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Practice Questions and Answers ACCA Paper F3: Financial Accounting (International)MAIN PAGE

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ACCA Paper F3:FINANCIAL ACCOUNTING

(INTERNATIONAL)Practice Questions and Answers

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No snow flake in an avalanche ever feelsresponsible.

Voltaire











Main PageCopyright statement For the ladies only 10 Golden Rules for a Computer-based Examination Computer Based Exams

SyllabusThe structure of the syllabus and study guide Level of assessments - Intellectual demand Value of assessments (based on UK frameworks) - Guide d learning hour s Guide to exam structure Guide to examination assessment Qualification structure Syllabus structure

Aim Rationale Main capabilities Relational diagram of main capabilities

Detailed syllabus Approach to examining the sy llabus

Study Guide A The content and purp ose of f inancial reportingB The qualitative characteristics of financial informationC The use of double-entry and accounting systemsD Recording transactions and eventsE Preparing a trial balanceF Preparing b asic financial statementsG Preparing simp le conso lidated financial statementsH Interpretation of financial statements

Your Study Material The syllabus outline and our Questions and Answers pathway through it Click here

In ADDITION there are FOUR tests. Click below.

TestsDiagnost ic Test – 1 Questions Answers

Diagnost ic Test – 2 Questions Answers



ACCA Pilot Pap er Questions Answers

ACCA Paper F3Financial Accounting

(International)+Add Vance

Practice Questions and Answers

“Where shall I begin, please your majesty?” he asked. “Begin at the beginning,” the kingsaid gravely, “and go on till you come to the end: then stop.”

Lewis CarrollThrough the Looking-Glass

5

This free sample shows Diagnostic Test1 and the first 16 answers

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This free sample shows Diagnostic Test 1 and the first 16 answers

6

The syllabus out line and our pathway through i t ….

Syllabussection

Main top ic Pages

Questions Answers A The context and purpo se o f f inanc ial rep ort ing 23 37

B The qualitative characteristics of financialinformation

46 49

C The use of double-entry and accounting systems 51 71

D Recording transactions and events 85 120

E Preparing a trial balance 144 169

F Preparing basic financ ial statements 191 214

G Preparing simple consolidated financialstatements

230 236

H Interpretation of financial statements 239 246

Diagnost ic Test 1 250 268

Diagnost ic Test 2 274 292

Diagnost ic Test 3 302 314 Diagnost ic Test 4 322 343

ACCA Pilot Pap er 361 380











P

a p e r F

3

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Financial Accounting(International)

DIAGNOSTIC TEST - 1

QUESTION PAPER

Time allowed: 2 hours

All FIFTY questions are compulsory and MUST be attemptedEach question is worth 2 marks

Do NOT attempt this test unt il you are ready for the t est.











1 Should details of material adjusting or material non-adjusting events after the statement offinancial position date be disclosed in the notes to financial statements according to IAS 10Events After the statement of financial position Date?

A Non-Adjusting eventsB Adjusting events ( 2 marks)

2 At 30 June 2011 a company’s allowance for receivables was $39,000. At 30 June 2012 tradereceivables totaled $517,000. It was decided to write off debts totaling $37,000 and to adjustthe allowance for receivables to the equivalent of 5 per cent of the trade receivables based onpast events.

What figure should appear in the income statement for the year ended 30 June 2012 for theseitems?

A $24,000B $23,850C $22,000D $61,850 (2 marks )

3 At 1 January 2012 a company had an allowance for receivables of $66,000. At31 December 2012 the company’s trade receivables were $1,123,500 and it was decided towrite off balances totalling $43,500 as irrecoverable. In addition it was decided to adjust theallowance for receivables to 5% of the remaining receivables, based on past experience.

What total figure should appear in profit or loss for bad debts and allowance for receivables, forthe year to 31 December 2012?

A $31,500

B $33,713C $55,500D $97,500 (2 marks)

4 The IASB’s Framework for the preparation and presentation of financial statements givesqualitative characteristics that make financial information reliable.

Which of the following are examples of those qualitative characteristics?

A Neutrality, accruals and going concern.B Prudence, comparability and accruals.C Neutrality, comparability and true and fair view.D Faithful Representation, neutrality and prudence. (2 marks)

5 The following bank reconciliation statement has been prepared by a trainee accountant:

$Overdraft per bank statement 3,860less: Outstanding cheques 9,160

5,300add: Deposits credited after date 16,690Cash at bank as calculated above 21,990

(The question con tinues on the next screen)

A

A

A

A

A











What should be the correct balance per the cash book?

A $3,670 balance at bankB $11,390 balance at bankC $3,670 overdrawnD $21,990 balance at bank as stated (2 marks)

6 Which of the following calculates a trader’s net profit for a period?

A Closing net assets – drawings + capital introduced – opening net assetsB Closing net assets + drawings + capital introduced – opening net assetsC Closing net assets + drawings – capital introduced – opening net assetsD Closing net assets – drawings – capital introduced – opening net assets (2 marks)

7 A sole trader took some goods costing $800 from inventory for his own use. The normalselling price of the goods is $1,600.

Which of the following journal entries would correctly record this?

Dr Cr$ $

A Sales account 1,600Drawings account 1,600

B Drawings account 800Inventory account 800

C Drawings account 800Purchases account 800

(2 marks )

8 The debit side of a company’s trial balance totals $800 more than the credit side. Whichone of the following errors would fully account for the difference?

A Discount received $400 has been debited to discount allowed account.B The petty cash balance of $800 has been omitted from the trial balance.C $400 paid for plant maintenance has been correctly entered in the cash book and credited

to the plant asset account.D A receipt of $800 for commission receivable has been omitted from the records.

(2 marks )

A

A

A

A

9

A musician must make music, an artist must paint, a poet must write,if he to be at peace with himself. What a man can be, he must be.

Abraham Maslow

Abraham Harold Maslow (1908 – 1970) was an American professor ofpsychology at Brandeis University, Brooklyn College, New School for SocialResearch and Columbia University who created Maslow's hierarchy ofneeds. He stressed the importance of focusing on the positive qualities inpeople, as opposed to treating them as a 'bag of symptoms.‘

Abraham Maslow











9 A company’s income statement for the year ended 31 December 2012 showed a net profit of$83,600. It was later found that $18,000 paid for the purchase of a motor van had beendebited to the motor expenses account. It is the company’s policy to depreciate motor vans at25 per cent per year on the straight line basis, with a full year’s charge in the year of acquisition.

What would the net profit be after adjusting for this error?

A $70,100B $101,600C $106,100D $97,100 (2 marks)

10 Should dividends paid appear on the face of a company’s income statement?

A NoB Yes (2 marks)

11 The following control account has been prepared by a trainee accountant:

Receivables ledger cont rol account$ $

Opening balance 308,600 Cash received from credit customers 147,200Credit sales 154,200 Discounts allowed to credit customers 1,400Cash sales 88,100 Interest charged on overdue accounts 2,400Contras against credit Bad debts written off 4,900balances in payables ledger 4,600 Allowances for receivables 2,800

. Closing balance 396,800555,500 555,500

What should the closing balance be when all the errors made in preparing the receivablesledger control account have been corrected?

A $309,500B $307,100C $395,200D $304,300 (2 marks)

12 At 31 December 2011 Q, a limited liability company, owned a building that cost $800,000 on1 January 2002. It was being depreciated at two per cent per year.

On 1 January 2012 a revaluation to $1,000,000 was recognised. At this date the building had aremaining useful life of 40 years.

What is the depreciation charge for the year ended 31 December 2012 and the revaluationreserve balance as at 1 January 2012?

Depreciation charge for year ended Revaluation reserve as at31 December 2012 1 January 2012

$ $ A 25,000 360,000B 20,000 200,000

C 20,000 360,000D 25,000 200,000 (2 marks)

A

A

A

A











13 A business had an opening inventory of $86,400 and a closing inventory of $96,000 in itsfinancial statements for the year ended 30 September 2012.

Which of the following entries for the opening and closing inventory figures are made as year- end adjustments for inventory?

Dr Cr$ $

A Purchases account 96,000Inventory account 96,000

B Income statement 86,400Inventory account 86,400

Inventory account 96,000Income statement 96,000

C Inventory account 86,400Income statement 86,400

Income statement 96,000Inventory account 96,000

D Inventory account 96,000Purchases account 96,000 (2 marks)

14 A company has made a material change to an accounting policy in preparing its currentfinancial statements.

Which of the following disclosures are required by IAS 8 Accounting policies, changes in

accounting estimates and errors in the financial statements?

1 The reasons for the change.2 The amount of the adjustment in the current period and in comparative information for

prior periods.3 An estimate of the effect of the change on the next five accounting periods.

A 1, 2 and 3B 1 and 2 onlyC 1 and 3 onlyD 2 and 3 only (2 marks)

15 According to IAS 2 Inventories, which of the following costs should be included in valuing theinventories of a manufacturing company?

(1) Carriage inwards.(2) Carriage outwards.(3) Depreciation of factory plant.(4) General administrative overheads.

A 2 and 3 onlyB 1 and 3 onlyC All four items

D 1, 2 and 4 only (2 marks)

A

A

A











16 Part of a company’s cash flow statement is shown below:$’000

Operating profit 8,640Depreciation charges (2,160)Increase in inventory (330)Increase in accounts payable 440

The following criticisms of the extract have been made:

(1) Depreciation charges should have been added, not deducted.(2) Increase in inventory should have been added, not deducted.(3) Increase in accounts payable should have been deducted, not added.

Which of the criticisms are valid?

A 1 and 3 onlyB 2 onlyC 2 and 3 onlyD 1 only (2 marks)

17 The profit of a business may be calculated by using which of the following formula?

A Opening capital + drawings - capital introduced - closing capitalB Closing capital - drawings + capital introduced - opening capitalC Closing capital + drawings - capital introduced - opening capitalD Opening capital - drawings + capital introduced - closing capital (2 marks )

18 Which of the following are differences between sole traders and limited liability companies?

(1) A sole traders’ financial statements are private; a company’s financial statements aresent to shareholders and may be publicly filed.

(2) Only companies have capital invested into the business.

(3) A sole trader is fully and personally liable for any losses that the business might make; acompany’s shareholders are not personally liable for any losses that the company mightmake.

A 1 and 3 onlyB 1 and 2 onlyC 1, 2 and 3D 2 and 3 only (2 marks )

A

A

A











19 Which of the following documents should accompany a payment made to a supplier?

A Purchase invoiceB Supplier statementC Remittance advice (2 marks)

20 A company is in a legal dispute with a supplier. The supplier is making a claim for lossessuffered as a result of an alleged breach of contract by the company. The supplier isclaiming $1 million. The company has denied any liability but has offered $150,000 as an out-

of-court settlement. The company’s lawyers have advised that if the case goes to court, themost likely outcome is that the company will lose the case and will be required to pay $500,000in compensation to the supplier.

What amount should be provided in respect of the claim by the supplier?

A Nothing, because there is only a contingent liabilityB $150,000C $500,000D $1,000,000 (2 marks)

21 Which of the following journal entries are correct, according to their narratives?Dr CR

$ $1 Suspense account 18,000

Rent received account 18,000Correction of error in posting $24,000 cash received for rent to the rent received accountas $42,000

2 Share premium account 400,000Share capital account 400,000

1 for 3 bonus issue on share capital of 1,200,000 50¢ shares

3 Trade investment in X 750,000Share capital account 250,000Share premium account 500,000500,000 50¢ shares issued at $1.50 per share in exchange for shares in X

A 1 onlyB 3 onlyC 1 and 2 onlyD 2 and 3 only (2 marks)

22 The plant and machinery account (at cost) of a business for the year ended 31 December2012 was as follows:

Plant and machinery – cost2012 2012

$ $1 Jan Balance 240,000 31 March Transfer disposal account 60,00030 June Cash – purchase of plant 160,000 31 Dec Balance 340,000

400,000 400,000

The company’s policy is to charge depreciation at 20% per year on the straight line basis, withproportionate depreciation in the years of purchase and disposal.

(The question cont inues on the next sc reen)

A

A

A

A











What should be the depreciation charge for the year ended 31 December 2012?

A $61,000B $55,000C $68,000D $64,000 (2 marks)

23 Which of the following should appear in a company’s statement of changes in equity?

1 Profit for the financial year.2 Amortisation of capitalised development costs.3 Surplus on revaluation of non-current assets.

A 1 and 3 onlyB 1 and 2 onlyC All three itemsD 2 and 3 only (2 marks)

24 Which of the following statements are correct?

(1) Capitalised development expenditure must be amortised over a period not exceedingfive years.

(2) Capitalised development costs are shown in the statement of financial position under theheading of Non-current Assets.

(3) If certain criteria are met, research expenditure must be recognised as an intangibleasset.

A 1 onlyB 2 onlyC 1 and 3 onlyD 2 and 3 only (2 marks)

25 A fire on 30 September destroyed some of a company’s inventory and its inventory records.The following information is available:

$Inventory 1 September 318,000Sales for September 612,000Purchases for September 412,000Inventory in good condition at 30 September 214,000

Standard gross profit percentage on sales is 25%.

Based on this information, what is the value of the inventory lost?

A $271,000B $57,000C $96,000D $26,400 (2 marks )

A

A

A

A











26 At 31 December 2011 a company’s capital structure was as follows:$

Ordinary share capital (500,000 shares of 25¢ each) 125,000Share premium account 100,000

In the year ended 31 December 2012 the company made a rights issue of 1 share for every 2held at $1 per share and this was taken up in full. Later in the year the company made a bonusissue of 1 share for every 5 held, using the share premium account for the purpose.

What was the company’s capital structure at 31 December 2012?

Ordinary share Share premiumaccount account

$ $ A 450,000 125,000B 225,000 262,500C 225,000 250,000D 212,500 262,500 (2 marks)

27 The inventory value for the financial statements of Q for the year ended 31 May 2012 wasbased on an inventory count on 4 June 2012, which gave a total inventory value of $836,200.

Between 31 May and 4 June 2012, the following transactions took place:$

Purchases of goods 8,600Sales of goods (profit margin 30% on sales) 14,000Goods returned by Q to supplier 700

What adjusted figure should be included in the financial statements for inventories at 31 May

2012?

A $853,900B $834,300C $838,100D $818,500 (2 marks)

28 In preparing a company’s bank reconciliation statement at March 2013, the following itemsare causing the difference between the cash book balance and the bank statement balance:

(1) Bank charges $380.

(2) Error by bank $1,000 (cheque incorrectly debited to the account).(3) Lodgements not credited $4,580.(4) Outstanding cheques $1,475.(5) Direct debit $350.(6) Cheque paid in by the company and dishonoured $400.

Which of these items will require an entry in the cash book?

A 3, 4 and 5B 1, 2 and 3C 1, 5 and 6D 2, 4 and 6 (2 marks)

A

A

A











29 At 31 December 2012 the following require inclusion in a company’s financial statements:

(1) On 1 January 2012 the company made a loan of $12,000 to an employee, repayable on 1January 2013, charging interest at 2 per cent per year. On the due date she repaid theloan and paid the whole of the interest due on the loan to that date.

(2) The company paid insurance $9,000 in 2011, covering the year ending 31 August 2012.

(3) In January 2013 the company received rent from a tenant $4,000 covering the six monthsto 31 December 2012.

For these items, what total figures should be included in the company’s statement of financialposition at 31 December 2012?

Current assets Current liabilities$ $

A 16,240 6,000B 10,000 12,240C 22,240 NILD 10,240 NIL (2 marks)

30 How should a contingent liability be included in a company’s financial statements if thelikelihood of a transfer of economic benefits to settle it is remote?

A No disclosure or provision is required.B Disclosed by note with no provision being made. (2 marks)

31 Which of the following material events after the statement of financial position date and beforethe financial statements are approved are adjusting events?

(1) A valuation of property providing evidence of impairment in value at the statement offinancial position date.(2) Sale of inventory held at the statement of financial position date for less than cost.(3) Discovery of fraud or error affecting the financial statements.(4) The insolvency of a customer with a debt owing at the statement of financial position date

which is still outstanding.

A 1, 2, and 3 onlyB 3 and 4 onlyC 1, 2 and 4 onlyD 1, 2, 3 and 4 (2 marks )

A

A

A

16

The word "now" is like a bomb thrown through the window, and itticks.

Arthur Miller Arthur Asher Miller (1915 – 2005) was an American playwright and essayist. He wasa prominent figure in American theatre, writing dramas. Miller was often in the publiceye, particularly during the late 1940s, 1950s and early 1960s, a period during whichhe testified before the House Un-American Activities Committee, received thePulitzer Prize for Drama and the Prince of Asturias Award, and was married to

Marilyn Monroe. Arthur Miller











32 Alpha received a statement of account from a supplier Beta, showing a balance to be paid of$8,950. Alpha’s payables ledger account for Beta shows a balance due to Beta of $4,140.

Investigation reveals the following:

(1) Cash paid to Beta $4,080 has not been allowed for by Beta.(2) Alpha’s ledger account has not been adjusted for $40 of cash discount disallowed by

Beta.

What discrepancy remains between Alpha’s and Beta’s records after allowing for these items?

A $9,930B $690C $770D $9,850 (2 marks)

33 The business entity concept requires that a business is treated as being separate from itsowners.

Is this statement true or false?

A FalseB True (2 marks)

34 Theta prepares its financial statements for the year to 30 April each year. The company paysrent for its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October eachyear. The annual rent was $84,000 per year until 30 June 2012. It was increased from thatdate to $96,000 per year.

What rent expense and end of year prepayment should be included in the financial statementsfor the year ended 30 April 2013?

Expense Prepayment A $94,000 $ 8,000B $94,000 $16,000C $93,000 $ 8,000D $93,000 $16,000 (2 marks)

35 Which of the following items could appear in a company’s cash flow statement?

(1) Surplus on revaluation of non-current assets.(2) Proceeds of issue of shares.(3) Proposed dividend.(4) Dividends received.

A 2 and 4B 1 and 3C 1 and 2D 3 and 4 (2 marks)

A

A

A

A











36 What is the role of the International Financial Reporting Interpretations Committee?

A To issue guidance on the application of International Financial Reporting Standards.B To create a set of global accounting standards. (2 marks)

37 Q’s trial balance failed to agree and a suspense account was opened for the difference.Q does not keep receivables and payables control accounts. The following errors werefound in Q’s accounting records:

(1) In recording an issue of shares at par, cash received of $333,000 was credited to theordinary share capital account as $330,000.

(2) Cash $2,800 paid for plant repairs was correctly accounted for in the cash book but wascredited to the plant asset account.

(3) The petty cash book balance $500 had been omitted from the trial balance.

(4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motorvehicles account as $87,400.

Which of the errors will require an entry to the suspense account to correct them?

A 2 and 3 onlyB 1, 2 and 4 onlyC 1, 2, 3 and 4D 1 and 4 only (2 marks )

38 Mountain sells goods on credit to Hill. Hill receives a 10% trade discount from Mountain and afurther 5% settlement discount if goods are paid for within 14 days. Hill bought goods with alist price of $200,000 from Mountain. Sales tax is at 17.5%.

What amount should be included in Mountain’s receivables ledger for this transaction?

A $209,925B $200,925C $235,000D $211,500 (2 marks)

39 A computerised accounting system operates using the principle of double entry accounting.

Is this statement true or false?

A TrueB False (2 marks)

A

A

A

A











40 A company receives rent from a large number of properties. The total received in the yearended 30 April 2013 was $481,200.

The following were the amounts of rent in advance and in arrears at 30 April 2011 and 2012:

30 April 2012 30 April 2013$ $

Rent received in advance 28,700 31,200Rent in arrears (all subsequently received) 21,200 18,400

What amount of rental income should appear in the company’s income statement for the yearended 30 April 2013?

A $475,900B $501,500C $460,900D $486,500 (2 marks)

41 Annie is a sole trader who does not keep full accounting records. The following details relate toher transactions with credit customers and suppliers for the year ended 30 June 2012:

$Trade receivables, 1 July 2011 130,000Trade payables, 1 July 2011 60,000Cash received from customers 686,400Cash paid to suppliers 302,800Discounts allowed 1,400Discounts received 2,960Contra between payables and receivables ledgers 2,000

Trade receivables, 30 June 2012 181,000Trade payables, 30 June 2012 84,000

What figure should appear in Annie’s income statement for the year ended 30 June 2012 forpurchases?

A $283,760B $331,760C $330,200D $740,800 (2 marks)

A

A











42 The bookkeeper of Field made the following mistakes:

Discounts allowed $3,840 was credited to the discounts received account.

Discounts received $2,960 was debited to the discounts allowed account.

Which journal entry will correct the errors?DR CR

A Discounts allowed $880Discounts received $880Suspense account $1,760

B Discounts allowed $6,800Discounts received $6,800

C Discounts allowed $3,840Discounts received $2,960Suspense account $880

D Discounts allowed $7,680Discounts received $5,920Suspense account $1,760 (2 marks)


(1) Materiality means that only items having a physical existence may be recognised asassets.

(2) The substance over form convention means that the legal form of a transaction mustalways be shown in financial statements even if this differs from the commercial effect.

(3) The money measurement concept is that only items capable of being measured inmonetary terms can be recognised in financial statements.

A 1 onlyB 3 onlyC 2 onlyD 1, 2 and 3 (2 marks)

44 The total of the list of balances in Valley’s payables ledger was $438,900 at 30 June 2012.This balance did not agree with Valley’s payables ledger control account balance. Thefollowing errors were discovered:

1 A contra entry of $980 was recorded in the payables ledger control account, but not in thepayables ledger.

2 The total of the purchase returns daybook was undercast by $1,000.

3 An invoice for $4,344 was posted to the supplier’s account as $4,434.(The question cont inues on t he next screen)

A

A

A











What amount should Valley report in its statement of financial position as accounts payable at30 June 2012?

A $438,010B $436,830C $437,830D $439,790 (2 marks)


(1) A cash flow statement prepared using the direct method produces a different figure foroperating cash flow from that produced if the indirect method is used.

(2) Rights issues of shares do not feature in cash flow statements.

(3) A surplus on revaluation of a non-current asset will not appear as an item in a cash flowstatement.

(4) A profit on the sale of a non-current asset will appear as an item under Cash Flows fromInvesting Activities in a cash flow statement.

A 3 onlyB 2 and 4C 1 and 4D 2 and 3 (2 marks)

46 Gareth, a sales tax registered trader purchased a computer for use in his business. Theinvoice for the computer showed the following costs related to the purchase:

$Computer 890

Additional memory 95Delivery 10Installation 20Maintenance (1 year) 25

1,040Sales tax (17.5%) 182Total 1,222

How much should Gareth capitalise as a non-current asset in relation to the purchase?

A $890B $1,015C $1,222D $1,040 (2 marks )

A

A

A











47 Which of the following statements about inventory valuation are correct, for the purposeof financial reporting?

1 It might be acceptable for inventory to be valued at selling price minus gross profit margin.2 A company’s financial statements must disclose the accounting policies that have been

used for inventory valuation, including the cost formula used.3 Inventory should be valued at the lowest of cost, net realisable value and

replacement cost.4 The valuation of work in progress must include some fixed and variable production

overhead cost.

A 1, 2 and 4 only are correctB 1, 3 and 4 only are correctC 2 and 4 only are correctD All four statements are correct (2 marks)

48 What is the correct double entry to record the depreciation charge for a period?

A DR Accumulated depreciationCR Depreciation expense

B DR Depreciation expenseCR Accumulated depreciation (2 marks)

49 James acquired 100% of the ordinary share capital of Bond on 1 January 2010 when Bond’sretained earnings stood at $1,440,000. Bond’s statement of financial position at 31 December2012 is as follows:

$’000

Non-current assetsProperty, plant and equipment 8,640Current assets 4,800

13,440

Equity and reservesShare capital 7,680Retained earnings 2,400Current liabilities 3,360

13,440On 1 January 2010, the fair value of Bond’s non-current assets was $1,920,000 greater than thebook value. James had non-current assets at 31 December 2012, at book value of$10,560,000.

What is the total amount for non-current assets that will appear on the consolidated statement offinancial position at 31 December 2012?

A $19,200,000B $20,736,000

C $21,024,000D $21,120,000 (2 marks)

A

A

A











50 A statement of financial position and other financial data for Ashford Company appear below.

Ashford Company Statement of financial positi on at 31 December 2012 $

Non-current assets 3,000,000Current assets 2,000,000Total assets ` 5,000,000

Equity and liabilitiesEquityShareholders' capital:

issued capital 2,000,000reserves 300,000

Total equity 2,300,000

Non-current liabilitiesLong-term debt 1,500,000 Current liabilities 1,200,000Net assets employed 2,700,000Total equity and liabilities 5,000,000

Statement of comprehensive income for the year ended 31 December 2012

Sales revenue 7,500,000Interest expense 80,000Net profit 450,000

Ignore taxation.

The appropriate ratios are:

Debt/equity Net profit margin Return on net assets

A 65.2% 7.1% 10.6%B 75% 6% 10.6%C 65.2% 6% 11.8%D 75% 7.1% 15% (2 marks )

A











THE END OF

DIAGNOSTIC TEST 1













OVERVIEW OF ANSWERS FORDIAGNOSTIC TEST 1 (PILOT PAPER)

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Total marks available : 100Time allowed : 2 hours

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1 A

2 C 37,000 + ((517,000 – 37,000) x 5%) – 39,000) = 22,000

3 A

$ $Irrecoverable debts written off 43,500 Allowance at end of year 5% × $(1,123,500 – 43,500) 54,000 Allowance at beginning of year (66,000)Reduction in allowance for irrecoverable debts (12,000)Total charge for the year 31,500

4 D

5 A -3,860 - 9,160 + 16,690 = 3,670

6 C

7 C

8 A

9 D 83,600 +18,000 – (18,000 x 25%) = 97,100

10 A

11 B Receivables ledger contro l account$ $

Opening balance 308,600 Contras 4,600Credit sales 154,200 Cash received 147,200Interest charged 2,400 Discounts allowed 1,400

Bad debts 4,900Closing balance 307,100

465,200 465,200

12 A 1,000,000/40years = 25,000; 1,000,000 – (800,000 – (800,000 x 2% x 10years))= 360,000

13 B

14 B

15 B

16 D

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27

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