O level

Accounting
Revision Paper 2
MCQ
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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

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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

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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

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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

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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 $21000 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

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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

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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

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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

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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

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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.

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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.

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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

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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

36 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.

37 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

38 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

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39 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.

40 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

41 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

42 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

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43 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.

44 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

45 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

46 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

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47 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

48 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

49 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

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50 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

51 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

52 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

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53 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

54 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

55 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

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56 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

57 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

58 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

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59 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

60 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

61 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

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62 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

63 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

64 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

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65 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

66 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.

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

A government
B investors
C managers
D suppliers

68 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

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69 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.

70 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

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