Professional Documents
Culture Documents
QUESTION B A N K 2 0 2 4
CERTIFICATE LEVEL
ICAEW icaew.com
ICAEW
Accounting
QUESTION BANK
icaew.com
Accounting
The Institute of Chartered Accountants in England and Wales
ISBN: 978-1-0355-0931-7
Previous ISBN: 978-1-0355-0169-4
e-ISBN: 978-1-0355-0916-4
First edition 2007
Seventeenth edition 2023
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Contents
The following questions are exam- standard. Unless told otherwise, these questions are the style, content and format that you
can expect in your exam.
1 Introduction to accounting
13 Statementofcashflows
16 Practice exam
The assessment consists of 25 questions in total. There will b e 2 4 objective test questions (60% of the marks) which will be of
three types:
• Multiple choice - select 1 from 4 options A, B, C or D
■ Multi-part multiple choice - select 1 from 2 o r 3 options, for two o r more question parts
■ Multiple response - select 2 o r 3 responses from 4 or more options
These questions will cover the areas of the syllabus in accordance with the weightings set out i n the specification grid.
The remaining 40% of the marks are allocated from the preparation of single company financial statements; either a
statement of profit or loss and the statement of financial position or a statement ofcash flows, using a proforma template.
The exam is 1.5 hours long a n d at least 55 marks are required to pass this exam.
O u r website has the latest information, guidance and exclusive resources to help you prepare for this exam. Find everything
you need, from exam webinars, sample exams, errata sheets and the syllabus to examiner- a n d tutor-written articles at
icaew.com/examresources if you are studying the A C A a n d icaew.com/cfabstudents if you are studying ICAEW CFAB.
Professional skills
Professional skills are essential to accountancy and your development of t h e m is e m b e d d e d throughout the ACA
qualification. The level of competency in each of the professional skills areas required to pass each module exam increases
as ACA trainees progress upwards through each Level of the ACA qualification.
The professional skills e m b e d d e d throughout this Question Bank provide the opportunity to develop the knowledge and
professional skills required to successfully pass the exam for this module.
During your question practice, remain mindful that you should b e demonstrating each of the four professional skills within
your answers. You are advised to familiarise yourself with the full ACA professional skills development grids which can be
found at icaew.com/examresources.
The following advice will help you demonstrate each of the professional skills when completing your answers to questions i n
this Question Bank.
You need to carefully read the information provided in exam questions to understand the scenario and the requirement, to
identify the most relevant information a n d to prioritise the key issues. In the multiple-choice, multi-part multiple choice o r
multiple-response questions, the key is in carefully reading the requirement and then using the information provided in the
scenario to address that requirement. The 40-mark accounts preparation question contains a large volume of information
that you need to work through i n a structured and logical manner.
You are expected to b e able to structure data, often using specific techniques o r using proforma as described in the
Workbook and use the data provided to prepare a solution to the specific requirement set. The type of problem you may be
faced with in Accounting including transactions not having been recorded, errors in recording transactions which need to b e
corrected o r determining the impact of adjustments o n profit for the year.
Professional accountants need to apply judgement when determining whether transactions should b e recognised in the
financial statements and at what amount they should be measured. Although you will not be dealing with complex
judgements in Accounting, you should b e aware that common adjustments such as depreciation, the allowance for
receivables and provisions all require the judgement and experience of the accountant.
Introduction to accounting
3 Which of the following transactions should be treated as capital expenditure in the financial statements of Sydney, sole
trader?
A £500 taken by Sydney to buy a music system for personal use
B £800 spent on purchasing a new laptop to replace the secretary's old one
C £2,000 on purchasing a machine for resale
D £150 paid to a painter for redecorating his office
LO 1d
5 According to the Conceptual Framework for Financial Reporting, which of the following are enhancing qualitative
characteristics?
A Comparability, understandability, timeliness, verifiability
B Consistency, prudence, measurability, verifiability
C Consistency, reliability, measurability, timeliness
D Materiality, understandability, measurability, reliability
LO l a
6 In relation to the business of a sole trader, which two of the following does the government and its agencies need to be
able to do?
A Establish levels of tax revenue
B Assess whether the business will continue in existence
C Produce national statistics
D Assess the owner's stewardship
E Take decisions about thei r i nvestment
LO 1a
7 Information about an entity's assets and liabilities at a point in time is primarily provided in:
A the statement of profit or loss
B the statement of financial position
C retained earnings
D the statement of cash flows
LO 1a
8 According to the Conceptual Framework for Financial Reporting, information on which two of the following areas can help
users identify the reporting entity's financial strengths and weaknesses?
A The econom ic resources it controls
B Its financial performance in the past
C The demogra ph ic structure of the local economy
D The claims on an entity's resource (the entity's liabilities)
E Its management structure
LO 1a
9 According to IAS 1, Presentation of Financial Statements which two of the following are objectives of primary financial
statements?
A To show the results of management's stewardship of the resources entrusted to it
B To provide a basis for valuing the entity
C To provide information about the financial position, financial performance and cash flows of an entity that is useful to a
wide range of users in making economic decisions
D To facilitate comparison of financial performance between entities operating in different industries
E To assist management and those charged with governance in making timely economic decisions about deployment
of the entity's resources
LO 1a
10 Information is relevant if it is capable of making a difference in the decisions made by users. According to the Conceptual
Framework for Financial Reporting, financial information is capable of making a difference in decisions if it has which of
the following?
(1) Predictive value
(2) Comparative value
(3) Historic value
(4) Confirmatory value
A 1 and 3 only
B 2and4only
C 1 and 4only
D 2 and 3 only
LO I d
11 The accounting principle which, in times of rising prices, tends to understate asset values and overstate profits, is:
A going concern
B accruals
C consistency
D historical cost
LO 1d
12 Which of the following statements about accounting concepts and the characteristics of financial information is correct?
A Financial statements are required to give a true and fair view. These terms have clear definitions which are included in
IAS 1, Presentation of Financial Statements.
B The historical cost concept means that only items capable of being measured in monetary terms can be recognised in
financial statements.
C It may sometimes be necessary to exclude information that is relevant and reliable from financial statements because
it is too difficult for some users to understand.
D A specific disclosure requirement of an IFRS Accounting Standard need not be satisfied if the information is
immaterial.
LO 1d
u Which of the following definitions of the going concern concept in accounting is consistent with the definition given in IAS
1, Presentation of Financial Statements?
A The directors do not intend to liquidate the entity or to cease trading in the foreseeable future.
B The entity is able to pay its debts as and when they fall due.
C The directors expect the entity' s assets to yield futu re economic benefits.
D Financial statements have been prepared on the assumption that the entity is solvent and would be able to pay all
creditors in full in the event of being wound up.
LO3b
16 According to IAS 1, Presentation of Financial Statements, compliance with IFRS Accounting Standardswill normally ensure
that:
A the entity's inventory is valued at net realisable value
B the entity's assets are valued at their break-up value
C the entity's financial statements are prepared on the assumption that it is a going concern
D the entity's financial position, financial performance and cash flows are presented fairly
LO 1d, 3b
17 The directors of Lagon pic wish to omit an item from the company's financial statements on the grounds that it is
commercially sensitive.Information on the item would influence the users of the information when making economic
decisions.
Requirement
According to IAS 1, Presentation of Financial Statements, the item is said to be:
A neutral
B prudent
C material
D understandable
LO l a
18 The International Sustainability Standards Board (ISSB) was established in 2021 and will issue IFRS Sustainability
Disclosure Standards.
Requirement
Which of the following statements regarding sustainability reporting is true?
A There is a legal requirement for UK companies to disclose information relating to sustainability in their financial
statements.
B The ISSB will initially focus on climate-related disclosures.
C The IFRS Sustainability Disclosure Standards will replace IFRS Accounting Standards.
D There has not previously been any guidance issued relating to the disclosure of sustainability information.
LO 1a
19 Which three of the following are fundamental principles of the IESBA Code of Ethics for Professional Accountants?
A Integrity
B Objectivity
C Independence
D Confidentiality
E Courtesy
LO 1b
21 Which of the following statements best describes ethical guidance in the UK?
A Ethical guidance provides a set of rules which must be followed in all circumstances.
B Ethical guidance is a framework containing a combination of rules and principles, the application of which is
dependent on the professional judgement of the accountant based on the specific circumstances.
C Ethical guidance provides a set of principles which can be applied at the discretion of the accountant
D Ethical guidance is a series of legal requirements.
LO 1b
22 There are two main approaches to a code of professional ethics: a rules-based ethical code and a code based upon a set
of principles.
Indicate whether the following statements are true or false.
A code based upon a set of principles requires a professional accountant to comply with a set of specific rules.
A True
B False
A rules-based code requires a professional accountant to identify, evaluate and address threats to compliance with
fundamental ethical principles.
C True
D False
The ICAEW uses a rules-based approach.
E True
F False
LO 1b
3 A business can make a profit and yet have a decreased bank balance. Which of the following might cause this to happen?
A The sale of non-current assets at a loss
B The charging of depreciation in the statement of profit or loss
C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers
LO 1d,3a, 3b
4 The purpose of the financial statement that lists an entity's total assets and total capital and liabilities is to show:
A the financial performance of the entity over a period of time
B the amount the entity could be sold for in liquidation
C the amount the entity could be sold for as a going concern
D the financial position of the entity at a particular point in time
LO 3b, 3a
5 A sole trader is £5,000 overdrawn at their bank and receives £1,000 from a credit customer in respect of its account.
Requirement
Which elements) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Liabilities only
C Assets only
D Assets, liabilities and capital
LO 1d
6 A sole trader purchases goods on credit.
Requirement
Which elements) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only
LO 1d
8 A sole trader sells goods for cash for £500 which had cost £300.
Requirement
Which elements) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only
LO I d
9 A sole trader increases the business's number of motor vehicles by adding their own car to the business's fleet.
Requirement
Which elements) of the accounting equation will change due to this transaction?
A Assets only
B Capital only
C Assets and capital
D Assets and liabilities
LO 1d
10 Which three of the following are elements of financial statements as identified by the Conceptual Framework for Financial
Reporting?
A Income
B Expenses
C Profits
D Losses
E Obligations
F Resources
G Equity
LO I d
3 Recording financial transactions
1 A business paid out £12,450 in net wages to its employees. In respect of these wages, the following amounts were
presented in the statement of financial position.
-employer's 1,500
2 Which of the following is a source document that would be recorded in an entity's cloud-based accounting software?
A Debit note
B Credit note
C Sales order
D Purchase order
LO 1c
3 Which of the following best explains the imprest system of petty cash?
A Each month an equal amount of cash is transferred into petty cash.
B The exact amou nt of petty cash expenditu re is rei mbu rsed at i nte rvals to mai ntai n a fixed float.
C Petty cash must be kept under lock and key.
D The petty cash total must never fall below the imprest amount.
LO 1c, 1 d
4 At 1 April, a business had a balance of £100 (the imprest amount) in petty cash. At the e n d of April, it had vouchers
totalling £38, a receipt for a refund for stationery of £4 and a note to say that an employee was reimbursed £12 in respect
of postage costs, b u t no voucher was issued.
Requirement
How much does the business need to reinstate its imprest balance at 30 April?
A £34
B £46
C £54
D £66
5 The following data has been extracted from the payroll records of Kleen Ltd for the month of February 20X1 .
Requirement
The wages a n d salaries expense for the month is:
A £50,000
B £56,000
C £74,500
D £80,500
LO 1c, 1 d
6 When a purchase invoice is received from a supplier which two of the following documents would the invoice be checked
to before it is recorded in the cloud-based accounting software?
A Sales order
B Purchase order
C Remittance advice
D Goods received note
E Credit note
LO 1c
7 George purchases goods o n credit from Hardeep for £1,000; £100 of these goods are defective and George returns them
to Hardeep.
Requirement
What document would Hardeep issue to George in respect of the returned goods?
A Invoice
B Remittance advice
C Credit note
D Delivery note
LO 1c
8 River d o w n load s their ba n k transaction report for the day. The report shows a cash pay ment of £41 2 which the
computerised accounting system has not been able to match to a transaction.
Requirement
The unmatched payment is most likely the result of:
A the purchase of a new laptop for £412
B payment to a regular credit supplier for an invoice totalling £412
C a receipt from a credit customer i n respect of an invoice for £450 o n which a p r o m p t payment discount of £38 was
taken
D the payment of net wages of £41 2 which is consistent with the payroll ledger
LO 1c
9 A business has the following payroll costs for a month:
£
Gross pay 112,450
Income tax deducted 15,800
Employees' national insurance 9,810
Employer's national insurance 11,200
Requirement
What is the net amou nt paid to employees for the month?
A £75,640
B £91,440
C £102,640
D £86,840
LO 1c, 1d
10 The petty cash float in a business has an imprest amount of £200. At the end of March, vouchers in the petty cash box
totalled £136 and the amount of cash remaining in the box was £54.
Requirement
Which of the following explains the difference?
A A petty cash voucher for £10 is missing.
B An employee was given £10 too little when making a petty cash claim.
C Two vouchers totalling £10 were prepared in error in respect of postage stamps purchased.
D A voucher for £10 was put in the box but no payment was made to the employee.
LO 1c
£
Gross pay 38,600
PAYE 5,400
Employees' national insurance 3,100
Employer's national insurance 3,500
Requirement
What is the wages cost to the business for the month?
A £38,600
B £42,100
C £47,100
D £50,600
LO 1c, 1d
12 Which two of the following are source documents that contain information that will be entered into a business's
accounting system?
A Goods received note
B Invoice to a customer
C Purchase order to a supplier
D Cheque payment to a supplier
E Delivery note to a customer
LO 1c
4 Ledger accounting a n d d o u b l e entry
1 Blake is a VAT registered trader whose sales a n d purchases carry VAT at the standard rate of 20%. Blake sells a customer
goods on cred it for £4,800 exclusive of VAT.
Requirement
What is the double entry to record this?
A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760
B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
LO 1d, 2c
4 A d e b i t balance of £3,000 brought d o w n o n America Ltd's account in Brazil Ltd's accounting records means that Brazil Ltd
owes America Ltd £3,000.
A True
B False
LO 1 d
5 Crimson pic paid an invoice from a credit supplier and took advantage of the early settlement discount offered. When the
invoice was received and recorded, Crimson pic did not expect to take the discount.
Requirement
The journal entry to record the payment of the invoice is:
A Debit Payables, Credit Purchases, Credit Cash at bank account
B Debit Payables, Credit Cash at bank account
C Debit Cash at bank account. Debit Purchases, Credit Payables
D Debit Cash at bank account. Credit Purchases, Credit Payables
LO I d
6 Winn Ltd has opening trade payables of £24,1 83 and closing trade payables of £34,655. Purchases for the period totalled
£254,192 of which £31,590 related to cash purchases.
Requirement
Total payments recorded in the payables ledger for the period were:
A £212,130
B £233,074
C £243,720
D £264,664
LO 1d, 2c
7 What is the correct double entry to record an invoice raised to a credit customer who is not expected to take advantage of
an early settlement discount?
A Debit Revenue, Credit Receivables
B Debit Payables, Credit Revenue
C Debit Receivables, Credit Revenue
D Debit Revenue, Credit Payables
LO 1 d, 2c
9 A payment has been received from a credit customer in settlement of an invoice. The customer was expected to take
advantage of an early settlement discount offered, however, payment was not made within the required timeframe and
the discount was not taken.
Requirement
The correct double entry to record the receipt of funds from the customer in full settlement of the invoice is:
A Debit Cash at bank, Credit Receivables, Credit Revenue
B Debit Cash at bank, Debit Revenue, Credit Payables
C Debit Receivables, Debit Revenue, Credit Cash at bank
D Debit Receivables, Credit Revenue, Credit Cash at bank
LO 1d, 2c
10 A business which is registered for VAT received the following invoice from one of its VAT registered suppliers:
Invoice: 7 0 3 5
Date: 2 0 December 20X0
950
Requirement
What amou nt of VAT should have been charged on the i nvoice?
A £180
B £190
C £200
D £210
LO 1c
5 Preparing basic financial statements
1 Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and expense ledger
accounts to the profit and loss ledger account the total credits in the profit and loss ledger account exceed the total
debits by £4,000.
Requirement
Which two of the following statements about Anchor Ltd are correct?
A Anchor Ltd has reported a loss for the year of £4,000.
B Anchor Ltd has reported a profit for the year of £4,000.
C To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital account and debit the
profit and loss ledger account with £4,000.
D The opening balance on the profit and loss ledger account for the next reporting period is £4,000 credit
E The closing balance on the profit and loss ledger account of £4,000 should be deducted from the capital account to
give the profit for the year.
LO3c
3 Gerrard Ltd is registered for VAT.In the month of April, it sells goods to customers for a total of £89,436 excluding VAT
and purchases goods from suppliers fora total of £86,790 including VAT.
Requirement
What is the net amount shown in Gerrard Ltd's VAT account at the end of April?
A £3,422 debit
B £2,452 debit
C £3,422 credit
D £2,452 credit
LO 3c
4 Which of the following statements concerning the preparation of financial statements is true?
A The balances on income and expense accounts are brought down at the end of the accounting period to be carried
forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger account known as the statement
of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted from the business’s accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.
LO 3c
5 A sole trader had trade receivables of £2,700 at 1 May. During May they made cash sales of £7,200, credit sales of
£16,500 and received £1 5,300 from their credit customers.
Requirement
The balance o n the trade receivables account at the e n d of May was:
A £1,500
B £3,900
C £8,700
D £11,100
LO3c
7 Plym pic is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the year to 3 0 June 20X7, Plym pic
made purchases of £69,600 including VAT and made sales of £89,400 excluding VAT. There was no change in the figures
for opening and closing inventory in the statements of financial position as at 30 June 20X6 a n d 20X7.
Requirement
What was Plym pic's gross profit for the yea r ended 3 0 J u n e 20X7?
A £19,800
B £4,900
C £31,400
D £16,500
LO 3 c
8 Vai had an opening trade payables balance of £3,450 o n 1 December. During the month of December, they sold goods
totalling £6,780 to customers o n credit, purchased goods totalling £5,100 from suppliers o n credit and made cash
purchases of £400. They also received £3,900 from credit customers a n d made payments to credit suppliers of £4,200.
Requirement
What was the balance o n Vai's trade payables account at the e n d of December?
A £4,350
B £6,330
C £4,750
D £2,550
LO 3c
9 The following are balances on the accounts of London, a sole trader, as at the end of the current financial year and after all
entries have been processed and the profit for the year has been calculated.
£
Non-current assets 85,000
Trade receivables 7,000
Trade payables 3,000
Bank loan 15,000
Accumulated depreciation, non-current assets 15,000
Inventory 4,000
Accruals 1,000
Prepayments 2,000
Bank ove rd raft 2,000
Requirement
What is the balance on London's capital account?
A £59,000
B £66,000
C £62,000
D £64,000
LO 3c
6 Errors a n d corrections to accounting records a n d
financial statements
1 Which three of the following situations are likely to result in a suspense account being used to record a transaction?
A A receipt of £135 from a customer who unexpectedly, b u t correctly, has taken a 3% prompt payment discount.
B A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
C A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the bookkeeper was
unsure where to record the credit entry.
E A payment made to a supplier for £90.25 in respect of an invoice for £95 o n which a p r o m p t payment discount of 5%
was expected to be taken.
LO2b
3 When performing a reconciliation between the bank transaction report and the cash at bank account, which two of the
following would require an entry in the cash at bank account?
A Deposits credited after date
B Direct d e b i t shown o n bank transaction report only
C Bank charges
D Bank error
E Cheque presented afterdate
LO2b
4 Epsilon Ltd's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn. On comparing this with the
transaction report downloaded from the electronic banking system, the accountant discovers the following:
(1) A payment of £57 made by Epsilon Ltd o n 31 December 20X3 has not yet cleared its bank.
(2) A n electronic funds transfer of £92 from a customer, which was paid into the bank o n 30 December 20X3, has been
dishonoured by the customer's bank o n 31 December 20X3.
Requirement
The correct balance in Epsilon Ltd's cash at bank account as at 31 December 20X3 is:
A £473 debit
B £71 4 credit
C £657 credit
D £473 credit
LO2b
5 Smock Ltd's draft profit for the year is £324,700. After the draft profit was calculated, the following issues were discovered.
• Debts of £6,800 should have been written off as irrecoverable at the year end, b u t the journal entry was not posted.
* The accounting software had automatically calculated a n d recorded depreciation, b u t the standing data was found to
b e incorrect. The depreciation rate for cars should have been updated to 20% straight-line at the start of the year but,
was left as 25% straight-line in error. The balance o n the car cost account at the year-end was £24,000. There were no
additions o r disposals of cars in the year.
Requirement
What is Smock Ltd's corrected profit for the year after accounting for the above issues?
A £323,500
B £319,100
C £313,100
D £316,700
LO 2a, 2 b
6 A company's initial trial balance includes a balance of £25,000 i n a suspense account O n reviewing the exception report,
the bookkeeper identified the amount as a purchase of machinery for £25,000. The amount had been correctly recorded
in cash at bank, but the other side of the transaction had not been matched b y the accounting system.
Requirement
Which of the following journal entries would remove the suspense account and correctly record the purchase of
machinery?
A DEBIT, Plant and machinery, £25,000; CREDIT, Cash at bank account, £25,000
B DEBIT, Suspense account, £25,000; CREDIT, Plant a n d machinery £25,000
C DEBIT, Plant and machinery, £25,000; CREDIT, Suspense account £25,000
D DEBIT, Cash at bank account, £25,000; CREDIT, Suspense account £25,000
LO2c
7 The following information relates to a bank reconciliation. The balance in the cash at bank account before taking the items
below into account was £8,970 overdrawn.
(1) Bank charges of £550 o n the bank statement have not been entered i n the cash at bank account.
(2) The bank has credited the account in error with £425 which belongs to another customer.
(3) Electronic payments total ling £3,275 made shortly before the year e n d have been entered in the cash at bank
account b u t have not yet cleared the bank statement.
(4) Cash receipts totalling £5,380 have been correctly entered o n the d e b i t side of the cash at bank account but have not
been paid into the bank.
Requirement
What was the overdrawn balance as shown by the bank statement?
A £6,990
B £10,650
C £11,200
D £11,625
LO2b
ZD
8 Which two of the following statements about bank reconciliations are correct?
A In preparing a bank reconciliation, unpresented cheques must be deducted from the balance shown in the bank
statement.
B An electronic payment from a customer, which was dishonoured due to a lack of funds in the customer's bank
account, must be corrected making a debit entry in the cash at bank account.
C An error by the bank must be corrected by an entry in the cash at bank account.
D An overdraft is a debit balance on the bank statement.
E Bank charges that only appear on the bank statement must be debited to the cash at bank account
LO2b
9 Alpha received a statement from its credit supplier Beta, showing a balance to be paid of £8,950. Alpha's payables ledger
for Beta shows a balance due to Beta of £4,140.
Investigation reveals the following:
(1) A bank transfer made to Beta of £4,080 shortly before year end has not been recorded by Beta.
(2) Alpha has not adjusted the payables ledger for a £40 cash discount taken by Alpha but not allowed by Beta as
payment was not made on time.
(3) Goods costing £380 returned by Alpha have not been recorded by Beta.
Requirement
What discrepancy remains between Alpha's and Beta's records after accounting for these items?
A £9,310
B £390
C £310
D £1,070
LO2a
10 Peri's customer unexpectedly took advantage of an early settlement discount for £300, paying £3,700 on an invoice which
totalled £4,000. Peri's bookkeeper was not sure howto record the discount taken and so posted the following journal
entry:
Requirement
Which of the following journal entries will remove the suspense account and correctly record the discount?
A Debit Receivables £300, Credit Suspense account £300
B Debit Revenue £300, Credit Suspense account £300
C Debit Cash at bank £300, Credit Suspense account £300
D Debit Payables £300, Credit Suspense account £300
LO 2c
11 Which two of the following differences between a company's cash at bank account and its bank transaction report
balance as at 30 November 20X3 would feature in the bank reconciliation?
A Electronic payments which were initiated and recorded in the cash at bank account on 30 November 20X3 which
have not yet cleared the bank statement
B Omission by the bank of a cash lodgement made by the company on 30 November 20X3 but not recorded by the
bankuntill December 20X3
C Bank charges presented in the bank statement on 28 November 20X3
D A digital wallet payment received from a customer and recorded on 30 November 20X3 but was dishonoured by the
customer's bank
LO 2b
12 An error of principle would occur if plant and machinery purchased:
A was omitted from the accounting records
B was debited to the purchases account
C was debited to the equipme nt account
D was debited to the correct account but with the wrong amount
LO2a
13 Asela s exception report showed £265 received in the business bank account, and correctly recorded in cash at bank,
could not be matched by the accounting system and so had been posted to a suspense account. Asela discovered that
the receipt was in respect of a sales invoice for £295 on which the customer had unexpectedly taken a prompt payment
discount of £30. The customer had paid within the required timeframe and so was entitled to take the discount.
Requirement
Which of the following journal entries should Asela post to correctly record the receipt and clear the suspense account?
A Debit Trade receivables £265, Cred it Suspense account £265
B Debit Revenue £30, Debit Suspense account £265, Credit Trade receivables £295
C Debit Suspense account £265, Credit Trade receivables £265
D Debit Trade receivables £295, Credit Revenue £30, Credit Suspense account £265
LO2b
£ £
1,373,000 1,373,000
Requirement
What would be the closing trade payables balance when the errors have been corrected?
A £325,200
B £350,400
C £333,600
D £410,400
LO2b
1 7 Owais's trial balance included a suspense account which had been automatically opened by the computerised
accounting system. Using the exception report, the bookkeeper identified that the balance in the suspense account was
due to the following unmatched transactions:
(1) A payment to a credit supplierfor £1 35 related to an invoice for £120. The business missed the deadline to take the
early settlement discount it had expected to take.
(2) A receipt of £90 from a credit customer who had unexpectedly (but appropriately) taken an early settlement discount
of £10.
(3) Interest received in the business bank account of £70.
Requirement
What is the balance o n the suspense account?
A Debit £25
B Credit £25
C Debit £65
D Credit £65
LO2b
18 All of Elmo's sales a n d purchases attract VAT at 20%. A customer has just returned goods sold for £230 excluding VAT.
Requirement
The double entry for this transaction is:
A Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230
B Debit Revenue £276, Cred it Trade receivables £276
C Debit Revenue £230, DebitVAT £46, Credit Trade receivables £276
D Debit Trade receivables £230, DebitVAT £46, Credit Revenue £276
LO2c
19 Incorrectly recording the purchase of stationery by debiting the computer equipment account would result in:
A an overstatement of profit and an overstatement of non-current assets
B an understatement of profit and an overstatement of non-current assets
C an overstatement of profit and an understatement of non-current assets
D an understatement of profit and an understatement of non-current assets
LO2a
2 0 In the trade payables of Magma Ltd, an invoice of £807 from Ferdinand has been recorded as a credit note.
Requirement
After correcting this error, the trade payables balance will be:
A reduced b y £807
B reduced b y £1,614
C increased by £807
D increased by £1,614
LO2b
21 Beta Ltd has calculated a draft gross profit of £1 50,000 and a draft net profit of £83,000 for the year e n d e d 31 December
20X3.
Two issues were then discovered:
(1) Inventory costing £5,000, with a resale value of £7,500, was received into the warehouse o n 2 January 20X4 but had
been included in the closing inventory amount at 31 December 20X3.
(2) £10,000 relating to staff training costs was incorrectly capitalised as part of the purchase cost of a new machine which
had been purchased o n 1 July 20X3. Beta Ltd depreciates machinery o n a straight-line basis a t a rate of 20% per
annum. Depreciation should b e included as an administrative expense in the year.
Requirement
After correcting these issues, what amounts should Beta Ltd report for gross profit and net profit?
A Gross profit: £142,500; Net profit: £66,500
B Gross profit: £145,000; Net profit: £69,000
C Gross profit: £145,000; Net profit: £74,000
D Gross profit: £142,500; Net profit: £65,500
LO 2a
22 Emery a sole trader, has taken goods valued at £1,800 for their own use. This has not been recorded in arriving at their
draft profit figure.
To record the drawings, Emery must adjust cost of sales by:
A Debit £1,800
B Credit £1,800
As a result, Emery's reported profit will:
C Increase
D Decrease
LO 2a, 2c
23 Supplier Ruffle Ltd has a debit balance of £26 in Staint pic’s payables ledger.
Requirement
Which of the following would, alone, explain this balance?
A Staint pic paid an invoice for £26 even though it had recorded a credit note that Ruffle Ltd had issued in respect of
this amount.
B Staint pic b o u g h t a n d paid for some goods for £26 which it then returned, b u t Ruffle Ltd has not yet issued a credit
note.
C Staint pic received a credit note for £26 from Ruffle Ltd but posted it to the account of Rustle Ltd.
D Staint pic transferred funds to Ruffle Ltd for £53 in respect of an invoice for £79.
LO 2a, 2 b
2 4 Catt pic has prepared its draft statement of profit or loss at 31 May 20X1 which shows a gross profit of £99,500. Catt pic
has now discovered that at both the beginning and the e n d of the period, one line of inventory, the Sungsa, has been
included at selling price: £1,240 at 31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold a t a mark-up of
25% b y Catt pic.
Requirement
After correcting this error Catt pic’s gross profit for the year to 31 May 20X1 is:
A £99,996
B £99,004
C £98,880
D £100,120
LO2a
25 Mayo pic has prepared a draft statement of profit o r loss that shows a net profit of £75,000 for the year e n d e d 30 April
20X5. Subsequently, the following matters have been discovered.
(1) A subscription notice for £1,000 was received in April 20X5 for the year to 3 0 April 20X6. Mayo pic pays the
subscription in two equal instalments. The first instalment was paid o n 28 April 20X5 and posted to the cash at bank
account a n d to administrative expenses. N o other entries have been made.
(2) Goods that cost £400 a n d sold at a gross margin of 75% were returned by Dandy Ltd on 3 0 April 20X5, after the
inventory count had taken place. N o credit note was issued.
Requirement
Once these matters have been dealt with Mayo pic’s net profit for the year ended 3 0 April 20X5 will be:
A £75,400
B £74,300
C £75,100
D £75,700
LO2a
26 Hood Ltd has a draft net profit of £540,000 for the year ended 31 October 20X2. It discovered the following errors:
(1) Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and fittings. Hood Ltd depreciates
fixtures and fittings at 25% per annum.
(2) An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a customer was debited to trade
receivables and credited to sales.
Requirement
On correction of these errors Hood Ltd's net profit will be:
A £535,050
B £531,480
C £533,265
D £536,430
LO2a
27 Net profit was calculated as being £10,200. It was later discovered that capital expenditure of £3,000 had been treated as
revenue expenditure, and revenue receipts of £1,400 had been treated as capital receipts.
Requirement
What is the net profit after correcting for these errors?
A £5,800
B £8,600
C £11,800
D £14,600
LO2a
28 On reviewing its cash at bank account and the transaction report downloaded from its electronic banking system, Probla
pic discovers the following errors:
(1) A payment received from a credit customer for £1,095 was manually recorded in trade receivablesand cash at bank
account as £1,509.
(2) A cheque to a credit supplier for £89 was entered incorrectly in trade payables and the cash at bank account as £98.
Requirement
What is the journal entry to correct these errors?
A Debit Receivables £414, Credit Payables £9, Credit Cash at bank £405
B Debit Cash at bank £405, Debit Payables £9, Credit Receivables £414
C Debit Receivables £414, Debit Payables £9, Credit Cash at bank £423
D Debit Cash at bank £423, Credit Receivables £414, Credit Payables £9
LO 2b
29 In relation to trade payables at the year end of 30 April 20X1, Jitka pic has discovered that:
(1) a contra of £85 with trade receivables is required; and
(2) an early settlement discount of £2,220, which was taken appropriately by a credit customer, was credited to revenue
and debited to trade payables. Jitka pic had not expected the customer to take the discount.
Before these discoveries, the balance on trade payables was £72,560.
Requirement
In its statement of financial position as at 30 April 20X1 Jitka pic will have a figure for trade payables of:
A £70,255
B £74,695
C £74,865
D £76,915
LO 2a, 3c
30 Topping pic's initial trial balance for the year ended 31 October 20X9 has been prepared. It shows draft profit for the
period of £58,147 and a credit balance on a suspense account of £738 in respect of accrued expenses. The bookkeeper
was unsure of howto record the accrual and incorrectly debited £738 to prepayments and credited the suspense account.
Requirement
What is Topping pic's profit for the period after this error has been corrected?
A £59,623
B £57,409
C £58,885
D £56,671
LO2a
7 Cost of sales a n d inventories
1 A business has opening inventory of £7,200 and closing inventory of £8,100, Purchases for the year were £76,500,
delivery inwards was £50 and delivery outwards was £180,
Requirement
What is the amount for cost of sales?
A £75,550
B £75,650
C £75,830
D £77,450
LO 1d, 3c
2 Platoon pic is preparing its financial statements for the year e n d e d 30 April 20X1, having extracted an initial trial balance.
It had n o opening inventory, its purchases in the period were £686,880 and closing inventories were valued as £18,647 o n
30 April 20X1,
Requirement
Which two of the following journal entries are required to record cost of sales and closing inventories at 30 April 20X1?
A Dr Cost of sales: £686,880; Cr Inventories: £686,880
B Dr Purchases: £686,880; Cr Cost of sales: £686,880
C Dr Cost of sales: £686,880; Cr Purchases: £686,880
D Dr Inventories: £18,647; Cr Cost of sales: £18,647
E Dr Cost of sales: £1 8,647; Cr Inventories: £1 8,647
F Dr Inventories: £1 8,647; Cr Purchases: £1 8,647
LO3c
3 Muse pic began trading o n 1 January 20X8 and had n o opening inventories at that date. During 20X8 it made purchases
of £455,000, incurred delivery inwards of £24,000, a n d delivery outwards of £29,000. Closing inventories at 31 December
20X8 were £52,000,
Requirement
What is the amount of cost of sales for the year ended 31 December 20X8?
A £456,000
B £427,000
C £432,000
D £531,000
LO 3c
4 Boomerang C o had 200 units in inventory at 30 November 20X1 valued at £800. During December 20X1 it made the
following purchases and sales.
Requirement
Which of the following is the closing inventory amount using the first in first o u t (FIFO) method?
A £4,460
B £4,340
C £4,620
D £3,500
LO 1 d
5 The following information relates to Camberwell pic's year-end inventory of finished goods.
£ £ £ £
Requirement
At what amount should finished goods inventory be stated in the company's statement of financial position?
A £13,280
B £18,960
C £18,760
D £19,580
LO 1 d
6 At its year e n d Crocodile pic has 6,000 items of product A costing £10 per unit, and 2,000 items of product B costing £5
per unit. The following information is available:
Product A - 500 are defective a n d can only be sold at £8 each.
Product B - 100 are to be sold for £4.50 each with selling expenses of £1 .50 each.
Requirement
What amount should b e shown in Crocodile pic's statement of financial position for inventory?
A £57,000
B £68,950
C £68,800
D £70,000
LO 1d, 3c
7 Indicate whether the following statements are true o r false.
In a period of rising prices, applying the first in first o u t (FIFO) method to determine the cost of inventories will give a
lower gross profit figure than the average cost (AVCO) method.
A True
B False
Closing inventory is a d e b i t in the statement of profit o r loss.
C True
D False
LO 1 d , 2 a
8 Mickey Ltd has calculated the cost of inventory using the average cost (AVCO) method. At 1 June 20X8, there were 60
units in inventory at a cost of £12 each. O n 8 June, 40 units were purchased for £15 each, and a further 50 units were
purchased for £18 each o n 1 4 June. O n 21 June, 75 units were sold for £20.00 each.
Requirement
What is the carrying amount of closing inventory at 30 June 20X8?
A £1,110
B £1,010
C £900
D £1,125
LO 3c
9 Morgan pic's direct production cost of each unit of inventory is £46. Production overheads are £1 5 per unit. Currently the
goods can only b e sold if they are modified at a cost of £1 7 per unit. The selling price of each modified unit is £80 and
selling costs are estimated at 10% of selling price.
Requirement
At what amount should each unmodified unit of inventory b e included in the statement of financial position?
A £48
B £55
C £64
D £61
LO 3c
12 Which of the following statements about inventory for the purposes of the statement of financial position is correct?
A Average cost (AVCO) and last in first o u t (LIFO) are both acceptable methods, under IAS 2 , Inventories, of arriving at
the cost of inventories.
B The cost of inventories of finished goods may include labour and materials cost only, without including overheads,
C Inventories should be included at the lowest of cost, net realisable value and replacement cost.
D It may b e acceptable for the cost of inventories to be based o n selling price less estimated profit margin.
LO 1 d
1 4 Sahara pic sells three products: Basic, Super a n d Luxury. The following information was available at the year end.
Original cost 6 9 18
Estimated selling price 9 12 15
Requirement
What is the value of inventory at the year end?
A £3,600
B £4,700
C £5,100
D £6,150
LO 1 d
15 A company uses the first in first out (FIFO) method to arrive at its inventory cost At 1 May 20X2 the company had 700
engines in inventory, valued at £1 90 each.
During the year e n d e d 30 April 20X3 the following transactions took place:
20X2
20X3
Requirement
What is the cost of the company's closing inventory of engines at 30 April 20X3?
A £188,500
B £195,500
C £161,500
D £167,500
LO 1 d
16 An inventory record has been extracted from the computerised accounting system. It shows the following details.
Requirement
What is the cost of inventory at 28 February using the first in first out (FIFO) method?
A £2,450
B £2,500
C £2,700
D £2,950
LO I d
17 For the year ended 31 October 20X3 a company carried out a physical count of inventory on 4 November 20X3, leading
to a n inventory cost at this date of £483,700.
The following transactions took place between 1 November 20X3 and 4 November 20X3:
(1) Goods costing £38,400 were received from suppliers.
(2) Goods that had cost £1 4,800 were sold for £20,000.
(3) A customer returned, in good condition, some goods which had been sold to them in October for £600 and which
had cost £400.
(4) The company returned goods that had cost £1,800 i n October to the supplier, and received a credit note f o r t h e m .
Requirement
What amount should b e shown in the company's financial statements at 31 October 20X3 for closing inventory, based on
this information?
A £458,700
B £505,900
C £508,700
D £461,500
LO 3c
18 In preparing its financial statements for the current year, a company's closing inventory was understated by £300,000.
Requirement
What will be the effect of this error if it remains uncorrected?
A The current year's profit will b e overstated and next year's profit will b e understated.
B The current year's profit will b e understated but there will be n o effect o n next year's profit.
C The current year's profit will b e understated and next year's profit will be overstated.
D The current year's profit will b e overstated but there will be n o effect o n next year's profit.
LO2a
Requirement
What amount should b e included i n the financial statements for inventories at 31 December 20X4?
A £838,100
B £842,300
C £818,500
D £834,300
LO 3c
21 The closing inventory of Epsilon Ltd amou nted to £284,000 at cost at the year e n d of 30 September 20X1 .This tota I
includes the following two inventory lines.
(1) 500 items which had cost £1 5 each and which were included at £7,500. These items were found to have been
defective at the date of the statement of financial position. Remedial work after that date cost £1,800 and they were
then sold shortly afterwards for £20 each. Selling expenses were £400.
(2) 100 items which had cost £10 each. After the date of the statement of financial position they were sold for £8 each,
with selling expenses of £1 50.
Requirement
What amount should b e shown in Epsilon Ltd's statement of financial position for inventory at 30 September 20X1 ?
A £283,650
B £284,350
C £284,650
D £291,725
LO 3c
22 Lamp Ltd makes the following purchases in the year ending 31 December 20X9:
At the year-end 200 units are in inventory but 8 are damaged a n d are only worth £10 per unit These are identified as
having been part of the 1 1 November 20X9 delivery. Lamp Ltd measures the cost of inventory using the FIFO method.
Requirement
What is the correct figure for inventories at 31 December 20X9?
A £2,450
B £2,525
C £2,594
D £2,700
LO I d
23 Bouncy Balls pic has 4 0 units of its special spongy balls in inventory as at 30 November 20X7. The product costs £5 per
unit to manufacture and can be sold for £15 per u n i t Half of the units in inventory at the yea r-e n d have been damaged
and will require rectification work costing £10 per unit before they can b e sold. Selling costs are £1 per unit.
Requirement
What is the value of inventory at 30 November 20X7?
A £160
B £180
C £200
D £600
LO 1d
2 4 The closing inventory of Stacks pic amounted to £58,200 excluding the following two inventory lines:
(1) 200 items which had cost £1 5 each. These items were found to b e defective at the year-end date. Rectification work
after that date amounted to £1 r 200 for the batch, after which they were sold for £1 7.50 each, with selling expenses
totalling £300 for the batch.
(2) 400 items which had cost £2 each. All were sold after the year-end date for £1 .50 each, with selling expenses of £200
for the batch.
Requirement
What amount for inventory should be shown in the statement of financial position of Stacks pic?
A £62,000
B £61,600
C £60,600
D £61,000
LO 3c
25 Fenton pic is a manufacturer of tablets. The company makes two different models, the M 1 and M2, and has 100 of each in
inventory at the year end.
Costs and related data for a unit of each model are as follows:
Ml M2
£ £
Delivery outwards 65 75
Requirement
What figure for inventory should be shown in the statement of financial position at the year end?
A £57,500
B £58,000
C £65,000
D £65,500
LO 3c
26 When calculating the cost of inventory, which of the following shows the correct method of arriving at cost?
A Include inward delivery costs. Exclude production overheads
B Exclude inward delivery costs, Include production overheads
C Include inward delivery costs. Include production overheads
D Exclude inward delivery costs, Exclude production overheads
LO 1d
27 A trader who sets her selling prices by adding 50% to cost, only managed to achieve a mark-up of 45%,
Requirement
Which of the following factors could account for the shortfall?
A Sales were lower tha n expected.
B The value of the opening inventories had been overstated.
C The closing inventories of the business were higher than the opening inventories.
D Goods taken from inventories by the proprietor were recorded by debiting drawings and crediting purchases with the
cost of the goods.
LO2a
29 Which of the following factors could cause a company's gross profit margin to fall below the expected level?
A Overstateme nt of cI osin g i nvento ries
B The incorrect inclusion in purchases of invoices relating to goods supplied in the following period
C The inclusion in sales of the proceeds of sale of non-current assets
D Increased cost of delivery borne by the company on goods sent to customers
LO I d
3 0 An extract from a business's statement of profit or loss is as follows:
£ £
Revenue 1 1 5,200
Purchases 80,000
(96,000)
1 9,200
Requirement
What mark-up has the business applied?
A 14.8%
B 16.7%
C 20.0%
D 83.3%
LO I d
31 Franz pic is a manufacturer. Its 12-month reporting period ends o n 31 July a n d it adopts the average cost (AVCO) method
when valuing its closing inventory. At 1 August 20X4 it held inventory of 2,400 units of the material Zobdo, valued at £10
each. In the year to 31 July 20X5 there were the following inventory movements of Zobdo:
Requirement
What was the cost of Franz pile's closing inventory of Zobdo at 31 July 20X5?
A £11,700
B £9,000
C £15,075
D £35,100
LO 1 d
32 For many years Wrigley pic has experienced rising prices for raw material X and has kept constant inventory levels. It has
always used the average cost (AVCO) method to arrive at the cost of inventory.
Requirement
What would the result be if Wrigley pic had always used the first in first out (FIFO) method i n each successive year’s
financial statements?
A Lower cost of sales a n d higher closing inventory
B Lower cost of sales a n d lower closing inventory
C Higher cost of sales a n d lower closing inventory
D Higher cost of sales a n d higher closing inventory
LO 1d, 3a
33 During the year e n d e d 31 March 20X4 Boogie pic suffered a major fire at its factory, in which inventory that had cost
£36,000 was destroyed. An insurance payment of 80% of the cost has been agreed but not received at the year end.
Requirement
Which of the following correctly completes the journal entry to take account of these matters?
Debit trade and other receivables with £28,800 and:
A Debit Administrative expenses £36,000, Credit Purchases £28,800, Credit Revenue £36,000
B Debit Administrative expenses £7,200, Credit Purchases £36,000
C Debit Administrative expenses £36,000, Credit Purchases £36,000, Credit Other income £28,800
D Debit A d ministrative expenses £7,200, Credit I n ventory £36,000
LO 2a, 2c
3 4 Percy pic started trading on 1 April 20X4 and made a loss in the year to 31 March 20X5. The cost of inventory shown in
Percy pic's statement of financial position at 31 March 20X5, using the average cost(AVCO) basis, was £6,420. Had the
first in first o u t (FIFO) basis been used, the cost would have been £8,080.
Requirement
What is the effect of adopting the FIFO basis o n Percy pic's financial statements for the year ended 31 March 20X5?
A decreases losses and decrease current assets by £1,660
B increase current assets and decrease losses by £1,660
C increase capital and decrease current assets by £1,660
D increase current assets and increase losses by £1,660
LO 1 d, 3a, 3c
35 Kane Ltd has completed its inventory count for the period e n d e d 30 June 20X8. The inventory count concluded that there
were inventories costing £32,340 of which £1,280 were found to be damaged and had a net realisable value of nil.
Requirement
What is the journal entry to record closing inventories at 30 June 20X8?
A Dr Cost of sales: £32,340; Cr Inventories: £32,340
B Dr Inventories: £32,340; Cr Cost of sales: £32,340
C Dr Cost of sales: £31,060; Cr Inventories: £31,060
D Dr I n ventories: £31,060; Cr Cost of sales: £3 1 ,060
LO 1d
i u
36 Mango Ltd provides website design and development services to its clients. It has a contract relating to the design of a
website for its client Pear Ltd. The contract commenced on 1 June 20X5 and is d u e to be completed by 31 August 20X5
and is therefore in progress at its year e n d 31 July 20X5. The following information is relevant to the contract:
Lead designer 20 12 75
Developer 12 4 80
Requirement
Calculate the amount of the work-in- progress at 31 July 20X5,
A £Nil
B £2,860
C £1,907
D £1,320
LO 1 d
37 Pogo Ltd provides environmental consultancy services to its clients, advising o n how they can reduce their waste and
make their practices more sustainable. Pogo Ltd recently entered into a contract with a new client which is ongoing at
Pogo Ltd's year end of 31 December 20X5. The directors of Pogo Ltd have asked you to identify which of the costs
incurred can b e included in its work-in progress at 31 December 20X5.
Requirement
Which THREE of the following costs can be included in work-in-progress at 31 December 20X5?
A Costs of advertising the services offered to all clients
B Legal fees incurred i n agreeing the contract with the client
C Administrative expenses incurred in running Pogo Ltd's offices
D A bonus paid to Pogo Ltd's staff for securing the contract with the client
E The salary of Pogo Ltd's payroll manager
F Travel costs incurred in agents travelling to the client's workplace
LO I d
8 Irrecoverable debts a n d allowance for receivables
1 At 30 September 20X4, Mathieson pic's allowance for receivables was £19,500. At 30 September 20X5 it was decided to
write off irrecoverable debts totalling £6,000 and to decrease the allowance for the remaining receivables to £1 5,000.
Requirement
What is the adjustment to the statement of profit or loss in respect of irrecoverable debts for the year ended 30
September 20X5?
A £1,500 credit
B £1,500 debit
C £21,000 debit
D £21,000 credit
LO I d
2 At 30 June 20X1 Cameron pic has decided to write off two debts of £1,300 and £2,1 50 respectively a n d to make an
allowance of £6,631 against the remaining trade receivables balance. The balance o n the allowance at 1 July 20X0 was
£8,540.
Requirement
What is Cameron pic's irrecoverable debts expense for the year to 30 June 20X1 ?
A £1,541
B £1,909
C £3,450
D £5,359
LO 1d, 3c
5 At 28 February 20X4, a company's allowance for receivables was £38,000. At 28 February 20X5 it was decided to write off
£28,500 of receivables and to increase the allowance for the remaining receivables to £42,000.
Requirement
What is the irrecoverable debts expense in the statement of profit o r loss for the year e n d e d 28 February 20X5?
A £42,000
B £28,500
C £70,500
D £32,500
LO 1d
6 Arrow pic had a receivables balance of £7,050 at 31 December 20X0. During the year £500 was received in respect of a
debt previously written off, a n d an allowance for receivables of £495 was considered necessary at the year end. The
allowance brought down as at 1 January 20X0 was £1,000.
Requirement
What is the amount of irrecoverable debts for inclusion i n the statement of profit o r loss for the year ended 31 Decern ber
20X0?
A debit £5
B debit £1,005
C credit £5
D credit £1,005
LO 1d, 3c
7 During 20X5 Bow pic received £500 from a customer in respect of a balance that had previously been written off, and
reduced its allowance for receivables to £100. The allowance brought d o w n as at 1 January 20X5 was £1,000. At the year
e n d the debt of £280 relating to a customer who has entered administration needs to b e written off.
Requirement
What is the amount of irrecoverable debts for inclusion in the statement of profit o r loss for the year ended 31 December
20X5?
A £880 d e b i t
B £780 d e b i t
C £1,120 credit
D £1,300 credit
LO 3c
8 At 31 December 20X2 a company's trade receivables totalled £400,000 and an allowance for receivables of £50,000 had
been brought forward from the year e n d e d 31 December 20X1 .
It was decided to write off debts totalling £38,000 and to adjust the allowance for receivables to £36,200.
Requirement
What is the irrecoverable debts expense that should appear in the company's statement of profit or loss for the year
e n d e d 31 December 20X2?
A £36,200
B £51,800
C £38,000
D £24,200
LO 3c
1 0 At 1 May trade receivables were £31,475. During May, sales of £125,000 were made o n credit. Receipts from credit
customers amounted to £122,500 a n d settlement discounts of £550 that were not expected to b e taken at the date of
invoice were taken by credit customers. Credit notes of £1,300 were issued to customers.
Requirement
What is the closing trade receivables balance at 31 May?
A £34,725
B £33,225
C £32,125
D £35,825
LO I d
11 Panther pic had an allowance for receivables at 1 July 20X1 of £450. Panther pic wants to write off a receivables balance of
£800 as irrecoverable and increase the allowance for receivables to £2,965.
Requirement
As well as crediting trade receivables with £800, what other entries must be made to record the required adjustments in
Panther pic's accounting records?
A Debit: Irrecoverable debts expense £3,315; Credit: Allowance for receivables £2,51 5
B Debit: Allowance for receivables £2,51 5; Credit: Irrecoverable debts expense £3,31 5
C Debit: Irrecoverable debts expense £3,765; Credit: Allowance for receivables £2,965
D Debit: Allowance for receivables £2,965; Credit: Irrecoverable debts expense £3,765
LO 1d, 3c
LkJ I (J, J C
12 The following trade receivables account has been prepared by an inexperienced bookkeeper and may contain errors of
principle.
TRADE RECEIVABLES
£ £
20X3 20X3
Discounts given to
customers 3,660
484,180 484,180
Requirement
What is the amount of trade receivables that should appear o n the statement of financial position at 31 December 20X3?
A £289,350
B £291,350
C £287,750
D £297,590
LO 1d, 3c
13 At 30 June 20X4 a company's allowance for receivables was £39,000. At 30 June 20X5 trade receivables totalled
£517,000. It was decided to write off debts totalling £37,000 and to adjust the allowance for receivables to £24,000.
Requirement
What figure should appear in the statement of profit or loss for irrecoverable debts expense for the year ended 30 June
20X5? “
A £52,000
B £22,000
C £37,000
D £23,850
LO 3c
16 The following issues arose while Atkins Ltd was preparing its financial statements for the year to 31 December 20X2.
(1) £350 was received in December 20X2 in respect of a d e b t which had been written off in the previous year. The
receipt was correctly included in the cash at bank account, b u t the computerised accounting system was unable to
match this transaction and posted the other side of the entry to a suspense account.
(2) The directors determined that that the allowance for receivables should be reduced from £900 to £800 at the year
end.
Requirement
What journal entries should Atkins Ltd post to account for the above issues?
A Debit Irrecoverable debts expense £450, Credit Suspense £350, Credit Allowance for receivables £100
B Debit Allowance for receivables £800, Credit Suspense £350, Credit Irrecoverable debts expense £450
C Debit Irrecoverable debts expense £450, Debit Suspense £350, Credit Allowance for receivables £800
D Debit Allowance for receivables £100, Debit Suspense £350, Credit Irrecoverable debts expense £450
LO 1d, 2 d
17 If Poppy pic reduces its allowance for receivables by £300, which of the following statements is correct?
A Current assets decrease by £300
B Current liabilities decrease by £300
C Gross profit increases by £300
D Net profit increases by £300
LO 2a, 3c
18 At 31 December 20X4 a company's trade receivables totalled £864,000 and the allowance for receivables was £48,000.
It was decided that debts totalling £13,000 were to be written off, and the allowance for receivables adjusted to £42,550.
Requirement
Which of the following journal entries would correctly record these adjustments?
A Debit: Irrecoverable debts expense £1 8,450; Credit: Allowance for receivables £1 8,450
B Debit: Irrecoverable debts expense £7,550; Debit: Allowance for receivables £5,450; Credit: Trade receivables
£13,000
C Debit: Irrecoverable debts expense £7,550; Credit Allowance for receivables £7,550
D Debit: Irrecoverable debts expense £55,550; Credit Allowance for receivables £42,550; Credit: Trade receivables
£13,000
LO 3c
I_<7 J C
19 A business has extracted its initial trial balance as at 31 December 20X7 as follows:
20 At 1 January 20X1 Urb pic received £3,000 in full settlement of a debt that had previously been written off.
At 31 December 20X1 Urb pic determined that a balance of £3,600 owed by a customer was irrecoverable and should be
written off.
Urb pic also decided to decrease its allowance for receivables from £2,200 to £1,500 on 31 December 20X1.
Requirement
What is the amount of irrecoverable debts for inclusion in the statement of profit or loss for the year ended
31 December 20X1?
A £1,300 debit
B £1,300 credit
C £100 debit
D £100 credit
LO 3c
21 At its year end of 28 February 20X6 Stope pic has in its accounting records a figure for trade receivables of £47,533, and
an allowance for receivables of £500 at 28 February 20X5.
One customer. Invincible pic, has experienced financial difficulties and has now gone into administration. Its balance of
£10,380 at 28 February 20X6 is deemed to be irrecoverable and should be written off.
The directors of Stope pic also wish to increase the allowance for receivables to £850.
Requirement
What will Stope pic record in its accounting records as at 28 February 20X6 in respect of the above transactions?
A Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,380
B Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,730
C Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,380
D Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,730
LO 3c
22 M o o n pic's initial trial balance as at 31 October 20X1 has been extracted and shows the following:
DEBIT CREDIT
£ £
Allowance for receivables as at 1 November 20X0 6,546
As at 31 October 20X1 Grundle Ltd's balance owed to M o o n pic of £1,860 is irrecoverable. It is also decided that the
allowance for receivables should b e increased to £8,420.
Requirement
What amount should M o o n pic include as its net trade receivables figure in the statement of financial position as at 31
October 20X1 ?
A £235,024
B £241,480
C £243,340
D £236,794
LO 3c
23 Meridi pic has an allowance for receivables of £500 o n 1 July 20X7. During the year to 30 June 20X8 the following events
take place:
(1) A cheque for £92 was recorded and correctly banked but was returned unpaid o n 2 9 June 20X8. No entries have yet
been made for this return. The directors wish to write the d e b t off as irrecoverable.
(2) A n allowance for receivables of £475 is required at the year end.
(3) A cheque received for £58 in respect of an amount written off in January 20X7 was recorded i n the cash at bank
account b u t the suspense account was used to record the other side of the transaction.
Requirement
What is the journal entry required to account for the above issues?
A Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9, Credit Allowance for
receivables £25
B Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33, Credit Cash at bank £92, Credit
Allowance for receivables £25
C Debit Suspense £58, Debit Irrecoverable debts expense £67, Debit Allowance for receivables £25, Credit Cash at
bank £92, Credit Receivables £58
D Debit Suspense £58, Debit Irrecoverable debts expense £9, Debit Allowance for receivables £25, Credit Cash at bank
£92
LO 11d, 2 d
8 Irrecoverable debts a n d allowance for receivables
1 At 30 September 20X4, Mathieson pic's allowance for receivables was £19,500. At 30 September 20X5 it was decided to
write off irrecoverable debts totalling £6,000 and to decrease the allowance for the remaining receivables to £1 5,000.
Requirement
What is the adjustment to the statement of profit or loss in respect of irrecoverable debts for the year ended 30
September 20X5?
A £1,500 credit
B £1,500 debit
C £21,000 debit
D £21,000 credit
LO 1d
2 At 30 June 20X1 Cameron pic has decided to write off two debts of £1,300 and £2,1 50 respectively and to make an
allowance of £6,631 against the remaining trade receivables balance. The balance o n the allowance at 1 July 20X0 was
£8,540.
Requirement
What is Cameron pic's irrecoverable debts expense for the year to 30 June 20X1 ?
A £1,541
B £1,909
C £3,450
D £5,359
LO 1d, 3c
1 A business preparing its financial statements for the year to 31 October pays rent quarterly in advance o n 1 January, 1
April, 1 July and 1 October each year. The annual rent was increased from £48,000 to £60,000 from 1 March 20X4.
Requirement
What amount should appear for rent in the statement of profit or loss for the year ended 31 October 20X4 and in the
statement of financial position as at that date?
A Statement of profit o r loss: £56,000; Statement of financial position: £1 0,000
B Statement of profit o r loss: £52,000; Statement of financial position: £5,000
C Statement of profit o r loss: £56,000; Statement of financial position: £5,000
D Statement of profit o r loss: £55,000; Statement of financial position: £1 0,000
LO 1d, 3c
Requirement
What amount of telephone expenses should be included in the statement of profit or loss for the year ended
31 December 20X1?
A £3,407.60
B £3,351.60
C £3,250.80
D £3,463.60
LO 1d, 3c
3 A company receives rental income from a large number of properties. The total cash received in the year e n d e d 31
October 20X6 was £481,200.
The following are the amounts of rental income received in advance and in arrears at 31 October 20X5 and 20X6.
£ £
Requirement
What amount of rental income should b e included in the company's statement of profit or loss for the year ended 31
October 20X6?
A £486,500
B £460,900
C £501,500
D £475,900
LO 1d, 3c
4 An insurance expense prepayment of £960 was treated as an accrual in a sole trader's statement of profit o r loss at the
year end. As a result, the profit was:
A understated by £960
B understated by £1,920
C overstated by £1,920
D overstated by £960
LO 1d, 3c
5 In the year ended 31 December 20X4 B Ltd received cash of £31 8,600 from subscribers to its website in respect of fitness
classes B Ltd provides through its website.
Details of subscriptions i n advance and in arrears at the beginning and end of 20X4 are as follows:
£ £
Subscriptions received in advance 28,400 24,600
Requirement
What figures, based on these receipts, should be included in the company's financial statements for the year ended 30
November 20X2?
A Statement of profit or loss: £33,500 Debit; Statement of financial position: Accrued income (Debit) £6,000
B Statement of profit or loss: £33,500 Credit; Statement of financial position: Deferred income (Credit) £6,000
C Statement of profit or loss: £34,000 Credit; Statement of financial position: Deferred income (Credit) £3,000
D Statement of profit or loss: £34,000 Credit; Statement of financial position: Accrued income (Debit) £3,000
LO 1d, 3c
7 During 20X4, Bibi, a sole trader, paid a total of £60,000 for insurance, covering the period from 1 October 20X3 to
31 March 20X5.
Requirement
What amounts in respect of insurance should be included in the financial statements for the year ended 31 December
20X4?
A Statement of profit or loss: £40,000; Statement of financial position: £10,000 Prepayment
B Statement of profit or loss: £40,000; Statement of financial position: £15,000 Prepayment
C Statement of profit or loss: £50,000; Statement of financial position: £10,000 Accrual
D Statement of profit or loss: £50,000; Statement of financial position: £15,000 Accrual
LO 1d, 3c
8 A company pays website fees which cover website hosting, content management and website security quarterly in arrears
on 1 January,1 April, 1 July and 1 October each year. The website fees were increased from £9,000 per year to £12,000
per year as from 1 October 20X2.
Requirement
What website expenses and accrual should be included in the company's financial statements for the year ended 31
January 20X3?
A Website expenses: £10,000; Accrual: £2,000
B Website expenses: £10,000; Accrual: £1,000
C Website expenses: £9,750; Accrual: £1,000
D Website expenses: £9,750; Accrual: £2,000
LO 1d, 3c
9 A company owns a number of properties which are rented to tenants. The following information is available for the year
e n d e d 30 June 20X6:
£ £
30 June 20X5 1 34.600 4, 800
Cash received from tenants in the year e n d e d 30 June 20X6 was £834,600.
All rental income i n arrears was subsequently received.
Requirement
What amount should appear in the company's statement of profit or loss for rent receivable in the year e n d e d 30 June
20X6?
A £840,500
B £1,100,100
C £569,100
D £828,700
LO 1d, 3c
10 A company has sublet part of its offices. The rent receivable in the year e n d e d 31 November 20X3 was:
Rent was received quarterly in advance o n 1 January, April, July, and October each year.
Requirement
What amounts should appear in the company's financial statements for the year ended 30 November 20X3?
A Statement of profit o r loss: £9,900; Statement of financial position: £2,000 in other payables
B Statement of profit o r loss: £9,900; Statement of financial position: £1,000 in other payables
C Statement of profit o r loss: £9,600; Statement of financial position: £1,000 in other payables
D Statement of profit o r loss: £9,600; Statement of financial position: £2,000 in other receivables
LO 1d, 3c
11 A business preparing its financial statements for the year to 31 July each year pays its buildings insurance quarterly in
advance o n 1 January, 1 April, 1 July and 1 October each year. The annual insurance was increased from £60,000 per year
to £72,000 per year as from 1 October 20X3.
Requirement
What amount should b e included as the insurance expense in the statement of profit or loss for the year ended 31 July
20X4?
A £69,000
B £62,000
C £70,000
D £63,000
LO 1d, 3c
12 At 1 July 20X4 a company had prepaid insurance of £8,200. O n 1 January 20X5 the company paid £38,000 for insurance
for the year to 30 September 20X5.
Requirement
What amounts should be included for insurance in the company's financial statements for the year ended 30 June 20X5?
A Statement of profit or loss: £45r 200; Statement of financial position: Prepayment £0
B Statement of profit or loss: £39,300; Statement of financial position: Prepayment £9,500
C Statement of profit or loss: £36,700; Statement of financial position: Prepayment £9,500
D Statement of profit or loss: £39,300; Statement of financial position: Prepayment £0
LO 1d, 3c
13 A company sublets part of its office accommodation. In the year ended 30 June 20X5 cash received from tenants was
£83,700.
Details of rental income in arrears and in advance at the beginning and end of the year were:
Premium for year ended 31 March 20X6 paid April 20X5 £10,800
Premium for year ending 31 March 20X7 paid April 20X6 £12,000
Requirement
What amounts relating to insurance should be included in the company's financial statements for the year ended
30 June 20X6?
A Statement of profit or loss: £11,100; Statement of financial position: £9,000 prepayment (Debit)
B Statement of profit or loss: £11,700; Statement of financial position: £9,000 prepayment (Debit)
C Statement of profit or loss: £11,100; Statement of financial position: £9,000 accrual (Credit)
D Statement of profit or loss: £11,700; Statement of financial position: £9,000 accrual (Credit)
LO 1d, 3c
15 Usherwood Ltd has a year e n d of 3 0 September 20X6. O n 1 January 20X6 Usherwood Ltd took o u t a loan of £100,000
with annual interest of 12%. The interest is payable in equal instalments o n the first day of April, July, October a n d January
in arrears.
Requirement
In respect of interest, what amount should Usherwood Ltd charge to the statement of profit o r loss for the year e n d e d
30 September 20X6, and what amount should be accrued o n the statement of financial position as at that date?
A Statement of profit o r loss: £12,000; Statement of financial position: £3,000
B Statement of profit o r loss: £9,000; Statement of financial position: £3,000
C Statement of profit o r loss: £9,000; Statement of financial position: £0
D Statement of profit o r loss: £6,000; Statement of financial position: £3,000
LO 1d, 3c
Requirement
What amounts for this rent should appear in the company's financial statements for the year ended 31 January 20X6?
A Statement of profit o r loss: £27,500; Statement of financial position: £5,000 accrued income
B Statement of profit o r loss: £27,000; Statement of financial position: £2,500 accrued income
C Statement of profit o r loss: £27,000; Statement of financial position: £2,500 deferred income
D Statement of profit o r loss: £27,500; Statement of financial position: £5,000 deferred income
LO I d , 3c
17 The electricity account for the year ended 30 June 20X1 was as follows.
O n 1 August 20X1 a payment of £840 was made for the three months ended 31 July 20X1.
Requirement
What is the charge for electricity that should b e included in the statement of profit o r loss for the year ended 30 June
20X1?
A £3,060
B £3,320
C £3,360
D £3,620
LO 1d, 3c
1 8 The year-end of Murphy pic is 30 November 20X1 . The company pays for its gas by a standing order of £600 per month. It
had an opening accrual of £400 and a closing accrual of £500.
Requirement
What is the correct charge for gas to b e included in Murphy pic's statement of profit or loss for the year ended
30 November 20X1?
A £7,700
B £7,100
C £7,200
D £7,300
LO I d , 3c
1 9 At 31 December 20X8 Blue Anchor pic has an insurance prepayment of £250. During 20X9 it pays £800 in respect of
various insurance contracts. The closing accrual for insurance is £90.
Requirement
What is the charge for insurance that should b e included in the statement of profit o r loss for the year ended 31
December 20X9?
A £460
B £800
C £960
D £1,140
LO I d , 3c
2 0 At 31 March 20X7, accrued rent payable was £300. During the year e n d e d 31 March 20X8, rent paid was £4,000,
including an invoice for £1,200 for the quarter e n d e d 30 April 20X8.
Requirement
What is the statement of profit o r loss charge for rent payable for the year ended 31 March 20X8?
A £3,300
B £3,900
C £4,100
D £4,700
LO 1d, 3c
21 Constains pic has an insurance prepayment of £320 at 31 March 20X2. During the year e n d e d 31 March 20X2 Constains
pic paid two insurance bills, one for £1,300 and one for £520.
Requirement
What was the insurance prepayment at 31 March 20X1 if the charge for insurance for the year was £1,760?
A £200
B £260
£320
D £380
LO 1d, 3c
22 The annual insurance premium for Boost Ltd for the period 1 July 20X6 to 30 June 20X7 is £1 3,200, which is 1 0% more
than the previous year. Insurance premiums are paid o n 1 July.
Requirement
What is the statement of profit o r loss charge for insurance for the year e n d e d 31 December 20X6?
A £12,000
B £12,600
C £13,200
D £14,520
LO 1d, 3c
23 A gas accrual for £400 at the year-end was treated as a prepayment in a business's statement of profit o r loss.
Requirement
As a result, the profit was:
A understated by £400
B overstated by £400
C understated by £800
D overstated by £800
LO 2a
2 4 At 31 December 20X2 the following matters require inclusion i n a company's financial statements:
(1) O n 1 January 20X2 the company made a loan of £1 2,000 to an employee, repayable o n 30 April 20X3, charging
interest at 2% per year. O n the due date she repaid the loan and paid the whole of the interest due o n the loan to that
date.
(2) The company has paid insurance £9,000 in 20X2, covering the year ending 31 August 20X3.
(3) In January 20X3 the company received rent from a tenant £4,000 covering the six months to 31 December 20X2.
Requirement
For these items, what total amounts should be included i n the company's statement of financial position at 31 December
20X2?
A Current assets: £22,000; Current liabilities: £240
B Current assets: £22,240; Current liabilities: £ 0
C Current assets: £10,240; Current liabilities: £ 0
D Current assets: £16,240; Current liabilities: £6,000
LO 1d, 3c
25 Whilst reviewing the trial balance f o r a business it was determined that an accrual for electricity was required for £300 and
that there was a prepayment of insurance of £800.
Requirement
What four entries are required to adjust the initial trial balance?
A Debit electricity: £300
B Debit insurance: £800
C Credit electricity: £300
D Credit insurance: £800
E Debit accruals: £300
F Credit accruals: £300
G Debit prepayments: £800
H Credit prepayments: £800
LO 1d
26 A business has a n accrual for electricity at 1 January 20X7 of £21 5 and has paid electricity bills of £3,420 during the year
to 31 December 20X7. At 31 December 20X7 there is an accrual for electricity of £310.
Requirement
What is the electricity charge to b e included in the statement of profit or loss for the year e n d e d 31 December 20X7?
A £2,895
B £3,325
C £3,515
D £3,945
LO I d , 3c
27 A business has paid £10,400 of insurance premiums during the year e n d e d 31 March 20X7. At 1 April 20X6 there was an
insurance prepayment of £800 and at 31 March 20X7 there was a prepayment of £920.
Requirement
What is the insurance charge in the statement of profit or loss for the year ended 31 March 20X7?
A £8,680
B £10,280
C £10,400
D £10,520
LO I d , 3c
28 Wright & Co's year end is 31 August 20X4. The company provides VoIP (Voice over Internet Protocol) services to its
remote workers. VoIP costs of £120 were paid o n 31 July 20X4 for the two months from that date. This amount was
included i n the accounting records by debiting the communication expenses account and crediting the cash at bank
account.
Requirement
Which two of the following entries of £60 should Wright & C o make at the year-end in relation to this expense?
A Debit the communication expenses account
B Debit the prepayments account
C Debit the accruals account
D Credit the accruals account
E Credit the prepayments account
F Credit the communication expenses account
LO 1 d
2 9 Krim Ltd owns a small grocery store chain and incurred food waste disposal costs of £6,495 o n 31 May 20X7 in respect of
the three months ending 31 August 20X7.
Requirement
What adjustment must Krim Ltd make to the administrative expenses ledger account for the year e n d e d 30 June 20X7?
A debit £2,165
B credit £2,165
C debit £4,330
D credit £4,330
LO I d
3 0 Jeremiah pic is a newsagent business and is preparing its financial statements for the year e n d e d 31 August 20X8. There
are three outstanding matters that the company has not yet accounted for.
(1) A subscription of £240 for the year ending 31 January 20X9, paid and accounted for by Jeremiah pic o n 1 July 20X8.
(2) Advance payments (deposits) of £75 recorded as received from customers i n respect of magazines o n order b u t not
yet delivered to the customers at the year end.
(3) A n unpaid property tax demand for the six months to 30 September 20X8 for £5,400.
Requirement
Which three of the following balances will appear i n Jeremiah pic's statement of financial position as at 31 August 20X8?
A Deferred income £75
B Accrued income £75
C Prepayment £ 1 00
D Accrual £4,500
E Accrual £900
F Prepayment £140
LO 1d, 3b, 3c
31 Minoto pic is preparing its financial statements as at 31 December 20X4. Its ledger account balance for rental income
includes £9,870 rent received in respect of the year e n d e d 31 December 20X3.
Requirement
Minoto pic should enter a journal with two entries of £9,870 as:
A a d e b i t entry to the rental income account
B a d e b i t entry to the deferred income (liability) account
C a d e b i t entry to the accrued income (asset) account
D a credit entry to the rental income account
E a credit entry to the deferred income (liability) account
F a credit entry to the accrued income (asset) account
LO 1d,2c, 3 b
32 As at 30 November 20X4 Whitley pic had accrued distribution costs of £5,01 9 and prepaid distribution costs of £2,81 6.
O n 1 December 20X4 the bookkeeper processed the following opening journal:
Debit Prepayments £2,816, Debit Distribution costs £2,203, Credit Accruals £5,01 9.
During the year to 30 November 20X5 cash was paid in respect of distribution costs of £147,049 and was correctly posted
to the distribution costs account. At the year end, Whitley pic's bookkeeper correctly processed closing journals to set u p
an accrual of £4,423 a n d a prepayment of £3,324 in respect of distribution costs.
Requirement
Which of the following journals should Whitley pic process as at 30 November 20X5 to correct the three accounts?
A Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406
B Debit Accruals £5,01 9, Credit Prepayments £2,81 6, Credit Distribution costs £2,203
C Debit Distribution costs £4,406, Debit Prepayments £5,632, Credit Accruals £10,038
D Debit Distribution costs £2,203, Debit Prepayments £2,816, Credit Accruals £5,01 9
LO 1d,2c, 3 b
33 Bez pic draws up its financial statements to 31 December in each year It pays internet server charges for each year ending
30 April in two equal instalments, o n 1 May and 1 November, in advance. It also pays telephone rental charges quarterly in
arrears at the e n d of February, April, July and November. The total internet server charge for the year to 30 April 20X6 was
£9,000. Telephone rental charges for the year commencing 1 July 20X5 were £7,440.
What was the prepayment for internet server charges included in Bez pic's statement of financial position at 31 December
20X5?
A £1,500
B £3,000
C £2,250
What was the accrual for telephone rental charges included i n Bez pic's statement of financial position at 31 December
20X5?
D £1,860
E £1,240
F £620
LO I d , 3b, 3c
3 4 Butters pic is finalising certain figures that will appear in its financial statements as at 30 June 20X5. O n 1 March 20X4 the
company paid an annual subscription to a trade association of £2 1,000 for the 12 months e n d e d 28 February 20X5. A
12.5% increase in this subscription is expected, but has not been finalised at 30 June 20X5.
Requirement
What will Butters include in its statement of financial position at 30 June 20X5 in respect of the subscription?
A an accrual of £1 5,750
B an accrual of £7,875
C a prepayment of £15,750
D a prepayment of £7,875
LO I d , 3b, 3c
Requirement
What is the double entry to reverse the opening accrual o r prepayment in the year ended 30 June 20X7?
A Dr Ad m i ni strati ve expe nses: £8,1 00; Cr Prepayment: £8,1 00
B Dr Prepayments: £8,100; Cr Administrative expenses: £8,100
C Dr Administrative expenses: £2,700; Cr Accruals: £2,700
D Dr Accruals: £2,700; Cr Administrative expenses: £2,700
LO 1d,2c, 3 b
36 Alli Ltd owns a number of properties which are rented to tenants. Cash received from tenants i n the year e n d e d 30 June
20X6 was £834,600 which has been included as rental income in the year.
The following information is available for the year e n d e d 30 June 20X6:
£ £
30 June 20X6 144,600 8,700
Requirement
What is the journal entry to adj ust Alli Ltd 's rental i ncome for the yea r ended 3 0 Ju ne 20X6?
A Debit Accrued income £144,600, Credit Deferred income £8,700, Credit Rental income £1 35,900
B Debit Accrued income £8,700, Debit Rental income £135,900, Credit Deferred income £144,600
C Debit Deferred income £144,600, Credit Accrued income £8,700, Credit Rental income £1 35,900
D Debit Deferred income £8,700, Debit Rental income £1 35,900, Credit Accrued income £144,600
LO I d , 2c, 3 b
37 Stripes Ltd is a food delivery service provider. It has paid marketing fees of £120,000 per annum to a social media
influencer to promote and market its delivery service. From 1 April 20X6 the marketing fee paid was increased to
£144,000 per year. The fee is paid to the influencer quarterly i n advance o n 1 January, 1 April, 1 July and 1 October each
yean
Requirement
What is the journal entry to transfer the balance o n the rent expense account to the profit a n d loss ledger when preparing
the financial statements for the year ended 30 November 20X6?
A Debit Profit and loss ledger account: £1 36,000; Credit Marketing expense: £1 36,000
B Debit Marketing expense: £1 36,000; Credit Profit a n d loss ledger account: £136,000
C Debit Marketing expense: £1 38,000; Credit Profit a n d loss ledger account: £138,000
D Debit Profit and loss ledger account: £138,000; Credit Marketing expense: £138,000
LO 1d,2c, 3 b
38 What is the journal entry for an accrua I of socia I med ia advertising expenses of £500?
A Debit Prepayments £500, Credit Advertising expense £500
B Debit Accruals £500, Credit Advertising expense £500
C Debit Advertising expense £500, Credit Accruals £500
D Debit Advertising expense £500, Credit Prepayments £500
LO 1d, 2c, 3 b
3 9 At 1 July 20X4 a company had prepaid insurance of £8,200. O n 1 January 20X5 the company paid £38,000 for insurance
for the year to 3 1 Decern ber 20X5.
Requirement
What is the journal entry to transfer the balance o n the insurance expense account to the profit a n d loss ledger account
for the year e n d e d 30 June 20X5?
A Debit Profit and loss ledger account £27,200, Credit Insurance expense £27,200
B Debit Insurance expense £27,200, Credit Profit a n d loss ledger account £27,200
C Debit Profit and loss ledger account £36,700, Credit Insurance expense £36,700
D Debit Insurance expense £36,700, Credit Profit and loss ledger account £37,600
LO 1d,2c, 3 b
1 0 Non-current assets a n d depreciation
1 Cataract pic purchases a new energy-efficient machine for which the supplier's list price is £28,000. Cataract pic pays
£23,000 in cash and trades in an o l d machine, which has a carrying amount of £8,000. It is the company's policy to
depreciate machines at the rate of 10% per annum on cost
Requirement
What is the carrying amount of the machine after one year?
A £18,000
B £25,200
C £20,700
D £22,200
LO I d
2 Demolition pic purchases a machine for £1 5,000 o n 1 January 20X1. After incurring transportation costs of £1,300 a n d
spending £2,500 o n installing the machine it breaks d o w n and costs £600 to repair. Depreciation is charged at 10% per
annum.
Requirement
At what carrying amount will the machine be presented i n Demolition pic's statement of financial position at 31 December
20X1?
A £13,500
B £14,670
C £16,920
D £18,800
LO 3c
3 A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven years and a residual value of
£1,000. O n 30 June 20X4 the machine is sold for £9,000 cash which has been recorded correctly in the cash at bank
account, however the accounting system could not automatically match the transaction and a suspense account was
opened to record the other side of the transaction. The company's accounting policy is to charge depreciation monthly
using the straight-line method, with depreciation charged in the month of purchase but not the month of disposal.
Requirement
What journal entry is required to correctly record the disposal of the machine and to remove the suspense account?
A Debit Suspense account £9,000, Debit Accumulated depreciation £11,500, Debit Loss o n disposal £1,500, Credit
Machine cost £22,000
B Debit Suspense account £9,000, Debit Accumulated depreciation £11,750, Debit Loss o n disposal £1,250, Credit
Machine cost £22,000
C Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11 ,500, Credit
Profit o n d isposal £ 1 ,500
D Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11,750, Credit
Profit o n d isposal £ 1 ,250
LO I d
4 Desk pic purchased an electric deli very van o n 1 October 20X0 for a total cost of £22,000 by paying £17,500 cash and
trading i n an o l d van. The o l d van had cost £20,000 and the related accumulated depreciation was £14,200.
Requirement
The loss on disposal of the o l d van i n Deek pic's statement of profit o r loss for the year ended 31 December 20X0 is:
A £1,300
B £2,000
C £2,500
D £5,800
LO 3c
5 Vernon pic purchased new equipment o n 1 April 20X1 for £6,000. The scrap value of the new equipment in five years'
time has been assessed as £300. Vernon pic charges depreciation monthly o n the straight-line basis.
Requirement
What is the journal entry to record the depreciation charge for the equipment i n the year to 30 September 20X1?
A Debit Depreciation expense £570, Credit Accumulated depreciation £570
B Debit Accumulated depreciation £570, Credit Depreciation expense £570
C Debit Depreciation expense £600, Credit Accumulated depreciation £600
D Debit Accumulated depreciation £600, Credit Depreciation expense £600
LO 3c
6 An electric car has a list price of £23,500 b u t the garage gives Ride p i c a 10% trade discount. In settlement the garage
accepts payment of £1 8,000, together with an o l d company car.
Requirement
What is the amount to be capitalised by Ride pic in respect of the new car?
A £16,200
B £18,000
C £21,150
D £23,500
LO I d
7 A company purchased a car for £1 8,000 o n 1 January 20X0. The car was traded in o n 1 January 20X2 for a new hybrid car.
The new hybrid car has a list price of £30,000 and the garage offered a part-exchange allowance of £5,000. The company
provides depreciation o n cars using the reducing balance method at a rate of 25% per annum.
Requirement
What is the amount of the loss o n disposal that will be recognised in the statement of profit or loss for the year e n d e d 31
December 20X2?
A £5,125
B £8,500
C £10,125
D £11,175
LO 3c
8 What is the reasoning behind charging depreciation in historical cost accounting?
A To ensure funds are available for the eventual replacement of the asset
B To comply with the consistency concept
C To ensure the asset is included in the statement of financial position at the lower of costand net realisable value
D To match the cost of the non-current asset with the revenue that the asset generates
LO 1 d
9 Which of the following is excluded from the initial cost of a tangible non-current asset?
A Site preparation costs
B Legal fees
C Costs of a desig n error
D Installation costs
LO 1 d
1 0 Which of the following statements about intangible assets in public company financial statements are correct?
(1) Internally generated goodwill should not be capitalised.
(2) Goodwill arising on acquisition of a business should b e capitalised and subsequently amortised through the
statement of profit or loss.
(3) Development expenditure must be capitalised if certain conditions are met.
A 1 and 3 only
B 1 and 2 only
C 2 and 3 only
D 1,2and3
LO 1d, 3c
11 Wove Ltd purchased a machine for £5,000 o n 1 January 20X1, when it had a useful life of four years and a residual value
of £1,000. Straight-line depreciation is to b e applied o n a monthly basis. O n 31 December 20X3, the machine was sold for
£1,600.
Requirement
The amount of profit o r loss on disposal is:
A profit of £600
B loss of £600
C profit of £350
D loss of £400
LO 3c
12 Prance pic purchased both a small fleet of buses and a licence to allow it to operate those buses for a six-year period from
1 January 20X1. The costs were as follows::
Cost 1,000,000
Total 1,150,000
The business prepares its financial statements to 31 December each year. The buses were traded in for replacement bio-
fuel buses o n 1 January 20X4 at a n agreed value of £500,000. They have been depreciated at 25% per annum on the
reducing-balance method. The licence allows Prance pic to change the type of buses that it operates.
Requirement
What is the profit o r loss o n disposal of the buses for the year e n d e d December 20X4?
A £25,000 profit
B £78,125 profit
C £62,500 loss
D £250,000 loss
LO3c
13 The asset register showed a total carrying amount of £67,460. A non-current asset costing £1 5,000 had been sold for
£4,000, making a loss o n disposal of £1,250.
Requirement
The balance o n the asset register after accounting for the disposal is:
A £42,710
B £51,210
C £53,710
D £62,210
LO2b
49,200
Modifications to the factory costing £2,200 were necessary to enable the plant to be installed.
Requirement
What amount should b e capitalised for the plant in the company's accounting records?
A £51,400
B £48,000
C £50,600
D £48,400
LO I d
15 A company's plant and machinery ledger account for the year ended 30 September 20X2 was as follows:
PLANT AND MACHINERY
£ £
1 Dec 20X1 Cash - addition at cost 18,000 30 Sep 20X2 Balance 363,200
399,200 399,200
The company's policy is to charge depreciation at 20% per year o n the straight-line basis.
Requirement
What is the journal entry to record the depreciation charge i n the statement of profit or loss for the year e n d e d
30 September 20X2?
A Debit Accumulated depreciation £84,040, Credit Depreciation expense £84,040
B Debit Depreciation expense £84,040, Credit Accumulated depreciation £84,040
C Debit Accumulated depreciation £76,840, Credit Depreciation expense £76,840
D Debit Depreciation expense £76,840, Credit Accumulated depreciation £76,840
LO I d , 3c
1 6 The carrying amount of a company's non-current assets was £200,000 at 1 August 20X0. During the year ended 31 July
20X1, the company sold non-current assets for £25,000 o n which it made a loss of £5,000. The depreciation charge for the
year was £20,000.
Requirement
The carrying amount of non-current assets at 31 July 20X1 is:
A £150,000
B £175,000
C £180,000
D £195,000
LO 3c
£ £
431,000 431,000
The company's policy is to charge depreciation o n plant monthly at 20% per year o n the straight-line basis.
Requirement
What should the company's plant depreciation charge b e in the statement of profit or loss for the year ended
31 December 20X2?
A £82,150
B £79,150
C £77,050
D £74,050
LO I d , 3c
18 A company's policy for depreciation of its plant and machinery is to charge depreciation monthly at 20% per year on cost.
The company's plant and machinery account for the year ended 30 September 20X4 is shown below:
PLANT AND MACHINERY
£ £
250,000 250,000
Requirement
What should b e the depreciation charge in the statement of profit or loss for plant and machinery (excluding any profit o r
loss o n the disposal) for the year ended 30 September 20X4?
A £43,000
B £51,000
C £42,000
D £45,000
LO 1d, 3c
1 9 Beta pic purchased plant and equipment o n 1 July 20X1 for £40,000. The scrap value of the plant at the end of itsten-year
useful life is £4,000. Beta pic's policy is to charge depreciation monthly o n the straight-line basis.
Requirement
The journal entry to record the depreciation charge o n the plant in Beta's statement of p r o f i l e r loss for year ending 30
September 20X1 should b e :
A Debit Depreciation expense £900; Credit Accumulated depreciation £900
B Debit Accumulated depreciation £900; Credit Depreciation expense £900
C Debit Depreciation expense £1,000; Credit Accumulated depreciation £1,000
D Debit Accumulated depreciation £1,000; Credit Depreciation expense £1,000
LO 1 d, 3c
2 0 Exe pic, which has a year e n d of 31 December, purchased a machine on 1 January 20X1 for £35,000. It was depreciated at
40% per annum o n the reducing balance basis. On 1 January 20X4 Exe pic part-exchanged this machine for a more
advanced model. It paid £30,000 and realised a profit o n disposal of £2,440.
Requirement
The price of the new machine was:
A £10,000
B £34,680
C £35,120
D £40,000
LO I d
21 Automat pic purchases a machine for which the supplier's list price is £1 8,000. Automat pic pays £13,000 in cash and
trades in an o l d machine which has a carrying amount of £8,000. It is the company's policy to depreciate such machinery
monthly at the rate of 1 0% per annum o n cost.
Requirement
The carrying amount of the new machine after one year is:
A £16,200
B £18,000
C £18,900
D £21,000
LO 1d, 3c
22 Beehive pic bought a car o n 1 January 20X7 for £1 0,000 a n d decided to depreciate i t at 30% per annum o n a reducing
balance basis. It was disposed of o n 1 January 20X9 for £6,000.
Requirement
The net effect o n the statement of profit o r loss for the year ended 31 December 20X9 is a credit of:
A £1,100
B £3,000
C £4,000
D £5,100
LO I d , 3c
23 Ben pic has a draft net profit for the year e n d e d 31 December 20X8 of £56,780 before accounting for the depreciation o n
a new machine. Ben pic purchased the machine for £120,000 o n 1 October 20X8. The useful life is four years with a
residual value of £4,000. Ben pic uses the straight-line method for depreciation a n d charges depreciation on a monthly
basis.
Requirement
The net profit after charging depreciation o n the machine for the year ended 31 December 20X8 is:
A £51,947
B £49,530
C £49,280
D £27,780
LO 1d, 3c
2 4 Sam pic's statement of profit o r loss for the year ended 31 December 20X4 showed a profit for the year of £83,600. It was
later found that £18,000 paid for the purchase of a van o n 1 January 20X4 had been debited to the motor expenses
account. It is the company's policy to depreciate vans at 25% per year o n the straight-line basis.
Requirement
What is the profit for the year e n d e d 31 December 20X4 after adjusting for this error?
A £106,100
B £70,100
C £97,100
D £101,600
LO2a
25 O n 1 January 20X4 Joffa pic purchased a new machine at a cost of £96,720. Delivery costs were £3,660 and internal
administration costs of £9,450 were incurred. At that time Joffa pic planned to replace the machine in five years, when it
would have no value, a n d to depreciate the machine o n a straight-line basis.
Joffa pic decides o n 1 January 20X6 that the machine only has one remaining year of useful life. There is no change to the
residual value at the e n d of its life.
Requirement
How much depreciation will b e charged in respect of this machine in Joffa pic's statement of profit o r loss for the year
e n d e d 31 December 20X6?
A £58,032
B £60,228
C £65,898
D £33,460
LO I d , 3c
26 Stripes pic purchased new machinery o n 1 August 20X4 for £38,000. The scrap value of the machinery at the end of its six-
year useful life has been assessed as £2,000. Stripes pic's policy is to calculate depreciation monthly o n the straight-line
basis.
Requirement
The depreciation charge in Stripes pic's statement of profit or loss for year e n d e d 31 March 20X5 should be:
A £4,000
B £3,500
C £6,000
D £4,500
LO I d , 3c
27 O n 1 June 20X3 Spam pic purchased some plant at a price of £43,000. It cost £1,500 to transport the plant to Spam pic's
premises and set it up, plus £900 for a licence to operate it. The plant had a useful life of eightyears a n d a residual value
of £3,500. On 1 June 20X5 the directors of Spam pic decided to change the depreciation method to reducing balance, at
40%.
Requirement
What is the carrying amount of Spam pic's plant in its statement of financial position at 31 May 20X6?
A £20,025
B £20,280
C £20,550
D £20,955
LO 3c
28 O n 1 April 20X5 Herepath pic b o u g h t a Foxy car for £23,500. The company's depreciation policy for cars is 30% per
annum using the reducing balance method. On 1 April 20X7 the Foxy was part exchanged for a Vizgo car, which had a
purchase price of £28,200. Herepath pic made a payment to the seller for £19,350, i n final settlement.
Requirement
What was Herepath pic's profit or loss o n the disposal of the Foxy?
A £5,150 loss
B £7,835 profit
C £2,665 loss
D £6,250 loss
LO I d
2 9 Muncher pic includes profits and losses o n disposal of non-current assets in administrative expenses in its statement of
profit o r loss. Depreciation is charged o n fixtures and fittings at 20% using the reducing balance method. On 1 July 20X6
some fixtures that cost £4,000 o n 1 July 20X3 were sold for £1 50,
Requirement
In the administrative expenses account Muncher pic must:
A debit £1,450
B credit £1,450
C debit £1,898
D credit £1,898
LO 1d
3 0 Redruth pic began trading o n 1 April 20X3. The carrying amount of plant and equipment in Redruth pic's financial
statements as at 31 March 20X5 was £399,960. The cost of these assets was £614,500. O n 31 March 20X6 an asset costing
£11,500 was acquired. Depreciation is charged o n plant and equipment monthly at an annual rate of 25% straight-line.
There are n o residual values.
Requirement
The carrying amount of Redruth pic's plant and equipment in its statement of financial position at 31 March 20X6 is:
A £254,960
B £257,835
C £299,970
D £308,595
LO 3c
31 Morse pic has the following note to its statement of financial position relating to plant a n d machinery as at 31 May.
20X7 20X6
£ £
During the year to 31 May 20X7, the following transactions occurred in relation to plant and machinery:
Additions: £39,000; Loss o n disposals: £2,000; Depreciation charge: £27,000
Requirement
What were the proceeds from disposals of plant and machinery received by Morse pic i n the year to 31 May 20X7?
A £7,000
B £8,000
C £13,000
D £17,000
LO 1d, 3a
32 Anaconda pic acquired a machine o n 31 March 20X4, its year end, for £196,600. It made a bank transfer to the seller
totalling £1 10,000 and traded in an o l d machine with a carrying amount at that date of £34,400. This machine had cost
£60,000. A further sum of £42,000 was then due to the supplier of the machine as the final payment
The entry made in the accounting records in respect of this transaction was to debit the suspense account with £1 52,000,
credit cash £110,000 and credit other payables £42,000.
Requirement
Which of the following journal entries is required to correctly reflect the purchase and disposal in Anaconda pic's
accounting records?
A Debit Machine - cost £196,600, Debit Machine - accumulated depreciation £34,400, Credit Disposal £79,000, Credit -
suspense £152,000
B Debit Machine - c o s t £136,600, Debit Machine - accumulated depreciation £34,400, Credit Disposal £19,000, Credit -
suspense £152,000
C Debit Machine - cost £1 96,600, Debit Machine - accumulated depreciation £25,600, Credit Disposal £70,200, Credit -
suspense £152,000
D Debit Machine - c o s t £136,600, Debit Machine - accumulated depreciation £25,600, Credit Disposal £10,200, Credit -
suspense £152,000
LO 2b, 2c
33 Gilbert pic acquired a new truck o n 1 July 20X4 for £99,900 including VAT at 20%. The company applies straight-line
depreciation to all vehicles at 20% per annum o n a monthly basis.
Requirement
What is the carrying amount of Gilbert pic's truck at 31 December 20X4?
A £89,910
B £83,250
C £66,600
D £74,925
LO 3c
3 4 Crocker pic, a retailer, depreciates all vehicles o n the straight-line basis monthly over five years. On 31 October 20X9
Crocker pic bought a car at a cost of £1 7,625 plus VAT, trading i n an o l d carthat had cost £16,800 including VAT o n 1 July
20X7. A payment of £13,500 was also made. VAT is at a rate of 20%.
Requirement
In respect of this disposal in its statement of profit or loss for the year ended 31 December 20X9, Crocker pic will show a
loss of:
A £2,430
B £4,835
C £5,955
D £1,310
LO 1d, 3c
35 Plummet pic is preparing its statement of profit o r loss for the year e n d e d 31 December 20X4. O n the initial trial balance
at that date administrative expenses have a d e b i t balance of £684,000 before accounting for depreciation and
profits/losses o n disposal in respect of the company's computer equipment. At 31 December 20X3 Plummet pic had
computer equipment that cost £1,004,408, all of which had been purchased o n 1 January 20X2, and it had accumulated
depreciation of £697,600. A computer system costing £6,800 was sold o n 1 January 20X4 for £1,800. Computer
equipment is depreciated monthly o n a straight-line basis over four years.
Requirement
The amount to be disclosed as administrative expenses in Plummet pic’s statement of profit or loss for the year ended 31
December 20X4 is:
A £933,402
B £935,002
C £936,702
D £963,702
LO I d , 3c
36 Dukakis pic provides data analysis for medical research purposes. Dukakis pic has a server farm which has a carrying
amount at 1 April 20X2 of £1 50,000. O n that date, it upgraded some of its servers which had cost £24,000 o n 1 April 20X0
for new, faster servers which cost £34,600. Dukakis pic traded i n the o l d servers, transferring £18,000 to the seller's bank
account i n full settlement of the purchase. Dukakis pic depreciates computers at 40% per annum o n the reducing balance.
Requirement
What is the journal entry to record depreciation for the year ended 31 March 20X3 in respect of computers?
A Debit Accumulated depreciation £56,544, Credit Depreciation expense £56,544
B Debit Accumulated depreciation £70,384, Credit Depreciation expense £70,384
C Debit Depreciation expense £56,544, Credit Accumulated depreciation £56,544
D Debit Depreciation expense £70,384, Credit Accumulated depreciation £70,384
LO 1d, 3c
37 The carrying amount of machinery has reduced by £10,000 following the disposal of one item of machinery.
Requirement
Which of the following statements relating to the disposal are correct?
A Disposal proceeds were £1 5,000 and the profit o n disposal was £5,000
B Disposal proceeds were £1 5,000 and the carrying amount of the machinery disposed of was £5,000
C Disposal proceeds were £1 5,000 and the loss o n disposal was £5,000
D Disposal proceeds were £5,000 and the carrying amount of the machinery disposed of was £5,000
LO 1d
38 Yvette p u rchased a plant o n 1 Jan uary 20X0 for £38,000. The pay me nt for the plant was correctly entered i n the cash at
bank account but was incorrectly entered o n the d e b i t side of the plant repairs account.
Yvette charges depreciation monthly o n the straight-line basis over five years and assumes no scrap value at the e n d of
the life of the asset.
Requirement
How will Yvette's profit for the year e n d e d 31 March 20X0 be affected by the error?
A Understated by £30,400
B Understated by £36,1 00
C Understated by £38,000
D Overstated by £1, 900
LO2a
3 9 Asha Ltd, a manufacturing company, receives an invoice o n 2 9 February 20X2 for work d o n e o n one of its machines.
£25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department d o not
notice and charge the whole amount of the invoice to maintenance costs. Machinery is depreciated at 25% per annum o n
a straight-line basis, with a proportional charge i n the years of acquisition and disposal.
Requirement
By what amount will Asha Ltd's profit for the year to 3 0 June 20X2 b e understated?
A £19,125
B £25,500
C £23,375
D £21,250
LO2a
40 Whipper has a machine which cost £40,000 and has a carrying amount of £32,000 o n 1 April 20X7. It is being depreciated
at 20% per annum o n the reducing balance basis. O n 31 March 20X8, Whipper performed an impairment review and
determined that the fair value less disposal costs of the machine was £22,400 and the value in use was £21,000.
Requirement
What is the impairment loss in respect of the machine at 31 March 20X8?
A £17,600
B £1,600
C £4,600
D £3,200
LO1d
41 Dash has a property which cost £420,000 o n 1 April 20X4. It is being depreciated o n the straight-line basis over 2 0 years
to its residual value of £40,000. O n 31 March 20X9, Dash carried out an impairment review and has assessed that the
property had a fair value less disposal costs of £280,000 and a value i n use of £300,000.
Requirement
What is the impairment loss in respect of the property at 31 March 20X9?
A £15,000
B £25,000
C £45,000
D £80,000
LO 1 d
42 The directors of Ellen Ltd are considering whether any impairment has arisen in respect of its plant and machinery i n the
year e n d e d 31 March 20X2.
Requirement
Which of the following are indicators that an impairment of plant and machinery may have occurred:
(1) There have been technological advances which means the plant a n d machinery is not as efficient as that currently
available
(2) The market capitalisation of Ellen Ltd is above the value of its non-current assets
(3) The plant and machinery are being used to produce a new product which is generating more sales than the previous
product
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1 , 2 and 3
LO I d
43 Pattern Ltd is a website development company. It was established o n 1 January 20X5 and incurred costs relating to non-
current assets in its first year.
Requirement
Which of the following should b e capitalised as an intangible asset in the year ended 31 December 20X5?
A £22,000 relating to computer hardware for its developers
B £5,000 relating to office equipment
C £1 2,000 o n cables and servers
D £9,000 for a licence to use specia list design softwa re
LO 1 d
44 Manga Ltd purchased a licence o n 1 July 20X2 to allow it to fish in protected waters. Manga Ltd paid £1 80,000 for the
licence and incurred legal fees of £2,000 to secure the licence. General administrative costs of £3,800 were incurred by
Manga Ltd during the process of securing the licence. The licence allows Manga Ltd to fish f o r a period of six years
however, the directors only expect to fish i n the waters for five years.
Requirement
What is the carrying amount of the licence at 30 June 20X3?
A £151,667
B £154,833
C £145,600
D £148,640
LO1d
45 Cyan Ltd has capitalised development costs which were initially measured at their cost of £200,000 o n 1 June 20X3. The
capitalised development costs were originally expected to generate benefits for Cyan Ltd over four years. On 1 June
20X5, the directors of Cyan Ltd assessed that the market was still positive and expected the capitalised development costs
to continue to generate benefits for a further four years from that date.
Requirement
What is the carrying amount of the capitalised development costs at 31 May 20X6?
A £50,000
B £75,000
C £100,000
D £112,500
LO 1 d
Requirement
Which of the following statements is true?
A A company can choose to test an asset for impairment rather than depreciate it
B If a company leases an asset they will recognise a right-of-use asset and lease liability
C The depreciation method is decided when the asset is purchased and is never changed
D On disposal of a non-current asset any gain is recognised in revenue in the statement of profit o r loss
48 A company leases a floor of an office building for four years from 1 July 20X7. They correctly calculate a right-of-use asset
at a cost of £65,000.
Requirement
Which of the following statements is true in the financial statements as at 31 December 20X8?
A N o depreciation is charged as this is a leased asset
B Deprecation of £1 6,250 is recognised as an expense in the statement of profit o r loss
C The right-of-use asset is split between current and non-current assets based o n when the lease payments are made
D The carrying amount of the right-of-use asset is £32,500 in the statement of financial position
1 1 C o m p a n y financial statements
1 A company's share capital consists of 20,000 25p equity shares, all of which were issued a t a premium of 20%. The market
value of the shares is currently 7 0 p each.
Requirement
What is the balance o n the company's equity share capital account?
A £5,000
B £6,000
C £14,000
D £24,000
LO I d , 1e
2 Which of the following may appear as current liabilities in a company's statement of financial position?
(1) Loan due for repayment within one year
(2) Taxation
(3) Warranty provision
A 1 , 2 and 3
B 1 and 2 only
C 1 and 3 only
D 2 and 3 only
LO 3 c
£m
Share premium 80
During the year ended 30 June 20X6, the following transactions took place:
1 September 20X5: A 1 for 2 bonus issue of equity shares, using the share premium.
1 January 20X6: A 2 for 5 rights issue at £1 .50 per share, taken u p fully paid.
Requirement
What are the balances o n each account at 30 June 20X6?
A Share capital £210 million, Share premium £110 million
B Share capital £210 million, Share premium £60 million
C Share capital £240 million, Share premium £30 million
D Share capital £240 million, Share premium £80 million
LO 1d, 1e, 3c
4 Klaxon pic issued, for cash, 1,000,000 50p shares at a premium of 3 0 p per share.
Requirement
Which of the following journals correctly records the share issue?
A Debit Share capital £500,000, Debit Share premium £300,000, Credit Cash at bank £800,000
B Debit Cash at bank £800,000, Credit Share capital £500,000, Credit Share premium £300,000
C Debit Cash at bank £1,300,000, Credit Share capital £1,000,000, Credit Share premium £300,000
D Debit Share capital £1,000,000, Debit Share premium £300,000, Credit Cash at bank £1,300,000
LO 1d, 1e, 2c
5 Sanders pic issued 50,000 equity shares of 2 5 p each at a premium of 50p per share. The cash received was correctly
recorded but the full amount was credited to the share capital account.
Requirement
Which of the following journals corrects this error?
A Debit Share premium £25,000, Credit Share capital £25,000
B Debit Share capital £25,000, Credit Share premium £25,000
C Debit Share capital £37,500, Credit Share premium £37,500
D Debit Share capital £25,000, Credit Cash at bank £25,000
LO 1d, 1e, 2c
6 Which of the following journals could be used to correctly record a bonus issue of shares?
A Debit Cash at bank, Credit Share capital
B Debit Share capital, Credit Share premium
C Debit Share premium, Credit Share capital
D Debit I n vestments, Credit Cash at ban k
LO 1e, 2c
During 20X2 the company made a 1 for 2 bonus issue, using the share premium for the purpose, and later issued for cash
another 60,000 shares at 8 0 p per share.
Requirement
What is the company's capital structure at 31 December 20X2?
A Equity share capital £130,000, Share premium £173,000
B Equity share capital £105,000, Share premium £173,000
C Equity share capital £130,000, Share premium £137,000
D Equity share capital £105,000, Share premium £137,000
LO 1d, 1e
8 Evon pic issued 1,000,000 equity shares of 2 5 p each a t a price of £1 J O per share, all received in cash.
Requirement
Which of the following journals records the share issue?
A Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Share premium £850,000
B Debit Share capital £250,000, Debit Share premium £850,000, Credit Cash at bank £1,100,000
C Debit Cash at bank £1 , 100,000, Credit Share capital £1,1 00,000
D Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Retained earnings £850,000
LO 1d, 1e, 2c
9 In the year to 31 March 20X2 Kable pile had the following capital structure:
Requirement
What is the total dividend paid b y Kable pic?
A £7,500
B £30,000
£50,000
D £72,000
LO I d
1 0 Afua pic sells small electrical items. It has a year-end date of 31 December 20X7. On 28 December it accepted an order
from a credit customer for 1 00 toasters at a price of £35 per toaster. On 30 December, Afua pic dispatched 60 toasters to
the customer but, they were not received by the customer until 1 January 20X8. Afua pic remains responsible for the
goods until they are delivered to the customer. The remaining 40 toasters were dispatched o n 2 January 20X8 and were
received by the customer on 4 January 20X8.
Requirement
How much revenue should Afua pic recognise in respect of the sale of toasters in the year e n d e d 31 December 20X7?
A £3,500
B £2,100
C £1,400
D Nil
LO 3c
11 At 30 June 20X2 Brandon pic's capital structure was as follows:
In the year ended 3 0 June 20X3 the company made a 1 for 2 rights issue at £1 per share a n d this was taken u p in full. Later
in the year the company made a 1 for 5 bonus issue, using the share premium for the purpose.
Requirement
What was Brandon pic's capital structure at 30 June 20X3?
A Equity share capital £450,000, Share premium £25,000
B Equity share capital £225,000, Share premium £250,000
C Equity share capital £225,000, Share premium £325,000
D Equity share capital £212,500, Share premium £262,500
LO 1d, 3c
12 The retained earnings of Posti p l c a t 1 July 20X5 were £900,000. The retained earnings at 30 June 20X6 are £1,080,000.
The profit for the year is £455,000.
Requirement
What was the total dividend paid by Posti pic during the year?
A £180,000
B £275,000
C £445,000
D £635,000
LO I d
In the year ended 3 0 June 20X5 Xando pic made the following share issues:
1 January 20X5: A 1 for 4 bonus issue.
1 April 20X5: A 1 for 1 0 rights issue at £1 .50 per share.
Requirement
What will be the balances o n the company's share capital and share premium at 30 June 20X5 as a result of these issues?
A Share capital £687,500, Share premium £650,000
B Share capital £675,000, Share premium £375,000
C Share capital £687,500, Share premium £150,000
D Share capital £687,500, Share premium £400,000
LO 1d, 3c
1 4 A company has the following capital structure:
It makes a 1 for 5 rights issue at £1 .25, which is fully taken u p by the shareholders.
Requirement
What is the balance o n the share premium account following the rights issue?
A £35,000
B £75,000
C £85,000
D £115,000
LO I d , 3c
15 The equity section of the statement of financial position for Bowden Ltd as at 31 December 20X6 is as follows:
£'000
Equity
The company decides to make a 1 for 5 bonus issue of shares o n 3 0 June 20X7.
Requirement
What will be the balances o n the company's share capital and share premium at 30 June 20X7 as a result of these issues?
A Share capital £5,900,000, Share premium £nil
B Share capital £6,000,000, Share premium £niI
C Share capital £5,900,000, Share premium £900,000
D Share capital £4,100,000, Share premium £900,000
LO 1d, 1e
16 At 1 April 20X8 the share capital and share premium of a company were as follows:
During the year ended 31 March 20X9 the following events took place:
(1) O n 1 October 20X8 the company made a 1 for 5 rights issue at £1 .20 per share.
(2) O n 1 January 20X9 the company made a 1 for 3 bonus issue using the share premium to d o so.
Requirement
What is the correct balance o n the share capital account at 31 March 20X9?
A £90,000
B £120,000
C £360,000
D £480,000
LO 1d, 3c
17 Layla pic is preparing its financial statements for the year ended 31 August 20X6. The initial trial balance shows the
following balances:
Of the prepayments at 1 September 20X5, £450 related to insurance. At 31 August 20X6 prepayments will include £515
related to insurance.
Requirement
What amount will be included in Layla pic's statement of profit o r loss for the year e n d e d 31 August 20X6 in respect of
insurance expenses?
A £3,495
B £3,897
C £2,903
D £3,335
LO 1d, 3c
1 8 The retained earnings of Zippy pic at 1 January 20X8 were £926,450. The retained earnings at 31 December 20X8 are
£1,426,980. During the year. Zippy pic paid a dividend of £31 2,000 and made a bonus issue of 500,000 25p ordinary
shares from retained earnings.
Requirement
What is Zippy pic's profit for the year ended 31 December 20X8?
A £63,530
B £1,312,530
C £937,530
D £313,530
LO 1 d
1 9 Which of the following journal entries may b e accepted as being correct according to their narratives?
£ £
3 Sales 10,000
A Option 1
B Option 2
C Option 3
D Option 4
LO I d , 2c
2 0 At 30 June 20X2 a company had £1 million 8% loan notes in issue, interest being paid half-yearly o n 30 June a n d 31
December.
O n 30 September 20X2 the company redeemed £250,000 of these loan notes at par, paying interest due to that date.
O n 1 April 20X3 the company issued £500,000 7% loan notes at par, interest payable half-yearly o n 31 March and 30
September.
Requirement
What figure should appear in the company's statement of profit o r loss for finance costs i n the year e n d e d 30 June 20X3?
A £88,750
B £82,500
C £65,000
D £73,750
LO 3c
21 A company has a balance of £3,200 (debit) o n its income tax payable account at 31 December 20X7 relating to the
income tax payable on the 20X6 profits. The company's estimated income tax liability for the year to 31 December 20X7 is
£24,500.
Requirement
What is the income tax charge i n the statement of profit o r loss for the year e n d e d 31 December 20X7?
A £21,300
B £24,500
C £27,700
D £30,900
LO 3c
22 A company is preparing its financial statements for the year ending 31 March 20X7. The initial trial balance has the
following figures relating to tax:
Income tax paid during the year ended 31 March 20X7 12,700
The estimated income tax liability for the year ended 31 March 20X7 is £15,600.
Requirement
What is the income tax figure for inclusion in the company's statement of profit o r loss for the year ended 31 March 20X7?
A £12,700
B £14,000
C £17,200
D £28,300
LO 3c
23 Cheetah pic had a provision of £10,000 in its financial statements for the year ended 31 March 20X3 in respect of a legal
clai m. I n Ju ly 20X3 the claim was settled at a cost of £ 1 3,000.
Requirement
What is the expense in respect of the legal claim included in Cheetah pic's statement of profit o r loss for the year ended
31 March 20X4?
A £10,000
B £13,000
C £3,000
D Nil
LO 3c
2 4 Camelia pic is preparing its financial statements for the year e n d e d 30 June 20X9. Its initial trial balance shows the
following balances:
Of the accruals at 1 July 20X8, £586 related to distribution costs. At 30 June 20X9 the equivalent figure is £654 for
distribution costs.
Requirement
What amount for distribution costs should b e shown in Camelia pic's statement of profit o r loss for the year ended 30
June 20X9?
A £129,407
B £130,579
C £130,715
D £131,887
LO I d , 3c
25 O n 1 January 20X6 Pigeon pic has £300,000 of 50p equity shares in issue, and a balance o n share premium of £750,000.
O n 1 April 20X6 the company makes a 1 for 3 bonus issue.
Requirement
What is the balance o n Pigeon pic's share premium account at 31 December 20X6?
A £450,000
B £550,000
C £650,000
D £850,000
LO I d , 1e
26 At 1 July 20X7 Leak pic owed £524,925 to credit suppliers. In the year to 30 June 20X8 it paid credit suppliers £1,249,506
and posted £1,987,345 to trade payables in respect of goods purchased o n credit. Leak pic took £12,824 i n settlement
discounts (which it had not expected to take) from credit suppliers. At the end of the period it processed a contra with
trade receivables of £8,236.
Requirement
What amount for trade payables should b e included in the statement of financial position of Leak pic as at 3 0 June 20X8?
A £1,267,352
B £1,241,704
C £1,258,176
D £1,283,824
LO 3c
27 Monksford pic is preparing its financial statements for the year e n d e d 31 December 20X1. Its initial trial balance shows the
following balances:
20X0 income tax paid in 20X1 (as finally agreed with HMRC) 1,762
The estimated income tax due for the year ended 31 December 20X1 is £2,584.
Requirement
What is the income tax expense to b e included in Monksford pic’s statement of profit or loss for the year ended 31
December 20X1?
A £1,269
B £2,255
C £2,584
D £2,913
LO I d , 3c
28 Zenia pic is preparing its financial statements for the 12 month reporting period e n d e d 31 August 20X6, having prepared
an initial trial balance which includes the following balances:
Of the accruals at 1 September 20X5, £362 related to interest payable. At 31 August 20X6 accruals will include £419
related to interest payable.
Requirement
What will be the finance cost included in Zenia pic's statement of profit or loss for the 12-month reporting period ended
31 August 20X6?
A £2,204
B £2,676
C £2,733
D £2,790
LO 1d, 3c
2 9 Wonka pic has the following ledger account balances as at 1 September 20X5:
Share capital {£0.50 equity shares): £200,000
Share premium: £20,000
Retained earnings: £793,442
O n 1 November 20X5 Wonka pic made a 1 for 4 rights issue at £4.50 per share. O n 31 August 20X6 it made a 2 for 1
bonus issue. Profit for the year to 31 August 20X6 was £1 00,000.
Requirement
What are the balances o n the share capital, share premium and retained earnings ledger accounts as at 31 August 20X6?
A Share capital £1,500,000, Share premium £Nil, Retained earnings £813,442
B Share capital £750,000, Share premium £ Nil, Retained earnings £813,442
C Share capital £750,000, Share premium £420,000, Retained earnings £393,442
D Share capital £1,500,000, Share premium £Nil, Retained earnings £393,442
LO 1d, 1e
3 0 Grease pic is a large company with a share capital of 3 million 20p equity shares. To raise funds, it has made a 1 for 4 rights
issue of its equity shares at £3.60 per share. The rights issue was fully taken u p but only £1 .9 million had been paid up at
the year e n d 30 September 20X2. Grease pic correctly debited cash at bank with £1.9 million and recorded the other side
of the transaction in the suspense account.
Requirement
Which adjustment should Grease pic make to correctly record the rights issue?
A Debit Other receivables £2,700,000, Credit Share capital £1 50,000, Credit Share premium £2,550,000
B Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital £750,000, Credit Share premium
£1,950,000
C Debit Other receivables £800,000, Credit Share capital £1 50,000, Credit Share premium £650,000
D Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital £1 50,000, Credit Share premium
£2,550,000
LO 1e, 2c
31 Lake pic makes purchases o n credit for £9,801 a n d purchases for cash of £107 in the year e n d e d 31 January 20X4. The
company's accruals relating to purchases need to be £75 less than at the previous year e n d and prepayments relating to
purchases need to be £60 less.
Requirement
What is the figure for purchases included in cost of sales in Lake pic’s statement of profit or loss for the year ended 31
January 20X4?
A £9,893
B £9,923
C £9,786
D £9,908
LO I d , 3c
32 Wombat pic is a retailer that owns n o properties and only has fixtures and fittings, purchased within the last six months, as
non-current assets. The company has been experiencing trading problems for some time. The directors have concluded
that the company is no longer a g o i n g concern and have changed the basis of preparing the financial statements to the
break-up basis.
Requirement
Which two of the following will b e the immediate effects of changing to the break-up basis?
A All fixtures and fittings are transferred from non-current to current assets.
B Fixtures and fittings are valued at their resale value.
C The company ceases to trade.
D A liquidator is appointed.
LO3b
33 Drange pic has share capital of 300,000 £1 shares at 1 March 20X7. These were issued at £1.50 per share. On 2 8 February
20X8 Drange pic made a 2 for 3 bonus issue. Before accounting for this, the balance o n retained earnings at 28 February
20X8 was £717,000.
Requirement
What is the balance of retained earnings to be included in Drange pic's statement of financial position at 28 February
20X8?
A £517,000
B £567,000
C £667,000
D £717,000
LO 1d, 1e, 3c
3 4 The trial balance of Albion pic, a manufacturer, as at the year-end 30 April 20X4 included the following items:
(1) Depreciation of delivery vehicles
(2) Delivery inwards
In the statement of profit or loss depreciation of delivery vehicles should be included in the heading:
A Cost of sales
B Administrative expenses
C Distribution costs
D Finance costs
LO 3c
In the statement of profit or loss delivery inwards from suppliers should be included in the heading:
E Cost of sales
F Administrative expenses
G Distribution costs
H Finance costs
LO 3c
35 Rembrandt pic is finalising certain figures that will appear in its financial statements as at 30 September 20X7. In its initial
trial balance at that date Rembrandt pic has a figure for income tax payable as at 1 October 20X6 of £114,520. The total
income tax charge in the statement of profit or loss for the year to 30 September 20X7 is £145,670, and income tax paid in
the year was £123,090.
Requirement
What is the income tax payable balance that will appear in Rembrandt pic's statement of financial position as at 30
September 20X7?
A £91,940
B £114,520
C £137,100
D £382,000
LO 3c
36 Touch pic is finalising certain figures for inclusion i n its financial statements as at 30 April 20X7. Relevant initial trial balance
figures are as follows:
Touch pic issued 6% debentures of £120,000 at par o n 1 February 20X7, repayable at par in 10 years' time. No interest
was outstanding at 1 May 20X6, and the company paid interest in respect of debentures of £24,000 i n the period to 3 0
April 20X7.
Requirement
What amount for trade and other payables (including interest payable) should be shown in Touch pic's statement of
financial position as at 30 April 20X7?
A £222,800
B £246,800
C £248,600
D £272,600
LO 3c
37 As at 1 June 20X4 Brazil pic had 400,000 1 0p equity shares, which it issued in 20X1 at £2.20 each, fully paid. It also had
200,000 £1 8% irredeemable preference shares issued at par in 20X2. On 31 January 20X5 Brazil pic made a further issue
of 45,000 of the £1 irredeemable 8% preference shares at £1.50 fully paid. On the same date Brazil pic made a 1 for 4
bonus issue of equity shares. Brazil pic wishes to use the share premium in respect of the bonus issue.
Requirement
What is the balance o n the share premium account that Brazil pic will present in its statement of financial position as at 31
May 20X5?
A £452,500
B £762,500
C £830,000
D £852,500
LO 1d, 1e, 3c
38 The retained earnings of Camel p l c a t 1 January 20X7 were £1,055,000. The retained earnings at 31 December 20X7 are
£1,21 0,000. The profit for the year is £387, 000.
During the year Camel made a 1 for 2 bonus issue, with £65,000 paid from retained earnings.
Requirement
What was the total dividend paid during the year?
A £Nil
B £167,000
C £232,000
D £297,000
LO 1 d
20X8 20X9
£ £
Equity shares of 25p each 1 00,000 125,000
In the year ended 3 0 June 20X9 Temso pic made a 1 for 4 bonus issue. Profits for the year were £44,000.
Requirement
What was the total dividend paid in the year?
A £12,000
B £13,000
C £37,000
D £76,000
LO 1 d
40 At 30 September 20X6 Bake pic's equity was as follows:
In the year ended 3 0 September 20X7 Bake pic made a 1 for 3 bonus issue which was partly paid out of share premium.
Retained earnings were £754,000 at 30 September 20X7 after Bake made a profit of £213,000.
Requirement
What was the total dividend paid in the year e n d e d 30 September 20X7?
A £15,000
B £65,000
C £205,000
D £361,000
LO I d
41 Panther Co sells goods with a one-year standard warranty a n d had a provision for warranty claims of £64,000 at
31 December 20X0. During the year ended 31 December 20X1, £25,000 in claims were paid to customers. O n 31
December 20X1, Panther Co estimated that 5% of warranties would be invoked at a cost of £58,000.
Requirement
What amount should Panther C o charge or credit to the statement of profit or loss for the year ended 31 December 20X1
in respect of the warranty provision?
A £58,000 charge
B £33,000 charge
C £19,000 charge
D £6,000 credit
LO 3c
1 2 C o m p a n y financial statements u n d e r IFRS A c c o u n t i n g
Standards
1 Hexham pic
The following is the trial balance of Hexham pic at 31 March 20X8:
£ £
Sales 1,150,000
Purchases 465,000
Bank 24,000
£ £
Requirement
Prepare the statement of profit o r loss for Hexham pic for the year ended 31 March 20X8 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 March 20X8
Revenue ___________
Gross profit
Operating profitZ(loss)
Non-current assets
Current assets
Inventories (W1)
Prepayments (W1 )
Total assets
tquuy
Share premium
Non-current liabilities
Borrowings
Current liabilities
Bank overdraft
Trade payables
Accruals (W3)
Deferred income
Provision
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
2 Ford pic
Ford pic is a company which publishes a single textbook and provides tuition courses relating to that text. The following
trial balance was extracted from the nominal ledger of Ford pic on 31 March 20X6.
£ £
Purchases 4,450,000
Cost 620,000
Borrowings 100,000
Revenue 6,700,000
8,654,900 8,654,900
Advances 100,000
6,700,000
Requirement
Prepare the statement of profit o r loss for Ford pic for the year e n d e d 31 March 20X6 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 March 20X6
Revenue (W5)
Gross profit
ASSETS
Non-current assets
Current assets
Inventories (W1)
Trade receivables
Prepayments
Total assets
Borrowings
Current liabilities
Borrowings
Accruals (W1)
Trade payables
Provision
3 Juniper pic
The following trial balance was extracted from the nominal ledger of Juniper pic on 31 December 20X2.
£ £
Accrued expenses at 31 December 20X2 2,500
Administration expenses 198,076
Cost of sales 426,772
Cash and bank 15,477
Payables due within one year (includes preference dividends payable) 49,809
Receivables 12,691
Distribution costs 61,554
Preference dividend paid 3,600
Equity dividend paid 4,000
Non-current assets at cost 157,680
10% loan (repayable in 10 years) 33,000
£1 equity share capital 11,000
60% £1 preference share capital (irredeemable) 6,000
Accumulated depreciation at 31 December 20X1 40,630
Retained earnings at 31 December 20X1 26,014
Suspense account 1,350
919,173 919,173
Requirement
Prepare the statement of profit o r loss for Juniper pic for the year e n d e d 31 December 20X2 and the statement of
financial position at that date.
Statement of profit or loss for the year ended 3 1 December 20X2
Revenue
Gross profit
Operating profitZ(loss)
Finance costs
Non-current assets
Land
Current assets
Inventories
Trade receivables
Prepayments (W1 )
Total assets
Equity
Share premium
Non-current liabilities
Borrowings
Current liabilities
Borrowings
Bank overdraft
Trade payables
Accruals
Deferred income
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
4 Skylar pic
The trial balance for Skylar pic as at 31 October 20X7 is shown below.
£'000 £'000
Purchases 30,946
130,091 1 30,091
Further information
(1) Skylar owns the propertiesand leases the plant and e q u i p m e n t Depreciation has not yet been charged. There were
n o purchases or sales of non-current assets, and n o new leases were entered into during the year. Plant is depreciated
at 10% straight-line o n a monthly basis taking into account the month of sale o r purchase a n d the lease term is 1 0
years. Freehold buildings are depreciated over their useful life of 4 0 years. Depreciation o n plant is charged to cost of
sales. Depreciation o n freehold buildings is charged to administrative expenses.
(2) The inventories at the close of business on 31 October 20X7 had a sales value of £12,232,500. Goods are sold at an
average mark-up of 25%.
(3) The company paid £48,000 insurance costs in June 20X7, which covered the period from 1 July 20X7 to 30 June
20X8. This was included in administrative expenses in the trial balance.
(4) The income tax charge for the year has been calculated as £1,254,000.
(5) A n electronic payment received from customer Broke pic for £1 5,000 o n 30 October 20X7, which was recorded in the
accounting records of Skylar pic, has been dishonoured by Broke pic's bank. Management have advised that Broke
pic's total outstanding balance of £30,000 should be written off as an irrecoverable debt and recorded i n
administrative expenses.
(6) During the year Skylar pic renewed its contract with haulage company Distributers pic. The contract commenced o n 1
September 20X7 and n o payment has been made to date. The annual contract fee is £200,000.
(7) All of Skylar pic's goods come with a 12-month warranty. Management estimate that 2% of these warranties will be
exercised, a n d the cost of repair o r replacement of these goods will be £250,000 in total. The warranties expense
should be presented in administrative expenses.
Requirement
Prepare the statement of profit o r loss for Skylar pic for the year e n d e d 31 October 20X7 a n d the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 October 20X7
£'000
Revenue
Gross profit
Operating profitZ(loss)
Finance costs
£'000
ASSETS
Non-current assets
Current assets
Inventories
Prepayments (W3)
Total assets
Equity
Non-current liabilities
Trade payables
Accruals 420
Provision
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
5 Corolla pic
Corolla pic's trial balance as at 31 October 20X8 is shown below.
Debit Credit
£'000 £'000
Revenue 58,411
Purchases 41,620
125,846 125,846
Further information
(1) The inventories at the close of business on 31 October 20X8 were valued at £7,878,000.
(2) Depreciation is to be charged for the year as follows: Buildings: 2% per annum straight line basis; Plant and
equipment: 20% per annum reducing balance basis. Depreciation is apportioned as follows: Cost of sales: 40%;
Distribution costs: 40%; Administrative expenses: 20%. Land, which is non-depreciable, is included in the trial balance
at a cost of £1 5, 1 52,000.
(3) The company began a series of social media adverts for the company's range of products o n 1 October 20X8 at a
cost of £45,000. The adverts are to b e placed o n relevant pages for a period of three months and were to b e paid for
in full at the e n d of December 20X8. Advertising expenses are to be included in distribution costs.
(4) Interest o n the bank loan for the last six months of the year has not been included in the accounts in the trial balance.
(5) The income tax charge for the year has been calculated as £970,000.
(6) During the year, Corolla pic made a 1 for 4 bonus issue of equity shares. This has not b e e n reflected in the accounts.
(7) Management have calculated that an allowance for receivables equal to 5% of the trade receivables balance at 31
October 20X8 is required. The allowance should b e charged to administrative expenses.
(8) Corolla pic paid a n insurance premium for annual cover u p t o 3 0 June 20X9. Due to a reference number error, the
computerised accounting system posted the payment of £45,000 to a trade supplier's account.
Requirement
Prepare the statement of profit o r loss for Corolla pic for the year ended 31 October 20X8 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 October 20X8
£'000
Revenue
Gross profit
Operating profit/(loss)
Finance costs
£'000
ASSETS
Non-current assets
Current assets
Inventories
Trade receivables
Prepayments
Total assets
EQUITY AND LIABILITIES
Equity
Non-current liabilities
Borrowings
Current liabilities
Accruals
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
6 Ariel pic
The following trial balance was extracted from the nominal ledger of Ariel pic o n 31 March 20X2.
£'000 £'000
Revenue 35,547
Purchases 27,481
73,344 73,344
Further information:
(1) The inventories at the close of business on 31 March 20X2 were valued at £4,067,000.
(2) Depreciation has already been provided o n buildingsand plant and equipmentfor the year ended 31 March 20X2.
(3) O n 31 March 20X2 items of plant with a cost of £12,750,000 and accumulated depreciation of £3,100,000 were
assessed to have a recoverable amount of £8,500,000 in an impairment review. Any adjustment should be included in
cost of sales.
(4) The company rented some office photocopiers for the period 1 March to 30 June 20X2. The contract price for the
four months was £164,000 and this was paid in full o n 3 March a n d is charged to administrative expenses.
(5) The company sourced extra warehousing space, for the storage of goods prior to their sale, for a period of three
months from 1 February to 30 April 20X2. The invoice for the full three months of £1 14,000 was paid on 16 April. N o
entry has been made in the accounts for this transaction, which should be charged to distribution costs.
(6) The income tax charge for the year has been calculated as £874,000.
(7) Trade receivables at 31 March 20X2 include a balance of £95,000 owed by a customer which has g o n e into
liquidation. The directors have been advised that they are unlikely to receive any of this amount and wish to write the
debt off as irrecoverable. Irrecoverable debts are written off to administrative expenses.
(8) Ariel pic provides a warranty for certain lines of product. It is estimated that 1% of these warranties will be invoked at a
cost of £25,000.
Requirement
Prepare the statement of profit o r loss for Ariel for the year ended 31 March 20X2 and the statement of financial position
at that date.
Statement of profit or loss for the year ended 3 1 March 20X2
£'000
Revenue
Gross profit
Financecosts
£'000
ASSETS
N on-current assets:
Buildings (W3)
Current assets:
Inventories
Trade receivables
Prepayments
Total assets
Equity
Non-current liabilities:
Borrowings
Current liabilities:
Trade payables
Accruals
Provision
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
7 Enercell pic
The trial balance for Enercell pic as at 31 October 20X7 is shown below.
£'000 £'000
151,601 151,601
Further information
(1) There were n o movements in non-current assets during the year. Plant and equipment is depreciated o n a 10%
straight-line basis. Freehold buildings are depreciated over their useful life of 40 years. Depreciation is charged to
administrative expenses.
(2) The figure for closing inventories in the trial balance is the sales value (goods are sold at a mark-up of 25%). Inventory
should be valued at cost.
(3) The company paid £72,000 insurance costs in June 20X7, which covered the period from 1 July 20X7 to 30 June
20X8. This was included in administrative expenses in the trial balance.
(4) Interest o n the bank loan for the last three months of the year has not been included in the trial balance.
(5) The income tax charge for the year has been calculated as £1,881,000.
(6) A customer was injured by a defective product during the year and has issued proceedings against the company.
Enercell pic’s legal team have advised that there is a 75% probability that this will result in an estimated payout of
£750,000. Provisions are charged to administrative expenses.
(7) Enercell pic rented additional warehouse space during the year for a period of six months, commencing o n 1 August
20X7. The rent payable is £4,000 per month, n o payments have been made to date. Rent is charged to distribution
costs.
(8) During the year, Enercell pic issued a 1 for 1 0 bonus share issue from share premium.
(9) A payment which was sent o n 2 3 October 20X7 to a supplierfor £32,000 was incorrectly recorded as £23,000.
Requirement
Prepare the statement of profit o r loss for Enercell pic for the year e n d e d 31 October 20X7 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 October 20X7
£'000
Finance costs
£'000
ASSETS
Non-current assets
Buildings (W3)
Total assets
Equity
Non-current liabilities
Current liabilities
Trade payables
Accruals
Provision
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use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
8 Liquid pic
The following trial balance was extracted from the nominal ledger of Liquid pic on 31 December 20X6:
£ £
Sales 1,590,000
Inventories at 1 January 20X6 35,000
Purchases 600,000
2,348,000 2,348,000
Requirement
Prepare the statement of profit o r loss for Liquid pic for the year ended 31 December 20X6 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 December 20X6
Revenue
Gross profit
Operating profit/(loss)
Non-current assets
Property, plant, and equipment
Current assets
Inventories (W1)
Prepayments (W1 )
Total assets
Equity
Non-current liabilities
Current liabilities
Borrowings
Bank overdraft
Trade payables
Accruals
Deferred income
Provision (W2)
£ £
Accruals 140
6% bank loan repayable in 10 years 25,000
147,817 147,817
Further information
(1) Plant and equipment is depreciated on a 12.5% straight-line basis. Freehold buildings are depreciated over their
useful life of 40 years. Depreciation is to be charged to administrative expenses.
(2) The figure for closing inventories in the trial balance is the sales value (goods are sold at a mark-up of 20%). Inventory
should be valued at cost of sales.
(3) The bank loan was taken o u t i n 20X4, therefore a full year's interest needs to be recorded. Interest o n the bank loan
for the last three months of the year has not been included in amounts i n the trial balance.
(4) The income tax charge for the year has been calculated as £1,566.
(5) During the year, Colbolt pic issued a 1 for 1 0 bonus share issue from share premium.
(6) A payment which was sent o n 2 3 March 20X7 to a supplier for £12 was incorrectly recorded as £21.
(7) Colbolt pic received notice o n 31 March 20X7 that one of its customers. Pulse Limited, had g o n e into liquidation and
the d e b t requires to be written off as irrecoverable. This customer owed £165 at the year e n d that date. Colbolt pic
decided to create an allowance for receivables o n the remaining trade receivables balance of £4,500. Irrecoverable
debts are charged to administrative expenses.
(8) Colbolt pic rents some additional office space for administrative staff. Rent is due quarterly in advance. Colbolt pic
made a payment of £30 o n 2 8 February 20X7, and this has been included in administrative expenses.
(9) O n 31 March 20X7 items of plant with a cost of £8,000 and accumulated depreciation of £3,100 were assessed to
have a value of £4,500 in an impairment review. Any adjustment should be included in cost of sales.
Requirement
Prepare the statement of profit o r loss for Colbolt pic for the year ended 31 March 20X7 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 March 20X7
Operating profitZ(loss)
Finance costs
ASSETS
Non-current assets
Current assets
Inventories
Trade receivables
Prepayments (W2)
Total assets
Equity
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Accruals
Total liabilities
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
10 Waterford pic
The trial balance for Waterford pic as at 31 May 20X6 is shown below.
£ £
1 80,271 180,271
(1) The company's depreciation policy is as follows: Freehold buildings: Straight-line over 50 years; Plant a n d
equipment: 15% reducing balance; Motor vehicles: 25% straight-line. The cost of the land within the cost of freehold
land a n d buildings was £500, and all non-current assets are assumed to have zero residual values. There were n o
additions to non-current assets during the year ended 31 May 20X6. Depreciation o n freehold buildings is charged to
administrative expenses, and depreciation o n plant and equipment and motor vehicles is charged to cost of sales.
(2) O n 1 June 20X5, motor vehicles purchased o n 1 July 20X4 at a cost of £8,000 were disposed of for £2,500. The cash
received has been correctly recorded b u t the accounting software was unable to match the transaction a n d recorded
the other side of the entry to the suspense account
(3) Income tax for the year ended 31 May 20X6 is estimated at £8,000.
(4) Within the closing inventory carried at cost is an over- allocation of fixed overheads, of £78.
(5) During the year, Waterford pic made a 1 for 4 bonus issue from share premium. The correct entry to share premium
has been made, but the corresponding entry was posted to the suspense account.
(6) A n accrual needs to b e made for the remainder of the interest expense for the year.
(7) At 31 May 20X6 Waterford pic determined that £650 owing from a customer is required to be written off as
irrecoverable, and an allowance for receivables of 3% of the remaining receivables is necessary. Irrecoverable debts
are considered an administrative expense.
(8) A n adjustment has been made to remove £8,851 for sales made i n May 20X6 for products to be delivered in June
20X6. The correct entry has been made to the revenue account but, the corresponding entry has been posted to the
suspense account.
(9) O n 31 May 20X6 Waterford pic paid an insurance premium for annual cover up to 31 May 20X7. The full £55 was
included within administrative expenses at 31 May 20X6.
Requirement
Prepare the statement of profit o r loss for Waterford pic for the year ended 31 May 20X6 and the statement of financial
position at that date.
Statement of profit or loss for the year ended 3 1 May 20X6
Operating profit/(loss)
Finance costs
ASSETS
Non-current assets
Property (W3)
Current assets
Inventories
Prepayments
Cash and cash equivalents
Total assets
Equity
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Accruals
Deferred income
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use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
1 1 Corrie Ltd is preparing its statement of changes in equity for the year e n d e d 31 December 20X6. Its opening retained
earnings balance at 1 January 20X6 was £1 51,600. The following balances a n d transactions arose during the year:
* Corrie Ltd issued 10,000 £1 equity shares at a premium of £0.80 per share o n 1 January 20X6
* Corrie Ltd made a bonus issue o n 1 March 20X6 of 5,000 £1 equity shares utilising retained earnings
* It paid a dividend totalling £1 6,000 on 31 October 20X6
“ It made a loss for the year of £17,800
Requirement
What is the closing balance of Corrie Ltd's retained earnings at 31 December 20X6?
A £148,400
B £112,800
C £130,800
D £134,000
LO 3c
1 1 Corrie Ltd is preparing its statement of changes in equity for the year e n d e d 31 December 20X6. Its opening retained
earnings balance at 1 January 20X6 was £1 51,600. The following balances a n d transactions arose during the year:
• Corrie Ltd issued 10,000 £1 equity shares at a premium of £0.80 per share o n 1 January 20X6
• Corrie Ltd made a bonus issue o n 1 March 20X6 of 5,000 £1 equity shares utilising retained earnings
“ It paid a dividend totalling £1 6,000 on 31 October 20X6
• It made a loss for the year of £17,300
Requirement
What is the closing balance of Corrie Ltd's retained earnings at 31 December 20X6?
A £148,400
B £112,300
C £130,800
D £134,000
LO 3 c
12 Dale Ltd is preparing its statement of changes in equity for the year ended 31 December 20X8. The opening share capital
balance in the statement of changes in equity was £100,000, comprising 100,000 £1 equity shares which were issued a t a
premium of £0.50 per share. The following balances and transactions arose in the year:
■ Dale Ltd issued 20,000 £1 equity shares at price of £1 .70 per share o n 1 July 20X8
■ It made a bonus issue o n 1 October 20X8 of 1 0,000 £1 equity shares utilising retained earnings
• It paid a dividend totalling of 2 0 p per share to all shareholders o n 31 December 20X8
Requirement
What was the closing balance of share capital in the statement of changes in equity at 31 December 20X8?
A £144,000
B £104,000
C £118,000
D £130,000
LO 3c
13 The accountant is preparing the financial statement of Marge Ltd for the year ended 31 May 20X9. The accountant has
identified the following transactions which may require to be included i n the statement of changes in equity:
(1) A bonus issue made in the year
(2) A bank loan for £100,000 received during the year
(3) Dividends paid to equity shareholders
Requirement
Which of the above transactions should be included i n the statementof changes i n equity?
A 1 only
B 1 and 3 only
C 2 and 3 only
D 1,2and3
LO 3c
14 Alabama Ltd has the following capital structure:
£'000
Redeemable 5% preference shares 100
Ordinary shares of £1 250
Irredeemable 6% preference shares 50
It earned a profit in the year ended 31 March 20X5 of £69,800 before accounting for any dividends payable on its
ordinary or preference shares.It paid a dividend of 12p per share in respect of its ordinary shares.
Requirement
What is Alabama Ltd's revised profit for the year ended 31 March 20X5 after accounting for the dividends payable?
A £64,800
B £66,800
C £34,800
D £61,800
LO2a
1 3 Statement of cash flows
1 Havisham pic
Extracts from the financial statements for Havisham pic for the year e n d e d 31 March 20X2 are as follows:
Statement of profit or loss for the year ended 3 1 March 20X2
20X2 20X1
£ £
Non-current assets
Current assets
Equity
Non-current liabilities
Current liabilities
Borrowings 115,600 51,000
Finance income
Finance costs
Depreciation
Amortisation (W1 )
Movement in inventories
Interest received
Movement in borrowings
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use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
2 Castle pk
As at 31 May 20X1 and 31 May 20X2, Castle pic had the following summarised statements of financial position:
20X2 20X1
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment
1,086,000 1,090,000
Intangible assets
5,670,000 5,930,000
8,901,000 7,147,000
Current assets
2,514,000 2,256,000
Equity
Ordinary share capital 1,800,000 1,000,000
6,032,000 3,167,000
Non-current liabilities
Current liabilities
2,283,000 1,736,000
Castle's statement of profit or loss for the year e n d e d 31 May 20X2 was as follows:
Revenue 8,646,000
Profit f o r t h e p e r i o d 2,686,000
Requirement
Prepare a statement of cash flows for the year ended 31 May 20X2 in accordance with IAS 7.
£ £
Cash flows from operating activities
Finance income
Finance costs
Depreciation (W2)
Amortisation (W5)
Movement in inventories
Movement in prepayments
Interest received
Dividends paid
Movement in borrowings
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use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
3 Tam pic
As at 30 November 20X1 and 30 November 20X2 Tam pic had the following summarised statements of financial position.
20X2 20X1
£ £ £ £
ASSETS
Non-current assets
Property, plant a n d equipment 2,543,000 2,401,000
Investments 406,000
3,499,000 2,985,000
Current assets
1,687,000 1,389,000
Equity
Non-current liabilities
1,259,000 863,000
Tam pic's statement of profit o r loss for the year e n d e d 30 November 20X2 was as follows.
Revenue 5,762,000
Financecosts (68,000)
20X2 20X1
£ £
2,543,000 2,401,000
Intangible assets
550,000 584,000
Requirement
Prepare a statement of cash flows for Tam pic, for the year ended 3 0 November 20X2 in accordance with IAS 7.
Finance income
Finance costs
Depreciation (W5)
Amortisation (W3)
Movement in inventories
Movement in prepayments
Movement i n accruals
Movement in provisions
Purchase of investments
Movement in borrowings
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
4 Kaya pic
The following are the draft financial statements for Kaya pic for the year ended 31 December 20X7.
Statement of profit or loss for the year ended 3 1 December 20X7
Revenue 7,350,500
20X7 20X6
£ £ £ £
ASSETS
Non-current assets
Property, plant a n d equipment 6,985,400 6,713,500
7,336,100 7,014,000
Current assets
265,200 542,200
Equity
6,542,800 6,656,700
Non-current liabilities
Preference share capital (redeemable) 500,000 400,000
Current liabilities
Trade payables 148,500 139,500
Income tax payable 410,000 360,000
558,500 499,500
Total equity and liabilities 7,601,300 7,556,200
The following additional information is relevant.
(1) During the year Kaya pic issued redeemable preference shares at par.
(2) The investments meet the definition ofcash equivalents.
(3) During the year Kaya pic sold plant and equipment with a carrying amount of £560,500 for £600,000. Total
depreciation charges for the year were £750,600.
(4) Trade payables include accrued interest of £5,000 (20X6: £7,000).
(5) Kaya pic acquired new intangible assets at a cost of £77,500 during the year.
(6) Incl uded i n trade receivables is fi nanee income of £14,500 (20X6: £2,000).
(7) An impairment review at 31 December 20X7 identified a fall in the recoverable amount of intangible assets. As a
result, an impairment loss of £15,000 was identified and written off to administrative expenses.
(8) Included in trade payables is £10,000 which relates to the purchase of machinery.
(9) During the year Kaya pic made a 1 for 100 bonus issue of its ordinary shares.
Requirement
Prepare a statement of cash flows for the year ended 31 December 20X7 in accordance with IAS 7.
Depreciation
Amortisation (W6)
Impairment charge
Movement in inventories
Movement in borrowings
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
5 Siena pic
The following are the draft financial statements for Siena pic for the year ended 31 March 20X5.
Statement of profit or loss for the year ended 3 1 March 20X5
Revenue 5,645,500
Cost of sales (3,460,600)
20X5 20X4
£ £ £ £
ASSETS
Non-current assets
4,532,400 3,106,300
Current assets
Inventories 460,600 365,100
Trade receivables 269,000 244,500
Investment in government bonds 105,000 100,000
Cash 180,000 20,200
1,014,600 729,800
Total assets 5,547,000 3,836,100
EQUITY AND LIABILITIES
Equity
Ordinary share capital 3,000,000 1,800,000
Share premium account 1,050,000 850,000
Retained earnings 142,500 74,500
4,192,500 2,724,500
Non-current liabilities
Loan 556,000 472,000
Preference shares (redeemable) 150,000 0
Current liabilities
Trade payables 348,500 289,600
Income tax payable 300,000 350,000
648,500 639,600
Total equity and liabilities 5,547,000 3,836,100
The following additional information is relevant.
(1) During the year Siena pic made a 1 for 10 bonus issue of its ordinary shares.It subsequently issued further shares at
the market price.
(2) An impairment review at 31 March 20X5 identified a fall in the recoverable amount of certain non- current
investments. As a result, an impairment loss of £12,000 was identified and written off to administrative expenses.
(3) During the year Siena pic acquired plant and equipment for cash of £2,057,000. In addition, plant and equipment
with a fair value of £600,000 was acquired through a long-term loan. The depreciation charge for the year, charged to
cost of sales, was £750,600. A loss on sale of plant of £55,000 was made during the year.
(4) Interest payable of £10,000 has been included in trade payables at year end. The corresponding figure in 20X4 was
£5,000.
(5) The government bonds are highly liquid and management has decided to class them as cash equivalents. The finance
income in the statement of profiler loss represents the interest income on the bonds. The interest income was
received in cash during the year.
(6) Siena pic issued £150,000 redeemable preference shares during the year.
(7) Included in trade payables is £10,000 in relation to the acquisition of long-term investments.
Requirement
Prepare a statement of cash flows for Siena pic the year ended 31 March 20X5 in accordance with IAS 7.
£
Cash flows from operating activities
Finance income
Finance costs
--------------------1
Depreciation
Impairment
Gain/loss on sales of property, plant and equipment
Movement in inventories
Interest received
6 Part of the process of preparing a cash flow statement is the calculation of net cash flows from operating activities.
Requirement
Which of the following statements about that calculation using the indirect method are correct?
(1) Loss on sale of non-current assets should be deducted from profit before tax,
(2) Increase in inventories should be deducted from profit before tax.
(3) Increase in trade payables should be added to profit before tax.
(4) Impairment losses should be added to profit before tax.
A 1 , 2 and 3
B 1,2and4
C 1 , 3 and 4
D 2, 3 and 4
LO 3c
LO oC
7 In the course of preparing a statement of cash flows, the following figures are to be included in the calculation of net cash
flows from operating activities.
Requirement
What will the net effect of these items be in the statement ofcash flows?
A Addition to cash flows from operating activities: £890,000
B Deduction from cash flows from operating activities: £890,000
C Addition to cash flows from operating activities: £1,070,000
D Addition to cash flows from operating activities: £990,000
LO 3c
8 An extract from a statement of cash flows prepared by a trainee accountant is shown below.
Cash flows from operating activities
£m
Profit before tax 28
Depreciation (9)
Decrease in inventories 13
Increase in trade receivables (4)
Increase in trade payables (8)
Cash generated from operations 20
Requirement
Which of the following criticisms of this extract are correct?
(1) Depreciation charges should have been added, not deducted.
(2) Decrease in inventories should have been deducted, not added.
(3) Increase in trade receivables should have been added, not deducted.
(4) Increase in trade payables should have been added, not deducted.
A 2 and 4
B 2 and 3
C 1 and 3
D 1 and 4
LO 3c
9 Bailey disposes of an asset with a carrying amount of £21,000 for £30,000 on 7 July 20X1.
Requirement
How will this transaction be shown in cash flows from operating activities?
A Cash flows from operating activities: £(9,000)
B Cash flows from operating activities: £9,000
C Cash flows from operating activities: £(21,000)
D Cash flows from operating activities: £21,000
LO 3c
1 0 An extract from the statement of financial position for Highmead has the following balances:
20X5 20X4
£ £
Current liabilities
The tax expense in the statement of profit or loss for the year ended 20X5 was £160,000 and £150,000 in the year ended
20X4.
Requirement
What is the amount of tax that Highmead paid or received in the year ended 20X5?
A £20,000 paid
B £20,000 received
C £10,000 paid
D £10,000 received
LO 3c
11 The following extracts are taken from the financial statements of Radio for the years ended 31 March 20X4 and 20X5:
Statement of financial position extract:
20X5 20X4
£ £
20X5
£
Operating profit 797,200
Requirement
What is the cash generated from operations to b e included in the statement of cash flows for the year ended 31 March
20X5?
A £626,600
B £748,800
C £815,600
D £845,600
LO 3c
1 4 Company financial statements under UK GAAP
1 In the UK which of the following are responsible for the preparation of company annual financial statements?
A The shareholders
B The board of directors
C The auditors
D The members
LO l a
3 Teacup Ltd uses the first-in, first-out (FIFO) method to value its stocks of finished goods. At 1 January there were stocks of
2 5 units that had cost £54 each. During January the following transactions occurred:
Requirement
What was the value of Teacup Ltd's closing stock at 31 January?
A £815
B £810
C £825
D £820
LO 1d
4 Diamond Ltd issues 250,000 equity shares with a nominal value of £2 each at a price of £3.55 each for cash.
Requirement
Which of the following sets of entries would b e made to record this transaction?
A Credit Bank £887,500; Debit Share capital £500,000; Debit Share premium £387,500
B Debit Bank £887,500; Credit Share capital £250,000; Credit Share premium £637,500
C Debit Bank £887,500; Credit Share capital £500,000; Credit Share premium £387,500
D Credit Bank £887,500; Debit Share capital £250,00; Debit Share premium £637,500
LO 1d, 1e, 2 d
3 Teacup Ltd uses the first-in, first-out (FIFO) method to value its stocks of finished goods. At 1 January there were stocks of
2 5 units that had cost £54 each. During January the following transactions occurred:
Requirement
What was the value of Teacup Ltd's closing stock at 31 January?
A £815
B £810
C £825
D £820
LO 1 d
4 Diamond Ltd issues 250,000 equity shares with a nominal value of £2 each at a price of £3.55 each for cash.
Requirement
Which of the following sets of entries would b e made to record this transaction?
A Credit Bank £887,500; Debit Share capital £500,000; Debit Share premium £387,500
B Debit Bank £887,500; Credit Share capital £250,000; Credit Share premium £637,500
C Debit Bank £887,500; Credit Share capital £500,000; Credit Share premium £387,500
D Credit Bank £887,500; Debit Share capital £250,00; Debit Share premium £637,500
LO 1d, 1e, 2 d
5 The following balances have been extracted from Saracen Ltd's trial balance at 31 December 20X8:
Debit Credit
£ £
Operating profit for the year ended 31 December 20X8 is £520,000. Corporation tax for the year has been estimated at
£156,000.
Requirement
What is the figure for retained profits in Saracen Ltd's balance sheet as at 31 December 20X8?
A £4,929,600
B £4,994,600
C £5,059,600
D £5,215,600
LO 1d, 3c
6 Which of the following transactions are not recorded in a company's cash at bank account?
A Bonus issue of shares
B Sale of goods for cash to a customer
C Receipt of loan from a bank
D Purchase for cash of shares in another company
LO 1c, 1 d
1 5 Sole t r a d e r financial statements u n d e r U K GAAP
1 A sole traders' private petrol bills have been treated as part of the business' motor vehicle expenses. Which of the
following journals corrects the error?
A Debit Drawings account, Credit Motor vehicle expenses account
B Debit Motor vehicle expenses account. Credit Drawings account
C Debit Motor vehicle expenses account. Credit Capital account
D Debit Capital account. Credit Motor vehicle expenses account
LO 1d, 1e, 2c
£ £
Drawings 6,200
19,470 19,470
The balance brought d o w n is entered correctly and the other entries are all correct in a m o u n t
Requirement
What is the correct balance carried down?
A A d e b i t balance of £7,070
B A credit bala nee of £7,070
C A d e b i t balance of £19,470
D A credit balance of £1 9,470
LO 1ld, 1e
3 A gas accrual for £400 at the reporting date was treated as a prepayment in a sole trader's financial statements. As a result,
the profit was:
A understated by £800
B understated by £400
C overstated by £800
D overstated by £400
LO2a
4 Avery is a sole trader who prepares their financial statements each year to 31 May. Avery's rent is payable quarterly in
advance o n 1 January, 1 April, 1 July and 1 October. Local property taxes are paid each year in two equal instalments o n 1
April and 1 October.
Avery's annual rental for the calendar years 20X6 and 20X7 was £4,800 and £5,400 respectively but o n 1 January 20X8
this was increased to £6,600 per annum. Local property tax for the last three years has been as follows:
Requirement
In preparing his financial statements for the year ended 31 May 20X8, the charge to the profit and loss account from his
rent and local property tax account would b e :
A £9,900
B £10,100
C £10,200
D £10,300
LO I d , 3c
5 A local taxes prepayment of £475 at the reporting date was treated as an accrual in preparing a trader's profit and loss
account. As a result, his profit was:
A understated by £950
B overstated by £950
C understated by £475
D overstated by £475
LO2a
6 The net assets of Wei's business decreased by £11,025 over the year to 31 October 20X7. During that year Wei had paid
in additional capital of £14,000, drawn £875 in cash each month and, o n one occasion, taken goods costing £2,625 for
their own use.
Requirement
The loss made b y Wei's business for the year ended 31 October 20X7 was:
A £10,150
B £11,900
C £21,525
D £25,025
LO 1d, 1e, 3a
7 Harsha has been unable to calculate her business' profit o r loss for the year ended 31 December 20X8 as a fire destroyed
most of her accounting records. She has, however, been able to provide the following information.
(1) Net assets at 31 December 20X7 were £23,000 and £32,500 at 31 December 20X8.
(2) Harsha introduced capital during the year of £4,000 cash.
(3) Harsha took cash drawings of £2,500 and goods with a selling price of £800. The cost of the g o o d s was £750.
Requirement
What was Harsha's profit o r loss for the year e n d e d 31 December 20X8?
A £8,750 profit
B £(1,750) loss
C £9,800 profit
D £(2,750) loss
LO 1d, 1e, 3a
8 Alex's net assets have increased by £127,000 over the year. Alex took drawings of £47,000 and paid in the proceeds from
a personal property sale amounting to £25,000. Alex's net profit for the year was:
A £55,000
B £105,000
C £149,000
D £199,000
LO 1d, 1e, 3a
9 A business has net assets of £286,400 o n 31 January 20X6 and had net assets of £266,800 o n 31 January 20X5. During
the year the owner of the business:
(1) took goods for his own use which cost £1 0,000 and had a market value of £1 4,000;
(2) introduced capital of £50,000; and
(3) withdrew £30,000 as salary.
Requirement
The profit for the year was:
A £9,600
B £30,400
C £70,400
D £109,600
LO 1d, 1e, 3a
10 Which two of the following could be classified as current liabilities in the balance sheet of a sole trader?
A Owner's capital
B Accrued interest charges
C Drawings
D Lease liability
E Income tax payable
LO 3c
11 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 - loss + drawings
LO 1e, 3a, 3c
12 Sam has discovered the following errors and omissions in their accounting records for the year ended 31 August 20X6:
(1) A payment of £180 received from a customer on 30 August 20X6 was returned dishonoured by the customer's bank
on 31 August 20X6. No entries have been made in the accounting records for the returned payment
(2) An invoice for £12 was raised by the bookkeeper and entered into the accounting records by the computerised
accounting system; however, it was later discovered that it should have been a credit note.
Requirement
Which of the following journals will be entered in Sam's nominal ledger accounts in order to correct these errors and
omissions?
A Debit Debtors £156, Debit Sales £24, Credit Cash £180
B Debit Cash £180, Credit Debtors £156, Credit Sales £24
C Debit Debtors £168, Debit Sales £12, Credit Cash £180
D Debit Bad debts expense £180, Debit Debtors £24, Credit Cash £180, Credit Sales £24
LO 1d, 2c
13 Which three of the following could be found in the financial statements of a sole trader?
A Fixed assets
B Share premium
C Drawings
D Dividends paid
E
LO 3c
14 Sunil started business on 1 December 20X3, introducing cash of £5,000 on that date, Sunil has not yet prepared a full set
of financial statements. As at the end of the first reporting period, 30 November 20X4, Sunil has cash at bank of £1,726.
Sunil made sales of £33,498 during the period and paid expenses in cash of £19,385. Sunil has no outstanding creditors
at the end of the period, and has no fixed assets or stock, but one customer owes £2,387.
Requirement
Assuming Sunil made no other capital injections but took drawings of £15,000 in the period, identify the profit for the 12-
month reporting period to 30 November 20X4 and the net assets at the end of the period on an accrual basis.
A Net profit of £11,726, net assets of £1,726
B Net profit of £14,11 3, net assets of £4,11 3
C Net profit of £11,726, net assets of £4,11 3
D Net profit of £14,11 3, net assets of £1,726
LO 11d, 3b
15 Randolph started a trading business o n 1 May 20X4 with capital of £40,000. In his first year of trading, h e made a net profit
of £1 1 7,000, selling goods at a mark-up o n cost of 60%. He injected additional capital of £30,000 in the year and withdrew
a monthly amount of £3,200 for his living expenses. He also took drawings from stock of g o o d s with a resale value of
£7,200. He had no stock at the year end.
Requirement
What was the amount of Randolph's net assets at 30 April 20X5?
A £141,400
B £144,100
C £144,280
D £179,300
LO 3a
16 Mushtaq, a sole trader, has the following information at the start a n d e n d of his second year of trading.
£ £
During 20X0 Mushtaq introduced £3,000 capital. He took stock for his own use that cost £500 a n d paid himself £750 per
month.
Requirement
What is Mushtaq 's profit or loss for 20X0?
A £15,800 profit
B £2,800 loss
C £16,300 profit
D £18,800 profit
LO 3a
1 6 Practice exam
1 Shindig pic
The following trial balance was extracted from the nominal ledger of Shindig pic, a computer game developer, o n 31
December 20X4. Shindig pic sells its games to individual and wholesale customers.
£ £
Licence 60,000
Buildings 220,000
Revenue 1,705,600
2,700,500 2,700,500
Revenue
Cost of sales
Gross profit
Operating profit
Finance costs
ASSETS
Non-current assets
Buildings (W1 )
Computers (W1)
Current assets
Inventories (W5)
Total assets
EQUITY A N D LIABILITIES
Equity
Non-current liabilities
Current liabilities
Deferred income
Provision
Note: The boxes in this question indicate where an answer is required and where marks are available in the CBE. You can
use the 'add comment' function to record your workings a n d answers.
Total: 1 6 marks
2 Which three of the following users of financial statements are likely to be interested in the financial statements of a small
private company?
A Stock market analysts
B Company employees
C The company's bank
D Institutional shareholders
E Suppliers
LO 11a
3 Which of the following accounting treatments derive from the accrual accounting concept?
(1) Writedown of a non-current asset which has suffered a fall in value
(2) Opening and closing inventory adjustments
(3) Capitalisation and amortisation of development expend itu re
A land 2
B 3 only
C 2 and 3
D 1 only
LO3b
4 In times of rising prices, what effect does the use of the historical cost concept have o n a company's asset values and
profit?
A Asset values and profit are both understated
B Asset values and profit are both overstated
C Asset values are understated and profit is overstated
D Asset values are overstated and profit is understated
LO I d , 3 b
5 Harley has downloaded a transaction report from their electronic banking system. The report shows a receipt of £565
which the computerised accounting system has not been able to automatically match to a transaction.
Requirement
Which of the following transactions is most likely to have resulted in the unmatched receipt?
A A payment made to settle a supplier invoice of £600 o n which a prompt payment discount of £35 has been taken
B A standing order paid in respect of rental charges of £565 for the month
C Proceeds of £565 from the sale of machinery to a competitor
D A receipt from a credit customer in settlement of an invoice of £565
LO 1c
6 Rose Ltd was set up o n 1 May 20X8 with opening capital of £1,000. During the month of May 20X8, it entered into the
following transactions:
Depreciation 100
Requirement
What is the profit for the period earned by Rose Ltd in the month of May 20X8?
A £3,200
B £5,400
C £4,500
D £3,000
LO 3c
7 Two errors have been found in Trim pic's accounts:
(1) It was agreed that the credit balance of £420 in Avery's payables ledger should b e offset against their account in the
receivables ledger, b u t n o entries have been made i n trade receivables o r trade payables to reflect this.
(2) The balance of £510 owed b y Taylor, a credit customer, is irrecoverable, however the journal entry posted to write off
the irrecoverable debt was made for £1 50 in error.
Requirement
The journal that corrects both these errors is:
A Debit Trade payables £420, Debit Irrecoverable debts expense £360, Credit Trade receivables £780
B Debit Trade receivables £780, Credit Irrecoverable debts expense £360, Credit Trade payables £420
C Debit Trade payables £780, Credit Irrecoverable debts expense £360, Credit Trade receivables £420
D Debit Trade receivables £420, Debit Irrecoverable debts expense £360, CreditTrade payables £780
LO 2c
8 Nimbus pic has prepared its draft financial statements for the year ending 30 June 20X0. Following a physical inventory
count, it was discovered that inventory at a cost of £18,000 had been stolen. Nimbus pic has insurance which covers 40%
of the cost of inventory stolen. The insurance company has agreed to settle the claim, b u t n o money has yet been
received. N o accounting entries have been made in respect of the stolen inventory.
Requirement
Correcting this matter will:
A increase net profit by £7,200
B decrease net profit by £7,200
C increase net profit by £ 1 0,800
D decrease net profit by £1 0,800
LO2a
9 A bakery business, which is registered for VAT, issued the following invoice to one of its customers:
Invoice: 1005
Date: 8 May 20X8 £
Requirement
Assuming the VAT rate is 20% and that the invoice amounts are exclusive of VAT, what amount of VAT should have been
charged on the invoice?
A £360
B £300
C £285
D £342
LO 1c
LO 1 c
1 0 The ICAEW Code of Ethics is a principles-based system. Which two of the following statements are correct regarding a
principles-based code of ethics?
A A principles-based system cannot accommodate a rapidly changing environment
B N o judgement is required in determining what action is needed
C The guidance needs to be long and detailed to cover every issue
D It reduces the risk of loopholes arising
E Accountants are expected to follow the spirit as well as the letter of the guidance
LO I f
11 As at 31 December 20X1 the transaction report downloaded from a company's electronic banking system shows an
overdraft of £1,500. The transaction report includes bank charges of £30 which have not yet been recorded in the
company's cash at bank account O n 2 9 December 20X1 the company had made a payment of £500 to a supplier and
received cash of £200 from a credit customer; neither of these items appear in the bank statement
Requirement
The overdraft o n the bank balance in the company's statement of financial position as at 31 December 20X1 should be:
A £1,800
B £1,830
C £1,200
D £1,230
LO2b
12 A review of the receivables ledger reveals that debts totalling £985 are considered irrecoverable a n d are to b e written off.
The allowance for receivables is to be increased by £100.
Requirement
What is the journal entry required to adjust the allowance for receivables and to write off the irrecoverable debts?
A DEBIT Allowance for receivables £100, DEBIT Irrecoverable debts expense £985, CREDITTrade receivables £1,085
B DEBIT Allowance for receivables £100, DEBITTrade receivables £985, CREDIT Irrecoverable debts expense £1,085
C DEBIT Irrecoverable debts expense £1,085, CREDITTrade receivables £1,085
D DEBIT Irrecoverable debts expense £1,085, CREDIT Allowance for receivables £100, CREDITTrade receivables £985
LO 3c
13 Bark pic has yet to account for sales commission of £1,755 owed to its employees for sales made during the year. Sales
commission is included within distribution costs.
Requirement
Which two of the following entries of £1,755 should Bark pic make at the year-end i n respect of the sales commission?
A Debit the accruals account
B Debit the prepayments account
C Debit the distribution costs account
D C red it the d i str i buti o n costs account
E Credit the prepayments account
F Credit the accruals account
LO I d
1 4 Brindal pic acquired five apartments o n 1 June 20X4 a n d immediately rented t h e m out to different tenants. Brindal pic has
a credit balance o n its rental income account in the trial balance as at 31 May 20X5 of £22,850. It has yet to record rental
income in arrears for Apartment 1 as at 31 May 20X5 of £4,490 and rental income in advance for Apartment 4 of £7,720
also at 31 May 20X5.
Requirement
What amount will appear for rental income in Brindal pic's statement of profit or loss for the year e n d e d 31 May 20X5?
A £19,620
B £22,850
C £26,080
D £37,340
LO 3c
15 Cornucopia pic applies a standard mark-up of 25% o n cost During 20X9, its sales were £125,000 and its purchases were
£80,000. Opening inventory was £35,000. The company d i d not carry out an inventory count at 31.12.X9 and has n o
records of a n inventory figure at that date.
Requirement
Using the information above, what should the closing inventory be?
A £15,000
B £21,250
C £48,750
D £55,00
LO I d
16 Violet has a machine which cost £68,000 o n 1 September 20X5. It is being depreciated o n the straight-line basis over 1 0
years to its residual value of £8,000. On 31 August 20X7, Violet carried o u t an impairment review and has assessed that
the machine had a fair value less disposal costs of £51,000 and a value in use of £49,000.
Requirement
What is the total amount charged to p r o f i l e r loss in respect of the machine in the year ended 31 August 20X7?
A £6,000
B £6,800
C £11,000
D £13,000
LO I d
17 McClown pic has the following information in its financial statements relating to fixtures and fittings as at 31 December:
20X9 20X8
£ £
During the year to 31 December 20X9, the following transactions occurred in relation to fixtures and fittings:
(1) Additions £284,000
(2) Sales proceeds from disposals £178,800
(3) Depreciation charge £66,400
Requirement
What is McClown pic's profit o r loss o n disposals of fixtures a n d fittings in the year e n d e d 31 December 20X9?
A £11 9,200 loss
B £119,200 profit
C £196,800 profit
D £196,800 loss
LO 1 d
18 Waddy Ltd prepares its financial statements in accordance with UK GAAP. At the e n d of its first year of trading o n 30 June
20X1 Waddy Ltd's net assets are £207,594. It has share capital of £50,000 made u p of 2 5 p equity shares issued at 40p
each, and a retained profits reserve of £107,594.
Requirement
Which of the following statements could be true in relation t o W a d d y Ltd's balance sheet at 30 June 20X1?
A It has other reserves of £50,000.
B It has share premium of £100,000.
C It has other reserves of £20,000.
D It has share premium of £50,000.
LO 1 d, 3a, 3c
1 9 O n 1 April 20X0 a sole trader paid £3,080 in local taxes for the year ending 31 March 20X1 . This was an increase of 1 0%
o n the charge for the previous year.
Requirement
What is the correct charge for local taxes in the sole trader's profit and loss account for the year ended 31 December
20X0?
A £2,870
B £3,003
C £3,010
D £3,080
LO 1d, 3c
2 0 Hal Ltd discovered that an error had taken place during its inventory count for the year e n d e d 31 March 20X7. Some
inventory was double counted, which lead to closing inventory being £1,298 higher than cost. The directors of Hal Ltd d o
not plan to correct for this error.
Requirement
What is the impact of the error o n the profit for the years ended 31 March 20X7 and 31 March 20X8 if it remains
uncorrected?
A Profit for the year ended 31 March 20X7 is overstated, Profit for the year ended 31 March 20X3 is overstated.
B Profit for the year ended 31 March 20X7 is overstated, Profit for the year ended 31 March 20X3 is understated.
C Profit for the year ended 31 March 20X7 is understated, Profit for the year ended 31 March 20X3 is understated.
D Profit for the year ended 31 March 20X7 is understated, Profit for the year ended 31 March 20X3 is overstated.
LO I d , 3c
Requirement
Which of the following is true regarding financial statements prepared under IAS 1?
A Leased assets never appear in the statement of financial position
B The cost and accumulated depreciation of property, plant and equipment must b e shown o n the face of the
statement of financial position
C All companies must prepare a Statement ofCash Flows
D Preference shares are always recognised in equity
22 At 1 January 20X5 Tandem pic had an allowance for receivables in its ledger accounts totalling £2,375. On 30 June 20X5
Basnet pic's liquidator informed Tandem pic that it would not make any further payments a n d therefore Basnet pic’s
outstanding debt of £200 should b e written off. At 31 December 20X5 Ost pic paid £500 of an amount written off as
irrecoverable in the previous year. Tandem pic's allowance for receivables needs to b e increased by £800 at 31 December
20X5.
Requirement
What amount for irrecoverable debts expense should be included in Tandem pic’s statement of profit o r loss for the year
e n d e d 31 December 20X5?
A £500 d e b i t
B £500 credit
C £1,275 debit
D £1,275 credit
LO I d , 3c
23 Which two of the following are enhancing qualitative characteristics in the Conceptual Framework for Financial Reporting?
A Materiality
B Verifiability
C Comparability
D Consistency
LO 1 b
24 Which of the following statements about statements of cash flows is/are correct?
(1) A statement ofcash flows prepared using the direct method produces a different figure for net cash flows generated
from operations compared to that produced when the indirect method is used.
(2) A rights issues of shares will not feature in statements of cash flows.
(3) A bonus issue of shares will not appear as an item in a statement of cash flows.
(4) A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing Activities in a
statement of cash flows.
A 1 and 4
B 2 and 3
C 3 only
D 2 and 4
LO 3c
£'000
Profit before tax 8,640
Depreciation charges (2/60)
Proceeds of sale of non-current assets 360
Increase in inventories (330)
Increase in trade payables 440
The following criticisms of the above extract have been made:
(1) Depreciation charges should have been added, not deducted.
(2) Increase in inventories should have been added, not deducted.
(3) Increase in trade payables should have been deducted, not added.
(4) Proceeds of sale of non-current assets should not appear in this part of the statement of cash flows.
Requirement
Which of these criticisms are valid?
A 2 and 3 only
B 1 and 4 only
C 1 and 3 only
D 2and4only
LO 3c
Introduction to accounting
£ £
246,785 246,785
£ £
19,200 19,200
6 The correct answer is:
A B a n k overdraft
D r a w i n g s d e c r e a s e c a p i t a l so t h e y are a d e b i t (B); purchases a n d d e l i v e r y o u t w a r d s a r e expenses so they too are
d e b i t s (C) a n d (D). A bank overdraft is a liability s o it is a credit (A).
Revenue 89,400
Option A incorrectly uses t h e purchases f i g u r e without d e d u c t i n g VAT. Option B incorrectly d e d u c t s VAT from t h e
sales f i g u r e a n d d o e s not d e d u c t VAT from purchases. Option D uses the correct VAT exclusive purchases figure, b u t
incorrectly deducts VAT from t h e sales figure.
£ £
8,550 8,550
Debit Credit
£ £
Trade p a y a b l e s 3,000
Bank l o a n 1 5,000
A c c u m u l a t e d d e p r e c i a t i o n , n o n - c u r r e n t assets 1 5,000
Inventory 4,000
Accruals 1,000
Prepayments 2,000
Option A d i d not deduct the irrecoverable debt expense. Option C deducted depreciation of 20% of £24,000 but,
did not add back the incorrect depreciation charged already. Option D deducted the difference in depreciation
charges, instead of adding it back.
Error 425
Discount disallowed 40
8,640
£ £
1,330,400 1,330,400
SUSPENSE A/C
£ £
160 160
Balance b/d 25
1 8 The correct answer is:
C Debit Revenue £230 r Debit VAT £46, Credit Trade receivables £276
When the goods were sold, they would have been recorded as Debit Trade receivables £276 (£230 + VAT at 20%),
Credit Revenue £230 and Credit VAT £46. This journal entry required to be reversed when the goods are returned.
Option (C) is the correct reversing journal entry. Option (A) records the sale. Option (B) ignores VAT and Option (D)
reverses revenue a n d trade receivables.
Add back depreciation o n capitalised staff training costs (10,000 * 20% * 6/12 months) 1,000
Option A deducted the resale value of the inventory instead of the cost. Option C did not deduct the inventory cost
from the net profit. Option D deducted the resale value of the inventory and did not a d d back the depreciation
charge o n the capitalised staff training costs.
In Option B the overstatement in opening inventory is deducted, and that in closing inventory is added back. In the
other two options the wrong gross profit percentage is applied, taking 25% margin (on sales value ie, 25/1 00) rather
than 25% mark-up (on cost).
* Gross profit percentages:
Revenue 125
Cost (100)
Gross profit 25
74,300 (B)
In A the profit deducted has been calculated as £400 * 25%; in C just the cost of goods (£400) has been deducted,
while in D the profit has been a d d e d back and the prepayment deducted.
%
Revenue 100
Cost (25)
Gross profit 75
£ £
74,780 74,780
Purchases 76,500
Delivery inwards 50
Purchases 455,000
Delivery inwards 24,000
SAMPLE EXAM
700 4,460
5 The correct answer is:
C £18,760
Cost includes both direct materials/labour and also production overheads. NRV is expected selling price less
expected selling costs.
£ £ £
500 x £8 = 4,000
100 x £3 = 300
68,800
£ £ £
75 1,110
9 The correct answer is:
B £55
Cost 46
Production overheads 15
61
Coats
281,200
At 31 January 20X3 the skirts were correctly valued at costs incurred to date of £20 per skirt which was lower than the
NRV of £22. Therefore, n o adjustment is required.
1 4 The correct answer is:
B £4,700
£ £ £ £
4,700
5 0 @£190 9,500
300 @ £ 2 3 0 69,000
188,500
461,500
£ £
Write d o w n (3,800)
B/d 284,000
283,650
£ %
Sales 125,000 100%
Units Value
£ £
SAMPLE EXAM
Staff member Hours incurred Hourly rate (£) Total cost (£)
Developer 4 80 320
Total 1,320
46,750
Adjustment (2) will be to the allowance, not to receivables; adjustment (3) affects irrecoverable debts.
b/f a l l o w a n c e 1,000
R e d u c t i o n (credit) 505
1,005
£ £
Decrease i n a l l o w a n c e ( 1 , 0 0 0 -
Write off 280 100) 900
1,400 1,400
R e d u c t i o n in a l l o w a n c e ( 1 8 , 0 0 0 - 16,000) (2,000)
12,600
10 The correct answer is:
C £32,125
RECEIVABLES
£ £
C/d 32,125
156,475 156,475
£ £
C l o s i n g balance 287,750
478,720 478,720
Previous a l l o w a n c e (39,000)
Reduction (15,000)
Option A is incorrect as it does not remove the irrecoverable debt from receivables and has recorded an increase in
the allowance for receivables instead of a decrease. Option C in incorrect as it does not remove the irrecoverable
d e b t from receivables, crediting the amount to the allowance instead. O p t i o n D is incorrect as it records the full
amount of the new allowance as a credit entry rather than just recording the decrease in the allowance for the current
year.
£ £
58 58
£ £
c/d 475
500 500
£ £
Suspense (3) 58
The net debit to the irrecoverable d e b t expense account is therefore (92 - 25 - 58) = £9.
CASH AT BANK
£ £
£ £
528,300 528,300
£ £
361,500 361,500
6 The correct answer is:
C Statement of profit o r loss: £ 3 4 , 0 0 0 Credit; Statement of financial position: Deferred i n c o m e ( C r e d i t ) £ 3 , 0 0 0
Receipt
30 December 2 0 X 1 7,500
4 A p r i l 20X2 9,000
1 July 2 0 X 2 9,000
C r e d i t deferred i n c o m e ( £ 9 , 0 0 0 x 1 / 3 ) 3,000
£ £
977,900 977,900
D e c e m b e r to J u n e 8 , 4 0 0 x 7 / 1 2 4,900
July to N o v e m b e r 1 2 , 0 0 0 x 5 / 1 2 5,000
9,900
October to J u l y 7 2 , 0 0 0 x 1 0 / 1 2 60,000
70,000
£ £
36,700 9,500
£ £
90,800 90,800
£ £
20X0 20X0
20X1 20X1
Statement of
30 June Accrual £840 x 2/3 560 30 June profit or loss 3,320
3,620 3,620
£ £
2,080 2,080
22 The correct answer is:
B £12,600
(6/1 2 x (1 3,200 x 1 00/1 1 0)} + (6/1 2 x 1 3,200) = £1 2,600
£ £
b/d 5,019
Jnl 1 5,019
Jnl 2 4,423
PREPAYMENTS
£ £
b/d 2,816
Jnl 1 2,816
Jnl 2 3,324
DISTRIBUTION COSTS
£ £
Cash 147,049
Jnl 2 4,423
The cash payment and Journal 2 are correct. To correct Journal 1 the bookkeeper should:
Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406
33 The correct answer is:
B £3,000
The correct answer is:
F £620
Unless told otherwise we can assume that all charges accrue evenly in the period.
The internet server charge payment of £4,500 made o n 1 November 20X5 covers the six months to 30 April 20X6. Of
this payment four months is a prepayment covering the period 1 January to 30 April 20X6, an amount of (4/6 *
£4,500) = £3,000 (B).
The telephone rental payments are in arrears, so when the last payment for 20X5 is made o n 30 November, Bez pic
still owes one month (December) of rental, which is (£7,440 x 1 / 1 2) = £620 (F).
Option (B) uses the incorrect number of months for depreciation. Options (C) a n d (D) reverse the journal entries.
£ £
20,000 20,000
5 The correct answer is:
A Debit Depreciation expense £570, Credit Accumulated depreciation £570
The depreciation charge is (6,000 - 300)/(5 * 1 2) = £95, This year 6 months x £95 = £570. This is recorded as Debit
Depreciation expense £570; Credit Accumulated depreciation £570.
£ £
Proceeds 1,600
5,000 5,000
1 2 The correct answer is:
B £78,125 profit
Cost 1 ,000,000
750,000
562,500
421,875
Profit 78,125
Note: The licence fee is not capitalised as part of the cost of the buses and instead will be capitalised separately as an
intangible asset. The licence fee will be amortised over its useful life of six years.
76,840
1 6 The correct answer is:
A £150,000
200,000 - 20,000 - 25,000 - 5,000 = 1 50,000
82,150
43,000
Payment 30,000
£ £
Transport 1,500
44,500 44,500
£ £
31 May 20X6
23,950 23,950
£ £
23,500 23,500
SAMPLE EXAM
2 9 The correct answer is:
C debit £1,898
The d e b i t to administrative expenses is the loss o n disposal of £1,898
DISPOSAL
£ £
Proceeds 150
4,000 4,000
SAMPLE EXAM
£ £
b/d 614,500
626,000 626,000
ACCUMULATED DEPRECIATION
£ £
368,165 368,165
SAMPLE EXAM
£ £
131,000 131,000
£ £
78,000 78,000
DISPOSALS
£ £
Loss 2,000
21,000 21,000
MACHINE - COST
£ £
1 96,600 196,600
DISPOSALS
£ £
70,200 70,200
£ £
16,800 16,800
Note that in Option A the error is to have depreciated the o l d car for only two years, assuming a policy of 'full year's
depreciation i n the yea r of purchase a n d none in the year of sale' . In Option B the net price of the new ca r is used
when calculating the part exchange value, while in O p t i o n C both these errors are made.
£ £
Disposal 1,600
935,002 935,002
COMPUTERS - COST
£ £
c/d 997,608
1,004,408 1,004,408
£ £
947,002 947,002
DISPOSAL
£ £
Proceeds 1,800
6,800 6,800
36 The correct answer is:
D Debit Depreciation expense £70,384, Credit Accumulated depreciation £70,384
The journal entry to record the depreciation is Debit Depreciation expense £70,384; Credit Accumulated
depreciation £70,384,
Carrying amount of computer traded in = £24,000 x 60% x 60% = £8,640.
Carrying amount of remaining computers is therefore 150,000 + 34,600 - 8,640 = £175,960. Depreciation o n these is
(175,960 x 40%) = £70,384 (D).
SERVERS - CARRYING AMOUNT
£ £
c/d 105,576
1 84,600 184,600
Option (A) compares cost to the recoverable amount, option (B) depreciates o n the straight-line basis and option (C)
uses the lower value in use as the recoverable a m o u n t
Option (A) ignores residual value, option (C) uses fair value less disposal costs as the recoverable amount a n d (D)
compares depreciable cost to the recoverable amount.
Cost 1 80,000
1 82,000
Cost 200,000
£m £m
210 210
SHARE PREMIUM
£m £m
110 110
105,000
1 73,000
£ £
DEBIT Cash 1,100,000
Number £ Number £
750,000
Share premium (1
Bal c/d 900,000 225,000 for 5 bonus) 1 50,000 37,500
SHARE PREMIUM
£ £
287,500 287,500
WORKING
RETAINED EARNINGS
£ £
1,355,000 1,355,000
Number £ £
Number £ Number £
360,000
Share premium (1
Bal c/d 480,000 120,000 for 3 bonus) 120,000 30,000
SHARE PREMIUM
£ £
257,000 257,000
£ £
3,850 3,850
£
O p e n i n g prepayment 450
WORKING
RETAINED EARNINGS
£ £
c/fwd 1,426,980
1,863,980 1,863,980
April-June 7 5 0 , 0 0 0 x 8% x 3 / 1 2 1 5,000
73,750
£ £
27,700 27,700
22 The correct answer is:
B £14,000
INCOME TAX
£ £
c/d Income tax payable 1 5,600 Statement of profit o r loss (ba I fig) 14,000
28,300 28,300
£ £
131,301 131,301
£ £
2,512,270 2,512,270
£ £
4,346 4,346
SAMPLE EXAM
£ £
3,152 3,152
SAMPLE EXAM
2 9 The correct answer is:
B Share capital £750,000, Share premium £ Nil, Retained earnings £813,442
We can assume unless told otherwise that share premium is used to the maximum possible extent when a bonus issue
is made.
1 November rights issue: Debit Cash £450,000, Credit Share capital £50,000 (400,000 x 50p x 0.25), Credit Share
premium £400,000
31 August bonus issue: Credit Share capital £500,000 (500,000 shares * 50p * 2), Debit Share premium £420,000
{taking the balance d o w n to zero). Debit Retained earnings £80,000.
SHARE CAPITAL
Number £ Number £
b/d (£200,000 /
c/d 1,500,000 750,000 £0.50) 400,000 200,000
Rights issue
(400,000/4) 100,000 50,000
500,000 250,000
SHARE PREMIUM
£ £
420,000 420,000
RETAINED EARNINGS
£ £
893,442 893,442
The two most common mistakes with this kind of question are to take the number of shares as the share capital
balance as in A and D (ie, to treat all shares as £1 shares), and to fail to use the share premium to the maximum for the
debit entry for the bonus issue, as in C.
£ £
Decrease in prepayments 60
9,968 9,968
Note that in option B the net differences are the wrong way round; option C ignores the cash purchases, while option
D ignores the effect of accruals a n d prepayments entirely.
SHARE CAPITAL
£ £
500,000 500,000
SHARE PREMIUM
£ £
1 50,000 150,000
RETAINED EARNINGS
£ £
c/d 667,000
71 7,000 717,000
£ £
260 J 90 260,190
£ £
Accrual 1,800
248,600 248,600
INTEREST
£ £
25,800 25,800
37 The correct answer is:
D £852,500
SHARE PREMIUM
£ £
862,500 862,500
RETAINED EARNINGS
£ £
1,442,000 1,442,000
£ £
311,000 311,000
£ £
Bonus issue (1 50,000 - 80,000) 70,000 Profit for the year 213,000
c/d 754,000
889,000 889,000
41 The correct answer is:
C £19,000 charge
WARRANTY PROVISION
£ £
83,000 83,000
1 2 C o m p a n y financial statements u n d e r IFRS Accounting
Standards
1 Hexham pic
Marking guide Marks
Non-current assets
739,000
Current assets
Equity
601,440
Non-current liabilities
Borrowings 200,000
Current liabilities
Provision 15,000
113,000
WORKINGS
(1)
Allocation of costs
Administrative
expenses Distribution costs Cost of sales
£ £ £
Other operating
expenses Trade receivables
£ £
PerIB 36,000 60,000
Irrecoverable debt written off 4,300 (4,800)
55,200
Warranty provision 15,000
Allowance for receivables adjustment *(2,240) (2,760)
53,560 52,440
*2,760-5,000
(3)
Finance costs
£
Loan interest paid per TB 8,000
Accrued interest 4,000
Current period interest expense (9 months: 9/12 X 8% X 200,000) 12,000
(4)
Property, plant and equipment
Plant and
Land Buildings equipment Total
£ £ £ £
Cost or valuation 200,000 400,000 340,000
Accumulated dep'n (96,000) (63,000)
Carrying amount perTB 200,000 304,000 277,000
Depreciation charge (8,000) (34,000)
Carrying amount 31 March 20X8 200,000 296,000 243,000 739,000
(5)
Retained earnings
£
Opening retained earnings 61,000
Profit for the year (from statement of profit or loss) 55,440
Dividends paid fl 5,000)
Closing retained earnings 101,440
2 Ford pic
Marks
Revenue 1
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Finance costs .5
Income tax expense .5
Freehold land and buildings 1
Equipment and fixtures 1
Inventories .5
Receivables 1
Prepayments .5
Cash .5
Equity share capital .5
Irredeemable preference share capital .5
Retained earnings 1
Non-current borrowings .5
Current borrowings 1
Accruals 1
Payables 1
Provision .5
Income tax payable .5
Maximum 16
Total 16
ASSETS
Non-current assets
Prepayments 20,000
201,000
1,512,600
Non-current liabilities
1 80,000
Current liabilities
Provision 100,000
779,400
WORKINGS
(1)
Allocation of costs
£ £ £ £
Per trial balance 4,450,000 410,500 375,000 35,000
Provision 100,000
Irrecoverable d e b t 10,000
(2)
Property, plant and equipment
£ £ £
Cost
Acc dep
(3)
Deferred income
250,000
(4)
Retained earnings
b/f 212,500
812,600
(5)
Revenue
PerTB 6,700,000
Advances (100,000)
6,450,000
(6)
£ £
PerTB 400,000
500,000 500,000
(7)
SHARE PREMIUM
£ £
100,000 100,000
3 Juniper pic
Marking guide Marks
Revenue .5
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Finance costs .5
Income tax expense 1
Land .5
Other non-current assets 1.5
Inventories .5
Receivables 1
Prepayments .5
Cash 1
Equity share capital .5
Preference share capital .5
Share premium 1
Retained earnings 1
Non-current borrowings .5
Payables .5
Provision .5
Accruals 1
Income tax payable .5
Maximum 16
Total 16
£
Revenue 726,370
£
Non-current assets
Land 25,000
97,760
Current assets
Inventories 39,323
76,046
Total assets 173,806
Equity
44,097
Non-current liabilities
Borrowings 33,000
Current liabilities
Borrowings 0
Bank overdraft 0
Deferred income 0
96,709
WORKINGS
(1)
Allocation of costs
Administrative Distribution
expenses costs Cost of sales
£ £ £
208,678 6 7 , 0 11 433,798
(2)
PPE
£ £
c/fwd ( b a I f i g ) 130,680
1 32,680 132,680
(3)
£ £
58,820 58,820
(4)
TAX PAYABLE
£ £
27,400 27,400
(5)
RETAINED EARNINGS
£ £
c/fwd 19,597
27,197 27,197
(6)
Receivables 12,691
12,238
3% a l l o w a n c e 367
Revenue 0.5
Cost of sales 1.5
Distribution costs 1
Administrative expenses 1
Finance costs 0.5
Income tax expense 0.5
Land and buildings 1
Plant and equipment 1
Inventories 1
Prepayments 1
Trade receivables 1
Cash and cash equivalents 1
Share capital 0.5
Retained earnings 1
Lease 1iabil ity d ue in less tha n one year 0.5
Lease liability d u e in more than one year 0.5
Trade payables .5
Accruals 1
Income tax payable .5
Provision .5
Maximum 16
Total 16
£'000
Revenue 53,761
£'000
ASSETS
Non-current assets
30,486
Current assets
Inventories (1 2,232.5 * 1 00/125) 9,786
Prepayments (W3) 32
28,039
Equity
Current liabilities
Provision 250
9,160
WORKINGS
(1)
Cost of sales
£000
Purchases 30,946
33,462
(2)
Distribution costs
£000
6,687
(3)
Administrative expenses
£000
4,400
(4)
Property, plant and equipment
Freehold land
and buildings Leased plant Total
(5)
Trade receivables
£000
10,239
(6)
RETAINED EARNINGS
£'000 £000
15,831 15,831
5 Corolla pic
Marks
Revenue ,5
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Finance costs 1
Income tax expense .5
Land and buildings 1
Plant and equipment 1
Inventories ,5
Receivables 1
Prepayments 1
Cash .5
Equity share capital 1.5
Retained earnings 1.5
Loan .5
Payables 1
Accruals 1
Income tax payable .5
Maximum 16
Total 16
£'000
Revenue 58,41 1
£'000
ASSETS
Non-current assets
31,832
Current assets
Inventories 7,878
22,846
EQUITY A N D LIABILITIES
Equity
34,814
Non-current liabilities
Borrowings 15,000
Current liabilities
4,864
WORKINGS
(1)
Cost of sales
£000
Purchases 41,620
43,342
(2)
Allocation of costs
Administrative Distribution
expenses costs
£'000 £000
5,360 6,026
(3)
Property, plant and equipment
Plant and
Land Buildings equipment Total
(4)
RETAINED EARNINGS
£'000 £'000
11,314 11,314
(5)
Trade payables
£000
Trade payables 2,798
2,843
* In a computerised accounting system, transactions posted to a supplier's personal account are also automatically
included i n trade payables, therefore we need to a d d back the payment deducted from trade payables in error.
(6)
£'000 £'000
PerTB 20,000
25,000 25,000
(7)
SHARE PREMIUM
£'000 £000
5,000 5,000
6 Ariel pic
Marks
Revenue .5
Cost of sales 1 .5
Distribution costs 1.5
Administrative expenses 1.5
Finance costs .5
Income tax expense .5
Land and buildings 1
Plant and equipment 1.5
Inventories .5
Receivables 1
Prepayments .5
Cash .5
Equity share capital .5
Retained earnings 15
Borrowings .5
Payables .5
Accruals 1
Provision .5
Income tax payable .5
Maximum 16
Total 16
£'000
Revenue 35,547
£'000
ASSETS
Non-current assets:
10,604
Current assets:
Inventories 4,067
Prepayments 123
Equity
10,418
Non-current liabilities:
Current liabilities:
Trade payables
Provision 25
2,451
WORKINGS
(1)
Cost of sales
£000
Purchases 27,481
(2)
Allocation of costs
Administrative
expenses Distribution costs
£'000 £'000
Accruals (1 1 4 * 2/3) 76
Irrecoverable d e b t 95
2,232 1,933
(3)
PPE
£'000 £000
1,354 9,250
(4)
RETAINED EARNINGS
£000 £000
6,338 6,338
7 Enercell pic
Marking guide
Gross profit 1
Distribution costs 1
Administrative expenses 1
Finance costs 1
Income tax expense .5
Property 1
Plant and equipment 1
Inventories 1
Trade receivables .5
Prepayments 1
Cash and cash equivalents 1
Share capital 1
Share premium .5
Retained earnings 1
Borrowings .5
Trade payables 1
Accruals 1
Income tax payable .5
Provision .5
Maximum 16
Total 16
Statement of profit or loss for the year ended 3 1 October 20X7
£'000
£'000
ASSETS
Non-current assets
Current assets
Prepayments (W2) 48
41,816
Equity
Equity share capital (W4) 22,000
48,934
Non-current liabilities
Current liabilities
Provision 750
8,611
(1)
Gross profit
£000
35,939
(2)
Administrative expenses
£000
12,699
(3)
Distribution costs
£000
9,993
(4)
Property, plant and equipment
Freehold
buildings Plant Total
(5)
SHARE CAPITAL
£000 £'000
b/d 20,000
22,000 22,000
(6)
SHARE PREMIUM
£'000 £000
2,500 2,500
(7)
RETAINED EARNINGS
£'000 £000
28,384 28,384
8 Liquid pic
Marks
£
Revenue 1,590,000
Non-current assets
924,800
Current assets
Equity
906,800
Non-current liabilities
Current liabilities
Borrowings 0
Accruals 5,000
Administrative Distribution
expenses costs Cost of sales
£ £ £
Note: Read the question carefully to make sure you allocate the depreciation to the right line of expenditure. There is
n o depreciation o n land because it has an unlimited useful life.
(2)
Irrecoverable debts, warranty provision and trade receivables
Other operating
expenses Trade receivables
£ £
PerTB (Irrecoverable debts/Trade receivables) 15,000 45,000
69,000 16,000
(3)
Finance costs
(4)
Property, plant and equipment
Plant and
Land Buildings equipment Total
£ £ £ £
(6)
Equity
£ £
350,000 0
9 Colbolt pic
Marks
Gross profit 1
Distribution costs 1
Administrative expenses 1
Finance costs 1
Income tax expense .5
Property 1
Plant and equipment 1
Inventories 1
Trade receivables 1
Prepayments 1
Cash and cash equivalents 1
Share capital 1
Share premium ,5
Retained earnings 1
Borrowings ,5
Trade payables 1
Accruals 1
Income tax payable .5
Maximum 16
Total 16
ASSETS
Non-current assets
Current assets
Prepayments (W2) 20
33,233
Equity
43,403
Non-current liabilities
Current liabilities
10,044
WORKINGS
(1)
Gross profit
30,364
(2)
Distribution costs
Administrative expenses
21,469
(3)
Property, plant and equipment
Freehold
buildings Plant Total
£ £ £
(4)
SHARE CAPITAL
£ £
b/d 18,000
1 9,800 19,800
(5)
SHARE PREMIUM
£ £
4,500 4,500
(6)
RETAINED EARNINGS
£ £
23,003 23,003
10 Waterford pic
Marks
Gross profit 1
Distribution costs .5
Administrative expenses 1
Finance costs 1
Income tax expense .5
Property 1
Plant and equipment 1
Motor vehicles 1.5
Inventories 1
Trade receivables 1
Prepayments .5
Cash and cash equivalents .5
Share capital 1
Share premium .5
Retained earnings 1
Borrowings .5
Trade payables .5
Accruals 1
Deferred income .5
Income tax payable .5
Maximum 16
Total 16
ASSETS
Non-current assets
90,955
Current assets
Prepayments 55
1 7,405
EQUITY A N D LIABILITIES
Equity
75,817
Non-current liabilities
Current liabilities
18,543
WORKINGS
(1)
Gross profit
37,151
(2)
Administrative expenses
29,989
Distribution costs
£ £ £
(4)
Receivables and allowances for receivables
Irrecoverable d e b t (650)
8,240
7,993
(5)
SHARE CAPITAL
£ £
b/d 25,000
0 31,250
(6)
SHARE PREMIUM
£ £
b/d 9,000
9,000
(7)
RETAINED EARNINGS
£ £
48,144 48,144
(8)
SUSPENSE
£ £
17,601 17,601
(9)
DISPOSAL ACCOUNT
£ £
Suspense 2,500
8,000 8,000
Option (A) incorrectly adds the loss for the year, option (C) incorrectly adds the proceeds o n issue of shares and
option (D) ignores the bonus issue and the dividend paid.
Option (A) include the share premium on issue, option (B) deducts the dividend paid and option (C) includes the
share premium o n issue a n d incorrectly deducts the bonus issue.
13 The correct answer is:
B 1 and 3 only
A bonus issue impacts the share capital and retained earnings column and dividends aid to equity shareholders
impacts o n retained earnings. A bank loan affects non-current liabilities and cash and is therefore not recorded in the
statement of changes in equity.
1 Havisham pic
Marking guide Marks
PBT .5
Finance income .5
Finance costs .5
Depreciation charge .5
Amortisation charge 1
Impairment charge .5
Gain/loss o n sale of PPE .5
Gain/loss o n sale of intangible assets 1
Movement i n inventories 1
Movement i n trade receivables 1
Movement i n trade payables 1
Tax paid 1
Interest paid 1
Purchase of PPE 1
Purchase of intangibles .5
Proceeds from sales of PPE .5
Proceeds from sales of intangible assets .5
Interest received .5
Proceeds from issue of shares 1
Movement i n borrowings .5
Dividends paid 1
Opening a n d closing cash .5
Maximum 16
Total 16
Depreciation 232,900
Proceeds from sale of property, plant and equipment (127,800 - 84,310) 42,990
WORKINGS
(1)
INTANGIBLE ASSETS
£ £
c/d 580,040
638,240 638,240
(2)
TAX PAID
£ £
b/d 192,520
c/d 201,800
438,220 438,220
(3)
INTEREST PAID
£ £
b/d 12,350
c/d 9,750
101,950 101,950
(4)
PPE
£ £
b/d 797,500
c/d 982,600
1,343,300 1,343,300
(5)
£ £
710,600 710,600
(6)
RETAINED EARNINGS
£ £
766,440 766,440
2 Castle pic
Marks
£ £
Cash flows from operating activities
Profit before tax 3,370,000
Finance income (78,000)
Finance costs 563,000
Depreciation (W2) 902,000
Amortisation (W5) 975,000
Gain/loss on sales of property, plant and equipment 189,000
Movement in inventories (26,000)
Movement in trade receivables (W12) (20,000)
Movement in prepayments 1 3,000
Movement in trade payables (W13) 145,000
Movement i n accruals (W11) (162,000)
Cash generated from operations 5,871,000
Tax paid (W7) (546,000)
Interest paid (W10) (513,000)
Net cash from/used in operating activities 4,812,000
Cash flows from investing activities
WORKINGS
(1)
£ £
b/d 3,091,000
c/d 3,284,000
4,485,000 4,485,000
(2)
£ £
b/d 2,001,000
PPE - disposals (1,201,000 - 496,000) 705,000 Statement of profit o r loss (bal fig) 902,000
c/d 2,198,000
2,903,000 2,903,000
(3)
£ £
PPE - cost o r val uation 1,201,000 PPE - acc dep (1,201,000 - 496,000) 705,000
c/d 165,000
1,280,000 1,280,000
(4)
£ £
b/d 8,645,000
Cash ( b a l f i g ) 339,000
9,360,000 9,360,000
(5)
£ £
b/d 2,715,000
3,690,000 3,690,000
(6)
INVEST ME NTS
£ £
b/d 127,000
2,145,000 2,145,000
(7)
TAX PAID
£ £
1,187,000 1,187,000
(8)
£ £
Retained e a r n i n g s 500,000
3,343,000 3,343,000
(9)
INTEREST RECEIVED
£ £
86.000 86.000
(101
INTEREST PAID
£ £
638,000 638,000
(11)
ACCRUALS
£ £
c/d 100,000
262,000 262,000
(121
T R A D E RECEIVABLES
£ £
1,035,000 1,035,000
(13)
TRADE PAYABLES
£ £
b/d 896,000
1,417,000 1,417,000
3 Tam pic
Marking guide
Total 16
WORKINGS
(1)
SHARE CAPITAL
£ £
b/fwd 1,000,000
1,100,000 1,100,000
I I =
(2)
SHARE PREMIUM
£ £
392,000 392,000
(3)
£ £
373,000 373,000
(4)
£ £
8,049,000 8,049,000
(5)
£ £
5,074,000 5,074,000
(6)
INTEREST PAID
£ £
1 1 8,000 118,000
(7)
TAX PAID
£ £
397,000 397,000
(8)
PPE - DISPOSALS
£ £
Statement of profit o r loss (bal fig ) 98,000 Acc depn (479,000 - 326,000) 153,000
577,000 577,000
(9)
RETAINED EARNINGS
£ £
1,835,000 1,835,000
(101
£ £
Cash 12,000
55,000 55,000
(11)
Movement in trade receivables
(12)
INTEREST RECEIVED
£ £
b/fwd (trade and other receivables) 1 5,000 Cash (bal fig) 45,000
70,000 70,000
4 Kaya pic
Marks
Depreciation 750,600
WORKINGS
(1)
INTEREST RECEIVED
£ £
27,000 27,000
(2)
TAX PAID
£ £
710,000 710,000
(3)
INTEREST PAID
£ £
82,000 82,000
— — —
(4)
PPE
£ £
8,296,500 8,296,500
(5)
£
Opening (1 39,500 - 7,000} 132,500
Increase 1,000
(6)
INTANGIBLE ASSETS
£ £
378,000 378,000
(7)
Movement in trade receivables
(8)
SHARE CAPITAL
£ £
b/fwd 3,500,000
4,000,000 4,000,000
(9)
SHARE PREMIUM
£ £
1,235,000 1,235,000
(10)
RETAINED EARNINGS
£ £
2,767,800 2,767,800
5 Siena pic
Marks
Impairment 12,000
WORKINGS
(1)
BORROWINGS
£ £
1,072,000 1,072,000
Further clarification:
WORKING 1,1
LOAN (BORROWINGS)
£ £
1,072,000 1,072,000
WORKING 1.2
REDEEMABLE PREFERENCE SHARES (BORROWINGS)
£ £
b/fwd 0
1 50,000 150,000
WORKING 1.3
MOVEMENT I N BORROWINGS
(2)
TAX PAID
£ £
647,600 647,600
(3)
RETAINED EARNINGS
£ £
643,000 643,000
(4)
PF’E
£ £
5,607,300 5,607,300
(5)
SHARE (CAPITAL
£ £
b/fwd 1 ,800,000
B o n u s issue 180,000
3,000,000 3,000,000
(6)
SHARE PREMIUM
£ £
1,230,000 1,230,000
(7)
FINANCECOST
£ £
94,000 94,000
(8)
TRADE RAYABLES
£ £
Investments 10,000
353,500 353,500
(9)
INVESTMENTS
£ £
1 84,000 184,000
£
Cash flows from operating activities
Profit bef o re tax 782,200
Finan ce costs 1 5,000
Movement in inventories (363,700 - 310,600) 53,100
Movement in trade receivables (299,500-312,000) (12,500)
Movement in trade payables (277,200 - 269,400) 7,800
Cash generated from operations 845,600
Option A has used profit for the period instead of profit before tax. Option B has subtracted the movement in
inventories and in trade payables and added the movement in trade receivables. Option C has incorrectly subtracted
the finance costs instead of adding them back.
1 4 Company financial statements under UK GAAP
Tax (156,000)
SAMPLE EXAM
6 The correct answer is:
A Bonus issue of shares
The bonus issue of shares (A) does not involve cash, the double entry is Debit Share premium, Credit Share capital.
Options B, C and D d o involve cash a n d would b e recorded in the cash at bank account.
1 5 Sole t r a d e r financial statements u n d e r U K GAAP
£ £
13,270 13,270
Rent
4,000
5 The correct answer is:
A understated by £950
Recording a n accrual means a n expense for £475 has been recognised in the period when a reduction in expense
would have been recorded if the prepayment had been recorded. As such, profit has been understated by 2 x £475 =
£950.
Drawings (2,625)
Loss 11,900
Owner's interest
Opening capital
32,500
£ £
CREDIT Debtors 24
£ £
DEBIT Sales 24
Drawings 15,000
Openingnetassets (5,000)
SAMPLE EXAM
£
Opening capita I (39,400 + 1 5,600 + 1 1 , 500 - 1 0,200 + 6,600) 62, 900
1 Shindig pic
Marks
Revenue 1
Cost of sales 1
Other operating expenses 1
Finance costs .5
Income tax expense 1
PPE 1.5
Intangible assets 1
Inventories 1
Receivables 1
Cash 1
Equity share capital 1
Retained earnings 1
Borrowings .5
Payables 1
Accruals 1
Deferred income .5
Provision .5
Income tax payable .5
Maximum 16
Total 16
Revenue 1,705,600
ASSETS
Non-current assets
273,000
Current assets
1,107,235
Equity
Equity share capital 500,000
1,014,035
Non-current liabilities
Current liabilities
Provision 10,000
WORKINGS
(1)
Property, plant and equipment
Computer
hardware and
Buildings servers Total
£ £ £
Depreciation
(3)
Income tax
£
For year 120,000
Overprevision re previous year (12,400)
107,600
(4)
Intangible assets (licence)
£
b/f 60,000
Amortisation for the year (20,000)
c/f 40,000
(5)
Inventories
£
Finished games (180,000 - { 1 0 * £450)) 175,500
WIP 140,000
315,500
(6)
Trade receivables
£
PerTB 420,300
Less:Irrecoverable debt write off (45,000)
Allowance for receivables (18,765)
356,535
(7)
RETAINED EARNINGS
£ £
639,035 639,035
(8)
SHARE PREMIUM
£ £
100,000 100,000
(9)
SUSPENSE ACCOUNT
£ £
118,765 118,765
Profit f o r t h e p e r i o d 4,500
Option A ignores cash sales. Option B simply takes account of sales and purchases. O p t i o n D incorrectly deducts
capital expenditure o n non-current assets.
The credit entry increases net profit - not gross profit - by £7,200 (A).
£ £
The irrecoverable debts are written off by posting the fol lowing journal entry:
£ £
£ £
27,340 27,340
SAMPLE EXAM
£'000 £'000 %
Opening inventory 35
Purchases 80
Gross profit 25 25
Option (A) is just depreciation, option (B) is depreciation ignoring the residual value and (D) uses the incorrect
recoverable amount based o n value i n use.
17 The correct answer is:
B £119,200 profit
The incorrect figure of £196,800 is arrived at by using a single carrying amount T account and mixing up the b/d and
c/d figures.
FIXTURES & FITTINGS - COST
£ £
764,000 764,000
£ £
284,400 284,400
DISPOSALS
£ £
283,200 283,200
£ £
1,000 1,000
Exam format
The Mock Exam should consist of one scenario-based question worth 40% of the total marks, and 24 objective test
questions worth 2.5 marks each.
Total 100 25
The following matrix contains three sets of questions, selected from within this Question Bank.
Each one contains an appropriate balance of questions which form a 'sample exam' for you to attempt. Note that the
question topics listed here are only examples of the nature of questions which may be included - the actual exam
questions may be on different topics.
Question Sample exam 1 Sample exam 2 Sample exam 3
1 Ch 1 3; 02 C h 12; 02 Ch 12, 03
2 Ch 1; Q9 C h 2; 04 Ch 1,04, LO1a
5 Ch 4; O1 C h 3; 04 C h 3, 07, LO1c
7 Ch 5; 06 C h 5; O1 C h 5, 09, LO 3c
8 Ch 5; 07 C h 6; 05 C h 6, 03, LO2b
9 Ch 6; Q1 C h 6; 07 C h 6, 09, LO2a
10 Ch 6; 05 C h 7; 05 C h 7, O1, LO1d, 3c
22 Ch 1 3; 08 C h 13; Q1 1 C h 1 3 , 0 1 0 , LO3c