May/June 2023

Which statement explains the purpose of drawing up a trial balance?

The accounting system

In which account is discount allowed entered?

The accounting system

The final balance on a sales ledger control account stood at $10\,150$. It was then found that: 1. a sales invoice worth $270$ had been recorded correctly in the sales journal, but was posted to the customer’s account as $200$ 2. goods returned by a credit customer valued at $90$ had not been entered in the sales returns journal. What was the total of the individual sales ledger balances before these errors were corrected?

Reconciliation and verification

A company recorded the closing inventory for its current accounting period at too low a value. How did this change affect gross profit?

Preparation of financial statements

Draft financial statements for a business reported a profit for the year of $62\,000$. The following mistakes were identified. 1. Accrued loan interest payable of $3900$ had not been included in the accounts. 2. Allowance for irrecoverable debts was overstated by $4800$. 3. Depreciation was discovered to be understated by $7500$. 4. Prepaid rent expense of $2600$ had not been included. What profit for the year was correct after the adjustments?

Preparation of financial statements

Joe is a sole trader. Which statements about his business are incorrect?

Types of business entity

The owner of a business does not maintain a complete set of accounting records for the business. Information about assets and liabilities is given below. All purchases and sales are made on credit. In the current year: 1. Customers paid $168\,000$ to the business after a discount of $3400$ had been allowed. 2. The business paid $74\,000$ to suppliers for inventory. No discounts were received. 3. The owner withdrew inventory worth $3200$ for personal use. What was the gross profit for the current year?

The accounting system

A partnership agreement sets out the following clauses. 1. interest on capital 2. interest on drawings 3. interest on partners’ loans Which of these clauses will lead to entries being made in the partnership’s appropriation account?

Preparation of financial statements

Under the partnership agreement between X and Y, interest on capital was to be worked out at $10\%$ per annum. At the start of the year on 1 January, the balances on X’s accounts stood at: capital $50\,000$, current $2000$ debit. On 1 July, X introduced further capital of $20\,000$. By 31 December, X’s current account balance was $20\,500$ credit. He had taken no drawings. What was X’s portion of the residual profit for the year?

Preparation of financial statements

These transactions occurred in a limited company. 1. $50\,000$ was transferred from retained earnings into general reserve. 2. The company issued $200\,000$ ordinary shares of $1$ each at $2.50$ per share. 3. Non-current assets with a carrying value of $1\,250\,000$ were revalued to $1\,500\,000$. 4. Ordinary dividends of $100\,000$ were proposed. By how much did the company’s total equity increase?

Preparation of financial statements

Gordon supplies goods to Sybil on credit. Which item from Sybil’s financial statements would matter most to Gordon?

Analysis and communication of accounting information

Phil bought new premises and made these payments: premises $60000$, legal fees connected with the purchase $2000$, insurance for the financial year $700$. On recording the purchase of the premises, both the legal fees and the insurance were entered incorrectly. Phil’s accounting policy is not to charge depreciation on non-current assets in the year of purchase. What was the effect of the errors on the profit for the year?

Accounting for non-current assets

Which actions would, overall, increase a business’s acid test ratio in the short term?

Analysis and communication of accounting information

At the end of its financial year, a business had current liabilities of $4000$. The acid test ratio stood at $1.5:1$. The current ratio stood at $2.25:1$. What value of inventory was held at the year end?

Analysis and communication of accounting information

The information below relates to a company for the year ended 31 December. Calculate the return on capital employed.

Analysis and communication of accounting information

An employee receives basic pay at the hourly rate of $20$ for an $8$-hour working day. Any overtime is remunerated at the hourly rate of basic pay plus $25\%$ (time and a quarter). A productivity bonus is also paid at the hourly rate of basic pay plus $50\%$ (time and a half) for each unit produced above $30$ units per day. On Wednesday, the employee worked for $10$ hours and produced $32$ units. What was the employee’s gross pay for Wednesday?

Costs and cost behaviour

Julia runs a retail business selling electronic equipment. She decides to introduce a just-in-time inventory management system. Which benefit could she expect from this?

Costs and cost behaviour

Justine works as an accountant and bills her clients using an hourly fee plus overheads. She applies a mark-up of $20\%$. The budgeted data below are given. Hours worked in one year: $1610$ Overhead cost per year: $\$56\,350$ Direct labour rate for each hour: $\$45$ Additional fee when a job exceeds $15$ hours: $\$200$ Overheads are absorbed on the basis of direct labour hours. What amount will Justine bill a client for a job that requires $20$ hours to finish?

Traditional costing methods

Which statement explains the purpose of overhead apportionment?

Traditional costing methods

A business operates two production departments: machining and assembly. The budgeted direct labour hours for each department are as follows: Machining: $4000$ Assembly: $16\,000$ The business has worked out overhead absorption rates of: Machining: $\$12$ for each direct machining hour Assembly: $\$7.70$ for each direct labour hour An insurance cost of $\$4800$ that relates to the assembly department was left out by mistake when the calculations were done. What should the correct overhead absorption rate be for the assembly department?

Traditional costing methods

Which of the following statements regarding marginal costing are correct? $1$ Calculations use both fixed costs and variable costs only. $2$ Calculations use variable costs only. $3$ Its use should be limited to long-term planning decisions only. $4$ Its use should be limited to short-term planning decisions only.

Costs and cost behaviour

A business produces and sells just one kind of product. The information given is as follows, per unit: Selling price: $\$10.80$ Direct material: $\$2.20$ Direct labour: $\$4.20$ This business also incurs a semi-variable overhead linked to this product. The overhead is $\$32\,000$ at an output level of $20\,000$ units, and increases to $\$40\,000$ when output reaches $40\,000$ units. At what output level is the break-even point for this product?

Costs and cost behaviour

A machine bought for business use has had its delivery cost entered as carriage inwards. What impact does this have on profit for the year and on total assets?

Accounting for non-current assets

What is the aim of cost-volume-profit analysis?

Costs and cost behaviour

What factors are taken into account when selecting the most suitable method for calculating depreciation?

Accounting for non-current assets

The book value of a company’s non-current assets at the start and finish of a financial year is given as follows: on 1 January $100000$, and on 31 December $80000$. Over the year, non-current assets were disposed of for $20000$ cash, giving a profit on disposal of $5000$. Depreciation charged for the year amounted to $8000$. What was the expenditure on non-current assets during the year?

Accounting for non-current assets

For what reason would a book-keeper employ verification procedures?

Reconciliation and verification

Douglas compiled a trial balance and noticed that the debit column total was $50$ greater than the credit column total. The errors identified were as follows: error 1: a purchases invoice for $100$ had been entered incorrectly; error 2: an irrecoverable debt of $50$ had been entered incorrectly. Which pair of these two errors together produced the difference between the totals?

Reconciliation and verification

When drawing up a bank reconciliation statement, which item counts as an uncredited deposit?

Reconciliation and verification

A company was given its bank statement dated 30 June, which showed a credit balance of $6890$. On that date, the cash book showed a debit balance of $7234$. The following matters were identified: (1) bank charges of $54$ had not been recorded in the cash book; (2) lodgements sent to the bank on 30 June for $490$ did not appear on the bank statement; (3) suppliers had not yet banked cheques for $200$. Which amount should be shown for bank in the statement of financial position at 30 June?

Reconciliation and verification

Which row gives the correct description of one advantage and one disadvantage of a partnership?

Types of business entity

For the year ended 31 December, a company has the following data. Opening balance on sales ledger control account: $31\,000$ Closing balance on sales ledger control account: $35\,000$ Discount allowed: $2\,300$ Credit sales: $125\,400$ What amount was received from credit customers?

The accounting system

Which statement gives the correct accounting treatment of accrued income?

Preparation of financial statements

One source of income for a business is rent earned by leasing out part of its premises. At 1 January 2022, the rent receivable account had a brought-forward balance of $1000$ for one month’s rent already received in advance. In the year ended 31 December 2022, the business collected additional payments amounting to $13\,000$ to cover the period from 1 February 2022 to 31 January 2023. From 1 April 2022, rent was increased by $10\%$. The statement of profit or loss for the year ended 31 December 2022 showed $13\,000$ for rent receivable, but this amount was incorrect. What impact did this error have on the profit for the year?

Preparation of financial statements

A sole trader used the business bank account to settle personal expenses, and these were recorded in the statement of profit or loss. What effect did this have on the profit for the year and on capital?

Preparation of financial statements

A business recorded a gross profit margin of $25\%$. For that year, the information given is: Revenue from sales: $200\,000$ Inventory at the start: $10\,000$ Inventory at the end: $5000$ What amount were the purchases for the year?

Preparation of financial statements

A partnership keeps capital accounts and current accounts as separate records. Which of these statements are correct?

The accounting system

X, Y and Z are partners, and they divide profits and losses in the ratio $2:2:1$. X receives an annual salary of $10\,000$. Y has lent money to the partnership, and the partnership pays interest of $5000$ each year on this loan. The profit for the year before appropriation amounted to $150\,000$. What amount of profit did Z receive in total for the year?

The accounting system

A company had enough balances in the share premium, general reserve and retained earnings accounts to make a bonus issue. In the year, bonus shares were issued. The directors chose to keep the reserves in the form that gives the greatest flexibility. Which ledger account is debited when the bonus shares are issued?

The accounting system

On 1 January, X Limited had the following equity: Ordinary share capital ($1$ shares): $400\,000$ Share premium: $30\,000$ General reserve: $10\,000$ Retained earnings: $70\,000$ Over the year ending 31 December, these transactions occurred: 1 January: bonus issue of 1 ordinary share for every 8 ordinary shares; the company’s policy is to retain its reserves in the most flexible form. 1 July: debentures were issued for $150\,000$. 1 December: rights issue of 1 ordinary share for every 15 ordinary shares at a price of $1.60$ per share; the rights issue was fully taken up. 31 December: profit for the year ended 31 December was $120\,000$. What was the total equity at 31 December?

Preparation of financial statements

Which three main users of financial statements would be most concerned with the statement of profit or loss?

Analysis and communication of accounting information

A business acquires an asset on credit. What effect does this transaction have on the accounting equation?

The accounting system

Raj, a supplier of goods, has worked out the following ratios from the financial statements of a possible new customer. Which ratios would help Raj decide whether to supply goods or not?

Analysis and communication of accounting information

For a business, the data below relate to the year ended 31 December: Revenue: $800\,(\$000)$ Purchases: $600\,(\$000)$ Amount due to credit suppliers: $46\,(\$000)$ Amount due from credit customers: $58\,(\$000)$ $90\%$ of revenue comes from credit sales. $80\%$ of purchases are made on credit terms. What is the trade payables turnover?

Analysis and communication of accounting information

The table provides data taken from a company’s financial statements: Revenue: $135\,(\$000)$ Gross profit: $34\,(\$000)$ Profit from operations: $11\,(\$000)$ Profit for the year: $8\,(\$000)$ Non-current assets: $59\,(\$000)$ Current assets: $50\,(\$000)$ Non-current liabilities: $12\,(\$000)$ Current liabilities: $40\,(\$000)$ Calculate the return on capital employed.

Analysis and communication of accounting information

A company has a semi-variable cost for each employee hour worked. When hours worked go beyond 10 000, an additional fixed administrative cost of $600 is charged. The table below gives hours worked and administrative cost: - 8000 hours: administrative cost $20 000 - 10 000 hours: administrative cost $24 000 What is the total administrative cost if 12 000 hours are worked?

Costs and cost behaviour

Which costs are allocated directly to individual jobs in a job costing system?

Traditional costing methods

A business applies its overheads using direct labour hours. The information below relates to its most recent period: - Overheads: actual $640 000, budgeted $620 000 - Labour hours: actual 13 100 hours, budgeted 12 400 hours Calculate by how much the overheads were over-absorbed or under-absorbed.

Traditional costing methods

Why may a business choose to use absorption costing?

Traditional costing methods

Gareth produces and sells bread. He has worked out how many loaves he must sell each day to break even. Which factor enables him to analyse his break-even point accurately?

Costs and cost behaviour

A business is given the following data for one type of product: - present output and sales: 8000 units - selling price per unit: $20 - variable cost per unit: $12 - fixed costs in total: $25 000 What will be the effect on the break-even point and the margin of safety if fixed costs rise to $32 000?

Costs and cost behaviour

A company produces three products, X, Y and Z. The table gives the per-unit details for each of the three products. Each of the three products uses the same material. If this material is limited, which production mix would maximise profit?

Costs and cost behaviour

Which of the following items connected with new manufacturing equipment count as capital expenditure?

Accounting for non-current assets

For what reasons might a business use cost-volume-profit analysis?

Costs and cost behaviour

The business’s financial year finishes on 31 December. At the start of that year, these amounts were paid for a new machine: purchase cost $60000 installation cost $10000 The installation cost was later found to have been wrongly recorded as an expense. The business’s depreciation policy for machinery is $20\%$ per annum, using the straight-line method. What was the impact of this error on the profit for the year ended 31 December?

Accounting for non-current assets

The motor vehicles at cost account showed a balance of $90000 at the start of the year on 1 January. During the same year, on 1 September, these transactions occurred: 1 One motor vehicle was sold off. It had been bought in the previous year for $21000. 2 Another motor vehicle was acquired for $24000. Depreciation is worked out at $20\%$ by the straight-line method. It is applied month by month for every month that a motor vehicle is owned. Calculate the depreciation charge for the year ended 31 December.

Accounting for non-current assets

Which type of error would not disturb the totals of a trial balance from agreeing?

Reconciliation and verification

The trial balance did not balance, and the book-keeper identified the following mistakes. 1 A bank overdraft of $100 had been recorded as a debit in the trial balance. 2 A cash purchase of $160 had been entered in the purchases account as $150; the purchase had been recorded correctly in the cash account. 3 A telephone invoice for $400 had been debited to the insurance account. The book-keeper then opened a suspense account to correct the mistakes. What was the opening entry in the suspense account?

Reconciliation and verification

A bank statement shows a credit balance of $8360. When this is compared with the cash book, the following differences are found: 1 bank charges of $124 have not yet been recorded in the cash book 2 cheques received from customers for $16223 have not been credited by the bank 3 cheques sent to suppliers for $18725 have not been presented. What should the correct cash book balance be?

Reconciliation and verification

Which of the following statements describe benefits of control accounts?

The accounting system

What advantages come from operating as a partnership? 1 All partners enjoy limited liability. 2 The task of running the business is shared. 3 Shares are able to be sold. 4 Compared with a sole trader, the business can obtain capital from more sources.

Types of business entity

What is one advantage of preparing a bank reconciliation?

Reconciliation and verification

A bank statement indicates a credit balance of $1500. A payment of $500 and a receipt of $1250 were entered in the cash book, but they have not yet shown on the bank statement. Bank interest payable of $1100 was entered correctly in the cash book, but because of a bank error it was shown on the bank statement as $1000. What is the cash book balance?

Reconciliation and verification

A business is drawing up a sales ledger control account. Which of the following statements are correct?

The accounting system

By the close of a financial period, the combined total of the separate balances in the purchases ledger stood at $149000. The following mistakes were then found: 1 A contra of $2500 had been left out of a supplier account. 2 Discounts received of $1200 had been entered in a supplier’s account as $2100. 3 No entries had been recorded for a credit purchase of $5100 from a supplier. 4 Purchases returns of $3000 had been credited to a supplier’s account. What was the revised total of the individual balances in the purchases ledger at the end of the period?

Reconciliation and verification

At the close of the financial year, the statement of financial position contained the following figures: non-current assets $18000 trade receivables $3000 inventory $1800 trade payables $3600 bank $350 credit At the beginning of the financial year, capital was $19100. Profit for the year was $9200. What amount of drawings did the owner take during the year?

Preparation of financial statements

If there is no partnership agreement, the Partnership Act 1890 may be used. Which statement about the provisions of the Partnership Act 1890 is not correct?

Types of business entity

Victor and Wasim are in partnership. At the beginning of the financial year, the balances on the partners’ current accounts stood at Victor, $22500 credit, and Wasim, $3700 debit. The following information is provided for the financial year: interest on capital: Victor $1500, Wasim $1700 share of profits: Victor $65000, Wasim $97500 drawings: Victor $22000, Wasim $17500 interest on drawings: Victor $660, Wasim $525 capital introduced: Victor -, Wasim $5000 What was the balance on Wasim’s current account at the end of the financial year?

The accounting system

Which item would not appear on the statement of financial position for a limited company?

Preparation of financial statements

The equity part of the statement of financial position for a limited company at 1 January is given below: ordinary shares at $2 each $450000 retained earnings amounting to $150000 On 28 February, the company carried out a rights issue of 1 new share for every 3 existing shares held, at a premium of $1.50 per share. The rights issue was fully subscribed. What cash amount was received from the rights issue?

Preparation of financial statements

Which stakeholders use the financial statements to determine whether a company represents a sensible credit risk?

Analysis and communication of accounting information

Which statement correctly describes the purpose of a trial balance?

The accounting system

Which of the following statements describe the limitations of accounting information?

Analysis and communication of accounting information

At the end of its first year of trading, a company gave the following figures: cash sales $9000 credit sales $27000 receipts from credit customers $24000 trade receivables at year end $4100 What was the trade receivables turnover?

Analysis and communication of accounting information

A company recorded a profit from operations of $128000 for the year. Interest payable amounted to $8000. At the year end, the company’s statement of financial position showed the following figures: non-current assets $485000 net current assets $27000 non-current liabilities $80000 What was the return on capital employed?

Analysis and communication of accounting information

Which business functions would gain from just in time (JIT) management of inventory?

Costs and cost behaviour

A business pays employees using a time-rate of $8 for each hour worked. In addition, it gives a weekly bonus of $1.20 for every unit produced above 100 units, and then a further $0.80 for each unit of output above 120 units. Employees are assured a minimum weekly wage of $335. One employee worked 37.5 hours in the previous week and made 129 units. How much wage did the employee receive for that week?

Costs and cost behaviour

What kind of business is most likely to use a job costing system?

Traditional costing methods

Which statement gives the description of a cost centre instead of a cost unit?

Traditional costing methods

A business adds 20% to the total cost of all its products in order to work out a selling price. Each unit of product requires 4 hours of direct labour and 2 kilos of direct material. The correct overhead absorption rate to apply is $8 per direct labour hour. However, the book-keeper incorrectly applied a rate of $13 per direct labour hour. What was the effect of this error on the selling price of one unit of the product?

Traditional costing methods

Budgeted data for a business are given below. fixed costs: $120 000 profit: $88 000 variable costs: $52 000 What is the budgeted break-even point in sales revenue?

Costs and cost behaviour

A business gave the following details for its total costs. direct material and direct labour: $84 200 factory expenses (variable): $15 700 factory overheads (fixed): $16 800 selling and distribution expenses (variable): $18 100 selling and distribution overheads (fixed): $9 400 1000 units were produced and sold at $200 each. What was the contribution per unit?

Costs and cost behaviour

A business had the accounting equation shown below. assets $48\,000 = liabilities $7\,000 + capital $41\,000 The bank balance included in the assets was $1000. These transactions then took place. 1 The owner withdrew drawings of $2000 by cheque. 2 Goods intended for resale were bought on credit; the list price was $4000 less 25% trade discount. What would the accounting equation be after these transactions?

The accounting system

What items are counted in the marginal cost of producing one unit?

Costs and cost behaviour

Which item counts as revenue expenditure?

Accounting for non-current assets

On 1 January, the owner of a business bought a new machine. All non-current assets are depreciated at 25% per annum. Over the year, the following payments were made for the machine: cost of machine $16\,000 delivery $400 installation $600 one year’s insurance $100 A charge of $5100 for these items was entered in the draft statement of profit or loss for the year ended 31 December. Calculate the amount by which the draft profit for the year was understated.

Accounting for non-current assets

What is the purpose of making a provision for depreciation?

Accounting for non-current assets

A business bought a vehicle that had originally cost $27\,000 and was expected to have a residual value of $1000. Depreciation of $18,200 has been charged on this vehicle. The vehicle was traded in as part exchange for a new vehicle costing $29,500. A cheque for $19,000 was paid to complete the transaction. What profit or loss was made on the sale of the vehicle?

Accounting for non-current assets

The total debits and credits in a trial balance did not match, and the errors below were identified. 1 A cheque for $27\,000 relating to the disposal of a non-current asset had been entered on the credit side of the sales account. The matching entry was correct. 2 The credit purchase of a new motor vehicle costing $27\,000 had been left out of the supplier’s account. The matching entry was correct. 3 The cash book entries for a transfer of $27\,000 from cash to bank had been entered the wrong way round. 4 The purchases account had been overcast by $27\,000. Which of these errors would have caused the trial balance totals to be unequal?

Reconciliation and verification

The suspense account showed a debit balance of $450. What had led to this balance appearing in the suspense account?

The accounting system

Mima owns the wholesale business Mima Supplies. In the year ended 31 December 2022, the business had delivery vehicles, and further financial details were given.

Accounting for non-current assets

Param uses control accounts to confirm how accurate his business’s sales and purchases ledgers are. He supplied the information below for the month ending 30 April 2023 about trade receivables.

Reconciliation and verification

An excerpt from J Limited’s statement of financial position at 1 January 2022 is included, together with further details on a rights issue, a possible debenture issue, dividends, and the year’s profit.

Preparation of financial statements

D Limited operates with two production departments and two service departments, and absorption costing is employed. Forecast factory overheads have already been allocated and apportioned, with extra data supplied for reapportionment.

Traditional costing methods

J Limited’s financial year finished on 30 September 2022. The balances shown below were available at that date.

Preparation of financial statements

At the close of every month, Rudra draws up bank reconciliation statements for his business.

Reconciliation and verification

Khaled began trading on 1 January 2021 with capital of $41000. He did not keep a complete set of accounting records. Khaled wants to determine his profit or loss for the year ended 31 December 2021.

The accounting system

K Limited is a manufacturing business that operates two production departments and one service department at one of its factories. Absorption costing is applied at this factory.

Traditional costing methods

Hamza runs a retail business whose financial year finishes on 31 December. At 31 December 2022, inventory was recorded at $15330. That total included 30 damaged items, each with a cost price of $32. From the damaged items, 23 are to be scrapped and will have no value. The other 7 items need repairs costing $126 in total before they can be sold at the normal price of $48 each.

Preparation of financial statements

Veda runs a retail business, and her accountant recommended that she prepare a trial balance.

Reconciliation and verification

On 1 January 2022, the directors of J Limited carried out a bonus issue of two ordinary shares for every three ordinary shares held. An extract from the company’s statement of financial position immediately after the bonus issue is shown below.

Preparation of financial statements

V Limited is a manufacturing business that applies marginal costing.

Costs and cost behaviour

Extra information concerning V Limited making another product at a separate factory.

Traditional costing methods

Read Source A in the insert provided.

Preparation of financial statements

Study Source B in the insert.

Analysis and communication of accounting information

Look at Source C in the insert.

Preparation of financial statements

Study Source A in the insert.

Preparation of financial statements

Use Source B in the insert.

Preparation of financial statements

Read Source C in the insert booklet.

Business acquisition and merger

Use Source A in the insert.

Preparation of financial statements

Consult Source B in the insert.

Analysis and communication of accounting information

Use Source C in the insert.

Preparation of financial statements

Read Source A from the insert.

Investment appraisal

Look at Source B in the insert.

Budgeting and budgetary control

Read Source A in the insert, which contains details about a planned project.

Investment appraisal

Consult Source B in the insert.

Standard costing

Use Source A in the insert.

Investment appraisal

Use Source B in the insert.

Budgeting and budgetary control