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HKDSE Business, Accounting and Financial Studies (Accounting) Paper 1 Practice Paper (12 Questions, 50 Marks, 75 Minutes)
HKDSE BAFS Accounting Paper 1 Practice
HKDSE BAFS Accounting Paper 1 practice paper: 12 original questions in 75 minutes for 50 marks, covering debit and credit entries, accrued expenses, straight-line depreciation
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Paper details Level: S6 (HKDSE) | Subject: BAFS (Accounting) | Time: 75 minutes | Marks: 50 | Questions: 12
Section A Questions 1-6 Multiple choice (2 marks each, 12 marks)
Choose the best answer for each question.
| # | Question | Answer and marking notes |
|---|---|---|
| 1 | Which of the following transactions is recorded on the credit side of the account concerned? A. Buying equipment and paying by bank B. An owner contributing cash as capital C. Repaying accounts payable D. Receiving a repayment from a customer |
Answer: B. An increase in capital increases equity, which is credited. A is an increase in an asset (debit); C reduces a liability (debit) and reduces the bank (credit); D increases the bank (debit). |
| 2 | On 31 December a firm has unpaid December wages of $48,000 that have not been recorded. The year-end adjusting entry is: A. Dr Wages expense 48,000; Cr Bank 48,000 B. Dr Wages expense 48,000; Cr Accrued wages 48,000 C. Dr Accrued wages 48,000; Cr Wages expense 48,000 D. No adjusting entry is needed |
Answer: B. An accrued expense recognises the expense of the period and the related liability. A wrongly reduces the bank before payment; C is reversed; D breaches accrual accounting. (2 marks: entry 1, reason 1) |
| 3 | A machine costs $480,000, has an estimated residual value of $30,000 and a useful life of 5 years. Using the straight-line method, the first-year depreciation is: A. $90,000 B. $96,000 C. $100,000 D. $120,000 |
Answer: A. (480,000 – 30,000) / 5 = $90,000. B ignores the residual value; C averages the cost only; D adds the residual value. |
| 4 | Accounts receivable are $600,000 and the allowance for doubtful debts is set at 3%. Before adjustment the allowance account has a credit balance of $12,000. The doubtful debts expense for the year is: A. $6,000 B. $12,000 C. $18,000 D. $30,000 |
Answer: A. Required allowance = 600,000 x 3% = $18,000; $12,000 already exists, so the expense is 18,000 – 12,000 = $6,000. C is the closing allowance, not the expense. |
| 5 | Which of the following is a feature of a limited company compared with a sole proprietorship? A. Shareholders are liable for the company debts without limit B. The company pays profits tax on its assessable profits C. Shareholders may withdraw company assets at will D. The company need not keep accounting records |
Answer: B. A limited company is a separate legal entity and pays profits tax; shareholder liability is limited (A false); company and shareholder assets are separate (C false); company law requires accounting records (D false). |
| 6 | A factory produces 1,000 units in a period: direct materials $50,000, direct labour $30,000, factory rent $20,000 and sales commission $10,000. The product cost per unit is: A. $80 B. $90 C. $100 D. $110 |
Answer: C. Product cost = direct materials + direct labour + production overhead = 50,000 + 30,000 + 20,000 = $100,000, i.e. $100 per unit. Sales commission is a period cost (choosing D would include it). |
Section B Questions 7-9 Short questions (4 marks each, 12 marks)
Show your workings; an answer without workings earns at most half the marks.
| # | Question | Answer and marking notes |
|---|---|---|
| 7 | The following balances (all normal balances) are taken from a stationery company on 31 December 2026: Purchases 260,000; Rent 96,000; Wages 180,000; Accounts receivable 145,000; Equipment 320,000; Bank 42,000; Sales 380,000; Capital 400,000; Accounts payable 128,000; Loan 100,000; Accumulated depreciation – equipment 35,000. (a) Compute the total debits. (b) Compute the total credits. (c) State whether the trial balance balances. (d) If a bank overdraft of $18,000 were wrongly entered as a debit, what would the difference be? |
(a) Debits = 260,000 + 96,000 + 180,000 + 145,000 + 320,000 + 42,000 = $1,043,000 (1 mark) (b) Credits = 380,000 + 400,000 + 128,000 + 100,000 + 35,000 = $1,043,000 (1 mark) (c) The two sides agree, so the trial balance balances (1 mark). A balanced trial balance does not prove there are no errors – a wholly omitted transaction still balances. (d) An overdraft is a credit balance; entering it as a debit overstates debits by $18,000 and understates credits by $18,000, giving a difference of $36,000 (1 mark). |
| 8 | Inventory data: no opening inventory. During the period 100 units at $10, 200 units at $12 and 150 units at $14 were purchased; 300 units were sold. (a) Compute cost of sales and closing inventory under FIFO. (b) Compute cost of sales (to the nearest dollar) and closing inventory under the weighted average method. (c) Which method gives the higher profit this period, and by how much? |
(a) FIFO: 100 x $10 + 200 x $12 = $3,400; closing inventory = 150 x $14 = $2,100 (1.5 marks) (b) Total cost = $1,000 + $2,400 + $2,100 = $5,500; unit cost = 5,500 / 450 = $12.22; cost of sales = 300 x 12.22 = about $3,667; closing inventory = about $1,833 (1.5 marks) (c) When prices rise, FIFO gives lower cost of sales and therefore higher profit; the difference is about 3,667 – 3,400 = $267 (1 mark). |
| 9 | The cash book (bank column) shows a debit balance of $12,480. On comparison: unpresented cheques $3,200; a deposit credited by the bank but not yet recorded by the firm $4,100; bank charges $60 not yet recorded. (a) Compute the adjusted cash book balance. (b) Compute the bank statement balance. (c) Explain how the bank charges should be recorded. |
(a) Adjusted cash book = 12,480 – 60 = $12,420 (1.5 marks) (b) Bank statement balance = 12,420 + 3,200 (unpresented cheques) – 4,100 (unrecorded deposit) = $11,520 (1.5 marks) (c) Dr Bank charges $60; Cr Bank $60 – the firm has paid but not recorded it, so the cash book must be updated first (1 mark). |
Section C Questions 10-12 Calculations and analysis (8 + 9 + 9 marks, 26 marks)
State formulae and units clearly; label percentages and ratios.
| # | Question | Answer and marking notes |
|---|---|---|
| 10 | A company bought a machine at the start of 2026 for $480,000 with an estimated residual value of $30,000 and an estimated useful life of 5 years. Its year end is 31 December. (a) Using the straight-line method, compute the annual depreciation and the net book value at the end of year 3. (b) Using the reducing balance method at 20% a year, compute the accumulated depreciation and the net book value at the end of year 3. (c) Compare the expense pattern of the two methods in the early years and state which better reflects a machine that is used more heavily at the start. |
(a) Annual depreciation = (480,000 – 30,000) / 5 = $90,000; after 3 years $270,000; net book value = 480,000 – 270,000 = $210,000 (3 marks) (b) Year 1: 480,000 x 20% = 96,000; year 2: 384,000 x 20% = 76,800; year 3: 307,200 x 20% = 61,440; accumulated depreciation = $234,240; net book value = 480,000 – 234,240 = $245,760 (3 marks) (c) Straight line charges an equal amount each year; reducing balance charges more in early years and less later. If benefits or value fall faster early on, reducing balance fits better (2 marks). |
| 11 | A product sells for $120 per unit, variable cost is $72 per unit and fixed costs are $336,000 a month. (a) Compute the contribution per unit and the monthly break-even volume. (b) If 9,000 units are sold this month, compute the margin of safety in units, the margin of safety ratio and the profit. (c) How many units are needed for a target profit of $144,000? (d) If variable cost rises to $80 per unit, what is the new break-even volume? |
(a) Contribution = 120 – 72 = $48; break-even = 336,000 / 48 = 7,000 units (2 marks) (b) Margin of safety = 9,000 – 7,000 = 2,000 units; ratio = 2,000 / 9,000 = about 22.2%; profit = 2,000 x 48 = $96,000 (3 marks) (c) (336,000 + 144,000) / 48 = 10,000 units (2 marks) (d) New contribution = $40; 336,000 / 40 = 8,400 units (2 marks) |
| 12 | A company reports: current assets $480,000 (including inventory $180,000), current liabilities $200,000; sales $750,000, gross profit $300,000, net profit $90,000; capital employed $500,000. (a) Compute the current ratio and the quick ratio. (b) Compute the gross profit margin, net profit margin and return on capital employed. (c) The quick ratio is 1.5 and inventory is a large part of current assets. Give one recommendation on short-term liquidity and one on inventory management. |
(a) Current ratio = 480,000 / 200,000 = 2.4 times; quick ratio = (480,000 – 180,000) / 200,000 = 1.5 times (3 marks) (b) Gross margin = 300,000 / 750,000 = 40%; net margin = 90,000 / 750,000 = 12%; ROCE = 90,000 / 500,000 = 18% (3 marks) (c) Liquidity: collect receivables on time and avoid over-reliance on short-term borrowing; inventory: inventory is 37.5% of current assets, so review slow-moving stock and speed up turnover to release cash (3 marks) |
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A TutorZone practice paper; original questions and passages, not publisher material.
