FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
Time allowed: 60 minutes
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This paper is divided into two sections
Section A: - All 15 questions are compulsory and MUST be attempted
Section B: - All two questions are compulsory and MUST be attempted
FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION A
Section A: - All 10 questions are compulsory and MUST be attempted
Question 1:
Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and
expense ledger accounts to the profit and loss ledger account, the total credits in the profit and loss
ledger account exceed the total debits by $4,000
A
Anchor Ltd has made a loss for the year of $ 4,000.
B
Anchor Ltd has made a profit for the year $ 4,000.
C
To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital
account and debit the profit and loss ledger account with $ 4,000.
D
The opening balance on the profit and loss ledger account for the next reporting period is $
4,000 credit.
E
The closing balance on the profit and loss ledger account of $ 4,000 should be deducted from
the capital account to give the profit for the year
Question 2:
Which of the following would be classified as a non-current asset?
A
Cash
B
Prepayments
C
Land
D
Receivables
Question 3:
Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a total of $89,436
excluding VAT and purchases goods from suppliers for a total of $86,790 including VAT
What is the net amount shown in Gerrard Ltd’s VAT account at the end of April?
A
$3,422 debit
B
$2,452 debit
C
$3,422 credit
D
$2,452 credit
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION A
Question 4:
Which of the following statements concerning preparation of financial statements is true?
A
The balances on income and expense accounts are brought down at the end of the accounting
period to be carried forward to the next accounting period
B
The balances on asset and liability accounts are summarized in an additional ledger account
known ats the statement of financial position ledger account
C
The statement of profit or loss ledger account is a list of all balances extracted from the
business’s accounts
Question 5:
A sole trader had trade receivables of $2,700 at 1 May and during May made cash sales of $7,200, credit
sales of $16,500 and received $15,300 from his credit customers. The balance on his trade receivables
account at the end of May was:
A
$1,500
B
$3,900
C
$8,700
D
$11,100
Question 6:
Which of the following would be a credit balance in the trial balance?
A
Bank overdraft
B
Drawings
C
Purchases
D
Delivery outwards
Question 7:
Plym plc is a VAT registered retailer. All transactions attract VAT at the rate off 20%. For the year to 30
June 20X7, Plym plc made purchases of $69,600 including VAT and made sales off $89,400 excluding
VAT. There was no change in the figures for opening and closing inventory in the statement of financial
position as at 30 June 20X6 and 20X7.
What was Plym plc’s gross profit for the year ended 30 June 20X7?
A
$19,800
B
$4,900
C
$31,400
D
$16,500
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION A
Question 8:
Violet had a opening trade payables balance of $3,450 on 1 December. During the month of December,
she sold goods totalling $6,780 to customers on credit, purchased goods totalling $5,100 from suppliers
on credit and made cash purchases of $400. She also received $3,900 from credit customers and made
payment to credit suppliers of $4,200.
What was the balance on Violet’s trade payables account at the end of December?
A
$4,350
B
$6,330
C
$4,750
D
$2,550
Question 9:
The following are balances on the accounts of Luigi, a sole trader, as at the end of the current financial
year and after all entries have been processed and the profit for the year has been calculated.
Non-current assets
Trade receivables
Trade payables
Bank loan
Accumulated depreciation, non-current assets
Inventory
Accruals
Prepayment
Bank overdraft
What is the balance on Luigi’s capital account?
A
$59,000
B
$66,000
C
$62,000
D
$64,000
$
85,000
7,000
3,000
15,000
15,000
4,000
1,000
2,000
2,000
Question 10:
Which of the following statement regarding the statement of profit or loss for a limited company, is
correct?
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION A
A
Accounting standard define the expenses which are reported under ‘Cost of sales’
B
‘Depreciation’ appears as a separate heading
C
Irrecoverable debts written off will be included under one of the statutory expense headings
(usually administrative expenses)
D
Interest payable is subtracted from the profit after taxation
Question 11:
Which of the following accounts would be expected to have a debit balance at the end of the year?
(Choose all that apply)
A
Payables
B
Capital
C
Discounts allowed
D
Purchases
E
Sales
F
Returns inwards
Question 12:
The purpose of a statement of financial position is to show
A
The assets of the business and the claims against those assets
B
A clear and definite estimate of what a business is really worth
C
The amount the business could be sold for in liquidation
D
The amount the business could be sold for as a going concern
Question 13:
On 1 May 2010, Jonas paid a rent bill of $1,800 for the period to 30 April 2011. What is the expense in
the Statement of profit or loss, and the entry in the Statement of financial position, for the year ended
30 November 2010?
A
$750 expense in the Statement of profit or loss, and a prepayment/accrual of $750 on the
Statement of financial position
B
$1,050 expense in the Statement of profit or loss, and a prepayment/accrual of $750 on the
Statement of financial position
C
$1,800 expense in the Statement of profit or loss, and a prepayment/accrual of $Nil on the
Statement of financial position
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION A
Question 14:
Which of the following may appear as liabilities in a company’s statement of financial position?
(Choose all that apply)
A
Tax payable
B
Allowance for receivables
C
Loan due for repayment within one year
D
Trade payables
Question 15:
As at 1 July 2010, a company’s receivables amount $838,000. It was decided to write off $72,000 of these
debts as irrecoverable and to adjust the allowance for receivables to $60,000. What are the final amounts
for inclusion in the company’s statement of financial position at 30 June 2011?
A
B
C
D
Receivables 778,000; Less: Allowance for receivables 72,000; Net amount: 706,000
Receivables 766,000; Less: Allowance for receivables 60,000; Net amount: 706,000
Receivables 838,000; Less: Allowance for receivables 108,000; Net amount: 730,000
Receivables 838,000; Less: Allowance for receivables 132,000; Net amount: 706,000
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION B
Section B: - All two questions are compulsory and MUST be attempted
Question 1:
You are presented with the following trial balance of Malright, a limited liability company at 31 October
20X7.
Task 1:
Do each of these items belong on the statement of financial position (SOFP) as at 31 October 20X7
Buildings at cost
Building, accumulated depreciation on
1 November 20X6
Plant at cost
Plant, accumulated depreciation on 1
November 20X6
Bank balance
Revenue
Purchases
Inventory on 1 November 20X6
Cash
Trade receivables
Trade payables
Administrative expense
Allowance for receivables on November
20X6
Retained earnings on 1 November 20X6
1$ ordinary shares
Share premium account
DEBIT
$’000
740
CREDIT
$’000
60
220
110
70
1,800
1,140
169
20
250
320
325
10
130
415
80
2,295
2,925
On SOFP
Not on SOFP
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION B
Task 2:
The allowance for receivables is to be increased to 5% of trade receivables. The allowance for receivables
is treated as an administrative expense.
The year-end journal for allowance for receivables is given below. Prepare the double entry by selecting
the correct option for each now.
DEBIT
Trade receivables
Administrative expense
Allowance for receivables
Revenue
CREDIT
Neither DEBIT nor CREDIT
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Complete the followings:
The amount included in the statement of profit or loss after the allowance is increased to 5% of trade
receivables is
$
Task 3:
Plant is depreciated at 20% per year using the reducing balance method and buildings are depreciated at
5% per year on their original cost. Depreciation is treated as a cost of sales expense.
The year-end journal for buildings and plant depreciation is given below. Using the information above,
prepare the double entry by selecting the correct option for each row.
DEBIT
Administrative expense
Cost of sales
Building cost
Plant cost
Building accumulated depreciation
Plant accumulated depreciation
CREDIT
Neither DEBIT nor CREDIT
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Calculate the depreciation charge for the below for the year ended 31 October 20X7. Use the information
above to help you.
Buildings
$
Plant
$
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION B
Task 4:
Closing inventory is $75,000.
Ignoring the depreciation charge calculated earlier, what is the cost of sale for the year?
$
Task 5:
An invoice of $15,000 for energy costs relating to the quarter ended 30 November 20X7 was received on
2 December 20X7. Energy costs are included in administrative expenses.
Complete the following statements:
The double entry to post the year end adjustment for energy costs is
DEBIT
Accrual
Administrative expenses
CREDIT
Neither DEBIT nor CREDIT
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The amount to be posted within the year end adjustment double entry above is
$
Question 2:
The information below has been extracted from the books of Tonson, a limited liability company, as at 31
October 20X6.
Task 1:
Do each of these items belong in the statement of profit or loss (P/L) as at 31 October 20X6?
Inventory on 1 November 20X5
Administrative expense
Share premium account
Retained earnings on 1 November 20X5
Allowance for receivables on 1
November 20X5
Sales revenue
Bank
Returns inward
Trade payables
Loan note interest
DEBIT
$’000
350
1,106
CREDIT
$’000
200
315
40
5,780
79
95
340
33
P/L
Not P/L
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FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION B
Trade receivables
Purchases
7% loan notes
Irrecoverable debts
$1 ordinary shares
Accumulated depreciation on
November 20X5
Buildings
Motor Vehicles
Furniture and equipment
Land at cost
Buildings at cost
Motor vehicles at cost
Furniture and equipment at cost
DEBIT
$’000
900
3,570
CREDIT
$’000
470
150
1,800
1
360
80
420
740
1,500
240
1,200
9,884
P/L
Not P/L
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9,884
Task 2:
Buildings are depreciated at 5% of cost. At 31 October 20X6 the buildings were professionally valued at
1,800,000 and the directors wish this valuation to be incorporated into the financial statements.
Depreciation is to be charged as follows:
(a) Motor vehicles at 20% of carrying amount
(b) Furniture and equipment at 20% of cost
What will be the carrying amount of the following assets in the financial statements at 31 October 20X6?
Land
$
Buildings
$
Motor vehicles
$
Furniture equipment
$
10
FINANCIAL ACCOUNTING 2 – F3
Chapter 1 – Preparing basic of financial statement for sole traders
SECTION B
Task 3:
Inventory at 31 October 20X6 was valued at $275,000 based on its original cost.
However, $45,000 of this inventory has been in the warehouse for over two years and the directors have
agreed to sell it in November 20X6 for a cash price of $20,000.
The administrative expenses include $5,000 which related to November 20X6.
The allowance for receivables is to be increased to the equivalent of 5% of trade receivables.
There are wages and salaries outstanding of $40,000 for the year ended 31 Octorber 20X6.
Will be following items be debited or credited to profit for the year?
DEBIT
Inventory valuation adjustment
Administrative expenses relating to November 20X6
Increase in allowance for receivables
Outstanding wages and salaries
CREDIT
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Task 4:
During October 20X6 a bonus issue of one for ten shares was made to ordinary shareholders. This has not
been entered into the books. The share premium account was used for this purpose
Complete this sentence:
The bonus issue will (increase/ decrease/ not affect Tonson’s cash balance
What will be the balances on these accounts following the bonus issue?
Share capital
$
Share premium
$
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