MCQ PACK

ACCA F3


Objective Test Questions

















1
Topic Questions

Double entry bookkeeping 1 - 4
The trading account 5 - 8
Inventory valuation 9 - 13
Non-current assets and depreciation 14 - 26
Bad and doubtful debts 27 - 31
Accruals and prepayments 32 - 41
Discounts 42 - 44
Books of prime entry and control accounts 45 - 49
Control account reconciliations 50 - 52
VAT 53 - 55
Bank reconciliations 56 - 57
Correction of errors and suspense accounts 58 - 68
Incomplete records 69 - 74
Limited company accounts 75 - 80
Cash flow statements 81 - 83
Interpretation of accounts 84 - 92
Theoretical aspects / Audit 93 - 100



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

GAAP
Relevant IFRS and IAS
Basics of company law that relate to accounts
The 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 ledger
Basic 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.

2
Control Schedule
1
st
2
nd
3
rd
1
st
2
nd
3
rd
1
st
2
nd
3
rd

1 41 81
2 42 82
3 43 83
4 44 84
5 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 95
16 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 78
39 79
40 80


3
1. The double-entry system of bookkeeping normally results in which of the following
balances on the ledger accounts?

Debit balances Credit balances
A Assets and revenues Liabilities, capital and expenses
B Revenues, capital and liabilities Assets and expenses
C Assets, expenses and drawings Liabilities, capital and revenues
D Assets, expenses and capital Liabilities and revenues


2. A credit balance on a ledger account indicates

A an asset or an expense
B a liability or an expense
C an amount owing to the organisation
D 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 drawings
A debit entry will increase payables

B A credit entry will increase a bank overdraft
A debit entry will decrease payables
A credit entry will increase receivables

C A debit entry will increase income
A debit entry will increase receivables
A debit entry will decrease payables

D A debit entry will increase receivables
A credit entry will decrease non-current assets
A credit entry will increase income


4. The main aim of accounting is to

A maintain ledger accounts for every asset and liability
B provide financial information to various user groups
C produce a trial balance
D record every financial transaction individually













4
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 3,492
Discounts 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 85,000
Purchases 58,000
Carriage inwards 3,000
Carriage outwards 2,000
Purchase returns 2,500
Sales returns 4,600

Davids closing inventory at the year end had a value of $6,000. The figure to be
shown 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 period
B Gross profit is the trading profit made by the business for the period
C Gross profit is the net cash received from buying and selling in the period
D 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 includes
free delivery of the radios to Southampton port. She transports them herself to her
warehouse in London and from there delivers the radios free of charge to her
customers. Her cost of sales will include

A purchase price of radios
B purchase price and delivery costs to London
C purchase price and delivery costs to customer
D purchase price and delivery costs to London and to the customer


5
9. Closing inventory includes the following three items:
Cost Net realisable value
$ $
Product A 240 260
Product B 281 360
Product 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 year
end:
Cost Net realisable value
$ $
Printers 5,685 6,145
Scanners 10,000 12,250
Monitors 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 its
inventory items which cost $7,500 has a net realisable value of $8,500?

A An increase of $8,500
B An increase of $1,000
C No effect at all
D 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 by
issues of 8 units.

What is the value of closing inventory?

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











6
13. An organisations inventory at 1 July is 15 units @ $300 each. The following
movements 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 best explains what is meant by capital expenditure?
Expenditure.

A On non-current assets, including repairs and maintenance
B On expensive assets
C relating to the issue of share capital
D 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 and
depreciated by 20% per annum by the reducing balance method. At the beginning of
Year 4 it was sold for $1,200. The result of this was

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


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

What should be the cost of the machine in the companys statement of financial
position?

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


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

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

$


7


18. What is the purpose of charging depreciation in the accounts?

A To comply with the prudence concept
B To allocate the cost of a non-current asset over the accounting periods
expected to benefit from its use
C To ensure that the carrying value in the balance sheet reflects the market
value
D To save up cash to replace the asset


19. The carrying value of a companys non-current assets was $200,000 at 1 February
2006. During the year ended 31 January 2007, the company sold assets for $25,000
on 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 $150,000
B $155,000
C $160,000
D $180,000


20. A car was purchased by a business in May 2006 for:
$
Cost 11,200
Road tax 150
Total 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 reducing
balance method, charging a full years depreciation in the year of purchase and none
in the year of disposal.

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

A $734 loss
B $734 profit
C $520 profit
D $520 loss


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

A an overstatement of profit and an overstatement of non-current assets
B an understatement of profit and an overstatement of non-current assets
C an overstatement of profit and an understatement of non-current assets
D an understatement of profit and an understatement of non-current assets




8
22. A non-current asset register showed a carrying value of $128,680. A non-current
asset 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 as

A a means of spreading the payment for non-current assets over a period of
years
B a decline in the market value of the assets
C 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 the
second year of the machine's use?

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


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

A profit on disposal of $500
B loss on disposal of $620
C profit on disposal of $620
D 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 $300
31 March Acquired machine costing $1,000
1 November Disposed of machine costing $600

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

A $545
B $540
C $510
D $630


9
27. At 31 December 2006, Donald has receivables of $14,750 and an allowance for
doubtful debts of $350. Following a review of Receivables he wishes to write off
debts 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 in
respect of irrecoverable receivables?

$







28. During the year ended 31 December 2006, Darren wrote off bad debts of $5,000. He
also 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 for
the 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 for
the year ended 31 July 2006?

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


30. At 31 December 2006, Milton has a receivables balance of $50,000 and an allowance
for receivables of $800. Following a review of the receivables, Milton wishes to
write 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 $1,650
B $2,450
C $2,500
D $3,450






10
31. During the year ended 31 July 2006, Damien has written off bad debts of $500. At
the 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 for
the year ended 31 July 2006?

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


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

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


33. The electricity account for the year ended 30 April 2006 was as follows:

Electricity accrued at 1 May 2005 250
Payments made during the year in relation to:
Quarter ending 30 June 2005 400
Quarter ending 30 September 2005 350
Quarter 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 ended
30 April 2006 30 April 2006
$ $
A Nil 1,375
B 150 1,525
C 300 1,675
D 450 1,825


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

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

A $1,050
B $950
C $1,350
D $1,300



11
35. A business made the following payments for rent on the first day of the period the
payment 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 balance
sheet entry in respect of rent for the year ended 31 July 2006?

Income statement Balance sheet

A $11,333 $1,000 prepayment
B $11,333 $1,000 accrual
C $11,500 $2,000 prepayment
D $11,500 $2,000 accrual


36. Tony had estimated an accrual of $240 in respect of light and heat for the quarter
ended 31 December 2005. On 29 January 2006 he paid $250 for the actual invoice
received 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 year
ended 31 December 2006?

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






37. Carla cannot understand why her business had made a loss during the financial year
and 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 year
B Prepayments were higher at the end of this year
C Receivables took longer to pay this year than last year
D Some non-current assets were sold during the year



12
38. An organisations year end is 30 September. On 1 January 2006 the organisation
took out a loan of $100,000 with annual interest of 12%. The interest is payable in
equal 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 loan
interest?

Income statement Balance sheet
A $12,000 $3,000
B $9,000 $3,000
C $9,000 Nil
D $6,000 $3,000


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

A materiality
B accruals
C consistency
D 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 a
future period.
C Income that relates to the current accounting period and has been received in
a prior period.
D Income that relates to a future accounting period and has been received in the
current accounting period.


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

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

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








13
42. A company received an invoice from ABC for 40 units at $10 each, less 25% trade
discount. It paid this invoice a week later minus a cash discount of 2%. Which of the
following journal entries correctly records the effect of the whole transaction, in the
records of the company?
Debit Credit
$ $
A ABC 300
Purchases 300
Cash 292
Discount allowed 8
ABC 300

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

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

D ABC 400
Purchases 400
Cash 294
Discount 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 account
and to credit the suppliers account with

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


44. A business had a balance at the bank of $2,500 at the start of the month. During the
following 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 invoice
for $200, subject to cash discount of 5%.

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

$





14
45. A book of prime entry is one in which:

A The rules of double entry bookkeeping do not apply
B Ledger accounts are maintained
C Subsidiary records are kept
D Transactions are entered prior to being recorded in the ledger accounts


46. Which is the odd one out?

A The sales returns day book
B The journal
C Bank statements
D 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 inwards
B Dr Returns inwards
Cr Sales ledger control account
C Dr Returns inwards
Cr Purchase ledger control account
D Dr Returns outwards
Cr Sales ledger control account


48. Which one of the following is a book of prime entry and part of the double-entry
system?

A The journal
B The petty cash book
C The sales day book
D The purchase ledger


49. On 1 January 2007 the balance of receivables was $22,000. Calculate the closing
receivables at 31 January 2007 after taking the following into consideration:
$
Sales 120,000
Bank receipts 115,000
Discount allowed 1,000
Discount received 3,000
Dishonoured cheque 9,000
Contra Set off 5,000

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




15
50. A payables ledger control account had a closing balance of $18,700. It contained a
contra to the receivables ledger of $600, but this had been entered on the wrong side
of the control account.

The correct balance on the control account should be

A $17,500 credit
B $18,100 credit
C $18,100 debit
D $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 from
receivables 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 credit
B $35,675 debit and $2,500 credit
C $36,725 debit and $2,000 credit
D $36,725 debit and $1,000 credit


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

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


53. All the sales of Gail, a retailer, were made at a price inclusive of VAT at the standard
rate of 17.5% and all purchases and expenses bore VAT at the standard rate. For the
three 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 $1,260
B $1,400
C $1,594
D $1,873


54. The sales account is

A credited with the total of sales made, including VAT
B credited with the total of sales made, excluding VAT
C debited with the total of sales made, including VAT
D debited with the total of sales made, excluding VAT




16
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 subject
to VAT at 17.5%, would be

A $962.50 debit
B $962.50 credit
C $1,682.10 debit
D $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/d
B $5,020 o/d
C $2,360 o/d
D $3,780 o/d


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

The correct bank balance should be

A $5,100 overdrawn
B $6,000 overdrawn
C $6,250 overdrawn
D $6,450 overdrawn


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

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




17
60. Where a transaction is credited to the correct ledger account, but debited incorrectly
to the repairs and renewals account instead of to the plant and equipment account, the
error is known as an error of

A omission
B commission
C principle
D original entry


61. An error of commission is one where

A a transaction has not been recorded
B 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 that
account 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 if

A plant and equipment purchased was credited to a non-current assets account
B plant and equipment purchased was debited to the purchases account
C plant and equipment purchased was debited to the equipment account
D 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 following
errors 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 $210
B credit $210
C debit $160
D credit $160


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

A an error of commission
B an error of original entry
C a compensating error
D an error of principle




18
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 been
recorded 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 $11,355
B $11,755
C $12,155
D $12,555


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

A cost of sales
B gross profit
C current assets
D working capital


67. A trial balance has been extracted and a suspense account opened. One error relates
to 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 $400
Suspense $400

B Suspense $400
Discount received $400

C Discount received $800
Suspense $800

D Suspense $800
Discount received $800


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

A principle
B original entry
C omission
D commission


19
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 $4,230
Inventory $1,290 $1,750

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

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

A $24,525
B $25,152
C $26,200
D $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 the
end of his first years trading he had earned a profit of $5,000 and had the following
assets and liabilities:

Non-current assets $20,000
Current assets $15,000
Current 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 the
period the owner introduced additional equity of $4,000 and withdrew $8,000 for her
own use.

Her profit or loss during the period was

A $9,500 loss
B $1,500 loss
C $7,500 profit
D $17,500 profit



20
74. From the following information, calculate the value of purchases:

$
Opening payables 142,600
Cash paid 542,300
Discounts received 13,200
Goods returned 27,500
Closing payables 137,800

$


75. What is a companys authorised share capital?

A The nominal value of shares issued
B The nominal value of shares issued and fully paid
C The maximum number of shares a company can issue
D 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 issue
price of $2.50 per share is:
$ $
A Dr Bank 250,000
Cr Share capital 100,000
Cr Share premium 150,000

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

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

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


77. A company has the following share capital:
Authorised Issued
$000s $000s
25p ordinary shares 8,000 4,000
6% 50c preference shares 2,000 1,000

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

What is the total of dividends payable for the year?

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


21
78. A company has in issue 100,000 5% preference shares of $1 each and 400,000
ordinary shares with a par value of 25c each. An interim dividend of 8c per ordinary
share 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. The
balance on 31 December 2006 was $110,000 credit. The paid dividends for the year
amounted to $64,000.

Profit for the year ended 31 December 2006 was

$



80. Under normal circumstances the auditor of a limited company is appointed by

A the company itself
B the directors of the company
C the shareholders
D the employees


81. Drake Ltd had proposed dividends of $100,000 at 31 December 2005 and $120,000 at
31 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 December
2006 as Dividends paid?

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

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

2005 2006
$ $
10% Loan stock 150,000 130,000
Share capital 100,000 120,000
Share premium 35,000 45,000

How much will appear in the cash flow statement for the year ended 31 December
2006 under the heading Cash flow from financing activities?

A $nil
B $10,000 inflow
C $30,000 inflow
D $40,000 inflow


22
83. Roach plc has the following balances in its balance sheets as at 31 January 2006 and
2007:
2006 2007
$ $
Cash in hand 200 250
Bank overdraft 700 1,000

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

A $50 increase
B $250 decrease
C $350 increase
D $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 40
Share premium account 10
Retained earnings 10
60
5% Loan stock 2009 60
120
Current liabilities 36
156

If the profit from operations for the year ended 31 December 2006 was $15,000, what
is 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 20
Issued share capital 20 20
Reserves 8 10

At 31 December 2006 the gearing ratio has:

A Remained the same
B Risen, resulting in lower risk for shareholders
C Risen, resulting in greater risk for shareholders
D Fallen, resulting in greater risk for shareholders





23
86. A business operates on a gross profit margin of 33
1
/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 profit
B Writing off a bad debt
C Paying a supplier in cash
D Increasing the bank overdraft to purchase a non-current asset


88. From the following information regarding the year to 31 December 2006, what is the
payables payment period?
$
Opening inventory 6,000
Closing inventory 3,800
Cost of sales 32,500
Payables at 31 December 2006 4,800

A 41 days
B 48 days
C 54 days
D 58 days


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

The rate of inventory turnover is

A 7.27 times
B 7.45 times
C 8 times
D 10 times


24

90. A company has the following assets and liabilities at 31 January 2007:
$
Inventory 5,320
Receivables 10,420
Cash and bank 3,200
Payables 7,221

What are the current and quick ratios?

Current ratio Quick ratio
A 2.62 1.89
B 2.62 3.84
C 3.86 2.56
D 4.62 3.32


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

A It includes, in current assets, inventory which is less quickly realisable than
other current assets
B It includes, as a current liability, the bank overdraft despite the fact that
effectively (though not legally) this is not a current liability
C It ignores the timing of realisation or settlement of current items
D 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. Closing
inventory is $26,000.

What is the inventory turnover?

A 6.1 times
B 10 times
C 7 times
D 10.8 times


93. Who issues International Financial Reporting Standards?

A The International Auditing Practices Board
B The Securities and Exchange Commission
C The International Accounting Standards Board
D The International Monetary Fund


94. Which of the following is not an accounting concept?

A Prudence
B Consistency
C Depreciation
D Accruals
E Er wel!!


25

95. When preparing financial statements in periods of inflation, directors

A Must reduce asset values
B Must increase asset values
C Must reduce dividends
D 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, the
accounting concept to be considered is the

A prudence concept
B capitalisation concept
C money measurement concept
D separate entity concept

98. A true and fair view is one which

A presents financial statements which are free from material error or bias
B occurs when the accounts have been audited
C shows the accounts of an organisation in an understandable format
D 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 of

A valuing all assets at their cost to the business
B recording goods at their cost price, even if they are worth less than that cost
C understating profits and overstating asset values
D overstating profits and understating asset values


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

A going concern concept
B prudence concept
C realisation concept
D historical cost convention


26
SOLUTIONS

1. C
2. D
3. D
4. B
5. $
Sales 73,716
Less: Returns (5,863)
Net sales 67,853

6. $
Opening Inventory 7,500
Purchases 58,000
Carriage inwards 3,000
Purchase returns (2,500)
Closing inventory (6,000)
Cost of sales 60,000

7. B
8. B
9. 240 + 281 + 157 = $678

10. $
Printers 5,685
Scanners 10,000
Monitors 7,345
23,030

11. C
12. C
20 x $30 = $600

13. (10 x $350) + (2 x $300) = $4,100

14. D
15. B
$
Proceeds of sale 1,200.00
NBV at disposal $2,400 x (80%)
3
(1,228.80)
Loss on disposal (28.80)

16. B
100,000 + 7,000 = $107,000

17.
$
Cost 15,000
Year 1 Depn 40% x 15,000 (6,000)
9,000
Year 2 Depn 40% x 9,000 (3,600)

18. B



27
19. A
Non-current assets - NBV
Bal b/d 200,000 Disposals 30,000
(25,000 + 5,000)
Depreciation 20,000
Bal c/d 150,000
200,000 200,000
Bal b/d 150,000

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

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

21. A
22. NBV of disposed asset = Proceeds $7,000 + Loss $2,350 = $9,350
Register should show $128,680 - $9,350 = $119,330

23. C
24. C
Depreciation, Year 1 = $10,000 x 10% = $1,000
Depreciation, Year 2 = 10,000 1,000 = $9,000 x 10% = $900
Total provision after two years = $1,000 + $900 = $1,900

25. B
NBV at disposal $10,000 x (80%)
3
= $5,120
Proceeds NBV = 4,500 - 5,120 = $620 loss

26. B
$
Assets held all year (5,000300600)x10% 410
Disposals:
300 x 10% x 2/12 5
600 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 400
Bal c/f 14,350
14,750 14,750
Bal b/f 14,350
$
Allowance brought forward 350
Allowance required at year end (4% x 14,350) 574
Increase in allowance 224

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

624


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

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

30. B
5% x (50,000 1,000) = $2,450

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

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

33. B
Electricity
Bank 400 Bal b/f 250
Bank 350
Bank 425 P & L a/c ( ) 1,525
Bank 450
Bal c/f (450/3) 150
1,775 1,775
Bal b/f 150

34. A
Light and Heat
Bal b/f 300
Bank 1,000 P&L a/c ( ) 1,050
Bal c/f 350
1,350 1,350
Bal b/f 350

35. A Profit and loss charge: $
1/6 x $5,000 833
6/6 x $5,500 5,500
5/6 x $6,000 5,000
11,333

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

36. C
Light and Heat
Bank 250 Bal b/f 240
Bank 260
Bank 220
Bank 210 P&L a/c ( ) 930
Bal c/f 230
1,170 1,170
Bal b/f 230

37. D



29
38. B
IS charge (9 months) 12% x 100,000 x 9/12 = $9,000
Accrual (3 months interest) $12,000 x 3/12 = $3,000

39. B
40. B
41. 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. C
43. B
44.
Bank
Bal b/f 2,500
Debtor (200 x 95%) 190 Creditor (1,000 x 80%
= 800 x 90%)

720
Bal c/f 1,970
2,690 2,690
Bal b/f 1,970

45. D
46. C
47. B
48. B
49. A
Receivables
Bal b/f 22,000 Bank 115,000
Sales 120,000 Discounts allowed 1,000
Dishonoured 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. C
Sales ledger control account
Bal b/f 32,750 Bal b/f 1,275
Sales 125,000 Bank 122,500
Refunds 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



30
53. A
VAT 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% )

140

Bal c/f 1,260
3,500 3,500
Bal b/f 1,260

54. B
55. 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/d
Less: Unpresented cheques (1,420)
Balance per cash book (3,600 + 180) (3,780) o/d

57. D
Cash book (Bank a/c)
Bal b/f 5,675
Standing order 125 Dishonoured cheque
(450 x 2)

900
Bal c/f 6,450
6,575 6,575
Bal b/f 6,450

58. C
59. A
60. C
61. C
62. B
63. A
Suspense
Bal b/f ( ) 210
Interest receivable 70 Gas (420-240) 180
Discounts (50 x 2) 100
280 280

64. D
65. B $
Draft profit for the period 12,355
Six months rent (800 x 6/12) (400)
Closing inventory adjustment (1,000-800) (200)
11,755

66. C
67. D


31
68. A
69. $70,000 x 40/140 = $20,000

70. C
Payables
Bal b/f 3,560
Bank 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) 26,200 100
Cost of sales:
Opening Inventory 1,290
Purchases 21,420
Less: Closing inventory (1,750)
20,960 (80)
Gross profit 5,240 20

71. B
%
Sales 115
Cost of Sales 100
Gross profit 15

15/115 = 13.04%

72. Equity introduced = Closing Equity Opening Equity Profit + Drawings
= (20,000 + 15,000 8,000) 10,000 5,000 + 2,000
= $14,000

73. B
Profit = Closing Equity Opening Equity + Drawings Equity introduced
= 4,500 - 10,000 + 8,000 4,000
i.e.Loss for year = ($1,500)

74.
Payables

Bank

542,300
Bal b/f 142,600
Discounts received 13,200
Returns outwards 27,500 Purchases ( ) 578,200
Bal c/f 137,800
720,800 720,800
Bal b/f 137,800

75. C
76. B
77. B $
Preference dividends (6% x $1,000,000) 60,000
Ordinary dividends (2p x 16,000,000 shares) 320,000
Total for year 380,000



32
78. $
Preference dividends ($100,000 x 5%) 5,000
Ordinary dividends (8p + 12p = 20p x 400,000) 80,000
85,000

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

80. C
81. 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 50
Increase in overdraft (300)
Net decrease (250)

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

85. C
Gearing = Debt / Total capital employed
2001 = 20 / 50 = 40%
2002 = 28 / 56 = 50%

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

Net profit percentage = 120 / 2400 = 5%

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

89. B
Inventory turnover =
Cost o f sa l es
A ve r a ge st oc k


Cost of sales: (80,000 + 12,000 10,000) = $82,000
Average inventory: (12,000 + 10,000) 2 = $11,000

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



33
90. A
Current ratio = (5,320 + 10,420 + 3,200) / 7,221 = 2.62
Quick ratio = (10,420 + 3,200) / 7,221 = 1.89

91. A
92. A
Inventory turnover = Cost of sales / Average inventory

Cost of sales: (22,000 + 150,000 26,000) = $146,000
Average inventory: (22,000 + 26,000) 2 = $24,000

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

93. C
94. C
95. D
96. C
97. D
98. A
99. D
100. D