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FANLING LUTHERAN SECONDARY SCHOOL
2015 - 2016 S6 PRE MOCK EXAMINATION 1
BUSINESS, ACCOUNTING AND FINANCIAL STUDIES PAPER 1
Date : 15th February, 2016
Time allowed: 8:30 am - 9:45 am (1 hour 15 minutes)
This paper must be answered in English
GENERAL INSTRUCTIONS:
(1)
There are TWO sections, A and B, in this Paper. Section A consists of multiple-choice questions and Section B
contains short questions.
(2)
Answer ALL questions in Section A. There are two parts in Section B. Answer ALL questions in Part 1 and ONE of the
two questions in Part 2.
(3)
Answers to Section A should be marked on the Multiple-choice Answer Sheet while answers to Section B should be
written in the Answer Book. In the Answer Book, start EACH question (not part of a question) on a NEW page.
(4)
The Answer Sheet for Section A and the Answer Book for Section B must be handed in separately at the end of the
examination.
________________________________________________________________________________________
INSTRUCTIONS FOR SECTION A (MULTIPLE-CHOICE QUESTIONS)
(1)
Read carefully the instructions on the Answer Sheet. After the announcement of the start of the examination, you
should first stick a barcode label and insert the information required in the spaces provided. No extra time will be
given for sticking on the barcode label after the ‘Time is up’ announcement.
(2)
When told to open this book, you should check that all the questions are there. Look for the words ‘END OF
SECTION A’ after the last question.
(3)
All questions carry equal marks.
(4)
ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the answer sheet, so that
wrong marks can be completely erased with a clean rubber. You must mark the answers clearly; otherwise you will
lose marks if the answers cannot be captured.
(5)
You should mark only ONE answer for each question. If you mark more than one answer, you will receive NO MARKS
for that question.
(6)
No marks will be deducted for wrong answers.
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 5
By M. C. WONG
SECTION A (60 marks) Multiple-choice Questions
There are 30 questions in this section. Answer ALL questions. Choose the best answer for each question.
1
A bookstore has decided to donate 1% of its sales revenue to support the ongoing charity work of The Salvation
Army in Hong Kong, This is an example of
A.
business ethics.
B.
social responsibilities
C.
business practice.
D.
legal behaviour.
2
Toyota announced a recall in February 2010 of about 436,000 hybrid vehicles worldwide, including its latest Prius
model, to fix brake problems. Which of the following stakeholders is likely to be affected?
A. Managers
B. Creditors
C. Suppliers
D. All of the above.
3
Which of the following is the performance standard for a telephone survey company which conducts
questionnaires for its clients?
A. Number of calls made by the interviewers.
B. Number of customer complaints
C. Average cost of completing the questionnaire
D. All of the above
4
Which of the following items would not be reported in an income statement?
A. Drawings
B. Inventory
C. Expenses
D. Other income
5.
A manager can consider delegation if
(1) his subordinates are conscientious.
(2) the tasks are important to the organisation’s success.
(3) his subordinates possess the knowledge.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
6
A laissez-faire policy is based on the idea that the government should
A. minimise intervention in the market.
B. promote a spirit of entrepreneurship which helps promote economic growth.
C. protect and respect private property rights.
D. allow the free flow of information.
7.
In what ways are China and Hong Kong closely related?
(1) China helps many Hong Kong firms raise capital in the stock market.
(2) Many Hong Kong companies have relocated their production bases to the Mainland to save on costs.
(3) Hong Kong serves as an entrepôt to facilitate trade between the Mainland and other countries.
A. (3) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 6
By M. C. WONG
8
Which of the following events would affect the capital balance of a business?
A.
The business incurs a net loss for the period.
B.
Sale of equipment by the business at cost
C.
Purchase of premises by the business on credit
D.
The owner uses his own money to pay for the maid who works in his apartment.
9
Which of the following accounts is to be closed off at the end of an accounting period?
A.
Accounts receivable
B.
Capital
C.
Salaries
D.
Inventory
10
The following are examples of different forms of business ownership except
A.
for Mr Kwong and Mr Leung admitting Miss Fung as new partners in their accounting firm.
B.
Miss Tam using her personal savings to finance her flower shop.
C.
Goodwill Company obtaining trade credit from its supplier.
D.
People Company Ltd issuing new shares to new investors.
11
TTM Company is a multinational shipping company which has operations in more than 10 countries. Which is the
most appropriate method for organising its marketing activities?
A. Functional structure
B. Geographical structure
C. Product structure
D. Customer structure
12
An effective information system would
A.
provide the correct information to the right people at the right time and in the right form.
B.
give reliable and timely information to managers and workers.
C.
facilitate communication between employees even if they are geographically dispersed.
D.
transform data into information which is useful for decision-making.
13
The following information was extracted from the books of Concord Co for the year ended 31 December 2010:
$
Cost of goods sold
60,000
Total assets as at 31 December 2010
185,000
Total liabilities as at 31 December 2010
85,000
Inventory as at 31 December 2010
20,000
Sales less returns inwards
100,000
Accounts receivable as at 31 December 2010
30,000
Expenses
10,000
The return on capital employed for the year was
A.
20%.
B.
30%.
C.
40%.
D.
50%.
14
Suppose the working capital ratio of a business as at a certain date is 1.5 : 1. The quick ratio as at that date
A.
must be greater than 1.
B.
must be less than 0.
C.
equals 0.
D.
cannot be determined.
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 7
By M. C. WONG
15
The Hospital Authority requires non-local expectant mothers to make a booking with Hong Kong public hospitals in
advance. What is the aim of this strategy in terms of operations management?
(1) Forecasting demand
(2) Scheduling work
(3) Planning for capacity
(4) Designing a facility layout
A.
B.
C.
D.
16
(1) and (2)
(1) and (3)
(2) and (4)
All of the above
The advantage(s) of a sole proprietorship over a partnership is/are that
(1) a sole proprietor is not bound by the decisions of others.
(2) a sole proprietor does not need to disclose the company’s financial information to the public.
(3) a sole proprietor can have a lower profits tax rate.
A.
B.
C.
D.
(1) only
(2) only
(1) and (3)
All of the above
17
A private limited company
A. has no upper limit on the number of shareholders.
B. does not have a separation of ownership and management.
C. can obtain capital without losing control of the business.
D. can sell its shares to the public.
18
SMEs are more flexible than MNCs because
(1) SMEs are relatively small and have a simple organisational structure.
(2) SMEs employ professional managers to run their businesses.
(3) SMEs are mostly labour-intensive operations and use relatively simple technology.
(4) the owners of SMEs can make decisions quickly.
A.
B.
C.
D.
19
(1) and (2)
(1) and (4)
(2) and (3)
All of the above
Which of the following transactions would be recorded in the purchases account of a business?
(1) Cash purchases of goods
(2) Credit purchases of goods
(3) Drawings of goods by the owner
(4) Purchases of non-current assets for business use
A.
B.
C.
D.
(1)
(1), (2) and (3)
(2), (3) and (4)
All of the above
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 8
By M. C. WONG
20.
A equipment has a useful life of three years. At the end of three years, it can be sold for $20,000. The equipment can
generate cash inflows of $30,000 per year. The cost of capital is 8% per annum. What is the PV of the equipment?
A. $80,000
B. $93,190
C. $97,312
D. $110,000
21.
A purchase invoice showed a gross amount of $5,500, less a trade discount of 8% and a cash discount of 3% if
settled within 7 days. The company returned one-third of the goods immediately after delivery and received a credit
note from the supplier. If this invoice was settled within five days, the payment amount would be
A.
$880.
B.
$1,636.07.
C.
$3,204.67.
D.
$3,272.13.
22.
Which of the following statements is true?
A.
A revenue item is increased by debiting the revenue account and decreased by crediting the revenue
account.
B.
Liabilities are increased by debit entries to the liability account; liabilities are decreased by credit entries to
the liability account.
C.
A debit entry is used to record a decrease in expenses, while a credit entry is used to record an increase in
expenses.
D.
Assets are increased by debit entries to the asset account; assets are decreased by credit entries to the asset
account.
23.
The tasks performed by the first-line manager in a factory include
(1) choosing a suitable location for a new plant which is to be built next year.
(2) thinking over the possibilities of using new machines to enhance overall production efficiency.
(3) ensuring that operational tasks can meet the production schedule.
(4) dealing with quality control problems that occur in the production process.
A.
B.
C.
D.
24.
(1) and (2)
(1) and (3)
(2) and (4)
(3) and (4)
Which of the following descriptions are correct?
(1) Financial statements are periodic accounting reports prepared to show the financial position and operating
results of a business.
(2) A balance sheet shows the assets, liabilities and capital of a business for a specific period of time.
(3) An income statement summarises the revenues and expenses of a business as of a specific date.
(4) The capital account shows the amount of resources supplied to a business by its owner(s).
A.
B.
C.
D.
(1) and (2)
(1) and (4)
(2) and (3)
(3) and (4)
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 9
By M. C. WONG
25.
How should the return of goods bought on credit to a supplier be recorded in the purchaser’s books? What is the
source document for this transaction?
Dr
Cr
Source document
A.
Accounts payable
Returns outwards
Debit note
B.
Returns inwards
Accounts receivable
Debit note
C.
Returns outwards
Accounts receivable
Credit note
D.
Accounts payable
Returns inwards
Credit note
26.
An international casual wear retail chain has the following plans:
Plan A: Enter the Mainland market
Plan B: Open five shops each in Beijing and Shanghai in 2011.
What kinds of business plans are these?
A. Plan A: Long-term plan; Plan B: Short-term plan
B. Plan A: Tactical plan; Plan B: Operational plan
C. Plan A: Directional plan; Plan B: Specific plan
D. Plan A: Strategic plan; Plan B: Operational plan
27.
Tommy Lee, a trader of office equipment, sold a copying machine on credit to Tai San Co. Which of the following
journal entries are correct for this transaction?
A.
B.
C.
D.
28.
Dr Office equipment;
Dr Tai San Co;
Dr Purchases;
Dr Tai San Co;
Cr Tai San Co
Cr Office equipment
Cr Tai San Co
Cr Sales
The owner of a business paid for the repairs of his private car by issuing a cheque for $2,500 from the business bank
account. The bookkeeper recorded the transaction as follows:
Dr
Cr
$
$
Motor repairs
2,500
Bank
2,500
Which of the following accounting principles or concepts has been violated?
A.
Going concern concept
B.
Business entity concept
C.
Accrual concept
D.
Consistency principle
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 10
By M. C. WONG
Refer to the following information for Questions 29 – 30:
The following trial balance was prepared by an inexperienced bookkeeper. Some of the accounts were listed on the wrong
side of the trial balance.
Ada Co
Trial Balance as at 31 December 2010
Dr
Cr
$
$
Accounts payable
4,100
Accounts receivable
4,500
Bank overdraft
2,535
Discounts allowed
530
Discounts received
130
Drawings
3,510
Purchases
14,500
Rent expense
1,250
Sales
18,000
Inventory
2,000
29.
What should the correct totals for debit and credit balances be?
A.
$22,780; $28,275
B.
$25,890; $25,165
C.
$26,290; $24,765
D.
$29,790; $21,265
30.
If the capital account is the only missing account, the correct capital balance should be
A.
$1,525 Cr.
B.
$725 Cr.
C.
$6,595 Cr.
D.
$5,495 Dr.
END OF SECTION A
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 11
By M. C. WONG
SECTION B (30 marks)
Part 1 (20 marks)
1.
Short Questions
Answer ALL questions in this part.
Due to increases in wages and production costs, many factory owners in the Mainland are considering relocating to
East Asian countries, e.g., Vietnam, Malaysia, Thailand, etc.
2.
(a)
What factors do they need to consider? Describe three of these factors.
(b)
How can information management help them manage the risks of investing in the East Asian countries?
Maria is considering buying a new oven for her bakery. The new oven will cost her $130,000. She estimates that the
oven can generate net cash inflows as follows:
Year
Net cash inflows
1
$60,000
2
$50,000
3
$35,000
She expects that the oven can no longer be used after three years and can only be sold for $10,000 at the end of the
third year.
(a)
Assume that Maria’s cost of capital of is 10% per annum. Calculate the NPV of the oven. (Calculations to one
decimal place)
(b)
3.
Should Maria buy the oven? Explain your answer.
Anthony is a sole trader running a small shop which sells vegetables and fruits in a housing estate. He is now
thinking of inviting his uncle, who was once the marketing manager of a food company, to form a partnership
together. Recently, Anthony has heard that a large supermarket chain is going to open a branch near his shop. This
supermarket will also sell fresh vegetables and fruits.
(a)
List two advantages of a sole proprietorship over a partnership.
(b)
What advantages are there for Anthony in taking on a partner? List two of them.
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 12
By M. C. WONG
4.
The following information was extracted from the books of Jimmy Leung’s business for the year ended 31 December
2012:
$
Purchases (credit)
1,387,500
Sales (credit)
2,352,880
Carriage inwards
45,270
Returns inwards
32,877
Administrative expenses
638,750
Capital as at 1 January 2012
438,489
Inventory as at 1 January 2012
27,387
Inventory as at 31 December 2012
47,988
Bank loan, repayable in 2016
377,800
Cash in hand
13,950
Bank overdraft
57,870
Accounts receivable
582,765
Accounts payable
317,900
Required:
Calculate (to two decimal places) the following accounting ratios:
(i)
Gross profit ratio
(ii)
Net profit ratio
(iii)
Return on capital employed
(iv)
Current ratio
(v)
Acid test ratio
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 13
By M. C. WONG
Part 2 (10 marks)
5.
Answer ONE question in this part.
The trial balance of Lance Kim’s business as at 30 June 2012 is as follows:
Lance Kim
Trial Balance as at 30 June 2012
Dr
$
585,970
7,980
241,570
17,330
39,880
Purchases and sales
Carriage inwards
Rent and rates
Returns inwards and outwards
Inventory, 1 July 2011
Bank overdraft
Salaries and wages
Furniture and fittings
Accounts receivable and payable
Bank loan (repayable on 31 May 2013)
Capital
Bank interest
Drawings
Cr
$
1,221,160
6,370
48,910
291,260
179,110
233,550
33,700
19,920
1,650,270
127,560
177,640
68,630
1,650,270
Inventory as at 30 June 2012 was valued at $28,900.
You are required to prepare:
6.
(a)
an income statement for the year ended 30 June 2012.
(b)
a balance sheet as at 30 June 2012.
In response to environmentalists’ concerns, the management of Vick, an international sportswear company, has
decided to take measures to reduce the hazardous substances generated from its production process. However, this
will mean that Vick’s production costs are likely to increase.
(a) Give two reasons that account for Vick’s decision to respond to the environmentalists’ concerns.
(b) What is the meaning of a stakeholder?
(c) With reference to the above case, explain with two reasons why the community and society are regarded as
important stakeholders for a company.
(10 marks)
END OF PAPER
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1516 S.6 BAFS Paper 1 Pre Mock Examination 1
Page 14
By M. C. WONG