CIMA Financial Accounting Fundamentals Past Papers

Foundation Level
Financial Accounting Fundamentals
1
INSTRUCTIONS TO CANDIDATES Read this page before you look at the questions
FAFN
23 May 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). 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
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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 A B C D 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 B C D Debit creditors Credit bank Debit bank Credit creditors Credit returns outwards Debit creditors Credit creditors Debit returns outwards
1.3 A B C D
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 debit 1,000. B credit 1,000. C debit 1,333. D credit 1,333.
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May 2001
1.5 A B C D
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 Cr
Machinery Creditors
15,000 15,000 17,250 17,250 15,000 2,250 17,250 17,250 2,250 15,000
Machinery Creditors
Machinery VAT Creditors
Machinery VAT Creditors
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.
A B C D
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.
A B C D
May 2001
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1.9
S Ltd exchanged stock for a delivery vehicle with T Ltd. The stock had cost S Ltd 10,000 and the normal selling price was 12,000; the delivery vehicle had cost T Ltd 9,000 and the normal selling price was 13,000.
How should S Ltd value the vehicle in its balance sheet? A 9,000. B 10,000. C 12,000. D 13,000.
1.10 Zs bank statement shows a balance of 825 overdrawn. The bank statement includes bank charges of 50, which have not been entered in the cash book. There are unpresented cheques totalling 475 and deposits not yet credited of 600. The bank statement incorrectly shows a direct debit payment of 160, which belongs to another customer. The figure for the bank balance in the balance sheet should be A B C D 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. B 19,000. C 19,050. D 20,950.
1.12 A car was purchased for 12,000 on 1 April 1997 and has been depreciated at 20% each year straight line, assuming no residual value. The company policy is to charge a full years depreciation in the year of purchase and no depreciation in the year of sale. The car was traded in for a replacement vehicle on 1 August 2000 for an agreed figure of 5,000. What was the profit or loss on the disposal of the vehicle for the year ended 31 December 2000? A Loss 2,200. B Loss 1,400. C Loss 200. D Profit 200.
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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 B C D 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. B 435. C 515. D 615.
1.15 Which one of the following sentences does NOT explain the distinction between financial accounts and management accounts? A B C D 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 Additions Disposals Cost c/fwd Depreciation b/fwd Charge for the year Disposals Depreciation c/fwd Net book value b/fwd Net book value c/fwd 10,000 2,000 (3,000) 9,000 2,000 1,000 (1,500) 1,500 8,000 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
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A B C D
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 B C D 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 A B C D Cr 500 Dr 500 Dr 400 Cr 400 List of creditor balances decrease by 400 increase by 400 increase by 500 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 Net profit 15 30 45 180 Balances at 31 December 1999 2000 000 000 40 50 31 000 300 150 150 75 225
Stock, debtors, current liabilities (net)
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?
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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. B 20,000. C 20,400. D 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 For the year ended 30 September 2000 Purchases of raw materials Manufacturing wages Factory overheads 2000 000 75 60 100 150,000 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. B 170,000. C 210,000. D 270,000.
1.22 When valuing stock at cost, which of the following shows the correct method of arriving at cost? Include inward transport costs A B C D Yes No Yes No Include production overheads No Yes Yes No
May 2001
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1.23 A fixed asset register is A B C D 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 B C D 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 B C D Total debtor balances outstanding for current and previous months. Debtor balances excluding VAT. Credit limit. Sales to date.
Total = 50 marks
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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) (ii) (iii) (iv) (v) Stock at 31 July 2000 was valued at 12,000. Selling and distribution expenses of 4,000 are to be accrued. Administration expenses of 6,000 were prepaid. The provision for doubtful debts is to be adjusted to 5% of debtors. 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)
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Question Three The trial balance of E Ltd did not balance and the following errors have been discovered: (i) (ii) (iii) A cheque for 1,000 received from a debtor had been credited to the sales account and debited to the bank account. The cash book had been undercast by 250. 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
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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)
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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 Turnover Opening stock Purchases Closing stock Cost of goods sold Gross profit 200 700 900 300 600 400 000 1,000
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.
End of paper
M2001
13
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Foundation Level
1
INSTRUCTIONS TO CANDIDATES Read this page before you look at the questions You are allowed three hours to answer this question paper.
FAFN
21 November 2001 Day 3 morning
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.

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 B $3,900 C $4,000 D $4,100
1.2 A B C D
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.
A B C D
1.4 A B C D
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.
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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 B $3,000 C $5,000 D $8,000
1.6 A B C D
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.
What is the profit or loss on disposal of the machine? A B C D Loss $13,000 Profit $7,000 Profit $10,000 Profit $13,000
November 2001
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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 CR $ 9,200
Furniture Supplier
Furniture VAT Supplier
8,000 1,200 6,800
Furniture VAT Supplier
8,000 1,200 9,200
Furniture Supplier
8,000 8,000
1.9
SOR Ltds stock was valued at $13,000 and excludes goods supplied to a customer on a sale or return basis. The customer still has 30 days within which to return the stock. The goods on sale or return were purchased by SOR Ltd for $6,000 and were invoiced at a mark-up of 25%.
The value of SOR Ltds stock should be A $13,000. B $19,000. C $20,500. D $21,000.
1.10 A Ltds trial balance does not balance. Which ONE of the following errors may be the cause of this failure to balance? A B C D 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.
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November 2001
1.11 The current liabilities of CFS Ltd include the following: Dividends payable 2001 $30,000 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 B $27,000 C $28,000 D $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 B $2,060 C $2,140 D $2,200
1.13 The following is an extract from the balance sheets of FRC plc for the years ended 31 July 2001 and 31 July 2000: 2001 $000 50 60 35 5 2000 $000 80 50 30 20
Stock Debtors Creditors Accruals
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 B C D $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 B C D 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
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1.15 N plc purchased a machine for $15,000. The transportation costs were $1,500 and installation costs were $750. The machine broke down at the end of the first month in use and cost $400 to repair. N plc depreciates machinery at 10% each year on cost, assuming no residual value. What is the net book value of the machine after one year, to the nearest dollar? A $13,500 B $14,850 C $15,525 D $15,885
1.16 Which ONE of the following might explain the debit balance on a purchase ledger account? A B C D 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 B C D 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 B C D 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.
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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 Subscriptions for 2000 paid during the year ended 31 December 2000 6,000 Subscriptions for 2001 paid during the year ended 31 December 2000 1,000 Subscriptions for 2000 unpaid at 31 December 2000 750 It is the clubs policy to write off overdue subscriptions after one year. What amount should be credited to the income and expenditure account for the year ended 31 December 2000? A $6,250 B $6,750 C $7,050 D $7,250
1.20 Who has the responsibility for ensuring that a company maintains proper accounting records? A B C D 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 B C D 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: DR $ 180,000 CR $ 150,000 30,000 180,000 180,000 180,000 180,000 150,000 30,000 120,000
Bank Share capital Share premium Bank Share premium Bank Share capital Bank Share premium Share capital
November 2001
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1.23 A fixed asset register had a balance of $125,000. A fixed asset, which had cost $12,000, was sold for $9,000 at a profit of $2,000. What is the revised balance on the fixed asset register? A $113,000 B $118,000 C $125,000 D $127,000
1.24 M plcs trial balance did not balance at 31 May 2001. The following errors were discovered: Insurance of $500 prepaid at 31 May 2000 had not been brought down as an opening balance on the insurance account; Wages of $5,000 had been incorrectly debited to the purchases account; The book-keeper had failed to accrue $300 for the telephone invoice owing at 31 May 2001.
What was the difference on the trial balance? A $500 B $800 C $5,500 D $5,800
1.25 S is a builder who has numerous small items of equipment. He calculates his depreciation using the revaluation method. At the beginning of his financial year he valued his equipment at $10,250; he bought equipment costing $3,450 and he sold equipment valued at $2,175. At the end of his financial year he valued his equipment at $8,000. What is his depreciation charge on equipment for the year? A $2,250 B $3,525 C $5,700 D $11,525
(Total = 50 marks)
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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 Work-in-progress at 1 August 2000 Stock of finished goods at 1 August 2000 Direct factory wages Office salaries Directors' salaries Purchases of raw materials Depreciation charge on factory machinery Depreciation charge on office machinery Factory overheads Advertising Sales Factory machinery Office machinery Provision for depreciation on factory machinery at 31 July 2001 Provision for depreciation on office machinery at 31 July 2001 Debtors Creditors Bank overdraft 10% debenture Issued share capital: ordinary shares of $1 Share premium account Profit and loss account reserve The valuation of stock at 31 July 2001 was as follows: raw materials work-in-progress finished goods $3,000 $1,500 $6,000 4,000 2,000 8,000 60,000 50,000 40,000 90,000 35,000 15,000 35,000 18,000 450,000 400,000 200,000 90,000 30,000 40,000 7,000 3,000 80,000 250,000 25,000 62,000
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
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(b) Calculate:
the gearing ratio; debtor days; finished goods stock days.
(2 marks) (2 marks) (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. Sales ledger balances at 1 July Sales day book Bad debts written off Cheques received from debtors Set off against purchase ledger Cheques dishonoured $ 18,300 150,500 12,100 130,400 6,500 2,700
Required:
(b) Prepare a sales ledger control account for July 2001, carrying down the balance at 31 July
2001.
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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
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Examination Question and Answer Book

Write here your full examination number Centre Code: Hall Code: Desk Number:
Foundation Level
1
INSTRUCTIONS TO CANDIDATES
Read this page before you look at the questions
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

Marks awarded (First marker) for each question Marks awarded (Second marker) for each question
Total
One
Two
Three
Four

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct 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 A B C D 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 A B C D
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.
For office use only

Marks awarded (First marker) for each sub-question Marks awarded (Second marker) for each sub-question
Total
1.1
1.2
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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 A B C D
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
For office use only

May 2002 3
Total
1.3
1.4
1.5
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 B Credit $1,150 C Credit $1,250 D Credit $1,500
1.7 A B C D
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.
For office use only

Total
1.6
1.7
FAFN
May 2002
1.8
The entries in a sales ledger control account are: Sales Bank Returns Bad debts Returned unpaid cheque Contra purchase ledger account $250,000 $225,000 $2,500 $3,000 $3,500 $4,000
What is the balance on the sales ledger control account? A $12,000 B $19,000 C $25,000 D $27,000
1.9
A Ltd has an item in stock which cost $1,000 and can be sold for $1,200. However, before it can be sold, it will require to be modified at a cost of $150. The expected selling costs of the item are an additional $100. How should this item be valued in stock?
$950
$1,000
$1,050
$1,100
TURN OVER For office use only Marks awarded (First marker) for each sub-question Marks awarded (Second marker) for each sub-question
May 2002 5
Total
1.8
1.9
FAFN
1.10 A value for money audit is A B C D 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 B C D 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 B $7,500 C $29,000 D $30,000
For office use only Marks awarded (First marker) for each sub-question Marks awarded (Second marker) for each sub-question
FAFN 6
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 B $2,000 receivable C $1,800 payable D $2,000 payable
1.14 Which of the following statements concerning a "true and fair" view is correct? A B C D 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 B $8,900 C $9,100 D $9,900
May 2002 7
Total
1.13
1.14
1.15
FAFN
1.16 The total cost of salaries charged to the profit and loss account is A B C D 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 B C D 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% B 10% C 14% D 24%
1.19 Which of the following are used in a coding system for accounting transactions? A B C D Department code. Nominal ledger code. Product code. All of the above.
FAFN 8
Total
1.16
1.17
1.18
1.19
May 2002
1.20 APM Ltd provides the following note to fixed assets in its balance sheet. Plant and machinery Cost $000 25 15 (10) 30 Depreciation $000 12 4 (8) 8 Net book value $000 13 11 (2) 22
Opening balance Additions/charge Disposals Closing balance
The additional machinery was purchased for cash. A machine was sold at a profit of $2,000. What is the net cash outflow for plant and machinery? A $9,000 B $11,000 C $13,000 D $15,000
1.21 Which of the following errors will cause the trial balance totals to be unequal? A B C D Errors of transposition. Errors of omission. Errors of principle. All of the above.
May 2002 9
Total
1.20
1.21
FAFN
1.22 Which ONE of the following is a record of prime entry? A B C D 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 B $81,000 C $81,100 D $86,100
1.24 Which of the following is NOT helpful in detecting an error? A B C D A bank reconciliation. A sales ledger control account. An imprest system. A suspense account.
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 B C D 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 Provision for depreciation on buildings Equipment at cost Provision for depreciation on equipment Patent at valuation Stock at 1 January 2001 Debtors/creditors Provision for doubtful debts at 1 January 2001 Bank Sales Purchases 10% Debentures Debenture interest paid Interim dividend Directors' remuneration Administration expenses Selling and distribution expenses Ordinary shares of 50 cents each Profit and loss account reserve General reserve 1,355 5 10 40 130 160 200 50 25 1,355 250 100 150 60 100 25 5 30 800 200 50 250 70 $000
FAFN
12
May 2002
Schedule of adjustments: (i) (ii) (iii) (iv) (v) (vi) (vii) 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.
(viii)
(ix) (x)
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
QME plc Trading, Profit and Loss and Appropriation Account Year ended 31 December 2001 $000 Sales Cost of sales Gross profit Administration expenses Selling and distribution expenses Doubtful debts Depreciation charge Directors remuneration Operating profit Debenture interest Profit before tax Taxation Profit after tax Dividend Transfer to general reserve Retained profit $000
Marks available
For use by the second marker
For use by the first marker
1 1
1 1
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 $000 Cost or valuation $000 Depreciation $000
Marks available
Fixed assets
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.
Required:
Complete the missing words below (in the shaded boxes):
Do not write in these columns below
Marks available
Stock days = Debtor days =
/ /
x 365 x 365
1 1 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 For use by the second marker For use by the first marker
(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 B Ltd X Ltd Y Ltd Z Ltd $1,000 $1,500 $1,250 $1,750 $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: he considered the following debts doubtful: the following had paid their debts in full: X Ltd L Ltd Y Ltd P Ltd A Ltd $30,000 $1,250 $1,200 $1,750 $900 $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. Please do not write in these columns below
Schedule of bad and doubtful debts 28/2/ 2001 $ $ $ Debtors 25,000 Bad debts written off
Marks available
28/2/ 2002 $ 30,000
Specific provision for doubtful debts
Debtors after bad debts and specific provision General provision for doubtful debts Total doubtful debts
1 1
1 SubTotal: 4
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.
Please do not write in these columns below

For use by the second marker For use by the first marker
Bad debts account $ $
Marks available
Provision for doubtful debts account $ $
Marks available
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.
Required (a)
Define the four terms in no more than 30 words each using the shaded areas below.

For use by the second marker For use by the first marker
Marks available
(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
Required
Marks available
(b)
Give an example of each of the four terms you have defined above and explain why it conforms to your definition in no more than 30 words each in the shaded areas below. (i) Asset
(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

Foundation Level
1
FAFN
20 November 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. Do not exceed the stated number of words. Please note that you will NOT receive marks for your workings. 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 2-13) Answer the THREE questions in section B (these are on pages 14-21) 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.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct 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 A B C D 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 A B C D
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 Space for workings to 1.3
A B C D
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 B C D overdrawn $2,100 overdrawn $2,300 overdrawn $2,900 overdrawn $3,500 Space for workings to 1.4
November 2002
FAFN
1.5 A B C D
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
A B C D
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 22,000 25,000 36,000 Space for workings to 1.6 23,000 21,000 15,000
1.7 A B C D
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 B C D
a petty cash balance of $705. petrol expenses overstated by $45. an imbalance on the trial balance. a petty cash balance of $750. Space for workings to 1.8
1.9 A B C D
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
A B C D
$15,000 $20,000 $25,000 $30,000 Space for workings to 1.10
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 B C D
$400 $1,000 $1,400 $1,600 Space for workings to 1.11
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
A B C D
1.13 A B C D
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
A B C D
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
A B C D
285,000 293,000 296,000 299,000 Space for workings to 1.15
1.16 A B C D
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 A B C D
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 B C D $500 $550 $600 $700 Space for workings to 1.18
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 Balance sheet at 30 November 2002 $000 Fixed assets Current assets Stock Debtors Bank Current liabilities Trade creditors $000 3,000 200 3,100 (300) (3,000) 2,000 (500) 1,500 $000 5,000
300 900 50 1,250 (250) 1,000 4,000 2,000 2,000 4,000
Share capital Profit and loss account
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 A B C D
The return on capital employed in SPA plc is 750% 375% 500% 1000%
1.20 A B C D
The fixed asset turnover ratio in SPA plc is 1 : 167 125 : 1 25 : 1 167 : 1
1.21 A B C D
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 Sundry debtor Disposal of fixed assets account 6,500 6,000 500 500 Disposal of fixed assets account 500 500 Sundry debtor Space for workings to 1.22 500
C D
Bank Bank
1.23
The trial balance of EHL plc does not balance and the debits exceed the credits by $2,300. The following errors are discovered: the single column manual cash book receipts column was undercast by $600; discount received of $400 had been debited to the interest payable account; the proceeds of $1,000 on the sale of a fixed asset had been credited to sales. Following the correction of these errors, the balance on the suspense account would be
A B C D
Cr $900 Cr $2,100 Cr $3,700 Dr $2,100 Space for workings to 1.23
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
A B C D
1.25
In July 2002, a company sold goods at standard value added tax (VAT) rate with a net value of 200,000, goods exempt from VAT with a value of 50,000 and goods at zero VAT rate with a net value of 25,000. The purchases in July 2002, which were all subject to VAT, were 161,000, including VAT. Assume that the rate of VAT is 15%. The difference between VAT input tax and VAT output tax is
A B C D
Dr 9,000 Cr 5,850 Cr 9,000 none of these. Space for workings to 1.25
(Total = 50 Marks)
November 2002 13 FAFN

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. DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.
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 Machinery Current assets Stock Debtors Provision Prepayment advertising Bank Current liabilities Trade creditors Accrual vehicle expenses Net current assets Long-term liabilities Loan 10% (10,000) 82,000 Capital 82,000 (16,000) (1,000) (17,000) 17,000 92,000 19,000 (1,000) 18,000 3,000 1,000 34,000 12,000 50,000 25,000 75,000 $ $
FAFN
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 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 The following amounts relate to cheques dated before 31 July 2002, but not presented by that date: $ General expenses 600 Vehicle expenses 300 At 31 July 2002: debtors were creditors were stock was $ 21,000 18,000 10,000
2.
3.
4.
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

Required:
Marks available
(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 $ Sales Opening stock Purchases Closing stock Cost of goods sold Gross profit Discount received Less: Expenses Wages Vehicle expenses General expenses Advertising Loan interest Depreciation Charge for doubtful debts Bad debt Loss on sale of vehicle Profit for the year
Sub-total: 1 10 /2 1
$
2
12,000
2
10,000
15,000
1 1 1 1
/2 /2 /2 /2
1 /2
1
1 1
/2 /2
Space for workings to Question Two
FAFN
16
November 2002
S Balance sheet at 31 July 2002 $ Fixed assets (net book value) Vehicles Machinery Current assets Stock Debtors Provision Prepayment Bank Current liabilities Trade creditors Accrual Net current assets Long-term liabilities Loan 10% Capital Capital at 1 August 2001 Profit for the year ended 31 July 2002 Drawings Capital at 31 July 2002
Sub-total: 61/2
Marks available
1
1
/2
10,000 21,000
1
1
/2 1
18,000
1
/2
(10,000)
82,000
1 1
(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 Cost of sales Gross profit Operating expenses Depreciation Loss on sale of fixed asset Operating profit Interest Dividends Retained profit for year Balance sheets at 30 June $000 Fixed assets (see note) Current assets Stock Debtors Bank and cash Current liabilities Trade creditors Fixed asset creditor Accrued interest Dividends Net current assets Long-term liability Loan (200) 885 Share capital Share premium account Profit and loss account 700 100 85 885 Note: M plc purchased fixed assets for $550,000 during the year ended 30 June 2002.
1,670 (870) 800 (415) (250) (5) 130 (15) (70) 45 2002 $000 980 70 175 50 295 (100) (20) (5) (65) (190) 105 1,085 190 890 (250) 640 600 0 40 640 $000 700 65 215 65 345 (85) 0 (10) (60) (155) 2001 $000
Required:
Marks available
(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 Operating profit Adjustments for non-cash items
1 1
$000
1
/2 /2 /2
Adjustments for working capital

1 1 1
/2 /2 /2
Cash from operations Interest Purchase of fixed assets Sale of fixed assets Dividends Share capital Loan Movement in cash
Subtotal: 7
1
/2
1 1
1 1 1
/2 /2 /2
(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.

For use by the first marker For use by the second marker
Required:
(Maximum of 30 words for each explanation)
Marks available
(i)
Define "historical cost accounting"
(ii)
Give an example to illustrate the use of historical cost accounting
(iii) Define "net realisable value"
(iv) Give an example to illustrate the use of net realisable value
(v)
Define "current cost accounting"
FAFN
20
November 2002
Question Four continued

Required:
(Maximum of 30 words for each explanation)
Marks available
(vi)
Define "economic value"
(vii)
Explain the effect on historical cost profit and asset values if current cost accounting is used rather than historical cost accounting, assuming rising prices.
(viii)
Define "capital maintenance"
Total Marks for Question Four =
3 20
November 2002
21
FAFN

Foundation Level
1
FAFN
21 May 2003 Wednesday 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. 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. 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 2-12) Answer the THREE questions in section B (these are on pages 13-19) 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.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct 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
Do not write in these 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. The effect of these errors is an A B C D 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
Do not write in these columns below 1.2 The cashier is reconciling his companys cash book with the bank statement at 31 March 2003. $ 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 B C D $11,840 $12,060 $12,860 $16,640
1.3 A B C D
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
Do not write in these 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. Which ONE of the following ledger entries should be made in A Ltds books at 31 March 2003? Debit A B C D Accruals Gas expense Accruals Gas expense NIL $1,400 $1,400 $2,100 Credit Gas expense Accruals Gas expense Accruals
NIL $1,400 $1,400 $2,100
1.5
The following information related to Q plc for the year ended 28 February 2003:
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 B C D $33,000 $40,000 $47,000 $54,000
$ 122,000 185,000 40,000 300,000
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 Advertising expense Advertising expense $ 4,000 4,700 4,700 Credit Creditors Creditors Creditors VAT account Creditors VAT account
4
A B C
$ 4,000 4,700 4,000 700 4,700 700

May 2003
Advertising expense
4,000
FAFN
Do not write in these 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. The effect of not correcting this error on the financial statements would be: A B C D 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
A B C D
$1,650 $1,700 $1,850 $1,900
1.9
The return on capital employed for S plc is 24% and the net asset turnover ratio is 3 times.
What is the net profit margin? A B C D 8% 28% 72% It cannot be calculated.
May 2003
FAFN
1.10
Which ONE of the following would NOT help detect errors in a computerised accounting system? The use of coding systems. The use of batch processing. The use of passwords. The use of control accounts.
A B C D
1.11
The total cost of salaries charged to a limited companys profit and loss account is cash paid to employees. net pay earned by employees. gross pay earned by employees. gross pay earned by employees, plus employers national insurance contributions.
A B C D
1.12
Which ONE of the following statements is TRUE?
A B C D
Internal auditors report to the directors. External auditors report to the directors. Internal auditors are employed by the shareholders. External auditors are employees of a company.
FAFN
May 2003
1.13
The following is the aged debtors analysis for J Ltd at 30 April 2003:
Age of debt Amount ($)
Less than 1 month 12,000
1-2 months 24,000
2-3 months 8,000
Over 3 months 6,000
The company provides for doubtful debts as follows: Provision 0% 1% 10% 30%
The doubtful debt provision at 1 May 2002 brought forward was $2,880. The entry for doubtful debts in the profit and loss account for the year ended 30 April 2003 and the net debtors figure in the balance sheet at that date should be: Profit and loss account $40 credit $40 debit $2,840 debit $2,840 credit Balance sheet $47,160 $47,160 $50,000 $47,160
A B C D
1.14
The following information relates to companies Q plc and R plc, who are competitors selling widgets: Q plc 30% 4 R plc 25% 5
Gross profit percentage Fixed asset turnover ratio 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 B C D (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
A B C D
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.
The balance on the suppliers account at the end of May 2003 is A B C D $1,015 $1,100 $1,185 $1,300
1.17
The main advantage of using a sales ledger control account is that
A B C D
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
Do not write in these columns below 1.18 The following information relates to J Ltd for the year ended 30 April 2003:
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 B C D a decrease in cash of $13,000. an increase in cash of $14,000. an increase in cash of $20,000. an increase in cash of $22,000.
$000 28,000 26,000 3,000 1,000 5,000 2,000 4,000 8,000 6,000
1.19
Which of the following is an appropriation of profit in a limited company?
A B C D
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. 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 B C D
$185 $260 $315 $375
1.21
An audit trail in a computerised accounting system is
A B C D
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: $000 200 50 25 80 60
Issued Ordinary shares of $1 Share premium account Profit and loss account Debenture Profit before interest for the year ended 31 January 2003 What is the return on total capital employed? A B C D 17% 22% 24% 30%
FAFN
10
May 2003
Do not write in these 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 2001 $000 140 130 115 75
Stock Debtors Trade creditors Other creditors
What figure should appear as part of the cash flow statement for the year ended 31 December 2002? A B C D $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.
A B C D
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. The net book value of the equipment at 31 December 2005 should be
A B C D
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

IMPORTANT MARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN. DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.
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 Payments Wages Shop supplies Ground maintenance Rent Lawnmower Repairs Receipts less payments Balance at bank 1 April 2002 Balance at bank 31 March 2003 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 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.
13 FAFN
$ 42,400 10,000 600 53,000
35,000 7,500 6,000 1,400 900 1,200 52,000 1,000 4,300 5,300
$ 38,500 1,500 2,400 42,400
May 2003
(iii)
Other assets and liabilities of the club were estimated as follows: 31 March 2002 $ 500 750 200 1,800 9,000 31 March 2003 $ 400 1,000 300 1,500 8,000
Employees tax owing Creditor for shop supplies Rent paid in advance Stock of shop supplies Equipment at valuation
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. WV Golf Club Shop Trading Account year ended 31 March 2003 $ $
Marks available
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: 8
FAFN
14
May 2003

Do not write in these columns below WV Golf Club Balance Sheet year at 31 March 2003
Marks available For use by the first marker For use by the second marker
$ Fixed assets Equipment Current assets
$
1
/2
Current liabilities
11/2
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.
(Maximum of 30 words) (ii) Explain ONE advantage (in the shaded area below) of an income and expenditure account compared to a receipts and payments account.
(Maximum of 30 words) Sub-total:
2 4
Question Two Total Marks =

May 2003 15
20
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. 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. 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.
(iv)
(v)
FAFN
16
May 2003
Required:
Prepare the journal entries for the transactions opposite by completing the shaded areas of the schedule below. You are NOT required to write a narrative for each journal. Dr $ Journal (i) Cr $
Marks available
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
(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:
3 9
FAFN
18
May 2003
Required:
Marks available
(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: Total:
11 20
May 2003
19
FAFN

Write your full examination number, your contact ID and your name on a double-sided card, which must be attached to this booklet here.
Foundation Level
1
FAFN
19 November 2003 Wednesday morning
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. 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. 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) Answer the THREE questions in section B 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 contact ID anywhere on this booklet.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct 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
Do not write in these columns below 1.1 A business is normally said to have earned revenue when
A B C D
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
November 2003
Do not write in these 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
$ 4,300 1,500 300 2,600 500
What would be the balance shown on the bank statement at 30 June 2003? A B C D 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 B C D $735,000 $845,000 $885,000 $1,095,000
November 2003
FAFN
Do not write in these 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.
A B C D
1.5
The following information relates to CFS plc:
Machinery Cost at 1 January 2002 Additions Disposal Cost at 31 December 2002 Provision for depreciation at 1 January 2002 Depreciation charge Disposal Provision for depreciation at 31 December 2002 The proceeds on disposal of the machine were $1,000.
$000 80 20 (10) 90 15 8 (6) 17
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 B C D Deduct $11,000 Add back $3,000 Add back $5,000 Add back $11,000
FAFN
November 2003
Do not write in these columns below 1.6 The accountant at S Limited is preparing quarterly accounts for Quarter 3. In Quarter 2, he had accrued $1,600 for gas and this balance was carried forward to Quarter 3. In Quarter 3, a gas bill of $2,700 was paid. The accountant has accrued $2,400 for gas in Quarter 3.
What should be the charge for gas in the profit and loss account for Quarter 3? A B C D $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.
A B C D
1.8
Internal auditors report to
A B C D
the management. the shareholders. the external auditors. the government.
November 2003
FAFN
Do not write in these 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.
Which of the following ledger entries should be made in A Limiteds accounts? A B C D Rent expense Rent expense Rent expense Rent expense $2,000 $2,050 $2,050 $2,100 Prepayment Prepayment Accrual Prepayment/accrual $400 $200 $200 Nil
1.10
T Limited purchased a machine costing $14,000 on 1 August 1999. The company estimated that the asset had a useful life of 4 years and an expected residual value of $2,000. The company uses the straight-line method of depreciation. The companys financial year end is 30 November. It is the companys policy to charge a full years depreciation in the year of purchase and none in the year of disposal. On 1 November 2002, the asset was sold for $4,500.
What should be the profit or loss on disposal in the year ended 30 November 2002? A B C D Loss $500 Loss $3,500 Loss $9,500 Profit $500
FAFN
November 2003
Do not write in these 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 (14) 34
31 August 2002 $000 14 18 10 42 (17) 25
DCF plc is preparing the cash flow statement for the year ended 31 August 2003. In relation to the items above, what should be the net adjustment to operating profit in order to determine the net cash flow from operating activities? A B C D 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) (ii) (iii) (iv) An invoice for $300 for rent has been omitted from the ledgers. A cash sale has been recorded as debit cash sales, credit cash. An invoice for vehicle expenses has been charged to the vehicle fixed asset account. A credit note for $500 for goods returned by a customer had been recorded in the correct ledgers, but as $5,000.
A B C D
(i) only (i) and (ii) only (i), (ii) and (iii) only All of them.
November 2003
FAFN
Do not write in these columns below 1.13 Which ONE of the following is NOT an intangible fixed asset?
A B C D
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.
What should be the annual depreciation charge for the years ended 31 December 2002 and 2003? A B C D $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 B C D Credit $4,000 Credit $2,000 Debit $2,000 Debit $4,000
FAFN
November 2003
Do not write in these columns below 1.16 Which of the following does NOT prevent fraud and errors?
A B C D
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. 2001 $ 8,000 5,000 4,000 17,000 2002 $ 10,000 7,000 6,000 23,000
Joining fees Annual fees Life membership fees
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 B C D $7,000 $11,500 $12,500 $23,000
November 2003
FAFN
Do not write in these 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.
What should be the final dividend received by X? A B C D $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. First In/ First Out $000 10 15 12 37 Net realisable value $000 20 11 14 45 Replacement cost $000 30 8 13 51
X1 X2 X3
At what value should the stock be stated in the statutory financial statements? A B C D $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.
A B C D
FAFN
10
November 2003
Do not write in these columns below 1.21 The style of management accounts within an enterprise is determined by
A B C D
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).
A B C D
1.23
The following information relates to P Ltd at 30 September: 2003 $000 60 50 20 2002 $000 40 85 28
Stock of raw materials Work-in-progress stock Stock of finished goods
For the year ended 30 September 2003: Purchases of raw materials 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 B C D $690,000 $732,000 $1,092,000 $1,135,000
11
November 2003
FAFN
Do not write in these 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: 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 3,000 3,510 Balance on payroll control account 1,410 700 1,000 1,410 Net pay 2,100 2,300 1,590 2,100
A B C D
1.25
Which of the following are normally produced in the month-end routine of a computerised accounting system?
(i) (ii) (iii) (iv) A B C D
Balances on all ledger accounts at the end of the month Balances on the debtors and creditors personal ledgers and the debtors and creditors control accounts Balance on stock (inventory) 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

IMPORTANT MARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN. DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.
Question Two
VA is a sole proprietor. He employs a book-keeper who uses an accounting software package to produce a trial balance. At the year end, his accountant manually prepares journal entries and asks the book-keeper to enter these into the accounting software package. The trial balance of VA at 31 August 2003 is set out below. Dr $ 8,000 2,000 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 Cr $ 20,000
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
The following additional information has been provided by the book-keeper to the accountant. (i) (ii) (iii) The stock at 31 August 2003 has been valued at $20,000. The prepayment for rent at 31 August 2003 is $2,000. 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. 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. The provision for doubtful debts is to be 5% of the debtors.
(iv) (v)
November 2003
13
FAFN
Required: (a)
Marks available
(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) sub-total:
1 5
FAFN
14
November 2003
Required: (a)
Marks available
(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 1
/2 /2 1 /2 1 /2 1 /2 1 /2 1 /2 1 /2 1 /2 Net profit sub-total: 7
November 2003
15
FAFN

Marks available
Fixed Asset
VA Balance Sheet at 31 August 2003 $ $ Provision for Cost

depreciation
$ 1
Current Assets
/2
1 1
/2 /2 1 /2 1 /2 Current Liabilities
1
/2
Net Current Assets Long-term Liability

1
/2
Capital at 1 September 2002

1 1
/2 /2 1 /2 Capital at 31 August 2003 Sub-total: 6
(b) VA is considering converting his business into a limited liability

company. He has asked his accountant about the differences between the accounts of a sole proprietor and those of a limited liability company. His accountant explained that one of the differences is that the accounts of a limited liability company must show a true and fair view. You are required to explain the meaning of a true and fair view in the shaded area below.
(maximum of 30 words) Sub-total: 2
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. Sales ledger control account balance at 1 October 2003 Credit sales Cheques received from customers Discounts allowed Returns inwards Bad debts written off 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 $ 20,000 200,000 175,000 4,000 5,000 7,000 500 3,000 600 24,500
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
1 1
/2 /2 1 /2 1 /2 1 /2 1 /2 1 /2 1 /2 1 /2 1 /2
Sub-total:
(b)
(i) (ii) (iii) (iv)
The following errors were subsequently discovered: The total of the sales day book had been over-cast by $1,000. 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. 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. 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. The schedule of the balances on the personal accounts in the sales ledger had been under-cast by $1,300.
(v)
November 2003
17
FAFN
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 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: 5
Marks available
$ Original balances at 31 October 2003
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:
Marks available
(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.
(maximum of 30 words)
(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.
(maximum of 30 words) Sub-total:
2 14
November 2003
19
FAFN
Required:
Marks available
(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.
(maximum of 30 words) Sub-total:
3 6
FAFN
20
November 2003

CIMA Financial Accounting Fundamentals Past Papers

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Foundation Level

Financial Accounting Fundamentals

The Chartered Institute of Management Accountants 2001

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SECTION A 50 MARKS ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

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Machinery VAT Creditors

Machinery VAT Creditors

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Stock, debtors, current liabilities (net)

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SECTION B 30 MARKS ANSWER BOTH QUESTIONS

(14 marks) (b) Calculate the following, as at 31 July 2000:

(6 marks) (Total = 20 marks)

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SECTION C 20 MARKS ANSWER ONE QUESTION ONLY

The year end of the company is 31 December.

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(5 marks) (Total = 20 marks)

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Financial Accounting Fundamentals

The Chartered Institute of Management Accountants 2001

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SECTION A 50 MARKS ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

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What is the correct account entry? DR $ 9,200 CR $ 9,200

Furniture VAT Supplier

8,000 1,200 6,800

Furniture VAT Supplier

8,000 1,200 9,200

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Stock Debtors Creditors Accruals

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SECTION B 30 MARKS ANSWER BOTH QUESTIONS

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(2 marks) (2 marks) (2 marks) (Total = 20 marks)

(5 marks) (Total = 10 marks)

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SECTION C 20 MARKS ANSWER ONE QUESTION ONLY

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Examination Question and Answer Book

Financial Accounting Fundamentals

For office use only

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SECTION A 50 MARKS ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

For office use only

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Space for workings to 1.3

Space for workings to 1.5

For office use only

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Space for workings to 1.6

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