Business, Accounting and Financial Studies

Paper 1 (Compulsory Part)

Definitions
A set of values, principles and beliefs which govern business behaviours, practices and
Business Ethics
policy-making so that they comply with the generally accepted norms
A business’s obligation to minimise the negative impact of its operations on all
Social responsibilities
stakeholders in the society
It determines in advance what needs to be done and decides appropriate actions to
Planning
achieve a particular goal
Organising the ay that a company arranges and distributes tasks to employees
Leading The process of directing human resources efforts towards achieving organisational goals
The process of monitoring performance of the organisation, department or staff to
Controlling
ensure the set objective is achieved
Business entity concept A firm and its owner(s) are separate entities
It assumes that an entity will continue its operation I the foreseeable future, the entity
Going concern concept
has neither the intention nor the need to liquidate or reduce its scale significantly
Historical cost It states that assets should be recorded at their purchase cost
Consistency Same accounting policy or method should be applied on like items across years
Revenues and expenditures are recognised when they are earned or incurred and are
Accrual concept
included in the financial statements of that year

Important points
1. Functions of accounting
◼ Recording transactions
◼ Classify transactions
◼ Summarise accounting information
◼ Communicate accounting information with other entities / people

2. Key business functions – tasks and importance

Key business
Tasks Importance
functions
(1) Human resources planning ◼ Recruits workers with suitable skills
(2) Recruitment and selection ◼ Evaluate employees’ job performance
Human
(3) Training and development
resources
(4) Performance appraisal
management
(5) Compensation and benefits
management
(1) Developing and carrying out ◼ Acquires and manages funds
Financial
financial plans ◼ Develops budgets for current and future
management
(2) Obtaining funds expenditure
(1) Designing effective production ◼ Designs an effective production process
Operations
process ◼ Ensures that goods and services meet quality
management
(2) Inventory management standards
(1) Market segmentation ◼ Finds out what customers need and how to
(2) Selecting target markets satisfy them
Marketing
(3) Developing an effective ◼ Develops plans to compete with other
management
marketing strategy (product, companies in the market
price, place, promotion)
(1) Collect various data ◼ Gathers internal and external information
(2) Transforming data into ◼ Process and organises reliable and timely
Information
information information in ways which can be easily
management
used by managers from various departments
for decision-making
(1) Identifies and measures ◼ Minimises losses and reduces the impact of
potential loss losses on the company
Risk
(2) Choose efficient methods (risk ◼ Ensure that human and physical assets of the
management
avoidance, risk reduction, risk company are properly insured
assumption, risk transfer)
3. Time value of money
Future and present value FV=PV×(1+i)n
cash flow1 cash flow2 cash flow3
Net present value = + + -initial investemnt
(1+i)2 (1+i)2 (1+i)3

4. Mandatory Provident Fund (MPF) scheme

◼ All employees aged 18 or above and under 65, and self-employed persons
◼ Employees who have been employed for a continuous period of not less than 60
days
Coverage ◼ or employees in the construction and catering industries who have been employed
for a continuous period less than 60 days also have to join the scheme
◼ Domestic employees and self-employed hawkers (not purely self-employed) are
exempted to make any contributions
◼ Both the employer and employee have to make mandatory contributions to the
MPF scheme
◼ 5% of the employee’s salary (maximum mandatory contributions $1,500)
Contributions
◼ Salary less than $7100: employees do not need to make contributions but required
for employers
◼ Both the employer and employee can make additional voluntary contributions

5. Factors affecting share prices

(1) Economic situations
(2) Political factors
(3) Interest rate
(4) Industry prospects
(5) Speculation
(6) Company performance
(7) Dividend policy
Business, Accounting and Financial Studies
Paper 2A (Accounting Module)

Definitions
Matching concept Links revenue with its relevant expenses or costs
Revenue should be recognised only when goods ads dispatched and accepted by the
Realisation concept
customers, or after the services have been provided
It means that when choosing among accounting alternatives, the best choice is one that
Prudence concept
is least likely to overstate assets and profits
Materiality concept Refers to the impact of an item’s nature and size on the company’s financial operations
Objectivity concept All items recorded in the books must be verifiable with supporting documents
Accounting information should be available to decision-makers in time to be capable of
Timeliness concept
influencing their decisions
Money measurement Only transactions capable of being expressed in monetary terms are included in the
concept accounting records of an entity.

Important points
1. Books of original entry and ledgers
Purchases journal
– credit purchases Purchases ledger
Sales journal (trade payables / creditors)
– credit sales
Returns outwards journal

Return inwards journal

→ posting
Sales ledger
(trade receivables / debtors)

Cash book
– cash and bank receipts and payments General ledger
General journal (other accounts)
– other transactions

2. Debit note and credit note

Receive debit note = send credit note = returns inwards
Receive credit note = send debit note = returns outwards

3. Accruals and prepayments, depreciation of non-current assets 注意時間

4. Capital expenditure (long-term benefits e.g. buy NCA)

vs Revenue expenditure (short-term benefits e.g. rent income)

5. Usage based depreciation: 分母係 expected output (not actual)

 6. Trade-in transaction 成舊錢走
e.g. Old motor vehicle (cost $160,000, accumulated depreciation $75,000)) traded in for a new one on 1
January 2016. The trade in value of old motor vehicles was $50,000, while the cost price was $300,000.
Balance paid in cash one week later.
Motor vehicles
$ $
Bal b/d 160,000 Disposal 160,000
Disposal – trade-in value 50,000 Bal c/d 300,000
Cash(300,000-50,000) 250,000
460,000 460,000

Disposal - Motor vehicles

$ $
Motor vehicles 160,000 Accumulated depreciation 75,000
Motor vehicles – trade-in value 50,000
Profit and loss – disposal loss 35,000
160,000 160,000

7. Net realisation value = selling price of an item – cost to complete and sell the item

8. Capital and current accounts

Current account
Capital account
(partnership change 記得帶過去 分手二步曲)
Profit or loss shared
+ Drawings
Capital contributes Interest on drawings
Interest on capital
Partner’s salary (if entitled, not paid by cash)

9. Partnership goodwill: Cr 舊數 Dr 新數

10. Deficiency of insolvent partner (dissolution)

e.g. Martin is insolvent, loss shared by Paul and Raymond in 3:1
Capital
Paul Martin Raymond Paul Martin Raymond
$ $ $ $ $ $
Current - 94,000 - Bal b/f 100,000 100,000 100,000
Realisation: Current 84,000 - 82,000
-Inventory 51,600 - - Realisation - - 6900
-Share of loss 82,500 55,000 27,500 Loan from - - 100,000
Capital: Martin 36,750 - 12,250 Raymond
Bank 13,150 - 249,150 Capital:
-Paul - 36,750 -
-Raymond - 12,250 -
184,000 149,000 288,900 184,000 149,000 288,900

11. 見%乘一次

12. Incomplete records 開 trade receivables, trade payables

13. Abnormal inventory loss – COGS 減, Expenses 再減