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HKDSE BAFS Practice Paper: Financial Accounting, Cost Accounting and Financial Management (12 Questions, 100 Marks, 75 Minutes, with Answers)
HKDSE BAFS: Financial Accounting, Cost Accounting and Finance
HKDSE BAFS paper: accounting equation, depreciation, cost-volume-profit, inventory costing, overhead absorption, ratios and company accounts, with computed answers.
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Paper details Level: S6 | Subject: BAFS | Time: 75 minutes | Marks: 100 | Questions: 12 | Answers included
Section A: Financial Accounting (32 marks)
Answer all questions in Section A.
| # | Question | Answer and marking notes |
|---|---|---|
| 1 | Accounting equation. A business has total assets of $486,000 and total liabilities of $172,000. (a) Calculate the closing capital (3 marks). (b) The owner made no capital contributions or withdrawals during the year and opening capital was $268,000; calculate the net profit for the year (3 marks). (c) Explain how drawings affect capital (2 marks). | Answer: (a) Capital = assets – liabilities = 486,000 – 172,000 = $314,000. (b) Net profit = closing capital – opening capital = 314,000 – 268,000 = $46,000. (c) Drawings reduce cash and other assets without reducing liabilities, so capital falls by the amount withdrawn. Marking: treating drawings as an expense earns 1 mark only in (b). |
| 2 | Depreciation. A machine costs $240,000, has an estimated residual value of $24,000 and a useful life of 4 years. (a) Calculate the annual depreciation using the straight-line method (2 marks). (b) Calculate the first and second year depreciation using the reducing balance method at 25 per cent per year (3 marks). (c) Give two reasons why the reducing balance method suits this machine (3 marks). | Answer: (a) (240,000 – 24,000) / 4 = $54,000. (b) Year 1: 240,000 x 25 per cent = $60,000; carrying amount 180,000, so year 2: 180,000 x 25 per cent = $45,000. (c) A machine gives greater benefit early while repairs rise later, so a falling charge matches the benefit; it also reflects the market value of the asset more closely. Marking: year 2 must use the carrying amount, not the original cost. |
| 3 | Bank reconciliation. The cash book shows a debit balance of $38,600. A bank charge of $300 has not been entered in the cash book; cheques of $12,400 issued are unpresented; deposits of $9,800 are not yet credited by the bank. (a) Calculate the adjusted cash book balance (3 marks). (b) Calculate the balance on the bank statement (3 marks). (c) Explain why a cheque can be unpresented (2 marks). | Answer: (a) 38,600 – 300 = $38,300. (b) 38,300 + 12,400 – 9,800 = $40,900. (c) The business has recorded the payment, but the payee has not presented the cheque, so the bank has not deducted it and shows a higher balance. Marking: adding the unpresented cheques but not deducting the uncredited deposits earns no mark in (b). |
| 4 | Trade receivables. Closing trade receivables are $520,000 and the allowance for doubtful debts is to be kept at 5 per cent. The opening allowance was $21,000. (a) Calculate the closing allowance (3 marks). (b) Calculate the doubtful debts expense for the year (3 marks). (c) Explain the purpose of the allowance (2 marks). | Answer: (a) 520,000 x 5 per cent = $26,000. (b) 26,000 – 21,000 = $5,000 charged to the income statement. (c) Under prudence, expected irrecoverable amounts are recognised early so receivables are not overstated and profit is not exaggerated. Marking: (b) requires the increase, not the closing allowance. |
Section B: Cost Accounting (36 marks)
Answer all questions in Section B.
| # | Question | Answer and marking notes |
|---|---|---|
| 5 | Cost-volume-profit analysis. A product sells for $180, has a unit variable cost of $108 and fixed costs are $432,000. (a) Calculate the unit contribution margin (2 marks). (b) Calculate the break-even quantity and break-even sales revenue (3 marks). (c) Calculate the profit at sales of 7,500 units (2 marks). (d) Calculate the margin of safety at that level in units and as a percentage (2 marks). | Answer: (a) 180 – 108 = $72. (b) 432,000 / 72 = 6,000 units; 6,000 x 180 = $1,080,000. (c) (7,500 – 6,000) x 72 = $108,000. (d) Margin of safety = 7,500 – 6,000 = 1,500 units, that is 20 per cent. Marking: (d) units without the percentage earns 1 mark. |
| 6 | Manufacturing account. Direct materials: opening inventory $42,000, purchases $268,000, closing inventory $36,000. Direct labour $186,000, direct expenses $12,000, factory overheads $96,000. Work in progress: opening $25,000, closing $31,000. (a) Calculate the direct materials consumed (3 marks). (b) Calculate the prime cost (3 marks). (c) Calculate the cost of goods manufactured (3 marks). | Answer: (a) 42,000 + 268,000 – 36,000 = $274,000. (b) 274,000 + 186,000 + 12,000 = $472,000. (c) 472,000 + 96,000 + 25,000 – 31,000 = $562,000. Marking: adding the closing work in progress instead of deducting it loses 2 marks in (c). |
| 7 | Overhead absorption. Budgeted factory overheads are $640,000 for 16,000 budgeted machine hours. Actual machine hours were 16,800 and actual overheads were $655,000. (a) Calculate the predetermined absorption rate per machine hour (3 marks). (b) Calculate the overheads absorbed (3 marks). (c) State whether overheads are over or under absorbed and by how much (3 marks). | Answer: (a) 640,000 / 16,000 = $40 per machine hour. (b) 40 x 16,800 = $672,000. (c) $672,000 absorbed exceeds $655,000 actual, so overheads are over absorbed by $17,000. Marking: (c) a bare amount without the words over absorbed earns 2 marks. |
| 8 | Inventory costing. There was no opening inventory. Purchases were 100 units at $20, 200 units at $23 and 150 units at $26. 300 units were sold. (a) Calculate the cost of sales using the first-in-first-out method (3 marks). (b) Calculate the cost of sales using the weighted average method (3 marks). (c) State the closing inventory under both methods and say which is higher when prices are rising (3 marks). | Answer: (a) 100 x 20 + 200 x 23 = $6,600. (b) Total cost 10,500 / 450 units = $23.3333 per unit, so 300 units = $7,000. (c) Closing inventory is $3,900 under first-in-first-out and $3,500 under weighted average; when prices rise the first-in-first-out figure is higher. Marking: the weighted average unit cost must divide total cost by total units. |
Section C: Financial Management and Analysis (32 marks)
Answer all questions in Section C.
| # | Question | Answer and marking notes |
|---|---|---|
| 9 | Ratio analysis. Sales for the year were $1,250,000, cost of sales $750,000 and net profit $125,000. Current assets were $460,000 including inventory of $180,000; current liabilities were $230,000. (a) Calculate the gross profit ratio and the net profit ratio (3 marks). (b) Calculate the current ratio (2 marks). (c) Calculate the quick ratio (3 marks). | Answer: (a) Gross profit ratio = (1,250,000 – 750,000) / 1,250,000 = 40 per cent; net profit ratio = 125,000 / 1,250,000 = 10 per cent. (b) 460,000 / 230,000 = 2.0. (c) (460,000 – 180,000) / 230,000 = 1.22. Marking: each ratio in (a) carries 1.5 marks. |
| 10 | Capital budgeting. A project requires an investment of $500,000 and is expected to generate net cash inflows of $160,000 a year for 4 years. The discount rate is 10 per cent and the 4-year annuity factor is 3.1699. (a) Calculate the net present value (4 marks). (b) Calculate the payback period in years (2 marks). (c) State whether the project should be accepted and give one reason (2 marks). | Answer: (a) 160,000 x 3.1699 = $507,184; net present value = 507,184 – 500,000 = $7,184. (b) 500,000 / 160,000 = 3.125 years, that is 3 years 1.5 months. (c) The net present value is positive, so the return exceeds the 10 per cent discount rate and the project should be accepted. Marking: omitting the initial investment in (a) earns 2 marks. |
| 11 | Company accounts. A company issues 400,000 shares at $2.50 each. The par value is $1.00 per share and all proceeds were received. (a) Calculate the share capital and the share premium (3 marks). (b) Calculate the total proceeds of the issue (2 marks). (c) Explain the difference between share premium and retained profits (3 marks). | Answer: (a) Share capital 400,000 x 1.00 = $400,000; share premium 400,000 x (2.50 – 1.00) = $600,000. (b) 400,000 + 600,000 = $1,000,000. (c) Share premium arises when shareholders pay more than the par value and is capital in nature, so it cannot be distributed as dividends; retained profits are accumulated undistributed profits and can be paid out. Marking: 1.5 marks for each of the two items in (c). |
| 12 | Operating leverage. A company has sales of $1,080,000, variable costs of $648,000 and fixed costs of $300,000. (a) Calculate the contribution (3 marks). (b) Calculate the operating profit (3 marks). (c) Calculate the degree of operating leverage (2 marks). | Answer: (a) 1,080,000 – 648,000 = $432,000. (b) 432,000 – 300,000 = $132,000. (c) 432,000 / 132,000 = 3.27. Marking: (c) requires contribution divided by operating profit; dividing sales earns no mark. |
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