CIMA Financial Accounting Fundamentals Past Papers

The Chartered Institute of Management Accountants 2001
Foundation Level
Financial Accounting Fundamentals
1 FAFN
23 May 2001
Day 3 morning
INSTRUCTIONS TO CANDIDATES
Read this page before you look at the questions
You are allowed three hours to answer this question paper.
Answer the ONE question in section A (this has 25 sub-questions).
Answer the TWO questions in section B.
Answer ONE question ONLY from section C.
Write your examination number in the boxes provided on the front of the answer book.
Write FAFN on the line marked "Subject" on the front of the answer book.
Write your examination number on the special answer sheet for section A which is on page 3 of
this question paper booklet.
Detach the sheet from the booklet and insert it into your answer book before you hand this in.
Do NOT write your name or your student registration number anywhere on your answer book.
Tick the appropriate boxes on the front of the answer book to indicate which questions you have
answered.
TURN OVER
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FAFN 2 May 2001
SECTION A 50 MARKS
ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH
Question One
1.1 The fundamental objective of an external audit of a limited company is to
A give advice to shareholders.
B detect fraud and errors.
C measure the performance and financial position of a company.
D provide an opinion on the financial statements.
1.2 A receives goods from B on credit terms and A subsequently pays by cheque. A then
discovers that the goods are faulty and cancels the cheque before it is cashed by B.
How should A record the cancellation of the cheque in his books?
A Debit creditors Credit returns outwards
B Credit bank Debit creditors
C Debit bank Credit creditors
D Credit creditors Debit returns outwards
1.3 The profit of a business may be calculated by using which one of the following formulae?
A Opening capital - drawings +capital introduced - closing capital
B Closing capital +drawings - capital introduced - opening capital
C Opening capital +drawings - capital introduced - closing capital
D Closing capital - drawings +capital introduced - opening capital
1.4 The turnover in a company was 2 million and its debtors were 5% of turnover. The
company wishes to have a provision for doubtful debts of 4% of debtors, which would
make the provision 33% higher than the current provision.
What figure would appear in the profit and loss account in respect of doubtful debts?
A debit 1,000. B credit 1,000. C debit 1,333. D credit 1,333.
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.
May 2001 3 FAFN
1.5 Which one of the following should be accounted for as capital expenditure?
A The cost of painting a building.
B The replacement of windows in a building.
C The purchase of a car by a garage for re-sale.
D Legal fees incurred on the purchase of a building.
1.6 A business purchases a machine on credit terms for 15,000 plus value added tax (VAT)
at 15%. The business is registered for VAT. How should this transaction be recorded in
the books?
Dr Cr
A Machinery 15,000
Creditors 15,000
B Machinery 17,250
Creditors 17,250
C Machinery 15,000
VAT 2,250
Creditors 17,250
D Machinery 17,250
VAT 2,250
Creditors 15,000
1.7 Which one of the following statements most closely expresses the meaning of true and
fair?
A There is only one true and fair view of a companys financial statements.
B True and fair is determined by compliance with accounting standards.
C True and fair is determined by compliance with company law.
D True and fair is largely determined by reference to generally accepted accounting practice.
1.8 On 1 May 2000, A Ltd pays a rent bill of 1,800 for the period to 30 April 2001. What are
the charge to the profit and loss account and the entry in the balance sheet for the year
ended 30 November 2000?
A 1,050 charge to profit and loss account and prepayment of 750 in the balance sheet.
B 1,050 charge to profit and loss account and accrual of 750 in the balance sheet.
C 1,800 charge to profit and loss account and no entry in the balance sheet.
D 750 charge to profit and loss account and prepayment of 1,050 in the balance sheet.
FAFN 4 May 2001
1.9 S Ltd exchanged stock for a delivery vehicle with T Ltd. The stock had cost S Ltd 10,000
and the normal selling price was 12,000; the delivery vehicle had cost T Ltd 9,000 and
the normal selling price was 13,000.
How should S Ltd value the vehicle in its balance sheet?
A 9,000. B 10,000. C 12,000. D 13,000.
1.10 Zs bank statement shows a balance of 825 overdrawn. The bank statement includes
bank charges of 50, which have not been entered in the cash book. There are
unpresented cheques totalling 475 and deposits not yet credited of 600. The bank
statement incorrectly shows a direct debit payment of 160, which belongs to another
customer.
The figure for the bank balance in the balance sheet should be
A 590 overdrawn.
B 540 overdrawn.
C 790 overdrawn.
D 840 overdrawn.
1.11 There is 100 in the cash till at the year end at F Ltd, but the accountant has discovered
that some cash has been stolen. At the beginning of the year there was 50 in the cash till
and debtors were 2,000. Total sales in the year were 230,000. Debtors at the end of the
year were 3,000. Cheques banked from credit sales were 160,000 and cash sales of
50,000 have been banked.
How much cash was stolen during the year?
A 18,950. B 19,000. C 19,050. D 20,950.
1.12 A car was purchased for 12,000 on 1 April 1997 and has been depreciated at 20% each
year straight line, assuming no residual value. The company policy is to charge a full
years depreciation in the year of purchase and no depreciation in the year of sale. The car
was traded in for a replacement vehicle on 1 August 2000 for an agreed figure of 5,000.
What was the profit or loss on the disposal of the vehicle for the year ended 31 December 2000?
A Loss 2,200. B Loss 1,400. C Loss 200. D Profit 200.
May 2001 5 FAFN
1.13 A company includes in stock goods received before the year end, but for which invoices
are not received until after the year end. This is in accordance with
A the historical cost convention.
B the accruals concept.
C the consistency concept.
D the materiality concept.
1.14 I Ltd operates the imprest system for petty cash. At 1 J uly there was a float of 150, but it
was decided to increase this to 200 from 1 August onwards. During J uly, the petty
cashier received 25 from staff for using the photocopier and a cheque for 90 was
cashed for an employee. In J uly, cheques were drawn for 500 for petty cash.
How much cash was paid out as cash expenses by the petty cashier in J uly?
A 385. B 435. C 515. D 615.
1.15 Which one of the following sentences does NOT explain the distinction between financial
accounts and management accounts?
A Financial accounts are primarily for external users and management accounts are
primarily for internal users.
B Financial accounts are normally produced annually and management accounts are
normally produced monthly.
C Financial accounts are more accurate than management accounts.
D Financial accounts are audited by an external auditor and management accounts do not
normally have an external audit.
1.16 The movement on the plant and machinery account for X Ltd is shown below:
Cost b/fwd 10,000

Additions 2,000
Disposals (3,000)
Cost c/fwd 9,000
Depreciation b/fwd 2,000
Charge for the year 1,000
Disposals (1,500)
Depreciation c/fwd 1,500
Net book value b/fwd 8,000
Net book value c/fwd 7,500
The profit on the sale of the machine was 500. What figures would appear in the cash flow
statement of X Ltd?
FAFN 6 May 2001
A Movement on plant account 500 and profit on disposal of 500.
B Movement on plant account 500 and proceeds on sale of plant 2,000.
C Purchase of plant 2,000 and profit on disposal of 500.
D Purchase of plant 2,000 and proceeds on sale of plant 2,000.
1.17 When there is inflation, the historical cost convention has the effect of
A overstating profits and understating balance sheet values.
B understating profits and overstating balance sheet values.
C understating cash flow and overstating cash in the balance sheet.
D overstating cash flow and understating cash in the balance sheet.
1.18 When reconciling the creditors ledger control account with the list of creditors ledger
balances of M, the following errors were found:
the purchase day book had been overstated by 500 and
the personal ledger of a supplier had been understated by 400.
What adjustment must be made to correct these errors?
Control account List of creditor balances
A Cr 500 decrease by 400
B Dr 500 increase by 400
C Dr 400 increase by 500
D Cr 400 decrease by 500
1.19 Extracts from the financial statements of CFS Ltd are set out below:
Profit and loss account for the year ended 31 December 2000
000 000
Turnover 300
Cost of sales 150
Gross profit 150
Profit on sale of fixed asset 75
225
Expenses 15
Depreciation 30
45
Net profit 180
Balances at 31 December
1999 2000
000 000
Stock, debtors, current liabilities (net) 40 50
What figure would appear in the cash flow statement of CFS Ltd for the year ended 31
December 2000 in respect of net cash flow from operating activities?
May 2001 7 FAFN
A 125. B 145. C 215. D 235.
1.20 B is a builder with a staff of ten employees. In April 2001, he paid the following amounts:
net salaries after tax and national insurance 14,000
tax and employees national insurance for March 2001 5,000
employers national insurance for March 2001 1,400
He owes the following amounts in respect of tax and national insurance for April 2001:
tax and employees national insurance 6,000
employers national insurance 1,500
The correct expense for employee costs to be shown in the profit and loss account for April 2001
is
A 19,000. B 20,000. C 20,400. D 21,500.
1.21 The following information relates to M Ltd:
At 30 September 2000 1999
000 000
Stock of raw materials 75 45
Work-in-progress stock 60 70
Stock of finished goods 100 90
For the year ended 30 September 2000
Purchases of raw materials 150,000
Manufacturing wages 50,000
Factory overheads 40,000
The prime cost of production in the manufacturing account for the year ended 30 September
2000 is
A 165,000. B 170,000. C 210,000. D 270,000.
1.22 When valuing stock at cost, which of the following shows the correct method of arriving at
cost?
Include inward Include
transport costs production overheads
A Yes No
B No Yes
C Yes Yes
D No No
FAFN 8 May 2001
1.23 A fixed asset register is
A an alternative name for the fixed asset ledger account.
B a list of the physical fixed assets rather than their financial cost.
C a schedule of planned maintenance of fixed assets for use by the plant engineer.
D a schedule of the cost and other information about each individual fixed asset.
1.24 The difference between a profit and loss account (which may also be referred to as an
income statement) and an income and expenditure account is that
A an income and expenditure account is an international term for a profit and loss account.
B a profit and loss account is prepared for a business and an income and expenditure
account is prepared for a not-for-profit making organisation.
C a profit and loss account is prepared on an accruals basis and an income and expenditure
account is prepared on a cash flow basis.
D a profit and loss account is prepared for a manufacturing business and an income and
expenditure account is prepared for a non-manufacturing business.
1.25 In a debtors report, which one of the following would you NOT expect to see?
A Total debtor balances outstanding for current and previous months.
B Debtor balances excluding VAT.
C Credit limit.
D Sales to date.
Total = 50 marks
FAFN M2001 10
SECTION B 30 MARKS
ANSWER BOTH QUESTIONS
Question Two
The trial balance of FRS, a sole proprietor, at 31 J uly 2000 was as follows:

Capital 100,000
Plant and machinery:
Cost 155,000
Provision for depreciation to 1 August 1999 50,000
Trade debtors 15,000
Trade creditors 3,000
Stock at 1 August 1999 10,000
Cash at bank 3,400
Sales 150,000
Drawings 35,000
Provision for doubtful debts at 1 August 1999 2,000
Bank loan repayable 2006 20,000
Purchases 40,000
Selling and distribution expenses 50,000
Administration expenses 15,000
Interest 1,600
325,000 325,000
The following final adjustments are required:
(i) Stock at 31 J uly 2000 was valued at 12,000.
(ii) Selling and distribution expenses of 4,000 are to be accrued.
(iii) Administration expenses of 6,000 were prepaid.
(iv) The provision for doubtful debts is to be adjusted to 5% of debtors.
(v) Depreciation on the plant and machinery is 15,000 for the year to 31 J uly 2000.
Required:
(a) Prepare a trading, profit and loss account for the year ended 31 J uly 2000 and a balance
sheet at that date.
(14 marks)
(b) Calculate the following, as at 31 J uly 2000:
current ratio;
gearing;
debtor days.
(6 marks)
(Total = 20 marks)
M2001 FAFN 11
Question Three
The trial balance of E Ltd did not balance and the following errors have been discovered:
(i) A cheque for 1,000 received from a debtor had been credited to the sales account
and debited to the bank account.
(ii) The cash book had been undercast by 250.
(iii) A machine costing 5,000 had been debited to the machinery repairs account.
Machinery is depreciated at 10% on cost and no residual value is assumed.
Required:
(a) Correct the above errors by showing which ledger accounts should be debited or credited.
(4 marks)
(b) Explain why financial controls are necessary and give TWO examples.
(6 marks)
(Total = 10 marks)
FAFN M2001 12
SECTION C 20 MARKS
ANSWER ONE QUESTION ONLY
Question Four
(a) Define depreciation.
(2 marks)
(b) State the purpose of depreciation.
(4 marks)
(c) A transport company started business on 1 J anuary 1998 and purchased truck (A) for
80,000. Truck (A) was destroyed in a road accident on 1 March 1999 and the insurance
company paid out 60,000 to the transport company.
On 1 April 1999, truck (B) was purchased for 90,000.
On 1 J uly 1999, car (C) was purchased for 20,000.
On 1 August 2000, car (C) was traded in for car (D) which cost 25,000, less a part-exchange
allowance on car (C) of 15,000.
The depreciation policy of the company is:
depreciate trucks at 40% each year on the reducing balance;
depreciate cars at 25% each year using a straight-line basis;
assume a residual value for cars of 10% of the original cost;
if a vehicle is owned for part of a year, calculate depreciation according to the number of
months for which the vehicle is owned.
The year end of the company is 31 December.
Required:
Write up the following ledger accounts:
motor vehicles at cost account;
(4 marks)
provision for depreciation on motor vehicles account;
(6 marks)
disposal of motor vehicles account.
(4 marks)
You should include entries for each relevant year, and work to the nearest .
(Total = 20 marks)
M2001 FAFN 13
Question Five
(a) State the rule for valuing stock.
(2 marks)
(b) Explain the purposes of the rule for valuing stock.
(8 marks)
(c) The trading account of T Ltd is set out below:
T Ltd trading account for the year ended 30 April 2001
000 000
Turnover 1,000
Opening stock 200
Purchases 700
900
Closing stock 300
Cost of goods sold 600
Gross profit 400
The opening and closing stock was valued on a FIFO basis. On a LIFO basis, the opening and
closing stock would have been valued at 180,000 and 270,000 respectively.
Required:
(i) Calculate gross profit if the trading account was prepared using a stock valuation basis of
LIFO.
(2 marks)
(ii) Calculate "stock days", using the average method, on the assumption that stock is valued:
on the FIFO basis;
on the LIFO basis.
(3 marks)
(iii) Identify and explain any change in the gross profit and in "stock days" as a consequence of
using LIFO rather than FIFO to value stock.
(5 marks)
(Total = 20 marks)
End of paper
Foundation Level
1 FAFN
21 November 2001
Day 3 morning
You are allowed three hours to answer this question paper.
Answer the ONE question in section A (this has 25 sub-questions and is on pages 2 8).
Answer the TWO questions in section B (these are on pages 9 and 10).
Answer ONE question ONLY from section C (these questions are on page 12).
Write your examination number in the boxes provided on the front of the answer book.
Write FAFN on the line marked "Subject" on the front of the answer book.
Write your examination number on the special answer sheet for section A. Detach the sheet
from the booklet and insert it into your answer book before you hand this in.
Do NOT write your name or your student registration number anywhere on your answer book.
Tick the appropriate boxes on the front of the answer book to indicate which questions you have
answered.
FAFN 2 November 2001
SECTION A 50 MARKS
Question One
1.1 At 30 J une 2000, an electricity ledger account had an accrual of $300 and a credit
balance was brought down at 1 J uly 2000. During the financial year, electricity invoices
totalling $4,000 were paid, including an invoice for $600 for the quarter ended 31 May
2001.
What is the profit and loss account charge for electricity payable for the year ended 30 J une
2001?
A $3,700 B $3,900 C $4,000 D $4,100
1.2 The principal duty of an external auditor is
A to check that a companys accounts agree with the accounting records.
B to ensure that a companys systems and controls are adequate to ensure the reliability of
the accounting records.
C to prevent fraud and errors.
D to provide a report to the shareholders.
1.3 On 1 J une 2000, H paid an insurance invoice of $2,400 for the year to 31 May 2001.
What is the charge to the profit and loss account and the entry in the balance sheet for
the year ended 31 December 2000?
A $1,000 profit and loss account and prepayment of $1,400.
B $1,400 profit and loss account and accrual of $1,000.
C $1,400 profit and loss account and prepayment of $1,000.
D $2,400 profit and loss account and no entry in the balance sheet.
1.4 An imprest system
A records the use of a companys seal.
B helps to reconcile the cash book with the bank statement.
C helps to control petty cash.
D is part of computerised accounting.
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE
correct answer.
November 2001 3 FAFN
1.5 The provision for doubtful debts in the ledger of B Ltd at 31 October 2000 was $9,000.
During the year ended 31 October 2001, bad debts of $5,000 were written off. Debtor
balances at 31 October 2001 were $120,000 and the company policy is to have a general
provision of 5%.
What is the charge for bad and doubtful debts in the profit and loss account for the year ended
31 October 2001?
A $2,000 B $3,000 C $5,000 D $8,000
1.6 A "true and fair view" occurs when
A financial statements are presented in accordance with prescribed formats.
B assets and liabilities are recorded at current values.
C financial statements have been audited.
D financial statements are prepared in accordance with generally accepted accounting
practice.
1.7 A company bought a machine on 1 October 1996 for $52,000. The machine had an
expected life of eight years and an estimated residual value of $4,000. On 31 March
2001, the machine was sold for $35,000. The companys year end is 31 December. The
company uses the straight-line method for depreciation and it charges a full years
depreciation in the year of purchase and none in the year of sale.
What is the profit or loss on disposal of the machine?
A Loss $13,000
B Profit $7,000
C Profit $10,000
D Profit $13,000
1.8 S Ltd, which is registered for purposes of value added tax, bought furniture on credit
terms at a cost of $8,000, plus value added tax of $1,200.
What is the correct account entry?
DR CR
$ $
A Furniture 9,200
Supplier 9,200
B Furniture 8,000
VAT 1,200
Supplier 6,800
C Furniture 8,000
VAT 1,200
Supplier 9,200
D Furniture 8,000
Supplier 8,000
1.9 SOR Ltds stock was valued at $13,000 and excludes goods supplied to a customer on a
sale or return basis. The customer still has 30 days within which to return the stock. The
goods on sale or return were purchased by SOR Ltd for $6,000 and were invoiced at a
mark-up of 25%.
The value of SOR Ltds stock should be
A $13,000. B $19,000. C $20,500. D $21,000.
1.10 A Ltds trial balance does not balance. Which ONE of the following errors may be the
cause of this failure to balance?
A The purchase of a machine had been debited to the machine repairs account.
B A cheque from a customer had been credited to the purchase ledger account of the
customer.
C Goods returned inwards had been debited to the sales ledger account of the customer.
D The depreciation charge on machinery had been credited to the cost of machinery
account.
1.11 The current liabilities of CFS Ltd include the following:
2001 2000
Dividends payable $30,000 $25,000
The cash flow statement for the year ended in 2001 shows dividends paid of $27,000.
What were the dividends in the profit and loss account for the year ended 2001?
A $22,000 B $27,000 C $28,000 D $32,000
1.12 S is employed by T Ltd. His pay details for J anuary and February are as follows:
J anuary: Gross salary $2,000 Tax $500 National insurance $100 Net pay $1,400
February: Gross salary $2,200 Tax $550 National insurance $110 Net pay $1,540
Tax and national insurance are payable to the government one month after they are
deducted from employees salaries.
How much cash did T Ltd pay out in February in connection with Ss wages?
A $2,000 B $2,060 C $2,140 D $2,200
1.13 The following is an extract from the balance sheets of FRC plc for the years ended
31 J uly 2001 and 31 J uly 2000:
2001 2000
$000 $000
Stock 50 80
Debtors 60 50
Creditors 35 30
Accruals 5 20
What figure would appear in the cash flow statement of FRC plc for the year ended 31 J uly 2001
as part of the cash flow from operations?
A $25,000 outflow
B $10,000 outflow
C $10,000 inflow
D $25,000 inflow
1.14 Which ONE of the following provides the best definition of an "audit trail"?
A The marks left by an auditor when a document has been inspected.
B The working papers of an auditor.
C The pursuit of a fraud by an auditor.
D The trail of a transaction from source document to financial statement.
1.15 N plc purchased a machine for $15,000. The transportation costs were $1,500 and
installation costs were $750. The machine broke down at the end of the first month in use
and cost $400 to repair. N plc depreciates machinery at 10% each year on cost,
assuming no residual value.
What is the net book value of the machine after one year, to the nearest dollar?
A $13,500 B $14,850 C $15,525 D $15,885
1.16 Which ONE of the following might explain the debit balance on a purchase ledger
account?
A The company took a cash discount to which it was not entitled and paid less than the
amount due.
B The company mistakenly paid too much.
C The book-keeper failed to enter a contra with the sales ledger.
D The book-keeper failed to post a cheque paid to the account.
1.17 In a period of inflation, which ONE of the following methods of charging stock issues to
production will give the lowest profit figure?
A Average cost
B LIFO
C FIFO
D Replacement cost
1.18 Which ONE of the following provides the best explanation of the objective of an internal
audit?
A The objective is to assist directors of a company in the effective discharge of their
financial responsibilities towards the members.
B The objective is to provide support to the external auditor.
C The objective is to detect fraud and error.
D The objective is to audit the financial statements.
1.19 The following information at 5 J anuary 2001 relates to a club, which has a year end of
31 December 2000:
$
Subscriptions for 1999 unpaid at J anuary 2000 300
Subscriptions for 1999 paid during the year ended 31 December 2000 250
Subscriptions for 2000 paid during the year ended 31 December 2000 6,000
Subscriptions for 2001 paid during the year ended 31 December 2000 1,000
Subscriptions for 2000 unpaid at 31 December 2000 750
It is the clubs policy to write off overdue subscriptions after one year.
What amount should be credited to the income and expenditure account for the year ended
31

December 2000?
A $6,250 B $6,750 C $7,050 D $7,250
1.20 Who has the responsibility for ensuring that a company maintains proper accounting
records?
A The shareholders.
B The auditors.
C The directors.
D The company secretary.
1.21 Which ONE of the following formulae correctly expresses the relationship between the
return on capital employed (ROCE), net profit margin (NPM) and asset turnover (AT)?
A ROCE = NPM AT
B ROCE = NPM +AT
C ROCE = NPM x AT
D ROCE = NPM - AT
1.22 The correct ledger entries to record the issue of 150,000 $1 ordinary shares at a premium
of 20% and paid by cheque is:
DR CR
$ $
A Bank 180,000
Share capital 150,000
Share premium 30,000
B Bank 180,000
C Bank 180,000
D Bank 150,000
1.23 A fixed asset register had a balance of $125,000. A fixed asset, which had cost $12,000,
was sold for $9,000 at a profit of $2,000.
What is the revised balance on the fixed asset register?
A $113,000 B $118,000 C $125,000 D $127,000
1.24 M plcs trial balance did not balance at 31 May 2001. The following errors were
discovered:
Insurance of $500 prepaid at 31 May 2000 had not been brought down as an opening
balance on the insurance account;
Wages of $5,000 had been incorrectly debited to the purchases account;
The book-keeper had failed to accrue $300 for the telephone invoice owing at 31 May
2001.
What was the difference on the trial balance?
A $500 B $800 C $5,500 D $5,800
1.25 S is a builder who has numerous small items of equipment. He calculates his
depreciation using the revaluation method. At the beginning of his financial year he
valued his equipment at $10,250; he bought equipment costing $3,450 and he sold
equipment valued at $2,175. At the end of his financial year he valued his equipment at
$8,000.
What is his depreciation charge on equipment for the year?
A $2,250 B $3,525 C $5,700 D $11,525
(Total = 50 marks)
November 2001 FAFN 9
SECTION B 30 MARKS
ANSWER BOTH QUESTIONS
Question Two
The balances extracted from the nominal ledger of RHG Ltd for the year ended 31 J uly 2001
were as follows:
$
Stock of raw materials at 1 August 2000 4,000
Work-in-progress at 1 August 2000 2,000
Stock of finished goods at 1 August 2000 8,000
Direct factory wages 60,000
Office salaries 50,000
Directors' salaries 40,000
Purchases of raw materials 90,000
Depreciation charge on factory machinery 35,000
Depreciation charge on office machinery 15,000
Advertising 18,000
Sales 450,000
Factory machinery 400,000
Office machinery 200,000
Provision for depreciation on factory machinery at 31 J uly 2001 90,000
Provision for depreciation on office machinery at 31 J uly 2001 30,000
Debtors 40,000
Creditors 7,000
Bank overdraft 3,000
10% debenture 80,000
Issued share capital: ordinary shares of $1 250,000
Share premium account 25,000
Profit and loss account reserve 62,000
The valuation of stock at 31 J uly 2001 was as follows:
raw materials $3,000
work-in-progress $1,500
finished goods $6,000
Required:
(a) prepare a manufacturing, trading and profit and loss account for the year ended 31 J uly
2001 and a balance sheet at that date.
(14 marks)
FAFN November 2001 10
(b) Calculate:
the gearing ratio;
(2 marks)
debtor days;
(2 marks)
finished goods stock days.
(2 marks)
(Total = 20 marks)
Question Three
The following information relates to C Ltd's cash book and bank statement on 30 J une 2001.
$
Balance in the cash book (Cr) 2,250
Bankings in the cash book, not on the bank statement 5,300
Bank charges on the bank statement, not in the cash book 450
Unpresented cheques less than six months old 7,500
Unpresented cheque more than six months old, to be cancelled 800
Standing order from a customer on the bank statement, not in the cash
book
3,600
Required:
(a) Calculate the balance on the bank statement at 30 J une 2001.
(5 marks)
The following information relates to D Ltd for the month of J uly 2001.
$
Sales ledger balances at 1 J uly 18,300
Sales day book 150,500
Bad debts written off 12,100
Cheques received from debtors 130,400
Set off against purchase ledger 6,500
Cheques dishonoured 2,700
Required:
(b) Prepare a sales ledger control account for J uly 2001, carrying down the balance at 31 J uly
2001.
(5 marks)
(Total = 10 marks)
November 2001 FAFN 11
SECTION C 20 MARKS
ANSWER ONE QUESTION ONLY
Question Four
(a) Identify four potential user groups of financial statements.
(4 marks)
(b) Explain why user groups in general need accounting information, and state the information
they require. Choose two examples of user groups and give the specific information they
require and the purpose for which they would require it.
(8 marks)
(c) Identify and explain three characteristics of useful financial information.
(8 marks)
(Total = 20 marks)
Question Five
Explain each of the following four accounting concepts, and give an example of its application:
(a) Going concern.
(5 marks)
(b) Accruals.
(5 marks)
(c) Consistency.
(5 marks)
(d) Prudence (or conservatism).
(5 marks)
(Total = 20 marks)
End of paper
Examination
Question and
Answer Book
Write here your full examination number
Centre Code:
Hall Code:
Desk Number:
Foundation Level
1 FAFN
22 May 2002
Day 3 morning
THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.
Sufficient space has been provided for you to write your answers, and also for workings where questions
require them. For section B questions, you must write your answers in the shaded space provided.
Additional blank pages (20-23) are included towards the back of this booklet if you require more space for
notes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove any
sheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use of
correction fluid.
You are allowed three hours to answer this question paper. All questions are compulsory.
Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-11)
Answer the THREE questions in section B (these are on pages 12-19)
You are advised to spend 10 minutes reading through the paper before starting to answer the questions.
You should spend no more than 85 minutes in total answering the ONE question in section A, which has
25 sub-questions.
You should spend no more than 85 minutes in total answering the THREE questions in section B.
Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leave
the examination hall with this booklet.
Do NOT write your name or your student registration number anywhere on this booklet.
TURN OVER
For office use only
Total One Two Three Four
Marks awarded (First marker) for each question
Marks awarded (Second marker) for each question
FAFN 2 May 2002
SECTION A 50 MARKS
Question One
1.1 An imprest system is
A accounting computer software.
B an audit process.
C automatic agreement of the cash book and bank statement.
D a method of controlling petty cash.
1.2 Which ONE of the following is correct?
A All limited companies are required by law to have an external audit.
B Only public limited companies are required by law to have an external audit.
C Only limited companies above a certain size are required by law to have an external audit.
D An external audit for a limited company is voluntary.
For office use only
Total 1.1 1.2
Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question
answer.
REQUIRED:
Place a circle O around the letter A, B, C or D that gives the correct answer to each sub-question.
If you wish to change your mind about an answer, block out your first answer completely and then circle
another letter. You will NOT receive marks if more than one letter is circled.
Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient space
has been provided for you to do your workings where these sub-questions require them.
May 2002 3 FAFN
1.3 At 31 March 2001, accrued rent payable was $300. During the year ended 31 March 2002, rent paid
was $4,000, including an invoice for $1,200 for the quarter ended 30 April 2002.
What is the profit and loss account charge for rent payable for the year ended 31 March 2002?
A $3,300 B $3,900 C $4,100 D $4,700
Space for workings to 1.3
1.4 The responsibility for internal control rests with
A the internal auditors.
B the external auditors.
C the shareholders.
D the directors.
1.5 The annual insurance premium for S Ltd for the period 1 J uly 2001 to 30 J une 2002 is $13,200, which
is 10% more than the previous year. Insurance premiums are paid on 1 J uly.
What is the profit and loss account charge for insurance for the year ended 31 December 2001?
A $11,800 B $12,540 C $12,600 D $13,200
TURN OVER
For office use only
Total 1.3 1.4 1.5
FAFN 4 May 2002
1.6 A bank reconciliation showed the following differences between the bank statement and the cash
book:
Unpresented cheques of $750
Outstanding deposits of $500
Bank charges of $100
If the balance on the bank statement is $1,000 overdrawn, what is the balance in the cash book before
any adjustments?
A Debit $250 B Credit $1,150 C Credit $1,250 D Credit $1,500
1.7 Which ONE of the following expenses should be included in prime cost in a manufacturing account?
A Repairs to factory machinery.
B Direct production wages.
C Office salaries.
D Factory insurance.
For office use only
Total 1.6 1.7
May 2002 5 FAFN
1.8 The entries in a sales ledger control account are:
Sales $250,000
Bank $225,000
Returns $2,500
Bad debts $3,000
Returned unpaid cheque $3,500
Contra purchase ledger account $4,000
What is the balance on the sales ledger control account?
A $12,000 B $19,000 C $25,000 D $27,000
1.9 A Ltd has an item in stock which cost $1,000 and can be sold for $1,200. However, before it can be
sold, it will require to be modified at a cost of $150. The expected selling costs of the item are an
additional $100.
How should this item be valued in stock?
A $950 B $1,000 C $1,050 D $1,100
TURN OVER
For office use only Total 1.8 1.9
FAFN 6 May 2002
1.10 A value for money audit is
A an external audit with limited scope.
B a review of expenditure to ensure effectiveness, efficiency and economy.
C a voluntary audit by an unregistered auditor.
D none of these.
1.11 Which ONE of the following statements regarding a fixed assets register is NOT correct?
A A fixed assets register enables reconciliations to be made with the nominal ledger.
B A fixed assets register enables depreciation charges to be posted to the nominal ledger.
C A fixed assets register agrees with the fixed asset nominal ledger account.
D A fixed assets register records the physical location of an asset.
1.12 B Ltd purchased a machine for $120,000 on 1 October 2001. The estimated useful life is 4 years with
a residual value of $4,000. B Ltd uses the straight-line method for depreciation and charges
depreciation on a monthly basis.
What is the charge for depreciation for the year ended 31 December 2001?
A $7,250 B $7,500 C $29,000 D $30,000
For office use only Total 1.10 1.11 1.12
May 2002 7 FAFN
1.13 In the quarter ended 31 March 2002, C Ltd had VAT taxable outputs, net of VAT, of $90,000 and
taxable inputs, net of VAT, of $72,000.
If the rate of VAT is 10%, how much VAT is due?
A $1,800 receivable B $2,000 receivable C $1,800 payable D $2,000 payable
1.14 Which of the following statements concerning a "true and fair" view is correct?
A True and fair has a precise definition which is universally accepted.
B There can only be one true and fair view of a company's financial statements.
C True and fair means the financial statements are accurate.
D True and fair is mainly determined by compliance with generally accepted accounting practice.
1.15 The M Club discloses the following note to its Income and Expenditure Account:
"Subscriptions in arrears are accounted for when received; subscriptions in advance are accounted for
on a matching basis."
At 31 March 2001, there were subscriptions owing of $1,000 and subscriptions in advance of $500.
During the year ended 31 March 2002, subscriptions of $10,000 were received, including
subscriptions relating to the previous year of $800 and subscriptions in advance of $600.
What amount should be included for subscriptions in the year ended 31 March 2002?
A $8,100 B $8,900 C $9,100 D $9,900
TURN OVER
FAFN 8 May 2002
1.16 The total cost of salaries charged to the profit and loss account is
A the total gross salaries plus employer's national insurance contributions.
B the total gross salaries.
C the total net salaries.
D the total net salaries plus employer's national insurance contributions.
1.17 The segregation of duties is
A delegation of duties by a manager.
B two staff sharing one job.
C a feature of internal control.
D all of the above.
1.18 The net profit percentage in a company is 12% and the asset turnover ratio is 2.
What is the return on capital employed?
A 6% B 10% C 14% D 24%
1.19 Which of the following are used in a coding system for accounting transactions?
A Department code.
B Nominal ledger code.
C Product code.
D All of the above.
For office use only Total 1.16 1.17 1.18 1.19
May 2002 9 FAFN
1.20 APM Ltd provides the following note to fixed assets in its balance sheet.
Plant and machinery
Cost Depreciation Net book value
$000 $000 $000
Opening balance 25 12 13
Additions/charge 15 4 11
Disposals (10) (8) (2)
Closing balance 30 8 22
The additional machinery was purchased for cash. A machine was sold at a profit of $2,000.
What is the net cash outflow for plant and machinery?
A $9,000 B $11,000 C $13,000 D $15,000
1.21 Which of the following errors will cause the trial balance totals to be unequal?
A Errors of transposition.
B Errors of omission.
C Errors of principle.
D All of the above.
TURN OVER
For office use only Total 1.20 1.21
FAFN 10 May 2002
1.22 Which ONE of the following is a record of prime entry?
A The nominal ledger.
B The sales ledger.
C The trial balance.
D The sales day book.
1.23 P is a sole proprietor whose accounting records are incomplete. All the sales are cash sales and
during the year $50,000 was banked, including $5,000 from the sale of a business car. He paid
$12,000 wages in cash from the till and withdrew $2,000 per month as drawings. The cash in the till at
the beginning and end of the year was $300 and $400 respectively.
What were the sales for the year?
A $80,900 B $81,000 C $81,100 D $86,100
1.24 Which of the following is NOT helpful in detecting an error?
A A bank reconciliation.
B A sales ledger control account.
C An imprest system.
D A suspense account.
May 2002 11 FAFN
1.25 Which ONE of the following is an appropriation by a limited company?
A Directors' salaries.
B Dividends.
C Donation to a charity.
D Loan interest.
(Total = 50 Marks)
End of Section A
Section B begins on page 12
TURN OVER
For office use only Total 1.25
Marks awarded (First marker) for the sub-question
Marks awarded (Second marker) for the sub-question
FAFN 12 May 2002
SECTION B 50 MARKS
ANSWER ALL THREE QUESTIONS
IMPORTANT
MARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THE
CORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.
THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK IS
INDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.
DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.
Question Two
The bookkeeper at QME plc has prepared the trial balance set out below from the nominal ledger. The
accountant has prepared a schedule of adjustments which need to be made before the financial statements
can be prepared.
The trial balance of QME plc at 31 December 2001 was as follows:
$000 $000
Buildings at cost 250
Provision for depreciation on buildings 70
Equipment at cost 200
Provision for depreciation on equipment 50
Patent at valuation 150
Stock at 1 J anuary 2001 60
Debtors/creditors 100 25
Provision for doubtful debts at 1 J anuary 2001 5
Bank 30
Sales 800
Purchases 250
10% Debentures 100
Debenture interest paid 5
Interim dividend 10
Directors' remuneration 40
Administration expenses 130
Selling and distribution expenses 160
Ordinary shares of 50 cents each 200
Profit and loss account reserve 50
General reserve 25
1,355 1,355
May 2002 13 FAFN
Schedul e of adjustments:
(i) Stock at 31 December 2001 was valued at $70,000.
(ii) Accruals: Administration expenses $30,000.
(iii) Prepayments: Selling and distribution expenses $20,000.
(iv) The 10% Debenture was issued in 1999, redeemable 2006.
(v) The provision for doubtful debts is to be increased to 8% of debtors.
(vi) The buildings are revalued at $300,000 and this revised value is to be included in the accounts.
(vii) Depreciation:
Buildings: 2% of revised value
Equipment: 20% of net book value at the year end.
(viii) In September 2001, $30,000 taxation was paid. The tax advisers estimate that the taxation for the
year ended 31 December 2001 will be $10,000, but accounts have not yet been submitted to the tax
authorities.
(ix) The directors declare a final dividend of 5 cents per share.
(x) The directors decide to transfer $15,000 to the general reserve.
Required:
(a) Complete the missing figures and words (in the shaded boxes) of the
financial statements set out below.
QME plc
Marks
available
For use
by the
second
marker
For use
by the
first
marker
Trading, Profit and Loss and Appropriation Account
Year ended 31 December 2001
$000 $000
Sales
Cost of sales
Gross profit
1
Administration expenses
Selling and distribution expenses
Doubtful debts
1
Depreciation charge
1
Directors remuneration
Operating profit
1
Debenture interest
1
Profit before tax
Taxation
Profit after tax
Dividend
1
Transfer to general reserve
Retained profit 1
The Balance Sheet is overleaf
TURN OVER
Do not write in these
columns below
FAFN 14 May 2002
Space for workings and/or notes for Question Two
QME plc Balance Sheet at 31 December 2001
Marks
available
For use
by the
second
marker
For use
by the
first
marker
$000 $000 $000
Fixed assets
Cost or
valuation
Depreciation
1
Current assets
1
Current li abilities
1
Capital and Reserves
2
Sub-total:
12
May 2002 15 FAFN
(b) The accountant at QME plc is preparing a report to the directors on the financial statements. The
report will include key ratios.
Required:
Complete the missing words below (in the shaded boxes):
Marks
available
For use
by the
second
marker
For use
by the
first
marker
Stock days = / x 365
1
Debtor days = / x 365 1
Sub-
total: 2
(c) How would the financial statements of QME plc change if:
(i) the accruals concept was not applied? (Use no more than 30
words, in the shaded area below)
Marks
available
For use
by the
second
marker
For use
by the
first
marker
3
(ii) the going concern concept was not applied? (Use no more than
30 words, in the shaded area below)
Marks
available
For use
by the
second
marker
For use
by the
first
marker
3
Question Two Total = 20 Marks
Section B continues overleaf
TURN OVER
columns below
FAFN 16 May 2002
Question Three
The accountant and the sales ledger clerk at ILT Ltd met to discuss the debtors on 28 February 2001. The
sales ledger clerk reported that:
the debtors in the ledger were: $25,000
in his opinion the following debts were bad: A Ltd $1,000
B Ltd $1,500
he considered the following debts doubtful: X Ltd $1,250
Y Ltd $1,750
Z Ltd $2,200
The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, and
make a general provision of 5% at 28 February 2001.
The accountant and the sales ledger clerk met again on 28 February 2002. The sales ledger clerk reported
that:
the debtors in the ledger were $30,000
in his opinion the following debts were bad: X Ltd $1,250
L Ltd $1,200
he considered the following debts doubtful: Y Ltd $1,750
P Ltd $900
the following had paid their debts in full: A Ltd $1,000
Z Ltd $2,200
The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, and
make a general provision of 5% at 28 February 2002.
Required:
(a) Complete the missing information (in the shaded boxes) from the
schedule set out below which was prepared by the accountant.
Schedul e of bad and doubtful debts
Marks
available
For use
by the
second
marker
For use
by the
first
marker
$
28/2/
2001
$ $
28/2/
2002
$
Debtors 25,000 30,000
Bad debts written off
1
Specific provision for doubtful
debts
Debtors after bad debts and
specific provision
1
General provision for
doubtful debts
1
Total doubtful debts 1
Sub-
Total: 4
The bookkeeper will enter the information from the accountants schedule into the ledger accounts.
Please do not write in
these columns below
May 2002 17 FAFN
(b) Complete the missing information for the period 1 March 2001 to
28 February 2002 in the two ledger accounts set out below, by
completing the relevant shaded boxes.
Bad debts account
Marks
available
For use
by the
second
marker
For use
by the
first
marker
$ $
3
Provi sion for doubtful debts account
Marks
available
For use
by the
second
marker
For use
by the
first
marker
$ $
3
Sub-
total: 6
Question Three Total = 10 Marks
Space for workings and/or notes for Question Three
Section B continues overleaf
TURN OVER
these columns below
FAFN 18 May 2002
Question Four
Q is a sole trader who has been trading for one year. He informs you that at the beginning of the year he had
$10,000 in his bank account and that at the end of the year he had $12,000. He also informs you that his
revenue was $40,000 and his expenditure $38,000. He therefore believes that his profit must be $2,000 and
asks for your advice.
You reply that in order to calculate his profit you need to know whether he had any other assets and liabilities
at the beginning and end of the year and whether the revenue and expenditure included any capital items.
Q is confused by these terms and asks you to explain them to him.
Required
(a)
Define the four terms in no more than 30 words each using the
shaded areas below.
Marks
available
For use
by the
second
marker
For
use by
the first
marker
(i) Asset
2
(ii) Liability
2
(iii) Capital receipt
2
(iv) Capital expenditure
2
Sub-
total: 8
Part (b) of Question Four is on page 19
these columns below
May 2002 19 FAFN
Required
Marks
available
For use
by the
second
marker
For
use by
the first
marker
(b)
Give an example of each of the four terms you have defined above
and explain why it conforms to your definition in no more than 30
words each in the shaded areas below.
(i) Asset
3
(ii) Liability
3
(iii) Capital receipt
3
(iv) Capital expenditure
3
Sub-total:
12
Question Four Total = 20 Marks
End of Question Paper
TURN OVER FOR ADDITIONAL SPACE FOR WORKINGS AND NOTES
columns below
FAFN 20 May 2002
You may use this sheet for workings
(no marks are awarded for workings)
May 2002 21 FAFN
FAFN 22 May 2002
May 2002 23 FAFN
DO NOT WRITE ON THIS SHEET
FAFN 24 May 2002
1
FAFN
Day 3 morning
Examination
Question and
Answer Book
Centre Code:
Hall Code:
Desk Number:
Foundation Level
1 FAFN
20 November 2002
Day 3 morning
require them. For section B questions, you must write your answers in the shaded space provided. Do not
exceed the stated number of words. Please note that you will NOT receive marks for your workings.
25 sub-questions.
SECTION A 50 MARKS
Question One
1.1 Which ONE of the following best describes the stewardship function?
A Ensuring high profits.
B Managing cash.
C Ensuring the recording, controlling and safeguarding of assets.
D Ensuring high dividends to shareholders.
1.2 External auditors are primarily responsible for
A writing a report to the shareholders expressing an opinion on the financial
statements.
B preparing the financial statements.
C detecting errors and fraud.
D ensuring that the accounts show a true and fair view.
answer.
REQUIRED:
1.3 At the year end of SED Ltd in December 2000, a journal entry was raised to accrue for utility
expenses of $3,600. This journal entry was reversed in January 2001. During the year ended
December 2001, $30,000 was paid for utility expenses, of which $4,000 was prepaid at the year
end.
The charge to the profit and loss account for utility expenses for the year ended December 2001
was
A $22,400
B $29,600
C $30,400
D $37,600
1.4 Z Limiteds cash book shows a credit balance of $2,200. A comparison with the bank statement
showed the following:
unpresented cheques totalling $600;
receipts of $1,200 not yet cleared by the bank;
bank charges of $300 not entered in the cash book;
a cheque from a customer for $400, which had been entered in the cash book when
received, has now been returned by the bank as "dishonoured".
The balance on Z Limiteds bank statement is
A overdrawn $2,100
B overdrawn $2,300
C overdrawn $2,900
D overdrawn $3,500
1.5 The role of the internal auditors is best described as
A auditing the financial accounts.
B supporting the work of the external auditors.
C reporting to management on the accounting systems.
D ensuring value for money.
1.6 On the first day of Month 1, a business had prepaid insurance of $10,000. On the first day of Month
8, it paid, in full, the annual insurance invoice of $36,000, to cover the following year.
The amount charged in the profit and loss account and the amount shown in the balance sheet at
the year end is:
Profit and loss account
$
Balance carried forward
$
A 5,000 24,000
B 22,000 23,000
C 25,000 21,000
D 36,000 15,000
1.7 In a manual accounting system, the most important reason for extracting a trial balance prior to
preparing financial statements is that
A it proves the arithmetical accuracy of the ledgers.
B it provides a summary of the financial statements.
C it proves the individual ledger accounts are correct.
D it reveals how errors have been made.
JSL Ltd operates the imprest system for its petty cash with a float of $750. At the end of July, the
cashier prepared a spreadsheet for the petty cash expenses with a total column and analysis
columns. A cash voucher for petrol for $50 was incorrectly entered as $5 in the total column and
also in one of the analysis columns in the spreadsheet.
The total column was posted to the cash account, the analysis columns were posted to the relevant
nominal ledger accounts and cash was drawn from the bank for the total of the cash expenditure on
the spreadsheet.
1.8
The effect of this error would be
A a petty cash balance of $705.
B petrol expenses overstated by $45.
C an imbalance on the trial balance.
D a petty cash balance of $750.
1.9 Financial statements are required to show a true and fair view.
Which ONE of the following statements is the most appropriate explanation of a true and fair view?
A The accounts are approved by the shareholders.
B The accounts are set out in the correct format.
C The accounts conform to accounting concepts and conventions.
D The accounts comply with generally accepted accounting practice.
1.10 SSG Ltd bought a machine for $40,000 in January 1998. The machine had an expected useful life
of six years and an expected residual value of $10,000. The machine was depreciated on the
straight-line basis. In December 2001, the machine was sold for $15,000. The company has a policy
in its internal accounts of combining the depreciation charge with the profit or loss on disposal of
assets.
The total amount of depreciation and profit/loss charged to the internal profit and loss account over
the life of the machine was
A $15,000
B $20,000
C $25,000
D $30,000
1.11 DEF plc has a supplier, M Ltd, and the balance on M Ltds purchase ledger account at 31 July 2002
was a credit balance of $2,000. On 5 August 2002, DEF plc received the July statement from M Ltd
showing a balance due of $3,000. The purchase ledger supervisor investigates the difference and
discovers that:
an invoice for $2,000 from M Ltd dated 31 July was not entered in the purchase ledger
account until 3 August 2002, but appears on M Ltds July statement.
a cheque for $600 sent from DEF plc to M Ltd on 25 July 2002 in payment of a July invoice
does not appear on M Ltds July statement. This cheque was presented by M Ltd on 31 July
2002.
The purchase ledger supervisor at DEF plc contacts the sales ledger supervisor at M Ltd and
correctly says that there is a difference between the ledger accounts of
A $400
B $1,000
C $1,400
D $1,600
1.12 On 1 October 2002, the debtors balance at G Ltd was $80,000. A summary of the transactions in
the month of October is set out below.
$
Cheques received 100,000
Contra creditors 6,000
Sales 90,000
Returns inwards 4,000
Discounts allowed 10,000
The debtors balance at 31 October was
A $50,000
B $58,000
C $62,000
D $70,000
1.13 Financial controls are primarily needed to
A minimise the risk of fraud and error.
B comply with legal requirements.
C improve the efficiency of the business.
D reduce the expense of the external auditors.
1.14 The internal auditor at ILT plc has noticed that cheques from customers are being paid into the bank
account approximately one month after the date on the cheque.
Should the internal auditor
A instruct the cashier to pay cheques in more promptly?
B disregard, because all cheques have been accounted for?
C ask customers to pay more promptly?
D inform senior management there may be a fraud?
1.15 SAD plc paid 240,000 in net wages to its employees in August 2002. Employees tax was 24,000,
employees national insurance was 12,000 and employers national insurance was 14,000.
Employees had contributed 6,000 to a pension scheme and had voluntarily asked for 3,000 to be
deducted for charitable giving.
The amount to be charged to the profit and loss account in August 2002 for wages is
A 285,000
B 293,000
C 296,000
D 299,000
1.16 Which ONE of the following attributes is the most important for any code to possess in order to be of
use in an accounting system?
A Easy to change the code number.
B Each code is a unique number.
C A combination of letters and digits to ensure input accuracy.
D Linked to assets, liabilities, income, expenditure and capital.
1.17 Which of the following functions would most benefit from segregated duties of staff?
A Separate staff to maintain the sales and purchase ledgers.
B Separate staff to maintain the personal and nominal ledger accounts.
C Separate staff to deal with the bank reconciliation and the cash book.
D Separate staff to deal with the trial balance and the preparation of accounts.
At the beginning of Period 6, XYZ Ltd had opening stock of 20 units of product X valued at $400
each. During Period 6, the following stock movements occurred:
Day 5 Sold 15 items for $500 each
Day 10 Bought 8 items for $600 each
Day 14 Sold 12 items for $700 each
Using the FIFO method of stock valuation, the closing stock at the end of Period 6 was
1.18
A $500
B $550
C $600
D $700
The following information is required for sub-questions 1.19 to 1.21
The accounts for SPA plc are set out below.
Profit and loss account for the year ended 30 November 2002
$000 $000
Turnover
5,000
Opening stock
200
Purchases
3,100
Closing stock
(300)
Cost of sales
(3,000)
Gross profit
2,000
Operating expenses
(500)
Operating profit
1,500
Balance sheet at 30 November 2002
$000 $000
Fixed assets
3,000
Current assets
Stock
300
Debtors
900
Bank
50
1,250
Current liabilities
Trade creditors (250)
1,000
4,000
Share capital
2,000
2,000
4,000
Space for workings for 1.19 to 1.21
Questions 1.19 to 1.21 are on the next page
1.19 The return on capital employed in SPA plc is
A 750%
B 375%
C 500%
D 1000%
1.20 The fixed asset turnover ratio in SPA plc is
A 1 : 167
B 125 : 1
C 25 : 1
D 167 : 1
1.21 The quick ratio (acid test ratio) in SPA plc is
A 24 : 1
B 38 : 1
C 48 : 1
D 51 : 1
1.22 The year end for ABC Ltd is July 2002 and in that month a company car was stolen. The net book
value of the company car was $8,000, but the company expects the insurance company to pay only
$6,000. The correct journal entry to record this information was entered in the books in July 2002. In
August 2002 the insurance company sent a cheque for $6,500.
The journal entry to record this is:
Dr Cr
$ $
A Bank 6,500
Sundry debtor 6,500
B Bank 6,500
Sundry debtor 6,000
Disposal of fixed assets account 500
C Bank 500
Disposal of fixed assets account 500
D Bank 500
Sundry debtor 500
1.23 The trial balance of EHL plc does not balance and the debits exceed the credits by $2,300. The
following errors are discovered:
the single column manual cash book receipts column was undercast by $600;
discount received of $400 had been debited to the interest payable account;
the proceeds of $1,000 on the sale of a fixed asset had been credited to sales.
Following the correction of these errors, the balance on the suspense account would be
A Cr $900
B Cr $2,100
C Cr $3,700
D Dr $2,100
1.24 At the beginning of the year in GHI Ltd, the opening work-in-progress was $240,000. During the
year, the following expenditure was incurred:
$
Prime cost 720,000
The closing work-in-progress was 350,000
The factory cost of goods completed during the year was
A $538,000
B $610,000
C $682,000
D $902,000
1.25 In July 2002, a company sold goods at standard value added tax (VAT) rate with a net value of
200,000, goods exempt from VAT with a value of 50,000 and goods at zero VAT rate with a net
value of 25,000. The purchases in July 2002, which were all subject to VAT, were 161,000,
including VAT. Assume that the rate of VAT is 15%.
The difference between VAT input tax and VAT output tax is
A Dr 9,000
B Cr 5,850
C Cr 9,000
D none of these.
(Total = 50 Marks)
SECTION B 50 MARKS
IMPORTANT
MARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECT
ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.
THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK IS
INDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.
DO NOT EXCEED THE STATED NUMBER OF 30 WORDS IN THE SHADED BOXES.
Question Two
S owns a small business and keeps all the accounting records himself on a computer using basic accounting
software. He does not understand financial statements and therefore never uses this part of the software. He
does, however, regularly print out the analysis of the receipts and payments in and out of his bank account.
Unfortunately, his computer was stolen and his accountant now wants to prepare his accounts.
The accountant has the balance sheet at 31 July 2001, the previous year end, and this is set out below.
Balance sheet at 31 July 2001
$ $ $
Fixed assets (net book value)
Vehicles 50,000
Machinery 25,000
75,000
Current assets
Stock 12,000
Debtors 19,000
Provision (1,000) 18,000
Prepayment advertising 3,000
Bank 1,000
34,000
Current liabilities
Trade creditors (16,000)
Accrual vehicle expenses (1,000) (17,000)
Net current assets 17,000
92,000
Long-term liabilities
Loan 10% (10,000)
82,000
Capital 82,000
The accountant has asked S for some additional information and S has prepared the following schedule.
1. The following payments appeared on the bank statement in the year ended 31 July 2002:
$
Payments to suppliers 135,000 (S takes a cash discount of 10% on invoice amount on all
payments to suppliers.)
Wages 15,000
Vehicle expenses 9,000
New vehicle 12,000
General expenses 8,000
Advertising 3,000 (this includes a prepayment of $1,000)
Loan interest 500 ($500 was paid on 1 August 2002)
Drawings 20,000 (S also took goods from the business worth $2,000)
202,500
2. The following receipts appeared on the bank statement in the year ended 31 July 2002:
$
Receipts from sales 215,000
Sale of old vehicle 2,000
217,000
3. The following amounts relate to cheques dated before 31 July 2002, but not presented by that date:
$
General expenses 600
Vehicle expenses 300
4. At 31 July 2002: $
debtors were 21,000 after excluding bad debts of $2,000
creditors were 18,000
stock was 10,000
The accountant has the following information on his file:
(i) The net book value of the old vehicle which was sold was $3,000.
(ii) Depreciation is charged on the net book value at the year end:
Vehicles 25%
Machinery 20%
(iii) A general provision is made for doubtful debtors of 5% of debtors,
after bad debts have been written off.
Space for workings to Question Two
The requirements for question two are on the next page
Question Two continued
Required:
Marks
available
For use
by the
first
marker
For use
by the
second
marker
Prepare the profit and loss account for the year ended 31 July 2002
and the balance sheet at that date by completing the shaded areas in
the financial statements below and on the next page.
S Profit and Loss account for the year ended 31 July 2002
$ $
Sales
Opening stock 12,000
2
Purchases 2
Closing stock 10,000
Cost of goods sold
Gross profit
Discount received
1
Less: Expenses
Wages 15,000
Vehicle expenses
1
/
2
General expenses
1
/
2
Advertising
1
/
2
Loan interest
1
/
2
Depreciation
1
1
/
2
Charge for doubtful debts
1
Bad debt
1
/
2
Loss on sale of vehicle
1
/
2
Profit for the year
(a)
Sub-total:
10
1
/
2
Space for workings to Question Two
columns below
S Balance sheet at 31 July 2002
$ $ $
Marks
available
For use
by the
first
marker
For use
by the
second
marker
Fixed assets
(net book value)
Vehicles 1
Machinery
1
/
2
Current assets
Stock 10,000
Debtors 21,000
Provision
1
Prepayment
1
/
2
Bank
Current liabilities
Trade creditors 18,000
1
Accrual
1
/
2
Net current assets
Long-term liabilities
Loan 10% (10,000)
Capital
Capital at 1 August 2001 82,000
Profit for the year ended
31 July 2002
1
Drawings
Capital at 31 July 2002
1
Sub-total:
6
1
/
2
After Ss financial statements had been prepared, S attended a
meeting with his accountant to discuss them. S is surprised that the
$2,000 he received when he sold his old vehicle does not appear in
the financial statements. Explain to S, (in the shaded area below),
why the $2,000 does not appear in the financial statements.
3
(Maximum of 30 words)
(b)
Total Marks for Question Two =
20
Question Three
The Directors of M plc employ a book-keeper who prepares draft accounts for them using accounting
software. They are pleased that they have made a profit for the year ended 30 June 2002, but do not
understand why the cash balances have decreased. They have asked you, as an independent accountant,
to prepare a cash flow statement.
The draft financial statements for M plc are set out below.
Profit and loss account for the year ended 30 June 2002
$000
Turnover
1,670
Cost of sales
(870)
Gross profit
800
Operating expenses
(415)
Depreciation
(250)
Loss on sale of fixed asset
(5)
Operating profit
130
Interest
(15)
Dividends
(70)
Retained profit for year
45
Balance sheets at 30 June 2002 2001
$000 $000 $000 $000
Fixed assets (see note)
980 700
Current assets
Stock
70 65
Debtors
175 215
Bank and cash
50 65
295 345
Current liabilities
Trade creditors
(100) (85)
Fixed asset creditor
(20) 0
Accrued interest
(5) (10)
Dividends
(65) (60)
(190) (155)
Net current assets
105 190
1,085 890
Long-term liability
Loan
(200) (250)
885 640
Share capital
700 600
Share premium account
100 0
85 40
885
640
Note: M plc purchased fixed assets for $550,000 during the year ended 30 June 2002.
Required:
Marks
available
For use
by the
first
marker
For use
by the
second
marker
Prepare a cash flow statement for M plc for the year ended 30 June
2002 by completing the shaded areas as necessary in the cash
flow statement below.
Cash flow statement M plc year ended 30 June 2002
$000
Operating profit
Adjustments for non-cash items
1
/
2
1
/
2
1
/
2
Adjustments for working capital
1
/
2
1
/
2
1
/
2
Cash from operations
Interest
1
/
2
Purchase of fixed assets 1
Sale of fixed assets 1
Dividends
1
/
2
Share capital
1
/
2
Loan
Movement in cash
1
/
2
(a)
What do you, as the independent accountant, consider is the main
reason for the decrease in the cash balance? (Maximum of 30
words)
(b)
Sub-
total: 7
3
Total Marks for Question Three = 10
these columns below
Question Four
D has been an accountant for many years. He had always understood that
the historical cost convention was important in the preparation of the
financial statements. However, he has recently been attending a series of
lectures on accounting and many of the speakers have referred to a move to
current cost accounting. He is keen to update his knowledge and has asked
you to explain some terms to him.
Required:
(Maximum of 30 words for each explanation)
Marks
available
For use
by the
first
marker
For use
by the
second
marker
(i) Define "historical cost accounting"
(ii) Give an example to illustrate the use of historical cost accounting
(iii) Define "net realisable value"
(iv) Give an example to illustrate the use of net realisable value
(v) Define "current cost accounting"
3
2
2
2
2
these columns below
Question Four continued
Required:
(Maximum of 30 words for each explanation)
Marks
available
For use
by the
first
marker
For use
by the
second
marker
(vi)
Define "economic value"
(vii) Explain the effect on historical cost profit and asset values if current
cost accounting is used rather than historical cost accounting,
assuming rising prices.
(viii) Define "capital maintenance"
3
3
3
Total Marks for Question Four = 20
columns below
Examination
Question and
Answer Book
Centre Code:
Hall Code:
Desk Number:
Foundation Level
1 FAFN
21 May 2003
Wednesday morning
require them. For section B questions, you must write your answers in the shaded space provided. Please
note that you will NOT receive marks for your workings. Do not exceed the stated number of words. Do
NOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid
the use of correction fluid.
25 sub-questions.
FAFN 2 May 2003
SECTION A 50 MARKS
Question One
columns below
For use
by the
first
marker
For use
by the
second
marker
After the profit and loss account for Z Ltd had been prepared, it was found that
accrued expenses of $1,500 had been omitted and that closing stock had been
overvalued by $500.
The effect of these errors is an
1.1
A overstatement of net profit of $1,000
B overstatement of net profit of $2,000
C understatement of net profit of $1,000
D understatement of net profit of $2,000
answer.
REQUIRED:
May 2003 3 FAFN
columns below
1.2 The cashier is reconciling his companys cash book with the bank statement at
31 March 2003.
For use
by the
first
marker
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by the
second
marker
$
The firms cash book shows a debit balance of 12,350
The following information is available:
Bank charges not entered in the cash book 170
Unpresented cheques 4,600
Direct debit payment on the bank statement not entered in the
cash book
230
Sales receipts banked, but not credited by the bank 9,400
A cheque from a customer which had previously been entered in
the cash book when received, has been returned by the bank as
dishonoured, and this has not been recorded in the cash book
110
What should be stated as the bank balance in the companys balance sheet at
31 March 2003?
A $11,840
B $12,060
C $12,860
D $16,640
For use
by the
first
marker
For use
by the
second
marker
1.3 Which ONE of the following is true?
A External auditors normally check all purchase invoices.
B External auditors should prepare the accounts.
C External auditors must follow the audit procedures prepared by the internal
auditors.
D External auditors check the internal control system.
FAFN 4 May 2003
columns below
D is preparing the accounts for A Ltd for the year ended 31 March 2003. The
most recent gas bill received by A Ltd was dated 6 February 2003 and related
to the quarter 1 November 2002 to 31 January 2003, and the amount of the bill
was $2,100.
For use
by the
first
marker
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by the
second
marker
1.4
Which ONE of the following ledger entries should be made in A Ltds books at
31 March 2003?
Debit Credit
A Accruals NIL Gas expense NIL
B Gas expense $1,400 Accruals $1,400
C Accruals $1,400 Gas expense $1,400
D Gas expense $2,100 Accruals $2,100
1.5 The following information related to Q plc for the year ended 28 February 2003: For use
by the
first
marker
For use
by the
second
marker
$
Prime cost 122,000
Opening work-in-progress at 1 March 2002 40,000
Factory cost of goods completed 300,000
The closing work-in-progress at 28 February 2003 was
A $33,000
B $40,000
C $47,000
D $54,000
1.6 N Ltd, which is registered for VAT, received an invoice from an advertising
agency for $4,000 plus VAT. The rate of VAT on the goods was 175%. The
correct ledger entries are:
For use
by the
first
marker
For use
by the
second
marker
Debit $ Credit $
A Advertising expense 4,000 Creditors 4,000
B Advertising expense 4,700 Creditors 4,700
C Advertising expense 4,700 Creditors 4,000
VAT account 700
D Advertising expense 4,000 Creditors 4,700
VAT account 700
May 2003 5 FAFN
columns below
1.7 E Ltd received an invoice for the purchase of fixed asset equipment which was
credited to the correct suppliers ledger account, but debited to the equipment
repairs account, instead of the equipment account.
For use
by the
first
marker
For use
by the
second
marker
The effect of not correcting this error on the financial statements would be:
A Profit would be overstated and fixed assets would be understated.
B Profit would be overstated and fixed assets would be overstated.
C Profit would be understated and capital would be overstated.
D Profit would be understated and fixed assets would be understated.
1.8 H Ltd began trading on 1 July 2001. The company is now preparing its
accounts for the accounting year ended 30 June 2002. Rates are charged for a
tax year, which runs from 1 April to 31 March, and were $1,800 for the year
ended 31 March 2002 and $2,000 for the year ended 31 March 2003. Rates
are payable quarterly in advance, plus any arrears, on 1 March, 1 June,
1 September and 1 December.
For use
by the
first
marker
For use
by the
second
marker
The charge to H Ltds profit and loss account for rates for the year ended 30
June 2002 is
A $1,650
B $1,700
C $1,850
D $1,900
1.9 The return on capital employed for S plc is 24% and the net asset turnover ratio
is 3 times.
For use
by the
first
marker
For use
by the
second
marker
What is the net profit margin?
A 8%
B 28%
C 72%
D It cannot be calculated.
FAFN 6 May 2003
1.10 Which ONE of the following would NOT help detect errors in a computerised
accounting system?
For use
by the
first
marker
For use
by the
second
marker
A The use of coding systems.
B The use of batch processing.
C The use of passwords.
D The use of control accounts.
1.11 The total cost of salaries charged to a limited companys profit and loss account
is
For use
by the
first
marker
For use
by the
second
marker
A cash paid to employees.
B net pay earned by employees.
C gross pay earned by employees.
D gross pay earned by employees, plus employers national insurance
contributions.
1.12 Which ONE of the following statements is TRUE? For use
by the
first
marker
For use
by the
second
marker
A Internal auditors report to the directors.
B External auditors report to the directors.
C Internal auditors are employed by the shareholders.
D External auditors are employees of a company.
May 2003 7 FAFN
1.13 The following is the aged debtors analysis for J Ltd at 30 April 2003: For use
by the
first
marker
For use
by the
second
marker
Age of debt Less than 1
month
1-2 months 2-3 months Over 3
months
Amount ($) 12,000 24,000 8,000 6,000
The company provides for doubtful debts as follows:
Provision 0% 1% 10% 30%
The doubtful debt provision at 1 May 2002 brought forward was $2,880.
The entry for doubtful debts in the profit and loss account for the year ended 30
April 2003 and the net debtors figure in the balance sheet at that date should
be:
Profit and loss account Balance sheet
A $40 credit $47,160
B $40 debit $47,160
C $2,840 debit $50,000
D $2,840 credit $47,160
1.14 The following information relates to companies Q plc and R plc, who are
competitors selling widgets:
For use
by the
first
marker
For use
by the
second
marker
Q plc R plc
Gross profit percentage 30% 25%
Fixed asset turnover ratio 4 5
A director at Q plc believes that these ratios indicate that:
(i) Q plc has a higher selling price.
(ii) Q has lower purchasing costs.
(iii) R plc has lower sales volume.
(iv) R plc has fewer fixed assets.
Which of the above are possibly true based on the information provided?
A (i) only.
B (i) and (ii) only.
C (i), (ii) and (iii) only.
D (i), (ii), (iii) and (iv).
FAFN 8 May 2003
1.15 The prime cost of goods manufactured is the total of For use
by the
first
marker
For use
by the
second
marker
A raw materials consumed.
B raw materials consumed and direct wages.
C raw materials consumed, direct wages and direct expenses.
D raw materials consumed, direct wages, direct expenses and production
overheads.
1.16 On 1 May 2003, E Ltd owed a supplier $1,200. During the month of May, E Ltd: For use
by the
first
marker
For use
by the
second
marker
purchased goods for $1,700 and the supplier offered a 5% discount for
payment within the month.
returned goods valued at $100 which had been purchased in April 2003.
sent a cheque to the supplier for payment of the goods delivered in May.
The balance on the suppliers account at the end of May 2003 is
A $1,015
B $1,100
C $1,185
D $1,300
1.17 The main advantage of using a sales ledger control account is that For use
by the
first
marker
For use
by the
second
marker
A double entry book-keeping is not necessary.
B it helps in detecting errors.
C it helps with credit control.
D it ensures that the trial balance will always balance.
May 2003 9 FAFN
columns below
1.18 The following information relates to J Ltd for the year ended 30 April 2003: For use
by the
first
marker
For use
by the
second
marker
$000
Retained profit for the year 28,000
Net cash inflow from operating activities 26,000
Dividend paid 3,000
Profit on sale of fixed assets 1,000
Proceeds on sale of fixed assets 5,000
Taxation paid 2,000
Interest paid 4,000
Payments for fixed assets 8,000
Issue of debentures 6,000
The cash flow statement will show
A a decrease in cash of $13,000.
B an increase in cash of $14,000.
C an increase in cash of $20,000.
D an increase in cash of $22,000.
1.19 Which of the following is an appropriation of profit in a limited company? For use
by the
first
marker
For use
by the
second
marker
A Interest paid.
B Dividend paid.
C Directors remuneration.
D Retained profit.
FAFN 10 May 2003
1.20 N operates an imprest system for petty cash. On 1 February 2003, the float
was $300. It was decided that this should be increased to $375 at the end of
February 2003.
For use
by the
first
marker
For use
by the
second
marker
During February, the cashier paid $20 for window cleaning, $100 for stationery
and $145 for coffee and biscuits. The cashier received $20 from staff for the
private use of the photocopier and $60 for a miscellaneous cash sale.
What amount was drawn from the bank account for petty cash at the end of
February 2003?
A $185
B $260
C $315
D $375
1.21 An audit trail in a computerised accounting system is For use
by the
first
marker
For use
by the
second
marker
A information regarding all transactions in a period.
B a history of all transactions on a ledger account.
C a list of all transactions checked by the internal auditor.
D a list of all transactions automatically posted from day books to ledgers.
1.22 The following are extracts from the financial statements for the year ended 31
January 2003 of M plc:
For use
by the
first
marker
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by the
second
marker
$000
Issued Ordinary shares of $1 200
Share premium account 50
Profit and loss account 25
Debenture 80
Profit before interest for the year ended 31 January 2003 60
What is the return on total capital employed?
A 17%
B 22%
C 24%
D 30%
May 2003 11 FAFN
columns below
1.23 The following information was extracted from the balance sheets of Z Ltd at
31 December 2002 and at 31 December 2001:
For use
by the
first
marker
For use
by the
second
marker
2002 2001
$000 $000
Stock 100 140
Debtors 150 130
Trade creditors 125 115
Other creditors 60 75
What figure should appear as part of the cash flow statement for the year
ended 31 December 2002?
A $25,000 outflow
B $15,000 outflow
C $15,000 inflow
D $25,000 inflow
1.24 In order to confirm that financial statements show a true and fair view, the
external auditor should ensure that the financial statements comply with
For use
by the
first
marker
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by the
second
marker
A company law.
B accounting standards.
C generally accepted accounting principles.
D all of the above.
FAFN 12 May 2003
1.25 S Ltd purchased equipment for $80,000 on 1 July 2002. The companys
accounting year end is 31 December. It is S Ltds policy to charge a full years
depreciation in the year of purchase. S Ltd depreciates its equipment on the
reducing balance basis at 25% per annum.
For use
by the
first
marker
For use
by the
second
marker
The net book value of the equipment at 31 December 2005 should be
A Nil
B $25,312
C $29,531
D $33,750
For Marking Purposes Only Total Marks for Question One
(Total = 50 Marks)
End of Section A
May 2003 13 FAFN
SECTION B 50 MARKS
IMPORTANT
Question Two
The treasurer at the WV Golf Club has presented a receipts and payments account at the annual general
meeting for many years. However, at the annual general meeting this year a member proposed that an
income and expenditure account be prepared in its place. After a discussion, the members agreed with this
proposal. The treasurer does not know how to prepare an income and expenditure account and has given
you, an accountant, his most recent receipts and payments account, which is set out below.
WV Golf Club Receipts and payments account year ended 31 March 2003
$ $
Receipts
Annual subscriptions 42,400
Shop sales 10,000
Deposits for golfing holiday 600
53,000
Payments
Wages 35,000
Shop supplies 7,500
Ground maintenance 6,000
Rent 1,400
Lawnmower 900
Repairs 1,200
52,000
Receipts less payments 1,000
Balance at bank 1 April 2002 4,300
Balance at bank 31 March 2003 5,300
The treasurer has provided you with the following additional information:
(i) The subscriptions are as follows:
$
Annual subscriptions received 38,500
Joining fees 1,500
Subscriptions received in advance for year ended 31 March 2004 2,400
Total 42,400
Joining fees are to be apportioned over 5 years.
Subscriptions owing for the year ended 31 March 2003 amount to $1,400. The members whose
subscriptions are owing have left the club and the treasurer has said that it is unlikely that these
members will pay their subscriptions.
(ii) The club has decided to organise its first golfing holiday in June 2003. Some members have paid
deposits for the holiday, which amount to $600, but the treasurer has said that, unless more members
agree to go, he will cancel the holiday and return the deposits.
FAFN 14 May 2003
(iii) Other assets and liabilities of the club were estimated as follows:
31 March
2002
31 March
2003
$ $
Employees tax owing 500 400
Creditor for shop supplies 750 1,000
Rent paid in advance 200 300
Stock of shop supplies 1,800 1,500
Equipment at valuation 9,000 8,000
columns below
Required:
(a) Prepare the shop trading account and the income and expenditure
account for the year ended 31 March 2003 and the balance sheet
(opposite) at that date by completing the blanks in the financial statements
below.
Marks
available
For use
by the
first
marker
For use
by the
second
marker
WV Golf Club Shop Trading Account year ended 31 March 2003
$ $
Shop gross profit 2
WV Golf Club Income and expenditure account
year ended 31 March 2003
$ $
Income
Shop trading account gross profit
3
Expenditure
3
Surplus/Deficit for the year
Sub-total: 8
May 2003 15 FAFN
columns below
WV Golf Club Balance Sheet year at 31 March 2003
Marks
available
For use
by the
first
marker
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by the
second
marker
$ $
Fixed assets
Equipment
Current assets
Current liabilities
Net current assets
Accumulated funds
1
/
2
1
1
/
2
2
4
Sub-total: 8
(i) State TWO advantages (in the shaded area below) of a receipts
and payments account.
(ii) Explain ONE advantage (in the shaded area below) of an
income and expenditure account compared to a receipts and
payments account.
(b)
2
2
Sub-total: 4
Question Two Total Marks = 20
FAFN 16 May 2003
Question Three
The book-keeper at D Ltd has prepared a trial balance at 31 December 2002, but is unable to complete the
accounts as there were certain transactions during the year which he did not know how to record and,
therefore, omitted from the books. He has asked you, the accountant, to prepare the journal entries for these
transactions.
The transactions are as follows:
(i) The company bought a new delivery vehicle. The invoice details were as follows:
$
Cost of delivery vehicle 10,780
Annual road tax 1,000
11,780
The company paid the invoice by trading in an old van, which had a net book value of $2,500, for an
agreed figure of $3,290 and the balance of the money was borrowed from a bank.
(ii) In January 2002, the company decided to issue $200,000 ordinary $1 shares at an issue price of
$140.
The terms of the issue were:
70 cents on application, payable February 2002 (which included the premium);
50 cents on allotment, payable March 2002;
20 cents on call, payable in September 2002.
The book-keeper had recorded all the cash received during the year in the bank account and had
recorded the issue of shares in a mispostings account, which he used for transactions for which he did
not know the correct ledger accounts for the debit and credit entries.
(iii) The stock at the previous year-end was valued at $13,000. However, the store keeper has told the
book-keeper during this current year that this figure was not correct and it should have been $11,000,
as he counted one item twice.
(iv) At the previous year-end, M, a customer who owed $1,600, was considered to be a doubtful debtor.
The book-keeper thought there was a fifty per cent chance he might pay and, therefore, made a
doubtful debt provision of $800. During the current year, the book-keeper learnt that M is now
bankrupt and cannot pay any of his debts.
(v) The trial balance shows the cost of land and buildings at $100,000 and the accumulated depreciation
at $15,000. The land and buildings have been revalued at $150,000 and the directors wish to record
this revaluation in the balance sheet.
May 2003 17 FAFN
Required:
Prepare the journal entries for the transactions opposite by completing the
shaded areas of the schedule below.
You are NOT required to write a narrative for each journal.
columns below
Dr
$
Cr
$
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available
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marker
Journal (i)
Journal (ii)
Journal (iii)
Journal (iv)
Journal (v)
2
2
2
2
2
Total: 10
FAFN 18 May 2003
Question Four
You are the senior accountant in a company and in charge of the accounts department.
One of your junior staff is very good at book-keeping and you have identified her as a person with potential
for promotion. You have therefore agreed to pay for her tuition on a financial accounting course. She has
asked you what she will learn apart from book-keeping.
Required:
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available
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marker
State briefly (in the shaded area below) the purpose and contents of
EITHER the International Accounting Standards Boards Framework for
the Preparation and Presentation of Financial Statements
OR the Accounting Standards Boards Statement of Principles for
Financial Reporting.
(a)
Explain (in the shaded area below) the objective of financial
statements.
(b)
Describe (in the shaded area below) the characteristics of useful
information.
(c)
3
3
3
Sub-total: 9
May 2003 19 FAFN
Required:
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available
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(d) Explain (in the shaded areas below) the following accounting
concepts:
business entity (i)
money measurement (ii)
cost (iii)
realisation (iv)
3
3
3
2
sub-total: 11
Total: 20
Examination
Question and
Answer Book
Write your full examination number,
your contact ID and your name on a
double-sided card, which must be
attached to this booklet here.
Foundation Level
1 FAFN
19 November 2003
Wednesday morning
require them. For section B questions, you must write your answers in the shaded space provided. Please
note that you will NOT receive marks for your workings. Do not exceed the stated number of words. Do
NOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid
the use of correction fluid.
Answer the ONE question in section A (this has 25 sub-questions)
Answer the THREE questions in section B
25 sub-questions.
Do NOT write your name or your contact ID anywhere on this booklet.
SECTION A 50 MARKS
Question One
columns below
1.1 A business is normally said to have earned revenue when
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A cash has been received.
B a customer is legally obliged to pay for goods delivered or services rendered.
C an order has been placed.
D goods have been manufactured and placed in stock.
answer.
REQUIRED:
Place a circle "O" around the letter A, B, C or D that gives the correct answer to each sub-question.
columns below
1.2 The following information relates to C Limited at 30 June 2003:
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marker
$
Balance per cash book credit balance 4,300
Unpresented cheques 1,500
Bank charges not entered in the cash book 300
Receipts not yet credited by the bank 2,600
Dishonoured cheques not yet recorded in the cash book 500
What would be the balance shown on the bank statement at 30 June 2003?
A Overdraft $6,200
B Overdraft $5,100
C Overdraft $4,000
D Favourable $2,400
1.3 The following information relates to NBV Limited for the year ended
31 July 2003.
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marker
$000
Direct materials 160
Direct labour 200
Prime cost 360
Carriage outwards 80
Depreciation of delivery vehicles 30
Factory indirect overheads 450
Increase in work-in-progress stock 75
Decrease in stock of finished goods 55
What should be the factory cost of goods completed for the year ended 31 July 2003?
A $735,000
B $845,000
C $885,000
D $1,095,000
columns below
1.4 Which of the following tests carried out by an external auditor is a compliance
test?
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A Confirming authorisation of a reconciliation of the sales ledger control account.
B Checking unpresented cheques in a bank reconciliation.
C Checking a purchase invoice with the purchase day book.
D Inspecting physical existence of fixed assets.
1.5 The following information relates to CFS plc:
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Machinery $000
Cost at 1 January 2002 80
Additions 20
Disposal (10)
Cost at 31 December 2002 90
Provision for depreciation at 1 January 2002 15
Depreciation charge 8
Disposal (6)
Provision for depreciation at 31 December 2002 17
The proceeds on disposal of the machine were $1,000.
CFS plc is preparing the cash flow statement for the year ended 31 December 2002.
In relation to the items above, what should be the net adjustment to operating profit in
order to determine the net cash flow from operating activities?
A Deduct $11,000
B Add back $3,000
C Add back $5,000
D Add back $11,000
columns below
1.6 The accountant at S Limited is preparing quarterly accounts for Quarter 3. In
Quarter 2, he had accrued $1,600 for gas and this balance was carried forward
to Quarter 3. In Quarter 3, a gas bill of $2,700 was paid. The accountant has
accrued $2,400 for gas in Quarter 3.
What should be the charge for gas in the profit and loss account for Quarter 3?
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A $1,900
B $2,400
C $2,700
D $3,500
1.7 D plc has a policy that all items of equipment which cost less than $1,000 are
charged to an expense account, rather than a fixed asset account. This is an
example of the application of the concept of
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A going concern.
B materiality.
C money measurement.
D prudence.
1.8 Internal auditors report to
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A the management.
B the shareholders.
C the external auditors.
D the government.
columns below
1.9 A Limited is preparing financial statements for the year ended 30 June 2003.
Rent is payable quarterly in advance on 1 February, 1 May, 1 August and
1 November. The annual charge for rent was $1,800 and $2,400 for the years
ended 31 January 2003 and 2004 respectively.
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Which of the following ledger entries should be made in A Limiteds accounts?
A Rent expense $2,000 Prepayment $400
B Rent expense $2,050 Prepayment $200
C Rent expense $2,050 Accrual $200
D Rent expense $2,100 Prepayment/accrual Nil
1.10 T Limited purchased a machine costing $14,000 on 1 August 1999. The
company estimated that the asset had a useful life of 4 years and an expected
residual value of $2,000. The company uses the straight-line method of
depreciation. The companys financial year end is 30 November.
It is the companys policy to charge a full years depreciation in the year of
purchase and none in the year of disposal. On 1 November 2002, the asset
was sold for $4,500.
What should be the profit or loss on disposal in the year ended 30 November 2002?
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A Loss $500
B Loss $3,500
C Loss $9,500
D Profit $500
columns below
1.11 The following information is an extract from the balance sheets of DCF plc:
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marker
31 August 2003 31 August 2002
$000 $000
Stock 20 14
Trade debtors 16 18
Bank 12 10
48 42
Trade creditors (14) (17)
34 25
DCF plc is preparing the cash flow statement for the year ended 31 August 2003. In
relation to the items above, what should be the net adjustment to operating profit in
order to determine the net cash flow from operating activities?
A Deduct $1,000
B Deduct $2,000
C Deduct $7,000
D Add back $1,000
1.12 Which of the following entries would NOT affect the agreement of the totals in
the trial balance?
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(i) An invoice for $300 for rent has been omitted from the ledgers.
(ii) A cash sale has been recorded as debit cash sales, credit cash.
(iii) An invoice for vehicle expenses has been charged to the vehicle fixed
asset account.
(iv) A credit note for $500 for goods returned by a customer had been
recorded in the correct ledgers, but as $5,000.
A (i) only
B (i) and (ii) only
C (i), (ii) and (iii) only
D All of them.
columns below
1.13 Which ONE of the following is NOT an intangible fixed asset?
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A Goodwill
B Trademark
C Investment
D Patent
1.14 E Ltd bought computer equipment on 1 January 2000 for $24,000 and
estimated that it would have a useful life of five years and a residual value of
$2,000. E Ltd uses the straight-line method of depreciation. On 31 December
2001, it now considers that the remaining life is only two years and that the
residual value will be nil.
What should be the annual depreciation charge for the years ended 31 December
2002 and 2003?
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A $4,800
B $5,500
C $6,600
D $7,600
1.15 A company has a quick (acid test) ratio of 2 : 1. Current assets include stock of
$10,000 and debtors of $6,000. Current liabilities are $4,000.
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marker
What is the bank balance?
A Credit $4,000
B Credit $2,000
C Debit $2,000
D Debit $4,000
columns below
1.16 Which of the following does NOT prevent fraud and errors?
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A Authorisation procedures
B Organisation of staff
C Suspense accounts
D Reconciliations
1.17 The BMX cycling club started in January 2001. The following fees were
received in the years ended 31 December 2001 and 2002. There were no fees
received in advance, or fees in arrears, at either year end.
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2001 2002
$ $
Joining fees 8,000 10,000
Annual fees 5,000 7,000
Life membership fees 4,000 6,000
17,000 23,000
Joining fees are recognised over a period of 4 years and life membership fees
are recognised over 10 years.
What should be the total amount of fees recognised in the income and expenditure
account for the year ended 31 December 2002?
A $7,000
B $11,500
C $12,500
D $23,000
columns below
1.18 ABC plc declared a final dividend of 5% for the year ended 28 February 2003.
The nominal value of the shares is 50 cents. X bought 1,000 shares at a price
of $4 in December 2002 and the shares were valued at a price of $3 on
28 February 2002.
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What should be the final dividend received by X?
A $25
B $50
C $150
D $200
1.19 The internal accounts of E Ltd value stock at replacement cost. The
warehouse manager has produced the following schedule for the values of the
three items (X1, X2 and X3) in stock at the year end.
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marker
First In/ Net realisable Replacement
First Out value cost
$000 $000 $000
X1 10 20 30
X2 15 11 8
X3 12 14 13
37 45 51
At what value should the stock be stated in the statutory financial statements?
A $33,000
B $37,000
C $45,000
D $51,000
1.20 The job descriptions of staff in the credit control department are normally
segregated because
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A lower salaries can be paid.
B work is completed more efficiently.
C control is facilitated.
D staff are less likely to become bored.
columns below
1.21 The style of management accounts within an enterprise is determined by
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A company law.
B company law and accounting standards.
C the shareholders.
D the directors.
1.22 Which of the following is the best description of current purchasing power
accounting?
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A A method of accounting which considers the effects of changing price levels by
reference to the retail price index.
B A method of adjusting historical cost accounts for the effects of changing price
levels by using indices specific to the enterprise.
C A method of accounting which uses market values.
D A method of accounting which uses economic values (value in use).
1.23 The following information relates to P Ltd at 30 September:
2003 2002
$000 $000
Stock of raw materials 60 40
Work-in-progress stock 50 85
Stock of finished goods 20 28
For the year ended 30 September 2003:
$000
Purchases of raw materials 710
Manufacturing wages 42
Factory overheads 360
The prime cost of production in the manufacturing account for the year ended
30 September 2003 is
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A $690,000
B $732,000
C $1,092,000
D $1,135,000
columns below
1.24 The following information was extracted from the pay slip of J, who received
her net salary in cash for the month ended 31 March 2003:
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marker
Gross salary 3,000

Tax deducted 450
Employers national insurance 300
Employees national insurance 250
Employers contribution to pension fund 210
Employees contribution to pension fund 180
Voluntary deduction for payment to charity 20
The charge to the profit and loss account, the balance on the payroll control account
and the net pay for Js salary for March was
Charge to
profit and loss account
Balance on payroll control
account
Net pay
A 2,100 1,410 2,100
B 3,510 700 2,300
C 3,000 1,000 1,590
D 3,510 1,410 2,100
1.25 Which of the following are normally produced in the month-end routine of a
computerised accounting system?
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(i) Balances on all ledger accounts at the end of the month
(ii) Balances on the debtors and creditors personal ledgers and the
debtors and creditors control accounts
(iii) Balance on stock (inventory)
(iv) The profit and loss account and balance sheet
A (i) only
B (i) and (ii) only
C (i), (ii) and (iii) only
D All of them.
(Total = 50 Marks)
End of Section A
SECTION B 50 MARKS
IMPORTANT
Question Two
VA is a sole proprietor. He employs a book-keeper who uses an accounting software package to produce a
trial balance. At the year end, his accountant manually prepares journal entries and asks the book-keeper to
enter these into the accounting software package.
The trial balance of VA at 31 August 2003 is set out below.
Dr
$
Cr
$
Advertising 8,000
Bank 2,000
Bank loan 20,000
Bank interest 2,000
Capital at 1 September 2002 20,000
Capital introduced 5,000
Carriage outwards 12,000
Computing expenses 10,000
Creditors 20,000
Debtors 30,000
Discount received 3,000
Drawings 33,000
Fixtures at cost 60,000
Power 3,000
Provision for depreciation on fixtures at 1 September 2002 15,000
Provision for doubtful debts at 1 September 2002 1,000
Purchases 240,000
Rent 7,000
Salaries 36,000
Sales 383,000
Stock at 1 September 2002 24,000
467,000 467,000
The following additional information has been provided by the book-keeper to the accountant.
(i) The stock at 31 August 2003 has been valued at $20,000.
(ii) The prepayment for rent at 31 August 2003 is $2,000.
(iii) The computer crashed in August 2003. An engineer gave an estimate of $500 to repair the computer,
which VA accepted. The engineer repaired the computer in August, but has not yet submitted his
invoice.
(iv) Depreciation on the fixtures is to be provided for the year ended 31 August 2003 on the reducing
balance basis at
1
/
3
per annum.
(v) The provision for doubtful debts is to be 5% of the debtors.
columns below
Required: (a)
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(1) Prepare the journal entries for the information in items (i) to (v) on
page 20.
Use the journal schedule set out below and complete the name of the
ledger account and the amount of the debit and credit in the shaded
areas.
You are NOT required to write a narrative for the journal entries.
Ledger account
Dr
$
Cr
$
(i)
(ii)
(iii)
(iv)
(v)
1
1
1
1
1
sub-total: 5
Required: (a)
(2) Prepare the accounts for VA for the year ended 31 August 2003 by
completing the shaded areas in the accounts below.
VA Trading, Profit and Loss Account year ended 31 August 2003
$ $
Sales
Gross profit
Less: Expenses
Net profit
Marks
available
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
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marker
sub-total: 7
columns below
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available
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marker
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marker
VA Balance Sheet at 31 August 2003
Fixed Asset
$
Cost
$
Provision for
depreciation
$
Current Assets
Current Liabilities
Net Current Assets
Long-term Liability
Capital at 1 September 2002
Capital at 31 August 2003
Sub-total:
1
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
6
(b) VA is considering converting his business into a limited liability
company. He has asked his accountant about the differences between the
accounts of a sole proprietor and those of a limited liability company.
His accountant explained that one of the differences is that the accounts of
a limited liability company must show a true and fair view.
You are required to explain the meaning of a true and fair view in the
shaded area below.
(maximum of 30 words)
Sub-total: 2
Question Three
All transactions with customers of PFI Limited are recorded in personal accounts in the sales ledger, and the
sales ledger control account is part of the double entry in the nominal ledger.
The following information relates to transactions with customers for the month ended 31 October 2003.
$
Sales ledger control account balance at 1 October 2003 20,000
Credit sales 200,000
Cheques received from customers 175,000
Discounts allowed 4,000
Returns inwards 5,000
Bad debts written off 7,000
Interest charged on debtors accounts overdue 500
Contra with the purchase ledger control account 3,000
Cheque received relating to a debt which had previously been written off as bad 600
Total of the balances on personal accounts in the sales ledger at 31 October 2003 24,500
Required:
Prepare the sales ledger control account by entering the description
and the appropriate amount of the debit or credit in the schedule
below.
Marks
available
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marker
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marker
Sales ledger control account
Description
Dr
$
Cr
$
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
1
/
2
(a)
Sub-total: 5
(b) The following errors were subsequently discovered:
(i) The total of the sales day book had been over-cast by $1,000.
(ii) A discount allowed of $500 had been correctly entered in a debtors personal account in the sales
ledger, but no other entries in the books had been made.
(iii) A credit note of $800 for goods returned had been correctly entered in the sales ledger control
account, but had not been entered in the debtors personal account in the sales ledger.
(iv) NHS is both a customer of and supplier to PFI Limited. A contra of $1,200 between NHS debtors
account in the sales ledger and creditors account in the purchase ledger had been omitted from the
books.
(v) The schedule of the balances on the personal accounts in the sales ledger had been under-cast by
$1,300.
columns below
Required:
Prepare a statement reconciling the sales ledger control account and the
total of the balances on the personal accounts in the sales ledger by
entering a description and the appropriate amount in the shaded areas of
the schedule below.
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available
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marker
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marker
Description
Sales ledger
control
account
$
Total of
balances on
personal
accounts in
the sales
ledger
$
Original balances at 31 October 2003 24,500
Revised balances at 31 October 2003
1
1
1
1
1
Sub-total: 5
Question Four
The objective of the financial statements of an enterprise is to provide information about the financial
position, performance and financial adaptability of that enterprise which is useful to a wide range of users for
assessing the stewardship of management and for making economic decisions.
Required:
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(a)
State the financial statement which provides information about the
financial position of an enterprise and describe its key components.
State why this information may be useful to users.
(i)
(maximum of 30 words) 4
State the financial statement which provides information about the
performance of an enterprise and describe its key components. State
why this information may be useful to users.
(ii)
State the key components of a cash flow statement. State why this
information may be useful to users.
(iii)
(b)
Give two examples of users of financial statements.
(i)
Sub-total:
14
Required:
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available
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marker
Give one example of an economic decision based on accounting
information that may be made by each of two different categories of
users of financial statements.
(ii)
3
(c) Explain the meaning of the term stewardship.
3
Sub-total: 6

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