Lobj18 0007008 Question Bank of Accounting

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LOBJ18 0007008 - Question bank of Accounting
Accounting (Trường Đại học Kinh tế – Luật, Đại học Quốc gia Thành phố Hồ Chí Minh)
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The Institute of Chartered Accountants in England and Wales
ACCOUNTING
For exams in 2019
Electronic Question Bank

www.icaew.com

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© ICAEW 2019
ii Accounting ICAEW 2019

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Contents
Page
Title Questions Answers
1 Introduction to accounting 3 131
2 The accounting equation 5 132
3 Recording financial transactions 8 133
4 Ledger accounting and double entry 11 134
5 Preparing basic financial statements 16 136
6 Errors and corrections to accounting records and financial

statements 19 137
7 Cost of sales and inventories 26 140
8 Irrecoverable debts and allowance for receivables 34 144
9 Accruals and prepayments 38 146
10 Non-current assets and depreciation 44 148
11 Company financial statements 54 152
12 Company financial statements under IFRS 59 154
13 Statement of cash flows 84 187
14 Company financial statements under UK GAAP 99 201
15 Sole trader and partnership financial statements under

UK GAAP 103 203
16 Additional question practice 111 207
ICAEW 2019 Contents iii

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iv Accounting ICAEW 2019

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Question Bank
ICAEW provides the electronic question banks to give you access to additional
questions not ordinarily available to students. The questions are designed to aid
learning rather than revision and so should not be considered exam-standard.
The published question bank contains exam-standard questions and can be ordered
from www.gillards.com/icaew

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2 Accounting: Electronic Question Bank ICAEW 2019

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Chapter 1: Introduction to accounting

1 Which one of the following should be accounted for as capital expenditure?
A The cost of redecorating the business’s head office
B The cost of replacing some roof tiles on a building
C The cost of a computer purchased for resale by a computer sales business
D The cost of delivery paid when purchasing a new manufacturing machine LO 1a
2 Which of the following items should be treated as a capital item in the financial statements of a
large shop?
(1) Purchase of fixed shelving units
(2) Payment of wages
(3) Repairs to fixed shelving units
A (1) only
B (1) and (2) only
C (2) and (3) only
D (1), (2) and (3) LO 1a
3 Which of the following items should be treated as revenue items in an entity’s financial
statements?
(1) Payment of local property tax
(2) Purchase of premises
(3) Alteration of premises to configure them to be ready for use in the business
(4) External audit fee
A (1) and (2) only

B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1a
4 Which of the following should be classified as capital expenditure?

A Repairs to motor vans
B Depreciation of machinery
C Extension to premises
D Purchase of motor vans for resale LO 1a
ICAEW 2019 Chapter 1: Introduction to accounting 3

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5 Which of the following is a consideration in the application of ICAEW’s Code of Ethics?

A Whether or not the activity is remunerated
B That the client or employer is an ICAEW member, student, affiliate or member firm
C If an action brings discredit to the profession
D Whether or not the activity is an accounting or assurance engagement LO 1b
6 Ned is considering two issues in the course of preparing his financial statements.
Issue 1: Non-current assets are valued at cost less depreciation.
Issue 2: Expenses incurred but for which invoices have not yet been received are included
in the financial statements.
Which accounting characteristic or principle is relevant to each of these issues?
A Issue 1: Verifiability; Issue 2 Accruals
B Issue 1: Accruals; Issue 2 Verifiability
C Both issues: Verifiability
D Both issues: Accruals LO 1d; 3a, b, c
7 The auditor of James plc is insistent that great care is taken in estimating the amounts of
accruals and prepayments each year. This is justified primarily by which accounting concept?
A Going concern
B Maturity
C Consistency
D Matching LO 1d; 3a, b, c
8 Mr Bliss owns a business. Although most of the business expenses are paid by cash, Mr Bliss
on certain occasions uses his own personal bank account to pay some business expenses.
His accountant has asked to see his personal bank statements so that some of these amounts
may be included as expenses in the statement of profit or loss. Mr Bliss is confused about this
and asks ’If you are going to use my personal bank statement to prepare the financial
statements, why don’t you include all payments as expenses instead of only some of them?’
The main reason why the accountant does not include all of the expenses is because:
A Mr Bliss has not recorded the full details of some of the expenditure and, because of this
uncertainty, it is more prudent not to include them in the financial statements.
B there are a large number of immaterial payments which would take a long time to
examine.
C the personal expenses of the owner are separate from those of the business and are not
relevant to the statement of profit or loss.
D to be consistent with last year’s financial statements only payments above £500 are
included in the statement of profit or loss.
LO 1d; 3a, b, c

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Chapter 2: The accounting equation

1 The capital of a sole trader would change as a result of:
A a trade payable being paid by a transfer from the business bank account
B raw materials being paid for from petty cash
C non-current assets being purchased for cash
D the owner taking goods from the inventory of the business LO 1d
2 The purpose of a statement of financial position is to show:

A an estimate of what a business is really worth
B the amount the business could be sold for as a going concern
C the amount the business could be sold for in a liquidation
D the assets of the business and the related liabilities LO 3a
3 A sole trader received £2,500 from a credit customer for goods which had been sold on credit.
The sole trader has an overdraft with his bank of £5,000.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Liabilities only
C Capital only
D Assets and liabilities only LO 1d; 3a
4 A sole trader purchases goods on credit for £400.

A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 2a
ICAEW 2019 Chapter 2: The accounting equation 5

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5 A sole trader takes out a loan of £5,000 from the bank.

6 A sole trader sold goods for cash for £1,000 which had cost £700.
7 A sole trader has paid for his own personal car to be repaired out of the business bank
account. The amount of the repairs has been added by the bookkeeper to the owner's
drawings balance.
Of which generally accepted accounting concept is this an example?
A Prudence
B Separate entity
C Substance over form
D Duality LO 1d
8 Which of the following items should be treated as capital expenditure in the accounts of a sole
trader?
A £1,000 drawings made by the proprietor to buy himself a new kitchen at home
B £1,000 spent on purchasing a new computer for his secretary in order to deal with
business administration
C £1,000 on purchasing a motorbike for resale
D £1,000 paid to a painter for redecorating his office LO 3a

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9 The statements of financial position of Gazhal’s business at 31 December 20X2 and 20X1
showed the following.
31 December 31 December
20X2 20X1
£ £
Non-current assets 32,500 45,000
Current assets 17,500 30,000
Current liabilities 12,500 12,500
Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the
business.
What was the profit or loss of Gazhal's business for the year?
A Profit of £20,000
B Profit of £30,000
C Loss of £20,000
D Loss of £30,000 LO 1d; 3a
ICAEW 2019 Chapter 2: The accounting equation 7

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Chapter 3: Recording financial

transactions
1 A business paid out £23,550 in net wages to its employees. In respect of these wages, the
following amounts were shown in the statement of financial position.
£
PAYE payable 4,620
National Insurance payable – employees' 2,830
– employer's 2,640
What were the employees' gross wages before deductions?
A £28,170
B £30,810
C £31,000
D £33,640 LO 1c
2 Which of the following is a source document that would be entered into the accounting
system?
A Debit note
B Delivery note
C Purchase order
D Sales invoice LO 1c
3 Which of the following best explains the imprest system of petty cash control?
A The system ensures that there is always sufficient petty cash available
B The amount of petty cash in total must never fall below the imprest amount
C Each month an equal amount of cash is transferred into petty cash
D At any time petty cash in the box plus petty cash vouchers equals the imprest amount
LO 1c
4 Nozam maintains an imprest amount of £250 in petty cash. At the end of the month, he has
vouchers totalling £112, a receipt for a refund of £9 and a note to say that an employee took
£10 to buy stationery for which a voucher has not been prepared.
How much does Nozam need to withdraw from the business bank account to reinstate his
imprest balance at the end of the month?
A £113
B £93
C £137
D £127 LO 1c

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5 The following data has been extracted from the payroll records of a business for the month of
May 20X7.
£
Net amount paid to employees 114,000
PAYE 38,000
Employer’s NIC 15,600
Employees’ NIC 13,400
The wage expense for the month is:
A £181,000
B £152,000
C £143,000
D £114,000 LO 1c
6 Fred sells goods on credit to Keira for £2,400. £50 of these goods are defective and Keira
returns them to Fred. What document would Keira issue to Fred?
A Invoice
B A request for a credit note
C Credit note
D A request for an invoice LO 1c
7 The following data has been extracted from the payroll records of Scan Ltd for the month of
March.
£
PAYE 18,400
Employer's NIC 12,100
Employees' NIC 10,400
Net amount paid to employees 109,000
Scan Ltd's wages expense for the month is:
A £149,900
B £137,800
C £92,300
D £80,200 LO 1c, d
8 When a purchase invoice is received from a supplier, which of the following documents might
the invoice be checked against?
A Sales order
B Debit note
C Goods received note
D Credit note LO 1c
ICAEW 2019 Chapter 3: Recording financial transactions 9

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9 Meghan downloads a transaction report showing her bank transactions for the day. The report
shows a payment of £860, which the computerised accounting system has not been able to
match to a transaction.
Which of the following transactions is most likely to have resulted in the payment of £860?
A A bank transfer received from a credit customer to settle an invoice
B An amount paid to purchase new office furniture
C An amount withdrawn to restore the petty cash to its imprest amount of £100
D A bank transfer paid to an electricity supplier in respect of the monthly invoice received
LO 1c
10 Cooks Ltd has a petty cash float with an imprest amount of £250. At the end of March
vouchers in the petty cash box totalled £144 and the amount of cash remaining in the box was
£86.
Which of the following explains the difference?
A A petty cash voucher for £20 is missing.
B An employee was given £20 too little when making a petty cash claim.
C An employee reimbursed petty cash with £20 in respect of postage stamps used, but no
voucher was prepared.
D A voucher for £20 was put in the box but no payment was made to the employee.
LO 1c

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Chapter 4: Ledger accounting and

double entry
1 All Peter’s sales carry VAT at the standard rate of 20%. A customer is sold goods on credit for
£2,400 exclusive of VAT. The double entry to record this transaction is:
A Dr Trade receivables £2,880, Cr Sales £2,400, Cr VAT £480
B Dr Sales £2,400, Dr VAT £480, Cr Trade receivables £2,880
C Dr Trade receivables £2,400, Dr VAT £480, Cr Sales £2,880
D Dr Sales £2,880, Cr Trade receivables £2,400, Cr VAT £480 LO 1d; 2c
2 What transaction is represented by the entries: debit non-current assets account, credit trade
payables?
A The receipt of money from sale of a non-current asset
B The issue of an invoice for the sale of a non-current asset
C Receipt of an invoice for the purchase of a non-current asset
D Payment for a non-current asset LO 1d; 2c
3 In double-entry bookkeeping, which of the following statements is true?

A Credit entries decrease expenses and increase assets
B Debit entries decrease expenses and increase assets
C Credit entries decrease liabilities and increase income
D Debit entries decrease income and increase assets LO 1d
4 Identify whether the following statements are true or false.

Statement 1: A credit balance of £100 brought down on George's receivables ledger in Guy's
accounting records means that George owes money to Guy.
Statement 2: A debit balance of £500 on Guy's drawings account means that Guy has
withdrawn £500 in the period.
A Statement 1 is true and Statement 2 is false.
B Statement 1 is false and Statement 2 is true.
C Both statements are true.
D Both statements are false. LO 1c, d
ICAEW 2019 Chapter 4: Ledger accounting and double entry 11

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5 Reece has opening trade receivables of £42,100 and closing trade receivables of £38,600.
Sales for the period totalled £186,190 (£13,400 of which were cash sales).
Receipts recorded in trade receivables for the period were:
A £169,290
B £176,290
C £182,690
D £189,690 LO 1d
6 Kirsty purchased goods on credit from her supplier for £1,500 inclusive of VAT at the standard
rate of 20%. The double entry to record this transaction is:
A Dr Trade payables £1,500, Cr Purchases £1,200, Cr VAT £300
B Dr Purchases £1,200, Dr VAT £300, Cr Trade payables £1,500
C Dr Trade payables £1,500, Cr Purchases £1,250, Cr VAT £250
D Dr Purchases £1,250, Dr VAT £250, Cr Trade payables £1,500 LO 1d; 2c
7 Destiny plc offers a 5% early settlement discount to any customers who pay within 10 days of
receiving an invoice. It sold goods totalling £1,240 on credit to a customer who is expected to
take advantage of the early settlement discount. You should ignore the effects of VAT.
What is the correct double entry to record the sale?
A Dr Trade receivables £1,240, Cr Revenue £1,240
B Dr Trade receivables £1,178, Cr Revenue £1,178
C Dr Revenue £1,240, Cr Trade receivables £1,240
D Dr Revenue £1,178, Cr Trade receivables £1,178 LO 1d; 2c

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8 Which of the following could be a credit entry in trade receivables?

A Credit sales
B Cash sales
C Cash received from credit customers
D Early settlement discounts received from suppliers that were not expected to be taken at
the date of purchase LO 1c, d
9 Millwood purchased goods on credit from Horwich. At the point of recording the invoice from
Horwich, Millwood did not intend to take the early settlement discount offered, however,
Millwood later decided that it would take the discount and so paid within the required timeframe.
What double entry should Millwood make to record the payment to Horwich?
A Dr Cash at bank, Cr Purchases, Cr Trade payables
B Dr Purchases, Dr Trade payables, Cr Cash at bank
C Dr Trade payables, Cr Purchases, Cr Cash at bank
D Dr Cash at bank, Dr Purchases, Cr Trade payables LO 1d; 2c
10 A business received the following invoice from one of its suppliers:

Invoice: 4015
Date: 15 May 20X9
£
Goods 200 @ £20 4,000
Less Trade discount (1,000)
3,000
What entries will be made in the nominal ledger to record this invoice? (Ignore VAT)
A Dr Purchases £4,000, Cr Trade payables £4,000
B Dr Purchases £3,000, Cr Trade payables £3,000
C Dr Trade payables £3,000, Cr Purchases £3,000
D Dr Trade payables £4,000, Cr Purchases £4,000 LO 1d; 2c
11 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT.
All sales and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's sales account?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c

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What amount is recorded in Apricot plc’s purchases account?

A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
What amount is recorded in Apricot plc's trade receivables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
What amount is recorded in Apricot plc's trade payables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
15 Milo is a trader and is registered for VAT. During the quarter to 30 June 20X8 he made the
following transactions.
£
Purchase of inventory 25,200
Purchase of new car for use in the business 14,400
Payments to HMRC 9,420
Sales 100,800
All the above purchases and sales are inclusive of VAT at 20%.
At 1 April 20X8 Milo owed HMRC £2,000. What was Milo's liability at 30 June 20X8 in respect
of VAT?
A £2,780
B £4,820
C £5,180
D £7,700 LO 1d
16 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the
month of March that £300 should be deducted as PAYE and that National Insurance amounts
to £150 for employees' NIC and £160 for employer's NIC.
What accounting entry should Anthony make to the salaries expense account?

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A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c
17 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the
month of March that £300 should be deducted as PAYE and that National Insurance amounts
to £150 for employees' NIC and £160 for employer's NIC.
What accounting entry should Anthony make to the HMRC payable account?
A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c
18 Which of the following statements is correct?

A A debit entry increases a liability; A debit entry decreases an asset
B A debit entry increases a liability; A credit entry decreases an asset
C A credit entry increases a liability; A debit entry decreases an asset
D A credit entry increases a liability; A credit entry decreases an asset LO 1d; 2c
19 Which of the following statements is correct?

A A debit entry increases an asset; A debit entry decreases capital
B A debit entry increases an asset; A credit entry decreases capital
C A credit entry increases an asset; A debit entry decreases capital
D A credit entry increases an asset; A credit entry decreases capital LO 1d; 2c

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Chapter 5: Preparing basic financial

statements
1 Identify whether the following statements are true or false.
(1) The balances on asset and liability accounts at the end of the period are brought forward
to the next reporting period.
(2) The balances on income and expense accounts are summarised in an additional ledger
account known as the profit and loss ledger account.
A Statement (1) is true and Statement (2) is false

B Statement (1) is false and Statement (2) is true
C Both statements are true
D Both statements are false LO 1d
2 Max had trade payables of £16,400 at 1 June and during June made credit purchases of
£35,500. Max paid £33,000 to his credit suppliers, after taking advantage of an early
settlement discount totalling £700 that was expected to be taken at the date of purchase.
The balance of trade payables at the end of June was:
A £20,300
B £18,900
C £13,900
D £12,500 LO 1d; 3c
3 Which three of the following types of account would normally have a credit balance on a trial
balance?
A Asset
B Liability
C Income
D Expense
E Capital
F Delivery outwards LO 2c

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4 The following tasks form parts of an entity’s accounting process.

(1) Extract an initial trial balance
(2) Close off nominal ledger accounts
(3) Account for closing inventory, accruals and prepayments
(4) Calculate profit for the year
In which order are these tasks carried out?
A (1), (3), (2), (4)
B (1), (2), (3), (4)
C (2), (1), (3), (4)
D (2), (3), (4), (1) LO 1f; 2c; 3c
5 The total of the profit or loss items in Mike’s final trial balance are £35,640 for the debit
balances and £27,560 for the credit balances. What entry does Mike need to make in the profit
and loss ledger account to transfer his profit or loss for the period to retained earnings?
A Cr £8,080 profit for the period
B Cr £8,080 loss for the period
C Dr £8,080 profit for the period
D Dr £8,080 loss for the period LO 2c
6 Hilary has trade receivables of £31,200 at 1 July and during July made credit sales of £52,500
and cash sales of £9,600. She received cash from credit customers of £60,100 in the period
and made payments to credit suppliers of £48,800.
The balance on trade receivables at the end of July was:
A £33,200
B £23,600
C £34,600
D £44,500 LO 1d; 3c
ICAEW 2019 Chapter 5: Preparing basic financial statements 17

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7 Which three of the following types of account would normally have a debit balance in a trial
balance?
A Trade payables
B Revenue
C Trade receivables
D Purchases
E Capital
F Inventory LO 2c
8 Which of the following would be classified as a non-current liability?

A Accruals
B Prepayments
C Expenses
D Trade receivables LO 3c
9 Pinot plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the
month of 31 December 20X7, Pinot plc sold goods on credit for £31,300 exclusive of VAT and
goods for cash of £1,260 inclusive of VAT. Pinot plc also purchased goods for resale on credit
for £28,800 inclusive of VAT. It did not have any balance on its VAT account at 1 December
20X7.
What is the balance on Pinot plc's VAT account at 31 December 20X7?
A £1,460 credit
B £291 debit
C £1,670 credit
D £543 debit LO 3c

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Chapter 6: Errors and corrections to

accounting records and financial
statements
1 Alasdair’s business bank statement showed an overdrawn balance of £5,800 on 31 May 20X7.
When this was reconciled to the cash at bank account, the following differences were noted:
£
Bank charges not recorded in cash at bank account 30
Standing order for local property tax not entered in cash at bank account 300
Outstanding lodgements 1,300
Credited in error to Alasdair's account by the bank 100
What was the original credit balance on Alasdair's cash at bank account at 31 May 20X7?
A £4,600
B £4,270
C £5,200
D £4,870 LO 2a, b
2 The following trade receivables account contains a number of errors of principle:

TRADE RECEIVABLES
£ £
Balance b/d 58,600 Credit sales 235,700
Cash from credit customers 226,700 Credit sales (discounts given
to customers) 3,200
Contra against suppliers 7,200 Irrecoverable debts 5,400
292,500 Balance c/d 48,200
292,500
The discounts given to customers were not expected to be taken when the credit sale was
made.
What should the balance c/d be once the errors are corrected?
A £62,600
B £66,200
C £58,200
D £51,800 LO 2a, b; 3c
ICAEW 2019 Chapter 6: Control accounts, errors and suspense accounts 19

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3 As at 31 December 20X7 a company’s bank statement shows a balance in hand of £2,000.

The statement includes bank charges of £50 which have not yet been recorded in the
company's cash at bank account. On 30 December 20X7 the company had paid a cheque of
£1,000 to a supplier and banked £600 received from a credit customer; neither of these items
appear in the bank statement.
The cash at bank balance on the company's statement of financial position at
31 December 20X7 should be:
A £1,600
B £3,600
C £2,400
D £400 LO 2a, b; 3c
4 The bookkeeper of Rico plc has prepared the supplier statement reconciliation for the year
ended 30 April 20X1. She discovered the following differences which have not yet been
corrected:
Balance per Balance per

payables ledger at supplier statement
Supplier 30 April 20X1 (£) at Explanation
30 April 20X1 (£)
A cheque was posted to the
supplier on 30 April 20X1 which
Turks 2,880 3,140
was not recorded by the supplier
until 3 May 20X1
The supplier agreed a contra with
Caicos 1,200 1,100 the receivables ledger which has
not been recorded by Rico plc
Before these discoveries, the balance on trade payables was £12,450. In its statement of
financial position as at 30 April 20X1, Rico plc will have a figure for trade payables of:
A £12,350
B £12,550
C £12,290
D £12,090 LO 2a; 3c
5 Which two of the following items could appear on the debit side of the trade payables account?
A Cash paid to suppliers
B Irrecoverable debts written off
C Discounts received from suppliers that were not expected to be taken when the purchase
was made
D Purchases
E Cash refunds from suppliers LO 2b
6 Which two of the following matters require an adjustment to the figure for cash at bank
account appearing in Justine's draft statement of financial position as at 30 June 20X5, rather

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than being reconciling items between the adjusted cash at bank account balance and the bank
statement balance as at that date?
A Bank charges had been debited by the bank but had not been recorded in the cash at
bank account
B A number of cheques drawn by Justine in June remained unpresented at the year end
C A cheque paid into the bank on 30 June 20X5 did not appear on the statement
D A cheque had been returned unpaid on 30 June 20X5 but Justine had not been notified of
this by the bank LO 2b; 3c
7 The following three matters were discovered by Daisy when she prepared her month end bank
reconciliation.
(1) The electronic banking transaction report includes a receipt of £560 in respect of a
payment from a credit customer. This was not automatically matched to a transaction by
the accounting system. On investigation, it was discovered that there was a bank error
and the correct amount was £650.
(2) Bank charges debited by the bank have not yet been entered in the cash at bank
account.
(3) The value of unpresented cheques exceeded the value of uncleared lodgements.
Which of these matters will require adjustments to the cash at bank account?
A (1) and (2) only
B (2) and (3) only
C (2) only
D (1) and (3) only LO 2a, b
8 Mr Thomson maintains his petty cash records using an imprest system. The total petty cash
float is made up monthly to £200. During the month of June the following expenses were paid
from petty cash:
£
Stationery 24
Tea and coffee 40
Stamps 80
In error, the purchase of stamps was recorded as £8 and as a result £72 was withdrawn from
the bank to top up the petty cash float.
The error made will result in which of the following?
A An overstatement of expenses of £72 and the petty cash balance being £72 more than it
should be
B An understatement of expenses of £72 and the petty cash balance being £128 less than
it should be
C An understatement of expenses of £72 and the petty cash balance being £72 less than it
should be
D An overstatement of expenses of £128 and the petty cash balance being £128 less than it
should be LO 1f; 2a, b; 3c
9 Goods invoiced at £25 had been returned by Samson Ltd to the supplier for a full refund. The
only accounting entry made for the return was to debit the purchases account and credit the
suspense account with £52.

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Which of the following journal entries should be made to correctly record the return in the
nominal ledgers?
A Dr Suspense £52, Cr Purchases £52
B Dr Suspense £52, Cr Trade payables £52
C Dr Suspense £52, Dr Trade payables £25, Cr Purchases £77
D Dr Trade payables £27, Cr Purchases £27 LO 1f; 2a, b, c
10 Peter's draft accounts show a loss of £22,000 for the year. On investigation you discover the
following.
(1) £2,000 of repairs had been incorrectly recorded as a purchase of machinery on the last
day of the year.
(2) Cash of £500, received in respect of a debt written off many years ago, had been credited
to receivables.
(3) Closing inventory includes items costing £1,000 which were sold and delivered to the
customer on the year end date.
What is the adjusted loss for the year?
A £25,500
B £24,500
C £23,500
D £19,500 LO 2a; 3c
11 The bookkeeper of Sivewright plc has entered an invoice for a new computer bought on credit
for £1,010 into the accounting records as £1,100, debiting computer consumables.
Which two of the following error types have occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle
E Error of omission LO 1f

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12 Adjustments need to be made to Gillian’s accounting records for the year ended 31 December
20X6 in respect of the following matters.
(1) Gillian had taken goods from inventory with a sales value of £300. The correct entry has
been made in the drawings account and the other side of the entry recorded in the
suspense account. The business has a consistent mark-up of 25%.
(2) At 1 January 20X6 there had been an allowance for receivables of £1,000. Gillian wishes
to change this to £1,220 at 31 December 20X6.
What is the net effect of these adjustments on Gillian's profit for the year?
A Increase of £5
B Increase of £20
C Increase of £80
D Decrease of £220 LO 2a
13 Carl's draft financial statements show a profit of £10,000. The following errors are discovered.
(1) A debt of £2,000 needs to be written off as irrecoverable. The bookkeeper has incorrectly
recorded this write-off as £200.
(2) Carl has drawn cash of £7,000 from the business and failed to record this in the
accounting records.
(3) Sales include £5,000 in respect of goods with a gross margin of 20% which do not meet
the revenue recognition criteria and need to be reversed.
After adjusting for the above, what is Carl's revised profit?
A £200
B £3,200
C £7,000
D £7,200 LO 2a
14 The draft financial statements of Albert plc for the year ended 31 March 20X7 show a profit of
£236,662. The company's policy is to depreciate all non-current assets at 25% on cost. You
discover the following errors.
(1) A machine which cost £6,480 on 1 April 20X6 has been treated as repairs, whereas it
should have been capitalised.
(2) Cars bought on 1 April 20X6 for £56,160 have not been depreciated.
What is the company's adjusted profit for the year ended 31 March 20X7?
A £214,522
B £227,482
C £229,102
D £245,842 LO 2a; 3c
15 Adjustments need to be made to Ellen's ledger accounts for the year ended
31 August 20X5 in respect of the following matters.

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(1) Ellen incorrectly recorded the purchase of machinery costing £10,000 on

1 December 20X4 as a repairs and maintenance cost. Machinery is depreciated monthly
over 5 years on the straight-line basis.
(2) Ellen has accrued bank interest of £400 on her positive bank statement that has not yet
been recorded in Ellen's accounting records.
What is the net effect of these adjustments on Ellen's profit for the year?
A Increase of £8,900
B Increase of £8,100
C Decrease of £1,900
D Decrease of £1,100 LO 2a
16 Peach plc's draft accounts show a loss of £19,200 for the year. On investigation you discover
the following.
(1) The closing inventory balance includes items costing £1,300 which were correctly
recorded as sold shortly before the year end.
(2) Bank charges of £200 have not been recorded.
(3) Petty cash has not been accounted for in the final month of the year. A total of £100 was
withdrawn from the bank on the last day of the year to maintain the imprest amount. All
petty cash used in the period was in respect of administrative expenses incurred.
What is the loss for the year after adjusting for these items?
A £20,800
B £18,200
C £17,600
D £18,300 LO 2a; 3c

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17 The following trade payables account of Amir contains a number of errors of principle.
TRADE PAYABLES
£ £
Trade receivables (contra) 3,300 Balance b/d 12,400
Purchases 131,800
Discounts received from
Balance c/d 149,100 suppliers 4,100
152,400 152,400
The discounts received from suppliers were not expected to be taken when the purchase was
made but Amir subsequently decided to pay within the required time limit. Payments to credit
suppliers totalling £82,800 have not been recorded.
What is the closing credit balance on trade payables once the errors and omissions have been
corrected?
A £66,300
B £62,200
C £65,500
D £58,100 LO 2a, b; 3c
18 The bookkeeper of Rose plc has entered a heat and light expense as a telephone expense.
Which of the following error types has occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle LO 1f

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Chapter 7: Cost of sales and

inventories
1 An extract from a business’s statement of profit or loss is as follows:
£ £
Sales 70,000
Opening inventory 10,300
Purchases 42,300
52,600
Closing inventory 2,600
50,000
20,000
The mark up achieved is:
A 71.4%
B 47.3%
C 40.0%
D 28.6% LO 1d; 3a, c
2 A business has opening inventory of £12,300 and closing inventory of £14,700. Purchases for
the year were £68,400.
The figure for cost of sales is:
A £95,400
B £79,800
C £68,400
D £66,000 LO 1d; 3a, c
3 The mark-up is 35% where:

A cost of sales is £200,000 and sales are £270,000
B cost of sales is £175,500 and sales are £270,000
C cost of sales is £200,000 and gross profit is £94,500
D gross profit is £70,000 and sales are £200,000 LO 1d; 3a, c

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4 Brooker paid £130,800 to credit suppliers during the year ended 31 December 20X5. At the
beginning of the year payables totalled £11,750 and at the end they totalled £12,750. The
value of closing inventory was £8,200. Cash purchases were £2,800. The cost of sales for the
year was £148,000.
What was the value of opening inventory?
A £21,600
B £24,400
C £22,400
D £23,200 LO 1d; 3a, c
5 In the year ended 31 December 20X8 Vulcan plc, a retailer, had sales totalling £4,200,000.
The mark-up was 25% of cost. Inventories at 1 January 20X8 had a cost of £600,000 and at
31 December 20X8 of £680,000.
What was the total of the company's purchases during the year ended 31 December 20X8?
A £3,280,000
B £3,360,000
C £3,440,000
D £3,830,000 LO 1d; 3a, c
6 Maddison had 200 units in inventory at 30 November 20X7 valued at £600. During December
it made the following purchases and sales.
3/12 Purchased 1,000 @ £3.20 each
7/12 Sold 700 @ £6.00 each
14/12 Purchased 800 @ £3.50 each
15/12 Purchased 300 @ £4.00 each
23/12 Sold 400 @ £6.00 each
29/12 Sold 500 @ £6.00 each
Which of the following is the correct valuation for closing inventories using the first-in, first-out
(FIFO) valuation method?
A £2,600
B £1,900
C £2,800
D £2,000 LO 1d; 3a, c
ICAEW 2019 Chapter 7: Cost of sales and inventories 27

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7 The following information relates to a business’s year end inventory of finished goods.
Direct costs Production Expected
of materials overheads selling costs Expected
and labour incurred overheads selling price
£ £ £ £
Inventories category 1 2,964 2,520 576 6,960
15,936 6,816 984 24,482
At what amount should finished goods inventory be stated in the business’s statement of
financial position?
A £15,936
B £22,752
C £22,514
D £21,768 LO 1d; 3a, c
8 When a business counts its inventory it discovers that it has 5,000 items of product X and
1,000 of product Y; these cost £12 and £6 respectively. You also discover the following
information:
Product X – 600 of these were found to be defective and would be sold at a cut price of £9
each.
Product Y – 100 of these were to be sold for £5 with selling expenses of £1 each.
What figure should appear in the business's statement of financial position for inventory?
A £66,000
B £58,200
C £64,000
D £64,200 LO 1d; 3a, c
9 The cost of inventory shown in Quarry Co's statement of financial position at

31 December 20X7, valued on the FIFO basis, was £8,660. Had the inventory been valued on
an average costing (AVCO) basis it would have been £7,410.
The effect of adopting the AVCO valuation on Quarry Co's financial statements for the
reporting period ended 31 December 20X7 would be to:
A decrease profits and increase current assets by £1,250
B increase profits and decrease current assets by £1,250
C decrease profits and decrease current assets by £1,250
D increase profits and increase current assets by £1,250 LO 1d; 3a, c

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10 Your firm values inventory using the AVCO method. At 1 June 20X7 there were 100 units in
inventory valued at £10 each. On 12 June, 50 units were purchased for £12 each, and a
further 50 units were purchased for £15 each on 20 June. On 21 June, 160 units were sold for
£20.00 each.
The value of closing inventory at 30 June 20X7 was:
A £470
B £2,350
C £493
D £1,880 LO 1d; 3a, c
11 A business has a product for which the cost of production of each unit of inventory is £69
(including delivery inwards of £16 and import duties of £2 on the raw materials element).
Production overheads amount to £23 per unit. Currently the goods can only be sold if they are
modified at a cost of £25 per unit. The selling price of each modified unit is £120 and selling
costs are estimated at 10% of selling price.
At what value should each unmodified unit of inventory be included in the statement of
financial position?
A £92
B £83
C £69
D £76 LO 1d; 3a, c
12 A company sells three products – A, B and C. The following information was available at the
year end.
A B C
£ per unit £ per unit £ per unit
Original cost 10 14 20
Estimated selling price 14 20 25
Selling and distribution costs 2 5 6
Units Units Units
Units of inventory 100 150 100
The value of inventory at the year end should be:
A £5,000
B £5,100
C £5,200
D £5,300 LO 1d; 3a, c

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13 An inventory listing shows the following details.

1 May 50 units in inventory at a cost of £15 per unit
7 May 100 units purchased at a cost of £20 per unit
14 May 80 units sold
21 May 50 units purchased at a cost of £25 per unit
28 May 60 units sold
What is the value of inventory at 31 May using the FIFO method?
A £900
B £950
C £1,450
D £1,500 LO 1d; 3a, c
14 In preparing its financial statements for the current year, a company's closing inventory was
understated by £50,000.
What will be the effect of this error if it remains uncorrected?
A The current year's profit will be overstated and next year's profit will be understated
B The current year's profit will be understated but there will be no effect on next year's profit
C The current year's profit will be understated and next year's profit will be overstated
D The current year's profit will be overstated but there will be no effect on next year's profit
LO 1d; 2a; 3c
15 The inventory value for the financial statements of a business for the year ended
31 December 20X7 was based on an inventory count on 4 January 20X8, which gave a total
inventory value of £314,400.
Between 31 December and 4 January 20X8, the following transactions took place:
£
Purchases of goods 8,400
Sales of goods (profit margin 40% on sales) 16,000
Goods returned to supplier 1,000
What adjusted figure for inventories should be included in the financial statements at
31 December 20X7?
A £316,600
B £314,400
C £314,200
D £307,800 LO 1d; 3c

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16 A business has a standard mark-up of 30% on cost. During 20X7, its sales are £325,000 and
its purchases were £240,000. Opening inventory was £50,000. The company did not carry out
an inventory count at 31 December 20X7 and has no records of an inventory figure at that
date.
Using the information above the closing inventory is:
A £10,000
B £25,000
C £40,000
D £50,000 LO 1d; 3a, c
17 The gross profit margin is 20% where:

A cost of sales is £300,000 and sales are £360,000
B cost of sales is £300,000 and sales are £375,000
C cost of sales is £240,000 and gross profit is £48,000
D cost of sales is £240,000 and sales are £280,000 LO 1d; 3a, c
18 Given a selling price of £200 and a mark-up of 25%, the cost price of an item of inventory
would be:
A £50
B £125
C £150
D £160 LO 1d; 3a, c
19 Gardentime Ltd imports garden furniture. The furniture is transported by ship to Portsmouth
and then taken by truck to a warehouse in Bristol. The company is unsure whether the
following expenses should be included in the cost of inventory:
(1) Shipping costs to Portsmouth
(2) Purchase price of furniture
(3) Breakdown costs of a delivery truck which broke down between Portsmouth and Bristol
while transporting furniture
(4) Import duties
Which of the costs should be included in the cost of inventory in Gardentime Ltd's statement of
financial position?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c

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20 Robert buys and sells inventory during November 20X7 as follows.

Cost
Units per unit
£
5 November Opening inventory 60 8
6 November Purchases 80 9
11 November Sales at £20 each 70
20 November Sales at £21 each 40
Robert values his inventory on a FIFO basis.
What was the value of closing inventory at 30 November 20X7?
A £1,316
B £1,320
C £1,380
D £1,420 LO 1d; 3a, c
21 The inventory of three items at the end of Mac plc's reporting period is as follows.
Item Cost Selling price
£ £
X 3,800 4,200
Y 4,600 4,100
Z 1,300 1,650
A 4% trade discount is offered on selling price.
What is the total value of these inventories in Mac plc's financial statements?
A £9,036
B £9,552
C £9,700
D £9,950 LO 1d; 3a, c
22 Inisca plc is unclear as to whether the following items should be included when calculating the
net realisable value of inventory held at the end of its reporting period:
(1) Trade discounts given to customers
(2) Cash discounts received from suppliers
(3) Costs to completion
(4) Selling costs
Which should be included in the calculation of net realisable value of inventory?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c
23 Which two of the following matters, when correctly accounted for, will result in an increase in a
business's closing inventory figure, as derived from a physical inventory count at the year
end?

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A Inventory taken by the proprietor for his own use

B Goods returned by customers that can be resold
C Prices have been rising during the year and the proprietor now decides to change from a
last-in, first-out (LIFO) basis of valuation to a first-in, first-out (FIFO) basis
D An allowance needs to be made against several lines of inventory LO 1d; 3c
24 The cost of inventory shown in Electra plc’s statement of financial position at

28 February 20X2, valued on an AVCO basis, was £9,250. Had the inventory been valued on
a FIFO basis it would have been £10,560.
The effect of adopting the FIFO valuation on Electra plc's financial statements for the reporting
period ended 28 February 20X2 would be to:
A increase profits and decrease current assets less current liabilities by £1,310
B increase net assets and decrease losses by £1,310
C increase capital and decrease current assets by £1,310
D increase current assets and increase losses by £1,310 LO 1d; 3a, c

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Chapter 8: Irrecoverable debts and

allowance for receivables
1 On 1 January 20X4 a company received news that a major customer had been declared
bankrupt and that its debt of £42,000 is irrecoverable. The bookkeeper has incorrectly
recorded the irrecoverable debts expense as £24,000 and credited trade receivables with the
same amount.
What journal entry is required to correct the error?
A Dr Allowance for receivables, Cr Trade receivables
B Dr Irrecoverable debts expense, Cr Trade receivables
C Dr Irrecoverable debts expense, Cr Allowance for receivables
D Dr Allowance for receivables, Cr Irrecoverable debts expense
LO 1d; 2c; 3a, c
2 A business accounts for the expense of irrecoverable debts in administrative expenses. It has
reduced its allowance for receivables by £200.
What is the effect on gross profit?
A Reduce by £200
B Increase by £200
C No effect
D Increase by £400 LO 3a
3 At 28 February 20X6, a company's allowance for receivables amounted to £18,600. In the

year to 28 February 20X7 it was decided to write off £3,000 of debts as irrecoverable and to
create an allowance for receivables of £24,000.
What should be the charge to the statement of profit or loss for the year ended
28 February 20X7 for irrecoverable debts?
A £5,400
B £24,000
C £18,600
D £8,400 LO 1d; 3a, c

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4 Kieran has an allowance for receivables of £3,000 at 31 December 20X7. During the year £50
was received in respect of a debt previously written off, and an allowance for receivables of
£3,100 is to be carried down at 31 December 20X8.
What is the irrecoverable debts charge or credit to be included in the statement of profit or loss
for the year to 31 December 20X8?
A £50 charge
B £150 charge
C £50 credit
D £150 credit LO 1d; 3a, c
5 The trial balance of Kanine Bros as at 31 May 20X7 includes the following:
Debit Credit
£ £
Trade receivables 60,500
Allowance for receivables at 1 June 20X6 1,420
Subsequently a review of the receivables ledger reveals the following:
Debts totalling £2,100 are considered irrecoverable and are to be written off. The business
wishes to reduce the allowance for receivables to £800.
What is the irrecoverable debt charge or credit to be included in the statement of profit or loss
for the year ended 31 May 20X7?
A £1,480 charge
B £120 credit
C £1,480 credit
D £120 charge LO 1d; 3a, c
6 At 1 July 20X6 a company's allowance for receivables was £14,000.

At 30 June 20X7, trade receivables amounted to £268,000. It was decided to write off £22,000
of these debts as irrecoverable and adjust the allowance for receivables to £12,000.
What are the final amounts for inclusion in the company's statement of financial position at 30
June 20X7?
Trade Allowance for
receivables receivables Net balance
£ £ £
A 268,000 12,000 256,000
B 246,000 12,000 234,000
C 268,000 22,000 246,000
D 246,000 34,000 212,000
LO 1d; 3a, c
ICAEW 2019 Chapter 8: Irrecoverable debts and allowances 35

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7 At 30 September 20X7 a company has receivables totalling £128,000 and an allowance for
receivables of £4,800 brought forward from the previous year.
It has been decided to write off receivables totalling £10,500 and to adjust the allowance for
receivables to £3,000.
The net trade receivables balance in the statement of financial position as at the year end of
30 September 20X7 will be:
A £114,500
B £120,500
C £135,500
D £141,500 LO 1d; 3a, c
8 A business has an allowance for receivables at 1 January 20X7 of £12,500. At 31 December

20X7, the directors of the business determine that a receivable balance of £10,600 is
irrecoverable and should be written off and that the allowance for receivables should be
increased to £13,530.
What journal entry is required to record these adjustments in the financial statements at
31 December 20X7?
A Dr Irrecoverable debt expense £24,130, Cr Trade receivables £10,600,
Cr Allowance for receivables £13,530
B Dr Irrecoverable debt expense £11,630, Cr Trade receivables £10,600,
C Dr Irrecoverable debt expense £14,560, Cr Trade receivables £1,030,
D Dr Allowance for receivables £11,630, Cr Trade receivables £10,600,
Cr Irrecoverable debt expense £1,030 LO 2c
9 Gem received a bank transfer for £25 on 30 June 20X2 from a credit customer in settlement
of an outstanding debt of £100, along with notification that the remainder of the debt will never
be paid.
The double entry to be made on 30 June 20X2 is:
A Dr Cash at bank £25, Dr Irrecoverable debts expense £75,
Cr Trade receivables £100
B Dr Cash at bank £25, Dr Irrecoverable debts expense £75,
Cr Allowance for receivables £100
C Dr Cash at bank £25, Dr Allowance for receivables £75,
Cr Irrecoverable debts expense £100
D Dr Cash at bank £25, Dr Allowance for receivables £75,
Cr Trade receivables £100 LO 2c

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10 On 1 April 20X7 Midge’s allowance for receivables stood at £5,558. During the year:
(1) Cash of £900 was received from a credit customer whose debt had been written off many
years ago.
(2) A debt of £2,100 was deemed irrecoverable and was to be written off.
At 31 March 20X8 Midge determined that the allowance for receivables needed to be £7,170.
What is the charge for irrecoverable debts expense in Midge's statement of profit or loss for
the year ended 31 March 20X8?
A £3,712
B £2,812
C £1,612
D £712 LO 1d; 3a, c
11 Which two of the following would result in a debit entry to the irrecoverable debts expense
account?
A Irrecoverable debt written off
B Irrecoverable debt recovered
C Increase in allowance for receivables
D Decrease in allowance for receivables LO 1d
12 At 31 December 20X4 Anita had an allowance for receivables of £1,000.

During the year to 31 December 20X5 the following occurred.
(1) Irrecoverable debts of £500 were written off.
(2) Anita received £50 in full settlement of a debt which had been written off in the previous
year.
At 31 December 20X5 Anita's total receivables were £71,000. Anita wishes to have an
allowance at that date of £2,130.
What is the irrecoverable debts expense that should be included in Anita's statement of profit
or loss for 20X5?
A £2,580
B £1,630
C £1,580
D £1,480 LO 1d; 3c

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Chapter 9: Accruals and prepayments

1 A business compiling its financial statements for the year to 31 October each year pays rent
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent
was increased from £96,000 to £120,000 per year from 1 March 20X7.
What figure should appear for rent in the statement of profit or loss for the year ended
31 October 20X7 and in the statement of financial position at that date?
Statement of Statement of
profit or loss financial
position
A £112,000 £20,000
B £104,000 £10,000
C £112,000 £10,000
D £110,000 £20,000
LO 1d; 3a, c
2 A business has received telephone bills as follows:

Date received Amount of bill Date paid
£
Quarter to 30 November 20X5 December 20X5 336.50 January 20X6
Quarter to 28 February 20X6 March 20X6 364.20 April 20X6
Quarter to 31 May 20X6 June 20X6 313.70 June 20X6
Quarter to 31 August 20X6 September 20X6 335.80 October 20X6
Quarter to 30 November 20X6 December 20X6 361.20 January 20X7
Quarter to 28 February 20X7 March 20X7 403.80 March 20X7
In the statement of profit or loss for the year ended 31 December 20X6 its charge for
telephone expense should be:
A £1,388.10
B £1,266.70
C £1,522.80
D £1,401.30 LO 1d; 3c
3 A company receives rent from a large number of properties. The total received in the year
ended 31 October 20X7 was £325,600.
The following are the amounts of rent in advance and in arrears at 31 October 20X6 and
20X7.
31 October 31 October
20X6 20X7
£ £
Rent received in advance 18,300 19,200
Rent in arrears (all subsequently received) 28,700 23,400
What amount of rental income should appear in the company's statement of profit or loss for
the year ended 31 October 20X7?
A £340,200
B £331,800
C £325,600
D £319,400 LO 1d; 3a, c
4 An insurance prepayment of £1,050 was treated as an accrual in a sole trader's statement of

profit or loss at the year end. As a result the profit was:

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A understated by £1,050
B understated by £2,100
C overstated by £2,100
D overstated by £1,050 LO 1d; 2a; 3a, c
5 A company receives rent for subletting part of its office block.

Rent, receivable quarterly in advance, is received as follows:
Date of receipt Period covered £
1 October 20X6 3 months to 31 December 20X6 15,000
30 December 20X6 3 months to 31 March 20X7 15,000
4 April 20X7 3 months to 30 June 20X7 18,000
1 July 20X7 3 months to 30 September 20X7 18,000
1 October 20X7 3 months to 31 December 20X7 18,000
What figures, based on these receipts, should appear in the company's financial statements
for the year ended 30 November 20X7?
Statement of Statement of
profit or loss financial position
A £68,000 Dr Accrued income (Dr) £6,000
B £68,000 Cr Deferred income (Cr) £12,000
C £68,000 Cr Deferred income (Cr) £6,000
D £68,000 Cr Accrued income (Dr) £6,000
LO 1d; 3a, c
6 During 20X7 a sole trader paid a total of £15,000 for rent, covering the period from 1 October
20X6 to 31 March 20X8.
What figures should appear in the financial statements for the year ended 31 December 20X7?
Statement of profit Statement of
or loss financial position
£ £
A 10,000 2,500 Prepayment
B 10,000 3,750 Prepayment
C 12,500 2,500 Accrual
D 12,500 3,750 Accrual
LO 1d; 3a, c
ICAEW 2019 Chapter 9: Accruals and prepayments 39

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7 The year end for a sole trader is 30 November 20X7. The business pays for its gas by a
standing order of £200 per month. On 1 December 20X6, the statement from the gas supplier
showed that the sole trader had overpaid by £60. The gas bills received for the four quarters
commencing on 1 December 20X6 and ending on 30 November 20X7 were for £400, £450,
£600 and £650 respectively.
The correct charge for gas in the sole trader's statement of profit or loss for the year ended 30
November 20X7 is:
A £2,400
B £2,160
C £2,100
D £2,040 LO 1d; 3a, c
8 At 31 December 20X6 a business has an insurance prepayment of £100. During the year the
business pays £600 in respect of various insurance contracts. The closing accrual for
insurance is £130.
The statement of profit or loss charge for insurance for the year ended 31 December 20X7 is:
A £830
B £630
C £600
D £570 LO 1d; 3a, c
9 The annual insurance premium for a sole trader for the period 1 July 20X7 to 30 June 20X8 is
£22,000, which is 10% more than the previous year. Insurance premiums are paid on
1 July.
The statement of profit or loss charge for insurance for the year ended 31 December 20X7 is:
A £19,800
B £20,000
C £21,000
D £22,000 LO 1d; 3a, c

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10 Suki is a sole trader preparing her financial statements to 31 August 20X9. Suki has calculated
her draft profit for the year as £23,800. She needs to increase her telephone accrual from
£150 to £230 and record a prepayment of £310 in respect of insurance costs. What is Suki's
adjusted profit for the year after taking account of accruals and prepayments?
A £23,880
B £24,030
C £23,720
D £23,570 LO 2a
11 Rachel owns a number of properties which she rents out to tenants. She prepares her
financial statements to 30 June each year. As at 1 July 20X6 her annual rental income for the
year ahead was £54,000. On 1 November she raised the rent across all her properties by 10%
with immediate effect. At the beginning of the year Rachel was owed £8,100 by her tenants,
and during the year she received £72,000 from her tenants.
At 30 June 20X7 what amount was due to or from Rachel?
A £6,300 due to Rachel
B £6,300 due from Rachel
C £9,900 due to Rachel
D £9,900 due from Rachel LO 1d; 3a, c
12 On 5 May 20X5 Colin pays a local property tax bill of £1,800 for the 18 months ended
30 June 20X6.
Which two entries will appear in his financial statements for local property tax in respect of the
year ended 31 March 20X6?
A Prepayment of £600
B Prepayment of £300
C Accrual of £300
D Charge of £1,800
E Charge of £1,200
F Charge of £300 LO 1d; 3a, c

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13 A social club has failed to keep a proper set of accounting records. For the year ended 30
April 20X8 you discover the following information concerning subscription income.
£
Due for the year ended 30 April 20X8 5,500
In advance at 1 May 20X7 260
In arrears at 1 May 20X7 1,620
In advance at 30 April 20X8 240
In arrears at 30 April 20X8 Nil
How much cash was received during the year in respect of subscriptions?
A £3,900
B £4,380
C £6,620
D £7,100 LO 1d
14 Freesia Ltd has a year end of 31 December 20X6 and pays an annual rent on its factory
premises. For the period 1 April 20X5 to 31 March 20X6, the annual rental charge was
£200,000 per year. On 1 April 20X6, the rental charge was increased by 10% per annum.
What is the journal entry to transfer the balance on the rent expense account to the profit and
loss ledger account when preparing the financial statements for the year ended
31 December 20X6?
A Dr Profit and loss ledger account £215,000; Cr Rent expense £215,000
B Dr Rent expense £215,000; Cr Profit and loss ledger account £215,000
C Dr Rent expense £200,000; Cr Profit and loss ledger account £200,000
D Dr Profit and loss ledger account £200,000; Cr Rent expense £200,000
LO 1d; 2c; 3a, c
15 Woody has a year end of 31 March each year. At 31 March 20X7, Woody had prepaid
insurance of £1,980. On 1 June 20X7 it paid £3,600 in respect of insurance for the year to 31
May 20X8.
What is the journal entry to transfer the balance on the insurance expense account to the profit
and loss ledger account for the year ended 31 March 20X8?
A Dr Profit and loss ledger account £3,000 ; Cr Insurance expense £3,000
B Dr Insurance expense £3,000; Cr Profit and loss ledger account £3,000
C Dr Profit and loss ledger account £4,980; Cr Insurance expense £4,980
D Dr Insurance expense £4,980; Cr Profit and loss ledger account £4,980
LO 1d; 2c; 3a, c

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16 On 1 January 20X5 Bolton paid £4,800 for insurance for the year from 1 October 20X4 to 30
September 20X5.
What is the correct journal entry to record the insurance prepayment or accrual for the year
ended 30 June 20X5?
A Dr Prepayments £1,200; Cr Insurance expense £1,200
B Dr Insurance expense £1,200; Cr Accruals £1,200
C Dr Prepayments £1,600; Cr Insurance expense £1,600
D Dr Insurance expense £1,600; Cr Accruals £1,600 LO 1d; 2c; 3a, c
17 A business sublets part of its office accommodation.

The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The
annual rent charge is £30,000.
What is the correct journal entry to record the accrued or deferred rental income as at
31 January 20X6?
A Dr Deferred income £5,000; Cr Rental income £5,000
B Dr Rental income £5,000; Cr Deferred income £5,000
C Dr Rental income £2,500; Cr Accrued income £2,500
D Dr Accrued income £2,500; Cr Rental income £2,500 LO 1d; 2c; 3a, c

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Chapter 10: Non-current assets and

depreciation
1 A company purchases a machine with a list price of £130,000. The company pays £100,000 in
cash and trades in an old machine, which has a carrying amount of £32,000. It is the
company's policy to depreciate machines at the rate of 10% per annum on cost.
What is the carrying amount of the new machine after one year?
A £88,200
B £117,000
C £90,000
D £61,200 LO 1d; 3a, c
2 A company purchases a machine for £20,000 on the first day of the reporting period. After
incurring transportation costs of £1,000 and spending £2,000 on installation, the machine runs
satisfactorily for several months before it breaks down and costs £800 to repair. Depreciation
is charged at 20% per annum.
At what carrying amount will the machine be shown in the company's statement of financial
position at the end of the reporting period?
A £19,040
B £18,400
C £16,800
D £16,000 LO 1d; 3a, c
3 A company buys a machine on 31 August 20X3 for £36,000. It has an expected life of seven
years and an estimated residual value of £2,400. On 30 June 20X7 the machine is disposed of
for £12,000. The company's year end is 31 December. Its accounting policy is to charge
depreciation using the straight line method.
Calculate the loss on disposal of the machine which will appear in the statement of profit or
loss for the year ended 31 December 20X7.
A £4,286
B £4,800
C £5,600
D £9,600 LO 1d; 3a, c

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4 A sole trader purchased a van on 1 October 20X7 for a total cost of £20,000 by paying
£16,000 cash and trading in an old van. The old van had cost £18,000 and the related
accumulated depreciation was £12,200. The £16,000 cash paid for the new van has been
correctly recorded as Dr Motor vehicles and Cr Cash at bank. No other accounting has taken
place.
What is the journal entry to record the loss on disposal of the old van for the year ended
31 December 20X7?
A Dr Accumulated depreciation £12,200; Dr Loss on disposal £1,800;
Cr Motor vehicles £14,000
B Dr Motor vehicles £14,000; Cr Accumulated depreciation £12,200;
Cr Loss on disposal £1,800
C Dr Loss on disposal £2,000; Cr Motor vehicles £2,000
D Dr Motor vehicles £2,000; Cr Loss on disposal £2,000 LO 1d; 2c; 3a, c
5 Vernon, a sole trader, purchased some new equipment on 1 April 20X7 for £8,000. The scrap
value of the new equipment in five years' time is estimated to be £800. Vernon charges
depreciation monthly on the straight line basis.
What should the depreciation charge for the equipment be in the year to 30 September 20X7?
A £720
B £1,440
C £1,080
D £1,600 LO 1d; 3a, c
6 An asset register showed a total carrying amount of £81,770. A non-current asset costing
£12,000 had been sold for £3,000, making a loss on disposal of £1,600. No entries had been
made in the asset register for this disposal.
The correct balance on the asset register is:
A £86,370
B £69,770
C £78,770
D £77,170 LO 1d; 3a, c
ICAEW 2019 Chapter 10: Non-current assets and depreciation 45

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7 Windsor plc calculated its draft profit for the year to 31 December 20X2 as £184,800. It later
discovered that a repairs and maintenance expense of £12,000 on 30 June 20X2 relating to
buildings repairs was incorrectly capitalised. Buildings are depreciated monthly over 10 years
on the straight-line basis.
What is Windsor plc's profit for the year after adjusting for this error?
A £173,400
B £196,200
C £174,000
D £194,800 LO 1d; 2a; 3a, c
8 A company's plant and machinery ledger account for the 12-month reporting period ended 30
September 20X7 was as follows:
PLANT AND MACHINERY – COST
20X6 £ 20X7 £
1 Oct Balance b/d 167,900 1 Jun Disposal account –
cost of asset sold 24,000
1 Dec Cash at bank – 30 Sep Balance c/d 155,900
addition 12,000
179,900 179,900
The company's policy is to charge depreciation monthly at 20% per year on the straight line
basis.
What is the journal entry to record the depreciation charge for the reporting period ended 30
September 20X7?
A Dr Depreciation expense £33,980; Cr Accumulated depreciation £33,980
B Dr Accumulated depreciation £33,980; Cr Depreciation expense £33,980
C Dr Depreciation expense £31,180; CR Accumulated depreciation £31,180
D Dr Accumulated depreciation £28,780; Cr Depreciation expense £28,780
LO 1d; 2a; 3a, c
9 A business' statement of profit or loss for the year ended 31 December 20X4 showed a profit
for the year of £101,400. It was later found that £20,000 paid for the purchase of a motor van
on 1 January 20X4 had been debited to motor expenses account. It is the company's policy to
depreciate motor vans at 25% per year.
What is the profit for the year after adjusting for this error?
A £86,400
B £121,400
C £116,400
D £96,400 LO 1d; 2a; 3a, c

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10 A company purchases a machine for £100,000 on 1 January 20X5. The machine has an
estimated useful life of 10 years. On 1 January 20X8 the company enhances the machine by
adding additional software controls costing £40,000. These are expected to have the same
remaining useful life as the machine.
The additional annual depreciation on the machine will be:
A £4,000
B £4,444
C £5,000
D £5,714 LO 1d; 3a, c
11 A company purchases a machine for £64,000. It has no residual value and an expected useful
life of eight years. It is depreciated monthly using the straight line method for two years when
the company decides to change the depreciation method to reducing balance at 30%.
The annual depreciation for the first year under the new method will be:
A £8,000
B £14,400
C £19,200
D £9,408 LO 1d; 3a, c
12 Argonaut purchases a machine for £63,000 on 1 January 20X5. It has no residual value and
an estimated useful life of seven years. It is depreciated using the straight line method. On
1 January 20X9 the company decides that the useful life was underestimated and should have
been ten years.
The annual depreciation charge for the year to 31 December 20X9 will be:
A £9,000
B £6,300
C £4,500
D £2,700 LO 1d; 3a, c
13 A company buys a machine for £10,000. It has an estimated residual value of £500, a useful
life of ten years and the company depreciates the asset using the straight line method.
After four years the company decides that the asset has no residual value.
The depreciation charge for the fifth year will be:
A £1,033
B £1,000
C £967
D £950 LO 1d; 3a, c
14 On 1 June 20X8 Yogi's business traded in a car which it had bought on 1 June 20X6 for
£6,000. The business had been depreciating the car using the reducing balance method at the

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rate of 50% per annum. The new car cost £12,200 and Yogi paid the garage the balance of
£11,800 via bank transfer. Yogi's year end is 31 May.
What was the profit or loss on sale of the old car?
A £2,600 loss
B £1,500 loss
C £1,100 loss
D £400 profit LO 1d; 3a, c
15 Mario bought a van for his business on 30 June 20X1 for £13,750, including £150 for a car tax
licence. Mario depreciates motor vehicles at 20% per annum on cost, charging depreciation on
a monthly basis. His year end is 31 December.
On 1 January 20X4 Mario traded in the van for a new one, receiving a part-exchange
allowance of £7,250.
What was the profit on disposal of the van?
A £375
B £450
C £1,750
D £1,810 LO 1d; 3a, c
16 Santa plc acquired a new building on 1 January 20X6, and incurred the following further costs
in relation to this building over the next year.
(1) Costs of initial adaptation of the building
(2) Legal costs relating to purchase
(3) Monthly cleaning contract
(4) Office furniture
Which of these costs should be included in the cost of the building in the company's statement
of financial position at 31 December 20X6?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1d; 3a, c
17 Caron depreciates non-current assets monthly on the straight-line basis over their useful life.
She bought a machine on 1 January 20X5 for £11,000 with a residual value of £1,000 and an
estimated useful life of four years. On 1 January 20X7 she revised the machine's total useful
life to six years but estimated that at the end of that time it would have no residual value.
What was the depreciation charge for the year to 31 December 20X7?
A £1,000
B £1,280

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C £1,500
D £3,000 LO 1d; 3a, c
18 Mike's reporting period ends on 31 December each year. On 1 January 20X0 he bought a
machine with a useful life of ten years for £200,000 and started to depreciate it on the
reducing balance basis. On 31 December 20X3 the accumulated depreciation was £95,600.
On 1 January 20X4 Mike changed the basis of depreciation to straight line.
What is Mike's depreciation charge for the year ended 31 December 20X4?
A £10,440
B £14,914
C £17,400
D £20,000 LO 1d; 3a, c
19 Which of the following describes why depreciation is charged on non-current assets?

A To ensure that the statement of financial position value equates to market value
B To ensure that there are enough funds available to replace the asset
C To ensure that the asset has no value when it is disposed of
D To spread the cost of the asset over its useful life LO 1d; 3a, c
20 Samech purchased a new car, giving his old car in part exchange. The bookkeeper recorded
the following entries.
Dr Motor vehicles – Total price of new car
Cr Cash – Cash paid for new car
Cr Disposals – Part exchange value
Dr Disposals – Original cost of old car
Cr Motor vehicles – Original cost of old car
No other entries were made.
Which two of the following entries must be made in addition to the above?
A Dr Cash at bank account with the part exchange value
B Cr Accumulated depreciation account with the accumulated depreciation of the old car
C Dr Accumulated depreciation account with the accumulated depreciation of the old car
D Cr Disposals account with the accumulated depreciation of the old car
E Dr Disposals account with the accumulated depreciation of the old car
LO 1d; 2c; 3a, c

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21 The cost of a business’s non-current assets is £24,000. The directors have to choose between
charging depreciation at 10% per annum by the straight line method and charging depreciation
at 10% per annum by the reducing balance method.
How much greater will the total profits of the business be over three years if the reducing
balance method rather than the straight line method is adopted?
A £669
B £696
C £966
D £969 LO 2a; 3a, c
22 Mr Patel is a sole trader. In the current year he has purchased an expensive item of
equipment which will last for many years. This will be treated as a non-current asset in the
financial statements.
Which of the following statements provides the best explanation for this treatment of the
equipment?
A A large sum of money was paid for it
B It ensures that profits are not unfairly reduced in the year the equipment was purchased
C Its use will generate income for the business in the future
D The treatment is consistent with that used by similar businesses LO 1d; 3a, c
23 Why is depreciation charged on non-current assets?

A To ensure that there are funds available to replace the assets
B To spread the cost of the assets over their estimated useful lives
C To comply with the concept of materiality
D To show the assets at market value in the statement of financial position
LO 1d; 3a, b, c
24 The accounting concept or characteristic that underlies the fact that non-current assets are
depreciated over their useful lives is:
A going concern
B fair presentation
C accruals
D materiality LO 1d; 3a, b, c
25 Yves purchased equipment on 1 July 20X4 for £22,000. The payment for the equipment was
correctly entered in the cash at bank account but was entered on the debit side of the plant
repairs account.

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Yves charges depreciation on the straight line basis at 25% per year, calculated monthly with
depreciation charged in the month of purchase but not in the month of sale, and assuming no
scrap value at the end of the life of the asset.
How will Yves’s profit for the year ended 30 September 20X4 be affected by the error?
A Understated by £16,500
B Understated by £20,625
C Understated by £22,000
D Overstated by £1,375 LO 2a; 3a, c
26 Evans Co purchased a machine with an estimated useful life of 10 years for £76,000 on 30
September 20X5. The machine had a residual value of £16,000.
What are the ledger entries to record the depreciation charge for the machine in the year
ended 30 September 20X8?
A DEBIT Depreciation expense £6,000
CREDIT Accumulated depreciation £6,000
B DEBIT Depreciation expense £6,000
DEBIT Non-current assets £12,000
CREDIT Accumulated depreciation £18,000
C DEBIT Accumulated depreciation £6,000
CREDIT Depreciation expense £6,000
D DEBIT Accumulated depreciation £18,000
CREDIT Non-current assets £18,000 LO 1d; 2a; 3a, c
27 On 1 January 20X5 a company purchased a new machine.

The company has capitalised the following costs included on the purchase invoice:
£
Cost of machine 48,000
Delivery to factory 400
Cost of training staff to operate the machine 800
49,200
Modifications to the factory building costing £2,200 were incurred to enable the machine to be
installed and have been written off to administrative expenses. Depreciation at 20% on the
straight line basis has been calculated for the year ended 31 December 20X5. Draft profit for
the year, before any corrections in respect of the machine, has been calculated as £42,600.
What is the correct profit for the year after making any necessary corrections in respect of the
machine?
A £44,360
B £44,800
C £44,000
D £43,720 LO 2a

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28 During the year ended 31 July 20X1, Feltz Co sold equipment which cost £70,000 for £25,000
on which it made a loss of £5,000. The proceeds on sale have been correctly recorded in cash
at bank but the other side of the transaction has been recorded in the suspense account.
What is the correct journal entry to record the disposal of the equipment in the year ended 31
July 20X1?
A Dr Suspense account £25,000; Dr Loss on disposal £5,000; Cr Equipment cost £30,000
B Dr Suspense account £25,000; Dr Loss on disposal £5,000; Dr Accumulated depreciation
£40,000; Cr Equipment cost £70,000
C Dr Equipment cost £30,000; Cr Suspense account £25,000; Cr Loss on disposal £5,000
D Dr Equipment cost £70,000; Cr Suspense account £25,000; Cr Loss on disposal £5,000;
Cr Accumulated depreciation £40,000
LO 1d; 2a; 3a, c
29 Rose has a machine which cost £90,000 and has a carrying amount of £62,000 on
1 September 20X7. It is being depreciated at 25% per annum on the reducing balance basis.
On 31 August 20X8, Rose performed an impairment review and concluded that the carrying
amount of the machine should be £35,000.
What is the impairment loss in respect of the machine at 31 March 20X8?
A £27,000
B £11,500
C £4,500
D £32,500 LO 1d

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Chapter 11: Company financial

statements
1 Alto plc’s share capital consists of 400,000 25p equity shares all of which were issued at a
premium of 25%. The market value of the shares is currently 70p each.
What is the balance on the share capital ledger account?
A £100,000
B £200,000
C £300,000
D £400,000 LO 1d, e; 3a, c
2 At 30 June 20X6 Ollie plc's equity contained the following balances:

£m
Equity shares of £1 each 80
Share premium account 40
During the year ended 30 June 20X7, the following transactions took place:
(1) 1 September 20X6 A 1 for 2 bonus issue, using the share premium account.
(2) 1 January 20X7 A fully subscribed 1 for 3 rights issue at £1.80 per share.
What are the balances on each account at 30 June 20X7?
Share Share
capital premium
£m £m
A 160 72
B 160 32
C 192 72
D 192 32
LO 1d, e; 3a, c
3 A company made an issue of shares for cash of 500,000 50p shares at a premium of 20p per
share. Which of the following journal entries correctly records the issue?
Debit Credit
£ £
A Share capital 250,000
Share premium 100,000
Cash at bank 350,000
B Cash at bank 350,000
Share capital 250,000
C Cash at bank 700,000
D Share capital 500,000
LO 1d, e; 2c
ICAEW 2019 Chapter 11: Company financial statements 53

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4 At 30 June 20X6 a company’s capital structure included the following items:

£
500,000 equity shares of 50p each 250,000
Share premium account 80,000
In the year ended 30 June 20X7 the company made a rights issue of 1 share for every 5 held
at £1.20 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 30 June 20X7?
Equity share Share
capital premium
£ £
A 400,000 90,000
B 360,000 90,000
C 360,000 150,000
D 400,000 150,000
LO 1d, e; 3a, c
5 A company has the following capital structure:

£
Equity share capital 300,000 shares of 25p 75,000
It makes a 1 for 6 rights issue at £1.25, which is fully subscribed.
The balance on share premium following the rights issue is:
A £12,500
B £50,000
C £62,500
D £100,000 LO 1d, e; 3a, c
6 A company has a balance of £5,000 (debit) on its income tax account at 31 December 20X1
relating to the income tax payable on the 20X0 profits. The company's estimated income tax
liability for the year to 31 December 20X1 is £30,000.
The income tax expense in the statement of profit or loss for the year ended
31 December 20X1 is:
A £5,000
B £25,000
C £30,000
D £35,000 LO 1d; 3a, c

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7 A company is preparing its financial statements for the year ending 31 March 20X4. The initial
trial balance has the following figures relating to income tax:
£
Income tax payable at 1 April 20X3 21,200
Income tax agreed with HMRC and paid during the year ended 31 March 20X4 19,500
The estimated income tax liability for the year ended 31 March 20X4 is £26,700.
The figure for income tax expense in the company's statement of profit or loss will be:
A £19,500
B £25,000
C £26,700
D £28,400 LO 1d; 3a, c
8 Which three of the following would be included in current liabilities in a company's financial
statements?
A Allowance for receivables
B Bank overdraft
C Tax payable
D Share capital
E Accrued interest charges LO 1d, e; 3a, c
9 Which of the following accounting treatments derive from the accounting concept of accruals?
(1) Annual depreciation charges for non-current assets
(2) Opening and closing inventory adjustments
(3) Capitalisation and amortisation of development expenditure
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3) LO 1d; 3a, c

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10 The following transactions occurred during a company’s reporting period:

(1) A non-current liability was paid in full.
(2) A substantial amount was written off as irrecoverable debts.
(3) Depreciation was charged on non-current assets.
(4) A non-current asset was sold at its carrying amount.
Which of these transactions result in expense items appearing in the company’s draft
statement of profit or loss?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1d; 3a, c
11 At 31 January 20X5 Watchet Ltd had issued share capital of £250,000 in 25p shares. All
shares were issued at par several years ago. During the year the following transactions took
place.
1 May 20X5 500,000 shares issued at 75p
30 September 20X5 1 for 25 bonus issue
What is the balance on share premium after these transactions, assuming that share premium
is used wherever possible?
A £182,500
B £220,000
C £235,000
D £360,000 LO 1d, e; 3a, c
12 Wanda Ltd provides a warranty on goods sold which allows customers to return faulty goods
within one year of purchase. At 30 November 20X5, Wanda Ltd had a warranty provision of
£6,548. During the year to 30 November 20X6, the cost of warranty claims was £3,720. At 30
November 20X6, the warranty provision was calculated as £7,634.
What is the amount of the warranty expense that should be included in Wanda Ltd's statement
of profit or loss for the year to 30 November 20X6?
A £7,634
B £1,086
C £4,806
D £2,634 LO 1d

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13 Mobiles Ltd sells goods with a one year warranty under which customers are covered for any
defect that becomes apparent within a year of purchase. In calendar year 20X4, Mobiles Ltd
sold 100,000 units.
The company expects warranty claims for 5% of units sold. Half of these claims will be for a
major defect, with an average claim value of £50. The other half of these claims will be for a
minor defect, with an average claim value of £10.
What amount should Mobiles Ltd include as a provision in the statement of financial position
for the year ended 31 December 20X4?
A £125,000
B £25,000
C £300,000
D £150,000 LO 1d
14 Doggard Ltd is a business that sells cars. It offers a warranty provision under which, if a car
develops a fault within one year of the sale, Doggard Ltd will repair it free of charge.
At 30 April 20X4 Doggard Ltd had a warranty provision of £52,500. At 30 April 20X5 Doggard
Ltd calculated that the provision should be £48,700.
What is the journal entry to record the warranty provision at 30 April 20X5?
A Dr Warranty expense £48,700; Cr Warranty provision £48,700
B Dr Warranty provision £48,700; Cr Warranty expense £48,700
C Dr Warranty provision £3,800; Cr Warranty expense £3,800
D Dr Warranty expense £3,800; Cr Warranty provision £3,800 LO 1d; 2c

lOMoARcPSD|23610656

lOMoARcPSD|23610656

statements under IFRS
1 Papaya plc
The trial balance of Papaya plc as at 31 December 20X8 is as follows.
£ £
Share capital
£1 ordinary shares 100,000
£1 5% preference shares (irredeemable) 50,000
Retained earnings 76,015
Intangible assets 20,500
Land and buildings
Cost 450,000
Accumulated depreciation 81,000
Plant and machinery
Cost 82,000
Inventories at 1 January 20X8 58,045
Revenue 1,600,047
Purchases (cost of sales) 907,989
Debenture interest paid 6,260
Royalty income received 39,045
Administrative salaries 126,232
Salesmen's salaries and commission (selling and distribution costs) 24,291
Factory wages (cost of sales) 54,117
Rental costs administrative expenses) 6,002
Administrative expenses 18,822
Selling and distribution expenses 9,600
Trade payables 12,000
Dividend received from investments 11,000
10% Debentures (issued and redeemable at par) 62,600
20X7 final dividend paid 12,500
2,049,707 2,049,707
You are provided with the following information in respect of 20X8.

(1) Depreciation is to be charged on the basis of the following policies.
Buildings Straight line over 50 years (charged to administrative expenses)
Plant and machinery Straight line over 10 years (charged to cost of sales)
The land originally cost £115,000.
(2) The intangible asset is a patent. Following an impairment review the value of the asset has been
estimated at £12,000. The impairment loss should be charged to administrative expenses.
(3) The 20X8 preference dividends have been declared before the year end and were paid on 15
January 20X9.
(4) Tax of £22,500 is to be charged for the current year.
(5) Inventories held at 31 December 20X8 are valued at cost of £68,000. Within this amount there
are 1,000 units of finished goods valued at £20 each. These units are now expected to sell at
a discounted price of £18 each and incur £1 selling costs per unit.
(6) In November, a member of the public slipped on the wet floor of a premises owned by Papaya
plc. A subsequent legal letter confirmed that the individual is seeking compensation for this
incident. Papaya plc's legal advisors believe that the matter can be settled with a payment of
£5,000 to the individual. Provisions are charged to administrative expenses.
ICAEW 2019 Chapter 12: Company financial statements under IFRS 59

lOMoARcPSD|23610656
(7) During the year the company made a 1 for 10 bonus issue of its ordinary shares from retained
earnings. No entries have been made in respect of this.
(8) Included in administrative expenses is £36,000 which relates to an annual insurance premium
which provides cover until 31 May 20X9.
(9) On 27 December 20X8 the company received a cheque from a credit customer and recorded
it as £13,520 in the correct nominal ledger accounts. When the electronic banking report was
downloaded, it was identified that the correct amount was £13,250.
Requirement
Prepare the statement of profit or loss for Papaya plc for the year ended 31 December 20X8 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X8
£
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Profit / (loss) from operations
Investment income
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X8
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital
Preference shares
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Income tax payable
Provision
Accruals
Total equity and liabilities

lOMoARcPSD|23610656
2 Sharon plc
Sharon plc has produced the following trial balance as at 31 January 20X5:
£ £
Revenue 1,520,000
Purchases 465,000
Distribution costs 220,000
Dividends paid 124,000
Development expenditure 70,000
Land and buildings
Cost 1,500,000
Plant and machinery
Cost 650,000
Motor vehicles
Cost 250,000
Trade receivables and trade payables 703,700 380,000
Prepayments and accruals at 31 January 20X5 279,300 150,000
Cash at bank and bank overdraft 249,000 110,000
Bank loan 200,000
Share capital – ordinary shares of £1 each 850,000
Retained earnings 1,320,000
4,926,000 4,926,000
Additional information
(1) The company's land and buildings cost £1.5m (land element £300,000) on 1 February 20X0
and were being depreciated over 50 years. On 1 February 20X4 the remaining useful life of
the buildings was estimated at 40 years.
(2) No adjustments have been made for the depreciation charge for the year ended
31 January 20X5. Depreciation rates and allocation to expenses are as follows.
Cost of sales Admin costs Dist costs
Land and buildings – see (1) above 50% 50%
Plant and machinery – 10% straight line 80% 10% 10%
Motor vehicles – 20% reducing balance 100%
(3) The bank loan was taken out on 30 July 20X4 and is repayable in five years. No adjustments
have been made for the interest charge of 5% per annum.
(4) Tax on profits for the year has been estimated at £35,000 and has yet to be provided for in the
trial balance.
(5) The development expenditure was incurred during the year and relates to a new delivery
system. Development will be completed in 20X6. The company believed it has a reasonable
expectation of future benefits but has been unable to demonstrate this and so the cost will be
written off to distribution costs.
(6) One of Sharon plc's customers was declared insolvent on 15 February 20X5. The customer
owed Sharon plc £56,000 at 31 January 20X5 and no payment is expected to be made.
Irrecoverable debts are written off to administrative expenses.
(7) Sharon plc had inventories of £86,300 at 31 January 20X5.
(8) Sharon plc began renting an additional storage unit on 1 December 20X4 at a cost of £3,000
per month. No payment has been made to date. Rental payments are charged to
administrative expenses.

lOMoARcPSD|23610656
(9) £150,000 of revenue recognised is in respect of service contracts for which the performance
obligations have not yet been satisfied.
Requirement
Prepare the statement of profit or loss for Sharon plc for the year ended 31 January 20X5 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 January 20X5
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
Statement of financial position at 31 January 20X5
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Trade payables
Accruals
Bank overdraft
Deferred income
Income tax payable

lOMoARcPSD|23610656
3 Pineapple plc
Pineapple plc is a company which makes exclusive furniture to customers’ precise specifications.
Pineapple plc’s trial balance at 31 December 20X5 is as follows.
£ £
Raw materials and consumables (cost of sales) 1,580,000
Salaries and wages (cost of sales) 805,500
Salaries and wages (admin expenses) 445,000
Work in progress at 1 January 20X5 45,600
Finished inventories at 1 January 20X5 13,400
Freehold land and buildings
Cost (land £2 million) 3,600,000
Accumulated depreciation at 1 January 20X5 640,000
Plant and machinery
Cost 520,000
Office furniture
Cost 32,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 January 20X5 1,968,600
Ordinary share capital – £1 nominal value 500,000
Preference share capital – 4% redeemable £1 shares 120,000
Equity dividend paid 60,000
Revenue 3,500,000
7,357,500 7,357,500
The following additional information is relevant.
(1) Buildings are depreciated on a straight-line basis at a rate of 4% and depreciation is charged
to cost of sales and administrative expenses on an 8:2 basis.
Plant is depreciated on a reducing balance basis at a rate of 20% and depreciation is charged
to cost of sales.
Office furniture is depreciated on a 10% straight-line basis and depreciation is charged to
(2) During the year the company made a 1 for 5 bonus issue of its ordinary shares from the share
premium account. No entries have been made in respect of this.
(3) The preference shares are redeemable in 20X9. No entry has been made in respect of
preference dividends payable for the year.
(4) The income tax charge for the period has been estimated at £250,000.
(5) The intangible asset relates to a patent acquired on 1 January 20X5. This patent is considered
to have a useful life of 20 years. An impairment review has indicated that the patent has a
recoverable value at 31 December 20X5 of £14,000. Amortisation and any impairment loss
should be charged to administrative expenses.
(6) Closing inventories at cost amounted to work in progress of £50,200 and finished goods of
£15,000.
(7) Included in administrative expenses is £120,000 in respect of insurance. 50% of this relates to
the year ended 31 December 20X6.
(8) Included in this year's revenue is a new product containing a warranty. Management expect
that 3% of these warranties will be invoked at a cost of £100,000. Provisions are charged to

lOMoARcPSD|23610656
(9) The revenue figure includes £50,000 in relation to pre-orders for a new product which will be
released in March 20X6.
(10) The company received a letter from the liquidator of Mango plc to advise that there are no
funds to pay the £30,000 debt which is owed to Pineapple plc. The directors have assessed
that the debt is irrecoverable and requires to be written off. Irrecoverable debts are charged to
Requirement
Prepare the statement of profit or loss for Pineapple plc for the year ended 31 December 20X5 and
£
Revenue
Cost of sales
Gross profit
Finance costs
Income tax expense
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Office furniture
Intangible assets
Current assets
Inventories
Trade receivables
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Trade payables
Accruals
Provisions
Deferred income
Income tax payable

lOMoARcPSD|23610656
4 Cranberry plc
The following trial balance was extracted from the nominal ledger of Cranberry plc on
31 December 20X8:
£ £
Revenue 2,180,000
Purchases 935,000
Loan interest paid 24,000
Land and buildings cost 450,000
Plant and equipment cost 460,000
Land and buildings accumulated depreciation at
1 January 20X8 208,000
Plant and equipment accumulated depreciation at
1 January 20X8 246,000
Bank 64,000
Ordinary share capital (£1 shares) 180,000
Bank loan 400,000
3,337,000 3,337,000
The following additional information is relevant.

(1) Cranberry plc paid an annual insurance premium of £24,000 for the year 1 June 20X8 to
31 May 20X9. This payment is included in administrative expenses.
(2) During the year the company made a 1 for 10 bonus issue of its ordinary shares from the
share premium account. No entries have been made in respect of this.
(3) The income tax charge for the period has been estimated at £28,000.
(4) Freehold land and buildings include £150,000 for the land. Buildings are depreciated on a
straight-line basis over 10 years. Plant is depreciated on a straight-line basis at a rate of 15%
Depreciation is apportioned as follows:
Cost of sales 70%
Distribution costs 10%
Administrative expenses 20%
(5) The bank loan received on 1 July 20X8 is repayable in full in eight years. Interest is charged at
a fixed rate of 6% per annum.
(6) Closing inventories at cost amounted to £105,000.
(7) Cranberry plc are currently defending an action by a former employee in respect of unfair
dismissal. The legal advisors believe that this action will be successful. The employee is
seeking £10,000 in compensation. Provisions are charged to administrative expenses.
(8) A cheque which was sent to a supplier has been recorded in the accounting records as
£32,200. When the electronic banking report was downloaded, it was discovered that the
correct amount is £33,200.

lOMoARcPSD|23610656
(9) A customer of Cranberry plc is in financial difficulties. Management believe that there is a low
prospect that any of the £12,000 debt will be paid by the customer and the amount requires to
be written off as irrecoverable. Irrecoverable debts are charged to administrative expenses.
Requirement
Prepare the statement of profit or loss for Cranberry plc for the year ended 31 December 20X8 and
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Trade payables
Provisions
Income tax payable

lOMoARcPSD|23610656
5 Hexagon plc
The following trial balance was extracted from the nominal ledger of Hexagon plc on 30 June 20X3:
£ £
Sales 5,190,000
Inventories at 1 July 20X2 418,000
Purchases 2,854,500
Administrative expenses 1,082,000
Irrecoverable debts expense 123,500
Land and buildings cost 2,540,000
Plant and machinery cost 1,000,000
Office equipment cost 214,000
Goodwill 120,000
Land and buildings accumulated depreciation at 1 July 20X2 635,000
Plant and machinery accumulated depreciation at 1 July 20X2 360,000
Office equipment accumulated depreciation at 1 July 20X2 80,250
Cash at bank 53,400
Ordinary share capital (£1 shares) 1,000,000
6% irredeemable preference shares (£1 shares) 500,000
Ordinary dividends 50,000
Preference dividends 30,000
8,972,400 8,972,400
The following adjustments have yet to be accounted for:
(1) The company depreciates its non-current assets as follows:
Buildings Over 40 years on a straight line basis
Plant and Machinery 20% reducing balance
Office equipment 25% straight line
Land and buildings includes land that cost £500,000. Half of the depreciation on buildings is
charged to cost of sales with the remainder charged to administrative expenses. Plant and
machinery depreciation is charged to cost of sales. Office equipment depreciation is charged
to administrative expenses.
(2) An impairment review revealed that goodwill should be written down to 80% of the value
shown in the draft trial balance at 30 June 20X3. Any amount written off goodwill should be
charged as an administrative expense.
(3) An inventory count and subsequent inventory calculations has shown closing inventory to be
£427,000.
(4) Hexagon plc hired some machinery to help manufacture additional products to cope with
increased demand. The cost to hire the machinery for the period from 1 December 20X2 to
30 November 20X3 (inclusive) is £90,000.
The rental payments are six monthly. £45,000 was paid on 1 December 20X2 the remaining
£45,000 was paid on 1 June 20X3. Machinery hire costs are charged to cost of sales.
(5) Shortly after the year end an electricity bill for the company factory for £18,600 was received.
This invoice covered the quarter from 1 June 20X3 to 31 August 20X3 and was charged to
cost of sales in July 20X3.
(6) The company made a 1 for 5 bonus issue of ordinary shares on 30 June 20X3, utilising share
premium. No accounting entries have been made in respect of this issue.

lOMoARcPSD|23610656
(7) A customer owing £14,600 at 30 June 20X3 has since gone into administration and the full
amount is considered irrecoverable. The company presents irrecoverable debts as other
operating expenses in the statement of profit or loss.
(8) It has been discovered that a purchase invoice received on 25 June 20X3 for £19,800 was
incorrectly accounted for. The invoice was entered into the accounting system as £18,900 and
is included within purchases and trade payables.
(9) Income tax for the year ended 30 June 20X3 is yet to be provided for. It is estimated that
£260,500 of tax will be payable.
Requirement
Prepare the statement of profit or loss for Hexagon plc for the year ended 30 June 20X3 and the
Statement of profit or loss for the year ended 30 June 20X3
£
Revenue
Cost of sales
Gross profit
Other operating expenses
Finance costs
Income tax expense

lOMoARcPSD|23610656
Statement of financial position at 30 June 20X3

£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Office equipment
Goodwill
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Preference share capital
Share premium
Retained earnings
Borrowings
Current liabilities
Borrowings
Trade payables
Accruals
Provisions
Income tax payable

lOMoARcPSD|23610656
6 Goldberg plc
The following trial balance was extracted from the nominal ledger of Goldberg plc on
31 December 20X1:
£ £
Sales 2,284,900
Purchases 1,052,100
Irrecoverable debts expense 29,000
Motor vehicles cost 48,800
Land and buildings accumulated depreciation at 1 January 20X1 33,000
Plant and equipment accumulated depreciation at 1 January 20X1 44,800
Motor vehicles accumulated depreciation at 1 January 20X1 24,400
Cash at bank 12,600
Bank loan 150,000
Ordinary dividends paid 25,000
3,103,000 3,103,000
(1) The company depreciates all its non-current assets on a straight line basis with zero residual
values. Land included in non-current assets cost £250,000 and buildings are depreciated over
50 years.
Plant and equipment is depreciated over 5 years and Motor vehicles are depreciated over four
years.
Depreciation is charged as follows:
Depreciation on: Charged to:
Buildings Administrative expenses
Motor vehicles Distribution expenses
Plant and equipment Cost of sales
(2) Goldberg plc sells three products (Product Z1, Product Z2 and Product Z3). Inventory at
31 December 20X1 is made up of the following:
Item Z1 Z2 Z3
Units 1,100 2,000 1,200
Cost per unit (£) 25 15 18
100 of the units of Z3 sustained minor damage when being moved from one inventory area to
another. As a result these will only be sold for half of their normal selling price of £30 per unit.

lOMoARcPSD|23610656
(3) Goldberg plc rents offices at a cost of £48,000 per year and pays quarterly in arrears. The last
rental payment made during 20X1 covered the quarter ending 31 October 20X1. The invoice
for the following quarter to 31 January 20X2 is yet to be received. Rent is charged to
(4) Trade receivables at 31 December 20X1 include a balance of £2,300 in relation to a customer
having severe financial difficulties. Goldberg considers it very unlikely this amount will ever be
recovered and have decided to write the debt off as irrecoverable. The Irrecoverable debts
expense is included in other operating expenses.
(5) The company received the bank loan on 1 February 20X1. The loan is repayable in full on 31
July 20X9. Interest is charged at a fixed rate of 6% per annum.
(6) A company employee dismissed during the year initiated a legal action against Goldberg in
November 20X1. The likely outcome is an out of court settlement for £20,000. Provisions are
charged to administrative expenses.
(7) Income tax for the year ended 31 December 20X1 is yet to be provided for. It is estimated that
£140,000 of income tax will be payable.
Requirement
Prepare the statement of profit or loss for Goldberg plc for the year ended 31 December 20X1 and
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense

lOMoARcPSD|23610656

£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Borrowings
Trade payables
Accruals
Provisions
Income tax payable

lOMoARcPSD|23610656
7 MDFH plc
The following trial balance was extracted from the nominal ledger of MDFH plc on
30 September 20X5:
£ £
Sales 1,320,000
Inventories at 1 October 20X4 124,000
Purchases 1,026,300
Other operating expenses 9,500
Other interest paid 2,900
Land and buildings cost (Land cost = £75,000) 225,000
Land and buildings accumulated depreciation at 1 October 20X4 30,000
30 September 20X5 101,625
Intangible asset – development costs 11,000
Allowance for receivables 3,000
Bank overdraft 13,580
Bank loan 200,000
2,102,150 2,102,150
The following information is now available and may result in adjustments being needed to the
amounts shown in the trial balance above:
(1) Depreciation on buildings for the year ended 30 September 20X5 has not yet been provided.
Buildings are depreciated at 2% per annum on a straight line basis (with no residual value).
Depreciation on buildings is included in administrative expenses. Depreciation for the year to
30 September 20X5 has already been provided on plant and equipment.
(2) No entries have been made in relation to equipment sold for £15,000 to another company,
GBHL plc. MDFH delivered the equipment and related invoice to GBHL on
30 September 20X5, but payment for the non-current asset was not received until
October 20X5. The equipment originally cost £40,000 when MDFH purchased it on 1 October
20X3. Depreciation on plant and equipment is charged on a straight line basis at 25%. Profits
or losses on disposals are included within administrative expenses.
(3) Closing inventory has been calculated as £118,000. All closing inventory is included at cost,
apart from 1,000 kg of raw materials which is valued based on the warehouse manager's
estimate of £2.00 per kg. The cost per kg of the material on the related purchase invoice was
£1.50 per kg.
(4) MDFH plc received a telephone bill for £600 on 1 November 20X5 covering the period from 1
August 20X5 to 30 October 20X5. Telephone expenses are charged to administrative
expenses.
(5) MDFH plc has decided to write off as irrecoverable a debt of £1,700 relating to a customer balance
which has been in dispute for a long time. Irrecoverable debts should be included in other
operating expenses.
(6) MDFH plc received a cheque from a customer in respect of a debt of £3,000 that had been
written off in the prior year. The bookkeeper recorded this in the cash at bank account and as

lOMoARcPSD|23610656
additional revenue received in the year, MDFH plc has decided that an allowance for
receivables of £5,000 is required at 30 September 20X5.
(7) The bank loan was received on 30 September 20X4 and is repayable in four equal instalments.
The first instalment is due on 30 September 20X6. Interest is charged at a fixed rate of 7.5% per
annum.
(8) The development costs recorded as an intangible asset were all incurred during the year
ended 30 September 20X5 and all related to development of a proposed new product.
However, management have assessed that the development costs should instead be
recorded as an expense within administrative expenses.
(9) Sales for the year to 30 September 20X5 include deposits from customers totalling £15,000.
These deposits relate to products which are currently being manufactured and will not be
delivered until December 20X5.
(10) No income tax is expected to be payable for the year ended 30 September 20X5.
Requirement
Prepare the statement of profit or loss for MDFH plc for the year ended 30 September 20X5 and
Statement of profit or loss for the year ended 30 September 20X5
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense

lOMoARcPSD|23610656
Statement of financial position at 30 September 20X5

£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Borrowings
Bank overdraft
Trade payables
Accruals
Deferred income
Income tax payable

lOMoARcPSD|23610656
8 Billabong plc
The following trial balance was extracted from the nominal ledger of Billabong plc on
31 December 20X3:
£ £
Revenue 1,380,000
Purchases 823,500
Other operating expenses 7,800
Motor vehicles cost 50,000
Land and buildings accumulated depreciation at 1 January 20X3 50,000
Plant and equipment accumulated depreciation at 1 January 20X3 30,000
Motor vehicles accumulated depreciation at 1 January 20X3 25,000
Bank 6,300
Bank loan 250,000
Ordinary dividends paid 10,000
2,860,850 2,860,850
(1) Land included in non-current assets cost £250,000 and buildings are depreciated on a straight
line basis over 50 years.
Plant and equipment is depreciated on the reducing balance method at a rate of 20% and
motor vehicles are depreciated on a straight line basis at a rate of 25%.
Depreciation is charged as follows:
Depreciation on: Charged to:
Buildings Administrative expenses
Motor vehicles Distribution costs
Plant and equipment Cost of sales
(2) Billabong plc values its closing inventory at £75,000. However this total includes some
damaged items, originally costing £5,000. It will cost £1,000 to repair the damage, after which
the inventory can be sold for £5,500.
(3) Billabong plc rents offices at a cost of £50,000 per year and pays quarterly in advance. The
last rental payment made during 20X3 covered the quarter ending 31 January 20X4. Rent is
(4) Shortly after the year end, an electricity bill was received for £12,600 covering the period from
1 June to 1 December 20X3. No entries have been made in the records. Electricity is charged
to administrative expenses.
(5) Trade receivables at 31 December 20X3 include a balance of £2,800 in relation to a customer
that has gone into receivership. Billabong has been advised that it is unlikely to recover this
amount. The irrecoverable debts expense is charged to other operating expenses.

lOMoARcPSD|23610656
(6) The company received the bank loan two years ago. The loan is repayable in full on 31 July
20X9. Interest is charged at a fixed rate of 4% per annum.
(7) During the year a customer initiated a legal action against Billabong for supplying faulty goods.
The likely outcome is an out of court settlement for £250,000. Provisions are charged to
(8) Income tax for the year ended 31 December 20X3 is yet to be provided for. It is estimated that
£25,000 of tax will be payable.
Requirement
Prepare the statement of profit or loss for Billabong plc for the year ended 31 December 20X3 and
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Borrowings
Trade payables
Accruals
Provisions
Income tax payable

lOMoARcPSD|23610656
9 ABCD plc
The following trial balance was extracted from the nominal ledger of ABCD plc on 31 October 20X7:
£ £
Revenue 3,600,000
Inventories at 1 November 20X6 320,000
Purchases 2,030,000
Returns inwards 70,000
Wages 360,000
Energy expenses 210,000
Dividend paid 60,000
Directors’ remuneration 140,000
Land and buildings cost (Land = £470,000) 1,950,000
Land and buildings accumulated depreciation at 1 November 20X6
120,000
1 November 20X6 220,000
Intangible asset – development costs 11,000
Allowance for receivables 20,000
Ordinary share capital (£1 shares) 1,300,000
10% loan notes 100,000
Accounts payable 500,000
6,380,000 6,380,000
The following information is now available and may result in adjustments being needed to the
amounts shown in the trial balance above:
(1) Closing inventory has been counted and is valued at £150,000.
(2) The items listed below should be apportioned as indicated.
Cost of Distribution Administrative
sales costs expenses
% % %
Energy expenses 40 20 40
Wages 40 25 35
Directors' remuneration – – 100
(3) An invoice of £30,000 for energy expenses for October 20X7 was received after the year end.
(4) Loan note interest is 10% and has not been paid for the year.
(5) The allowance for receivables is to be increased to 5% of trade receivables. Any expenses
connected with receivables should be charged to other operating expenses.
(6) Plant is depreciated at 20% per annum using the reducing balance method. The entire charge
is to be allocated to cost of sales.
(7) Buildings are depreciated at 5% per annum on their original cost, allocated 30% to cost of
sales, 30% to distribution costs and 40% to administrative expenses.
(8) The development costs recorded as an intangible asset were all incurred during the year
ended 31 October 20X7 and all related to development of a proposed new product. The
product will be launched during the next six months after market research showed it was likely

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to be profitable. All research and development costs are to be recognised within administrative
expenses.
(9) Income tax has been calculated as £90,000 for the year.
Requirement
Prepare the statement of profit or loss for ABCD plc for the year ended 31 October 20X7 and the
Statement of profit or loss for the year ended 31 October 20X7
£
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Income tax expense
Statement of financial position at 31 October 20X7
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Borrowings
Bank overdraft
Trade payables
Accruals
Income tax payable

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10 Earle plc
Earle plc’s trial balance as at 31 October 20X8 is shown below.
£’000 £’000
Share premium 3,750
Land and buildings – cost 26,364
Land and buildings – accumulated depreciation at
1 November 20X7 5,250
Plant and equipment – cost 9,375
Plant and equipment – accumulated depreciation at
1 November 20X7 5,550
Accruals at 31 October 20X8 327
8% bank loan repayable in 10 years 11,250
Cash at bank 7,331
Interest paid 450
Gross profit 11,728
Closing inventories 5,909
62,305 62,305
Further information
(1) Depreciation is to be provided for the year as follows:
Buildings 2% per annum Straight line basis
Plant and equipment 20% per annum Reducing balance basis
Depreciation is apportioned as follows:
%
Distribution costs 60
Administrative expenses 40
Land, which is non-depreciable, is included in the trial balance at a cost of £11,364,000.
(2) The company began a series of television adverts for the company's range of products on
1 October 20X8 at a cost of £33,000. The adverts were to run for three months and were to be
paid for in full at the end of December 20X8. Advertising expenses are to be included in
distribution costs.
(3) Interest on the bank loan for the last six months of the year has not been included in the
accounts in the trial balance.
(4) The corporation tax charge for the year has been calculated as £728,000.
(5) During the year Earle plc rented some additional warehouse space. Earle plc have paid rent
until 31 December 20X8. The annual rent is £48,000 and is charged to distribution costs.
(6) Earle plc made a 1 for 5 bonus share issue during the year from share premium. The bonus
issue has not yet been accounted for.

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(7) Volan plc is a customer of Earle plc with a debt of £35,000. On 29 October 20X8, Earle plc
received a letter from the liquidator of Volan plc to advise that the debt would not be paid. No
accounting has taken place in respect of irrecoverable debts. Irrecoverable debts should be
charged to administration costs.
(8) An item of plant and equipment was damaged in a flood on 30 October 20X8 and the value of
the damage has been estimated at £15,000. Impairment is charged to administration costs.
(9) A cheque sent to a supplier for £69,000 has been incorrectly recorded as £96,000.
Requirement
Prepare the statement of profit or loss for Earle plc for the year ended 31 October 20X8 and the
£
Gross profit
Distribution costs
Finance costs
Income tax expense
Profit / (loss) for the year
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Trade payables
Accruals
Income tax payable

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11 Rosemary plc
Rosemary plc’s trial balance as at 31 March 20X2 is shown below.
£’000 £’000
Share premium 1,250
Plant and equipment – cost 25,975
Plant and equipment – accumulated depreciation 13,500
Land and buildings – cost 20,000
Land and buildings – accumulated depreciation 11,345
Accruals at 31 March 20X2 161
6% bank loan repayable in 15 years 15,000
Cash at bank 3,223
Interest paid 900
Gross profit 10,429
Closing inventories 5,084
64,113 64,113
Further information:
(1) Depreciation has already been provided on all non-current assets for the year ended
31 March 20X2.
(2) On 31 March 20X2 items of plant with a cost of £15,938,000 and accumulated depreciation of
£3,875,000 were found to be impaired by £1,438,000. Impairments are charged to
administration costs.
(3) The company hired some office copiers for the period 1 March 20X2 to 30 June 20X2. The
contract price for the four months was £205,333 and this was paid in full on 3 March and was
(4) The company sourced extra warehousing space, for the storage of goods prior to their sale,
for a period of three months from 1 February 20X2 to 30 April 20X2. No invoice was received
in respect of the rental in the year ended 31 March 20X2, but a payment of £142,500 for the
three months was made and correctly accounted for on 16 April 20X2.
(5) The corporation tax charge for the year has been calculated as £1,093,000.
(6) On 15 April 20X2 one of the company's customers went into liquidation. Trade receivables at
31 March 20X2 include a balance of £119,000 owed by this customer. The directors have
been advised that they are unlikely to receive any of this amount. Irrecoverable debts are
written off to administrative expenses.
(7) Rosemary plc made a 1 for 5 bonus share issue during the year from share premium, which
has not yet been accounted for.
(8) A cheque sent to a supplier for £32,000 has been incorrectly recorded as £23,000.

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Requirement
Prepare the statement of profit or loss for Rosemary plc for the year ended 31 March 20X2 and the
Statement of profit or loss for the year ended 31 March 20X2
£
Gross profit
Distribution costs
Finance costs
Income tax expense
Statement of financial position at 31 March 20X2
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Total assets

Equity
Share premium
Retained earnings
Borrowings
Current liabilities
Trade payables
Accruals
Income tax payable

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Chapter 13: Statement of cash flows
1 Roxy plc
Extracts from the financial statements for Roxy plc for the years ended 30 June are as follows:
Statements of financial position as at 30 June
20X8 20X7
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment 20,750 14,000
Current assets
Inventories 16,000 11,000
Trade and other receivables 9,950 2,700
Government bonds 1,000 1,300
26,950 15,000
Total assets 47,700 29,000
Equity
Ordinary share capital 3,500 3,000
Retained earnings 13,950 3,800
17,450 6,800
Loans 6,000 10,000
Current liabilities
Bank overdrafts 12,000 –
Trade and other payables 8,000 11,000
Accruals 700 200
Provision 1,750 –
Tax liabilities 1,800 1,000
24,250 12,200
47,700 29,000
Statements of profit or loss for the year ended 30 June (extracts)
20X8 20X7
£ £
Profit from operations 13,650 5,900
Finance cost (1,000) (1,400)
Profit before tax 12,650 4,500
Income tax expense (2,000) (1,500)
Profit for the year 10,650 3,000

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(1) An analysis of property, plant and equipment shows the following.
20X8 20X7
£ £ £ £
Building
Cost 22,000 12,000
Depreciation (4,000) (1,000)
18,000 11,000
Plant and machinery
Cost 5,000 5,000
Depreciation (2,250) (2,000)
2,750 3,000
20,750 14,000
(2) Machinery with a carrying amount of £250 was sold at the beginning of 20X8 for £350. This
machinery had originally cost £1,000.
(3) The accruals are in respect of interest payable.
(4) During the year a bonus issue of 1 for 6 was made on the ordinary shares in issue at
30 June 20X7, utilising retained profits.
(5) The government bonds are highly liquid and management has decided to classify them as
cash equivalents.
(6) Included in trade payables at 30 June 20X8 is £2,500 in respect of the purchase of non-
current assets.
(7) The provision relates to a former employee's unfair dismissal claim.
Requirement
Prepare a statement of cash flows for the year ended 30 June 20X8 in accordance with
IAS 7, Statement of Cash Flows.
ICAEW 2019 Chapter 13: Statement of cash flows 85

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Roxy plc
Statement of cash flows for the year ended 30 June 20X8
£
Cash flows from operating activities
Profit before tax
Finance costs
Depreciation
Gain / loss on sale of property, plant and equipment
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in provisions
Cash generated from operations
Income tax paid
Interest paid
Net cash from / used in operating activities
Cash flows from investing activities

Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Net cash from / used in investing activities
Cash flows from financing activities

Movement in borrowings
Net cash from / used in financing activities
Net increase / decrease in cash and cash equivalents

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

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2 Middlesex plc
As at 30 June 20X7 and 30 June 20X8 Middlesex plc had the following summarised statements of
financial position.
20X8 20X7
£ £ £ £
ASSETS
Non-current assets
Less Depreciation (70,000) (69,000)
251,000 230,000
Investment 50,000 –
301,000 230,000
Current assets
Cash and cash equivalents 20,000 10,000
61,000 48,000
Total assets 362,000 278,000
Equity
Ordinary share capital (£1 shares) 95,000 50,000
Share premium 15,000 10,000
254,000 175,000
12% loan notes repayable in 10 years 50,000 60,000
Current liabilities
Provisions – 2,000
Tax liabilities 7,000 3,000
Accruals 19,000 19,000
58,000 43,000
Total equity and liabilities 362,000 278,000
You are also given the following information which is already reflected correctly in the accounts.
(1) During the year a bonus issue of 1 for 10 was made on the ordinary shares in issue at
30 June 20X7, utilising retained profits.
(2) New shares were issued on 1 July 20X7. Part of the proceeds were used to redeem £10,000
12% loan notes at par.
(3) During the year certain tangible non-current assets were disposed of for £20,000. The assets
had originally cost £40,000 and had a carrying amount at the disposal date of £18,000.
(4) Trade and other payables include £5,000 for 20X8 relating to the purchase of non-current
assets.
(5) The income tax charge in the statement of profit or loss for the year is £7,000.
(6) Included in accruals at 30 June 20X8 is £2,500 which relates to interest payable. The
corresponding figure for 20X7 was £2,750.
(7) Middlesex plc paid an ordinary dividend of £5,000 on 28 June 20X8 for the year ended
30 June 20X8.
(8) Included in trade receivables is £10,000 in relation to the disposal of non-current assets.

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Requirement
Prepare a statement of cash flows for the year ended 30 June 20X8 in accordance with IAS 7.
Middlesex plc
£
Profit before tax
Finance costs
Depreciation
Gain / loss on sale of intangible assets
Movement in accruals
Movement in provisions
Income tax paid
Interest paid

Purchase of investments

Proceeds from issue of shares
Dividends paid


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3 Emily plc
£’000
Revenue 2,553
Cost of sales (1,814)
Gross profit 739
Distribution costs (125)
Administrative expenses (264)
Profit from operations 350
Investment income 25
Finance cost (75)
Profit before tax 300
Income tax expense (140)
Profit for the year 160
Statements of financial position as at 31 December

20X7 20X6
ASSETS £’000 £’000
Non-current assets
Property, plant and equipment 280 214
Intangible assets 250 200
Investments – 25
Current assets
Inventories 150 102
Receivables 390 315
Short-term investments 50 –
Cash in hand 2 1
Total assets 1,122 857

Equity
Share capital (£1 ordinary shares) 200 150
Share premium 160 150
Retained earnings 160 100
Long-term loan 170 50
Current liabilities
Trade payables 227 199
Bank overdraft 70 80
Accruals 15 18
Taxation 120 110
Total equity and liabilities 1,122 857
(1) The proceeds from the sale of non-current asset investments amounted to £30,000.
(2) Fixtures and fittings, with an original cost of £85,000 and a carrying amount of £45,000, were
sold for £32,000 during the year.
(3) The following information relates to property, plant and equipment.
31 December 20X7 31 December 20X6
£’000 £’000
Cost 620 504
Accumulated depreciation 340 290
Carrying amount 280 214
(4) 50,000 £1 ordinary shares were issued during the year at a premium of 20p per share.
(5) The short-term investments are highly liquid and are close to maturity.

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(6) The accruals relate to interest payable.

(7) Emily plc paid dividends of £100,000 for the year ended 31 December 20X7.
(8) Included in receivables at 31 December 20X7 is £15,000 which relates to the disposal of
non-current assets.
(9) Emily plc secured loan funding during the year, 75% of which was used to purchase a
warehouse.
Requirement
Prepare a statement of cash flows for Emily plc, for the year ended 31 December 20X7 in
accordance with IAS 7.
Emily plc
Statement of cash flows for the year ended 31 December 20X7
£’000
Profit before tax
Investment income
Finance costs
Depreciation
Gain / loss on sale of investments
Income tax paid
Interest paid

Purchase of intangible assets
Proceeds from sale of investments
Interest received

Dividends paid


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4 Hatchback Motors plc

Hatchback Motors plc has prepared summarised financial statements as set out below.
Statements of profit or loss for the years ended 30 April
20X7 20X6
£’000 £’000
Revenue 74,680 69,937
Cost of sales (51,595) (47,468)
Gross profit 23,085 22,469
Distribution and administrative costs (17,551) (16,920)
Finance cost (130) (170)
Profit before tax 5,404 5,549
Income tax expense (2,634) (1,093)
Profit for the year 2,770 4,456
Statements of financial position as at 30 April
20X7 20X6
£’000 £’000 £’000 £’000
ASSETS
Non-current assets
Investments 7,100 –
33,246 25,141
Current assets
Investments 50 25
Cash 813 699
29,697 24,720
Total assets 62,943 49,861
20X7 20X6
EQUITY AND LIABILITIES £’000 £’000
Equity
Ordinary share capital (£1 ordinary shares) 13,000 10,000
Revaluation surplus 2,650 2,650
52,926 40,506
Non-current liabilities (borrowings) 3,250 4,250

Total equity and liabilities 62,943 49,861
(1) Analysis of property, plant and equipment
20X7 20X6
£’000 £’000
Land 20,300 19,780
Fixtures and fittings 5,846 5,361
26,146 25,141
(2) There were no disposals of land during the year.
(3) Additions to fixtures and fittings during the year totalled £1,365,000 at cost. There were no
disposals.
(4) Current liabilities
20X7 20X6

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£’000 £’000
Accruals 1,200 1,235
Tax liability 2,796 1,238
6,767 5,105
(5) During the year the company made a rights issue of shares on the basis of three new shares
for every ten shares held at a price of £3.50 per share. Pending the purchase of new plant,
part of the proceeds of the issue has been invested in shares in other UK companies.
(6) The short term investments are highly liquid and management has decided to classify them as
cash equivalents.
(7) Included in accruals at 30 April 20X7 is £25,000 in respect of interest payable. The
corresponding figure in 20X6 was £30,000.
(8) Included in trade payables is £15,000 which relates to the purchase of fixtures and fittings.
(9) The long term borrowings consist of redeemable preference shares.
Requirement
Prepare a statement of cash flows for the year ended 30 April 20X7 in accordance with IAS 7.
Hatchback Motors plc
Statement of cash flows for the year ended 30 April 20X7
£’000
Profit before tax
Finance cost
Depreciation
Income tax paid
Interest paid

Purchase of investments

Dividends paid


lOMoARcPSD|23610656
5 Larkfield plc
Extracts from the financial statements for Larkfield plc for the year ended 31 March 20X4 are as
follows:
£
Profit from operations 603,000
Finance costs (85,000)
Profit before tax 518,000
Income tax (168,000)
Profit for year 350,000
Statements of financial position at 31 March
20X4 20X3
£ £
ASSETS
Non-current assets
Property, plant and equipment 3,555,000 3,400,000
Intangible assets 165,000 55,000
Current assets
Trade receivables 250,000 300,000
Cash and cash equivalents 331,000 122,000
Total assets 4,786,000 4,239,000

Equity
Equity share capital (£1 shares) 1,000,000 850,000
Retained earnings 1,953,000 1,603,000
Borrowings 830,000 1,000,000

Total equity and liabilities 4,786,000 4,239,000
20X4 20X3
£ £
Tax liability 245,000 230,000
Trade payables 261,000 150,000
Accruals 97,000 56,000
603,000 536,000
(2) Included in profit from operations is a loss of £90,000 in respect of the disposal of machinery
in the year. This machinery had a carrying amount of £540,000 at the disposal date.
(3) Included in trade payables at 31 March 20X4 is an amount of £95,000 in respect of a purchase
of an item of property, plant and equipment in the year that has not yet been paid for.
(4) Included in accruals at 31 March 20X4 is accrued interest of £16,000. The corresponding
figure for 20X3 is £25,000.
(5) The depreciation charge for the year was £245,000.
(6) Intangible assets costing £125,000 were purchased for cash during the year. There were no
disposals of intangible assets.

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(7) On 1 April 20X3 Larkfield plc made a 1 for 10 bonus issue from share premium.
(8) Included in receivables at 31 March 20X4 was £35,000 which related to the disposal of
property.
(9) The proceeds from the issue of shares were used to repay £170,000 in borrowings.
Requirement
Prepare a statement of cash flows for the year ended 31 March 20X4 in accordance with IAS 7.
Larkfield plc
Statement of cash flows for the year ended 31 March 20X4
£
Profit before tax
Finance costs
Depreciation
Amortisation of intangible assets
Gain/loss on sale of property, plant and equipment
Tax paid
Interest paid
Net cash from/used in operating activities

Purchase of intangible assets
Net cash from/used in investing activities

Net cash from/used in financing activities
Net increase/decrease in cash and cash equivalents


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6 Rose plc
Extracts from the financial statements for Rose plc for the year ended 31 August 20X4 are as
follows:
Statement of profit or loss for the year ended 31 August 20X4
£
Investment income 3,000
Income tax (11,695)
Profit for year 46,780
Statements of financial position at 31 August
20X4 20X3
ASSETS £ £
Non-current assets
Property, plant and equipment 2,450,000 2,550,000
Current assets
Investments 65,000 10,000
Cash at bank 6,042 78,637
Total assets 2,803,042 2,922,637

Equity
Equity share capital (£1 shares) 650,000 500,000
Retained earnings 1,662,467 1,750,687
Borrowings 150,000 312,000

Total equity and liabilities 2,803,042 2,922,637
(1) An analysis of property, plant and equipment shows the following.
20X4 20X3
£ £
Cost 3,669,000 3,800,000

Depreciation (1,219,000) 1,250,000
2,450,000 2,550,000
(2) During the year Rose plc purchased additional machinery for £309,000, while machinery with
a carrying amount of £220,000 was disposed of for £225,000.
(3) Investment income of £3,000 was received from the investments held by Rose plc.
(4) Included in trade payables at 31 August 20X4 are dividends payable of £15,000. The
equivalent figure for 20X3 is £30,000.
(5) On 1 September 20X3 Rose plc made a 1 for 5 bonus issue from retained earnings.

lOMoARcPSD|23610656

20X4 20X3
£ £
Tax payable 43,000 56,000
Accruals 45,825 64,300
Accrued interest 6,250 5,000
220,575 259,950
(7) Included in trade receivables is £20,000 which relates to the disposal of machinery.
(8) The investments held by Rose plc are highly liquid and are therefore classed as cash
equivalents.
Requirement
Prepare a statement of cash flows for the year ended 31 August 20X4 in accordance with IAS 7.
Rose plc
Statement of cash flows for the year ended 31 August 20X4
£
Profit before tax
Investment income
Finance costs
Depreciation
Gain/loss on sale of property, plant and equipment
Tax paid
Interest paid
Net cash from/used in operating activities

Interest received
Net cash from/used in investing activities

Dividends paid
Net cash from/used in financing activities
Net increase/decrease in cash and cash equivalents


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7 A limited company has the following information about its non-current assets.
20X7 20X6
£’000 £’000
Cost 750 600
Accumulated depreciation 250 150
Carrying amount 500 450
Plant with a carrying amount of £75,000 (original cost £90,000) was sold for £30,000 during
20X7.
What is the net cash inflow or outflow arising from the purchase and sale of non-current assets
for the year 20X7?
A £95,000 inflow
B £210,000 inflow
C £210,000 outflow
D £95,000 outflow LO 3c
The following information for Michael plc is relevant for questions 8 to 10.
Michael plc
£’000 £’000
Revenue 600
Cost of sales 120
Gross profit 480
Administrative expenses:
Staff costs 50
Depreciation 140
Loss on disposal 15
Interest payable 25
230
Income tax expense 50
Profit for the year 200
Michael plc
Statements of financial position as at 30 September
20X9 20X8
£’000 £’000 £’000 £’000
Non-current assets
Cost 1,886 1,550
Depreciation 350 225
1,536 1,325
Current assets
Inventories 30 25
Trade receivables 45 30
Cash and cash equivalents 35 50
110 105
1,646 1,430

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20X9 20X8
£’000 £’000 £’000 £’000
Equity
Ordinary share capital 1,114 887
Retained earnings 250 227
1,364 1,114
Liabilities
Current liabilities
Trade payables 20 10
Accruals 12 6
32 16
Long-term loans 250 300
1,646 1,430
During the year, Michael plc paid £390,000 for a new piece of machinery.
8 What is the cash generated from operations?
A £401,000 inflow
B £426,000 inflow
C £434,000 inflow
D £409,000 inflow LO 3c
9 What is the net cash inflow or outflow arising from the purchase and sale of non-current
assets?
A £390,000 outflow
B £375,000 outflow
C £211,000 outflow
D £366,000 outflow LO 3c
10 What is the change in net debt for the year?

A £15,000 increase
B £15,000 decrease
C £35,000 decrease
D £35,000 increase LO 3c

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statements under UK GAAP
1 If Toby Ltd reduces its allowance for debtors by £1,000, which of the following statements is
correct?
A Current assets decrease by £1,000
B Current liabilities decrease by £1,000
C Gross profit increases by £1,000
D Profit for the year increases by £1,000 LO 1d; 3a, c
2 Persephone Ltd's records for the year ended 30 June 20X6 show the following figures relating
to purchases and creditors.
£
Creditors at 1 July 20X5 76,104
Purchases 277,225
Cash paid to suppliers 271,845
Debit balances transferred to debtors 107
Credit balances offset against debtor debit balances 948
What was the figure for creditors at 30 June 20X6?
A £80,643
B £69,883
C £82,539
D £71,779 LO 1d; 3a, c
3 The following information relates to Amden Ltd's year ended 31 December 20X5.
£
Cash received from debtors 22,490
Contra with supplier on purchase ledger who is also a customer 910
Increase in allowance for doubtful debts 600
Debtors at 1 January 20X5 7,290
Debtors at 31 December 20X5 7,350
What figure for sales should be recorded in Amden Ltd's profit and loss account for the year
ended 31 December 20X5?
A £22,550
B £24,500
C £23,310
D £21,520 LO 1d; 3a, c
4 Brenda Ltd has a year end of 30 June.

At 30 June 20X7 Brenda Ltd's balance sheet included an accrual in respect of insurance of
£340. At 30 June 20X8 the balance sheet showed a prepayment of £180 in respect of
insurance.
ICAEW 2019 Chapter 14: Company financial statements under UK GAAP 99

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During the year to 30 June 20X8 Brenda Ltd paid £3,000 for insurance.
What should be the insurance expense in Brenda Ltd's profit and loss account for the year
ended 30 June 20X8?
A £2,480
B £2,840
C £3,000
D £3,160 LO 1d; 3a, c
5 Sarah Ltd has extracted an initial trial balance and has calculated a draft loss for the year
ended 31 December 20X9 of £12,100. The following matters need to be corrected:
(1) Machinery costing £4,800 was purchased on 1 November 20X9 but has not yet been
included in the accounting records. Depreciation is calculated over 10 years on the
straight line basis.
(2) The allowance for doubtful debts has been incorrectly recorded as £300 instead of
£1,300.
(3) A cash sale for £400, which has not yet been banked, has been incorrectly recorded as a
credit sale.
What is Sarah Ltd's adjusted loss for the year after taking account of the above matters?
A £11,020
B £13,180
C £13,580
D £13,020 LO 1d; 2a; 3a, c
6 Ampney Ltd's accountant has been reviewing the company's debtors at 31 May 20X6, and
wishes to make the following adjustments.
(1) £600 is owed by Angela. The accountant has decided to write this amount off as a bad
debt.
(2) An increase of £2,000 in the allowance for doubtful debts is required.
(3) Cash of £1,500 has been received from Trisha, in respect of a debt which had been
written off in 20X3.
By how much will these adjustments decrease the company's profit for the year ended
31 May 20X6?
A £900
B £1,100
C £2,100
D £2,900 LO 1d; 2a; 3a, c
7 At 20 December 20X5, Racy Ltd reviewed its debtors just before its year end of
31 December 20X5. The following information was discovered.
(1) A cheque for £171 from Dominic plc was found in a drawer. The debt had been written off
in 20X5 and the cashier had not known what to do with the cheque when it arrived. It was
banked on its discovery on 20 December.

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(2) Several customers had taken advantage of cash discount of a total of £331 that they
were not expected to take advantage of when the invoices were recorded. The discounts
taken have not been recorded in the ledger accounts.
Ignoring the effects of VAT, which four accounting entries should Racy Ltd make?
A Debit cash at bank £171
B Credit cash at bank £171
C Debit cash at bank £331
D Credit cash at bank £331
E Debit debtors £171
F Credit debtors £171
G Debit debtors £331
H Credit debtors £331
I Debit bad debts expense £171
J Credit bad debts expense £171
K Debit bad debts expense £331
L Credit bad debts expense £331
M Debit sales £171
N Credit sales £171
O Debit sales £331
P Credit sales £331 LO 1d; 2c; 3a, c
8 Tabitha is a retail trader registered for VAT. Sales for the three months ended
31 December 20X7 amounted to £115,920. Purchases and expenses were £85,680 and a
new car was bought for £12,600. All these figures are inclusive of VAT at 20%.
How much does Tabitha owe HMRC for the quarter to 31 December 20X7?
A £5,040
B £5,922
C £3,454
D £2,940 LO 1d; 3a, c

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Chapter 15: Sole trader and

partnership financial statements under
UK GAAP
1 Arthur and Bernie are in partnership, sharing profits and losses in the ratio 2:1. Their year end
is 30 June.
On 1 January 20X4 Charlie joined the partnership and the new profit sharing ratio became
5:3:2 to Arthur, Bernie and Charlie respectively.
The profit for the year ended 30 June 20X4 was £380,000, after charging an expense of
£20,000 which related to the first six months of the year. The remainder of the profit accrued
evenly over the year.
What is Bernie's total profit share for the year ended 30 June 20X4?
A £117,333
B £114,000
C £120,333
D £120,000 LO 1d, e; 3a, c
2 Diane and Ian are in partnership, sharing profits equally.

On 1 July 20X7 Craig joins the partnership. Under the new partnership agreement profits will
be shared by Diane, Ian and Craig in the ratio of 5:3:2 respectively with the following salaries:
Ian £30,000 pa
Craig £36,000 pa
Profit accrues evenly over the year. The partnership profit for the year ended
31 December 20X7 was £360,000.
At 31 December 20X7 how should the profits for the year be appropriated?
Diane Ian Craig
A £147,000 £154,200 £58,800
B £147,000 £124,200 £22,800
C £163,500 £131,100 £29,400
D £163,500 £149,100 £47,400
LO 1d, e; 3a, c
3 Paul and Pete are in partnership, sharing profits in the ratio 3:2. On 1 July 20X7 they admitted
Paul's son Rob as a partner. Paul guaranteed that Rob's profit share would not be less than
£30,000 for the six months to 31 December 20X7. The profit sharing arrangements after Rob's
admission were 5:3:2 for Paul, Pete and Rob respectively. The profit for the year ended 31
December 20X7 is £280,000, accruing evenly over the year.
What should Paul's final profit share be for the year ended 31 December 20X7?
A £30,000
B £98,000
C £152,000
D £154,000 LO 1d, e; 3a, c
4 Freddie, Gina and Harry are partners sharing residual profits in the ratio 3:2:1. The partnership
agreement provides for interest on capital at the rate of 6% per annum and for a salary for
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 103

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Gina of £10,000 per annum. Profit for the year for 20X7 was £100,000 and the balances on
partners' capital accounts during the year were: Freddie £40,000;
Gina £30,000; Harry £20,000.
What is Harry's share of residual profits for 20X7?
A £14,100
B £15,300
C £28,200
D £42,300 LO 1d, e; 3a, c
5 Richard and Tina have traded as partners for a number of years. Their balance sheet as at
30 June 20X6 shows:
£ £
Capital accounts
Richard 60,000
Tina 40,000
100,000
Current accounts
Richard 3,200
Tina 1,800
5,000
105,000
During the year to 30 June 20X7 the business made a profit of £52,600 and the partners took
drawings of £20,000 each. The net asset total as at 30 June 20X7 was:
A £105,000
B £117,600
C £157,600
D £197,600 LO 1d, e; 3a, c
6 Davina, Jane and Anna are in business together sharing profits in the ratio 3:2:1 after
providing for salaries for Davina and Jane of £15,000 and £18,000 respectively. The partners
each receive interest of 6% per annum on their capital balances and pay interest of 10% on
their drawings. The profit for the year is £140,000 before providing for salaries or interest and
the partners' capital balances and drawings are as follows:
Capital balance Drawings
£ £
Davina 80,000 25,000
Jane 50,000 20,000
Anna 40,000 25,000
Davina's total profit share is:
A £67,200
B £69,200
C £70,000
D £70,700 LO 1d, e; 3a, c
7 The current account of a partner has been written up as follows.

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CURRENT ACCOUNT
£ £
Interest on capital 3,000 Balance b/d 300
Salary 4,000 Drawings 10,000
Balance c/d 6,500 Profit share 3,200
13,500 13,500
The balance brought down is entered correctly and the other entries are all correct in amount.
What is the correct balance carried down?
A A debit balance of £5,500
B A debit balance of £500
C A credit balance of £500
D A credit balance of £5,500 LO 1d, e; 3a, c
8 A telephone accrual for £100 at the year end was treated as a prepayment in a sole trader's
profit and loss account. As a result the profit was:
A understated by £200
B understated by £100
C overstated by £200
D overstated by £100 LO 1d; 2a; 3a, c
9 On 1 April 20X7 a sole trader paid £6,380 in local property taxes for the year ending
31 March 20X8. This was an increase of 10% on the charge for the previous year.
What is the correct charge for local property taxes in her profit and loss account for the year
ended 31 December 20X7?
A £4,640
B £6,220
C £6,235
D £6,540 LO 1d; 3a, c
10 The net assets of Henry's business decreased by £9,800 over the year to 31 October 20X3.
During that year he had paid in additional capital of £10,000, drawn £1,000 in cash each
month and, on one occasion, taken goods costing £800 for his own use.
The loss made by the business for the year ended 31 October 20X3 was:
A £7,000
B £9,800
C £12,600
D £13,000 LO 1d, e; 3a, c
11 Tariq has been unable to calculate his business' profit or loss for the year ended
31 December 20X7 as fire destroyed most of his accounting records. He has, however, been
able to provide the following information.
(1) Net assets at 31 December 20X6 were £31,600 and £42,900 at 31 December 20X7.

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(2) He introduced capital during the year of £6,000 cash.

(3) He took cash drawings of £8,000 and goods with a selling price of £1,000. The cost of the
goods was £700.
What was Tariq's profit for the year ended 31 December 20X7?
A £3,400
B £13,300
C £14,000
D £26,000 LO 1d, e; 3a, c
12 Christopher's business net assets have increased by £68,000 over the year. He took drawings
of £37,000 and paid in £10,000 cash. His profit for the year was:
A £21,000
B £41,000
C £95,000
D £115,000 LO 1d, e; 3a, c
13 A business has net assets of £198,400 on 31 January 20X7 and had net assets of £162,300
on 31 January 20X6. During the year the owner of the business:
(1) took goods for his own use which cost £12,000 and had a market value of £18,000
(2) introduced capital of £30,000
(3) withdrew £20,000 as salary
The profit for the year was:
A £28,100
B £34,100
C £38,100
D £44,100 LO 1d, e; 3a, c
14 Which of the following equations represents the closing capital of a sole trader?
A Opening capital – capital introduced + profit – drawings
B Opening capital + capital introduced + profit + drawings
C Opening capital + capital introduced + profit – drawings
D Opening capital + capital introduced – profit + drawings LO 1d, e; 3a, c
15 The following information has been extracted from the payroll of Radley & Co, a partnership,
for June.
£
Gross wages and salaries 127,600
PAYE 31,900
Employee NIC 11,484

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Employer NIC 14,036

What is the total wages and salaries expense to be included in the profit and loss account for
June?
A £113,564
B £185,020
C £141,636
D £127,600 LO 1d; 3c
16 The following balances appear on a sole trader's initial trial balance.

(1) Opening stock
(2) Rental income
(3) Capital introduced
(4) Drawings
(5) Local property tax paid
Which are debit balances?
A (1), (2) and (3) only
B (1), (4) and (5) only
C (2), (3), (4) and (5) only
D (1), (2), (3), (4) and (5) LO 1d, f
17 During the year ended 31 July 20X8 George takes goods from the business for his own
consumption with a selling price of £4,800. George's business operates a constant mark-up on
cost of 20%.
What is the correct double entry to record these drawings?
Debit £ Credit £
A Stock 4,800 Sales 4,800
B Drawings 4,000 Purchases 4,000
C Drawings 3,840 Purchases 3,840
D Drawings 4,800 Sales 4,800 LO 1d, e

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18 Bill and Ben are in partnership. On performing the monthly bank reconciliation the following is
discovered.
(1) A cheque paid in respect of personal goods for Bill appears on the bank statement but
has not been entered in the cash at bank account.
(2) A cheque from Marigold Ltd has been returned unpaid. Subsequent investigation reveals
Marigold Ltd has gone into liquidation and Bill and Ben decide the debt should be written
off.
(3) A standing order for rent receivable has been correctly credited to the bank statement but
has not been entered in the cash at bank account.
When these issues are adjusted for in the partnership’s ledger accounts, which of the following
is an accurate description of the effects on profit?
A (1) increases profits, (2) decreases profits, (3) has no effect on profits
B (1) has no effect on (2) decreases profits, (3) increases profits
profits,
C (1) increases profits, (2) has no effect on profits, (3) decreases profits
D (1) has no effect on profits (2) increases profits, (3) increases profits
LO 1d, e; 2a
19 Madelaine, Mary and Anna are in partnership, sharing profits equally. Each partner has
contributed capital of £20,000, and Mary has made a loan of £105,000 to the partnership.
Interest of 5% is payable on all capital and loan balances outstanding at the end of each year.
Profit for the year after loan interest is £90,000.
Which two of the following make up Mary's total appropriation of profit for the year?
A Interest on capital of £1,000
B Interest on capital of £6,250
C Profit share of £29,000
D Profit share of £30,000
E Profit share of £27,250
F Profit share of £31,750 LO 1d, e; 3a, c
20 Jo and Jenny are in partnership, sharing profits equally. In the year ended 31 December 20X6
the firm made a profit for the year of £300,000. It was decided to credit Jo with a salary of
£35,000 for the year and Jenny with a salary of £25,000.
How are the total profits for the year appropriated between the partners?
Jo Jenny
£ £
A 120,000 120,000
B 145,000 155,000
C 150,000 150,000
D 155,000 145,000 LO 1d, e; 3a, c

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21 Fred and George are in partnership sharing profits and losses in the ratio Fred 60%, George
40%. Their bookkeeper has by mistake entered the current year’s profits in the accounting
records as shared equally between them.
What entry needs to be made to correct this error?
Debit Credit
A George’s current account Fred’s current account
B Fred’s current account George’s current account
C Fred’s appropriation account George’s current account
D George’s current account Fred’s appropriation account LO 1d, e; 3a, c
22 Rory, Imogen and Charlotte are in partnership with fixed capital of £7,000, £3,000 and £2,000
respectively. Interest of 5% per annum is given on capital. They share profits in the ratio
50:35:15.
In addition, Charlotte has a salary of £2,500 per annum, with Rory personally guaranteeing
that Charlotte's total share of profits will not be less than £6,600 per annum.
How will the profit of £25,000 for the year ended 31 July 20X3 be appropriated between the
partners?
Rory Imogen Charlotte
£ £ £
A 11,300 7,815 5,885
B 10,585 7,815 6,600
C 11,250 6,750 7,000
D 10,930 7,470 6,600 LO 1d, e; 3a, c
23 Consider the following characteristics:

(1) Sharing of profits
(2) Maintenance of current and capital accounts
(3) Must prepare financial statements which follow accounting standards
(4) Drawings are put through the profit and loss account as salaries
Which are distinctive of partnerships as opposed to sole traders?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1d, e; 3a, c
24 Jessica, Constance and Petunia are in partnership running a boutique. They have the
following transactions to account for.
(1) Interest on a loan made by Petunia to the business
(2) Salary paid to Constance's husband, who does the firm's bookkeeping
(3) Clothes supplied free of charge to Jessica by the firm

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(4) Petrol for Petunia’s own car for a buying trip to a fashion show
Which transactions should appear as a charge in the partnership’s profit and loss account?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (3) and (4) only
D (1), (2) and (4) only LO 1d, e; 3a, c
25 Which of the following would appear as a debit to a partner’s current account?

A Capital withdrawn
B Interest on capital
C Share of loss for the year
D Interest on loan from fellow partner LO 1d, e
26 At 1 July 20X6 Saria, a sole trader, had net assets of £116,000. At 30 June 20X7 the following
amounts were extracted from her trial balance.
£
Fixtures and fittings
Cost 315,620
Depreciation 102,960
Debtors 28,602
Stock 22,196
Cash 4,758
Trade creditors 25,903
Long-term loan 80,000
Drawings in year 24,820
There was no fresh injection of capital during the period.
What was Saria's profit for the year?
A £21,493
B £59,843
C £71,133
D £95,953 LO 1d, e; 3a, c

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Chapter 16: Additional question

practice
1 Information about an entity’s financial performance is primarily provided in:
A the statement of profit or loss
B the statement of financial position
C the statement of changes in equity
D the statement of cash flows LO 3a
2 According to the IASB’s Conceptual Framework, information about the nature and amounts of
an entity’s economic resources and claims can help users to assess which three of the
following?
A The entity’s need for additional financing
B The entity’s liquidity and solvency
C How profitable the entity is likely to be in the future
D How successful the entity is likely to be in obtaining any necessary financing
E The market value of the entity LO 3d
3 According to the IASB’s Conceptual Framework, information about an entity’s financial

performance helps users to:
A understand the return that the entity has generated on its economic resources
B assess the entity’s ability to meet its financial commitments as they fall due
C predict how future profits and cash flows will be distributed among those with an interest
in the entity
D asses the entity’s adaptability to changes in its operating environment LO 3d
4 Which two of the following are source documents from which transactions are recorded in the
nominal ledger?
A Delivery note from a supplier
B Credit note to a customer
C Purchase order from a customer
D Debit note to a supplier
E Invoice from a supplier LO 1c
ICAEW 2019 Chapter 16: Additional question practice 111

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5 Which of the following transactions would normally be automatically matched by the

accounting system from the electronic banking report?
A Bonus issue of shares
B Payment of an invoice to a credit supplier
C Redemption of preference shares
D Sale proceeds of non-current assets Lo 1c, d
6 Eiris plc has the following information in its financial statements relating to machinery as at 31
July:
20X4 20X3
£ £
Cost 320,000 260,000
Accumulated depreciation 97,500 90,000
Carrying amount 222,500 170,000
During the year to 31 July 20X4, the following transactions occurred in relation to machinery:
Additions £142,000
Sales proceeds from disposals £94,000
Depreciation charge £31,400
What is Eiris plc's profit or loss on disposals of machinery in the year ended 31 July 20X4?
A £35,900 loss
B £35,900 profit
C £4,500 profit
D £4,500 loss LO 1d; 3c
7 Arabella has a debit balance of £123 in Fab plc's payables ledger. Which of the following
would, alone, explain this balance?
A Fab plc bought and paid for some goods for £123 which it then returned, but Arabella has
not yet issued a credit note for Fab plc to record.
B Fab plc paid £37 to Arabella in respect of an invoice for £160.
C Fab plc received a credit note for £23 from Arabella but posted it to the account of
Mirabelle.
D Fab plc paid an invoice for £123 even though Arabella had issued a credit note in respect
of it.
LO 1d

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8 Truro plc is a retailer which is registered for VAT. All sales, and all purchases of goods for
resale, attract VAT at the rate of 20%. For the year to 30 November 20X1 Truro plc paid
£60,480 to suppliers in respect of goods for resale, and showed revenue in the statement of
profit or loss of £81,600. There was no change in the figures for trade payables and inventory
in Truro plc's statements of financial position as at 30 November 20X0 and 20X1.
What was Truro plc's gross profit for the year ended 30 November 20X1?
A £7,520
B £17,600
C £21,120
D £31,200 LO 3a, c
9 For many years Meadows plc has experienced falling prices for raw material M, and has kept
constant inventory levels. It uses the AVCO inventory valuation method. If Meadows plc had
used the FIFO valuation method, in each successive year's financial statements this would
result in:
A lower cost of sales and higher closing inventory value
B lower cost of sales and lower closing inventory value
C higher cost of sales and lower closing inventory value
D higher cost of sales and higher closing inventory value LO 3a
10 Charles plc has the following note to its statement of financial position relating to fixtures and
fittings as at 31 August
20X3 20X2
£ £
Cost 166,000 125,000
Accumulated depreciation 81,000 72,000
Carrying amount 85,000 53,000
During the year to 31 August 20X3, the following transactions occurred in relation to fixtures
and fittings:
Additions £74,000
Loss on disposals £3,000
Depreciation charge £28,000
What were the proceeds from disposals of fixtures and fittings received by Charles plc in the
year to 31 August 20X3?
A £11,000
B £19,000
C £33,000
D £75,000 LO 1d; 3a

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11 Mahmood runs a small bakery and is preparing his financial statements for the year ended
31 March 20X4. There are three outstanding matters that he has not yet accounted for.
(1) Advance payments (deposits) of £110 recorded as revenue from customers in respect of
cakes ordered from Mahmood but not yet delivered by him at the year end.
(2) An unpaid rent demand for the six months to 31 July 20X4 for £3,600.
(3) Insurance of £960 recorded as paid by Mahmood and accounted for on 1 February 20X4
for the year ending 30 November 20X4.
Which three of the following balances will appear in Mahmood's statement of financial position
as at 31 March 20X4?
A Prepayment £640
B Accrual £640
C Accrual £1,200
D Deferred income £110
E Prepayment £1,200
F Accrued income £110 LO 1d; 3a, b
12 Hill plc has the following ledger account balances as at 1 January 20X5:
Share capital (400,000 25p equity shares) £100,000
Share premium £50,000
Retained earnings £1,423,126
On 1 March 20X5 Hill plc made a 1 for 5 rights issue at £1.20 per share. On
31 August 20X5 it made a three for one bonus issue. Profit for the year to
31 December 20X5 was £80,000.
What are the balances on the three ledger accounts as at 31 December 20X5?
A Share capital £480,000, Share premium £126,000, Retained earnings £1,143,126
B Share capital £480,000, Share premium £Nil, Retained earnings £1,269,126
C Share capital £1,920,000, Share premium £Nil, Retained earnings £129,126
D Share capital £1,920,000, Share premium £66,000, Retained earnings £63,126
LO 1e; 3a, c
13 David, Paul and Daniel are in partnership sharing profits 4:3:1. Each partner has a combined
capital and current account, which at 1 September 20X1 were as follows:
David £9,870
Paul £8,140
Daniel £15,580
During the year to 31 August 20X2 the partnership made profits of £120,000, and each partner
took drawings of £10,000. On 31 August 20X2 Paul retires. The partners value goodwill at
£96,000 at that date, but do not wish this valuation to remain in the accounts. David and
Daniel will continue in partnership, sharing profits 3:1. What is the balance on Daniel's capital
and current account on 1 July 20X7?
A £8,580
B £18,580

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C £35,870
D £79,140 LO 3a, c
14 Zylon Ltd has prepared a draft statement of profit or loss at 31 January 20X6 which shows a
gross profit of £54,200. Zylon Ltd has now discovered that at both the beginning and the end
of the accounting period one line of inventories, the Merit, has been included at a selling price
of £800 at 31 January 20X6 and £1,200 at 1 February 20X5. The Merit is always sold at a
mark-up of 20% by Zylon Ltd.
After correcting this error, Zylon Ltd's gross profit for the year to 31 January 20X6 is:
A £54,120
B £54,133
C £54,267
D £54,280 LO 2a, b; 3a
15 Taylor plc has prepared a draft statement of profit or loss that shows a profit for the year of
£60,000 for the reporting period ended 30 November 20X4. Subsequently, the following
matters have been discovered.
(1) An insurance renewal for £2,500 was received in November 20X4 for the year to
30 November 20X5. As the premium had increased significantly Taylor plc decided to pay
the amount in two equal instalments. The first instalment was paid on
28 November 20X4 and recorded in administrative expenses.
(2) Goods that cost £300 and sold at a gross margin of 40% were returned by Prism Ltd on
30 November 20X4, after the inventory count had taken place. No credit note was issued.
Once these matters have been dealt with Taylor plc's profit for the year ended
30 November 20X4 will be:
A £58,950
B £60,950
C £61,050
D £61,130 LO 1d; 2a, b; 3a, b
16 Riley plc has drawn up draft financial statements as at 31 December 20X8, which show a draft
profit for the year of £150,000 and a suspense account with a £600 debit balance. The
following issues have now been discovered.
(1) An early settlement discount of £600 received from a supplier was credited to trade
payables and debited to a suspense account as the bookkeeper wasn't sure how to
record the transaction. Riley plc had not expected to take advantage of the discount on
the date the invoice was recorded.
(2) Maintenance costs of £1,200 incurred on 1 January 20X8 were debited to plant and
machinery. Riley plc depreciates plant and machinery at 20% per annum.
After adjusting for these issues Riley plc's profit for the year will be:
A £148,800
B £149,640
C £150,960

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D £152,160 LO 1d; 2a, b; 3a, b
17 Picasso plc has prepared draft financial statements for the year ending 30 November 20X4,
following a physical inventory count. However, on further investigation it has been realised
that, in a burglary at the company's warehouse in September 20X4, inventory at a cost of
£10,000 was stolen. Picasso Ltd has insurance which covers 60% of the cost of inventory
stolen. The insurance company has agreed to pay in this instance but as yet, no money has
been received. No accounting entries have been made in respect of the stolen inventory.
Correcting this matter will:
A increase profit for the year by £4,000
B decrease profit for the year by £4,000
C increase profit for the year by £6,000
D decrease profit for the year by £6,000 LO 1d; 2a, b; 3a, b
18 Faringdon plc records £5,274 overdrawn as the bank balance in its statement of financial
position at 31 December 20X0 before reconciling to the year end bank statement. The bank
statement showed interest charged of £78 which had not previously been recorded in the cash
at bank account. The company noted that payments of £564 and receipts of £1,875 have not
yet appeared on the bank statement.
The bank statement at the year end showed an overdrawn balance of:
A £3,963
B £6,507
C £6,585
D £6,663 LO 1d; 2b
19 Mortimer plc correctly records £7,480 as the figure for short-term borrowings (overdraft) in its
statement of financial position at 30 June 20X3 after performing a bank reconciliation at that
date. The bank statement showed interest income of £75 and a bank transfer to a supplier of
£5,650 which had not previously been recorded in the cash at bank account. On the bank
reconciliation the bookkeeper includes unpresented cheques of £1,785 and uncleared
lodgements of £650.
Before the reconciliation was performed:
A the cash at bank account balance was £1,905 credit and the bank statement balance was
£3,040 overdrawn
B the cash at bank account balance was £1,755 credit and the bank statement balance was
£620 overdrawn
C the cash at bank account balance was £1,905 credit and the bank statement balance was
£770 overdrawn
D the cash at bank account balance was £1,755 credit and the bank statement balance was
£2,890 overdrawn LO 1d; 2b

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20 During the year ended 31 January 20X2 Pelham plc suffered a major flood at its warehouse, in
which inventory that had cost £10,000 was destroyed. An insurance payment of 60% of the
cost has been agreed but not received at the end of the reporting period.
To take account of these matters Pelham plc should debit Trade and other receivables with
£6,000 and:
A Dr Administrative expenses £10,000, Cr Purchases £10,000, Cr Other income £6,000
B Dr Administrative expenses £4,000, Cr Inventory £10,000,
C Dr Administrative expenses £4,000, Cr Purchases £10,000
D Dr Administrative expenses £10,000, Cr Purchases £6,000, Cr Revenue £10,000
LO 1d; 3a, c
21 School plc is a large company with a share capital of 4 million 25p equity shares. To raise
funds it has made a 1 for 5 rights issue of its equity shares at £2 per share. The rights issue
was fully taken up but only £1,500,000 had been paid up at the end of the reporting period, 30
June 20X4. The only entries in the accounting records have been to debit cash at bank with
£1,500,000 and credit the suspense account with the same amount.
As well as debiting the suspense account with £1,500,000, which of the following entries
should School plc now make to correctly record the share issue?
A Dr Other receivables £100,000, Cr Share capital £200,000,
Cr Share premium £1,400,000
B Dr Other receivables £100,000, Cr Share capital £200,000,
C Dr Other receivables £100,000, Cr Share capital £800,000,
Cr Share premium £800,000
D Cr Share capital £200,000, Cr Share premium £1,300,000 LO 1d; 2a, b, c
22 Sneaky plc acquired a truck on 31 December 20X1, the end of its reporting period, for
£60,000. It transferred £15,000 to the seller and handed over an old truck with a carrying
amount at that date of £18,200. This truck had cost £55,000. A further sum of £25,000 was
then due to the supplier of the truck as the final payment.
The only entries made before the initial trial balance was drawn up were to debit suspense
with £40,000, credit cash at bank £15,000 and credit other payables £25,000.
As well as crediting suspense with £40,000, which of the following sets of adjustments should
Sneaky plc record when preparing its final trial balance?
A Dr Truck – cost £5,000, Dr Truck – accumulated depreciation £18,200,
Dr Disposal £16,800
B Dr Truck – cost £60,000, Dr Truck – accumulated depreciation £36,800,
Cr Disposal £56,800
C Dr Truck – cost £5,000, Dr Truck – accumulated depreciation £36,800,
Cr Disposal £1,800
D Dr Truck – cost £60,000, Dr Truck – accumulated depreciation £18,200,
Cr Disposal £38,200 LO 1d; 2b, c
23 A summarised version of Leah plc's initial trial balance for the year ended
30 September 20X3 is as follows:

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Initial trial balance Trial balance (summary)

£ £
Profit after tax 68,574
Total non-current and current assets 998,230
Current and non-current liabilities 150,344
Suspense 5,344
1,003,574 1,003,574
It has now been discovered that the bookkeeper was unsure where to record insurance costs
for the current year of £5,344, so he credited cash at bank and posted the other side of the
entry to the suspense account.
When this error is corrected, the balance of retained earnings for inclusion in the statement of
financial position will be:
A £729,312
B £740,000
C £797,886
D £808,574 LO 1f; 2b; 3a, c

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24 Rickard and Grab are in partnership sharing profits and losses 3:1 after allowing for partner
salaries of £20,000 and £15,000 respectively. On 1 January 20X6 Rickard lent the business
£30,000 at 6% interest pa. The profit for the year ended 30 June 20X6, before loan interest, is
£79,000.
How much profit will be credited to Rickard's current account?
A £25,775
B £51,650
C £52,325
D £53,000 LO 3a, c
25 Tanga plc is preparing its financial statements as at 31 December 20X9. Its ledger account
balance for subscription income includes £15,730 subscriptions received in 20X9 in respect of
20X8.
Tanga plc should enter a journal with two entries of £15,730 as:
A a credit entry to the deferred income (liability) account
B a credit entry to the subscription income account
C a debit entry to the subscription income account
D a credit entry to the accrued income (asset) account
E a debit entry to the deferred income (liability) account
F a debit entry to the accrued income (asset) account LO 1d
26 Brassie plc has an allowance for receivables of £1,200 on 1 October 20X4. During the
reporting period ending 30 September 20X5 the following events take place:
(1) A cheque for £106 previously received and included in the cash at bank account was
returned unpaid on 29 September 20X5. The amount was correctly credited to the cash at
bank account but the other side of the transaction was debited to the suspense account.
The directors wish to write the debt off as irrecoverable.
(2) An allowance of £1,500 is required at the year end.
(3) A cheque received for £36 in respect of an amount written off in August 20X4 was
debited to the cash at bank account and credited to the suspense account.
What journal entries are required as at 30 September 20X5?
A Dr Trade Receivables £106, Dr Irrecoverable debts expense £264, Cr Suspense account
£70, Cr Allowance for receivables £300
B Dr Irrecoverable debts expense £370, Cr Allowance for receivables £300,
Cr Suspense account £70
C Dr Suspense account £70, Dr Irrecoverable debts expense £200,
Cr Allowance for receivables £300
D Dr Irrecoverable debts expense £406, Cr Allowance for receivables £300,
Cr Suspense account £70, Cr Trade receivables £36 LO 1d; 3a
27 As at 30 November 20X8 Briggs plc had accrued administrative expenses of £1,589 and
prepaid administrative expenses of £746. On 1 December 20X8 the bookkeeper processed

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the following opening journal: Credit Accruals £1,589, Debit Prepayments £746, Debit
Administrative expenses £843.
During the reporting period to 30 November 20X9 cash was paid in respect of administrative
expenses of £54,123 and was correctly posted to the administrative expenses account. At the
end of the reporting period, Briggs plc's bookkeeper correctly processed closing journals to set
up an accrual of £2,745 and a prepayment of £1,669 in respect of administrative expenses.
Which of the following journals should Briggs plc process as at 30 November 20X9 to correct
the three accounts?
A Dr Accruals £1,589, Cr Prepayments £746, Cr Administrative expenses £843
B Dr Administrative expenses £1,686, Dr Prepayments £1,492, Cr Accruals £3,178
C Dr Administrative expenses £843, Dr Prepayments £746, Cr Accruals £1,589
D Dr Accruals £3,178, Cr Prepayments £1,492, Cr Administrative expenses £1,686
LO 1d; 2b, c; 3a
28 In relation to accounting for partnerships, which two of the following statements are true?
A Goods taken by a partner from the business are treated as appropriations of profit
B Interest on drawings by a partner is an expense in the partnership's profit and loss
account
C Interest on a partner's loan capital is an expense in the partnership's profit and loss
account
D Drawings by a partner are debited in the current account
E In the absence of a partnership agreement, under the Partnership Act 1890 salaries of
£5,000 are due to partners LO 3c
29 The following statements have been made by a colleague about accounting for partnerships:
Statement 1: Partners' salaries affect neither the amount of profit for the year available for
appropriation, nor the partnership's cash position.
Statement 2: Interest on partners' drawings affects the amount of profit for the year available
for appropriation but not the partnership's cash position.
Identify whether these statements are true.
A Statement 1 is true but Statement 2 is false.
B Statement 1 is false but Statement 2 is true.
C Both Statement 1 and 2 are true.
D Neither Statement 1 nor Statement 2 are true. LO 3c
30 Lemon plc draws up financial statements to 31 December in each year. It pays telephone line
rental charges for each year ending 30 April in two equal instalments, on 1 May and
1 November, in advance. It also pays telephone call charges quarterly in arrears at the end of
February, April, July and November. The total telephone line rental for the year to
30 April 20X4 was £6,300. Telephone call charges for the year commencing 1 July 20X3 were
£5,820.

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What were Lemon plc’s prepayment for line rental and accrual for call charges in its statement
of financial position at 31 December 20X3?
A Prepayment for line rental £2,100, Accrual for call charges £485
B Prepayment for line rental £1,575, Accrual for call charges £485
C Prepayment for line rental £1,575, Accrual for call charges £970
D Prepayment for line rental £2,100, Accrual for call charges £970
LO 1d; 3b
31 In relation to distribution costs Levi plc has paid £11,794 in the period ended 31 October 20X9.
The company's distribution costs accruals need to be £107 more than at 31 October 20X8,
and prepayments need to be £78 more.
What is the figure for distribution costs in Levi plc's statement of profit or loss for the year
ended 31 October 20X3?
A £11,269
B £11,327
C £11,765
D £11,823 Lo 1d; 3c
32 Wombat plc is a retailer that rents its premises; its only non-current assets are fixtures and
fittings. The company has been experiencing trading problems for some time. The directors
have concluded that the company is no longer a going concern and have changed the basis of
preparing the financial statements to the break-up basis.
Which of the following will be the immediate effect of changing to the break-up basis?
A All fixtures and fittings are transferred from non-current to current assets
B Fixtures and fittings are valued at their purchase cost
C The company ceases to trade
D A liquidator is appointed LO 1e; 3c
33 George plc acquired a new truck on 1 February 20X7 for £79,680 including VAT. The
company depreciates all vehicles straight line at 25% per annum on a monthly basis.
What is the carrying amount of George plc's truck at 31 July 20X7?
A £49,800
B £58,100
C £66,400
D £69,720 LO 1d
34 Winston started a trading business on 1 July 20X6 with capital of £50,000. In his first year of
trading he made a profit for the year of £28,000, selling goods at a margin on sales of 60%. He
injected additional capital of £10,000 in the year and withdrew a monthly amount of £500 for

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his living expenses. He also took drawings from inventories of goods with a resale value of
£6,400. The business had no inventories at the year end.
What were Winston's net assets at 30 June 20X7?
A £23,440
B £78,160
C £79,440
D £84,940 LO 1d; 3a, c
35 Hedges plc, a clothing retailer, depreciates all vehicles monthly over four years. On
31 December 20X4 Hedges plc bought a car at a cost of £21,000 plus VAT, trading in an old
car that had cost £17,760 including VAT on 1 December 20X2. A cheque for £11,900 was also
handed over.
In respect of this disposal in its statement of profit or loss for the reporting period ended
31 October 20X5 Hedges plc will show a profit of:
A £4,790
B £4,415
C £2,008
D £590 LO 1d; 3a, c

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36 Quizzle plc has share capital of 500,000 £1 shares at 1 January 20X0. These were issued at
£1.30 per share. On 31 December 20X0 Quizzle plc made a three for five bonus issue. Before
accounting for this the balance on retained earnings at 31 December 20X0 was £484,000.
In its statement of financial position at 31 December 20X0 the balance on Quizzle plc's
retained earnings will be:
A £184,000
B £334,000
C £434,000
D £484,000 LO 1d, e; 3c
37 At the end of its first year of trading on 30 September 20X4 Sage plc's net assets are
£185,621. There are no non-current assets. It has share capital of £30,000 made up of 50p
equity shares issued at £1 each, and retained earnings of £105,621. There have been no
other entries in share premium other than those in relation to the original share issue.
In relation to Sage plc's statement of financial position at 30 September 20X4 which of the
following statements is true?
A It has other reserves of £50,000.
B It has share premium of £20,000.
C It has other reserves of £20,000.
D It has share premium of £50,000. LO 3a, c
38 Tennant plc is preparing its statement of profit or loss for the year ended 30 June 20X7. On
the initial trial balance at that date distribution costs have a debit balance of £125,000 before
accounting for depreciation and profits/losses on disposal in respect of the company's vehicle
fleet. At 30 June 20X6 Tennant plc had vehicles that cost £564,810, all of which had been
purchased on 1 July 20X5, and it had accumulated depreciation of £188,270. A vehicle costing
£15,000 was sold on 1 July 20X6 for £8,500. Vehicles are depreciated monthly over three
years.
The amount to be disclosed as distribution costs in Tennant plc's statement of profit or loss for
the year ended 30 June 20X7 is:
A £183,270
B £306,770
C £309,770
D £314,770 LO 1d; 3a, c
39 Vargo plc is finalising its financial statements as at 30 June 20X4. In its initial trial balance at
that date Vargo plc has a figure for tax payable as at 1 July 20X3 of £32,810. The total tax
charge in the statement of profit or loss for the year to 30 June 20X4 is £35,450, and tax paid
in the year was £31,960.
The tax payable balance that will appear in Vargo plc's statement of financial position as at 30
June 20X4 is:
A £29,320
B £34,600

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C £35,450
D £36,300 LO 1d; 3c
40 Redman plc is finalising its financial statements as at 30 April 20X2. On 1 January 20X1 the
company paid an annual membership fee of £15,000 for the 12 months ended
31 December 20X1. A 10% increase in this subscription is expected, but has not been
finalised at 30 April 20X2.
In its statement of financial position at 30 April 20X2 Redman plc will include:
A a prepayment of £11,000
B a prepayment of £5,500
C an accrual of £11,000
D an accrual of £5,500 LO 3a, b, c
41 Crane plc is finalising its financial statements as at 31 December 20X5. Relevant initial trial
balance figures are as follows:
£
Trade and other payables (excluding interest paid or payable) 149,630
8% debentures as at 1 January 20X5 500,000
Crane plc issued further 8% debentures of £200,000 at par on 1 October 20X5, repayable at
par in ten years' time. No interest was outstanding at 1 January 20X5, and the company paid
interest in respect of debentures of £40,000 in 20X5.
The trade and other payables figure that will appear in Crane plc's statement of financial
position as at 31 December 20X5 is:
A £153,630
B £165,630
C £193,630
D £205,630 LO 1d; 3a, c

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42 As at 1 June 20X8 Fara plc had 200,000 25p equity shares, which it issued in 20X2 at 80p
each fully paid. It also had 100,000 £1 5% irredeemable preference shares issued at par in
20X3. On 31 January 20X9 Fara plc made a further issue of 50,000 £1 irredeemable 5%
preference shares at £1.20 fully paid. On the same date Fara plc made a 1 for 5 bonus issue
of equity shares. Fara plc wishes to use the share premium in respect of the bonus issue.
In its statement of financial position as at 31 May 20X9 Fara plc will have share premium of:
A £100,000
B £110,000
C £120,000
D £150,000 LO 1e; 3a, c
43 Palin plc had fixtures with a carrying amount at 1 July 20X5 of £48,000. On that date it traded
in fixtures which had cost £12,000 on 1 July 20X3 for new fixtures which cost £18,000,
handing over a cheque in full settlement for £3,000. Palin plc depreciates fixtures at 30% per
annum on the reducing balance.
How much depreciation will be charged in Palin plc's statement of profit or loss for the year
ended 30 June 20X6 in respect of fixtures held at that date?
A £18,036
B £19,800
C £46,200
D £60,120 LO 1d; 3a, c
44 On 1 April 20X6 Newman plc purchased a machine at a price of £50,000. It cost £2,000 to
transport the machine to Newman plc's premises and set it up, plus £500 incurred in training
staff to operate the machine. The machine had a useful life of five years and a residual value
of £5,000. On 1 April 20X8 Newman plc's directors decided to change the depreciation
method to reducing balance, at 50%.
What is the carrying amount of Newman plc's machine in its statement of financial position at
31 March 20X9?
A £16,600
B £18,800
C £26,000
D £52,000 LO 1d; 3c

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45 Nazrim, a sole trader preparing his financial statements under UK GAAP, has the following
information at the start and end of his second year of trading:
At 31 March 20X3 At 1 April 20X2
£ £
Fixed assets (net book value) 35,200 21,000
Stock 10,400 7,200
Trade debtors 11,980 8,450
Trade creditors 8,210 5,640
Cash in hand 1,100 300
During the reporting period Nazrim introduced £1,000 capital. He took stock for his own use
that cost £200, and paid himself £800 per month.
What is Nazrim's profit or loss for the reporting period ended 31 March 20X3?
A £10,360 loss
B £27,960 profit
C £33,100 profit
D £36,760 profit LO 3a, c
46 Walt plc's statement of profit or loss for the year to 31 August 20X4 shows an income tax
expense of £67,920. In its statement of financial position at that date tax payable is £54,740.
During the reporting period Walt plc paid HMRC £50,000 in respect of income tax for the year
ended 31 August 20X3, but subsequently received a refund from HMRC for £3,000.
At 31 August 20X3 Walt plc's income tax payable balance in its statement of financial position
was:
A £33,820
B £36,820
C £47,000
D £60,180 LO 1d; 3a, c

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47 Joshua plc had the following amounts in its statement of financial position at 30 June 20X8
and 30 June 20X9:
20X9 20X8
£ £
Inventory 15,310 18,200
Cash at bank 3,700 3,200
Profit before tax was £18,600 for the year ended 30 June 20X9 and the depreciation charge
was £4,320. What was the cash generated from operations for the year ended
30 June 20X9?
A £24,430
B £12,770
C £21,410
D £15,790 LO 3c
48 A business has a profit before tax of £50,000 after charging depreciation of £5,000. A non-
current asset had been sold for £20,000. Its carrying amount was £17,000 and the profit or
loss on disposal is included in operating profit.
Inventory increased by £8,000, trade receivables increased by £3,000 and trade payables
decreased by £4,000. What was the cash generated from operations?
A £37,000
B £63,000
C £33,000
D £45,000 LO 3c

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Answer Bank

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130 Accounting: Electronic Answer Bank ICAEW 2019

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Chapter 1: Introduction to accounting

1 D Part of the cost of getting the asset into working condition. A and B represent restoration
to a previous level of condition, and C is the acquisition of an asset that would be
classified as inventories.
2 A
Purchase of fixed units Capital. This is because the asset will be used to assist in
the business process and lasts more than one year.
Payment of wages Revenue. The benefits of paying wages (the ability to sell
goods and services), are consumed during the year on a
time basis.
Repairs to fixed units Revenue. This is because repairs represent a restoration of
a product to a previous level of performance.
3 D
Payment of local property tax Revenue
Purchase of premises Capital
Alteration of premises Capital
Audit fee Revenue
4 C This is because it is enhancing the performance/capacity of the premises. A represents
restoration of the asset, B is consumption of the asset over time, and D is in relation to
inventory.
5 C An aspect of professional behaviour is the avoidance of any action that discredits the
profession.
6 D
Non-current assets are valued at cost Accruals (depreciation matches cost to
less depreciation periods over which the asset is used)
Expenses incurred but for which Accruals
invoices have not yet been received
are included in the financial
statements
7 D Matching is another name for the accruals concept.

8 C Only legitimate business expenses paid by the owner will be included.
ICAEW 2019 Chapter 1: Introduction to accounting 131

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Chapter 2: The accounting equation

1 D This represents a decrease in capital. A is a decrease in an asset (cash) and a liability
(payables), B is an increase in an asset (inventory), and a decrease in another (cash),
C is an increase in one asset (non-current assets), and a decrease in another (cash).
2 D A, B and C are all concerned with the value of a business as a whole, but its actual
purpose focuses on the cost/value of individual assets and liabilities.
3 D Assets (receivables) will decrease and liabilities (the overdraft) will also decrease.
4 A Assets will increase due to the inventory and liabilities will increase as the business now
owes money to the supplier.
5 A Assets increase as cash increases from the loan and liabilities will increase as the loan is
a liability.
6 B Assets will increase as there is an increase in cash of £1,000 and a decrease in inventory
of £700 (net increase of £300) and capital will increase due to the profit of £300.
7 B The owner is a separate entity to the business and therefore any personal expenses paid
by the entity must be accounted for as drawings.
8 B This is because the computer will be used in the business over more than one reporting
period, and is used in the production process of goods and services. A is a reduction in
capital, C is an increase in assets, D would be treated as an expense.
9 C
£
Opening net assets 62,500
Capital introduced 5,000
Drawings (10,000)
Loss for the year (balancing figure) (20,000)
Closing net assets 37,500

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Chapter 3: Recording financial

transactions
1 C £31,000 (23,550 + 4,620 + 2,830)
2 D A sales invoice is a source document that is entered into the accounting system.
3 D At any time petty cash in the box plus petty cash vouchers equals the imprest amount.
4 A Nozam has to reinstate the amount of vouchers, plus the amount taken for which no
voucher was prepared, less the refund.
£112 + £10 – £9 = £113
5 A £181,000 (114,000 + 38,000 + 15,600 + 13,400)
6 B Keira would request a credit note from Fred.
7 A The wages expense is the gross amount paid to employees (£137,800 - see below) plus
the amount of employer's national insurance (£12,100). The total expense is therefore
£149,900.
The gross amount paid to employees is calculated as the net amount paid to employees
(£109,000) plus PAYE (£18,400) and employee's national insurance deducted (£10,400).
The gross amount paid to employees is therefore £137,800
8 C Purchase invoices might be checked against GRNs before payment is made.
9 B The only feasible option is that the payment is an amount paid out in respect of furniture.
As the purchase of furniture is a one-off transaction, it would not be automatically
matched by the computerised accounting system. The expense is too high to be due to
restoring the petty cash imprest amount (Option C). Options A is a receipt of cash, not a
payment, and Option D is likely to be matched automatically by the system as it is the
payment of a regular invoice.
10 A There is £20 or a petty cash voucher for £20 missing from the petty cash box. Options B,
C and D would result in £20 too much in the petty cash box.
ICAEW 2019 Chapter 3: Recording financial transactions 133

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Chapter 4: Ledger accounting and

double entry
1 A Dr Trade receivables £2,880, Cr Sales £2,400, Cr VAT £480.
2 C Receipt of an invoice for the purchase of a non-current asset.
3 D Debit entries decrease income and increase assets.
4 B Guy owes money to George, so Statement 1 is false. Guy has drawings of £500, so
Statement 2 is true.
5 B Note that receipts from cash sales are not entered trade receivables, which is for credit
sales only.
TRADE RECEIVABLES
£ £
Bal b/d 42,100 Cash at bank 176,290
Sales 172,790 Bal c/d 38,600
214,890 214,890
6 D The invoice total is inclusive of VAT therefore VAT is calculated as £1,500  20/120 =
£250. The net amount of £1,250 (1,500 – 250) is recorded as a debit to purchases, input
VAT of £250 is recorded as a debit in the VAT account and the gross amount of £1,500 is
credited to trade payables.
7 B As the customer is expected to take advantage of the early settlement discount, the
amount recorded should be net of the discount £1,240  95% = £1,178. The trade
receivable is an asset and therefore recorded as a debit: Dr Trade receivables, Cr
Revenue.
8 C The amount received from credit customers is a credit to trade receivables. Credit sales
made (A) are debited to trade receivables; cash sales (B) and the early settlement
discounts received from suppliers (D) do not affect trade receivables.
9 C The early settlement discount was not expected to be taken at the date at which the
invoice was recorded. As such, the discount must now be recorded by reducing
(crediting) purchases.
10 B Dr Purchases £3,000, Cr Trade payables £3,000. Accounting records always show
transactions net of trade discount.
11 C Sales account £37,800 (excluding VAT).
12 B Purchases account (37,800  5/6) = £31,500 (excluding VAT).
13 D Trade receivables (37,800  1.2) = £45,360.
14 C Trade payables £37,800 (including VAT).
15 C The VAT on the car purchase is not recoverable, and is added to the cost of the car
capitalised in the statement of financial position.
VAT ACCOUNT
£ £
Purchases (25,200  1/6) 4,200 B/d 2,000
Cash at bank 9,420 Sales (100,800  1/6) 16,800
C/d () 5,180
18,800 18,800

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16 C
Debit Credit
£ £
Salaries expense (1,500 + 160) 1,660
Cash at bank (1,500 – 300 – 150) 1,050
HMRC (300 + 150 + 160) 610
17 D
Debit Credit
£ £
Salaries expense (1,500 + 160) 1,660
Cash at bank (1,500 – 300 – 150) 1,050
HMRC (300 + 150 + 160) 610
18 D
Increase liability Credit
Decrease asset Credit
19 A
Increase asset Debit
Decrease capital Debit

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Chapter 5: Preparing basic financial

statements
1 C Both (1) and (2) are correct.
2 B
TRADE PAYABLES
£ £
Cash at bank 33,000 B/d 16,400
C/d 18,900 Purchases 35,500
51,900 51,900
3 B, C, E
Liability, income and capital
4 A An initial trial balance is produced (1), then year-end adjustments (3) are also posted to
the TB. The nominal ledger account balances are then closed off (2) and the profit for the
year can be calculated (4).
5 B The total of the debit balances exceeds the credit balances. This represents a loss for the
year which is a credit entry in the profit and loss ledger account and a corresponding
debit entry to retained earnings.
6 B The trade receivables balance is calculated as opening (£31,200) + credit sales (£52,500)
– cash received from credit customers (£60,100). Cash sales and amounts paid to
suppliers do not impact on trade receivables.
7 C, D, F
Trade receivables, purchases and inventory are all debit balances.
8 A Accruals are recorded as non-current liabilities.
9 C Credit and cash sales both result in output (credit) VAT.
The credit sales are exclusive of VAT, therefore VAT is calculated as
£31,300  20% = £6,260.
The cash sales are inclusive of VAT, therefore VAT is calculated as
£1,260  20/120 = £210.
The purchases result in input (debit) VAT. The purchases are inclusive of VAT, therefore
VAT is calculated as £28,800  20/120 = £4,800.
Net output VAT is therefore £6,260 + £210 – £4,800 = £1,670 credit.

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Chapter 6: Errors and corrections to

accounting records and financial
statements
1 B £4,270
CASH AT BANK
£ £
Balance c/d 4,600  Balance b/d 4,270
Bank charges 30
4,600 4,600
£
Balance per bank statement (5,800)
Add outstanding lodgements 1,300
Less bank error (100)
Balance per amended cash at bank account (4,600)
2 D
TRADE RECEIVABLES
£ £
Balance b/d 58,600 Cash at bank 226,700
Revenue (credit sales) 235,700 Trade payables (contra) 7,200
Revenue (discounts given
to customers) 3,200
Irrecoverable debts 5,400
Balance c/d 51,800
294,300 294,300
3 A
£
Balance per bank statement 2,000
Less unpresented cheque (1,000)
Add outstanding lodgement 600
Balance per cash at bank account 1,600
4 A The difference with Turks does not require adjustment as it is a timing difference. The
contra with the receivables ledger in respect of Caicos requires the payables ledger
balance to be reduced and therefore trade payables to be decreased.
5 A, C
D and E are credits in the trade payables account, while B is an entry in the trade
receivables account.
6 A, D
Both the unpresented cheques and the uncleared lodgement have been entered in the
cash at bank account – there is merely a timing difference between their entry in the cash
at bank account and appearance on the bank statement.
The two matters which will require an adjustment are therefore the bank charges and the
returned cheque.

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7 C
Results in reduced cash at
Point
bank account balance?
The cash at bank account has correctly recorded No – the bank needs to correct
the cheque and the error rests with the bank. the error in its records
Bank charges debited by the bank have not yet Yes – need to record by Dr Bank
been entered in the cash at bank account. charges Cr Cash at bank account
The value of unpresented cheques exceeded the No – an adjustment in the bank
value of uncleared lodgements. reconciliation only (timing
difference).
8 C The recording error on stamps means there is an understatement of expenses of

(80 – 8) = £72. The top-up should have been (24 + 40 + 80) = £144 but instead it was
£72, so the petty cash balance is £72 less than it should be.
9 C Purchases have been debited but should have been credited and therefore need to be
decreased by (52 + 25) = £77 (Cr). The suspense account needs to be removed (Dr) and
the amount of payables reduced (Dr). Therefore Debit Suspense account £52, Debit
Payables £25, Credit Purchases £77.
10 B (22,000) + (2,000) + 500 + (1,000) = £24,500.
The adjustment to closing inventory will increase cost of sales.
11 B, D
A transposition error has occurred (£1,100 instead of £1,010) and an error of principle
(the debit should have been to non-current assets cost account, not expenses).
12 B
Effect on
profit
£
Goods drawn from inventory (300  100/125) 240
Change in allowance for receivables (1,220 – 1,000) (220)
Increase 20
13 D 10,000 – 1,800 – (5,000  20/100) = 7,200

(1) The amount written off needs to be increased by £1,800 (£2,000 – £200). This will
reduce profits by £1,800.
(2) Needs to be recorded as drawings – no impact on profits.
(3) As the sale should not be recognised yet, the profit element should be removed.
14 B
£
Unadjusted profit 236,662
(1) Add back machine treated as repairs 6,480
(2) Required depreciation (56,160  25%) (14,040)
Additional depreciation on machine (6,480  25%) (1,620)
227,482

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15 A
£
(1) Add back machine treated as repairs 10,000
Required depreciation (10,000 / 5 years  9/12 months) (1,500)
(2) Accrued bank interest (income) 400
Increase in profit 8,900
16 A
£
Opening loss (19,200)
(1) Remove closing inventory from cost of sales (1,300)
(2) Record bank charges (200)
(3) Record petty cash expenses * (100)
Loss for year (20,800)
* The amount required to reinstate the imprest balance is equal to the administrative
expenses.
17 D The corrected payables ledger is:
TRADE PAYABLES
£ £
Trade receivables (contra) 3,300 Balance b/d 12,400
Purchases (Discounts received Purchases 135,900
from suppliers) 4,100
Cash at bank account 82,800
Balance c/d 58,100
148,300 148,300
18 A Recording an expense to the incorrect category is an error of commission.

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Chapter 7: Cost of sales and

inventories
1 C 20,000/50,000  100 = 40%
2 D £66,000 (£12,300 + 68,400 – 14,700)
3 A Mark up is calculated and applied on top of cost of sales (200,000  35% = 70,000) to
arrive at sales.
4 A TRADE PAYABLES
£ £
Cash at bank 130,800 B/d 11,750
C/d 12,750 Purchases (credit) (bal) 131,800
143,550 143,550
WORKINGS
£
Opening inventory (bal) 21,600
Cash purchases 2,800
Credit purchases (from above) 131,800
Closing inventory (8,200)
Cost of sales 148,000
5 C
Normal
% £
SP 125 4,200,000
Cost (100) (3,360,000)
GP 25
£
Opening inventory 600,000
Purchases () 3,440,000
Cost of sales 3,360,000
6 A
£ £
FIFO 400 @ 3.50 1,400
300 @ 4.00 1,200
2,600
7 C In this example, cost includes both direct materials/labour and also production
overheads.
NRV is expected selling price less expected selling costs.
Cost NRV Lower of cost/NRV
£ £ £
Category 1 5,484 6,384 5,484
Category 2 14,508 14,270 14,270
Category 3 2,760 2,844 2,760
22,514

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8 C
£
Product X 5,000  £12 = 60,000
Less 600  £3 (£12 – £9) = (1,800)
58,200
Product Y 1,000  £6 = 6,000
Less 100  £2 (£6 – £4) = (200)
64,000
9 C Reducing the value of closing inventories decreases current assets and has the effect of
increasing cost of sales, therefore decreasing profit.
10 A
Units Cost Ave cost Value
1.6.X7 100 10 1,000
12.6.X7 50 12 600
20.6.X7 50 15 750
200 11.75 2,350
21.6.X7 (160) 11.75 (1,880)
40 11.75 470
11 B Lower of cost and NRV = £83

£
Cost
Production cost 69
Production overheads 23
92
Net realisable value £

Sales price 120
Less modification costs (25)
Less selling costs (120  10%) (12)
83
12 A
Net Lower
realisabl of cost
e
Cost value and NRV Units Value
£ £ £ £
A 10 12 10 100 1,000
B 14 15 14 150 2,100
C 20 19 19 100 1,900
5,000
13 C (10 units @ £20) + (50 units @ £25) = £1,450

14 C If closing inventory is understated, cost of sales will be overstated. Next year opening
inventory will be understated and cost of sales will be understated.
15 A
£
Inventory count value 314,400
Less purchases (8,400)
Add sales (16,000  60/100) 9,600
Add goods returned 1,000
Inventory figure 316,600

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16 C
£’000 %
Sales 325 130
Opening inventory 50
Purchases 240
290
Closing inventory (bal fig) (40)
Cost of sales 250 100
Gross profit 75
17 B (375 – 300)/375 = 0.2

18 D
£ %
Selling price 200 125
Cost price (£200  100/125) 160 100
19 C
Shipping costs – Include
Purchase price – Include
Breakdown costs – Exclude
Import duties – Include
The cost of inventory includes all expenditure incurred in the normal course of business in
bringing the product/service to its present location and condition.
The breakdown costs were a one-off cost and not in the normal course of business.
Therefore they are excluded.
20 D Closing inventory = 60 + 80 – 70 + 60 – 40 + 50 = 140 units
£
Value (FIFO) 50 units @ £11 550
60 units @ £10 600
30 units @ £9 270
140 1,420
21 A
NRV
Item Cost (SP less
4%)
£ £
X 3,800 4,032
Y 4,600 3,936
Z 1,300 1,584
Therefore, inventory value is 3,800 + 3,936 + 1,300 = £9,036
22 D The NRV of inventory is the amount for which it should be sold after deducting the
additional costs that must still be incurred to get it ready for sale and to sell it.
Hence trade discounts, costs to completion and selling costs should be included when
calculating NRV. Cash discounts received from suppliers would impact in cost of
inventory rather than its NRV and should not be included.

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23 B, C
Item Increase in closing inventory?
Inventory taken by the proprietor for No – if already taken will not be included in
his own use closing inventory. Need to Dr Drawings, Cr
Purchases
Goods returned by customers Yes – goods returned by customers should be
included in inventory provided they can be
resold.
Prices have been rising during the Yes – a FIFO basis will place the most recent
year and the proprietor now purchases in closing inventory – so cost will be
decides to change from a LIFO higher than under LIFO.
basis of valuation to a FIFO basis
An allowance needs to be made No – inventory will decrease when the
against several inventory lines allowance is made.
24 B Closing inventory is an asset in the statement of financial position and is deducted from
cost of sales (and hence added to profit) in the statement of profit or loss. An increase of
inventory from £9,250 to £10,560 would therefore increase net assets and increase profit
(decrease losses) by £1,310 (10,560 – 9,250).

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Chapter 8: Irrecoverable debts and

allowance for receivables
1 B The bookkeeper has recorded the write-off as £24,000 but it should have been £42,000.
An increase (Dr) in the irrecoverable debt expense and a decrease (Cr) in the trade
receivables balance is needed.
2 C No effect as the entry is to administrative expenses, which is deducted from gross profit
to arrive at profit for the year.
3 D
£
Allowance at 28 February 20X6 (18,600)
Add Allowance at 28 February 20X7 24,000
Add Irrecoverable debt written off 3,000
Charge 8,400
4 A
£
Allowance at 31 December 20X7 (3,000)
Add Allowance at 31 December 20X8 3,100
Less Irrecoverable debt written back (50)
Charge 50
5 A
£
Allowance at 31 May 20X6 (1,420)
Add Allowance at 31 May 20X7 800
Add Irrecoverable debt written off 2,100
Charge 1,480
6 B Trade receivables = £268,000 – £22,000

= £246,000
Allowance for receivables is reduced by £2,000 to £12,000.
7 A
£
Trade receivables at 30 September 20X7 128,000
Less irrecoverable debt written off (10,500)
Less allowance for receivables at 30 September 20X7 (3,000)
114,500
8 B Dr Irrecoverable debt expense £11,630, Cr Trade receivables £10,600,

Cr Allowance for receivables £1,030.
9 A When the cash is received: Dr Cash at bank £25, Cr Trade receivables £25 in the usual
way.
To recognise the irrecoverable debt: Dr Irrecoverable debts expense
£75, Cr Trade receivables £75.
Overall: Dr Cash at bank £25, Dr Irrecoverable debts expense £75,
Cr Trade receivables £100

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10 B
£
Irrecoverable debt recovered (900)
Irrecoverable debt written off 2,100
Increase in allowance (7,170 – 5,558) 1,612
Charge 2,812
11 A, C
Irrecoverable debt written off and increase in allowance for receivables.
12 C
£
Increase in allowance (2,130 – 1,000) 1,130
Irrecoverable debts written off 500
Irrecoverable debt recovered (50)
Charge 1,580

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Chapter 9: Accruals and prepayments

1 A SPL (8/12  120,000) + (4/12  96,000) = £112,000
SFP (2/12  120,000) = £20,000
2 A (2/3  364.20) + 313.70 + 335.80 + 361.20 + (1/3  403.80) = £1,388.10
3 D RENT RECEIVABLE
£ £
Arrears b/d 28,700 Advances b/d 18,300
Statement of profit or loss 319,400 Cash at bank 325,600
Advances c/d 19,200 Arrears c/d 23,400
367,300 367,300
4 B £1,050 has been deducted from instead of added to profit. Therefore to cancel the error,
you have to add it back then to post the correct entry you have to add it on again.
5 C
£
Receipt
1 October 20X6 (£15,000  1/3) 5,000
30 December 20X6 15,000
4 April 20X7 18,000
1 July 20X7 18,000
1 October 20X7 (18,000  2/3) 12,000
Credit to statement of profit or loss 68,000
At the year end there is deferred income of £18,000 x 1/3 = £6,000.
6 A Statement of profit or loss = £15,000  12/18 = £10,000

Statement of financial position = £15,000  3/18 prepayment = £2,500
7 C Statement of profit or loss charge is 400 + 450 + 600 + 650 = £2,100. You are asked for
the statement of profit or loss charge for the reporting period and the bills exactly coincide
with the reporting period, so the opening prepayment (£60) and the amounts paid (£200 
12 = £2,400) are irrelevant.
8 A £600 + £100 + £130 = £830
9 C (6/12  20,000) + (6/12  22,000) = £21,000
10 B
£
Draft profit 23,800
Increase in accruals (80)
Prepayment 310
24,030

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11 B RENT RECEIVABLE
£ £
Arrears 8,100 Cash 72,000
Statement of profit or 57,600
loss (W)
Advances 6,300
72,000 72,000
WORKINGS
£
Statement of profit or loss
1 July 20X6 – 31 October 20X6 (54,000  4/12) 18,000
1 November 20X6 – 30 June 20X7 (54,000  8/12  110%) 39,600
57,600
12 B, E
£1,800
Statement of profit or loss = 12m  = £1,200
18
3
Prepayment =  £1,800 = £300
18
13 D SUBSCRIPTIONS RECEIVABLE
£ £
Accrued income b/d 1,620 Deferred income b/d 260
Statement of profit or loss 5,500 Cash at bank 7,100
Deferred income c/d 240
7,360 7,360
14 A The balance on the rent expense account at 31 December 20X6 is (£200,000  3/12) +
(£200,000  110%  9/12) = £215,000. This is a debit balance and therefore to transfer
the balance to the profit and loss ledger account, Dr Profit and loss ledger account
£215,000 and Cr Rent expense (A). Option (B) reverses the journal entry. Options (C)
and (D) ignore the 10% increase in rent.
15 C The insurance expense for the year ended 31 March 20X8 is £4,980, being the £1,980
prepayment plus £3,000 (£3,600  10/12). This is a debit balance on the insurance
expense account and therefore to transfer the balance to the profit and loss ledger
account, we must debit the profit and loss ledger account and credit the insurance
expense account with £4,980 (option C). Option D reverses the journal entry. Options (A)
and (B) incorrectly calculate the insurance expense.
16 A The £4,800 paid covers the period 1 October 20X4 to 30 September 20X5. As such,
3 months (July – September 20X5) have been prepaid. The prepayment is therefore
£4,800  3/12 = £1,200. The date on which the payment was made is not relevant.
17 B The quarterly rent received is £30,000/4 = £7,500. Rent is received on 1 January 20X6
for the period to 31 March 20X6, hence 2/3 months has been received in advance. This
should be removed from rental income (Dr) and recorded as deferred income (Cr).

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Chapter 10: Non-current assets and

depreciation
1 B The cost of the machine is £130,000. £100,000 is paid in cash and evidently a trade-in value of
£30,000 is given for the old machine. (The old asset's carrying amount is irrelevant.) After one
year, the carrying amount of the new machine is 90% of £130,000 = £117,000.
2 B
£
Cost (20,000 + 1,000 + 2,000) 23,000
Depreciation (20%  23,000) (4,600)
Carrying amount 18,400
3 C
£
Cost of asset 36,000
Accumulated depreciation (46 months  £400) (18,400)
Carrying amount at date of disposal 17,600
Proceeds on disposal (12,000)
Loss on disposal 5,600
4 A On disposal, accumulated depreciation needs to be removed (Dr), the loss on disposal is
recorded in the statement of profit or loss (Dr) and the cost of the asset required to be
adjusted (Cr £18,000 to remove the old van and Dr £4,000 to increase the amount
capitalised in respect of the new van).
DISPOSAL
£ £
Cash at bank account 18,000 Accumulated depreciation 12,200
Trade in allowance 4,000
SPL – loss on disposal 1,800
18,000 18,000
 8,000 –800 
5 A   = £1,440. This year 6/12  1,440 = £720.
 5 
6 D
£
Balance b/d 81,770
Less carrying amount of non-current asset sold (3,000 + 1,600) (4,600)
77,170
7 A The repairs and maintenance expense has been incorrectly capitalised and depreciated
over the six-month period from 30 June 20X2 to 31 December 20X2. The depreciation
expense needs to be reversed (increase profit) and the repairs and maintenance expense
included (decrease profit).
£
Draft profit 184,800
Repairs and maintenance expense (12,000)
Depreciation (£12,000/10 yrs  6/12) 600
173,400

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8 A
£
December addition – 12,000  20%  10/12 2,000
June disposal – 24,000  20%  8/12 3,200
Balance – (167,900 – 24,000)  20% 28,780
33,980
9 C £101,400 + £20,000 – (20,000  0.25) = £116,400

10 D Additional cost = £40,000
Remaining useful life = 7 years
Annual depreciation = £40,000/7 = £5,714
11 B £14,400
Depreciation for first two years = 2  (64,000/8) = £16,000
Depreciation in year 3 = (64,000 – 16,000)  30% = 14,400
12 C Annual depreciation before change in useful life = £63,000/7 = £9,000
Carrying amount at 1 January 20X9 = £63,000 – (9,000  4) = £27,000
Depreciation for year to 31 December 20X9 = £27,000/6* = £4,500
* The balance of the new useful life = 10 – 4 = 6 years
13 A Annual depreciation for first 4 years = (10,000-500)/10 = £950
Cumulative depreciation for first 4 years = 4  £950 = £3,800
Depreciation for year 5 = (10,000 – 3,800)/6 = £1,033
14 C
£ £
Trade-in proceeds (12,200 – 11,800) 400
Less Carrying amount 1 June 20X8
Cost 6,000
Less Depreciation 20X6/7 (@ 50%) (3,000)
3,000
Less Depreciation 20X7/8 (@ 50%) (1,500)
(1,500)
Loss on sale (1,100)
15 B DISPOSALS
£ £
Cash at bank (13,750 – 150) 13,600 Accumulated depreciation
(13,600  20%  2½) 6,800
SPL – profit on sale () 450 Part-exchange allowance 7,250
14,050 14,050
16 A Costs of adaptation – Include – brings asset to current location and condition.
Legal costs – Include – brings asset to current location and condition.
Monthly cleaning contract – Exclude – revenue (not capital) item.
Office furniture – Exclude – from cost of premises (though would be in another category
of non-current asset).

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17 C At beginning of 20X7:
£
Cost 11,000
Accumulated depreciation (11,000 –1,000)  2 (5,000)
4
Carrying amount 6,000
6,000
Depreciation charge for 20X7 = £1,500
6 –2
18 C As at 1 January 20X4 carrying amount was £104,400 and remaining useful life was
six years.
Depreciation charge for 20X4 should be £104,400/6 = £17,400.
19 D The purpose of depreciation is to spread the cost of the asset over its useful life.
20 C, D
The bookkeeper should have
Done?
Dr Motor vehicles
with cash price of new car Yes
Cr Cash
Dr Motor vehicles
with part exchange value Yes
Cr Disposals
Dr Disposals
with original cost of old car Yes
Cr Motor vehicles
Dr Accumulated depn
with acc depn on old car No
Cr Disposals
21 B Straight line = £24,000  10%  3
= £7,200
£
Reducing balance
Cost 24,000
Depreciation
Year 1 (24,000  10%) (2,400)
21,600
Year 2 (21,600  10%) (2,160)
19,440
Year 3 (19,440  10%) (1,944)
17,496
Total depreciation under reducing balance = £6,504

Therefore profits will increase by (7,200 – 6,504) = £696
22 C Its use will generate income for the business in the future.
23 B To spread the cost of the assets over their estimated useful lives.
24 C Accruals – non-current assets are depreciated over their useful lives.
25 B Dr Property, plant and equipment £22,000
Cr Plant repairs £22,000
Dr Depreciation expense £1,375

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Profit is understated by £22,000 – £1,375 = £20,625

26 A Dr Depreciation expense £6,000
Depreciation expense per year = (76,000 – 16,000)/10 = £6,000
27 D The staff training costs of £800 should be written off as an expense, and the costs of
preparing the factory of £2,200 should be capitalised. As such, non-current assets should
be increased by £1,400 and profit decreased by £1,400. There will also be additional
depreciation required as a result of the adjustment of £1,400  20% = £280.
The net increase in profit is therefore £1,400 – £280 = £1,120 and profit for the year is
calculated as £42,600 + £1,120 = £43,720
28 B The suspense account needs to be removed (dr), the loss on disposal charged to the
statement of profit or loss (dr), the accumulated depreciation (calculated below) and the
cost of the asset both need to be removed.
£
Equipment cost 70,000
Accumulated depreciation (β) (40,000)
Carrying amount at disposal 30,000
Proceeds on sale 25,000
Loss on disposal 5,000
29 B The carrying amount at 31 August 20X8 is calculated as £62,000 – (62,000  25%) =

£46,500. This is compared to the carrying amount after the impairment review of £35,000
to give a loss on impairment of £11,500 (B).

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statements
1 A £100,000 (400,000  25p)
2 B
SHARE CAPITAL
£m £m
Bal b/d 80
Share premium (bonus) 40
Bal c/d 160 Cash at bank (rights) 40
160 160
SHARE PREMIUM
£m £m
Share capital (bonus) 40 Bal b/d 40
Bal c/d 32 Cash at bank (rights) 32
72 72
3 B Share capital will be credited with the par value of the shares – the balance goes to share
premium.
4 B
£
Equity share capital
Opening balance 250,000
Rights issue 100,000  50p 50,000
Bonus issue 120,000  50p 60,000
360,000
Share premium
Opening balance 80,000
Rights issue 100,000  70p 70,000
Bonus issue 120,000  50p (60,000)
90,000
5 D
1 for 6 issue means 50,000 shares issued at premium of £1.
Balance on share premium becomes £50,000 + £50,000 = £100,000
6 D
£
Current year 30,000
Under provision in previous year 5,000
Income tax expense in statement of profit or loss 35,000
7 B
£
Current year 26,700
Over provision in previous year (21,200 – 19,500) (1,700)
Income tax in statement of profit or loss 25,000
8 B, C, E
Share capital is equity in the statement of financial position. Allowance for receivables is
shown as a deduction from receivables under current assets.

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9 D Depreciation matches the cost of an asset over the period the business benefits from its
use, inventory adjustments in cost of sales match the revenue from sale of goods to the
cost of buying that quantity of goods, and amortisation of development expenditure
matches the revenues from the developed product to the total cost of creating it.
10 B Irrecoverable debts written off (2) and depreciation charged (3) are both expenses in the
statement of profit or loss. Paying a long-term liability in full affects only the statement of
financial position (Dr Payables, Cr Cash at bank); a non-current asset sold at its carrying
amount also only affects the statement of financial position (Dr Cash at bank, Dr
Accumulated depreciation, Cr Non-current asset cost).
11 C SHARE PREMIUM
£ £
Share capital Cash at bank account
(500,000  50p) 250,000
((1,500,000 ÷ 25) @ 25p) 15,000
C/d 235,000
250,000 250,000
12 C WARRANTY PROVISION
£ £
Cash at bank 3,720 B/d 6,548
C/d 7,634 Warranty expense (bal. fig.) 4,806
11,354 11,354
13 D Mobiles Ltd should provide on the basis of the expected cost. The expected cost would
be calculated as (2.5%  100,000  £50) + (2.5%  100,000  £10) = £125,000 + £25,000
= £150,000.
14 C Doggard Ltd needs to reduce the provision by £3,800. A debit entry is required to reduce
the provision and the corresponding credit will be to the relevant expense account in the
statement of profit or loss.

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statements under IFRS
1 Papaya plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Other operating income ½
Investment income ½
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Intangible assets 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital 1
Preference shares ½
Retained earnings 1
Borrowings ½
Trade payables ½
Tax payable ½
Provisions ½
Preference dividend ½
16

£
Revenue 1,600,047
Cost of sales (W1) (963,351)
Gross profit 636,696
Other operating income (royalties) 39,045
Distribution costs (W1) (33,891)
Administrative expenses (W1) (156,256)
Investment income 11,000
Income tax expense (22,500)
Profit for the year 467,834

lOMoARcPSD|23610656
Statement of financial position as at 31 December 20X8

£
ASSETS
Non-current assets
Land and buildings (W2) 362,300
Plant and equipment (W2) 55,800
Intangible assets (20,500 – 8,500) 12,000
Current assets
Inventories 65,000
Trade receivables (161,349 – 270) 161,079
Prepayments (36,000  5/12) 15,000
Cash and cash equivalents (112,000 + 270) 112,270
Total assets 783,449

Equity
Ordinary share capital 110,000
Preference shares 50,000
Retained earnings (W3) 518,849
Borrowings 62,600
Current liabilities
Income tax payable 22,500
Provision 5,000
Accruals (preference dividend payable £50,000  5%) 2,500
Total equity and liabilities 783,449
WORKINGS
(1) Allocation of costs
Cost of Admin Dist
sales expenses costs
£ £ £
Opening inventories 58,045
Purchases 907,989
Administrative salaries 126,232
Salesmen's salaries 24,291
Factory wages 54,117
Rent expenses 6,002
Selling and distribution costs 9,600
Closing inventories (68,000 – (1,000  £3)) (65,000)
Depreciation
Buildings ((450,000 – 115,000)/50) 6,700
Plant (82,000/10) 8,200
Impairment of brand (20,500 – 12,000) 8,500
Provision 5,000
Prepayment of insurance (36,000  5/12) (15,000)
963,351 156,256 33,891

lOMoARcPSD|23610656
(2) PPE
Land Buildings P&E Total
£ £ £
Cost 115,000 335,000 82,000
Accumulated depreciation (81,000) (18,000)
Depreciation charge for year ( 6,700) (8,200)
Carrying amount 115,000 247,300 55,800 418,100
(3) RETAINED EARNINGS

£ £
Cash at bank (12,500 + 2,500) 15,000 Bal b/d 76,015
Bal c/d 518,849 Profit for year 467,834
543,849 543,849

lOMoARcPSD|23610656
2 Sharon plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Finance costs ½
Plant and machinery 1
Motor vehicles 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents 1
Ordinary share capital ½
Retained earnings 1
Borrowings ½
Trade payables ½
Accruals ½
Bank overdraft ½
Deferred income ½
Tax payable ½
16
Statement of profit or loss for the year ended 31 January 20X5

£
Revenue (1,520 – 150) 1,370,000
Distribution costs (328,500)
Administrative expenses (422,300)
Finance costs (200,000  5%  6/12) (5,000)
Statement of financial position as at 31 January 20X5
£ £
ASSETS
Non-current assets
Land and buildings (W2) 1,376,400
Plant and machinery (W2) 425,000
Motor vehicles (W2) 128,000
1,929,400
Current assets
Inventories 86,300
Trade receivables (703,700 – 56,000) 647,700
Prepayments 279,300
Cash and cash equivalents 249,000
1,262,300
Total assets 3,191,700

lOMoARcPSD|23610656
£ £
Equity
Retained earnings (W4) 1,255,700
2,155,700
Borrowings 200,000
Current liabilities
Accruals (150,000 + 5,000 + 6,000 interest and rent 161,000
payable)
Deferred income 150,000
836,000
Total equity and liabilities 3,191,700
WORKINGS
Cost of Admin Dist
sales expenses costs
£ £ £
Per TB 465,000 340,000 220,000
Depreciation
Land and buildings 13,800 13,800
Plant and machinery 52,000 6,500 6,500
Motor vehicles 32,000
Development expenses written off 70,000
Irrecoverable debts 56,000
Rent accrual 6,000
Closing inventories (86,300)
519,500 422,300 328,500
(2) Property, plant and equipment
Land and Plant and Motor
buildings machinery vehicles Total
£ £ £ £
Per TB
Value 1,500,000 650,000 250,000
Depreciation b/f (96,000) (160,000) (90,000)
Depreciation for year
(W3) (27,600)
(650k  10%) (65,000)
((250k – 90k)  20%) (32,000)
Carrying amount 1,376,400 425,000 128,000 1,929,400

(3) Buildings
Charge for year = carrying amount/useful life
Carrying amount
1,500,000 – 300,000 – 96,000 = 1,104,000
Revised useful life = 40 years
1,104,000
Charge for year = = 27,600
40

lOMoARcPSD|23610656

£ £
Dividends 124,000 Bal b/d 1,320,000
Bal c/d 1,255,700 Profit for year 59,700
1,379,700 1,379,700
Note: We are not told of any right of set-off between the bank balance and the overdraft, so it
would be wrong to offset them in the statement of financial position and show only a net figure.

lOMoARcPSD|23610656
3 Pineapple plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Finance costs ½
Plant and machinery 1
Office furniture 1
Intangible assets 1
Inventories ½
Trade receivables 1
Share premium ½
Retained earnings 1
Borrowings ½
Dividends ½
Trade payables ½
Interest (preference) ½
Provisions ½
Deferred income ½
Tax payable ½
16

£
Revenue (3,500 – 50) 3,450,000
Cost of sales (W1) (2,459,500)
Finance cost (4,800)
Statement of financial position as at 31 December 20X5
£
ASSETS
Non-current assets
Office furniture (W2) 300
3,026,300
Current assets
Inventories 65,200
Prepayments 60,000
336,200

lOMoARcPSD|23610656
£
Equity
Retained earnings 2,112,300
2,812,300
Borrowings) 120,000
Current liabilities
Accruals (preference dividend payable
£120,000  4%) 4,800
Provisions 100,000
550,200
WORKINGS
Cost of Admin
sales expenses
£ £
Opening inventories (45,600 + 13,400) 59,000
Raw materials and consumables 1,580,000
Salaries (per TB) 805,500 445,000
Depreciation
Land and buildings 51,200 12,800
Plant and machinery 29,000
Office furniture 3,200
Amortisation of intangible asset (15,000 ÷ 20 yrs) 750
Impairment loss (15,000 – 750 – 14,000) 250
Closing inventories (50,200 + 15,000) (65,200)
Prepayment (Insurance) (60,000)
Irrecoverable debt 30,000
Provision 100,000
2,459,500 532,000
Plant and Office
Land Buildings machinery furniture Total
£ £ £ £ £
Value 2,000,000 1,600,000 520,000 32,000
Depreciation b/f (640,000) (375,000) (28,500)
Depreciation for year (64,000) (29,000) (3,200)
Carrying amount 2,000,000 896,000 116,000 300 3,012,300

(3) SHARE CAPITAL
£ £
Bal b/d 500,000
Share premium (bonus issue) 100,000
Bal c/d 600,000
600,000 600,000
(4) SHARE PREMIUM
£ £

lOMoARcPSD|23610656
Share capital (bonus issue) 100,000 Bal b/d 200,000

Bal c/d 100,000
200,000 200,000
£ £
Dividends 60,000 Bal b/d 1,968,600
Bal c/d 2,232,300 Profit for year 323,700
2,292,300 2,292,300

lOMoARcPSD|23610656
4 Cranberry plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Finance costs 1
Inventories ½
Trade receivables 1
Prepayments 1
Share premium 1
Retained earnings 1
Borrowings ½
Trade payables 1
Provisions ½
Tax payable ½
16

£
Revenue 2,180,000
Gross Profit 1,189,700
Profit/(loss) from operations 210,000
Finance costs (W3) (12,000)
Profit/(loss) before tax 198,000
Profit/(loss) for year 170,000
£
ASSETS
Non-current assets
Current assets
Inventories 105,000
Prepayments (10,000 + 12,000) 22,000
Cash and cash equivalents (64,000 – 1,000) 63,000

Equity

lOMoARcPSD|23610656
Borrowings 400,000
Current liabilities
Trade payables (54,000 – 1,000) 53,000
Provisions 10,000
WORKINGS
Administrativ Distribution Cost
e
expenses costs of sales
£ £ £
Per TB 543,000 395,000 935,000
Depreciation (W2; 99,000 2:1:7) 19,800 9,900 69,300
Warranty provision 10,000
Irrecoverable debt 12,000
Insurance prepayment (24,000  5/12) (10,000)
574,800 404,900 990,300

Plant and
Land Buildings equipment Total
£ £ £ £
Cost or valuation 150,000 300,000 460,000

Accumulated dep’n – (208,000) (246,000)
Carrying amount per TB 150,000 92,000 214,000
Depreciation charge – (30,000) (69,000) (99,000)
Carrying amount 31 December 20X8 150,000 62,000 145,000 357,000
(3) Finance costs
£
Current period interest expense (6 months) 12,000
Prepaid interest (6 months) 12,000
Loan interest paid (6%  400,000) 24,000
(4) Retained earnings

£
Opening retained earnings 9,000
Profit in year (from statement of profit or loss) 170,000
Dividends paid (35,000)
Closing retained earnings 144,000
(5) SHARE CAPITAL
£ £
Bal b/d 180,000
Share premium (bonus issue) 18,000
Bal c/d 198,000
198,000 198,000
(6) SHARE PREMIUM
£ £
Share capital (bonus issue) 18,000 Bal b/d 60,000
Bal c/d 42,000

lOMoARcPSD|23610656
60,000 60,000

lOMoARcPSD|23610656
5 Hexagon plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Other operating income 1
Office equipment 1
Goodwill 1
Inventories ½
Trade receivables 1
Prepayments ½
Share premium ½
Retained earnings 1
Trade payables 1
Accruals ½
Provisions ½
Tax payable ½
16
Statement of profit or loss for the year ended 30 June 20X3

£
Revenue 5,190,000
Gross profit 2,221,400
Administrative expenses (W1) (1,185,000)
Other operating expenses(W2) (138,100)
Finance costs –

lOMoARcPSD|23610656
Statement of financial position at 30 June 20X3

£
ASSETS
Non-current assets
Office equipment (W3) 80,250
Goodwill (120,000  0.8) 96,000
Current assets
Inventories 427,000
Trade receivables (W2) 472,400
Prepayments (W1) 37,500

Equity
Ordinary share capital (W4) 1,200,000
Preference share capital 500,000
Share premium (W4) –
Retained earnings (W4) 1,283,350
Borrowings –
Current liabilities
Borrowings –
Trade payables (281,600 + 900) 282,500
Accruals (W1) 6,200
Provisions –
WORKINGS
Administrative Cost
expenses of sales
£ £
Per TB 1,082,000 2,854,500
Purchase invoice adjustment – 900
Depreciation (W3) 79,000 153,500
Impairment of goodwill 24,000 –
Electricity accrual (18,600 / 3) – 6,200
Prepayment for machine hire (90,000  5/12) – (37,500)
Closing inventory – (427,000)
1,185,000 2,968,600

lOMoARcPSD|23610656
(2) Irrecoverable debts and trade receivables

Other
operating Trade
expenses receivables
£ £
Per TB 123,500 487,000
Irrecoverable debt written off 14,600 (14,600)
138,100 472,400
(3) Non-current assets

Plant and Office
Land Buildings machinery equipment Total
£ £ £ £ £
Cost or valuation 500,000 2,040,000 1,000,000 214,000
Accumulated dep’n – (635,000) (360,000) (80,250)
Carrying amount per TB 500,000 1,405,000 640,000 133,750
Carrying amount
30 June 20X3 500,000 1,354,000 512,000 80,250 2,446,250
Depreciation charged to administrative expenses = (51,000 / 2) + 53,500 = £79,000
Depreciation charged to cost of sales = (51,000 / 2) + 128,000 = £153,500
(4) Equity
Ordinary Share Retained Preference
share capital premium earnings share
capital
£ £ £ £
Opening balance 1,000,000 100,000 825,550 500,000
Profit in year – – 637,800 –
Bonus issue 200,000 (100,000) (100,000) –
Preference dividends – – (30,000) –
Equity dividends – – (50,000) –
Closing balance 1,200,000 0 1,283,350 500,000

lOMoARcPSD|23610656
6 Goldberg plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Finance costs 1
Motor vehicles ½
Inventories ½
Trade receivables 1
Prepayments ½
Share premium ½
Retained earnings 1
Borrowings (long term) ½
Trade payables ½
Accruals ½
Provisions ½
Tax payable ½
16

£
Revenue 2,284,900
Other operating expenses (W2) (31,300)

lOMoARcPSD|23610656

£
ASSETS
Non-current assets
Current assets
Inventories (W5) 78,800
Prepayments –

Equity
Preference share capital –
Borrowings 150,000
Current liabilities
Borrowings –
Accruals (8,000 + 3,750) 11,750
Provisions 20,000
WORKINGS
Administrativ Distribution Cost
e expenses costs of sales
£ £ £
Per TB 437,000 172,100 1,052,100
Depreciation (W4) 11,000 12,200 44,800

Rent accrual (2/12  48,000) 8,000 – –
Provision for legal costs 20,000 – –
Closing inventory (W5) – – (78,800)
476,000 184,300 1,089,100
Other
operating Trade
£ £
Per TB 29,000 226,900
31,300 224,600

lOMoARcPSD|23610656
(3) Finance costs

£
Current period interest expense (6 months) 4,500
Accrued interest (5 months) 3,750
Loan interest relating to the year (6%  150,000  11/12) 8,250

Plant and Motor
Land Buildings equipment vehicles Total
£ £ £ £ £
Cost or valuation 250,000 550,000 224,000 48,800
Carrying amount per TB 250,000 517,000 179,200 24,400
Carrying amount 31 Dec 20X1 250,000 506,000 134,400 12,200 902,600

(5) Inventories
Product Product Product
Z1 Z2 Z3 Total
Cost per unit (£) 25 15 18

Number of units 1,100 2,000 1,200
Valuation at cost (£) 27,500 30,000 21,600
Adjustment to reflect NRV* – – (300)
Carrying amount 31 Dec 20X1 (£) 27,500 30,000 21,300 78,800
* (18 – 15)  100 = £300

£

lOMoARcPSD|23610656
7 MDFH plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Distribution costs ½
Other operating expenses 1
Finance costs 1
Plant and equipment ½
Intangible assets ½
Inventories ½
Trade receivables 1
Prepayments ½
Share premium ½
Retained earnings 1
Borrowings ½
Borrowings ½
Bank overdraft ½
Trade payables ½
Accruals ½
Deferred income ½
Tax payable ½
16

£
Revenue (1,320,000 – 3,000 – 15,000) 1,302,000
Profit/(loss) from operations (72,600)
Profit/(loss) before tax (90,500)
Income tax expense –
Profit/(loss) for year (90,500)
Statement of financial position at 30 September 20X5

£
ASSETS
Non-current assets
Intangible assets (W4) –
Current assets
Trade and other receivables (W2) 117,300
Prepayments –

lOMoARcPSD|23610656
£
ASSETS
Cash and cash equivalents –

Equity
Preference share capital –
Borrowings 150,000
Current liabilities
Borrowings 50,000
Accruals (3,750 + 400) 4,150
Income tax payable –
WORKINGS
Administrativ Distributio Cost
e expenses n costs of sales
£ £ £
Opening inventories – – 124,000
Per TB 234,000 78,200 1,026,300
Depreciation (W4) 3,000 – –
Loss on disposal (20,000 – 15,000) 5,000 – –
Telephone accrual (2/3  600) 400 – –
Development costs 11,000 – –
253,400 78,200 1,032,800

lOMoARcPSD|23610656
(2) Other operating expenses and trade and other receivables

Other
operating Trade / other
£ £
Per TB 9,500 109,000
Allowance for receivables per TB – (3,000)
9,500 106,000
Invoice for sale of equipment not posted – 15,000
Write-off of irrecoverable debt 1,700 (1,700)
Cheque received from customer previously written off (3,000)
Increase in allowance for receivables 2,000 (2,000)
10,200 117,300
(3) Finance costs
Loan Other Total

£ £ £
Interest per TB 11,250 2,900 14,150
Accrued interest (3 months) 3,750 – 3,750
Loan interest relating to the year 15,000 2,900 17,900
(7.5%  200,000)
Plant and Development
Land Buildings equipment costs
£ £ £ £
Accumulated dep’n – (30,000) (101,625) –
Written off to statement of
profit or loss (11,000)
Cost eliminated on disposal* (40,000)
Dep’n eliminated on disposal 20,000
Depreciation charge** – (3,000) – –
Carrying amount 30 Sept 20X5 75,000 117,000 149,375 –
* Disposal results in a loss on disposal of £5,000 (carrying amount of £20,000 less £15,000
proceeds).
** Depreciation on plant and equipment has already been charged for the year ended
30 Sept X5.
(5) Inventories
£
Inventory value 118,000
Adjust for 1,000 kg not included at cost (1,000  (£2.00 – £1.50)) (500)
Closing inventory at cost 117,500
£
Loss in year (from statement of profit or loss) (90,500)

lOMoARcPSD|23610656
8 Billabong plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Other operating expenses 1
Finance costs 1
Motor vehicles 1
Inventories ½
Trade receivables 1
Prepayments ½
Share premium ½
Retained earnings 1
Borrowings ½
Trade payables ½
Accruals ½
Provisions ½
Tax payable ½
16

£
Revenue 1,380,000
Gross Profit 547,000
Profit/(loss) from operations (484,883)
Profit/(loss) before tax (494,883)
Profit/(loss) for year (519,883)

lOMoARcPSD|23610656

£
ASSETS
Non-current assets
Current assets
Prepayments 4,167

Equity
Borrowings 250,000
Current liabilities
Borrowings –
Accruals (14,700 + 5,000) 19,700
Provisions 250,000
WORKINGS
Administrative Distribution Cost
£ £ £
Per TB 567,000 171,250 823,500
Depreciation (W4) 10,000 12,500 19,000
Rent prepayment (1/12  50,000) (4,167) – –
Electricity accrual (7/6  12,600) 14,700 – –
Provision for legal costs 250,000 – –
837,533 183,750 833,000
Other
operating Trade
£ £
Per TB 7,800 280,000
10,600 277,200
(3) Finance costs
£
Loan interest paid per TB 5,000
Loan interest relating to the year (4%  250,000) 10,000

Plant and Motor
Land Buildings equipment vehicles Total

lOMoARcPSD|23610656
£ £ £ £ £
Carrying amount 31 Dec 20X1 250,000 440,000 76,000 12,500 778,500
(5) Inventories
Cost NRV Lower
Damaged goods 5,000 4,500* 4,500
£
Closing inventory 75,000
Adjustment to reflect NRV (500)
Carrying amount 31 Dec 20X1 74,500
* (5,500 – 1,000) = £4,500

£
Loss in year (from statement of profit or loss) (519,883)

lOMoARcPSD|23610656
9 ABCD plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Finance costs ½
Intangible assets ½
Inventories ½
Trade receivables 1
Prepayments ½
Share premium ½
Retained earnings 1
Borrowings (long term) ½
Bank overdraft ½
Trade payables 1
Accruals ½
Tax payable ½
16

£
Revenue (3,600,000 – 70,000) 3,530,000

lOMoARcPSD|23610656

£
ASSETS
Non-current assets
Intangible assets (W4) 11,000
Current assets
Inventories 150,000
Trade and other receivables (W2) 597,550
Prepayments –
Cash and cash equivalents –

Equity
Ordinary share capital 1,300,000
10% loan notes 100,000
Current liabilities
Borrowings –
Accruals (10,000 + 30,000) 40,000
WORKINGS
Administrative Distribution Cost
£ £ £
Per TB 160,000 – 2,030,000
Depreciation (W4):
Plant 44,000
Buildings (74,000) 29,600 22,200 22,200
Wages (360,000) 126,000 90,000 144,000
Energy expenses (210,000) 84,000 42,000 84,000
Directors’ remuneration 140,000 – –
Energy accrual (30,000) 12,000 6,000 12,000
Closing inventory – – (150,000)
551,600 160,200 2,506,200
(2) Other operating expenses and trade and other receivables

Other
operating Trade/other
£ £
Per TB – 629,000
Allowance for receivables per TB – (20,000)
– 609,000
Adjustment to allowance in receivables* 11,450 (11,450)
11,450 597,550
*Required allowance = 629,000  5% = 31,450. Therefore increase required = 11,450

(3) Finance costs

lOMoARcPSD|23610656
Total
£
Interest per TB –
Loan interest relating to the year 10,000
(10%  100,000)
Plant and Development
Land Buildings equipment costs
£ £ £ £
Cost or valuation 470,000 1,480,000 440,000 11,000
Accumulated dep’n – (120,000) (220,000) –
Carrying amount per TB 470,000 1,360,000 220,000 11,000
Depreciation charge – (74,000) (44,000) –
Carrying amount 31 Oct 20X7 470,000 1,286,000 176,000 11,000

£
Dividend paid (60,000)

lOMoARcPSD|23610656
10 Earle plc
Marking guide
Marks
Gross profit ½
Administrative expenses 1½
Finance costs 1
Inventories ½
Trade receivables 1
Prepayments ½
Share premium 1
Retained earnings 1½
Borrowings ½
Trade payables 1
Accruals 1
Tax payable ½
16
Earle plc
£’000
Gross profit 11,728
Finance costs (8%  15,000) (900)
Income tax expense (728)
Profit/(loss) for the year 1,308

ASSETS £’000
Non-current assets
Current assets
Inventories 5,909
Prepayments 8
Cash and cash equivalents (7,331 + (96 – 69)) 7,358
Total assets 41,176

lOMoARcPSD|23610656
£’000
Equity
Ordinary share capital (W5) 18,000
Share premium (W5) 750
Borrowings 11,250
Current liabilities
Trade payables (2,099 + (96 – 69)) 2,126
Accruals (W4) 788
Income tax payable 728
WORKINGS
Administrative Distribution
expenses costs
£’000 £’000
Per TB 3,592 4,082
Advertising accrual (£33,000  1/3) – 11
Depreciation ((300 + 765) 40%, 60% (W3)) 426 639
Rent prepayment (£48,000  2/12 ) – (8)
Impairment loss 15 –
Irrecoverable debt 35 –
4,068 4,724
(2) Property, Pant and Equipment
Plant and
Land Building equipment Total
s
£’000 £’000 £’000 £’000
Cost at 1 Nov 20X7 11,364 15,000 9,375
Accumulated depreciation at – (5,250) (5,550)
1 Nov 20X7
Charge for year (26,364 – 11,364  2%) – (300) –
Charge for year (9,375 – 5,550  20%) – – (765)
Impairment – – (15)
Carrying amount 11,364 9,450 3,045 23,859

£’000 £’000
Cash at bank (Dividends paid) 1,125 B/d 7,351
C/d (bal fig) 7,534 Profit or loss account 1,308
8,659 8,659
(4) Accruals
£’000
Accruals (per TB) 327
Additional distribution costs accrual for advertising (W1) 11
Additional interest accrual 450
788
(5) SHARE CAPITAL

£’000 £’000
B/d 15,000
C/d 18,000 Share premium (bonus issue) 3,000
18,000 18,000

lOMoARcPSD|23610656
SHARE PREMIUM
£’000 £’000
Share capital (bonus issue) 3,000 B/d 3,750
C/d 750
3,750 3,750

lOMoARcPSD|23610656
11 Rosemary plc
Marking guide
Marks
Gross profit ½
Finance costs ½
Inventories ½
Trade receivables 1
Prepayments ½
Share premium 1½
Retained earnings 1½
Borrowings ½
Trade payables 1
Accruals 1½
Tax payable ½
16

£’000
Gross profit 10,429
Finance costs (900)
Profit/(loss) for the year 1,823
Statement of financial position at 31 March 20X2

£’000
ASSETS
Non-current assets
Land and buildings (20,000 – 11,345) 8,655
Current assets
Inventories 5,084
Prepayments (W1) 154
Cash and cash equivalents ((3,223 – (32 – 23)) 3,214
Total assets 30,691
Equity
Ordinary share capital (W3) 6,000
Share premium (W3) 250
Total equity 12,667

lOMoARcPSD|23610656
£’000
Borrowings 15,000
Current liabilities
Trade payables (1,684 – (32 - 23)) 1,675
Accruals (161 + 95 (W1)) 256
WORKINGS
Administrative Distribution
expenses costs
£’000 £’000
Per TB 2,794 2,321
Accruals (£142,500  2/3) – 95
Prepayment (£205,333  ¾) (154) –
Irrecoverable debt 119 –
Impairment loss 1,438 –
4,197 2,416
(2) Plant and equipment
£’000
Plant and equipment: Cost 25,975
Plant and equipment: Accumulated depreciation (13,500)
Impairment loss (1,438)
11,037
(3)
SHARE CAPITAL
£’000 £’000
B/d 5,000
C/d (bal fig) 6,000 Share premium (bonus issue) 1,000
6,000 6,000
SHARE PREMIUM
£’000 £’000
Share capital (bonus issue) 1,000 B/d 1,250
C/d (bal fig) 250
1,250 1,250
(4)
RETAINED EARNINGS
£’000 £’000
Cash at bank (dividends paid) 1,150 B/d 5,744
C/d (bal fig) 6,417 Profit or loss account 1,823
7,567 7,567

lOMoARcPSD|23610656
Chapter 13: Statement of cash flows
1 Roxy plc
Marking guide
Marks
PBT ½
Finance costs ½
Depreciation charge 1½
Gain/loss on sale of PPE 1½
Movement in inventories 1
Movement in trade receivables 1
Movement in trade payables 1½
Movement in provision ½
Tax paid 1½
Interest paid 1½
Purchase of PPE 1½
Proceeds from sales of PPE 1½
Movement in borrowings 1
Opening and closing cash 1
16

£
Finance costs 1,000
Depreciation (W2) 4,000
Gain / loss on sale of property, plant and equipment (W3) (100)
Movement in inventories (16,000 – 11,000) (5,000)
Movement in trade receivables (9,950 – 2,700) (7,250)
Movement in trade payables ((11,000 – (8,000 – 2,500)) (5,500)
Movement in provisions 1,750
Cash generated from operations 4,050
Income tax paid (W4) (1,200)
Interest paid (W5) (500)
Net cash from / used in operating activities (150)

Purchase of property, plant and equipment (W1) (8,500)
Proceeds from sale of property, plant and equipment (W3) 350
Net cash from / used in investing activities (8,150)

Movement in borrowings (10,000 – 6,000) (4,000)
Net cash from / used in financing activities (4,000)
Net increase / decrease in cash and cash equivalents (12,300)

Cash and cash equivalents at beginning of year 1,300
Cash and cash equivalents at end of year (11,000)

lOMoARcPSD|23610656
WORKINGS
(1) PROPERTY, PLANT AND EQUIPMENT – COST

£ £
B/d (5,000 + 12,000) 17,000
Purchases (bal fig) 8,500
Trade payables 2,500 Disposals 1,000
C/d (5,000 + 22,000) 27,000
28,000 28,000
(2) PROPERTY, PLANT AND EQUIPMENT – ACCUMULATED DEPRECIATION
£ £
B/d (1,000 + 2,000) 3,000
Disposal 750 Depreciation charge (bal fig) 4,000
C/d (4,000 + 2,250) 6,250
7,000 7,000
(3) PPE – DISPOSALS

£ £
Cost 1,000 Accumulated depreciation 750
Profit on sale (bal fig) 100 Cash 350
1,100 1,100
(4) INCOME TAX PAID

£ £
Cash (bal fig) 1,200 B/d 1,000
C/d 1,800 Statement of profit or loss 2,000
3,000 3,000
(5) INTEREST PAID

£ £
Cash (bal fig) 500 B/d 200
C/d 700 Statement of profit or loss 1,000
1,200 1,200

£ £
Bonus issue 500 B/d 3,800
C/d 13,950 Profit for the year 10,650
14,450 14,450
(7) SHARE CAPITAL

£ £
B/d 3,000
C/d 3,500 Bonus issue 500
3,500 3,500

lOMoARcPSD|23610656
2 Middlesex plc
Marking guide
Marks
PBT 1
Finance costs 1
Depreciation 1
Gain/loss on disposal of PPE 1
Movement in trade payables 1
Movement in accruals 1
Movement in provisions 1
Interest paid 1
Income tax paid 1
Purchase of PPE 1
Purchase of investments ½
Proceeds from sales of PPE 1
Proceeds from issue of ordinary shares 1
Opening and closing cash ½
16

£
Profit before tax (W7) 46,000
Finance costs (50,000  12%) 6,000
Gain / loss on sales of property, plant and equipment
(18,000 – 20,000) (2,000)
Movement in trade receivables ((27,000 – (29,000 – 10,000)) 8,000
Movement in trade payables (32,000 – 5,000 – 19,000) 8,000
Movement in accruals ((19,000 – 2,750) – (19,000 – 2,500)) 250
Movement in provisions (0 – 2,000) (2,000)
Interest paid (W5) (6,250)
Net cash from / used in operating activities 77,000

Purchase of investments (50,000)
Proceeds from sale of property, plant and equipment (W3) 10,000

Proceeds from issue of shares (W6) 45,000
Movement in borrowings (10,000)
Net cash from / used in financing activities 30,000
Net increase /decrease in cash and cash equivalents 10,000

Cash and cash equivalents at beginning of period 10,000
Cash and cash equivalents at end of period 20,000

lOMoARcPSD|23610656
WORKINGS
(1) PROPERTY, PLANT & EQUIPMENT – COST

£ £
B/d 299,000
Additions: Cash (bal fig) 57,000 PPE – disposals 40,000
Additions: trade payables 5,000 C/d 321,000
361,000 361,000
(2) PROPERTY, PLANT & EQUIPMENT – ACCUMULATED DEPRECIATION

£ £
B/d 69,000
Disposals (40,000 – 18,000) 22,000 Statement of profit or loss
(bal fig) 23,000
C/d 70,000
92,000 92,000

£ £
Cost 40,000 Trade receivables 10,000
Profit on sale (bal fig) 2,000 Cash 10,000
42,000 42,000
(4) INCOME TAX PAID
£ £
10,000 10,000
(5) INTEREST PAID

£ £
8,750 8,750
(6) SHARE CAPITAL AND SHARE PREMIUM

£ £
B/d (50,000 + 10,000) 60,000
Bonus issue (50,000 ÷ 10) 5,000
C/d (95,000 + 15,000) 110,000 Cash (bal fig) 45,000
110,000 110,000
£ £
Bonus issue (W4) 5,000 B/d 115,000
Dividends 5,000 Statement of profit or loss (bal fig) 46,000
Income tax 7,000
C/d 144,000
154,000 154,000

lOMoARcPSD|23610656
3 Emily plc
Marking guide
Marks
Profit before tax ½

Investment income ½
Finance costs ½
Depreciation 1
Gain/Loss on disposal of PPE 1
Gain/Loss on disposal of intangible assets (investments) 1
Income tax paid 1
Interest paid 1
Purchase of PPE 1
Purchase of intangible assets (investments) 1
Proceeds from sales of intangible assets (investments) ½
Interest received ½
Proceeds from issue of ordinary shares 1
Dividends paid ½
Borrowings ½
Maximum 16
Emily plc
Statement of cash flows for the year ended 31 December 20X7
£’000
Investment income (25)
Finance costs 75
Depreciation (W2) 90
Gain / loss on sales of property, plant and equipment (45 – 32) 13
Gain / loss on sales of investments (25 – 30) (5)
Movement in inventories (150 – 102) (48)
Movement in trade receivables ((390 – 15) – 315) (60)
Movement in trade payables (227 – 199) 28
Cash generated from operations 368
Income tax paid (110 + 140 – 120) (130)
Net cash from / used in operating activities 160
Purchase of property, plant and equipment (W1) (201)
Purchase of intangible assets (200 – 250) (50)
Proceeds from sale of property, plant and equipment (W3) 17
Proceeds from sale of investments 30
Interest received 25
Net cash from / used in investing activities (179)
Proceeds from issue of shares (50,000  1.20) 60
Dividends paid (100)
Net cash from / used in financing activities 80

lOMoARcPSD|23610656
£’000
Net increase /decrease in cash and cash equivalents 61

Cash and cash equivalents at beginning of period (W5) (79)
Cash and cash equivalents at end of period (W5) (18)
WORKINGS
(1) PPE – COST OR VALUATION
£’000 £’000
B/fwd 504
Purchases (bal fig) 201 Disposals 85
C/fwd 620
705 705
(2) PPE – ACCUMULATED DEPRECIATION
£’000 £’000
Disposals (85 – 45) 40 B/d 290
C/d 340 Depreciation charge (bal fig) 90
380 380
£’000 £’000
Accumulated depreciation 40
Cost 85 Loss on disposal (bal fig) 13
Trade receivables 15
Cash 17
85 85
(4) INTEREST PAID
£ £
Cash (bal fig) 78 B/d 18
C/d 15 Statement of profit or loss 75
93 93
(5) Cash and cash equivalents

20X7 20X6 Change in year
£’000 £’000 £’000
Cash in hand 2 1 1
Short term investments 50 – 50
Bank overdraft (70) (80) 10
(18) (79) 61

lOMoARcPSD|23610656
4 Hatchback Motors plc

Marking guide
Marks
PBT ½
Finance cost ½
Depreciation charge 1½
Change in inventories 1
Change in receivables 1
Change in payables 1
Change in accruals 1½
Income tax paid 1
Interest paid 1½
Purchase of PPE 1½
Purchase of investments ½
Proceeds from issue of ordinary shares 1½
Dividends paid 1½
16
Statement of cash flows for the year ended 30 April 20X7

£’000
Finance cost 130
Depreciation (W1) 880
Movement in inventories (16,487 – 15,892) (595)
Movement in trade receivables (12,347 – 8,104) (4,243)
Movement in trade payables ((2,771 – 15) – 2,632) 124
Movement in accruals ((1,235 – 30) – (1,200 – 25)) (30)
Net cash from / used in operating activities 459
Purchase of property, plant and equipment (1,350 (W1) + 520 (W2)) (1,870)
Purchase of investments (7,100)
Proceeds from issue of shares (W5) 10,500
Dividends paid (W6) (850)
Net cash from / used in financing activities 8,650
Net increase / (decrease) in cash and cash equivalents 139

Cash and cash equivalents at beginning of year 724
Cash and cash equivalents at end of year 863

lOMoARcPSD|23610656
WORKINGS
(1) FIXTURES AND FITTINGS
£’000 £’000
B/d 5,361 Depreciation charge (bal fig) 880
Additions 1,350
Trade payables 15 C/d 5,846
6,726 6,726
(2) LAND
£’000 £’000
B/d 19,780
Additions (bal fig) 520 C/d 20,300
20,300 20,300
(3) INCOME TAX PAID
£’000 £’000
B/d 1,238
Cash paid (bal fig) 1,076 Statement of profit or loss 2,634
C/d 2,796
3,872 3,872
(4) INTEREST PAID
£’000 £’000
B/d 30
Cash paid (bal fig) 135 Statement of profit or loss 130
C/d 25
160 160
(5) SHARE CAPITAL AND PREMIUM
£’000 £’000
B/d (10,000,000 + 5,000,000) 15,000
C/d (13,000,000 + 12,500,000) 25,500 Cash (bal fig) 10,500
25,500 25,500

£’000 £’000
Dividends paid (bal fig) 850 B/d 22,856
C/d 24,776 Profit for period 2,770
25,626 25,626

lOMoARcPSD|23610656
5 Larkfield plc
Marking guide
Marks
PBT ½
Finance costs ½
Depreciation charge ½
Amortisation charge 1½
Gain/loss on sale of PPE ½
Movement in trade payables 1½
Tax paid 1
Interest paid 1
Purchase of PPE 1½
Purchase of intangibles ½
Proceeds from issue of shares 1½
Opening and closing cash and equivalents ½
Total 16
Statement of cash flows for the year ended 31 March 20X4

£
Finance costs 85,000
Depreciation 245,000
Amortisation of intangible assets (W1) 15,000
Gain/loss on sales of property, plant and equipment 90,000
Movement in trade receivables (300,000 – (250,000 – 35,000)) 85,000
Movement in trade payables (261,000 – 95,000 – 150,000) 16,000
Movement in accruals ((97,000 – 16,000) – (56,000 – 25,000)) 50,000
Tax paid (W2) (153,000)
Net cash from/used in operating activities 734,000

Purchase of intangible assets (125,000)
Proceeds from sale of property, plant and equipment (540,000 – 90,000) 415,000
Net cash from/used in investing activities (555,000)

Proceeds from issue of shares (W5) (65,000 + 135,000) 200,000
Movement in borrowings (1,000,000 – 830,000) (170,000)
Net cash from/used in financing activities 30,000
Net increase/decrease in cash and cash equivalents 209,000

Cash and cash equivalents at end of year 331,000
WORKINGS
(1) INTANGIBLE ASSETS – CARRYING AMOUNT

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£ £
B/d 55,000 Amortisation (bal fig) 15,000
Purchases 125,000 C/d 165,000
180,000 180,000
(2) INCOME TAX PAID
£ £
Cash (bal fig) 153,000 B/d 230,000
398,000 398,000
(3) INTEREST
£ £
Cash (bal fig) 94,000 B/d 25,000
110,000 110,000
(4) PPE – CARRYING AMOUNT
£ £
B/d 3,400,000 Disposals 505,000
Purchases (bal fig) 845,000 Trade receivables 35,000
Trade payables 95,000 Depreciation 245,000
C/d 3,555,000
4,340,000 4,340,000
(5) SHARE CAPITAL
£ £
B/d 850,000
Bonus element 85,000
C/d 1,000,000 Cash (bal fig) 65,000
1,000,000 1,000,000
SHARE PREMIUM
£ £
B/d 350,000
Share capital (bonus element) 85,000 Cash (bal fig) 135,000
C/d 400,000 0
485,000 485,000

lOMoARcPSD|23610656
6 Rose plc
Marking guide
Marks
PBT ½
Finance costs ½
Investment income 1
Depreciation charge 1
Gain/loss on sale of PPE 1
Tax paid 1
Interest paid 1
Purchase of PPE 1
Interest received ½
Proceeds from issue of shares 1
Dividends paid 1
Opening and closing cash and equivalents ½
16
Statement of cash flows for the year ended 31 August 20X4

£
Investment income (3,000)
Finance costs 22,000
Gain/loss on sales of property, plant and equipment (W2) (5,000)
Movement in inventories (135,000 – 127,000) 8,000
Movement in trade receivables (149,000 – (155,000 – 20,000)) 14,000
Movement in trade payables ((125,500 – 15,000) – (134,650 – 30,000)) 5,850
Movement in accruals (45,825 – 64,300) (18,475)
Tax paid (W3) (24,695)
Net cash from/used in operating activities 225,405

Purchase of property, plant and equipment (309,000)
Proceeds from sale of property, plant and equipment 205,000
Interest received 3,000
Net cash from/used in investing activities (101,000)

lOMoARcPSD|23610656
£
Proceeds from issue of shares (W5) (50,000 + 20,000) 70,000
Dividends paid (W6) (50,000)
Net cash from/used in financing activities (142,000)
Net increase/decrease in cash and cash equivalents (17,595)

Cash and cash equivalents at end of year 71,042
WORKINGS
(1) PPE – COST

£ £
B/d 3,800,000 Disposals 450,000
Purchases 309,000 Depreciation (bal fig)
C/d 2,450,000
_
2,859,000 2,859,000
PPE – ACCUMULATED DEPRECIATION
£ £
B/d 220,000 Disposals 1,250,000
Depreciation (bal fig) 189,000
C/d 1,219,000
_
1,439,000 1,439,000
(2) PPE – PROFIT ON DISPOSAL

£ £
PPE – Cost 450,000 PPE – Accumulated depreciation 220,000
Statement of profit or loss (bal Cash 225,000
fig) 5,000
455,000 445,000
(3) INCOME TAX PAID
£ £
Cash (bal fig) 24,695 B/d 56,000
67,695 67,695
(4) INTEREST
£ £
Cash (bal fig) 20,750 B/d 5,000
27,000 27,000

lOMoARcPSD|23610656
(5) SHARE CAPITAL

£ £
B/d 500,000
Bonus element (from retained 100,000
earnings)
C/d 650,000 Cash (bal fig) 50,000
650,000 650,000
SHARE PREMIUM
£ £
B/d 100,000
C/d 120,000 Cash (bal fig) 20,000
120,000 120,000

£ £
Share capital 100,000 B/d 1,750,687
Dividends (bal fig) 35,000 Statement of profit or loss 46,780
C/d 1,662,467 _
1,797,467 1,797,467
DIVIDENDS
£ £
Cash (bal fig) 50,000 B/d 30,000
C/d 15,000 0
65,000 65,000
7 C NON-CURRENT ASSETS
£’000 £’000
Opening balance 600 Disposals 90
Purchases (bal fig) 240 Closing balance 750
840 840
£’000
Purchase of non-current assets 240
Proceeds of sale of non-current assets (30)
Net cash outflow 210
8 B
Reconciliation of operating profit to cash generated from operations
£’000
Operating profit (250 + 25) 275
Depreciation charges 140
Loss on sale of property, plant and equipment 15
Increase in inventory (5)
Increase in trade receivables (15)
Increase in trade payables 16
Cash generated from operations 426
9 D NON-CURRENT ASSET COST
£’000 £’000
At 1.10.X8 1,550 At 30.09.X9 1,886
Purchases 390 Disposals (bal fig) 54
1,940 1,940

lOMoARcPSD|23610656
NON-CURRENT ASSET ACCUMULATED DEPRECIATION

£’000 £’000
At 30.09.X9 350 At 1.10.X8 225
Depreciation on 15 Charge for year 140
disposals (bal fig)
365 365
£’000
Carrying amount of disposals (54 – 15) 39
Net loss on disposal (15)
Proceeds of disposals 24
Purchases (390)
Proceeds of disposals 24
Net cash outflow from capital expenditure (366)
10 C
Analysis of changes in net debt
At 1 Oct 20X8 Cash flows At 31 Sept 20X9
£’000 £’000 £’000
Cash in hand, at bank 50 (15) 35
Debt due after 1 year (300) 50 (250)
Total (250) 35 (215)
Total net debt has decreased from (250) to (215) during the year.

lOMoARcPSD|23610656

statements under UK GAAP
1 D Writing back the debtors allowance increases net profit – it is an administrative expense –
not gross profit. The figure for current assets will increase. There will be no effect on
current liabilities.
2 A CREDITORS
£ £
Cash 271,845 Balance b/d 76,104
Purchases 277,225
Credit balances offset 948 Debit balances transferred 107
C/d () 80,643
353,436 353,436
3 B DEBTORS
£ £
B/d 7,290 Cash 22,490
Sales () 24,500 Contra 910
C/d 7,350
31,790 31,790
4 A INSURANCE
£ £
Cash 3,000 Accrual reversed 340
P&L a/c () 2,480
Prepayment 180
3,000 3,000
5 B Recording a cash sale as a credit sale has no effect on loss for the year (3).
£
Draft loss (12,100)
Depreciation (4,800/10 yrs  2/12) (80)
Increase in allowance (1,000)
Adjusted loss (13,180)
6 B
Increase/
(decrease)
to profit
£
(1) Write off bad debt (600)
(2) Increase in allowance (2,000)
(3) Recovered debt 1,500
Decrease (1,100)
7 A, H, J, O
Cheque from Dominic plc: debit cash at bank £171, credit bad debts expense £171
Cash discount: debit sales £331, credit debtors £331

lOMoARcPSD|23610656
8 A VAT ACCOUNT
£ £
Purchases (85,680  1/6) 14,280 Sales (115,920  1/6) 19,320
C/d 5,040
19,320 19,320
The VAT on the new car is irrecoverable so is included in the car’s capitalised cost

lOMoARcPSD|23610656
Chapter 15: Sole trader and

partnership financial statements under
UK GAAP
1 D
Profit 380,000 Arthur Bernie Charlie
20,000 200,000
400,000 (20,000)
180,000 120,000 60,000
200,000 100,000 60,000 40,000

220,000 120,000 40,000
2 D
Diane Ian Craig
£ £ £
1 Jan to 30 June £180,000 90,000 90,000
1 July to 31 Dec
Salaries 15,000 18,000
Profit (£180,000 – 15,000 – 18,000) 73,500 44,100 29,400
163,500 149,100 47,400
3 C
Paul Pete Rob
£ £ £
Profit share January to June (140,000) 84,000 56,000
Profit share July to December (140,000) 70,000 42,000 28,000
Guarantee amount (2,000) 2,000
152,000 98,000 30,000
4 A
The appropriations earned by each partner are shown below.
Freddie Gina Harry Total
£ £ £ £
Interest on capital 2,400 1,800 1,200 5,400
Salary 10,000 10,000
2,400 11,800 1,200 15,400
Residual profit (3:2:1) 42,300 28,200 14,100 84,600
44,700 40,000 15,300 100,000
Note: The question asks for H's share of residual profit, not total profit.
5 B
£
NA b/d 105,000
Profit 52,600
Drawings (40,000)
NA c/d 117,600
6 B
Davina
£
Salary 15,000
Interest on capital (6%  80,000) 4,800
Interest on drawings (10%  25,000) (2,500)
Profit share 51,900

lOMoARcPSD|23610656
(140,000 – (6%  170,000) + (10%  70,000) – 15,000 – 18,000) = 103,800  3/6 69,200
7 C The corrected account looks like this.

CURRENT ACCOUNT
£ £
Drawings 10,000 Balance b/d 300
Balance c/d 500 Interest on capital 3,000
Salary 4,000
Profit share 3,200
10,500 10,500
8 C The accrual should have increased expenses by £100 however instead expenses were
decreased by £100 leading to an overstatement of profit of £200.
9 C
£
6,380  9/12 4,785
6,380 100/110  3/12 1,450
6,235
10 A
Decrease in net assets (9,800) = 10,000 – 12,800 – Loss
Loss = £7,000
11 C Using the accounting equation
£
Net assets at 31.12.X7 42,900
Owner's interest
Opening capital (= opening net assets) 31,600
Profit (balancing figure) 14,000
Drawings (8,000 + 700) (8,700)
42,900
Goods drawn by owner are taken at cost.
12 C
£
Increase in net assets 68,000
Add drawings 37,000
Deduct capital paid in (10,000)
Net profit 95,000
13 C
Increase in net assets £36,100 = Profit + 30,000 – 32,000
Profit = £38,100
14 C Opening capital + capital introduced + profit – drawings
15 C
£
Gross wages and salaries 127,600
Employer NIC 14,036
Total wages and salaries expense 141,636
16 B Opening stock – debit
Rental income – credit
Capital introduced – credit

lOMoARcPSD|23610656
Drawings – debit
Local property tax paid – debit
17 B % £
SP 120 4,800
C of S (100) (4,000)
GP 20 800
Record at cost = £4,000 Dr Drawings, Cr Purchases
18 B
(1) Represents drawings from the partnership – no effect on profits.
(2) Debt needs to be written off – decreases profits.
(3) Credit to bank statement is income which increases profits.
19 A, C
Interest on capital (20,000  5%) £1,000
£
Net profit 90,000
Total interest on capital (60,000  5%) (3,000)
Profit to be shared 87,000
Shared equally (87,000/3) £29,000

20 D
Jo Jenny Total
£ £ £
Salary 35,000 25,000 60,000
Balance in PSR (1:1) 120,000 120,000 240,000
155,000 145,000 300,000
21 A Fred has received too little profit, George too much; therefore Cr Fred's current account,
Dr George's current account. There is no need to go back into the appropriation account.
22 B
Rory Imogen Charlott Total
e
£ £ £ £
Interest on capital (7,000/3,000/2,000  5%) 350 150 100 600
Salary – – 2,500 2,500
Balance in PSR (50:35:15) 10,950 7,665 3,285 21,900
11,300 7,815 5,885 25,000
Guarantee (715) – 715
–
10,585 7,815 6,600 25,000
23 A Sharing of profits – Distinct – sole traders do not share their profits.
Maintenance of current and capital accounts – Distinct – sole traders only maintain
capital accounts.
Must prepare financial statements which following accounting standards – Not distinct –
accounting standards are not mandatory for partnerships or sole traders although they
are considered best practice.
Drawings are put through the profit and loss account as salaries – Not distinct –
drawings are put through current accounts for partners, capital accounts for sole traders.
Drawings never go through the profit and loss account for either type of business.
24 D Interest on loan by Petunia – Charge – interest on a loan from a partner is charged
against profits.

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Salary to Constance’s husband – Charge – since he does the bookkeeping this is a

legitimate business expense.
Clothes supplied FOC to Jessica – Not a charge – these constitute drawings so are
debited to Jessica’s current account.
Petrol to Petunia for buying trip – Charge – legitimate business expense (if private as
opposed to business trip would be drawings).
25 C Capital withdrawn – debit to capital account
Interest on capital – credit to current account
Share of net loss – debit to current account
Interest on loan from fellow partner – debit to P&L account
26 C Net assets at 30 June 20X7
£
Fixtures and fittings (315,620 – 102,960) 212,660
Debtors 28,602
Stock 22,196
Cash 4,758
Trade creditors (25,903)
Long-term loan (80,000)
162,313
Net assets at 1 July 20X6 (116,000)
Change in net assets 46,313
Change in net assets = Capital introduced + Profit for the year – Drawings
 Profit = 46,313 + 24,820
= £71,133

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Chapter 16: Additional question

practice
1 A The financial position of an entity is reflected in the resources it controls (assets),
financial structure (debt and capital), liquidity (cash) and solvency (ability to pay its
debts). Most of this information is provided in the statement of financial position (B).
The statement of profit or loss (A) primarily provides information about an entity’s
financial performance, while the statement of cash flows (D) reflects changes in the
financial position. The statement of changes in equity (C) reflects changes in various
types of equity over a period, including share capital and retained earnings.
2 A,B,D
The IASB’s Conceptual Framework points out that information about the nature and
amounts of an entity’s economic resources and claims can help users to assess:
 the entity’s liquidity and solvency (B);
 the entity’s need for additional financing (A); and
 how successful the entity is likely to be in obtaining that financing (D).
3 A The IASB’s Conceptual Framework states that information about an entity’s financial
performance helps users to understand the return that the entity has generated on its
economic resources (A). Information on the entity’s liquidity and solvency is most useful
in predicting the entity’s ability to meet its financial commitments as they fall due (B). In
order to predict how future profits and cash flows will be distributed among those with an
interest in the entity (C) users require information about its economic resources and
claims rather than about its financial performance. While the company’s adaptability to
changes in its operating environment (D) is a very useful thing for users to know about,
the IASB’s Conceptual Framework does not elaborate on how such information would
actually be used.
4 B, E
Invoices and credit notes (B, E) are valid source documents, the details of which can
be recorded directly in the nominal ledger. Purchase orders and delivery notes (A, C) are
sources of information from which the source documents can be prepared, or to which
they can be checked, but they are not source documents as such. A debit note (D) is a
request for a credit note to be issued by the supplier and is not a source document.
5 B Payment of an invoice to a credit supplier is a normal transaction that we would expect to
be matched automatically by the accounting system.
Options A, C and D are unusual in nature and are likely to be exceptions that the
bookkeeper needs to manually record.
6 B The incorrect figure of £4,500 is arrived at by making the mistake of ignoring the
depreciation charge for the year.
MACHINERY – COST
£ £
b/d 260,000 Disposals – bal fig 82,000
Additions 142,000 c/d 320,000
402,000 402,000

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MACHINERY – ACCUMULATED DEPRECIATION

£ £
Disposals – bal fig 23,900 b/d 90,000
c/d 97,500 SPL – depreciation
expense 31,400
121,400 121,400
DISPOSALS
£ £
Machinery – cost 82,000 Machinery – acc dep 23,900
SPL – Profit on disposal 35,900 Cash at bank (Proceeds) 94,000
117,900 117,900
7 D
SUPPLIER ACCOUNT: ARABELLA
Cash at bank (D) 123
A, C No effect yet on Arabella’s account

B Paying £123 too little on an invoice would leave a credit balance on the account.
8 D
£
Revenue 81,600
Purchases (60,480  5/6) (50,400)
Gross profit 31,200 (D)
Option A assumes that the revenue figure is the gross one, whereas revenue in the
statement of profit or loss (and turnover in the profit and loss account, if this were a UK
GAAP question) should be shown exclusive of VAT; it also uses the cash paid figure as
the cost of purchases, when in fact this amount should be shown net of VAT. Option B
uses the correct VAT exclusive purchases figure, but again assumes the revenue figure
includes VAT. Option C uses the correct VAT-exclusive revenue figure but uses the cash
paid figure, which includes VAT, as the cost of purchases.
9 C When raw material prices are falling, AVCO averages the earlier, higher prices with the
later, lower prices, while FIFO just takes the later, lower prices. Thus FIFO would result in
a lower inventory value than AVCO. As inventory quantities are constant, this means
that closing inventory would always be lower than opening inventory. As closing inventory
is a reduction in the cost of sales calculation, all other things being equal this would result
in the overall debit balance of cost of sales being higher under FIFO than under AVCO:
hence higher cost of sales and lower closing inventory value (C).
10 A
FIXTURES AND FITTINGS – COST
£ £
b/d 125,000 Disposals – bal fig 33,000
Additions 74,000 c/d 166,000
199,000 199,000
FIXTURES AND FITTINGS – ACCUMULATED DEPRECIATION

£ £
Disposals – bal fig 19,000 b/d 72,000
c/d 81,000 Charge 28,000
100,000 100,000
DISPOSALS
£ £
F&F – cost 33,000 F&F – acc dep 19,000

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Proceeds – bal fig 11,000

Loss 3,000
33,000 33,000
11 A, D, C
Deposits of £110 will be treated as income in the subsequent reporting period, so this
must all be treated as deferred income £110 (D).
Two of the six months' rent relates to the year ended 31 March 20X4, so this must be
accrued:
£3,600  2/6 = accrual £1,200 (C)
Eight months of the insurance has been prepaid at 31 March 20X4: £960  8/12 =
prepayment £640 (A).
12 B We can assume unless told otherwise that share premium is used to the maximum
possible extent when a bonus issue is made.
1 March rights issue: DR Cash £96,000, CR Share capital £20,000 (£100,000/£0.25
shares  1/5 = 80,000 shares  £0.25), CR Share premium £76,000 (80,000  (£1.20 –
£0.25)
31 August bonus issue: CR Share capital £360,000 ((3  480,000 shares)  25p), DR
Share premium £126,000 (taking the balance down to zero), DR Retained earnings
£234,000
SHARE CAPITAL
Number £ Number £
c/d 1,920,000 480,000 b/d
(£100,000/£0.25) 400,000 100,000
Rights issue
(400,000/5) 80,000 20,000
480,000 120,000
Bonus issue
(480,000  3) 1,440,000 360,000
1,920,000 480,000 1,920,000 480,000
SHARE PREMIUM
£ £
Bonus issue 126,000 b/d 50,000
c/d 0 Rights (80,000  £0.95) 76,000
126,000 126,000
RETAINED EARNINGS
£ £
Balance of bonus
(360,000 – 126,000) 234,000 b/d 1,423,126
c/d (bal fig) 1,269,126 Profit for year 80,000
1,503,126 1,503,126
The two most common mistakes with this kind of question are to take the number of
shares as the share capital balance as in C and D (ie, to treat all shares as £1 shares),
and to fail to use the share premium to the maximum for the debit entry for the bonus
issue, as in A.

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13 A
Share 1 1 3 2 1
David Paul Daniel David Paul Daniel
£ £ £ £ £ £
Drawings 10,000 10,000 10,000 b/d 9,870 8,140 15,580
Goodwill Profit
(96,000@ 3:1) 72,000 24,000 (120,000 @
4:3:1) 60,000 45,000 15,000
c/d 35,870 8,580 Goodwill
(96,000 @ 48,000 36,000 12,000
4:3:1)
Loan a/c 79,140
117,870 89,140 42,580 117,870 89,140 42,580
Note that you would have arrived at Answer B if you had ignored Daniel’s £10,000
drawings.
14 C As opening inventories is a debit in the statement of profit or loss, an overstatement or
overvaluation here decreased profit and so should be added back. The reverse is true of
closing inventories.
£
Draft gross profit 54,200
Add back overstatement of opening inventories (1,200  20/120*) 200
Deduct overstatement of closing inventories (800  20/120*) (133)
Corrected gross profit 54,267 (C)
In Option B the overstatement in opening inventories is deducted, and that in closing
inventories is added back. In the other two options the wrong gross profit percentage is
applied, taking 20% margin (on sales value ie, 20/100) rather than 20% mark-up (on
cost).
* Gross profit percentages:
%
Selling price 120
Cost (100)
Gross profit 20
To calculate gross profit from selling price, multiply by 20/120.
15 C The whole of the insurance premium relates to the following year, so the instalment paid
should all be treated as a prepayment, which reduces expenses in the year and so
should be added back to the draft profit for the year.
The problem with the returned goods is that the draft profit for the year reflects the
revenue made on sale of the goods, less the cost of those goods, therefore the profit on
the sale should be deducted from the draft profit for the year.
£
Draft profit for the year 60,000
Add back Prepaid insurance premium instalment (£2,500/2) 1,250
Deduct profit on returned goods £300  40/60* (200)
61,050 (C)
In A the profit has been added back and the prepayment deducted; in
B just the cost of goods (£300) has been deducted, while in D the
profit deducted has been calculated as £300  40%.
* Gross profit percentages:

%
Revenue 100
Cost (60)
Gross profit 40
To calculate gross profit from cost, multiply by 60/40.

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16 B In relation to the discount received from a supplier, this should have been debited to
trade payables and credited to purchases. As such, expenses (purchases) will decrease
and profit will increase. The correcting journal is:
Dr Trade payables (600  2) £1,200
Cr Purchases £600
Cr Suspense £600
The maintenance costs should have been expensed fully to the statement of profit or
loss, reducing profits by £1,200. The depreciation charged of (£1,200  0.2) £240 should
be added back. The net effect is to decrease profits by £960.
£
Draft profit for the year 150,000
Discount received 600
Net repair costs (1,200  0.80) (960)
Final profit for the year 149,640 (B)
17 C The absence of the missing inventory has already been reflected in the physical count, so
effectively its cost has already been debited to gross profit, reducing both gross and profit
for the year by £10,000. The insurance claim will be 60%  £10,000 = £6,000. This figure
should be accounted for as follows:
Dr Other receivables £6,000
Cr Other income £6,000
The credit entry increases profit for the year – NOT gross profit – by £6,000 (C).
18 C
£
Original cash at bank ledger account balance (5,196)
Interest (78)
Corrected cash at bank ledger account balance per statement of
financial position (5,274)
Unpresented payments 564
Uncredited lodgements (1,875)
Balance per bank statement (6,585)
19 C
CASH AT BANK
£ £
Interest 75 Balance b/d (bal fig) 1,905
c/d 7,480 Trade payables 5,650
7,555 7,555
Bank reconciliation statement
£
Balance per bank statement (bal fig) (770)
Add uncleared lodgements 650
Less unpresented cheques (1,785)
Balance per cash at bank ledger account (1,905)

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20 A To calculate cost of sales correctly the purchases figure should only take into
consideration the goods purchased for resale. Therefore it is necessary to reduce
purchases, not inventory, by the cost of the inventory destroyed (Cr Purchases £10,000).
This cost to the business should be shown under administrative expenses in the
statement of profit or loss (Dr Administrative expenses £10,000). The sum due from the
insurance company of £6,000 should be treated as part of other income, not revenue, as
it is from a non-trading source (Cr Other income £6,000).
21 B To eliminate the suspense account a debit entry of £1,500,000 is required. The rights
issue is 1 for 5, so (4,000,000/5) = 800,000  25p shares are issued, giving a credit of
£200,000 in the share capital account. The share premium is therefore
(2.00 – 0.25) = £1.75 per share, which gives a credit to the share premium of 800,000 
£1.75 = £1,400,000. The remainder of the journal is to record the amount unpaid on the
shares ((800,000  £2) – £1,500,000) = £100,000 as an other receivable:
Dr Suspense account £1,500,000
Dr Other receivables £100,000
Cr Share capital £200,000
22 C The accumulated depreciation at the part exchange date is (55,000 – 18,200) = £36,800,
and this must be eliminated from the accumulated depreciation account by debiting the
account.
The truck cost account is debited with the difference between the cost of the old and new
trucks (60,000 – 55,000) = £5,000.
Sneaky is paying a total cash/payables figure of (15,000 + 25,000) = £40,000 for the
truck, therefore the part-exchange allowance is (60,000 – 40,000) = £20,000. This is
compared to the carrying amount of £18,200 to give a gain on disposal of £1,800.
Dr Accumulated depreciation £36,800
Dr Cost £5,000
Cr Disposal £1,800
Cr Suspense £40,000
TRUCK – COST
£ £
b/d 55,000 Disposal 55,000
Cash 15,000 c/d 60,000
Trade and other payables 25,000
Part exchange value 20,000
115,000 115,000
b/d (net entry £5,000) 60,000
DISPOSAL
£ £
Cost 55,000 Accumulated depreciation 36,800
c/d Profit on disposal 1,800 Part exchange value 20,000
56,800 56,800
b/d (net entry) 1,800

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23 C The insurance costs should have been debited to expenses. The correcting journal is:
Dr Expenses £5,344
Cr Suspense £5,344
Profits will fall by £5,344, so the retained earnings figure will be:
£
Retained earnings b/d 734,656
Profit after tax 68,574
Correcting journal (5,344)
Retained earnings c/d 797,886
24 C
£
Profit for the year before interest 79,000
Interest (30,000  6%  6/12) (900)
78,100
Partner salaries (20,000 + 15,000) (35,000)
Residual profit for appropriation (3/4 and 1/4  £43,100 = £32,325
and £10,775) 43,100
Share 3 1
Rickard Grab
£ £
Salaries 20,000 15,000
Residual profits 32,325 10,775
Total 52,325 (C) 25,775 (A)
Note: In Option D the interest is not deducted from profit for the year before it is
appropriated, while in Option B a full year's interest is deducted.
25 C, D
The company debited the cash at bank account with the 20X8 subscriptions received and
credited subscription income for 20X9, when it should have credited the subscriptions
receivable or accrued income asset account set up at 31 December 20X8. The correcting
journal should therefore Dr Subscription income (C) and Cr Accrued income (D).
26 B In respect of (1), we need to reinstate the debt, remove the suspense account and then
write the debt off as irrecoverable:
Dr Trade receivables 106
Cr Suspense account 106
Being to reinstate the debt
Dr P/L irrecoverable debts expense 106
Cr Trade receivables 106
Being write off of irrecoverable debt
For (2), we need to record the increase allowance for receivables of (£1,500 – £1,200)
£300:
Cr Allowance for receivables 300
Being increase in allowance for receivables
For (3), the suspense account entry must be reversed to the credit of the irrecoverable
debts expense account.
Dr Suspense account 36
Cr P/L irrecoverable debts expense 36
Being removal of suspense account
So the combined journal entry is:

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Cr Allowance for receivables 300

Cr Suspense account 70
27 D The bookkeeper has processed the opening (1) and closing (2) journals as follows:
ACCRUALS
£
b/d 1,589
Jnl 1 1,589
Jnl 2 2,745
PREPAYMENTS
£
b/d 746
Jnl 1 746
Jnl 2 1,669
ADMINISTRATIVE EXPENSES
£ £
Jnl 1 843 Jnl 2 1,669
Cash 54,123
Jnl 2 2,745
The cash payment and Journal (2) are correct. To correct Journal (1) the bookkeeper
should:
Dr Accruals £3,178, Cr Prepayments £1,492, Cr Administrative expenses £1,686
28 C, D
Interest on a partner’s loan capital (C) is an expense in the profit and loss account.
Drawings by a partner are debited to the current account (D).
Goods taken by a partner count as drawings, not as appropriations of profit (A), and no
salaries of any amount are appropriated to partners unless they specifically agree that
they should be (E). Interest on drawings by a partner (B) are negative appropriations of
profit, not an expense.

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29 A Partnership salaries are appropriations of profit. They affect neither the partnership’s
profit for the year available for appropriation nor the cash position, so Statement 1 is
true. Interest on partners’ drawings is also a appropriation of available profit. It does not
affect the amount of profit available for appropriation, so while it does not affect the cash
position Statement 2 is false therefore. Salaries to employees, and interest on partners’
loans, affect profit for the year available for appropriation while drawings, rather than
interest on them, affect the cash position.
30 A Unless told otherwise we can assume that all charges accrue evenly in the period.
The line rental charge payment of £3,150 made on 1 November 20X3 covers the six
months to 30 April 20X4. Of this payment, four months is a prepayment covering the
period 1 January to 30 April 20X4, an amount of (4/6  £3,150) = £2,100.
The call charges payments are in arrears, so when the last payment for 20X3 is made on
30 November, Lemon plc still owes one month (December) of charges, which is
(£5,820  1/12) = £485.
31 D The amount recorded of £11,794 relates to amounts paid in the year. This needs to be
adjusted for prepayments and accruals. Instead of being told opening and closing
accruals and prepayments you are told the difference between them. You need to think
carefully therefore about the side of the T account on which the net difference should
appear. Where there is an increase in the accrual the net effect is a debit in the expense
account, while an increase in a prepayment will be a net credit in the expense account.
DISTRIBUTION COSTS
£ £
Cash at bank account 11,794 Increase in prepayments 78
Statement of profit or loss
(bal fig) 11,823 (D)
Increase in accruals 107
11,901 11,901
32 A If a company is no longer a going concern then the directors have concluded that it will
not trade for the foreseeable future (ie, less than twelve months) and so all non-current
assets and liabilities are transferred to current assets and current liabilities respectively
(A).
33 B VAT on vehicles except for cars is treated as input tax, so the truck's cost in the ledger
accounts is £79,680  5/6 = £66,400 (C). This is depreciated at 25% per annum for six
months, a charge of £8,300. Hence the carrying amount at the year end is
£66,400 – £8,300 = £58,100 (B).
In option A the cost is depreciated for a full year (£66,400  0.75), while in D the cost is
taken to include VAT, and is then depreciated for six months.
34 C
£
Opening net assets 50,000
Capital injection 10,000
Drawings (£500  12) (6,000)
Inventory drawings (£6,400  40/100) (2,560)

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35 A VAT is not treated as input tax when a car is purchased for use in a business (as
opposed to being bought as inventory by a car dealer). As Hedges plc is a clothing
retailer we can assume that the gross figure should be taken as the cost of both vehicles.
The old car had been depreciated for 25 months when it was traded in.
DISPOSALS
£ £
Old car – cost 17,760 Vehicles – acc dep
(17,760/48  25) 9,250
Profit – bal fig 4,790 (A) Part exchange value
((21,000  1.2) – 11,900) 13,300
22,550 22,550
36 B When a bonus issue is made you should assume that the share premium is used as far
as possible, with only the remainder being debited to retained earnings.
SHARE CAPITAL
£ £
c/d 800,000 b/d 500,000
Bonus issue (500,000/5  3) 300,000
800,000 800,000
SHARE PREMIUM
£ £
Bonus issue 150,000 b/d (500,000  £0.30) 150,000
150,000 150,000
RETAINED EARNINGS
£ £
Bonus issue (300,000 – b/d 484,000
150,000) 150,000
c/d 334,000
484,000 484,000
37 C
£
Share premium (£30,000/£0.50  £(1.00 – 0.50) 30,000
Other reserves (bal fig) 20,000 (C)
Note: Sage Plc cannot have share premium of £20,000 as we are told its share premium
is £30,000, so the balance of £20,000 must be a general reserve.

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38 C In respect of the disposal, the vehicle sold had a carrying amount of £15,000/3  2 =
£10,000 at 1 July 20X6, so a loss of (10,000 – 8,500) = £1,500 arises on disposal.
The remaining vehicles have a cost of £549,810 (564,810 – 15,000). We know that none
of them was written down fully at the end of the previous reporting period, and we can
assume there have been no additions, so depreciation of £549,810/3 = £183,270 arises.
DISTRIBUTION COSTS
£ £
b/d 125,000 Statement of profit or loss 309,770
Disposal 1,500
Depreciation charge 183,270
309,770 309,770
VEHICLES – COST
£ £
b/d 564,810 Disposal 15,000
c/d 549,810
564,810 564,810
VEHICLES – ACCUMULATED DEPRECIATION
£ £
Disposal (15,000/3) 5,000 b/d 188,270
c/d 366,540 Charge (549,810/3) 183,270
371,540 371,540
DISPOSAL
£ £
Cost 15,000 Accumulated depreciation 5,000
Proceeds 8,500
Loss (bal fig) 1,500
15,000 15,000
39 D
TAXATION ACCOUNT
£ £
Tax paid 31,960 b/d 32,810
c/d (bal fig) 36,300 Statement of profit or loss 35,450
68,260 68,260
40 D Having paid its 20X1 fee in advance, Redman plc is now paying its 20X2 fee in arrears.
The amount unpaid at 30 April 20X2 will therefore be an accrual. There are outstanding
fees for the period 1 January – 30 April 20X2, which is four months. The accrual is
therefore £15,000  1.1  4/12 = £5,500 (D).
Note: The figure of £11,000 in A and C is the charge applicable to the current year
(15,000  1.1  8/12 = £11,000).
41 A The total interest charge for the year should be:
New debentures (£200,000  8%  3/12) = £4,000
Original debentures (£500,000  8%) = £40,000 (= cash paid)
Therefore the closing accrual should be £4,000, giving a total trade and other payables
total of (149,630 + 4,000) = £153,630.
TRADE AND OTHER PAYABLES
£ £
c/d 153,630 b/d 149,630

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Accrual 4,000
153,630 153,630
FINANCE COST
£ £
Cash 40,000 b/d 0
Accrual (trade and other Statement of profit or loss
payables) 4,000 500,000  0.08) +
(200,000  0.08  3/12) 44,000
44,000 44,000
42 B
SHARE PREMIUM
£ £
Bonus issue b/d (200,000  (0.80 –0.25)) 110,000
(200,000/5  0.25) 10,000
Preference shares
(50,000  (1.20 – 1.00) 10,000
Bal c/d 110,000
120,000 120,000
43 A Carrying amount of fixtures traded in = £12,000  70%  70% = £5,880.
Carrying amount of remaining fixtures is therefore 48,000 + 18,000 – 5,880 = £60,120.
Depreciation on these is (60,120  30%) = £18,036 (A).
FIXTURES – CARRYING AMOUNT
£ £
b/d 48,000 Disposal (12,000  0.7  0.7) 5,880
Additions 18,000 Charge (60,120  30%) 18,036
c/d 42,084
66,000 66,000
44 A The initial amount capitalised is £52,000 (purchase price of £50,000 plus transport and
set up costs of £2,000). The £500 staff training cost is a cost which can’t be capitalised.
Depreciation is initially ((52,000 – 5,000)/5) = £9,400 per annum, so at 1 April 20X8 the
carrying amount is (52,000 – (2  9,400)) = £33,200. Depreciation is then charged at 50%
on this figure, giving a depreciation figure of £16,600 for the year to 31 March 20X9, and
a carrying amount of £16,600.
MACHINE – COST
£ £
Purchase price 50,000 c/d 52,000
Transport 2,000
52,000 52,000
MACHINE – ACCUMULATED DEPRECIATION
£ £
c/d 35,400 31/3/X7 Charge
(52,000 – 5,000)/5 9,400
31/3/X8 Charge
(52,000 – 5,000)/5 9,400
31/3/X9
(52,000 – 18,800)  0.5 16,600
35,400 35,400
Carrying amount: 52,000 – 35,400 = £16,600
45 B
£

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Opening capital (21,000 + 7,200 + 8,450 – 5,640 + 300) 31,310

Profit for year (bal fig) 27,960
Drawings ((12  800) + 200) (9,800)
Closing capital (35,200 + 10,400 + 11,980 – 8,210 + 1,100) 50,470
46 A
INCOME TAX PAYABLE
£ £
Cash at bank (income tax paid) 50,000 b/d (bal fig) 33,820
HMRC refund 3,000
c/d 54,740 Statement of profit or loss 67,920
104,740 104,740
47 C
£
Depreciation 4,320
Decrease in inventory (18,200 – 15,310) 2,890
Increase in trade receivable(23,900 – 22,400) (1,500)
Decrease in trade payables (19,600 – 16,700) (2,900)
48 A
£
Profit 50,000
Depreciation 5,000
Profit on disposal (20,000 – 17,000) (3,000)
Increase in inventory (8,000)
Increase in trade receivables (3,000)
Decrease in payables (4,000)

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Lobj18 0007008 Question Bank of Accounting

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LOBJ18 0007008 - Question bank of Accounting

Studocu is not sponsored or endorsed by any college or university

The Institute of Chartered Accountants in England and Wales

For exams in 2019

Electronic Question Bank

Downloaded by Trang Huyen (trangnguyenh2064@gmail.com)

ii Accounting ICAEW 2019

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Title Questions Answers

1 Introduction to accounting 3 131

2 The accounting equation 5 132

3 Recording financial transactions 8 133

4 Ledger accounting and double entry 11 134

5 Preparing basic financial statements 16 136

6 Errors and corrections to accounting records and financial

7 Cost of sales and inventories 26 140

8 Irrecoverable debts and allowance for receivables 34 144

9 Accruals and prepayments 38 146

10 Non-current assets and depreciation 44 148

11 Company financial statements 54 152

12 Company financial statements under IFRS 59 154

13 Statement of cash flows 84 187

14 Company financial statements under UK GAAP 99 201

15 Sole trader and partnership financial statements under

16 Additional question practice 111 207

ICAEW 2019 Contents iii

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iv Accounting ICAEW 2019

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2 Accounting: Electronic Question Bank ICAEW 2019

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Chapter 1: Introduction to accounting

A (1) and (2) only

4 Which of the following should be classified as capital expenditure?

ICAEW 2019 Chapter 1: Introduction to accounting 3

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5 Which of the following is a consideration in the application of ICAEW’s Code of Ethics?

4 Accounting: Electronic Question Bank ICAEW 2019

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Chapter 2: The accounting equation

2 The purpose of a statement of financial position is to show:

4 A sole trader purchases goods on credit for £400.

ICAEW 2019 Chapter 2: The accounting equation 5

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5 A sole trader takes out a loan of £5,000 from the bank.

6 Accounting: Electronic Question Bank ICAEW 2019

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ICAEW 2019 Chapter 2: The accounting equation 7

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Chapter 3: Recording financial

8 Accounting: Electronic Question Bank ICAEW 2019

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ICAEW 2019 Chapter 3: Recording financial transactions 9

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10 Accounting: Electronic Question Bank ICAEW 2019

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Chapter 4: Ledger accounting and

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

4 Identify whether the following statements are true or false.

ICAEW 2019 Chapter 4: Ledger accounting and double entry 11

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