Test cope 02101010 FORM TP 2019130, imation an CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION* ACCOUNTING UNIT 1 = Paper OL “ 1 hour 30 minutes READ THE FOLLOWING INSTRUCTIONS CAREFULLY. 1, This test consists of 45 items, You will have 1 hour and 30 minutes to answer them. wo 2. In addition to this test booklet, you should have an answer sheet. 3. Do not be concemed that the answer sheet provides spaces for more answers than there are items in this test. 4. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are about to answer and decide which choice is best. 5. On your answer sheet, find the number which corresponds to your item and shade the space having the same letter as the answer you have chosen. Look at the sample item below. ‘Sample Item ‘The cost of an asset consumed in the generation of revenue is treated in the books as g “ ‘Sample Answer ©0680 © @) 2 ‘The best answer to this item is “an expense”, 30 (C) has been shaded. 6. Hf you want to change your answer, erase it completely before you fill in your new choice. 7. When youare told to begin, turn the page and work as quickly and as carefully as yousan. If ‘you cannot answer an item, go on to the next one. You may return to that item later. 8 You may do any rough work in this booklet. ‘You may use a silent, non-programmable calculator to answer items. BO NOT TURN THIS PAGE UNTIL You ARE TATR TH Ne oo ee‘What would be the advantage (benefit) ofhavingall countries adopt and follow the same accounting standards? (A) Consistency @ Comparability (C) Absorbed preparation costs (D) Eliminating the need for external auditing Bartlett and Co., a law firm, has accepted « fee of $30 000 to represent a client in a legal suit in the future. Which of the following has arisen from the transaction for Bartlett and Co. a) @) © ® Accrued expense . Accrued revenue Deferred expense Deferred revenue ‘tem 3 refers to the following information from the books of Orange Vale Inc. for the year ending, 30 June 2015, ‘The net income for the year, using the cash basis of accounting, is rc) ®) @ ©) $150 683, $151 883, $159 101 $254 087 On 15 January 2017, R. Sammy's advertising agency collected $6000 from clients who were billed for jobs done in December 2016, Using the accrual basis of accounting, how should the accounts be affected by the transactions on 15 January 2017? a) @ © @) Increase: Cash Increase: Cash Decrease: Accounts receivable Increase: Service revenue Decrease: Fees earned Increase: Cash Increase: Accounts receivable“Sr ‘tems $—6refertothe following information about the Belmopan Company. The Belmopan Company began operations on 01 January 2015. The company has the © following items included in the owners? ‘equity section of its balance sheet. Eight per cent preference shares $100 Par value; 25 000 shares issued and ‘outstanding, $2 500 000; ordinary shares ‘$3 par value; 50 000 shares issued and outstanding $450 000 ‘Share premium $2 250.000 Total dividends declared and paid: During 2015 $170 000 During 2016 $210 000 Assuming that the preference shares were cumulative, how much of the 2015 dividends would be distributed to ordinary shareholders? @® so @) $5192 (© $9200 @) —$10.000 Assuming that the preference shares ‘were noncumulative, how much of the 2016 dividends would be distributed to preference shareholders? (A) $ 2000 (B) $100 962 (©) $110526 @) —$200.000 ‘Which of the following reserves isavail for distbution x cash dividends? (A) Sinking fund (B) Share premium (@ General reserve (D) Revaluation reserve ‘The newly formed Daryl Inc. was billed $8000 by its attomeys for organizational costs. The attomeys agreed to accept 6000 shares of $1 par value common stock in full settlement of their bill, Shares of Daryl! Inc., being new, had no established market value. The amount to be credited ‘to common stock in the books is Mm so ®) $2000 @ $6000 @) $8000 Item 9 refers to the following statement. “One limitation of financial information is the use of estimates in the financial statements.” ‘Which of the following show evidence of such estimates? 1. Machinery. to be depreciated by 20% on its cost. IL. Corporation tax is to be 30% of net income. TIL. Allowance for doubtful debt to be 5% of net sales. (A) Land tt only (B) Land Ul only (C) Mand Ht only @) bMand itton 10. nn 12, ‘One of the MAJOR objectives of the International Financial Reporting Standards isto (A) ensure that all companies prepare financial statements (@® harmonize financial reporting among different countries (©) insist that all accountants are registered with an international board highlight the dysfunction between financial accounting and ‘management accounting @) Which of the following can be considered physical controls in an accounting environment? 1. Safes and vaults II, Locked warehouses for inventories TH. Bank safety deposit boxes (A) Land I only (B) Land Hf only . (© Wand It only @ Mandi Which of the following activities relate to the external auditor? 1. Expresses an opinion to sharehold- ers Il. Conducts audits independent of ‘company and management III. Works independently of employees but is dependent on management (A) Land IL only (B) Landi only (©) Mandi only @ Mandi 14. 1s. Memo inc., 2 with sonal sales ‘of $25 000 000, has purchased a computer software for$550. Ths softwere expected to be used for the next ten years. The accountant of Memo Inc. recorded the software as an expense. Which concept ‘can be used to justify this treatment? (A) Going concern (B) Historical cost @ = Materiality (D) Prudence In July 2016, a company decided to pay its employees a bonus of 2% of its 2016 sales revenue because of increased production. ‘Thebonus waspaidon31 January2017,and centered as an expense on that day. Which accounting principle was violated? (A) Cost principle @ Matching principle (©) Full disclosure principle (D) Going concem principle Jazzy Company has the following information about its fixed assets. Based onthe going concem concept, at what ook value should the assets be shown in the statement of financial position? (A) $28.00 (B) $6000 (C) $68.000 3 $88 000on 16. 18. 19, 45. ‘Which of the following disadvantages are Mem_12 refers to . i the followi associated with pub company? ested fom tn boats VE Externally regulated. Jnvestments are not refunded. ‘Ownership cannot be transferred. and It only and Ill only Mand 1M only 1, Wand itt 17. ‘A partner's ability to bind the partnership and all the other partners into a contract when acting ‘within the scope of the business is an example of (@ _ mutual agency (B) limited liability (©) unlimited liability (D) transfer of partnership interest Item 19 refers to the following information. Share Capital Share Premium Retained Earnings $ s s Balance at 01.01.2015 25.000 ° 188 697 By year end, $25 000 worth of shares were issued at a premium of $50 000; profits for the year were $61 800 and dividends paid were $30 000. What would be the balances on the accounts at 31 December 2015? (A) ® © ©)on 20, 21. -6- Which of the following reports is NOT © component of financial statements ‘according to IAS saa 1 (Sec. 3 of IFRS for @) Financial ratios (B) Statement of financial position (©) Statement of changes in equity (D) Notes to the financial statements * ‘Item 21 refers to the following information about a partnership. Will Smith, anew partner, isbeingadmitted to the Labell and Ross partnership under the bonus method. Smith contributes cash of $20 000 and equipment with a market value of $30 000 in exchange for a 20% ownership interest. The capital of the old partnership is $130 000. Labell and Ross shared profits and losses in the ratio 80:20 respectively. What is Smith’s capital balance? (A) $30.000 (B) $35,000 @ 336000 (D) $50. 000 em22refersto the following information. The accounts of Jym Boys Sports Club showed the following balances 31 December 2018. = ‘Theclub’saccumulated fund on 01 January 2019 will be (A) $2040 {B) $16400 @ 315.400 @) $9200 Item 23 refers to the following information about Jack’s Lid. The partially completed Statement of Comprehensive Income of Jack's Ltd for the year ended 31 December 2016 showed the following data. s Sellingand distribution 140 000 Net sales 460,000, ‘Administrative ex, 80 000) Interest revenues: 45.000) ‘Cost of goods sold 320.000 Interest expense 60.000 If'a corporation tax rate of 30% is applied, the net income for the year will be (A) $ 65.000 @ = $ 73500 (©) $ 85500 (pb) $105.0024, The following steps are usually taken when ‘4 parmership is being liquidated: 1. Distribution of remaining cash to partners TI, Sale of non-cash assets for cash Mi. Payments to creditors TV. Allocation of gain or loss liquidation to partners’ capital In which order should the liquidation process take place? (A) 0, IVt ®) M,VL0 (© LILm,v ® wymtr tem 25 refers othe following information. ‘On 31 December 2016, equipment which ‘cost $60 000 had accumulated depreciation of $12000. On31 December2017, a piece ‘of equipment was sold for $6000; the net book value of equipment before the sale ‘was $8000. ‘The company uses the reducing balance method for asset depreciation at a rate of 15% perannum. * The net book value of the equipment BEFORE the sale occurredon31 December 2017 was (A) $26680 (B) $27880 © 334680 @ $40800 Realto Co, Ltd issued 1500 ordinary shares with a par value of $1.50 for $4.00 each. The journal ‘entry to record the transaction is (A) [Cash27. 29. An accountant discovered that 60% of the value of the firm's fixed assets omitted the balance sheet. ‘The discovery was made before the necounts were approved Ey ine mse ‘The accountant should (A) record this asa liability @ adjust the net book value of fixed assets 9 ignore this discovery until the following year record this in the notes to the financial statements ‘tem 28 refers to the following information which relates to the business of Sand Sloners. ‘Net assets on 01 January 2016 260.000 Capital introduced during the year 52.000 Drawings by the owner 25000 ‘Net assets at 31 December 2016 318 000, ‘What was the net income earned in 2016? rc) @) ® @) $ 6.000 $27 000 $31 000 $58 000 Which of the following statements isNOT 30. Which of the following is a feature of a true regarding ordinary sharesorpreference co-operative? shares? : (A) Separation of ownership and (A) All companies issue ordinary control shares. (B) Free transfer of shares (B) Ordinary shares are the most basic (©) Unlimited liabitity and common type of shares. @) Democratic control (@ _ Withpreference shares, the amount idend is generally specified and increases every year. 31. Which of the following actions by a firm's (PD) Withpreference shares, the holders cost accountant is unethical? have priority over ordinary (A) Pricing a product below cost to fight competition @ Using LIFO to value ending inventory (©) Using FIFO to value ending inventory (D) Applying historical cost32, 35. as An example of a ‘contingent liability is - outstanding lawsuits (©) stondwalchean boecmesed ino celery dane (D) the unrealized loss from the Teduction in market price of @ long-term liability ‘One MAJOR disadvantage of traditional financial statements is their emphasis on (A) relevance @ historical cost (©) Jong-term growth: (D) short-term profitability Which element of published financial statements attempts to provide information on a company’s social responsibility? (A) The auditor’s report @ The director’s report (C) The stock market report (D) _ Notes to the financial statements During periods of inflation or deflation, the historical cost model for financial reporting is deficient because the reports (A) use numerous estimates forrevenue and expenses (B) are published three years prior to the report date (©) recognize revenue and expenses before they are realized @) add and subtract dollars with different purchasing power without adjusting for those differences 37, ‘Which of the following statements relating to the liquidation of a firm is FALSE? “A @) A liquidator is appointed to sel! alt the assets and pay the debrs. The receiver disposes of assets in s commercially reasonable manner. In a liquidation, the receiver represents a secured creditor ‘who has appointed him. After the receiver recovers the ‘money, the receiver takes over management of the firm. © ® Dominica Company reported netincome of ‘$45 000, net sales of $650 000 and average assets of $400 000 in 2016. What is the ‘company’s percentage return on assets for 20167 A 692 @ 125 © 68.54 @) = 162.50 The change in cash for the year for a particular company is $4500. If cash flow from investing activities is $46200 andcash flow from financing activities $34.400, what is the cash flow from operating activities? (A) ($70 100) @ ($76 100) (©) ($80 100) (D) ($85 100)39. 40. 41. -10- ‘The Mangoes-by-the-Sea Company hadnet credit sales of $8 800 000, Cost of poods sold totalled $6 600 000 for the year and theaverage inventory forthe yearamounted to $2 640 000. What was the inve Eee = aor (A) 2 times @ 25 times © 3.3 times @) 10 times. ‘tem 40 refers to the following information ‘about the ABC Company, ‘The Statement of Comprehensive Income is provided for ABC for the year ended 30 June 2016, ‘What analysis has been conducted above? (A) Ratio @ Vertical (©) Horizontal (D) Comparative Operating activities of a business organization include (A) long-term borrowings (B) anew issue of ordinary shares 3 cash receipts from the sale of goods (D) the acquisition of long-term assets END OF TEST a. 48, Which of the following should NOT be disclosed in a su of ignificam ‘accounting policies? 1. Minority interest claims Il. Depreciation method m. ‘Valuation basis followed @ tonly (B) Wonly (C) Vand Ifonly (D) Land tit only ‘Regarding issued share capital in financial statements, a company is required to disclose the @ par value (B) market value (©) _ names of shareholders {D) numberof shares held by employees Items 44-48 refer to the following information. Dividend per share $0.50 Market price per share $15.00 ‘Net income $80 000 ‘Number of ordinary shares 30.000 ‘What isthe earnings per share (EPS)? (A) $0.33 (B) $0.50 () $2.14 (@® 8267 What is the dividend yield? @ ©) © ©