QUESTIONS & ANSWERS BANKTABLE OF CONTENTS QUESTIONS & ANSWERS BANK ....... QUESTIONS ... SECTION A... CHAPTER 1: INTRODUCTION TO ACCOUNTING .. CHAPTER 2: THE REGULATORY FRAMEWORK.. CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION... CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY CHATER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY...... CHAPTER 6: FROM TRIAL BALANCE TO FINANCIAL STATEMENTS . CHAPTER 7: SALES TAX..... CHAPTER 8: INVENTORY........ CHAPTER 9: TANGIBLE NON-CURRENT ASSETS. CHAPTER 10: INTANGIBLE NON-CURRENT ASSETS.. CHAPTER 11: ACCRUALS AND PREPAYMENTS CHAPTER 12: IRRECOVERABLE DEBTS & ALLOWANCE. " vcr oe 23 CHAPTER 13: PROVISIONS AND CONTINGENCIES... CHAPTER 14: CONTROL ACCOUNT..... CHAPTER 15: BANK RECONCILIATIONS... CHAPTER 16: THE TRIAL BALANCE AND CORRECTION OF ERRORS CHAPTER 17: INCOMPLETE RECORDS soe CHAPTER 18: PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS.. CHAPTER 19: INTRODUCTION TO COMPANY ACCOUNTING ... CHAPTER 20: IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS. CHAPTER 21: EVENTS AFTER REPORTING DATE (IAS 10). CHAPTER 22: STATEMENT OF CASH FLOWS (IAS 7)... CHAPTER 23: INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS 51 CHAPTER 24: THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 52 CHAPTER 25: THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME. 55CHAPTER 26: INTERPRETATION OF FINANCIAL STATEMENTS SECTION B .. TYPE 1: PREPARE STATEMENT OF FINANCIAL POSITION AND STATEMENT OF COMPREHENSIVE INCOME FROM TRIAL BALANCE... TYPE 2: PREPARE STATEMENT OF CASH FLOW....scsssstsstnstntnntetneetstnstntsentineesees 60. ‘TYPE 3: PREPARE CONSOLIDATED FINANCIAL STATEMENTS. ANSWERS... sea SECTION A... CHAPTER 1: INTRODUCTION TO ACCOUNTING ....ersens 2 67 CHAPTER 2: THE REGULATORY FRAMEWORK.. 68 CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION... CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY CHATER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY... CHAPTER 6: FROM TRIAL BALANCE TO FINANCIAL STATEMENTS . CHAPTER 7: SALES TAX..... CHAPTER &: INVENTORY, CHAPTER 9: TANGIBALE NON-CURRENT ASSETS... CHAPTER 10: INTANGIBALE NON-CURRENT ASSETS. CHAPTER 11: ACCRUALS AND PREPAYMENTS, 100 CHAPTER 12: IRRECOVERABLE DEBTS & ALLOWANCE.. 103 CHAPTER 13: PROVISIONS AND CONTINGENCIES... 110 CHAPTER 14: CONTROL ACCOUNT. 113 CHAPTER 15: BANK RECONCILIATIONS... 118 CHAPTER 16: THE TRIAL BALANCE AND CORRECTION OF ERRORS 124 CHAPTER 17: INCOMPLETE RECORDS... 129 CHAPTER 18: PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS.. 135 CHAPTER 19: INTRODUCTION TO COMPANY ACCOUNTING ... 137 CHAPTER 20: IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS. CHAPTER 21: EVENTS AFTER REPORTING DATE (IAS 10) .. CHAPTER 22: STATEMENT OF CASH FLOWS (IAS 7) 142 146 148CHAPTER 23: INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS CHAPTER 24: THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION CHAPTER 25: THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... CHAPTER 26: INTERPRETATION OF FINANCIAL STATEMENTS... SECTION B .. ‘TYPE 1: PREPARE STATEMENT OF FINANCIAL POSITION AND STATEMENT OF COMPREHENSIVE INCOME FROM TRIAL BALANCE. TYPE 2: PREPARE STATEMENT OF CASH FLOW...... TYPE 3: PREPARE CONSOLIDATED FINANCIAL STATEMENTS... MOCK TEST (ACCA SPECIMEN EXAM) QUESTION: .... ANSWERS.QUESTIONSSECTIONA CHAPTER 1: INTRODUCTION TO ACCOUNTING Question 1.1: Which of the following i the advantages of Limited Liability Company? No requirement to make financial accounts publicly available, no audit requirement. No company tax on the business. Operating as a limited liability company is less risky than operating as a sole trader. Operating as a limited liability company makes reducing share capital easier than sole trader and partnerships. gopP Question 1.2: Which one of the following describes the contents of statement of financial position? A. Allist of all the assets owned and all the liabilities owed by a business as at a particular date. B. Arecord of income generated and expenditure incurred over a given period. C._Allist of ledger balances shown in debit and credit columns D. Arecord of the amount of cash generated Question 1.3: Which of the following statements are TRUE? 1) Accounting can be described as the recording and summarizing of transactions. 2) The main purpose of financial reporting is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. 3) Financial statements are more accurate than management accounts. A. Allthe above 8B. 1and2only C. 3only D. 2and3 only Question 1.4: Which one of the following statement is correct? A. The directors of a company are liable for any losses of the company B. Asole trader business is owned by shareholders and operated by the proprietor C. Partners are liable for losses in a partnership in proportion to their profit share ratio D. A company is run by directors on behalf of its members‘Question 1.5: Which one of the following statements is TRUE? a po ery Directors have a duty of care to show reasonable competence and may have to indemnify the company against loss caused by their negligence. If financial statements are audited, then the responsibility for those financial statements instead falls on the auditors instead of the directors. Directors are not responsible for the preparation of the financial statements of the company. only 2and3 All the above None oe CHAPTER 2: THE REGULATORY FRAMEWORK. Question 2.1: International Financial Reporting Standards are set by which body? ooepP The government The IFRS Interpretations Committee The IFRS Advisory Council The International Accounting Standards Board Question 2.2: What is the role of IFRS Foundation? A. Promote the use and rigorous application of those standards. B. Consults with national standard-setters, academics, user groups and a host of other interested parties. C._ Raise the standard of financial reporting and eventually bring about global harmonisation of accounting standards. D. Give practical advice on the implementation of particular standards. Question 2.3: Which one of the following is TRUE about the International Financial Repor Standards? A. IFRSs are intended to be applied to immaterial items, nor are they retrospective. B. To provide examples of best financial reporting practice for national bodies who develop their own requirements. C. To facilitate the enforcement of a single set of global financial reporting standards D. To prevent national bodies from developing their own financial reporting standardsQuestion 2.4: What are the factors that have shaped financi 1) National legislation 2) Accounting standards 3) The International Financial Reporting Standards 4) The Government A. Land2 B. 2and4 C Banda D. Allthe above Question 2.5: IFRS Advisory Council (IFRS AC) gives advice to the IASB on a range of issues which include: A. IASB's project timetable 8. Practical application and implementation issues in projects C._IASB’s agenda D. Allof the above + CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION Question 3.1: Which one of the following statements is correct? A. The historical cost concept guarantees that a business will continue in operational existence for at least twelve months after the reporting date. B, The matching concept ensures that revenue earned should be match against the expenditure incurred in earning. C. According to the going concern concept, the transactions and events are recognized when they occurred. D. The business entity concept indicate that the business unit should not separate and distinct from its owners. Question 3.2: Information must be understandable to users who are mature and willing to study the information diligently. Which of the following enhancing qualitative characteristics is described as above? A. Understandability B. Reliability C. Comparability D. TimelessQuestion 3.3: Which one of the following is the under ied_assumption for financial statements? A. 8. c. D. ‘Accrual basis Fair presentation Prudence Going concern Question 3.4: Which of the following statements defines the Matching concept? A. 8. ic D. Revenue earned should be matched against the expenditure incurred in earning it Transactions are recorded in the accounts with their original costs A business should be consistent in the accounting treatment of similar items within each accounting period and between the accounting period to the next. Financial transactions are recorded and presented from the perspective of the business, rather than from the perspective of the owners or managers of that business Question 3.5: Which TWO of the following are part of faithful representation? gogeP Relevance Complete Neutral Presented fairly soe CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY Question 4.1: Which one of the following documents should the business issue as a request for payment? A. Invoice B. Sales order C. Debit note D. Statements Question 4.2: Which of the following is NOT books of prime entry? ooePE The cash book The journal The purchase returns day book General ledgerQuestion 4.3: When customers return goods, in which prime entry books does a credit note raised is recognized? A. Sales returns day book B. Purchase day book C. Cash book D. Purchase returns day book Question 4.4: Which of the following statements are TRUE or FALSE? The journal records all bank and cash transactions ‘TRUE FALSE An invoice is raised by the business in order to confirm amounts not yet paid. | TRUE FALSE Despatched note is issued by the business and specifies the quantity and type ‘TRUE FALSE of goods delivered to that customer. Question 4.5: In TUSS Co, petty cash is controlled under an imprest system. At the end of the accounting year, TUSS Co had $200 petty cash in hand. During the year, there are some expenditure paid by the business: Telephone $5.00 Taxi fare $20.00 Sundry purchases $22.00 Cleaner $15.00 What is TUSS Co’s imprest amount? A. $262.00 B. $270.00 c. $240.50 D. $200.00 Question 4.6: COZY Co had the following information in the first week of March 20X5: March Sold goods to CUS 1 Co and received cash of $200 1 March Bought goods from SUP 1 on credit of $300 2March Bought goods from SUP 2 on credit of $150, less 15% trade discount 3 March Sold $100 goods to CUS 2 Co on credit 5March —_ Sold goods for $50 on credit to CUS 3 Co March Purchased $200 goods from SUP 3 on credit. What is the total of the sales day book and the purchases?oe HATER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY ‘Question 5.1: A sole trader’s capital introduced in the period can be calculated by which of the following formulae? A. Closing net assets ~ Profit + Drawings - Opening net assets B. Closing net assets + Profit + Drawings ~ Opening net assets C. Closing net assets + Profit — Drawings - Opening net assets D. Closing net assets ~ Profit ~ Drawings — Opening net assets Question 5.2: Spring runs a business with the proprietor’s capital of $39,000 during 20X4. During the year, the business made a profit of $35,000 and the proprietor withdrew goods costing $2,000 for his personal use. Opening net assets were $50,000. What was the closing net asset of the business in 20X4? A. $132,000 B. $124,000 c. $120,000 D. $122,000 ‘Question 5.3: How is the total of sales day book recorded in the general ledger? Dr Receivables control, Cr Cash Dr Receivables control, Cr Sales Dr Cash, Cr Sales Dr Sales, Cr Receivables control poeP Question 5.4: During the period, an accountant of TUSS Co has posted alll the relevant figures into the trade payable account, but she has not balanced off the account. ‘TRADE PAYABLE ACCOUNT $ $ Cash at bank 200,000 | Balance b/d 320,000 Purchases 225,500 Itis assumed that there are no entries to be made, other than to balance off the account. What is the closing balance on the trade payables account? A. $345,500 DEBIT B. $345,500 CREDIT CC. $478,500 DEBIT D. $478,500 CREDITQuestion 5.5: Summer Co had the following transactions in March 20X3: Case 1 Sold goods on credit of $2,000 to Spring Co Case2 — Winter is a customer of Summer Co, She returned goods of $1,500 which have been bought on credit. Which one of the following is the correct entry for these transactions? D. Case 1 Case 2 Debit Receivables account $2,000 Debit Sale returns account $1,500 Credit Sales account $2,000 Credit Receivables account $1,500 Debit Receivables account $2,000 Debit Receivables account $1,500 Credit Cash $2,000 Credit Cash $1,500 Debit Sales account $2,000 Debit Receivables account $1,500 Credit Receivables $2,000 Credit Sale returns account $1,500 Debit Cash $2,000 Debit Sales returns account $1,500 Credit Sales account $2,000 Credit Cash $1,500 Question 5.6: A business bought $100 worth of goods from supplier last month. Cash of $65 was paid immediately and the remaining amount will be paid in within 20 days. How does the business record this transaction? A. 8. c. D. Debit Purchases $100; Credit Cash $100 Debit Cash $65; Debit Payables $35; Credit Purchases $100 Debit Purchases $100; Credit Cash $65; Credit Payables $35, Debit Cash $100; Credit Purchases $100 Question 5.7: Sweet Candy is a candy retailer. At 1 March 20X7, the balance of its payable ledger was $35,000 credit. During March 20X7, the business made credit purchases of $67,000, cash purchases of $3,000 and the payments paid of $56,000 (excludes cash purchases and after deducting settlement discounts of $1,200). The purchases return in March was $3,600. What is the closing balance on the payables ledger control account? A. B. c. dD. $41,200 $43,000 $50,000 $35,000Question 5.8: Which one of the following can be recorded on credit balance of the payables ledger account? A. The company made the purchase returns to supplier B. The company purchases goods and pays in cash C. The company takes the settlement discount D. The company purchases goods on credit woe CHAPTER 6: FROM TRIAL BALANCE TO FINANCIAL STATEMENTS Question 6.1: Which one of the following is the purpose of the trial balance? The trial balance can be used to test the accuracy of the double entry accounting records The trial balance can be used to detect the entry which has been missed, ‘The main purpose of the trial balance is to track, analyse and report your business income. coeE The trial balance is the disclosure of important financial information & other activities of the organization to various stakeholders. Question 6.2: Which TWO of the following are shown in credit side of the trial balance? 1) Drawings 2) Payables 3) Sales 4) Irrecoverable debts A. Land3 B. Alloff them C 2and3 D. None of them Question 6.3: Fairy Co has the following balances extracted from its nominal ledger at 31 December 20X5: $ Cash at bank 5,000 Machine 2,500 Capital 7,500 Revenue 2,250 Trade receivables 1,600 Other expense 650 What is the total of the debit and credit side in Fairy Co's trial balance at 31 December 20X5? A. $10,050 B. $9,750 C. $10,750 D. $9,050Question 6.4: EWOW Co has the trial balance for the year ended 30 June 20X1: Account name Debit ($) Credit ($) Cash 8,200 Non-current assets 2,800 Purchases 4,000 Capital 3,100 Rental expense 500 Bank loan Loan interest 100 Revenue Trade receivables Other expense During the year, EWOW Co had the following information: ‘© Rental expense has been prepaid $500 ©The opening and closing inventory are $3,000 and $1,900 respectively. What the profit for the year of EWOW Co? A. $2,600 B. $2,100 Cc. $3,750 D. $1,150 Question 6.5: There is some information extracted from the trial balance at 31 December 20X3, of BAMI Co: Trade receivables $67,530 Allowance for receivables $10,530 What is the balance shown in financial position of BAMI Co at 31 December 20X3? A. Anasset $57,000 B. An asset $67,530 and a liability $10,530 C. Aliability $57,000 D. A liability $67,530 and an asset $10,530Question 6.6: Monster Co has the following balances extracted from its trial balance at 31 December 20X5: $ Cash at bank 10,000 Machine 16,500 Inventory 3,500 Depreciation 1,250 Trade receivables 1,600 Other expense 650 he value of current asset shown in the financial position of Monster Co at 31 December A. $13,50 B. $15,100 Cc. $15,250 D. $13,250 Question 6.7: Summer Co has extracted the following information from its trial balance at 31 October 20X6: Debit Credit $ $ Receivables 30,000 Allowance for receivables 5,100 Irrecoverable debts 2,600 During the year, Summer Co had the following information: ‘* Additional irrecoverable debts of $1,000 were discovered at the year end. It has been decided to make an allowance for receivables of $4,550 on the adjusted receivables at the year end. What was the value of irrecoverable debt expense and the closing net receivables balance posted to financial statements as at 31 October 20X6? Irrecoverable debt expense _Net value of receivables A $3,600 $25,450 B $3,050 $24,900 a $3,600 $25,450 D. $3,050 $25,450 eae 10CHAPTER 7: SALES TAX Question 7.1: Which of the following statements is/are TRUE? Sales tax is an indirect tax Sales tax charged on goods and services sold by a business is referred to as input tax Sales tax paid on goods and services ‘bought in’ by a business is referred to as output tax If input tax exceeds output tax the difference is payable to the authori poeE Question 7.2: Summer Co is not registered for sales tax. The company has just purchased goods of $7,000 excluding sales tax for resale. Itis assumed that the tax rate is 15%. The accountant is going to record this transaction. Which one of the following double entry is correct? A._ DR Purchases $7,000; DR Sales tax $1,050; CR Payables $8,050 B. DR Purchases $8,050; CR Sales tax $1,050; CR Payables $7,000 C. DR Purchases $8,050; CR Payables $8,050 D. DR Purchases $7,000; CR Payables $7,000 Question 7.3: During March 20X6, Spring Co had the following transactions: $ Sales (including sales tax) 280,000* Purchases (excluding sales tax) 130,000 ‘Assuming that the sales tax rate is 20% and the opening and closing balance of sales tax account are zero. (*) Spring Co's sales for the month of $280,000 included $40,000 of sales exempt from sales tax. What was the total sales tax paid to the tax authorities at 31 March 20X6? A. $26,000 B. $15,000 C. $20,000 D. $14,000 Question 7.4: During June 20X3, Dino Co made some transactions: © Credit sales of $242,000 excluding sales tax * Credit purchases goods of $314,220 including sales tax * Cash payments to supplier of $165,420 including sales tax Itis assumed sales tax rate is 20%. What was the balance on sales tax account at the end of June 20X3? ‘A. $3,970CR B. $5,680CR Cc. $5,680DR D. $3,9700R 1Question 7.5: EWOW is registered for sales tax. In May 20X6, the company sold goods with price of $1,600 (excluding sales tax 25%). Because of the large quantity of goods, the company decided to discount for this customer 8%, What was the gross value of sales invoice, which EWOW made for customer? A. $1,840 B. $1,472 c. $1,104 D. $1,728 Question 7.6: Spring Co sold goods to Yellow Co for $7,000 less trade discount of 15%. Yellow Co was allowed 60 days credit and it is also offered a discount of 5% for payment within 7 days. At the date of the sale, Spring Co expected Yellow Co take up the settlement discount. Yellow Co taken the advantage of early settlement discount and paid 5 days later of the invoice date. What journal entries should be made by Spring Co to record BOTH of these transactions? ‘A. DR Receivables (Yellow Co) $5,320 DR Bank $5,320 CR Sales $5,320 Cr Receivables (Yellow Co) $5,320 B. DRReceivables (Yellow Co) $5,600 DR Bank $5,600 CR Sales $5,600 Cr Receivables (Yellow Co) $5,600 C. DR Receivables (Yellow Co) $5,600 DR Bank $5,320 CR Sales $5,600 Cr Receivables (Yellow Co) $5,600 D. DR Receivables (Yellow Co) $5,600 DR Bank 95,320 CR Sales $5,600 Cr Receivables (Yellow Co) $5,320 eae CHAPTER 8: INVENTORY Question 8.1: Which of the followin, inventory classified into? Raw materials A house held for resale Work in progress Finished goods All of the above moog, 12Question 8.2: A business had an opening inventory of $100,000 and a closing inventory of $200,000 in its financial statements for the year ended 31 December 20X1. Which of the following entries for these opening and closing inventory figures is correct? DR CR $ $ A. Inventory account 100,000 Statement of profit or loss (SPL) 100,000 Statement of profit or loss (SPL) 200,000 Inventory account 200,000 B, Statement of profit or loss (SPL) 100,000 Inventory account 100,000 Inventory account 200,000 Statement of profit or loss (SPL) 200,000 C. Inventory account 100,000 Purchases account 100,000 D. Purchases account 100,000 Inventory account 100,000 Question 8.3: The following information is available about the transactions of ABC, a sole trader who does not keep proper accounting records: § Opening inventory 77,000 Closing inventory 84,000 Purchase 763,000 Gross profit as a percentage of sales 30% Based on this information, what is ABC's sales revenue for the year? A. $982,800 B. $1,090,000 C. $2,520,000 D. $1,080,000 13Question 8.4: According to IAS 2 Inventories, which one of the following lists consists only of items which may be included in the cost of inventories? A. Supervisor's wages, carriage inwards, carriage outwards, raw materials B. Raw materials, carriage inwards, costs of storage of finished goods, plant depreciation C. Plant depreciation, carriage inwards, raw materials, Supervisor's wages D. Carriage outwards, raw materials, Supervisor's wages, plant depreciation Question 8.5: Specific identification method, FIFO and average cost (AVCO) are inventory valuation methods. Which of the following statements is correct? A. Average cost is recomputed following every dispatch or issue of inventory. B, Specific identification method is used when items of inventory are individually distinguishable and of high value FIFO accounting method assumes that the latest items bought are the first items to be sold D. Ina period of rising purchase costs, FIFO usually gives a lower taxable income than AVCO and therefore, yields a tax advantage. 9 Question 8.6: Allblue buys and sells inventory during the month of April as follows: No. of units $ Opening inventory 100 2.52/unit 3 April Sales 20 8 April Purchases 140 2.56/unit 12 April Sales 90 20 April Purchases 200 2.78/unit 23 April Sales 180 Which one of the following statements is true when using the FIFO method instead of the periodic weighted average? A. Clo cl i inventory is $19.50 higher, so profits are $19.50 higher g inventory is $19.50 lower, so profits are $19.50 lower is $17.50 higher, so profits are $17.50 higher Closing inventory is $17.50 lower, so profits are $17.50 lower inventor 8. cc D. Question 8.7: A company uses the continuous weighted average cost method to value closing inventory, there are some transactions with its product X: No. of units $ January 20X1 Opening inventory 100 4/unit S January 20X1 Purchases 100 5S/unit 12 January 20X1 Sales 120 8/unit 17 January 20X1 Purchases 50 6/unit What is the value of closing inventory? $. 14Question 8.8: Which of the following statements about the valuation of inventory are correct? (2) Inventory should be valued at the lowest of cost, net realisable value and replacement cost. (2) In valuing work in progress, materials costs, labour costs and variable and fixed production overheads must be included. (3) Inventory items can be valued using either first in, first out (FIFO) or weighted average cost. (4) A company’s financial statements must disclose the accounting policies used in measuring inventories. A. All four statements are correct B. 1,2 and 3 only C. 2,3and 4 only D. 1and4 only Question 8.9: Alphabooks is a book wholesaler. On each sale, commission of 4% is payable to the selling agent. The following information is available in respect of total inventories of three of his most popular titles at his financial year-end: Cost Selling price Sans famille - Hector Malot $2,280 $2,900 Norwegian Wood - Haruki Murakami $4,080 $4,000 Kafka on the Shore — Haruki Murakami $1,280 $1,300 What is the value of these inventories in Alphabooks’s statement of financial position? A. $7,368 B. $7,400 C. $7,560 D. $7,640 Question 8.10: A business received a delivery of goods on 29 June 20X6, which was included in inventory at 30 June 20X6. The invoice for the goods was recorded in July 20X6. What effect will this have on the business? (1) Profit for the year ended 30 June 20X6 will be overstated. (2) Inventory at 30 June 20X6 will be understated (3) Profit for the year ending 30 June 20X7 will be overstated. (4) Inventory at 30 June 20X6 will be overstated. A. Land2 B. 2and3 C 1only D. 1and4 15Question 8.11: On 1 September 20X6, a business had inventory of $380,000. During the month, sales totaled $600,000 and purchases $480,000. On 30 September 20X6 a fire destroyed some of the inventory. The undamaged goods in inventory were valued at $220,000, The business operates with a standard gross profit margin of 30%. Based on this information, what is the cost of the inventory destroyed in the fire? A. $220,000 B. $140,000 C. $440,000 D. $360,000 eee CHAPTER 9: TANGIBLE NON-CURRENT ASSETS Question 9.1: 1AS 16 Property, Plant and Equipment requires an asset to be measured at cost on its original recognition in the financial statements. CARLING used its own staff, assisted by contractors when required, to construct a new warehouse for its own use. Identify whether the costs listed below should be capitalized or expensed: Capitalize | Expense Clearance of the site prior to commencement of construction Professional surveyor fees for managing the construction work CARLING’s own staff wages for time spent working on construction A proportion of CARLING’s administration costs, based on staff time spent Question 9.2: M Co sets up his demolition business from scratch on 1 January 20X0. During the year he: Buys a warehouse Pays legal expenses on the purchase Buys three wrecking machines Rents office premises Builds an extension to the warehouse Pays wages Repairs the warehouse roof Writes off a damaged machine Which items represent capital expenditure? A. Land3 B. 1,2,3,5,7and8 © 1,2,3and5 D. Allof them 16Question 9.3: On 30 June 20XS, an entity bought a machine. The invoice showed that: Cost of machine Delivery costs Installation costs One-year maintenance contract 105,000 1,300 4,000 6,500 ‘At what amount should the machine be capitalized in the entity's records? $106,300 $110,300 Question 9.4: On 1 March 20XO, Julie had a building which initially cost $1,500,000 with a carrying amount of $610,000. On 1 July 20X0, the asset was valued at $800,000 and Julie wishes to include that valuation in its books. Wootton’s accounting policy is to depreciate buildings at the rate of 2% on a straight-line basis. A. $116,800 8. D. $109,000 What was depreciation charge included in the statement of profit or loss for the year ended 31 December 20X0? A. $10,000 B. $20,000 Cc. $30,000 Question 9.5: An aircraft has the following components: D. $25,000 Cost $000 Useful life Fuselage 30,000 20 years Undercarriage 8,000 300 landings Engines 12,000 2,000 flying hours What is the depreciation at the end of the first year, in which 150 flights totaling 500 hours were made? A. $8,500 B. $1,500 c. $12,500 Question 9.6: The plant and machinery at cost account of a business for the year ended 30 September 20X8 was as follow: D. $3,500 $ $ 20x7 20x8 10ct Balance 200,000 | 30 Jun Transfer disposal 50,000 account 30Sep Balance 250,000 20x8 Apr Cash-purchase of 100,000 machinery 300,000 300,000 7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 30 September 20X8? A. $50,000 B. $47,500 Cc. $37,500 D. $40,000 Question 9.7: The following information of Premium Co is available for the year ended 31 October 20x2: Property $ Cost as at 1 November 20X1 102,000 Accumulated depreciation as at 1 November 20X1 (20,400) 81,600 On 1 November 20X1, P Co revalued the property to $120,000. Premium Co’s accounting policy is to charge depreciation on a straight-line basis over 50 years. On revaluation there was no change to the overall useful life. It has also chosen to make the annual transfer of excess depreciation on revaluation in equity. What should be the balance on the revaluation surplus and the depreciation charge as shown in Premium Co's financial statements for the year ended 31 October 20X2? Depreciation charge Revaluation surplus $ $ A 3,000 37,440 B. 3,000 38,400 [on 2,400 39,360 D. 2,400 18,000 Question 9.8: On 1 April 20X0 Slow and Steady Co held non-current assets that cost $312,000 and had accumulated depreciation of $66,000 at this date. During the year ended 31 March 20X1, Slow and Steady Co disposed of non-current assets which had originally cost $28,000 and had a carrying amount of $11,200. Slow and Steady Co's policy is to charge depreciation of 40% on the reducing balance basis, with no depreciation charged in the year of disposal. What is the depreciation charge to the statement of profit or loss for the year ended 31 March 20x1? A. $93,920 B. $98,400 C. $124,800 D. $120,320 Question 9.9: TUSS Co bought a machine on 1 January 20XS for $470,000. This machine has been depreciated at 30% using the reducing balance method. On 1 January 20X8, TUSS Co revalued the machine to $600,000. 181s should TUSS Co post to record the revalua non 1 January 20X8? A. DRNon-current assets $130,000 B. DR Non-current assets $130,000 DR Accumulated depreciation $308,790 DRAccumulated depreciation $423,000 CR Revaluation surplus $438,790 CR Revaluation surplus $553,000 CDR Revaluation surplus $438,790 D. DR Revaluation surplus $553,000 CR Non-current assets $130,000 CR Non-current asset $130,000 CR Accumulated depreciation $308,790 CRAccumulated depreciation $423,000 Question 9.10: A non-current asset was bought at 1 Jan 20X1 for $4,800 and depreciated by 20% per annum using the reducing balance method. On 1 Jan 20X4, it was sold for $2,400, What was the result of this disposal? A. Aloss on disposal of $480 B. Aloss on disposal of $57.60 C. Aprofit on disposal of $57.60 D. A profit on disposal of $480 Question 9.11: At the end of the accounting period, NQD Co had the following non-current assets: Land and buildings at cost $20.8 million Land and buildings: accumulated depreciation $0.24 million NQD Co decided to revalue its land and buildings at the year-end to $30 million. What will be the value of the revaluation surplus if the revaluation is accounted for? $ Question 9.12: A car was purchased by DILL Co in May 20X3 as follows: s Cost 20,000 Vehical tax—11 year 300 Total 20,300 The account ig period ended at 31 December. The car was traded in for a replacement vehicle in August 20X7 at an agreed value of $10,000. It was depreciated at 25% per annum using the reducing-balance method, charging a full year's depreciation in the year of purchase and none in the year of sale. What was the profit or loss on disposal of the vehicle during the year ended December 20X72 A. Profit: $1,436 B. Profit: $1,562 C. Profit: $3,576 D. Profit: $3,672 seo 19CHAPTER 10: INTANGIBLE NON-CURRENT ASSETS. Question 10.1: Which TWO of the following statements are correct? 1) Intangible asset with infinite useful life must be amortized. 2) The purpose of amortization is to allocate the cost of an intangible non-current assets over its useful life 3) Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. 4) Capitalised development expenditure must be amortised over a period not exceeding 5 years. A. 2and3 B Land3 C. 3and4 D. 2and4 Question 10.2: Which of the following is NOT shown as intangible non-current assets in financial position of PEN Co at 31 December 20X1? A. PEN Co decided to spend $17,000 on researching a new process to raise the quantity of product made. The research is expected to lead to a new process in 3 years' time. B. PEN Co purchased a patent for $500,000. ._ PEN Co spent $40,000 on the development of new techniques that will be put in place shortly to reduce production cost. D. Abrand name of Summer Co purchased by PEN Co for $10 mil Question 10.3: Spring Co spent $50,000 on a patent for the new technique on 30 March 20X7. The company capitalized it as an intangible asset in the financial statements. Spring Co expected to use the patent for 5 years. According to JAS 38, which one of the following journal entry is correct to record the amount of the patent amortized for the year ended 30 March 20X7? A. DR Expenses $50,000 CR Accumulated amortization $50,000 DR Expenses $10,000 CR Accumulated amortization $10,000 C. _DRintangible assets $50,000 CR Accumulated amortization $50,000 D. DR Accumulated amortization $10,000 CR Intangible assets $10,000 20Question 1 During the financial year ended 31 December 20XS, Fairy Co incurred the following research and development cost not related to the cost of non-current assets: ‘+ $100,000 on successful invention of converting herbs into chemicals A, B and C. ‘* $120,000 on developing a sleeping pill based on chemicals A. ‘+ Commercial uses of chemicals B and C have not been discovered yet. ‘* Commercial production and sales of the sleeping pill commenced on 1 September 20XS and are expected to produce steady profitable income during a 5-year period before being replaced. Resources are adequate and available to complete and use the asset What is the amount of development costs charged at 31 December 20X5? A. $118,000 B. $120,000 c. $240,000 D. $112,000 Question 10.5: Winter Co incurred the following cost: © $86,000 developing new techniques that will be put in place shortly to raise the quantity of product made; ‘* $57,000 researching a new process to improve the quality of the standard product; and ‘* $10,000 on market research into the commercial viability of a new type of product. According to AS 38, how much should be charged as research and development expendi in profit or loss? (Ignore amortisation) $ eae CHAPTER 11: ACCRUALS AND PREPAYMENTS Question 11.1: Company X pays its rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from $24,000 to $48,000 per year from 1 March 20X6. What figure should appear for rent in the statement of profit or loss of company X for the year ended 31 October 20X6 and in the statement of financial position at that date? Statement of profit or loss Statement of financial position A. $36,000 $12,000 B $40,000 $8,000 c $36,000 $8,000 D. $40,000 $12,000 21Question 11.2: A company receives rent from a large number of properties. The total cash received in the year ended 31 December 20X8 was $500,000. The following are the amounts of rent in advance and in arrears at 31 December 20X7 and 20X8. 31 December 20X7 31 December 20X8 Rent received in advance $30,000 $35,000 Rent in arrears $25,000 $20,000 What amount of rental income should appear in the company's statement of profit or loss for the year ended 31 December 20X8? A. $500,000 B. $490,000 Cc. $505,000 D. $510,000 Question 11 A rent prepayment of $1,000 was treated as an accrual in statement of profit or loss at the year end. What following statement show the consequence of this error for profit: A. Understated by $1,000 B, Understated by $2,000 C. Overstated by $1,000 D. Overstated by $2,000 Question 11.4: What is the journal entry for an accrual of rent expenses of $400? Debit Prepayments $400, Credit Rent expense $400 Debit Accruals $400, Credit Rent expense $400 Debit Rent expense $400, Credit Accruals $400 Debit Rent expense $400, Credit Prepayments $400 Question 1: Company X paid corporate tax of $39,000 on 30 June 20X7, in respect of the three months ending 30 September 20X7. In the administrative expenses ledger account for the year ended 31 July 20X7 company X must record poePE A. Debit $13,000 B. Credit $13,000 C. Debit $26,000 D. Credit $26,000 Question 11.6: On 1 October, Jessica paid her heat and power bill for the 3 months ended 30 September 20X8. The bill included a meter rental charge of $120 for the 3 months ending 31 December 20X8 and a usage charge of $270 for the 3-month period to 30 September 20x8, Jessica has an accounting year end date of 31 October 20X8. Which two of the follo as at 31 October 20X8? 1g adjustments are required in relation to the heat and power expense A. Accrual of $80 B. Accrual of $90 C. Prepayment of $80 D. Prepayment of $90 22A company receives rent for subletting part of its office block advance, is received as follows: Rent, receivable quarterly in Date of receipt Period covered $ 1 October 20X7 3 months to 31 December 20X7 6,000 30 December 20X7 3 months to 31 March 20X8 6,000 4 April 20x8 3 months to 30 June 20X8 12,000 1 July 20x8 3 months to 30 September 20X8 12,000 1 October 20X8 3 months to 31 December 20X8 12,000 What figures, based on these receipts, should appear in the company's financial statements for the year ended 30 November 20X8? A. DrAccruedincome $40,000 Cr Cash $4,000 B. DrCash $40,000 Cr Deferred income $4,000 © DrCash $36,000 Cr Deferred income $8,000 D. DrAccrued income $36,000 Cr Cash $8,000 Question 11.8: The following transactions relate to Rashia's electricity expense ledger account for the year ended 30 June 20x9. Prepayment brought forward $550 Cash paid $5,400 Accrual carried forward $650 What amount should be charged to the statement of profit or loss in the year ended 30 June 20XS for electricity? A. $6,600 B. $5,400 Cc. $5,300 oe D. $5,500 CHAPTER 12: IRRECOVERABLE DEBTS & ALLOWANCE Question 12.1: A company has been notified that a customer has been declared bankrupt. The company had previously made a specific allowance for this debt. Which of the following is the correct double entry? A. DR Allowance for receivables CR Trade receivable B. DR Trade receivable CR Irrecoverable debts account CDR Irrecoverable debts account CR Trade receivable D. DR Account receivable CR Allowance for receivables 23Question 12.2: At 30 September 20X8, Company X's allowance for receivables was $20,000. At 30 September 20X8 it was decided to write off irrecoverable debts totaling $7,000 and to decrease the allowance for receivables to $15,000. The charge or credit to the statement of profit or loss in respect of irrecoverable debts for the year ended 30 September 20X9 i A. $1,500credit —-B. $1,500 debit C. $2,000 debit D. $2,000 credit Question 12.3: A decrease in an allowance for receivables of $20,000 has been treated as an increase in the allowance in the financial statements. Which of the following explains the resulting effects? A. Net profit is overstated by $40,000, receivables overstated by $20,000 B. Net profit understated by $40,000, receivables understated by $40,000 C. Net profit overstated by $40,000, receivables overstated by $40,000 D. Gross profit overstated by $40,000, receivables overstated by $40,000 Question 12.4: If Darius Itd reduces its allowance for receivables by $500, which of the following statements is correct? A. Current assets decrease by $500 B. Current liabilities decrease by $500 C. Gross profit increases by $500 D. Net profit increases by $500 Question 12.5: Stark Itd had the balance of receivables at of $116,400 before making the following adjustments: (1) Stark Itd wants to write off a receivables of $17,800 as irrecoverable debt. (2) Stark Itd decides to make specific allowance for NEWELL's debt of $2,700, TUSS’s debt of $1,500 and NQD’s debt of $2,832. The allowance for receivables at the previous year end assumed $11,300. What is the charge to the statement of profit or loss in respect of the above information? A, $13,532 B. $22,068 c. $13,658 D. $21,942 Qn 13 Jue: At 1 January 20X8 Evans Itd received $4,000 in full settlement of a debt that had previously been written off. At 31 December 20X8 Evans Itd determined that a balance of $3,500 owed by a customer was irrecoverable and should be written off. Evans Itd also decided to decrease its allowance for receivables from $2,500 to $1,500 on 31 December 20X8. 24Evans Itd's statement of profit or loss for the year ended 31 December 20X8 wi irrecoverable debts charge or credit of: A. $1,500 debit B, $1,500 credit C. $500 debit D. $500 credit Question 12.7: Summer Co had the amount of the allowance for receivables of $25,000, which had equivalent to 5% of total receivables at 31 March 20X6. At 31 March 20X7, receivables account had the balance of $680,000. The company decided to write off $15,000 of irrecoverable debt. The allowance for receivables was to be equivalent of 5% of receivables. What should be the charge in the statement of profit or loss for the year ended 31 March 20X7 for receivables expense? s eee CHAPTER 13: PROVISIONS AND CONTINGENCIES Question 13.1: Which one of the following statement is true about IAS 37 Provision, Contingent Liabilities and Contingent Asset? A. Acontingent asset must be recognised and accounted for in the financial statements if itis regarded as probable. B. A contingent liability must either be recognised and accounted for in the financial statements, or disclosed in the notes to the financial statements. C. provision will always be classified as falling due for payment within twelve months of the reporting date, whereas a liability may be classified as either current or noncurrent. D. A provision requires judgement and estimation to quantify the amount and/or the date of payment, whereas a liability is normally capable of precise calculation and the date of payment can be determined Question 13.2: Which of the following statements about provision, contingent assets and contingent ies are correct? (1) Aprovision should be disclosed details of the change in carrying amount of a provision from the beginning to the end of the year. (2) Contingent assets must be recognized in accordance with the prudence concept. (3) No disclosure is required for either a contingent liability or a contingent asset if the likelihood of a payment or receipt is remote. (4) A provision is a credit balance set up to offset 2 contingent asset so that the effect on the statement of financial position is nil. A. (1)and (2) B. (1) and (3) C. (2)and (3) D. None of these about 25Question 13.3: The follo\ of Qa limited lial ig items have to be considered in finalising the financial statements ty company: (1) The company gives warranties on its products. The company's statistics show that about 5% of sales give rise to a warranty claim (2) The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the guarantee is assessed as possible. (3) Aretail outlet has a policy of providing refunds over and above the statutory requirement to do so. This policy is well publicised and customers have made use of this facility in the past. (4) A customer has made a legal claim against an entity. The entity's lawyers have advised that the claim will possibly succeed, According to IAS 37 Provisions, Contingent Liabilities and Contingent assets, what is the correct action to be taken in the financial statements for these items? Statement Create a provision Disclosure by a note only No action Statement 1 Statement 2 Statement 3 Statement 4 Question 13.4: Coco Co undertakes oil and gas exploration activities. One of the conditions of the operating license is that Coco must make good any damage caused to the local environment as a result of its exploration activities. As at the year-end date of 31 December 20X1, Coco Co estimated that the cost of rectifying damage already caused at current exploration sites at $10 million. At that date Coco Co estimated that that the cost of rectifying expected future damage at an additional $40 million. Coco Co also estimated that all current exploration sites will operate until 20X5. How should this information be reported in the financial statements of Coco Co for the year ended 31 December 20X1? A. There should be a provision classified as a current liability for $10 million B. There should be a provision classified as a current liability for $50 million C.. There should be a provision classified as a non-current liability for $10 million D. There should be a provision classified as a non-current liability for $50 million 26Question 13.5: During the year ended 31 December 20X7 AVCO experienced a number of difficulties with employees. * On 1 December 20X7 AVCO dismissed an employee and subsequently received notice of a claim for unfair dismissal amounting to $100,000. * On 30 January 20X8 Doolittle received notice of a claim from another employee for compensation of $100,000. AVCO's legal representatives have advised that the claim for unfair dismissal will probably be successful and result in a compensation award of $100,000 to the employee. They also advised that the compensation claim is regarded as possible. How should this information be accounted for in the financial statements for the year ended 31 December 20X7? Dr cr A. Expenses $100,000 Provision $100,000 B. Provision $100,000 —_Expenses $100,000 C. Expenses $200,000 Provision $200,000 D. Provision $200,000 _Expenses $200,000 Question 13.6: A Co sells goods with a one-year warranty and had a provision for warranty claims of $128,000 at 31 December 20X0. During the year ended 31 December 20X1, $50,000 in claims were paid to customers. On 31 December 20X1, X Co estimated that the following claims will be paid in the following year: Scenai Probability Ant Worst case $300,000 Best case $50,000 Most likely $120,000 What amount should X Co record in the statement of comprehensi year ended 31 December 20X1 in respect of the provision? \come (SOC!) for the A. $115,000 8. $13,000 cc. $37,000 D. $78,000 ee CHAPTER 14: CONTROL ACCOUNT Question 14.1: A Co's receivables ledger control account did not agree with the total of the balances on the receivables ledger. An investigation identified that the sales day book had been overcast by $20. 7What effect will this have on the control account? A. The control account should be credited with $20 B, The control account should be debited with $20 C. The control account should be credited with $40 D. The control account should be debited with $40 Question 14.2: A payables ledger control account showed a credit balance of $768,000. The payables ledger totaled $781,000. Which one of the following possible errors could account in full for the difference? A. Acontra against a receivables ledger debit balance of $6,500 has been entered on the credit side of the payables ledger control account. B, Cash purchases of $28,300 was entered to the debit side of the payables ledger control account instead of the correct figure for discounts received of $15,300. C. $13,000 cash paid to a supplier was entered on the credit side of the supplier's account on the payables ledger. D. The total of discounts received $6,500 has been entered on the credit side of the payables ledger control account. Question 14.3: A supplier’s statement shows a balance outstanding of $14,350. Your records show a balance outstanding of $14,550. Which one of the following could lead to this difference? A. The supplier sent an invoice for $200 which you have not yet received. B, The supplier has allowed you $200 settlement discount which you had omitted to enter in your ledgers. C. You have paid the supplier $200 which the supplier has not yet accounted for. D. You have returned goods worth $200 which he has not yet accounted for. Question 14. he receivables ledger control account below contains several incorrect entries. Receivables ledger control account $ $ Balance b/f 138,400 | Credit sales 80,660 Cash received from credit 78,420 | Contras against credit balances in 1,000 customers payables ledger Irrecoverable debts written off 4,950 Dishonored cheques from credit 850 customers Balance c/f 129,360 216,820 28What should the closing balance be when all the errors are corrected? A. $133,840 B. $135,540 c. $137,740 D. $139,840 Question 14.5: Which of the following errors should be identified by perfort control account reconciliation? ga receivables ‘A. Asales invoice of $500 has been omitted from the sales daybook. B. Asales return of $45 was entered as $54 in the sales returns daybook, C. Purchases of $72 were entered as sales returns in the sales returns daybook and the individual account. D. The total of the sales daybook was miscast by $200, Question 14.6: The following information relating to transactions with credit customers and suppliers of HP Co for the year ended 31 March 20X1: s Trade receivables 1 April 20x0 200,000 Trade payables 1 April 20x0 100,000 Cash received from customers 576,200 Cash paid to suppliers 340,600 Discount received 4,000 Contra between payables and receivables 3,300 Trade receivables 31 March 20X1 220,000 Trade payables 31 March 20X1 170,000 What was the cost of Mark’s purchases for the year ended 31 March 20X1? a Question 14.7: You are given the following information: $ Receivables at 1 January 20X1 15,000 Receivables at 31 December 20X1 10,000 Total receipts during 20X1 (including cash sales of $3000) 83,000 What is the figure for credit sales during 20X1? $CHAPTER 15: BANK RECONCILIATIONS Question 15.1: Listed below are some possible causes of difference between the cash book balance and the bank statement balance when preparing a bank reconciliation. Which THREE of these items require an entry in the bank statement? Bank charges Lodgements credited after date Cheque paid in, subsequently dishonored Cheques not yet presented Error by bank Direct debit/Standing orders mmoog> Question 15.2: Which of the following statements about bank reconciliations are correct? (1) Ifa cheque received from a customer is dishonored after date, a credit entry in the cash book is required. (2) A difference between the cash book and the bank statement must be corrected by means of a journal entry. (3) Bank charges not yet entered in the cash book should be dealt with by an adjustment in the reconciliation statement. (4) In preparing a bank reconciliation, lodgements recorded before date in the cash book but credited by the bank after date should reduce an overdrawn balance in the bank statement. A. (2) and (4) B. (1) and (4) C. (2) and (3) D. (1)and (3) Question 15.3: The following bank reconciliation statement has been prepared by a trainee accountant $ Overdraft per bank statement 1,349 Less: Unpresented cheques 405 Add: Deposits credited after date 785 Cash at bank as calculated above 1,729 What should be the correct balance per the cash book? A. $1,729 balance at bankas stated B. $1,329 overdrawn C. $969 overdrawn D. $969 balance at bank 30Question 15.4: Sandra is reconciling her cash book to the bank statement. Her cash balance is, $2,500 and the balance on her statement is $750 overdrawn. She finds the following differences: (1) Bank charges of $150 and direct debits totalling $300 have not been posted to the cash book (2) There are unpresented cheques of $370; she paid in a batch of cheques two days ago totalling $2,385 and these have not yet been credited to her account (3) A cheque she paid in last week for $785 has been dishonoured What will the reconciled balance be? A. $1,565 B. $1,265 c. $2,050 D. $2,765 Question 15.5: The balance in the cash book before taking the items below into account was $7,120. The following information relates to a bank reconcili (1) Bank charges of $670 on the bank statement have not been entered in the cash book. (2) The bank has credited the account in error with $315 which belongs to another customer. (3) Cheque payments totalling $2,799 have been entered in the cash book but have not been presented for payment. (4) Cheques totalling $3,402 have been entered on the debit side of the cash book but have not been paid in at the bank. What was the balance as shown by the bank statement before taking the above items into account? A. $5,532 overdrawn B. $6,738 overdrawn C. $5,532 in credit D. $6,738 in credit Question 15.6: Drink Co has a credit balance of $2,700 in the cash book. Cheques of $112 have been written to suppliers but not yet cleared the bank; uncleared lodgements amount to $256, The bank has accidentally credited Drink Co’s account with interest of $30 due to another customer. A standing order of $600 has not been accounted for in the general ledger. What is the balance on the bank statement? A. $1,986 Cr B. $1,986 Dr c. $3,414 D. $3,414 Dr Question 1! Which of the following is NOT an ‘unrecorded difference’ when reconciling the balance on the cash book to the amount shown in the bank statement? A. ABACS receipt 8B. Anuncleared lodgement C. Bank interest D. Astanding order 31Question 15.8: After a bank recon| in the cash book? ion, which of the follo. items could require an entry (1) Bank charges (2) A cheque from a customer which was dishonoured (3) Cheque not presented (4) Deposits not credited (5) Credit transfer entered in bank statement (6) Standing order entered in bank statement A. (1),(2),(5) and (6) B. (3)and (4) —C. (1),(3),(4)and (6) —D.-(3), (4), (5) and (6) Question 15.9: QiQi Co has prepared the bank recon: ation statement: $ Overdraft per bank statement 77,200 Add: Deposits credited after date 82,400 159,600 Less: Unpresented cheques presented after date __56,600 Overdraft per cash book 103,000 Assuming the bank statement balance of $77,200 to be correct, what should the cash book balance be? A. $158,100 overdrawn 8B. $54,100 overdrawn CC. $51,400 overdrawn D. $59,700 overdrawn eae CHAPTER 16: THE TRIAL BALANCE AND CORRECTION OF ERRORS. Question 16.1: Which one of the following an error of reversal of entries? Plant and machinery purchased was credited to a non-current assets account. Plant and machinery purchased was debited to the purchases account. Plant and machinery purchased was debited to the equipment account. Plant and machinery purchased was credited to the equipment account. Question 16.2: Which TWO of the following errors would cause the total of the debit column and the total of the credit column of a trial balance not to agree? goepP A. Acash sales, which cash on hand, has been debited to the cash at bank account in error 8. Apurchase of non-current assets was omitted from the accounting records C. A cheque received from a customer was credited to cash and correctly recognised in receivables D. Rent received was included in the trial balance as a debit balance 32Question 16.3: The bookkeeper of Paris made the following mistakes: 1. Sales returns of $912 were credited to the purchases returns account. 2. Purchases returns of $740 were debited to the sales returns account. Which one of the following journal entries will correct the errors? Dr cr $ $ A. Sales returns 1,824 Purchases returns 1,480 Suspense account 344 B. Sales returns 172 Purchases returns an Suspense account 344 Sales returns 1,652 Purchases returns 1,652 D. Suspense account 344 Sales returns 172 Purchases returns 172 Question 16.4: Meagan’s trial balance at 31 January 20X1 is out of agreement, with the debit side totalling $480 more than the credit side, During February, the following errors are discovered: © Sales of $500 for January had been undercast by $120 in the Sales account. ‘© Rent received of $240 had been credited to the rent payable account. © The receivables of $360, had been recorded in the receivables account as a credit. Following the correction of these errors, what would be the balance on the suspense account? A. $600 Cr B. $1,400 Cr c. $120Dr D. $1,080 Cr Question 16.5: A suspense account was opened when a trial balance failed to agree. The following errors were subsequently discovered: 1. Agas bill of $750 had been recorded in the Gas account as $570. 2. A payment of $150 for stationery of $150 had been credited to Discounts received. 3. Interest received of $100 had been entered in the bank account only. If the errors when corrected clear the suspense account, what was the original balance on the suspense account? A. $220¢r B. $380cr ¢. $580 Dr D. $380 Dr 33Question 16.6: The statement of profit or loss for X Co for the year ended 30 June 20X2 showed a net profit of $25,400. It was later discovered that a suite of office furniture had been purchased on 1 January 20X2 at a cost of $11,500 had been charged to the office expenses account. The suite of office furniture had an estimated useful life of 10 years with an estimated residual value of $1,500. Depreciation is charged on a monthly basis, commencing with the month of purchase. What was the net profit for the year ended 30 June 20X2 after adjusting for this error? A. $25,400 B. $36,900 Cc. $36,400 D. $37,400 soe CHAPTER 17: INCOMPLETE RECORDS Question 17.1: The net assets of Amanda, a trader, at 1 January 20X0 amounted to $208,000. During the year to 31 December 20X0, Amanda introduced a further $75,000 of capital and made drawings of $36,000. At 31 December 20X3, Amanda's net assets totalled $184,000. What is Amanda's total profit/loss for the year ended 31 December 20X0? A. $15,000 profit B. $63,000 loss C. $135,000 profit D. $87,000 profit Question 17.2: Sergio does not keep proper accounting records, and it is necessary to calculate his total purchases for the year ended 31 December 20X0 from the following information: $ Trade payables at 31 December 20X0 160,000 Payment to suppliers 575,000 Cost of goods taken from inventory by Sergio for his personal use 1,000 Refunds received from suppliers 3,850 Discounts received 24,700 Trade payables at 31 December 20X1 200,000 What should be the figure for purchases, in Sergio’s financial statements for the year ended 31 December 20X0? A. $634,850 B. $639,700 Cc. $585,450 D. $642,550 Question 17.3: Bari Co maintains a cash float of $1,500. In 20X0, all receipts from credit customers were banked, after the following payments from the till had been made: General expenses 7,500 Drawings 8,170 Total banking in the year amounted to $30,000 and opening and closing trade receivables were $4,100 and $4,875, respectively. Based on the information above what was the value of sales made during the year? A. $47,945 B. $44,895 C. $46,445 D. $47,170 34Question 17.4: Which of the following gives a gross profit mark-up of 40%? Sales are $120,000 and gross profit is $48,000 Sales are $120,000 and cost of sales is $72,000 Sales are $100,800 and cost of sales is $72,000 Sales are $100,800 and cost of sales is $60,480 poeE Question 17.5: The following information is available about the transactions of Reuzel, a sole trader who does not keep proper accounting records: $ Opening inventory 113,000 Closing inventory 78,000 Purchases 565,000 Gross profit margin 25% Based on this information, what was Reuzel’s sales revenue for the year? ‘A. $982,800 B. $750,000 C. $706,666 D. $800,000 The following information is relevant for Question 17.6 and 17.7 Jessi is a sole trader who does not keep full accounting records. The following information relates to transactions with credit customers and suppliers for the year ended 30 November 20x5. $ Trade receivables, 1 December 20X4 260,000 Trade payables, 1 December 204 120,000 Cash received from customers 1,375,600 Cash paid to suppliers 605,600 Discounts received 5,920 Irrecoverable debts 8,320 Amount due from a customer who is also a supplier 4 449 offset against an amount due for goods supplied by him 2 Trade receivables, 30 November 20X5, 362,000 Trade payables, 30 November 20x5 168,000 Question 17.6: What is the sales revenue figure in SOPL for the year ended 30 November 20X5? Question 17.7: What is the purchases figure in SOPL for the year ended 30 November 20X5? $ 35Question 17.8: The incomplete incorrect information below is extracted from the SOPL of Summer Co: $ $ Sales 348,516 Less: Cost of good sold Opening inventory 24,548 Purchases 273,054 Closing inventory x © Gross profit x Having discovered that: (2) The sales revenue should have been $349,650 (2) Purchase returns of $2,168 and sale returns of $2,292 have been omitted, What should be the amount for closi on cost) /entory? (The business trades at a mark-up of 25% A. $17,324 B. $17,548 Cc. $34,698 D. $34,916 Question 17.9: On 1 November 20X6, Winter Co had inventory of $720,000. During the month, sales totaled $1,300,000 and purchases $960,000. On 30 November 20X6, a fire destroyed some of inventory. The undamaged goods were valued at $440,000, The business operates with a standard gross profit margin of 30%. What is the cost of inventory destroyed? A. $370,000 8. $280,000 $810,000 D. $720,000 36CHAPTER 18: PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS Question 18.1: Which two items would you expect to see included within the financial statements of a sole trader? A. Issued share capital 8, Revaluation surplus C. Personal drawings D. Capital account Question 18.2: Amy is a sole trader and had assets of $569,400 and liabilities of $412,840 on 1 January 20X8. During the year ended 31 December 20X8 she paid $65,000 capital into the business and she paid herself wages of $800 per month. At 31 December 20X8, Amy had assets of $614,130 and liabilities of $369,770. What is Amy's profit for the year ended 31 December 20X8? A. $32,400 B. $23,600 C. $22,800 D. $87,800 Question 18.3: Alpha is a sole trader and has a building in its books which cost $760,000 with a carrying amount of $520,000 on 1 January 20X1. On 1 July 20X1, the asset was valued at $800,000 and Alpha wishes to include that valuation in its books. Alpha’s accounting policy is to depreciate buildings at the rate of 3% on a straight-line basis. How will Alpha Co record depreciation charge at the end of the period? A. Debit Depreciation expense $24,900 Credit Accumulated depreciation account $24,900 B. Debit Depreciation expense $21,300 Credit Accumulated depreciation account $21,300 C. Debit Depreciation expense $24,900 Credit PPE $24,900 D. Debit Depreciation expense $21,300 Credit PPE $21,300 Question 18.4: On 9 October, Jack paid his heat and power bill for the three months ended 30 September 20X2. The bill included a meter rental charge of $120 for the three months ending 31 December 20X2 and a usage charge of $270 for the three-month period to 30 September 20X2. Parker has an accounting year end date of 31 October 20X2 37Which two of the follo as at 31 October 20X2? 1g adjustments are required in relation to the heat and power expense A. Accrual of $80 B. Accrual of $90 C. Prepayment of $80 D. Prepayment of $90 Question 18.5: Annie is a sole trader who does not keep full accounting records. The following details relate to her transactions with credit customers and suppliers for the year ended 30 June 20X6: $ Trade receivables, 1 July 20x5 130,000 Trade payables, 1 July 20X5 60,000 Cash received from customers 686,400 Cash paid to suppliers 302,800 Discounts allowed 1,400 Discounts received 2,960 Contra between payables and receivables ledgers 2,000 Trade receivables, 30 June 20X6 181,000 Trade payables, 30 June 20X6 84,000 What figure should appear for purchases in Anni ended 30 June 20x6? 's statement of profit or loss for the year A. $325,840 B. $330,200 C. $331,760 D. $327,760 Question 18.6: Which of the following is the correct formula for cost of sales? Opening inventory — purchases + closing inventory Purchases ~ closing inventory + sales Opening inventory + closing inventory - purchases gsoePp Opening inventory ~ closing inventory + purchases 38Question 18.7: Bill has some following information extracted from his trial balance: Non-current assets $100,000 Inventory $35,000 Receivables $10,000 Bank $220,000 Payables $20,000 Allowances for receivables $2,000 What is the amount of Bill’s current assets? 8 ee CHAPTER 19: INTRODUCTION TO COMPANY ACCOUNTING Question 19.1: Whether each of the following statements about company is TRUE or FALSE? Share premium account is an account into which sums received as payment for shares of their nominal value must TRUE FALSE be placed. Redeemable preference shares are treated as non-current liabilities in the SOFP TRUE FALSE No cash is received by the entity as a result of making the rights issue. TRUE! EADS Question 19.2: Summer Co has the retained earnings for the year ended 31 December 20X4 of $460,700. Profit for the year of the company is $120,000. The payment for last year’s dividend of $16,700 has been paid during the year and Summer Co proposed a dividend of $15,600 at the end of year. This had not been approved by the shareholders at the year end. What is the Summer Co's opening retained earnings? A. $365,300 $357,400 C. $360,700 D. $357,300 Question 19.3: Fairy Co, a limited liability company, issued 250,000 ordinary shares of SOc each at a premium of 75c per share. Which one of the following journal entry is correct? A._DR Ordinary shares $125,000; DR Share premium $62,500; CR Cash $187,500 B. DR Cash $187,500; CR Ordinary shares $125,000; CR Share premium $62,500 C._ DR Cash $250,000; CR Ordinary shares $125,000; CR share premium $125,000 D. DR Ordinary shares $125,000; DR Share premium $125,000; CR Cash $250,000 39Question 19.4: BECK Co is a limited liability company. In 20X7, the issued share capital is as follow: Ordinary share of 20c each $1,000,000 8% Redeemable preference shares of 50c each $500,000 In the year ended 31 December 20X7, the company has paid the preference dividend for the year and an interim dividend of 2c per share on the ordinary shares. A final ordinary dividend of 3c per share was proposed, after the reporting date. What amount will be shown as dividends in the statement of changes in equity at 31 December 20x7? Ea Question 19.5: Capital structure of Fairy Co at 31 October 20X5 was as follow: $ Ordinary share capital 200,000 shares of 75c each 150,000 Share premium account 200,000 During the year, the company decided to make a bonus issue of ‘1 for 2’. The share premium account was used for this purpose. What is the capital structure of Fairy Co at 31 October 20X6? Ordinary share capital Share premium account $ $ A 150,000 175,000 B. 175,000 175,000 G 175,000 150,000 D. 150,000 150,000 Question 19.6: Spring Co, a limited liability company, has a financial year ended at 30 September. On 1 January 20X1, the company borrow $1,000,000 with annual interest of 10%. The interest can be paid in arrears on the first day of April, July, October and January. How much of interest expense shown on the statement of profit or loss as 30 September 20X1 and how much should be accrued on the statement of financial position? Interest expense Accruals $ $ A 50,000 75,000 B. 75,000 25,000 c 75,000 50,000 D. 25,000 75,000 40Question 19.7: Capital structure of LILI Co at 31 October 20X4 was as follow: $ Ordinary share capital 400,000 shares of 25c each 100,000 Share premium account 170,000 During the year, the company decided to make a rights issue of ‘1 for 4 at $1 per share’ and this, was taken up full. Then, the company made bonus issue of ‘1 for 2’, using the share premium account, What is the capital structure of LILI Co at 31 October 20X5? Ordinary share capital Share premium account s $ A. 187,500 185,500 B. 182,500 187,500 c 187,500 182,500 D. 185,500 187,500 Question 19.8: Which TWO of the following might appear as an item in a company's statement of changes in equity? Profit on disposal of properties Surplus on revaluation of properties Equity dividends proposed after the reporting date Issue of share capital Goodwill Question 19.9: Which of the following should be disclosed in the note to the financial statements for tangible non-current assets? moneE (1) The depreciation method applied for tangible non-current assets. (2) The accounting policies adopted in measuring tangible non-current assets. (3) The market value of all assets classified as tangible non-current assets, whether they have been revalued or not. (4) For revalued assets, the carrying amount of each class of assets that would have been included in the financial statements had the assets been carried at cost less depreciation. A. 1, 2and3 only B. 2and3 only © 1,2and4only D. 1and4 only 41Question 19.10: The following information is available about Addon’s business at 30 June 20X3: $ Motor van 28,000 Loan (repayable in 4 equal annual instalments starting 1 January 20X4) 200,000 Receivables 47,600 Bank balance (a debit on the bank statement) 6,500 Accumulated depreciation 14,000 Payables 62,100 Inventory 25,120 Petty cash 300 Rent due 2,400 Allowance for receivables 3,000 What are the correct figures for current liabilities and current assets? Current ies Current assets $ $ A 68,600 70,020 B. 64,500 76,520 c 114,500 76,520 D. 121,000 70,020 Question 19.11: Identify whether each of the following statements about the financial statements of a limited company is true or false, according to IFRS. The capital of a business would change as a result of raw materials being True False purchased on credit A company must disclose, by note, details of all adjusting events allowed for in the financial statements. iTriiel ft Zales Loan notes can be classified as current or non-current liabilities True False Purpose of disclosure note in financial statement is to give all the detail of. all the transactions that occurred during the period because the main True _False financial statements only present a summary. Question 19.12: The following information is available about TNL Co's dividends: (1) Sept 20x1 Final dividend for the year ended 30June 20X1 $200,000 paid (declared August 20X1) (2) March 20X2__ Interim dividend for the year ended 30 June $160,000 20X2 paid (3) Sept 20x2 _Final dividend for the year ended 30 June 20x2_ $240,000 paid (declared August 20X2) 42What figures, if any, should be disclosed in TNL Co’s statement of comprehensive income for the year ended 30 June 20X2 and its statement of financial position at that date? Statement of comprehensive income Statement of financial position A. $320,000 deduction $240,000 B. $280,000 deduction Nil c Nil $240,000 D. Nil Nil pee CHAPTER 20: IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS Question 20.1: Five of six sentences following are the steps to recoginze revenue in accordance with IFRS 15 Revenue from Contracts with Customers: Identify the performance obligations Determine the transaction price 1 2 3. Recognize revenue when (or as) a performance obligation is satisfied 4. Recognise revenue when the entity receives money 5. Identify the contracts 6. Allocate the transaction price 5 steps that need to be followed in revenue recognition: A 5,2,1,63 B. 5,2,1,6,4 C 51,263 D. 512,64 Question 20.2: Contract assets and receivables contract should be accounted for according to: IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases IFRS 9 Financial Instruments gsoeP IFRS 4 Insurance Contracts Question 20.3: Mery enters into a 12-month telecom plan with the mobile operator H Soft. The terms of plan as follows: 1, Monthly fee of network services is $200 2. Mery receives a free handset The selling price of the same handsets is $600 and the same monthly fee of services without handset for $160/month, The handset would be given to Mery on the first month of plan. 43What amount should be recognized for the revenue after 3 months the services provided (nearest to $)? A. $600 B. $480 c. $1,080 D. $1,028 Question 20.4: Which one of the following items has been recognized correctly in Bat Co's revenue for the year ended 30 June 20X1? A. Bat Co is an agent on behalf of a client, Rose Co and negotiate a sale of goods at a price of $400,000. Bat Co is entitled to 5% commission upon the agreed sale price. At the year ended, the revenue has been recognised of $400,000 in its financial statements. B. Bat Co entered into a contract supplying network services to Coor Co for a three-year term for a total fee of $600,000. The contract commenced on 1 October 20X0, so Bat Co recognized revenue of $200,000 for this transaction in its financial statements. On 1 January 20X1, Bat Co had bought goods at a cost of $100,000 and sold them to Faret Co for $150,000 on 15 April 20X1. In Bat Co’s financial statements, the revenue was recognised of $150,000 for this contract. D. On 1 March 20X1 Bat Co purchased goods of $50,000 for a then sold them to Bop Co for $100,000 on 15 April 20X1. Bat Co recognised revenue of $50,000 in its financial statements on this contract. Question 20.5: Hoffy acts as an agent on behalf of Copy, a musician. Hoffy has just collected ticket sales of $2 million from a recent show of Coppy. Hoffy earns commission of 5% in relation to Coppy's performance. What is the correct double entry for the receipt of the $2 million? A. DrCash $2 milion CrTrade payables $2 milion Dr Trade receivables $100,000 Cr Revenue $100,000 B. DrCash $2 milion Cr Revenue $2 milion Dr COS $1,900,000 Cr Trade payables $1,900,000 c Drcos $1,900,000 Cr Revenue $2 milion Dr Cash $100,000 D. DrCash $2 milion Cr Revenue $100,000 Cr Trade payables $1,900,000 Question 20.6: Mighty IT Co provides hardware, software and IT services to small busi customers. Mighty IT Co has developed an accounting software package and offers a supply and installation service and a separate two-year technical support service for that software package. Alternatively, it also offers a combined goods and services contract which includes both of these elements. Payment for the combined contract is due one month after the date of installation. 44In accordance with IFRS 15 Revenue from Contracts with Customers, when should Mighty IT Co recognize revenue from the combined goods and services contract? ‘A. Supply and install: on installation Technical support: over two years B. Supply and install: when payment is made Technical support: over two years CC. Supply and install: on installation Technical support: on installation D. Supply and install: when payment is made Technical support: when payment is made Question 2 Johnny Kang Co offers an equipment for $1,000 and a separate two-year technical support service for $500. Alternatively, it also offers a combined goods and services contract which includes both of these elements for $1,200. For each combined contract sold, what is the amount of revenue which Johnny Kang Co should be recognised in respect of the supply and installation service in accordance with IFRS 15? A. $700 B. $800 $1,000 D. $1,200 Question 20.8: KIEU is a company that manufactures office furniture. A customer placed an order on 22 December 20X1 for an office desk at a price of $600 plus sales tax at 20% of $120. The desk was delivered to the customer on 25 January 20X2, who accepted the goods as satisfactory by signing a delivery note. KIEU then invoiced the customer for the goods on 1 February 20X2. The customer paid $720 to KIEU on 1 March 20X2. How should KIEU account for revenue? A. $600 in January 20X2 8. $720 in January 20x2 C. $600 in March 20x2 D. $720 in March 20x2 Soe 45CHAPTER 21: EVENTS AFTER REPORTING DATE (IAS 10) Question 21.1: Which of the following is the correct definition of an adjusting event after the reporting period? A. An event that occurs between the reporting date and the date on which the financial statements are authorised for issue that provides further evidence of conditions that existed at the reporting date B. An event that occurs between the reporting date and the date on which the financial statements are authorised for issue that provides evidence of conditions that arose subsequent to the reporting date C. An event that occurs after the date the financial statements are authorised for issue that provides further evidence of conditions that existed at the reporting date D. An event that occurs after the date the financial statements are authorised for issue that provides evidence of conditions that arose subsequent to the reporting date Question 21.2: Using the requirements set out in IAS 10 Events after the Reporting Period, which of the following would be classified as an adjusting event after the reporting period in financial statements ended 31 March 20X9 that were approved by the directors on 31 August 20x9? A.A dismissal of financial director proposed by a director on 31 January 20X9 and agreed by the Board on 10 July 20x9. B. A strike by the workforce which started on 2 April 20X9 and stopped all production for 2 months before being settled. C. The receipt of cash from a claim on an insurance policy for damage caused by a fire in a warehouse on 1 January 20X9. The claim was made in January 20X9 but the amount of the claim had not been recognised at 31 March 20X9 as it was uncertain that any money would be paid. D. At 31 March 20X9, a big customer with a balance outstanding at the year-end are bankruptcy. Question 21. ig the financial statements of a company for the year ended 30 June 20X2, which of the following material matters should be adjusted for? in final (1) A customer who owed $360,000 at the end of the reporting period went into liquidation in July 20X2 Company has been advised that it is unlikely to receive payment for any of the outstanding balances owed by the customer at the year end. (2) A factory with a value of $3,000,000 was seriously damaged by a fire in July 20X2. The factory was back in production by August 20X2 but its value was reduced to $2,000,000. (3) The company issued 1,000,000 ordinary shares in August 20X2. (4) A valuation of land and buildings in July 20X2 providing evidence of an impairment in value at the year end. 46A. All four items B. 1and2only ©. 1and4 only D. 2and3 only Question 21.4: Blade Co had a reporting date of 30 September 20X1. The financial statements for that year were approved by the directors on 14 December 20X1 and issued to the shareholders on 12 January 20X2. Details of several events occurred after reporting date are as follows: (1) On 3 October 20X1 a fire destroyed all inventory on the premises with the consequence that it was unlikely Blade would be able to continue as a going concern (2) The insolvency of a customer with an outstanding balance at 30 September 20X1 (3) An ordinary dividend of 6c per share was declared on 1 December 20X1 (4) Inventory valued at a cost of $1600 at the year-end was sold for $1300 on 11 November 20x1. Which of the above are non-adjusting events? A. Allare non-adjusting events B. (3) onlyis a non-adjusting event (3) and (4) only are non-adjusting events D. (1) and (3) only are non-adjusting events Question 21.5: If a material non-adjusting event occurs after the reporting date but before the financial statements are authorised, what information should be disclosed in the financial statements? A. The nature of the event and an estimate of the financial effect B. Anestimate of the financial effect only C.. The nature of the event only D. No disclosure required see CHAPTER 22: STATEMENT OF CASH FLOWS (IAS 7) Question 22.1: Which of the following items could appear in an entity's statement of cash flows? 1. Bonus issue of shares. 2. The revaluation of non-current assets. 3. Right issue of share 4. Proceeds of sale of equipment. 47poe, Question 22.2: A statement of cash flows prepared according to the indirect method opening with profit before tax to cash generated from operations. Which of the following lists consists only of items that would appear in adju: tax? A, D. Question 2: The following information from the statement of cash flows relating to the plant, property and 1,2,3and4 Land 4 only 2 and 4 only Band 4 only Depreciation charge, decrease in receivables, increase in payables, repayment of loans, decrease in inventories. Decrease in payables, increase in inventories, loss on sale of property, depreciation charge, increase in receivables. Decrease in payables, depreciation charge, increase in receivables, decrease in inventories, proceeds from sale of equipment. Depreciation charge, repayment of loans, interest paid, increase in inventories equipment of Loca Co, for the year ended at 31 December 20X1. Carrying amount of assets at be Profit on sale of non-current assets Proceeds from the sale of non-current assets Purchase of property, plant and equipment Depreciation charge Based on tl December 20K1? A. $170,000 8, $180,000 . $140,000 D. $160,000 ning of the year 48 $ 220,000 10,000 40,000 50,000 60,000 formation, what amount will be included for carrying amount of assets on 31 ing profit beforeQuestion 22.4: flows. he following figures is prepared for inclusion in a company's statement of cash s Profit before tax 968,000 Depreciation charge 654,000 Profit on sale of property, plant and equipment. 70,000 Decrease in trade payables 58,000 Decrease in inventory 148,000 Increase in trade receivables 82,000 Based on this information, what is the cash generated from operations? Question 22.5: Which of the following items can be a part of the calculation of cash flow from financing activities? 1) Dividends receivables 2) Bonus issue of shares 3) Proceeds from sale of equipment. A. Allthe above B. 2and3 C 1and3 D. None of them The following information relates to Question 22.6 - 22.8 Statement of financial position of Proofing at 31 December 20X1 — 20X0 $000 $000 Non-current assets 2096 1,500 Accumulated depreciation (380) _ (240) 1,716 _ 1,260 Current assets Inventory 196 210 Trade receivables 204 172 Dividend receivable 114 100 Cash 8436 598518 Total asset 23141778 49Equity Share capital 400 240 Share premium 212 160 Revaluation surplus 4248 Retained earnings 566 452 1,602 876 Non-current liabil Loan 400 600 Current liabilities Trade payables 154158 Interest accrual 6 10 Tax payable 152134 312302 Total equity and liabilities 2,314 1,778 Statement of profit or loss for of Proofing for the year ended 31 December 20X1 $000 Sales revenue 2,200 Cost of sales (1,356) Gross profit 84d Operating expenses (618) Operating profit, 26 Investment income Interest 30 Dividends 114 Finance charge (44) Income tax (142) Net profit for year 184 Additional information: (1) Operating expenses include a loss on disposal of non-current assets of $10,000. (2) During the year and item of plant was disposed of. The plant originally cost $160,000 and had accumulated depreciation to the date of disposal of $30,000. Question 22.6: What method? fd Question 22.7: What is Proofing’s cash flow generated from investing acti fb Proofing’s cash flow generated from oper: ns using the 50Question 22.8: What is Proofing’s cash flow generated from financing activities? az CHAPTER 23: INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS Question 23.1: A parent-subsidiary relationship is based on control. Which TWO of the following would signify that one entity controls another? tee A. Ownership of more than 50% of equity shares B. Ownership of 30% of equity shares and 80% of preference shares C. Ability to exert significant influence over policies D. Power to appoint or remove the majority of board members Question 23.2: Which of the following statements is most likely to indicate an investment by one entity in another which should be recognised and accounted for as an associate? A. Ownership of 100% of the ordinary shares of another entity B. Ownership of over 50% and less than 100% of the ordinary shares of another entity CC. Ownership of between 20% and 50% of the ordinary shares of another entity D. Ownership of less than 20% of the ordinary shares in another entity Question 23.3: Which of the following would normally indicate that one entity has signi influence over the activities of another? A. Ability to appoint the majority of the board of directors of that other entity B. Ability to appoint at least one person to the board of directors of that other entity C. Ability to request that a director is appointed to the board of directors of that other entity D. Ability to submit requests regarding corporate policy to the board of directors of that other entity Question 23.4: Sonia purchased 80% of Catio’s equity on 1 January 20X1. Which TWO of the following statements concerning the non-controlling interest (NCI) are correct? A. NCI describes shares in the consolidated entity not held by the parent B. NCI describes shares in the subsidiary not held by the parent C. 20% of Sonia's consolida ted retained earnings will be allocated to the NCI D. 20% of Catio's profit after tax will be allocated to the NCI 51Question 23.5: Which of the statements below are true regarding the equity method of accounting? (1) An investment in an associate is always carried at cost (2) An investing company recognises its share of the associate’s profit or loss in Statement of profit or loss A. Neither 1 or nor 2 B. 2only C. Both1and2 D. 1only see CHAPTER 24: THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Question 24.1: At 1 January 20X1 Yoyo acquired 60% of the share capital of Bee for $1,500,000. At that date the share capital of Bee consisted of 300,000 ordinary shares of $1 each and its reserves were $50,000. The fair value of the non-controlling interest was valued at $425,000 at the acquisition date. What amount should appear in the group’s consolidated statement of financi at 31 December 20X1 for goodwill? - Question 24.2: Mino Co acquired 90% of the $200,000 ordinary share capital of Laria Co for $400,000 on 1 January 20X1 when the retained earnings of Laria Co were $165,000. At the date of acquisition the fair value of a property held by Laria Co was $20,000 higher than its carrying amount. The fair value of the non-controlling interest at the date of acquisition was $65,000. What is the goodwill arising on the acquisition of Laria Co? A. $100,000 8. $80,000 c. $120,000 D. $15,000 Question 24.3: At 1 January 20X1 Woft acquired 75% of the share capital of Barco for $400,000. At that date the share capital of Barco consisted of 300,000 ordinary shares of 50c each and its reserves were $65,000. The fair value of the non-controlling interest was valued at $60,000 at the date of acquisition. 52What is the amount of cons in transfers paid by investors? A. $245,000 B. $188,000 cc. $210,000 D. $310,000 ‘Question 24.4: At 1 January 20X1 Galow acquired 60% of the share capital of Bary for $40,000, At that date the share capital of Bary consisted of 40,000 ordinary shares of 0.5 cent each and its reserves were $20,000. At 31 December 20X4 the reserves of Galow and Bary were as follows: GalowCo Bary Co $ s ‘The reserves at 31 December 20X4 50,000 25,000 At the date of acquisition the fair value of the non-controlling interest was valued at $35,000. In the consolidated statement of finan amount should appear for non-control A. $35,000 B. $37,000 c. $38,000 D. $41,000 Question 24.5: Disen Co acquired 70% of the equity share capital of Bonna Co on 1 January 20X1 when the retained earnings of Bonna Co were $50,000. The fair value of the non-controlling interest at this date was $35,000. At 31 December 20X1, the equity capital of Bonna Co was as follows: position of Galow group at 31 December 20X4, what ig interest? $ Share capital 50,000 Share premium. 20,000 Retained earnings 70,000 During the year Bonna Co sold goods to Disen Co for $30,000. This price included a mark-up of $22,000 for profit. At 31 December 20X1, 50% of these goods remained unsold in the inventory of Disen Co. What is the value of the non-controlling interest in the consolidated statement of financial position of Disen Group at 31 December 20X1? a Question 24.6; Vala Co acquired 85% of the equity share capital of Lovano Co on 1 October 20X1. The retained profits of Vala Co and Lovano Co at the beginning and end of their financial year were as follows. ValaCo Lovano Co $’000 $'000 Retained earnings at 1 January 20X1 595 265 Retained earnings at 31 December 20X1 650 335 53What is the parent company's share of consolidated retained earnings that should be reported in the consolidated statement of financial position of the Vala Group at 31 December 20X1? a Question 24.7: At 1 January 20X1 Tom acquired 65% of the share capital of Jerry for $200,000. At that date the share capital of Jerry consisted of 100,000 ordinary shares of 50 cent each and its reserves were $40,000. At 31 December 20X1 the reserves of Terry and Jolie were as follows: Terry $500,000 Jolie $60,000 In the consolidated statement of financial position of Terry and its subsidiary Jolie at 31 December 20X1, what amount should appear for group reserves? A. $500,000 B. $548,000 C. $513,000 D. $507,000 Question 24.8: Median Co has owned 100% of Binz Co since incorporation. At 31 March 20X1 extracts from their individual statements of financial position were as follows MedianCo Binz Co s $ Share capital 110,000 60,000 Retained earnings 460,000 130,000 570,000 190,000 During the year ended 31 March 20X1, Binz Co had sold goods to Median Co for $60,000. Median Co still had these goods in inventory at the year end, Binz Co uses a 25% mark up on all goods. What were the consolidated retained earnings of Median Group at 31 March 20X1? A. $578,000 B. $592,000 C. $588,000 D. $575,000 Question 24.9: The following extracts are provided from the statements of financial position of Dony and Dion at the year ended: Dony Dion $’000 $’000 Current assets Inventory 300 200 Receivables 640 260 Cash 340 180 Current liabilities Payables 420 280 Dony’s statement of financial position includes a receivable of $50,000 due from Dion. 54