SEED FINANCIAL ACADEMY

FINANCIAL ACCOUNTING (FA) MOCK 2

NAME: ______________________________________ MARKS ___________________

1. Zain has a business designing and selling silver jewellery to retail outlets. She offers 30-days credit
to her customers. At 31 March 20X8 she has the following receivables:

Trade Receivables Account

DR CR

Balance b/d $65,760 Bank $178,320

Sales $162,450 Balance c/d $49,890

Total $228,210 Total $228,210

Zain wishes to write off an irrecoverable debt of $14,500 and make a 2% allowance for expected
debts. What amount should be included in the statement of profit or loss for irrecoverable debts?

A. $14,500.00
B. $997.80
C. $707.80
D. $15,207.80

2. State whether each of the following statements is TRUE or FALSE when describing the additional
costs which could be incurred from offering credit to customers. Circle the appropriate.
True False Additional overdraft interest
True False Increased administration costs.
True False Additional marketing costs
True False Increased staff costs
3. According to IAS 37 Provisions, contingent liabilities and contingent assets, which TWO of the
following statements are associated with a provision?
A. A possible legal or constructive obligation exists
B. There is a liability of uncertain timing or amount
C. A reliable estimate of the cost can be obtained
D. An obligation will exist as a result of future transactions or events

4. ABC Co owns a brand name which was purchased in the prior year for $43,500. It has an estimated
useful life of 4 years and is being amortised on a straight line basis.
Which four of the following items should be disclosed in respect of brand name according to IAS 38
Intangible Assets?
A. How the brand will be used in business
B. The Name of the Brand
C. The Amortisation Expense for the period
D. The accumulated amortisation at the beginning and end of period
E. A reconciliation of the Carrying Amount at the beginning and end of period
F. The Useful Life of the Brand

5. Jelena has prepared her draft accounts for the year ended 30 October 20X5 and needs to make
adjustments for the following items:
Rent of $21,000 was paid and recorded on 12 July 20X4 for the period 1 July to 30 June 20X5. The
landlord has advised that the annual rent for 20X5 will be $24,000 although it has not been invoiced
or paid yet. Property and contents insurance is paid annually on 1 September. Jelena paid and
recorded $12,000 on 1 September 20X5 for the year from 1 September 20X5 to 31 August 20X6.
What should the net effect on profit be in the draft accounts for the year ended 30 October 20X5 of
adjusting for the above items?
A.$3,000 decrease
B.$2,000 decrease
C.$2,000 increase
D.$3,000 increase

6. ABC Co commenced a development of a project on 1 Jan 20X3 and during the year ended 31
December 20X3, materials costing $65,000 were used for development. A member of staff was hired
on a Salary of $24,000 per annum on 1 Jan 20X3 to work exclusively on the development.
If the capitalisation criteria in IAS 38 Intangible Assets are met, what amount of development cost
should be capitalised by ABC Co in 20X3?
$______________
7. Which TWO of the following items would be classed as an intangible asset in a statement of
financial position?
A. Research
B. Franchise agreements
C. Internally generated goodwill
D. Staff expertise
E. Computer software

8. During the year ended 20X6 Sven brought in a warranty on a new product. He has already received
returns of 5% on sales made to date and now needs to set up a further provision for returns. Additional
sales during 20X6 that are eligible for return are $32,000. Sales during 20X7 that will be eligible for
return are estimated at $54,000.
What amounts should be charged to the statement of profit or loss in respect of the warranty
provision for the years ended 31 December 20X6 and 20X7?
A. 20X6 $32,000, 20X7 $54,000
B. 20X6 $32,000, 20X7 $22,000
C. 20X6 $1,600, 20X7 $2,700
D. 20X6 $1,600, 20X7 $1,100

9. Vlad received four invoices for electricity during the year ended 31 December 20X4, which he paid
promptly. Each invoice represents the amount owed for the previous three months.
1 February 20X4 $1,200
1 May 20X4 $900
1 August 20X4 $750
1 November 20X4 $900
Assume Vlad’s usage of electricity is the same in November and December 20X4 as it was in the
previous three months.
What amount should be included in the statement of profit or loss for electricity expense for the
year ended 31 December 20X4?
A.$3,750
B.$4,350
C.$2,950
D.$3,550
10. Which TWO of the following statements concerning a bonus issue of shares are correct?
A. Ordinary share capital and share premium may increase
B. Ordinary share capital will increase and share premium may decrease
C. Retained earnings may be affected by a bonus issue
D. Equity will increase

11. Papyrus has estimated the current tax charge for the year ended 31 December 20X9 at $18,000.
In July 20X9, Papyrus settled the $16,000 tax liability for the year ended 31 December 20X8. For the
year ended 31 December 20X8, it had estimated a current tax charge of $15,000.
What is the income tax expense and current tax liability to be included in the financial statements
of Papyrus Co for the year ended 31 December 20X9? Circle the appropriate

$17,000 $18,000 $19,000 Income tax expense

$17,000 $18,000 $19,000 Current tax liability

12. ABC has been reviewing their accounts receivable and have decided to increase the allowance for
receivables from $550 to $675. The accountant has accounted for this by debiting the receivables
expenses account with $675 and crediting the allowance for receivables by $675
What Journal entry will need to post to correct this error?
A. Dr Receivable Expense $125 Cr Suspense Account $125
B. Dr Receivable Expense $125 Cr Allowance for Receivables $125
C. Dr Allowance for Receivables $550 Cr Receivables $550
D. Dr Allowance for Receivables $550 Cr Receivables Expense $550

13. Based on past experiences, ABC has always provided 5% of revenue each year as a provision to
meet expected claims under warranty. The balance on the warranty provision at 1 Jan 20X6 was
$20,500. During the year $11,600 was spent settling the claims and remaining opening provision was
released as unused.
ABC’s revenue for the year ended 31 Dec 20X6 was $268,000.
What should be the warranty expense charge in ABC’s statement of profit or loss for the year ended
31st December 20X6?
A. $13,400
B. $11,600
C. $25,000
D. $4,500
14. A company made following payments for Rent
$4,600 for 3 months ended 28th Feb 20X6
$9,450 for 6 months ended 31st Aug 20X6
$10,200 for 6 months ended 28th Feb 20X7
What should be the charge for Rent Expense in the statement of profitor loss for the year ended 31st
December 20X6?
$________________

15. ABC ‘s Cash book balance as at 31 Dec 20X8 was $56,260 Debit. During the preparation of Bank
reconciliation it was discovered that:
Bank charges of $2,890 has not been recorded
Unpresented Cheques were $14,760
Uncleared lodgements were $12,560
What is the balance on ABC’s bank statement as at 31 Dec 20X8?
A. $55,570
B. $51,170
C. $56,260
D. $53,370

16. ABC has forgotten to record the decrease of $1,000 in receivables allowance in the accounts for
year ended 31 Aug 20X9.
How will ABC’s profit and net assets be affected by this error?
A. Profit – Overstated Net Assets - Overstated
B. Profit – Understated Net Assets - Understated
C. Profit – Understated Net Assets - Overstated
D. Profit – Overstated Net Assets – Understated

17. Is each of the following statements about sales tax true or false?
Sales tax is recorded as income in the accounts of the entity selling the goods TRUE FALSE
Sales tax is an expense to the ultimate consumer of the goods purchased TRUE FALSE
18. At 1 July 20X4 a limited liability company's capital structure was as follows:
$
Share capital shares of 50c each 500,000
Share premium account 400,000
In the year ended 30 June 20X5 the company made the following share issues:
1 January 20X5:
A bonus issue of one share for every four in issue at that date, using the share premium account.
1 April 20X5
A rights issue of one share for every ten in issue at that date, at $1.50 per share.
What will be the balances on the company's share capital and share premium accounts at 30 June
20X5 as a result of these issues?
Share capital Share premium account
$ $
A 687,500 650,000
B 675,000 375,000
C 687,500 150,000
D 687,500 400,000

19. Sigma's bank statement shows an overdrawn balance of $38,600 at 30 June 20X5. A check against
the company's cash book revealed the following differences:
1 Bank charges of $200 have not been entered in the cash book.
2 Lodgements recorded on 30 June 20X5 but credited by the bank on 2 July $14,700.
3 Cheque repayments entered in cash book but not presented for payment at 30 June 20X5 $27,800.
4 A cheque payment to a supplier of $4,200 charged to the account in June 20X5 recorded in the cash
book as a receipt.
Based on this information, what was the cash book balance before any adjustments?
A $43,100 overdrawn
B $16,900 overdrawn
C $60,300 overdrawn
D $34,100 overdrawn
20. Diesel fuel in inventory at 1 November 20X7 was $12,500, and there were invoices awaited for
$1,700. During the year to 31 October 20X8, diesel fuel bills of $85,400 were paid, and a delivery worth
$1,300 had yet to be invoiced. At 31 October 20X8, the inventory of diesel fuel was valued at $9,800.
What is the value of diesel fuel to be charged to the statement of profit or loss and other
comprehensive income for the year to 31 October 20X8?
A $87,700
B $89,400
C $88,500
D $91,100

21. At 30 September 20X2 a company’s allowance for receivables amounted to $38,000, whichwas
five per cent of the receivables at that date.
At 30 September 20X3 receivables totalled $868,500. It was decided to write off $28,500 of debts as
bad and, based on past experience, to keep the allowance for receivables at five per cent of
receivables.
What should be the charge in the income statement for the year ended 30 September 20X3 for the
total of bad debts and the allowance for receivables?
A $42,000
B $33,925
C $70,500
D $32,500

22. A business prepared draft financial statements for the year ended 31 December 20X7, which
showed a profit for the year of $240,000. Subsequent investigation of the underlying records found
the following errors and omissions:
(1) An annual insurance premium of $12,000 payable in advance and due on 1 January 20X7, had been
paid on that date but the transaction had been completely omitted from the books
(2) Rent receivable of $50,000, which is receivable annually in advance and due on 1 July 20X7, had
been received on that date and had been credited in full to the current year's statement of profit or
loss
What would be the revised figure for profit following the corrections of the above errors and
omissions?
$___________
23. The following transactions relate to Rashid Co'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 20X9
for electricity?
A. $6,600
B. $5,500
C. $5,300
D. $5,400

24. Prior to the financial year end of 31 July 20X9, Cannon Co has received a claim of $100,000 from
a supplier for providing poor quality goods which have damaged the supplier's plant and equipment.
Cannon Co's lawyers have stated that there is a 20% chance that Cannon Co will successfully defend
the claim.
Which of the following is the correct accounting treatment for the claim in the financial statements
for the year ended 31 July 20X9?
A. Cannon Co should neither provide for nor disclose the claim
B. Cannon Co should provide for the expected cost of the claim of $100,000
C. Cannon Co should provide for an expected cost of $20,000
D .Cannon Co should disclose a contingent liability of $100,000

25. Joanna has prepared her draft financial statements for the year ended 30 April 20X8, and needs
to adjust them for the following items:
1. Rent of $10,500 was paid and recorded on 2 January 20X7 for the period 1 January to 31 December
20X7. The landlord has advised that the annual rent for 20X8 will be $12,000 although it has not been
invoiced or paid yet.
2. Property and contents insurance is paid annually on 1 March. Joanna paid and recorded $6,000 on
1 March 20X8 for the year from 1 March 20X8 to 28 February 20X9.
What should the net effect on profit be in the draft financial statements for the year ended 30 April
20X8 of adjusting for the above items?
A $1,000 decrease
B $1,500 increase
C $1,000 increase
D $1,500 decrease