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Exam Questions with Solutions.
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Time allowed: 2 hours
This paper is divided into two sections:
Section A – ALL 35 questions are compulsory and MUST be attempted
Section B – BOTH questions are compulsory and MUST be attempted
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
Financial Accounting
Specimen Exam applicable from June 2014
Section A – ALL 35 questions are compulsory and MUST be attempted
Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. Each question is worth 2 marks.
1 Which of the following calculates a sole trader’s net profit for a period?
A Closing net assets + drawings – capital introduced – opening net assets B Closing net assets – drawings + capital introduced – opening net assets C Closing net assets – drawings – capital introduced – opening net assets D Closing net assets + drawings + capital introduced – opening net assets
2 Which of the following explains the imprest system of operating petty cash?
A Weekly expenditure cannot exceed a set amount B The exact amount of expenditure is reimbursed at intervals to maintain a fixed float C All expenditure out of the petty cash must be properly authorised D Regular equal amounts of cash are transferred into petty cash at intervals
3 Which of the following statements are TRUE of limited liability companies?
(1) The company’s exposure to debts and liability is limited (2) Financial statements must be produced (3) A company continues to exist regardless of the identity of its owners A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
4 Annie is a sole trader who does not keep full accounting records. The following details relate to her transactions with credit customers and suppliers for the year ended 30 June 20X6: $ Trade receivables, 1 July 20X5 130, Trade payables, 1 July 20X5 60, Cash received from customers 686, Cash paid to suppliers 302, Discounts allowed 1, Discounts received 2, Contra between payables and receivables ledgers 2, Trade receivables, 30 June 20X6 181, Trade payables, 30 June 20X6 84,
What figure should appear for purchases in Annie’s statement of profit or loss for the year ended 30 June 20X6? A $325, B $330, C $331, D $327,
9 Which of the following statements is/are correct?
(1) A statement of cash flows prepared using the direct method produces a different figure to net cash from operating activities from that produced if the indirect method is used (2) Rights issues of shares do not feature in a statement of cash flows (3) A surplus on revaluation of a non-current asset 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 the statement of cash flows A 1 and 3 only B 3 and 4 only C 2 and 4 only D 3 only
10 A company receives rent from a large number of properties. The total received in the year ended 30 April 20X6 was $481,200. The following were the amounts of rent in advance and in arrears at 30 April 20X5 and 20X6: 30 April 20X5 30 April 20X $ $ Rent received in advance 28,700 31, Rent in arrears (all subsequently received) 21,200 18,
What amount of rental income should appear in the company’s statement of profit or loss for the year ended 30 April 20X6? A $486, B $460, C $501, D $475,
11 Which of the following are differences between sole traders and limited liability companies?
(1) A sole trader’s financial statements are private and never made available to third parties; a company’s financial statements are sent to shareholders and may be publicly filed (2) Only companies have share capital (3) A sole trader is fully and personally liable for any losses that the business might make (4) Drawings would only appear in the financial statements of a sole trader A 1 and 4 only B 2, 3 and 4 C 2 and 3 only D 1, 3 and 4
12 Which of the following statements is true?
A The interpretation of an entity’s financial statements using ratios is only useful for potential investors B Ratios based on historical data can predict the future performance of an entity C The analysis of financial statements using ratios provides useful information when compared with previous performance or industry averages D An entity’s management will not assess an entity’s performance using financial ratios
13 A company’s motor vehicles cost account at 30 June 20X6 is as follows:
Motor vehicles – cost $ $ Balance b/f 35,800 Disposal 12, Additions 12,950 Balance c/f 36, ––––––– ––––––– 48,750 48, ––––––– –––––––
What opening balance should be included in the following period’s trial balance for Motor vehicles – cost at 1 July 20X6? A $36,750 Dr B $48,750 Dr C $36,750 Cr D $48,750 Cr
14 Which TWO of the following items must be disclosed in the note to the financial statements for intangible assets?
(1) The useful lives of intangible assets capitalised in the financial statements (2) A description of the development projects that have been undertaken during the period (3) A list of all intangible assets purchased or developed in the period (4) Impairment losses written off intangible assets during the period A 1 and 4 B 2 and 3 C 3 and 4 D 1 and 2
15 Which of the following statements are correct?
(1) Capitalised development expenditure must be amortised over a period not exceeding five years. (2) Capitalised development costs are shown in the statement of financial position under the heading of non-current assets (3) If certain criteria are met, research expenditure must be recognised as an intangible asset. A 2 only B 2 and 3 C 1 only D 1 and 3
16 The following transactions relate to Rashid’s electricity expense ledger account for the year ended 30 June 20X9:
$ Prepayment brought forward 550 Cash paid 5, Accrual carried forward 650
What amount should be charged to the statement of profit or loss in the year ended 30 June 20X9 for electricity? A $6, B $5, C $5, D $5,
21 At 31 December 20X4 a company’s capital structure was as follows:
$ Ordinary share capital 125, (500,000 shares of 25c each) Share premium account 100, In the year ended 31 December 20X5 the company made a rights issue of 1 share for every 2 held at $1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 31 December 20X5? Ordinary share capital Share premium account A $450,000 $25, B $225,000 $250, C $225,000 $325, D $212,500 $262,
22 Which of the following should appear in a company’s statement of changes in equity?
(1) Total comprehensive income for the year (2) Amortisation of capitalised development costs (3) Surplus on revaluation of non-current assets A 1, 2 and 3 B 2 and 3 only C 1 and 3 only D 1 and 2 only
23 The plant and machinery account (at cost) of a business for the year ended 31 December 20X5 was as follows:
Plant and machinery – cost 20X5 $ 20X5 $ 1 Jan Balance b/f 240,000 31 Mar Transfer to disposal account 60, 30 Jun Cash purchase of plant 160,000 31 Dec Balance c/f 340, –––––––– –––––––– 400,000 400, –––––––– –––––––– The company’s policy is to charge depreciation at 20% per year on the straight line basis, with proportionate depreciation in the years of purchase and disposal.
What should be the depreciation charge for the year ended 31 December 20X5? A $68, B $64, C $61, D $55,
24 The following extracts are from Hassan’s financial statements:
$ Profit before interest and tax 10, Interest (1,600) Tax (3,300) ––––––– Profit after tax 5, ––––––– Share capital 20, Reserves 15, ––––––– 35, Loan liability 6, ––––––– 42, –––––––
What is Hassan’s return on capital employed? A 15% B 29% C 24% D 12%
25 Which of the following statements about sales tax is/are true?
(1) Sales tax is an expense to the ultimate consumer of the goods purchased (2) Sales tax is recorded as income in the accounts of the entity selling the goods A 1 only B 2 only C Both 1 and 2 D Neither 1 nor 2
26 Q’s trial balance failed to agree and a suspense account was opened for the difference. Q does not keep receivables and payables control accounts. The following errors were found in Q’s accounting records: (1) In recording an issue of shares at par, cash received of $333,000 was credited to the ordinary share capital account as $330, (2) Cash of $2,800 paid for plant repairs was correctly accounted for in the cash book but was credited to the plant asset account (3) The petty cash book balance of $500 had been omitted from the trial balance (4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motor vehicles account as $87,400.
Which of the errors will require an entry to the suspense account to correct them? A 1, 2 and 4 only B 1, 2, 3 and 4 C 1 and 4 only D 2 and 3 only
30 The IASB’s Conceptual Framework for Financial Reporting identifies characteristics which make financial information faithfully represent what it purports to represent.
Which of the following are examples of those characteristics? (1) Accruals (2) Completeness (3) Going concern (4) Neutrality A 1 and 2 B 2 and 4 C 2 and 3 D 1 and 4
31 The following control account has been prepared by a trainee accountant:
Receivables ledger control account $ $ Opening balance 308,600 Cash 147, Credit sales 154,200 Discounts allowed 1, Cash sales 88,100 Interest charged on overdue accounts 2, Contras 4,600 Irrecoverable debts 4, Allowance for receivables 2, Closing balance 396, –––––––– –––––––– 555,500 555, –––––––– ––––––––
What should the closing balance be when all the errors made in preparing the receivables ledger control account have been corrected? A $395, B $304, C $309, D $307,
32 Which of the following material events after the reporting date and before the financial statements are approved are adjusting events? (1) A valuation of property providing evidence of impairment in value at the reporting date. (2) Sale of inventory held at the reporting date for less than cost. (3) Discovery of fraud or error affecting the financial statements. (4) The insolvency of a customer with a debt owing at the reporting date which is still outstanding. A 1, 2 and 4 only B 1, 2, 3 and 4 C 1 and 4 only D 2 and 3 only
33 A company values its inventory using the FIFO method. At 1 May 20X5 the company had 700 engines in inventory, valued at $190 each. During the year ended 30 April 20X6 the following transactions took place: 20X 1 July Purchased 500 engines at $220 each 1 November Sold 400 engines for $160, 20X 1 February Purchased 300 engines at $230 each 15 April Sold 250 engines for $125,
What is the value of the company’s closing inventory of engines at 30 April 20X6? A $188, B $195, C $166, D $106,
34 Amy is a sole trader and had assets of $569,400 and liabilities of $412,840 on 1 January 20X8. During the year ended 31 December 20X8 she paid $65,000 capital into the business and she paid herself wages of $800 per month. At 31 December 20X8, Amy had assets of $614,130 and liabilities of $369,770.
What is Amy’s profit for the year ended 31 December 20X8? A $32, B $23, C $22, D $87,
35 Bumbly Co extracted the trial balance for the year ended 31 December 20X7. The total of the debits exceeded the credits by $300.
Which of the following could explain the imbalance? A Sales of $300 were omitted from the sales day book B Returns inward of $150 were extracted to the debit column of the trial balance C Discounts received of $150 were extracted to the debit column of the trial balance D The bank ledger account did not agree with the bank statement by a debit of $
(70 marks)
(d) The following table shows factors to be considered when determining whether a parent–subsidiary relationship exists. Factor Description A Significant influence B Control C Non-controlling interest D Greater than 50% of the equity shares being held by an investor E 100% of the equity shares being held by an investor F Greater than 50% of the preference shares being held by an investor G 50% of all shares and all debt being held by an investor H Greater than 50% of preference shares and debt being held by an investor
Required: Which of the above factors A to H illustrate the existence of a parent–subsidiary relationship? (4 marks)
(15 marks)
2 Malright, a limited liability company, has an accounting year end of 31 October. The accountant is preparing the financial statements as at 31 October 20X7 and requires your assistance. The following trial balance has been extracted from the general ledger Account Dr Cr $000 $ Buildings at cost 740 Buildings accumulated depreciation, 1 November 20X6 60 Plant at cost 220 Plant accumulated depreciation, 1 November 20X6 110 Bank balance 70 Revenue 1, Net purchases 1, Inventory at 1 November 20X6 160 Cash 20 Trade payables 250 Trade receivables 320 Administrative expenses 325 Allowance for receivables at 1 November 20X6 10 Retained earnings at 1 November 20X6 130 Equity shares, $1 415 Share premium account 80 –––––– –––––– 2,925 2, –––––– –––––– The following additional information is also available:
Required: Prepare the statement of profit or loss and the statement of financial position of Malright Co as at 31 October 20X7.
(15 marks)
End of Question Paper
Fundamentals Level – Knowledge Module, Paper F Financial Accounting Specimen Exam Answers
Section A
1 A
2 B
3 C
4 C Payables: $ Balance b/f 60, Cash paid to suppliers (302,800) Discounts received (2,960) Contra (2,000) Balance c/f (84,000) –––––––– Purchases 331, ––––––––
5 D
6 B Current assets $ Loan asset 12, Interest (12,000 x 12%) 240 Prepayment (8/12 x 9,000) 6, Accrued rent 4, ––––––– 22, –––––––
7 C $ Profit 83, Purchase of van 18, Depreciation 18,000 x 25% (4,500) ––––––– 97, –––––––
8 C
9 D
10 D $ Balance b/f (advance) 28, Balance b/f (arrears) (21,200) Cash received 481, Balance c/f (advance) (31,200) Balance c/f (arrears) 18, –––––––– 475, ––––––––
11 B
12 C
13 A
14 A
15 A
16 A $ Balance b/f 550 Expense incurred (cash) 5, Accrual c/f 650 –––––– 6, ––––––
17 C $ $ Debts written off 37, Movement in allowance: (517 – 37) x 5% 24, Less opening allowance 39, (15,000) ––––––– Receivables expense 22, –––––––
18 D $ Balance per ledger 438, Less contra (980) Posting error (90) –––––––– Corrected balance 437, ––––––––
19 B
20 B (6,700 + 84,000 – 5,400) x 20% = $17,
21 B Share capital Share premium $ $ Balance b/f 125,000 100, Rights issue 62,500 187, Bonus issue 37,500 (37,500) –––––––– –––––––– Balance c/f 225,000 250, –––––––– ––––––––
22 C
34 A $ Opening assets 569, Opening liabilities (412,840) Capital introduced 65, Drawings (800 x 12) (9,600) –––––––– 211, Profit (bal fig) 32, –––––––– Closing net assets (614,130 – 369,770) 244, ––––––––
35 C
Section B
1 (a) Consolidated statement of profit or loss for the year ended 31 May 20X
$ Revenue (W1) 10, Cost of sales (W1) (4,950) ––––––– Gross profit 5, Operating expenses (W1) (3,160) ––––––– Profit before tax 1, Tax (W1) (740) ––––––– Profit for the year 1, –––––––
(b) A
(c) Non-controlling interest = $80,000 ($400,000 (W1) x 20%)
(d) The following factors illustrate the existence of a parent–subsidiary relationship: B, C, D, E. Workings Working 1 Keswick Co Derwent Co Adjustments Consolidated $000 $000 $000 $ Revenue 8,400 3,200 (1,500) 10, Cost of sales (4,600) (1,700) 1,500 (4,950) Unrealised profit (150) Operating expenses (2,200) (960) (3,160) Tax (600) (140) (740) –––––– –––––– 850 400 –––––– ––––––
2 Statement of profit or loss for the year ended 31 October 20X
$ Revenue 1, Cost of sales (W1) (1,284) –––––– Gross profit 516 Administrative expenses (325 + 10 (W4) + (16 (W3) – 10)) (341) –––––– Profit for the year 175 ––––––
Statement of financial position as at 31 October 20X
$000 $ Assets Non-current assets (W2) 731 Current assets Inventories 75 Trade receivables (W3) 304 Cash 20 –––– 399 –––––– Total assets 1, –––––– Equity and liabilities Equity Share capital 415 Retained earnings (130 + 175) 305 Share premium 80 –––– 800 Current liabilities Trade and other payables (250 + 10 (W4)) 260 Bank overdraft 70 –––– 330 –––––– Total equity and liabilities 1, –––––– Workings
Working 1
$ Cost of sales Opening inventory 160 Purchases 1, Closing inventory (75) –––––– 1, Depreciation (W2) 59 –––––– 1, –––––– Working 2
Property Plant Total $000 $000 $ Cost 740 220 960 Depreciation b/f (60) (110) (170) Depreciation for year 740 x 5% (37) (220 – 110) x 20% (22) (59) –––– –––– –––– Net book value 31 October 20X7 643 88 731 –––– –––– –––– Working 3
Trade receivables Allowance = 320,000 x 5% = $16, 320,000 – 16,000 = $304,
Working 4
Energy cost accrual 15,000 x 2/3 = $10,
