Mock Examination 4
Time allowed: three hours
Answer all the questions
The examination paper contains 30 questions. Questions 1 to 25 each have one correct answer. These questions carry 2 marks each. Questions 26 to 30 carry 10 marks each.
1. Which of the following is not a description or advantage of the petty cash imprest system?
A. All petty cash expenditure must be authorized by designated persons.
B. It facilitates control of the total petty cash expenditure in each accounting period.
C. It deters the theft of cash by the petty cashier.
D. The amount of petty cash expenditure in each accounting period is reimbursed at the end of that period or the start of the next.
2. On 31 July 20X2 the inventory of D. Springfield Ltd. was completely destroyed by a fire. The following information has been obtained from the financial statements:
(i) Inventory at 1 January 20X2 at cost was £40,000.
(ii) Sales for the period 1 January 20X2 to 31 July 20X2 were £100,000.
(iii) Purchases for the period 1 January 20X2 to 31 July 20X2 were £70,000.
(iv) The normal gross profit margin as a percentage of sales is 25%.
The cost of stock destroyed on 31 July 20X2 was:
A. £10,000
B. £25,000
C. £30,000
D. £35,000
3. Which of the accounting principles listed below is defined in The Framework for the Preparation and Presentation of Financial Statements (IASC, 1989) as follows:
‘The process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the statement of financial position and the statement of profit and loss’
A. Accounting concepts
B. Measurement bases
C. Accounting policies
D. Estimation techniques
4. According to IAS 8 ─ Accounting Policies, Changes in Accounting Estimates and Errors (IASB, 2010 version) which of the following is not highlighted as an attribute of reliable financial information?
A. Neutral
B. Complete
C. Disclosure
D. Faithful representation
5. Ben E. King has an accounting year ending on 30 April. He purchased some shop fittings on 1 September 20X2 at a cost of £18,000. These have an estimated useful life of 10 years and an expected residual value at the end of that time of £3,000. The business has a policy of depreciating shop fittings using the straight line method, with a proportionate charge in the year of acquisition.
The depreciation expense/charge in respect of the above shop fittings for the year ended 30 April 20X3 will be:
A. £1,000
B. £1,200
C. £1,500
D. £1,800
6. The ledger of Rex Prince, a trader, contained the following balances at 30 June 20X2:
£
Motor vehicles: cost 70,000
Motor vehicles: accumulated depreciation 40,000
During the year ended 30 June 20X3, a vehicle with a written down value of £10,000 was sold for £12,000. This vehicle had originally cost £25,000. Another vehicle was purchased during the year at a cost of £35,000. The business has a policy of depreciating vehicles using the straight line method at a rate of 20% per annum, with a full year’s charge in the year of acquisition and none in the year of disposal.
The amount that will be shown in the statement of financial position at 30 June 20X3 in respect of the written down value of motor vehicles will be:
A. £24,000
B. £29,000
C. £39,000
D. £48,000
7. B. Springstein purchased some machinery on 1 October 20X2 at a cost of £20,000. The payment was entered correctly in the cash book but debited to the plant repairs account in error.
Machinery is depreciated at 20% per annum using the reducing balance method, with a proportionate charge in the year of acquisition.
As a result of the above, the net profit for the year ended 30 June 20X3 will be:
A. Overstated by £3,000
B. Understated by £3,000
C. Overstated by £17,000
D. Understated by £17,000
8. Which of the following is not consistent with IAS 38 – Intangible assets (IASB, 2010 version)?
A. Research expenditure, other than capital expenditure on research facilities, must be expensed.
B. One of the conditions which must be satisfied if development expenditure is to be capitalised is that the outcome of the project has been assessed with reasonable certainty as to its technical feasibility.
C. One of the conditions which must be satisfied if development expenditure is to be capitalised is that the outcome of the project has been assessed with reasonable certainty as to its ultimate commercial viability.
D. Where development expenditure is capitalised, it must be amortized over a period not exceeding five years.
9. B. Lee has an accounting year ending on 30 June. At 30 June 20X2 the ledger contained a provision for doubtful debts of £25,000. During the year ended 30 June 20X3 there were bad debts written off of £18,000. The provision for doubtful debts at 30 June 20X3 should be £20,000.
The total amount that will be debited to the income statement for the year ended 30 June 20X3 in respect of bad debts and the provision for doubtful debts will be:
A. £13,000
B. £23,000
C. £27,000
D. £38,000
10. P. Everly Ltd. has an accounting year ending on 31 October. The company pays rent on its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was £60,000 per year until 30 June 20X2 when it was increased to £72,000 per year as from 1 July 20X2.
The charge to the statement of profit and loss (income statement) in respect of rent for the year ended 31 October 20X2 will be:
A. £54,000
B. £64,000
C. £65,000
D. £66,000
11. How many of the following four statements are untrue?
(i) Adjusting the purchases for inventories to arrive at the cost of sales is an application of the matching principle.
(ii) Depreciation is the measure of the cost or revalued amount of the economic benefits of a tangible non-current asset that have been consumed during an accounting period.
(iii) A provision is a liability of uncertain timing or amount.
(iv) Prepayments are an application of the accruals concept.
A. None
B. One
C. Two
D. Three
12. S. Shaw has an accounting year ending on 30 September. The inventory on 30 September 20X2 at cost was £36,000. This includes the following:
(i) 300 units of Product A at a cost of £5 each. These were sold on 3 October 20X2 for £3 each, with selling expenses of £200.
(ii) 100 units of Product B at a cost of £10 each. These items were defective at 30 September 20X2. They were repaired on 2 October 20X2 at a cost of £400 and then sold on 4 October 20X2 for £12 each.
The value of inventory at 30 September 20X2 that should be included in the final accounts will be:
A. £35,000
B. £35,200
C. £35,400
D. £37,500
13. After checking the contents of a cash book against the bank statement, which of the following items could require an entry in the cash book?
(i) Deposits not credited
(ii) Standing order on the bank statement
(iii) Bank charges
(iv) Cheques not presented
(v) Cheque received that was dishonoured
(vi) An error on the bank statement
A. (i) and (iv)
B. (ii), (iii) and (v)
C. (ii), (iii), (v) and (vi)
D. (ii), (iii) and (vi)
14. An inexperienced book-keeper has prepared the following bank reconciliation statement:
£
Overdraft per bank statement 3,500
Add: deposits not credited 6,100
9,600
Less: cheques not presented 4,200
Overdraft per cash book 5,400
Given that the overdraft per the bank statement is correct, the balance on the cash book should be:
A. £1,600 favourable cash at bank
B. £1,600 overdraft
C. £6,800 favourable cash at bank
D. £13,800 overdraft
15. The trial balance of M. Faithful for the year ended 30 April 20X3 failed to agree. The difference was entered in a suspense account. Subsequently the following errors were identified:
(i) A cheque received from the sale of a motor vehicle (non-current asset) was entered correctly in the cash book but posted to the debit side of the sales account in error.
(ii) The total of the sales returns day book had been debited to the purchases returns account in error.
(iii) The proprietor, M. Faithful, had taken goods out of the business for her own use and not paid for them. No record of this has been made in the books.
(iv) A cheque paid to G. Harris, a creditor, was entered correctly in the cash book but then credited to G. Harrison’s account in error.
(v) A credit balance on the interest receivable account in the ledger had been entered in the trial balance on the debit side.
Which of the above errors would require an entry in the suspense account as part of the process of correcting them?
A. (i), (ii) and (iii)
B. (i), (ii) and (iv)
C. (i), (iv) and (v)
D. (ii) and (v)
16. Up until 30 June 20X2 Amanda and Brenda were in partnership sharing profits and losses equally after giving Amanda a salary of £24,000 per annum and Brenda a salary of £20,000 per annum.
On 1 July 20X2 Claire was admitted to the partnership. Profits and losses are to be shared between Amanda, Brenda and Claire in the ratio 2:2:1 respectively, after annual salaries of Amanda £28,000, Brenda £26,000 and Claire £22,000.
The net profit before appropriations for the year ended 31 December 20X2 was £100,000 which is thought to have accred evenly over the year.
The partners’ total shares of profit for the year ended 31 December 20X2 (including salaries) will be:
Amanda Brenda Claire
A. £18,800 £18,800 £2,400
B. £42,000 £39,000 £19,000
C. £44,600 £38,600 £16,800
D. £44,800 £41,800 £13,400
17. Which of the following statements about the published financial statements of companies is not in accordance with the Companies Act 2006?
A. The authorised share capital must be either shown on the face of the statement of financial position or disclosed as a note to the financial statements.
B. The allotted share capital must be either shown on the face of the statement of financial position or disclosed as a note to the financial statements.
C. The called-up share capital must be either shown on the face of the statement of financial position or disclosed as a note to the financial statements.
D. The share capital shown on the statement of financial position or in the notes to the financial statements will comprise the equity shares and any preference shares.
18. Which of the following comprises the most complete list of correct items that should be disclosed in the note to published financial statements known as movements on reserves?
A. Profit for the financial year, premiums on the issue of shares, surpluses on the revaluation of non-current assets.
B. Profit for the financial year, premiums on the issue of shares, surpluses on the revaluation of non-current assets, dividends.
C. Retained profit for the financial year, premiums on the issue of shares, surpluses on the revaluation of non-current assets.
D. Retained profit for the financial year, premiums on the issue of shares, surpluses on the revaluation of non-current assets, prior year adjustments.
19. A company has an accounting year ending on 31 December. During the year ended 31 December 20X2 the company sold its southern division at a profit of £8 million. The company’s trading profit for the year ended 31 December 20X1 was £20 million, to which the southern division had contributed £5 million.
In the financial statements for the year ended 31 December 20X2 the profit on sale of the southern division of £8 million should be treated as:
A. That part of the operating profit arising from discontinued operations.
B. An exceptional item shown on the face of the income statement.
C. An exceptional item shown as a note to the financial statements.
D. An extraordinary item.
20. Which of the following is not given as an example of an exceptional item in IAS 1- Presentation of Financial Statements (IASB, 2010 version)?
(i) Amounts written off goodwill.
(ii) Profit on the disposal of freehold premises.
(iii) Loss on a long-term contract.
(iv) Costs of a fundamental reorganisation.
A. (i)
B. (ii)
C. (iii)
D. (iv)
21. The following are events after the reporting period as defined by IAS 10 – Events after the Reporting period (IASB, 2010 version):
(i) An issue of shares.
(ii) A change in the rate of corporation tax.
(iii) The discovery of fraud.
(iv) The sale of investments held at the reporting period date for less than cost.
(v) The acquisition of another large company.
According to IAS 10, which of these would be treated as adjusting events?
A. (i), (ii) and (iii)
B. (i), (ii) and (v)
C. (i), (iii) and (v)
D. (ii), (iii) and (iv)
22. At 31 October 20X1 the equity share capital and share premium accounts of Eagles plc were as follows:
£’000
Allotted and called-up share capital:
500,000 equity shares of £1 each 500
Share premium account 200
On 1 January 20X2 the company made a rights issue of one fully paid equity share for every five held at a price of £1.50 each.
On 1 May 20X2 the company made a bonus (capitalization) issue of one fully paid equity share for every four in issue at that time, using the share premium account for the purpose.
Which of the following shows the balances on the company’s equity share capital and share premium accounts after the above two issues of shares?
Share capital Share premium
£’000 £’000
A. 600 250
B. 650 100
C. 725 125
D. 750 100
The following information relates to Questions 23, 24 and 25.
On 1 January 20X2 Apple plc purchased 75% of the equity shares of Pear plc at a price of £550,000. At that date the allotted and called-up share capital of Pear plc consisted of 400,000 equity shares of £1 each, and its reserves comprised a retained earnings reserve of £200,000.