Question 2.

Information about an entity's financial performance is primarily provided in:

A the statement of profit or loss
B the statement of financial position
C the statement of changes in equity
D the statement of cash flows
Question 3.
According to the IASB's Conceptual Framework, information about the nature and
amounts of an entity's economic resources and claims can help users to assess which
THREE of the following?
A The entity's need for additional financing
B The entity's liquidity and solvency
C How profitable the entity is likely to be in the future
D How successful the entity is likely to be in obtaining any necessary financing
E The market value of the entity
Question 4.
According to the IASB's Conceptual Framework, information about an entity's financial
performance helps users to:
A understand the return that the entity has produced on its economic resources
B assess the entity's ability to meet its financial commitments as they fall due
C predict how future profits and cash flows will be distributed among those with an interest in
the entity
D asses the entity's adaptability to changes in its operating environment
Question 5.
Which THREE of the following are source documents
A Delivery note from a supplier
B Credit note to a customer
C Purchase order from a customer
D Cheque to a supplier
E Invoice from a supplier
Question 6.
Which of the following transactions would initially be recorded in a company's journal
rather than its cash book?
A Bonus issue of shares
B Purchase of goods for cash from a supplier
C Redemption of preference shares
D Sale proceeds of non-current assets
Question 7.
Eiris plc has the following information in its financial statements relating to machinery as at 31
July:
20X4 20X3
£ £
Cost 320,000 260,000
Accumulated depreciation 97,500 90,000
Carrying amount 222,500 170,000
During the year to 31 July 20X4, the following transactions occurred in relation to machinery:
Additions £142,000
Sales proceeds from disposals £94,000
Depreciation charge £31,400
What is Eiris plc's profit or loss on disposals of machinery in the year ended 31 July
20X4?
A £35,900 loss
B £35,900 profit
C £4,500 profit
D £4,500 loss
Question 8.
Arabella has a debit balance of £123 in Fab plc's payables ledger.
Which of the following would, alone, explain this balance?
A Fab plc bought and paid for some goods for £123 which it then returned, but Arabella has not
yet issued a credit note for Fab plc to record
B Fab plc paid a cheque to Arabella for £37 in respect of an invoice for £160
C Fab plc received a credit note for £23 from Arabella but posted it to the account of Mirabelle
D Fab plc paid an invoice for £123 even though Arabella had issued a credit note in respect of it
Question 9.
Truro 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 November 20X1 Truro plc paid £60,480 to
suppliers in respect of goods for resale, and showed revenue in the statement of profit or loss of
£81,600. There was no change in the figures for trade payables and inventory in Truro plc's
statements of financial position as at 30 November 20X0 and 20X1.
What was Truro plc's gross profit for the year ended 30 November 20X1?
A £7,520
B £17,600
C £21,120
D £31,200
Question 10.
For many years Meadows plc has experienced falling prices for raw material M, and has kept
constant inventory levels. It uses the AVCO inventory valuation method.
If Meadows plc had used the FIFO valuation method, in each successive year's financial
statements this would result in:
A lower cost of sales and higher closing inventory value
B lower cost of sales and lower closing inventory value
C higher cost of sales and lower closing inventory value
D higher cost of sales and higher closing inventory value
Question 11.
Charles plc has the following note to its statement of financial position relating to fixtures and
fittings as at 31 August
20X3 20X2
£ £
Cost 166,000 125,000
Accumulated depreciation 81,000 72,000
Carrying amount 85,000 53,000
During the year to 31 August 20X3, the following transactions occurred in relation to fixtures and
fittings:
Additions £74,000
Loss on disposals £3,000
Depreciation charge £28,000
What were the proceeds from disposals of fixtures and fittings received by Charles plc in
the year to 31 August 20X3?
A £11,000

B £19,000

C £33,000
D £75,000
Question 12.
Mahmood runs a small bakery and is preparing his financial statements for the year ended
31 March 20X4. There are three outstanding matters that he has not yet accounted for.
(1) Advance payments (deposits) of £110 recorded as received from customers in respect of
cakes ordered from Mahmood but not yet delivered by him at the year end.
(2) An unpaid rent demand for the six months to 31 July 20X4 for £3,600.
(3) Insurance of £960 recorded as paid by Mahmood and accounted for on 1 February 20X4 for
the year ending 30 November 20X4.
Which THREE of the following balances will appear in Mahmood's statement of financial
position as at 31 March 20X4?
A Prepayment £640
B Accrual £640
C Accrual £1,200
D Deferred income £110
E Prepayment £1,200
F Accrued income £110
Question 13.
Hill plc has the following ledger account balances as at 1 January 20X5:
Share capital (400,000 25p equity shares) £100,000
Share premium £50,000
Retained earnings £1,423,126
On 1 March 20X5 Hill plc made a one for five rights issue at £1.20 per share. On 31 August 20X5
it made a three for one bonus issue. Profit for the year to 31 December 20X5 was £80,000.
What are the on the three ledger accounts as at 31 December 20X5?
A Share capital £ balances 480,000, Share premium £126,000, Retained earnings £1,143,126
B Share capital £480,000, Share premium £Nil, Retained earnings £1,269,126
C Share capital £1,920,000, Share premium £Nil, Retained earnings £129,126
D Share capital £1,920,000, Share premium £66,000, Retained earnings £63,126
Question 14.
David, Paul and Daniel are in partnership sharing profits 4:3:1. Each partner has a combined
capital and current account, which at 1 September 20X1 were as follows:
David £9,870
Paul £8,140
Daniel £15,580
During the year to 31 August 20X2 the partnership made profits of £120,000, and each partner
took drawings of £10,000. On 31 August 20X2 Paul retires. The partners value goodwill at
£96,000 at that date, but do not wish this valuation to remain in the accounts. David and Daniel
will continue in partnership, sharing profits 3:1.
What is the balance on Daniel's capital and current account on 1 July 20X7?
A £8,580
B £18,580
C £35,870
D £79,140
Question 15.
Cynthia's trial balance at 31 March 20X3 contains a suspense account with a debit balance.
Cynthia queried the following items on the credit side of the trial balance, which she thinks she
may have entered on the wrong side:
(1) Drawings £1,100
(2) Petty cash £150
(3) Discounts received £280
There are no other errors.
What is the debit balance on Cynthia's suspense account?
A £860
B £2,200
C £2,500
D £2,760
Question 16.
Gerhard's trial balance has a suspense account with a debit balance of £45. Correction of
which of the following errors would, alone, clear the suspense account?
A An amount owed from a credit customer of £72 was recorded in sales as £27
B A contra of £27 was recorded in creditors as £72
C A purchase from a credit customer of £72 was recorded in creditors as £27
D A cash payment of £72 was recorded in creditors as £27
Question 17.
Zylon Ltd has prepared a draft profit and loss account at 31 January 20X6 which shows a gross
profit of £54,200. Zylon Ltd has now discovered that at both the beginning and the end of the
accounting period one line of stock, the Merit, has been included at a selling price of £800 at
31 January 20X6 and £1,200 at 1 February 20X5. The Merit is always sold at a mark-up of 20%
by Zylon Ltd.
After correcting this error (which is not regarded as material) Zylon Ltd's gross profit for
the year to 31 January 20X6 is:
A £54,120

B £54,133

C £54,267
D £54,280
Question 18.
Taylor plc has prepared a draft statement of profit or loss that shows a profit for the year of
£60,000 for the reporting period ended 30 November 20X4. Subsequently, the following matters
have been discovered.
(4) An insurance renewal for £2,500 was received in November 20X4 for the year to 30
November 20X5. As the premium had increased significantly Taylor plc decided to pay the
amount in two equal instalments. The first instalment was paid on 28 November 20X4 and
posted from the cash book to administrative expenses. No other entries have been made.
(5) Goods that cost £300 and sold at a gross margin of 40% were returned by Prism Ltd on
30 November 20X4, after the inventory count had taken place. No credit note was issued.
Once these matters have been dealt with Taylor plc's profit for the year ended 30
November 20X4 will be:
A £58,950

B £60,950

C £61,050
D £61,130
Question 19.
Which of the following statements regarding depreciation is correct?
A. All non-current assets must be depreciated.
B. Straight line depreciation is usually the most appropriate method of depreciation.
C. A change in the chosen depreciation method is accounted for retrospectively, with all previous
depreciation charges reversed and recalculated.
D. Depreciation charges must be based on the carrying amount of an asset (less residual value if
appropriate).

Question 20.
Picasso plc has prepared draft financial statements for the year ending 30 November 20X4,
following a physical inventory count. However, on further investigation it has been realised that,
in a burglary at the company's warehouse in September 20X4, inventory at a cost of £10,000 was
stolen. Picasso Ltd has insurance which covers 60% of the cost of inventory stolen. The
insurance company has agreed to pay in this instance but no money has yet been received. No
 accounting entries have been made in respect of the stolen inventory.
Correcting this matter will:
A Increase profit for the year by £4,000
B Decrease profit for the year by £4,000
C Increase profit for the year by £6,000
D Decrease profit for the year by £6,000
Question 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
Question 22.
A non-current asset (cost £15,000, depreciation £10,000) is given in part exchange for a new asset
costing £20,500. The agreed trade-in value was £5,500. Which of the following will be included in the
statement of profit or loss?
A. A profit on disposal £5,500
B. A loss on disposal £4,500
C. A loss on purchase of a new asset £5,500
D. A profit on disposal £500
Question 23.
Faringdon plc records £5,274 overdrawn as the bank balance in its statement of financial position
at 31 December 20X0 after reconciling the year end bank statement. This showed interest
charged of £78 which had not previously been recorded in the cash book. The company noted
that payments of £564 and receipts of £1,875 have not yet appeared on the bank statement.
The bank statement at the year-end showed an overdrawn balance of:
A £3,963
B £6,507
C £6,585
D £6,663
 Question 24. Part of the process of preparing a company's statement of cash flows
is the calculation of cash inflow from operating activities.
Which of the following statements about that calculation (using the indirect
method) are correct?
1 Loss on sale of operating non-current assets should be deducted from
net profit before taxation.
2 Increase in inventory should be deducted from operating profits.
3 Increase in payables should be added to operating profits.
4 Depreciation charges should be added to net profit before taxation.
A 1, 2 and 3
B 1, 2 and 4
C 1, 3 and 4
D 2, 3 and 4
Question 5:
Wiggins plc has received a statement from its supplier, Froome plc, dated 31 October
20X8, which shows a balance of £2,458. This does not agree to the balance on Froome’s
account in Wiggins plc’s payables ledger. Upon investigation the following are found:
 On 30 October 20X8, Wiggins plc returned some goods to Froome plc which had been
invoiced at £372. Although Wiggins plc had not received a credit note from Froome plc by
31 October, it adjusted inventories and payables to account for the return.
 On 14 October 20X8, Wiggins plc made a bank transfer of £1,372 to Froome plc for a
purchase on which it had expected to earn the early settlement discount of 2%. Froome
plc has recorded the payment made by Wiggins, but had not expected the discount to be
taken and is disputing whether Wiggins plc met the settlement terms.

What is the balance on Froome’s account in Wiggins plc’s payables ledger at 31

October 20X8?
A. £2,430
B. £2,114
C. £2,086
D. £2,058
 1.

£ £
Sales 955,852
Inventories at 30 June 20X1 72,000
Purchases 689,378
Distribution costs 146,589
Administrative expenses 296,000
interest 4,050
Income tax 3,529
Plant and machinery – cost 382,000
Plant and machinery – accumulated
32,000
depreciation
Intangible asset 37,000
Intangible– accumulated amortisation 24,500
Trade receivables 210,324
Bank balance 2,568
Ordinary share capital (10p shares) 60,000
Share premium 18,000
Retained earnings at 30 June 20X1 456,000
Suspense 28000
6% Debenture 250,000
Trade payables 19,086

1. Inventories were valued at a cost of £89,623 at 30 June 20X2.

This figure includes inventories costing £5,600 that were included twice during the inventory count.
2. Provisions at 30 June 20X2 were estimated to be £67,500.
The provisions are for distribution costs.
3. Included in plant and equipment is machinery purchased on 1 July 20X1 for £14,000 that Reindeer plc now believes
should be treated as repairs. Repairs are charged to administrative expenses.
4. Depreciation is charged on plant and equipment at a rate of 30% pa on cost, and is charged to administrative
expenses.
5. Intangible assets are amortised at 25% pa on the reducing balance basis.
Amortisation is charged to other operating expenses. Intangibles costing £4000 were purchased on 1 January 20X2,
and this figure is included in the intangible assets cost figure in the trial balance.
6. The debenture loan was issued on 1 October 20X1.
The debenture is due for repayment in four equal annual instalments starting on 1 October 20X2.
7. The income tax liability for the year ended 30 June 20X2 is estimated to be £9,788.
8. An electronic payment of £2,000 was received from a credit customer on 27 June 20X2.
This was returned unpaid by the customer’s bank on 30 June 20X2. No accounting entry has been made for the
dishonoured payment.
9. On 1 January 20X2 Reindeer plc issued 8,000 ordinary shares for £3.50 each. The proceeds were credited to the
suspense account.
Statement of profit or loss
Sale
COS

Gross profit
rent income

Ad expense
Dis cost
operating ex
FC

profit before tax

tax expense
net profit

Statement of financial position

NCA
Plant and machinery at cost

Intangible asset
CA
Inventory
TR
Prepayment
Cash and cash equivalent
total asset
Equity
Share capital
Share premium
RE
Liabilities
NCL
Debenture
CL
TP
Accruals
Provision
Tax payable

Total equity + liabilities