FINANCIAL ACCOUNTING FINAL MOCK

Financial Accounting

Student Name:

Paper FA
Time allowed 2 hours

All questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.

1. Which of the following is the accounting equation?
A Assets + Liabilities = Capital + Profit – Drawings
B Assets – Liabilities = Capital + Profit + Drawings
C Assets – Liabilities = Capital + Profit – Drawings
D Assets + Liabilities = Capital – Profit + Drawings

2. A business part-exchanges an old motor vehicle for a new vehicle. The old vehicle
originally cost $12,000 and had a net book value of $7,000 when it was disposed. A
part-exchange allowance of $6,000 was given against the cost of the new vehicle of
$18,000.
What profit or loss was made on the disposal of the old motor vehicle?
A $1,000 loss
B $1,000 profit
C $6,000 loss
D $6,000 profit

3. Which of the following concepts best explains why depreciation is charged in

the financial statements?
A Relevance
B Going concern
C Accruals
D Money measurement

4. Which two of the following errors would cause the debit column and the total of the
credit column of the trial balance to agree?
a. A transposition error was made when entering a sales invoice into the sales
day book.
b. A cheque received from a customer was credited to cash and correctly
recognised in receivables.
c. A purchase of non-current assets was omitted from the accounting records.
d. Rent received was included in the trial balance as a debit balance.

B 1 and 2
C 1 and 3
D 2 and 3
D 2 and 4
5. The following sales tax account has been provided by Jenny for the quarter ended
30 June 20X9. The account was prepared by an inexperienced book keeper.
Sales Tax $
Bal b/d (amount owing to the Purchases (sales tax element) 116,280
tax authority) 11,450
Sales (sales tax element) 258,400 Purchases returns (sales tax 2,325
element)
Bank (payment on account to 9,000
tax authority)
Bal c/d 160,245
_______ _______
278,850 278,850
_______ _______
Bal b/d 160,245
What is the correct sales tax balance for the quarter ended 30 June 20X9?
A $160,245 debit
B $146,895 credit
C $160,245 credit
D $123,995 credit

6. At 31 January 20X7, Joe has a receivables’ balance of $156,785. Following a review

of receivables, Joe wishes to write off irrecoverable debts of $3,455 and to make a
specific allowance against a debt of $1,750. Based on past experience, he also wishes
to maintain an allowance at 5% of remaining receivables.
What are the total allowances for receivables that Joe now requires?
A $1,750
B $2,829
C $7,579
D $9,329

7. At 1 April 20X5, Iman had accrued $450 for light and heat. During the year ended
31 March 20X6 she paid light and heat bills that amounted to $1,900, and at
31 March 20X6 she estimated that she owed $500 in respect of light and heat.
What is the charge to the income statement in respect of light and heat for the year
ended 31 March 20X6?
A $1,900
B $1,950
C $1,850
D $1,800
8. At 31 January 20X7, George’s bank statement shows a credit balance of $1,500. In
comparing this with his cashbook, George has found the following:
a. cheque payments amounting to $450 have not yet been presented at the bank
for payment.
b. bank charges of $20 have not been recorded in his cashbook.
c. cheque receipts amounting to $200 are not shown on the bank statement.
What amount should appear in George’s statement of financial position for cash at
bank?
A $1,500
B $1,250
C $1,750
D $1,230

9. At 1 April 20X5, Eleanor had accrued income of $1,000 in respect of rent receivable.
She charges her tenants $6,000 per annum for rent, and at 31 March 20X6 her
tenants had prepaid rent of $800.
How much cash did Eleanor receive from her tenants in the year ended 31
March 20X6?
A $7,800
B $6,200
C $5,800
D $4,200

10. Which two of the following are not required to be disclosed as a note to the
financial statements for intangible assets?
1 The useful lives of intangible assets capitalised in the financial statements.
2 A description of the development projects that have been undertaken during
the period.
3 A list of all intangible assets purchased or developed in the period.
4 Impairment losses written off intangible assets during the period.
A 1 and 4
B2 and 3
C3 and 4
D1 and 2
11. At 1 April 20X5, Gary had a payables’ balance of $15,485. During the year ended 31
March 20X6, Gary paid cheques amounting to $46,570 and cash of $3,450 to his
suppliers. He also received prompt payment discounts totalling $2,680, and returned
goods to suppliers totalling $550. At 31 March 20X6, Gary owed $17,890 to his
suppliers.
What were Gary’s purchases in the year ended 31 March 20X6?
A $55,655
B $52,205
C $55,105
D $50,020

The following information applies to questions 12 and 13.

On 31 May, the bank statement of Edward shows a balance in hand of $4,100. When checking
the bank statement, it is found that bank charges of $50 and a credit of $1,000 from a trade
receivable have not been entered in the cashbook.
There are cheques entered in the cashbook totalling $3,330 which have yet to be presented to
the bank, one of which, in respect of a purchase of goods of $950, was issued but not sent to
the supplier because the goods were not delivered. A banking of $400 made on 31 May was
not credited on the bank statement until 6 June.

12. What amount of cash at bank or bank overdraft should appear on the
company's statement of financial position at 31 May?
A $5,050 in hand
B $2,120 bank overdraft
C $2,120 in hand
D $7,980 in hand

13. What would be the effect on the company's profits for the year after making the
necessary adjustments?
A $50 reduction
B $1,000 increase
C $950 increase
D $900 increase

14. When Roberts’ trial balance was extracted, the total of the debit balances was
$208,462 and the total of the credit balances was $208,642. He opened a suspense
account while he checked the entries. He then found that:
a. a cash sale for $50 was debited to the cash account, but no entry was made in
the sales account;
b. the opening inventory figure of $1,200 was omitted from the trial balance
When Robert corrects these errors what is the balance on his suspense account?
D $1,070 debit
E $1,330 credit
F $1,280 debit
D$970 credit
15. James, a Limited Company , has the following capital structure:
$
200,000 Ordinary shares of 50c each 100,000

20,000 20% Irredeemable Preference Shares of $1 each 20,000

The preference shareholders have had their dividend paid during the year.
The following information has been provided for ordinary shareholders:
15 Dividends declared before the year end was 10 cents per share.
16 Dividends declared after the year end was 15 cents per share.
What are the dividends that should be included in the statement of changes in equity
(SOCIE) and the Statement of Financial Position for the year ended 31 March 20X9?
(SOCIE) (Statement of Financial Position)
$ $
A 24,000 20,000
B 20,000 20,000
C 50,000 4,000
D 50,000 50,000

16 You are preparing the final accounts for a business. The cost of the items in
closing inventory is $41,875. This includes some items which cost $1,960 and which
were damaged in transit. You have estimated that it will cost $360 to repair the
items, and they can then be sold for $1,200. What is the correct inventory
valuation for inclusion in the final accounts?

A $39,915
B $40,755
C $41,515
D $42,995

17. At the 30 September 20X8 Shauna had non-current assets with a carrying value of
$345,876.
At the 30 September 2009 the non-current assets carrying value was $457,987.
During the year a non-current asset was sold for $2,870. This created a profit of £1,500.
Depreciation on all non-current assets during the year amounted to $16,750.
Assuming these were the only adjustments to non-current assets during the year
what were the additions to non-current assets during the year to 30 September 2009?
A $130,231
B $131,731
C $130,361
D None of the above
18. After completing his final accounts, Kyler found that he had understated a year end
accrual.
How are Kyler’s net profit and capital affected by the correction of the error?
Net profit Net assets
A Increased Increased
B Increased Decreased
C Decreased Increased
D Decreased Decreased

19. Peppermint Ltd had provided income tax for the previous year of $34,500 however it
paid income tax of $37,650 this year. At the year-end, the company estimates that
$56,000 is owed in relation to income tax for the current year.
What amount will be shown in the income statement account for the current year-end in
respect of the income tax?
A $52,850
B $56,000
C $59,150
D None of the above

20. A company’s statement of profit or loss for the year ended 31 December 20X5
showed a net profit of $83,600. It was later found that $18,000 paid for the purchase
of a motor van had been debited to the motor expenses account. It is the company’s
policy to depreciate motor vans at 25% per year on the straight line basis, with a full
year’s charge in the year of acquisition.
What would the net profit be after adjusting for this error?
A $106,100
B $70,100
C $97,100
D $101,600

21. Which of the following statements is true?

A The interpretation of an entity’s financial statements using ratios is only useful for
potential investors.
BRatios based on historical data can predict the future performance of an entity.
C The analysis of financial statements using ratios provides useful information when
compared with previous performance or industry averages.
D An entity’s management will not assess an entity’s performance using financial ratios.
22. Prior to the financial year end of 31 July 20X9, Cannon Co has received a claim of
$100,000 from a customer for providing poor quality goods which have damaged the
customer’s plant and equipment. Cannon Co’s lawyers have stated that there is a
20% chance that Cannon 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 should neither provide for nor disclose the claim. B

Cannon should disclose a contingent liability of $100,000.
C Cannon should provide for the expected cost of the claim of $100,000.
D Cannon should provide for an expected cost of $20,000.

23. Bumbly Co extracted the trial balance for the year ended 31 December 20X7. The
total of the debits exceeded the credits by $300.

Which of the following could explain the imbalance?

A Sales of $300 were omitted from the sales day book.

B Returns inward of $150 were extracted to the debit column of the trial balance.
C Discounts received of $150 were extracted to the debit column of the trial balance.
D The bank ledger account did not agree with the bank statement by a debit of $300.

24. Charles Co entered into the following transactions:

1 He sold goods on credit to Cody with a list price of $3,200. He allows a 10% trade
discount and a further 2% discount for payment within seven days. Cody paid within
two days.
2 He made a credit sale to Mary allowing a 5% trade discount on the list price of $640.
3 He purchased goods for $600 and paid $590, receiving a discount for immediate cash
payment.

How much discount should be recorded in the Discount Allowed account as a result of the
above transactions?

A $57.60
B $10.00
C $352.00
D $409.60

25. A company's gross profit as a percentage of sales increased from 24% in the year ended
31 December 20X1 to 27% in the year ended 31 December 20X2.

Which of the following events is most likely to have caused the increase?

A An increase in sales volume

B A purchase in December 20X1 mistakenly being recorded as happening in January 20X2
C Overstatement of the closing inventory at 31 December 20X1
D Understatement of the closing inventory at 31 December 20X1
26. Which of the following material events that took place after the reporting date, but
before the financial statements were approved, are non-adjusting when applying IAS 10
Events after the reporting period?

(i) Inventory held at the reporting date was sold for less than cost.
(ii) Capital raised by issuing shares at a premium.
(iii) A company reorganisation which results in discontinuing a line of activity producing
25% of its profit.
(iv) The settlement of a claim for compensation from a former employee wrongly
dismissed just before the reporting date.

A (i) and (ii)

B (i), (iii) and (iv)
C (i) and (iii) only
D (ii) and (iii)

27. On 1 September 20X6, a business had inventory of $380,000. During the month, sales
totalled $650,000 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 $185,000
B $140,000
C $405,000
D $360,000

28. At 1 January 20X6, a company's capital structure was as follows:

$
Ordinary share capital 2,000,000 shares of 50c each 1,000,000
Share premium account 1,400,000

In January 20X6 the company issued 1,000,000 shares at $1·40 each.

In September 20X6 the company made a bonus issue of 1 share for every 3 held using the
share premium account.

What were the balances on the company's share capital and share premium accounts
after these transactions?

Share capital Share premium

$ $
A 4,000,000 800,000
B 3,200,000 600,000
C 2,000,000 1,800,000
D 2,000,000 1,300,000
29. Carter, a limited liability company, has non-current assets with a carrying amount of
$2,500,000 on 1 December 20X7.

During the year ended 30 November 20X8, the following occurred:

– Depreciation of $75,000 was charged to the statement of profit or loss.
– Land and buildings with a carrying amount of $1,200,000 were revalued to $1,700,000.
– An asset with a carrying amount of $120,000 was disposed of for $150,000.
– The carrying amount of non-current assets at 30 November 20X8 was $4,200,000.

In accordance with IAS7 Statement of Cash Flows, what net cash flows from the above
transactions would be included within ‘net cash flows from investing activities’ for the year
ended 30 November 20X8?

A $(1,395,000)
B $(1,365,000)
C $150,000
D $(1,245,000)

30. Analysis of the statement of financial position of Charon for the year ended 20X9
reveals the following relationships:

Current ratio 2:1

Sales: current assets
5:1 Acid test ratio 1.5:1

If the sales for the year were $30 million, what is the value of inventory that will appear in
the statement of financial position?

A $1.5m
B $10.5m
C $3.0m
D $4.5m

31. Which of the following are advantages of trading as a limited liability company?

1 Operating as a limited liability company makes raising finance easier because

additional shares can be issued to raise additional cash.
2 Operating as a limited liability company is riskier than operating as a sole trader because the
shareholders of a business are liable for all the debts of the business whereas the sole trader is
only liable for the debts up to the amount he has invested.

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

32. The cash book shows a bank balance of $5,675 overdrawn at 31 August 20X5. It is
subsequently discovered that a standing order for $125 has been entered twice, and
that a dishonoured cheque for $450 has been debited in the cash book instead of
credited. What is the correct bank balance?

A $5,100 overdrawn
B $6,000 overdrawn
C $6,250 overdrawn
D $6,450 overdrawn
33. Which of the following assertions about statement of cash flows is/are correct?

1 A statement of cash flows prepared using the direct method produces a different figure for
operating cash flow from that produced if the indirect method is used.
2 Rights issues of shares do not feature in statements of cash flows.
3 A surplus on revaluation of a non-current asset will not appear as an item in a statement of
cash flows.
4 A profit on the sale of a non-current asset will appear as an item under Cash Flows from
Investing Activities in a statement of cash flows.

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

34. Banjo Co purchased a building on 30 June 20X8 for $1,250,000. At acquisition, the
useful life of the building was 50 years. Depreciation is calculated on the straight-
line basis. 10 years later, on 30 June20Y8 when the carrying amount of the building
was $1,000,000, the building was revalued to$1,600,000. Banjo Co has a policy of
transferring the excess depreciation on revaluation from the revaluation surplus to
retained earnings.

Assuming no further revaluations take place, what is the balance on the revaluation surplus at
30 June 20Y9?

A $335,000
B $310,000
C $560,000
D $585,000

35. Which of the following provides advice to the International Accounting Standards
Board (IASB) as well as informing the IASB of the implications of proposed
standards for users and preparers of financial statements?

A The IFRS Advisory Council

B The IFRS Interpretations Committee
C The IFRS Foundation
D The Trustees
36.
37.