Oct/Nov 2023

For a limited company, which of these count as external sources of short-term finance? 1 bank overdraft 2 retained earnings 3 share capital 4 trade credit

Types of business entity

Why may a business keep a sales ledger control account within the double entry accounting system?

The accounting system

The purchases ledger control account had a $79500 balance before the following errors were considered. 1 A $5300 contra between the purchases ledger control account and the sales ledger control account had not been entered. 2 Cash purchases of $1200 on the final day of the period were omitted from the records. 3 The discount received column in the cash book was overcast by $6200. 4 The returns inwards journal had been undercast by $1500. Which amount for trade payables should appear in the statement of financial position?

Reconciliation and verification

At the year-end, a business has trade receivables amounting to $52000. In the draft statement of financial position, the allowance for irrecoverable debts is $3000. The allowance for irrecoverable debts will be revised to 5% of trade receivables. What effect will this change in the allowance have?

Preparation of financial statements

A trader prepared her financial statements, but she did not make any adjustments for accrued rent receivable at the year end. What effect does this omission have?

Preparation of financial statements

A sole trader worked out her draft profit for the year as $50000. She sought advice from her accountant about four matters that she believed could change the draft profit. 1 A customer debt of $2000 is to be written off as irrecoverable. 2 She treated her drawings of $10000 as though they were staff salaries. 3 She wishes to raise the value of a non-current asset by $20000. 4 The current depreciation charge is overstated by $5000. What was the profit for the year?

Preparation of financial statements

Which items in the records of a partnership would raise the profit available for distribution among the partners?

Preparation of financial statements

L and M are partners, and they divide profits and losses according to the amounts of capital they have put into the business. The information below is given. Capital: L $68000; M $102000 Profit for the year before appropriation $28900 Drawings: L $8000; M $12000 No interest is charged on drawings of up to $10000 for each partner. Interest at 5% is charged on any drawings above $10000. What was L's share of residual profit?

Types of business entity

Which statements show the benefits of a rights issue of shares?

Types of business entity

The data below relate to a limited company’s financial year ending 31 December. 1 On 1 January, total equity stood at $350000. This figure included 100000 ordinary shares of $1 each. 2 A rights issue of 10000 ordinary shares at $1.50 each took place on 30 June. It was fully subscribed. 3 On 1 October, the company paid a dividend of $0.10 for each ordinary share. 4 A dividend amounting to $20000 was proposed on 1 December. 5 The profit for the year was $26500. What was the total equity on 31 December?

Preparation of financial statements

Why might employees take an interest in the financial statements of their employer?

Analysis and communication of accounting information

A sole trader pays a trade payable in full using her own funds. No entry has been made for this transaction. What effect will this have when it is recorded?

The accounting system

A business obtained a $40000 loan for five years. The money was deposited into the bank current account. What effect did the loan have?

The accounting system

A company’s draft financial statements for the year ended 30 June showed the following: revenue $280000 gross profit $60000 It was later found that closing inventory had been recorded $10000 too low. What gross profit margin should be reported after this error is corrected?

Preparation of financial statements

The information below is given for one company. yearly sales revenue $1600000 debenture interest paid $60000 gross profit margin 20% ratio of operating expenses to revenue 12% return on capital employed 16% What is the capital employed of the company?

Analysis and communication of accounting information

What advantages come from running a just in time (JIT) system of inventory management?

Costs and cost behaviour

A team consists of eight employees. Every employee earns $16 an hour, and the team also divides a collective bonus between them, which depends on their output of product. For output above 500 units, the team, as a group, receives a bonus of $8 per unit. This bonus is shared equally and paid weekly. In the previous week, each team member worked 40 hours, and the team altogether made 560 units. What is the pay of each member of the team?

Costs and cost behaviour

What kind of business is most likely to operate a batch costing system?

Traditional costing methods

A business has been commissioned to produce a new machine for a customer. The following estimates are given. Materials are expected to cost $1100. Labour will take 30 hours and will cost $14 per hour. The business applies overheads at $10 for each labour hour and adds a mark-up of 30% to the total cost. What is the price on the job cost sheet?

Traditional costing methods

Which formula should be used to calculate an overhead absorption rate for a production process that is capital-intensive?

Traditional costing methods

A company gives the following data. Department X: budgeted overheads $150000, budgeted direct labour hours 2000, budgeted machine hours 8000. Department Y: budgeted overheads $210000, budgeted direct labour hours 10000, budgeted machine hours 1000. Which overhead absorption rate is most suitable for each department?

Traditional costing methods

A company manufactures and sells one type of product. The budgeted data below are provided. Selling price $10 per unit. Sales volume 10000 units. Variable costs $5 per unit. Fixed costs $25000. The sales director has suggested a 20% cut in the product’s selling price. Variable costs will fall to $4 per unit. Sales volume would be expected to rise by 5%. What will be the new budgeted profit?

Costs and cost behaviour

Sally had $1000 in the bank when she made a payment of $1500 to purchase goods for resale. The bank authorised the payment. In Sally’s books of account, how was this transaction entered?

The accounting system

How is contribution worked out?

Costs and cost behaviour

Which items indicate revenue expenditure and a capital receipt?

The accounting system

Which statement explains why depreciation is charged on non-current assets?

Accounting for non-current assets

A new item of equipment costing $40000, and expected to have a residual value of $6000, was purchased at the start of the year on 1 January. On that same date, the business paid the following amounts for the equipment: - delivery $5000 - installation $7000 - 8-year maintenance contract $8000 This equipment is estimated to have a useful life of 8 years. The business applies the straight-line method of depreciation. What would be the carrying amount of this item at the end of the year on 31 December?

Accounting for non-current assets

Which error would not be detected by drawing up a trial balance?

Reconciliation and verification

In the year, a sole trader took $3000 cash out of the business bank account. The accounting entries recorded were a debit of $300 to the drawings account and a credit of $3000 to the bank account. Also, $500 had been left out of the discount received account in the trial balance. What was the suspense account balance before these errors were corrected?

Reconciliation and verification

A company’s bank statement showed a credit balance of $2000. The following matters were discovered: 1 A receipt of $2700 and a payment of $3000 appeared on the bank statement. Both had been left out of the cash book. 2 Bank charges of $500 were correctly listed on the bank statement but had been entered as $600 in the cash book. What was the cash book balance before any required adjustments were made?

Reconciliation and verification

Which of the following lists a long-term source of extra funds for a limited company?

Types of business entity

On 30 April, a trader’s cash book has a debit balance of $12460. Bank charges of $4500 have not yet been entered in the cash book. A cheque for $14470 received from a credit customer and a cheque for $1740 paid to a supplier are recorded in the cash book, but neither is shown on the bank statement. What balance is shown on the bank statement at 30 April?

Reconciliation and verification

A credit customer handed cash to a sales ledger clerk as part payment of her debt. The clerk behaved dishonestly, kept the money for himself, and recorded the receipt in the customer’s sales ledger account, but did not make any entry in the cash book. How was the theft found out?

Reconciliation and verification

The information below is given. Trade receivables balance at the beginning of the year: $48\,000$ Trade receivables balance at the end of the year: $65\,300$ Trade discount allowed to credit customers: $3\,000$ Cash discount used by credit customers: $4\,500$ Irrecoverable debt written off in the year: $6\,200$ Annual increase in the allowance for irrecoverable debts: $2\,700$ Cash collected from credit customers in the year: $516\,000$ Calculate the total value of credit sales for the year.

Reconciliation and verification

At the close of a business’s financial year, expenses owing, expenses prepaid, income owing and income received in advance all existed. In the general ledger, how will the ledger account balances brought down at the beginning of the next financial year be shown?

The accounting system

A business drew up its statement of profit or loss for the year ended 31 December. In that year, a non-current asset was sold on 30 April. The details for this item are as follows: Cost: $130\,000$ Sale proceeds: $53\,500$ Residual value: $10\,000$ Carrying value at 1 January: $52\,500$ Expected life: $8$ years Non-current assets are depreciated by the straight-line method, with depreciation charged for every month of ownership. No accounting entries had been made for this non-current asset for the year ended 31 December. What effect did this omission have on the profit for the year?

Accounting for non-current assets

The proprietor of a trading business had prepared draft financial statements for the year ended 31 December. It was later found that the following transactions, which took place during the year, had not been entered. 1. A cheque for $500$ had been received in respect of commission earned. 2. Cash of $2\,900$ was received from selling goods that had cost $3\,000$. 3. Inventory costing $5\,000$ had been withdrawn by the owner for private use. 4. Non-current assets with a carrying value of $6\,500$ had been sold for cash of $7\,000$. Which of these transactions will alter both the gross profit for the year and the total net assets shown in the statement of financial position?

Preparation of financial statements

A business disposes of some inventory on credit for $80$. The inventory had first cost $50$. What effect will this have on the statement of financial position?

Preparation of financial statements

Which ledger entries are used to record interest on capital in partnership accounts?

The accounting system

L and M run a partnership and divide profits and losses in the proportions $3:2$ respectively. In the year ended 31 March, the statement of profit or loss reported a profit for the year of $68\,000$. The following details apply to the partnership for the same period: Interest on loan from L: $400$ Combined total for both partners: Interest on capital: $2\,600$ Interest charged on drawings: $1\,200$ Salaries: $20\,000$ What amount of the remaining profit will L receive?

Preparation of financial statements

Which of the following are revenue reserves? 1. General reserve 2. Retained earnings 3. Revaluation reserve 4. Share premium account

Preparation of financial statements

Which statements identify advantages of keeping full accounting records?

The accounting system

At 31 March, a limited company shows the following figures in its statement of financial position. Ordinary share capital: $200\,000$ Retained earnings: $82\,500$ Share premium: $80\,000$ Each ordinary share has a par value of $0.40$. A bonus issue is carried out at the rate of $3$ shares for every $8$ shares held at 31 March. The issue is arranged so that the reserves remain in their most flexible form. What are the balances on the reserve accounts after the bonus issue has been made?

Preparation of financial statements

A company has worked out inventory turnover periods for two consecutive years. Year 1: inventory turnover = 90 days Year 2: inventory turnover = 120 days The company directors have put forward these possible explanations for the change. 1. Purchases have decreased. 2. Purchases have increased. 3. Sales have decreased. 4. Sales have increased. What could explain the change?

Analysis and communication of accounting information

The data below refer to a business at the end of its financial year: credit purchases = $140000 credit sales = $220000 total purchases = $160000 total sales = $250000 trade payables = $15000 trade receivables = $16000 Calculate the trade receivables turnover.

Analysis and communication of accounting information

Trading began for a business on 1 January. Its inventory purchases and sales during January were: 4 January: bought 3 at $200 each 13 January: sold 2 at $400 each 26 January: bought 3 at $250 each 28 January: sold 2 at $400 each Inventory was valued using the first in first out (FIFO) method. Calculate the gross profit for January.

Traditional costing methods

A company has been requested to quote a price for one particular job. The estimated costs are: direct materials = $2000 direct labour = $3300 Overheads are applied at $50\%$ of labour cost. Profit amounts to $20\%$ of the total job cost. What is the full quotation total for the job?

Traditional costing methods

A manufacturing business includes a service department, X, together with production departments, Y and Z. Department Z relies heavily on labour. How is the overhead absorption rate determined for department Z?

Traditional costing methods

What could lead to overheads being under absorbed?

Traditional costing methods

A business makes two products, P and Q, during January. Overheads are allocated on the basis of direct labour hours. Units manufactured and sold: P = 5000, Q = 2000 Direct labour hours per unit: P = 1.5, Q = 1 The direct costs for the month amounted to $23750. The fixed overheads totalled $6500. What is the overhead absorption rate per hour?

Traditional costing methods

Which statements about marginal costing are correct?

Costs and cost behaviour

The data below refer to a manufacturing business: output during the period = 2400 units ending inventory = 400 units direct material costs = $12000 direct labour costs = $6000 factory fixed expenses = $4080 There was no inventory at the start of the period. The ending inventory has been priced by marginal costing. What is the marginal cost per unit of the finished goods?

Costs and cost behaviour

Maria entered a cheque for $475 that she had received from Josh, a credit customer. Josh had taken off a 5% cash discount. The cheque has now been returned dishonoured. What is the correct entry for recording the return of the cheque in Maria’s books?

The accounting system

Which statement shows the way cost-volume-profit (CVP) analysis may support management decision-making?

Costs and cost behaviour

A business bought a shop and faced the following costs. What was the total capital expenditure?

Accounting for non-current assets

A used motor vehicle was taken in part exchange for a new motor vehicle. The remaining amount of the purchase cost of the new motor vehicle was paid by cheque. Which entries should be made to record the part-exchange value?

Accounting for non-current assets

In 2021, a business bought a non-current asset for $300000. Depreciation is charged on the reducing balance method at 40% per annum. A complete year’s depreciation is recorded in the year the asset is acquired, but no depreciation is charged in the year it is sold. The business has a financial year ending on 31 December. During 2023, the asset was disposed of for $150000, and disposal costs amounting to $15000 were paid. What profit was made on disposal?

Accounting for non-current assets

A business received $100 in cash from a credit customer as payment for a debt. While recording this, an error of commission was made. Which statement about the debit and credit columns of the trial balance is correct?

Reconciliation and verification

A company’s trial balance contains a suspense account. It was discovered that the only errors were discounts received of $240 and discounts allowed of $312, both of which had been posted to the wrong sides of their respective ledger accounts. What double entry is needed to clear the balance on the suspense account?

Reconciliation and verification

Which statements identify the benefits of preparing a bank reconciliation statement?

Reconciliation and verification

In the statement of financial position, inventories are recorded at whichever is lower: cost or net realisable value. What accounting concept is being applied?

The accounting system

Which items are used when updating the cash book while preparing a bank reconciliation statement?

Reconciliation and verification

At the end of the year, the cash book showed a closing balance of $23780. This did not match the balance shown on the bank statement. The difference came from the following items. a cheque was recorded wrongly by the bank as a debit to the bank account ($560) a customer’s cheque that was dishonoured ($1375) bank charges ($216) What amount should appear as cash at bank in the statement of financial position?

Reconciliation and verification

Which item is not entered in the sales ledger control account?

Reconciliation and verification

The balance carried down on a purchases ledger control account was $7480. This figure did not match the combined balances of suppliers in the purchases ledger. Two errors were discovered. 1 A credit note from a supplier for $120 was entered as $210 because of an error of original entry. 2 Interest charged on an overdue supplier’s account of $40 was posted to the debit side of the purchases ledger control account. What would be the corrected balance of the purchases ledger control account?

Reconciliation and verification

Which of the following statements are correct?

Analysis and communication of accounting information

A business paid annual rent of $24000. At the start of the year, on 1 January, accrued rent stood at $4000. Rent payments made during the year were: 1 January $12000 1 July $10000 1 September $13000 How was rent shown in the financial statements at 31 December?

Preparation of financial statements

For all goods sold, a business applies a mark-up of 25%. Information for the year ended 30 June is given below. receipts from credit customers $284300 opening trade receivables $22100 closing trade receivables $26500 cash used for business expenses and drawings $52400 discount allowed to credit customers $1200 closing cash balance $500 Cash receipts from cash sales were applied to business expenses and drawings. Any cash left over was transferred into the cash account. At the start of the year, the cash balance was nil. What was the total sales value for the year?

The accounting system

A partnership agreement sets out only interest on capital at 6% and interest on drawings at 8%. How much interest will be payable on a loan from a partner?

Types of business entity

L and M are partners in a partnership. The information below concerns the financial year. drawings: L $20000, M $30000 interest on drawings: L $1200, M $1800 interest on partner’s loan: L $8000 salary: M $20000 residual profit share: L $36000, M $18000 What was the profit for the year?

Preparation of financial statements

Which of the following items does not make up the equity of a limited company?

Preparation of financial statements

Which statements explain how data security can be maintained in a computerised accounting system?

The accounting system

Which of the following counts as an internal stakeholder?

Analysis and communication of accounting information

During the previous financial year, R Limited recorded sales revenue of $190000 and operating expenses of $108000. For the current financial year, the directors believe that, if they raise advertising spending by $5000, sales revenue will rise to $205000. Operating expenses, excluding advertising, would rise by $7000. If the extra advertising were carried out, what would the operating expenses to revenue ratio be?

Analysis and communication of accounting information

The information below is given for a business. total purchases $820000 credit purchases $740000 opening inventory $60000 closing inventory $80000 total sales (all on credit) $910000 carriage inwards $20000 returns outwards $40000 What was the inventory turnover?

Analysis and communication of accounting information

Which characteristic is used to describe an indirect cost?

Costs and cost behaviour

Producing product type X involves a particular cost. The details for this are: Number of units made: 6000, 9000 Cost per unit: $\$3$, $\$2$ What type of cost is this?

Costs and cost behaviour

A firm produces one kind of product and charges $\$12$ for each batch sold. Its variable cost comes to $\$4$ per batch. Fixed costs are absorbed using a normal output level of $1000$ batches, at $\$3$ per batch. What is the profit under marginal costing if the firm produces and sells $1500$ batches?

Costs and cost behaviour

A business uses an absorption costing system. Which of the following statements are correct?

Traditional costing methods

A business applies an overhead absorption rate of $\$20$ for each direct labour hour. For April, budgeted direct labour hours were $6000$ and actual direct labour hours came to $6100$. The month’s overheads were under absorbed by $\$3000$. What was the amount of actual overheads in April?

Traditional costing methods

Which statement supports the use of marginal costing?

Costs and cost behaviour

The information below is given for a business: Fixed costs in total: $\$15000$ Variable cost: $\$12$ for each unit Selling price: $\$20$ per unit Break-even point: $1875$ units The business plans to cut the break-even point to $1500$ units. Which strategy would not succeed in reaching the target break-even level?

Costs and cost behaviour

On 1 January, Ann owed Sam $400. She settled the outstanding amount on 6 January, after deducting a $2\% cash discount. How would Ann record this?

The accounting system

Which assumption is not used in cost-volume-profit (CVP) analysis?

Costs and cost behaviour

An improvement made to business premises has wrongly been recorded as an expense in the financial statements. What impact will correcting this error have on the financial statements?

Accounting for non-current assets

During the year, a business has the following expenditure: - buying a machine: $9700 - 3-year maintenance for the machine: $10000 - replacing the wheels on a motor car: $8500 - improving the hardware of a computer: $5600 What total amount should be recorded in the non-current assets account for the year?

Accounting for non-current assets

What is one reason for making provision for depreciation of non-current assets?

Accounting for non-current assets

A business applies the straight-line method of depreciation. At the end of year 3, a machine that the business has owned for three years has a carrying value of $13000. When it was bought, its estimated useful life was five years and its residual value was $5000. What was the original cost of the machine?

Accounting for non-current assets

Sammy made a full payment of $190 to a credit supplier to clear a debt of $200, but he did not record the discount received. What impact did putting this error right have on Sammy’s statement of financial position?

Reconciliation and verification

The trial balance of a business failed to balance, so a suspense account was opened. These errors were then found. 1. The sales journal total of $9150 had been credited to both the sales account and the sales ledger control account. 2. The purchases journal total of $3450 had been entered correctly in the purchases account but as $3350 in the purchases ledger control account. 3. Motor expenses of $6450 paid by cheque had been recorded only in the bank account. What was the opening balance in the suspense account?

Reconciliation and verification

Laila, a retailer, did not keep a complete set of accounting records for her business. She has supplied the information below for the year ended 30 September 2023.

Preparation of financial statements

Q Limited has operated for several years. One director is uncertain about how a capital reserve differs from a revenue reserve.

Preparation of financial statements

Yasmine owns a retail business.

Reconciliation and verification

Javid makes one product only. At present, he applies absorption costing, but he is thinking about moving to marginal costing.

Traditional costing methods

P Limited markets electronic goods through its online business. The directors supplied the information below.

Preparation of financial statements

Simon started a parcel delivery business on 1 July 2021 and bought delivery vehicles, which are depreciated monthly by the straight-line method.

Accounting for non-current assets

Malik drew up a sales ledger control account for July 2023, but the balance on the control account failed to agree with the total of customers’ account balances in the sales ledger. He supplied the following information.

Reconciliation and verification

Andreas runs a bicycle manufacturing business. It has two production departments, Machining and Assembly, and two service departments, Stores and Maintenance. The information below is given for one bicycle and for the year ended 31 August 2023.

Traditional costing methods

For the year ended 30 September 2023, B Limited supplied the information below.

Preparation of financial statements

Alex runs a business that sells computer equipment. He supplied the information below for the year ended 31 July 2023.

Analysis and communication of accounting information

The directors of J Limited supplied the information below at 1 September 2022.

The accounting system

Dev makes two products, Aye and Bee, and he uses marginal costing.

Costs and cost behaviour

Consult Source A in the insert.

Analysis and communication of accounting information

This question is about auditing and HJ Limited’s purchase of a business from Suhail.

Business acquisition and merger

Read Source C from the insert.

Preparation of financial statements

Look at Source A in the insert.

Preparation of financial statements

Read Source B in the insert carefully.

Preparation of financial statements

Consult Source C in the insert.

Preparation of financial statements

Use Source A in the insert.

Preparation of financial statements

Refer to Source B in the insert.

Preparation of financial statements

Consult Source C in the insert.

Analysis and communication of accounting information

Study Source A in the insert.

Budgeting and budgetary control

Use Source B from the insert.

Standard costing

Consult Source A in the insert.

Activity based costing (ABC)

Consult Source B in the insert.

Budgeting and budgetary control

Consult Source A in the insert.

Budgeting and budgetary control

Read the Source B provided in the insert.

Investment appraisal