Lobj18 0007008 Question Bank of Accounting
Lobj18 0007008 Question Bank of Accounting
Lobj18 0007008 Question Bank of Accounting
Accounting (Trường Đại học Kinh tế – Luật, Đại học Quốc gia Thành phố Hồ Chí Minh)
ACCOUNTING
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
The publishers are grateful to the IASB for permission to reproduce extracts from the
International Financial Reporting Standards including all International Accounting
Standards, SIC and IFRIC Interpretations (the Standards). The Standards together with
their accompanying documents are issued by:
The International Accounting Standards Board (IASB)
30 Cannon Street, London, EC4M 6XH, United Kingdom.
Email: info@ifrs.org Web: www.ifrs.org
Disclaimer: The IASB, the International Financial Reporting Standards (IFRS)
Foundation, the authors and the publishers do not accept responsibility for any loss
caused by acting or refraining from acting in reliance on the material in this publication,
whether such loss is caused by negligence or otherwise to the maximum extent permitted
by law.
Copyright © IFRS Foundation
All rights reserved. Reproduction and use rights are strictly limited. No part of this
publication may be translated, reprinted or reproduced or utilised in any form either in
whole or in part or by any electronic, mechanical or other means, now known or hereafter
invented, including photocopying and recording, or in any information storage and
retrieval system, without prior permission in writing from the IFRS Foundation. Contact
the IFRS Foundation for further details.
The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the ’Hexagon
Device’, ’IFRS Foundation’, ’eIFRS’, ’IAS’, ’IASB’, ’IFRS for SMEs’, ’IASs’, ’IFRS’, ’IFRSs’,
’International Accounting Standards’ and ’International Financial Reporting Standards’,
’IFRIC’ ’SIC’ and ’IFRS Taxonomy’ are Trade Marks of the IFRS Foundation.
Further details of the Trade Marks including details of countries where the Trade Marks
are registered or applied for are available from the Licensor on request.
© ICAEW 2019
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Contents
Page
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Question Bank
ICAEW provides the electronic question banks to give you access to additional
questions not ordinarily available to students. The questions are designed to aid
learning rather than revision and so should not be considered exam-standard.
The published question bank contains exam-standard questions and can be ordered
from www.gillards.com/icaew
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Which of the following items should be treated as a capital item in the financial statements of a
large shop?
(1) Purchase of fixed shelving units
(2) Payment of wages
(3) Repairs to fixed shelving units
A (1) only
B (1) and (2) only
C (2) and (3) only
D (1), (2) and (3) LO 1a
3 Which of the following items should be treated as revenue items in an entity’s financial
statements?
(1) Payment of local property tax
(2) Purchase of premises
(3) Alteration of premises to configure them to be ready for use in the business
(4) External audit fee
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 Ned is considering two issues in the course of preparing his financial statements.
Issue 1: Non-current assets are valued at cost less depreciation.
Issue 2: Expenses incurred but for which invoices have not yet been received are included
in the financial statements.
Which accounting characteristic or principle is relevant to each of these issues?
A Issue 1: Verifiability; Issue 2 Accruals
B Issue 1: Accruals; Issue 2 Verifiability
C Both issues: Verifiability
D Both issues: Accruals LO 1d; 3a, b, c
7 The auditor of James plc is insistent that great care is taken in estimating the amounts of
accruals and prepayments each year. This is justified primarily by which accounting concept?
A Going concern
B Maturity
C Consistency
D Matching LO 1d; 3a, b, c
8 Mr Bliss owns a business. Although most of the business expenses are paid by cash, Mr Bliss
on certain occasions uses his own personal bank account to pay some business expenses.
His accountant has asked to see his personal bank statements so that some of these amounts
may be included as expenses in the statement of profit or loss. Mr Bliss is confused about this
and asks ’If you are going to use my personal bank statement to prepare the financial
statements, why don’t you include all payments as expenses instead of only some of them?’
The main reason why the accountant does not include all of the expenses is because:
A Mr Bliss has not recorded the full details of some of the expenditure and, because of this
uncertainty, it is more prudent not to include them in the financial statements.
B there are a large number of immaterial payments which would take a long time to
examine.
C the personal expenses of the owner are separate from those of the business and are not
relevant to the statement of profit or loss.
D to be consistent with last year’s financial statements only payments above £500 are
included in the statement of profit or loss.
LO 1d; 3a, b, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 A sole trader received £2,500 from a credit customer for goods which had been sold on credit.
The sole trader has an overdraft with his bank of £5,000.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Liabilities only
C Capital only
D Assets and liabilities only LO 1d; 3a
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 A sole trader sold goods for cash for £1,000 which had cost £700.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 3a
7 A sole trader has paid for his own personal car to be repaired out of the business bank
account. The amount of the repairs has been added by the bookkeeper to the owner's
drawings balance.
Of which generally accepted accounting concept is this an example?
A Prudence
B Separate entity
C Substance over form
D Duality LO 1d
8 Which of the following items should be treated as capital expenditure in the accounts of a sole
trader?
A £1,000 drawings made by the proprietor to buy himself a new kitchen at home
B £1,000 spent on purchasing a new computer for his secretary in order to deal with
business administration
C £1,000 on purchasing a motorbike for resale
D £1,000 paid to a painter for redecorating his office LO 3a
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 The statements of financial position of Gazhal’s business at 31 December 20X2 and 20X1
showed the following.
31 December 31 December
20X2 20X1
£ £
Non-current assets 32,500 45,000
Current assets 17,500 30,000
Current liabilities 12,500 12,500
Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the
business.
What was the profit or loss of Gazhal's business for the year?
A Profit of £20,000
B Profit of £30,000
C Loss of £20,000
D Loss of £30,000 LO 1d; 3a
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Which of the following is a source document that would be entered into the accounting
system?
A Debit note
B Delivery note
C Purchase order
D Sales invoice LO 1c
3 Which of the following best explains the imprest system of petty cash control?
A The system ensures that there is always sufficient petty cash available
B The amount of petty cash in total must never fall below the imprest amount
C Each month an equal amount of cash is transferred into petty cash
D At any time petty cash in the box plus petty cash vouchers equals the imprest amount
LO 1c
4 Nozam maintains an imprest amount of £250 in petty cash. At the end of the month, he has
vouchers totalling £112, a receipt for a refund of £9 and a note to say that an employee took
£10 to buy stationery for which a voucher has not been prepared.
How much does Nozam need to withdraw from the business bank account to reinstate his
imprest balance at the end of the month?
A £113
B £93
C £137
D £127 LO 1c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 The following data has been extracted from the payroll records of a business for the month of
May 20X7.
£
Net amount paid to employees 114,000
PAYE 38,000
Employer’s NIC 15,600
Employees’ NIC 13,400
The wage expense for the month is:
A £181,000
B £152,000
C £143,000
D £114,000 LO 1c
6 Fred sells goods on credit to Keira for £2,400. £50 of these goods are defective and Keira
returns them to Fred. What document would Keira issue to Fred?
A Invoice
B A request for a credit note
C Credit note
D A request for an invoice LO 1c
7 The following data has been extracted from the payroll records of Scan Ltd for the month of
March.
£
PAYE 18,400
Employer's NIC 12,100
Employees' NIC 10,400
Net amount paid to employees 109,000
Scan Ltd's wages expense for the month is:
A £149,900
B £137,800
C £92,300
D £80,200 LO 1c, d
8 When a purchase invoice is received from a supplier, which of the following documents might
the invoice be checked against?
A Sales order
B Debit note
C Goods received note
D Credit note LO 1c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 Meghan downloads a transaction report showing her bank transactions for the day. The report
shows a payment of £860, which the computerised accounting system has not been able to
match to a transaction.
Which of the following transactions is most likely to have resulted in the payment of £860?
A A bank transfer received from a credit customer to settle an invoice
B An amount paid to purchase new office furniture
C An amount withdrawn to restore the petty cash to its imprest amount of £100
D A bank transfer paid to an electricity supplier in respect of the monthly invoice received
LO 1c
10 Cooks Ltd has a petty cash float with an imprest amount of £250. At the end of March
vouchers in the petty cash box totalled £144 and the amount of cash remaining in the box was
£86.
Which of the following explains the difference?
A A petty cash voucher for £20 is missing.
B An employee was given £20 too little when making a petty cash claim.
C An employee reimbursed petty cash with £20 in respect of postage stamps used, but no
voucher was prepared.
D A voucher for £20 was put in the box but no payment was made to the employee.
LO 1c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 What transaction is represented by the entries: debit non-current assets account, credit trade
payables?
A The receipt of money from sale of a non-current asset
B The issue of an invoice for the sale of a non-current asset
C Receipt of an invoice for the purchase of a non-current asset
D Payment for a non-current asset LO 1d; 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 Reece has opening trade receivables of £42,100 and closing trade receivables of £38,600.
Sales for the period totalled £186,190 (£13,400 of which were cash sales).
Receipts recorded in trade receivables for the period were:
A £169,290
B £176,290
C £182,690
D £189,690 LO 1d
6 Kirsty purchased goods on credit from her supplier for £1,500 inclusive of VAT at the standard
rate of 20%. The double entry to record this transaction is:
A Dr Trade payables £1,500, Cr Purchases £1,200, Cr VAT £300
B Dr Purchases £1,200, Dr VAT £300, Cr Trade payables £1,500
C Dr Trade payables £1,500, Cr Purchases £1,250, Cr VAT £250
D Dr Purchases £1,250, Dr VAT £250, Cr Trade payables £1,500 LO 1d; 2c
7 Destiny plc offers a 5% early settlement discount to any customers who pay within 10 days of
receiving an invoice. It sold goods totalling £1,240 on credit to a customer who is expected to
take advantage of the early settlement discount. You should ignore the effects of VAT.
What is the correct double entry to record the sale?
A Dr Trade receivables £1,240, Cr Revenue £1,240
B Dr Trade receivables £1,178, Cr Revenue £1,178
C Dr Revenue £1,240, Cr Trade receivables £1,240
D Dr Revenue £1,178, Cr Trade receivables £1,178 LO 1d; 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 Millwood purchased goods on credit from Horwich. At the point of recording the invoice from
Horwich, Millwood did not intend to take the early settlement discount offered, however,
Millwood later decided that it would take the discount and so paid within the required timeframe.
What double entry should Millwood make to record the payment to Horwich?
A Dr Cash at bank, Cr Purchases, Cr Trade payables
B Dr Purchases, Dr Trade payables, Cr Cash at bank
C Dr Trade payables, Cr Purchases, Cr Cash at bank
D Dr Cash at bank, Dr Purchases, Cr Trade payables LO 1d; 2c
What entries will be made in the nominal ledger to record this invoice? (Ignore VAT)
A Dr Purchases £4,000, Cr Trade payables £4,000
B Dr Purchases £3,000, Cr Trade payables £3,000
C Dr Trade payables £3,000, Cr Purchases £3,000
D Dr Trade payables £4,000, Cr Purchases £4,000 LO 1d; 2c
11 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT.
All sales and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's sales account?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
12 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT.
All sales and purchases are on credit and are liable to VAT at 20%.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
13 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT.
All sales and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's trade receivables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
14 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT.
All sales and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's trade payables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c
15 Milo is a trader and is registered for VAT. During the quarter to 30 June 20X8 he made the
following transactions.
£
Purchase of inventory 25,200
Purchase of new car for use in the business 14,400
Payments to HMRC 9,420
Sales 100,800
All the above purchases and sales are inclusive of VAT at 20%.
At 1 April 20X8 Milo owed HMRC £2,000. What was Milo's liability at 30 June 20X8 in respect
of VAT?
A £2,780
B £4,820
C £5,180
D £7,700 LO 1d
16 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the
month of March that £300 should be deducted as PAYE and that National Insurance amounts
to £150 for employees' NIC and £160 for employer's NIC.
What accounting entry should Anthony make to the salaries expense account?
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c
17 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the
month of March that £300 should be deducted as PAYE and that National Insurance amounts
to £150 for employees' NIC and £160 for employer's NIC.
What accounting entry should Anthony make to the HMRC payable account?
A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Max had trade payables of £16,400 at 1 June and during June made credit purchases of
£35,500. Max paid £33,000 to his credit suppliers, after taking advantage of an early
settlement discount totalling £700 that was expected to be taken at the date of purchase.
The balance of trade payables at the end of June was:
A £20,300
B £18,900
C £13,900
D £12,500 LO 1d; 3c
3 Which three of the following types of account would normally have a credit balance on a trial
balance?
A Asset
B Liability
C Income
D Expense
E Capital
F Delivery outwards LO 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 The total of the profit or loss items in Mike’s final trial balance are £35,640 for the debit
balances and £27,560 for the credit balances. What entry does Mike need to make in the profit
and loss ledger account to transfer his profit or loss for the period to retained earnings?
A Cr £8,080 profit for the period
B Cr £8,080 loss for the period
C Dr £8,080 profit for the period
D Dr £8,080 loss for the period LO 2c
6 Hilary has trade receivables of £31,200 at 1 July and during July made credit sales of £52,500
and cash sales of £9,600. She received cash from credit customers of £60,100 in the period
and made payments to credit suppliers of £48,800.
The balance on trade receivables at the end of July was:
A £33,200
B £23,600
C £34,600
D £44,500 LO 1d; 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 Which three of the following types of account would normally have a debit balance in a trial
balance?
A Trade payables
B Revenue
C Trade receivables
D Purchases
E Capital
F Inventory LO 2c
9 Pinot plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the
month of 31 December 20X7, Pinot plc sold goods on credit for £31,300 exclusive of VAT and
goods for cash of £1,260 inclusive of VAT. Pinot plc also purchased goods for resale on credit
for £28,800 inclusive of VAT. It did not have any balance on its VAT account at 1 December
20X7.
What is the balance on Pinot plc's VAT account at 31 December 20X7?
A £1,460 credit
B £291 debit
C £1,670 credit
D £543 debit LO 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£ £
Balance b/d 58,600 Credit sales 235,700
Cash from credit customers 226,700 Credit sales (discounts given
to customers) 3,200
Contra against suppliers 7,200 Irrecoverable debts 5,400
292,500 Balance c/d 48,200
292,500
The discounts given to customers were not expected to be taken when the credit sale was
made.
What should the balance c/d be once the errors are corrected?
A £62,600
B £66,200
C £58,200
D £51,800 LO 2a, b; 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 The bookkeeper of Rico plc has prepared the supplier statement reconciliation for the year
ended 30 April 20X1. She discovered the following differences which have not yet been
corrected:
Before these discoveries, the balance on trade payables was £12,450. In its statement of
financial position as at 30 April 20X1, Rico plc will have a figure for trade payables of:
A £12,350
B £12,550
C £12,290
D £12,090 LO 2a; 3c
5 Which two of the following items could appear on the debit side of the trade payables account?
A Cash paid to suppliers
B Irrecoverable debts written off
C Discounts received from suppliers that were not expected to be taken when the purchase
was made
D Purchases
E Cash refunds from suppliers LO 2b
6 Which two of the following matters require an adjustment to the figure for cash at bank
account appearing in Justine's draft statement of financial position as at 30 June 20X5, rather
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
than being reconciling items between the adjusted cash at bank account balance and the bank
statement balance as at that date?
A Bank charges had been debited by the bank but had not been recorded in the cash at
bank account
B A number of cheques drawn by Justine in June remained unpresented at the year end
C A cheque paid into the bank on 30 June 20X5 did not appear on the statement
D A cheque had been returned unpaid on 30 June 20X5 but Justine had not been notified of
this by the bank LO 2b; 3c
7 The following three matters were discovered by Daisy when she prepared her month end bank
reconciliation.
(1) The electronic banking transaction report includes a receipt of £560 in respect of a
payment from a credit customer. This was not automatically matched to a transaction by
the accounting system. On investigation, it was discovered that there was a bank error
and the correct amount was £650.
(2) Bank charges debited by the bank have not yet been entered in the cash at bank
account.
(3) The value of unpresented cheques exceeded the value of uncleared lodgements.
Which of these matters will require adjustments to the cash at bank account?
A (1) and (2) only
B (2) and (3) only
C (2) only
D (1) and (3) only LO 2a, b
8 Mr Thomson maintains his petty cash records using an imprest system. The total petty cash
float is made up monthly to £200. During the month of June the following expenses were paid
from petty cash:
£
Stationery 24
Tea and coffee 40
Stamps 80
In error, the purchase of stamps was recorded as £8 and as a result £72 was withdrawn from
the bank to top up the petty cash float.
The error made will result in which of the following?
A An overstatement of expenses of £72 and the petty cash balance being £72 more than it
should be
B An understatement of expenses of £72 and the petty cash balance being £128 less than
it should be
C An understatement of expenses of £72 and the petty cash balance being £72 less than it
should be
D An overstatement of expenses of £128 and the petty cash balance being £128 less than it
should be LO 1f; 2a, b; 3c
9 Goods invoiced at £25 had been returned by Samson Ltd to the supplier for a full refund. The
only accounting entry made for the return was to debit the purchases account and credit the
suspense account with £52.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Which of the following journal entries should be made to correctly record the return in the
nominal ledgers?
A Dr Suspense £52, Cr Purchases £52
B Dr Suspense £52, Cr Trade payables £52
C Dr Suspense £52, Dr Trade payables £25, Cr Purchases £77
D Dr Trade payables £27, Cr Purchases £27 LO 1f; 2a, b, c
10 Peter's draft accounts show a loss of £22,000 for the year. On investigation you discover the
following.
(1) £2,000 of repairs had been incorrectly recorded as a purchase of machinery on the last
day of the year.
(2) Cash of £500, received in respect of a debt written off many years ago, had been credited
to receivables.
(3) Closing inventory includes items costing £1,000 which were sold and delivered to the
customer on the year end date.
What is the adjusted loss for the year?
A £25,500
B £24,500
C £23,500
D £19,500 LO 2a; 3c
11 The bookkeeper of Sivewright plc has entered an invoice for a new computer bought on credit
for £1,010 into the accounting records as £1,100, debiting computer consumables.
Which two of the following error types have occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle
E Error of omission LO 1f
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
12 Adjustments need to be made to Gillian’s accounting records for the year ended 31 December
20X6 in respect of the following matters.
(1) Gillian had taken goods from inventory with a sales value of £300. The correct entry has
been made in the drawings account and the other side of the entry recorded in the
suspense account. The business has a consistent mark-up of 25%.
(2) At 1 January 20X6 there had been an allowance for receivables of £1,000. Gillian wishes
to change this to £1,220 at 31 December 20X6.
What is the net effect of these adjustments on Gillian's profit for the year?
A Increase of £5
B Increase of £20
C Increase of £80
D Decrease of £220 LO 2a
13 Carl's draft financial statements show a profit of £10,000. The following errors are discovered.
(1) A debt of £2,000 needs to be written off as irrecoverable. The bookkeeper has incorrectly
recorded this write-off as £200.
(2) Carl has drawn cash of £7,000 from the business and failed to record this in the
accounting records.
(3) Sales include £5,000 in respect of goods with a gross margin of 20% which do not meet
the revenue recognition criteria and need to be reversed.
After adjusting for the above, what is Carl's revised profit?
A £200
B £3,200
C £7,000
D £7,200 LO 2a
14 The draft financial statements of Albert plc for the year ended 31 March 20X7 show a profit of
£236,662. The company's policy is to depreciate all non-current assets at 25% on cost. You
discover the following errors.
(1) A machine which cost £6,480 on 1 April 20X6 has been treated as repairs, whereas it
should have been capitalised.
(2) Cars bought on 1 April 20X6 for £56,160 have not been depreciated.
What is the company's adjusted profit for the year ended 31 March 20X7?
A £214,522
B £227,482
C £229,102
D £245,842 LO 2a; 3c
15 Adjustments need to be made to Ellen's ledger accounts for the year ended
31 August 20X5 in respect of the following matters.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 Peach plc's draft accounts show a loss of £19,200 for the year. On investigation you discover
the following.
(1) The closing inventory balance includes items costing £1,300 which were correctly
recorded as sold shortly before the year end.
(2) Bank charges of £200 have not been recorded.
(3) Petty cash has not been accounted for in the final month of the year. A total of £100 was
withdrawn from the bank on the last day of the year to maintain the imprest amount. All
petty cash used in the period was in respect of administrative expenses incurred.
What is the loss for the year after adjusting for these items?
A £20,800
B £18,200
C £17,600
D £18,300 LO 2a; 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
17 The following trade payables account of Amir contains a number of errors of principle.
TRADE PAYABLES
£ £
Trade receivables (contra) 3,300 Balance b/d 12,400
Purchases 131,800
Discounts received from
Balance c/d 149,100 suppliers 4,100
152,400 152,400
The discounts received from suppliers were not expected to be taken when the purchase was
made but Amir subsequently decided to pay within the required time limit. Payments to credit
suppliers totalling £82,800 have not been recorded.
What is the closing credit balance on trade payables once the errors and omissions have been
corrected?
A £66,300
B £62,200
C £65,500
D £58,100 LO 2a, b; 3c
18 The bookkeeper of Rose plc has entered a heat and light expense as a telephone expense.
Which of the following error types has occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle LO 1f
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 A business has opening inventory of £12,300 and closing inventory of £14,700. Purchases for
the year were £68,400.
The figure for cost of sales is:
A £95,400
B £79,800
C £68,400
D £66,000 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 Brooker paid £130,800 to credit suppliers during the year ended 31 December 20X5. At the
beginning of the year payables totalled £11,750 and at the end they totalled £12,750. The
value of closing inventory was £8,200. Cash purchases were £2,800. The cost of sales for the
year was £148,000.
What was the value of opening inventory?
A £21,600
B £24,400
C £22,400
D £23,200 LO 1d; 3a, c
5 In the year ended 31 December 20X8 Vulcan plc, a retailer, had sales totalling £4,200,000.
The mark-up was 25% of cost. Inventories at 1 January 20X8 had a cost of £600,000 and at
31 December 20X8 of £680,000.
What was the total of the company's purchases during the year ended 31 December 20X8?
A £3,280,000
B £3,360,000
C £3,440,000
D £3,830,000 LO 1d; 3a, c
6 Maddison had 200 units in inventory at 30 November 20X7 valued at £600. During December
it made the following purchases and sales.
3/12 Purchased 1,000 @ £3.20 each
7/12 Sold 700 @ £6.00 each
14/12 Purchased 800 @ £3.50 each
15/12 Purchased 300 @ £4.00 each
23/12 Sold 400 @ £6.00 each
29/12 Sold 500 @ £6.00 each
Which of the following is the correct valuation for closing inventories using the first-in, first-out
(FIFO) valuation method?
A £2,600
B £1,900
C £2,800
D £2,000 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 The following information relates to a business’s year end inventory of finished goods.
Direct costs Production Expected
of materials overheads selling costs Expected
and labour incurred overheads selling price
£ £ £ £
Inventories category 1 2,964 2,520 576 6,960
Inventories category 2 11,232 3,276 180 14,450
Inventories category 3 1,740 1,020 228 3,072
15,936 6,816 984 24,482
At what amount should finished goods inventory be stated in the business’s statement of
financial position?
A £15,936
B £22,752
C £22,514
D £21,768 LO 1d; 3a, c
8 When a business counts its inventory it discovers that it has 5,000 items of product X and
1,000 of product Y; these cost £12 and £6 respectively. You also discover the following
information:
Product X – 600 of these were found to be defective and would be sold at a cut price of £9
each.
Product Y – 100 of these were to be sold for £5 with selling expenses of £1 each.
What figure should appear in the business's statement of financial position for inventory?
A £66,000
B £58,200
C £64,000
D £64,200 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 Your firm values inventory using the AVCO method. At 1 June 20X7 there were 100 units in
inventory valued at £10 each. On 12 June, 50 units were purchased for £12 each, and a
further 50 units were purchased for £15 each on 20 June. On 21 June, 160 units were sold for
£20.00 each.
The value of closing inventory at 30 June 20X7 was:
A £470
B £2,350
C £493
D £1,880 LO 1d; 3a, c
11 A business has a product for which the cost of production of each unit of inventory is £69
(including delivery inwards of £16 and import duties of £2 on the raw materials element).
Production overheads amount to £23 per unit. Currently the goods can only be sold if they are
modified at a cost of £25 per unit. The selling price of each modified unit is £120 and selling
costs are estimated at 10% of selling price.
At what value should each unmodified unit of inventory be included in the statement of
financial position?
A £92
B £83
C £69
D £76 LO 1d; 3a, c
12 A company sells three products – A, B and C. The following information was available at the
year end.
A B C
£ per unit £ per unit £ per unit
Original cost 10 14 20
Estimated selling price 14 20 25
Selling and distribution costs 2 5 6
Units Units Units
Units of inventory 100 150 100
The value of inventory at the year end should be:
A £5,000
B £5,100
C £5,200
D £5,300 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
14 In preparing its financial statements for the current year, a company's closing inventory was
understated by £50,000.
What will be the effect of this error if it remains uncorrected?
A The current year's profit will be overstated and next year's profit will be understated
B The current year's profit will be understated but there will be no effect on next year's profit
C The current year's profit will be understated and next year's profit will be overstated
D The current year's profit will be overstated but there will be no effect on next year's profit
LO 1d; 2a; 3c
15 The inventory value for the financial statements of a business for the year ended
31 December 20X7 was based on an inventory count on 4 January 20X8, which gave a total
inventory value of £314,400.
Between 31 December and 4 January 20X8, the following transactions took place:
£
Purchases of goods 8,400
Sales of goods (profit margin 40% on sales) 16,000
Goods returned to supplier 1,000
What adjusted figure for inventories should be included in the financial statements at
31 December 20X7?
A £316,600
B £314,400
C £314,200
D £307,800 LO 1d; 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 A business has a standard mark-up of 30% on cost. During 20X7, its sales are £325,000 and
its purchases were £240,000. Opening inventory was £50,000. The company did not carry out
an inventory count at 31 December 20X7 and has no records of an inventory figure at that
date.
Using the information above the closing inventory is:
A £10,000
B £25,000
C £40,000
D £50,000 LO 1d; 3a, c
18 Given a selling price of £200 and a mark-up of 25%, the cost price of an item of inventory
would be:
A £50
B £125
C £150
D £160 LO 1d; 3a, c
19 Gardentime Ltd imports garden furniture. The furniture is transported by ship to Portsmouth
and then taken by truck to a warehouse in Bristol. The company is unsure whether the
following expenses should be included in the cost of inventory:
(1) Shipping costs to Portsmouth
(2) Purchase price of furniture
(3) Breakdown costs of a delivery truck which broke down between Portsmouth and Bristol
while transporting furniture
(4) Import duties
Which of the costs should be included in the cost of inventory in Gardentime Ltd's statement of
financial position?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
21 The inventory of three items at the end of Mac plc's reporting period is as follows.
Item Cost Selling price
£ £
X 3,800 4,200
Y 4,600 4,100
Z 1,300 1,650
A 4% trade discount is offered on selling price.
What is the total value of these inventories in Mac plc's financial statements?
A £9,036
B £9,552
C £9,700
D £9,950 LO 1d; 3a, c
22 Inisca plc is unclear as to whether the following items should be included when calculating the
net realisable value of inventory held at the end of its reporting period:
(1) Trade discounts given to customers
(2) Cash discounts received from suppliers
(3) Costs to completion
(4) Selling costs
Which should be included in the calculation of net realisable value of inventory?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c
23 Which two of the following matters, when correctly accounted for, will result in an increase in a
business's closing inventory figure, as derived from a physical inventory count at the year
end?
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 A business accounts for the expense of irrecoverable debts in administrative expenses. It has
reduced its allowance for receivables by £200.
What is the effect on gross profit?
A Reduce by £200
B Increase by £200
C No effect
D Increase by £400 LO 3a
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 Kieran has an allowance for receivables of £3,000 at 31 December 20X7. During the year £50
was received in respect of a debt previously written off, and an allowance for receivables of
£3,100 is to be carried down at 31 December 20X8.
What is the irrecoverable debts charge or credit to be included in the statement of profit or loss
for the year to 31 December 20X8?
A £50 charge
B £150 charge
C £50 credit
D £150 credit LO 1d; 3a, c
5 The trial balance of Kanine Bros as at 31 May 20X7 includes the following:
Debit Credit
£ £
Trade receivables 60,500
Allowance for receivables at 1 June 20X6 1,420
Subsequently a review of the receivables ledger reveals the following:
Debts totalling £2,100 are considered irrecoverable and are to be written off. The business
wishes to reduce the allowance for receivables to £800.
What is the irrecoverable debt charge or credit to be included in the statement of profit or loss
for the year ended 31 May 20X7?
A £1,480 charge
B £120 credit
C £1,480 credit
D £120 charge LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 At 30 September 20X7 a company has receivables totalling £128,000 and an allowance for
receivables of £4,800 brought forward from the previous year.
It has been decided to write off receivables totalling £10,500 and to adjust the allowance for
receivables to £3,000.
The net trade receivables balance in the statement of financial position as at the year end of
30 September 20X7 will be:
A £114,500
B £120,500
C £135,500
D £141,500 LO 1d; 3a, c
9 Gem received a bank transfer for £25 on 30 June 20X2 from a credit customer in settlement
of an outstanding debt of £100, along with notification that the remainder of the debt will never
be paid.
The double entry to be made on 30 June 20X2 is:
A Dr Cash at bank £25, Dr Irrecoverable debts expense £75,
Cr Trade receivables £100
B Dr Cash at bank £25, Dr Irrecoverable debts expense £75,
Cr Allowance for receivables £100
C Dr Cash at bank £25, Dr Allowance for receivables £75,
Cr Irrecoverable debts expense £100
D Dr Cash at bank £25, Dr Allowance for receivables £75,
Cr Trade receivables £100 LO 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 On 1 April 20X7 Midge’s allowance for receivables stood at £5,558. During the year:
(1) Cash of £900 was received from a credit customer whose debt had been written off many
years ago.
(2) A debt of £2,100 was deemed irrecoverable and was to be written off.
At 31 March 20X8 Midge determined that the allowance for receivables needed to be £7,170.
What is the charge for irrecoverable debts expense in Midge's statement of profit or loss for
the year ended 31 March 20X8?
A £3,712
B £2,812
C £1,612
D £712 LO 1d; 3a, c
11 Which two of the following would result in a debit entry to the irrecoverable debts expense
account?
A Irrecoverable debt written off
B Irrecoverable debt recovered
C Increase in allowance for receivables
D Decrease in allowance for receivables LO 1d
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 A company receives rent from a large number of properties. The total received in the year
ended 31 October 20X7 was £325,600.
The following are the amounts of rent in advance and in arrears at 31 October 20X6 and
20X7.
31 October 31 October
20X6 20X7
£ £
Rent received in advance 18,300 19,200
Rent in arrears (all subsequently received) 28,700 23,400
What amount of rental income should appear in the company's statement of profit or loss for
the year ended 31 October 20X7?
A £340,200
B £331,800
C £325,600
D £319,400 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
A understated by £1,050
B understated by £2,100
C overstated by £2,100
D overstated by £1,050 LO 1d; 2a; 3a, c
6 During 20X7 a sole trader paid a total of £15,000 for rent, covering the period from 1 October
20X6 to 31 March 20X8.
What figures should appear in the financial statements for the year ended 31 December 20X7?
Statement of profit Statement of
or loss financial position
£ £
A 10,000 2,500 Prepayment
B 10,000 3,750 Prepayment
C 12,500 2,500 Accrual
D 12,500 3,750 Accrual
LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 The year end for a sole trader is 30 November 20X7. The business pays for its gas by a
standing order of £200 per month. On 1 December 20X6, the statement from the gas supplier
showed that the sole trader had overpaid by £60. The gas bills received for the four quarters
commencing on 1 December 20X6 and ending on 30 November 20X7 were for £400, £450,
£600 and £650 respectively.
The correct charge for gas in the sole trader's statement of profit or loss for the year ended 30
November 20X7 is:
A £2,400
B £2,160
C £2,100
D £2,040 LO 1d; 3a, c
8 At 31 December 20X6 a business has an insurance prepayment of £100. During the year the
business pays £600 in respect of various insurance contracts. The closing accrual for
insurance is £130.
The statement of profit or loss charge for insurance for the year ended 31 December 20X7 is:
A £830
B £630
C £600
D £570 LO 1d; 3a, c
9 The annual insurance premium for a sole trader for the period 1 July 20X7 to 30 June 20X8 is
£22,000, which is 10% more than the previous year. Insurance premiums are paid on
1 July.
The statement of profit or loss charge for insurance for the year ended 31 December 20X7 is:
A £19,800
B £20,000
C £21,000
D £22,000 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 Suki is a sole trader preparing her financial statements to 31 August 20X9. Suki has calculated
her draft profit for the year as £23,800. She needs to increase her telephone accrual from
£150 to £230 and record a prepayment of £310 in respect of insurance costs. What is Suki's
adjusted profit for the year after taking account of accruals and prepayments?
A £23,880
B £24,030
C £23,720
D £23,570 LO 2a
11 Rachel owns a number of properties which she rents out to tenants. She prepares her
financial statements to 30 June each year. As at 1 July 20X6 her annual rental income for the
year ahead was £54,000. On 1 November she raised the rent across all her properties by 10%
with immediate effect. At the beginning of the year Rachel was owed £8,100 by her tenants,
and during the year she received £72,000 from her tenants.
At 30 June 20X7 what amount was due to or from Rachel?
A £6,300 due to Rachel
B £6,300 due from Rachel
C £9,900 due to Rachel
D £9,900 due from Rachel LO 1d; 3a, c
12 On 5 May 20X5 Colin pays a local property tax bill of £1,800 for the 18 months ended
30 June 20X6.
Which two entries will appear in his financial statements for local property tax in respect of the
year ended 31 March 20X6?
A Prepayment of £600
B Prepayment of £300
C Accrual of £300
D Charge of £1,800
E Charge of £1,200
F Charge of £300 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
13 A social club has failed to keep a proper set of accounting records. For the year ended 30
April 20X8 you discover the following information concerning subscription income.
£
Due for the year ended 30 April 20X8 5,500
In advance at 1 May 20X7 260
In arrears at 1 May 20X7 1,620
In advance at 30 April 20X8 240
In arrears at 30 April 20X8 Nil
How much cash was received during the year in respect of subscriptions?
A £3,900
B £4,380
C £6,620
D £7,100 LO 1d
14 Freesia Ltd has a year end of 31 December 20X6 and pays an annual rent on its factory
premises. For the period 1 April 20X5 to 31 March 20X6, the annual rental charge was
£200,000 per year. On 1 April 20X6, the rental charge was increased by 10% per annum.
What is the journal entry to transfer the balance on the rent expense account to the profit and
loss ledger account when preparing the financial statements for the year ended
31 December 20X6?
A Dr Profit and loss ledger account £215,000; Cr Rent expense £215,000
B Dr Rent expense £215,000; Cr Profit and loss ledger account £215,000
C Dr Rent expense £200,000; Cr Profit and loss ledger account £200,000
D Dr Profit and loss ledger account £200,000; Cr Rent expense £200,000
LO 1d; 2c; 3a, c
15 Woody has a year end of 31 March each year. At 31 March 20X7, Woody had prepaid
insurance of £1,980. On 1 June 20X7 it paid £3,600 in respect of insurance for the year to 31
May 20X8.
What is the journal entry to transfer the balance on the insurance expense account to the profit
and loss ledger account for the year ended 31 March 20X8?
A Dr Profit and loss ledger account £3,000 ; Cr Insurance expense £3,000
B Dr Insurance expense £3,000; Cr Profit and loss ledger account £3,000
C Dr Profit and loss ledger account £4,980; Cr Insurance expense £4,980
D Dr Insurance expense £4,980; Cr Profit and loss ledger account £4,980
LO 1d; 2c; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 On 1 January 20X5 Bolton paid £4,800 for insurance for the year from 1 October 20X4 to 30
September 20X5.
What is the correct journal entry to record the insurance prepayment or accrual for the year
ended 30 June 20X5?
A Dr Prepayments £1,200; Cr Insurance expense £1,200
B Dr Insurance expense £1,200; Cr Accruals £1,200
C Dr Prepayments £1,600; Cr Insurance expense £1,600
D Dr Insurance expense £1,600; Cr Accruals £1,600 LO 1d; 2c; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 A company purchases a machine for £20,000 on the first day of the reporting period. After
incurring transportation costs of £1,000 and spending £2,000 on installation, the machine runs
satisfactorily for several months before it breaks down and costs £800 to repair. Depreciation
is charged at 20% per annum.
At what carrying amount will the machine be shown in the company's statement of financial
position at the end of the reporting period?
A £19,040
B £18,400
C £16,800
D £16,000 LO 1d; 3a, c
3 A company buys a machine on 31 August 20X3 for £36,000. It has an expected life of seven
years and an estimated residual value of £2,400. On 30 June 20X7 the machine is disposed of
for £12,000. The company's year end is 31 December. Its accounting policy is to charge
depreciation using the straight line method.
Calculate the loss on disposal of the machine which will appear in the statement of profit or
loss for the year ended 31 December 20X7.
A £4,286
B £4,800
C £5,600
D £9,600 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 A sole trader purchased a van on 1 October 20X7 for a total cost of £20,000 by paying
£16,000 cash and trading in an old van. The old van had cost £18,000 and the related
accumulated depreciation was £12,200. The £16,000 cash paid for the new van has been
correctly recorded as Dr Motor vehicles and Cr Cash at bank. No other accounting has taken
place.
What is the journal entry to record the loss on disposal of the old van for the year ended
31 December 20X7?
A Dr Accumulated depreciation £12,200; Dr Loss on disposal £1,800;
Cr Motor vehicles £14,000
B Dr Motor vehicles £14,000; Cr Accumulated depreciation £12,200;
Cr Loss on disposal £1,800
C Dr Loss on disposal £2,000; Cr Motor vehicles £2,000
D Dr Motor vehicles £2,000; Cr Loss on disposal £2,000 LO 1d; 2c; 3a, c
5 Vernon, a sole trader, purchased some new equipment on 1 April 20X7 for £8,000. The scrap
value of the new equipment in five years' time is estimated to be £800. Vernon charges
depreciation monthly on the straight line basis.
What should the depreciation charge for the equipment be in the year to 30 September 20X7?
A £720
B £1,440
C £1,080
D £1,600 LO 1d; 3a, c
6 An asset register showed a total carrying amount of £81,770. A non-current asset costing
£12,000 had been sold for £3,000, making a loss on disposal of £1,600. No entries had been
made in the asset register for this disposal.
The correct balance on the asset register is:
A £86,370
B £69,770
C £78,770
D £77,170 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 Windsor plc calculated its draft profit for the year to 31 December 20X2 as £184,800. It later
discovered that a repairs and maintenance expense of £12,000 on 30 June 20X2 relating to
buildings repairs was incorrectly capitalised. Buildings are depreciated monthly over 10 years
on the straight-line basis.
What is Windsor plc's profit for the year after adjusting for this error?
A £173,400
B £196,200
C £174,000
D £194,800 LO 1d; 2a; 3a, c
8 A company's plant and machinery ledger account for the 12-month reporting period ended 30
September 20X7 was as follows:
PLANT AND MACHINERY – COST
20X6 £ 20X7 £
1 Oct Balance b/d 167,900 1 Jun Disposal account –
cost of asset sold 24,000
1 Dec Cash at bank – 30 Sep Balance c/d 155,900
addition 12,000
179,900 179,900
The company's policy is to charge depreciation monthly at 20% per year on the straight line
basis.
What is the journal entry to record the depreciation charge for the reporting period ended 30
September 20X7?
A Dr Depreciation expense £33,980; Cr Accumulated depreciation £33,980
B Dr Accumulated depreciation £33,980; Cr Depreciation expense £33,980
C Dr Depreciation expense £31,180; CR Accumulated depreciation £31,180
D Dr Accumulated depreciation £28,780; Cr Depreciation expense £28,780
LO 1d; 2a; 3a, c
9 A business' statement of profit or loss for the year ended 31 December 20X4 showed a profit
for the year of £101,400. It was later found that £20,000 paid for the purchase of a motor van
on 1 January 20X4 had been debited to motor expenses account. It is the company's policy to
depreciate motor vans at 25% per year.
What is the profit for the year after adjusting for this error?
A £86,400
B £121,400
C £116,400
D £96,400 LO 1d; 2a; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 A company purchases a machine for £100,000 on 1 January 20X5. The machine has an
estimated useful life of 10 years. On 1 January 20X8 the company enhances the machine by
adding additional software controls costing £40,000. These are expected to have the same
remaining useful life as the machine.
The additional annual depreciation on the machine will be:
A £4,000
B £4,444
C £5,000
D £5,714 LO 1d; 3a, c
11 A company purchases a machine for £64,000. It has no residual value and an expected useful
life of eight years. It is depreciated monthly using the straight line method for two years when
the company decides to change the depreciation method to reducing balance at 30%.
The annual depreciation for the first year under the new method will be:
A £8,000
B £14,400
C £19,200
D £9,408 LO 1d; 3a, c
12 Argonaut purchases a machine for £63,000 on 1 January 20X5. It has no residual value and
an estimated useful life of seven years. It is depreciated using the straight line method. On
1 January 20X9 the company decides that the useful life was underestimated and should have
been ten years.
The annual depreciation charge for the year to 31 December 20X9 will be:
A £9,000
B £6,300
C £4,500
D £2,700 LO 1d; 3a, c
13 A company buys a machine for £10,000. It has an estimated residual value of £500, a useful
life of ten years and the company depreciates the asset using the straight line method.
After four years the company decides that the asset has no residual value.
The depreciation charge for the fifth year will be:
A £1,033
B £1,000
C £967
D £950 LO 1d; 3a, c
14 On 1 June 20X8 Yogi's business traded in a car which it had bought on 1 June 20X6 for
£6,000. The business had been depreciating the car using the reducing balance method at the
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
rate of 50% per annum. The new car cost £12,200 and Yogi paid the garage the balance of
£11,800 via bank transfer. Yogi's year end is 31 May.
What was the profit or loss on sale of the old car?
A £2,600 loss
B £1,500 loss
C £1,100 loss
D £400 profit LO 1d; 3a, c
15 Mario bought a van for his business on 30 June 20X1 for £13,750, including £150 for a car tax
licence. Mario depreciates motor vehicles at 20% per annum on cost, charging depreciation on
a monthly basis. His year end is 31 December.
On 1 January 20X4 Mario traded in the van for a new one, receiving a part-exchange
allowance of £7,250.
What was the profit on disposal of the van?
A £375
B £450
C £1,750
D £1,810 LO 1d; 3a, c
16 Santa plc acquired a new building on 1 January 20X6, and incurred the following further costs
in relation to this building over the next year.
(1) Costs of initial adaptation of the building
(2) Legal costs relating to purchase
(3) Monthly cleaning contract
(4) Office furniture
Which of these costs should be included in the cost of the building in the company's statement
of financial position at 31 December 20X6?
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1d; 3a, c
17 Caron depreciates non-current assets monthly on the straight-line basis over their useful life.
She bought a machine on 1 January 20X5 for £11,000 with a residual value of £1,000 and an
estimated useful life of four years. On 1 January 20X7 she revised the machine's total useful
life to six years but estimated that at the end of that time it would have no residual value.
What was the depreciation charge for the year to 31 December 20X7?
A £1,000
B £1,280
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
C £1,500
D £3,000 LO 1d; 3a, c
18 Mike's reporting period ends on 31 December each year. On 1 January 20X0 he bought a
machine with a useful life of ten years for £200,000 and started to depreciate it on the
reducing balance basis. On 31 December 20X3 the accumulated depreciation was £95,600.
On 1 January 20X4 Mike changed the basis of depreciation to straight line.
What is Mike's depreciation charge for the year ended 31 December 20X4?
A £10,440
B £14,914
C £17,400
D £20,000 LO 1d; 3a, c
20 Samech purchased a new car, giving his old car in part exchange. The bookkeeper recorded
the following entries.
Dr Motor vehicles – Total price of new car
Cr Cash – Cash paid for new car
Cr Disposals – Part exchange value
Dr Disposals – Original cost of old car
Cr Motor vehicles – Original cost of old car
No other entries were made.
Which two of the following entries must be made in addition to the above?
A Dr Cash at bank account with the part exchange value
B Cr Accumulated depreciation account with the accumulated depreciation of the old car
C Dr Accumulated depreciation account with the accumulated depreciation of the old car
D Cr Disposals account with the accumulated depreciation of the old car
E Dr Disposals account with the accumulated depreciation of the old car
LO 1d; 2c; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
21 The cost of a business’s non-current assets is £24,000. The directors have to choose between
charging depreciation at 10% per annum by the straight line method and charging depreciation
at 10% per annum by the reducing balance method.
How much greater will the total profits of the business be over three years if the reducing
balance method rather than the straight line method is adopted?
A £669
B £696
C £966
D £969 LO 2a; 3a, c
22 Mr Patel is a sole trader. In the current year he has purchased an expensive item of
equipment which will last for many years. This will be treated as a non-current asset in the
financial statements.
Which of the following statements provides the best explanation for this treatment of the
equipment?
A A large sum of money was paid for it
B It ensures that profits are not unfairly reduced in the year the equipment was purchased
C Its use will generate income for the business in the future
D The treatment is consistent with that used by similar businesses LO 1d; 3a, c
24 The accounting concept or characteristic that underlies the fact that non-current assets are
depreciated over their useful lives is:
A going concern
B fair presentation
C accruals
D materiality LO 1d; 3a, b, c
25 Yves purchased equipment on 1 July 20X4 for £22,000. The payment for the equipment was
correctly entered in the cash at bank account but was entered on the debit side of the plant
repairs account.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Yves charges depreciation on the straight line basis at 25% per year, calculated monthly with
depreciation charged in the month of purchase but not in the month of sale, and assuming no
scrap value at the end of the life of the asset.
How will Yves’s profit for the year ended 30 September 20X4 be affected by the error?
A Understated by £16,500
B Understated by £20,625
C Understated by £22,000
D Overstated by £1,375 LO 2a; 3a, c
26 Evans Co purchased a machine with an estimated useful life of 10 years for £76,000 on 30
September 20X5. The machine had a residual value of £16,000.
What are the ledger entries to record the depreciation charge for the machine in the year
ended 30 September 20X8?
A DEBIT Depreciation expense £6,000
CREDIT Accumulated depreciation £6,000
B DEBIT Depreciation expense £6,000
DEBIT Non-current assets £12,000
CREDIT Accumulated depreciation £18,000
C DEBIT Accumulated depreciation £6,000
CREDIT Depreciation expense £6,000
D DEBIT Accumulated depreciation £18,000
CREDIT Non-current assets £18,000 LO 1d; 2a; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
28 During the year ended 31 July 20X1, Feltz Co sold equipment which cost £70,000 for £25,000
on which it made a loss of £5,000. The proceeds on sale have been correctly recorded in cash
at bank but the other side of the transaction has been recorded in the suspense account.
What is the correct journal entry to record the disposal of the equipment in the year ended 31
July 20X1?
A Dr Suspense account £25,000; Dr Loss on disposal £5,000; Cr Equipment cost £30,000
B Dr Suspense account £25,000; Dr Loss on disposal £5,000; Dr Accumulated depreciation
£40,000; Cr Equipment cost £70,000
C Dr Equipment cost £30,000; Cr Suspense account £25,000; Cr Loss on disposal £5,000
D Dr Equipment cost £70,000; Cr Suspense account £25,000; Cr Loss on disposal £5,000;
Cr Accumulated depreciation £40,000
LO 1d; 2a; 3a, c
29 Rose has a machine which cost £90,000 and has a carrying amount of £62,000 on
1 September 20X7. It is being depreciated at 25% per annum on the reducing balance basis.
On 31 August 20X8, Rose performed an impairment review and concluded that the carrying
amount of the machine should be £35,000.
What is the impairment loss in respect of the machine at 31 March 20X8?
A £27,000
B £11,500
C £4,500
D £32,500 LO 1d
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 A company made an issue of shares for cash of 500,000 50p shares at a premium of 20p per
share. Which of the following journal entries correctly records the issue?
Debit Credit
£ £
A Share capital 250,000
Share premium 100,000
Cash at bank 350,000
B Cash at bank 350,000
Share capital 250,000
Share premium 100,000
C Cash at bank 700,000
Share capital 500,000
Share premium 200,000
D Share capital 500,000
Share premium 300,000
Cash at bank 200,000
LO 1d, e; 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 A company has a balance of £5,000 (debit) on its income tax account at 31 December 20X1
relating to the income tax payable on the 20X0 profits. The company's estimated income tax
liability for the year to 31 December 20X1 is £30,000.
The income tax expense in the statement of profit or loss for the year ended
31 December 20X1 is:
A £5,000
B £25,000
C £30,000
D £35,000 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 A company is preparing its financial statements for the year ending 31 March 20X4. The initial
trial balance has the following figures relating to income tax:
£
Income tax payable at 1 April 20X3 21,200
Income tax agreed with HMRC and paid during the year ended 31 March 20X4 19,500
The estimated income tax liability for the year ended 31 March 20X4 is £26,700.
The figure for income tax expense in the company's statement of profit or loss will be:
A £19,500
B £25,000
C £26,700
D £28,400 LO 1d; 3a, c
8 Which three of the following would be included in current liabilities in a company's financial
statements?
A Allowance for receivables
B Bank overdraft
C Tax payable
D Share capital
E Accrued interest charges LO 1d, e; 3a, c
9 Which of the following accounting treatments derive from the accounting concept of accruals?
(1) Annual depreciation charges for non-current assets
(2) Opening and closing inventory adjustments
(3) Capitalisation and amortisation of development expenditure
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3) LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
11 At 31 January 20X5 Watchet Ltd had issued share capital of £250,000 in 25p shares. All
shares were issued at par several years ago. During the year the following transactions took
place.
1 May 20X5 500,000 shares issued at 75p
30 September 20X5 1 for 25 bonus issue
What is the balance on share premium after these transactions, assuming that share premium
is used wherever possible?
A £182,500
B £220,000
C £235,000
D £360,000 LO 1d, e; 3a, c
12 Wanda Ltd provides a warranty on goods sold which allows customers to return faulty goods
within one year of purchase. At 30 November 20X5, Wanda Ltd had a warranty provision of
£6,548. During the year to 30 November 20X6, the cost of warranty claims was £3,720. At 30
November 20X6, the warranty provision was calculated as £7,634.
What is the amount of the warranty expense that should be included in Wanda Ltd's statement
of profit or loss for the year to 30 November 20X6?
A £7,634
B £1,086
C £4,806
D £2,634 LO 1d
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
13 Mobiles Ltd sells goods with a one year warranty under which customers are covered for any
defect that becomes apparent within a year of purchase. In calendar year 20X4, Mobiles Ltd
sold 100,000 units.
The company expects warranty claims for 5% of units sold. Half of these claims will be for a
major defect, with an average claim value of £50. The other half of these claims will be for a
minor defect, with an average claim value of £10.
What amount should Mobiles Ltd include as a provision in the statement of financial position
for the year ended 31 December 20X4?
A £125,000
B £25,000
C £300,000
D £150,000 LO 1d
14 Doggard Ltd is a business that sells cars. It offers a warranty provision under which, if a car
develops a fault within one year of the sale, Doggard Ltd will repair it free of charge.
At 30 April 20X4 Doggard Ltd had a warranty provision of £52,500. At 30 April 20X5 Doggard
Ltd calculated that the provision should be £48,700.
What is the journal entry to record the warranty provision at 30 April 20X5?
A Dr Warranty expense £48,700; Cr Warranty provision £48,700
B Dr Warranty provision £48,700; Cr Warranty expense £48,700
C Dr Warranty provision £3,800; Cr Warranty expense £3,800
D Dr Warranty expense £3,800; Cr Warranty provision £3,800 LO 1d; 2c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
1 Papaya plc
The trial balance of Papaya plc as at 31 December 20X8 is as follows.
£ £
Share capital
£1 ordinary shares 100,000
£1 5% preference shares (irredeemable) 50,000
Retained earnings 76,015
Intangible assets 20,500
Land and buildings
Cost 450,000
Accumulated depreciation 81,000
Plant and machinery
Cost 82,000
Accumulated depreciation 18,000
Inventories at 1 January 20X8 58,045
Trade receivables 161,349
Cash at bank 112,000
Revenue 1,600,047
Purchases (cost of sales) 907,989
Debenture interest paid 6,260
Royalty income received 39,045
Administrative salaries 126,232
Salesmen's salaries and commission (selling and distribution costs) 24,291
Factory wages (cost of sales) 54,117
Rental costs administrative expenses) 6,002
Administrative expenses 18,822
Selling and distribution expenses 9,600
Trade payables 12,000
Dividend received from investments 11,000
10% Debentures (issued and redeemable at par) 62,600
20X7 final dividend paid 12,500
2,049,707 2,049,707
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(7) During the year the company made a 1 for 10 bonus issue of its ordinary shares from retained
earnings. No entries have been made in respect of this.
(8) Included in administrative expenses is £36,000 which relates to an annual insurance premium
which provides cover until 31 May 20X9.
(9) On 27 December 20X8 the company received a cheque from a credit customer and recorded
it as £13,520 in the correct nominal ledger accounts. When the electronic banking report was
downloaded, it was identified that the correct amount was £13,250.
Requirement
Prepare the statement of profit or loss for Papaya plc for the year ended 31 December 20X8 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X8
£
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Profit / (loss) from operations
Investment income
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X8
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital
Preference shares
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Income tax payable
Provision
Accruals
Total equity and liabilities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Sharon plc
Sharon plc has produced the following trial balance as at 31 January 20X5:
£ £
Revenue 1,520,000
Inventories at 31 January 20X4 75,000
Purchases 465,000
Distribution costs 220,000
Administrative expenses 340,000
Dividends paid 124,000
Development expenditure 70,000
Land and buildings
Cost 1,500,000
Accumulated depreciation 96,000
Plant and machinery
Cost 650,000
Accumulated depreciation 160,000
Motor vehicles
Cost 250,000
Accumulated depreciation 90,000
Trade receivables and trade payables 703,700 380,000
Prepayments and accruals at 31 January 20X5 279,300 150,000
Cash at bank and bank overdraft 249,000 110,000
Bank loan 200,000
Share capital – ordinary shares of £1 each 850,000
Retained earnings 1,320,000
Share premium account 50,000
4,926,000 4,926,000
Additional information
(1) The company's land and buildings cost £1.5m (land element £300,000) on 1 February 20X0
and were being depreciated over 50 years. On 1 February 20X4 the remaining useful life of
the buildings was estimated at 40 years.
(2) No adjustments have been made for the depreciation charge for the year ended
31 January 20X5. Depreciation rates and allocation to expenses are as follows.
Cost of sales Admin costs Dist costs
Land and buildings – see (1) above 50% 50%
Plant and machinery – 10% straight line 80% 10% 10%
Motor vehicles – 20% reducing balance 100%
(3) The bank loan was taken out on 30 July 20X4 and is repayable in five years. No adjustments
have been made for the interest charge of 5% per annum.
(4) Tax on profits for the year has been estimated at £35,000 and has yet to be provided for in the
trial balance.
(5) The development expenditure was incurred during the year and relates to a new delivery
system. Development will be completed in 20X6. The company believed it has a reasonable
expectation of future benefits but has been unable to demonstrate this and so the cost will be
written off to distribution costs.
(6) One of Sharon plc's customers was declared insolvent on 15 February 20X5. The customer
owed Sharon plc £56,000 at 31 January 20X5 and no payment is expected to be made.
Irrecoverable debts are written off to administrative expenses.
(7) Sharon plc had inventories of £86,300 at 31 January 20X5.
(8) Sharon plc began renting an additional storage unit on 1 December 20X4 at a cost of £3,000
per month. No payment has been made to date. Rental payments are charged to
administrative expenses.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(9) £150,000 of revenue recognised is in respect of service contracts for which the performance
obligations have not yet been satisfied.
Requirement
Prepare the statement of profit or loss for Sharon plc for the year ended 31 January 20X5 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 January 20X5
£
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 January 20X5
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Accruals
Bank overdraft
Deferred income
Income tax payable
Total equity and liabilities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 Pineapple plc
Pineapple plc is a company which makes exclusive furniture to customers’ precise specifications.
Pineapple plc’s trial balance at 31 December 20X5 is as follows.
£ £
Raw materials and consumables (cost of sales) 1,580,000
Salaries and wages (cost of sales) 805,500
Salaries and wages (admin expenses) 445,000
Work in progress at 1 January 20X5 45,600
Finished inventories at 1 January 20X5 13,400
Freehold land and buildings
Cost (land £2 million) 3,600,000
Accumulated depreciation at 1 January 20X5 640,000
Plant and machinery
Cost 520,000
Accumulated depreciation at 1 January 20X5 375,000
Office furniture
Cost 32,000
Accumulated depreciation at 1 January 20X5 28,500
Intangible assets 15,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 January 20X5 1,968,600
Ordinary share capital – £1 nominal value 500,000
Preference share capital – 4% redeemable £1 shares 120,000
Share premium account 200,000
Cash at bank 203,500
Equity dividend paid 60,000
Revenue 3,500,000
7,357,500 7,357,500
The following additional information is relevant.
(1) Buildings are depreciated on a straight-line basis at a rate of 4% and depreciation is charged
to cost of sales and administrative expenses on an 8:2 basis.
Plant is depreciated on a reducing balance basis at a rate of 20% and depreciation is charged
to cost of sales.
Office furniture is depreciated on a 10% straight-line basis and depreciation is charged to
administrative expenses.
(2) During the year the company made a 1 for 5 bonus issue of its ordinary shares from the share
premium account. No entries have been made in respect of this.
(3) The preference shares are redeemable in 20X9. No entry has been made in respect of
preference dividends payable for the year.
(4) The income tax charge for the period has been estimated at £250,000.
(5) The intangible asset relates to a patent acquired on 1 January 20X5. This patent is considered
to have a useful life of 20 years. An impairment review has indicated that the patent has a
recoverable value at 31 December 20X5 of £14,000. Amortisation and any impairment loss
should be charged to administrative expenses.
(6) Closing inventories at cost amounted to work in progress of £50,200 and finished goods of
£15,000.
(7) Included in administrative expenses is £120,000 in respect of insurance. 50% of this relates to
the year ended 31 December 20X6.
(8) Included in this year's revenue is a new product containing a warranty. Management expect
that 3% of these warranties will be invoked at a cost of £100,000. Provisions are charged to
administrative expenses.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(9) The revenue figure includes £50,000 in relation to pre-orders for a new product which will be
released in March 20X6.
(10) The company received a letter from the liquidator of Mango plc to advise that there are no
funds to pay the £30,000 debt which is owed to Pineapple plc. The directors have assessed
that the debt is irrecoverable and requires to be written off. Irrecoverable debts are charged to
administrative expenses.
Requirement
Prepare the statement of profit or loss for Pineapple plc for the year ended 31 December 20X5 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X5
£
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X5
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Office furniture
Intangible assets
Current assets
Inventories
Trade receivables
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 Cranberry plc
The following trial balance was extracted from the nominal ledger of Cranberry plc on
31 December 20X8:
£ £
Revenue 2,180,000
Inventories at 1 January 20X8 91,000
Purchases 935,000
Distribution costs 395,000
Administrative expenses 543,000
Loan interest paid 24,000
Land and buildings cost 450,000
Plant and equipment cost 460,000
Land and buildings accumulated depreciation at
1 January 20X8 208,000
Plant and equipment accumulated depreciation at
1 January 20X8 246,000
Trade receivables 340,000
Bank 64,000
Ordinary share capital (£1 shares) 180,000
Share premium 60,000
Bank loan 400,000
Retained earnings 9,000
Trade payables 54,000
Dividends paid 35,000
3,337,000 3,337,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(9) A customer of Cranberry plc is in financial difficulties. Management believe that there is a low
prospect that any of the £12,000 debt will be paid by the customer and the amount requires to
be written off as irrecoverable. Irrecoverable debts are charged to administrative expenses.
Requirement
Prepare the statement of profit or loss for Cranberry plc for the year ended 31 December 20X8 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X8
£
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X8
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 Hexagon plc
The following trial balance was extracted from the nominal ledger of Hexagon plc on 30 June 20X3:
£ £
Sales 5,190,000
Inventories at 1 July 20X2 418,000
Purchases 2,854,500
Administrative expenses 1,082,000
Irrecoverable debts expense 123,500
Land and buildings cost 2,540,000
Plant and machinery cost 1,000,000
Office equipment cost 214,000
Goodwill 120,000
Land and buildings accumulated depreciation at 1 July 20X2 635,000
Plant and machinery accumulated depreciation at 1 July 20X2 360,000
Office equipment accumulated depreciation at 1 July 20X2 80,250
Trade receivables 487,000
Cash at bank 53,400
Ordinary share capital (£1 shares) 1,000,000
6% irredeemable preference shares (£1 shares) 500,000
Share premium account 100,000
Retained earnings 825,550
Ordinary dividends 50,000
Preference dividends 30,000
Trade payables 281,600
8,972,400 8,972,400
The following adjustments have yet to be accounted for:
(1) The company depreciates its non-current assets as follows:
Buildings Over 40 years on a straight line basis
Plant and Machinery 20% reducing balance
Office equipment 25% straight line
Land and buildings includes land that cost £500,000. Half of the depreciation on buildings is
charged to cost of sales with the remainder charged to administrative expenses. Plant and
machinery depreciation is charged to cost of sales. Office equipment depreciation is charged
to administrative expenses.
(2) An impairment review revealed that goodwill should be written down to 80% of the value
shown in the draft trial balance at 30 June 20X3. Any amount written off goodwill should be
charged as an administrative expense.
(3) An inventory count and subsequent inventory calculations has shown closing inventory to be
£427,000.
(4) Hexagon plc hired some machinery to help manufacture additional products to cope with
increased demand. The cost to hire the machinery for the period from 1 December 20X2 to
30 November 20X3 (inclusive) is £90,000.
The rental payments are six monthly. £45,000 was paid on 1 December 20X2 the remaining
£45,000 was paid on 1 June 20X3. Machinery hire costs are charged to cost of sales.
(5) Shortly after the year end an electricity bill for the company factory for £18,600 was received.
This invoice covered the quarter from 1 June 20X3 to 31 August 20X3 and was charged to
cost of sales in July 20X3.
(6) The company made a 1 for 5 bonus issue of ordinary shares on 30 June 20X3, utilising share
premium. No accounting entries have been made in respect of this issue.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(7) A customer owing £14,600 at 30 June 20X3 has since gone into administration and the full
amount is considered irrecoverable. The company presents irrecoverable debts as other
operating expenses in the statement of profit or loss.
(8) It has been discovered that a purchase invoice received on 25 June 20X3 for £19,800 was
incorrectly accounted for. The invoice was entered into the accounting system as £18,900 and
is included within purchases and trade payables.
(9) Income tax for the year ended 30 June 20X3 is yet to be provided for. It is estimated that
£260,500 of tax will be payable.
Requirement
Prepare the statement of profit or loss for Hexagon plc for the year ended 30 June 20X3 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 30 June 20X3
£
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 Goldberg plc
The following trial balance was extracted from the nominal ledger of Goldberg plc on
31 December 20X1:
£ £
Sales 2,284,900
Inventories at 1 January 20X1 71,000
Purchases 1,052,100
Distribution costs 172,100
Administrative expenses 437,000
Irrecoverable debts expense 29,000
Loan interest paid 4,500
Land and buildings cost 800,000
Plant and equipment cost 224,000
Motor vehicles cost 48,800
Land and buildings accumulated depreciation at 1 January 20X1 33,000
Plant and equipment accumulated depreciation at 1 January 20X1 44,800
Motor vehicles accumulated depreciation at 1 January 20X1 24,400
Trade receivables 226,900
Cash at bank 12,600
Ordinary share capital (£1 shares) 250,000
Share premium 125,000
Bank loan 150,000
Retained earnings 101,800
Ordinary dividends paid 25,000
Trade payables 89,100
3,103,000 3,103,000
The following adjustments have yet to be accounted for:
(1) The company depreciates all its non-current assets on a straight line basis with zero residual
values. Land included in non-current assets cost £250,000 and buildings are depreciated over
50 years.
Plant and equipment is depreciated over 5 years and Motor vehicles are depreciated over four
years.
Depreciation is charged as follows:
Depreciation on: Charged to:
Buildings Administrative expenses
Motor vehicles Distribution expenses
Plant and equipment Cost of sales
(2) Goldberg plc sells three products (Product Z1, Product Z2 and Product Z3). Inventory at
31 December 20X1 is made up of the following:
Item Z1 Z2 Z3
Units 1,100 2,000 1,200
Cost per unit (£) 25 15 18
100 of the units of Z3 sustained minor damage when being moved from one inventory area to
another. As a result these will only be sold for half of their normal selling price of £30 per unit.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(3) Goldberg plc rents offices at a cost of £48,000 per year and pays quarterly in arrears. The last
rental payment made during 20X1 covered the quarter ending 31 October 20X1. The invoice
for the following quarter to 31 January 20X2 is yet to be received. Rent is charged to
administrative expenses.
(4) Trade receivables at 31 December 20X1 include a balance of £2,300 in relation to a customer
having severe financial difficulties. Goldberg considers it very unlikely this amount will ever be
recovered and have decided to write the debt off as irrecoverable. The Irrecoverable debts
expense is included in other operating expenses.
(5) The company received the bank loan on 1 February 20X1. The loan is repayable in full on 31
July 20X9. Interest is charged at a fixed rate of 6% per annum.
(6) A company employee dismissed during the year initiated a legal action against Goldberg in
November 20X1. The likely outcome is an out of court settlement for £20,000. Provisions are
charged to administrative expenses.
(7) Income tax for the year ended 31 December 20X1 is yet to be provided for. It is estimated that
£140,000 of income tax will be payable.
Requirement
Prepare the statement of profit or loss for Goldberg plc for the year ended 31 December 20X1 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X1
£
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 expense
Profit / (loss) for year
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 MDFH plc
The following trial balance was extracted from the nominal ledger of MDFH plc on
30 September 20X5:
£ £
Sales 1,320,000
Inventories at 1 October 20X4 124,000
Purchases 1,026,300
Distribution costs 78,200
Administrative expenses 234,000
Other operating expenses 9,500
Loan interest paid 11,250
Other interest paid 2,900
Land and buildings cost (Land cost = £75,000) 225,000
Plant and equipment cost 271,000
Land and buildings accumulated depreciation at 1 October 20X4 30,000
Plant and equipment accumulated depreciation at
30 September 20X5 101,625
Intangible asset – development costs 11,000
Trade and other receivables 109,000
Allowance for receivables 3,000
Bank overdraft 13,580
Ordinary share capital (£1 shares) 100,000
Share premium 50,000
Bank loan 200,000
Retained earnings 191,945
Trade payables 92,000
2,102,150 2,102,150
The following information is now available and may result in adjustments being needed to the
amounts shown in the trial balance above:
(1) Depreciation on buildings for the year ended 30 September 20X5 has not yet been provided.
Buildings are depreciated at 2% per annum on a straight line basis (with no residual value).
Depreciation on buildings is included in administrative expenses. Depreciation for the year to
30 September 20X5 has already been provided on plant and equipment.
(2) No entries have been made in relation to equipment sold for £15,000 to another company,
GBHL plc. MDFH delivered the equipment and related invoice to GBHL on
30 September 20X5, but payment for the non-current asset was not received until
October 20X5. The equipment originally cost £40,000 when MDFH purchased it on 1 October
20X3. Depreciation on plant and equipment is charged on a straight line basis at 25%. Profits
or losses on disposals are included within administrative expenses.
(3) Closing inventory has been calculated as £118,000. All closing inventory is included at cost,
apart from 1,000 kg of raw materials which is valued based on the warehouse manager's
estimate of £2.00 per kg. The cost per kg of the material on the related purchase invoice was
£1.50 per kg.
(4) MDFH plc received a telephone bill for £600 on 1 November 20X5 covering the period from 1
August 20X5 to 30 October 20X5. Telephone expenses are charged to administrative
expenses.
(5) MDFH plc has decided to write off as irrecoverable a debt of £1,700 relating to a customer balance
which has been in dispute for a long time. Irrecoverable debts should be included in other
operating expenses.
(6) MDFH plc received a cheque from a customer in respect of a debt of £3,000 that had been
written off in the prior year. The bookkeeper recorded this in the cash at bank account and as
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
additional revenue received in the year, MDFH plc has decided that an allowance for
receivables of £5,000 is required at 30 September 20X5.
(7) The bank loan was received on 30 September 20X4 and is repayable in four equal instalments.
The first instalment is due on 30 September 20X6. Interest is charged at a fixed rate of 7.5% per
annum.
(8) The development costs recorded as an intangible asset were all incurred during the year
ended 30 September 20X5 and all related to development of a proposed new product.
However, management have assessed that the development costs should instead be
recorded as an expense within administrative expenses.
(9) Sales for the year to 30 September 20X5 include deposits from customers totalling £15,000.
These deposits relate to products which are currently being manufactured and will not be
delivered until December 20X5.
(10) No income tax is expected to be payable for the year ended 30 September 20X5.
Requirement
Prepare the statement of profit or loss for MDFH plc for the year ended 30 September 20X5 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 30 September 20X5
£
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 expense
Profit / (loss) for year
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 Billabong plc
The following trial balance was extracted from the nominal ledger of Billabong plc on
31 December 20X3:
£ £
Revenue 1,380,000
Inventories at 1 January 20X3 65,000
Purchases 823,500
Distribution costs 171,250
Administrative expenses 567,000
Other operating expenses 7,800
Loan interest paid 5,000
Land and buildings cost 750,000
Plant and equipment cost 125,000
Motor vehicles cost 50,000
Land and buildings accumulated depreciation at 1 January 20X3 50,000
Plant and equipment accumulated depreciation at 1 January 20X3 30,000
Motor vehicles accumulated depreciation at 1 January 20X3 25,000
Trade receivables 280,000
Bank 6,300
Ordinary share capital (£1 shares) 150,000
Share premium 150,000
Bank loan 250,000
Retained earnings 615,850
Ordinary dividends paid 10,000
Trade payables 210,000
2,860,850 2,860,850
The following adjustments have yet to be accounted for:
(1) Land included in non-current assets cost £250,000 and buildings are depreciated on a straight
line basis over 50 years.
Plant and equipment is depreciated on the reducing balance method at a rate of 20% and
motor vehicles are depreciated on a straight line basis at a rate of 25%.
Depreciation is charged as follows:
Depreciation on: Charged to:
Buildings Administrative expenses
Motor vehicles Distribution costs
Plant and equipment Cost of sales
(2) Billabong plc values its closing inventory at £75,000. However this total includes some
damaged items, originally costing £5,000. It will cost £1,000 to repair the damage, after which
the inventory can be sold for £5,500.
(3) Billabong plc rents offices at a cost of £50,000 per year and pays quarterly in advance. The
last rental payment made during 20X3 covered the quarter ending 31 January 20X4. Rent is
charged to administrative expenses.
(4) Shortly after the year end, an electricity bill was received for £12,600 covering the period from
1 June to 1 December 20X3. No entries have been made in the records. Electricity is charged
to administrative expenses.
(5) Trade receivables at 31 December 20X3 include a balance of £2,800 in relation to a customer
that has gone into receivership. Billabong has been advised that it is unlikely to recover this
amount. The irrecoverable debts expense is charged to other operating expenses.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(6) The company received the bank loan two years ago. The loan is repayable in full on 31 July
20X9. Interest is charged at a fixed rate of 4% per annum.
(7) During the year a customer initiated a legal action against Billabong for supplying faulty goods.
The likely outcome is an out of court settlement for £250,000. Provisions are charged to
administrative expenses.
(8) Income tax for the year ended 31 December 20X3 is yet to be provided for. It is estimated that
£25,000 of tax will be payable.
Requirement
Prepare the statement of profit or loss for Billabong plc for the year ended 31 December 20X3 and
the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X3
£
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 expense
Profit / (loss) for year
Statement of financial position at 31 December 20X3
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 ABCD plc
The following trial balance was extracted from the nominal ledger of ABCD plc on 31 October 20X7:
£ £
Revenue 3,600,000
Inventories at 1 November 20X6 320,000
Purchases 2,030,000
Returns inwards 70,000
Wages 360,000
Energy expenses 210,000
Administrative expenses 160,000
Dividend paid 60,000
Directors’ remuneration 140,000
Land and buildings cost (Land = £470,000) 1,950,000
Plant and equipment cost 440,000
Land and buildings accumulated depreciation at 1 November 20X6
120,000
Plant and equipment accumulated depreciation at
1 November 20X6 220,000
Intangible asset – development costs 11,000
Trade and other receivables 629,000
Allowance for receivables 20,000
Bank overdraft 100,000
Ordinary share capital (£1 shares) 1,300,000
Share premium 160,000
10% loan notes 100,000
Retained earnings 260,000
Accounts payable 500,000
6,380,000 6,380,000
The following information is now available and may result in adjustments being needed to the
amounts shown in the trial balance above:
(1) Closing inventory has been counted and is valued at £150,000.
(2) The items listed below should be apportioned as indicated.
Cost of Distribution Administrative
sales costs expenses
% % %
Energy expenses 40 20 40
Wages 40 25 35
Directors' remuneration – – 100
(3) An invoice of £30,000 for energy expenses for October 20X7 was received after the year end.
(4) Loan note interest is 10% and has not been paid for the year.
(5) The allowance for receivables is to be increased to 5% of trade receivables. Any expenses
connected with receivables should be charged to other operating expenses.
(6) Plant is depreciated at 20% per annum using the reducing balance method. The entire charge
is to be allocated to cost of sales.
(7) Buildings are depreciated at 5% per annum on their original cost, allocated 30% to cost of
sales, 30% to distribution costs and 40% to administrative expenses.
(8) The development costs recorded as an intangible asset were all incurred during the year
ended 31 October 20X7 and all related to development of a proposed new product. The
product will be launched during the next six months after market research showed it was likely
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
to be profitable. All research and development costs are to be recognised within administrative
expenses.
(9) Income tax has been calculated as £90,000 for the year.
Requirement
Prepare the statement of profit or loss for ABCD plc for the year ended 31 October 20X7 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 October 20X7
£
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 expense
Profit / (loss) for year
Statement of financial position at 31 October 20X7
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 Earle plc
Earle plc’s trial balance as at 31 October 20X8 is shown below.
£’000 £’000
Ordinary share capital (£1 shares) 15,000
Share premium 3,750
Trade payables 2,099
Land and buildings – cost 26,364
Land and buildings – accumulated depreciation at
1 November 20X7 5,250
Plant and equipment – cost 9,375
Plant and equipment – accumulated depreciation at
1 November 20X7 5,550
Trade receivables 4,077
Accruals at 31 October 20X8 327
8% bank loan repayable in 10 years 11,250
Cash at bank 7,331
Retained earnings 7,351
Interest paid 450
Gross profit 11,728
Distribution costs 4,082
Administrative expenses 3,592
Closing inventories 5,909
Dividends paid 1,125
62,305 62,305
Further information
(1) Depreciation is to be provided for the year as follows:
Buildings 2% per annum Straight line basis
Plant and equipment 20% per annum Reducing balance basis
Depreciation is apportioned as follows:
%
Distribution costs 60
Administrative expenses 40
Land, which is non-depreciable, is included in the trial balance at a cost of £11,364,000.
(2) The company began a series of television adverts for the company's range of products on
1 October 20X8 at a cost of £33,000. The adverts were to run for three months and were to be
paid for in full at the end of December 20X8. Advertising expenses are to be included in
distribution costs.
(3) Interest on the bank loan for the last six months of the year has not been included in the
accounts in the trial balance.
(4) The corporation tax charge for the year has been calculated as £728,000.
(5) During the year Earle plc rented some additional warehouse space. Earle plc have paid rent
until 31 December 20X8. The annual rent is £48,000 and is charged to distribution costs.
(6) Earle plc made a 1 for 5 bonus share issue during the year from share premium. The bonus
issue has not yet been accounted for.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(7) Volan plc is a customer of Earle plc with a debt of £35,000. On 29 October 20X8, Earle plc
received a letter from the liquidator of Volan plc to advise that the debt would not be paid. No
accounting has taken place in respect of irrecoverable debts. Irrecoverable debts should be
charged to administration costs.
(8) An item of plant and equipment was damaged in a flood on 30 October 20X8 and the value of
the damage has been estimated at £15,000. Impairment is charged to administration costs.
(9) A cheque sent to a supplier for £69,000 has been incorrectly recorded as £96,000.
Requirement
Prepare the statement of profit or loss for Earle plc for the year ended 31 October 20X8 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 October 20X8
£
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for the year
Statement of financial position at 31 October 20X8
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
11 Rosemary plc
Rosemary plc’s trial balance as at 31 March 20X2 is shown below.
£’000 £’000
Ordinary share capital (£1 shares) 5,000
Share premium 1,250
Trade payables 1,684
Plant and equipment – cost 25,975
Plant and equipment – accumulated depreciation 13,500
Land and buildings – cost 20,000
Land and buildings – accumulated depreciation 11,345
Trade receivables 2,666
Accruals at 31 March 20X2 161
6% bank loan repayable in 15 years 15,000
Cash at bank 3,223
Retained earnings 5,744
Interest paid 900
Gross profit 10,429
Closing inventories 5,084
Distribution costs 2,321
Administrative expenses 2,794
Dividends paid 1,150
64,113 64,113
Further information:
(1) Depreciation has already been provided on all non-current assets for the year ended
31 March 20X2.
(2) On 31 March 20X2 items of plant with a cost of £15,938,000 and accumulated depreciation of
£3,875,000 were found to be impaired by £1,438,000. Impairments are charged to
administration costs.
(3) The company hired some office copiers for the period 1 March 20X2 to 30 June 20X2. The
contract price for the four months was £205,333 and this was paid in full on 3 March and was
charged to administrative expenses.
(4) The company sourced extra warehousing space, for the storage of goods prior to their sale,
for a period of three months from 1 February 20X2 to 30 April 20X2. No invoice was received
in respect of the rental in the year ended 31 March 20X2, but a payment of £142,500 for the
three months was made and correctly accounted for on 16 April 20X2.
(5) The corporation tax charge for the year has been calculated as £1,093,000.
(6) On 15 April 20X2 one of the company's customers went into liquidation. Trade receivables at
31 March 20X2 include a balance of £119,000 owed by this customer. The directors have
been advised that they are unlikely to receive any of this amount. Irrecoverable debts are
written off to administrative expenses.
(7) Rosemary plc made a 1 for 5 bonus share issue during the year from share premium, which
has not yet been accounted for.
(8) A cheque sent to a supplier for £32,000 has been incorrectly recorded as £23,000.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Requirement
Prepare the statement of profit or loss for Rosemary plc for the year ended 31 March 20X2 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 March 20X2
£
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 March 20X2
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
1 Roxy plc
Extracts from the financial statements for Roxy plc for the years ended 30 June are as follows:
Statements of financial position as at 30 June
20X8 20X7
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment 20,750 14,000
Current assets
Inventories 16,000 11,000
Trade and other receivables 9,950 2,700
Government bonds 1,000 1,300
26,950 15,000
Total assets 47,700 29,000
EQUITY AND LIABILITIES
Equity
Ordinary share capital 3,500 3,000
Retained earnings 13,950 3,800
17,450 6,800
Non-current liabilities
Loans 6,000 10,000
Current liabilities
Bank overdrafts 12,000 –
Trade and other payables 8,000 11,000
Accruals 700 200
Provision 1,750 –
Tax liabilities 1,800 1,000
24,250 12,200
47,700 29,000
Statements of profit or loss for the year ended 30 June (extracts)
20X8 20X7
£ £
Profit from operations 13,650 5,900
Finance cost (1,000) (1,400)
Profit before tax 12,650 4,500
Income tax expense (2,000) (1,500)
Profit for the year 10,650 3,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Additional information
(1) An analysis of property, plant and equipment shows the following.
20X8 20X7
£ £ £ £
Building
Cost 22,000 12,000
Depreciation (4,000) (1,000)
18,000 11,000
Plant and machinery
Cost 5,000 5,000
Depreciation (2,250) (2,000)
2,750 3,000
20,750 14,000
(2) Machinery with a carrying amount of £250 was sold at the beginning of 20X8 for £350. This
machinery had originally cost £1,000.
(3) The accruals are in respect of interest payable.
(4) During the year a bonus issue of 1 for 6 was made on the ordinary shares in issue at
30 June 20X7, utilising retained profits.
(5) The government bonds are highly liquid and management has decided to classify them as
cash equivalents.
(6) Included in trade payables at 30 June 20X8 is £2,500 in respect of the purchase of non-
current assets.
(7) The provision relates to a former employee's unfair dismissal claim.
Requirement
Prepare a statement of cash flows for the year ended 30 June 20X8 in accordance with
IAS 7, Statement of Cash Flows.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Roxy plc
Statement of cash flows for the year ended 30 June 20X8
£
Cash flows from operating activities
Profit before tax
Finance costs
Depreciation
Gain / loss on sale of property, plant and equipment
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in provisions
Cash generated from operations
Income tax paid
Interest paid
Net cash from / used in operating activities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Middlesex plc
As at 30 June 20X7 and 30 June 20X8 Middlesex plc had the following summarised statements of
financial position.
20X8 20X7
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment 321,000 299,000
Less Depreciation (70,000) (69,000)
251,000 230,000
Investment 50,000 –
301,000 230,000
Current assets
Inventories 12,000 11,000
Trade and other receivables 29,000 27,000
Cash and cash equivalents 20,000 10,000
61,000 48,000
Total assets 362,000 278,000
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1 shares) 95,000 50,000
Share premium 15,000 10,000
Retained earnings 144,000 115,000
254,000 175,000
Non-current liabilities
12% loan notes repayable in 10 years 50,000 60,000
Current liabilities
Provisions – 2,000
Trade and other payables 32,000 19,000
Tax liabilities 7,000 3,000
Accruals 19,000 19,000
58,000 43,000
Total equity and liabilities 362,000 278,000
Additional information
You are also given the following information which is already reflected correctly in the accounts.
(1) During the year a bonus issue of 1 for 10 was made on the ordinary shares in issue at
30 June 20X7, utilising retained profits.
(2) New shares were issued on 1 July 20X7. Part of the proceeds were used to redeem £10,000
12% loan notes at par.
(3) During the year certain tangible non-current assets were disposed of for £20,000. The assets
had originally cost £40,000 and had a carrying amount at the disposal date of £18,000.
(4) Trade and other payables include £5,000 for 20X8 relating to the purchase of non-current
assets.
(5) The income tax charge in the statement of profit or loss for the year is £7,000.
(6) Included in accruals at 30 June 20X8 is £2,500 which relates to interest payable. The
corresponding figure for 20X7 was £2,750.
(7) Middlesex plc paid an ordinary dividend of £5,000 on 28 June 20X8 for the year ended
30 June 20X8.
(8) Included in trade receivables is £10,000 in relation to the disposal of non-current assets.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Requirement
Prepare a statement of cash flows for the year ended 30 June 20X8 in accordance with IAS 7.
Middlesex plc
Statement of cash flows for the year ended 30 June 20X8
£
Cash flows from operating activities
Profit before tax
Finance costs
Depreciation
Gain / loss on sale of property, plant and equipment
Gain / loss on sale of intangible assets
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in accruals
Movement in provisions
Cash generated from operations
Income tax paid
Interest paid
Net cash from / used in operating activities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 Emily plc
Statement of profit or loss for the year ended 31 December 20X7
£’000
Revenue 2,553
Cost of sales (1,814)
Gross profit 739
Distribution costs (125)
Administrative expenses (264)
Profit from operations 350
Investment income 25
Finance cost (75)
Profit before tax 300
Income tax expense (140)
Profit for the year 160
Additional information
(1) The proceeds from the sale of non-current asset investments amounted to £30,000.
(2) Fixtures and fittings, with an original cost of £85,000 and a carrying amount of £45,000, were
sold for £32,000 during the year.
(3) The following information relates to property, plant and equipment.
31 December 20X7 31 December 20X6
£’000 £’000
Cost 620 504
Accumulated depreciation 340 290
Carrying amount 280 214
(4) 50,000 £1 ordinary shares were issued during the year at a premium of 20p per share.
(5) The short-term investments are highly liquid and are close to maturity.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Current assets
Investments 50 25
Inventories 16,487 15,892
Trade and other receivables 12,347 8,104
Cash 813 699
29,697 24,720
Total assets 62,943 49,861
20X7 20X6
EQUITY AND LIABILITIES £’000 £’000
Equity
Ordinary share capital (£1 ordinary shares) 13,000 10,000
Share premium 12,500 5,000
Revaluation surplus 2,650 2,650
Retained earnings 24,776 22,856
52,926 40,506
Non-current liabilities (borrowings) 3,250 4,250
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£’000 £’000
Trade and other payables 2,771 2,632
Accruals 1,200 1,235
Tax liability 2,796 1,238
6,767 5,105
(5) During the year the company made a rights issue of shares on the basis of three new shares
for every ten shares held at a price of £3.50 per share. Pending the purchase of new plant,
part of the proceeds of the issue has been invested in shares in other UK companies.
(6) The short term investments are highly liquid and management has decided to classify them as
cash equivalents.
(7) Included in accruals at 30 April 20X7 is £25,000 in respect of interest payable. The
corresponding figure in 20X6 was £30,000.
(8) Included in trade payables is £15,000 which relates to the purchase of fixtures and fittings.
(9) The long term borrowings consist of redeemable preference shares.
Requirement
Prepare a statement of cash flows for the year ended 30 April 20X7 in accordance with IAS 7.
Hatchback Motors plc
Statement of cash flows for the year ended 30 April 20X7
£’000
Cash flows from operating activities
Profit before tax
Finance cost
Depreciation
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in accruals
Cash generated from operations
Income tax paid
Interest paid
Net cash from / used in operating activities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 Larkfield plc
Extracts from the financial statements for Larkfield plc for the year ended 31 March 20X4 are as
follows:
Statement of profit or loss for the year ended 31 March 20X4
£
Profit from operations 603,000
Finance costs (85,000)
Profit before tax 518,000
Income tax (168,000)
Profit for year 350,000
Statements of financial position at 31 March
20X4 20X3
£ £
ASSETS
Non-current assets
Property, plant and equipment 3,555,000 3,400,000
Intangible assets 165,000 55,000
Current assets
Inventories 485,000 362,000
Trade receivables 250,000 300,000
Cash and cash equivalents 331,000 122,000
Total assets 4,786,000 4,239,000
Non-current liabilities
Borrowings 830,000 1,000,000
Additional information
(1) Current liabilities
20X4 20X3
£ £
Tax liability 245,000 230,000
Trade payables 261,000 150,000
Accruals 97,000 56,000
603,000 536,000
(2) Included in profit from operations is a loss of £90,000 in respect of the disposal of machinery
in the year. This machinery had a carrying amount of £540,000 at the disposal date.
(3) Included in trade payables at 31 March 20X4 is an amount of £95,000 in respect of a purchase
of an item of property, plant and equipment in the year that has not yet been paid for.
(4) Included in accruals at 31 March 20X4 is accrued interest of £16,000. The corresponding
figure for 20X3 is £25,000.
(5) The depreciation charge for the year was £245,000.
(6) Intangible assets costing £125,000 were purchased for cash during the year. There were no
disposals of intangible assets.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(7) On 1 April 20X3 Larkfield plc made a 1 for 10 bonus issue from share premium.
(8) Included in receivables at 31 March 20X4 was £35,000 which related to the disposal of
property.
(9) The proceeds from the issue of shares were used to repay £170,000 in borrowings.
Requirement
Prepare a statement of cash flows for the year ended 31 March 20X4 in accordance with IAS 7.
Larkfield plc
Statement of cash flows for the year ended 31 March 20X4
£
Cash flows from operating activities
Profit before tax
Finance costs
Depreciation
Amortisation of intangible assets
Gain/loss on sale of property, plant and equipment
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in accruals
Cash generated from operations
Tax paid
Interest paid
Net cash from/used in operating activities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 Rose plc
Extracts from the financial statements for Rose plc for the year ended 31 August 20X4 are as
follows:
Statement of profit or loss for the year ended 31 August 20X4
£
Profit from operations 77,475
Investment income 3,000
Finance costs (22,000)
Profit before tax 58,475
Income tax (11,695)
Profit for year 46,780
Statements of financial position at 31 August
20X4 20X3
ASSETS £ £
Non-current assets
Property, plant and equipment 2,450,000 2,550,000
Current assets
Inventories 127,000 135,000
Trade receivables 155,000 149,000
Investments 65,000 10,000
Cash at bank 6,042 78,637
Total assets 2,803,042 2,922,637
Non-current liabilities
Borrowings 150,000 312,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Rose plc
Statement of cash flows for the year ended 31 August 20X4
£
Cash flows from operating activities
Profit before tax
Investment income
Finance costs
Depreciation
Gain/loss on sale of property, plant and equipment
Movement in inventories
Movement in trade receivables
Movement in trade payables
Movement in accruals
Cash generated from operations
Tax paid
Interest paid
Net cash from/used in operating activities
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 A limited company has the following information about its non-current assets.
20X7 20X6
£’000 £’000
Cost 750 600
Accumulated depreciation 250 150
Carrying amount 500 450
Plant with a carrying amount of £75,000 (original cost £90,000) was sold for £30,000 during
20X7.
What is the net cash inflow or outflow arising from the purchase and sale of non-current assets
for the year 20X7?
A £95,000 inflow
B £210,000 inflow
C £210,000 outflow
D £95,000 outflow LO 3c
The following information for Michael plc is relevant for questions 8 to 10.
Michael plc
Statement of profit or loss for the year ended 30 September 20X9
£’000 £’000
Revenue 600
Cost of sales 120
Gross profit 480
Administrative expenses:
Staff costs 50
Depreciation 140
Loss on disposal 15
Interest payable 25
230
Profit before tax 250
Income tax expense 50
Profit for the year 200
Michael plc
Statements of financial position as at 30 September
20X9 20X8
£’000 £’000 £’000 £’000
Non-current assets
Cost 1,886 1,550
Depreciation 350 225
1,536 1,325
Current assets
Inventories 30 25
Trade receivables 45 30
Cash and cash equivalents 35 50
110 105
1,646 1,430
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
20X9 20X8
£’000 £’000 £’000 £’000
Equity
Ordinary share capital 1,114 887
Retained earnings 250 227
1,364 1,114
Liabilities
Current liabilities
Trade payables 20 10
Accruals 12 6
32 16
Non-current liabilities
Long-term loans 250 300
1,646 1,430
During the year, Michael plc paid £390,000 for a new piece of machinery.
8 What is the cash generated from operations?
A £401,000 inflow
B £426,000 inflow
C £434,000 inflow
D £409,000 inflow LO 3c
9 What is the net cash inflow or outflow arising from the purchase and sale of non-current
assets?
A £390,000 outflow
B £375,000 outflow
C £211,000 outflow
D £366,000 outflow LO 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Persephone Ltd's records for the year ended 30 June 20X6 show the following figures relating
to purchases and creditors.
£
Creditors at 1 July 20X5 76,104
Purchases 277,225
Cash paid to suppliers 271,845
Debit balances transferred to debtors 107
Credit balances offset against debtor debit balances 948
What was the figure for creditors at 30 June 20X6?
A £80,643
B £69,883
C £82,539
D £71,779 LO 1d; 3a, c
3 The following information relates to Amden Ltd's year ended 31 December 20X5.
£
Cash received from debtors 22,490
Contra with supplier on purchase ledger who is also a customer 910
Increase in allowance for doubtful debts 600
Debtors at 1 January 20X5 7,290
Debtors at 31 December 20X5 7,350
What figure for sales should be recorded in Amden Ltd's profit and loss account for the year
ended 31 December 20X5?
A £22,550
B £24,500
C £23,310
D £21,520 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
During the year to 30 June 20X8 Brenda Ltd paid £3,000 for insurance.
What should be the insurance expense in Brenda Ltd's profit and loss account for the year
ended 30 June 20X8?
A £2,480
B £2,840
C £3,000
D £3,160 LO 1d; 3a, c
5 Sarah Ltd has extracted an initial trial balance and has calculated a draft loss for the year
ended 31 December 20X9 of £12,100. The following matters need to be corrected:
(1) Machinery costing £4,800 was purchased on 1 November 20X9 but has not yet been
included in the accounting records. Depreciation is calculated over 10 years on the
straight line basis.
(2) The allowance for doubtful debts has been incorrectly recorded as £300 instead of
£1,300.
(3) A cash sale for £400, which has not yet been banked, has been incorrectly recorded as a
credit sale.
What is Sarah Ltd's adjusted loss for the year after taking account of the above matters?
A £11,020
B £13,180
C £13,580
D £13,020 LO 1d; 2a; 3a, c
6 Ampney Ltd's accountant has been reviewing the company's debtors at 31 May 20X6, and
wishes to make the following adjustments.
(1) £600 is owed by Angela. The accountant has decided to write this amount off as a bad
debt.
(2) An increase of £2,000 in the allowance for doubtful debts is required.
(3) Cash of £1,500 has been received from Trisha, in respect of a debt which had been
written off in 20X3.
By how much will these adjustments decrease the company's profit for the year ended
31 May 20X6?
A £900
B £1,100
C £2,100
D £2,900 LO 1d; 2a; 3a, c
7 At 20 December 20X5, Racy Ltd reviewed its debtors just before its year end of
31 December 20X5. The following information was discovered.
(1) A cheque for £171 from Dominic plc was found in a drawer. The debt had been written off
in 20X5 and the cashier had not known what to do with the cheque when it arrived. It was
banked on its discovery on 20 December.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(2) Several customers had taken advantage of cash discount of a total of £331 that they
were not expected to take advantage of when the invoices were recorded. The discounts
taken have not been recorded in the ledger accounts.
Ignoring the effects of VAT, which four accounting entries should Racy Ltd make?
A Debit cash at bank £171
B Credit cash at bank £171
C Debit cash at bank £331
D Credit cash at bank £331
E Debit debtors £171
F Credit debtors £171
G Debit debtors £331
H Credit debtors £331
I Debit bad debts expense £171
J Credit bad debts expense £171
K Debit bad debts expense £331
L Credit bad debts expense £331
M Debit sales £171
N Credit sales £171
O Debit sales £331
P Credit sales £331 LO 1d; 2c; 3a, c
8 Tabitha is a retail trader registered for VAT. Sales for the three months ended
31 December 20X7 amounted to £115,920. Purchases and expenses were £85,680 and a
new car was bought for £12,600. All these figures are inclusive of VAT at 20%.
How much does Tabitha owe HMRC for the quarter to 31 December 20X7?
A £5,040
B £5,922
C £3,454
D £2,940 LO 1d; 3a, c
ICAEW 2019 Chapter 14: Company financial statements under UK GAAP 101
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 Paul and Pete are in partnership, sharing profits in the ratio 3:2. On 1 July 20X7 they admitted
Paul's son Rob as a partner. Paul guaranteed that Rob's profit share would not be less than
£30,000 for the six months to 31 December 20X7. The profit sharing arrangements after Rob's
admission were 5:3:2 for Paul, Pete and Rob respectively. The profit for the year ended 31
December 20X7 is £280,000, accruing evenly over the year.
What should Paul's final profit share be for the year ended 31 December 20X7?
A £30,000
B £98,000
C £152,000
D £154,000 LO 1d, e; 3a, c
4 Freddie, Gina and Harry are partners sharing residual profits in the ratio 3:2:1. The partnership
agreement provides for interest on capital at the rate of 6% per annum and for a salary for
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 103
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Gina of £10,000 per annum. Profit for the year for 20X7 was £100,000 and the balances on
partners' capital accounts during the year were: Freddie £40,000;
Gina £30,000; Harry £20,000.
What is Harry's share of residual profits for 20X7?
A £14,100
B £15,300
C £28,200
D £42,300 LO 1d, e; 3a, c
5 Richard and Tina have traded as partners for a number of years. Their balance sheet as at
30 June 20X6 shows:
£ £
Capital accounts
Richard 60,000
Tina 40,000
100,000
Current accounts
Richard 3,200
Tina 1,800
5,000
105,000
During the year to 30 June 20X7 the business made a profit of £52,600 and the partners took
drawings of £20,000 each. The net asset total as at 30 June 20X7 was:
A £105,000
B £117,600
C £157,600
D £197,600 LO 1d, e; 3a, c
6 Davina, Jane and Anna are in business together sharing profits in the ratio 3:2:1 after
providing for salaries for Davina and Jane of £15,000 and £18,000 respectively. The partners
each receive interest of 6% per annum on their capital balances and pay interest of 10% on
their drawings. The profit for the year is £140,000 before providing for salaries or interest and
the partners' capital balances and drawings are as follows:
Capital balance Drawings
£ £
Davina 80,000 25,000
Jane 50,000 20,000
Anna 40,000 25,000
Davina's total profit share is:
A £67,200
B £69,200
C £70,000
D £70,700 LO 1d, e; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
CURRENT ACCOUNT
£ £
Interest on capital 3,000 Balance b/d 300
Salary 4,000 Drawings 10,000
Balance c/d 6,500 Profit share 3,200
13,500 13,500
The balance brought down is entered correctly and the other entries are all correct in amount.
What is the correct balance carried down?
A A debit balance of £5,500
B A debit balance of £500
C A credit balance of £500
D A credit balance of £5,500 LO 1d, e; 3a, c
8 A telephone accrual for £100 at the year end was treated as a prepayment in a sole trader's
profit and loss account. As a result the profit was:
A understated by £200
B understated by £100
C overstated by £200
D overstated by £100 LO 1d; 2a; 3a, c
9 On 1 April 20X7 a sole trader paid £6,380 in local property taxes for the year ending
31 March 20X8. This was an increase of 10% on the charge for the previous year.
What is the correct charge for local property taxes in her profit and loss account for the year
ended 31 December 20X7?
A £4,640
B £6,220
C £6,235
D £6,540 LO 1d; 3a, c
10 The net assets of Henry's business decreased by £9,800 over the year to 31 October 20X3.
During that year he had paid in additional capital of £10,000, drawn £1,000 in cash each
month and, on one occasion, taken goods costing £800 for his own use.
The loss made by the business for the year ended 31 October 20X3 was:
A £7,000
B £9,800
C £12,600
D £13,000 LO 1d, e; 3a, c
11 Tariq has been unable to calculate his business' profit or loss for the year ended
31 December 20X7 as fire destroyed most of his accounting records. He has, however, been
able to provide the following information.
(1) Net assets at 31 December 20X6 were £31,600 and £42,900 at 31 December 20X7.
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 105
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
12 Christopher's business net assets have increased by £68,000 over the year. He took drawings
of £37,000 and paid in £10,000 cash. His profit for the year was:
A £21,000
B £41,000
C £95,000
D £115,000 LO 1d, e; 3a, c
13 A business has net assets of £198,400 on 31 January 20X7 and had net assets of £162,300
on 31 January 20X6. During the year the owner of the business:
(1) took goods for his own use which cost £12,000 and had a market value of £18,000
(2) introduced capital of £30,000
(3) withdrew £20,000 as salary
The profit for the year was:
A £28,100
B £34,100
C £38,100
D £44,100 LO 1d, e; 3a, c
14 Which of the following equations represents the closing capital of a sole trader?
A Opening capital – capital introduced + profit – drawings
B Opening capital + capital introduced + profit + drawings
C Opening capital + capital introduced + profit – drawings
D Opening capital + capital introduced – profit + drawings LO 1d, e; 3a, c
15 The following information has been extracted from the payroll of Radley & Co, a partnership,
for June.
£
Gross wages and salaries 127,600
PAYE 31,900
Employee NIC 11,484
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
17 During the year ended 31 July 20X8 George takes goods from the business for his own
consumption with a selling price of £4,800. George's business operates a constant mark-up on
cost of 20%.
What is the correct double entry to record these drawings?
Debit £ Credit £
A Stock 4,800 Sales 4,800
B Drawings 4,000 Purchases 4,000
C Drawings 3,840 Purchases 3,840
D Drawings 4,800 Sales 4,800 LO 1d, e
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 107
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
18 Bill and Ben are in partnership. On performing the monthly bank reconciliation the following is
discovered.
(1) A cheque paid in respect of personal goods for Bill appears on the bank statement but
has not been entered in the cash at bank account.
(2) A cheque from Marigold Ltd has been returned unpaid. Subsequent investigation reveals
Marigold Ltd has gone into liquidation and Bill and Ben decide the debt should be written
off.
(3) A standing order for rent receivable has been correctly credited to the bank statement but
has not been entered in the cash at bank account.
When these issues are adjusted for in the partnership’s ledger accounts, which of the following
is an accurate description of the effects on profit?
A (1) increases profits, (2) decreases profits, (3) has no effect on profits
B (1) has no effect on (2) decreases profits, (3) increases profits
profits,
C (1) increases profits, (2) has no effect on profits, (3) decreases profits
D (1) has no effect on profits (2) increases profits, (3) increases profits
LO 1d, e; 2a
19 Madelaine, Mary and Anna are in partnership, sharing profits equally. Each partner has
contributed capital of £20,000, and Mary has made a loan of £105,000 to the partnership.
Interest of 5% is payable on all capital and loan balances outstanding at the end of each year.
Profit for the year after loan interest is £90,000.
Which two of the following make up Mary's total appropriation of profit for the year?
A Interest on capital of £1,000
B Interest on capital of £6,250
C Profit share of £29,000
D Profit share of £30,000
E Profit share of £27,250
F Profit share of £31,750 LO 1d, e; 3a, c
20 Jo and Jenny are in partnership, sharing profits equally. In the year ended 31 December 20X6
the firm made a profit for the year of £300,000. It was decided to credit Jo with a salary of
£35,000 for the year and Jenny with a salary of £25,000.
How are the total profits for the year appropriated between the partners?
Jo Jenny
£ £
A 120,000 120,000
B 145,000 155,000
C 150,000 150,000
D 155,000 145,000 LO 1d, e; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
21 Fred and George are in partnership sharing profits and losses in the ratio Fred 60%, George
40%. Their bookkeeper has by mistake entered the current year’s profits in the accounting
records as shared equally between them.
What entry needs to be made to correct this error?
Debit Credit
A George’s current account Fred’s current account
B Fred’s current account George’s current account
C Fred’s appropriation account George’s current account
D George’s current account Fred’s appropriation account LO 1d, e; 3a, c
22 Rory, Imogen and Charlotte are in partnership with fixed capital of £7,000, £3,000 and £2,000
respectively. Interest of 5% per annum is given on capital. They share profits in the ratio
50:35:15.
In addition, Charlotte has a salary of £2,500 per annum, with Rory personally guaranteeing
that Charlotte's total share of profits will not be less than £6,600 per annum.
How will the profit of £25,000 for the year ended 31 July 20X3 be appropriated between the
partners?
Rory Imogen Charlotte
£ £ £
A 11,300 7,815 5,885
B 10,585 7,815 6,600
C 11,250 6,750 7,000
D 10,930 7,470 6,600 LO 1d, e; 3a, c
24 Jessica, Constance and Petunia are in partnership running a boutique. They have the
following transactions to account for.
(1) Interest on a loan made by Petunia to the business
(2) Salary paid to Constance's husband, who does the firm's bookkeeping
(3) Clothes supplied free of charge to Jessica by the firm
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 109
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(4) Petrol for Petunia’s own car for a buying trip to a fashion show
Which transactions should appear as a charge in the partnership’s profit and loss account?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (3) and (4) only
D (1), (2) and (4) only LO 1d, e; 3a, c
26 At 1 July 20X6 Saria, a sole trader, had net assets of £116,000. At 30 June 20X7 the following
amounts were extracted from her trial balance.
£
Fixtures and fittings
Cost 315,620
Depreciation 102,960
Debtors 28,602
Stock 22,196
Cash 4,758
Trade creditors 25,903
Long-term loan 80,000
Drawings in year 24,820
There was no fresh injection of capital during the period.
What was Saria's profit for the year?
A £21,493
B £59,843
C £71,133
D £95,953 LO 1d, e; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 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 LO 3d
4 Which two of the following are source documents from which transactions are recorded in the
nominal ledger?
A Delivery note from a supplier
B Credit note to a customer
C Purchase order from a customer
D Debit note to a supplier
E Invoice from a supplier LO 1c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 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 LO 1d; 3c
7 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 £37 to Arabella 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.
LO 1d
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 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 LO 3a, c
9 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 LO 3a
10 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 LO 1d; 3a
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
11 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 revenue 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 LO 1d; 3a, b
12 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 1 for 5 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 balances on the three ledger accounts as at 31 December 20X5?
A Share capital £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
LO 1e; 3a, c
13 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
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
C £35,870
D £79,140 LO 3a, c
14 Zylon Ltd has prepared a draft statement of profit or loss 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 inventories, 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, 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 LO 2a, b; 3a
15 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.
(1) 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 recorded in administrative expenses.
(2) 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 LO 1d; 2a, b; 3a, b
16 Riley plc has drawn up draft financial statements as at 31 December 20X8, which show a draft
profit for the year of £150,000 and a suspense account with a £600 debit balance. The
following issues have now been discovered.
(1) An early settlement discount of £600 received from a supplier was credited to trade
payables and debited to a suspense account as the bookkeeper wasn't sure how to
record the transaction. Riley plc had not expected to take advantage of the discount on
the date the invoice was recorded.
(2) Maintenance costs of £1,200 incurred on 1 January 20X8 were debited to plant and
machinery. Riley plc depreciates plant and machinery at 20% per annum.
After adjusting for these issues Riley plc's profit for the year will be:
A £148,800
B £149,640
C £150,960
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
17 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 as yet, no money has
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 LO 1d; 2a, b; 3a, b
18 Faringdon plc records £5,274 overdrawn as the bank balance in its statement of financial
position at 31 December 20X0 before reconciling to the year end bank statement. The bank
statement showed interest charged of £78 which had not previously been recorded in the cash
at bank account. 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 LO 1d; 2b
19 Mortimer plc correctly records £7,480 as the figure for short-term borrowings (overdraft) in its
statement of financial position at 30 June 20X3 after performing a bank reconciliation at that
date. The bank statement showed interest income of £75 and a bank transfer to a supplier of
£5,650 which had not previously been recorded in the cash at bank account. On the bank
reconciliation the bookkeeper includes unpresented cheques of £1,785 and uncleared
lodgements of £650.
Before the reconciliation was performed:
A the cash at bank account balance was £1,905 credit and the bank statement balance was
£3,040 overdrawn
B the cash at bank account balance was £1,755 credit and the bank statement balance was
£620 overdrawn
C the cash at bank account balance was £1,905 credit and the bank statement balance was
£770 overdrawn
D the cash at bank account balance was £1,755 credit and the bank statement balance was
£2,890 overdrawn LO 1d; 2b
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
20 During the year ended 31 January 20X2 Pelham plc suffered a major flood at its warehouse, in
which inventory that had cost £10,000 was destroyed. An insurance payment of 60% of the
cost has been agreed but not received at the end of the reporting period.
To take account of these matters Pelham plc should debit Trade and other receivables with
£6,000 and:
A Dr Administrative expenses £10,000, Cr Purchases £10,000, Cr Other income £6,000
B Dr Administrative expenses £4,000, Cr Inventory £10,000,
C Dr Administrative expenses £4,000, Cr Purchases £10,000
D Dr Administrative expenses £10,000, Cr Purchases £6,000, Cr Revenue £10,000
LO 1d; 3a, c
21 School plc is a large company with a share capital of 4 million 25p equity shares. To raise
funds it has made a 1 for 5 rights issue of its equity shares at £2 per share. The rights issue
was fully taken up but only £1,500,000 had been paid up at the end of the reporting period, 30
June 20X4. The only entries in the accounting records have been to debit cash at bank with
£1,500,000 and credit the suspense account with the same amount.
As well as debiting the suspense account with £1,500,000, which of the following entries
should School plc now make to correctly record the share issue?
A Dr Other receivables £100,000, Cr Share capital £200,000,
Cr Share premium £1,400,000
B Dr Other receivables £100,000, Cr Share capital £200,000,
Cr Share premium £1,400,000
C Dr Other receivables £100,000, Cr Share capital £800,000,
Cr Share premium £800,000
D Cr Share capital £200,000, Cr Share premium £1,300,000 LO 1d; 2a, b, c
22 Sneaky plc acquired a truck on 31 December 20X1, the end of its reporting period, for
£60,000. It transferred £15,000 to the seller and handed over an old truck with a carrying
amount at that date of £18,200. This truck had cost £55,000. A further sum of £25,000 was
then due to the supplier of the truck as the final payment.
The only entries made before the initial trial balance was drawn up were to debit suspense
with £40,000, credit cash at bank £15,000 and credit other payables £25,000.
As well as crediting suspense with £40,000, which of the following sets of adjustments should
Sneaky plc record when preparing its final trial balance?
A Dr Truck – cost £5,000, Dr Truck – accumulated depreciation £18,200,
Dr Disposal £16,800
B Dr Truck – cost £60,000, Dr Truck – accumulated depreciation £36,800,
Cr Disposal £56,800
C Dr Truck – cost £5,000, Dr Truck – accumulated depreciation £36,800,
Cr Disposal £1,800
D Dr Truck – cost £60,000, Dr Truck – accumulated depreciation £18,200,
Cr Disposal £38,200 LO 1d; 2b, c
23 A summarised version of Leah plc's initial trial balance for the year ended
30 September 20X3 is as follows:
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
24 Rickard and Grab are in partnership sharing profits and losses 3:1 after allowing for partner
salaries of £20,000 and £15,000 respectively. On 1 January 20X6 Rickard lent the business
£30,000 at 6% interest pa. The profit for the year ended 30 June 20X6, before loan interest, is
£79,000.
How much profit will be credited to Rickard's current account?
A £25,775
B £51,650
C £52,325
D £53,000 LO 3a, c
25 Tanga plc is preparing its financial statements as at 31 December 20X9. Its ledger account
balance for subscription income includes £15,730 subscriptions received in 20X9 in respect of
20X8.
Tanga plc should enter a journal with two entries of £15,730 as:
A a credit entry to the deferred income (liability) account
B a credit entry to the subscription income account
C a debit entry to the subscription income account
D a credit entry to the accrued income (asset) account
E a debit entry to the deferred income (liability) account
F a debit entry to the accrued income (asset) account LO 1d
26 Brassie plc has an allowance for receivables of £1,200 on 1 October 20X4. During the
reporting period ending 30 September 20X5 the following events take place:
(1) A cheque for £106 previously received and included in the cash at bank account was
returned unpaid on 29 September 20X5. The amount was correctly credited to the cash at
bank account but the other side of the transaction was debited to the suspense account.
The directors wish to write the debt off as irrecoverable.
(2) An allowance of £1,500 is required at the year end.
(3) A cheque received for £36 in respect of an amount written off in August 20X4 was
debited to the cash at bank account and credited to the suspense account.
What journal entries are required as at 30 September 20X5?
A Dr Trade Receivables £106, Dr Irrecoverable debts expense £264, Cr Suspense account
£70, Cr Allowance for receivables £300
B Dr Irrecoverable debts expense £370, Cr Allowance for receivables £300,
Cr Suspense account £70
C Dr Suspense account £70, Dr Irrecoverable debts expense £200,
Cr Allowance for receivables £300
D Dr Irrecoverable debts expense £406, Cr Allowance for receivables £300,
Cr Suspense account £70, Cr Trade receivables £36 LO 1d; 3a
27 As at 30 November 20X8 Briggs plc had accrued administrative expenses of £1,589 and
prepaid administrative expenses of £746. On 1 December 20X8 the bookkeeper processed
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
the following opening journal: Credit Accruals £1,589, Debit Prepayments £746, Debit
Administrative expenses £843.
During the reporting period to 30 November 20X9 cash was paid in respect of administrative
expenses of £54,123 and was correctly posted to the administrative expenses account. At the
end of the reporting period, Briggs plc's bookkeeper correctly processed closing journals to set
up an accrual of £2,745 and a prepayment of £1,669 in respect of administrative expenses.
Which of the following journals should Briggs plc process as at 30 November 20X9 to correct
the three accounts?
A Dr Accruals £1,589, Cr Prepayments £746, Cr Administrative expenses £843
B Dr Administrative expenses £1,686, Dr Prepayments £1,492, Cr Accruals £3,178
C Dr Administrative expenses £843, Dr Prepayments £746, Cr Accruals £1,589
D Dr Accruals £3,178, Cr Prepayments £1,492, Cr Administrative expenses £1,686
LO 1d; 2b, c; 3a
28 In relation to accounting for partnerships, which two of the following statements are true?
A Goods taken by a partner from the business are treated as appropriations of profit
B Interest on drawings by a partner is an expense in the partnership's profit and loss
account
C Interest on a partner's loan capital is an expense in the partnership's profit and loss
account
D Drawings by a partner are debited in the current account
E In the absence of a partnership agreement, under the Partnership Act 1890 salaries of
£5,000 are due to partners LO 3c
29 The following statements have been made by a colleague about accounting for partnerships:
Statement 1: Partners' salaries affect neither the amount of profit for the year available for
appropriation, nor the partnership's cash position.
Statement 2: Interest on partners' drawings affects the amount of profit for the year available
for appropriation but not the partnership's cash position.
Identify whether these statements are true.
A Statement 1 is true but Statement 2 is false.
B Statement 1 is false but Statement 2 is true.
C Both Statement 1 and 2 are true.
D Neither Statement 1 nor Statement 2 are true. LO 3c
30 Lemon plc draws up financial statements to 31 December in each year. It pays telephone line
rental charges for each year ending 30 April in two equal instalments, on 1 May and
1 November, in advance. It also pays telephone call charges quarterly in arrears at the end of
February, April, July and November. The total telephone line rental for the year to
30 April 20X4 was £6,300. Telephone call charges for the year commencing 1 July 20X3 were
£5,820.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
What were Lemon plc’s prepayment for line rental and accrual for call charges in its statement
of financial position at 31 December 20X3?
A Prepayment for line rental £2,100, Accrual for call charges £485
B Prepayment for line rental £1,575, Accrual for call charges £485
C Prepayment for line rental £1,575, Accrual for call charges £970
D Prepayment for line rental £2,100, Accrual for call charges £970
LO 1d; 3b
31 In relation to distribution costs Levi plc has paid £11,794 in the period ended 31 October 20X9.
The company's distribution costs accruals need to be £107 more than at 31 October 20X8,
and prepayments need to be £78 more.
What is the figure for distribution costs in Levi plc's statement of profit or loss for the year
ended 31 October 20X3?
A £11,269
B £11,327
C £11,765
D £11,823 Lo 1d; 3c
32 Wombat plc is a retailer that rents its premises; its only non-current assets are fixtures and
fittings. The company has been experiencing trading problems for some time. The directors
have concluded that the company is no longer a going concern and have changed the basis of
preparing the financial statements to the break-up basis.
Which of the following will be the immediate effect of changing to the break-up basis?
A All fixtures and fittings are transferred from non-current to current assets
B Fixtures and fittings are valued at their purchase cost
C The company ceases to trade
D A liquidator is appointed LO 1e; 3c
33 George plc acquired a new truck on 1 February 20X7 for £79,680 including VAT. The
company depreciates all vehicles straight line at 25% per annum on a monthly basis.
What is the carrying amount of George plc's truck at 31 July 20X7?
A £49,800
B £58,100
C £66,400
D £69,720 LO 1d
34 Winston started a trading business on 1 July 20X6 with capital of £50,000. In his first year of
trading he made a profit for the year of £28,000, selling goods at a margin on sales of 60%. He
injected additional capital of £10,000 in the year and withdrew a monthly amount of £500 for
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
his living expenses. He also took drawings from inventories of goods with a resale value of
£6,400. The business had no inventories at the year end.
What were Winston's net assets at 30 June 20X7?
A £23,440
B £78,160
C £79,440
D £84,940 LO 1d; 3a, c
35 Hedges plc, a clothing retailer, depreciates all vehicles monthly over four years. On
31 December 20X4 Hedges plc bought a car at a cost of £21,000 plus VAT, trading in an old
car that had cost £17,760 including VAT on 1 December 20X2. A cheque for £11,900 was also
handed over.
In respect of this disposal in its statement of profit or loss for the reporting period ended
31 October 20X5 Hedges plc will show a profit of:
A £4,790
B £4,415
C £2,008
D £590 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
36 Quizzle plc has share capital of 500,000 £1 shares at 1 January 20X0. These were issued at
£1.30 per share. On 31 December 20X0 Quizzle plc made a three for five bonus issue. Before
accounting for this the balance on retained earnings at 31 December 20X0 was £484,000.
In its statement of financial position at 31 December 20X0 the balance on Quizzle plc's
retained earnings will be:
A £184,000
B £334,000
C £434,000
D £484,000 LO 1d, e; 3c
37 At the end of its first year of trading on 30 September 20X4 Sage plc's net assets are
£185,621. There are no non-current assets. It has share capital of £30,000 made up of 50p
equity shares issued at £1 each, and retained earnings of £105,621. There have been no
other entries in share premium other than those in relation to the original share issue.
In relation to Sage plc's statement of financial position at 30 September 20X4 which of the
following statements is true?
A It has other reserves of £50,000.
B It has share premium of £20,000.
C It has other reserves of £20,000.
D It has share premium of £50,000. LO 3a, c
38 Tennant plc is preparing its statement of profit or loss for the year ended 30 June 20X7. On
the initial trial balance at that date distribution costs have a debit balance of £125,000 before
accounting for depreciation and profits/losses on disposal in respect of the company's vehicle
fleet. At 30 June 20X6 Tennant plc had vehicles that cost £564,810, all of which had been
purchased on 1 July 20X5, and it had accumulated depreciation of £188,270. A vehicle costing
£15,000 was sold on 1 July 20X6 for £8,500. Vehicles are depreciated monthly over three
years.
The amount to be disclosed as distribution costs in Tennant plc's statement of profit or loss for
the year ended 30 June 20X7 is:
A £183,270
B £306,770
C £309,770
D £314,770 LO 1d; 3a, c
39 Vargo plc is finalising its financial statements as at 30 June 20X4. In its initial trial balance at
that date Vargo plc has a figure for tax payable as at 1 July 20X3 of £32,810. The total tax
charge in the statement of profit or loss for the year to 30 June 20X4 is £35,450, and tax paid
in the year was £31,960.
The tax payable balance that will appear in Vargo plc's statement of financial position as at 30
June 20X4 is:
A £29,320
B £34,600
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
C £35,450
D £36,300 LO 1d; 3c
40 Redman plc is finalising its financial statements as at 30 April 20X2. On 1 January 20X1 the
company paid an annual membership fee of £15,000 for the 12 months ended
31 December 20X1. A 10% increase in this subscription is expected, but has not been
finalised at 30 April 20X2.
In its statement of financial position at 30 April 20X2 Redman plc will include:
A a prepayment of £11,000
B a prepayment of £5,500
C an accrual of £11,000
D an accrual of £5,500 LO 3a, b, c
41 Crane plc is finalising its financial statements as at 31 December 20X5. Relevant initial trial
balance figures are as follows:
£
Trade and other payables (excluding interest paid or payable) 149,630
8% debentures as at 1 January 20X5 500,000
Crane plc issued further 8% debentures of £200,000 at par on 1 October 20X5, repayable at
par in ten years' time. No interest was outstanding at 1 January 20X5, and the company paid
interest in respect of debentures of £40,000 in 20X5.
The trade and other payables figure that will appear in Crane plc's statement of financial
position as at 31 December 20X5 is:
A £153,630
B £165,630
C £193,630
D £205,630 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
42 As at 1 June 20X8 Fara plc had 200,000 25p equity shares, which it issued in 20X2 at 80p
each fully paid. It also had 100,000 £1 5% irredeemable preference shares issued at par in
20X3. On 31 January 20X9 Fara plc made a further issue of 50,000 £1 irredeemable 5%
preference shares at £1.20 fully paid. On the same date Fara plc made a 1 for 5 bonus issue
of equity shares. Fara plc wishes to use the share premium in respect of the bonus issue.
In its statement of financial position as at 31 May 20X9 Fara plc will have share premium of:
A £100,000
B £110,000
C £120,000
D £150,000 LO 1e; 3a, c
43 Palin plc had fixtures with a carrying amount at 1 July 20X5 of £48,000. On that date it traded
in fixtures which had cost £12,000 on 1 July 20X3 for new fixtures which cost £18,000,
handing over a cheque in full settlement for £3,000. Palin plc depreciates fixtures at 30% per
annum on the reducing balance.
How much depreciation will be charged in Palin plc's statement of profit or loss for the year
ended 30 June 20X6 in respect of fixtures held at that date?
A £18,036
B £19,800
C £46,200
D £60,120 LO 1d; 3a, c
44 On 1 April 20X6 Newman plc purchased a machine at a price of £50,000. It cost £2,000 to
transport the machine to Newman plc's premises and set it up, plus £500 incurred in training
staff to operate the machine. The machine had a useful life of five years and a residual value
of £5,000. On 1 April 20X8 Newman plc's directors decided to change the depreciation
method to reducing balance, at 50%.
What is the carrying amount of Newman plc's machine in its statement of financial position at
31 March 20X9?
A £16,600
B £18,800
C £26,000
D £52,000 LO 1d; 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
45 Nazrim, a sole trader preparing his financial statements under UK GAAP, has the following
information at the start and end of his second year of trading:
At 31 March 20X3 At 1 April 20X2
£ £
Fixed assets (net book value) 35,200 21,000
Stock 10,400 7,200
Trade debtors 11,980 8,450
Trade creditors 8,210 5,640
Cash in hand 1,100 300
During the reporting period Nazrim introduced £1,000 capital. He took stock for his own use
that cost £200, and paid himself £800 per month.
What is Nazrim's profit or loss for the reporting period ended 31 March 20X3?
A £10,360 loss
B £27,960 profit
C £33,100 profit
D £36,760 profit LO 3a, c
46 Walt plc's statement of profit or loss for the year to 31 August 20X4 shows an income tax
expense of £67,920. In its statement of financial position at that date tax payable is £54,740.
During the reporting period Walt plc paid HMRC £50,000 in respect of income tax for the year
ended 31 August 20X3, but subsequently received a refund from HMRC for £3,000.
At 31 August 20X3 Walt plc's income tax payable balance in its statement of financial position
was:
A £33,820
B £36,820
C £47,000
D £60,180 LO 1d; 3a, c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
47 Joshua plc had the following amounts in its statement of financial position at 30 June 20X8
and 30 June 20X9:
20X9 20X8
£ £
Inventory 15,310 18,200
Trade receivables 23,900 22,400
Cash at bank 3,700 3,200
Trade payables 16,700 19,600
Profit before tax was £18,600 for the year ended 30 June 20X9 and the depreciation charge
was £4,320. What was the cash generated from operations for the year ended
30 June 20X9?
A £24,430
B £12,770
C £21,410
D £15,790 LO 3c
48 A business has a profit before tax of £50,000 after charging depreciation of £5,000. A non-
current asset had been sold for £20,000. Its carrying amount was £17,000 and the profit or
loss on disposal is included in operating profit.
Inventory increased by £8,000, trade receivables increased by £3,000 and trade payables
decreased by £4,000. What was the cash generated from operations?
A £37,000
B £63,000
C £33,000
D £45,000 LO 3c
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Answer Bank
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 D The invoice total is inclusive of VAT therefore VAT is calculated as £1,500 20/120 =
£250. The net amount of £1,250 (1,500 – 250) is recorded as a debit to purchases, input
VAT of £250 is recorded as a debit in the VAT account and the gross amount of £1,500 is
credited to trade payables.
7 B As the customer is expected to take advantage of the early settlement discount, the
amount recorded should be net of the discount £1,240 95% = £1,178. The trade
receivable is an asset and therefore recorded as a debit: Dr Trade receivables, Cr
Revenue.
8 C The amount received from credit customers is a credit to trade receivables. Credit sales
made (A) are debited to trade receivables; cash sales (B) and the early settlement
discounts received from suppliers (D) do not affect trade receivables.
9 C The early settlement discount was not expected to be taken at the date at which the
invoice was recorded. As such, the discount must now be recorded by reducing
(crediting) purchases.
10 B Dr Purchases £3,000, Cr Trade payables £3,000. Accounting records always show
transactions net of trade discount.
11 C Sales account £37,800 (excluding VAT).
12 B Purchases account (37,800 5/6) = £31,500 (excluding VAT).
13 D Trade receivables (37,800 1.2) = £45,360.
14 C Trade payables £37,800 (including VAT).
15 C The VAT on the car purchase is not recoverable, and is added to the cost of the car
capitalised in the statement of financial position.
VAT ACCOUNT
£ £
Purchases (25,200 1/6) 4,200 B/d 2,000
Cash at bank 9,420 Sales (100,800 1/6) 16,800
C/d () 5,180
18,800 18,800
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 C
Debit Credit
£ £
Salaries expense (1,500 + 160) 1,660
Cash at bank (1,500 – 300 – 150) 1,050
HMRC (300 + 150 + 160) 610
17 D
Debit Credit
£ £
Salaries expense (1,500 + 160) 1,660
Cash at bank (1,500 – 300 – 150) 1,050
HMRC (300 + 150 + 160) 610
18 D
Increase liability Credit
Decrease asset Credit
19 A
Increase asset Debit
Decrease capital Debit
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
1 B £4,270
CASH AT BANK
£ £
Balance c/d 4,600 Balance b/d 4,270
Administrative expenses 300
Bank charges 30
4,600 4,600
£
Balance per bank statement (5,800)
Add outstanding lodgements 1,300
Less bank error (100)
Balance per amended cash at bank account (4,600)
2 D
TRADE RECEIVABLES
£ £
Balance b/d 58,600 Cash at bank 226,700
Revenue (credit sales) 235,700 Trade payables (contra) 7,200
Revenue (discounts given
to customers) 3,200
Irrecoverable debts 5,400
Balance c/d 51,800
294,300 294,300
3 A
£
Balance per bank statement 2,000
Less unpresented cheque (1,000)
Add outstanding lodgement 600
Balance per cash at bank account 1,600
4 A The difference with Turks does not require adjustment as it is a timing difference. The
contra with the receivables ledger in respect of Caicos requires the payables ledger
balance to be reduced and therefore trade payables to be decreased.
5 A, C
D and E are credits in the trade payables account, while B is an entry in the trade
receivables account.
6 A, D
Both the unpresented cheques and the uncleared lodgement have been entered in the
cash at bank account – there is merely a timing difference between their entry in the cash
at bank account and appearance on the bank statement.
The two matters which will require an adjustment are therefore the bank charges and the
returned cheque.
ICAEW 2019 Chapter 6: Control accounts, errors and suspense accounts 137
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 C
Results in reduced cash at
Point
bank account balance?
The cash at bank account has correctly recorded No – the bank needs to correct
the cheque and the error rests with the bank. the error in its records
Bank charges debited by the bank have not yet Yes – need to record by Dr Bank
been entered in the cash at bank account. charges Cr Cash at bank account
The value of unpresented cheques exceeded the No – an adjustment in the bank
value of uncleared lodgements. reconciliation only (timing
difference).
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
15 A
£
(1) Add back machine treated as repairs 10,000
Required depreciation (10,000 / 5 years 9/12 months) (1,500)
(2) Accrued bank interest (income) 400
Increase in profit 8,900
16 A
£
Opening loss (19,200)
(1) Remove closing inventory from cost of sales (1,300)
(2) Record bank charges (200)
(3) Record petty cash expenses * (100)
Loss for year (20,800)
* The amount required to reinstate the imprest balance is equal to the administrative
expenses.
17 D The corrected payables ledger is:
TRADE PAYABLES
£ £
Trade receivables (contra) 3,300 Balance b/d 12,400
Purchases (Discounts received Purchases 135,900
from suppliers) 4,100
Cash at bank account 82,800
Balance c/d 58,100
148,300 148,300
ICAEW 2019 Chapter 6: Control accounts, errors and suspense accounts 139
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 C
Normal
% £
SP 125 4,200,000
Cost (100) (3,360,000)
GP 25
£
Opening inventory 600,000
Purchases () 3,440,000
Closing inventory (680,000)
Cost of sales 3,360,000
6 A
£ £
FIFO 400 @ 3.50 1,400
300 @ 4.00 1,200
2,600
7 C In this example, cost includes both direct materials/labour and also production
overheads.
NRV is expected selling price less expected selling costs.
Cost NRV Lower of cost/NRV
£ £ £
Category 1 5,484 6,384 5,484
Category 2 14,508 14,270 14,270
Category 3 2,760 2,844 2,760
22,514
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 C
£
Product X 5,000 £12 = 60,000
Less 600 £3 (£12 – £9) = (1,800)
58,200
Product Y 1,000 £6 = 6,000
Less 100 £2 (£6 – £4) = (200)
64,000
9 C Reducing the value of closing inventories decreases current assets and has the effect of
increasing cost of sales, therefore decreasing profit.
10 A
Units Cost Ave cost Value
1.6.X7 100 10 1,000
12.6.X7 50 12 600
20.6.X7 50 15 750
200 11.75 2,350
21.6.X7 (160) 11.75 (1,880)
40 11.75 470
12 A
Net Lower
realisabl of cost
e
Cost value and NRV Units Value
£ £ £ £
A 10 12 10 100 1,000
B 14 15 14 150 2,100
C 20 19 19 100 1,900
5,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 C
£’000 %
Sales 325 130
Opening inventory 50
Purchases 240
290
Closing inventory (bal fig) (40)
Cost of sales 250 100
Gross profit 75
21 A
NRV
Item Cost (SP less
4%)
£ £
X 3,800 4,032
Y 4,600 3,936
Z 1,300 1,584
Therefore, inventory value is 3,800 + 3,936 + 1,300 = £9,036
22 D The NRV of inventory is the amount for which it should be sold after deducting the
additional costs that must still be incurred to get it ready for sale and to sell it.
Hence trade discounts, costs to completion and selling costs should be included when
calculating NRV. Cash discounts received from suppliers would impact in cost of
inventory rather than its NRV and should not be included.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
23 B, C
Inventory taken by the proprietor for No – if already taken will not be included in
his own use closing inventory. Need to Dr Drawings, Cr
Purchases
Goods returned by customers Yes – goods returned by customers should be
included in inventory provided they can be
resold.
Prices have been rising during the Yes – a FIFO basis will place the most recent
year and the proprietor now purchases in closing inventory – so cost will be
decides to change from a LIFO higher than under LIFO.
basis of valuation to a FIFO basis
An allowance needs to be made No – inventory will decrease when the
against several inventory lines allowance is made.
24 B Closing inventory is an asset in the statement of financial position and is deducted from
cost of sales (and hence added to profit) in the statement of profit or loss. An increase of
inventory from £9,250 to £10,560 would therefore increase net assets and increase profit
(decrease losses) by £1,310 (10,560 – 9,250).
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 B
£
Irrecoverable debt recovered (900)
Irrecoverable debt written off 2,100
Increase in allowance (7,170 – 5,558) 1,612
Charge 2,812
11 A, C
Irrecoverable debt written off and increase in allowance for receivables.
12 C
£
Increase in allowance (2,130 – 1,000) 1,130
Irrecoverable debts written off 500
Irrecoverable debt recovered (50)
Charge 1,580
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 B £1,050 has been deducted from instead of added to profit. Therefore to cancel the error,
you have to add it back then to post the correct entry you have to add it on again.
5 C
£
Receipt
1 October 20X6 (£15,000 1/3) 5,000
30 December 20X6 15,000
4 April 20X7 18,000
1 July 20X7 18,000
1 October 20X7 (18,000 2/3) 12,000
Credit to statement of profit or loss 68,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
11 B RENT RECEIVABLE
£ £
Arrears 8,100 Cash 72,000
Statement of profit or 57,600
loss (W)
Advances 6,300
72,000 72,000
WORKINGS
£
Statement of profit or loss
1 July 20X6 – 31 October 20X6 (54,000 4/12) 18,000
1 November 20X6 – 30 June 20X7 (54,000 8/12 110%) 39,600
57,600
12 B, E
£1,800
Statement of profit or loss = 12m = £1,200
18
3
Prepayment = £1,800 = £300
18
13 D SUBSCRIPTIONS RECEIVABLE
£ £
Accrued income b/d 1,620 Deferred income b/d 260
Statement of profit or loss 5,500 Cash at bank 7,100
Deferred income c/d 240
7,360 7,360
14 A The balance on the rent expense account at 31 December 20X6 is (£200,000 3/12) +
(£200,000 110% 9/12) = £215,000. This is a debit balance and therefore to transfer
the balance to the profit and loss ledger account, Dr Profit and loss ledger account
£215,000 and Cr Rent expense (A). Option (B) reverses the journal entry. Options (C)
and (D) ignore the 10% increase in rent.
15 C The insurance expense for the year ended 31 March 20X8 is £4,980, being the £1,980
prepayment plus £3,000 (£3,600 10/12). This is a debit balance on the insurance
expense account and therefore to transfer the balance to the profit and loss ledger
account, we must debit the profit and loss ledger account and credit the insurance
expense account with £4,980 (option C). Option D reverses the journal entry. Options (A)
and (B) incorrectly calculate the insurance expense.
16 A The £4,800 paid covers the period 1 October 20X4 to 30 September 20X5. As such,
3 months (July – September 20X5) have been prepaid. The prepayment is therefore
£4,800 3/12 = £1,200. The date on which the payment was made is not relevant.
17 B The quarterly rent received is £30,000/4 = £7,500. Rent is received on 1 January 20X6
for the period to 31 March 20X6, hence 2/3 months has been received in advance. This
should be removed from rental income (Dr) and recorded as deferred income (Cr).
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8,000 –800
5 A = £1,440. This year 6/12 1,440 = £720.
5
6 D
£
Balance b/d 81,770
Less carrying amount of non-current asset sold (3,000 + 1,600) (4,600)
77,170
7 A The repairs and maintenance expense has been incorrectly capitalised and depreciated
over the six-month period from 30 June 20X2 to 31 December 20X2. The depreciation
expense needs to be reversed (increase profit) and the repairs and maintenance expense
included (decrease profit).
£
Draft profit 184,800
Repairs and maintenance expense (12,000)
Depreciation (£12,000/10 yrs 6/12) 600
173,400
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 A
£
December addition – 12,000 20% 10/12 2,000
June disposal – 24,000 20% 8/12 3,200
Balance – (167,900 – 24,000) 20% 28,780
33,980
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
17 C At beginning of 20X7:
£
Cost 11,000
Accumulated depreciation (11,000 –1,000) 2 (5,000)
4
Carrying amount 6,000
6,000
Depreciation charge for 20X7 = £1,500
6 –2
18 C As at 1 January 20X4 carrying amount was £104,400 and remaining useful life was
six years.
Depreciation charge for 20X4 should be £104,400/6 = £17,400.
19 D The purpose of depreciation is to spread the cost of the asset over its useful life.
20 C, D
The bookkeeper should have
Done?
Dr Motor vehicles
with cash price of new car Yes
Cr Cash
Dr Motor vehicles
with part exchange value Yes
Cr Disposals
Dr Disposals
with original cost of old car Yes
Cr Motor vehicles
Dr Accumulated depn
with acc depn on old car No
Cr Disposals
21 B Straight line = £24,000 10% 3
= £7,200
£
Reducing balance
Cost 24,000
Depreciation
Year 1 (24,000 10%) (2,400)
21,600
Year 2 (21,600 10%) (2,160)
19,440
Year 3 (19,440 10%) (1,944)
17,496
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 D
£
Current year 30,000
Under provision in previous year 5,000
Income tax expense in statement of profit or loss 35,000
7 B
£
Current year 26,700
Over provision in previous year (21,200 – 19,500) (1,700)
Income tax in statement of profit or loss 25,000
8 B, C, E
Share capital is equity in the statement of financial position. Allowance for receivables is
shown as a deduction from receivables under current assets.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 D Depreciation matches the cost of an asset over the period the business benefits from its
use, inventory adjustments in cost of sales match the revenue from sale of goods to the
cost of buying that quantity of goods, and amortisation of development expenditure
matches the revenues from the developed product to the total cost of creating it.
10 B Irrecoverable debts written off (2) and depreciation charged (3) are both expenses in the
statement of profit or loss. Paying a long-term liability in full affects only the statement of
financial position (Dr Payables, Cr Cash at bank); a non-current asset sold at its carrying
amount also only affects the statement of financial position (Dr Cash at bank, Dr
Accumulated depreciation, Cr Non-current asset cost).
11 C SHARE PREMIUM
£ £
Share capital Cash at bank account
(500,000 50p) 250,000
((1,500,000 ÷ 25) @ 25p) 15,000
C/d 235,000
250,000 250,000
12 C WARRANTY PROVISION
£ £
Cash at bank 3,720 B/d 6,548
C/d 7,634 Warranty expense (bal. fig.) 4,806
11,354 11,354
13 D Mobiles Ltd should provide on the basis of the expected cost. The expected cost would
be calculated as (2.5% 100,000 £50) + (2.5% 100,000 £10) = £125,000 + £25,000
= £150,000.
14 C Doggard Ltd needs to reduce the provision by £3,800. A debit entry is required to reduce
the provision and the corresponding credit will be to the relevant expense account in the
statement of profit or loss.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
1 Papaya plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Other operating income ½
Distribution costs 1
Administrative expenses 1
Investment income ½
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Intangible assets 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital 1
Preference shares ½
Retained earnings 1
Borrowings ½
Trade payables ½
Tax payable ½
Provisions ½
Preference dividend ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
ICAEW 2019 Chapter 12: Company financial statements under IFRS 155
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(2) PPE
Land Buildings P&E Total
£ £ £
Cost 115,000 335,000 82,000
Accumulated depreciation (81,000) (18,000)
Depreciation charge for year ( 6,700) (8,200)
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Sharon plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and machinery 1
Motor vehicles 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents 1
Ordinary share capital ½
Preference shares ½
Retained earnings 1
Borrowings ½
Trade payables ½
Accruals ½
Bank overdraft ½
Deferred income ½
Tax payable ½
16
ICAEW 2019 Chapter 12: Company financial statements under IFRS 157
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£ £
EQUITY AND LIABILITIES
Equity
Ordinary share capital 850,000
Share premium account 50,000
Retained earnings (W4) 1,255,700
2,155,700
Non-current liabilities
Borrowings 200,000
Current liabilities
Trade payables 380,000
Accruals (150,000 + 5,000 + 6,000 interest and rent 161,000
payable)
Bank overdraft 110,000
Deferred income 150,000
Income tax payable 35,000
836,000
Total equity and liabilities 3,191,700
WORKINGS
(1) Allocation of costs
Cost of Admin Dist
sales expenses costs
£ £ £
Opening inventories 75,000
Per TB 465,000 340,000 220,000
Depreciation
Land and buildings 13,800 13,800
Plant and machinery 52,000 6,500 6,500
Motor vehicles 32,000
Development expenses written off 70,000
Irrecoverable debts 56,000
Rent accrual 6,000
Closing inventories (86,300)
519,500 422,300 328,500
(2) Property, plant and equipment
Land and Plant and Motor
buildings machinery vehicles Total
£ £ £ £
Per TB
Value 1,500,000 650,000 250,000
Depreciation b/f (96,000) (160,000) (90,000)
Depreciation for year
(W3) (27,600)
(650k 10%) (65,000)
((250k – 90k) 20%) (32,000)
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
ICAEW 2019 Chapter 12: Company financial statements under IFRS 159
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 Pineapple plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Administrative expenses 1
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and machinery 1
Office furniture 1
Intangible assets 1
Inventories ½
Trade receivables 1
Cash and cash equivalents ½
Ordinary share capital 1
Share premium ½
Retained earnings 1
Borrowings ½
Dividends ½
Trade payables ½
Interest (preference) ½
Provisions ½
Deferred income ½
Tax payable ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£
EQUITY AND LIABILITIES
Equity
Ordinary share capital 600,000
Share premium 100,000
Retained earnings 2,112,300
2,812,300
Non-current liabilities
Borrowings) 120,000
Current liabilities
Trade payables 25,400
Accruals (preference dividend payable
£120,000 4%) 4,800
Provisions 100,000
Deferred income 50,000
Income tax payable 250,000
550,200
Total equity and liabilities 3,362,500
WORKINGS
(1) Allocation of costs
Cost of Admin
sales expenses
£ £
Opening inventories (45,600 + 13,400) 59,000
Raw materials and consumables 1,580,000
Salaries (per TB) 805,500 445,000
Depreciation
Land and buildings 51,200 12,800
Plant and machinery 29,000
Office furniture 3,200
Amortisation of intangible asset (15,000 ÷ 20 yrs) 750
Impairment loss (15,000 – 750 – 14,000) 250
Closing inventories (50,200 + 15,000) (65,200)
Prepayment (Insurance) (60,000)
Irrecoverable debt 30,000
Provision 100,000
2,459,500 532,000
(2) Property, plant and equipment
Plant and Office
Land Buildings machinery furniture Total
£ £ £ £ £
Value 2,000,000 1,600,000 520,000 32,000
Depreciation b/f (640,000) (375,000) (28,500)
Depreciation for year (64,000) (29,000) (3,200)
ICAEW 2019 Chapter 12: Company financial statements under IFRS 161
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
4 Cranberry plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Finance costs 1
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Inventories ½
Trade receivables 1
Prepayments 1
Cash and cash equivalents 1
Ordinary share capital 1
Share premium 1
Retained earnings 1
Borrowings ½
Trade payables 1
Provisions ½
Tax payable ½
16
ICAEW 2019 Chapter 12: Company financial statements under IFRS 163
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Non-current liabilities
Borrowings 400,000
Current liabilities
Trade payables (54,000 – 1,000) 53,000
Provisions 10,000
Income tax payable 28,000
Total equity and liabilities 875,000
WORKINGS
(1) Allocation of costs
Administrativ Distribution Cost
e
expenses costs of sales
£ £ £
Opening inventories 91,000
Per TB 543,000 395,000 935,000
Depreciation (W2; 99,000 2:1:7) 19,800 9,900 69,300
Warranty provision 10,000
Irrecoverable debt 12,000
Insurance prepayment (24,000 5/12) (10,000)
Closing inventory (105,000)
574,800 404,900 990,300
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
60,000 60,000
ICAEW 2019 Chapter 12: Company financial statements under IFRS 165
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 Hexagon plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Administrative expenses 1
Other operating income 1
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Office equipment 1
Goodwill 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital 1
Preference shares ½
Share premium ½
Retained earnings 1
Trade payables 1
Accruals ½
Provisions ½
Tax payable ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Non-current liabilities
Borrowings –
Current liabilities
Borrowings –
Trade payables (281,600 + 900) 282,500
Accruals (W1) 6,200
Provisions –
Income tax payable 260,500
Total equity and liabilities 3,532,550
WORKINGS
(1) Allocation of costs
Administrative Cost
expenses of sales
£ £
Opening inventories 418,000
Per TB 1,082,000 2,854,500
Purchase invoice adjustment – 900
Depreciation (W3) 79,000 153,500
Impairment of goodwill 24,000 –
Electricity accrual (18,600 / 3) – 6,200
Prepayment for machine hire (90,000 5/12) – (37,500)
Closing inventory – (427,000)
1,185,000 2,968,600
ICAEW 2019 Chapter 12: Company financial statements under IFRS 167
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 Goldberg plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Other operating income 1
Finance costs 1
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Motor vehicles ½
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital ½
Preference shares ½
Share premium ½
Retained earnings 1
Borrowings (long term) ½
Trade payables ½
Accruals ½
Provisions ½
Tax payable ½
16
ICAEW 2019 Chapter 12: Company financial statements under IFRS 169
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
ICAEW 2019 Chapter 12: Company financial statements under IFRS 171
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 MDFH plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Distribution costs ½
Administrative expenses 1
Other operating expenses 1
Finance costs 1
Income tax expense ½
Land and buildings 1
Plant and equipment ½
Intangible assets ½
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital ½
Preference shares ½
Share premium ½
Retained earnings 1
Borrowings ½
Borrowings ½
Bank overdraft ½
Trade payables ½
Accruals ½
Deferred income ½
Tax payable ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£
ASSETS
Cash and cash equivalents –
Total assets 576,175
ICAEW 2019 Chapter 12: Company financial statements under IFRS 173
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 Billabong plc
Marking guide
Marks
Revenue ½
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Other operating expenses 1
Finance costs 1
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Motor vehicles 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital ½
Share premium ½
Retained earnings 1
Borrowings ½
Trade payables ½
Accruals ½
Provisions ½
Tax payable ½
16
ICAEW 2019 Chapter 12: Company financial statements under IFRS 175
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£ £ £ £ £
Cost or valuation 250,000 500,000 125,000 50,000
Accumulated dep’n – (50,000) (30,000) (25,000)
Carrying amount per TB 250,000 450,000 95,000 25,000
Depreciation charge – (10,000) (19,000) (12,500)
Carrying amount 31 Dec 20X1 250,000 440,000 76,000 12,500 778,500
(5) Inventories
Cost NRV Lower
Damaged goods 5,000 4,500* 4,500
£
Closing inventory 75,000
Adjustment to reflect NRV (500)
Carrying amount 31 Dec 20X1 74,500
ICAEW 2019 Chapter 12: Company financial statements under IFRS 177
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
9 ABCD plc
Marking guide
Marks
Revenue 1
Cost of sales 1
Distribution costs 1
Administrative expenses 1
Other operating income 1
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Intangible assets ½
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents ½
Ordinary share capital ½
Share premium ½
Retained earnings 1
Borrowings (long term) ½
Bank overdraft ½
Trade payables 1
Accruals ½
Tax payable ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
ICAEW 2019 Chapter 12: Company financial statements under IFRS 179
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Total
£
Interest per TB –
Accrued interest (12 months) 10,000
Loan interest relating to the year 10,000
(10% 100,000)
(4) Non-current assets
Plant and Development
Land Buildings equipment costs
£ £ £ £
Cost or valuation 470,000 1,480,000 440,000 11,000
Accumulated dep’n – (120,000) (220,000) –
Carrying amount per TB 470,000 1,360,000 220,000 11,000
Depreciation charge – (74,000) (44,000) –
Carrying amount 31 Oct 20X7 470,000 1,286,000 176,000 11,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
10 Earle plc
Marking guide
Marks
Gross profit ½
Distribution costs 1
Administrative expenses 1½
Finance costs 1
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents 1
Ordinary share capital 1
Share premium 1
Retained earnings 1½
Borrowings ½
Trade payables 1
Accruals 1
Tax payable ½
16
Earle plc
Statement of profit or loss for the year ended 31 October 20X8
£’000
Gross profit 11,728
Distribution costs (W1) (4,724)
Administrative expenses (W1) (4,068)
Profit/(loss) from operations 2,936
Finance costs (8% 15,000) (900)
Profit/(loss) before tax 2,036
Income tax expense (728)
Profit/(loss) for the year 1,308
ICAEW 2019 Chapter 12: Company financial statements under IFRS 181
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£’000
Equity
Ordinary share capital (W5) 18,000
Share premium (W5) 750
Retained earnings (W3) 7,534
Non-current liabilities
Borrowings 11,250
Current liabilities
Trade payables (2,099 + (96 – 69)) 2,126
Accruals (W4) 788
Income tax payable 728
Total equity and liabilities 41,176
WORKINGS
(1) Allocation of costs
Administrative Distribution
expenses costs
£’000 £’000
Per TB 3,592 4,082
Advertising accrual (£33,000 1/3) – 11
Depreciation ((300 + 765) 40%, 60% (W3)) 426 639
Rent prepayment (£48,000 2/12 ) – (8)
Impairment loss 15 –
Irrecoverable debt 35 –
4,068 4,724
(2) Property, Pant and Equipment
Plant and
Land Building equipment Total
s
£’000 £’000 £’000 £’000
Cost at 1 Nov 20X7 11,364 15,000 9,375
Accumulated depreciation at – (5,250) (5,550)
1 Nov 20X7
Charge for year (26,364 – 11,364 2%) – (300) –
Charge for year (9,375 – 5,550 20%) – – (765)
Impairment – – (15)
Carrying amount 11,364 9,450 3,045 23,859
(4) Accruals
£’000
Accruals (per TB) 327
Additional distribution costs accrual for advertising (W1) 11
Additional interest accrual 450
788
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
SHARE PREMIUM
£’000 £’000
Share capital (bonus issue) 3,000 B/d 3,750
C/d 750
3,750 3,750
ICAEW 2019 Chapter 12: Company financial statements under IFRS 183
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
11 Rosemary plc
Marking guide
Marks
Gross profit ½
Distribution costs 1
Administrative expenses 1
Finance costs ½
Income tax expense ½
Land and buildings 1
Plant and equipment 1
Inventories ½
Trade receivables 1
Prepayments ½
Cash and cash equivalents 1
Ordinary share capital 1
Share premium 1½
Retained earnings 1½
Borrowings ½
Trade payables 1
Accruals 1½
Tax payable ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£’000
Non-current liabilities
Borrowings 15,000
Current liabilities
Trade payables (1,684 – (32 - 23)) 1,675
Accruals (161 + 95 (W1)) 256
Income tax payable 1,093
Total equity and liabilities 30,691
WORKINGS
(1) Allocation of costs
Administrative Distribution
expenses costs
£’000 £’000
Per TB 2,794 2,321
Accruals (£142,500 2/3) – 95
Prepayment (£205,333 ¾) (154) –
Irrecoverable debt 119 –
Impairment loss 1,438 –
4,197 2,416
(2) Plant and equipment
£’000
Plant and equipment: Cost 25,975
Plant and equipment: Accumulated depreciation (13,500)
Impairment loss (1,438)
11,037
(3)
SHARE CAPITAL
£’000 £’000
B/d 5,000
C/d (bal fig) 6,000 Share premium (bonus issue) 1,000
6,000 6,000
SHARE PREMIUM
£’000 £’000
Share capital (bonus issue) 1,000 B/d 1,250
C/d (bal fig) 250
1,250 1,250
(4)
RETAINED EARNINGS
£’000 £’000
Cash at bank (dividends paid) 1,150 B/d 5,744
C/d (bal fig) 6,417 Profit or loss account 1,823
7,567 7,567
ICAEW 2019 Chapter 12: Company financial statements under IFRS 185
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
1 Roxy plc
Marking guide
Marks
PBT ½
Finance costs ½
Depreciation charge 1½
Gain/loss on sale of PPE 1½
Movement in inventories 1
Movement in trade receivables 1
Movement in trade payables 1½
Movement in provision ½
Tax paid 1½
Interest paid 1½
Purchase of PPE 1½
Proceeds from sales of PPE 1½
Movement in borrowings 1
Opening and closing cash 1
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
WORKINGS
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
2 Middlesex plc
Marking guide
Marks
PBT 1
Finance costs 1
Depreciation 1
Gain/loss on disposal of PPE 1
Movement in inventories 1
Movement in trade receivables 1
Movement in trade payables 1
Movement in accruals 1
Movement in provisions 1
Interest paid 1
Income tax paid 1
Purchase of PPE 1
Purchase of investments ½
Proceeds from sales of PPE 1
Proceeds from issue of ordinary shares 1
Movement in borrowings 1
Opening and closing cash ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
WORKINGS
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
3 Emily plc
Marking guide
Marks
Emily plc
Statement of cash flows for the year ended 31 December 20X7
£’000
Cash flows from operating activities
Profit before tax 300
Investment income (25)
Finance costs 75
Depreciation (W2) 90
Gain / loss on sales of property, plant and equipment (45 – 32) 13
Gain / loss on sales of investments (25 – 30) (5)
Movement in inventories (150 – 102) (48)
Movement in trade receivables ((390 – 15) – 315) (60)
Movement in trade payables (227 – 199) 28
Cash generated from operations 368
Income tax paid (110 + 140 – 120) (130)
Interest paid (W4) (78)
Net cash from / used in operating activities 160
Cash flows from investing activities
Purchase of property, plant and equipment (W1) (201)
Purchase of intangible assets (200 – 250) (50)
Proceeds from sale of property, plant and equipment (W3) 17
Proceeds from sale of investments 30
Interest received 25
Net cash from / used in investing activities (179)
Cash flows from financing activities
Proceeds from issue of shares (50,000 1.20) 60
Dividends paid (100)
Movement in borrowings 120
Net cash from / used in financing activities 80
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£’000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Marks
PBT ½
Finance cost ½
Depreciation charge 1½
Change in inventories 1
Change in receivables 1
Change in payables 1
Change in accruals 1½
Income tax paid 1
Interest paid 1½
Purchase of PPE 1½
Purchase of investments ½
Proceeds from issue of ordinary shares 1½
Movement in borrowings 1
Dividends paid 1½
Opening and closing cash ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
WORKINGS
(1) FIXTURES AND FITTINGS
£’000 £’000
B/d 5,361 Depreciation charge (bal fig) 880
Additions 1,350
Trade payables 15 C/d 5,846
6,726 6,726
(2) LAND
£’000 £’000
B/d 19,780
Additions (bal fig) 520 C/d 20,300
20,300 20,300
(3) INCOME TAX PAID
£’000 £’000
B/d 1,238
Cash paid (bal fig) 1,076 Statement of profit or loss 2,634
C/d 2,796
3,872 3,872
(4) INTEREST PAID
£’000 £’000
B/d 30
Cash paid (bal fig) 135 Statement of profit or loss 130
C/d 25
160 160
(5) SHARE CAPITAL AND PREMIUM
£’000 £’000
B/d (10,000,000 + 5,000,000) 15,000
C/d (13,000,000 + 12,500,000) 25,500 Cash (bal fig) 10,500
25,500 25,500
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
5 Larkfield plc
Marking guide
Marks
PBT ½
Finance costs ½
Depreciation charge ½
Amortisation charge 1½
Gain/loss on sale of PPE ½
Movement in inventories 1
Movement in trade receivables 1
Movement in trade payables 1½
Movement in accruals 1
Tax paid 1
Interest paid 1
Purchase of PPE 1½
Purchase of intangibles ½
Proceeds from sales of PPE 1
Proceeds from issue of shares 1½
Movement in borrowings 1
Opening and closing cash and equivalents ½
Total 16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£ £
B/d 55,000 Amortisation (bal fig) 15,000
Purchases 125,000 C/d 165,000
180,000 180,000
(2) INCOME TAX PAID
£ £
Cash (bal fig) 153,000 B/d 230,000
C/d 245,000 Statement of profit or loss 168,000
398,000 398,000
(3) INTEREST
£ £
Cash (bal fig) 94,000 B/d 25,000
C/d 16,000 Statement of profit or loss 85,000
110,000 110,000
(4) PPE – CARRYING AMOUNT
£ £
B/d 3,400,000 Disposals 505,000
Purchases (bal fig) 845,000 Trade receivables 35,000
Trade payables 95,000 Depreciation 245,000
C/d 3,555,000
4,340,000 4,340,000
(5) SHARE CAPITAL
£ £
B/d 850,000
Bonus element 85,000
C/d 1,000,000 Cash (bal fig) 65,000
1,000,000 1,000,000
SHARE PREMIUM
£ £
B/d 350,000
Share capital (bonus element) 85,000 Cash (bal fig) 135,000
C/d 400,000 0
485,000 485,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
6 Rose plc
Marking guide
Marks
PBT ½
Finance costs ½
Investment income 1
Depreciation charge 1
Gain/loss on sale of PPE 1
Movement in inventories 1
Movement in trade receivables 1
Movement in trade payables 1
Movement in accruals 1
Tax paid 1
Interest paid 1
Purchase of PPE 1
Proceeds from sales of PPE 1
Interest received ½
Proceeds from issue of shares 1
Movement in borrowings 1
Dividends paid 1
Opening and closing cash and equivalents ½
16
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
£
Cash flows from financing activities
Proceeds from issue of shares (W5) (50,000 + 20,000) 70,000
Movement in borrowings (150,000 – 312,000) (162,000)
Dividends paid (W6) (50,000)
Net cash from/used in financing activities (142,000)
WORKINGS
(4) INTEREST
£ £
Cash (bal fig) 20,750 B/d 5,000
C/d 6,250 Statement of profit or loss 22,000
27,000 27,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 C NON-CURRENT ASSETS
£’000 £’000
Opening balance 600 Disposals 90
Purchases (bal fig) 240 Closing balance 750
840 840
£’000
Purchase of non-current assets 240
Proceeds of sale of non-current assets (30)
Net cash outflow 210
8 B
Reconciliation of operating profit to cash generated from operations
£’000
Operating profit (250 + 25) 275
Depreciation charges 140
Loss on sale of property, plant and equipment 15
Increase in inventory (5)
Increase in trade receivables (15)
Increase in trade payables 16
Cash generated from operations 426
9 D NON-CURRENT ASSET COST
£’000 £’000
At 1.10.X8 1,550 At 30.09.X9 1,886
Purchases 390 Disposals (bal fig) 54
1,940 1,940
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Purchases (390)
Proceeds of disposals 24
Net cash outflow from capital expenditure (366)
10 C
Analysis of changes in net debt
At 1 Oct 20X8 Cash flows At 31 Sept 20X9
£’000 £’000 £’000
Cash in hand, at bank 50 (15) 35
Debt due after 1 year (300) 50 (250)
Total (250) 35 (215)
Total net debt has decreased from (250) to (215) during the year.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
7 A, H, J, O
Cheque from Dominic plc: debit cash at bank £171, credit bad debts expense £171
Cash discount: debit sales £331, credit debtors £331
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
8 A VAT ACCOUNT
£ £
Purchases (85,680 1/6) 14,280 Sales (115,920 1/6) 19,320
C/d 5,040
19,320 19,320
The VAT on the new car is irrecoverable so is included in the car’s capitalised cost
ICAEW 2019 Chapter 14: Company financial statements under UK GAAP 201
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Note: The question asks for H's share of residual profit, not total profit.
5 B
£
NA b/d 105,000
Profit 52,600
Drawings (40,000)
NA c/d 117,600
6 B
Davina
£
Salary 15,000
Interest on capital (6% 80,000) 4,800
Interest on drawings (10% 25,000) (2,500)
Profit share 51,900
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
(140,000 – (6% 170,000) + (10% 70,000) – 15,000 – 18,000) = 103,800 3/6 69,200
Owner's interest
Opening capital (= opening net assets) 31,600
Capital introduced 6,000
Profit (balancing figure) 14,000
Drawings (8,000 + 700) (8,700)
42,900
Goods drawn by owner are taken at cost.
12 C
£
Increase in net assets 68,000
Add drawings 37,000
Deduct capital paid in (10,000)
Net profit 95,000
13 C
Increase in net assets £36,100 = Profit + 30,000 – 32,000
Profit = £38,100
14 C Opening capital + capital introduced + profit – drawings
15 C
£
Gross wages and salaries 127,600
Employer NIC 14,036
Total wages and salaries expense 141,636
16 B Opening stock – debit
Rental income – credit
Capital introduced – credit
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 203
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Drawings – debit
Local property tax paid – debit
17 B % £
SP 120 4,800
C of S (100) (4,000)
GP 20 800
Record at cost = £4,000 Dr Drawings, Cr Purchases
18 B
(1) Represents drawings from the partnership – no effect on profits.
(2) Debt needs to be written off – decreases profits.
(3) Credit to bank statement is income which increases profits.
19 A, C
Interest on capital (20,000 5%) £1,000
£
Net profit 90,000
Total interest on capital (60,000 5%) (3,000)
Profit to be shared 87,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
ICAEW 2019 Chapter 15: Sole trader and partnership financial statements under UK GAAP 205
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
DISPOSALS
£ £
Machinery – cost 82,000 Machinery – acc dep 23,900
SPL – Profit on disposal 35,900 Cash at bank (Proceeds) 94,000
117,900 117,900
7 D
SUPPLIER ACCOUNT: ARABELLA
Cash at bank (D) 123
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
SHARE PREMIUM
£ £
Bonus issue 126,000 b/d 50,000
c/d 0 Rights (80,000 £0.95) 76,000
126,000 126,000
RETAINED EARNINGS
£ £
Balance of bonus
(360,000 – 126,000) 234,000 b/d 1,423,126
c/d (bal fig) 1,269,126 Profit for year 80,000
1,503,126 1,503,126
The two most common mistakes with this kind of question are to take the number of
shares as the share capital balance as in C and D (ie, to treat all shares as £1 shares),
and to fail to use the share premium to the maximum for the debit entry for the bonus
issue, as in A.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
13 A
Share 1 1 3 2 1
David Paul Daniel David Paul Daniel
£ £ £ £ £ £
Drawings 10,000 10,000 10,000 b/d 9,870 8,140 15,580
Goodwill Profit
(96,000@ 3:1) 72,000 24,000 (120,000 @
4:3:1) 60,000 45,000 15,000
c/d 35,870 8,580 Goodwill
(96,000 @ 48,000 36,000 12,000
4:3:1)
Loan a/c 79,140
117,870 89,140 42,580 117,870 89,140 42,580
Note that you would have arrived at Answer B if you had ignored Daniel’s £10,000
drawings.
14 C As opening inventories is a debit in the statement of profit or loss, an overstatement or
overvaluation here decreased profit and so should be added back. The reverse is true of
closing inventories.
£
Draft gross profit 54,200
Add back overstatement of opening inventories (1,200 20/120*) 200
Deduct overstatement of closing inventories (800 20/120*) (133)
Corrected gross profit 54,267 (C)
In Option B the overstatement in opening inventories is deducted, and that in closing
inventories is added back. In the other two options the wrong gross profit percentage is
applied, taking 20% margin (on sales value ie, 20/100) rather than 20% mark-up (on
cost).
* Gross profit percentages:
%
Selling price 120
Cost (100)
Gross profit 20
To calculate gross profit from selling price, multiply by 20/120.
15 C The whole of the insurance premium relates to the following year, so the instalment paid
should all be treated as a prepayment, which reduces expenses in the year and so
should be added back to the draft profit for the year.
The problem with the returned goods is that the draft profit for the year reflects the
revenue made on sale of the goods, less the cost of those goods, therefore the profit on
the sale should be deducted from the draft profit for the year.
£
Draft profit for the year 60,000
Add back Prepaid insurance premium instalment (£2,500/2) 1,250
Deduct profit on returned goods £300 40/60* (200)
61,050 (C)
In A the profit has been added back and the prepayment deducted; in
B just the cost of goods (£300) has been deducted, while in D the
profit deducted has been calculated as £300 40%.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
16 B In relation to the discount received from a supplier, this should have been debited to
trade payables and credited to purchases. As such, expenses (purchases) will decrease
and profit will increase. The correcting journal is:
Dr Trade payables (600 2) £1,200
Cr Purchases £600
Cr Suspense £600
The maintenance costs should have been expensed fully to the statement of profit or
loss, reducing profits by £1,200. The depreciation charged of (£1,200 0.2) £240 should
be added back. The net effect is to decrease profits by £960.
£
Draft profit for the year 150,000
Discount received 600
Net repair costs (1,200 0.80) (960)
Final profit for the year 149,640 (B)
17 C The absence of the missing inventory has already been reflected in the physical count, so
effectively its cost has already been debited to gross profit, reducing both gross and profit
for the year by £10,000. The insurance claim will be 60% £10,000 = £6,000. This figure
should be accounted for as follows:
Dr Other receivables £6,000
Cr Other income £6,000
The credit entry increases profit for the year – NOT gross profit – by £6,000 (C).
18 C
£
Original cash at bank ledger account balance (5,196)
Interest (78)
Corrected cash at bank ledger account balance per statement of
financial position (5,274)
Unpresented payments 564
Uncredited lodgements (1,875)
Balance per bank statement (6,585)
19 C
CASH AT BANK
£ £
Interest 75 Balance b/d (bal fig) 1,905
c/d 7,480 Trade payables 5,650
7,555 7,555
Bank reconciliation statement
£
Balance per bank statement (bal fig) (770)
Add uncleared lodgements 650
Less unpresented cheques (1,785)
Balance per cash at bank ledger account (1,905)
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
20 A To calculate cost of sales correctly the purchases figure should only take into
consideration the goods purchased for resale. Therefore it is necessary to reduce
purchases, not inventory, by the cost of the inventory destroyed (Cr Purchases £10,000).
This cost to the business should be shown under administrative expenses in the
statement of profit or loss (Dr Administrative expenses £10,000). The sum due from the
insurance company of £6,000 should be treated as part of other income, not revenue, as
it is from a non-trading source (Cr Other income £6,000).
21 B To eliminate the suspense account a debit entry of £1,500,000 is required. The rights
issue is 1 for 5, so (4,000,000/5) = 800,000 25p shares are issued, giving a credit of
£200,000 in the share capital account. The share premium is therefore
(2.00 – 0.25) = £1.75 per share, which gives a credit to the share premium of 800,000
£1.75 = £1,400,000. The remainder of the journal is to record the amount unpaid on the
shares ((800,000 £2) – £1,500,000) = £100,000 as an other receivable:
Dr Suspense account £1,500,000
Dr Other receivables £100,000
Cr Share capital £200,000
Cr Share premium £1,400,000
22 C The accumulated depreciation at the part exchange date is (55,000 – 18,200) = £36,800,
and this must be eliminated from the accumulated depreciation account by debiting the
account.
The truck cost account is debited with the difference between the cost of the old and new
trucks (60,000 – 55,000) = £5,000.
Sneaky is paying a total cash/payables figure of (15,000 + 25,000) = £40,000 for the
truck, therefore the part-exchange allowance is (60,000 – 40,000) = £20,000. This is
compared to the carrying amount of £18,200 to give a gain on disposal of £1,800.
Dr Accumulated depreciation £36,800
Dr Cost £5,000
Cr Disposal £1,800
Cr Suspense £40,000
TRUCK – COST
£ £
b/d 55,000 Disposal 55,000
Cash 15,000 c/d 60,000
Trade and other payables 25,000
Part exchange value 20,000
115,000 115,000
b/d (net entry £5,000) 60,000
DISPOSAL
£ £
Cost 55,000 Accumulated depreciation 36,800
c/d Profit on disposal 1,800 Part exchange value 20,000
56,800 56,800
b/d (net entry) 1,800
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
23 C The insurance costs should have been debited to expenses. The correcting journal is:
Dr Expenses £5,344
Cr Suspense £5,344
Profits will fall by £5,344, so the retained earnings figure will be:
£
Retained earnings b/d 734,656
Profit after tax 68,574
Correcting journal (5,344)
Retained earnings c/d 797,886
24 C
£
Profit for the year before interest 79,000
Interest (30,000 6% 6/12) (900)
78,100
Partner salaries (20,000 + 15,000) (35,000)
Residual profit for appropriation (3/4 and 1/4 £43,100 = £32,325
and £10,775) 43,100
Share 3 1
Rickard Grab
£ £
Salaries 20,000 15,000
Residual profits 32,325 10,775
Total 52,325 (C) 25,775 (A)
Note: In Option D the interest is not deducted from profit for the year before it is
appropriated, while in Option B a full year's interest is deducted.
25 C, D
The company debited the cash at bank account with the 20X8 subscriptions received and
credited subscription income for 20X9, when it should have credited the subscriptions
receivable or accrued income asset account set up at 31 December 20X8. The correcting
journal should therefore Dr Subscription income (C) and Cr Accrued income (D).
26 B In respect of (1), we need to reinstate the debt, remove the suspense account and then
write the debt off as irrecoverable:
Dr Trade receivables 106
Cr Suspense account 106
Being to reinstate the debt
Dr P/L irrecoverable debts expense 106
Cr Trade receivables 106
Being write off of irrecoverable debt
For (2), we need to record the increase allowance for receivables of (£1,500 – £1,200)
£300:
Dr P/L irrecoverable debts expense 300
Cr Allowance for receivables 300
Being increase in allowance for receivables
For (3), the suspense account entry must be reversed to the credit of the irrecoverable
debts expense account.
Dr Suspense account 36
Cr P/L irrecoverable debts expense 36
Being removal of suspense account
So the combined journal entry is:
Dr P/L irrecoverable debts expense 370
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
27 D The bookkeeper has processed the opening (1) and closing (2) journals as follows:
ACCRUALS
£
b/d 1,589
Jnl 1 1,589
Jnl 2 2,745
PREPAYMENTS
£
b/d 746
Jnl 1 746
Jnl 2 1,669
ADMINISTRATIVE EXPENSES
£ £
Jnl 1 843 Jnl 2 1,669
Cash 54,123
Jnl 2 2,745
The cash payment and Journal (2) are correct. To correct Journal (1) the bookkeeper
should:
Dr Accruals £3,178, Cr Prepayments £1,492, Cr Administrative expenses £1,686
28 C, D
Interest on a partner’s loan capital (C) is an expense in the profit and loss account.
Drawings by a partner are debited to the current account (D).
Goods taken by a partner count as drawings, not as appropriations of profit (A), and no
salaries of any amount are appropriated to partners unless they specifically agree that
they should be (E). Interest on drawings by a partner (B) are negative appropriations of
profit, not an expense.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
29 A Partnership salaries are appropriations of profit. They affect neither the partnership’s
profit for the year available for appropriation nor the cash position, so Statement 1 is
true. Interest on partners’ drawings is also a appropriation of available profit. It does not
affect the amount of profit available for appropriation, so while it does not affect the cash
position Statement 2 is false therefore. Salaries to employees, and interest on partners’
loans, affect profit for the year available for appropriation while drawings, rather than
interest on them, affect the cash position.
30 A Unless told otherwise we can assume that all charges accrue evenly in the period.
The line rental charge payment of £3,150 made on 1 November 20X3 covers the six
months to 30 April 20X4. Of this payment, four months is a prepayment covering the
period 1 January to 30 April 20X4, an amount of (4/6 £3,150) = £2,100.
The call charges payments are in arrears, so when the last payment for 20X3 is made on
30 November, Lemon plc still owes one month (December) of charges, which is
(£5,820 1/12) = £485.
31 D The amount recorded of £11,794 relates to amounts paid in the year. This needs to be
adjusted for prepayments and accruals. Instead of being told opening and closing
accruals and prepayments you are told the difference between them. You need to think
carefully therefore about the side of the T account on which the net difference should
appear. Where there is an increase in the accrual the net effect is a debit in the expense
account, while an increase in a prepayment will be a net credit in the expense account.
DISTRIBUTION COSTS
£ £
Cash at bank account 11,794 Increase in prepayments 78
Statement of profit or loss
(bal fig) 11,823 (D)
Increase in accruals 107
11,901 11,901
32 A If a company is no longer a going concern then the directors have concluded that it will
not trade for the foreseeable future (ie, less than twelve months) and so all non-current
assets and liabilities are transferred to current assets and current liabilities respectively
(A).
33 B VAT on vehicles except for cars is treated as input tax, so the truck's cost in the ledger
accounts is £79,680 5/6 = £66,400 (C). This is depreciated at 25% per annum for six
months, a charge of £8,300. Hence the carrying amount at the year end is
£66,400 – £8,300 = £58,100 (B).
In option A the cost is depreciated for a full year (£66,400 0.75), while in D the cost is
taken to include VAT, and is then depreciated for six months.
34 C
£
Opening net assets 50,000
Profit for the year 28,000
Capital injection 10,000
Drawings (£500 12) (6,000)
Inventory drawings (£6,400 40/100) (2,560)
Closing net assets 79,440
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
35 A VAT is not treated as input tax when a car is purchased for use in a business (as
opposed to being bought as inventory by a car dealer). As Hedges plc is a clothing
retailer we can assume that the gross figure should be taken as the cost of both vehicles.
The old car had been depreciated for 25 months when it was traded in.
DISPOSALS
£ £
Old car – cost 17,760 Vehicles – acc dep
(17,760/48 25) 9,250
Profit – bal fig 4,790 (A) Part exchange value
((21,000 1.2) – 11,900) 13,300
22,550 22,550
36 B When a bonus issue is made you should assume that the share premium is used as far
as possible, with only the remainder being debited to retained earnings.
SHARE CAPITAL
£ £
c/d 800,000 b/d 500,000
Bonus issue (500,000/5 3) 300,000
800,000 800,000
SHARE PREMIUM
£ £
Bonus issue 150,000 b/d (500,000 £0.30) 150,000
150,000 150,000
RETAINED EARNINGS
£ £
Bonus issue (300,000 – b/d 484,000
150,000) 150,000
c/d 334,000
484,000 484,000
37 C
£
Share capital 30,000
Share premium (£30,000/£0.50 £(1.00 – 0.50) 30,000
Retained earnings 105,621
Other reserves (bal fig) 20,000 (C)
Closing net assets 185,621
Note: Sage Plc cannot have share premium of £20,000 as we are told its share premium
is £30,000, so the balance of £20,000 must be a general reserve.
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
38 C In respect of the disposal, the vehicle sold had a carrying amount of £15,000/3 2 =
£10,000 at 1 July 20X6, so a loss of (10,000 – 8,500) = £1,500 arises on disposal.
The remaining vehicles have a cost of £549,810 (564,810 – 15,000). We know that none
of them was written down fully at the end of the previous reporting period, and we can
assume there have been no additions, so depreciation of £549,810/3 = £183,270 arises.
DISTRIBUTION COSTS
£ £
b/d 125,000 Statement of profit or loss 309,770
Disposal 1,500
Depreciation charge 183,270
309,770 309,770
VEHICLES – COST
£ £
b/d 564,810 Disposal 15,000
c/d 549,810
564,810 564,810
VEHICLES – ACCUMULATED DEPRECIATION
£ £
Disposal (15,000/3) 5,000 b/d 188,270
c/d 366,540 Charge (549,810/3) 183,270
371,540 371,540
DISPOSAL
£ £
Cost 15,000 Accumulated depreciation 5,000
Proceeds 8,500
Loss (bal fig) 1,500
15,000 15,000
39 D
TAXATION ACCOUNT
£ £
Tax paid 31,960 b/d 32,810
c/d (bal fig) 36,300 Statement of profit or loss 35,450
68,260 68,260
40 D Having paid its 20X1 fee in advance, Redman plc is now paying its 20X2 fee in arrears.
The amount unpaid at 30 April 20X2 will therefore be an accrual. There are outstanding
fees for the period 1 January – 30 April 20X2, which is four months. The accrual is
therefore £15,000 1.1 4/12 = £5,500 (D).
Note: The figure of £11,000 in A and C is the charge applicable to the current year
(15,000 1.1 8/12 = £11,000).
41 A The total interest charge for the year should be:
New debentures (£200,000 8% 3/12) = £4,000
Original debentures (£500,000 8%) = £40,000 (= cash paid)
Therefore the closing accrual should be £4,000, giving a total trade and other payables
total of (149,630 + 4,000) = £153,630.
TRADE AND OTHER PAYABLES
£ £
c/d 153,630 b/d 149,630
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Accrual 4,000
153,630 153,630
FINANCE COST
£ £
Cash 40,000 b/d 0
Accrual (trade and other Statement of profit or loss
payables) 4,000 500,000 0.08) +
(200,000 0.08 3/12) 44,000
44,000 44,000
42 B
SHARE PREMIUM
£ £
Bonus issue b/d (200,000 (0.80 –0.25)) 110,000
(200,000/5 0.25) 10,000
Preference shares
(50,000 (1.20 – 1.00) 10,000
Bal c/d 110,000
120,000 120,000
43 A Carrying amount of fixtures traded in = £12,000 70% 70% = £5,880.
Carrying amount of remaining fixtures is therefore 48,000 + 18,000 – 5,880 = £60,120.
Depreciation on these is (60,120 30%) = £18,036 (A).
FIXTURES – CARRYING AMOUNT
£ £
b/d 48,000 Disposal (12,000 0.7 0.7) 5,880
Additions 18,000 Charge (60,120 30%) 18,036
c/d 42,084
66,000 66,000
44 A The initial amount capitalised is £52,000 (purchase price of £50,000 plus transport and
set up costs of £2,000). The £500 staff training cost is a cost which can’t be capitalised.
Depreciation is initially ((52,000 – 5,000)/5) = £9,400 per annum, so at 1 April 20X8 the
carrying amount is (52,000 – (2 9,400)) = £33,200. Depreciation is then charged at 50%
on this figure, giving a depreciation figure of £16,600 for the year to 31 March 20X9, and
a carrying amount of £16,600.
MACHINE – COST
£ £
Purchase price 50,000 c/d 52,000
Transport 2,000
52,000 52,000
MACHINE – ACCUMULATED DEPRECIATION
£ £
c/d 35,400 31/3/X7 Charge
(52,000 – 5,000)/5 9,400
31/3/X8 Charge
(52,000 – 5,000)/5 9,400
31/3/X9
(52,000 – 18,800) 0.5 16,600
35,400 35,400
Carrying amount: 52,000 – 35,400 = £16,600
45 B
£
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
104,740 104,740
47 C
£
Profit before tax 18,600
Depreciation 4,320
Decrease in inventory (18,200 – 15,310) 2,890
Increase in trade receivable(23,900 – 22,400) (1,500)
Decrease in trade payables (19,600 – 16,700) (2,900)
Cash generated from operations 21,410
48 A
£
Profit 50,000
Depreciation 5,000
Profit on disposal (20,000 – 17,000) (3,000)
Increase in inventory (8,000)
Increase in trade receivables (3,000)
Decrease in payables (4,000)
Cash generated from operations 37,000
Downloaded by ha ho (hoha022004@gmail.com)
lOMoARcPSD|20950506
Downloaded by ha ho (hoha022004@gmail.com)