Accounting 2020 Question Bank For Vietnam

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The Institute of Chartered Accountants in England and Wales
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ACCOUNTING
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For exams in 2020
Question Bank
www.icaew.com
Accounting
The Institute of Chartered Accountants in England and Wales
ISBN: 978-1-5097-2727-8
Previous ISBN: 978-1-5097-1991-4
First edition 2007
Thirteenth edition 2019
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, graphic, electronic or mechanical
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including photocopying, recording, scanning or otherwise, without the prior written
permission of the publisher.
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The content of this publication is intended to prepare students for the ICAEW
examinations, and should not be used as professional advice.
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British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
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Contains public sector information licensed under the Open Government License v3.0
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Originally printed in the United Kingdom on paper obtained from traceable,
sustainable sources.
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The publishers are grateful to the IASB for permission to reproduce extracts from the
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International Financial Reporting Standards including all International Accounting
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Standards, SIC and IFRIC Interpretations (the Standards). The Standards together with
their accompanying documents are issued by:
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The International Accounting Standards Board (IASB)
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30 Cannon Street, London, EC4M 6XH, United Kingdom.

Email: info@ifrs.org Web: www.ifrs.org
Copyright © IFRS Foundation
Disclaimer: The IASB, the International Financial Reporting Standards (IFRS)

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Foundation, the authors and the publishers do not accept responsibility for any loss
caused by acting or refraining from acting in reliance on the material in this
publication, whether such loss is caused by negligence or otherwise to the maximum
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extent permitted by law.

Copyright © IFRS Foundation
All rights reserved. Reproduction and use rights are strictly limited. No part of this
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publication may be translated, reprinted or reproduced or utilised in any form either in

whole or in part or by any electronic, mechanical or other means, now known or
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hereafter invented, including photocopying and recording, or in any information

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© ICAEW 2019
ii Accounting ICAEW 2020

Contents
The following questions are exam-standard. Unless told otherwise, these questions are the style,
content and format that you can expect in your exam.
Title Page
Questions Answers
1 Introduction to accounting 3 171
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2 The accounting equation 9 173
3 Recording financial transactions 13 175
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4 Ledger accounting and double entry 17 177
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5 Preparing basic financial statements 21 179
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6 Errors and corrections to accounting records and financial
statements 25 181
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Cost of sales and inventories 37 187
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8 Irrecoverable debts and allowance for receivables 49 191
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9 Accruals and prepayments 59 195
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Non-current assets and depreciation 73 201
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11 Company financial statements 89 209

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12 Company financial statements under IFRS standards 105 219
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13 Statement of cash flows 127 245
14 Company financial statements under UK GAAP 141 259

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15 Sole trader and partnership financial statements under

143 261
UK GAAP
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16 Sample of an exam 157 267
Mock Exam guidance notes 277

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ICAEW 2020 Contents iii

Exam
This assessment consists of 25 questions in total. There will be 24 objective-test questions (60%
of the marks) which will be of three types:
 Multiple choice – select 1 from 4 options A, B, C or D (see Chapter 4, Q10)
 Multi-part multiple choice – select 1 from 2 or 3 options, for two or more question parts (see
Chapter 1, Q21)
 Multiple response – select 2 or 3 responses from 4 or more options (see Chapter 6, Q1)
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The remaining 40% of the marks are allocated from the preparation of single company financial
statements; either a statement of profit or loss and statement of financial position or a statement
of cash flows, using a proforma template.
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In this Question Bank you should select only one option per question unless told otherwise.
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The assessment is 1.5 hours long and at least 55 marks are required to pass this assessment.
Our website has the latest information, guidance and exclusive resources to help you prepare
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for this assessment. Find everything you need, from exam webinars, sample assessments, errata
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sheets and the syllabus to advice from the examiners at icaew.com/exams if you’re studying the
ACA and icaew.com/cfabstudents if you’re studying ICAEW CFAB.
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iv Accounting ICAEW 2020

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Question Bank
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Accounting: Question Bank

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ICAEW 2020
Chapter 1: Introduction to accounting
1 Which of the following best explains what is meant by 'capital expenditure'?
Capital expenditure is expenditure:
A on non-current assets, including repairs and maintenance
B on expensive items over £10,000
C on the acquisition of non-current assets, or improvement in their earning capacity
D on items relating to owners' capital
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LO 1d
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2 Which of the following should be accounted for as capital expenditure?
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A The annual cost of painting a factory floor
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B The repair of a window in a building
C The purchase of a vehicle by a garage for re-sale
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D Legal fees incurred on the purchase of a building
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3 Which of the following items should be treated as capital expenditure in the financial
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statements of a sole trader?
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A £500 taken by the proprietor to buy himself a music system

B £800 spent on purchasing a new PC to replace his secretary's old one
C £2,000 on purchasing a machine for resale
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D £150 paid to a painter for redecorating his office

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4 Which of the following is an aspect of relevance, according to the IASB's Conceptual

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Framework?
A Neutrality
B Free from error
C Completeness
D Materiality
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ICAEW 2020 Chapter 1: Introduction to accounting 3

5 According to the IASB's Conceptual Framework, which of the following are enhancing
qualitative characteristics?
A Comparability, understandability, timeliness, verifiability
B Consistency, prudence, measurability, verifiability
C Consistency, reliability, measurability, timeliness
D Materiality, understandability, measurability, reliability
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6 In relation to the business of a sole trader, which two of the following does the government
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and its agencies need to be able to do?
A Establish levels of tax revenue
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B Assess whether the business will continue in existence
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C Produce national statistics
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Assess the owner's stewardship
Take decisions about their investment
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7 Information about an entity's financial position is primarily provided in:

A the statement of profit or loss
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B the statement of financial position

C retained earnings
D the statement of cash flows
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LO 1a
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8 According to the IASB's Conceptual Framework, information on which two of the following
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areas can help users identify the reporting entity's financial strengths and weaknesses?
A The economic resources it controls
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B Its financial performance in the past

C The demographic structure of the local economy
D The entity's claims (the entity's liabilities)
E Its management structure
LO 1a
4 Accounting: Question Bank ICAEW 2020

9 According to IAS 1, Presentation of Financial Statements which two of the following are
objectives of financial statements?
A To show the results of management's stewardship of the resources entrusted to it
B To provide a basis for valuing the entity
C To provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions
D To facilitate comparison of financial performance between entities operating in
different industries
E To assist management and those charged with governance in making timely economic
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decisions about deployment of the entity's resources
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10 Information is relevant if it is capable of making a difference in the decisions made by users.
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According to the IASB's Conceptual Framework, financial information is capable of making
a difference in decisions if it has which of the following?
1
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Predictive value
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2 Comparative value
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3 Historic value
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4 Confirmatory value
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A 1 and 3 only
B 2 and 4 only
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C 1 and 4 only
D 2 and 3 only
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11 The accounting principle which, in times of rising prices, tends to understate asset values
and overstate profits, is:
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A going concern
B accruals
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C consistency
D historical cost
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12 Which of the following statements about accounting concepts and the characteristics of
financial information is correct?
A Financial statements are required to give a true and fair view. These terms have clear
definitions which are included in IAS 1, Presentation of Financial Statements.
B The historical cost concept means that only items capable of being measured in
monetary terms can be recognised in financial statements.
C It may sometimes be necessary to exclude information that is relevant and reliable from
financial statements because it is too difficult for some users to understand.
D A specific disclosure requirement of an IFRS Standard need not be satisfied if the
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information is immaterial.
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13 Listed below are two comments on accounting conventions.
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1 According to the IASB's Conceptual Framework, financial information must be either
relevant or faithfully represented if it is to be useful.
2
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Materiality means that only items having a physical existence may be recognised as
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assets.
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Which, if either, of these comments is correct?
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A 1 only
B 2 only
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C Both of them
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D Neither of them
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14 Which of the following is the best description of fair presentation in accordance with IAS 1,
Presentation of Financial Statements?
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A The financial statements are accurate.

B The financial statements are as accurate as possible given the accounting systems of
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the organisation.
C The directors of the company have stated that the financial statements are accurate
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and correctly prepared.

D The financial statements are reliable in that they reflect the effects of transactions, other
events and conditions.
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15 Which of the following definitions for the going concern concept in accounting is the
closest to the definition given in IAS 1, Presentation of Financial Statements?
A The directors do not intend to liquidate the entity or to cease trading in the
foreseeable future.
B The entity is able to pay its debts as and when they fall due.
C The directors expect the entity's assets to yield future economic benefits.
D Financial statements have been prepared on the assumption that the entity is solvent
and would be able to pay all creditors in full in the event of being wound up.
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16 According to IAS 1, Presentation of Financial Statements, compliance with IFRS Standards
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will normally ensure that:
A the entity's inventory is valued at net realisable value
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B the entity's assets are valued at their break-up value
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the entity's financial statements are prepared on the assumption that it is a going
concern
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D the entity's financial position, financial performance and cash flows are presented fairly
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17 The directors of Lagon plc wish to omit an item from the company's financial statements on
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the grounds that it is commercially sensitive. Information on the item would influence the
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users of the information when making economic decisions. According to IAS 1, Presentation
of Financial Statements the item is said to be:
A neutral
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B prudent
C material
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D understandable
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18 Which three of the following are fundamental principles of the IESBA Code of Ethics for
Professional Accountants?
A Integrity
B Objectivity
C Independence
D Confidentiality
E Courtesy
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19 Which of the following statements is correct?
A The ICAEW Code of Ethics applies to its members only.
B The ICAEW Code of Ethics applies to its members and employees of member firms
only.
C The ICAEW Code of Ethics applies to its members, employees of member firms and
ICAEW students.
D The ICAEW Code of Ethics applies to its members, employees of member firms,
ICAEW students and all other members of UK accountancy bodies.
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20 Which of the following statements best describes ethical guidance in the UK?
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A Ethical guidance provides a set of rules which must be followed in all circumstances.
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B Ethical guidance is a framework containing a combination of rules and principles, the
application of which is dependent on the professional judgement of the accountant
based on the specific circumstances.
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C Ethical guidance provides a set of principles which can be applied at the discretion of
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the accountant.
Ethical guidance is a series of legal requirements.
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21 There are two main approaches to a code of professional ethics: a rules-based ethical code
and a code based upon a set of principles.
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Indicate whether the following statements are true or false.
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A code based upon a set of principles requires a professional accountant to comply with a
set of specific rules.
A True
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B False
A rules-based code requires a professional accountant to identify, evaluate and address
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threats to compliance with fundamental ethical principles.

C True
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D False
The ICAEW uses a rules-based approach.
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E True
F False
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Chapter 2: The accounting equation
1 The accounting equation can be written as:
A Assets + profits – drawings – liabilities = closing capital
B Assets – liabilities – drawings = opening capital + profit
C Assets – liabilities – opening capital + drawings = profit
D Opening capital + profit – drawings – liabilities = assets
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2 The capital of a sole trader would change as a result of:
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A a credit customer paying by bank transfer
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B raw materials being purchased on credit
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C non-current assets being purchased on credit
D personal petrol being paid for out of the business's petty cash
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3 A business can make a profit and yet have a decreased bank balance. Which of the
following might cause this to happen?
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A The sale of non-current assets at a loss
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B The charging of depreciation in the statement of profit or loss

C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers
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4 The purpose of the financial statement that lists an entity's total assets and total
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capital/liabilities is to show:
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A the financial performance of the entity over a period of time

B the amount the entity could be sold for in liquidation
C the amount the entity could be sold for as a going concern
D the financial position of the entity at a particular moment in time
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ICAEW 2020 Chapter 2: The accounting equation 9

5 A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit customer
in respect of its account.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Liabilities only
C Assets only
D Assets, liabilities and capital
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6 A sole trader purchases goods on credit.
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B Assets and capital
C
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Capital and liabilities
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D Assets only
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7 A sole trader borrows £10,000 from a bank.

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C Capital and liabilities
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D Assets only
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LO 1d
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8 A sole trader sells goods for cash for £500 which had cost £300.
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C Capital and liabilities
D Assets only
LO 1d

9 A sole trader increases the business's number of motor vehicles by adding his own car to
the business's fleet.
A Assets only
B Capital only
C Assets and capital
D Assets and liabilities
LO 1d
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10 Which three of the following are elements of financial statements as identified by the IASB’s
Conceptual Framework?
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A Income
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B Expenses
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D
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E Obligations
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F Resources
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G Equity
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ICAEW 2020
Chapter 3: Recording financial transactions
1 A business paid out £12,450 in net wages to its employees. In respect of these wages, the
following amounts were shown in the statement of financial position.
£
PAYE payable 2,480
National Insurance payable – employees' 1,350
– employer's 1,500
No other deductions were made.
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Employees' gross wages, before deductions, were:
A £12,450
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B £27,450
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C £16,280
D £17,780
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LO 1d
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2 Which of the following is a source document that would be entered into the accounting
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system?
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A Debit note
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B Credit note
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C Sales order
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D Purchase order
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3 Which of the following best explains the imprest system of petty cash?
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A Each month an equal amount of cash is transferred into petty cash.

B The exact amount of petty cash expenditure is reimbursed at intervals to maintain a
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fixed float.
C Petty cash must be kept under lock and key.
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D The petty cash total must never fall below the imprest amount.
LO 1c, 1d
ICAEW 2020 Chapter 3: Recording financial transactions 13

4 On 1 April Amara had a balance of £100 (the imprest amount) in petty cash. At the end of April
she has vouchers totalling £38, a receipt for a refund for stationery of £4 and a note to say that
an employee was reimbursed £12 in respect of postage costs but no voucher was issued.
How much does Amara need to reinstate her imprest balance at 30 April?
A £34
B £46
C £54
D £66
LO 1c
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5 The following data has been extracted from the payroll records of Kleen Ltd for the month
of February 20X1.
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£
PAYE 17,000
Employer's NIC 7,500
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Employees' NIC 6,000
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Cash paid to employees 50,000
The wage expense for the month is:
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A £50,000
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B £56,000
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C £74,500
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D £80,500
LO 1c, 1d
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6 When a purchase invoice is received from a supplier which two of the following documents
would the invoice be checked to?
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A Sales order
B Purchase order
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C Remittance advice
D Goods received note
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E Credit note
LO 1c
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7 George purchases goods on credit from Hardeep for £1,000. £100 of these goods are
defective and George returns them to Hardeep. What document would Hardeep issue to
George in respect of the returned goods?
A Invoice
B Remittance advice
C Credit note
D Delivery note
LO 1c

8 Oscar downloads his bank transaction report for the day. The report shows a cash payment
of £412 which the computerised accounting system has not been able to match to a
transaction.
The unmatched payment is most likely the result of:
A the purchase of a new laptop for £412
B payment to a regular credit supplier for an invoice totalling £412
C a receipt from a credit customer in respect of an invoice for £450 on which a prompt
payment discount of £38 was taken
D the payment of net wages of £412 which is consistent with the payroll ledger
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LO 1c
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9 A business has the following payroll costs for a month:
£
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Gross pay 112,450
Income tax deducted 15,800
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Employees' national insurance
Employer's national insurance
9,810
11,200
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What is the net amount paid to employees for the month?
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A £75,640
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B £91,440
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C £102,640
D £86,840
C
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LO 1c, 1d
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10 The petty cash float in a business has an imprest amount of £200. At the end of March
vouchers in the petty cash box totalled £136 and the amount of cash remaining in the box
was £54.
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Which of the following explains the difference?

A A petty cash voucher for £10 is missing.
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B An employee was given £10 too little when making a petty cash claim.
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C An employee reimbursed petty cash with £10 in respect of postage stamps used, but
no voucher was prepared.
D A voucher for £10 was put in the box but no payment was made to the employee.
LO 1c

11 A business has the following payroll costs for a month:
£
Gross pay 38,600
Income tax 5,400
Employees' national insurance 3,100
Employer's national insurance 3,500
What is the wages cost to the business for the month?
A £38,600
B £42,100
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C £47,100
D £50,600
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LO 1c, 1d
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12 Which two of the following are source documents that contain information that will be
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entered into a business's accounting system?
A Goods received note
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B Invoice to a customer
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C Purchase order to a supplier
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D Cheque to a supplier
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E Delivery note to a customer

LO 1c
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Chapter 4: Ledger accounting and double entry
1 Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate
of 20%. Richard sells a customer goods on credit for £4,800 exclusive of VAT.
What is the double entry to record this ?
A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760
B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
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D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
LO 1d, 2c
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2 What transaction is represented by the entries: Debit rent, Credit landlord?
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A The receipt of rental income by the business
B
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The issue of an invoice for rent to a tenant
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C The receipt of an invoice for rent payable by the business
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D The payment of rent by the business
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C
3 In double-entry bookkeeping, which of the following statements is true?
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A Credit entries decrease liabilities and increase income.

B Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.
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D Debit entries decrease expenses and increase assets.

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LO 1d
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4 A debit balance of £3,000 brought down on A Ltd's account in B Ltd's books means that B
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Ltd owes A Ltd £3,000.

A True
B False
LO 1d
ICAEW 2020 Chapter 4: Ledger accounting and double entry 17

5 Crimson plc paid an invoice from a credit supplier and took advantage of the early
settlement discount offered. When the invoice was received and recorded, Crimson plc did
not expect to take the discount.
The journal entry to record the payment of the invoice is:
A Debit Payables, Credit Purchases, Credit Cash at bank account
B Debit Payables, Credit Cash at bank account
C Debit Cash at bank account, Debit Purchases, Credit Payables
D Debit Cash at bank account, Credit Purchases, Credit Payables
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LO 1d
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6 Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655.
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Purchases for the period totalled £254,192 (£31,590 relating to cash purchases).
Total payments recorded in the payables ledger for the period were:
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A £212,130
B £233,074
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C £243,720
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D £264,664
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LO 1d, 2c
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C
7 What is the correct double entry to record an invoice raised to a credit customer who is not
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expected to take advantage of an early settlement discount?

A Debit Revenue, Credit Receivables
B Debit Payables, Credit Revenue
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C Debit Receivables, Credit Revenue

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D Debit Revenue, Credit Payables

LO 1d, 2c
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8 Which of the following could be a debit entry in the payables account?

A Output VAT
B Cash purchases total
C Payments made to suppliers
D Early settlement discounts given to customers
LO 1d, 2c

9 A payment has been received from a credit customer in settlement of an invoice. The
customer was expected to take advantage of an early settlement discount offered, however,
payment was not made within the required timeframe and the discount was not taken.
The correct double entry to record the receipt of funds from the customer in full settlement
of the invoice is:
A Debit Cash at bank, Credit Receivables, Credit Revenue
B Debit Cash at bank, Debit Revenue, Credit Payables
C Debit Receivables, Debit Revenue, Credit Cash at bank
D Debit Receivables, Credit Revenue, Credit Cash at bank
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10 A business which is registered for VAT received the following invoice from one of its VAT
registered suppliers:
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Invoice: 7035
Date:
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20 December 20X0
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£
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Goods: 100 @ £10 1,000
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Less trade discount (50)
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950
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A further discount of £50 will be allowed if payment is received within 14 days.

C
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Assume the business is not expected to make the payment within 14 days and the VAT rate
is 20%.
What amount of VAT should have been charged on the invoice?
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A £180
B £190
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C £200
D £210
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LO 1c
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AE
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ICAEW 2020
Chapter 5: Preparing basic financial statements
1 Anchor Ltd is preparing its financial statements. After transferring the balances on all the
income and expense ledger accounts to the profit and loss ledger account, the total credits
in the profit and loss ledger account exceed the total debits by £4,000.
Which two of the following statements about Anchor Ltd are correct?
A Anchor Ltd has made a loss for the year of £4,000.
B Anchor Ltd has made a profit for the year of £4,000.
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C To begin to calculate the closing capital account balance, Anchor Ltd should credit the
capital account and debit the profit and loss ledger account with £4,000.
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D The opening balance on the profit and loss ledger account for the next reporting
period is £4,000 credit.
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E The closing balance on the profit and loss ledger account of £4,000 should be
deducted from the capital account to give the profit for the year.
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LO 3c
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2 Which of the following would be classified as a non-current asset?
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A Cash
B Prepayments
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C Land
C
D Receivables
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LO 3c
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3 Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a
total of £89,436 excluding VAT and purchases goods from suppliers for a total of £86,790
AE
including VAT.
What is the net amount shown in Gerrard Ltd's VAT account at the end of April?
A £3,422 debit
IC
B £2,452 debit
R
C £3,422 credit
D £2,452 credit
LO 3c
ICAEW 2020 Chapter 5: Preparing basic financial statements 21

4 Which of the following statements concerning preparation of financial statements is true?
A The balances on income and expense accounts are brought down at the end of the
accounting period to be carried forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger
account known as the statement of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted from
the business's accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.
LO 3c
ng
ni
5 A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of
£7,200, credit sales of £16,500 and received £15,300 from his credit customers.
ar
The balance on his trade receivables account at the end of May was:
A £1,500
e
B £3,900
C £8,700
ce am L
en tn in
s
D £11,100
ie
LO 3c
er ie er
op
ef V rtn
6 Which of the following would be a credit balance in the trial balance?

C
A Bank overdraft
Pa
B Drawings
C Purchases
W
D Delivery outwards
LO 1f
AE
IC
7 Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the
year to 30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales
R
of £89,400 excluding VAT. There was no change in the figures for opening and closing
inventory in the statements of financial position as at 30 June 20X6 and 20X7.
What was Plym plc's gross profit for the year ended 30 June 20X7?
A £19,800
B £4,900
C £31,400
D £16,500
LO 3c

8 Violet had an opening trade payables balance of £3,450 on 1 December. During the month
of December, she sold goods totalling £6,780 to customers on credit, purchased goods
totalling £5,100 from suppliers on credit and made cash purchases of £400. She also
received £3,900 from credit customers and made payments to credit suppliers of £4,200.
What was the balance on Violet's trade payables account at the end of December?
A £4,350
B £6,330
C £4,750
D £2,550
ng
LO 3c
ni
ar
9 The following are balances on the accounts of Luigi, a sole trader, as at the end of the
current financial year and after all entries have been processed and the profit for the year
e
has been calculated.
ce am L
Non-current assets
£
85,000
en tn in
Trade receivables 7,000
s
Trade payables 3,000
Bank loan 15,000
ie
er ie er
Accumulated depreciation, non-current assets 15,000

Inventory 4,000
Accruals
op 1,000
ef V rtn
Prepayments 2,000
Bank overdraft 2,000
C
Pa
What is the balance on Luigi's capital account?

A £59,000
B £66,000
W
C £62,000
AE
D £64,000
LO 3c
IC

24
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 6: Errors and corrections to accounting
records and financial statements
1 Which three of the following situations are likely to result in a suspense account being used
to record a transaction?
A A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3%
prompt payment discount.
B A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
ng
C A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in
ni
which the bookkeeper was unsure where to record the credit entry.
E A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a
ar
prompt payment discount of 5% was expected to be taken.
LO 2b
e
ce am L
en tn in
2 Indicate whether the following statements are true or false.
s
The owner's drawings are shown on the initial trial balance.
ie
er ie er
A True
B False
op
ef V rtn
The closing inventory balance is included in the final trial balance.

C
C True
Pa
D False
LO 1e
W
3 When performing a reconciliation between the bank transaction report and the cash at
AE
bank account, which two of the following would require an entry in the cash at bank
account?
A Deposits credited after date
IC
B Direct debit on bank transaction report only

R
C Bank charges
D Bank error
E Cheque presented after date
LO 2b
ICAEW 2020 Chapter 6: Errors and corrections to accounting records and financial statements 25
4 Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn.
On comparing this with the transaction report downloaded from the electronic banking
system, the accountant discovers the following:
1 A cheque for £57 drawn by Epsilon on 29 December 20X3 has not yet been presented
for payment.
2 A cheque for £92 from a customer, which was paid into the bank on 24 December
20X3, has been dishonoured on 31 December 20X3.
The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is:
A £473 debit
ng
B £714 credit
C £657 credit
ni
D £473 credit
LO 2b
e ar
ce am L
5 Smyths's draft profit for the year is £324,700. After the draft profit was calculated, the
following issues were discovered.
en tn in
• Debts of £6,800 should have been written off as irrecoverable at the year end, but the
s
journal entry was not posted.
ie
er ie er
• The accounting system had automatically calculated and recorded depreciation, but
the standing data was found to be incorrect. The depreciation rate for cars should have
op
been updated to 20% straight-line at the start of the year, but was left as 25% straight-
ef V rtn
line in error. The balance on the car cost account at the year end was £24,000. There
were no additions or disposals of cars in the year.
C
What is Smyths's corrected profit for the year after accounting for the above issues?
Pa
A £323,500
B £319,100
W
C £313,100
D £316,700
AE
LO 2a, 2b
IC
6 A company's initial trial balance includes a balance of £25,000 in a suspense account. On

reviewing the exception report, the bookkeeper identified the amount as a purchase of
R
machinery for £25,000. The amount had been correctly recorded in cash at bank but the
other side of the transaction had not been matched by the accounting system.
Which of the following journal entries would remove the suspense account and correctly
record the purchase of machinery?

A DEBIT Plant and machinery £25,000
CREDIT Cash at bank account £25,000
B DEBIT Suspense account £25,000
CREDIT Plant and machinery £25,000
C DEBIT Plant and machinery £25,000
CREDIT Suspense account £25,000
D DEBIT Cash at bank account £25,000
CREDIT Suspense account £25,000
LO 2c
ng
ni
7 The following information relates to a bank reconciliation. The balance in the cash at bank
account before taking the items below into account was £8,970 overdrawn.
ar
1 Bank charges of £550 on the bank statement have not been entered in the cash at
bank account.
e
2 The bank has credited the account in error with £425 which belongs to another
3
customer.
ce am L
Cheque payments totalling £3,275 have been entered in the cash at bank account but
en tn in
s
have not been presented for payment.
ie
4 Cheques totalling £5,380 have been correctly entered on the debit side of the cash at
er ie er
bank account but have not been paid in at the bank.
op
What was the overdrawn balance as shown by the bank statement?
ef V rtn
A £6,990
C
B £10,650
Pa
C £11,200
D £11,625
W
LO 2b
AE
8 Which two of the following statements about bank reconciliations are correct?
IC
A In preparing a bank reconciliation, unpresented cheques must be deducted from the

balance shown in the bank statement.
R
B A cheque from a customer paid into the bank but dishonoured must be corrected by
making a debit entry in the cash at bank account.
C An error by the bank must be corrected by an entry in the cash at bank account.
D An overdraft is a debit balance in the bank statement.
E Bank charges that only appear on the bank statement must be debited to the cash at
bank account.
LO 2b
9 Alpha received a statement from its credit supplier Beta, showing a balance to be paid of
£8,950. Alpha's payables ledger for Beta shows a balance due to Beta of £4,140.
Investigation reveals the following:
1 A bank transfer made to Beta of £4,080 has not been recorded by Beta.
2 Alpha has not adjusted the payables ledger for a £40 cash discount taken by Alpha but
not allowed by Beta as payment was not made on time.
3 Goods costing £380 returned by Alpha have not been recorded by Beta.
What discrepancy remains between Alpha's and Beta's records after accounting for these
items?
ng
A £9,310
B £390
ni
C £310
D £1,070
ar
LO 2a
e
ce am L
10 Peri's customer unexpectedly took advantage of an early settlement discount for £300,
paying £3,700 on an invoice which totalled £4,000. Peri's bookkeeper was not sure where
en tn in
to record the discount taken and so posted the following journal entry:
s
DEBIT Cash at bank 3,700
ie
er ie er
DEBIT Suspense account 300

CREDIT Receivables 4,000
op
ef V rtn
Which of the following journal entries will remove the suspense account and correctly
record the discount?
C
A Debit Receivables £300, Credit Suspense account £300
Pa
B Debit Revenue £300, Credit Suspense account £300

C Debit Cash at bank £300, Credit Suspense account £300
D Debit Payables £300, Credit Suspense account £300
W
LO 2c
AE
11 Which three of the following differences between a company's cash at bank account and its
bank transaction report balance as at 30 November 20X3 would feature in the bank
IC
reconciliation?
A Cheques recorded and sent to suppliers before 30 November 20X3 but not yet
R
presented for payment

B Omission by the bank of a cash lodgement made by the company on 26 November
20X3
C Bank charges
D Cheques paid in before 30 November 20X3 but not credited by the bank until
3 December 20X3
E A customer's cheque recorded and paid in before 30 November 20X3 but dishonoured
by the bank
LO 2b

12 In performing a bank reconciliation exercise, which two of the following require an entry in
the cash at bank account?
A Cheque paid in, subsequently dishonoured on the bank transaction report
B Error by bank
C Bank charges
D Lodgements credited after date
E Outstanding cheques not yet presented
LO 2b
ng
ni
13 An error of principle would occur if plant and machinery purchased:
A was omitted from the accounting records
ar
B was debited to the purchases account
e
C was debited to the equipment account
ce am L
D was debited to the correct account but with the wrong amount
LO 2a
en tn in
s
ie
er ie er
14 Olivia's exception report showed £265 received in the business bank account, and correctly
op
recorded in cash at bank, could not be matched by the accounting system and so had been
ef V rtn
posted to a suspense account. Olivia discovered that the receipt was in respect of a sales
invoice for £295 on which the customer had unexpectedly taken a prompt payment
C
discount of £30. The customer had paid within the required timeframe and so was entitled
Pa
to take the discount.

Which of the following journal entries should Olivia now post to correctly record the receipt
and clear the suspense account?
W
A Debit Trade receivables £265, Credit Suspense account £265

B Debit Revenue £30, Debit Suspense account £265, Credit Trade receivables £295
AE
C Debit Suspense account £265, Credit Trade receivables £265

D Debit Trade receivables £295, Credit Revenue £30, Credit Suspense account £265
IC
LO 2b
R
15 Which of the following statements about bank reconciliations are correct?

1 All differences between the cash at bank account and the bank statement must be
corrected by means of a journal entry.
2 In preparing a bank reconciliation, cheques received from credit customers before the
period end but credited by the bank after the period end should reduce an overdrawn
balance in the bank statement.
3 Bank charges not yet entered in the cash at bank account should be dealt with by an
adjustment to the balance per the bank statement.
4 If a cheque received from a credit customer is dishonoured after date, a credit entry in
the cash at bank account is required.
A 2 and 4
B 1 and 4
C 2 and 3
D 1 and 3
LO 2b
ng
16 The following trade payables account contains some errors. All goods are purchased on
credit.
ni
TRADE PAYABLES
ar
\\ £ £
Purchases 945,800 Opening balance 384,600
e
Cash at bank account 988,400
Purchases (Discounts received
from suppliers)
ce am L
Trade receivables (contra)
12,600
4,200
en tn in
Closing balance 410,400
s
1,373,000 1,373,000
ie
er ie er
What would be the closing trade payables balance when the errors have been corrected?
op
ef V rtn
A £325,200
B £350,400
C
C £333,600
Pa
D £410,400
LO 2b
W
AE
17 An error of commission is one where:

A a transaction has not been recorded
B one side of a transaction has been recorded in the wrong account, and that account is
IC
of a different class to the correct account

R
C one side of a transaction has been recorded in the wrong account, and that account is
of the same class as the correct account
D a transaction has been recorded using the wrong amount
LO 2a

18 Owais's trial balance included a suspense account which had been automatically opened
by the computerised accounting system. Using the exception report, the bookkeeper
identified that the balance in the suspense account was due to the following unmatched
transactions:
1 A payment to a credit supplier for £135 related to an invoice for £120. The business
missed the deadline to take the early settlement discount it had expected to take.
2 A receipt of £90 from a credit customer who had unexpectedly (but appropriately)
taken an early settlement discount of £10.
3 Interest received in the business bank account of £70.
What is the balance on the suspense account?
ng
A Debit £25
B Credit £25
ni
C Debit £65
ar
D Credit £65
LO 2b
e
ce am L
en tn in
19 All Elmo's sales and purchases attract VAT at 20%. A customer has just returned goods sold
s
for £230 excluding VAT. The double entry for this transaction is:
ie
er ie er
A Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230
B
op
Debit Revenue £276, Credit Trade receivables £276
ef V rtn
C Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276
D Debit Trade receivables £230, Debit VAT £46, Credit Revenue £276
C
Pa
LO 2c
W
20 Recording the purchase of stationery by debiting the computer equipment account would
result in:
AE
A an overstatement of profit and an overstatement of non-current assets

B an understatement of profit and an overstatement of non-current assets
C an overstatement of profit and an understatement of non-current assets
IC
D an understatement of profit and an understatement of non-current assets

R
LO 2a
21 In the trade payables of Magma plc, an invoice of £807 from Ferdinand has been recorded
as a credit note. After correcting this error, the trade payables balance will be:
A reduced by £807
B reduced by £1,614
C increased by £807
D increased by £1,614
LO 2b
ng
22 Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of £83,000 for
ni
the year ended 31 December 20X3.
Two issues were then discovered:
ar
1 Inventory costing £5,000, with a resale value of £7,500, was received into the
warehouse on 2 January 20X4 but had been included in the closing inventory amount
e
at 31 December 20X3.
2
ce am L
£10,000 relating to staff training costs was incorrectly capitalised as part of the
purchase cost of a new machine which had been purchased on 1 July 20X3. Beta Ltd
en tn in
depreciates machinery on a straight-line basis at a rate of 20% per annum.
s
Depreciation should be included as an administrative expense in the year.
ie
er ie er
After correcting these issues, what amounts should Beta Ltd report for gross profit and net
profit?
op
ef V rtn
Gross profit Net profit

A £142,500 £66,500
C
B £145,000 £69,000
Pa
C £145,000 £74,000
D £142,500 £65,500
LO 2a
W
AE
23 Ewan, a sole trader, has taken goods valued at £1,800 for his own use. This has not been
recorded in arriving at his draft profit figure. To record the drawings he:
Must adjust cost of sales by:
IC
A Debit £1,800
R
B Credit £1,800
So his reported profit will:
C Increase
D Decrease
LO 2a, 2c

24 The debit balance in Omar plc's cash at bank account at the year end is £42,510. The
following items appear in the bank reconciliation at the year end.
£
Unpresented cheques 2,990
Uncleared lodgements 10,270
A cheque received from a customer for £2,470 was returned unpaid by the bank before the
year end, but this has not been recorded in the cash at bank account.
What was the bank balance shown by the bank statement?
A £37,700
ng
B £47,320
C £35,230
ni
D £32,760
LO 2b
e ar
ce am L
25 Rochelle has a debit balance of £26 in Staint plc's payables ledger. Which of the following
would, alone, explain this balance?
en tn in
s
A Staint plc paid an invoice for £26 even though it had recorded a credit note that
Rochelle had issued in respect of this amount.
ie
er ie er
B Staint plc bought and paid for some goods for £26 which it then returned, but Rochelle
op
has not yet issued a credit note.
ef V rtn
C Staint plc received a credit note for £26 from Rochelle but posted it to the account of
Nashalle.
C
Pa
D Staint plc paid a cheque to Rochelle for £53 in respect of an invoice for £79.
LO 2a, 2b
W
26 Catt plc has prepared a draft statement of profit or loss at 31 May 20X1 which shows a gross
AE
profit of £99,500. Catt plc has now discovered that at both the beginning and the end of the
period, one line of inventory, the Sungsa, has been included at selling price: £1,240 at
31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold at a mark-up of 25% by
IC
Catt plc.
After correcting this error Catt plc's gross profit for the year to 31 May 20X1 is:
R
A £99,996
B £99,004
C £98,880
D £100,120
LO 2a
27 Mayo plc has prepared a draft statement of profit or loss that shows a net profit of £75,000
for the year ended 30 April 20X5. Subsequently, the following matters have been
discovered.
1 A subscription notice for £1,000 was received in April 20X5 for the year to
30 April 20X6. Mayo plc pays the subscription in two equal instalments. The first
instalment was paid on 28 April 20X5 and posted to the cash at bank account and to
administrative expenses. No other entries have been made.
2 Goods that cost £400 and sold at a gross margin of 75% were returned by Dandy Ltd
on 30 April 20X5, after the inventory count had taken place. No credit note was issued.
Once these matters have been dealt with Mayo plc's net profit for the year ended
ng
30 April 20X5 will be:
A £75,400
ni
B £74,300
C £75,100
ar
D £75,700
LO 2a
e
ce am L
en tn in
28 Hood plc has a draft net profit of £540,000. It discovered the following errors:
s
1 Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and
ie
fittings. Hood plc depreciates fixtures and fittings at 25% per annum.
er ie er
2
op
An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a
ef V rtn
customer was debited to trade receivables and credited to sales.

On correction of these errors Hood plc's net profit will be:
C
A £535,050
Pa
B £531,480
C £533,265
W
D £536,430
LO 2a
AE
29 Net profit was calculated as being £10,200. It was later discovered that capital expenditure
of £3,000 had been treated as revenue expenditure, and revenue receipts of £1,400 had
been treated as capital receipts.
IC
What is the net profit after correcting for these errors?

R
A £5,800
B £8,600
C £11,800
D £14,600
LO 2a

30 On reviewing its cash at bank account and the transaction report downloaded from its
electronic banking system, Probla plc discovers the following errors:
1 A cheque from a credit customer for £1,095 was recorded in trade receivables and
cash at bank account as £1,509.
2 A cheque to a credit supplier for £89 was entered incorrectly in trade payables and the
cash at bank account as £98.
What is the journal entry to correct these errors?
A Debit Receivables £414, Credit Payables £9, Credit Cash £405
B Debit Cash £405, Debit Payables £9, Credit Receivables £414
ng
C Debit Receivables £414, Debit Payables £9, Credit Cash £423
D Debit Cash £423, Credit Receivables £414, Credit Payables £9
ni
LO 2b
e ar
31 In relation to trade payables at the year end of 30 April 20X1, Jitka plc has discovered that:
1
ce am L
a contra of £85 with trade receivables is required; and
en tn in
2 an early settlement discount of £2,220, which was taken appropriately by a credit
s
customer, was credited to revenue and debited to trade payables. Jitka plc had not
ie
expected the customer to take the discount.
er ie er
Before these discoveries, the balance on trade payables was £72,560. In its statement of
op
financial position as at 30 April 20X1 Jitka plc will have a figure for trade payables of:
ef V rtn
A £70,255
C
B £74,695
Pa
C £74,865
D £76,915
W
LO 2a, 3c
AE
32 Topping plc's initial trial balance for the year ended 31 October 20X9 has been prepared. It
shows draft profit for the period of £58,147 and a credit balance on a suspense account of
IC
£738 in respect of accrued expenses. The bookkeeper was unsure of how to record the
accrual and incorrectly debited £738 to prepayments and credited the suspense account.
R
What is Topping plc's profit after tax when this error is corrected?
A £59,623
B £57,409
C £58,885
D £56,671
LO 2a
36
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 7: Cost of sales and inventories
1 A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases for
the year were £76,500, delivery inwards was £50 and delivery outwards was £180.
What is the correct amount for cost of sales?
A £75,550
B £75,650
C £75,830
ng
D £77,450
LO 1d, 3c
ni
ar
2 Platoon plc is preparing its financial statements for the year ended 30 April 20X1, having
e
extracted an initial trial balance.
ce am L
It had no opening inventory, its purchases in the period were £686,880 and closing
inventories were valued as £18,647 on 30 April 20X1.
en tn in
s
Which two of the following journal entries are required to record cost of sales and closing
inventories at 30 April 20X1?
ie
er ie er
A Dr Cost of sales £686,880; Cr Inventories £686,880

B Dr Purchases
op £686,880; Cr Cost of sales £686,880
ef V rtn
C Dr Cost of sales £686,880; Cr Purchases £686,880

C
D Dr Inventories £18,647; Cr Cost of sales £18,647
Pa
E Dr Cost of sales £18,647; Cr Inventories £18,647

F Dr Inventories £18,647; Cr Purchases £18,647
LO 3c
W
AE
3 Muse plc began trading on 1 January 20X8 and had zero inventories at that date. During
20X8 it made purchases of £455,000, incurred delivery inwards of £24,000, and delivery
IC
outwards of £29,000. Closing inventories at 31 December 20X8 were £52,000.

R
What is the correct amount for cost of sales for the year ended 31 December 20X8?
A £456,000
B £427,000
C £432,000
D £531,000
LO 3c
ICAEW 2020 Chapter 7: Cost of sales and inventories 37

4 Boomerang Co had 200 units in inventory at 30 November 20X1 valued at £800. During
December it made the following purchases and sales.
2/12 Purchased 1,000 @ £5.00 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 is the closing inventory amount using FIFO?
A £4,460
ng
B £4,340
C £4,620
ni
D £3,500
ar
LO 1d
e
5
ce am L
The following information relates to Camberwell plc's year-end inventory of finished goods.
en tn in
s
Direct Expected
ie
costs of Production selling and
er ie er
materials overheads distribution Expected

and labour incurred overheads selling price
op £ £ £ £
ef V rtn
Inventories category 1 2,470 2,100 480 5,800

Inventories category 2 9,360 2,730 150 12,040
C
Inventories category 3 1,450 850 190 2,560
Pa
13,280 5,680 820 20,400
At what amount should finished goods inventory be stated in the company's statement of
financial position?
W
A £13,280
B £18,960
AE
C £18,760
D £19,580
IC
LO 1d
R
6 At its year end Crocodile plc has 6,000 items of product A, and 2,000 of product B, costing
£10 and £5 respectively. The following information is available:
Product A – 500 are defective and can only be sold at £8 each.
Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.

What figure should be shown in Crocodile plc's statement of financial position for
inventory?
A £57,000
B £68,950
C £68,800
D £70,000
LO 1d, 3c
ng
ni
In a period of rising prices, applying the FIFO method to determine the cost of inventories
will give a lower gross profit figure than the AVCO method.
ar
A True
B False
e
Closing inventory is a debit in the statement of profit or loss.
C True
ce am L
en tn in
D False
s
LO 1d, 2a
ie
er ie er
op
ef V rtn
8 Mickey Ltd has calculated the cost of inventory using AVCO. At 1 June 20X8 there were 60
C
units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for £15 each,
and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75 units were
Pa
sold for £20.00 each.

What is the cost of closing inventory at 30 June 20X8?
A £1,110
W
B £1,010
AE
C £900
D £1,125
LO 3c
IC
9 Morgan plc's direct production cost of each unit of inventory is £46. Production overheads
are £15 per unit. Currently the goods can only be sold if they are modified at a cost of £17
per unit. The selling price of each modified unit is £80 and selling costs are estimated at
10% of selling price.

At what amount should each unmodified unit of inventory be included in the statement of
financial position?
A £48
B £55
C £64
D £61
LO 3c
ng
A van for sale by a dealer is shown as a non-current asset in its statement of financial
ni
position.
A True
ar
B False
e
Import duties are included in the cost of inventory.
ce am L
C True
D False
en tn in
LO 3c
s
ie
er ie er
op
11 Which two of the following may be included when arriving at the cost of finished goods
inventory for inclusion in the financial statements of a manufacturing company?
ef V rtn
A Delivery inwards
C
B Delivery outwards
Pa
C Depreciation of delivery vehicles

D Finished goods storage costs
E Production line wages
W
LO 1d
AE
12 Which of the following statements about inventory for the purposes of the statement of
IC
financial position is correct?

A AVCO and LIFO are both acceptable methods, under IAS 2, Inventories, of arriving at
R
the cost of inventories.

B The cost of inventories of finished goods may include labour and materials cost only,
without including overheads.
C Inventories should be included at the lowest of cost, net realisable value and
replacement cost.
D It may be acceptable for the cost of inventories to be based on selling price less
estimated profit margin.
LO 1d

13 A company's closing inventory at 31 January 20X3 amounted to £284,700.
The following items were included, at cost, in the total:
1 400 coats, which had cost £80 each and normally sold for £150 each. Owing to a
defect in manufacture, they were all sold after 31 January 20X3 at 50% of their normal
price. Selling expenses amounted to 5% of the proceeds.
2 800 skirts, which had cost £20 each. These too were found to be defective. Remedial
work in February 20X3 cost £5 per skirt, and selling expenses were £1 per skirt. They
were sold for £28 each.
What should be the inventory value after considering the above items?
ng
A £281,200
B £282,800
ni
C £329,200
D £284,700
ar
LO 1d
e
ce am L
14 Sahara plc sells three products – Basic, Super and Luxury. The following information was
en tn in
available at the year end.
s
Basic Super Luxury
ie
£ per unit £ per unit £ per unit
er ie er
Original cost 6 9 18
op
Estimated selling price 9 12 15
ef V rtn
Selling and distribution costs to be incurred 1 4 5

C
Units Units Units
Pa
Units of inventory 200 250 150

What is the value of inventory at the year end?
A £3,600
W
B £4,700
C £5,100
AE
D £6,150
LO 1d
IC
15 A company uses the FIFO method to arrive at its inventory cost. At 1 May 20X2 the
R
company had 700 engines in inventory, valued at £190 each.

During the year ended 30 April 20X3 the following transactions took place:
20X2
1 July Purchased 500 engines at £220 each
1 November Sold 400 engines for £160,000
20X3
1 February Purchased 300 engines at £230 each
15 April Sold 250 engines for £125,000

What is the cost of the company's closing inventory of engines at 30 April 20X3?
A £188,500
B £195,500
C £161,500
D £167,500
LO 1d
ng
16 An inventory record card shows the following details.
February 1 50 units in inventory at a cost of £40 per unit
ni
7 100 units purchased at a cost of £45 per unit
14 80 units sold
21 50 units purchased at a cost of £50 per unit
ar
28 60 units sold
What is the cost of inventory at 28 February using the FIFO method?
e
A £2,450
B £2,500
ce am L
en tn in
s
C £2,700
ie
D £2,950
er ie er
LO 1d
op
ef V rtn
17 For the year ended 31 October 20X3 a company did a physical count of inventory on
C
4 November 20X3, leading to an inventory cost at this date of £483,700.
Pa
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1 Goods costing £38,400 were received from suppliers.
2 Goods that had cost £14,800 were sold for £20,000.
W
3 A customer returned, in good condition, some goods which had been sold to him in
October for £600 and which had cost £400.
AE
4 The company returned goods that had cost £1,800 in October to the supplier, and
received a credit note for them.
IC
What figure should be shown in the company's financial statements at 31 October 20X3 for
closing inventory, based on this information?
R
A £458,700
B £505,900
C £508,700
D £461,500
LO 3c

18 In preparing its financial statements for the current year, a company's closing inventory was
understated by £300,000.
What will be the effect of this error if it remains uncorrected?
A The current year's profit will be overstated and next year's profit will be understated.
B The current year's profit will be understated but there will be no effect on next year's
profit.
C The current year's profit will be understated and next year's profit will be overstated.
D The current year's profit will be overstated but there will be no effect on next year's
profit.
ng
LO 2a
ni
ar
19 At 30 September 20X3 the closing inventory of a company amounted to £386,400.
The following items were included in this total at cost:
e
1 1,000 items which had cost £18 each. These items were all sold in October 20X3 for
ce am L
£15 each, with selling expenses of £800.
2 Five items which had been in inventory for many years and which had been purchased
en tn in
for £100 each, sold in October 20X3 for £1,000 each, net of selling expenses.
s
What figure should appear in the company's statement of financial position at
ie
er ie er
30 September 20X3 for inventory?

A £382,600
op
ef V rtn
B £390,200
C
C £368,400
Pa
D £400,600
LO 3c
W
20 The cost of inventory in the financial statements of Quebec Ltd for the year ended
AE
31 December 20X4 of £836,200 was based on an inventory count on 4 January 20X5.

Between 31 December 20X4 and 4 January 20X5, the following transactions took place:
£
IC
Purchases of goods 8,600

Sales of goods (profit margin 30% on sales) 14,000
R
Goods returned by Quebec Ltd to a supplier 700

What adjusted figure should be included in the financial statements for inventories at
31 December 20X4?
A £838,100
B £842,300
C £818,500
D £834,300
LO 3c

21 The closing inventory of Epsilon amounted to £284,000 at cost at the year end of 30
September 20X1. This total includes the following two inventory lines.
1 500 items which had cost £15 each and which were included at £7,500. These items
were found to have been defective at the date of the statement of financial position.
Remedial work after that date cost £1,800 and they were then sold shortly afterwards
for £20 each. Selling expenses were £400.
2 100 items which had cost £10 each. After the date of the statement of financial position
they were sold for £8 each, with selling expenses of £150.
What amount should be shown in Epsilon's statement of financial position for inventory?
ng
A £283,650
B £284,350
ni
C £284,650
D £291,725
ar
LO 3c
e
ce am L
22 Lamp makes the following purchases in the year ending 31 December 20X9.
en tn in
s
Units £/unit Total (£)
ie
1 21.01.X9 100 12.00 1,200
er ie er
2 30.04.X9 300 12.50 3,750

3 31.07.X9 40 12.80 512
4 01.09.X9
op 60 13.00 780
ef V rtn
5 11.11.X9 80 13.50 1,080

C
At the year end 200 units are in inventory but 8 are damaged and are only worth £10 per
Pa
unit. These are identified as having been part of the 11.11.X9 delivery. Lamp operates a
FIFO system for arriving at the cost of inventory.
What is the correct figure for inventories at 31 December 20X9?:
W
A £2,450
B £2,525
AE
C £2,594
D £2,700
LO 1d
IC

23 Bouncy Balls plc has 40 units of its special spongy balls in inventory as at 30 November
20X7. The product costs £5 per unit to manufacture and can be sold for £15 per unit. Half of
the units in inventory at the year end have been damaged and will require rectification work
costing £10 per unit before they can be sold. Selling costs are £1 per unit.
What is the value of inventory at 30 November 20X7?
A £160
B £180
C £200
D £600
ng
LO 1d
ni
24 The closing inventory of Stacks plc amounted to £58,200 excluding the following two
ar
inventory lines:
1 200 items which had cost £15 each. These items were found to be defective at the
e
year-end date. Rectification work after that date amounted to £1,200 for the batch,
after which they were sold for £17.50 each, with selling expenses totalling £300 for the
batch.
ce am L
en tn in
2 400 items which had cost £2 each. All were sold after the year-end date for £1.50 each,
s
with selling expenses of £200 for the batch.
ie
What amount for inventory should be shown in the statement of financial position of Stacks
er ie er
plc?
A £62,000
op
ef V rtn
B £61,600
C
C £60,600
Pa
D £61,000
LO 3c
W
25 Fenton plc is a manufacturer of PCs. The company makes two different models, the M1 and
AE
M2, and has 100 of each in inventory at the year end.

Costs and related data for a unit of each model are as follows:
M1 M2
IC
£ £
Costs to date 230 350
R
Selling price 400 500

Modification costs to enable sale 110 –
Delivery outwards 65 75
What figure for inventory should be shown in the statement of financial position at the year
end?
A £57,500
B £58,000
C £65,000
D £65,500
LO 3c

26 When calculating the cost of inventory, which of the following shows the correct method of
arriving at cost?
Include inward delivery costs Include production overheads
A Yes No
B No Yes
C Yes Yes
D No No
LO 1d
ng
ni
27 A trader who sets her selling prices by adding 50% to cost actually achieved a mark-up of
ar
45%.
Which of the following factors could account for the shortfall?
e
A Sales were lower than expected.
B
ce am L
The value of the opening inventories had been overstated.
en tn in
C The closing inventories of the business were higher than the opening inventories.
s
D Goods taken from inventories by the proprietor were recorded by debiting drawings
ie
and crediting purchases with the cost of the goods.
er ie er
LO 2a
op
ef V rtn
C
Pa
28 The gross profit margin is 20% where:

A cost of sales is £100,000 and sales are £120,000
B cost of sales is £100,000 and sales are £125,000
W
C cost of sales is £80,000 and gross profit is £16,000

D cost of sales is £80,000 and sales are £96,000
AE
LO 2a
IC
29 Which of the following factors could cause a company's gross profit margin to fall below the
expected level?
R
A Overstatement of closing inventories

B The incorrect inclusion in purchases of invoices relating to goods supplied in the
following period
C The inclusion in sales of the proceeds of sale of non-current assets
D Increased cost of delivery borne by the company on goods sent to customers
LO 1d

30 An extract from a business's statement of profit or loss is as follows:
£ £
Revenue 115,200
Opening inventory 21,000
Purchases 80,000
Closing inventory (5,000)
(96,000)
19,200
What mark-up has the business applied?

A 14.8%
ng
B 16.7%
C 20.0%
ni
D 83.3%
ar
LO 1d
e
ce am L
31 Franz plc is a manufacturer. Its 12-month reporting period ends on 31 July and it adopts the
average cost (AVCO) method of inventory usage and valuation. At 1 August 20X4 it held
en tn in
s
inventory of 2,400 units of the material Zobdo, valued at £10 each. In the year to 31 July
20X5 there were the following inventory movements of Zobdo:
ie
er ie er
14 November 20X4 Sales 900 units

28 January 20X5
op Purchase 1,200 units for £20,100
ef V rtn
7 May 20X5 Sales 1,800 units

What was the cost of Franz plc's closing inventory of Zobdo at 31 July 20X5?
C
A £11,700
Pa
B £9,000
C £15,075
W
D £35,100
LO 1d
AE
IC
32 For many years Wrigley plc has experienced rising prices for raw material X, and has kept
constant inventory levels. It has always used the AVCO method to arrive at the cost of
R
inventory.
What would the result be if Wrigley plc had always used the FIFO method in each
successive year's financial statements?
A Lower cost of sales and higher closing inventory
B Lower cost of sales and lower closing inventory
C Higher cost of sales and lower closing inventory
D Higher cost of sales and higher closing inventory
LO 1d, 3a

33 During the year ended 31 March 20X4 Boogie plc suffered a major fire at its factory, in
which inventory that had cost £36,000 was destroyed. An insurance payment of 80% of the
cost has been agreed but not received at the year end.
Which of the following correctly completes the journal entry too take account of these
matters?
Debit trade and other receivables with £28,800 and:
A Debit Administrative expenses £36,000, Credit Purchases £28,800, Credit Revenue
£36,000
B Debit Administrative expenses £7,200, Credit Purchases £36,000
ng
C Debit Administrative expenses £36,000, Credit Purchases £36,000, Credit Other
income £28,800
ni
D Debit Administrative expenses £7,200, Credit Inventory £36,000
LO 2a, 2c
e ar
ce am L
34 Percy plc started trading on 1 April 20X4. The cost of inventory shown in Percy plc's
statement of financial position at 31 March 20X5, using the AVCO basis, was £6,420. Had
en tn in
the FIFO basis been used, the cost would have been £8,080.
s
What is the effect of adopting the FIFO basis on Percy plc's financial statements for the year
ie
ended 31 March 20X5?
er ie er
A
op
increase profits and decrease current assets by £1,660
ef V rtn
B increase current assets and decrease losses by £1,660

C
C increase capital and decrease current assets by £1,660
Pa
D increase current assets and increase losses by £1,660

LO 1d, 3a, 3c
W
35 Kane Ltd has completed its inventory count for the period ended 30 June 20X8. The
AE
inventory count concluded that there were inventories costing £32,340 of which £1,280
were found to be damaged and so had a net realisable value of nil.
What is the journal entry to record closing inventories at 30 June 20X8?
IC
A Dr Cost of sales £32,340, Cr Inventories £32,340

R
B Dr Inventories £32,340, Cr Cost of sales £32,340

C Dr Cost of sales £31,060, Cr Inventories £31,060
D Dr Inventories £31,060, Cr Cost of sales £31,060
LO 1d

Chapter 8: Irrecoverable debts and allowance for
receivables
1 At 30 September 20X4, Mathieson plc's allowance for receivables was £19,500. At
30 September 20X5 it was decided to write off irrecoverable debts totalling £6,000 and to
decrease the allowance for the remaining receivables to £15,000.
What is the charge or credit to the statement of profit or loss in respect of irrecoverable
debts for the year ended 30 September 20X5?:
ng
A £1,500 credit
B £1,500 debit
ni
C £21,000 debit
D £21,000 credit
ar
LO 1d
e
2 ce am L
At 30 June 20X1 Cameron plc has decided to write off two debts of £1,300 and £2,150
en tn in
s
respectively and to make an allowance of £6,631 against the remaining trade receivables
balance. The balance on this allowance at 1 July 20X0 was £8,540.
ie
er ie er
What is Cameron plc's irrecoverable debts expense for the year to 30 June 20X1?
A £1,541
op
ef V rtn
B £1,909
C
C £3,450
Pa
D £5,359
LO 1d, 3c
W
AE
3 Enigma plc has reduced its allowance for receivables by £600. Indicate whether the
following statements are true or false.
This will increase gross profit by £600.
IC
A True
R
B False
This will increase net profit by £600.
C True
D False
LO 2a
ICAEW 2020 Chapter 8: Irrecoverable debts and allowance for receivables 49

4 Disaster plc's trial balance shows trade receivables of £50,000. However, no adjustment has
been made for the following items.
1 £3,250 from J Crisis & Sons who have gone into liquidation. The amount is considered
irrecoverable.
2 An increase in the allowance for receivables of £2,000.
3 Cash received from P Chaos of £2,500 which had previously been written off.
What is the revised trade receivables account balance after posting the above adjustments?
A £50,500
ng
B £50,200
C £46,750
ni
D £49,250
LO 1d, 3c
e ar
5
ce am L
At 28 February 20X4, a company's allowance for receivables was £38,000. At 28 February
20X5 it was decided to write off £28,500 of receivables and to increase the allowance for
en tn in
the remaining receivables to £42,000.
s
What is the irrecoverable debts expense in the statement of profit or loss for the year ended
ie
28 February 20X5?:
er ie er
A £42,000
op
ef V rtn
B £28,500
C £70,500
C
Pa
D £32,500
LO 1d
W
6 Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year £500
AE
was received in respect of a debt previously written off, and an allowance for receivables of
£495 was considered necessary. The allowance brought down as at 1 January 20X0 was
£1,000.
IC
What is the correct action for Arrow plc to take respect of irrecoverable debts for the year
ended 31 December 20X0?
R
A charge £5
B charge £1,005
C write back £5
D write back £1,005
LO 1d, 3c

7 During 20X5 Bow plc received £500 from a customer in respect of a balance that had
previously been written off, and reduced its allowance for receivables to £100. The
allowance brought down as at 1 January 20X5 was £1,000. At the year end the dishonour of
a cheque received for £280 needs to be accounted for, and the debt related to it needs to
be written off.
What is the irrecoverable debts debit or credit in the statement of profit or loss for the year
A £880 debit
B £780 debit
ng
C £1,120 credit
D £1,300 credit
ni
LO 3c
e ar
8 At 31 December 20X2 a company's receivables totalled £400,000 and an allowance for
receivables of £50,000 had been brought forward from the year ended 31 December 20X1.
ce am L
It was decided to write off debts totalling £38,000 and to adjust the allowance for
en tn in
receivables to £36,200.
s
What is the irrecoverable debts expense that should appear in the company's statement of
ie
profit or loss for the year ended 31 December 20X2?
er ie er
A £36,200
op
ef V rtn
B £51,800
C
C £38,000
Pa
D £24,200
LO 3c
W
9 At 1 July 20X2 the receivables allowance of Quaint plc was £18,000.

AE
During the year ended 30 June 20X3 debts totalling £14,600 were written off. It was
decided that the receivables allowance should be £16,000 as at 30 June 20X3.
IC
What amount should appear in Quaint plc's statement of profit or loss for irrecoverable
debts expense for the year ended 30 June 20X3?
R
A £12,600
B £14,600
C £16,600
D £30,600
LO 3c

10 At 1 May trade receivables were £31,475. During May, sales of £125,000 were made on
credit. Receipts from credit customers amounted to £122,500 and settlement discounts of
£550 that were not expected to be taken at the date of invoice were taken by credit
customers. Credit notes of £1,300 were issued to customers.
What is the closing balance on trade receivables at 31 May?
A £34,725
B £33,225
C £32,125
D £35,825
ng
LO 1d
ni
ar
11 Panther plc had an allowance for receivables at 1 July 20X1 of £450. Panther plc wants to
write off a receivables balance of £800 as irrecoverable and increase the allowance for
e
receivables to £2,965.
ce am L
As well as crediting trade receivables with £800, what other entries must be made to record
the required adjustments in Panther plc's accounting records?
en tn in
s
Debit Credit
ie
er ie er
A Irrecoverable debts expense £3,315 Allowance for receivables £2,515
B op
Allowance for receivables £2,515 Irrecoverable debts expense £3,315
ef V rtn
C Irrecoverable debts expense £3,765 Allowance for receivables £2,965

C
Pa
D Allowance for receivables £2,965 Irrecoverable debts expense £3,765
LO 1d, 3c
W
AE
12 The following trade receivables account has been prepared by an inexperienced

bookkeeper and may contain errors of principle.
IC
TRADE RECEIVABLES
R
20X3 £ 20X3 £
1 Jan Balance 284,680 31 Dec Cash at bank
31 Dec Sales 194,040 179,790
Sales (discounts Contras with trade
given to customers) 3,660 payables 800
Irrecoverable debts Balance 303,590
expense 1,800
484,180 484,180
An outstanding debt of £4,920 at 31 December 20X3 is to be written off.

What is the correct figure for receivables that should appear on the statement of financial
position at 31 December 20X3?
A £289,350
B £291,350
C £287,750
D £297,590
LO 1d, 3c
ng
13 At 30 June 20X4 a company's allowance for receivables was £39,000. At 30 June 20X5
ni
trade receivables totalled £517,000. It was decided to write off debts totalling £37,000 and
to adjust the allowance for receivables to £24,000.
ar
What figure should appear in the statement of profit or loss for irrecoverable debts expense
for the year ended 30 June 20X5?
e
A £52,000
B £22,000
ce am L
en tn in
C £37,000
s
ie
D £23,850
er ie er
LO 3c
op
ef V rtn
C
14 At 1 January 20X5 a company had an allowance for receivables of £18,000.
Pa
At 31 December 20X5 the company's trade receivables were £458,000.

It was decided:
W
(a) to write off debts totalling £28,000 as irrecoverable; and

(b) to adjust the allowance for receivables to £21,500.
AE
What amount for irrecoverable debts should be charged in the company's statement of
A £49,500
IC
B £31,500
R
C £32,900
D £50,900
LO 3c
15 At 1 July 20X5 a company's allowance for receivables was £48,000.

At 30 June 20X6, receivables amounted to £838,000. It was decided to write off £72,000 of
these debts and adjust the allowance for receivables to £60,000.

What are the final amounts for inclusion in the company's statement of financial position at
30 June 20X6?
Receivables Allowance for receivables Net balance
£ £ £
A 838,000 60,000 778,000
B 766,000 60,000 706,000
C 766,000 108,000 658,000
D 838,000 108,000 730,000
LO 3c
ng
ni
16 The following issues arose while Atkins Ltd was preparing its financial statements for the
ar
year to 31 December 20X2.
1 £350 was received in December 20X2 in respect of a debt which had been written off
e
in the previous year. The receipt was correctly included in the cash at bank account,
but the computerised accounting system was unable to match this transaction and
ce am L
posted the other side of the entry to a suspense account.
en tn in
2 The directors determined that that the allowance for receivables should be reduced
s
from £900 to £800 at the year end.
ie
What journal entries should Atkins Ltd make to account for the above issues?
er ie er
A
op
Debit Irrecoverable debts expense £450, Credit Suspense £350, Credit Allowance for
receivables £100
ef V rtn
B Debit Allowance for receivables £800, Credit Suspense £350, Credit Irrecoverable
C
debts expense £450
Pa
C Debit Irrecoverable debts expense £450, Debit Suspense £350, Credit Allowance for
receivables £800
D Debit Allowance for receivables £100, Debit Suspense £350, Credit Irrecoverable
W
debts expense £450

LO 1d, 2d
AE
IC
17 If Poppy plc reduces its allowance for receivables by £300, which of the following
statements is correct?
R
A Current assets decrease by £300

B Current liabilities decrease by £300
C Gross profit increases by £300
D Net profit increases by £300
LO 2a, 3c

18 At 31 December 20X4 a company's trade receivables totalled £864,000 and the allowance
for receivables was £48,000.
It was decided that debts totalling £13,000 were to be written off, and the allowance for
receivables adjusted to £42,550.
Which of the following journal entries would correctly record these adjustments?
A DEBIT Irrecoverable debts expense £18,450
CREDIT Allowance for receivables £18,450
B DEBIT Irrecoverable debts expense £7,550
DEBIT Allowance for receivables £5,450
CREDIT Trade receivables £13,000
ng
C DEBIT Irrecoverable debts expense £7,550
ni
D DEBIT Irrecoverable debts expense £55,550
ar
LO 3c
e
ce am L
19 A business has extracted its initial trial balance as at 31 December 20X7 as follows:
en tn in
s
Trial balance (extract)
Trial balance
ie
er ie er
£ £
op
Allowance for receivables at 1 January 20X7 20,300
ef V rtn
A balance of £2,400 is to be written off as irrecoverable and the allowance for receivables is
C
to be £21,955.
Pa
What is the net trade receivables balance to be presented in the statement of financial
position at 31 December 20X7?
A £417,145
B £396,845
W
C £419,545
AE
D £421,945
LO 2c
IC
20 At 1 January 20X1 Urb plc received £3,000 in full settlement of a debt that had previously
been written off.
R
At 31 December 20X1 Urb plc determined that a balance of £3,600 owed by a customer
was irrecoverable and should be written off.
Urb plc also decided to decrease its allowance for receivables from £2,200 to £1,500 on
31 December 20X1.

What amount should Urb plc charge or credit for irrecoverable debts in the statement of
A £1,300 debit
B £1,300 credit
C £100 debit
D £100 credit
LO 3c
ng
21 At its year end of 28 February 20X6 Stope plc has in its accounting records a figure for trade
receivables of £47,533, and an allowance for receivables of £500 at 28 February 20X5.
ni
One customer, Invincible plc, has experienced financial difficulties and has now gone into
ar
administration. Its balance of £10,380 at 28 February 20X6 is deemed to be irrecoverable
and should be written off.
e
The directors of Stope plc also wish to increase the allowance for receivables to £850.
ce am L
What will Stope plc record in its accounting records as at 28 February 20X6 in respect of the
above transactions?
en tn in
A Allowance for receivables of £850 and a charge in respect of irrecoverable debts of
s
£10,380
ie
er ie er
B Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of

£10,730
op
ef V rtn
C Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of

£10,380
C
D Allowance for receivables of £850 and a charge in respect of irrecoverable debts of
Pa
£10,730
LO 3c
W
22 Moon plc's initial trial balance as at 31 October 20X1 has been extracted and shows the
AE
following:
Trial balance (extract)
Trial balance
£ £
IC
Allowance for receivables as at 1 November 20X0 6,546

R
As at 31 October 20X1 Grundle's balance to Moon plc of £1,860 is irrecoverable. It is also

decided that the allowance for receivables should be increased to £8,420.

What amount should Moon plc include as its net trade receivables figure in the statement of
financial position as at 31 October 20X1?
A £235,024
B £241,480
C £243,340
D £236,794
LO 3c
ng
23 Meridi plc has an allowance for receivables of £500 on 1 July 20X7. During the year to
ni
30 June 20X8 the following events take place:
ar
1 A cheque for £92 was recorded and correctly banked, but was returned unpaid on
29 June 20X8. No entries have yet been made for this return. The directors wish to
write the debt off as irrecoverable.
e
2 An allowance for receivables of £475 is required at the year end.
3
ce am L
A cheque received for £58 in respect of an amount written off in January 20X7 was
en tn in
recorded in the cash at bank account but the suspense account was used to record the
s
other side of the transaction.
ie
What journal entries are required as at 30 June 20X8 to account for the above issues?
er ie er
A Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9,
op
Credit Allowance for receivables £25
ef V rtn
B Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33,
C
Credit Cash at bank £92, Credit Allowance for receivables £25
Pa
C Debit Suspense £58, Debit Irrecoverable debts expense £67, Debit Allowance for
receivables £25, Credit Cash at bank £92, Credit Receivables £58
D Debit Suspense £58, Debit Irrecoverable debts expense £9, Debit Allowance for
W
receivables £25, Credit Cash at bank £92

LO 1d, 2d
AE
IC

58
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 9: Accruals and prepayments
1 A business preparing its financial statements for the year to 31 October pays rent quarterly
in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was
increased from £48,000 to £60,000 from 1 March 20X4.
What figure should appear for rent in the statement of profit or loss for the year ended
31 October 20X4 and in the statement of financial position as at that date?
Statement of profit or loss Statement of financial position
ng
A £56,000 £10,000
B £52,000 £5,000
ni
C £56,000 £5,000
D £55,000 £10,000
ar
LO 1d, 3c
e
2
ce am L
A business has received telephone bills as follows:
en tn in
Amount of
s
Date received bill Date paid
ie
£
er ie er
Quarter to 30 November 20X0 December 20X0 739.20 January 20X1
op
Quarter to 28 February 20X1 March 20X1 798.00 April 20X1
ef V rtn
Quarter to 31 May 20X1 June 20X1 898.80 June 20X1

Quarter to 31 August 20X1 September 20X1 814.80 October 20X1
C
Quarter to 30 November 20X1 December 20X1 840.00 January 20X2
Quarter to 28 February 20X2 March 20X2 966.00 March 20X2
Pa
What amount of telephone expenses should be included in the statement of profit or loss
for the year ended 31 December 20X1?
A £3,407.60
W
B £3,351.60
AE
C £3,250.80
D £3,463.60
LO 1d, 3c
IC
ICAEW 2020 Chapter 9: Accruals and prepayments 59

3 A company receives rent from a large number of properties. The total cash received in the
year ended 31 October 20X6 was £481,200.
The following are the amounts of rent in advance and in arrears at 31 October 20X5 and
20X6.
31 October 31 October
20X5 20X6
£ £
Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
What amount of rental income should be included in the company's statement of profit or
ng
loss for the year ended 31 October 20X6?
A £486,500
ni
B £460,900
C £501,500
ar
D £475,900
LO 1d, 3c
e
4 ce am L
A rent prepayment of £960 was treated as an accrual in a sole trader's statement of profit or
en tn in
s
loss at the year end. As a result the profit was:
ie
A understated by £960
er ie er
B understated by £1,920
op
ef V rtn
C overstated by £1,920
D overstated by £960
C
LO 1d, 3c
Pa
5 In the year ended 31 December 20X4 B Ltd received cash of £318,600 from subscribers to
W
its website.
Details of subscriptions in advance and in arrears at the beginning and end of 20X4 are as
AE
follows:
31 December 31 December
20X4 20X3
IC
£ £
Subscriptions received in advance 28,400 24,600
R
Subscriptions owing 18,300 16,900

All subscriptions owing were subsequently received.
What figure for subscriptions income should be included in the statement of profit or loss of
B Ltd for 20X4?
A £321,000
B £336,400
C £300,800
D £316,200
LO 1d, 3c

6 A company receives rent for subletting part of its office block.
Rent, receivable quarterly in advance, is received as follows:
Date of receipt Period covered £
1 October 20X1 3 months to 31 December 20X1 7,500
30 December 20X1 3 months to 31 March 20X2 7,500
4 April 20X2 3 months to 30 June 20X2 9,000
1 July 20X2 3 months to 30 September 20X2 9,000
1 October 20X2 3 months to 31 December 20X2 9,000
What figures, based on these receipts, should be included in the company's financial
statements for the year ended 30 November 20X2?
ng
A £33,500 Debit Accrued income (Debit) £6,000
ni
B £33,500 Credit Deferred income (Credit) £6,000
ar
C £34,000 Credit Deferred income (Credit) £3,000
D £34,000 Credit Accrued income (Debit) £3,000
e
LO 1d, 3c
ce am L
en tn in
s
7 During 20X4, Bibi paid a total of £60,000 for rent, covering the period from 1 October 20X3
ie
to 31 March 20X5.
er ie er
What figures should be included in the financial statements for the year ended 31
December 20X4?
op
ef V rtn

C
A £40,000 £10,000 Prepayment
Pa
B £40,000 £15,000 Prepayment

C £50,000 £10,000 Accrual
D £50,000 £15,000 Accrual
W
LO 1d, 3c
AE
8 A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each
IC
year. The rent was increased from £90,000 per year to £120,000 per year as from
1 October 20X2.
R
What rent expense and accrual should be included in the company's financial statements
for the year ended 31 January 20X3?
Rent expense (SPL) Accrual (SFP)
A £100,000 £20,000
B £100,000 £10,000
C £97,500 £10,000
D £97,500 £20,000
LO 1d, 3c

9 A company owns a number of properties which are rented to tenants. The following
information is available for the year ended 30 June 20X6:
Rent in advance Rent in arrears
£ £
30 June 20X5 134,600 4,800
30 June 20X6 144,400 8,700
Cash received from tenants in the year ended 30 June 20X6 was £834,600.
All rent in arrears was subsequently received.
What figure should appear in the company's statement of profit or loss for rent receivable in
ng
the year ended 30 June 20X6?
A £840,500
B £1,100,100
ni
C £569,100
ar
D £828,700
LO 1d, 3c
e
ce am L
en tn in
10 A company has sublet part of its offices and in the year ended 30 November 20X3 the rent
s
receivable was:
ie
Until 30 June 20X3 £8,400 per year
er ie er
From 1 July 20X3 £12,000 per year
op
Rent was received quarterly in advance on 1 January, April, July, and October each year.
ef V rtn
What amounts should appear in the company's financial statements for the year ended
C
30 November 20X3?
Pa

A £9,900 £2,000 in other payables
B £9,900 £1,000 in other payables
W
C £9,600 £1,000 in other payables

D £9,600 £2,000 in other receivables
AE
LO 1d, 3c
IC
11 A business compiling its financial statements for the year to 31 July each year pays rent
R
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent
was increased from £60,000 per year to £72,000 per year as from 1 October 20X3.
What figure should be included as the rent expense in the statement of profit or loss for the
year ended 31 July 20X4?
A £69,000
B £62,000
C £70,000
D £63,000
LO 1d, 3c

12 At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the
company paid £38,000 for insurance for the year to 30 September 20X5.
What figures should be included for insurance in the company's financial statements for the
year ended 30 June 20X5?
A £45,200 Prepayment £0
B £39,300 Prepayment £9,500
C £36,700 Prepayment £9,500
ng
D £39,300 Prepayment £0
LO 1d, 3c
ni
ar
13 A company sublets part of its office accommodation. In the year ended 30 June 20X5 cash
received from tenants was £83,700.
e
Details of rent in arrears and in advance at the beginning and end of the year were:
ce am L In arrears
£
In advance
£
en tn in
30 June 20X4 3,800 2,400
s
30 June 20X5 4,700 3,000
ie
er ie er
All arrears of rent were subsequently received.
op
What figure for rental income should be included in the company's statement of profit or
ef V rtn
loss for the year ended 30 June 20X5?

A £84,000
C
Pa
B £83,400
C £80,600
D £86,800
W
LO 1d, 3c
AE
14 Details of a company's insurance policy are shown below:

Premium for year ended 31 March 20X6 paid April 20X5 £10,800
IC
Premium for year ending 31 March 20X7 paid April 20X6 £12,000
R
What figures relating to insurance should be included in the company's financial statements
for the year ended 30 June 20X6?
A £11,100 £9,000 prepayment (Debit)
B £11,700 £9,000 prepayment (Debit)
C £11,100 £9,000 accrual (Credit)
D £11,700 £9,000 accrual (Credit)
LO 1d, 3c

15 An organisation's year end is 30 September. On 1 January 20X6 the organisation took out a
loan of £100,000 with annual interest of 12%. The interest is payable in equal instalments on
the first day of April, July, October and January in arrears.
How much should be charged to the statement of profit or loss for the year ended
30 September 20X6, and how much should be accrued on the statement of financial
position?
A £12,000 £3,000
B £9,000 £3,000
ng
C £9,000 £0
D £6,000 £3,000
LO 1d, 3c
ni
ar
16 A business sublets part of its office accommodation.
e
The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The
ce am L
annual rent has been £24,000 for some years, but it was increased to £30,000 from
1 July 20X5.
en tn in
What amounts for this rent should appear in the company's financial statements for the year
s
ended 31 January 20X6?
ie
er ie er

A
op
£27,500 £5,000 accrued income
ef V rtn
B £27,000 £2,500 accrued income

C £27,000 £2,500 deferred income
C
Pa
D £27,500 £5,000 deferred income

LO 1d, 3c
W
17 The electricity account for the year ended 30 June 20X1 was as follows.
AE
£
Opening balance for electricity accrued at 1 July 20X0 300
Payments made during the year
1 August 20X0 for three months to 31 July 20X0 600
IC
1 November 20X0 for three months to 31 October 20X0 720

1 February 20X1 for three months to 31 January 20X1 900
R
30 June 20X1 for three months to 30 April 20X1 840

On 1 August 20X1 a payment of £840 was made for the three months ended 31 July 20X1.
What is the charge for electricity that should be included in the statement of profit or loss
for the year ended 30 June 20X1?:
A £3,060
B £3,320
C £3,360
D £3,620
LO 1d, 3c

18 The year end of Murphy plc is 30 November 20X1. The company pays for its gas by a
standing order of £600 per month. It had an opening accrual of £400 and a closing accrual
of £500.
What is the correct charge for gas to be included in Murphy plc's statement of profit or loss
for the year ended 30 November 20X1?
A £7,700
B £7,100
C £7,200
D £7,300
ng
LO 1d, 3c
ni
19 At 31 December 20X8 Blue Anchor plc has an insurance prepayment of £250. During 20X9
they pay £800 in respect of various insurance contracts. The closing accrual for insurance is
ar
£90.
What is the charge for insurance that should be included in the statement of profit or loss for
e
the year ended 31 December 20X9?
A
B
£460
£800 ce am L
en tn in
s
C £960
ie
D £1,140
er ie er
LO 1d, 3c
op
ef V rtn
C
20 At 31 March 20X7, accrued rent payable was £300. During the year ended 31 March 20X8,
rent paid was £4,000, including an invoice for £1,200 for the quarter ended 30 April 20X8.
Pa
What is the statement of profit or loss charge for rent payable for the year ended
31 March 20X8?
A £3,300
W
B £3,900
C £4,100
AE
D £4,700
LO 1d, 3c
IC
21 Constains plc has an insurance prepayment of £320 at 31 March 20X2. During the year
ended 31 March 20X2 Constains plc paid two insurance bills, one for £1,300 and one for
£520.
What was the insurance prepayment at 31 March 20X1 if the charge for insurance for the
year was £1,760?
A £200
B £260
C £320
D £380
LO 1d, 3c

22 The annual insurance premium for Boost Ltd for the period 1 July 20X6 to 30 June 20X7 is
£13,200, which is 10% more than the previous year. Insurance premiums are paid on 1 July.
What is the statement of profit or loss charge for insurance for the year ended 31 December
20X6?
A £12,000
B £12,600
C £13,200
D £14,520
ng
LO 1d, 3c
ni
23 A gas accrual for £400 at the year end was treated as a prepayment in a business's
ar
statement of profit or loss.
As a result the profit was:
e
B
C ce am L
overstated by £400
understated by £800
en tn in
s
ie
LO 2a
er ie er
op
ef V rtn
24 At 31 December 20X2 the following matters require inclusion in a company's financial

C
statements:
Pa
1 On 1 January 20X2 the company made a loan of £12,000 to an employee, repayable

on 30 April 20X3, charging interest at 2% per year. On the due date she repaid the
loan and paid the whole of the interest due on the loan to that date.
2 The company has paid insurance £9,000 in 20X2, covering the year ending
W
31 August 20X3.
3 In January 20X3 the company received rent from a tenant £4,000 covering the
AE
six months to 31 December 20X2.

For these items, what total figures should be included in the company's statement of
financial position at 31 December 20X2?
IC
Current assets Current liabilities

R
A £22,000 £240
B £22,240 £0
C £10,240 £0
D £16,240 £6,000
LO 1d, 3c

25 Whilst reviewing the trial balance for a business it was determined that an accrual for
electricity was required for £300 and that there was a prepayment of insurance of £800.
What four entries are required to adjust the initial trial balance?
A Debit electricity £300
B Debit insurance £800
C Credit electricity £300
D Credit insurance £800
E Debit accruals £300
ng
F Credit accruals £300
G Debit prepayments £800
ni
H Credit prepayments £800
LO 1d
e ar
26 A business has an accrual for electricity at 1 January 20X7 of £215 and has paid electricity
bills of £3,420 during the year to 31 December 20X7. At 31 December 20X7 there is an
ce am L
accrual for electricity of £310.
What is the electricity charge to be included in the statement of profit or loss for the year
en tn in
s
ie
A £2,895
er ie er
B £3,325
op
ef V rtn
C £3,515
D £3,945
C
LO 1d, 3c
Pa
27 A business has paid £10,400 of insurance premiums during the year ended 31 March 20X7.
W
At 1 April 20X6 there was an insurance prepayment of £800 and at 31 March 20X7 there
was a prepayment of £920.
AE
What is the insurance charge in the statement of profit or loss for the year ended 31 March
20X7?
A £8,680
IC
B £10,280
R
C £10,400
D £10,520
LO 1d, 3c

28 Wright & Co's year end is 31 August 20X4. Telephone line rental of £120 was paid on
31 July for the two months from that date. This amount was included in the accounting
records by debiting the telephone expense account and crediting the cash at bank account.
Which two of the following entries of £60 should Wright & Co make at the year end in
relation to this expense?
A Debit the telephone charges account
B Debit the prepayments account
C Debit the accruals account
D Credit the accruals account
ng
E Credit the prepayments account
F Credit the telephone charges account
ni
LO 1d
e ar
29 Krim plc paid local property tax of £6,495 on 31 May 20X7, in respect of the three months
ce am L
ending 31 August 20X7. In the administrative expenses ledger account for the year ended
30 June 20X7 Krim plc must:
en tn in
A debit £2,165
s
ie
B credit £2,165
er ie er
C debit £4,330
D credit £4,330 op
ef V rtn
LO 1d
C
Pa
30 Jeremiah plc is a newsagent business and is preparing its financial statements for the year
ended 31 August 20X8. There are three outstanding matters that the company has not yet
W
accounted for.
1 A subscription of £240 for the year ending 31 January 20X9, paid and accounted for by
AE
Jeremiah plc on 1 July 20X8.

2 Advance payments (deposits) of £75 recorded as received from customers in respect
of magazines on order but not yet received at the year end.
IC
3 An unpaid property tax demand for the six months to 30 September 20X8 for £5,400.
R
Which three of the following balances will appear in Jeremiah plc's statement of financial
position as at 31 August 20X8?
A Deferred income £75
B Accrued income £75
C Prepayment £100
D Accrual £4,500
E Accrual £900
F Prepayment £140
LO 1d, 3b, 3c

31 Minoto plc is preparing its financial statements as at 31 December 20X4. Its ledger account
balance for rental income includes £9,870 rent received and included in cash at bank in
20X4 in respect of 20X3.
Minoto plc should enter a journal with two entries of £9,870 as:
A a debit entry to the rental income account
B a debit entry to the deferred income (liability) account
C a debit entry to the accrued income (asset) account
D a credit entry to the rental income account
E a credit entry to the deferred income (liability) account
ng
F a credit entry to the accrued income (asset) account
LO 1d, 2c, 3b
ni
ar
32 As at 30 November 20X4 Whitley plc had accrued distribution costs of £5,019 and prepaid
distribution costs of £2,816. On 1 December 20X4 the bookkeeper processed the following
e
opening journal: Credit Accruals £5,019, Debit Prepayments £2,816, Debit Distribution
ce am L
costs £2,203.
During the year to 30 November 20X5 cash was paid in respect of distribution costs of
en tn in
£147,049 and was correctly posted to the distribution costs account. At the year end,
s
Whitley plc's bookkeeper correctly processed closing journals to set up an accrual of
ie
£4,423 and a prepayment of £3,324 in respect of distribution costs.
er ie er
Which of the following journals should Whitley plc process as at 30 November 20X5 to
op
correct the three accounts?
ef V rtn
A Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406
C
B Debit Accruals £5,019, Credit Prepayments £2,816, Credit Distribution costs £2,203
Pa
C Debit Distribution costs £4,406, Debit Prepayments £5,632, Credit Accruals £10,038
D Debit Distribution costs £2,203, Debit Prepayments £2,816, Credit Accruals £5,019
LO 1d, 2c, 3b
W
AE
33 Bez plc draws up financial statements to 31 December in each year. It pays internet server
charges for each year ending 30 April in two equal instalments, on 1 May and 1 November,
in advance. It also pays telephone rental charges quarterly in arrears at the end of February,
IC
April, July and November. The total internet server charge for the year to 30 April 20X6 was
£9,000. Telephone rental charges for the year commencing 1 July 20X5 were £7,440.
R
What was the prepayment for internet server charges included in Bez plc's statement of
A £1,500
B £3,000
C £2,250

What was the accrual for telephone rental charges included in Bez plc's statement of
D £1,860
E £1,240
F £620
LO 1d, 3b, 3c
34 Butters plc is finalising certain figures that will appear in its financial statements as at
ng
30 June 20X5. On 1 March 20X4 the company paid an annual subscription to a trade
association of £21,000 for the 12 months ended 28 February 20X5. A 12.5% increase in this
subscription is expected, but has not been finalised at 30 June 20X5.
ni
What will Butters included in its statement of financial position at 30 June 20X5 in respect of
the subscription?
ar
A an accrual of £15,750
e
B an accrual of £7,875
ce am L
C a prepayment of £15,750
D a prepayment of £7,875
en tn in
LO 1d, 3b, 3c
s
ie
er ie er
35 Details of a company's insurance policy are shown below:

• op
Premium for year ending 31 March 20X7 paid April 20X6: £10,800
ef V rtn
• Insurance costs are included within administrative expenses.

C
What is the double entry to reverse the opening accrual or prepayment in the year ended
Pa
30 June 20X7?
A Dr Administrative expenses £8,100 Cr Prepayment £8,100
B Dr Prepayments £8,100 Cr Administrative expenses £8,100
W
C Dr Administrative expenses £2,700 Cr Accruals £2,700

D Dr Accruals £2,700 Cr Administrative expenses £2,700
AE
LO 1d, 2c, 3b
IC
36 Alli Ltd owns a number of properties which are rented to tenants. Cash received from
R
tenants in the year ended 30 June 20X6 was £834,600 which has been included as rental
income in the year.
The following information is available for the year ended 30 June 20X6:
Rent Rent
in advance in arrears
£ £
30 June 20X6 144,600 8,700
All rent in arrears was subsequently received.

What is the journal entry to adjust Alli Ltd's rental income for the year ended 30 June 20X6?
A Debit Accrued income £144,600, Credit Deferred income £8,700, Credit Rental
income £135,900
B Debit Accrued income £8,700, Debit Rental income £135,900, Credit Deferred income
£144,600
C Debit Deferred income £144,600, Credit Accrued income £8,700, Credit Rental
income £135,900
D Debit Deferred income £8,700, Debit Rental income £135,900, Credit Accrued
income £144,600
ng
LO 1d, 2c, 3b
ni
37 A company has occupied rented premises for some years, paying an annual rent of
ar
£120,000. From 1 April 20X6 the rent was increased to £144,000 per year. Rent is paid
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year.
e
What is the journal entry to transfer the balance on the rent expense account to the profit
and loss ledger when preparing the financial statements for the year ended
ce am L
30 November 20X6?
en tn in
A Debit Profit and loss ledger account £136,000, Credit Rent expense £136,000
s
B Debit Rent expense £136,000, Credit Profit and loss ledger account £136,000
ie
er ie er
C Debit Rent expense £138,000, Credit Profit and loss ledger account £138,000
D
op
Debit Profit and loss ledger account £138,000, Credit Rent expense £138,000
ef V rtn
LO 1d, 2c, 3b
C
Pa
38 What is the journal entry for an accrual of rent expenses of £500?

A Debit Prepayments £500, Credit Rent expense £500
W
B Debit Accruals £500, Credit Rent expense £500

C Debit Rent expense £500, Credit Accruals £500
AE
D Debit Rent expense £500, Credit Prepayments £500

LO 1d, 2c, 3b
IC
39 At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the
company paid £38,000 for insurance for the year to 31 December 20X5.
What is the journal entry to transfer the balance on the insurance expense account to the
profit and loss ledger account for the year ended 30 June 20X5?
A Debit Profit and loss ledger account £27,200, Credit Insurance expense £27,200
B Debit Insurance expense £27,200, Credit Profit and loss ledger account £27,200
C Debit Profit and loss ledger account £36,700, Credit Insurance expense £36,700
D Debit Insurance expense £36,700, Credit Profit and loss ledger account £37,600
LO 1d, 2c, 3b

72
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 10: Non-current assets and depreciation
1 Cataract plc purchases a machine for which the supplier's list price is £28,000. Cataract plc
pays £23,000 in cash and trades in an old machine, which has a carrying amount of £8,000.
It is the company's policy to depreciate machines at the rate of 10% per annum on cost.
What is the carrying amount of the machine after one year?
A £18,000
B £25,200
ng
C £20,700
D £22,200
ni
LO 1d
e ar
2 Demolition plc purchases a machine for £15,000 on 1 January 20X1. After incurring
transportation costs of £1,300 and spending £2,500 on installing the machine it breaks
ce am L
down and costs £600 to repair. Depreciation is charged at 10% per annum.
At what carrying amount will the machine be shown in Demolition plc's statement of
en tn in
s
ie
A £13,500
er ie er
B £14,670
C £16,920 op
ef V rtn
D £18,800
C
LO 3c
Pa
3 A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven
W
years and a residual value of £1,000. On 30 June 20X4 the machine is sold for £9,000 cash
which has been recorded correctly in the cash at bank account, however a suspense
AE
account was opened to record the other side of the transaction. The company's accounting
policy is to charge depreciation monthly using the straight-line method, with depreciation
charged in the month of purchase but not the month of disposal.
IC
What journal entry is required to correctly record the disposal of the machine and to
remove the suspense account?
R
A Debit Suspense account £9,000, Debit Accumulated depreciation £11,500, Debit Loss
on disposal £1,500, Credit Machine cost £22,000
B Debit Suspense account £9,000, Debit Accumulated depreciation £11,750, Debit Loss
on disposal £1,250, Credit Machine cost £22,000
C Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated
depreciation £11,500, Credit Profit on disposal £1,500
D Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated
depreciation £11,750, Credit Profit on disposal £1,250
LO 1d
ICAEW 2020 Chapter 10: Non-current assets and depreciation 73

4 Derek plc purchased a van on 1 October 20X0 for a total cost of £22,000 by paying £17,500
cash and trading in an old van. The old van had cost £20,000 and the related accumulated
depreciation was £14,200.
The loss on disposal of the old van in Derek plc's statement of profit or loss for the year
ended 31 December 20X0 is:
A £1,300
B £2,000
C £2,500
D £5,800
ng
LO 3c
ni
ar
5 Vernon plc purchased some new equipment on 1 April 20X1 for £6,000. The scrap value of
the new equipment in five years' time has been assessed as £300. Vernon charges
e
depreciation monthly on the straight-line basis.
ce am L
What is the journal entry to record the depreciation charge for the equipment in Vernon
plc's reporting period of 12 months to 30 September 20X1?
en tn in
A Debit Depreciation expense £570, Credit Accumulated depreciation £570
s
ie
B Debit Accumulated depreciation £570, Credit Depreciation expense £570
er ie er
C Debit Depreciation expense £600, Credit Accumulated depreciation £600

D op
Debit Accumulated depreciation £600, Credit Depreciation expense £600
ef V rtn
LO 3c
C
Pa
6 A car has a list price of £23,500 but the garage gives Ride plc a 10% trade discount. In
settlement the garage accepts payment of £18,000, together with an old company car. The
W
amount to be capitalised by Ride plc for the new car is:

A £16,200
AE
B £18,000
C £21,150
IC
D £23,500
R
LO 1d

7 A company purchased a car for £18,000 on 1 January 20X0.
The car was traded in on 1 January 20X2. The new car has a list price of £30,000 and the
garage offered a part-exchange allowance of £5,000.
The company provides depreciation on cars using the reducing balance method at a rate of
25% per annum.
What loss on disposal will be recognised in the statement of profit or loss for the year
A £5,125
B £8,500
ng
C £10,125
D £11,175
ni
LO 3c
ar
8 What is the reasoning behind charging depreciation in historical cost accounting?
e
A To ensure funds are available for the eventual replacement of the asset
B
ce am L
To comply with the consistency concept
en tn in
C To ensure the asset is included in the statement of financial position at the lower of cost
s
and net realisable value
ie
D To match the cost of the non-current asset with the revenue that the asset generates
er ie er
LO 1d
op
ef V rtn
C
9 Which of the following is excluded from the cost of a tangible non-current asset?
Pa
A Site preparation costs

B Legal fees
C Costs of a design error
W
D Installation costs
LO 1d
AE
10 Which of the following statements about intangible assets in public company financial
IC
statements are correct?

R
1 Internally generated goodwill should not be capitalised.

2 Purchased goodwill should normally be amortised through the statement of profit or
loss.
3 Development expenditure must be capitalised if certain conditions are met.
A 1 and 3 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
LO 1d, 3c

11 Your firm bought a machine for £5,000 on 1 January 20X1, when it had a useful life of four
years and a residual value of £1,000. Straight-line depreciation is to be applied on a
monthly basis. On 31 December 20X3, the machine was sold for £1,600.
The amount to be entered in the 20X3 statement of profit or loss for profit or loss on
disposal is:
A profit of £600
B loss of £600
C profit of £350
D loss of £400
ng
LO 3c
ni
ar
12 An asset was purchased by Prance plc on 1 January 20X1 for:
£
Cost 1,000,000
e
Annual licence fee 15,000
Total
ce am L
The business adopts a date of 31 December as its reporting year end.
1,015,000
en tn in
s
The asset was traded in for a replacement asset on 1 January 20X4 at an agreed value of
ie
£500,000.
er ie er
It has been depreciated at 25% per annum on the reducing-balance method.
op
ef V rtn
What figure is included regarding this disposal in the statement of profit or loss for the year
ended December 20X4?
C
A £25,000 profit
Pa
B £78,125 profit
C £62,500 loss
D £250,000 loss
W
LO 3c
AE
13 The asset register showed a total carrying amount of £67,460. A non-current asset costing
£15,000 had been sold for £4,000, making a loss on disposal of £1,250.
IC
The balance on the asset register after accounting for the disposal is:
R
A £42,710
B £51,210
C £53,710
D £62,210
LO 2b

14 On 1 January 20X5 a company purchased some plant.
The invoice showed:
£
Cost of plant 48,000
Delivery to factory 400
One year warranty covering breakdown during 20X5 800
49,200
Modifications costing £2,200 were necessary to enable the plant to be installed.

What amount should be capitalised for the plant in the company's accounting records?
ng
A £51,400
B £48,000
C £50,600
ni
D £48,400
ar
LO 1d
e
ce am L
15 A company's plant and machinery ledger account for the year ended 30 September 20X2
was as follows:
en tn in
PLANT AND MACHINERY
s
£ £
ie
er ie er
20X1 20X2
1 Oct Balance 381,200 1 Jun Disposal account –
op cost of asset sold 36,000
ef V rtn
1 Dec Cash – addition at cost 18,000 30 Sep Balance 363,200

399,200 399,200
C
Pa
The company's policy is to charge depreciation at 20% per year on the straight-line basis.
What is the journal entry to record the depreciation charge in the statement of profit or loss
for the year ended 30 September 20X2?
A Debit Accumulated depreciation £84,040, Credit Depreciation expense £84,040
W
B Debit Depreciation expense £84,040, Credit Accumulated depreciation £84,040

AE
C Debit Accumulated depreciation £76,840, Credit Depreciation expense £76,840

D Debit Depreciation expense £76,840, Credit Accumulated depreciation £76,840
LO 1d, 3c
IC
16 The carrying amount of a company's non-current assets was £200,000 at 1 August 20X0.
During the year ended 31 July 20X1, the company sold non-current assets for £25,000 on
which it made a loss of £5,000. The depreciation charge for the year was £20,000. The
carrying amount of non-current assets at 31 July 20X1 is:
A £150,000
B £175,000
C £180,000
D £195,000
LO 3c

17 A plant account is shown below:
PLANT
£ £
20X2 20X2
1 Jan Balance (plant 1 Oct Disposal account -
purchased 20X0) 380,000 cost of plant sold 30,000
1 Apr Cash – plant purchased 51,000 31 Dec Balance 401,000
431,000 431,000
The company's policy is to charge depreciation on plant monthly at 20% per year on the
straight-line basis.
ng
What should the company's plant depreciation charge be in the statement of profit or loss
ni
A £82,150
ar
B £79,150
C £77,050
e
D £74,050
ce am L LO 1d, 3c
en tn in
s
ie
er ie er
18 A company's policy for depreciation of its plant and machinery is to charge depreciation
op
monthly at 20% per year on cost. The company's plant and machinery account for the year
ended 30 September 20X4 is shown below:
ef V rtn
PLANT AND MACHINERY

C
£ £
Pa
20X3 20X4
1 Oct Balance (all plant 30 Jun Disposal account 40,000
purchased after 20X0) 200,000 30 Sep Balance 210,000
20X4
W
1 Apr Cash purchase of plant 50,000

250,000 250,000
AE
What should be the depreciation charge in the statement of profit or loss for plant and
machinery (excluding any profit or loss on the disposal) for the year ended 30 September
20X4?
IC
A £43,000
R
B £51,000
C £42,000
D £45,000
LO 1d, 3c

19 Beta plc purchased some plant and equipment on 1 July 20X1 for £40,000. The scrap value
of the plant at the end of its 10-year useful life is £4,000. Beta plc's policy is to charge
depreciation monthly on the straight-line basis.
The journal entry to record the depreciation charge on the plant in Beta's statement of
profit or loss for the reporting period of 12 months ending 30 September 20X1 should be:
A Debit Depreciation expense £900; Credit Accumulated depreciation £900
B Debit Accumulated depreciation £900; Credit Depreciation expense £900
C Debit Depreciation expense £1,000; Credit Accumulated depreciation £1,000
D Debit Accumulated depreciation £1,000; Credit Depreciation expense £1,000
ng
LO 1d, 3c
ni
ar
20 Exe plc, which has a year end of 31 December, purchased a machine on 1 January 20X1 for
£35,000. It was depreciated at 40% per annum on the reducing balance basis. On
e
1 January 20X4 Exe plc part-exchanged this machine for a more advanced model. It paid
£30,000 and realised a profit on disposal of £2,440.
ce am L
The price of the new machine was:
en tn in
A £10,000
s
B £34,680
ie
er ie er
C £35,120
D £40,000
op
ef V rtn
LO 1d
C
Pa
21 Automat plc purchases a machine for which the supplier's list price is £18,000. Automat plc
pays £13,000 in cash and trades in an old machine which has a carrying amount of £8,000.
It is the company's policy to depreciate such machines monthly at the rate of 10% per
W
annum on cost.
The carrying amount of the new machine after one year is:
AE
A £16,200
B £18,000
IC
C £18,900
R
D £21,000
LO 1d, 3c

22 Beehive plc bought a car on 1 January 20X7 for £10,000 and decided to depreciate it at
30% per annum on a reducing balance basis. It was disposed of on 1 January 20X9 for
£6,000.
The net effect on the statement of profit or loss for the year ended 31 December 20X9 is a
credit of:
A £1,100
B £3,000
C £4,000
D £5,100
ng
LO 1d, 3c
ni
ar
23 Ben plc has a draft net profit for the year ended 31 December 20X8 of £56,780 before
accounting for the depreciation on a new machine. Ben plc purchased the machine for
e
£120,000 on 1 October 20X8. The useful life is four years with a residual value of £4,000.
Ben plc uses the straight-line method for depreciation and charges depreciation on a
monthly basis.
ce am L
en tn in
The net profit after charging depreciation on the machine for the year ended
s
31 December 20X8 is:
ie
A £51,947
er ie er
B £49,530
op
ef V rtn
C £49,280
C
D £27,780
Pa
LO 1d, 3c
W
24 Sam plc's statement of profit or loss for the year ended 31 December 20X4 showed a profit
for the year of £83,600. It was later found that £18,000 paid for the purchase of a van on
AE
1 January 20X4 had been debited to the motor expenses account. It is the company's policy
to depreciate vans at 25% per year on the straight-line basis.
What is the profit for the year after adjusting for this error?
IC
A £106,100
R
B £70,100
C £97,100
D £101,600
LO 2a

25 On 1 January 20X4 Joffa plc purchased a new machine at a cost of £96,720. Delivery costs
were £3,660 and internal administration costs of £9,450 were incurred. At that time Joffa plc
planned to replace the machine in five years, when it would have no value, and to
depreciate the machine on a straight-line basis.
Joffa plc decides on 1 January 20X6 that the machine only has one remaining year of useful
life. There is no change to the residual value at the end of its life.
How much depreciation will be charged in respect of this machine in Joffa plc's statement
of profit or loss for the year ended 31 December 20X6?
A £58,032
ng
B £60,228
C £65,898
ni
D £33,460
LO 1d, 3c
e ar
ce am L
26 Stripes plc purchased new machinery on 1 August 20X4 for £38,000. The scrap value of the
machinery at the end of its six-year useful life has been assessed as £2,000. Stripes plc's
en tn in
policy is to calculate depreciation monthly on the straight-line basis.
s
The depreciation charge in Stripes plc's statement of profit or loss for year ended 31 March
ie
20X5 should be:
er ie er
A £4,000
op
ef V rtn
B £3,500
C
C £6,000
Pa
D £4,500
LO 1d, 3c
W
27 On 1 June 20X3 Spam plc purchased some plant at a price of £43,000. It cost £1,500 to
AE
transport the plant to Spam plc's premises and set it up, plus £900 for a licence to operate
it. The plant had a useful life of eight years and a residual value of £3,500. On 1 June 20X5
the directors of Spam plc decided to change the depreciation method to reducing balance,
IC
at 40%.
R
What is the carrying amount of Spam plc's machine in its statement of financial position at
31 May 20X6?
A £20,025
B £20,280
C £20,550
D £20,955
LO 3c

28 On 1 April 20X5 Herepath plc bought a Foxy car for £23,500. The company's depreciation
policy for cars is 30% per annum using the reducing balance method. On 1 April 20X7 the
Foxy was part exchanged for a Vizgo car, which had a purchase price of £28,200. Herepath
plc made a payment to the seller for £19,350, in final settlement.
What was Herepath plc's profit or loss on the disposal of the Foxy?
A £5,150 loss
B £7,835 profit
C £2,665 loss
D £6,250 loss
ng
LO 1d
ni
ar
29 Muncher plc includes profits and losses on disposal of non-current assets in administrative
expenses in its statement of profit or loss. Depreciation is charged on fixtures and fittings at
e
20% using the reducing balance method. On 1 July 20X6 some fixtures that cost £4,000 on
1 July 20X3 were sold for £150.
ce am L
In the administrative expenses account Muncher plc must:
en tn in
A debit £1,450
s
ie
B credit £1,450
er ie er
C debit £1,898
D credit £1,898 op
ef V rtn
LO 1d
C
Pa
30 Redruth plc began trading on 1 April 20X3. The carrying amount of plant and equipment in
Redruth plc's financial statements as at 31 March 20X5 was £399,960. The cost of these
W
assets was £614,500. On 31 March 20X6 an asset costing £11,500 was acquired.
Depreciation is charged on plant and equipment monthly at an annual rate of 25%
AE
straight-line. There are no residual values.

The carrying amount of Redruth plc's plant and equipment in its statement of financial
position at 31 March 20X6 is:
IC
A £254,960
R
B £257,835
C £299,970
D £308,595
LO 3c

31 Morse plc has the following note to its statement of financial position relating to plant and
machinery as at 31 May.
20X7 20X6
£ £
Cost 110,000 92,000
Accumulated depreciation 72,000 51,000
Carrying amount 38,000 41,000
During the year to 31 May 20X7, the following transactions occurred in relation to plant and
machinery:
Additions £39,000
ng
Loss on disposals £2,000
Depreciation charge £27,000
ni
What were the proceeds from disposals of plant and machinery received by Morse plc in
ar
the year to 31 May 20X7?
A £7,000
e
B £8,000
C
D
£13,000
£17,000 ce am L
en tn in
s
LO 1d, 3a
ie
er ie er
op
ef V rtn
32 Anaconda plc acquired a machine on 31 March 20X4, its year end, for £196,600. It made a
bank transfer to the seller totalling £110,000 and traded in an old machine with a carrying
C
amount at that date of £34,400. This machine had cost £60,000. A further sum of £42,000
Pa
was then due to the supplier of the machine as the final payment.
The entry made in the accounting records in respect of this transaction was to debit the
suspense account with £152,000, credit cash £110,000 and credit other payables £42,000.
W
Which of the following journal entries is required to correctly reflect the purchase and
disposal in Anaconda plc's accounting records?
AE
A Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £34,400,

Credit Disposal £79,000, Credit – suspense £152,000
B Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £34,400,
IC

R
C Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £25,600,

D Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £25,600,
LO 2b, 2c

33 Gilbert plc acquired a new truck on 1 July 20X4 for £99,900 including VAT at 20%. The
company depreciates all vehicles straight-line at 20% per annum on a monthly basis.
What is the carrying amount of Gilbert plc's truck at 31 December 20X4?
A £89,910
B £83,250
C £66,600
D £74,925
LO 3c
ng
ni
34 Crocker plc, a retailer, depreciates all vehicles monthly over five years. On 31 October 20X9
Crocker plc bought a car at a cost of £17,625 plus VAT, trading in an old car that had cost
ar
£16,800 including VAT on 1 July 20X7. A payment of £13,500 was also made. VAT is at a
rate of 20%.
e
In respect of this disposal in its statement of profit or loss for the year ended 31 December
A £2,430 ce am L
20X9 Crocker plc will show a loss of:
en tn in
s
B £4,835
ie
C £5,955
er ie er
D £1,310
op
ef V rtn
LO 1d, 3c
C
Pa
35 Plummet plc is preparing its statement of profit or loss for the year ended 31 December
20X4. On the initial trial balance at that date administrative expenses have a debit balance
of £684,000 before accounting for depreciation and profits/losses on disposal in respect of
W
the company's computer equipment. At 31 December 20X3 Plummet plc had computer
equipment that cost £1,004,408, all of which had been purchased on 1 January 20X2, and it
AE
had accumulated depreciation of £697,600. A computer system costing £6,800 was sold on
1 January 20X4 for £1,800. Computer equipment is depreciated monthly on a straight-line
basis over four years.
IC
The amount to be disclosed as administrative expenses in Plummet plc's statement of profit

or loss for the year ended 31 December 20X4 is:
R
A £933,402
B £935,002
C £936,702
D £963,702
LO 1d, 3c

36 Dukakis plc had computer equipment with a carrying amount at 1 April 20X2 of £150,000.
On that date it traded in a computer which had cost £24,000 on 1 April 20X0 for a new
computer which cost £34,600, transferring £18,000 to the sellers bank account in full
settlement of the purchase. Dukakis plc depreciates computers at 40% per annum on the
reducing balance.
What is the journal entry to record depreciation for the year ended 31 March 20X3 in
respect of computers?
A Debit Accumulated depreciation £56,544, Credit Depreciation expense £56,544
B Debit Accumulated depreciation £70,384, Credit Depreciation expense £70,384
ng
C Debit Depreciation expense £56,544, Credit Accumulated depreciation £56,544
D Debit Depreciation expense £70,384, Credit Accumulated depreciation £70,384
ni
LO 1d, 3c
e ar
37 The carrying amount of machinery has reduced by £10,000 following the disposal of one
item of machinery.
ce am L
Which of the following statements relating to the disposal are correct?
en tn in
A Disposal proceeds were £15,000 and the profit on disposal was £5,000
s
B Disposal proceeds were £15,000 and the carrying amount of the machinery disposed
ie
er ie er
of was £5,000
C
op
Disposal proceeds were £15,000 and the loss on disposal was £5,000
ef V rtn
D Disposal proceeds were £5,000 and the carrying amount of the machinery disposed of
was £5,000
C
LO 1d
Pa
W
38 Yvette purchased some plant on 1 January 20X0 for £38,000. The payment for the plant was
correctly entered in the cash at bank account but was incorrectly entered on the debit side
of the plant repairs account.
AE
Yvette charges depreciation monthly on the straight-line basis over five years and assumes
no scrap value at the end of the life of the asset.
IC
How will Yvette's profit for the year ended 31 March 20X0 be affected by the error?
A Understated by £30,400
R
B Understated by £36,100
C Understated by £38,000
D Overstated by £1,900
LO 2a

39 Asha Ltd, a manufacturing company, receives an invoice on 29 February 20X2 for work
done on one of its machines. £25,500 of the cost is actually for a machine upgrade, which
will improve efficiency. The accounts department do not notice and charge the whole
amount of the invoice to maintenance costs. Machinery is depreciated at 25% per annum
on a straight-line basis, with a proportional charge in the years of acquisition and disposal.
By what amount will Asha Ltd's profit for the year to 30 June 20X2 be understated?
A £19,125
B £25,500
C £23,375
ng
D £21,250
LO 2a
ni
ar
40 Whipper has an machine which cost £40,000 and has a carrying amount of £32,000 on
e
1 April 20X7. It is being depreciated at 20% per annum on the reducing balance basis. On
31 March 20X8, Whipper performed an impairment review and determined that the fair
ce am L
value less disposal costs of the machine was £22,400 and the value in use was £21,000.
en tn in
What is the impairment loss in respect of the machine at 31 March 20X8?
s
A £17,600
ie
er ie er
B £1,600
C £4,600
op
ef V rtn
D £3,200
C
LO 1d
Pa
41 Dash has a property which cost £420,000 on 1 April 20X4. It is being depreciated on the
W
straight-line basis over 20 years to its residual value of £40,000. On 31 March 20X9, Dash
carried out an impairment review and has assessed that the property had a fair value less
AE
disposal costs of £280,000 and a value in use of £300,000.

What is the impairment loss in respect of the property at 31 March 20X9?
A £15,000
IC
B £25,000
R
C £45,000
D £80,000
LO 1d

42 The directors of Ellen Ltd are considering whether any impairment has arisen in respect of
its plant and machinery in the year ended 31 March 20X2. Which of the following are
indicators that an impairment of plant and machinery may have occurred:
1 There have been technological advances which means the plant and machinery is not
as efficient as that currently available
2 The market capitalisation of Ellen Ltd is above the value of its non-current assets
3 The plant and machinery are being used to produce a new product which is
generating more sales than the previous product
A 1 only
ng
B 1 and 2 only
C 2 and 3 only
ni
D 1, 2 and 3
ar
LO 1d
e
ce am L
en tn in
s
ie
er ie er
op
ef V rtn
C
Pa
W
AE
IC

88
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 11: Company financial statements
1 A company's share capital consists of 20,000 25p equity shares all of which were issued at a
premium of 20%. The market value of the shares is currently 70p each.
What is the balance on the company's equity share capital account?
A £5,000
B £6,000
C £14,000
ng
D £24,000
LO 1d, 1e
ni
ar
2 Which of the following may appear as current liabilities in a company's statement of
financial position?
e
1 Loan due for repayment within one year
2 Taxation
ce am L
en tn in
3 Warranty provision
s
ie
A 1, 2 and 3
er ie er
B 1 and 2 only
C 1 and 3 only
op
ef V rtn
D 2 and 3 only
C
LO 3c
Pa
3 At 30 June 20X5 Meredith plc had the following balances:

W
£m
Equity shares of £1 each 100
AE
Share premium 80
During the year ended 30 June 20X6, the following transactions took place:
1 September 20X5: A 1 for 2 bonus issue of equity shares, using the share premium.
IC
1 January 20X6: A 2 for 5 rights issue at £1.50 per share, taken up fully paid.
R
What are the balances on each account at 30 June 20X6?

Share capital Share premium
£m £m
A 210 110
B 210 60
C 240 30
D 240 80
LO 1d, 1e, 3c
ICAEW 2020 Chapter 11: Company financial statements 89

4 Klaxon plc issued, for cash, 1,000,000 50p shares at a premium of 30p per share.
Which of the following journals correctly records the share issue?
A Debit Share capital £500,000, Debit Share premium £300,000, Credit Cash at bank
£800,000
B Debit Cash at bank £800,000, Credit Share capital £500,000, Credit Share premium
£300,000
C Debit Cash at bank £1,300,000, Credit Share capital £1,000,000, Credit Share premium
£300,000
D Debit Share capital £1,000,000, Debit Share premium £300,000, Credit Cash at bank
ng
£1,300,000
LO 1d, 1e, 2c
ni
ar
5 Sanders plc issued 50,000 equity shares of 25p each at a premium of 50p per share. The
cash received was correctly recorded but the full amount was credited to the share capital
e
account.
ce am L
Which of the following journals corrects this error?
en tn in
A Debit Share premium £25,000, Credit Share capital £25,000
s
B Debit Share capital £25,000, Credit Share premium £25,000
ie
er ie er
C Debit Share capital £37,500, Credit Share premium £37,500

D
op
Debit Share capital £25,000, Credit Cash at bank £25,000
ef V rtn
LO 1d, 1e, 2c
C
Pa
6 Which of the following journals correctly records a bonus issue of shares?

A Debit Cash at bank, Credit Share capital
W
B Debit Share capital, Credit Share premium

C Debit Share premium, Credit Share capital
AE
D Debit Investments, Credit Cash at bank

LO 1e, 2c
IC

7 At 31 December 20X1 the capital structure of a company was as follows:
£
100,000 equity shares of 50p each 50,000
Share premium 180,000
During 20X2 the company made a 1 for 2 bonus issue, using the share premium for the
purpose, and later issued for cash another 60,000 shares at 80p per share.
What is the company's capital structure at 31 December 20X2?
Equity share capital Share premium
A £130,000 £173,000
ng
B £105,000 £173,000
C £130,000 £137,000
ni
D £105,000 £137,000
LO 1d, 1e
e ar
8 Evon plc issued 1,000,000 equity shares of 25p each at a price of £1.10 per share, all
ce am L
received in cash.
Which of the following journals records this issue?
en tn in
s
A Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Share premium
ie
£850,000
er ie er
B Debit Share capital £250,000, Debit Share premium £850,000, Credit Cash at bank
£1,100,000
op
ef V rtn
C Debit Cash at bank £1,100,000, Credit Share capital £1,100,000

C
D Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Retained
Pa
earnings £850,000
LO 1d, 1e, 2c
W
AE
9 In the year to 31 March 20X2 Kable had the following capital structure:
£
IC
On 15 March Kable paid an equity dividend of 15p per share.

What is the total dividend paid by Kable?
A £7,500
B £30,000
C £50,000
D £72,000
LO 1d

10 Afua plc sells small electrical items. It has a year end date of 31 December 20X7. On 28
December it accepted an order from a credit customer for 100 toasters at a price of £35 per
toaster. On 30 December, Afua plc dispatched 60 toasters to the customer but they were
not received by the customer until 1 January 20X8. Afua plc remains responsible for the
goods until they are delivered to the customer. The remaining 40 toasters were dispatched
on 2 January 20X8 and received by the customer on 4 January 20X8.
How much revenue should Afua plc recognise in respect of the sale of toasters in the year
A £3,500
B £2,100
ng
C £1,400
D Nil
ni
LO 3c
e ar
11 At 30 June 20X2 Brandon plc's capital structure was as follows:
ce am L £
en tn in
s
ie
In the year ended 30 June 20X3 the company made a 1 for 2 rights issue at £1 per share
er ie er
and this was taken up in full. Later in the year the company made a 1 for 5 bonus issue,
op
using the share premium for the purpose.
ef V rtn
What was Brandon plc's capital structure at 30 June 20X3?

C
Equity share capital Share premium
Pa
A £450,000 £25,000
B £225,000 £250,000
C £225,000 £325,000
W
D £212,500 £262,500
AE
LO 1d, 3c
IC
12 The retained earnings of Posti plc at 1 July 20X5 were £900,000. The retained earnings at
R
30 June 20X6 are £1,080,000. The profit for the year is £455,000.
What was the total dividend paid during the year?
A £180,000
B £275,000
C £445,000
D £635,000
LO 1d

13 At 1 July 20X4 Xando plc's capital structure was as follows:
£
Share capital 1,000,000 shares of 50p each 500,000
In the year ended 30 June 20X5 Xando plc made the following share issues:
1 January 20X5:
A 1 for 4 bonus issue.
1 April 20X5:
A 1 for 10 rights issue at £1.50 per share.
ng
What will be the balances on the company's share capital and share premium at 30 June
20X5 as a result of these issues?
ni
ar
A £687,500 £650,000
B £675,000 £375,000
e
C £687,500 £150,000
D
ce am L
£687,500 £400,000
LO 1d, 3c
en tn in
s
ie
er ie er
op
14 A company has the following capital structure:
ef V rtn
£
200,000 shares of 25p 50,000
C
Pa
It makes a 1 for 5 rights issue at £1.25, which is fully taken up by the shareholders.
What is the balance on the share premium account following the rights issue?
W
A £35,000
B £75,000
AE
C £85,000
D £115,000
IC
LO 1d, 3c
R

15 The equity section from the statement of financial position for Bowden Ltd as at
31 December 20X6 is as follows:
£'000
Equity
Share capital: equity shares of 50p each 5,000
Share premium 900
Retained earnings 6,300
Total equity 12,200
The company decides to make a 1 for 5 bonus issue of shares on 30 June 20X7.
What will be the balances on the company's share capital and share premium at
ng
30 June 20X7 as a result of these issues?
ni
A £5,900,000 £nil
B £6,000,000 £nil
ar
C £5,900,000 £900,000
e
D £4,100,000 £900,000
ce am L LO 1d, 1e
en tn in
s
ie
er ie er
16 At 1 April 20X8 the share capital and share premium of a company were as follows:
op £
ef V rtn
Share capital – 300,000 equity shares of 25p each 75,000

C
During the year ended 31 March 20X9 the following events took place:
Pa
1 On 1 October 20X8 the company made a 1 for 5 rights issue at £1.20 per share.
2 On 1 January 20X9 the company made a 1 for 3 bonus issue using the share premium
to do so.
W
What is the correct balance on the share capital account at 31 March 20X9?
AE
A £90,000
B £120,000
IC
C £360,000
D £480,000
R
LO 1d, 3c

17 Layla plc is preparing its financial statements for the year ended 31 August 20X6. The initial
trial balance shows the following balances:
£
Prepayments at 1 September 20X5 1,012
Insurance expense 3,400
Of the prepayments at 1 September 20X5, £450 related to insurance. At 31 August 20X6
prepayments will include £515 related to insurance.
What amount will be included in Layla plc's statement of profit or loss for the year ended
31 August 20X6 in respect of insurance expenses?
A £3,495
ng
B £3,897
C £2,903
ni
D £3,335
ar
LO 1d, 3c
e
ce am L
18 The retained earnings of Zippy plc at 1 January 20X8 were £926,450. The retained earnings
at 31 December 20X8 are £1,426,980. During the year, Zippy plc paid a dividend of
en tn in
s
£312,000 and made a bonus issue of 500,000 25p ordinary shares from retained earnings.
ie
What is Zippy plc's profit for the year ended 31 December 20X8?
er ie er
A £63,530
op
ef V rtn
B £1,312,530
C £937,530
C
D £313,530
Pa
LO 1d
W
AE
IC

19 Which of the following journal entries may be accepted as being correct according to their
narratives?
Debit Credit
£ £
A Wages account 38,000
Purchases account 49,000
Buildings account 87,000
Labour and materials used in construction of extension to factory
B Directors' personal accounts Director A 30,000

Director B 40,000
Directors' remuneration 70,000
ng
Directors' bonuses transferred to their accounts
C Sales 10,000
ni
Correction of £10,000 received from credit
ar
customer recorded as cash sale
D Trade receivables 2,000
e
Suspense account 2,000
ce am L
Correction of misposting of discount received from
supplier
en tn in
LO 1d, 2c
s
ie
er ie er
20 At 30 June 20X2 a company had £1 million 8% loan notes in issue, interest being paid
op
half-yearly on 30 June and 31 December.
ef V rtn
On 30 September 20X2 the company redeemed £250,000 of these loan notes at par,
C
paying interest due to that date.
Pa
On 1 April 20X3 the company issued £500,000 7% loan notes at par, interest payable
half-yearly on 31 March and 30 September.
What figure should appear in the company's statement of profit or loss for finance costs in
the year ended 30 June 20X3?
W
A £88,750
B £82,500
AE
C £65,000
D £73,750
IC
LO 3c
R

21 A company has a balance of £3,200 (debit) on its income tax payable account at
31 December 20X7 relating to the income tax payable on the 20X6 profits. The company's
estimated income tax liability for the year to 31 December 20X7 is £24,500.
What is the income tax charge in the statement of profit or loss for the year ended
31 December 20X7?
A £21,300
B £24,500
C £27,700
D £30,900
ng
LO 3c
ni
22 A company is preparing its financial statements for the year ending 31 March 20X7. The
initial trial balance has the following figures relating to tax:
ar
£
Income tax payable at 1 April 20X6 14,300
e
Income tax paid during the year ended 31 March 20X7 12,700
ce am L
The estimated income tax liability for the year ended 31 March 20X7 is £15,600.
What is the income tax figure for inclusion in the company's statement of profit or loss for
en tn in
s
the year ended 31 March 20X7?
ie
A £12,700
er ie er
B £14,000
op
ef V rtn
C £17,200
D £28,300
C
LO 3c
Pa
W
23 Cheetah plc had a provision of £10,000 in its financial statements for the year ended
31 March 20X3 in respect of a legal claim. In July 20X4 the claim was settled at a cost of
£13,000.
AE
What is the expense in respect of the legal claim included in Cheetah plc's statement of
profit or loss for the year ended 31 March 20X4?
IC
A £10,000
R
B £13,000
C £3,000
D Nil
LO 3c

24 Camelia plc is preparing its financial statements for the year ended 30 June 20X9. Its initial
trial balance shows the following balances:
£
Accruals at 1 July 20X8 948
Distribution costs paid 130,647
Of the accruals at 1 July 20X8, £586 related to distribution costs. At 30 June 20X9 the
equivalent figure is £654 for distribution costs.
What amount for distribution costs should be shown in Camelia plc's statement of profit or
loss for the year ended 30 June 20X9?
ng
A £129,407
B £130,579
ni
C £130,715
D £131,887
ar
LO 1d, 3c
e
ce am L
25 On 1 January 20X6 Pigeon plc has £300,000 of 50p equity shares in issue, and a balance on
en tn in
share premium of £750,000. On 1 April 20X6 the company makes a 1 for 3 bonus issue.
s
What is the balance on Pigeon plc's share premium at 31 December 20X6?
ie
er ie er
A £450,000
B £550,000
op
ef V rtn
C £650,000
C
D £850,000
Pa
LO 1d, 1e
W
26 At 1 July 20X7 Leak plc owed £524,925 to credit suppliers. In the year to 30 June 20X8 it
paid credit suppliers £1,249,506 and posted £1,987,345 to trade payables in respect of
AE
goods purchased on credit. Leak plc took £12,824 in settlement discounts (which it had not
expected to take) from credit suppliers. At the end of the period it processed a contra with
trade receivables of £8,236.
IC
What amount for trade payables should be included in the statement of financial position of
Leak plc as at 30 June 20X8?
R
A £1,267,352
B £1,241,704
C £1,258,176
D £1,283,824
LO 3c

27 Monksford plc is preparing its financial statements for the year ended 31 December 20X1.
Its initial trial balance shows the following balances:
£
Income tax payable at 1 January 20X1 2,091
20X0 income tax paid in 20X1 (as finally agreed with HMRC) 1,762
The estimated income tax due for the year ended 31 December 20X1 is £2,584.
What is the income tax expense to be included in Monksford plc's statement of profit or loss
A £1,269
ng
B £2,255
C £2,584
D £2,913
ni
LO 1d, 3c
ar
28 Zenia plc is preparing its financial statements for the 12 month reporting period ended
e
31 August 20X6, having prepared an initial trial balance which includes the following
balances:
ce am L £
en tn in
Accruals at 1 September 20X5 948
s
Interest paid 2,733
ie
Of the accruals at 1 September 20X5, £362 related to interest payable. At 31 August 20X6
er ie er
accruals will include £419 related to interest payable.
op
What will be the finance cost included in Zenia plc's statement of profit or loss for the 12
ef V rtn
month reporting period ended 31 August 20X6?

C
A £2,204
Pa
B £2,676
C £2,733
D £2,790
W
LO 1d, 3c
AE
29 Wonka plc has the following ledger account balances as at 1 September 20X5:
Share capital (£0.50 equity shares) £200,000
IC
Share premium £20,000

Retained earnings £793,442
R
On 1 November 20X5 Wonka plc made a 1 for 4 rights issue at £4.50 per share. On
31 August 20X6 it made a 2 for 1 bonus issue. Profit for the year to 31 August 20X6 was
£100,000.
What are the balances on the three ledger accounts as at 31 August 20X6?
A Share capital £1,500,000, Share premium £Nil, Retained earnings £813,442
B Share capital £750,000, Share premium £Nil, Retained earnings £813,442
C Share capital £750,000, Share premium £420,000, Retained earnings £393,442
D Share capital £1,500,000, Share premium £Nil, Retained earnings £393,442
LO 1d, 1e

30 Grease plc is a large company with a share capital of 3 million 20p equity shares. To raise
funds it has made a 1 for 4 rights issue of its equity shares at £3.60 per share. The rights
issue was fully taken up but only £1.9 million had been paid up at the year end,
30 September 20X2. Grease plc correctly debited cash at bank with £1.9 million and
recorded the other side of the transaction in the suspense account.
Which adjustment should Grease plc make to correctly record the rights issue?
A Debit Other receivables £2,700,000, Credit Share capital £150,000, Credit Share
premium £2,550,000
B Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital
£750,000, Credit Share premium £1,950,000
ng
C Debit Other receivables £800,000, Credit Share capital £150,000, Credit Share
premium £650,000
ni
D Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital
£150,000, Credit Share premium £2,550,000
ar
LO 1e, 2c
e
ce am L
31 Lake plc makes purchases on credit for £9,801 and purchases for cash of £107 in the year
ended 31 January 20X4. The company's purchases accruals need to be £75 less than at the
en tn in
s
previous year end, and prepayments need to be £60 less.
ie
What is the figure for purchases included in cost of sales in Lake plc's statement of profit or
er ie er
loss for the year ended 31 January 20X4?

A £9,893
op
ef V rtn
B £9,923
C
C £9,786
Pa
D £9,908
LO 1d, 3c
W
32 Wombat plc is a retailer that owns no properties and only has fixtures and fittings,
AE
purchased within the last six months, as non-current assets. The company has been
experiencing trading problems for some time. The directors have concluded that the
company is no longer a going concern and have changed the basis of preparing the
IC
financial statements to the break-up basis.

R
Which two of the following will be the immediate effects of changing to the break-up basis?
A All fixtures and fittings are transferred from non-current to current assets.
B Fixtures and fittings are valued at their resale value.
C The company ceases to trade.
D A liquidator is appointed.
LO 3b

33 Drange plc has share capital of 300,000 £1 shares at 1 March 20X7. These were issued at
£1.50 per share. On 28 February 20X8 Drange plc made a 2 for 3 bonus issue. Before
accounting for this, the balance on retained earnings at 28 February 20X8 was £717,000.
What is the balance of retained earnings to be included in Drange plc's statement of
financial position at 28 February 20X8?
A £517,000
B £567,000
C £667,000
D £717,000
ng
LO 1d, 1e, 3c
ni
ar
34 The trial balance of Albion plc, a manufacturer, as at the year end 30 April 20X4 included
the following items:
e
1 Depreciation of delivery vehicles
ce am L
2 Delivery inwards
In the statement of profit or loss depreciation of delivery vehicles should be included in the
en tn in
heading:
s
A Cost of sales
ie
er ie er
B Administrative expenses
C
op
Distribution costs
ef V rtn
In the statement of profit or loss delivery inwards from suppliers should be included in the
heading:
C
Pa
D Cost of sales
E Administrative expenses
F Distribution costs
W
LO 3c
AE
35 Rembrandt plc is finalising certain figures that will appear in its financial statements as at
30 September 20X7. In its initial trial balance at that date Rembrandt plc has a figure for
IC
income tax payable as at 1 October 20X6 of £114,520. The total income tax charge in the
statement of profit or loss for the year to 30 September 20X7 is £145,670, and income tax
R
paid in the year was £123,090.

What is the income tax payable balance that will appear in Rembrandt plc's statement of
financial position as at 30 September 20X7?
A £91,940
B £114,520
C £137,100
D £382,000
LO 3c

36 Touch plc is finalising certain figures that will appear in its financial statements as at 30 April
20X7. Relevant initial trial balance figures are as follows:
£
Trade and other payables (excluding interest payable) 246,800
6% debentures as at 1 May 20X6 400,000
Touch plc issued 6% debentures of £120,000 at par on 1 February 20X7, repayable at par in
10 years' time. No interest was outstanding at 1 May 20X6, and the company paid interest
in respect of debentures of £24,000 in the period to 30 April 20X7.
What amount for trade and other payables (including interest payable) should be shown in
Touch plc's statement of financial position as at 30 April 20X7?
ng
A £222,800
B £246,800
ni
C £248,600
D £272,600
ar
LO 3c
e
ce am L
37 As at 1 June 20X4 Brazil plc had 400,000 10p equity shares, which it issued in 20X1 at £2.20
each, fully paid. It also had 200,000 £1 8% irredeemable preference shares issued at par in
en tn in
s
20X2. On 31 January 20X5 Brazil plc made a further issue of 45,000 of the £1 irredeemable
8% preference shares at £1.50 fully paid. On the same date Brazil plc made a 1 for 4 bonus
ie
er ie er
issue of equity shares. Brazil plc wishes to use the share premium in respect of the bonus
issue.
op
ef V rtn
What is the balance of share premium that Brazil plc will present in its statement of financial
position as at 31 May 20X5?
C
A £452,500
Pa
B £762,500
C £830,000
W
D £852,500
LO 1d, 1e, 3c
AE
38 The retained earnings of Camel plc at 1 January 20X7 were £1,055,000. The retained
IC
earnings at 31 December 20X7 are £1,210,000. The profit for the year is £387,000.
R
During the year Camel made a 1 for 2 bonus issue, with £65,000 paid from retained
earnings.
What was the total dividend paid during the year?
A £Nil
B £167,000
C £232,000
D £297,000
LO 1d

39 At 30 June Temso plc's equity was as follows:
20X8 20X9
£ £
Equity shares of 25p each 100,000 125,000
Share premium 100,000 75,000
Retained earnings 267,000 299,000
In the year ended 30 June 20X9 Temso plc made a 1 for 4 bonus issue. Profits for the year
were £44,000.
What was the total dividend paid in the year?
ng
A £12,000
B £13,000
C £37,000
ni
D £76,000
ar
LO 1d
e
ce am L
40 At 30 September 20X6 Bake plc's equity was as follows:
£
en tn in
Equity shares of 50p each 450,000
s
ie
er ie er
In the year ended 30 September 20X7 Bake plc made a 1 for 3 bonus issue which was partly
op
paid out of share premium. Retained earnings were £754,000 at 30 September 20X7 after
ef V rtn
Bake made a profit of £213,000.

C
What was the total dividend paid in the year ended 30 September 20X7?
Pa
A £15,000
B £65,000
C £205,000
W
D £361,000
LO 1d
AE
41 Panther Co sells goods with a one year warranty and had a provision for warranty claims of
IC
£64,000 at 31 December 20X0. During the year ended 31 December 20X1, £25,000 in
claims were paid to customers. On 31 December 20X1, Panther Co estimated that 5% of
R
warranties would be invoked at a cost of £58,000.

What amount should Panther Co charge or credit to the statement of profit or loss for the
year ended 31 December 20X1 in respect of the warranty provision?
A £58,000 charge
B £33,000 charge
C £19,000 charge
D £6,000 credit
LO 3c

IC
AE
W
104 Accounting: Question Bank

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 12: Company financial statements under IFRS
standards
1 Hexham plc
The following is the trial balance of Hexham plc at 31 March 20X8:
£ £
ng
Sales 1,150,000
Inventories at 1 April 20X7 75,000
Purchases 465,000
ni
Distribution costs 220,000
Administrative expenses 340,000
Irrecoverable debts expense 36,000
ar
Loan interest paid 8,000
Land and buildings cost 600,000
e
Plant and equipment cost 340,000
Land and buildings accumulated depreciation at 1 April 20X7 96,000
Trade receivables ce am L
Plant and equipment accumulated depreciation at 1 April 20X7
60,000
63,000
en tn in
Allowance for receivables 5,000
s
Bank 24,000
ie
Equity share capital (£1 shares) 400,000
er ie er

Bank loan
op 200,000
ef V rtn

Equity dividends paid 15,000
C
Advance deposits from customers 6,000
Pa
2,159,000 2,159,000
The following adjustments have yet to be accounted for:

W
1 Hexham plc holds two lines of inventory at 31 March 20X8.

Details are as follows:
AE
Item CX100 BY200

£ £
Total cost 16,200 76,000
Selling price 15,000 83,600
IC
2 Hexham plc paid an annual insurance premium of £16,800 for the year 1 September 20X7
R
to 31 August 20X8. This payment is included in administrative expenses.

3 The company's depreciation policy is as follows:
Buildings Straight-line over 50 years

Plant and equipment 10% straight-line
The cost of the land was £200,000, and all non-current assets are assumed to have zero
residual values.
There were no additions to or disposals of non-current assets during the year ended
31 March 20X8.
Depreciation on buildings is charged to administrative expenses, and depreciation on plant
and equipment is charged to cost of sales.
ICAEW 2020 Chapter 12: Company financial statements under IFRS standards 105
4 At the year end, trade receivables include a balance of £4,800 which is considered
irrecoverable. Hexham plc wishes to adjust the allowance for receivables at 31 March 20X8
to £2,760. The company presents irrecoverable debts as other operating expenses on the
face of the statement of profit or loss.
5 The bank loan was received on 1 July 20X7 and is repayable in full in five years. Interest is
charged at a fixed rate of 8% per annum.
6 Income tax for the year ended 31 March 20X8 is estimated at £10,000.
7 Hexham plc products come with a six-month warranty. Management estimates that 5% of
warranties will be invoked, at a cost of £15,000 to Hexham plc. Provisions are charged to
other operating expenses.
ng
8 Hexham plc paid rent of £25,000 on 27 March 20X8 which covers the period 1 April 20X8 to
30 June 20X8. This amount has been included in administrative expenses.
ni
Requirement
ar
Prepare the statement of profit or loss for Hexham plc for the year ended 31 March 20X8 and
the statement of financial position at that date.
e
Statement of profit or loss for the year ended 31 March 20X8
Revenue
ce am L £
en tn in
Cost of sales
s
Gross profit
ie
Distribution costs
er ie er
Administrative expenses
op
Other operating expenses
ef V rtn
Profit/(loss) from operations

Finance costs
C
Profit/(loss) before tax
Income tax expense
Pa
Profit/(loss) for year

Statement of financial position at 31 March 20X8
£
W
Non-current assets
Property, plant and equipment
AE
Land and buildings

Plant and equipment
Current assets
IC
Inventories
Trade receivables
R
Prepayments
Total assets
Equity
Equity share capital
Share premium
Retained earnings
Non-current liabilities
Borrowings

£
Current liabilities
Bank overdraft
Trade payables
Accruals
Deferred income
Provision
Income tax payable
Total equity and liabilities
2 Ford plc
ng
Ford plc is a company which publishes a single textbook and provides tuition courses relating to
that text. The following trial balance was extracted from the nominal ledger of Ford plc on
ni
31 March 20X6.
ar
£ £
Manufacturing costs 4,450,000
Administrative salaries 410,500
e
ce am L
Inventories at 1 April 20X5 113,400
Freehold land and buildings
Cost (land £1,750,000) 2,550,000
en tn in
s
Accumulated depreciation at 1 April 20X5 480,000
Plant and machinery
ie
Cost 620,000
er ie er
Accumulated depreciation at 1 April 20X5 337,000

Borrowings
op 200,000
ef V rtn

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Retained earnings at 1 April 20X5 212,500
Pa
Equity share capital – 50p nominal value 400,000

Preference share capital – 5% irredeemable £1 shares 200,000
Dividend paid 20,000
Cash and cash equivalents 43,500
W
Revenue 6,700,000
Finance costs 35,000
AE
8,654,900 8,654,900
The following additional information is relevant.

1 The borrowings are repayable in 10 equal instalments, commencing on 1 April 20X6.
IC
2 Revenue is made up of the following.

R
£
Tuition fees 1,500,000
Book sales 5,100,000
Advances 100,000
6,700,000
The tuition fees all relate to courses held during the year except for fees of £300,000 which
relate to a 10-week course. Five weeks of this course had already been held by the year
end. The remainder is to be held in June 20X6. The advances relate to the delivery of a new
publication which Ford plc has commissioned and advertised heavily but which is not yet in
production.
3 There were no movements of non-current assets during the year. Plant is depreciated on a
10% straight-line basis, taking into account the month of sale or purchase. Freehold
buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged
to cost of sales. Depreciation on freehold land and buildings is charged to administrative
expenses.
4 At the year end the company was in the process of a legal action by one of its competitors
which claims that Ford's textbook has breached copyright. The case is not due to be
decided until June 20X6 but Ford plc's legal advisors think that the company has a 70%
chance of losing the case and estimates that this would cost Ford plc £100,000.
5 One of Ford plc's customers who owed £10,000 at the year end was declared insolvent on
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1 May 20X6. The liquidator does not expect to pay any money to creditors and the amount
is considered irrecoverable.
6 Closing inventories at cost amounted to £120,000. Within this valuation is an over-allocation
ni
of fixed overheads, of £10,000.
ar
7 The following should be accounted for at the year end.
Income tax of £350,000
e
The preference dividend
8
ce am L
Ford plc employed the services of a training and consultancy firm for a six month period
commencing on the 1 February 20X6 for a total fee of £60,000. 50% of this fee is due for
en tn in
payment on 1 April 20X6, while the balance is to be paid within 30 days of the contract's
s
conclusion. No record has been made in respect of this in the accounts of Ford plc. The
ie
contract fee should be included in administrative expenses.
er ie er
9 Ford plc rent some additional office space for administrative staff. Rent is due quarterly in
op
advance. Ford plc made a payment of £20,000 on 31 March 20X6, and this has been
ef V rtn
included in administrative expenses.

C
10 During the year, Ford plc issued a 1 for 4 bonus issue from share premium. This has not
been reflected in the accounts.
Pa
Requirement
Prepare the statement of profit or loss for Ford plc for the year ended 31 March 20X6 and the
statement of financial position at that date.
W

£
AE
Revenue
Cost of sales
Gross profit
IC
Distribution costs
R

Finance costs
Income tax expense

£
Non-current assets
Property, plant, and equipment
Land and buildings
Plant and machinery
Current assets
Inventories
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Trade receivables
Prepayments
Cash and cash equivalents
ni
Total assets
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Equity
e
Preference share capital
Retained earnings
ce am L
en tn in
Borrowings
s
ie
Current liabilities
er ie er
Borrowings
Accruals
op
ef V rtn
Dividends payable
Trade payables
C
Deferred income
Pa
Provision
Income tax payable
W
3 Jayne plc
AE
The following trial balance was extracted from the nominal ledger of Jayne plc on
31 December 20X2.
IC
£ £
Accrued expenses at 31 December 20X2 2,500
R
Administration expenses 198,076

Cost of sales 426,772
Cash and bank 15,477
Payables due within one year (includes preference dividends
payable) 49,809
Receivables 12,691
Preference dividend paid 3,600
Equity dividend paid 4,000
Non-current assets at cost 157,680
10% loan (repayable in 10 years) 33,000
£1 equity share capital 11,000
£ £
60% £1 preference share capital (irredeemable) 6,000
Accumulated depreciation at 31 December 20X1 40,630
Retained earnings at 31 December 20X1 26,014
Share premium 7,500
Inventories at 31 December 20X2 39,323
Revenue 726,370
Income tax at 31 December 20X1 15,000
919,173 919,173
ng
1 Jayne plc sold a motor vehicle during the year ended 31 December 20X2. The motor
vehicle sold had a cost of £2,000 and a carrying amount of £1,100. Any profits or losses on
ni
disposal are treated as a cost of sales. Jayne plc for this transaction has been to record the
sales proceeds in cash at bank and used the suspense account as the other side of the
ar
entry. There are no other entries in the suspense account.
2 The non-current assets account includes freehold land which cost £25,000.
e
Depreciation is charged at 20% on the carrying amount of depreciable assets in use at the
ce am L
year end. This charge is to be distributed 40% to cost of sales, 30% to distribution costs and
30% to administrative expenses.
en tn in
3 A bonus issue of 1 for 5 equity shares made during the year out of the share premium
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account has not been reflected above.
ie
er ie er
4 Included in administrative expenses is a rates payment of £1,500 for the year to

1 April 20X3. An invoice for insurance of £1,200 for the year to 30 November 20X3 was
op
received and processed on 5 January 20X3.
ef V rtn
5 The following accruals are to be made.

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(a) Loan interest (12 months)
Pa
(b) Income tax of £12,000

6 The income tax liability of £15,000 at 31 December 20X1 was settled at £15,400 in
September 20X2. The payment was debited to administration expenses.
W
7 At 31 December 20X2 Jayne plc considers an amount owing of £453 from Mr Maguire
should be written off as irrecoverable, and a further allowance for receivables of 3% of the
AE
remaining receivables is necessary. Irrecoverable debts expenses are included in

administrative expenses.
8 Jayne plc received a letter in December 20X2 from the solicitor of a former employee
IC
claiming that their client was unfairly dismissed. Jayne plc's legal advisors estimate that
there is a 70% chance that the claim will be successful and they estimate that the award to
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the claimant will be £20,000. Provisions are charged to administrative expenses.

9 A cheque for £12,000, sent to a supplier, was incorrectly recorded as £21,000. This error
has not been corrected in the accounting records of Jayne plc.
Requirement
Prepare the statement of profit or loss for Jayne plc for the year ended 31 December 20X2 and

Statement of profit or loss for the year ended 31 December 20X2
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
ng
Statement of financial position at 31 December 20X2
ni
£
Non-current assets
ar
Land
Other non-current assets
e
Current assets
Inventories
ce am L
en tn in
Trade receivables
s
Prepayments
ie
er ie er
Total assets
Equity op
ef V rtn

C
Share premium
Pa
Retained earnings
Borrowings
W
Current liabilities
AE
Borrowings
Bank overdraft
Trade payables
Provision
IC
Accruals
Deferred income
R
Income tax payable

4 Skylar plc
The trial balance for Skylar plc as at 31 October 20X7 is shown below.
£'000 £'000
Share capital 15,000
Accruals at 31 October 20X7 387
5% bank loan repayable in 10 years 20,000
Cash at bank 7,997
ng
Property (freehold buildings) cost 20,000
Property (freehold buildings) – accumulated depreciation at
ni
1 November 20X6 2,500
Plant and equipment – Accumulated depreciation at
ar
Interest 750
e
Sales 53,761
Purchases 30,946
Distribution costs
ce am L
6,654
3,652
en tn in
Inventories as at 1 November 20X6 8,456
s
Dividends paid 1,300
ie
128,469 128,469
er ie er
Further information
op
ef V rtn
1 Depreciation has not yet been charged. There were no movements in non-current assets
during the year. Plant is depreciated at 10% straight-line on a monthly basis taking into
C
account the month of sale or purchase. Freehold buildings are depreciated over their useful
Pa
life of 40 years. Depreciation on plant is charged to cost of sales. Depreciation on freehold

buildings is charged to administrative expenses.
2 The inventories at the close of business on 31 October 20X7 had a sales value of
£12,232,500. Goods are sold at an average mark-up of 25%.
W
3 The company paid £48,000 insurance costs in June 20X7, which covered the period from
1 July 20X7 to 30 June 20X8. This was included in administrative expenses in the trial
AE
balance.
4 Interest on the bank loan for the last three months of the year has not been included in the
accounts in the trial balance.
IC
5 The income tax charge for the year has been calculated as £1,254,000.
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6 A cheque received from customer Broke plc for £15,000 on 27 October 20X7, which was
recorded in the accounting records of Skylar plc, has not cleared. A liquidator was
appointed to Broke plc on 15 November 20X7 and he has confirmed that the cheque will
not be reissued. Management have advised that Broke plc's total outstanding balance of
£30,000 should be written off as an irrecoverable debt and recorded in administrative
expenses.
7 During the year Skylar plc renewed its contract with haulage company Distributers plc. The
contract commenced on 1 September 20X7 and no payment has been made to date. The
annual contract fee is £200,000.

8 All of Skylar's goods come with a 12 month warranty. Management estimate that 2% of
these warranties will be exercised, and the cost of repair or replacement of these goods will
be £250,000 in total. The warranties expense should be presented in administrative
expenses.
Requirement
Prepare the statement of profit or loss for Skylar plc for the year ended 31 October 20X7 and the
Statement of profit or loss for the year ended 31 October 20X7
£'000
Revenue
ng
Cost of sales
Gross profit
Distribution costs
ni
ar
Finance costs
e
Income tax expense
ce am L
Statement of financial position at 31 October 20X7
en tn in
s
£'000
Non-current assets
ie
er ie er
Land and buildings

Plant and equipment
op
ef V rtn
C
Current assets
Pa
Inventories
Prepayments
Trade receivables
W
Total assets
Equity
AE

Retained earnings
IC
Borrowings
R
Current liabilities
Trade payables
Accruals
Income tax payable
Provision
5 Corolla plc
Corolla plc's trial balance as at 31 October 20X8 is shown below.
Debit Credit
£'000 £'000
Share capital (£1 per share) 20,000
Share premium 5,000
Land and buildings – cost 35,152
Land and buildings – accumulated depreciation at 1 November 20X7 7,000
ng
Plant and equipment – cost 12,500
Plant and equipment – accumulated depreciation at 1 November 20X7 7,400
ni
Accruals at 31 October 20X8 436
ar
Cash at bank 9,774
e
Interest paid 600
Revenue
Purchases
ce am L 41,620
58,411
en tn in
s
ie
Inventories as at 1 November 20X7 9,032
er ie er
op 125,846 125,846
ef V rtn
Further information
C
1 The inventories at the close of business on 31 October 20X8 were valued at £7,878,000.
Pa
2 Depreciation is to be charged for the year as follows:

Buildings 2% per annum straight-line basis
Plant and equipment 20% per annum reducing balance basis
W
Depreciation is apportioned as follows:

%
AE
Cost of sales 40
Distribution costs 40
Administrative expenses 20
IC
Land, which is non-depreciable, is included in the trial balance at a cost of £15,152,000.

3 The company began a series of television adverts for the company's range of products on
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1 October 20X8 at a cost of £45,000. The adverts were to run for three months and were to
be paid for in full at the end of December 20X8. Advertising expenses are to be included in
distribution costs.
4 Interest on the bank loan for the last six months of the year has not been included in the
accounts in the trial balance.
5 The income tax charge for the year has been calculated as £970,000.
6 During the year, Corolla plc made a 1 for 4 bonus issue of equity shares. This has not been
reflected in the accounts.

7 Management have calculated that an allowance for receivables equal to 5% of the trade
receivables balance at 31 October 20X8 is required. The allowance should be charged to
8 Corolla plc paid an insurance premium for annual cover up to 30 June 20X9. Due to a
reference number error, the computerised accounting system posted the payment of
£45,000 to a trade supplier's account.
Requirement
Prepare the statement of profit or loss for Corolla plc for the year ended 31 October 20X8 and
ng
£'000
Revenue
ni
Cost of sales
Gross profit
ar
Distribution costs
e
Finance costs
ce am L
Income tax expense
en tn in
s
ie
er ie er
£'000
Non-current assets
op
ef V rtn
Land and buildings

C
Plant and machinery
Pa
Current assets
Inventories
Trade receivables
W
Prepayments
AE
Total assets
Equity
IC
Retained earnings
R
Borrowings
Current liabilities
Trade payables
Accruals
Income tax payable
6 Ariel plc
The following trial balance was extracted from the nominal ledger of Ariel plc on 31 March 20X2.
£'000 £'000
Equity share capital (£1 per share) 5,000
Buildings – cost/value 17,630
Plant and machinery – cost/value 14,000
Buildings – accumulated depreciation 16,276
Plant and machinery – accumulated depreciation 3,600
ng
Accruals at 31 March 20X2 129
ni
Cash at bank 2,578
ar
Interest paid 720
e
Revenue 35,547
Purchases 27,481
Distribution costs
ce am L
1,857
2,235
en tn in
s
Inventories as at 1 April 20X1 3,790
Dividends paid 920
ie
er ie er
73,344 73,344
Further information:
op
ef V rtn
1 The inventories at the close of business on 31 March 20X2 were valued at £4,067,000.
C
2 Depreciation has already been provided on property, plant and equipment for the year
Pa
ended 31 March 20X2.

3 On 31 March 20X2 items of plant with a cost of £12,750,000 and accumulated depreciation
of £3,100,000 were assessed to have a value of £8,500,000 in an impairment review. Any
adjustment should be included in cost of sales.
W
4 The company rented some office photocopiers for the period 1 March to 30 June 20X2.
The contract price for the four months was £164,000 and this was paid in full on 3 March
AE
and is charged to administrative expenses.

5 The company sourced extra warehousing space, for the storage of goods prior to their sale,
for a period of three months from 1 February to 30 April 20X2. The invoice for the full three
IC
months of £114,000 was paid on 16 April. No entry has been made in the accounts for this
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transaction, which should be charged to distribution costs.

7 On 15 April 20X2 one of the company's customers went into liquidation. Trade receivables
at 31 March 20X2 include a balance of £95,000 owed by this customer. The directors have
been advised that they are unlikely to receive any of this amount and wish to write the debt
off as irrecoverable. Irrecoverable debts are written off to administrative expenses.
8 Ariel plc provides a warranty for certain lines of product. It is estimated that 1% of these
warranties will be invoked at a cost of £25,000.
Requirement
Prepare the statement of profit or loss for Ariel for the year ended 31 March 20X2 and the

£'000
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
ng
ni
£'000
ar
Non-current assets
Buildings
e
Plant and machinery
Current assets
Inventories ce am L
en tn in
s
Trade receivables
Prepayments
ie
er ie er

Total assets
op
ef V rtn
Equity
C
Retained earnings
Pa
Borrowings
W
Current liabilities
Trade payables
AE
Accruals
Provision
Income tax payable
IC
7 Enercell plc
The trial balance for Enercell plc as at 31 October 20X7 is shown below.
£'000 £'000
Share premium 2,500
Accruals 580
Cash at bank 11,996
ng
Interest 1,125
Gross profit 39,539
ni
ar
Closing inventories 18,000
e
Property (freehold buildings) – cost 30,000
Property (freehold buildings) – accumulated depreciation as at
1 November 20X6
ce am L
3,750
en tn in
Plant and equipment – accumulated depreciation as at
s
ie
151,601 151,601
er ie er
Further information
op
ef V rtn
1 There were no movements in non-current assets during the year. Plant and equipment is
depreciated on a 10% straight-line basis. Freehold buildings are depreciated over their
C
useful life of 40 years. Depreciation is charged to administrative expenses.
Pa
2 The figure for closing inventories in the trial balance is the sales value (goods are sold at a
mark-up of 25%). Inventory should be valued at cost.
3 The company paid £72,000 insurance costs in June 20X7, which covered the period from
1 July 20X7 to 30 June 20X8. This was included in administrative expenses in the trial
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balance.
4 Interest on the bank loan for the last three months of the year has not been included in the
AE
trial balance.
5 The income tax charge for the year has been calculated as £1,881,000.
6 A customer was injured by a defective product during the year and has issued proceedings
IC
against the company. Enercell plc's legal team have advised that there is a 75% probability
that this will result in an estimated payout of £750,000. Provisions are charged to
R
7 Enercell plc rented additional warehouse space during the year for a period of six months,
commencing on 1 August 20X7. The rent payable is £4,000 per month, no payments have
been made to date. Rent is charged to distribution costs.
8 During the year, Enercell plc issued a 1 for 10 bonus share issue from share premium.
9 A cheque which was sent on 23 October 20X7 to a supplier for £32,000 was incorrectly
recorded as £23,000.
Requirement
Prepare the statement of profit or loss for Enercell plc for the year ended 31 October 20X7 and

£'000
Gross profit
Distribution costs
Finance costs
Income tax expense
ng
£'000
Non-current assets
ni
Buildings
Plant and equipment
ar
Intangible assets
e
Current assets
Inventories
ce am L
Trade receivables
Prepayments
en tn in
s
Total assets
ie
er ie er
Equity
op
ef V rtn
Share premium
Retained earnings
C
Pa
Borrowings
Current liabilities
W
Trade payables
Accruals
Income tax payable
AE
Provision
IC
8 Liquid plc
R
The following trial balance was extracted from the nominal ledger of Liquid plc on
31 December 20X6:
£ £
Sales 1,590,000
Inventories at 1 January 20X6 35,000
Purchases 600,000
Loan interest paid 3,000
Land and buildings cost 975,000
£ £
Land and buildings accumulated depreciation at 1 January 20X6 178,000
Plant and equipment accumulated depreciation at 1 January 20X6 95,000
Bank 8,000
Equity share capital (£1 shares) 300,000
Bank loan 50,000
Equity dividends paid 5,000
Advance deposits from customers 4,000
ng
2,350,000 2,350,000
The following adjustments have yet to be accounted for:
ni
1 Inventories held at 31 December 20X6 are valued at £120,000.
ar
e
Plant and equipment 10% straight-line
ce am L
The cost of the land was £100,000, and all non-current assets are assumed to have zero
residual values.
en tn in
s
There were no additions to or disposals of non-current assets during the year ended
ie
31 December 20X6.
er ie er
op
and equipment is charged to cost of sales.
ef V rtn
3 At the year end, trade receivables include a balance of £13,000 which is considered
irrecoverable. The company presents irrecoverable debts as other operating expenses in
C
the statement of profit or loss. Management believe that an allowance for receivables of
Pa
£16,000 is required in respect of the remaining trade receivables balance.

4 Liquid plc paid rent of £20,000 on 20 December 20X6 which covers the period 1 April 20X6
to 31 March 20X7. This amount has been included in distribution costs.
W
5 Liquid plc's annual insurance premium for plant and equipment is £10,000 for the year
ended 31 December 20X6. Liquid paid £5,000 in respect of this on 25 November 20X6.
This payment is included in administrative expenses.
AE
6 During the year, the company offered a 1 for 6 bonus issue to shareholders, from share
premium.
7 The bank loan was received on 1 July 20X6 and is repayable in full in five years. Interest is
IC
charged at a fixed rate of 12% per annum.

R
8 Income tax for the year ended 31 December 20X6 is estimated at £45,000.
9 Liquid plc products come with a 6 month warranty. Management estimates that 5% of
warranties will be invoked, at a cost of £25,000 to Liquid plc. Provisions are charged to
other operating expenses.
Requirement
Prepare the statement of profit or loss for Liquid plc for the year ended 31 December 20X6 and

£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
ng
Income tax expense
Profit/(loss) for the period
ni
£
ar
Non-current assets
e
Land and buildings
Plant and equipment
Intangible assets
ce am L
en tn in
Current assets
s
Inventories
ie
Trade receivables
er ie er
Prepayments
op
ef V rtn
Total assets
C
Equity
Pa

Share premium
Retained earnings
W
Borrowings
AE
Current liabilities
Borrowings
Bank overdraft
IC
Trade payables
Accruals
R
Deferred income
Provision
Income tax payable
9 Colbolt plc
The trial balance for Colbolt plc as at 31 March 20X7 is shown below.
£ £
Share premium 4,500
Accruals 140
ng
Cash at bank 9,997
Interest 1,125
ni
Gross profit 33,931
ar
e
Property (freehold buildings) – cost 32,520
1 April 20X6
ce am L
Property (freehold buildings) – accumulated depreciation as at
4,878
en tn in
s
Plant and equipment – accumulated depreciation as at 1 April 20X6 31,692
ie
147,817 147,817
er ie er
Further information
1 op
Plant and equipment is depreciated on a 12.5% straight-line basis. Freehold buildings are
ef V rtn
depreciated over their useful life of 40 years. Depreciation is to be charged to

C
Pa
2 The figure for closing inventories in the trial balance is the sales value (goods are sold at a
mark-up of 20%). Inventory should be valued at cost of sales.
3 The bank loan was taken out in 20X4, therefore a full year's interest needs to be recorded.
Interest on the bank loan for the last three months of the year has not been included in the
W
trial balance.
AE
5 During the year, Colbolt plc issued a 1 for 10 bonus share issue from share premium.
6 A cheque which was sent on 23 March 20X7 to a supplier for £12 was incorrectly recorded
IC
as £21.
7 Colbolt plc received notice on 15 April 20X7 that one of its customers, Pulse Limited, had
R
gone into liquidation and the debt requires to be written off as irrecoverable. This customer
owed £165 at the year end. Colbolt plc decided to create an allowance for receivables on
the remaining trade receivables balance of £4,500. Irrecoverable debts are charged to
8 Colbolt plc rents some additional office space for administrative staff. Rent is due quarterly
in advance. Colbolt plc made a payment of £30 on 28 February 20X7, and this has been
included in administrative expenses.
9 On 31 March 20X7 items of plant with a cost of £8,000 and accumulated depreciation of
£3,100 were assessed to have a value of £4,500 in an impairment review. Any adjustment
should be included in cost of sales.

Requirement
Prepare the statement of profit or loss for Colbolt plc for the year ended 31 March 20X7 and the
£
Gross profit
Distribution costs
Finance costs
ng
Income tax expense
ni
ar
£
Non-current assets
e
Freehold buildings
ce am L
Plant and equipment
en tn in
Current assets
s
Inventories
ie
Trade receivables
er ie er
Prepayments
op
ef V rtn
Total assets
C
Equity
Pa

Share premium
Retained earnings
W
Borrowings
AE
Current liabilities
Trade payables
Accruals
IC
Income tax payable

R
10 Waterford plc
The trial balance for Waterford plc as at 31 May 20X6 is shown below.
£ £
Share premium 9,000
Trade payables 675
Accruals 567
7.5% bank loan repayable in 8 years 14,000
Cash at bank 5,678
ng
Interest 600
Gross profit 45,998
ni
ar
Dividends paid 600
e
Property (freehold land and buildings) – cost 80,000
Property (freehold land and buildings) –
1 June 20X5
ce am L
accumulated depreciation as at
7,000
en tn in
s
Plant and equipment – accumulated
7,086
ie
depreciation as at 1 June 20X5
er ie er
Motor vehicles – cost 17,000
op
Motor vehicles – accumulated depreciation
5,200
ef V rtn
as at 1 June 20X5
Suspense 17,601
C
180,271 180,271
Pa

Plant and equipment 15% reducing balance
W
Motor vehicles 25% straight-line

The cost of the land within the cost of property was £500, and all non-current assets are
AE
assumed to have zero residual values.

There were no additions to non-current assets during the year ended 31 May 20X6.
IC
and equipment and motor vehicles is charged to cost of sales.

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2 On 1 June 20X5 motor vehicles purchased on 1 July 20X4 at a cost of £8,000 were disposed
of for £2,500. The cash received has been correctly recorded but the only other entry was to
the suspense account.
3 Income tax for the year ended 31 March 20X6 is estimated at £8,000.
4 Within the closing inventory carried at cost is an over-allocation of fixed overheads, of £78.
5 During the year, Waterford plc made a 1 for 4 bonus issue from share premium. The correct
entry to share premium has been made, but the corresponding entry was posted to the
suspense account.
6 An accrual needs to be made for the remainder of the interest expense for the year.

7 At 31 May 20X6 Waterford plc determined that £650 owing from a customer is required to
be written off as irrecoverable, and an allowance for receivables of 3% of the remaining
receivables is necessary. Irrecoverable debts are considered an administrative expense.
8 An adjustment has been made to remove £8,851 for sales made in May 20X6 for products
to be delivered in June 20X6. The correct entry has been made to the revenue account but
the corresponding entry has been posted to the suspense account.
9 On 31 May 20X6 Waterford plc paid an insurance premium for annual cover up to
31 May 20X7. The full £55 was included within administrative expenses at 31 May 20X6.
Requirement
ng
Prepare the statement of profit or loss for Waterford plc for the year ended 31 May 20X6 and the
Statement of profit or loss for the year ended 31 May 20X6
ni
£
ar
Gross profit
Distribution costs
e
Finance costs
ce am L
en tn in
Income tax expense
s
ie
Statement of financial position at 31 May 20X6
er ie er
£
Non-current assets
op
ef V rtn

Property
C
Plant and equipment
Pa
Motor vehicles
Current assets
Inventories
W
Trade receivables
Prepayments
AE
Total assets
Equity
IC

Share premium
R
Retained earnings
Borrowings
Current liabilities
Trade payables
Accruals
Deferred income
Income tax payable
11 Corrie Ltd is preparing its statement of changes in equity for the year ended 31 December
20X6. Its opening retained earnings balance at 1 January 20X6 was £151,600. The
following balances and transactions arose during the year:
 Corrie Ltd issued 10,000 £1 equity shares at a premium of £0.80 per share on 1
January 20X6
 Corrie Ltd made a bonus issue on 1 March 20X6 of 5,000 £1 equity shares utilising
retained earnings
 It paid a dividend totalling £16,000 on 31 October 20X6
 It made a loss for the year of £17,800
ng
What is the closing balance of Corrie Ltd's retained earnings at 31 December 20X6?
A £148,400
ni
B £112,800
C £130,800
ar
D £134,000
e
LO 3c
ce am L
12 Dale Ltd is preparing its statement of changes in equity for the year ended 31 December
20X8. The opening share capital balance in the statement of changes in equity was
en tn in
£100,000, comprising 100,000 £1 equity shares which were issued at a premium of £0.50
s
per share. The following balances and transactions arose in the year:
ie
 Dale Ltd issued 20,000 £1 equity shares at price of £1.70 per share on 1 July 20X8
er ie er

op
Dale Ltd made a bonus issue on 1 October 20X8 of 10,000 £1 equity shares utilising
retained earnings
ef V rtn
 It paid a dividend totalling of 20p per share to all shareholders on 31 December 20X8
C
What was the closing balance of share capital in the statement of changes in equity at 31
Pa
December 20X8?
A £144,000
B £104,000
W
C £118,000
D £130,000
AE
LO 3c
13 The accountant is preparing the financial statement of Marge Ltd for the year ended 31 May
IC
20X9. She has identified the following transactions which may require to be included in the
statement of changes in equity:
R
1 A bonus issue made in the year

2 A bank loan for £100,000 received during the year
3 Dividends paid to equity shareholders
Which of the above transactions should be included in the statement of changes in equity?
A 1 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
LO 3c

Chapter 13: Statement of cash flows
1 Havisham plc
Extracts from the financial statements for Havisham plc for the year ended 31 March 20X2 are as
follows:
£
ng
Profit from operations 819,640
Finance costs (89,600)
Profit before tax 730,040
ni
Income tax (245,700)
Profit for year 484,340
ar
Statements of financial position at 31 March
20X2 20X1
e
£ £
ce am L
Non-current assets
Property, plant and equipment 982,600 797,500
Intangible assets 580,040 386,900
en tn in
s
Current assets
ie
Inventories 430,040 285,550
er ie er
Trade receivables 342,700 224,150

Government bonds
op 40,000 10,000
ef V rtn
Cash 37,470 3,800

Total assets 2,412,850 1,707,900
C
Pa
Equity share capital (£1 shares) 312,400 232,800

Share premium 398,200 351,000
W
Borrowings 567,400 423,000
Preference shares 75,000 0
AE
Current liabilities
Borrowings 115,600 51,000
Bank overdraft 51,200 27,230
IC
Income tax payable 201,800 192,520

Trade payables 146,700 135,900
R
Accrued interest 9,750 12,350

Total equity and liabilities 2,412,850 1,707,900
Additional information
1 Included in profit from operations is a loss of £84,810 in respect of the disposal of
machinery in the year. This machinery had a carrying amount of £127,800 at the disposal
date.
2 The depreciation charge for the year was £232,900.
3 Included in trade payables at 31 March 20X2 is an amount of £13,900 in respect of a purchase
of an item of property, plant and equipment in the year that has not yet been paid for.
ICAEW 2020 Chapter 13: Statement of cash flows 127

4 Intangible assets costing £251,340 were purchased for cash during the year. Intangible
assets with a carrying amount of £17,000 were sold for £24,000 during the year. The profit
on disposal has been offset against operating costs.
5 On 1 April 20X1 Havisham plc made a one for ten bonus issue from share premium. A
further share issue took place in December 20X1 for cash.
6 Havisham plc declared and paid a dividend during the year.
7 Redeemable preference shares in the amount of £75,000 were issued during the year.
8 An impairment review at 31 December 20X7 identified a fall in the recoverable amount of
intangible assets. As a result, an impairment loss of £20,000 was identified and charged to
ng
9 The government bonds are highly liquid and management has decided to class them as
cash equivalents.
ni
Requirement
ar
Prepare a statement of cash flows for the year ended 31 December 20X2 in accordance with IAS 7.
ADJUSTED FROM SAMPLE EXAM
e
£
ce am L
Cash flows from operating activities
Profit before tax
en tn in
Investment income
s
Finance costs
ie
Depreciation
er ie er
Amortisation of intangible assets

Impairment
op
ef V rtn
Gain/loss on sale of property, plant and equipment

Gain/loss on sale of intangible assets
C
Movement in inventories
Pa
Movement in trade receivables

Movement in trade payables
Cash generated from operations
Tax paid
W
Interest paid
Net cash from/used in operating activities
AE
Cash flows from investing activities

Purchase of property, plant and equipment
Purchase of intangible assets
IC
Proceeds from sale of property, plant and equipment

Proceeds from sale of intangible assets
R
Interest received
Net cash from/used in investing activities
Cash flows from financing activities

Proceeds from issue of shares
Movement in borrowings
Dividends paid
Net cash from/used in financing activities
Net increase/decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

2 Castle plc
As at 31 May 20X1 and 31 May 20X2 Castle plc had the following summarised statements of
financial position.
20X2 20X1
£ £ £ £
ASSETS
Non-current assets
Cost 3,284,000 3,091,000
Accumulated depreciation (2,198,000) (2,001,000)
ng
1,086,000 1,090,000
Intangibles assets
Cost 9,360,000 8,645,000
ni
Accumulated amortisation (3,690,000) (2,715,000)
5,670,000 5,930,000
ar
Investments 2,145,000 127,000
8,901,000 7,147,000
e
Current assets
Investments 60,000 40,000
Inventories
Trade receivables
ce am L 1,112,000
948,000
1,086,000
840,000
en tn in
Prepayments 95,000 108,000
s
Cash 299,000 182,000
ie
2,514,000 2,256,000
er ie er
Total assets 11,415,000 9,403,000

EQUITY AND LIABILITIES
op
ef V rtn
Equity
Ordinary share capital 1,800,000 1,000,000
C
Share premium 1,543,000 1,421,000
Pa
Retained earnings 2,689,000 746,000

6,032,000 3,167,000
15% debenture loan 3,000,000 4,500,000
W
Preference shares 100,000 0
Current liabilities
AE
Trade payables 1,417,000 896,000

Accruals 225,000 337,000
2,283,000 1,736,000
IC

R
Castle's statement of profit or loss for the year ended 31 May 20X2 was as follows.
£
Revenue 8,646,000
Cost of sales (3,705,000)
Gross profit 4,941,000
Distribution costs (465,000)
Administrative expenses (621,000)
Profit from operations 3,855,000
Investment income 78,000
Profit before tax 3,370,000
Profit for the period 2,686,000

1 During the year plant and equipment with an original cost of £1,201,000 and a carrying
amount at the date of disposal of £496,000 was sold at a loss of £189,000. As at
31 May 20X2 £165,000 of the sale proceeds had yet to be received and is included within
trade receivables. As at 31 May 20X1 the corresponding figure in respect of disposals made
during the year then ended was £79,000, which was received in full in June 20X1.
2 As in the previous year, all acquisitions of property, plant and equipment made during the
year were paid for in cash at the date of acquisition. However, included within trade
payables at 31 May 20X2 is £376,000 (20X1 – £nil) relating to the acquisition of intangible
assets.
ng
3 There were no disposals of intangible assets or investments during the year. Trade
receivables at 31 May 20X2 include £10,000 (20X1 – £8,000) in respect of interest
receivable on investments.
ni
4 As at 31 May 20X1 the ordinary share capital of Castle plc consisted of 1 million shares,
ar
each with a £1 nominal value. The following day the company made a 1 for 2 bonus issue of
500,000 shares (utilising available profits).
e
5 Dividends of £243,000 were paid during the year ended 31 May 20X2.
ce am L
6 The current asset investments are government bonds and management has decided to
class them as cash equivalents.
en tn in
7 During the year Castle plc issued 100,000 £1 redeemable preference shares.
s
8 Included within accruals at 31 May 20X2 is £125,000 (20X1 £75,000) for interest payable.
ie
er ie er
Requirement
op
Prepare a statement of cash flows for the year ended 31 May 20X2 in accordance with IAS 7.
ef V rtn
£
C
Profit before tax
Pa
Investment income
Finance costs
Depreciation
W

AE

Movement in prepayments
Movement in accruals
IC

R
Tax paid
Interest paid

Purchase of investments
Proceeds from sale of intangibles
Interest received

£

Dividends paid

ng
3 Tam plc
ni
ar
As at 30 November 20X1 and 30 November 20X2 Tam plc had the following summarised
statements of financial position.
20X2 20X1
e
£ £ £ £
ce am L
ASSETS
Non-current assets
Property, plant and equipment 2,543,000 2,401,000
en tn in
s
Intangibles 550,000 584,000
Investments 406,000 –
ie
3,499,000 2,985,000
er ie er
Current assets
Inventories
op 685,000 598,000
ef V rtn
Trade and other receivables 480,000 465,000

Prepayments 96,000 126,000
C
Cash and cash equivalents 426,000 200,000
Pa
1,687,000 1,389,000
Total assets 5,186,000 4,374,000
Equity
W

Share premium account 342,000 200,000
Retained earnings 1,785,000 1,311,000
AE
3,227,000 2,511,000
Borrowings 500,000 1,000,000
IC
Redeemable preference shares 200,000 0

Current liabilities
R

Accruals 108,000 131,000
Provisions 120,000 140,000
1,259,000 863,000

Tam plc's statement of profit or loss for the year ended 30 November 20X2 was as follows.
£
Revenue 5,762,000
Finance charge (68,000)
Investment income 55,000
ng
Profit for the period 524,000
ni
1 Included within trade payables at 30 November 20X2 is £351,000 (20X1 £106,000) relating
to purchases of property, plant and equipment.
ar
2 Included within accruals at 30 November 20X2 is £25,000 (20X1 £50,000) for interest
payable.
e
3 Property, plant and equipment and intangible assets can be analysed as follows.
ce am L 20X2 20X1
en tn in
£ £
s
Cost or valuation 7,464,000 6,375,000
ie
er ie er
Accumulated depreciation (4,921,000) (3,974,000)

2,543,000 2,401,000
Intangible assets
op
ef V rtn
Cost 883,000 938,000

Accumulated amortisation (333,000) (354,000)
C
550,000 584,000
Pa
4 During the year, plant with an original cost of £479,000 and a carrying amount at the date of
disposal of £326,000 was sold for £424,000 which was received in cash.
5 Tam plc received £20,000 during the year from the sale of highly liquid investments, which
W
were classed as cash equivalents.

6 During the year, Tam plc made a 1 for 20 bonus issue of its ordinary shares. The subsequent
AE
issue of shares was made at a premium.

7 Included in trade and other receivables at the year end was £25,000 in relation to
investment income. The corresponding figure for 20X1 was £15,000.
IC
8 Intangible assets with accumulated amortisation at the date of disposal of £40,000 were
R
sold for £12,000. There were no acquisitions of intangible assets during the year.
9 Redeemable preference shares in the amount of £200,000 were issued during the year.
Requirements
Prepare a statement of cash flows for Tam plc, for the year ended 30 November 20X2 in
accordance with IAS 7.

£
Profit before tax
Investment income
Finance costs
Depreciation
Movement in trade and other receivables
ng
Movement in prepayments
ni
Movement in provisions
ar
Tax paid
Interest paid
e
ce am L
en tn in
s
ie
er ie er

Interest received
op
ef V rtn

C
Pa
Dividends paid
W

AE
4 Kaya plc
IC
The following are the draft financial statements for Kaya plc for the year ended
31 December 20X7.
R

£
Revenue 7,350,500
Administrative expenses (1,060,800)

Statements of financial position as at 31 December 20X7 and 20X6
20X7 20X6
£ £ £ £
ASSETS
Non-current assets
Intangible assets 350,700 300,500
7,336,100 7,014,000
Current assets
ng
Cash and cash equivalents 10,700 20,200
265,200 542,200
Total assets 7,601,300 7,556,200
ni
ar
Equity
e
Share premium account 1,200,000 950,000
Retained earnings 1,342,800 2,206,700
ce am L
6,542,800 6,656,700
en tn in
Preference share capital (redeemable) 500,000 400,000
s
ie
Current liabilities
er ie er

Income tax payable
op 410,000
558,500
360,000
499,500
ef V rtn

C
Pa
1 During the year Kaya plc issued redeemable preference shares at par.
2 The current asset investments are government bonds and management has decided to
class them as cash equivalents.
W
3 During the year Kaya plc sold plant and equipment with a carrying amount of £560,500 for
£600,000. Total depreciation charges for the year were £750,600.
AE
4 Trade payables include accrued interest of £5,000 (20X6 £7,000).

5 Kaya plc acquired new intangible assets at a cost of £77,500 during the year.
IC
6 Included in trade receivables is investment income of £14,500 (20X6 £2,000).

7 An impairment review at 31 December 20X7 identified a fall in the recoverable amount of
R
intangible assets. As a result, an impairment loss of £15,000 was identified and written off to
8 Included in trade payables is £10,000 which relates to the purchase of machinery.
9 During the year Kaya plc made a 1 for 100 bonus issue of its ordinary shares.
Requirement
Prepare a statement of cash flows for the year ended 31 December 20X7 in accordance with
IAS 7.

£
Profit before tax
Investment income
Finance costs
Depreciation
Impairment
ng
ni
Tax paid
Interest paid
ar
e
ce am L
en tn in
s
ie
er ie er

op
ef V rtn
Dividends paid
C
Pa

W
5 Siena plc
The following are the draft financial statements for Siena plc for the year ended 31 March 20X5.
AE

£
Revenue 5,650,500
IC

R


Statements of financial position as at 31 March 20X5 and 20X4
20X5 20X4
£ £ £ £
ASSETS
Non-current assets
4,532,400 3,106,300
Current assets
Government bonds 105,000 100,000
ng
Cash 180,000 20,200
1,014,600 729,800
Total assets 5,547,000 3,836,100
ni
Equity
ar
Share premium account 1,050,000 850,000
e
4,192,500 2,724,500
Loan
ce am L
556,000 472,000
en tn in
Preference shares (redeemable) 150,000 0
s
ie
Current liabilities
er ie er

Income tax payable
op 300,000
648,500
350,000
639,600
ef V rtn

C
Pa
1 During the year Siena plc made a 1 for 10 bonus issue of its ordinary shares. It subsequently
issued further shares at the market price.
2 An impairment review at 31 March 20X5 identified a fall in the recoverable amount of
W
certain non current investments. As a result, an impairment loss of £12,000 was identified
and written off to administrative expenses.
AE
3 During the year Siena plc acquired plant and equipment for cash of £2,057,000. In addition,
plant and equipment with a fair value of £600,000 was acquired through a long term loan.
The depreciation charge for the year, charged to cost of sales, was £750,600. A loss on sale
of plant of £55,000 was made during the year.
IC
4 Interest payable of £10,000 has been included in trade payables at year end. The
R
corresponding figure in 20X4 was £5,000.

5 The government bonds are highly liquid and management has decided to class them as
cash equivalents.
6 Siena plc issued £150,000 redeemable preference shares during the year.
7 Included in trade payables is £10,000 in relation to the acquisition of long term investments.
Requirements
Prepare a statement of cash flows for Siena plc the year ended 31 March 20X5 in accordance
with IAS 7.

£
Profit before tax
Investment income
Finance costs
Depreciation
Impairment
ng
Tax paid
Interest paid
ni
ar
e
ce am L
en tn in
Interest received
s
ie
er ie er
op
ef V rtn
Dividends paid
C
Pa

W
6 Part of the process of preparing a cash flow statement is the calculation of net cash flows
AE
from operating activities.

Which of the following statements about that calculation using the indirect method are
correct?
IC
1 Loss on sale of non-current assets should be deducted from profit before tax.
2 Increase in inventories should be deducted from profit before tax.
R
3 Increase in trade payables should be added to profit before tax.

4 Impairment losses should be added to profit before tax.
A 1, 2 and 3
B 1, 2 and 4
C 1, 3 and 4
D 2, 3 and 4
LO 3c

7 In the course of preparing a statement of cash flows, the following figures are to be
included in the calculation of net cash flows from operating activities.
£
Depreciation charges 900,000
Impairment losses 80,000
Profit on sale of non-current assets 40,000
Increase in inventories 130,000
Decrease in trade receivables 100,000
Increase in trade payables 80,000
What will the net effect of these items be in the statement of cash flows?
ng
£
A Addition to cash flows from operating activities 890,000
ni
B Deduction from cash flows from operating activities 890,000
C Addition to cash flows from operating activities 1,070,000
ar
D Addition to cash flows from operating activities 990,000
e
LO 3c
ce am L
en tn in
s
8 An extract from a statement of cash flows prepared by a trainee accountant is shown below.
ie
er ie er
£m
Profit before tax
op 28
ef V rtn
Depreciation (9)
Decrease in inventories 13
C
Increase in trade receivables (4)
Pa
Increase in trade payables (8)

Cash generated from operations 20
Which of the following criticisms of this extract are correct?
1 Depreciation charges should have been added, not deducted.
W
2 Decrease in inventories should have been deducted, not added.

AE
3 Increase in trade receivables should have been added, not deducted.

4 Increase in trade payables should have been added, not deducted.
A 2 and 4
IC
B 2 and 3
R
C 1 and 3
D 1 and 4
LO 3c

9 Bailey disposes of an asset with a carrying amount of £21,000 for £30,000 on 7 July 20X1.
How will this transaction be shown in cash flows from operating activities?
Cash flows from
operating activities
£
A (9,000)
B 9,000
C (21,000)
ng
D 21,000
LO 3c
ni
ar
10 An extract from the statement of financial position for Highmead has the following
balances:
e
20X5 20X4
ce am L
Current liabilities
Income tax payable
£ £
150,000
£ £
10,000
en tn in
s
The tax expense in the statement of profit or loss for the year ended 20X5 was £160,000
ie
and £150,000 in the year ended 20X4.
er ie er
What is the amount of tax that Highmead paid or received in the year ended 20X5?
op
ef V rtn
A £20,000 paid
B £20,000 received
C
Pa
C £10,000 paid
D £10,000 received
LO 3c
W
AE
11 The following extracts are taken from the financial statements of Radio for the years ended
31 March 20X4 and 20X5:
IC
Statement of financial position extract:

20X5 20X4
R
£ £

Statement of profit or loss extract:
20X5
£
What is the cash generated from operations to be included in the statement of cash flows
for the year ended 31 March 20X5?
ng
A £626,600
B £748,800
ni
C £815,600
ar
D £845,600
LO 3c
e
ce am L
en tn in
s
ie
er ie er
op
ef V rtn
C
Pa
W
AE
IC

Chapter 14: Company financial statements under UK
GAAP
1 What does GAAP stand for?
A Generally Agreed Accounting Policies
B Generally Accepted Accounting Policies
C Generally Agreed Accounting Practice
D Generally Accepted Accounting Practice
ng
LO 3c
ni
2 In the UK which of the following are responsible for the preparation of company annual
ar
financial statements?
A The shareholders
e
B The board of directors
C
ce am L
The auditors
en tn in
D The members
s
LO 1a
ie
er ie er
3 op
Indicate whether the following statements are true or false.
ef V rtn
Creditors falling due after more than one year are equivalent to current liabilities.
C
A True
Pa
B False
Non-current assets are equivalent to fixed assets.
C True
W
D False
AE
LO 3c
IC
4 Teacup Ltd uses the first-in, first-out (FIFO) method to value its stocks of finished goods. At
1 January there were stocks of 25 units that had cost £54 each. During January the
R
following transactions occurred:

8 January 10 units were sold for £62 each
15 January 10 units were purchased for £55 each
22 January 10 units were sold for £62 each
What was the value of Teacup Ltd's closing stock at 31 January?

A £815
B £810
C £825
D £820
LO 1d
ICAEW 2020 Chapter 14: Company financial statements under UK GAAP 141
5 Diamond Ltd issues 250,000 equity shares with a nominal value of £2 each at a price of
£3.55 each for cash.
Which of the following sets of entries would be made to record this transaction?
A Credit Bank £887,500, Debit Share capital £500,000, Debit Share premium £387,500
B Debit Bank £887,500, Credit Share capital £250,000, Credit Share premium £637,500
C Debit Bank £887,500, Credit Share capital £500,000, Credit Share premium £387,500
D Credit Bank £887,500, Debit Share capital £250,000, Debit Share premium £637,500
LO 1d, 1e, 2d
ng
ni
6 The following balances have been extracted from Saracen Ltd's trial balance at
31 December 20X8:
ar
Debit Credit
£ £
e
Retained profits at 1 January 20X8 4,695,600
ce am L
10% debentures issued in 20X5 1,300,000
Debenture interest paid 65,000
en tn in
Operating profit for the year ended 31 December 20X8 is £520,000. Corporation tax for the
s
year has been estimated at £156,000.
ie
er ie er
What is the figure for retained profits in Saracen Ltd's balance sheet as at the year end,
31 December 20X8?
op
ef V rtn
A £4,929,600
B £4,994,600
C
Pa
C £5,059,600
D £5,215,600
LO 1d, 3c
W
AE
7 Which of the following transactions are not recorded in a company's cash at bank account?
A Bonus issue of shares
IC
B Sale of goods for cash to a customer

R
C Receipt of loan from a bank

D Purchase for cash of shares in another company
LO 1c, 1d

Chapter 15: Sole trader and partnership financial
statements under UK GAAP
1 Alice and Betty are in partnership, sharing profits and losses in the ratio 2:1. Their year end
is 30 June.
On 1 January 20X4 Cath joined the partnership and the new profit sharing ratio became
Alice 50%, Betty 30% and Cath 20%.
The profit for the year ended 30 June 20X4 was £520,000, after charging an expense of
ng
£40,000 which related to the first six months of the year. The remainder of the profit
accrued evenly over the year.
What is Betty's total profit share for the year ended 30 June 20X4?
ni
A £173,333
ar
B £156,000
C £164,666
e
D £164,000
ce am L LO 1e
en tn in
s
The following information is relevant for questions 2 and 3
ie
er ie er
Lisa, Mary and Olga are in partnership, sharing profits and losses in the ratio 30%, 30%, 40%.
op
Their agreement states that Olga and Lisa are to receive annual salaries of £20,000 and £35,000
ef V rtn
respectively. Interest credited on capital is 5% and interest charged on drawings is 10%. The
following information is relevant.
C
£
Pa
Capital accounts at 31.12.X5

Lisa 500,000
Mary 400,000
Olga 300,000
W
Current accounts at 31.12.X4

Lisa 300,000
AE
Mary 150,000
Olga 400,000
Drawings on 31.12.X5
Lisa 70,000
IC
Mary 35,000
R
Olga 40,000
Assume that drawings were made on the first day of the year for the purposes of calculating
interest.
Net profit for the year ended 31.12.X5 was £1,350,000.
ICAEW 2020 Chapter 15: Sole trader and partnership financial statements under UK GAAP 143
2 What is Olga's total share of the profit for the year ended 31.12.X5?
A £391,350
B £427,850
C £529,000
D £530,800
LO 1e
ng
3 What is the closing balance on Mary's current account at 31.12.X5?
A £390,500
ni
B £391,350
C £506,350
ar
D £541,350
e
LO 1e
ce am L
en tn in
s
4 Declan and Indiah are in partnership, sharing profits 3:2.
ie
On 1 July 20X4 Calum joins the partnership. Under the new partnership agreement profits
er ie er
will be shared by Declan, Indiah and Calum 5:3:2 respectively with the following annual
salaries.
op
ef V rtn
Indiah £40,000 pa
C
Calum £48,000 pa
Pa
Profit accrues evenly over the year. The partnership profit at 31 December 20X4 was
£450,000.
At 31 December 20X4 how should the profits be allocated?
W
Declan Indiah Calum

A £229,500 £165,900 £54,600
AE
B £236,500 £160,900 £52,600

C £225,000 £135,000 £90,000
IC
D £225,500 £164,300 £60,200

R
LO 1e

5 Billy and Charlie are in partnership together sharing profits equally. They each invested
£20,000 and £30,000 respectively in the business and Billy later made a loan of £5,000 to
the business. The loan is outstanding throughout the year to 31 March 20X6. Interest is
charged on capital and loans at 5% per annum and is credited to current accounts.
The balances on the partners' current accounts at 1 April 20X5 were £15,500 for Billy and
£12,700 for Charlie. The partnership made a profit of £32,000 for the year ending
31 March 20X6, before accruing for any interest.
What is the balance on the partners' current accounts at 31 March 20X6?
Billy Charlie
ng
A £31,500 £28,700
B £31,375 £28,825
ni
C £31,625 £28,825
D £31,250 £28,950
ar
LO 1e
e
6 ce am L
Curtis and Sillett are in partnership, sharing profits 3:2 and preparing their accounts to
en tn in
30 June each year.
s
ie
On 1 January 20X6, McAllister joined the partnership, and from that date the profit sharing
er ie er
ratio became Curtis 50%, Sillett 25% and McAllister 25%, after providing for salaries for
op
Sillett and McAllister of £20,000 and £12,000 per annum respectively.
ef V rtn
The partnership profit for the year ended 30 June 20X6 was £480,000, accruing evenly over
the year.
C
What are the partners' total profit shares for the year ended 30 June 20X6?
Pa
Curtis Sillett McAllister

A £256,000 £162,000 £62,000
W
B £248,000 £168,000 £64,000

C £264,000 £166,000 £66,000
AE
D £264,000 £156,000 £60,000

LO 1e
IC
7 A partner's private petrol bills have been treated as part of the partnership's motor vehicle
expenses. Which of the following journals corrects the error?
A Debit Drawings account, Credit Motor vehicle expenses account
B Debit Motor vehicle expenses account, Credit Drawings account
C Debit Motor vehicle expenses account, Credit Capital account
D Debit Capital account, Credit Motor vehicle expenses account
LO 1d, 1e, 2c
8 How should interest charged on partners' drawings be dealt with in partnership financial
statements?
A Credited as income in the profit and loss account
B Deducted from profit in allocating the profit among the partners
C Added to profit in allocating the profit among the partners
D Debited as an expense in the profit and loss account
LO 1d, 1e
ng
9 Which of the following journals records interest earned on partners' capital account
ni
balances?
A Debit Partners' current accounts, Credit Profit and loss appropriation account
ar
B Debit Profit and loss appropriation account, Credit Partners' current accounts
e
C Debit Profit and loss appropriation account, Credit Cash at bank
D
ce am L
Debit Profit and loss appropriation account, Credit Partners' capital accounts
LO 1d, 1e, 2c
en tn in
s
ie
er ie er
10 Paula and Quinn are in partnership, sharing profits in the ratio 2:1. On 1 July 20X4 they
op
admitted Paula's son Ryan as a partner. Paula guaranteed that Ryan's profit share would not
ef V rtn
be less than £25,000 for the six months to 31 December 20X4. The profit sharing
C
arrangements after Ryan's admission were Paula 50%, Quinn 30%, Ryan 20%. The profit for
the year ended 31 December 20X4 is £240,000, accruing evenly over the year.
Pa
What should Paula's final profit share be for the year ended 31 December 20X4?
A £140,000
W
B £139,000
C £114,000
AE
D £139,375
LO 1d, 1e
IC
11 What journal is necessary to record interest payable on partners' drawings?

A Debit Partners' drawings accounts, Credit Partners' current accounts
B Debit Profit and loss appropriation account, Credit Partners' drawings accounts
C Debit Partners' drawings accounts, Credit Interest payable account
D Debit Partners' current accounts, Credit Profit and loss appropriation account
LO 1d, 1e, 2c

12 Faith, Hope and Charity are partners sharing residual profits in the ratio 3:2:1. The
partnership agreement provides for interest on capital at the rate of 8% per annum and a
salary for Hope of £8,000 per annum. The partnership made a profit in the year totalling
£3,960 and the balances on partners' capital accounts throughout the year were: Faith
£20,000; Hope £15,000; Charity £12,000.
What is Charity's share of residual profits or losses for 20X5?
A £1,300 loss
B £Nil
C £340 loss
ng
D £655 profit
LO 1d, 1e, 2c
ni
ar
13 Preston, after having been a sole trader for some years, entered into partnership with Alex
on 1 July 20X2, sharing profits equally.
e
The business profit for the year ended 31 December 20X2 was £340,000, accruing evenly
over the year, apart from a charge of £20,000 for an irrecoverable debt relating to trading
ce am L
before 1 July 20X2 which it was agreed that Preston should bear entirely.
How is the profit for the year to be divided between Preston and Alex?
en tn in
s
Preston Alex
ie
A £245,000 £95,000
er ie er
B £250,000 £90,000
C op
£270,000 £90,000
ef V rtn
D £255,000 £85,000
C
LO 1d, 1e
Pa
14 Gina, Hardeep and Iona are in partnership, preparing their accounts for the year to 31
W
December each year.

The profit-sharing arrangements are as follows:
AE
Until 30 June 20X3: annual salaries Hardeep: £40,000, Iona: £20,000, balance to be split
3:1:1.
From 1 July 20X3 salaries to be discontinued, profit to be divided 5:3:2.
IC
The profit for the year ended 31 December 20X3 was £400,000 before charging partners'
R
salaries, accruing evenly through the year and after charging an expense of £40,000 which
it was agreed related wholly to the first six months of the year.
How should the profit for the year be divided among the partners?
Gina Hardeep Iona
A £182,000 £130,000 £88,000
B £200,000 £116,000 £84,000
C £198,000 £118,000 £88,000
D £180,000 £132,000 £88,000
LO 1d, 1e
15 Xavier and Yanis are in partnership, sharing profits in the ratio 2:1 and preparing their
financial statements to 30 June each year.
On 1 January 20X4 Zena joined the partnership, and it was agreed that the profit-sharing
arrangement should become Xavier 50%, Yanis 30% and Zena 20%.
The profit for the year ended 30 June 20X4 was £540,000, after charging an expense of
£30,000 which it was agreed related to the period before 1 January 20X4. The profit otherwise
accrued evenly over the year.
What is X's total profit share for the year ended 30 June 20X4?
A £305,000
ng
B £312,500
C £315,000
D £295,000
ni
LO 1d, 1e
e ar
16 Gordon, Hilary and Indi are in partnership, sharing profits in the ratio 3:1:1, after charging
ce am L
salaries of £20,000 per year each for Hilary and Indi. On 1 January 20X4 they agreed to
change the profit-sharing ratio to 3:2:1 and to discontinue Hilary's salary. Indi's salary
en tn in
continued unchanged. The partnership profit for the year ended 30 June 20X4 was
s
£380,000, accruing evenly over the year.
ie
How should the £380,000 profit be divided among the partners?
er ie er
Gordon Hilary Indi

A op
£192,000 £104,000 £84,000
ef V rtn
B £192,500 £103,333 £84,167

C
C £209,000 £101,333 £69,667
Pa
D £179,000 £111,333 £89,667

LO 1d, 1e
W
17 The current account of a partner has been written up as follows.

AE
CURRENT ACCOUNT
£ £
Interest on capital 2,800 Balance b/d 270
IC
Salary 1,500 Drawings 6,200

Balance c/d 10,870 Profit share 8,700
R
15,170 15,170
The balance brought down is entered correctly and the other entries are all correct in
amount.
What is the correct balance carried down?
A A debit balance of £1,530
B A debit balance of £6,530
C A credit balance of £7,070
D A credit balance of £16,470
LO 1d, 1e

18 A gas accrual for £400 at the reporting date was treated as a prepayment in a sole trader's
financial statements. As a result the profit was:
B understated by £400
C overstated by £800
LO 2a
ng
19 A sole trader prepares financial statements each year to 31 May. His rent is payable
ni
quarterly in advance on 1 January, 1 April, 1 July and 1 October. Local property taxes are
paid each year in two equal instalments on 1 April and 1 October.
ar
His annual rental for the calendar years 20X6 and 20X7 was £4,800 and £5,400 respectively
but on 1 January 20X8 this was increased to £6,600 per annum. Local property tax for the
e
last three years has been as follows:
ce am L
Year commencing 1 April 20X6
£
3,600
en tn in
Year commencing 1 April 20X7 3,900
s
Year commencing 1 April 20X8 4,500
ie
er ie er
In preparing his financial statements for the year ended 31 May 20X8, the charge to the
profit and loss account from his rent and local property tax account would be:
op
ef V rtn
A £9,900
B £10,100
C
Pa
C £10,200
D £10,300
LO 1d, 3c
W
AE
20 A local taxes prepayment of £475 at the reporting date was treated as an accrual in
preparing a trader's profit and loss account. As a result, his profit was:
IC
B overstated by £950
R
C understated by £475
LO 2a
21 The net assets of Walter's business decreased by £11,025 over the year to
31 October 20X7. During that year he had paid in additional capital of £14,000, drawn £875
in cash each month and, on one occasion, taken goods costing £2,625 for his own use.
The loss made by the business for the year ended 31 October 20X7 was:
A £10,150
B £11,900
C £21,525
D £25,025
ng
LO 1d, 1e, 3a
ni
22 Harry has been unable to calculate his business' profit or loss for the year ended
ar
31 December 20X8 as fire destroyed most of his accounting records. He has, however,
been able to provide the following information.
e
1 Net assets at 31 December 20X7 were £23,000 and £32,500 at 31 December 20X8.
2
ce am L
He introduced capital during the year of £4,000 cash.
en tn in
3 He took cash drawings of £2,500 and goods with a selling price of £800. The cost of
s
the goods was £750.
ie
What was Harry's profit or loss for the year ended 31 December 20X8?
er ie er
A £8,750 profit
op
ef V rtn
B £(1,750) loss
C £9,800 profit
C
Pa
D £(2,750) loss
LO 1d, 1e, 3a
W
23 Alexander's net assets have increased by £127,000 over the year. He took drawings of
AE
£47,000 and paid in the proceeds from a personal property sale amounting to £25,000. His
net profit for the year was:
A £55,000
IC
B £105,000
R
C £149,000
D £199,000
LO 1d, 1e, 3a

24 A business has net assets of £286,400 on 31 January 20X6 and had net assets of £266,800
on 31 January 20X5. During the year the owner of the business:
1 took goods for his own use which cost £10,000 and had a market value of £14,000;
2 introduced capital of £50,000; and
3 withdrew £30,000 as salary.
The profit for the year was:
A £9,600
B £30,400
ng
C £70,400
D £109,600
ni
LO 1d, 1e, 3a
e ar
25 Which two of the following would be classified as current liabilities in the balance sheet of a
sole trader?
A
ce am L
Owner's capital
en tn in
B Accrued interest charges
s
C Drawings
ie
er ie er
D Bank overdraft
E
op
Income tax payable
ef V rtn
LO 3c
C
Pa
26 Which of the following equations represents the closing capital of a sole trader?
A Opening capital – capital introduced + profit – drawings
B Opening capital – capital introduced – profit + drawings
W
C Opening capital + capital introduced + profit – drawings

AE
D Opening capital + capital introduced – loss + drawings

LO 1e, 3a, 3c
IC
27 Sayhan, Errol and Alev are in partnership, preparing financial statements as at 31 August
each year and sharing profits 4:3:1. Sayhan retired on 30 April 20X2, and Errol and Alev
continued, sharing profits 3:1 respectively.
Goodwill as at 30 April 20X2 (not to be retained in the accounts) was valued at £50,000. The
net entry to Errol's capital account to include and then eliminate goodwill is:
A Debit £6,250
B Debit £18,750
C Credit £6,250
D Credit £18,750
LO 1e
28 Samantha has discovered the following errors and omissions in her accounting records:
1 A cheque for £180 from a customer has been returned unpaid by the bank. No entries
have been made in the accounting records for the return of the cheque.
2 An invoice for £12 was raised by the bookkeeper and entered into the accounting
records by the computerised accounting system; however, it was later discovered that
it should have been a credit note.
Which of the following journals will be entered in Samantha's nominal ledger accounts in
order to correct these items?
A Debit Debtors £156, Debit Sales £24, Credit Cash £180
ng
B Debit Cash £180, Credit Debtors £156, Credit Sales £24
C Debit Debtors £168, Debit Sales £12, Credit Cash £180
ni
D Debit Bad debts expense £180, Debit Debtors £24, Credit Cash £180, Credit Sales £24
LO 1d, 2c
e ar
ce am L
29 Which three of the following could be found in the financial statements of a partnership?
A Fixed assets
en tn in
s
B Share premium
ie
C Drawings
er ie er
D Dividends paid
op
ef V rtn
E Profit for the year

LO 3c
C
Pa
30 Sunil started business on 1 December 20X3 with cash of £5,000. He has not yet prepared a
W
full set of financial statements. As at the end of his first reporting period, 30 November
20X4, he has cash at bank of £1,726. He made sales of £33,498 during the period and paid
expenses in cash of £19,385. He has no outstanding creditors at the end of the period, and
AE
has no fixed assets or stock, but one customer owes him £2,387.
Assuming Sunil made no other capital injections but took drawings of £15,000 in the
period, identify his profit for the 12 month reporting period to 30 November 20X4 and his
IC
net assets at the end of the period on an accrual basis.

A Net profit of £11,726, net assets of £1,726
R
B Net profit of £14,113, net assets of £4,113

C Net profit of £11,726, net assets of £4,113
D Net profit of £14,113, net assets of £1,726
LO 1d, 3b

31 Sayhan, Errol and Alev are in partnership, preparing financial statements as at 31 August
each year and sharing profits 4:3:1. Sayhan retired on 30 April 20X2, and Errol and Alev
continued, sharing profits 3:1 respectively.
The business's profit for appropriation, evenly over the 12 months to 31 August 20X2, was
£121,248. For the year to 31 August 20X2 Errol's profit share is:
A £30,312
B £45,468
C £60,624
D £90,936
ng
LO 1e
ni
32 Helen, John and Chris are in partnership, preparing financial statements as at 31 January
ar
each year and sharing profits 5:3:2. Helen retired on 30 September 20X6, and John and
Chris continued, sharing profits 5:3 respectively. Goodwill as at 30 September 20X6 (not to
e
be retained in the accounts) was valued at £50,000. The net entry to John's capital account
to include and then eliminate goodwill is:
A
ce am L
Debit £3,750
en tn in
B Debit £16,250
s
C Credit £3,750
ie
er ie er
D Credit £16,250
op LO 1e
ef V rtn
C
Pa
33 Ines, Alex and Sebastian are in partnership sharing profits 3:2:1. Each partner has a
combined capital and current account, which at 1 July 20X7 were as follows:
Ines £10,490
W
Alex £12,020
Sebastian £20,170
AE
During the year to 30 June 20X8 the partnership made profits of £87,750, and each partner
took drawings of £7,500. On 30 June 20X8 Alex retires. The partners value goodwill at
£60,000 at that date, but do not wish this valuation to remain in the accounts. Ines and
IC
Sebastian will continue in partnership, sharing profits equally.

R
What is the balance on Sebastian's capital and current account on 1 July 20X8?
A £46,865
B £14,795
C £53,770
D £7,295
LO 1e
34 In relation to accounting for partnerships, which two of the following statements are true?
A Goods taken by a partner from the business are treated as drawings.
B Interest on drawings by a partner is income in the partnership's profit and loss account.
C Interest on a partner's loan capital is income in the partnership's profit and loss
account.
D Drawings by a partner are credited in the current account.
E In the absence of a partnership agreement, no salaries are due to partners.
LO 1e
ng
ni
35 In a partnership, interest on partners' drawings affects:
A net profit available for appropriation only
ar
B the cash position only
e
C neither net profit available for appropriation nor the cash position
ce am L
D both net profit available for appropriation and the cash position
LO 1e
en tn in
s
ie
er ie er
36 Ben and Josh went into business together on 1 March 20X2 without a formal partnership
op
agreement. At that date Ben contributed £10,000 fixed capital to the business and Josh
ef V rtn
contributed £20,000 fixed capital. On 1 December 20X2 Josh made a loan to the
partnership of £40,000.
C
To how much, if any, interest are the partners together entitled in respect of their capital
Pa
and loan for the year ended 28 February 20X3?

A £2,000
B £1,000
W
C £500
D £Nil
AE
LO 1e
IC
37 Randolph started a trading business on 1 May 20X4 with capital of £40,000. In his first year
R
of trading he made a net profit of £117,000, selling goods at a mark-up on cost of 60%. He
injected additional capital of £30,000 in the year and withdrew a monthly amount of £3,200
for his living expenses. He also took drawings from stock of goods with a resale value of
£7,200. He had no stock at the year end.
What were Randolph's net assets at 30 April 20X5?
A £141,400
B £144,100
C £144,280
D £179,300
LO 3a

38 Mushtaq, a sole trader, has the following information at the start and end of his second year
of trading.
At 31 At 1
December January
20X0 20X0
£ £
Fixed assets (net book value) 46,000 39,400
Stock 18,900 15,600
Trade debtors 8,400 11,500
Trade creditors 7,500 10,200
Cash in hand 6,400 6,600
ng
During 20X0 Mushtaq introduced £3,000 capital. He took stock for his own use that cost
£500, and paid himself £750 per month.
ni
What is Mushtaq's profit or loss for 20X0?
A £15,800 profit
ar
B £2,800 loss
e
C £16,300 profit
ce am L
D £18,800 profit
LO 3a
en tn in
s
ie
er ie er
op
ef V rtn
C
Pa
W
AE
IC
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Sample of an exam: questions
1 Shindig plc
The following trial balance was extracted from the nominal ledger of Shindig plc, a computer
console and games manufacturer, on 31 December 20X4.
£ £
Licence 60,000
Work in progress, 1 January 20X4 125,500
ng
Leasehold buildings 300,000
Equity share capital – £1 nominal value 500,000
ni
5% Preference share capital (redeemable) – £1 nominal value 120,000
Revenue 1,705,600
Production staff costs (charged to cost of sales) 620,400
ar
Accumulated depreciation on buildings, 1 January 20X4 60,000
Inventories of finished games, 1 January 20X4 155,600
e
Consultancy fees paid (charged to other operating expenses) 44,000
Computers used on site 50,000
Income tax ce am L
Accumulated depreciation on computers, 1 January 20X4 20,000
12,400
en tn in
Equity dividend paid, 30 September 20X4 125,000
s
ie
Bank account 440,200
er ie er

Trade payables
op 80,200
ef V rtn
Raw materials 294,500

C
Retained earnings, 1 January 20X4 102,300
Pa
2,700,500 2,700,500
The following additional information is available.

1 Closing finished inventories are valued at cost of £180,000 whilst work in progress has
W
increased to £140,000. These valuations do not take into account the fact that, at the year
end physical inventory count, it was discovered that ten computer games consoles with a
cost of £500 each had been badly damaged. These items have a scrap value of £50 each.
AE
2 The licence was acquired on 1 January 20X4 in respect of exclusive rights to sell games in a
specific market for a period of three years. If the company chose to do so it could sell these
rights on without there being a significant impact on the remainder of the business.
IC
3 Buildings are depreciated over 30 years. Computers are depreciated over five years. Both
R
depreciation and amortisation are charged to other operating expenses.

4 Shindig plc received notice on 15 January 20X5 that one of its customers, X Limited, had
gone into liquidation. This customer owed £45,000 at the year end which should be written
off as an irrecoverable debt. Shindig plc determined that an allowance for receivables
totalling £18,765 was required. There was no allowance for receivables in the prior year.
The credit entry has been correctly recorded but the debit entry has been made to the
suspense account. Irrecoverable debts are charged to other operating expenses.
5 There is an estimated income tax bill in relation to 20X4 of £120,000. The income tax figure
in the trial balance (a credit balance) represents the difference between the income tax
payable balance at 31 December 20X3 and the income tax paid in the year.
ICAEW 2020 Sample of an exam: questions 157

6 During the year, Shindig plc made a 1 for 4 bonus issue of equity shares from share
premium. The correct entry has been made to share capital, however the corresponding
entry has been made to the suspense account.
7 A cheque was issued to a supplier in the amount of £5,000 on 28 December 20X4. This was
not recorded in the books of Shindig plc.
8 There has been a lot of publicity surrounding Shindig plc's newest game, 'Warpaint', which
is due to be released in March 20X5. Due to the high level of interest Shindig plc have
allowed customers to pay for the game in advance to ensure that they receive their copy of
the game on the release date. Shindig plc was unclear how to account for this revenue of
£35,000 so included it in the suspense account.
ng
9 Shindig plc sold a product with a warranty of two years. It is estimated that 3% of the
warranties will be invoked at a cost of £10,000. Provisions are charged to other operating
expenses.
ni
Requirement
ar
Prepare the statement of profit or loss for Shindig plc for the year ended 31 December 20X4
and the statement of financial position at that date.
e
ce am L
£
Revenue
Cost of sales
en tn in
s
Gross profit
ie
er ie er

Finance costs
op
ef V rtn
Income tax expense

C
Pa

£
Non-current assets
Leasehold buildings
W
Computers
Intangible assets
AE
Current assets
Inventories
Trade receivables
IC
Total assets
R
Equity
Retained earnings
Borrowings

£
Current liabilities
Trade payables
Accruals
Deferred income
Provision
Income tax payable
ng
2 Which three of the following users of financial statements are likely to be interested in the
financial statements of a small private company?
ni
A Stock market analysts
ar
B Company employees
C The company's bank
e
D Institutional shareholders
E Suppliers
ce am L
en tn in
LO 1a
s
ie
er ie er
3
op
Which of the following accounting treatments derive from the accounting concept of
accruals?
ef V rtn
1 Write down of a non-current asset which has suffered a fall in value

C
2 Opening and closing inventory adjustments
Pa
3 Capitalisation and amortisation of development expenditure

A 1 and 2
W
B 3 only
C 2 and 3
AE
D 1 only
LO 3b
IC
4 In times of rising prices, what effect does the use of the historical cost concept have on a
company's asset values and profit?
A Asset values and profit both understated
B Asset values and profit both overstated
C Asset values understated and profit overstated
D Asset values overstated and profit understated
LO 1d, 3b

5 Holly has downloaded a transaction report from her electronic banking system. The report
shows a receipt of £565 which the computerised accounting system has not been able to
match to a transaction.
Which of the following transactions is most likely to have resulted in the unmatched receipt?
A A payment made to settle a supplier invoice of £600 on which a prompt payment
discount of £35 has been taken
B A standing order paid in respect of rental charges of £565 for the month
C Proceeds of £565 from the sale of machinery to a competitor
D A receipt from a credit customer in settlement of an invoice of £565
ng
LO 1c
ni
6 Rose Ltd was set up on 1 May 20X8 with opening capital of £1,000. During the month of
ar
May 20X8, it entered into the following transactions:
£
e
Purchases of goods for resale, on credit 12,100
Payments to credit suppliers 8,400
Sales on credit
Sales in cash ce am L 16,200
1,300
en tn in
Receipts from credit customers 3,200
s
Non-current assets purchased for cash 1,500
ie
Depreciation 100
er ie er
Other expenses, all paid in cash 800
op
What is the net profit earned by Rose Ltd in the month of May 20X8?
ef V rtn
A £3,200
C
B £5,400
Pa
C £4,500
D £3,000
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LO 3c
AE
7 Two errors have been found in Trim plc's accounts:

1 It was agreed that the credit balance of £420 in Ahmed's payables ledger should be
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offset gainst his account in the receivables ledger, but no entries have been made in
trade receivables or trade payables to reflect this.
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2 The balance of £510 owed by Thomas, a credit customer, is irrecoverable, however the
journal entry posted to write off the irrecoverable debt was made for £150 in error.

The journal that corrects both these errors is:
A Debit Trade payables £420, Debit Irrecoverable debts expense £360, Credit Trade
receivables £780
B Debit Trade receivables £780, Credit Irrecoverable debts expense £360, Credit Trade
payables £420
C Debit Trade payables £780, Credit Irrecoverable debts expense £360, Credit Trade
receivables £420
D Debit Trade receivables £420, Debit Irrecoverable debts expense £360, Credit Trade
payables £780
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LO 2c
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8 Nimbus plc has prepared draft financial statements for the year ending 30 June 20X0,
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following a physical inventory count. It was discovered during the inventory count that
inventory at a cost of £18,000 has been stolen. Nimbus plc has insurance which covers 40%
of the cost of inventory stolen. The insurance company has agreed to pay in this instance
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but no money has yet been received. No accounting entries have been made in respect of
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the stolen inventory.
Correcting this matter will:
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A increase net profit by £7,200
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B decrease net profit by £7,200
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C increase net profit by £10,800

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D decrease net profit by £10,800

LO 2a
C
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9 A bakery business, which is registered for VAT, issued the following invoice to one of its
customers:
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Invoice: 1005
Date: 8 May 20X8
AE
£
Cakes: 150 @ £12 1,800
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Less 5% trade discount (90)

1,710
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Assuming the VAT rate is 20% and that the invoice amounts are exclusive of VAT, what
amount of VAT should have been charged on the invoice?
A £360
B £300
C £285
D £342
LO 1c

10 Which two of the following types of account would normally appear on the debit side of the
initial trial balance?
A Asset
B Liability
C Income
D Expense
E Capital
LO 1f
ng
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11 As at 31 December 20X1 the transaction report downloaded from a company's electronic
banking system shows an overdraft of £1,500. The transaction report includes bank charges
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of £30 which have not yet been recorded in the company's cash at bank account. On
29 December 20X1 the company had paid a cheque of £500 to a supplier and received
cash of £200 from a credit customer; neither of these items appear in the bank statement.
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The overdraft on the bank balance in the company's statement of financial position at
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31 December 20X1 should be:
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A £1,800
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B £1,830
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C £1,200
D £1,230
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LO 2b
C
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12 A review of the receivables ledger reveals that debts totalling £985 are considered
irrecoverable and are to be written off. The allowance for receivables is to be increased by
£100.
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What are double entries required to adjust the allowance for receivables and to write off the
irrecoverable debts?
AE
To adjust the allowance for receivables To write off the irrecoverable debts
A DEBIT Allowance for receivables £100 DEBIT Irrecoverable debts expense £985
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CREDIT Irrecoverable debts expense £100 CREDIT Allowance for receivables £985
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B DEBIT Allowance for receivables £100 DEBIT Trade receivables £985

CREDIT Trade receivables £100 CREDIT Irrecoverable debts expense £985
C DEBIT Trade receivables £100 DEBIT Allowance for receivables £985

CREDIT Allowance for receivables £100 CREDIT Irrecoverable debts expense £985
D DEBIT Irrecoverable debts expense £100 DEBIT Irrecoverable debts expense £985
CREDIT Allowance for receivables £100 CREDIT Trade receivables £985
LO 3c

13 Bark plc has yet to account for sales commission of £1,755 owed to its employees for sales
made during the year. Sales commission is included within distribution costs.
Which two of the following entries of £1,755 should Bark plc make at the year end in
respect of the sales commission?
A Debit the accruals account
B Debit the prepayments account
C Debit the distribution costs account
D Credit the distribution costs account
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E Credit the prepayments account
F Credit the accruals account
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LO 1d
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14 Brindal plc acquired five apartments on 1 June 20X4 and immediately rented them out to
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different tenants. Brindal plc has a credit balance on its rent receivable account in the trial
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balance as at 31 May 20X5 of £22,850. It has yet to record rent in arrears for Apartment 1 as
at 31 May 20X5 of £4,490, and rent in advance for Apartment 4 of £7,720 also at 31 May
en tn in
20X5.
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What amount will appear for rent under other income in Brindal plc's statement of profit or
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loss for the year ended 31 May 20X5?
er ie er
A £19,620
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B £22,850
C £26,080
C
D £37,340
Pa
LO 3c
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15 Cornucopia plc applies a standard mark-up of 25% on cost. During 20X9, its sales were
£125,000 and its purchases were £80,000. Opening inventory was £35,000. The company
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did not carry out an inventory count at 31.12.X9 and has no records of an inventory figure at
that date.
Using the information above, what should the closing inventory be?
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A £15,000
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B £21,250
C £48,750
D £55,000
LO 1d
16 Violet has a machine which cost £68,000 on 1 September 20X5. It is being depreciated on
the straight-line basis over 10 years to its residual value of £8,000. On 31 August 20X7,
Violet carried out an impairment review and has assessed that the machine had a fair value
less disposal costs of £51,000 and a value in use of £49,000.

What is the total amount charged to profit or loss in respect of the machine in the year
ended 31 August 20X7?
A £6,000
B £6,800
C £11,000
D £13,000
LO 1d
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17 McClown plc has the following information in its financial statements relating to fixtures and
fittings as at 31 December:
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20X9 20X8
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£ £
Cost 600,000 480,000
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Accumulated depreciation 180,000 218,000
Carrying amount 420,000 262,000
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During the year to 31 December 20X9, the following transactions occurred in relation to
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fixtures and fittings:
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Additions £284,000
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Sales proceeds from disposals £178,800
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Depreciation charge £66,400
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What is McClown plc's profit or loss on disposals of fixtures and fittings in the year ended
31 December 20X9?
C
Pa
A £119,200 loss
B £119,200 profit
C £196,800 profit
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D £196,800 loss
LO 1d
AE
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18 At the end of its first year of trading on 30 June 20X1 Waddy Ltd's net assets are £207,594.
It has share capital of £50,000 made up of 25p equity shares issued at 40p each, and a
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retained profits reserve of £107,594.

In relation to Waddy Ltd's balance sheet at 30 June 20X1 which of the following statements
could be true?
A It has other reserves of £50,000.
B It has share premium of £100,000.
C It has other reserves of £20,000.
D It has share premium of £50,000.
LO 1d, 3a, 3c

19 On 1 April 20X0 a sole trader paid £3,080 in local taxes for the year ending 31 March 20X1.
This was an increase of 10% on the charge for the previous year.
What is the correct charge for local taxes in her profit and loss account for the year ended
31 December 20X0?
A £2,870
B £3,003
C £3,010
D £3,080
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LO 1d, 3c
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20 On 1 April 20X6 a business paid £2,860 in local property tax for the year ending 31 March
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20X7. This was an increase of 10% on the charge for the previous year.
What is the correct charge for local property tax in the statement of profit or loss for the
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year ended 31 December 20X6?
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A £2,665
B £2,730
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C £2,795
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D £2,860
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LO 1d, 3c
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C
21 Shula and Kenton are in partnership sharing profits and losses 5:3 after allowing for partner
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salaries of £20,000 and £25,000 respectively. On 1 November 20X8 Shula lent the business
£50,000 at 8% interest pa. The net profit for the year ended 30 April 20X9, before loan
interest, is £122,000.
How much profit will be credited to Kenton's current account?
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A £53,875
AE
B £66,875
C £53,125
D £52,375
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LO 1e
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22 At 1 January 20X5 Tandem plc had an allowance for receivables in its ledger accounts
totalling £2,375. On 30 June 20X5 Basnet plc's liquidator informed Tandem plc that it
would not make any further payments and therefore Basnet plc's outstanding debt of £200
should be written off. At 31 December 20X5 Ost plc paid £500 of an amount written off as
irrecoverable in the previous year. Tandem plc's allowance for receivables needs to be
increased by £800 at 31 December 20X5.
What amount for irrecoverable debts expense should be included in Tandem plc's
statement of profit or loss for the year ended 31 December 20X5?
A £500 debit
B £500 credit
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C £1,275 debit
D £1,275 credit
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LO 1d, 3c
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23 Which two of the following are values that a regulator concerned with restoring trust in
A ce am L
financial information will seek to promote?
Transparency
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B Relativity
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C Collaboration
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D Consistency
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LO 1b
C
Pa
24 Which of the following assertions about statements of cash flows is/are correct?
1 A statement of cash flows prepared using the direct method produces a different
figure for net cash flows generated from operations compared to that produced when
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the indirect method is used.

2 Rights issues of shares do not feature in statements of cash flows.
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3 A bonus issue of shares will not appear as an item in a statement of cash flows.
4 A profit on the sale of a non-current asset will appear as an item under Cash Flows from
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Investing Activities in a statement of cash flows.

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A 1 and 4
B 2 and 3
C 3 only
D 2 and 4
LO 3c

25 Part of a draft statement of cash flows is shown below:
£'000
Depreciation charges (2,160)
Proceeds of sale of non-current assets 360
Increase in inventories (330)
Increase in trade payables 440
The following criticisms of the above extract have been made:
1 Depreciation charges should have been added, not deducted.
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2 Increase in inventories should have been added, not deducted.
3 Increase in trade payables should have been deducted, not added.
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4 Proceeds of sale of non-current assets should not appear in this part of the statement
of cash flows.
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Which of these criticisms are valid?
A 2 and 3 only
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B 1 and 4 only
C
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1 and 3 only
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D 2 and 4 only
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LO 3c
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C
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ICAEW 2020
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C e ar
Answer Bank
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170 Accounting: Answer Bank

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ICAEW 2020
Chapter 1: Introduction to accounting
1 C Capital expenditure relates to the acquisition of, or improvement of the earning
capacity of, non-current assets.
2 D Legal fees incurred on the purchase of a building – the others are all revenue
expenditure.
3 B £800 spent on purchasing a new PC to replace his secretary's old one. Item A is
drawings, C is the acquisition of a current asset in the form of inventory, and D is a
revenue expense.
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4 D Information's relevance is affected by its materiality. A, B and C are all characteristics
contributing to information being a faithful representation of what it claims to
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represent.
5 A This is set out in paragraph 2.23-2.36 of the IASB's Conceptual Framework.
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6 A,C Both tax and national statistics will apply to the needs of government and its agencies.
Whether the business will continue as a going concern (B) is an issue for the sole
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trader, its suppliers, customers and employees. Probably only the sole trader is
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interested in their own stewardship (D) of the business's resources; this is really only an
issue for company owners, as is (E). SAMPLE EXAM (amended)
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7 B The financial position of an entity is reflected in the resources it controls (assets),
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financial structure (debt and capital), liquidity (cash) and solvency (ability to pay its
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debts). Most of this information is provided in the statement of financial position (B).
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The statement of profit or loss primarily provides information about an entity's financial
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performance, while the statement of cash flows reflects changes in the financial
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position. Retained earnings is a figure in the statement of financial position which

accumulates movements over the years in retained earnings.
C
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8 A,D The IASB's Conceptual Framework states that information about the economic
resources (A) and claims (D) of an entity can help users to identify the reporting entity's
financial strengths and weaknesses. That information can then be used to help users to
assess the reporting entity's liquidity and solvency.
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9 A,C International Accounting Standard 1 (IAS 1), Presentation of Financial Statements

provides the objective of financial statements. It states that the objective of financial
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statements is to provide information about the financial position, financial performance

and cash flows of an entity that is useful to a wide range of users in making economic
decisions (C). In addition it states that the financial statements also show the results of
management's stewardship of the resources entrusted to it (A).
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10 C 1 and 4 only. Financial information can make a difference to decisions if it has

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predictive value (it can be used to predict future outcomes) or confirmatory value (it
provides feedback about previous evaluations).
11 D The historical cost convention.
12 D While financial statements are required to give a true and fair view, these terms are not
defined in statute, they tend to be determined in courts of law or on the facts (A).
Recognition of items on the basis of monetary amounts is the money measurement
concept, not the historical cost concept (B). Items should not be excluded on the basis
of being difficult to understand (C).
13 D 1 Information must be both relevant and faithfully represented to be useful.
2 Materiality concerns whether an item in the financial statements can influence
users' decisions; there is no absolute amount that makes an item material.

14 D Definitions per IAS 1
15 A According to IAS 1 paragraph 25, going concern relates to whether the entity will
continue in operational existence without liquidating, ceasing trading or being unable
to avoid these things (A). SAMPLE EXAM
16 D IAS 1 paragraph 15 SAMPLE EXAM
17 C Omissions or misstatements of items are material (C) if they could, individually or
collectively, influence the economic decisions of users taken on the basis of the
financial statements (IAS 1). It is the information in the financial statements as a whole
that should be neutral ie, free from bias (A). Prudence (B) is the inclusion of a degree of
caution when making judgements in relation to estimates. Understandable (D) is an
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enhancing characteristic mentioned in the IASB's Conceptual Framework concerned
with classifying, characterising and presenting information clearly and concisely.
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18 A,B,D
Independence and Courtesy (options C and E) are not fundamental principles of the
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IESBA Code of Ethics for Professional Accountants.
19 C The ICAEW Code of Ethics applies to its members, employees of member firms and
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ICAEW students. It also applies to affiliates and where applicable, member firms.
20 B
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Although there are some specific 'rules', the majority of ethical guidance is in the form
of principles, the spirit of which should be followed by the accountant.
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21 B,D,F
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A code based on principles does not contain specific rules with which a professional
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accountant must comply.
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A rules-based code does not require a professional accountant to adhere to a set of
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principles.
C
The ICAEW uses a principles-based approach.
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172 Accounting: Answer Bank ICAEW 2020

Chapter 2: The accounting equation
1 C The accounting equation Assets = Opening capital + profit – drawings + liabilities can
be rewritten as: Assets – liabilities – opening capital + drawings = profit.
2 D Petrol being paid in petty cash means assets decrease and drawings increase, which
decrease capital. Option A is a switch between assets, while options B and C increase
assets and increase liabilities.
3 C The lengthening of the period of credit given to customers, since this means that while
there are increased profits as the level of sales increases, it takes longer to collect cash
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from those customers.
4 D A relates to the statement of profit or loss, B and C suggest that the statement of
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financial position represents a valuation which is incorrect, while D is correct in that it is
the definition of a statement of financial position's purpose.
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5 A The overdraft liability will decrease and receivables will decrease by an equal amount.
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6 A Assets will increase as the sole trader has acquired inventory, and liabilities will
increase as the goods were purchased on credit.
7 A
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Assets increase as cash on receipt of the loan funds, and liabilities will increase as the
loan is a liability.
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8 B Assets will increase as there is an increase in cash of £500 and a decrease in inventory
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of only £300, and capital will increase due to the profit of £200.
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9 C The car increases assets and it is treated as capital introduced rather than as a liability
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of the business to its proprietor.
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10 A,B,G
C
According to the IASB's Conceptual Framework, income, expenses and equity are
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elements of financial statements. The IASB's Conceptual Framework also identifies

assets and liabilities as elements of financial statements.
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Chapter 3: Recording financial transactions
1 C 12,450 + 2,480 + 1,350 = £16,280
2 B A credit note is a source document that requires entry in the accounting system.
3 B The exact amount of petty cash expenditure is reimbursed at intervals to maintain a
fixed float.
4 B Total expenses paid out of petty cash total £50 and receipts total £4. The net
expenditure is therefore £46. This amount should be withdrawn from the bank account
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and added to petty cash to maintain the imprest amount of £100.
5 D 50,000 + 17,000 + 7,500 + 6,000 = £80,500
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6 B,D Purchase order and goods received note.
7 C A credit note is issued by a supplier when a customer returns goods to them (C).
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Invoices (A) are issued when goods are originally sold, on the basis of a delivery note
(D) which shows what exactly has been sold. A remittance advice (B) is sent in by the
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customer to the supplier with payment.
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8 A The payment represents expenditure. The purchase of a laptop is not a regular
transaction and it is therefore likely that this wouldn't be automatically matched by the
accounting system. The payment of a regular supplier for the exact amount of the
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invoice (B) and the payment of wages matching the payroll (D) are highly likely to have
been matched by the accounting system. Option C is a receipt, not a payment.
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er ie er
9 D The net pay to employees is after deducting income tax and employees' national
insurance.
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112,450 – 15,800 – 9,810 = £86,840

C
10 A There is £10 or a petty cash voucher for £10 missing from the petty cash box.
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11 B 38,600 + 3,500 = £42,100

12 B,D The invoice to a customer and the cheque to a supplier are both source documents
that require information to be entered into a business's accounting system. The
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purchase order and goods received note act as supporting documentation when an
invoice arrives from a supplier, but do not themselves contain information that is
recorded in the system. Similarly the delivery note acts as supporting documentation
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when preparing an invoice to a customer, but is not separately recorded.

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ICAEW 2020
Chapter 4: Ledger accounting and double entry
1 C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
2 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.
3 B Debit entries decrease income and increase assets. Credit entries increase income,
decrease assets and increase liabilities.
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4 B False. A Ltd owes to B Ltd.
5 A As the settlement discount was not expected to be taken at the date the invoice was
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received and recorded, it must now be deducted from purchases.
6 A
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TRADE PAYABLES
£ £
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Payments (bal fig) 212,130 Bal b/d 24,183
Bal c/d
ce am L 34,655 Purchases (254,192 – 31,590) 222,602
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246,785 246,785
s
Bal b/d 34,655
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7 C An invoice issued to a customer is recorded as Debit Receivables, Credit Revenue
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regardless of whether an early settlement discount is expected to be taken or not.

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8 C Cash paid to suppliers would be debited to payables and credited to cash (C). Output
VAT (A) is related to sales not purchases and therefore would be recorded in the
C
receivables ledger, and the cash purchases total (B) would not appear at all in the
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payables account. Early settlement discounts given to customers (D) affect receivables,
not payables.
9 A The customer was expected to take advantage of the early settlement discount, so at
the point of invoice the revenue would have been recorded net of the discount. As the
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customer did not subsequently pay on time, the discount must be added back to
revenue (by crediting revenue). The payment received will increase the cash at bank
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account (debit) and decrease receivables (credit).

10 B The supplier may deal with the scenario in one of two ways:
The first is to ignore the settlement discount and simply issue an invoice with a VAT
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amount of £190 (£950  20% = £190). If the settlement discount is claimed, the
supplier will issue a credit note to evidence the reduction in the invoice and VAT
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amount.
Alternatively, if the supplier does not wish to issue a credit note, they must issue an
invoice which contains the terms of the settlement discount, and a statement that the
customer can only recover as input tax the actual VAT paid to the supplier.

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ICAEW 2020
Chapter 5: Preparing basic financial statements
1 B,C Total credits exceed total debits, which means there is a credit balance in the account –
this represents a profit for the period. The correct entry to transfer the profit for the
year to the capital account is debit profit and loss ledger account, credit capital
account. This step is required in order to start to calculate the closing balance on the
capital account which is included in the statement of financial position. Option D is
incorrect as the balance on the profit and loss ledger account is cleared to the capital
account, it is not brought down to the next period. Option E is incorrect, the closing
balance on the profit and loss ledger account is the profit for the year.
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2 C Land is a non-current asset for long term use in the business.
3 C Sales exclude VAT and therefore VAT must be calculated as £89,436  20% = £17,887.
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Purchases include VAT and therefore VAT must be calculated as £86,790  20/120 =
£14,465. The net amount is £3,422 credit as this is the amount owed to HMRC.
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4 D A loss decreases capital so it is debited to the capital account in the statement of
financial position, therefore the other side of the entry is to credit it to the statement of
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profit or loss ledger account.
5 B
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TRADE RECEIVABLES
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£ £
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Opening balance 2,700 Cash received 15,300
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Credit sales 16,500 Closing balance 3,900
op 19,200 19,200
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6 A Drawings decrease capital so they are a debit (B); purchases and delivery outwards are
C
expenses so they too are debits (C) and (D). A bank overdraft is a liability so it is a
credit (A).
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7 C
£
Revenue 89,400
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Purchases (69,600 × 5/6) (58,000)

Gross profit 31,400 (C)
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Option A incorrectly uses the purchases figure without deducting VAT. Option B
incorrectly deducts VAT from the sales figure and does not deduct VAT from
purchases. Option D uses the correct VAT exclusive purchases figure, but incorrectly
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deducts VAT from the sales figure.

8 A
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TRADE PAYABLES
£ £
Cash at bank account 4,200 Opening balance 3,450
Closing balance 4,350 Purchases 5,100
8,550 8,550
Option B uses sales to credit customers and receipts from credit customers. Option C
includes the cash purchases of £400 and option D debits purchases and credits payments
made.

9 C £98,000 – £36,000 = £62,000 (the capital account is the balancing figure for the trial
balance)
Debit Credit
£ £
Non-current assets 85,000
Bank loan 15,000
Accumulated depreciation, non-current assets 15,000
Inventory 4,000
Accruals 1,000
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Prepayments 2,000
98,000 36,000
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Chapter 6: Errors and corrections to accounting
records and financial statements
1 A,C,D
In A, where a discount is taken unexpectedly, the transaction would not be matched
against the amount recorded on the invoice and a suspense account would be used.
In C the disposal of a van is not a regular transaction and therefore the computerised
system is unlikely to be able to match it – and a suspense account would be used. In D,
if the bookkeeper is unsure of one side of a transaction, the suspense account is used
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to enable the posting to take place and then investigated and corrected later. In B, £70
plus VAT at 20% is £84, and so this receipt would be matched. In E, £95 less 5% is
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£90.25 and so this payment would also be matched.
2 A True
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C True
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3 B,C Cash at bank account: direct debit on bank transaction report only (B), bank charges
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(C)
Deposits credited after date (A), bank error (D) and cheque presented after date (E)
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would appear on the bank reconciliation.
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4 C (565) – 92 = (657). The cheque for £57 is already included in the cash at bank account.
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5 B
op £
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Draft profit 324,700

Less irrecoverable debts (6,800)
C
Add back depreciation charged in error (24,000 × 25%) –
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(24,000 × 20%) 1,200

Adjusted profit 319,100
Option A did not deduct the irrecoverable debt expense. Option C deducted
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depreciation of 20% of £24,000, but did not add back the incorrect depreciation
charged already. Option D deducted the difference in depreciation charges, instead of
adding it back.
AE
6 C The £25,000 needs to be removed from the suspense account (CR) and needs to be
recorded in the plant and machinery account (DR).
7 C
IC
£
R
Cash at bank account

balance b/f (8,970)
Bank charges (550)
Correct cash at bank
account (9,520)
Error 425
Uncredited lodgements (5,380)
Bank statement balance (11,200)
8 A,D Note that bank charges in the bank statement would be credited to the cash at bank
account, not debited.
9 C
£
Alpha balance 4,140
Discount disallowed 40
Cash paid 4,080
Goods returned 380
8,640
Beta balance 8,950
Difference remaining 310
10 B The suspense account has to be reversed and the amount debited to revenue to
reduce revenue recorded for this sale to the amount net of the early settlement
ng
discount.
11 A,B,D
ni
A represents unpresented cheques, and B and D represent uncredited lodgements.
ar
These are always included in the reconciliation of the bank transaction report to the
corrected cash at bank account balance. Bank charges (C) and dishonoured cheques
(E) would appear on the bank transaction report and would have to be corrected in the
e
cash at bank account before reconciliation.
ce am L
12 A,C Unpresented cheques, bank errors and uncredited lodgements are included in the
reconciliation of the bank transaction report balance to the corrected cash at bank
en tn in
s
account balance. Bank charges (C) and dishonoured cheques (A) would appear on the
bank transaction report and would have to be corrected in the cash at bank account
ie
before reconciliation.
er ie er
13 B
op
This would be to treat it as revenue rather than capital expenditure.
ef V rtn
14 B The £30 prompt payment discount taken by the customer will reduce (dr) revenue. The
C
suspense account needs to be removed (dr) and trade receivables decreased (cr) to
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reflect that the debt is no longer owed by the credit customer. Option (A) and (C)
ignore the adjustment to revenue and (D) reverses the journal entries.
15 A In preparing a bank reconciliation, uncredited lodgements reduce an overdrawn

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balance in the bank statement. If a cheque received from a customer is dishonoured

after date, a credit entry in the cash at bank account is required to reinstate the debt.
Not all differences between the cash at bank account and the bank statement must be
AE
corrected by means of a journal entry, since some items appear in the bank
reconciliation only (eg, errors by the bank, unpresented cheques and uncredited
lodgements). Bank charges not yet entered in the cash at bank account should be dealt
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with by updating the cash at bank account, not by making an adjustment to the
balance per the bank statement.
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16 A
TRADE PAYABLES
£ £
Cash at bank account 988,400 Opening balance 384,600
Purchases (discount 12,600 Purchases 945,800
received from suppliers)
1,330,400 1,330,400

17 C A transaction has been posted to the wrong account, but not the wrong class of
account.
18 B Credit £25. The balance can be found by working out what double entries the
computerised accounting system has made:
Item 1 Debit Suspense a/c, Credit Cash at bank a/c £135
Item 2 Debit Cash at bank a/c, Credit Suspense a/c £90
Item 3 Debit Cash at bank a/c, Credit Suspense a/c £70
SUSPENSE A/C
£ £
ng
Cash at bank account 135 Cash at bank account 90
Balance c/d 25 Cash at bank account 70
160 160
ni
Balance b/d 25
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19 C When the goods were sold, they would have been recorded as Debit Trade
receivables £276 (£230 + VAT at 20%), Credit Revenue £230 and Credit VAT £46. This
e
journal entry required to be reversed when the goods are returned. Option (C) is the
ce am L
correct reversing journal entry. Option (A) records the sales, Option (B) ignores VAT
and Option (D) reverses revenue and trade receivables.
en tn in
20 A An expense has been posted as a non-current asset when it should have been a
s
deduction from profit, non-current assets are overstated as a result.
ie
er ie er
21 D £807 should have been credited to payables, but instead it was debited to payables.
The payables ledger should be credited with £807, to correct the error, and £807
op
again to record the invoice ie, increase by 2  £807 = £1,614.
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22 B
C
£
Gross profit 150,000
Pa
Closing inventory included in error (5,000)

Adjusted gross profit 145,000
Net profit 83,000

W
Closing inventory included in error (5,000)

Staff training costs capitalised in error (10,000)
AE
Add back depreciation on capitalised staff training costs (10,000 ×

20% × 6/12 months) 1,000
Adjusted net profit 69,000
Option A deducted the resale value of the inventory instead of the cost. Option C did
IC
not deduct the inventory cost from the net profit. Option D deducted the resale value
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of the inventory and did not add back the depreciation charge on the capitalised staff
training costs.
23 B,C As some items have been withdrawn by the owner rather than sold or carried forward
as inventory, cost of sales should be reduced (credited) (B). A lower cost of sales figure
means an increased reported profit (C). SAMPLE EXAM
24 D
£
Uncorrected bank ledger balance 42,510
Dishonoured cheque (2,470)
Corrected bank ledger balance 40,040
Uncleared lodgements (10,270)
Bank statement balance 32,760
SAMPLE EXAM
25 A
SUPPLIER ACCOUNT: ROCHELLE
£ £
Cash (A) 26
B, C No effect yet on Rochelle's account

D Paying £26 too little on an invoice would leave a credit balance on the
account
ng
26 A As opening inventory is debited to cost of sales in the statement of profit or loss, an
overstatement or overvaluation here decreased profit and so should be added back.
The reverse is true of closing inventory.
ni
£
Draft gross profit 99,500
ar
Add back: overstatement of opening inventory (3,720  25/125*) 744
Deduct: overstatement of closing inventory (1,240  25/125*) (248)
Corrected gross profit 99,996 (A)
e
ce am L
In Option B the overstatement in opening inventory is deducted, and that in closing
inventory is added back. In the other two options the wrong gross profit percentage is
applied, taking 25% margin (on sales value ie, 25/100) rather than 25% mark-up (on
en tn in
s
cost).
ie
* Gross profit percentages:
er ie er
%
Revenue
Cost op 125
(100)
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Gross profit 25
C
To calculate gross profit from selling price, multiply by 25/125.
Pa
27 B The whole of the subscription relates to the following year, so the instalment paid
should all be treated as a prepayment, which reduces expenses in the year and so
should be added back to the draft net profit.
W
The problem with the returned goods is that the draft net profit reflects the revenue
made on sale of the goods, less the cost of those goods, therefore the profit on the
sale should be deducted from the draft net profit.
AE
£
Draft net profit 75,000
Add back: Prepaid subscription instalment (£1,000/2) 500
IC
Deduct: profit on returned goods £400  75/25* (1,200)

74,300 (B)
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In A the profit deducted has been calculated as £400 × 25%; in C just the cost of goods
(£400) has been deducted, while in D the profit has been added back and the
prepayment deducted.
* Gross profit percentages:
%
Revenue 100
Cost (25)
Gross profit 75
To calculate gross profit from cost, multiply by 75/25.

28 B The repair costs should have been expensed fully to the statement of profit or loss,
reducing profits by £6,600, and the depreciation charged of £1,650 should be added
back. The net effect is to decrease profits by £4,950.
The early settlement discount was not expected to be taken, so the original sales
invoice would have been recorded gross of this discount. Now the discount has been
taken, it should have been credited to trade receivables and debited to sales. As the
amount has currently been credited to sales, the reduction in profit will be £1,785  2
to remove the credit and post the debit to sales.
£
Draft net profit 540,000
Net repair costs (6,600  0.75)
ng
(4,950)
Discount to customer ( 2) (3,570)
Final net profit 531,480 (B)
ni
29 D £10,200 + £3,000 + £1,400 = £14,600.
ar
30 A 1 Receivables has reduced by £414 more than it should have been and cash
increased by the same amount.
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2 Payables has been reduced by £9 more than it should have been and bank
decreased by the same amount.
31 B
ce am L
The early settlement discount of £2,220 should have been debited to revenue and
en tn in
credited to receivables, so the debit entry posted to payables needs to be reversed.
s
TRADE PAYABLES
ie
£ £
er ie er
1 Trade receivables (contra) 85 b/d 72,560

c/d (bal fig)
op 74,695 2 Sales 2,220
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74,780 74,780
C
32 B The incorrect entry was debit Prepayments £738, credit Suspense £738. Reversing this
Pa
has no effect on profit. Making the correct entry of debit Expenses £738, credit
Accruals £738 decreases profit by £738: £58,147 – £738 = £57,409 (B).
W
AE
IC
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
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C e ar
op ni
ie ng
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ICAEW 2020
Chapter 7: Cost of sales and inventories
1 B
£
Opening inventory 7,200
Purchases 76,500
Delivery inwards 50
Less closing inventory (8,100)
75,650
ng
2 C,D Applying the cost of sales equation, COS = Opening inventories + purchases – closing
inventories, purchases made in the year are transferred to cost of sales at the year-end
by debiting cost of sales and crediting purchases (C). Closing inventories are recorded
ni
as a current asset by debiting inventories and crediting cost of sales (D).
ar
3 B Cost of sales includes delivery inwards, which is a cost incurred in bringing inventories
to their present location, but excludes delivery outwards, which is a distribution cost
and included in the statement of profit or loss after calculating gross profit. Closing
e
inventories should be deducted in arriving at cost of sales.
Purchases ce am L £
455,000
en tn in
Delivery inwards 24,000
s
Closing inventories (52,000)
ie
Cost of sales 427,000
er ie er
SAMPLE EXAM
op
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4 A Closing inventory = 200 + 1,000 + 800 + 300 – 700 – 400 – 500 = 700 units.
£
C
FIFO 400 @ 6.20 2,480
Pa
300 @ 6.60 1,980

700 4,460
5 C Cost includes both direct materials/labour and also production overheads.

W
NRV is expected selling price less expected selling costs.

Cost NRV Lower of cost/NRV
AE
£ £ £
Category 1 4,570 5,320 4,570
Category 2 12,090 11,890 11,890
Category 3 2,300 2,370 2,300
IC
18,960 19,580 18,760

R
6 C
£
Product A 5,500  £10 = 55,000
500  £8 = 4,000
Product B 1,900  £5 = 9,500
100  £3 = 300
68,800
7 B False: if prices are rising, the charge to cost of sales will be higher if AVCO is used.
Gross profit will therefore be lower under this method.
D False: closing inventory is a debit in the statement of financial position and a credit in
the statement of profit or loss.

8 A
Units Cost Av cost Value
£ £ £
1.6.X8 60 12 720
8.6.X8 40 15 600
14.6.X8 50 18 900
150 14.80 2,220
21.6.X8 (75) 14.80 (1,110)
75 1,110
9 B
ng
£
Cost 46
Production overheads 15
ni
61
ar
Net realisable value £
Sales price 80
Less modification costs (17)
e
Less selling costs (80  10%) (8)
ce am L
55
10 B False: it is current asset inventory.

en tn in
s
C True: import duties should be included in inventory cost.
ie
er ie er
11 A,E (B) and (C) are distribution costs and (D) is not incurred in arriving at the cost of
finished goods.
op
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12 D Selling price less an estimated profit margin is an acceptable method of arriving at the
cost of inventory. It is a frequently used method in the retail industry. Regarding (A),
C
LIFO is not an acceptable inventory valuation method. Overheads should be included
Pa
in cost (B), and under IAS 2 inventories should be included in the SOFP at the lower of
cost and NRV, replacement cost (c) is not relevant.
13 A
W
£
Original value 284,700
AE
Coats – Cost 400  £80 (32,000)

– NRV (£75  95%)  400 28,500
281,200
IC
At 31 January 20X3 the skirts were correctly valued at costs incurred to date of £20 per
skirt which was lower than the NRV of £22. Therefore no adjustment required.
R
14 B
Net Lower
realisable of cost
Cost value & NRV Units Value
£ £ £ £
Basic 6 8 6 200 1,200
Super 9 8 8 250 2,000
Luxury 18 10 10 150 1,500
4,700

15 A
£
50 @ £190 9,500
500 @ £220 110,000
300 @ £230 69,000
188,500
16 D (10 units  £45) + (50 units  £50) = £2,950

17 D
£
Inventory check balance 483,700
ng
Less goods from suppliers (38,400)
Add goods sold 14,800
Less goods returned (400)
ni
Add goods returned to supplier 1,800
461,500
ar
18 C If closing inventory is understated, cost of sales will be overstated and profit will be
understated. Next year's opening inventory will be understated and its cost of sales will
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be understated, so its profit will be overstated.
19 A
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en tn in
£ £
s
Original balance 386,400
Item (1) Cost (18,000)
ie
er ie er
NRV 15,000 – 800 14,200

Write down (3,800)
Inventory value
op 382,600
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20 A
C
£
Pa
Inventory count value 836,200

Less purchases (8,600)
Add sales (14,000  70/100) 9,800
Add goods returned 700
W
Inventory figure 838,100
21 A
AE
£
B/d 284,000
Item 1 – No change as NRV exceeds cost
IC
Item 2 (350) Reduce to NRV (1,000 – 800 +150)

283,650
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22 C (20  £12.50) + (40  £12.80) + (60  £13.00) + (72  £13.50) + (8  £10) = £2,594
23 B (20  £5) + (20  (£15 – 10 – 1)) = £180
24 C £60,600
200 items  £15 = £3,000
NRV = (200  £17.50) – 1,200 – 300 = £2,000
400 items = (400  £1.50) – 200 = £400
Total = £58,200 + £2,000 + £400 = £60,600
25 A 100  (£400 – £110 – £65) + (100  £350) = £57,500

26 C Cost can include both inward delivery costs and production overheads.
27 B A and C would not explain a shortfall and D is the correct treatment for drawings but
does not affect mark-up. B will cause cost of sales to be overstated and so reduce the
mark-up.
28 B £125,000  80% = £100,000

29 B Options A and C would increase the gross profit margin. Option D would not affect
gross profit.
30 C 19,200/96,000  100% = 20%
ng
31 A
Units Value
ni
£ £
8/X4 b/f 2,400 10.00 24,000
ar
11/X4 Sell (900) 10.00 (9,000)
1,500 10.00 15,000
1/X5 Buy 1,200 16.75 20,100
e
2,700 13.00 35,100
5/X5
7/X5
ce am L
Sell
c/f
(1,800)
900
13.00
13.00
(23,400)
11,700 SAMPLE EXAM
en tn in
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32 A When raw material prices are rising, AVCO averages the earlier, lower prices with the
later, higher prices, while FIFO just takes the later, higher prices. Thus FIFO would result
ie
in a higher inventory value than AVCO. As inventory quantities are constant, this means
er ie er
that closing inventory would always be higher than opening inventory. As closing
op
inventory is a reduction in the cost of sales calculation, all other things being equal this
ef V rtn
would result in the overall debit balance of cost of sales being lower under FIFO than
under AVCO: hence lower cost of sales and higher closing inventory value (A).
C
33 C To calculate cost of sales correctly the purchases figure should only take into
Pa
consideration the goods purchased for resale. Therefore it is necessary to reduce

purchases, not inventory, by the cost of the inventory destroyed (Credit Purchases
£36,000). This cost to the business should be shown under administrative expenses in
W
the statement of profit or loss (Debit Administrative expenses £36,000). The sum due
from the insurance company of £28,800 should be treated as part of other income, not
revenue, as it is from a non-trading source (Credit Other income £28,800).
AE
34 B Closing inventory is an asset in the statement of financial position and is deducted from
cost of sales (and hence added to profit) in the statement of profit or loss. An increase
of inventory from £6,420 to £8,080 would therefore increase net assets and increase
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profit (decrease losses) by £1,660 (8,080 – 6,420).

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35 D The damaged inventories should be written down to nil before the closing inventories
are recorded. Closing inventories are included as current assets at the end of the
period by debiting inventories and crediting cost of sales.

Chapter 8: Irrecoverable debts and allowances
1 B £6,000 write off less decrease in allowance of £4,500 is net debit of £1,500.
2 A 1,300 + 2,150 – (8,540 – 6,631) = £1,541
3 B False.
C True: irrecoverable debts expense hits net profit not gross profit.
4 C
£
ng
Balance before adjustments 50,000
Less irrecoverable debt written off (3,250)
46,750
ni
Adjustment (2) will be to the allowance, not to receivables; adjustment (3) affects
ar
irrecoverable debts.
5 D (28,500 + (42,000 – 38,000)) = £32,500
e
6 D £1,005 credit
ce am L
Required allowance
£
495
en tn in
b/f allowance 1,000
s
Reduction (credit) 505
ie
Bad debt recovered (credit) 500
er ie er
1,005
7 C op
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IRRECOVERABLE DEBTS EXPENSE

C
£ £
Pa
Write off 280 Decrease in allowance

(1,000 –100) 900
Statement of profit or loss Cash 500
(bal fig) 1,120
W
1,400 1,400
8 D
AE
£
Closing allowance required 36,200
Opening allowance 50,000
IC
Decrease in allowance (13,800)

Irrecoverable debts written off 38,000
R

9 A
£
Reduction in allowance (18,000 – 16,000) (2,000)
12,600
ICAEW 2020 Chapter 8: Irrecoverable debts and allowances 191

10 C
RECEIVABLES
£ £
B/d balances 31,475 Cash at bank 122,500
Sales 125,000 Sales (Discounts) 550
Credit note 1,300
C/d 32,125
156,475 156,475
11 A The correct journal entry to record the adjustments is:
ng
DEBIT Irrecoverable debts expense (SPL) £3,315
CREDIT Trade receivables £800
ni
Only the increase in the allowance for receivables of £2,515 should be recorded.
ar
12 C
TRADE RECEIVABLES
e
£ £
Opening balance 284,680 Cash at bank 179,790
ce am L
Credit sales 194,040 Sales (discounts given to
customers) 3,660
en tn in
s
ie
Trade payables 800
er ie er
op 478,720 478,720
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13 B
C
£
Pa

Previous allowance (39,000)
Reduction (15,000)
Debts written off 37,000
W
14 B
AE
£
Allowance required 21,500
Existing allowance (18,000)
Increase required 3,500
IC

Irrecoverable debts expense (28,000 + 3,500) 31,500
R
15 B Trade receivables = £838,000 – £72,000

= £766,000
Allowance for receivables is increased by £12,000 to £60,000.
16 D Issue 1: Unmatched transactions are posted to the suspense account. To remove the
suspense account and correctly post the cash received the double entry is Debit
Suspense account £350, Credit Irrecoverable debts expense £350.
Issue 2: To decrease the allowance to £800, the double entry is: Debit Allowance for
receivables £100, Credit Irrecoverable debts expense £100.

Combining these journals:
DEBIT Allowance for receivables (2) £100
DEBIT Suspense account (1) £350
CREDIT Irrecoverable debts expense (350(1) + 100(2)) £450
17 D Net profit increases by £300.

18 B DEBIT Irrecoverable debts expense £7,550
DEBIT Allowance for receivables £5,450
ng
£
Allowance required 42,550
ni
Existing allowance (48,000)
Reduction in allowance (5,450)
ar
Statement of profit or loss charge 7,550
e
Option A is incorrect as it does not remove the irrecoverable debt from receivables
ce am L
and has recorded an increase in the allowance for receivables instead of a decrease.
Option C in incorrect as it does not remove the irrecoverable debt from receivables,
crediting the amount to the allowance instead. Option D is incorrect as it records the
en tn in
s
full amount of the new allowance as a credit entry rather than just recording the
decrease in the allowance for the current year.
ie
er ie er
19 A £441,500 – 2,400 – 21,955

20 D
op
The amount received that was previously written off (£3,000) and the decrease in the
ef V rtn
allowance for receivables (£700) will both be credited to the statement of profit or loss.
The amount written off (£3,600) will be a debit.
C
Pa
21 D An allowance for receivables of £850 is required and the charge to profit or loss is the
amount written off of £10,380 plus the increase in allowance of £350.
22 B The net trade receivables shown in the statement of profit or loss is after deducting the
allowance for receivables of £8,420 and the write-off of £1,860.
W
23 D For (3), the entry made was Debit Cash £58, Credit Suspense £58; the suspense
account entry must be reversed to the credit of the irrecoverable debts expense
AE
account.
SUSPENSE
£ £
IC
Irrecoverable debts expense (3) 58 b/d 58

58 58
R
ALLOWANCE FOR RECEIVABLES

£ £
Irrecoverable debts expense (2) b/d 500
(bal fig) 25
c/d 475
500 500
ICAEW 2020 Chapter 8: Irrecoverable debts and allowances 193

£ £
Cash at bank (1) 92 Allowance for receivables (2) 25
Suspense (3) 58
The net debit to the irrecoverable debt expense account is therefore (92 – 25 – 58) = £9.
CASH AT BANK
£ £
Irrecoverable debts expense
(1) 92
ng
ni
e ar
ce am L
en tn in
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er ie er
op
ef V rtn
C
Pa
W
AE
IC

Chapter 9: Accruals and prepayments
1 A Statement of profit or loss (8/12  60,000) + (4/12  48,000)
Statement of financial position (2/12  60,000)
2 A (2/3  798.00) + 898.80 + 814.80 + 840.00 + (1/3  966.00)
3 D
RENT RECEIVABLE
£ £
ng
B/d arrears 21,200 B/d advances 28,700
Statement of profit or loss Cash received 481,200
(bal fig) 475,900
ni
C/d advances 31,200 C/d arrears 18,400
528,300 528,300
ar
4 B £960 has been deducted from instead of added to profit. Therefore to cancel the error,
you have to add it back then to post the correct entry you have to add it on again.
e
5 D
ce am L SUBSCRIPTION INCOME ACCOUNT

en tn in
s
£ £
ie
er ie er
Subscription income (bal fig) 316,200 Cash received 318,600

op 361,500 361,500
ef V rtn
6 C
C
£
Pa
Receipt
1 October 20X1 (£7,500  1/3) 2,500
30 December 20X1 7,500
4 April 20X2 9,000
W
1 July 20X2 9,000

1 October 20X2 (£9,000  2/3) 6,000
Credit to statement of profit or loss 34,000
AE
Credit deferred income (£9,000  1/3) 3,000
7 A Statement of profit or loss = £60,000  12/18 = £40,000

IC
Statement of financial position = £60,000  3/18 prepayment = £10,000

R
8 B Rent expense (SPL) (8/12  90,000) + (4/12  120,000) = 100,000

Accrual (SFP) 12,000/12 = 10,000
9 D
RENTAL INCOME
£ £
Rental income (bal fig) 828,700 Cash received 834,600
977,900 977,900

10 B
£
Statement of profit or loss
December to June 8,400  7/12 4,900
July to November 12,000  5/12 5,000
9,900
Other payables 12,000  1/12 = 1,000 (December rent received in advance)

11 C
£
August to September 60,000  2/12 10,000
ng
October to July 72,000  10/12 60,000
70,000
ni
12 C
Statement of Statement of
ar
profit or loss financial position
£ £
e
Prepaid insurance 8,200
Payment January 20X5 38,000
ce am L
Prepayment July-Sept 20X5 (9,500)
36,700
9,500
9,500
en tn in
s
13 A
ie
RENT RECEIVABLE
er ie er
£ £
B/d arrears
op 3,800 B/d advances 2,400
ef V rtn
Statement of profit or loss Cash received 83,700

(bal fig) 84,000
C
Pa
90,800 90,800
14 A Statement of profit or loss = (9/12  £10,800) + (3/12  £12,000) = £11,100

Statement of financial position = prepayment of (9/12  £12,000)
W
= £9,000
100,000  12%  9/12 = £9,000 is payable (P/L), but only £6,000 has been paid (April
AE
15 B
and July).
16 D Statement of profit or loss (5/12  24,000) + (7/12  30,000) = £27,500
IC
Statement of financial position (2/12  30,000) = £5,000

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17 B
ELECTRICITY ACCOUNT
£ £
20X0 20X0
1 August Cash 600 1 July Accrual reversed 300
1 November Cash 720
20X1
1 February Cash 900
30 June Cash 840 20X1
30 June Accrual £840  2/3 560 30 June Statement of profit or loss 3,320
3,620 3,620

18 D (12 × £600) – 400 (opening accrual) + 500 (closing accrual) = £7,300
19 D £250 (reversed prepayment) + £800 (cash) + £90 accrual = £1,140

20 B £300 (reverse accrual) + £4,000 (cash) – £400 (closing accrual) = £3,900
21 B
INSURANCE
£ £
Reverse prepayment (bal fig) 260 Statement of profit or loss 1,760
Cash 1,820 Prepayment 320
2,080 2,080
ng
22 B (6/12  (13,200  100/110)) + (6/12  13,200) = £12,600
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23 D Overstated by £800
24 B £22,240 current asset
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Loan 12,000 + (12,000  2%) = £12,240 current asset
Insurance 9,000  8/12
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= £6,000 current asset
ce am L
Rent = £4,000 current asset
25 A Debit electricity
en tn in
s
D Credit insurance
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er ie er
F Credit accruals
G
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Debit prepayments
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26 C (£3,420 – 215 + 310) = £3,515

C
27 B (£10,400 + 800 – 920) = £10,280
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28 B,F £60 has been prepaid as at the year end of 31 August 20X4, so this should be debited
to the prepayments account (B) and credited to the telephone charges account (F).
29 D The prepayment of local property tax is for July and August, that is 2/3  £6,495 =
W
£4,330. This is debited to prepayments and credited to administrative expenses.

30 A,C,D
AE
Five months of the subscription has been prepaid at 31 August 20X8:

£240  5/12 = prepayment £100 (C)
Deposits of £75 will be treated as income in the subsequent year, so this must all be
IC
treated as deferred income £75 (A).

R
Five of the six months property tax relates to the year ended 31 August 20X8, so this
must be accrued:
£5,400  5/6 = accrual £4,500 (D)
31 A,F
The company debited cash at bank with the 20X3 rent received and credited rental
income for 20X4, when it should have credited the rent receivable or accrued income
asset account set up at 31 December 20X3. The correcting journal should therefore
Debit Rental income (A) and Credit Accrued income (F).

32 A The bookkeeper has processed the opening (1) and closing (2) journals as follows:
ACCRUALS
£ £
b/d 5,019
Jnl 1 5,019
Jnl 2 4,423
PREPAYMENTS
£ £
b/d 2,816
Jnl 1 2,816
ng
Jnl 2 3,324
DISTRIBUTION COSTS
ni
£ £
Jnl 1 2,203 Jnl 2 3,324
ar
Cash 147,049
Jnl 2 4,423
e
The cash payment and Journal 2 are correct. To correct Journal 1 the bookkeeper
should:
ce am L
en tn in
Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406
s
33 B,F Unless told otherwise we can assume that all charges accrue evenly in the period.
ie
er ie er
The internet server charge payment of £4,500 made on 1 November 20X5 covers the
op
six months to 30 April 20X6. Of this payment, four months is a prepayment covering
the period 1 January to 30 April 20X6, an amount of (4/6  £4,500) = £3,000 (B).
ef V rtn
The telephone rental payments are in arrears, so when the last payment for 20X5 is
C
made on 30 November, Bez plc still owes one month (December) of rental, which is
Pa
(£7,440  1/12) = £620 (F).

34 B Having paid its 20X4/X5 fee in advance, Butters plc is now paying its 20X5/X6 fee in
arrears. The amount unpaid at 30 June 20X5 will therefore be an accrual. There are
outstanding fees for the period 1 March–30 June 20X5, which is four months. The
W
accrual is therefore £21,000  1.125  4/12 = £7,875 (B).

35 A In the financial statement for the previous year ended 30 June 20X6, a prepayment of
AE
(£10,800  9/12) would have been recorded. This must be reversed in the year ended
30 June 20X7 by debiting the expense in the statement of profit or loss and crediting
the prepayment (A). (B) has calculated the correct prepayment but has not recorded
IC
the correcting journal entry. (C) and (D) both incorrectly involve an accrual being
created for the year ended 30 June 20X6.
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36 B The rent received in advance is deferred income which must be removed from the
amount recorded as rental income in the year by Debit Rental income and Credit
Deferred income. The rent in arrears is accrued income which must be included in
rental income for the year by Debit Accrued income and Credit Rental income. (B) is
the correct combination of these journal entries.
37 A The balance on the rent expense account at 30 November 20X6 is £120,000  4/12 +
£144,000  8/12 = £136,000. This is a debit balance and therefore to transfer the
balance to the profit and loss ledger account, Debit profit and loss ledger account
£136,000 and Credit Rent expense (A). Option (B) reverses the journal entry. Options
(C) and (D) incorrectly calculate the rent expense.

38 C The rent expenses needs to be increased (debit) and a liability to pay this amount
needs to be created (credit accruals).
39 A The insurance expense for the year ended 30 June 20X5 is £27,200, being the £8,200
prepayment plus £19,000 (£38,000  6/12). This is a debit balance on the insurance
expense account and therefore to transfer the balance to the profit and loss ledger
account, we must debit the profit and loss ledger account and credit the insurance
expense account with £27,200 (option A). Option B reverses the journal entry. Options
(C) and (D) incorrectly calculate the insurance expense.
ng
ni
e ar
ce am L
en tn in
s
ie
er ie er
op
ef V rtn
C
Pa
W
AE
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AE
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Pa
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C e ar
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ICAEW 2020
Chapter 10: Non-current assets and depreciation
1 B 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 old asset's
carrying amount is irrelevant.) After one year, the carrying amount of the new machine
is 90% of £28,000 = £25,200.
2 C
£
Cost (15,000 + 1,300 + 2,500) 18,800
ng
Depreciation (10%  18,800) (1,880)
Carrying amount 16,920
3 A The suspense account needs to be cleared (dr), the accumulated depreciation of
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£11,500 as calculated below and the machinery cost need to be removed at the date
of disposal and the loss recorded.
ar
£
Cost of asset 22,000
e
Accumulated depreciation (46 months  (21,000/84)) (11,500)
Carrying amount at date of disposal 10,500
ce am L
Proceeds on disposal
Loss on disposal
9,000
1,500
en tn in
s
Option (B) uses the incorrect number of months for depreciation. Options (C) and (D)
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reverse the journal entries.
er ie er
4 A
op DISPOSAL
ef V rtn
£ £
Cost 20,000 Depreciation 14,200
C
Trade in allowance
Pa
(22,000 – 17,500) 4,500

 loss 1,300
20,000 20,000
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5 A The depreciation charge is (6,000 – 300)/(5  12) = £95. This year 6  £95 = £570. This
is recorded as Debit Depreciation expense £570; Credit Accumulated depreciation
£570.
AE
6 C £23,500  90% = £21,150

7 A £18,000  75%  75% – 5,000 = £5,125 loss
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8 D To match the cost of the non-current asset with the revenue that the asset generates.
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9 C Any abnormal costs are not directly attributable to the asset and therefore should not
be capitalised.
10 A Purchased goodwill is retained in the statement of financial position subject to an
impairment review.
11 D (£5,000 – £1,000)/4 = £1,000 depreciation per annum for three years
DISPOSAL ACCOUNT
£ £
Cash at bank 5,000 Depreciation 3,000
Proceeds 1,600
 loss 400
5,000 5,000

12 B
£
Cost 1,000,000
20X1 Depreciation 250,000
750,000
562,500
421,875
20X4 Part exchange 500,000
Profit 78,125
ng
13 D
£
Balance b/d 67,460
ni
Less cost of non-current asset sold (15,000)
Add accumulated depreciation of asset sold (15,000 – (4,000 + 1,250)) 9,750
ar
62,210
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14 C 48,000 + 400 + 2,200 = 50,600
ce am L
15 D The journal entry to record the depreciation expense is Debit Depreciation expense
£76,840, Credit Accumulated depreciation £76,840.
en tn in
£
s
December addition – 18,000  20%  10/12 3,000
June disposal – 36,000  20%  8/12
ie
4,800
er ie er
Balance – 345,200  20% 69,040

76,840
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16 A (200,000 – 20,000 – 25,000 – 5,000 = 150,000)

C
17 A
Pa
£
Plant held all year (380,000 – 30,000)  20% 70,000
New plant (51,000  20%  9/12) 7,650
Plant disposed of (30,000  20%  9/12) 4,500
W
82,150
18 A
AE
£
Plant held all year (200,000 – 40,000)  20% 32,000
Disposal 40,000  20%  9/12 6,000
Additions 50,000  20%  6/12 5,000
IC
43,000
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19 A The journal entry to record the depreciation expense is Debit Depreciation expense
£900, Credit Accumulated depreciation £900.
£36,000/120  3 = £900
20 D The machine has had three years' depreciation at 40% reducing balance.
£
Carrying amount is therefore (£35,000 × 60% × 60% × 60%) = 7,560
Add profit on disposal 2,440
Part-exchange allowance 10,000
Payment 30,000
Price of new machine 40,000

21 A £18,000  90% = £16,200
22 A (£10,000  70%  70%) – £6,000 = £1,100
23 B The depreciation for the year is (£120,000 – 4,000)/48  3 = £7,250. This should be
deducted from the draft net profit to give an adjusted profit of £49,530.
24 C
£
Draft profit for the year 83,600
Add purchase price 18,000
Less additional depreciation (18,000  25%) (4,500)
ng
Adjusted profit 97,100
25 B The internal administration costs cannot be treated as part of the asset's cost, so in the
first two years' depreciation of (£96,720 + £3,660)/5  2 = £40,152 was charged. This
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means that the whole of the remaining carrying amount of £60,228 must be allocated
as depreciation in 20X6 given the revision of the asset's useful life. SAMPLE EXAM
ar
26 A The depreciation is calculated as:
e
(£38,000 – 2,000)/6 years = £6,000 per annum/£500 per month
ce am L
The machine was purchased on 1 August 20X4 and the year end is 31 March 20X5,
hence eight month's depreciation is required.
en tn in
s
27 C The initial amount capitalised is £44,500, as the licence cost is excluded from the value
of the plant because it is not a directly attributable cost.
ie
er ie er
Depreciation is initially ((44,500 – 3,500)/8) = £5,125 per annum, so at 1 June 20X5 the
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carrying amount is (44,500 – (2  5,125)) = £34,250. Depreciation is then charged at
ef V rtn
40% on this figure, giving a depreciation figure of £13,700 for the year to 31 May 20X6,
and a carrying amount of £20,550.
C
PLANT – COST
Pa
£ £
Purchase price 43,000 c/d 44,500
Transport 1,500
44,500 44,500
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PLANT – ACCUMULATED DEPRECIATION

£ £
AE
c/d 23,950 31/5/X4 Charge

(44,500 – 3,500)/8 5,125
31/5/X5 Charge
(44,500 – 3,500)/8 5,125
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31/5/X6
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(44,500 – 10,250) × 0.4 13,700

23,950 23,950
Carrying amount: 44,500 – 23,950 = £20,550

28 C
DISPOSAL
£ £
Cost 23,500 Accumulated depreciation
£23,500 – (£23,500  0.7  0.7) 11,985
Part exchange value
(£28,200 – £19,350) 8,850
Loss on disposal (bal fig) 2,665
23,500 23,500
SAMPLE EXAM
ng
29 C The debit to administrative expenses is the loss on disposal of £1,898
DISPOSAL
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£ £
Cost 4,000 Acc dep (£4,000 – (£4,000 
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0.8  0.8  0.8)) 1,952
Proceeds 150
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(loss on disposal) 1,898
ce am L 4,000 4,000
en tn in
SAMPLE EXAM
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30 B This is calculated using T accounts, the carrying amount being £626,000 – £368,165 =
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£257,835. Note that no depreciation will be charged in the year to 31 March 20X6 for
er ie er
the asset acquired at the year end:
op
ef V rtn
COST
£ £
C
B/d 614,500
Pa
Additions 11,500 C/d 626,000

626,000 626,000
ACCUMULATED DEPRECIATION
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£ £
B/d (614,500 – 399,960) 214,540
Charge (614,500  0.25)
AE
C/d 368,165 153,625

368,165 368,165
SAMPLE EXAM
IC
31 C
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PLANT & MACHINERY – COST

£ £
b/d 92,000 Disposals – bal fig 21,000
Additions 39,000 c/d 110,000
131,000 131,000
PLANT & MACHINERY – ACCUMULATED DEPRECIATION

£ £
Disposals – bal fig 6,000 b/d 51,000
c/d 72,000 Charge 27,000
78,000 78,000

DISPOSALS
£ £
P&M – cost 21,000 P&M – acc dep 6,000
Proceeds – bal fig 13,000
Loss 2,000
21,000 21,000
32 D The accumulated depreciation at the part exchange date is (60,000 – 34,400) =

£25,600, and this must be eliminated from the accumulated depreciation account by
debiting the account.
The machine cost account is debited with the difference between the cost of the old
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and new machines (196,600 – 60,000) = £136,600.
Anaconda is paying a total cash/payables figure of (110,000 + 42,000) = £152,000 for
the machine, therefore the part-exchange allowance is (196,600 – 152,000) = £44,600.
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This is compared to the carrying amount of £34,400 to give a gain on disposal of
£10,200.
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DEBIT Accumulated depreciation £25,600
DEBIT Cost £136,600
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CREDIT Disposal £10,200
CREDIT
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Suspense £152,000
MACHINE – COST
en tn in
£ £
s
Cash 110,000 Disposal 60,000
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Trade and other payables 42,000 c/d 136,600
er ie er
Part exchange value 44,600
op 196,600 196,600
ef V rtn
b/d (net entry) 136,600

C
DISPOSAL
Pa
£ £
Cost 60,000 Accumulated depreciation 25,600
c/d Profit on disposal 10,200 Part exchange value 44,600
70,200 70,200
b/d (net entry) 10,200
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33 D VAT on vehicles except for cars is treated as input tax, so the truck's cost in the ledger
accounts is £99,900  5/6 = £83,250 (B). This is depreciated at 20% per annum for six
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months, a charge of £8,325. Hence the carrying amount at the year end is £83,250 –
£8,325 = £74,925 (D).
In option C the cost is depreciated for a full year (£83,250  0.8), while in A the cost is
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taken to include VAT, and is then depreciated for six months.

R
34 D VAT is not treated as input tax when a car is purchased for use in a business (as
opposed to being bought as inventory by a car dealer). As Crocker plc is a retailer we
can assume that the gross figure should be taken as the cost of both vehicles. The old
car had been depreciated for 28 months when it was traded in.
DISPOSALS
£ £
Old car – cost 16,800 Vehicles – acc dep
(16,800/60  28) 7,840
Part exchange value
((17,625  1.2) – 13,500) 7,650
Loss – bal fig 1,310 (D)
16,800 16,800

Note that in Option A the error is to have depreciated the old car for only two years,
assuming a policy of 'full year's depreciation in the year of purchase and none in the
year of sale'. In Option B the net price of the new car is used when calculating the part
exchange value, while in Option C both these errors are made.
35 B In respect of the disposal, the computer sold had a carrying amount of £6,800/4  2 =
£3,400 at 1 January 20X4, so a loss of (3,400 – 1,800) = £1,600 arises on disposal.
The remaining computers have a cost of £997,608 (1,004,408 – 6,800). We know that
none of them was written down fully at the previous year end, and we can assume
there have been no additions, so depreciation of £997,608/4 = £249,402 arises.
ADMINISTRATIVE EXPENSES
ng
£ £
b/d 684,000 Statement of profit or loss 935,002
Disposal 1,600
ni
Depreciation charge 249,402
935,002 935,002
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COMPUTERS – COST
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£ £
b/d 1,004,408 Disposal 6,800
ce am L 1,004,408
c/d 997,608
1,004,408
en tn in
s
COMPUTERS – ACCUMULATED DEPRECIATION
ie
£ £
er ie er
Disposal (6,800/4  2) 3,400 b/d 697,600

c/d
op 943,602 Charge (997,608/4) 249,402
ef V rtn
947,002 947,002
C
DISPOSAL
Pa
£ £
Cost 6,800 Accumulated depreciation 3,400
Proceeds 1,800
Loss (bal fig) 1,600
6,800 6,800
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36 D The journal entry to record the depreciation is Debit Depreciation expense £70,384;
AE
Credit Accumulated depreciation £70,384.

Carrying amount of computer traded in = £24,000  60%  60% = £8,640.
Carrying amount of remaining computers is therefore 150,000 + 34,600 – 8,640 =
IC
£175,960. Depreciation on these is (175,960  40%) = £70,384 (D).

R
COMPUTERS – CARRYING AMOUNT

£ £
b/d 150,000 Disposal (24,000  0.6  0.6) 8,640
Additions 34,600 Charge (175,960  40%) 70,384
c/d 105,576
184,600 184,600
37 A The carrying value of the machinery has decreased by £10,000. The profit or loss on
disposal is the difference between the carrying amount at the date of disposal and the
proceeds on sale. If proceeds were £15,000 and the carrying amount £10,000, a profit
of £5,000 (A) must have been made. Option (C) calculates a loss rather than a profit.
Options (B) and (D) use the incorrect carrying amount.

38 B The journal entries to correct the misposting are:
Debit Property, plant and equipment £38,000, Credit Plant repairs £38,000, and
Debit Depreciation expense £1,900, Credit Accumulated depreciation £1,900
Depreciation is calculated as £38,000/5 years  3/12. Profit is understated by £38,000 –
£1,900 = £36,100
39 C Cost less four months' depreciation = £25,500 – £2,125 = £23,375
40 D The carrying amount of the machine at 31 March 20X8 must be calculated and
compared to the recoverable amount.
ng
£
Carrying amount at 1 April 20X7 32,000
Depreciation charge (20% reducing balance) (6,400)
ni
Carrying amount at 31 March 20X8 25,600
Recoverable amount – higher of:
Fair value less disposal costs
ar
22,400
Value in use 21,000
Recoverable amount 22,400
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Loss on impairment 3,200
ce am L
Option (A) compares cost to the recoverable amount, option (B) depreciates on the
straight-line basis and option (C) uses the lower value in use as the recoverable
en tn in
amount.
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41 B
ie
er ie er
op
Cost at 1 April 20X4
Depreciation charge ((420,000 – 40,000)  5/20)
420,000
(95,000)
ef V rtn
Carrying amount at 31 March 20X9 325,000

C
Fair value less costs to sell 280,000
Pa
Value in use 300,000

W
Option (A) ignores residual value, option (C) uses fair value less disposal costs as the
recoverable amount and (D) compares depreciable cost to the recoverable amount.
AE
42 A Technological advances which means the plant and machinery is not as efficient as that
currently available is an indicator of impairment. Market capitalisation exceeding the
value of non-current assets is not an indicator of impairment but market capitalisation
that is less than the value of non-current assets would be. Using the plant and
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machinery for a new product that is expected to generate benefits does not indicate
impairment.
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AE
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ICAEW 2020
Chapter 11: Company financial statements
1 A 20,000  £0.25 = £5,000
2 A
3 B
SHARE CAPITAL
£m £m
Bal b/d 100
ng
Share premium (bonus) 50
Bal c/d 210 Cash at bank (rights) 60
210 210
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SHARE PREMIUM
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£m £m
Share capital (bonus) 50 Bal b/d 80
e
Bal c/d 60 Cash at bank 30
ce am L
(rights)
110 110
en tn in
4 B Share capital will be credited with the nominal value of the shares (1m  50p) – the
s
balance goes to share premium (1m  30p).
ie
er ie er
5 B This is the transfer of the premium to the share premium.

6 C
op
A bonus issue does not involve cash but can be financed from the share premium.
ef V rtn
7 B
C
£
Pa
Equity shares at start of year 50,000

Add bonus issue 50,000 × 50p 25,000
Add new issue 60,000 × 50p 30,000
105,000
W
Share premium at start of year 180,000

Less bonus issue 50,000 × 50p (25,000)
AE
Add new issue 60,000 × 30p 18,000

173,000
8 A
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£
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Debit cash 1,100,000

Credit share capital 250,000
Credit share premium 850,000
9 B £30,000
200,000 shares  15p = £30,000
10 D No revenue can be recognised as Afua plc remains responsible for the toasters until
they are delivered to the customer, which does not happen until after the year end.

11 B
SHARE CAPITAL
Number £ Number £
Bal b/d 500,000 125,000
Cash at bank (1 250,000 62,500
for 2 rights)
750,000
Bal c/d 900,000 225,000 Share premium 150,000 37,500
(1 for 5 bonus)
900,000 225,000 900,000 225,000
ng
SHARE PREMIUM
£ £
ni
Share capital (1 for 37,500 Bal b/d 100,000
5 bonus)
Bal c/d 250,000 Cash at bank (1 for 2 rights) 187,500
ar
287,500 287,500
e
12 B The total dividend paid during the year is £275,000.
WORKING
ce am L RETAINED EARNINGS
en tn in
£ £
s
Dividends (bal fig) 275,000 B/fwd 900,000
ie
C/fwd 1,080,000 Profit for the year 455,000
er ie er
1,355,000 1,355,000
13 D op
ef V rtn
Share capital Share capital Share premium

C
Number £ £
Pa
1 Jul 20X4 1,000,000 500,000 400,000

1 Jan 20X5 – 1 for 4 bonus issue
(250,000 × 50p) 250,000 125,000 (125,000)
1 Apr 20X5 – 1 for 10 rights issue 125,000 62,500 125,000
1,375,000 687,500 400,000
W
14 D 200,000/5 = 40,000 shares.

AE
Balance on share premium becomes £75,000 + (40,000  £1) = £115,000

15 B Share capital £6,000,000 Share premium £nil
Bowden Ltd is issuing (£10m/5  1) = 2,000,000 new shares of 50p each to its owners,
IC
in proportion to their existing shareholdings. The double entry:

R
£ £
DEBIT Share premium (total balance of share 900,000
premium)
DEBIT Retained earnings (remainder) 100,000
CREDIT Share capital 1,000,000
This removes the whole share premium leaving a balance of zero.

16 B You do not have to complete the share premium to answer this question but it is good
practice in this type of question to complete both.
SHARE CAPITAL
Number £ Number £
Bal b/d 300,000 75,000
Cash at bank 60,000 15,000
(1 for 5 rights)
360,000
Bal c/d 480,000 120,000 Share premium 120,000 30,000
(1 for 3 bonus)
480,000 120,000 480,000 120,000
ng
SHARE PREMIUM
ni
£ £
Share capital (1 for 3 bonus) 30,000 Bal b/d 200,000
ar
Bal c/d 227,000 Cash at bank (1 for 5 rights 57,000
60,000  95p)
e
257,000 257,000
17 D
ce am L INSURANCE COST
en tn in
£ £
s
Prepayments 450 Prepayments 515
ie
Cash at bank 3,400 Bal c/d 3,335
er ie er
3,850 3 3,850
op
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£
Opening prepayment 450
C
Insurance cost for the year 3,400
Pa
Closing prepayment (515)

Expense in statement of profit or loss 3,335
18 C WORKING
W
RETAINED EARNINGS
£ £
AE
Dividend paid 312,000 B/fwd 926,450

Share capital 125,000 Profit for the year
C/fwd 1,426,980 (bal fig) 937,530
IC
1,863,980 1,863,980
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19 C (A) is wrong because labour and construction costs of building a factory would be
debited to non-current assets cost. (B) is wrong because directors' remuneration would
be debited to the expense account, (D) is wrong because a misposting of discount
from a supplier would be a debit to trade payables not to trade receivables.
20 D
£
July – September 1,000,000  8%  3/12 20,000
October – March 750,000  8%  6/12 30,000
April – June 750,000  8%  3/12 15,000
500,000  7%  3/12 8,750
73,750

21 C
INCOME TAX
£ £
B/d 3,200 Statement of profit or loss
(bal fig) 27,700
C/d Income tax payable 24,500
27,700 27,700
22 B
INCOME TAX
ng
£ £
Cash at bank 12,700 B/d 14,300
C/d Income tax payable 15,600 Statement of profit or loss
ni
(bal fig) 14,000
28,300 28,300
ar
23 C The £3,000 that was not provided for in 20X3 would be the expense recognised in
20X4.
e
24 C This is calculated using a T account:
ce am L DISTRIBUTION COSTS
en tn in
£ £
s
Cash at bank 130,647 Accrual reversed 586
ie
Closing accrual 654 Statement of profit or loss
er ie er
(bal fig) 130,715

131,301 131,301
op
ef V rtn
25 C When a company makes a bonus issue it receives no monies from shareholders.

Instead it issues shares to existing shareholders at par value, crediting share capital and
C
debiting share premium (if there is insufficient share premium then retained earnings
Pa
may be debited).
Pigeon plc has 600,000 ordinary shares in issue prior to the bonus issue, because each
share has a 50p par value. It therefore issues 200,000 (1/3  600,000) shares to
shareholders, again with a par value of 50p each. The journal to record this issue is
W
Debit Share premium (200,000  50p) £100,000

Credit Share capital £100,000
AE
The share premium is therefore reduced to £650,000. SAMPLE EXAM

26 B
IC
TRADE PAYABLES
R
£ £
Cash at bank 1,249,506 b/d 524,925
Purchases (discounts taken
unexpectedly) 12,824
Purchases 1,987,345
c/d (bal fig) 1,241,704
2,512,270 2,512,270

27 B This is calculated using a T account:
INCOME TAX
£ £
Cash at bank 1,762 Brought down 2,091
Carried down 2,584 Statement of profit or loss
(bal fig) 2,255
4,346 4,346
SAMPLE EXAM
28 D This is calculated using a T account:
ng
FINANCE COSTS
£ £
Cash 2,733 Accrual reversed 362
ni
Closing accrual 419 Statement of profit or loss
(bal fig) 2,790
ar
3,152 3,152
SAMPLE EXAM
e
29 B We can assume unless told otherwise that share premium is used to the maximum
ce am L
possible extent when a bonus issue is made.
en tn in
1 November rights issue: Debit Cash £450,000, Credit Share capital £50,000
s
(400,000 shares  50p  ¼), Credit Share premium £400,000
ie
31 August bonus issue: Credit Share capital £500,000 (500,000 shares  50p  2),
er ie er
Debit Share premium £420,000 (taking the balance down to zero), Debit Retained
earnings £80,000
op
ef V rtn
SHARE CAPITAL
C
Number £ Number £
c/d 1,500,000 750,000 b/d (£200,000/£0.50) 400,000 200,000
Pa
Rights issue (400,000/4) 100,000 50,000

500,000 250,000
Bonus issue (500,000  2) 1,000,000 500,000
1,500,000 750,000 1,500,000 750,000
W
SHARE PREMIUM
AE
£ £
Bonus issue 420,000 b/d 20,000
c/d 0 Rights (100,000  £4) 400,000
IC
420,000 420,000
R
RETAINED EARNINGS
£ £
Balance of bonus b/d 793,442
(500,000 – 420,000) 80,000
c/d (bal fig) 813,442 Profit for year 100,000
893,442 893,442
The two most common mistakes with this kind of question are to take the number of
shares as the share capital balance as in A and D (ie, to treat all shares as £1 shares),
and to fail to use the share premium to the maximum for the debit entry for the bonus
issue, as in C.

30 D The initial entry resulted in a suspense account with a credit balance of £1.9 million. To
eliminate the suspense account a debit entry of £1.9 million is required. The rights
issue is 1 for 4, so (3,000,000/4) = 750,000  20p shares are issued, giving a credit of
£150,000 in the share capital account. The share premium is therefore (3.60 – 0.20) =
£3.40 per share, which gives a credit to the share premium of 750,000  £3.40 =
£2,550,000. The remainder of the journal is to record the amount unpaid on the shares
((750,000  £3.60) – £1,900,000) = £800,000 as an other receivable:
DEBIT Suspense £1,900,000
DEBIT Other receivables £800,000
CREDIT Share capital £150,000
CREDIT Share premium £2,550,000
ng
31 A The cash and credit purchases occur during the year, so when we open the T account
with these figures we know there has been no opening journal reversing the accruals
ni
and prepayments as at the end of the previous year. Instead of being told opening and
closing accruals and prepayments you are told the difference between them. You need
ar
to think carefully therefore about the side of the T account on which the net difference
should appear. Where there is a decrease in the accrual the net effect is a credit in the
e
expense account, while a decrease in a prepayment will be a net debit in the expense
ce am L
account.
PURCHASES
en tn in
£ £
s
Trade payables 9,801 Decrease in accruals 75
ie
Cash at bank 107 Statement of profit or loss
er ie er
(bal fig) 9,893 (A)

Decrease in prepayments 60
op 9,968 9,968
ef V rtn
Note that in option B the net differences are the wrong way round; option C ignores
C
the cash purchases, while option D ignores the effect of accruals and prepayments
Pa
entirely.
32 A,B If a company is no longer a going concern then the directors have concluded that it will
not trade for the foreseeable future (ie, less than 12 months) and so all non-current assets
and liabilities are transferred to current assets and current liabilities respectively (A).
W
All assets are valued at their resale or break-up value, which is the expected selling
price in a forced sale position (B). This is likely to be a substantially lower value than
AE
carrying amount for assets such as fixtures and fittings acquired recently. An exception
to this may arise in the case of properties, of which Wombat plc has none.
Although not being a going concern means the directors believe the company is likely
IC
to cease trading within 12 months, it does not necessarily mean that it will cease
R
trading immediately (C), nor that a liquidator will be appointed immediately (D).
33 C When a bonus issue is made you should assume that the share premium is used as far
as possible, with only the remainder being debited to retained earnings.
SHARE CAPITAL
£ £
c/d 500,000 b/d 300,000
500,000 500,000

SHARE PREMIUM
£ £
Share capital 150,000 b/d (300,000 × £0.50) 150,000
150,000 150,000
RETAINED EARNINGS
£ £
Share capital b/d 717,000
(200,000 – 150,000) 50,000
c/d 667,000
ng
717,000 717,000
34 C,D Delivery vehicle costs, including depreciation, are part of distribution costs (C) because
ni
they are part of the cost of providing customers with the final product. These costs are
completely independent of the original purchase cost of the product Albion plc
ar
manufactures.
Delivery inwards is part of the overall cost of bringing materials to their current
e
condition and location. As such they should be included in inventory costs, and thus
ce am L
cost of sales (D).
35 C
en tn in
s
INCOME TAX PAYABLE
£ £
ie
Cash at bank 123,090 b/d 114,520
er ie er
c/d (bal fig) 137,100 Statement of profit or loss 145,670
op
ef V rtn
260,190 260,190
C
36 C The total interest charge for the year should be:
Pa
New debentures (£120,000  6%  3/12) = £1,800

Original debentures (£400,000  6%) = £24,000 (= cash paid)
Therefore the closing accrual should be £1,800, giving a total trade and other payables
W
total of (246,800 + 1,800) = £248,600.

TRADE AND OTHER PAYABLES
AE
£ £
c/d 248,600 b/d 246,800
Accrual 1,800
IC
248,600 248,600
R

INTEREST
£ £
Cash at bank 24,000 b/d 0
Accrual (trade and other Statement of profit or loss 25,800
payables) 1,800
(400,000  0.06) +
(120,000  0.06  3/12)
25,800 25,800
37 D
SHARE PREMIUM
ng
£ £
Bonus issue (400,000/4  0.10) 10,000 b/d
(400,000  (2.20 – 0.10)) 840,000
ni
Preference shares
(45,000  (1.50 – 1.00)) 22,500
ar
Bal c/d 852,500
862,500 862,500
e
38 B The total dividend paid during the year is £167,000
WORKING
ce am L RETAINED EARNINGS
en tn in
s
£ £
Dividends (bal fig) 167,000 B/fwd 1,055,000
ie
er ie er
Bonus issue 65,000

C/fwd 1,210,000 Profit for the year 387,000
op 1,442,000 1,442,000
ef V rtn
39 A The total dividend paid during the year is £12,000. The bonus issue was fully paid out
C
of share premium so does not affect the dividend calculation.
Pa
WORKING
RETAINED EARNINGS
£ £
W
Dividends (bal fig) 12,000 B/fwd 267,000

C/fwd 299,000 Profit for the year 44,000
AE
311,000 311,000
40 B The total dividend paid during the year is £65,000.

WORKING
IC
RETAINED EARNINGS
R
£ £
Dividends (bal fig) 65,000 B/d 676,000
Bonus issue
(150,000 – 80,000) 70,000
C/d 754,000 Profit for the year 213,000
889,000 889,000

41 C
WARRANTY PROVISION
£ £
Cash at bank 25,000 B/d 64,000
C/d 58,000 Warranty expense
(bal fig) 19,000
83,000 83,000
ng
ni
e ar
ce am L
en tn in
s
ie
er ie er
op
ef V rtn
C
Pa
W
AE
IC

IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 12: Company financial statements under IFRS
standards
The marking guide gives an indication of how marks will be awarded in the exam for a similar
question. Marks will total to 16 (40%). Where more than ½ mark is indicated, in the exam
candidates may be awarded partial marks. Candidates should not include guessed figures in any
computations.
ng
1 Hexham plc
ni
Marking guide
ar
Marks
e
Revenue ½
Cost of sales
ce am L
1
en tn in
s
1
Finance costs 1
ie
Income tax expense ½
er ie er
op
Statement of financial position
ef V rtn
Land and buildings 1

Plant and equipment ½
C
Inventories ½
Trade receivables 1
Pa
Prepayments ½
Equity share capital ½
Share premium ½
Retained earnings 1
W
Borrowings ½
Bank overdraft 1
AE
Trade payables ½
Accruals 1
Deferred income ½
Provision ½
IC
Income tax payable ½

R
Total 16

£
Revenue 1,150,000
Cost of sales (W1) (483,000)
Distribution costs (W1) (220,000)
Administrative expenses (W1) (316,000)
Other operating expenses(W2) (53,560)
£
Profit/(loss) from operations 77,440
Finance costs (W3) (12,000)
Profit/(loss) before tax 65,440
Income tax expense (10,000)
Profit/(loss) for year 55,440

£
Non-current assets
Land and buildings (W4) 496,000
ng
Plant and equipment (W4) 243,000
Current assets
Inventories (W1) 91,000
ni
Trade receivables (W2) 52,440
Prepayments (W1) 32,000
ar
Total assets 914,440
e
Equity
ce am L
Equity share capital 400,000
Retained earnings (W5)
en tn in
101,440
s
ie
Borrowings 200,000
er ie er
Current liabilities
op
ef V rtn

C
Accruals (W3) 4,000
Deferred income 6,000
Pa
Provision 15,000
Income tax payable 10,000
Total equity and liabilities 914,440
W
WORKINGS
AE
(1) Allocation of costs
Administrative Distribution Cost

IC
expenses costs of sales

£ £ £
R
Opening inventories 75,000

Per TB 340,000 220,000 465,000
Depreciation (W4) 8,000 34,000
Insurance prepayment (16,800  5/12) (7,000)
Rent prepayment (25,000)
Closing inventory (15,000 + 76,000) (91,000)
316,000 220,000 483,000

Tutorial note
Read the question carefully to make sure you allocate the depreciation to the right line of
expenditure. There is no depreciation on land because it has an unlimited useful life.
(2) Irrecoverable debts, warranty provision and trade receivables

Other operating Trade
expenses receivables
£ £
Per TB 36,000 60,000
ng
Irrecoverable debt written off 4,800 (4,800)
55,200
Warranty provision 15,000
ni
Allowance for receivables adjustment (2,240)* (2,760)
53,560 52,440
ar
* 2,760 – 5,000
(3) Finance costs
e
£
Loan interest paid per TB
ce am L
8,000
Accrued interest 4,000
Current period interest expense (9 months: 9/12  8%  200,000) 12,000
en tn in
s
(4) Property, plant and equipment
ie
Plant and
er ie er
Land Buildings equipment Total
op £ £ £ £
ef V rtn
Cost or valuation 200,000 400,000 340,000

C
Accumulated dep'n – (96,000) (63,000)
Carrying amount per TB 200,000 304,000 277,000
Pa
Depreciation charge – (8,000) (34,000)

Carrying amount 31 March 20X8 200,000 296,000 243,000 739,000
(5) Retained earnings

W
£
Opening retained earnings 61,000
Profit for the year (from statement of profit or loss) 55,440
AE
Dividends (15,000)
Closing retained earnings 101,440
IC
2 Ford plc
R
Marking guide
Marks
Revenue 1
Cost of sales 1
Finance costs ½
Plant and machinery 1
Inventories ½
Marks
Receivables 1
Prepayments ½
Cash ½
Irredeemable preference share capital ½
Retained earnings 1
Non-current borrowings ½
Current borrowings 1
Accruals 1
Payables 1
Provision ½
ng
Total 16
ni
ar
e
£
ce am L
Revenue (W5) 6,450,000
Cost of sales (W1) (4,515,400)
en tn in
s
ie
Profit/(loss) from operations 1,019,100
er ie er

op 984,100
ef V rtn

C
Pa
Statement of financial position as at 31 March 20X6

£
ASSETS
Non-current assets
W

Land and buildings (W2) 2,050,000
Plant and machinery (W2) 221,000
AE
Current assets
IC
Trade receivables (37,500 – 10,000) 27,500

Prepayments 20,000
R

201,000
Total assets 2,472,000
Capital and reserves
Equity share capital (W6) 500,000
Preference share capital (irredeemable) 200,000
Retained earnings (W4) 816,600
1,516,600
Borrowings (200,000  9/10) 180,000
Current liabilities
Borrowings (200,000  1/10) 20,000

£
Accruals (W1) 20,000
Dividend payable (W4) 10,000
Deferred income (W3) 250,000
Provision 100,000
775,400
Total equity and liabilities 2,472,000
WORKINGS
ng
Cost of
sales Administrative Distribution
£ £ £
ni
Manufacturing costs 4,450,000 – –
Administrative salaries – 410,500 –
ar
Selling and distribution costs – – 375,000
Opening inventories 113,400 – –
e
Depreciation (W2) 62,000 20,000 –
Provision – 100,000 –
ce am L
Irrecoverable debt
Prepayments (rent)
– 10,000
(20,000)
–
en tn in
Accruals (consultancy fees 60,000  2/6) 20,000
s
Closing inventories (120,000 – 10,000) (110,000)
ie
4,515,400 540,500 375,000
er ie er

op Freehold Plant Total
ef V rtn
£ £ £
Cost
C
B/f 2,550,000 620,000
Pa
C/f 2,550,000 620,000

Acc dep
B/f 480,000 337,000
For year ((2,550,000 – 1,750,000)  40), 20,000 62,000
W
(620,000  10%)
C/f 500,000 399,000
AE
Carrying amount c/f 2,050,000 221,000 2,271,000
(3) Deferred income

£
IC
Fees in advance (W5) 150,000

Advances (W5) 100,000
R
250,000

£
B/f 212,500
Equity dividend paid (20,000)
Preference dividend (200,000  5%) (10,000)
Profit for year 634,100
816,600
(5) Revenue
£
Per TB 6,700,000
Less Fees in advance (300,000  5/10) (150,000)
Advances (100,000)
6,450,000
(6) EQUITY SHARE CAPITAL

£ £
Per TB 400,000
C/fwd 500,000 Bonus issue (share premium) 100,000
500,000 500,000
ng
SHARE PREMIUM
£ £
ni
Bonus issue (equity share cap) 100,000 Per TB 100,000
100,000 100,000
ar
3 Jayne plc
e
Marking guide
ce am L Marks
en tn in
s
Revenue ½
ie
Cost of sales 1
er ie er
op 1
ef V rtn
Finance costs ½
Income tax expense 1
C
Land ½
Other non-current assets
Pa
1½
Inventories ½
Receivables 1
Prepayments ½
Cash 1
W

Preference share capital ½
AE
Share premium 1
Retained earnings 1
Non-current borrowings ½
Payables ½
IC
Provision ½
Accruals 1
R
Total 16

£
Revenue 726,370

£
Income tax expense (W4) (12,400)
Non-current assets £
Land 25,000
Other non-current assets (130,680 (W2) – 57,920 (W3)) 72,760
ng
Current assets
Inventories 39,323
Trade receivables (12,691 – 820 (W6)) 11,871
ni
Prepayments (W1) 375
Cash and cash equivalents (15,477 + 9,000) 24,477
ar
Equity
e
Equity share capital (11,000 + 11,000/5) 13,200
ce am L
Share premium (7,500 – 11,000/5)
6,000
5,300
en tn in
s
ie
er ie er
Borrowings 33,000
Current liabilities
op
ef V rtn
Borrowings 0
Bank overdraft 0
C
Trade payables (49,809 + 9,000) 58,809
Pa
Provision for legal claim 20,000

Accruals (2,500 + 3,300 (finance cost) + 100 (insurance)) 5,900
Deferred income 0
Income tax payable (W4) 12,000
W
WORKINGS
AE

IC
£ £ £
Per TB 198,076 61,554 426,772
R
Income tax (15,400)

Prepayment (rates 1,500 × 3/12) (375)
Accrual (insurance 1,200 × 1/12) 100
Depreciation (18,190 (W3) 30:30:40) 5,457 5,457 7,276
Profit on disposal (1,350 – 1,100) (250)
Provision for legal claim 20,000
Irrecoverable debts and allowance for
receivables (W6) 820
208,678 67,011 433,798
(2) PPE
£ £
B/fwd (157,680 – 25,000) 132,680 Disposals 2,000
C/fwd (bal fig) 130,680
132,680 132,680
(3) PPE – ACCUMULATED DEPRECIATION
£ £
Disposals (2,000 – 1,100) 900 B/fwd 40,630
Depn (130,680 (W2) – (40,630 –
C/fwd 57,920 900))  20% 18,190
58,820 58,820
ng
(4) TAX PAYABLE
£ £
ni
Tax paid 15,400 B/fwd 15,000
C/fwd 12,000 Statement of profit or loss 12,400
ar
(bal fig)
27,400 27,400
e
(5) RETAINED EARNINGS
ce am L
Dividend on equity shares
£
4,000 B/fwd
£
26,014
en tn in
Dividend on preference Profit for the period 1,183
s
shares paid 3,600
C/fwd 19,597
ie
27,197 27,197
er ie er
(6)
op£
ef V rtn
Receivables 12,691
Less Mr Maguire (453)
C
12,238
Pa
3% allowance 367
Total irrecoverable debts expense 453 + 367 = 820.
W
4 Skylar plc
Marking guide
AE
Marks
Revenue 1
IC
Cost of sales 1
R
Finance costs 1
Plant and equipment 1
Inventories 1
Prepayments 1
Trade receivables 1
Cash and cash equivalents 1
Share capital ½
Retained earnings 1
Borrowings ½

Marks
Trade payables ½
Accruals 1
Provision ½
Total 16
Skylar plc
ng
£'000
Revenue 53,761
ni
Gross profit 20,299
ar
Finance costs (5%  20,000)
e
(1,000)
Income tax expense
ce am L
(1,254)
6,958
en tn in
s
Statement of financial position as at 31 October 20X7
£'000
ie
er ie er
Assets
Non-current assets
op
ef V rtn

C
30,486
Pa
Current assets
Inventories (12,232.500  100/125) 9,786
Prepayments (W3) 32
W
Cash and cash equivalents (7,997 – 15) 7,982

28,039
AE
Total assets 58,525

Equity and liabilities
Equity
IC

R
Total equity 33,003

Borrowings (Bank loan) 20,000
Current liabilities
Accruals (387 + 250 + 33) 670
Provision 250
5,522
Total liabilities 25,522
WORKINGS
(1) Cost of sales
£'000
Purchases 30,946
Plant and equipment depreciation charge (W3) 3,846
Closing inventories (12,232.5/1.25) (9,786)
33,462
(2) Distribution costs

£'000
ng
Distribution costs per TB 6,654
Accruals (Haulage contract £200,000  2/12) 33
6,687
ni
(3) Administrative expenses
£'000
ar
Administrative expenses per TB 3,652
Freehold buildings depreciation charge (W4) 500
e
Irrecoverable debt 30
Warranty provision
ce am L
250
Prepayments (48  8/12) (32)
4,400
en tn in
s
ie
Freehold Plant Total
er ie er
£'000 £'000 £'000
Cost op 20,000 38,460

ef V rtn
Acc depn B/d 2,500 21,128

For year (20,000)  40) , (38,460  10%) 500 3,846
C
Carrying amount c/f 17,000 13,486 30,486
Pa
(5) Trade receivables

£'000
W
Irrecoverable debt (Bounced cheque) (15)

10,239
AE

£'000 £'000
Dividends paid 1,300 B/d 12,345
IC
C/d (bal fig) 18,003 Profit for the year 6,958

19,303 19,303
R

5 Corolla plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Finance costs 1
ng
Plant and equipment 1
ni
Inventories ½
Receivables 1
Prepayments
ar
1
Cash ½
Equity share capital 1½
e
Retained earnings 1½
Loan ½
Payables
Accruals ce am L 1
1
en tn in
s
ie
Total 16
er ie er
op
ef V rtn
Corolla plc
C
£'000
Pa
Revenue 58,411
Gross profit 15,069
W

AE
Finance costs (8% × 15,000) (1,200)

Income tax expense (970)
Profit/(loss) for the period 1,513
IC

R
Assets £'000
Non-current assets
Current assets
Inventories 7,878
Trade receivables (5,436 – 272) 5,164
Prepayments (45,000 × 8/12) 30
22,846
Total assets 54,678
Equity
Total equity 34,814
Borrowings 15,000
Current liabilities
Trade payables (W5) 2,843
Accruals (436 + 600 + 15) 1,051
Income tax payable 970
4,864
ng
WORKINGS
ni
(1) Cost of sales
ar
£'000
Purchases 41,620
e
Depreciation (40%  1,420 (W3)) 568
ce am L
43,342
en tn in
s
Administrative Distribution
ie
expenses costs
er ie er
£'000 £'000
Per TB
op 4,789 5,443
ef V rtn
Accrual (45,000 × 1/3) 15

Depreciation (1,420 20%, 40% (W3)) 284 568
C
Insurance (45,000 × 4/12) 15
Pa
Allowance for receivables (5,436 × 5%) 272

5,360 6,026
(3) Property, Plant and Equipment

Plant and
W

£'000 £'000 £'000 £'000
AE
Cost at 1 Nov 20X7 15,152 20,000 12,500

Accumulated depreciation at 1 Nov 20X7 (7,000) (7,400)
Charge (20,000  2%),
((12,500 – 7,400)  20%) (400) (1,020)
IC
Carrying amount 15,152 12,600 4,080 31,832

R

£'000 £'000
Dividends 1,500 B/d 9,801
11,314 11,314

(5) Trade payables
£'000
Error in treatment of insurance payment* 45

2,843
* In a computerised accounting system, transactions posted to a supplier's personal account are
also automatically included in trade payables, therefore we need to add back the payment
deducted from trade payables in error.
(6) EQUITY SHARE CAPITAL
ng
£'000 £'000
Per TB 20,000
C/fwd 25,000 Bonus issue (share premium) 5,000
ni
25,000 25,000
SHARE PREMIUM
ar
£'000 £'000
Equity share capital 5,000 Per TB 5,000
e
5,000 5,000
6 Ariel plc ce am L
en tn in
s
Marking guide
ie
er ie er
Marks
Revenue op ½
ef V rtn
Cost of sales 1½
Distribution costs
C
1½
Administrative expenses 1½
Pa
Finance costs ½
Plant and equipment 1½
W
Inventories ½
Receivables 1
Prepayments ½
AE
Cash ½
Retained earnings 1½
IC
Borrowings ½
Payables ½
R
Accruals 1
Provision ½
Total 16
£'000
Revenue 35,547
Gross profit 7,193
Finance costs (720)
Income tax expense (874)
ng
Statement of financial position as at 31 March 20X2
ni
£'000
Assets
ar
Non-current assets:
Buildings (W3) 1,354
Plant and machinery (W3) 9,250
e
Current assets:
Inventories
ce am L 4,067
en tn in
Trade receivables (2,133 - 95) 2,038
s
Prepayments 123
ie
er ie er
8,806
Total assets
op 19,410
ef V rtn
Equity and liabilities:

Equity
C
Pa

Total equity 10,109
Non-current liabilities:
W
Current liabilities:
AE
Accruals (129 + 76) 205

Provision 25
Income tax payable 874
IC
2,451
R
WORKINGS
(1) Cost of sales
£'000
Purchases 27,481
Impairment loss (12,750 – 3,100 – 8,500) 1,150
28,354

Administrative Distribution
expenses costs
£'000 £'000
Per TB 2,235 1,857
Accruals (114  2/3) 76
Prepayment (164  3/4) (123)
Provision 25
Irrecoverable debt 95
2,232 1,933
ng
(3) PPE
Plant &
Buildings Machinery
ni
£'000 £'000
Cost/Value 17,630 14,000
ar
Accumulated depreciation (16,276) (3,600)
Impairment loss (1,150)
1,354 9,250
e
Dividends ce am L £'000
920 B/d
£'000
4,595
en tn in
s
6,029 6,029
ie
er ie er
7 Enercell plc
op
ef V rtn
Marking guide
C
Pa
Marks
Gross profit 1
W
Finance costs 1
Property
AE
1
Plant & equipment 1
Inventories 1
Trade receivables ½
IC
Prepayments 1
R
Share capital 1
Share premium ½
Retained earnings 1
Borrowings ½
Trade payables 1
Accruals 1
Provision ½
Total 16
Enercell plc
£'000
Gross profit (W1) 35,939
Finance costs (5% x 30,000) (1,500)
ng
£'000
ni
Assets
Non-current assets
ar
Buildings (W3) 25,500
e
45,729
Current assets
ce am L
Inventories (18,000 × 100/125) 14,400
en tn in
s
Prepayments (W2) 48
ie
Cash and cash equivalents (11,996 – 9) 11,987
er ie er
41,816
Total assets
Equity and liabilities op 87,545
ef V rtn
Equity
C
Share premium (W4) 500
Pa

Total equity 48,934
W
Current liabilities
Trade payables (5,022 – 9) 5,013
AE
Accruals (580 + 12) + ((30,000  5%)  3/12) 967

Provision 750
8,611
IC

R

WORKINGS
(1) Gross profit 39,539

Change in inventory (18,000 – (18,000  100/125)) (3,600)
35,939

£'000
Prepayments – insurance (72  8/12) (48)
Provision (see Note 6) 750
12,699
Distribution costs
£'000
ng
Rent accrual (4  3 months) 12
9,993
ni
£'000 £'000 £'000
ar
Cost 30,000 57,690
e
Acc depn (3,750) (31,692)
For year ((30,000)  40) , (57,690  10%) (750) (5,769)
(4)
Carrying amount
ce am L SHARE CAPITAL
25,500 20,229 45,729
en tn in
s
£'000 £'000
B/d 20,000
ie
C/d (bal fig) 22,000 Bonus (share premium) 2,000
er ie er
22,000 22,000
op
ef V rtn
SHARE PREMIUM
£'000 £'000
C
Bonus issue 2,000 B/d 2,500
C/d (bal fig) 500
Pa
2,500 2,500
£'000 £'000
W

28,384 28,384
AE
IC
8 Liquid plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Other operating expenses 1
ng
Finance costs ½
ni
Statement of financial position
Plant and equipment
ar
1
Inventories ½
Trade receivables 1
e
Prepayments ½
Equity share capital 1
Borrowings
ce am L
Retained earnings
½
1
en tn in
Bank overdraft ½
s
Trade payables 1
ie
Accruals ½
er ie er
Deferred income ½
Provision
Income tax payable op ½
1
ef V rtn
Total 16
C
Pa

£
W
Revenue 1,590,000
Cost of sales (W1) 541,700
AE

Distribution costs (W1) 231,000
Administrative expenses (W1) 191,500
Other operating expenses (W2) 69,000
IC

Finance costs (W3) 3,000
R

Income tax expense 45,000

£
Non-current assets
Current assets
Prepayments (W1) 5,000
ng
Equity
ni
Preference share capital 0
Share premium (W6) 0
ar
e
Borrowings (bank loan) 50,000
Current liabilities
Borrowings
ce am L 0
en tn in
s
ie
Accruals (Insurance) 5,000
er ie er

Provision (W2)
Income tax payable op 25,000
45,000
ef V rtn

C
WORKINGS
Pa

W
£ £ £
Per TB 169,000 236,000 600,000
AE
Depreciation (W4) 17,500 26,700

Rent prepayment (5,000)
Accrual (Insurance) 5,000
IC
Closing inventory (120,000)

191,500 231,000 541,700
R
Tutorial note
Read the question carefully to make sure you allocate the depreciation to the right line of
expenditure. There is no depreciation on land because it has an infinite useful life.
(2) Irrecoverable debts, warranty provision and trade receivables
Other operating Trade
expenses receivables
£ £
Per TB (Irrecoverable debts/Trade receivables) 15,000 45,000
Irrecoverable debt written off 13,000 (13,000)
Warranty provision 25,000
Allowance for receivables 16,000 (16,000)
69,000 16,000
(3) Finance costs
ng
£
Loan interest paid per TB 3,000
Accrued interest 0
ni
Current period interest expense (6 months: 6/12  12%  50,000) 3,000
ar
Plant and
e
£ £ £ £
ce am L
Cost or valuation 100,000 875,000 267,000
en tn in
Accumulated dep'n – (178,000) (95,000)
s
Carrying amount per TB 100,000 697,000 172,000
Depreciation charge – (17,500) (26,700)
ie
er ie er
Carrying amount 31 December 20X8 100,000 679,500 145,300 924,800

op
ef V rtn
£
Opening retained earnings 55,000
C
Profit for the year (from Statement of profit or loss) 508,800
Pa
Dividends (5,000)
Closing retained earnings 558,800
(6) Equity
W
Equity Share
share capital premium
AE
£ £
Per TB 300,000 50,000
1 for 6 bonus issue (300,000/6) 50,000 (50,000)
350,000 0
IC

9 Colbolt plc
Marking guide
Marks
Gross profit 1
Finance costs 1
ng
Property 1
Plant & equipment 1
Inventories 1
ni
Trade receivables 1
Prepayments 1
ar
1
Share capital 1
Share premium ½
e
Retained earnings 1
Borrowings ½
Trade payables
Accruals ce am L 1
1
en tn in
s
ie
Total 16
er ie er
op
ef V rtn
C
Colbolt plc
Pa

£
W

AE
Finance costs (6%  25,000) (1,500)

IC

R
£
Assets
Non-current assets
Freehold buildings (W3) 26,829
45,214
Current assets
Inventories (19,000  100/120) 15,833
Trade receivables (12,039 – 165 – 4,500) 7,374
Prepayments (W2) 20
Cash and cash equivalents (9,997 + 9) 10,006
£
33,233
Total assets 78,447
Equity
Share premium (W4) 2,700
Total equity 43,403
ng
Current liabilities
Trade payables (7,954 + 9) 7,963
Accruals (140 + (1,500 – 1,125) 515
ni
10,044
ar
e
WORKINGS
(1) Gross profit
ce am L £
en tn in
Gross profit 33,931
s
Change in inventory (19,000 – (19,000  120/100) (3,167)
ie
Impairment (8,000 – 3,100) – 4,500) (400)
er ie er
30,364
(2) Distribution costs

op
ef V rtn

C
Pa
£
W
Prepayments – rent (30  2/3) (20)

Irrecoverable debts (165 + 4,500) 4,665
AE
21,469
IC
£ £ £
Cost 32,520 57,688
R
Acc depn (4,878) (31,692)

For year ((32,520) ÷ 40) , (57,688  12.5%) (813) (7,211)
Impairment (8,000 – 3,100) – 4,500) 0 (400)
Carrying amount 26,829 18,385 45,214
(4)
SHARE CAPITAL
£ £
B/d 18,000
C/d (bal fig) 19,800 Bonus (share premium) 1,800
19,800 19,800

SHARE PREMIUM
£ £
Bonus issue 1,800 B/d 4,500
C/d (bal fig) 2,700
4,500 4,500
(5)
RETAINED EARNINGS
£ £
ng
23,003 23,003
ni
10 Waterford plc
ar
Marking guide
e
Marks
ce am L
Gross profit 1
Distribution costs ½
en tn in
s
Finance costs 1
ie
1
er ie er
Property
Plant & equipment 1
Motor vehicles
op 1½
ef V rtn
Inventories 1
Trade receivables 1
C
Prepayments ½
Pa
Cash and cash equivalents ½

Share capital 1
Share premium ½
Retained earnings 1
W
Borrowings ½
Marks
Trade payables ½
AE
Accruals 1
Deferred income ½
Total 16
IC
Waterford plc
R
Statement of profit or loss for the year ended 31 May 20X6

£
Profit/(loss) from operations (2,927)
Finance costs (14,000  7.5%) (1,050)
Profit/(loss) before tax (3,977)
Profit/(loss) for the period (11,977)
Statement of financial position at 31 May 20X6
£
Assets
Non-current assets
Property (W3) 71,410
Motor vehicles (W3) 3,383
90,955
Current assets
Inventories (3,757 – 78) 3,679
Prepayments 55
ng
17,405
ni
ar
Equity
e
Share premium (W6) 9,000
Total equity
ce am L
75,817
en tn in
s
Current liabilities
ie
Trade payables 675
er ie er
Accruals (567 + 450) 1,017

Income tax payable op 8,000
ef V rtn
18,543
C
Pa
WORKINGS
(1) Gross profit
£
W
Gross profit 45,998

Loss on disposal (W9) (3,667)
Motor vehicle depreciation (2,250)
AE
Change in inventory (78)

Plant depreciation (2,852)
37,151
IC

£
R

Insurance prepaid (55)
Building depreciation 1,590
Doubtful debt allowance (W4) 897
29,989
Distribution costs

Motor
Buildings Plant vehicles
£ £ £
Cost 80,000 26,100 17,000

Acc depn 7,000 7,086 5,200
CA b/fwd 73,000 19,014 11,800
Depreciation expense
((80,000 – 500)/50) (19,014  15%) ((17,000 –
8,000)  25%) (1,590) (2,852) (2,250)
ng
Disposal (8,000 – (8,000  25%  11/12) (6,167)
Carrying amount 71,410 16,162 3,383
ni
(4) Receivables and allowance for receivables
ar
£
Irrecoverable debt (650)
e
8,240
ce am L
3% allowance for receivables (247)
7,993
en tn in
(5)
s
SHARE CAPITAL
ie
er ie er
£ £
B/d 25,000
op – Bonus issue (25,000/4) 6,250
ef V rtn
0 31,250
C
(6)
Pa
SHARE PREMIUM
£ £
B/d 9,000
–
W
– 9,000
(7)
AE
RETAINED EARNINGS
£ £
Dividends paid 600 B/d 48,144
IC
Loss for the year 11,977

R
C/d (bal fig) 35,567

48,144 48,144
(8)
SUSPENSE
£ £
Disposal account 2,500 B/d 17,601
Bonus issue 6,250
17,601 17,601
(9)
DISPOSAL ACCOUNT
£ £
Motor vehicle cost 8,000 Motor vehicle accumulated
depreciation 1,833
– Suspense 2,500
Loss on disposal 3,667
8,000 8,000
11 B
ng
£
Retained earnings at 1 January 20X6 151,600
ni
Bonus issue (5,000)
Dividend paid (16,000)
Loss for the year (17,800)
ar
Retained earnings at 31 December 20X6 112,800
e
Option (A) incorrectly adds the loss for the year, option (C) incorrectly adds the proceeds
ce am L
on issue of shares and option (D) ignores the bonus issue and the dividend paid.
en tn in
s
12 D
ie
£
er ie er
Share capital at 1 January 20X8 100,000

Issue of shares (20,000  £1)
Bonus issue op 20,000
10,000
ef V rtn
Share capital at 31 December 20X8 £130,000

C
Option (A) include the share premium on issue, option (B) deducts the dividend paid and
Pa
option (C) includes the share premium on issue and incorrectly deducts the bonus issue.
13 B A bonus issue impacts the share capital and retained earnings column and dividends
aid to equity shareholders impacts on retained earnings, A bank loan affects non-
W
current liabilities and cash and is therefore not recorded in the statement of changes in
equity.
AE
IC

Chapter 13: Statement of cash flows
1 Havisham plc
Marking guide
Marks
PBT ½
Finance costs ½
ng
Depreciation charge ½
Amortisation charge 1
Impairment charge ½
ni
Gain/loss on sale of PPE ½
Gain/loss on sale of intangible assets 1
ar
Movement in inventories 1
Movement in trade receivables 1
e
1
Tax paid 1
Interest paid
Purchase of PPE
ce am L 1
1
en tn in
Purchase of intangibles ½
s
Proceeds from sales of PPE 1
ie
Proceeds from sales of intangible assets ½
er ie er
Proceeds from issue of shares 1

Dividends paid
op 1
1
ef V rtn
Opening and closing cash ½

C
Total 16
Pa
Statement of cash flows for the year ended 31 May 20X2

W
£
AE
Investment income 0
Depreciation 232,900
Amortisation (W1) 21,200
IC
Impairment charge (W1) 20,000

R
Gain/loss on sales of property, plant and equipment 84,810

Gain/loss on sales of intangible assets (17,000 – 24,000) (7,000)
Movement in inventories (285,550 – 430,040) (144,490)
Movement in trade receivables (224,150 – 342,700) (118,550)
Movement in trade payables (146,700 – 135,900 – 13,900) (3,100)
Cash generated from operations 905,410
Tax paid (W2) (236,420)

Interest paid (W3) (92,200)
Net cash from/used in operating activities 576,790

£
Purchase of property, plant and equipment (W4) (531,900)
Purchase of intangible assets (251,340)
Proceeds from sale of property, plant and equipment (127,800 – 84,810) 42,990
Proceeds from sale of intangible assets 24,000
Interest received –
Net cash from/used in investing activities (716,250)

Proceeds from issue of shares (W5) 126,800
Movement in borrowings ((423,000 + 51,000) – (567,400+115,600) + (75,000)) 284,000
ng
Dividends paid (W6) (231,640)
Net cash from/ used in financing activities 179,160
ni
Net increase/decrease in cash and cash equivalents 39,700
Cash and cash equivalents at beginning of period (13,430)
ar
Cash and cash equivalents at end of period 26,270
WORKINGS
e
ce am L
(1) INTANGIBLES – CA
£ £
en tn in
B/d 386,900 Amortisation (bal fig) 21,200
s
Purchases 251,340 Disposals 17,000
Impairment charge
ie
20,000
er ie er
C/d 580,040
638,240 638,240
op
ef V rtn
(2) TAX PAID

£ £
C
B/d 192,520
Pa
Cash (bal fig) 236,420 Statement of profit or loss 245,700

C/d 201,800
438,220 438,220
W
(3) INTEREST
£ £
AE
B/d 12,350
Cash (bal fig) 92,200 Statement of profit or loss 89,600
C/d 9,750
101,950 101,950
IC
(4) PPE – COST

R
£ £
B/d 797,500
Purchases 13,900 Disposals 127,800
Cash (bal fig) 531,900 Depreciation 232,900
C/d 982,600
1,343,300 1,343,300
(5) SHARE CAPITAL AND SHARE PREMIUM

£ £
B/d (232,800 + 351,000) 583,800
C/d (398,200 + 312,400) 710,600 Cash (bal fig) 126,800
710,600 710,600

£ £
Dividend (bal fig) 231,640 B/d 282,100
C/d 534,800 Profit in period 484,340
766,440 766,440
2 Castle plc
Marking guide
Marks
ng
Profit before tax ½
Investment income ½
Finance costs ½
ni
Depreciation 1
Amortisation 1
ar
Gain/loss on sales of property, plant and equipment ½
Movement in inventories ½
1
e
Movement in prepayments ½
ce am L
1
1
en tn in
Tax paid 1
s
Interest paid ½
ie
Purchase of property, plant and equipment 1
er ie er
Purchase of intangible assets ½

Purchase of investments ½
op
Proceeds from sale of property, plant and equipment 1
ef V rtn
Interest received 1
Proceeds from issue of shares ½
C
Dividends paid ½
Pa
Movement in borrowings 1
Total 16
W
Statement of cash flows for the year ended 31 May 20X2

AE
£ £
Profit before tax 3,370,000
Investment income (78,000)
IC

R
Depreciation (W2) 902,000

Movement in inventories (1,112,000 – 1,086,000) (26,000)
Movement in trade receivables (W12) (20,000)
Movement in prepayments (108,000 – 95,000) 13,000
Movement in trade payables (W13) 145,000
Movement in accruals (W11) (162,000)
Cash generated from operations 5,871,000

£ £
Tax paid (W7) (546,000)
Net cash from/used in operating activities 4,812,000

Purchase of property, plant and equipment (W1) (1,394,000)
Purchase of intangible assets (W4) (339,000)
Purchase of investments (W6) (2,018,000)
Proceeds from sale of property, plant and equipment (W3) 221,000
Proceeds from sale of intangibles –
Interest received (W9) 76,000
ng
Net cash from/used in investing activities (3,454,000)
ni
ar
Dividends paid (243,000)
Movement in borrowings (100,000 + 3,000,000 – 4,500,000) (1,400,000)
e
Net cash from/used in financing activities (1,221,000)
ce am L
en tn in
Cash and cash equivalents at beginning of year 222,000
s
Cash and cash equivalents at end of year 359,000
ie
er ie er
WORKINGS
(1)
op
PROPERTY, PLANT AND EQUIPMENT – COST
ef V rtn
£ £
B/d 3,091,000
C
Cash (bal fig) 1,394,000 PPE – disposals 1,201,000
Pa
C/d 3,284,000
4,485,000 4,485,000
(2) PROPERTY, PLANT AND EQUIPMENT – ACCUMULATED DEPRECIATION

W
£ £
B/d 2,001,000
PPE – disposals (1,201,000 – Statement of profit or loss
AE
496,000) 705,000 (bal fig) 902,000

C/d 2,198,000
2,903,000 2,903,000
IC
(3) PROPERTY, PLANT AND EQUIPMENT – PROCEEDS FROM DISPOSALS

£ £
R
PPE – acc dep (1,201,000 –

PPE – cost or valuation 1,201,000 496,000) 705,000
Trade receivables 79,000 Statement of profit or loss 189,000
Cash (bal fig) 221,000
C/d 165,000
1,280,000 1,280,000
(4) INTANGIBLE ASSETS – COST

£ £
B/d 8,645,000
Trade payables 376,000 C/d 9,360,000
9,360,000 9,360,000

(5) INTANGIBLE ASSETS – ACCUMULATED DEPRECIATION
£ £
B/d 2,715,000
C/d 3,690,000 Statement of profit or loss
(bal fig) 975,000
3,690,000 3,690,000
(6) INVESTMENTS
£ £
B/d 127,000
Cash (bal fig) 2,018,000 C/d 2,145,000
2,145,000 2,145,000
ng
(7) TAX PAID
£ £
ni
Cash (bal fig) 546,000 B/d 503,000
C/d 641,000 Statement of profit or loss 684,000
ar
1,187,000 1,187,000
(8) SHARE CAPITAL AND SHARE PREMIUM
e
£ £
ce am L B/d (1,000,000 + 1,421,000)

Retained earnings
2,421,000
500,000
en tn in
C/d (1,800,000 + 1,543,000) 3,343,000 Cash (bal fig) 422,000
s
3,343,000 3,343,000
ie
er ie er
(9) INVESTMENT INCOME

£ £
B/d
op 8,000 Cash (bal fig) 76,000
ef V rtn
Statement of profit or loss 78,000 C/d 10,000

86,000 86,000
C
Pa
(10) FINANCE COSTS

£ £
Cash (bal fig) 513,000 B/d 75,000
C/d 125,000 Statement of profit or loss 563,000
W
638,000 638,000
(11) ACCRUALS
AE
£ £
Cash (bal fig) 162,000 B/d 262,000
C/d 100,000
262,000 262,000
IC
(12) TRADE RECEIVABLES

R
£ £
B/d 840,000 B/d 8,000
Cash (bal fig) 20,000 79,000
Interest receivable 10,000
PPE 165,000 C/d 948,000
1,035,000 1,035,000
(13) TRADE PAYABLES

£ £
B/d 896,000
C/d 1,417,000 Intangible assets 376,000
1,417,000 1,417,000

3 Tam plc
Marking guide
Marks

Investment income ½
Finance costs ½
Depreciation ½
Amortisation 1
ng
Gain/loss on sales of property, plant and equipment 1
Gain/loss on sales of intangible assets 1
Movement in inventories ½
ni
Movement in prepayments ½
ar
Movement in trade payables ½
Movement in accruals ½
Movement in provisions ½
e
Tax paid 1
Interest paid
Purchase of PPE
ce am L
1
1
½
en tn in
s
Proceeds from sales of PPE ½
Proceeds from sales of intangibles ½
ie
er ie er
Interest received ½
Proceeds from issue of ordinary shares ½
Dividends paid
op 1
ef V rtn
Movement in borrowings ½
C
Pa
Total 16
W
Statement of cash flows for the year ended 30 November 20X2

£
AE

Investment income (55,000)
IC
Depreciation (W4) 1,100,000

R
Gain/loss on sales of property, plant and equipment (W7) (98,000)

Gain/loss on sales of intangible assets (W9) 3,000
Movement in trade and other receivables (W10) (5,000)
Movement in prepayments (126,000 – 96,000) 30,000
Movement in trade payables ((749,000 – 351,000) –
(427,000 – 106,000)) 77,000
Movement in accruals ((131,000 – 50,000) – (108,000 – 25,000)) 2,000
Movement in provisions (140,000 – 120,000) (20,000)

£
Tax paid (W6) (115,000)
Purchase of property, plant and equipment (W3) (1,323,000)
Purchase of investments (406,000)
Proceeds from sale of property, plant and equipment (Note 4) 424,000
Proceeds from sale of intangibles (Note 4) 12,000
Interest received (W11) 45,000
ng
Proceeds from issue of shares (50,000 W1 + 192,000 W2) 242,000
ni
Movement in borrowings (500,000 – 1,000,000 + 200,000) (300,000)
ar
Net cash from/used in financing activities (108,000)
e
WORKINGS ce am L
en tn in
s
(1) SHARE CAPITAL
ie
£ £
er ie er
B/fwd 1,000,000
op Share premium 50,000

ef V rtn
C/fwd (1,100,000) 1,100,000 Cash (bal fig) 50,000

1,100,000 1,100,000
C
SHARE PREMIUM
Pa
£ £
Share capital (bonus) 50,000 B/fwd 200,000
C/fwd 342,000 Cash (bal fig) 192,000
392,000 392,000
W
(2) INTANGIBLES – ACCUMULATED AMORTISATION

£ £
AE
Disposals 40,000 B/fwd 354,000

C/fwd 333,000 Statement of profit or loss
(bal fig) 19,000
373,000 373,000
IC
(3) PPE – COST OR VALUATION

R
£ £
B/fwd 6,375,000 B/fwd 106,000
Cash (bal fig) 1,323,000 Disposals 479,000
C/fwd 351,000 C/fwd 7,464,000
8,049,000 8,049,000
(4) PPE – ACCUMULATED DEPRECIATION

£ £
Disposals (W7) 153,000 B/fwd 3,974,000
C/fwd 4,921,000 Statement of profit or loss
(bal fig) 1,100,000
5,074,000 5,074,000

(5) FINANCE CHARGE
£ £
Cash (bal fig) 93,000 B/fwd 50,000
118,000 118,000
(6) TAX PAID

£ £
Cash (bal fig) 115,000 B/fwd 165,000
397,000 397,000
ng
(7) PPE – DISPOSALS
£ £
Statement of profit or loss Acc depn (479,000 – 326,000) 153,000
ni
(bal fig) 98,000
Cost 479,000 Cash 424,000
ar
577,000 577,000
e
£ £
C/fwd
ce am L
Dividends (bal fig) 50,000
1,785,000
B/fwd
1,311,000
524,000
en tn in
1,835,000 1,835,000
s
(9) INTANGIBLES – DISPOSALS
ie
£ £
er ie er
Cost (938,000 – 883,000) 55,000 Accumulated amortisation 40,000
op Cash 12,000
ef V rtn

(bal fig) 3,000
C
55,000 55,000
Pa
(10) Movement in trade receivables

£
Opening (480,000 – 25,000) 455,000
Closing (465,000 –15,000) 450,000
W
Increase 5,000

AE
£ £
B/fwd (trade and other Cash (bal fig) 45,000
receivables) 15,000
IC
Statement of profit or loss 55,000 C/fwd 25,000

70,000 70,000
R

4 Kaya plc
Marking guide
Marks
Investment income 1½
Finance costs ½
Depreciation ½
Amortisation 1
Impairment 1
ng
Gain/loss on sales of property, plant and equipment 1
ni
Movement in trade payables 1
Tax paid 1
ar
Interest paid 1
Purchase of PPE ½
Purchase of intangible assets ½
e
Proceeds from sales of PPE ½
ce am L
Proceeds from issue of ordinary shares
Dividends paid
1
1
1
en tn in
s
ie
Total 16
er ie er
op
ef V rtn
Statement of cash flows for the year ended 31 December 20X7

C
£
Pa

Investment income (W7) (12,500)
W
Impairment charge (W5) 15,000
AE
Gain/loss on sales of property, plant and equipment (600,000 – 560,500) (39,500)

Movement in inventories (365,100 – 60,500) 304,600
Movement in trade receivables (W6) (12,000)
IC

R
Tax paid (W1) (300,000)

Purchase of property, plant and equipment (1,573,000)
Purchase of intangible assets (77,500)
Proceeds from sale of property, plant and equipment 600,000

£
Movement in borrowings (500,000 – 400,000) 100,000
Dividends paid (W9) (1,400,000)
Net cash from/used in financing activities (550,000)
Net increase/(decrease) in cash and cash equivalents 3,100

WORKINGS
ng
(1) TAX PAID
£ £
Cash (bal fig) 300,000 B/fwd 360,000
ni
710,000 710,000
ar
(2) FINANCE CHARGE
e
£ £
C/fwd
ce am L 5,000
82,000
Statement of profit or loss 75,000
82,000
en tn in
s
(3) PPE
£ £
ie
er ie er
B/fwd 6,713,500 Disposals 560,500

Cash (bal fig) 1,573,000 Statement of profit or loss 750,600
Trade payables
op 10,000 C/fwd 6,985,400
ef V rtn
8,296,500 8,296,500
C
(4) Movement in trade payables
£
Pa
Opening (139,500 – 7,000) 132,500

Closing (148,500 – 5,000 – 10,000) 133,500
Increase 1,000
W
(5) INTANGIBLES
£ £
AE
B/fwd 300,500 Statement of profit or loss

(bal fig) 12,300
Cash 77,500 Impairment 15,000
C/fwd 350,700
IC
378,000 378,000
R
(6) Movement in trade receivables

£
Opening (144,500 – 2,000) 142,500
Closing (169,000 – 14,500) 154,500
Increase 12,000

£ £
B/fwd 2,000
Cash 12,500 C/fwd 14,500
14,500 14,500

(8) SHARE CAPITAL
£ £
B/fwd 3,500,000
Bonus Issue (share premium) 35,000
C/fwd 4,000,000 Cash (bal fig) 465,000
4,000,000 4,000,000
SHARE PREMIUM
£ £
Bonus issue (share capital) 35,000 B/fwd 950,000
C/fwd 1,200,000 Cash (bal fig) 285,000
ng
1,235,000 1,235,000
ni
£ £
Dividends paid 1,400,000 B/fwd 2,206,700
ar
C/fwd 1,382,800 Statement of profit or loss 536,100
2,742,800 2,742,800
e
5 Siena plc
ce am L
en tn in
s
Marking guide
ie
er ie er
Marks
Finance cost
op ½
ef V rtn
Depreciation 1
Impairment 1½
C
Gain/loss on sale of property, plant and equipment ½
Pa
Movement in trade payables 1½
Tax paid 1
W
Interest paid 1
Purchase of PPE ½
Purchase of investments 1
AE
Proceeds from sales of PPE 1

Proceeds from issue of ordinary shares 1
Movement in borrowings 1
Dividends paid 1
IC
Opening and closing cash 1

R
Total 16

Statement of cash flows for the year ended 31 March 20X5
£
Investment income 0
Impairment (Note 3) 12,000
ng
Tax paid (W2) (347,600)
ni
Net cash from/ used in operating activities 1,265,000
ar
Purchase of property, plant and equipment (2,057,000)
e
Purchase of investments (W9) (18,000)
ce am L
Proceeds from sale of property, plant and equipment (496,300 (W4) –
55,000) 441,300
en tn in
s
Interest received
ie
er ie er
op
Proceeds from issue of shares (1,020,000 (W5) + 380,000 (W6)) 1,400,000
ef V rtn
Movement in borrowings (W1) (366,000)

C
Net cash from/used in financing activities 533,500
Pa

W
WORKINGS
(1) BORROWINGS
AE
£ £
Preference shares 150,000
Cash (bal fig) 366,000 B/fwd 472,000
IC
C/fwd 556,000 PPE 600,000

1,072,000 1,072,000
R
Further clarification:
WORKING 1.1 LOAN (BORROWINGS)
£ £
Cash (bal fig) 516,000 B/fwd 472,000
C/fwd 556,000 PPE 600,000
1,072,000 1,072,000

WORKING 1.2 REDEEMABLE PREFERENCE SHARES (BORROWINGS)
£ £
B/fwd 0
C/fwd 150,000 Cash (bal fig) 150,000
150,000 150,000
WORKING 1.3
£
Loan (from working 1.1) 516,000 (cash outflow)
ng
Less preference shares (from working 1.2) (150,000) (cash inflow)
Total cash outflow resulting
from movement in borrowings 366,000
ni
ar
(2) TAX PAID
£ £
e
Cash (bal fig) 347,600 B/fwd 350,000
(3) ce am L 647,600
RETAINED EARNINGS
647,600
en tn in
s
£ £
Cash – dividends paid (bal fig) 500,500 B/fwd 74,500
ie
er ie er

643,000 643,000
op
ef V rtn
(4) PPE
£ £
C
B/fwd 2,950,300 Statement of profit or loss 750,600
Pa
Cash 2,057,000 Disposals (bal fig) 496,300

Long term loan 600,000 C/fwd 4,360,400
5,607,300 5,607,300
(5) SHARE CAPITAL

W
£ £
B/fwd 1,800,000
AE
Bonus issue 180,000

C/fwd 3,000,000 Cash (bal fig) 1,020,000
3,000,000 3,000,000
IC
(6) SHARE PREMIUM

£ £
R
Bonus issue (W7) 180,000 B/fwd 850,000

C/fwd 1,050,000 Cash (bal fig) 380,000
1,230,000 1,230,000
(7) INTEREST PAYABLE

£ £
94,000 94,000

(8) TRADE PAYABLES
£ £
Interest payable 5,000 B/fwd 289,600
Investments 10,000
Interest payable 10,000
C/fwd 348,500 Cash (bal fig) 43,900
353,500 353,500
(9) INVESTMENTS
£ £
B/fwd 156,000 Impairment 12,000
ng
Trade payables 10,000 C/fwd 172,000
184,000 184,000
ni
6 D Loss on sale of non-current assets should be added back to profit before tax.
ar
7 D £
Add depreciation 900,000
Add impairment losses 80,000
e
Less profit on sale of non-current assets (40,000)
ce am L
Less increase in inventories
Add decrease in trade receivables
Add increase in trade payables
(130,000)
100,000
80,000
en tn in
s
Addition to profit/loss before taxation 990,000
ie
8 D The depreciation charge and the increase in trade payables should both have been added.
er ie er
9 A
op
The £9,000 profit is shown before profit before tax in the statement of profit or loss. As
ef V rtn
it is not a cash flow it is deducted from the profit before tax figure in the reconciliation
of profit before tax to net cash from operating activities.
C
10 A £20,000 paid
Pa
TAX PAID
£ £
Cash paid 20,000 B/fwd 10,000
C/fwd 150,000 Tax expense 160,000
W
170,000 170,000
AE
11 D
Cash flows from operating activities £
IC

Movement in inventories (363,700 – 310,600) 53,100
R

Movement in trade payables (277,200 – 269,400) 7,800
Cash generated from operations 845,600
Option A has used profit for the period instead of profit before tax. Option B has subtracted
the movement in inventories and in trade payables and added the movement in trade
receivables. Option C has incorrectly subtracted the finance costs instead of adding them
back.

Chapter 14: Company financial statements under UK
GAAP
1 D Generally Accepted Accounting Practice
2 B By law it is the board of directors which is responsible for preparing financial
statements.
3 B False. Creditors falling due after more than one year are non-current liabilities.
C True.
ng
4 D There are only (25 – 10 + 10 – 10) = 15 units in stock at the end of January. 10 of these
are valued at £55, and the remainder at £54:
ni
(10  £55) + (5  £54) = £820
ar
5 C Cash raised is 250,000  £3.55 = £887,500, which is debited to cash at bank. The credit
to share capital is 250,000  £2 = £500,000, while the credit to share premium is
250,000  £1.55 = £387,500.
e
SAMPLE EXAM
ce am L
6 A
£
en tn in
Retained profits at 1.1.X8 4,695,600
s
Operating profit 520,000
ie
Debenture interest (£1.3m × 10%) (130,000)
er ie er
Tax (156,000)
Retained profits at 31.12.X8 4,929,600
op
ef V rtn
SAMPLE EXAM
7 A The bonus issue of shares (A) does not involve cash, the double entry is Debit Share
C
premium, Credit Share capital.
Pa
Options B, C and D do involve cash and would be recorded in the cash at bank
account.
W
AE
IC
ICAEW 2020 Chapter 14: Company financial statements under UK GAAP 259
IC
AE
W

Pa
R
ef V rtn
er ie er
en tn in
ce am L
C e ar
op ni
ie ng
s
ICAEW 2020
Chapter 15: Sole trader and partnership financial
statements under UK GAAP
1 D
£ £ £ £
Profit 520,000 A B C
40,000 280,000
560,000 (40,000)
240,000 160,000 80,000
ng
280,000 140,000 84,000 56,000
520,000 300,000 164,000 56,000
ni
2 D
ar
Share 3: 3: 4:
Lisa Mary Olga Total
£ £ £ £
e
Salary 35,000 20,000 55,000
ce am L
Interest on capital
Interest on drawings
25,000
(7,000)
20,000
(3,500)
15,000
(4,000)
60,000
(14,500)
en tn in
Residual profit (3:3:4) 374,850 374,850 499,800 1,249,500
s
427,850 391,350 530,800 1,350,000
ie
3 C
er ie er
op MARY'S CURRENT ACCOUNT

ef V rtn
£ £
Drawings 35,000 Bal b/d 150,000
C
Bal c/d 506,350 Profit share 391,350
Pa
541,350 541,350
4 D
Share 3: 2:
W
Share 5: 3: 2:
Declan Indiah Calum Total
£ £ £ £
AE
1 Jan to 30 June: 450,000/2 135,000 90,000 225,000

1 July to 31 Dec:
Salaries (6 months) 20,000 24,000 44,000
Profit (£225,000 – 44,000) 90,500 54,300 36,200 181,000
IC
225,500 164,300 60,200 450,000

R
5 B Profit for appropriation: £32,000 – £250 = £31,750

Share 1: 1:
Billy Charlie
£ £
Opening balance 15,500 12,700
Loan interest 250
Interest on capital (5%  £20,000; £30,000) 1,000 1,500
Profit share 14,625 14,625
Closing balance 31,375 28,825
6 A
Share 3: 2:
Share 10: 5: 5:
Curtis Sillett McAllister Total
£ £ £ £
To 31 December 20X5 (£480,000  6/12) 144,000 96,000 240,000
To 30 June 20X6 (£480,000  6/12)
Salaries 6/12 10,000 6,000 16,000
PSR 112,000 56,000 56,000 224,000
256,000 162,000 62,000 480,000
7 A The petrol bills have been debited to motor vehicle expenses. This is incorrect and
ng
should be reversed (so credit motor vehicle expenses). Because they are private
expenses of the partner they should be debited to his drawings account.
ni
8 C Added to profit in allocating the profit among the partners.
9 B Interest on partners' capital is an appropriation of profit (debit appropriation account).
ar
Since partners have earned the money by their investment in the business, their current
accounts should be credited with it. (Option D would be theoretically possible, but
e
most firms maintain current accounts separately from capital accounts in order to
ce am L
record such items).
10 B
en tn in
s
Share 2: 1:
Share 5: 3: 2:
ie
Paula Quinn Ryan Total
er ie er
£ £ £ £
op
Profit share January to June (120,000) 80,000 40,000 120,000
ef V rtn
Profit share July to December (120,000) 60,000 36,000 24,000 120,000

140,000 76,000 24,000 240,000
C
Guarantee amount (1,000) 1,000
Pa
139,000 76,000 25,000 240,000
11 D Interest payable by partners increases the amounts of profits available for

appropriation (credit appropriation account). It must be charged against the partners'
current accounts (debit partners' current accounts).
W
12 A Note the question asks for Charity's residual profit share, not her total profit share.
AE
Share 3: 2: 1:
Faith Hope Charity Total
£ £ £ £
Interest on capital 1,600 1,200 960 3,760
IC
Salary 8,000 8,000

Residual loss shares (3:2:1) (3,900) (2,600) (1,300) (7,800)
R
(2,300) 6,600 (340) 3,960
13 B
Share 1: 1:
Preston Alex
£'000 £'000
January to June (340 – ((340 + 20)/2)) 160
July to December (180/2) 90 90
250 90

14 B Profit in first 6 months is ((400,000 + 40,000)/2) – £40,000) = £180,000
Share 3: 1: 1:
Share 5: 3: 2:
Gina Hardeep Iona Total
£ £ £ £
To 30 June
Salaries (6 months) 20,000 10,000 30,000
Profit 90,000 30,000 30,000 150,000
To 31 Dec (400 + 40)/2 110,000 66,000 44,000 220,000
200,000 116,000 84,000 400,000
15 B
ng
Profit for July to Dec (540,000 + 30,000)/2 – 30,000 = £255,000
ni
Profit for Jan to June (570,000/2) = £285,000
£
ar
Xavier profit share July to Dec £255,000 x 2/3 170,000
Xavier profit share Jan to June £285,000 x 50% 142,500
312,500
e
16 A
Share
Share ce am L 3:
3:
1:
2:
1:
1:
en tn in
s
Gordon Hilary Indi Total
£ £ £ £
ie
July to December – salaries (6 months) 10,000 10,000 20,000
er ie er
Profit share (380/2 – 20) 102,000 34,000 34,000 170,000
op
January to June – salary (6 months) 10,000 10,000
ef V rtn
Profit share (380/2 – 10) 90,000 60,000 30,000 180,000

192,000 104,000 84,000 380,000
C
17 C The corrected account looks like this.
Pa
CURRENT ACCOUNT
£ £
W
Drawings 6,200 Balance b/d 270

Balance c/d 7,070 Interest on capital 2,800
Salary 1,500
AE
Net profit 8,700

13,270 13,270
18 C The accrual should have increased expenses by £400 but instead expenses were
IC
decreased by £400 leading to an overstatement of profit of £800.

R
19 A £4,000 tax + £5,900 rent = £9,900

£
Rent
1 June 20X7 to 31 December 20X7 = 7/12 × £5,400 3,150
1 January 20X8 to 31 May 20X8 = 5/12 × £6,600 2,750
5,900
Local property tax
1 June 20X7 to 31 March 20X8 = 10/12 × £3,900 3,250
1 April 20X8 to 31 May 20X8 = 2/12 × £4,500 750
4,000
20 A Understated by 2  £475 = £950
21 B
£
Decrease in net assets 11,025
Capital introduced 14,000
Drawings (875  12) (10,500)
Drawings (2,625)
Loss 11,900
22 A Use the accounting equation:

£
Net assets at 31.12.X8 32,500
ng
£
Owner's interest
ni
Opening capital
(= opening net assets) 23,000
ar
Profit (balancing figure) 8,750
e
Drawings (2,500 + 750) (3,250)
32,500
ce am L
Goods drawn by owner are taken at cost.
en tn in
23 C
s
£
ie
Increase in net assets 127,000
er ie er
Add drawings 47,000
op
Deduct capital paid in (25,000)
ef V rtn
Net profit 149,000

C
24 A
Pa
£
Opening net assets 266,800
Drawings (40,000)
W
Profit (balancing figure) 9,600

Closing net assets 286,400
AE
25 B,D Owner's capital (A) and drawings (C) relate to capital; income tax payable (E) does not
feature in a sole trader's balance sheet.
26 C
IC
27 B Errol is credited with £50,000  3/8 = £18,750, then debited with £50,000  3/4 =
£37,500, a net debit of £18,750.
R
28 A The correcting journals in full are:

£ £
DEBIT Debtors 180
CREDIT Cash 180
DEBIT Sales (2  12) 24

CREDIT Debtors 24

So the net correcting journal (A) is
£ £
DEBIT Debtors 156
DEBIT Sales 24
CREDIT Cash 180
SAMPLE EXAM
29 A,C,E
Share premium (B) and dividends paid (D) are found only in company financial
statements. Fixed assets (A) is a UK GAAP term which can be seen in the financial
ng
statements of sole traders, partnerships or some limited companies. Partners take
drawings (C) rather than dividends. Profit for the year (E) can be found in any financial
statements. SAMPLE EXAM
ni
30 B Using the balance sheet equation:
£
ar
Closing net assets (1,726 + 2,387) (B) 4,113
Drawings 15,000
e
Opening net assets (5,000)
Net profit (B) 14,113
ce am L SAMPLE EXAM
en tn in
31 C Errol is a partner for the whole year, receiving 3/8 of the first eight months profit, and
s
3/4 of the last four months after Sayhan's retirement:
ie
£
er ie er
£121,248 × 8/12 × 3/8 = 30,312
op
£121,248 × 4/12 × 3/4 = 30,312
ef V rtn
60,624
C
SAMPLE EXAM
Pa
32 B John is credited with £50,000 × 3/10 = £15,000, then debited with £50,000 × 5/8 =
£31,250, a net debit of £16,250. SAMPLE EXAM
33 D
W
Share 1 1 3 2 1
Ines Alex Sebastian Ines Alex Sebastian
AE
£ £ £ £ £ £
Drawings 7,500 7,500 7,500 b/d 10,490 12,020 20,170
Goodwill Profit
(60,000 @ 1:1) 30,000 30,000 (87,750
IC
@ 3:2:1) 43,875 29,250 14,625

c/d 46,865 7,295 Goodwill
R
(60,000
@ 3:2:1) 30,000 20,000 10,000
Loan a/c 53,770
84,365 61,270 44,795 84,365 61,270 44,795
Note that you would have arrived at Answer B if you had ignored Sebastian's £7,500
drawings.
34 A,E Goods taken by a partner count as drawings in the same way as does cash (A), and no
salaries are appropriated to partners unless they specifically agree that they should be
(E).
Interest on drawings by a partner (B) are negative appropriations of profit, not income.
Interest on a partner's loan capital (C) is an expense in the profit and loss account, not
income. Drawings by a partner are debited to the current account, not credited (D).
35 C Interest on drawings is an appropriation of profit. It affects neither the partnership's net
profit available for appropriation nor the cash position. Drawings, rather than interest
on them, affect the cash position.
36 C In the absence of a formal agreement the Partnership Act 1890 states that partners
shall receive no interest on their fixed capital contributions, but that they shall receive
interest at 5% per annum on loans to the partnership. Josh's loan has been outstanding
for three months in the financial year so he is entitled to: £40,000 × 5% × 3/12 = £500
ng
(C).
37 B
ni
£
Opening net assets 40,000
ar
Net profit 117,000
Capital injection 30,000
Drawings (£3,200  12) (38,400)
e
Stock drawings (£7,200  100/160) (4,500)
ce am L
en tn in
38 A
s
£
ie
Opening capital (39,400 + 15,600 + 11,500 – 10,200 + 6,600) 62,900
er ie er
op
Profit for year (bal fig) 15,800
ef V rtn
Drawings ((12  750) + 500) (9,500)

Closing capital (46,000 +18,900 + 8,400 – 7,500 + 6,400) 72,200
C
Pa
W
AE
IC

Sample of an exam: answers
1 Shindig plc
Marking guide
Marks
Revenue 1
Cost of sales 1
ng
Other operating expenses 1
Finance costs ½
Income tax expense 1
ni
PPE 1½
ar
Intangibles 1
Inventories 1
Receivables 1
e
Cash 1
Retained earnings ce am L
Equity share capital 1
1
en tn in
s
Borrowings ½
Payables 1
ie
er ie er
Accruals 1
Deferred income ½
Provision
op ½
ef V rtn

C
Total 16
Pa

W
£
Revenue 1,705,600
AE

Other operating expenses (W2) (157,765)
IC

R

Income tax expense (W3) (107,600)
Profit/(loss) for the year 553,735
ICAEW 2020 Sample of an exam: answers 267

Statement of financial position as at 31 December 20X4
£
ASSETS
Non-current assets
Leasehold buildings (W1) 230,000
Computers 20,000
Intangible assets (W4) 40,000
290,000
Current assets
ng
Cash and cash equivalents (440,200 – 5,000) 435,200
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1,107,235
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EQUITY
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1,031,035
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Borrowings (Preference share capital (redeemable)) 120,000
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Current liabilities
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Trade payables (80,200 – 5,000) 75,200
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Accruals (120,000  5%) 6,000
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Provision
op 10,000
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246,200
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WORKINGS
Leasehold Computers Total
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£ £ £
Cost 300,000 50,000
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Depreciation
B/f 60,000 20,000
Charge (W2) 10,000 10,000
C/f 70,000 30,000
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Carrying amount c/f 230,000 20,000 250,000

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Other Cost of
expenses Sales
£ £
Staff costs 620,400
Depreciation: Leasehold buildings (300,000 ÷ 30) 10,000
Depreciation: Computers (50,000  5) 10,000
Amortisation: Licence (60,000  3) (W4) 20,000
Raw materials 294,500
Irrecoverable debts (45,000 + 18,765 (W6) 63,765
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Finished games (180,000 – (10  £450) – 155,600) (19,900)
Work in progress (140,000 – 125,500) (14,500)
Provision 10,000
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Consultancy fees 44,000
157,765 880,500
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(3) Income tax
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£
For year 120,000
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Overprovision re previous year (12,400)
107,600
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(4) Intangibles (licence)
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£
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B/f 60,000
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Amortisation for the year (20,000)
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C/f 40,000
C
(5) Inventories
£
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Finished games (180,000 – (10  £450)) 175,500

WIP 140,000
315,500
W
(6) Trade receivables

£
AE
Per TB 420,300
Less Irrecoverable debt write off (45,000)
Allowance for receivables (18,765)
356,535
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£ £
656,035 656,035
(8) SHARE PREMIUM

£ £
Bonus issue (suspense) 100,000 Per TB 100,000
100,000 100,000

(9) SUSPENSE ACCOUNT
£ £
Per TB 83,765 Bonus issue (share premium) 100,000
Deferred income 35,000 Allowance for receivables 18,765
118,765 118,765
2 B,C,E
The employees, the bank and the suppliers will be interested.
Neither stock market analysts nor institutional shareholders (large owners of company
ng
shares eg, pension funds) would be interested in investing in a small private company.
3 C 2 and 3
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4 C Profit will be overstated due to depreciation based on understated assets, and cost of
sales based on understated inventory.
ar
5 C As the receipt is unmatched, it is most likely to be the proceeds of sale of equipment as
this is not a regular transaction. The receipt from the credit customer in respect of an
e
invoice of £565 is likely to have been matched by the accounting system as it is a
straightforward regular transaction. The other two transactions are payments, not
6 C
receipts.
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Profit is calculated as:
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s
£
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Sales on credit 16,200
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Sales in cash 1,300
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Purchases of goods for resale, on credit (12,100)
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Depreciation and other expenses (900)

Net profit 4,500
C
Option A ignores cash sales. Option B simply takes account of sales and purchases.
Pa
Option D incorrectly deducts capital expenditure on non-current assets.

7 A The correct entry is to debit payables with the contra of £420 and irrecoverable debts
expense with £360 (£510 – 150), then credit receivables with the total £780 (£420 +
£360).
W
8 A The stolen inventory will already have been reflected in the physical count, so
effectively its cost has already been debited to gross profit, reducing both gross and
AE
net profit by £18,000. The insurance claim will be 40%  £18,000 = £7,200. This figure
should be accounted for as follows:
DEBIT Other receivables £7,200
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CREDIT Other income £7,200

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The credit entry increases net profit – not gross profit – by £7,200 (A).
9 D As the invoice amounts are exclusive of VAT, it should be calculated as 20% of the
invoice amount after deducting the trade discount. If the amounts had been inclusive
of VAT, the VAT would have been calculated as 20/120 of the invoice total.
10 A,D Assets and expenses are debit balances; liabilities, capital and income are credit
balances.

11 A £1,800
£
Balance per bank statement (1,500)
Less unpresented cheque (500)
Add uncredited lodgement 200
Cash at bank account balance (1,800)
12 To adjust the allowance for receivables:

DEBIT Irrecoverable debts expense £100
CREDIT Allowance for receivables £100
ng
To write off the irrecoverable debt:
DEBIT Irrecoverable debts expense £985
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CREDIT Trade receivables £985
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13 C,F Unpaid sales commission of £1,755 is an accrued expense which should be credited to
accruals (F). As sales commission is included within distribution costs it should be
debited to this account (C). SAMPLE EXAM
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14 A
ce am L RENT
en tn in
£ £
s
Deferred income 7,720 Cash at bank 22,850
ie
Statement of profit or loss Accrued income 4,490
er ie er
(bal fig) 19,620
op 27,340 27,340
ef V rtn
SAMPLE EXAM
C
15
Pa
£'000 £'000 %
Sales 125 125
Opening inventory 35
Purchases 80
W
Closing inventory (bal fig) (15)

Cost of sales (125,000  100/125) 100 100
AE
Gross profit 25 25
16 C
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£
Cost at 1 September 20X5 68,000
R
Depreciation charge ((68,000 - 8,000)  2/10) (12,000)

Carrying amount at 31 August 20X7 56,000
Fair value less disposal costs 51,000
Value in use 49,000
Total charge to profit or loss (6,000 11,000
(depreciation) + 5,000 (impairment)
Option (A) is just depreciation, option (B) is depreciation ignoring the residual value and (D)
uses the incorrect recoverable amount based on value in use.

17 B The incorrect figure of £196,800 is arrived at by using a single carrying amount T
account and mixing up the b/d and c/d figures.
FIXTURES & FITTINGS – COST
£ £
b/d 480,000 Disposals – bal fig 164,000
Additions 284,000 c/d 600,000
764,000 764,000
FIXTURES & FITTINGS – ACCUMULATED DEPRECIATION

£ £
ng
Disposals – bal fig 104,400 b/d 218,000
c/d 180,000 Charge 66,400
284,400 284,400
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DISPOSALS
ar
£ £
F&F – cost 164,000 F&F – acc dep 104,400
e
IS – Profit on disposal 119,200 Proceeds 178,800
283,200 283,200
18 C
ce am L
en tn in
s
£
Share capital 50,000
ie
Share premium (£50,000/£0.25  £(0.40 – 0.25)) 30,000
er ie er
Retained profits reserve 107,594

op
Other reserves (bal fig) 20,000 (C)
ef V rtn

C
19 C
Pa
£
3,080  9/12 2,310
3,080  100/110  3/12 700
W
3,010
20 C
AE
£
3/12 x (£2,860 x 100/110) 650
9/12 x £2,860 2,145
IC
2,795
R
21 C
£
Net profit before interest 122,000
Interest (50,000  8%  6/12) (2,000)
120,000
Partner salaries (20,000 + 25,000) (45,000)
Residual profit for appropriation (5/8 and 3/8  75,000 = 46,875
and 28,125) 75,000

Share 5 3
Shula Kenton
£ £
Salaries 20,000 25,000
Residual profits 46,875 28,125
Total 66,875 (B) 53,125 (C)
Note that in option A the interest is not deducted from net profit before it is
appropriated, while in option D a full year's interest is deducted.
22 A £500 debit
ng
£ £
Irrecoverable debts expense 200 Cash at bank 500
ni
Increase in allowance 800 Statement of profit or loss 500
ar
1,000 1,000
23 A, D
e
24 C The direct and indirect methods will give the same figure. A rights issue of shares is a
cash flow.
ce am L
en tn in
The profit on sale of a non-current asset appears as an adjustment to profit before
s
taxation in order to reach net cash flow from operating activities.
ie
25 B Depreciation should be added back as it is not a cash flow. Proceeds from the sale of
er ie er
non-current assets appear under the heading 'Cash flows from investing activities' and
op
are not included as an adjustment to profit in order to reach net cash flows from
ef V rtn
operating activities.
C
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ICAEW 2020
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notes
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Mock Exam guidance
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276 Accounting
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ICAEW 2020
Suggested structure for Mock Exams in 2020
Exam standard
The Mock Exam should be set at the same level represented in the 2020 sample exams.
Exam format
The Mock Exam should consist of one scenario-based question worth 40% of the total marks,
and 24 objective test questions worth 2.5 marks each.
Style of exam questions
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1. The scenario-based questions will involve either:
(a) preparing a statement of profit or loss and statement of financial position from a trial
ni
balance and additional information; or
(b) producing a statement of cash flows from a statement of profit or loss, statements of
ar
financial position and additional information.
e
2. Each objective test question should conform to the style used in the sample exam ie:

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multiple choice questions (1 from 4),
 multi-part multiple choice questions (1 from 2 or 3, for more than 1 question part), or
 multiple response (more than 1 from 4 or more)
en tn in
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 no negative questions
ie
3. There should be 2–4 non-numerical, ‘knowledge’ type questions.
er ie er
Exam coverage and balance

op
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A Mock Exam should have approximately the syllabus coverage and balance set out in the table
below.
C
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Syllabus area Weighting Number of questions

%
W
1 Maintaining financial records 30 9–11

2 Adjustments to accounting records and 25 8–10
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financial statements
3 Preparing financial statements 45 5–8
Total 100 25
IC
ICAEW 2020 Mock Exam guidance notes 277

The following matrix contains three sets of questions, selected from within this Question Bank.
Each one contains an appropriate balance of questions which form a 'sample exam' for you to
attempt. Note that the question topics listed here are only examples of the nature of questions
which may be included – the actual exam questions may be on different topics.
Question Sample exam Sample exam
1 Ch 13; Q2 Ch 12; Q3
2 Ch 1; Q10 Ch 2; Q4
3 Ch 1; Q20 Ch 1; Q19
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4 Ch 3; Q12 Ch 1; Q22
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5 Ch 4; Q1 Ch 3; Q4
6 Ch 4; Q11 Ch 4; Q6
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7 Ch 5; Q9 Ch 5; Q1
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8 Ch 5; Q7 Ch 6; Q5
9
10 ce am L
Ch 6; Q6
Ch 6; Q1
Ch 6; Q8
Ch 7; Q5
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11 Ch 7; Q35 Ch 7; Q17
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er ie er
12 Ch 7; Q18 Ch 7; Q34
13 Ch 7; Q7
op Ch 8; Q17
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14 Ch 8; Q24 Ch 9; Q35
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15 Ch 11; Q39 Ch 9; Q36
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16 Ch 11; Q10 Ch 10; Q26

17 Ch 8; Q13 Ch 10; Q39
18 Ch 9; Q33 Ch 10; Q32
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19 Ch 9; Q23 Ch 11; Q31

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20 Ch 10; Q24 Ch 11; Q32

21 Ch 10; Q13 Ch 13; Q12
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22 Ch 13; Q10 Ch 13; Q13

23 Ch 15; Q19 Ch 14; Q7
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24 Ch 15; Q16 Ch 15; Q4

25 Ch 15; Q23 Ch 15; Q14
278 Accounting ICAEW 2020

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ICAEW 2020
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Notes
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Notes
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ICAEW 2020
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ICAEW 2020
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Notes
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Notes
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ICAEW 2020
REVIEW FORM – ACCOUNTING: Question Bank
Your ratings, comments and suggestions would be appreciated on the following areas of
this Question Bank:
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Accounting 2020 Question Bank For Vietnam

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For exams in 2020

30 Cannon Street, London, EC4M 6XH, United Kingdom.

Disclaimer: The IASB, the International Financial Reporting Standards (IFRS)

extent permitted by law.

publication may be translated, reprinted or reproduced or utilised in any form either in

hereafter invented, including photocopying and recording, or in any information

ii Accounting ICAEW 2020

1 Introduction to accounting 3 171

3 Recording financial transactions 13 175

11 Company financial statements 89 209

13 Statement of cash flows 127 245

14 Company financial statements under UK GAAP 141 259

15 Sole trader and partnership financial statements under

16 Sample of an exam 157 267

Mock Exam guidance notes 277

ICAEW 2020 Contents iii

iv Accounting ICAEW 2020

Accounting: Question Bank

A £500 taken by the proprietor to buy himself a music system

D £150 paid to a painter for redecorating his office

4 Which of the following is an aspect of relevance, according to the IASB's Conceptual

ICAEW 2020 Chapter 1: Introduction to accounting 3

7 Information about an entity's financial position is primarily provided in:

B the statement of financial position

B Its financial performance in the past

4 Accounting: Question Bank ICAEW 2020

ICAEW 2020 Chapter 1: Introduction to accounting 5

A The financial statements are accurate.

and correctly prepared.

6 Accounting: Question Bank ICAEW 2020

ICAEW 2020 Chapter 1: Introduction to accounting 7

threats to compliance with fundamental ethical principles.

8 Accounting: Question Bank ICAEW 2020

B The charging of depreciation in the statement of profit or loss

A the financial performance of the entity over a period of time

ICAEW 2020 Chapter 2: The accounting equation 9

7 A sole trader borrows £10,000 from a bank.

A Assets and liabilities

10 Accounting: Question Bank ICAEW 2020

ICAEW 2020 Chapter 2: The accounting equation 11

Accounting: Question Bank

A Each month an equal amount of cash is transferred into petty cash.

ICAEW 2020 Chapter 3: Recording financial transactions 13

14 Accounting: Question Bank ICAEW 2020

Which of the following explains the difference?

ICAEW 2020 Chapter 3: Recording financial transactions 15

E Delivery note to a customer

16 Accounting: Question Bank ICAEW 2020

A Credit entries decrease liabilities and increase income.

D Debit entries decrease expenses and increase assets.

Ltd owes A Ltd £3,000.

ICAEW 2020 Chapter 4: Ledger accounting and double entry 17

expected to take advantage of an early settlement discount?

C Debit Receivables, Credit Revenue

D Debit Revenue, Credit Payables

8 Which of the following could be a debit entry in the payables account?

18 Accounting: Question Bank ICAEW 2020

A further discount of £50 will be allowed if payment is received within 14 days.

ICAEW 2020 Chapter 4: Ledger accounting and double entry 19

Accounting: Question Bank

ICAEW 2020 Chapter 5: Preparing basic financial statements 21

6 Which of the following would be a credit balance in the trial balance?