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Fundamentals of financial accounting

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Question # 1

Refer to the exhibit.

Question # 1

A company has the following equity balances at the beginning of the year

During the year the company made a bonus issue of 1 for 4 shares

Question # 1

What are the equity balances after this issue?

Options:

A.  

A

B.  

B

C.  

C

D.  

D

Discussion 0
Question # 2

Which of the following would be a good method of segregating the duties of staff?

Options:

A.  

Employing separate persons to maintain the sales and purchase ledgers

B.  

Employing a wages specialist to calculate and deal with the payment of wages

C.  

Employing an experienced cashier to deal with all bank transactions

D.  

Employing a separate person to maintain and reconcile control accounts

Discussion 0
Question # 3

CDE, an entity registered for sales tax, purchases a piece of equipment for cash on 31 December 20X6 for $30,000 including sales tax. The sales tax rate is 20%. What is the journal entry required to record this transaction in the nominal ledger?

Place the labels in the corresponding position in the table below:

Question # 3

Options:

Discussion 0
Question # 4

Accounting codes have proven to be very useful when recording business transactions.

Which THREE of the following does a coding system help to do?

Options:

A.  

Reduce the number of transactions recorded

B.  

Improve the quality of reports

C.  

Reduce time taken to analyze transaction

D.  

Take away the need for books of prime entry

E.  

Combine roles for the receivables and payables ledger

F.  

Extract balances for suppliers and customers

Discussion 0
Question # 5

The trial balance shows the debit total as $200 less than the credit total.

This could be due to:

Options:

A.  

Entering $100 received from a customer on the debit side of the trade receivable's account

B.  

Entering $100 received from a customer on the credit side of the trade receivable's account

C.  

Under casting the sales daybook by $200

D.  

Under casting the purchases daybook by $200

Discussion 0
Question # 6

Which one of the following statements is true?

Options:

A.  

Internal auditors are employed by the management

B.  

External auditors are employed by the management

C.  

Internal auditors are employed by the stakeholders

D.  

External auditors are employed by the stakeholders

Discussion 0
Question # 7

Published accounts must include the following statements:

Options:

A.  

Income statement, statement of financial position and statement of cash flows

B.  

Manufacturing account, income statement, statement of financial position and statement of cash flows

C.  

Income statement and statement of financial position

D.  

Trading account, income statement and statement of financial position

Discussion 0
Question # 8

The record of how the profit or loss of a company has been allocated to distributions and reserves is found in the:

Options:

A.  

Reserves account

B.  

Appropriation account

C.  

Capital account

D.  

Retained profit account

Discussion 0
Question # 9

Andrew is valuing the closing inventory at the lower of cost and net realizable value.

Which of the following concepts dictates his choice?

Options:

A.  

Materiality concept

B.  

Money measurement concept

C.  

Accrual concept

D.  

Prudence concept

Discussion 0
Question # 10

Which of the following is an example of where the materiality convention should be applied?

Options:

A.  

Sales to a customer in September, but for which the cash was not received until October.

B.  

Inventory of stationery items remaining at the year end.

C.  

A proposed change in the method of depreciation of non-current assets.

D.  

A two-year construction contract.

Discussion 0
Question # 11

Refer to the Exhibit.

Question # 11

Which of the following would be shown in the trial balance for the bank ledger account?

Options:

A.  

$20 Debit

B.  

$1,070 Debit

C.  

$20 Credit

D.  

$1,070 Credit

Discussion 0
Question # 12

The draft accounts of KenDoo Ltd for the year ended 31 August 2006 showed a net profit of $10000.

During the audit, the following errors and omissions were discovered.

(a) Items valued at $3100 had been completely omitted from the closing stock figure.

(b) Accrual of electricity bill for $200 and insurance prepayment of $500 had been omitted.

(c) Equipment costing $12000, acquired on 1 September 2005, had been debited to the purchases acccount. (KenDoo Ltd depreciates equipment at 15% on the straight line basis).

Due to materiality, the directors of KenDoo Ltd agreed to adjust the accounts accordingly.

Incorporating the above adjustments, the revised net profit is

Options:

Discussion 0
Question # 13

Which ONE of the following statements is true?

Options:

A.  

It is the responsibility of the internal auditors to detect fraud

B.  

It is the responsibility of the external auditors to detect fraud

C.  

It is the responsibility of the management to detect fraud

D.  

It is the responsibility of the shareholders to detect fraud

Discussion 0
Question # 14

Internal controls can be split between detect controls and prevent controls.

Which THREE of the following are prevent controls?

Options:

A.  

Bank reconciliations

B.  

Checking invoices to goods received notes

C.  

Checking delivery notes to invoices

D.  

Signing goods received notes

E.  

Physical inventories

F.  

Recording all transactions

Discussion 0
Question # 15

The Accounting Standards Board is responsible for:

Options:

A.  

Producing the Companies Act

B.  

Governing the activities of the external auditors

C.  

Producing International Accounting Standards

D.  

Producing Financial Reporting Standards

Discussion 0
Question # 16

At 31 December year 1, the electricity expenses account had a closing accrual of $300 as a result a credit balance was brought down at 1 January year 2

During year 2, electricity invoices totaling $4,000 were paid, including an invoice for $600 for the three months ended 31 March year 3

The charge of electricity in the income statement for year 2 is $

Options:

Discussion 0
Question # 17

A trial balance is extracted from the ledger accounts at the end of each accounting period.

Which of the following will a trial balance do?

Options:

A.  

Prove the ledger account balances are correct

B.  

Highlight any errors of omission

C.  

Show that debit and credit balances agreed

D.  

Highlight errors of principle

Discussion 0
Question # 18

Which of the following are relevant to the total working capital days ratio calculation?

Options:

A.  

Inventories days

B.  

Receivables days

C.  

Payables days

D.  

Current assets

E.  

Current liabilities

F.  

Operating profit

Discussion 0
Question # 19

Which THREE of the following represent credit balances?

Options:

A.  

assets

B.  

liabilities

C.  

income

D.  

expenses

E.  

capital

F.  

drawings

Discussion 0
Question # 20

Which one of the following would not contribute to the prevention and detection of fraud?

Options:

A.  

Appointing a single well-qualified person to maintain the ledger accounts

B.  

Conducting an audit

C.  

Insisting that staff take holidays

D.  

Segregating the duties of staff

Discussion 0
Question # 21

Refer to the Exhibit.

Question # 21

You have been asked to prepare the sales ledger control account for the month of May, using the following information:

According to the accounts the opening receivables balance was £ 66,250

What is the closing receivables balance as at the end of May?

Options:

Discussion 0
Question # 22

The financial statements are produced in accordance with relevant accounting standards. This compliance ensures the requirement of fair presentation of transactions and events is met

How is this compliance emphasized?

Options:

A.  

Reconciliation procedures

B.  

Employment of qualified employees

C.  

Specific disclosure

D.  

Regular preparation of financial statements

Discussion 0
Question # 23

Refer to the Exhibit.

Question # 23

A company operates a FIFO system of inventory valuation. Opening inventory at the beginning of the period was 200 units @ £2.80 each. During the period the following movements of inventory were recorded.

The value of the closing inventory at the end of the period and amount charged to the income statement were:

Options:

A.  

Closing inventory £360.00 Income statement £2255.00

B.  

Closing inventory £360.00 Income statement £1895.00

C.  

Closing inventory £357.50 Income statement £1897.50

D.  

Closing inventory £360.00 Income statement £1695.00

Discussion 0
Question # 24

Refer to the Exhibit.

Question # 24

A company has the following transactions for an accounting period:

Closing inventory at the end of the period was $3,200 and gross profit was $16,400.

The opening inventory was therefore

Options:

Discussion 0
Question # 25

Refer to the exhibit.

Question # 25

A company's gross profit margin has fallen from 40% to 38% in the last period.

Which three of the following would be possible explanations for this?

Options:

A.  

A, B and C

B.  

D, E and F

C.  

B, C and F

D.  

A, D and E

Discussion 0
Question # 26

Refer to the Exhibit.

Question # 26

A club receives the following fees in its first two years of operations:

Entrance fees are to be recognized over a period of 5 years while life membership fees are to be credited over a period of 10 years.

The total amount of fees which will be recognized in the income and expenditure account for each of the two years is:

Options:

A.  

Year 1 - £27000 Year 2 - £38500

B.  

Year 1 - £27000 Year 2 - £44500

C.  

Year 1 - £27000 Year 2 - £45500

D.  

Year 1 - £36000 Year 2 - £49000

Discussion 0
Question # 27

Refer to the Exhibit.

Question # 27

John Taylor commenced business on 1 March 2006, paying $1,000 cash into a business bank account. During the next month the following transactions took place.

The balance on the bank account at the end of the month is:

Options:

A.  

$700 debit

B.  

$700 credit

C.  

$1,200 debit

D.  

$1,200 credit

Discussion 0
Question # 28

Which THREE of the below are possible reasons for an entity's capital amount to change?

Options:

A.  

New or withdrawn capital

B.  

Drawings

C.  

Depreciation of non-current assets

D.  

Net profit/loss

Discussion 0
Question # 29

At 1 June 20X9 XY has opening inventory of 80 units at a cost of $7.60 each XY purchases the following units during the month of June:

Question # 29

During June 20X9, XY sold 250 units at a price of $15.00 each XY uses the first in. first out (FIFO) method of inventory valuation What is the value of XYs closing inventory at 30 June 20X9? Give your answer to the nearest $.

Question # 29

Options:

Discussion 0
Question # 30

Which of the following statements is NOT correct?

Options:

A.  

A receipts and payments account is the equivalent of an income statement.

B.  

A receipts and payments account is the equivalent of a cash book summary.

C.  

A receipts and payments account does not include depreciation of non-current assets.

D.  

An income and expenditure account is the equivalent of an income statement.

Discussion 0
Question # 31

Company X wants to find the total of all the transactions from its sales account. Where should Company Xlook?

Options:

A.  

Sales control account

B.  

Sales ledger

C.  

Memorandum account

Discussion 0
Question # 32

The balances of the trial balance of CDE for the year ended 31 May 20X4 is as follows

Question # 32

What must the balance on the share capital account be at 31 May 20X4 if the trial balance is to balance? Give your answer in $’000

Question # 32

Options:

Discussion 0
Question # 33

Where a transaction is entered into the correct ledger accounts, but the wrong amount is used, the error is known as an error of

Options:

A.  

Original entry

B.  

Omission

C.  

Commission

D.  

Principle

Discussion 0
Question # 34

The Framework is described as a conceptual framework when used in the creation of new accounting standards.

Which ONE of the following describes the approach of the Framework?

Options:

A.  

Rules based

B.  

Principles based

C.  

Statutory

D.  

Regulatory

Discussion 0
Question # 35

Which one of the following best describes the purpose of an external audit of financial statements?

Options:

A.  

The auditor advises on the use of International Financial Reporting Standards.

B.  

The auditor checks the statements for evidence of fraud.

C.  

The auditor expresses an opinion on the truth and fairness of the financial statements.

D.  

The auditor expresses an opinion on corporate governance issues.

Discussion 0
Question # 36

DEF has the following equity balances at 1 June 20X7.

Question # 36

On 30 June 20X7 DEF issued 200.000 new shares at their full market price of $1 75.

What are the equity balances of DEF after issuing these shares?

A)

Question # 36

B)

Question # 36

C)

Question # 36

D)

Question # 36

Options:

A.  

Option A

B.  

Option B

C.  

Option C

D.  

Option D

Discussion 0
Question # 37

Refer to the Exhibit.

Question # 37

What is the correct ledger entry for purchase of goods on credit?

The answer is:

Options:

A.  

Option A

B.  

Option B

C.  

Option C

D.  

Option D

Discussion 0
Question # 38

Below is some information about Company TYY:

TYY offers a wholesale price for Product P of £650 per 100 quantity.

TYY offers regular customers a 35% trade discount.

On every 15th of the month, TYY offers a 15% cash discount on sales.

MPU wants to make a purchase from TTY for the first time, of900 Product Ps on the 15th of June. How much will MPU pay for this purchase?

Options:

A.  

£3,232.13

B.  

£4,972.50

C.  

£3802.50

D.  

£5,850.00

Discussion 0
Question # 39

A company's financial statements show a gross profit of $15 million. A major error in the inventory value system has been discovered resulting in an overstatement on opening inventory of $1.2 million and an understatement in closing inventory of $1.5 million.

What is the correct gross profit figure for the period?

Options:

A.  

$17.7 million

B.  

$15.3 million

C.  

$14.7 million

D.  

$12.3 million

Discussion 0
Question # 40

Financial statements should present fairly the financial position, financial performance and cash flows of an entity. In virtually all circumstances, a fair presentation is achieved by..........

Which of the following?

Options:

A.  

Employing a qualified accountant

B.  

Ensuring all transactions are recorded

C.  

Performing regular reconciliations

D.  

Compliance with applicable IFRSs

Discussion 0
Question # 41

Which one of the following statements is true?

Options:

A.  

Expenses accrued are current assets

B.  

Depreciation is an example of an accrued expense

C.  

Expenses accrued are deducted from the figure in the trial balance in arriving at the income statement charge for that item

D.  

Expenses accrued decrease the profit of an organization

Discussion 0
Question # 42

Entity V has a cost of sales of £23,850 for last year. Entity V's opening inventories for the year were £15,800, and its closing inventories were £3,570. Entity V had a gross profit margin of 240% for last year.

What was Entity V's inventories turnover figure to the nearest whole number for last year?

Options:

A.  

2

B.  

3

C.  

4

D.  

3

Discussion 0
Question # 43

A club receives subscriptions during 2006 of £4600. Of these £500 related to subscriptions in respect of 2005 and £400 related to subscriptions in advance for 2007.

The accounts for 2005 included an accrual of £600 for subscriptions in arrears; the balance of £100 which has still not been received, should be written off.

The figure for subscriptions in the income and expenditure account for 2006 will be

Options:

Discussion 0
Question # 44

A business will maintain a non-current asset register to keep a record of all non-current assets held.

Which THREE of the following are examples of information contained within the register?

Options:

A.  

Cost of asset

B.  

Useful economic life

C.  

Insurance cost details

D.  

Maintenance cost details

E.  

Purchase date

F.  

Proposed date of sale

Discussion 0
Question # 45

A company uses the reduced balance method of depreciation for its company vehicles. The vehicles are depreciated at a rate of 30% per annum.

On 31 March 2003 the company purchased a number of vehicles with a total cost of $200,000. The company's year-end is 31 December and it is company policy to charge a full year's depreciation in the year of acquisition.

The carrying value of the vehicles at 31 December 2006 will be

Options:

Discussion 0
Question # 46

Refer to the exhibit.

Question # 46

The following is an extract from the trial balance of a business for its most recent year:

Net profit before tax has already been calculated as being £27m. Income tax of £5m is to be provided, and a final dividend of 30p per share is declared.

Using some or all of the figures above, the correct figure of retained profit for the year is

Options:

Discussion 0
Question # 47

Which of the following are examples of indirect costs for a chocolate manufacturing business?

Options:

A.  

Factory rent

B.  

Factory insurance

C.  

Factory supervisor wages

D.  

Purchase of milk

E.  

Purchase of cocoa

Discussion 0
Question # 48

Which of the following is the final document in the audit trail?

Options:

A.  

Receipt

B.  

Purchase order

C.  

Invoice

D.  

Credit note

Discussion 0
Question # 49

The prime cost of goods manufactured is the total of:

Options:

A.  

All factory costs of goods completed

B.  

All factory costs before adjusting for work in progress

C.  

Direct materials, labor and overheads

D.  

All materials and labor

Discussion 0
Question # 50

The sales ledger control account shows a balance of £236,725, whilst the individual customer balances total £231,472.

One possible explanation for the difference between the two may b

E.  

Options:

A.  

An invoice for £5,253 has been recorded in the sales ledger but not in the sales day book

B.  

A payment for £5,253 has been recorded in the cashbook but not in the sales ledger

C.  

The sales day book has been overcast by £5,253

D.  

The sales daybook has been undercast by £5,253

Discussion 0
Question # 51

Accounting standards are needed so that financial statements will fairly and consistently describe financial performance.

What are accounting standards an example of?

Options:

A.  

Principles based accounting

B.  

Cash accounting

C.  

Cost accounting

D.  

Rules based accounting

Discussion 0
Question # 52

AB wrote off a $500 debt owed by CD last year During the current year CD has paid the $500 in full AB has debited the bank account with S500.

Where would the credit entry for this receipt be recorded?

Options:

A.  

Allowance for receivables

B.  

Irrecoverable debts expense

C.  

Sates ledger control account

D.  

Receivables account of CD

Discussion 0
Question # 53

A sole trader made a net profit of $8000 for the year.

During the year, inventory increased by $500, receivables decreased by $800 and payables increased by $2400.

This would result in:

Options:

A.  

An increase in cash flow of $10100

B.  

A decrease in cash flow of $10100

C.  

An increase in cash flow of $10700

D.  

A decrease in cash flow of $10700

Discussion 0
Question # 54

Which of the following represent items of income for a business?

Options:

A.  

Discount received, revenue & carriage outwards

B.  

Revenue, bank interest & bad debts

C.  

Discount allowed, bank interest & revenue

D.  

Revenue, discount received & bank interest

Discussion 0
Question # 55

MM does not maintain complete accounting records The following information is available for the year ended 31 December 20X3.

Question # 55

The mark up on items sold by MM is 20%

What is the figure for purchases to be included in MM's statement of profit or loss for the year ended 31 December 20X3?

Options:

A.  

$61,000

B.  

$61,500

C.  

$63,500

D.  

$59,000

Discussion 0
Question # 56

An internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization

Which of the following appoints the internal auditor?

Options:

A.  

The Board

B.  

Finance director

C.  

Shareholders

D.  

Internal audit manger

Discussion 0
Question # 57

Refer to the Exhibit.

Question # 57

Soffit plc is calculating its irrecoverable debt charge and allowance for receivables for inclusion in its year-end accounts. Based on an aged receivables schedule, it is estimated that an allowance for receivables of $125,820 is required.

In addition, a specific allowance for receivables of $18,640 is also required for two customers who are experiencing cash flow difficulties. There are also two customers who have gone into receivership while owing the company $6,300. The current allowance for receivables is $156,000.

Which is the correct entry to be made to the accounts to record these transactions?

Options:

A.  

A

B.  

B

C.  

C

D.  

D

Discussion 0
Question # 58

A public limited company declares a 10% final dividend.

The nominal value of the shares is 50p and the shares are currently trading, in the stock market, at a price of £2.

A shareholder who purchased 1000 shares at a price of £1.00 per share, will receive a dividend of:

Give your answer to 2 decimal places.

Options:

Discussion 0
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