Financial Accounting (FA2) Total Marks: 100

MOCK Instructor: Bazgha Waqar

1. Which of the following calculates a sole trader’s net profit for a period?

a. Closing net assets ‐ drawings + capital introduced – opening net assets

b. Closing net assets + drawings + capital introduced – opening net assets
c. Closing net assets ‐ drawings ‐ capital introduced – opening net assets
d. Closing net assets + drawings ‐ capital introduced – opening net assets

2. Which of the following statements best explains the imprest system of operating petty cash?
a. All expenditure out of the petty cash must be properly authorised
b. Regular equal amounts of cash are transferred into petty cash at intervals
c. The exact amount of expenditure is reimbursed at intervals to maintain a fixed float
d. Weekly expenditure cannot exceed a set amount

3. Annie is a sole trader who does not keep full accounting records. The following details
relate to her transactions with credit customers and suppliers for the year ended 30 June
20X6:
$
Trade receivables, 1 July 20X5 130,000
Trade payables, 1 July 20X5 60,000
Cash received from customers 686,400
Cash paid to suppliers 302,800
Discounts received 2,960
Contra between payables and receivables ledgers 2,000
Trade receivables, 30 June 20X6 181,000
Trade payables, 30 June 20X6 84,000
What figure should appear in Annie’s statement of profit or loss for the year ended 30 June
20X6 for purchases?
$ _______________
4. Which TWO of the following errors would cause the total of the debit column and the total
of the credit column of a trial balance not to agree?
Selected answer
A cheque received from a customer was credited to cash and correctly
recognised in receivables
A transposition error was made when entering a sales invoice into the
sales day book
A purchase of non‐current assets was omitted from the accounting
records
Rent received was included in the trial balance as a debit balance
5. At 31 December 20X5 the following require inclusion in a company’s financial statements:
(1) On 1 January 20X5 the entity made a loan of $12,000 to an employee, repayable on 1
January 20X6, charging interest at 2% per year. On the due date the employee repaid the loan
and paid the whole of the interest due on the loan to that date.
(2) The entity paid an annual insurance premium of $9,000 in 20X5, covering the year ending
31 August 20X6.
(3) In January 20X6 the entity received rent from a tenant of $4,000 covering the six months
to 31 December 20X5.
For these items, what total figures should be included in the entity’s statement of financial
position as at 31 December 20X5?
a. Current assets $10,240 Current liabilities $0
b. Current assets $16,240 Current liabilities $6,000
c. Current assets $22,240 Current liabilities $0
d. Current assets $10,000 Current liabilities $12,240

6. A company’s statement of profit or loss for the year ended 31 December 20X5 showed a
net profit of $83,600. It was later found that $18,000 paid for the purchase of a motor van
had been debited to the motor expenses account. It is the company’s policy to depreciate
motor vans at 25% per year on the straight‐line basis, with a full year’s charge in the year
of acquisition.
What would the net profit be after adjusting for this error?
$ _______________
7. An entity receives rent from a significant number of properties. The total received in the
year ended 30 April 20X6 was $481,200.
The following were the amounts of rent in advance and in arrears at 30 April 20X5 and 20X6:
30 April 20X5 30 April 20X6
$ $
Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
What amount of rental income should appear in the company’s statement of profit or loss for
the year ended 30 April 20X6?
a. $460,900
b. $486,500
c. $501,500
d. $475,900
8. The following transactions relate to Rashid’s electricity expense ledger account for the year
ended 30 June 20X9:
$
Prepayment brought forward 550
Cash paid 5,400
Accrual carried forward 650
What amount should be charged to the statement of profit or loss in the year ended 30 June
20X9 for electricity?
a. $5,500
b. $5,400
c. $6,600
d. $5,300

9. At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6
trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and
to adjust the allowance for receivables to the equivalent of 5% of the trade receivables
based on past events.
What figure should appear in the statement of profit or loss for the year ended 30 June 20X6
for these items?
$ _______________
10. The total of the list of balances in Valley’s payables’ ledger was $438,900 at 30 June 20X6.
This balance did not agree with Valley’s payables’ ledger control account balance. The
following errors were discovered:
(1) A contra entry of $980 was recorded in the payables’ ledger control account, but not in the
payables’ ledger.
(2) The total of the purchase returns day book was undercast by $1,000.
(3) An invoice for $4,344 was posted to the supplier’s account as $4,434.
What amount should Valley report in its statement of financial position for accounts payable
at 30 June 20X6?
a. $437,830
b. $438,010
c. $439,790
d. $436,830

11. According to IAS 2 Inventories, which TWO of the following costs should be included in
valuing the inventories of a manufacturing company?
Selected answer
Carriage outwards
Depreciation of factory plant
Carriage inwards
General administrative overheads
12. Prisha has not kept accurate accounting records during the financial year. She had opening
inventory of $6,700 and purchased goods costing $84,000 during the year. At the year‐end
she had $5,400 left in inventory. All sales were made at a mark‐up on cost of 20%.

What is Prisha’s gross profit for the year?

$ _______________
13. The plant and machinery account (at cost) of a business for the year ended 31 December
20X5 was as follows:
Plant and machinery (at cost)
20X5 $ 20X5 $
1 Jan Balance b/f 240,000 31 Mar Transfer to disposal account 60,000
30 Jun Cash purchase of plant 160,000 31 Dec Balance c/f 340,000
––––––– –––––––
400,000 400,000
––––––– –––––––

The company’s policy is to charge depreciation at 20% per year on the straight‐line basis, with
proportionate depreciation in the years of purchase and disposal.

What should be the depreciation charge for the year ended 31 December 20X5?

a. $64,000
b. $55,000
c. $68,000
d. $61,000

14. Is each of the following statements about sales tax true or false?
True False
Sales tax is recorded as income in the accounts of
the entity selling the goods
Sales tax is an expense to the ultimate consumer of
the goods purchased

15. Q’s trial balance failed to agree and a suspense account was opened for the difference. Q
does not keep receivables’ and payables’ control accounts. The following errors were found
in Q’s accounting records:
(1) In recording an issue of shares at par, cash received of $333,000 was credited to the ordinary
share capital account as $330,000
(2) Cash of $2,800 paid for plant repairs was correctly accounted for in the cash book but was
credited to the plant asset account
(3) The petty cash book balance of $500 had been omitted from the trial balance
(4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motor vehicles
account as $87,400
Which of the errors will require an entry to the suspense account to correct them?
a. 1, 2, 3 and 4
b. 2 and 3 only
c. 1, 2 and 4 only
d. 1 and 4 only

16. Prior to the financial year end of 31 July 20X9, Cannon Co received a claim of $100,000
from a customer for providing poor quality goods which damaged the customer’s plant and
equipment. Cannon Co’s lawyers have stated that there is a 20% chance that Cannon will
successfully defend the claim.
Which of the following is the correct accounting treatment for the claim in the financial
statements for the year ended 31 July 20X9?
a. Cannon should provide for an expected cost of $20,000
b. Cannon should disclose a contingent liability of $100,000
c. Cannon should provide for the expected cost of the claim of $100,000
d. Cannon should neither provide for nor disclose the claim

17. Gareth, a sales tax registered trader, purchased a computer for use in his business. The
invoice for the computer showed the following costs related to the purchase:
$
Computer 890
Additional memory 95
Delivery 10
Installation 20
Maintenance (1 year) 25
–––––
1,040
Sales tax (17.5%) 182
–––––
Total 1,222

How much should Gareth capitalise as a non‐current asset in relation to this purchase?

$ _______________

18. The following bank reconciliation statement has been prepared by a trainee accountant:
$
Overdraft per bank statement 3,860
Less: Unpresented cheques 9,160
––––––
5,300
Add: Outstanding lodgements 16,690
––––––
Cash at bank 21,990
––––––
What should be the correct balance per the cash book?

a. $3,670 overdrawn
b. $21,990 balance at bank as stated
c. $11,390 balance at bank
d. $3,670 balance at bank

19. The IASB’s Conceptual Framework for Financial Reporting identifies characteristics
which make financial information faithfully represent what it purports to represent.

Which TWO of the following are examples of those characteristics?

Selected answer
Accruals
Completeness
Going concern
Neutrality

20. The following ledger control account has been prepared by a trainee accountant:
Receivables’ ledger control account

$ $
Opening balance 308,600 Cash received from credit customers 147,200
Credit sales 152,800 Cash sales 88,100
Contras against credit balances in Interest charges on overdue debts 2,400
payables’ ledger 4,600 Irrecoverable debts written off 4,900
Allowance for receivables 2,800
Closing balance 396,800
––––––– –––––––
544,100 554,100
––––––– –––––––

What should the closing balance be when all the errors made in preparing the receivables’
ledger control account have been corrected?

a. $395,200
b. $309,500
c. $307,100
d. $304,300

21. A company values its inventory using the FIFO method. At 1 May 20X5 the company had
700 engines in inventory, valued at $190 each. During the year ended 30 April 20X6 the
following transactions took place:
20X5
1 July Purchased 500 engines at $220 each
1 November Sold 400 engines for $160,000
20X6
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
What is the value of the company’s closing inventory of engines at 30 April 20X6?
a. $188,500
b. $195,500
c. $166,000
d. $106,000

22. Amy is a sole trader and had assets of $569,400 and liabilities of $412,840 on 1 January
20X8. During the year ended 31 December 20X8 she paid $65,000 capital into the business
and withdrew $800 per month.
At 31 December 20X8, Amy had assets of $614,130 and liabilities of $369,770.
What was Amy’s profit for the year ended 31 December 20X8?
$ _______________
23. Bumbly Co extracted the trial balance for the year ended 31 December 20X7. The total of
the debits exceeded the credits by $300.
Which of the following could explain the imbalance?
a. Irrecoverable debts of $150 were credited to receivables
b. Sales of $300 were omitted from the sales day book
c. The bank ledger account did not agree with the bank statement by a debit of $300
d. Discounts received of $150 was extracted to the debit column of the trial balance

24. In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which
of the following criteria must be present in order for a company to recognise a provision?

(1) There is a present obligation as a result of past events.

(2) It is probable that a transfer of economic benefits will be required to settle the obligation.
(3) A reliable estimate of the obligation can be made.
a. All three criteria must be present
b. 1 and 2 only
c. 1 and 3 only
d. 2 and 3 only

25. Which of the following types of error is never indicated when a trial balance is extracted?

a. Errors of commission
b. Errors of omission
c. Errors of principle
d. Transposition errors
26. Your firm's cash book at 30 April 20X8 shows a balance at the bank of $2,490. Comparison
with the bank statement at the same date reveals the following differences:

$
Unpresented cheques 840
Bank charges not in cash book 50
Receipts not yet credited by the bank 470
Dishonoured cheque not in cash book 140

What is the adjusted bank balance per the cash book at 30 April 20X8?

$____________
27. W Co, a sales tax registered trader, bought a new printing machine. The cost of the machine
was $80,000, excluding sales tax at 17.5%. The delivery costs were $2,000 and installation
costs were $5,000. Before using the machine to print customers' orders, a test was
undertaken and the paper and ink cost $1,000.
What should be the cost of the machine in the company's statement of financial position?
$__________
28. Which of the following correctly defines 'equity' according to the IASB's Conceptual
Framework for Financial Reporting?
a. Equity is a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefit.
b. Equity is a resource controlled by an entity as a result of past events and from which
future economic benefits are expected to flow to the entity.
c. Equity is the residual interest in the assets of the entity after deducting all its liabilities.
d. Equity is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities.

29. Which of the following is a qualitative characteristic of financial information included in

the IASB's Conceptual Framework for Financial Reporting?
a. Relevance
b. Materiality
c. Consistency
d. Accruals

30. A car was purchased by a business in May 20X1 for:

$
Cost 10,000
Road fund licence 150
Total 10,150

The business adopts a date of 31 December as its year end.

The car was traded in for a replacement vehicle in August 20X4 at an agreed value of $5,000.
It has been depreciated at 25% per annum on the reducing-balance method, charging a full
year's depreciation in the year of purchase and none in the year of sale.

What was the profit or loss on disposal of the vehicle during the year ended December 20X4?

a. Loss of $2,890
b. Profit of $781
c. Profit of $2,500
d. Profit of $3,750

31. At 1 January 20X3, Attila Co had an allowance for receivables of $35,000. At 31 December
20X3, the trade receivables of the company were $620,000. It was decided to:
(1) Write off (as uncollectable) receivables totalling $30,000; and
(2) Adjust the allowance for receivables to an amount equivalent to 5% of receivables.
What is the combined expense that should appear in the company's statement of profit or loss
for the year, for irrecoverable debts and the allowance for receivables?
a. $24,500
b. $26,000
c. $34,000
d. $35,500

32. The annual sales of a company are $235,000 including sales tax at 17.5%. Half of the sales
are on credit terms, half are cash sales. The receivables in the statement of financial position
are $23,500.
What is the output tax?
$_____________
33. Beta purchased some plant and equipment on 1 July 20X1 for $40,000. The scrap value of
the plant in ten years' time is estimated to be $4,000. Beta's policy is to charge depreciation
on the straight line basis, with a proportionate charge in the period of acquisition.
What is the depreciation charge on the plant in Beta's financial statements for the year ended
30 September 20X1?
a. $900
b. $1,000
c. $3,600
d. $4,000

34. Which of the following represents an error of original entry?

a. The purchase of goods for resale using cash was debited to the purchases account and
credited to the cash book using the incorrect amount in both cases.
b. The purchase of goods for resale using cash was debited to the motor vehicles account
and credited to the cash book using the correct amount in both cases.
 c. The purchase of goods for resale using cash was debited to the purchases account and
credited to the sales day book using the correct amount in both cases.
d. The purchase of goods for resale using cash was debited to the purchases account but
no credit entry was made.

35. A machine was purchased for $100,000 on 1 January 20X1 and was expected to have a
useful life of 10 years. After 3 years, management revised their expectation of the
remaining useful life to 20 years. The business depreciates machines using the straight line
method.
What is the carrying value of the machine at 31 December 20X5?
$_____________

36. Your organisation has received a statement of account from one of its suppliers, showing
an outstanding balance due to them of $1,350. On comparison with your ledger account,
the following is determined:

• Your ledger account shows a credit balance of $260.

• The supplier has disallowed a settlement discount of $80 due to late payment of an
invoice.
• The supplier has not yet allowed for goods returned at the end of the period of $270.
• Cash in transit of $830 has not been received by the supplier.
Following consideration of these items, what is the unreconciled difference between the two
records?
a. $nil
b. $10
c. $90
d. $180

37. Jay Co values inventories on the first in first out (FIFO) basis. Jay Co has 120 items of
product A valued at $8 each in inventory at 1 October 20X9. During October 20X9, the
following transactions in product A took place.
3 October Purchases 180 items at $9 each
4 October Sales 150 items at $12 each
8 October Sales 80 items at $15 each
18 October Purchases 300 items at $10 each
22 October Sales 100 items at $15 each

What is the closing balance on the inventory account at 31 October 20X9?

$_____________
38. Fred's trial balance did not balance so he opened a suspense account with a debit balance
of $346. Control accounts are maintained for receivables and payables. Fred discovered the
following:
(1) The sales day book was undercast by $400.
(2) Purchases of $520 from the purchases day book have only been recorded in the payables
ledger control account.
(3) Profit on sale of non-current assets of $670 had been recorded in the sundry income account
as $760.
What is the remaining balance on Fred's suspense account after these errors have been
corrected?
a. $264 CREDIT
b. $136 DEBIT
c. $956 DEBIT
d. $1,266 DEBIT

39. Charles Co entered into the following transactions:

(1) He made a credit sale to Mary allowing a 5% trade discount on the list price of $640, and a
further 5% discount for immediate cash payment.
(2) He purchased goods with a list price of $600 and received a 10% trade discount and further
2% discount for payment within seven days. He paid three days later.
How much discount should be recorded in the Discounts Received account as a result of the
above transactions?
a. $10.80
b. $30.40
c. $62.40
d. $70.80

40. Alan, Bilal and Chloe have been in partnership sharing profits in the ratio 3:2:1. Fatima
was admitted to the partnership and introduced capital of $200,000. The new profit-sharing
ratio is to be 4:3:2:1. The debit entry in Chloe's capital for goodwill was $80,000. Goodwill
will not be carried in the books of the new partnership.
How much does Fatima pay for her share of partnership goodwill?
a. $20,000
b. $40,000
c. $48,000
d. $200,000

41. Abida has an opening overdraft balance on her bank ledger account of $350. During the
year cash sales banked were $80,000 and bank interest received was $170. Interest incurred
on the overdraft during the year was $90 and total payments made from the bank account
were $78,600.
Which of the following is the correct carried forward balance on the bank ledger account at the
end of the year?
 a. $1,130 debit
b. $1,130 credit
c. $1,830 debit
d. $1,830 credit

42. Goran has made the following errors:

(1) A purchase of $1,000 was entered in the purchase day book as $100
(2) A purchase of $500 was correctly recorded in the payables control account and was debited
to the vehicles account

How is Goran's trial balance affected by these errors?

a. Debits will exceed credits by $1,400
b. Debits will exceed credits by $1,500
c. Credits will exceed debits by $900
d. Debits will equal credits

43. A company's bank statement shows a debit balance of $3,400. The bank statement includes
bank charges of $120 that have not yet been accounted for in the cash book.
There are deposits of $5,360 which have been received by the company but not yet deposited
in the bank.
What figure will be shown as the year end bank balance per the final accounts?
a. $1,960 Dr
b. $1,960 Cr
c. $1,840 Dr
d. $1,840 Cr

44. A business prepared its statement of profit or loss and reported a profit of $30,000, but then
discovered that opening inventory had been undervalued by $3,000 and closing inventory
overvalued by $4,500.
What is the correct profit for the period?
a. $22,500
b. $28,500
c. $31,500
d. $37,500

45. During the month of June, Wallace, who is registered for sales tax, had the following
transactions (amounts exclusive of sales tax at 15%):
$
Sales 46,300
Purchases of goods for resale 28,290
Purchase of machinery 18,620
Sundry expenses 4,410
All transactions are subject to sales tax.

How much input tax should Wallace record on these transactions?

$_____________
46. On 12 June 20X1 Cormac placed an order for 1,000 units at a list price per unit of $15 and
was given a bulk buying discount of 10%. The supplier also offered a settlement discount
of 5% if Cormac paid within ten days of ordering the goods. Cormac made the payment on
19 June 20X1.
What is the figure that will be recorded in purchases for this transaction?
a. $12,825
b. $13,500
c. $14,250
d. $15,000

47. On 1 January 20X1, Jack had non-current assets which cost $150,000 and on which $50,000
depreciation had been charged. During 20X1, Jack sold a car with a net book value of
$15,000 for $13,500 (cost was $25,000). The depreciation expense for the year was
$27,000.
What is the balance on Jack’s accumulated depreciation account as at 31 December 20X1?
$_____________
48. Harry raised the following finance during the year ended 31 March 20X5:
(1) A bank overdraft limit of $5,000 of which 80% was utilised at the end of the year
(2) A business bank loan of $20,000, repayable in 4 equal annual instalments starting on 1
April 20X5
(3) A personal loan of $10,000 which was immediately paid into the business bank account

What amount would be shown in Harry’s current liabilities as at 31 March 20X5?

$_____________
49. Mario is registered for sales tax. He is required to pay or reclaim any tax due to or from the
authorities every three months in arrears.
Which of the following statements correctly describes the cash flow impact of sales tax on
Mario’s business?
(1) If inputs exceed outputs in a three-month period, a cash payment will be made to the
authorities at the end of the period
(2) During a period in which outputs exceed inputs, output tax will lead to a temporary
improvement in Mario’s bank balance
a. Both 1 and 2
b. Neither 1 nor 2
c. 1 only
d. 2 only
50. Julie is preparing reconciliation between her receivables control account and the
receivables ledger. The balance on the receivables control account is $67,240 and the total
of the list of balances in the receivables ledger is $54,568.
Which of the following would explain the difference?
a. A cash receipt of $12,672 from Gary has been correctly posted to the receivables control
account, but has not been included in Gary’s account in the receivables ledger.
b. An invoice to Karen of $12,672 has been omitted from the sales day book.
c. Discounts allowed of $6,336 have been included on the wrong side of the receivables
control account.
d. A contra with Mason of $6,336 has not been included in the receivables control account.