Books of Original Entry and Types of Ledgers

Books of Original Entry and Types of Ledgers

HKDSE 2013 P1 5(Books of original entry and ledgers)

Cash Book
Date / Particulars / Discount / Cash / Bank / Date / Particulars / Discount / Cash / Bank
2013 / $ / $ / $ / 2013 / $ / $ / $
Jan / 1 / Balance b/f / 12,680 / Jan / 1 / Balance b/f / 30,980
" / 2 / Leung / 3,750 / 146,250 / " / 5 / Motor van / 40,000
" / 7 / Commissions received / 190,000 / " / 17 / Drawings / 3,200
" / 14 / Sales / 8,790 / " / 19 / Motor van / 160,000
" / 28 / Bank / 9,000 / " / 24 / Kam Kee / 1,050 / 33,950
" / 28 / Cash / 9,000
" / 31 / Wages / 10,000 / 20,000
" / 31 / Balance c/f / 8,480 / 51,110
3,750 / 21,680 / 345,040 / 1,050 / 21,680 / 345,040

Longman 2013 Mar P1 4(Books of original entry and ledgers)

Cash Book
Date / Details / Discount / Cash / Bank / Date / Details / Discount / Cash / Bank
2013 / $ / $ / $ / 2013 / $ / $ / $
Apr / 1 / Balance b/d / 2,850 / Apr / 1 / Balance b/d / 13,020
" / 8 / Furniture / 1,500 / " / 4 / Purchases / 2,340
" / 11 / Bank loan / 30,000 / " / 18 / Cash / 4,000
" / 14 / P Chim / 540 / 10,260 / " / 27 / N Chung / 3,830 / 34,470
" / 14 / M Lau / 375 / 7,125 / " / 27 / R Tong / 670 / 6,030
" / 18 / Bank / 4,000 / " / 30 / Bank / 11,318
" / 22 / Sales / 4,968 / " / 30 / Balance c/d / 2,000
" / 30 / Cash / 11,318
" / 30 / Balance c/d / 1,157
915 / 13,318 / 59,860 / 4,500 / 13,318 / 59,860

Longman 2012 Dec P1 3(Books of original entry and ledgers)

The Journal
Date / Details / Dr / Cr
2012 / $ / $
Jan / 1 / Buildings / 1,420,000
Equipment / 385,600
Inventory / 279,500
Trade receivables:N Ho / 189,750
F Lau / 17,600
Cash / 23,870
Trade payables:C Chan / 197,030
D Kim / 37,100
Bank loan / 138,800
Capital (balancing figure) / 1,943,390
" / 10 / Furniture ($37,800  90%) / 34,020
Ace Furniture (other payables) / 34,020
" / 15 / Drawings / 8,500
Purchases / 8,500
" / 25 / Furniture / 17,600
F Lau (trade receivables) / 17,600
" / 28 / M Chiu (other receivables) / 12,700
Equipment / 12,700

Longman 2012 P1 1(Books of original entry and ledgers)

Cash Book
Details / Discount / Cash / Bank / Details / Discount / Cash / Bank
2012 / $ / $ / $ / 2012 / $ / $ / $
Jun / 1 / Balance b/d / 3,830 / Jun / 1 / Balance b/d / 4,980
" / 5 / Sales / 532 / " / 3 / Officefurniture / 1,500
" / 7 / Capital / 27,000 / " / 11 / D Lo / 180 / 1,620
" / 15 / Bank / 2,500 / " / 11 / L To / 450 / 4,050
" / 21 / E Cheung / 195 / 3,705 / " / 15 / Cash / 2,500
" / 21 / G Tam / 385 / 7,315 / " / 26 / Purchases / 1,764
" / 29 / Cash / 12,618 / " / 29 / Bank / 12,618
" / 30 / Balances c/d / 2,000 / 26,468
580 / 17,882 / 39,618 / 630 / 17,882 / 39,618

Longman 2010 P1 4(Books of original entry and ledgers)

Fanny Chan
2010 / $ / 2010 / $
Nov / 30 / Balance c/d / 520 / Nov / 1 / Purchases / 520
Dec / 1 / Balance b/d / 520
Purchases
2010 / $ / 2010 / $
Nov / 1 / Balance b/f / 9,470 / Nov / 5 / Drawings / 1,200
“ / 1 / Fanny Chan / 520 / “ / 30 / Balance c/d / 8,790
9,990 / 9,990
Dec / 1 / Balance b/d / 8,790
Drawings
2010 / $ / 2010 / $
Nov / 1 / Balance b/f / 1,270 / Nov / 30 / Balance c/d / 2,470
“ / 5 / Purchases / 1,200
2,470 / 2,470
Dec / 1 / Balance b/d / 2,470
Capital
2010 / $ / 2010 / $
Nov / 30 / Balance c/d / 22,050 / Nov / 1 / Balance b/f / 21,550
“ / 15 / Bank / 500
22,050 / 22,050
Dec / 1 / Balance b/d / 22,050
Bank
2010 / $ / 2010 / $
Nov / 15 / Capital / 500 / Nov / 1 / Balance b/f / 720
“ / 29 / Peter Lai / 1,254 / “ / 25 / Rent / 660
“ / 30 / Balance c/d / 374
1,754 / 1,754
Dec / 1 / Balance b/d / 374
Rent
2010 / $ / 2010 / $
Nov / 1 / Balance b/f / 880 / Nov / 30 / Balance c/d / 1,540
“ / 25 / Bank / 660
1,540 / 1,540
Dec / 1 / Balance b/d / 1,540
Peter Lai
2010 / $ / 2010 / $
Nov / 1 / Balance b/f / 1,320 / Nov / 29 / Bank / 1,254
“ / 29 / Discounts allowed / 66
1,320 / 1,320
Discounts allowed
2010 / $ / 2010 / $
Nov / 29 / Peter Lai / 66 / Nov / 30 / Balance c/d / 66
Dec / 1 / Balance b/d / 66

Basic Accounting

LongmanMock (3, 2011)(Basic Accounting)

Suggested format:

Item / No effect / Debit total exceeds credit total by the amount of / Credit total exceeds debit total by the amount of
(a) / $2,600
(b) / $40,000
(c) / 
(d) / $13,980
(e) / 
(f) / $8,903
(g) / 
(h) / $996

HKCEE(2010, 1) (Basic Accounting)

(B)

Entries required / $ / Net Effects
(a) / Debit: Debtors / 800 / No effect
Credit: Cash / 800
(b) / Debit: Repair expenses / 500 / Decrease assets
Debit: Prepaid maintenance expenses / 1,500 / Decrease capital
Credit: Bank / 2,000
(c) / Debit: Bank / 5,000 / Increase assets
Debit: Creditors / 9,5000 / Increase liabilities
Credit: Bank loan / 100,000
(d) / Debit: Cash / 2,000 / Increase assets
Debit: Accrued expenses / 500 / Decrease liabilities
Credit: Drawings/Capital / 2,500 / Increase capital

HKCEE(2008, 1) (Basic Accounting)

(a) / (i) / Cash book
(ii) / Sales day book/Sales journal
(iii) / Returns outwards day book/ Returns outwards journal
(iv) / Returns inwards day book/ Returns inwards journal
(v) / The Journal/ General journal
(vi) / Cash book
(vii) / The Journal/ General journal
(b) / (i) / Real accounts
—cash/bank, office premises, loan, accrued charges, debtors, creditors, stock
(ii) / Nominal accounts
—sales, purchases, return outwards, returns inwards, wages and salaries, electricity expense
(iii) / Personal accounts
—debtors, creditors
(c) / error of omission
error of complete reversal
error of commission
error of principle
compensating errors
error of original entry

HKCEE (2007,2)(Basic Accounting)

(B)

Net profit for the year ended 31 March 2007 / Working capital as at 31 March 2007
(a) / Increase / Increase
(b) / No change / No change
(c) / Decrease / Decrease
(d) / No change / Decrease

Accrual and Prepayment

Longman Question13(Accrual and Prepayment)

(a)

Telephone
2014 / $ / 2014 / $
Mar / 31 / Balance b/d / 12,355 / Mar / 31 / Profit and loss / 12,905
“ / 31 / Accrued c/d / 550
12,905 / 12,905
Apr / 1 / Accrued b/d / 550
Rent and rates
2014 / $ / 2014 / $
Mar / 31 / Balance b/d / 55,000 / Mar / 31 / Profit and loss / 46,400
“ / 31 / Prepaid c/d($22,200 × 4/12 + $2,400 × 3/6)
8,600
55,000 / 55,000
Apr / 1 / Prepaid b/d / 8,600
Loan Interest Income
2014 / $ / 2014 / $
Mar / 31 / Profit and loss($450,000 × 12% × 9/12) / 40,500 / Mar / 31 / Balance b/d ($450,000 × 12% × 1/2) / 27,000
“ / 31 / Accrued c/d / 13,500
40,500 / 40,500
Apr / 1 / Accrued b/d / 13,500
Rental Income
2014 / $ / 2014 / $
Mar / 31 / Profit and loss / 41,600 / Mar / 31 / Balance b/d / 36,000
“ / 31 / Accrued c/d ($8,400 × 2/3) / 5,600
41,600 / 41,600
Apr / 1 / Accrued b/d / 5,600

(b)

Mr Ko
Statement of Financial Position as at 31 March 2014 (extract)
$ / $
Current assets / Current liabilities
Prepaid expenses / 8,600 / Accrued expenses / 550
Accrued revenue (13,500 + 5,600) / 19,100

Longman (2014, 1) (Accrual and Prepayment)

(a)

Insurance
2013 / $ / 2013 / $
Apr / 1 / Prepaid b/f / 5,000 / Apr / 1 / Accrued b/f / 6,000
May / 1 / Bank / 42,000 / 2014
Aug / 1 / Bank / 16,500 / Mar / 31 / Profit and Loss / 52,000
" / 31 / Prepaid c/f ($16,500 x 4/12) / 5,500
63,500 / 63,500
Rent Expense
2013 / $ / 2014 / $
Apr / 1 / Prepaid b/f / 4,000 / Mar / 31 / Profit and Loss / 38,500
" / 1 / Bank / 24,000 / " / 31 / Prepaid c/f (9,000 x 5/6) / 7,500
Sept / 1 / Bank / 9,000
2014
Mar / 1 / Bank / 9,000
46,000 / 46,000

(b)

The accrual concept has been violated. Under the accrual concept, revenues should be recognised when
earned and expenses should be recognised when incurred, and not when money is received or paid.
Rental revenue for the year ended 31 March 2014 should be $96,000 (= $8,000 × 12) instead of the
$88,000 amount received.

Longman(2012, Dec, 2)(Accrual and Prepayment)

Motor vehicle expenses
2011 / $ / 2011 / $
Nov / 31 / Bank / 28,000 / Dec / 31 / Profit and loss / 30,700
" / 31 / Accrued c/f / 3,950 / " / 31 / Prepaid c/f ($5,000  3/12) / 1,250
31,950 / 31,950
Commission Revenue
2011 / $ / 2011 / $
Dec / 31 / Profit and loss / 55,870 / Dec / 1 / Bank / 47,980
" / 31 / Accrued c/f / 7,890
55,870 / 55,870
Insurance
2011 / $ / 2011 / $
Dec / 15 / Bank / 39,500 / Dec / 31 / Profit and loss / 34,400
" / 31 / Accrued c/f($3,600  2/6) / 1,200 / " / 31 / Prepaid c/f ($8,400  9/12) / 6,300
40,700 / 40,700
Sundry Expenses
2011 / $ / 2011 / $
Dec / 20 / Bank / 7,900 / Dec / 31 / Profit and loss / 9,100
" / 31 / Accrued c/f / 1,200
9,100 / 9,100

Longman(2011, 1)(Accrual and Prepayment)

Emerald CoIncome Statement for the year ended 30 September 2012
$ / $
Sales / 1,498,621
Less / Cost of goods sold:
Opening inventory / 45,896
Add / Purchases / 756,981
802,877
Less / Closing inventory / (49,867) / (753,010)
Gross profit / 745,611
Less / Expenses:
Rent and rates ($228,963  $12,865) / 216,098
Wages and salaries ($318,692  $8,756) / 309,936
Utilities ($178,870 + $3,861) / 182,731
Repairs and maintenance ($25,694 + $5,680) / 31,374
Sundry expenses / 52,753 / (792,892)
Net loss / (47,281)

Bad Debts and Allowance for doubtful Account

Longman Question Bank 16(Bad Debts and Allowance for doubtful Account)

Cammy Chin
Income Statement for the year ended 30 April 2014
$ / $
Sales / 506,890
LessReturns inwards / 2,390
504,500
LessCost of goods sold:
Opening inventory / 84,052
AddPurchases / 214,653
Carriage inwards / 3,970
302,675
LessReturns outwards / 6,157
296,518
LessClosing inventory / 41,000 / 255,518
Gross profit / 248,982
AddOther revenues:
Discounts received / 11,762
Rental income / 112,000
372,744
LessExpenses:
Carriage outwards / 3,520
Discounts allowed / 10,175
Rates and insurance ($11,430 + $2,150) / 13,580
Rent / 181,760
Wages and salaries ($51,012 − $5,370) / 45,642
Bank charges / 1,123
Loan interest ($90,000 × 5% × 1/12) / 375
Bad debts / 2,500
Allowance for doubtful accounts [($164,900 − $2,500) × 6%] / 9,744 / 268,419
Net profit / 104,325

HKDSE (2014, 1)(Control and Bad debts)

(b)

Journal
Date / Details / Dr / Cr
2013 / $ / $
Dec / 31 / Allowance for Doubtful Accounts / 4,142
Profit and loss – Decrease in allowance [$38,000 ($564,300 x 6%)] / 4,142

Longman(2013, 1)(Bad debts)

(a)

Allowance for Doubtful Debts
2012 / $ / 2012 / $
Dec / 31 / Balance c/f [($490,800  $7,800)  5%] / 24,150 / Dec / 31 / Profit and loss / 24,150
2013 / 2013
Dec / 31 / Profit and loss / 9,190 / Jan / 1 / Balance b/f / 24,150
" / 31 / Balance c/f [($389,000 $15,000)  4%] / 14,960
24,150 / 24,150

(b)

Coles Ltd
Balance Sheets as at 31 December (extract)
$ / $
2012 / Trade receivables ($490,800  $7,800) / 483,000
Less Allowance for doubtful debts / (24,150) / 458,850
2013 / Trade receivables ($389,000  $15,000) / 374,000
Less Allowance for doubtful debts / (14,960) / 359,040

Longman(2012, Feb, 2)(Bad debts)

(a)

The Journal
Details / Dr / Cr
$ / $
(i) / Bad debts ($7,800  50%) / 3,900
Treasure Ltd (accounts receivable) / 3,900
(ii) / Profit and loss — Allowance for doubtful accounts[($468,000  $3,900)  5%] / 23,205
Allowance for doubtful accounts / 23,205
(iii) / Treasure Ltd (accounts receivable) / 3,900
Bad debts recovered / 3,900
Bank / 3,900
Treasure Ltd (accounts receivable) / 3,900
(iv) / Profit and loss — Increase in allowance for doubtfulaccounts / 6,695
Allowance for doubtful accounts[($598,000  5%)  $23,205] / 6,695
(b) / The creation of an allowance for doubtful accounts is an application of the prudence concept, which
requires an allowance or provision be made for possible expenses or losses, whether the amount is
certain or just an estimate.
Under this concept, an allowance should be made at the end of an accounting period for accounts
receivable that are likely to become uncollectible (i.e., doubtful accounts). The amount of doubtful
accounts is only an estimate

Bank Rec

HKDSE (2015, 1)(Bank Rec)

(a)

Cash Book (Bank)
2014 / $ / 2014 / $
Dec / 31 / Balance b/d / 58,930 / Dec / 31 / Water charges – Direct debit / 3,100
Sunny Ltd / 12,300 / Man Ltd– dishonored cheque / 19,300
Yip's Ltd / 8,000 / Bank charges / 30
Balance c/d / 56,800
79,230 / 79,230

(b)

Bank Reconciliation Statement as at 31 December 2014
$
Updated balance as per cash at bank / 56,800
Add: Unpresented cheques: 707893 / 12,200
69,000
Less: Uncrediteddeposit – Nam Ltd / (8,620)
Balance as per bank statement / 60,380

HKDSE (2014, 9)(Bank Rec)

(a)

Cash Book (Bank)
$ / $
Balance b/d / 56,000 / Creditors (i) (2,700 x 2) / 5,400
Dividend income (ii) / 1,250 / Debtors – dishonored cheque (iv) / 3,260
Debtors – post-dated cheque (v) / 6,750
Balance c/d / 41,840
57,250 / 57,250

(b)

Bank Reconciliation Statement as at 31 December 2013
$ / $
Balance as per adjusted cash book / 41,840
Add: Unpresented cheques (vi) / 5,500
Credit transfer wrongly (iii) / 3,500 / 9,000
50,840
Less: Uncrediteddeposit (vi) / (53,100)
Overdraft balance as per bank statement / (2,260)

(c)

Journal
2013 / Dr / Cr
December 31 / $ / $
(vii) / Sales / 22,900
Debtors / 22,900
Promotion expenses / 16,000
Inventory / 16,000
(viii) / Prepaid rental expenses ($20,400 x 3/12) / 5,100
Rental expenses / 5,100
(ix) / Maintenance expenses / 324,000
Maintenance revenues ($72,000 x 1/24 + $144,000 x 1/36 + $108,000 x 2/36) / 13,000
Unearned maintenance revenues ($72,000 x 23/24 + $144,000 x 35/36 + $108,000 x 34/36) / 311,000
(d) / According to the accrual concept, revenues and expenses are recognized when they are earned or incurred,
regardless of when the actual cash is received or paid. In (ix), part ofmaintenance revenuesshould be treated as
unearned although all the revenues are received in advance.

HKDSE (2013, 1)(Bank Rec)

(a)

Accounting principle/concept violated
—Money measurement concept
Explanations:
—only transactions that capable of being expressed in monetary terms are included in the accounting
records of any entity
—good reputation cannot be quantified in terms of money and should not be reflected in the
financial statements
—goodwill would be recorded only when it is purchased from an existing business
Journal
Date / Details / Dr / Cr
2013 / $ / $
Mar / 31 / Sundry revenue / 300,000
Goodwill / 300,000

(b)

Cash Book (Bank)
$ / $
Balance b/d / 62,300 / Trade payables (iii) / 82,750
Trade payable (ii) / 7,800 / Trade receivables (iii) / 32,110
Trade receivables (iii) / 287,000 / Accrued management fee (v) / 8,800
Trade receivables (iv) / 125,000 / Rent fee (vi) / 165,500
Dividend income (iv) / 2,840 / Balance c/d / 195,780
484,940 / 484,940

HKDSE(2012, 5) (Bank Rec)

(a)

Cash Book
2011 / $ / 2011 / $
Dec / 31 / Debtors – credit transfer (ii) / 46 250 / Dec / 31 / Balance b/d / 9 530
“ / 31 / Balance c/d / 49895 / “ / 31 / Connie Fashion Co (i) / 1 800
“ / 31 / Carmen Co– Post-dated cheque (i) / 7 235
“ / 31 / Chloe Ltd– Returned cheque / 72 530
“ / 31 / Management fees / 5 025
“ / 31 / Bank charges / 25
96,145 / 96,145

(b)

Bank Reconciliation Statement as at 31 December 2011
$ / $
Balance as per adjusted cash book / (49 895)
Add Unpresented cheques
—532020 / 31 600
—532022 / 68 760
—532009 ($10 500– $10 000 – $300) (iv) / 200 / 100 560
50 665
Less Uncredited deposit – Cherry Ltd / 8 005
Bank error – incorrect debit (iii) / 105 660 / 113 665
Balances as per bank statement / (63,000)
Unpresented cheque 532009 + Unpresented cheque 532010 = $10 500– $10 000 = $500
Unpresented cheque 532009 + $300 = $500
Unpresented cheque 532009 = $500 – $300 = $200
(c) / —insufficient cash in drawer’s account
—post-dated cheque
—wrong drawee’s name/drawers signature

Depreciation

Longman Question Bank 19(Depreciation)

(a) / Cost of Machine 1 × 20% = $45,000
Thus, cost of Machine 1 = $45,000 ÷ 20% = $225,000

(b)(i)

Machinery
2014 / $ / 2014 / $
Jan1 / Balance b/d (W1) / 780,000 / Mar 1 / Disposal: Machinery (Machine 1) / 225,000
Mar1 / Disposal: Machinery – Trade-in value / 140,000 / May 31 / Disposal: Machinery (Machine 2) / 240,000
“1 / Bank (Machine 4) (W2) / 80,000 / Jul 1 / Disposal: Machinery (Machine 3) / 315,000
Oct1 / Bank ($300,000 + $3,500) (Machine 5) / 303,500 / Dec 31 / Balance c/d / 523,500
1,303,500 / 1,303,500
W1: Cost of machinery as at 1 January 2014：=Machine 1 + Machine 2 + Machine 3
= 225,000 + 240,000 + 315,000 = 780,000
W2: Capital expenditure related to the purchase of Machine 4:
= Purchase cost + Delivery of the machine + Testing fee + Components installed
= 185,000 + 5,000 + 10,000 + 20,000 = 220,000
Thus, the remaining balance paid by cheque is = $220,000 ˗ $140,000 = $80,000（trade-in value of Machine 1）。

(ii)

Accumulated Depreciation: Machinery
2014 / $ / 2014 / $
Mar1 / Disposal: Machinery (Machine 1) (W3) / 81,000 / Jan1 / Balance b/d (W3) / 230,400
May 31 / Disposal: Machinery (Machine 2) (W3) / 86,400 / Dec 31 / Profit and loss –Depreciation: Machinery (W4) / 104,700
Jul1 / Disposal: Machinery (Machine 3) (W3) / 63,000
Dec 31 / Balance c/d / 104,700
335,100 / 335,100

W3:Accumulated depreciation of machinery as at 1 January 2014：Accumulated

Depreciation for the year ended 31 December：20122013depreciation

$$$

Machine 145,00036,00081,000

Machine 2 ($240,000 × 20%), ($240,000 × 80% × 20%)48,00038,40086,400

Machine 3 ($315,000 × 20%)-63,00063,000

230,400

W 4:Depreciation on machinery for the year ended 31 December 2014：= $523,500 × 20% = $104,700

(iii)

Disposal: Machinery
2014 / $ / 2014 / $
Mar 1 / Machinery (Machine 1) / 225,000 / Mar 1 / Accumulated depreciation: Machinery (Machine 1) / 81,000
May 31 / Machinery (Machine 2) / 240,000 / Mar 1 / Machinery – Trade-in value / 140,000
Jul 1 / Machinery (Machine 3) / 315,000 / May31 / Accumulated depreciation: Machinery (Machine 2) / 86,400
Dec 31 / Profit and loss — Profit on disposal / 400 / May31 / Cash / 160,000
Jul1 / Accumulated depreciation: Machinery (Machine 3) / 63,000
Jul1 / Compensation receivable / 250,000
780,400 / 780,400

HKDSE (2014, 2)(Depreciation)

(a)

Year / Calculation / Depreciation
2011 / ($240,000  $4,000)/10 =$23,600 / $23,600
2012 / $23,600+ $180,000 / 9 =$43,600 / $43,600
2013 / $43,600 x 6/12 = $21,800 / $21,800

(b)

Journal
Debit / Credit
2013 / $ / $
Oct / 15 / Accumulated depreciation ($23,600 + $43,600 + 21,800) / 89,000
Insurance compensation receivable / 210,000
Profit and loss – Loss on disposal / 121,000
Motor vehicle ($240,000 + $180,000) / 420,000

HKDSE(2013, 2) (Depreciation)

(a)

Equipment
2012 / $ / 2012 / $
Jan / 1 / Balance b/f (135,000 x 5) / 675,000 / Dec / 31 / Disposal: Equipment (135,000 x 2) / 270,000
Dec / 31 / Bank (280,000 + 12,500) / 292,500 / “ / 31 / Balance c/f / 697,500
967,500 / 967,500

(b)

Accumulated Depreciation: Equipment
2012 / $ / 2012 / $
Dec / 31 / Disposal: Equipment (W2) / 54,000 / Jan / 1 / Balance b/f (W1) / 135,000
“ / 31 / Balance c/f / 204,300 / Dec / 31 / Depreciation (W3) / 123,300
258,300 / 258,300
W1: 675,000 x 20% = 135,000
W2: 270,000 x 20% = 54,000
W3: (675,000 –270,000) x 80% x 20% + 292,500 x 20% = 123,300
(c) / Accounting principle concept violated:
—consistency concept
Explanations:
—Same accounting policy should be applied on liked items across years
—A change in depreciation method is allowed when it will result in a more true and fair presentation
the firm's financial position.
—To stabilize operating results over year is not a justifiable reason for the change in depreciation
method

HKDSE(2012, 2) (Depreciation)

(a) / (1) / Depreciation expenses = ($3 600 000  $3 455 000) + ($2 400 000 + $60 000) x 0.25 x 10/12
= 145 000 + 512 500
= 657 500

(a) (2)

Accumulated Depreciation –lorries
2011 / $ / 2011 / $
Dec / 31 / Balance c/d / 1 702 800 / Jan / 1 / Balance b/d / 1 200 000
Dec / 31 / Depreciation (W1) / 502,800
1 702 800 / 1 702 800
W1: Depreciation for lorries = ($1 850 000 1 200 000) x 20% + ($1 900 000  $36,000) x 20% = $502 800
(b) / It does not violate the consistency concept
Reasons:
—consumption pattern is different for different types of non-current assets
—the company is consistently applying the same depreciation method for the same type of
non-current assets.

HKDSE (Practice, 3)(Depreciation)

(a) / (1) / Trade receivables collection periods = [($856,000 + $996,000)  2 / $10,186,000] x 12
= 1.1 months
(2) / Cost of goods sold = 878,000 + 7,294,500 – 990,000= 7,182,500
Inventory turnover= [7,182,500 / (878,000 + 990,000)  2]= [7,182,500 / 934,000]
= 7.7 times

(b)

Journal
2011 / Debit / Credit
December / $ / $
(i) / Loan interest / 5050
Accrued loan interest / 5050
(ii) / Accumulated depreciation – Motor vehicles / 40 000
Cash / 48 000
Motor vehicles / 80 000
Profit and loss – Profit on disposal of motor vehicles / 8 000
(c) / Accrual concept
—Unpaid loan interest should be credited to accrued loan interest account to represent anincrease
in current liability in 2011.
—The loan interest incurred should be debited in the profit and loss account as anincrease in
operating expenses of 2011.

Valuation of inventory (存貨的計價)

Weighted average cost method (加權平均成本法)

Homework 1

Weighted average cost per unit
= [$28,800 + (10 x $4,000) + (15 x $4,000) + (17 x $4,500)] / (8 + 10 + 15 + 17)
= $4,106
Inventory as at 31 December = (50 – 12 – 20) x $4,106
= $73,908

Homework 2

(a) / Weighted average cost per unit
= [(2,000 – 100) x $60 + (2,000 – 100) x $70 + 1,200 x $90] / (2,000 + 2,000 + 1,200 – 100 – 100)
= $355,000 / 5,000
= $71
(b) / Abnormal inventory loss = 50 x $71 = $3,550
Dr Profit and loss (abnormal inventory loss) $3,550
Cr Purchases $3,550
Inventory as at 31 December 2016 = (5,000 – 1,400 – 2,000 – 50) x $71
= 1,550 x $71
= $110,050

Lower of cost and net realisable value (成本與變現淨值孰低法)

Homework 6

Net realisable value = $100 $20 $10 = $70
Since the cost of the good ($25) is less than its NRV ($70), the cost of the good will get recorded as the cost of
inventory.

Homework 8

Net realisable value = $500$100 = $400
Since the net realisable value is lower than the cost, this inventory item should be valued at net
realisable value $400.

Goods sent or received on a sale or return basis (銷售或退回方式)

Homework 10

Inventory as at 31 December 2015 = $42,600 $1,250 + $2,400 / 125%
= $42,600  $1,250 + $1,920
= $43,270

Homework 15

Cost of inventory sent on sale or return basis = $4,500 / 125% = $3,600
Inventory as at 31 March 2016 = $50,000 + $3,600
= $53,600

Deduction of closing inventory after the end of the reporting period

Simple situation

Classwork 5

1.(a)

Statement of Inventory as at 31 December 2010
$ / $
Inventory as at 1 January 2010 / 18,850
Add Purchases / 145,320
Cost of returns inwards ($14,472 ÷ 120%) / 12,060 / 157,380
176,230
Less Cost of normal sales ($176,700 ÷ 120%) / 147,250
Returns outwards / 8,760 / (156,010)
Inventory as at 31 December 2010 / 20,220

Homework 12

Statement of Inventory Valuation as at 31 December 2016
$ / $
Value of inventory as at 8 January 2017 / 508,500
Add Inventory understated [1,000 x ($16  $1.6)] (i) / 14,400
Sales (1-8 Jan 2017) [$5,000 x (1  20%)] (ii) / 4,000
Adding-up error ($42,990  $24,990) (iv) / 18,000 / 36,400
544,900
Less Write-down to net realisable value ($5,600  $4,250) (iii) / 1,350
Correct value of inventory as at 31 December 2016 / 543,550

HKCEE (2009, 7)(Incomplete records)

Computation of stock value at 31 December 2007
$ / $
Stock value as at 13 January 2008 / 78,178
Add Cost of normal sales ($45,000 x 80%) / 36,000
Returns outwards / 470 / 36,470
114,648
Less Purchases ($29,680 – $300) / 29,380
Cost of returns inwards ($800 x 80%) / 640
Stock written down ($1,000 x 80% – $600) / 200
Stock overcast / 1,720
Stock received on a sale or return basis / 960 / 32,900
Stock value as at 31 December 2007 / 81,748

6.6Normal vs. abnormal inventory loss (常與非正常存貨損失)

Homework 14

The Journal
Date / Details / Dr / Cr
2014 / $ / $
Jul / 24 / Inventory loss / 30,000
Purchases / 30,000
Oct / 1 / Bank (30,000 x 40%) / 12,000
Inventory loss / 12,000
Dec / 31 / Profit and loss / 18,000
Inventory loss (30,000 x 60%) / 18,000

Complicated situation

Longman(2012, Dec, 3)(Incomplete)

(a)

Wilson Wong
Value of Inventory Lost in the Fire
$ / $
Inventory as at 1 July 2012 (398,000  $9,600  1.5  $4,500  1.5) / 388,600
Add Inventory sheet undercast / 7,910
Purchases between 1 July and 5 November 2012 ($495,875  $76,050) / 419,825
Returns inwards ($13,800  1.5) / 9,200 / 436,935
825,535
Less Sales between 1 July and 5 November 2012 at cost price [($678,000  $19,800)  1.5] / 438,800
Obsolete inventory written off ($39,500  80%) / 31,600
Returns outwards / 28,950
Drawings ($26,300  3/4) / 19,725
Free samples given out / 12,300
Goods sent out on a sale or return basis [($600  1.5)  50] / 20,000 / (551,375)
Inventory as at 5 November 2012 / 274,160
Less Inventory undamaged in the fire / (49,800)
Inventory lost in the fire on 5 November 2012 / 224,360

Correction of errors

HKDSE (2015, 6)(Correction of errors)

(a)

Journal
2014 / Dr / Cr
December 31 / $ / $
(i) / Debtor / 500
Sales / 500
(ii) / Rates / 3 000
Rental deposit / 3 000
(iii) / Electricity expenses ($2500  $250) / 2 250
Accrued electricity expenses / 2 250
(iv) / Suspense / 1200
Windy Ltd / 1200
(v) / Purchase / 450
Suspense / 90
Discount received / 540
(vi) / Accumulated depreciation – Motor Van / 30 000
Drawing / 50 000
Motor Van / 80 000
(b) / (i) Error of omission.
(ii) Error of commission.
(iii) Error of original entry
(c) / —The business entity concept was violated.
—The business entity concept states that a business is treated as anentity separate from its owner.
Therefore, transaction between the firm and the owner should also be recorded.
—The motor van had been withdrawn by Elsa and was no longer the asset of the company. The
withdrawal should be treated as drawings and proper entries should be made in the books.

HKDSE(2012, 9) (Limited company and correction of errors)

(a) (1)

Journal
2011 / Dr / Cr
December 31 / $ / $
(i) / Profit and Loss / 35,820
Allowance for doubtful debts (716,400 x 5%) / 35,820
(ii) / Cash at bank (600,000 x 6) / 3,600,000
Ordinary share capital (600,000 x 2) / 1,200,000
Share premium (600,000 x $4) / 2,400,000
(iii) / Cash at bank / 900,000
2% Debentures / 900,000
Trade payables (900,000 x 25% / 96%) / 234,375
Profit and Loss  Discounts received / 9,375
Cash at bank (900,000 x 25%) / 225,000
Profit and Loss  Debenture interest (900,000 x 2% x 1/12) / 1,500
Accrued expense / 1,500
(iv) / Accumulated depreciation / 726,000
Profit and Loss –Profit on disposal / 9,000
Property, plant and equipment / 726,000
Cash (165,000 – 156,000) / 9,000
(v) / Profit and Loss / 135,000
General reserve / 135,000
(vi) / Profit and Loss –Advertising expenditure / 424,800
Prepayment / 424,800

(a) (2)

Dragon Ltd

Statement of Financial Position as at 31December 2011

$
ASSETS
Non-current assets
Property, plant and equipment [(4,800,000 – 726,000) – (1,240,000 – 726,000)] / 3,560,000
Current assets
Inventory / 545,000
Trade receivables (716,400 – 35,820) / 680,580
Cash at bank (760,800 + 3,600,000 + 900,000 – 225,000 – 9,000) / 5,026,800
6,252,380
Total assets / 9,812,380
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shares of $2 each (4,000,000 + 1,200,000) / 5,200,000
Share premium (319,000 + 2,400,000 ) / 2,719,000
General reserves / 135,000
Retained profits (996,500 – 35,820 + 9,375 – 1,500 – 9,000 – 135,000 – 424,800) / 399,755
Total equity / 8,453,755
Non-current liabilities
2% Debentures / 900,000
Current liabilities
Trade payables (691,500  234,375) / 457,125
Accrued expenses / 1,500
458,625
Total liabilities / 1,358,625
Total equity and liabilities / 9,812,380
(b) / —should not be treated as prepayment
—should be charged to income statement as expense
—uncertain revenue recognition: increase in sales volume is just an estimate

HKDSE Sample 2 (Paper 2A, 3)

(b)

HKDSE Sample 1 (Paper 2A, 6) (Correction Errors)

(a)

Journal
Debit / Credit
$ / $
(i) / (1) / Bank / 16,120
Profit and loss: overdraft interest / 80,060
Profit and loss: dividend income / 80,060
(2) / Deposit on acquisition of motor vehicle / 10,000
Motor vehicles / 10,000
Accumulated depreciation – motor vehicles ($10,000 x 25%) / 2,500
Profit and loss: depreciation – motor vehicles / 2,500
(ii) / Profit and loss: insurance / 1,300
Suspense / 1,300
Rates prepaid / 5,500
Suspense / 5,500
(iii) / Profit and loss: bad debts / 10,800
Account receivables / 10,800
Allowance for doubtful account / 540
Profit and loss / 540
(iv) / Profit and loss / 10,000
Inventories / 10,000

(b)

Healthy Food Company
Statement of financial position as at 31 December 20X6
$ / $
ASSETS
Non-current assets
Office machinery / 148,000
Less: Accumulated depreciation / 45,300
102,700
Current assets
Inventories ($127,600$10,000) / 117,600
Account receivables, net ($85,500$10,800$540) / 75,240
Deposit (re: motor vehicle) / 10,000
Rates prepaid / 2,750
205,590
Total Assets / 308,290
EQUITY AND LIABILITIES
Capital and reserves
Balance as at 1 January 20X6 / 114,622
Add: Net profit for the year (22,068 + 8,060 + 8,060 + 2,500 – 1,300 – 10,800 + 540 – 10,000) / 19,128
133,750
Non-current liabilities
Bank loan / 100,000
Current liabilities
Accounts payable / 68,750
Bank overdraft (21,910 – 16,120 ) / 5,790
74,540
Total Capital and Liabilities / 308,290

Longman(2014, 4)(Correction of error)

(a)

Journal
2014 / Debit / Credit
December 31 / $ / $
(i) / Sales / 175,000
Capital / 175,000
(ii) / Creditors / 12,000
Discount received / 2,000
Capital / 10,000
(iii) / Suspense / 3,300
Returns inwards / 42,000
Purchases / 23,300
Debtors / 22,000
(iv) / Repairs and Maintenance / 17,000
Drawing / 5,000
Suspense / 22,000
(v) / Salaries / 3,000
Accrued expenses / 3,000
Prepaid expenses / 1,150
Insurance / 1,150

(b)