test cope 02101010 MAYAUNE 2019 CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION" ACCOUNTING T hour 30 minutes 12 JUNE 2019 ) READ THE FOLLOWING INSTRUCTIONS CAREFULLY. “This test consists of 45 items, You will have 1 hour and 30 minutes to answer them. In addition to this test booklet, you should have an answer sheet. to not be concemed tha the answer set provides spaces for more answers than there ar tems in this test. ach item inthis test as four suggested answers lenered (A), (B), (C), (D)- Read each jem You are about to answer and decide which choice is best which corresponds to your item and shade the space (On your answer sheet, find the number have chosen. Look at the sample item below. having the same letter as the answer you ‘Sample Item “The cost of an asset consumed in the generation of revenue is treated in the books as A coe : ‘Sample Answer (B) a liability a iC) QT OOe® “The best answer to this item is “an expense”, 30 (C) has been shaded. change your answer, erase it completely before you fill your new choice. ‘When you are told to begin, tum the page and work as quickly and as carefully 69 you San. ry you cannot answer an item, go on to the next one. You may return to that item later. If you want to ‘You may do any rough work in this booklet, ‘You may use a silent, non-programmable calculator to answer items. BO NOT TURN THIS PAGE UNTIL vou! ARF TATE TSont 1 Whatwould betheadvantage(benefiofhavingalcourriesadop and followthe seme accounting standards? (A) | Consistency (B) Comparability (©) __ Absorbed preparation costs (D) Eliminating the need for external auditing spresent a client in a legal suit in Bartlett and Co., a law firm, has accepted & fee Of $30 000 10 rey for Bartlett and Co.? the future, Which of the following has arisen from the transaction (A) Accrued expense (B) — Accrued revenue (©) __ Deferred expense (D) _ Deferred revenue Item 3 refers tothe following information from the books ‘of Orange Vale Inc. for the year ending 30 June 2015. 286 120) Payments made to suppliers for good 103 404 23.615 | “The net income for the year, using the cash basis of accounting, is (A) 3150683 (B) $151 883 (CO) $159 101 (D) 8254087 on 15 January 2017, R. Sammy's advertising agency collected $6000 from clients who were billed forjobs done in December 2016. Using the accrual basis of ‘accounting, how should the accounts be affected by the transactions on 15 January 2017? (A) Increase: Cash Increase: Service revenue (B) _ Increase: Cash Decrease: Accounts receivable (C) _ Increase: Service revenue Decrease: Fees earned (D) Increase: Cash Increase: Accounts receivable a<3 ItemsS—6refertothe followinginformation . 7+ about the Betmopan Company. + ‘The Belmopan Company began operations on 01 January 2015. The company has the © following items included in the owners’ * equity section of its balance sheet. Eight per cent preference shares $100 Par value; 25 000 shares issued and 8. Outstanding, $2 500 000; ordinary shares $3 par value; 50 000 shares issued and outstanding $450 000 Share premium $2 250 000 Total dividends declared and pai During 2015 $170 000 During 2016 $210 000 Assuming that the preference shares were cumulative, how much of the 2015 dividends would be distributed to ordinary shareholders? @ $ 0 @) $5192 © $9200 (@) $10.00 Assuming that the preference shares 9. were noncumulative, how much of the 2016 dividends would be distributed to preference shareholders? (A) $ 2000 (B) $100 962 (C) -$110526 (D) $200 000 Which ofthe follow isavail seats Howingresecver ia available (A) Sinking fund (B) Share premium (©) General reserve (D) Revaluation reserve The newly formed Daryl Inc. was billed $8000 by its attorneys for organizational costs. The attomeys agreed to accept 6000 shares of $1 par value common stock in full settlement of their bill. Shares of Daryl Inc., being new, had no established market value. The amount to be credited to common stock in the books is “a $0 (B) $2000 (C) $6000 (@) — $8000 tem 9 refers to the following statement. “One limitation of financial information is the use of estimates in the financial statements.” Which of the following show evidence of such estimates? 1. Machinery. to be depreciated by 20% on its cost. I. Corporation tax isto be 30% of net income. TI, Allowance for doubtful debt to be 5% of net sales. (A) Land Ionly (B) Land Ut only (C) Mand It only (D) 1, Wand ITon 10. i. 12. One of the MAJOR objectives of the International Financial Reporting Standards isto A) (B) censure that all companies prepare financial statements harmonize financial reporting ferent countries all accountants are registered with an international board ighlight the dysfunction between financial accounting and management accounting Which of the following can be considered physical controls in an accounting environment? 1. Safes and vaults Il. Locked warehouses for inventories TIL. Bank safety deposit boxes (A) Land Ionly , (B) Land Ill only (©) Wand Hit only () |, Mand Ul Which of the following activities relate to the external auditor? L I Ml. (A) © @) Expresses an opinion to sharehold- ers Conducts audits independent of ‘company and management Works independently of employees but is dependent on management Land I only Land iI only Wand Ill only 1, Wand 11] 15. Meamo ine.» commpmny wth sana sales of 000, has 2 computer software for $550. This software is expected to be used for the next ten years. The ‘accountant of Memo Inc. recorded the In July 2016, a company decided to pay its employees a bonus of 2% of its 2016 sales revenue because of increased production. ‘Thebonus was paidon 31 Jenuary 2017, and ‘entered as an expense on that day. Which accounting principle was violated? “A Cost principle . (B) Matching principle (©) _ Full disclosure principle (D) Going concer principle Jazzy Company has the following information about its fixed assets. Based onthe going concem concept, atwhat book value should the assets be shown in the statement of financial position? (a) 28000 (B) $60.00 (C) $68,000 (D) $88.0016. 18. 19, Ais ‘Which of the following disadvantages are Item_1Z refers h of the to the followit associated with apa coop? extracted from te bok of XYZ Lid. 1.” Externally regulated. wu Investments are not refunded. Nl. Ownership cannot be transferred. (A) Iand tonly (8) —Tand Monty (©) WandIIt only ©) LUandim 17. What would be the total comprehensive income of XYZ Lid? (A) $ 8625 (B) — $28.625 (© — $36100 (D) $41 850 ‘A partner's ability to bind the partnership and all the other partners into a contract when acting, within the scope of the business is an example of, ity (D) _ transfer of partnership interest 19 refers to the following information. Share Capital Share Premium Retained Earnings $ $ $ Balance at 01.01.2015 25.000 o 188 697 By year end, $25 000 worth of shares were issued at a premium of $50 000; profits forthe year were $61 ‘800 and dividends paid were $30 000. What would be the balances on the accounts at 31 December 2015? . (A) ®) © @)20, 21. Which of the following reports is NOT & component of financial statements According to IAS 1 (Sec. 3 of IFRS for SMEs)? (A) Financial ratios (B) Statement of financial position (C) Statement of changes in equity (D) Notes to the financial statements * Item 21 refers to the following information about a partnership. Will Smith, anew partner, isbeingadmitted to the Labell and Ross partnership under the bonus method. Smith contributes cash of $20 000 and equipment with a market value of $30 000 in exchange for a 20% ‘ownership interest. The capital of the old partnership is $130 000. Labell and Ross shared profits and losses in the ratio 80:20 respectively. What is Smith's capital balance? (a) $30.00 (B) $35.00 (CE $36,000 (Dp) $50.00 ‘Item 22 refers to the following information. The accounts of Jym Boys Sports Club showed the following balances on 31 December 2018, ‘The club’saccumulated fund on 01 January 2019 will be (A) $20400 (B) ‘$16 400 (©) $15400 @) $9200 Item23 refers tothe following information about Jack’s Ltd. The partially completed Statement of Comprehensive Income of Jack's Lid for the year ended 31 December 2016 showed the following data. Ifa corporation tax rate of 30% is apptied, the net income for the year will be (a) $ 65.000 (B) $7300 (C) $5500 (D) $105 000 —_The following steps are usually taken when a ip is being liquidated: 1. Distribution of remaining cash to Partners TI. Sale of non-cash assets for cash IN. Payments to creditors TV. Allocation of gain or toss liquidation to partners" capital In which order should the liquidation Process take place? @) ILIvn @®) IN, TV, 1,1 © tinmy © ivm,1 ‘Wem2Srefersto the following information. On 31 December 2016, equipment which cost $60 000had accumulated depreciation ©F$12000. On31 December2017, a piece of equipment was sold for $6000; the net book value of equipment before the sale ‘was $8000, ‘The company uses the reducing balance method for asset depreciation at a rate of 15% per annum. * The net book value of the equipment BEFOREthesaleoccurredon31 December 2017 was (A) $26 680 (B) $27880 (C) 534.680 () —$40800 Realto Co. Ltd issued 1500 ordinary shares with @ par value of $1.50 for $4.00 each. The journal entry to record the transaction is crs 6000 2250 © [Cash £000. Ordinary Share Capital 2250 Share Premium 3750. (D) [Ordinary Share Capital 6.000 ae aa7. An accountant discovered that 60% of the value of the ' firm's fixed assets had been omitted the balance sheet, ‘The discovery was made before the accounts were approved by the Seccee, ‘The accountant should - “ee ote " (A) record this as a liability (B) adjust the net book value of fixed assets (C) _ ignore this discovery until the following year (D) record this in the notes to the financial statements ‘tem 28 refers to the following information which relates to the business of Sand Stoners. ‘Net assets on 01 January 2016 260.000 Capital introduced during the year $2 000 Drawings by the owner 25 000 Net assets at 31 December 2016 318 000 28. What was the net income earned in 2016? (A) $6000 (B) = $27000 (Cc) $31 000 @) —-$58.000 29, Which of the following statements isNOT 30. Which of the following is a feature of a true regarding ordinary shares or preference co-operative? shares? ‘ w (A) All companies issue ordinary shares. ®) (B) Ordinary shares are the most basic © 3 and common type of shares. (D) Democratic contro! (©) Withpreference shares, the amount of dividend is generally specified and increases every year. 31. Which of the following actions by a firm's (D) With preference shares, the holders cost accountant is unethical? have priority over ordinary shareholders in dividend and (A) Pricing a product below cost to assets distribution, fight competition ; (B) Using LIFO to value ending inventory (©) Using FIFO to value ending inventory (D) Applying historieal cost=a SS UE ee eS Se SEE SE ee eS eS 2S = 33. 35. An example of a contingent liability is (A) outstanding lawsuits (B) any interest-bearing liability © a bond which can be converted into @) ized loss from the market price of @ fong-term liability One MAJOR disadvantage of traditional financial statements is their emphasis on (A) relevance ®) historical cost (©). long-term growth @) short-term profitability Which element of published financial statements attempts to provide information ‘on a company’s social responsibility? (A) The auditor's report (B) The director’s report (C) The stock market report (D) Notes to the financial statements ‘During periods of inflation or deflation, the historical cost model for financial reporting is deficient because the reports (A) use numerous estimates for revenue and expenses (B) are published three years prior to the report date (C) recognize revenue and expenses before they are realized (D) add and subtract dollars with different purchasing power without adjusting for those differences 37. 338. Which of the following statements relating, to the liquidation of a firm is FALSE? (A) Aliquidator is appointed to sell all the assets and pay the debts. (B) The receiver disposes of assets in a commercially reasonable manner. (©) Ima liquidation, the receiver represents secured creditor ‘who has appointed him. (D) After the receiver recovers the ‘money, the receiver takes over management of the firm. Dominica Company reported net incomeof $45,000, net sales of $650 0000 and average assets of $400 000 in 2016. What is the company’s percentage return on assets for 2016? A 692 ®) 125 © 65.54 @) 162.50 The change in cash for the year for a particular company is $4500. If cash flow from investing activities is $46 200 and cash flow from financing activities $34 400, what is the cash flow from operating activities? (A) ($70 100) (B) ($76 100) (©) ($80 100) @) = ($85 100)on 40. 41. ‘The Mangoes-by-the-Sea hadnet credit sales of $8 800 000. Cost of goods sold totalled $6 600 000 for the year and the average inventory for the yearamounted to $2 640 000. What was the inventory ‘tumover ratio for the year? (A) 2 times (B) 2.5 times (C) 3.3 times @) 10 times ‘Item 40 refers to the following information about the ABC Company. ‘The Statement of Comprehensive Income is provided for ABC for the year ended 30 June 2016. What analysis has been conducted above? (A) Ratio () Vertical (©) Horizontal {D) Comparative (A) long-term borrowings (B) anew issue of ordinary shares (©) cash receipts from the sale of goods (D) __ the acquisition of long-term assets END OF TEST 42. Which of the following should NOT be disclosed in a summary of significant accounting policies? 1. Minority interest claims Il, Depreciation method II, Valuation basis followed (A) Tonly @®) — Honly (©) Land Ilonly @) Vand HI only Regarding issued share capital in financial statements, a company is required to disclose the (A) par value (B) market value (©) names of shareholders (D) numberof shares held by employees Items _44—45 refer to the following information. Dividend per share $0.50 ‘Market price per share $15.00 Net income $80 000 ‘Number of ordinary shares 30 000 Whaat is the earnings per share (EPS)? (A) $033 (B) $0.50 ($2.14 (D) $2.67 What is the dividend yield? (A) $0.03 (B) $0.50 © s2i4 (D) 82.67