ACCOUNTING

SAMPLE PAPER 1
2015

QUESTIONS

1 Hexham Ltd

The following trial balance was extracted from the nominal ledger of Hexham Ltd on 31 March 20X8:
£ £
Sales 1,150,000
Inventories at 1 April 20X7 75,000
Purchases 465,000
Distribution costs 220,000
Administrative expenses 340,000
Irrecoverable debts expense 36,000
Loan interest paid 8,000
Land and buildings cost 600,000
Plant and equipment cost 340,000
Land and buildings accumulated depreciation at 1 April 20X7 96,000
Plant and equipment accumulated depreciation at 1 April 20X7 63,000
Trade receivables 60,000
Allowance for receivables 5,000
Bank 24,000
Ordinary share capital (£1 shares) 400,000
Share premium 100,000
Bank loan 200,000
Retained earnings 61,000
Ordinary dividends paid 15,000
Accounts payable 54,000
Advance deposits from customers 6,000
2,159,000 2,159,000

The following adjustments have yet to be accounted for:

1 Hexham Ltd holds two lines of inventory at 31 March 20X8.
Details are as follows:
Item CX100 BY200
£ £
Total cost 16,200 76,000
Selling price 15,000 83,600
2 Hexham Ltd paid an annual insurance premium of £16,800 for the year 1 September 20X7 to 31 August
20X8. This payment is included in administrative expenses.
3 The company's depreciation policy is as follows:
Buildings Straight-line over 50 years
Plant and equipment 10% straight-line

The cost of the land was £200,000, and all non-current assets are assumed to have zero residual values.
There were no additions to or disposals of non-current assets during the year ended
31 March 20X8.
Depreciation on buildings is charged to administrative expenses, and depreciation on plant and equipment is
charged to cost of sales.

© ICAEW 2014
4 At the year end, trade receivables include a balance of £7,560 which is considered irrecoverable. The
company presents irrecoverable debts as other operating expenses on the face of the statement of profit or
loss.
5 The bank loan was received on 1 July 20X7 and is repayable in full in five years. Interest is charged at a fixed
rate of 8% per annum.
6 Income tax for the year ended 31 March 20X8 is estimated at £10,000.
7 The bank reconciliation performed at 31 March 20X8 revealed that Hexham Ltd had accounted for a cheque
for £4,500 sent to a credit supplier as £5,400.
8 Hexham Ltd declared a dividend of 5p per share on 31 March 20X8 which was due for payment in March
20X8
9 Hexham Ltd products come with a 6 month warranty. Management estimates that 5% of warranties will be
invoked, at a cost of £15,000 to Hexham Ltd. Provisions are charged to other operating expenses.
10 Hexham Ltd paid rent of £25,000 on 27 March 20X8 which covers the period 1 April 20X8 to 30 June 20X8.
This amount has been included in administrative expenses.
Prepare the statement of profit or loss for Hexham Ltd for the year ended 31 March 20X8 and the statement of
financial position at that date.
Statement of profit or loss for the year ended 31 March 20X8
£
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax
Profit / (loss) for year
Statement of financial position at 31 March 20X8
£
Non-current assets
Land and buildings
Plant and equipment

Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets

Equity
Equity share capital
Preference share capital
Share premium
Retained earnings

Non-current liabilities
Borrowings

Current liabilities
Borrowings
Bank overdraft
Trade payables
Accruals
Deferred income
Tax payable
Total equity and liabilities
© ICAEW 2014
2. Which TWO of the following information needs apply to the government and its
agencies in relation to the business of a sole trader?

The government and its agencies need information to

A Establish levels of tax revenue

B Assess whether the business will continue in existence
C Produce national statistics
D Assess the owner's stewardship
E Take decisions about their investment

3. Which of the following definitions for the 'going concern' concept in accounting is the
most accurate in the light of IAS 1 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'

4. According to IAS 1 Presentation of Financial Statements, compliance with International

Accounting Standards and International Financial Reporting Standards will normally ensure
that

A The entity's inventory is valued at net realisable value

B The entity's assets are valued at their break-up value
C The entity's financial statements are prepared on the assumption that it is a
going concern
D The entity's financial position, financial performance and cash flows are
presented fairly

© ICAEW 2014
5. Johan plc enters into the following transactions in relation to Marius plc, a supplier
which is also a customer. Which of Johan plc's accounting records is affected by
each of these transactions?

Marius plc buys goods from Johan plc on credit terms

A Sales day book

B Purchase day book
C Payables ledger

Johan plc agrees to make contra entries in Marius plc's personal accounts in its
accounting system.

D Sales day book

E Purchase day book
F Payables ledger

6. Plym plc is a retailer which is registered for VAT. All sales, and all purchases of
goods for resale, attract VAT at the rate of 20%. For the year to 30 June 20X7 Plym
plc paid £69,600 to suppliers in respect of goods for resale, and showed revenue in
the statement of profit or loss of £89,400. There was no change in the figures for
inventory and trade payables in the statements of financial position as at 30 June
20X6 and 20X7.

What was Plym plc's gross profit for the year ended 30 June 20X7?

A £19,800
B £4,900
C £31,400
D £16,500

© ICAEW 2014
7. Peri's bookkeeper made the following mistakes:

1 Discount allowed £3,840 was credited to discounts received account.

2 Discount received £2,960 was debited to discounts allowed account.
3 Discounts were otherwise correctly recorded.

Which of the following journal entries will correct the errors?

A Debit Discount allowed £7,680, Credit Discount received £5,920, Credit

Suspense account £1,760
B Debit Discount allowed £880, Debit Discount received £880, Credit Suspense
account £1,760
C Debit Discount allowed £6,800, Credit Discount received £6,800
D Debit Discount allowed £3,840, Credit Discount received £2,960, Credit
Suspense account £880

8. Ewan, a sole trader, has taken goods valued at £1,800 for his own use. This has not
been recorded in arriving at his draft reported profit figure. To record the drawings he
must:

Adjust cost of sales

A Debit £1,800
B Credit £1,800

So his reported profit will

C Increase
D Decrease

© ICAEW 2014
9. Hywel plc's trial balance includes a total for all the receivables ledger accounts as
listed out at the year end. The receivables ledger is part of the double entry system.
The trial balance fails to agree and a suspense account is opened. The difference is
due to the following errors in Hywel plc's ledger accounts:

1 The balance on Markham plc's receivables ledger account is £9,890. This is

incorrectly recorded in the trial balance as £9,980
2 A discount allowed to Umberto of £33 was debited to his receivables ledger
account
3 The sales account is overcast by £110

Three journals are drafted to correct these errors. Together these journals should

A Credit the suspense account with £110

B Debit the suspense account with £86
C Credit the suspense account with £46
D Debit the suspense account with £46

10. Dredge plc makes only statutory deductions from employees' pay, which are all paid
to HMRC when due. In March 20X6 Dredge plc paid £18,538 to its employees by
bank transfer. Gross pay for the month of £28,456 was debited to the salaries
expense account, but a debit balance of £3,983 remained on the salaries control
account. This balance represented:

A Employer's NIC which should be debited to the salaries expense account

B Employer's NIC which should be credited to the HMRC liability account
C Total PAYE and NIC owed to HMRC for March which should be debited to the
salaries expense account
D PAYE and employees' NIC deducted from gross pay which should be debited to
the salaries expense account

© ICAEW 2014
11. Limbo plc maintains its petty cash records using an imprest system. The total petty
cash float is topped up monthly to £300. During the month of August the following
expenses were paid from petty cash:

£
Stationery 36
Tea and coffee 60
Stamps 120

In error, the purchase of stamps was recorded as £12 and as a result a cheque for
£108 was written to top up the petty cash float.

The error made will result in which of the following?

A An imbalance in the trial balance of £108 and the petty cash balance being
£108 less than it should be
B An understatement of expenses of £108 and the petty cash balance being £192
less than it should be
C An understatement of expenses of £108 and the petty cash balance being £108
less than it should be
D An imbalance in the trial balance of £192 and the petty cash balance being
£192 less than it should be

12. The debit balance in Omar plc's cash book at the year end is £42,510. The following
items appear in the bank reconciliation at the year end.

£
Unpresented cheques 2,990
Uncleared lodgements 10,270

A customer's cheque for £2,470 was returned unpaid by the bank before the year
end, but this return has not been recorded in the cash book.

What was the balance in hand shown by the bank statement?

A £37,700
B £47,320
C £35,230
D £32,760

© ICAEW 2014
13. Bark plc's initial trial balance as at 30 June 20X8 has already been entered on the
extended trial balance for the period. In respect of revenues in the year of £17,550,
sales commission of 10% has not yet been paid. In the adjustments columns on the
extended trial balance Bark plc should make TWO entries of £1,755:

A Debit the accruals account

B Debit the prepayments account
C Debit the distribution costs account
D Credit the distribution costs account
E Credit the prepayments account
F Credit the accruals account

14. Brindal plc acquired five apartments on 1 June 20X4 and immediately rented them
out to different tenants. Brindal plc has a credit balance on its rent receivable account
in its initial trial balance as at 31 May 20X5 of £22,850. In the adjustments column of
the extended trial balance there are entries for rent in arrears as at 31 May 20X5 of
£4,490, and for rent in advance at the same date of £7,720.

What amount will appear for rent under other income in Brindal plc's statement of
profit or loss for the year ended 31 May 20X5?

A £19,620
B £22,850
C £26,080
D £37,340

15. Franz plc is a manufacturer. Its 12 month reporting period ends on 31 July and it
adopts the average cost (AVCO) method of inventory usage and valuation. At 1
August 20X4 it held inventory of 2,400 units of the material Zobdo, valued at £10.00
each. In the year to 31 July 20X5 there were the following inventory movements of
Zobdo:

14 November 20X4 Sell 900 units

28 January 20X5 Purchase 1,200 units for £20,100
7 May 20X5 Sell 1,800 units

What was the value of Franz plc's closing inventory of Zobdo at 31 July 20X5?

A £11,700
B £9,000
C £15,075
D £35,100

© ICAEW 2014
16. Sam plc's statement of profit or loss for the year ended 31 December 20X4 showed a
net profit of £83,600. It was later found that £18,000 paid for the purchase of a van on
1 January 20X4 had been debited to motor expenses account. It is the company's
policy to depreciate vans at 25% per year.

What is the net profit after adjusting for this error?

A £106,100
B £70,100
C £97,100
D £101,600

17. On 1 April 20X5 Herepath plc bought a Foxy car for £23,500. The company's
depreciation policy for cars is 30% per annum using the reducing balance method.
On 1 April 20X7 the Foxy was part exchanged for a Vizgo car, which had a purchase
price of £28,200. Herepath plc handed over a cheque to the seller for £19,350, in
final settlement.

What was Herepath plc's profit or loss on the disposal of the Foxy?

A £5,150 loss
B £7,835 profit
C £2,665 loss
D £6,250 loss

18. Diamond Ltd issues 250,000 equity shares with a nominal value of £2 each at a price
of £3.55 each for cash.

Which of the following sets of entries would be made to record this transaction?

A Credit Bank £887,500, Debit Share capital £500,000, Debit Share premium
£387,500
B Debit Bank £887,500, Credit Share capital £250,000, Credit Share premium
£637,500
C Debit Bank £887,500, Credit Share capital £500,000, Credit Share premium
£387,500
D Credit Bank £887,500, Debit Share capital £250,000, Debit Share premium
£637,500

© ICAEW 2014
19. Which THREE of the following could be found in the financial statements of a
partnership?

A Fixed assets
B Share premium
C Drawings
D Dividends paid
E Profit for the year

20. Leonard's initial trial balance as at 30 April 20X9 has already been entered on the
extended trial balance for the period. Leonard's drawings of £38,100 in total have
been debited to the other expenses account in error. In the adjustments columns on
his extended trial balance Leonard should make TWO entries of £38,100:

A Debit the capital account

B Credit the capital account
C Debit the other expenses account
D Credit the other expenses account

21. Helen, John and Chris are in partnership, preparing financial statements as at 31
January each year and sharing profits 5:3:2. Helen retired on 30 September 20X6,
and John and Chris continued, sharing profits 5:3 respectively. Goodwill as at 30
September 20X6 (not to be retained in the accounts) was valued at £50,000. The net
entry to John's capital account to include and then eliminate goodwill is:

A Debit £3,750
B Debit £16,250
C Credit £3,750
D Credit £16,250

© ICAEW 2014
22. The credit column total on Santi plc's initial trial balance exceeds the debit column
total by £78 so a suspense account is opened. Adjustments are entered in the
adjustments columns of the extended trial balance as follows: debits £144 and credits
£173. None of these adjustments is entered in the suspense account.

What is the balance on the suspense account that remains to be cleared?

A £107 credit
B £107 debit
C £49 debit
D £49 credit

23. At 31 December 20X4 the total of Blunt plc's payables ledger balances was £29,800,
but this did not agree with the payables control account balance at that date.
Correction of the following items subsequently completed the payables ledger
reconciliation:

1 The payables ledger column in one page of the cash book had been totalled at
£2,950. The correct total was £2,590.
2 A debit balance in the payables ledger of £153 had been listed as a credit
balance.

What was the original balance on Blunt plc's control account, and what was the
corrected balance?

A Original balance £29,854, corrected balance £29,494

B Original balance £30,466, corrected balance £30,106
C Original balance £29,134, corrected balance £29,494
D Original balance £29,746, corrected balance £30,106

© ICAEW 2014
24. Which of the following assertions about statements of cash flows is/are correct?

1 A statement of cash flows prepared using the direct method produces a different
figure for net cash flow from operations from that produced when the indirect
method is used.
2 Rights issues of shares do not feature in statements of cash flows.
3 A bonus issue of shares will not appear as an item in a cash flow statement.
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

25. Part of a draft statement of cash flows is shown below:

£000
Profit before tax 8,640
Depreciation charges (2,160)
Proceeds of sale of non-current assets 360
Increase in inventories (330)
Increase in trade payables 440

The following criticisms of the above extract have been made:

1 Depreciation charges should have been added, not deducted.

2 Increase in inventories should have been added, not deducted.
3 Increase in trade payables should have been deducted, not added.
4 Proceeds of sale of non-current assets should not appear in this part of the
cash flow statement.
Which of these criticisms are valid?

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

© ICAEW 2014