1 Which task would be carried out by a book-keeper but not an accountant?

A comparing one year’s results with those of previous years

B interpreting the accounting records
C preparing financial statements
D recording transactions in the ledgers and cash book

2 A business provided the following information on 1 February 2019.

non-current assets 75 000

current assets 40 000
current liabilities 25 000

The business made a profit of $10 000 for the year ended 31 January 2020.

The owner did not make any drawings during the year.

What was the capital on 31 January 2020?

A $35 000 B $50 000 C $70 000 D $100 000

3 Dilip is a manufacturer. He purchased a machine on credit from Sachin.

How did Dilip record this?

account to account to
be debited be credited

A machinery Sachin
B purchases Sachin
C Sachin machinery
D Sachin purchases
4 Mui owns a household appliance store. He took home a washing machine for his personal use.
Mui recorded this transaction as follows.

account debited account credited

drawings sales

Did Mui make the correct entries to record this transaction?

debit entry credit entry

A no no
B no yes
C yes no
D yes yes

5 The following account appeared in the books of Abdul.

Hanif account
2020 $ 2020 $

Jan 18 returns 100 Jan 1 balance b / d 400

31 bank 392 4 purchases 250
discount 8
balance c / d 150
650 650

Which statement is correct?

A On 1 January Abdul owed Hanif $400.

B On 4 January Hanif purchased goods, $250, from Abdul.
C On 31 January Abdul allowed Hanif $8 trade discount.
D On 31 January Hanif owed Abdul $150.

6 Which business document contains details of purchases, returns and payments occurring during
a trading period?

A credit note
B debit note
C invoice
D statement of account

[Turn over
7 Rashida sells goods on credit and allows her customers a trade discount.

Which statements are correct?

1 A debit entry is made in the customer’s account in the sales ledger for the net value
of the goods sold.
2 The date of sale, name of the customer, cost price and trade discount are entered in
the sales journal.
3 The trade discount is debited to the customer’s account and credited to the discount
allowed account.

A 1 and 2 B 1 and 3 C 2 only D 2 and 3

8 The totals of a trial balance agreed but it was found that the purchase of office equipment had
been debited to office expenses account.

Which type of error has been made?

A commission
B compensating
C original entry
D principle

9 On 31 January, Somraj’s bank statement showed a credit balance of $740. Comparing the bank
statement with the cash book he found the following.

bank charges not recorded in the cash book 30

cheque paid but not presented to the bank 150

Somraj updated his cash book as required.

What was the updated cash book balance on 31 January?

A $590 B $620 C $860 D $890

10 When Mark started a car repair business, he purchased premises and equipment.

Two years later he spent $5000 on building an extension, $600 on new equipment and $750 on
repainting the original premises.

By how much will the non-current assets increase because of these transactions?

A $5000 B $5600 C $5750 D $6350

11 A farmer sold a piece of land at market value.

How should the proceeds of this sale be treated?

A as a capital receipt
B as a revenue receipt
C as capital expenditure
D as revenue expenditure

12 Why should a trader provide for the depreciation of a non-current asset?

1 to match the cost against the revenue of the years which benefit from the use of the
asset
2 to provide a cash fund to enable the asset to be replaced at the end of its useful life
3 to recognise that most non-current assets lose value with the passage of time
4 to spread the cost of the asset over its expected working life to avoid overstating
profit

A 1 and 2 only B 1, 3 and 4 C 2 and 3 only D 2, 3 and 4

13 Equipment costing $20 000 was purchased on 1 January 2019. It has a useful working life of
5 years and a residual value of $3000. Depreciation using the straight-line method was included
in the income statement for the year ended 31 December 2019.

It was then found that the reducing balance method at 30% per annum should have been used.

What was the effect on the profit for the year ended 31 December 2019 of this error?

A $2000 overstated
B $2000 understated
C $2600 overstated
D $2600 understated

[Turn over
14 A business provided the following information about two expenses.

amount paid during

1 January 2019 year ended 31 December 2019
$ 31 December 2019 $
$

electricity 240 accrued 1500 360 accrued

insurance 180 prepaid 1200 220 prepaid

Which amounts will be charged to the income statement for the year ended 31 December 2019?

electricity insurance
$ $

A 900 800
B 1380 1240
C 1620 1160
D 2100 1600

15 Anjum rents part of her premises to Ajay for $6120 per annum. At the beginning of the year Ajay
had paid two months rent in advance. At the end of the year Ajay had paid three months rent in
advance.

How much rent was received from Ajay during the year?

A $3570 B $5610 C $6630 D $8670

16 A business maintains a provision for doubtful debts of 5% of trade receivables. The balance on
the provision for doubtful debts account on 31 December 2018 was $2700.

On 31 December 2019 the trade receivables amounted to $50 000.

How will the provision for doubtful debts be recorded on 31 December 2019?

provision for
$ income statement $
doubtful debts account

A credit 200 added to gross profit 200

B credit 200 deducted from gross profit 200
C debit 200 added to gross profit 200
D debit 200 deducted from gross profit 200
17 At the end of the financial year Cindy valued her inventory at cost. This valuation incorrectly
included damaged goods costing $300. Cindy estimated these goods could be sold for $100.

What is the effect of correcting the inventory valuation?

gross profit profit for the year current assets

A decreases by $200 decreases by $200 decrease by $200

B decreases by $300 decreases by $300 decrease by $300
C increases by $100 increases by $100 decrease by $100
D increases by $200 increases by $200 decrease by $200

18 Hassan had the following assets on 31 January 2020.

premises 12 000
inventory 500
balance at bank 360
goodwill 3 000
cash 120

There were no liabilities on 31 January 2020.

Which entries will be made in Hassan’s statement of financial position on 31 January 2020?

intangible non-current current

capital
assets assets assets
$
$ $ $

A nil 12 000 980 12 980

B nil 15 000 480 15 480
C 3000 12 000 980 15 980
D 3000 15 000 480 18 480

19 AB Stores had the following transactions.

1 The owner invested a further $20 000 capital.

2 $2000 was paid to trade payables.
3 A long-term loan of $5000 was repaid.

By how much would the working capital increase after these transactions?

A $13 000 B $15 000 C $20 000 D $27 000

[Turn over
20 The balances in the books of a business included the following.

goodwill 10 000
premises 25 000
trade receivables 9 500
trade payables 6 000
inventory 15 000
cash at bank 500 debit
long-term loan 5 000

What was the capital employed?

A $50 000 B $54 000 C $60 000 D $65 000

21 What is a disadvantage of operating a business as a partnership?

A Partners may not agree on how to run the business.

B Partners may not have the same skills.
C The financial statements must be published.
D The risks and responsibilities are shared.

22 What does not affect the total equity of a limited company?

A issue of ordinary shares

B ordinary share dividend paid
C profit for the year
D transfer from retained earnings to general reserve

23 What is called-up share capital?

A the amount received by the company for issued shares

B the amount requested from shareholders by the company
C the value of shares the company could issue
D the value of shares actually issued by the company
24 A limited company provided the following information.

issued share capital (50 000 ordinary shares of $1 each) 50 000

profit for the year ended 31 December 2019 13 000
transfer to general reserve on 31 December 2019 6 000
interim ordinary share dividend paid during the year 3 000

On 31 December 2019 it was decided to use the remaining profit to pay a final ordinary share
dividend.

What percentage final dividend would the ordinary shareholders receive?

A 8% B 14% C 20% D 26%

25 A cricket club set up a snack bar on 1 January 2019.

The following information is available.

for the year ended 31 December 2019

receipts from sales of snacks 3250
cost of purchases of snacks 2500
wages of snack bar assistant 250
at 31 December 2019
cost of snacks unsold 520

What was the profit made by the snack bar?

A $500 B $750 C $1020 D $1270

[Turn over
26 A social club had the following assets and liabilities.

non-current assets 6550

cafe expenses owing 25
subscriptions owing by members 50
balance at bank 500 debit
owing to credit suppliers 300
cafe inventory 500

What was the accumulated fund?

A $6275 B $6325 C $7175 D $7275

27 A manufacturing business provided the following information for the year ended
30 November 2019

factory supervisor’s salary 25 000

factory power 5 000
machinery depreciation 11 000
machinery operators’ wages 29 000
raw materials consumed 82 000

What was the total of the direct costs?

A $111 000 B $116 000 C $127 000 D $152 000

28 What would be included in the statement of financial position of a manufacturing business but not
a wholesale business?

A cash
B office equipment
C trade receivables
D work in progress

29 The average inventory of a business was $40 000. The rate of inventory turnover was 5 times a
year. Mark-up was 20%.

What was the revenue for the year?

A $160 000 B $200 000 C $240 000 D $250 000

30 Sumit does not maintain a full set of accounting records.

What does Sumit not need to calculate his credit sales?

A customer’s dishonoured cheque

B discounts allowed
C discounts received
D returns from credit customers

31 Jake had current liabilities of trade payables and had current assets of inventory, trade
receivables and cash at bank.

Which measure would improve his current ratio?

A buying additional inventory and paying in cash

B decreasing drawings
C revaluing non-current assets
D selling inventory on credit rather than for cash

32 Flo and Mo are traders selling similar goods at similar prices. They provided the following
information.

Flo Mo

gross margin 50% 40%

profit margin 10% 8%

Which trader has better control of cost of sales and expenses?

costs of sales expenses

A Flo Flo
B Flo Mo
C Mo Flo
D Mo Mo

33 Which is an application of the materiality principle?

A always using the straight-line method when depreciating assets

B buying raw materials on credit rather than paying immediately
C charging the cost of light bulbs and batteries to operating expenses
D recording goods sold only when its legal title passes to the buyer

[Turn over
34 Which accounting principle states that revenue should not be recorded before it is earned?

A consistency
B matching
C money measurement
D realisation

35 Which accounting objective requires that financial statements are free from bias and errors?

A comparability
B relevance
C reliability
D understandability
1 A business employs a book-keeper and an accountant.

Which task would the accountant perform?

A extracting balances from the ledger accounts to produce a trial balance

B making entries in the general journal to adjust a provision for doubtful debts
C preparing a monthly report that analyses the profitability of the company
D recording sales and purchase invoices in the books of prime entry

2 What are assets?

amounts owed amounts owed items owned

to a business by a business by a business

A no no yes
B no yes yes
C yes no yes
D yes yes no

3 On 15 February, Kalou made the following entries in his accounts.

debit $ credit $

bank 228 Droghba 240

discount allowed 12

Which transaction was being recorded?

A Droghba paid Kalou by cheque after taking a cash discount.

B Droghba paid Kalou by cheque after taking a trade discount.
C Kalou paid Droghba by cheque after taking a cash discount.
D Kalou paid Droghba by cheque after taking a trade discount.
4 Jai is a manufacturer. On 1 February he purchased a machine costing $15 000 from Vinita. He
paid $10 000 immediately with a cheque from his personal bank account. The balance was to be
paid in June.

Which entries did Jai make on 1 February?

accounts debited $ accounts credited $

A machinery 10 000 bank 10 000

B machinery 10 000 capital 10 000
C machinery 15 000 bank 10 000
Vinita 5 000
D machinery 15 000 capital 10 000
Vinita 5 000

5 Jameel’s financial year ends on 31 December. On 1 January 2021 he brought down a debit
balance on his stationery account.

What does this balance represent?

A amount owing for stationery on 1 January 2021

B amount paid for stationery during 2020
C cost of stationery used during 2020
D inventory of stationery on 1 January 2021

6 Daksha returned goods to Amina.

Which entries did Daksha make in her books?

debit entry credit entry

account ledger account ledger

A Amina general purchases returns purchases

B Amina purchases purchases returns general
C purchases returns general Amina purchases
D purchases returns purchases Amina general

7 Which book of prime entry is written up from the copies of credit notes issued by a trader?

A purchases journal
B purchases returns journal
C sales journal
D sales returns journal

[Turn over
8 Which transaction is recorded in the general journal?

A correction of an error in recording sales returns

B drawings in cash by the owner
C purchase of a motor vehicle by cheque
D purchase of goods on credit

9 Raminder maintains a petty cash book using the imprest system. The monthly imprest of $250 is
restored on the first day of each month.

In January the petty cashier spent $105 and received a refund of $15 from a stationery supplier.

How much was given to the petty cashier on 1 February to restore the imprest?

A $90 B $105 C $145 D $160

10 The totals of a trial balance failed to agree. The total of the credit column was $10 000. Two
errors were later found.

The sales journal had been overcast by $100.

Goods sold to Sarah on credit for $200 had been incorrectly debited to Zara.

What was the total of the debit column of the trial balance?

A $9700 B $9900 C $10 100 D $10 300

11 On 31 December 2020, the bank column in Farad’s cash book showed an overdrawn balance
of $2000.

The following items had not been entered in the cash book.

standing order for rent 200

interest on bank overdraft 50
credit transfer from X Limited 2900

What was the corrected balance of the bank column in the cash book at 1 January 2021?

A $650 credit
B $650 debit
C $1150 credit
D $1150 debit
12 Raj is both a customer of and a supplier to Balbir.

Raj’s account in Balbir’s sales ledger showed a debit balance of $300. There was a credit
balance of $100 on Raj’s account in the purchases ledger. A contra entry between the two
accounts was agreed.

Which entry would Balbir make in his purchases ledger control account?

A credit $100
B credit $200
C debit $100
D debit $200

13 Motor vehicle repairs, $2000, were debited to the motor vehicles account.

Motor vehicles are depreciated at 20% per annum on the balance of the account at the year end.

What was the effect of the error?

effect on motor vehicles

effect on
in statement of financial
profit for the year
position

$ $

A overstated 1600 overstated 1600

B overstated 2000 overstated 2000
C understated 1600 understated 1600
D understated 2000 understated 2000

14 Mandeep depreciates his motor vehicles at the rate of 20% using the straight-line method.

A full year’s depreciation is provided in the year of purchase.

Mandeep bought a motor vehicle on 1 January 2017 for $20 000. On 1 June 2020 he bought a
second motor vehicle for $10 000.

What was the depreciation charge on motor vehicles for the year ended 31 December 2020?

A $2000 B $4000 C $5000 D $6000

[Turn over
15 The following ledger account appeared in the books of a trader.

Rates account
$ $

Jan 1 Balance b / d 240 Dec 31 Income statement 2880

June 30 Bank 2160
Dec 31 Balance c / d 480
2880 2880

Which statement is correct?

A Rates are accrued at both the start and the end of the year.
B Rates are accrued at the start of the year and prepaid at the end of the year.
C Rates are prepaid at both the start and the end of the year.
D Rates are prepaid at the start of the year and accrued at the end of the year.

16 A book-keeper made the following ledger entry.

account debited account credited

bank debts recovered

Which transaction has been recorded?

A A credit customer has paid his account by the due date.

B A late payment has been received for a debt not yet written off.
C A payment has been received for a debt that had been written off.
D An irrecoverable debt has been written off.
17 The following accounts appeared in the ledger of Delta Limited.

Total trade receivables account

$ $

Jan 1 Balance b / d 30 000 Dec 31 Bank 109 000

Dec 31 Sales 101 000 Balance c / d 22 000
131 000 131 000

Provision for doubtful debts account

$ $

Dec 31 Income statement 100 Jan 1 Balance b / d 1 200

Balance c / d 1 100
1 200 1 200

How had the total of trade receivables and the rate of provision for doubtful debts changed by
the end of the year?

total of trade rate of provision

receivables for doubtful debts

A decreased decreased
B decreased increased
C increased decreased
D increased increased

18 On 31 December 2020 Helmut had the following liabilities.

bank loan repayable 1 September 2021 1500

bank overdraft repayable on demand 1000
loan from finance company repayable 30 June 2024 5000
mortgage repayable 1 March 2022 2000

What was the total of Helmut’s non-current liabilities on 31 December 2020?

A $5000 B $7000 C $8500 D $9500

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19 Vinita’s credit customer paid the amount owing in cash, after deducting 2% discount for prompt
payment.

How did this affect Vinita’s financial statements?

statement of financial
income statement
position

A increase expenses decrease current assets

B increase expenses increase current assets
C increase revenue decrease current assets
D increase revenue increase current assets

20 Mohan and Dipak are in partnership. They provided the following information at the end of the
financial year.

$ $

profit for the year 30 600

interest on capital Mohan 1 000
Dipak 1 500 2 500
interest on drawings Mohan 40
Dipak 320 360
salary Mohan 4 000

How much was available for distribution to the partners?

A $23 740 B $24 460 C $27 740 D $29 460

21 Raj and Rohit are in partnership sharing profits and losses in the ratio of 2 : 1. Raj is entitled to an
annual salary of $3000. The profit for the year ended 31 December 2020 was $14 100.

On 1 January 2020, Raj’s current account had a debit balance of $1800.

What was the credit balance on Raj’s current account on 1 January 2021?

A $8600 B $10 400 C $12 200 D $12 400

22 Which items appear in the capital and reserves section of a statement of financial position of a
limited company?

A debentures, ordinary share dividend, general reserve

B debentures, retained earnings, general reserve
C ordinary share capital, debentures, retained earnings
D ordinary share capital, general reserve, retained earnings
23 The issued share capital of AN Limited consists of ordinary shares.

On 1 January 2020, the retained earnings were $78 000.

For the year ended 31 December 2020, the company earned a profit of $65 000.

An ordinary share dividend of $20 000 was paid during the year and a further dividend for the
year of $15 000 was proposed. A transfer was made to general reserve of $40 000.

What was the balance of retained earnings at 31 December 2020?

A $3000 B $5000 C $68 000 D $83 000

24 Which group contains only items which may be recorded in both the income statement of a
trading business and the income and expenditure account of a club?

A bank charges, depreciation, wages

B bank charges, gross profit, sales revenue
C deficit, sales revenue, treasurer’s expenses
D depreciation, treasurer’s expenses, wages

25 The following ledger account appeared in the books of a club for the year ended
31 December 2020.

Subscriptions account
$ $

2020 2020
Jan 1 Balance b / d 2 000 Dec 31 Bank 29 000
Dec 31 Income and expenditure 24 000
Balance c / d 3 000
29 000 29 000

Which statement is correct?

A Subscriptions prepaid on 1 January 2020 amounted to $2000.

B Subscriptions prepaid on 31 December 2020 amounted to $3000.
C Subscriptions received during the year ended 31 December 2020 amounted to $24 000.
D Subscriptions relating to the year ended 31 December 2020 amounted to $29 000.

[Turn over
26 The following costs were incurred by a clothing manufacturer.

1 purchase of fabric
2 purchase of buttons
3 repairs to sewing machine
4 wages of factory supervisors
5 wages of sewing machinists

Which costs are indirect costs?

A 1, 2 and 5 B 1, 4 and 5 C 2 and 3 D 3 and 4

27 A manufacturer calculated the cost of production for the year at $57 000.

It was found that lighting and heating, $2000, had been omitted from the financial statements.

Lighting and heating is allocated 75% to the factory and 25% to the offices.

What was the correct cost of production?

A $55 500 B $56 500 C $57 500 D $58 500

28 Tariq provided the following information.

31 January 2020 31 January 2021

$ $

non-current assets 60 000 70 000

current assets 20 000 25 000
current liabilities 15 000 19 000

Tariq’s drawings for the year ended 31 January 2021 were $5000.

What was the profit for the year ended 31 January 2021?

A $6000 B $11 000 C $14 000 D $16 000

29 Nour does not keep full accounting records. She provided the following information at the end of
the financial year.

decrease in trade receivables during the year 2 000

receipts from trade receivables 58 000
discount allowed 1 200
sales returns 1 500

What were the credit sales for the year?

A $55 700 B $57 300 C $58 700 D $62 700

30 A trader provided the following information.

non-current assets 132 000

current assets 28 000
current liabilities 12 000
interest paid on loan 2 000

Return on capital employed was 12.5%.

What was the profit for the year before loan interest?

A $16 500 B $18 250 C $18 500 D $20 500

31 Which change would cause an increase in the liquid (acid test) ratio?

A a decrease in inventory
B an increase in inventory
C a decrease in the provision for doubtful debts
D an increase in the provision for doubtful debts

[Turn over
32 Abhinav provided the following information.

year ended year ended

31 December 2019 31 December 2020
$ $

purchases 112 500 124 000

cost of sales 115 500 120 000

inventory $

1 January 2019 7000

31 December 2019 4000
31 December 2020 8000

What was the rate of turnover of inventory for the year ended 31 December 2020?

A 15 times B 20 times C 21 times D 30 times

33 Which action will improve the gross margin?

A increasing expenses
B increasing selling price
C reducing expenses
D reducing selling price

34 Amaira depreciates her non-current assets by the same rate and using the same method every
year.

Which group of accounting principles is she applying?

A business entity, consistency, matching

B business entity, prudence, realisation
C consistency, matching, prudence
D matching, prudence, realisation
1 What is prepared by a book-keeper?

A appropriation account
B cash book
C income statement
D statement of financial position

2 Which item is an asset?

A an amount owing by credit customers

B an amount owing to credit suppliers
C interest accrued on bank loan
D rent received in advance from tenant

3 Fatima required additional finance for her business and borrowed funds from Ali. This was
deposited into the business bank account.

How should Fatima record this?

account to be debited account to be credited

A bank Ali (loan)

B bank Ali (trade payable)
C Ali (loan) bank
D Ali (trade payable) bank

4 On 1 March, a business owed its suppliers $9500. During March, the following transactions took
place.

goods purchased on credit 10 000

goods returned to suppliers 200
cheques paid to suppliers 8 900
cash discounts received 100

How much did the business owe its suppliers on 31 March?

A $800 B $1000 C $10 300 D $10 500

5 Which document from a supplier reduces the amount owed by a customer?

A credit note
B debit note
C invoice
D statement of account

6 What is recorded in a petty cash book?

A all cash transactions

B cash purchases and expenses only
C purchases of all small value items
D small cash transactions

7 Jacob settled the account of Ahmed, a credit supplier. He made the following entries on the credit
side of his cash book.

discount cash bank

$ $ $

Ahmed 5 195

Which entries did Jacob make on the debit side of Ahmed’s account?

A bank 195
B bank 200

C bank 195
discount allowed 5
D bank 195
discount received 5

8 The total of the debit column of a trial balance was more than the total of the credit column.

One account balance had been entered in the wrong column.

Which one was it?

A cash
B discount received
C drawings
D irrecoverable debts

[Turn over
9 Davi prepared the following journal entry to correct an error.

debit credit
$ $

Samir 40
Samuel 40

Which error was being corrected?

A Cash paid to Samir had been credited to Samuel.

B Cash received from Samuel had been debited to Samir.
C Goods bought from Samir had been credited to Samuel.
D Goods sold to Samir had been debited to Samuel.

10 A suspense account was opened with a credit balance of $840.

Which error caused this?

A A cheque for $420 received from a customer was debited to his account.
B Discounts allowed, $420, was debited twice in the discounts allowed account.
C Goods costing $420, taken by the owner of the business for own use, were credited to his
drawings account.
D Rent received, $420, was credited twice in the rent receivable account.

11 A trader calculated her profit for the year at $14 800. The following errors were then discovered.

No entry had been made for $200 wages accrued.

The insurance expense included a prepayment of $90.

What is the correct profit for the year?

A $14 510 B $14 690 C $14 910 D $15 090

12 Jack’s cash book showed an overdrawn balance at bank of $2600. Comparing the cash book
with the bank statement, it was discovered that direct debits of $200 had not yet been recorded
by Jack. He then updated his cash book.

What was the bank balance in Jack’s updated cash book?

A $2400 credit
B $2400 debit
C $2800 credit
D $2800 debit
13 Which item is debited in a sales ledger control account?

A cash discount
B contra entry
C interest on overdue account
D provision for doubtful debts

14 Leroy provided the following information for May.

May 1 balance owing to credit suppliers 420

31 credit purchases 590
returns to credit suppliers 110
cheques paid to credit suppliers 291
discount received from credit suppliers 9
interest charged by a credit supplier 5

What was the balance on his purchases ledger control account on 1 June?

A $595 B $605 C $613 D $623

15 Which item should be treated as capital expenditure?

A the annual depreciation on office premises

B the cost of building an office extension
C the cost of repairing office equipment
D the purchase of a new computer for resale

16 On the last day of the financial year, Khalid purchased office fittings, $900. This was incorrectly
recorded as office expenses, $90.

Khalid does not charge depreciation in the year of purchase.

What was the effect on the profit for the year?

A overstated by $810
B overstated by $990
C understated by $90
D understated by $900

[Turn over
17 Aggie is a trader. She uses the following methods of depreciation for different types of
non-current asset.

straight-line at 20% per annum

reducing balance at 25% per annum
revaluation

On 1 January year 1, Aggie purchased small items of equipment costing a total of $2400 and
fittings costing $8000.

On 31 December year 2, Aggie estimated that the equipment was worth 70% of its original cost.

The statement of financial position showed the net book value of equipment as $1680 and fittings
as $4800.

Which depreciation methods has Aggie used?

equipment fittings

A reducing balance straight-line

B revaluation reducing balance
C revaluation straight-line
D straight-line revaluation

18 Abeo prepares financial statements to 31 December each year.

Abeo bought machinery for $40 000 on 1 January year 1. He charges depreciation on machinery
at 20% per annum using the reducing balance method. Depreciation is charged in the year of
purchase but not in the year of disposal.

On 1 January year 3, the machinery was sold for $22 000.

Which journal entry records the profit or loss on disposal of the machine?

debit credit
$ $

A disposal of machinery 2000

income statement 2000
B disposal of machinery 3600
income statement 3600
C income statement 2000
disposal of machinery 2000
D income statement 3600
disposal of machinery 3600
19 Why would a business record the amount owing by a credit customer as an irrecoverable debt?

A The customer has gone out of business.

B The customer has liquidity problems.
C The customer is making a loss.
D The customer is not satisfied with the goods.

20 Anji maintains a provision for doubtful debts at 5% of the trade receivables at the end of each
financial year. At the start of the financial year, the trade receivables were $2000. At the end of
the financial year, the trade receivables were $4500.

Which entry would be made in the income statement for the financial year?

A $125 as an expense
B $125 as an income
C $325 as an expense
D $325 as an income

21 Which businesses do not prepare a trading account section of an income statement?

1 furniture store
2 insurance company
3 newsagent
4 toy shop
5 window-cleaner

A 1 and 2 B 2 and 5 C 3 and 4 D 3 and 5

22 A business provided the following information.

current assets 25 000

current liabilities 12 000
non-current assets 18 000
non-current liabilities 21 000

What was the capital of the business?

A $10 000 B $22 000 C $31 000 D $43 000

[Turn over
23 A trader bought a machine for use in the business. He paid a part of the cost in cash and agreed
to pay the remaining part in 15 months’ time.

In addition to the non-current assets, which items in the statement of financial position will
increase as a result of this transaction?

current current non-current

assets liabilities liabilities

A   
B   
C   
D   

24 What is the purpose of a partnership appropriation account?

A to calculate partners’ salaries

B to record partners’ drawings
C to show the distribution of profits between partners
D to show the movement on partners’ capital accounts

25 James is a partner in a business. He made a loan to the business and received loan interest.

What is the double entry in the books of the partnership for the loan interest James has received?

debit credit

A bank account James current account

B interest on loan account bank account
C interest on loan account James current account
D James current account bank account

26 A limited company whose capital consisted of ordinary shares ceased trading and was not able to
pay its debts.

Which statement is correct?

A Shareholders would have to pay a proportion of the debt based on the number of shares
owned.
B Shareholders would have to pay a proportion of the debt based on the value of shares
owned.
C Shareholders would have to sell their personal possessions to pay the debts of the company.
D Shareholders would lose the money that was paid when the shares were first purchased.
27 A limited company was formed on 1 June 2021.

On that date, the company issued 500 000 $1 shares. Shareholders were asked to pay 60% of
the cost immediately, with the remainder being payable by 1 June 2022.

By 1 August 2021, all shareholders had paid what was due at that date.

What was the share capital of the company on 1 August 2021?

called-up capital paid-up capital

$ $

A 200 000 300 000

B 300 000 300 000
C 500 000 300 000
D 500 000 500 000

28 There are 120 members of a sports club. The annual subscription is $60.

At the beginning of the year, no members had paid in advance and no members had
subscriptions outstanding.

At the end of the year, 7 members had not paid and 3 members had paid in advance.

Which amount was shown for subscriptions in the income and expenditure account?

A $6600 B $6960 C $7200 D $7800

29 What is shown in a manufacturing account?

1 cost of material consumed

2 purchases of finished goods
3 cost of production
4 cost of sales

A 1 and 2 only
B 1 and 3 only
C 1, 2 and 3 only
D 1, 2, 3 and 4

[Turn over
30 Tarek produced a statement of affairs at 31 December year 1 and at 31 December year 2.

During year 2, his long-term loan increased by $3000 and his net current assets decreased by
$1000. Depreciation for the year was $500.

By how much did the total of Tarek’s capital decrease?

A $2500 B $3500 C $4000 D $4500

31 Wayne provided the following information.

$ $

revenue 12 800
opening inventory 1 000
purchases 10 500
11 500
closing inventory 1 600 9 900
gross profit 2 900

What was Wayne’s gross profit margin?

A 22.66% B 25.22% C 27.62% D 29.29%

32 A trader provided the following information for the year ended 31 December.

total cash and credit purchases of goods for re-sale 150 000
cash purchases of goods for re-sale 17 000
credit purchases of non-current assets 25 000

His trade payables at that date were $8000.

What was the trade payables turnover?

A 17 days
B 20 days
C 22 days
D 24 days
33 A trader decided to reduce her level of inventory in order to reduce the storage costs.

Sales quantity and selling price were not affected.

How did this affect profit for the year and the rate of inventory turnover?

profit for rate of inventory

the year turnover

A decreased decreased
B decreased increased
C increased decreased
D increased increased

34 Azim and Bashir are both sole traders. They provided the following information.

Azim Bashir
$ $

profit for the year ended 31 December before interest 17 200 15 000
long-term loan at 31 December – 12 500
capital at 31 December 86 000 25 000

What was Azim’s return on capital employed?

A double Bashir’s
B half of Bashir’s
C one-third of Bashir’s
D three times Bashir’s

35 Stephanie’s major competitor has invested in a new machine for making goods more cheaply.
Stephanie knows this will affect her sales but did not record this in her accounting records.

Which accounting principle is Stephanie applying?

A going concern
B materiality
C money measurement
D prudence
1 What is the purpose of accounting?

A to enter each business transaction twice in the books of account

B to prepare financial statements and provide information for decision making
C to prove that the total of the debit entries equals the total of the credit entries
D to provide financial information for the business’s bank manager

2 How would a business owner know that he is receiving a return on his investment?

A His bank account is no longer overdrawn.

B His drawings have increased.
C His income statement shows a profit for the year.
D His working capital has increased during the year.

3 What is the correct order of processing accounting data using the double entry system?

A business documents, journals, ledgers, trial balance

B journals, business documents, ledgers, trial balance
C ledgers, business documents, trial balance, journals
D trial balance, business documents, ledgers, journals

4 Ada bought goods on credit from Zuri. Later, she returned some of the goods to Zuri.

How did Ada record the return in her books?

account debited account credited

A purchases returns Zuri

B sales returns Zuri
C Zuri purchases returns
D Zuri sales returns
5 Samir owns a shop. To determine his selling price he marks up his inventory by 50%. He took
inventory for his own use costing $100 but did not pay for it.

How should this be entered in the accounts?

debit credit

A drawings $100 purchases $100

B drawings $150 purchases $150
C trade receivables $100 sales $100
D trade receivables $150 sales $150

6 In April, Meena sent Ralph invoices for $170, $240, $125 and a credit note for $63. In the same
month, Ralph sent Meena a debit note for $70 and a cheque for $107. There was no opening
balance on Meena's account at the start of April.

What was the balance on Meena’s account in Ralph’s books on 1 May?

A $295 credit
B $295 debit
C $365 credit
D $365 debit

7 On 1 May, Bashir purchases goods on credit with a list price of $200. He is given a trade discount
of $20. If payment is made within 28 days a cash discount of $10 will be given.

Which amount is credited to the supplier’s account on 1 May?

A $170 B $180 C $190 D $200

8 The following errors were found after a trial balance had been completed.

The total of the sales account was overstated by $25.

The total of the wages account was overstated by $25.

Which statement is correct about the trial balance that had been completed?

A The total of the debit column was $25 more than that of the credit column.
B The total of the credit column was $50 more than that of the debit column.
C The total of the debit column was $50 more than that of the credit column.
D The total of the debit column and the total of the credit column were equal.

[Turn over
9 The following trial balance failed to balance.

debit credit
$ $

premises at cost 60 000

fittings at cost 20 000
provision for depreciation of fittings 4 000
bank loan 30 000
purchases 85 904
sales 181 657
general expenses 16 471
trade receivables 9 384
trade payables 7 168
wages 34 000
bank overdraft 1 477
cash in hand 236
opening inventory 4 577
capital 6 270

Which items have been entered onto the wrong side of the trial balance?

A bank loan, general expenses, trade payables, bank overdraft, opening inventory
B purchases, sales, trade payables, bank overdraft, cash in hand
C premises at cost, bank loan, sales, trade payables, opening inventory
D trade payables, trade receivables, wages, cash in hand, capital
10 Mona paid $32 000 for a new motor vehicle. This included $100 for fuel and $250 for road tax.
She debited the purchases account and credited the bank account with $32 000.

Which journal entry corrects this error?

debit credit
$ $

A motor vehicle 32 000

purchases 32 000

B purchases 32 000
motor vehicles 32 000

C motor vehicles 31 650

motor vehicle expenses 350
purchases 32 000

D purchases 32 000
motor vehicles 31 650
motor vehicle expenses 350

11 Shazia’s trial balance failed to agree and the difference was placed in a suspense account.

Shazia discovered the following errors.

1 A cheque received, $280, had been credited to the bank account.

2 A cheque to Nunu, $50, had not been entered in Nunu’s account.

What was the balance on the suspense account before the errors were corrected?

A $230 debit
B $330 credit
C $510 credit
D $610 debit

[Turn over
12 On 31 July, the bank column in Jay’s cash book showed he had $312 in the bank. On the same
date, his bank statement showed a debit balance of $53.

It was found that bank charges, $47, had not been recorded in the cash book and a cheque,
$318, from a customer had not been credited by the bank.

What is the bank balance that should be shown in Jay’s statement of financial position on
31 July?

A $265 asset
B $324 liability
C $359 asset
D $371 liability

13 Why is a sales ledger control account prepared?

A to enable the income statement to be prepared quickly

B to ensure that all ledger accounts are accurate
C to provide a summary of transactions with credit customers
D to show the amount due from each trade receivable

14 Jason provided the following information.

March 1 sales ledger control account balance 400 debit

31 credit sales 520
cheques received from trade receivables 300
bad debts written off 45
cheque received from a credit customer dishonoured 10

What was the debit balance on the sales ledger control account on 31 March?

A $565 B $585 C $620 D $655

15 The following payments were made when a new machine was purchased.

cost of the machine 32 000

charge for delivering the machine 1 800
insurance of the machine 2 000
wages of employees installing the machine 1 300

How much was the capital expenditure?

A $32 000 B $33 300 C $35 100 D $37 100

16 Why should a manufacturer charge depreciation on her factory equipment?

A to calculate the residual value of the equipment

B to provide for the replacement of the equipment
C to spread the flow of cash over a number of years
D to spread the cost of the equipment over its useful life

17 A manufacturer provided the following information.

at 1 January 2022 machinery at cost 20 000

provision for depreciation of machinery 7 200
loose tools at valuation 2 100

Machinery is depreciated at 20% per annum using the reducing balance method.

Additional loose tools were purchased in August 2022 for $300. No depreciation is provided on
loose tools purchased during the financial year.

On 31 December 2022, loose tools more than 12 months old were valued at $1850.

What was the depreciation charge for the year ended 31 December 2022?

machinery loose tools

$ $

A 2560 250
B 2560 550
C 4000 250
D 4000 550

[Turn over
18 A trader made the following entries in his ledger.

account debited account credited

irrecoverable debts Peter

What was he recording?

A A credit customer has failed to pay within the agreed time limit.
B A debt which had been written off has now been recovered.
C An amount owed by a customer cannot be recovered.
D The trader has been unable to pay his supplier.

19 The balances in the books of Julie on 1 July 2021 included the following.

trade receivables 64 200

provision for doubtful debts 1 284

Trade receivables at 30 June 2022 were $58 500, of which $500 should be written off as
irrecoverable.

Julie wants to maintain her provision for doubtful debts at 2% of trade receivables.

What was the change in the provision for doubtful debts at 30 June 2022?

A $114 decrease
B $124 decrease
C $376 increase
D $386 increase

20 When valuing his closing inventory, Asim omitted goods costing $990.

What is the effect of this error?

gross profit equity

A overstated overstated
B overstated understated
C understated overstated
D understated understated
21 The owner of a restaurant is concerned about high operating costs.

Which statement will show the operating costs for the year?

A bank statement
B bank reconciliation statement
C income statement
D statement of financial position

22 A service business provided the following information at the end of the year.

non-current assets 16 000

trade receivables 150
capital 14 100
trade payables 800

What was the bank balance?

A $1250 credit
B $1250 debit
C $2850 credit
D $2850 debit

23 How is interest on drawings recorded in the books of a partnership?

debit credit

A appropriation account partner’s capital account

B appropriation account partner’s current account
C partner’s capital account appropriation account
D partner’s current account appropriation account

[Turn over
24 Javed and Yani were in a partnership, sharing profits and losses equally. The residual profit for
the year, after appropriation, was $47 000. Yani provided the following information.

Yani $

interest on capital 2 400

interest on drawings 600
salary 3 000
drawings 18 000

Yani’s current account balance at the start of the year was $1500 credit.

What was Yani’s current account balance at the end of the year?

A $5800 credit
B $8200 credit
C $8800 credit
D $11 800 credit

25 A limited liability company is formed.

Who has limited liability?

A directors
B employees
C lenders
D shareholders

26 Which statements are correct in relation to the financial statements of a limited company?

1 Ordinary dividend paid is shown in the income statement.

2 A transfer to the general reserve is shown in the statement of changes in equity.
3 Debentures issued are shown in the statement of changes in equity.
4 Proposed dividend is not shown in the income statement.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

27 A golf club sells refreshments to its members. Suppliers of refreshments were owed $250 on
1 January 2022 and $400 on 31 December 2022. Payments to suppliers during the year were
$7200.

The inventory at the end of the year was $100 less than the inventory at the start of the year.

What was the cost of sales of refreshments for the year ended 31 December 2022?

A $7050 B $7150 C $7300 D $7450

28 A social club provided the following information.

subscriptions paid in advance at 31 December 2021 40

subscriptions paid in advance at 31 December 2022 50
subscriptions received during the year 2022 660

What was the amount of subscriptions in the income and expenditure account for the year ended
31 December 2022?

A $570 B $650 C $660 D $670

29 A manufacturing business provided the following information for the year ended
30 November 2022.

factory supervisor’s salary 25 000

factory heat and light 5 000
machinery depreciation 11 000
machinery operators’ wages 29 000
raw materials consumed 82 000

What was the total of the direct costs?

A $111 000 B $116 000 C $127 000 D $152 000

30 Where is work-in-progress shown in the statement of financial position of a manufacturing

business?

A current assets
B current liabilities
C non-current assets
D non-current liabilities

[Turn over
31 How is profit calculated from incomplete records?

A closing capital + opening capital – drawings

B closing capital – opening capital + drawings
C opening capital + closing capital + drawings
D opening capital – closing capital – drawings

32 A company provided the following list of balances at 30 September 2022.

cash in hand 150

bank loan – repayable 31 December 2022 2 000
bank loan – repayable 1 May 2024 3 000
bank overdraft 400
trade receivables 8 000
other receivables 275
inventory 24 000
trade payables 6 000
other payables 95

What was the current ratio?

A 1:1 B 2.83 : 1 C 3.82 : 1 D 4.06 : 1

33 Alan provided the following information about his business.

liquid (acid test) ratio 2.5 : 1

current liabilities $12 000
inventory $6000

What was the value of his current assets?

A $15 000 B $24 000 C $30 000 D $36 000

34 A trader wants to improve her gross margin.

How can this be done?

A Reduce administrative expenses.

B Reduce depreciation of equipment.
C Reduce rate of cash discount allowed.
D Reduce rate of trade discount allowed.

35 To finance further expansion, a business owner paid $10 000 into the business bank account.

In the ledger, a debit entry was made in the bank account and a credit entry made in the capital
account.

Which accounting principles were being applied?

A business entity and prudence

B business entity and duality
C matching and duality
D matching and prudence
1 Which statements about book-keeping and accounting are correct?

1 Accounting is performed periodically rather than daily.

2 Accounting uses information kept in the book-keeping records.
3 Book-keeping includes the preparation of financial statements.
4 Book-keeping involves the recording of financial transactions.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 2 and 4 only

2 Amarjit had the following closing balances in his books at the end of the year.

non–current assets 25 000

trade receivables 11 000
bank overdraft 3 000
other payables 600

What was Amarjit’s capital at the end of the year?

A $7 400 B $10 400 C $32 400 D $38 400

3 On 31 December Manjit was owed commission.

How would this commission be shown in Manjit’s statement of financial position on 31 December?

A as accrued income in current assets

B as accrued income in current liabilities
C as prepaid income in current assets
D as prepaid income in current liabilities

4 Sami maintains a full set of accounting records.

Why does Sami find it useful to complete the cheque counterfoil when he pays a credit supplier by
cheque?

A It enables him to keep the purchases account up to date.

B It helps in preparing the bank reconciliation statement.
C It is a source of information for maintaining the cash book.
D It is proof that he has paid the correct amount.
5 Paul rents premises from John and pays the rent by credit transfer.

How would John record this?

account debited account credited

A bank rental income

B cash rental income
C rental income bank
D rental income cash

6 A business sold goods with a list price of $50 each.

The terms of trade were as follows:

trade discount when more than 20 items are purchased: 10%

cash discount if customer pays within 30 days: 4%

How much was received in full settlement from a customer who bought 25 items and paid after 35
days?

A $900 B $1075 C $1125 D $1200

7 What is the name given to a list of ledger balances on a particular date?

A control account
B income statement
C statement of account
D trial balance

[Turn over
8 A trader introduced additional capital of $4000. This was debited to the capital account and credited
to the bank account in error.

What is the effect on the statement of financial position of correcting this error?

capital bank
$ $

A decreases by 4000 decreases by 4000

B decreases by 8000 decreases by 8000
C increases by 4000 increases by 4000
D increases by 8000 increases by 8000

9 The totals of a trial balance did not agree, and a suspense account was opened. It was later found
that purchases returns, $560, had been debited to the sales returns account.

Which journal entry was required to correct this error?

debit credit
$ $

A purchases returns 560

sales returns 560
B purchases returns 560
suspense 560
C purchases returns 1120
sales returns 560
suspense 560
D suspense 1120
purchases returns 560
sales returns 560

10 A trader has received her bank statement.

What does she need to record when she is updating her cash book?

A a bank error
B a credit transfer
C an uncredited deposit
D the bank statement balance
11 Colin’s cash book showed a debit balance of $2134 in the bank column. When Colin compared his
cash book with his bank statement he discovered the following.

a standing order paid in error by the bank 80

unpresented cheques 563
uncredited deposits 376

What was the closing balance shown on his bank statement?

A $2027 credit
B $2027 debit
C $2241 credit
D $2241 debit

12 What is not a reason for preparing a monthly sales ledger control account?

A to carry out a check of each entry recorded in the trade receivables’ accounts in the sales
ledger
B to reduce fraud as the control account is completed by someone who has not been involved
in writing up the sales ledger
C to prove that the entries made in the sales ledger are arithmetically correct
D to provide a summary of the trade receivables’ transactions during the month

13 A sales ledger control account had a debit balance of $10 000.

It was found that a $2000 contra entry to the purchases ledger control account had been entered
on the wrong side of the sales ledger control account.

What was the correct debit balance on the sales ledger control account?

A $6000 B $8000 C $12 000 D $14 000

[Turn over
14 A business bought two assets, X and Y, on 1 January 2022, for $2000 each.

It depreciates asset X by 10% per annum using the straight-line method, and asset Y by 10% per
annum using the reducing balance method.

Which statements are correct?

asset X will be fully in 2022 the depreciation

depreciated before charge is lower for
asset Y asset X than for asset Y

A false false
B false true
C true false
D true true

15 After the preparation of his financial statements, a trader discovered the following errors.

1 A revenue receipt of $1000 had been recorded as a capital receipt.

2 Capital expenditure of $800 had been recorded as revenue expenditure.
3 A capital receipt of $900 had been recorded as a revenue receipt.

What was the overall effect of these errors on the profit for the year?

A overstated by $700
B overstated by $900
C understated by $700
D understated by $900
16 The following ledger account appeared in the books of a trader.

rent receivable account

$ $

Dec 31 income statement 2500 Jan 1 balance b / d 200

Dec 31 bank 2000

____ balance c / d 300

2500 2500

What does the balance of $300 on 31 December represent?

A accrued expense
B accrued income
C prepaid expense
D prepaid income

17 A business maintains a provision for doubtful debts of 5% of trade receivables. The balance on the
provision for doubtful debts account on 31 December 2018 was $2700.

On 31 December 2019 the trade receivables amounted to $50 000.

How will the required adjustment to the provision for doubtful debts be recorded?

provision for
$ income statement $
doubtful debts account

A credit 200 added to gross profit 200

B credit 200 deducted from gross profit 200
C debit 200 added to gross profit 200
D debit 200 deducted from gross profit 200

18 Which asset is valued at the lower of cost and net realisable value?

A goodwill
B inventory
C loose tools
D machinery

[Turn over
19 Vikram made two errors when preparing his draft financial statements. These caused his gross
profit to be overstated by $600 and his profit for the year to be understated by $250.

Which two errors had he made?

closing inventory depreciation charge

A $600 overstated $350 overstated

B $600 overstated $850 overstated
C $600 understated $350 understated
D $600 understated $850 understated

20 What is not a service business?

A a computer repair shop

B a furniture factory
C a hairdressing salon
D a travel agent

21 Simon bought a new non-current asset.

Why did he decide to use the reducing balance method to depreciate it?

A The non-current asset will be subject to rapid technological change.

B The non-current asset will lose value faster in the later years.
C The benefits from using the non-current asset will be lower in the earlier years.
D The cash set aside to replace the non-current asset will increase quickly.

22 Which statement about a statement of financial position is correct?

A It is part of the double entry system.

B It proves the arithmetical accuracy of the accounts.
C It shows income and expenses for a certain period of time.
D It shows the assets and liabilities on a certain date.
23 The owner of a business took goods for his own use but forgot to make an entry in the accounts.

What was the effect of this error?

profit for the year capital

A overstated no effect
B overstated understated
C understated no effect
D understated overstated

24 What are advantages to a sole trader of forming a partnership?

1 All partners would be entitled to drawings and dividends.

2 Profits would be shared with the partners.
3 The partners may bring additional skills and experience.
4 The partners would share responsibility for running the business.

A 1, 2 and 3 B 1 and 2 only C 3 only D 3 and 4

25 X, Y and Z are partners sharing profits and losses in the ratio 5 : 3 : 2. Their business made a profit
for the year of $8000. They provided the following information.

partner X partner Y partner Z total

$ $ $ $

partner's salary – – 1500 1500

interest on capital 500 300 200 1000
interest on drawings – 50 100 150

What was Z’s share of the residual profit?

A $1070 B $1130 C $1530 D $1730

[Turn over
26 What can cause an increase in the total equity of a company?

1 a profit for the year

2 a receipt of a long-term loan
3 a transfer to general reserve
4 an issue of shares

A 1 and 4 B 1 only C 2 and 3 D 4 only

27 What is called-up share capital?

A the amount received by the company for issued shares

B the amount requested from shareholders by the company
C the value of shares the company could issue
D the value of shares actually issued by the company

28 A tennis club provided the following information for the year ended 31 December 2020.

at 1 January
prepaid subscriptions 1250
during the year ended 31 December

subscriptions received for 2020 9750

subscriptions received for 2021 1100

at 31 December

subscriptions owing for 2020 1500

What was the amount of subscriptions included in the income and expenditure account for the year
ended 31 December 2020?

A $11 250 B $11 400 C $12 500 D $13 600

29 Which costs of a manufacturing business are indirect costs?

1 heating and lighting of the factory

2 raw materials used in production
3 rent and rates of the factory
4 wages of employees who make the product

A 1, 3 and 4 B 1 and 3 only C 1 only D 2 and 4

30 A manufacturer provided the following information at the end of his financial year.

prime cost 98 400

factory overheads 17 800
work in progress at start of year 6 300
work in progress at end of year 7 600

What was the cost of production for the year?

A $79 300 B $81 900 C $114 900 D $117 500

31 A trader does not maintain a full set of accounting records. He provided the following information
for the year ended 31 December.

1 January 31 December
$ $

non-current assets 45 000 60 000

current assets 9 000 7 500
working capital 6 000 4 500
non-current liabilities 4 000 6 500

During the year he made drawings of $3500.

What was his profit for the year?

A $6000 B $7500 C $13 000 D $14 500

[Turn over
32 A trader provided the following information.

opening inventory 8 000

purchases 108 000
closing inventory 16 000

What was the rate of inventory turnover?

A 4.17 times
B 4.83 times
C 8.33 times
D 9.67 times

33 A limited company has invited potential investors to purchase shares in the business.

What information would be of interest to a potential investor?

1 the amount that they would pay for the shares

2 the expected future profits of the business
3 the expected rate of dividend that the business might pay
4 when the limited company will pay back the money invested

A 1, 2 and 3 B 1, 3 and 4 C 1 and 2 only D 2 and 3 only

34 Why would a bakery business not include a value for inventory of stationery in the statement of
financial position?

A It was to be used in the next few months.

B It was purchased regularly and paid for in cash.
C It was new and unused.
D It was of very low value.
35 A trader decides to write off the balance owed by a credit customer as an irrecoverable debt.

A credit entry is made in the account of the credit customer and a debit entry in the irrecoverable
debts account.

Which accounting principles are being applied?

A business entity and realisation

B consistency and materiality
C duality and prudence
D materiality and prudence
1 Which statement is correct?

A Accounting involves measuring profits and losses.

B Accounting is the recording of financial transactions.
C Book-keeping involves communicating financial data.
D Book-keeping requires the use of ratio analysis.

2 The balances remaining on the books of a business after the preparation of the income statement
included the following.

loan from XY Finance 10 000

wages due 620
rent prepaid 240
trade receivables 3 300
trade payables 4 650
motor vehicles 8 000
provision for depreciation of motor vehicles 2 000

What was the total of the liabilities?

A $13 920 B $14 890 C $15 270 D $17 270

3 On 2 April Nina received a cheque from Zaffar, a credit customer. On 12 April the cheque was
returned unpaid by the bank.

What entry would Nina make on 12 April?

account to be debited account to be credited

A irrecoverable debts bank

B irrecoverable debts Zaffar
C provision for doubtful debts Zaffar
D Zaffar bank
4 Ann is a trader. On 1 April Cindy’s account in Ann’s ledger showed a credit balance of $520. The
following transactions took place during April.

April 2 Ann returned goods, $30, to Cindy.

14 Ann bought goods, $210, from Cindy, and paid in cash.

Which statement about the balance on Cindy’s account in Ann’s ledger on 30 April is correct?

A Ann owes Cindy $490.

B Ann owes Cindy $700.
C Cindy owes Ann $490.
D Cindy owes Ann $700.

5 Goods bought on credit by Tumelo from Tebogo are returned before they are paid for. Tumelo
keeps a full double entry system.

Where will Tumelo record the return of goods?

A cash book and sales ledger

B general ledger only
C general ledger and purchases ledger
D purchases ledger only

6 Dave supplies goods to Peter on credit. On 1 April, Peter owed Dave $440. Dave sent or
received the following documents in April.

April 7 invoice 360

12 cheque (after deducting $11 cash discount) 429
13 debit note 50
15 credit note 50

What was the closing balance on the statement of account on 30 April?

A $260 B $310 C $321 D $421

7 What is recorded in the sales journal?

A all money received from sales

B all sales transactions
C cash sales transactions
D credit sales transactions

[Turn over
8 Which statement about a two-column cash book is correct?

A It is a ledger account for bank transactions only.

B It is a ledger account for cash transactions only.
C It is a book of prime entry.
D It records cash discounts.

9 Which statements about trade discount are correct?

1 It is debited to the supplier’s account.

2 It is only given if the invoice is paid within the period allowed by the supplier.
3 It is shown as a deduction from the price of the goods on an invoice.
4 It is used to encourage bulk buying.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

10 Why is a trial balance prepared?

A to analyse the financial information

B to assist preparation of financial statements
C to control the costs of the business
D to evaluate the performance of the business

11 The income statement of a business showed a loss for the year of $16 000. On checking the
books the following errors were discovered.

1 No adjustment had been made for insurance prepaid, $480.

2 No entry had been made for bank charges, $620.

What was the correct loss for the year?

A $14 900 B $15 860 C $16 140 D $17 100

12 Peter’s bank statement showed a debit balance of $600 on 1 April. The following transactions
took place in April.

total cheque deposits 7400

total cheque payments 6200
direct debit for insurance premium 180
credit transfer from customer 450

What was the bank statement balance on 30 April?

A $870 credit
B $870 debit
C $2070 credit
D $2070 debit

13 A sales ledger control account had a debit balance of $10 000.

It was found that a $2000 contra entry to the purchases ledger control account had been entered
on the wrong side of the sales ledger control account.

What was the correct debit balance on the sales ledger control account?

A $6000 B $8000 C $12 000 D $14 000

14 A business had a new extension to its workshop premises. It incurred the following expenditure.

building cost 65 000

legal fees 1 800
air conditioning system for the original workshop 2 300
air conditioning system for the new workshop extension 1 100
decorating the original workshop 1 400
decorating the new workshop extension 800

What was the total capital expenditure of the business?

A $67 900 B $70 200 C $71 000 D $72 400

[Turn over
15 A non-current asset was depreciated at the end of the first year of ownership using the
straight-line method based on the following information.

cost $20 000

working life 4 years
residual value $4000

It was then found that the reducing balance method at 30% per annum should have been used.

What was the effect on the profit for the year of correcting this error?

A decrease by $2000
B increase by $2000
C decrease by $6000
D increase by $6000

16 A company’s financial year ended on 31 December 2019. On 1 December 2019 it paid rent,
$8000, for the four months ending 31 March 2020.

What was the opening balance on the rent account on 1 January 2020?

A $2000 credit
B $2000 debit
C $6000 credit
D $6000 debit

17 Alice’s financial year ends on 31 December.

The balances on her books on 1 January 2020 included the following.

commission receivable 250 debit

rent receivable 500 credit

What do these balances represent?

commission receivable rent receivable

A income outstanding income outstanding

B income outstanding income prepaid
C income prepaid income outstanding
D income prepaid income prepaid
18 Joseph sells goods on credit and maintains a provision for doubtful debts. He wants to increase
his provision for doubtful debts by $250.

Which journal entry records an increase in the provision for doubtful debts?

debit credit
$ $
A credit customer 250
income statement 250
B income statement 250
credit customer 250
C income statement 250
provision for doubtful debts 250
D provision for doubtful debts 250
income statement 250

19 Which items are deducted from the gross profit when calculating the profit for the year?

1 balance on the provision for doubtful debts account

2 carriage paid on goods supplied to customers
3 drawings made by the owner during the year
4 wages paid to employees during the year

A 1, 2 and 3 B 1 and 4 C 2 and 3 only D 2 and 4

20 On 31 December 2019 John had net assets of $2000 and capital of $2000.

On 1 January 2020, goods costing $140 were sold on credit for $220.

What was the effect of this transaction on the statement of financial position?

net assets capital

$ $
A 80 decrease 80 decrease
B 80 increase 80 increase
C 220 decrease 220 decrease
D 220 increase 220 increase

[Turn over
21 At the end of his financial year, Raminder made an adjustment for rent owed by a tenant.

How did this affect Raminder’s financial statements?

profit for
current assets
the year

A decrease decrease
B decrease increase
C increase decrease
D increase increase

22 The owner of a business took goods for his own use but forgot to make an entry in the accounts.

What was the effect of this error?

profit for the year capital employed

A overstated no effect
B overstated understated
C understated no effect
D understated overstated

23 Rajid and Sunil formed a partnership on 1 January 2019 but did not prepare a partnership
agreement.

They provided the following information.

Rajid Sunil

capital introduced 1 January 2019 $40 000 $20 000

during the year ended 31 December 2019
drawings $5 000 $3 500
share of work 50% 50%

They decided to draw up a partnership agreement for future years.

Which item would be most beneficial to Rajid in 2020?

A interest on capital
B interest on drawings
C limit on annual drawings
D partnership salaries
24 Harry and Jane are in partnership. The following information relates to Harry for the financial
year.

salary 8000
drawings 2800
share of profit 4600

The opening credit balance on Harry’s current account was $28 200.

What was the closing balance on his current account?

A $30 000 B $38 000 C $40 800 D $43 600

25 Which item is shown in the income statement of a company and statement of changes in equity?

A interest on debentures accrued

B ordinary share dividend paid
C profit for the year
D transfer to general reserve

26 Hassan’s capital decreased by $200 over the year, even though he made a profit of $7000.

Which transactions caused this?

capital introduced drawings

$ $

A 1000 8200
B 1200 6000
C 2000 8800
D 2200 4600

[Turn over
27 Ahmed provided the following information.

trade receivables at 1 January 2019 15 000

for the year ended 31 December 2019:
credit sales 85 000
cash sales 12 000
cheques received from trade receivables 65 000
irrecoverable debts 2 000

By how much had the trade receivables increased by the end of the financial year?

A $18 000 B $30 000 C $33 000 D $45 000

28 Gordon provided the following information for the year.

revenue $90 000

opening inventory $8 000
closing inventory $2 000
mark up 50%

Gordon took goods, $7000, for his own use.

What were the purchases?

A $43 000 B $47 000 C $54 000 D $61 000

29 A trader provided the following information.

for the year ended 31 March 2020

revenue 250 000
purchases: cash 125 000
credit 115 000
at March 2020
trade payables 9 765

What was the trade payables turnover?

A 14 days B 15 days C 29 days D 31 days

30 On 1 January 2019 current assets totalled $16 000 and the current ratio was 2 : 1.

On 31 December 2019 the current liabilities had increased by 50% and the current ratio was
1.5 : 1.

What was the value of the current assets on 31 December 2019?

A $16 000 B $18 000 C $32 000 D $36 000

31 A company provided the following information about its liquid (acid test) ratio.

Year 1 1.2 : 1
Year 2 1.4 : 1
Year 3 1.6 : 1

Which would explain the changes in the ratio?

A Inventory is increasing.
B Other payables are decreasing.
C Trade payables are increasing.
D Trade receivables are decreasing.

32 Which user of accounting statements is interested in past performance and taking remedial action
where necessary?

A government
B investors
C managers
D suppliers

33 Rashid’s financial year ends on 31 December. He paid rent on 1 February, 1 May, 1 August and
1 November.

An adjustment was made in the income statement for rent prepaid.

Which accounting principle was applied?

A duality
B matching
C money measurement
D prudence

[Turn over
34 Which statement describes the going concern principle?

A Accounting methods must be used consistently from one accounting period to the next.
B It is assumed that the business will continue to operate for the foreseeable future.
C Revenue is earned when legal title to goods passes from the seller to the buyer.
D The business is treated as being completely separate from the owner of the business.

35 Brad purchased a machine for $1000 on 1 January 2019. The machine was expected to last for
four years and have no residual value. On 31 December 2019 the same machine cost $1200 to
purchase.

At which value should the machine be included in the statement of financial position on
31 December 2019?

A current cost with no depreciation

B current cost with one year’s depreciation
C original purchase price with no depreciation
D original purchase price with one year’s depreciation
1 Which are examples of book-keeping?

1 entering details of a cheque received from a customer in a cash book

2 entering details of goods purchased on credit in a purchases journal
3 producing an income statement to calculate the profit for the year
4 recording details of credit sales in the account of a credit customer

A 1, 2 and 3 B 1, 2 and 4 C 1 and 2 only D 3 and 4

2 How does a trader use the information provided by financial statements?

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade receivables
C to check the balance shown on a bank statement
D to compare the business performance over a number of years

3 A trader bought new fixtures. He paid half of the purchase price in cash and agreed to pay the
balance in two months’ time.

How does this purchase affect the accounting equation?

owner’s
assets liabilities
equity

A decrease decrease no effect

B decrease no effect increase
C increase decrease increase
D increase no effect increase

4 On 2 April Nina received a cheque from Zaffar, a credit customer. On 12 April the cheque was
returned unpaid by the bank.

What entry would Nina make on 12 April?

account to be debited account to be credited

A irrecoverable debts bank

B irrecoverable debts Zaffar
C provision for doubtful debts Zaffar
D Zaffar bank
5 Ann is a trader. On 1 April Cindy’s account in Ann’s ledger showed a credit balance of $520. The
following transactions took place during April.

April 2 Ann returned goods, $30, to Cindy.

14 Ann bought goods, $210, from Cindy, and paid in cash.

Which statement about the balance on Cindy’s account in Ann’s ledger on 30 April is correct?

A Ann owes Cindy $490.

B Ann owes Cindy $700.
C Cindy owes Ann $490.
D Cindy owes Ann $700.

6 Goods bought on credit by Tumelo from Tebogo are returned before they are paid for. Tumelo
keeps a full double entry system.

Where will Tumelo record the return of goods?

A cash book and sales ledger

B general ledger only
C general ledger and purchases ledger
D purchases ledger only

7 Dave supplies goods to Peter on credit. On 1 April, Peter owed Dave $440. Dave sent or
received the following documents in April.

April 7 invoice 360

12 cheque (after deducting $11 cash discount) 429
13 debit note 50
15 credit note 50

What was the closing balance on the statement of account on 30 April?

A $260 B $310 C $321 D $421

[Turn over
8 A business sold goods with a list price of $50 each.

The terms of trade were:

trade discount for more than 20 items bought 10%

cash discount if customer pays within 30 days 4%

How much was received in full settlement from a customer who bought 25 items and paid after
35 days?

A $900 B $1075 C $1125 D $1200

9 Paul rents premises from John and pays the rent by credit transfer.

How would John record this?

account debited account credited

A bank rent receivable

B cash rent receivable
C rent receivable bank
D rent receivable cash

10 Sita discovers that $1000 received from the sale of fixtures had been entered in the sales
account.

Which journal entry corrected this error?

debit credit
$ $

bank 1000
A
disposal of fixtures 1000
bank 1000
B
fixtures 1000
sales 1000
C
disposal of fixtures 1000
sales 1000
D
fixtures 1000
11 The totals of a trial balance did not agree and $200 was debited to a suspense account. On
checking the books it was found that two errors had been made.

1 A sales invoice for $700 had been recorded in the sales journal as $770.
2 The sales journal had been totalled incorrectly.

What was the error made in totalling the sales journal?

A overcast by $130
B overcast by $200
C undercast by $130
D undercast by $200

12 The income statement of a business showed a loss for the year of $16 000. On checking the
books the following errors were discovered.

1 No adjustment had been made for insurance prepaid, $480.

2 No entry had been made for bank charges, $620.

What was the correct loss for the year?

A $14 900 B $15 860 C $16 140 D $17 100

13 What would result in a cash book balance being lower than the balance showing on a bank
statement?

A A cheque received from a customer was not recorded in the bank statement.
B A customer’s cheque dishonoured by the bank appeared only on the bank statement.
C Payment by a customer directly into the bank was not recorded in the cash book.
D Payment of insurance by standing order was not recorded in the cash book.

14 Thembi is preparing her sales ledger control account. She needs to know:

1 The total for goods which have been returned by credit customers.
2 The amount owed by credit customers which have been written off as irrecoverable.

Where can she obtain this information?

goods returned irrecoverable debts

A purchase returns account irrecoverable debts account

B purchase returns journal general journal
C sales returns account irrecoverable debts account
D sales returns journal general journal

[Turn over
15 The following payments were made when a new machine was purchased.

cost of the machine 32 000

charge for delivering the machine 1 800
insurance of the machine 2 000
wages of employees installing the machine 1 300

How much was the capital expenditure?

A $32 000 B $33 300 C $35 100 D $37 100

16 A non-current asset was depreciated at the end of the first year of ownership using the
straight-line method based on the following information.

cost $20 000

working life 4 years
residual value $4000

It was then found that the reducing balance method at 30% per annum should have been used.

What was the effect on the profit for the year of correcting this error?

A decrease by $2000
B increase by $2000
C decrease by $6000
D increase by $6000

17 Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on
the reducing balance basis.

Which journal entry records the depreciation for the year ended 31 December 2019?

debit credit
A income statement 1920
provision for depreciation of motor vehicles 1920
B income statement 3200
provision for depreciation of motor vehicles 3200
C provision for depreciation of motor vehicles 1920
motor vehicles 1920
D provision for depreciation of motor vehicles 3200
motor vehicles 3200
18 Alice’s financial year ends on 31 December.

The balances on her books on 1 January 2020 included the following.

commission receivable 250 debit

rent receivable 500 credit

What do these balances represent?

commission receivable rent receivable

A income outstanding income outstanding

B income outstanding income prepaid
C income prepaid income outstanding
D income prepaid income prepaid

19 Annual rental income due from Kumar, a tenant, is $3600. At the start of the year Kumar had
prepaid rent of $900. At the end of the year he owed two months’ rent.

How much rent was received from Kumar during the year?

A $2100 B $3300 C $3900 D $5100

20 Joel’s inventory on 31 December 2019 was valued at $4800. It was discovered that:

1 Goods, cost $100, had not been included.

2 Goods, cost $170, had been included at net realisable value $210.

What was the effect of the incorrect inventory valuation on Joel’s financial statements at
31 December 2019?

profit for
$ inventory $ equity $
the year

A overstated 40 understated 40 nil

B overstated 60 understated 60 nil
C understated 40 understated 40 understated 40
D understated 60 understated 60 understated 60

[Turn over
21 The owner of a business took goods for his own use but forgot to make an entry in the accounts.

What was the effect of this error?

profit for the year capital employed

A overstated no effect
B overstated understated
C understated no effect
D understated overstated

22 Rajid and Sunil formed a partnership on 1 January 2019 but did not prepare a partnership
agreement.

They provided the following information.

Rajid Sunil

capital introduced 1 January 2019 $40 000 $20 000

during the year ended 31 December 2019
drawings $5 000 $3 500
share of work 50% 50%

They decided to draw up a partnership agreement for future years.

Which item would be most beneficial to Rajid in 2020?

A interest on capital
B interest on drawings
C limit on annual drawings
D partnership salaries

23 Harry and Jane are in partnership. The following information relates to Harry for the financial
year.

salary 8000
drawings 2800
share of profit 4600

The opening credit balance on Harry’s current account was $28 200.

What was the closing balance on his current account?

A $30 000 B $38 000 C $40 800 D $43 600

24 The statement of financial position of X Limited at 31 December 2018 included the following:

ordinary share capital 40 000

general reserve 8 000
retained earnings 65 000
8% debentures (repayable 2025) 30 000

Profit for the year ended 31 December 2019 was $42 000 and dividends paid totalled $10 000.

What was the total equity on 31 December 2019?

A $137 000 B $145 000 C $155 000 D $175 000

25 Which is a feature of debentures?

A are a long-term liability of a company

B carry a fixed rate of dividend
C carry voting rights
D on liquidation are paid back after shareholders

26 Which cost is part of the prime cost for a manufacturing business?

A carriage inwards
B carriage outwards
C factory rent
D factory supervisor’s salary

27 A manufacturing business provided the following information.

prime cost 236 000

factory overheads 42 000
opening work in progress 8 000
closing work in progress 6 000

What was the factory cost of production?

A $234 000 B $238 000 C $276 000 D $280 000

[Turn over
28 A trader provided the following information.

trade receivables at start of the year 5 000

trade receivables at end of the year 8 500
cash received from trade receivables 34 700
irrecoverable debts written off 200
discount allowed 185

What was the amount of the credit sales?

A $38 200 B $38 385 C $38 400 D $38 585

29 Gordon provided the following information for the year.

revenue $90 000

opening inventory $8 000
closing inventory $2 000
mark up 50%

Gordon took goods, $7000, for his own use.

What were the purchases?

A $43 000 B $47 000 C $54 000 D $61 000

30 Sabelo’s liquid (acid test) ratio was higher on 1 January 2019 than it was on 31 December 2019.

What could have caused this?

A bank overdraft decreased

B inventory decreased
C other payables decreased
D trade receivables decreased
31 The following ratios have been calculated for a trader.

year 1 year 2

profit margin 15% 20%

return on capital employed (ROCE) 9% 6%

What explains these changes?

A Drawings have increased by more than profit for the year.

B Gross profit has increased but profit for the year has decreased.
C Profit for the year has increased and capital has been introduced.
D Profit for the year has increased and a long-term loan has been repaid.

32 Which external parties would be interested in the accounting ratios of a business?

A government
B investors
C managers
D tax authorities

33 At the end of the financial year, a company did not account for the unused stationary valued
at $50.

Which accounting principle did the company apply?

A matching
B materiality
C money measurement
D prudence

34 A trader wrote off the balance on a credit customer’s account as irrecoverable.

Which accounting principle was applied?

A business entity
B consistency
C money measurement
D prudence

[Turn over
35 A limited company applied the accounting objective of comparability in preparing its financial
statements.

What is the effect of this on the interested parties?

A They can be sure that information in the financial statements is up to date.

B They can identify similarities with the financial statements of other businesses.
C They can understand the financial statements easily.
D They can use the financial statements in decision-making.
1 Which are examples of book-keeping?

1 entering details of a cheque received from a customer in a cash book

2 entering details of goods purchased on credit in a purchases journal
3 producing an income statement to calculate the profit for the year
4 recording details of credit sales in the account of a credit customer

A 1, 2 and 3 B 1, 2 and 4 C 1 and 2 only D 3 and 4

2 How does a trader use the information provided by financial statements?

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade receivables
C to check the balance shown on a bank statement
D to compare the business performance over a number of years

3 A trader bought new fixtures. He paid half of the purchase price in cash and agreed to pay the
balance in two months’ time.

How does this purchase affect the accounting equation?

owner’s
assets liabilities
equity

A decrease decrease no effect

B decrease no effect increase
C increase decrease increase
D increase no effect increase

4 On 2 April Nina received a cheque from Zaffar, a credit customer. On 12 April the cheque was
returned unpaid by the bank.

What entry would Nina make on 12 April?

account to be debited account to be credited

A irrecoverable debts bank

B irrecoverable debts Zaffar
C provision for doubtful debts Zaffar
D Zaffar bank
5 Ann is a trader. On 1 April Cindy’s account in Ann’s ledger showed a credit balance of $520. The
following transactions took place during April.

April 2 Ann returned goods, $30, to Cindy.

14 Ann bought goods, $210, from Cindy, and paid in cash.

Which statement about the balance on Cindy’s account in Ann’s ledger on 30 April is correct?

A Ann owes Cindy $490.

B Ann owes Cindy $700.
C Cindy owes Ann $490.
D Cindy owes Ann $700.

6 Goods bought on credit by Tumelo from Tebogo are returned before they are paid for. Tumelo
keeps a full double entry system.

Where will Tumelo record the return of goods?

A cash book and sales ledger

B general ledger only
C general ledger and purchases ledger
D purchases ledger only

7 Dave supplies goods to Peter on credit. On 1 April, Peter owed Dave $440. Dave sent or
received the following documents in April.

April 7 invoice 360

12 cheque (after deducting $11 cash discount) 429
13 debit note 50
15 credit note 50

What was the closing balance on the statement of account on 30 April?

A $260 B $310 C $321 D $421

[Turn over
8 A business sold goods with a list price of $50 each.

The terms of trade were:

trade discount for more than 20 items bought 10%

cash discount if customer pays within 30 days 4%

How much was received in full settlement from a customer who bought 25 items and paid after
35 days?

A $900 B $1075 C $1125 D $1200

9 Paul rents premises from John and pays the rent by credit transfer.

How would John record this?

account debited account credited

A bank rent receivable

B cash rent receivable
C rent receivable bank
D rent receivable cash

10 Sita discovers that $1000 received from the sale of fixtures had been entered in the sales
account.

Which journal entry corrected this error?

debit credit
$ $

bank 1000
A
disposal of fixtures 1000
bank 1000
B
fixtures 1000
sales 1000
C
disposal of fixtures 1000
sales 1000
D
fixtures 1000
11 The totals of a trial balance did not agree and $200 was debited to a suspense account. On
checking the books it was found that two errors had been made.

1 A sales invoice for $700 had been recorded in the sales journal as $770.
2 The sales journal had been totalled incorrectly.

What was the error made in totalling the sales journal?

A overcast by $130
B overcast by $200
C undercast by $130
D undercast by $200

12 The income statement of a business showed a loss for the year of $16 000. On checking the
books the following errors were discovered.

1 No adjustment had been made for insurance prepaid, $480.

2 No entry had been made for bank charges, $620.

What was the correct loss for the year?

A $14 900 B $15 860 C $16 140 D $17 100

13 What would result in a cash book balance being lower than the balance showing on a bank
statement?

A A cheque received from a customer was not recorded in the bank statement.
B A customer’s cheque dishonoured by the bank appeared only on the bank statement.
C Payment by a customer directly into the bank was not recorded in the cash book.
D Payment of insurance by standing order was not recorded in the cash book.

14 Thembi is preparing her sales ledger control account. She needs to know:

1 The total for goods which have been returned by credit customers.
2 The amount owed by credit customers which have been written off as irrecoverable.

Where can she obtain this information?

goods returned irrecoverable debts

A purchase returns account irrecoverable debts account

B purchase returns journal general journal
C sales returns account irrecoverable debts account
D sales returns journal general journal

[Turn over
15 The following payments were made when a new machine was purchased.

cost of the machine 32 000

charge for delivering the machine 1 800
insurance of the machine 2 000
wages of employees installing the machine 1 300

How much was the capital expenditure?

A $32 000 B $33 300 C $35 100 D $37 100

16 A non-current asset was depreciated at the end of the first year of ownership using the
straight-line method based on the following information.

cost $20 000

working life 4 years
residual value $4000

It was then found that the reducing balance method at 30% per annum should have been used.

What was the effect on the profit for the year of correcting this error?

A decrease by $2000
B increase by $2000
C decrease by $6000
D increase by $6000

17 Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on
the reducing balance basis.

Which journal entry records the depreciation for the year ended 31 December 2019?

debit credit
A income statement 1920
provision for depreciation of motor vehicles 1920
B income statement 3200
provision for depreciation of motor vehicles 3200
C provision for depreciation of motor vehicles 1920
motor vehicles 1920
D provision for depreciation of motor vehicles 3200
motor vehicles 3200

© UCLES 2020 0452/13/M/J/20

18 Alice’s financial year ends on 31 December.

The balances on her books on 1 January 2020 included the following.

commission receivable 250 debit

rent receivable 500 credit

What do these balances represent?

commission receivable rent receivable

A income outstanding income outstanding

B income outstanding income prepaid
C income prepaid income outstanding
D income prepaid income prepaid

19 Annual rental income due from Kumar, a tenant, is $3600. At the start of the year Kumar had
prepaid rent of $900. At the end of the year he owed two months’ rent.

How much rent was received from Kumar during the year?

A $2100 B $3300 C $3900 D $5100

20 Joel’s inventory on 31 December 2019 was valued at $4800. It was discovered that:

1 Goods, cost $100, had not been included.

2 Goods, cost $170, had been included at net realisable value $210.

What was the effect of the incorrect inventory valuation on Joel’s financial statements at
31 December 2019?

profit for
$ inventory $ equity $
the year

A overstated 40 understated 40 nil

B overstated 60 understated 60 nil
C understated 40 understated 40 understated 40
D understated 60 understated 60 understated 60

[Turn over
21 The owner of a business took goods for his own use but forgot to make an entry in the accounts.

What was the effect of this error?

profit for the year capital employed

A overstated no effect
B overstated understated
C understated no effect
D understated overstated

22 Rajid and Sunil formed a partnership on 1 January 2019 but did not prepare a partnership
agreement.

They provided the following information.

Rajid Sunil

capital introduced 1 January 2019 $40 000 $20 000

during the year ended 31 December 2019
drawings $5 000 $3 500
share of work 50% 50%

They decided to draw up a partnership agreement for future years.

Which item would be most beneficial to Rajid in 2020?

A interest on capital
B interest on drawings
C limit on annual drawings
D partnership salaries

23 Harry and Jane are in partnership. The following information relates to Harry for the financial
year.

salary 8000
drawings 2800
share of profit 4600

The opening credit balance on Harry’s current account was $28 200.

What was the closing balance on his current account?

A $30 000 B $38 000 C $40 800 D $43 600

24 The statement of financial position of X Limited at 31 December 2018 included the following:

ordinary share capital 40 000

general reserve 8 000
retained earnings 65 000
8% debentures (repayable 2025) 30 000

Profit for the year ended 31 December 2019 was $42 000 and dividends paid totalled $10 000.

What was the total equity on 31 December 2019?

A $137 000 B $145 000 C $155 000 D $175 000

25 Which is a feature of debentures?

A are a long-term liability of a company

B carry a fixed rate of dividend
C carry voting rights
D on liquidation are paid back after shareholders

26 Which cost is part of the prime cost for a manufacturing business?

A carriage inwards
B carriage outwards
C factory rent
D factory supervisor’s salary

27 A manufacturing business provided the following information.

prime cost 236 000

factory overheads 42 000
opening work in progress 8 000
closing work in progress 6 000

What was the factory cost of production?

A $234 000 B $238 000 C $276 000 D $280 000

[Turn over
28 A trader provided the following information.

trade receivables at start of the year 5 000

trade receivables at end of the year 8 500
cash received from trade receivables 34 700
irrecoverable debts written off 200
discount allowed 185

What was the amount of the credit sales?

A $38 200 B $38 385 C $38 400 D $38 585

29 Gordon provided the following information for the year.

revenue $90 000

opening inventory $8 000
closing inventory $2 000
mark up 50%

Gordon took goods, $7000, for his own use.

What were the purchases?

A $43 000 B $47 000 C $54 000 D $61 000

30 Sabelo’s liquid (acid test) ratio was higher on 1 January 2019 than it was on 31 December 2019.

What could have caused this?

A bank overdraft decreased

B inventory decreased
C other payables decreased
D trade receivables decreased
31 The following ratios have been calculated for a trader.

year 1 year 2

profit margin 15% 20%

return on capital employed (ROCE) 9% 6%

What explains these changes?

A Drawings have increased by more than profit for the year.

B Gross profit has increased but profit for the year has decreased.
C Profit for the year has increased and capital has been introduced.
D Profit for the year has increased and a long-term loan has been repaid.

32 Which external parties would be interested in the accounting ratios of a business?

A government
B investors
C managers
D tax authorities

33 At the end of the financial year, a company did not account for the unused stationary valued
at $50.

Which accounting principle did the company apply?

A matching
B materiality
C money measurement
D prudence

34 A trader wrote off the balance on a credit customer’s account as irrecoverable.

Which accounting principle was applied?

A business entity
B consistency
C money measurement
D prudence

[Turn over
35 A limited company applied the accounting objective of comparability in preparing its financial
statements.

What is the effect of this on the interested parties?

A They can be sure that information in the financial statements is up to date.

B They can identify similarities with the financial statements of other businesses.
C They can understand the financial statements easily.
D They can use the financial statements in decision-making.
1 Which statements about book-keeping and accounting are correct?

1 Accounting is performed periodically rather than daily.

2 Accounting relies on having accurate book-keeping records.
3 Book-keeping includes the preparation of financial statements.
4 Book-keeping involves the recording of financial transactions.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 2 and 4 only

2 What increases owner’s capital?

A bank loan extended from five to ten years

B purchase of inventory on credit
C purchase of machinery by cheque
D transfer of vehicle to business from private use

3 Carl, a trader, took goods from the business for his own use. These goods had cost $100, and
$8 carriage had been paid for them to be delivered to the business.

How would this be recorded in Carl’s accounts in the books of the business?

A debit Carl’s capital account $100

B debit Carl’s capital account $108
C debit Carl’s drawings account $100
D debit Carl’s drawings account $108

4 Shula’s financial year ends on 31 March. On 1 April 2021 there was a credit balance of $100 on
Yasmin’s account in Shula’s purchases ledger.

What does this mean?

A Shula had paid $100 to Yasmin.

B Shula owed $100 to Yasmin.
C Yasmin had paid $100 to Shula.
D Yasmin owed $100 to Shula.

5 Hasina buys radios from Nazneen at a list price of $10 each. Hasina bought 12 radios and was
offered 20% trade discount and 4% cash discount. Two radios were faulty and were returned to
Nazneen.

What was the total of the credit note issued by Nazneen?

A $15.36 B $16.00 C $19.20 D $20.00

6 Which items would be recorded in the general journal of a bakery?

1 correction of an error of principle relating to an oven repair

2 purchase of a delivery vehicle on credit
3 purchase of flour on credit
4 return by a customer of a faulty batch of bread

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

7 Alisha entered the credit notes she received in March in the correct returns journal.

How was the total of this journal recorded in the ledger at the end of the month?

A credit purchases returns account

B credit sales returns account
C debit purchases returns account
D debit sales returns account

8 Which item would not be shown on a bank statement?

A a cheque returned by the bank marked as ‘refer to drawer’

B a monthly payment made for electricity by direct debit
C bank charges
D unpresented cheques

9 Which statement about a purchases ledger control account is not correct?

A It acts as a check on the balance of the purchases account.

B It includes transactions relating to all the credit suppliers.
C It is prepared using information from the books of prime entry.
D It provides proof of the arithmetical accuracy of the purchases ledger.

10 Javid’s sales ledger control account had a debit balance of $12 000. Interest on an overdue
account, $40, and discount allowed, $150, had been omitted.

What was the correct balance on the sales ledger control account?

A $11 810 B $11 890 C $12 110 D $12 190

[Turn over
11 What is the effect of treating an item of capital expenditure as revenue expenditure?

1 Cost of non-current assets is overstated.

2 Cost of non-current assets is understated.
3 Depreciation for the year is overstated.
4 Depreciation for the year is understated.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

12 Why does a business provide for depreciation on non-current assets?

A to charge the cost of non-current assets against profit in the year of purchase
B to ensure that non-current assets appear at book value in the statement of financial position
C to ensure that the matching principle is applied when preparing financial statements
D to retain cash in the business for replacement of non-current assets

13 Machinery which had cost $6290 was sold for $3100. The disposal account showed a profit on
disposal of $584.

How much was the depreciation up to the date of disposal and on which side of the disposal
account was it recorded?

A $2606 on the credit side

B $2606 on the debit side
C $3774 on the credit side
D $3774 on the debit side

14 The following ledger account appeared in the books of a trader.

Rent receivable account

$ $

2020 2020
Dec 31 balance c / d 600 Jan 1 balance b / d 400
Dec 31 bank 3600

Which entry was made in the income statement for the year ended 31 December 2020 for rent
receivable?

A $3400 credit
B $3400 debit
C $3800 credit
D $3800 debit
15 Why does a business maintain a provision for doubtful debts account?

A to apply the accounting principle of prudence

B to avoid profit for the year being understated
C to have an accurate forecast of debts which will be uncollectible
D to reduce the expense of irrecoverable debts in the future

16 How should inventory be valued?

A cost
B higher of cost and net realisable value
C lower of cost and net realisable value
D net realisable value

17 What are the advantages of being a sole trader?

easy to raise entitled to has total has unlimited

finance all profit control liability

A  
B  
C   
D  

18 Which items would appear in the income statement of a service business?

profit for
gross profit surplus
the year

A   
B   
C   
D   

[Turn over
19 A business provided the following information.

long-term loan 20 000

trade receivables 12 000
trade payables 9 700
bank overdraft 2 000
prepaid insurance 400
accrued wages 1 000
rent receivable prepaid 500

What was the total of the current liabilities?

A $13 200 B $15 400 C $31 200 D $32 700

20 What is added to owner’s capital to calculate capital employed?

A current assets
B current liabilities
C non-current assets
D non-current liabilities

21 On 1 April 2020 Ahmed had a provision for doubtful debts of $290. The following journal entry
was made on 31 March 2021.

debit credit
$ $

provision for doubtful debts 25

income statement 25

What was the provision for doubtful debts deducted from trade receivables in Ahmed’s statement
of financial position on 31 March 2021?

A $25 B $265 C $290 D $315

22 X Limited started the year with an ordinary share capital of $100 000.

An ordinary share dividend of $3000 was paid during the year.

Later a further $10 000 of ordinary shares were issued.

The profit for the year was $8000.

By how much had equity increased at the end of the year?

A $7000 B $10 000 C $15 000 D $18 000

23 Which providers of funds to a limited liability company receive a fixed rate of return on their
investment?

ordinary preference debenture

shareholders shareholders holders

A   
B   
C   
D   

24 Every member of a sports club is required to pay an annual subscription of $50. The
subscriptions account showed the following.

Subscriptions account
$ $

2020 2020
Jan 1 Balance b / d 350 Dec 31 Bank 10 950
Dec 31 Income and 10 900 Balance c / d 750
expenditure account
Balance c / d 450
11 700 11 700
2021 2021
Jan 1 Balance b / d 750 Jan 1 Balance b / d 450

What was the increase in the number of members in arrears between 1 January and
31 December 2020?

A 2 members
B 6 members
C 8 members
D 17 members

[Turn over
25 Which term is used to describe the surpluses which have been earned by a club over its lifetime?

A accumulated fund
B capital
C retained earnings
D subscriptions

26 Nula provided the following information for the year ended 31 March 2021.

drawings for the year 3 900

net assets at 1 April 2020 60 500
net assets at 31 March 2021 72 275

What was the profit or loss for the year ended 31 March 2021?

A $7875 loss
B $7875 profit
C $15 675 loss
D $15 675 profit

27 A trader who does not keep full accounting records was able to supply the following information.

amount owed by trade receivables at 1 April 2020 3 000

cheques received from trade receivables during the year 28 000
cash discounts given to trade receivables 1 500
amount owed by trade receivables at 31 March 2021 4 200

How much were the credit sales for the year ended 31 March 2021?

A $25 300 B $27 700 C $28 300 D $30 700

28 A trader provided the following information.

revenue 120 000

inventory at the start of the year 9 600
inventory at the end of the year 10 200

A mark-up of 25% is applied.

What were the purchases for the year?

A $89 400 B $90 600 C $95 400 D $96 600

29 George provided the following information.

non-current assets 15 000

inventory 12 000
trade receivables 18 000
trade payables 8 000

His liquid (acid test) ratio was 1.2 : 1.

What was his bank overdraft?

A $7000 B $15 000 C $17 000 D $29 500

[Turn over
30 A trader provided the following information.

$ $

revenue 3600
opening inventory 100
purchases 2600
2700
closing inventory 300 2400
gross profit 1200

It was found that the closing inventory should have been $400.

What was the correct rate of inventory turnover?

A 6 times
B 8 times
C 9.2 times
D 14.4 times

31 The current ratio of X is 2 : 1. The current ratio of Y is 1.3 : 1.

What does a comparison of these ratios show?

A X has fewer liabilities than Y.

B X has more liquidity than Y.
C Y has fewer current assets than X.
D Y has more inventory than X.

32 Which external parties would be interested in the financial statements of a trader?

1 a bank manager considering a request by the trader for a loan

2 a trade union seeking a wage increase for the employees
3 the business manager making decisions about how to increase profits
4 the trader deciding if drawings could be increased

A 1, 3 and 4 B 1 and 2 only C 2, 3 and 4 D 2 and 3 only

33 Sabeena runs a retail business. She plans to close her business in a few weeks’ time.

How should her fixtures and fittings be valued in the statement of financial position?

A at book value
B at expected sales value
C at original cost
D at replacement cost

34 Why should a trader match his costs for a financial year with the revenues for the same period?

A to account for all liabilities

B to account for money that has been paid in advance
C to make sure outstanding income is included
D to show the correct profit figure

35 Which international accounting objectives are described by the following statements?

1 Information in financial statements must be free from material error and bias.
2 Users must be able to identify differences and similarities between information in
different financial statements.

statement 1 statement 2

A comparability understandability
B reliability comparability
C reliability understandability
D understandability reliability
1 Which statements about book-keeping and accounting are correct?

1 Accounting is performed periodically rather than daily.

2 Accounting relies on having accurate book-keeping records.
3 Book-keeping includes the preparation of financial statements.
4 Book-keeping involves the recording of financial transactions.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 2 and 4 only

2 What increases owner’s capital?

A bank loan extended from five to ten years

B purchase of inventory on credit
C purchase of machinery by cheque
D transfer of vehicle to business from private use

3 William paid $500 in cash to Sonia for rent.

How did Sonia record this?

account debited account credited

A cash rent receivable

B rent receivable cash
C rent receivable William
D William rent receivable

4 Abdul buys all his machinery on credit. He provided the following information.

at 30 April 2020 at 30 April 2021

$ $

machinery at cost 30 000 42 000

amounts owing to suppliers of machinery 19 000 ?

During the year Abdul paid $25 000 to the suppliers of his machinery.

How much did he owe them on 30 April 2021?

A $6000 B $13 000 C $17 000 D $32 000

5 Shula’s financial year ends on 31 March. On 1 April 2021 there was a credit balance of $100 on
Yasmin’s account in Shula’s purchases ledger.

What does this mean?

A Shula had paid $100 to Yasmin.

B Shula owed $100 to Yasmin.
C Yasmin had paid $100 to Shula.
D Yasmin owed $100 to Shula.

6 Hasina buys radios from Nazneen at a list price of $10 each. Hasina bought 12 radios and was
offered 20% trade discount and 4% cash discount. Two radios were faulty and were returned to
Nazneen.

What was the total of the credit note issued by Nazneen?

A $15.36 B $16.00 C $19.20 D $20.00

7 Jameel sold goods on credit.

Where did he first record the invoice he issued?

A general journal
B general ledger
C sales journal
D sales ledger

8 Which statements about a three-column cash book are correct?

1 It contains ledger accounts for bank and cash.

2 It contains ledger accounts for discounts allowed and received.
3 It records transactions before they are recorded in the ledgers.

A 1 and 2 B 1 and 3 C 2 and 3 D 3 only

9 Which statement is not true about a trial balance?

A It is a list of ledger account balances at a certain date.

B It can assist in finding arithmetical errors.
C It is part of the double entry system.
D It is useful in preparing financial statements.

[Turn over
10 Which error is an error of original entry?

A sale of surplus office equipment on credit to Janet for $230 entered as $320 in both the
disposal account and Janet’s account
B sale of surplus office equipment on credit to Janet for $230 entered in the office equipment
account and Jason’s account
C sale of surplus office equipment on credit to Janet for $230 entered in the sales account and
Janet’s account
D sale of surplus office equipment on credit to Janet for $230 not entered in any accounts

11 A cheque, $85, received from Shakeel, was credited to the account of Shamz.

Which journal entry corrects this error?

debit credit
$ $
A bank 85
Shakeel 85
B Shakeel 85
Shamz 85
C Shamz 85
bank 85
D Shamz 85
Shakeel 85

12 Jamal’s bank statement at 1 May 2021 showed a bank overdraft of $1460.

At that date there were unpresented cheques of $385 and uncredited deposits of $255.

What was the cash book balance on 1 May 2021?

A $1330 credit
B $1330 debit
C $1590 credit
D $1590 debit

13 What is included in a purchases ledger control account?

A cash purchases
B debts written off as irrecoverable
C discount allowed
D goods returned to credit suppliers
14 Javid’s sales ledger control account had a debit balance of $12 000. Interest on an overdue
account, $40, and discount allowed, $150, had been omitted.

What was the correct balance on the sales ledger control account?

A $11 810 B $11 890 C $12 110 D $12 190

15 Which statements about capital expenditure are correct?

1 It is money spent on day-to-day business operations.

2 It is money spent on purchasing non-current assets.
3 It is recorded in the statement of financial position.
4 It includes expenses relating to non-current assets.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

16 Nia sold equipment with a net book value of $200. The proceeds of the sale, $250, were credited
to the sales account and debited in the cash book.

What was the effect of this error on Nia’s gross profit and profit for the year?

gross profit $ profit for the year $

A overstated 50 overstated 50
B overstated 200 understated 250
C overstated 250 overstated 200
D understated 250 understated 200

17 Why does a business provide for depreciation on non-current assets?

A to charge the cost of non-current assets against profit in the year of purchase
B to ensure that non-current assets appear at book value in the statement of financial position
C to ensure that the matching principle is applied when preparing financial statements
D to retain cash in the business for replacement of non-current assets

18 A machine with an original cost of $10 000 had been depreciated for two years at the rate of 10%
per annum using the straight-line basis. It was then sold for cash with the loss on disposal
amounting to $700.

A replacement machine was bought on the same day for $12 400 cash.

What was the net decrease in the cash balance?

A $3700 B $5100 C $11 700 D $13 100

[Turn over
19 Why would a bakery business not include a value for inventory of stationery in the statement of
financial position?

A It was expected it would be used in the next few months.

B It was purchased regularly and paid for in cash.
C It was not for resale.
D It was of very low value.

20 Shilpa’s financial year ends on 30 April. On 31 March 2021 she wrote off a debt owed by Tahir as
irrecoverable.

Which entry did Shilpa make on 31 March 2021?

debit credit

A income statement Tahir

B irrecoverable debts income statement
C irrecoverable debts Tahir
D Tahir irrecoverable debts

21 How should inventory be valued?

A cost
B higher of cost and net realisable value
C lower of cost and net realisable value
D net realisable value

22 James is an accountant and operates as a sole trader.

Which items would not appear in his statement of financial position?

1 long-term loan
2 retained earnings
3 trade payables

A 1 and 2 B 1 and 3 C 2 only D 2 and 3

23 Zaha is a consultant who receives fees from clients.

How would Zaha calculate his profit for the year?

A fees received – cost of sales

B fees received – cost of sales + expenses

C fees received + expenses
D fees received – expenses

24 What is added to owner’s capital to calculate capital employed?

A current assets
B current liabilities
C non-current assets
D non-current liabilities

25 What is an advantage of forming a partnership?

A Decisions have to be recognised by all partners.

B Each partner is responsible for actions of other partners.
C Profits have to be shared among the partners.
D Responsibilities can be shared between the partners.

26 Ann and Ben are in partnership sharing profits and losses equally.

They provided the following information for the year ended 30 April 2021.

profit for the year 20 000

interest on capital: Ann 5 000
Ben 4 000
drawings: Ann 8 000
Ben 7 000

What was Ben’s share of the residual profit?

A $5500 B $10 000 C $13 000 D $14 500

[Turn over
27 Which statement about a receipts and payments account is incorrect?

A It includes amounts prepaid at the end of the year.

B It shows the surplus for the year.
C Non-monetary items are excluded.
D The balance represents cash and bank balances.

28 How does a manufacturer calculate prime cost?

A direct material + direct labour

B direct material + direct labour + direct expenses
C direct material + direct labour + direct expenses + factory overheads
D direct material + direct labour + factory overheads

29 Nula provided the following information for the year ended 31 March 2021.

drawings for the year 3 900

net assets at 1 April 2020 60 500
net assets at 31 March 2021 72 275

What was the profit or loss for the year ended 31 March 2021?

A $7875 loss
B $7875 profit
C $15 675 loss
D $15 675 profit

30 A trader provided the following information.

cost of sales 80 000

expenses 4 000
profit for the year 16 000

What was the profit margin?

A 16% B 20% C 21.05% D 26.67%

31 A trader provided the following information.

$ $

revenue 3600
opening inventory 100
purchases 2600
2700
closing inventory 300 2400
gross profit 1200

It was found that the closing inventory should have been $400.

What was the correct rate of inventory turnover?

A 6 times
B 8 times
C 9.2 times
D 14.4 times

32 Sally’s business has reached the overdraft limit set by the bank of $1500 and is not able to pay its
debts when they fall due.

Sally is considering the following proposals.

1 asking the bank to increase the bank overdraft limit to $2000

2 borrowing $2000 from a relative and paying the money back in six months
3 obtaining a loan from the bank of $2000 repayable in two years
4 paying $2000 from Sally’s personal bank account into the business bank account

Which proposals will improve the working capital of the business?

A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

[Turn over
33 Company X and Company Y provided the following information.

Company X Company Y

gross margin 36.7% 42.6%

profit margin 5.4% 5.4%

Which statement is correct?

A Both companies earned the same amount of profit for the year.
B Company X had a better gross margin than Company Y.
C Company Y had a larger proportion of expenses than Company X.
D The cost of sales of Company X was lower than that of Company Y.

34 The current ratio of X is 2 : 1. The current ratio of Y is 1.3 : 1.

What does a comparison of these ratios show?

A X has fewer liabilities than Y.

B X has more liquidity than Y.
C Y has fewer current assets than X.
D Y has more inventory than X.

35 Which international accounting objectives are described by the following statements?

1 Information in financial statements must be free from material error and bias.
2 Users must be able to identify differences and similarities between information in
different financial statements.

statement 1 statement 2

A comparability understandability
B reliability comparability
C reliability understandability
D understandability reliability
1 Which statements about book-keeping and accounting are correct?

1 Accounting is performed periodically rather than daily.

2 Accounting relies on having accurate book-keeping records.
3 Book-keeping includes the preparation of financial statements.
4 Book-keeping involves the recording of financial transactions.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 2 and 4 only

2 What increases owner’s capital?

A bank loan extended from five to ten years

B purchase of inventory on credit
C purchase of machinery by cheque
D transfer of vehicle to business from private use

3 William paid $500 in cash to Sonia for rent.

How did Sonia record this?

account debited account credited

A cash rent receivable

B rent receivable cash
C rent receivable William
D William rent receivable

4 Abdul buys all his machinery on credit. He provided the following information.

at 30 April 2020 at 30 April 2021

$ $

machinery at cost 30 000 42 000

amounts owing to suppliers of machinery 19 000 ?

During the year Abdul paid $25 000 to the suppliers of his machinery.

How much did he owe them on 30 April 2021?

A $6000 B $13 000 C $17 000 D $32 000

5 Shula’s financial year ends on 31 March. On 1 April 2021 there was a credit balance of $100 on
Yasmin’s account in Shula’s purchases ledger.

What does this mean?

A Shula had paid $100 to Yasmin.

B Shula owed $100 to Yasmin.
C Yasmin had paid $100 to Shula.
D Yasmin owed $100 to Shula.

6 Hasina buys radios from Nazneen at a list price of $10 each. Hasina bought 12 radios and was
offered 20% trade discount and 4% cash discount. Two radios were faulty and were returned to
Nazneen.

What was the total of the credit note issued by Nazneen?

A $15.36 B $16.00 C $19.20 D $20.00

7 Jameel sold goods on credit.

Where did he first record the invoice he issued?

A general journal
B general ledger
C sales journal
D sales ledger

8 Which statements about a three-column cash book are correct?

1 It contains ledger accounts for bank and cash.

2 It contains ledger accounts for discounts allowed and received.
3 It records transactions before they are recorded in the ledgers.

A 1 and 2 B 1 and 3 C 2 and 3 D 3 only

9 Which statement is not true about a trial balance?

A It is a list of ledger account balances at a certain date.

B It can assist in finding arithmetical errors.
C It is part of the double entry system.
D It is useful in preparing financial statements.

[Turn over
10 Which error is an error of original entry?

A sale of surplus office equipment on credit to Janet for $230 entered as $320 in both the
disposal account and Janet’s account
B sale of surplus office equipment on credit to Janet for $230 entered in the office equipment
account and Jason’s account
C sale of surplus office equipment on credit to Janet for $230 entered in the sales account and
Janet’s account
D sale of surplus office equipment on credit to Janet for $230 not entered in any accounts

11 A cheque, $85, received from Shakeel, was credited to the account of Shamz.

Which journal entry corrects this error?

debit credit
$ $
A bank 85
Shakeel 85
B Shakeel 85
Shamz 85
C Shamz 85
bank 85
D Shamz 85
Shakeel 85

12 Jamal’s bank statement at 1 May 2021 showed a bank overdraft of $1460.

At that date there were unpresented cheques of $385 and uncredited deposits of $255.

What was the cash book balance on 1 May 2021?

A $1330 credit
B $1330 debit
C $1590 credit
D $1590 debit

13 What is included in a purchases ledger control account?

A cash purchases
B debts written off as irrecoverable
C discount allowed
D goods returned to credit suppliers
14 Javid’s sales ledger control account had a debit balance of $12 000. Interest on an overdue
account, $40, and discount allowed, $150, had been omitted.

What was the correct balance on the sales ledger control account?

A $11 810 B $11 890 C $12 110 D $12 190

15 Which statements about capital expenditure are correct?

1 It is money spent on day-to-day business operations.

2 It is money spent on purchasing non-current assets.
3 It is recorded in the statement of financial position.
4 It includes expenses relating to non-current assets.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

16 Nia sold equipment with a net book value of $200. The proceeds of the sale, $250, were credited
to the sales account and debited in the cash book.

What was the effect of this error on Nia’s gross profit and profit for the year?

gross profit $ profit for the year $

A overstated 50 overstated 50
B overstated 200 understated 250
C overstated 250 overstated 200
D understated 250 understated 200

17 Why does a business provide for depreciation on non-current assets?

A to charge the cost of non-current assets against profit in the year of purchase
B to ensure that non-current assets appear at book value in the statement of financial position
C to ensure that the matching principle is applied when preparing financial statements
D to retain cash in the business for replacement of non-current assets

18 A machine with an original cost of $10 000 had been depreciated for two years at the rate of 10%
per annum using the straight-line basis. It was then sold for cash with the loss on disposal
amounting to $700.

A replacement machine was bought on the same day for $12 400 cash.

What was the net decrease in the cash balance?

A $3700 B $5100 C $11 700 D $13 100

[Turn over
19 Why would a bakery business not include a value for inventory of stationery in the statement of
financial position?

A It was expected it would be used in the next few months.

B It was purchased regularly and paid for in cash.
C It was not for resale.
D It was of very low value.

20 Shilpa’s financial year ends on 30 April. On 31 March 2021 she wrote off a debt owed by Tahir as
irrecoverable.

Which entry did Shilpa make on 31 March 2021?

debit credit

A income statement Tahir

B irrecoverable debts income statement
C irrecoverable debts Tahir
D Tahir irrecoverable debts

21 How should inventory be valued?

A cost
B higher of cost and net realisable value
C lower of cost and net realisable value
D net realisable value

22 James is an accountant and operates as a sole trader.

Which items would not appear in his statement of financial position?

1 long-term loan
2 retained earnings
3 trade payables

A 1 and 2 B 1 and 3 C 2 only D 2 and 3

23 Zaha is a consultant who receives fees from clients.

How would Zaha calculate his profit for the year?

A fees received – cost of sales

B fees received – cost of sales + expenses

C fees received + expenses
D fees received – expenses

24 What is added to owner’s capital to calculate capital employed?

A current assets
B current liabilities
C non-current assets
D non-current liabilities

25 What is an advantage of forming a partnership?

A Decisions have to be recognised by all partners.

B Each partner is responsible for actions of other partners.
C Profits have to be shared among the partners.
D Responsibilities can be shared between the partners.

26 Ann and Ben are in partnership sharing profits and losses equally.

They provided the following information for the year ended 30 April 2021.

profit for the year 20 000

interest on capital: Ann 5 000
Ben 4 000
drawings: Ann 8 000
Ben 7 000

What was Ben’s share of the residual profit?

A $5500 B $10 000 C $13 000 D $14 500

[Turn over
27 Which statement about a receipts and payments account is incorrect?

A It includes amounts prepaid at the end of the year.

B It shows the surplus for the year.
C Non-monetary items are excluded.
D The balance represents cash and bank balances.

28 How does a manufacturer calculate prime cost?

A direct material + direct labour

B direct material + direct labour + direct expenses
C direct material + direct labour + direct expenses + factory overheads
D direct material + direct labour + factory overheads

29 Nula provided the following information for the year ended 31 March 2021.

drawings for the year 3 900

net assets at 1 April 2020 60 500
net assets at 31 March 2021 72 275

What was the profit or loss for the year ended 31 March 2021?

A $7875 loss
B $7875 profit
C $15 675 loss
D $15 675 profit

30 A trader provided the following information.

cost of sales 80 000

expenses 4 000
profit for the year 16 000

What was the profit margin?

A 16% B 20% C 21.05% D 26.67%

31 A trader provided the following information.

$ $

revenue 3600
opening inventory 100
purchases 2600
2700
closing inventory 300 2400
gross profit 1200

It was found that the closing inventory should have been $400.

What was the correct rate of inventory turnover?

A 6 times
B 8 times
C 9.2 times
D 14.4 times

32 Sally’s business has reached the overdraft limit set by the bank of $1500 and is not able to pay its
debts when they fall due.

Sally is considering the following proposals.

1 asking the bank to increase the bank overdraft limit to $2000

2 borrowing $2000 from a relative and paying the money back in six months
3 obtaining a loan from the bank of $2000 repayable in two years
4 paying $2000 from Sally’s personal bank account into the business bank account

Which proposals will improve the working capital of the business?

A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

[Turn over
33 Company X and Company Y provided the following information.

Company X Company Y

gross margin 36.7% 42.6%

profit margin 5.4% 5.4%

Which statement is correct?

A Both companies earned the same amount of profit for the year.
B Company X had a better gross margin than Company Y.
C Company Y had a larger proportion of expenses than Company X.
D The cost of sales of Company X was lower than that of Company Y.

34 The current ratio of X is 2 : 1. The current ratio of Y is 1.3 : 1.

What does a comparison of these ratios show?

A X has fewer liabilities than Y.

B X has more liquidity than Y.
C Y has fewer current assets than X.
D Y has more inventory than X.

35 Which international accounting objectives are described by the following statements?

1 Information in financial statements must be free from material error and bias.
2 Users must be able to identify differences and similarities between information in
different financial statements.

statement 1 statement 2

A comparability understandability
B reliability comparability
C reliability understandability
D understandability reliability
1 Which task would be carried out by a book-keeper?

A comparison of financial statements between years

B preparation of financial statements
C provision of information for decision-making
D recording financial transactions

2 What is the accounting equation?

A assets = capital – liabilities

B assets = liabilities – capital
C assets – liabilities = capital
D assets + capital = liabilities

3 Sarah sold goods on credit to Zafar.

How was this recorded in Sarah’s ledgers?

general ledger sales ledger

A credit sales account debit Zafar account

B debit sales account credit Zafar account
C credit Zafar account debit sales account
D debit Zafar account credit sales account

4 Omar sent a credit note to Miriam for goods returned.

How would Miriam record this transaction?

account to be debited account to be credited

A purchases returns Omar

B sales returns Miriam
C Omar purchases returns
D Miriam sales returns

5 The discount column on the debit side of a trader’s cash book totalled $1300 and the discount
column on the credit side totalled $700.

How much discount did the trader receive?

A $600 B $700 C $1300 D $2000

6 Kai bought office equipment from Meena and paid immediately by bank transfer.

How should Kai record this in his accounting records?

account to be debited account to be credited

A bank Meena
B bank office equipment
C Meena bank
D office equipment bank

7 Jabari maintains a petty cash book using the imprest system. The imprest is restored at the end
of each month.

Which amount restores the imprest at the end of a month?

A the amount left in petty cash less the total of vouchers received
B the amount left in petty cash plus the total of vouchers received
C the imprest amount less the total of vouchers received
D the total of vouchers received

8 Which statement about a trial balance is correct?

A It assists in locating arithmetical errors in the book-keeping records.

B It is proof that the entries in the ledger accounts are free from error.
C It reveals all book-keeping errors.
D It shows ledger account errors only.

9 What is an example of a compensating error?

A A payment for office equipment repairs was debited to the office equipment account.
B A purchase of goods from C Jones was credited to the account of C Johns.
C The sale of goods, $65, to A Aziz was entered in the books as $56.
D The wages account was undercast by $100 and the rent account was overcast by $100.

[Turn over
10 After the preparation of Abdul’s draft financial statements, two errors were discovered.

The purchase of a machine by bank transfer, $5000, was omitted from the accounts.
The purchase of a motor vehicle, $15 000, was entered in the motor vehicle repair
account.

What effect will correcting these errors have on the non-current assets and the working capital?

non-current assets working capital

$ $

A increase 15 000 decrease 5000

B increase 15 000 no effect
C increase 20 000 decrease 5000
D increase 20 000 no effect

11 Raj had a debit balance of $10 800 in the bank column of his cash book. He discovered that
purchases, $890, paid by cheque, had been recorded as $980.

The following appeared in the bank statement but had not been entered in the cash book.

bank charges 76
interest received 120

What was the debit balance in the bank column of Raj’s cash book after adjusting for these
items?

A $10 514 B $10 666 C $10 754 D $10 934

12 Why is a sales ledger control account usually prepared by a different member of staff than the
person who maintains the sales ledger?

A to deter fraud
B to locate errors
C to provide an instant total of trade receivables
D to speed production of financial statements
13 Tamal provided the following information for March, his first month of trading.

credit purchases 9100

credit purchases returned 322
total payments to credit suppliers 5358

During the month, Tamal overpaid a supplier by $94. He did not make any further purchases from
this supplier in March.

What were the balances on Tamal’s purchases ledger control account on 1 April?

debit balance credit balance

$ $

A 0 3420
B 0 3514
C 94 3420
D 94 3514

14 The following payments were made by John when he purchased a machine.

purchase of machine 10 000

delivery charge 1 200
insurance 800
installation charge 900
pre-paid maintenance charge 400

How much should have been debited to the machinery account?

A $10 900 B $11 200 C $12 100 D $12 500

[Turn over
15 On 1 January, Zac entered the cost of repairing equipment, $420, in the equipment account.

On 31 December, depreciation of 20% per annum, using the straight-line method, was charged
on the balance of the equipment account.

What was the overall effect on the book value of the equipment on 31 December?

A $84 understated
B $336 overstated
C $420 overstated
D $504 understated

16 Atif depreciates his motor vehicles at a rate of 20% per annum using the reducing balance
method.

On 1 May 2021, Atif owned motor vehicles which cost $35 000. At that date, the motor vehicles
had been depreciated by $12 600.

What was the balance on Atif’s provision for depreciation account on 1 May 2022?

A $17 080 B $17 920 C $19 600 D $22 400

17 The financial year of Yeung ends on 31 March. On 1 April 2021, he purchased a machine for
$4000.

He estimated that it would have a useful working life of 3 years and a residual value of $100.
Yeung uses the straight-line method of depreciation.

The machine was sold on 1 April 2022 for $1500.

What was the loss on disposal?

A $1100 B $1200 C $2400 D $2500

18 On 1 April 2021, commission receivable, $210, was outstanding. Commission received during the
year ended 31 March 2022 amounted to $4850.

Which journal entry should have been made at the end of the financial year on 31 March 2022?

debit credit
$ $

A commission receivable 4640

income statement 4640
B commission receivable 5060
income statement 5060
C income statement 4640
commission receivable 4640
D income statement 5060
commission receivable 5060

19 Which statement about a debts recovered account is correct?

A The account is used when an amount, previously written off, is received from a customer.
B The account is used when doubtful debts are recovered.
C The balance of the account is debited to the income statement at the end of the year.
D The balance of the account is shown in the statement of financial position.

20 Nula’s financial year ends on 31 December. She maintains a provision for doubtful debts of 5%
of trade receivables.

On 1 January 2021, the provision amounted to $800. On 31 December 2021, trade receivables
owed $13 400, of which $600 was regarded as irrecoverable.

How much was the provision for doubtful debts on 1 January 2022?

A $600 B $640 C $660 D $670

[Turn over
21 When preparing his financial statements, a trader valued his inventory at cost.

He then found that 10 units of inventory, costing $12 per unit, were damaged. If he spent $2 per
unit on repairs, he could sell them for $9 each.

What was the effect on the income statement of the incorrect inventory valuation?

gross profit profit for the year

A overstated $30 no effect

B overstated $50 overstated $50
C understated $30 no effect
D understated $50 understated $50

22 At the end of his financial year, Marek was owed $200 for interest on a loan he had made to an
employee. He recorded this in his financial statements.

How did the interest on this loan affect Marek’s profit for the year and where was it recorded in
his statement of financial position?

statement of
profit for the year
financial position

A decreased current assets

B decreased current liabilities
C increased current assets
D increased current liabilities

23 What is the purpose of preparing a partnership appropriation account?

A to calculate the interest to be charged on the drawings made by each partner

B to calculate the interest to be paid on the capital invested by each partner
C to show the amount of salary to which each partner is entitled
D to show the division of the profit or loss for the year between the partners

24 Raj and Seema are in partnership sharing profits and losses 2 : 1.

Raj withdrew $5000 during the year and was charged interest at 3%. Seema did not make any
withdrawals during the year.

The profit for the year was $30 000.

How much was credited to Raj’s current account at the end of the year?

A $19 850 B $19 900 C $20 000 D $20 100

25 A limited company raised funds from an issue of debentures.

Which statement is correct?

A The debentures are part of the equity of the company.

B The debenture holders cannot vote at the annual general meeting.
C The debenture holders are repaid only if the company is wound up.
D The debenture interest is paid only if the company earns a profit.

26 A limited company provided the following information.

total equity on 1 January 2021 500 000

ordinary share dividend paid 30 June 2021 25 000
transfer to general reserve on 31 December 2021 12 000
total equity on 31 December 2021 558 000

What was the profit for the year?

A $46 000 B $58 000 C $83 000 D $95 000

27 Which group contains only items included in the prime cost of a manufacturer?

A direct expenses, depreciation of factory machinery, royalties

B direct wages, factory supervisor’s wages, factory insurance
C factory overheads, raw materials, direct expenses
D raw materials, royalties, direct labour

28 The work in progress of ZT Manufacturers on 1 January was valued at $6200. At the end of the
year it was valued at $5400.

What was the effect on the cost of production for the year?

A decrease $800
B decrease $11 600
C increase $800
D increase $11 600

[Turn over
29 A trader does not keep full accounting records but was able to provide the following information.

capital at 1 January 2021 26 000

capital at 31 December 2021 37 000
drawings made during year 6 500

During the year, $9500 was withdrawn from the owner’s private bank account to purchase a
motor vehicle to be used by the business.

What was the profit for the year?

A $8000 B $11 000 C $14 000 D $17 500

30 A business provided the following information.

opening inventory $6800

closing inventory $6000
rate of inventory turnover 5 times

What were the purchases for the year?

A $29 200 B $31 200 C $32 000 D $32 800

31 Jerry started his business on 1 January 2022 with no opening inventory. On 19 April 2022, a fire
destroyed all his inventory.

Jerry provided the following information for the period 1 January 2022 to 19 April 2022.

revenue $30 200

purchases $25 600
gross margin 25%

What was the value of inventory destroyed on 19 April 2022?

A $1800 B $2950 C $3450 D $5750

32 A trader provided the following information.

profit for the year 24 000

working capital 20 000
capital 120 000
non-current liability 30 000

What was the return on capital employed?

A 14.12% B 16.00% C 17.14% D 20.00%

33 Which actions could a clothing retailer take to improve his rate of inventory turnover?

1 increase the selling prices of all clothing

2 offer discounts on last year’s designs
3 pay clothing suppliers as quickly as possible

A 1 and 3 only B 1, 2 and 3 C 2 only D 3 only

34 A trader is considering selling goods on credit to a new customer.

What could be calculated from the customer’s financial statements to indicate the time normally
taken to pay for goods purchased on credit?

A current ratio
B liquid (acid test) ratio
C trade payables turnover
D trade receivables turnover

35 Which accounting policy requires that the information in financial statements is free from
significant errors and bias?

A comparability
B consistency
C reliability
D understandability
1 Which task would be carried out by a book-keeper?

A comparison of financial statements between years

B preparation of financial statements
C provision of information for decision-making
D recording financial transactions

2 The following ledger account appeared in the books of Leah, a trader.

Amraz account
$ $

April 26 purchases returns 150 April 1 balance b / d 2100

30 bank 1900 20 purchases 3000
discount 100
balance c / d 2950 ____
5100 5100

Which statement is correct?

A Amraz allowed Leah $100 trade discount on 30 April.

B Amraz owed Leah $2100 on 1 April.
C Leah owed Amraz $2950 on 30 April.
D Leah’s net purchases from Amraz in April were $2900.

3 Sarah sold goods on credit to Zafar.

How was this recorded in Sarah’s ledgers?

general ledger sales ledger

A credit sales account debit Zafar account

B debit sales account credit Zafar account
C credit Zafar account debit sales account
D debit Zafar account credit sales account
4 Omar sent a credit note to Miriam for goods returned.

How would Miriam record this transaction?

account to be debited account to be credited

A purchases returns Omar

B sales returns Miriam
C Omar purchases returns
D Miriam sales returns

5 Ben sold goods to David for $900 cash.

In which book of prime entry would David record this transaction?

A cash book
B general journal
C purchases journal
D sales journal

6 A petty cashier received $100 from the chief cashier and $10 from an employee who had made
private calls on the business telephone.

How would these amounts be recorded in the petty cash book and the cash book?

debit petty credit petty debit credit

cash book cash book cash book cash book
$ $ $ $

A 0 110 100 0
B 10 100 0 100
C 100 10 0 100
D 110 0 0 100

7 What is an example of a compensating error?

A A payment for office equipment repairs was debited to the office equipment account.
B A purchase of goods from C Jones was credited to the account of C Johns.
C The sale of goods, $65, to A Aziz was entered in the books as $56.
D The wages account was undercast by $100 and the rent account was overcast by $100.

[Turn over
8 After the preparation of Abdul’s draft financial statements, two errors were discovered.

The purchase of a machine by bank transfer, $5000, was omitted from the accounts.
The purchase of a motor vehicle, $15 000, was entered in the motor vehicle repair
account.

What effect will correcting these errors have on the non-current assets and the working capital?

non-current assets working capital

$ $

A increase 15 000 decrease 5000

B increase 15 000 no effect
C increase 20 000 decrease 5000
D increase 20 000 no effect

9 Why is a sales ledger control account usually prepared by a different member of staff than the
person who maintains the sales ledger?

A to deter fraud
B to locate errors
C to provide an instant total of trade receivables
D to speed production of financial statements

10 What would be recorded on the credit side of a sales ledger control account?

A cash refunded to credit customers

B credit sales
C interest charged on overdue accounts
D sales returns

11 Maria’s draft income statement for the year ended 31 March 2022 showed a profit for the year of
$38 750.

On 31 December 2021, Maria received a 5% bank loan of $4800 which was incorrectly treated
as a revenue receipt.

In error, a whole year’s interest on the bank loan was included in the draft income statement for
the year ended 31 March 2022.

What was the correct profit for the year ended 31 March 2022?

A $33 770 B $34 130 C $43 370 D $43 730

12 Which statement about the reducing balance method of depreciation is not correct?

A A lower amount of depreciation is charged in the early years of the asset’s life than in the
later years.
B Each year a given percentage is deducted from the cost of the asset less the depreciation to
date.
C It is used for assets which give greater benefits in the early years of their life.
D The net book value of the non-current asset will never reach a nil value.

13 The financial year of Yeung ends on 31 March. On 1 April 2021, he purchased a machine for
$4000.

He estimated that it would have a useful working life of 3 years and a residual value of $100.
Yeung uses the straight-line method of depreciation.

The machine was sold on 1 April 2022 for $1500.

What was the loss on disposal?

A $1100 B $1200 C $2400 D $2500

14 On 1 April 2021, commission receivable, $210, was outstanding. Commission received during the
year ended 31 March 2022 amounted to $4850.

Which journal entry should have been made at the end of the financial year on 31 March 2022?

debit credit
$ $

A commission receivable 4640

income statement 4640
B commission receivable 5060
income statement 5060
C income statement 4640
commission receivable 4640
D income statement 5060
commission receivable 5060

15 Nula’s financial year ends on 31 December. She maintains a provision for doubtful debts of 5%
of trade receivables.

On 1 January 2021, the provision amounted to $800. On 31 December 2021, trade receivables
owed $13 400, of which $600 was regarded as irrecoverable.

How much was the provision for doubtful debts on 1 January 2022?

A $600 B $640 C $660 D $670

[Turn over
16 After the financial statements for the year ended 30 April 2022 had been prepared, a trader
discovered that the closing inventory had been over-valued.

What will be the effect of this error?

profit for the year capital on profit for the year

ended 30 April 2022 30 April 2022 ending 30 April 2023

A overstated overstated understated

B overstated understated no effect
C understated no effect no effect
D understated understated overstated

17 Mariam owns a business providing accounting services. She provided the following information
for the financial year ended 31 March 2022.

fees owed by clients on 1 April 2021 4 500

fees received from clients during the year ended 31 March 2022 22 500
fees owed by clients on 31 March 2022 1 500

What was the amount of fees shown in the income statement for the year ended 31 March 2022?

A $19 500 B $22 500 C $25 500 D $28 500

18 Which item would not appear in the appropriation account of a partnership?

A interest charged on partners’ drawings

B interest paid on loans from partners
C interest paid on partners’ capital
D salaries paid to partners

19 Carol and Denise are in partnership sharing profits and losses in the ratio 2 : 1.

Denise’s current account balances were as follows.

at 1 May 2021 $2000 debit

at 1 May 2022 $7000 credit

She had made no drawings during the year.

What was the total profit made by the partnership in the year ended 30 April 2022?

A $9000 B $15 000 C $18 000 D $27 000

20 Which statements are correct?

1 A debenture holder of a limited company is liable for the debts of the company.
2 A partner is liable to pay business debts from personal assets.
3 A shareholder of a limited company is responsible for the company’s debts.
4 A sole trader is responsible for all the debts of his business.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

21 The draft financial statements of a limited company showed retained earnings of $31 820. It was
then found that no adjustment had been made for the following.

commission receivable accrued 450

insurance prepaid 175

What was the correct amount of the retained earnings?

A $31 195 B $31 545 C $32 095 D $32 445

22 Which statement about club accounts is correct?

A Capital and revenue transactions are recorded in the income and expenditure account.
B Non-cash transactions are recorded in the income and expenditure account.
C Only revenue transactions are recorded in the receipts and payments account.
D The closing balance in the receipts and payments account represents a surplus or deficit.

23 A sports club provided the following information for the financial year ended 31 December 2021.

1 January 2021 subscriptions paid in advance 200

31 December 2021 subscriptions outstanding 450
subscriptions received during the year 8800

What was the total of the subscriptions that related to the year ended 31 December 2021?

A $8150 B $8550 C $9050 D $9450

[Turn over
24 The work in progress of ZT Manufacturers on 1 January was valued at $6200. At the end of the
year it was valued at $5400.

What was the effect on the cost of production for the year?

A decrease $800
B decrease $11 600
C increase $800
D increase $11 600

25 A manufacturing company provided the following information.

cost of production 345 000

finished goods 1 January 2021 42 000
31 December 2021 36 000
purchases of finished goods 15 000

What was the cost of sales?

A $324 000 B $336 000 C $351 000 D $366 000

26 Tahir provided the following information for his first year of trading.

sales 170 000

sales returns 6 000
purchases 129 000

Tahir’s gross margin was 25%.

What was the value of closing inventory?

A $1000 B $2200 C $6000 D $7500

27 A business provided the following information.

opening inventory $6800

closing inventory $6000
rate of inventory turnover 5 times

What were the purchases for the year?

A $29 200 B $31 200 C $32 000 D $32 800

28 A trader provided the following information at the end of the financial year.

revenue 80 000
gross profit 20 000
expenses 12 000

What was the profit margin?

A 10% B 15% C 25% D 40%

29 A trader provided the following information.

profit for the year 24 000

working capital 20 000
capital 120 000
non-current liability 30 000

What was the return on capital employed?

A 14.12% B 16.00% C 17.14% D 20.00%

30 Samuel, a trader, decided to issue statements of account each month.

Which ratio does Samuel hope to improve by doing this?

A current ratio
B liquid (acid test) ratio
C trade payables turnover
D trade receivables turnover

31 John’s rate of inventory turnover was 10 times in year 1 and 8 times in year 2.

What may have caused the change in the rate of inventory turnover?

A fall in demand
B higher sales
C lower inventory levels
D lower selling price

[Turn over
32 Maya had annual revenue of $100 000.

In year 1, her gross margin was 45% and her profit margin was 5%.

In year 2, her gross margin was 40% and her profit margin was 3%.

What happened to Maya’s cost of sales and expenses in year 2?

cost of sales expenses

A decreased decreased
B decreased increased
C increased decreased
D increased increased

33 Why would a bank manager be interested in the financial statements of a business?

A to calculate and assess the trade payables turnover

B to check that the correct amount of tax is being paid
C to ensure that employees are being paid the correct hourly rate
D to ensure that funds are sufficient to cover loan interest

34 ‘Revenue should only be regarded as earned when the legal title of goods and services passes
from the seller to the buyer.’

To which accounting principle does this statement refer?

A going concern
B matching
C money measurement
D realisation

35 ‘The information provided in financial statements should be capable of being independently

verified.’

To which accounting policy does this statement refer?

A comparability
B relevance
C reliability
D understandability
1 Which task would be carried out by a book-keeper?

A comparison of financial statements between years

B preparation of financial statements
C provision of information for decision-making
D recording financial transactions

2 The following ledger account appeared in the books of Leah, a trader.

Amraz account
$ $

April 26 purchases returns 150 April 1 balance b / d 2100

30 bank 1900 20 purchases 3000
discount 100
balance c / d 2950 ____
5100 5100

Which statement is correct?

A Amraz allowed Leah $100 trade discount on 30 April.

B Amraz owed Leah $2100 on 1 April.
C Leah owed Amraz $2950 on 30 April.
D Leah’s net purchases from Amraz in April were $2900.

3 Sarah sold goods on credit to Zafar.

How was this recorded in Sarah’s ledgers?

general ledger sales ledger

A credit sales account debit Zafar account

B debit sales account credit Zafar account
C credit Zafar account debit sales account
D debit Zafar account credit sales account
4 Omar sent a credit note to Miriam for goods returned.

How would Miriam record this transaction?

account to be debited account to be credited

A purchases returns Omar

B sales returns Miriam
C Omar purchases returns
D Miriam sales returns

5 Ben sold goods to David for $900 cash.

In which book of prime entry would David record this transaction?

A cash book
B general journal
C purchases journal
D sales journal

6 A petty cashier received $100 from the chief cashier and $10 from an employee who had made
private calls on the business telephone.

How would these amounts be recorded in the petty cash book and the cash book?

debit petty credit petty debit credit

cash book cash book cash book cash book
$ $ $ $

A 0 110 100 0
B 10 100 0 100
C 100 10 0 100
D 110 0 0 100

7 What is an example of a compensating error?

A A payment for office equipment repairs was debited to the office equipment account.
B A purchase of goods from C Jones was credited to the account of C Johns.
C The sale of goods, $65, to A Aziz was entered in the books as $56.
D The wages account was undercast by $100 and the rent account was overcast by $100.

[Turn over
8 After the preparation of Abdul’s draft financial statements, two errors were discovered.

The purchase of a machine by bank transfer, $5000, was omitted from the accounts.
The purchase of a motor vehicle, $15 000, was entered in the motor vehicle repair
account.

What effect will correcting these errors have on the non-current assets and the working capital?

non-current assets working capital

$ $

A increase 15 000 decrease 5000

B increase 15 000 no effect
C increase 20 000 decrease 5000
D increase 20 000 no effect

9 Why is a sales ledger control account usually prepared by a different member of staff than the
person who maintains the sales ledger?

A to deter fraud
B to locate errors
C to provide an instant total of trade receivables
D to speed production of financial statements

10 What would be recorded on the credit side of a sales ledger control account?

A cash refunded to credit customers

B credit sales
C interest charged on overdue accounts
D sales returns

11 Maria’s draft income statement for the year ended 31 March 2022 showed a profit for the year of
$38 750.

On 31 December 2021, Maria received a 5% bank loan of $4800 which was incorrectly treated
as a revenue receipt.

In error, a whole year’s interest on the bank loan was included in the draft income statement for
the year ended 31 March 2022.

What was the correct profit for the year ended 31 March 2022?

A $33 770 B $34 130 C $43 370 D $43 730

12 Which statement about the reducing balance method of depreciation is not correct?

A A lower amount of depreciation is charged in the early years of the asset’s life than in the
later years.
B Each year a given percentage is deducted from the cost of the asset less the depreciation to
date.
C It is used for assets which give greater benefits in the early years of their life.
D The net book value of the non-current asset will never reach a nil value.

13 The financial year of Yeung ends on 31 March. On 1 April 2021, he purchased a machine for
$4000.

He estimated that it would have a useful working life of 3 years and a residual value of $100.
Yeung uses the straight-line method of depreciation.

The machine was sold on 1 April 2022 for $1500.

What was the loss on disposal?

A $1100 B $1200 C $2400 D $2500

14 On 1 April 2021, commission receivable, $210, was outstanding. Commission received during the
year ended 31 March 2022 amounted to $4850.

Which journal entry should have been made at the end of the financial year on 31 March 2022?

debit credit
$ $

A commission receivable 4640

income statement 4640
B commission receivable 5060
income statement 5060
C income statement 4640
commission receivable 4640
D income statement 5060
commission receivable 5060

15 Nula’s financial year ends on 31 December. She maintains a provision for doubtful debts of 5%
of trade receivables.

On 1 January 2021, the provision amounted to $800. On 31 December 2021, trade receivables
owed $13 400, of which $600 was regarded as irrecoverable.

How much was the provision for doubtful debts on 1 January 2022?

A $600 B $640 C $660 D $670

[Turn over
16 After the financial statements for the year ended 30 April 2022 had been prepared, a trader
discovered that the closing inventory had been over-valued.

What will be the effect of this error?

profit for the year capital on profit for the year

ended 30 April 2022 30 April 2022 ending 30 April 2023

A overstated overstated understated

B overstated understated no effect
C understated no effect no effect
D understated understated overstated

17 Mariam owns a business providing accounting services. She provided the following information
for the financial year ended 31 March 2022.

fees owed by clients on 1 April 2021 4 500

fees received from clients during the year ended 31 March 2022 22 500
fees owed by clients on 31 March 2022 1 500

What was the amount of fees shown in the income statement for the year ended 31 March 2022?

A $19 500 B $22 500 C $25 500 D $28 500

18 Which item would not appear in the appropriation account of a partnership?

A interest charged on partners’ drawings

B interest paid on loans from partners
C interest paid on partners’ capital
D salaries paid to partners

19 Carol and Denise are in partnership sharing profits and losses in the ratio 2 : 1.

Denise’s current account balances were as follows.

at 1 May 2021 $2000 debit

at 1 May 2022 $7000 credit

She had made no drawings during the year.

What was the total profit made by the partnership in the year ended 30 April 2022?

A $9000 B $15 000 C $18 000 D $27 000

20 Which statements are correct?

1 A debenture holder of a limited company is liable for the debts of the company.
2 A partner is liable to pay business debts from personal assets.
3 A shareholder of a limited company is responsible for the company’s debts.
4 A sole trader is responsible for all the debts of his business.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

21 The draft financial statements of a limited company showed retained earnings of $31 820. It was
then found that no adjustment had been made for the following.

commission receivable accrued 450

insurance prepaid 175

What was the correct amount of the retained earnings?

A $31 195 B $31 545 C $32 095 D $32 445

22 Which statement about club accounts is correct?

A Capital and revenue transactions are recorded in the income and expenditure account.
B Non-cash transactions are recorded in the income and expenditure account.
C Only revenue transactions are recorded in the receipts and payments account.
D The closing balance in the receipts and payments account represents a surplus or deficit.

23 A sports club provided the following information for the financial year ended 31 December 2021.

1 January 2021 subscriptions paid in advance 200

31 December 2021 subscriptions outstanding 450
subscriptions received during the year 8800

What was the total of the subscriptions that related to the year ended 31 December 2021?

A $8150 B $8550 C $9050 D $9450

[Turn over
24 The work in progress of ZT Manufacturers on 1 January was valued at $6200. At the end of the
year it was valued at $5400.

What was the effect on the cost of production for the year?

A decrease $800
B decrease $11 600
C increase $800
D increase $11 600

25 A manufacturing company provided the following information.

cost of production 345 000

finished goods 1 January 2021 42 000
31 December 2021 36 000
purchases of finished goods 15 000

What was the cost of sales?

A $324 000 B $336 000 C $351 000 D $366 000

26 Tahir provided the following information for his first year of trading.

sales 170 000

sales returns 6 000
purchases 129 000

Tahir’s gross margin was 25%.

What was the value of closing inventory?

A $1000 B $2200 C $6000 D $7500

27 A business provided the following information.

opening inventory $6800

closing inventory $6000
rate of inventory turnover 5 times

What were the purchases for the year?

A $29 200 B $31 200 C $32 000 D $32 800

28 A trader provided the following information at the end of the financial year.

revenue 80 000
gross profit 20 000
expenses 12 000

What was the profit margin?

A 10% B 15% C 25% D 40%

29 A trader provided the following information.

profit for the year 24 000

working capital 20 000
capital 120 000
non-current liability 30 000

What was the return on capital employed?

A 14.12% B 16.00% C 17.14% D 20.00%

30 Samuel, a trader, decided to issue statements of account each month.

Which ratio does Samuel hope to improve by doing this?

A current ratio
B liquid (acid test) ratio
C trade payables turnover
D trade receivables turnover

31 John’s rate of inventory turnover was 10 times in year 1 and 8 times in year 2.

What may have caused the change in the rate of inventory turnover?

A fall in demand
B higher sales
C lower inventory levels
D lower selling price

[Turn over
32 Maya had annual revenue of $100 000.

In year 1, her gross margin was 45% and her profit margin was 5%.

In year 2, her gross margin was 40% and her profit margin was 3%.

What happened to Maya’s cost of sales and expenses in year 2?

cost of sales expenses

A decreased decreased
B decreased increased
C increased decreased
D increased increased

33 Why would a bank manager be interested in the financial statements of a business?

A to calculate and assess the trade payables turnover

B to check that the correct amount of tax is being paid
C to ensure that employees are being paid the correct hourly rate
D to ensure that funds are sufficient to cover loan interest

34 ‘Revenue should only be regarded as earned when the legal title of goods and services passes
from the seller to the buyer.’

To which accounting principle does this statement refer?

A going concern
B matching
C money measurement
D realisation

35 ‘The information provided in financial statements should be capable of being independently

verified.’

To which accounting policy does this statement refer?

A comparability
B relevance
C reliability
D understandability
1 Why does the accountant of a business analyse its financial statements?

A to provide information for the customers

B to provide information for the government
C to provide information for the managers
D to provide information for the suppliers

2 Padma started a business on 1 April 2022 with $30 000 of her own money. On 31 March 2023,
her assets and liabilities were as shown.

machinery at net book value 38 000

other assets 15 000
long-term loan from bank 16 500

What was Padma’s capital on 31 March 2023?

A $30 000 B $36 500 C $46 500 D $53 000

3 A trader credited the income statement and debited his capital account.

What does this double entry record?

A capital introduced
B drawings
C loss for the year
D profit for the year

4 Ted, a manufacturer, purchased a machine on credit from T Limited.

How did Ted record this?

account debited account credited

A T Limited machinery
B T Limited purchases
C machinery T Limited
D purchases T Limited
5 The following account appeared in the books of Abdul.

Hanif account
2023 $ 2023 $

Jan 18 returns 100 Jan 1 balance b / d 400

31 bank 392 4 purchases 250
discount 8
balance c / d 150
650 650

Which statement is correct?

A On 1 January, Abdul owed Hanif $400.

B On 4 January, Hanif purchased goods, $250, from Abdul.
C On 31 January, Abdul allowed Hanif $8 trade discount.
D On 31 January, Hanif owed Abdul $150.

6 Which items are shown on a statement of account?

A bank charges
B credit notes
C debit notes
D trade discounts

7 A trader issues an invoice for goods sold on credit. The full price of the goods is $2500.

The trader allows a trade discount of 15%, and offers a cash discount of 4% for prompt payment.

Which amount is recorded in the sales journal?

A $2025 B $2040 C $2125 D $2500

8 A trader prepared a trial balance at 31 December.

Which statement about this trial balance is correct?

A It shows a summary of the financial position at 31 December.

B It shows the ledger account balances at 31 December.
C It shows the profit for the year ended 31 December.
D It shows the transactions for the year to 31 December.

[Turn over
9 After completing the trial balance, it was found that an amount of $4000 for motor vehicle repairs
had been entered in the motor vehicle account.

Which type of error is this?

A commission
B compensating
C omission
D principle

10 At the end of his financial year, Zane opened a suspense account.

Why was it necessary to open this account?

A the suspense account had been omitted from the ledger

B the trial balance totals did not agree
C to correct an error of commission
D to make sure no errors were made in the ledger

11 Jack has opened a suspense account. He has found that rent paid of $250 has been correctly
entered in the rent account but credited to the bank account as $520.

Which entries will correct this error?

debit $ credit $

A bank account 270 suspense account 270

B bank account 520 suspense account 520
C suspense account 270 bank account 270
D suspense account 520 bank account 520

12 Naila provided the following information at 31 August.

debit balance in cash book at 31 August 449

uncredited deposits 424
unpresented cheques 175
interest charged in error by the bank 10

What was the credit balance on the bank statement at 31 August?

A $190 B $210 C $688 D $708

13 Which statement about a sales ledger control account is not correct?

A It assists in the location of errors.

B It helps to deter fraud.
C It prevents debts becoming irrecoverable.
D It provides a quick total of trade receivables.

14 The following partly completed account appeared in Candy’s ledger.

Purchases ledger control account

$ $

Dec 31 bank 42 000 Dec 1 balance b / d 720

discount received 600 31 purchases 48 000

The following entries still need to be made in the account.

Interest of $15 was charged by credit suppliers for overdue payments.

Balances owing in the purchases ledger totalling $450 were set off against balances in
the sales ledger.

What will be the closing balance on the purchases ledger control account after these entries are
made?

A $5655 B $5685 C $6555 D $6585

15 A trader’s expenditure during the year includes the following amounts.

redecoration of premises 5 000

insurance of motor vehicles 2 000
purchase of machinery 10 000

How much should the trader charge to her income statement for the year?

A $7000 B $10 000 C $12 000 D $17 000

16 Which statement about depreciation is correct?

A It is a cash fund to replace a non-current asset.

B It is a monetary expense as it involves the outflow of money.
C It is an estimate of the loss in value of a current asset over its expected life.
D It is recorded in the nominal ledger and the income statement.

[Turn over
17 Rashid provided the following balances at 31 December.

machinery at cost 52 000

provision for depreciation of machinery 23 000

Depreciation for the year was calculated at 20% on cost and is included in the balance for the
provision.

After the balances had been extracted, it was found that machinery repairs costing $2000 had
been debited in error to the machinery account.

What is the correct balance on the provision for the depreciation of machinery account?

A $21 000 B $22 600 C $23 400 D $25 000

18 Annual rental income due from Kumar, a tenant, is $3600. At the start of the year, Kumar had
prepaid rent of $900. At the end of the year, he owed two months’ rent.

How much rent was received from Kumar during the year?

A $2100 B $3300 C $3900 D $5100

19 At the end of the financial year, Gina had the following items of clothing in her inventory.

100 t-shirts: cost price per unit $15, selling price per unit $30
200 dresses: cost price per unit $40, selling price per unit $30

What was the value of Gina’s inventory?

A $7500 B $9000 C $9500 D $11 000

20 Which error causes the gross profit to be overstated?

A closing inventory under-valued

B opening inventory omitted from the income statement
C purchases recorded before deduction of trade discount
D sales invoices omitted from the sales journal

21 Which group consists of only intangible assets?

A bank balance, brand names, goodwill

B bank balance, trademarks, trade receivables
C brand names, goodwill, trademarks
D goodwill, trademarks, trade receivables
22 At the end of the financial year, Karim decided to increase his provision for doubtful debts.

How will this affect his income statement and the statement of financial position?

statement of
income statement
financial position

A decrease expenses increase current assets

B decrease expenses increase current liabilities
C increase expenses decrease current assets
D increase expenses decrease current liabilities

23 What is included in an appropriation account of a partnership?

1 annual salary to which each partner is entitled

2 drawings made by each partner during the year
3 the closing balance on each partner’s capital account
4 the division of residual profit between the partners

A 1, 2 and 3 B 1 and 4 C 2 and 3 only D 4 only

24 X and Y are in partnership with capital of $50 000 and $30 000 respectively.

The partnership agreement provides that profits are to be shared in proportion to capital invested
and each partner is entitled to 10% interest on capital.

Profit for the year was $37 000.

What was the total amount credited to Y’s current account at the end of the year?

A $10 875 B $13 875 C $18 125 D $23 125

25 What is an advantage of being a member of a limited company?

A Loan capital is easy to obtain.

B Dividends must be paid to the member.
C Financial statements are prepared quickly.
D The company is a separate legal entity.

[Turn over
26 A limited company provided the following information.

issued share capital (50 000 ordinary shares of $1 each) 50 000

profit for the year ended 31 December 2022 13 000
transfer to general reserve during the year 6 000
interim ordinary share dividend paid during the year 3 000

On 31 December 2022, it was decided to use the remaining profit to pay a final ordinary share
dividend.

Which percentage final dividend would the ordinary shareholders receive?

A 8% B 14% C 20% D 26%

27 P Limited maintains a provision for doubtful debts account. On 1 April 2022, this account had a
balance of $6200.

The provision should have been increased to $7400 on 31 March 2023, but this adjustment was
not made.

What was the effect of this error on the retained earnings in the statement of financial position on
31 March 2023?

A overstated $1200
B overstated $7400
C understated $1200
D understated $7400

28 What is included in the income and expenditure account of a tennis club?

A all amounts received and paid during the year

B all capital and revenue expenditure incurred during the year
C the closing balances on the accumulated fund
D the profit for the year from the club’s shop
29 Tim started a manufacturing business on 1 January. He provided the following information about
his first year in business.

closing inventory of finished goods 2 060

closing work in progress 1 840
factory overheads 15 530
prime cost 70 570

What was Tim’s cost of production?

A $82 200 B $84 260 C $86 100 D $87 940

30 Hassan’s capital decreased by $200 over the year, even though he made a profit of $7000.

Which transactions caused this?

capital introduced drawings

$ $

A 1000 8200
B 1200 6000
C 2000 8800
D 2200 4600

31 A trader provided the following information.

credit sales $36 000

cash sales 10% of total sales
net profit margin 30%

How much is the net profit?

A $9720 B $10 800 C $11 880 D $12 000

[Turn over
32 The table shows the gross margin and profit margin for four businesses.

Which business controls its overheads most efficiently?

gross margin profit margin

% %

A 40 17
B 37 15
C 35 14
D 30 12

33 Ramiz works as a sales manager in a car showroom. He is paid on the basis of the number of
cars sold.

Which accounting ratio will be relevant to Ramiz?

A gross margin
B profit margin
C rate of inventory turnover
D trade receivables turnover

34 Manvinder started a business and paid a cheque for $1000 into a business bank account. He
recorded this in the books of the business by debiting the bank account and crediting the capital
account.

Which accounting principles did he apply?

A business entity and duality

B business entity and going concern
C going concern and matching
D matching and duality

35 A trader always records assets and expenses in his ledger at the price he paid for them.

Which accounting principle is he applying?

A business entity
B historic cost
C prudence
D realisation
1 What is the main function of book-keeping?

A communicating information
B interpreting information
C recording information
D summarising information

2 Which components of a statement of financial position do descriptions 1, 2 and 3 relate to?

1 finance and other resources that have been provided by the owner
2 money owed for goods supplied, unpaid expenses and loans made to the business
3 property owned by the business, amounts owed by customers, unsold goods and
money in the bank

1 2 3

A assets capital liabilities

B assets liabilities capital
C capital assets liabilities
D capital liabilities assets

3 A cheque received from Kate, a credit customer, was dishonoured.

How was this dishonoured cheque recorded?

account account
debited credited

A bank Kate
B Kate bank
C Kate sales
D sales Kate

4 What does the sales ledger of a business contain?

A accounts of trade payables

B accounts of trade receivables
C sales account
D sales ledger control account
5 Which action is an example of double entry book-keeping?

A making a journal entry to record the correction of an error made in the ledger
B making entries in the sales journal and the sales ledger to record goods sold on credit
C recording a cheque paid to a trade payable in the cash book and purchases ledger
D recording the purchase of goods on credit in the purchases journal and purchases account

6 What is true about cash discounts received?

they are they increase

recorded in profit for
the cash book the year

A  
B  
C  
D  

7 Tahir prepared a trial balance. He entered both the balance on the discount allowed account,
$900, and the bank overdraft, $750, in the wrong column.

Which total of the trial balance was higher and what was the amount of the difference between
the debit total and the credit total?

amount of
total that
difference
was higher
$

A credit column 300

B credit column 1650
C debit column 150
D debit column 3300

8 Goods sold on credit to J Sharp were debited in error to the account of T Sharpe.

Which type of error has been made?

A commission
B complete reversal
C original entry
D principle

[Turn over
9 Khalid made entries in a suspense account to correct two errors found in his ledger accounts.
Once the errors were corrected, the suspense account was closed.

error 1 $700 sales had been omitted from the sales account.
error 2 The purchases journal had been overcast by $550.

Which entry was made in the suspense account to balance the trial balance?

A credit $150
B credit $1250
C debit $150
D debit $1250

10 Maya depreciates her motor vehicle at 25% per annum using the straight-line method.

The motor vehicle cost $15 000.

The depreciation for the current financial year was incorrectly calculated at 15% per annum.

How will correcting the error affect the profit for the year?

A decrease $1500
B decrease $2250
C increase $1500
D increase $2250

11 Waseem received a bank statement. He found that the bank had charged interest twice in error
and that a dividend had been received on an investment.

Waseem then updated the cash book and prepared a bank reconciliation statement.

Where did he record these two items?

bank error dividend

A bank reconciliation statement bank reconciliation statement

B bank reconciliation statement updated cash book
C updated cash book bank reconciliation statement
D updated cash book updated cash book
12 Thembi is preparing her sales ledger control account. She needs to know:

1 the total for goods which have been returned by credit customers
2 the amount owed by credit customers which have been written off as irrecoverable.

Where can she obtain this information?

goods returned irrecoverable debts

A purchase returns account irrecoverable debts account

B purchase returns journal general journal
C sales returns account irrecoverable debts account
D sales returns journal general journal

13 On 1 August, the sales ledger control account had a debit balance of $1800.

During August, a debt of $200 was written off as irrecoverable and $10 000 was received from
credit customers. On 31 August, the credit customers owed $3000.

What was the total of credit sales in August?

A $7200 B $11 200 C $11 400 D $11 600

14 A wholesaler had the following transactions.

sold goods, $30 000, on credit

received cheque, $12 000, from sale of old fixtures at book value

How would these amounts be classified?

revenue receipt capital receipt

$ $

A nil 42 000
B 12 000 30 000
C 30 000 12 000
D 42 000 nil

[Turn over
15 A trader debited the cost of repairing office equipment to the office equipment account.

How did this error affect the financial statements?

profit for non-current

the year assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

16 A business bought two assets, X and Y, on 1 January 2022, for $2000 each.

It depreciates asset X by 10% per annum using the straight-line method, and asset Y by 10% per
annum using the reducing balance method.

Which statements are correct?

asset X will be fully in 2022 the depreciation

depreciated before charge is lower for
asset Y asset X than for asset Y

A incorrect incorrect
B incorrect correct
C correct incorrect
D correct correct

17 Ravi’s financial year ends on 30 April.

Ravi bought a motor vehicle for $8000 on 1 May 2020 and sold it for $4050 on 1 May 2022.

He uses the reducing balance method of depreciation at 20% per annum.

What would be recorded in the income statement for the year ended 30 April 2023 for the
disposal of the motor vehicle?

A $750 loss
B $750 profit
C $1070 loss
D $1070 profit
18 On 2 January, Razia wrote off $450 owed to her by Annette, a credit customer, as irrecoverable.

On 2 October, Annette paid $100 by cheque in part settlement of that debt.

Which entries would Razia make on 2 October?

account to be debited account to be credited

A bank debts recovered

B bank irrecoverable debts
C debts recovered bank
D irrecoverable debts bank

19 Asha provided the following information about her inventory at the end of the financial year.

cost price selling price

number
product per unit per unit
of units
$ $

P 200 2.50 2.00

J 300 3.00 3.50

What was the total value of Asha’s inventory?

A $1300 B $1400 C $1450 D $1550

20 Which group contains only service businesses?

A book shop, language school, newsagent

B jewellery repairer, taxi firm, food store
C language school, taxi firm, jewellery repairer
D taxi firm, newsagent, food store

21 What does the statement of financial position of a business show?

A assets and liabilities at a certain date

B calculation of the annual profit or loss
C changes in equity during the financial year
D income and expenditure for the financial year

[Turn over
22 A trader pays her insurance premium on 1 January each year for the following 12 months.

She made the following payments for insurance.

1 January 2022 1680

1 January 2023 1920

How much did the trader include for insurance in her income statement for the year ended
31 March 2023?

A $1680 B $1740 C $1920 D $2160

23 Which item is added to the profit for the year in a partnership appropriation account?

A interest on capital
B interest on drawings
C partners’ drawings
D partners’ salaries

24 Abi and Erni are in partnership. Erni is entitled to an annual partnership salary of $3000. They
share residual profits and losses equally. The profit for the year ended 31 August 2022 was
$12 600.

On 1 September 2021, the partners’ current account balances were as follows.

Abi 2500 credit

Erni 1400 debit

What was the credit balance on Erni’s current account on 1 September 2022?

A $400 B $3200 C $6400 D $9200

25 What is meant by the term equity?

A dividend paid to ordinary shareholders

B funds raised through borrowing
C interest paid to debenture holders
D total funds provided by shareholders
26 During the financial year, AB Limited paid debenture interest of $1400 relating to that financial
year. At the end of the year, debenture interest of $700 was accrued.

How was debenture interest shown in the financial statements for the year?

income statement of
statement changes in equity
$ $

A 1400 no entry
B 2100 no entry
C no entry 1400
D no entry 2100

27 Which items are included in an income and expenditure account prepared for a sports club?

1 cost of new furniture purchased during the year for the clubhouse
2 depreciation on furniture and sports equipment
3 rates for the clubhouse paid in advance for the next financial year
4 subscriptions that remain unpaid by club members at the end of the financial year

A 1 and 2 B 1 and 4 C 2 and 4 D 3 and 4

28 Melody is a music club. The club holds a music concert once every year. Prizes are awarded to
musicians selected by a judge.

The club provided the following information related to the latest music concert.

sale of concert tickets 1 500

purchases of concert prizes 450
sale of concert programmes 150
payment of fee to the concert judge 250

What was the profit from the concert?

A $950 B $1050 C $1450 D $2100

[Turn over
29 A business provided the following information.

opening inventory of raw material 50 000

closing inventory of raw material 60 000
purchases of raw material 80 000
carriage inwards on raw material 2 000

What was the cost of raw material consumed?

A $70 000 B $72 000 C $90 000 D $92 000

30 Ashwin started a business as a taxi driver on 1 January 2022. His taxi cost $5000 and he paid
$100 into a business bank account.

He did not keep any accounting records. On 31 December 2022, he had $1750 in the business
bank account, his taxi was valued at $4000 and he owed $50 to the garage for repairs. During the
year, he took $1600 out of the business bank account as drawings.

What was the profit for the year?

A $1650 B $2200 C $2250 D $3250

31 A trader did not keep a complete set of accounts. He provided the following information for the
year.

opening trade payables 5 000

closing trade payables 9 800
payments to credit suppliers 35 000
cash discounts received 3 000

What were the purchases for the year?

A $30 200 B $36 800 C $39 800 D $42 800

32 T Limited provided the following information.

net profit before interest 29 200

profit for the year 28 000
equity at the year-end 192 000
6% debentures 20 000

What was T Limited’s return on capital employed?

A 13.21% B 13.77% C 14.58% D 15.21%

33 Sabelo’s liquid (acid test) ratio was higher on 1 January 2022 than it was on 31 December 2022.

What could have caused this?

A bank overdraft decreased

B inventory decreased
C other payables decreased
D trade receivables decreased

34 The following ratios relate to the businesses of Ewa and Max.

Ewa Max

current ratio 2.2 : 1 2.4 : 1

liquid (acid test) ratio 1.4 : 1 1.0 : 1

An accounting student made the following statements.

1 Ewa can meet her current liabilities from her current assets more easily than Max.
2 Ewa can meet her current liabilities from her liquid assets more easily than Max.
3 Max has insufficient current assets to meet his current liabilities.
4 Max has sufficient liquid assets to meet his current liabilities.

Which statements are correct?

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

[Turn over
35 A café owner made no entry in her accounts for increased competition when another café opened
nearby.

Which accounting principle was applied?

A historic cost
B materiality
C money measurement
D prudence
1 What is the main function of book-keeping?

A communicating information
B interpreting information
C recording information
D summarising information

2 Which components of a statement of financial position do descriptions 1, 2 and 3 relate to?

1 finance and other resources that have been provided by the owner
2 money owed for goods supplied, unpaid expenses and loans made to the business
3 property owned by the business, amounts owed by customers, unsold goods and
money in the bank

1 2 3

A assets capital liabilities

B assets liabilities capital
C capital assets liabilities
D capital liabilities assets

3 A cheque received from Kate, a credit customer, was dishonoured.

How was this dishonoured cheque recorded?

account account
debited credited

A bank Kate
B Kate bank
C Kate sales
D sales Kate

4 What does the sales ledger of a business contain?

A accounts of trade payables

B accounts of trade receivables
C sales account
D sales ledger control account
5 Which action is an example of double entry book-keeping?

A making a journal entry to record the correction of an error made in the ledger
B making entries in the sales journal and the sales ledger to record goods sold on credit
C recording a cheque paid to a trade payable in the cash book and purchases ledger
D recording the purchase of goods on credit in the purchases journal and purchases account

6 What is true about cash discounts received?

they are they increase

recorded in profit for
the cash book the year

A  
B  
C  
D  

7 Tahir prepared a trial balance. He entered both the balance on the discount allowed account,
$900, and the bank overdraft, $750, in the wrong column.

Which total of the trial balance was higher and what was the amount of the difference between
the debit total and the credit total?

amount of
total that
difference
was higher
$

A credit column 300

B credit column 1650
C debit column 150
D debit column 3300

8 Goods sold on credit to J Sharp were debited in error to the account of T Sharpe.

Which type of error has been made?

A commission
B complete reversal
C original entry
D principle

[Turn over
9 Khalid made entries in a suspense account to correct two errors found in his ledger accounts.
Once the errors were corrected, the suspense account was closed.

error 1 $700 sales had been omitted from the sales account.
error 2 The purchases journal had been overcast by $550.

Which entry was made in the suspense account to balance the trial balance?

A credit $150
B credit $1250
C debit $150
D debit $1250

10 Maya depreciates her motor vehicle at 25% per annum using the straight-line method.

The motor vehicle cost $15 000.

The depreciation for the current financial year was incorrectly calculated at 15% per annum.

How will correcting the error affect the profit for the year?

A decrease $1500
B decrease $2250
C increase $1500
D increase $2250

11 Waseem received a bank statement. He found that the bank had charged interest twice in error
and that a dividend had been received on an investment.

Waseem then updated the cash book and prepared a bank reconciliation statement.

Where did he record these two items?

bank error dividend

A bank reconciliation statement bank reconciliation statement

B bank reconciliation statement updated cash book
C updated cash book bank reconciliation statement
D updated cash book updated cash book
12 Thembi is preparing her sales ledger control account. She needs to know:

1 the total for goods which have been returned by credit customers
2 the amount owed by credit customers which have been written off as irrecoverable.

Where can she obtain this information?

goods returned irrecoverable debts

A purchase returns account irrecoverable debts account

B purchase returns journal general journal
C sales returns account irrecoverable debts account
D sales returns journal general journal

13 On 1 August, the sales ledger control account had a debit balance of $1800.

During August, a debt of $200 was written off as irrecoverable and $10 000 was received from
credit customers. On 31 August, the credit customers owed $3000.

What was the total of credit sales in August?

A $7200 B $11 200 C $11 400 D $11 600

14 A wholesaler had the following transactions.

sold goods, $30 000, on credit

received cheque, $12 000, from sale of old fixtures at book value

How would these amounts be classified?

revenue receipt capital receipt

$ $

A nil 42 000
B 12 000 30 000
C 30 000 12 000
D 42 000 nil

[Turn over
15 A trader debited the cost of repairing office equipment to the office equipment account.

How did this error affect the financial statements?

profit for non-current

the year assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

16 A business bought two assets, X and Y, on 1 January 2022, for $2000 each.

It depreciates asset X by 10% per annum using the straight-line method, and asset Y by 10% per
annum using the reducing balance method.

Which statements are correct?

asset X will be fully in 2022 the depreciation

depreciated before charge is lower for
asset Y asset X than for asset Y

A incorrect incorrect
B incorrect correct
C correct incorrect
D correct correct

17 Ravi’s financial year ends on 30 April.

Ravi bought a motor vehicle for $8000 on 1 May 2020 and sold it for $4050 on 1 May 2022.

He uses the reducing balance method of depreciation at 20% per annum.

What would be recorded in the income statement for the year ended 30 April 2023 for the
disposal of the motor vehicle?

A $750 loss
B $750 profit
C $1070 loss
D $1070 profit
18 On 2 January, Razia wrote off $450 owed to her by Annette, a credit customer, as irrecoverable.

On 2 October, Annette paid $100 by cheque in part settlement of that debt.

Which entries would Razia make on 2 October?

account to be debited account to be credited

A bank debts recovered

B bank irrecoverable debts
C debts recovered bank
D irrecoverable debts bank

19 Asha provided the following information about her inventory at the end of the financial year.

cost price selling price

number
product per unit per unit
of units
$ $

P 200 2.50 2.00

J 300 3.00 3.50

What was the total value of Asha’s inventory?

A $1300 B $1400 C $1450 D $1550

20 Which group contains only service businesses?

A book shop, language school, newsagent

B jewellery repairer, taxi firm, food store
C language school, taxi firm, jewellery repairer
D taxi firm, newsagent, food store

21 What does the statement of financial position of a business show?

A assets and liabilities at a certain date

B calculation of the annual profit or loss
C changes in equity during the financial year
D income and expenditure for the financial year

[Turn over
22 A trader pays her insurance premium on 1 January each year for the following 12 months.

She made the following payments for insurance.

1 January 2022 1680

1 January 2023 1920

How much did the trader include for insurance in her income statement for the year ended
31 March 2023?

A $1680 B $1740 C $1920 D $2160

23 Which item is added to the profit for the year in a partnership appropriation account?

A interest on capital
B interest on drawings
C partners’ drawings
D partners’ salaries

24 Abi and Erni are in partnership. Erni is entitled to an annual partnership salary of $3000. They
share residual profits and losses equally. The profit for the year ended 31 August 2022 was
$12 600.

On 1 September 2021, the partners’ current account balances were as follows.

Abi 2500 credit

Erni 1400 debit

What was the credit balance on Erni’s current account on 1 September 2022?

A $400 B $3200 C $6400 D $9200

25 What is meant by the term equity?

A dividend paid to ordinary shareholders

B funds raised through borrowing
C interest paid to debenture holders
D total funds provided by shareholders
26 During the financial year, AB Limited paid debenture interest of $1400 relating to that financial
year. At the end of the year, debenture interest of $700 was accrued.

How was debenture interest shown in the financial statements for the year?

income statement of
statement changes in equity
$ $

A 1400 no entry
B 2100 no entry
C no entry 1400
D no entry 2100

27 Which items are included in an income and expenditure account prepared for a sports club?

1 cost of new furniture purchased during the year for the clubhouse
2 depreciation on furniture and sports equipment
3 rates for the clubhouse paid in advance for the next financial year
4 subscriptions that remain unpaid by club members at the end of the financial year

A 1 and 2 B 1 and 4 C 2 and 4 D 3 and 4

28 Melody is a music club. The club holds a music concert once every year. Prizes are awarded to
musicians selected by a judge.

The club provided the following information related to the latest music concert.

sale of concert tickets 1 500

purchases of concert prizes 450
sale of concert programmes 150
payment of fee to the concert judge 250

What was the profit from the concert?

A $950 B $1050 C $1450 D $2100

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29 A business provided the following information.

opening inventory of raw material 50 000

closing inventory of raw material 60 000
purchases of raw material 80 000
carriage inwards on raw material 2 000

What was the cost of raw material consumed?

A $70 000 B $72 000 C $90 000 D $92 000

30 Ashwin started a business as a taxi driver on 1 January 2022. His taxi cost $5000 and he paid
$100 into a business bank account.

He did not keep any accounting records. On 31 December 2022, he had $1750 in the business
bank account, his taxi was valued at $4000 and he owed $50 to the garage for repairs. During the
year, he took $1600 out of the business bank account as drawings.

What was the profit for the year?

A $1650 B $2200 C $2250 D $3250

31 A trader did not keep a complete set of accounts. He provided the following information for the
year.

opening trade payables 5 000

closing trade payables 9 800
payments to credit suppliers 35 000
cash discounts received 3 000

What were the purchases for the year?

A $30 200 B $36 800 C $39 800 D $42 800

32 T Limited provided the following information.

net profit before interest 29 200

profit for the year 28 000
equity at the year-end 192 000
6% debentures 20 000

What was T Limited’s return on capital employed?

A 13.21% B 13.77% C 14.58% D 15.21%

33 Sabelo’s liquid (acid test) ratio was higher on 1 January 2022 than it was on 31 December 2022.

What could have caused this?

A bank overdraft decreased

B inventory decreased
C other payables decreased
D trade receivables decreased

34 The following ratios relate to the businesses of Ewa and Max.

Ewa Max

current ratio 2.2 : 1 2.4 : 1

liquid (acid test) ratio 1.4 : 1 1.0 : 1

An accounting student made the following statements.

1 Ewa can meet her current liabilities from her current assets more easily than Max.
2 Ewa can meet her current liabilities from her liquid assets more easily than Max.
3 Max has insufficient current assets to meet his current liabilities.
4 Max has sufficient liquid assets to meet his current liabilities.

Which statements are correct?

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

[Turn over
35 A café owner made no entry in her accounts for increased competition when another café opened
nearby.

Which accounting principle was applied?

A historic cost
B materiality
C money measurement
D prudence
1 Which task is performed by a book-keeper?

A analysing accounting ratios

B interpreting the income statement
C posting entries from the journals to the ledgers
D preparing a statement of financial position

2 Which statement is correct?

A Accounting involves measuring profits and losses.

B Accounting is the recording of financial transactions.
C Book-keeping involves communicating financial data.
D Book-keeping requires the use of ratio analysis.

3 In which book of prime entry does a trader record cash discount received?

A cash book
B general journal
C purchases journal
D sales journal

4 The analysis columns of a petty cash book show the following totals.

postage 20
stationery 31

How should these totals be posted to the ledger?

A credit bank account with $51

B credit postage account with $20 and stationery account with $31
C debit cash account with $51
D debit postage account with $20 and stationery account with $31
5 Which business documents are not entered in the books of prime entry?

1. credit note
2. debit note
3. invoice
4. statement of account

A 1 and 3 B 1 only C 2, 3 and 4 D 2 and 4 only

6 A trader has the following ledger account.

heat and light account

$ $

year 1 year 1
January 1 balance b/d 400 December 31 income statement 4850
December 31 bank 4200
December 31 balance c/d 250 ____
4850 4850
year 2
January 1 balance b/d 250

What does the balance on 1 January, year 2 represent?

A heat and light outstanding

B heat and light refunded
C overpayment of heat and light
D prepayment of heat and light

7 Which statement about a trial balance is correct?

A It is a list of the ledger balances on a particular date.

B It is part of the double entry system of book-keeping.
C It is proof that all items have been posted to the correct accounts.
D It is proof that all transactions have been entered in the books of account.

[Turn over
8 Trevor prepared his financial statements for the year ended 31 December 2020. He then discovered
that he had omitted to record a cash payment, $240, for insurance for the 12 months ending
30 November 2021.

What was the effect of this error on his statement of financial position?

cash other receivables capital

A $240 overstated $20 understated $220 overstated

B $240 overstated $220 understated $20 overstated
C $240 understated $20 overstated $220 understated
D $240 understated $220 overstated $20 understated

9 A payment of $68 for insurance has been entered in the insurance account as $86.

Which double entry will correct this?

debit credit

A insurance $18 suspense $18

B insurance $36 suspense $36
C suspense $18 insurance $18
D suspense $36 insurance $36

10 A business has received a bank statement. The bank statement shows the following entries.

1. a cheque issued to a credit supplier

2. a cheque received from a credit customer
3. a monthly rent payment made by standing order
4. charges made by the bank

Which items appear in the debit column of the bank statement?

A 1, 3 and 4 B 1 and 3 only C 1 only D 2

11 On 31 May the bank statement of a business showed a positive bank balance of $1790. Comparing
the bank statement with the cash book the following items were discovered.

The bank had charged $35 in error.

Unpresented cheques totalled $550.

Uncredited deposits totalled $250.

What was the cash book balance?

A $1455 B $1490 C $1525 D $2125

12 What would not be included in a sales ledger control account?

A cash sales recorded in the cash book

B cheques received from credit customers recorded in the cash book
C goods sold on credit recorded in the sales journal
D irrecoverable debts written off recorded in the journal

13 Nadia provided the following information for the month of July.

1 July sales ledger control account balance debit 1750

credit 215
For the month of July: total of sales journal 5500
total of sales returns journal 360
cheques received from credit customers 4840
irrecoverable debt written off 280
interest charged on credit account 5

There was no credit balance on the account on 1 August.

What was the debit balance brought down on the sales ledger control account on 1 August?

A $1550 B $1560 C $1980 D $1990

[Turn over
14 Samir runs a car hire business. He received cash payments for car hire. He also received the
proceeds from the sale of an old vehicle.

Which type of receipts were they?

proceeds from
car hire sale of an old
vehicle

A capital capital
B capital revenue
C revenue capital
D revenue revenue

15 The following ledger account appeared in the books of a trader.

Rent receivable account

$ $

2020 2020
Dec 31 balance c / d 600 Jan 1 balance b / d 400
Dec 31 bank 3600

Which entry was made in the income statement for the year ended 31 December 2020 for rent
receivable?

A $3400 credit
B $3400 debit
C $3800 credit
D $3800 debit

16 Mandeep depreciates his motor vehicles at the rate of 20% using the straight-line method. A full
year’s depreciation is provided in the year of purchase.

Mandeep bought a motor vehicle on 1 January 2017 for $20 000. On 1 June 2020 he bought a
second motor vehicle for $10 000.

What was the depreciation charge on motor vehicles for the year ended 31 December 2020?

A $2000 B $4000 C $5000 D $6000

17 Why does a trader maintain a provision for doubtful debts?

1. to ensure amounts owing to the business for which payment is unlikely to be received are
regarded as an expense
2. to ensure the trade receivables of the business are not overstated, by providing for debts which
are unlikely to be paid
3. to identify credit customers who are not able to settle their accounts by the end of the financial
year
4. to provide for the amounts from credit customers which are unpaid at the end of the financial
year

A 1 and 2 B 1, 3 and 4 C 2 and 3 only D 2, 3 and 4

18 Why is inventory valued at the lower of cost and net realisable value?

A to avoid overstating current assets and sales

B to avoid overstating profit and current assets
C to avoid understating current assets and sales
D to avoid understating profit and current assets

19 At the end of the financial year Cindy valued her inventory at cost. This valuation incorrectly included
damaged goods costing $300. Cindy estimated these goods could be sold for $100.

What is the effect of correcting the inventory valuation?

gross profit profit for the year current assets

A decreases by $200 decreases by $200 decreases by $200

B decreases by $300 decreases by $300 decreases by $300
C increases by $100 increases by $100 increases by $100
D increases by $200 increases by $200 increases by $200

20 Which business is not a service business?

A accountant’s practice
B computer repair shop
C flower shop
D hairdressing salon

[Turn over
21 A trader was preparing her statement of financial position at 30 June 2021. She had four bank
loans.

loan date repayable $

1 1 December 2021 5 000

2 1 December 2022 10 000
3 1 September 2023 8 000
4 1 December 2025 6 000

What was the total amount of loans that should be recorded as non-current liabilities at
30 June 2021?

A $14 000 B $15 000 C $23 000 D $24 000

22 What is shown in a partnership appropriation account?

A the capital contributed by each partner

B the distribution of profit/loss among the partners
C the partners’ current account balances
D the interest on a partner’s loan account

23 Rajid and Sunil formed a partnership on 1 January 2019 but did not prepare a partnership agreement.

They provided the following information.

Rajid Sunil

capital introduced 1 January 2019 $40 000 $20 000

during the year ended 31 December 2019
drawings $5 000 $3 500
share of work 50% 50%

They decided to draw up a partnership agreement for future years.

Which item would be most beneficial to Rajid in 2020?

A interest on capital
B interest on drawings
C limit on annual drawings
D partnership salaries
24 A company supplied the following information.

issued and paid up share capital 300 000

general reserve 45 000
long-term bank loan 8 000
retained earnings 35 000
6% debentures 25 000

What is the total equity?

A $335 000 B $345 000 C $380 000 D $413 000

25 Which apply to both debentures and preference shares?

included in
no voting fixed rate of
capital
rights return
employed

A ✓ ✓ ✓
B ✓ ✗ ✓
C ✗ ✓ ✗
D ✗ ✗ ✗

[Turn over
26 The AB Sports Club runs a café for the use of members.

The treasurer prepared draft financial statements which showed a deficit of $700 and an accumulated
fund of $4600.

He then discovered that the closing inventory of the café had been overvalued by $50.

How much were the deficit and the accumulated fund after the inventory valuation had been
corrected?

accumulated
deficit
fund
$
$

A 650 4550
B 650 4650
C 750 4550
D 750 4650

27 Which accounting statement prepared by the treasurer of a sports club provides a summary of all
the monies received and paid out during the financial year?

A bank reconciliation statement

B income and expenditure account
C receipts and payments account
D statement of financial position

28 At the end of the financial year, a manufacturing business owed rent on its factory. The business
adjusted its financial statements to account for this.

What effects did this adjustment have?

prime cost cost of production gross profit

A decrease decrease increase

B no effect increase decrease
C no effect no effect decrease
D increase increase decrease
29 What is a direct cost for a manufacturer?

A carriage outwards
B depreciation of delivery vehicle
C factory supervisor’s salary
D production royalties

30 A business uses 20% mark up to arrive at its selling prices. During the year it made purchases of
$35 000 and the inventory decreased from $7000 to $2000.

What was the revenue for the year?

A $36 000 B $40 000 C $42 000 D $48 000

31 What is needed for the preparation of a statement of affairs?

A a trial balance
B an income statement
C books of prime entry
D values of assets and liabilities

32 A trader provided the following information.

cash purchases for the year 146 000

credit purchases for the year 108 000
trade payables at the year end 14 000

What was the trader’s trade payables turnover?

A 6 days
B 13 days
C 21 days
D 48 days

[Turn over
33 George provided the following information.

non-current assets 15 000

inventory 12 000
trade receivables 18 000
trade payables 8 000

His liquid (acid test) ratio was 1.2 : 1.

What was his bank overdraft?

A $7000 B $15 000 C $17 000 D $29 500

34 The following ratios have been calculated for a trader.

year 1 year 2

profit margin 15% 20%

return on capital employed (ROCE) 9% 6%

What explains these changes?

A Drawings have increased by more than profit for the year.

B Gross profit has increased but profit for the year has decreased.
C Profit for the year has increased and capital has been introduced.
D Profit for the year has increased and a long-term loan has been repaid.

35 William is a trader. He has received an order from James to supply goods on credit.

When should William regard the revenue as earned?

A when William accepts the order from James

B when William delivers the goods to James
C when William receives full payment for the goods from James
D when William receives the first payment on account from James
1 How does a trader use the information provided by financial statements?

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade receivables
C to check the balance shown on a bank statement
D to compare the business performance over a number of years

2 The balances remaining on the books of a business after the preparation of the income statement
included the following:

loan from XYY Finance 10 000

wages due 620
rent prepaid 240
trade receivables 3 300
trade payables 4 650
motor vehicles 8 000
provision for depreciation of motor vehicles 2 000

What was the total of the liabilities?

A $13 920 B $14 890 C $15 270 D $17 270

3 Jameel’s financial year ends on 31 December. On 1 January 2021 he brought down a debit balance
on his stationery account.

What does this balance represent?

A amount owing for stationery on 1 January 2021

B amount paid for stationery during 2020
C cost of stationery used during 2020
D inventory of stationery on 1 January 2021
4 Alex issued credit notes in August and entered them in the correct book of prime entry.

How was the total of this book of prime entry recorded in the nominal ledger at the end of August?

A credited to the purchases returns account

B debited to the purchases returns account
C credited to the sales returns account
D debited to the sales returns account

5 Which business documents are used as sources of information to make entries in the cash book?

A bank statement, cheque counterfoil, invoice, paying-in slip

B bank statement, cheque counterfoil, invoice, receipt
C bank statement, cheque counterfoil, paying-in slip, receipt
D cheque counterfoil, paying-in slip, petty cash voucher, receipt

6 What is the double entry for recording a cheque payment to a credit supplier?

debit credit

A bank account purchases ledger account

B bank account sales ledger account
C purchases ledger account bank account
D sales ledger account bank account

7 A book-keeper made two errors which cancelled each other out.

Which type of error did he make?

A compensating
B complete reversal
C original entry
D principle

[Turn over
8 The totals of a trial balance did not agree and $200 was debited to a suspense account. The
book-keeper then checked the books and found the following two errors.

1. A sales invoice for $700 had been recorded in the sales journal as $770.
2. The sales journal had been totalled incorrectly.

What error was made when the sales journal was totalled?

A overcast by $130
B overcast by $200
C undercast by $130
D undercast by $200

9 A trader took some goods from the business for his own use. He credited the purchases account
with the cost price of the goods, $200, and credited the sales account with the selling price, $300.

Which entries did he make to correct the error?

debit $ credit $

A drawings 200 suspense 300

income statement 100
B drawings 200 suspense 500
sales 300
C suspense 300 drawings 200
income statement 100
D suspense 500 drawings 200
sales 300

10 What would result in the cash book balance being lower than the bank statement balance?

A A cheque received from a customer was not recorded in the bank statement.
B A customer’s cheque dishonoured by the bank appeared only on the bank statement.
C Payment by a customer directly into the bank was not recorded in the cash book.
D Payment of insurance by standing order was not recorded in the cash book.
11 The bank statement of a business showed a credit balance of $280 on 31 December.

At that date there were unpresented cheques of $312.

A standing order of $20 had been incorrectly entered as $22 on the bank statement.

What was the balance in the bank column of the cash book on 31 December?

A $30 credit
B $30 debit
C $34 credit
D $34 debit

12 A business keeps a complete set of books of accounts.

What is not used as a source of information for making entries in control accounts?

A cash book
B general journal
C purchases journal
D sales ledger

13 Which item would not appear in the purchases ledger control account?

A contra entry
B discounts received
C interest charged
D returns inwards

14 The cost of repairs to machinery was debited to the machinery account.

What was the effect of this error?

non-current assets profit for the year

A overstated overstated
B overstated understated
C understated overstated
D understated understated

[Turn over
15 Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on
the reducing balance basis.

Which journal entry records the depreciation for the year ended 31 December 2019?

debit credit
$ $
A income statement 1920
provision for depreciation of motor vehicles 1920
B income statement 3200
provision for depreciation of motor vehicles 3200
C provision for depreciation of motor vehicles 1920
motor vehicles 1920
D provision for depreciation of motor vehicles 3200
motor vehicles 3200

16 A trader sold one of his vehicles.

What is the journal entry to remove the total depreciation on the vehicle sold?

account debited account credited

A disposal of motor vehicles provision for depreciation of motor

vehicles
B income statement disposal of motor vehicles
C provision for depreciation of motor motor vehicles
vehicles
D provision for depreciation of motor disposal of motor vehicles
vehicles

17 Why is it important to match costs and revenues?

A so that every debit entry has a corresponding credit entry

B so that the business does not incur any losses
C to enable a better comparison of profit from year to year
D to ensure that the bank balance is accurate
18 Devendra prepared the following journal entry.

debit credit
$ $

irrecoverable debts 714

Tobias 714

Which statement is correct?

A Devendra has provided for a doubtful debt owed by Tobias.

B Devendra has received the amount due from Tobias.
C Tobias cannot pay the amount due to Devendra.
D Tobias paid an amount previously written off by Devendra.

19 Alex purchased goods costing $1000. She planned to resell the goods at a mark-up rate of 25%.
These goods were unsold at the year end and were found to be damaged. Alex estimated that they
could be sold for $600.

What value should be shown for these goods in the year-end financial statements?

A $400 B $600 C $750 D $1250

20 'Unlimited liability’ is one of the disadvantages of operating as a sole trader.

What is the correct explanation of unlimited liability?

A A sole trader cannot take a bank loan.

B A sole trader has to manage their business alone.
C A sole trader cannot use their private funds to repay business loans.
D A sole trader may lose both their business and personal funds.

21 Which item is a current asset?

A bank overdraft
B loan repayable in 12 months
C prepaid income
D work in progress

[Turn over
22 Where is interest on drawings entered in the accounting records of a partnership business?

appropriation partner’s capital partner's current

account account account

A debit no entry credit

B credit no entry debit
C debit credit no entry
D credit debit no entry

23 T Limited was formed on 1 April 2019. A total of 220 000 shares of $2 each were issued and
shareholders were asked to pay 75% of the share value immediately and 25% on 1 April 2020.

By 1 June 2019 holders of 190 000 shares had paid the amount due.

What was the paid up capital on 1 June 2019?

A $ 285 000 B $330 000 C $380 000 D $440 000

24 Which items would appear in the statement of changes in equity of X Limited for the year ended
30 June 2020?

1. interim dividend paid on 31 March 2020

2. proposed dividend for the year ended 30 June 2020
3. proposed final dividend for the year ended 30 June 2019 paid on 31 October 2019
4. transfer to general reserve on 30 June 2020

A 1, 3 and 4 B 1 and 3 only C 2, 3 and 4 D 2 and 4 only

25 A company’s financial year ends on 31 March.

On 31 March 2021 trade receivables were $45 000. On 31 March 2022 trade receivables were
$41 000. An irrecoverable debt of $1000 is yet to be written off at 31 March 2022.

The provision for doubtful debts is to be maintained at 5%.

What is the effect of the irrecoverable debt and the adjustment to the provision for doubtful debts
on the profit for the year ended 31 March 2022?

A decrease $750
B decrease $800
C decrease $1200
D decrease $1250
26 A club received subscriptions from members totalling $12 600 in the year ended 30 April 2019.

The following information was available.

at 30 April 2018 at 30 April 2019

$ $

subscriptions paid in advance 1300 –

subscriptions in arrears 800 1100

Which amount appeared in the income and expenditure account for subscriptions for the year ended
30 April 2019?

A $ 11 000 B $11 600 C $13 600 D $14 200

27 Which statements about the accumulated fund of a society are correct?

1. A surplus will increase the accumulated fund and a deficit will reduce it.
2. It includes all monies received and paid during the year.
3. Members cannot make drawings from the accumulated fund.
4. The accumulated fund is shown as an asset in the statement of financial position.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 3 only

28 A manufacturing company provided the following information.

cost of raw materials 186 000

direct wages 75 000
machinery depreciation 45 000
factory supervisor’s salary 32 000
factory rent 24 000
machinery repairs 18 000

What was the prime cost of manufacturing?

A $186 000 B $261 000 C $293 000 D $380 000

[Turn over
29 Sam’s work in progress was $6500 at the start of the year and $11 200 at the end of the year.

When Sam prepared his manufacturing account, he forgot to make the adjustment for work in
progress.

How did this omission affect the cost of production and the gross profit?

cost of production gross profit

A overstated overstated
B overstated understated
C understated overstated
D understated understated

30 Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The
closing inventory was $3200.

What were the purchases for the year?

A $41 250 B $44 000 C $44 450 D $47 200

31 Miriam does not maintain a full set of accounting records. Only the purchases for the year and
asset and liability values at the year end are known.

Which financial statements can be prepared using this information?

income statement
statement of affairs

A ✓ ✓
B ✓ ✗
C ✗ ✓
D ✗ ✗
32 Abhinav provided the following information.

year ended year ended

31 December 2019 31 December 2020
$ $

purchases 112 500 124 000

cost of sales 115 500 120 000

inventory $

1 January 2019 7000

31 December 2019 4000
31 December 2020 8000

What was the rate of inventory turnover for the year ended 31 December 2020?

A 15 times B 20 times C 21 times D 30 times

33 Miranda’s gross margin fell from 25% in year 1 to 15% in year 2.

What may have caused this?

A Miranda paid less for her purchases in year 2.

B Miranda purchased fewer goods in year 2.
C Miranda reduced her selling prices in year 2.
D Miranda sold fewer goods in year 2.

34 Ralph wants to compare the accounting ratios for his business with the accounting ratios of his
brother’s business.

What would prevent Ralph from making a meaningful comparison?

A The businesses buy from different suppliers.

B The businesses have different selling prices.
C The businesses present their ledger accounts differently.
D The businesses use different accounting policies.

[Turn over
35 Which statement correctly describes the principle of realisation?

A Profit is earned when a cheque is received from a customer in payment for goods supplied.
B Profit is earned when a cheque received from a customer is paid into the business bank
account.
C Profit is earned when the goods are supplied, and ownership passes to the customer.
D Profit is earned when the customer places an order for the goods.
1 How does a trader use the information provided by financial statements?

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade receivables
C to check the balance shown on a bank statement
D to compare the business performance over a number of years

2 The balances remaining on the books of a business after the preparation of the income statement
included the following:

loan from XYY Finance 10 000

wages due 620
rent prepaid 240
trade receivables 3 300
trade payables 4 650
motor vehicles 8 000
provision for depreciation of motor vehicles 2 000

What was the total of the liabilities?

A $13 920 B $14 890 C $15 270 D $17 270

3 Jameel’s financial year ends on 31 December. On 1 January 2021 he brought down a debit balance
on his stationery account.

What does this balance represent?

A amount owing for stationery on 1 January 2021

B amount paid for stationery during 2020
C cost of stationery used during 2020
D inventory of stationery on 1 January 2021
4 Alex issued credit notes in August and entered them in the correct book of prime entry.

How was the total of this book of prime entry recorded in the nominal ledger at the end of August?

A credited to the purchases returns account

B debited to the purchases returns account
C credited to the sales returns account
D debited to the sales returns account

5 Which business documents are used as sources of information to make entries in the cash book?

A bank statement, cheque counterfoil, invoice, paying-in slip

B bank statement, cheque counterfoil, invoice, receipt
C bank statement, cheque counterfoil, paying-in slip, receipt
D cheque counterfoil, paying-in slip, petty cash voucher, receipt

6 What is the double entry for recording a cheque payment to a credit supplier?

debit credit

A bank account purchases ledger account

B bank account sales ledger account
C purchases ledger account bank account
D sales ledger account bank account

7 A book-keeper made two errors which cancelled each other out.

Which type of error did he make?

A compensating
B complete reversal
C original entry
D principle

[Turn over
8 The totals of a trial balance did not agree and $200 was debited to a suspense account. The
book-keeper then checked the books and found the following two errors.

1. A sales invoice for $700 had been recorded in the sales journal as $770.
2. The sales journal had been totalled incorrectly.

What error was made when the sales journal was totalled?

A overcast by $130
B overcast by $200
C undercast by $130
D undercast by $200

9 A trader took some goods from the business for his own use. He credited the purchases account
with the cost price of the goods, $200, and credited the sales account with the selling price, $300.

Which entries did he make to correct the error?

debit $ credit $

A drawings 200 suspense 300

income statement 100
B drawings 200 suspense 500
sales 300
C suspense 300 drawings 200
income statement 100
D suspense 500 drawings 200
sales 300

10 What would result in the cash book balance being lower than the bank statement balance?

A A cheque received from a customer was not recorded in the bank statement.
B A customer’s cheque dishonoured by the bank appeared only on the bank statement.
C Payment by a customer directly into the bank was not recorded in the cash book.
D Payment of insurance by standing order was not recorded in the cash book.
11 The bank statement of a business showed a credit balance of $280 on 31 December.

At that date there were unpresented cheques of $312.

A standing order of $20 had been incorrectly entered as $22 on the bank statement.

What was the balance in the bank column of the cash book on 31 December?

A $30 credit
B $30 debit
C $34 credit
D $34 debit

12 A business keeps a complete set of books of accounts.

What is not used as a source of information for making entries in control accounts?

A cash book
B general journal
C purchases journal
D sales ledger

13 Which item would not appear in the purchases ledger control account?

A contra entry
B discounts received
C interest charged
D returns inwards

14 The cost of repairs to machinery was debited to the machinery account.

What was the effect of this error?

non-current assets profit for the year

A overstated overstated
B overstated understated
C understated overstated
D understated understated

[Turn over
15 Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on
the reducing balance basis.

Which journal entry records the depreciation for the year ended 31 December 2019?

debit credit
$ $
A income statement 1920
provision for depreciation of motor vehicles 1920
B income statement 3200
provision for depreciation of motor vehicles 3200
C provision for depreciation of motor vehicles 1920
motor vehicles 1920
D provision for depreciation of motor vehicles 3200
motor vehicles 3200

16 A trader sold one of his vehicles.

What is the journal entry to remove the total depreciation on the vehicle sold?

account debited account credited

A disposal of motor vehicles provision for depreciation of motor

vehicles
B income statement disposal of motor vehicles
C provision for depreciation of motor motor vehicles
vehicles
D provision for depreciation of motor disposal of motor vehicles
vehicles

17 Why is it important to match costs and revenues?

A so that every debit entry has a corresponding credit entry

B so that the business does not incur any losses
C to enable a better comparison of profit from year to year
D to ensure that the bank balance is accurate
18 Devendra prepared the following journal entry.

debit credit
$ $

irrecoverable debts 714

Tobias 714

Which statement is correct?

A Devendra has provided for a doubtful debt owed by Tobias.

B Devendra has received the amount due from Tobias.
C Tobias cannot pay the amount due to Devendra.
D Tobias paid an amount previously written off by Devendra.

19 Alex purchased goods costing $1000. She planned to resell the goods at a mark-up rate of 25%.
These goods were unsold at the year end and were found to be damaged. Alex estimated that they
could be sold for $600.

What value should be shown for these goods in the year-end financial statements?

A $400 B $600 C $750 D $1250

20 'Unlimited liability’ is one of the disadvantages of operating as a sole trader.

What is the correct explanation of unlimited liability?

A A sole trader cannot take a bank loan.

B A sole trader has to manage their business alone.
C A sole trader cannot use their private funds to repay business loans.
D A sole trader may lose both their business and personal funds.

21 Which item is a current asset?

A bank overdraft
B loan repayable in 12 months
C prepaid income
D work in progress

[Turn over
22 Where is interest on drawings entered in the accounting records of a partnership business?

appropriation partner’s capital partner's current

account account account

A debit no entry credit

B credit no entry debit
C debit credit no entry
D credit debit no entry

23 T Limited was formed on 1 April 2019. A total of 220 000 shares of $2 each were issued and
shareholders were asked to pay 75% of the share value immediately and 25% on 1 April 2020.

By 1 June 2019 holders of 190 000 shares had paid the amount due.

What was the paid up capital on 1 June 2019?

A $ 285 000 B $330 000 C $380 000 D $440 000

24 Which items would appear in the statement of changes in equity of X Limited for the year ended
30 June 2020?

1. interim dividend paid on 31 March 2020

2. proposed dividend for the year ended 30 June 2020
3. proposed final dividend for the year ended 30 June 2019 paid on 31 October 2019
4. transfer to general reserve on 30 June 2020

A 1, 3 and 4 B 1 and 3 only C 2, 3 and 4 D 2 and 4 only

25 A company’s financial year ends on 31 March.

On 31 March 2021 trade receivables were $45 000. On 31 March 2022 trade receivables were
$41 000. An irrecoverable debt of $1000 is yet to be written off at 31 March 2022.

The provision for doubtful debts is to be maintained at 5%.

What is the effect of the irrecoverable debt and the adjustment to the provision for doubtful debts
on the profit for the year ended 31 March 2022?

A decrease $750
B decrease $800
C decrease $1200
D decrease $1250
26 A club received subscriptions from members totalling $12 600 in the year ended 30 April 2019.

The following information was available.

at 30 April 2018 at 30 April 2019

$ $

subscriptions paid in advance 1300 –

subscriptions in arrears 800 1100

Which amount appeared in the income and expenditure account for subscriptions for the year ended
30 April 2019?

A $ 11 000 B $11 600 C $13 600 D $14 200

27 Which statements about the accumulated fund of a society are correct?

1. A surplus will increase the accumulated fund and a deficit will reduce it.
2. It includes all monies received and paid during the year.
3. Members cannot make drawings from the accumulated fund.
4. The accumulated fund is shown as an asset in the statement of financial position.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 3 only

28 A manufacturing company provided the following information.

cost of raw materials 186 000

direct wages 75 000
machinery depreciation 45 000
factory supervisor’s salary 32 000
factory rent 24 000
machinery repairs 18 000

What was the prime cost of manufacturing?

A $186 000 B $261 000 C $293 000 D $380 000

[Turn over
29 Sam’s work in progress was $6500 at the start of the year and $11 200 at the end of the year.

When Sam prepared his manufacturing account, he forgot to make the adjustment for work in
progress.

How did this omission affect the cost of production and the gross profit?

cost of production gross profit

A overstated overstated
B overstated understated
C understated overstated
D understated understated

30 Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The
closing inventory was $3200.

What were the purchases for the year?

A $41 250 B $44 000 C $44 450 D $47 200

31 Miriam does not maintain a full set of accounting records. Only the purchases for the year and
asset and liability values at the year end are known.

Which financial statements can be prepared using this information?

income statement
statement of affairs

A ✓ ✓
B ✓ ✗
C ✗ ✓
D ✗ ✗
32 Abhinav provided the following information.

year ended year ended

31 December 2019 31 December 2020
$ $

purchases 112 500 124 000

cost of sales 115 500 120 000

inventory $

1 January 2019 7000

31 December 2019 4000
31 December 2020 8000

What was the rate of inventory turnover for the year ended 31 December 2020?

A 15 times B 20 times C 21 times D 30 times

33 Miranda’s gross margin fell from 25% in year 1 to 15% in year 2.

What may have caused this?

A Miranda paid less for her purchases in year 2.

B Miranda purchased fewer goods in year 2.
C Miranda reduced her selling prices in year 2.
D Miranda sold fewer goods in year 2.

34 Ralph wants to compare the accounting ratios for his business with the accounting ratios of his
brother’s business.

What would prevent Ralph from making a meaningful comparison?

A The businesses buy from different suppliers.

B The businesses have different selling prices.
C The businesses present their ledger accounts differently.
D The businesses use different accounting policies.

[Turn over
35 Which statement correctly describes the principle of realisation?

A Profit is earned when a cheque is received from a customer in payment for goods supplied.
B Profit is earned when a cheque received from a customer is paid into the business bank
account.
C Profit is earned when the goods are supplied, and ownership passes to the customer.
D Profit is earned when the customer places an order for the goods.
1 A trader prepares financial statements each year.

What do these assist the trader to do?

A calculate the amount owing to credit suppliers

B calculate the cash drawings
C check the bank statement balance
D make decisions about the future

2 The following balances appeared in Hussein's books.

fixtures 6000
inventory 3300
trade receivables 3000
trade payables 4500
other receivables 500
other payables 300
loan to Imran 1000
bank overdraft 1400

What was the total of the liabilities?

A $4800 B $6200 C $6400 D $7200

3 The following account appeared in the books of Mary.

Paul account
$ $

April 1 balance b/d 90 April 21 returns 25

14 sales 150 30 bank 88
discount 2
balance c/d 125
240 240

Which statement is correct?

A On 1 April Paul owed Mary $90.

B On 14 April Paul sold goods, $150, to Mary.
C On 21 April Mary returned goods, $25, to Paul.
D On 30 April Mary owed Paul $125.

4 Which business document is used to update the cash book for standing order payments?

A bank statement
B cheque counterfoil
C paying-in slip
D receipt

5 On 1 March 2020 the bank column of a cash book had a credit balance of $290.

During March cheques totalling $580 were received and cheques totalling $610 were paid to
suppliers. Bank charges of $12 incurred in February were also entered in the cash book.

What was the balance of the bank column in the cash book on 1 April 2020?

A $248 credit
B $248 debit
C $332 credit
D $332 debit

[Turn over
6 Ziningi prepared a trial balance. The total of the debit column was $225 750 and the total of the
credit column was $225 250.

What could explain the difference?

A Bank overdraft, $250, was recorded as a debit balance.

B Inventory, $500, was included as a debit balance.
C Purchases returns, $250, were included as a credit balance.
D Sales returns, $250, were included as a debit balance.

7 Rent received from a tenant was debited to the rent receivable account and credited to the cash
book.

Which type of error has been made?

A commission
B compensating
C complete reversal
D principle

8 A computer system purchased from Ace Computers for $1430 had been incorrectly recorded as
$1340 and was entered in the stationery account instead of the office equipment account.

Which journal entry corrects this error?

debit credit
$ $

A Ace computers 90
stationery 1340
office equipment 1340

B Ace computers 90
stationery 1340
office equipment 1430

C office equipment 1340

Ace computers 90
stationery 1340

D office equipment 1430

Ace computers 90
stationery 1340
9 Kate calculated her draft profit for the year at $28 400.

She later discovered the following errors.

1 Rent prepaid by Kate was understated by $1000.

2 Closing inventory was understated by $1500.

What was the correct profit for the year?

A $25 900 B $27 900 C $28 900 D $30 900

10 What would not be included in a sales ledger control account?

A cash sales recorded in the cash book

B cheques received from credit customers recorded in the cash book
C goods sold on credit recorded in the sales journal
D irrecoverable debts written off recorded in the journal

11 A trader debited the cost of repairing office equipment to the office equipment account.

How did this error affect the financial statements?

profit for non-current

the year assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

12 A trader uses the reducing balance method of depreciation.

What effect will this have over the life of the non-current asset?

A depreciation charged evenly over the years

B more depreciation charged in the early years
C more depreciation charged in the later years
D the non-current asset being revalued each year

[Turn over
13 Rashid provided the following information at 31 December.

machinery at cost 52 000

provision for depreciation of machinery 23 000

Depreciation for the year is calculated at 20% on cost.

After the statement of financial position was prepared it was found that the machinery repairs
costing $2000 had been debited to the machinery account.

What is the correct balance on the provision for the depreciation of machinery account?

A $21 000 B $22 600 C $23 400 D $25 000

14 At the end of his financial year on 31 August 2020 a trader had prepaid insurance.

How will this appear in the insurance account and the statement of financial position at
31 August 2020?

insurance account statement of financial position

A credit balance carried down current asset

B credit balance carried down current liability
C debit balance carried down current asset
D debit balance carried down current liability
15 Hayley’s financial year ends on 30 September 2020. She provided the following information.

$
on 1 October 2019
rent receivable accrued 480
during the year ended 30 September 2020
rent received 6800
On 30 September 2020
rent received in advance 720

Which journal entry would be made on 30 September 2020?

debit credit
$ $
A income statement 5600
rent receivable 5600
B income statement 6560
rent receivable 6560
C rent receivable 5600
income statement 5600
D rent receivable 6560
income statement 6560

16 The balances in the books of Jason on 1 July 2019 included the following.

trade receivables 64 200

provision for doubtful debts 1 284

Trade receivables at 30 June 2020 were $58 500, of which $500 should be written off as
irrecoverable.

Jason wants to maintain his provision for doubtful debts at 2% of trade receivables.

What was the change in the provision for doubtful debts at 30 June 2020?

A $114 decrease
B $124 decrease
C $376 increase
D $386 increase

[Turn over
17 Nirmal sells two products, product G and product H.

The following information is available about his inventory at the end of the financial year.

number cost price net realisable

product
of units per unit value per unit

G 1000 $2.00 $2.50

H 800 $1.50 $1.20

It was found that 100 units of product G were damaged and were unsaleable.

What was the total value of Nirmal’s inventory?

A $2760 B $3000 C $3260 D $3460

18 Which items will not be shown in an income statement prepared for a service business?

1 cost of sales
2 gross profit
3 profit for the year
4 wages paid to employees

A 1 only B 1 and 2 C 2 and 4 D 3 and 4

19 A trader provided the following information.

capital at 1 October 2019 52 000

motor vehicle given to the business by the trader 3 500
personal expenses paid out of business bank account 1 500
cash drawings made during the year 500

What was the capital at 30 September 2020?

A $46 500 B $50 000 C $53 500 D $55 000

20 John and Mark are in partnership. Profits and losses are shared in the ratio 3 : 2. John is entitled
to an annual salary of $12 000. The profit for the year ended 31 August 2020 was $52 000.

How much would be credited to the partners’ current accounts on 31 August 2020?

John’s Mark’s
current account current account
$ $

A 24 000 16 000
B 26 000 26 000
C 31 200 20 800
D 36 000 16 000

21 A partnership maintains both current and capital accounts for each partner. An inexperienced
book-keeper prepared the following account which contains errors.

Owen capital account

$ $

balance c / d 135 000 balance b / d 100 000

loan made to partnership 30 000
interest on capital 5 000
135 000 135 000

What should appear as the closing balance on Owen’s capital account?

A $75 000 B $100 000 C $105 000 D $130 000

22 Z Limited provided the following information.

5% debentures 50 000
general reserve 25 000
issued ordinary share capital 300 000
retained earnings 75 000
short-term bank loan 10 000

What was the equity?

A $325 000 B $400 000 C $450 000 D $460 000

[Turn over
23 Which statement about preference shares is not correct?

A Preference shareholders do not have voting rights.

B Preference shareholders receive a fixed dividend.
C Preference shareholders have a prior claim before ordinary shareholders in the event of
liquidation.
D Preference shareholders receive their dividend after the ordinary shareholders have been
paid.

24 A sports club was formed on 1 September 2019.

What may appear in the receipts and payments account for the year ended 31 August 2020?

A closing bank balance

B closing inventory of club shop
C depreciation of sports equipment
D subscriptions in arrears

25 A manufacturing company provided the following information.

cost of raw materials 186 000

direct wages 75 000
machinery depreciation 45 000
factory supervisor’s salary 32 000
factory rent 24 000
machinery repairs 18 000

What was the prime cost of manufacturing?

A $186 000 B $261 000 C $293 000 D $380 000

26 A manufacturer’s work in progress at the start of the year was valued at $850. At the end of the
year it was valued at $10 200.

What was the effect of this increase on the cost of production and the cost of sales?

cost of cost of
production sales

A decrease decrease
B decrease increase
C increase decrease
D increase increase

27 A trader made the following forecasts for the business for the next financial year.

average inventory $80 000

rate of inventory turnover 6 times
mark-up 25%

What are the forecast sales for the next financial year?

A $360 000 B $480 000 C $576 000 D $600 000

28 Kim’s trade payables turnover increased.

What could have caused this?

A Kim’s customers took longer to pay their accounts.

B Kim’s credit purchases increased.
C Kim’s sales revenue increased.
D Kim took longer to pay her credit suppliers.

[Turn over
29 A company provided the following information about its rate of inventory turnover.

year 1 24 times
year 2 25 times
year 3 27 times

What would explain the changes in the ratio?

A cost of sales is decreasing

B inventory is increasing
C sales volume is increasing
D selling price is increasing

30 A company provided the following information about its current ratio.

year 1 2.3 : 1
year 2 2.4 : 1
year 3 2.5 : 1

What would explain the changes in the ratio?

A Inventory is decreasing.
B Other payables are increasing.
C Other receivables are increasing.
D Trade receivables are decreasing.

31 A trader wants to improve his gross margin.

How can this be done?

A Reduce administrative expenses.

B Reduce depreciation of equipment.
C Reduce rate of cash discount allowed.
D Reduce rate of trade discount allowed.
32 Zak has depreciated his machinery at the rate of 20% per annum using the straight-line method.

At 31 December 2018 the statement of financial position included:

machinery at cost 30 000

depreciation to date 12 000
18 000

On 31 December 2019 Zak was considering calculating the annual depreciation at 20% per
annum on the net book value of the machinery.

Which statement is correct?

A depreciation would be $3600 applying the consistency principle

B depreciation would be $3600 applying the prudence principle
C depreciation would be $6000 applying the consistency principle
D depreciation would be $6000 applying the prudence principle

33 The financial statements of a business are prepared on the basis that it will continue to operate
for many years into the future.

Which accounting principle is being applied?

A business entity
B going concern
C money measurement
D realisation

34 When Marina opened a business she purchased a stapler for the office.

She recorded this as office expenses rather than as office equipment.

Which accounting principle did Marina apply?

A consistency
B historic cost
C materiality
D prudence

[Turn over
35 What is not an aim of international accounting standards?

A to ensure accounting standards in different countries agree

B to establish an organisation to set standards in every country
C to make it easier to compare companies’ financial statements
D to reduce the variety of accounting practices worldwide
1 A trader prepares financial statements each year.

What do these assist the trader to do?

A calculate the amount owing to credit suppliers

B calculate the cash drawings
C check the bank statement balance
D make decisions about the future

2 What is not an example of a book-keeping entry?

A an entry made in the bank column of the cash book for a cheque received
B cost of goods purchased on credit entered in the supplier’s account
C expenses paid during the year entered in the income statement
D goods returned by a customer entered in the sales returns journal

3 The following balances appeared in Hussein's books.

fixtures 6000
inventory 3300
trade receivables 3000
trade payables 4500
other receivables 500
other payables 300
loan to Imran 1000
bank overdraft 1400

What was the total of the liabilities?

A $4800 B $6200 C $6400 D $7200

4 What does the owner’s equity consist of?

A the amount of money in the business bank account

B the amount owed by the business to the owner
C the total of the assets owned by the business
D the total of the current assets less the current liabilities
5 Which entries did Sally make to record the following transaction?

Rashid, a credit customer, returned damaged goods.

account to account to
be debited be credited

A purchase returns Rashid

B Rashid purchase returns
C sales returns Rashid
D Rashid sales returns

6 The following account appeared in the books of Mary.

Paul account
$ $

April 1 balance b/d 90 April 21 returns 25

14 sales 150 30 bank 88
discount 2
balance c/d 125
240 240

Which statement is correct?

A On 1 April Paul owed Mary $90.

B On 14 April Paul sold goods, $150, to Mary.
C On 21 April Mary returned goods, $25, to Paul.
D On 30 April Mary owed Paul $125.

7 In which sections of Zamir’s ledger would the following accounts be maintained?

1 the sales account

2 the account of Harjit, a trade receivable

sales account Harjit account

A nominal (general) ledger purchases ledger

B nominal (general) ledger sales ledger
C purchases ledger sales ledger
D sales ledger purchases ledger

[Turn over
8 Sue allows 2% cash discount to credit customers who settle their account within 28 days. Jane
purchased goods, list price $200, on 10 September. She returned these goods on 15 September.

Which entry would Sue make on 15 September?

A purchases returns journal $196

B purchases returns journal $200
C sales returns journal $196
D sales returns journal $200

9 A transaction was posted to the wrong account of the same class.

Which type of error was made?

A commission
B original entry
C principle
D reversal

10 Motor vehicle expenses, $50, were incorrectly debited to the motor vehicles account.

Which journal entry corrects this error?

debit credit
$ $

A motor vehicle expenses 50

motor vehicles 50
B motor vehicles 50
motor vehicle expenses 50
C motor vehicles expenses 50
motor vehicles 50
suspense 100
D suspense 100
motor vehicles expenses 50
motor vehicles 50
11 Kate calculated her draft profit for the year at $28 400.

She later discovered the following errors.

1 Rent prepaid by Kate was understated by $1000.

2 Closing inventory was understated by $1500.

What was the correct profit for the year?

A $25 900 B $27 900 C $28 900 D $30 900

12 A trader’s bank statement showed a credit balance of $2940. The following items had not been
entered in the cash book.

bank interest received 70

credit transfer 280

What was the debit balance in the cash book before it was updated?

A $2590 B $2730 C $3150 D $3290

13 What is a purpose of preparing a sales ledger control account?

A to identify irrecoverable debts

B to make fraud more difficult
C to provide the total owed to trade payables
D to show the total of cash and credit sales

14 George is preparing his purchases ledger control account.

Which information would he obtain from his general journal?

A contra entries with the sales ledger

B goods returned to credit suppliers
C irrecoverable debts written off
D refunds received from credit suppliers

[Turn over
15 A trader debited the cost of repairing office equipment to the office equipment account.

How did this error affect the financial statements?

profit for non-current

the year assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

16 Rashid provided the following information at 31 December.

machinery at cost 52 000

provision for depreciation of machinery 23 000

Depreciation for the year is calculated at 20% on cost.

After the statement of financial position was prepared it was found that the machinery repairs
costing $2000 had been debited to the machinery account.

What is the correct balance on the provision for the depreciation of machinery account?

A $21 000 B $22 600 C $23 400 D $25 000

17 A machine which cost $32 000 was sold for $14 000. The total depreciation at the date of disposal
was $15 000.

What was the profit or loss on disposal?

A $3000 profit
B $3000 loss
C $18 000 profit
D $18 000 loss
18 Beena maintains a provision for doubtful debts of 3% of the trade receivables at the end of each
financial year.

On 1 September 2019 the provision for doubtful debts was $900.

On 31 August 2020 the trade receivables amounted to $42 800.

Which journal entry did Beena make on 31 August 2020?

debit credit
$ $
A income statement 384
provision for doubtful debts 384
B income statement 1284
provision for doubtful debts 1284
C provision for doubtful debts 384
income statement 384
D provision for doubtful debts 1284
income statement 1284

19 Nirmal sells two products, product G and product H.

The following information is available about his inventory at the end of the financial year.

number cost price net realisable

product
of units per unit value per unit

G 1000 $2.00 $2.50

H 800 $1.50 $1.20

It was found that 100 units of product G were damaged and were unsaleable.

What was the total value of Nirmal’s inventory?

A $2760 B $3000 C $3260 D $3460

20 What is not a service business?

A hairdressing salon
B accountant’s practice
C supermarket
D computer repair shop

[Turn over
21 The financial year of Peter ends on 30 September. On 1 August 2020 Peter received rent $1000.
This covered the period from 1 July to 30 November 2020.

Which entry will be made in Peter’s statement of financial position on 30 September 2020?

A current asset $400

B current asset $500
C current liability $400
D current liability $500

22 In addition to a share of the profit a partner receives interest on capital, a salary and is charged
interest on drawings.

How are these recorded in the ledger accounts of the partner?

interest on capital salary interest on drawings

A credit capital account credit current account debit capital account

B credit current account debit capital account credit current account
C credit current account credit current account debit current account
D debit current account debit current account credit current account

23 A sports club provided the following information.

subscriptions for the year 26 800

profit on sale of refreshments 4 200
depreciation 1 500
rent and insurance 12 600
wages 3 200

What was the total income for the year?

A $15 800 B $17 300 C $22 600 D $31 000

24 A club was formed on 1 July 2019.

During the year ended 30 June 2020 subscriptions received from members totalled $2500.

This included $120 paid in advance for the next financial year. Subscriptions outstanding on
30 June 2020 amounted to $280.

How much was recorded for subscriptions in the income and expenditure account for the year
ended 30 June 2020?

A $2100 B $2500 C $2660 D $2780

25 Anthony does not keep a full set of accounting records. He knows his opening and closing cash
balances and wishes to calculate his cash sales.

Which item does Anthony not need in order to calculate his cash sales?

A cash banked
B cash discount
C cash drawings
D cash expenses

26 A trader has not maintained a full set of accounting records.

How can she calculate the credit sales for the year?

A receipts from credit customers + closing trade receivables – discount allowed

– opening trade receivables
B receipts from credit customers – closing trade receivables + discount allowed
+ opening trade receivables
C receipts from credit customers – closing trade receivables – discount allowed
+ opening trade receivables
D receipts from credit customers + closing trade receivables + discount allowed
– opening trade receivables

27 A trader made the following forecasts for the business for the next financial year.

average inventory $80 000

rate of inventory turnover 6 times
mark-up 25%

What are the forecast sales for the next financial year?

A $360 000 B $480 000 C $576 000 D $600 000

[Turn over
28 A company provided the following information about its current ratio.

year 1 2.3 : 1
year 2 2.4 : 1
year 3 2.5 : 1

What would explain the changes in the ratio?

A Inventory is decreasing.
B Other payables are increasing.
C Other receivables are increasing.
D Trade receivables are decreasing.

29 A trader wants to improve his gross margin.

How can this be done?

A Reduce administrative expenses.

B Reduce depreciation of equipment.
C Reduce rate of cash discount allowed.
D Reduce rate of trade discount allowed.

30 Meesha provided the following information for her first year of trading.

sales (1000 units at $10 each) 10 000

cost of sales (1000 units at $4.50 each) 4 500
gross profit 5 500

In her second year of trading, Meesha reduced the selling price and sold 1500 units. Her gross
profit decreased by $250. There was no change in the cost per unit.

What was the total value of sales in the second year of trading?

A $9750 B $10 250 C $12 000 D $12 500

31 AB Limited and CD Limited both started business on 1 January 2019 with an ordinary share
capital of $100 000. Neither company had any debentures or loans.

Both companies had the same profit in 2019.

Only AB Limited paid a dividend.

The return on capital employed (ROCE) was calculated using closing capital employed.

Which statement about AB Limited’s ROCE is correct when compared to that of CD Limited?

A It is higher because the dividend reduced retained earnings.

B It is lower because the dividend reduced capital employed.
C It is lower because the dividend reduced the profit for the year.
D It is the same as that of CD Limited.

32 Which interested party uses the financial statements of a business to assess current performance
and plan for future activities?

A banks
B employees
C government
D managers

33 The special skills of the employees are not recorded in the financial statements of a business.

Which accounting principle is being applied?

A historic cost
B materiality
C money measurement
D realisation

34 How can a business comply with the accounting principle of prudence?

assets losses

A avoid overstating avoid overstating

B avoid overstating avoid understating
C avoid understating avoid overstating
D avoid understating avoid understating

[Turn over
35 What is not an aim of international accounting standards?

A to ensure accounting standards in different countries agree

B to establish an organisation to set standards in every country
C to make it easier to compare companies’ financial statements
D to reduce the variety of accounting practices worldwide
1 A trader prepares financial statements each year.

What do these assist the trader to do?

A calculate the amount owing to credit suppliers

B calculate the cash drawings
C check the bank statement balance
D make decisions about the future

2 The following balances appeared in Hussein's books.

fixtures 6000
inventory 3300
trade receivables 3000
trade payables 4500
other receivables 500
other payables 300
loan to Imran 1000
bank overdraft 1400

What was the total of the liabilities?

A $4800 B $6200 C $6400 D $7200

3 The following account appeared in the books of Mary.

Paul account
$ $

April 1 balance b/d 90 April 21 returns 25

14 sales 150 30 bank 88
discount 2
balance c/d 125
240 240

Which statement is correct?

A On 1 April Paul owed Mary $90.

B On 14 April Paul sold goods, $150, to Mary.
C On 21 April Mary returned goods, $25, to Paul.
D On 30 April Mary owed Paul $125.

4 Which business document is used to update the cash book for standing order payments?

A bank statement
B cheque counterfoil
C paying-in slip
D receipt

5 On 1 March 2020 the bank column of a cash book had a credit balance of $290.

During March cheques totalling $580 were received and cheques totalling $610 were paid to
suppliers. Bank charges of $12 incurred in February were also entered in the cash book.

What was the balance of the bank column in the cash book on 1 April 2020?

A $248 credit
B $248 debit
C $332 credit
D $332 debit

[Turn over
6 Ziningi prepared a trial balance. The total of the debit column was $225 750 and the total of the
credit column was $225 250.

What could explain the difference?

A Bank overdraft, $250, was recorded as a debit balance.

B Inventory, $500, was included as a debit balance.
C Purchases returns, $250, were included as a credit balance.
D Sales returns, $250, were included as a debit balance.

7 Rent received from a tenant was debited to the rent receivable account and credited to the cash
book.

Which type of error has been made?

A commission
B compensating
C complete reversal
D principle

8 A computer system purchased from Ace Computers for $1430 had been incorrectly recorded as
$1340 and was entered in the stationery account instead of the office equipment account.

Which journal entry corrects this error?

debit credit
$ $

A Ace computers 90
stationery 1340
office equipment 1340

B Ace computers 90
stationery 1340
office equipment 1430

C office equipment 1340

Ace computers 90
stationery 1340

D office equipment 1430

Ace computers 90
stationery 1340
9 Kate calculated her draft profit for the year at $28 400.

She later discovered the following errors.

1 Rent prepaid by Kate was understated by $1000.

2 Closing inventory was understated by $1500.

What was the correct profit for the year?

A $25 900 B $27 900 C $28 900 D $30 900

10 What would not be included in a sales ledger control account?

A cash sales recorded in the cash book

B cheques received from credit customers recorded in the cash book
C goods sold on credit recorded in the sales journal
D irrecoverable debts written off recorded in the journal

11 A trader debited the cost of repairing office equipment to the office equipment account.

How did this error affect the financial statements?

profit for non-current

the year assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

12 A trader uses the reducing balance method of depreciation.

What effect will this have over the life of the non-current asset?

A depreciation charged evenly over the years

B more depreciation charged in the early years
C more depreciation charged in the later years
D the non-current asset being revalued each year

[Turn over
13 Rashid provided the following information at 31 December.

machinery at cost 52 000

provision for depreciation of machinery 23 000

Depreciation for the year is calculated at 20% on cost.

After the statement of financial position was prepared it was found that the machinery repairs
costing $2000 had been debited to the machinery account.

What is the correct balance on the provision for the depreciation of machinery account?

A $21 000 B $22 600 C $23 400 D $25 000

14 At the end of his financial year on 31 August 2020 a trader had prepaid insurance.

How will this appear in the insurance account and the statement of financial position at
31 August 2020?

insurance account statement of financial position

A credit balance carried down current asset

B credit balance carried down current liability
C debit balance carried down current asset
D debit balance carried down current liability
15 Hayley’s financial year ends on 30 September 2020. She provided the following information.

$
on 1 October 2019
rent receivable accrued 480
during the year ended 30 September 2020
rent received 6800
On 30 September 2020
rent received in advance 720

Which journal entry would be made on 30 September 2020?

debit credit
$ $
A income statement 5600
rent receivable 5600
B income statement 6560
rent receivable 6560
C rent receivable 5600
income statement 5600
D rent receivable 6560
income statement 6560

16 The balances in the books of Jason on 1 July 2019 included the following.

trade receivables 64 200

provision for doubtful debts 1 284

Trade receivables at 30 June 2020 were $58 500, of which $500 should be written off as
irrecoverable.

Jason wants to maintain his provision for doubtful debts at 2% of trade receivables.

What was the change in the provision for doubtful debts at 30 June 2020?

A $114 decrease
B $124 decrease
C $376 increase
D $386 increase

[Turn over
17 Nirmal sells two products, product G and product H.

The following information is available about his inventory at the end of the financial year.

number cost price net realisable

product
of units per unit value per unit

G 1000 $2.00 $2.50

H 800 $1.50 $1.20

It was found that 100 units of product G were damaged and were unsaleable.

What was the total value of Nirmal’s inventory?

A $2760 B $3000 C $3260 D $3460

18 Which items will not be shown in an income statement prepared for a service business?

1 cost of sales
2 gross profit
3 profit for the year
4 wages paid to employees

A 1 only B 1 and 2 C 2 and 4 D 3 and 4

19 A trader provided the following information.

capital at 1 October 2019 52 000

motor vehicle given to the business by the trader 3 500
personal expenses paid out of business bank account 1 500
cash drawings made during the year 500

What was the capital at 30 September 2020?

A $46 500 B $50 000 C $53 500 D $55 000

20 John and Mark are in partnership. Profits and losses are shared in the ratio 3 : 2. John is entitled
to an annual salary of $12 000. The profit for the year ended 31 August 2020 was $52 000.

How much would be credited to the partners’ current accounts on 31 August 2020?

John’s Mark’s
current account current account
$ $

A 24 000 16 000
B 26 000 26 000
C 31 200 20 800
D 36 000 16 000

21 A partnership maintains both current and capital accounts for each partner. An inexperienced
book-keeper prepared the following account which contains errors.

Owen capital account

$ $

balance c / d 135 000 balance b / d 100 000

loan made to partnership 30 000
interest on capital 5 000
135 000 135 000

What should appear as the closing balance on Owen’s capital account?

A $75 000 B $100 000 C $105 000 D $130 000

22 Z Limited provided the following information.

5% debentures 50 000
general reserve 25 000
issued ordinary share capital 300 000
retained earnings 75 000
short-term bank loan 10 000

What was the equity?

A $325 000 B $400 000 C $450 000 D $460 000

[Turn over
23 Which statement about preference shares is not correct?

A Preference shareholders do not have voting rights.

B Preference shareholders receive a fixed dividend.
C Preference shareholders have a prior claim before ordinary shareholders in the event of
liquidation.
D Preference shareholders receive their dividend after the ordinary shareholders have been
paid.

24 A sports club was formed on 1 September 2019.

What may appear in the receipts and payments account for the year ended 31 August 2020?

A closing bank balance

B closing inventory of club shop
C depreciation of sports equipment
D subscriptions in arrears

25 A manufacturing company provided the following information.

cost of raw materials 186 000

direct wages 75 000
machinery depreciation 45 000
factory supervisor’s salary 32 000
factory rent 24 000
machinery repairs 18 000

What was the prime cost of manufacturing?

A $186 000 B $261 000 C $293 000 D $380 000

26 A manufacturer’s work in progress at the start of the year was valued at $850. At the end of the
year it was valued at $10 200.

What was the effect of this increase on the cost of production and the cost of sales?

cost of cost of
production sales

A decrease decrease
B decrease increase
C increase decrease
D increase increase

27 A trader made the following forecasts for the business for the next financial year.

average inventory $80 000

rate of inventory turnover 6 times
mark-up 25%

What are the forecast sales for the next financial year?

A $360 000 B $480 000 C $576 000 D $600 000

28 Kim’s trade payables turnover increased.

What could have caused this?

A Kim’s customers took longer to pay their accounts.

B Kim’s credit purchases increased.
C Kim’s sales revenue increased.
D Kim took longer to pay her credit suppliers.

[Turn over
29 A company provided the following information about its rate of inventory turnover.

year 1 24 times
year 2 25 times
year 3 27 times

What would explain the changes in the ratio?

A cost of sales is decreasing

B inventory is increasing
C sales volume is increasing
D selling price is increasing

30 A company provided the following information about its current ratio.

year 1 2.3 : 1
year 2 2.4 : 1
year 3 2.5 : 1

What would explain the changes in the ratio?

A Inventory is decreasing.
B Other payables are increasing.
C Other receivables are increasing.
D Trade receivables are decreasing.

31 A trader wants to improve his gross margin.

How can this be done?

A Reduce administrative expenses.

B Reduce depreciation of equipment.
C Reduce rate of cash discount allowed.
D Reduce rate of trade discount allowed.
32 Zak has depreciated his machinery at the rate of 20% per annum using the straight-line method.

At 31 December 2018 the statement of financial position included:

machinery at cost 30 000

depreciation to date 12 000
18 000

On 31 December 2019 Zak was considering calculating the annual depreciation at 20% per
annum on the net book value of the machinery.

Which statement is correct?

A depreciation would be $3600 applying the consistency principle

B depreciation would be $3600 applying the prudence principle
C depreciation would be $6000 applying the consistency principle
D depreciation would be $6000 applying the prudence principle

33 The financial statements of a business are prepared on the basis that it will continue to operate
for many years into the future.

Which accounting principle is being applied?

A business entity
B going concern
C money measurement
D realisation

34 When Marina opened a business she purchased a stapler for the office.

She recorded this as office expenses rather than as office equipment.

Which accounting principle did Marina apply?

A consistency
B historic cost
C materiality
D prudence

[Turn over
35 What is not an aim of international accounting standards?

A to ensure accounting standards in different countries agree

B to establish an organisation to set standards in every country
C to make it easier to compare companies’ financial statements
D to reduce the variety of accounting practices worldwide
1 Why does a trader calculate the profit of his business?

A to calculate the interest payable on a loan

B to calculate the provision for doubtful debts
C to know the total expenses of the business
D to know whether drawings are at a reasonable level

2 Hassan is a trader. During the financial year he took goods from the business for his own use.

How should he record this?

debit credit

A drawings inventory
B drawings purchases
C income statement inventory
D income statement purchases

3 Where are the accounts of credit suppliers maintained?

A purchases journal
B purchases ledger
C sales journal
D sales ledger

4 Which document does a trader issue to remind a credit customer that payment is due?

A credit note
B debit note
C receipt
D statement of account

5 What is a cheque counterfoil used for?

A to pay a cheque into the bank account

B to pay for goods purchased by cheque
C to record a cheque payment in the cash book
D to record a cheque received in the cash book
6 Farouk sells goods on credit. A cheque from Khalid, a credit customer, was dishonoured by the
bank.

How should Farouk record this?

account to be debited account to be credited

A bank Khalid
B irrecoverable debts Khalid
C Khalid bank
D Khalid irrecoverable debts

7 Tumelo sells on credit. The terms of trade are listed.

list price: $200 per unit

credit period: 60 days
trade discount 15% if 10 units or more are purchased
cash discount 3% if the debt is paid within one month

A credit customer purchased 20 units and paid the debt within 15 days.

What was the total of the invoice?

A $3298 B $3400 C $3880 D $4000

8 Jane purchased goods and paid by credit transfer.

How should this be recorded in Jane’s accounting records?

account to account to
be debited be credited

A bank purchases
B purchases bank
C purchases trade payable
D trade payable purchases

9 What is shown in a trial balance?

A capital and profit on a particular date

B financial transactions for a particular period
C ledger balances on a particular date
D receipts and payments for a particular period

[Turn over
10 At the end of each year, PT Limited transfers 20% of the profit for the year to the general reserve.

Draft financial statements were prepared for the year ended 30 September 2021. It was then
discovered that the inventory at 30 September 2021 had been overstated by $1500.

Which effects did the correction of this error have on retained earnings and general reserve at
30 September 2021?

retained earnings $ general reserve $

A decrease 300 increase 300

B decrease 1200 decrease 300
C increase 300 increase 1200
D increase 1500 no effect

11 The bank columns in a trader’s cash book and the bank statement both showed positive
balances. A comparison revealed the following differences.

uncredited cheque 200

bank charges not included in cash book 10

What was the difference between the balance shown in the bank column of the cash book and
that shown on the bank statement?

A The cash book balance was $190 higher than the bank statement balance.
B The cash book balance was $190 lower than the bank statement balance.
C The cash book balance was $210 higher than the bank statement balance.
D The cash book balance was $210 lower than the bank statement balance.

12 What is a reason for preparing a sales ledger control account?

A to calculate total sales revenue

B to ensure trade receivables pay on time
C to help prepare the income statement
D to summarise the accounts of the trade receivables
13 Two companies each purchased a motor vehicle for $10 000 at the beginning of year 1. Company
G used the straight-line method of depreciation at a rate of 15% per annum, while Company H
used the reducing balance method at a rate of 20% per annum.

What was the difference in the depreciation charge between the two companies for year 2?

A $100 greater for G

B $100 greater for H
C $500 greater for G
D $500 greater for H

14 Amit’s financial year ends on 31 December. The following account appeared in his sales ledger.

Dipak account
2020 $ 2020 $

Jan 7 sales 3200 Jun 3 bank 1700

Oct 30 cash 230
Nov 21 ? 1270
3200 3200

What does the entry on 21 November represent?

A an irrecoverable debt
B discount allowed
C the balance carried down
D the recovery of a debt previously written off

15 Sally wished to increase the balance on the provision for doubtful debts account at the end of the
financial year.

How should this increase be recorded?

debit credit

A income statement provision for doubtful debts account

B irrecoverable debts account provision for doubtful debts account
C provision for doubtful debts account income statement
D provision for doubtful debts account irrecoverable debts account

[Turn over
16 The following errors were found after a statement of financial position had been prepared.

1 A loan repayable in two year’s time had been included as a current liability.
2 A provision for doubtful debts should have been created.

What is the effect of correcting these errors?

current current non-current owner’s

assets liabilities liabilities equity

A decrease decrease increase decrease

B decrease increase decrease increase
C increase decrease decrease increase
D increase increase decrease decrease

17 John maintains a full set of accounting records.

Why does he also prepare a statement of financial position?

A to calculate the profit for the year

B to check if assets equal capital plus liabilities
C to show the transactions which took place during the year
D to summarise what the business owns and what it owes

18 What are advantages of operating as a sole trader?

1 The owner can keep all the profit.

2 The owner can raise finance by issuing debentures.
3 The owner can make decisions independently.
4 The owner is protected by limited liability.

A 1 and 3 B 1 only C 2 and 3 D 2 and 4

19 Anwar is a sole trader making annual profits of $24 000. He decides to admit Dilip as a partner.
They agree that Anwar would receive a salary, and profits and losses would be shared equally.

The forecast appropriation account for the partnership’s first year of trading is:

profit for the year 50 000

salary Anwar 10 000
profit available for distribution 40 000

By how much will Anwar’s total income increase?

A $1000 B $6000 C $16 000 D $26 000

20 Kasi and Ravi are in partnership. The financial statements for the year ended 31 August 2021
showed that Ravi was entitled to interest on capital and interest on loan and was charged interest
on drawings.

Which entries would be made in Ravi’s current account?

interest on capital interest on loan interest on drawings

debit credit debit credit debit credit

A   
B  
C   
D  

[Turn over
21 BCD Limited provided the following information.

ordinary shares 300 000

retained earnings 200 000
debentures 170 000

How much was the equity and the capital employed?

equity capital employed

$ $

A 300 000 470 000

B 300 000 670 000
C 500 000 470 000
D 500 000 670 000

22 The issued share capital of CD Limited consists of ordinary shares.

Retained earnings were $86 000 on 1 September 2020 and $88 500 on 31 August 2021.

The company made a profit during the year of $26 000 and made a transfer to general reserve of
$5000.

What was the total ordinary share dividend paid during the year?

A $18 500 B $23 500 C $28 500 D $33 500

23 A sports club was formed on 1 August 2020. During the year ended 31 July 2021 the club
purchased equipment costing $5000, paying by cheque.

In which of the club’s financial statements did this appear?

receipts and payments income and expenditure statement of financial

account account position

A  
B  
C  
D 
24 What is not part of the prime cost of a manufacturing business?

A raw material
B royalties
C wages of factory supervisors
D wages of production workers

25 The value of Thato’s work in progress increased during the year. This was recorded in his
financial statements.

How did this affect the cost of production and the cost of sales?

cost of
cost of sales
production

A decreased decreased
B decreased no effect
C increased increased
D increased no effect

26 What are advantages of keeping a full set of accounting records?

1 Financial statements will be free from errors.

2 It is impossible to make fraudulent entries.
3 More informed decision-making is possible.
4 The calculation of profit is more accurate.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

27 Beth provided the following information.

1 January 31 December
net assets $28 000 $24 000

Her drawings during the year amounted to $3000.

What was Beth’s profit or loss for the year?

A $1000 loss
B $1000 profit
C $7000 loss
D $7000 profit

[Turn over
28 Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The
closing inventory was $3200.

What were the purchases for the year?

A $41 250 B $44 000 C $44 450 D $47 200

29 Which information is required to calculate the return on capital employed for a sole trader?

A gross profit, non-current liabilities, owner’s capital

B gross profit, non-current liabilities, working capital
C operating profit for the year, non-current liabilities, owner’s capital
D operating profit for the year, non-current liabilities, working capital

30 What is the best indicator of the liquidity of a business?

A current ratio
B liquid (acid test) ratio
C return on capital employed
D working capital

31 A trader provided the following information for the year ended 31 May 2021.

trade payables on 1 June 2020 12 250

trade payables on 31 May 2021 42 000
credit purchases for the year 319 375

What was the trade payables turnover (days) for the year ended 31 May 2021?

A 31 days B 34 days C 48 days D 62 days

32 A business provided the following information about its gross margin.

Year 1 40%
Year 2 38%
Year 3 35%

What could explain the changes in the gross margin?

A Cost of sales is decreasing.

B Expenses are decreasing.
C Quantity of goods sold is decreasing.
D Selling price is decreasing.

33 What is not a limitation of inter-firm comparison?

A Accounting records do not include the skills of the workforce.

B Businesses may have different accounting policies.
C Businesses may have different sales prices.
D The available information may not relate to a typical year.

34 Why would a supplier be interested in the financial statements of a credit customer?

A to know if the customer can pay what he owes

B to know the amount owed by trade receivables
C to know the profit for the year
D to know the value of the inventory

35 What does the objective of understandability assume users of financial statements will possess?

A a reasonable knowledge of accounting

B full knowledge of accounting
C knowledge of book-keeping but not accounting
D no knowledge of book-keeping or accounting
1 Which statement is correct?

A The accountant prepares the trial balance and the book-keeper prepares the financial
statements.
B The accountant writes up the journals and the book-keeper writes up the ledger accounts.
C The book-keeper writes up the journals and the accountant prepares the trial balance.
D The book-keeper writes up the ledger accounts and the accountant prepares the financial
statements.

2 Which formulas may be used for the accounting equation?

1 assets = owner’s equity minus liabilities

2 liabilities = assets minus owner’s equity
3 owner’s equity = assets plus liabilities
4 owner’s equity plus liabilities = assets

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

3 Goods purchased on credit from Zamir were returned by Ashwin.

Which entries should Zamir make to record this?

account debited account credited

A Ashwin purchase returns

B purchase returns Zamir
C sales returns Ashwin
D Zamir sales returns

4 During her first financial year, a trader paid $1800 for insurance and $3200 for rent.

At the end of the financial year, she transferred insurance of $1500 and rent of $3600 to the
income statement.

What do the balances remaining on the accounts at the end of the financial year represent?

insurance account rent account

A accrued expense accrued expense

B accrued expense prepaid expense
C prepaid expense accrued expense
D prepaid expense prepaid expense
5 Leah bought goods, $8000, less 15% trade discount. She later returned half of these goods as
they were faulty.

Which document did Leah issue to the supplier for the returned goods?

A credit note for $3400

B debit note for $3400
C credit note for $4000
D debit note for $4000

6 What is a cheque counterfoil used for?

A to make a credit entry in the bank column of a cash book

B to make a debit entry in the bank column of a cash book
C to send a payment to a supplier
D to send proof of payment to a customer

7 Farouk sells goods on credit. A cheque from Khalid, a credit customer, was dishonoured by the
bank.

How should Farouk record this?

account to be debited account to be credited

A bank Khalid
B irrecoverable debts Khalid
C Khalid bank
D Khalid irrecoverable debts

8 Why does a supplier offer trade discount?

A to avoid irrecoverable debts

B to encourage bulk buying
C to encourage payment in cash
D to reward prompt payment

[Turn over
9 Ann maintains a petty cash book using the imprest system.

Which statement is not correct?

A A petty cash book can be maintained by a junior member of staff.

B At any time petty cash vouchers plus the petty cash balance are equal to the imprest
amount.
C The chief cashier is not asked continually for small sums of money.
D The number of entries in the cash book increases because of the large number of small cash
payments.

10 A sales invoice for $800 was incorrectly recorded in the sales journal as $1800.

How did this error affect the trial balance?

A The trial balance balanced but both totals were overstated by $1000.
B The trial balance balanced but both totals were understated by $1000.
C The trial balance did not balance because the credits were overstated by $1000.
D The trial balance did not balance because the debits were understated by $1000.

11 A standing order paid for rent has not been entered into the accounting records of a business.

Which statement is correct?

A Because the payment was made automatically, no additional entries are required in the
accounting records.
B Because the payment was made automatically, only an entry in the rent account is required.
C Entries are required in the cash book and in the bank reconciliation statement.
D Entries are required in the cash book and in the nominal (general) ledger.

12 The bank statement of a business had a credit balance of $2690 on 1 October 2021. At that date
cheques totalling $850 had not yet been presented for payment.

What was the bank balance in the cash book on 1 October 2021?

A $1840 credit
B $1840 debit
C $3540 credit
D $3540 debit
13 A trader has purchased new business premises.

What are examples of capital expenditure?

1 cost of heating and lighting the new premises

2 cost of purchasing the new premises
3 legal costs of purchasing the new premises
4 office furniture purchased for use in the new premises

A 1 and 2 only B 1, 2 and 4 C 2, 3 and 4 D 3 and 4 only

14 Two companies each purchased a motor vehicle for $10 000 at the beginning of year 1. Company
G used the straight-line method of depreciation at a rate of 15% per annum, while Company H
used the reducing balance method at a rate of 20% per annum.

What was the difference in the depreciation charge between the two companies for year 2?

A $100 greater for G

B $100 greater for H
C $500 greater for G
D $500 greater for H

15 At the end of the financial year Mui had prepaid rent of $1500.

How should she record this?

A credit $1500 in the rent account and carry down as a credit balance
B credit $1500 in the rent account and carry down as a debit balance
C debit $1500 in the rent account and carry down as a credit balance
D debit $1500 in the rent account and carry down as a debit balance

[Turn over
16 After preparing draft financial statements at the end of her first year of trading, Lucy discovered
two errors.

1 Damaged inventory had been valued at cost price, $340. It was expected to sell
for $180.
2 100 items which had been expected to sell for $12 each had been valued at their
cost price of $7 each. Carriage inwards of $1 for each item had not been included in
the cost.

What was the effect of these errors on the gross profit?

A overstated $60
B overstated $240
C understated $60
D understated $240

17 Which is an advantage and a disadvantage of operating as a sole trader?

advantage disadvantage

A gains all the profit bears all the risk

B gains all the profit controls the decision-making
C provides all the capital bears all the risk
D provides all the capital controls the decision-making

18 What is shown in the capital and liabilities section of a statement of financial position of a
business?

A how the resources are being used by the business

B the working capital of the business
C total amounts owed by and to the business
D where the resources of the business have come from

19 John maintains a full set of accounting records.

Why does he also prepare a statement of financial position?

A to calculate the profit for the year

B to check if assets equal capital plus liabilities
C to show the transactions which took place during the year
D to summarise what the business owns and what it owes
20 A sole trader paid off the business’s overdraft using his own personal funds.

How did this affect the statement of financial position?

liabilities capital assets

A no effect increase increase

B decrease increase increase
C decrease increase no effect
D decrease no effect increase

21 Hassin found that he needed help to run his business. He decided to take a partner rather than
employ an assistant.

Why did he decide to take a partner?

1 An assistant would not interfere with how the shop was run.
2 An assistant would not share risk.
3 A partner would introduce some additional capital.
4 A partner would take a share of the profit.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

22 Anwar is a sole trader making annual profits of $24 000. He decides to admit Dilip as a partner.
They agree that Anwar would receive a salary, and profits and losses would be shared equally.

The forecast appropriation account for the partnership’s first year of trading is:

profit for the year 50 000

salary Anwar 10 000
profit available for distribution 40 000

By how much will Anwar’s total income increase?

A $1000 B $6000 C $16 000 D $26 000

[Turn over
23 BCD Limited provided the following information.

ordinary shares 300 000

retained earnings 200 000
debentures 170 000

How much was the equity and the capital employed?

equity capital employed

$ $

A 300 000 470 000

B 300 000 670 000
C 500 000 470 000
D 500 000 670 000

24 The issued share capital of CD Limited consists of ordinary shares.

Retained earnings were $86 000 on 1 September 2020 and $88 500 on 31 August 2021.

The company made a profit during the year of $26 000 and made a transfer to general reserve of
$5000.

What was the total ordinary share dividend paid during the year?

A $18 500 B $23 500 C $28 500 D $33 500

25 A sports club was formed on 1 August 2020. During the year ended 31 July 2021 the club
purchased equipment costing $5000, paying by cheque.

In which of the club’s financial statements did this appear?

receipts and payments income and expenditure statement of financial

account account position

A  
B  
C  
D 
26 A sports club has 100 members and the annual subscription is $60.

During the year ended 31 August 2021:

12 members paid their outstanding subscription from the previous financial year
10 members paid their subscription in advance for the following financial year.

On 31 August 2021, subscriptions for the current financial year were still outstanding from
8 members.

What was the total amount received from members during the year ended 31 August 2021?

A $5160 B $5640 C $6600 D $6840

27 Beth provided the following information.

1 January 31 December
net assets $28 000 $24 000

Her drawings during the year amounted to $3000.

What was Beth’s profit or loss for the year?

A $1000 loss
B $1000 profit
C $7000 loss
D $7000 profit

28 Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The
closing inventory was $3200.

What were the purchases for the year?

A $41 250 B $44 000 C $44 450 D $47 200

29 Which information is required to calculate the return on capital employed for a sole trader?

A gross profit, non-current liabilities, owner’s capital

B gross profit, non-current liabilities, working capital
C operating profit for the year, non-current liabilities, owner’s capital
D operating profit for the year, non-current liabilities, working capital

[Turn over
30 What is the best indicator of the liquidity of a business?

A current ratio
B liquid (acid test) ratio
C return on capital employed
D working capital

31 A business provided the following information about its gross margin.

Year 1 40%
Year 2 38%
Year 3 35%

What could explain the changes in the gross margin?

A Cost of sales is decreasing.

B Expenses are decreasing.
C Quantity of goods sold is decreasing.
D Selling price is decreasing.

32 Sam and Rob each own a trading business. The income of each business is solely from the sale
of goods. They provided the following information for the year ended 30 June 2020.

Sam Rob

return on capital employed 12% 10%

gross margin 25% 30%
profit margin 14% 12%
current ratio 2.8 : 1 1.2 : 1

Which statement is correct?

A Rob will find it easy to pay his current liabilities.

B Rob’s expenses are a higher proportion of his sales.
C Sam is not employing his capital effectively.
D Sam’s goods are sold at a higher price.
33 Why would the owner of a business want to see his financial statements at the end of the year?

1 to assess the performance and progress of the business

2 to determine the market value of the non-current assets
3 to make informed decisions for the following years

A 1 only B 1 and 3 C 2 only D 2 and 3

34 Charlie is a car dealer. Joe wanted a new car and went to Charlie’s car showroom.

On Monday Joe took a car for a test drive and decided to buy it.

On Tuesday Joe arranged to pay for the car by cheque.

On Wednesday Joe collected the car and received an invoice.

On Thursday Joe’s cheque was cleared by the bank.

On which day was Charlie able to account for the profit on the sale?

A Monday
B Tuesday
C Wednesday
D Thursday

35 Which accounting objective requires that financial information is provided in time for a decision to
be made?

A comparability
B relevance
C reliability
D understandability
1 Why does a trader calculate the profit of his business?

A to calculate the interest payable on a loan

B to calculate the provision for doubtful debts
C to know the total expenses of the business
D to know whether drawings are at a reasonable level

2 Hassan is a trader. During the financial year he took goods from the business for his own use.

How should he record this?

debit credit

A drawings inventory
B drawings purchases
C income statement inventory
D income statement purchases

3 Where are the accounts of credit suppliers maintained?

A purchases journal
B purchases ledger
C sales journal
D sales ledger

4 Which document does a trader issue to remind a credit customer that payment is due?

A credit note
B debit note
C receipt
D statement of account

5 What is a cheque counterfoil used for?

A to pay a cheque into the bank account

B to pay for goods purchased by cheque
C to record a cheque payment in the cash book
D to record a cheque received in the cash book
6 Farouk sells goods on credit. A cheque from Khalid, a credit customer, was dishonoured by the
bank.

How should Farouk record this?

account to be debited account to be credited

A bank Khalid
B irrecoverable debts Khalid
C Khalid bank
D Khalid irrecoverable debts

7 Tumelo sells on credit. The terms of trade are listed.

list price: $200 per unit

credit period: 60 days
trade discount 15% if 10 units or more are purchased
cash discount 3% if the debt is paid within one month

A credit customer purchased 20 units and paid the debt within 15 days.

What was the total of the invoice?

A $3298 B $3400 C $3880 D $4000

8 Jane purchased goods and paid by credit transfer.

How should this be recorded in Jane’s accounting records?

account to account to
be debited be credited

A bank purchases
B purchases bank
C purchases trade payable
D trade payable purchases

9 What is shown in a trial balance?

A capital and profit on a particular date

B financial transactions for a particular period
C ledger balances on a particular date
D receipts and payments for a particular period

[Turn over
10 At the end of each year, PT Limited transfers 20% of the profit for the year to the general reserve.

Draft financial statements were prepared for the year ended 30 September 2021. It was then
discovered that the inventory at 30 September 2021 had been overstated by $1500.

Which effects did the correction of this error have on retained earnings and general reserve at
30 September 2021?

retained earnings $ general reserve $

A decrease 300 increase 300

B decrease 1200 decrease 300
C increase 300 increase 1200
D increase 1500 no effect

11 The bank columns in a trader’s cash book and the bank statement both showed positive
balances. A comparison revealed the following differences.

uncredited cheque 200

bank charges not included in cash book 10

What was the difference between the balance shown in the bank column of the cash book and
that shown on the bank statement?

A The cash book balance was $190 higher than the bank statement balance.
B The cash book balance was $190 lower than the bank statement balance.
C The cash book balance was $210 higher than the bank statement balance.
D The cash book balance was $210 lower than the bank statement balance.

12 What is a reason for preparing a sales ledger control account?

A to calculate total sales revenue

B to ensure trade receivables pay on time
C to help prepare the income statement
D to summarise the accounts of the trade receivables
13 Two companies each purchased a motor vehicle for $10 000 at the beginning of year 1. Company
G used the straight-line method of depreciation at a rate of 15% per annum, while Company H
used the reducing balance method at a rate of 20% per annum.

What was the difference in the depreciation charge between the two companies for year 2?

A $100 greater for G

B $100 greater for H
C $500 greater for G
D $500 greater for H

14 Amit’s financial year ends on 31 December. The following account appeared in his sales ledger.

Dipak account
2020 $ 2020 $

Jan 7 sales 3200 Jun 3 bank 1700

Oct 30 cash 230
Nov 21 ? 1270
3200 3200

What does the entry on 21 November represent?

A an irrecoverable debt
B discount allowed
C the balance carried down
D the recovery of a debt previously written off

15 Sally wished to increase the balance on the provision for doubtful debts account at the end of the
financial year.

How should this increase be recorded?

debit credit

A income statement provision for doubtful debts account

B irrecoverable debts account provision for doubtful debts account
C provision for doubtful debts account income statement
D provision for doubtful debts account irrecoverable debts account

[Turn over
16 The following errors were found after a statement of financial position had been prepared.

1 A loan repayable in two year’s time had been included as a current liability.
2 A provision for doubtful debts should have been created.

What is the effect of correcting these errors?

current current non-current owner’s

assets liabilities liabilities equity

A decrease decrease increase decrease

B decrease increase decrease increase
C increase decrease decrease increase
D increase increase decrease decrease

17 John maintains a full set of accounting records.

Why does he also prepare a statement of financial position?

A to calculate the profit for the year

B to check if assets equal capital plus liabilities
C to show the transactions which took place during the year
D to summarise what the business owns and what it owes

18 What are advantages of operating as a sole trader?

1 The owner can keep all the profit.

2 The owner can raise finance by issuing debentures.
3 The owner can make decisions independently.
4 The owner is protected by limited liability.

A 1 and 3 B 1 only C 2 and 3 D 2 and 4

19 Anwar is a sole trader making annual profits of $24 000. He decides to admit Dilip as a partner.
They agree that Anwar would receive a salary, and profits and losses would be shared equally.

The forecast appropriation account for the partnership’s first year of trading is:

profit for the year 50 000

salary Anwar 10 000
profit available for distribution 40 000

By how much will Anwar’s total income increase?

A $1000 B $6000 C $16 000 D $26 000

20 Kasi and Ravi are in partnership. The financial statements for the year ended 31 August 2021
showed that Ravi was entitled to interest on capital and interest on loan and was charged interest
on drawings.

Which entries would be made in Ravi’s current account?

interest on capital interest on loan interest on drawings

debit credit debit credit debit credit

A   
B  
C   
D  

[Turn over
21 BCD Limited provided the following information.

ordinary shares 300 000

retained earnings 200 000
debentures 170 000

How much was the equity and the capital employed?

equity capital employed

$ $

A 300 000 470 000

B 300 000 670 000
C 500 000 470 000
D 500 000 670 000

22 The issued share capital of CD Limited consists of ordinary shares.

Retained earnings were $86 000 on 1 September 2020 and $88 500 on 31 August 2021.

The company made a profit during the year of $26 000 and made a transfer to general reserve of
$5000.

What was the total ordinary share dividend paid during the year?

A $18 500 B $23 500 C $28 500 D $33 500

23 A sports club was formed on 1 August 2020. During the year ended 31 July 2021 the club
purchased equipment costing $5000, paying by cheque.

In which of the club’s financial statements did this appear?

receipts and payments income and expenditure statement of financial

account account position

A  
B  
C  
D 
24 What is not part of the prime cost of a manufacturing business?

A raw material
B royalties
C wages of factory supervisors
D wages of production workers

25 The value of Thato’s work in progress increased during the year. This was recorded in his
financial statements.

How did this affect the cost of production and the cost of sales?

cost of
cost of sales
production

A decreased decreased
B decreased no effect
C increased increased
D increased no effect

26 What are advantages of keeping a full set of accounting records?

1 Financial statements will be free from errors.

2 It is impossible to make fraudulent entries.
3 More informed decision-making is possible.
4 The calculation of profit is more accurate.

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

27 Beth provided the following information.

1 January 31 December
net assets $28 000 $24 000

Her drawings during the year amounted to $3000.

What was Beth’s profit or loss for the year?

A $1000 loss
B $1000 profit
C $7000 loss
D $7000 profit

[Turn over
28 Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The
closing inventory was $3200.

What were the purchases for the year?

A $41 250 B $44 000 C $44 450 D $47 200

29 Which information is required to calculate the return on capital employed for a sole trader?

A gross profit, non-current liabilities, owner’s capital

B gross profit, non-current liabilities, working capital
C operating profit for the year, non-current liabilities, owner’s capital
D operating profit for the year, non-current liabilities, working capital

30 What is the best indicator of the liquidity of a business?

A current ratio
B liquid (acid test) ratio
C return on capital employed
D working capital

31 A trader provided the following information for the year ended 31 May 2021.

trade payables on 1 June 2020 12 250

trade payables on 31 May 2021 42 000
credit purchases for the year 319 375

What was the trade payables turnover (days) for the year ended 31 May 2021?

A 31 days B 34 days C 48 days D 62 days

32 A business provided the following information about its gross margin.

Year 1 40%
Year 2 38%
Year 3 35%

What could explain the changes in the gross margin?

A Cost of sales is decreasing.

B Expenses are decreasing.
C Quantity of goods sold is decreasing.
D Selling price is decreasing.

33 What is not a limitation of inter-firm comparison?

A Accounting records do not include the skills of the workforce.

B Businesses may have different accounting policies.
C Businesses may have different sales prices.
D The available information may not relate to a typical year.

34 Why would a supplier be interested in the financial statements of a credit customer?

A to know if the customer can pay what he owes

B to know the amount owed by trade receivables
C to know the profit for the year
D to know the value of the inventory

35 What does the objective of understandability assume users of financial statements will possess?

A a reasonable knowledge of accounting

B full knowledge of accounting
C knowledge of book-keeping but not accounting
D no knowledge of book-keeping or accounting
1 Ahmed is a trader.

Why should he prepare financial statements?

A to apply the principle of business entity

B to monitor his business’s performance
C to prepare a bank reconciliation statement
D to record changes to his personal wealth

2 Which transaction will increase both assets and capital by the same amount?

A A credit customer settled his account after deducting a cash discount.

B Goods were sold for cash at a price higher than their cost price.
C Rent received included an amount prepaid for the next accounting period.
D The owner repaid a business loan from his personal bank account.

3 Pradip settled Amal’s account by credit transfer and received a cash discount for prompt
payment.

How did Pradip record this discount?

debit credit

A Amal discount received

B cash discount received
C discount allowed Amal
D discount allowed cash

4 Morgan made the following double entry in his ledgers.

debit sales returns account

credit Sally account

Which transaction was being recorded?

A goods returned by Morgan to Sally, Morgan’s credit customer

B goods returned by Morgan to Sally, Morgan’s credit supplier
C goods returned by Sally to Morgan, Sally’s credit customer
D goods returned by Sally to Morgan, Sally’s credit supplier
5 Abdul sells goods to Rekha on credit. Some goods were damaged in transit.

Which document would Rekha send to Abdul?

A credit note
B debit note
C invoice
D statement of account

6 Which business documents provide information for writing up the sales journal and the sales
returns journal?

sales journal sales returns journal

A invoices issued credit notes issued

B invoices issued credit notes received
C invoices received credit notes issued
D invoices received credit notes received

7 On 1 September, Peter sent a cheque to his credit supplier, John. This was correctly entered
in John’s books. On 10 September, the cheque was returned unpaid due to lack of funds.

Which entries should be made in John’s books on 10 September?

account to be debited account to be credited

A bank irrecoverable debts

B bank Peter
C irrecoverable debts bank
D Peter bank

8 What would not be recorded in the ledgers of a business?

A cash discount
B irrecoverable debts
C trade discount
D wages accrued

[Turn over
9 Which errors would be revealed by the preparation of a trial balance?

1 credit purchases, $240, entered as $420 in both the purchases account and the
trade payable’s account
2 credit sales entered as $96 in the sales account and $69 in the trade receivable’s
account
3 purchase of a motor vehicle, $15 000, entered in the motor vehicle repairs account
4 wages paid, $1050, debited in both the wages account and the bank account

A 1 and 2 B 1 and 3 C 2 and 4 only D 2, 3 and 4

10 Saddique’s trial balance failed to balance. The debit column totalled $12 250 and the credit
column totalled $12 200.

The following errors were discovered.

No entry had been made for cash sales, $150.

The total of the discount received account, $50, had been omitted from the trial balance.

What were the totals of the trial balance after the errors had been corrected?

A $12 250 B $12 300 C $12 350 D $12 400

11 Jacob purchased a motor vehicle for business use on credit from Waheed for $20 000. This was
not recorded in Jacob’s books.

Which journal entry would correct this error in Jacob’s books?

debit credit
$ $
A Jacob 20 000
motor vehicles 20 000
B motor vehicles 20 000
Jacob 20 000
C motor vehicles 20 000
Waheed 20 000
D Waheed 20 000
motor vehicles 20 000
12 After the preparation of her income statement, Emma discovered the following errors.

A debt, $1500, should have been written off as irrecoverable.

No adjustment had been made for rent prepaid by Emma of $2800.

The draft profit for the year was $35 000.

What was the corrected profit for the year?

A $30 700 B $33 700 C $36 300 D $39 300

13 Jamal’s bank statement on 1 September 2022 showed a bank overdraft of $1460.

At that date there were unpresented cheques of $385 and uncredited deposits of $255.

What was the bank balance in the cash book on 1 September 2022?

A $1330 credit
B $1330 debit
C $1590 credit
D $1590 debit

14 A sales ledger control account included the following items.

1 discount allowed
2 dishonoured cheques
3 interest on overdue accounts
4 irrecoverable debts

For which of these items was the information obtained from the general journal?

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

15 A sales ledger control account had a debit balance of $4000 on 1 August.

During the month of August, credit sales totalled $50 000, sales returns from credit customers
were $600 and discounts allowed were $400.

The debit balance on the sales ledger control account on 1 September was $6000.

What was the total amount received from credit customers in August?

A $47 000 B $47 800 C $48 200 D $49 000

[Turn over
16 Manjit depreciates her motor vehicles by $1000 at the end of each financial year.

Which journal entry would Manjit make at the end of each financial year?

debit credit
$ $
A income statement 1000
provision for depreciation of motor vehicles 1000
B motor vehicles 1000
provision for depreciation of motor vehicles 1000
C provision for depreciation of motor vehicles 1000
income statement 1000
D provision for depreciation of motor vehicles 1000
motor vehicles 1000

17 On the first day of his financial year, Jason purchased a new machine costing $20 000.

On that date his old machine had a book value of $6000. Jason was allowed $4500 for the old
machine in part exchange. He paid the balance by cheque.

Machinery is depreciated at 20% per annum.

How much should be charged to Jason's income statement for the year?

A $1500 B $2500 C $4000 D $5500

18 A trader provided the following information about his inventory at the end of his financial year.

total number of units 500

cost price of each unit $4
net realisable value of each unit $6

80 units were damaged and could be sold for $3 per unit.

What was the value of the closing inventory?

A $1920 B $2000 C $2760 D $2840

19 For which purposes would a trader use his income statement and statement of financial position?

1 to enable decisions to be made about the performance of the business

2 to show the business bank account balance at a given date
3 to show the financial position of the business at a given date
4 to show whether the business made a profit or a loss in the financial year

A 1 and 4 only B 1, 3 and 4 C 2 and 3 only D 2, 3 and 4

20 What may appear in a partnership appropriation account?

A capital and current account balances

B interest on drawings and interest on partners’ loans
C partners’ salaries, drawings and profit for the year
D partners’ salaries, interest on capital and profit shares

21 Anne and Paul are in partnership.

How would interest on Anne’s capital be recorded in the ledger accounts of the partnership?

A credited to Anne’s capital account

B debited to Anne’s capital account
C credited to Anne’s current account
D debited to Anne’s current account

22 Which statement about the members of a limited company is correct?

A Their liability is limited to the total of their investment in the company.

B Their liability is limited to the total of their personal assets.
C They are not liable for the debts of the company.
D They have unlimited liability for the debts of the company.

23 A limited company provided the following information.

non-current assets 35 000

ordinary share capital 40 000
5% debentures 10 000
net current assets 30 000

What were the retained earnings?

A $15 000 B $25 000 C $55 000 D $115 000

[Turn over
24 A limited company raised funds by issuing ordinary shares, preference shares and debentures.

Which statements are correct?

1 Debentures are part of the loan capital.

2 Ordinary shares are part of the equity.
3 Ordinary dividend is paid before debenture interest.
4 Preference shares carry a fixed rate of dividend.

A 1, 2 and 3 B 1, 2 and 4 C 2, 3 and 4 D 3 and 4 only

25 The financial year of a club ends on 30 September. During the year ended 30 September 2022,
the club received an interest-free loan from a member.

In which of the club’s financial statements will this appear?

A income and expenditure account and statement of financial position

B receipts and payments account and income and expenditure account
C receipts and payments account and statement of financial position
D statement of financial position only

26 A cricket club provided the following information.

at 1 August 2021 balance at bank 950

during the year ended 31 July 2022 net receipts from competition 1050
subscriptions received 2500
general expenses paid 1020
insurance paid 500
rent paid 1800
at 31 July 2022 subscriptions owing by members 120
insurance prepaid 20
depreciation of equipment 260

What was the balance at bank on 31 July 2022?

A $920 B $1180 C $1200 D $1300

27 A club had an accumulated fund at the start of the year of $18 000 and at the end of the year of
$16 200.

New equipment costing $1100 was bought during the year. Total expenses for the year were
$9550. The only income came from subscriptions.

How much were subscriptions for the year?

A $7750 B $8850 C $11 350 D $12 450

28 A food processing factory fills cans with vegetables. The filled cans are then sold to shops.

Which wages are direct labour costs for the factory?

1 wages paid to workers who load the cans on to lorries for delivery to shops
2 wages paid to workers who operate machines that fill the cans with vegetables
3 wages paid to people working on the maintenance of the machinery in the factory
4 wages paid to people working on the assembly line putting labels on the cans

A 1, 2 and 4 B 1 and 3 C 2 and 3 D 2 and 4 only

29 Thembi manufactures wooden toys. She provided the following information for the financial year
ended 31 August 2022.

prime cost 35 000

factory overheads 17 000
work in progress:
opening inventory 1 400
closing inventory 2 300

What was the cost of production of finished goods?

A $49 700 B $51 100 C $52 000 D $52 900

[Turn over
30 Chan provided the following information.

1 October 2021 30 September 2022

$ $

non-current assets 10 000 12 000

inventory 2 500 2 000
trade receivables 1 500 1 300
bank overdraft 800 900
trade payables 1 000 1 900

What was Chan’s profit or loss for the year?

A $300 loss
B $300 profit
C $500 loss
D $500 profit

31 Thabo provided the following information.

revenue $250 000

gross margin 20%
rate of inventory turnover 5 times

What was the average inventory for the year?

A $10 000 B $37 500 C $40 000 D $50 000

32 How can a trader increase her current ratio?

A keep inventory at the lowest possible level

B obtain a long-term bank loan
C reduce the trade receivables turnover
D sell goods for cash instead of on credit

33 The application of which accounting principle makes it easier to compare financial statements
year-on-year?

A business entity
B consistency
C duality
D going concern
34 What does the principle of prudence ensure?

A Assets are not understated.

B Liabilities are not estimated.
C Losses are not anticipated.
D Profits are not overstated.

35 Which statement is not correct about reasons for using international accounting standards?

A assists when making comparisons between companies

B improves the reliability of accounting information
C narrows the areas of difference in financial reporting
D makes the preparation of financial statements less time-consuming
1 Which transaction will increase both assets and capital by the same amount?

A A credit customer settled his account after deducting a cash discount.

B Goods were sold for cash at a price higher than their cost price.
C Rent received included an amount prepaid for the next accounting period.
D The owner repaid a business loan from his personal bank account.

2 On 1 June 2021, Sue’s capital account had a credit balance of $120 000. During the year ended
31 May 2022 she withdrew goods costing $1800. The loss for the year was $14 200.

What was the credit balance on Sue’s capital account on 1 June 2022?

A $104 000 B $105 800 C $107 600 D $134 200

3 Bilal purchased goods on credit from Asim.

Where should Asim record this transaction?

1 cash book
2 nominal (general) ledger
3 purchases ledger
4 sales ledger

A 1 and 2 B 1 and 4 C 2 and 3 D 2 and 4

4 Abdul sells goods to Rekha on credit. Some goods were damaged in transit.

Which document would Rekha send to Abdul?

A credit note
B debit note
C invoice
D statement of account

5 What is not shown on an invoice?

A amount of trade discount

B date payment made
C details of goods supplied
D terms of payment
6 On 1 September, Peter sent a cheque to his credit supplier, John. This was correctly entered
in John’s books. On 10 September, the cheque was returned unpaid due to lack of funds.

Which entries should be made in John’s books on 10 September?

account to be debited account to be credited

A bank irrecoverable debts

B bank Peter
C irrecoverable debts bank
D Peter bank

7 Which entries should be made to post the monthly totals of the discount allowed and discount
received columns of the cash book?

discount allowed discount received

A credit discount allowed account debit discount received account

B credit income statement debit income statement
C debit discount allowed account credit discount received account
D debit income statement credit income statement

8 Jasvinder maintains a petty cash book using the imprest system. The monthly imprest of $100 is
restored on the first day of each month.

In September the petty cash book showed the following.

total expenses 83
total receipts 7

How much cash did Jasvinder need to restore the imprest on 1 October?

A $24 B $76 C $83 D $100

9 Saddique’s trial balance failed to balance. The debit column totalled $12 250 and the credit
column totalled $12 200.

The following errors were discovered.

No entry had been made for cash sales, $150.

The total of the discount received account, $50, had been omitted from the trial balance.

What were the totals of the trial balance after the errors had been corrected?

A $12 250 B $12 300 C $12 350 D $12 400

[Turn over
10 $68 paid by credit transfer for insurance was entered in the accounting records as $86.

Which double entry will correct this error?

account debited $ account credited $

A bank 18 insurance 18
B bank 68 insurance 68
C insurance 18 bank 18
D insurance 68 bank 68

11 After the preparation of her income statement, Emma discovered the following errors.

A debt, $1500, should have been written off as irrecoverable.

No adjustment had been made for rent prepaid by Emma of $2800.

The draft profit for the year was $35 000.

What was the corrected profit for the year?

A $30 700 B $33 700 C $36 300 D $39 300

12 Hamid purchased a motor vehicle from an overseas motor manufacturer.

Which expenditure relating to the motor vehicle is capital expenditure?

A delivery charge
B insurance
C petrol
D replacement tyres

13 Wentile purchased a motor vehicle for $35 000. He estimated it would be used for five years and
then sold for $5000.

Wentile depreciated the motor vehicle using the straight-line method at a rate of 20% per annum.

What was the accumulated depreciation on this motor vehicle at the end of year 2?

A $10 800 B $12 000 C $12 600 D $14 000

14 On the first day of his financial year, Jason purchased a new machine costing $20 000.

On that date his old machine had a book value of $6000. Jason was allowed $4500 for the old
machine in part exchange. He paid the balance by cheque.

Machinery is depreciated at 20% per annum.

How much should be charged to Jason's income statement for the year?

A $1500 B $2500 C $4000 D $5500

15 Martha rents out part of her business premises.

On 1 September 2021, she was owed rent of $1500 and on 31 August 2022 she was owed
$1800 rent.

During the year ended 31 August 2022, Martha received rent of $6000.

How much was transferred to Martha’s income statement for the year ended 31 August 2022?

A $2700 B $5700 C $6300 D $9300

16 Parker received cash from Alexi for a debt that had been written off as irrecoverable.

How should Parker record this in his accounts?

account to be debited account to be credited

A cash irrecoverable debts

B cash debts recovered
C debts recovered cash
D irrecoverable debts cash

17 Why should inventory be valued at the lower of cost and net realisable value?

A to avoid undervaluing the inventory

B to comply with the historic cost principle
C to comply with the principle of materiality
D to ensure that profits are not overstated

18 How would current assets be listed if they are arranged in decreasing order of liquidity?

A bank, cash, trade receivables, inventory

B cash, bank, trade receivables, inventory
C inventory, trade receivables, bank, cash
D inventory, trade receivables, cash, bank

[Turn over
19 During the year, Sam paid advertising expenses, some of which related to the following financial
year. Sam made an adjustment for this when preparing his financial statements for the current
year.

What was the effect on Sam’s financial statements of making this adjustment?

decrease profit increase profit increase increase

for the year for the year current assets current liabilities

A  
B  
C  
D  

20 Members of a limited company have limited liability for the debts of that company.

What does this mean?

A Members are equally liable for the debts of the company.

B Members are liable only up to the value of their personal assets.
C Members are liable only up to the amount they agree to pay for their shares in the company.
D Members are liable only up to the value of the debentures they hold in the company.

21 A limited company provided the following information.

non-current assets 35 000

ordinary share capital 40 000
5% debentures 10 000
net current assets 30 000

What were the retained earnings?

A $15 000 B $25 000 C $55 000 D $115 000

22 What is included in the equity of a limited company?

ordinary retained general

debentures
share capital earnings reserve

A   
B  
C   
D  

23 The financial year of a club ends on 30 September. During the year ended 30 September 2022,
the club received an interest-free loan from a member.

In which of the club’s financial statements will this appear?

A income and expenditure account and statement of financial position

B receipts and payments account and income and expenditure account
C receipts and payments account and statement of financial position
D statement of financial position only

24 A club had an accumulated fund at the start of the year of $18 000 and at the end of the year of
$16 200.

New equipment costing $1100 was bought during the year. Total expenses for the year were
$9550. The only income came from subscriptions.

How much were subscriptions for the year?

A $7750 B $8850 C $11 350 D $12 450

25 Dan makes t-shirts which are stamped with a design using fabric paint. He provided the following
information.

fabric for t-shirts 10 000

factory heating and lighting 5 000
fabric paint 4 000
factory rent 8 000
wages of machine operators 16 000

What was the total of the direct costs?

A $19 000 B $23 000 C $30 000 D $31 000

[Turn over
26 In a manufacturing account, carriage on raw materials was incorrectly treated as a factory
overhead.

How did this error affect the prime cost and the cost of production?

cost of
prime cost
production

A overstated no effect
B overstated overstated
C understated no effect
D understated understated

27 Chan provided the following information.

1 October 2021 30 September 2022

$ $

non-current assets 10 000 12 000

inventory 2 500 2 000
trade receivables 1 500 1 300
bank overdraft 800 900
trade payables 1 000 1 900

What was Chan’s profit or loss for the year?

A $300 loss
B $300 profit
C $500 loss
D $500 profit
28 Aruna does not maintain a full set of double entry records.

She provided the following information.

trade payables on 1 August 2021 23 450

trade payables on 31 July 2022 27 290
cash purchases made during the year 16 000
payments made to credit suppliers 168 000

What was the cost of her purchases for the year ended 31 July 2022?

A $164 160 B $171 840 C $180 160 D $187 840

29 Thabo provided the following information.

revenue $250 000

gross margin 20%
rate of inventory turnover 5 times

What was the average inventory for the year?

A $10 000 B $37 500 C $40 000 D $50 000

30 Naeema provided the following information.

revenue 28 000
gross profit 11 900
profit for the year 3 500

What was her profit margin?

A 12.5% B 29.4% C 30.0% D 42.5%

31 When calculating the liquid (acid test) ratio, what is compared to the liquid assets?

A current liabilities
B intangible assets
C non-current assets
D non-current liabilities

[Turn over
32 A trader provided the following information.

year 1 year 2

gross profit $40 000 $75 000

gross margin 35% 35%
profit margin 11% 22%

What would explain these changes?

A an increase in selling price and a decrease in sales quantity

B an increase in selling price and an increase in expenses
C an increase in sales quantity and a decrease in selling price
D an increase in sales quantity and a decrease in expenses

33 A business renewed an insurance policy. The total amount paid was charged as an expense in
the income statement for the year even though half related to the next financial year.

Which accounting principle has not been applied?

A duality
B historic cost
C matching
D money measurement

34 What is meant by the business entity principle?

A All aspects of the business are recorded in money terms.

B Goods taken by the owner for personal use are not recorded.
C It is assumed that the business will continue to operate indefinitely.
D Transactions are recorded from the point of view of the business.

35 Which statement is not correct about reasons for using international accounting standards?

A assists when making comparisons between companies

B improves the reliability of accounting information
C narrows the areas of difference in financial reporting
D makes the preparation of financial statements less time-consuming
1 Ahmed is a trader.

Why should he prepare financial statements?

A to apply the principle of business entity

B to monitor his business’s performance
C to prepare a bank reconciliation statement
D to record changes to his personal wealth

2 Which transaction will increase both assets and capital by the same amount?

A A credit customer settled his account after deducting a cash discount.

B Goods were sold for cash at a price higher than their cost price.
C Rent received included an amount prepaid for the next accounting period.
D The owner repaid a business loan from his personal bank account.

3 Pradip settled Amal’s account by credit transfer and received a cash discount for prompt
payment.

How did Pradip record this discount?

debit credit

A Amal discount received

B cash discount received
C discount allowed Amal
D discount allowed cash

4 Morgan made the following double entry in his ledgers.

debit sales returns account

credit Sally account

Which transaction was being recorded?

A goods returned by Morgan to Sally, Morgan’s credit customer

B goods returned by Morgan to Sally, Morgan’s credit supplier
C goods returned by Sally to Morgan, Sally’s credit customer
D goods returned by Sally to Morgan, Sally’s credit supplier
5 Abdul sells goods to Rekha on credit. Some goods were damaged in transit.

Which document would Rekha send to Abdul?

A credit note
B debit note
C invoice
D statement of account

6 Which business documents provide information for writing up the sales journal and the sales
returns journal?

sales journal sales returns journal

A invoices issued credit notes issued

B invoices issued credit notes received
C invoices received credit notes issued
D invoices received credit notes received

7 On 1 September, Peter sent a cheque to his credit supplier, John. This was correctly entered
in John’s books. On 10 September, the cheque was returned unpaid due to lack of funds.

Which entries should be made in John’s books on 10 September?

account to be debited account to be credited

A bank irrecoverable debts

B bank Peter
C irrecoverable debts bank
D Peter bank

8 What would not be recorded in the ledgers of a business?

A cash discount
B irrecoverable debts
C trade discount
D wages accrued

[Turn over
9 Which errors would be revealed by the preparation of a trial balance?

1 credit purchases, $240, entered as $420 in both the purchases account and the
trade payable’s account
2 credit sales entered as $96 in the sales account and $69 in the trade receivable’s
account
3 purchase of a motor vehicle, $15 000, entered in the motor vehicle repairs account
4 wages paid, $1050, debited in both the wages account and the bank account

A 1 and 2 B 1 and 3 C 2 and 4 only D 2, 3 and 4

10 Saddique’s trial balance failed to balance. The debit column totalled $12 250 and the credit
column totalled $12 200.

The following errors were discovered.

No entry had been made for cash sales, $150.

The total of the discount received account, $50, had been omitted from the trial balance.

What were the totals of the trial balance after the errors had been corrected?

A $12 250 B $12 300 C $12 350 D $12 400

11 Jacob purchased a motor vehicle for business use on credit from Waheed for $20 000. This was
not recorded in Jacob’s books.

Which journal entry would correct this error in Jacob’s books?

debit credit
$ $
A Jacob 20 000
motor vehicles 20 000
B motor vehicles 20 000
Jacob 20 000
C motor vehicles 20 000
Waheed 20 000
D Waheed 20 000
motor vehicles 20 000
12 After the preparation of her income statement, Emma discovered the following errors.

A debt, $1500, should have been written off as irrecoverable.

No adjustment had been made for rent prepaid by Emma of $2800.

The draft profit for the year was $35 000.

What was the corrected profit for the year?

A $30 700 B $33 700 C $36 300 D $39 300

13 Jamal’s bank statement on 1 September 2022 showed a bank overdraft of $1460.

At that date there were unpresented cheques of $385 and uncredited deposits of $255.

What was the bank balance in the cash book on 1 September 2022?

A $1330 credit
B $1330 debit
C $1590 credit
D $1590 debit

14 A sales ledger control account included the following items.

1 discount allowed
2 dishonoured cheques
3 interest on overdue accounts
4 irrecoverable debts

For which of these items was the information obtained from the general journal?

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

15 A sales ledger control account had a debit balance of $4000 on 1 August.

During the month of August, credit sales totalled $50 000, sales returns from credit customers
were $600 and discounts allowed were $400.

The debit balance on the sales ledger control account on 1 September was $6000.

What was the total amount received from credit customers in August?

A $47 000 B $47 800 C $48 200 D $49 000

[Turn over
16 Manjit depreciates her motor vehicles by $1000 at the end of each financial year.

Which journal entry would Manjit make at the end of each financial year?

debit credit
$ $
A income statement 1000
provision for depreciation of motor vehicles 1000
B motor vehicles 1000
provision for depreciation of motor vehicles 1000
C provision for depreciation of motor vehicles 1000
income statement 1000
D provision for depreciation of motor vehicles 1000
motor vehicles 1000

17 On the first day of his financial year, Jason purchased a new machine costing $20 000.

On that date his old machine had a book value of $6000. Jason was allowed $4500 for the old
machine in part exchange. He paid the balance by cheque.

Machinery is depreciated at 20% per annum.

How much should be charged to Jason's income statement for the year?

A $1500 B $2500 C $4000 D $5500

18 A trader provided the following information about his inventory at the end of his financial year.

total number of units 500

cost price of each unit $4
net realisable value of each unit $6

80 units were damaged and could be sold for $3 per unit.

What was the value of the closing inventory?

A $1920 B $2000 C $2760 D $2840

19 For which purposes would a trader use his income statement and statement of financial position?

1 to enable decisions to be made about the performance of the business

2 to show the business bank account balance at a given date
3 to show the financial position of the business at a given date
4 to show whether the business made a profit or a loss in the financial year

A 1 and 4 only B 1, 3 and 4 C 2 and 3 only D 2, 3 and 4

20 What may appear in a partnership appropriation account?

A capital and current account balances

B interest on drawings and interest on partners’ loans
C partners’ salaries, drawings and profit for the year
D partners’ salaries, interest on capital and profit shares

21 Anne and Paul are in partnership.

How would interest on Anne’s capital be recorded in the ledger accounts of the partnership?

A credited to Anne’s capital account

B debited to Anne’s capital account
C credited to Anne’s current account
D debited to Anne’s current account

22 Which statement about the members of a limited company is correct?

A Their liability is limited to the total of their investment in the company.

B Their liability is limited to the total of their personal assets.
C They are not liable for the debts of the company.
D They have unlimited liability for the debts of the company.

23 A limited company provided the following information.

non-current assets 35 000

ordinary share capital 40 000
5% debentures 10 000
net current assets 30 000

What were the retained earnings?

A $15 000 B $25 000 C $55 000 D $115 000

[Turn over
24 A limited company raised funds by issuing ordinary shares, preference shares and debentures.

Which statements are correct?

1 Debentures are part of the loan capital.

2 Ordinary shares are part of the equity.
3 Ordinary dividend is paid before debenture interest.
4 Preference shares carry a fixed rate of dividend.

A 1, 2 and 3 B 1, 2 and 4 C 2, 3 and 4 D 3 and 4 only

25 The financial year of a club ends on 30 September. During the year ended 30 September 2022,
the club received an interest-free loan from a member.

In which of the club’s financial statements will this appear?

A income and expenditure account and statement of financial position

B receipts and payments account and income and expenditure account
C receipts and payments account and statement of financial position
D statement of financial position only

26 A cricket club provided the following information.

at 1 August 2021 balance at bank 950

during the year ended 31 July 2022 net receipts from competition 1050
subscriptions received 2500
general expenses paid 1020
insurance paid 500
rent paid 1800
at 31 July 2022 subscriptions owing by members 120
insurance prepaid 20
depreciation of equipment 260

What was the balance at bank on 31 July 2022?

A $920 B $1180 C $1200 D $1300

27 A club had an accumulated fund at the start of the year of $18 000 and at the end of the year of
$16 200.

New equipment costing $1100 was bought during the year. Total expenses for the year were
$9550. The only income came from subscriptions.

How much were subscriptions for the year?

A $7750 B $8850 C $11 350 D $12 450

28 A food processing factory fills cans with vegetables. The filled cans are then sold to shops.

Which wages are direct labour costs for the factory?

1 wages paid to workers who load the cans on to lorries for delivery to shops
2 wages paid to workers who operate machines that fill the cans with vegetables
3 wages paid to people working on the maintenance of the machinery in the factory
4 wages paid to people working on the assembly line putting labels on the cans

A 1, 2 and 4 B 1 and 3 C 2 and 3 D 2 and 4 only

29 Thembi manufactures wooden toys. She provided the following information for the financial year
ended 31 August 2022.

prime cost 35 000

factory overheads 17 000
work in progress:
opening inventory 1 400
closing inventory 2 300

What was the cost of production of finished goods?

A $49 700 B $51 100 C $52 000 D $52 900

[Turn over
30 Chan provided the following information.

1 October 2021 30 September 2022

$ $

non-current assets 10 000 12 000

inventory 2 500 2 000
trade receivables 1 500 1 300
bank overdraft 800 900
trade payables 1 000 1 900

What was Chan’s profit or loss for the year?

A $300 loss
B $300 profit
C $500 loss
D $500 profit

31 Thabo provided the following information.

revenue $250 000

gross margin 20%
rate of inventory turnover 5 times

What was the average inventory for the year?

A $10 000 B $37 500 C $40 000 D $50 000

32 How can a trader increase her current ratio?

A keep inventory at the lowest possible level

B obtain a long-term bank loan
C reduce the trade receivables turnover
D sell goods for cash instead of on credit

33 The application of which accounting principle makes it easier to compare financial statements
year-on-year?

A business entity
B consistency
C duality
D going concern
34 What does the principle of prudence ensure?

A Assets are not understated.

B Liabilities are not estimated.
C Losses are not anticipated.
D Profits are not overstated.

35 Which statement is not correct about reasons for using international accounting standards?

A assists when making comparisons between companies

B improves the reliability of accounting information
C narrows the areas of difference in financial reporting
D makes the preparation of financial statements less time-consuming
1 Which action does not reduce the owner’s capital?

A business expenses paid using a personal cheque

B cash withdrawn from the business bank account for personal use
C goods taken from inventory for personal use
D personal expenses paid using business cash

2 Which statement correctly describes the accounting equation?

A capital = assets – liabilities

B capital = assets + liabilities
C capital = current assets – current liabilities
D capital = current assets + current liabilities

3 What could a credit balance on a ledger account represent?

A accrued income
B asset
C expense
D prepaid income

4 Aiden purchased goods from Jai and paid for them by bank transfer when he received a
statement of account. Jai says he has not received the payment.

Which document would help Aiden check that he had made the payment?

A bank statement
B cheque counterfoil
C paying-in slip
D petty cash voucher

5 At the end of the month, how is the total from the sales journal recorded in the ledger?

A credited to the customers’ personal accounts

B credited to the sales account
C debited to the customers’ personal accounts
D debited to the sales account
6 A customer paid $15 600 to a supplier after receiving a 2 21 % cash discount and a trade discount
of 20%.

What was the amount of the invoice entered in the purchases journal?

A $12 480 B $15 600 C $16 000 D $20 000

7 A trader maintains a petty cash book using the imprest system. The imprest amount is $120. The
petty cash transactions during the month of June were:

receipt from a customer 21

payments
stationery 25
postage 10
cleaning 20
payment to a supplier 40

How much was given to the petty cashier on 1 July to restore the imprest?

A $46 B $74 C $95 D $120

8 Paula’s trial balance contains errors.

debit credit
$ $

fixtures and fittings 4 000

light and heat 600
purchases 11 200
insurance 1 200
sales 16 500
trade payables 3 500
trade receivables 5 500
bank overdraft 1 000
capital 3 500
drawings 2 000
23 500 25 500

What is the corrected trial balance total?

A $23 500 B $24 500 C $25 500 D $26 500

[Turn over
9 The following entry was made in a journal to record the correction of an error.

debit credit
$ $

Wasim 320
bank 320

Which error has been corrected?

A A cheque, $160, was credited to Wasim’s account but no debit entry was made.
B A cheque, $160, was debited to the bank account but no credit entry was made.
C A cheque paid to Wasim, $160, was credited to his account and debited to the bank.
D A cheque received from Wasim, $160, was credited to his account and debited to the bank.

10 Which statement correctly describes a suspense account?

A It is an account opened to check for errors in a trial balance.

B It is a permanent account used to correct the statement of financial position.
C It is a temporary account used to correct errors of complete reversal.
D It is an account that is opened when the totals of a trial balance disagree.

11 A trader prepared a draft income statement which showed a profit for the year of $36 000.

A check of the books revealed the following information.

1 Drawings made by the owner of $900 had been debited to the wages account.
2 The provision for doubtful debts was increased by $20 at the year-end. The income
statement was charged with the total provision of $260.
3 The total of the discount allowed column in the cash book, $140, for one month had
not been debited to the discount allowed account.

What was the correct profit for the year?

A $34 720 B $36 520 C $37 000 D $37 280

12 Alicia’s cash book showed a debit balance of $100 on her bank account. She compared her cash
book to the bank statement and updated the cash book for the following items.

credit transfer to a credit supplier 80

credit transfer from a credit customer 112
bank interest paid 19

What was the debit balance on the bank account after the cash book was updated?

A $49 B $73 C $113 D $151

13 The balance of cash at bank shown in the cash book is $1200. The bank statement at the same
date shows the balance to be $1440.

What could explain the difference?

A payment to a supplier, $120, entered on the wrong side of the cash book
B bank charges, $240, not in the cash book
C cheques to suppliers, $240, not yet presented to the bank
D receipts from customers, $240, banked but not yet entered in the bank statement

14 Jane wished to make a contra entry between a sales ledger account and a purchases ledger
account.

The credit entry was made correctly but the debit entry was entered in the sales returns account
in error.

What was the effect of this error?

A Total purchases ledger balances were overstated.

B Total purchases ledger balances were understated.
C Total sales ledger balances were overstated.
D Total sales ledger balances were understated.

15 Which transaction is capital expenditure?

A capital introduced by the owner

B payment of wages
C purchase of a new computer
D repair of equipment

[Turn over
16 Sales returns were incorrectly recorded as purchases returns in an income statement.

What was the effect of this error?

A Capital employed was understated.

B Cost of sales was overstated.
C Gross profit was understated.
D Profit for the year was overstated.

17 What is a reason for charging depreciation on a non-current asset?

A to build up a fund of money that can be used to replace the asset

B to charge the cost of the asset over the years which benefit from its use
C to ensure that profit is not understated in the income statement
D to show the asset at its market value in the statement of financial position

18 Which non-current asset should be depreciated using the revaluation method?

A loose tools
B mines and wells
C motor vehicles
D office equipment

19 A motor van originally cost $11 500 and had been depreciated by $9000. The van was sold for
$2750.

How should the profit or loss on the sale of the van be shown in the disposal account?

A $250 credit
B $250 debit
C $2500 credit
D $2500 debit
20 Joseph sells goods on credit and maintains a provision for doubtful debts. He wants to increase
his provision for doubtful debts by $400.

Which journal entry records this increase in the provision for doubtful debts?

debit credit
$ $
A credit customer 400
income statement 400
B income statement 400
credit customer 400
C income statement 400
provision for doubtful debts 400
D provision for doubtful debts 400
income statement 400

21 What is an advantage of operating as a sole trader?

A being entitled to all profits

B being responsible for all losses
C having limited liability
D having unlimited liability

22 Emma provided the following information at the end of her financial year.

fees receivable from clients 78 000

rent receivable 11 000
office expenses 20 000
motor expenses 9 000
drawings 2 000

What was her profit for the year?

A $47 000 B $49 000 C $58 000 D $60 000

[Turn over
23 A trader provided the following data.

total purchases 25 301

purchase returns 1 945
carriage inwards 748
goods taken for own use 1 425

What was the net figure for purchases in the income statement?

A $21 931 B $22 679 C $23 356 D $24 104

24 Pari and Ira are in a partnership, sharing profits and losses equally.

Interest on the capital account balances is allowed at 6% per annum.

Pari is entitled to a salary of $5000 per annum.

The capital account balances at the start of the year were $60 000 for Pari and $40 000 for Ira.

The profit for the year was $27 500.

How much residual profit was credited to Pari’s current account at the end of the year?

A $8250 B $10 750 C $11 250 D $13 250

25 Which item is directly affected by the dividend policy of a limited company?

A general reserve
B ordinary share capital
C preference share capital
D retained earnings

26 What are the features of a debenture?

return received rate of return voting rights

A dividend based on profit yes

B dividend fixed rate no
C interest based on profit yes
D interest fixed rate no
27 How are subscriptions received and subscriptions written off recorded in a receipts and payments
account?

subscriptions subscriptions
received written off

A as a credit as a debit
B as a credit no entry made
C as a debit as a credit
D as a debit no entry made

28 Par Golf Club had a shop that sold golfing equipment to its members. The treasurer provided the
following information for the shop for the year ended 31 December.

sales of golfing equipment 5 300

opening inventory of golfing equipment 400
closing inventory of golfing equipment 450
purchases of golfing equipment 2 700
returns from customers 200
carriage on purchases 100

What was the shop’s gross profit for the year?

A $2250 B $2350 C $2450 D $2750

29 Which option contains only indirect costs?

A carriage inwards, factory rent, wages of factory supervisors

B carriage inwards, raw materials, wages of machine operators
C depreciation of machinery, factory rent, wages of factory supervisors
D depreciation of machinery, raw materials, wages of machine operators

30 The capital of a business is higher at the end of year 2 than it was at the end of year 1. No
additional capital has been introduced during year 2.

What does this mean?

A The business has made a loss.

B The business has made a profit.
C The business has sold some non-current assets.
D The business has taken a long-term loan.

[Turn over
31 Rahat has not maintained a full set of double entry records. She has details of her assets and
liabilities at the start and end of the year.

Which additional information does Rahat need in order to be able to prepare her income
statement for the year?

A a statement of affairs at the start of the year

B a summary of receipts and payments for the year
C the amount of her capital at the end of the year
D the rate of inventory turnover for the year

32 Toby’s purchases for the year were $13 000. His closing inventory was $1000 more than his
opening inventory. Toby’s gross margin is 20%.

What was Toby’s revenue for the year?

A $14 400 B $15 000 C $16 800 D $17 500

33 CD Limited took out a long-term bank loan and used part of the funds to pay some of its credit
suppliers early.

How did this affect the trade payables turnover (days) and the return on capital employed
(ROCE)?

trade payables return on capital

turnover (days) employed (ROCE)

A decrease decrease
B decrease increase
C increase decrease
D increase increase

34 Jimmy made credit sales of $98 550 in each of the years 2021 and 2022.

In 2022, his trade receivables turnover was exactly two days shorter than it had been in 2021.

What was the change in his total trade receivables in 2022?

A $135 decrease
B $135 increase
C $540 decrease
D $540 increase
35 Which characteristic of financial information requires that financial statements be clearly
presented and assumes that the users of the financial statements will have a reasonable
knowledge of accounting?

A comparability
B relevance
C reliability
D understandability
1 Which actions are examples of book-keeping?

1 entering details of a cheque received from a customer in the cash book

2 entering details of goods purchased on credit in the purchases journal
3 producing an income statement to calculate the profit for the year
4 recording details of credit sales in the account of a credit customer

A 1, 2 and 3 B 1, 2 and 4 C 1 and 2 only D 3 and 4

2 A trader supplied the following information at her year end.

non-current assets 4000

inventory 350
trade receivables 180
cash at bank 650 debit
trade payables 280

What was the trader’s capital?

A $4900 B $5100 C $5180 D $5460

3 A trader, Karim, purchases a new vehicle by cheque. He will use the vehicle to deliver goods to
his customers.

How should Karim record this transaction in his books?

account to account to
be debited be credited

A bank motor vehicles

B bank purchases
C motor vehicles bank
D purchases bank
4 The following ledger account was in Meena’s sales ledger.

$ $

Jan 1 balance b / d 100 Jan 15 bank 100

Jan 31 balance c / d 20 Jan 30 sales returns 20
120 120
Feb 1 balance b / d 20

Which statement about the balance on 1 February in Meena’s books of account is correct?

A It is an asset.
B It is an expense.
C It is a liability.
D It is revenue.

5 Which document would a supplier issue to a credit customer if the credit customer had returned
goods or had been overcharged?

A cheque
B credit note
C debit note
D invoice

6 Andy was a regular customer of Khalid. He bought goods with a list price of $1000 and later paid
$760 in full settlement after receiving a discount for prompt payment of 5%.

How much trade discount did Andy receive?

A $40 B $190 C $200 D $278

7 The totals of a trial balance agree.

What does this mean?

A All the arithmetic in the ledger is correct.

B All transactions have been entered in the correct ledger accounts.
C All transactions have been entered on the correct sides of the ledger.
D Total debit balances equal total credit balances in the ledger.

[Turn over
8 A cheque received from Joe was credited to Joanna’s account.

Which type of error was made?

A commission
B compensating
C original entry
D principle

9 A trader’s journal shows the following entry.

debit credit
details
$ $

John 300
Jane 300
correction of error

Both John and Jane are credit customers of the trader.

Which error is the journal entry correcting?

A Goods bought from Jane were wrongly credited to John.

B Goods bought from John were wrongly credited to Jane.
C Goods sold to Jane were wrongly debited to John.
D Goods sold to John were wrongly debited to Jane.

10 A trial balance does not balance and a suspense account is opened. It is found that a sale of
$250 was credited in the sales account as $2500.

Which entry will correct this error?

account to account to
$ $
be debited be credited

A sales 250 suspense 250

B sales 2250 suspense 2250
C suspense 2250 sales 2250
D suspense 2500 sales 2500
11 A cheque received from D Pawson, a trade receivable, was correctly debited to the bank account
but was credited to the account of P Dawson, a trade payable.

What was the effect of correcting this error?

trade trade
receivables payables

A decrease decrease
B decrease increase
C increase decrease
D increase increase

12 The balance of the bank column in a trader’s cash book was $520 debit.

The trader later discovered that the following items did not appear on his bank statement.

cheque not yet presented $80

cheque not yet credited $470

What was the balance on the trader’s bank statement?

A $130 credit B $130 debit C $910 credit D $910 debit

13 Why does a trader prepare a sales ledger control account?

A to determine when interest should be charged on overdue accounts

B to identify irrecoverable debts that should be written off
C to locate incorrect postings in the sales ledger
D to obtain totals to enter in the books of prime entry

14 When preparing a sales ledger control account, what is the source of information for amounts
received from credit customers?

A bank statements
B cash book
C sales ledger accounts
D statements of account

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15 Plant and machinery, $2000, was incorrectly posted to the credit side of the purchases account.

The draft profit for the year was $63 000.

Ignore depreciation.

What was the revised profit for the year after the correction of the error?

A $59 000 B $61 000 C $65 000 D $67 000

16 Why are non-current assets depreciated?

1 to avoid overstating the value of non-current assets

2 to charge the cost of an asset as an expense over its lifetime
3 to comply with the accounting principle of historic cost
4 to match capital expenditure against the income it has helped earn

A 1, 2 and 4 B 1, 3 and 4 C 1 and 3 only D 2 and 3

17 On 1 January, Raheem purchased equipment costing $850.

It was estimated to have a working life of 5 years and a scrap value of $50.

The asset was depreciated using the straight-line method.

At the end of 3 years, the machine was sold for $100.

What was the profit or loss on disposal?

A $240 loss
B $270 loss
C $50 profit
D $220 profit
18 Imran maintains a provision for doubtful debts of 5% of the trade receivables at the end of each
financial year.

The balance on his provision for doubtful debts account on 1 January 2022 was $700.

Trade receivables on 31 December 2022 owed $2000 more than they owed on 31 December 2021.

How did the change in the provision for doubtful debts affect the profit for the year ended
31 December 2022?

A $100 decrease
B $100 increase
C $800 decrease
D $800 increase

19 Ariadne prepares her financial statements to 31 December each year. She valued all her
inventory at cost on 31 December 2021, even though some inventory with a cost of $500 had a
net realisable value of $350.

What was the effect of this error?

A Gross profit for the year 2021 was overstated.

B Total assets at 31 December 2021 were understated.
C Profit for the year 2022 was overstated.
D Capital at 31 December 2022 was understated.

20 A trader has capital of $24 400. His non-current assets are $16 100 and his current liabilities are
$4500. There are no non-current liabilities.

What is the amount of his current assets?

A $8300 B $11 600 C $12 800 D $28 900

21 At 1 January 2022, there was a credit balance of $800 on the electricity account. Payments made
during the year totalled $4900. At 31 December 2022, a further $1800 of electricity had been
used since the last invoice was paid.

What is the charge to the income statement for electricity for the year 2022?

A $2300 B $5900 C $6700 D $7500

[Turn over
22 Josh and Karen are in a partnership sharing profits and losses 3 : 2. Interest on capital is allowed
at 5%. Salary payable to Josh is $10 000 per annum.

The residual profit after deduction of salary and interest on capital was $20 000. The capital
account balances at the start of the year were: Josh $60 000 and Karen $40 000.

What was the total amount credited to Josh’s current account at the end of the year?

A $12 000 B $15 000 C $22 000 D $25 000

23 A partner is charged interest on the drawings he made during a financial year.

How is this recorded in the partner’s accounts?

A credit the partner’s capital account

B credit the partner’s current account
C debit the partner’s capital account
D debit the partner’s current account

24 Which organisation is the most difficult to establish and has to comply with many legal
formalities?

A partnership
B sole trader
C limited liability company
D club or society

25 Z Limited has the following types of equity and liabilities.

1 debentures
2 general reserves
3 long-term bank loan
4 ordinary share capital
5 preference share capital (non-redeemable)
6 retained earnings

What is included in the company’s shareholders’ equity?

A 1, 2, 4 and 5
B 1, 3, 4 and 5
C 2, 3, 4 and 6
D 2, 4, 5 and 6
26 A sports club operates a shop selling running shoes to members. These shoes are purchased on
credit terms from suppliers.

Which item is recorded in the receipts and payments account?

A inventory of shoes
B payments to suppliers
C purchases of shoes
D shop profit or loss

27 Which cost is a direct factory cost?

A carriage outwards
B depreciation of factory machinery
C factory supervisors’ wages
D manufacturing royalties

28 A manufacturing business provided the following information.

closing work in progress 840

factory overheads 20 945
opening work in progress 910
prime cost 40 750

What was the factory cost of production?

A $19 735 B $19 875 C $61 625 D $61 765

29 Elaine is starting a business.

She wants to make sure she doesn’t miss out on any cash discount which is offered to her.

Which action would help her achieve this?

A issuing her invoices promptly

B maintaining full accounting records of dealings with suppliers
C making purchases in bulk
D undertaking credit checks on all prospective customers

[Turn over
30 Ahmed provided the following information.

trade receivables at 1 January 2022 15 000

for the year ended 31 December 2022:
credit sales 85 000
cash sales 12 000
cheques received from trade receivables 65 000
irrecoverable debts 2 000

By how much had the trade receivables increased by the end of the financial year?

A $18 000 B $30 000 C $33 000 D $45 000

31 A business provided the following information.

revenue $20 000

gross margin 25%
profit margin 10%

There was no other income.

How much were expenses?

A $2000 B $2250 C $3000 D $5000

32 A business has the following assets and liabilities.

inventory 2000
trade receivables 4000
trade payables 1100
bank overdraft 3100

The owner plans to pay some of his own funds into the business bank account to increase the
current ratio to 2 : 1.

How much does he need to pay into the business bank account to achieve this?

A $900 B $1200 C $1900 D $2200

33 Lynne provided the following information about her trading business.

for the year ended 31 August 2023

revenue: cash sales 250 000
credit sales 230 000
at 31 August 2023
trade receivables 19 530
other receivables 2 100

What was Lynne’s trade receivables turnover?

A 15 days B 17 days C 31 days D 35 days

34 A trader values his inventory on the same basis at the end of each financial year.

Which accounting principle is the trader observing?

A consistency
B duality
C matching
D realisation

35 Jack is a shareholder in a company. He received the company’s financial statements.

Why did he find the financial statements relevant?

A He was confident that they did not contain errors.

B The financial information was clearly presented.
C The same depreciation methods had been used as in previous years.
D They confirmed his expectations about the future of the company.
1 Which action does not reduce the owner’s capital?

A business expenses paid using a personal cheque

B cash withdrawn from the business bank account for personal use
C goods taken from inventory for personal use
D personal expenses paid using business cash

2 Which statement correctly describes the accounting equation?

A capital = assets – liabilities

B capital = assets + liabilities
C capital = current assets – current liabilities
D capital = current assets + current liabilities

3 What could a credit balance on a ledger account represent?

A accrued income
B asset
C expense
D prepaid income

4 Aiden purchased goods from Jai and paid for them by bank transfer when he received a
statement of account. Jai says he has not received the payment.

Which document would help Aiden check that he had made the payment?

A bank statement
B cheque counterfoil
C paying-in slip
D petty cash voucher

5 At the end of the month, how is the total from the sales journal recorded in the ledger?

A credited to the customers’ personal accounts

B credited to the sales account
C debited to the customers’ personal accounts
D debited to the sales account
6 A customer paid $15 600 to a supplier after receiving a 2 21 % cash discount and a trade discount
of 20%.

What was the amount of the invoice entered in the purchases journal?

A $12 480 B $15 600 C $16 000 D $20 000

7 A trader maintains a petty cash book using the imprest system. The imprest amount is $120. The
petty cash transactions during the month of June were:

receipt from a customer 21

payments
stationery 25
postage 10
cleaning 20
payment to a supplier 40

How much was given to the petty cashier on 1 July to restore the imprest?

A $46 B $74 C $95 D $120

8 Paula’s trial balance contains errors.

debit credit
$ $

fixtures and fittings 4 000

light and heat 600
purchases 11 200
insurance 1 200
sales 16 500
trade payables 3 500
trade receivables 5 500
bank overdraft 1 000
capital 3 500
drawings 2 000
23 500 25 500

What is the corrected trial balance total?

A $23 500 B $24 500 C $25 500 D $26 500

[Turn over
9 The following entry was made in a journal to record the correction of an error.

debit credit
$ $

Wasim 320
bank 320

Which error has been corrected?

A A cheque, $160, was credited to Wasim’s account but no debit entry was made.
B A cheque, $160, was debited to the bank account but no credit entry was made.
C A cheque paid to Wasim, $160, was credited to his account and debited to the bank.
D A cheque received from Wasim, $160, was credited to his account and debited to the bank.

10 Which statement correctly describes a suspense account?

A It is an account opened to check for errors in a trial balance.

B It is a permanent account used to correct the statement of financial position.
C It is a temporary account used to correct errors of complete reversal.
D It is an account that is opened when the totals of a trial balance disagree.

11 A trader prepared a draft income statement which showed a profit for the year of $36 000.

A check of the books revealed the following information.

1 Drawings made by the owner of $900 had been debited to the wages account.
2 The provision for doubtful debts was increased by $20 at the year-end. The income
statement was charged with the total provision of $260.
3 The total of the discount allowed column in the cash book, $140, for one month had
not been debited to the discount allowed account.

What was the correct profit for the year?

A $34 720 B $36 520 C $37 000 D $37 280

12 Alicia’s cash book showed a debit balance of $100 on her bank account. She compared her cash
book to the bank statement and updated the cash book for the following items.

credit transfer to a credit supplier 80

credit transfer from a credit customer 112
bank interest paid 19

What was the debit balance on the bank account after the cash book was updated?

A $49 B $73 C $113 D $151

13 The balance of cash at bank shown in the cash book is $1200. The bank statement at the same
date shows the balance to be $1440.

What could explain the difference?

A payment to a supplier, $120, entered on the wrong side of the cash book
B bank charges, $240, not in the cash book
C cheques to suppliers, $240, not yet presented to the bank
D receipts from customers, $240, banked but not yet entered in the bank statement

14 Jane wished to make a contra entry between a sales ledger account and a purchases ledger
account.

The credit entry was made correctly but the debit entry was entered in the sales returns account
in error.

What was the effect of this error?

A Total purchases ledger balances were overstated.

B Total purchases ledger balances were understated.
C Total sales ledger balances were overstated.
D Total sales ledger balances were understated.

15 Which transaction is capital expenditure?

A capital introduced by the owner

B payment of wages
C purchase of a new computer
D repair of equipment

[Turn over
16 Sales returns were incorrectly recorded as purchases returns in an income statement.

What was the effect of this error?

A Capital employed was understated.

B Cost of sales was overstated.
C Gross profit was understated.
D Profit for the year was overstated.

17 What is a reason for charging depreciation on a non-current asset?

A to build up a fund of money that can be used to replace the asset

B to charge the cost of the asset over the years which benefit from its use
C to ensure that profit is not understated in the income statement
D to show the asset at its market value in the statement of financial position

18 Which non-current asset should be depreciated using the revaluation method?

A loose tools
B mines and wells
C motor vehicles
D office equipment

19 A motor van originally cost $11 500 and had been depreciated by $9000. The van was sold for
$2750.

How should the profit or loss on the sale of the van be shown in the disposal account?

A $250 credit
B $250 debit
C $2500 credit
D $2500 debit
20 Joseph sells goods on credit and maintains a provision for doubtful debts. He wants to increase
his provision for doubtful debts by $400.

Which journal entry records this increase in the provision for doubtful debts?

debit credit
$ $
A credit customer 400
income statement 400
B income statement 400
credit customer 400
C income statement 400
provision for doubtful debts 400
D provision for doubtful debts 400
income statement 400

21 What is an advantage of operating as a sole trader?

A being entitled to all profits

B being responsible for all losses
C having limited liability
D having unlimited liability

22 Emma provided the following information at the end of her financial year.

fees receivable from clients 78 000

rent receivable 11 000
office expenses 20 000
motor expenses 9 000
drawings 2 000

What was her profit for the year?

A $47 000 B $49 000 C $58 000 D $60 000

[Turn over
23 A trader provided the following data.

total purchases 25 301

purchase returns 1 945
carriage inwards 748
goods taken for own use 1 425

What was the net figure for purchases in the income statement?

A $21 931 B $22 679 C $23 356 D $24 104

24 Pari and Ira are in a partnership, sharing profits and losses equally.

Interest on the capital account balances is allowed at 6% per annum.

Pari is entitled to a salary of $5000 per annum.

The capital account balances at the start of the year were $60 000 for Pari and $40 000 for Ira.

The profit for the year was $27 500.

How much residual profit was credited to Pari’s current account at the end of the year?

A $8250 B $10 750 C $11 250 D $13 250

25 Which item is directly affected by the dividend policy of a limited company?

A general reserve
B ordinary share capital
C preference share capital
D retained earnings

26 What are the features of a debenture?

return received rate of return voting rights

A dividend based on profit yes

B dividend fixed rate no
C interest based on profit yes
D interest fixed rate no
27 How are subscriptions received and subscriptions written off recorded in a receipts and payments
account?

subscriptions subscriptions
received written off

A as a credit as a debit
B as a credit no entry made
C as a debit as a credit
D as a debit no entry made

28 Par Golf Club had a shop that sold golfing equipment to its members. The treasurer provided the
following information for the shop for the year ended 31 December.

sales of golfing equipment 5 300

opening inventory of golfing equipment 400
closing inventory of golfing equipment 450
purchases of golfing equipment 2 700
returns from customers 200
carriage on purchases 100

What was the shop’s gross profit for the year?

A $2250 B $2350 C $2450 D $2750

29 Which option contains only indirect costs?

A carriage inwards, factory rent, wages of factory supervisors

B carriage inwards, raw materials, wages of machine operators
C depreciation of machinery, factory rent, wages of factory supervisors
D depreciation of machinery, raw materials, wages of machine operators

30 The capital of a business is higher at the end of year 2 than it was at the end of year 1. No
additional capital has been introduced during year 2.

What does this mean?

A The business has made a loss.

B The business has made a profit.
C The business has sold some non-current assets.
D The business has taken a long-term loan.

[Turn over
31 Rahat has not maintained a full set of double entry records. She has details of her assets and
liabilities at the start and end of the year.

Which additional information does Rahat need in order to be able to prepare her income
statement for the year?

A a statement of affairs at the start of the year

B a summary of receipts and payments for the year
C the amount of her capital at the end of the year
D the rate of inventory turnover for the year

32 Toby’s purchases for the year were $13 000. His closing inventory was $1000 more than his
opening inventory. Toby’s gross margin is 20%.

What was Toby’s revenue for the year?

A $14 400 B $15 000 C $16 800 D $17 500

33 CD Limited took out a long-term bank loan and used part of the funds to pay some of its credit
suppliers early.

How did this affect the trade payables turnover (days) and the return on capital employed
(ROCE)?

trade payables return on capital

turnover (days) employed (ROCE)

A decrease decrease
B decrease increase
C increase decrease
D increase increase

34 Jimmy made credit sales of $98 550 in each of the years 2021 and 2022.

In 2022, his trade receivables turnover was exactly two days shorter than it had been in 2021.

What was the change in his total trade receivables in 2022?

A $135 decrease
B $135 increase
C $540 decrease
D $540 increase
35 Which characteristic of financial information requires that financial statements be clearly
presented and assumes that the users of the financial statements will have a reasonable
knowledge of accounting?

A comparability
B relevance
C reliability
D understandability
1 What is the purpose of measuring business profit and loss?

A to check the productivity of employees

B to consider the ability of the business to grow
C to determine how much cash is available
D to ensure that the inventory is not overstated

2 At the end of her first year of trading Zoe had $6500 in her business bank account.

Then she paid $5000 of her own money into the business bank account. She used $2000 of this
amount to repay a business loan.

What effect would these transactions have on her assets, capital and liabilities?

assets capital liabilities

$ $ $

A –3000 –5000 +2000

B +3000 +5000 –2000
C +3000 +3000 unchanged
D +5000 +5000 unchanged

3 Which business document is used by a trader to record amounts deposited into the bank account?

A bank statement
B cheque counterfoil
C paying-in slip
D statement of account
4 A trader kept a petty cash book using the imprest system.

He provided the following information.

$
1 March petty cash balance 80
transfer from bank account to restore the
170
imprest
31 March petty cash payments 195
petty cash expense refunded 10

How much was needed to restore the imprest on 1 April?

A $55 B $65 C $185 D $250

5 Sahil took goods from the business for his own use. These goods had a cost of $60 and a selling
price of $100.

Which entry was made in the drawings account to record this withdrawal of goods?

A $60 credit
B $60 debit
C $100 credit
D $100 debit

6 What is an advantage of using a sales journal?

A It enables monthly totals to be posted to the sales ledger.

B It ensures that all credit sales are correctly recorded.
C It reduces the number of entries in the sales account.
D It shows the amount owed by credit customers at the month end.

[Turn over
7 The following account appeared in the ledger of Eli.

Jacob account

$ $

June 1 balance b / d 220 June 4 bank 210

22 sales 400 discount 10
___ 30 balance c / d 400
620 620

Which statement is correct?

A On 1 June Eli was owed $220 by Jacob.

B On 4 June Eli paid Jacob $210 by cheque.
C On 22 June Jacob sold goods to Eli for $400.
D On 30 June Jacob was owed $400 by Eli.

8 The totals of a trial balance agreed but it was found that the purchase of office equipment had been
debited to office expenses account.

Which type of error has been made?

A commission
B compensating
C original entry
D principle

9 Mandy’s trial balance failed to agree. The difference of $620 was placed in a suspense account.
The suspense account’s balance was shown on the debit side of the trial balance.

Which error had caused the difference?

A Discounts allowed of $310 had been credited to the discount received account.
B Discounts received of $310 had been credited to the discount allowed account.
C The value of closing inventory had been overstated by $620.
D The value of closing inventory had been understated by $620.
10 Jane took cash drawings from the business. The amount was debited to the purchases account
and credited to cash.

How did this error affect the profit for the year and the current assets in the financial statements?

profit for the year current assets

A decrease no effect
B increase no effect
C no effect decrease
D no effect increase

11 What is true about a bank statement?

1 It is a demand by the bank for repayment of an overdraft.

2 It shows a positive bank balance as a debit balance.
3 It shows transactions affecting the bank account in a given period.

A 1 and 2 B 1 only C 2 and 3 D 3 only

12 On 30 June the bank column in Farad’s cash book showed an overdrawn balance of $2000.

The following items had not been entered in the cash book.

standing order for rent 200

interest on bank overdraft 50
credit transfer from X Limited 2900

What was the corrected balance of the bank column in the cash book at 1 July?

A $650 credit
B $650 debit
C $1150 credit
D $1150 debit

[Turn over
13 What is an advantage of maintaining a purchases ledger control account?

A It detects errors of omission.

B It guarantees the accuracy of the ledgers.
C It prevents fraud.
D It shows how much is owed to suppliers.

14 Raj is both a customer of and a supplier to Balbir.

Raj’s account in Balbir’s sales ledger showed a debit balance of $300. There was a credit balance
of $100 on Raj’s account in Balbir's purchases ledger. A contra entry between the two accounts
was agreed.

Which entry would Balbir make in his purchases ledger control account?

A credit $100
B credit $200
C debit $100
D debit $200

15 A limited company sells office equipment. The following amounts were recorded in the company’s
books of account.

1 cash received from disposal of motor vehicle $6000

2 cash received from issue of shares $9000
3 discount received $8000
4 rent received $5000

What was the total of the capital receipts of the company?

A $13 000 B $14 000 C $15 000 D $23 000

16 On 1 January 2023 Kate paid $400 for a two-year maintenance contract on her machinery starting
on that date. In error this amount was debited to the machinery account.

Kate depreciates her machinery at the rate of 20% per annum.

What effect did the error have on Kate’s profit for the year ended 31 December 2023?

A overstated by $80
B overstated by $120
C understated by $80
D understated by $120
17 Why should a business depreciate its non-current assets?

A to charge the cost of an asset as an expense in the year of purchase

B to ensure that cash is available to replace the non-current assets
C to ensure the value of non-current assets is not understated
D to match capital expenditure against the revenue it has helped to earn

18 A trader had a credit balance on his heat and light account at the start of the financial year.

What does this balance represent?

A accrued income
B an accrued expense
C prepaid income
D a prepaid expense

19 Which statements about irrecoverable debts are correct?

1 They are an application of the historic cost principle.

2 They are debts which will not be paid by credit customers.
3 They increase the value of current liabilities.
4 They reduce the total value of trade receivables.

A 1 and 2 B 1 and 4 C 2 and 3 D 2 and 4

20 At the end of his financial year Raminder made an adjustment for rent owed to him by a tenant.

How did this affect Raminder’s financial statements?

profit for the year current assets

A decrease decrease
B decrease increase
C increase decrease
D increase increase

[Turn over
21 What is a disadvantage of operating as a sole trader?

A Access to capital is restricted.

B Book-keeping records are more complex.
C Decisions may take longer to implement.
D The liability of the owner is limited.

22 John and Mark are in partnership. Profits and losses are shared in the ratio 3 : 2. John is entitled
to an annual salary of $12 000. The profit for the year ended 31 August 2023 was $52 000.

How much would be credited to the partners’ current accounts on 31 August 2023?

John’s Mark’s
current account current account
$ $

A 24 000 16 000
B 26 000 26 000
C 31 200 20 800
D 36 000 16 000

23 Which statement correctly describes the effect of limited liability if a business fails?

A A shareholder can only lose the money they agreed to pay for their shares.
B A shareholder risks losing all their personal possessions.
C A sole trader can only lose the capital they have invested.
D A sole trader risks losing all their personal possessions.

24 At the start of the year, V Limited had $45 750 total equity, of which $10 750 was retained earnings.

At the year end, the company had transferred $1000 to general reserve, paid a dividend of $2800
and made a profit for the year of $4995.

What was the total equity at the end of the year?

A $36 195 B $46 945 C $47 945 D $48 945

25 The treasurer of a sports club provided the following information.

clubhouse and sports fields 250 000

sports equipment 80 000
cash at bank 12 000
bank loan 14 000
subscriptions accrued 2 800

What was the amount of the accumulated fund?

A $325 200 B $328 000 C $330 800 D $342 000

26 What will be included in a receipts and payments account of a social club?

1 cash payment for new furniture for the clubhouse

2 depreciation charged on the clubhouse furniture
3 outstanding subscriptions from the previous year received in the current year
4 subscriptions owed by members at the end of the current year

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

27 Thato is a manufacturer. His manufacturing account for the year ended 31 December showed that
his work in progress had increased.

How did this affect the cost of production and the cost of sales?

cost of production cost of sales

A decreased decreased
B decreased no effect
C increased increased
D increased no effect

[Turn over
28 A factory makes uniforms for school children.

What is not included in the calculation of prime cost in the factory’s manufacturing account?

A cost of the cloth used to make the uniforms

B delivery costs of bringing the cloth to the factory
C wages of the drivers who deliver the completed uniforms to shops
D wages of the sewing machinists who make the uniforms

29 The average inventory of a business was $40 000. The rate of inventory turnover was 5 times a
year. Mark-up was 20%.

What was the revenue for the year?

A $160 000 B $200 000 C $240 000 D $250 000

30 Shelley does not maintain a full set of accounting records but was able to provide the following
information.

sales for the year ended 31 August 2023 (80% of which 97 500
were on credit)
amounts received from trade receivables during the year 71 500
ended 31 August 2023
amount owing by trade receivables on 31 August 2023 14 000

How much was owed by the trade receivables on 1 September 2022?

A $6500 B $7500 C $12 000 D $20 500

31 Wayne provided the following information.

non-current assets 110 000

current assets 25 000
current liabilities 15 000
profit for the year 23 000

What was the return on capital employed?

A 15.33% B 19.17% C 23.00% D 32.86%

32 The trade payables turnover of a business is 36 days.

What do these 36 days represent?

A the average number of days before the business purchases further goods on credit
B the average number of days taken by the business to pay its credit suppliers
C the average number of days the business is allowed by credit suppliers to pay for goods
D the average number of days the business takes to sell goods purchased on credit

33 Paul’s gross margin increased from 16.5% in year 1 to 17.5% in year 2.

What would explain the improvement in the gross margin?

A increasing the quantity of goods sold

B increasing the selling price of the goods sold
C offering trade discounts to customers buying in bulk
D selling goods at a reduced price

34 M Limited has made sure that its financial statements are comparable with those of previous years.

How does this affect interested parties?

A They are made aware of any changes in accounting policies.

B They can be sure that the information in the financial statements is up to date.
C They can understand the financial statements easily.
D They know that there are no significant errors in the financial statements.

35 Which accounting principle states that profit should be recognised when title to the goods passes
to the customer?

A materiality
B money measurement
C prudence
D realisation
1 A trader prepares financial statements each year.

What do these help the trader to do?

A calculate the amount owing to credit suppliers

B calculate the cash drawings
C check the bank statement balance
D make decisions about the future

2 A trader bought new fixtures. He paid half the purchase price in cash and agreed to pay the balance
at a later date.

How does this purchase affect the accounting equation?

assets owner’s equity liabilities

A decrease decrease no effect

B decrease no effect increase
C increase decrease increase
D increase no effect increase

3 Which account is not kept in the nominal ledger?

A capital
B cash
C inventory
D purchases
4 On 15 February Kalou made the following entries in his accounts.

debit $ credit $

bank 228 Droghba 240

discount allowed 12

Which transaction was being recorded?

A Droghba paid Kalou by cheque after taking a cash discount.

B Droghba paid Kalou by cheque after taking a trade discount.
C Kalou paid Droghba by cheque after taking a cash discount.
D Kalou paid Droghba by cheque after taking a trade discount.

5 Ranjit is a credit customer of Balbir. In April the following activities took place.

Balbir sold goods on credit to Ranjit.

Ranjit advised Balbir that some of the goods were damaged.

Balbir advised Ranjit of a reduction in the amount owing.

Which documents were used to record these activities?

A debit note, credit note and receipt

B invoice, credit note and receipt
C invoice, credit note and statement of account
D invoice, debit note and credit note

6 What is an advantage to a business of maintaining books of prime entry?

A A trial balance can be extracted directly from books of prime entry.

B Similar transactions are listed together in date order for reference.
C There is no need to make double entries in the ledger.
D Trade receivables and trade payables totals are readily available.

[Turn Over
7 Which items appear on the debit side of a trial balance?

1 amounts owed from credit customers

2 discount received from credit suppliers
3 drawings made by the owner
4 overdrawn balance at the bank

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

8 A trader had prepared her year-end financial statements. She later discovered that an adjustment
to reduce the provision for doubtful debts by $100 had not been made.

How did this error affect the trader’s statement of financial position?

current assets capital

$ $

A overstated 100 overstated 100

B overstated 100 understated 100
C understated 100 overstated 100
D understated 100 understated 100

9 A trader’s draft income statement showed a profit for the year of $24 500.

The following errors were later discovered.

1 No adjustment had been made for accrued income of $8000.

2 Carriage inwards of $250 had been recorded as carriage outwards.
3 An increase in provision for doubtful debts of $120 had been treated as an addition
to the gross profit for the year.

What was the corrected profit for the year?

A $32 010 B $32 260 C $32 380 D $32 740

10 The bank statement of a business had a credit balance of $2690 on 31 October. At that date cheques
issued which had not been presented totalled $850.

What was the bank balance in the cash book on 31 October?

A $1840 credit
B $1840 debit
C $3540 credit
D $3540 debit

11 The bank column of a trader’s cash book showed an overdrawn balance of $1200. When the trader
compared the cash book with the bank statement he found the following items were not included
in the cash book.

bank charges 100

credit transfer 400
direct debit 60

What was the balance brought down in the bank column of the cash book after it was updated?

A $960 credit
B $960 debit
C $1640 credit
D $1640 debit

12 What is an advantage of preparing a monthly sales ledger control account?

A It is necessary to prepare the income statement.

B It helps to reduce the possibility of fraud .
C It provides a check on the accuracy of trade payables’ accounts.
D It shows the total of the cash sales and credit sales.

[Turn Over
13 A summary of Jim's cash book for the year included the following:

total cheques paid to suppliers 3750

total discount received 65

Which entries are made in his purchases ledger control account?

debit $ credit $

A bank 3750 discount received 65

B bank 3750 – –
discount received 65
C – – bank 3750
discount received 65
D discount received 65 bank 3750

14 Hamid owns a grocery store. He bought a motor vehicle, $2000, and fuel, $50. Both of these
amounts were incorrectly debited to the purchases account.

What was the effect of this error on the income statement for the year?

gross profit motor vehicle expenses

$ $

A overstated 2000 overstated 2050

B overstated 2050 overstated 50
C understated 2000 understated 2050
D understated 2050 understated 50

15 Which statements are correct about depreciation?

1 It is a non-cash expense item.

2 It is an estimated amount.
3 It is the amount of money set aside to replace a non-current asset.
4 It is a gradual loss in the value of a current asset.

A 1, 2 and 3 B 1 and 2 only C 2, 3 and 4 D 2 and 4 only

16 A machine with an original cost of $10 000 had been depreciated for two years at the rate of 10%
per annum using the straight-line method. It was then sold for cash with the loss on disposal
amounting to $700.

A replacement machine was bought on the same day for $12 400 cash.

What was the net decrease in the cash balance?

A $3700 B $5100 C $11 700 D $13 100

17 Abdul is a trader. He rents out part of his warehouse to other businesses.

Abdul is preparing his financial statements for the year ended 31 December. His rental income
account shows that:

rent received during the year totalled $2750

rental income transferred to the income statement was $3000

What does the closing balance on the rental income account represent?

A accrued income
B an accrued expense
C an expense paid in advance
D income received in advance

18 What is the journal entry required to close the irrecoverable debts account at the year end?

account to be debited account to be credited

A income statement irrecoverable debts

B irrecoverable debts income statement
C irrecoverable debts trade receivables
D trade receivables irrecoverable debts

[Turn Over
19 After preparing draft financial statements at the end of her first year of trading, Lucy discovered
two errors.

1 Damaged inventory had been valued at its cost price of $340. It was expected to sell
for $180.
2 100 items which had been expected to sell for $12 each had been valued at their
cost price of $7 each. Carriage inwards of $1 for each item had not been included in
the cost.

What was the effect of these errors on the gross profit?

A overstated $60
B overstated $240
C understated $60
D understated $240

20 Which items would appear in the income statement for an accountancy business?

gross profit profit for the year surplus

A ✓ ✓ ✗
B ✓ ✗ ✓
C ✗ ✓ ✗
D ✗ ✗ ✓

21 A business provided the following information.

$
long-term loan 20 000
trade receivables 12 000
trade payables 9 700
bank overdraft 2 000
prepaid insurance 400
accrued wages 1 000
rental income prepaid 500

What was the total of the current liabilities?

A $13 200 B $15 400 C $31 200 D $32 700

22 What is an advantage to a trader of forming a partnership?

A continuity of existence
B decision making is quicker
C profits are shared
D risks are shared

23 Which items should be entered in the appropriation account of a partnership?

interest on interest on
partners’
partners’ partners’
drawings
drawings loans

A ✓
B ✓ ✓
C ✓ ✓
D ✓ ✓

24 X Limited provided the following information.

ordinary share capital 300 000

general reserve 50 000
retained earnings 35 000
8% debenture 60 000

What was the total of the equity?

A $335 000 B $350 000 C $385 000 D $445 000

25 Which item is shown in the income statement and in the statement of changes in equity of a limited
company?

A accrued interest on debentures

B ordinary share dividend paid
C profit for the year
D transfer to general reserve

[Turn Over
26 The Daylee Sports Club was formed in January. During its first year the club purchased equipment
costing $5000, paying by cheque.

Which of the club’s financial statements are affected by the purchase of this equipment?

receipts and income and statement of

payments expenditure financial
account account position

A ✓ ✓
B ✓ ✓
C ✓ ✓
D ✓

27 The following ledger account appeared in the books of a club for the year ended 31 December.

Subscriptions account

$ $
Jan 1 Balance b / d 2 000 Dec 31 Bank 29 000
Dec 31 Income and expenditure 24 000
Balance c / d 3 000 _____
29 000 29 000

Which statement is correct?

A Subscriptions prepaid on 1 January amounted to $2000.

B Subscriptions prepaid on 31 December amounted to $3000.
C Subscriptions received during the year ended 31 December amounted to $24 000.
D Subscriptions relating to the year ended 31 December amounted to $29 000.
28 After a manufacturing account had been completed it was discovered that wages paid to factory
cleaners had not been included.

Which items in the manufacturing account would change after this error was corrected?

1 direct wages
2 indirect wages
3 prime cost
4 production cost

A 1 and 2 B 1, 3 and 4 C 2 and 4 D 3 and 4 only

29 W Limited manufactures motorbikes. The following information relates to the first year in business.

purchases of motorbike parts 40 000

wages of factory workers 25 000
production overheads 8 000
inventory of motorbike parts at the year end 3 000
inventory of partly finished motorbikes at the year end 7 000

What was the cost of production of the motorbikes completed during the year?

A $63 000 B $65 000 C $70 000 D $77 000

[Turn Over
30 Anya did not keep a full set of double entry records but provided the following information.

At 1 February 2022
capital 10 000
At 31 January 2023
bank overdraft 1 500
equipment 20 000
inventory 2 000
trade receivables 15 000
trade payables 10 500

Anya’s drawings during the year ended 31 January 2023 were $8500.

What was her profit for the year ended 31 January 2023?

A $23 500 B $25 000 C $26 500 D $29 500

31 A jewellery retailer marks up his goods by 100%.

He provided the following information.

revenue 68 200
discount received 1 080
profit for the year 18 395

What was the total of his expenses?

A $14 625 B $16 785 C $48 725 D $50 885

32 Omar had an increase in his gross profit margin.

What could have caused this?

A a decrease in the selling price of his goods

B an increase in the quantity of goods purchased
C a decrease in the purchase price of his goods
D an increase in the quantity of goods sold
33 Who would be interested in the value of non-current assets which a business has available as
security?

A bank manager
B credit customers
C employees and trade unions
D government departments

34 Which accounting principle is the accounting equation based on?

A duality
B going concern
C materiality
D realisation

35 Which qualitative factor requires that financial information is provided in a timely manner so that it
can be used for decision making?

A comparability
B relevance
C reliability
D understandability
1 What is the purpose of measuring business profit and loss?

A to check the productivity of employees

B to consider the ability of the business to grow
C to determine how much cash is available
D to ensure that the inventory is not overstated

2 At the end of her first year of trading Zoe had $6500 in her business bank account.

Then she paid $5000 of her own money into the business bank account. She used $2000 of this
amount to repay a business loan.

What effect would these transactions have on her assets, capital and liabilities?

assets capital liabilities

$ $ $

A –3000 –5000 +2000

B +3000 +5000 –2000
C +3000 +3000 unchanged
D +5000 +5000 unchanged

3 Which business document is used by a trader to record amounts deposited into the bank account?

A bank statement
B cheque counterfoil
C paying-in slip
D statement of account
4 A trader kept a petty cash book using the imprest system.

He provided the following information.

$
1 March petty cash balance 80
transfer from bank account to restore the
170
imprest
31 March petty cash payments 195
petty cash expense refunded 10

How much was needed to restore the imprest on 1 April?

A $55 B $65 C $185 D $250

5 Sahil took goods from the business for his own use. These goods had a cost of $60 and a selling
price of $100.

Which entry was made in the drawings account to record this withdrawal of goods?

A $60 credit
B $60 debit
C $100 credit
D $100 debit

6 What is an advantage of using a sales journal?

A It enables monthly totals to be posted to the sales ledger.

B It ensures that all credit sales are correctly recorded.
C It reduces the number of entries in the sales account.
D It shows the amount owed by credit customers at the month end.

[Turn Over
7 The following account appeared in the ledger of Eli.

Jacob account

$ $

June 1 balance b / d 220 June 4 bank 210

22 sales 400 discount 10
___ 30 balance c / d 400
620 620

Which statement is correct?

A On 1 June Eli was owed $220 by Jacob.

B On 4 June Eli paid Jacob $210 by cheque.
C On 22 June Jacob sold goods to Eli for $400.
D On 30 June Jacob was owed $400 by Eli.

8 The totals of a trial balance agreed but it was found that the purchase of office equipment had been
debited to office expenses account.

Which type of error has been made?

A commission
B compensating
C original entry
D principle

9 Mandy’s trial balance failed to agree. The difference of $620 was placed in a suspense account.
The suspense account’s balance was shown on the debit side of the trial balance.

Which error had caused the difference?

A Discounts allowed of $310 had been credited to the discount received account.
B Discounts received of $310 had been credited to the discount allowed account.
C The value of closing inventory had been overstated by $620.
D The value of closing inventory had been understated by $620.
10 Jane took cash drawings from the business. The amount was debited to the purchases account
and credited to cash.

How did this error affect the profit for the year and the current assets in the financial statements?

profit for the year current assets

A decrease no effect
B increase no effect
C no effect decrease
D no effect increase

11 What is true about a bank statement?

1 It is a demand by the bank for repayment of an overdraft.

2 It shows a positive bank balance as a debit balance.
3 It shows transactions affecting the bank account in a given period.

A 1 and 2 B 1 only C 2 and 3 D 3 only

12 On 30 June the bank column in Farad’s cash book showed an overdrawn balance of $2000.

The following items had not been entered in the cash book.

standing order for rent 200

interest on bank overdraft 50
credit transfer from X Limited 2900

What was the corrected balance of the bank column in the cash book at 1 July?

A $650 credit
B $650 debit
C $1150 credit
D $1150 debit

[Turn Over
13 What is an advantage of maintaining a purchases ledger control account?

A It detects errors of omission.

B It guarantees the accuracy of the ledgers.
C It prevents fraud.
D It shows how much is owed to suppliers.

14 Raj is both a customer of and a supplier to Balbir.

Raj’s account in Balbir’s sales ledger showed a debit balance of $300. There was a credit balance
of $100 on Raj’s account in Balbir's purchases ledger. A contra entry between the two accounts
was agreed.

Which entry would Balbir make in his purchases ledger control account?

A credit $100
B credit $200
C debit $100
D debit $200

15 A limited company sells office equipment. The following amounts were recorded in the company’s
books of account.

1 cash received from disposal of motor vehicle $6000

2 cash received from issue of shares $9000
3 discount received $8000
4 rent received $5000

What was the total of the capital receipts of the company?

A $13 000 B $14 000 C $15 000 D $23 000

16 On 1 January 2023 Kate paid $400 for a two-year maintenance contract on her machinery starting
on that date. In error this amount was debited to the machinery account.

Kate depreciates her machinery at the rate of 20% per annum.

What effect did the error have on Kate’s profit for the year ended 31 December 2023?

A overstated by $80
B overstated by $120
C understated by $80
D understated by $120
17 Why should a business depreciate its non-current assets?

A to charge the cost of an asset as an expense in the year of purchase

B to ensure that cash is available to replace the non-current assets
C to ensure the value of non-current assets is not understated
D to match capital expenditure against the revenue it has helped to earn

18 A trader had a credit balance on his heat and light account at the start of the financial year.

What does this balance represent?

A accrued income
B an accrued expense
C prepaid income
D a prepaid expense

19 Which statements about irrecoverable debts are correct?

1 They are an application of the historic cost principle.

2 They are debts which will not be paid by credit customers.
3 They increase the value of current liabilities.
4 They reduce the total value of trade receivables.

A 1 and 2 B 1 and 4 C 2 and 3 D 2 and 4

20 At the end of his financial year Raminder made an adjustment for rent owed to him by a tenant.

How did this affect Raminder’s financial statements?

profit for the year current assets

A decrease decrease
B decrease increase
C increase decrease
D increase increase

[Turn Over
21 What is a disadvantage of operating as a sole trader?

A Access to capital is restricted.

B Book-keeping records are more complex.
C Decisions may take longer to implement.
D The liability of the owner is limited.

22 John and Mark are in partnership. Profits and losses are shared in the ratio 3 : 2. John is entitled
to an annual salary of $12 000. The profit for the year ended 31 August 2023 was $52 000.

How much would be credited to the partners’ current accounts on 31 August 2023?

John’s Mark’s
current account current account
$ $

A 24 000 16 000
B 26 000 26 000
C 31 200 20 800
D 36 000 16 000

23 Which statement correctly describes the effect of limited liability if a business fails?

A A shareholder can only lose the money they agreed to pay for their shares.
B A shareholder risks losing all their personal possessions.
C A sole trader can only lose the capital they have invested.
D A sole trader risks losing all their personal possessions.

24 At the start of the year, V Limited had $45 750 total equity, of which $10 750 was retained earnings.

At the year end, the company had transferred $1000 to general reserve, paid a dividend of $2800
and made a profit for the year of $4995.

What was the total equity at the end of the year?

A $36 195 B $46 945 C $47 945 D $48 945

25 The treasurer of a sports club provided the following information.

clubhouse and sports fields 250 000

sports equipment 80 000
cash at bank 12 000
bank loan 14 000
subscriptions accrued 2 800

What was the amount of the accumulated fund?

A $325 200 B $328 000 C $330 800 D $342 000

26 What will be included in a receipts and payments account of a social club?

1 cash payment for new furniture for the clubhouse

2 depreciation charged on the clubhouse furniture
3 outstanding subscriptions from the previous year received in the current year
4 subscriptions owed by members at the end of the current year

A 1 and 2 B 1 and 3 C 2 and 4 D 3 and 4

27 Thato is a manufacturer. His manufacturing account for the year ended 31 December showed that
his work in progress had increased.

How did this affect the cost of production and the cost of sales?

cost of production cost of sales

A decreased decreased
B decreased no effect
C increased increased
D increased no effect

[Turn Over
28 A factory makes uniforms for school children.

What is not included in the calculation of prime cost in the factory’s manufacturing account?

A cost of the cloth used to make the uniforms

B delivery costs of bringing the cloth to the factory
C wages of the drivers who deliver the completed uniforms to shops
D wages of the sewing machinists who make the uniforms

29 The average inventory of a business was $40 000. The rate of inventory turnover was 5 times a
year. Mark-up was 20%.

What was the revenue for the year?

A $160 000 B $200 000 C $240 000 D $250 000

30 Shelley does not maintain a full set of accounting records but was able to provide the following
information.

sales for the year ended 31 August 2023 (80% of which 97 500
were on credit)
amounts received from trade receivables during the year 71 500
ended 31 August 2023
amount owing by trade receivables on 31 August 2023 14 000

How much was owed by the trade receivables on 1 September 2022?

A $6500 B $7500 C $12 000 D $20 500

31 Wayne provided the following information.

non-current assets 110 000

current assets 25 000
current liabilities 15 000
profit for the year 23 000

What was the return on capital employed?

A 15.33% B 19.17% C 23.00% D 32.86%

32 The trade payables turnover of a business is 36 days.

What do these 36 days represent?

A the average number of days before the business purchases further goods on credit
B the average number of days taken by the business to pay its credit suppliers
C the average number of days the business is allowed by credit suppliers to pay for goods
D the average number of days the business takes to sell goods purchased on credit

33 Paul’s gross margin increased from 16.5% in year 1 to 17.5% in year 2.

What would explain the improvement in the gross margin?

A increasing the quantity of goods sold

B increasing the selling price of the goods sold
C offering trade discounts to customers buying in bulk
D selling goods at a reduced price

34 M Limited has made sure that its financial statements are comparable with those of previous years.

How does this affect interested parties?

A They are made aware of any changes in accounting policies.

B They can be sure that the information in the financial statements is up to date.
C They can understand the financial statements easily.
D They know that there are no significant errors in the financial statements.

35 Which accounting principle states that profit should be recognised when title to the goods passes
to the customer?

A materiality
B money measurement
C prudence
D realisation