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ACCA F3 FA Exam kit

ACCA F3 Financial Accounting (Association of Chartered Certified Accountants)

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Question Bank
ACCA
Financial Accounting (FA)
Exams from September 2020

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ii I n t r o d u c t i o n ACCA FA Question Bank

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ACCA FA Question Bank Introduction iii

How to use this Question Bank

1 QUESTION PRACTICE IS KEY TO SUCCESS

This Question Bank has been written to help you pass Paper FA Financial Accounting.

Targeted question practice

In the first section there are banks of questions based around each chapter of the Course Notes. The
number of questions reflects the weighting of the topic to the syllabus. You should attempt the Test
Your Learning Questions where indicated to test your knowledge so far and the practice assessment
(which covers the full syllabus) immediately prior to taking the mock exam. You should also attempt
the ACCA specimen.

Do the practice assessments

The importance of question practice cannot be underestimated and you should attempt both the
mock exam and the ACCA specimen under assessment conditions. For this paper you have two hours
to answer 35 questions in Section A and 2 questions in Section B. It is vital you stick to the time
allocation and answer every question.
The types of question that may be included are as follows:

OT MTQ
Multiple Choice You are required to choose one answer from a list of options  
by clicking on the appropriate radio button
Multiple Response You are required to select more than one response from the  
options provided by clicking the appropriate tick boxes
Multiple Response You are required to select a response to a number of related  
Matching statements by clicking on the radio button which
corresponds to the appropriate response for each statement
Number Entry You are required to key in a numerical response to the  
question

Each of the above types of question are included in this Question Bank.

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iv I n t r o d u c t i o n ACCA FA Question Bank

Contents

Page ref
Topic Number of questions Q A

Chapter questions and answers

1 Introduction to accounting 12 1 111
2 Principles and concepts 18 3 113
3 Accounting systems 13 7 116
4 Double entry bookkeeping 16 10 118
5 The trial balance 15 13 120
6 Sales, purchases and taxes 19 16 123
7 Control accounts 23 23 128
8 Accruals and prepayments 19 29 134
9 Receivables and irrecoverable debts 15 34 139
10 Inventories 19 38 143
11 Non-current assets and depreciation 30 44 147
12 Bank reconciliations 20 51 153
13 Accounting errors 21 56 157
14 Incomplete records 16 61 161
15 Company accounts 21 65 165
16 Statements of cash flows 16 76 171
17 Interpretation of Financial Statements 19 83 175
18 Provisions and contingencies 8 88 179
19 Events after the reporting period 6 91 180
20 Group accounts 30 93 171

Mock Exams
Full exams to practise are provided. Question practice, under assessment conditions, is vital to
passing this exam.

ACCA Specimen paper

It is vital that you try the computer based specimen exam on the ACCA website. The specimen uses
the software that you will meet in your real exam and you must be familiar with it. You will find it on
the ACCA website: [Link]

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ACCA FA Question Bank 1: Introduction to accounting 1

Chapter questions

1: Introduction to accounting

OBJECTIVE TEST QUESTIONS

1 Which of the following provides advice to the International Accounting Standards Board (IASB)
as well as informing the IASB of the implications of proposed standards for users and preparers
of financial statements?
 The IFRS Advisory Council
 The IFRS Interpretations Committee
 The IFRS Foundation

2 A number of different groups of people make use of the information in published financial
statements. These groups include: owners/investors, analysts and advisers, employees, business
contacts, government and the public. What is the missing group?

3 “The supplier of goods on credit needs an indication of future trading, i.e. an indication of future
progress. However, the shareholder needs a statement of financial position, i.e. an indication of
the current state of affairs.”
 True
 False

4 The main aim of accounting is:

 To maintain ledger accounts for every asset and liability
 To produce a trial balance
 To provide financial information to users of such information
 To record every financial transaction individually

5 There are three main pieces of information comprising a set of financial statements. Two of
these are the Statement of Profit or Loss and Other Comprehensive Income and the Statement
of Financial Position. What is the correct name of the missing one?

6 For which purpose would a lender be most likely to use the information in published financial
statements?
 Measuring performance, risk and return
 Taking buy/sell decisions
 Assessment of ability to repay debts
 Taking decisions regarding holding investments

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2 1: Introduction to accounting ACCA FA Question Bank

7 Who sets International Financial Reporting Standards?

 The IFRS Interpretations Committee
 The International Accounting Standards Board
 The IFRS Foundation
 The IFRS Advisory Council

8 Determine whether the following statements are TRUE or FALSE.

True False
Sole traders have limited liability  
A partnership has to produce financial statements in accordance  
with accounting standards issued by the IASB

9 Which of the following are advantages of trading as an unincorporated business?

1 Legal separation of ownership
2 Unlimited liability
 1 only
 2 only
 Both 1 and 2
 Neither 1 nor 2

10 Preparation of financial statements is the responsibility of:

 Shareholders
 Directors
 External auditors
 Internal auditors

11 Which ONE of the following sentences does NOT explain the distinction between financial
accounts and management accounts?
 Financial accounts are primarily for external users and management accounts are
primarily for internal users
 Financial accounts are normally produced annually and management accounts are
normally produced monthly
 Financial accounts are more accurate than management accounts
 Financial accounts are audited by management whereas management accounts are
audited by external auditors

12 The objective of financial statements is to enable users to assess the performance of

management and to aid in decision making.
 True
 False

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ACCA FA Question Bank 2: Principles and concepts 3

2: Principles and concepts

OBJECTIVE TEST QUESTIONS

1 Assets are usually valued under which basis?
 Historic cost
 Net realisable value
 Current cost
 Fair value

2 What are the TWO fundamental qualitative characteristics of useful financial information?
 Relevance and reliability
 Relevance and faithful representation
 Truth and fairness
 Reliability and faithful representation

3 Income and expenses should be recognised in the period in which they have been earned or
incurred, rather than when cash changes hands. Which accounting concept does this illustrate?
 Substance over form concept
 Consistency concept
 Separate entity concept
 Accruals concept

4 In the time of rising prices, what effect does use of the historic cost concept have on asset
values and profits?
Overstated Understated
Asset values  
Profits  

5 If the owner of a business takes goods from inventory for his own personal use, the accounting
concept to be considered is:
 Consistency
 Accruals
 Separate entity
 Going concern

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4 2: Principles and concepts ACCA FA Question Bank

6 Which of the following statements about accounting concepts are correct?

1 The accruals concept is that income should only be recognised when cash is received.
2 The historic cost concept is that assets are initially recorded at their cost.
3 The substance over form convention is that, whenever legally possible, the economic
substance of a transaction should be reflected in the financial statements, rather than
simply its legal form.
4 The going concern concept is the assumption that the entity will continue in operation
for the foreseeable future.
 1, 2 and 3
 1, 2 and 4
 1, 3 and 4
 2, 3 and 4

7 Which accounting concept means that similar items should receive the same accounting
treatment?

8 Which of the following best explains what is meant by “capital expenditure”?

 Expenditure on maintaining or repairing non-current assets
 Expenditure on expensive assets
 Expenditure relating to the issue of share capital
 Expenditure on the acquisition or improvement of non-current assets

9 A business has incurred the following expenditure. Identify whether each item should be
treated as capital or revenue expenditure.
Capital Revenue
expenditure expenditure
Redecoration of office premises  
Upgrade of factory equipment  
Cleaning of factory  
Purchase of delivery van  

10 Capital put into a business by its owner must always be in the form of cash.
 True
 False

11 Which ONE of the following should be accounted for as capital expenditure?

 Cost of painting a building
 The replacement of windows in a building
 The purchase of a car by a garage for re-sale
 Legal fees incurred on the purchase of a building

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ACCA FA Question Bank 2: Principles and concepts 5

12 A company includes in inventory goods received before the year end, but for which invoices are
not received until after the year end. This is in accordance with:
 The historical cost convention
 The accruals concept
 The consistency concept
 The materiality concept

13 When there is inflation, the historical cost concept has the effect of:
 Overstating profits and understating statement of financial position values
 Understating profits and overstating statement of financial position values
 Understating cash flow and overstating cash in the statement of financial position
 Overstating cash flow and understating cash in the statement of financial position

14 Which ONE of the following best describes the stewardship function?

 Ensuring high profits
 Managing cash
 Ensuring the recording, controlling and safeguarding of assets
 Ensuring high dividends to shareholders

15 The objective of financial statements is to provide useful information to their most important
users. These are (tick all that apply):
 investors
 lenders
 suppliers
 taxation authorities

16 Which THREE of the following elements are included in the statement of financial position?
 Assets
 Equity
 Expenses
 Income
 Liabilities

17 An asset is a present economic resource owned by a business as a result of past events.

 True
 False

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6 2: Principles and concepts ACCA FA Question Bank

18 Which of the following will be classified as non-current assets for a dealer in computer
equipment?
(1) Computers for resale
(2) Vehicles for delivering computers
(3) Business capital
(4) Office furniture
 (1) and (2)
 (2) and (3)
 (2) and (4)
 (3) and (4)

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ACCA FA Question Bank 3: Accounting systems 7

3: Accounting systems

OBJECTIVE TEST QUESTIONS

1 Which ONE of the following attributes is most important for any code to possess in order to be
of use in an accounting system?
 Easy to change the code number
 Each code is unique
 A combination of letters and digits to ensure input accuracy
 Linked to assets, liabilities, income, expenditure and capital

2 Which of the following are used in a coding system for accounting transactions?
 Product code
 Nominal ledger code
 Department code
 All of the above

3 Which of the following would be recorded in the sales day book?

 Despatch notes
 Sales invoices
 Credit notes received
 Trade discounts

4 Which of the following is NOT a book of prime entry?

 Cash payments book
 Sales returns day book
 Receivables ledger
 Journal

5 Which of the following would NOT be recorded in the cash payments book?
 Payment to a supplier
 Staff wages paid
 Return of goods by a customer
 Refund given to a customer

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8 3: Accounting systems ACCA FA Question Bank

6 A business maintains a petty cash imprest system. The following amounts are paid out of petty
cash during the month of April:
$
Stationery 14.30
Travel expenses 25.50
Office refreshments 12.90
Sundry payables 24.00

What amount is required to restore the imprest balance to $100 at the end of April?
$

7 The petty cash tin contains $200 cash at the beginning of September. The following amounts
have been recorded in the petty cash book for the month:
$
Taxi fares 65.00
Stamps 9.70
Milk and biscuits for office staff 24.35
Contribution to cover the cost of stamps taken for personal use 2.40

How much petty cash is left in the till at the end of September?
$

8 Which of the following documents might be used to record an entry in the cash receipts book?
 Credit sales invoice
 Sales credit note
 Remittance advice
 Goods received note

9 An imprest system is:

 Accounting computer software
 An audit process
 Automatic agreement of the cash book and bank statement balances
 A method of controlling petty cash

10 B operates the imprest system for petty cash. At 1 July there was a float of $150 but it was
decided to increase this to $200 from 1 August onwards. During July, the petty cashier received
$25 from staff for using the photocopier and a cheque for $90 was cashed for an employee.
In July, cheques were drawn for $500 for petty cash. What was the total expense paid from
petty cash in July?
 $385
 $435
 $515
 $615

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ACCA FA Question Bank 3: Accounting systems 9

11 What is the purpose of an imprest system?

 It records the use of a company’s seal
 It helps to reconcile the cash book with the bank statement
 It helps to control petty cash
 It is part of computerised accounting

12 N operates an imprest system for petty cash. On 1 February, the float was $300. It was decided
that this should be increased to $375 at the end of February. During February, the cashier paid
$20 for window cleaning, $100 for stationery and $145 for coffee and biscuits. The cashier
received $20 from staff for the private use of the photocopier and $60 for a miscellaneous cash
sale. What amount was drawn from the bank account for petty cash at the end of February?
 $185
 $260
 $315
 $375

13 Which of the following are used in a coding system for accounting transactions?
 Department code
 Nominal ledger code
 Product code
 All of the above

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10 4 : D o u b l e e n t r y b o o k k e e p i n g ACCA FA Question Bank

4: Double entry bookkeeping

OBJECTIVE TEST QUESTIONS

1 Which TWO of the following statements are true?
 A debit records an increase in liabilities
 A debit records a decrease in assets
 A credit records an increase in liabilities
 A credit records a decrease in expenses

2 Which of the following would all result in a debit entry being made in the nominal ledger?
 Expense, increase in asset, increase in liability
 Expense, decrease in asset, increase in liability
 Income, decrease in liability, decrease in asset
 Expense, decrease in liability, increase in asset

3 What is the double entry to record the purchase of goods on credit?

Debit Credit
Payables  
Receivables  
Purchases  
Sales  

4 The double entry system of bookkeeping normally results in which of the following balances on
the ledger accounts?
Debit Credit
Expenses  
Capital  
Liabilities  
Drawings  

5 Complete the double entry to record the withdrawal of cash from a business by its owner:
Debit
Credit

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ACCA FA Question Bank 4: Double entry bookkeeping 11

6 What is the correct double entry to reflect the posting to the nominal ledger of the total from
the sales day book?
Debit Credit
Sales  
Receivables  
Payables  
Cash  

7 What is the correct double entry to reflect the posting to the nominal ledger of the total
payables column from the cash payments book?
Debit Credit
Purchases  
Receivables  
Payables  
Cash  

8 A business receives an invoice from a supplier of office furniture which is payable in 30 days’
time. What double entry would correctly record this invoice in the nominal ledger?
Debit Credit
Fixtures and fittings  
Capital  
Payables  
Cash  

9 Which fundamental accounting principle underpins double entry bookkeeping?

 Duality concept
 Money measurement concept
 Accruals concept
 Realisation concept

10 A trader took goods that had cost $2,000 from inventory for personal use. Which of the
following journal entries would correctly record this?
 DEBIT Drawings $2,000 CREDIT Inventory $2,000
 DEBIT Purchases $2,000 CREDIT Drawings $2,000
 DEBIT Sales $2,000 CREDIT Drawings $2,000
 DEBIT Drawings $2,000 CREDIT Purchases $2,000

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12 4 : D o u b l e e n t r y b o o k k e e p i n g ACCA FA Question Bank

11 Consider the following statements and select the correct answer:

1 A credit entry in the cashbook will increase an overdraft
2 A debit entry in the cashbook will increase a bank balance
 Both statements are true
 Both statements are false
 1 is false and 2 is true
 1 is true and 2 is false

12 Which of the following best describes “revenue”?

 Cash withdrawn from the business by the owner
 Interest earned by a business from savings
 Income earned from the sale of goods
 Cash received from trade receivables

13 Which of the following statements is correct?

 A debit entry is required to record an increase in income
 A debit entry is required to record an increase in capital
 A credit entry is required to record a receipt of cash
 A credit entry is required to record a decrease in expenses

14 The following balance is brought down in the general ledger at 30 June 2013.
Payables Control Account
$ $
Balance b/f 57,450

What does this balance represent?

 Asset
 Liability

15 What is the correct double entry to restore the petty cash imprest balance at the end of the
month?
Debit Credit
Petty cash  
Bank  

16 Which of the following transactions will have the effect of increasing assets?
 Purchase of goods on credit
 Sale of goods on credit
 Payment to credit supplier
 Return of goods from customer

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ACCA FA Question Bank 5: The trial balance 13

5: The trial balance

OBJECTIVE TEST QUESTIONS

1 What is the primary purpose of a trial balance?
 To test the accuracy of the double entry bookkeeping records
 To prepare management accounts
 To prepare financial accounts
 To clear the suspense account

2 A bookkeeper receives a purchase invoice for $78 but records the expense as $87. What type of
error is this?
 Omission
 Commission
 Transposition
 Principle

3 What will be the impact on profit and net assets of an error of principle?
Correct Incorrect No impact
Profit   
Net assets   

4 Which TWO of the following sets of items all appear on the same side of the trial balance?
 Sales, interest paid and payables
 Sundry expenses, prepayments and purchases
 Receivables, drawings and rent expense
 Petty cash, rental income and wages expense
 Capital, trade payables and other operating expenses

5 Liabilities of a business are $1,207 and assets are $2,143. How much capital is in the business?
$

6 A sole trader had opening capital of $10,000 and closing capital of $4,500. During the period,
the owner introduced new capital of $4,000 and withdrew $8,000 for her own use. What is her
profit or loss for the period?
 $9,500 loss
 $1,500 loss
 $7,500 profit
 $17,500 profit

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14 5 : T h e t r i a l b a l a n c e ACCA FA Question Bank

7 Which of the following is a correct representation of the accounting equation?

 Opening capital plus profit less drawings less liabilities equals closing capital
 Assets less liabilities less drawings equals opening capital plus profit
 Assets less liabilities less opening capital less drawings equals profit
 Opening capital plus profit less drawings plus liabilities equals assets

8 Profit is $1,051 and capital introduced is $300. There is an increase in net assets of $833.
What are drawings?
$

9 The following figures are extracted from a company’s statement of financial position:
$
Non-current assets 12,500
Current assets 4,700
Capital 2,000

What is the correct figure for liabilities?

$

10 How should balances be treated at the end of an accounting period?

Income and Assets and
expenses liabilities
Carried forward to start of next accounting period  
Transferred to statement of profit or loss  

11 On 1 May 2012 the net assets of a business were $10,000. Net assets on 30 April 2013 were
$18,000. Drawings were $500 per month. What was the profit for the year?
$

12 What is the term given to items that a business owns and intends to use for the long term?
 Current assets
 Non-current assets
 Capital
 Long-term loan

13 What is the main purpose of the statement of financial position?

 To show cash receipts and payments in a period
 To show the assets and liabilities of a business
 To show the profit for the period
 To show how much the business owes its suppliers

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ACCA FA Question Bank 5: The trial balance 15

14 The accounting equation at the start of the month was assets $14,000 less liabilities $6,500.
During the following month, the business purchased a non-current asset for $6,000, paying by
cheque, a profit of $9,000 was made, and payables of $7,500 were paid by cheque. What would
be the balance on capital at the end of the month?
$

15 The profit of a business may be calculated by using which ONE of the following formulae?
 Opening capital – Drawings + Capital introduced – Closing capital
 Closing capital + Drawings – Capital introduced – Opening capital
 Opening capital + Drawings – Capital introduced – Closing capital
 Closing capital – Drawings + Capital introduced – Opening capital

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16 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

6: Sales, purchases and taxes

OBJECTIVE TEST QUESTIONS

1 The following information relates to Hi’s accounts for the month of October:
$
Sales (including sales tax) 109,250
Purchases (net of sales tax) 84,000

Sales tax is charged at a rate of 15%. Hi’s sales tax account showed an opening credit balance of
$4,540 at the beginning of the month. How much sales tax is owing at the end of the month?
 $22,310
 $8,328
 $6,190
 $2,890

2 A debit balance of $806 brought forward in Y’s account in the books of X means that:
 X owes Y $806
 Y owes X $806
 X has received $806 from Y
 X has given a discount of $806 to Y

3 The following is an extract from the trial balance of ABC at 31 December 2012:
Debit $ Credit $
Purchases 84,193
Returns 4,129 2,272
Discounts 1,143

What is the correct figure to be shown in the trading account for net purchases?
 $80,778
 $81,921
 $84,193
 $84,907

4 What is the correct double entry to reflect the total posting to the nominal ledger from the
purchases returns day book?
Debit Credit
Purchases returns  
Receivables  
Payables  
Purchases  

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ACCA FA Question Bank 6: Sales, purchases and taxes 17

5 A business sells goods on credit for $400 plus sales tax at 20%. What is the correct double entry
to reflect this transaction?
Debit $ Credit $
 Receivables 480
Sales 400
Sales tax 80
 Receivables 480
Sales 480
 Receivables 400
Sales 320
Sales tax 80
 Sales 400
Sales tax 80
Receivables 480

6 D sells goods to a customer for $2,500. D offers a 5% discount if the customer pays within 7
days. D expects the customer to take advantage of the discount.
What is the correct double entry to record the transaction?
 Dr Receivables $2,375; Cr Sales $2,375
 Dr Receivables $2,500; Cr Sales $2,500
 Dr Receivables $2,375; Dr Discount allowed $125; Cr Sales 2,500
 Dr Receivables $2,500; Cr Discount allowed $125; Cr Sales 2,375

7 What is the correct double entry to record a refund given to a customer?

Debit Credit
Receivables  
Cash  
Sales  
Sales returns  

8 The Gold Company makes the following sales during December:

Sale of books (zero rated) $78,000 net
Sale of DVDs (standard rated) $18,800 net
Sale of CDs (standard rated) $4,935 gross

Assuming a standard rate of sales tax of 17.5% what is the total sales tax for the month?
$

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18 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

Questions 9 and 10 relate to the following information:

Angel purchased goods with a list price of $55,000 at a 10% trade discount and took advantage of a
settlement discount of 5% for payment within 30 days.
9 What is the correct double entry to record the purchase? (Enter amounts in figures).
Debit Credit
Payables $________ $________
Purchases $________ $________
Discounts received $________ $________

10 What is the correct double entry to record the payment? (Enter amounts in figures).
Debit Credit
Payables $________ $________
Cash $________ $________
Discounts received $________ $________

11 Take It has the following balances on its trial balance for the year ended 30 June 2012:
Debit $ Credit $
Sales 172,500
Purchases 109,000
Returns 4,850 3,675
Discounts 750

What is gross profit for the year?

$

12 Which of the following explanations would NOT explain why sales tax is not exactly 20% of total
sales revenue (assuming a standard rate of sales tax of 20%)?
 The business makes some zero rated supplies
 The business exports some goods which are not liable for VAT
 The business is not registered for VAT
 The business sells goods to a customer who is not registered for VAT

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ACCA FA Question Bank 6: Sales, purchases and taxes 19

13 Lo has the following transaction totals for the month of February:

$
Sales (net of sales tax of 19%) 72,400
Purchases (net of sales tax of 19%) 58,800

The balance owing in sales tax at the start of the month was $5,895 and at the end of the month
was $3,465. How much sales tax was paid during February?
 $154
 $2,584
 $3,311
 $5,014

14 Which of the following statements relating to a debit note is TRUE? (Select all which apply).
 It is raised by the purchaser
 It is raised by the seller
 It is a formal request for a credit note to be raised
 It is recorded in the sales returns day book

15 Edmund has the following totals in his cash book for August:
Date Narrative Total $ Discounts $ Payables $
31 August Total 18,580 380 18,960

What is the correct double entry to record the discount amount in the nominal ledger?
Debit Credit
Discounts allowed $________ $________
Discounts received $________ $________
Payables $________ $________
Receivables $________ $________

16 Lucy sells goods with a net list price of $5,000 to Susan at a 10% trade discount. What are the
net, sales tax (assuming a rate of 20%) and gross amounts to be included on the sales invoice?
Net $ VAT $ Gross $
Invoice totals $________ $________ $________

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20 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

17 North, which is registered for sales tax, received an invoice from an advertising agency for
$4,000 plus sales tax. The rate of sales tax on the goods was 20%. What would the correct
ledger entries be?

Debit Credit
 Advertising expense $4,000 Payables $4,000
 Advertising expense $4,800 Payables $4,800
 Advertising expense $4,800 Payables $4,000, Sales tax account $800
 Advertising expense $4,000, Payables $4,800
Sales tax account $800

18 In July year 1, a company sold goods at VAT rate with a net value of $200,000, goods exempt
from VAT with a value of $50,000 and goods at zero VAT rate with a net value of $25,000. The
purchases in July year 1, which were all subject to VAT, were $161,000 including VAT. Assume
that the VAT rate is 15%. The difference between VAT input tax and VAT output tax is:
 DR $9,000
 CR $5,850
 CR $9,000
 None of these

19 Are the following statements correct or incorrect?

(1) Discount received should be recorded on the debit side in the payables ledger account
(2) Discount received should be recorded on the debit side in the general ledger
Statement 1 Statement 2
 Correct Correct
 Correct Incorrect
 Incorrect Correct
 Incorrect Incorrect

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ACCA FA Question Bank 6: Sales, purchases and taxes 21

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22 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

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ACCA FA Question Bank 7: Control accounts 23

7: Control accounts

OBJECTIVE TEST QUESTIONS

1 Which of the following items could appear on the credit side of a receivables account?
1 Contra entries
2 Cash received from customers
3 Sales
4 Irrecoverable debts written off
5 Credits for goods returned by customers
6 Refunds to customers
 1, 2, 4 and 5
 1, 3, 4 and 5
 3, 4, 5 and 6
 3, 4 and 6

2 A business has the following transactions for the month of June:

$
Credit sales (including sales tax at 20%) 134,500
Sales returns (including sales tax at 20%) 8,200
Cheques received from customers 125,100

The receivables balance at 1 June was $18,700. What was the receivables balance at 30 June?
$

3 A junior bookkeeper has drawn up the following receivables control account:

Receivables control account
$ $
Opening balance 75,000
Cash received 409,500 Sales 468,000
Irrecoverable debt 1,500 Contra 5,200
Sales returns 11,750
Balance carried forward 1,050
486,000 486,000

What should the balance carried forward be after correcting the errors?
 $128,450
 $118,050
 $115,050
 $125,450

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24 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

4 You are given the following information relating to JKL for the year ended 31 December:
$
Receivables at 1 January 12,500
Receivables at 31 December 14,750
Total cash receipts for the year (including cash sales of $7,000) 95,000

What is the value for sales made on credit for the year?
 $85,750
 $90,250
 $97,250
 $100,500

5 Roger’s payables control account had a balance on 1 November of $23,500 credit. During
November credit purchases were $48,600, cash purchases were $3,700 and payments made to
suppliers, excluding cash purchases and after deducting discounts of $1,250, were $53,950.
Purchases returns were $3,700. What was the balance on Roger’s payables control account at
30 November?
$

6 The total of the balances in the payables control account is $2,500 more than the total of the
payable balances extracted from the purchase ledger. Which of the following would explain this
difference?
 Cash paid to suppliers has not been posted to some accounts in the purchase ledger
 The purchases day book is overcast by $2,500
 A contra entry between the purchases and sales ledgers has been omitted from the
purchase ledger but was posted in the payables control account
 Discounts received have not been posted in the purchase ledger accounts

7 The following totals have been extracted from the books of Why at 30 April:
$
Sales day book total 212,820
Purchases day book total 173,455
Returns inwards day book total 6,790
Returns outwards day book total 7,300
Discounts received 3,750
Cash receipts from receivables 198,500
Cash payments to payables 148,695

The payables control account had a balance of $18,200 at 1 April. During the month a journal
entry has recorded a contra entry between the receivables and payables account of $540.
What was the balance on the payables control account at 30 April?
$

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ACCA FA Question Bank 7: Control accounts 25

8 Seena’s payables control account showed a credit balance of $58,743. The individual payables’
accounts in the payables ledger totalled $56,473. The difference could be due to entering a
discount received on the credit side of the control account of:
$

9 Jordan received a statement from one of her suppliers, Peter, showing a balance owing of
$2,890. The amount owing according to the payables ledger account of Peter in Jordan’s
accounts was only $290. Comparison of the statement and the ledger account revealed the
following:
I A cheque sent by Jordan for $360 had not been recorded in Peter’s statement
II Peter had not recorded goods returned by Jordan of $540
III Jordan made a contra entry, reducing the amount owing to Peter by $1,700, for a balance
due from Peter in Jordan’s receivables ledger. No such entry had been made in Peter’s
records.
What difference remains between the two businesses’ records after adjusting for these items?
 $Nil
 $650
 $1,700
 $2,240

10 Which of the following errors would NOT be detected by performing reconciliation of the
receivables control account balance to the total in the receivables ledger?
 Irrecoverable debt not recorded in customer’s receivables ledger account
 Sales invoice not recorded in sales day book
 Contra entry entered on debit side of receivables control account
 Total from returns inwards day book not posted to receivables control account

11 The balance on Neena’s receivables control account at 30 September was $38,792. Her receivables
ledger showed a total of $41,739. After investigation, Neena discovered the following:
I Discounts received of $410 had been credited to the receivables control account
II An invoice for $2,395 had been posted in the sales day book as $3,295
III Returns inwards of $1,030 had been debited to the receivables control account
What is the remaining difference between Neena’s receivables control account and the
receivables ledger after correcting these errors?
$

12 Which of the following errors should be identified by performing a reconciliation between the
payables control account balance and the total in the payables ledger?
 A purchase return of $75 was entered as $57 in the purchases returns day book
 Sales of $128 were entered as purchases returns in the purchases returns day book and
in the individual payables account
 The total of the purchases day book was miscast by $200
 A purchase invoice of $250 was omitted from the purchases day book

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26 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

13 At 1 November the payables ledger control account showed a balance of $18,240.

At 30 November the following balances were extracted from the accounting records:
$
Purchases day book total (net of sales tax of 17.5%) 23,800
Returns outwards day book total (gross of sales tax of 17.5%) 1,375
Returns inwards day book total (gross of sales tax of 17.5%) 2,850
Payments to payables after deducting $75 settlement discount 25,925

It is also discovered that:

I A customer’s balance of $1,200 has been offset against her balance of $3,350 in the
payables ledger
II A suppliers’ account in the payables ledger with a debit balance of $300 has been
included in the list of payables as a credit balance
What is the correct balance on the payables ledger control account at 30 November?
 $14,780
 $15,480
 $17,030
 $17,630

14 When reconciling the payables control account to the list of balances in the payables ledger it is
discovered that $3,000 of goods returned to suppliers were not recorded in the nominal ledger.
What is the required adjustment to the payables control account?
 Debit $3,000
 Credit $3,000
 Debit $6,000
 Credit $6,000

15 Which of the following would NOT be found in the payables ledger control account? (Tick all
which apply.)
 Contra entry
 Returns inwards
 Irrecoverable debts
 Discounts received

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ACCA FA Question Bank 7: Control accounts 27

16 Which of the following statements are true?

1 The total of the returns inwards day book is posted to the debit side of the payables
control account
2 A contra entry should be credited to receivables and debited to payables in the nominal
ledger
3 The sales day book contains details of all sales
4 VAT is excluded from amounts recorded in the receivables and payables control accounts
5 A credit balance on an individual receivables account should be added back to the total
list of receivables balances when reconciling to the nominal ledger
 1, 2 and 5
 2, 3 and 4
 2 only
 2 and 5

17 The balance on Crane’s receivables control account on 31 January was $15,205. During the
month, Crane made sales of $87,250 (including cash sales of $4,270) and received $94,310 from
credit customers. Crane also wrote off an amount of $1,050 owing from a customer who went
into liquidation during the month. What was the balance on Crane’s receivables control account
on 1 January?
$

18 On 31 March Olsen had a balance of $62,840 on its receivables control account, compared to a
total balance of $61,910 on the receivables ledger. Upon investigation it was discovered that:
I Late payment interest charged to customers on overdue amounts of $410 had not been
recorded in the nominal ledger
II The balance on H Duck’s account of $390 had been omitted from the total of balances in
the receivables ledger
III Sales returns of $825 had been treated as purchase returns in the nominal ledger
In addition, the company decided to write off $150 in relation to an irrecoverable debt at the
month end. What was the corrected balance on the receivables control account at 31 March?
 $61,450
 $61,455
 $62,275
 $62,665

19 Which of the following errors would require a correction to be made in the payables ledger
only? (Tick all which apply.)
 Omission of a debit balance on a supplier’s account in the payables ledger total
 Omission of a purchase credit note in the purchases returns day book
 Failure to record a contra entry in a supplier’s account with a balance owing by the same
business in the receivables ledger
 Casting error in the purchases day book

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28 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

20 Don’s payables ledger includes an amount owing to Betty of $51,250 at 31 October. Betty sends
a statement showing a balance owing of $52,890 at the same date. Which of the following
would NOT explain the difference?
 Betty has failed to record a payment from Don made on 28 October of $1,640
 Don has recorded a purchase credit note from Betty for $820 on the wrong side of the
ledger account
 Don has failed to record an invoice dated 30 October from Betty for $1,640
 Betty has recorded a net payment amount of $8,200 in the sales ledger receipts column
in her cash book instead of the gross amount of $9,840

21 The entries in a sales ledger control account are:

$
Sales 250,000
Bank 225,000
Sales returns 2,500
Irrecoverable debts 3,000
Returned unpaid cheque 3,500
Contra with purchase ledger account 4,000
What is the balance on the sales ledger control account?
 $12,000
 $19,000
 $25,000
 $27,000

22 On 1 May, East owed a supplier $1,200. During the month of May, East:
 Purchased goods for $1,700 and the supplier offered a 5% discount for payment within
the month
 Returned goods valued at $100 which had been purchased in April
 Sent a cheque to the supplier for payment of the goods delivered in May
What is the balance on the suppliers’ account at the end of May?
 $1,105
 $1,100
 $1,185
 $1,300

23 Alpha received a statement of account from a supplier Beta, showing a balance to be paid of
$8,950. Alpha’s purchase ledger account for Beta shows a balance due to Beta of $4,140.
Investigation reveals the following:
(1) Cash paid to Beta of $4,080 has not been accounted for by Beta
(2) Alpha’s purchase ledger account has not been adjusted for $40 of cash discount
disallowed by Beta
What discrepancy remains between Alpha’s and Beta’s records after allowing for these items?
 $Nil
 $690
 $770
 $730

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ACCA FA Question Bank 8: Accruals and prepayments 29

8: Accruals and prepayments

OBJECTIVE TEST QUESTIONS

1 A company’s telephone bill consists of two elements: a quarterly rental charge payable in
advance and quarterly call charges payable in arrears. On 30 April the company received a bill
for call charges of $300 up to the bill date and $150 for line rental for the quarter commencing
1 May. How much should be included in the company’s statement of financial position for the
year ended 30 June for both line rental and call charges?
Line rental Call charges
Prepayment $50  
Prepayment $100  
Accrual $100  
Accrual $200  

2 At 1 September 2012 Riskit had an insurance prepayment of $9,200. On 1 January 2013 the
company paid $42,000 for insurance for the year ended 31 December 2013. What figures should
appear for insurance in Riskit’s financial statements for the year ended 31 August 2013?
Statement of profit or loss Statement of financial position
 $23,200 $14,000 accrual
 $46,800 $14,000 prepayment
 $37,200 $14,000 prepayment
 $23,200 $28,000 prepayment

3 Drogba pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. Annual
rent was increased from $150,000 to $180,000 from 1 October 2011. What rent expense and accrual
should be included in Drogba’s financial statements for the year ended 31 March 2012?
Rent expense Accrual
 $165,000 $Nil
 $165,000 $30,000
 $165,000 $45,000
 $162,500 $45,000

4 A company sublets part of its office building for an annual rent of $127,500. The company
receives rent payments quarterly in advance on 1 February, 1 May, 1 August and 1 November.
How much should be included in the company’s statement of financial position as at 30 June
2013?
 $10,625 in sundry payables
 $10,625 in other receivables
 $31,875 in sundry payables
 $31,875 in other receivables

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30 8 : A c c r u a l s a n d p r e p a y m e n t s ACCA FA Question Bank

5 During the year, $6,000 was paid to the water authority. At the beginning of the year, $1,400
was owed and at the end of the year $1,600 was owed. What amount should be included in the
statement of profit or loss for water rates?
$

6 Dunno paid its annual motor insurance premium of $1,200 on 1 April 2012. During the month of
June 2012 Dunno incurred petrol expenses of $130. What is the amount to be included in the
statement of profit or loss for motor expenses for the month of June 2012?
 $130
 $230
 $330
 $430

7 Harry received cash for rent totalling $627,200 in the year ended 31 December 2012. Figures for
rent received in advance and in arrears at the beginning and end of the year were as follows:
31 Dec 2011 31 Dec 2012
Rent received in advance $82,300 $68,700
Rent in arrears $34,900 $36,100

What amount should appear in Harry’s statement of profit or loss for rental income for the year
ended 31 December 2012?
 $707,200
 $547,200
 $612,400
 $642,000

8 The gas expense account had a balance for reversal of gas accrued at 1 July 2012 of $300.
Payments made during the year ended 30 June 2013 were:
$
Paid 1 August for 3 months to 31 July 2012 700
Paid 1 November 2012 for 3 months to 31 October 2012 720
Paid 1 February 2013 for 3 months to 31 January 2013 960
Paid 30 June 2013 for 3 months to 30 April 2013 840

What should be the entries in the financial statements for the year ended 30 June 2013?
$ Statement of financial position
$ Statement of profit or loss

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ACCA FA Question Bank 8: Accruals and prepayments 31

9 Matty has occupied rented premises for some years, paying annual rent of $78,000. From
1 April 2013 the rent was increased to $96,000 per annum. Rent is paid quarterly in advance on
1 January, 1 April, 1 July and 1 October each year. What figures for rent should appear in
Matty’s financial statements for the year ended 30 November 2013?
Statement of profit or loss Statement of financial position
 $90,000 $8,000 prepayment
 $90,000 $16,000 prepayment
 $88,500 $16,000 accrual
 $90,000 $8,000 accrual

10 Details of a company’s insurance policy are shown below:

$
Premium for the year ended 31 March 2012 (paid April 2011) 10,800
Premium for the year ended 31 March 2013 (paid April 2012) 12,000

What figures should be included in the company’s financial statements for the year ended
30 June 2012?
Statement of profit or loss Statement of financial position
 $11,100 $9,000 prepayment
 $11,700 $9,000 prepayment
 $11,100 $9,000 accrual
 $11,700 $9,000 accrual

11 A company sublets part of its office and receives quarterly rent payments from its tenant of
$9,000 on 1 March, 1 June, 1 September and 1 December. At the company’s reporting date of
31 December what amount will be included in the company’s statement of financial position?
 $3,000 in sundry payables
 $6,000 in sundry payables
 $3,000 in other receivables
 $6,000 in other receivables

12 Jamie pays monthly rent of $1,000. At the beginning of the year he was $2,000 in arrears and
during the year he paid $13,000. What was the amount in arrears or prepaid at the end of the
year?
 $1,000 prepaid
 $1,000 in arrears
 $2,000 prepaid
 $2,000 in arrears

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32 8 : A c c r u a l s a n d p r e p a y m e n t s ACCA FA Question Bank

13 Kirsty is preparing her financial statements for the year ended 31 December 2012 and discovers
the following:
I An electricity invoice dated 9 January 2013 has not been recorded and includes an
amount for electricity consumed up to 31 December 2012 for $310
II An employee expense claim dated 31 December for $90
III An invoice for the company’s annual insurance premium of $3,000 for the period
1 December 2012 to 30 November 2013 was received and dated 2 January 2013
What amount should be included in Kirsty’s statement of financial position at 31 December
2012?
 Accrual of $400 and Prepayment of $250
 Accrual of $650 and Prepayment of $Nil
 Accrual of $400 and Prepayment of $Nil
 Accrual of $650 and Prepayment of $2,750

14 Lennon pays its staff a performance related bonus on 28 February each year in relation to the
previous year. Amounts accrued at the beginning and end of the year are as follows:
31 Dec 2011 31 Dec 2012
$ $
Staff bonus accrual 6,500 10,200

The amount paid out to staff on 28 February 2012 amounted to $7,400, and total salaries paid
for the year 2012 amounted to $310,500. What amount should be charged to the statement of
profit or loss for salaries expense for the year ended 31 December 2012?
$

15 Which of the following statements are correct? (Tick all that apply.)
 Deferred income is treated as a prepayment in the statement of financial position
 Accrued income should be recognised as revenue in the statement of profit or loss
 Prepaid expenses are reflected as a debit balance in the trial balance
 Accrued expenses should be credited to the relevant expense account in the statement
of profit or loss

16 On 1 May, A pays a rent bill of $1,800 for the 12 months to 30 April. What is the charge/credit
to the statement of profit or loss for the year ended 30 November?
$

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ACCA FA Question Bank 8: Accruals and prepayments 33

17 H began trading on 1 July. The company is now preparing its accounts for the accounting year
ending 30 June year 1. Rent is charged for the year from 1 April to 31 March, and was $1,800 for
the year ended 31 March year 1 and $2,000 for the year ended 31 March year 2. Rent is payable
quarterly in advance, plus any arrears, on 1 March, 1 June, 1 September and 1 December.
The charge to H’s statement of profit or loss for rent for the year ended 30 June year 1 is:
 $1,650
 $1,700
 $1,850
 $1,900

18 On 1 June year 1, H paid an insurance invoice of $2,400 for the year to 31 May year 2. What is
the charge to the statement of profit or loss and the entry in the statement of financial position
for the year ended 31 December year 1?
 $1,000 statement of profit or loss and prepayment of $1,400
 $1,400 statement of profit or loss and accrual of $1,000
 $1,400 statement of profit or loss and prepayment of $1,000
 $2,400 statement of profit or loss and no entry in the statement of financial position

19 On the first day of month 1, a business had prepaid insurance of $10,000. On the first day of
month 8, it paid, in full, the annual insurance invoice of $36,000 to cover the following year.
What is the amount charged in the statement of profit or loss and the prepayment shown in the
statement of financial position at the year end?

Statement of profit or loss $ Statement of financial position $

 5,000 24,000
 22,000 23,000
 25,000 21,000
 36,000 15,000

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34 9 : R e c e i v a b l e s a n d i r r e c o v e r a b l e d e b t s ACCA FA Question Bank

9: Receivables and irrecoverable debts

OBJECTIVE TEST QUESTIONS

1 Rose had receivables of $498,600 at 30 November 2012. Her allowance for receivables at
1 December 2011 was $10,560 and she decided to change that to 2% of receivables at
30 November 2012. On 29 November 2012 she received $870 in full settlement of a debt that
she had written off in the year ended 30 November 2011. What amount should be recognised
with respect to receivables in the statement of profit or loss for the year ended 30 November
2012?
$ Debit / Credit (delete as appropriate)

2 A company has been notified that a customer has gone into liquidation. The company had
previously provided for this doubtful receivable. What is the correct double entry in the
financial statements?
Debit Credit
Allowance for receivables  
Bad and doubtful debts expense  
Cash  
Receivables  

3 An increase in an allowance for receivables of $2,000 has been treated as a reduction in the
financial statements. What is the effect of this error on profit and net assets?
Net profit Net assets
Overstated by $4,000  
Understated by $4,000  
Overstated by $2,000  
Understated by $2,000  

4 At the beginning of the year, Tiny’s allowance for receivables was $2,000. At the end of the
year, when receivables were $38,500, a specific allowance was made for the whole of Little’s
debt of $600 and for 80% of Large’s debt of $1,000. It was decided to make a general allowance
of 2% of remaining debts. What was the closing balance on the allowance for doubtful
receivables account?
 $2,110
 $2,138
 $4,110
 $110

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ACCA FA Question Bank 9: Receivables and irrecoverable debts 35

Questions 5 and 6 relate to the following information:

At 1 July 2012 a company’s allowance for receivables was $48,000. At 30 June 2013, trade receivables
amounted to $838,000. It was decided to write off $72,000 of these debts and adjust the allowance for
receivables to $60,000.
5 What is the net trade receivables figure to be included in the company’s statement of financial
position at 30 June 2013?
 $658,000
 $706,000
 $718,000
 $766,000

6 What is the amount to be included in the statement of profit or loss for irrecoverable and
doubtful receivables expense for the year ended 30 June 2013?
 $12,000
 $60,000
 $72,000
 $84,000

7 At 30 September 2011 Martha’s allowance for receivables was $59,000. At 30 September 2012
trade receivables totalled $617,000. It was decided to write off debts totalling $47,000 and to
adjust the allowance for receivables to 5% of trade receivables. What figure should appear in
the statement of profit or loss for these items?
 $16,500
 $28,500
 $77,500
 $77,850

8 At 31 December 2011 Donna had receivables totalling $250,000 and an allowance for
receivables of $24,000 brought forward from the previous year. It has been decided to write off
irrecoverable receivables of $17,500 and adjust the allowance for receivables to 4% of
remaining receivables. Rather surprisingly, Donna received $500 on 25 December from an old
customer whose debt had been written off in 2008. What will be the total charge for
irrecoverable debts and receivables allowance appearing in Donna’s statement of profit or loss
for the year ended 31 December 2011?
$

9 The requirement for management to carry out a review of irrecoverable and doubtful
receivables at the end of the year is an example of which accounting concept?
 Substance over form
 Consistency
 Prudence
 Business entity concept

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36 9 : R e c e i v a b l e s a n d i r r e c o v e r a b l e d e b t s ACCA FA Question Bank

10 On 18 April Jane receives a cheque from a customer for $400 which she had written off in the
previous year. What is the correct double entry to record this amount in the nominal ledger?
Debit Credit
Cash  
Receivables  
Allowance for doubtful receivables  
Irrecoverable and doubtful receivables expense  

11 Pillay’s receivables ledger at 1 July 2012 showed a total of $61,250. During the year ended
30 June 2013, the sales day book total amounted to $549,600 and the total customer receipts
column in the cash book amounted to $499,800. At the year end it was decided that $4,370 was
to be written off and a general allowance of 5% of receivables should be created. What was the
balance on Pillay’s receivables ledger at 30 June 2013?
 $7,080
 $101,346
 $106,680
 $115,420

Questions 12 and 13 relate to the following information:

Kelsey maintains an allowance of 2% of outstanding receivables. On 1 January 2012 the receivables
balance was $80,000 and on 31 December 2012 was $98,000. At the year end it was decided that
$2,800 should be written off and that the balance of $1,000 owing from Larkin should be allowed for.
12 What was the closing balance on the receivables allowance account at 31 December 2012?
$

13 What amount should be included in the statement of profit or loss for irrecoverable and
doubtful receivables expense?
 $2,800
 $3,800
 $4,084
 $5,684

14 Gheno has an opening balance on its allowance for doubtful receivables account of $4,000.
During the year, $1,000 of debts were written off, a cheque for $500 was received relating to an
amount that had previously been written off, and a customer went into administration owing an
amount of $650, for which an allowance had not been made. At the year end, the general
allowance was reduced by $400. What was the charge to the statement of profit or loss for
irrecoverable and doubtful receivables in the year?
 $750 credit
 $1,250 credit
 $1,550 credit
 None of these amounts

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ACCA FA Question Bank 9: Receivables and irrecoverable debts 37

15 The sales revenue of a company was $4 million and its receivables were 7.5% of sales. The
company wishes to have an allowance of 3% of receivables, which would result in an increase of
25% above the current allowance. What figure would appear in the statement of profit or loss
for irrecoverable debts?
$

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38 1 0 : I n v e n t o r i e s ACCA FA Question Bank

10: Inventories

OBJECTIVE TEST QUESTIONS

1 Which of the following statements about the treatment of inventory and work in progress in
financial statements are correct?
1 Inventory should be valued at the lower of cost and net realisable value
2 In valuing work in progress, materials costs, labour costs and variable and fixed
production overheads must be included
3 Inventory items can be valued using either last in first out (LIFO), or weighted average
cost
4 A company’s financial statements must disclose the accounting policies used in
measuring inventories
 All four statements
 1, 2 and 4
 2, 3 and 4
 1 and 3 only

2 A business received delivery of goods on 29 November 2012 which were included in the
inventory valuation at 30 November 2012. The invoice for the goods was recorded in December
2012. What effect will this have on the financial statements at 30 November 2012?
Profit Net assets
Overstated  
Understated  

3 In preparing its financial statements for the current year, a company’s closing inventory was
overstated by $50,000. What will be the effect of this error in the financial statements if it
remains uncorrected?
Current year Next year
profit profit
Overstated  
Understated  

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ACCA FA Question Bank 10: Inventories 39

4 Smile Co values inventories on the first in first out (FIFO) basis. During October 2012 the
following inventory movements were recorded:
1 October Balance in inventory 130 items valued at $8 each
3 October Purchase of 190 items at $9 each
4 October Sale of 160 items for $12 each
8 October Sale of 90 items for $15 each
18 October Purchase of 290 items at $10 each
22 October Sale of 70 items for $15 each

What was the closing value of inventory at the end of October?

$

5 Which of the following costs should be included as part of the cost of inventories of finished
goods held by a manufacturing company?
1 Carriage inwards
2 Carriage outwards
3 Depreciation of factory plant
4 Accounts department costs relating to wages for production employees
 1 and 3
 2 and 3
 1, 3 and 4
 All four items

6 Warner has inventories of garden chairs at 31 August 2012 which cost $32,000. After the year
end the chairs were sold for a total of $22,500. Warner incurred delivery costs of $1,500 and
paid sales commission of 5% of the sales value. What should be the value of inventories in the
statement of financial position at 31 August 2012?
$

7 The value of inventory included in the financial statements of Samson as at 31 December 2012
was based on an inventory count performed on 4 January 2013 and amounted to $726,200.
Between 31 December 2012 and 4 January 2013 the following transactions took place:
$
Purchase of goods 18,600
Sale of goods at a profit mark up of 40% on cost 14,000
Return of goods to supplier 950

What adjusted figure should be included in Samson’s financial statements for inventories at 31
December 2012?
 $753,850
 $733,850
 $718,550
 $696,650

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40 1 0 : I n v e n t o r i e s ACCA FA Question Bank

8 The closing inventory of Duff amounted to $216,400 at cost, including the following:
I 600 items which had cost $4 each, all of which were sold after the reporting date for
$3 each, with selling expenses amounting to $300 for the batch
II 100 different items which had cost $30 each and which were found to be defective.
Rectification work after the reporting date amounted to $500, after which the items were
sold for $35 each, with selling expenses amounting to $250
What amount should be included in Duff’s statement of financial position for inventories?
 $215,250
 $215,450
 $216,100
 $216,400

9 Sandy values its inventory using the first in first out (FIFO) method. At 1 May 2012 the company
had 700 desks in inventory, valued at $110 each. During the year ended 30 April 2013 the
following transactions took place:
1 Jul 2012 Purchased 500 desks for $120 each
1 Nov 2012 Sold 400 desks for $160 each
1 Feb 2013 Purchased 300 desks for $150 each
15 Apr 2013 Sold 250 desks for $175 each

What was the value of the company’s closing inventory of desks at 30 April 2013?
 $120,000
 $110,500
 $93,500
 None of these figures

10 Lane sells three products, A, B and C. The following information was available at the year end:
A B C
$ $ $
Original cost per unit 10 8 16
Estimated selling price per unit 15 12 14
Selling and distribution costs per unit 3 5 2

Units Units Units

Closing inventory 200 150 100
What value for inventory should be included in Lane’s statement of financial position?
 $4,650
 $4,250
 $4,800
 $7,750

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ACCA FA Question Bank 10: Inventories 41

11 Discovery values its inventory using the continuous weighted average cost method. At 1 January
2012 it has 220 silos of grain valued at $1,000 each. During 2012 the following transactions took
place:
10 Mar 2012 Sold 80 silos for $1,100 each
18 Mar 2012 Purchased 100 silos for $940 each
30 Jul 2012 Sold 160 silos for $1,300 each
12 Nov 2012 Purchased 90 silos for $1,450 each

What was the value of the company’s closing inventory of grains at 31 December 2012?
 $246,500
 $208,500
 $156,500
 $148,500

12 Which of the following statements about inventory valuation are correct?

1 Average cost and first in first out are both acceptable methods of arriving at the cost of
inventories
2 Inventories of finished goods may be valued at labour and materials costs only, without
including overheads
3 Inventories should be valued at the lowest of cost, net realisable value and replacement
cost
4 It may be acceptable for inventories to be valued at selling price less estimated profit
margin
 1 and 3
 2 and 3
 1 and 4
 2 and 4

13 In times of rising prices, what will be the effect on a business’ profits of using the following
inventory valuation methods?
Higher Lower
FIFO  
LIFO  

14 The following information has been extracted from a company’s statement of profit or loss:
$
Sales 156,800
Cost of sales (109,750)
Gross profit 47,050

Opening inventory was $51,300 and purchases were $99,400. What was the value of closing
inventory?
$

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42 1 0 : I n v e n t o r i e s ACCA FA Question Bank

Questions 15 and 16 relate to the following information:

At 31 March 2013 a company’s trial balance included the following figures:
Debit $ Credit $
Sales 842,800
Purchases 531,620
Returns 9,215 11,700
Inventory at 1 April 2012 77,100

Closing inventory is valued at $96,500.

15 What is cost of sales?
 $500,520
 $509,735
 $512,220
 $539,320

16 What is gross profit?

 $342,280
 $333,065
 $318,880
 $294,265

17 Santos has inventories valued at cost of $412,300 in his statement of financial position at
30 June. Included in this amount are the following:
I 350 Amples which had cost $15 each which were sold after the reporting date for $12.50
each, incurring selling costs of $700.
II 450 Bodules which had cost $10 each and which were found to be defective. The items
were repaired at a total cost of $1,000 and were then sold for $14.50 each after the
reporting date via a third party who charged commission of 5% on the sales price.
What amount should be included in Santos’ statement of financial position for inventory at
30 June?
$

18 Which of the following statements about the valuation of inventory is correct?

 Inventory items are normally to be valued at the higher of cost and net realisable value
 The cost of goods manufactured by an entity will include materials and labour only.
Overhead costs cannot be included
 LIFO is an accepted valuation method for inventory. FIFO is not an accepted valuation
method for inventory
 Selling price less estimated profit margin may be used to arrive at cost if this gives a
reasonable approximation to actual cost

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ACCA FA Question Bank 10: Inventories 43

19 The inventory value for the financial statements of Q for the year ended 31 May 20X6 was
based on an inventory count on 4 June 20X6, which gave a total inventory value of $836,200.
Between 31 May and 4 June 20X6, the following transactions took place:
$
Purchase of goods 8,600
Sales of goods (profit margin 30% on sales) 14,000
Goods returned by Q to supplier 700
What adjusted figure should be included in the financial statements for inventories at 31 May
20X6?
 $838,100
 $853,900
 $818,500
 $834,300

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44 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

11: Non-current assets and depreciation

OBJECTIVE TEST QUESTIONS

1 What is the purpose of charging depreciation in the financial statements?
 To ensure that funds are available for replacement of the asset in the future
 To allocate the cost of the asset over the accounting periods expected to benefit from its
use
 To comply with the substance over form concept
 To reduce the cost of the asset in the statement of financial position to its estimated
market value

2 Your firm purchased a machine for $8,000 on 1 January 2010. The machine was expected to
have a useful life of four years and a residual value of $2,000. The asset was depreciated on a
straight line basis starting from the month of purchase. On 31 December 2012 the machine was
sold for $2,600. What was the amount to be included in the statement of profit or loss for the
year ended 31 December 2012 for profit or loss on disposal?
$ Profit / Loss (delete as appropriate)

3 A non-current asset register shows a carrying amount of $106,460. An asset costing $18,000 has
been sold for $6,000, making a loss on disposal of $1,250. No entries have been made in the
non-current asset register for this disposal. What should the balance on the non-current asset
register be?
 $88,460
 $89,710
 $99,210
 $101,710

4 An organisation’s non-current asset register shows a carrying amount of $238,100. The non-
current asset account in the nominal ledger shows a carrying amount of $228,100. The
difference could be due to a disposed asset not having been removed from the non-current
asset register:
 With disposal proceeds of $15,000 and a profit on disposal of $5,000
 With disposal proceeds of $15,000 and a carrying amount of $5,000
 With disposal proceeds of $15,000 and a loss on disposal of $5,000
 With disposal proceeds of $5,000 and a carrying amount of $5,000

5 What would be the effect of recording an invoice for motor vehicle repairs by debiting the
motor vehicle at cost account?
Overstated Understated
Profit  
Net assets  

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ACCA FA Question Bank 11: Non-current assets and depreciation 45

6 Hannah has recorded an invoice for $1,000 relating to computer stationery as a purchase of a
new computer. What would be the correct double entry to correct this error?
Debit Credit
Computer stationery expense  
Computer equipment cost  
Suspense account  
Depreciation expense  

7 A machine cost $16,000. It has an expected useful life of six years and an expected residual
value of $4,000. It is to be depreciated at 30% per annum on the reducing balance basis. A full
years’ depreciation is charged in the year of purchase, with none in the year of sale. During year
four, it is sold for $6,000. What is the profit or loss arising on disposal?
 $1,884 profit
 $800 profit
 $512 profit
 $512 loss

8 Montana’s plant and machinery ledger account for the year ended 30 September 2013 was as
follows:
Plant and machinery – Cost
$ $
1 Oct 2012 Balance b/f 180,000
1 Dec 2012 Additions 30,000 1 Jun 2013 Disposal 48,000
30 Sep 2013 Balance c/f 162,000
210,000 210,000

Montana’s policy is to charge depreciation at 25% per annum on the straight-line basis, with
proportionate depreciation in the years of purchase and sale. What is the depreciation expense
for the year ended 30 September 2013?
 $40,500
 $47,250
 $48,250
 $59,250

9 A business purchased a motor vehicle on 1 July 2012 for $30,000. It is to be depreciated at 25%
per annum on the reducing balance basis, starting from the month of acquisition. The $30,000
was correctly entered in the cash book but was posted to the debit side of the motor vehicles
repairs account. How will the business profit for the year ended 31 December 2012 be affected
by this error?
 Understated by $33,750
 Overstated by $33,750
 Understated by $26,250
 Overstated by $26,250

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46 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

Questions 10 and 11 relate to the following information:

Simpson purchased a property on 1 April 2006 for $240,000 (of which $60,000 related to land).
The building was depreciated at a rate of 2% per annum on a straight-line basis, with a proportionate
charge being made in the year of purchase. On 31 December 2012 the property was revalued to
$820,000 (including $360,000 relating to land).
10 What amount should be included in Simpson’s statement of financial position at 31 December
2012 for the revaluation surplus?
 $580,000
 $605,200
 $604,300
 $304,300

11 What amounts should be included in Simpson’s financial statements for the year ended
31 December 2013?
Depreciation expense Land & buildings
$ $
 10,635 809,365
 10,635 449,365
 9,200 810,800
 9,200 450,800

12 The carrying amount of a company’s non-current assets was $300,000 at 1 September 2011.
During the year ended 31 August 2012 the company purchased assets costing $75,000 and sold
assets for $55,000 on which it made a loss of $5,000. The depreciation charge for the year was
$40,000. What was the carrying amount of non-current assets at 31 August 2012?
$

13 Carly has the following figures in her trial balance at 1 August 2012.
Cost Accumulated
depreciation
$ $
Plant and machinery 80,000 22,000
Motor vehicles 64,000 38,000

During the year ended 31 July 2013 Carly purchased office equipment costing $18,000 and
disposed of a car, which cost $40,000 in January 2010, for $12,000. Carly’s policy is to
depreciate all assets over four years, with a full year’s charge in the year of purchase and none
in the year of sale. What is the total to be included in Carly’s statement of financial position for
non-current assets at 31 July 2013?
 $66,500
 $61,500
 $51,500
 $49,500

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ACCA FA Question Bank 11: Non-current assets and depreciation 47

14 Vicor has implemented a new computer system. The software costs amounted to $50,000, and
installation and set up costs of $5,000 were incurred. Staff training on how to use the new
system amounted to £3,500. What amount should be capitalised in relation to the new system?
$

15 Sweeto maintains a fleet of company cars and depreciates all vehicles on a straight-line basis
over a period of three years from the month of acquisition. During 2012 the company disposed
of the following vehicles:
I A Volvo which had originally cost $32,000 on 1 April 2009 was sold on 31 July 2012 for
$7,000
II An Audi which had originally cost $40,000 on 1 September 2010 was sold on
30 November 2012 for $18,000
What figure for profit or loss on disposal of non-current assets should appear in the company’s
statement of profit or loss for the year ended 31 December 2012?
 $15,000 profit
 $8,000 profit
 $5,000 profit
 $5,000 loss

16 Trudi’s motor vehicles asset account for the year ended 31 December 2012 is as follows:
Motor Vehicles – Cost
$ $
1 Jan 2012 B/f 86,000
1 May 2012 Additions 48,000 31 Aug 2012 Disposals 36,000
31 Dec 2012 C/f 96,000
132,000 132,000

Trudi’s policy is to depreciate motor vehicles over four years from the month of purchase on the
straight-line basis. What was Trudi’s depreciation expense for the year ended 31 December
2012?
$

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48 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

17 Peter is starting up his own business and purchases computer equipment costing $9,000 which
he thinks he will use for three years before needing to replace it. Which of the following
statements are true?
1 Peter’s profits will be higher in the first year of trading if he adopts the reducing balance
method
2 Peter’s profits will be lower in the first year of trading if he adopts the reducing balance
method
3 Peter cannot change his depreciation policy in the second year of ownership in order to
increase his profitability
4 Peter must apply the same depreciation policy to all other non-current assets that he
purchases
 1 and 3
 1 and 4
 2 and 3
 2 and 4

18 Nicoly purchased new factory plant costing $40,000 on 1 September 2010. The plant was expected
to have a useful life of four years and a residual value of $4,000. On 1 September 2012 modifications
costing $6,000 were made to the plant and its useful life was extended by a further two years, with
no changes to its estimated residual value. Nicoly uses the straight-line method of depreciation on all
assets. What was the carrying amount of the plant at 31 August 2013?
$

19 Non-current assets can best be defined as items of machinery which are not moveable and are
purchased with the intention of re-sale.
 True
 False

20 A car was purchased for $12,000 on 1 April in year 1 and has been depreciated at 20% each year
straight-line, assuming no residual value. The company policy is to charge a full year’s
depreciation in the year of purchase and no depreciation in the year of sale. The car was traded
in for a replacement vehicle on 1 August in year 4 for an agreed figure of $5,000. What was the
profit or loss on the disposal of the vehicle in year 4?
$ profit / loss

21 A company bought a machine on 1 October year 1 for $52,000. The machine had an expected
life of eight years and an estimated residual value of $4,000. On 31 March year 6, the machine
was sold for $35,000. The company’s year end is 31 December. The company uses the straight-
line method for depreciation and it charges a full year’s depreciation in the year of purchase
and none in the year of sale. What is the profit or loss on disposal of the machine?
 Loss $13,000
 Profit $7,000
 Profit $10,000
 Profit $13,000

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ACCA FA Question Bank 11: Non-current assets and depreciation 49

22 N purchased a machine for $15,000. The transportation costs were $1,500 and installation costs
were $750. The machine broke down at the end of the first month in use and cost $400 to
repair. N depreciates machinery at 10% each year on cost, assuming no residual value. What is
the carrying amount of the machine after one year?
 $13,500
 $14,850
 $15,525
 $15,885

23 SSG bought a machine for $40,000 in January year 1. The machine had an expected useful life of
six years and an expected residual value of $10,000. The machine was depreciated on the
straight line basis where a full year’s charge is made in the year of purchase and none in the
year of sale. In December year 4, the machine was sold for $15,000. The company has a policy in
its internal accounts of combining the depreciation charge with the profit or loss on disposal of
assets. Its year end is 31 December. What is the total amount of profit/loss charged to the
statement of profit or loss over the life of the machine?
 $15,000
 $20,000
 $25,000
 $30,000

24 S purchased equipment for $80,000 on 1 July year 1. The company’s accounting year end is
31 December. It is S’s policy to charge a full year’s depreciation in the year of purchase.
S depreciates its equipment on the reducing balance basis at 25% per annum. What is the
carrying amount of the equipment at 31 December year 4?
 $Nil
 $25,312
 $29,531
 $33,750

25 Which of the following statements about accounting for intangible assets are correct? (Tick all
that apply.)
 A business may choose whether to capitalise development expenditure or treat it an
expense as incurred
 Development expenditure must be capitalised if certain criteria are met
 Expenditure on research activities must be written off as an expense in the period in
which it is incurred
 Capitalised development expenditure must be amortised over a period not exceeding
20 years

26 Which of the following are examples of intangible assets? (Tick all that apply.)
 Licence to operate rail network
 Goodwill
 Shares held in another company
 Modifications to an item of plant

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50 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

27 During the year ended 30 June 2013 Pryce has spent $250,000 developing a revolutionary new
piece of software. The directors have tested the software and expect to commence sales of the
product in 2014. The market in which Pryce operates is highly competitive and technological
changes are rapid. What would be the most appropriate accounting treatment for the $250,000
incurred in the financial statements for the year ended 30 June 2013?
 Write the full amount off as an expense in the statement of profit or loss
 Capitalise the full amount as an intangible asset in the statement of financial position
 Carry the balance forward in the statement of financial position in other receivables until
there is more certainty over future sales
 Write the full amount off against other reserves in the statement of financial position

28 What is the correct treatment of negative goodwill in the financial statements?

 Write the full amount off as an expense in the statement of profit or loss
 Include the full amount as other income in the statement of profit or loss
 Capitalise the full amount as an intangible asset in the statement of financial position
 Write the full amount off against other reserves in the statement of financial position

29 Bjorn has undertaken significant research and development activities during 2012, culminating
in a brand new product which is ready for launch in 2013 and with a significant number of
advance orders already placed by customers. The following expenses have been incurred in
relation to this product:
1 Salary of research analyst who reported initial findings to the development team
2 Salaries of staff employed within R&D division to develop prototype and test early
versions of the product
3 Materials and components used in the final prototype
4 New factory premises and plant to commence mass scale production of the product
Which of these items should be capitalised as development expenditure in Bjorn’s statement of
financial position as at 31 December 2012?
 2 and 3
 3 and 4
 2, 3 and 4
 All four items

30 Which of the following statements are correct?

(1) Capitalised development expenditure must be amortised over a period not exceeding five
years
(2) Capitalised development costs are shown in the statement of financial position under the
heading of non-current assets
(3) If certain criteria are met, research expenditure must be recognised as an intangible asset
 (2) only
 (2) and (3)
 (1) only
 (1) and (3)

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ACCA FA Question Bank 12: Bank reconciliations 51

12: Bank reconciliations

OBJECTIVE TEST QUESTIONS

1 Your cash book at 31 December 2012 shows a bank balance of $1,942 overdrawn.
On comparing this with your bank statement at the same date, you discover the following:
I A cheque for $108 drawn by you on 29 December 2012 has not yet been presented for
payment
II A cheque for $256 from a customer, which was paid into the bank on 24 December 2012,
has been dishonoured on 29 December 2012
What is the correct bank balance to be shown in the statement of financial position at
31 December 2012?
 $2,306 overdrawn
 $2,198 overdrawn
 $1,686 overdrawn
 $1,578 overdrawn

2 Joe’s cash book shows a bank balance of $1,675 overdrawn at 31 August 2012. It is
subsequently discovered that a standing order of $105 has been entered twice, and that a
dishonoured cheque for $250 has been debited in the cash book instead of credited. What is
the correct balance to be included in the statement of financial position at 31 August 2012?
 $1,320 overdrawn
 $1,820 overdrawn
 $2,070 overdrawn
 $2,280 overdrawn

3 A business had a balance at the bank of $6,500 at the start of the month. During the month, it
paid for materials invoiced at $2,000 less a trade discount of 10% and cash discount of 5%, and
received a cheque from a customer in respect of an invoice for $300 less a cash discount of 5%.
What was the bank balance at the end of the month?
$

4 Frankie’s bank statement on 30 November 2012 showed an overdraft of $607. On reconciling

the bank statement, it was discovered that a cheque payment for $78 had not been presented
at the bank, and that a cheque for $103 from a customer had been dishonoured by the bank on
28 November 2012. What was the correct bank balance to be shown in the statement of
financial position at 30 November 2012?
 $788 overdrawn
 $685 overdrawn
 $582 overdrawn
 $529 overdrawn

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52 1 2 : B a n k r e c o n c i l i a t i o n s ACCA FA Question Bank

5 Which of the following statements about bank reconciliations are correct?

1 A cheque from a customer paid into the bank but dishonoured must be corrected by
making a debit entry in the cash book
2 In preparing a bank reconciliation from the bank statement balance to the cash book
balance, unpresented cheques must be deducted
3 An error by the bank must be corrected by an entry in the cash book
4 An overdraft is a debit balance in the bank statement
 1 and 3
 2 and 3
 1 and 4
 2 and 4

6 Your firm’s cash book at 31 December 2012 shows a balance at the bank of $4,390. Comparison
with the bank statement at the same date reveals the following differences:
$
Unpresented cheques 620
Bank charges not recorded in the cash book 35
Cheque receipts not yet credited by the bank 385
Dishonoured cheque not adjusted in the cash book 90

What was the correct balance to be shown in the cash book at 31 December 2012?
 $4,155
 $4,355
 $4,265
 $4,030

7 Listed below are some possible causes of differences between the cash book balance and the
bank statement balance when preparing a bank reconciliation:
1 Lodgements credited after date
2 Error by bank
3 Bank charges
4 Outstanding cheques not yet presented
5 Cheque paid in to bank, subsequently dishonoured
Which of these items require an adjusting entry to be made in the cash book?
 1 and 4
 2, 3 and 5
 3 and 5
 All five items

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ACCA FA Question Bank 12: Bank reconciliations 53

8 The following bank reconciliation statement has been prepared by a trainee accountant:
$
Overdraft per bank statement 38,420 Dr
Less: unpresented cheques (4,175) Cr
Add: outstanding lodgements 6,290 Dr
Balance per cash book 40,535 Dr

What should the cash book balance be after correcting the errors (if any)?
 $40,535 debit
 $36,305 debit
 $36,305 credit
 $40,535 credit

9 Ben’s cash book at 31 October 2012 shows a balance of $8,230 overdrawn. Comparison with
the bank statement at the same date reveals the following differences:
$
Unpresented cheques 3,270
Bank charges not recorded in the cash book 68
Cheque receipts not yet credited by the bank 4,195
Direct debit payment not recorded in the cash book 448

What was the balance according to the bank statement at 31 October 2012?
 $9,671 overdrawn
 $9,155 overdrawn
 $8,746 overdrawn
 $7,821 overdrawn

10 Jerry’s cash book showed a bank balance of $9,802 at 28 February. Upon comparing his cash
book with the bank statement he found that he had debited the cash book with a direct debit
payment of $358 and that a customer cheque already banked for $921 was dishonoured on
26 February. A cheque payment of $472 was presented in the bank statement on 2 March.
What was the correct bank balance to be shown in the statement of financial position at
28 February?
 $9,597
 $8,637
 $8,523
 $8,165

11 Which of the following is NOT a valid reason for the cash book and bank statement failing to
agree?
 Unpresented cheque
 Bank interest not recorded in the cash book
 Bank error
 Cash receipts posted to payables in the nominal ledger

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54 1 2 : B a n k r e c o n c i l i a t i o n s ACCA FA Question Bank

12 Gordon’s bank statement at 31 December 2012 showed a balance of $4,000. His cash book
showed a balance of $2,750. Which of the following would account for the full difference?
 Receipts of $1,250 recorded in the cash book but not yet recorded by the bank
 BACS customer receipt for $1,250 in the bank statement but not yet recorded in the cash
book
 Direct debit payment of $1,250 shown on the bank statement but not in the cash book
 Standing order payment of $1,250 debited to the cash book in error

13 Suraj has a cash book balance of $83,832 on 30 November. On 29 November she paid cheques
in totalling $8,420 which have not yet been credited by the bank, and posted cheque payments
to suppliers totalling £4,296 none of which have yet been presented for payment. What was the
balance according to the bank statement on 30 November?
$

14 Ravi is carrying out the month end bank reconciliation on 30 April and discovers that the
following items in the bank statement have not been recorded in the cash book:
I Bank interest received of $29
II Direct debit payment of $2,200
III Dishonoured cheque of $170
IV BACS receipt of $935
What total adjustment is required in the cash book in respect of these items?
 $1,406 credit
 $1,406 debit
 $1,464 credit
 $1,464 debit

15 Alimon has a credit balance of $5,700 in its cash book at 31 July, compared with a debit balance
of $2,844 in the bank statement. Which of the following would explain this difference?
 Unpresented cheques of $1,843 and uncleared lodgements of $4,699
 Unpresented cheques of $4,699 and uncleared lodgements of $1,843
 Unpresented cheques of $1,739 and uncleared lodgements of $10,283
 Unpresented cheques of $10,283 and uncleared lodgements of $1,739

16 Jack has a cash book balance of $6,395 on 30 June. Upon comparison with the bank statement
he discovers that he has failed to record bank receipts of $3,582 which were credited on
24 June and that a direct debit payment of £220 has been entered as a debit in the cash book.
What is the corrected cash book balance?
$

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ACCA FA Question Bank 12: Bank reconciliations 55

17 Which of the following statements about bank reconciliations are correct? (Tick all that apply.)
 Unpresented cheques should be deducted from the bank statement figure when
performing the bank reconciliation
 Dishonoured cheques should be credited to the cash book
 Bank charges and interest paid should be debited to the cash book
 Bank errors should be left as timing differences in the bank reconciliation statement

18 Your bank statement shows a credit balance of $6,288 after deducting a dishonoured cheque
for $90 which has not been recorded in the cash book. Unpresented cheques amount to $1,259
and uncleared receipts amount to $2,054. What figure should be shown in the cash book?
 $5,493 credit
 $5,403 credit
 $6,993 debit
 $7,083 debit

19 Your cash book for January is summarised as follows:

Cash book
$ $
1 Jan b/f 12,490
Cash book receipts 671,250 Cash book payments 701,370
31 Jan c/f 17,630
701,370 701,370

Upon comparison with the bank statement you find that BACS customer receipts of $8,260 have
been omitted from your cash book, and that cheque receipts totalling $7,250 paid in on
26 January have been credited in the cash book. What is the correct cash book balance at
31 January?
$

20 Z’s bank statement shows a balance of $825 overdrawn. The bank statement includes bank
charges of $50, which have not been entered in the cash book. There are unpresented cheques
totalling $475 and deposits not yet credited of $600. The bank statement incorrectly shows a
direct debit payment of $160 which belongs to another customer. What figure for the bank
balance should be shown in the statement of financial position?
 $590 overdrawn
 $540 overdrawn
 $790 overdrawn
 $840 overdrawn

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56 1 3 : A c c o u n t i n g e r r o r s ACCA FA Question Bank

13: Accounting errors

OBJECTIVE TEST QUESTIONS

1 The debit side of a trial balance totals $600 more than the credit side. Which of the following
errors would fully account for the difference?
 $300 paid for plant maintenance has been correctly entered in the cash book and
credited to the plant asset cost account
 Discounts received of $300 have been debited to the purchase returns account
 The petty cash balance of $600 has been omitted from the trial balance
 A receipt of $600 for commission receivable has been omitted from the records

2 A company’s trial balance totals were as follows:

Debit $ Credit $
Totals 163,428 156,792

A suspense account was opened for the difference. Which one of the following errors would
have the effect of reducing the suspense account balance when corrected?
 The petty cash balance of $500 has been omitted from the trial balance
 $3,000 paid for repairs to plant has been debited to the plant asset cost account
 $4,000 received from a customer has been correctly recorded in the cash book and
debited to receivables
 A $250 invoice for motor vehicle repairs has been omitted from the purchase day book

3 When a trial balance was prepared, the closing inventory value of $30,400 was omitted. What
was the balance on the suspense account?
 $Nil
 $30,400 debit
 $30,400 credit
 $60,800 debit

4 Where one side of a transaction has been recorded in the wrong type of account, for example,
purchase of a non-current asset is posted to the office stationery account, what type of error is
this known as?
 Transposition
 Commission
 Principle
 Omission

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ACCA FA Question Bank 13: Accounting errors 57

5 The trial balance of a company did not balance and a suspense account was opened for the
difference. Which of the following errors would require an entry to the suspense account to
correct them?
1 A cash payment for repairs to a motor vehicle had been correctly entered in the cash
book but debited to the motor vehicles asset cost account
2 The debit side of the electricity account had been undercast
3 The total of the discounts received column in the cash book had been debited to the
discounts received account
4 A cash refund to a customer had been recorded by debiting the cash book and crediting
receivables
 1 and 2
 2 and 3
 3 and 4
 2 and 4

6 Which of the following errors would cause a trial balance not to balance?
 Cost of a motor vehicle debited to the motor vehicle repairs expense account
 Goods taken by the proprietor of a business recorded by debiting purchases and crediting
drawings
 An error of addition in the cash payments book
 Failure to record a purchase invoice in the purchases day book

7 A payables ledger control account showed a credit balance of $368,420. The payables ledger
balances totalled $381,200. Which one of the following errors would account in full for the
difference?
 The total of sales returns of $28,400 was entered on the debit side of the payables ledger
control account instead of the correct figure for purchase returns of $15,620
 Cash paid to a supplier of $12,780 was entered on the credit side of the supplier’s
account in the payables ledger
 The total of discounts received of $6,390 had been entered on the credit side of the
payables ledger control account
 A contra against a receivables ledger debit balance of $6,390 had been entered on the
credit side of the payables ledger control account

8 Some inventory taken by the owner of a business has not yet been recorded. What will be the
effect on profit and net assets when this transaction is recorded?
Increase Decrease No change
Profit   
Net assets   

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58 1 3 : A c c o u n t i n g e r r o r s ACCA FA Question Bank

9 The profit of Jones in the draft financial statements for the year ended 30 September 2012 is
$45,760. It was subsequently discovered that computer equipment costing $4,000 had been
debited to computer stationery and that a cheque for $540 received from a customer whose
debt had been written off in 2010 had been credited to the suspense account. Jones’s policy is
to charge depreciation on computer equipment over four years with a full years charge in the
year of purchase. What is the profit of Jones after correcting these errors?
 $50,300
 $49,300
 $44,300
 $41,220

10 A suspense account was opened when a company’s trial balance failed to balance. The following
errors were later discovered:
I An electricity invoice for $280 had been recorded in the electricity account as $820
II A discount of $150 given to a customer had been credited to discounts received
III Bank charges of $80 had been entered in the bank account only
What was the balance on the suspense account?
$ debit / credit (delete as appropriate)

11 Zoe’s trial balance totals at 30 November 2012 were as follows:

Debit Credit
Totals 597,800 582,500

The following errors were subsequently discovered:

I Rent received of $5,400 was debited to the rent expense account in the nominal ledger
II Returns outwards of $2,700 were debited to the payables control account as $7,200
III An invoice for purchase of goods for resale for $3,500 was debited to the stationery
expense account
What was the balance on the suspense account after correcting these errors?
 $Nil
 $4,500 credit
 $9,000 credit
 $10,800 credit

12 Which of the following is an example of an error of commission?

 Insurance invoice of $100 credited to office expenses account
 Electricity invoice of $200 debited to gas expense account
 Telephone invoice of $300 recorded in the payables control account as $3,000
 Stationery invoice of $400 debited to computer equipment asset cost account

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ACCA FA Question Bank 13: Accounting errors 59

13 George is attempting to carry out the month end receivables ledger reconciliation and has
drafted the following control account.
Receivables ledger control account
$ $
Balance b/f 40,570
Credit sales 270,870 Cash received 270,375
Cash sales 23,850 Contra entry 700
Returns inwards 4,735 Balance c/f 68,950
340,025 340,025

The total of the customer balances in the receivables ledger is $38,130. What is the remaining
difference between the receivables ledger control account and the receivables ledger after
correcting the errors in the above control account?
 $Nil
 $2,500
 $6,970
 $59,480

14 Which of the following is an example of an error of principle?

 Carriage inwards of $4,500 recorded as carriage outwards in the nominal ledger
 Purchase invoice of $1,500 recorded in the sales day book
 Purchase of factory plant of $5,000 recorded as repairs and maintenance
 Casting error in the cash book

15 Following preparation of the draft financial statements it is discovered that accrued expenses of
$5,000 have been omitted and closing inventory has been overvalued by $15,000. What is the
effect on profit and net assets when these errors are corrected?
Profit Net assets
Increased by $20,000  
Increased by $10,000  
Reduced by $20,000  
Reduced by $10,000  

16 Paul’s draft profit for the year ended 30 June 2013 is $84,500. In preparing the year end
accounts, Paul has failed to record annual depreciation of $20,000 and has recorded prepaid
rent of $10,000 as an accrued expense. What is Paul’s profit after correcting these errors?
 $44,500
 $74,500
 $84,500
 $122,500

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60 1 3 : A c c o u n t i n g e r r o r s ACCA FA Question Bank

17 Ridgeley’s trial balance failed to balance and a suspense account was opened for the difference
of $4,800 debit. The following errors were subsequently discovered:
I Returns inwards of $1,800 had been omitted from the trial balance
II Motor vehicle repairs expenses of $1,000 had been debited to the motor vehicles asset
account
III The receivables allowance balance of $3,000 had been omitted from the trial balance
What was the balance on the suspense account after correcting these errors?
$ debit / credit (delete as appropriate)

18 The debit side of Marron’s trial balance is $250 higher than the credit side. Which of the
following errors would explain this difference?
 A credit purchase invoice for $125 being credited to the purchases account
 The cash account in the nominal ledger being undercast by $250
 A credit sales invoice for $125 being debited to the sales account
 The petty cash balance of $250 being omitted from the trial balance

19 Which of the following would cause profit to be overstated in the financial statements? (Tick all
that apply.)
 Overvaluation of closing inventory
 Failure to record an irrecoverable receivable balance
 Failure to record owners’ withdrawal of inventory for her personal use
 Misposting an invoice for machine repairs to the plant and equipment cost account

20 Which of the following errors will cause the trial balance totals to be unequal?
 Errors of transposition
 Errors of omission
 Errors of principle
 All of the above

21 An error of commission occurs where the entries required for a transaction are partially
omitted.
 True
 False

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ACCA FA Question Bank 14: Incomplete records 61

14: Incomplete records

OBJECTIVE TEST QUESTIONS

1 All the sales made by Susan are for cash and her sale prices are fixed by doubling cost. Details of
her transactions for September are as follows:
$
Inventory value at 1 September 30,000
Purchases for the month 70,000
Cash banked from sales for the month 95,000
Inventory value at 30 September 50,000

Which two of the following conclusions could be drawn from this information?
1 $5,000 cash has been stolen from sales receipts prior to banking
2 Goods costing $5,000 have been stolen
3 Goods costing $2,500 have been stolen
4 Goods costing $2,500 have been sold at cost price
 1 and 2
 1 and 3
 2 and 4
 3 and 4

2 The following information is available for a sole trader who keeps no accounting records:
$
1 July 2012 Net assets 92,000
30 June 2013 Net assets 167,000

During the year ended 30 June 2013 the proprietor introduced additional capital of $25,000,
took cash drawings of $38,000 and also used $20,000 of business cash to purchase a car for his
wife, who takes no part in the business. What is the trader’s profit for the year?
 $108,000
 $88,000
 $68,000
 $42,000

3 Catherine achieves a margin of 25% of sales. Opening inventory was $24,000, closing inventory
was $32,000 and purchases totalled $218,000. What is the value of Catherine’s sales?
$

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62 1 4 : I n c o m p l e t e r e c o r d s ACCA FA Question Bank

4 David is a sole trader who keeps no accounting records, but does have the following
information:
$
Inventory value at 1 July 2012 47,340
Inventory value at 30 June 2013 52,180

David makes a mark up of 30% on cost of sales. Sales for the year ended 30 June 2013 were
$402,350. What were David’s purchases for the year?
 $281,645
 $286,485
 $309,500
 $314,340

5 On 1 September a business had inventory of $160,000. During the month, sales totalled
$450,000 and purchases were $370,000. On 30 September a fire destroyed some of the
inventory. The undamaged goods remaining in inventory were valued at $86,000. The business
operates with a standard gross profit margin of 25%. What was the value of inventory destroyed
by the fire?
 $192,500
 $170,000
 $106,500
 $84,000

6 Elaine started trading with a bank balance of $5,000. She subsequently purchased goods on
credit for $12,000 and sold half of them on credit at a mark up of 120%. All customers were
given a cash discount of 5%. What was Elaine’s profit for the period?
$

7 On 1 April 2012 Cordelia’s customers owed $6,050 and at 31 March 2013 they owed $8,000.
Cash received from customers during the year amounted to $29,650, including $1,000 in
respect of an amount written off in the previous year. All sales were made at a gross profit
margin of 25%. Assuming Cordelia does not keep inventory, what were purchases for the year?
$

8 Which of the following calculations could produce an acceptable figure for a trader’s net profit
for a period if no accounting records had been kept?
 Closing net assets less drawings less capital introduced less opening net assets
 Closing net assets plus drawings less capital introduced less opening net assets
 Closing net assets less drawings plus capital introduced less opening net assets
 Closing net assets plus drawings plus capital introduced less opening net assets

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ACCA FA Question Bank 14: Incomplete records 63

9 A business makes all sales at a mark up of 40% on cost. Sales are $560,000, purchases were
$380,000 and closing inventory was $52,000. What was opening inventory?
$

10 Robbie owed his suppliers $5,600 at the start of the year and $8,200 at the end of the year.
Total payments to suppliers during the year were $98,500 including cash purchases of $9,200.
Returns outwards were $2,000. What were Robbie’s credit purchases for the year?
 $99,100
 $97,100
 $93,900
 $89,900

11 Edge fixes prices to achieve a margin of 30%. Cost of sales for October was $105,000 and
operating expenses were $15,000. What was net profit for the month?
 $45,000
 $31,500
 $30,000
 $16,500

12 Elbow makes a gross profit of $22,500 and has cost of sales $85,000. What is the company’s
gross profit margin?
 20.9%
 26.5%
 36%
 58.1%

13 A sole trader has opening net assets of $38,000 and closing net assets of $27,500. Capital
introduced during the year amounted to $10,000 and the business made a loss of $4,500.
What were drawings?
$

14 Turin made sales on credit of $197,000 during August. Customers owed $86,000 at the start of
the month and $78,000 at the end of the month and one customer went into liquidation owing
an amount of £5,000. Returns inwards were $11,000. How much cash was received from credit
customers in the month?
$

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64 1 4 : I n c o m p l e t e r e c o r d s ACCA FA Question Bank

15 Brakes achieves a gross profit margin of 35%. During September, purchases were $48,000 and
inventory fell by $7,000. What were sales for the month?
 $55,350
 $63,077
 $74,250
 $84,615

16 P is a sole proprietor whose accounting records are incomplete. All the sales are cash sales and
during the year $50,000 was banked, including $5,000 from the sale of a business car. P paid
$12,000 in wages in cash from the till and withdrew $2,000 per month as drawings. The cash in
the till at the beginning and end of the year was $300 and $400 respectively. What were the
sales for the year?
 $80,900
 $81,000
 $81,100
 $86,100

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ACCA FA Question Bank 15: Company accounts 65

15: Company accounts

1 OBJECTIVE TEST QUESTIONS

1 Lampard has issued 100,000 ordinary shares of $1 each. Frank purchased 6,500 shares for $2.50
and Lampard subsequently goes into liquidation owing debts to the bank of $1,000,000. How
much is Frank liable for?
 $Nil
 $6,500
 $16,250
 $65,000

2 Gerrard’s trial balance at 31 January 2013 is as follows:

Debit $ Credit $
Non-current assets at cost 100,000
Accumulated depreciation 25,000
Receivables 5,000
Inventory at 1 February 2012 4,000
Bank 1,000
Payables 2,000
Share capital 15,000
Retained earnings 34,500
Sales 170,000
Purchases 56,000
Rent and other expenses 67,000
Depreciation expense 13,000
Irrecoverable debts 500
246,500 246,500

Closing inventory is valued at $2,700. What is Gerrard’s profit for the year?
$

3 Which of the following items may appear in a company’s statement of changes in equity?
1 Revaluation surplus
2 Total comprehensive income for the year
3 Income from investments
4 Dividends paid
 2, 3 and 4
 1, 3 and 4
 1, 2 and 4
 All four items

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66 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

4 Which of the following items appear in the statement of changes in equity? (Tick all that apply.)
 Corporation tax payable
 Dividends paid
 Issue of share capital
 Bank interest received

5 A company pays interest at a rate of 5% on its loan notes of $960,000. Interest is paid quarterly
in arrears on 1 January, 1 April, 1 July and 1 October each year. What amount should be accrued
for interest payable at the reporting date of 30 September?
$

6 At 30 June 2012 the capital and reserves of Neville were:

$000
Share capital (ordinary shares of $1 each) 100
Share premium 80

On 1 September 2012 a bonus issue was made of one ordinary share for every two held, using
the share premium account. On 1 January 2013 a fully subscribed rights issue was made of two
ordinary shares for every five held at that date, at a price of $1.50 per share.
What were the balances on the share capital and share premium accounts at 30 June 2013?
Share capital Share premium
$000 $000
 240 30
 240 80
 210 110
 210 60

7 Which of the following statements are NOT true?

1 A company’s issued share capital must be included in its statement of financial position
2 If a company makes a bonus issue of ordinary shares, total shareholders’ funds increase
3 A company’s statement of changes in equity must include the proceeds of any shares
issued during the period
4 A company must disclose its significant accounting policies by way of a note to the
financial statements
 2 only
 1 and 2
 1, 2 and 4
 2, 3 and 4

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ACCA FA Question Bank 15: Company accounts 67

8 Vernon has 1,000,000 10c ordinary shares in issue. During the year ended 31 October 2013 the
company paid an interim dividend of 1c per share and on 15 November 2013 declared a final
dividend of 3%. What is the total dividend to be shown in the Statement of Changes in Equity
for the year ended 31 October 2013?
 $10,000
 $13,000
 $100,000
 $400,000

9 On 1 April 2011 Kay issued $500,000 of 8% loan notes. Interest is payable annually in arrears on
1 April each year. On 30 September 2012 Kay repaid $50,000 of loan notes. What amounts
should be included in Kay’s financial statements for the year ended 31 March 2013?
Statement of profit or loss Statement of financial position
$ $
 40,000 488,000
 40,000 450,000
 38,000 488,000
 38,000 450,000

10 At 1 January 2012 a company’s capital structure was as follows:

$
Share capital (ordinary shares of 50c each) 100,000
Share premium 140,000

In February 2012 the company issued 100,000 shares for $1.40 each and in September 2012
made a bonus issue of 1 share for every 3 held, using the share premium account. What was the
company’s capital structure at 31 December 2012?
Share capital Share premium
$ $
 400,000 80,000
 320,000 60,000
 200,000 180,000
 200,000 130,000

11 The issued share capital of Prophet at 31 January 2012 is:

$
Ordinary shares of 50c each 200,000
6% Preference shares of $1 each 300,000

Prophet paid an interim ordinary dividend of 5c per share and, on 3 February 2012, proposed a
final dividend of 6c per share, to be paid in April 2012. The preference shares are non-
redeemable. What amount should be included for dividends in Prophet’s statement of changes
in equity for the year ended 31 January 2012?
$

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68 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

12 Acrost has the following shares in issue:

100,000 ‘A’ ordinary shares of 25c each
200,000 ‘B’ ordinary shares of 50c each
300,000 6% non-redeemable preference shares of 10c each
50,000 5% redeemable preference shares of $1 each
What is Acrost’s total issued share capital?
$

13 Zeek has the following financing structure at 31 December 2012:

50,000 ordinary shares of $2 each
25,000 4% preference shares of $1 each, redeemable in full on 1 July 2013
$100,000 loan notes bearing interest at a rate of 5% per annum, repayable in four equal
instalments on 1 April each year.
What amount should be included in non-current liabilities in Zeek’s statement of financial
position at 31 December 2012?
 $75,000
 $100,000
 $125,000
 $225,000

14 Determine whether the following statements about a company’s reserves are TRUE or FALSE.
True False
The value of bonus shares may be debited to the share premium or  
retained earnings account
Dividends may not be paid out of a company’s revaluation surplus  

15 B made an issue of 150,000 $1 ordinary shares at a premium of 20%, the proceeds of which are
received by cheque. What is the correct journal to record this?
Debit $ Credit $
 Bank 180,000
Share capital 150,000
Share premium 30,000
 Bank 180,000
Share premium 180,000
 Bank 180,000
Share capital 180,000
 Bank 150,000
Share premium 30,000
Share capital 120,000

16 During the year ended 31 December 2017 Hammond Co settled its prior year tax bill, paying
$618,000. The estimated liability at the end of December 2016 was $600,000. Hammond’s tax
estimate for the year ended 31 December 2017 is $700,000. What is the tax expense in
Hammond Co’s statement of profit or loss for the year ended 31st December 2017?
$

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ACCA FA Question Bank 15: Company accounts 69

17 Benson revalued a property on 1 January 2019. Before the revaluation, the annual depreciation
expense was $20,000. After the revaluation, the annual depreciation expense was $35,000.
The company wishes to make the allowed transfer of excess depreciation between the
revaluation surplus and retained earnings.
What is the accounting entry to record the transfer for the year ended 31 December 2019?
Debit $ Credit $
 Retained earnings 15,000
Revaluation surplus 15,000
 Retained earnings 20,000
Revaluation surplus 20,000
 Revaluation surplus 15,000
Retained earnings 15,000
 Revaluation surplus 20,000
Retained earnings 20,000

18 The following details relate to an item of property owned by Alpha which is depreciated on a
straight-line basis with no estimated residual value:

Estimated useful life at acquisition 6 years

$000
Cost on 1 April 2016 120,000
Accumulated depreciation (two years) (40,000)
Carrying amount at 31 March 2018 80,000

Revaluation on 1 April 2018:

Revalued amount 112,000
Revised estimated remaining useful life 5 years
Alpha makes an annual transfer from its revaluation surplus to retained earnings in respect of
excess depreciation.
What are the depreciation charge for the year ended 31 March 2019 and the balance on the
revaluation surplus as at 31 March 2019?
 Depreciation charge $16,000; revaluation surplus $25,600
 Depreciation charge$16,000; revaluation surplus $32,000
 Depreciation charge $22,400; revaluation surplus $25,600
 Depreciation charge $22,400; revaluation surplus $32,000

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70 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

19 At 31 December 20X4 a company’s capital structure was as follows:

$
Ordinary share capital 125,000
(500,000 shares of 25c each)
Share premium account 100,000
In the year ended 31 December 20X5 the company made a rights issue of 1 share for every 2
held at $1 per share and this was taken up in full. Later in the year the company made a bonus
issue of 1 share for every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 31 December 20X5?
Ordinary share capital Share premium account
 $450,000 $25,000
 $225,000 $250,000
 $225,000 $325,000
 $212,500 $262,500

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ACCA FA Question Bank 15: Company accounts 71

Multi task questions

2 CHRISTINE BARNARD
Christine Barnard, a sole trader, wants you to prepare a statement of profit or loss for her business for
the year ended 31 August 20X7. Christine has provided you with the following information:
Sales for the year, including 20% sales tax, were $213,600. Christine gave a customer who had paid
twice a refund of $500.
Purchases for the year were $129,800. Inventory at 1 September 20X6 was $12,600 and was $14,400
at 31 August 20X7.
Christine received $1,500 for the sale of one of the business’s motor vehicles in September 20X6.
The vehicle had been bought for $6,000 and its accumulated depreciation was $4,200. In August 20X7
Christine asked the garage to value another vehicle that she was intending to sell soon. This vehicle
had been bought for $8,000 and its current carrying amount was $2,400. However the garage
informed her that the best price she could obtain for the vehicle would be $900.
Other motor vehicles are carried at cost of $26,000, and accumulated depreciation of $12,400. They
are depreciated at 25% on the reducing balance basis. Fixtures and fittings were carried at cost of
$48,000 and accumulated depreciation of $18,800. They are depreciated at 15% on a straight line
basis.
At 1 September 20X6 Christine had made two provisions in full against debts owing from specific
customers of $2,200 and $1,450. During the year the customer owing $2,200 became insolvent but the
customer who owed $1,450 paid in December 20X6. Christine had a general provision against other
debts of $950 at 1 September 20X6. Christine’s trade receivables at 31 August 20X7 were $28,400
after adjusting for the customers which had been fully provided against at the start of the year. She
wishes to make a 10% general provision against these debts.
During the year Christine employed an assistant at a cost of $10,000. Because Christine was pleased
with her assistant’s work, she decided in September 20X7 to give the assistant a bonus of $750 in
relation to the work the assistant had done in the year ended 31 August 20X7.
Telephone charges accrued at 1 September 20X6 were $230. Christine paid $1,550 in telephone
expenses during the year ended 31 August 20X7, including a payment by electronic transfer on
31 August 20X7 for a bill she received on that date. This bill was for $270 call charges for the three
months ended 31 August and $150 line rental for three months beginning 1 September 20X7.
Electricity charges accrued at 1 September 20X6 were $430. Christine paid $1,780 to the electricity
supplier during the year ended 31 August 20X7. On 30 September Christine received a bill from her
supplier of $420 for the three months ended 30 September 20X7.
A customer of Christine’s entered a claim of $2,500 in August 20X7 in respect of allegedly sub-standard
goods. Christine’s lawyer believes that the customer has, at best, a 10% chance of making a successful
claim.
Other expenses are $4,200. There are no accruals and prepayments relating to these.
All purchases and expense figures exclude sales tax.

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72 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

Required:
Prepare Christine’s statement of profit or loss for the year ended 31 August 20X7. Do not show any
figures in brackets.
$000
Sales
Purchases
Opening inventory
Closing inventory
Gross profit
Depreciation – fixtures and fittings
Depreciation – motor vehicles
Profit/loss on sale of motor vehicle
Impairment of motor vehicle
Bad and doubtful debt expense
Employee costs
Telephone
Electricity
Provision for legal claim
Other expenses
Net profit

(15 marks)

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ACCA FA Question Bank 15: Company accounts 73

3 MOONSTAR
The chief accountant at Moonstar, a limited company, prepared its statement of profit or loss for the
year ended 30 June 20X9, but was taken ill before he could prepare the statement of financial position.
You have available the statement of profit or loss, showing a profit after tax figure of $4,600,000 which
you can assume is correct. You also have a copy of last year’s statement of financial position and
additional information.
Statement of financial position as at 30 June 20X8
$000
ASSETS
Non-current assets
Property, plant and equipment 57,180
Intangible assets 8,420
65,600
Current assets
Inventory 4,900
Receivables 6,490
Other current assets 500
Bank and cash 7,370
19,260
Total assets 84,860

EQUITY AND LIABILITIES

Equity
Ordinary share capital 1,000
Share premium 600
Revaluation reserve 3,400
Retained earnings 61,910
66,910
Non-current liabilities
Loan 5,200
Long-term provisions 2,600
7,800
Current liabilities
Trade payables 7,450
Other payables 600
Dividends payable 250
Taxation 1,850
Short-term provisions –
10,150
Total equity and liabilities 84,860

(a) During the year ended 30 June 20X9 purchases of property, plant and equipment were
$14,150,000. The depreciation charge was $9,450,000. During the year an asset that cost
$900,000 and had accumulated depreciation of $210,000 was revalued to $1,200,000. Other
assets were sold for cash of $3,400,000 and net profits of $650,000.
(b) Intangible non-current assets consist of capitalisation of costs relating to the development of
new range of products. During the year ended 30 June 20X9 $1,200,000 development costs
were written off products for which there was no longer a market. Moonstar incurred $925,000
research costs during this year and $760,000 development costs for products that the directors
believe can be produced and marketed successfully. Development costs should be amortised at
a rate of 25% on the balance at the end of the year.

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74 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

(c) Inventory counted at 30 June 20X9 was originally valued at $5,200,000. However a provision of
$200,000 was made against certain inventory, as falling demand meant that it had to be sold off
at a lower price.
(d) Trade receivables at 30 June 20X9 were $7,290,000 before specific and general provisions. At
30 June 20X8, there were specific provisions against debts of $160,000. One customer owing
$70,000 went into insolvency during the year and was written off, but the rest of the specific
provision is to be maintained. Moonstar also makes a 5% general provision against other debts.
(e) Other current assets represent prepayments. The expenses to which these relate have
increased by 10% in the year ended 30 June 20X9 and the period covered by these prepayments
can be assumed to remain the same. However an additional prepayment of $120,000 was made
in June 20X9.
(f) Bank and cash at 30 June 20X9 was $9,620,000.
(g) Share capital consists of shares with $1 nominal value. During the year ended 30 June 20X9
Moonstar issued 250,000 shares at a price of $1.80. All shares were fully paid.
(h) Profit for the year ended 30 June 20X9 was $4,600,000.
(i) During the year ended 30 June 20X9 Moonstar repaid $1,500,000 of its loan, to reduce its
finance costs. No new loans were taken out during the year.
(j) Long-term provisions at 30 June 20X8 related to a longstanding dispute with a customer. During
the year ended 30 June 20X9 the dispute was settled at a cost to Moonstar of $1,800,000. The
company is currently in dispute with another customer and could face a liability of $1,250,000.
Moonstar’s directors have decided to take the case to court, although Moonstar’s solicitors
have warned that the company only has a 25% chance of winning the case. The case is due to be
heard in court in three months’ time.
(k) Trade payables at 30 June 20X9 were $8,180,000.
(l) Other payables consist of accruals. The expenses to which these relate have increased by 10% in
the year ended 30 June 20X9 and the period covered by these accruals can be assumed to
remain the same. However payment was made in June 20X9 for an expense for which an
accrual of $50,000 was made last year.
(m) The dividend accruing at 30 June 20X8 was paid during the year. Two dividends were proposed
in relation to the year ended 30 June 20X9. An interim dividend of 8c per share was proposed in
May 20X9 and a final dividend of 5c per share was proposed in July 20X9. Neither dividend has
yet been paid. The shares issued during the year ended 30 June 20X9 are eligible for dividends.
(n) The taxation owing at 30 June 20X8 was paid in March 20X9. The taxation charge for the year
ended 30 June 20X9 was $1,550,000.

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ACCA FA Question Bank 15: Company accounts 75

Required:
Prepare Moonstar’s statement of financial position as at 30 June 20X9. Do not show any figures in brackets.
$000
ASSETS –
Non-current assets –
Property, plant and equipment
Intangible assets

Current assets –
Inventory
Receivables
Other current assets
Bank and cash

Total assets
EQUITY AND LIABILITIES –
Equity –
Ordinary share capital
Share premium
Revaluation reserve
Retained earnings

Non-current liabilities –
Loan
Long-term provisions

Current liabilities –
Trade payables
Other payables
Dividends payable
Taxation
Short-term provisions

Total equity and liabilities

(15 marks)

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76 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

16: Statements of Cash Flows

1 OBJECTIVE TEST QUESTIONS

1 Which of the following items could appear as items in a company’s statement of cash flows?
1 A rights issue of shares
2 A bonus issue of shares
3 Revaluation of non-current assets
4 Dividends paid
 All four items
 1, 3 and 4
 1 and 4
 1, 2 and 4

2 A draft statement of cash flows contains the following:

$
Profit before tax 84,000
Depreciation 7,000
Increase in inventories (12,000)
Decrease in receivables (9,000)
Increase in payables (11,000)
Net cash inflow from operating activities 59,000

Which of the following corrections needs to be made to the calculation?

1 Depreciation should be deducted, not added
2 Increase in inventories should be added, not deducted
3 Decrease in receivables should be added, not deducted
4 Increase in payables should be added, not deducted
 1 and 2
 1 and 3
 2 and 4
 3 and 4

3 Where, in a company’s financial statements complying with International Financial Reporting

Standards, would you find the proceeds of non-current assets sold during the period?
 Statement of cash flows and statement of financial position
 Statement of changes in equity and statement of financial position
 Statement of profit or loss and statement of cash flows
 Statement of cash flows only

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ACCA FA Question Bank 16: Statements of Cash Flows 77

4 A limited liability company sold a building for a profit during its financial year. How will this
transaction be treated in the statement of cash flows?
Sale proceeds Profit on disposal
 Cash inflow under financing activities Added to profit in calculating cash flow from
operating activities
 Cash inflow under financing activities Deducted from profit in calculating cash flow
from operating activities
 Cash inflow under investing activities Added to profit in calculating cash flow from
operating activities
 Cash inflow under investing activities Deducted from profit in calculating cash flow
from operating activities

5 In the operating activities section of a statement of cash flows it is usual to find adjustments for
items not involving cash movement. Which one of the following items would appear under such
a heading?
 Loss on disposal of non-current assets
 Accumulated depreciation on non-current assets
 The taxation charge in the statement of profit or loss
 The charge for irrecoverable and doubtful receivables in the statement of profit or loss

6 A business has the following transactions during its accounting period:

Loans repaid $98,000
Interest paid $22,000
During the same period the business made a bonus issue of shares that increased share capital
by $115,000 and a rights issue that increased share capital by $230,000.
What is the financing cash flow for inclusion in the statement of cash flows?
$ Inflow / outflow

7 Murray has the following figures in its financial statements in relation to non-current assets:
31 Dec 2012 31 Dec 2011
$ $
Plant and machinery – cost 20,200 16,100
Plant and machinery – allowance for depreciation 6,800 3,900
Motor vehicles – cost 18,400 8,000
Motor vehicles – allowance for depreciation 8.800 5,600

Plant and machinery with a cost of $4,000 and a carrying amount of $1,800 was sold during the
year. What figure should be included in Murray’s statement of cash flows for the year ended 31
December 2012 for payments to acquire non-current assets?
$

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78 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

8 The following figures have been extracted from the financial statements of Robson for the year
ended 31 January 2013:
31 Jan 2013 31 Jan 2012
$ $
Non-current assets 118,000 96,000
Inventories 42,000 33,000
Receivables 79,000 82,000
Payables 31,000 26,000
Operating profit 65,000 51,000

Non-current assets costing $34,000 were purchased during the year. What is the figure for total
cash flows from operating activities to be included in Robson’s statement of cash flows for the
year ended 31 January 2013?
 $78,000
 $76,000
 $66,000
 $64,000

9 Innit has the following note to non-current assets in its financial statements:
Accumulated Carrying
Cost depreciation amount
$ $ $
Opening balance 7,450 3,400 4,050
Additions 2,000 – 2,000
Disposals (1,200) (800) (400)
Depreciation expense – 1,800 1,800
Closing balance 8,250 4,400 3,850

The additional non-current assets were purchased for cash and the items disposed of were sold
at a profit of $1,500. What was the net cash outflow in relation to non-current assets?
 $100
 $500
 $800
 $900

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ACCA FA Question Bank 16: Statements of Cash Flows 79

Questions 10 and 11 relate to the following information:

30 Sep 2012 30 Sep 2011
$ $
Property, plant and equipment (carrying amount) 19,850 12,740

During the year ended 30 September 2012 the company disposed of property, plant and
equipment for $2,300 resulting in a loss of $825. The depreciation charge for the year was
$3,890 and property was revalued, resulting in a revaluation surplus of $5,000 at the reporting
date.
10 What amount should be included under “investing activities” in relation to additions to
property, plant and equipment?
$ Inflow / outflow

11 What amount should be included in “operating activities” in relation to the above?

$

12 The following figures have been extracted from the financial statements of Suki.
31 Dec 2012 31 Dec 2011
$000 $000
Inventory 73 67
Receivables 91 82
Payables 54 57

The company made a profit of $249,000 for the year ended 31 December 2012. Ignoring
depreciation, what was the operating cash flow for the year?
 $231,000
 $237,000
 $261,000
 $267,000

13 Which of the following would be included under the heading “financing activities” in a
company’s statement of cash flows? (Tick all that apply.)
 Profit arising on disposal of non-current assets
 Proceeds from disposal of non-current assets
 Proceeds from a rights issue of shares
 Repayment of loans

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80 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

14 APM provides the following note to non-current assets in its financial statements:
Cost Depreciation Carrying amount
$000 $000 $000
Opening balance 25 12 13
Additions/charge 15 4 11
Disposals (10) (8) (2)
Closing balance 30 8 22

The additional machinery was purchased for cash. A machine was sold at a profit of $2,000.
What is the net cash outflow for plant and machinery?
 $9,000
 $11,000
 $13,000
 $15,000

15 The following information was extracted from the statements of financial position of ABC at
31 December year 2 and 31 December year 1:
Year 1 Year 2
$000 $000
Inventories 100 120
Receivables 140 175
Trade payables 120 140
Other payables 55 75

What figure should appear as part of the company’s statement of cash flows for the year ended
31 December year 2?
 $25,000 outflow
 $15,000 outflow
 $15,000 inflow
 $25,000 inflow

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ACCA FA Question Bank 16: Statements of Cash Flows 81

Multi task question

2 MILDEW
The following information relates to Mildew, a limited liability company, for the year ended 30 June
20X3.
Extracts from the statement of profit or loss for the year ended 30 June 20X3
$000
Profit before tax 17,750
Tax 4,150
Profit for the year 13,600

Statement of financial position as at 30 June 20X3

20X3 20X2
$000 $000
ASSETS
Non-current assets 54,650 40,140
Current assets
Inventory 3,950 3,680
Receivables 5,550 5,150
Cash 60 40
9,560 8,870
Total assets 64,210 49,010
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 6,500 5,000
Retained earnings 45,520 33,280
52,020 38,280
Non-current liabilities
Loan 2,500 1,500
Current liabilities
Bank overdraft 400 800
Trade payables 5,140 5,480
Taxation 4,150 2,950
9,690 9,230
Total equity and liabilities 64,210 49,010

Notes:
Depreciation expense for the year was $4,250,000.
Assets with a carrying amount of $820,000 were disposed of for a loss of $140,000.
Mildew paid a dividend of $1,360,000 during the year.

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82 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

Complete the statement of cash flows for Mildew for the year ended 30 June 20X3.
$000 Add or Subtract
Cash flows from operating activities – –
Fill in the narrative
Adjustments: – –
Depreciation
Loss on disposal of non-current assets
Inventory
Receivables
Payables
Tax paid
Net cash from operating activities
Cash flows from investing activities – –
Payments to acquire non-current assets
Proceeds from sale of non-current assets
Net cash from investing activities
Cash flows from financing activities – –
Proceeds from issue of share capital
Proceeds from long-term borrowings
Dividends paid
Net cash from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at beginning of period (negative figure) –
Cash and cash equivalents at end of period (negative figure) –

(15 marks)

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ACCA FA Question Bank 17: Interpretation of Financial Statements 83

17: Interpretation of Financial Statements

OBJECTIVE TEST QUESTIONS

1 Calculate the ratios below for the year ended 30 June 2013 based on the following information.
Give your answer to one decimal place.
Statement of profit or loss
30 Jun 2013
$000
Revenue 2,074
Cost of sales (1,572)
Gross profit 502
Distribution costs and administrative expenses (336)
Operating profit 166
Finance costs (28)
Profit before tax 138
Tax (25)
Net profit for the year 113
Statement of financial position (extract)
30 Jun 2013
$000
Non-current assets 564
Inventory 271
Receivables 243
Cash and cash equivalents 2
Total assets 1,080

Share capital 150

Retained earnings 586
Bank loan (repayable 2016) 100
Bank overdraft 71
Trade and other payables 173
Total equity and liabilities 1,080
Calculate the following ratios to 1 decimal place:
(i) Gross profit margin %
(ii) Operating profit margin %
(iii) Net profit margin %
(iv) Return on capital employed %
(v) Asset turnover times
(vi) Trade receivables days days
(vii) Trade payables days days
(viii) Inventory turnover times
(ix) Current ratio
(x) Quick ratio
(xi) Interest cover times
(xii) Gearing ratio %

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84 1 7 : I n t e r p r e t a t i o n o f F i n a n c i a l S t a t e m e n t s ACCA FA Question Bank

2 Which of the following might explain a decrease in gross profit margin?

 An increase in selling price
 An increase in management salaries
 A decrease in sales volumes
 An increase in suppliers’ prices

3 If gross profit margin is 24% what is the profit mark-up? (Enter your answer to two decimal
places.)
%

4 Which TWO of the following measures might help to improve the trade receivables collection
period?
 Extending the period of credit given to customers
 Increasing the level of settlement discounts given to customers
 Reducing the selling price of goods
 Introducing pay related targets for credit control staff

5 Which of the following ratios would a potential investor in a company be LEAST likely to use?
 Return on capital employed
 Inventory turnover
 Trade payables days
 Gearing ratio

6 A decrease in receivables of $14,000, an increase in payables of $17,500 and an increase in a

bank overdraft of $1,500 will result in
 An increase in working capital of $5,000
 An increase in working capital of $2,000
 A decrease in working capital of $2,000
 A decrease in working capital of $33,000

7 Which of the following is the correct calculation for asset turnover?

 Sales divided by total assets less current liabilities
 Sales divided by total assets less total liabilities
 Total assets less total liabilities divided by sales
 Total assets less current liabilities divided by sales

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ACCA FA Question Bank 17: Interpretation of Financial Statements 85

8 What is the correct figure for trade payables payment period (in days) based on the following
information?
$
Sales 425,000
Cost of sales 286,000
Inventory at start of year 28,500
Inventory at end of year 37,500
Payables at end of year 42,000

 36 days
 40 days
 52 days
 54 days

9 Which of the following would result in an increase in working capital?

 Sale of goods at a mark up of 40%
 Purchase of goods on credit
 Receipt from customer of amount owing
 Repayment of bank loan

10 Which of the following would result in an increase in the current ratio?

 Sale of goods on credit
 Purchase of goods on credit
 Write off of irrecoverable debt
 An increase in the bank overdraft

11 Which of the following would result in a decrease in gearing? (Tick all that apply.)
 Repayment of bank loan
 Repayment of bank overdraft
 Rights issue of shares
 Bonus issue of shares

12 A company has ordinary share capital of $1 million, share premium of $200,000, redeemable
preference shares of $100,000 and loan stock of $300,000. What is the company’s gearing
ratio?
%

13 Which ONE of the following might result in an increase in receivables collection period?
 An increase in the credit period given to customers
 An increase in the level of settlement discounts allowed
 An increase in the level of settlement discounts received
 A reduction in gross profit margins

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86 1 7 : I n t e r p r e t a t i o n o f F i n a n c i a l S t a t e m e n t s ACCA FA Question Bank

14 A business makes a gross profit of 30% on sales. During year 2, gross profit is $21,000 and
operating expenses were $7,000. What is the business’ net profit margin?
 20%
 30%
 40%
 None of these amounts

15 XYZ has average receivables days of 45 and inventory turnover of 6.5 times. All suppliers are
paid on 30-day credit terms. What is the length of the company’s cash cycle?
 41 days
 71 days
 101 days
 131 days

16 A company’s gross profit increased from 28% of sales in 2011 to 31% in 2012. Which ONE of the
following might have caused the increase?
 An increase in sales volume
 Overstatement of closing inventory at 31 December 2011
 Understatement of closing inventory at 31 December 2011
 Goods received in December 2011 and included in inventory in the financial statements
at 31 December 2011 were not recorded in purchases until January 2012

17 The following figures are extracted from the financial statements of Giggs:
$
Revenue 100,000
Cost of sales 80,000
Gross profit 20,000

What is the percentage mark up on cost of sales?

%

18 Which ONE of the following formulae correctly expresses the relationship between the return
on capital employed (ROCE), operating profit margin (OPM) and net asset turnover (AT)?
 ROCE = OPM / AT
 ROCE = OPM + AT
 ROCE = OPM x AT
 ROCE = OPM – AT

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ACCA FA Question Bank 17: Interpretation of Financial Statements 87

19 An increase in inventories of $500 and a decrease in the bank balance of $600 and an increase
in payables of $1,400 results in
 A decrease in working capital of $1,500
 An increase in working capital of $1,500
 A decrease in working capital of $1,300
 An increase in working capital of $1,300

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88 1 8 : P r o v i s i o n s a n d c o n t i n g e n c i e s ACCA FA Question Bank

18: Provisions and contingencies

OBJECTIVE TEST QUESTIONS

1 A, a limited liability company, has received a claim from a customer and will have to pay
compensation of $150,000 if it loses the case. At the financial year-end of 31 December 20X3,
A’s lawyers have advised that there is a 30% chance that it will lose the case and have to pay the
compensation.
How should A treat the claim in the financial statements for the year ended 31 December 20X3?
 Disclose a contingent liability in the notes to the financial statements
 Recognise a contingent liability in the statement of financial position
 Recognise a provision in the statement of financial position
 Neither recognise an amount in the statement of financial position nor disclose
information in the notes

2 Which of the following statements is correct?

 A contingent asset is disclosed when an inflow of economic benefits is probable.
 A contingent asset is disclosed when an inflow of economic benefits is possible.
 A contingent liability is recognised when an outflow of economic benefits is possible.
 A contingent liability is disclosed when an outflow of economic benefits is remote.

3 The directors of K, a limited liability company, have to decide how to treat the following items in
the financial statements for the year ended 31 December 20X3.
1 The company has a policy of making refunds to customers if they find that they have
purchased faulty goods. The directors estimate that about 3% of sales result in a refund.
2 Recent changes in the law mean that the company will have to re-train some of its staff.
At the year-end, it was not yet clear how many staff would be affected or how much the
staff training would cost.
For which of these items should K recognise a provision in the financial statements for the year
ended 31 December 20X3?
 Item 1 only
 Item 2 only
 Both items 1 and 2
 Neither item 1 nor item 2

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ACCA FA Question Bank 18: Provisions and contingencies 89

4 X is a limited liability company. The following events have occurred:

(i) At a board meeting on 15 December 20X3, the directors decided to close one of the
company’s factories. The costs of closure were estimated at $550,000. At 31 December
20X3 this decision had not yet been communicated to any of the employees likely to be
affected, and no detailed plan for the closure had yet been drawn up.
(ii) On 20 December 20X3, an incident at another of the company’s factories resulted in an
escape of poisonous gas into the atmosphere. The gas escape is known to have caused
serious damage to trees and wildlife in the area. X is not legally obliged to clean up the
damage, but the directors have announced that the company will bear the cost of
restoring the area to its previous condition, estimated at $600,000.
What amount should be recognised for provisions in the financial statements for the year ended
31 December 20X3?
 $NIL
 $550,000
 $600,000
 $1,150,000

5 Which of the following statements is/are correct?

1 A provision is recognised when an entity has a possible obligation as a result of a past
event
2 A provision is recognised when it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
3 A provision should not be recognised unless an entity has a legal obligation as a result of
a past event
 1 only
 2 only
 1 and 2
 1, 2 and 3

6 At the year-end, an entity has a liability of uncertain timing or amount.

What should it recognise in its financial statements?
 An accrual
 A contingent liability
 A non-current liability
 A provision

7 At the year-end, a company has a contingent liability and a contingent asset. In both cases, the
directors have been advised that it is possible that there will be an outflow of economic benefits
(for the liability) and an inflow of economic benefits (for the asset).
Which is the correct accounting treatment for these two items?
 Disclose both the contingent liability and the contingent asset
 Disclose the contingent liability; do not disclose the contingent asset
 Recognise the contingent liability; disclose the contingent asset
 Recognise the contingent liability; do not disclose the contingent asset

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90 1 8 : P r o v i s i o n s a n d c o n t i n g e n c i e s ACCA FA Question Bank

8 P, a limited liability company, guarantees to rectify, free of charge, any faults that arise in its
products that occur within the first twelve months after purchase. At the year-end of 31 March
20X4, management has prepared the following estimates relating to the goods sold during the
year ended 31 March 20X4:
Scenario Probability Estimated cost of repair
Major faults 5% $500,000
Minor faults 15% $50,000
No faults 80% $nil
What amount should be recognised for provisions in the financial statements for the year ended
31 December 20X3?
 $nil
 $32,500
 $50,000
 $500,000

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ACCA FA Question Bank 19: Events after the reporting period 91

19: Events after the reporting period

OBJECTIVE TEST QUESTIONS

1 There is a distinction between adjusting and non-adjusting events.
Which ONE of the following is a non-adjusting event?
 A court case is settled two weeks after the year-end. This confirms that the entity had a
liability at the year-end.
 An accounting error is discovered that shows that the financial statements are incorrect.
 Items that were held in inventories at cost at the year-end are sold for less than cost
shortly after the year-end.
 The directors announce a plan to carry out a major reorganisation of the business.

2 Which of the following events are adjusting events?

1 A flood that destroyed a major production plant after the year-end
2 An issue of equity shares at market value after the year-end
3 A property valuation that showed that the property was impaired at the year-end
4 The insolvency of a customer who owed a debt at the year-end which is still outstanding
 1 and 2
 2 and 3
 3 and 4
 1, 3 and 4

3 V, a limited liability company, prepares its financial statements to 30 June each year. The
following events took place between 30 June and the date on which the financial statements
were authorised for issue.
1 The company made a major purchase of plant and machinery
2 The company declared a dividend to holders of equity shares
Which of the above is likely to be classified as an adjusting event?
 Item 1 only
 Item 2 only
 Both items 1 and 2
 Neither item 1 nor item 2

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92 1 9 : E v e n t s a f t e r t h e r e p o r t i n g p e r i o d ACCA FA Question Bank

4 Which of the following statements is/are correct?

1 Adjusting events are indicative of conditions that arose after the reporting period
2 An entity should disclose information about all material non-adjusting events after the
reporting period
3 Events after the reporting period are events that occur before the financial statements
are authorised for issue
 1 and 2
 1 and 3
 2 and 3
 1, 2 and 3

5 F, a limited liability company, prepared financial statements for the year ended 31 December
20X3. These financial statements were authorised for issue on 1 March 20X4. The following
events took place:
1 On 5 January 20X4 a number of valuable items of plant and equipment and some
inventories were destroyed by a fire at the company’s premises.
2 On 14 February 20X4, F settled a claim from a customer by agreeing to pay compensation
of $200,000. The customer had made the claim on 11 December 20X3.
3 On 25 February 20X4, a sudden general fall in share prices reduced the fair value of F’s
investment portfolio by more than 50%.
Assuming that all three items are material, how should they be treated in the financial
statements for the year ended 31 December 20X3?
Item 1 Item 2 Item 3
 Adjust Disclose Adjust
 Adjust Adjust Disclose
 Disclose Adjust Disclose
 Disclose Disclose Disclose

6 Which ONE of the events below is likely to be an adjusting event?

 Announcing a plan to discontinue an operation
 Changes in tax rates announced after the year-end
 Determining the proceeds received from assets sold before the year-end
 Selling material items of property, plant and equipment

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ACCA FA Question Bank 20: Group accounts 93

20: Group accounts

1 OBJECTIVE TEST QUESTIONS

1 Z has a 50% shareholding in A, another limited liability company.
Which of the following would indicate that A is NOT a subsidiary of Z?
 Significant influence over the financial and operating policies of A
 Power over A (although this is not always exercised)
 Exposure or rights to variable returns from A
 The ability to use power over A to affect Z’s returns from A

2 Which of the following would indicate that an entity is an associate of another entity?
 The investing entity holds less than 100% of the equity shares of the investee
 The investing entity is a major customer of the investee
 The investor and the investee operate as a single economic entity
 The investor holds more than 20% but less than 50% of the voting power of the investee

3 A holds 25% of the voting power in S and 55% of the voting power in T. No other entity has a
significant holding in either S or T.
How should A treat S and T in its consolidated financial statements?
 S should be consolidated and T should be equity accounted
 S should be equity accounted and T should be consolidated
 Both S and T should be consolidated
 Both S and T should be equity accounted

4 Fielding purchased 80,000 ordinary shares in Richardson for $110,000 many years ago, when
Richardson’s retained earnings were $25,000.
At 30 June 20X4, Richardson’s equity and reserves were as follows:
$
Ordinary shares $1 100,000
Retained earnings 90,000
The fair value of the non-controlling interest at acquisition was $30,000.
What was the goodwill arising on acquisition of Richardson?
 $10,000
 $15,000
 $30,000
 $50,000

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94 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

5 On 30 September 20X7, H acquired 75% of the share capital of S. The non-controlling interest
had a fair value of $900,000.
Extracts from the statement of financial position of S at 30 September 20X7 and 30 September
20X8 are shown below:
Statement of financial position:
20X7 20X8
$ $
Ordinary share capital 500,000 500,000
Retained earnings 2,800,000 3,400,000
What figure for non-controlling interest should appear in the consolidated statement of
financial position as at 30 September 20X8?
 $825,000
 $900,000
 $975,000
 $1,050,000

6 Sterne acquired 60% of the voting equity shares of Defoe. Defoe had the following equity at the
date of acquisition:
$
Ordinary shares $1 500,000
Retained earnings 250,000
The cost of the investment was $850,000 and the fair value of the non-controlling interest at
acquisition was $120,000.
What was the goodwill on acquisition of Defoe?
 $100,000
 $132,000
 $220,000
 $520,000

7 On 1 January 20X4, A acquired 80% of the share capital of B. At that date, B had ordinary share
capital of $500,000 and retained earnings of $400,000.
Extracts from the statements of financial position of the two companies at 31 December 20X4
are shown below:
Statement of financial position:
A B
$ $
Ordinary share capital 1,000,000 500,000
Retained earnings 800,000 550,000
What figure for retained earnings should appear in the consolidated statement of financial
position as at 31 December 20X4?
 $920,000
 $950,000
 $1,240,000
 $1,350,000

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ACCA FA Question Bank 20: Group accounts 95

8 X has the power to affect the returns it receives from its investment in Y.
What is the term used to describe Y, in relation to X?
 Associate
 Investor
 Parent
 Subsidiary

9 Beaumont acquired 80% of the voting power in Fletcher many years ago. An extract from the
statement of profit or loss of Fletcher for the year ended 31 December 20X5 is shown below:
$
Profit before tax 110,000
Taxation (40,000)
Net profit for the year 70,000

What is the profit attributable to the non-controlling interest in the consolidated statement of
profit or loss for the year ended 31 December 20X5?
 $14,000
 $22,000
 $56,000
 $88,000

10 On 1 January 20X4, Lyon acquired 75% of the voting equity shares of Drake by paying $800,000
cash and issuing 50,000 of its own $1 equity shares. At that date, Drake had net assets of
$1,000,000.
On 1 January 20X4, the fair value of shares in Lyon was $1.50 per share and the fair value of the
non-controlling interest in Drake was $225,000.
What was the goodwill arising on acquisition of Drake?
 $25,000
 $75,000
 $100,000
 $125,000

11 Moray acquired 80% of the voting equity shares of Forth for cash of $1,250,000. The fair value
of the non-controlling interest at acquisition was $300,000. Forth had the following equity at
the date of acquisition:
$
Ordinary shares $1 500,000
Retained earnings 700,000
The fair values of the net assets of Forth were the same as their book values, with the exception
of some land with a carrying amount of $500,000 and a fair value of $600,000.
What was the goodwill on acquisition of Forth?
 $50,000
 $210,000
 $250,000
 $350,000

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96 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

12 On 1 January 20X3, Trent acquired 80% of the equity share capital of Dove. The following
information is taken from the statements of financial position of the two companies at
31 December 20X3:
Trent Dove
$ $
Property, plant and equipment 450,000 320,000
At the date of acquisition, Dove had land with a carrying amount of $75,000 and a fair value of
$90,000. Dove still held this land at 31 December 20X3.
What amount of property, plant and equipment should appear in the consolidated statement of
financial position as at 31 December 20X3?
 $718,000
 $755,000
 $770,000
 $785,000

13 Wye acquired 100% of the equity share capital of Derwent on 1 July 20X4. For the year ended
30 June 20X5, the cost of sales of Wye was $250,000 and the cost of sales of Derwent was
$130,000.
During the year ended 30 June 20X5, Wye sold goods costing $25,000 to Derwent for $35,000.
At the year-end, half these goods were still in inventory.
What is the consolidated cost of sales for the year ended 30 June 20X5?
 $340,000
 $345,000
 $350,000
 $360,000

14 On 1 October 20X3, Marlowe acquired 90% of the voting power of Spenser. The following
information has been extracted from the statements of profit or loss of the two companies for
the year ended 31 March 20X4:
Marlowe Spenser
$ $
Revenue 800,000 650,000
During February 20X4, Marlowe sold goods costing $50,000 to Spenser for $80,000. At
31 March 20X4, all of these goods had been sold to third parties.
What figure for revenue should appear in the consolidated statement of profit or loss for the
year ended 31 March 20X4?
 $1,012,500
 $1,045,000
 $1,075,000
 $1,370,000

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ACCA FA Question Bank 20: Group accounts 97

15 On 1 January 20X4, Tennyson acquired 60% of the share capital of Browning.

Extracts from the individual financial statements of the two companies are shown below:
Tennyson Browning
$ $
Ordinary share capital 800,000 400,000
Retained earnings at 1 October 20X3 1,000,000 500,000
Profit for the year ended 30 September 20X4 200,000 100,000
1,200,000 600,000

What figure for retained earnings should appear in the consolidated statement of financial
position as at 30 September 20X4?
 $1,245,000
 $1,260,000
 $1,300,000
 $1,725,000

16 Pater acquired 100% of the equity share capital of Scott many years ago, when Scott’s retained
earnings were $660,000.
Extracts from the statements of financial position of the two companies at 30 June 20X5 are
shown below:
Statement of financial position:
Pater Scott
$ $
Ordinary share capital 1,000,000 750,000
Retained earnings 950,000 940,000
During the year ended 30 June 20X5, Pater sold goods costing $100,000 to Scott for $150,000.
Half these goods remained in the inventories of Scott at the year-end.
What figure for retained earnings should appear in the consolidated statement of financial
position as at 30 June 20X5?
 $1,080,000
 $1,180,000
 $1,205,000
 $1,865,000

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98 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

17 Shelley owns 100% of the equity share capital of Keats. Extracts from the individual statements
of financial position of the two companies are shown below:
Statement of financial position:
Shelley Keats
$ $
Inventories 530,000 310,000
Trade and other receivables 480,000 290,000
During the year, Shelley sold goods costing $200,000 to Keats for $240,000. All of these goods
remained in the inventories of Keats at the year-end.
At the year-end, the trade receivables of Shelley included an amount of $30,000 owed to the
company by Keats.
Which figures should appear in the consolidated statement of financial position?
 Inventories $600,000; trade and other receivables $740,000
 Inventories $600,000; trade and other receivables $770,000
 Inventories $800,000; trade and other receivables $740,000
 Inventories $800,000; trade and other receivables $770,000

18 On 1 January 20X8, Wordsworth acquired 90% of the 500,000 $1 voting shares of Blake. At the
date of acquisition, the fair value of the non-controlling interest was $150,000. The fair values
of Blake’s net assets were the same as their book values, with the exception of some land with a
carrying amount of $300,000 and a fair value of $350,000.
Blake’s retained earnings were $750,000 at 1 July 20X7 and $940,000 at 30 June 20X8.
What figure for non-controlling interest should appear in the consolidated statement of
financial position as at 30 June 20X8?
 $150,000
 $159,500
 $164,500
 $169,000

19 Which of the following statements is/are true?

1 Control is the ability to participate in the financial and operating policy decisions of the
investee
2 Consolidated financial statements are the financial statements of a group presented as
those of a single economic entity
3 Control is normally presumed to exist when the parent owns more than half the shares in
an entity
4 A group consists of a parent and all its subsidiaries
 1, 2 and 4
 2 and 4
 2, 3 and 4
 4 only

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ACCA FA Question Bank 20: Group accounts 99

20 A, a company with subsidiaries, holds 45% of the voting power of B.

Assuming that A has significant influence over B, how should the investment in B be treated in
the consolidated statement of financial position of the A group?
 Included in non-current assets; measured at cost
 Included in non-current assets; measured at cost plus 45% of B’s post-acquisition
retained earnings
 45% of B’s individual assets and liabilities are added to the group assets and liabilities,
line by line
 100% of B’s individual assets and liabilities are added to the group assets and liabilities,
line by line

21 Which ONE of the following statements is true?

 L is presumed to be an associate of X, because X holds 25% of the share capital of L
 M cannot be a subsidiary of X, because X holds less than 50% of the voting rights in M
 N is a subsidiary of X, because X is exposed to or has rights to variable returns from N
 P is an associate of X, because X has the right to appoint or remove all the directors of P

22 Which of the following items are included in the calculation of the goodwill figure in the
consolidated statement of financial position?
1 Fair value of subsidiary’s net assets at the date of acquisition
2 Group share of subsidiary’s post-acquisition retained earnings
3 Non-controlling interest at fair value at the date of acquisition
 1 only
 1 and 2
 1 and 3
 1, 2 and 3

23 On 30 June 20X2, H acquired 80% of the share capital of S. The non-controlling interest had a
fair value of $1,300,000.
Extracts from the statement of financial position of S at 30 June 20X2 and 30 June 20X6 are
shown below:
Statement of financial position
30 June 20X2 30 June 20X6
$ $
Ordinary share capital 1,000,000 1,000,000
Share premium account 400,000 400,000
Retained earnings 4,700,000 5,600,000
What figure for non- controlling interest should appear in the consolidated statement of
financial position as at 30 June 20X6?
 $1,220,000
 $1,300,000
 $1,480,000
 $1,400,000

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100 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

24 Which of the following statements regarding methods of consolidation are true?

(1) Subsidiaries are consolidated in full
(2) Associates are equity accounted
 Neither statement
 Statement (1) only
 Both statements
 Statement (2) only

25 Which of the following would suggest that an entity is an associate of another entity?
 The investing entity has owned its share since the incorporation of the investee entity
 The investor holds greater than 20% but less than 50% of the voting power of the
investee
 The investing entity has some influence over other entities in the same industry
 The investor often trades with the investee

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ACCA FA Question Bank 20: Group accounts 101

Multi task questions

2 ARUNDEL
(a) Which of the following factors indicate the existence of a parent-subsidiary relationship?
Yes No
Significant influence  
Equity investor having a vote at board meetings  
More than 50% of equity shares being held by an investor  
More than 50% of preference shares being held by an investor  
More than 50% of debt being held by an investor  
Equity investor has the right to remove a majority of the board of  
directors
Equity investor can discuss financial and operating policies with the  
board

(4 marks)
(b) Arundel Co acquired 100% of the share capital of Pulborough Co on 30 September 20X5. The
summarised statements of profit or loss for the two companies for the year ended 31 December
20X5 are as follows:
Arundel Pulborough
$000 $000
Revenue 16,400 5,400
Cost of sales 8,900 2,500
Gross profit 7,500 2,900
Operating expenses 2,900 1,300
Profit before tax 4,600 1,600

Pulborough sold goods costing $140,000 to Arundel for $190,000 in November 20X5. These
goods were all sold by Arundel before the year-end. Other transactions can be assumed to have
occurred evenly throughout the year.
Required:
Prepare the Arundel group consolidated statement of profit or loss for the year ended
31 December 20X5.
Arundel group
$000
Revenue
Cost of sales
Gross profit
Operating expenses
Profit before tax

(8 marks)

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102 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

(c) If Pulborough’s share capital at 1 January 20X5 was 1 million shares at $1 nominal value, and
Arundel paid $2 a share for the entire share capital, what value will be included in the
consolidated accounts for Pulborough’s share capital?
$

(1 mark)
(d) Which of the following statements regarding the method of consolidation is true?
(1) Subsidiaries are consolidated in full
(2) Associates are equity accounted
 Neither statement
 Statement (1) only
 Both statements
 Statement (2) only
(2 marks)

(15 marks)

3 BONEHAM CO
Boneham Co acquired 75% of the share capital of Kyle Co on 1 July 20X8 for a cash payment of $6 and
2 $1 shares in Boneham, worth $1.20 each, for each share in Kyle. There were no adjustments for fair
value on acquisition. The fair value of the non-controlling interest at 1 July 20X8 was $185,000.
On 1 July prior to the acquisition Boneham had issued share capital of 625,000 $1 shares and a share
premium account of $115,000. Boneham’s retained earnings as at 1 January 20X8 were $665,000 and
its retained profit for 20X8 was $220,000.
At 1 January 20X8 Kyle had issued share capital of 100,000 $1 shares and retained earnings of
$550,000. Kyle did not issue any shares during 20X8. During the year ended 31 December 20X8 Kyle
made profits of $180,000.
There were no intra-group transactions after the acquisition.
Both companies make up their accounts to 31 December 20X8.
Required:
(a) Complete the following to determine the goodwill arising on acquisition.
$000
Value of investment at acquisition: –
Fair value of consideration
Fill in the narrative
Total value of investment at acquisition
Fair value of Kyle’s net assets at acquisition: –
Equity share capital
Fill in the blank
Total value of Kyle’s net assets
Goodwill at acquisition

(5 marks)

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ACCA FA Question Bank 20: Group accounts 103

(b) Calculate the following figures that would be reported in Boneham’s consolidated statement of
financial position as 31 December 20X8.
Share capital
$000

Share premium
$000

Retained earnings
$000

Non-controlling interest
$000
(6 marks)
(c) Boneham is considering making an investment during 20X9 in Arcidiacono. The investment will be
significant, but will be a smaller proportion of Arcidiacono’s share capital as the current
shareholders in Arcidiacono do not wish to relinquish control. Boneham’s directors are wondering
what criteria their investment in Arcidiacono would need to fulfil for it to be accounted for as an
associate rather than an investment in the consolidated financial statements.
Required:
State which of the following would suggest that Arcidiacono is an associate of Boneham.
Yes No
Boneham often trading with Arcidiacono  
Boneham holding greater than 20%, but less than 50%, of the voting  
power of Arcidiacono
Boneham being given representation on the board of directors of  
Arcidiacono
Boneham committing to make a long-term investment in Arcidiacono  

(4 marks)

(15 marks)

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104 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

4 OCKLEY
(a) Ockley acquired 100% of Capel’s share capital at 1 January 20X5. Capel’s share capital at that
date consisted of 100,000 $1 shares. The consideration for each share of Capel was $8 plus one
$2 share in Ockley. Ockley shares were trading at $3.50 on the stock market on the date of
acquisition.
Capel’s retained profits at 1 January 20X5 were $870,000. Capel’s non-current assets included
land and buildings at $400,000 cost less $50,000 accumulated depreciation. A valuation carried
out on 1 January valued these land and buildings at $470,000.
Required:
Complete the following to determine the goodwill arising on acquisition.
$000
Value of investment at acquisition: –
Fair value of consideration
Fair value of Capel’s net assets at acquisition: –
Equity share capital
Retained profits
Fill in the narrative
Total value of Capel’s net assets
Goodwill at acquisition

(4 marks)
The following extracts are taken from Ockley and Capel’s accounts for the year ended
31 December 20X5.
Statement of profit or loss
Ockley Capel
$000 $000
Revenue 1,650 870
Cost of sales (910) (460)
Gross profit 740 410
Operating expenses (290) (130)
Profit before tax 450 280
Taxation (120) (70)
Profit after tax 330 210

Statement of financial position

ASSETS
Inventory 280 140
Receivables 230 120
Cash 830 50
1,340 310

Total assets 11,780 1,430

Current liabilities
Trade payables 410 230
Taxation 120 70
530 300

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ACCA FA Question Bank 20: Group accounts 105

(b) During the year Capel sold Ockley goods that Capel manufactured for a cost of $150,000 and
made a profit of $100,000 on the sales. At 31 December 20X5 20% of the goods were left in
inventory. Ockley owes Capel $60,000 for goods purchased in December 20X5.
Required:
What figures would be shown for the following items in the consolidated accounts?
Revenue
$000

Cost of Sales
$000

Inventory
$000

Trade receivables
$000

Trade payables
$000
(6 marks)
(c) Calculate the % return on capital employed of the Ockley parent company for the year ended
31 December 20X5, to 2 decimal places.
%
(2 marks)
(d) Are the following statements in relation to consolidation TRUE or FALSE?
True False
The value of the non-controlling interest on acquisition is the price  
of the shares held by the non-controlling interest.
The value of goodwill may be written down at the year-end as the  
result of an impairment review.
The consolidation accounts are the accounts of a single separate  
legal entity.

(3 marks)

(15 marks)

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106 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

5 NORTHBOURNE CO
Northbourne Co acquired 90% of the share capital of Charminster Co on 1 October 20X6 for a cash
payment of $1,520,000.
At 1 October 20X6 Charminster had issued share capital of 50,000 $2 shares and retained earnings of
$720,000. The fair value of the non-controlling (10%) interest at 1 October 20X6 was $65,000.
During the year Charminster sold goods to Northbourne at a sales price of $200,000 and a margin of
25%. 20% of these goods remained in inventory at the year-end.
Both companies make up their accounts to 30 September 20X7.
The statements of financial position of the two companies as at 30 September 20X7 are given below.
Northbourne Charminster
$000 $000
ASSETS
Non-current assets
Property, plant and equipment 4,190 930
Cost of investment 1,520 –
5,710 930
Current assets
Inventory 160 180
Receivables 220 250
Bank and cash 20 130
400 560

Total assets 6,110 1,490

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Ordinary share capital 525 100
Share premium 170 –
Retained earnings 3,095 1,040
3,790 1,140
Non-current liabilities
Loan 1,800 –
Current liabilities
Trade payables 420 270
Taxation 100 80
520 350

Total equity and liabilities 6,110 1,490

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ACCA FA Question Bank 20: Group accounts 107

Required:
(a) Prepare the group consolidated statement of financial position as at 30 September 20X7.
$000
ASSETS –
Non-current assets –
Property, plant and equipment
Fill in the blank

Current assets –
Inventory
Receivables
Bank and cash

Total assets
EQUITY AND LIABILITIES –
Equity attributable to the owners of the parent –
Ordinary share capital
Share premium
Retained earnings
Fill in the blank
Total equity

Non-current liabilities –
Loan
Current liabilities –
Trade payables
Taxation

Total equity and liabilities

(11 marks)
(b) Northbourne’s bank has expressed concern about the company’s liquidity. The bank is worried
that Northbourne will not be able to meet its commitments on its loan.
Calculate the following ratios for Northbourne, to 2 decimal places.
Current ratio

Quick ratio

(2 marks)

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108 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

(c) When calculating Northbourne’s gearing, with what would Northbourne’s long-term debt be
compared?
 Total assets
 Total assets plus current liabilities
 Total assets less current liabilities
 Total assets plus equity
(2 marks)

(15 marks)

6 BOSHAM CO
Bosham Co acquired 80% of the share capital of Emsworth Co on 1 April 20X3 for a cash payment of $4
and 3 $1 shares in Bosham, worth $1.40 each, for each share in Emsworth.
At 1 January 20X3 Bosham had $2,550,000 of retained earnings and made $130,000 profit during
20X3. Bosham had 600,000 S1 shares in issue at 1 January 20X3. New shares were issued as part-
payment for Emsworth. There were no other share issues during the year
At 1 January 20X3 Emsworth had issued share capital of 100,000 $2 shares and retained earnings of
$410,000. Emsworth did not issue any shares during 20X3. During the year ended 31 December 20X3
Emsworth made profits of $160,000. The fair value of the non-controlling (20%) interest at 1 April
20X3 was $120,000.
Land and buildings owned by Emsworth that cost $700,000 and had accumulated depreciation of
$80,000 were valued at $720,000 at 1 April 20X3.
There were no intra-group transactions after the acquisition.
Both companies make up their accounts to 31 December 20X3.
(a) For each space indicated by a letter, select the figure, or the calculation that would be carried
out to calculate the figure, that should be in that space.
$
Value of investment at acquisition:
Fair value of consideration A
Non-controlling interest B
Fair value of Emsworth’s net assets at acquisition:
Equity share capital C
Retained profits D
Fair value adjustment E
Total value of Capel’s net assets
Goodwill at acquisition F
A  80,000 × ($4 + $1)
 80,000 × ($4 + $3)
 80,000 × ($4 + $3.40)
 80,000 × ($4 + $4.20)
B  $120,000
 $120,000 + (20% × 410,000)
 $120,000 + (20% × 410,000) + (20% × $160,000 × 0.25)

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ACCA FA Question Bank 20: Group accounts 109

C  $100,000
 $200,000
D  $410,000
 $410,000 + ($160,000 × 0.25)
E  $20,000
 $100,000
 720,000
F  Value of investment + Fair value of Emsworth’s net assets
 Value of investment – Fair value of Emsworth’s net assets
(6 marks)
(b) What figures would be shown for the following items in the consolidated accounts?
Investment in Emsworth by Bosham
$000

Share capital
$000

Retained earnings
$000

Non-controlling interest
$000
(6 marks)
(c) Are the following statements TRUE or FALSE?
True False
The non-controlling interest figure could include the non-  
controlling interest’s share of unrealised profits on intra-group
transactions.
The value of goodwill could stay the same in consolidated accounts  
for an indefinite period.
Where a subsidiary is acquired part-way through a year, the  
consolidated accounts should always exclude all transactions
between the parent and subsidiary in that year.

(3 marks)

(15 marks)

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110 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

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ACCA FA Question Bank Answers to 1: Introduction to accounting 111

Chapter answers

1: Introduction to accounting

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  The IFRS Advisory Council

2 Lenders

3  False
Both user groups need both pieces of information.

4  To provide financial information to users of such information

Read the requirement carefully. This is the main objective or aim of accounting, the other
statements may well arise as a result of accounting, but they are not the main aim.

5 Statement of Cash Flows

6  Assessment of ability to repay debts

Investors are primarily concerned with obtaining a return on their investment, so need to know
how well a business is performing, rather than whether the business can repay its debts.
Investors need the information in financial statements to help them to decide whether to buy,
hold or sell an investment.

7  The International Accounting Standards Board

8
True False
Sole traders have limited liability  
A partnership has to produce financial statements in accordance  
with accounting standards issued by the IASB

9  Neither 1 nor 2
Remember, unincorporated businesses are sole traders and partnerships.

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112 A n s w e r s t o 1 : I n t r o d u c t i o n t o a c c o u n t i n g ACCA FA Question Bank

10  Directors

11  Financial accounts are audited by management whereas management accounts are

audited by external auditors
Financial accounts are more accurate than management accounts as they contain only historical
information, whereas management accounts are more forward looking and are based on
assumptions about the future. Financial accounts of a company may be audited by external
auditors but management accounts are produced for internal use.

12  False
The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decisions.

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ACCA FA Question Bank Answers to 2: Principles and concepts 113

2: Principles and concepts

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  Historic cost

2  Relevance and faithful representation

3  Accruals concept

4
Overstated Understated
Asset values  
Profits  

Remember assets are stated at their original cost of purchase, so when prices are rising those
asset values will be understated as to buy the same assets at a later date will cost more.
Regarding profits, consider the following:
A business buys goods at the start of the year for $1,000 and sells half of those goods for $2,500
making a profit of $2,000. Later in the year, the remainder of those goods are sold for $3,000
(as prices have risen) so the profit on sale is $2,500. So, profits are overstated when prices rise.

5  Separate entity
The owner’s personal affairs must be kept separate from the business.

6  2, 3 and 4
If you have worked out that the first statement is incorrect then you can choose the correct
answer right away as only one option excludes this statement!

7  Consistency

8  Expenditure on the acquisition or improvement of non-current assets

Expenditure on maintaining or repairing non-current assets is revenue expenditure.

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114 A n s w e r s t o 2 : P r i n c i p l e s a n d c o n c e p t s ACCA FA Question Bank

9
Capital Revenue
expenditure expenditure
Redecoration of office premises  
Upgrade of factory equipment  
Cleaning of factory  
Purchase of delivery van  

10  False
Owners may put in their personal assets for use in the business as well as cash, for example, a
car or computer equipment.

11  Legal fees incurred on the purchase of a building

Legal fees incurred on the purchase of a building may be capitalised as part of the purchase cost
of the building.

12  The accruals concept

The accruals concept requires that the invoices are accrued for in order to match the cost with
the inventory asset.

13  Overstating profits and understating statement of financial position values

14  Ensuring the recording, controlling and safeguarding of assets

15  investors
 Lenders
These are the two groups of users that actually provide resources to the business.

16  Assets
 Equity
 Liabilities

17  False
An asset is an economic resource controlled by a business. A business need not be the legal
owner of an asset, provided that it has control.

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ACCA FA Question Bank Answers to 2: Principles and concepts 115

18  (2) and (4)

Computers for resale are current assets – they will be sold to generate revenue, normally within
12 months. Motor vehicles and office furniture are used by the business in the long term.

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116 A n s w e r s t o 3 : A c c o u n t i n g s y s t e m s ACCA FA Question Bank

3: Accounting systems

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  Each code is unique
The other aspects of coding may all be true, but it is essential that each code is different.

2  All of the above

3  Sales invoices

4  Receivables ledger

5  Return of goods by a customer

This would be recorded in the sales returns day book.

6
$ 76.70

The total of all expenses paid in the month adds up to $76.70 so this amount must be restored
to petty cash at the end of the month.

7
$ 103.35

$
Petty cash balance at start of month 200.00
LESS: Total of all expenses ($65.00 + $9.70 + $24.35) (99.05)
ADD: Contribution to cover stamps taken for personal use 2.40
Petty cash balance at end of month 103.35

8  Remittance advice

9  A method of controlling petty cash

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ACC A FA Question Bank Answers to 3: Accounting systems 117

10  $385
Petty cash control
$ $
1 July Float b/f 150
Cash received from staff 25 Cheque cashed for employee 90
Bank (cheques drawn) 500 Expenses (balancing figure) 385
1 August Float c/f 200
675 675

11  It helps to control petty cash

12  $260
Petty cash control
$ $
1 February float 300
Cash from staff 20 Window cleaning 20
Miscellaneous sale 60 Stationery 100
Bank (balancing figure) 260 Coffee and biscuits 145
28 February float 375
640 640

13  All of the above

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118 A n s w e r s t o 4 : D o u b l e e n t r y b o o k k e e p i n g ACCA FA Question Bank

4: Double entry bookkeeping

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  A credit records an increase in liabilities
 A credit records a decrease in expenses

2  Expense, decrease in liability, increase in asset

3
Debit Credit
Payables  
Purchases  

4
Debit Credit
Expenses  
Capital  
Liabilities  
Drawings  

5
Debit Drawings
Credit Cash

6
Debit Credit
Sales  
Receivables  

7
Debit Credit
Payables  
Cash  

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ACCA FA Question Bank Answers to 4: Double entry bookkeeping 119

8
Debit Credit
Fixtures and fittings  
Payables  

9  Duality concept
For every entry there must be an equal and opposite entry.

10  DEBIT Drawings $2,000 CREDIT Purchases $2,000

Remember when goods are purchased, the purchases account is debited with the cost of those
goods. So when an owner takes those goods for personal use, the purchases account must be
credited with the cost.

11  Both statements are true

Remember a bank overdraft is a credit balance, so an increase in the overdraft amount will be a
credit entry.

12  Income earned from the sale of goods

13  A credit entry is required to record a decrease in expenses

14  Liability

15
Debit Credit
Petty cash  
Bank  

16  Sale of goods on credit

Think of the double entry for each of the transactions – this is the only entry which results in a
debit to an asset account (receivables).

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120 A n s w e r s t o 5 : T h e t r i a l b a l a n c e ACCA FA Question Bank

5: The trial balance

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  To test the accuracy of the double entry bookkeeping records
In practice, the trial balance is used for producing management and financial accounts, but its
original purpose is to detect errors.

2  Transposition

3
Correct Incorrect No impact
Profit 
Net assets 

An error of principle occurs when an item is posted to the correct side of the wrong type of
account. For example, suppose that cash paid to purchase a motor vehicle is debited to the
repairs expense account. The trial balance balances, but assets (motor vehicles) are understated
and expenses are overstated, so profit is understated.

4  Sundry expenses, prepayments and purchases

 Receivables, drawings and rent expense

5
$ 936

Assets $2,143 less Liabilities $1,207 = Capital $936

6  $1,500 loss
$
Opening capital 10,000
Capital introduced 4,000
Drawings (8,000)
Profit / (Loss) – balancing figure (1,500)
Closing capital 4,500

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ACCA FA Question Bank Answers to 5: The trial balance 121

7  Opening capital plus profit less drawings plus liabilities equals assets
You need to learn the accounting equation and be able to decipher it in all its different forms.
If in doubt draw up a statement of financial position with some simple figures to represent the
items mentioned and then test each statement until the figures work.

8
$ 518

If given an increase in net assets assume opening net assets are nil and closing net assets are
the given figure, as follows:
$
Opening net assets Nil
Profit 1,051
Capital introduced 300
Drawings – balancing figure (518)
Closing net assets 833

9
$ 15,200

Non current assets $12,500 + current assets $4,700 = Capital $2,000 + Liabilities (balancing
figure $15,200)

10
Income and Assets and
expenses liabilities
Carried forward to start of next accounting period  
Transferred to statement of profit or loss  

11
$ 14,000

$
Net assets at 1 May 2012 10,000
Drawings (12 months x $500) (6,000)
Profit – balancing figure 14,000
Net assets at 30 April 2013 18,000

12  Non-current assets

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122 A n s w e r s t o 5 : T h e t r i a l b a l a n c e ACCA FA Question Bank

13  To show the assets and liabilities of a business

14
$ 16,500

$
Opening capital ($14,000 – $6,500) 7,500
Profit 9,000
Closing capital 16,500

The purchase of the non-current asset has no effect (as the increase in non-current asset is
offset by the decrease in bank asset) and nor does the payment of payables have an effect (as
the reduction in payables liability is offset by the reduction in bank asset).

15  Closing capital + Drawings – Capital introduced – Opening capital

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ACCA FA Question Bank Answers to 6: Sales, purchases and taxes 123

6: Sales, purchases and taxes

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  $6,190
Sales tax control account
$ $
Balance b/f 4,540
Input tax ($84,000 × 15%) 12,600 Output tax ($109,250 × 15/115) 14,250
Balance c/f 6,190
18,790 18,790

2  Y owes X $806
The business is X and we are looking at Y’s account. As a debit balance represents an asset or
expense, and it is a personal account, this must represent a receivable amount due from Y to X.

3  $81,921
$
Purchases 84,193
Purchase returns (represented by a credit balance on the returns account) (2,272)
Net purchases 81,921

4
Debit Credit
Purchases returns  
Payables  

5
Debit $ Credit $
 Receivables 480
Sales 400
Sales tax 80

6  Dr Receivables $2,375; Cr Sales $2,375

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124 A n s w e r s t o 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

7
Debit Credit
Receivables  
Cash  

A lot of students find this difficult. If you deal with the cash entry first, you should know that a
credit to cash is required to reflect that a payment has been made, so you just need to identify
the correct debit entry. If you consider the double entry for when a cash receipt is received
from a customer (debit cash, credit receivables) you simply need to post the reverse of this,
which would be required if, for example, the customer paid the same invoice twice.

8
$ 4,025

$
Sales tax on books Nil
Sales tax on DVDs ($18,800 × 17.5%) 3,290
Sales tax on CDs ($4,935 × 17.5/117.5) 735
Total sales tax 4,025

9
Debit Credit
Payables $49,500
Purchases $49,500

10
Debit Credit
Payables $49,500
Cash $47,025
Discounts received $2,475

11
$ 62,325

$
Sales ($172,500 ─ $4,850) 167,650
Purchases ($109,000 ─ $3,675) (105,325)
Gross profit 62,325

Ignore discounts received as these are treated as other income and are not included within the
gross profit calculation.

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ACCA FA Question Bank Answers to 6: Sales, purchases and taxes 125

12  The business sells goods to a customer who is not registered for VAT
The VAT status of a customer is irrelevant.

13  $5,014
Sales tax control account
$ $
Balance b/f 5,895
Input tax (19% × $58,800) 11,172 Output tax (19% × $72,400) 13,756
Cash paid (balancing figure) 5,014
Balance c/f 3,465
19,651 19,651

14  It is raised by the purchaser

 It is a formal request for a credit note to be raised
A debit note is recorded in the purchase returns day book, not the sales returns day book.

15
Debit Credit
Discounts received $380
Payables $380

16
Net $ VAT $ Gross $
Invoice totals $4,500 $900 $5,400

17
Debit Credit
 Advertising expense $4,000, Payables $4,800
Sales tax account $800

18  CR $9,000
VAT control account
$ $
Input tax 15%/115% × $161,000 21,000 Output tax 15% × $200,000 30,000
Balance c/f 9,000
30,000 30,000

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126 A n s w e r s t o 6 : S a l e s , p u r c h a s e s a n d t a x e s ACCA FA Question Bank

19 Statement 1: Correct Statement 2: Incorrect

Discounts received reduce the amount payable to a supplier. Payables are a credit balance (a
liability), therefore discounts received are recorded as a debit entry in the payables ledger
account.
Discounts received reduce purchases/expenses. Purchases and expenses are debit balances in
the general ledger, so discounts received are recorded on the credit side of the general ledger.

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ACCA FA Question Bank Answers to 6: Sales, purchases and taxes 127

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128 A n s w e r s t o 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

7: Control accounts

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  1, 2, 4 and 5

2
$ 19,900

Receivables control account

$ $
1 June Balance b/f 18,700
Sales 134,500 Sales returns 8,200
Cheques received 125,100
30 June Balance c/f (bal. fig.) 19,900
153,200 153,200

3  $115,050
Receivables control account
$ $
Balance b/f 75,000
Sales 468,000 Cash received 409,500
Irrecoverable debt 1,500
Contra 5,200
Sales returns 11,750
Balance c/f 115,050
543,000 543,000

4  $90,250
Receivables control account
$ $
1 January balance b/f 12,500
Credit sales (balancing figure) 90,250 Cash from credit customers 88,000
($95,000 – $7,000)
31 December balance c/f 14,750
102,750 102,750

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ACCA FA Question Bank Answers to 7: Control accounts 129

5
$ 13,200

Payables control account

$ $
1 Nov balance b/f 23,500
Cash payments 53,950 Credit purchases 48,600
Discounts received 1,250
Purchases returns 3,700
30 Nov balance c/f 13,200
72,100 72,100

6  The purchases day book is overcast by $2,500

As the day book is over added, the total of the purchase invoices posted to the control account
is overstated and will be more than the total of the individual invoices posted to the purchase
ledger accounts.

7
$ 31,370

Payables control account

$ $
1 April balance b/f 18,200
Contra entry 540 Purchases day book total 173,455
Returns outwards 7,300
Discounts received 3,750
Cash payments 148,695
30 April balance c/f 31,370
191,655 191,655

8
$ 1,135

Discounts received should be debited to the payables control account, so if the amount has
been entered as a credit by mistake, then the difference between the control account and the
payables ledger total will be $2,270 as per the question.

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130 A n s w e r s t o 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

9  $Nil
$
Balance per Peter’s statement 2,890
I Cheque sent by Jordan not recorded (360)
II Return of goods by Jordan not recorded (540)
III Contra entry not recorded (1,700)
Corrected balance per Peter – agrees to Jordan’s payables ledger balance 290

10  Sales invoice not recorded in sales day book

If an invoice has not been recorded in the day book, the individual amount will be missing from
the individual sales ledger account and nor will the amount be included in the total posted to
the control account.

11
$ 4,597

Receivables control account

$ $
Balance b/f 38,792
I Discounts received (removed) 410 II Sales invoice (transposition error) 900
III Returns inwards (correction) 2,060
Balance c/f 36,242
39,202 39,202

Receivables ledger total

$ $
Balance b/f 41,739
II Sales invoice (transposition error) 900
Balance c/f 40,839
41,739 41,739

The difference remaining is $36,242 less $40,839 = $4,597. To save time in the exam you could
ignore item II in calculating the difference as this error affects both the control account and the
receivables ledger.

12  The total of the purchases day book was miscast by $200

All the other errors affect both the control account and the payables ledger, or affect neither,
and therefore are not detected in performing the reconciliation.

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ACCA FA Question Bank Answers to 7: Control accounts 131

13  $17,630
Payables control account
$ $
Balance b/f 18,240
Returns outwards 1,375 Purchases day book 27,965
($23,800 x 1.175)
Payments to payables 25,925
Discounts received 75
Contra entry 1,200
Balance c/f 17,630
46,205 46,205

Debit balance on suppliers’ account does not affect the payables control account.

14  Debit $3,000
Purchase returns reduce payables (payables are a credit balance in the nominal ledger).

15  Returns inwards
 Irrecoverable debts

16  2 only
1 The total of the returns inwards day book is posted to the credit side of the receivables
control account
2 A contra entry should be credited to receivables and debited to payables in the nominal
ledger
3 The sales day book contains details of credit sales invoices
4 VAT is included in amounts recorded in the receivables and payables control accounts
5 The total list of receivables balance should agree to the balance on the receivables
control account so no adjustment is made for a credit balance

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132 A n s w e r s t o 7 : C o n t r o l a c c o u n t s ACCA FA Question Bank

17
$ 27,585

Receivables control account

$ $
1 January balance b/f (bal. fig.) 27,585
Credit sales ($87,250 - $4,270) 82,980 Cash received 94,310
Irrecoverable debt w/off 1,050
31 January balance c/f 15,205
110,565 110,565

18  $62,275
Receivables control account
$ $
31 March balance b/f 62,840
Late payment interest 410 Sales returns 825
Irrecoverable debt w/off 150
31 March balance c/f 62,275
63,250 63,250

Late payment interest may be added to a customer balance so has the effect of increasing the
total amount owed.

19  Omission of a debit balance on a supplier’s account in the payables ledger total

 Failure to record a contra entry in a supplier’s account with a balance owing by the same
business in the receivables ledger
The omission of the purchase credit note will require adjusting in both the payable ledger and
the payables control account, and the casting error will require adjustment in the control
account only.

20  Don has recorded a purchase credit note from Betty for $820 on the wrong side of the
ledger account
The purchase credit note should be debited in Don’s payables ledger. To correct the error
requires a debit entry of $1,640 which reduces the amount owing to $49,610.
Sales ledger receipts should be recorded gross in the cash book. The result of the net entry is
that the amount credited to Don’s sales ledger account is too low, so the balance owing is
$1,640 more than Don owes as per the question).

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ACCA FA Question Bank Answers to 7: Control accounts 133

21  $19,000
Sales ledger control account
$ $
Sales 250,000 Bank 225,000
Return unpaid cheque 3,500 Sales returns 2,500
Irrecoverable debts 3,000
Contra with purchase ledger 4,000
Balance c/f 19,000
253,500 253,500

22  $1,100
Supplier account
$ $
2 May Balancing owing 1,200
Returned goods 100 Purchased goods 1,700
Cheque payment 1,615
Discount received (5% x $1,700) 85
31 May Balance owing 1,100
2,900 2,900

23  $690
Beta Alpha
$ $
8,950 4,140
(4,080) 40
4,870 4,180 difference $690

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134 A n s w e r s t o 8 : A c c r u a l s a n d p r e p a y m e n t s ACCA FA Question Bank

8: Accruals and prepayments

ANSWERS TO OBJECTIVE TEST QUESTIONS

1
Line rental Call charges
Prepayment $50  
Accrual $200  

At the year end date, line rental has been paid up to 31 July so one month has been prepaid
(1/3 × $150). Call charges have been paid up to 30 April, so 2 months must be accrued (2/3 ×
$300).

2
Statement of profit or loss Statement of financial position
 $37,200 $14,000 prepayment

Insurance expense
$ $
1 Sep Reversal of prepayment b/f 9,200
1 Jan Insurance paid 42,000 31 Aug Prepayment c/f 14,000
(4/12 × $42,000)
Statement of profit or loss
([Link].) 37,200
51,200 51,200

3
Rent expense Accrual
 $165,000 $Nil

$
Rent expense 1 April 2011 to 30 September 2011 = 6/12 × $150,000 75,000
Rent expense 1 October 2011 to 31 March 2012 = 6/12 × $180,000 90,000
165,000

At the year-end date 31 March, the quarterly rent payment on 1 January covers the quarter
until the year end date, so no accrual is required.

4  £10,625 in sundry payables

Look at the year-end date and work backwards. The most recent rent receipt was on 1 May,
covering the months of May, June and July. So at 30 June one month’s rent has been received in
advance, so is deferred (credited to accruals which forms part of sundry payables).

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ACCA FA Question Bank Answers to 8: Accruals and prepayments 135

5
$ 6,200

Water rates (expense)

$ $
Reversal of accrual b/f 1,400
Cash paid 6,000
Accrual c/f 1,600 Statement of profit or loss 6,200
([Link].)
7,600 7,600

6  $230
$130 petrol expenses plus $100 monthly charge for insurance.

7  $642,000
Rent receivable control account
$ $
B/f Rent in arrears 34,900 B/f Rent received in advance 82,300
Statement of profit or loss (bal. 642,000 Cash received 627,200
fig.)
C/f Rent received in advance 68,700 C/f Rent in arrears 36,100
745,600 745,600

Remember rent received in advance is treated as deferred income, so is brought forward on the
credit side of the control account. Rent in arrears is owing to the business so is brought forward
on the debit side.

8
$ 560 Statement of Financial Position
$ 3,480 Statement of profit or loss

Gas expense
$ $
Reversal of accrual b/f 300
1 Aug Payment 700
1 Nov Payment 720
1 Feb Payment 960
30 Jun Payment 840
Accrual c/f (2/3 x $840) 560 Statement of profit or loss (bal. 3,480
fig.)
3,780 3,780

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136 A n s w e r s t o 8 : A c c r u a l s a n d p r e p a y m e n t s ACCA FA Question Bank

9
Statement of profit or loss Statement of financial position
 $90,000 $8,000 prepayment

$
Rent expense 1 Dec 2012 to 31 Mar 2013 = 4/12 × $78,000 26,000
Rent expense 1 Apr 2013 to 30 Nov 2013 = 8/12 × $96,000 64,000
90,000

As the year end date is 30 November and quarterly rent was last paid on 1 October, there is one
month’s rent paid in advance so the prepayment is 1/12 × $96,000 = $8,000.

10
Statement of profit or loss Statement of financial position
 $11,100 $9,000 prepayment

$
Insurance expense 1 Jul 2011 to 31 Mar 2012 = 9/12 x $10,800 8,100
Insurance expense 1 Apr 2012 to 30 Jun 2012 = 3/12 x $12,000 3,000
11,100

The insurance premium has been paid up to 31 March 2013 so nine months have been prepaid
(9/12 x $12,000 = $9,000).

11  $6,000 in sundry payables

Work backwards from the reporting date. The $9,000 received on 1 December covers the
months of December, January and February, so at 31 December, two months’ rent, i.e. $6,000
has been received in advance and is treated as deferred income, included within sundry
payables.

12  $1,000 in arrears
This should be straightforward. Total rent payable for the year is $12,000 but if $13,000 was
paid then the amount in arrears has decreased by $1,000.

13  Accrual of $650 and Prepayment of $Nil

Accruals include the $310 electricity bill, $90 expense claim, and $250 being one month’s
insurance expense from 1 December to 31 December. None of these items were paid before the
year-end so prepayments are $nil.

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ACCA FA Question Bank Answers to 8: Accruals and prepayments 137

14
$ 321,600

Salaries control account

$ $
31 Dec 2011 Accrual b/f 6,500
28 Feb 2012 Bonus paid 7,400
Salaries paid during year 310,500
31 Dec 2012 Accrual c/f 10,200 Statement of profit or loss (Bal. 321,600
Fig.)
328,100 328,100

15  Accrued income should be recognised as revenue in the statement of profit or loss

 Prepaid expenses are reflected as a debit balance in the trial balance
Deferred income is a liability (the business has received cash but has not yet earned the related
income/revenue).
Accrued expenses increase recorded expenses, therefore they are debited to the relevant
expense account.

16
$ 1,050

7/12 × $1,800 = $1,050

17  $1,850
This question is quite tricky because of the way in which the dates are presented – it is easier to
substitute real dates to calculate the answer, for example let’s assume year 1 is 2011 and year 2
is 2012:
For the year ended 30 June 2012 rent is calculated as:
9/12 × $1,800 (for period 1 July 2011 to 31 March 2012) + 3/12 × $2,000 (for period 1 April 2012
to 30 June 2012).

18  $1,400 statement of profit or loss and prepayment of $1,000

The charge to the statement of profit or loss is calculated as 7/12 × $2,400 = $1,400. At the
reporting date 31 December, five months have been paid in advance so there is a prepayment
of 5/12 × $2,400 = $1,000.

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138 A n s w e r s t o 8 : A c c r u a l s a n d p r e p a y m e n t s ACCA FA Question Bank

19
Statement of Profit or Loss $ Statement of Financial Position $
 25,000 21,000

Insurance expense
$ $
B/f reversal of opening 10,000 Statement of profit or loss (bal. 25,000
prepayment fig.)
Cash paid 36,000 C/f prepayment (7/12 × $36,000) 21,000
46,000 46,000

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ACCA FA Question Bank Answers to 9: Receivables and irrecoverable debts 139

9: Receivables and irrecoverable debts

ANSWERS TO OBJECTIVE TEST QUESTIONS

1
$ 1458 credit

Bad and doubtful debts expense

$ $
Reduction in allowance 588
Statement of profit or loss (bal. 1,458 Cash received 870
fig.)
1,458 1,458

Allowance for doubtful debts

$ $
1 Dec Balance b/f 10,560
Reduction in allowance (bal. fig.) 588
30 Nov Balance c/f 9,972
(2% × $498,600)
10,560 10,560

2
Debit Credit
Allowance for receivables  
Receivables  

3
Net profit Net assets
Overstated by $4,000  

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140 A n s w e r s t o 9 : R e c e i v a b l e s a n d i r r e c o v e r a b l e d e b t s ACCA FA Question Bank

4  $2,138
$
Specific allowance – Little 600
Specific allowance – Large (80% x $1,000) 800
1,400
General allowance (2% x $38,500 - $600 - $1,000*) 738
Total allowance at end of year 2,138

* Note that the full amount of Large’s debt is deducted when calculating the general allowance.
This is because we have already considered all of Large’s debt in deciding the need for a specific
allowance, so in deciding only to allow for $800, clearly the remaining $200 is considered
recoverable. So when calculating the general allowance, if we just deducted the $800 then we
would end up with an effective allowance for Large’s debt of 82% (the 80% specific plus 2%
general). But as we believe that $200 is recoverable this is clearly wrong. So be careful to
exclude all of Large’s debt when calculating the general allowance even if only part of it is
specifically allowed for.

5  $706,000
$
Adjusted receivables ($838,000 - $72,000) 766,000
Closing allowance (60,000)
Net trade receivables per Statement of Financial Position 706,000

6  $84,000
$
Write off irrecoverable debt – debit statement of profit or loss 72,000
Increase in general allowance – debit statement of profit or loss ($60,000 ─ $48,000) 12,000
84,000

7  $16,500
$
Write off irrecoverable debt – debit statement of profit or loss 47,000
Decrease in general allowance – credit statement of profit or loss
Closing allowance (5% × ($617,000 - $47,000) less Opening allowance $59,000) (30,500)
16,500

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ACCA FA Question Bank Answers to 9: Receivables and irrecoverable debts 141

8
$ 2,300

$
Write off irrecoverable debt – debit Statement of profit or loss 17,500
Decrease in general allowance – credit Statement of profit or loss
Closing allowance (4% × $250,000 ─ $17,500) less Opening allowance $24,000 (14,700)
Cash received from debt previously written off – credit Statement of profit or loss (500)
2,300

9  Prudence

10
Debit Credit
Cash 
Irrecoverable and doubtful receivable expense 

11  $106,680
Receivables
$ $
1 Jul 2012 Balance b/f 61,250
Sales day book total 549,600 Cash receipts book total 499,800
Irrecoverable debt w/off 4,370
30 Jun 2013 Balance c/f 106,680
610,850 610,850

The question asks for the balance on the receivables ledger so we do not take into account the
allowance, which is an adjustment in the nominal ledger.

12
$ 2,884

$
Specific allowance 1,000
General allowance (2% x ($98,000 – $2,800 – $1,000) 1,884
2,884

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142 A n s w e r s t o 9 : R e c e i v a b l e s a n d i r r e c o v e r a b l e d e b t s ACCA FA Question Bank

13  $4,084
$
Irrecoverable debt written off – debit Statement of profit or loss 2,800
Specific allowance for Larkin – debit Statement of profit or loss 1,000
Increase in general allowance – debit Statement of profit or loss
Closing allowance 2% x ($98,000 - $2,800 – $1,000) = $1,884 less Opening allowance
2% x $80,000 = $1,600 284
4,084

14  None of these amounts

Irrecoverable and doubtful receivables expense
$ $
Irrecoverable debts w/off 1,000 Cheque received 500
Specific allowance 650 Reduction in general allowance 400
Statement of profit or loss 750
([Link].)
1,650 1,650

Remember the balancing figure is a debit balance!

15
$ 1,800

Receivables: 7.5% × $4 million = $300,000

Receivables allowance: 3% × $300,000 = $9,000
Increase in allowance (charge to statement of profit or loss): $9,000 × 25 / 125 = $1,800

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ACCA FA Question Bank Answers to 10: Inventories 143

10: Inventories

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  1, 2 and 4
Statement 3 is incorrect, LIFO cannot be used to value inventories in the financial statements.

2
Profit Net Assets
Overstated  

Inventory is correctly valued because it includes items delivered prior to the year end.
The purchase invoice was not recorded before the year-end. This means that cost of sales is too
low, and profit is overstated. Recording the invoice would also result in a liability (Dr Purchases,
Cr Payables), so liabilities are too low and net assets are also overstated.

3
Current year Next year
profit profit
Overstated  
Understated  

Remember the value of closing inventory is credited to cost of sales, so if the value is overstated
then current year profit will be overstated (as the cost of sales figure is too small). The value of
closing inventory is recorded as opening inventory in the cost of sales calculation in the
following year, so the overstated figure will then result in cost of sales being too high in the
following year and hence profit will be understated.

4
$ 2,900

Units Unit cost Value

No $ $
1 Oct B/f 130
3 Oct Purchase 190
4 Oct Sell (160)
8 Oct Sell (90)
18 Oct Purchase 290 10 2,900
22 Oct Sell (70)
31 Oct C/f 290 2,900

Calculate the number of units in inventory at the year end and work backwards to value at most
recent purchase price.

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144 A n s w e r s t o 1 0 : I n v e n t o r i e s ACCA FA Question Bank

5  1, 3 and 4
All directly attributable costs can be included in the value of finished goods.

6
$ 19,875

$
Sales value 22,500
Less: delivery costs (1,500)
Less: sales commission (5% x $22,500) (1,125)
Net realisable value (which is less than cost of $32,000) 19,875

7  $718,550
$
Value at 31 December (bal. fig.) 718,550
Add: Purchases 18,600
Less: Cost of sales ($14,000 x 100/140) (10,000)
Less: Returns outwards (950)
Value at 4 January (per question) 726,200

8  $215,250
Item Cost NRV Adjustment
1 600 x $4 = $2,400 (600 x $3) - $300 = $1,500 Reduction $900
2 100 x $30 = $3,000 (100 x $35) - $750 = $2,750 Reduction $250

Inventory should be reduced by $1,150 from $216,400.

9  $110,500
Units Units in Unit cost Value in
inventory inventory
at y/end at y/end
No No $ $
1 May 2012 B/f 700 50 110 5,500
1 Jul 2012 Purchase 500 500 120 60,000
1 Nov 2012 Sell (400)
1 Feb 2013 Purchase 300 300 150 45,000
15 Apr 2013 Sell (250)
30 Apr 2013 C/f 850 850 110,500
Calculate the number of units in inventory at the year end and work backwards to value at most
recent purchase price.

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ACCA FA Question Bank Answers to 10: Inventories 145

10  $4,250
Item Cost per unit NRV per unit Valuation
A $10 $15 – $3 = $12 200 × $10 = $2,000
B $8 $12 – $5 = $7 150 × $7 = $1,050
C $16 $14 – $2 = $12 100 × $12 = $1,200
Total value = $4,250

11  $208,500
Units Unit cost Valuation
No $ $
1 Jan B/f 220 1,000 220,000
10 Mar Sell (80) 1,000 (80,000)
18 Mar Buy 100 940 94,000
240 234,000
30 Jul Sell (160) 975(w) (156,000)
12 Nov Buy 90 1,450 130,500
170 208,500

(w) Recalculate average unit cost after each purchase: $234,000/240 units = $975.

12  1 and 4

13
Higher Lower
FIFO 
LIFO 

If prices are rising, closing inventory valuation will be higher under FIFO than LIFO, and
therefore profits will be higher.

14
$ 40,950

Opening inventory $51,300 + Purchases $99,400 – Closing inventory (bal. fig.) $40,950 = Cost of
sales $109,750.

15  $500,520
$
Opening inventory 77,100
Net purchases ($531,620 ─ $11,700) 519,920
Closing inventory (96,500)
500,520

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146 A n s w e r s t o 1 0 : I n v e n t o r i e s ACCA FA Question Bank

16  $333,065
$
Net sales ($842,800 ─ $9,215) 833,585
Cost of sales (from above) (500,520)
Gross profit 333,065

17
$ 410,725

Item Cost NRV Adjustment

Ample 350 x $15 = $5,250 (350 x $12.50) - $700 = $3,675 Reduction $1,575
Bodule 450 x $10 = $4,500 (450 x $14.50) = $6,525 less $1,000 No adjustment
less 5% x $6,525 = $5,198.75 necessary

Inventory should be reduced by $1,575 from $412,300.

18  Selling price less estimated profit margin may be used to arrive at cost if this gives a
reasonable approximation to actual cost

19  $838,100
$
Count 836,200
Purchases (8,600)
Sales 14,000 × 70%
Returns 700
838,100

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ACCA FA Question Bank Answers to 11: Non-current assets and depreciation 147

11: Non-current assets and depreciation

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  To allocate the cost of the asset over the accounting periods expected to benefit from its
use

2
$ 900 Loss

$ $
Proceeds 2,600
Cost 8,000
Accumulated depreciation (3 x $8,000 - $2,000) / 4 years) (4,500)
Carrying amount 3,500
Loss on disposal (900)

3  $99,210
$
Carrying amount of asset register per question 106,460
Less: Carrying amount of asset disposed (see below) (7,250)
99,210

$
Proceeds 6,000
Less: Carrying amount at date of disposal (bal. fig.) (7,250)
Loss on disposal (1,250)

4  With disposal proceeds of $15,000 and a profit on disposal of $5,000

The difference between the non-current asset register total and the nominal ledger is $10,000
which is the carrying amount. Remembering proceeds less carrying amount equals profit or loss
on disposal, the above scenario is the only one which includes a carrying amount of $10,000.

5
Overstated Understated
Profit  
Net assets  

The invoice for repair costs should be treated as an expense, which would reduce profits. By
treating the amount as an asset in the statement of financial position, the expense is missing, so
profit is overstated, and the net asset total is also overstated.

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148 A n s w e r s t o 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

6
Debit Credit
Computer stationery expense  
Computer equipment cost  

7  $512 profit
$
Proceeds 6,000
Less: carrying amount at date of disposal ($16,000 × 70% × 70% × 70%) (5,488)
Profit 512

8  $47,250
You need to calculate depreciation in several stages and count the months carefully:
$
Depreciation on additions: 25% × $30,000 × 10/12 (no. of months from acquisition 6,250
to year end)
Depreciation on disposals: 25% × $48,000 × 8/12 (no. of months from start of year 8,000
to disposal)
Depreciation on remaining assets held for the full year: 25% × ($180,000 ─ $48,000) 33,000
47,250

9  Understated by $26,250
Profit effect
$
Purchase of motor vehicle treated as expense – reduces profit (30,000)
Depreciation not charged as vehicle not capitalised – increases profit 3,750
($30,000 × 25% × 6/12)
(26,250)

10  $604,300
$ $
Revalued amount 820,000
Cost 240,000
Accumulated depreciation to date of revaluation (24,300)
($180,000 × 2% × 6.75 years)
Carrying amount at date of revaluation 215,700
Revaluation surplus 604,300

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ACCA FA Question Bank Answers to 11: Non-current assets and depreciation 149

11
Depreciation expense Land & buildings
$ $
 10,635 809,365

Depreciation expense: revalued building amount $460,000 / remaining 43.25 years = $10,635
Carrying amount of revalued asset: revalued amount $820,000 less depreciation $10,635 =
$809,365

12
$ 275,000

$
Carrying amount b/f 300,000
Additions at cost 75,000
Disposals at carrying amount (Proceeds $55,000 plus Loss $5,000) (60,000)
Depreciation expense (40,000)
Carrying amount c/f 275,000

13  $61,500
$
Carrying amount b/f ($80,000 – $22,000 + $64,000 ─ $38,000) 84,000
Additions at cost 18,000
Disposals at carrying amount ($40,000 / 4 × 1 year remaining) (10,000)
Depreciation expense ($80,000 + $64,000 + $18,000 - 40,000)/4 years (30,500)
61,500

14
$ 55,000

Staff training costs cannot be capitalised.

15  $15,000 profit
The Volvo is more than three years old at date of disposal so its carrying amount is nil so the full
sale proceeds or $7,000 is profit.
The Audi has been owned and depreciated for 27 months so it has a remaining life of nine
months at date of disposal. Carrying amount can be calculated at 9/36 × $40,000 = $10,000 so
the profit on disposal amounts to $8,000.

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150 A n s w e r s t o 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

16
$ 26,500

$
Depreciation on additions: $48,000/4 × 8/12 8,000
Depreciation on disposals: $36,000/4 × 8/12 6,000
Depreciation on assets held for the full year: ($86,000 – $36,000)/4 12,500
26,500

17  2 and 3
Peter need not apply the same depreciation policy to all his non-current assets. However, he
should apply the same policy consistently to all non-current assets of the same type or class. For
example, he might depreciate all motor vehicles on a straight line basis over 3 years, but office
furniture might be depreciated on the reducing balance basis at (say) 25% on cost.

18
$ 22,000

$
Original cost at 1 September 2010 40,000
Depreciation to 31 August 2012 ((40,000 – 4,000)/4 × 2 years)) (18,000)
Carrying amount at 1 September 2012 22,000
Modifications (1 September 2012) 6,000
Depreciation to 31 August 2013 (28,000 – 4,000)/4 (6,000)
Carrying amount at 31 August 2013 22,000

19  False

20
$ 200 profit

$
Proceeds (trade in value) 5,000
Carrying amount at date of disposal (see below) (4,800)
Profit 200

The disposal in year 4, with no depreciation in year of disposal, means that three years’
depreciation has been charged, so total depreciation at date of disposal is 3 × 20% × $12,000 =
$7,200, giving a carrying amount of $4,800.

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ACCA FA Question Bank Answers to 11: Non-current assets and depreciation 151

21  Profit $13,000
$
Proceeds 35,000
Carrying amount at date of disposal (see below) (22,000)
Profit 13,000

Annual depreciation = ($52,000 ─ $4,000 / 8) = $6,000. Accumulated depreciation at date of

disposal is $30,000 (5 years × $6,000) giving a carrying amount of $22,000 ($52,000 ─ $30,000).

22  $15,525
$
Cost ($15,000 + $1,500 + $750) 17,250
Depreciation (10% × $17,250) (1,725)
Carrying amount 15,525

Ignore repair costs which should be charged to the statement of profit or loss as an expense.

23  $25,000
This is actually very easy – over the life of the asset the charge will simply be the difference
between purchase cost and sale proceeds, so $40,000 - $15,000.
But you can prove this as follows:
Total depreciation: 3 years × ($40,000 ─ $10,000 / 6) = $15,000
Loss on disposal: Proceeds $15,000 less CA $25,000 = Loss of $10,000

24  $25,312
$80,000 × 75% × 75% × 75% × 75% = $25,312

25  Development expenditure must be capitalised if certain criteria are met

 Expenditure on research activities must be written off as an expense in the period in
which it is incurred

26  Licence to operate rail network

 Goodwill
Shares held in other companies are treated as investments. Modifications to a tangible non-
current asset are normally capitalised as part of the cost of that asset.

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152 A n s w e r s t o 1 1 : N o n - c u r r e n t a s s e t s a n d d e p r e c i a t i o n ACCA FA Question Bank

27  Write the full amount off as an expense in the statement of profit or loss
Because the level of future sales is uncertain, the expenditure does not meet the criteria for
capitalisation (probable future economic benefits will be generated by the asset; ability to sell
the asset).

28  Include the full amount as other income in the statement of profit or loss

29  2 and 3
Research salary should be expensed. Factory and plant should be capitalised as tangible non-
current assets.

30  (2) only

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ACCA FA Question Bank Answers to 12: Bank reconciliations 153

12: Bank reconciliations

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  $2,198 overdrawn
$
Balance per cash book (Cr) (1,942)
Less: dishonoured cheque (Cr) (256)
Adjusted cash book (Cr) (2,198)

2  $2,070 overdrawn
$
Balance per cash book (Cr) (1,675)
Standing order removal of duplicate entry (Dr) 105
Dishonoured cheque correction of error (Cr) (500)
Adjusted cash book (Cr) (2,070)

3
$ 5,075

$
Balance at start of month 6,500
Less: materials purchased ($2,000 × 90% × 95%) (1,710)
Add: cash receipt ($300 × 95%) 285
Balance at end of month 5,075

4  $685 overdrawn
$
Balance per bank statement (607)
Less: unpresented cheque (78)
Adjusted cash book (685)

5  2 and 4

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154 A n s w e r s t o 1 2 : B a n k r e c o n c i l i a t i o n s ACCA FA Question Bank

6  $4,265
$
Balance per cash book 4,390
Bank charges (35)
Dishonoured cheque (90)
Adjusted cash book 4,265

7  3 and 5

8  $36,305 credit
$
Overdraft per bank statement (38,420)
Less: unpresented cheques (4,175)
Add: uncleared receipts 6,290
Adjusted cash book (36,305)

9  $9,671 overdrawn
$
Balance per cash book (8,230)
Bank charges (68)
Direct debit payment (448)
Adjusted cash book (8,746)
Add: unpresented cheques 3,270
Less: uncleared receipts (4,195)
Bank statement (9,671)

10  $8,165
Cash Book
$ $
Balance as given 9,802
Correction of direct debit 716
posted wrong way round
Dishonoured cheque 921
Balance corrected 8,165
9,802 9,802

11  Cash receipts posted to payables in the nominal ledger

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ACCA FA Question Bank Answers to 12: Bank reconciliations 155

12  BACS customer receipt for $1,250 in the bank statement but not yet recorded in the cash
book
All the other three would mean that the balance per the cash book is higher than the bank
statement balance.

13
$ 79,708

$
Balance per cash book 83,832
Less: Uncredited receipts (8,420)
Add: Unpresented cheques 4,296
Bank statement balance 79,708

14  $1,406 credit
Cash book
$ $
Bank interest received 29 Direct debit payment 2,200
BACS receipt 935 Dishonoured cheque 170

15  Unpresented cheques of $4,699 and uncleared lodgements of $1,843

Remember that a debit balance in the bank statement represents an overdrawn balance, then
calculate the difference between the cash book and bank statement. Then slot in the figures
given to the reconciliation statement to find the combination of figures that works.
$
Cash book balance (5,700)
Add: Unpresented cheques 4,699
Less: Uncleared lodgements (1,843)
Bank statement balance (2,844)

16
$ 9,537

$
Cash book balance 6,395
Add: receipts omitted from cash book 3,582
Less: direct debit entered on wrong side of cash book (440)
Corrected cash book balance 9,537

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156 A n s w e r s t o 1 2 : B a n k r e c o n c i l i a t i o n s ACCA FA Question Bank

17  Unpresented cheques should be deducted from the bank statement figure when
performing the bank reconciliation
 Dishonoured cheques should be credited to the cash book
 Bank errors should be left as timing differences in the bank reconciliation statement

18  $7,083 debit
$
Bank statement balance (a credit in the bank statement is a debit in the cash book) 6,288
Less: unpresented cheques (1,259)
Add: uncleared receipts 2,054
Adjusted cash book balance 7,083

Ignore the dishonoured cheque, as starting with the bank statement figure which has already
accounted for this item.

19
$ 5,130

$
31 Jan Balance (is a credit balance) (17,630)
BACS receipts 8,260
Correction of cheque receipts posted wrong way round 14,500
31 Jan Corrected balance 5,130

20  $540 overdrawn
$
Bank statement balance (825)
Less: Unpresented cheques (475)
Add: Deposits not yet credited 600
Add: Bank error (direct debit payment belonging to another customer) 160
(540)

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ACCA FA Question Bank Answers to 13: Accounting errors 157

13: Accounting errors

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  Discounts received of $300 have been debited to the purchase returns account
We need to identify an error that results in a credit entry of $600 in the suspense account.
The above error gives double entry of Dr Purchase returns $300, Dr Payables $300 and Cr
Suspense $600 and is the only error that gives rise to a credit entry in the suspense account.

2  $4,000 received from a customer has been correctly recorded in the cash book and
debited to receivables
The suspense account has a credit balance (as debits > credits). To reduce the balance means
that a debit entry is required as part of the correction (step 3), in other words, the original error
will have resulted in a credit entry to the suspense account (working back logically to step 1
which will be quicker to identify). The above error gives double entry of Dr Cash $4,000, Dr
Receivables $4,000 and Cr Suspense $8,000 and is the only error giving rise to a credit entry in
the suspense account.

3  $Nil
Closing inventory is not included in the trial balance, as it is recorded as a post trial balance
adjustment, so there is no impact on the suspense account.

4  Principle

5  2 and 3
These are the only errors where debits do not equal credits.

6  An error of addition in the cash payments book

7  The total of sales returns of $28,400 was entered on the debit side of the payables ledger
control account instead of the correct figure for purchase returns of $15,620
The difference is $12,780 and we need to find an error that, when corrected, would lead to
either a debit entry in the payables ledger or a credit entry in the payables control account.
The above error requires a credit entry to the payables control account to correct it.

8
Increase Decrease No change
Profit 
Net assets 

The double entry will be to DR Drawings and CR Purchases.

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158 A n s w e r s t o 1 3 : A c c o u n t i n g e r r o r s ACCA FA Question Bank

9  $49,300
$
Profit per question 45,760
Computer equipment cost – removed from stationery expense 4,000
Depreciation on computer equipment to be charged ($4,000 / 4) (1,000)
Cheque from customer previously written off credited to statement of profit or loss 540
Adjusted profit 49,300

10
$ 160 credit

This question only requires step 1 to determine the amounts that arose in the suspense
account:
I DR Electricity $820, CR Payables $280, CR Suspense $540
II DR Suspense $300, CR Discounts received $150, CR Receivables $150
III DR Suspense $80

11  $Nil
Suspense account
$ $
Balance b/f 15,300
I Correction of rent error 10,800
II Correction of returns 4,500
outwards
This question requires all three steps to determine the correcting entries to the suspense
account, though you can save a lot of time if having identified step 1 you then simply need to
post the clearing entry to the suspense account as illustrated below:
What have we got? What do we want? Correction
DR $ CR $ DR $ CR $ DR $ CR $
Cash 5,400
Rent expense 5,400
Suspense account 10,800 10,800

Payables 7,200
Returns outwards 2,700
Suspense account 4,500 4,500

The third error does not give rise to any entries in the suspense account.

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ACCA FA Question Bank Answers to 13: Accounting errors 159

12  Electricity invoice of $200 debited to gas expense account

An error of commission occurs when an item is entered on the correct side of the wrong
account.

13  $2,500
The corrected receivables ledger control account is as follows, resulting in a difference of $2,500
from the receivables ledger total.
Receivables ledger control account
$ $
Balance b/f 40,570
Credit sales 270,870 Cash received 270,375
Contra entry 700
Returns inwards 4,735
Balance c/f 35,630
311,440 311,440

14  Purchase of factory plant of $5,000 recorded as repairs and maintenance

An error of principle occurs when an item is posted to the correct side of the wrong type of
account.

15 Accrued expenses will reduce profit and net assets by $5,000 (DR Expenses, CR Accruals/other
liabilities) and the correction of inventory will further reduce profit and net assets by $15,000
(DR Cost of sales and CR Inventory in the statement of financial position).
Profit Net assets
Reduced by $20,000  

16  $84,500
$
Draft profit 84,500
Depreciation expense (20,000)
Prepaid rent treated as accrued expense 20,000
84,500

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160 A n s w e r s t o 1 3 : A c c o u n t i n g e r r o r s ACCA FA Question Bank

17
$ 6,000 debit

Suspense account
$ $
Balance b/f 4,800
Returns inwards 1,800
Receivables allowance 3,000 Balance c/f 6,000
7,800 7,800

Returns inwards is a debit balance, so the correcting entry is to DR Returns inwards, CR

Suspense. Receivables allowance is a credit balance, so the correcting entry is to DR Suspense,
CR Receivables Allowance.

18  A sales invoice of $125 being debited to the sales account

If debits exceed credits then the suspense account will be a credit balance, so you need to
identify an error which results in a credit entry to suspense (step 1). The above error gives rise
to the following double entry: DR Sales $125, DR Receivables $125, CR Suspense $250. All the
other errors give rise to a debit entry in the suspense account.

19  Overvaluation of closing inventory

 Failure to record an irrecoverable receivable balance
 Misposting an invoice for machine repairs to the plant and equipment cost account
An owners’ withdrawal of inventory for her personal use is recorded as drawings, rather than an
expense and therefore does not affect profit.

20  Errors of transposition

21  False

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ACCA FA Question Bank Answers to 14: Incomplete records 161

14: Incomplete records

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  1 and 3
From the information given you can work out the actual cost of sales, as follows:
$30,000 + $70,000 – $50,000 = $50,000
If sales are made at double cost, with sales of $95,000 then cost of sales should be $47,500.
Therefore, either $2,500 of inventory is missing, or $5,000 of sales revenue or cash is missing.

2  $108,000
$
Opening net assets 92,000
Capital introduced 25,000
Cash drawings (include $20,000 used to purchase car for personal use) (58,000)
Profit (balancing figure) 108,000
Closing net assets 167,000

3
$ 280,000

$
Cost of sales = $24,000 + $218,000 – $32,000 210,000
Sales = $210,000 / 75 × 100 280,000

4  $314,340
Cost of sales can be calculated as $402,350 / 130 × 100 = $309,500
Then use the cost of sales formula to calculate purchases: $47,340 + purchases – $52,180 =
$309,500

5  $106,500
$
Opening inventory 160,000
Purchases 370,000
Closing inventory if no fire (balancing figure) 192,500
Cost of sales ($450,000 × 75%) 337,500

Counted closing inventory is only $86,000 so $106,500 must have been destroyed.

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162 A n s w e r s t o 1 4 : I n c o m p l e t e r e c o r d s ACCA FA Question Bank

6
$ 6,840

$
Gross profit ($12,000 / 2 × 120%) 7,200
Discounts allowed ($12,000 / 2 × 120% x 5%) (360)
Net profit 6,840

7
$ 22,950

Receivables control account

$ $
1 Apr Balance b/f 6,050
Sales (bal. fig.) 30,600 Cash received 28,650
31 Mar Balance c/f 8,000
36,650 36,650

Cost of sales (and hence purchases as there is no inventory) is $30,600 × 75% = $22,950

8  Closing net assets plus drawings less capital introduced less opening net assets

9
$ 72,000

Cost of sales can be calculated as $560,000 / 140 × 100 = $400,000

Then use the cost of sales formula to calculate opening inventory: opening inventory + $380,000
– $52,000 = $400,000

10  $93,900
Payables control account
$ $
Returns outwards 2,000 B/f 5,600
Cash paid to credit suppliers 89,300
($98,500 – $9,200)
C/f 8,200 Purchases (bal. fig.) 93,900
99,500 99,500

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ACCA FA Question Bank Answers to 14: Incomplete records 163

11  $30,000
$
Gross profit ($105,000 / 70 × 30) 45,000
Expenses (15,000)
Net profit 30,000

12  20.9%
Gross profit $22,500 / Sales ($85,000 + $22,500)

13
$ 16,000

$
Opening net assets 38,000
Capital introduced 10,000
Loss for year (4,500)
Drawings (bal. fig.) (16,000)
Closing net assets 27,500

14
$ 189,000

Receivables control account

$ $
Balance b/f 86,000
Sales 197,000 Irrecoverable debt w/off 5,000
Returns inwards 11,000
Cash received (bal. fig.) 189,000
Balance c/f 78,000
283,000 283,000

15  $84,615
Cost of sales is calculated as $48,000 + $7,000 = $55,000. (If it helps, assume opening inventory
is $7,000 and closing inventory is $Nil.)
As gross margin is 35%, then cost of sales represents 65% of sales, so sales are calculated as
$55,000 / 65 × 100.

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164 A n s w e r s t o 1 4 : I n c o m p l e t e r e c o r d s ACCA FA Question Bank

16  $81,100
Cash control (till)
$ $
Balance at start of year 300
Cash from sale of car 5,000 Banked 50,000
Sales (balancing figure) 81,100 Wages 12,000
Drawings (12 x $2,000) 24,000
Balance at end of year 400
86,400 86,400

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ACCA FA Question Bank Answers to 15: Company accounts 165

15: Company accounts

1 ANSWERS TO OBJECTIVE TEST QUESTIONS

1  $Nil
Shareholders’ liability is limited to the value of the shares that they own. As the shares are fully
paid up, there is no further liability.

2
$ 32,200

$
Revenue 170,000
Cost of sales ($4,000 + $56,000 – $2,700) (57,300)
Expenses ($67,000 + $13,000 + $500) (80,500)
32,200

3  1, 2 and 4
Income from investments is shown as other income in the statement of profit or loss.

4  Dividends paid
 Issue of share capital

5
$ 12,000

5% × $960,000 = $48,000 annual interest charge. Working backwards from the year end date,
the last payment of interest would have been made on 1 July relating to the three months of
April, May and June. So at 30 September, three months’ interest relating to July, August and
September must be accrued.

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166 A n s w e r s t o 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

6
Share capital Share premium
$000 $000
 210 60

No of Share Share
shares capital $ premium $
30 June 2012 100,000 100,000 80,000
1 Sep 2012 Bonus issue 1 for 2 (100,000 / 2) 50,000 50,000 (50,000)
150,000
1 Jan 2013 Rights issue 2 for 5 (150,000 / 5 x 2) 60,000 60,000 30,000
30 Jun 2013 210,000 210,000 60,000

7  2 only
If the company makes a bonus issue of shares, share capital increases, but share premium
decreases, so there is no change to shareholders’ funds.

8  $10,000
Only the interim dividend is included (1,000,000 × 1c = $10,000) as the final dividend was
declared after the reporting date.

9
Statement of profit or loss Statement of financial position
$ $
 38,000 488,000

$
Loan principal less amount repaid ($500,000 ─ $50,000) 450,000
Interest accrued (see below) 38,000
488,000

Interest accrued 1 Apr 2012 to 30 Sep 2012 ($500,000 × 8% × 6/12) 20,000

Interest accrued 1 Oct 2012 to 31 Mar 2013 ($450,000 × 8% × 6/12) 18,000
38,000

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ACCA FA Question Bank Answers to 15: Company accounts 167

10
Share capital Share premium
$ $
 200,000 180,000

No of Share Share
shares capital $ premium $
1 Jan 2012 200,000 100,000 140,000
Cash issue 100,000 50,000 90,000
300,000
Bonus issue 1 for 3 100,000 50,000 (50,000)
31 Dec 2012 400,000 200,000 180,000

11
$ 38,000

SOCIE
Interim dividend (400,000 × 5c) $20,000
Preference dividend ($300,000 × 6%) $18,000
$38,000

12
$ 155,000

$
‘A’ ordinary shares (100,000 × 25c) 25,000
‘B’ ordinary shares (200,000 × 50c) 100,000
Preference shares (300,000 × 10c) 30,000
155,000

Ignore redeemable preference shares as these are included within liabilities, not share capital.

13  $75,000
Non-current liabilities includes amounts repayable after more than one year. The redeemable
preference shares are repayable in full within one year as is one quarter of the loan notes,
leaving $75,000 repayable after more than one year.

14
True False
The value of bonus shares may be debited to the share premium or  
retained earnings account
Dividends may not be paid out of a company’s revaluation reserve  

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168 A n s w e r s t o 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

15
Debit $ Credit $
 Bank 180,000
Share capital 150,000
Share premium 30,000

16
$ 718,000

$
Under provision from 2016 18,000
Estimated tax for 2017 700,000
718,000

17
Debit $ Credit $
 Revaluation surplus 15,000
Retained earnings 15,000

18  Depreciation charge $22,400; revaluation surplus $25,600

Depreciation charge: $112,000/5 years = $22,400
$000
Revaluation surplus
Revaluation at 1 April 2018 (112,000 – 80,000) 32,000
Transfer to retained earnings (32,000/5 years) (6,400)
Balance at 31 March 2019 25,600

19  Ordinary share capital: $225,000 Share premium account: $250,000

Share Share
capital premium
$ $
Balance b/f 125,000 100,000
Rights issue 62,500 187,500
Bonus issue 37,500 (37,500)
Balance c/f 225,000 250,000

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ACCA FA Question Bank Answers to 15: Company accounts 169

Answers to multi task questions

2 CHRISTINE BARNARD
$000
Sales (W1) 178,000
Purchases 129,800
Opening inventory 12,600
Closing inventory 14,400
Gross profit 50,000
Depreciation – fixtures and fittings (15% × $48,000) 7,200
Depreciation – motor vehicles (25% × (26,000 – 12,400)) 3,400
Profit/loss on sale of motor vehicle (1,500 – (6,000 – 4,200) 300
Impairment of motor vehicle (2,400 – 900) 1,500
Bad and doubtful debt expense (W2) 440
Employee costs (10,000 + 750) 10,750
Telephone (1,550 – 230 – 150) 1,170
Electricity (1,780 – 430 + (2/3 × 420) 1,630
Provision for legal claim (W3) –
Other expenses 4,200
Net profit 19,410

Workings
Working 1
$
Sales net of sales tax (213,600 × 100/120) 178,000
The refund is not an adjustment to Sales.
Working 2
$
Allowance at 31 August 20X7 ($28,400 × 10%) 2,840
Less: allowance at 1 September 20X6 (950)
Less: allowance no longer required (1,450)
440
There is no expense in relation to the customer that became insolvent as full provision has already
been made against this amount.
Working 3
No amount is accrued for the provision as it is unlikely that Christine will lose the case.

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170 A n s w e r s t o 1 5 : C o m p a n y a c c o u n t s ACCA FA Question Bank

3 MOONSTAR
Statement of financial position as at 30 June 20X9
$000
ASSETS –
Non-current assets –
Property, plant and equipment (W1) 59,640
Intangible assets (W2) 5,985
65,625
Current assets –
Inventory (5,200 – 200) 5,000
Receivables ((7,290 – 90) × 0.95) 6,840
Other current assets ((500 × 110%) + 120) 670
Bank and cash 9,620
22,130
Total assets 87,755
EQUITY AND LIABILITIES –
Equity –
Ordinary share capital (1,000 + 250) 1,250
Share premium (600 + (0.8 × 250)) 800
Revaluation reserve (3,400 + 1,200 – (900 – 210)) 3,910
Retained earnings (61,910 + 4,600 – 100) 66,410
72,370
Non-current liabilities –
Loan (5,200 – 1,500) 3,700
Long-term provisions (settled in year) –
3,700
Current liabilities –
Trade payables 8,180
Other payables ((600 – 50) × 110%) 605
Dividends payable (1,250 × 0.08) 100
Taxation 1,550
Short-term provisions (likely to be incurred within 12 months) 1,250
11,685
Total equity and liabilities 87,755
Workings
Working 1 Property, plant and equipment
$000
Balance at 1 July 20X8 57,180
Additions 14,150
Depreciation (9,450)
Revaluation (1,200 – (900 – 210) 510
Assets disposals (3,400 – 650) (2,750)
Balance at 30 June 20X9 59,640
Working 2 Intangible assets
$000
Balance at 1 July 20X8 8,420
New development expenditure 760
Development expenditure written off (1,200)
7,980
Amortisation at 25% (1,995)
Balance at 30 June 20X9 5,985

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ACCA FA Question Bank Answers to 16: Statements of Cash Flows 171

16: Statements of Cash Flows

1 ANSWERS TO OBJECTIVE TEST QUESTIONS

1  1 and 4
Only these two items give rise to a cash flow.

2  3 and 4

3  Statement of cash flows only

4
Sale proceeds Profit on disposal
 Cash inflow under investing activities Deducted from profit in calculating cash flow
from operating activities

5  Loss on disposal of non-current assets

6
$ 132,000 inflow

$
Loans repaid (98,000)
Rights issue 230,000
132,000

Interest paid is an adjustment to profit within operating cash flows and a bonus issue has no
cash effect.

7
$ 18,500

Non-current assets - Cost

$ $
B/f 31 Dec 2011 (16,100+8,000) 24,100
Additions (Balancing figure) 18,500 Disposals 4,000
C/f 31 Dec 2012 (20,200 + 18,400) 38,600
42,600 42,600

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172 A n s w e r s t o 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

8  $76,000
$
Operating profit 65,000
Add: Depreciation ($96,000 + $34,000 – Depreciation = $118,000 12,000
Less: Increase in inventory ($42,000 ─ $33,000) (9,000)
Add: Decrease in receivables ($79,000 ─ $82,000) 3,000
Add: Increase in payables ($31,000 ─ $26,000) 5,000
76,000

9  $100
$
Payment to acquire non-current assets (2,000)
Proceeds from disposal (Proceeds – CA $400 = Profit $1,500) 1,900
100

10
$ 9,125 outflow
Non-current assets – carrying amount
$ $
B/f 12,740 Depreciation 3,890
Additions (Balancing figure) 9,125 Disposals (2,300 + 825) 3,125
Revaluation 5,000 C/f 19,850
26,865 26,865

11
$ 4,715

$
Depreciation (added to profit in calculating operating cash flow) 3,890
Loss on disposal (added to profit in calculating operating cash flow) 825
4,715

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ACCA FA Question Bank Answers to 16: Statements of Cash Flows 173

12  $231,000
$000
Profit for the year 249,000
Less: Increase in inventory (6,000)
Less: Increase in receivables (9,000)
Less: Decrease in payables (3,000)
231,000

13  Proceeds from a rights issue of shares

 Repayment of loans

14  $11,000
$
Additions (15,000)
Proceeds from disposal (Proceeds – CA $2,000 = Profit $2,000) 4,000
(11,000)

15  $15,000 outflow
$000
Increase in inventories (20)
Increase in receivables (35)
Increase in trade payables 20
Increase in other payables 20
(15)

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174 A n s w e r s t o 1 6 : S t a t e m e n t s o f C a s h F l o w s ACCA FA Question Bank

Answer to multi task question

2 MILDEW
$000 Add or Subtract
Cash flows from operating activities
Profit before tax 17,750 Add
Adjustments – –
Depreciation 4,250 Add
Loss on disposal of non-current assets 140 Add
Inventory 270 Subtract
Receivables 400 Subtract
Payables 340 Subtract
Tax paid 2,950 Subtract
Net cash from operating activities 18,180 Add

Cash flows from investing activities – –

Payments to acquire non-current assets (W1) 19,580 Subtract
Proceeds from sale of non-current assets (W2) 680 Add
Net cash from investing activities 18,900 Subtract

Cash flows from financing activities – –

Proceeds from issue of share capital 1,500 Add
Proceeds from long-term borrowings 1,000 Add
Dividends paid 1,360 Subtract
Net cash from financing activities 1,140 Add
Net movement in cash and cash equivalents 420 Add
Cash and cash equivalents at beginning of period (40 – 800 o/d) (760) –
Cash and cash equivalents at end of period (60 - 400 o/d) (340) –

Workings
W1 Purchase of non–current assets
Purchases = Change in carrying amount + Depreciation + Carrying amount of disposal
= (54,650 – 40,140) + 4,250 + 820 = $19,580,000
W2 Disposal of non-current asset
Cash received = Carrying amount – Loss = 820 – 140 = $680,000

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ACCA FA Question Bank Answers to 17: Interpretation of Financial Statements 175

17: Interpretation of Financial Statements

ANSWERS TO OBJECTIVE TEST QUESTIONS

1
(i) Gross profit margin 24.2 % (502 / 2,074)
(ii) Operating profit margin 8.0 % (166 / 2,074)
(iii) Net profit margin 6.7 % (138 / 2,074)
(iv) Return on capital employed 19.9 % (166 / (1,080 - 244))
(v) Asset turnover 2.5 times (2,074 / (1,080 – 244))
(vi) Trade receivables days 42.8 days (243 / 2,074 × 365)
(vii) Trade payables days 40.2 days (173 / 1,572 × 365)
(viii) Inventory turnover 5.8 times (1,572 / 271)
(ix) Current ratio 2.1 (516 / 244)
(x) Quick ratio 1.0 ((516 – 271) / 244)
(xi) Interest cover 5.9 times (166 / 28)
(xii) Gearing ratio 12.0 % (100 / (736 + 100))

2  An increase in suppliers’ prices

An increase in selling price would increase the gross profit margin (because sales would increase
more than cost of sales).
Management salaries are administrative expenses and therefore would not affect the gross
profit margin.
A decrease in sales volumes would decrease sales, but would also decrease cost of sales, so
(provided selling prices and suppliers prices did not change) gross profit margin would stay the
same.

3
31.58 %

24 / (100 – 24) = 31.58

4  Increasing the level of settlement discounts given to customers

 Introducing pay related targets for credit control staff
Extending the period of credit given to customers would mean that customers would take
longer to pay and would worsen the trade receivables collection period.
Reducing the selling price of goods would have no effect.

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176 A n s w e r s t o 1 7 : I n t e r p r e t a t i o n o f F i n a n c i a l S t a t e m e n t s ACCA FA Question Bank

5  Trade payables days

6  A decrease in working capital of $33,000

Remember working capital is current assets less current liabilities.
$
Decrease in receivables (asset) (14,000)
Increase in payables (liability) (17,500)
Increase in bank overdraft (liability) (1,500)
(33,000)

7  Sales divided by total assets less current liabilities

8  52 days
Payables $42,000 / Purchases $295,000 × 365 days
Purchases calculated using cost of sales formula: $28,500 + $295,000 (bal. fig.) ─ $37,500 =
$286,000

9  Sale of goods at a mark up of 40%

This is the only option which increases net assets.

10  Sale of goods on credit

This is the only option which increases current assets, all the other options result in an increase
in current liabilities.

11  Repayment of bank loan

 Rights issue of shares
The gearing ratio is long term debt, divided by shareholders’ funds plus long term debt, so a
decrease in gearing will result from either a fall in long term debt or an increase in equity.

12
25 %

$300,000+$100,000
$1,000,000 + $200,000+$300,000+$100,000

Remember preference shares are included as long term debt.

13  An increase in the credit period given to customers

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ACCA FA Question Bank Answers to 17: Interpretation of Financial Statements 177

14  20%
Net profit $14,000 ($21,000 – $7,000) / Sales $70,000 ($21,000 / 30% × 100%)

15  71 days
Days
Inventory turnover (365 / 6.5 times) 56
Less: payables days (30)
Add: receivables days 45
71

16  Understatement of closing inventory at 31 December 2011

Closing inventory is credited to cost of sales so increases gross profit. An understatement in
2011 will therefore result in lower gross profit in 2011, but will then result in higher profit in
2012 as that figure becomes opening inventory in the 2012 statement of profit or loss.

17
25 %

$20,000 / $80,000 = 25%

18  ROCE = OPM × AT
This is tricky, and made harder by the fact that, strictly, ROCE is measured as profit before
interest and tax, rather than net profit. However, if you know each of these ratios and assign
some simple figures you should be able to calculate the answer, and can assume for this
question that net profit is used in the ROCE calculation.
Suppose that net profit is 10, capital is 40 and sales are 100:
ROCE OPM AT
Net profit / TALCL Net profit / Sales Sales / TALCL
10 / 40 = 25% 10 / 100 = 10% 100 / 40 = 2.5

Then the only option that works is C, as 10% × 2.5 = 25%.

19  A decrease in working capital of $1,500

Remember working capital is current assets less current liabilities.
Working
capital $
Increase in inventories (asset) 500
Decrease in bank balance (asset) (600)
Increase in payables (liability) (1,400)
(1,500)

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178 A n s w e r s t o 1 7 : I n t e r p r e t a t i o n o f F i n a n c i a l S t a t e m e n t s ACCA FA Question Bank

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ACCA FA Question Bank Answers to 18: Provisions and contingencies 179

18: Provisions and contingencies

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  Disclose a contingent liability in the notes to the financial statements
It is only possible, not probable, that A will have to pay the amount claimed, therefore it should
disclose a contingent liability, rather than recognising a provision.

2  A contingent asset is disclosed when an inflow of economic benefits is probable.

Contingent assets and contingent liabilities are not recognised, but disclosed. A contingent asset
is only disclosed when a future inflow of economic benefit is probable.

3  Item 1 only
The company has a constructive obligation to make refunds to customers who have purchased
faulty goods. No provision can be recognised for the staff training costs, because the training
(the obligating event) has not yet taken place.

4  $600,000
The company has a constructive obligation to clean up the environmental damage, because it
has created a reasonable expectation that it will do so. No provision should be recognised for
the cost of closing the factory, because at the year-end the directors were not yet committed to
the closure (there has been no obligating event such as an announcement to the employees).

5  2 only
A provision is recognised when an entity has a probable obligation (legal or constructive) as the
result of a past event.

6  A provision
A provision is a liability of uncertain timing or amount.

7  Disclose the contingent liability; do not disclose the contingent asset

A contingent liability is disclosed unless the likelihood of an outflow of economic benefits is
remote. A contingent asset is only disclosed if an inflow of economic benefits is probable.

8  $32,500
5% × $500,000 + 15% × $50,000 + 80% × $nil. Where the provision being measured involves a
large population of items, it should be measured by calculating the ‘expected value’.

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180 A n s w e r s t o 1 9 : E v e n t s a f t e r t h e r e p o r t i n g p e r i o d ACCA FA Question Bank

19: Events after the reporting period

ANSWERS TO OBJECTIVE TEST QUESTIONS

1  The directors announce a plan to carry out a major reorganisation of the business.
All the others relate to conditions that existed at the reporting date.

2  3 and 4
Both these provide evidence of conditions that existed at the reporting date. Events 1 and 2 are
indicative of conditions that arose after the reporting period.

3  Neither item 1 nor item 2

Both items are non-adjusting events.

4  2 and 3
Adjusting events provide evidence of conditions that existed at the end of the reporting period.

5
Item 1 Item 2 Item 3
 Disclose Adjust Disclose

The settlement of the claim establishes that the company had a liability (an obligation) at the
year-end and should recognise a provision.

6  Determining the proceeds received from assets sold before the year-end
All the others are non-adjusting events (they relate to conditions after the year-end).

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ACCA FA Question Bank Answers to 20: Group accounts 181

20: Group accounts

1 ANSWERS TO OBJECTIVE TEST QUESTIONS

1  Significant influence over the financial and operating policies of A
A subsidiary is a company that is controlled by the parent. The other three conditions all
indicate that Z can control A. Significant influence is the power to participate in financial and
operating policy decisions, but is not control over those policies
.

2  The investor holds more than 20% but less than 50% of the voting power of the investee
If an investor holds 20% or more of the voting power of another entity, it is presumed that the
investor has significant influence, unless it can be clearly demonstrated that this is not the case.

3  S should be equity accounted and T should be consolidated

A has significant influence over S and controls T, so S is an associate and T is a subsidiary.

4  $15,000
$ $
Fair value of consideration 110,000
Fair value of NCI at acquisition date 30,000
Less: subsidiary’s net assets at date of acquisition:
Share capital 100,000
Retained earnings 25,000
(125,000)
15,000

5  $1,050,000
$
Non-controlling interest at acquisition 900,000
Add: NCI share of subsidiary’s post-acquisition reserves
25% × (3,400,000 – 2,800,000) 150,000
1,050,000

6  $220,000
$ $
Fair value of consideration 850,000
Fair value of NCI at acquisition date 120,000
Less: subsidiary’s net assets at date of acquisition:
Share capital 500,000
Retained earnings 250,000
(750,000)
220,000

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182 A n s w e r s t o 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

7  $920,000
A B
$ $
Retained earnings at reporting date 800,000 550,000
Less: retained earnings at acquisition date (400,000)
150,000
Group share of A (80% × 150,000) 120,000
920,000

8  Subsidiary
X can control Y, so X is the parent of Y and Y is the subsidiary of X.

9  $14,000
20% × $70,000

10  $100,000
$
Fair value of consideration:
Cash 800,000
Shares (50,000 × $1.50) 75,000
875,000
Fair value of NCI at acquisition date 225,000
Less: subsidiary’s net assets at date of acquisition: (1,000,000)
100,000

11  $250,000
$ $
Fair value of consideration 1,250,000
Fair value of NCI at acquisition date 300,000
Less: subsidiary’s net assets at date of acquisition:
Share capital 500,000
Retained earnings 700,000
Fair value adjustment (600,000 – 500,000) 100,000
(1,300,000)
250,000

12  $785,000
450,000 + 320,000 + (90,000 – 75,000)

13  $350,000
250,000 + 130,000 – 35,000 + (35,000 – 25,000 × ½)

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ACCA FA Question Bank Answers to 20: Group accounts 183

14  $1,045,000
800,000 + (650,000 × 6/12) – 80,000

15  $1,245,000
Tennyson Browning
$ $
Retained earnings at reporting date 1,200,000 600,000
Less: retained earnings at acquisition date
500,000 + (100,000 × 3/12) (525,000)
75,000
Group share of Browning (60% × 75,000) 45,000
1,245,000

16  $1,205,000
Pater Scott
$ $
Retained earnings at reporting date 950,000 940,000
Provision for unrealised profit (PUP)
(1/2 × 150,000 – 100,000) (25,000)
Less: retained earnings at acquisition date (660,000)
280,000
Group share of Scott (100%) 280,000
1,205,000

17  Inventories $800,000; trade and other receivables $740,000

Inventories: 530,000 + 310,000 – 40,000
Trade and other receivables: 480,000 + 290,000 – 30,000

18  $159,500
$
Non-controlling interest at acquisition 150,000
Add: NCI share of subsidiary’s post-acquisition reserves
10% × (940,000 – 750,000 × 6/12) 9,500
159,500

19  2 and 4
Statement 1: control is power over the investee
Statement 3: control is normally presumed to exist when the parent owns more than half the
voting power of an entity.

20  Included in non-current assets; measured at cost plus 45% of B’s post-acquisition

retained earnings
This is the equity method.

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184 A n s w e r s t o 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

21  N is a subsidiary of X, because X is exposed to or has rights to variable returns from N

L may be an associate of X, but this is not normally presumed unless X holds at least 20% of the
voting power of L.
Although X holds less than 50% of the voting power of M, there are still circumstances in which
M may be a subsidiary of X).
If X has the right to appoint or remove all the directors, this suggests that P is not an associate,
but a subsidiary (because X can control P).

22  1 and 3
The calculation is:
$
Fair value of consideration X
Add: Fair value of NCI at acquisition date X
Less: Fair value of net assets at acquisition (X)
X

23  $1,480,000
At acquisition 1,300
% Post acquisition (5,600 – 4,700) × 20% 180
1,480

24  Both statements

25  The investor holds greater than 20% but less than 50% of the voting power of the
investee

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ACCA FA Question Bank Answers to 20: Group accounts 185

Answers to multi task questions

2 ARUNDEL
(a)
Yes No
Significant influence  
Equity investor has a vote at board meetings  
More than 50% of equity shares being held by an investor  
More than 50% of preference shares being held by an investor  
More than 50% of debt being held by an investor  
Equity investor has the right to remove a majority of the board of directors  
Equity investor can discuss financial and operating policies with the board  

(b)
Arundel group
$000
Revenue (16,400 + (3/12 x 5,400) – 190) 17,560
Cost of sales (8,900 + (3/12 x 2,500) – 190) 9,335
Gross profit 8,225
Operating expenses (2,900 + (3/12 x 1,300)) 3,225
Profit before tax 5,000

(c)
$ 0

The share capital of the subsidiary should never be included in the consolidated accounts.
(d)  Both statements

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186 A n s w e r s t o 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

3 BONEHAM CO
(a)
$000
Value of investment at acquisition –
Fair value of consideration
($6 ×75% × 100) + ($1.2 × 2 × 75% × 100) 630
Non-controlling interest 185
Total value of investment at acquisition 815

Fair value of Kyle’s net assets at acquisition –

Equity share capital 100

Retained earnings ($550 + (50% × $180)) 640
Total value of Kyle’s net assets 740

Goodwill at acquisition ($815 – $740) 75

(b) Share capital

$000 775

625 + (100 × 2 × 75%) = 775

Share premium

$000 145

115 + (100 × 0.2 × 2 × 75%) = 145

Retained earnings
$000 952.5

665 + 220 + (75% × 50% × 180) = 952.5

Non-controlling interest
$000 207.5

185 + (25% × 50% × 180) = 207.5

(c)
Yes No
Boneham often trading with Arcidiacono  
Boneham holding greater than 20%, but less than 50%, of the voting  
power of Arcidiacono
Boneham being given representation on the board of directors of  
Arcidiacono
Boneham committing to make a long-term investment in Arcidiacono  

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ACCA FA Question Bank Answers to 20: Group accounts 187

4 OCKLEY
(a)
$000
Value of investment at acquisition –
Fair value of consideration (100,000 × ($8 + $3.50)) 1,150
Fair value of Capel’s net assets at acquisition –
Equity share capital 100
Retained profits 870
Fair value adjustment 120
Total value of Capel’s net assets 1,090

Goodwill at acquisition 60

(b) Revenue
$000 2,270

1,650 + 870 – 250 = 2,270

Cost of Sales
$000 1,140

910 + 460 – 250 + (100 × 20%) = 1,140

Inventory
$000 400

280 + 140 – (100 × 20%) = 400

Trade receivables
$000 290

230 + 120 – 60 = 290

Trade payables
$000 580

410 + 230 – 60 = 580

(c)
4.00 %

ROCE = Profit before tax/Total assets less current liabilities = 450/(11,780 – 530) = 4%
(d)
True False
The value of the non-controlling interest on acquisition is the price  
of the shares held by the non-controlling interest.
The value of goodwill may be written down at the year-end as the  
result of an impairment review.
The consolidation accounts are the accounts of a single separate  
legal entity.

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188 A n s w e r s t o 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

5 NORTHBOURNE CO
(a)
$000
ASSETS –
Non-current assets –
Property, plant and equipment (4,190 + 930) 5,120
Goodwill (W1) 765
5,885
Current assets –
Inventory (160 + 180 – 10(W2)) 330
Receivables (220 + 250) 470
Bank and cash (20 + 130) 150
950

Total assets 6,835

EQUITY AND LIABILITIES –

Equity attributable to the owners of the parent –
Ordinary share capital 525
Share premium 170
Retained earnings (3,095 – 9 (W2) + 288 (W3)) 3,374
4,069
Non-controlling interest (65 – 1 (W2) + 32 (W3)) 96
Total equity 4,165

Non-current liabilities –
Loan 1,800
Current liabilities –
Trade payables (420 + 270) 690
Taxation (100 + 80) 180
870

Total equity and liabilities 6,835

Workings
W1 Goodwill
$000
Value of investment at acquisition
Fair value of consideration Northbourne 1,520
Non-controlling interest 65
Total value of investment 1,585

Fair value of net assets at acquisition

Equity share capital 100
Retained earnings 720
Total value of net assets 820

Goodwill on acquisition (1,585 – 820) 765

W2 Inventory
Profit element of inventory = $200,000 × 25% × 20% = $10,000
$10,000 is deducted from inventory. $9,000 is deducted from retained earnings. $1,000 is
deducted from non-controlling interest.

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ACCA FA Question Bank Answers to 20: Group accounts 189

W3 Profit for year

Profit = $1,040,000 – $720,000 = $320,000.
Split Northbourne $288,000 (90%) and Non-controlling interest $32,000 (10%)
(b) Current ratio
0.77

Current ratio = Current assets/Current liabilities = 400,000/520,000 = 0.77

Quick ratio
0.46

Quick ratio = Current assets exc inventory/Current liabilities =

(400,000 – 160,000)/520,000 = 0.46
(c)  Total assets less current liabilities

6 BOSHAM CO
(a)
A  80,000 × ($4 + $4.20)
B  $120,000
C  $200,000
D  $410,000 + ($160,000 × 0.25)
E  $100,000
F  Value of investment – Fair value of Emsworth’s net assets
(b) Investment in Emsworth by Bosham
$000 0

This is only included in the parent company accounts

Share capital
$000 840

600 + (3 × $1 × 100 × 80%) = 840

Retained earnings
$000 2,776

2,550 + 130 + (160 × 80% × 75%) = 2,776

Non-controlling interest
$000 144

120 + (160 × 20% × 75%) = 144

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190 A n s w e r s t o 2 0 : G r o u p a c c o u n t s ACCA FA Question Bank

(c)
True False
The non-controlling interest figure could include the non-  
controlling interest’s share of unrealised profits on intra-group
transactions.
The value of goodwill could stay the same in consolidated accounts  
for an indefinite period.
Where a subsidiary is acquired part-way through a year, the  
consolidated accounts should always exclude all transactions
between the parent and subsidiary in that year.

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