ACCA Qualification

Exam Name:
Financial Accounting (FA) (Full Exam)

Time allowed:
2 hours

Pass Mark:
50%

This exam contains 2 sections:

 Section A:
o 35 questions, each worth 2 mark
o 70 marks in total.
 Section B:
o 2 questions, each worth 15 mark
o 30 marks in total.

All questions within each section are compulsory.

 The only permitted characters for numerical answers are:

 Numbers
 One full stop as a decimal point if required
 One minus symbol at the front of the figure if the answer is negative.

For example: -10234.35

No other characters, including commas, are accepted.

1. Which of the following statements best describes the meaning of “understandability” in relation to
financial information as set out in the IASB Conceptual Framework?

A Free from bias and error

B Free from inclusion of complex issues and transactions

C Presentation and description intended for qualified accountants

D Classified, characterised and presented clearly and concisely

2. During the year ended 30 June 20X3, Emily Ltd spent $300,000 on the development of a new range
of garden machinery. In order to carry out this work, Emily Ltd purchased some highly specialized
equipment, on 1 July 20X2 at a cost of $100,000. The equipment is expected to have a useful life of
five years and is to be depreciated over that period by the straight line method.

According to IAS 38 Intangible Assets, what is the maximum amount that Emily Ltd can carry forward
as development expenditure as at 30 June 20X3?

A $100,000
B $300,000
C $320,000
D $400,000

3. According to IAS 1 Presentation of Financial Statements which of the following items will appear
separately in a company’s statement of changes in equity?

(1) Total comprehensive income (loss) for the year

(2) Dividends paid
(3) Surplus arising on revaluation of properties
(4) Proceeds of issue of share capital

A All of the above

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

4. Which of the following does the IASB’s Conceptual Framework regard as essential features of an
asset?

(1) The item is acquired at a cost which can be reliably measured

(2) Rights to future economic benefits from the item must be legally enforceable
(3) Rights to future economic benefits from the item must be controlled by the entity

A (1) and (2) only

B (2) only
C (3) only
D All of the above
5. During the current accounting period Jack Ltd considered the recognition of the following costs as
intangible assets.

(1) $40,000 spent on evaluating research findings

(2) $60,000 spent on acquiring a brand name from a competitor
(3) $50,000 spent on acquiring the legal rights to a production process, without which Jack Ltd’s
business cannot function.

In accordance with IAS 38 Intangible Assets what is the maximum amount that Jack Ltd could
recognise as intangible assets?

A. $60,000
B. $100,000
C. $110,000
D. $150,000

6. Where are equity dividends paid presented in the financial statements?

A. As a deduction from retained earnings in the statement of changes in equity

B. As a liability in the statement of financial position
C. As an expense in profit or loss
D. As a loss in 'other comprehensive income'

7. Which TWO of the following items could appear on the debit side of a payables account?
A Cash paid to suppliers
B Irrecoverable debts written off
C Discounts received
D Purchases
E Cash refunds from suppliers

8. At 30 April 20X7 the draft statement of financial position of Ali correctly showed cash at bank as $2,900
after correcting all errors made by Ali’s bookkeeper. The bank reconciliation exercise at that date had
identified the following items.
(1) A cheque received from a customer for $50 had been entered in the cash book as $500.
(2) Bank charges of $45 had been recorded twice in the cash book.
(3) There were unpresented cheques at 30 April 20X7 totalling $750.
What was the balance shown on Ali’s bank statement at 30 April 20X7?
A $3,245
B $3,305
C $3,650
D $3,695
9.Mahmood Co’s trial balance shows the following balance:

$1 ordinary share capital 600,000

Revaluation surplus 225,000

Redeemable preference shares 60,000

Retained earnings 420,000

Irredeemable preference shares 50,000

What is the total amount presented as Equity in Mahmood Co’s statement of financial position?

$___________

10. Peter’s draft accounts show a loss of $22,000 for the year. On investigation you discover the following.
(1) $2,000 of repairs had been incorrectly recorded as a purchase of non-current assets (machinery) on
the last day of the year.
(2) Cash of $500, received in respect of a debt written off many years ago, had been credited to
receivables.
(3) Closing inventory includes items costing $1,000 which have already been recorded as sold.
What is the adjusted loss for the year?
A $25,500
B $24,500
C $23,500
D $19,500
11. A business compiling its financial statements for the year to 31 October each year pays rent quarterly in
advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from
$96,000 to $120,000 per year from 1 March 20X7.
What figure should appear for rent in the statement of profit or loss for the year ended 31 October
20X7 and in the statement of financial position at that date?
SOPL Statement of
Financial
position
A $112,000 $20,000
B $104,000 $10,000
C $112,000 $10,000
D $110,000 $20,000
12. The trial balance of Kanine Bros as at 31 May 20X7 includes the following:
$ $
Receivables account 60,500
Allowance for receivables at 1 June 20X6 1,420
Subsequently a review of the receivables ledger reveals the following:
Debts totalling $2,100 are considered irrecoverable and are to be written off. There is some doubt over
the recoverability of another receivable owing $800. The business wishes to make a specific allowance for
this.
What irrecoverable debt expense will the income statement for the year ended 31 May 20X7 include?

$
13. At 30 September 20X7 a company has receivables totalling $128,000 and a specific allowance for
receivables of $4,800 brought forward from the previous year.
It has been decided to write off receivables totalling $10,500 and to adjust the allowance for receivables
to $3,000.

The net receivables in the statement of financial position as at the year end of 30 September 20X7
will be

14. Brenda Ltd has a year end of 30 June.

At 30 June 20X7 Brenda Ltd’s statement of financial position included an accrual in respect of insurance
of $340. At 30 June 20X8 the statement of financial position showed a prepayment of $180 in respect of
insurance.
During the year to 30 June 20X8 Brenda Ltd paid $3,000 for insurance.
What should be included in respect of insurance as an expense in Brenda Ltd’s statement of profit and
loss account for the year ended 30 June 20X8?
A $2,480
B $2,840
C $3,000

D $3,160

15. The issued share capital of Aims, a limited liability company, is as follows:

$’000

Ordinary shares of 10c each 1,000

8% Irredeemable Preference shares of 50c each 500

In the year ended 31 October 20X2, 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
is declared by the Directors just before the year end.

What is the total amount of dividends relating to the year ended 31 October 20X2?

A $580,000

B $90,000

C $130,000

D $540,000
16. At 30 June 20X2 a company had $1m 8% loan notes in issue, interest being paid half-yearly on 30
June and 31 December.

On 30 September 20X2 the company redeemed $250,000 of these loans at par, paying interest due
to that date.

On 1 April 20X3 the company issued $500,000 7% loan notes, interest payable half-yearly on 31
March and 30 September.

What figure should appear in the company’s statement of profit or loss for interest cost in the year
ended 30 June 20X3?

A $88,750

B $82,500

C $65,000

D $73,750

17. Which of the following statements about contingent assets and contingent liabilities are correct?

1 A contingent asset should be disclosed by note if an inflow of economic benefits is probable.

2. A contingent liability should be disclosed by note if it is possible that a transfer of economic

benefits to settle it will be required, with no provision being made.

3. No disclosure is required for a contingent liability if it is not probable that a transfer of

economic benefits to settle it will be required.

4. No disclosure is required for either a contingent liability or a contingent asset if the

likelihood of a payment or receipt is remote.

A 1 and 4 only

B 2 and 3 only

C 2, 3 and 4

D 1, 2 and 4
18. At 31 December 20X1 the capital structure of a company was as follows:
$
100,000 Ordinary share capital of 50c each 50,000
Share premium 180,000

During 20X2 the company made a bonus issue of 1 share for every 2 held, using the share premium
account for the purpose, and later issued for cash another 60,000 shares of 80c per share.
What is the company’s capital structure at 31 December 20X2?

Ordinary share capital Share premium

$ $

A 130,000 173,000

B 105,000 173,000

C 130,000 137,000

D 105,000 137,000

19. Who issues International Financial Reporting Standards?

A The IFRS Advisory Committee

B The stock exchange
C The International Accounting Standards Board
D The government

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

1 A supplier of goods on credit is interested only in the statement of financial position, ie an indication
of the current state of affairs.

2 The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decisions.

A 1 only
B 2 only
C Both 1 and 2
D Neither 1 or 2
21. According to the IASB's Conceptual Framework for Financial Reporting, which TWO of the following
are part of faithful representation?

1. It is neutral
2. It is relevant
3. It is presented fairly
4. It is free from material error

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

22. Fruitz Co has a tax liability relating to 20X1 brought forward in 20X2 of $16,000. This liability is
finally agreed at $18,500, which is paid in 20X2.

Fruitz’s accountant estimates their tax liability for profits earned in 20X2 will be $20,000.

What should the charge for taxation be in Fruitz's statement of profit or loss (SPL) for the year ended
31 December 20X2?

A $22,500
B $15,000
C $17,500
D $20,000

23. The accounting treatment of the following material events after the reporting period needs to be
determined.

1. The bankruptcy of a major customer, with a substantial debt outstanding at the reporting
date.
2. A fire destroying some of the company’s inventory, that was not insured.
3. An issue of shares to finance expansion.
4. Sale for less than cost of some inventory held at the reporting date.

According to IAS 10 Events after the reporting period, which of the above events require an
adjustment to the figures in the financial statements?

A 1 and 4 only

B 1, 2 and 3 only

C 2 and 3 only

D 2 and 4 only
24. IAS 2 Inventories defines the extent to which overheads are included in the cost of inventories of
finished goods.

Which of the following statements about the IAS 2 requirement in this area are correct?

1. Finished goods inventories may be valued on the basis of labour and materials cost only,
without including overheads.
2. Carriage inwards, but not carriage outwards, should be included in overheads when valuing
inventories of finished goods
3. Factory management costs should be included in fixed overheads allocated to inventories of
finished goods.

A All three statements are correct

B 1 and 2 only

C 1 and 3 only

D 2 and 3 only

25. On 1 January 20X5 a company purchased some plant.

The invoice showed

Purchased price of plant 48,000

Delivery cost to factory 400

One year warranty covering breakdown during 20X5 800

Modification to the factory building costing $2,200 were necessary to enable the plant to be
installed.

What is the initial cost of the plant that should be capitalised in the company’s financial statement?

A $51,400

B $48,000

C $50,600

D $48,400
26. McClown plc has the following information in its financial statements relating to fixtures and
fittings as at 31 December:

20X9 20X8

$ $

Cost 600,000 480,000

Accumulated depreciation 180,000 218,000

Carrying amount 420,000 262,000

During the year to 31 December 20X9, the following transactions occurred in relation to fixtures and
fittings:

Additions $284,000

Sales proceeds from disposals $178,800

Depreciation charge $66,400

What is McClown plc’s profit or loss on disposals of fixtures and fittings in the year ended 31
December 20X9?

A $119,200 loss

B $119,200 profit

C $196,800 profit

D $196,800 loss

27. Wonka plc has the following ledger account balances as at 1 September 20X5:

Share capital ($0.50 ordinary shares) $200,000

Share premium $20,000

Retained earnings $793,442

On 1 November 20X5 Wonka plc made a 1 for 4 rights issue at $4.50 per share. On 31 August 20X6 it
made a 2 for 1 bonus issue. Profit for the year to 31 August 20X6 was $100,000.

What are the balances on the three ledger accounts as at 31 August 20X6?

A Share capital $1,500,000, Share premium $Nil, Retained earnings $813,442

B Share capital $750,000, Share premium $Nil, Retained earnings $813,442

C Share capital $750,000, Share premium $420,000, Retained earnings $393,442

D Share capital $1,500,000, Share premium $Nil, Retained earnings $393,442

28. Dukakis plc had computer equipment with a carrying amount at 1 April 20X2 of $150,000. On
that date it traded in a computer which had cost $24,000 on 1 April 20X0 for a new computer which
cost $34,600, handing over a cheque in full settlement for $18,000. Dukakis plc depreciates
computers at 40% per annum on the reducing balance.

How much depreciation will be charged in Dukakis plc’s statement of profit or loss for the year
ended 31 March 20X3 in respect of computers?

A $66,640

B $73,840

C $56,544

D $70,384

29. Mushtaq, a sole trader, has the following information at the start and end of his second year of
trading:

At 31 At 1
December January
20X0 20X0
$ $
PPE (net book value) 46,000 39,400
Inventories 18,900 15,600
Trade receivables 8,400 11,500
Trade payables 7,500 10,200
Cash in hand 6,400 6,600

During 20X0 Mushtaq introduced $3,000 capital. He took goods for his own use that cost $500, and
paid himself $750 per month.

What is Mushtaq’s profit or loss for 20X0?

A $15,800 profit
B $2,800 loss
C $16,300 profit
D $18,800 profit
30. D Co’s transactions for the month of September 2015 were as follows:
$
Sales (including sales tax) 600,000
Purchases (excluding sales tax) 450,000

D Co is registered for sales tax at 20%. On 1 September 2015 the sales tax account showed sales tax
recoverable by D Co of $2,000.
What was the balance on the sales tax account on 30 September 2015.
A $8,000 Dr
B $8,000 Cr
C $12,000 Dr
D $12,000 Cr

31. Rachel, a sole trader, has received a statement from her supplier, Ross, which states that Rachel owes
Ross $3,213. This does not agree with Rachel’s records.

After investigating the balance Rachel has discovered the following differences:

(1) Rachel has failed to record a contra of $65 in her payables control account

(2) An invoice of $392 has been omitted from Rachel’s records

(3) Ross has not recorded a trade discount of 25% on an invoice of $360.

What is the correct balance owing to Ross?

$___________

32. Which of the following statements about the requirements of IAS 37 Provisions, contingent
liabilities and contingent assets are correct?
1 A contingent asset should be disclosed by note if an inflow of economic benefits is probable.
2 No disclosure of a contingent liability is required if the possibility of a transfer of economic benefits
arising is remote.
3 Contingent assets must not be recognised in financial statements unless an inflow of economic
benefits is virtually certain to arise.
A All three statements are correct
B 1 and 2 only
C 1 and 3 only
D 2 and 3 only
33. Which of the following will become true if the going concern basis is held not to apply?

A Transactions will be recognised when they occur, not when the related cash flows take place

B The financial statements will have to be prepared on a different basis

C The entity will continue in operation for the foreseeable future

D The financial statements will be prepared on a cash basis

34. The following extract is from the statement of profit or loss of Gearing Co for the year ended 30
April 2010:
$
Profit before tax 68,000
Tax (32,000)
Profit for year 36,000

In addition to the profit above:

1. Gearing Co paid a dividend of $21,000 during the year.
2. A gain on revaluation of land resulted in a surplus of $18,000 in the revaluation reserve.

What total amount will be added to retained earnings at the end of the financial year?
A $36,000
B $33,000
C $47,000
D $15,000

35. Which of the following definitions for the ‘going concern’ concept in accounting is the most
accurate in the light of IAS 1 (revised) Presentation of Financial Statements?

A. ‘The directors do not intend to liquidate the entity or to cease trading in the foreseeable
future’
B. ‘The entity is able to pay its debts as and when they fall due’
C. ‘The directors expect the entity’s assets to yield future economic benefits’
D. ‘Financial statements have been prepared on the assumption that the entity is solvent and
would be able to pay all creditors in full in the event of being wound up’
36. The following balances appear in the accounting records of Golding, a limited liability company, at
30 June 20X6:

$000

Land and buildings:

Cost 10,000

Accumulated depreciation at 1 July 20X5 3,600

Plant and equipment:

Cost 6,000

Accumulated depreciation at 1 July 20X5 3,200

Receivables 3,600

Cash at bank 1,200

Payables 2,500

Current tax payable 500

8% Loan notes 1,000

Equity share capital of 50c each 5,000

Share premium account 2,200

Retained earnings 1 July 20X5 4,600

The following further information is available:

(1) Inventory at 30 June 20X6 was $4,700,000

(2) The company’s land and buildings were revalued at 1 July 20X5. The revaluation has not yet been
reflected in the balances given above.

Details:
Cost Accumulated Net book Revalued
depreciation value amount
$000 $000 $000 $000
Land 4,000 – 4,000 5,000
Buildings 6,000 3,600 2,400 4,000

(3) The draft profit for the year was $2,900,000. However, the following adjustments are required:

(a) Receivables totalling $280,000 are to be written off

(b) Provision is to be made for bonuses to the directors totalling $250,000

(c) Depreciation charges for the year, based on revalued amounts:

Buildings $200,000

Plant and equipment $1,200,000

(d) Interest payable on the 8% loan notes has not been paid nor taken into account.

Required:

Prepare the company’s statement of financial position as at 30 June 20X6, using the format and
headings in IAS 1 Presentation of Financial Statements.

Answer to Question 36.

Golding Ltd’s Statement of financial position at 30 June 20X6

Assets. $’000

Non current assets

Property, plant & equipment ________(1)________________________________

Current assets

Inventories _______(2)_________________________________

Trade receivables ______(3)___________________________________

Cash at bank _______(4)__________________________________

Total assets _______(5)___________________________________

Equity & liabilities

Equities.

Equity share capital _______(6)___________________________________

Share premium ________(7)__________________________________

Revaluation surplus ________(8)___________________________________

Retained earnings ________(9)__________________________________

Total equities (10)

Non current liabilities

8% Loan notes ______(11)____________________________________

Current liabilities

Trade payables ______(12)____________________________________

Current tax payable ______(13)____________________________________

Accruals (14)

Total equities & liabilities ______(15)____________________________________

37. The following balances have been extracted from the accounting records of MG, a limited
liability company, at 31 December 20X3:

Reference $

to notes

Sales revenue 1 and 2 3,845,000

Opening inventory 360,000

Purchases 3 2,184,000

Carriage inwards 119,000

Carriage outwards 227,000

Office equipment at 1/1/ 20X3 2, 3 and 4

Cost 460,000

Accumulated depreciation 92,000

Trade receivables 6 620,000

Allowance for receivable at 1/1/20X3 5 20,000

Irrecoverable debts written off during the year 15,000

Sundry administrative expenses 7 416,000

The following further information is available:

(1) Closing inventory amounting to $450,000 was taken on 28 December 20X3 (all valued at cost).
Between that date and the close of business on 31 December 20X3, goods costing $65,000 were sold
and there were no further receipts of goods. These sales are included in the sales total of $3,845,000

(2) Some office equipment, which had cost $20,000, with accumulated depreciation at 1 January
20X3 of $14,000, was sold for $15,000 during the year. The sale proceeds were included in the sales
figure of $3,845,000.

(3) The cost of new equipment purchased on 1 July 20X3 for $60,000 has been included in the
purchases figure of $2,184,000
(4) The company depreciates its office equipment at 20 per cent per year on the straight line basis,
with proportionate depreciation in the year of purchase but none in the year of sale. None of the
equipment held at 1 January 20X3 was more than three years old.

(5) The allowance for irrecoverable debts at 31 December 20X3 is to be five per cent of trade
receivables.

(6) During the year there was a contra settlement of $106,000 in which an amount due to a supplier
was set off against the amount due from the same company for goods sold to it. No entry has yet
been made to record the set-off.

(7) Accruals and prepayments on sundry administrative expenses at 31 December 20X3 were:

Accrued expenses 28,700

Prepaid expenses 14,400

(8) Current tax for the year is estimated at $75,000

Required:

(a) Prepare the company’s statement of profit or loss for the year ended 31 December 20X3 for
internal use.

Answer for Question 37

MG

Statement of profit or loss for the year ended 31 December 20X3

Sales Revenue (1)

Cost of sales:

Opening inventories (2)

Purchases (3)

Closing inventories (4)

(5)

Gross profit (6)

Gain on disposal of office equipment (7)

Carriage cost (8)

Irrecoverable debts (9)

Allowance for receivables (10)

Sundry administration expenses (11)

Depreciation of office equipment (12)

Profit before tax (13)

Current tax expenses (14)

Profit for the year (15)

End of question paper