ACCA Fundamentals Level Paper F3 Financial Accounting (UK & IRL) Course Test 1

Question Paper Time allowed 1 hour

ALL TWENTY FIVE questions are compulsory and MUST be attempted

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

ACF3CT09(J) UK & IRL

AC19-F3(1)UK & IRL

Test 1

ALL TWENTY FIVE questions are compulsory and MUST be attempted

Please write your answer on lined paper with one answer per line
1 According to SSAP 9, stock is valued under which basis? A B 2 Historic cost Lower of cost and net realisable value (1 mark)

Which of the following is the best description of the function of the books of prime entry in a standard double entry bookkeeping system? A B C D Books of prime entry record amounts owed to/from individual suppliers and customers Books of prime entry are used to list similar transactions with the totals being posted to the nominal ledger Books of prime entry are used to record cash transactions Books of prime entry are used to summarise credit transactions (2 marks)

A debit balance of 3,000 brought down on A Co's account in B Co's books means that A B C D A Co is owed 3,000 by B Co B Co has sold 3,000 of goods to A Co B Co is owed 3,000 by A Co A Co has sold 3,000 of goods to B Co

(2 marks)

Which of the following statements is incorrect? A B C D If the trial balance (list of account balances) does not balance an error must have been made The opening stock balance is included in the trial balance Proprietor's drawings are shown on the trial balance The closing stock balance is included in the trial balance (2 marks)

A business sells a fixed asset for 55,000. The asset originally cost 100,000 and accumulated depreciation is 45,000. What is the profit or loss on disposal? A B C 10,000 profit No gain or loss 10,000 loss

(1 mark)

The entries required to correctly reflect stock and cost of sales in the financial accounts for the first year of trading are: A B C D Debit stock (B/S) Debit trading a/c Debit trading a/c Debit stock (B/S) Debit stock (B/S) Debit stock (B/S) - closing stock - opening stock - closing stock - opening stock - closing stock - closing stock Credit trading a/c Credit stock (B/S) Credit stock (B/S) Credit trading a/c Credit creditors Credit trading a/c - closing stock - opening stock - closing stock - opening stock - closing stock - closing stock (2 marks)

Test 1

Octopus bought a car on 1 January 20X0 for 20,000 and decided to depreciate it at 30% per annum on a reducing balance basis. It was disposed of during the year ended 31 December 20X2 for 12,000. Octopus does not charge depreciation in the year of disposal. What is the net effect on the profit and loss account for the year ended 31 December 20X2? A B C D Increase of 2,200 Decease of 2,200 Increase of 12,000 Decrease of 12,000

(2 marks)

Demolition Co purchases a machine for 15,000. After incurring transportation costs of 1,300 and spending 2,500 on installing the machine the company are disappointed when it breaks down and costs 600 to repair. Depreciation is charged at 10% per annum with a full year's charge in the year of acquisition. What is the net book value of the machine that will be shown in Demolition's balance sheet at the year end? (2 marks)

Boomerang Co had 200 units in stock at 30 November 20X1 valued at 800. During December it made the following purchases and sales. 2/12 5/12 12/12 15/12 21/12 28/12 Purchased Sold Purchased Purchased Sold Sold 1,000 700 800 300 400 500 @ @ @ @ @ @ 5 each 7.50 each 6.20 each 6.60 each 8.00 each 8.20 each

Which of the following combinations is correct for closing stock valuation? A B C D 10 FIFO 4,460 3,220 3,220 4,460 AVCO 4,094 4,094 2,740 2,740

(2 marks)

Financial Reporting Standards are set by which body? A B ASB UITF (1 mark)

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What transaction is represented by the entries: debit rent, credit landlord? A B C D The receipt of rental income by the business The issue of an invoice for rent to a tenant The receipt of a bill for rent payable by the business The payment of rent by the business

(2 marks)

Test 1

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Which of the following conditions would preclude any part of the development expenditure to which it relates from being capitalised? A B C The development is incomplete The benefits from the completed development are expected to be less than its cost Funds are unlikely to be available to complete the development. (1 mark)

13

Cataract Co purchases a machine for which the supplier's list price is 28,000. Cataract pays 23,000 in cash and trades in an old machine which has a net book value of 8,000. It is the company's policy to depreciate such machines at the rate of 10% per annum on cost. What is the net book value of the machine after one year? (2 marks)

14

A company buys a machine on 31 August 20X0 for 22,000. It has an expected life of seven years and an estimated residual value of 1,000. On 30 June 20X4 the machine is disposed of for 9,000. The company's year end is 31 December. Its accounting policy is to charge depreciation using the straight line method with a proportionate charge in the years of acquisition and disposal. What is the profit or loss on disposal of the machine which will appear in the profit and loss account for the year ended 31 December 20X4? (2 marks)

15

The following information relates to Camberwell's year-end stock of finished goods. Direct costs of materials and labour 2,470 9,360 1,450 13,280 Production overheads incurred 2,100 2,730 850 5,680 Expected selling and distribution overheads 480 150 190 820 Expected selling price 5,800 12,040 2,560 20,400

Stock category 1 Stock category 2 Stock category 3

What amount should finished goods stock be stated in the company's balance sheet? (2 marks) 16 In a period of rapid inflation, which method of valuing stock issues will give the lower gross profit figure? A B 17 FIFO AVCO (1 mark)

Which of the following best explains the imprest system of petty cash control? A B C D Each month an equal amount of cash is transferred into petty cash The exact amount of expenditure is reimbursed at intervals to maintain a fixed float Petty cash must be kept under lock and key The petty cash total must never fall below the imprest amount (2 marks)

18

In double-entry bookkeeping, which of the following statements is true? A B C Credit entries decrease liabilities and increase income Debit entries decrease income and increase assets Credit entries decrease expenses and increase assets

(1 mark)

Test 1

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Which of the following are books of prime entry? (1) (2) (3) (4) A B C D Petty cash book Journal book Sales ledger Fixed asset register (1) only (1) and (2) and (4) (1) and (2) All of the above

(2 marks)

20

The accounting equation can be rewritten as: A B C D Assets + profits drawings liabilities = closing capital Assets liabilities drawings = opening capital + profit Opening capital + profit drawings liabilities = assets Assets liabilities opening capital + drawings = profit

(2 marks)

21

Which of the following statements about intangible assets is correct? A B C According to SSAP 13, research costs may be capitalised According to SSAP 13, development costs can be capitalised if certain conditions are met Intangible assets include plant and machinery (1 mark)

22

Pauline's hairdressing business has opening net assets at 1.1.20X1 of 21,000. Her closing net assets at 31.12.20X1 are 36,000. During the year Pauline paid herself wages of 25,000 and paid into the business 12,000 left to her in her granny's will. How much profit did she make in 20X1? (2 marks)

23

The ASB has the power to enforce compliance with SSAPs/ FRSs. Is this statement? A B True False (1 mark)

24

Bill, a sole trader, set up business on 1 October 20X0 with 30,000 of his own money. During the year to 30 September 20X1 he won 50,000 on the lottery and paid 30,000 of this into his business. He took cash drawings of 5,000 during the year and at 30 September 20X1 the net assets of the business totalled 59,000. What was the profit or loss of the business for the year ended 30 September 20X1? A B C D 4,000 profit 6,000 profit 16,000 loss 6,000 loss

(2 marks)

25

The ASB's Statement of Principles gives five qualitative characteristics which make financial information reliable. These five characteristics are: A B C D Prudence, consistency, understandability, faithful representation, substance over form Accruals basis, going concern concept, consistency, prudence, true and fair view Faithful representation, neutrality, substance over form, completeness, consistency Substance over form, faithful representation, neutrality, prudence, completeness (2 marks)

End of Question Paper

6 Test 1

ACCA Fundamentals Level Paper F3 Financial Accounting (UK & IRL) Course Test 1

Suggested solutions and guidance

ACF3CT09(J) UK & IRL

AC19-F3(1)UK & IRL

Test 1

Answers
1 2 3 4 5 6 7 B B C D B D A 31.12.X0 NBV 31.12.X1 NBV Proceeds NBV Profit 8 16,920 Cost (15,000 + 1,300 + 2,500) Depreciation (10% 18,800) NBV 9 A FIFO 400 @ 6.20 300 @ 6.60 200 1,000 1,200 (700) 500 800 300 1,600 (900) 700 @ 4 @ 5 @ 4.83 2,480 1,980 12,000 (9,800) 2,200 18,800 (1,880) 16,920 The balance represents the outstanding amount ie sales less cash received. Closing stock is an adjustment to the initial trial balance. Net book value is 55,000 (100,000 45,000). So the proceeds are the same as NBV and so there is no gain or loss. As it is the first year there will be no opening stock. 14,000 9,800

4,460 AVCO 800 5,000 5,800 (3,381) 2,419 4,960 1,980 9,359 (5,265) 4,094

@ 6.20 @ 6.60 @ 5.85

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A C Options A and B are ruled out because they relate to rental income, which would be a credit (not a debit) in a rent account. Option D is ruled out because there is no entry made in the bank account and therefore no payment can yet have been made.

Test 1

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A B C

is clearly nonsense. You capitalise costs during the development and therefore the development is incomplete is not so clear. It covers the situation where you can capitalise some of the costs, up to the amount of future revenue but not all. The rest will be written off. the project will not be completed. No income is therefore likely. On grounds of prudence the costs will be written off.

13

25,200 The cost of the machine is 28,000. Cataract has paid 23,000 in cash and has evidently agreed a trade-in value of 5,000 for the old machine. (The asset's NBV is irrelevant.) After one year, the net book value of the new machine is 90% of 28,000 = 25,200.

14

1,500 loss on disposal The depreciable amount is (22,000 1,000) = 21,000. This is to be written off over seven years (or 84 months). The monthly depreciation charge is therefore 250. Cost of asset 22,000 Accumulated depreciation (46 months 250) 11,500 Net book value at date of disposal 10,500 Proceeds on disposal 9,000 Loss on disposal 1,500

15

18,760 In this example, cost includes both direct materials/labour and also production overheads. NRV is expected selling price less expected selling costs. Lower of Cost NRV cost/NRV Category 1 4,570 5,320 4,570 Category 2 12,090 11,890 11,890 Category 3 2,300 2,370 2,300 18,760 B B B C D B 28,000 36,000 21,000 12,000 + 25,000 B A Net assets 1.10.X0 Capital introduced Drawings profit The ASB has no power of enforcement, but the FRRP does have. 30,000 30,000 (5,000) 4,000 59,000 Remember: assets liabilities = closing capital If prices are rising; the closing stock will be lower if AVCO is used. This will produce a higher cost of sales figure and so a lower gross profit. The fixed float is known as the imprest amount. Debit entries decrease income and increase assets.

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D 4 Test 1