Fa2 Mock paper 2 answers

Question 1
(C) $15,800

Under IAS 2, inventory must be stated at the lower of cost and net realisable value. The clock has a cost
of $15,800 and a net realisable value of $25,300 (26,000 - 700).

Therefore it should be included at $15,800.

Question 2

(B & D) It is used when the total debits and total credits in the trial balance are not equal and It is used
as a temporary account when the bookkeeper does not know immediately where to post an amount

A suspense account is a temporary account which has a number of purposes. The most common are:

(1) To make the trial balance agree. If a trial balance is drawn up which does not balance (ie total
debits do not equal total credits) a temporary suspense account is opened for the difference. Once
the errors causing the imbalance are found they can be corrected using journal entries and the
suspense account is closed.
(2) When the bookkeeper knows where to post the credit side of a transaction, but does not know
where to post the debit (or vice versa). For example, a cash payment might be made and must
obviously be credited to cash. But the bookkeeper may not know what the payment is for, and so
will not know which account to debit. When the bookkeeper finds out what the payment is for he
can post the correct entry and close the suspense account.

The suspense account never appears in the final accounts. Errors of complete omission will not be
corrected through the suspense account as they will not cause a trial balance imbalance.

Question 3

$1,175

$
Balance per bank statement 3,732
Unpresented cheques (5,729)
Outstanding lodgement 822
Overdraft balance to be reported (1,175)

Note that the bank charges will already have been deducted from the bank statement balance. Caleb
will have to enter them into his ledger in order to complete the reconciliation.
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Question 4

The reconciliation confirms that the balance on each supplier's account is correct False
The reconciliation provides confirmation that the balance on the payables control account False
is correctly stated

The reconciliation simply confirms that the same amounts have been posted to the list of balances and
the control account. It cannot confirm that all of those amounts were correct, or that other amounts
were not omitted from both. Therefore it cannot confirm the correctness of the control account or of
any individual supplier's balance.

Question 5

(A) A charge of $290

$
Balance on receivables ledger 88,463
less: Irrecoverable debt (563)
87,900

Allowance at 30 April 20X9 (87,900 x 2%) 1,758

This will be charged as an expense.

Question 6

(C) Both 1 and 2

A trial balance is prepared to provide a basic check on the accuracy of bookkeeping entries and to
summarise the balances prior to the preparation of the final accounts.

Question 7

(B) Faithful representation

Question 8

(A & B) Current liabilities $9,281 and Non-current liabilities $11,200

Current liabilities are those due to be settled within 12 months. An overdraft is always a current liability
because it is due to be settled on demand and to this we can add the repayment of $5,600 due on 1
April 20X4. This gives a total for current liabilities of $9,281. The balance is a non-current liability of
$11,200 (16,800 - 5,600).

Question 9

$1,414

The corrected account looks as follows:

$ $
Drawings 1,240 Balance b/f 54
Interest of capital 560
Salary 300
Balance c/f 1,414 Net profit 1,740
2,654 2,654

Therefore the corrected balance on the account is a credit balance of $1,414.

Question 10

A cash sale for $430 was recorded correctly in the cash account, but was entered on the Yes
correct side of the sales account as $340
The entry for depreciation was made correctly in the accumulated depreciation account, and No
was entered on the wrong side of the depreciation expense account.

A cash sale for $430 recorded correctly in the cash account but entered on the correct side of the sales
account as $340 will lead to debit balances being greater than credit balances by $90.

An entry for depreciation made correctly in the accumulated depreciation account, and entered on the
wrong side of the depreciation expense account will lead to credit balances being greater than debit
balances (the entry to the depreciation expense should be a debit, but entered as a credit).

Question 11

(A) Dr Purchases $800 Dr Electricity $725 Cr Payables control $1,525

The purchases day book only records purchases made on credit. Purchases made with cash are
recorded in the cash book. Therefore the correct journal entry to record the total is debit purchases
$800, debit electricity $725, credit payables control $1,525.

Question 12

(B) Capital introduced - Drawings + Profit + Opening capital

Capital is increased by profits and by any further capital introduced and reduced by drawings. So the
correct formula for closing capital is:

Capital introduced - Drawings + Profit + Opening capital

Question 13

(C & B) Dr Trade payables and Cr Purchase returns

When Wilson bought these goods the entry he posted would have been to debit purchases and credit
trade payables. As he is returning the goods he will reverse these entries:

Dr Trade payables / Cr Purchase returns

Lim's purchase control account will show the following:

Dr ($) Cr ($)
Payments to suppliers 131,740 Balance b/f 17,822
Contra 800
Balance c/f 16,385 Purchases (balance) 131,103
148,925 148,925
Question 15
An invoice from a supplier has not been recorded No
The debit entry of $500 for repairs has been correctly recorded, but the credit entry was Yes
recorded as $50

If an invoice from a supplier has not been recorded at all then no imbalance is created: debits and
credits are both nil in this respect.

If a debit is recorded as $500 and the credit is only $50 then an imbalance of $450 is created.

Question 16
(C) Statement of financial position credit only
 Fa2 Mock paper 2 answers

Accumulated depreciation is entered in the statement of financial position as a deduction from the cost
of non-current assets (therefore as a credit balance).

Depreciation for the current year (not accumulated depreciation) appears in the statement of profit or
loss.
Question 17
(B) Statement of financial position credit

The receivables allowance is posted to the statement of financial position as a deduction from trade
receivables. Trade receivables is an asset account (debit) so the allowance is a credit posting. Any
increase or decrease in the allowance will go to the statement of profit or loss.

Question 18
(C) $553 cash at bank

$
Overdrawn balance per general ledger (422)
Cheque not on bank statement 822
Interest received 153
Balance per bank statement 553 cash at bank

Question 19

(D & B) $400 cash paid into the business by Candy from her personal bank account and A van worth
$350 bought by Candy for the business using her personal bank account

The capital section of the statement of financial position shows capital injected into the business by its
owner. Therefore the $400 cash paid into the business by Candy along with the $350 paid by Candy for
the van should be included in the capital section of Candy's statement of financial position.

Capital injected by third parties, such as the loan from the bank and the loan from Candy's friend Jim,
are classified as liabilities in the statement of financial position.
Question 20

$116,700

$
Purchase value of sales (142,200 x 100 / 120) 118,500
Add: Closing inventory 3,600
Less: Opening inventory (5,400)
 Fa2 Mock paper 2 answers

Purchases 116,700
Question 21

Financial statements must always be prepared on the going concern basis No

Financial statements are normally prepared under the assumption that the business is a going
concern. If the business is not a going concern this should be disclosed in the financial statements and
this will affect some aspects of the financial statements such as the valuation of assets. Therefore
neither statement is correct.

Question 22

(B) Cash book

Settlement discounts received are deducted when making payments to suppliers so they are recorded in
the cashbook.

Question 23

(A) $25,706

$
Total of balances 25,627
Overcast account (99)
Invoice mis posted (89 x 2) 178
Corrected balance 25,706
Question 24

(A) $11,017

$
Draft profit 11,855
Accrual treated as prepayment (398 x 2) (796)
Prepayment overstated (522 - 480) (42)
Correct profit 11,017

Note that an accrual is an expense and a prepayment is a deduction from expense. So if an accrual is
treated as a prepayment profit is overstated by twice the amount of the accrual.
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Question 25

(D) $51

$
Irrecoverable balance written off 178
Reduction in receivables allowance (1,284 - (127)
1,157)
Receivables expense 51

Question 26

(B) $36,140

$
Cost of closing inventory 38,750
less: Cost of damaged items (3,660)
add: Net realisable value of damaged items 1,050
Value of closing inventory 36,140
Question 27

$365,442

$
Total paid in 378,942
Deduct new capital (40,000)
add: Drawings 26,500
Cash received from customers 365,442

Question 28

Debit Bank $1,200

Boris receives the rent by cheque so he will debit bank and credit rental income.
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Question 29

(B) $51,708

$
Partnership profit 144,890
less: Interest on capital (11,450 + 9,770) (21,220)
add: Interest on drawings (70,000 x 8%) 5,600
Residual profit 129,270

Paulo's share (129,270 x 2 / 5) 51,708

Question 30

(A) 1 and 3 only

Costs which can be capitalised in respect of the machine include those incurred in bringing it to the
location and condition necessary for it to operate. This includes the costs of installation and testing.

Routine maintenance will be treated as an expense.

Question 31

(C) $1,000

Laura has received goods for $12,000 and only paid $11,000. Therefore her payables balance is $1,000.

She has not received the additional goods for $13,000. So has no payables balance in respect of them.

Question 32

(A) 1, 2 and 3

A non-current asset register carries information on the details, location and carrying amount of each
asset so it will record 1, 2 and 3.

Question 33

(B) Overstated by $6,300

Lui has capitalised these repairs and charged $700 as depreciation. He should have charged the whole
amount as an expense. The amount not charged against profit was therefore $7,000 - $700 = $6,300.
His profit is overstated by this amount.

Question 34

(C) A debit entry in the partners' current accounts

The cash account will have been credited with the payment made for partners' drawings and the
corresponding debit entries will be to the partners' current accounts. The current accounts are credited
with amounts due to them from the business and debited when they receive cash.

Question 35

$1026

As Marcus is expected to take advantage of the settlement discount, it should be deducted when
calculating sales revenue.

The sales price is 1,200 - (1,200 x 10%) = $1,080

(B) $186,342

$
Opening capital balance 138,736
Drawings (32,273)
Profit for the year (341,839 - 261,960) 79,879
Closing capital balance 186,342
Question 37

(C) $84,855

As no record has been made in her accounting system of these items they have not appeared in either
the list of balances or the payables control account. This means there will have been no difference
between them and the balance on the payables control account will also have been $84,855.

Question 38

$32,123

$
Balance per control account 31,554
Settlement discount (53)
Supplier's invoice 622
Corrected balance 32,123
Question 39
 Fa2 Mock paper 2 answers

$25,000

When Jana joins the partnership the goodwill needs to be debited to the capital accounts (because the
partners have decided not to maintain the goodwill in the accounts) in the new profit sharing ratio of
1:1:1.

Therefore, a debit of $25,000 (75,000 / 3) needs to be made to each partner's capital account. To have
an opening balance of nil in her capital account Jana will therefore have to contribute $25,000 to the
partnership which will be recorded as a credit in her capital account.

Question 40

$63,380

Andrew's current assets will be:

$
Trade receivables less allowance (42,650 - 1,570) 41,080
Inventory at 31 October 20X7 22,300
63,380
Question 41

(D) Credit $8,500 and Debit $678

Jenny's bank loan is a liability to the bank so it will have a credit balance. The amount of $678 in her
current account is an asset and will be a debit balance.

Question 42

(B) A profit of $10,058

Joyce has made a profit for the year of $10,058 (110,536 - 100,478).

The statement of financial position balances relate to the overall financial position of Joyce's business,
not her profit or loss for the year.

Question 43

$300

As Sanjay is registered for sales tax he can reclaim input sales tax on his purchases. Sales tax is therefore
not an expense to Sanjay's business and so purchases are recorded net of sales tax.

The net purchase price is calculated as:

$360 x 100 / 120 = $300.

Question 44

$141,340

$
Cost of sales 139,856
less: Opening inventory (11,844)
add: Closing inventory 13,328
Purchases 141,340

This is a reorganisation of the usual cost of sales formula.

Question 45

(D) To report the assets, liabilities and capital of the business at a particular date

A statement of financial position reports on the assets, liabilities and capital of the business at the
year end date.

It does not provide information about trading during the year (this is done by the statement of profit
or loss) and does not provide information for valuation purposes or report on share prices.

Question 46

$388

An accrual is a current liability and a prepayment is a current asset. Current assets are therefore
understated by $388.

Question 47

(C) A loss of $5,000

$
Purchase price 80,000
Depreciation 20X5 - 20X7 ((80,000 x 15%) x 3) (36,000)
Carrying amount prior to disposal 44,000
Sale proceeds (39,000)
Loss on disposal 5,000
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Question 48

(B)Assets:Increased Liabilities: Increased Capital: Unchanged

Amanda has acquired goods for resale (inventory). This is an asset.

She also now has a payable for the cost of these goods. This is a liability.

So assets and liabilities have increased and capital is unchanged.

Question 49

$4,921

Her bank statement will show an overdrawn balance of $4,921:

$
Balance per general ledger 4,782
Bank charges 365
Outstanding cheques (1,745)
Outstanding lodgement 1,519
Overdrawn balance 4,921
Question 50

(B) Understated by $6,990

Susan's revenue should have been credited with $3,450. Instead it was debited with $3,540. The net
effect of this is that revenue, and therefore profit, was understated by $6,990 (3,450 + 3,540). The
misposting to receivables will not affect profit.