Pre-Mock Exam 2012-2013
(Control)
6. KN Company maintained the individual debtors’ and creditors’ ledger cards on a memorandum basis. The sales
ledger balance as at 31 December 2010 was $25,876 together with a minority balance of $450. However, the
balances did not agree with the sales ledger control account. The debit balance and the credit balance of the sales
ledger control account are $22,894 and $560 respectively. It is given that the balance of the purchases ledger
control is $8,500. Information relating to the company for the year ended 31 December 2010 after the preparation
of financial statements is as follows:
(i)
The sales day book has been undercast by $3,400.
(ii)
Debt of $1,474 owed by Donald was written off as irrecoverable but this has not been done in the personal
account of Donald.
(iii)
BB Company showed a debit balance of $2,183 in the sales ledger and a credit balance of $1,243 in the
purchases ledger respectively. Only the net amount will be paid or received.
(iv)
A debit note of $234 received has been entered in the returns outwards day book as $324.
(v)
A debit balance of $682 in the purchases ledger control has been included as a credit balance.
(vi)
A cheque of $1,320 dated 5 April 2011 has been received from a debtor. It has been recorded in the proper
day book but no entry has been made in the control account.
(vii)
Total discounts received of $638 have been recorded as discounts allowed and posted accordingly.
(viii) An invoice has been entered in the sales day book as $2,063 instead of $3,026.
(ix)
The debit balance of the rental expense account in the nominal ledger of $7,930 has been included in the
trial balance as $3,970.
(x)
A debit balance of $1,674 has been omitted from the list of debtors.
(xi)
The balance carried down amounted to $3,857 in the purchases day book was wrongly brought down to the
next page as $3,785.
(xii)
Goods of $287 returned by a customer who had a nil balance have been entered on the wrong side of the
personal account.
(xiii) Allowance for doubtful debts should be provided at 4% of trade debtors.
REQUIRED:
(a) Draw up the sales ledger control and purchase ledger control accounts for the year ended 31 December 2010.
(b) Prepare a statement update the balance total of the sales ledger as at 31 December 2010.
2010
Dec
“
“
“
“
2010
Dec
“
“
“
31
31
31
31
31
31
31
31
31
Sales Ledger Control
$ 2010
Balance b/d
22,894 Dec 31
Sales undercast (i)
3,400 Dec 31
31
Discounts allowed (vii)
638 “
“
31
Sales undercast (3,026 – 2,063) (viii)
963
“
31
Balance c/d
737
28,632
Balance b/d
Set off – Purchase ledger control (iii)
Returns inwards (iv)
Bank (vi)
Balance c/d
Purchase Ledger Control
$ 2010
Set off – Sales ledger control (iii)
1,243 Dec 31 Balance b/d
31 Returns outwards overstated (iv)
Credit side overstated (682 x 2)(v)
1,364 “
“
31 Purchase undercast (3,857 – 3,785) (xi)
Discounts received (vii)
638
Balance c/d
5,651
8,896
$
560
1,243
234
1,320
25,275
28,632
$
8,500
324
72
8,896
(b)
Statement of Updated Sales Ledger Balance as at 31 December 2010
$
Debit balances before adjustments
Add Sales undercast (viii)
Debit balance omitted (x)
Less Bad debts omitted (ii)
Set-off with accounts payable ledger (iii)
Returns inwards wrongly entered in the returns outwards day book (iv)
Returns inwards recorded on the wrong side of the personal account (xii)
Debit balances after adjustments
Credit balances before adjustments
Add Returns inwards omitted from a nil balance customer (xii)
Credit balances after adjustments
963
1,674
1,474
1,243
234
287
$
25,876
2,637
28,513
3,238
25,275
450
287
737
HKDSE (2012, 1)
(Control)
The following information for the year ended 31 December 2011 was extracted from the books of Kong’s Company:
Sales ledger control account – 1 January 2011
Allowance for doubtful debts – 1 January 2011
– 31 December 2011
Cash sales
Credit sales
Credit sales returns
Cheques received from trade debtors
Discounts allowed
Bad debts written off
Cheques from trade debtors dishonoured
Set-off against purchase ledger control account
$
33 500
2 500
27 600
64 530
742 070
3 200
602 120
3 500
650
12 420
1 000
REQUIRED:
(a) Prepare a sales ledger control account for the year ended 31 December 2011.
(b) Give one reason why a company would like to prepare control accounts.
(a)
Sales Ledger Control
2011
Jan
Dec
“
1 Balance b/d
31 Sales
31 Bank  dishonoured cheques
$ 2011
33 500 Dec
742 070
“
12 420
“
“
“
“
787 990
31
31
31
31
31
31
Returns inwards
Bank
Discounts allowed
Bad debts
Set-off
Balance c/d
(b) — Identity omission of transactions and errors in subsidiary accounts
— detect, avoid and prevent fraud and misstatement
$
3 200
602 120
3 500
650
1 000
177 520
787 990
Longman Mock (6, 2011)
(Control)
The following information relating to the financial year ended 30 April 2012 was extracted from the books
of Sovereign Ltd:
As at 1 May 2011:
$
Accounts receivable ledger balances (debit)
65,974
Accounts receivable ledger balances (credit)
15,740
Accounts payable ledger balances (debit)
7,291
Accounts payable ledger balances (credit)
49,517
Allowance for doubtful accounts
17,986
For the year ended 30 April 2012:
Cash sales
Credit sales
189,452
1,415,091
Returns inwards
17,282
Bad debts written off
52,767
Discounts allowed
33,954
Receipts from trade debtors
Cash purchases
1,146,119
39,986
Credit purchases
765,921
Carriage inwards
21,951
Carriage outwards
19,634
Payments to trade creditors
Discounts received
698,855
15,670
Omission of credit notes received from trade creditors for price
reductions on defective goods
34,091
Balances in the accounts receivable ledger set off against balances
in the accounts payable ledger
Cheques not cashed by trade creditors for more than six months
45,380
19,684
As at 30 April 2012:
Accounts receivable ledger balances (debit)
?
Accounts receivable ledger balances (credit)
7,888
Accounts payable ledger balances (debit)
6,417
Accounts payable ledger balances (credit)
Increase in allowance for doubtful accounts
?
3,244
Required:
(a)
Draw up the accounts receivable ledger control and accounts payable ledger control accounts for the
year ended 30 April 2012.
(b)
Prepare a balance sheet extract to show the accounts receivable and accounts payable balances as at
30 April 2012.
(c)
(10 marks)
(3 marks)
Explain why there were credit balances and debit balances in the accounts receivable ledger control
and accounts payable ledger control accounts, respectively.
(2 marks)
(Total: 15 marks)
(a)
Balance b/f
Sales
Balance c/f
Accounts Receivable Ledger Control
$
65,974 Balance b/f
1,415,091 Returns inwards
7,888 Bad debts
Discounts allowed
Bank — Receipts from trade debtors
Set-off —Accounts payable ledger
Balance c/f (balancing figure)
1,488,953
$
15,740
17,282
52,767
33,954
1,146,119
45,380
177,711
1,488,953
Accounts Payable Ledger Control
$
Balance b/f
7,291 Balance b/f
Bank — Payments to trade creditors
698,855 Purchases
Discounts received
15,670 Bank — Stale cheques
Returns outwards omitted
34,091 Balance c/f
Set-off — Accounts receivable ledger
45,380
Balance c/f (balancing figure)
40,252
841,539
$
49,517
765,921
19,684
6,417
841,539
(b)
Sovereign Ltd
Balance Sheet as at 30 April 2012 (extract)
Current assets
Accounts receivable ($177,711 + $6,417)
Less Allowance for doubtful accounts ($17,986 + $3,244)
$
$
184,128
(21,230)
162,898
Current liabilities
Accounts payable ($40,252 + $7,888)
(c)
48,140
They are known as minority balances. The credit balances in the accounts receivable ledger control
account represent the amounts owed to trade debtors, while the debit balances in the accounts
payable ledger control account represent the amounts owed by trade creditors.
These balances arise because goods have been returned after full settlement of the amounts owed
and/or overpayments have been made.
HKDSE
(sample 2 2A, 5)
The following balances as at 31 December 2011 relate to Hing Fat Company:
(Control and Correction of errors)
$
?
59,090
Suspense account
Sales ledger control account (debit balance)
Control accounts were kept on a memorandum basis and they did not form part of the double entry system.
Subsequent investigation revealed the following:
(i)
All goods were sold at a gross profit margin of 20% in 2011.
(ii) Total cash sales for 2011 were $87,520. This was properly recorded in the cash book but was credited to the sales
account as $85,720.
(iii) The sales returns day book had been undercast by $2,160.
(iv) A sales invoice for $68,900 had been entered in the purchases day book as $69,800.
(v) Discounts allowed for 2011 were $12,400 and had been correctly recorded, but only $12,000 was posted to the
sales ledger control account.
(vi) A debt of $2,500 owed by a customer had been written off. Proper entry had been made in the trade receivables
account but the bad debts account had been credited with the amount of $250. No records had been made in the
sales ledger control account.
(vii) In 2011, goods costing $48,600 were dispatched to a customer on a sale or return basis. Hing Fat Company was
advised by the customer on 31 December 2011 that 40% of the goods would be retained and the rest would be
returned to the company in January 2012. No records had been made in the books.
REQUIRED:
(a) Prepare a sales ledger control account, showing all the necessary adjustments.
(b) Write up a suspense account.
In a seminar, the bookkeeper of Hing Fat Company learned that certain qualitative characteristics have to be fulfilled in
the preparation of financial statements under the regulatory framework of accounting in Hong Kong.
REQUIRED:
(c) Explain two principal qualitative characteristics of financial statements.
(a)
Sales Ledger control
$
Balance b/d
Sales (iv)
Sales ($48,600 x 1.25 x 40%) (vii)
59,090 Returns inwards (iii)
68,900 Discounts allowed ($12,400 – $12,000) (v)
24,300 Bad debts (vi)
Balance c/d
152,290
$
2,160
400
2,500
147,230
152,290
(b)
Suspense account
$
Balance b/d (balancing figure)
Sales undercast ($87,520 – $85,720) (ii)
3,110 Returns inwards (iii)
1,800 Bad debts ($2,500 + $250) (vi)
4,910
$
2,160
2,750
4,910
(c) The qualitative characteristics
— Relevance: information should be valuable to decision makers
— Reliability: information should be free from error or bias
— Comparability: financial statements should be comparable over time and consistent in practice
— Understandability: information should be given in a useful and clear format for users
HKDSE Sample 1 (Paper 2A, 2)
(Control)
An inexperienced accounts clerk of Silver Moon Company has drafted the following sales ledger control account for December
20X6:
Balance brought forward
Credit sales
Cash sales
Set off with purchases ledger control
Returns inwards
$
46,980
408,530
60,800
18,410
28,070
562,790
Cash and cheques received
Discounts allowed
Allowance for doubtful debts
Allowance to customer for slightly damaged goods
Balance carried forward
$
310,650
23,027
6,000
19,100
204,013
562,790
After investigation, the following errors were discovered.
(i)
Bad debts of $30,130, written off in July 20X6, had been omitted in the control account.
(ii) A customer, who had fully settled his account in November 20X6, returned unsatisfactory goods amounting to $8,000 in
December 20X6. The amount was correctly recorded in the returns inwards account but not in the sales ledger.
(iii) Discounts allowed had been correctly entered in the customers’ accounts in the sales ledger but had been overcast by $900 in
the discount column of the cash book.
REQUIRED:
(a)
(b)
Rewrite the sales ledger control account.
Describe how credit balances in the sales ledger should be shown in the statement of financial position.
(a)
Balance brought forward
Credit sales
Minority balance c/f (ii)
(b)
Sales ledger control
$
46,980 Set off with purchases ledger control
408,530 Returns inwards
8,000 Cash and cheques received
Discounts allowed ($23,027  $900) (iii)
Allowance to customer
Bad debts written off (i)
Balance c/f
463,510
The total of the credit balance in the sales ledger should be shown in the statement of financial
position under the category of ‘current liabilities’ as accounts payables.
$
18,410
28,070
310,650
22,127
19,100
30,130
35,023
463,510
HKCEE (2007, 3)
(Control)
On 31 March 2007, the net balances total of $233,549 extracted from the sales ledger of Henry Limited did not agree
with the balance on the debtors control account. Upon investigation, the following information was revealed:
(i) The sales day book had been undercast by $4,000.
(ii) The only credit balance of $3,600 in the list of sales ledger balances should have been a debit balance.
(iii) No entries had been made in respect of goods returned by a customer on 31 March 2007. These goods had a cost
of $5,300 and were listed at a mark-up of 40%. A trade discount of 5% had been given to the customer.
(iv) Net cash receipts of $7,200 from customers had been posted to the debtors control account as $7,800. No entries
had been made in respect of the cash discount of 10% on the amount receivable.
(v) A dishonoured cheque from a customer for $7,500 had not been recorded.
(vi) A contra entry of $1,000 had been recorded in the sales ledger and purchases ledger respectively. No entries had
yet been made in the control accounts.
(vii) Bad debts of $2,400 were to be written off on 31 March 2007.
(viii) The company had a balance of $20,000 in the provision for doubtful debts account on 1 April 2006. A provision of
10% on debtors was to be made on 31 March 2007.
You are required to:
(a)
(b)
(c)
Prepare a statement to adjust the balances total extracted from the sales ledger.
Update the debtors control account showing the required adjustments and the balance before these
adjustments.
Prepare the necessary journal entry to record the estimated doubtful debts as at 31 March 2007. (Narration is not
required.)
(a)
Statement to show the revised balances total of sales ledger as at 31 March 2007
$
Net balances total before adjustments
Add Debit balance wrongly treated as credit balance ($3,600 x 2) (ii)
Dishonoured cheque (v)
Less
Sales returns omitted ($5,300 x 140% x 95%) (iii)
Discount allowed ($7,200 ÷ 90% x 10%) (iv)
Bad debts (vii)
Revised balances total
7,200
7,500
7,049
800
2,400
$
233,549
14,700
248,249
10,249
238,000
(b)
Debtors control
$
Balance b/d (balancing figure)
Sales day book undercast (i)
Cash receipts ($7,800  $7,200) (iv)
Bank – dishonoured cheque (v)
237,149
4,000
600
7,500
$
Sales returns ($5,300 x 140% x 95%) (iii)
Discount allowed ($7,200 ÷ 90% x 10%) (iv)
Contra with purchases ledger (vi)
Bad debts (vii)
Balance c/d
249,249
7,049
800
1,000
2,400
238,000
249,249
(c)
Journal
Profit and loss – increase in allowance ($238,000 x 10%  $20,000)
Provision for doubtful debts
Debit
$
3,800
Credit
$
3,800
HKCEE (2005, 3)
(Control)
The following information has been obtained from the records of Big Bang Limited for the year ended 31 March 2005:
$
Purchases ledger control account balance at 1 April 2004
175,578
Credit purchases
1,607,000
Cash purchases
34,688
Returns on credit purchases
171,035
Payments to suppliers by cheque
1,195,500
Discount received
29,800
You are required to:
(a) Prepare the purchases ledger control account for the year ended 31 March 2005.
The list of purchases ledger balances showed a net loss of $387,223 at 31 March 2005. As this amount did not agree with the
control account balance, subsequent checking of the records revealed the following:
(i) A cheque payment of $5,000 to Castle Limited had been correctly entered in the cash book but no entry was made in the
supplier’s account.
(ii) Goods with a gross invoice price of $2,000 were returned to a supplier on 31 March 2005. No entry had been made in the
books in respect of this transaction. These goods were originally purchased at a trade discount of 10%.
(iii) The purchases day book had been overcast by $6,000.
(iv) A cheque payment of $8,000 to Sue Limited, a supplier, had been correctly entered in the cash book but incorrectly credited
to Susan Limited’s account in the sales ledger.
(v) An amount of $900 owed by Jean Limited, a supplier, was recorded as a contra entry in the purchases ledger. Entries had not
been made in the control accounts.
(vi) A credit balance of $2,560 had been wrongly treated as a debit balance in the list of purchases ledger balances.
(vii) A purchase of furniture for $10,000 had been recorded as a credit purchase of goods.
You are required to:
(b) Draw up the purchases ledger control account to show the necessary adjustments for items (i) to (vii), starting with the
balance arrived at in (a) above.
(c) Prepare a statement reconciling the net total of the purchases ledger balances with the updated purchases ledger control
account balance.
(a)
Purchases ledger control
$
171,035 Balance b/d
1,195,500 Credit purchases
29,800
386,243
1,782,578
Purchases returns
Bank
Discounts received
Balance c/d
$
175,578
1,607,000
1,782,578
(b)
Purchases ledger control
Purchases returns (ii) ($2,000 x 90%)
Purchases day book overcast (iii)
Contra with sales ledger (v)
Purchase of furniture (vii)
Balance c/d
$
1,800 Balance b/d
6,000
900
10,000
367,543
386,243
$
386,243
386,243
(c)
Statement reconciling the balances total of purchases ledger and
the purchases ledger control account balance as at 31 March 2005
$
Net total as per purchases ledger
Add Credit balance wrongly listed as debit (vi) ($2,560 x 2)
Less Cheque payment omitted (i)
Purchases returns omitted (ii) ($2,000 x 90%)
Payment to supplier incorrectly credited to sales ledger (iv)
Purchase of furniture recorded as credit purchase of goods (vii)
Updated purchases ledger control account balance
5,000
1,800
8,000
10,000
$
387,223
5,120
392,343
24,800
367,543
HKCEE (2008, 7)
(Control and correction)
Wells Company maintains control accounts for memorandum purpose only. The balance of the debtors’ control account as at 31
December 2007 did not agree with the net balances total of $67,520 extracted from the sales ledger. In addition, the totals of the
trial balance as at that date failed to agree and the difference was posted to a suspense account. The draft net profit for the year
ended 31 December 2007 amounted to $254,988.
Subsequent checking of the records revealed the following:
(i) Sales for the year included an amount of $20,000 which had been received in cash in December 2007. These goods were
scheduled to be delivered to the customer in February 2008.
(ii) Cash of $3,000 received from a debtor, J Morgan, in December 2007 was recorded as a cash sale.
(iii) The only credit balance $880 in the sales ledger arose from a casting error. The account should have a debit balance of $370.
(iv) Goods with a list price of $700 were returned by a customer, MC Lee, on 31 December 2007. A trade discount of 10% had
been given to him upon the sale of the goods. No entry had been made in the books in respect of the return.
(v) A petty cash payment of $36 for sundry expenses had been omitted from the books.
(vi) A contra entry of $728 had been recorded correctly in the sales and purchases ledgers, but not the control accounts.
(vii) A payment of $335 for carriage outwards had been posted twice to the carriage inwards account.
(viii) The sales day book was undercast by $1,000.
(ix) A quarterly rental expense of $24,000, payable in advance for December 2007 to February 2008, was paid on 15 November
2007. The payment had been correctly recorded in the bank account but had been credited to the rental income account as
$42,000.
(x) A payment to a creditor, Gregg Chan, of $795 was recorded as a cash purchase of stationery.
REQUIRED:
(a) Prepare the necessary journal entries to correct the above. Narrations are not required. If no journal entry is required, you
should state so.
(b) Prepare a statement to update the balance total of the sales ledger as at 31 December 2007.
(c) Draw up the debtors’ control account.
(d) Prepare a statement to correct the draft net profit for the year ended 31 December 2007.
(a)
Journal
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Sales
Deposit from customers/Unearned revenue
Sales
Trade debtor – J Morgan
No debit entry (List of debtors’ balances)
Suspense ($880 + $370)
Returns inwards ($700 x 90%)
Trade debtor – MC Lee
Sundry expenses
Petty cash
No entry required
(vii) Carriage outwards
Suspense
Carriage inwards
(viii) Suspense
Sales
(ix) Rental income
Prepaid rent ($24,000 x 2/3)
Rental expense
Suspense
(x) Trade creditor – Gregg Chan
Stationery
Debit
$
20,000
Credit
$
20,000
3,000
3,000

1,250
630
630
36

36

335
335
670
1,000
1,000
42,000
16,000
8,000
66,000
795
795
(b)
Statement to update the balance total of sales ledger as at 31 December 2007
$
Net balances total as per sales ledger
Add Debit balance treated as credit balance (iii)
Less
Cash received from J Morgan (ii)
Returns inwards from MC Lee omitted (iv)
Updated balances total of sales ledger
3,000
630
$
67,520
1,250
68,770
3,630
65,140
(c)
Debtors control
$
Balance b/d (balancing figure)
Sales undercast (viii)
68,498
1,000
$
Cash received from J Morgan (ii)
Return inwards from MC Lee omitted (iv)
Contra with purchases ledger (vi)
Balance c/d
3,000
630
728
65,140
69,498
69,498
(d)
Statement to calculate the correct net profit for the year ended 31 December 2007
$
Draft net profit
Add Carriage outwards posted twice as carriage inwards (vii)
Sales undercast (viii)
Payment to trade creditor recorded as stationery expenses (x)
Less
Sales money received in advance (i)
Cash repayment from J Morgan treated as cash sales (ii)
Returns inwards from MC Lee omitted (iv)
Sundry expenses omitted (v)
Rental expense recorded as rental income ($42,000 + $8,000) (ix)
Corrected net profit
335
1,000
795
20,000
3,000
630
36
50,000
$
254,988
2,130
257,118
73,666
183,452