30 September each year. Applications were received for exactly $900 000 debentures
on 1 November 2021 and the allotment was also made on 1 November 2021.
(iii) In order to obtain the cash discount of 5% from a supplier, one-fifth of the monies
collected from issuance of debentures was used to pay the supplier during the discount
period as the full settlement of its account.
(iv) The board of directors of Dragon Limited resolved to transfer $250 000 to the general
reserve on 31 December 2021.
(v) The board of directors of Dragon Limited declared the final dividend of $120 000 to
shareholders on 31 December 2021. The dividend will be paid to shareholders on
1 March 2022.
(a) Prepare journal entries for the events in (i) to (v) above for Dragon Limited. (Narrations are
not required.) (10 marks)
(b) Prepare a statement of financial position as at 31 December 2021 for Dragon Limited after
taking into account the above adjustments. (8 marks)
(c) Discuss the differences in accrual basis of accounting and cash basis of accounting.
(2 marks)
(Total: 20 marks)
END OF PAPER