Foundations in Accountancy/ACCA Applied Knowledge Financial Accounting (FFA/FA) Practice & Revision Kit For exams from 1 September 2023 to 31 August 2024 @ sppFirst edition May 2011 Eleventh edition 2023 ISBN: 9781 0355 0101 4 Previous ISBN: 9781 5097 4601 9 eISBN: 9781 0355 0066 6 British Library Cataloguing-in-Publication Data A cotologue record for this book is ovailoble from the British Librory Published by BPP Learning Media Lid BPP House, Aldine Place 1h2-Thly Uxbridge Rood London W12 8AA learningmedia.bpp.com Printed in the United Kingdom Your learning moterials, published by BPP Learning Media Ltd, are printed on poper obtained from traceoble sustainable sources. All rights reserved. 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Further details of the Foundation’s Trade Morks ore ovailable from the Licensor on request HEESIFRSContents Finding questions Question index v Helping you with your revision vi Using your BPP Practice & Revision Kit vii Passing the FFA/FA exam vill Essential skills areas to be successful in the Financial Accounting (FFA/FA) exam x Tackling multiple choice questions (MCQs) xiv Using your BPP products xiv ‘Questions and answers Questions 3 Answers 223 Exam Practice Mock exam 4 (Specimen Exam) Questions 343 Answers 361 Mock exam 2 Questions 975 Answers 393 Mock exam 3 ‘Questions 407 Answers 423‘Page number Ema certo) ee eee) 1 The context and purpose of financial au oo 3 223 reporting | Mitchie emo ennecan 2 The qualitative character ial 6g 48 a 88 information Reece | 2Double entry bookkeeping | 1 ua sooth 227 4 Double entry bookkeeping I 229 5 Soles tox 6 inventory 46 55 32 236 7 Tangible non-current assets | 38 46 39 aur 8 Tengible non-current assets Il 255, 9 Intangible non-current assets 249. 10 Accruals ond prepayments: 38 11 Receivables and payables - uu 257 12 Provisions and contingencies 26 261 13 Capitol structure and finance costs a) 4 3 263 Piso ehacceee 414 Trial balance (15 mark question) 18 Trade receivables and trade payables 4 53 7” 268 16 Bank reconciliations 30 36 88 278 17 Cortection of errors 36 44 cn an 18 Suspense accounts 26 3t 99 280 19 Shuswap 20 Malright 6 18 106 284 21 Tonson 8 1 109 286 iv Financial Mesounting (FA/FA) © sppiat Ceram as allocation (mins): | Questions | Answors 22Enma A a 23 Sioux [Pee ete eerie 29 24 Snowdrop. (Shelia 16 | 200 25 Geofost cee leicawathiante a 26 Incomplete records ae [ss2i lnesenialls a) a2 | 27 Company financial statements fen erie 126 295 28 Disclosure notes ie | 2 | 190 | 20a 29 Events after the reporting period [3 [2 193 ze | 30 Statements of cash flows lecteial acl 136 299 edna) 31 Swing endeot cae 5 eee ee 303 82 Black ond Bury eo | a8 17 304 33 Prostond 6 | io | aos ‘34 Liverton and Everpool | 16 306 | 35 Consolidated financial statements Eee ene <6 Binky ond Smokey (8 mark question) | I | ee eer 38 Mixed bank 1 37 Interpretation of financial statements 39 Mixed bank 2 wo We 7 319 MO Mixed bank 3 Vgee Oy] evo rene ese 1 Mixed bonk 4 i a a es 42 Mixed bank 5 | 38 46 200 i 330 | 43 Mixed bank 6 e 36 us| 206 333 4W Mixed bank 7 Mock exam 1 (Specimen Exam) Mock exam 2 375 393 Mock exam 3 407) 423 ore WwicdictonHelping you with your revision BPP Learning Media — ACCA Approved Content Provider ‘As an ACCA Approved Content Provider, 8PP Learning Media gives you the opportunity to ust ion materials reviewed by the ACCA examining team. By incorporating the ACCA exami team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Medio Practice & Revision kit provides excellent, ACCA-approved support for your ‘These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the material properly covers the syllabus and study guide outcomes, used by the ‘examining team in setting the exams, in the appropriate breadth and depth. The review does not ensure that every eventuality, combination or application of examinable topics is addressed by the ACCA Approved Content. Nor does the review comprise a detailed technical check of the content as the Approved Content Provider has its own quality assurance processes in place in this respect, 9 BPP Learning Media do everything possible to ensure the material is accurate and up to date when sending to print. In the event that any errors are found after the print date, they are uploaded to the following website: www.bpp.com/learningmedia/Errato. Selecting questions We provide signposts to help you plan your revision, including a full question index. Attempting mock exams There ore three mock exams that provide practice at coping with the pressures of the exam day, We strongly recommend that you ottempt them under exam conditions, Mock exam 1 is the ACCA Specimen Exam. Mock exam 2 and Mock exam 3 reflect the question styles and syllabus coverage of the exam. vi Financial Accounting (FFA/FA) @ sppUsing your BPP Practice & Revision Kit Aim of this Practice & Revision Kit To provide the practice to help you succeed in the examination for Financial Accounting (FFA/FA). To pass the examination you need a thorough understanding in all areas covered by the syllabus ‘and teaching guide, Recommended approach + Make sure you are able to answer questions on everything specified by the syllabus ond teaching guide. You cannot make any assumption’ about what questions may come up in {your exam, The examining team aims to discourage ‘question spotting’. + All sections have a selection of OBJECTIVE QUESTIONS (including Multiple Choice Questions). Make good use of the HELPING HANDS provided to help you answer the questions. + There is a mark allocation for each question. Each mark carries with it a time allocation of 1.2 ‘minutes. A 2-mark question should therefore be completed in 24 minutes, + 70% of the exam consists of individual objective test questions. You should attempt each bank of objective test questions to ensure you are familiar with their styles and to practise your technique. Skills checkpoint 1 Approach to Objective Test Questions will provide useful guidance on how best to opproach these questions. + The remaining 30% of the exam is a multi-task question, which is essentially a range of related objective test questions. Skills checkpoint 2 Approach to Multi-Task Questions will provide guidance on how to tackle these. * Once you have completed all of the questions in the body of this Practice & Revision Kit, you should attempt the MOCK EXAMS under examination conditions. Check your answers against ‘our answers to find out how wall you dic. @ spp Inroduction vilPassing the FFA/FA exam Financial Accounting aims to develop your knowledge and understanding of the underlying principles, concepts and regulations relating to financial accounting. You will need to demonstrate technical proficiency in the use of double entry techniques, including the preparation of basic financial statements for incorporated and unincorporated entities, a9 well as simple consolidated financial statements for group entities. You also need to be able to conduct a basic interpretation of financial stotements. If you plan to progress through the ACCA qualification, the skills you learn in FFA/FA will be built upon in the exams for Financial Reporting (FR) and SBR Strategic Business Reporting (SBR). To access the Foundations in Accountancy syllabi, visit the ACCA website: www.cecaglobal.com Computer-based exams ‘The Financial Accounting exam is a computer-based exam (CBE). ‘Computer-based examinations (CBEs) are available for the Foundations in Accountancy exams. The CBE exoms for the first seven modules can be taken at any time, these are referred to as ‘exams on demand’, The Option exams can be sat in June and December of each year. these are referred to as ‘exams on sitting’. Financial Accounting is on ‘exam on demand’. Computer-based examinations must be taken at an ACCA CBE Licensed Contre, How do CBEs work? + Questions are displayed on a monitor. + Candidates enter their answer directly onto the computer, + Candidates have two hours to complete the examination. + Candidates are provided with o Provisional Result Notification showing their results before leaving the examination room. + The CBE Licensed Centre uploads the results to the ACCA (as proof of the candidate's performance) within 72 hours. + Candidates sitting the Option exams will receive their results approximately five weeks after the exams sitting once they have been marked by an expert. + Candidates can check their exam status on the ACCA website by logging into myACCA, Benefits + Flexibility as the first seven modules, exams on demand, can be sat at any time. + Resits for the first seven modules can also be token at any time and there is no restriction on the number of times a candidate con sit a CBE. + Instant feedback for the exams on demand as the computer the CBE. + Results are notified to ACCA within 72 hours For more information on computer-based exams, vist the ACCA website: plays the results at the end of www.eccaglobal.com/gb/en/student/exam-entry-and-administration/computer-basedexams.html Approach to examining the syllabus ‘The exam is structured as follows: SEES Section A ~ 35 compulsory objective questions of 2 marks each 70 Section B - 2 compulsory multi-task questions of 15 marks each 30 100 Vili Financia Accounting (FFA/FA) © sppThe Financial Accounting syllabus is assessed by a 2 hour exam. The pass mark is 50%. All questions in the exam are compulsory. This means you cannot avoid any topic, but also means that you do not need to dedicate time in the exam deciding which questions to attempt. Section A consists of 35 objective test (OT) questions worth two morks each and cover a brood range of syllabus topics. The OT questions can take the form of multiple choice, multiple response, number entry or multiple response matching. This means that the exomining team is able to test ‘most of the syllabus at each sitting, so you need to have revised right across the syllabus for this exam. Section B consists of two multi-task questions (15 marks each) testing the candidates’ understanding ond application of financial accounting skills in more depth. n Section B jotes are required to provide answers which test their understanding and ability to draft financial statements. Candidates may be required to prepare financial statements for a single entity or for a group of companies. There may also be some element of ratio calculation/interpretation. You may not always be required to prepare the full financial statement and may instead be asked to complete a partial statement. In this situation there will be additional elements to the question. Candidates will be required to prepare the financial statements using a variety of number entries, pull down menus and multiple response matching. Revision This Practice ond Revision kit has been reviewed by the FFA/FA examining team and contains the ACCA Specimen Exam, so if you just work through it to the end you would be very wall prepared. for the exam. You must also visit the ACCA website (www.accaglobal.com) to familiarise yourself with the CBE software, Itis important to tackle questions under exam conditions. Allow yourself just the number of minutes shown next to the questions in the index and don't look at the answers. until you have finished. Then correct your answer and go back to the Workbook for any topic you ore having trouble with. Try the some questions again a week later — you will be surprised how much better you are getting. Doing the questions like this will really show you what you know, and will make the exam experience less worrying. Sitting the exam If you hove di bear in min ently done your revision you can pass this exam. There are a couple of px + Read the question properly. + Don't spend more than the allotted time on each question. If you are having trouble with o ‘question, use the ‘flag for review’ function in the exam software ond carry on. You can come back to it at the end. Remote invigilated exams In certain geographical areas it may be possible for you ts take your exam remotely. This option, which is subject to strict conditions, can offer increased flexibility and convenience under certain circumstances. Further guidance, including the detailed requirements ond conditions for taking the exam by this method, is contained on ACCA's website at hutps://erwen.accaglobol.com/an/en/student/exam-entry-and-administration/about-our- ‘exams/remote-exams/remote-session-exeme.html. see eerEssential skills areas to be successful in the Financial Accounting (FFA/FA) exam We think there are three areas you should develop in order to achieve exam success in Financial Accounting (FFA/FA): (@) Knowledge epplication: You will develop your technical knowledge as you work through the BPP Financial Accounting Workbook and this Practice & Revision Kit, (b) Specific FFA/FA skills © Exam success skills These are shown in the diagram below. nee Planning Approach to sbjoctve tot (om questions Correction ‘errr ‘Josie ond ‘ecalvobies| . Ettective win hd prosantction Specific FFA/FA skills These are the skills specific to FFA/FA that we think you need to develop in order to pass the exom, In the Workbook, there are five Skills Checkpoints which define each skill and show how itis, ‘applied in answering a question. A brief summary of each skill is given below. Skill 1: Approach to objective test (OT) Questions The FFA exam contains two sections. Section A consists of 35 objective test (OT) questions worth 2 marks each and Section 8 contains 2 multi-task questions worth 15 marks each. The multi-task questions ore made up of OT questions and therefore being able to answer OT questions effectively is extremely important. This skills checkpoint will focus on Section A questions, explaining the best way to tackle these questions ond illustrating the technique through worked examples. BPP recommends o step-by-step technique for approaching objective test questions: Step 1 Read the requirement fi Step 2 Apply your technical knowledge to the dota in the question. Step 3 Answer the questions you know first ~ flag the ones you don’t know and come back to them ater. Step 4 Answer all questions ~ there is no penalty for an incorrect answer. Skill 1 is developed further in Skills Checkpoint 1 which is available in the Financial Accounting Workbook. sx Fnancil Accounting (FFA/FA) @sreSkill 2: Approach to multi-task questions (MTQs) MTQs in Section B might ask you to prepare financial statements for a single entity or for a group of companies. There may also be some element of ratio caiculation/interpretation, You may not always be required to prepare the full financial statement and may instead be asked to complete © partial statement. In this situation there will be additional elements to the question. In this skills checkpoint, we will focus on the specific skills required in o multi-task question. We take you through the technique you should adopt and illustrate that through the use of questions. BPP recommends a step-by-step technique for approaching multi-task questions: Stop 1 Read the requirements ofall tasks Step 2 Recall any relevant technical theory Step 3 Answer the questions you know first Step 4 Answer all questions Skill 2 is developed further in Skills Checkpoint 2 which is avatlable in the Finané Workbook, Skill 3: Excel skills in the real world As you move through your ACCA examinations and your accountancy career you will nead good! spreadsheet skills It is crucial that you have a good working knowledge of spreadsheets and that you are able to use them quickly and effectively. Many people do not use Excel to its full Potential, for example they type in totals rather than asking Excel to sum it for them. This often leads to errors. Accounting This is ¢ practical skill aimed at your working life rather than being directly related to a skill that you need to pass this exam, Whilst this section is not exam focussed, spreadsheets will be @ key part of your accountancy career. Future employers will always look for good core spreadsheet skils when selecting a candidate for a role. Skill3 is developed further in Skils Checkpoint 3 which is available in the Financial Accounting Workbook. Skill 4: Irrecoverable debts and the allowance for receivables The 2018/2019 examiners’ report commented that the topic of ‘irrecoverable debts and allowance for receivables’ continues to be an area of the syllabus where performance is mixed with many, candidates not providing the correct response. There is often a lot of detail in these questions and they need to be read very carefully, In this skills checkpoint we will recap some of the key areas and identify where students typically struggle with this topic and how to get to grips with it. Skill 4 is developed further in Skills Checkpoint 4 which is available in the Financial Accounting Workbook, Skill 5: Correction of errors ‘The correction of errors area of the examination often causes difficulties for candidates as they ‘re required to think around the subject rather than just rote learning. A step-by-step technique for attempting these questions Is outlined in the checkpoint along with a reminder of the key areas of this topic. Questions are used to highlight the problems students face and how to address them. Itis similar to the structure we have seen for our other skills. Skil 5 is developed further in Skils Checkpoint 5 which is avollable in the Financial Accounting Workbook. 9 BPP Introduction xtExam success skills Passing the FFA/FA exam requires more than applying syllabus knowledge and demonstrating the specific FFA/FA skills; it also requires the development of excellent exam technique through question practice. ‘We consider the following six skills to be vital for exam success. The Skills Checkpoints show how each of these skills can be applied specifically to the FFA/FA exam. i Managing information Exam success s| You will not have to deal with large amounts of information in each individual question in FFA. Some of the questions in the exam will present you with a short scenario, particularly in the Section B questions. The skill is how you handle this information while working under time pressure, You must take an active epproach to reading each scenario, Focus on the requirement first, Uunderlining/ highlighting key instructions, including words like ‘NOT’. Then think about any technical knowledge that is relevant before reading the scenario for the question. Doing this, means that your mind will be focussed as you read the scenario, which means you will take in the information better. Exam success skill 2 Correct interpretation of the requirements Itis important to note the requirement carefully. Look out for the number of options you have to choose, as not all questions require only one option. Also, beware of challenges, such as the information being presented in one particular order in the scenario, but being presented in a different order in the options. Exam success skill 3 ‘Answer planning: Priorities, structure and logic This skill is not so relevant for the Applied Knowledge exams, Exam success skill 4 {Ao important tip in numerical questions is not to look at the options until you have completed the coleulation as you think it should be done. The reason for this is that the ‘wrong answers’ are chosen carefully to look very realistic, and you may be tempted to choose one of these if you don't do the calculation first. Exam success skill 5 Effective writing and presentation This skill is not relevant for FA/FFA as all the questions are objective test and multi-task questions 0 you will not have to write. Exam success skill 6 Good time management The exam is two hours long. You should therefore spend 1.2 minutes per mark, It is best to work through Section A first, which should take you 84 minutes, before spending the remaining 36 minutes on Section B. Don’t get stuck on difficult questions - if @ particular question does appear difficult, move on, and come back to it after you have answered all the easier questions. Don’t time yourself for each question, but do check every half hour that you hove answered 25 marks worth of ques sll Financial Accounting FFA) @ sppTwo minutes before the end of your time for Section A, go back and answer all outstanding questions, even if you have to guess, There is no harm in guessing as there is no negative marking In ACCA exams, so the worst that can happen is you don't gain two marks for the question. If you find that this approach doesn’t work for you, don't worry ~ you can develop your own technique. Keep an eye on the clock Aim to attempt all requirements, but be ready to be ruthless and move on if your answer is not going as planned. The challenge for many is sticking to planned timings. Be oware this is difficult to achieve in the early stages of your studies and be ready to let this skill develop over time. Question practice Question practice isa core part of learning new topic areas. When you practice questions, you should focus on improving the Exam success skills ~ personal to your needs ~ by obtaining feedback or through a process of self-assessment. @eer vvedton xTackling multiple choice questions (MCQs) MCQs are port of all Foundations in Accountaney exams, The MCQs in your exam contain four possible answers. You have to choose the option that best answers the question. The incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By prectising MCQs you can develop this skill, giving you o better chance of passing the exam. You may wish to follow the approach outlined below, or you may prefer to adapt it. Step1 Skim reed all the MCQs and identify what appear to be the easier questions. Step 2 Attempt each question ~ starting with the easier questions identified in Step 1. Read the question thoroughly. You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning. Adopt the method thot works best for you. Stop 3 Read the options and see if one matches your own answer. Be careful with numerical questions as the distracters ore designed to match answers that incorporate common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation? Stop 4 You may find that none of the options match your answer. + Re-read the question to ensure thot you understand it and are answering the requirement. + Eliminate any obviously wrong answers + Consider which of the remaining answers is the most likely to be correct and select the option. Stop 5 If youare stil unsure make @ note and continue to the next question, Step 6 Revisit unanswered questions. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You ore not penalised for incorrect answers, so never leave a question unanswered! Anote of caution After extensive practice ond revision of MCQs, you may find that you recognise a question when {you sit the exom, Be aware that the detail and/or requirement may be different. If the question seems familiar read the requirement and options carefully ~ do not assume that itis identical, Using your BPP products This Practice & Revision Kit gives you the question practice and guidance you need in the exam. Our other products can also help you pass: + Workbook introduces and explains the knowledge required for your exam You can purchase this product by visiting. www.bpp.com/learning-media. a ae @ sprQuestions2 Finonciol Accounting (FFA/FA)Part A: The context and purpose of financial reporting 1 The context and purpose of financial reporting (41 mins) 1a Who issues IFRS® Standards? © The IFRS Advisory Committee © The stock exchange (© The International Accounting Standards Board (the Board) © The government @ morks) 1.2 Which groups of people are most likely to be interested in the financial statements of a sole trader? (Shareholders of the entity @) The business's bank manager ©) The tox authorities () Financial analysts © tand 2 only © 2and3 only © Band 4 only © 1,20nd3 only (@ marks) 1.3. Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false. A supplier of goods on credit is interested only in the statement of | ppyg financial position, ie an indication of the current state of affairs. The objective of financial statements is to provide financial information about the reporting entity's assets, liabilities, equity, income and expenses that is useful to users of the financial statements in assessing the prospects for future net cash flows to MTs G3 the reporting entity and in accessing management's stewardship | of the entity's economic resources. (2 marks) 1.4 Which of the following are advantages of trading as a limited liability company? (1) Operating as o limited liability company makes raising finance easier because additional shares can be issued to raise additional cash @)_ Operating os a limited liability company is more risky 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. only 2only Both tand 2 Neither t or 2 (2 marks) e000 @ sep Ovestions 316 7 18 4 Which of the following best describes corporate governance? © Corporate governance is the system of rules and regulations surrounding financial reporting. © Corporate governance is the system by which companies and other entities are directed and controlled. © Corporate governance is carried out by the finance department in preparing the financial statements. © Corporate governance is the system by which an entity monitors its impact on the natural environment. (2 marks) Identify which of the following statements ore true. ()_ The directors of a company are ultimately responsible for the preporation of financial stotements, even if the majority of the work on them is performed by the finance department, @) IFfinancial statements ore oudited, then the responsibility for those financial stotements instead falls on the auditors instead of the directors. (8) There are generally no laws surrounding the duties of directors in managing the affairs of a company. only 2only 2and 3 only e000 tand 3 only e ) marks) Which of the following statements correctly describes the contents of the statement of financial position? © A\lst of ledger balances shown in debit and credit columns © Als of oll the assets owned and all the liabilities owed by a business © Arecord of income generated and expenditure incurred over a given period © Arecord of the amount of cash generated ond used by a company in a given period (2 marks) Which of the following statements correctly describes the contents of the statement of profit or loss? © Allist of ledger balances shown in debit and credit columns (© Alist of all the assets owned and all the iobilities owed by @ business © Arecord of income generated and expenditure incurred over a given period © Arecord of the amount of cash generated and used by a company in a given period (2 marks) Finencal Accounting (FEA/B#) @ spp110 a 12 ‘Which of the following are true of partnerships? ()_ The partners’ individual exposure to debt is limited. (2) Financial statements for the partnership by law must be produced and made public. @ Apartnership is not a separate legal entity from the portners themselves. © tand 2 only © 2only © Bonly © tand3 only eG (@ marks) Which of the following statements is/are true? (Directors of companies have a duty of care to show reasonable competence in their management of the affairs of a company, (@) Directors of companies must act honestly in what they consider to be the best interest of the company. @) Adirector’s main aim should be to create wealth for the shareholders of the company. © tand 2 only © 2only © 1,2and3 © tend 3 only (2 marks) Which of the following statements is/are true? (Tho IFRS Interpretations Committee is a forum for the International Accounting Standards Board (the Board) to consult with the outside world. @) The IFRS Foundation produces IFRS Standards, The IFRS Foundation is overseen ty the Board, @)_One of the objectives of the IFRS Foundation is to bring about convergence of national ‘accounting standards and IFRS Standards. © tond 3 only © 2only © 2and 8 only © Bonly (2 marks) What is the role of the International Accounting Standards Board (the Bord)? © Oversee the standard setting and regulatory process © Formulate IFRS Standards © Review defective accounts © Control the accountancy profession (2 marks) @ere Gisios’1.413 1 115, 1.16 117 6 Which of the following is NOT an objective of the IFRS Foundation? © Through the International Accounting Standards Board (the Board), develop a single set of globally accepted IFRS Stendards Promote the use and rigorous application of IFRS Standards ° (© Ensure IFRS Standards focus primarily on the needs of global, multi-national ‘organisations ° Bring about the convergence of notional accounting standards and IFRS Standards (@ marks) Which of the following statements correctly describes how IFRS Standards should be used? © To provide examples of best financial reporting practice for national bodies who develop their own requirements © To ensure high ethical stondards are maintained by financial reporting professionals internationally © To facilitate the enforcement of a single set of global financial reporting standards © To prevent national badies from developing thelr own financial reporting standards (2 marks) Which of the following is a benefit of running o business as a sole trader? (© Inthe event that the business generates a loss, this is shared by the partners instead of being borne by a sole trader only © Any debts of the business that cannot be met from the business assets are met from the owners’ private resources. (© Inthe event that the business generates a profit, this is due to the sole trader only, © The sole trader is not liable for the debts of the business. (2 morks) Which of the following is a benefit of incorporation? © The company's shareholders are not personally liable for the debts of the business. © The company directors must ensure the accounts are filed at Companies House by a specified date. © Companies must comply with the provisions of the Companies Act whereas unincorporated businesses do not. © The company’s tax charge must be shown in the statement of profit or loss. (2 marks) Identify, by indicating the relevant box in the table below, whether each of the following stotements is true or false. Sole traders and partnerships are unincorporated businesses. This means there is a legal distinction between the business and their TRUE FALSE owners. When a sole trader takes money from the business for personal “RUE RAGE Use, this is known as drowings. (2 marks) (Total = 34 morks) Financia! Accounting (FIVEA) @ spp@eepPart B: The qualitative characteristics of financial information 2 The qualitative characteristics of financial information (60 mins) 2.1 Which accounting concept should be considered if the owner of a business takes goods from inventory for their own personal use? © The materiality concept © The aceruals basis © The going concern concept © The business entity concept, (@ morks) 2.2 Sales revenue should be recognised when goods and services have been supplied to the customer; costs are incurred when goods and services have been received. Which accounting concept governs the above? © The business entity concept, © The moti © The occruals basis © The duality concept (2 marks) ity concept 2.3 Which accounting concept states that omitting or misstating this information could influence users of the financial statements? © The consistency concept © The accruals basis © The materiality concept © The going concem concept (2 morks) 2.4 Recording to the IASB’s Conceptual Framework for Financial Reporting, which TWO of the following ore part of faithful representation? Neutrality (2) Relevance (@) Fair presentation (4). Free from material error © tand2 © 2and3 © and © Band4 (@ marks) 8 Finoncol courting (FEVER) @spp25 26 27 28 Which of the following accounting concepts means that similar items should receive similar accounting treatment? © Conformity © Accruals © Matching © Consistency (2 marks) Listed below are some characteristics of financial information. () Relevance 2) Consistency (@) Faithful representetion (H) Accuracy Which one of these are qualitative characteristics of financial information according to the IASB's Conceptual Framework? © tand2 © and © 3and4 © tana3 (2 marks) Which of the following statements describes the qualitative characteristic of foithful representation? © Revenue earned must be matched aginst the expenditure incurred in earning it. © Having information available to decision makers in time to be copable of influencing their decisions, © The presentation and classification of items in the financial statements should stay the same from one period to the next. ©. Financial information should be complete, neutral and free from error. (2 marks) Listed below are some comments on accounting concepts. (Financial statements always treat the business as a separate entity. (2) Materiality means that only items having o physical existence may be recognised as assets. (2) Provisions are estimates and therefore can be altered to make the financial results of @ business more ottroctive to investors. Which, if any, of these comments is correct, according to the IASB's Conceptual Framework? © tonly © 2only © only © None of them (2 marks) @ BPP ‘Questions -g2.9 Which of the following statements about accounting concepts and the characteristics of financial information are correct? (1) The concept of accruals requires transactions to be reflected in the financial statements once the money or its equivalent is received or paid. (2) Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. (@ _Bosed on foithful representation, it may sometimes be necessary to exclude material information from financial statements due to difficulties establishing an accurate figure, tonly Yond 2 only 2only 2and 3 only (2 marks) oo0°o 2.10 The IASB's Conceptual Framework gives six qualitative characteristics of informotion. What are these six characteristics? © Relevance, Faithful representation, Comparability, Verifiability, Timeliness and Understandably © Accuracy, Faithful representation, Comparability, Verifiability, Timeliness and Understandably © Relevance, Faithful representation, Consistency, Verifiability, Timeliness ond Understandability © Relevance, Comparability, Consistency, Verifiobility, Timeliness and Understandability (2 marks) 2.11 Which one of the following is NOT a qualitative choracteristic of financial information according to the IASB's Conceptual Framework? © Foithful representation © Relevance © Timeliness © Accruals (@ marks) 2.12 According to the IASB's Conceptual Framework which of the following is NOT an objective of financial statements? © Providing information regarding the financial position of a business © Providing information regarding the performance of a business © Enobling users to assess the performance of management to aid decision making © Providing reliable investment advice (2 marks) 10 Finoncial Accounting (FAFA) © spp213 2H 215 2.16 217 Identify, by indicating the relevant box in the table below, whether each of the following statements is correct or incorrect. ‘Companies should never change the presentation or clossification of items in thelr financial statements, even If | CORRECT — INCORRECT there is a significant change in the nature of operations. Companies should create provisions in times of company | growth to be utilised in more difficult times, to smooth | CORRECT INCORRECT | profits. (2 marks) Which of the following statements about prudence is correct? © Prudence requires assets to be carried at their lowest possible valuation. © When prudence is applied, income is not recognised until the money has been received. © A prudent decision will mean lower expenditure. © Prudence does not allow for overstatement of liabilities. (2 marks) ‘Complete the following sentence, means having information available to decision makers in time to be capoble of influencing their decisions, (2 marks) Which of the following statements about understandabilty is correct? © Classifying, characterising and presenting information clearly ond concisely makes it understandable. © Providing users of the financial statements with details of all transactions the entity has entered into during the yeor makes the information understandable. (© Providing users of the financial statements with the information on a timely basis promotes understandability, © Financial information is more understandable if it feithfully represents the substance of the phenomena it purposes to represent. (2 marks) ‘According to the Conceptual Framework for Financial Reporting, which of the following describe relevance? © Complete and neutral © Predictive value, confirmatory value or both and free from error © Capable of making a difference to decisions made by users and complete ° Copable of making « difference to decisions made by users and having a predictive value, confirmatory value or both (2 marks) @epp Cisators™ 12.18 2.19 2.20 2.21 2.22 ory The Conceptual Framework for Financial Reporting provides @ choice of measurement, basis. Complete the following sentence. | for an asset is the cost that was incurred when the asset was acquired ‘or created and, for a liability, is the value of the consideration received when the licbility ‘was incurred. (2 marks) Under an accounting concept, the commercial reality of transactions is reflected in the financial statements ahd this takes precedent over the legal form of arrangement, Complete the following sentence. The accounting concept described above is known as vi) Pull down list + Accruals basis + Materiality + Offsetting + Substance over form (2 marks) Complete the following statement. Information can be compared: + For the same entity over aiferent periods + Between different entities This describes the enhancing choracter of [ |. (2 marks) Complete the following statement “The financial statements are normally prepared on the assumption that an entity is a ‘and will continue in operation for the foreseeable future’ (2 marks) Current value accounting attempts to address some of the problems of historical cost ceccounting by using information updated to reflect conditions at the measurement date. Which of the following are current value measurement basis? () Fir value 2 Volue in use @) Current cost © tonly © tand 2 only © 2ond3only © 1,2and3 (2 marks) Franc Acounting FEVER Oper2.23 Information thot can be independently verified is generally more useful for decision making than information that cannot. Which qualitative characteristic is being described here? The qualitative characteristic being described here is Pull down + Going concern + Prudence + Relevance + Verifiability (2 marks) 2.24 Complete the following statement. In the general ledger, for every debit entry there is a corresponding credit entry. This is relevant to the concept of accounting. @ marks) 2.25 Accompany has two bonk accounts with different benks. When preparing the financial statements, the bank eccount with « debit balance in the bank general ledger account is listed under currents ossets in the statement of financial position. The bank account with a credit balance in the bank general ledger account is listed under current flabilities in the statement of financial position, Which accounting concept requires the barik accounts described above to be presented in the stotement of financial position under current assets and current liabilities? aah ‘The accounting concept i Pull down list + Fair presentation + Going concern + Offsetting + Relevance (@ marks) (Total = 50 marks) @ppp SansoonnPart C: The use of double entry and accounting systems 3. Double entry bookkeeping | (46 mins) 34 a2 33. 34 " ‘Which one of the following can the accounting equation can be rewritten as? © Assets + profit - drawings — liabilities = closing capital © Assets - liabilities ~ drawings = opening capital + profit © Assets - liabilities - opening capital + drawings = profit © Assets ~ profit ~ drawings = closing capital - liabilities (@ morks) A trader's profit for the year may be computed by using which of the following formulae? © Opening copital + drawings ~ capital introduced - closing capital © Closing capital - opening capital + drawings ~ capital introduced © Opening copital ~ drawings + capitol introduced ~ closing capital © Opening copital ~ drawings ~ capital introduced ~ closing capital (2 marks) The profit earned by a business in 20X7 was $72,500. The proprietor injected new capitol of $8,000 during the year and withdrew goods for their private use which had cost $2,200, If net assets at the beginning of 20X7 were $101,700, what were the closing net assets? © $35,000 © $3900 © $168,400 © $180,000 (2 morks) The profit made by a business in 20X7 was $35,400. The proprietor injected new capital of $10,200 during the year and withdrew o monthly salary of $500. If net assets at the end of 20X7 were $95,100, what wos the proprietor’s capitol at the beginning of the year? sd (2 morks) Financial Accounting (FFAVFA) © pp3.5 3.6 a7 A sole trader took some goods costing $800 from inventory for their own use. The normal selling price of the goods is $1,600. Which of the following journal entries would correctly record this? Debit ($) Credit ($) © Inventory account 800 Purchases account 800 © Drawings account 800 Purchases account 800. © Soles account 1,600 Drawings account 1,600 © Drawings account ‘800 Soles account 800 (2 marks) A business can make a profit and yet have a reduction in its bank balance. Which of the following might couse this to hoppen? © The sole of non-current assets at a loss © The charging of depreciation in the statement of profit or loss © The lengthening of the period of credit given to customers © The lengthening of the period of credit taken from suppliers (2 morks) The net assets of Altese, a trader, at 1 January 202 amounted to $128,000. During the year to 31 December 20X2 Altese introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 20X2 Altese’s net assets totalled $184,000. What is Altese’s total profit or loss for the year ended 31 December 20X2? © $54,000 profit © $54,000 loss ©. $42,000 loss © $58,000 profit (2 marks) @pep Questions 183.8 Jones Co has the following transaction: (1) Poyment of $400 to J Bloggs for a cosh purchase (2) Poyment of $250 to J Dee in respect of an invoice for goods purchased last month What are the correct ledger entries to record these transactions? © Debit bank Credit purchases © Debit purchases Credit bank © Debit purchases Debit trade payables Credit bank © Debit bank Credit trade payables Credit purchases Dobit ($) 650 650 400 250 650 3.9 TTallon hod the following transactions: (1) Sole of goods on credit for $150 to F Rogit Credit ($) 650 650 250 oo (2 marks) (2). Return of goods from B Blendigg originally sold for $300 in cash to B Blendigg What are the correct ledger entries to record these transactions? O Debit receivables Debit sales returns Credit sales Credit bonk O Debit sales Debit bank Credit receivables Credit sales returns © Debit receivables Credit sales Credit sales returns © Debit sales returns Debit sales Credit bank 16 Financiol Accounting (FFA/FA) Debit ($) 150 300 150 300 450 Credit ($) 150 300 150 300 160 300 450 (2 morks)3:10 3.1 312 313 Which of the following documents should accompany a return of goods to a supplier? © Debit note © Re © Purchase invoice jonce advice © Credit note (@ marks) Giant Co's motor vehicles at cost account at 30 June 20X6 is as follows: MOTOR VEHICLES - COST $ $ Bolance b/d 150,500 | Disposal 85,000 Additions 120950 | Balance cfd 186450 271450 271450 What opening balance should be included in the following period's trial balance for motor vehicles - cost ot 1 July 20X6? © $271,450 DEBIT © $271,450 CREDIT © $186,450 CREDIT © $186450 DEST (@ marks) Billing Co's trade payables account at 30 September 20X1 is as follows: TRADE PAYABLES Bank 21,600 | Balance b/d 14,000 Balance o/d 11900 | Purchases 19,500 33,500 33,500 What was the balance for trade payables in the trial balance at 1 October 20X02 © 14,000 desir © $14,000 creDIT © $1190 DEBIT © si1900 crEDIT (@ marks) |nformation from which of the following documents can be found in the receivables ledger? © Quotation © Sales invoices © Credit notes received © Trade discounts (2 marks) @spp Questions 173.14 3.15 3.16 3.17 18 Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false, ‘A debit records an increose in liabilities TRUE FALSE A debit records a decrease in assets TRUE FALSE credit records an increase in liabilities TRUE FALSE A credit records a decrease in copital TRUE FALSE (@ morks) What is the double entey to record credit purchases in the general ledger? © Debit purchases, Credit bank © Debit trode payables, Credit purchases © Debit bank, Credit purchases © Debit purchases, Credit trade payables (@ marks) Which one of the following statements about on imprest system of petty cash is correct? (© An imprest system for petty cash controls small cash expenditures because a fixed ‘omount is paid into petty cash at the beginning of each period. (© The imprest system provides o control over petty cash spending because the amount of cash held in petty cash at ony time must be equal to the value of the petty cash vouchers for the period. © Animprest system for petty cash can operate without the need for petty cash vouchers or receipts for spending. © An imprest system for petty cash helps with manegement of smell cosh expenditures ‘and reduces the risk of fraud. (2 marks) Which one of the following provides evidence that an item of expenditure on petty cash hos been approved or authorised? (© Petty cash voucher © Record of the petty cash transaction © Receipt for the expense © Transfer of cash from the bank account into petty cash (2 marks) Financia counting (PAVE Qe8.18 When businesses trade, there are many different documents used to record the different stages of each transaction. Certain documents are key sources of information in an ‘accounting system. A new accounts assistant is being trained on the payables ledger. From the perspective of the supplier, identify the names of the business documents described below. Pane ie eciatrins ‘A document sent by a business to o credit customer { requesting payment for goods or services provided. ‘he A request for payment sent by the supplier to the credit customer. | Adocument sent by a supplier to a customer in respect of goods returned or overpayments made by the customer. Pull down list + Credit note + Soles invoice + Supplier (purchase) invoice (@ marks) 3.19 Which of the following detoils are provided on o supplier (purchase) invoice? (Customer and supplier nomes and addresses 2) Amount due, showing the net amount, income tax and gross amount due (where income tax is charged) 9 Amount currently outstanding in respect of previous purchases Date by which the invoice must be settled eae Pull down lst + 1ond 2 only + 1,2and 4 only + 1.2,3and 4 + Zand 3 only (2 marks) 3.20 Complete the following sentence. | Provides confirmation that goods have been received from a supplier. aL = tis peporedbythe [~ (2 morks) app Gln” 63.21 From time to time, customers return goods to suppliers. They may then send a formal request for the supplier to issue a oredit note, Which business document is used by customers to send a formal request for a credit note? © Credit note © Debit note © Remittance advice ° Quotation (2 marks) (Total = 42 marks) 4 Double entry bookkeeping II (77 mins) The following transactions took place ot Marshall's during the week ended 6 Moy. May 1 Sold $160 of goods to P Dixon on credit. May 1 Withdrew $50 of cash from the bank account for business use. May 2 Purchased goods priced at $380 from A Clarke, on credit, less 15% trade discount. May 2. Repoid a debt of $120 owed to R Hil, taking advantage of a 10% settlement discount. The payment was by bank transfer. May 3. Sold $45 of goods for cash. May 4 Sold $80 of goods to M Maguire on credit, offering a 12.5% discount if payment made within 7 days. Marshall expects Maguire to take up this discount, May 4 Purchased $400 of goods on credit from D Doley May 5 Sold $304 of goods to M Donald on credit. May 6 Received a cheque from D Rondle for $482. May 6 Purchased $100 of goods on credit from G Perkins. 441 Whatis the totol of the transactions recorded in the receivables ledger? e/ (2 marks) 4,2 What is the totol of the transactions recorded in the payables ledger? & (2 marks) 20 Finoncal counting FFA/EA @ ppp4.3 Smith Co has the following transactions: () Purchase of goods on oredit from T Rader: $450 (2) Return of goods purchased on credit last month to T Rouble: $700 What are the correct ledger entries to record these transactions? © Debit purchases Debit purchase returns Credit bank Credit trade poyobles ©. Debit purchases Debit trade poyables Credit purchase returns © Debit purchases Debit trade payables Credit purchase returns © Debit purchose returns Debit purchases Credit trade payobles Debit (8) 450 700 450 700 450. 250 700 450 at Mew Ling has the following transactions: (Receipt of money into the bank account from R Singh in respect of an invoice for ‘goods sold three weeks ago Credit ($) 450 700 1,150 700 1450 (@ marks) (2) Receipt of money into the bank account from $ Kalu for cash sales What are the ledger entries required to record the above transactions? © Debit bank Credit sales ©. Debit bank Credit soles Credit trade receivables © Debit sales Credit bank © Debit trade receivables Dobit sales Credit bank (2 marks) Questions 2145 46 47 22 How are credit sales recorded in the general ledger? Debit Credit © Receivables ledger Trade receivables © Trade receivables Receivables ledger © Soles Trade receivables © Trade receivables Soles Identify, by indicating the relevant box in the table below, whether each of the statements is true or false. A debit entry in the bank general ledger account will increase an overdraft in the accounts a FALSE A debit entry in the bank general ledger account will increase a bank balance in the accounts eae FALSE 2 marks) An accountant has inserted all the relevant figures into the trace payables account but hos not yet belonced off the account. TRADE PAYABLES $ s Bank 100,750 | Balance b/d 250,225 Purchases 325,010 Assuming there are no other entries to be made, other than to balance off the account, what is the closing balance on the trade payables account? © $474,485 DEBIT ©. $575,235 DEBIT © $474,485 CREDIT © $575,235 CREDIT (2 marks) Financal Accounting (F8/FA) @prp48 49 4.10 4a You are given the following information: Trade receivables at 1 January 20X3 $10,000 Trade receivables at 31 December 203, $9,000" Total receipts during 20X3 (including cash sales of $5,000) $85,000 What are soles on credit during 20x92 © $81,000 © $86,000 ‘© $79,000 © $84,000 (2 marks) A business sells $100 worth of goods to a customer. The customer pays $50 immediately ‘ond will pay the remaining $50 in 30 days’ time. What is the double entry to record the purchase in the customer's accounting records? © DEBIT bank $50, CREDIT payobles $50, CREDIT purchases $50 © DEBIT payables $50, DEBIT bank $50, CREDIT purchases $100 © DEBIT purchases $100, CREDIT payables $50, CREDIT bank $50 © DEBIT purchases $100, CREDIT bank $100 (2 marks) Tin Co purchases $250 worth of metal from Steel Co. Tin Co agrees to pay Steel Co in 60 days time. ‘State how this transaction should be recorded in Steel Co's general ledger by completing the sentence below. To record this transaction, | | receivables $250 and sales $250. (@ marks) The following totals appear in the trial balanee of a business for March 20X8. § Soles 40,000 Purchases 20,000 Returns inwards 2,000 Returns outward 4,000 Opening and closing inventories are both $3,000, What is the gross prt © $22,000 © $24,000 (© $20,000 © $18,000 (@ marks) ©@ erp Questions 28413. 4th 2 William's trial balonce at 30 September 20X5 includes the following balances: Trade receivables $75,943. Receivables allowance $4,751 How should these balances be reported in William's statement of financial position as at 30 September 20X57 An asset of $71,192 An asset of $75.943 and a liability of $4,751 Aliability of 871192 A liability of $75,943 and on asset of $4,751 (2 morks) ° ° ° ° Atrial bolonce is made up of o list of debit balances and credit bolances. Which of the following statements is correct? © Every debit bolance represents an expense. Assets are represented by debit balances. Lobilities are represented by debit balances. 000 Income is included in the list of debit balances. (2 marks) ‘At 30 November 20X5 Jenny had @ bank loon of $8,500 and an asset balance of $678 in her bank account, How should these amounts be recorded on Jenny's opening trial balance at | December 20X87 © vesiT $7922 © ReDIT $7,822 © CREDIT $8,500 ond DEBIT $678 © DEBIT $8,500 and CREDIT $678 (2 morks) Finonciol Accounting FFA/FA) ) BPP4S 416. 47 Bert has extracted the following list of balances from his general ledger at 31 October 20X85: 8 Sales 258,542 Opening inventory 9.649 Purchases 142,988 Expenses 34,895 Non-current assets (carrying amount) 63.960 Receivobles 31,746 Payables 13,804 Bonk (asset) 1,783 Copital 12,525 What is the total of the debit balances in Bert’ trial balance at 31 October 20X5? © s267049 © 275,282 © 2g3,14s © seshe3i At 31 October 20X6 Roger's trial balance included the following balances: 8 Machinery at cost 12,890 Accumulated depreciation 8950 Inventory 5,754 Trade receivables 11745 ‘Trade payables 7,830 Bank overdraft 1,675 Bank (asset) 150 What is the carrying amount of Roger's current assets at 31 October 206? O si7649 © si7H99 © si59m © $13,734 (2 marks) Which of the following statements does NOT describe a way in which on effective ‘accounting system facilitates the provision of useful accounting information? © By requiring authorisation in line with organisational policies © By processing and recording transactions in accordance with accounting rules © By preventing tronscetions from being processed inaccurately © By enabling transactions to be recorded as necessary to permit the preparation of financial statements (2 marks) 9 BPP Questions 284.18 Which of the following helps to ensure that financial information is input ond processed accurately in a computerised accounting system and that the data can be used to provide meoningful information to users? © General ledger © Controls © Soles invoices © Bank statements (@ marks) 4.19 Complete the following sentences. to their customers. When credit customers settle the ‘emount due to the business, they willbe provided with a document confirming that the poyment hes been receved. This documentisknownasa {ds Businesses also moke from their suppliers. When businesses make a payment to settle the mount due to their suppliers, they will receive 0 contirmation. (@ marks) 4.20 Financiol transactions are recorded in the general ledger. Identify the nature and function of the general ledger account described below. This general ledger account is used to record receipts into the bank account and payments out of it. A debit balance brought down on this account in the general ledger indicates an asset account; « credit balance brought down on this account in the general ledger indicates o liability account. Pull down list, + Bank general ledger account + Electricity expense account + Trade payables account + Trode receivables account (2 marks) 26 Finaneil ecounting (FAVER) © spp4.21 Financial transactions are recorded in the general ledger. Identify the nature and function of the general ledger account described below. This general ledger account is used to record credit notes issued to credit customers in respect of items returned to the business. This represents a reduction in the income of the business, [saan] Pull down list + Copital + Carriage outwards + Non-current assets + Soles returns (@ marks) 4.22 general ledger account is used to record income earned from transactions with ‘customers in respect of the businesses core operations. Identify the nature and function of the general ledger account being described in the scenario. © Drawings (a reduction in owner's capital) ©. Sales (an income account) ©. Rent expense account (an expense account) © Trade receivables account (an asset account) (2 marks) 4.23 Select THREE statements which show the benefits of an accounting system to an. organisation. C._The cecounting system can be used to provide financial reports which show whether individual departments are controlling their expenditure effectively. C_The cecounting system can be used to provide information on an organisation's competitors. O_ The accounting system can be used to provide financial reports which show sales volumes for individual product lines. (The accounting system can be used to provide information on the amount owed to each individual credit customer at any point in time. (@ marks) 44.24 Identify whether each of the statements is true or false. In a. computerised accounting system, sales invoices are manually input into the accounting system by the ‘TRUE FALSE occounts assistant In a computerised accounting system, sales eredit notes, ‘are manually input in the accounting system by the | TRUE FALSE ‘accounts assistant (marks) @epe Ovestions 27