MOCK TEST 1

1. Which of the following items should be treated as a capital item in the financial statements
of a large shop?
(1) Purchase of fixed shelving units
(2) Payment of wages
(3) Repairs to fixed shelving units
A (1) only
B (1) and (2) only
C (2) and (3) only
D (1), (2) and (3)

2. A sole trader received £2,500 from a credit customer for goods which had been sold on
credit. The sole trader has an overdraft with his bank of £5,000.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Liabilities only
C Capital only
D Assets and liabilities only

3. The following data has been extracted from the payroll records of a business for the month
of May 20X7.
£
Net amount paid to employees 114,000
PAYE 38,000
Employer's NIC 15,600
Employees' NIC 13,400
What is the wage expense for May 20X7?:
A £181,000
B £152,000
C £143,000
D £114,000

4. All Peter's sales attract VAT at the standard rate of 20%. Peter sells goods to a customer on
credit for £2,400 exclusive of VAT. The double entry to record this transaction is:
A Dr Trade receivables £2,880; Cr Sales £2,400; Cr VAT £480
B Dr Sales £2,400; Dr VAT £480; Cr Trade receivables £2,880
C Dr Trade receivables £2,400; Dr VAT £480; Cr Sales £2,880
D Dr Sales £2,880; Cr Trade receivables £2,400; Cr VAT £480

5. Identify whether the following statements are true or false.

Statement 1: A credit balance of £100 brought down on George's receivables ledger in
Guy's accounting records means that George owes money to Guy.
Statement 2: A debit balance of £500 on Guy's drawings account means that Guy has
withdrawn £500 in the period.
A Statement 1 is true and Statement 2 is false
B Statement 1 is false and Statement 2 is true
C Both statements are true
D Both statements are false

Milo is a trader and is registered for VAT. During the quarter to 30 June 20X8 he entered
into the following transactions.
£
Purchase of inventory 25,200
6. Purchase of new car for use in the business 14,400
Payments to HMRC 9,420
Sales 100,800
All the above purchases and sales are inclusive of VAT at 20%.
At 1 April 20X8 Milo owed HMRC £2,000.
What was Milo's liability at 30 June 20X8 in respect of VAT?
A £2,780
B £4,820
C £5,180
D £7,700

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

8. The following tasks form parts of an entity's accounting process.

(1) Extract an initial trial balance

(2) Close off nominal ledger accounts
(3) Account for closing inventory, accruals and prepayments
(4) Calculate profit for the year
In which order are these tasks carried out?
A (1), (3), (2), (4)
B (1), (2), (3), (4)
C (2), (1), (3), (4)
D (2), (3), (4), (1)

9. The following three matters were discovered by Daisy when she prepared her month end
bank reconciliation.
(1) The electronic banking transaction report includes a receipt of £560 in respect of a
payment from a credit customer. This was not automatically matched to a transaction
by the accounting system. On investigation, it was discovered that there was a bank
error and the correct amount was £650.
(2) Bank charges debited by the bank have not yet been entered in the cash at bank account.
(3) The value of payments not processed by the bank exceeded the value of uncleared
lodgements.
Which of these matters will require adjustments to the cash at bank account?
A (1) and (2) only
B (2) and (3) only
C (2) only
D (1) and (3) only

10. Mr Thomson maintains his petty cash records using an imprest system. The total petty cash
float is made up monthly to £200. During the month of June the following expenses were
paid from petty cash:
£
Stationery 24
Tea and coffee 40
Stamps 80
In error, the purchase of stamps was recorded as £8 and as a result £72 was withdrawn from
the bank to top up the petty cash float.
The error made will result in which of the following?
A An overstatement of expenses of £72 and the petty cash balance being £72 more than
it should be
B An understatement of expenses of £72 and the petty cash balance being £128 less
than it should be
C An understatement of expenses of £72 and the petty cash balance being £72 less than
it should be
D An overstatement of expenses of £128 and the petty cash balance being £128 less
than it should be

11. Brooker paid £130,800 to credit suppliers during the year ended 31 December 20X5. At
the beginning of the year payables totalled £11,750 and at the end they totalled £12,750.
The value of closing inventory was £8,200. Cash purchases were £2,800. The cost of sales
for the year was £148,000.
What was the value of opening inventory?
A £21,600
B £24,400
C £22,400
D £23,200

12. A business has a product for which the cost of production of each unit of inventory is £69
(including delivery inwards of £16 and import duties of £2 on the raw materials element).
Production overheads amount to £23 per unit. Currently the goods can only be sold if they
are modified at a cost of £25 per unit. The selling price of each modified unit is £120 and
selling costs are estimated at 10% of selling price.
At what value should each unmodified unit of inventory be included in the statement of
financial position?
A £92
B £83
C £69
D £76

13. On 1 April 20X7 Midge's allowance for receivables stood at £5,558. During the year:
(1) Cash of £900 was received from a credit customer whose debt had been written off
many years ago.
(2) A debt of £2,100 was deemed irrecoverable and was to be written off.
At 31 March 20X8 Midge determined that the allowance for receivables needed to be
£7,170.
What is the charge for irrecoverable debts expense in Midge's statement of profit or loss for
the year ended 31 March 20X8?
A £3,712
B £2,812
C £1,612
D £712

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

16. A sole trader purchased a van on 1 October 20X7 for a total cost of £20,000 by paying
£16,000 cash and trading in an old van. The old van had cost £18,000 and the related
accumulated depreciation was £12,200. The £16,000 cash paid for the new van has been
correctly recorded as Dr Motor vehicles and Cr Cash at bank. No other accounting has
taken place.
What is the journal entry to record the loss on disposal of the old van for the year ended
31 December 20X7?
A Dr Accumulated depreciation £12,200; Dr Loss on disposal £1,800;
Cr Motor vehicles £14,000
B Dr Motor vehicles £14,000; Cr Accumulated depreciation £12,200;
Cr Loss on disposal £1,800
C Dr Loss on disposal £2,000; Cr Motor vehicles £2,000
D Dr Motor vehicles £2,000; Cr Loss on disposal £2,000

17. Santa plc acquired a new building on 1 January 20X6, and incurred the following further
costs in relation to this building over the next year.
(1) Costs of initial adaptation of the building
(2) Legal costs relating to purchase
(3) Monthly cleaning contract
(4) Office furniture
Which of these costs should be included in the cost of the building in the company's
statement of financial position at 31 December 20X6?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only

18. A company has a balance of £5,000 (debit) on its income tax account at 31 December 20X1
relating to the income tax payable on the 20X0 profits. The company's estimated income
tax liability for the year to 31 December 20X1 is £30,000.
The income tax expense in the statement of profit or loss for the year ended
31 December 20X1 is:
A £5,000
B £25,000
C £30,000
D £35,000

19. Which of the following accounting treatments derive from the accounting concept of
accruals?
(1) Annual depreciation charges for non-current assets
(2) Opening and closing inventory adjustments
(3) Capitalisation and amortisation of development expenditure
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)

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

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

22. Bill and Ben are in partnership. On performing the monthly bank reconciliation the
following is discovered.
(1) A cheque paid in respect of personal goods for Bill appears on the bank statement but
has not been entered in the cash at bank account.
(2) A cheque from Marigold Ltd has been returned unpaid. Subsequent investigation
reveals Marigold Ltd has gone into liquidation and Bill and Ben decide the debt should
be written off.
(3) A standing order for rent receivable has been correctly credited to the bank statement
but has not been entered in the cash at bank account.
When these issues are adjusted for in the partnership's ledger accounts, which of the
following is an accurate description of the effects on profit?
A (1) increases profits, (2) decreases profits, (3) has no effect on profits
B (1) has no effect on profits, (2) decreases profits, (3) increases profits
C (1) increases profits, (2) has no effect on profits, (3) decreases profits
D (1) has no effect on profits, (2) increases profits, (3) increases profits

23. Consider the following characteristics:

(1) Sharing of profits
(2) Maintenance of current and capital accounts
(3) Must prepare financial statements which follow accounting standards
(4) Drawings are put through the profit and loss account as salaries
Which are distinctive of partnerships as opposed to sole traders?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only

24. Adjustments need to be made to Ellen's ledger accounts for the year ended
31 August 20X5 in respect of the following matters.
(1) Ellen incorrectly recorded the purchase of machinery costing £10,000 on
1 December 20X4 as a repairs and maintenance cost. Machinery is depreciated
monthly over 5 years on the straight-line basis.
(2) Ellen has accrued bank interest of £400 on her positive bank statement that has not yet
been recorded in Ellen's accounting records.
What is the net effect of these adjustments on Ellen's profit for the year?
A Increase of £8,900
B Increase of £8,100
C Decrease of £1,900
D Decrease of £1,100

25. In preparing its financial statements for the current year, a company's closing inventory was
understated by £50,000.
What will be the effect of this error if it remains uncorrected?
A The current year's profit will be overstated and next year's profit will be understated
B The current year's profit will be understated but there will be no effect on next year's
profit
C The current year's profit will be understated and next year's profit will be overstated
D The current year's profit will be overstated but there will be no effect on next year's
Profit