Foundations in Accountancy/ACCA

Financial Accounting (FFA/FA)

Mock examination 1
For exams from September 2019
to August 2020
Questions

Time allowed 2 hours

This exam is divided into two sections.

Section A – All 35 questions are compulsory and MUST be attempted.

Section B – BOTH questions are compulsory and MUST be attempted.

Instructions:
Take a few moments to review the notes on the inside of this page titled, 'Tackling Objective Test Questions'
before attempting this exam.

DO NOT OPEN THIS EXAM UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
FINANCIAL ACCOUNTING (FA)

Tackling Objective Test Questions

There are a number of formats for objective test questions. The ones you are most likely to see in your exam are
multiple choice questions (MCQs), multiple response questions, multiple response matching questions and
number entry questions.
The MCQs in your exam contain four possible answers. You have to choose the option that best answers the
question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and
correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam.
Multiple response questions typically contain four possible answers of which TWO are correct. You must choose
both of the correct options to get any marks.
Multiple response matching questions require you to match up each statement to a correct response by clicking
on the correct radio button. You must select all of the correct answers to get the marks.
Number entry questions require you to insert the correct (numerical) answer into the blank. You have no option
to show any workings so your answer must be correct to gain the marks. Take care filling in your answer, check
for instance whether the number should be in $ or in $’000.
You may wish to follow the approach outlined below, or you may prefer to adapt it.

Step 1 Skim read all the OTQs and identify what appear to be the easier questions.

Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read the
question thoroughly. You may prefer to work out the answer before looking at the options in
an MCQ, or you may prefer to look at the options at the beginning. Adopt the method that
works best for you.

Step 3 For MCQs and multiple response questions read the four options and see if one/two match
your own answer(s). MCQs may be numerical, multiple response questions are more likely to
be narrative. Be careful with numerical questions as the distracters are designed to match
answers that incorporate common errors.
For a number entry question you have no correct option to choose, so no guidance. Check that
your calculation is correct. Have you followed the requirement exactly? Have you included
every stage of the calculation?
For a multiple response question read the question carefully and make sure you understand
exactly what it means. If you go too fast you can be tripped up by the distractors.
In a multiple response matching question match up the items you are sure about and then see
what is left.

Step 4 You may find that none of the options in an MCQ matches your answer.
 Re-read the question to ensure that you understand it and are answering the requirement
 Eliminate any obviously wrong answers
 Consider which of the remaining answers is the most likely to be correct and select the
option

Step 5 If you are still unsure make a note and continue to the next question.

Step 6 Revisit unanswered questions. When you come back to a question after a break you often find
you are able to answer it correctly straight away. If you are still unsure have a guess. You are
not penalised for incorrect answers, so never leave a question unanswered!

After extensive practice and revision of OTQs, you may find that you recognise a question when you sit the
exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the
requirement and options carefully – do not assume that it is identical.

2
 QUESTIONS

Section A – All 35 questions are compulsory and MUST be attempted.

1 Bill, a sole trader, set up business on 1 October 20X8 with $30,000 of his own money. During the year
to 30 September 20X9 he won $50,000 on a lottery and paid $30,000 of this into his business. He
took cash drawings of $5,000 during the year and at 30 September 20X9 the net assets of the business
totalled $59,000.
What was the profit or loss of the business for the year ended 30 September 20X9?

$ Profit / Loss (2 marks)

2 The total of the balances in a company's trade receivables ledger is $800 more than the debit balance
on its trade receivables control account.
Which one of the following errors could by itself account for the discrepancy?
 One receivables ledger account with a credit balance of $800 has been treated as a debit
balance.
 Entries for irrecoverable debt expenses of $800 were made in the receivables ledger but not the
control account.
 The sales day book has been undercast by $800.
 The cash receipts book has been undercast by $800. (2 marks)

3 When reviewing the nominal ledger, the receivables ledger control account was as follows:
RECEIVABLES LEDGER CONTROL ACCOUNT
$ $
Balance b/d 150 ??? 75
Sales 2,000 Cash received 1,875
Balance c/d 200
The narration for the $75 entry was illegible. Which TWO of the following are possible explanations
for the entry?

Contra
Irrecoverable debt write off
Allowance for receivables
Returns outwards
(2 marks)

4 Steve's working capital ratios are as follows:

20X1 20X2
Quick ratio 1.0 0.8
Payables' days 29 37
Receivables' days 63 42
Inventory days 28 20
Which of the following statements is correct?
 The cash operating cycle has lengthened in 20X2.
 Steve has taken advantage of early settlement discounts offered by suppliers in 20X2.
 Steve is taking longer to sell his inventory in 20X2.
 Steve has improved his credit control in 20X2. (2 marks)

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FINANCIAL ACCOUNTING (FA)

5 On 1 December 20X8 Gilbert's payables ledger control account had a balance of $3,200 (credit).
During the month the following transactions occurred:
$
Payments to suppliers 2,500
Cash purchases 300
Purchases on credit 3,300
Returns outwards 750
What is the balance on the control account as at 31 December 20X8?

$ (2 marks)

6 A company has prepared draft accounts for the year ended 31 March 20X9 incorporating the managing
director's bonus of 4% of net profit.
It has now been discovered that the draft accounts omitted irrecoverable debts of $100 and cash
discounts received from suppliers of $400. Expenses in the draft accounts included prepaid rent of
$200.
What is the adjustment required to the statement of profit or loss in respect of these errors?
 $480 Cr
 $672 Cr
 $500 Cr
 $520 Cr (2 marks)

7 A trader has budgeted sales for the coming year of $275,000. He achieves a constant mark-up of 25%.
He plans to reduce his inventory level by $14,000 over the year.
What will his purchases for the year be?

$ (2 marks)

8 Harry has been unable to calculate his business' profit or loss for the year ended 31 December 20X8 as
fire destroyed most of his accounting records. He has, however, been able to provide the following
information.
(1) Net assets at 31 December 20X7 were $23,000 and $32,500 at 31 December 20X8.
(2) He introduced capital during the year of $4,000 cash.
(3) He took cash drawings of $2,500 and goods with a selling price of $800; the cost of the goods
was $750.
What was Harry's profit for the year ended 31 December 20X8?
 $8,750 profit
 $2,250 profit
 $8,800 profit
 $2,200 profit (2 marks)

4
 QUESTIONS

9 The following information is available for the year ended 31 December 20X8 for Ski, a well-run
company:
$
Opening cash 1,000
Closing cash 2,000
Opening balance on the payables ledger control account 8,000
Closing balance on the payables ledger control account 10,000
Opening balance on the receivables ledger control account 12,000
Closing balance on the receivables ledger control account 14,000
Cash paid to trade accounts payable in the period 9,000
Opening inventory 6,000
Closing inventory 7,000
Mark-up of 10% is applied to arrive at sales price.
Assuming the information above is complete, what was the sales figure for the period?
 $6,600
 $9,900
 $11,000
 $13,200 (2 marks)

10 Which of the following errors could result in a suspense account being required to 'balance' the trial
balance?
 Cash received from credit customers treated as a cash sale.
 A cash purchase of stationery credited to the expense account.
 Payments to suppliers of $647 recorded as $674 in the payables ledger.
 One page omitted from the purchase day book. (2 marks)

11 A car has a list price of $23,500 but the garage gives the company a trade discount of $2,350. In
settlement the garage accepts a cheque for $18,000, together with an old company car on which it
grants a trade-in allowance of $3,150. How much should the company capitalise in respect of the new
car?

$ (2 marks)

12 Tick the boxes in this table to show which errors would result in a trial balance imbalance

Trial balance
imbalance No imbalance
The irrecoverable debts balance was listed as a credit on
the trial balance.
Drawings for the last month of the year had been posted
to the sundry expenses account.
A contra settlement had been recorded only in the
receivables and payables ledgers.

(2 marks)

13 During the year ended 30 June 20X9 Joy purchased $84,300 of inventory for resale. Over the year,
inventory held fell by $4,100. She used a mark-up of 25%.
What was the gross profit for the year?
$ (2 marks)

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FINANCIAL ACCOUNTING (FA)

14 There is $100 in Demon’s cash till at the year-end but the accountant discovers that some cash has
been stolen. At the beginning of the year there was $50 in the cash till and receivables were $2,000.
Total sales for the year were $230,000. Receivables at the end of the year were $3,000. Cheques
banked from credit sales were $155,000, and cash sales of $50,000 have been banked.
How much cash was stolen during the year?
 $23,950
 $24,050
 $24,150
 $30,040 (2 marks)

15 An extract from a business' statement of profit or loss is:

$ $
Sales 115,200
Opening inventory 21,000
Purchases 80,000
101,000
Closing inventory 5,000
96,000
19,200

What is the mark up achieved?

 16.6%
 20%
 24%
 69.4% (2 marks)

16 Tick the boxes to show which of the following are included in the statement of changes in equity

In statement of changes in Not in statement of changes

equity in equity
Share premium
Warranty provision
Revaluation surplus
Retained earnings

(2 marks)

17 The trial balance of Z failed to agree, the totals being: debit $836,200
credit $819,700
A suspense account was opened for the amount of the difference and the following errors were found
and corrected:
(1) The total of the cash settlement discount received column in the cash book had not been posted
to the discount received account. The figure was $5,100.
(2) A cheque for $19,000 received from a customer was correctly entered in the cash book but was
posted to the receivables ledger control account as $9,100.
What will be the remaining balance on the suspense be after the correction of these errors?
 $11,700 credit
 $21,300 credit
 $31,500 debit
 $1,500 credit (2 marks)

6
 QUESTIONS

18 Indicate whether the following statements about discounts are correct or not

Correct Not correct

Trade discounts received should be deducted from sales.
Settlement discounts received are deducted from the cost of
purchases.
(2 marks)

19 Which TWO of the following can be included in the cost price of inventories under IAS 2?

Distribution costs incurred when selling the finished inventories

Directly attributable handling costs incurred when purchasing the raw materials
Salesmen's wages incurred when selling the finished inventories
An allocation of fixed production overheads
(2 marks)

20 Indicate whether these statements are true or false in respect of valuation under IAS 2 Inventories

True False
Inventory can be valued using any of FIFO, AVCO or LIFO
Inventory should be valued at the lower of cost and net realisable value

(2 marks)

21 Which of the following is a correct representation of the business equation?

 Opening net assets = Closing net assets + drawings – profit – capital introduced
 Closing net assets = Opening net assets + capital introduced – profit + drawings
 Capital introduced = Closing net assets + drawings + profit – opening net assets
 Profit = Closing net assets + drawings + capital introduced – opening net assets
(2 marks)

22 Sam owns a business selling timber to trade customers only. During the year ended 30 June
20X6, a purchasing manager from one of Sam's biggest trade customers tripped over some unstacked
timber and fell on the warehouse floor, breaking his leg. Shortly before the
year-end, Sam received a letter from the solicitor of the purchasing manager, stating that he was going
to take Sam to court as a result of the accident. The letter stated that if Sam wanted to come to an
arrangement out of court, the plaintiff was willing to settle for $25,000; otherwise he would be claiming
$50,000. Sam's solicitor has advised him to settle out of court as there is a good chance of the case
coming to court and Sam losing.
How much should Sam include as a liability in the accounts for the year ended 30 June 20X6?
 Nil
 $25,000
 $50,000
 $75,000 (2 marks)

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FINANCIAL ACCOUNTING (FA)

23 Which TWO of the following statements about share capital are correct?

Irredeemable preference shares are always classified as liabilities

Preference dividends have priority for payment over equity dividends

Dividends on redeemable preference shares are included in finance costs

Amounts received for ordinary shares above their par value are credited to profit for the year.
(2 marks)

24 Which TWO of the following must be disclosed for a revalued tangible non-current asset?

Whether an independent valuer was used

The qualifications and experience of the valuer
The effective date of the revaluation
A comparison of the depreciation charges based on revalued amount and based on cost

(2 marks)

25 Purple Co has the following amounts on its statement of financial position at the year-end.
$
Tangible non-current assets 133,750
Intangible assets 15,800
Inventory 27,400
Receivables 17,430
Cash at bank and in hand 1,700
Trade payables 34,340
Five year bank loan 50,000
Provisions 5,700
What is Purple Co's gearing ratio? (debt / debt + equity)

%
(2 marks)

26 Simran has two business bank accounts for her company's use, held at different banks: one is a current
account and the other is a high-interest deposit account. At the year-end, the current account shows a
balance of $2,750 overdrawn and the deposit account shows a balance of $4,780. How will these
balances be disclosed in the company's statement of financial position at the year-end?
 Current asset $4,780 Current liability $2,750
 Current asset $2,030 Current liability nil
 Current asset nil Current liability $2,030
 Current asset $7,530 Current liability nil (2 marks)

27 Which of the following events, occurring shortly after a company's year-end, requires adjustment in a
company’s year-end financial statements?
 A line of valuable inventory was destroyed in a warehouse fire.
 A change in legislation means an item of plant will have to be scrapped
 A new subsidiary was acquired
 A customer whose account had been unpaid for three months declared bankruptcy
(2 marks)

8
 QUESTIONS

28 The following extracts are from Daljit's financial statements:

$
Profit before interest and tax 24,500
Interest (875)
Profit before tax 23,625
Tax (1,270)
Profit after tax 22,355

Share capital 50,000

Reserves 33,200
83,200
Loan liability 4,750
Bank overdraft 2,000
89,950

What is Daljit's return on capital employed?

 24.8%
 26.9%
 27.9%
 29.4% (2 marks)

29 Raj produces his accounts to 30 June each year. His business premises are rented and he has to pay
rent quarterly in arrears on 1 February, 1 May, 1 August and 1 November each year. The quarterly rent
payments are $2,250. Raj pays an annual insurance charge on the premises of $1,800 at the start of
each calendar year. What amounts will be shown in respect of these items in Raj's statement of financial
position for the year ended 30 June 20X1?

 Current assets $750 Current liabilities $1,500

 Current assets $900 Current liabilities $1,500
 Current assets $750 Current liabilities $2,250
 Current assets $900Current liabilities $2,250 (2 marks)

30 Tick the boxes to show which of the following would be classified within non-current assets (NCAs) on
the statement of financial position

In NCAs Not in NCAs

Property held for resale by a property development business
Research costs in a pharmaceutical business
Offices owned and used by a business
Laptops that are usually sold off to staff when they are five years old

(2 marks)

31 Jack is a sole trader and had assets of $223,700 and liabilities of $52,500 on 1 January 20X1.
During the year ended 31 December 20X1 he paid himself wages of $640 per month. At 31
December 20X1, Jack had assets of $264,230 and liabilities of $69,750, and had made a profit of
$13,490. How much capital did Jack introduce into his business in the year ended 31 December
20X1?
 $9,790
 $17,470
 $29,090
 $44,450 (2 marks)

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FINANCIAL ACCOUNTING (FA)

32 Which TWO of the following are qualitative characteristics under which financial statements are
produced?

Going concern
Faithful representation
Accruals
Relevance
(2 marks)

33 The carrying amount of Mike's property, plant and equipment is $112,000 at 1 January 20X8. During
the financial year, a delivery van costing $18,000 was purchased and a plot of land originally costing
$55,000 was sold for $91,000. The depreciation charge for the year was $17,540.
What is the carrying amount of Mike’s property, plant and equipment at 31 December 20X8?

$ (2 marks)

34 Tick the boxes to show which of the following statements about partnerships is/are true

True False
A partnership is an arrangement between individuals to carry on business in
common with a view to profit.

If a partnership wants to raise more funds, it can issue shares.

A partnership does not have a separate legal identity from its owners, the
partners.

(2 marks)

35 Which of the following statements about ordinary and preference shares is correct?
 Preference shares have priority over ordinary shares in the event of a liquidation.
 Preference shares always carry voting rights.
 Ordinary shares carry a right to a fixed dividend.
 Preference shares are always cumulative. (2 marks)

(Total: 70 marks)

10
 QUESTIONS

Section B – BOTH questions are compulsory and must be attempted.

Question 1
Roe Co acquired 80% of the share capital of Gallant Co on 1 October 20X7. The consideration was a cash
payment of $6 and four $0.50 shares in Roe Co, worth $2.50 each, for each share in Gallant Co. Both
companies have an accounting year-end of 31 March.

On 1 October prior to the acquisition, Roe Co had issued share capital of 750,000 $0.50 shares and a share
premium account of $165,000. Roe Co's retained earnings as at 1 April 20X7 were $760,000 and its retained
profits for the year ended 31 March 20X8 were $280,000.

At 1 April 20X7 Gallant Co had issued share capital of 50,000 $1 shares and retained earnings of $520,000.
Gallant Co did not issue any shares between 1 April and 1 October 20X7. During the year ended 31 March
20X8 Gallant made a profit of $150,000, which accrued evenly over the year. The fair value of the non-
controlling interest at 1 October 20X7 was $110,000.

There were no intra-group transactions during the year ended 31 March 20X8.

Required
(a) Complete the following proforma to calculate the goodwill arising on the acquisition of Gallant Co.
Consideration transferred on acquisition:
Cash
Shares
Fair value of non-controlling interest Add / Subtract
Total cost of investment
Fair value of net assets at acquisition:
Equity share capital
Retained earnings
Total net assets

Goodwill

(5 marks)
(b) Calculate the following figures that would be included in Roe Co's consolidated statement of financial
position at 31 March 20X8:

 Share capital $
 Share premium $
 Retained earnings $
 Non-controlling interest $ (4 marks)

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FINANCIAL ACCOUNTING (FA)

(c) The following table shows factors relating to an investment in another company. Tick the boxes to show
which of these are possible indicators that this is an investment in an associate.

Associate Not associate

Control
Greater than 25% of preference shares and debt being held by
the investor
Greater than 10% of voting equity shares being held by the
investor
Representation on the board of directors
Significant influence
Commitment to long-term investment
Existence of non-controlling interest
Material transactions between the investor and investee

(4 marks)
(d) Indicate whether the following statements are true or false.

True False
The goodwill arising on acquisition of a subsidiary should be amortised over
its useful life.

If a subsidiary is acquired during an accounting period, the consolidated

financial statements will exclude all transactions between the parent and
the new subsidiary for the whole period.

(2 marks)
(Total: 15 marks)

12
 QUESTIONS

Question 2
(a) The following information relates to Atkins Co for the year ended 30 September 20X9.
Extracts from the statement of profit or loss for the year ended 30 September 20X9
$'000
Profit before tax 12,450
Less tax (2,860)
Profit for the year 9,590

Statement of financial position as at 30 September 20X9

20X9 20X8
$'000 $'000
Assets
Non-current assets 65,120 52,350
Current assets
Inventory 6,190 5,450
Receivables 7,820 7,010
Cash 100 70
14,110 12,530
Total assets 79,230 64,880

Equity and liabilities

Capital and reserves
Ordinary share capital 8,000 7,000
Retained earnings 59,090 51,440
67,090 58,440
Non-current liabilities
Loan 4,000 400
Current liabilities
Bank overdraft 760 1,200
Trade payables 4,520 3,390
Taxation 2,860 1,450
8,140 6,040
Total equity and liabilities 79,230 64,880

Notes
Interest of $300,000 was paid and charged to profit or loss.
Depreciation expense for the year was $6,190,000.

Assets with a carrying value of $1,370,000 were disposed of for a loss of $180,000.

Atkins paid a dividend of $1,940,000 during the year.

Required
Using the following proforma, complete the statement of cash flows for Atkins Co for the year ended 30
September 20X9.
(13 marks)
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 20X9
$’000 Add Subtract
Cash flows from operating activities
Net profit before tax / Net profit after tax
(delete as applicable)
Adjustments for:
Depreciation  
Interest payable  

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FINANCIAL ACCOUNTING (FA)

$’000 Add Subtract

Loss on disposal of non-current assets  
Movement in inventories  
Movement in receivables  
Movement in payables  
Interest paid  
Income tax paid  

Cash flows from investing activities

Purchase of tangible non-current assets  
Receipts from sale of non-current assets  

Cash flows from financing activities

Issue of share capital  
Issue of loan notes  
Dividends paid  

Net increase/decrease in cash (delete as applicable)

Cash balance at 1 October 20X8
Cash balance at 30 September 20X9

(b) Identify which of the following would be classified as cash and cash equivalents in accordance with
IAS 7 Statement of cash flows.

Description Cash and cash equivalent

Petty cash held in the petty cash tin
Bonds redeemable in three weeks' time
Current account balance at the bank
Ordinary shares held in another company

(2 marks)
(Total: 15 marks)

14

Student self-assessment
Having completed this exam take a few minutes to consider what you did well and what you found difficult.
Use this as a basis to focus your future study on effectively improving your performance.
Common problems
Timing and planning
Did you finish too early?
Did you overrun?
Content
Did you struggle with:
Interpreting the questions?
Understanding the subject?
Remembering the notes/text?
QUESTIONS
Future emphasis if you answer Yes
Y/N Go back and check your answers.
Y/N Focus on allocating your time better.
Practise questions under strict timed conditions.
If you get behind, move on to the next question.
Y/N Learn subject jargon (interactive text index).
Read questions carefully noting all the parts.
Practise as many questions as possible.
Y/N Review your notes/text.
Work through easier examples first.
Y/N Quiz yourself constantly as you study. You need to develop
your memory as well as your understanding of a subject.
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FINANCIAL ACCOUNTING (FA)

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