Question 2: According to IAS 1, Presentation of Financial Statements which two of the following are
objectives of primary financial statements?
A. To show the results of management's stewardship of the resources entrusted to it
B. To provide a basis for valuing the entity
C. To provide information about the financial position, financial performance and cash flows of
an entity that is useful to a wide range of users in making economic decisions
D. To facilitate comparison of financial performance between entities operating in different
industries
E. To assist management and those charged with governance in making timely economic
decisions about deployment of the entity's resources
Question 3: The International Sustainability Standards Board (ISSB) was established in 2021 and
issues IFRS Sustainability Disclosure Standards.
Requirement: Which of the following statements regarding the ISSB and IFRS Sustainability
Disclosure Standards is true?
A. The ISSB has authority to mandate the application of IFRS Sustainability Disclosure
Standards
B. The ISSB initially focused on climate-related disclosures.
C. The IFRS Sustainability Disclosure Standards will replace IFRS Accounting Standards.
D. Prior to the formation of the ISSB, there was no guidance available to entities relating to the
disclosure of sustainability information.
Question 4: Which of the following is a drawback of cloud accounting?
A. Users cannot access the accounting software from remote locations
B. Multiple users cannot access the accounting software at the same time
C. There is an increased risk of accounting data being hacked
D. There is a need to maintain back up copies of all accounting data
Question 5: Blake is a VAT registered trader whose sales and purchases carry VAT at the standard
rate of 20%. Blake sells a customer goods on credit for £4,800 exclusive of VAT.
Requirement: What is the double entry to record this?
A. Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760
B. Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C. Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D. Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
Question 6: A payment has been received from a credit customer in settlement of an invoice. The
customer was expected to take advantage of an early settlement discount offered, however, payment
was not made within the required timeframe and the discount was not taken.
Requirement: The correct double entry to record the receipt of funds from the customer in full
settlement of the invoice is:
A. Debit Cash at bank, Credit Receivables, Credit Revenue
B. Debit Cash at bank, Debit Revenue, Credit Payables
C. Debit Receivables, Debit Revenue, Credit Cash at bank
D. Debit Receivables, Credit Revenue, Credit Cash at bank
Question 7: Which of the following would be a credit balance in the trial balance?
A. Bank overdraft
B. Drawings
C. Purchases
D. Delivery outwards
Question 8: Plym pic is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For
the year to 30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales of
£89,400 excluding VAT. There was no change in the figures for opening and closing inventory in the
statements of financial position as at 30 June 20X6 and 20X7.
Requirement What was Plym plc's gross profit for the year ended 30 June 20X7?
A. £19,800
B. £4,900
C. £31,400
D. £16,500
Question 9: Which three of the following situations are likely to result in a suspense account being
used to record a transaction?
A. A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt
payment discount.
B. A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
C. A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D. A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which
the bookkeeper was unsure where to record the credit entry.
E. A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a prompt
payment discount of 5% was expected to be taken.
Question 10: Incorrectly recording the purchase of stationery by debiting the computer equipment
account would result in:
A. an overstatement of profit and an overstatement of non-current assets
B. an understatement of profit and an overstatement of non-current assets
C. an overstatement of profit and an understatement of non-current assets
D. an understatement of profit and an understatement of non-current assets
Question 11: Indicate whether the following statements are true or false.
Requirements
In a period of rising prices, applying the first in first out (FIFO) method to determine the cost of
inventories will give a lower gross profit figure than the average cost (AVCO) method.
A. True
B. False
Closing inventory is a debit in the statement of profit or loss.
C. True
D. False
Question 12: In preparing its financial statements for the current year, a company's closing inventory
was understated by £300,000.
Requirement: What will be the effect of this error if it remains uncorrected?
A. The current year's profit will be overstated and next year's profit will be understated.
B. The current year's profit will be understated but there will be no effect on next year's profit.
C. The current year's profit will be understated and next year's profit will be overstated.
D. The current year's profit will be overstated but there will be no effect on next year's profit
Question 13: Percy plc started trading on 1 April 20X4 and made a loss in the year to 31 March 20X5.
The cost of inventory shown in Percy plc's statement of financial position at 31 March 20X5, using the
average cost (AVCO) basis, was £6,420. Had the first in first out (FIFO) basis been used, the cost
would have been £8,080.
Requirement: What is the effect of adopting the FIFO basis on Percy plc's financial statements for
the year ended 31 March 20X5?
A. decreases losses and decrease current assets by £1,660
B. increase current assets and decrease losses by £1,660
C. increase capital and decrease current assets by £1,660
D. increase current assets and increase losses by £1,660
Question 14: Meridi plc has an allowance for receivables of £500 on 1 July 20X7. During the year to
30 June 20X8 the following events take place:
(1) £92 was recorded as received from a customer in the accounting system. The transfer of funds
was then not completed as expected and the monies did not clear the bank. No entries have yet been
made for this return. The directors wish to write the debt off as irrecoverable.
(2) An allowance for receivables of £475 is required at the year end.
(3) A payment received for £58 in respect of an amount written off in January 20X7 was recorded in
the cash at bank account but the suspense account was used to record the other side of the
transaction.
Requirement: What is the journal entry required to account for the above issues?
A. Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9, Credit
Allowance for receivables £25
B. Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33, Credit
Cash at bank £92, Credit Allowance for receivables £25
C. Debit Suspense £58, Debit Irrecoverable debts expense £67, Debit Allowance for receivables
£25, Credit Cash at bank £92, Credit Receivables £58
D. Debit Suspense £58, Debit Irrecoverable debts expense £9, Debit Allowance for receivables
£25, Credit Cash at bank £92
Question 15: The retained earnings of Camel plc at 1 January 20X7 were £1,055,000. The retained
earnings at 31 December 20X7 are £1,210,000. The profit for the year is £387,000.
During the year Camel made a 1 for 2 bonus issue, with £65,000 paid from retained earnings.
Requirement: What was the total dividend paid during the year?
A. £Nil
B. £167,000
C. £232,000
D. £297,000
Question 16: Afua plc sells small electrical items. It has a year-end date of 31 December 20X7. On
28 December it accepted an order from a credit customer for 100 toasters at a price of £35 per
toaster. On 30 December, Afua plc dispatched 60 toasters to the customer but, they were not
received by the customer until 1 January 20X8. Afua plc remains responsible for the goods until they
are delivered to the customer. The remaining 40 toasters were dispatched on 2 January 20X8 and
were received by the customer on 4 January 20X8.
Requirement: How much revenue should Afua plc recognise in respect of the sale of toasters in the
year ended 31 December 20X7?
A. £3,500
B. £2,100
C. £1,400
D. Nil
Question 17: The following trade receivables account has been prepared by an inexperienced
bookkeeper and may contain errors of principle:
An outstanding debt of £4,920 at 31 December 20X3 is to be written off.
Requirement: What is the amount of trade receivables that should appear on the statement of
financial position at 31 December 20X3?
A. £289,350
B. £291,350
C. £287,750
D. £297,590
Question 18: A gas accrual for £400 at the year-end was treated as a prepayment in a business's
statement of profit or loss.
Requirement: As a result, the profit was:
A. understated by £400
B. overstated by £400
C. understated by £800
D. overstated by £800
Question 19: Jeremiah plc is a newsagent business and is preparing its financial statements for the
year ended 31 August 20X8. There are three outstanding matters that the company has not yet
accounted for.
(1) A subscription of £240 for the year ending 31 January 20X9, paid and accounted for by Jeremiah
pic on 1 July 20X8.
(2) Advance payments (deposits) of £75 recorded as received from customers in respect of
magazines on order but not yet delivered to the customers at the year end.
(3) An unpaid property tax demand for the six months to 30 September 20X8 for £5,400.
Requirement: Which three of the following balances will appear in Jeremiah plc's statement of
financial position as at 31 August 20X8?
A. Deferred income £75
B. Accrued income £75
C. Prepayment £100
D. Accrual £4,500
E. Accrual £900
F. Prepayment £140
Question 20: The asset register showed a total carrying amount of £67,460. A non-current asset
costing £15,000 had been sold for £4,000, making a loss on disposal of £1,250.
Requirement: The balance on the asset register after accounting for the disposal is:
A. £42,710
B. £51,210
C. £53,710
D. £62,210
Question 21: Sam plc's statement of profit or loss for the year ended 31 December 20X4 showed a
profit for the year of £83,600. It was later found that £18,000 paid for the purchase of a van on 1
January 20X4 had been debited to the motor expenses account. It is the company's policy to
depreciate vans at 25% per year on the straight-line basis.
Requirement: What is the profit for the year ended 31 December 20X4 after adjusting for this error?
A. £106,100
B. £70,100
C. £97,100
D. £101,600
Question 22: An extract from a statement of cash flows prepared by a trainee accountant is shown
below.
Cash flows from operating activities
£m
Profit before tax 28
Depreciation (9)
Decrease in inventories 13
Increase in trade receivables (4)
Increase in trade payables (8)
Cash generated from operations 20
Requirement: Which of the following criticisms of this extract are correct?
(1) Depreciation charges should have been added, not deducted.
(2) Decrease in inventories should have been deducted, not added.
(3) Increase in trade receivables should have been added, not deducted.
(4) Increase in trade payables should have been added, not deducted.
A. 2 and 4
B. 2 and 3
C. 1 and 3
D. 1 and 4
Question 23: A company leases a floor of an office building for four years from 1 July 20X7. They
correctly calculate a right-of-use asset at a cost of £65,000.
Requirement: Which of the following statements is true in the financial statements as at 31
December 20X8?
A. No depreciation is charged as this is a leased asset
B. Deprecation of £16,250 is recognised as an expense in the statement of profit or loss
C. The right-of-use asset is split between current and non-current assets based on when the
lease payments are made
D. The carrying amount of the right-of-use asset is £32,500 in the statement of financial position
Question 24: Avery is a sole trader who prepares their financial statements each year to 31 May.
Avery's rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October. Local property
taxes are paid each year in two equal instalments on 1 April and 1 October.
Avery's annual rental for the calendar years 20X6 and 20X7 was £4,800 and £5,400 respectively but
on 1 January 20X8 this was increased to £6,600 per annum. Local property tax for the last three years
has been as follows:
Year commencing 1 April 20X6 3,600
Year commencing 1 April 20X7 3,900
Year commencing 1 April 20X8 4,500
Requirement
In preparing his financial statements for the year ended 31 May 20X8, the charge to the profit and loss
account from his rent and local property tax account would be:
A. £9,900
B. £10,100
C. £10,200
D. £10,300
Question 25: Which two of the following could be classified as current liabilities in the balance sheet
of a sole trader?
A. Owner's capital
B. Accrued interest charges
C. Drawings
D. Lease liability
E. Income tax payable
