In Accoint

Chapter 1: Introduction to accounting 5 According to the IASB's Conceptual Framework, which qualitative characteristics enhance
the usefulness of information that is relevant and faithfully represented?

A Comparability, understandability, timeliness, verifiability
1 Which of the following best explains what is meant by 'capital expenditure'?
B Consistency, prudence, measurability, verifiability
Capital expenditure is expenditure:
C Consistency, reliability, measurability, timeliness
A on non-current assets, including repairs and maintenance
D Materiality, understandability, measurability, reliability
B on expensive items over £10,000
LO 1a
C on the acquisition of non-current assets, or improvement in their earning capacity
D on items relating to owners' capital
LO 1d
6 Which three of the following users of financial statements are likely to be interested in the
financial statements of a small private company?
A Stock market analysts
2 Which of the following should be accounted for as capital expenditure? B Company employees
A The annual cost of painting a factory floor C The company's bank
B The repair of a window in a building D Institutional shareholders
C The purchase of a vehicle by a garage for re-sale E Suppliers
D Legal fees incurred on the purchase of a building LO 1a
LO 1d
7 In relation to the business of a sole trader, which two of the following does the government
3 Which of the following items should be treated as capital expenditure in the financial and its agencies need to be able to do?
statements of a sole trader? A Establish levels of tax revenue
A £500 taken by the proprietor to buy himself a music system B Assess whether the business will continue in existence
B £400 spent on purchasing a new PC to replace his secretary's old one C Produce national statistics
C £2,000 on purchasing a machine for resale D Assess the owner's stewardship
D £150 paid to a painter for redecorating his office E Take decisions about their investment
LO 1d LO 1a
4 Which of the following is an aspect of relevance, according to the IASB's Conceptual 8 Information about an entity's financial position is primarily provided in:
Framework?
A the statement of profit or loss
A Neutrality
B the statement of financial position
B Free from error
C retained earnings
C Completeness
D the statement of cash flows
D Materiality
LO 1a
LO 1a
ICAEW 2019 Chapter 1: Introduction to accounting 3 4 Accounting: Question Bank ICAEW 2019
9 According to the IASB's Conceptual Framework, information on which two of the following 12 The accounting principle which, in times of rising prices, tends to understate asset values
areas can help users identify the reporting entity's financial strengths and weaknesses? and overstate profits, is:
A The economic resources it controls A going concern
B Its financial performance in the past B accruals
C The demographic structure of the local economy C consistency
D The entity's claims (the entity's liabilities) D historical cost
E Its management structure LO 1d
LO 1a
13 In times of rising prices, what effect does the use of the historical cost concept have on a
company's asset values and profit?
10 According to IAS 1, Presentation of Financial Statements which two of the following are
objectives of financial statements? A Asset values and profit both understated
A To show the results of management's stewardship of the resources entrusted to it B Asset values and profit both overstated
B To provide a basis for valuing the entity C Asset values understated and profit overstated
C To provide information about the financial position, financial performance and cash D Asset values overstated and profit understated
flows of an entity that is useful to a wide range of users in making economic decisions
LO 1d, 3b
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
decisions about deployment of the entity's resources 14 Which of the following statements about accounting concepts and the characteristics of
financial information is correct?
LO 1a
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
11 Information is relevant if it is capable of making a difference in the decisions made by users. monetary terms can be recognised in financial statements.
According to the IASB's Conceptual Framework, financial information is capable of making
C It may sometimes be necessary to exclude information that is relevant and reliable from
a difference in decisions if it has which of the following?
financial statements because it is too difficult for some users to understand.
1 Predictive value
D A specific disclosure requirement of an IAS need not be satisfied if the information is
2 Comparative value immaterial.
3 Historic value LO 1d
4 Confirmatory value
A 1 and 3 only
B 2 and 4 only
C 1 and 4 only
D 2 and 3 only
LO 1d
15 Listed below are two comments on accounting conventions. 18 According to IAS 1, Presentation of Financial Statements, compliance with International
Accounting Standards and International Financial Reporting Standards will normally ensure
1 According to the IASB's Conceptual Framework, financial information must be either
that:
relevant or faithfully represented if it is to be useful.
A the entity's inventory is valued at net realisable value
2 Materiality means that only items having a physical existence may be recognised as
assets. B the entity's assets are valued at their break-up value
Which, if either, of these comments is correct? C the entity's financial statements are prepared on the assumption that it is a going
concern
A 1 only
D the entity's financial position, financial performance and cash flows are presented fairly
B 2 only
LO 1d, 3b
C Both of them
D Neither of them
LO 1d
19 The directors of Lagon plc wish to omit an item from the company's financial statements on
the grounds that it is commercially sensitive. Information on the item would influence the
users of the information when making economic decisions. According to IAS 1, Presentation
16 Which of the following is the best description of fair presentation in accordance with IAS 1, of Financial Statements the item is said to be:
Presentation of Financial Statements? A neutral
A The financial statements are accurate. B prudent
B The financial statements are as accurate as possible given the accounting systems of C material
the organisation.
D understandable
C The directors of the company have stated that the financial statements are accurate
LO 1a
and correctly prepared.
D The financial statements are reliable in that they reflect the effects of transactions, other
events and conditions.
LO 1d 20 Which three of the following are fundamental principles of the IESBA Code of Ethics for
Professional Accountants?
A Integrity
B Objectivity
17 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? C Independence
A The directors do not intend to liquidate the entity or to cease trading in the D Confidentiality
foreseeable future. E Courtesy
B The entity is able to pay its debts as and when they fall due. LO 1b
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. 21 Which of the following statements is correct?
LO 3b 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.
LO 1b
22 Which of the following statements best describes ethical guidance in the UK?
A Ethical guidance provides a set of rules which must be followed in all circumstances.
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.
C Ethical guidance provides a set of principles which can be applied at the discretion of
the accountant.
D Ethical guidance is a series of legal requirements.
LO 1b
23 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.
Indicate whether the following statements are true or false.
A code based upon a set of principles requires a professional accountant to comply with a
set of specific rules.
A True
B False
A rules-based code requires a professional accountant to identify, evaluate and address
threats to compliance with fundamental ethical principles.
C True
D False
The ICAEW uses a rules-based approach.
E True
F False
LO 1b
Chapter 2: The accounting equation 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?
1 The accounting equation can be written as:
A Assets and liabilities
A Assets + profits – drawings – liabilities = closing capital
B Liabilities only
B Assets – liabilities – drawings = opening capital + profit
C Assets only
C Assets – liabilities – opening capital + drawings = profit
D Assets, liabilities and capital
D Opening capital + profit – drawings – liabilities = assets
LO 1d
LO 1d
6 A sole trader purchases goods on credit.

2 The capital of a sole trader would change as a result of:
A a credit customer paying by cheque
A Assets and liabilities
B raw materials being purchased on credit
B Assets and capital
C non-current assets being purchased on credit
C Capital and liabilities
D personal petrol being paid for out of the business's petty cash
D Assets only
LO 1d, 3a
LO 1d
3 A business can make a profit and yet have a decreased bank balance. Which of the
following might cause this to happen? 7 A sole trader borrows £10,000 from a bank.
A The sale of non-current assets at a loss Which element(s) of the accounting equation will change due to this transaction?
B The charging of depreciation in the statement of profit or loss A Assets and liabilities
C The lengthening of the period of credit given to customers B Assets and capital
D The lengthening of the period of credit taken from suppliers C Capital and liabilities
LO 1d, 3a, 3b D Assets only

LO 1d
4 The purpose of the financial statement that lists an entity's total assets and total
capital/liabilities is to show: 8 A sole trader sells goods for cash for £500 which had cost £300.
A the financial performance of the entity over a period of time Which element(s) of the accounting equation will change due to this transaction?
B the amount the entity could be sold for in liquidation A Assets and liabilities
C the amount the entity could be sold for as a going concern B Assets and capital
D the financial position of the entity at a particular moment in time C Capital and liabilities
LO 3b, 3a D Assets only
LO 1d
ICAEW 2019 Chapter 2: The accounting equation 11 12 Accounting: Question Bank ICAEW 2019
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
10 Which three of the following are elements of financial statements as identified by the IASB’s
Conceptual Framework?
A Income
B Expenses
C Profits
D Losses
E Obligations
F Resources
G Equity
LO 1d
ICAEW 2019 Chapter 2: The accounting equation 13 14 Accounting: Question Bank ICAEW 2019
Chapter 3: Recording financial transactions 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.
1 A business paid out £12,450 in net wages to its employees. In respect of these wages, the How much does Amara need to reinstate her imprest balance at 30 April?
following amounts were shown in the statement of financial position.
A £34
£
PAYE payable 2,480 B £46
National Insurance payable – employees' 1,350 C £54
– employer's 1,500
D £66
No other deductions were made. LO 1c
Employees' gross wages, before deductions, were:
A £12,450
5 The following data has been extracted from the payroll records of Kleen Ltd for the month
B £27,450 of February 20X1.
C £16,280 £
PAYE 17,000
D £17,780 Employer's NIC 7,500
LO 1d Employees' NIC 6,000
Cash paid to employees 50,000
The wage expense for the month is:
A £50,000
2 Which of the following is a source document that would be entered into the accounting
system? B £56,000
A Debit note C £74,500
B Credit note D £80,500

LO 1c, 1d
C Sales order
D Purchase order
LO 1c 6 When a purchase invoice is received from a supplier which two of the following documents
would the invoice be checked to?
A Sales order
B Purchase order
3 Which of the following best explains the imprest system of petty cash?
C Remittance advice
A Each month an equal amount of cash is transferred into petty cash.
D Goods received note
B The exact amount of petty cash expenditure is reimbursed at intervals to maintain a
fixed float. E Credit note
LO 1c
C Petty cash must be kept under lock and key.
D The petty cash total must never fall below the imprest amount.
LO 1c, 1d 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
ICAEW 2019 Chapter 3: Recording financial transactions 15 16 Accounting: Question Bank ICAEW 2019
8 Oscar downloads a report of his bank transactions for the day. The report shows a cash 11 The petty cash float in a business has an imprest amount of £200. At the end of March
payment of £412 which the computerised accounting system has not been able to match to vouchers in the petty cash box totalled £136 and the amount of cash remaining in the box
a transaction. was £54.
The unmatched payment is most likely the result of: Which of the following explains the difference?
A the purchase of a new laptop for £412 A A petty cash voucher for £10 is missing.
B payment to a regular credit supplier for an invoice totalling £412 B An employee was given £10 too little when making a petty cash claim.
C a receipt from a credit customer in respect of an invoice for £450 on which a prompt C An employee reimbursed petty cash with £10 in respect of postage stamps used, but
payment discount of £38 was taken no voucher was prepared.
D the payment of net wages of £412 which is consistent with the payroll ledger D A voucher for £10 was put in the box but no payment was made to the employee.
LO 1c LO 1c
9 A business has the following payroll costs for a month: 12 A business has the following payroll costs for a month:
£ £
Gross pay 112,450 Gross pay 38,600
Income tax deducted 15,800 Income tax 5,400
Employees' national insurance 9,810 Employees' national insurance 3,100
Employer's national insurance 11,200 Employer's national insurance 3,500
What is the net amount paid to employees for the month? What is the wages cost to the business for the month?
A £75,640 A £38,600
B £91,440 B £42,100
C £102,640 C £47,100
D £86,840 D £50,600
LO 1c, 1d LO 1c, 1d
10 Holly has downloaded a transaction report from her electronic banking system. The report
13 Which two of the following are source documents that contain information that will be
shows a receipt of £565 which the computerised accounting system has not been able to
entered into a business's accounting system?
match to a transaction.
A Goods received note
Which of the following transactions may have resulted in the unmatched receipt?
B Invoice to a customer
A A payment made to settle a supplier invoice of £600 on which a prompt payment
discount of £35 has been taken C Purchase order to a supplier
B A standing order paid in respect of rental charges of £565 for the month D Cheque to a supplier
C Proceeds of £565 from the sale of machinery to a competitor E Delivery note to a customer
D A receipt from a credit customer in settlement of an invoice of £565 LO 1c
LO 1c
ICAEW 2019 Chapter 3: Recording financial transactions 17 18 Accounting: Question Bank ICAEW 2019
Chapter 4: Ledger accounting and double entry 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.
1 Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate The journal entry to record the payment of the invoice is:
of 20%. Richard sells a customer goods on credit for £4,800 exclusive of VAT. The double
entry to record this transaction is: A Debit Payables, Credit Purchases, Credit Cash at bank account
A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760 B Debit Payables, Credit Cash at bank account
B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800 C Debit Cash at bank account, Debit Purchases, Credit Payables
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960 D Debit Cash at bank account, Credit Purchases, Credit Payables
D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800 LO 1d
LO 1d, 2c
6 Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655.
Purchases for the period totalled £254,192 (£31,590 relating to cash purchases).
2 What transaction is represented by the entries: Debit rent, Credit landlord?
Total payments recorded in the payables ledger for the period were:
A The receipt of rental income by the business
A £212,130
B The issue of an invoice for rent to a tenant
B £233,074
C The receipt of an invoice for rent payable by the business
C £243,720
D The payment of rent by the business
D £264,664
LO 1d, 2d
LO 1d, 2c
3 In double-entry bookkeeping, which of the following statements is true?

A Credit entries decrease liabilities and increase income.
B Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.
D Debit entries decrease expenses and increase assets.
LO 1d
4 A debit balance of £3,000 brought down on A Ltd's account in B Ltd's books means that B
Ltd owes A Ltd £3,000.
A True
B False
LO 1d
ICAEW 2019 Chapter 4: Ledger accounting and double entry 19 20 Accounting: Question Bank ICAEW 2019
7 A bakery business, which is registered for VAT, issued the following invoice to one of its 10 A payment has been received from a credit customer in settlement of an invoice. The
customers: customer was expected to take advantage of a settlement discount offered, however,
payment was not made within the required timeframe and the discount was not taken.
Invoice: 1005
The correct double entry to record the full settlement of the invoice is:
Date: 8 May 20X8
A Debit Cash at bank, Credit Receivables, Credit Revenue
£
Cakes: 150 @ £12 1,800 B Debit Cash at bank, Debit Revenue, Credit Payables
Less 5% trade discount (90) C Debit Receivables, Debit Revenue, Credit Cash at bank
1,710
D Debit Receivables, Credit Revenue, Credit Cash at bank
LO 1d, 2c
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
11 A business which is registered for VAT received the following invoice from one of its VAT
B £300 registered suppliers:
C £285
Invoice: 7035
D £342 Date: 20 December 20X0
LO 1c £
Goods: 100 @ £10 1,000
Less trade discount (50)
950
8 What is the correct double entry to record an invoice raised to a credit customer who is not
expected to take advantage of an early settlement discount?
A further discount of £50 will be allowed if payment is received within 14 days.
A Debit Revenue, Credit Receivables
B Debit Payables, Credit Revenue Assume the business is not expected to make the payment within 14 days and the VAT rate
C Debit Receivables, Credit Revenue is 20%.
D Debit Revenue, Credit Payables What amount of VAT should have been charged on the invoice?
LO 1d, 2c A £180
B £190
C £200
D £210
9 Which of the following could be a debit entry in the payables account?
LO 1c
A Output VAT
B Cash purchases total
C Payments made to suppliers
D Early settlement discounts given to customers
LO 1d, 2c
ICAEW 2019 Chapter 4: Ledger accounting and double entry 21 22 Accounting: Question Bank ICAEW 2019
Chapter 5: Preparing basic financial statements 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.
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 B The balances on asset and liability accounts are summarised in an additional ledger
in the profit and loss ledger account exceed the total debits by £4,000. account known as the statement of financial position ledger account.
Which two of the following statements about Anchor Ltd are correct? C The statement of profit or loss ledger account is a list of all the balances extracted from
the business's accounts.
A Anchor Ltd has made a loss for the year of £4,000.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.
B Anchor Ltd has made a profit for the year of £4,000.
LO 3c
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.
D The opening balance on the profit and loss ledger account for the next reporting 5 A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of
period is £4,000 credit. £7,200, credit sales of £16,500 and received £15,300 from his credit customers.
E The closing balance on the profit and loss ledger account of £4,000 should be The balance on his trade receivables account at the end of May was:
deducted from the capital account to give the profit for the year.
A £1,500
LO 3c
B £3,900
C £8,700
D £11,100
2 Which of the following would be classified as a non-current asset?
LO 3c
A Cash
B Prepayments
C Land
6 Which two of the following types of account would normally appear on the debit side of the
D Receivables initial trial balance?
LO 3c A Asset
B Liability
C Income
3 Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a D Expense
total of £89,436 excluding VAT and purchases goods from suppliers for a total of £86,790
including VAT. E Capital
What is the net amount shown in Gerrard Ltd's VAT account at the end of April? LO 1f
A £3,422 debit
B £2,452 debit
C £3,422 credit 7 Which of the following would be a credit balance in the trial balance?
D £2,452 credit A Bank overdraft
LO 3c B Drawings
C Purchases
D Delivery outwards
LO 1f
ICAEW 2019 Chapter 5: Preparing basic financial statements 23 24 Accounting: Question Bank ICAEW 2019
8 Rose Ltd was set up on 1 May 20X8 with opening capital of £1,000. During the month of 11 The following are balances on the accounts of Luigi, a sole trader, as at the end of the
May, it entered into the following transactions: current financial year and after all entries have been processed and the profit for the year
has been calculated.
£
Purchases of goods for resale, on credit 12,100 £
Payments to credit suppliers 8,400 Non-current assets 85,000
Sales on credit 16,200 Trade receivables 7,000
Sales in cash 1,300 Trade payables 3,000
Receipts from credit customers 3,200 Bank loan 15,000
Non-current assets purchased for cash 1,500 Accumulated depreciation, non-current assets 15,000
Depreciation 100 Inventory 4,000
Other expenses, all paid in cash 800 Accruals 1,000
Prepayments 2,000
What is the net profit earned by Rose Ltd in the month of May 20X8?
Bank overdraft 2,000
A £3,200
B £5,400 What is the balance on Luigi's capital account?
C £4,500 A £59,000
D £3,000 B £66,000
LO 3c C £62,000
D £64,000
9 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
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
10 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.
The balance on Violet's trade payables account at the end of December was:
A £4,350
B £6,330
C £4,750
D £2,550
LO 3c
ICAEW 2019 Chapter 5: Preparing basic financial statements 25 26 Accounting: Question Bank ICAEW 2019
Chapter 6: Errors and corrections to accounting 4 When performing a reconciliation between the electronic banking system and the cash at
bank account, which two of the following would require an entry in the cash at bank
records and financial statements account?
A Deposits credited after date
1 Which three of the following situations are likely to result in a suspense account being used B Direct debit on bank statement only
to record a transaction? C Bank charges
A A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% D Bank error
prompt payment discount.
E Cheque presented after date
B A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
LO 2b
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
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 5 Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn.
prompt payment discount of 5% was expected to be taken. On comparing this with the transaction report downloaded from the electronic banking
system, the accountant discovers the following:
LO 2b
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
2 As at 31 December 20X1 the transaction report downloaded from a company's electronic 20X3, has been dishonoured on 31 December 20X3.
banking system shows an overdraft of £1,500. The transaction report includes bank charges
The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is:
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 A £473 debit
£200 from a credit customer; neither of these items appear in the bank statement. B £714 credit
The overdraft on the bank balance in the company's statement of financial position at C £657 credit
31 December 20X1 should be:
D £473 credit
A £1,800
LO 2b
B £1,830
C £1,200
D £1,230
LO 2b 6 Smyths's draft profit for the year is £324,700. After the draft profit was calculated, the
following issues were discovered.
• Debts of £6,800 should have been written off as irrecoverable at the year end, but the
journal entry was not posted.
3 Indicate whether the following statements are true or false.
• The accounting system had automatically calculated and recorded depreciation, but
The owner's drawings are shown on the initial trial balance. the standing data was found to be incorrect. The depreciation rate for cars should have
A True been updated to 20% straight-line at the start of the year, but was left as 25% straight-
line in error. The balance on the car cost account at the year end was £24,000. There
B False
were no additions or disposals of cars in the year.
The closing inventory balance is included in the final trial balance. What is Smyths's corrected profit for the year after accounting for the above issues?
C True A £323,500
D False B £319,100
LO 1e C £313,100
D £316,700
LO 2a, 2b
ICAEW 2019 Chapter 6 Errors and corrections to accounting records and financial statements 27 28 Accounting: Question Bank ICAEW 2019
7 The following information relates to a bank reconciliation. The balance in the cash at bank 9 Which two of the following statements about bank reconciliations are correct?
account before taking the items below into account was £8,970 overdrawn.
A In preparing a bank reconciliation, unpresented cheques must be deducted from the
1 Bank charges of £550 on the bank statement have not been entered in the cash at balance shown in the bank statement.
bank account.
B A cheque from a customer paid into the bank but dishonoured must be corrected by
2 The bank has credited the account in error with £425 which belongs to another making a debit entry in the cash at bank account.
customer.
C An error by the bank must be corrected by an entry in the cash at bank account.
3 Cheque payments totalling £3,275 have been entered in the cash at bank account but
D An overdraft is a debit balance in the bank statement.
have not been presented for payment.
E Bank charges that only appear on the bank statement must be debited to the cash at
4 Cheques totalling £5,380 have been correctly entered on the debit side of the cash at
bank account.
bank account but have not been paid in at the bank.
LO 2b
What was the overdrawn balance as shown by the bank statement?
A £6,990
B £10,650
10 Alpha received a statement from its credit supplier Beta, showing a balance to be paid of
C £11,200 £8,950. Alpha's payables ledger for Beta shows a balance due to Beta of £4,140.
D £11,625 Investigation reveals the following:
LO 2b 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.
8 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 What discrepancy remains between Alpha's and Beta's records after allowing for these
machinery for £25,000. The amount had been correctly recorded in cash at bank but the items?
other side of the transaction had not been matched by the accounting system. A £9,310
Which of the following journal entries would remove the suspense account and correctly B £390
record the purchase of machinery?
C £310
A DEBIT Plant and machinery £25,000
D £1,070
CREDIT Cash at bank account £25,000
LO 2a
B DEBIT Suspense account £25,000
CREDIT Plant and machinery £25,000
C DEBIT Plant and machinery £25,000
CREDIT Suspense account £25,000 11 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
D DEBIT Cash at bank account £25,000
to record the discount taken and so posted the following journal entry:
CREDIT Suspense account £25,000
LO 2c DEBIT Cash at bank 3,700
DEBIT Suspense account 300
CREDIT Receivables 4,000
Which of the following journal entries will remove the suspense account and correctly
record the discount?
A Debit Receivables £300, Credit Suspense account £300
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
LO 2c
12 Which three of the following differences between a company's cash at bank account and its 15 An error of principle would occur if plant and machinery purchased:
bank statement balance as at 30 November 20X3 would feature in the bank reconciliation?
A was omitted from the accounting records
A Cheques recorded and sent to suppliers before 30 November 20X3 but not yet
B was debited to the purchases account
presented for payment
C was debited to the equipment account
B Omission by the bank of a lodgement made by the company on 26 November 20X3
D was debited to the correct account but with the wrong amount
C Bank charges
LO 2a
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
16 Olivia's exception report showed £265 received in the business bank account, and correctly
LO 2b recorded in cash at bank, could not be matched by the accounting system and so had been
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
discount of £30. The customer had paid within the required timeframe and so was entitled
to take the discount.
13 In performing a bank reconciliation exercise, which two of the following require an entry in
the cash at bank account? Which of the following journal entries should Olivia now post to correctly record the receipt
and clear the suspense account?
A Cheque paid in, subsequently dishonoured on the bank statement
A Debit Trade receivables £265, Credit Suspense account £265
B Error by bank
B Debit Revenue £30, Debit Suspense account £265, Credit Trade receivables £295
C Bank charges
C Debit Suspense account £265, Credit Trade receivables £265
D Lodgements credited after date
D Debit Trade receivables £295, Credit Revenue £30, Credit Suspense account £265
E Outstanding cheques not yet presented
LO 2b
LO 2b
14 Two errors have been found in Trim plc's accounts: 17 Which of the following statements about bank reconciliations are correct?
1 It was agreed that the credit balance of £420 in Ahmed's payables ledger should be 1 All differences between the cash at bank account and the bank statement must be
set off against his account in the receivables ledger, but no entries have been made in corrected by means of a journal entry.
trade receivables or trade payables to reflect this. 2 In preparing a bank reconciliation, cheques received from credit customers before the
2 The balance of £420 owed by Thomas, a credit customer, is irrecoverable, however the period end but credited by the bank after the period end should reduce an overdrawn
journal entry posted to write off the irrecoverable debt was for £180. balance in the bank statement.
The journal that corrects both these errors is: 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.
A Debit Trade payables £420, Debit Irrecoverable debts expense £240, Credit Trade
receivables £660 4 If a cheque received from a credit customer is dishonoured after date, a credit entry in
the cash at bank account is required.
B Debit Trade receivables £660, Credit Irrecoverable debts expense £240, Credit Trade
payables £420 A 2 and 4
C Debit Trade payables £660, Credit Irrecoverable debts expense £240, Credit Trade B 1 and 4
receivables £420 C 2 and 3
D Debit Trade receivables £420, Debit Irrecoverable debts expense £240, Credit Trade D 1 and 3
payables £660 LO 2b
LO 2c
18 The following trade payables account contains some errors. All goods are purchased on 20 Owais's trial balance included a suspense account which had been automatically opened
credit. 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
TRADE PAYABLES
transactions:
\\ £ £ 1 A payment to a credit supplier for £135 related to an invoice for £120. The business
Purchases 945,800 Opening balance 384,600 missed the deadline to take the early settlement discount it had expected to take.
Cash at bank account 988,400
Purchases (Discounts received 2 A receipt of £90 from a credit customer who had unexpectedly (but appropriately)
from suppliers) 12,600 taken an early settlement discount of £10.
Trade receivables (contra) 4,200 3 Interest received in the business bank account of £70.
Closing balance 410,400
1,373,000 1,373,000 What is the balance on the suspense account?
A Debit £25
What would be the closing trade payables balance when the errors have been corrected? B Credit £25
A £325,200 C Debit £65
B £350,400 D Credit £65
C £333,600 LO 2b
D £410,400
LO 2b
21 All Elmo's sales and purchases carry VAT at 20%. A customer has just returned goods sold
for £230 excluding VAT. The double entry for this transaction is:
19 An error of commission is one where: A Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230
A a transaction has not been recorded B Debit Revenue £276, Credit Trade receivables £276
B one side of a transaction has been recorded in the wrong account, and that account is C Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276
of a different class to the correct account D Debit Trade receivables £230, Debit VAT £46, Credit Revenue £276
C one side of a transaction has been recorded in the wrong account, and that account is LO 2c
of the same class as the correct account
D a transaction has been recorded using the wrong amount
LO 2a
22 Recording the purchase of stationery by debiting the computer equipment account would
result in:
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
D an understatement of profit and an understatement of non-current assets
LO 2a
23 In the trade payables of Magma plc, an invoice of £807 from Ferdinand has been recorded 26 The debit balance in Omar plc's cash at bank account at the year end is £42,510. The
as a credit note. After correcting this error, the trade payables balance will be: following items appear in the bank reconciliation at the year end.
A reduced by £807 £
Unpresented cheques 2,990
B reduced by £1,614 Uncleared lodgements 10,270
C increased by £807 A customer's cheque for £2,470 was returned unpaid by the bank before the year end, but
D increased by £1,614 this has not been recorded in the cash at bank account.
LO 2b What was the bank balance shown by the bank statement?

A £37,700
B £47,320
24 Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of £83,000 for C £35,230
the year ended 31 December 20X3. D £32,760
Two issues were then discovered: LO 2b
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
at 31 December 20X3.
2 £10,000 relating to staff training costs was incorrectly capitalised as part of the cost of a 27 Rochelle has a debit balance of £26 in Staint plc's payables ledger. Which of the following
new machine which had been purchased on 1 July 20X3. Beta Ltd depreciates would, alone, explain this balance?
machinery on a straight-line basis at a rate of 20% per annum. A Staint plc paid an invoice for £26 even though it had recorded a credit note that
After correcting these issues, what amounts should Beta Ltd report for gross profit and net Rochelle had issued in respect of this amount.
profit? B Staint plc bought and paid for some goods for £26 which it then returned, but Rochelle
Gross profit Net profit has not yet issued a credit note.
A £142,500 £66,500 C Staint plc received a credit note for £26 from Rochelle but posted it to the account of
B £145,000 £69,000 Nashalle.
C £145,000 £74,000
D £142,500 £65,500 D Staint plc paid a cheque to Rochelle for £53 in respect of an invoice for £79.
LO 2a
LO 2a, 2b
25 Ewan, a sole trader, has taken goods valued at £1,800 for his own use. This has not been
28 Catt plc has prepared a draft statement of profit or loss at 31 May 20X1 which shows a gross
recorded in arriving at his draft profit figure. To record the drawings he:
profit of £99,500. Catt plc has now discovered that at both the beginning and the end of the
Must adjust cost of sales by: 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
A Debit £1,800
Catt plc.
B Credit £1,800
After correcting this error Catt plc's gross profit for the year to 31 May 20X1 is:
So his reported profit will:
A £99,996
C Increase
B £99,004
D Decrease
C £98,880
LO 2a, 2c
D £100,120
LO 2a
29 Mayo plc has prepared a draft statement of profit or loss that shows a net profit of £75,000 31 Nimbus plc has prepared draft financial statements for the year ending 30 June 20X0,
for the year ended 30 April 20X5. Subsequently, the following matters have been following a physical inventory count. However, on further investigation it has been realised
discovered. that, in a burglary at the company's warehouse in May 20X0, inventory at a cost of £18,000
1 A subscription notice for £1,000 was received in April 20X5 for the year to was stolen. Nimbus plc has insurance which covers 40% of the cost of inventory stolen. The
30 April 20X6. As the subscription had increased significantly Mayo plc decided to pay insurance company has agreed to pay in this instance but no money has yet been received.
it in two equal instalments. The first instalment was paid on 28 April 20X5 and posted No accounting entries have been made in respect of the stolen inventory.
to the cash at bank account and to administrative expenses. No other entries have Correcting this matter will:
been made.
A increase net profit by £7,200
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. B decrease net profit by £7,200
Once these matters have been dealt with Mayo plc's net profit for the year ended C increase net profit by £10,800
30 April 20X5 will be:
D decrease net profit by £10,800
A £75,400
LO 2a
B £74,300
C £75,100
D £75,700
32 Net profit was calculated as being £10,200. It was later discovered that capital expenditure
LO 2a
of £3,000 had been treated as revenue expenditure, and revenue receipts of £1,400 had
been treated as capital receipts.
What is the net profit after correcting for these errors?
30 Hood plc has a draft net profit of £540,000. It discovered the following errors:
A £5,800
1 Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and
B £8,600
fittings. Hood plc depreciates fixtures and fittings at 25% per annum.
C £11,800
2 An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a
customer was debited to trade receivables and credited to sales. D £14,600
On correction of these errors Hood plc's net profit will be: LO 2a
A £535,050
B £531,480
C £533,265 33 On reviewing its cash at bank account and the transaction report downloaded from its
electronic banking system, Probla plc discovers the following errors:
D £536,430
LO 2a 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 £396, Credit Payables £9, Credit Cash £387
B Debit Cash £387, Debit Payables £9, Credit Receivables £396
C Debit Receivables £396, Debit Payables £9, Credit Cash £405
D Debit Cash £405, Credit Receivables £396, Credit Payables £9
LO 2b
34 In relation to trade payables at the year end of 30 April 20X1, Jitka plc has discovered that:
1 a contra of £85 with trade receivables is required; and
2 an early settlement discount of £2,220, which was taken appropriately by a credit
customer, was credited to revenue and debited to trade payables. Jitka plc had not
expected the customer to take the discount.
Before these discoveries, the balance on trade payables was £72,560. In its statement of
financial position as at 30 April 20X1 Jitka plc will have a figure for trade payables of:
A £70,255
B £74,695
C £74,865
D £76,915
LO 2a, 3c
35 Topping plc's initial trial balance for the year ended 31 October 20X9 has been prepared. It
shows draft profit after tax of £58,147 and a credit balance on a suspense account of £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.
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
Chapter 7: Cost of sales and inventories 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
1 A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases for 5/12 Sold 700 @ £7.50 each
the year were £76,500, delivery inwards was £50 and delivery outwards was £180. 12/12 Purchased 800 @ £6.20 each
The figure for cost of sales is: 15/12 Purchased 300 @ £6.60 each
21/12 Sold 400 @ £8.00 each
A £75,550 28/12 Sold 500 @ £8.20 each
B £75,650 Which of the following is the closing inventory amount using FIFO?
C £75,830 A £4,460
D £77,450 B £4,340
LO 1d, 3c C £4,620
D £3,500
LO 1d
2 Platoon plc is preparing its financial statements for the year ended 30 April 20X1, having
extracted an initial trial balance.
It had no opening inventory, its purchases in the period were £686,880 and closing
5 The following information relates to Camberwell plc's year-end inventory of finished goods.
inventories were valued as £18,647 on 30 April 20X1.
Which two of the following journal entries are required to record cost of sales and closing Direct Expected
inventories at 30 April 20X1? costs of Production selling and
A Dr Cost of sales £686,880; Cr Inventories £686,880 materials overheads distribution Expected
and labour incurred overheads selling price
B Dr Purchases £686,880; Cr Cost of sales £686,880 £ £ £ £
C Dr Cost of sales £686,880; Cr Purchases £686,880 Inventories category 1 2,470 2,100 480 5,800
Inventories category 2 9,360 2,730 150 12,040
D Dr Inventories £18,647; Cr Cost of sales £18,647 Inventories category 3 1,450 850 190 2,560
13,280 5,680 820 20,400
E Dr Cost of sales £18,647; Cr Inventories £18,647
F Dr Inventories £18,647; Cr Purchases £18,647 At what amount should finished goods inventory be stated in the company's statement of
financial position?
LO 3c
A £13,280
B £18,960
C £18,760
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 D £19,580
outwards of £29,000. Closing inventories at 31 December 20X8 were £52,000. LO 1d
In the statement of profit or loss for the year ended 31 December 20X8, the cost of sales
figure is:
A £456,000
B £427,000
C £432,000
D £531,000
LO 3c
ICAEW 2019 Chapter 7: Cost of sales and inventories 41 42 Accounting: Question Bank ICAEW 2019
6 At its year end Crocodile plc has 6,000 items of product A, and 2,000 of product B, costing 9 Morgan plc's direct production cost of each unit of inventory is £46. Production overheads
£10 and £5 respectively. The following information is available: 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
Product A – 500 are defective and can only be sold at £8 each.
10% of selling price.
Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.
At what amount should each unmodified unit of inventory be included in the statement of
What figure should be shown in Crocodile plc's statement of financial position for financial position?
inventory?
A £48
A £57,000
B £55
B £68,950
C £64
C £68,800
D £61
D £70,000 LO 3c
LO 1d, 3c
10 Indicate whether the following statements are true or false.
7 Indicate whether the following statements are true or false. A van for sale by a dealer is shown as a non-current asset in its statement of financial
position.
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. A True
B False
A True
Import duties are included in the cost of inventory.
B False
Closing inventory is a debit in the statement of profit or loss. C True
D False
C True
LO 3c
D False
LO 1d, 2a
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?
A Delivery inwards
8 Your firm has calculated the cost of inventory using AVCO. At 1 June 20X8 there were 60
units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for £15 each, B Delivery outwards
and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75 units were C Depreciation of delivery vehicles
sold for £20.00 each.
D Finished goods storage costs
The cost of closing inventory at 30 June 20X8 was:
E Production line wages
A £1,110
LO 1d
B £1,010
C £900
D £1,125
LO 3c
12 Which of the following statements about inventory for the purposes of the statement of 15 A company uses the FIFO method to arrive at its inventory cost. At 1 May 20X2 the
financial position is correct? company had 700 engines in inventory, valued at £190 each.
A AVCO and LIFO are both acceptable methods, under IAS 2, Inventories, of arriving at During the year ended 30 April 20X3 the following transactions took place:
the cost of inventories.
20X2
B The cost of inventories of finished goods may include labour and materials cost only, 1 July Purchased 500 engines at £220 each
without including overheads. 1 November Sold 400 engines for £160,000
C Inventories should be included at the lowest of cost, net realisable value and
replacement cost. 20X3
1 February Purchased 300 engines at £230 each
D It may be acceptable for the cost of inventories to be based on selling price less 15 April Sold 250 engines for £125,000
estimated profit margin.
What is the cost of the company's closing inventory of engines at 30 April 20X3?
LO 1d
A £188,500
B £195,500
13 A company's closing inventory at 31 January 20X3 amounted to £284,700.
The following items were included, at cost, in the total: C £161,500
1 400 coats, which had cost £80 each and normally sold for £150 each. Owing to a D £167,500
defect in manufacture, they were all sold after 31 January 20X3 at 50% of their normal LO 1d
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
16 An inventory record card shows the following details.
were sold for £28 each.
What should be the inventory value after considering the above items? February 1 50 units in inventory at a cost of £40 per unit
7 100 units purchased at a cost of £45 per unit
A £281,200 14 80 units sold
B £282,800 21 50 units purchased at a cost of £50 per unit
28 60 units sold
C £329,200
What is the cost of inventory at 28 February using the FIFO method?
D £284,700
A £2,450
LO 1d
B £2,500
C £2,700
D £2,950
14 S plc sells three products – Basic, Super and Luxury. The following information was available
at the year end. LO 1d
Basic Super Luxury
£ per unit £ per unit £ per unit
Original cost 6 9 18
Estimated selling price 9 12 15
Selling and distribution costs to be incurred 1 4 5
Units Units Units

Units of inventory 200 250 150
The value of inventory at the year end should be:
A £3,600
B £4,700
C £5,100
D £6,150
LO 1d
17 For the year ended 31 October 20X3 a company did a physical count of inventory on 19 At 30 September 20X3 the closing inventory of a company amounted to £386,400.
4 November 20X3, leading to an inventory cost at this date of £483,700.
The following items were included in this total at cost:
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1 1,000 items which had cost £18 each. These items were all sold in October 20X3 for
1 Goods costing £38,400 were received from suppliers. £15 each, with selling expenses of £800.
2 Goods that had cost £14,800 were sold for £20,000. 2 Five items which had been in inventory for many years and which had been purchased
for £100 each, sold in October 20X3 for £1,000 each, net of selling expenses.
3 A customer returned, in good condition, some goods which had been sold to him in
October for £600 and which had cost £400. What figure should appear in the company's statement of financial position at
30 September 20X3 for inventory?
4 The company returned goods that had cost £1,800 in October to the supplier, and
received a credit note for them. A £382,600
What figure should be shown in the company's financial statements at 31 October 20X3 for B £390,200
closing inventory, based on this information?
C £368,400
A £458,700
D £400,600
B £505,900
LO 3c
C £508,700
D £461,500
LO 3c
20 The cost of inventory in the financial statements of Quebec Ltd for the year ended
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:
18 In preparing its financial statements for the current year, a company's closing inventory was £
understated by £300,000. Purchases of goods 8,600
Sales of goods (profit margin 30% on sales) 14,000
What will be the effect of this error if it remains uncorrected? Goods returned by Quebec Ltd to a supplier 700
A The current year's profit will be overstated and next year's profit will be understated. What adjusted figure should be included in the financial statements for inventories at
B The current year's profit will be understated but there will be no effect on next year's 31 December 20X4?
profit. A £838,100
C The current year's profit will be understated and next year's profit will be overstated. B £842,300
D The current year's profit will be overstated but there will be no effect on next year's C £818,500
profit.
D £834,300
LO 2a
LO 3c
21 The closing inventory of Epsilon amounted to £284,000 at cost at 30 September 20X1, the 23 Bouncy Balls plc has 40 units of its special spongy balls in inventory as at 30 November
date of the statement of financial position. This total includes the following two inventory 20X7. The product costs £5 per unit to manufacture and can be sold for £15 per unit. Half of
lines. 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.
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. The value of inventory at 30 November 20X7 is:
Remedial work after that date cost £1,800 and they were then sold shortly afterwards A £160
for £20 each. Selling expenses were £400.
B £180
2 100 items which had cost £10 each. After the date of the statement of financial position
C £200
they were sold for £8 each, with selling expenses of £150.
D £600
The figure which should be shown in Epsilon's statement of financial position for inventory LO 1d
is:
A £283,650
B £284,350
24 The closing inventory of Stacks plc amounted to £58,200 excluding the following two
C £284,650 inventory lines:
D £291,725 1 200 items which had cost £15 each. These items were found to be defective at the
year-end date. Rectification work after that date amounted to £1,200 for the batch,
LO 3c
after which they were sold for £17.50 each, with selling expenses totalling £300 for the
batch.
2 400 items which had cost £2 each. All were sold after the year-end date for £1.50 each,
with selling expenses of £200 for the batch.
22 Lamp makes the following purchases in the year ending 31 December 20X9.
Which figure should appear in the statement of financial position of Stacks plc for
Units £/unit Total (£) inventory?
1 21.01.X9 100 12.00 1,200
2 30.04.X9 300 12.50 3,750 A £62,000
3 31.07.X9 40 12.80 512 B £61,600
4 01.09.X9 60 13.00 780
C £60,600
5 11.11.X9 80 13.50 1,080
D £61,000
At the year end 200 units are in inventory but 8 are damaged and are only worth £10 per
LO 3c
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.
The figure for inventories at 31.12.X9 is:
A £2,450 25 Fenton plc is a manufacturer of PCs. The company makes two different models, the M1 and
M2, and has 100 of each in inventory at the year end.
B £2,525
Costs and related data for a unit of each model are as follows:
C £2,594
M1 M2
D £2,700 £ £
Costs to date 230 350
LO 1d
Selling price 400 500
Modification costs to enable sale 110 –
Delivery outwards 65 75
The figure for inventory that should appear in the statement of financial position at the year
end is:
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 30 Which of the following factors could cause a company's gross profit margin to fall below the
arriving at cost? expected level?
Include inward delivery costs Include production overheads A Overstatement of closing inventories
A Yes No B The incorrect inclusion in purchases of invoices relating to goods supplied in the
following period
B No Yes
C The inclusion in sales of the proceeds of sale of non-current assets
C Yes Yes
D Increased cost of delivery borne by the company on goods sent to customers
D No No
LO 1d
LO 1d
31 An extract from a business's statement of profit or loss is as follows:

27 A trader who fixes her selling prices by adding 50% to cost actually achieved a mark-up of £ £
45%. Revenue 115,200
Which of the following factors could account for the shortfall? Opening inventory 21,000
Purchases 80,000
A Sales were lower than expected. Closing inventory (5,000)
B The value of the opening inventories had been overstated. (96,000)
19,200
C The closing inventories of the business were higher than the opening inventories.
The mark-up achieved is:
D Goods taken from inventories by the proprietor were recorded by debiting drawings
and crediting purchases with the cost of the goods. A 14.8%
LO 2a B 16.7%
C 20.0%
D 83.3%
28 Cornucopia plc has a standard mark-up of 25% on cost. During 20X9, its sales were LO 1d
£125,000 and its purchases were £80,000. Opening inventory was £35,000. The company
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 the closing inventory should be: 32 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
A £15,000 inventory of 2,400 units of the material Zobdo, valued at £10 each. In the year to 31 July
B £21,250 20X5 there were the following inventory movements of Zobdo:
C £48,750 14 November 20X4 Sales 900 units

28 January 20X5 Purchase 1,200 units for £20,100
D £55,000 7 May 20X5 Sales 1,800 units
LO 1d
What was the cost of Franz plc's closing inventory of Zobdo at 31 July 20X5?
A £11,700
B £9,000
29 The gross profit margin is 20% where:
C £15,075
A cost of sales is £100,000 and sales are £120,000
D £35,100
B cost of sales is £100,000 and sales are £125,000
LO 1d
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
LO 2a
33 For many years Wrigley plc has experienced rising prices for raw material X, and has kept 36 Kane Ltd has completed its inventory count for the period ended 30 June 20X8. The
constant inventory levels. It has always used the AVCO method to arrive at the cost of inventory count concluded that there were inventories costing £32,340 of which £1,280
inventory. If Wrigley plc had always used the FIFO method, in each successive year's were found to be damaged and so had a net realisable value of nil.
financial statements this would result in:
The journal entry to record closing inventories at 30 June 20X8 is:
A Lower cost of sales and higher closing inventory
A Dr Cost of sales £32,340, Cr Inventories £32,340
B Lower cost of sales and lower closing inventory
B Dr Inventories £32,340, Cr Cost of sales £32,340
C Higher cost of sales and lower closing inventory
C Dr Cost of sales £31,060, Cr Inventories £31,060
D Higher cost of sales and higher closing inventory
D Dr Inventories £31,060, Cr Cost of sales £31,060
LO 1d, 3a
34 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.
To take account of these matters Boogie plc should 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
C Debit Administrative expenses £36,000, Credit Purchases £36,000, Credit Other
income £28,800
D Debit Administrative expenses £7,200, Credit Inventory £36,000
LO 2a, 2c
35 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
the FIFO basis been used, the cost would have been £8,080.
The effect of adopting the FIFO basis on Percy plc's financial statements for the year ended
31 March 20X5 would be to:
A increase profits and decrease current assets by £1,660
B increase current assets and decrease losses by £1,660
C increase capital and decrease current assets by £1,660
D increase current assets and increase losses by £1,660
LO 1d, 3a, 3c
Chapter 8: Irrecoverable debts and allowance for 4 Disaster plc's trial balance shows trade receivables of £50,000. However, no adjustment has
been made for the following items.
receivables 1 £3,250 from J Crisis & Sons who have gone into liquidation. The amount is considered
irrecoverable.
1 At 30 September 20X4, Mathieson plc's allowance for receivables was £19,500. At 2 An increase in the allowance for receivables of £2,000.
30 September 20X5 it was decided to write off irrecoverable debts totalling £6,000 and to 3 Cash received from P Chaos of £2,500 which had previously been written off.
decrease the allowance for the remaining receivables to £15,000.
What is the revised trade receivables account balance after posting the above adjustments?
The charge or credit to the statement of profit or loss in respect of irrecoverable debts for
the year ended 30 September 20X5 is: A £50,500
A £1,500 credit B £50,200
B £1,500 debit C £46,750
C £21,000 debit D £49,250
D £21,000 credit LO 1d, 3c
LO 1d
5 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
2 At 30 June 20X1 Cameron plc has decided to write off two debts of £1,300 and £2,150 the remaining receivables to £42,000.
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. The irrecoverable debts expense in the statement of profit or loss for the year ended
28 February 20X5 is:
What is Cameron plc's irrecoverable debts expense for the year to 30 June 20X1?
A £42,000
A £1,541
B £28,500
B £1,909
C £70,500
C £3,450
D £32,500
D £5,359
LO 1d
LO 1d, 3c
6 Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year £500
3 Enigma plc has reduced its allowance for receivables by £600. Indicate whether the was received in respect of a debt previously written off, and an allowance for receivables of
following statements are true or false. £495 was considered necessary. The allowance brought down as at 1 January 20X0 was
This will increase gross profit by £600. £1,000.
A True In respect of irrecoverable debts for the year ended 31 December 20X0 Arrow plc will:
B False A charge £5
This will increase net profit by £600. B charge £1,005
C True C write back £5
D False D write back £1,005
LO 2a LO 1d, 3c
ICAEW 2019 Chapter 8: Irrecoverable debts and allowance for receivables 55 56 Accounting: Question Bank ICAEW 2019
7 A review of the receivables ledger reveals that debts totalling £985 are considered 9 At 31 December 20X2 a company's receivables totalled £400,000 and an allowance for
irrecoverable and are to be written off. The allowance for receivables is to be increased by receivables of £50,000 had been brought forward from the year ended 31 December 20X1.
£100.
It was decided to write off debts totalling £38,000 and to adjust the allowance for
What are double entries required to adjust the allowance for receivables and to write off the receivables to £36,200.
irrecoverable debts?
What is the irrecoverable debts expense that should appear in the company's statement of
To adjust the allowance for receivables To write off the irrecoverable debts profit or loss for the year ended 31 December 20X2?
A £36,200
A DEBIT Allowance for receivables £100 DEBIT Irrecoverable debts expense £985
B £51,800
CREDIT Irrecoverable debts expense £100 CREDIT Allowance for receivables £985
C £38,000
B DEBIT Allowance for receivables £100 DEBIT Trade receivables £985
D £24,200
CREDIT Trade receivables £100 CREDIT Irrecoverable debts expense £985
LO 3c
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 10 At 1 July 20X2 the receivables allowance of Quaint plc was £18,000.
CREDIT Allowance for receivables £100 CREDIT Trade receivables £985 During the year ended 30 June 20X3 debts totaling £14,600 were written off. It was
decided that the receivables allowance should be £16,000 as at 30 June 20X3.
What amount should appear in Quaint plc's statement of profit or loss for irrecoverable
LO 3c debts expense for the year ended 30 June 20X3?
A £12,600
B £14,600
8 During 20X5 Bow plc received £500 from a customer in respect of a balance that had C £16,600
previously been written off, and reduced its allowance for receivables to £100. The
D £30,600
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 LO 3c
be written off.
What is the irrecoverable debts debit or credit in the statement of profit or loss for the year
ended 31 December 20X5?
11 At 1 May trade receivables were £31,475. During May, sales of £125,000 were made on
A £880 debit
credit. Receipts from credit customers amounted to £122,500 and settlement discounts of
B £780 debit £550 that were not expected to be taken at the date of invoice were taken by credit
C £1,120 credit customers. Credit notes of £1,300 were issued to customers.
D £1,300 credit The closing balance at 31 May on trade receivables was:
LO 3c A £34,725
B £33,225
C £32,125
D £35,825
LO 1d
12 Panther plc had an allowance for receivables at 1 July 20X1 of £450. Panther plc wants to 14 At 30 June 20X4 a company's allowance for receivables was £39,000. At 30 June 20X5
write off a receivables balance of £800 as irrecoverable and increase the allowance for trade receivables totalled £517,000. It was decided to write off debts totalling £37,000 and
receivables to £2,965. to adjust the allowance for receivables to £24,000.
What figure should appear in the statement of profit or loss for irrecoverable debts expense
As well as crediting trade receivables with £800, what other entries must be made to record
for the year ended 30 June 20X5?
the required adjustments in Panther plc's accounting records?
A £52,000
Debit Credit
B £22,000
A Irrecoverable debts expense £3,315 Allowance for receivables £2,515
C £37,000
B Allowance for receivables £2,515 Irrecoverable debts expense £3,315 D £23,850
LO 3c
C Irrecoverable debts expense £3,765 Allowance for receivables £2,965
D Allowance for receivables £2,965 Irrecoverable debts expense £3,765
15 At 1 January 20X5 a company had an allowance for receivables of £18,000.

LO 1d, 3c
At 31 December 20X5 the company's trade receivables were £458,000.
It was decided:
(a) to write off debts totalling £28,000 as irrecoverable; and
13 The following trade receivables account has been prepared by an inexperienced
(b) to adjust the allowance for receivables to £21,500.
bookkeeper and may contain errors of principle.
What figure should appear in the company's statement of profit or loss for irrecoverable
TRADE RECEIVABLES
debts expense for the year ended 31 December 20X5?
20X3 £ 20X3 £
A £49,500
1 Jan Balance 284,680 31 Dec Cash at bank
31 Dec Sales 194,040 179,790 B £31,500
Sales (discounts Contras with trade
C £32,900
given to customers) 3,660 payables 800
Irrecoverable debts Balance 303,590 D £50,900
expense 1,800 LO 3c
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 16 At 1 July 20X5 a company's allowance for receivables was £48,000.
position at 31 December 20X3?
At 30 June 20X6, receivables amounted to £838,000. It was decided to write off £72,000 of
A £289,350 these debts and adjust the allowance for receivables to £60,000.
B £291,350 What are the final amounts for inclusion in the company's statement of financial position at
C £287,750 30 June 20X6?
D £297,590 Receivables Allowance for receivables Net balance

£ £ £
LO 1d, 3c 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
17 The following issues arose while Atkins Ltd was preparing its financial statements for the 19 At 31 December 20X4 a company's trade receivables totalled £864,000 and the allowance
year to 31 December 20X2. for receivables was £48,000.
1 £350 was received in December 20X2 in respect of a debt which had been written off It was decided that debts totalling £13,000 were to be written off, and the allowance for
in the previous year. The receipt was correctly included in the cash at bank account, receivables adjusted to £42,550.
but the computerised accounting system was unable to match this transaction and Which of the following journal entries would correctly record these adjustments?
posted the other side of the entry to a suspense account.
A DEBIT Irrecoverable debts expense £18,450
2 The directors determined that that the allowance for receivables should be reduced CREDIT Allowance for receivables £18,450
from £900 to £800 at the year end.
B DEBIT Irrecoverable debts expense £7,550
What journal entries should Atkins Ltd make to account for the above issues? DEBIT Allowance for receivables £5,450
CREDIT Trade receivables £13,000
A Debit Irrecoverable debts expense £450, Credit Suspense £350, Credit Allowance for
receivables £100 C DEBIT Irrecoverable debts expense £7,550
CREDIT Allowance for receivables £7,550
B Debit Allowance for receivables £800, Credit Suspense £350, Credit Irrecoverable
debts expense £450 D DEBIT Irrecoverable debts expense £55,550
CREDIT Allowance for receivables £42,550
C Debit Irrecoverable debts expense £450, Debit Suspense £350, Credit Allowance for
CREDIT Trade receivables £13,000
receivables £800
LO 3c
D Debit Allowance for receivables £100, Debit Suspense £350, Credit Irrecoverable
debts expense £450
LO 1d, 2d 20 A business has extracted its initial trial balance as at 31 December 20X7 as follows:
Trial balance (extract)
Trial balance
£ £
18 If Poppy plc reduces its allowance for receivables by £300, which of the following Trade receivables 441,500
statements is correct? Allowance for receivables at 1 January 20X7 20,300
A Current assets decrease by £300 A balance of £2,400 is to be written off as irrecoverable and the allowance for receivables is
B Current liabilities decrease by £300 to be £21,955.
C Gross profit increases by £300 What is the net trade receivables balance to be presented in the statement of financial
D Net profit increases by £300 position at 31 December 20X7?
LO 2a, 3c A £417,145
B £396,845
C £419,545
D £421,945
LO 2c
21 At 1 January 20X1 Urb plc received £3,000 in full settlement of a debt that had previously 23 Moon plc's initial trial balance as at 31 October 20X1 has been extracted and shows the
been written off. following:
At 31 December 20X1 Urb plc determined that a balance of £3,600 owed by a customer Trial balance (extract)
was irrecoverable and should be written off. Trial balance
£ £
Urb plc also decided to decrease its allowance for receivables from £2,200 to £1,500 on
31 December 20X1.
Allowance for receivables as at 1 November 20X0 6,546
Urb plc's statement of profit or loss for the year ended 31 December 20X1 will include an Trade receivables 251,760
irrecoverable debts charge or credit of:
As at 31 October 20X1 Grundle's balance to Moon plc of £1,860 is irrecoverable. It is also
A £1,300 debit
decided that the allowance for receivables should be increased to £8,420.
B £1,300 credit
What amount should Moon plc include as its net trade receivables figure in the statement of
C £100 debit
financial position as at 31 October 20X1?
D £100 credit
A £235,024
LO 3c
B £241,480
C £243,340
D £236,794
22 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. LO 3c
One customer, Invincible plc, has experienced financial difficulties and has now gone into
administration. Its balance of £10,380 at 28 February 20X6 is deemed to be irrecoverable
and should be written off.
24 Meridi plc has an allowance for receivables of £500 on 1 July 20X7. During the year to
The directors of Stope plc also wish to increase the allowance for receivables to £850. 30 June 20X8 the following events take place:
In its accounting records as at 28 February 20X6 Stope plc will have: 1 A cheque for £92 was recorded and correctly banked, but was returned unpaid on
A allowance for receivables of £850 and a charge in respect of irrecoverable debts of 29 June 20X8. No entries have yet been made for this return. The directors wish to
£10,380 write the debt off as irrecoverable.
B allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of 2 An allowance for receivables of £475 is required at the year end.
£10,730 3 A cheque received for £58 in respect of an amount written off in January 20X7 was
C allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of recorded in the cash at bank account but the suspense account was used to record the
£10,380 other side of the transaction.
D allowance for receivables of £850 and a charge in respect of irrecoverable debts of What journal entries are required as at 30 June 20X8 to account for the above issues?
£10,730
A Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9,
LO 3c Credit Allowance for receivables £25
B Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33,
Credit Cash at bank £92, Credit Allowance for receivables £25
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
receivables £25, Credit Cash at bank £92
LO 1d, 2d
25 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
C £1,275 debit
D £1,275 debit
LO 1d, 3c
Chapter 9: Accruals and prepayments 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
1 A business preparing its financial statements for the year to 31 October each year pays rent 20X6.
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent
31 October 31 October
was increased from £48,000 to £60,000 per year from 1 March 20X4. 20X5 20X6
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 at that date? Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
Statement of profit or loss Statement of financial position
What amount of rental income should appear in the company's statement of profit or loss
A £56,000 £10,000 for the year ended 31 October 20X6?
B £52,000 £5,000 A £486,500
C £56,000 £5,000 B £460,900
D £55,000 £10,000 C £501,500
LO 1d, 3c D £475,900
LO 1d, 3c
2 A business has received telephone bills as follows:

Amount of 4 A rent prepayment of £960 was treated as an accrual in a sole trader's statement of profit or
Date received bill Date paid loss at the year end. As a result the profit was:
£ A understated by £960
Quarter to 30 November 20X0 December 20X0 739.20 January 20X1
Quarter to 28 February 20X1 March 20X1 798.00 April 20X1 B understated by £1,920
Quarter to 31 May 20X1 June 20X1 898.80 June 20X1 C overstated by £1,920
Quarter to 31 August 20X1 September 20X1 814.80 October 20X1
D overstated by £960
Quarter to 30 November 20X1 December 20X1 840.00 January 20X2
Quarter to 28 February 20X2 March 20X2 966.00 March 20X2 LO 1d, 3c
The telephone expense in the statement of profit or loss for the year ended
31 December 20X1 should be:
A £3,407.60 5 In the year ended 31 December 20X4 B Ltd received cash of £318,600 from subscribers to
its website.
B £3,351.60
Details of subscriptions in advance and in arrears at the beginning and end of 20X4 are as
C £3,250.80
follows:
D £3,463.60
31 December 31 December
LO 1d, 3c 20X4 20X3
£ £
Subscriptions received in advance 28,400 24,600
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
ICAEW 2019 Chapter 9: Accruals and prepayments 67 68 Accounting: Question Bank ICAEW 2019
6 A company receives rent for subletting part of its office block. 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, receivable quarterly in advance, is received as follows:
Rent in advance Rent in arrears
Date of receipt Period covered £
£ £
1 October 20X1 3 months to 31 December 20X1 7,500
30 June 20X5 134,600 4,800
30 December 20X1 3 months to 31 March 20X2 7,500
30 June 20X6 144,400 8,700
4 April 20X2 3 months to 30 June 20X2 9,000
1 July 20X2 3 months to 30 September 20X2 9,000 Cash received from tenants in the year ended 30 June 20X6 was £834,600.
1 October 20X2 3 months to 31 December 20X2 9,000
All rent in arrears was subsequently received.
What figures, based on these receipts, should appear in the company's financial statements
What figure should appear in the company's statement of profit or loss for rent receivable in
for the year ended 30 November 20X2?
the year ended 30 June 20X6?
A £840,500
A £33,500 Debit Accrued income (Debit) £6,000
B £1,100,100
B £33,500 Credit Deferred income (Credit) £6,000 C £569,100
C £34,000 Credit Deferred income (Credit) £3,000 D £828,700
D £34,000 Credit Accrued income (Debit) £3,000 LO 1d, 3c
LO 1d, 3c
10 A company has sublet part of its offices and in the year ended 30 November 20X3 the rent
7 During 20X4, Bibi paid a total of £60,000 for rent, covering the period from 1 October 20X3 receivable was:
to 31 March 20X5. Until 30 June 20X3 £8,400 per year
From 1 July 20X3 £12,000 per year
What figures should appear in the financial statements for the year ended 31 December
20X4? Rent was received quarterly in advance on 1 January, April, July, and October each year.
Statement of profit or loss Statement of financial position What amounts should appear in the company's financial statements for the year ended
30 November 20X3?
A £40,000 £10,000 Prepayment
B £40,000 £15,000 Prepayment
A £9,900 £2,000 in other payables
C £50,000 £10,000 Accrual
B £9,900 £1,000 in other payables
D £50,000 £15,000 Accrual
C £9,600 £1,000 in other payables
LO 1d, 3c D £9,600 £2,000 in other receivables
LO 1d, 3c
8 A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each
year. The rent was increased from £90,000 per year to £120,000 per year as from
1 October 20X2. 11 A business compiling its financial statements for the year to 31 July each year pays rent
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent
What rent expense and accrual should be included in the company's financial statements was increased from £60,000 per year to £72,000 per year as from 1 October 20X3.
for the year ended 31 January 20X3?
What figure should appear for rent expense in the statement of profit or loss for the year
Rent expense (SPL) Accrual (SFP) ended 31 July 20X4?
A £100,000 £20,000 A £69,000
B £100,000 £10,000 B £62,000
C £97,500 £10,000 C £70,000
D £97,500 £20,000 D £63,000
LO 1d, 3c LO 1d, 3c
12 At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the 15 An organisation's year end is 30 September. On 1 January 20X6 the organisation took out a
company paid £38,000 for insurance for the year to 30 September 20X5. 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.
What figures should appear for insurance in the company's financial statements for the year
ended 30 June 20X5? 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 £45,200 Prepayment £0 Statement of profit or loss Statement of financial position
B £39,300 Prepayment £9,500 A £12,000 £3,000
C £36,700 Prepayment £9,500 B £9,000 £3,000
D £39,300 Prepayment £0 C £9,000 £0
LO 1d, 3c D £6,000 £3,000
LO 1d, 3c
13 A company sublets part of its office accommodation. In the year ended 30 June 20X5 cash
received from tenants was £83,700. 16 A business sublets part of its office accommodation.
Details of rent in arrears and in advance at the beginning and end of the year were: The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The
annual rent has been £24,000 for some years, but it was increased to £30,000 from
In arrears In advance
1 July 20X5.
£ £
30 June 20X4 3,800 2,400 What amounts for this rent should appear in the company's financial statements for the year
30 June 20X5 4,700 3,000 ended 31 January 20X6?
All arrears of rent were subsequently received. Statement of profit or loss Statement of financial position
What figure for rental income should be included in the company's statement of profit or A £27,500 £5,000 accrued income
loss for the year ended 30 June 20X5? B £27,000 £2,500 accrued income
A £84,000 C £27,000 £2,500 deferred income
B £83,400 D £27,500 £5,000 deferred income
C £80,600 LO 1d, 3c
D £86,800
LO 1d, 3c
17 The electricity account for the year ended 30 June 20X1 was as follows.
£
Opening balance for electricity accrued at 1 July 20X0 300
14 Details of a company's insurance policy are shown below: Payments made during the year
1 August 20X0 for three months to 31 July 20X0 600
Premium for year ended 31 March 20X6 paid April 20X5 £10,800
1 November 20X0 for three months to 31 October 20X0 720
Premium for year ending 31 March 20X7 paid April 20X6 £12,000 1 February 20X1 for three months to 31 January 20X1 900
30 June 20X1 for three months to 30 April 20X1 840
What figures should be included in the company's financial statements for the year ended
30 June 20X6? On 1 August 20X1 a payment of £840 was made for the three months ended 31 July 20X1.
Statement of profit or loss Statement of financial position The charge for electricity in the statement of profit or loss for the year ended 30 June 20X1
is:
A £11,100 £9,000 prepayment (Debit)
A £3,060
B £11,700 £9,000 prepayment (Debit)
B £3,320
C £11,100 £9,000 accrual (Credit) C £3,360
D £11,700 £9,000 accrual (Credit) D £3,620
LO 1d, 3c LO 1d, 3c
18 The year end of Murphy plc is 30 November 20X1. The company pays for its gas by a 22 The annual insurance premium for Boost Ltd for the period 1 July 20X6 to 30 June 20X7 is
standing order of £600 per month. On 1 December 20X0, the statement from the gas £13,200, which is 10% more than the previous year. Insurance premiums are paid on 1 July.
supplier showed that Murphy plc had overpaid by £200. Murphy plc received gas bills for
The statement of profit or loss charge for insurance for the year ended 31 December 20X6 is:
the four quarters commencing on 1 December 20X0 and ending on 30 November 20X1 for
£1,300, £1,400, £2,100 and £2,000 respectively. A £12,000
Calculate the correct charge for gas in Murphy plc's statement of profit or loss for the year B £12,600
ended 30 November 20X1.
C £13,200
A £6,600
D £14,520
B £6,800
LO 1d, 3c
C £7,200
D £7,400
LO 1d, 3c
23 A gas accrual for £400 at the year end was treated as a prepayment in a business's
statement of profit or loss.
19 At 31 December 20X8 Blue Anchor plc has an insurance prepayment of £250. During 20X9 As a result the profit was:
they pay £800 in respect of various insurance contracts. The closing accrual for insurance is A understated by £400
£90.
B overstated by £400
The statement of profit or loss charge for insurance for the year ended 31 December 20X9 is:
C understated by £800
A £460
D overstated by £800
B £800
LO 2a
C £960
D £1,140
LO 1d, 3c
24 At 31 December 20X2 the following matters require inclusion in a company's financial
statements:
1 On 1 January 20X2 the company made a loan of £12,000 to an employee, repayable
20 At 31 March 20X7, accrued rent payable was £300. During the year ended 31 March 20X8, on 30 April 20X3, charging interest at 2% per year. On the due date she repaid the
rent paid was £4,000, including an invoice for £1,200 for the quarter ended 30 April 20X8. loan and paid the whole of the interest due on the loan to that date.
What is the statement of profit or loss charge for rent payable for the year ended
2 The company has paid insurance £9,000 in 20X2, covering the year ending
31 March 20X8?
31 August 20X3.
A £3,300
3 In January 20X3 the company received rent from a tenant £4,000 covering the
B £3,900 six months to 31 December 20X2.
C £4,100 For these items, what total figures should be included in the company's statement of
D £4,700 financial position at 31 December 20X2?
LO 1d, 3c Current assets Current liabilities
A £22,000 £240
B £22,240 £0
21 Constains plc has an insurance prepayment of £320 at 31 March 20X2. During the year
ended 31 March 20X2 Constains paid two insurance bills, one for £1,300 and one for £520. C £10,240 £0
The charge for the year in the accounts for insurance was £1,760. The prepayment at D £16,240 £6,000
31 March 20X1 was: LO 1d, 3c
A £200
B £260
C £320
D £380
LO 1d, 3c
25 On 1 April 20X6 a business paid £2,860 in local property tax for the year ending 31 March 28 A business has paid £10,400 of insurance premiums during the year ended 31 March 20X7.
20X7. This was an increase of 10% on the charge for the previous year. At 1 April 20X6 there was an insurance prepayment of £800 and at 31 March 20X7 there
was a prepayment of £920.
The correct charge for local property tax in the statement of profit or loss for the year ended
31 December 20X6 is: The insurance charge in the statement of profit or loss for the year ended 31 March 20X7 is:
A £2,665 A £8,680
B £2,730 B £10,280
C £2,795 C £10,400
D £2,860
D £10,520
LO 1d, 3c
LO 1d, 3c
26 Whilst reviewing the trial balance for a business it was determined that an accrual for
29 Wright & Co's year end is 31 August 20X4. Telephone line rental of £120 was paid on
electricity was required for £300 and that there was a prepayment of insurance of £800.
31 July for the two months from that date. This amount was included in the accounting
What four entries are required to adjust the initial trial balance? records by debiting the telephone expense account and crediting the cash at bank account.
A Debit electricity £300 Which two of the following entries of £60 should Wright & Co make at the year end in
B Debit insurance £800 relation to this expense?
C Credit electricity £300 A Debit the telephone charges account
D Credit insurance £800 B Debit the prepayments account
E Debit accruals £300 C Debit the accruals account
F Credit accruals £300 D Credit the accruals account
G Debit prepayments £800 E Credit the prepayments account
H Credit prepayments £800 F Credit the telephone charges account
LO 1d LO 1d
27 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 30 Bark plc has yet to account for sales commission of £1,755 owed to its employees for sales
accrual for electricity of £310. made during the year. Sales commission is included within distribution costs.
The electricity charge in the statement of profit or loss for the year ended Which two of the following entries of £1,755 should Bark plc make at the year end in
31 December 20X7 is: respect of the sales commission?
A £2,895 A Debit the accruals account
B £3,325 B Debit the prepayments account
C £3,515 C Debit the distribution costs account
D £3,945 D Credit the distribution costs account
LO 1d, 3c E Credit the prepayments account
F Credit the accruals account
LO 1d
31 Krim plc paid local property tax of £6,495 on 31 May 20X7, in respect of the three months 34 Minoto plc is preparing its financial statements as at 31 December 20X4. Its ledger account
ending 31 August 20X7. In the administrative expenses ledger account for the year ended balance for rental income includes £9,870 rent received and included in cash at bank in
30 June 20X7 Krim plc must: 20X4 in respect of 20X3.
A debit £2,165 Minoto plc should enter a journal with two entries of £9,870 as:
B credit £2,165 A a debit entry to the rental income account
C debit £4,330 B a debit entry to the deferred income (liability) account

C a debit entry to the accrued income (asset) account
D credit £4,330
D a credit entry to the rental income account
LO 1d
E a credit entry to the deferred income (liability) account
F a credit entry to the accrued income (asset) account
LO 1d, 2c, 3b
32 Brindal plc acquired five apartments on 1 June 20X4 and immediately rented them out to
different tenants. Brindal plc has a credit balance on its rent receivable account 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 35 As at 30 November 20X4 Whitley plc had accrued distribution costs of £5,019 and prepaid
£4,490, and rent in advance for Apartment 4 of £7,720 also at 31 May 20X5. distribution costs of £2,816. On 1 December 20X4 the bookkeeper processed the following
What amount will appear for rent under other income in Brindal plc's statement of profit or opening journal: Credit Accruals £5,019, Debit Prepayments £2,816, Debit Distribution
loss for the year ended 31 May 20X5? costs £2,203.
A £19,620 During the year to 30 November 20X5 cash was paid in respect of distribution costs of
£147,049 and was correctly posted to the distribution costs account. At the year end,
B £22,850
Whitley plc's bookkeeper correctly processed closing journals to set up an accrual of
C £26,080 £4,423 and a prepayment of £3,324 in respect of distribution costs.
D £37,340 Which of the following journals should Whitley plc process as at 30 November 20X5 to
LO 3c correct the three accounts?
A Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406
B Debit Accruals £5,019, Credit Prepayments £2,816, Credit Distribution costs £2,203
33 Jeremiah plc is a newsagent business and is preparing its financial statements for the year C Debit Distribution costs £4,406, Debit Prepayments £5,632, Credit Accruals £10,038
ended 31 August 20X8. There are three outstanding matters that the company has not yet D Debit Distribution costs £2,203, Debit Prepayments £2,816, Credit Accruals £5,019
accounted for.
LO 1d, 2c, 3b
1 A subscription of £240 for the year ending 31 January 20X9, paid and accounted for by
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.
3 An unpaid property tax demand for the six months to 30 September 20X8 for £5,400.
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
36 Bez plc draws up financial statements to 31 December in each year. It pays internet server 39 Alli Ltd owns a number of properties which are rented to tenants. Cash received from
charges for each year ending 30 April in two equal instalments, on 1 May and 1 November, tenants in the year ended 30 June 20X6 was £834,600 which has been included as rental
in advance. It also pays telephone rental charges quarterly in arrears at the end of February, income in the year.
April, July and November. The total internet server charge for the year to 30 April 20X6 was
The following information is available for the year ended 30 June 20X6:
£9,000. Telephone rental charges for the year commencing 1 July 20X5 were £7,440.
What was the prepayment for internet server charges included in Bez plc's statement of Rent Rent
in advance in arrears
financial position at 31 December 20X5?
£ £
A £1,500 30 June 20X6 144,600 8,700
B £3,000 All rent in arrears was subsequently received.
C £2,250 What is the journal entry to adjust Alli Ltd's rental income for the year ended 30 June 20X6?
What was the accrual for telephone rental charges included in Bez plc's statement of
A Debit Accrued income £144,600, Credit Deferred income £8,700, Credit Rental
financial position at 31 December 20X5?
income £135,900
D £1,860
B Debit Accrued income £8,700, Debit Rental income £135,900, Credit Deferred income
E £1,240 £144,600
F £620 C Debit Deferred income £144,600, Credit Accrued income £8,700, Credit Rental
LO 1d, 3b, 3c income £135,900
D Debit Deferred income £8,700, Debit Rental income £135,900, Credit Accrued
income £144,600
37 Butters plc is finalising certain figures that will appear in its financial statements as at
30 June 20X5. On 1 March 20X4 the company paid an annual fee to a trade association of
£21,000 for the 12 months ended 28 February 20X5. A 12.5% increase in this subscription is
40 A company has occupied rented premises for some years, paying an annual rent of
expected, but has not been finalised at 30 June 20X5.
£120,000. From 1 April 20X6 the rent was increased to £144,000 per year. Rent is paid
In its statement of financial position at 30 June 20X5 Butters plc will include: quarterly in advance on 1 January, 1 April, 1 July and 1 October each year.
A an accrual of £15,750
What is the journal entry to transfer the balance on the rent expense account to the profit
B an accrual of £7,875 and loss ledger when preparing the financial statements for the year ended
C a prepayment of £15,750 30 November 20X6?
D a prepayment of £7,875 A Debit Profit and loss ledger account £136,000, Credit Rent expense £136,000
LO 1d, 3b, 3c B Debit Rent expense £136,000, Credit Profit and loss ledger account £136,000
C Debit Rent expense £138,000, Credit Profit and loss ledger account £138,000
38 Details of a company's insurance policy are shown below: D Debit Profit and loss ledger account £138,000, Credit Rent expense £138,000
• Premium for year ending 31 March 20X7 paid April 20X6: £10,800
• Insurance costs are included within administrative expenses.
What is the double entry to reverse the opening accrual or prepayment in the year ended 41 What is the journal entry for an accrual of rent expenses of £500?
30 June 20X7?
A Debit Prepayments £500, Credit Rent expense £500
A Dr Administrative expenses £8,100 Cr Prepayment £8,100
B Debit Accruals £500, Credit Rent expense £500
B Dr Prepayments £8,100 Cr Administrative expenses £8,100
C Debit Rent expense £500, Credit Accruals £500
C Dr Administrative expenses £2,700 Cr Accruals £2,700
D Debit Rent expense £500, Credit Prepayments £500
D Dr Accruals £2,700 Cr Administrative expenses £2,700
42 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
Chapter 10: Non-current assets and depreciation 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.
1 Cataract plc purchases a machine for which the supplier's list price is £28,000. Cataract plc The loss on disposal of the old van in Derek plc's statement of profit or loss for the year
pays £23,000 in cash and trades in an old machine, which has a carrying amount of £8,000. ended 31 December 20X0 is:
It is the company's policy to depreciate machines at the rate of 10% per annum on cost.
A £1,300
What is the carrying amount of the machine after one year?
B £2,000
A £18,000
C £2,500
B £25,200
D £5,800
C £20,700
LO 3c
D £22,200
LO 1d
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
2 Demolition plc purchases a machine for £15,000 on 1 January 20X1. After incurring depreciation monthly on the straight-line basis.
transportation costs of £1,300 and spending £2,500 on installing the machine it breaks
down and costs £600 to repair. Depreciation is charged at 10% per annum. 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?
At what carrying amount will the machine be shown in Demolition plc's statement of
financial position at 31 December 20X1? A Debit Depreciation expense £570, Credit Accumulated depreciation £570
A £13,500 B Debit Accumulated depreciation £570, Credit Depreciation expense £570
B £14,670 C Debit Depreciation expense £600, Credit Accumulated depreciation £600
C £16,920 D Debit Accumulated depreciation £600, Credit Depreciation expense £600

D £18,800 LO 3c
LO 3c
6 A car has a list price of £23,500 but the garage gives Ride plc a 10% trade discount. In
3 A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven settlement the garage accepts payment of £18,000, together with an old company car. The
years and a residual value of £1,000. On 30 June 20X4 the machine is sold for £9,000 cash amount to be capitalised by Ride plc for the new car is:
which has been recorded correctly in the cash at bank account, however a suspense A £16,200
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 B £18,000
charged in the month of purchase but not the month of disposal. C £21,150
What journal entry is required to correctly record the disposal of the machine and to D £23,500
remove the suspense account?
LO 1d
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 2019 Chapter 10: Non-current assets and depreciation 83 84 Accounting: Question Bank ICAEW 2019
7 A company purchased a car for £18,000 on 1 January 20X0. 11 Your firm bought a machine for £5,000 on 1 January 20X1, when it had a useful life of four
The car was traded in on 1 January 20X2. The new car has a list price of £30,000 and the years and a residual value of £1,000. Straight-line depreciation is to be applied on a
garage offered a part-exchange allowance of £5,000. 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
The company provides depreciation on cars using the reducing balance method at a rate of
disposal is:
25% per annum.
What loss on disposal will be recognised in the statement of profit or loss for the year A profit of £600
ended 31 December 20X2? B loss of £600
A £5,125 C profit of £350
B £8,500 D loss of £400
C £10,125
LO 3c
D £11,175
LO 3c
12 An asset was purchased by Prance plc on 1 January 20X1 for:

£
8 What is the reasoning behind charging depreciation in historical cost accounting? Cost 1,000,000
A To ensure funds are available for the eventual replacement of the asset Annual licence fee 15,000
Total 1,015,000
B To comply with the consistency concept
C To ensure the asset is included in the statement of financial position at the lower of cost The business adopts a date of 31 December as its reporting year end.
and net realisable value The asset was traded in for a replacement asset on 1 January 20X4 at an agreed value of
D To match the cost of the non-current asset with the revenue that the asset generates £500,000.
LO 1d It has been depreciated at 25% per annum on the reducing-balance method.
What figure is included regarding this disposal in the statement of profit or loss for the year
ended December 20X4?
9 Which of the following is excluded from the cost of a tangible non-current asset? A £25,000 profit
A Site preparation costs B £78,125 profit
B Legal fees
C £62,500 loss
C Costs of a design error
D £250,000 loss
D Installation costs
LO 3c
LO 1d
13 The asset register showed a total carrying amount of £67,460. A non-current asset costing
10 Which of the following statements about intangible assets in public company financial £15,000 had been sold for £4,000, making a loss on disposal of £1,250.
statements are correct?
The balance on the asset register after accounting for the disposal is:
1 Internally generated goodwill should not be capitalised.
A £42,710
2 Purchased goodwill should normally be amortised through the statement of profit or
loss. B £51,210
3 Development expenditure must be capitalised if certain conditions are met. C £53,710
A 1 and 3 only D £62,210

B 1 and 2 only LO 2b
C 2 and 3 only
D 1, 2 and 3
LO 1d, 3c
14 On 1 January 20X5 a company purchased some plant. 17 A plant account is shown below:
The invoice showed: PLANT
£
£ £
Cost of plant 48,000
20X2 20X2
Delivery to factory 400
1 Jan Balance (plant 1 Oct Disposal account -
One year warranty covering breakdown during 20X5 800
purchased 20X0) 380,000 cost of plant sold 30,000
49,200
1 Apr Cash – plant purchased 51,000 31 Dec Balance 401,000
Modifications costing £2,200 were necessary to enable the plant to be installed. 431,000 431,000
What amount should be capitalised for the plant in the company's accounting records? The company's policy is to charge depreciation on plant monthly at 20% per year on the
A £51,400 straight-line basis.
B £48,000 What should the company's plant depreciation charge be in the statement of profit or loss
for the year ended 31 December 20X2?
C £50,600
D £48,400 A £82,150
LO 1d B £79,150
C £77,050
D £74,050
15 A company's plant and machinery ledger account for the year ended 30 September 20X2
LO 1d, 3c
was as follows:
PLANT AND MACHINERY
£ £
20X1 20X2 18 A company's policy for depreciation of its plant and machinery is to charge depreciation
1 Oct Balance 381,200 1 Jun Disposal account – monthly at 20% per year on cost. The company's plant and machinery account for the year
cost of asset sold 36,000 ended 30 September 20X4 is shown below:
1 Dec Cash – addition at cost 18,000 30 Sep Balance 363,200
399,200 399,200 PLANT AND MACHINERY
The company's policy is to charge depreciation at 20% per year on the straight-line basis. £ £
20X3 20X4
What is the journal entry to record the depreciation charge in the statement of profit or loss
1 Oct Balance (all plant 30 Jun Disposal account 40,000
for the year ended 30 September 20X2? purchased after 20X0) 200,000 30 Sep Balance 210,000
A Debit Accumulated depreciation £84,040, Credit Depreciation expense £84,040 20X4
1 Apr Cash purchase of plant 50,000
B Debit Depreciation expense £84,040, Credit Accumulated depreciation £84,040
250,000 250,000
C Debit Accumulated depreciation £76,840, Credit Depreciation expense £76,840
What should be the depreciation charge in the statement of profit or loss for plant and
D Debit Depreciation expense £76,840, Credit Accumulated depreciation £76,840
machinery (excluding any profit or loss on the disposal) for the year ended 30 September
LO 1d, 3c 20X4?
A £43,000
16 The carrying amount of a company's non-current assets was £200,000 at 1 August 20X0. B £51,000
During the year ended 31 July 20X1, the company sold non-current assets for £25,000 on
C £42,000
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: D £45,000
A £150,000 LO 1d, 3c
B £175,000
C £180,000
D £195,000
LO 3c
19 Beta plc purchased some plant and equipment on 1 July 20X1 for £40,000. The scrap value 22 Beehive plc bought a car on 1 January 20X7 for £10,000 and decided to depreciate it at
of the plant at the end of its 10-year useful life is £4,000. Beta plc's policy is to charge 30% per annum on a reducing balance basis. It was disposed of on 1 January 20X9 for
depreciation monthly on the straight-line basis. £6,000.
The journal entry to record the depreciation charge on the plant in Beta's statement of The net effect on the statement of profit or loss for the year ended 31 December 20X9 is a
profit or loss for the reporting period of 12 months ending 30 September 20X1 should be: credit of:
A Debit Depreciation expense £900; Credit Accumulated depreciation £900 A £1,100
B Debit Accumulated depreciation £900; Credit Depreciation expense £900 B £3,000
C Debit Depreciation expense £1,000; Credit Accumulated depreciation £1,000 C £4,000
D Debit Accumulated depreciation £1,000; Credit Depreciation expense £1,000 D £5,100
LO 1d, 3c LO 1d, 3c
20 Exe plc, which has a year end of 31 December, purchased a machine on 1 January 20X1 for 23 Ben plc has a draft net profit for the year ended 31 December 20X8 of £56,780 before
£35,000. It was depreciated at 40% per annum on the reducing balance basis. On accounting for the depreciation on a new machine. Ben plc purchased the machine for
1 January 20X4 Exe plc part-exchanged this machine for a more advanced model. It paid £120,000 on 1 October 20X8. The useful life is four years with a residual value of £4,000.
£30,000 and realised a profit on disposal of £2,440. Ben plc uses the straight-line method for depreciation and charges depreciation on a
The price of the new machine was: monthly basis.
A £10,000 The net profit after charging depreciation on the machine for the year ended
31 December 20X8 is:
B £34,680
A £51,947
C £35,120
B £49,530
D £40,000
C £49,280
LO 1d
D £27,780
LO 1d, 3c
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
annum on cost. 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
The carrying amount of the new machine after one year is:
1 January 20X4 had been debited to the motor expenses account. It is the company's policy
A £16,200 to depreciate vans at 25% per year on the straight-line basis.
B £18,000 What is the profit for the year after adjusting for this error?
C £18,900 A £106,100
D £21,000 B £70,100
LO 1d, 3c 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 28 On 1 April 20X5 Herepath plc bought a Foxy car for £23,500. The company's depreciation
were £3,660 and internal administration costs of £9,450 were incurred. At that time Joffa plc policy for cars is 30% per annum using the reducing balance method. On 1 April 20X7 the
planned to replace the machine in five years, when it would have no value, and to Foxy was part exchanged for a Vizgo car, which had a purchase price of £28,200. Herepath
depreciate the machine on a straight-line basis. plc made a payment to the seller for £19,350, in final settlement.
Joffa plc decides on 1 January 20X6 that the machine only has one remaining year of useful What was Herepath plc's profit or loss on the disposal of the Foxy?
life. There is no change to the residual value at the end of its life.
A £5,150 loss
How much depreciation will be charged in respect of this machine in Joffa plc's statement
B £7,835 profit
of profit or loss for the year ended 31 December 20X6?
C £2,665 loss
A £58,032
D £6,250 loss
B £60,228
LO 1d
C £65,898
D £33,460
LO 1d, 3c
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
20% using the reducing balance method. On 1 July 20X6 some fixtures that cost £4,000 on
1 July 20X3 were sold for £150.
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 In the administrative expenses account Muncher plc must:
policy is to calculate depreciation monthly on the straight-line basis.
A debit £1,450
The depreciation charge in Stripes plc's statement of profit or loss for year ended 31 March
B credit £1,450
20X5 should be:
C debit £1,898
A £4,000
D credit £1,898
B £3,500
LO 1d
C £6,000
D £4,500
LO 1d, 3c
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
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%
27 On 1 June 20X3 Spam plc purchased some plant at a price of £43,000. It cost £1,500 to
straight-line. There are no residual values.
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 carrying amount of Redruth plc's plant and equipment in its statement of financial
the directors of Spam plc decided to change the depreciation method to reducing balance, position at 31 March 20X6 is:
at 40%.
A £254,960
What is the carrying amount of Spam plc's machine in its statement of financial position at
B £257,835
31 May 20X6?
C £299,970
A £20,025
D £308,595
B £20,280
LO 3c
C £20,550
D £20,955
LO 3c
31 McClown plc has the following information in its financial statements relating to fixtures and 33 Anaconda plc acquired a machine on 31 March 20X4, its year end, for £196,600. It made a
fittings as at 31 December: bank transfer to the seller totalling £110,000 and traded in an old machine with a carrying
20X9 20X8 amount at that date of £34,400. This machine had cost £60,000. A further sum of £42,000
£ £ was then due to the supplier of the machine as the final payment.
Cost 600,000 480,000 The entry made in the accounting records in respect of this transaction was to debit the
Accumulated depreciation 180,000 218,000 suspense account with £152,000, credit cash £110,000 and credit other payables £42,000.
Carrying amount 420,000 262,000
Which of the following journal entries is required to correctly reflect the purchase and
During the year to 31 December 20X9, the following transactions occurred in relation to disposal in Anaconda plc's accounting records?
fixtures and fittings:
A Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £34,400,
Additions £284,000 Credit Disposal £79,000, Credit – suspense £152,000
Sales proceeds from disposals £178,800 B Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £34,400,
Depreciation charge £66,400 Credit Disposal £19,000, Credit – suspense £152,000
What is McClown plc's profit or loss on disposals of fixtures and fittings in the year ended C Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £25,600,
31 December 20X9? Credit Disposal £70,200, Credit – suspense £152,000
A £119,200 loss D Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £25,600,
Credit Disposal £10,200, Credit – suspense £152,000
B £119,200 profit
LO 2b, 2c
C £196,800 profit
D £196,800 loss
LO 1d
34 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?
32 Morse plc has the following note to its statement of financial position relating to plant and A £89,910
machinery as at 31 May.
B £83,250
20X7 20X6
£ £ C £66,600
Cost 110,000 92,000
D £74,925
Accumulated depreciation 72,000 51,000
Carrying amount 38,000 41,000 LO 3c
During the year to 31 May 20X7, the following transactions occurred in relation to plant and
machinery:
Additions £39,000
35 Crocker plc, a retailer, depreciates all vehicles monthly over five years. On 31 October 20X9
Loss on disposals £2,000 Crocker plc bought a car at a cost of £17,625 plus VAT, trading in an old car that had cost
£16,800 including VAT on 1 July 20X7. A payment of £13,500 was also made. VAT is at a
Depreciation charge £27,000
rate of 20%.
What were the proceeds from disposals of plant and machinery received by Morse plc in
In respect of this disposal in its statement of profit or loss for the year ended 31 December
the year to 31 May 20X7?
20X9 Crocker plc will show a loss of:
A £7,000
A £2,430
B £8,000
B £4,835
C £13,000
C £5,955
D £17,000
D £1,310
LO 1d, 3a
LO 1d, 3c
36 Plummet plc is preparing its statement of profit or loss for the year ended 31 December 39 Yvette purchased some plant on 1 January 20X0 for £38,000. The payment for the plant was
20X4. On the initial trial balance at that date administrative expenses have a debit balance correctly entered in the cash at bank account but was incorrectly entered on the debit side
of £684,000 before accounting for depreciation and profits/losses on disposal in respect of of the plant repairs account.
the company's computer equipment. At 31 December 20X3 Plummet plc had computer
Yvette charges depreciation monthly on the straight-line basis over five years and assumes
equipment that cost £1,004,408, all of which had been purchased on 1 January 20X2, and it
no scrap value at the end of the life of the asset.
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 How will Yvette's profit for the year ended 31 March 20X0 be affected by the error?
basis over four years.
A Understated by £30,400
The amount to be disclosed as administrative expenses in Plummet plc's statement of profit
B Understated by £36,100
or loss for the year ended 31 December 20X4 is:
C Understated by £38,000
A £933,402
D Overstated by £1,900
B £935,002
LO 2a
C £936,702
D £963,702
LO 1d, 3c
40 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
37 Dukakis plc had computer equipment with a carrying amount at 1 April 20X2 of £150,000.
on a straight-line basis, with a proportional charge in the years of acquisition and disposal.
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 By what amount will Asha Ltd's profit for the year to 30 June 20X2 be understated?
settlement of the purchase. Dukakis plc depreciates computers at 40% per annum on the
A £19,125
reducing balance.
B £25,500
What is the journal entry to record depreciation for the year ended 31 March 20X3 in
respect of computers? C £23,375
A Debit Accumulated depreciation £56,544, Credit Depreciation expense £56,544 D £21,250
B Debit Accumulated depreciation £70,384, Credit Depreciation expense £70,384 LO 2a
C Debit Depreciation expense £56,544, Credit Accumulated depreciation £56,544

D Debit Depreciation expense £70,384, Credit Accumulated depreciation £70,384
LO 1d, 3c 41 Whipper has an machine which cost £40,000 and has a carrying amount of £32,000 on
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 concluded that the carrying
amount of the machine should be £22,400.
38 The carrying amount of machinery has reduced by £10,000 following the disposal of one What is the impairment loss in respect of the machine at 31 March 20X8?
item of machinery.
A £17,600
Which of the following statements relating to the disposal are correct?
B £1,600
A Disposal proceeds were £15,000 and the profit on disposal was £5,000
C £9,600
B Disposal proceeds were £15,000 and the carrying amount of the machinery disposed
of was £5,000 D £3,200
C Disposal proceeds were £15,000 and the loss on disposal was £5,000 LO 1d
D Disposal proceeds were £5,000 and the carrying amount of the machinery disposed of
was £5,000
LO 1d
42 Dash has a property which cost £420,000 on 1 April 20X4. It is being depreciated on the
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 carrying amount of the property
should be £300,000.
What is the impairment loss in respect of the property at 31 March 20X9?
A £15,000
B £25,000
C £6,000
D £80,000
LO 1d
Chapter 11: Company financial statements 4 Klaxon plc made an issue of shares for cash of 1,000,000 50p shares at a premium of 30p
per share.
Which of the following journals correctly records the issue?
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. A Debit Share capital £500,000, Debit Share premium £300,000, Credit Cash at bank
£800,000
What is the balance on the company's equity share capital account?
B Debit Cash at bank £800,000, Credit Share capital £500,000, Credit Share premium
A £5,000
£300,000
B £6,000
C Debit Cash at bank £1,300,000, Credit Share capital £1,000,000, Credit Share premium
C £14,000 £300,000
D £24,000 D Debit Share capital £1,000,000, Debit Share premium £300,000, Credit Cash at bank
LO 1d, 1e £1,300,000
LO 1d, 1e, 2c
2 Which of the following may appear as current liabilities in a company's statement of

financial position? 5 Sanders plc issued 50,000 equity shares of 25p each at a premium of 50p per share. The
1 Loan due for repayment within one year cash received was correctly recorded but the full amount was credited to the share capital
account.
2 Taxation
Which of the following journals corrects this error?
3 Warranty provision
A Debit Share premium £25,000, Credit Share capital £25,000
A 1, 2 and 3 B Debit Share capital £25,000, Credit Share premium £25,000
B 1 and 2 only C Debit Share capital £37,500, Credit Share premium £37,500
C 1 and 3 only D Debit Share capital £25,000, Credit Cash at bank £25,000
D 2 and 3 only LO 1d, 1e, 2c
LO 3c
6 Which of the following journals correctly records a bonus issue of shares?

3 At 30 June 20X5 Meredith plc had the following balances:
A Debit Cash at bank, Credit Share capital
£m
B Debit Share capital, Credit Share premium
Equity shares of £1 each 100
Share premium 80 C Debit Share premium, Credit Share capital
During the year ended 30 June 20X6, the following transactions took place: D Debit Investments, Credit Cash at bank
LO 1e, 2c
1 September 20X5: A 1 for 2 bonus issue of equity shares, using the share premium.
1 January 20X6: A 2 for 5 rights issue at £1.50 per share, taken up fully paid.
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 2019 Chapter 11: Company financial statements 99 100 Accounting: Question Bank ICAEW 2019
7 At 31 December 20X1 the capital structure of a company was as follows: 10 Afua plc sells small electrical items such as kettles, toasters and irons. It has a year end date
£ of 31 December 20X7. On 28 December it accepted an order from a credit customer for
100,000 equity shares of 50p each 50,000 100 toasters at a price of £35 per toaster. On 30 December, Afua plc dispatched 60 toasters
Share premium 180,000 to the customer but they were not received by the customer until 1 January 20X8. Afua plc
During 20X2 the company made a 1 for 2 bonus issue, using the share premium for the remains responsible for the goods until they are delivered to the customer. The remaining
purpose, and later issued for cash another 60,000 shares at 80p per share. 40 toasters were dispatched on 2 January 20X8 and received by the customer on 4 January
20X8.
What is the company's capital structure at 31 December 20X2?
How much revenue should Afua plc recognise in respect of the toasters at 31 December
Equity share capital Share premium 20X7?
A £130,000 £173,000
A £3,500
B £105,000 £173,000
B £2,100
C £130,000 £137,000
C £1,400
D £105,000 £137,000
LO 1d, 1e D Nil
LO 3c
8 Evon plc issued 1,000,000 equity shares of 25p each at a price of £1.10 per share, all
received in cash. 11 At 30 June 20X2 Brandon plc's capital structure was as follows:
Which of the following journals records this issue? £
A Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Share premium 500,000 equity shares of 25p each 125,000
£850,000 Share premium 100,000
B Debit Share capital £250,000, Debit Share premium £850,000, Credit Cash at bank In the year ended 30 June 20X3 the company made a 1 for 2 rights issue at £1 per share
and this was taken up in full. Later in the year the company made a 1 for 5 bonus issue,
£1,100,000
using the share premium for the purpose.
C Debit Cash at bank £1,100,000, Credit Share capital £1,100,000
What was the company's capital structure at 30 June 20X3?
D Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Retained
earnings £850,000 Equity share capital Share premium
LO 1d, 1e, 2c A £450,000 £25,000

B £225,000 £250,000
C £225,000 £325,000
D £212,500 £262,500
9 In the year to 31 March 20X2 Kable had the following capital structure:
LO 1d, 3c
£
200,000 equity shares of 25p each 50,000
Share premium 70,000
On 15 March Kable paid an equity dividend of 15p per share. 12 The retained earnings of Posti plc at 1 July 20X5 were £900,000. The retained earnings at
30 June 20X6 are £1,080,000. The profit for the year is £455,000.
What is the total dividend paid?
What was the total dividend paid during the year?
A £7,500
A £180,000
B £30,000
B £275,000
C £50,000
C £445,000
D £72,000
D £635,000
LO 1d
LO 1d
13 At 1 July 20X4 Xando plc's capital structure was as follows: 15 The equity section from the statement of financial position for Bowden Ltd as at
31 December 20X6 is as follows:
£
Share capital 1,000,000 shares of 50p each 500,000 £'000
Share premium 400,000 Equity
Share capital: equity shares of 50p each 5,000
In the year ended 30 June 20X5 Xando plc made the following share issues: Share premium 900
1 January 20X5: Retained earnings 6,300
Total equity 12,200
A 1 for 4 bonus issue.
1 April 20X5: The company decides to make a 1 for 5 bonus issue of shares on 30 June 20X7.
A 1 for 10 rights issue at £1.50 per share. What will be the balances on the company's share capital and share premium at
30 June 20X7 as a result of these issues?
What will be the balances on the company's share capital and share premium at 30 June
20X5 as a result of these issues? Share capital Share premium
Share capital Share premium A £5,900,000 £nil
A £687,500 £650,000 B £6,000,000 £nil
B £675,000 £375,000 C £5,900,000 £900,000
C £687,500 £150,000 D £4,100,000 £900,000
D £687,500 £400,000 LO 1d, 1e

LO 1d, 3c
16 At 1 April 20X8 the share capital and share premium of a company were as follows:
14 A company has the following capital structure: £
£ Share capital – 300,000 equity shares of 25p each 75,000
200,000 shares of 25p 50,000 Share premium 200,000
Share premium 75,000 During the year ended 31 March 20X9 the following events took place:
It makes a 1 for 5 rights issue at £1.25, which is fully taken up by the shareholders. 1 On 1 October 20X8 the company made a 1 for 5 rights issue at £1.20 per share.
The balance on the share premium following the rights issue is: 2 On 1 January 20X9 the company made a 1 for 3 bonus issue using the share premium
to do so.
A £35,000 The correct balance on the share capital account at 31 March 20X9 is:
B £75,000
A £90,000
C £85,000
B £120,000
D £115,000
C £360,000
LO 1d, 3c
D £480,000
LO 1d, 3c
17 Layla plc is preparing its financial statements for the year ended 31 August 20X6. The initial 19 Which of the following journal entries may be accepted as being correct according to their
trial balance shows the following balances: narratives?
Debit Credit
£
£ £
Prepayments at 1 September 20X5 1,012
Insurance expense 3,400 A Wages account 38,000
Purchases account 49,000
Of the prepayments at 1 September 20X5, £450 related to insurance. At 31 August 20X6 Buildings account 87,000
prepayments will include £515 related to insurance. Labour and materials used in construction of extension to factory
In Layla plc's statement of profit or loss for the year ended 31 August 20X6 the insurance B Directors' personal accounts Director A 30,000
expense will be: Director B 40,000
A £3,495 Directors' remuneration 70,000
Directors' bonuses transferred to their accounts
B £3,897
C £2,903 C Sales 10,000
Trade receivables 10,000
D £3,335 Correction of £10,000 received from credit
LO 1d, 3c customer recorded as cash sale
D Trade receivables 2,000

Suspense account 2,000
Correction of misposting of discount received from
18 The retained earnings of Zippy plc at 1 January 20X8 were £926,450. The retained earnings supplier
at 31 December 20X8 are £1,426,980. During the year, Zippy plc paid a dividend of
LO 1d, 2c
£312,000 and made a bonus issue of 500,000 25p ordinary shares from retained earnings.
What is Zippy plc's profit for the year ended 31 December 20X8?
A £63,530 20 At 30 June 20X2 a company had £1 million 8% loan notes in issue, interest being paid
half-yearly on 30 June and 31 December.
B £1,312,530
On 30 September 20X2 the company redeemed £250,000 of these loan notes at par,
C £937,530 paying interest due to that date.
D £313,530 On 1 April 20X3 the company issued £500,000 7% loan notes at par, interest payable
LO 1d 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?
A £88,750
B £82,500
C £65,000
D £73,750
LO 3c
21 A company has a balance of £3,200 (debit) on its income tax payable account at 24 Cheetah plc had a provision of £10,000 in its financial statements for the year ended
31 December 20X7 relating to the income tax payable on the 20X6 profits. The company's 31 March 20X3 in respect of a legal claim. In July 20X4 the claim was settled at a cost of
estimated income tax liability for the year to 31 December 20X7 is £24,500. £13,000.
The income tax charge in the statement of profit or loss for the year ended What is the expense in respect of the legal claim included in Cheetah plc's statement of
31 December 20X7 is: profit or loss for the year ended 31 March 20X4?
A £21,300 A £10,000
B £24,500 B £13,000
C £27,700
C £3,000
D £30,900
D Nil
LO 3c
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: 25 Camelia plc is preparing its financial statements for the year ended 30 June 20X9. Its initial
trial balance shows the following balances:
£
£
Income tax payable at 1 April 20X6 14,300
Accruals at 1 July 20X8 948
Income tax paid during the year ended 31 March 20X7 12,700
Distribution costs paid 130,647
The estimated income tax liability for the year ended 31 March 20X7 is £15,600.
Of the accruals at 1 July 20X8, £586 related to distribution costs. At 30 June 20X9 the
The figure for income tax in the company's statement of profit or loss will be: equivalent figure is £654 for distribution costs.
A £12,700 In Camelia plc's statement of profit or loss distribution costs will be:
B £14,000 A £129,407
C £17,200 B £130,579
D £28,300 C £130,715
LO 3c D £131,887
LO 1d, 3c
23 Which of the following accounting treatments derive from the accounting concept of
accruals?
26 On 1 January 20X6 Pigeon plc has £300,000 of 50p equity shares in issue, and a balance on
1 Write down of a non-current asset which has suffered a fall in value share premium of £750,000. On 1 April 20X6 the company makes a 1 for 3 bonus issue.
2 Opening and closing inventory adjustments The balance on Pigeon plc's share premium at 31 December 20X6 is:
3 Capitalisation and amortisation of development expenditure A £450,000
A 1 and 2 B £550,000
C £650,000
B 3 only
D £850,000
C 2 and 3
LO 1d, 1e
D 1 only
LO 3b
27 At 1 July 20X7 Leak plc owed £524,925 to credit suppliers. In the year to 30 June 20X8 it 30 Zenia plc is preparing its financial statements for the 12 month reporting period ended
paid credit suppliers £1,249,506 and posted £1,987,345 to trade payables in respect of 31 August 20X6, having prepared an initial trial balance which includes the following
goods purchased on credit. Leak plc took £12,824 in settlement discounts (which it had not balances:
expected to take) from credit suppliers. At the end of the period it processed a contra with
£
trade receivables of £8,236. Accruals at 1 September 20X5 948
In its statement of financial position as at 30 June 20X8 Leak plc will have a figure for trade Interest paid 2,733
payables of: Of the accruals at 1 September 20X5, £362 related to interest payable. At 31 August 20X6
A £1,267,352 accruals will include £419 related to interest payable.
B £1,241,704 In Zenia plc's statement of profit or loss for the 12 month reporting period ended
31 August 20X6 the finance costs will be:
C £1,258,176
A £2,204
D £1,283,824
B £2,676
LO 3c
C £2,733
D £2,790
LO 1d, 3c
28 Sham plc's statement of profit or loss for the year to 31 January 20X7 shows income tax of
£42,560. In its statement of financial position at that date income tax payable is £23,820.
During the year Sham plc paid HMRC £40,000 in respect of income tax for the year ended 31 Wonka plc has the following ledger account balances as at 1 September 20X5:
31 January 20X6, but subsequently received a refund from HMRC for £2,680.
Share capital (£0.50 equity shares) £200,000
At 31 January 20X6 Sham plc's income tax payable balance in its statement of financial Share premium £20,000
position was: Retained earnings £793,442
A £23,940 On 1 November 20X5 Wonka plc made a 1 for 4 rights issue at £4.50 per share. On
B £18,580 31 August 20X6 it made a 2 for 1 bonus issue. Profit for the year to 31 August 20X6 was
£100,000.
C £23,700
What are the balances on the three ledger accounts as at 31 August 20X6?
D £29,060
A Share capital £1,500,000, Share premium £Nil, Retained earnings £813,442
LO 1d, 3c
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
29 Monksford plc is preparing its financial statements for the year ended 31 December 20X1.
Its initial trial balance shows the following balances: LO 1d, 1e
£
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. In
Monksford plc's statement of profit or loss for the year ended 31 December 20X1 the figure
for income tax expense will be:
A £1,269
B £2,255
C £2,584
D £2,913
LO 1d, 3c
32 Grease plc is a large company with a share capital of 3 million 20p equity shares. To raise 35 Drange plc has share capital of 300,000 £1 shares at 1 March 20X7. These were issued at
funds it has made a 1 for 4 rights issue of its equity shares at £3.60 per share. The rights £1.50 per share. On 28 February 20X8 Drange plc made a 2 for 3 bonus issue. Before
issue was fully taken up but only £1.9 million had been paid up at the year end, accounting for this, the balance on retained earnings at 28 February 20X8 was £717,000.
30 September 20X2. Grease plc correctly debited cash at bank with £1.9 million and
In its statement of financial position at 28 February 20X8 the balance on Drange plc's
recorded the other side of the transaction in the suspense account. retained earnings will be:
Which adjustment should Grease plc make to correctly record the rights issue? A £517,000
A Debit Other receivables £2,700,000, Credit Share capital £150,000, Credit Share B £567,000
premium £2,550,000
C £667,000
B Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital
D £717,000
£750,000, Credit Share premium £1,950,000
LO 1d, 1e, 3c
C Debit Other receivables £800,000, Credit Share capital £150,000, Credit Share
premium £650,000
D Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital
£150,000, Credit Share premium £2,550,000 36 The trial balance of Albion plc, a manufacturer, as at the year end 30 April 20X4 included
LO 1e, 2c the following items:
1 Depreciation of delivery vehicles
2 Delivery inwards
33 Lake plc makes purchases on credit for £9,801 and purchases for cash of £107 in the year
In the statement of profit or loss depreciation of delivery vehicles should be included in the
ended 31 January 20X4. The company's purchases accruals need to be £75 less than at the
heading:
previous year end, and prepayments need to be £60 less.
A Cost of sales
What is the figure for purchases included in cost of sales in Lake plc's statement of profit or
loss for the year ended 31 January 20X4? B Administrative expenses
A £9,893 C Distribution costs
B £9,923 In the statement of profit or loss delivery inwards from suppliers should be included in the
heading:
C £9,786
D Cost of sales
D £9,908
E Administrative expenses
LO 1d, 3c
F Distribution costs
LO 3c
34 Wombat plc is a retailer that owns no properties and only has fixtures and fittings,
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 37 Rembrandt plc is finalising certain figures that will appear in its financial statements as at
company is no longer a going concern and have changed the basis of preparing the 30 September 20X7. In its initial trial balance at that date Rembrandt plc has a figure for
financial statements to the break-up basis. 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
Which two of the following will be the immediate effects of changing to the break-up basis? paid in the year was £123,090.
A All fixtures and fittings are transferred from non-current to current assets. The income tax payable balance that will appear in Rembrandt plc's statement of financial
B Fixtures and fittings are valued at their resale value. position as at 30 September 20X7 is:
C The company ceases to trade. A £91,940
D A liquidator is appointed. B £114,520

C £137,100
LO 3b
D £382,000
LO 3c
38 Touch plc is finalising certain figures that will appear in its financial statements as at 30 April 41 The retained earnings of Camel plc at 1 January 20X7 were £1,055,000. The retained
20X7. Relevant initial trial balance figures are as follows: earnings at 31 December 20X7 are £1,210,000. The profit for the year is £387,000.
£ During the year Camel made a 1 for 2 bonus issue, with £65,000 paid from retained
Trade and other payables (excluding interest payable) 246,800 earnings.
6% debentures as at 1 May 20X6 400,000
What was the total dividend paid during the year?
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 A £Nil
in respect of debentures of £24,000 in the period to 30 April 20X7. B £167,000
The trade and other payables figure (including interest payable) that will appear in Touch
C £232,000
plc's statement of financial position as at 30 April 20X7 is:
A £222,800 D £297,000
B £246,800 LO 1d
C £248,600
D £272,600
LO 3c
42 At 30 June Temso plc's equity was as follows:
20X8 20X9
£ £
39 As at 1 June 20X4 Brazil plc had 400,000 10p equity shares, which it issued in 20X1 at £2.20 Equity shares of 25p each 100,000 125,000
each, fully paid. It also had 200,000 £1 8% irredeemable preference shares issued at par in Share premium 100,000 75,000
20X2. On 31 January 20X5 Brazil plc made a further issue of 45,000 of the £1 irredeemable Retained earnings 267,000 299,000
8% preference shares at £1.50 fully paid. On the same date Brazil plc made a 1 for 4 bonus In the year ended 30 June 20X9 Temso plc made a 1 for 4 bonus issue. Profits for the year
issue of equity shares. Brazil plc wishes to use the share premium in respect of the bonus were £44,000.
issue.
What was the total dividend paid in the year?
In its statement of financial position as at 31 May 20X5 Brazil plc will have share premium of:
A £12,000
A £452,500
B £13,000
B £762,500
C £37,000
C £830,000
D £76,000
D £852,500
LO 1d, 1e, 3c LO 1d
40 Which two of the following are values that a regulator concerned with restoring trust in
financial information will seek to promote?
A Transparency
B Relativity
C Collaboration
D Consistency
LO 1b
43 At 30 September 20X6 Bake plc's equity was as follows:
£
Equity shares of 50p each 450,000
Share premium 80,000
Retained earnings 676,000
In the year ended 30 September 20X7 Bake plc made a 1 for 3 bonus issue which was partly
paid out of share premium. Retained earnings were £754,000 at 30 September 20X7 after
Bake made a profit of £213,000.
What was the total dividend paid in the year ended 30 September 20X7?
A £15,000
B £65,000
C £205,000
D £361,000
LO 1d
44 Panther Co sells goods with a one year warranty and had a provision for warranty claims of
£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
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
ICAEW 2019 Chapter 11: Company financial statements 115

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Chapter 1: Introduction to accounting 5 According to the IASB's Conceptual Framework, which qualitative characteristics enhance

the usefulness of information that is relevant and faithfully represented?

6 A sole trader purchases goods on credit.

LO 1d, 3a, 3b D Assets only

A Debit note C £74,500

B Credit note D £80,500

D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800 LO 1d

3 In double-entry bookkeeping, which of the following statements is true?

D £2,452 credit A Bank overdraft

LO 2b What was the bank balance shown by the bank statement?

On correction of these errors Hood plc's net profit will be: LO 2a

10 Indicate whether the following statements are true or false.

Units Units Units

31 An extract from a business's statement of profit or loss is as follows:

C £48,750 14 November 20X4 Sales 900 units

A £1,500 credit B £50,200

B £1,500 debit C £46,750

C £21,000 debit D £49,250

D £21,000 credit LO 1d, 3c

5 At 28 February 20X4, a company's allowance for receivables was £38,000. At 28 February

This will increase net profit by £600. B charge £1,005

C True C write back £5

D False D write back £1,005

D £1,300 credit The closing balance at 31 May on trade receivables was:

D Allowance for receivables £2,965 Irrecoverable debts expense £3,765

15 At 1 January 20X5 a company had an allowance for receivables of £18,000.

An outstanding debt of £4,920 at 31 December 20X3 is to be written off.

D £297,590 Receivables Allowance for receivables Net balance

2 A business has received telephone bills as follows:

B credit £2,165 A a debit entry to the rental income account

C debit £4,330 B a debit entry to the deferred income (liability) account

A £13,500 B Debit Accumulated depreciation £570, Credit Depreciation expense £570

B £14,670 C Debit Depreciation expense £600, Credit Accumulated depreciation £600

C £16,920 D Debit Accumulated depreciation £600, Credit Depreciation expense £600

12 An asset was purchased by Prance plc on 1 January 20X1 for:

3 Development expenditure must be capitalised if certain conditions are met. C £53,710

A 1 and 3 only D £62,210

A Debit Accumulated depreciation £56,544, Credit Depreciation expense £56,544 D £21,250

B Debit Accumulated depreciation £70,384, Credit Depreciation expense £70,384 LO 2a

C Debit Depreciation expense £56,544, Credit Accumulated depreciation £56,544

2 Which of the following may appear as current liabilities in a company's statement of

6 Which of the following journals correctly records a bonus issue of shares?

LO 1d, 1e, 2c A £450,000 £25,000

Share capital Share premium A £5,900,000 £nil

A £687,500 £650,000 B £6,000,000 £nil

B £675,000 £375,000 C £5,900,000 £900,000

C £687,500 £150,000 D £4,100,000 £900,000

D £687,500 £400,000 LO 1d, 1e

D Trade receivables 2,000

C The company ceases to trade. A £91,940

D A liquidator is appointed. B £114,520

ICAEW 2019 Chapter 11: Company financial statements 115

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