HONG 

KONG ASSOCIATION FOR BUSINESS EDUCATION 
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION 2011/12 
 
BUSINESS, ACCOUNTING AND FINANCIAL STUDIES 
MOCK EXAMINATION  
PAPER 1 
Time allowed: 1½ hours
This paper must be answered in English.

GENERAL INSTRUCTIONS

1. There are TWO sections, A and B in this paper. Section A carries 60 marks and Section B
carries 40 marks. You are advised to finish Section A in about 45 minutes.
ANSWER ALL QUESTIONS.

2. Section A consists of multiple-choice questions in this question book. Section B contains

conventional questions printed separately in Question-Answer Book B.

3. Answers to Section A should be marked on the Multiple-choice Answer Sheet while answers
to Section B should be written in the spaces provided in Question-Answer Book B. The
Answer Sheet for Section A and the Question-Answer Book for Section B must be handed
in separately at the end of the examination.

_______________________________________________________________________________

SECTION A (MULTIPLE-CHOICE QUESTIONS)

INSTRUCTIONS

1. Read the instructions on the Answer Sheet carefully.

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 should use an HB pencil to mark all your answers on the Answer
Sheet. Wrong marks must be completely erased.

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.

©Hong Kong Association for Business Education 
 BAFS Mock Examination (2011/12)
 
Section A

Mark all your answers for Section A on the multiple-choice answer sheet provided. Read carefully the
instructions on the answer sheet and insert the information required in the space provided.

1. Which of the following recording procedure is correct?

A. Cash sales recorded in sales journal  debited to trade debtor’s account  monthly total
posted to credit side of sales account in the general ledger
B. Credit purchases recorded in purchases journal  credited to trade creditor’s account 
monthly total posted to debit side of purchases account in the accounts payable ledger
C. Purchases returns recorded in returns outwards journal  credited to trade creditor’s account
 monthly total posted to debit side of returns outwards account in the general ledger
D. Sales returns recorded in returns inwards journal  credited to trade debtor’s account 
monthly total posted to debit side of returns inwards account in the general ledger

2. Which of the following statement(s) concerning a three-column cash book is/are correct?

(i) The discount received column records trade discounts which are offered by suppliers for bulk
purchases.
(ii) At the end of the month, the discounts columns will be balanced off to find out the net amount
of discounts.
(iii) A credit balance in the bank column of a cash book indicates a bank overdraft.
(iv) It is not possible for a cash column to show a credit balance.

A. All of the above

B. (i), (iii) and (iv)
C. (iii) and (iv)
D. (iv) only

3. The following transactions will be recorded in the general journal except

A. Closing off accounts at the end of an accounting period.

B. The owner took a laser printer from the company for his own use and he paid $500 for the
printer.
C. A motor vehicle bought for delivery of goods is returned to the supplier.
D. An out-of-date computer is donated to a charitable organization.

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 BAFS Mock Examination (2011/12)
 
4. Which of the following concerning a trial balance is true?

(i) A trial balance with the totals of its credit and debit balances agreed to each other means that
there are no errors in the accounts.
(ii) A trial balance ensures the accuracy of double entries in the ledger accounts.
(iii) A trial balance can only be prepared at the end of an accounting period.
(iv) A trial balance can locate errors.

A. (ii) only
B. (ii) and (iii)
C. (ii), (iii) and (iv)
D. None of the above

5. The total of debit balances exceeds the total of credit balances by $200 in a trial balance can result
from:

A. Carriage inwards of $200 is wrongly added to the carriage outwards in the trial balance.
B. The $200 balance in the drawings account is missing in the trial balance.
C. A $100 bank overdraft is listed in the wrong column of the trial balance.
D. A credit balance of $100 in a debtor’s account is not listed in the trial balance.

6. Which of the following concerning the accrual concept are correct?

(i) It reflects the financial position of a business.

(ii) It determines the profit of a business for an accounting period.
(iii)Sales revenue should be recorded when the goods are delivered and accepted by customer.
(iv) Expenses are incurred when money is paid.

A. (ii) and (iii)

B. (i) and (iii)
C. (iii) and (iv)
D. (ii), (iii) and (iv)

7. When a marketing manager completed a marketing campaign for a product and received very
positive results in raising customers’ awareness on the product but the actual expenses on the
campaign far exceeded the budgeted expenditures. The manager’s performance can be described as:

A. low efficiency/low effectiveness

B. low efficiency/high effectiveness
C. high efficiency/high effectiveness
D. high efficiency /low effectiveness
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 BAFS Mock Examination (2011/12)
 
Refer to the following information relates to BB Company for the year ended 31 December 2011
for Question 8 - 9:
$
Petty cash 800
Office equipment 32 000
Bank overdraft 7 000
Net profit for the year 9 000
Accounts payable 15 000
Bank loan, repayable on 1 January 2013 50 000
Motor vehicles 20 000
Drawings 6 000
Accounts receivable 28 000
Inventories as at 31 December 2011 120 000

8. Calculate the capital as at 1 January 2011.

A. $125 800
B. $128 800
C. $134 800
D. $ 8 800

9. Calculate the liquid ratio as at 31 December 2011.

A. 0.40:1
B. 2.39:1
C. 1.31:1
D. 1.92:1

Refer to the following information relates to CC Company for the year ended 30 September 2011 for
Questions 10:

Dr Cr
$ $
Inventory as at 1 October 2010 50 000
Inventory as at 30 September 2011 62 000
Carriage outwards 5 000
Returns 200 800
Discounts 120 450
Purchases 80 000
Sales 135 000
Interest income 300
Other expenses 20 480

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 BAFS Mock Examination (2011/12)
 

10. Calculate the gross profit ratio for the year.

A. 46.44%
B. 49.63%
C. 50.07%
D. 50.15%

11. Objections to bringing ethics into business include:

(i) in a free market economy, the pursuit of profit will ensure maximum social benefit
(ii) a manager’s most important obligation is to the company
(iii) business ethics is limited to obeying the law
(iv) consumers will have to pay a higher price

A. (i) & (ii)only

B. (ii) & (iii) only
C. (i) & (iv) only
D. All of the above

12. The disadvantages of globalization include:

(i) the threat that control of world media by a handful of corporations will limit cultural expression
(ii) spread of materialistic lifestyle and attitude that sees consumption as the path to prosperity
(iii) increased flow of skilled and non-skilled jobs from developing nations to developed nations
(iv) more allegation of dumping between nations

A. (i) & (iv) only

B. (i), (ii), (iv) only
C. (ii) & (iii) only
D. (ii), (iii) & (iv) only

13. Managers are not willing to delegate because

(i) they can do a better job themselves

(ii) the task is routine
(iii) they fear they would be replaced by their subordinates
(iv) they are accountable for their subordinates’ actions

A. (i) & (iii) only

B. (i),(iii) & (iv)only
C. (ii), (iii) & (iv) only
D. All of the above
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 BAFS Mock Examination (2011/12)
 
14. Arrange the process of decision making in the correct sequence:

(i) identifying problems / opportunities

(ii) evaluate alternatives
(iii) follow up to determine effectiveness of decision
(iv) develop alternatives
(v) selecting alternatives
(vi) implementation of alternatives

A. (i)➝(ii)➝(iv)➝(vi)➝(v)➝(iii)
B. (i)➝(iv)➝(ii)➝(v)➝(vi)➝(iii)
C. (i)➝(ii)➝(iv)➝(v)➝(vi)➝(iii)
D. (i)➝(iv)➝(v)➝(vi)➝(ii)➝(iii)

15. A functional structure has the following disadvantages except:

(i) It fosters development of expertise

(ii) Responsibility to customers is less clear
(iii) Less incentive for staff as each one’s contribution to success is difficult to measure
(iv) Relatively less costly for the organization

A. (i) & (iv) only

B. (i), (ii) & (iii) only
C. (ii), (iii) & (iv) only
D. (ii) & (iii) only

16. The following is/are the characteristic(s) of a limited company:

(i) lack of continuity

(ii) separation of ownership and management
(iii) liability of the company is limited
(iv) shareholders can always sell their shares freely in the market

A. (i) & (iv)

B. (ii) & (iii)
C. (ii) & (iv)
D. (ii) only

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 BAFS Mock Examination (2011/12)
 

17. Which of the following statement concerning informal communication is true?

A. informal communication takes place outside the office

B. informal communication has a lot of jargons
C. informal communication helps to satisfy social needs of employees
D. informal communication can only be harmful to management

18. Entrepreneurship is a factor of production because an entrepreneur:

A. hires labour to produce products.

B. provides capital to a business.
C. combines other factors of production innovatively to satisfy human needs.
D. finds opportunities in the market.

19. Which of the following is not included in the marketing mix?

A. product
B. promotion
C. channel
D. market research

20. Manpower planning ensures that

A. the company gets workers who are qualified and skillful.

B. the best candidates are selected for jobs.
C. the company has the right number and kinds of workers.
D. the company gets highly motivated workers to attain the best productivity.

21. A company with a tall structure

A. has lower administration costs

B. has narrower span of control
C. has higher efficiency in communication
D. has greater flexibility

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 BAFS Mock Examination (2011/12)
 

22. When a manager acts as a figurehead for his company, which management role is he playing?

A. interpersonal role
B. decision making role
C. human resourcing role
D. information role

23. Which of the following item should not be included in the personal income statement?

A. Utilities bill.
B. Tax withheld.
C. Mortgage payment.
D. The outstanding balance of your mortgage.

24. Which of the following statement about “compounding” is correct?

A. Compounding applies simple interest in calculating the future value of a cash flow.
B. Compounding applies compound interest in calculating the future value of a cash flow.
C. Compounding applies simple interest in calculating the present value of a cash flow.
D. Compounding applies compound interest in calculating the present value of a cash flow.

25. What is the correct sequence of a personal financial planning process?

(i) Presenting the financial plan

(ii) Monitoring
(iii) Fact-finding and determining the financial needs
(iv) Implementation
(v) Developing the financial plan

A. (v), (i), (iii), (iv), (ii)

B. (iii), (v), (i), (iv), (ii)
C. (v), (iii), (i), (iv), (ii)
D. (iii), (iv), (ii), (v), (i)

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26. How do collective investment funds reduce the risk of their capital invested in their underlying
assets?

A. Their high trading volume allows them to buy investments at cheaper prices.
B. Their large amount of investment funds allows them to spread their investments amongst
different assets.
C. Their large amount of investment funds allows them to eliminate the market risk.
D. Their large amount of investment funds allows them to influence financial markets.

27. After the implementation of Minimum Wage Ordinance, what is the new minimum level of
relevant income for the mandatory contributions of Mandatory Provident Fund (MPF) Scheme in
Hong Kong?

A. $5,000
B. $5,500
C. $6,500
D. $8,000

28. ____________ are limited liability companies that sell their shares on the stock market. Their
business is to invest in securities and other assets for the benefit of the shareholders.

A. Investment trusts
B. Unit trusts
C. Securities firms
D. Insurance companies

29. What risk rating would you give to an investment in the credit default swap (CDS) of a European
country?

A. No risk
B. Low risk
C. Medium risk
D. High risk

30. What effect will a substantial fall in interest rates have on fixed income securities?

A. Their market value will go down.

B. Their market value will go up.
C. The income from them will fall.
D. The income from them will rise.

END OF SECTION A
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 BAFS Mock Examination (2011/12)
 

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 B
HONG KONG ASSOCIATION FOR BUSINESS
EDUCATION
Name of Candidate :
HONG KONG DIPLOMA OF SECONDARY
EDUCATION EXAMINATION 2011/12

BUSINESS, ACCOUNTING AND

Centre – Location Seat No.
FINANCIAL STUDIES
MOCK EXAMINATION
PAPER 1
SECTION B: Question-Answer Book B

Marker’s Examiner’s
This paper must be answered in English.
Use Only Use Only
Marker No. Examiner No.
INSTRUCTIONS
(1) Write your name (in English) and
Question No. Marks Marks
information in the Space provided in the top
right hand corner. a

(2) Refer to the general instructions on the b

cover of the Question Book for Section A. 1 c
(3) The questions in this Question-Answer d
Book carry 40 marks. Answer ALL
Total
questions.
a
(4) Write your answers to Section B in the
spaces provided in this Question-Answer b

Book. Do not write in the margins. Answers c

2
written in the margins will not be marked. d
(5) Supplementary answer sheets will be e
provided on request. Write your candidate
Total
number, fill in the question number. Tie
them loosely but securely with a string Total (Sect. B)

INSIDE this Question-answer Book.

©Hong Kong Association for Business Education

 BAFS Mock Examination (2011/12)

Write your answers for this section in the spaces provided in this Question-Answer
Book. Do not write in the margins.

Question 1

Sham Shui Po is an old district with many small-scale grocery stores. Jack, CEO of a
large supermarket chain, is very worried about the rising prices, especially in rent and
food. Furthermore, implementation of minimum wages makes it very hard for the
supermarket to control its expenses and to keep its position as a ‘value for money’ chain
store. Therefore, Jack would like his financial manager, John, to help him put on a
tighter control.

(1)(a) Give three advantages of a small-scale shop over the large chain stores.
(3 marks)
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(1)(b) Identify three factors which affect differently large corporations and small firms
in carrying out their social responsibilities. (6 marks)
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 BAFS Mock Examination (2011/12)

(1)(c) Describe three managerial skills that are needed for John to perform his duties
well in this situation and state which skill is more important for a functional
manager like John. (7 marks)

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(1)(d) Explain one of the management functions that can help John to tighten financial
control. (2 marks)

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(Total: 18 marks)

This is the End of Question 1

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©Hong Kong Association for Business Education
 BAFS Mock Examination (2011/12)

Question 2

Hong Kee Café, a very popular Hong Kong style café in the territory, was started by Mr
Hong 25 years ago. It is very famous for its sweet pork bun and chicken pie. Due to
the increasing pressure from major suppliers in Mainland,, the café’s profits are
dropping these years.

The following data of the café have been compiled for your information:
2010 2011
Sales for the year $3 200 000 $4 500 000
Gross profit margin 25% 15%
Net profit to sales 8% 5%

(2)(a) Analyse the reason(s) for the decrease in profitability of the café during 2011.
(4 marks)

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In view of the changing business environment, Mr. Hong has the following thoughts
concerning his business:
Option 1: Liquidate his café and reinvest the capital in the securities market.
Option 2: Furnish the café and continue his business.

(2)(b) Identify the relevant accounting concept and explain how the assets should be
valued if Mr. Hong takes Option 1. (3 marks)

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©Hong Kong Association for Business Education
 BAFS Mock Examination (2011/12)

______________________________________________________________________
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Due to the great support from the public, Mr. Hong decided to take Option 2, i.e.
continue his café business. He realised that the café needs to be furnished so as to
attract more customers but that might cost him $1,000,000. He plans to seek for a
long-term loan from the bank.

(2)(c) From the perspective of the bank, how should the credibility of Mr. Hong’s loan
be assessed? (4 marks)

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(2)(d) Since Hong Kee Café is popular in Hong Kong, Mr. Hong wishes to expand its
operations in nearby cities such as Shenzhen in Mainland. Explain three
relevant factors on the business environment for Hong Kee Café’s operations.
(3 marks)

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©Hong Kong Association for Business Education
 BAFS Mock Examination (2011/12)

(2)(e) Mr. Hong is considering opening a store in either one of the two locations in
Shenzhen. The information about the cash flows is shown below:
Project A Project B
Timing Location 1 Location 2
Cash inflows ($) Cash inflows ($)
Beginning of Year 1 –1,021,000 –450,000
End of Year 2 400,000 580,000
Beginning of Year 3 450,000 0
End of Year 3 500,000 0

(i) If the rate of discount is 12 percent, calculate the Net Present Values (NPV)
of the two projects? Which location should Mr. Hong choose?
(Calculation to the correct cents) (4 marks)

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(ii) If the overall risk of investment has increased drastically, what adjustment
should be made to the rate of discount? Will it change the decision in (i)?
Which project will be affected more by the uncertainty of cash flows
estimation? Explain your decisions. (4 marks)

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(Total: 22 marks)
This is the End of Question 2
End of Paper
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 BAFS Mock Examination (2011/12)

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©Hong Kong Association for Business Education
Suggested Answer Paper1                BAFS Mock Examination 2011/12 

HONG KONG ASSOCIATION FOR BUSINESS EDUCATION

HONG KONG DIPLOMA OF SECONDARY EDUCATION

EXAMINATION 2011/12

BUSINESS, ACCOUNTING AND FINANCIAL STUDIES

MOCK EXAMINATION

PAPER 1

(SUGGESTED ANSWER)

 
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©Hong Kong Association for Business Education   
Suggested Answer Paper1                BAFS Mock Examination 2011/12 

Section A (60%)

Suggested Answers for Multiple Choices:

1 2 3 4 5 6 7 8 9 10
D C B D C A B A C D
11 12 13 14 15 16 17 18 19 20
D B B B A D C C D C
21 22 23 24 25 26 27 28 29 30
B A D B B B C A D B

Section B (40%)

Question 1

(1)(a)

- capable of sourcing goods that suits local situations / providing specialized goods and services
for the needs of the local customers
- better customer relations with local community
- small in scale and their operating costs/overhead expenses are usually lower
- more flexibility in management such as encouraging better relationship with staff
- enabling faster decision making to cope with new changes
- smaller set-up costs or lower initial capital needed

(1)(b)

- Resources available / Scale of operation

Big firms have more resources to carry out programs to fulfill their social responsibilities but
small firms may not fulfill their social responsibilities due to limited resources.
- Meeting public expectation
Big firms have more influence and thus the public has higher expectation on them to follow
requirements of a higher standard. On the other hand, requirements on small firms may be
compliance with the law only.

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Suggested Answer Paper1                BAFS Mock Examination 2011/12 

- Area of responsibilities / Variety of choices

Small firms may only be able to implement social responsibilities in limited aspects e.g.
occupational safety, consumer protection.
Big firms may involve in more aspects such as community welfare, environmental concerns,
and international issues.
- Willingness to fulfill social responsibilities
Large firms will be more conscious and willing to take up social responsibilities in order to
build up better reputation/goodwill for long-term profitability.

(1)(c)

Conceptual skill – to integrate information for the situation, to set policies to carry out the
requirement set by the CEO

Technical skill – to set measures for control of expenses / to formulate a better financial plan or
budget needs high technical skills

Communication skill – cutting expenses including downsizing sometimes causes hardship to the
front line staff, good communication skill is needed to explain company’s policies as well as to
motivate them. Or
communicate effectively with the CEO or outsiders such as suppliers to implement the tighter
financial control.

At the middle level of management, all three managerial skills are equally important for John, a
financial (functional) manager, to perform his duties.
Or
Technical skill to formulate a tighter financial control/budget is more important in this situation.

(1)(d)

Planning – After analyzing the accounting information, in particular, the operation costs, John will
find out the room for tighter cost control and then set the target. He might also discuss with the
front line managers and decide the measures to achieve the target.
or

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Suggested Answer Paper1                BAFS Mock Examination 2011/12 

Controlling – John will prepare budgets to evaluate how well the cost controlling measures are
implemented. By comparing the actual results and the predetermined targets, he can see whether
the measures are effective or whether improvements are needed.

Question 2

(2)(a)

Workings:
2010 2011
Cost of sales $3 200 000x(1-25%)= 2,400,000 $4 500 000x(1-15%)= 3,825,000
Expenses $3 200 000x(25%-8%)= 544,000 $4 500 000x(15%-5%)= 450,000

1) The increase in cost of sales by $(3,825,000 – 2,400,000) = $1,425,000

i.e. (3,825,000 - 2,400,000) / 2,400,000 = 59.38%
2) The decrease in operating expenses by $(450,000 - 544,000) = – $94,000
(450,000 - 544,000) / 544,000 = -17.28%

Although the operating expenses have improved by $94,000 (or 17.28%) , the dramatic increase in
unit cost of sales by $1,425,000 (or 59.38%) finally causes the decrease in profitability for the café
during the past 2 years .
Or
GP% dropped from 25% to 15% while NP% decreased from 8% to 5% .
However, the percentage of total expenses to sales in 2011 was 10% (15% - 5%) which is much
lower than 17% (25% - 8%) in 2010.
It revealed that the major setback for the profitability of the firm was sharp increase of unit cost of
sales despite the improvement in total expenses.

(2)(b)

Going concern concept

The going concern assumption does not hold when a business is going to liquidate.
The assets should no longer be valued at cost but at their net realizable value/current market/fair

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©Hong Kong Association for Business Education   
Suggested Answer Paper1                BAFS Mock Examination 2011/12 

value since they will be disposed of in the near future. For the assets like premises, professional
valuation should be consulted for its market value.

(2)(c)

The bank may rely on the following to assess the credibility of Mr. Hong’s application for a loan:

Payment history / Credit history – A payment history is an indication for lenders and creditors
whether an individual is a lending risk due to a history of late or missed payments. Or
Past delinquency – A bank may judge the credibility of a business with reference to the past default
rate.

Credit report by a credit reporting agency – Many credit reporting agencies gather information
about payment practice, creditworthiness of different businesses and provide credit report on a fee
basis for lenders to avoid credit risk.

Collateral for the bank loan – banks will often require an owner to pledge his or her own personal
assets / company’s assets as security for the loan to reduce the risk of bad debt.

Amount of outstanding debts relative to its capital – The bank would consider the proportion of
debts to equity to control the level of credit risk.

Ratio or Trend Analysis – The bank would perform ratio or trend analysis of the recent financial
statements of the business to assess the current liquidity and future profitability of the firm before
granting the loan.

(2)(d)

- Competitors: how keen is the competition, is the market saturated?

- Substitutes : include other fast food substitutes such as ready made frozen meals
- Barrier of entry : ease of entry, such as getting licenses and safety regulations
- Power of suppliers : e.g. food suppliers
- Power of buyers : e.g. relative bargaining power of customers

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Suggested Answer Paper1                BAFS Mock Examination 2011/12 

(2)(e)

(i) The net present value (NPV) of Project A is:

$400,000/(1 + 12%)2 + 450,000/(1 + 12%)2 + 500,000/(1 + 12%)3 – $1,021,000

= $12,504.92

The net present value (NPV) of Project B is:

$580,000/(1 + 12%)2 – $450,000

= $12,372.45

Since the NPV of Project A is larger, Mr. Hong should invest in Location 1.

(ii) The rate of discount should be increased to cope with the increase in overall risk of investment.

The drastic increase in the rate of discount may reduce the NPV of Project A greater than Project B.
Therefore, Location 2 will be chosen instead.

Project A will be affected more by the uncertainty of cash flows estimation because the time span is
3 years which is longer than Project B.

****END Of PAPER****

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©Hong Kong Association for Business Education