FFA EXAM PACK important CBE questions

SKANS School
of
FFA/F3FINANCIAL ACCOUNTING

EXAM PACK

Table of Contents:
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Chapter
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Name

Page no.

Basic Accounting
Control Accounts
BRS
Correction of Errors
Accruals & Prepayments
Bad & Doubtful Debt
Inventory (IAS-2)
IAS-16
Sole trader, Final a/c, Incomplete records
Regulatory Framework
Limited Companies
IAS & Disclosure Notes
Cash flows
Ratios
Consolidation
Solution

3
5
7
8
11
12
14
17
20
23
25

28
31
33
37

BASIC ACCOUNTING
(Chapter 1)
1. This is an extract from Karnal's trial balance for the year end 30 th June 20X9.
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Opening Inventory
$19,500
Closing Inventory
$22,250
Purchases
$325,000
Carriage Inwards
$8,250
Distribution Cost
$28,125
Administration Salaries
$96,750
Depreciation
$31,400
Depreciation is split equally between cost of sales and distribution expenses.
What should be the cost of sales figure shown in Karnal's income statement for the year ended 30 th
June 20X8?

$____________
2. Which of the following transactions have been correctly recorded?
a) Sales returns
Dr. Sales accounts
Cr. Return inwards account
b) Contra agreement with branch and Co.
Dr. Personal account in sales ledger
Cr. Personal account in Purchases ledger
c) Owner withdraws goods
Dr. Purchase account
Cr. Capital account
d) For own use
Irrecoverable debt recovered
Dr. Cash account
Cr. Receivable expense
3. A business has the balance at the bank $2,500 at the start of the month. During the month, it paid for
materials invoiced at $1,000 less trade discount of 20% and settlement discount of 10%. It received a
cheque from credit customer in respect of an invoice for $200, subject to a settlement discount of 5%.
What is the balance at the bank at the end of the month?
a) $1,980
b) $1,900
c) $1,970
d) $1,700
4. Joseph makes credit sales of $12,400 and cash sales of $900, before any discounts. He receives sales
returns of $500 and allows trade discounts of $70.
What amount should be recorded as sales revenue in the income statement?
a) $13,300
b) $12,800
c) $13,730
d) $12,730

5. Which TWO statements are true of the duality concept?
1) The number of debit and credit entries must be equal
2) The value of debit and credit entries must be equal
3) Each transaction has both debit and credit entries
4) Each transaction must have only two entries
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4
6. ABC sold goods on credit to XYZ. The selling price was $15,000 and they originally cost $10,000. ABC
does not keep perpetual inventory records.
What entries should be made by ABC in its records for this sale?
a) Dr. Receivables $15,000
Cr. Inventory $10,000 Cr. Profit $5,000
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b) Dr. Sales $15,000
c) Dr. Sales $15,000
d) Dr. Receivables $15,000

Cr. Receivables $15,000
Cr. Inventory $10,000 Cr. Profit $5,000
Cr. Sales $15,000

7. The statement of comprehensive income shows the revenue generated by the company less the cash
spent on overheads costs. Is the statement true or false?
a) True

b) False
8. Amy maintains a sale daybook and sales return daybook. In her first month of trading, the following
transactions took place:
• Sales on credit to X $1,000
• Sales on credit to Y $2,500
• Cash sales to Z $800
• Sales return from X $120
What is the total of the sales daybook at the end of the month?
9. Which of the following could be a part of the integrated accounting system?
1 General ledger
2 Payroll
3 Purchase ledger
a) 1, 2 and 3
b) 2 and 3
c) 1 and 3
d) 1 and 2
10. Which books of prime entry should the following transactions be entered into?
Cashbook Sales
Petty
Purchase
Daybook Cashbook Daybook
• The company sends a customer an invoice of $100.
•

Stationary of $10 purchased on cash.

•

A company receives an invoice for $200 from a supplier.

•

The company pays a supplier $450.

11. The financial statements are used by different user groups for different reasons.
For each user group what is their primary area of interest?
Profitability
Liquidity
• Banks
•

Shareholders

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CONTROL ACCOUNTS
(Chapter 2)
1.
a)
b)
c)
d)

Which of the following is a possible correct entry on the accounts receivables ledger control account?
Credit with the total sales figure excluding sales tax.
Debit with the total sales figure excluding sales tax.
Credit with the total sales figure including sales tax.

Debit with the total sales figure including sales tax.

2. Magasin is a small business which is preparing its financial statements for the year ended 31 October
20X6. Personal account of its only credit customer, Shaun, contains the following information for year:
$
Opening balance at 1 January 20X6
24,500
Cash received
102,300
Discount allowed
3,100
Interest on overdue payments
1,600
Credit sales
133,700
Contra agreements
8,200
When preparing the trial balance at the year end, what amount would Magasin show as owed by
Shaun?
$____________
3. The accounts payable ledger control account of a business showed a balance at the yearend of
$285,000. This did not agree with the total of the list of purchase ledger balances at the year end and
subsequent checking found that
1) Discounts received of $3,000 had been entered on the wrong side of the control account.
2) Returns outwards had been overstated by $10,000.
What will be the balance on the accounts payable ledger control account following correction of the
above errors?
a) $288,000
b) $292,000
c) $269,000

d) $289,000
4.

Accounts payable control account
Cash paid to credit suppliers
$103,400
B/F
Contra with receivables
$10,000
Cash received from customers
Cash purchases
Credit purchases
C/F
$635,600
Discount received
$749,000

$376,780
$183,200
$52,000
$124,300
$12,800
$749,000

What should be the balance on accounts payable control account, after the necessary adjustments
have been made?
$____________
5. Which of the following should be identified by reconciling supplier statement to the payables ledger?
1. Cheque payment in transit
2. Invoices sent but not yet received.

a) 2 only
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b) 1 only
c) 1 and 2
6. Vana received a monthly statement from one of its suppliers showing amount owing to them of
$5300. Vana's records however showed that $7,500 was owed and so an investigation was carried out
which found that:
• A contra entry for $800 had been omitted from Vana's records.
• A credit note received for $500 received by Vana for goods returned had not been entered on
Vana's records.
• A recent purchase of $400 had been posted to the wrong side of the payables ledger account in
Vana's records.
After adjusting for the above items what discrepancy remains between the supplier's statement
and the Vana's records?
$____________
7. Sandy discovered errors when reconciling the balances in the purchase ledger control account with
the list of balances from the purchase ledger.
Which of the following need an entry in the payables ledger control account?
YES NO
• The purchase daybook total was overcast by $10.
•

A payment of $90 was made in full settlement of a $100 balance owing. This was
correctly recorded in the control account but only $90 was posted in the purchase ledger.

•

A credit note received for $110 was entered in the supplier's account as $100.

•

A credit purchase was totally omitted from the accounting records.

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BRS
(Chapter 3)
1. Punit has identified the following reasons for his cashbook balance of $1,200 debit being different
from the balance on the bank statement:
1) Uncleared lodgements of $400
2) The bank has mistakenly recorded a direct debit payment of $300 twice
3) Unpresented cheques of $200
What is the balance on Punit’s bank statement, prior to any of the above items being adjusted?
$____________
2. Where would the following items be identified when preparing bank reconciliation statement?
It is on the bank statement
It is in the cash book but not
but not In the cash book
on the bank statement
• A direct debit
•

An un-presented cheque

3. Smith received a bank statement which shows a balance of $3500 debit. Smith's bookkeeper notes the
following:
Total cheques sent to supplier for $3100, out of which 230 have not been presented to the bank at the
due date of the bank statement.
The bank has charged interest of $34 which is not recorded in the cashbook.
Direct debits of $450 of supplier have been paid into the bank and not recorded in the cashbook.
A payment of $75 has been paid out of the bank account due to a bank error.
What should the overdraft balance be on Smith's cashbook, prior to these items have been
dealt with?

$____________
4. Which TWO of the following items, defined when preparing bank reconciliation require an adjusting
entry in the cash book?
a) Cheques lodged last week have not been cleared by the bank.
b) A cheque paid into the bank and has just been dishonored by the bank.
c) Bank charges of $154 were charged by the bank.
d) The bank has credited interest to the account in error.
5. When preparing a bank reconciliation, which two of the following will necessitate a correcting entry to
cash book?
A Outstanding lodgments
B Unpresented cheques
C Bank charges
D interest charges
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CORRECTION OF ERRORS

(Chapter 4)
1. A company prepared its trial balance and discovered that the total debit column and the credit column
do not agree. A suspense account was opened for the difference. It was subsequently discovered that
the rent invoice for $420 had been recorded in the rent expense account as $240.
What journal entry is required to correct this error?
a) Dr. Rent $180
Cr. Suspense $180
(being correction of error of transposition)
b) Dr. Suspense $ 180 Cr. Rent $180
(being correction of error of transposition)
c) Dr. Rent $180
Cr. Suspense $180
(being correction of error of commission)
d) Dr. Suspense $180 Cr. Rent $180
(being correction of error of commission)
2. The trial balance of a business did not balance, so a suspense account was opened. Subsequent
checking found that the purchases account had been overcast by $200 and the interest income
account had been under-cast by $100. How should these errors be corrected?
a) Dr. Suspense $100
Dr. Interest income $100
Cr. Purchases $200
b) Dr. Purchases $200
Dr. Interest income $100
Cr. Suspense $300
c) Dr. Purchases $200
Cr. Suspense $100
Cr. Interest income $100
d) Dr. suspense $300
Cr. Purchases $200
Cr. Interest income $100

3. Rent paid of $200 has been credited to the rent expense account. The debit side of the trial balance
has been over cast by the $100.
The yearend bank balance of $860 at the bank has been entered on the trial balance as a debit of
$680.
What is the debit balance of suspense account as a result of these errors?
$____________
4. Rent paid of $200 has been credited to the rent expense account. The debit side of the trial balance
has been overcast by $100.
The yearend bank balance of $860 at bank had been entered on the trial balance as a debit of $800.
What is the debit balance on the suspense account as a result of these errors?
$____________
5. Joseph's final trial balance did not balance and he set up a suspense account for the difference. He
then discovered that rent of $500 paid by cheque has been credited to both the bank account and the
rent account.
Which of the following journal entries will correct this?
a) Dr. Rent account $1,000
Cr. Suspense account $1,000
b) Dr. Rent account $1,000
Cr. Bank account $1,000
c) Dr. Suspense account $1,000
Cr. Rent account $1,000
d) Dr. Rent account $500
Cr. Suspense account $500
6. The debit and credit columns, of XYZ's trial balance did not agree. A debit balance of $25,950 was
entered in a suspense account and the following errors were subsequently identified.
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1) A cheque received for $1,900 had been correctly posted to the cash account and posted to the

receivables ledger as $9,100.
2) Rent paid of $6,500 had been posted correctly to the cash account and posted to the rent expense
account as $650.
3) No entries had been made to reflect a cash sale of $1,000.
What is the remaining debit balance on the suspense account after making adjustments for the
above errors?
$____________
7. The trial balance was not balance so a suspense account was opened for the purpose. Subsequent
checking found that the purchase account had been overcast by $200 and the interest income account
had been under cast by $100. How should these errors be corrected?
a) Dr. Suspense account $300 Cr. Purchases $200
Cr. Interest income $100
b) Dr. Purchases $200
Dr. Interest income $100
Cr. Suspense account $300
c) Dr. Suspense account $100 Dr. Interest income $100
Cr. Purchases 200
d) Dr. Purchases $200
Cr. Suspense account $100
Cr. Interest income $100
8. Which of the following errors would give rise to the creation of suspense account?
a) Cash received from a credit customer of $200 had been incorrectly recorded as $400 in the relevant
accounts.
b) A credit sale for $500 had been debited to the account of J Smith and should have been entered in the
account of B Smith.
c) Purchase of a motor van for $10,000 for making deliveries had been entered in the motor expense
account.
d) A credit purchase of $690 had been entered in the-purchase account correctly but had been entered
in the payables account as $960.
9. When the financial statements of Kotka were prepared for the year ended 31 December 20X6, the

following errors were found in the underlying accounting records. Kotka maintains receivables and
payables ledger control accounts.
1. The purchase of a new computer for $ 30,000 had been omitted from the accounting records.
2. The sale of goods on credit for $ 2,000 to C. Jaipur & Co had been incorrectly debited to the
personal account of D. Jaipur & Co.
3. The purchase of goods on credit of $ 1,000 from D. Kuche & Co. had only been entered in the
purchase account. No entry had been made in the personal account of the supplier or the
payables ledger control account.
Which of these errors would cause the trial balance NOT to balance?
a) 3 only
b) 2 only
c) 1 only
d) None of the errors
10. A company received a settlement discount of $35 from a supplier. Amount was debited to discount
received account and correctly recorded in payables ledger control account. What is impact on profit?
a) Overstated by $70
b) No effect
c) Understated by $70
11. Charles has recorded the purchase of vehicles as motor expenses. This has resulted in the
misstatement of both motor expenses and depreciation within the income statement
What impact will this error have on Charles profit?
Profit overstated
Profit understated
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•

Depreciation misstatement

•

Motor expense misstatement

12. The closing inventory in Frodo's financial statement has been overstated by $70,000
What is the effect of this error?
a) The current year's profit will be overstated and there will be no effect on next year's profit
b) The current year's profit will be understated and there will be no effect on next year's profit
c) The current year's profit will be overstated and next year's profit will be understated
d) The current year's profit will be understated and next year's profit will be overstated

ACCRUALS & PREPAYMENTS
(Chapter 5)
1. Roger is preparing his financial statements for the year ended 31 October 20X8. Roger has included
within his expenses office rental of $ 36,000 paid on 1 February 20X8 for the following 20 months.
What is the effect of this error on Roger’s net profit?
a) $ 19,800 understated
b) $ 16,200 understated
c) $ 16,200 overstated
d) $ 19,800 overstated
2. The statement of comprehensive income for the year ended 31 st May 20X6 showed $15,000 for
insurance. Payments for insurance during the year totaled $17,500, and there was a prepayment for
insurance at 1st June 20X5 of $1,250.
What is the prepayment for insurance as at 31 st May 20X6?
$____________
3. A company made the following payments for computer rentals.
$4,500 for the 3 months ended 28th February 20X8.
$9,450 for the 6 months ended 31 st August 20X8.

$10,200 for the 6 months ended 28th February 20X9.
What should the charge for computer rental be in the income statement for the year ended 31 st
December 20x8?
$____________
4. Company is preparing its final accounts for the year ended 31 st December 20X8 and has not included
telephone bill received in January 20X9, relating to phone calls made in Dec 20X8, in final accounts.
If the cost is recorded in the financial statements for the year to 31 st December 20X9 how will the net
profit be affected for 20X8 and 20X9?
a) 20X8
overstated
20X9 understated
b) 20X8
understated
20X9 overstated
c) 20X8
understated
20X9 understated
d) 20X8
overstated
20X9 overstated
5. Fred prepares his accounts to 31 December each year. On 1 January 2006 the amount prepaid for
insurance was $360. During 2006 Fred made the following payments:
Date
Particulars
$
1 April
Motor Vehicle insurance for year ended 31 March 2007
240
1 June
Plant Insurance for year ended 31 May 2007

960
What amount should be included in the income statement for the year ended 31 December 2006 for
insurance?
a) $1,100
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b) $1,020
c) $740
d) $380
6. The statement of comprehensive income for the year ended 31 august 2006 shows $14,000 for motor
expenses. Payments for motor expenses during the year totaled $13,300 and there was an accrued at
1 September 2005 of $2,200.
What is the accrual for motor expenses as at 31 august 2006?
$_____________

BAD & DOUBTFUL DEBTS
(Chapter 6)
1. Jody was owed $500 from a customer who has gone bankrupt. Jody has been informed that she will
receive 50c for every $1 owed. Jody also needs to increase her allowance for receivables by $275.
How much will Jody’s profit be reduced by, when the items have been accounted for?
$____________
2. Beryl has forgotten to record the decrease of $18,000 in her receivables allowance in her accounts for
the year ended 315t December 20x9
How will Beryl's profit for the year and net assets at the yearend be affected by this?
a) Profit – overstated
Net assets – overstated
b) Profit – understated
Net assets – understated

c) Profit - understated
Net assets – overstated
d) Profit – overstated
Net assets – understated
3. Receivables at 31st December 2006
$36,000
Allowance at 31st December 2005
$1,460
On reviewing the receivables account it was found that an irrecoverable debt of $800 has not been
written off and the recovery of a debt of $240 previously written off had not yet been entered in the
books. The company wishes to make an allowance for receivables of 6% at the year end.
What is the net charge to the income statement for the year ended 31st December 2006 in respect of
receivables?
$____________
4. Bert has the profit of $28,000 for the year ended 31 October 2006. He has not yet recorded the
following items:
• He has irrecoverable debts of $450.
• His allowance for receivables at 1 November 2005 is $ 1,570 and he wants the closing allowance
to amount to be $ 1,070
• He has received $320 in relation to a debt that was written off in the prior accounting period
What is the net profit for the year ended 31 October 2006 after adjusting for those items?
a) $28,050
b) $27,370
c) $28,370
d) $27,870
5. Which TWO of the following functions are the aged receivables analyses used for?
a) Reconciling the receivables ledgers and receivables control accounts
b) Calculating the closing receivables balances
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c) Calculating the allowance for receivables
d) Identifying potential irrecoverable debts
6.
a)
b)
c)
d)

What is the effect on statement of financial position of an increase in allowance for receivables?
Increase in current liabilities
Increase in current assets
Increase in current l liabilities
Increase in current assets

INVENTORY (IAS-2)
(Chapter 7)
1. Lee purchased some inventory at a cost of $100,000 (excluding sales tax). It cost $3,000(excluding
sales tax) to transport the inventory to Lee’s premises and he paid $10,000 non-recoverable sales tax.
In addition when the inventory is sold it will cost Lee $1,000 to deliver the item to his customer’s
premises. Lee always makes a large profit on his transactions and he always offers free deliveries to his
customers.
At what value should the inventory be included in Lee’s financial statements?
a) $103,000
b) $114,000
c) $113,000
d) $112,000
2. An agricultural tractor supplier held the following tractors at the financial year end.

Historical Cost
Replacement Cost
NRV
$
$
$
Tractor 1
14,000
16,000
13,000
Tractor 2
20,000
18,000
19,000
Tractor 3
17,000
15,000
20,000
In accordance with IAS-2 Inventories, what figure should appear for the year-end inventories in the
financial statements of the business?
a) $ 52,000
b) $ 49,000
c) $ 46,000
d) $ 51,000
3. In accordance with IAS-2 Inventories, which FOUR of the following expenses must be excluded from
inventory costs?
1) Import duties
2) Plant depreciation
3) Carriage outwards
4) Abnormal wastage

5) Selling costs
6) Storage costs for finished goods
7) Direct labour
a) 1, 2, 3, 4
b) 2, 4, 6, 7
c) 1, 3, 5, 7
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d) 3, 4, 5, 6
4. A manufacturing business calculated cost of its closing inventory as follows:
$
Direct Material Cost
200,000
Direct Labour Cost
180,000
Share of storage cost for finished goods
20,000
Share of indirect factory overheads
60,000
Share of selling costs
85,000
545,000

a)
b)
c)
d)

According to IAS-2 inventories, what figures should be used as the cost of closing inventories?
$440,000
$545,000
$200,000
$380,000

5. MAGDA purchased some raw material inventory from a supplier at a purchase price of $ 2,000.
The raw materials have been converted into finished goods inventory by the process. The process cost
$3,500 made up of $2,000 direct labour, $1,200 electricity cost and $300 attributable production
overheads. The finished goods will be sold for $8,000.
What is the value of finished goods inventory to be shown in MAGDA's financial statement.
$____________
6. ABC purchased 1,000 units of inventory with the following cost details:
Purchase per unit
$5 per unit
Non-recoverable import tax $500
Transport cost
$1,000
Trade discount
5% of the price
Selling cost
$1 per unit
What is the cost of inventories according to IAS-2 Inventories?
$____________
7. O'Leary builders and merchants has made the following purchases and sales of sand in October 2002:
Purchases:
Date
3 October
17 October

31 October

Tons
50
50
50

Purchase price per ton
$8
$9
$10

Tons
20
20
20
30

Sale price per ton
$15
$15
$15
$15

Sales:
Date
5 October
8 October
18 October
28 October

There was no sand held on 1 October 2002.
Using the FIFO method for valuing inventory, at what value should the sand be shown in O'Leary's
statements of financial position at 31 October 2002?
$____________
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IAS-16
(Chapter 8)
1. In 2007 a company spent $500,000 on new machinery and incurred delivery costs for this machinery
of $10,000. In order to use the new machinery in productions the company has spent a further $5,000
on parts.
What should be the cost of the machinery capitalized in the statement of financial position?
a) $510,000
b) $530,000
c) $515,000
d) $505,000
2. A company’s financial statements for the year to 31 December 20X5 included a building at its net book
value of $ 280,000. At that date, it was half-way through its estimated useful life of 50 years. On 1
January 20X6 it was revalued to $360,000. The company has a policy of straight-line depreciation.
There was no amendment to the building’s useful life.
Which figure will appear for accumulated depreciation in the statement of financial position as at 31
December 20X6?
a) $11,200
b) $291,200
c) $294,400
d) $14,400

3. The following are the details of the non-current assets of a new business:
Milling machine
Motor car
Original cost
$ 56,000
$ 27,000
Expected years of economic use
10 years
3 years
Estimated residual value
$ 5,000
$ 3,000
Depreciation method
Straight line
50% reducing balance
A full year’s depreciation is charged in the year of acquisition.
What is the depreciation charge of the business in year two?
a) $ 18,600
b) $ 11,100
c) $ 11,850
d) $ 12,350
4. A company bought an asset on 1 January 20X4 for $200,000. Depreciation is charged on a reducing
balance basis at 20%. On 1 January 20X7 the asset is revalued to market value of $250,000.
How much should be recorded in the revaluation reserve at 1 January 20X7?
a) $ 50,000
b) $ 170,000
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c) $ 147,600
d) $ 122,000
5. On 1st Jan 20X6 a business purchased a motor vehicle. The vehicle cost $10,000 and has a residual
value of $2,000. Depreciation is calculated using the reducing balance method at 20% per annum.
Which of the following should appear in the trial balance as at 31 st December 20X7?
a) Depreciation expense
Dr. $2,000
b) Accumulated Depreciation
Dr. $3,600
c) Accumulated Depreciation
Cr. $3,600
d) Motor Vehicle
Dr. $8,000
6. A company purchased a non current asset on 1 st January 20x6 for $80,000. The Co. depreciates non
currents assets on a straight line basis over 5 years. On 1st January 20X7 a modification costing $10,000
was made to the non currents asset to extend its useful life by 1 year and routing maintenance costing
$5,000 was also carried out.
Which amount should be charged for depreciation for the year to 31 st December 20x7?
a) $16,667
b) $17,400
c) $21,000
d) $14,800
7. The statement of financial position of a business as at 31 st December 20x6 shows the followings.
Buildings:
$
Cost
90,000
Less accumulated Depreciation
36,000

Carrying amount
54,000
st
On 1 January 20x7 the buildings were revalued to $150,000 but their remaining useful life was not
changed. It was decided to incorporate this revaluation in the accounts. The firm has been
depreciating the building over 50 years on a straight line basis.
What is the depreciation charged for the year ended 31 st December 20x7?
a) $3,800
b) $7,500
c) $3,000
d) $5,000
8. ABC purchased an item of machinery on 1 st January 20x3 for $40,000 and expected its useful life to be
eight years. On 1st January 20x6 a review of the condition of the machinery indicated that its useful life
is likely to be only two years from 1 st January 20x6. What should the depreciation charge be in the
income statement for the year ended 31st December 20x6?
$____________
9. Are the following statements about non-current assets true or false?
•

When non-current assets are sold, the cost and accumulated
depreciation relating to the assets are eliminated from the ledger accounts.

•

When land is revalued upward, the deprecation charge will increase.

True

False

10. A company bought a machine on 1 November 2002 for $22,000. It had an expected useful life of seven
years and an estimated residual value of $1,000. On 1 May 2006 the machine was disposed of for
$9,000. The company policy for depreciating machinery is straight line with proportionate charge in
the year of acquisition and disposal.
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a)
b)
c)
d)

The business has a year end of 31 December. What would be the profit or loss on disposal of the
machine?
Profit of $1,000
Loss of $2,500
Profit of $2,500
Loss of $1,000

11. An asset was purchased for $80,000 on 1 January 2005 when its useful life was estimated to be ten
years with a residual value of $10,000. A straight line depreciation policy was selected. On 1 January
2008 the directors reviewed the useful life of the asset and found that it had a remaining life of eight
years. There was no change to the residual value.
What should the depreciation be for the year ended 31 December 2008?
$____________
12. ABC purchased a building on 1 January 2002 for $500,000 (of which land cost $200,000) with an
expected useful life of 50 years. Depreciation is charged on a straight line basis. On 1 January 2005 the
building was revalued to $800,000 (including the land of $350,000).

What is the total amount credited to the revaluation reserve at 1 January 2005 in respect of the land
and buildings?
$____________
13. A company purchased a non-currents asset on 1 January 2006 for $90,000. The company depreciates
non-current assets on a straight line basis over five years. On 1 January 2007 a modification costing
$10,000 was made to the non-current asset to extend its useful life by one year and routine
maintenance costing $5,000 was also carried out.
What amount should be charged for depreciation for the year to 31 December 2007? $____________
14. ABC purchased an item of machinery on 1 January 2003 for $ 40,000 and expected its useful life to be
8 years. On 1 January 2006 a review of the condition of the machinery indicated that its useful life is
likely to be only two years from 1 January 2006.
What should the depreciation charge be in the income statement for the year ended 31 December
2006?
$____________
15. A company disposed of a motor vehicle on 1 January 2007 which originally cost $12,000 when bought
on 1 January 2004. It had been depreciated at 25% on straight line basis. The motor vehicle was
traded in for a new one costing $ 20,000 with the balance of $18,400 being paid by cheque.
What is the loss on disposal of the old motor vehicle?
$____________
16. Charlie’s machinery at cost ledge account is as follows:
Machinery- Cost
1 Jan 20X6
B/d
$500
1 feb 20X6
Disposal
$300
31 Dec
c/d
$300

The co. policy is to charge depreciation at 20% using straight line method. A full year is made in the
year of acquisition and none in the year of disposal. None of the asset have been held for more than 5
years.
What is the depreciation charged for the year ended 31 st Dec 20X6?
$____________

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SOLE TRADE, INCOMPLETE RECORDS
(Chapter 9)
1.
a)
b)
c)
d)

Which of the following would give a mark-up on cost of 40%?
Sales are $201,600 and cost of sales is $144,000
Sales are $201,600 and gross profit is $80,640
Sales are $240,000 and gross profit is $96,000
Sales are $240,000 and cost of sales is $144,000

2. John reduces his inventory level by $12,000 during the year and makes sales of $ 540,000. His markup
on cost is 20%.
What are his purchases during the year?
$____________
3. A sole trader only keeps limited accounting records and the following information is available for the

year ended 31 March 20X8:
Opening payables
$34,560
Purchases
$296,430
Good returned to credit supplier
$2,000
Closing payables
$42,650
Cash paid to credit suppliers
$278,450
What is the value of the settlement discounts received by the sole trader?
$____________
4. A fire in the offices of OYEZ media on 22nd March 20X6 destroyed various accounting records. From the
records that were salvaged, the following credit sales information relating to the period from the 31 st
December 20X5 until 22nd March 20X6 is available.
1. Cash received for credit customers $76,100
2. Contra entries with payables ledger $3,400
3. Discount allowed to credit customers $5,200
4. Interest charged on overdue accounts $3,200
On 31st December 20X5, the trade receivables amounted to $65,800 and on 22 nd March 20X6 they
were $69,400.
What is the credit sale revenue for the period from 31 st December 20X5 until 22nd March 20X6?
$____________
5. Joe had the following transactions regarding sales this month:
• Cash sales of $4,560 were made
• Cash of $7,890 was received relating to sales made in the previous months
• Goods were sold to customers on credit of $8,650
• Bad debt of $670 were written off
What revenue figure should be reported this month?

a) $13,210
b) $13,860
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c) $12,540
d) $20,430
6. Helen has set up a new business. The following balances are recorded in her books:
Initial capital
$10,000
Bank over draft
$10,000
Motorcar
$6,000
Her only other asset is office furniture. She has no other liabilities.
What is the book value of her office furniture?
$____________

1.
a)
b)
c)
d)

REGULATORY FRAME WORK
(Chapter 10)

Which of the following is an underlying assumption of the IASB's conceptual framework?

Materiality
Comparability
Timeliness
Going Concern

2. Which organization is directly responsible for 'developing, in the public interest, a single set of high
quality, understandable and enforceable global accounting standards'?
a) IFRS interpretation committee
b) IFRS advisory council
c) IFRS foundation
d) International Accounting Standard Board
3. Which of the following tasks is performed by the International Accounting Standards Committee
Foundation (IASCF)?
a) Oversight of the International Accounting Standard Board
b) Producing ethical guidance for the accounting profession
4. Which of the following is/are purposes of International Financial Reporting Standards?
1. To aid compatibility of financial statements produced in different countries.
2. To assist in producing the financial statements which give a true-and fair view.
a) 2 only
b) 1 and 2
c) 1 only
5.
a)
b)
c)

What does IFRIC stand for?
International Financial Reporting Interpretation Code
International Federation of Reporting Institutes Committee
International Financial Reporting Interpretations Committee

6. According to IASB's framework for the preparation and presentation of the financial statements, what
are the four qualitative characteristics of financial statements?
a) Understandability, relevance, reliability, comparability
b) Understandability, consistency, materiality, going concern
c) Relevance, reliability, completeness, going concern
7. The IASB's framework for preparation and presentation of financial statements defines the elements
of financial statements:
What is the definition of equity according to the IASB's framework?
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a) The residual amount found by deducting all of the liabilities of the entity from all of the entity's assets.
b) A resource controlled by the entity as a result of the past events and from which future economic
benefits are exposed to flow to the entity.
c) An entity's present obligation arising from pa.st events, the settlement of which is expected to result
in outflow of economic benefits.
d) Increase in economic benefit during the period those results in equity, other than those relating to
contribution from owners.
8. Faraz owns plant and machinery. It is depreciated over five years on a straight line basis. He always
uses this method of depreciation.
Which principle qualitative characteristic of financial statements is this an example of?
a) Prudence
b) Relevance
c) Consistency
9. Information should only be disclosed if it is capable of influencing the economic decisions of users.
Which accounting concept is being applied here?
a) Comparability
b) Reliability

c) Neutrality
d) Relevance

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LIMITED COMAPNIES
(Chapter 11)
1. The current tax charge is an estimate at the year end, which means that under- and over-provisions
can arise in subsequent accounting periods.
How are under- and over-provisions dealt with in the income tax expense?
Deduct from current tax charge Add to current tax charge
Under -provision from previous year
Over-provision from previous year

2. JYP Co. has 50,000 $1 shares, each issued at $1.50. During the year JYP Co. made a one for ten rights
issue at a price of $2.
What is the balance on the share capital and share premium account at the end of the year?
a) Share capital $26,250
share premium $53,750
b) Share capital $55,000
share premium $30,000
c) Share capital $80,000
share premium $5,000
d) Share capital $27,500
share premium $52,500
3. Which TWO of the following items may be shown on the face of the statement of changes in equity?
1) Taxation

2) Dividends
3) Operating expenses
4) Issue of share capital
5) Interest payable
a) 1 and 2
b) 2 and 3
c) 2 and 4
d) 1 and 5
4. ABC has a year end of 31 December and $ 50,000 25c ordinary share capital. A dividend of 3c per
share for the year to 31 December 20X7 was paid on 5 February 20X8. A dividend of 4c per share for
the year to 31 December 20X8 was proposed on 21 January 20X9.
What amount of dividend should be included in the statement of changes in equity for the year ended
31 December 20X8?
$____________
5. ABC’s equity at 31 January 20X8 was as follows:
Ordinary share capital ($ 0.50 per share)
Share premium
Retained earnings
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$000
400
250
700
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1350
On 30 June 20X8 there was a one for eight rights issue at $ 1.10.
The following statements relate to ABC’s equity after the rights issue.

Are the following statements true or false?
TRUE
50,000 new shares will have been issued

FALSE

Share premium account balance will be $ 310,000

6. Which of the following items is reported as a movement in retained earnings in the statement of
changes in equity?
YES
NO
Noncurrent asset revaluation surpluss
Ordinary dividends paid

7. MNO has 400,000 $1 ordinary shares at 1st January 20X4, and balance on share premium account is
$235,000. On 31st March 20X4 50,000 ordinary shares were issued at $2.50 each. On 30 th September
20X4 there was a one for three bonus issue, utilizing the share premium account.
What is the balance on the share premium account as at 31 st December 20X4?
$____________
8. EGRET, limited liability Co., made a profit before tax of $235,000 for the year ended 30 th June 20X8.
The tax charged for the year was $84,500 and the Co. transferred $10,000 from profit to a general
reserve. It paid a final ordinary dividend of $38,000 for the prior year on 18 th May 20x8 which had
been proposed on 1st July 20x7 and on 1st July 20x8, a final dividend of $39,500 for the current year
was proposed. No interim dividends were paid or proposed.
What amount in EGRET's retained earnings reserves increased by for the year ended 30 th June 20X8?
$____________
9. Mary has shares in a limited liability company and has paid for them in full. She has owned the shares
for many years company has gone into liquidation and is being wound up.
What is the limit of Mary's liability?

a) An amount to be determined by the courts
b) Mary's share of the company's debts
c) The amount paid for the shares
d) The cumulative value of all dividend income received
10. Are the following statements true or false?
•

Bonus issues of share capital are a useful way of raising finance.

•

A bonus issue of share capital will cause the market value of
each share to decrease.

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TRUE

FALSE

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11. JKL, a limited liability company, has 300,000 50c ordinary shares in issue at 1 st January 20x5. On 31 st
March 20x5 200,000 shares were issued for $1.25 each. On 30 th September 20x5 there was a two for
five bonus issue.
What is the balance of JKL's share capital as shown on the face of the statement of financial position
as at 31st December 20x5?
a) $700,000
b) $770,000

c) $350,000
d) $560,000
12. Are the following statements true or false?
•

In a right issue, the rights price will usually be lower
than the market price immediately prior to the right issue

TRUE

FALSE

A right issue of shares is the most expensive way of raising finance.

13. Volga, a limited liability company had the following capital structure:
Ordinary share capital $0.50 each $1,000,000
Share premium
$400,000
Retained earnings
$2,600,000
The company wishes to make a 1 for 2 bonus issue.
What is the company's capital structure after recording this bonus issue?
a) Ordinary share capital $0.50 each
$1,000,000
Share premium
$400,000
Retained earnings
$2,600,000
b) Ordinary share capital $0.50 each
$1,500,000

Share premium
$0
Retained earnings
$2,500,000
c) Ordinary share capital $0.50 each
$1,500,000
Share premium
$400,000
Retained earnings
$2,600,000
14.
a)
b)
c)
d)

What reserve is created or increased when shares are issued at above their nominal value?
Bonus share reserves
Share premium reserves
Revaluation reserve
Retained earnings reserve

15. A company has 50,000 5% irredeemable preference share of $1 each arid 40,000 ordinary shares of $1
each. Final dividends of 5c per ordinary share for the previous year plus the preference dividend have
been paid during the current year.
What are the total dividends for the year to be deducted from retained earnings?
$____________
16. Would the following be a movement in the equity in the statement of financial position?
Movements
YES

NO
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Purchase of non-current assets
Revaluation

17.
A
B
C
D

Which of the following define a right issue?
A share issue for no consideration
A share issue giving the new shareholders the entitlement to enhanced dividend
A issue of share in proportion to profits
An issue of shares to existing shareholders in proportion to their existing shareholding

18. Which of the following are advantages to the owner of a business of operating as an unincorporated
business as opposed to an incorporated business
1 Legal separation of the entity from the owners
2 Unlimited liability
A 1 and 2
B 2 only
C 1 only
D None

IAS & Disclosures
(Chapter 12)
1. According to IAS-1, presentation of financial statements, which TWO of the following items MUST be
presented on the face of the income statements?
1) Finance costs
2) Disposal of investments
3) Tax expense
4) Write down of property, plant and equipment to recoverable amounts
a) 1 and 2
b) 1 and 3
c) 3 and 4
d) 1 and 4
2. Aragon’s reporting date is 31 December 20X5. The financial statements were authorized for issue on 2
June 20X6. Which TWO of the following events after the reporting period, should be adjusted in the
financial statements for the year ended 31 December 20X5?
1) The declaration of an equity dividend of 1c per share on 26 January 20X6 in respect of the year
ended 31 December 20X5.
2) The imposition of significant fine on 16 March 20X6 for health and safety breaches in May 20X5.
3) The bankruptcy of a significant customer on 3 April 20X6, with a balance outstanding at the end of
the reporting period.
4) Impairment value of land and buildings due to ground subsidence which occurred on 3 Feb 20X6.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4
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3. XYZ has a year end of 31 December 20X6 and its financial statements were authorized for issue on 10
February 20X7. On 5 January 20X7 some items of inventory, which had been valued at cost of $ 55,000
were sold for $ 40,000. On 10 January 20X7 a fire in the finished goods warehouse destroyed
inventory which was valued at $ 25,000. According to IAS-10, Events after the reporting period, what is
the decrease in the profit figure for 20X6 as a result of these events?
$____________
4. Which of the following statements regarding events after the reporting period is true?
a) Adjusting events are those events that provide additional evidence of conditions existing at the
reporting date
b) Adjusting events concern conditions which only exist between the reporting date and date of financial
statements are approved by the directors
c) Non-adjusting events must always be disclosed in the notes to the financial statements
d) Non-adjusting events provide additional evidence of conditions existing at the reporting date
5. Are the following events which occurred between the reporting date and the date when the financial
statements are authorized by the directors, adjusting or non-adjusting events?
Adjusting
Non-Adjusting
•
Making a new issue of shares.
•
•

Purchasing a new motor vehicle.
Selling inventory providing evidence that the value has reduced
since the year end due to accident damage arising post year end.

•

Receiving a letter from the government informing them that the business
has been fined $ 10,000 for a pollution incident during the financial year.

6. Which TWO of the following occurring after the reporting date and before the financial statements are
approved by the directors would be considered adjusting events?
1) The sale of inventory at a price less than carrying value due to a crash in the world market prior to
the reporting date.
2) The discovery of an accounting error that occurred after the year end.
3) The declaration and approval of the final dividend for the year end.
4) The settlement one week after the year end of a court case which confirms an amount to be
refunded to a customer, which has been disputed for six months.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4
7. The financial year end of the TQR is 30 April 2007. Are the following events, which were discovered
before the authorization of issue of the final accounts on 31 May 2007, adjusting or non adjusting
events after the reporting periods?
Event
Adjusting Non-Adjusting
•
A fire on 18 May burnt down one of TQR's ware house
causing a significant loss of inventory.
•

A contingent liability previously disclosed in the financial
statement was settled in court on 2 May 2007 TQR has to
make large payment in settlement.

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•

TQR installed a new computer system costing $40,000,000 on 14 May 2007.

•

A customer who owed $23,784 at the yearend has been declared
bankrupt on 22 May 2007 and TQR believes they will receive none
of the outstanding debt.

8. Which of the following are true regarding disclosure of events after the reporting period?
1) Non adjusting events re disclosed if non-disclosure would affect the ability of users to make
proper evaluations and decisions.
2) Any new information received between the end of the reporting period and the financial
statements are authorized for issue relating to conditions existing before the end of the reporting
period, does not need to be disclosed or adjusted.
a) Statement 1 only
b) Statement 1 and Statement 2
c) Neither statement is true
d) Statement 2 only
9. According to IAS-37 Provisions, contingent liabilities and contingent assets, should the following
situations result in the recognition of a provision?
Yes
No
•
A manufacturer gives warranties to its customers. The terms of the warranty
require the company to make good any defects in its products that arise within two
years of the date of sale. Past experience shows that around two percent of sales

each year will result in claims under the warranty.
•
A coal mining company operates in a country where there is no legislation requiring
the company to make good environmental damage. The company causes
environmental damage but has a widely published policy of making good this
damage. It normally adheres to this policy.
10. Are the following statements true or false according to IAS-37 Provision, contingent assets and
contingent liabilities?
True
False
•
A contingent liability should be disclosed by note even if the possibility of an
outflow is remote.
•
A contingent asset should be disclosed by note only if the inflow of benefits is
probable.
9.

a)
b)
c)
d)

According to IAS 37, provisions, contingent liabilities and contingent assets, which TWO of the
following statements are true?
1) Contingent assets are included in the statement of financial position when their receipt is usually
certain.
2) Contingent assets should be disclosed by note if their receipt is possible.
3) Contingent assets are never required to be disclosed in the notes to the accounts.
4) Contingent assets should be disclosed in the notes if their receipt is probable.

1 and 2
2 and 3
3 and 4
1 and 4

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