F3 Questions Update For AFD-1

THE PROFESSIONALS’ ACADEMY OF COMMERCE
KHYBER CAMPUS PESHAWAR
Class Test - 1 Marks: 8

AFD, Section –4 (F3) Time: 1 Hr
Student Name Roll No.

Sales tax
Q.1 Which of the following statements is NOT true?
(A) Purchases are debited to the income statement net of sales tax
(B) If input tax exceeds output tax the difference is recoverable from the tax authorities
(C) Sales tax is charged on the selling price net of all discounts
(D) Sales tax is charged on all goods and services (2 marks)
Q.2 During the quarter ended 30 November 20X6, Bruce sells goods for $456,000 exclusive of 17.5% sales
tax and purchases goods for a tax inclusive price of $235,188. How much sales tax (to the nearest $) is
payable by Bruce in respect of the quarter?
(A) $38,642
(B) $44,772
(C) $32,887
(D) $26,757 (2 marks)
Q.3 Chan purchased goods on credit for a net price of $780,000. How should Chan record this transaction,
assuming that he is registered for sales tax at 17.5%?
(A) Dr Purchases $780,000, Dr Sales tax $136,500, Cr Payables $916,500
(B) Dr Purchases $916,500, Cr Payables $780,000, Cr Sales tax $136,500
(C) Dr Purchases $780,000, Cr Sales tax $136,500, Cr Payables $780,000
(D) Dr Purchases $916,000, Dr Sales tax $136,500, Cr Payables $780,000 (2 marks)
Q.4 At the start of January 20X7, Mikhail owed the tax authorities $12,900. On 15Th January, he paid
$11,890 in respect of sales tax. He also recorded the following transactions in the month:
Sales inclusive of sales tax $253,800
Purchases exclusive of sales tax $157,920
What is the balance on Mikhail’s tax account at the end of January 20X7?
(A) $11,174 Cr
(B) $14,626 Dr
(C) $21,905 Cr
(D) $9,154 Dr (2 marks)
Test-1 Answ
1D
2B
3A
4A

AFD, Section –9 (F3) Time: 1 Hr

Bank reconciliations
Q.1 In reconciling a business' cash book with the bank statement, which of the following items could require
a subsequent entry in the cash book?
1. Cheques presented after the date of the bank statement.
2. A cheque from a customer which was dishonoured.
3. An error by the bank.
4. Bank charges.
5. Deposits credited after the date of the bank statement.
6. Standing order payment entered in the bank statement.
(A) 2, 3, 4 and 6 only
(B) 1, 2, 5 and 6 only
(C) 2, 4 and 6 only
(D) 1, 3 and 5 only (2 marks)
Q.2 The following bank reconciliation statement has been prepared for Omega by a junior clerk:
$
Overdraft per bank statement 68,100
Add: Deposits not credited 141,200
209,300
Less: Outstanding cheques 41,800
Overdraft per cash book 167,500
Which of the following should be the correct balance per the cash book?
(A) $167,500 overdrawn as stated
(B) $31,300 overdrawn
(C) $31,300 cash at bank
(D) $114,900 overdrawn (2 marks)
Q.3 Which of the following can be described as an unrecorded difference?

(A) An error made by the bank
(B) An uncleared lodgement
(C) A cheque issued to a supplier but not yet paid in to their bank
(D) A cheque issued by a customer which has been marked ‘return to drawer’ (2 marks)
Q.4 Samuel’s bank statement showed a balance on 30 November of $2,670 Cr. Investigation reveals the
following:
1. The bank has accidentally credited Samuel’s account with a cheque for $230 made payable to
Sammel.
2. A cheque paid to a supplier for $1,000 has not yet appeared on the bank statement.
3. Bank charges for November amounted to $30.
4. A cheque for $70 was entered as a payment in the cash book instead of a receipt.
What was the balance on Samuel’s cash ledger account before any adjustments?
(A) $1,270
(B) $3,330
(C) $1,330
(D) $1,400 (2 marks)
Q.5 Aarti is preparing her bank reconciliation at the end of July. Having adjusted for all unrecorded
differences, the cash book shows a revised balance of $1,889 Cr.
Aarti has also identified that adjustment is required in the bank reconciliation for the following items:
1. The bank has accidentally charged Aarti an overdraft arrangement fee of $50 which relates to
another customer.
2. Aarti received a cheque for $78 from a customer on 31 July and paid it into the bank immediately but
it has not yet appeared on the bank statement.
3. A cheque paid to a supplier for $900 remains unpresented.
What balance was shown on Aarti’s bank statement at 31 July?

(A) $2,661 Cr
(B) $1,117 Dr
(C) $2,661 Dr
(D) $1,117 Cr (2 marks)
Q.6 Lily has received notification from the bank of a direct credit to her bank account. What entry should be
made for this in the bank reconciliation process?
(A) Debit to cash book
(B) Credit to cash book
(C) Increase to balance per bank statement
(D) Decrease to balance per bank statement (2 marks)
Q.7 Felix’s cash at bank account shows a balance on 31 December 20X8 of $15,233.Upon investigation,
Felix finds the following:
(1) A monthly standing order for $250 has not been recorded in the accounts for the past two months.
(2) Cheques received but not yet banked amounted to $487.
(3) A cheque received for $2,200 has been dishonoured by the bank.
(4) The cashier has recorded the $76 replenishment of the imprest amount on the wrong side of the
cash at bank account.
What amount should Felix report for cash at bank in his statement of financial position?
(A) $12,381
(B) $12,371
(C) $12,868
(D) $13,381 (2 marks
Q.8 Ravinder’s bank ledger account shows a balance of $20 Cr. His bank statement shows a balance of $60
Cr on the same date.
Which of the following will explain the difference in full?
(A) An unpresented cheque of $270, an uncleared lodgement of $340 and the misposting of $150
bankings from the till to the wrong side of the ledger account
(B) An unpresented cheque of $270, an uncleared lodgement of $380 and the misposting of $75
bankings from the till to the wrong side of the ledger account
(C) Unpresented cheques of $270, an uncleared lodgement of $340 and the misposting of $75 bankings
from the till to the wrong side of the ledger account
(D) An uncleared lodgement of $380 and the misposting of $150 bankings from the till to the wrong side
of the ledger account (2 marks)
Q.9 Listed below are some possible causes of difference between the cash book balance and the bank
statement balance when preparing a bank reconciliation:
1. Cheque paid in, subsequently dishonoured.
2. Error by bank
3. Bank charges
4. Lodgements credited after date
5. Outstanding cheques not yet presented.
Which of these items require an entry in the cash book?
(A) 1 and 3 only
(B) 1, 2, 3, 4 and 5
(C) 2, 4, and 5 only
Q.10 In preparing a company's bank reconciliation statement at March 20X3, the following items are causing
the difference between the cash book balance and the bank statement balance:
1. Bank charges $380
2. Error by bank $1,000 (cheque incorrectly debited to the account)
3. Lodgements not credited $4,580
4. Outstanding cheques $1,475
5. Direct debit $350
6. Cheque paid in by the company and dishonoured $400
Which of these items will require an entry in the cash book?
(A) 2, 4 and 6
(B) 1, 5 and 6
(C) 3 and 4
(D) 3 and 5
Q.11 Which of the following statements about bank reconciliations are correct?
1. A difference between the cash book and the bank statement must be corrected by means of a journal
entry.
2. In preparing a bank reconciliation, lodgements recorded before date in the cash book but credited by
the bank after date should reduce an overdrawn balance in the bank statement.
3. Bank charges not yet entered in the cash book should be dealt with by an adjustment in the bank
reconciliation statement.
4. If a cheque received from a customer is dishonoured after date, a credit entry in the cash book is
required.
(A) 2 and 4
(B) 1 and 4
(C) 2 and 3
(D) 1 and 3
Q.12 Listed below are five potential causes of difference between a company's cash book balance and its
bank statement balance as at 30 November 20X3:
1. Cheques recorded and sent to suppliers before 30 November 20X3 but not yet presented for
payment.
2. An error by the bank in crediting to another customer's account a lodgement made by the company.
3. Bank charges.
4. Cheques paid in before 30 November 20X3 but not credited by the bank until 3 December 20X3.
5. A cheque recorded and paid in before 30 November 20X3 but dishonoured by the bank.
Which one of the following alternatives correctly analyses these items into those requiring an entry in
the cash book and those that would feature in the bank reconciliation?
Cash book entry Bank reconciliation
(A) 1, 2, 4 3, 5
(B) 3, 5 1, 2, 4
(C) 3, 4 1, 2, 5
(D) 2, 3, 5 1, 4
Test-2 Answ
1C
2C
3D
4C
5B
6A
7A
8C
9A
10 B
11 A
12 B
Class Test - 3 Marks:20

AFD, Section – 2 (F3) Time: 1 Hr

Correction of errors and suspense accounts
Q.1 A trial balance has been extracted and a suspense account opened. One error relates to the mis-posting
of an amount of $200, being discounts received from suppliers. This was recorded on the wrong side of
the discounts account.
What will be the correcting journal entry?
(A) Dr Discounts account $200, Cr Suspense account $200
(B) Dr Suspense account $200, Cr Discounts account $200
(C) Dr Discounts account $400, Cr Suspense account $400
(D) Dr Suspense account $400, Cr Discounts account $400 (2 marks)
Q.2 Gordon has posted the following journals to his accounts at the year end:
Dr Payables ledger control account $650
Cr Purchase returns $650
To correct the undercasting of the purchase returns day book.
Dr Carriage in $1,200
Cr Carriage out $1,200
To correct the misposting of carriage in costs
Dr Cash $4,000
Cr Suspense $4,000
To correct an error in the recording of a cash receipt.
Prior to recording these journals, Gordon’s profit was $102,780.
What is his revised profit?
(A) $102,230
(B) $103,430
(C) $106,130
(D) $99,430 (2 marks)
Q.3 The following are errors made by Luisa in the preparation of her year end accounts. Which of them will
not result in an entry to the suspense account?
(A) The payment of wages has been credited to the staff costs account
(B) The opening balance on the rent account was not brought down
(C) The balance on the receivables account has been incorrectly extracted for inclusion in the trial
balance
(D) A cash sale has been recorded by debiting sales and crediting cash (2 marks)
Q.4 Raj, a doctor, has recorded the purchase of stationery by debiting non-current assets and crediting cash.
What type of error is this?
(A) Error of original entry
(B) Error of commission
(C) Error of principle
(D) Extraction error (2 marks)
Q.5 A trial balance shows total debits of $143,900 and total credits of $141,780.
After adjusting for the following errors, what is the balance on the suspense account?
1. A discount allowed of $78 was debited to the discounts received account.
2. A cash payment of $22 was debited to the cash account.
3. An opening prepayment of $280 has been omitted from the insurance account.
(A) $2,434
(B) $2,278
(C) $2,378
(D) $2,356 (2 marks)
Q.6 Cassidy’s trial balance failed to agree, the totals being:

Debit $815,602
Credit $808,420
Which one of the following errors could fully account for the difference?
(A) The omission from the trial balance of the insurance account balance, being $7,182 Dr
(B) Discount allowed $3,591 debited in error to the discount received account
(C) No entries made in the records for cash sales totalling $7,182
(D) The returns outwards total of $3,591 was included in the trial balance as a debit balance
(2 marks)
Q.7 The following errors have been identified in the preparation of Simpson’s accounts:
1 A cash sale of $340 has been credited to the cash account.
2 A receipt from a customer of $230 has been recorded in the accounts as $23
What journal will correct both errors?
Dr Cr
(A) Cash 887 Suspense 680
Receivables 207
(B) Cash 887 Sales 680
Receivables 207
(C) Suspense 680 Sales 680
Cash 207 Receivables 207
(D) Suspense 680 Cash 473
Receivables 207
(2 marks
Q.8 Upon review of his accounts, Malbec finds the following errors:
• A rent accrual of $450 was not brought forward at the start of the year.
• Returns outwards of $3,400 were debited to the receivables ledger control account.
• A discount allowed of $1,780 has been correctly recorded in the receivables ledger control account
but credited to the discounts received account.
Prior to correcting these errors, Malbec’s accounts showed a draft profit of $102,900.
What is the revised profit after correcting the errors?
(A) $98,890
(B) $103,190
(C) $99,790
(D) $96,390 (2 marks)
Q.9 The trial balance totals of Gamma at 30 September 20X6 are:

Debit $992,640
Credit $1,026,480
Which two of the following possible errors could, when corrected, cause the trial balance to agree?
1. An item in the cash book $6,160 for payment of rent has not been entered in the rent payable
account.
2. The balance on the motor expenses account $27,680has been incorrectly listed in the trial balance as
a credit.
3. $6,160 proceeds of sale of a motor vehicle has been posted to the debit of the motor vehicle asset
account.
4. The balance of $21,520 on the rent receivable account has been omitted from the trial balance.
(A) 1 and 2
(B) 2 and 3
(C) 2 and 4
(D) 3 and 4 (2 marks)
Q.10 Which one of the following would occur if the purchase of computer stationary was debited to the
computer equipment at cost account?
(A) An overstatement of profit and an overstatement of non-current assets

(B) An understatement of profit and an overstatement of non-current assets
(C) An overstatement of profit and an understatement of non-current assets
Q.11 A trial balance extracted from a sole trader's records failed to agree, and a suspense account was
opened for the difference.
Which of the following errors would require an entry in the suspense account in correcting them?
1. Discount allowed was mistakenly debited to discount received account.
2. Cash received from the sale of a non-current asset was correctly entered in the cash book but was
debited to the disposal account.
3. The balance on the rent account was omitted from the trial balance.
4. Goods taken from inventory by the proprietor had been recorded by crediting drawings account and
debiting purchases account.
(A) All four items
(B) 2 and 3 only
(C) 2 and 4 only
(D) 1 and 3 only (2 marks)
Test-3 Answ
1D
2B
3D
4C
5D
6D
7A
8C
9C
10 B
11 B


Books of prime entry and control accounts
Q.1 The following receivables ledger control account has been prepared by a trainee accountant:
$ $
1 Jan Balance b/f 284,680 31 Dec Cash received from
31 Dec Credit sales 189,120 Credit customers 179,790
Discounts allowed 3,660 Contras 800
Irrecoverable debts
written off 1,800
Sales returns 4,920 Balance c/f 303,590
484,180 484,180
What should the closing balance on the account be when the errors in it are corrected?
(A) $290,150
(B) $286,430
(C) $282,830
(D) $284,430 (2 marks)
Q.2 What is the correct entry in the accounts arising from the following page from a purchase day book?
Gross Sales tax Net
$ $ $
Ives 940 140 800
Shelton 705 105 600
Allister 470 70 400
2,115 315 1,800
Debit Credit
(A) PLCA $2,115 Sales tax $315
Purchases $1,800
(B) PLCA $1,800 Purchases $2,115
Sales tax $315
(C) Purchases $2,115 Sales tax $315
PLCA $1,800
(D) Purchases $1,800 PLCA $2,115 (2 marks)
Sales tax $315
Q.3 Which of the following result in a debit entry to the pavables ledger control account?
1. Interest charged on late payment
2. Discounts received
3. Purchase returns
4. Contra with receivables
(A) All of them
(B) 1 and 2
(C) 2 and 4
(D) 2, 3 and 4 (2 marks)
Q.4 What item of business documentation does the following best describe?
‘A document sent to the supplier with, or as notification of payment’.
(A) Statement
(B) Debit note
(C) Remittance advice
(D) Receipt (2 marks)
Q.5 Freddie maintains separate cash receipts and cash payments books. The discounts column in the cash
payments book for the month of October totals $2,450.
How should Freddie record this?
(A) Dr Discounts allowed Cr Receivables ledger control account
(B) Dr Pavables ledger control account Cr Discounts received
(C) Dr Receivables ledger control account Cr Discounts allowed
(D) Dr Discounts received Cr Payables ledger control account (2 marks)
Q.6 Marco’s petty cash tin on 18August contains the following:

• $37.80 cash
• Expense vouchers totalling $32.20
What is the imprest amount?
(A) $37.80
(B) $32.20
(C) $70.00
(D) $5.60 (2 marks)
Q.7 Which of the following is NOT true

(A) The total of the discounts column in the cash receipts book is posted to the discounts received
account
(B) The total from the purchase day book is posted to the payables control account in the general ledger
(C) The total of the sales tax column in the sales returns day book is debited to the sales tax account
(D) Each invoice in the sales day book is postedto the individual accounts in the receivables ledger
(2 marks)
Q.8 You are provided with the following amounts for purchases and payables:
$
Payables at 1 April 20X6 32,677
Payables at 31 March 20X7 29,980
Credit purchases during year 348,750
Cash paid to suppliers 276,200
Contra with receivables ledger control account 33,400
Discounts received 17,500
What was the value of purchase returns?
(A) $18,953
(B) $59,347
(C) $91,147
(D) $24,347 (2 marks)
Q.9 Elias operates an imprest system for pettycash. The following details are relevant:
$
Float 200
Voucher #1 – travel expenses 12.60
Voucher #2 – tea and coffee for staff kitchen 6.70
Voucher #3 – cheque cashed for employee 45.00
$10 was also received from an employee for postage.
What cheque was drawn for petty cash during the period?
(A) $19.30
(B) $64.30
(C) $54.30
(D) $9.30 (2 marks)
Control account reconciliations
Q.10 Sonny is a supplier to Amie’s jewellery business. At 31 August Sonny sent a statement to Amie showing a
balance due of $7,500. On the same date, Sonny’s account in Amie’s records showed a balance of
$7,300.
Which of the following could account for the difference in full?
(A) The debit side of Sonny’s account in Amie’s ledger has been undercast by $200
(B) An invoice for $100 from Sonny has been treated as a credit note by Amie
(C) Sonny has issued a credit note to Amie for $200 but Amie has not yet received it
(D) The credit side of Sonny’s account in Amie’s ledger has been overcast by $200 (2 marks)
Q.11 The balance on Anne’s receivables ledger control account does not agree with the total of the individual
accounts in the sales ledger. One of errors discovered was that an invoice of $25 issued to Shwartz was
not recorded in the sales day book.
How should this be corrected?
(A) Credit the receivables ledger control account with $25 and increase the ledger total by $25
(B) Debit the receivables ledger control account with $25 and increase the sales ledger total by
$25
(C) Credit the receivables ledger control account with $25 and decrease the ledger total by $25
(D) Debit the sales ledger account with $25 and decrease the ledger total by $25 (2 marks)
Q.12 In reconciling the payables ledger control account to the payables ledger, the following errors were
identified:
(1) The purchase day book had been overcast by $30.
(2) A credit note for $15 received from a supplier had been credited to the supplier’s account in the
payables ledger.
How should these errors be corrected?
(A) Credit control account with $30 and decrease the total ledger balances by $45
(B) Credit control account with $15 and decrease the total ledger balances by $15
(C) Debit control account with $45 and decrease the total ledger balances by $60
(D) Debit control account with $30 and decrease the total ledger balances by $30 (2 marks)
Q.13 A receivables ledger control account shows a balance of $345,600 (Dr). The total of the accounts in the
sales ledger is $351,200.
The difference may be explained by:
(A) The cash receipts book being undercast by $5,600
(B) The sales day book being overcast by $5,600
(C) A credit note for $2,800 issued to a customer being debited to her account in the sales ledger
(D) A discount allowed of $2,800 being recorded as a credit in the customer’s account (2 marks)
Q.14 Amadeus received a statement of account from a supplier, Barolo, showing a balance to be paid of
$9,760. Amadeus’ payables ledger account for Barolo shows a balance due to Barolo of $3,240.
Investigation reveals the following:
1. Cash paid to Barolo $5,180 has not been allowed for by Barolo.
2. Goods returned by Amadeus $380 have not been recorded by Barolo.
3. Amadeus has not recorded a credit note for $120 issued by Barolo.
What is the discrepancy between Amadeus’ and Barolo’s records after allowing for these items?
(A) $11,440
(B) $1,840
(C) $840
(D) $1,080 (2 marks)
Q.15 Which of the following items could appear on the credit side of a receivables ledger control account?
1. Cash received from customers.
2. Irrecoverable debts written off.
3. Increase in allowance for receivables.
4. Discounts allowed.
5. Sales.
6. Credit notes for goods returned by customers.
7. Cash refunds to customers.
(A) 1, 2, 4 and 6
(B) 1, 2, 4 and 7
(C) 3, 4, 5 and 6
Q.16 Kenzie is reconciling her payables ledger control account to the list of individual balances in the
purchase ledger. The balances on each are as follows:
Control account $32,771
List of balances $27,988
She finds the following:
1. A cash payment listed correctly in the cash book at $279 has been transferred to the payables
ledger as $297.
2. Arkwright’s account showing a balance of $2,890 has been omitted from the list of balances.
3. The credit side of the control account has been overcast by $100.
What difference still requires explanation after adjusting for the above?
(A) $1,775
(B) $2,011
(C) $1,811
(D) $1,975 (2 marks)
Q.17 Ines has accidentally recorded a supplier invoice for $450 as $45 in the purchase day book. What
adjustment is required to amend this?
Payables ledger control account Purchase ledger total
(A) Dr $405 Increase by $405
(B) Cr $405 Increase by $405
(C) Cr $405 No adjustment
(D) Dr $405 No adjustment (2 marks)
Q.18 Which of the following will explain the balance on the receivables ledger control account being lower
than the total of the list of sales ledger balances?
(A) The sales day book was overcast
(B) The discounts column in the cash receipts book was overcast
(C) An invoice was not listed in the sales day book
(D) The debit side of the control account was overcast (2 marks)
Q.19 Which of the following items could appear on the credit side of a receivables ledger control account?
1. Cash received from customers
2. Irrecoverable debts written off
3. Increase in allowance for receivables
4. Discounts allowed
5. Sales
6. Credits for goods returned by customers
7. Cash refunds to customers
(A) 1, 2, 4 and 6
(B) 1, 2, 4 and 7
(C) 3, 4, 5 and 6
F3 Test-4 Ans
1 C
2 D
3 D
4 C
5 B
6 C
7 A
8 D
9 C
10 B
11 B
12 D
13 C
14 D
15 A
16 A
17 B
18 B
19 A

AFD-Sec -2 (F3) Time: 1 Hr

Irrecoverable debts and allowances for receivables
Q.1 At 30 September 20X2 a company’s allowance for receivables amounted to $38,000, which was five per
cent of the receivables at that date.
At 30 September 20X3 receivables totalled $868,500. It was decided to write off $28,500 of debts as
irrecoverable and, based on past experience, to keep the allowance for receivables at 5% of receivables.
What should be the charge in the income statement for the year ended 30 September 20X3 for the total
of irrecoverable debts and the allowance for receivables?
(A) $42,000
(B) $33,925
(C) $70,500
(D) $32,500 (2 marks)
Q.2 The allowance for receivables in the accounts of Beluga at 31 October 20X1 was $9,000. During the year
ended 31 October 20X2, irrecoverable debts of $5,000 were written off.
The receivables balance at 31 October 20X2 was $120,000 and, based on past experience, the company
wishes to set the allowance at 5% of receivables.
What is the total charge for irrecoverable debts and the allowance for receivables in the income
statement for the year ended 31 October 20X2?
(A) $2,000
(B) $3,000
(C) $5,000
(D) $8,000 (2 marks)

(A) Credit limits help to reduce the risk of irrecoverable debts
(B) The provision of credit will improve the cash flow of a business
(C) An aged receivables analysis helps to keep track of overdue debts
(D) Creating an allowance for receivables is an application of the prudence concept (2 marks)
Q.4 During her first year of trading, Gabriela made credit sales of $328,000. The following information is also
relevant:
• Credit customers paid her $298,700
• She wrote off a debt of $7,800 as irrecoverable
• At the year end Gabriela decided to make an allowance for 2% of outstanding receivables
What amount is shown on Gabriela’s statement of financial position in respect of receivables, and what
is the charge to the income statement for irrecoverable debt expense?
Receivables Irrecoverable debt expense
(A) $37,100 $8,542
(B) $37,100 $7,800
(C) $21,070 $8,230
(D) $21,070 $7,370 (2 marks)
Q.5 After writing off irrecoverable debts, Ravinder has outstanding receivables of $238,750. He identifies
two specific amounts for which he wishes to make full allowance:
• $450 owing by Syed
• $1,200 owing by Sharmini
Ravinder also wishes to maintain a general allowance of 5% of outstanding receivables.
What amount is shown on Ravinder’s statement of financial position in respect of receivables?
(A) $225,080.00
(B) $225,162.50
(C) $225,245.00
(D) $237,100.00 (2 marks)
Q.6 The following is an extract from Jeremiah’s general ledger:

Receivables
$ $
Balance b/f 14,560 Interest charged for late payment 988

Credit sales 189,355 Cash received 143,250
Contra 12,300 Irrecoverable debt written off 1,760
Discount received 1,500 Sales returns 13,400
Increase in allowance for
receivables 6,540
Balance c/f 51,777
217,217 217,7175
What should be the receivables balance?
(A) $32,693
(B) $33,205
(C) $34,193
(D) $31,705 (2 marks)
Q.7 At 31 May 20X6, Louis’ receivables account shows a balance of $137,000. He has identified the following
amounts which he wishes to write off:
$4,000 owed from George, who has been declared bankrupt
$450 from Tom, who has disappeared
Louis also wishes to make an allowance for 2% of outstanding debt and discovers that as a result the
allowance is 10% greater than at the previous year end.
What is the balance on the irrecoverable debts expense account at the year end, to the nearest $?
(A) $4,691
(B) $4,699
(C) $4,715
(D) $4,724 (2 marks)
Q.8 Alex wrote off a debt in the year ended 30 June 20X5. In the following year, this debt was paid. What
entry should Alex make to record the receipt?
(A) Dr Cash Cr Receivables
(B) Dr Cash Cr Irrecoverable debt expense
(C) Dr Receivables Cr Irrecoverable debt expense
(D) Dr Cash Cr Sundry income (2 marks)
Q.9 At 30 September 20X0, Zach had an allowance for receivables of $37,000. During the year ended 30
September 20X1, he wrote off debts totalling $18,000, and at the end of the year, it is decided that the
allowance for receivables should be $20,000.
What should be included in the income statement in respect of irrecoverable debt expense?
(A) $35,000 Dr
(B) $1,000 Dr
(C) $38,000 Dr
(D) $1,000 Cr (2 marks)
Q.10 At 1 January 20X6, Leggo’s allowance for receivables was $21,000.

At 31 December 20X6, the balance on Leggo’s receivables account was $413,200. It was decided to write
off $22,000 of this amount and adjust the allowance for receivables to $30,500. What are the final
amounts for inclusion in Leggo’s statement of financial position at 31 December 20X6?
Trade receivables (gross) Allowance Net balance
(A) $413,200 $51,500 $361,700
(B) $413,200 $30,500 $382,700
(C) $391,200 $51,500 $339,700
(D) $391,200 $30,500 $360,700 (2 marks)
Q.11 Which accounting concept requires that foreseen losses should be anticipated and taken into account
immediately?
(A) The consistency concept
(B) The accruals concept
(C) The prudence concept
(D) The going concern concept (2 marks)
F3-test-5 Ans-
1-D
2-A
3-B
4-C
5-C
6-C
7-A
8-B
9-B
10-D
11-C

Non-current assets
Q.1 A non-current asset was disposed of for $2,200 during the last accounting year. It had been purchased
exactly three years earlier for $5,000, with an expected residual value of $500, and had been
depreciated on the reducing balance basis, at 20% per annum.
What was the profit or loss on disposal?
(A) $360 loss
(B) $150 loss
(C) $104 loss
(D) $200 profit (2 marks)
Q.2 Bernard purchased some plant and equipment on 1 July 20X3 for $40,000. The scrap value of the plant
in ten years' time was estimated to be $4,000.Bernard's policy is to charge depreciation on the straight
line basis, with a proportionate charge in the period of acquisition.
What should be the depreciation charge for the plant in Bernard's accounting period of twelve months
to 30 September 20X3?
(A) $720
(B) $600
(C) $900
(D) $675 (2 marks)
Q.3 A car was purchased by Tyron for $12,000 on 1 April 20X1 and has been depreciated at 20% each year
straight line, assuming no residual value.
The accounting policy is to charge a full year’s 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 20X4 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 20X4?
(A) Loss $2,200
(B) Loss $1,400
(C) Loss $200
(D) Profit $200 (2 marks)
Q.4 Fern’s plant and machinery ledger account for the year ended 30 September 20X2 was as follows:
Plant and machinery – cost
$ $
Balance b/f 381,200 1 June: Disposal account –
cost of asset sold 36,000
1 December: Cash – addition 18,000 Balance c/f 363,200
399,200 399,200
The company’s policy is to charge depreciation at 20% per year on the straight line basis, with
proportionate depreciation in years of purchase and sale.
What is the depreciation charge for the year ended 30 September 20X2?
(A) $74,440
(B) $84,040
(C) $72,640
(D) $76,840 (2 marks)
Q.5 Which one of the following should NOT be accounted for as capital expenditure?
(A) Labour costs of employees engaged in the construction of a new non-current asset
(B) The costs of testing a new fishing boat for seaworthiness
(C) The cost of replacing carpets throughout the head office
(D) Stamp duty paid on the acquisition of a new factory (2 marks)
Q.6 Tarbuck’s asset register has a balance of $179,800 at31 December 20X5. His general ledger shows a non-
current asset balance of $203,000. After investigation, the following errors are identified:
A machine purchased on 1 May 20X5 at a cost of $12,000 has not been recorded in the register but
correctly dealt with in the general ledger.
Depreciation on an item of plant bought on 1/1/20X5 for $6,800 was credited to the repairs account in
error.
Tarbuck depreciates plant and machinery monthly at 10% straight line.
After adjusting for the above errors, what is the unexplained difference between the balances shown in
the asset register and general ledger?
(A) $11,200
(B) $11,720
(C) $10,520
(D) $11,320 (2 marks)
Q.7 On 8 April 20X6, Diggers bought a machine for use in the production of farm equipment.
The following costs were incurred: $
Purchase price 340,000
Sales tax 59,500
Delivery to factory 10,000
Factory modifications required to install machine 16,700
Extended 5 year warranty 20,000
What amount should be capitalized in the financial statements of Diggers?
(A) $366,700
(B) $426,200
(C) $350,000
(D) $370,000 (2 marks)
Q.8 James acquired a machine on 30 June 20X3 for $100,000 and commenced depreciating it at 20%straight
line. On 1 January 20X6, James reviewed his depreciation methods and it was decided that the reducing
balance method at a rate of 25% would give a fairer presentation of the machine’s use. What is the
depreciation charge in respect of the asset for the year ended 31 December 20X6?
James charges depreciation on a pro rata basis.
(A) $10,000
(B) $12,500
(C) $12,305
(D) $10,547 (2 marks)
Q.9 On 30 November 20X6, Vernon traded in an old delivery van for a newer model, making a loss on
disposal of the old van of $2,350. The van had been purchased on 1 December 20X4 for $30,000 and
was depreciated at 40% reducing balance.
What was the part exchange allowance given to Vernon?
(A) $27,650
(B) $15,650
(C) $8,450
(D) $3,650 (2 marks)
Q.10 Which of the following statements is correct?

(A) A surplus on revaluation should always be credited to the revaluation reserve
(B) The revaluation reserve is calculated by comparing the revalued amount with the book value of an
asset at the revaluation date
(C) Where assets are revalued, the valuation must be reviewed each year
(D) If a company adopts a revaluation policy, this must be applied to all non-current assets (2 marks)
Q.11 What is the purpose of charging depreciation in accounts?

(A) To allocate the cost less residual value of a non-current asset over the accounting periods expected
to benefit from its use
(B) To ensure that funds are available for the eventual replacement of the asset
(C) To reduce the cost of the asset in the statement of financial position to its estimated market value
(2 marks)
Q.12 Assets are usually valued under which basis?

(A) Replacement cost
(B) Historical cost
(C) Net realisable value (2 marks)
Q.13 In times of rising prices, what effect does the use of the historical cost concept have on a company's
asset values and profit?
(A) Asset values and profit both understated
(B) Asset values and profit both overstated
(C) Asset values understated and profit overstated
(D) Asset values overstated and profit understated (2 marks)


Inventory
Q.1 The closing inventory of Epsilon amounted to $284,000 at 30 September 20X4, the reporting date.
This total includes two inventory lines about which the inventory taker is uncertain.
(1) 500 items which had cost $15 each and which were included at $7,500. These items were found
to have been defective at the reporting date. Remedial work after the reporting date cost
$1,800 and they were then sold for $20 each. Selling expenses were $400.
(2) 100 items which had cost $10 each. After the reporting date they were sold for $8 each, with
selling expenses of $150.
What figure should appear in Epsilon's statement of financial position for inventory?
(A) $283,650
(B) $283,800
(C) $292,150
(D) $283,950 (2 marks)
Q.2 According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories
of a manufacturing company?
(1) Carriage inwards
(2) Storage costs of finished goods
(3) Foreman’s wages
(4) General administrative overheads
(A) All four items
(B) 1, 2 and 4 only
(C) 2 and 3 only
Q.3 Peanuts, a company, values its inventory using the first in first out method. At 1 May 20X6 the company
had 30 widgets in inventory, valued at $80 each.
During the year ended 30 April 20X7 the following transactions took place:
20X6
1 July Purchased 120 widgets @$120 each
1 November Sold 60 widgets
20X7
1 February Purchased 45 widgets @ $130 each
15 April Sold 72 widgets
What is the value of the company’s inventory of engines at 30 April 20X7?
(A) $8,010
(B) $6,360
(C) $7,732
(D) None of these figures (2 marks)
Q.4 Having prepared draft accounts, Aurora reviews closing inventory. She discovers that some goods
included at cost of $2,300 can be sold for $2,350 after incurring selling costs of $75.
What effect will any required adjustment have on Aurora’s profits?
(A) Profit decreases by $75
(B) Profit decreases by $25
(C) No change to profit
(D) Profit decreases by $50 (2 marks)
Q.5 Algernon starts trading on 1 July 20X6 and values inventory using AVCO on a periodicbasis. What is the
value of inventory at the end of July after the following purchases and sales?
3 July Purchases 200 units @ $12 each
6 July Sales 50 units
16 July Purchases 100 units @ $15 each
(A) $1,680
(B) $1,577
(C) $1,500
(D) $1,495 (2 marks)
Q.6 What are the correct journal entries to record inventory at the year end?
Opening inventory Closing inventory
(A) Dr Inventory (B/S) Dr Income statement
Cr Income statement Cr Inventory (B/S)
(B) Dr Income statement Dr Inventory (B/S)
Cr Inventory (B/S) Cr Income statement
(C) – Dr Inventory (B/S)
Cr Income statement
(D) – Dr Inventory (B/S)
Cr Purchases (2 marks)
Q.7 In times of falling prices, which of the following statements is true?

(1) Closing inventory valued using FIFO is greater than that valued using AVCO.
(2) FIFO profit is lower than AVCO profit.
(3) Cost of sales using the FIFO method is greater than that using AVCO.
(A) All of them
(B) None of them
(C) 2 and 3
(D) 1 only (2 marks)
Q.8 Tipsee, a wine merchant, provides the following information about wines held in store at the year end:
Cost per bottle Selling price per bottle Costs to sell per bottle
100 bottles Rioja $2.75 $10.99 $0.65
250 bottles Merlot $1.90 $4.99 $3.20
75 bottles Chablis $4.50 $3.99 –
500 bottles Pinot noir $3.20 $12.75 –
Tipsee has currently included all wines in her financial statements at cost. What effect will any required
adjustment have on profit and net assets?
Profit Net assets
(A) Reduce by $65.75 Reduce by $65.75
(B) Increase by $65.75 Reduce by $65.75
(C) Increase by $38.35 Increase by $38.35
(D) Reduce by $38.35 Increase by $38.35 (2 marks)
Q.9 Which of the following costs may be included when arriving at the cost of finished goods inventory for
inclusion in the financial statements of a manufacturing company?
1. Carriage inwards
2. Carriage outwards
3. Depreciation of factory plant
4. Finished goods storage costs
5. Factory supervisors' wages
(A) 1 and 5 only
(B) 2, 4 and 5 only
(C) 1, 3 and 5 only
(D) 1, 2, 3 and 4 only
Q.10 Which of the following statements about the valuation of inventory are correct, according to IAS 2
Inventories?
1. Inventory items are normally to be valued at the higher of cost and net realizable value.
2. The cost of goods manufactured by an entity will include materials and labour only. Overhead costs
cannot be included.
3. LIFO (last in, first out) cannot be used to value inventory.
4. Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable
approximation to actual cost.
(A) 1, 3 and 4 only
(B) 1 and 2 only
(C) 3 and 4 only
Q.11 According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories
of a manufacturing company?
1. Carriage inwards
2. Carriage outwards
3. Depreciation of factory plant
4. General administrative overheads
(A) 1, 2 and 4 only
(B) 2 and 3 only
(C) 1 and 3 only
F3-test-7 Ans
1=-A
2-D
3-A
4-B
5-D
6-B
7-C
8-A
9-C
10-C
11-C


Accruals and prepayments
Q.1 In the year to 31 December 20X8, Horatio received $49,200 rental income. The amounts of rent received
in advance and due in arrears were as follows:
31 Dec 20X8 31 Dec 20X7
$ $
Rent received in advance 2,400 2,600
Rent due in arrears 1,800 1,400
What figure for rental income should be recordedin the income statement for the year ended 31
December 20X8?
(A) $48,600
(B) $49,000
(C) $49,400
(D) $49,800 (2 marks)
Q.2 Rent paid on 1 October 20X2 for the year to 30 September 20X3 was $12,000, and rent paid on 1
October 20X3 for the year to 30 September 20X4 was $16,000.
What figure for rent expense should be shown in the income statement for the year ended 31
December 20X3?
(A) $12,000
(B) $16,000
(C) $13,000
(D) $15,000 (2 marks)
Q.3 A business compiling its accounts for the year to 31 January each year pays rent quarterly in advance on
1 January, 1 April, 1 July and 1 October each year.
After remaining unchanged for some years, the rent was increased from $36,000 per year to $42,000
per year as from 1 July 20X3.
Which of the following figures is the rent expense which should appear in the income statement for the
year ended 31 January 20X4?
(A) $39,500
(B) $37,500
(C) $38,500
(D) $39,000 (2 marks)
Q.4 A company has sublet part of its offices and in the year ended 30 November 20X3 the rent receivable
was:
Until 30 June 20X3 $8,400 per year
From 1 July 20X3 $12,000 per year
Rent was received quarterly in advance on 1 January, April, July, and October each year.
What amounts should appear in the company’s financial statements for the year ended 30 November
20X3?
Income statement
Rent receivable Statement of financial position
(A) $9,900 $2,000 in sundry payables
(B) $9,900 $1,000 in sundry payables
(C) $10,200 $1,000 in sundry payables
(D) $9,900 $2,000 in sundry receivables (2 marks)
Q.5 Oscar’s draft income statement shows a profit of $129,800 for the year ended 31 December 20X7. He
realizes that he has not taken the following into account:
There was an interest accrual at the end of the previous year for $270. This was not brought forward
into the current year’s accounts.
On 29 December 20X7 an interest premium of $780 was paid to cover the period from 1 December 20X7
to 30 November 20X8. This has not been recorded in the accounts.
What is Oscar’s revised profit?
(A) $130,245
(B) $130,785
(C) $129,465
(D) $130,005 (2 marks)
Q.6 Ariadne pays her rent in advance and insurance premiums in arrears. At 1 January 20X5, her rent
account showed a debit balance of $12,800 and her insurance account showed a credit balance of $450.
During the year ended 31 December 20X5, Ariadne paid $89,000 to her landlord and $6,250 to her
insurer.
Included in the $89,000 paid to her landlord was a bill for $19,500 covering the period 1 December to 28
February.
On 7 January, Ariadne received a bill for insurance for $589 to cover the month of December.
What is the income statement charge for each of these items?
Rent Insurance
(A) $95,300 $6,389
(B) $88,800 $6,389
(C) $88,800 $6,111
(D) $95,300 $6,111 (2 marks)
Q.7 A company has sublet part of its offices and in the year ended 30 November 20X8, rent receivable was:
To 30 June 20X8 $12,000 pa
From 1 July 20X8 $15,000 pa
Rent was received quarterly in arrears on 1 January, April, July and October each year.
What amounts should appear in the company’s financial statements for the year ended 30 November
20X8?
Income statement
Rent receivable Statement of financial position
(A) $13,250 $2,500 sundry payables
(B) $13,250 $1,250 sundry payables
(C) $13,500 $2,500 sundry payables
(D) $13,750 $2,500 sundry receivables (2 marks)
Q.8 Profucius has prepared the following light and heat account for the year ended 31 August 20X6:
Light and heat expense
$ $
Cash paid 9,540 Prepayment b/f 1,200
Accrual c/f 1,760 Income statement (β) 10,100
11,300 11,300
Profucius has calculated the year end accrual based on the following information:
Profucius changed his payment arrangements with the utility provider during the year and as of
1 March 20X6 now pays light and heat in arrears on 31 January, 30 April, 31 July and 31 October
The bill for the year ended 31 October 20X6 was eventually received in November amounted to $2,640.
What should be Profucius’ income statement charge for light and heat?
(A) $9,220
(B) $11,620
(C) $12,500
(D) $9,860 (2 marks)
Q.9 Ollivander provides the following detail about his electricity account for the year ended 30 April 20X7.
$
Opening balance 340 Prepayment
Closing balance 500 Prepayment
Bills covering periods:
1 March 20X6 – 31 May 20X6 1,770
1 June 20X6 – 31 August 20X6 1,800
1 September 20X6 – 30 November 20X6 1,950
1 December 20X6 – 28 February 20X7 2,040
1 March 20X7 – 31 May 20X7 2,100
What cash amount did Ollivander pay for electricity during the year?
(A) $7,830
(B) $7,890
(C) $7,940
(D) $6,560 (2 marks)
Q.10 Which of the following is NOT true?

(A) Accrued income is a liability
(B) Deferred income decreases profit
(C) An accrual decreases profit
(D) A prepayment increases capital (2 marks)
Class Test- 9 Marks: 24


From trial balance to financial statements
Q.1 The following year end adjustments are required in Harvey’s accounts:
• Write off of an irrecoverable debt of $2,030
• Creation of an allowance for receivables of $12,800
• Charging depreciation of $34,500
• Recording closing inventory of $22,800
Before making these adjustments, Harvey’s draft accounts show total assets of $399,650 and current
assets of $266,800.
What are total assets and current assets after the adjustments?
Total assets Current assets
(A) $365,150 $274,770
(B) $327,520 $229,170
(C) $373,120 $240,270
(D) $373,120 $274,770 (2 marks)

(A) A trial balance will identify all errors made in the preparation of the accounts
(B) A trial balance is a first step to preparing the financial statements
(C) A trial balance is extracted from the general ledger before year end adjustments are made
(D) A suspense account arises where the trial balance does not balance (2 marks)
Q.3 The following balances have been extracted from the accounts of Lawrence:
$
Sales 340,000
Purchases 177,800
Carriage in 10,980
Returns out 8,900
Discounts allowed 2,400
Expenses 95,430
Non-current assets – cost 120,600
Non-current assets – depreciation 35,600
Receivables 23,400
Inventory 20,220
Payables 18,600
Bank overdraft 14,600
Capital 56,000
Drawings ?
Lawrence is unsure of the exact amount that he withdrew from the business, although he is sure that no
errors have been madein his general ledger.
What amount has Lawrence withdrawn from the business?
(A) $55,030
(B) $3,870
(C) $33,070
(D) $15,270 (2 marks)
Q.4 Which of the following items appear on the same side of the trial balance?
(A) Returns inwards and rental income
(B) Drawings and deferred income
(C) Opening inventory and returns outwards
(D) Carriage out and accrued income (2 marks)
Incomplete records
Q.5 On 31 December 20X3 the inventory of V was completely destroyed by fire.

The following information is available:
1. Inventory at 1 December 20X3 at cost $28,400
2. Purchases for December 20X3 $49,600
3. Sales for December 20X3 $64,800
4. Standard gross profit percentage on sales revenue 30%
Based on this information, which of the following is the amount of inventory destroyed?
(A) $45,360
(B) $32,640
(C) $40,971
(D) $19,440 (2 marks)
Q.6 A business has compiled the following information for the year ended 31 October 20X2:
$
Opening inventory 386,200
Purchases 989,000
Closing inventory 422,700
The gross profit as a percentage of sales is always 40%
Based on these figures, what is the sales revenue for the year?
(A) $1,333,500
(B) $1,587,500
(C) $2,381,250
(D) The sales revenue figure cannot be calculated from this information (2 marks)
Q.7 From the following information, calculate the value of purchases:

$
Opening payables 142,600
Cash paid to suppliers 542,300
Goods returned 27,500
Closing payables 137,800
(A) $302,600
(B) $506,400
(C) $523,200
(D) $578,200 (2 marks)
Q.8 Max has kept no accounting records for the year ended 31 May 20X6. He has, however been able to
provide the following information:
$
Capital at 1 June 20X5 334,000
Capital at 31 May 20X6 406,000
During the year ended 31 May 20X6:
Cash withdrawn from the business 90,000
Bingo winnings paid into business bank account 150,000
Goods taken from the business by Max – cost 15,000
– selling price 22,000
Max also remembers paying his income tax bill of $24,000 from the business bank account.
What is Max’s profit for the year?
(A) $27,000
(B) $58,000
(C) $34,000
(D) $51,000 (2 marks)
Q.9 Westville has lost his sales ledger, and is trying toidentify how much each customer owes him. Most of
the customers have confirmed their balance,although two - Grubb and Grouse are not sure off theirs.
Westville has identified that:
• The total balance on the receivables ledger control accountis $98,640.
• Other than Grubb and Grouse, customers have confirmed balances totalling $69,400.
• Grubb owed $21,000 at the start of the year.
• Invoices made out to Grubb for the year total $136,000; credit notes total $6,500.
• A review of the cash receipts book shows amounts received from Grubb of $126,500 and discounts
given of $4,300.
Assuming that the receivables ledger control account balance is correct, how much do Grubb and
Grouse owe?
Grubb Grouse
(A) $26,200 $3,040
(B) $26,200 can’t calculate from information available
(C) $19,700 $9,540
(D) $19,700 can’t calculate from information available (2 marks)
Q.10 Farmer is unsure of how much cash he took out ofthe farm shop till for his own use during the year
ended 31 December 20X5. He has established the following with respect to his ledger accounts:
1 January X5 31 December X5
$ $
Cash in till 230 300
Cash at bank 12,670 1,780
Sales (all for cash) 165,380
Wages paid in cash $1,000 per week
Cheques paid to suppliers $85,430
Discounts received $3,100
Standing order for rent $2,000 per month
The cash in till is banked weekly, retaining a float of $300.
What were Farmer’s cash drawings during the period?
(A) $14,770
(B) $11,670
(C) $14,840
(D) $7,010 (2 marks)
Q.11 Kiera makes all of her sales for cash using a 25% gross margin. She has provided the following
information:
Cash in till at start of the year $2,300
Cash in till at end of year $1,800
Cash banked $88,400
Wages paid from till $9,200
Money taken by Kiera $8,900
Inventory at start of year $5,400
Inventory at end of year $4,800
What is Kiera’s purchases figure to the nearest $?
(A) $85,400
(B) $78,900
(C) $80,100
(D) $84,200 (2 marks)
Q.12 Which of the following represents a mark up of 40%?

(A) Sales of $18,000 and a gross profit of $7,200
(B) Cost of sales of $24,000 and a gross profit of $9,600
(C) Sales of $32,000 and cost of sales of $19,200
(D) Sales of $48,000 and a gross profit of $19,200 (2 marks)
Q.13 Which one of the following can the accounting equation can be rewritten as?
(A) Assets plus profit less drawings less liabilities equals closing capital
(B) Assets less liabilities less drawings equals opening capital plus profit
(C) Assets less liabilities less opening capital plus drawings equals profit
Q.14 A trader's net profit for the year may be computed by using which of the following formulae?
(A) Opening capital + drawings – capital introduced – closing capital
(B) Closing capital + drawings – capital introduced – opening capital
(C) Opening capital – drawings + capital introduced – closing capital
Q.15 Which of the following calculations could produce an acceptable figure for a trader's net profit for a
period if no accounting records had been kept?
(A) Closing net assets plus drawings minus capital introduced minus opening net assets
(B) Closing net assets minus drawings plus capital introduced minus opening net assets
(C) Closing net assets minus drawings minus capital introduced minus opening net assets
Class Test - 10 Marks:

FIA, Section – (F3) Time: 1 Hr

Accounting standards
Q.1 Which of the following statements about research and development expenditure are correct?
1. Research expenditure, other than capital expenditure on research facilities, should be recognized as
an expense as incurred.
2. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary
to consider whether there will be adequate finance available to complete the project.
3. Development expenditure recognized as an asset should be amortized over a period not exceeding
five years.
(A) 1, 2 and 3
(B) 1 and 2 only
(C) 1 and 3 only
Q.2 Which of the following is NOT true in terms of recognizing revenue?

(A) Interest should be recognized on a time proportion basis.
(B) Royalties should be recognized when received.
(C) Dividends should be recognized when the right to receive payment is established.
(D) Revenue from services should be recognized according to the stage of completion of the service.
(2 marks)
Q.3 On what basis may a company change its accounting policies?
(A) Only if required by an accounting standard
(B) Only if required by an accounting standard or to achieve greater relevance and reliability.
(C) Only if required by an accounting standard or on application to the IASB.
(D) Only if required by an accounting standard or local legislation. (2 marks)
Q.4 At 31 August 20X7, Allidale had the following issues:
1. A client has commenced legal action against the company as a result of faulty goods.
Allidale’s legal team has suggested that there is a 55% chance that the client will win the case and
Allidale will have to pay damages.
2. As a result of another incident, Allidale are suing a supplier. The legal team has advised that in this
case the action is virtually certain to succeed.
How should these issues be accounted for?
1 2
(A) Disclose a contingent liability recognize an asset
(B) Recognize a provision recognize an asset
(C) Disclose a contingent liability Disclose a contingent asset
(D) Recognize a provision Disclose a contingent asset (2 marks)
Q.5 Which of the following statements are correct?
1. IAS 10 requires all non-adjusting events to be disclosed by note.
2. Where a non-adjusting event impacts going concern, the financial statements should be prepared
on a break up basis.
3. Equity dividends proposed before the year end but not declared until the post reporting period
should be treated as a liability in the year end accounts.
4. Announcing a plan to discontinue an operation is a non-adjusting event.
(A) 1 and 4
(B) 2 and 4
(C) 1 and 3
Q.6 IAS 38 Intangible assets governs the accounting treatment of expenditure on research and development.
The following statements about the provisions of IAS 38 may or may not be correct.
1. If all conditions specified in IAS 38 are met, development expenditure may be capitalized if the
directors decide to do so.
2. Capitalized development costs are shown in the statement of financial position under the heading of
non-current assets
3. Amortization of capitalized development expenditure will appear as an item in a company’s
statement of changes in equity.
Which of these statements are correct?
(A) All of them
(B) 1 and 2
(C) 2 only
Q.7 Redbrick is a company specializing in the construction of office blocks. The accounts for the year ended
30 November 20X5 are to be approved on 26 February 20X6. In the intervening period, the following
occur:
1. Redbrick is sued by an employee who was injured on site as the result of an accident on 5 December
20X5. The case is settled on 31 January 20X6.
2. A digger owned by Redbrick is sold on 16 December for significantly less than its carrying value.
Are these adjusting or non-adjusting events?
Adjusting Non-adjusting
(A) 1 and 2 –
(B) – 1 and 2
(C) 1 2
(D) 2 1 (2 marks)
Q.8 The following issues relate to Oxenhope at the year end:
1. The provision for warranties is to be decreased from $23,000 to $17,600 as the result of a drop in
sales.
2. A claim has been made against the company for injuries suffered by a customer as the result of faulty
goods. Legal advisers have confirmed that there is a 51% chance that Oxenhope will have to pay
damages of $20,000.
What impact will these events have on Oxenhope’s profit for the year?
(A) $14,600 decrease to profit
(B) $25,400 decrease to profit
(C) $5,400 increase to profit
(D) $5,400 decrease to profit (2 marks)
Q.9 Which of the following statements about research and development expenditure are correct?
2. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to
consider whether there will be adequate finance available to complete the project.
3. Development expenditure recognized as an asset must be amortized over a period not exceeding five
years.
(A) 1, 2 and 3
(B) 1 and 2 only
(C) 1 and 3 only
Q.10 Which of the following statements about research and development expenditure are correct according
to IAS 38 Intangible Assets?
1. If certain conditions are met, an entity may decide to capitalize development expenditure.
2. Research expenditure, other than capital expenditure on research facilities, must be written off as
incurred.
3. Capitalized development expenditure must be amortized over a period not exceeding 5 years.
4. Capitalized development expenditure must be disclosed in the statement of financial position under
intangible non-current assets.
(A) 1, 2 and 4 only
(B) 1 and 3 only
(C) 2 and 4 only
Q.11 Which of the following statements concerning the accounting treatment of research and development
expenditure are true, according to IAS 38 Intangible Assets?
1. Development costs recognized as an asset must be amortized over a period not exceeding five years.
3. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to
consider whether there will be adequate finance available to complete the project.
4. Development projects must be reviewed at each reporting date, and expenditure on any project no
longer qualifying for capitalization must be amortized through the statement of comprehensive
income over a period not exceeding five years.
(A) 1 and 4
(B) 2 and 4
(C) 2 and 3
Q.12 IAS 38 Intangible Assets governs the accounting treatment of expenditure on research and
development.
The following statements about the provisions of IAS 38 may or may not be correct.
1. Capitalized development expenditure must be amortized over a period not exceeding five years.
2. If all the conditions specified in IAS 38 are met, development expenditure may be capitalized if the
directors decide to do so.
3. Capitalized development costs are shown in the statement of financial position under the heading of
non-current assets.
4. Amortization of capitalized development expenditure will appear as an item in a company's statement
of changes in equity.
Which of these four statements are in fact correct?

(A) 3 only
(B) 2 and 3
(C) 1 and 4
(D) 1 and 3
Q.13 Which of the following statements about goodwill are correct?

1. Goodwill is included in tangible non-current assets on the statement of financial position.
2. Internally generated goodwill may not be capitalised.
3. Goodwill is always shown on the face of a company's statement of comprehensive income.
4. Purchased goodwill is the difference between the cost of acquiring a company and the fair value of its
identifiable net assets.
(A) 1 and 3 only
(B) 2 and 3 only
(C) 1 and 4 only
Q.14 If a company changes a material accounting policy,which of the following statements are correct?
1. The notes to the financial statements should disclose the reason for the change and its effect.
2. The effect of the change should be disclosed in the current year's statement of comprehensive
income as an extraordinary item.
3. The opening balance of retained earnings should be adjusted if practicable, as if the change had been
in effect for previous periods.
4. In the financial statements for the current period, comparative figures for the previous period should
be adjusted to reflect the change.
(A) 1, 3 and 4
(B) 2, 3 and 4
(C) 1, 2 and 3
(D) 1, 2 and 4 (2 marks)

AFD, Section – 3 (F3) Time: 60 min

Company accounts
Q.1 At 30 June 20X2 a company’s capital structure was as follows:
$
Ordinary share capital
500,000 shares of 50c each 250,000
Share premium account 150,000
In the year ended 30 June 20X3 the company made a rights issue of 1 share for every 2 held at $1.25 per
share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for
every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 30 June 20X3?
Ordinary share capital Share premium
$ $
(A) 425,000 237,500
(B) 450,000 262,500
(C) 425,000 337,500
(D) 450,000 362,500 (2 marks)
Q.2 The correct ledger entries needed to record the issue of 200,000 $1 shares at a premium of 30c, and
paid for by cheque, in full, would be:
(A) Dr share capital account $200,000
Cr share premium $60,000
Cr bank account $140,000
(B) Dr bank account $260,000
Cr share capital account $200,000
Cr share premium $60,000
(C) Dr share capital account $200,000
Dr share premium $60,000
Cr bank account $260,000
(D) Dr bank account $200,000
Dr share premium $60,000
Cr share capital account $260,000
(2 marks)
Q.3 The issued share capital of Amadeus, a limited liability company is as follows:
$
Ordinary 10c shares 1,000,000
8% 50c preference shares 500,000
In the year ended 31 October 20X6, the company has paid the preference dividend for the year and an
interim dividend of 2c per share on the ordinary shares. A final ordinary dividend of 3c per share is
proposed.
What is the total amount of dividends relating to the year ended 31 October 20X6?
(A) $240,000
(B) $540,000
(C) $60,000
(D) $90,000 (2 marks)
Q.4 Which of the following items must be disclosed in a company’s published financial statements (including
notes) if material according to IAS 1 Presentation of financial statements?
1. Finance costs.
2. Staff costs.
3. Depreciation expense.
4. Movements on share capital.
(A) 1 and 3 only
(B) 1, 2 and 4 only
(C) 2, 3 and 4 only
(D) All four items (2 marks)
Q.5 The following is an extract from the ledger accounts of Forklift, a company, at the 31 May 20X7 year
end:
Income tax
$ $
1 March 20X7 Cash 25,600 31 May 20X6
Income statement 27,600
The estimated tax payable for the year ended 31 May 20X7 is $31,000.
What amounts should be disclosed in the 20X7 financial statements in respect of tax?
Income statement tax charge Income tax payable

$ $
(A) 29,000 29,000
(B) 31,000 31,000
(C) 31,000 29,000
(D) 29,000 31,000 (2 marks)
Q.6 Which of the following statements are true with regard to IAS 1:
1. Current assets are those assets that will be settled within 24 months of the reporting date.
2. If an item of income and an item of expense relate to the same item, they may be offset.
(A) Both of them
(B) Neither of them
(C) 1 only
Q.7 The following items relate to SGL’ Ltd year ended 31 December 20X6:
1. A property was revalued to its current market value
2. An ordinary dividend of 2c per share was proposed
3. The final preference dividend was accrued
4. Loan notes of $200,000 were issued
5. SGL made a profit on disposal of shares in another company
Which of these should be disclosed in the statement of changes in equity?
(A) 1 and 3
(B) 1, 2, 3 and 5
(C) 1 only
(D) 3, 4 and 5 (2 marks)
Q.8 Which of the following is correct?

(A) Ordinary shares do not carry voting rights; preference shareholders receive a fixed dividend
(B) An ordinary dividend is paid in priority to a preference dividend; redeemable preference shares are
presented as a liability
(C) Ordinary shares carry voting rights; preference shares are always redeemable
(D) Ordinary shareholders receive a dividend at the directors’ discretion; preference shares may be
cumulative or non-cumulative (2 marks)
Q.9 Sydney, a company, makes a profit before tax in the year ended 31 October 20X6 of $214,500. At the
start of the year its retained earnings were $311,450.The following information is also relevant:
The estimated tax charge for the year is $35,700. The tax payable account shows a debit balance of
$2,450.
An interim dividend totalling $20,000 has been paid.
A final dividend for 20X6 of $15,000 has been proposed.
20X5’s final dividend of $14,500 was declared on 12 December 20X5 and paid on 3 January 20X6
What is the balance on Sydney’s retained earnings account at 31 October 20X6?
(A) $453,300
(B) $458,200
(C) $452,800
(D) $457,700 (2 marks)
Q.10 A company issued 50,000 ordinary shares of 25c each at a premium of 50c per share. The cash received
was correctly recorded, but the full amount was credited to the ordinary share capital account.
Which of the following journal entries is needed to correct this error?
Dr Cr
(A) Share premium $25,000 Share capital account $25,000
(B) Share capital account $25,000 Share premium $25,000
(C) Share capital account $37,500 Share premium $37,500
(D) Share capital account $25,000 Cash $25,000 (2 marks)
Q.11 Which of the following statements about company financial statements is/are correct, according to
International Financial Reporting standards?
1. A material profit or loss on the sale of part of the entity must appear in the statement of
comprehensive income as an extraordinary item.
2. Dividends paid and proposed should be included in the statement of comprehensive income.
3. The statement of comprehensive income must show separately any material profit or loss from
operations discontinuing during the year.
4. The statement of changes in equity must not include unrealized gains or losses.
(A) 1, 2 and 3
(B) 2 and 4
(C) 3 only
Q.12 Which of the following items are required to be disclosed in a limited liability company's financial
statements according to IAS 1 Presentation of Financial Statements?
1. Authorized share capital
2. Finance costs
3. Staff costs
4. Depreciation and amortization
(A) 1,and 3 only
(B) 2, 3 and 4 only
(C) All four items
Q.13 Which of the following statements about the financial statements of limited liability companies are
correct according to International Financial Reporting Standards?
1. In preparing a statement of cash flows, either the direct or the indirect method may be used. Both
lead to the same figure for net cash from operating activities.
2. Loan notes can be classified as current or non-current liabilities.
3. Financial statements must disclose a company's total expense for staff costs and for depreciation, if
material.
4. A company must disclose by note details of all adjusting events allowed for in the financial
statements.
(A) 1, 2 and 3 only
(B) 2 and 4 only
(C) 3 and 4 only
(D) All four item
Q.14 Which of the following could appear as separate items in the statement of changes in equity required by
IAS I Presentation of Financial Statements as part of a company's financial statements?
1. Gain on revaluation of land.
2. Loss on sale of investments.
3. Prior year adjustments.
4. Proceeds of an issue of ordinary shares.
5. Dividends proposed after the year end.
(A) 1, 3 and 4 only
(B) 1 and 4 only
(C) 1 and 3 only
(D) All five items
Q.15 Which of the following must be disclosed in the financial statements of a quoted (listed) company, if
material?
1. Total spent on research and development.
2. An analysis of operating profit into continuing and discontinued activities.
3. Profit or loss on the disposal of a discontinued operation.
4. Authorized share capital.
5. Finance costs.
(A) 2, 3 and 4 only
(B) 1, 2, 3 and 5 only
(C) 1 and 5 only
(D) All five items
Q.16 Which of these statements about limited liability companies is/are correct?
1. A company might make a bonus (capitalization) issue to raise funds for expansion.
2. The profit or loss on the disposal of part of a company's operations must be disclosed in the
statement of comprehensive income as an extraordinary item if material.
3. Both realized and unrealized gains and losses may be included in the statement of changes in equity
required by IAS 1 Presentation of Financial Statements.
(A) 1 and 3
(B) 2 and 3
(C) 1 and 2
(D) 3 only
Q.17 Which of the following statements about company financial statements is/are correct, according to
International Financial Reporting standards?
1. A material profit or loss on the sale of part of the entity must appear in the statement of
comprehensive income as an extraordinary item.
2. Dividends paid and proposed should be included in the statement of comprehensive income.
3. The statement of comprehensive income must show separately any material profit or loss from
operations discontinuing during the year.
4. The statement of changes in equity must not include unrealized gains or losses.
(A) 1, 2 and 3
(B) 2 and 4
(C) 3 only
Q.18 Which of the following items are required to be disclosed in a limited liability company's financial
statements according to IAS 1 Presentation of Financial Statements?
1. Authorized share capital
2. Finance costs
3. Staff costs
4. Depreciation and amortization
(A) 1,and 3 only
(B) 2, 3 and 4 only
(C) All four items
Q.19 Which of the following statements about the financial statements of limited liability companies are
correct according to International Financial Reporting Standards?
1. In preparing a statement of cash flows, either the direct or the indirect method may be used. Both
lead to the same figure for net cash from operating activities.
2. Loan notes can be classified as current or non-current liabilities.
3. Financial statements must disclose a company's total expense for staff costs and for depreciation, if
material.
4. A company must disclose by note details of all adjusting events allowed for in the financial
statements.
(A) 1, 2 and 3 only
(B) 2 and 4 only
(C) 3 and 4 only
(D) All four item
Q.20 Which of the following could appear as separate items in the statement of changes in equity required by
IAS I Presentation of Financial Statements as part of a company's financial statements?
1. Gain on revaluation of land.
2. Loss on sale of investments.
3. Prior year adjustments.
4. Proceeds of an issue of ordinary shares.
5. Dividends proposed after the year end.
(A) 1, 3 and 4 only
(B) 1 and 4 only
(C) 1 and 3 only
(D) All five items
Q.21 Which of the following must be disclosed in the financial statements of a quoted (listed) company, if
material?
1. Total spent on research and development.
2. An analysis of operating profit into continuing and discontinued activities.
3. Profit or loss on the disposal of a discontinued operation.
4. Authorised share capital.
5. Finance costs.
(A) 2, 3 and 4 only
(B) 1, 2, 3 and 5 only
(C) 1 and 5 only
(D) All five items
Q.22 Which of these statements about limited liability companies is/are correct?
1. A company might make a bonus (capitalization) issue to raise funds for expansion.
2. The profit or loss on the disposal of part of a company's operations must be disclosed in the
statement of comprehensive income as an extraordinary item if material.
3. Both realized and unrealized gains and losses may be included in the statement of changes in equity
required by IAS 1 Presentation of Financial Statements.
(A) 1 and 3
(B) 2 and 3
(C) 1 and 2
(D) 3 only


Statement of cash flows
Q.1 Bagz.com is preparing its statement of cash flow for the year ended 30 June 20X7. The following is
reported in the statement of financial position:
20X7 20X6
$000 $000
8% Loan notes 270 430
Share capital 130 120
Share premium 430 440
What is the net cash flow from financing activities?
(A) $140,000 outflow
(B) $150,000 outflow
(C) $160,000 inflow
(D) $160,000 outflow (2 marks)
Q.2 The profits of Grove Trading were $63,400. This was after charging depreciation of $2,700.
During the year, receivables decreased by $600, inventories increased by $2,500 and trade payables
increased by $900. Non-current asset purchases during the year amounted to $17,300 and there was a
loss on disposal of non-current assets of $3,000.
What was the increase in cash balances during the year?
(A) $40,800
(B) $46,800
(C) $50,800
(D) $52,800 (2 marks)
Q.3 The following amounts have been calculated for inclusion in the statement of cash flow of House:
$
Net cash inflow from financing activities 145,000
Net cash outflow from investing activities 160,000
Increase in cash and cash equivalents 24,000
Income taxes paid 65,000
Interest paid 12,000
How much cash has been generated from operations?
(A) $86,000
(B) $104,000
(C) $39,000
(D) $116,000 (2 marks)
Q.4 Which of the following about statement of cash flows are true?
1. Statement of cash flows provide a good indication of the liquidity of a business.
2. Cash equivalents are all investments which are readily convertible to known amounts of cash.
3. The concept of accruals underpins the preparation of the statement of cash flow.
4. A surplus on revaluation is disclosed within the investing activities section of the statement of cash
flow.
(A) All of them
(B) 1 only
(C) 1 and 2
Q.5 The following are extracts from the financial statements of Park:
20X7 20X6
$ $
Non-current assets 234,500 212,700
Receivables 12,340 12,668
Inventories 25,400 23,120
Payables 14,600 13,210
Operating profit 399,700
There were no disposals of non-current assets during the year, although a new machine was purchased
mid-year at a cost of $35,000.
What amount of cash has been generated from operations?
(A) $412,338
(B) $413,462
(C) $385,938
(D) $387,062 (2 marks)
Q.6 The following information is available aboutthe non-current assets of River, a company:
B/f C/f
$ $
Carrying value 569,000 578,760
Revaluation reserve – 50,000
Disposals at cost 240,000
Accumulated depreciation on disposals 186,000
Depreciation charge for the year 98,000
How much cash has been invested in non-current assets during the year?
(A) $249,760
(B) $161,760
(C) $199,760
(D) $111,760 (2 marks)
Q.7 Green grass inc, sold a non-current asset at a profit during the year ended 31 May 20X7.
How is this transaction treated in Green grass’ statement of cash flow?
Proceeds of sale Profit on disposal
(A) Cash inflow from Added to profit in the calculation of cash from
investing activities operating activities
(B) Cash inflow from Deducted from profit in the calculation of cash
investing activities from operating activities
(C) Cash inflow from Added to profit in the calculation of cash from
operating activities operating activities
(D) Cash inflow from Deducted from profit in the calculation of cash
operating activities from operating activities (2 marks)
Q.8 In the course of preparing a company’s statement of cash flow, the following figures are to be included
in the calculation of net cash from operating activities.
$
Depreciation charges 980,000
Profit on sale of non-current assets 40,000
Increase in inventories 130,000
Decrease in receivables 100,000
Increase in payables 80,000
What will the net effect of these items be in the statement of cash flow?
(A) $890,000 addition to operating profit
(B) $890,000 subtraction from operating profit
(C) $1,070,000 addition to operating profit
(D) $990,000 addition to operating profit (2 marks)
Q.9 Which of the following items could appear in a company's statement of cash flows?
1. Surplus on revaluation of non-current assets.
2. Proceeds of issue of shares.
3. Proposed dividend.
4. Irrecoverable debts written off.
5. Dividends received.
(A) 1, 2 and 5 only
(B) 2, 3, 4, 5 only
(C) 2 and 5 only
Q.10 Part of the process of preparing a company's statement of cash flows is the calculation of cash inflow
from operating activities.
Which of the following statements about that calculation (using the indirect method) are correct?
1. Loss on sale of operating non-current assets should be deducted from net profit before taxation.
2. Increase in inventory should be deducted from operating profits.
3. Increase in payables should be added to operating profits.
4. Depreciation charges should be added to net profit before taxation.
(A) 1, 2 and 3
(B) 1, 2 and 4
(C) 1, 3 and 4
(D) 2, 3 and 4 (2 marks)
Q.11 Part of a company's draft statement of cash flows is shown below:

$000
Operating profit 8,640
Depreciation charges (2,160)
Proceeds of sale of non-current assets 360
Increase in inventory (330)
Increase in accounts payable 440
The following criticisms of the above extract have been made:
1. Depreciation charges should have been added, not deducted.
2. Increase in inventory should have been added, not deducted.
3. Increase in accounts payable should have been deducted, not added. (2 marks)
Q.12 Proceeds of sale of non-current assets should not appear in this part of the statement of cash flows.
Which of these criticisms are valid?
(A) 2 and 3 only
(B) 1 and 4 only
(C) 1 and 3 only
Q.13 In preparing a company's statement of cash flows complying with IAS 7, which, if any, of the following
items could form part of the calculation of cash flow from financing activities?
1. Proceeds of sale of premises
2. Dividends received
3. Bonus issue of shares
(A) 1 only
(B) 2 only
(C) 3 only
(D) None of them (2 marks)
Q.14 Which of the following assertions about statement of cash flows is/are correct?
1. A statement of cash flows prepared using the direct method produces a different figure for operating
cash flow from that produced if the indirect method is used.
2. Rights issues of shares do not feature in statements of cash flows.
3. A surplus on revaluation of a non-current asset will not appear as an item in a statement of cash
flows.
4. A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing
Activities in a statement of cash flows.
(A) 1 and 4
(B) 2 and 3
(C) 3 only
(D) 2 and 4
Q.15 An extract from a statement of cash flows prepared by a trainee accountant is shown below.
Cash flows from operating activities
$m
Net profit before taxation 28
Adjustments for: Depreciation (9)
Operating profit before working capital changes 19
Decrease in inventories 13
Increase in receivables (4)
Increase in payables (8)
Cash generated from operations 10
Which of the following criticisms of this extract are correct?
1. Depreciation charges should have been added, not deducted
2. Decrease in inventories should have been deducted, not added.
3. Increase in receivables should have been added, not deducted.
4. Increase in payables should have been added, not deducted
(A) 2 and 4
(B) 2 and 3
(C) 1 and 3
(D) 1 and 4
Q.16 Which of the following items could appear in a company's statement of cash flows?
1. Proposed dividends
2. Rights issue of shares
3. Bonus issue of shares
4. Repayment of loan
(A) 1 and 3
(B) 2 and 4
(C) 1 and 4
(D) 2 and 3
Class Test - 13 Marks:

FIA, Section – (F3) Time: 1 Hr

The regulatory and conceptual framework
Q.1 Which of the following explanations of prudence most closely follows that in IASB’s Framework for the
Preparation and Presentation of Financial Statements?
(A) The application of a degree of caution in exercising judgment under conditions of uncertainty
(B) Revenue and profits are not recognized until realized, and provision is made for all known liabilities
(C) All legislation and accounting standards have been complied with
(D) Understatement of assets or gains and overstatement of liabilities or losses (2 marks)
Q.2 The accounting basis or convention which, in times of rising prices, tends to understate asset values and
overstate profits, is the:
(A) Going concern basis
(B) Prudence convention
(C) Realization convention
(D) Historical cost convention (2 marks)
Q.3 Which of the following bodies deals with any uncertainty as to how IFRS’s should be applied?
(A) IASCF
(B) SAC
C) IFRIC
(D) IASB (2 marks)
Q.4 Which of the following statements are true?
The legal form of transactions must always be reflected in accounting treatment.
Information is reliable if it has the ability to influence decisions.
(A) Both of them
(B) Neither of them
(C) 1 only
Q.5 An asset is a resource ____1____ by an enterprise as a result of ______2_____ and from which future
_____3_____ are expected to flow to the enterprise.
What are the missing words or phrases?
1 2 3
(A) Controlled A transaction Revenues
(B) Owned A transaction Economic benefits
(C) Controlled Past events Economic benefits
(D) Owned Past events Revenues (2 marks)
Q.6 Which of the following statements about the Framework are true?
1. The Framework is not an accounting standard.
2. It defines the qualitative characteristics of financial statements.
3. It helps accountants to decide on accounting treatment of an item where no relevant standard
exists.
4. It provides the underlying concepts which should be reflected in all accounting standards.
(A) All 4
(B) 2, 3 and 4
(C) 2 and 4
Q.7 ______1________ requires that assets and liabilities are valued on the assumption that a business will
continue in operation for the foreseeable future.
______2________ is a threshold quality that is demanded of all information given in the financial
statements.
What are the missing words?
1 2
(A) Going concern Understandability
(B) Going concern Materiality
(C) Historical cost concept Understandability
(D) Historical cost concept Materiality (2 marks)
Q.8 Development costs are only capitalized when certain criteria are met. This is an example of:
(A) Understandability
(B) Comparability
(C) Reliabilty
(D) Relevance (2 marks)
Q.9 Which one of the following statements is true of the historical cost convention?
(A) It fails to take account of changing price levels over time
(B) It records only past transactions
(C) It values all assets at their cost to the business, without any adjustment for depreciation
(D) It has been replaced in accounting records by a system of current cost accounting
Q.10 Which accounting concept or convention which, in times of rising prices, tends to understate asset values
and overstate profits?
(A) The going concern concept
(B) The prudence concept
(C) The realisation concept
(D) The historical cost convention
Q.11 Which accounting concept which requires assets to be valued at their net book value, rather than their
'break-up' value?
(A) The materiality concept
(B) The going concern concept
(C) The historical cost convention
(D) The business entity convention
Q.12 Sales revenue should be recognised when goods and services have been supplied; costs are incurred
when goods and services have been received.
Which accounting concept governs the above?
(A) The prudence concept
(B) The materiality concept
(C) The accruals concept
(D) The dual aspect concept
Q.13 A sale should be recognised when the goods or services have been provided and the invoice sent out,
rather than when the sale is agreed. Which accounting concept does this illustrate?
(A) The realisation concept
(B) The consistency concept
(C) The going concern concept
(D) The materiality concept
Q.14 Listed below are some characteristics of financial information.

1. Neutrality
2. Prudence
3. Completeness
4. Timeliness
Q.15 Which of the following statements about accounting concepts are correct?
1. The money measurement concept is that only items capable of being measured in monetary terms
can be recognized in financial statements.
2. The prudence concept means that understating of assets and overstating of liabilities is desirable in
preparing financial statements.
3. The historical cost concept is that assets are initially recognized at their transaction cost.
4. The substance over form convention is that, whenever legally possible, the economic substance of a
transaction should be reflected in financial statements rather than simply its legal form.
(A) 1, 2 and 3
(B) 1, 2 and 4
(C) 1, 3 and 4
(D) 2, 3 and 4
Q.16 Listed below are some comments on accounting concepts.

1. In achieving a balance between relevance and reliability, the most important consideration is
satisfying as far as possible the economic decision-making needs of users.
2. Materiality means that only items having a physical existence may be recognized as assets.
3. The substance over form convention means that the legal form of a transaction must always be
shown in financial statements, even if this differs from the commercial effect.
Which, if any, of these comments is correct, according to the IASB's Framework for the Preparation and
Presentation of Financial Statements?
(A) 1 only
(B) 2 only
(C) 3 only
(D) None of them
Q.17 Which of the following explanations of the prudence concept most closely follows that in the IASB's
Framework for the Preparation and Presentation of Financial Statements?
(A) The application of a degree of caution in exercising judgment under conditions of uncertainty
(B) Revenue and profits are not recognized until realized, and provision is made for all known liabilities
(C) All legislation and accounting standards have been complied with
Q.18 Which of the following most closely describes the meaning of prudence, as the term is defined in the
IASB's Framework for the Preparation and Presentation of Financial Statements?
(A) Ensuring that accounting records and financial statements are free from material error.
(B) The use of a degree of caution in making estimates required under conditions of uncertainty.
(C) Understating assets and gains and overstating liabilities and losses.
(D) Ensuring that financial statements comply with all accounting standards and legal requirements
Q.19 Which, if any, of the following statements about accounting concepts and the characteristics of financial
information are correct?
1. The concept of substance over form means that the legal form of a transaction must be reflected in
financial statements, regardless of the economic substance.
2. The historical cost concept means that only items capable of being measured in monetary terms can
be recognized in financial statements.
3. It may sometimes be necessary to exclude information that is relevant and reliable from financial
statements because it is too difficult for some users to understand.
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) None of these statements are correct
Bank reconciliation Answers
1.(173) 2.(B) 3.(B) 4.(A) 5.(C) 6.(C) 7.(D) 8.(C) 9.(B) 10.(A) 11.(A) 12.(C)
Rectification of errors
1.(Principe) 2.(B) 3.(C) 4.(D) 5.(D) 6.(C) 7.(No/No , Yes/Yes) 8.(C) 9.(Yes/No) 10.(D) 11.(C)
12.(442cr) 13.(900)

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THE PROFESSIONALS’ ACADEMY OF COMMERCE

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Class Test - 1 Marks: 8

Student Name Roll No.

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Class Test - 2 Marks: 24

Student Name Roll No.

Q.3 Which of the following can be described as an unrecorded difference?

What balance was shown on Aarti’s bank statement at 31 July?

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Class Test - 3 Marks:20

Student Name Roll No.

Q.6 Cassidy’s trial balance failed to agree, the totals being:

Q.9 The trial balance totals of Gamma at 30 September 20X6 are:

(A) An overstatement of profit and an overstatement of non-current assets

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Q.6 Marco’s petty cash tin on 18August contains the following:

Q.7 Which of the following is NOT true

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Class Test - 5 Marks: 22

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Q.3 Which of the following statements is NOT true?

Q.6 The following is an extract from Jeremiah’s general ledger:

Balance b/f 14,560 Interest charged for late payment 988

Q.10 At 1 January 20X6, Leggo’s allowance for receivables was $21,000.

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Q.10 Which of the following statements is correct?

Q.11 What is the purpose of charging depreciation in accounts?

Q.12 Assets are usually valued under which basis?

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Q.7 In times of falling prices, which of the following statements is true?

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Q.10 Which of the following is NOT true?

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Q.2 Which of the following statements is NOT true?

Q.5 On 31 December 20X3 the inventory of V was completely destroyed by fire.

Q.7 From the following information, calculate the value of purchases:

Q.12 Which of the following represents a mark up of 40%?

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Class Test - 10 Marks:

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Q.2 Which of the following is NOT true in terms of recognizing revenue?

Which of these four statements are in fact correct?

Q.13 Which of the following statements about goodwill are correct?

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Income statement tax charge Income tax payable

Q.8 Which of the following is correct?

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Q.11 Part of a company's draft statement of cash flows is shown below: