CANDIDATE — PLEASE NOTE;

PRLNT your name on the line below and return

this booklet with your answer sheet Failure to
do so may result in disqualification. TEST CODE 02101010
FORM TP 2017126 MAY/JUNE 2017

CARIBBEAN EXAMINATIONS COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATIONg

ACCOUNTING

Unit 1— Paper 01

1 hour 30 minutes

(14 JUNE 2017 (a.m.))

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. This test consists of 45 items. You will have 1 hour and 30 minutes to answer them.

2. In addition to this test booklet, you should have an answer sheet.

3. Do not be concerned 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 choose the correct answer.

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

Sample Answer
(A) a gain
(B) a liability
(C) an expense
(D) an allowance

the best ali''ver to this item is "an cxne:v so (C) has been shided.

6. If you want to change your answer, erase it completely before you fill in your new choice.

7. When you are told to begin, turn the page and work as quickly and as carefully as you can. If
you cannot answer an item. Lo on to the next one. You may return to that item later.

8. You may do any rough N‘orl: in this booklet.

9. You may use a silent, non-programmable calculator to answer items.

DO NOT TURN THIS PAGE- UNTIL YOU ARE TOLD TO DO SO.

Copyright 2015 Caribbean Examinations Council

All rights reserved.
noNittie,"1 , A TNT' n 4, 1
 _

1. One of the MAIN purposes of financial 3. What would be the advantage (benefit) of
accounting is to having all countries adopt and follow the
same accounting standards?
(A) ensure that current assets can cover-
all expenses (A) Consistency
(B) account for all non-monetary items (B) Comparability
in financial statements (C) Absorbed preparation costs
(C) monitor the functions of the board (D) Eliminating the need for external
of directors of a company auditing
(D) provide useful information for
planning and decision-making

2. The idea that a business will continue to

operate for the indefinite future or until
the benefits of its noncurrent assets can be
realized in the normal course of operations
is known as the

(A) objectivity principle

(B) business entity principle
(C) going concern principle
(D) revenue recognition principle

4. On 15 January 2017, R. Sammy's advertising agency collected $6 000 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: Service revenue

(B) Increase: Cash Decrease: Accounts receivable
(C) Increase: Service revenue Decrease: Fees earned
(D) Increase: Cash Increase: Accounts receivable

GO ON TO THE NEXT PAGE

'In1"7
 3

5. The historical cost principle states that 8.
(A) transactions involving assets are
recorded at acquisition cost
(B) assets should be recorded initially at
cost and then adjusted as market
value changes
(C) the private activities of the owner
of a business should not be
incorporated into the activities
of the business
(D) only transactions that are capable
of being expressed in monetary
terms should be included in the
accounting records
The newly formed Daryl Inc. was billed
$8 000 by its attorneys for organizational
costs. The attorneys agreed to accept
6 000 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
(A) $ 0
(B) $2 000
(C) $6 000
(D) $8 000
Item 9 refers to the following statement.

6. Internal controls are used in business to "One limitation of financial information

is the use of estimates in the financial
(A) produce correct financial statements statements."
and deter employee dishonesty
(B) enhance the accuracy and reliability
of accounting records and 9. Which of the following show evidence of
prevent fraud such estimates?
(C) establish responsibility and conduct
independent checks on employee I. Machinery to be depreciated by
performance 20% on its cost.
(D) safeguard business assets and II. Corporation tax is to be 30% of net
enhance the accuracy and income.
reliability of accounting records III. Allowance for doubtful debt to be
5% of net sales.

7. Which of the following reserves is available (A) I and II only

for distribution as cash dividends? 1 and III only
(B)
(C) II and III only
(A) Sinking fund (D) I, II and III
(B) Share premium
(C) General reserve
(D) Revaluation reserve

GO ON TO THE NEXT PAGE

n1 7 Al Al tl/r. A nc 1A1'7
 4

10. A trial balance shows Supplies $3 500 and Supplies expense $0. If $500 of supplies is on hand
at the end of the period. the adjusting entry is

(A) Dr Supplies $ 500

Cr Services revenue $ 500

(B) Dr Supplies expense 500

Cr Supplies $ 500

(C) Dr Supplies expense $ 3 000

Cr Supplies $ 3 000

(D) Dr Supplies $ 3 000

Cr Supplies expense $ 3 000

11. From the point of view ofthe shareholders, 13_ Two-thirds of an insurance policy has
the MAIN duty ofthe external auditor is to expired. The policy was acquired at a cost
of $5 700. The adjusting entry to record
(A) adhere to generally accepted the expired portion would involve a
auditing standards
(B) plan and perform the audit using (A) credit of5] 900 to prepaid insurance
statistical techniques (B) debit of$3 800 to prepaid insurance
(C) express an opinion on the reliability (C) debit of$1900 to insurance expense
of the financial statements (D) debit of$3800 to insurance expense
(D) exercise accuracy in conducting the
audit of fi nancial statements
14. In July 2016, a company decided to pay its
employees a bonus of 2% of its 2016 sales
12. Which representation of the fundamental revenue because of increased production.
accounting equation is INCORRECT? The bonus was paid on 31 January 2017,
and entered as an expense on that day.
(A) Assets — Liabilities = Owners' Which accounting principle was violated?
Equity
(B) Owners' Equity + Liabilities (A) Cost principle
Assets (B) Matching principle
(C) Assets -- Owners' Equity (C) Full disclosure principle
Liabilities (D) Going concern principle
(D) Liabilities f Assets - Owners"
Equity

GO ON TO THE NEXT PAGE

",.• ^ • /NI IN if , 4 r•l" ..•/ .1 I
 -5

15. Jazzy Company has the following 17. Which of the following features can be
information about its fixed assets. applied to both a public company and a
statutory corporation?

Cost 180 000 I. Financial statements are made

Provision for depreciation 92 000 public.
Market value 60 000 Ownership can be easily transferred
by the selling of shares.
Based on the going concern concept, at what III. Day-to-day affairs controlled by a
book value should the assets be shown in board of directors.
the statement of financial position?
(A) I and II only
(A) $28 000 (B) I and III only
(B) $60 000 (C) II and III only
(C) $68 000 (D) I, II and III
(D) $88 000

18. A partner's ability to bind the partnership

16. Which of the following characteristics are and all the other partners into a contract
common to both corporations and limited when acting within the scope ofthe business
partnerships? is an example of

I. Separate legal entity (A) mutual agency

II. Non-profit status (B) limited liability
III. Principal motive is profit (C) unlimited liability
(D) transfer of partnership interest

(A) I and II only

(B) I and III only 19. A statutory corporation is owned by
(C) II and III only
(D) I, II and Ill (A) all nationals of that state
(B) individuals or small groups
(C) the government on behalf of all
nationals
(D) members of the public who
purchase shares

20. Which of the following reports is NOT

a component of financial statements
according to IAS 1 (Sec. 3 of II= KS for
SMEs)?

Financial ratios
Statement of financial position
Statement of changes in equity
Notes to the financial statements

GO ON TO THE NEXT PAGE

/1'11 Al fl//` A TIC nt-11
 6

Item 21 refers to the following information.

Share capital Share premium Retained earnings

$ $ $
Balance at 01.01.2016 25 000 0 188 697

.21. By year's end, $25 000 worth of shares were issued at a premium of $50 000; profits for the year
were $61 800 and dividends paid $30 000. What would be the balances on the account above at
31 December 2016?

Share capital Share premium Retained earnings

$ $ $
(A) 25 000 0 188 697
(B) 50 000 50 000 220 497
(C) 50 000 20 000 250 497
(D) 50 000 80 000 250 497

22. The statement of changes in equity elements may include

1. payment of dividends
II. revaluation of property, plant and equipment
III. buying and selling of shares

(A) 1 only
(B) 11 only
(C) I and II only
(D) I and III only

Item 23 refers to the following information.

The partially completed Statement of Comprehensive Income of Jack's Ltd for the year ended
31 December 2016 showed the following data.

Selling and distribution expense 140 000 Net sales 460 000
Administrative expense 80 000 Interest revenue 45 000
Cost of goods sold 120 000 Interest expense 60 000

23. If a corporation tax rate of 30% is applied, the net income for the year will be

(A) $ 65 000
(B) $ 73 500
(C) $ 85 500
(D) $105 000

GO ON TO THE NEXT PAGE

 7

Item 24 refers to the following information.

26. In measuring inventory, costsshould include
all of the following EXCEPT
On 01 January, a company's outstanding
share capital comprised 160 000 three-dollar
(A) cost of purchases
ordinary shares.
(B) cost of conversion
(C) cost of delivering goods to
In August, the company issued new shares
at par. After the issue the company's share customers
(D) cost incurred in bringing inventories
capital total was $1 005 000.
to their present location
24. The number of ordinary shares issued in
August was
27. An accountant discovered that 60% of
the value of the firm's fixed assets had
(A) 145 000
been omitted from the balance sheet. The
(B) 155 000
discovery was made before the accounts
(C) 165 000
were approved by the directors. The
(D) 175 000
accountant should

(A) record this as a liability

Item 25 refers to the following information.
(B) adjust the net book value of fixed
assets
On 31 December 2015, equipment which
(C) ignore this discovery until the
cost $60 000 had accumulated depreciation
of $12 000. following year
(D) record this in the notes to the
financial statements
On 31 December 2016, apiece of equipment
was sold for $6 000; the net book value
of
equipment before the sale was $8 000.
Item 28 refers to the following information
which relates to the business of Sand
The company uses the reducing balance
Sloners.
method for asset depreciation at a rate of
15%.
$
Net assets on 01 January 2016 260 000
Capital introduced during the year 52 000
25. The net book value of the equipment
Drawings by the owner 25 000
BEFORE the sale occured on 31 December
Net assets at 31 December 20] 6 318 000
2016 was

(A) $26 680

(B) $27 880 28. What was the net income earned in 2016?
(C) $34 680
(D) $40 800
(A) $ 6 000
(B) $27 000
(C) $31 000
(D) $58 000

nin/rs A nt. GO ON TO THE NEXT PAGE

 8-

29. In December 2012, Emily and Emile are 32. In the preparation of fi nancial statements,
partners with capital balances of $200 000 accountants in practice must ensure that
and $120 000 respectively. They share
profit and losses in the ratio of 2:1. On this (A) only timely information on the
date, Kakum invests $100 000 for one-fifth reporting company is presented
interest in the new partnership. The partners (B) the interest of management of the
agree that goodwill will be recorded on the reporting company is preserved
date of admission of Kakum. Calculate (C) the interest of shareholders of the
the total goodwill after the admission of reporting company is preserved
Kakum. (D) true and fair information on the
reporting firm is provided to
(A) $ 80 000 decision-makers
(B) $ 90 000
(C) $ 120 000
(D) $ 200 000 33. During periods of inflation or deflation, the
historical cost model for financial reporting
is deficient because
30. Which of the following is a feature of a
co-operative? it uses numerous estimates for,
revenue and expense
(A) Separation of ownership and it recognizes revenues and expenses
control before they are usually realized
(B) Free transfer of shares comparative financial statements
(C) Unlimited liability are published only for the three
(D) Democratic control years prior to the report date
it adds and subtracts dollars
with different purchasing power
31. Which ofthe following statements is TRUE without adjusting for those
regarding information provided by financial differences
reporting?

I. It increases the value of the 34. In preparing a statement of cash flows,

company. which of the following transactions would
II. It is useful for making investment be considered an investing activity?
and credit decisions.
It identifies what is owned, what is (A) Sale of equipment at book value
owed and the ownership interest (B) Declaration of a cash dividend
in the company. (C) Sale of merchandise on credit
(D) Issuance of a note payable
(A) and 11 only
(B) I and III only
(C) Il and 111 only
(D) I, II and III

GO ON TO THE NEXT PAGE

AS • I% • I% • •-• Jo, • •-•••—• " • 4.•
 9

35. On 31 December 2015, Ruby Jewels Inc. 38. Which of the following is the correct
was sued by an employee for wrongful
equation for the acid-test (quick) ratio?
dismissal. The company was advised that
the claim is 95% likely to succeed, and that Current assets
damages of $140 000 will be payable if the Total liabilities
claim does succeed. How should the matter
be treated in the financial statements for the
year ended 31 December 2015? Current assets — stock
Long-term liabilities
(A) The matter should be ignored.
(B) The matter should be disclosed by Current assets — inventory
a note. Current liabilities
(C) A provision should be made for
$140 000.
(D) Current assets — inventory
A provision should be made for
$133 000. Total liabilities

36. Which of the following statements relating 39. An example of a contingent liability is
to the liquidation of a firm is FALSE?
(A) outstanding lawsuits
A liquidator is appointed to sell all (B) any interest-bearing liability
the assets and pay the debts. (C) a bond which can be converted into
The receiver disposes of assets ordinary shares
in a commercially reasonable (D) the unrealized loss from the
manner. reduction in the market price of
After the receiver recovers the a long-term liability
money, the receiver takes over
management of the firm.
In a liquidation, the receiver Item 40 refers to the following information.
represents a secured creditor who
has appointed him. The Statement of Comprehensive Income
is provided for ABC for the year ended 30
June 2016.
37. Dominica Company reported net income of
$45 000, net sales of $650 000 and average Sales 300 000 100%
assets of $400 000 in 2016. What is the Cost of goods sold (110 000) 37%
company's percentage rcturn on assets for Administration ( 80 000) 27%
2016? Profit 110 000 37%
(A) 6.92
(B) 11.25 40. What analysis has been carried out above?
(C) 65.54
(D) 162.50 (A) Ratio
(B) Vertical
(C) 1 lorizontal
(D) Comparative

(111 (11 n1n/C'ADG 7n11 GO ON TO THE NEXT PAGE

 -10-

41. Property and equipment are classified in Items 44-45 refer to the following
the balance sheet as information.

(A) current assets Dividend per share $ 0.50

(B) intangible assets Market price per share $ 15.00
(C) noncurrent assets Net income $ 80 000
(D) owners' equity Number of ordinary shares 30 000

42. The MAJOR disadvantage of traditional 44. What is the earnings per share (EPS)?
financial statements is the emphasis on
(A) $ 0.33
(A) relevance (B) $ 0.50
(B) historical cost (C) $ 2.14
(C) long-term growth (D) $ 2.67
(D) short-term profitability

45. What is the dividend yield?

43. Regarding issued share capital in financial
statements, a company is required to (A) $ 0.03
disclose the (B) $ 0.50
(C) $ 2.14
(A) par value (D) $ 2.67
(B) market value
(C) names of shareholders
(D) number of shares held by employees

END OF TEST

IF YOU FINISH BF FORE TIME IS CALLED. CHECK YOUR WORK ON TIT'S TEST.