BAFS – Bank Reconciliation HKAL past paper

1. AL.2010.P1.Q2(a)(b) (modified) (Attempt this question after completion of “Correction of errors”)

The draft financial statements of Sky Ltd are as follows:

Sky Ltd
Statement of Financial Position as at 31 December 2009 (extract)
$
Current Assets
Cash at bank 4 213 000

Current liabilities
Suspense 13 000

The balance as per bank statement as at 31 December 2009, instead of the closing balance extracted from the
cash book, was shown on the statement of financial position as “Cash at bank”. Because of this, a suspense
account was created. Subsequent comparison of the cash book with the bank statements revealed the following:

(i) A receipt from a customer relating to a credit sale amounting to $90 000 was received and
immediately banked on 31 December 2009 but no entry had been made in respect of that in the
books. The receipt appeared on the bank statement of January 2010.

(ii) A cheque for $48 000 issued for payment of insurance for a one-year period ended 30 November
2010 was returned by the bank on 31 December 2009 because of an invalid signature. No entry had
been made for the returned cheque in the books.

(iii) A cheque for $6000 dated 5 January 2010 was received from a customer on 31 December 2009. The
accountant recorded it as a receipt in the cash book on 31 December 2009.

(iv) The bank mistakenly debited Sky Ltd’s bank account on 28 December 2009 for a cheque for $9000
drawn by Ski Ltd, another customer of the bank. On 3 January 2010, the bank reversed the entry in
Sky Ltd’s account.

(v) A cheque for $20 000 received from a customer was dishonoured and returned by the bank on 27
December 2009. No entry had been made for the dishonoured cheque in the books.

REQUIRED:
(a)(a) Update the cash at bank account of Sky Ltd and prepare the bank reconciliation (6 marks)
statement as at 31 December 2009.
(a)(b) In respect of item (ii), prepare the necessary journal entries to record the transaction (4 marks)
and explain briefly the accounting treatment that should be adopted.

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BAFS – Bank Reconciliation HKAL past paper
2. AL-2012-P(1)-Q4(a) [Modified]
The following deposits and withdrawals are shown on the bank statement for Macy’s business for the month
ended 31 March 2012:
Date Details Deposits Withdrawals
2012 $ $
Mar 1 Deposit 5 400
3 Cheque no. 391 19 000
5 Credit Transfer: Henry Ltd 7 650
6 Deposit 7 400
10 Deposit 30 000
13 Cheque no. 301 1 520
17 Deposit 13 000
18 Cheque no. 394 14 400
21 Cheque no. 392 8 300
23 Direct debit: Gas 650
27 Bank interest 250
28 Deposit 9 600
29 Returned cheque 9 600
30 Cheque no. 395 28 000
31 Standing order: Wages 1 340

The following information is found in Macy’s books:

(i) The cash at bank account for the month ended 31 March 2012 is shown below:

Date Details $ Date Details Cheque $

no.
Mar 1 Balance b/d 2 100 Mar 1 Rent and rates 391 19 000
5 Trade Receivable 7 400 3 Trade payable 392 8 300
9 Capital 30 000 9 Sundry expenses 393 2 300
16 Trade Receivable 13 000 15 Trade payable 394 14 400
28 Trade Receivable 6 900 24 Direct debit: Gas 650
30 Trade Receivable 3 200 30 Salaries 395 28 000
31 Trade Receivable 8 800
31 Balance c/d 1 250
72 650 72 650

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BAFS – Bank Reconciliation HKAL past paper

(ii) The accountant ascertained that the deposit of $5400 shown in the bank statement of March 2012 was
related to a cheque deposit made at the end of February 2012, and that the credit transfer of $7650 was a
refund from supplier for defective goods.

(iii) On 1 March 2012, the following cheques remain unpaid:

Cheque no. Date drawn Amount
$
252 29 August 2011 8 200
301 4 November 2011 1 520
363 13 February 2012 6 100

The bank will not honour cheques outstanding for more than six months.

(iv) A cheque for $9600 received from a customer in March 2012 was deposited into the bank but entered in
the books mistakenly as $6900. The cheque was returned by the bank on 29 March 2012 because the
signature was incorrect.

(v) On 30 March 2012, the accountant recorded the receipt of a cheque dated 2 April 2012 from a customer
amounting to $3200.

REQUIRED:

(a) Prepare the following for Macy’s business:

(a)(1) the cash at bank account showing the updated balance as at 31 March 2012; and
(a)(2) the bank reconciliation statement as at 31 March 2012 commencing with the updated (7 marks)
balance as per cash at bank account.

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BAFS – Bank Reconciliation HKAL past paper
3. AL-2013-P(1)-Q5 (modified)
After the preparation of the financial statements for the year ended 31 December 2012, the accountant of Kin
Ltd found that the totals of the post-closing trial balance did not agree:

Debit Credit
$ $
Motor van, at cost 329 000
Motor van, accumulated depreciation, 31 December 2012 253 600
Inventory, 31 December 2012 285 000
Trade receivables 552 000
Cash at bank 84 000
Trade payables 333 000
Ordinary shares of $5 each 400 000
General reserves 100 000
Retained profits, 31 December 2012 91 500
Suspense (balancing figure) 71 900
1 250 000 1 250 000

The cash at bank account showed a balance of $13 300 as at 31 December 2012. However, the bookkeeper
mistakenly listed the balance extracted from the bank statement of December 2012 in the above trial balance. A
suspense account was opened to record the difference in the totals of the trial balance.
After checking through the bank statement against the bank account in the cash book, it was found that the
following items had led to a discrepancy between the two balances as at 31 December 2012:
(i) A dividend income of $5400 had been paid directly into the bank.
(ii) Cheques issued to the suppliers but not yet presented amounted to $23 000.
(iii) A cheque received from a customer for $19 000 was wrongly recorded as a payment to one of the
suppliers.
(iv) On 28 December 2012, a cheque for $7300 was issued to a supplier and recorded in the books. The
cheque was dated 8 January 2013.
(v) A bank charge of $3000 was shown on the bank statement dated 31 December 2012. The bank
confirmed that the bank charge was wrongly debited to Kin Ltd’s bank account and would be corrected
on 2 January 2013.
REQUIRED:

(a) Update the cash at bank account of Kin Ltd and prepare the bank reconciliation (5 marks)
statement as at 31 December 2012.

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BAFS – Bank Reconciliation HKAL past paper

Further investigation revealed the following:

(vi) The inventory as at 31 December 2012 included goods costing $45 000 sent to a customer in mid-
December on a “sale-or-return” basis. On 28 December 2012, the customer agreed to purchase half of
these goods and return the remainder to Kin Ltd. The company maintains a uniform mark up of 20% on
all goods sold. No entries had been made for the customer’s acceptance.
(vii) Some goods in the warehouse costing $30 000 were damaged and could only be sold after incurring a
repairing cost of $5000. The estimated selling price would also be decreased by 10% of the original list
price. No entries had been made for the above.
(viii) (Modified) Kin Ltd entered into a two-year tenancy agreement to rent office premises. The rental period
commenced on 1 July 2012. On that date, Kin Ltd paid a rental deposit of $10 000, which is refundable
at the end of the lease period. According to the rental contract, the monthly lease payment is $24 000
commencing on 1 August 2012 and the lease payment for July 2012 was waived. The total payments in
2012 had been recorded as rental expenses.
(ix) The company has only one motor vehicle and it was purchased on 1 January 2009. It was estimated to
have a useful life of 5 years and a residual value of $12 000. It is the company’s policy to depreciate the
motor van on a straight line basis. On 1 January 2012, in view of a change in the usage pattern of the
motor van, the company estimated that the remaining useful life of the motor van is four years with zero
scrap value. However, the bookkeeper overlooked this change when he computed the depreciation
expenses of motor van for 2012.
(x) In December 2012, the board of directors resolved to increase the general reserves to $150,000. No
entries had been made for this.
(xi) Returns outwards account for the year 2012 had been undercast by 1200.

REQUIRED:

(b) Prepare the journal entries necessary for correcting the errors and omissions in (vi) to (10 marks)
(xi) above. (Narrations are not required.)
(c) Draw up the statement of financial position as at 31 December for Kin Ltd. (5 marks)

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BAFS – Bank Reconciliation HKAL past paper
Answer:
1. AL2010.P1.Q2(a)(b)
(a)
Cash at bank
$ $
0.5 Balance b/d 4 200 000 (iii) Trade receivables: 6 000 0.5
(balancing figure) post-dated cheque
0.5 (i) Trade receivables 90 000 (v) Trade receivables: 20 000 0.5
dishonoured cheque
0.5 (ii) Prepaid and accrued insurance 48 000 Balance c/d 4 312 000 0.5
4 338 000 4 338 000

Bank reconciliation statement as at 31 December 2009

$ $
Adjusted balance as per cash book (balancing figure) 4 312 000 0.5
Less: (i) Bank lodgment not yet recorded (90 000) 1
(iv) Cheque wrongly debited by bank (9 000) 1
Balance as per bank statement (given) 4 213 000 0.5

(6)
(b)
Journal
2009 Dr $ Cr $
December 31 Cash at bank 48 000 0.5
Prepaid insurance expenses 44 000 0.5
Accrued insurance expenses 4 000 1
Invalid cheque returned by the bank for payment of insurance.

- Accruals / Matching concept 2

- Insurance expenses of $44 000 for the 11 months of 2010 should be recorded in the prepaid
insurance account. The insurance expense of $4 000 for December 2009 was remained unpaid at the
end of the year and should be treated as accrual expenses.
- For the issued cheque returned, as it was canceled due to invalid signature, the cash book should be
debited with the whole amount to record its cancellation.
(1 mark each, max 2 marks) (4)

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BAFS – Bank Reconciliation HKAL past paper
2. AL2012.P1.Q4(a)
(a)(1)
Cash at bank

2012 $ 2012 $
0.5 Mar Trade Payable: credit 7 650 Mar Balance b/d 1 250 0.5
31 transfer (ii) 31
0.5 Bank interest income 250 Trade receivable: 6 900 0.5
dishonoured cheque (iv)
0.5 Trade Payable: stale 8 200 Trade receivable: 3 200 0.5
cheque (iii) post-dated cheque (v)
Wages: standing order 1 340 0.5
Balance c/d 3 410 1

16 100 16 100

(4.5)

(2)
Bank reconciliation statement as at 31 March 2012
$ $
Updated balance as per cash at bank account 3 410
Add: Unpresented cheques (iii)
No. 393 2 300 0.5
No. 363 6 100 8 400 0.5
11 810
Less: Bank lodgement not yet recorded (i) 8 800 0.5
Balance as per bank statement 3 010 1

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BAFS – Bank Reconciliation HKAL past paper
3.AL-2013-P(1)-Q5 (modified)

(a)
Cash at bank
$ $
0.5 Balance b/d 13 300 Balance c/d 64 000 0.5
0.5 Retained profits: Dividend 5 400
income
0.5 Trade payables 19 000
0.5 Trade receivables 19 000
0.5 Trade payables 7 300
64 000 64 000

Bank reconciliation statement as at 31 December 2012

$ $
Adjusted balance as per cash book 64 000 0.5
Add: Unpresented cheques 23 000 0.5
87 000
Less: Bank charge mistakenly debited to the bank account (3 000) 0.5
Balance as per bank statement 84 000 0.5

(5)

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BAFS – Bank Reconciliation HKAL past paper
(b)
Journal
Debit Credit
$ $
(vi) Trade receivables 27 000 0.5
Retained profits 27 000 0.5
Retained profits 22 500 0.5
Inventories 22 500 0.5

(vii) Retained profits 2 600 0.5

Inventories ($30 000 - $27 400) 2 600 1

(viii) Rental deposit 10 000 0.5

Retained profits 8 000 0.5
Accrued expenses [($24 000 x 23/24) x 6 - $120 000] 18 000 1

(ix) Accumulated depreciation – motor van 28 700 1

Retained profits ($63 400 - $34 700) 28 700 1

(x) Retained profits 50 000 0.5

General reserves 50 000 0.5

(xi) Suspense account 1 200 0.5

Retained profits 1 200 0.5

Suspense* 70 700 0.5

-
(10)
*Note, not part of the marking scheme:
Being the correction for incorrect listing of cash at bank balance ($84,000 - $13,300 = $70,700).

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BAFS – Bank Reconciliation HKAL past paper
(c)
Kin Ltd
Statement of financial position as at 31 December 2012
$ $
Non-current assets
Motor van [$329 000 – ($253 600 - $28 700)] 104 100 0.5

Current assets
Inventories ($285 000 - $22 500 - $2 600) 259 900 0.5
Trade receivables ($552 000 + $27 000 - $19 000) 560 000 0.5
Rental deposit 10 000 0.5
Cash at bank 64 000 893 900 0.5
998 000

Financed by
Ordinary shares of $5 each 400 000 0.5
General reserves (x) 150 000 0.5
Retained profits ($91 500 + $5400 + $27 000 - $22 500 - $2600 - $8000
70 700 0.5
+ $28 700 + $1200 - $50 000)
620 700
Current liabilities
Trade payables ($333 000 + $19 000 + $7300) 359 300 0.5
Accrued expenses 18 000 377 300 0.5
998 000

(5)

Total: 20 marks

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