Chapter 22: MULTIPLE CHOICE QUESTIONS
Chapter 2: Statement of financial position and income statement
| (1) | Which of the following is the accounting equation |
AAssets – Liabilities – Capital = Drawings + Profit
BAssets = Liabilities – Capital + Profit – Drawings
CAssets – Liabilities – Capital = Profit – Drawings
DAssets + Liabilities = Capital + Profit – Drawings
(2 marks)
| (2) | Which of the following statements is true? |
AThe income statement illustrates a business’ financial position.
BThe income statement includes dividends paid
CThe income statement illustrates the business’ financial performance
DThe income statement has to show the results for one year
(2 marks)
| (3) | What is included in the statement of financial position of a business? |
ACapital, drawings, assets and liabilities
BCapital, dividends paid, sales and assets
CAssets, liabilities, profit on disposals of non-current assets and introduced capital
DDividends paid, assets, discounts and liabilities
(2 marks)
| (4) | Which of the following is incorrect? |
AThe statement of financial position and income statement form part of the financial statements of a business
BThe statement of financial position illustrates the accounting equation
CThe income statement illustrates the accounting equation
DThe statement of financial position and income statement illustrate the financial position and performance of the business
(2 marks)
| (5) | Which statement is not true? |
AInventory is shown on the income statement and in the statement of financial position
BExpenses should be included on the income statement
CInventory should be included on the statement of financial position only
DReceivables are included in current assets on the statement of financial position
(2 marks)
Chapter 3: Double entry bookkeeping
| (6) | Which of the following is correct? |
(2 marks)
| (7) | A credit balance on a ledger account indicates: |
Aan asset or an expense
Ba liability or an expense
Can amount owing to the organisation
Da liability or revenue
(2 marks)
| (8) | The double entry system of bookkeeping normally results in which of the following balances on the ledger accounts? |
(2 marks)
| (9) | The main aim of accounting is to: |
Amaintain ledger accounts for every asset and liability
Bprovide financial information to users of such information
Cproduce a trial balance
Drecord every financial transaction individually
(2 marks)
| (10) | A Debit entry could lead to: |
Aan increase in assets or a decrease in expenses
Ban increase in sales or an increase in liabilities
Ca decrease in sales or a decrease in assets
Da decrease in liabilities or an increase in expenses
(2 marks)
| (11) | A credit entry could lead to: |
Aan increase in assets or increase in liabilities
Ban increase in expense or an increase in share capital
Can increase in liabilities or an increase in share capital
Dan increase in liabilities and a decrease in sales
(2 marks)
Chapter 4: Inventory
| (12) | Tracey’s business sells three products – A, B and C. The following information was available at the year-end: |
The value of inventory at the year-end should be:
A$675
B$670
C$795
D$550
(2 marks)
| (13) | An inventory record card shows the following details: |
What is the value of inventory at 31 January using the FIFO method?
A$1,125
B$725
C$975
D$1,000
(2 marks)
| (14) | What would be the effect on a business’ profit, which has been calculated including inventory at cost, of discovering that one of its inventory items which cost $7,500 has a net realisable value of $8,500? |
Aan increase of $8,500
Ban increase of $1,000
Cno effect at all
Da decrease of $1,000
(2 marks)
| (15) | According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing company? |
(1)Carriage outwards
(2)Depreciation of factory plant
(3)Carriage inwards
(4)General administrative overheads
AAll four items
B1, 3 and 4 only
C1 and 2 only
D2 and 3 only
(2 marks)
| (16) | The closing inventory of X amounted to $116,400 excluding the following two inventory lines: |
- 400 items which had cost $4 each. All were sold after the statement of financial position date for $3 each, with selling expenses of $200 for the batch.
- 200 different items which had cost $30 each. These items were found to be defective at the statement of financial position date. Rectification work after the statement of financial position amounted to $1,200, after which they were sold for $35 each, with selling expenses totalling $300.
Which of the following total figures should appear in the statement of financial position of X for inventory?
A$122,300
B$121,900
C$122,900
D$123,300
(2 marks)
Chapter 5: Sales tax
| (17) | All the sales of Gail, a retailer, were made at a price inclusive of sales tax at the standard rate of 17.5% and all purchases and expenses bore sales tax at the standard rate. For the three months ended 31 March 2005 gross sales were $23,500, purchases were $12,000 (net) and expenses $800 (net). |
How much is due to the tax authority for the quarter?
A$1,260
B$1,400
C$1,594
D$1,873
(2 marks)
| (18) | The sales account is: |
Acredited with the total of sales made, including sales tax
Bcredited with the total of sales made, excluding sales tax
Cdebited with the total of sales made, including sales tax
Ddebited with the total of sales made, excluding sales tax
(2 marks)
| (19) | If sales (including sales tax) amounted to $27,612.50 and purchases (excluding sales tax) amounted to $18,000, the balance on the sales tax account, assuming all items are subject to sales tax at 17.5%, would be: |
A$962.50 debit
B$962.50 credit
C$1,682.10 debit
D$1,682.10 credit
(2 marks)
| (20) | A business commenced with capital in cash of $1,000. Inventory costing $800 net of sales tax at 17.5% is purchased on credit. Half of this inventory is then sold for $1,000 plus sales tax, the customer paying promptly in cash. |
The accounting equation after these transactions would show:
Aassets $1,775 less liabilities $175 equals capital $1,600
Bassets $2,775 less liabilities $975 equals capital $1,200
Cassets $2,575 less liabilities $800 equals capital $1,775
Dassets $2,575 less liabilities $975 equals capital $1,600
(2 marks)
Chapter 6: Accruals and prepayments
| (21) | The electricity account for the year ended 30 April 2005 was as follows: |
Which of the following is the appropriate entry for electricity?
(2 marks)
| (22) | The year end of Lansdown is 31 December. The company pays for its electricity by a standing order of $100 per month. On 1 January 2005 the statement from the electricity supplier showed that the company had overpaid by $25. Lansdown received electricity bills for the four quarters starting on 1 January 2005 and ending on 31 December 2005 for $350, $375, $275 and $300 respectively. |
Which of the following is the correct entry for electricity in Lansdown’s income statement and statement of financial position for the year ending 31 December 2005?
(2 marks)
| (23) | At 1 January 2005, Michael had a prepayment of $200 in respect of rent. He paid $1,200 on 1 March 2005 in respect of the year ended 28 February 2006 |
What is the charge to the income statement in respect of rent for the year ended 31 December 2005?
A $1,400
B $1,200
C $1,100
D $1,300
(2 marks)
| (24) | At 31 December 2003, Tony had accrued $240 in respect of light and heat for the quarter ending 31 December 2003. In January 2004 he discovered that he had under-accrued by $10. |
The bills for the next four quarters were as follows (q.e. = quarter ended):
Tony always accrues for expenses based on the last bill.
What is the charge to the income statement in respect of light and heat for the 15-month period ended 31 March 2005?
A $1,160
B $1,150
C $930
D $920
(2 marks)
| (25) | Stationery paid for during the year amounted to $1,350. At the beginning of the year there was an inventory of stationery on hand of $165 and an outstanding stationery invoice for $80. At the end of the year there was an inventory of stationery on hand of $140 and an outstanding stationery invoice for $70. |
The stationery figure to be shown in the income statement for the year is:
A $1,195
B $1,335
C $1,365
D $1,505
(2 marks)
Chapter 7: Irrecoverable debts and allowances for receivables
| (26) | At 30 April 2005, Gareth has a receivables balance of $50,000 and an allowance for receivables of $800. Following a review of receivables, Gareth wishes to write off an irrecoverable debt of $1,000 and adjust his allowance to 5% of receivables. |
What will be the adjusted balance of the allowance for receivables?
A $1,650
B $2,450
C $2,500
D $3,450
(2 marks)
| (27) | As at 31 March, Phil had receivables of $82,500. Following a review of receivables, Phil has decided to write off the following irrecoverable debts: |
Phil would like to provide against a specific debt of $250 and based on past experience, make a general allowance at 2% of receivables. The current balance on the allowance for receivables account is $2,000. Phil also received $300 from a debt that had been previously been written off.
What is the charge to the income statement in respect of irrecoverable debt expense and the entry on the statement of financial position for net receivables at 31 March?
(2 marks)
| (28) | At the start of the year Joe had an allowance of $700 against receivables. During the year $450 of this amount went bad and $150 was received; the balance remained unpaid at the year end. Another amount of $170 went bad. At the year-end it was decided to provide for a new debt of $240. |
What was the total irrecoverable debt expense for the year?
A $170
B $260
C $410
D$710
(2 marks)
| (29) | Doris currently has a receivables balance of $47,800 and an allowance for receivables of $1,250. She has received $150 in respect of half of a debt that she had provided against. She now believes the other half of the debt to be bad and wishes to write it off. She also wishes to maintain her allowance at 2% receivables. |
What is the total charge to the income statement in respect of these items?
A $150 debit
B $150 credit
C $300 debit
D $300 credit
(2 marks)
| (30) | At the year end, Harold has a receivables balance of $100,000 and an allowance for receivables of $5,000. He has not yet accounted for a receipt of $500 in respect of a debt which he had previously provided against or a receipt of $1,000 in respect of a debt which had been written off in the previous year. Harold wishes to maintain his allowance for receivables at 7% of receivables. |
What balances will be shown in his statement of financial position at the year-end for receivables and the allowance for receivables?
(2 marks)
| (31) | James has been advised that one of his customers has ceased trading and that it is almost certain that he will not recover the balance of $720 owed by this customer. |
What entry should James make in his general ledger?
(2 marks)
| (32) | Gordon’s receivables owe a total of $80,000 at the year end. These include $900 of long-overdue debts that might still be recoverable, but for which Gordon has created an allowance for receivables. Gordon has also provided an allowance of $1,582, which is the equivalent of 2% of the other receivables’ balances. |
What best describes Gordon’s allowance for receivables as at his year end?
A a specific allowance of $900 and an additional allowance of $1,582 based on past history
B a specific allowance of $1,582 and an additional allowance of $900 based on past history
C a specific allowance of $2,482
D a general allowance of $2,482
(2 marks)
Chapter 8: Noncurrent assets
| (33) | At 1 January 2005, Mary has motor vehicles which cost $15,000. On 31 August 2005 she sells a motor vehicle for $5,000 which had originally cost $8,000 and which had a NBV of $4,000 at the date of disposal. She purchased a new motor vehicle which cost $10,000 on 30 November 2005. |
Her policy is to depreciate motor vehicles at a rate of 25% pa on the straight-line basis, based on the number of months’ ownership.
What is the depreciation charge for the year ended 31 December 2005?
A $3,750
B $3,291
C $4,250
D $3,500
(2 marks)
| (34) | Which of the following best explains what is meant by ‘capital expenditure’? |
Aexpenditure on non-current assets, including repairs and maintenance
Bexpenditure on expensive assets
Cexpenditure relating to the issue of share capital
Dexpenditure relating to the acquisition or improvement of noncurrent assets
(2 marks)
| (35) | A non-current asset was purchased at the beginning of Year 1 for $2,400 and depreciated by 20% pa by the reducing-balance method. At the beginning of Year 4 it was sold for $1,200. |
The result of this was:
A a loss on disposal of $240.00
B a loss on disposal of $28.80
C a profit on disposal of $28.80
D a profit on disposal of $240.00
(2 marks)
| (36) | Giles bought a new machine from abroad. The machine cost $100,000 and delivery and installation costs were $7,000. Testing it amounted to $5,000. Training employees on how to use the machine cost of $1,000. |
What should be the cost of the machine in the company’s statement of financial position?
A $100,000
B $107,000
C $112,000
D $113,000
(2 marks)
| (37) | Joseph’s machinery cost account showed a balance of $5,000 at 1 January 2005. During the year he had the following transactions: |
Joseph depreciates machines at a rate of 10% pa on the straight-line basis based on the number of months’ ownership.
What is the depreciation charge in respect of machinery for the year ended 31 December 2005?
A $545
B $540
C $510
D $630
(2 marks)
| (38) | B acquired a lorry on 1 May 20X0 at a cost of $30,000. The lorry has an estimated useful life of four years, and an estimated resale value at the end of that time of $6,000. B charges depreciation on the straight-line basis, with a proportionate charge in the period of acquisition. |
What will the depreciation charge for the lorry be in B’s ten-month accounting period to 30 September 20X0?
A $3,000
B $2,500
C $2,000
D $5,000
(2 marks)
Chapter 9: From trial balance to financial statements
The following is the extract of Jessie’s trial balance as at 31 December 2005:
The following notes are provided:
(i) Buildings are depreciated at 2% pa on a straight-line basis.
(ii) Plant and machinery is depreciated at 25% pa on a reducing balance basis.
(iii)Additional irrecoverable debts of $3,200 were discovered at the year end. It has been decided to make an allowance for receivables of 5% on the adjusted receivables at the year end.
(iv)The monthly rental charge is $3,000.
(v)The insurance charge for the year is $24,000.
Using the above information attempt the following questions.
| (39) | The depreciation charge for buildings for the year and the net book value (NBV) at the year-end will be: |
(2 marks)
| (40) | The depreciation charge for plant and machinery for the year and the NBV at the year-end will be: |
(2 marks)
| (41) | The total irrecoverable debt expense for the year and the closing net receivable balance will be: |
(2 marks)
| (42) | What is the charge for rent and insurance for the year and the closing accrual and prepayment? |
(2 marks)
Chapter 10: Books of prime entry and control accounts
| (43) | Which of the following is not the purpose of a receivables ledger control account? |
A A receivables ledger control account provides a check on the arithmetic accuracy of the personal ledger
B A receivables ledger control account helps to locate errors in the trial balance
C A receivables ledger control account ensures that there are no errors in the personal ledger
D Control accounts deter fraud
(2 marks)
| (44) | Which one of the following is a book of prime entry and part of the double-entry system? |
A the journal
B the petty cash book
C the sales day book
D the purchase ledger
(2 marks)
| (45) | On 1 January 2005 the balance of receivables was $22,000. Calculate the closing receivables after taking the following into consideration: |
A $30,000
B $23,000
C $12,000
D $28,000
(2 marks)
Chapter 11: Control account reconciliations
| (46) | A receivables ledger control account had a closing balance of $8,500. It contained a contra to the purchase ledger of $400, but this had been entered on the wrong side of the control account. |
The correct balance on the control account should be:
A $7,700 debit
B $8,100 debit
C $8,400 debit
D $8,900 debit
(2 marks)
| (47) | The receivables ledger control account at 1 May had balances of $32,750 debit and $1,275 credit. During May sales of $125,000 were made on credit. Receipts from receivables amounted to $122,500 and cash discounts of $550 were allowed. Refunds of $1,300 were made to customers. The closing credit balance is $2,000. |
The closing debit balances at 31 May should be:
A $35,175
B $35,675
C $36,725
D $34,725
(2 marks)
| (48) | A supplier sends you a statement showing a balance outstanding of $14,350. Your own records show a balance outstanding of $14,500. |
The reason for this difference could be that:
A The supplier sent an invoice for $150 which you have not yet received
B The supplier has allowed you $150 cash discount which you had omitted to enter in your ledgers
C You have paid the supplier $150 which he has not yet accounted for
D You have returned goods worth $150 which the supplier has not yet accounted for
(2 marks)
| (49) | A credit balance of $917 brought forward on Y’s account in the books of X means that: |
A X owes Y $917
B Y owes X $917
C X has paid Y $917
D X is owed $917 by Y
(2 marks)
| (50) | In a receivables ledger control account, which of the following lists is composed only of items which would appear on the credit side of the account? |
A Cash received from customers, sales returns, irrecoverable debts written off, contras against amounts due to suppliers in the accounts payable ledger
B Sales, cash refunds to customers, irrecoverable debts written off, discounts allowed
C Cash received from customers, discounts allowed, interest charged on overdue accounts, irrecoverable debts written off
D Sales, cash refunds to customers, interest charged on overdue accounts, contras against amounts due to suppliers in the accounts payable ledger
(2 marks)
Chapter 12: Bank reconciliations
| (51) | The following information relates to a bank reconciliation. |
(i)The bank balance in the cash book before taking the items below into account was $5,670 overdrawn.
(ii)Bank charges of $250 on the bank statement have not been entered in the cash book.
(iii)The bank has credited the account in error with $40 which belongs to another customer.
(iv)Cheque payments totalling $325 have been correctly entered in the cash book but have not been presented for payment.
(v)Cheques totalling $545 have been correctly entered on the debit side of the cash book but have not been paid in at the bank.
What was the balance as shown by the bank statement before taking the items above into account?
A $5,670 overdrawn
B $5,600 overdrawn
C $5,740 overdrawn
D $6,100 overdrawn
(2 marks)
| (52) | At 31 August 2005 the balance on the company’s cash book was $3,600 credit. Examination of the bank statements revealed the following: |
- Standing orders amounting to $180 had not been recorded in the cash book.
- Cheques paid to suppliers of $1,420 did not appear on the bank statements.
What was the balance on the bank statement at 31 August 2005?
A $5,200 overdrawn
B $5,020 overdrawn
C $2,360 overdrawn
D $3,780 overdrawn
(2 marks)
| (53) | An organisation’s cash book has an operating balance of $485 credit. The following transactions then took place: |
- cash sales $1,450 including sales tax of $150
- receipts from customers of debts of $2,400
- payments to payables of debts of $1,800 less 5% cash discount
- dishonoured cheques from customers amounting to $250.
The resulting balance in the bank column of the cash book should be:
A $1,255 debit
B $1,405 debit
C $1,905 credit
D $2,375 credit
(2 marks)
| (54) | The cash book shows a bank balance of $5,675 overdrawn at 31 March 2005. It is subsequently discovered that a standing order for $125 has been entered twice and that a dishonoured cheque for $450 has been debited in the cash book instead of credited. |
The correct bank balance should be:
A $5,100 overdrawn
B $6,000 overdrawn
C $6,250 overdrawn
D $6,450 overdrawn
(2 marks)
| (55) | The attempt below at a bank reconciliation statement has been prepared by Q Limited. Assuming the bank statement balance of $38,600 to be correct, what should the cash book balance be? |
A $76,500 overdrawn, as stated
B $5,900 overdrawn
C $700 overdrawn
D $5,900 cash at bank
(2 marks)
| (56) | After checking a business cash book against the bank statement, which of the following items could require an entry in the cash book? |
(1)Bank charges
(2)A cheque from a customer which was dishonoured
(3)Cheque not presented
(4)Deposits not credited
(5)Credit transfer entered in bank statement
(6)Standing order entered in bank statement.
A 1, 2, 5 and 6
B 3 and 4
C 1, 3, 4 and 6
D 3, 4, 5 and 6
(2 marks)
Chapter 13: Correction of errors and suspense accounts
| (57) | Faulty goods costing $210 were returned to a supplier but this was recorded as $120 in the ledger accounts. |
What is the journal entry necessary to correct the error?
(2 marks)
| (58) | A suspense account was opened when a trial balance failed to agree. The following errors were later discovered: |
- a gas bill of $420 had been recorded in the gas account as $240
- discount of $50 given to a customer had been credited to discounts received
- interest received of $70 had been entered in the bank account only.
The original balance on the suspense account was:
A debit $210
B credit $210
C debit $160
D credit $160
(2 marks)
| (59) | Molly starts up in business as a florist on 1 April 2004. For the first six months, she has a draft profit of $12,355. |
On investigation you discover the following:
- Rent paid for the 12 months ending 31 March 2005 of $800 has not been recorded in the accounts.
- Closing inventory in the accounts at a cost of $1,000 has a net realisable value of $800.
What is the adjusted profit for the period?
A $11,355
B $11,755
C $12,155
D $12,555
(2 marks)
| (60) | In an accounting system where individual receivables and payables ledger accounts are maintained as an integral part of the double entry, which of the following errors will not be identified by a trial balance? |
A overcasting of the sales day book
B undercasting of the analysed cash book
C failure to transfer a non-current asset to the disposal account when sold
D transposition error in an individual receivables account
(2 marks)
| (61) | A trial balance has been extracted and a suspense account opened. One error relates to the misposting of an amount of $400, being discount received from suppliers, which was posted to the wrong side of the discount received account |
What is the correcting journal entry?
(2 marks)
| (62) | A company, Y, purchased some plant on 1 January 20X0 for $38,000. The payment for the plant was correctly entered in the cash book but was entered on the debit side of plant repairs account. |
Y charges depreciation on the straight-line basis at 20% pa, with a proportionate charge in the year of acquisition and assuming no scrap value at the end of the life of the asset.
How will Y’s profit for the year ended 31 March 20X0 be affected by the error?
A Understated by $30,400
B Understated by $36,100
C Understated by $38,000
D Overstated by $1,900
(2 marks)
| (63) | The trial balance of Z failed to agree, the totals being: |
A suspense account was opened for the amount of the difference and the following errors were found and corrected:
(i)The totals of the cash discount columns in the cash book had not been posted to the discount accounts. The figures were discount allowed $3,900 and discount received $5,100.
(ii)A cheque for $19,000 received from a customer was correctly entered in the cash book but was posted to the customer’s account as $9,100.
What will the remaining balance on the suspense account be after the correction of these errors?
A $25,300 credit
B $7,700 credit
C $27,700 credit
D $5,400 credit
(2 marks)
| (64) | The trial balance of C did not agree, and a suspense account was opened for the difference. Checking in the bookkeeping system revealed a number of errors. |
(1)$4,600 paid for motor van repairs was correctly treated in the cash book but was credited to motor vehicles asset account.
(2)$360 received from B, a customer, was credited in error to the account of BB.
(3)$9,500 paid for rent was debited to the rent account as $5,900.
(4)The total of the discount allowed column in the cash book had been debited in error to the discounts received account.
(5)No entries had been made to record a cash sale of $100.
Which of the errors above would require an entry to the suspense account as part of the process of correcting them?
A 3 and 4
B 1 and 3
C 2 and 5
D 2 and 3
(2 marks)
Chapter 14: Incomplete records
| (65) | Ashley started a business on 1 January 2005. He acquired the following assets: |
He also opened a business bank account and paid in $4,000. At the end of the first year of trading, he had the following:
He had drawn $1,000 in cash during the period.
What was Ashley’s profit or loss for the year?
A $140 loss
B $140 profit
C $1,860 loss
D $1,860 profit
(2 marks)
| (66) | George started a business by investing $10,000 into a business bank account. At the end of his first year’s trading he had earned a profit of $5,000 and had the following assets and liabilities: |
During the year he had withdrawn $2,000 from the business.
How much further capital had he introduced in the year?
A $20,000
B $24,000
C $10,000
D $14,000
(2 marks)
| (67) | If Harry’s mark-up on cost of sales is 15%, what is his gross profit margin? |
A 12.5%
B 13.04%
C 15%
D 17.65%
(2 marks)
| (68) | A sole trader had opening capital of $10,000 and closing capital of $4,500. During the period the owner introduced capital of $4,000 and withdrew $8,000 for her own use. |
Her profit or loss during the period was:
A $9,500 loss
B $1,500 loss
C $7,500 profit
D $17,500 profit
(2 marks)
| (69) | From the following information, calculate the value of purchases: |
A $302,600
B $506,400
C $523,200
D $578,200
(2 marks)
| (70) | Carol owns a shop. The only information available for the year ended 31 December 2005 is as follows: |
What were the purchases of the shop for the year?
A $11,450
B $12,750
C $14,900
D $10,600
(2 marks)
| (71) | The following information is relevant to the calculation of the sales figure for Alpha, a sole trader who does not keep proper accounting records: |
The figure which should appear in Alpha’s income statement for sales is:
A $525,300
B $511,700
C $529,500
D $510,900
(2 marks)
| (72) | A sole trader who does not keep full accounting records wishes to calculate her sales revenue for the year. |
The information available is:
Which of the following is the sales revenue figure for the year calculated from these figures?
A $117,600
B $108,000
C $210,000
D $140,000
(2 marks)
| (73) | A business compiling its accounts for the year to 31 January each year pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. After remaining unchanged for some years, the rent was increased from $24,000 per year to $30,000 per year as from 1 July 20X0. |
Which of the following figures is the rent expense which should appear in the income statement for the year ended 31 January 20X1?
A $27,500
B $29,500
C $28,000
D $29,000
(2 marks)
| (74) | On 31 December 20X0 the inventory of V was completely destroyed by fire. The following information is available: |
(1)Inventory at 1 December 20X0 at cost $28,400.
(2)Purchases for December 20X0 $49,600.
(3)Sales for December 20X0 $64,800.
(4)Standard gross profit percentage on sales revenue 30%.
Based on this information, which of the following is the amount of inventory destroyed?
A $45,360
B $32,640
C $40,971
D $19,440
(2 marks)
Chapter 15: Company accounts
| (75) | Geese’s trial balance shows an overprovision in respect of income tax for the year ended 31 December 2004 of $5,000. Geese estimates that tax liability in respect of the year ended 31 December 2005 will be $23,000. |
What is the tax charge in Geese’s income statement and the statement of financial position entry for the year ended 31 December 2005?
(2 marks)
| (76) | The correct journal entry to record the issue of 100,000 50c shares (fully paid) at an issue price of $2.50 a share is: |
(2 marks)
| (77) | A company has the following share capital: |
In addition to providing for the year’s preference dividend, an ordinary dividend of 2c per share is to be paid.
What are total dividends for the year?
A $140,000
B $380,000
C $440,000
D $760,000
(2 marks)
| (78) | Revenue reserves are: |
A accumulated and undistributed profits of a company
B amounts which cannot be distributed as dividends
C amounts set aside out of profits to replace revenue items
D amounts set aside out of profits for a specific purpose
(2 marks)
| (79) | On 1 April 2004 the balance on B’s accumulated profit account was $50,000 credit. The balance on 31 March 2005 was $100,000 credit. On 10 March 2005 dividends of $50,000 were declared in respect of the year ended 31 March 2005, payable on 31 May 2005. |
Based on this information, profit after tax (but before dividends) for the year ended 31 March 2005 was:
A Nil
B $50,000
C $100,000
D $150,000
(2 marks)
Chapter 16: Accounting standards
| (80) | Jackson’s year end is 31 December 2005. In February 2006 a major credit customer went into liquidation and the directors believe that they will not be able to recover the $450,000 owed to them. |
How should this item be treated in the financial statements of Jackson for the year ended 31 December 2005?
A The irrecoverable debt should be disclosed by note
B The financial statements are not affected
C The debt should be provided against
D The financial statements should be adjusted to reflect the irrecoverable debt
(2 marks)
| (81) | A former employee is claiming compensation of $50,000 from Harriot, a limited liability company. The company’s solicitors have stated that they believe that the claim is unlikely to succeed. The legal costs relating to the claim are likely to be in the region of $5,000 and will be incurred regardless of whether or not the claim is successful. |
How should these items be treated in the financial statements of Harriot Ltd?
A Provision should be made for $55,000
B Provision should be made for $50,000 and the legal costs should be disclosed by note
C Provision should be made for $5,000 and the compensation of $50,000 should be disclosed by note
D No provisions should be made but both items should be disclosed by note
(2 marks)
| (82) | Cowper has spent $20,000 researching new cleaning chemicals in the year ended 31 December 2005. It has also spent $40,000 developing a new cleaning product which will not go into commercial production until next year. The development project meets the criteria laid down in IAS 38. |
How should these costs be treated in the financial statements of Cowper for the year ended 31 December 2005?
A $60,000 should be capitalised as an intangible asset on the statement of financial position
B $40,000 should be capitalised as an intangible asset and should be amortised; $20,000 should be written off to the income statement
C $40,000 should be capitalised as an intangible asset and should not be amortised; $20,000 should be written off to the income statement
D $60,000 should be written off to the income statement
(2 marks)
| (83) | The directors of ABC estimated that inventory which had cost $50,000 had a net realisable value of $40,000 at 30 June 2005 and recorded it in the financial statements for the year ended 30 June 2005 at this lower value in accordance with IAS 2. They have since found out that the net realisable value of the inventory is only likely to be $30,000. |
What adjustments, if any, should be made in the financial statements in respect of this inventory?
A No adjustments required
B Increase the value of inventory by $10,000
C Decrease the value of inventory by $10,000
D Decrease the value of inventory by $20,000
(2 marks)
| (84) | Which of the following items are non-adjusting items per IAS 10? |
(a)the issue of new share or loan capital
(b)financial consequences of losses of non-current assets or inventory as a result of fires or floods
(c)information regarding the value of inventory sold at less than cost thus resulting in a reduction in the value of inventory
(d)mergers and acquisitions
(e)bankruptcy of a credit customer.
A (a), (b) and (d)
B (c) and (e)
C (a), (d) and (e)
D (b), (c) and (e)
(2 marks)
| (85) | Which of the following correctly describes how research and development expenditure should be treated in accordance with IAS 38? |
A Research and development expenditure must be written off to the income statement as incurred
B Research and development expenditure should be capitalised as an intangible asset on the statement of financial position
C Research expenditure should be written off to the income statement; development expenditure must be capitalised as an intangible asset provided that certain criteria are met
D Research expenditure should be capitalised as an intangible asset provided that certain criteria are met; development expenditure should be written off to the income statement
(2 marks)
| (86) | Who issues International Financial Reporting Standards? |
A The Auditing Practices Board
B The Stock Exchange
C The International Accounting Standards Board
D The government
(2 marks)
| (87) | Which of the following statements concerning the accounting treatment of research and development expenditure are true, according to IAS 38 Intangible Assets? |
(1)If certain criteria are met, research expenditure may be recognised as an asset.
(2)Research expenditure, other than capital expenditure on research facilities, should be recognised as an expense as incurred.
(3)In deciding whether development expenditure qualifies to be recognised as an asset, it is necessary to consider whether there will be adequate finance available to complete the project.
(4)Development expenditure recognised as an asset must be amortised over a period not exceeding five years.
(5)The financial statements should disclose the total amount of research and development expenditure recognised as an expense during the period.
A 1, 4 and 5
B 2, 4 and 5
C 2, 3 and 4
D 2, 3 and 5
(2 marks)
| (88) | IAS10 Events after the reporting period regulates the extent to which events after the reporting period date should be reflected in financial statements. |
Which of the following lists of such events consists only of items that, according to IAS10 should normally be classified as non-adjusting?
A Insolvency of a debtor whose account receivable was outstanding at the statement of financial position date, issue of shares or loan notes, a major merger with another company
B Issue of shares or loan notes, changes in foreign exchange rates, major purchases of non-current assets
C A major merger with another company, destruction of a major non-current asset by fire, discovery of fraud or error which shows that the financial statements were incorrect
D Sale of inventory giving evidence about its value at the statement of financial position date, issue of shares or loan notes, destruction of a major non-current asset by fire
(2 marks)
Chapter 17: Statement of cash flows
| (89) | In the year ended 31 December 2005, Lamb bought new vehicles from Warwick Motors with a list price of $100,000 for $70,000 cash and an allowance against old motor vehicles of $30,000. The value of the vehicles taken in part exchange was $27,000. |
Lamb sold other vehicles with a net book value of $12,000 for $15,000 cash.
In Lamb’s statement of cash flow for the year ended 31 December 2005, how would the above transactions be presented under the heading ‘Investing activities’?
(2 marks)
| (90) | Baldrick has the following balances in its statement of financial position as at 30 June 2004 and 30 June 2005: |
In the year ended 30 June 2005 taxation of $550 was paid. The additional loan notes were issued on 30 June 2005.
What is the operating profit of Baldrick for the year ended 30 June 2005?
A $27,250
B $26,450
C $28,050
D $27,100
(2 marks)
| (91) | At 31 December 2004, Topaz had provided $50,000 in respect of income tax. At 31 December 2005, the company estimated that its income tax bill in respect of the year would be $57,000. The amount charged in the income statement for the year ended 31 December 2005 in respect of income tax was $60,000. |
How much will appear in the statement of cash flows for the year ended 31 December 2005 in respect of income tax?
A $50,000
B $53,000
C $57,000
D $60,000
(2 marks)
| (92) | Evans had the following balances in its statement of financial positions as at 30 June 2004 and 2005: |
How much will appear in the cash flow statement for the year ended 30 June 2005 under the heading of ‘Financing activities’?
A $nil
B $10,000 inflow
C $30,000 inflow
D $40,000 inflow
(2 marks)
The following information relates to Questions 93 and 94.
Scents had the following balances in its statement of financial positions as at 30 September 2004 and 2005:
| (93) | How much will appear in the statement of cash flows for the year ended 30 September 2005 for the loan interest and preference dividend paid? |
A $10,000
B $12,000
C $16,000
D $32,000
(2 marks)
| (94) | How much will appear in the statement of cash flows for the year ended 30 September 2005 for the ordinary dividend paid? |
A $20,000
B $24,000
C $25,000
D $29,000
(2 marks)
| (95) | IAS 7 Statement of cash flows requires the statement of cash flows prepared using the indirect method to include the calculation of net cash from operating activities. |
Which of the following lists consists only of items which could appear in such a calculation?
A Depreciation, increase in receivables, decrease in payables, proceeds of sale of plant
B Increase in payables, decrease in inventories, profit on sale of plant, depreciation
C Increase in payables, depreciation, decrease in receivables, proceeds of sale of plant
D Depreciation, interest paid, equity dividends paid, purchase of plant
(2 marks)
Chapter 18: Consolidated statement of financial position
| (96) | At the 1 January 20X2 Y acquired 75% of the share capital of Z for $400,000. At that date the share capital of Z consisted of 600,000 ordinary shares of 50c each and its reserves were $50,000. |
The fair value of NCI at the date of acquisition was $100,000.
In the consolidated statement of financial position of Y and its subsidiary Z at 31 December 20X6, what amount should appear for goodwill?
A $150,000
B $137,500
C $55,000
D $110,000
(2 marks)
| (97) | Skinny acquired 75% of the share capital Coltart for $35,000 on the 1 January 20X4. Details of the share capital and reserves of Skinny and Coltart at 31 December 20X6 are as follows: |
At the date of acquisition Coltart had reserves of $10,000.
What figure should appear in the consolidated statement of financial position of Skinny and its subsidiary Coltart for reserves as at 31 December 20X6?
A $41,250
B $42,750
C $43,250
D $43,750
(2 marks)
| (98) | Austen acquired 60% of the share capital of Dicken for $300,000 on 1 January 20X5. Details of the share capital and reserves of Austen and Dickens at 31 December 20X6 are as follows: |
At the date of acquisition Dickens had reserves of $60,000. The fair value of NCI at acquisition was $80,000.
What figure should appear in the consolidated statement of financial position of Austen and its subsidiary Dickens for reserves as at 31 December 20X6?
A $180,200
B $209,000
C $290,200
D $110,000
(2 marks)
| (99) | At the 1 January 20X5 Purves acquired 80% of the share capital of Trollope for $100,000. At that date the share capital of Trollope consisted of 50,000 $1 shares and reserves of $30,000. At the 31 December 20X6 the reserves of Purves and Trollope were as follows: |
The fair value of NCI at acquisition was $75,000.
What figure should appear in the consolidated statement of financial position of Purves and its subsidiary Trollope, for non- controlling interest?
A $16,000
B $20,000
C $79,000
D $80,000
(2 marks)
| (100) | At the 1 January 20X3 Y acquired 80% of the share capital of Z for $750,000. At that date the share capital of Z consisted of 600,000 ordinary shares of $1 each and its reserves were $50,000. |
The fair value of non-controlling interest was valued at $150,000.
In the consolidated statement of financial position of Y and its subsidiary Z at 31 December 20X6, what amount should appear for goodwill?
A $250,000
B $184,000
C $138,000
D $92,000
(2 marks)
Chapter 19: Consolidated income statement
| (101) | X owns 60% of the equity share capital of Y and 40% of the equity share capital of Z. The income statement of the three entities showed the following turnover for the year ended 31 August 20X7: |
During the year X sold goods to Y and Z for $2 million and $1 million respectively. All goods were sold on to third parties by Y and Z by the end of the year.
How much will be included in the consolidated income statement of the X group for Turnover for the year ended 31 August 20X7?
A $24m
B $21m
C $22m
D $28m
(2 marks)
| (102) | Sat is the sole subsidiary of Shindo. The cost of sales figures for 20X1 for Sat and Shindo were $11 million and $10 million respectively. During 20X1 Shindo sold goods which had cost $2 million to Sat for $3 million. Sat has not yet sold any of these goods. |
What is the consolidated cost of sales figure for 20X1?
A $16 million
B $18 million
C $19 million
D $20 million
(2 marks)
| (103) | Crunchy Co acquired 70% of the ordinary share capital of Nut Co six years ago. The following information relates to Nut Co for the year ended 30 June 20X3: |
What is the profit attributable to the non-controlling interest in the consolidated income statement?
A $33,300
B $78,750
C $45,000
D $77,700
(2 marks)
| (104) | K Co acquired 60% of the ordinary share capital of Special Co five years ago. The following information relates to Special Co for the year ended 30 September 20X3: |
What is the profit attributable tot the non-controlling interest in the consolidated income statement?
A $108,000
B $72,000
C $168,000
D $77,700
(2 marks)
| (105) | P Ltd acquired 60% of the ordinary shares of S Ltd several years ago when the reserves of S stood at $980. In the year ended 31 July 20X7 P sold goods to S costing $500 for $600.(20% mark up on cost). At the year end half of these goods still remained in inventory. |
What will be the provision for unrealised profit adjustment for the year ended 31 July 20X7, for the P group?
A Deduct $500 from the cost of sales
B Deduct $50 from the cost of sales
C Add $50 to the cost of sales
D Add $100 to the cost of sales
(2 marks)
| (106) | Which of the following statements regarding the method of consolidation is true? |
(1)Subsidiaries are equity accounted
(2)Associates are consolidated in full
A Neither statement
B Statement 1 only
C Both statements
D Statement 2 only
(2 marks)
| (107) | Which of the following statements rare true? |
(1)An associated undertaking is when a parent has control over the associate
(2)Associates are equity accounted
(3)Subsidiaries are consolidated in full
(4)An associate is a non-controlling interest
A all of the above
B Statement 2 and 3 only
C None of the above
D Statement 1 only
(2 marks)
Chapter 20: Interpretation of financial statements
The following information relates to question 108 and 109.
| (108) | What is the return on capital employed for the years 20X5 and 20X6? |
(2 marks)
| (109) | What is the total gearing for the years 20X5 and 20X6? |
(2 marks)
| (110) | From the following information regarding the year to 31 August 20X6, what is the payables payment period? |
A 41 days
B 48 days
C 54 days
D 57 days
(2 marks)
| (111) | From the following information regardinng the year to 31 March 20X6, what are the current and quick ratios? |
(2 marks)
| (112) | Sale are $260,000. Purchases are $150,000. Opening inventory is $22,000. Closing inventory is $26,000. |
What is the inventory turnover?
A 6.1 times
B 10 times
C 7 times
D 10.8 times
(2 marks)
Chapter 21: The regulatory and conceptual framework
| (113) | When preparing financial statements under historic cost accounting in periods of inflation, directors: |
A must reduce asset values
B must increase asset values
C must reduce dividends
D need make no adjustments
(2 marks)
| (114) | If the owner of a business takes goods from inventory for his own personal use, the accounting concept to be considered is the: |
A relevance concept
B capitalisation concept
C money measurement concept
D separate entity concept
(2 marks)
| (115) | A ‘true and fair view’ is one which: |
A presents the accounts in such a way as to exclude errors which would affect the actions of those reading them
B occurs when the accounts have been audited
C shows the accounts of an organisation in an understandable format
D shows the assets on the statement of financial position at their current market price
(2 marks)
| (116) | Which concept is followed when a business records the cost of a non-current asset even though it does not legally own it? |
A substance over form
B prudence
C accruals
D going concern
(2 marks)
| (117) | The IASB Framework for the Preparation and Presentation of Financial Statements gives five characteristics that make financial information reliable. |
These five characteristics are:
A prudence, consistency, understandability, faithful representation, substance over form
B accruals basis, going concern concept, consistency, prudence, true and fair view
C faithful representation, neutrality, substance over form, completeness, consistency, faithful and free
D free from material error, prudence, faithful representation, neutrality, completeness
(2 marks)
| (118) | The accounting concept or convention which, in times of rising prices, tends to understate asset values and overstate profits, is the: |
A going concern concept
B prudence concept
C realisation concept
D historical cost concept
(2 marks)
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Created at 8/24/2012 11:22 AM by System Account
(GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
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