O Level Sample Examination Paper

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O Level Sample Examination Paper

PRINCIPLES OF ACCOUNTS 1 hour

Paper 1 Multiple Choice

Read these instructions first

There are thirty questions on this paper. Answer all questions. For each question there are four
possible answers A, B, C and D.
Choose the one you consider correct and record your choice.
Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Calculators may be used.

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 O Level Sample Examination Paper

1 Which double entries will record a cheque issued to a supplier for goods bought on credit?

Account debited Account credited

A bank trade payable
B bank purchases
C trade payable bank
D purchases bank

2 Wendy sells goods to Aiden on credit. They are found to be damaged.

Which document will Wendy then send to Aiden?

A copy invoice

B credit note

C debit note

D statement of account

3 Samir sends faulty goods back to Jasmine. In which book of prime entry would Jasmine record this
transaction?

A general journal

B purchases returns journal

C sales journal

D sales returns journal

4 The trial balance of John James failed to agree. A cheque for the purchase of a equipment had
been debited to equipment maintenance.

How would this error be corrected?

debit credit
A equipment maintenance suspense
B equipment equipment maintenance
C equipment suspense
D suspense equipment

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 O Level Sample Examination Paper

5 A cash book has separate columns for bank and cash transactions. On 1 August the debit balance
on the bank account was $1 000. Transactions during August were as follows.

$
Cash paid into bank 200
Cheque drawn for office cash  50

What was the balance on the bank account at 31 August?

A $750

B $850

C $1 150

D $1 250

6 Which will be entered in the general journal?

A correction of an error

B discount received

C goods returned to supplier

D sales on credit

7 Patel owes Jarvis $50. He pays by cheque after deducting a 10 % cash discount.

What is the entry in the books of Patel?

Account to be debited $ Account to be credited $

A Bank 50 Patel 50
B Patel 50 Bank 50
C Bank 45 Patel 50
Discount received 5
D Patel 50 Bank 45
Discount allowed 5

8 Which error will not affect the balancing of the trial balance?

A The payment of an insurance premium for $650 was entered correctly in the bank account but
debited as $560 in the insurance account.

B A purchase invoice for $200 had not been entered in the purchases journal.

C A rent payment of $1 000 had been entered correctly in the bank account but omitted from the
rent account.

D The sales account was overcast by $900.

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 O Level Sample Examination Paper

9 Which will appear as a credit balance in a trial balance?

A balance at bank

B balance in cash

C discounts allowed

D discounts received

10 Which of the following groups contains only capital expenditure?

A computers, repairs to computers and machinery

B furniture, computers and machinery

C furniture, repairs to computers and buildings

D machinery, motor expenses and computers

11 What is the effect on the final accounts of treating expenditure on motor expenses as capital
expenditure?

decrease Increase
A non-current assets
profit for the year
B non-current assets
profit for the year
C non-current assets profit for the year
D profit for the year non-current assets

12 A small construction business owns a mechanical digger.

Cost of machine $20 000

Estimated life 4 years

Residual value $6 000

Depreciation is charged at 20 % each year, using the diminishing (reducing) balance method.

What is the depreciation charge in year 2 of the life of the asset?

A $2 240

B $2 800

C $5 500

D $5 000

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 O Level Sample Examination Paper

13 A business fails to include a provision for depreciation of its non-current assets when preparing its
financial statements. What is the effect of this omission?

A profit for the year is overstated

B profit for the year is understated

C resale value of assets is overstated

D resale value of assets is understated

14 A company buys a truck for $25 200 and sells it four years later for $7 500 when the provision for
depreciation is $14 800.

What is the entry in the income statement in the year of sale?

A $10 400 debit

B $10 400 credit

C $2 900 debit

D $2 900 credit

15 Sara owes a business $3 000. The business is not sure if Sara will pay.

Which entries should the business make?

Account to be debited $ Account to be credited $

A bad debts trade receivable (Sara)
B income statement bad debts
C income statement provision for doubtful debts
D provision for doubtful debts trade receivable (Sara)

16 How is accrued rental income receivable at the end of an accounting year shown in the financial
statements?

A current liability

B current asset

C non-current liability

D non-current asset

17 A trader rents his premises from another business. How is the rent accrued at the end of the
accounting year recorded?

A credit balance brought down on the rent account

B debit balance brought down on the rent account

C current asset in the statement of financial position

D non-current liability in the statement of financial position

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 O Level Sample Examination Paper

18 X and Y agree to amalgamate their businesses. X’s business is valued at $30 000 of which $4 000 is
Goodwill.

What amount will be shown in X’s capital account in the books of the new business?

A credit $26 000

B credit $30 000

C debit $26 000

D debit $30 000

19 The owner of a business has taken goods for personal use but not recorded this in the books.

Which entries must be made at the end of the year?

debit credit
A drawings purchases
B drawings sales
C purchases drawings
D sales drawings

20 Which of the following appears in a partnership’s income statement?

A interest on partners’ capitals

B partners’ drawings

C shares of partnership profit

D interest on a loan from a partner

21 What name is given to the amount that a club owes to its members?

A accumulated fund

B capital

C net profit

D subscriptions

22 A sports club includes the purchase of a new running machine costing $6 000 in its Income and
Expenditure Account. What is the effect of this error?

non-current assets surplus of income over expenditure

A decreased by $6 000 decreased by $6 000
B decreased by $6 000 no impact
C increased by $6 000 increased by $6 000
D no impact decreased by $6 000

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 O Level Sample Examination Paper

23 The values of cost of sales and closing inventory are known. What other value is needed to
calculate the rate of stock turnover?

A gross profit

B profit for the year

C opening inventory

D sales

24 What is a limited company’s authorised capital?

A called up share capital

B capital the company is allowed to raise

C issued capital plus loan capital

D paid up share capital

25 During last year, a trader’s capital increased from $120 000 to $180 000. In the same period,
drawings amounted to $25 000 and capital of $16 000 was introduced.

What was the profit for the year?

A $31 000

B $35 000

C $40 000

D $49 000

26 A manufacturing company provided the following information.

$
direct expenses   6 000
direct labour 15 000
direct materials 20 000
office expenses   4 000
factory heating and lighting 10 000
selling expenses   8 000

What was its prime cost of production?

A $41 000

B $45 000

C $51 000

D $63 000

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 O Level Sample Examination Paper

27 Paola works 40 hours each week and is paid $15 per hour. She pays income tax at 20 %, national
insurance at 10 % and pension contributions at 5 %.

What is her gross weekly pay?

A $390

B $420

C $450

D $480

28 A business had the following assets and liabilities.

$
inventory 11 000
trade receivables 39 000
bank overdraft   8 000
trade payables 12 000
long-term loan 30 000

What was the working capital ratio or current ratio of the business?

A1:1

B 1.38 : 1

C 1.95 : 1

D 2.5 : 1

29 Inventory at 31 December 2012 was overstated by $6 000.

What was the effect on the gross profit for the year ended 31 December 2013?

A $6 000 overstated

B $6 000 understated

C $12 000 overstated

D $12 000 understated

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 O Level Sample Examination Paper

30 Barry purchased a motor vehicle from a motor trader for $26 000. The trader told Barry that the
original price of the motor vehicle was $32 000.

Barry debited the motor vehicles account and credited the cash book with $26 000.

Which accounting principle is being applied?

A accounting entity

B going concern

C historical cost

D prudence

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