CIMA Financial Accounting Fundamentals Past Papers

Foundation Level
Financial Accounting Fundamentals
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
The Chartered Institute of Management Accountants 2001
FOR FREE CIMA, ACCA & CAT RESOURCES VISIT: http://kaka-pakistani.blogspot.com
SECTION A 50 MARKS
ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.
Question One
1.1
The fundamental objective of an external audit of a limited company is to
give advice to shareholders.
detect fraud and errors.
measure the performance and financial position of a company.
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
Credit bank
Debit creditors
Debit bank
Credit creditors
Credit creditors
Debit returns outwards
1.3
The profit of a business may be calculated by using which one of the following formulae?
Opening capital - drawings + capital introduced - closing capital
Closing capital + drawings - capital introduced - opening capital
Opening capital + drawings - capital introduced - closing capital
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
FAFN
debit 1,000.
credit 1,000.
debit 1,333.
credit 1,333.
May 2001
1.5
Which one of the following should be accounted for as capital expenditure?
The cost of painting a building.
The replacement of windows in a building.
The purchase of a car by a garage for re-sale.
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
Machinery
15,000
Creditors
B
Machinery
15,000
17,250
Creditors
C
Machinery
VAT
17,250
15,000
2,250
Creditors
D
Machinery
VAT
Creditors
Cr
17,250
17,250
2,250
15,000
1.7
Which one of the following statements most closely expresses the meaning of true and
fair?
There is only one true and fair view of a companys financial statements.
True and fair is determined by compliance with accounting standards.
True and fair is determined by compliance with company law.
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?
1,050 charge to profit and loss account and prepayment of 750 in the balance sheet.
1,050 charge to profit and loss account and accrual of 750 in the balance sheet.
1,800 charge to profit and loss account and no entry in the balance sheet.
750 charge to profit and loss account and prepayment of 1,050 in the balance sheet.
May 2001
FAFN
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.
10,000.
12,000.
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.
540 overdrawn.
790 overdrawn.
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.
19,000.
19,050.
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
FAFN
Loss 2,200.
Loss 1,400.
Loss 200.
Profit 200.
May 2001
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.
the accruals concept.
the consistency concept.
the materiality concept.
1.14 I Ltd operates the imprest system for petty cash. At 1 July there was a float of 150, but it
was decided to increase this to 200 from 1 August onwards. During July, the petty
cashier received 25 from staff for using the photocopier and a cheque for 90 was
cashed for an employee. In July, cheques were drawn for 500 for petty cash.
How much cash was paid out as cash expenses by the petty cashier in July?
A
385.
435.
515.
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.
Financial accounts are normally produced annually and management accounts are
normally produced monthly.
Financial accounts are more accurate than management accounts.
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?
May 2001
FAFN
Movement on plant account 500 and profit on disposal of 500.
Movement on plant account 500 and proceeds on sale of plant 2,000.
Purchase of plant 2,000 and profit on disposal of 500.
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.
understating profits and overstating balance sheet values.
understating cash flow and overstating cash in the balance sheet.
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
Cr 500
decrease by 400
Dr 500
increase by 400
Dr 400
increase by 500
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
Turnover
Cost of sales
Gross profit
Profit on sale of fixed asset
Expenses
Depreciation
15
30
45
180
Net profit
Stock, debtors, current liabilities (net)
000
300
150
150
75
225
Balances at 31 December
1999
2000
000
000
40
50
What figure would appear in the cash flow statement of CFS Ltd for the year ended
December 2000 in respect of net cash flow from operating activities?
FAFN
31
May 2001
125.
145.
215.
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

tax and employees national insurance for March 2001
employers national insurance for March 2001
14,000
5,000
1,400
He owes the following amounts in respect of tax and national insurance for April 2001:
tax and employees national insurance

employers national insurance
6,000
1,500
The correct expense for employee costs to be shown in the profit and loss account for April 2001
is
A
19,000.
20,000.
20,400.
21,500.
1.21 The following information relates to M Ltd:

At 30 September
Stock of raw materials
Work-in-progress stock
Stock of finished goods
2000
000
75
60
100
For the year ended 30 September 2000

Purchases of raw materials
Manufacturing wages
Factory overheads
150,000
50,000
40,000
1999
000
45
70
90
The prime cost of production in the manufacturing account for the year ended 30 September
2000 is
A
165,000.
170,000.
210,000.
270,000.
1.22 When valuing stock at cost, which of the following shows the correct method of arriving at
cost?
Include inward
transport costs
Include
production overheads
Yes
No
No
Yes
Yes
Yes
No
No
May 2001
FAFN
1.23 A fixed asset register is

A
an alternative name for the fixed asset ledger account.
a list of the physical fixed assets rather than their financial cost.
a schedule of planned maintenance of fixed assets for use by the plant engineer.
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.
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.
a profit and loss account is prepared on an accruals basis and an income and expenditure
account is prepared on a cash flow basis.
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.
Debtor balances excluding VAT.
Credit limit.
Sales to date.
Total = 50 marks
FAFN
May 2001
SECTION B 30 MARKS
ANSWER BOTH QUESTIONS
Question Two
The trial balance of FRS, a sole proprietor, at 31 July 2000 was as follows:
Capital
Plant and machinery:
Cost
Provision for depreciation to 1 August 1999
Trade debtors
Trade creditors
Stock at 1 August 1999
Cash at bank
Sales
Drawings
Provision for doubtful debts at 1 August 1999
Bank loan repayable 2006
Purchases
Selling and distribution expenses
Administration expenses
Interest
100,000
155,000
50,000
15,000
3,000
10,000
3,400
150,000
35,000
2,000
20,000
40,000
50,000
15,000
1,600
325,000
325,000
The following final adjustments are required:

(i)
Stock at 31 July 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 July 2000.
Required:
(a) Prepare a trading, profit and loss account for the year ended 31 July 2000 and a balance
sheet at that date.
(14 marks)
(b) Calculate the following, as at 31 July 2000:
current ratio;
gearing;
debtor days.
(6 marks)
(Total = 20 marks)
FAFN
10
M2001
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)
M2001
11
FAFN
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 January 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 July 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)
FAFN
12
M2001
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
1,000
Turnover
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
M2001
13
FAFN
Foundation Level
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.
SECTION A 50 MARKS
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE
correct answer.
Question One
1.1
At 30 June 2000, an electricity ledger account had an accrual of $300 and a credit
balance was brought down at 1 July 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 June
2001?
A
$3,700
1.2
The principal duty of an external auditor is
to check that a companys accounts agree with the accounting records.
to ensure that a companys systems and controls are adequate to ensure the reliability of
the accounting records.
to prevent fraud and errors.
to provide a report to the shareholders.
1.3
On 1 June 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?
$1,000 profit and loss account and prepayment of $1,400.
$1,400 profit and loss account and accrual of $1,000.
$1,400 profit and loss account and prepayment of $1,000.
$2,400 profit and loss account and no entry in the balance sheet.
1.4
An imprest system
records the use of a companys seal.
helps to reconcile the cash book with the bank statement.
helps to control petty cash.
is part of computerised accounting.
FAFN
$3,900
$4,000
$4,100
November 2001
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
1.6
A "true and fair view" occurs when
financial statements are presented in accordance with prescribed formats.
assets and liabilities are recorded at current values.
financial statements have been audited.
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.
$3,000
$5,000
$8,000
What is the profit or loss on disposal of the machine?

A
Loss $13,000
Profit $7,000
Profit $10,000
Profit $13,000
November 2001
FAFN
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
$
9,200
Furniture
Supplier
1.9
CR
$
9,200
Furniture
VAT
Supplier
8,000
Furniture
VAT
Supplier
8,000
1,200
Furniture
Supplier
8,000
1,200
6,800
9,200
8,000
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.
$19,000.
$20,500.
$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.
A cheque from a customer had been credited to the purchase ledger account of the
customer.
Goods returned inwards had been debited to the sales ledger account of the customer.
The depreciation charge on machinery had been credited to the cost of machinery
account.
FAFN
November 2001
1.11 The current liabilities of CFS Ltd include the following:

2001
$30,000
Dividends payable
2000
$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
$27,000
$28,000
$32,000
1.12 S is employed by T Ltd. His pay details for January and February are as follows:
January:
February:
Gross salary $2,000

Gross salary $2,200
Tax $500
Tax $550
National insurance $100

National insurance $110
Net pay $1,400

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
$2,060
$2,140
$2,200
1.13 The following is an extract from the balance sheets of FRC plc for the years ended
31 July 2001 and 31 July 2000:
Stock
Debtors
Creditors
Accruals
2001
$000
50
60
35
5
2000
$000
80
50
30
20
What figure would appear in the cash flow statement of FRC plc for the year ended 31 July 2001
as part of the cash flow from operations?
A
$25,000 outflow
$10,000 outflow
$10,000 inflow
$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.
The working papers of an auditor.
The pursuit of a fraud by an auditor.
The trail of a transaction from source document to financial statement.
November 2001
FAFN
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
$14,850
$15,525
$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.
The company mistakenly paid too much.
The book-keeper failed to enter a contra with the sales ledger.
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
LIFO
FIFO
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.
The objective is to provide support to the external auditor.
The objective is to detect fraud and error.
The objective is to audit the financial statements.
FAFN
November 2001
1.19 The following information at 5 January 2001 relates to a club, which has a year end of
31 December 2000:
$
Subscriptions for 1999 unpaid at January 2000
300
Subscriptions for 1999 paid during the year ended 31 December 2000
250
6,000
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
$6,750
$7,050
$7,250
1.20 Who has the responsibility for ensuring that a company maintains proper accounting
records?
A
The shareholders.
The auditors.
The directors.
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
ROCE = NPM + AT
ROCE = NPM x AT
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:
Bank
Share capital
Share premium
DR
$
180,000
150,000
30,000
Bank
Share premium
180,000
Bank
Share capital
180,000
Bank
Share premium
Share capital
150,000
November 2001
CR
$
180,000
180,000
30,000
120,000
FAFN
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
$118,000
$125,000
$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
$800
$5,500
$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
$3,525
$5,700
$11,525
(Total = 50 marks)
FAFN
November 2001
SECTION B 30 MARKS
ANSWER BOTH QUESTIONS
Question Two
The balances extracted from the nominal ledger of RHG Ltd for the year ended 31 July 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
90,000
Depreciation charge on factory machinery
35,000
Depreciation charge on office machinery
15,000
Factory overheads
35,000
Advertising
18,000
Sales
450,000
Factory machinery
400,000
Office machinery
200,000
Provision for depreciation on factory machinery at 31 July 2001
90,000
Provision for depreciation on office machinery at 31 July 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 July 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 July
2001 and a balance sheet at that date.
(14 marks)
November 2001
FAFN
(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 June 2001.
Balance in the cash book (Cr)
Bankings in the cash book, not on the bank statement
Bank charges on the bank statement, not in the cash book
Unpresented cheques less than six months old
Unpresented cheque more than six months old, to be cancelled
Standing order from a customer on the bank statement, not in the cash
book
$
2,250
5,300
450
7,500
800
3,600
Required:
(a) Calculate the balance on the bank statement at 30 June 2001.
(5 marks)
The following information relates to D Ltd for the month of July 2001.
$
18,300
150,500
12,100
130,400
6,500
2,700
Sales ledger balances at 1 July

Sales day book
Bad debts written off
Cheques received from debtors
Set off against purchase ledger
Cheques dishonoured
Required:
(b) Prepare a sales ledger control account for July 2001, carrying down the balance at 31 July
2001.
(5 marks)
(Total = 10 marks)
FAFN
10
November 2001
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
November 2001
11
FAFN
Examination
Question and
Answer Book
Write here your full examination number
Centre Code:
Hall Code:
Desk Number:
Foundation Level
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
Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question
Four
SECTION A 50 MARKS
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.
Question One
1.1
An imprest system is
accounting computer software.
an audit process.
automatic agreement of the cash book and bank statement.
a method of controlling petty cash.
1.2
Which ONE of the following is correct?
All limited companies are required by law to have an external audit.
Only public limited companies are required by law to have an external audit.
Only limited companies above a certain size are required by law to have an external audit.
An external audit for a limited company is voluntary.
Total
For office use only
1.1
1.2
Marks awarded (First marker) for each sub-question

Marks awarded (Second marker) for each sub-question
FAFN
May 2002
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?
$3,300
$3,900
$4,100
$4,700
Space for workings to 1.3
1.4
The responsibility for internal control rests with
the internal auditors.
the external auditors.
the shareholders.
the directors.
1.5
The annual insurance premium for S Ltd for the period 1 July 2001 to 30 June 2002 is $13,200, which
is 10% more than the previous year. Insurance premiums are paid on 1 July.
What is the profit and loss account charge for insurance for the year ended 31 December 2001?
$11,800
$12,540
$12,600
$13,200
TURN OVER
Total
For office use only
1.3
1.4
1.5

May 2002
FAFN
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
Credit $1,150
Credit $1,250
Credit $1,500
1.7
Which ONE of the following expenses should be included in prime cost in a manufacturing account?
Repairs to factory machinery.
Direct production wages.
Office salaries.
Factory insurance.
Total
For office use only
1.6
1.7

FAFN
May 2002
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
$19,000
$25,000
$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?
$950
$1,000
$1,050
$1,100
TURN OVER
For office use only
May 2002
Total
1.8
1.9
FAFN
1.10 A value for money audit is

A
an external audit with limited scope.
a review of expenditure to ensure effectiveness, efficiency and economy.
a voluntary audit by an unregistered auditor.
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.
A fixed assets register enables depreciation charges to be posted to the nominal ledger.
A fixed assets register agrees with the fixed asset nominal ledger account.
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
$7,500
$29,000
$30,000
For office use only

FAFN
Total
1.10
1.11
1.12
May 2002
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
$2,000 receivable
$1,800 payable
$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.
There can only be one true and fair view of a company's financial statements.
True and fair means the financial statements are accurate.
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
$8,900
$9,100
$9,900
TURN OVER
For office use only
May 2002
Total
1.13
1.14
1.15
FAFN
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.
the total gross salaries.
the total net salaries.
the total net salaries plus employer's national insurance contributions.
1.17 The segregation of duties is

A
delegation of duties by a manager.
two staff sharing one job.
a feature of internal control.
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%
10%
14%
24%
1.19 Which of the following are used in a coding system for accounting transactions?
A
Department code.
Nominal ledger code.
Product code.
All of the above.
For office use only

FAFN
Total
1.16
1.17
1.18
May 2002
1.19
1.20 APM Ltd provides the following note to fixed assets in its balance sheet.
Plant and machinery
Cost
$000
25
15
(10)
30
Opening balance
Additions/charge
Disposals
Closing balance
Depreciation
$000
12
4
(8)
8
Net book value

$000
13
11
(2)
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
$11,000
$13,000
$15,000
1.21 Which of the following errors will cause the trial balance totals to be unequal?
A
Errors of transposition.
Errors of omission.
Errors of principle.
All of the above.
TURN OVER
For office use only
May 2002
Total
1.20
1.21
FAFN
1.22 Which ONE of the following is a record of prime entry?

A
The nominal ledger.
The sales ledger.
The trial balance.
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
$81,000
$81,100
$86,100
1.24 Which of the following is NOT helpful in detecting an error?

A
A bank reconciliation.
A sales ledger control account.
An imprest system.
A suspense account.
For office use only

FAFN
10
Total
1.22
1.23
1.24
May 2002
1.25 Which ONE of the following is an appropriation by a limited company?

A
Directors' salaries.
Dividends.
Donation to a charity.
Loan interest.
(Total = 50 Marks)
End of Section A
Section B begins on page 12
TURN OVER
For office use only
Marks awarded (First marker) for the sub-question
Marks awarded (Second marker) for the sub-question
May 2002
11
Total
1.25
FAFN
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
Buildings at cost
$000
250
Provision for depreciation on buildings
70
Equipment at cost
200
Provision for depreciation on equipment
50
Patent at valuation
150
Stock at 1 January 2001
60
Debtors/creditors
100
Provision for doubtful debts at 1 January 2001
25
5
Bank
30
Sales
800
Purchases
250
10% Debentures
100
Debenture interest paid
Interim dividend
10
Directors' remuneration
40
130
160
Ordinary shares of 50 cents each
200
Profit and loss account reserve
50
General reserve
25
1,355
FAFN
12
1,355
May 2002
Schedule of adjustments:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Stock at 31 December 2001 was valued at $70,000.

Accruals:
Administration expenses $30,000.
Prepayments: Selling and distribution expenses $20,000.
The 10% Debenture was issued in 1999, redeemable 2006.
The provision for doubtful debts is to be increased to 8% of debtors.
The buildings are revalued at $300,000 and this revised value is to be included in the accounts.
Depreciation:
Buildings: 2% of revised value
Equipment: 20% of net book value at the year end.
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.
The directors declare a final dividend of 5 cents per share.
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.
Do not write in these

columns below
Marks
available
QME plc
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
1
Gross profit
Doubtful debts
Depreciation charge
Directors remuneration
Operating profit
Debenture interest
Profit before tax

Taxation
Profit after tax
1
Dividend
Transfer to general reserve
Retained profit
The Balance Sheet is overleaf

TURN OVER
May 2002
13
FAFN
Space for workings and/or notes for Question Two
QME plc Balance Sheet at 31 December 2001
Fixed assets
$000
Cost or
valuation
$000
Marks
available
For use
by the
second
marker
For use
by the
first
marker
$000
Depreciation
Current assets
Current liabilities
Capital and Reserves
2
Sub-total:
12
FAFN
14
May 2002
(b)
The accountant at QME plc is preparing a report to the directors on the financial statements. The
report will include key ratios.

columns below
Required:
Complete the missing words below (in the shaded boxes):
Marks
available
Stock days =
x 365
Debtor days =
x 365
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
Subtotal: 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
(ii) the going concern concept was not applied? (Use no more than
30 words, in the shaded area below)
Marks
available
Question Two Total = 20 Marks
Section B continues overleaf

TURN OVER
May 2002
15
FAFN
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:

he considered the following debts doubtful:
A Ltd
$1,000
B Ltd
$1,500
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
in his opinion the following debts were bad:
$30,000
he considered the following debts doubtful:

the following had paid their debts in full:
X Ltd
$1,250
L Ltd
$1,200
Y Ltd
$1,750
P Ltd
$900
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.
Schedule of bad and doubtful debts

28/2/
2001
$
$
$
Debtors
25,000
Please do not write in

these columns below
Marks
available
For use
by the
second
marker
For use
by the
first
marker
28/2/
2002
$
30,000
Specific provision for doubtful

debts
Debtors after bad debts and

specific provision
General provision for
doubtful debts
1
SubTotal: 4
Total doubtful debts
The bookkeeper will enter the information from the accountants schedule into the ledger accounts.
FAFN
16
May 2002
(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.

these columns below
Marks
available
Bad debts account

$
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
Marks
available
Provision for doubtful debts account

$
3
Subtotal: 6
Question Three Total = 10 Marks

Space for workings and/or notes for Question Three
Section B continues overleaf

TURN OVER
May 2002
17
FAFN
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.
these columns below
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
(ii) Liability
(iii) Capital receipt
(iv) Capital expenditure
2
Subtotal: 8
Part (b) of Question Four is on page 19

FAFN
18
May 2002

columns below
Required
Marks
available
(b)
For use
by the
second
marker
For
use by
the first
marker
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
(ii) Liability
(iii) Capital receipt
(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
May 2002
19
FAFN
You may use this sheet for workings

(no marks are awarded for workings)
FAFN
20
May 2002

May 2002
21
FAFN

FAFN
22
May 2002
DO NOT WRITE ON THIS SHEET
May 2002
23
FAFN
FAFN
Day 3 morning
FAFN
24
May 2002
Examination
Question and
Answer Book
Centre Code:
Hall Code:
Desk Number:
Foundation Level
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
answer.
REQUIRED:
Question One
1.1
Which ONE of the following best describes the stewardship function?
Ensuring high profits.
Managing cash.
Ensuring the recording, controlling and safeguarding of assets.
Ensuring high dividends to shareholders.
1.2
External auditors are primarily responsible for
writing a report to the shareholders expressing an opinion on the financial

statements.
preparing the financial statements.
detecting errors and fraud.
ensuring that the accounts show a true and fair view.
FAFN
November 2002
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
$22,400
$29,600
$30,400
$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
overdrawn $2,300
overdrawn $2,900
overdrawn $3,500
November 2002
FAFN
1.5
The role of the internal auditors is best described as
auditing the financial accounts.
supporting the work of the external auditors.
reporting to management on the accounting systems.
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
$
$
5,000
24,000
A
B
22,000
23,000
25,000
21,000
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
it proves the arithmetical accuracy of the ledgers.
it provides a summary of the financial statements.
it proves the individual ledger accounts are correct.
it reveals how errors have been made.
FAFN
November 2002
1.8
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.
The effect of this error would be
a petty cash balance of $705.
petrol expenses overstated by $45.
an imbalance on the trial balance.
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?
The accounts are approved by the shareholders.
The accounts are set out in the correct format.
The accounts conform to accounting concepts and conventions.
The accounts comply with generally accepted accounting practice.
November 2002
FAFN
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
$15,000
$20,000
$25,000
$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
$1,000
$1,400
$1,600
FAFN
November 2002
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
$50,000
$58,000
$62,000
$70,000
1.13
Financial controls are primarily needed to
minimise the risk of fraud and error.
comply with legal requirements.
improve the efficiency of the business.
reduce the expense of the external auditors.
November 2002
FAFN
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
instruct the cashier to pay cheques in more promptly?
disregard, because all cheques have been accounted for?
ask customers to pay more promptly?
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
285,000
293,000
296,000
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?
Easy to change the code number.
Each code is a unique number.
A combination of letters and digits to ensure input accuracy.
Linked to assets, liabilities, income, expenditure and capital.
FAFN
November 2002
1.17
Which of the following functions would most benefit from segregated duties of staff?
Separate staff to maintain the sales and purchase ledgers.
Separate staff to maintain the personal and nominal ledger accounts.
Separate staff to deal with the bank reconciliation and the cash book.
Separate staff to deal with the trial balance and the preparation of accounts.
1.18
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
Day 10
Day 14
Sold 15 items for $500 each

Bought 8 items for $600 each
Sold 12 items for $700 each
Using the FIFO method of stock valuation, the closing stock at the end of Period 6 was
A
$500
$550
$600
$700
November 2002
FAFN
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
Turnover
Opening stock
Purchases
Closing stock
Cost of sales
Gross profit
Operating expenses
Operating profit
$000
5,000
200
3,100
(300)
(3,000)
2,000
(500)
1,500
Balance sheet at 30 November 2002

$000
Fixed assets
Current assets
Stock
Debtors
Bank
$000
3,000
300
900
50
1,250
Current liabilities
Trade creditors
(250)
Share capital
1,000
4,000
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

FAFN
10
November 2002
1.19
The return on capital employed in SPA plc is
750%
375%
500%
1000%
1.20
The fixed asset turnover ratio in SPA plc is
1 : 167
125 : 1
25 : 1
167 : 1
1.21
The quick ratio (acid test ratio) in SPA plc is
24 : 1
38 : 1
48 : 1
51 : 1
November 2002
11
FAFN
1.22
A
B
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
$
$
Bank
6,500
Sundry debtor
6,500
Bank
6,500
Sundry debtor
Disposal of fixed assets account
6,000
500
Bank
500
Disposal of fixed assets account
500
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
Cr $900
Cr $2,100
Cr $3,700
Dr $2,100
FAFN
12
November 2002
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
Factory overheads
72,000
The closing work-in-progress was
350,000
The factory cost of goods completed during the year was
$538,000
$610,000
$682,000
$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
Dr 9,000
Cr 5,850
Cr 9,000
none of these.
(Total = 50 Marks)
November 2002
13
FAFN
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
Accrual vehicle expenses
(16,000)
(1,000)
(17,000)
17,000
Net current assets
92,000
Long-term liabilities
Loan 10%
(10,000)
82,000
Capital
FAFN
82,000
14
November 2002
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
creditors were
stock was
$
21,000
18,000
10,000
after excluding bad debts of $2,000
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

November 2002
15
FAFN
Question Two continued

columns below
Required:
Marks
available
For use
by the
first
marker
For use
by the
second
marker
(a) 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
$
$
2
Sales
Opening stock
12,000
Purchases
Closing stock
10,000
Cost of goods sold

Gross profit
Discount received
Less: Expenses
Wages
15,000
Vehicle expenses
General expenses
Advertising
Loan interest
/2
/2
/2
/2
Depreciation
1 /2
Charge for doubtful debts
Bad debt
Loss on sale of vehicle
/2
/2
Profit for the year

Sub-total:
1
10 /2
Space for workings to Question Two
FAFN
16
November 2002
S Balance sheet at 31 July 2002

$
Marks
available
Fixed assets
(net book value)
Vehicles
For use
by the
first
marker
For use
by the
second
marker
Machinery
/2
Current assets
Stock
Debtors
10,000
21,000
1
Provision
Prepayment
/2
1
Bank
Current liabilities
Trade creditors
18,000
Accrual
/2
Net current assets

Long-term liabilities
Loan 10%
(10,000)
Capital
Capital at 1 August 2001
Profit for the year ended
31 July 2002
Drawings
82,000
1
1
Capital at 31 July 2002

Sub-total:
61/2
(b) 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.
(Maximum of 30 words)
Total Marks for Question Two =
20
November 2002
17
FAFN
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
$000
Fixed assets (see note)

Current assets
Stock
Debtors
Bank and cash
2001
$000
$000
980
700
$000
70
65
175
215
50
65
295
345
(100)
(85)
(20)
(5)
(10)
(65)
(60)
Current liabilities
Trade creditors
Fixed asset creditor
Accrued interest
Dividends
(190)
Net current assets
(155)
105
190
1,085
890
Long-term liability
Loan
(200)
(250)
885
640
Share capital
700
600
100
85
40
640
885
Note: M plc purchased fixed assets for $550,000 during the year ended 30 June 2002.
FAFN
18
November 2002

these columns below
Required:
Marks
available
For use
by the
first
marker
For use
by the
second
marker
(a) 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
/2
/2
/2
/2
/2
/2
/2
Adjustments for non-cash items
Adjustments for working capital
Cash from operations

Interest
Purchase of fixed assets
Sale of fixed assets
Dividends
/2
Share capital
/2
Loan
/2
Movement in cash
Subtotal: 7
(b) What do you, as the independent accountant, consider is the main

reason for the decrease in the cash balance? (Maximum of 30
words)
3
Total Marks for Question Three =
10
November 2002
19
FAFN
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.

these columns below
Required:
(Maximum of 30 words for each explanation)
(i)
Marks
available
For use
by the
first
marker
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by the
second
marker
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"
FAFN
20
November 2002
Question Four continued

columns below
Required:
(Maximum of 30 words for each explanation)
(vi)
Marks
available
For use
by the
first
marker
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by the
second
marker
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"
Total Marks for Question Four =
3
20
November 2002
21
FAFN
Examination
Question and
Answer Book
Centre Code:
Hall Code:
Desk Number:
Foundation Level
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.
SECTION A 50 MARKS
answer.
REQUIRED:
Question One
columns below
1.1
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.
For use
by the
first
marker
For use
by the
second
marker
The effect of these errors is an

A
overstatement of net profit of $1,000
overstatement of net profit of $2,000
understatement of net profit of $1,000
understatement of net profit of $2,000
FAFN
May 2003

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
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
$
12,350
The firms cash book shows a debit balance of

The following information is available:
Bank charges not entered in the cash book
Unpresented cheques
Direct debit payment on the bank statement not entered in the
cash book
Sales receipts banked, but not credited by the bank
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
170
4,600
230
9,400
110
What should be stated as the bank balance in the companys balance sheet at
31 March 2003?
A
$11,840
$12,060
$12,860
$16,640
1.3
Which ONE of the following is true?
External auditors normally check all purchase invoices.
External auditors should prepare the accounts.
External auditors must follow the audit procedures prepared by the internal
auditors.
External auditors check the internal control system.
May 2003
FAFN

columns below
1.4
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
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
Which ONE of the following ledger entries should be made in A Ltds books at
31 March 2003?
Debit
NIL
Credit
Gas expense
Accruals
NIL
Gas expense
$1,400
Accruals
$1,400
Accruals
$1,400
Gas expense
$1,400
Gas expense
$2,100
Accruals
$2,100
1.5
The following information related to Q plc for the year ended 28 February 2003:
$
122,000
185,000
40,000
300,000
Prime cost
Factory overheads
Opening work-in-progress at 1 March 2002
Factory cost of goods completed
The closing work-in-progress at 28 February 2003 was
A
$33,000
$40,000
$47,000
$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:
Debit
Advertising expense
$
4,000
Credit
Creditors
$
4,000
Advertising expense
4,700
Creditors
4,700
Advertising expense
4,700
Creditors
VAT account
4,000
700
Advertising expense
4,000
Creditors
VAT account
4,700
700
FAFN
May 2003

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
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by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
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.
Profit would be overstated and fixed assets would be overstated.
Profit would be understated and capital would be overstated.
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.
The charge to H Ltds profit and loss account for rates for the year ended 30
June 2002 is
$1,650
$1,700
$1,850
$1,900
1.9
The return on capital employed for S plc is 24% and the net asset turnover ratio
is 3 times.
What is the net profit margin?

A
8%
28%
72%
It cannot be calculated.
May 2003
FAFN
1.10
Which ONE of the following would NOT help detect errors in a computerised
accounting system?
The use of coding systems.
The use of batch processing.
The use of passwords.
The use of control accounts.
1.11
The total cost of salaries charged to a limited companys profit and loss account
is
cash paid to employees.
net pay earned by employees.
gross pay earned by employees.
gross pay earned by employees, plus employers national insurance

contributions.
1.12
Which ONE of the following statements is TRUE?
Internal auditors report to the directors.
External auditors report to the directors.
Internal auditors are employed by the shareholders.
External auditors are employees of a company.
FAFN
For use
by the
first
marker
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by the
second
marker
For use
by the
first
marker
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by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
May 2003
1.13
The following is the aged debtors analysis for J Ltd at 30 April 2003:
Age of debt
Amount ($)
Less than 1
month
12,000
1-2 months
2-3 months
24,000
8,000
Over 3
months
6,000
10%
30%
For use
by the
first
marker
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by the
second
marker
For use
by the
first
marker
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by the
second
marker
The company provides for doubtful debts as follows:

Provision
0%
1%
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:

$40 credit
Balance sheet
$47,160
$40 debit
$47,160
$2,840 debit
$50,000
$2,840 credit
$47,160
1.14
The following information relates to companies Q plc and R plc, who are
competitors selling widgets:
Q plc
30%
4
Gross profit percentage

Fixed asset turnover ratio
R plc
25%
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.
(i) and (ii) only.
(i), (ii) and (iii) only.
(i), (ii), (iii) and (iv).
May 2003
FAFN
1.15
The prime cost of goods manufactured is the total of
raw materials consumed.
raw materials consumed and direct wages.
raw materials consumed, direct wages and direct expenses.
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:
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.
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
The balance on the suppliers account at the end of May 2003 is

A
$1,015
$1,100
$1,185
$1,300
1.17
The main advantage of using a sales ledger control account is that
double entry book-keeping is not necessary.
it helps in detecting errors.
it helps with credit control.
it ensures that the trial balance will always balance.
FAFN
May 2003

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
For use
by the
first
marker
For use
by the
second
marker
$000
28,000
26,000
3,000
1,000
5,000
2,000
4,000
8,000
6,000
Retained profit for the year

Net cash inflow from operating activities
Dividend paid
Profit on sale of fixed assets
Proceeds on sale of fixed assets
Taxation paid
Interest paid
Payments for fixed assets
Issue of debentures
The cash flow statement will show
A
a decrease in cash of $13,000.
an increase in cash of $14,000.
1.19
Which of the following is an appropriation of profit in a limited company?
Interest paid.
Dividend paid.
Directors remuneration.
Retained profit.
May 2003
FAFN
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.
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by the
first
marker
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by the
second
marker
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by the
first
marker
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by the
second
marker
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
$260
$315
$375
1.21
An audit trail in a computerised accounting system is
information regarding all transactions in a period.
a history of all transactions on a ledger account.
a list of all transactions checked by the internal auditor.
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:
Issued Ordinary shares of $1

Debenture
Profit before interest for the year ended 31 January 2003
$000
200
50
25
80
60
What is the return on total capital employed?

A
17%
22%
24%
30%
FAFN
10
May 2003

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:
2002
$000
100
150
125
60
Stock
Debtors
Trade creditors
Other creditors
For use
by the
first
marker
For use
by the
second
marker
For use
by the
first
marker
For use
by the
second
marker
2001
$000
140
130
115
75
What figure should appear as part of the cash flow statement for the year
ended 31 December 2002?
A
$25,000 outflow
$15,000 outflow
$15,000 inflow
$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
company law.
accounting standards.
generally accepted accounting principles.
all of the above.
May 2003
11
FAFN
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
$25,312
$29,531
$33,750
For Marking Purposes Only Total Marks for Question One
(Total = 50 Marks)
End of Section A
FAFN
12
May 2003
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
Shop sales
Deposits for golfing holiday
$
42,400
10,000
600
53,000
Payments
Wages
Shop supplies
Ground maintenance
Rent
Lawnmower
Repairs
35,000
7,500
6,000
1,400
900
1,200
52,000
1,000
Receipts less payments

Balance at bank 1 April 2002
Balance at bank 31 March 2003
4,300
5,300
The treasurer has provided you with the following additional information:
(i)
The subscriptions are as follows:

Annual subscriptions received
Joining fees
Subscriptions received in advance for year ended 31 March 2004
Total
$
38,500
1,500
2,400
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.
May 2003
13
FAFN
(iii)
Other assets and liabilities of the club were estimated as follows:

31 March
2002
$
500
750
200
1,800
9,000
Employees tax owing

Creditor for shop supplies
Rent paid in advance
Stock of shop supplies
Equipment at valuation
31 March
2003
$
400
1,000
300
1,500
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
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marker
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second
marker
WV Golf Club Shop Trading Account year ended 31 March 2003

$
$
Shop gross profit

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:
FAFN
14
May 2003

columns below
WV Golf Club Balance Sheet year at 31 March 2003
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marker
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marker
Fixed assets
Equipment
/2
Current assets
11/2
Current liabilities
Net current assets
Accumulated funds
Sub-total:
4
8
(b) (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.
Sub-total:
Question Two Total Marks =

May 2003
20
15
FAFN
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
Annual road tax
$
10,780
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.
FAFN
16
May 2003
Required:
Prepare the journal entries for the transactions opposite by completing the
shaded areas of the schedule below.

columns below
You are NOT required to write a narrative for each journal.

Dr
Cr
Marks
available
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marker
Journal (i)
2
Journal (ii)
2
Journal (iii)
2
Journal (iv)
2
Journal (v)
Total:
2
10
May 2003
17
FAFN
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:
Marks
available
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marker
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by the
second
marker
(a) 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.
(b)
Explain (in the shaded area below) the objective of financial

statements.
(c) Describe (in the shaded area below) the characteristics of useful
information.
Sub-total:
FAFN
3
9
18
May 2003
Required:
Marks
available
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by the
first
marker
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by the
second
marker
(d) Explain (in the shaded areas below) the following accounting
(i)
concepts:
business entity
3
(ii)
money measurement
(iii)
cost
3
(iv)
realisation
2
sub-total:
11
Total:
20
May 2003
19
FAFN
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
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
answer.
REQUIRED:
Place a circle "O" around the letter A, B, C or D that gives the correct answer to each sub-question.
Question One
columns below
1.1
A business is normally said to have earned revenue when
cash has been received.
a customer is legally obliged to pay for goods delivered or services rendered.
an order has been placed.
goods have been manufactured and placed in stock.
FAFN
For use
by the
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marker
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by the
second
marker
November 2003

columns below
1.2
The following information relates to C Limited at 30 June 2003:
Balance per cash book credit balance

Unpresented cheques
Bank charges not entered in the cash book
Receipts not yet credited by the bank
Dishonoured cheques not yet recorded in the cash book
For use
by the
first
marker
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second
marker
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first
marker
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marker
$
4,300
1,500
300
2,600
500
What would be the balance shown on the bank statement at 30 June 2003?
A
Overdraft $6,200
Overdraft $5,100
Overdraft $4,000
Favourable $2,400
1.3
The following information relates to NBV Limited for the year ended
31 July 2003.
$000
160
200
360
80
30
450
75
55
Direct materials
Direct labour
Prime cost
Carriage outwards
Depreciation of delivery vehicles
Factory indirect overheads
Increase in work-in-progress stock
Decrease in stock of finished goods
What should be the factory cost of goods completed for the year ended 31 July 2003?
A
$735,000
$845,000
$885,000
$1,095,000
November 2003
FAFN

columns below
1.4
Which of the following tests carried out by an external auditor is a compliance

test?
Confirming authorisation of a reconciliation of the sales ledger control account.
Checking unpresented cheques in a bank reconciliation.
Checking a purchase invoice with the purchase day book.
Inspecting physical existence of fixed assets.
1.5
The following information relates to CFS plc:
Machinery
Cost at 1 January 2002
Additions
Disposal
Cost at 31 December 2002
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marker
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second
marker
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marker
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marker
$000
80
20
(10)
90
Provision for depreciation at 1 January 2002

Depreciation charge
Disposal
Provision for depreciation at 31 December 2002
15
8
(6)
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
Add back $3,000
Add back $5,000
Add back $11,000
FAFN
November 2003

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.
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second
marker
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by the
first
marker
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second
marker
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marker
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second
marker
What should be the charge for gas in the profit and loss account for Quarter 3?
A
$1,900
$2,400
$2,700
$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
going concern.
materiality.
money measurement.
prudence.
1.8
Internal auditors report to
the management.
the shareholders.
the external auditors.
the government.
November 2003
FAFN

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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marker
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marker
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marker
Which of the following ledger entries should be made in A Limiteds accounts?

A
Rent expense
$2,000
Prepayment
$400
Rent expense
$2,050
Prepayment
$200
Rent expense
$2,050
Accrual
$200
Rent expense
$2,100
Prepayment/accrual
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.
Nil
What should be the profit or loss on disposal in the year ended 30 November 2002?
A
Loss $500
Loss $3,500
Loss $9,500
Profit $500
FAFN
November 2003

columns below
1.11
The following information is an extract from the balance sheets of DCF plc:
Stock
Trade debtors
Bank
Trade creditors
31 August 2003
$000
20
16
12
48
31 August 2002
$000
14
18
10
42
(14)
34
(17)
25
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marker
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marker
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marker
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
Deduct $2,000
Deduct $7,000
Add back $1,000
1.12
Which of the following entries would NOT affect the agreement of the totals in
the trial balance?
(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.
(i) only
(i) and (ii) only
(i), (ii) and (iii) only
All of them.
November 2003
FAFN

columns below
1.13
Which ONE of the following is NOT an intangible fixed asset?
Goodwill
Trademark
Investment
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.
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marker
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marker
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by the
first
marker
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marker
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marker
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marker
What should be the annual depreciation charge for the years ended 31 December
2002 and 2003?
A
$4,800
$5,500
$6,600
$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.
What is the bank balance?

A
Credit $4,000
Credit $2,000
Debit $2,000
Debit $4,000
FAFN
November 2003

columns below
1.16
Which of the following does NOT prevent fraud and errors?
Authorisation procedures
Organisation of staff
Suspense accounts
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.
Joining fees
Annual fees
Life membership fees
2001
$
8,000
5,000
4,000
17,000
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marker
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second
marker
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marker
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second
marker
2002
$
10,000
7,000
6,000
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
$11,500
$12,500
$23,000
November 2003
FAFN

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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marker
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marker
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marker
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marker
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marker
What should be the final dividend received by X?

A
$25
$50
$150
$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.
X1
X2
X3
First In/
First Out
$000
10
15
12
37
Net realisable
value
$000
20
11
14
45
Replacement
cost
$000
30
8
13
51
At what value should the stock be stated in the statutory financial statements?
A
$33,000
$37,000
$45,000
$51,000
1.20
The job descriptions of staff in the credit control department are normally
segregated because
lower salaries can be paid.
work is completed more efficiently.
control is facilitated.
staff are less likely to become bored.
FAFN
10
November 2003

columns below
1.21
The style of management accounts within an enterprise is determined by
company law.
company law and accounting standards.
the shareholders.
the directors.
1.22
Which of the following is the best description of current purchasing power

accounting?
A method of accounting which considers the effects of changing price levels by

reference to the retail price index.
A method of adjusting historical cost accounts for the effects of changing price
levels by using indices specific to the enterprise.
A method of accounting which uses market values.
A method of accounting which uses economic values (value in use).
1.23
The following information relates to P Ltd at 30 September:
Stock of raw materials

Work-in-progress stock
Stock of finished goods
2003
$000
60
50
20
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marker
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marker
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first
marker
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marker
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marker
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second
marker
2002
$000
40
85
28
For the year ended 30 September 2003:

Manufacturing wages
Factory overheads
$000
710
42
360
The prime cost of production in the manufacturing account for the year ended
30 September 2003 is
A
$690,000
$732,000
$1,092,000
$1,135,000
November 2003
11
FAFN

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
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marker
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marker
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marker
3,000
450
300
250
210
180
20
Gross salary
Tax deducted
Employers national insurance
Employees national insurance
Employers contribution to pension fund
Employees contribution to pension fund
Voluntary deduction for payment to charity
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
2,100
3,510
700
2,300
3,000
1,000
1,590
3,510
1,410
2,100
1.25
Balance on payroll control

account
1,410
Net pay
2,100
Which of the following are normally produced in the month-end routine of a

computerised accounting system?
(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
(i) only
(i) and (ii) only
(i), (ii) and (iii) only
All of them.
(Total = 50 Marks)
End of Section A
FAFN
12
November 2003
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.
Advertising
Bank
Bank loan
Bank interest
Capital at 1 September 2002
Capital introduced
Carriage outwards
Computing expenses
Creditors
Debtors
Discount received
Drawings
Fixtures at cost
Power
Provision for depreciation on fixtures at 1 September 2002
Provision for doubtful debts at 1 September 2002
Purchases
Rent
Salaries
Sales
Stock at 1 September 2002
Dr
$
8,000
2,000
Cr
$
20,000
2,000
20,000
5,000
12,000
10,000
20,000
30,000
3,000
33,000
60,000
3,000
15,000
1,000
240,000
7,000
36,000
383,000
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.
November 2003
13
FAFN

columns below
Required: (a)
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available
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marker
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marker
(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.
Dr
Cr
Ledger account
$
$
(i)
1
(ii)
(iii)
(iv)
(v)
1
sub-total:
FAFN
14
November 2003
Required: (a)
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available
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marker
(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
2
/2
Less: Expenses
1
/2
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
Net profit
sub-total:
November 2003
15
FAFN

columns below
Marks
available
Fixed Asset
VA Balance Sheet at 31 August 2003

$
$
Provision for
Cost
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marker
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second
marker
depreciation
1
Current Assets
/2
/2
/2
1
/2
1
/2
1
Current Liabilities
1
/2
Net Current Assets

Long-term Liability
/2
Capital at 1 September 2002

1
/2
/2
1
/2
1
Capital at 31 August 2003

Sub-total:
(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:
FAFN
16
November 2003
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.
$
20,000
200,000
175,000
4,000
5,000
7,000
500
3,000
600
Sales ledger control account balance at 1 October 2003

Credit sales
Cheques received from customers
Discounts allowed
Returns inwards
Interest charged on debtors accounts overdue
Contra with the purchase ledger control account
Cheque received relating to a debt which had previously been written off as bad
Total of the balances on personal accounts in the sales ledger at 31 October 2003
Required:
(a)
Prepare the sales ledger control account by entering the description

and the appropriate amount of the debit or credit in the schedule
below.
Sales ledger control account
Dr
Cr
Description
$
$
Marks
available
24,500
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marker
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second
marker
/2
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
/2
1
Sub-total:
(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.
November 2003
17
FAFN

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.
Description
Sales ledger
control
account
$
Original balances at 31 October 2003
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available
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marker
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second
marker
Total of
balances on
personal
accounts in
the sales
ledger
$
24,500
1
1
1
1
1
Revised balances at 31 October 2003

Sub-total:
FAFN
18
November 2003
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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available
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marker
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marker
(a)
(i) 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.
(ii) 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.
(iii) State the key components of a cash flow statement. State why this
information may be useful to users.
(b)
(i) Give two examples of users of financial statements.
November 2003
Sub-total:
14
19
FAFN
Required:
Marks
available
For use
by the
first
marker
For use
by the
second
marker
(ii) 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.
(c) Explain the meaning of the term stewardship.
Sub-total:
3
6
FAFN
20
November 2003

CIMA Financial Accounting Fundamentals Past Papers

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CIMA Financial Accounting Fundamentals Past Papers

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Foundation Level

Financial Accounting Fundamentals

You are allowed three hours to answer this question paper.

The Chartered Institute of Management Accountants 2001

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The fundamental objective of an external audit of a limited company is to

give advice to shareholders.

detect fraud and errors.

measure the performance and financial position of a company.

provide an opinion on the financial statements.

How should A record the cancellation of the cheque in his books?

Credit returns outwards

Debit returns outwards

Opening capital - drawings + capital introduced - closing capital

Closing capital + drawings - capital introduced - opening capital

Opening capital + drawings - capital introduced - closing capital

Closing capital - drawings + capital introduced - opening capital

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Which one of the following should be accounted for as capital expenditure?

The cost of painting a building.

The replacement of windows in a building.

The purchase of a car by a garage for re-sale.

Legal fees incurred on the purchase of a building.

True and fair is determined by compliance with accounting standards.

True and fair is determined by compliance with company law.

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How should S Ltd value the vehicle in its balance sheet?

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the historical cost convention.

the accruals concept.

the consistency concept.

the materiality concept.

Financial accounts are more accurate than management accounts.

Charge for the year

Net book value b/fwd

Net book value c/fwd

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Movement on plant account 500 and profit on disposal of 500.

Movement on plant account 500 and proceeds on sale of plant 2,000.

Purchase of plant 2,000 and profit on disposal of 500.

Purchase of plant 2,000 and proceeds on sale of plant 2,000.

overstating profits and understating balance sheet values.

understating profits and overstating balance sheet values.

understating cash flow and overstating cash in the balance sheet.

overstating cash flow and understating cash in the balance sheet.

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?

List of creditor balances

Stock, debtors, current liabilities (net)

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net salaries after tax and national insurance

tax and employees national insurance

1.21 The following information relates to M Ltd:

For the year ended 30 September 2000

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1.23 A fixed asset register is

an alternative name for the fixed asset ledger account.

Total debtor balances outstanding for current and previous months.

Debtor balances excluding VAT.

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The following final adjustments are required:

Stock at 31 July 2000 was valued at 12,000.