Feb/March 2025

Which statement sets out the realisation concept?

The accounting system

A bookkeeper checked the business bank statement against the cash book. He then brought the cash book up to date and, at the end, drew up a bank reconciliation statement. Why had the bank reconciliation statement been prepared?

Reconciliation and verification

Which statement is incorrect regarding the advantage to a business of keeping control accounts?

The accounting system

A business keeps control accounts as part of double entry bookkeeping. At the end of a financial period, the balance on the sales ledger control account of $64\,200$ did not match the sum of the business’s individual sales ledger balances. The following mistakes were found. 1. An irrecoverable debt of $800$, recorded in the sales ledger control account, was left out of the trade receivable account. 2. Discounts allowed of $950$ were entered in the sales ledger accounts but were shown as $590$ in the cash book. 3. A contra of $4100$ between accounts in the sales and purchases ledgers was entered the wrong way round in the control accounts. No other errors existed. What was the total of the trade receivables at the end of the period after the adjustments?

Reconciliation and verification

Which items are included when inventory is valued?

Preparation of financial statements

The financial details below are provided. Opening inventory $800$ Closing inventory $1010$ Purchases $9260$ Carriage inwards $130$ Revenue $18\,000$ Discount received $700$ Other expenses $3880$ What are the amounts of gross profit and profit for the year?

Preparation of financial statements

X, Y and Z are partners in a partnership. What would be shown in the partnership appropriation account?

Preparation of financial statements

Bella and Charlie are partners, and they divide profits and losses in the ratio $3\!:\!2$. Their capital contributions were made in that same ratio. For the financial year, the partners gave the following details. Interest on drawings charged: Bella $850$, Charlie $550$ Salary paid: Bella $16\,900$, Charlie $-$ Share of profit: Bella $6000$, Charlie $4000$ The profit earned during the year was $28\,000$. How much was Bella’s interest on capital?

Preparation of financial statements

A company uses a revenue reserve in order to carry out a bonus issue of ordinary shares. Which accounts should be debited and which should be credited to record this?

The accounting system

A company’s issued share capital consisted of $400\,000$ ordinary shares of $1$ each. It then carried out a bonus issue of one ordinary share for every five ordinary shares held. After this, it made a rights issue of one ordinary share for every three ordinary shares held. Calculate the balance on the share capital account after these transactions.

Types of business entity

A company’s statement of financial position showed these items. Bank (debit balance) $300\,000$ Ordinary share capital $1\,000\,000$ Share premium $200\,000$ Revaluation reserve $100\,000$ General reserve $100\,000$ Retained earnings $400\,000$ What is the highest total dividend that the directors may recommend?

Analysis and communication of accounting information

At the beginning of a financial period, before trading had started, a business owner brought her personal items into the business, made up of goods costing $5000. Which entries should have been made to record this transaction?

The accounting system

Sunil was examining the statement of financial position of a business. The statement of profit or loss was not available. Why did Sunil want information about the current assets of the business?

Analysis and communication of accounting information

Which of these is not a limitation of accounting information?

Analysis and communication of accounting information

A company’s accounting period finishes on 31 December. By the close of Year 1, the company had equity funding of $850\,000$ and no long-term borrowings. At the start of Year 2, a $6\%$ debenture worth $150\,000$ was issued. The profit for Year 2 was $58\,000$ and dividends amounting to $20\,000$ were paid out. What was the return on capital employed for Year 2?

Analysis and communication of accounting information

On 1 March, the business held 3 items of inventory, and each item had cost $8$. The business values inventory using the FIFO method. The following transactions took place in March: Purchases: - 10 March: 16 units at $7$ each - 18 March: 14 units at $6$ each Issues: - 27 March: 24 units at $10$ each What was the value of inventory at the end of March?

Traditional costing methods

A factory makes $1100$ units each day. The daily machinery set-up expense is $2000$. The direct material cost for each unit is $3$. Machine operators receive $400$ per day. Each operator is able to produce at most $200$ units per day. What is the average cost per unit?

Costs and cost behaviour

A business applies absorption costing. Which costs are allocated to production?

Traditional costing methods

The figures below relate to a business: - budgeted direct labour hours: $20\,000$ - budgeted overheads: $300\,000$ - actual direct labour hours: $19\,000$ - under-absorption of overheads: $35\,000$ What amount of actual overheads was incurred during the period?

Traditional costing methods

An enterprise drew up its statement of profit or loss for its initial year of trading. Inventory was valued using marginal costing. The finance director now wishes to produce the statement with absorption costing. What impact will this change have on inventory valuation and on profit for the year?

Traditional costing methods

The data below were given for a product: - unit selling price: $50$ - variable cost per unit: $26$ - total fixed costs: $10\,000$ - demand: $1800$ units If the selling price rises, then only demand is affected. After the selling price went up by $4$, profit dropped by $1200$. What was the fall in demand?

Costs and cost behaviour

A manufacturing firm supplied the information below, for each unit: - selling price: $80$ - variable production costs: $44$ - variable selling costs: $6$ - fixed production costs: $12$ - fixed selling costs: $10$ Calculate the contribution to sales ratio.

Costs and cost behaviour

Why might a business choose to use a computerised accounting system?

The accounting system

Which assumptions apply to cost-volume-profit analysis?

Costs and cost behaviour

The profit for a company for the year is $20000. Capital income of $5000 has been classified as revenue income. Capital expenditure of $4000 has been classified as revenue expenditure. What should the correct profit for the year be?

The accounting system

The business incurs the following costs in connection with a machine that has just been bought. Which of these costs should be classed as capital expenditure?

Accounting for non-current assets

Leandro has possessed a delivery van for several years and has charged depreciation on it every year. In what way should he enter the provision for depreciation?

Accounting for non-current assets

A business writes off its motor vehicles at 20% per annum by means of the straight-line method, with depreciation being applied month by month. On 30 June in the current financial year, a new van was bought for $20000. An old van that had cost $18000 and had been purchased at the start of the previous year on 1 January was taken in part exchange for $14000. The remaining amount was settled by cheque. What is the total fall in profit for the current financial year ended 31 December caused by this?

Accounting for non-current assets

Which error will not have any effect on the trial balance?

Reconciliation and verification

The total debits and credits in a business’s trial balance did not match. A suspense account was opened to record the difference. The following errors were later found: 1. The total from the sales journal of $16000 had been posted to the debit side of the purchases account. 2. $7000 had been entered correctly in the rent received account but was debited as $700 in the cash book. Once these errors were corrected, the suspense account was cleared and the trial balance totals matched. What amount was shown in the trial balance for the suspense account before the corrections were made?

Reconciliation and verification

Sara and Viraj are partners in a wholesale business. On 1 January 2024, the partners had the balances below. Over the year ended 31 December 2024, drawings were entered and extra balances and adjustments were found. Before allowing for these items, the draft profit for the year ended 31 December 2024 was $9400.

Preparation of financial statements

Moe operates a trading business and keeps control accounts as part of double entry. The details below apply to November 2024.

Reconciliation and verification

The balances below were extracted from the books of W Limited on 1 January 2024, together with details of transactions for the year ended 31 December 2024.

The accounting system

D Limited is a manufacturing business that uses absorption costing. Its factory contains two production departments, Cutting and Finishing, as well as two service departments, Stores and Canteen.

Traditional costing methods

Refer to Source A in the insert.

Business acquisition and merger

Consult Source B in the insert.

Business acquisition and merger

Use Source C from the insert.

Analysis and communication of accounting information

Read Source A in the insert. The company is thinking about beginning production of a third product, Z. This would have an impact on both costs and revenues.

Activity based costing (ABC)

Consult Source B in the insert.

Budgeting and budgetary control