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do ro mry rerult ln dlsqualificatlon. TEST CODE 02 10101 O

FORM TP 201212 MAY/JUNE 20I2

CARIBBEAN EXAMINATIONS COUNCIL
ADVANCED PROFICIENCY EXAMINATION
ACCOUNTING

Unitl-Paper0l
90 tninutes

ll JUNE 2012 (a.m.)

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

I . This test consists of 54 items. You will have 90 minutes to answer them.

2. ln addition to this test booklet, you should have an answer sheet.

3. Do not be concemed that the answer sheet provides spaces for more answers than there are
items in this test.

4. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item
you are about to answer and choose the correct answer.

5. On your answer sheet, find the number which corresponds to your item and shade the space
having the same letter as the answer you have chosen. Look at the sample item below.

Sample ltem

The cost of an asset consumed in the generation of

revenue is treated in the books as
Samole Answer
(A) a gain
(B)
(C)
a liability
an allowance
@@oo
(D) an expense

The best answer to this item is "an expense". so answer space (D) has been shaded.

6. If you want to change your answer. erase it completely before you fill in your new choice.

7: Whpn you are told to begin, turn the page and work as quickly and as carefully as you can.
If you cannot answer an item. go on to the next one. You may return to this item later. Your
score will be the total number of correct answers.

8. You may do any rough rvork in this booklet.

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9. You may use a silent. non-programmable calculator to answer items.
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- DO NOT TURN THIS PACE UNTIL YOU ARE TOLD TO DO SO.
- Copyright e 201I Caribbean Examinations Council
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t. The iclea that a busincss will continue ro 4. The in\enror) of Sirls Co. Ltd ar
()peratc ftrr tlre indefinite future or until
i I Decenrbe'r 2009 is r,alued ar S 160 000.
the benefits of its non-current assets can be The inventory valuation included damaged
realizcd in the nonnal course of operations goods at their initial cost of S I4 000. The
is knou,n as the damaged goods will be repaired at a cost
of S | 200 and sold firr $_5 000. The correcr
(A) objectir ity principle valuation of inventory that should appear in
(B) business entity principle the records of Sims Co. Ltd at 3 I Decernber
(C) eoing concern principle 2009. is
(D) revcnue recognition principle
(A) $ l4l 000
* (B) $149 ri00
) Which of the lollowing srarernents relating (c') $t-s1969
to the users of accounting infbrmation are (D) $16,s 696
accurate'l

l. Internal users plan. organise and 5. Internal controls are used in a business to
run a business.
ll. External users are interested in the ( A ) produce correct financial statemen$
profitability of the firm. and deter employee dishonesty
lll. Extemalusersrequireinformation ( B) enhance the accuracy and reliability
about a finn's liquidity.
of its accounting records. and to
prevent fraud
(A) I and Il only (C) establish responsibility and conduct
(B) | and III only
independent checks on employee
(C) II and ltl onty perfbrmance
(D) t, Il and lll (D) saf-eguard the business' assets
and enhance the accuracy and
reliability of accountins records
3. Which of the fbllorving is the l\,tOST
accurate definition of the tenn .generally
acceptc'd acct-runting pri nciples'.1 6. C)ne clerk is responsible for keeping
inventory records and another for receiving
(A ) A set of rules recognized as a guide and issuing inventory items. This is an
for financial reporting example of
(B) Truths derived from the laws of
nature and statute (A) division of labour
( C ) Rules established by the Department (B) segregarion of dtrties
of Inland Revenue of a countrv (C) monitoring inventory levels
( D) The guidelines that accourrtants use ( D) inventory valuation
to solve c-thical dilernnras

GO ON TO TI.IE NEXT PACE

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Items 7-8 refer to the tbllowing information.

The Belmopan Company began operations on I January 2010. The company had the following items
included in the owners'equity section of its balance sheet.

Eight per cent preference shares $ I 00 par value. 25 000 shares issued
and outstanding S 2 500 000
Ordinary shares $ 3 par value, 50 000 shares issued
outstanding l
and $ 450 000
Share premium S 2 250 000

Total dividends declared and paid were:

During 2010 $ | 70 000 {
During 201I $ 210 000

7. Assuming that the preference shares were 8. Assuming that the preference shares were
non-cumulative. how much of the 20ll divi- cumulative, how much ofthe 201ldividends
dends would be distributed to the preference would be distributed to the ordinary share-
shareholders? holders?

(A) $ 2000 (A) S 0

(B) $ 100 962 (B) $ 5 192
(c) $ ilo 526 (c) s e 200
(D) $ 200 000 (D) $ l0 000

9. ABC Corporation issued 3 000 ordinary shares of $20 par value at 524 per share. In recording
the transaction, credits are recorded as

(A) ordinary share capital S72 000

(B) ordinary share capital $60 000 and retained earnings $ l2 000
(C) ordinary share capital $60 000 and share premium $12 000
(D) ordinary share capital $60 000 and profit and loss $ l2 000

t0. A firm issued 35 000 no par ordinary shares in exchange for a building which had a fair market
value of $525 000. The entrv to record this transaction is

(A) Dr. Building $525 000

Cr. Ordinary share capital $525 000

(B) Dr. Cash 5525 000

Cr. Ordinary share capital $525 000

(C) Dr. Ordinary share capital 5525 000

Cr. Building $525 000

(D) Dr. Ordinary share capital 5525 000

Cr. Cash $525 000

GO ON TO THE NEXT PAGE

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il. 'Treasury'stock'is the term used to describe t2. Which of the fbllorving is NOT a fL.ature
shares that arc
of a conrputerized accounting systenl..)
(A) fully paid-up
(B)
(A) The recording of business
sold above par
(c) transactions is more efficient.
paid in exccss of par
(D)
(B) Ditlerent principles are used tiom
re-acquired by issuing finns
those in a manual accounting
system.
(C) lt provides faster acccss t()
accounting infbrmation and
reports.
(D) Both large and smail companics
can realisc the benefits of such
a systenl.

t3. Bahnain corporation sold | 000 ordinary shares which were herd as
shares were acquired six months ago
a temporary investment. The
at a cost of $90 a share. Balmain sold the shares for
Whar is the entry to record this sale,l $g0 a share.

(A) Cash
80 000
Loss on sale of temporary investment
r0000
Temporary stock investments
90 000
(B) Cash
90 000
Gain on sale of tenrporary investment
Temporary stock i nvestments
t0000
80 000
(c) Cash
90 000
Temporary stock invesrments
90 000
(D) Temporary stock investments
80 000
Loss on sale of temporary investlnent
r0 000
Cash
90 000

11. The MAIN objective of financiar reporting is

to provide inl0rmation

(A) to govcrnment dcpartments

(B) about the profitability of the business
(c) re_earding sources and uses of cash
(D) useful for making investnrelrt and lending
decisions

r;n at\t Tr) TLf tr \rtrv-r DA /-:E

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t5. What u,ould be an adr.antage (benefit) of t9. Which of the tbllorving statements is NOT
having all countries adopt and follow the true regarding ord inary shares or pref'erencc'
same accountin g stanclards'l shares'J

(A) Comparability' (A) Ordinary shares are the most hasic

(B) Consisrency and common type of shares.
(C) Absorbed preparation costs (B) All companies issue ordinarl,
(D) Eliminating the need for external shares.
auditing (c) With prelerence shares the arnount
ofdividend is generally specified
t6. Having the same person responsible fbr the and increases every year.
ordering. paying and receiving ofgoods has (D) With preference shares the holders
the effect of have priority ol'er ordinary
shareholders in dividend and
(A) improvingorganizationalefficiency assets distribution.
(B) increasing the potential for enors
and fiaud
(C) providing a good exarnple of 20. Which of the fbllowing accounts would
segregation of duties be entered in the liabilities section of the
(D) providing a good example of how Balance Sheet'l
to safeguard the company.s
assets (A) Accounts Payable, Notes Payable
and Loans Payable
17. DBC Ltd acquired fbr cash the business of (B) Cash, Accounts Receivabte and
Singer Inc on 22 June 2010, at a price of Inventory
$ 14 500 000. The book value ofthe net (c) Common Stock. Retained Eamings
assets at the time of the transaction was and Paid-in Capital
$ I I 000 000. Independent appraisers (D) Retained Earnings. Common Stock
valued Singer Inc's net assets at a fair market and Long-Term Inl.estment
valueof$ I 3 000 000. What amount should
DBG debit in the goodwill account?

(A)SO
(B) $ 200 000
(c) $ t5ooooo
(D) $3500000

r8. Two-thirds of an insurance policy has

expired. The policy w,as acquired at a cost
of S 5 700. The adjusting entry ro record
the e.rpired portion u,ould rnvolve a

(A) credit of $ I 900 to prepaid insu-

rance
(B) debit of S 3 ft00 to prepaid insu-
rance
(c) debit of S I 900 to insurance ex-
pense
(D) debit of $ -l 800 to insurance ex-
pense
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Item 2l refers to the tbllowing intbrmation 24. Notes to the financial statement provide
which was e.xtracted from the records of the detailed explanations of selected items on
Belmopan Cricket Club on I April 2007. the financial statement. This is an example
of which accounting principle?
The CIub has 75 members who pay an annual
subscription of $ 150 each. Profits made from (A) Objectivity
social events amounted to $ l2 500. ( B) Business entity
(C) Substance over form
200E 2009 ( D) Full disclosure
Subscriptions $15 Subscriptions s70
paid for 2008 paid for 2009
25. The Rampaul Company estimated at
I January 2010 that its income befbre taxes
What amount ofnet income from subscriptions
forthe yearended 3 l December 20 I 0 would
21.
be $ 5 500 000. The Rampaul Company's
and social events should the Belmopan
Cricket Club report in200'1-! tax rate for the year is 42 per cent. The
company made quarterly tax payments on
(A) $ll2s0 30 April, 30 June, 30 September and l5
(B) December. The actual income for the year
$23 000
(c) s23 7s0
ended 3 I December20l0 was S 5 700 000.
(D) $25 2s0
The amount of income tax payable at 3l
December 2010 is

)) A statutory company is an entity that has

(A) $0
been established by an Act of Parliament
(B) $ 84 000
and is owned by the
(c) $100 000
(D) $144 000
(A) Board of Directors
(B) Employees
(C) State
26. Office equipment is classified in the Balance

(D) Sheet as
Company

(A) a current asset

23. An event that is classified on the income (B) an intangible asset
statement as an extraordinary item should
(c) a Iong-term investment
be
(D) property, plant and equipment

(A) unusual in nature. infrequent and

material in amount
(B) unusual in nature, infrequent and
immaterial in amount
(c) infrequent and material in amount
but not unusual
(D) unusual in nature, material in
amount but not infrequent

GN ON TO THF' NtrXT PAGtr

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Item 27 rel'ers to the fbllowing irrlbrrnation 30. Persautl is a sole proprietor r,r ho does NOT
fbr Nikita lnc. nraintain propcr accouttting records. At tlte
start of the year 200t{. he rvas owed 58 000
Provision fbr doubtful by custonrers. During the y'ear he collected
debts October 0l. 2(X)7 S53 000 S4tt 000 tiom custorners. At the end of the
Bad debts written off year. he rvas ouecl 52 200. All of Pcrsattd's
during the year $12 000 sales are ()n credit.
Provision tbr doubtful
debts September 30. 200ti S87 000 What amount of sales revcnue should be
repofied in Persaud's lncotne Statement tbr
27. What is the amount to be recorded in the 200tJ'l
Income Statement ofNikita lnc. as bad and
doubttul debts? (A) sl0 200
(B) $42 200
(A) $34 o0o
(c) s48 000
(B) s46 000 (D) Ss8 200
(c) $7s 000
(D) $87 000
Item 3l refers to the tbllou ing inforrnation'

Will Srnith, a new partner. is admitted to the

28. The purchase of treasury stock bY a
Labell and Ross Partnership under the bonus
corporation will reduce the
method. He contributes cash of $20 000 and
equipment with a market value of S30 000 in
(A) number of shares issued
excftange for a2}o/oorvnership interest in the
(B) total amount of stockholders'equity
new partnership. The capital of the existing
(C) authorized number of shares
partnership is $130 000. Labell and Ross
(D) total of retained earnings
share ptofits and losses in the ratio [10:]0
respectivelY.

29. Cash, accounts receivable and inventory

3r. What is the neu'partnership capital'l
are classified in the Balance Sheet as

(A) Cunent Assets

(A) $140 000
(B) lntangible Assets
(B) $ l5oo0o

(C) Non-Current Assets

(c) s 160 000

(D) Owner's EquitY

(D) $ lft0 000

32. A single step Income Statement shou's

(A) Rerenue and ErPcnses

(B) Reventte and Cost of Sales
(c) Gross Income and ExPensc's
(D) Rer enue. C'ost of Salc's. Expettses

C0 ON O TTIF NFXT PAGF

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33. In preparing the receipts and pavments Items 35-36 refer to the follorving
account for a football club. how is annual infbrmation which '*,as extracted from the
depreciation on equipment treated? accounting records of PKD Company:
$
(A) Included at the start of the assets'
tirb lnventory. I January 2010 600 000
(B) lncluded at the end of the assets' Purchases during 2010 3 000 000
life Sales during 201 0 3 800 000
(c) Omitted because it is a non-cash
item A physical inventory taken on 3l December
(D) Omitted because it is expenditure 2010 revealed an ending inventory of
5700 000. PKD's gross profit on sales has
remained constant at25o/o in recent years. The
34. An accounting firm provides $ 6 500 of inventory supen,isor suspects some inventory
accounting and tax services for a customer. may have been taken by a new employee.
The customer pays $ 2 000 and agrees to
pay the balance in two weeks. How should 35. As at 3l December 2010. what was the
this transaction be recorded? estimated cost of ending inventory?

Debit Credit (A) S 50 000

$$ (B) S ts0 000
(A) Cash 2 000
(c) $ 750 000
Services Revenue 2 000
(D) $2 850 000
(B) Services Revenue 2 000
Cash 2 000
36. As at 3l
December 2010, what was the
estimated cost of missing inventory?
(c) Cash 2 000
ServicesRevenue 4 500 (A) S s0 000
Accounts Receivable 6 500
(B) $ ls0 000
(c) s200 000
(D) Cash 2 000
(D) s2s0 000
Accounts Receivable 4 500
Services Revenue 6 500
37. Regarding issued share capital in financial
statements, a company is required to
disclose the

(A) par value

(B) names of the shareholders
(c) market value
(D) number ofshares held by enrployees

CO ON TO THE NEXT PACE

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38. Financial statements that are prepared 41. An example of a contingent liability is
based on a stable monetary unit are
(A) a bond which can be converted into
(A) current value financial statements ordinary shares
(B) fair-val ue fi nancial statements (B) any interest-bearing liabi lity
(c) historical-dollar financial (c) the unrealized loss from the
statements reduction in the market price of
(D) general price level financial a long-term liability
statements (D) a lawsuit being filed against the
company

39. Which of the tbllowing

represents the
CORRECT order ofpayment in iquidation?
I
42. In preparing a statement of cash flow,
which of the following transactions rvould
(A) Preference shareholders, unsecured be considered an investing activity?
creditors. ord inary shareholders
(B)
(A) Sale of equipment at book value
Pref'erence shareholders, ordinary
(B) Sale of merchandise on credit
shareholders. unsecured (C) Declaration of a cash dividend
creditors
(c)
(D) Issuance of a note PaYable
Unsecured creditors, preference
shareholders, ordinary
shareholders
(D) Unsecured creditors, ordinarY
shareholders, preference
shareholders

40. During periods of inflation or deflation, the

historical cost model for financial reporting
is deficient because

(A) comparativefinancialstatements
are published onlY for the three
years prior to the rePort date
(B) it uses numerous estimates for
revenue and exPense
(C) it recognizes revenues andexpenses
before they are usuallY realized
(D) it adds and subtracts dollars
with different Purchasing Power
without adjusting for those
difTerences

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43. The fbllowing intbrmation was extracted from the records of ABC company.

Cost of goods sold fbr 2010 $3 000 000

Inventories at 3l December 2009 s 5s0 000
Inventories at 3 I December 2010 $ 650 000
The inventory turnover ratio, in days. fbr 2010 is

(A) 60
(B) 66
(c) 73
(D) 7e i

44. Which of the following duties are rypically 47. The Mangoes-by-the-Sea Company had
performed by a receiver for a firm in net credit sales of$8 800 000 and cost of
receivership? goods sold totalling $6 600 000 fbr tne
year. The average inventory fbr the year
L Day-to-day management of the amounted to S2 640 000. What was the
firm inventory tum-over ratio for the year?
ll. Payment of liabilities of the firm
IIL Collection of income accruing ro (A) 2 times
the firm (B) 2.5 times

(A) (C) 3.3 times

I and II only (D) l0 times
(B) I and III onty
(C) II and III onty
(D) I. II and III 48. The MAJOR disadvantage of traditional
financial statements is their emphasis on
45. Which of the following is the numerator
of
the EARNINGS pER SHARE formula? (A) historical cost
(B) Iong-term growth
(A) The sum of the net income and (C) short-term profitability
preferred dividends (D) relevance
(B) The net income minus preferred
dividends
(C) The average number of common 49. Dominica Company reported net income
shares outstanding for the year of $45 000; net sales of $6_s0 969, und
(D) The net income minus common average assets of $400 000 tbr 2007.
Whar
dividends is Dominica Company's percentage return
on assets tbr 2007?
46. Which of the following ratios would
used to evaluate short-term liquidity,/
be (A) 6.e2 %
(B) n.25 %
I.
(c) 6s.s4 %
Il.
Current ratio
Debt to equity ratio
(D) 162.s0 %

III. Accounts receivable turnover ratio

(A) I only
(B) ll only
(C) t and ilt onty
(D) I. II and lll
GO ON TO THE NEXT PACE
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50. In assessing the solvency of a firm at a 53. The Chief Executive Oftcer of a company
specific date. THREE useful ratios are suggests that the ending inventory tbr the
current financial period should be shown at
(A) current ratio. quick ratio and prices exceeding their actual cost. Which
def-ensive interval ratio of the fbllowing BEST reffects the status
( B) inventory turnover ratio, accounts of this suggestion in terms of legality and
receivable ratio and accounts compliance with accounting standards?
payable ratio
(C) earnings per share, profit margin Legality Compliance with
ratio and return on assets ratio standards
(D) debt ratio. interest cover and debt
to equity ratio (A) Legal ComPlies
(B) Legal Does not comPlY
(C) Illegal ComPlies
51. Liquidity is determined by the use of the (D) Illegal Does not comPlY

(A) investment turnover ratio

(B) acid test ratio 54. In the process of liquidation, the receiver
(C) debt to equity ratio must
(D) earnings per share
(A) dispose of assets in a commercially
reasonable manner
52. Barbados owns a manufacturing plant in (B) dispose of the business assets as
Venezuela. On 3l December 2010. the soon as possible
plant had a book value of $ 5 000 000 (C) pay the creditors the full amount of
and an estimated fair market value of their claims
$9000000. ThegovernmentofVenezuela (D) pay liquidation expenses after all
has clearly indicated that it will take over other claims
the plant during the coming year and will
reimburse Barbados Company for only 50
per cent of the plant's estimated market
value.

What is the amount of the gain or loss that

Barbados Company will recognize in its
financial statements for 2010?

(A)$o
(B) $,100 000
(c) s 4s0 000
(D) s 500 000
END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.

0210101O/CAPE 2012