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
2 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 Historic cost
B Lower of cost and net realisable value (1 mark)

2 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 Books of prime entry record amounts owed to/from individual suppliers and customers
B Books of prime entry are used to list similar transactions with the totals being posted to the
nominal ledger
C Books of prime entry are used to record cash transactions
D Books of prime entry are used to summarise credit transactions (2 marks)

3 A debit balance of £3,000 brought down on A Co's account in B Co's books means that
A A Co is owed £3,000 by B Co
B B Co has sold £3,000 of goods to A Co
C B Co is owed £3,000 by A Co
D A Co has sold £3,000 of goods to B Co (2 marks)

4 Which of the following statements is incorrect?

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

5 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 £10,000 profit
B No gain or loss
C £10,000 loss (1 mark)

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

B Debit trading a/c - closing stock Credit stock (B/S) - closing stock
Debit stock (B/S) - opening stock Credit trading a/c - opening stock

C Debit stock (B/S) - closing stock Credit creditors - closing stock

D Debit stock (B/S) - closing stock Credit trading a/c - closing stock
(2 marks)

Test 1 3
7 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 Increase of £2,200
B Decease of £2,200
C Increase of £12,000
D Decrease of £12,000 (2 marks)

8 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)

9 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 Purchased 1,000 @ £5 each
5/12 Sold 700 @ £7.50 each
12/12 Purchased 800 @ £6.20 each
15/12 Purchased 300 @ £6.60 each
21/12 Sold 400 @ £8.00 each
28/12 Sold 500 @ £8.20 each
Which of the following combinations is correct for closing stock valuation?
FIFO AVCO
A £4,460 £4,094
B £3,220 £4,094
C £3,220 £2,740
D £4,460 £2,740 (2 marks)

10 Financial Reporting Standards are set by which body?

A ASB
B UITF (1 mark)

11 What transaction is represented by the entries: debit rent, credit landlord?

A The receipt of rental income by the business
B The issue of an invoice for rent to a tenant
C The receipt of a bill for rent payable by the business
D The payment of rent by the business (2 marks)

4 Test 1
12 Which of the following conditions would preclude any part of the development expenditure to which it
relates from being capitalised?
A The development is incomplete
B The benefits from the completed development are expected to be less than its cost
C 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 Production Expected selling
materials and overheads and distribution Expected
labour incurred overheads selling price
£ £ £ £
Stock category 1 2,470 2,100 480 5,800
Stock category 2 9,360 2,730 150 12,040
Stock category 3 1,450 850 190 2,560
13,280 5,680 820 20,400

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 FIFO
B AVCO (1 mark)

17 Which of the following best explains the imprest system of petty cash control?
A Each month an equal amount of cash is transferred into petty cash
B The exact amount of expenditure is reimbursed at intervals to maintain a fixed float
C Petty cash must be kept under lock and key
D 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 Credit entries decrease liabilities and increase income
B Debit entries decrease income and increase assets
C Credit entries decrease expenses and increase assets (1 mark)

Test 1 5
19 Which of the following are books of prime entry?
(1) Petty cash book
(2) Journal book
(3) Sales ledger
(4) Fixed asset register
A (1) only
B (1) and (2) and (4)
C (1) and (2)
D All of the above (2 marks)

20 The accounting equation can be rewritten as:

A Assets + profits – drawings – liabilities = closing capital
B Assets – liabilities – drawings = opening capital + profit
C Opening capital + profit – drawings – liabilities = assets
D Assets – liabilities – opening capital + drawings = profit (2 marks)

21 Which of the following statements about intangible assets is correct?

A According to SSAP 13, research costs may be capitalised
B According to SSAP 13, development costs can be capitalised if certain conditions are met
C 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 True
B 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 £4,000 profit
B £6,000 profit
C £16,000 loss
D £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 Prudence, consistency, understandability, faithful representation, substance over form
B Accruals basis, going concern concept, consistency, prudence, true and fair view
C Faithful representation, neutrality, substance over form, completeness, consistency
D 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
2 Test 1
Answers
1 B
2 B
3 C The balance represents the outstanding amount ie sales less cash received.
4 D Closing stock is an adjustment to the initial trial balance.
5 B 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.
6 D As it is the first year there will be no opening stock.
7 A
£
31.12.X0 NBV 14,000
31.12.X1 NBV 9,800

Proceeds 12,000
NBV (9,800)
Profit 2,200

8 £16,920
£
Cost (15,000 + 1,300 + 2,500) 18,800
Depreciation (10% × 18,800) (1,880)
NBV 16,920

9 A
£ £
FIFO 400 @ £6.20 2,480
300 @ £6.60 1,980
4,460
AVCO 200 @ £4 800
1,000 @ £5 5,000
1,200 @ £4.83 5,800
(700) (3,381)
500 2,419
800 @ £6.20 4,960
300 @ £6.60 1,980
1,600 @ £5.85 9,359
(900) (5,265)
700 4,094

10 A
11 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 3
12 C A is clearly nonsense. You capitalise costs during the development and therefore the
development is incomplete
B 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.
C 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

16 B 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.
17 B The fixed float is known as the ‘imprest amount’.
18 B Debit entries decrease income and increase assets.
19 C
20 D Remember: assets – liabilities = closing capital
21 B
22 £28,000
36,000 – 21,000 – 12,000 + 25,000
23 B The ASB has no power of enforcement, but the FRRP does have.
24 A
£
Net assets 1.10.X0 30,000
Capital introduced 30,000
Drawings (5,000)
∴ profit 4,000
59,000

25 D

4 Test 1