FA-2

Practice Test Set 3

1. Which of the following relates to the principle of going concern?
a. It separates the individual who owns the business from the business itself
b. It assumes that the business will continue in operation for the foreseeable future
c. It requires that caution should be applied when exercising judgement about uncertainties
d. It requires that expenditure incurred in a particular accounting period should be accounted for in
that period


2. What accounting principle is described by the following statement?
'For accounting purposes, a business is separate from its owners.'
a. Business entity
b. Going concern
c. Accruals
d. Materiality


3. Which of the following statements about accounting records is/are true?
(1) Accounting records include documents received by a business such as supplier invoices
(2) Businesses are legally required to keep accounting records
a. Statement 1 only
b. Statement 2 only
c. Neither statement
d. Both statements


4. When goods are sold on credit at a profit, what is the effect on the assets and liabilities of the seller?
. Increase Reduce Do not change
Liabilities ………… ………….. …………………
Assets ………… ………….. …………………


5. Is each of the following statements about double entry bookkeeping true or false?

In double entry bookkeeping we have a basic check on the accuracy of the entries, as the total value of
the debit entries and the total value of credit entries should be equal.
¡True, ¡False

'Double entry bookkeeping' means that two sets of records are maintained.
¡True, ¡False

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 6. Joe has prepared the following journal entry:
$
Dr Cash 850
Cr T Sudgen 850

Which of the following is the correct narrative for the journal entry?
a. Cash receipt from T Sudgen
b. Cash sales to T Sudgen
c. Cash purchases from T Sugden
d. Cash payment to T Sugden


7. A company has the following ledger accounts:

Payables control account

$ $
Cash 3,000 Purchases 4,500
Cash
$
Payables control account 3,000
Purchases
$
Payables control account 4,500

Which of the following accounting entries would result in the amounts shown in these accounts?
a. Dr purchases $4,500, Cr payables control account $4,500Dr payables control account $3,000, Cr
cash $3,000
b. Dr payables control account $4,500, Cr purchases $4,500Dr cash $3,000, Cr payables control
account $3,000
c. Dr purchases $4,500, Cr payables control account $4,500Dr cash $3,000, Cr payables control
account $3,000
d. Dr payables control account $4,500, Cr purchases $4,500Dr payables control account $3,000, Cr
cash $3,000

8. According to her sales returns day book, Amy's returns were $880, excluding sales tax at 17.5%. Amy is
registered for sales tax.

How should this information be recorded in Amy's general ledger?
a. Dr Receivables $1,034, Cr Sales returns $880, Cr Sales tax $154
b. Dr Sales returns $880, Dr Sales tax $154, Cr Receivables $1,034
c. Dr Receivables $1,034, Cr Sales returns $1,034
d. Dr Sales returns $880, Cr Receivables $880

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 9. Tony returned items to his supplier of office stationery, and his supplier sent him a credit note.
What debit and credit entries are required in Tony's general ledger?
Trade payables Goods for resale - Office stationery
returns
Credit
Debit


10. Walter paid an invoice amounting to $6,300 for goods purchased from Pollux. Pollux accepted payment
of $6,174 in full settlement.

How should Walter record the discount of $126 in the ledger?
a. Dr Pollux $126, Cr Discounts received $126
b. Dr Discounts received $126, Cr Pollux $126
c. Dr Pollux $126, Cr Discounts allowed $126
d. Dr Discounts allowed $126, Cr Pollux $126


11. During the period, Alisa has paid input sales tax of $450 on her purchases and charged output sales tax
of $300 on her sales.

Alisa is now completing her sales tax return.

What is the total amount of sales tax due to or from the tax authorities?
a. $750 due to the tax authorities
b. $750 due from the tax authorities
c. $150 due to the tax authorities
d. $150 due from the tax authorities


12. The cash payments book shows the following:

Total cash ($) Discounts received ($) Payables ledger control account
(PLCA) ($)

2,640 60 2,640

How should this be recorded in the ledgers?
a. Dr PLCA $2,700, Cr Discount received $60, Cr Cash $2,640
b. Dr Cash $2,640, Dr Discount received $60, Cr PLCA $2,700
c. Dr Cash $2,700, Cr Discount received $60, Cr PLCA $2,640
d. Dr PLCA $2,640, Dr Discount received $60, Cr Cash $2,700

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 13. You are preparing the final accounts for a business. The cost of the items in closing inventory is
$41,875. This includes some items which cost $1,960 and which were damaged in transit. You have
estimated that it will cost $360 to repair the items, and they can then be sold for $1,200.

What is the correct inventory valuation for inclusion in the final accounts?





14. Tim has recently commenced trading. The materials he uses in his business are subject to regular price
rises. He is unsure how to value his inventory and is trying to decide whether to use FIFO, or
continuous weighted average.

Which of the following statements is correct?
a. Continuous weighted average will lead to the higher reported profit
b. FIFO will lead to the higher reported profit
c. Tim's profit will be unaffected by the method of inventory valuation
d. The profit will be more accurate if FIFO is used


15. According to IAS 2 Inventories, which of the following methods is/are acceptable when valuing
inventory?
(1) Continuous weighted average
(2) Last in, first out
(3) Periodic weighted average

A. 1, 2 and 3
B. 1 and 3 only
C. 1 and 2 only
D. 2 and 3 only


16. According to IAS 2 Inventories, which of the following methods is/are acceptable when valuing
inventory?
1. Continuous weighted average
2. Last in, first out
3. Periodic weighted average
a. 1, 2 and 3
b. 1 and 3 only
c. 1 and 2 only
d. 2 and 3 only

17. In the year ended 30 November 20X9, Karl sold a machine for $5,800. The machine had been bought
for $15,000 in July 20X5. Karl depreciates machinery at 20% per annum on a reducing balance basis. He
charges a full year's depreciation in the year an asset is purchased, and no depreciation in the year of
sale.

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What was the profit or loss on disposal of the machine?
a. $2,800 loss
b. $2,800 profit
c. $344 profit
d. $344 loss


18. In Benni's records for the year to 31 October 20X8, expenditure on a depreciable asset has been
incorrectly classified as revenue expenditure.
If the error is not corrected, what is the effect on Benni's profit for each of the years to 31 October
20X8 and 31 October 20X9?
Understated Overstated
Year to 31 October 20X8
Year to 31 October 20X9


19. Jo sold a non-current asset which had originally cost $87,600 for $43,000. At the date of disposal, the
accumulated depreciation on the asset was $45,800.
What is Jo's profit or loss on disposal of the non-current asset?
a. $1,200 profit
b. $2,800 loss
c. $2,800 profit
d. $1,200 loss


20. At 31 October 20X8, Dong's statement of financial position reported non-current assets with a carrying
amount of $237,950. In the year to 31 October 20X9, he scrapped assets with a carrying amount of
$12,890, and bought new assets for $19,500.
He has calculated that depreciation for the year to 31 October 20X9 is $46,900.

What value should be reported for non-current assets in his statement of financial position at 31
October 20X9?





21. Maureen had an opening accrual of $533 for telephone expenses. During the year she paid invoices
with a total value of $2,974. Her closing accrual was $488.

What is the correct charge for telephone expenses in Maureen's statement of profit or loss?

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 22. At 1 November 20X8, Borim had an accrual of $855 for fuel. During the year to 31 October 20X9 he
paid invoices with a total value of $11,874. His closing accrual at 31 October 20X9 was $962.

What is the charge for fuel in his statement of profit or loss for the year to 31 October 20X9?




23. Ethel's trial balance includes the following balances:

$
Trade receivables 136,853 Dr
Receivables allowance 14,862 Cr

If Ethel calculates that her receivables allowance should be revised to $13,854, what should be
reported for receivables expense in her statement of profit or loss?
a. A credit of $1,008
b. A charge of $13,854
c. A charge of $1,008
d. A credit of $13,854


24. Arnold claimed that some fish Burton sold him in October 20X3 was contaminated and made his family
ill. Arnold is seeking compensation of $4,000. Burton accepted responsibility, and offered $1,500 as
compensation. Arnold rejected this offer and has begun legal proceedings.

Burton's legal advisor expects the court case to take place in March 20X4 and has estimated that
Burton will have to pay $2,500 in compensation.

What amount should be included as a liability in Burton's statement of financial position at 30
November 20X3?
a. $1,500
b. $4,000
c. nil
d. $2,500


25. Cameron makes capital repayments of $558 on 10th of each month on a bank loan. At 31 May 20X0,
the capital balance on the loan was $18,414.

How should the loan be reported in Cameron's statement of financial position at 31 May 20X0?
a. Current liability: $11,718 Non-current liability: $6,696
b. Current liability: nil Non-current liability: $18,414
c. Current liability: $6,696 Non-current liability: $11,718
d. Current liability: $18,414 Non-current liability: nil

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 26. At 1 June 20X8, the value of Lindsay's net assets was $144,804. At 31 May 20X9 the value was
$191,779. During the year to 31 May 20X9 Lindsay introduced $52,250 of capital and her drawings
were $34,400.

What was Lindsay's profit for the year to 31 May 20X9?




27. Would each of the following errors be highlighted by extracting a trial balance?

Yes No
Cash sales have been omitted from the records entirely
The sales returns have been credited to the purchase
returns account and correctly posted to the receivables
control account



28. Ricardo pays to rent car parking spaces outside his office. On occasions, he is able to sublet these.
During the year to 30 April 20X0, the following entries were recorded in his rental ledger account:

(1) Rent paid $4,853
(2) An additional invoice for $150 for renting an additional space
(3) Cash of $822 received from subletting the parking spaces

What is the net balance on the rental ledger account that should be included in Ricardo's trial
balance at 30 April 20X0?
a. $4,181 debit
b. $4,181 credit
c. $3,881 credit
d. $3,881 debit


29. When Keith's trial balance was extracted, a suspense account was opened as the total of the debit
column was $400 greater than the total of the credit column. Keith then found that a cash purchase of
stationery for $200 was correctly entered in the cash account, but was entered on the wrong side of
the stationery account.

When the error is corrected, what is the balance on the suspense account?
a. $800
b. $200
c. $600
d. nil

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 30. When Imogen's trial balance was extracted, the total of the debit balances was $95 greater than the
total of the credit balances. Imogen then discovered that the entry for a cash sale for $95 had been
made correctly in the sales account, but was recorded on the wrong side of the cash account.

After the error is corrected, what should the balance on the suspense account be?
a. $95 credit
b. $285 credit
c. nil
d. $95 debit


31. Anne has prepared the following reconciliation between the balance on her trade payables ledger
control account in her general ledger and the list of balances from her suppliers ledger:
$
Balance on general ledger control account 68,566
Credit balance omitted from list of balances from payables ledger (127)
68,439
Undercasting of purchase day book 99
Total of list of balances 68,538

What balance should be reported on Anne's statement of financial position for trade payables?
a. $68,538
b. $68,439
c. $68,566
d. $68,665


32. Which of the following is a reason for preparing a receivables ledger reconciliation?
a. To confirm the accuracy of postings
b. To check the calculation of gross profit
c. To calculate discounts allowed
d. To identify overdue accounts


33. Bruce prepared the following payables ledger reconciliation statement:
Balance on general ledger control account 46,865Cr
Payment entered twice in general ledger control account 573Cr
47,438Cr
Purchase daybook overcast 900Dr
Total of list of balances 46,538Cr

How should the payables ledger balance be reported on the statement of financial position?
a. $46,538 as a current liability
b. $46,865 as a current liability
c. $46,865 as a current asset
d. $46,538 as a current asset

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 34. The reconciled amount is $46,538 and it will be posted as a current liability.

Wu is preparing the reconciliation between the total of the list of balances from his payables ledger
and the balance on the payables ledger control account in the general ledger. The total of the list of
balances is $45,845.

He has discovered that a credit balance of $1,539 has been omitted from the list of balances, and that
no entry has been made to record a contra of $318 with the receivables ledger.

What value should be reported on the statement of financial position for payables?
a. $47,702
b. $47,384
c. $47,066
d. $43,988

35. The bank account in Trish's general ledger has a credit balance of $358.

The difference between this balance and the balance on her bank statement is due to:

(1) Trish incorrectly recorded the value of a cheque paid to a supplier for $245 as $254
(2) A lodgment of $283 has still to be credited by the bank
(3) The bank charged interest of $104 on her overdraft

What is the correct credit balance on the bank account in Trish's general ledger?
$




36. Jodie is carrying out a reconciliation of the bank account in her general ledger with the balance on her
bank statement. She has found the following reasons for the difference between the two balances:

(1) Some cheques paid to suppliers have not been presented at the bank
(2) The bank has made charges on Jodie's account
(3) A customer has paid $980 directly into Jodie's bank account

Which of the above items will require an entry in the general ledger?
a. 2 and 3 only
b. 1 and 3 only
c. 1, 2 and 3
d. 1 and 2 only

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 37. You are preparing a client's final accounts. You know that the client's bookkeeper has correctly
completed a reconciliation of the bank balance in the general ledger to the balance on the bank
statement. The balances from the general ledger and the bank statement are:

General ledger balance $2,358 (credit)
Bank statement balance $1,053

The difference between the two balances is explained by unpresented cheques and outstanding
lodgments.
How should the bank balance be reported in the final accounts?
a. As a current liability of $2,358
b. As a current liability of $1,053
c. As a current asset of $2,358
d. As a current asset of $1,053


38. When completing the extended trial balance, in which column should the closing balance for
prepayments be entered?
a. Statement of financial position credit
b. Statement of profit or loss debit
c. Statement of financial position debit
d. Statement of profit or loss credit


39. Cathy is extending the entries for depreciation on her extended trial balance (ETB).

Which TWO of the following show the ETB columns into which the entries for depreciation charge
and accumulated depreciation should be extended?
a. Accumulated depreciation: Statement of financial position credit
b. Accumulated depreciation: Statement of financial position debit
c. Depreciation charge: Statement of profit or loss debit
d. Depreciation charge: Statement of profit or loss credit


40. When Paul's extended trial balance was extended and totalled, the totals were as follows:

Statement of profit or loss Statement of financial position
Dr ($) Cr ($) Dr ($) Cr ($)
97,945 120,634 84,752 62,063

What is Paul's profit or loss?
a. $22,689 loss
b. $22,689 profit
c. $35,882 profit
d. $35,882 loss

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 41. At 30 November 20X9, Marek's trial balance includes the following balances:

$ $
Inventory at 01 December 20X8 17,558
Trade receivables 31,749
Prepayment 3,629
Trade payables 24,928
Accruals 5,291
Bank account 1,827
Receivables allowance at 01 December 20X8 683

Inventory at 30 November 20X9 is valued at $18,736, and the receivables allowance is to be adjusted
to $744.

What value should be reported on Marek's statement of financial position at 30 November 20X9 for
current assets?





42. In the year to 30 April 20X8, Tanya paid a total of $127,569 to her suppliers.

Her opening and closing balances due to suppliers are her opening and closing inventory values were
as follows:

Opening value ($) Closing value ($)
Suppliers 11,564 12,826
Inventory 5,288 4,184

What was Tanya's cost of sales for the year to 30 April 20X8?
a. $126,307
b. $127,727
c. $129,935
d. $125,203


43. In the year to 31 May 20X8, Lesley's sales totalled $600,000 and her cost of sales totalled $480,000.

What are the correct figures for Lesley's mark up and margin?
a. Mark up: 25%, margin: 25%
b. Mark up: 25%, margin: 20%
c. Mark up: 20%, margin: 20%
d. Mark up: 20%, margin: 25%

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 44. Which of the following correctly calculates the difference between closing capital and opening
capital?
a. Profit + capital introduced + drawings
b. Profit + capital introduced - drawings
c. Profit - capital introduced + drawings
d. Profit - capital introduced - drawings


45. Milos obtains a 25% mark-up on all of the goods he sells. In the year to 31 May 20X1, the goods which
he bought for resale cost him $25,652. His opening inventory was valued at $3,720 and his closing
inventory was valued at $3,640.

What was the value of his sales for the year to 31 May 20X1?




46. Which of the following statements about a trial balance are correct?
(1) The trial balance includes all of the amounts needed to complete the final accounts
(2) The trial balance is part of the double entry system
(3) All bookkeeping errors will lead to an imbalance in the trial balance

a. 2 and 3 only
b. 1 and 3 only
c. 1 and 2 only
d. None of the above


47. Vivienne and Robert are in partnership, sharing profits and losses in a ratio of 3:2. They maintain
current accounts and fixed capital accounts. In the last year, their profit before appropriations was
$27,800. Robert is entitled to an annual salary of $3,800.

During the year Vivienne and Robert made cash drawings of $12,000 each.

What is Vivienne's share of the profit?





48. Ed and Hilary are in partnership. Their draft statement of profit or loss reports a profit for the year of
$75,862. However, interest on drawings (Ed $2,754; Hilary $3,156) and interest on a loan from Hilary
($1,346) have not been included.

What is the correct profit for the year?

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49. If a partnership maintains both capital and current accounts, which TWO of the following show in
which account(s) a partner's drawings and interest on drawings should be recorded?
a. Drawings: capital account
b. Drawings: current account
c. Interest on drawings: capital account
d. Interest on drawings: current account


50. A and B are in partnership sharing profits equally. On 1 December 20X0 C joined the partnership and
the partners agree to change the profit sharing ratio to 3:4:1 to A, B and C respectively.

At that date the goodwill of the partnership had been valued at $16,000 and the capital accounts are A
$24,000 Cr and B $32,000 Cr. C paid $4,000 into the partnership. Goodwill will not be maintained in the
accounts.

What is A's capital balance after C had joined the partnership?
a. $30,000
b. $26,000
c. $24,000
d. $32,000

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