Oct/Nov 2024

Which statements are correct about a bank overdraft?

Preparation of financial statements

Which records are needed to prepare a sales ledger control account? 1 cash book 2 general journal 3 sales and sales returns journals

The accounting system

The starting balance in a purchases ledger control account was $18\,400. The following errors or omissions were then found. 1 A supplier’s invoice for $860 had been recorded as $680 in the purchases journal. 2 An amount of $250 in the purchases returns journal had been credited to the supplier’s account. 3 Discounts received of $400 had been credited to the purchases ledger control account. 4 An agreement had been made to offset $150 owed to a customer against their account in the sales ledger. No entries had been made in either the sales or purchases ledger control accounts. What was the corrected balance on the purchases ledger control account?

Reconciliation and verification

What is one purpose of financial statements?

Preparation of financial statements

At the end of his first year of trading, a business owner gave the information below. ending inventory $15\,000 cash paid to suppliers $60\,000 amount still owed to suppliers $5\,000 cash received from customers $85\,000 amount still owed by customers $10\,000 Calculate the gross profit for the year.

Preparation of financial statements

Lu had these capital account balances. End of year 1 $45\,700 End of year 2 $63\,400 The following occurred in year 2: 1 cash drawings amounted to $33\,000 2 a personal motor vehicle was brought into the business at a value of $24\,500. The expenses for the year include rent paid of $10\,000, and 40% of this was for Lu’s personal use. What profit did he make in year 2?

Reconciliation and verification

A business keeps an allowance for irrecoverable debts equal to 2% of trade receivables. On 1 January, at the start of the financial year, trade receivables were $48\,000. On 31 December, at the end of the financial year, trade receivables were $37\,000. When the business owner drew up the statement of profit or loss for the year ended 31 December, an irrecoverable debt of $1\,600, incurred during the year, had not been written off. No adjustment had been made to account for the allowance for irrecoverable debts at 31 December. Profit for the year was overstated by what amount?

Preparation of financial statements

Anne and Margaret have started a partnership, but they have not drawn up a partnership agreement. Which statement is correct in this situation?

Types of business entity

P and Q run a partnership and divide profits and losses equally. The information below relates to P. credit balance on current account at the start of the year $20\,150 P's share of the revaluation of assets $10\,000 drawings $10\,200 Total partnership profit for the year amounted to $130\,000. Partnership salaries were P $20\,000, Q $30\,000. What was the balance on P's current account at the end of the year?

The accounting system

Which of the following statements are correct? 1 capital reserves originate from normal trading activities 2 capital reserves may be used to pay dividends 3 revenue reserves can be used when bonus shares are issued 4 revenue reserves are profits that have been realised

Preparation of financial statements

The information below relates to a company for the financial year ending 31 March. revenue $7\,200\,000 administrative expenses $320\,000 finance costs $150\,000 distribution costs $250\,000 dividend paid $60\,000 No other expenses were incurred during this period. The company applies a constant mark-up of 25% to every item sold. What was the profit from operations for the year ended 31 March?

Preparation of financial statements

Marcus acquired a non-current asset. Rather than paying the full amount straight away, he chose to make instalment payments over the following six months. What impact did this decision have over those six months?

Accounting for non-current assets

Which statement identifies a limitation of accounting ratios?

Analysis and communication of accounting information

At the end of a financial period, a business gave this information: total purchases during the period $700\,000$; cash purchases in the period $200\,000$; trade payables at the beginning of the period $80\,000$; trade payables at the end of the period $60\,000$. What is the trade payables turnover in days?

Analysis and communication of accounting information

As output falls, which cost rises?

Costs and cost behaviour

X Limited hires a piece of equipment to carry out quality inspections. This involves a cost of $8000$ per annum, together with $2$ for every inspection completed. An inspection is carried out on every tenth item produced. Annual production is $120\,000$ units. Which type of cost is being incurred, and what is the annual cost?

Costs and cost behaviour

An enterprise applies the weighted average cost (AVCO) method when valuing inventory. Over March, these transactions occurred: opening inventory of $200$ units at $\$6.00$ per unit; $300$ units were received at $\$6.50$ per unit; $250$ units were issued to production; $100$ units were received at $\$6.70$ per unit. What is the inventory value at $31$ March?

Traditional costing methods

For a particular wedding jewellery job, Ammu gave the following details: materials cost is $\$10\,000$; Ammu needs $10$ hours at $\$125$ per hour to design the jewellery; her assistant needs $100$ hours at $\$70$ per hour to make the jewellery; fixed overheads are absorbed at $\$50$ per labour hour; a mark-up of $20\%$ is to be applied. What price should be quoted for the wedding jewellery job?

Traditional costing methods

Which statement regarding absorption costing is correct?

Traditional costing methods

The canteen expenses of a business were allocated to production departments $1$ and $2$. The total canteen expenses allocated to production department $1$ came to $\$40\,200$. Of this amount, $\$3900$ was directly linked to a special function carried out by production department $1$. The balance was shared out according to the number of employees, which were $15$ in production department $1$ and $10$ in production department $2$. What was the total canteen cost for the whole business?

Traditional costing methods

State one limitation of marginal costing.

Costs and cost behaviour

A company is given the following budgeted figures for May: selling price per unit $\$120$; variable costs per unit $\$80$; total fixed costs $\$56\,000$. The company plans to purchase a new machine that will cut variable costs by $20\%$ and raise fixed costs by $20\%$. What is the change in break-even sales volume?

Costs and cost behaviour

A business disposes of a non-current asset for cash. The disposal account contains entries for the asset's cost and the proceeds from the sale. Which books of prime entry are used?

Accounting for non-current assets

What makes cost-volume-profit analysis useful for management?

Costs and cost behaviour

A business owner got an order from a customer on the final day of the financial year, 31 December, and sent out the goods on that same day. The customer was invoiced several days afterwards, on 3 January. Which accounting concept should be used when deciding whether the sale should be entered on 31 December or 3 January?

The accounting system

The information below relates to the purchase of a non-current asset: price of the new machine $20000 anticipated residual value $5000 fitting cost of the new machine $3000 cost of inventory to be used in the new machine $6000 What amount was entered as capital expenditure for the new machine?

Accounting for non-current assets

A non-current asset that has already been depreciated is then revalued upwards. What result does this have?

Accounting for non-current assets

A business charges depreciation on its non-current assets at 20% using the straight-line method. Depreciation is worked out on a time basis in both the year of acquisition and the year of disposal. At cost, non-current assets, 31 December (previous year) $200000 Machinery purchased on 1 January (current year) $50000 Machinery disposed of on 30 September (current year) $40000 At cost, non-current assets, 31 December (current year) $210000 What is the depreciation charge for non-current assets in the year ended 31 December?

Accounting for non-current assets

The errors listed below were discovered after a suspense account had been opened.

Reconciliation and verification

A business is drawing up a bank reconciliation statement. The information given is as follows. uncleared lodgements $3450 unpresented cheques $2950 cash book balance $7650 credit What is the debit balance on the bank statement?

Reconciliation and verification

A business sells computers. In valuing its inventory, it leaves out the value of any inventory that is over one year old. This is because it may be obsolete. Which accounting principle is shown here?

The accounting system

What benefits come from preparing a bank reconciliation statement?

Reconciliation and verification

A business cash book recorded a debit bank balance of $3900. This was different from the balance shown on the bank statement. The bank statement also listed bank charges of $250, a direct debit of $3280 and a credit transfer of $300. These amounts had not been recorded in the cash book. A payment of $620 entered in the cash book had still not been presented for payment. What was the balance in the revised cash book?

Reconciliation and verification

What entries go on the debit side of the purchases ledger control account?

The accounting system

A company drew up a sales ledger control account. Its balance was not the same as the sum of the sales ledger balances, which totalled $42650. The following errors or omissions were found. 1 An irrecoverable debt of $500 in the general journal has not been entered in the sales ledger. 2 The sales journal has been added up wrongly and needs to be decreased by $750. 3 The sales ledger control account includes the discount received of $400. It should instead have been discount allowed, $600. 4 Sales to J Brown of $640 have not been entered in his account. What was the correct total of the sales ledger balances?

Reconciliation and verification

A company’s current assets include the balances in both the rent payable account and the rent receivable account. What is shown by these balances?

Preparation of financial statements

The information below applies to a sole trader. Allowance for irrecoverable debts at the beginning of the year: $1400 Total trade receivables at the year end: $36000 At the year end, a decision was made to write off $1000 as irrecoverable debts and to keep the allowance for irrecoverable debts at $3\%$ of trade receivables. What entry should be made in the allowance for irrecoverable debts account?

The accounting system

The statement of profit or loss for a sole trader provides the following details. Opening inventory: $5000 Operating expenses: $3000 Profit for the year: $5400 Closing inventory is $10\%$ lower than opening inventory. All goods sold are marked up by $50\%$. Calculate the purchases for the year.

Preparation of financial statements

L and M are in partnership, with profits and losses divided in the ratio of $3:2$. The balances on their current accounts are given below. At 31 March 2023: L $3000 credit, M $4500 debit At 31 March 2024: L $14200 credit, M $6200 debit The figures at 31 March 2024 already reflect the following items: Interest on drawings: L $1000, M $1500 Interest on capital: L $3000, M $2000 Drawings: L $10000, M $15000 What was the residual profit available for division between L and M for the year ended 31 March 2024?

The accounting system

A company sold shares above their nominal value. In which financial statements would the share premium be shown?

Preparation of financial statements

At 31 December, the company’s statement of financial position contained the following details: Issued share capital: $200000 200000 ordinary shares at $1 per share In the next year, the company carried out these transactions: 1 On 1 January, it made a rights issue of one ordinary share for every five ordinary shares already held. The issue price was $1.50$ per ordinary share, and the issue was fully subscribed. 2 On 1 July, it made a bonus issue of one ordinary share for every four ordinary shares held on that date. What amount of cash did the company receive in respect of these transactions?

Types of business entity

A purchases ledger clerk must enter a password before gaining access to the ledger in a computerised accounting system. What is the purpose of the password?

The accounting system

Which ratio is used to assess how efficiently a business operates?

Analysis and communication of accounting information

A company’s return on capital employed fell from 15% in the previous year to 10% in the current year. During the current year, the directors observed these changes. 1. New debentures were issued to finance a large investment in non-current assets. 2. Current liabilities rose. 3. The expenses-to-revenue ratio went up. 4. The interest rate on the company’s large overdraft rose. Which of these changes could account for the fall in return on capital employed?

Analysis and communication of accounting information

A sole trader’s cost of sales is $240\,000, and the gross profit margin is 20%. What is the sales figure for the year?

Preparation of financial statements

A business uses machinists to produce one type of product. As demand rises, more machinists are hired. For every additional eight machinists employed, one further supervisor is required. Which option gives the best description of total labour costs?

Costs and cost behaviour

A business’s inventory transactions over a three-month span are shown below. January receipts: 100 units at $5 per unit; January receipts: 200 units at $6 per unit. February issues: 50 units. March issues: 200 units. The business values inventory using the first in first out (FIFO) method. What was the inventory value at the end of March?

The accounting system

A customer submits an order for 20\,000 bricks. Which costing method will the supplier use in order to set the price for the order?

Traditional costing methods

The budgeted and actual figures shown below are available. Budgeted overheads: $460\,000; actual overheads: $420\,000. Budgeted labour hours: 28\,750; actual labour hours: 21\,000. Budgeted machine hours: 9\,200; actual machine hours: 7\,000. Which overheads absorption rate would be the most appropriate for the company?

Traditional costing methods

The costing records provide the following information. Budgeted overheads cost: $32\,000. Budgeted direct labour hours: 4\,000. Actual overheads cost incurred: $34\,000. Actual direct labour hours worked: 3\,900. What is the amount of over-absorption or under-absorption of overheads?

Traditional costing methods

Which items are used when calculating the contribution to sales ratio?

Costs and cost behaviour

For August, the figures for selling 6\,000 units were given below, per unit: selling price $40$, variable costs $22$, fixed costs $12$, profit $6$. In September, the selling price was cut by $10\%$. Which sales level was required in September to earn the same total profit as in August?

Costs and cost behaviour

Peter buys on credit from John. He settles his account of $200$. He pays by cheque and is given a cash discount of $5\%$. Which book entries are made in John’s accounting records to show this transaction?

The accounting system

Which statements give correct descriptions of cost-volume-profit analysis?

Costs and cost behaviour

Which item counts as capital income?

The accounting system

The business's draft profit for the year is $\$53\,000$. Over the year, the business bought new premises and put the following expenses into the cost of the premises: legal fees $\$1\,500$ insurance $\$4\,500$ No depreciation is charged by the business on premises. What is the revised profit for the year?

Accounting for non-current assets

Non-current assets may be depreciated by several methods. How is the most suitable method chosen?

Accounting for non-current assets

Ryan bought a van for $\$16\,000$ on 31 December 2021. He uses a depreciation policy of $25\%$ per annum on the reducing balance basis, with depreciation charged for each part of the year that the asset is owned. On 1 July 2024, Ryan exchanged the van and received a $\$6\,150$ allowance towards the price of a new van. Calculate the profit or loss on disposal of the van.

Accounting for non-current assets

The totals in a business's trial balance did not agree. The following mistakes were identified.

Reconciliation and verification

In the trader’s ledger, discounts received of $\$1\,400$ have been entered correctly in the suppliers’ accounts, but they have been debited to the discounts allowed account. What correcting entries should be made?

The accounting system

In which book of prime entry is the sale of a non-current asset on credit recorded?

Accounting for non-current assets

The bank section of a business cash book had a debit balance of $\$25\,000$. The following items were then identified. Direct debit payments that had not been entered in the cash book: $\$6\,500$. Sales receipts paid straight into the bank by customers but missing from the cash book: $\$5\,500$. Bank charges that were not entered in the cash book: $\$1\,500$. A payment made by the business but not yet appearing on the bank statement: $\$4\,500$. What was the adjusted balance in the cash book?

Reconciliation and verification

Henry was sent a credit note by a supplier. In error, he recorded it as an invoice received and entered it in his purchases journal. At what stage was the mistake discovered?

Reconciliation and verification

When the year ended, the balance in a firm’s sales ledger control account was $\$12\,900$. The combined totals of the customers’ accounts in the sales ledger came to $\$11\,900$. The errors below were then found.

Reconciliation and verification

A book-keeper carries out the following adjustments to ledger accounts before posting transfers to the statement of profit or loss for the period. Which entries are correct?

The accounting system

At the close of a financial year, these events occurred in a business. What impact did the two transactions have on the business’s net assets?

The accounting system

A trader began trading on 1 January with capital of $\$120\,000$. On 31 December, the balance on the capital account stood at $\$150\,000$ after the profit for the year of $\$70\,000$ and an amount for drawings had been entered. Over the year, the trader introduced a motor vehicle that had previously been used privately. It had cost $\$30\,000$ but, when transferred into the business, it was valued at $\$20\,000$. The trader also added a further $\$25\,000$ in cash. What was the drawings figure for the year?

The accounting system

Annie and Benny were partners in a partnership. They kept both capital and current accounts. On 1 January, Annie’s capital stood at $\$20\,000$. On 1 April, she introduced her private motor vehicle into the business at a valuation of $\$12\,000$. On 1 July, she withdrew goods with a cost price of $\$2,000$ for her own use. Interest on capital was worked out at $10\%$ per annum. What was Annie’s interest on capital for the year ended 31 December?

The accounting system

X and Y operate as partners. The information below is given at the close of the year. What is the profit for the year before appropriation?

Preparation of financial statements

Which of the following are revenue reserves?

Preparation of financial statements

A company carried out a bonus issue of ordinary shares. In which part of the financial statements would this be shown?

Preparation of financial statements

A figure in a company’s financial statements is discovered to contain an error that is material. What does ‘material’ mean?

Analysis and communication of accounting information

The following information was given by a company for the financial year ending 31 December. In that year, a bonus issue of one ordinary share for every five ordinary shares was carried out. The company’s policy is to retain its reserves in the most flexible form. During the year, a dividend of $\$0.15$ per share was paid on all ordinary shares held on 1 January. What was the profit for the year?

Preparation of financial statements

The draft financial statements of a business showed figures for trade receivables, inventory, trade payables and bank overdraft. Which events would make the acid test ratio fall?

Analysis and communication of accounting information

The data below refer to Chi’s business. opening inventory: $18000$ closing inventory: $26000$ cost of sales: $442000$ While working out his rate of inventory turnover, Chi mistakenly used closing inventory. How would this mistake affect the rate of inventory turnover?

Analysis and communication of accounting information

Which statement is not a benefit of just in time (JIT) inventory management?

Costs and cost behaviour

An employee has a normal $40$-hour week. During that period, he is expected to produce $200$ complete units. He receives a bonus of $\$10$ for each hour saved in production. In week $25$ he worked $44$ hours and made $250$ units. What was his bonus payment for week $25$?

Costs and cost behaviour

Which of the following statements about a job costing system are correct? 1. Production costs are spread across all jobs. 2. Each job is assigned its own costs. 3. Jobs are not made to customers’ own specifications. 4. Jobs are made to customers’ own specifications.

Traditional costing methods

A bakery makes $1000$ muffins each day. The direct costs in total are shown below. direct materials: $1800$ direct wages: $600$ For every batch of $50$ muffins, an oven has to be set up. Each oven set-up costs $\$40$. Production overheads are equal to $20\%$ of direct wages. The bakery wants a profit margin of $25\%$. What is the selling price of one muffin?

Traditional costing methods

A business has supplied the budgeted data shown below. Production and sales were expected to total $5000$ units. selling price per unit: $\$80$ variable cost per unit: - direct materials ($2\ \text{kg}$): $\$10$ - direct labour ($5$ hours): $\$35$ Fixed overheads of $\$75000$ will be absorbed using direct labour hours as the basis. What is the budgeted profit per unit?

Traditional costing methods

Which statement concerning the break-even point is correct?

Costs and cost behaviour

A company produces $500$ units and sells each one for $\$50$. The direct materials expense is $\$7500$, direct labour expense is $\$2500$ and fixed overheads amount to $\$8400$. How much profit will be made if the company raises the number of units produced and sold to $600$ while keeping the selling price unchanged?

Costs and cost behaviour

Which accounting concepts are used when a business records an annual depreciation charge for non-current assets?

Accounting for non-current assets

One business is thinking about lowering the selling price of its product by $\$1$ per unit. Why could it use cost-volume-profit analysis when deciding whether to do this?

Costs and cost behaviour

A business classified expenditure on enhancing a non-current asset as revenue expenditure. What impact does this mistake have on the carrying value of non-current assets and the profit for the year?

Accounting for non-current assets

At her premises, a car dealer and garage owner has the following vehicles. Which of them should be treated as non-current assets?

Accounting for non-current assets

The table gives information about a freehold property. The property is to be included in the statement of financial position at its present valuation of $100000. Which ledger account entries should be recorded?

Accounting for non-current assets

The information below concerns a business’s motor vehicles. In 2021, motor vehicles costing $195000 were acquired; one motor vehicle with an original cost of $80000 was disposed of for $24000, resulting in a profit of $2000. What was the depreciation charge for 2021?

Accounting for non-current assets

Janet settled the amount owed to Samir after buying goods from him on credit. When Samir entered the cash discount, he made a reversal error. What double entry did Samir record incorrectly in his books of account?

The accounting system

Bernie’s books of account contained two mistakes: the sales journal had been undercast by $200; a payment for insurance amounting to $120 was entered correctly in the cash book but posted to the insurance account as $102. What was the opening balance of the suspense account?

Reconciliation and verification

T Limited’s financial year concluded on 30 June 2024.

Preparation of financial statements

Deepak keeps a complete set of accounting records. The trial balance dated 30 September 2024 failed to agree, so the amount of the difference was entered in a suspense account. The sales ledger control account and the purchases ledger control account form part of the double entry system. The errors below were then found.

Reconciliation and verification

Clarissa opened the business on 1 July 2022, and she is now drawing up her financial statements for the year ended 30 June 2024. She writes off motor vehicles at 25% per annum by the straight-line method. Depreciation is calculated each month.

Accounting for non-current assets

Alberto runs a manufacturing business.

Traditional costing methods

Ahmed operates as a sole trader and does not keep complete accounting records. He was given the information below for the year ended 30 June 2024.

Preparation of financial statements

At 31 August 2024, W Limited supplied the following extracts from its financial statements.

Analysis and communication of accounting information

For the year ended 30 June 2024, the draft profit of L plc was worked out at $58\,340$. Once the draft profit had been prepared, the directors identified errors in the accounting records.

Preparation of financial statements

Martina makes and sells one kind of product. The budgeted figures below relate to the year ending 30 November 2025.

Costs and cost behaviour

J plc’s company accountant had drawn up draft financial statements for the year ended 30 June 2024. These balances were still left in the accounting records. The draft statement of profit or loss reported profit for the year of $83\,250$. It was then found that a number of errors and omissions had been ignored.

Preparation of financial statements

Alex runs a wholesale business that buys and sells goods both for cash and on credit. Control accounts are used to test whether the individual purchases and sales ledger accounts are accurate. The information for September 2024 is given below.

Reconciliation and verification

The balances below were taken from the accounting records of N plc at 1 October 2023.

Types of business entity

H Limited is a services company that offers administrative support to other businesses. It has two separate departments, Payroll services and Accountancy services. The directors are now drawing up budgets for the year ending 31 December 2025.

Costs and cost behaviour

Refer to Source A in the insert.

Preparation of financial statements

Consult Source B in the insert.

Preparation of financial statements

Refer to Source C in the insert.

Preparation of financial statements

Consult Source A in the insert.

Preparation of financial statements

Read Source B from the insert.

Preparation of financial statements

Study Source C in the insert.

Analysis and communication of accounting information

Use Source A in the insert.

Business acquisition and merger

Consult Source B in the insert.

Preparation of financial statements

Read Source C from the insert.

Preparation of financial statements

Read Source A from the insert.

Budgeting and budgetary control

Consult Source B in the insert.

Investment appraisal

Use Source A in the insert.

Standard costing

Refer to Source B in the insert.

Investment appraisal

Consult Source A in the insert.

Budgeting and budgetary control

Refer to Source B in the insert.

Activity based costing (ABC)