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FAFN - Revision 1

1. Shiraz commenced business on 1 November 2005, paying 2000 cash into a business bank account. During the next month the following transactions took place:. Date: Transactions: Amount: 2 November 2003 Purchased goods on credit 1000 1 to 30 November 2003 Cash sales 1400 17 November 2003 Drawings 600 30 November 2003 Payments to creditors 400 The balance on the bank account the end of the month is: a) 2400 credit c) 1400 Credit b) 2400 debit d) 1400 debit

2. The subscriptions Receivable account of a club commenced the year with subscriptions in arrears of 350 and subscriptions in advance of 575. During the year 71200 was received in subscriptions, including 320 of the arrears, and 700 for next years subscriptions. Subscriptions still owing at the end of the year amounted to 210. Calculate the amount to be taken to the Income and Expenditure for the year 3. Diniths company which is VAT registered, has sales for the period of 56900 (excluding VAT) and purchases (including VAT) for the period of 29375. The balance on the VAT account, assuming all items are subject to VAT at 17.5%, is: a) 4816.88 credit c) 5582.50 credit b) 4816.88debit d) 5582.50 debit

4. Zacky a sole trader had opening capital of 36000 and closing capital of 29000. During the period, Stephanie introduced capital of 8000 and withdrew 6000 for her own use. Her profit or loss ding the period was: a) 7000 loss c) 3000 loss b) 3000 profit d) 9000 loss

5. At the beginning of the year, a firms fixed asset register showed a total net book value for fixed assets of 172000. The nominal ledger showed fixed assets at cost of 240000 and provision for depreciation of 78000. The disposal of a fixed asset for 20000, at a profit of 4000, had not been accounted for in the fixed asset register. After correcting for this, the net book value shown in the ledger accounts would be a) b) c) d) 14000 higher than that in the fixed asset register 10000 higher than that in the fixed asset register 26000 lower than that in the fixed asset register 6000 higher than that in the fixed asset register

6. The purpose of charging the profit and loss account with depreciation on fixed assets is: a) To set aside monies to replace the asset when required b) To ensure that the profit is not understated c) To reduce the figure shown in the balance sheet to the true value of the fixed assets d) To allocate the cost of the assets to the accounting periods in which they are used to earn profits. 7. Which of the following would result in an increase in the cash balance for the period? (i) A reduction in stock (ii) A reduction in debtors (iii) A reduction in creditors (iv) A gain on disposal of fixed assets a) (iii) and (iv) only c) (i), (ii) and (iii) only b) (i) and (ii) only d) (ii) and (iii) only

8. The accumulated fund is equal to: a) b) c) d) The bank balances of an organisation The excess of receipts over payments in a not-for-profit organisation Retained profits in a limited company The book value of net assets in a not-for-profit organisation

9. Mohammed Shezard Ltd has an opening capital balance at 1 January 2001 of 14640 credit. During the period there was an increase in assets of 6820 and an increase in liabilities of 5400. The balance on the capital account at the end of the period is: a) 16060 credit c) 1420 debit b) 13220 credit d) 1420 credit.

10. Where a transaction is credited to the correct ledger account but debited to the purchases account instead of the fixed asset account, the error is known as an error of: a) Omission b) Original entry c) Commission d) Principle

11. Published accounts must include the following statements: a) b) c) d) Profit and Loss account, Balance Sheet and Cash Flow Statement Profit and Loss account and Balance Sheet Manufacturing account, Profit and Loss account, Balance Sheet and Cash Flow Statement Trading account, Profit and Loss account and Balance Sheet

12. The trial Balance shows the debit total as 600 less then the credit total. This could be due to: a) b) c) d) Under casting the purchases daybook by 600 Under casting the sales daybook by 600 Entering 300 received from a debtor on the credit side of the debtors account. Entering 300 received from a debtor on the debit side of the debtors account

13. Which of the following balances normally result from the double-entry system of book-keeping? Option: A B C D a) Option A Debit Balances Assets, Capital Assets, Expenses Expenses, Liabilities Assets, Revenue b) Option B Credit Balances Liabilities, Revenue, Expenses Liabilities, Revenue, Capital Assets, Revenue, Capital Expenses, Liabilities, Capital c) Option C d) Option D

14. Which of the following are possible reasons for a credit balance on the sales ledger account of a customer? (i) A contra entry between the sale ledger and the purchases ledger has been carried out for an amount in excess of the sales ledger balance (ii) A customer has returned goods subsequent to making payment for them (iii) A credit note has been issued in error (iv) A bad debt written off has subsequently been paid a) (i) and (iii) only c) All of the above (i), (ii), (iii) and (iv) b) (ii), (iii) and (iv) d) (i) and (ii) only

15. At the beginning of the year, the balance on the provision for doubtful debts account was 15000, representing 4% of debtors. At the end of he year, debtors amounted to 200000, but it was decided that the provision should be increased to 7% of debtors. Which of the following set of figures would result: Option Profit and Loss Net Debtors on Balance on Account Entry Balance Sheet Provision Account A 1000 debit 186000 14000 credit B 1000 debit 186000 14000 debit C 1000 credit 186000 14000 credit D 14000 debit 171000 29000 credit a) Option A b) Option B c) Option C d) Option D

16. Prathibaniss organisation uses the Weighted Average Cost method of valuing stocks. During a particular month, the following stock details were recorded: Data: Opening Balance 1600 Units valued at 3 each 6th Purchase of 2000 units at 3.40 each 9th Sale of 1800 units 18th Purchase of 1000 units at 3.50 each 24th Sale of 500 units What is the value of the stock at the end of the month? 17. The correct ledger entry for payment of net wages to employees is: Option Debit Credit A Wages Expense Bank B Bank Wages Expense C Wages Creditor Bank D Bank Wages Creditor a) Option A b) Option B c) Option C

d) Option D

18. Mihindras club receives subscriptions during 2004 of 23400. Of these 1200 related to subscriptions in respect of 2003 and 400 related to subscriptions in advance for 2005. The accounts for 2003 included an accrual of 1500 for subscriptions in arrears; the balance of 300 which has still not been received, should be written off. Calculate the figure for subscriptions in the income an expenditure account for 2004 19. An error of commission occurs where: a) A transaction has been recorded using the wrong amount b) A transaction has not been recorded c) One side of a transaction has been recorded in the wrong account, and that account is of the same class to the correct account, d) The debit and credit entries of a transaction have been reversed. 20. Niruban Consulting has the following assets and liabilities at 31 December. Data: Debtors 7000 Creditors 5300 Plant and Machinery 31800 Bank Overdraft 1900 Stock 8450 What was the capital balance at 31 December?

21. Lloyds company operates a FIFO system of stock valuation. Opening stock at the beginning of the period was 200 units @ 2.80 each. During the period the following movements of stock were recorded. Date: 8 January 20 January 7 February 26 February 5 March Movement Purchases Sales Sales Purchases Sales Quantity 300 units @ 2.90 each 250 units 200 units 300 units @ 2.75 each 220 units

The value of the closing stock at the end of the period and amount charged to the profit and loss account were: a) Closing stock 357.50 Profit and Loss 1897.50 b) Closing stock 360.00 Profit and Loss 1895.00 c) Closing stock 360.00 Profit and Loss 2255.00 d) Closing stock 360.00 Profit and Loss 1695.00 22. The draft accounts of Mahesh and Rasitha Ltd for the year ended 31 August 2004 showed a net profit of 24000. During the audit, the following errors and omissions were discovered. (i) Items valued at 2250 had been completely omitted from the closing stock figure. (ii) Accrual of electricity bill for 350 and insurance prepayment of 800 had been omitted. (iii) Equipment costing 40000, acquired on 1 September 2003, had been debited to the purchases account. (Yugath and Rasitha Ltd depreciate equipment at 20% on the straight-line basis). Due to materiality, Yugath and Rasitha, the directors of Yugath and Rasitha Ltd agree to adjust the accounts accordingly. Incorporating the above adjustments, you are required to calculate the revised net profit? 23. At the end of the year, the fixed asset register showed assets with a net book value of 170300. The fixed asset accounts in the nominal ledger showed a net book value of 150300. The difference could be due to a disposed asset not having being removed from the fixed asset register, which had:

a) b) c) d)

Disposal proceeds of 10000 and a net book value of 10000 Disposal proceeds of 25000 and a loss on disposal of 5000 Disposal proceeds of 25000 and a profit on disposal of 5000 Disposal proceeds of 25000 and a net book value of 5000

24. Nuwan Ltd, a public limited company declares a 15% final dividend. The nominal value of the shares is 50p and the shares are currently trading, in the stock market, at the price of 3. Udara, A shareholder purchased 2500 shares at a price of 1.25 per share. Calculate the dividend to be received by Udara. 25. A decrease in the provision for doubtful debts would result in: a) c) An increase in working capital A decrease in working capital b) A decreases in net profit d) An increase in liabilities

26. Which of the following transactions will result in an increase in assets? (i) Purchase of plant and machinery on credit (ii) Sale of goods on credit (iii) Payment to suppliers in cash (iv) Receipt of cash from debtors a) (i) and (ii) only c) (i) and (iv) only b) (i) and (iii) only d) (i), (ii) and (iv) only

27. Assess the following two statements as being either true or false? Statement 1 Evidence shows that the main economic benefit of owning shares in a typical UK limited company comes from dividends. Statement 2 A limited company is legally a group of individuals who join together to form a business. Option: Statement 1 Statement 2 A False True B True False C True True D False False a) Option A b) Option B c) Option C d) Option D

28. The following totals appear in Akitha Ltds daybooks for the month of January 2002. VAT is recoverable on all purchases which were in respect of goods for resale. Data: Sales daybook Purchases daybook Returns inward daybook Returns outward daybook Goods excluding VAT () 640000 440000 28000 14000 Vat () 112000 77000 4900 2450

Opening stock was 42000 and closing stock was 45000 You are required to calculate the gross profit for the period. 29. Nadeeshas company has profit before tax and dividends of 920000. The share capital consists of 1500000 ordinary shares of 1 each and 200000 10% preference shares of 50p each. A 10p divided was declared on ordinary shares. Assuming there was no tax liability for the period, what was the profit retained? 30. At the beginning of the month, Anuththaras firm had opening stocks of 40 units of a product, valued at 6.00 each. During the month, it had stock movements., occurring on the following dates: Date: 10th 17th 22nd Stock Movement Sold 18 items for 9.00 each Bought 25 items for 7.00 Sold 26 items for 8.00 each

Using the FIFO method of stock valuation, calculate the closing stock at the end of the month in 31. Life membership fees payable to a club or society are usually dealt with by: a) Debiting the total received to a life memberships account and transferring a proportion each year to the income and expenditure account. b) Crediting the total received to a life memberships account and transferring a proportion each year to the income and expenditure account. c) Debiting the total received to the income and expenditure account in the year which they are received. d) Crediting the total received to the income and expenditure account in the year which they were received. 32. Which of the following statement is true? a) b) c) d) It is the responsibility of the internal auditors to detect fraud. It is the responsibility of the external auditors to detect fraud It is the responsibility of the shareholders to detect fraud It is the responsibility of the management to detect fraud

33. The main aim of financial accounting is to: a) b) c) d) Provide financial information to satisfy the needs of users of accounts Maintain ledger accounts for every asset and liability Record every financial transaction in the books of account Ensure that double-entry records are maintained

34. An asset may be defined as: a) b) c) d) A resource which may be used to derive income in the future An obligation to transfer economic benefits as a result of past transactions or events A person or entity to whom money is owed by the business The amount of money invested in the business by the shareholders

35. Which one of the following does not apply when historical cost convention is being followed? a) b) c) d) Fixed assets should be depreciated over their estimated useful life Stocks should be valued at the lower of cost and net realisable value All assets should be valued at their historical cost Non-purchased goodwill should not be capitalised.

36. In business finance, the generally accepted corporate objective is: a) Maximisation of shareholders' wealth c) Maximisation of profit b) Maximisation of capital employed d) Maximisation of market share

37. The accounting concept which states that fixed assets should be valued ay the cost (or valuation) less accumulated depreciation, rather than their saleable value in the event of closure, is the: a) Realisation concept c) Prudence concept 38. Which one if the following statements is true: a) Depreciation is an example of an accrued expense b) Expenses accrued are deducted from the figure in the trail balance in arriving at the profit and loss account charge for that item c) Expenses accrued decrease the profit of an organisation d) Expenses accrued are current assets. 39. Who is responsible for ensuring that internal control systems operate efficiently? a) Creditors b) Directors c) Shareholders of the company d) External Auditors. b) Net realisable concept d) Going concern concept

40. Fixed assets can be best defined as: a) Assets acquired by the organisation with the intention of using them to earn income for a long period of time b) Items of machinery which are not moveable c) Goods purchases by the company for resale d) Cash or other assets which will be converted into cash in a short period of time.