Institute of Cost & Management Accountant of Pakistan

FUNDAMENTALS OF FINANCIAL ACCOUNTING

1. What will be debited, If Mr. “A” started business with $2,00,000

A) Capital account
B) Cash account
C) Mr. A’s account
D) Business account

2. When income is reduced or decreased, that amount is recorded on:

A) Right or debit side of the account

B) Left or debit side of the account
C) Left or credit side of the account
D) Right or credit side of the account

3. The basic accounting principle/concept according to which business record must be kept separate from
the personal records of the owner is known as:

A) Going-concern concept
B) Separate entity principle
C) Realization principle
D) Objectivity principle

4. The matching concept matches which of the following?

A) Asset with liabilities
B) Capital with income
C) Revenues with expenses
D) Expenses with capital

5. Information about an item is ________ if its omission or misstatement might influence the financial
decision of the users taken on the basis of that information

A) Concrete
B) Complete
C) Immaterial
D) Material

6. A business was commenced on 1st January and it purchased 5 vehicles, each costing $5000. During
the year the business managed to sell 2 vehicles at the price of $12000. How should the remaining 3
vehicles be valued if the business is going to continue its operations in the next year?
A) At the breakup value
B) On the basis of going concern
C) Liquidation value
D) More than market value

7. Land on lease should be shown in the statement of financial position contrary to fact that company
doesn't own this piece of land. This is the statement of what accounting concepts?
A) Matching concept
B) Accrual concept
C) Prudence concept
D) Substance over form Concept

8. Your firm bought a machine for $5,000 on 1 January 20X1, which had an expected useful life of four
years and an expected residual value of $1,000; the asset was to be depreciated on the straight-line
basis. The firm's policy is to charge depreciation in the year of disposal. On 31 December 20X3, the
machine was sold for $1,600.

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

What amount should be entered in the 20X3 statement of comprehensive income for profit or loss on
disposal?

A Profit of $600
B Loss of $600
C Profit of $350
D Loss of $400

9. A company's plant and machinery ledger account for the year ended 30 September 20X2 was as
follows:
PLANT AND MACHINERY –ACCOUNT
$ $
20X1 20X2
01 Oct Balance 381,200 01 Jun Disposal 36,000
01 Dec Cash 18,000 30 Sep Balance 363,200
399,200 399,200
The company's policy is to charge depreciation at 20% per year on the straight line basis, with
proportionate depreciation in years of purchase and sale.
What is the depreciation charge for the year ended 30 September 20X2?

A $74,440
B $84,040
C $72,640
D $76,840

10. A business purchased a motor car on 1 July 20X3 for $20,000. It is to be depreciated at 20 per cent
per year on the straight line basis, assuming a residual value at the end of five years of $4,000, with a
proportionate depreciation charge in the year of purchase.
The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles
repairs account.
How will the business profit for the year ended 31 December 20X3 be affected by the error?

A Understated by $18,400
B Understated by $16,800
C Overstated by $18,400
D None of the above

11. A business had a balance at the bank of $2,500 at the start of the month. During the following month,
it paid for materials invoiced at $1,000 less trade discount of 20% and cash discount of 10%. It received a
cheque from a customer in respect of an invoice for $200, subject to cash discount of 5%.
What was the balance at the bank at the end of the month?

A $1,970
B $1,980
C $1,990
D $2,000

12. The bank statement on 31 October 20X7 showed an overdraft of $800. On reconciling the bank
statement, it was discovered that a cheque drawn by your company for $80 had not been presented for
payment and that a cheque for $130 from a customer had been dishonored on 30 October 20X7, but that
this had not yet been notified to you by the bank.
What is the correct bank balance to be shown in the statement of financial position at 31 October 20X7?

A $1,010 overdrawn
B $880 overdrawn
C $750 overdrawn
D $720 overdrawn

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

13. Your firm's cash book at 30 April 20X8 shows a balance at the bank of $2,490. Comparison with the
bank statement at the same date reveals the following differences:
$
Unpresented cheques 840
Bank charges not in cash book 50
Receipts not yet credited by the bank 470
Dishonored cheque not in cash book 140
What is the adjusted bank balance per the cash book at 30 April 20X8?
A $1,460
B $2,300
C $2,580
D $3,140

14. A fixed asset was bought for $5000. Its accumulated depreciation is $3000 and rate of depreciation is
20%. Calculate its depreciation expenses for the current accounting period using reducing balance
method?

A) $600
B) $2000
C) 300
D) $400

15. Cost of sales appears in the income statement of a sole trader in the following order:

A) Opening inventory plus trade receivables plus carriage inwards less closing inventory
B) Closing inventory plus purchases plus carriage inwards less opening inventory
C) Opening inventory plus purchases plus carriage outwards less closing inventory
D) Opening inventory plus purchases plus carriage inwards less closing inventory

16. An entity has sales revenue of £10,000, a cost of sales of £8,000, closing inventory of £2,000, and
expenses equal to £1,500. In the year it received £500 discount when settling trade payable accounts.

The reported gross profit for the period is:

A) £4,000
B) £3,500
C) £2,500
D) £2,000

17. Aslam is a sole trader. The following details relate to her transactions with credit customers and
suppliers for the year ended 30 June 2013:
Rs.
Trade receivables, 1 July 2012 130,000
Trade payables, 1 July 2012 60,000
Cash received from customers 686,400
Cash paid to suppliers 302,800
Discounts allowed 1,400
Discounts received 2,960
Trade receivables, 30 June 2013 181,000
Trade payables, 30 June 2013 84,000
Contra between payables and receivables ledgers 2,000
What figure should appear for purchases in Aslam’s statement of profit or loss for the year ended 30 June
2013?

A. Rs. 323,840
B. Rs. 328,200
C. Rs. 331,760
D. Rs. 325,760

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

18. A company’s statement of profit or loss for the year ended 31 December 2013 showed a net profit of
Rs. 83,600. It was later found that Rs.18,000 paid for the purchase of a motor van had been debited to
the motor expenses account. It is the company’s policy to depreciate motor vans at 25% per year on the
straight line basis, with a full year’s charge in the year of acquisition.

What would the net profit be after adjusting for this error?

A. Rs. 106,100
B. Rs. 70,100
C. Rs. 97,100
D. Rs. 101,600

19. Amy is a sole trader and had assets of Rs. 569,400 and liabilities of Rs. 412,840 on 1 January 2013.
During the year ended 31 December 2013 she paid Rs. 65,000 capital into the business and she
withdrew Rs. 800 per month. At 31 December 2013, Amy had assets of Rs. 614,130 and liabilities of Rs.
369,770.

What is Amy’s profit for the year ended 31 December 20X3?

A. Rs. 32,400
B. Rs. 23,600
C. Rs. 22,800
D. Rs. 87,800

20. Which of the following calculates a sole trader’s net profit for a period?

A Closing net assets + drawings – capital introduced – opening net assets

B Closing net assets – drawings + capital introduced – opening net assets
C Closing net assets – drawings – capital introduced – opening net assets
D Closing net assets + drawings + capital introduced – opening net assets

21. Which of the following explains the imprest system of operating petty cash?

A Weekly expenditure cannot exceed a set amount

B The exact amount of expenditure is reimbursed at intervals to maintain a fixed float
C All expenditure out of the petty cash must be properly authorised
D Regular equal amounts of cash are transferred into petty cash at intervals

22. A company receives rent from a large number of properties. The total received in the year ended 30
April 20X6 was $481,200.
The following were the amounts of rent in advance and in arrears at 30 April 20X5 and 20X6:
30 April 20X5 30 April 20X6
$ $
Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
What amount of rental income should appear in the company’s income statement for the year ended 30
April 20X6?

A $486,500
B $460,900
C $501,500
D $475,900

23. At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6 trade
receivables totaled $517,000. It was decided to write off debts totalling $37,000 and to adjust the
allowance for receivables to the equivalent of 5% of the trade receivables based on past events.
What figure should appear in the income statement for the year ended 30 June 20X6 for receivables
expense?

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

A $61,000
B $52,000
C $22,000
D $37,000

24. The total of the list of balances in Valley’s payables ledger was $438,900 at 30 June 20X6. This
balance did not agree with Valley’s payables ledger control account balance. The following errors were
discovered:

(1) A contra entry of $980 was recorded in the payables ledger control account, but not in the payables
ledger.
(2) The total of the purchase returns daybook was undercast by $1,000.
(3) An invoice for $4,344 was posted to the supplier’s account as $4,434.
What amount should Valley report in its statement of financial position for accounts payable at 30 June
20X6?

A $436,830
B $438,010
C $439,790
D $437,830

25. Prisha has not kept accurate accounting records during the financial year. She had opening inventory
of $6,700 and purchased goods costing $84,000 during the year. At the year end she had $5,400 left in
inventory. All sales are made at a mark up on cost of 20%.

What is Prisha’s gross profit for the year?

A $13,750
B $17,060
C $16,540
D $20,675

26. The plant and machinery account (at cost) of a business for the year ended 31 December 20X5 was
as follows:
PLANT AND MACHINERY –ACCOUNT
$ $
20X5 20X5
01 Jan Balance 240,000 31 Mar Disposal 60,000
30 Jun Cash 160,000 31 Dec Balance 340,000
400,000 400,000

The company’s policy is to charge depreciation at 20% per year on the straight line basis, with
proportionate depreciation in the years of purchase and disposal. What should be the depreciation charge
for the year ended 31 December 20X5?
A $68,000
B $64,000
C $61,000
D $55,000

27. The following bank reconciliation statement has been prepared by a trainee accountant:
$
Overdraft per bank statement 3,860
Less: Unpresented cheques 9,160
–––––––
5,300
Add: Outstanding lodgments 16,690
–––––––
Cash at bank 21,990
–––––––

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

What should be the correct balance per the cash book?

A $21,990 balance at bank as stated

B $3,670 balance at bank
C $11,390 balance at bank
D $3,670 overdrawn

28. A company values its inventory using the FIFO method. At 1 May 20X5 the company had 700 engines
in inventory, valued at $190 each. During the year ended 30 April 20X6 the following transactions took
place:
20X5
1 July Purchased 500 engines at $220 each
1 November Sold 400 engines for $160,000
20X6
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
What is the value of the company’s closing inventory of engines at 30 April 20X6?

A $188,500
B $195,500
C $166,000
D $106,000

29. The inventory value for the financial statements of Q for the year ended 31 May 20X6 was based on
an inventory count on 4 June 20X6, which gave a total inventory value of $836,200.
Between 31 May and 4 June 20X6, the following transactions took place:
$
Purchase of goods 8,600
Sales of goods (profit margin 30% on sales) 14,000
Goods returned by Q to supplier 700
What adjusted figure should be included in the financial statements for inventories at 31 May 20X6?

A $838,100
B $853,900
C $818,500
D $834,300

30. Which of the following statements are correct?

(1) Capitalized development expenditure must be amortized over a period not exceeding five years
(2) Capitalized development costs are shown in the statement of financial position under the heading of
non-current assets
(3) If certain criteria are met, research expenditure must be recognized as an intangible asset

A 2 only
B 2 and 3
C 1 only
D 1 and 3

31. A fire on 30 September destroyed some of a company’s inventory and its inventory records. The
following information is available:
$
Inventory 1 September 318,000
Sales for September 612,000
Purchases for September 412,000
Inventory in good condition at 30 September 214,000
Standard gross profit percentage on sales is 25%
Based on this information, what is the value of the inventory lost?

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

A $96,000
B $271,000
C $26,400
D $57,000

32. Which of the following statements is/are correct?

(1) Materiality means that only items having a physical existence may be recognised as assets.
(2) The substance over form convention means that the legal form of a transaction must always be shown
in financial statements even if this differs from the commercial effect.
(3) The accruals basis means that sales are recognised in the accounts as they occur and not when the
cash is received.

A 2 only
B 1, 2 and 3
C 1 only
D 3 only

33. Petty cash is controlled under an imprest system. The imprest amount is $100. During a period
payments totalling $53 have been made.
How much needs to be reimbursed at the end of the period to restore petty cash to the imprest account?

A $100
B $53
C $47
D $50

34. Which of the following documents should accompany a payment made to a supplier?

A Supplier statement
B Remittance advice
C Purchase invoice
D Purchase order

35. Which of the following are books of prime entry?

(1) Sales day book

(2) Cash book
(3) Supplier statements
(4) Petty cash voucher

A 1 and 2 only
B 1, 2 and 4 only
C 1 only
D All of them

36. In which book of prime entry will a business record credit notes received in respect of goods which the
business has sent back to its suppliers?

A The sales returns day book

B The cash book
C The purchase returns day book
D The purchase day book

37. A business sells $100 worth of goods to a customer, the customer pays $50 in cash immediately and
will pay the remaining $50 in 30 days time.
What is the double entry to record the sale?

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

A Debit cash $50, credit receivables $50, credit sales $50

B Debit receivables $50, debit cash $50, credit sales $100
C Debit sales $100, credit receivables $50, credit cash $50
D Debit sales $100, credit cash $100

38. Which TWO of the following are credit entries?

(1) An increase in a liability
(2) A decrease in a liability
(3) An increase in income
(4) A decrease in income

A 1 and 3
B 1 and 4
C 2 and 3
D 2 and 4

39. According to IAS 2 Inventories, which of the following costs should be included in valuing the
inventories of a manufacturing company?
(1) Carriage inwards
(2) Carriage outwards
(3) Depreciation of factory plant
(4) Storage costs of finished goods

A All four items

B 1, 2 and 4 only
C 2 and 3 only
D 1 and 3 only

40. A company values its inventory using the first in, first out (FIFO) method. At 1 January 20X5 the
company had 800 widgets in inventory, valued at $75 each.
During the year ended 31 December 20X5 the following transactions took place:
20X5
1 February Purchased 500 widgets At $80 each
1 May Sold 400 widgets For $45,000
1 August Purchased 450 widgets At $69 each
15 November Sold 450 widgets For $28,750
What is the value of the company’s closing inventory of widgets at 31 December 20X5?

A $8,000
B $66,854
C $67,050
D $68,000

41. An organisation's asset register shows a carrying value of $135,600. The non-current asset account in
the nominal ledger shows a carrying value of $125,600.
Which of the following disposals, if not deducted from the asset register, could account for the difference?

A Asset A with disposal proceeds of $15,000 and a profit on disposal of $5,000

B Asset B with disposal proceeds of $15,000 and a carrying value of $5,000
C Asset C with disposal proceeds of $15,000 and a loss on disposal of $5,000
D Asset D with disposal proceeds of $5,000 and a carrying value of $5,000

42. Which of the following are capital, as opposed to revenue, expenses?

(1) The repair of a machine currently used in the production process that has broken down
(2) The cost of an extension to a factory building, which doubles the size of the production area
(3) The cost of installing a new machine in a factory

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

A 2 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3

43. Which of the following statements is/are true?

(1) Accrued expenses are expenses which relate to the current accounting period but have not been paid
for. They are shown in the statement of profit or loss for the current period in accordance with the
accruals concept.
(2) Prepaid expenses are expenses which have already been paid in the current period but relate to a
future accounting period. They are shown in the statement of profit or loss for the current period in
accordance with the prudence concept.

A 1 only
B 2 only
C Both 1 and 2
D Neither statement is true

44. Which of the following statements is/are true?

(1) An aged receivables analysis is a report used to help the business pay its suppliers on time
(2) A credit limit is the minimum amount a customer must spend when purchasing goods on credit from a
supplier

A 1 only
B 2 only
C Both 1 and 2
D Neither 1 and 2

45. Mountain sells goods on credit to Hill. Hill receives a 10% trade discount from Mountain and a further
5% settlement discount if goods are paid for within 14 days. Hill bought goods with a list price of $200,000
from Mountain.
What amount should be included in Mountain’s receivables ledger for this transaction?

A $180,000
B $190,000
C $171,500
D $171,000

46. In preparing a company’s bank reconciliation statement at March 20X6, the following items are
causing the difference between the cash book balance and the bank statement balance:
(1) Bank charges $380
(2) Error by bank $1,000 (cheque incorrectly debited to the account)
(3) Lodgements not credited $4,580
(4) Unpresented cheques $1,475
(5) Direct debit $350
(6) Cheque paid in by the company and dishonored $400.
Which of these items will require an entry in the cash book?

A 2, 4 and 6
B 1, 5 and 6
C 3, 4 and 5
D 1, 2 and 3

47. Mauritz Co is preparing a bank reconciliation. The bank balance in the general ledger is $540 credit.
There are two items that have not yet been dealt with.
(1) A cheque for $620 was sent to a supplier but is not yet showing on the bank statement
(2) A bank charge of $28 was charged by the bank, but was not recorded Mauritz Co.
What is the closing balance on Mauritz Co’s bank statement?

From the desk of Ghulam Mustafa (FCMA)

 Institute of Cost & Management Accountant of Pakistan
FUNDAMENTALS OF FINANCIAL ACCOUNTING

A $1,132 overdrawn
B $1,188 overdrawn
C $52 cash at bank
D $108 cash at bank

48. Which of the following calculates a sole trader’s closing net assets?

A Opening net assets – drawings + capital introduced + profit

B Opening net assets + drawings + capital introduced + profit
C Opening net assets + drawings – capital introduced – profit
D Opening net assets – drawings – capital introduced + profit

49. A check returned by bank marked "NSF" means that

A) Bank can't verify your identity

B) There are not sufficient funds in your account
C) Check has been forged
D) Check can't be cashed being illegal

50. An entry which is made on both sides of a cash book is called

A) Cash entry
B) Contra entry
C) Payment entry
D) Compound entry)

From the desk of Ghulam Mustafa (FCMA)