INTERPRETATION OF FINANCIAL STATEMENTS

1) Xena has the following working capital ratios:

20X9 20X8
Current ratio 1:2:1 1:5:1
Receivables days 75 days 50 days
Payables days 30 days 45 days
Inventory turnover 42 days 35 days

Which of the following statements is correct?

a) Xena’s liquidity and working capital has improved in 20X9.
b) Xena is receiving cash from customers more quickly in 20X9 than in 20X8.
c) Xena is suffering from a worsening liquidity position in 20X9.
d) Xena is taking longer to pay suppliers in 20X9 than in 20X8.

2) Which of the following statements is true?

a) The interpretation of an entity’s financial statements using ratios is only useful for
potential investor.
b) Ratios based on historical data can predict the future performance of an entity.
c) The analysis of financial statements using ratios provides useful information when
compared with previous performance or industry averages.
d) An entity’s management will not assess an entity’s performance using financial ratios.

3) The following extracts are from Hassan’s financial statements:

Profit before interest and tax 10,200

Interest (1,600)
Tax (3,300)
Profit after tax 5,300

Share capital 20,000

Reserves 15,600
35,600
Loan liability 6,900
42,500

What is Hassan’s return on capital employed?

a) 15%
b) 29%
c) 24%
d) 12%
4) A company has the following details extracted from its Statement of Financial Position:
$000
Inventories 2,100
Receivables 1,100
Bank overdraft 700
Payables 1,200

What will be the working capital after the following transactions?

- Sale of inventory worth $800 for $950 on credit.
- A receivable of $200 has been declared bankrupt.

a) $2,250
b) $1,250
c) $300
d) $2,050

5) A company’s gearing ratio would rise if:

a) A decrease in long term loans is less than a decrease in shareholders’ funds
b) A decrease in long term loans is more than a decrease in shareholders’ funds
c) Interest rates rose
d) Dividends were paid

6) Working capital will reduce by $500 if:

a) Goods costing $3,000 are sold for $3,500 on credit
b) Goods costing $3,000 are sold for $3,500 on cash
c) Non-current assets costing $500 are purchased on credit
d) Non-current assets with a net book value of $750 are sold for $250 on cash

7) Sales are $110,000. Purchases are $80,000. Opening inventory is $12,000. Closing
inventory is $10,000. What is the inventory turnover?
a) 7.27 times
b) 7.45 times
c) 8 times
d) 10 times

8) A company’s working capital was $43,200. Subsequently, the following transactions

occurred.
1. Suppliers were paid $3,000 by cheque.
2. An irrecoverable debt of $250 was written off.
3. Inventory valued at $100 was sold for $230 on credit.

Working capital is now:

a) $43,080 c) $40,080
b) $46,080 d) $42,850
9) Which of the following transactions would result in an increase in capital employed?
a) Selling inventories at a profit
b) Writing off a bad debt
c) Paying a creditor in cash
d) Increasing the bank overdraft to purchase a non-current asset

10) The capital of a limited liability company is made up as follows:

$m
Issued ordinary share capital 1,000
Share premium account 500
Accumulated profits 3,000
8% loan notes 1,500

Which of the following calculations of the company’s gearing ratio, based on these
figures, is correct?
a) 1,500/6,000 = 25%
b) 4,500/1,500 = 300%
c) 4,500/6,000 = 75%
d) 1,500/1,000 = 150%

11) From the following information regarding the year to 31 August 20X6, what is the
payables’ payment period?
$
Sales 43,000
Cost of sales 32,500
Opening inventory 6,000
Closing inventory 3,800
Payables at 31 August 20X6 4,750

a) 38 days
b) 50 days
c) 42 days
d) 57 days

12) A company’s gross profit as a percentage of sales increased from 24% in the year end
31 December 20X1 to 27% in the year ended 31 December 20X2. Which of the
following events is most likely to have caused the increase?
a) An increase in sales volume.
b) A purchase in December 20X1 mistakenly being recorded as happening in January
20X2.
c) Overstatement of the closing inventory at 31 December 20X1.
d) Understatement of the closing inventory at 31 December 20X1.
13) Extracts from the financial statements of Kafka, a limited liability company, are given
below:
Statement of Financial Position Statement of Profit or Loss and OCI
As at 30 June 2006 For the year ended 30 June 2006
$m $m
Non-current assets 15 Operating profit 8
Current assets 14 Finance cost (2)

29 Profit for the year 6

Ordinary share capital 10

Share premium account 3
Retained earnings 7

20
10% Loan notes 5
Current liabilities 4

29

Using these figures, which of the following are correct calculations of return on total
capital employed (ROCE) and return on owners’ equity (ROOE)? (Tax ignored)
ROCE ROOE
a) 8/25 = 32% 6/10 = 60%
b) 8/25 = 32% 6/20 = 30%
c) 6/25 = 24% 8/20 = 40%
d) 8/20 = 40% 6/20 = 30%

14) Which one of the following formulas would give a valid calculation of a company’s
gearing ratio?
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
a) × 100
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠

𝐿𝑜𝑎𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

b) × 100
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑟𝑒𝑠𝑒𝑟𝑣𝑒𝑠

c) × 100
𝐿𝑜𝑎𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

𝐿𝑜𝑎𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

d) × 100
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦+𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙+𝐿𝑜𝑎𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙

15) A company’s gross profit percentage on sales has decreased by 5% in 2002 compared
with 2001. Which one of the following matters could have caused the decrease?
 a) The level of sales in 2002 is lower than that in 2001.
b) There have been more bad debts in 2002 than in 2001.
c) Inventory at the end of 2002 is lower than that at the end of 2001.
d) Theft of inventory by staff and customers has increased.

16) A company’s summarized financial statements, ignoring tax, are shown below:
Statement of Profit or Loss and OCI Statement of Financial Position
$m $m
Profit before interest 200 Non-current assets 1,000
Interest paid (80) Net current assets 1,600

Profit after interest 120 2,600

Dividends paid (40) --------
----- Ordinary share capital 1,000
Retained profit 80 Reserves 800

1,800
Loan capital 800

2,600

What is the correct calculation of return on shareholders’ capital employed (equity)?

a) 120/1,800 = 16.7%
b) 200/2,600 = 7.7%
c) 40/1,800 = 2.2%
d) 120/1,000 = 12%

17) When calculating a company’s gearing ratio which of the following factors would
cause it to fall?
1. A rights issue of ordinary shares.
2. An issue of loan notes.
3. An upward revaluation of non-current assets.

a) 1 only
b) 1 and 2
c) 2 and 3
d) 1 and 3

18) A company has the following current assets and liabilities at 31 October 20X8:
$’000
Current assets: Inventory 970
Receivables 380
Bank 40
1,390
 Current liabilities: Payables 420

When measured against accepted ‘norms’, the company can be said to have:
a) A high current ratio and an ideal acid test ratio.
b) An ideal current ratio and a low acid test ratio.
c) A high current ratio and a low acid test ratio.
d) Ideal current and acid test ratios.

The following information is relevant for questions 19 and 20.

Extracts from a company’s financial statements for 2005 are given below:
Statement of financial position Statement of Profit or Loss and OCI
As at 31 December 2005 For the year ended 31 December 2005
$m $m
Non-current assets 90 Profit before finance cost 20
Current assets 80 Finance costs (5)

170 Profit before tax 15

Ordinary share capital 40

Share premium account 25
Retained earnings 35

100
10% Loan notes 50
Current liabilities 20

170

19) What is the company’s return on total capital employed?

a) 20/150 = 13.3%
b) 15/150 = 10%
c) 20/100 = 20%
d) 15/100 = 15%

20) What is the company’s return on shareholders’ equity?

a) 15/40 = 37.5%
b) 20/100 = 20%
c) 15/100 = 15%
d) 20/150 = 13.3%
IRRECOVERABLE DEBT

1) Gordon Ltd’s accounts receivable totalled $80,000 at the year end. These include $900 of
long overdue debts that might still be recoverable, but for which the company has created
an allowance for irrecoverable debts. The company has also provided an allowance of
$1,582, which is 2% of the other accounts receivable balances.
What best describes Gordon Ltd’s irrecoverable debt allowance as at its year end?

a) A specific allowance of $900 and a general allowance of $1,582

b) A specific allowance of $1,582 and a general allowance of $900
c) A specific allowance of $2,482
d) A general allowance of $2,482

2) The opening balance on Jewel plc’s receivables expense allowance was $1,000. Jewel plc
wrote off $4,000 of irrecoverable debts during the year. The closing balance on the
irrecoverable debts allowance was $1,200.
What is the total charge to Jewel plc’s Statement of Profit or Loss in respect of receivables
expense for the year?

a) $200
b) $3,800
c) $4,000
d) $4,200

3) A company has been notified that a trade receivable has been declared bankrupt. The
company had previously provided for this as doubtful. Which of the following is the
correct double entry?
Debit Credit

a) Irrecoverable and doubtful debts account Receivables

b) Receivable Irrecoverable and doubtful debts account
c) Allowance for doubtful debts Receivables
d) Receivables Allowance for doubtful debts
4) The turnover in a company was $2 million and its accounts receivable were 5% of
turnover. The company wishes to have an allowance for doubtful debts of 4% of
receivables, which would make the allowance one-third higher than the current
allowance.
How will the profit for the period affected by the change in allowance?

a) Profit will be reduced by $1,000

b) Profit will be increased by $1,000
c) Profit will be reduced by $1,333
d) Profit will be increased by $1,333

5) The allowance for doubtful debts in the ledger of B Ltd at 31 October 20X1 was $9,000.
During the year ended 31 October 20X2, irrecoverable debts of $5,000 were written off.
Accounts receivable balances at 31 October 20X2 were $120,000 and the company policy
is to have a general allowance of 5%.
What is the charge for Receivables expense in the Statement of Profit or Loss for the year
ended 31 October 20X2?

a) $2,000
b) $3,000
c) $5,000
d) $8,000

6) During the year ended 31 December 20X9 Folland’s turnover totaled $3,000,000, its
accounts receivable amounting to 4% of turnover for the year. Folland wishes to maintain
its irrecoverable debt allowance at 3% of accounts receivable, and discovers that the
allowance, as a result is 25% higher than it was a year before. During the year specific
irrecoverable debts of $3,200 were written off and irrecoverable debts (written off three
years previously) of $150 were recovered.
What is the net charge for irrecoverable and doubtful debts for the year ended 31
December 20X9?

a) $720
b) $900
c) $3,770
d) $3,950
7) Which of the following statements concerning an allowance for receivables is correct?
a) All business should create an allowance for irrecoverable debts in case credit sale
customers do not pay their debts
b) The receivables account balance is written off when a specific allowance for
irrecoverable debts for that customer is created
c) Setting up an allowance for irrecoverable debts account enables a business to apply the
accruals concept by matching the estimated future irrecoverable debts against revenue
recognized in a period
d) The allowance will always increase as the value of sales revenue recognized increases as
a firm expands.

8) An irrecoverable debt written off two years ago is unexpectedly recovered and entered
in the accounts receivable ledger column in the cash book.
What adjustment, if any, will be necessary – assuming that the receipt was treated as sales
ledger cash?

Debit Credit

a) Irrecoverable debts account Accounts receivable ledger control

account

b) Accounts receivable ledger control Irrecoverable debts account

account

c) Suspense account Irrecoverable debts account

d) No adjustment will be necessary

9) An increase in the allowance for doubtful debts results in:

a) A decrease in current liabilities
b) An increase in net profit
c) An increase in working capital
d) A decrease in working capital
10) At 30 September 20X4, Z Ltd had a allowance for doubtful debts of $37,000. During the
year ended 30 September 20X5 the company wrote off debts totaling $18,000 and at the
end of the year it is decided that the allowance for doubtful debts should be $20,000.
What should be included in the Statement of Profit or Loss for irrecoverable and doubtful
debts?

a) $35,000 debit
b) $1,000 debit
c) $38,000 debit
d) $1,000 credit

11) At 31 March Sally was owed $47,744 by her customers. At the same date her doubtful
debts allowance was $3,500.
How should these balances be reported on Sally's statement of financial position at 31
March?

a) $44,244 as a current asset

b) $3,500 as a current asset and $47,744 as a current liability
c) $47,744 as a current asset and $3,500 as a current liability
d) $51.244 as a current asset

12) What is the purpose of maintaining an allowance for doubtful debts?

a) An estimate of future irrecoverable debts
b) Records the expense of irrecoverable debts
c) Matches the estimated cost of future irrecoverable debts against the revenue earned in
giving rise to the potential irrecoverable debts
d) Records irrecoverable debts without taking them out of the books of an entity, thus
showing the gross and expected amount owned by trade receivables as a current asset

13) The existence of an allowance for irrecoverable or doubtful debts

a) Increases the total of current liabilities
b) Reduces the cost of sales
c) Reduces the total of current assets
d) None of above
14) If a credit balance exists in a trade receivable’s ledger account, this means that:
a) The amount owed by the trade receivable is now considered as a irrecoverable debt
b) One or more cheques of the trade receivables has bounced
c) The firm owes money to the trade receivable
d) An allowance should be made specifically against the trade receivable account

15) A transfer to close the irrecoverable debts’ account is to:

a) The statement of financial position
b) The Statement of Profit or Loss
c) The trading account
d) The allowance for irrecoverable debts account

16) Which of the following statements concerning an allowance for irrecoverable debts is
correct?
a) All business should create a allowance for irrecoverable debts in caser credit sale
customers do not pay their debts
b) The receivables account balance is written off when a specific allowance for
irrecoverable debts for that customer is created
c) Setting up a allowance for irrecoverable debts account enables a business to apply the
accruals concept by matching the estimated future irrecoverable debts against revenue
recognized in a period
d) The allowance will always increase as the value of sales revenue recognized increases as
affirm expands.

17) At 31 December 20X2 a company's receivables totalled $400,000 and an allowance for
receivables of $50,000 had been brought forward from the year ended 31 December
20X1. It was decided to write off debts totalling $38,000 and to adjust the allowance for
receivables to 10% of the receivables.
What charge for irrecoverable debts and receivables allowance should appear in the
company's Statement of Profit or Loss for the year ended 31 December 20X2?

a) $74,200
b) $51,800
c) $28,000
d) $24,200
18) At 30 September 20X2 a company's allowance for receivables amounted to $38,000,
which was five percent of the receivables at that date. At 30 September 20X3 receivables
totalled
$868,500. It was decided to write off $28,500 of debts as irrecoverable and to keep the
allowance for receivables at five per cent of receivables.
What should be the charge in the Statement of Profit or Loss (income statement) for the
year ended 30 September 20X3 for irrecoverable debts and allowance for receivables?

a) $ 42,000
b) $ 33,925
c) $ 70,500
d) $ 32,500

19) Sonia creates allowance for doubtful debts according to the length of time the debt has
been outstanding. At 31 May 20X1 the analysis of accounts receivable balances and the
associated allowance was:
Time debt has been outstanding Allowance required Balance at 31 May 20X1

Less than 31 days Nil 32,700

31 – 60 days 4% of balances 16,900

Over 60 days 50% of balances 8,750

If the balance at 1st June 20X0 was $5,600, what adjustment should be made to the doubtful
debts allowance?

a) An increase of $5,051
b) A decrease of $5,051
c) An increase of $549
d) A decrease of $549
20) The following balances relate to Pure Ltd.?
$

Receivables at 1.1.X8 34,500

Cash received from credit customers 229,900

Contra with payables 1,200

Discounts allowed 17,890

Cash sales 24,000

Irrecoverable debts 18,600

Increase in allowance for receivables 12,500

Discount received 15,670

Receivables at 31.12.X8 45,000

What is the revenue figure reported by Pure Ltd. in the year ended 31 December 20X8?

a) $275,780
b) $278,090
c) $290,590
d) $302,090
EVENTS AFTER THE REPORTING PERIOD

1) The issued share capital of Alpha, a limited liability company, is as follows:

Ordinary shares of 10c each 1,000,000

8% preference shares of 50c each 500,000

In the year ended 31 October 20X2, the company has paid the preference dividend for the
year and an interim dividend of 2c per share on the ordinary shares. A final ordinary
dividend of 3c per share was proposed, before the statement of financial position (balance
sheet) date.

What is the total amount of dividends relating to the year ended 31 October 20X2?

a) $580,000
b) $90,000
c) $130,000
d) $240,000

2) When a company makes a right issue of equity shares which of the following effects will
the issue have?
1. Assets are increased
2. Retained earnings are reduced
3. Share premium account is reduced
4. Investments are increased

a) 1 only
b) 1 and 2
c) 3 only
d) 1 and 4
3) Which of the following items may appear as current liabilities in a company’s statement of
financial position?
1. Non-controlling interests in subsidiaries
2. Loan due for repayment within one year
3. Taxation
4. Preference dividend payable

a) 1,2 and 3
b) 1,2 and 4
c) 1,3 and 4
d) 2,3 and 4

4) A company made an issue for cash of 1,000,000 50c shares at a premium of 30c per share.
Which of the following journal entries correctly records the issue?

Debit Credit
$ $
a) Share capital 500,000
Share premium 300,000
Bank 800,000

b) Bank 800,000
Share capital 500,000
Share premium 300,000

c) Bank 1,300,000
Share capital 1,000,000
Share premium 300,000

d) Share capital 1,000,000

Share premium 300,000
Bank 1,300,000
5) Which of the following might appear as an item in a company’s statement of changes in
equity?
1. Profit on disposal of properties
2. Surplus on revaluation of properties
3. Equity dividends proposed after the statement of financial position (balance sheet) date.
4. Issue of share capital.

a) 1,3 and 4 only

b) 2 and 4 only
c) 1 and 2 only
d) 3 and 4 only

6) At 31 December 20X2 the following matters require inclusion in a company’s financial

statements:
1. On 1 January 20X2 the company made a loan of $12,000 to an employee, repayable on
30 April 20X3, charging interest at 2 per cent per year. On the due date she repaid the
loan and paid the whole of the interest due on the loan to that date.
2. The company has paid insurance $9,000 in 20X2, covering the year ending 31 August
20X3.
3. In January 20X3 the company received rent from a tenant $4,000 covering the six
months to 31 December 20X2.
For these items, what total figures should be included in the company’s statement of
financial position (balance sheet) at 31 December 20X2?

Current assets Current liabilities

$ $

a) 22,000 240

b) 22,240 NIL

c) 10,240 NIL

d) 16,240 6,000
7) At 31 December 20X1 the capital structure of a company was as follows:

Ordinary share capital

100,000 share of 50c each $50,000

Share premium account $180,000

During 20X2 the company made a bonus issue of 1 share for every 2 held, using the share
premium account for the purpose, and later issued for cash another 60,000 shares at 80c
per share.

What is the company’s capital structure at 31 December 20X2?

Ordinary share capital Share premium account

$ $

a) 130,000 173,000

b) 105,000 173,000

c) 130,000 137,000

d) 105,000 137,000

8) Which of the following statements about company financial statements is/are correct,
according to International Financial Reporting standards?
1. A material profit or loss on the sale of part of the entity must appear in the Statement of
Profit or Loss and Other Comprehensive Income as an extraordinary item
2. Dividends paid and proposed should be included in the Statement of Profit or Loss and
Other Comprehensive Income
3. The Statement of Profit or Loss and Other Comprehensive Income smust show separately
any material profit or loss from operations discontinuing during the year
4. The statement of changes in equity must not include unrealized gains or losses

a) 1, 2 and 3
b) 2 and 4
c) 3 only
9) Which of the following items are required to be disclosed in a limited liability company’s
financial statements according to IAS 1 Presentation of Financial Statements?
1. Authorized share capital
2. Finance costs
3. Staff costs
4. Depreciation and amortisation

a) 1, 2 and 3 only
b) 2, 3 and 4 only
c) All four items

10) At 30 June 20X2 a company’s capital structure was as follows:

$

Ordinary share capital

500,000 shares of 25c each 125,000

Share premium account 100,000

In the year ended 30 June 20X3 the company made a rights issue of 1 share for every 2 held
at $1 per share and this was taken up in full. Later in the year the company made a bonus
issue of 1 share for every 5 held, using the share premium account for the purpose.

What was the company’s capital structure at 30 June 20X3?

Ordinary share capital Share premium account

$ $

a) 450,000 25,000
b) 225,000 250,000
c) 225,000 325,000
d) 212,500 262,500
11) The following information is relevant to Wimbledon:
$

Opening inventory 12,500

Closing inventory 17,900
Purchases 199,000
Dist. Costs 35,600
Admin expenses 78,800
Audit fee 15,200
Carriage in 3,500
Carriage out 7,700
Depreciation 40,000

Depreciation is split in the ratio 30:70 between the office and factory

What is the cost of sales?

a) $233,600
b) $221,600
c) $225,100
d) $237,100

12) Brown has $100,000 50c shares and $400,000 8% irredeemable preference shares in issue.
A dividend of 3c per ordinary share and half of the preference dividend were paid during
the year.
Which of the following statements are true?

1) An ordinary dividend of $3,000 is paid during the year

2) A preference dividend of $16,000 is accrued at the end

a) 1 only
b) 2 only
c) Neither 1 nor 2
d) Both 1 and 2
13) At 1 October 20X6, Ozber’s capital was structured as follows:
$

Ordinary shares of 25c 100,000

Share premium 30,000

On 10 January 20X7, in order to raise finance for expansion, there was a 1 for 4 rights issue
at $1.15. The issue was fully taken up. This was followed by a 1 for 5 bonus issue on 1 June
20X7.

What is the balance on the share premium account after these transactions? 95.000

14) Where in a company’s financial statements complying with international accounting

standards, should you find dividends paid?
1) Statement of profit or loss
2) Statement of financial position
3) Statement of cash flows
4) Statement of changes in equity

a) 1 and 3
b) 2 and 3
c) 1 and 4
d) 3 and 4

15) Where in the financial statements should tax on profit for the current period and
unrealized surplus on revaluation of properties, be separately disclosed?
Tax on profit for the current period Unrealized surplus on revaluation of
properties

a) Statement of profit or loss Statement of cash flows

b) Statement of changes in equity Statement of profit or loss
c) Statement of profit or loss Statement of profit or loss & OCI
16) The following information is available about a company’s dividends:
Sept 20X5 Final dividend for the year ended 30 June 20X5 paid $ 100,000

(declared August 20X5)

March 20X6 Interim dividend for the year ended 30 June 20X6 paid $ 40,000

Sept 20X6 Final dividend for the year ended 30 June 20X6 paid $120,000
(declared August 20X6)

What figures, if any, should be disclosed in the company’s Statement of Profit or Loss and
Other Comprehensive Incomefor the year ended 30 June 20X6 and its statement of financial
position at that date?

Statement of profit or loss Statement of financial position

a) $160,000 deduction $120,000

b) $140,000 deduction Nil
c) Nil $120,000
d) Nil Nil

17) Which of the following statements are correct?

1) A company might make a rights issue if it wished to raise more equity capital
2) A rights issue might increase the share premium account whereas a bonus issue is likely
to reduce it
3) A rights issue will always increase the number of shareholders in a company whereas a
bonus issue will not
4) A bonus issue will result in the market value of each share increasing

a) 1 and 2
b) 1 and 3
c) 2 and 3
d) 2 and 4
18) Flora, a limited liability company, shows an overprovision of $3,400 on its tax liability
account at the end of the year ended 31 December 20X8 before accounting for that year’s
tax charge.
It estimates tax on profits for the year to be $67,900.

What amounts should be shown in the financial statements for the year ended 31
December 20X8 in respect of tax?

Statement of profit or loss Statement of financial position

a) $67,900 tax charge $67,900 tax payable

b) $64,500 tax charge $64,500 tax payable
c) $64,500 tax charge $67,900 tax payable
d) $71,300 tax charge $67,900 tax payable

19) Classify the following assets and liabilities as current or non-current in Albatross, a limited
liability company’s account:
1) A sale has been made on credit to a customer. They have agreed to terms stating that
payment is due in 12 months time.
2) A bank overdraft facility of $30,000 is available under an agreement with the bank which
extends 2 years.
3) A company has bought a small number of shares in another company which it intends to
trade.
4) A bank loan has been taken out with a repayment date 5 years hence.

Current Non-current

a) 2 and 3 1 and 4
b) 3 only 1, 2 and 4
c) 1, 2 and 3 4
d) 1 and 3 2 and 4
20) Extracts from the accounting records of Andratx, a company, relating to the year ended 31
December 20X6 are as follows:
Revaluation surplus $230,000

Ordinary interim dividend paid $12,000

Profit before tax $178,000

Estimated tax liability for year $45,000

8% $1 preference shares $100,000

Under-provision for tax in previous year $5,600

Proceeds of issue of 2,000 $1 ordinary shares $5,000

Final ordinary dividend proposed $30,000

What is the total change reported in the statement of changes in equity for the year?

a) $312,400
b) $356,000
c) $348,000
d) $342,400