ObjectiveTestQuestions ONE F3

5/23/2018 ObjectiveTestQuestions ONE F3

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MCQ PACK

ACCA F3

Objective Test Questions


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Topic Questions

Double entry bookkeeping 1 - 4The trading account 5 - 8Inventory valuation 9 - 13

Non-current assets and depreciation 14 - 26Bad and doubtful debts 27 - 31Accruals and prepayments 32 - 41Discounts 42 - 44Books of prime entry and control accounts 45 - 49Control account reconciliations 50 - 52VAT 53 - 55Bank reconciliations 56 - 57Correction of errors and suspense accounts 58 - 68Incomplete records 69 - 74Limited company accounts 75 - 80

Cash flow statements 81 - 83Interpretation of accounts 84 - 92Theoretical aspects / Audit 93 - 100

To pass paper F3 you need to have learned financial accounting conventionally and inparticular you need knowledge relating to:

GAAP

Relevant IFRS and IAS

Basics of company law that relate to accountsThe IASB Conceptual Framework

The relevant application of the key steps of- Definition- Recognition- Measurement- Disclosure

Accounting ratios and comparisons and how to apply and interpret them

The skills you need are to enable you to compile and maintain:

A self-balancing general ledgerBasic Income Statements and Statements of Financial Position based on GAAP

Reconciliations, suspense accounts and error corrections

Accounts prepared from incomplete records

Company accounts including limited notes- Income Statement- Statement of Comprehensive Income- Statement of Financial Position- Statement of Changes in Equity

Basic consolidated accounts including subsidiaries and associates

Basic Cash Flow Statements

Now we can focus on how to tackle MCQ questions.


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Control Schedule1st 2n 3r 1st 2n 3r 1st 2n 3r

1 41 81

2 42 82

3 43 83

4 44 845 45 85

6 46 86

7 47 87

8 48 88

9 49 89

10 50 90

11 51 91

12 52 92

13 53 93

14 54 94

15 55 9516 56 96

17 57 97

18 58 98

19 59 99

20 60 100

21 61

22 62

23 63

24 64

25 65

26 66

27 67

28 68

29 69

30 70

31 71

32 72

33 73

34 74

35 75

36 76

37 77

38 7839 79

40 80


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1. The double-entry system of bookkeeping normally results in which of the followingbalances on the ledger accounts?

Debit balances Credit balances

A Assets and revenues Liabilities, capital and expensesB Revenues, capital and liabilities Assets and expensesC Assets, expenses and drawings Liabilities, capital and revenuesD Assets, expenses and capital Liabilities and revenues

2. A credit balance on a ledger account indicatesA an asset or an expenseB a liability or an expenseC an amount owing to the organisationD a liability or a revenue

3. Which of the following is correct?A A debit entry will increase non-current assets

A debit entry will increase drawingsA debit entry will increase payables

B A credit entry will increase a bank overdraftA debit entry will decrease payablesA credit entry will increase receivables

C

A debit entry will increase incomeA debit entry will increase receivablesA debit entry will decrease payables

D A debit entry will increase receivablesA credit entry will decrease non-current assetsA credit entry will increase income

4. The mainaim of accounting is toA maintain ledger accounts for every asset and liabilityB provide financial information to various user groupsC produce a trial balanceD record every financial transaction individually


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5. The following is an extract from the trial balance of Arthurs business at the year end:Dr Cr

$ $

Sales 73,716

Returns 5,863 3,492Discounts 871 1,267

The figure to be shown in the trading account for net sales is

$

6. David had the following balances in his trial balance at the year end:$

Opening inventory 7,500

Sales 85,000Purchases 58,000Carriage inwards 3,000Carriage outwards 2,000Purchase returns 2,500Sales returns 4,600

Davids closing inventory at the year end had a value of $6,000. The figure to beshown in the income statement for cost of sales is:

$

7. Which of the following best explains gross profit:A Gross profit is the profit made by the business for the periodB Gross profit is the trading profit made by the business for the periodC Gross profit is the net cash received from buying and selling in the periodD Gross profit is the difference between sales and purchases for the period.

8. Martha imports radios and sells them to wholesalers. Her supplier's price includesfree delivery of the radios to Southampton port. She transports them herself to herwarehouse in London and from there delivers the radios free of charge to hercustomers. Her cost of sales will include

A purchase price of radiosB purchase price and delivery costs to LondonC purchase price and delivery costs to customerD purchase price and delivery costs to London and to the customer


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9. Closing inventory includes the following three items:Cost Net realisable value$ $

Product A 240 260Product B 281 360Product C 172 157

At what total value should the closing inventory be stated in the balance sheet?

$ .

10.Walton Computer Supplies Ltd have the following equipment in inventory at its yearend:

Cost Net realisable value$ $

Printers 5,685 6,145Scanners 10,000 12,250Monitors 8,435 7,345

At what value should closing inventory be included in the financial statements?

$ ..

11.What would be the effect on the companys profit of discovering that one of itsinventory items which cost $7,500 has a net realisable value of $8,500?

A An increase of $8,500B An increase of $1,000C No effect at allD A decrease of $1,000

12. Inventory is valued using FIFO. Opening inventory was 10 units at $20 each.Purchases were 30 units at $30 each, then issues of 12 units were made, followed byissues of 8 units.

What is the value of closing inventory?

A $400B $500C $600D $680


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13.An organisations inventory at 1 July is 15 units @ $300 each. The followingmovements occur:

- 3 July, 5 units sold at $460 each- 8 July, 10 units bought at $350 each- 12 July, 8 units sold at $420 each

Closing inventory at 31 July, using the FIFO method of valuation, would be

$

14.Which of the following bestexplains what is meant by capital expenditure?Expenditure.

A On non-current assets, including repairs and maintenanceB On expensive assetsC relating to the issue of share capitalD relating to the acquisition or improvement of non-current assets

15.A non-current asset was purchased at the beginning of Year 1 for $2,400 anddepreciated by 20% per annum by the reducing balance method. At the beginning ofYear 4 it was sold for $1,200. The result of this was

A a loss on disposal of $240.00B a loss on disposal of $28.80C a profit on disposal of $28.80D a profit on disposal of $240.00

16.Giles bought a new machine from abroad. The machine cost $100,000 and deliveryand installation costs were $7,000. Employees received training on how to use themachine at a cost of $5,000. A one year maintenance contract was also taken out at acost of $1,000.

What should be the cost of the machine in the companys statement of financialposition?

A $100,000B $107,000C $112,000D $113,000

17.An asset costs $15,000. The accounting policy is to charge depreciation using thereducing balance method at the rate of 40% per annum.

What is the income statement expense for depreciation in the second year?

$


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18.What is the purpose of charging depreciation in the accounts?A To comply with the prudence conceptB To allocate the cost of a non-current asset over the accounting periods

expected to benefit from its useC To ensure that the carrying value in the balance sheet reflects the market

valueD To save up cash to replace the asset

19.The carrying value of a companys non-current assets was $200,000 at 1 February2006. During the year ended 31 January 2007, the company sold assets for $25,000on which it made a loss of $5,000. The depreciation charge for the year was $20,000.

What was carrying value of non-current assets at 31 January 2007?

A $150,000B $155,000C $160,000D $180,000

20.A car was purchased by a business in May 2006 for:$

Cost 11,200Road tax 150Total 11,350

The car was traded in for a replacement vehicle in August 2006 at an agreed value of$5,000. The old vehicle has been depreciated as 20% per annum on the reducingbalance method, charging a full years depreciation in the year of purchase and nonein the year of disposal.

What was the profit or loss on disposal of the vehicle during the year ended 31December 2006?

A $734 lossB $734 profitC $520 profitD $520 loss

21.Recording the purchase of computer stationery by debiting the computer equipment atcost account would result in

A an overstatement of profit and an overstatement of non-current assetsB an understatement of profit and an overstatement of non-current assetsC an overstatement of profit and an understatement of non-current assetsD an understatement of profit and an understatement of non-current assets


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22.A non-current asset register showed a carrying value of $128,680. A non-currentasset costing $31,000 had been sold for $7,000, making a loss on disposal of $2,350.No entries had been made in the register for this disposal.

The balance on the non-current asset register should be:

$

23.Depreciation is best described asA a means of spreading the payment for non-current assets over a period of

yearsB a decline in the market value of the assetsC a means of spreading the cost of non-current assets over their estimated

useful life

D a means of estimating the amount of money needed to replace the assets.24.A business buys a machine for $10,000 and depreciates it at 10% per annum by the

reducing instalment method. What is the accumulated depreciation at the end of thesecond year of the machine's use?

A $900B $1,000C $1,900D $2,710

25.A machine was purchased on 1 January 2004 for $10,000. The company policy is todepreciate equipment by 20% per annum using the reducing balance method. Themachine was sold on 1 January 2007 for $4,500, giving rise to a

A profit on disposal of $500B loss on disposal of $620C profit on disposal of $620D loss on disposal of $500

26.Josephs equipment cost account showed a balance of $5,000 at 1 January 2006.During the year he had the following transactions:

28 February Disposed of machine costing $30031 March Acquired machine costing $1,0001 November Disposed of machine costing $600

Joseph depreciates machines at a rate of 10% per annum on the straight line basisbased on the number of months of ownership. What is the depreciation expense inrespect of equipment for the year ended 31 December 2006?

A $545B

$540C $510

D $630


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27.At 31 December 2006, Donald has receivables of $14,750 and an allowance fordoubtful debts of $350. Following a review of Receivables he wishes to write offdebts of $400 and to maintain an allowance at 4% of Receivables.

What is the charge to the income statement for the year ended 31 December 2006 inrespect of irrecoverable receivables?

$

28.During the year ended 31 December 2006, Darren wrote off bad debts of $5,000. Healso received $1,000 from a receivable which he had written off as a bad debt in the

previous year.

What is the charge to the income statement in respect of irrecoverable receivables forthe year ended 31 December 2006?

$

29.During the year ended 31 July 2006, Michael has written off bad debts totalling$4,500. At the year end he has also decided to increase his allowance for receivables

from $3,000 to $3,800.

What is the charge to the income statement in respect of irrecoverable receivables forthe year ended 31 July 2006?

A $800B $3,700C $4,500D $5,300

30.At 31 December 2006, Milton has a receivables balance of $50,000 and an allowancefor receivables of $800. Following a review of the receivables, Milton wishes towrite off a bad debt of $1,000 and adjust his allowance to 5% of receivables.

What will be the adjusted balance of the allowance for receivables.

A $1,650B $2,450C $2,500D $3,450


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31.During the year ended 31 July 2006, Damien has written off bad debts of $500. Atthe year-end he has also decided to decrease his allowance for receivables from$1,000 to $750.

What is the charge to the income statement in respect of irrecoverable receivables forthe year ended 31 July 2006?

A $250B $500C $750D $1,000

32.On 1 August 2006 a company paid an insurance invoice of $3,600 for the year to 31July 2007. What is the entry in the balance sheet as at 31 December 2006.

A Accrual of $1,500

B Prepayment of $1,500C Accrual of $2,100D Prepayment of $2,100

33.The electricity account for the year ended 30 April 2006 was as follows:Electricity accrued at 1 May 2005 250Payments made during the year in relation to:Quarter ending 30 June 2005 400Quarter ending 30 September 2005 350Quarter ending 31 December 2005 425

Quarter ending 31 March 2006 450

Which of the following is the appropriate record for electricity?

Accrued at Charge for the year ended30 April 2006 30 April 2006

$ $A Nil 1,375B 150 1,525C 300 1,675D 450 1,825

34.At 1 January 2006 Nigel had accrued $300 in respect of light and heat. In the yearended 31 December 2006 he paid $1,000 and at the end of the year estimated that heowed $350.

What is the charge to the income statement for the year ended 31 December 2006 inrespect of light and heat?

A $1,050B $950C $1,350D

$1,300


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35.A business made the following payments for rent on the first day of the period thepayment relates to:

$5,000 for six months ending 31 August 2005$5,500 for six months ending 28 February 2006$6,000 for six months ending 31 August 2006

What is the charge to the income statement and the balancesheet entry in respect of rent for the year ended 31 July 2006?

Income statement Balance sheet

A $11,333 $1,000 prepaymentB $11,333 $1,000 accrualC $11,500 $2,000 prepaymentD $11,500 $2,000 accrual

36.Tony had estimated an accrual of $240 in respect of light and heat for the quarterended 31 December 2005. On 29 January 2006 he paid $250 for the actual invoicereceived in respect of that quarter.

The bills for the next four quarters were as follows:

Amount Relating to Date paid$260 q.e. 31 March 2006 15 April 2006$220 q.e. 30 June 2006 17 July 2006$210 q.e. 30 September 2006 14 October 2006$230 q.e. 31 December 2006 18 January 2007

What is the charge to the income statement in respect of light and heat for the yearended 31 December 2006?

A $1,160B $1,150C $930D $920

37.Carla cannot understand why her business had made a loss during the financial yearand yet has more cash at the end of the year than it did at the beginning of the year.

Which of the following could be a reason for this?

A Carla drew more out of the business this year than last yearB Prepayments were higher at the end of this yearC Receivables took longer to pay this year than last yearD Some non-current assets were sold during the year


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38.An organisations year end is 30 September. On 1 January 2006 the organisationtook out a loan of $100,000 with annual interest of 12%. The interest is payable inequal instalments on the first day of April, July, October and January in arrears.

How much should be charged to the income statement for the year ended 30

September 2006 and how much should be accrued in the balance sheet for loaninterest?

Income statement Balance sheet

A $12,000 $3,000B $9,000 $3,000C $9,000 NilD $6,000 $3,000

39.At the end of the financial year, a company makes a charge against income forexpenses incurred but not yet invoiced. This adjustment is in accordance with theconcept of

A materialityB accrualsC consistencyD objectivity

40.Which of the following best describes accrued income?A Income that relates to the current accounting period and has been received in

the period.B Income that relates to the current accounting period and will be received in afuture period.

C Income that relates to the current accounting period and has been received ina prior period.

D Income that relates to a future accounting period and has been received in thecurrent accounting period.

41.At 1 January 2006 Mortimer had a balance $200 in respect of rental income receivedin advance. He received $1,800 on 1 March 2006 as the rent receivable for the yearto 28 February 2007.

What is the rental income to be included in the income statement for the year ended31 December 2006?

A $1,400B $1,500C $1,700D $1,800


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42.A company received an invoice from ABC for 40 units at $10 each, less 25% tradediscount. It paid this invoice a week later minus a cash discount of 2%. Which of thefollowing journal entries correctly records the effect of the whole transaction, in therecords of the company?

Debit Credit$ $

A ABC 300Purchases 300Cash 292Discount allowed 8ABC 300

B Purchases 300ABC 300ABC 300Discount allowed 8Cash 292

C Purchases 300ABC 300ABC 300Discount received 6Cash 294

D ABC 400Purchases 400Cash 294Discount received 106

ABC 400

43.A trader who is not registered for VAT purposes buys goods on credit at a list price of$2,000 less a trade discount of 20%. The goods carry VAT at 17.5%.

The correct ledger entries to record this purchase are to debit the purchases accountand to credit the suppliers account with

A $1,600B $1,880C $2,000D $2,350

44.A business had a balance at the bank of $2,500 at the start of the month. During thefollowing month it paid for materials invoiced at $1,000 less trade discount of 20%and cash discount of 10%. It received a cheque from a debtor in respect of an invoicefor $200, subject to cash discount of 5%.

The balance at the bank at the end of the month was

$


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45.A book of prime entry is one in which:A The rules of double entry bookkeeping do not applyB Ledger accounts are maintainedC Subsidiary records are keptD Transactions are entered prior to being recorded in the ledger accounts

46.Which is the odd one out?A The sales returns day bookB The journalC Bank statementsD Petty cash book

47.What double entry should be made with the total of the sales returns day book?A Dr Sales ledger control account

Cr Returns inwardsB Dr Returns inwards

Cr Sales ledger control accountC Dr Returns inwards

Cr Purchase ledger control accountD Dr Returns outwards

Cr Sales ledger control account

48.Which oneof the following is a book of prime entry andpart of the double-entrysystem?

A The journalB The petty cash bookC The sales day bookD The purchase ledger

49.On 1 January 2007 the balance of receivables was $22,000. Calculate the closingreceivables at 31 January 2007 after taking the following into consideration:

$

Sales 120,000Bank receipts 115,000Discount allowed 1,000Discount received 3,000Dishonoured cheque 9,000ContraSet off 5,000

A 30,000B 23,000C 12,000D 28,000


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50.A payables ledger control account had a closing balance of $18,700. It contained acontra to the receivables ledger of $600, but this had been entered on the wrong sideof the control account.

The correct balance on the control account should be

A $17,500 creditB $18,100 creditC $18,100 debitD $19,300 debit

51.The receivables ledger control account at 1 May had balances of $32,750 debit and$1,275 credit. During May sales of $125,000 were made on credit. Receipts fromreceivables amounted to $122,500 and cash discounts of $550 were allowed.Refunds of $1,300 were made to customers. The closing balances at 31 May could be

A $35,175 debit and $3,000 creditB $35,675 debit and $2,500 creditC $36,725 debit and $2,000 creditD $36,725 debit and $1,000 credit

52.A credit balance of $740 brought down on ABs account in the books of CD meansthat

A AB owes to CD $740B CD owes AB $740C CD has paid AB $740D CD is owed $740 by AB

53.All the sales of Gail, a retailer, were made at a price inclusive of VAT at the standardrate of 17.5% and all purchases and expenses bore VAT at the standard rate. For thethree months ended 31 March gross sales were $23,500, purchases were $12,000 (net)and expenses $800 (net).

How much is due to HM Revenue and Customs for the quarter?

A $1,260B $1,400C $1,594D $1,873

54.The sales account isA credited with the total of sales made, including VATB credited with the total of sales made, excluding VATC debited with the total of sales made, including VATD debited with the total of sales made, excluding VAT


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55. If sales (including VAT) amounted to $27,612.50 and purchases (excluding VAT)amounted to $18,000, the balance on the VAT account, assuming all items are subjectto VAT at 17.5%, would be

A $962.50 debitB $962.50 creditC $1,682.10 debitD $1,682.10 credit

56.At 31 January 2007 the balance on the companys cash book was $3,600 Cr.Examination of the bank statements revealed the following:

Standing orders amounting to $180 had not been recorded in the cash book

Cheques paid to suppliers of $1,420 did not appear on the bank statements.

What was the balance on the bank statement at 31 January 2007?

A $5,200 o/dB $5,020 o/dC $2,360 o/dD $3,780 o/d

57.The cash book shows a balance of $5,675 overdrawn at 31 March. It is subsequentlydiscovered that a standing order for $125 has been entered twice and that adishonoured cheque for $450 has been debited in the cash book instead of credited.

The correct bank balance should be

A $5,100 overdrawnB $6,000 overdrawnC $6,250 overdrawnD $6,450 overdrawn

58.Following the preparation of the income statement, it is discovered that accruedexpenses of $1,000 have been ignored and that closing inventory has been overvaluedby $1,300. This will have resulted in

A an overstatement of net profit of $300B an understatement of net profit of $300C an overstatement of net profit of $2,300D an understatement of net profit of $2,300

59.The debit side of a trial balance totals $50 more than the credit side.Which of the following errors may have caused this?

A A purchase of goods for $50 being omitted from the payables account.B A sale of goods for $50 being omitted from the receivables account.C An invoice of $25 for electricity being credited to the electricity account.D A receipt for $50 from a debtor being omitted from the cash book.


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60.Where a transaction is credited to the correct ledger account, but debited incorrectlyto the repairs and renewals account instead of to the plant and equipment account, theerror is known as an error of

A omissionB commissionC principleD original entry

61.An error of commission is one whereA a transaction has not been recordedB one side of a transaction has been recorded in the wrong account and that

account is of a different class to the correct account

C one side of a transaction has been recorded in the wrong account and thataccount is of the same class as the correct account

D a transaction has been recorded using the wrong amount

62.An error of principle would occur ifA plant and equipment purchased was credited to a non-current assets accountB plant and equipment purchased was debited to the purchases accountC plant and equipment purchased was debited to the equipment accountD plant and equipment purchased was debited to the correct account but with the wrong

amount

63.A suspense account was opened when a trial balance failed to agree. The followingerrors were later discovered:

- a gas bill of $420 had been recorded in the gas account as $240- discount of $50 given to a customer had been credited to discounts received;- interest received of $70 had been entered in the bank account only

The original balance on the suspense account was

A debit $210B credit $210C debit $160D credit $160

64.An invoice from a supplier of office equipment has been debited to the stationeryaccount. This error is known as

A an error of commissionB an error of original entryC a compensating errorD an error of principle


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65.Marion starts up in business as a florist on 1 February 2006. For the first six months,she has a draft profit of $12,355.

On investigation you discover the following:

(1) Rent paid for the 12 months ending 31 January 2007 of $800 has not beenrecorded in the accounts.

(2) Closing inventory in the accounts at cost of $1,000 have a net realisable value of$800.

What is the adjusted profit for the first six months?

A $11,355B $11,755C $12,155D $12,555

66. If a company erroneously excludes goods bought on credit from its closing inventoryand also fails to record the purchase of those goods in its accounting records, theeffect would be to understate

A cost of salesB gross profitC current assetsD working capital

67.A trial balance has been extracted and a suspense account opened. One error relatesto the misposting of an amount of $400, being discount received from suppliers,which was posted to the wrong side of the discount received account.

What is the correcting journal entry?Dr Cr

A Discount received $400Suspense $400

B Suspense $400Discount received $400

C Discount received $800Suspense $800D Suspense $800

Discount received $800

68.A purchase of a motor vehicle has been correctly credited to the bank account butdebited incorrectly to the motor expenses account, this is an error of

A principleB original entryC omissionD commission


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69. If sales are $70,000 and the gross profit mark up is 40%, what is the gross profit?$

70.The following information has been obtained from the accounting records of Bob:1 January 2006 31 December 2006

Payables $3,560 $4,230Inventory $1,290 $1,750

During the year ended 31 December 2006 Bob paid his suppliers $20,750. Bob sellsall his goods at a margin of 20%.

What were Bobs sales for the year ended 31 December 2006?

A $24,525B $25,152C $26,200D $27,350

71. If Harrys mark-up on cost of sales is 15%, what is his gross profit margin?A 12.5%B 13.04%C 15%D 17.65%

72.George started a business by investing $10,000 into a business bank account. At theend of his first years trading he had earned a profit of $5,000 and had the followingassets and liabilities:

Non-current assets $20,000Current assets $15,000Current liabilities $8,000

During the year he had withdrawn $2,000 from the business.

How much further equity had he introduced in the year?

$

73.A sole trader had opening equity of $10,000 and closing equity of $4,500. During theperiod the owner introduced additional equity of $4,000 and withdrew $8,000 for herown use.

Her profit or loss during the period was

A $9,500 lossB $1,500 lossC

$7,500 profitD $17,500 profit


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74.From the following information, calculate the value of purchases:$

Opening payables 142,600Cash paid 542,300

Discounts received 13,200Goods returned 27,500Closing payables 137,800

$

75.What is a companys authorised share capital?A The nominal value of shares issuedB The nominal value of shares issued and fully paidC The maximum number of shares a company can issueD The nominal value of shares issued plus any premium received

76.The correct journal entry to record the issue of 100,000 shares of 50c at an issueprice of $2.50 per share is:

$ $A Dr Bank 250,000

Cr Share capital 100,000Cr Share premium 150,000

B Dr Bank 250,000Cr Share capital 50,000Cr Share premium 200,000

C Dr Bank 50,000Cr Share premium 50,000

D Dr Share capital 100,000Dr Share premium 150,000Cr Bank 250,000

77.A company has the following share capital:Authorised Issued$000s $000s

25p ordinary shares 8,000 4,0006% 50c preference shares 2,000 1,000

In addition to providing for the years preference dividend, an ordinary dividend of 2cper share is to be paid and has been approved by shareholders.

What is the total of dividends payable for the year?

A $140,000B $380,000C $440,000D $760,000


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78.A company has in issue 100,000 5% preference shares of $1 each and 400,000ordinary shares with a par value of 25c each. An interim dividend of 8c per ordinaryshare has been paid, and a final dividend of 12c per ordinary share is proposed.

The total of dividends payable for the year is

$

79.On 1 January 2006 the balance of Coral Ltd's retained profit was $70,000 credit. Thebalance on 31 December 2006 was $110,000 credit. The paid dividends for the yearamounted to $64,000.

Profit for the year ended 31 December 2006 was

$

80.Under normal circumstances the auditor of a limited company is appointed byA the company itselfB the directors of the companyC the shareholdersD the employees

81.Drake Ltd had proposed dividends of $100,000 at 31 December 2005 and $120,000 at31 December 2006. In 2006 interim dividends of $40,000 were paid.

How much will appear in the cash flow statement for the year ended 31 December2006 as Dividends paid?

A $100,000B $110,000C $140,000D $150,000E None of the above

82.Eland plc had the following balances in the balance sheets as at 31 December;2005 2006

$ $10% Loan stock 150,000 130,000Share capital 100,000 120,000Share premium 35,000 45,000

How much will appear in the cash flow statement for the year ended 31 December2006 under the heading Cash flow from financing activities?

A $nilB

$10,000 inflowC $30,000 inflow

D $40,000 inflow


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83.Roach plc has the following balances in its balance sheets as at 31 January 2006 and2007:

2006 2007$ $

Cash in hand 200 250Bank overdraft 700 1,000

What is the increase or decrease in cash that will be reported in the cash flowstatement for the year ended 31 January 2007?

A $50 increaseB $250 decreaseC $350 increaseD $350 decrease

84.A summary of the balance sheet of Marlin Ltd at 31 December 2006 was as follows:$000

Total assets 156

Ordinary share capital 40Share premium account 10Retained earnings 10

605% Loan stock 2009 60

120Current liabilities 36

156

If the profit from operations for the year ended 31 December 2006 was $15,000, whatis the return on capital employed?

A 12.5%B 25%C 30%D 37.5%

85.A business has the following capital structures at 31 December;2006 2005$000s $000s

8% Loan stock 28 20Issued share capital 20 20Reserves 8 10

At 31 December 2006 the gearing ratio has:

A Remained the sameB Risen, resulting in lower risk for shareholdersC Risen, resulting in greater risk for shareholdersD Fallen, resulting in greater risk for shareholders


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86.A business operates on a gross profit margin of 331/3%. Gross profit on sales was$800 and expenses were $680.

The net profit percentage is

A 3.75%B 5%C 11.25%D 22.67%

87.Which of the following transactions would result in an increase in capital employed?A Selling inventory at a profitB Writing off a bad debtC Paying a supplier in cashD Increasing the bank overdraft to purchase a non-current asset

88.From the following information regarding the year to 31 December 2006, what is thepayables payment period?

$

Opening inventory 6,000Closing inventory 3,800Cost of sales 32,500Payables at 31 December 2006 4,800

A 41 daysB

48 daysC 54 days

D 58 days

89.Sales are $110,000. Purchases are $80,000. Opening inventory is $12,000. Closinginventory is $10,000.

The rate of inventory turnover is

A 7.27 timesB 7.45 timesC 8 timesD 10 times


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90.A company has the following assets and liabilities at 31 January 2007:$

Inventory 5,320Receivables 10,420

Cash and bank 3,200Payables 7,221

What are the current and quick ratios?

Current ratio Quick ratio

A 2.62 1.89B 2.62 3.84C 3.86 2.56D 4.62 3.32

91.Which of the following comments about the current ratio does not apply to the quickratio (acid test ratio)?

A It includes, in current assets, inventory which is less quickly realisable thanother current assets

B It includes, as a current liability, the bank overdraft despite the fact thateffectively (though not legally) this is not a current liability

C It ignores the timing of realisation or settlement of current itemsD It ignores the fact that future prices are likely to be higher than past ones

92.Sales are $260,000. Purchases are $150,000. Opening inventory is $22,000. Closinginventory is $26,000.What is the inventory turnover?

A 6.1 timesB 10 timesC 7 timesD 10.8 times

93.Who issues International Financial Reporting Standards?A The International Auditing Practices BoardB The Securities and Exchange CommissionC The International Accounting Standards BoardD The International Monetary Fund

94.Which of the following is not an accounting concept?A PrudenceB ConsistencyC DepreciationD AccrualsE Er wel!!


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95.When preparing financial statements in periods of inflation, directorsA Must reduce asset valuesB Must increase asset valuesC Must reduce dividendsD Need make no adjustments

96.What is the main responsibility of an external auditor?A To prepare the financial statements and ensure that they provide a true and

fair view.B To detect fraud.C To issue an opinion as to whether the financial statements provide a true and

fair view.D To detect any misstatements in the financial statements.

97. If the owner of a business takes goods from inventory for his own personal use, theaccounting concept to be considered is the

A prudence conceptB capitalisation conceptC money measurement conceptD separate entity concept

98.A true and fair view is one whichA presents financial statements which are free from material error or biasB occurs when the accounts have been auditedC shows the accounts of an organisation in an understandable formatD shows the assets on the balance sheet at their current market price

99. In times of rising prices, the historical cost convention had the effect ofA valuing all assets at their cost to the businessB recording goods at their cost price, even if they are worth less than that costC understating profits and overstating asset valuesD overstating profits and understating asset values

100. The accounting concept or convention which, in times of rising prices, tends tounderstate asset values and overstate profits, is the

A going concern conceptB prudence conceptC realisation conceptD historical cost convention


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SOLUTIONS

1. C2. D3. D4. B5. $

Sales 73,716Less: Returns (5,863)Net sales 67,853

6. $Opening Inventory 7,500Purchases 58,000Carriage inwards 3,000Purchase returns (2,500)

Closing inventory (6,000)Cost of sales 60,000

7. B8. B9. 240 + 281 + 157 = $67810. $

Printers 5,685Scanners 10,000Monitors 7,345

23,030

11.C12.C

20 x $30 = $600

13. (10 x $350) + (2 x $300) = $4,10014.D15.B

$Proceeds of sale 1,200.00NBV at disposal $2,400 x (80%) (1,228.80)

Loss on disposal (28.80)

16.B100,000 + 7,000 = $107,000

17.$

Cost 15,000Year 1 Depn 40% x 15,000 (6,000)

9,000Year 2 Depn 40% x 9,000 (3,600)

18.B


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19.ANon-current assets - NBV

Bal b/d 200,000 Disposals 30,000(25,000 + 5,000)

Depreciation 20,000

Bal c/d 150,000200,000 200,000

Bal b/d 150,000

20.ACost of old vehicle $11,200NBV at date of disposal $11,200 x (80%)3 $5,734

Loss on disposal = 5,000 - 5,734 = ($734)

21.A22. NBV of disposed asset = Proceeds $7,000 + Loss $2,350 = $9,350

Register should show $128,680 - $9,350 = $119,330

23.C24.C

Depreciation, Year 1 = $10,000 x 10% = $1,000Depreciation, Year 2 = 10,0001,000 = $9,000 x 10% = $900Total provision after two years = $1,000 + $900 = $1,900

25.BNBV at disposal $10,000 x (80%)

3= $5,120

ProceedsNBV = 4,500 - 5,120 = $620 loss

26.B$

Assets held all year (5,000300600)x10% 410Disposals:

300 x 10% x 2/12 5600 x 10% x 10/12 50

Acquisition 1,000 x 10% x 9/12 75

Total depreciation 540

27.Receivables

Bal b/f 14,750 Bad debts 400Bal c/f 14,350

14,750 14,750

Bal b/f 14,350$

Allowance brought forward 350Allowance required at year end (4% x 14,350) 574Increase in allowance 224

Total charge to income statement: $Bad debts 400Increase in allowance 224

624


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28. $5,000$1,000 = $4,00029.D

$4,500 + ($3,800 - $3,000) = $5,300

30.B5% x (50,0001,000) = $2,450

31.A $Bad debts 500Decrease in allowance ($1,000 - $750) (250)

250

32.DPrepayment of 7/12 x $3,600 = $2,100

33.BElectricity

Bank 400 Bal b/f 250Bank 350Bank 425 P & L a/c ( ) 1,525

Bank 450Bal c/f (450/3) 150

1,775 1,775

Bal b/f 150

34.ALight and Heat

Bal b/f 300

Bank 1,000 P&L a/c ( ) 1,050Bal c/f 350

1,350 1,350

Bal b/f 350

35.A Profit and loss charge: $1/6 x $5,000 8336/6 x $5,500 5,5005/6 x $6,000 5,000

11,333

Prepayment 1/6 x $6,000 $1,000

36.CLight and Heat

Bank 250 Bal b/f 240Bank 260Bank 220Bank 210 P&L a/c (

) 930

Bal c/f 230

1,170 1,170

Bal b/f 230

37.D


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38.BIS charge (9 months) 12% x 100,000 x 9/12 = $9,000Accrual (3 months interest) $12,000 x 3/12 = $3,000

39.B40.B41.C

Rent receiveable

Bal b/f 200

P&L a/c (

) 1,700 Bank 1,800

Bal c/f (1,800 x 2/12) 300

2,000 2,000

Bal b/f 300

42.C43.B44.

BankBal b/f 2,500Debtor (200 x 95%) 190 Creditor (1,000 x 80%

= 800 x 90%) 720Bal c/f 1,970

2,690 2,690

Bal b/f 1,970

45.D46.C47.B48.B49.A

Receivables

Bal b/f 22,000 Bank 115,000Sales 120,000 Discounts allowed 1,000Dishonoured cheque 9,000 Contra 5,000

Bal c/f 30,000

151,000 151,000

Bal b/f 30,000

50.A$18,700($600 x 2) = $17,500

51.CSales ledger control account

Bal b/f 32,750 Bal b/f 1,275Sales 125,000 Bank 122,500Refunds 1,300 Discounts allowed 550

Bal c/f 34,725

159,050 159,050

Bal b/f 34,725

$36,725 debit - $2,000 credit = $34,725 debit

52.B


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53.AVAT a/c

Purchases (net)(2,100 x 17.5%) 2,100

Sales (gross)(23,500 x 17.5/117.5) 3,500

Expenses

(800 x 17.5% ) 140Bal c/f 1,260

3,500 3,500

Bal b/f 1,260

54.B55.B

VAT a/c

Purchases (net)(18,000 x 17.5% ) 3,150.00

Sales (gross)(27,612.50 x 17.5/117.5) 4,112.50

Bal c/f 962.50

4,112.50 4,112.50

Bal b/f 962.50

56.C $Balance per bank statement (

) (2,360) o/dLess: Unpresented cheques (1,420)Balance per cash book (3,600 + 180) (3,780) o/d

57.DCash book (Bank a/c)

Bal b/f 5,675Standing order 125 Dishonoured cheque

(450 x 2) 900Bal c/f 6,450

6,575 6,575

Bal b/f 6,450

58.C59.A60.C61.C62.B63.A

Suspense

Bal b/f (

) 210Interest receivable 70 Gas (420-240) 180

Discounts (50 x 2) 100

280 280

64.D65.B $

Draft profit for the period 12,355Six months rent (800 x 6/12) (400)Closing inventory adjustment (1,000-800) (200)

11,755

66.C67.D


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68.A69. $70,000 x 40/140 = $20,00070.C

Payables

Bal b/f 3,560Bank 20,750 Purchases (

) 21,420

Bal c/f 4,230

24,980 24,980

Bal b/f 4,230

$ $ %Sales (20,960 x 100/80) 26,200 100Cost of sales:

Opening Inventory 1,290Purchases 21,420Less: Closing inventory (1,750)

20,960 (80)Gross profit 5,240 20

71.B%

Sales 115Cost of Sales 100

Gross profit 15

15/115 = 13.04%

72. Equity introduced = Closing EquityOpening EquityProfit + Drawings= (20,000 + 15,0008,000)10,0005,000 + 2,000= $14,000

73.BProfit = Closing EquityOpening Equity + DrawingsEquity introduced

= 4,500 - 10,000 + 8,0004,000i.e.Loss for year = ($1,500)

74.Payables

Bank 542,300

Bal b/f 142,600

Discounts received 13,200Returns outwards 27,500 Purchases (

) 578,200

Bal c/f 137,800

720,800 720,800

Bal b/f 137,800

75.C76.B77.B $

Preference dividends (6% x $1,000,000) 60,000Ordinary dividends (2p x 16,000,000 shares) 320,000

Total for year 380,000


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78. $Preference dividends ($100,000 x 5%) 5,000Ordinary dividends (8p + 12p = 20p x 400,000) 80,000

85,000

79. $Profit after tax (balancing figure) 104,000Dividends (64,000)Profit for year 40,000Retained profit b/f 70,000Retained profit c/f 110,000

80.C81.C

Proposed b/f $100,000 + Interim paid $40,000 = $140,000

82.B $Repayment of loan stock (20,000)Proceeds on issue of shares (20,000 + 10,000) 30,000

10,000 net inflow

83.B $Increase in cash 50Increase in overdraft (300)Net decrease (250)

84.A$15,000 / $120,000 = 12.5%

85.CGearing = Debt / Total capital employed2001 = 20 / 50 = 40%2002 = 28 / 56 = 50%

86.BSales = $800 x 100/33.33 = $2,400Net profit = $800 - $680 = $120

Net profit percentage = 120 / 2400 = 5%

87.A88.D

Purchases = 32,500 + 3,800 - 6,000 = $30,300Payables payment period = 4,800 / 30,300 x 365 = 58 days

89.BInventory turnover =

C o s t o f s a l e s

A v e r a g e s t oc k

Cost of sales: (80,000 + 12,00010,000) = $82,000

Average inventory: (12,000 + 10,000)

2 = $11,000

Inventory turnover = 82,000 / 11,000 = 7.45 times


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90.ACurrent ratio = (5,320 + 10,420 + 3,200) / 7,221 = 2.62Quick ratio = (10,420 + 3,200) / 7,221 = 1.89

91.A92.A

Inventory turnover = Cost of sales / Average inventory

Cost of sales: (22,000 + 150,00026,000) = $146,000

Average inventory: (22,000 + 26,000) 2 = $24,000

Inventory turnover = 146,000 /24,000 = 6.1 times

93.C94.C95.D96.C97.D98.A99.D100.D

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