CHAPTER
1
Types of Business Transactions
ACCA F3
Financial
Accounting
PRACTICE
KIT
By:
Hasaan Fazal
UPDATED FOR
2014-15
EXAMS
CHAPTER
1
Types of Business Transactions
ACCA F3
Financial
Accounting
By: Hasaan Fazal
PRACTICE
KIT
1
ACCA –Types
F3of |Business
Practice
Questions Kit
Transactions
CHAPTER
TABLE OF CONTENTS
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Accounting and Business Basics
Regulatory Framework
Accounting Concepts and Conventions
Source documents and Journals
Accounts and Ledgers
Trial Balance and Financial Statements
Sales Tax (VAT)
Valuation of inventory
Non- Current Assets (Tangible)
Non-Current Assets (Intangible)
Accruals and Prepayments
Bad Debts and Provisions for Bad Debts
Provisions and Contingencies
Control Accounts
Bank Reconciliation Statements
Rectification of Errors
Financial Statements – Sole Traders
Financial Statements – Partnerships
Events after Reporting Date
Financial Statements – Companies
Incomplete Records
Statement of Cash Flows
CHAPTER
1
Types of Business Transactions
ABOUT THE AUTHOR
Hasaan Fazal, a student of Chartered Accountancy (ICAP) himself, is enjoying teaching accountancy, auditing and
economics subjects to different professional qualifications like CAT, ACCA etc. He is thankful to ALLAH that because of
His mercy he founded ACCA LIVE which is Pakistan’s first website conducting online classes for CAT and ACCA
students globally.
Besides teaching on ACCA LIVE, he also runs his blog as a hobby where many of his e-books, notes, practice
questions, mock exams, exam tips and video lectures are available for free.
He also invites feedback from students, visitors and teachers to help make this publication and others even better.
About the book
Although this publication has been written keeping the students studying paper 3 of ACCA course, however, the
students of other professional qualifications like CA, CIMA and ACCA etc. who want to test their financial accounting
and business basics can also consult this Practice Questions Kit.
This book is divided in different chapters according to ACCA F3 syllabus so that students can practice the questions
pertaining to specific topic easily.
Every question on this book is internally linked for easy access of student. For example, if students wants to know the
answer then with just a click the book will scroll automatically to open the page where answer for such question is.
We have separated the answers and their explanations, usually which are kept together. This has done again for
students’ convenience as sometime they just want to know the correct answer and want to think about the concept
behind it on their own. Therefore, if student presses the answer button the only correct choice or answer will be
presented and if student presses explanation then both answer and the explanation will be given.
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..A.. When this button is clicked the document will scroll to the answer of corresponding question
…E.. Clicking this button will open the answer and the explanation of the underlying concept
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© PakAccountants.com 2011
This book is provided FREE of cost online. This book is for students and for students only for their individual use.
CHAPTER
1
Accounting and Business Basics
CHAPTER
1
Accounting and
Business Basics
CHAPTER
1
Accounting and Business Basics
1
Financial accounting is about:
A.
B.
C.
D.
Financial reports
Financial information
Financial transactions
All of the above
2
Financial information means:
A.
B.
C.
D.
Any information related to banking
Any information related to money
Any information related to currency
None of the above
3
Business transaction means:
I.
A business activity that initiates accounting process
II.
A business activity that has implications on five elements of financial statements
III.
Any business activity
IV.
Any business activity which has tax implications
A.
B.
C.
D.
II and IV only
III only
I and II only
I, II and IV only
4
In most of the companies, liability of the owners is limited to the amount:
A.
B.
C.
D.
Available in the bank account of the company
Invested in the company
Of authorized capital
Of the assets owned by the shareholders in the company
5
“Sharing ownership with general public is much easier”
This statement holds true for which type of organization?
A. Partnerships
B. Companies
CHAPTER
1
Accounting and Business Basics
C. Sole traders
D. Not for profit organizations
6
Which of the following users might be more interested in the liquidity position of the company?
A.
B.
C.
D.
I.
Trade creditors and lenders
II.
Tax authorities
III.
Customers
IV.
Prospective investors
I and III only
II and III only
I, II and IV only
I and IV only
7
General purpose financial statements mean:
A.
B.
C.
D.
Statements for general public
Statements for general users
Statements for general use
All of the above
8
The purpose of statement of financial position is to provide information about:
A.
B.
C.
D.
The position of different business units in the market
The position of economic resources business holds
The position of inventory in the market
The position financial statements
9
Tick the statement that correctly defines the term “Capital”
 Total of resources provided by the owner at the start of the business
 Total residual interest of owners in the business
 Total amount by which assets exceed liabilities of the business i.e. Net worth
CHAPTER
1
Accounting and Business Basics
10
Tick in the correct category for each item specified:
Item
Premises
Salaries of staff
Loan from bank
Amount owed to Mr. Abc
Amount owed by Mr. Cde
Office furniture
Overdraft from bank
Bank charges on withdrawals
Stock of goods
Fee earned during the month
Cash in hand
Money owed to us by the bank
Goods bought on credit
Cash at bank
Debtors
Lenders
Asset
Liability
Income
Expense
CHAPTER
1
Bookkeeping
CHAPTER
1
Bookkeeping
CHAPTER
1
Bookkeeping
1
Calculate the missing figures in the accounting equation
Assets: 2,400
Assets: 10,450
Assets: ?
Liabilities: 1,200
Liabilities: ?
Liabilities: 44,400
Capital: ?
Capital: 8,750
Capital: 65,000
2
The following information relates to the business Mr. Sadiq Ameen that he just started. In last few
weeks he bought furniture for his office worth Rs.3,100, equipments Rs.4,200, motor car Rs.10,000 and
had 300 dollars in cash till and 1,200 in the bank account maintained for business specifically. He has not
paid half of the sum for the furniture bought and also owes 1,200 towards motor car. One of his
customer owes him 500.
What is the amount of capital?
3
Compute the value and indicate the increase/decrease effect on capital in the following cases:
Effect on Capital
Assets increased by: 10,000
Liabilities increased by: 10,000
Assets decreased by 23,000
Liabilities decreased by 23,000
Assets increased by 12,300
Liabilities decreased by 4,100
Assets decreased by 2,300
Liabilities increased by 3,200
CHAPTER
1
Bookkeeping
3
Mention which component of accounting equation will increase or decrease in following transactions.
Mention “A” for asset, “L” for liability and “C” for capital and “X” for no effect.
Transactions
Increase
Decrease
Bought furniture and paid through cheque
Bought machinery on credit
Owner put additional money in personal bank account
Received a loan from bank
Owner put his personal car in business
Paid back the creditor in cash
Received the cheque from the debtor
Owner withdraws some money from cash till
Deposited extra cash in bank account from cash till
Owner paid some liabilities of the business from his pocket
Returned the computer bought few days back on credit
Sold some office furniture and received money in cash
Customer returned few items from the package sold on credit
Sent an IOU to the supplier against the goods received
Received a promissory note from customers against goods sold
4
Correct the write word from the brackets that corresponds with the effects mentioned on the right. “↑”
means increase “↓” means decrease and “×” means no change
[Bought/sold] machinery on credit
[Invested/Withdrawn] some money [in/from] the business
[Borrowed/Lent] some money from Mr. Bilal
Purchased inventory on cash [cash / credt]
[Paid/received] cash [to/from] Mr. Hussain
Goods returned [to supplier purchased / by customer sold] on credit
Deposited cash from [cash till / personal cash] in business bank account
Goods [Purchased/withdrawn] worth 1,000
Owner paid [personal / business] bills through cheque
Assets ↑
Assets ↓
Assets ×
Assets ↑
Assets ↑
Assets ↓
Assets ×
Assets ↓
Capital ↑
Liabilities ↑
Capital ↓
Liabilities ×
Liabilities ↑
Liabilities ↑
Liabilities ↓
Capital ×
Capital ↓
Liabilities ↓
CHAPTER
2
Types of Business Documents
CHAPTER
2
Regulatory
Framework
CHAPTER
2
Regulatory Framework
Questions for this chapter will be available
soon
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
CHAPTER
3
Accounting Concepts and
Qualitative
Characteristics of
Financial Information
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
1
Financial accounting is about:
A.
B.
C.
D.
Financial reports
Financial information
Financial transactions
All of the above
2
How many principal qualitative characteristics of financial statements are in total?
A.
B.
C.
D.
Five
Four
Nine
Many
3
What are underlying assumptions of financial statements?
A.
B.
C.
D.
Prudence and consistency
Accruals and going concern
Accruals and prudence
Going concern and profitability
4
The objective of financial statements is to provide information about entity’s:
A.
B.
C.
D.
Financial position
Financial performance
Changes in financial position
All of the above
5
IAASB Framework deals with:
A.
B.
C.
D.
Objectives of financial statements
Qualitative characteristics of financial statements
Definition, recognition and measurement of elements of financial statements
All of the above
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
6
Which of the following set of elements is used to ascertain financial position of the entity?
A.
B.
C.
D.
Income and expense
Income, Expense and Equity
Asset, Liability and Equity
Asset, Equity, Income and Expense
7
Assets are resources:
A.
B.
C.
D.
Used in producing or converting other goods to be sold by entity
Used to exchange with other assets
Used to pay liabilities
All of the above
8
Liabilities represent entity’s:
A.
B.
C.
D.
Past obligations
Present obligations
Future obligations
All of the above
9
Entities settle their obligations by:
A.
B.
C.
D.
Incurring expenses
Giving up the resources
Earning income
None of the above
10
Income is defined as:
I.
II.
III.
A.
B.
C.
D.
Inflow of additional assets
Decrease in the liabilities
Inflow of additional capital by owners
I, II
I, III
I, II, III
III
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
11
Incurrence of expenses may result in decrease of equity


True
False
12
Which of the following is not an element of financial statements?
A.
B.
C.
D.
Revenue
Expense
Asset
Owner
13
_______ is frequently used as a measure of performance
A.
B.
C.
D.
Residual interest
Profit
Income
Gains
14
Accounting concept of substance over form enhances:
A.
B.
C.
D.
Relevance
Reliability
Comparability
Neutrality
15
Financial information means:
A.
B.
C.
D.
Any information related to banking
Any information related to money
Any information related to currency
None of the above
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
16
Business transaction means:
I.
II.
III.
IV.
A.
B.
C.
D.
A business activity that initiates accounting process
A business activity that has implications on five elements of financial statements
Any business activity
Any business activity which has tax implications
II and IV only
III only
I and II only
I, II and IV only
17
In most of the companies, liability of the owners is limited to the amount:
A.
B.
C.
D.
Available in the bank account of the company
Invested in the company
Of authorized capital
Of the assets owned by the shareholders in the company
18
Which of the following users might be more interested in the liquidity position of the company?
I.
II.
III.
IV.
A.
B.
C.
D.
Trade creditors and lenders
Tax authorities
Customers
Prospective investors
I and III only
II and III only
I, II and IV only
I and IV only
19
General purpose financial statements mean:
A.
B.
C.
D.
Statements for general public
Statements for general users
Statements for general use
All of the above
CHAPTER
3
Accounting concepts and Qualitative characteristics of
Financial Information
20
The purpose of statement of financial position is to provide information about:
A.
B.
C.
D.
The position of different business units in the market
The position of economic resources business holds
The position of inventory in the market
The position financial statements
CHAPTER
4
Source documents and Journals
Area 2’s title
CHAPTER
4
Source Documents
and Journals
CHAPTER
4
Source documents and Journals
1
Remittance advice is sent by:
A.
B.
C.
D.
Customer to supplier
Customer to the banker of supplier
Customer to his own banker
Customer to his own accounting department
..A..| ..E..
2
Remittance advice must:
A.
B.
C.
D.
Specify the invoice number(s) for which payment is made
Specify the order number(s) for which payment is made
Specify the dispatch note number(s) for which payment is made
Specify the GRN number(s) for which payment is made
..A..| ..E..
3
Which of the following statements show the correct flow of documents?
i.
ii.
iii.
A.
B.
C.
D.
Order > Dispatch note > invoice > receipt
Tender > Quotation > Order
Order > debit note > invoice
i only
i and ii only
ii and iii only
I, ii and iii
..A..| ..E..
4
Internal auditor of Sangsung Co is analyzing the correctness of payables for month ended November. He
thinks that one of the best ways of confirming the accuracy of payables is by asking our creditors
regarding such information. Which of the following document will auditor ask the creditors to send?
A.
B.
C.
D.
Debit and credit notes for the month of November
Invoices issued in November
Statement of account for November
Cash receipts raised in November
..A..| ..E..
CHAPTER
4
Source documents and Journals
5
Ajwa Ltd requires store shelves for storing dates. In order to know the prices of racks with different
shapes and sizes, which document do you think company should ask the supplier to send?
A.
B.
C.
D.
Order
Debit Note
Material requisition note
Quotation
..A..| ..E..
6
Palladium Plc’s cashier received 430 cash from Mr. Platinum, a debtor. Which document should be
raised by the cashier of Palladium Plc on receiving money?
A.
B.
C.
D.
Cheque
Receipt
Invoice
Deposit slip
..A..| ..E..
7
Which of the following will not appear on Purchase invoice?
I.
II.
III.
IV.
A.
B.
C.
D.
Trade discount given in percentage
Amount of sales tax
Purchase order number
Net amount owed to customer by the supplier
I only
IV only
III and IV only
I and IV only
..A..| ..E..
CHAPTER
4
Source documents and Journals
8
Mr. Wood is a supervisor in finishing department of a furniture company. He was supervising the repair
work in grinding machine. He is satisfied with the work and now requires money from the cashier so
that he can pay to the repair man.
Which document do you think he will use for this purpose?
A.
B.
C.
D.
Cheque book
Cash receipt
Cheque requisition note
Payslip
..A..| ..E..
9
Mr. Good luck’s PC broke down while processing payroll of the month. To recover the system and
putting the payroll process system online, Mr. Good luck took some help from freelance IT
troubleshooter to whom he gave $25.
Which document should he use to ask for reimbursement of amount paid by him?
A.
B.
C.
D.
Paying in slip
Receipt
Petty cash claim
Cheque requisition note
..A..| ..E..
10
Which of the following information is part of Purchase order?
I.
II.
III.
IV.
V.
A.
B.
C.
D.
Mode of payment and goods delivery
Quantity of goods
Per unit price of goods
Trade discount on each item
Total VAT included in purchase amount
II and III only
I, IV and V only
I, II and III only
II and V only
..A..| ..E..
CHAPTER
4
Source documents and Journals
11
Payslip is a document on which:
A.
B.
C.
D.
Cash deposited in the bank account is mentioned
Salary paid to the employee is written
Record for making any kind of payment is kept
None of the above
..A..| ..E..
12
Summer, a customer of Autumn, has returned goods purchased earlier costing 50 to Autumn on credit.
Which document do you think Summer should issue in respect of this return?
A.
B.
C.
D.
Credit note
Debit note
Dispatch note
Invoice
..A..| ..E..
13
Which of the following statements show the correct flow of documents?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Invoice > Debit Note > Receipt
Invoice > Cheque > Receipt
Quotation > Purchase Order > Acknowledgement
Sales order > Delivery Note > Invoice
Invoice > cheque requisition note > receipt
Purchase order > Statement of account > Delivery note
Delivery note > Remittance advice > Receipt
Tender > Receipt > Delivery Note
Receipt > Cash > Sales order
Purchase order > material requisition note > Tender
Invoice > Petty cash claim > Receipt
..A..| ..E..
CHAPTER
4
Source documents and Journals
14
Petty cash claim is usually authorized after checking:
A.
B.
C.
D.
Nature of expense
Supporting documents accompanying the claim form
The amount of claim against maximum the maximum limit of claim
All of the above
..A..| ..E..
15
Salary slip or payslip contains the details about:
A.
B.
C.
D.
Gross salary
PAYE deductions
Net pay
All of the above
..A..| ..E..
16
Match the items in left column with write explanations given in the right column
1.
2.
3.
4.
5.
2% 10 n30
2/10 net 30
30 days net
COD
30 days month end date of invoice
..A..| ..E..
17
If the settlement term states: “Net 30 days” then it means:
A.
B.
C.
D.
Customer has 30 working days to pay the invoice
Customer has 30 calendar days to pay the invoice
Customer has 30 official days to pay the invoice
Customer has 30 days net of holidays
..A..| ..E..
CHAPTER
4
Source documents and Journals
18
Mr. Billionaire received the following invoice from Invoice and Invoice Company on June 19, 2010:
Invoice and Invoice Company
Invoice No: 12547
Date: 17/June/2010
Customer: Mr. Billionaire
Address: 123 – Bright Street, Luck turn, Ideal City.
S#
1
2
3
Description – Item code
Gold ring (dolphin) – 198A
Diamond ring (Fine cut) – 54AB
Platinum-emerald ring – 418C
Quantity
2
1
3
Order No: 25-587-AF
Per unit price
1,500
1,280
1,350
Total
Discount
Net
Tax 15%
Net
Total
3,000
1,280
4,050
8,330
330
8,000
1,200
9,200
*Terms: 10% 5 net 15 from the date of invoice
Mr. Billionaire paid the invoice on June 23, 2010. What should be the amount he would have paid?
A.
B.
C.
D.
7,200
8,000
9,200
7,497
..A..| ..E..
19
How much days will Time and Clock Co have to pay the invoice that it has received on January 10, 2011
under the following situations of payment terms. Also mention the due date.
Payment terms
10 Days net
30 Days net
15 days month end date of
invoice
2% 5 n 10
5%/14 n 30
Total days till final settlement
Due Date
..A..| ..E..
CHAPTER
4
Source documents and Journals
20
Mark the points indicated in the following invoice
Invoice and Invoice Company
87 – Copper angle mount, Global Round
Invoice No: 12547
Date: 17/June/2010
Mr. Billionaire
123 – Bright Street, Luck turn, Ideal City.
S#
1
2
3
Description – Item code
Gold ring (dolphin) – 198A
Diamond ring (Fine cut) – 54AB
Platinum-emerald ring – 418C
Order No: 25-587-AF
Quantity
2
1
3
Per unit price
1,500
1,280
1,350
Total
Discount
Net
Tax 15%
Net
Total
3,000
1,280
4,050
8,330
330
8,000
1,200
9,200
*Terms: 10% 5 net 15 from the date of invoice
* E & OE
Write the number of the correct description in the bubbles above:
1. A person on which invoice has been drawn
2. Company’s name
3. Amount payable
4. Cash discount
5. Sales order number
6. Invoice number
7. Date of purchase
8. Trade discount
9. Errors and omissions expected
10. Excluded items returnable on executive’s decision
11. Sales order number
12. Terms of payment
13. Supplier’s address
..A..| ..E..
CHAPTER
4
Source documents and Journals
21
Find out the amounts of missing boxes using available information under each
row.
Total
Retail
price
1500
2500
Trade
discount
300
550
5%
10%
4200
Sales tax
15% (rounded
to nearest cent)
180
315
742.50
Amount
invoiced
1380
5692.50
800
Payment
terms
Total days to
final
settlement
If paid in 13
days then
amount
actually paid
Cash
discount
earned
2% 5 n 30
5% 14 n 60
Net 30
10% 10 n 45
3% 15 n 30
..A..| ..E..
Production Hall of Hawl Trucks ltd assembles mining machinery. On a certain day super visor felt a need
of another 500 units of ball bearings. What do you think is a proper way of getting these 500 units from
the store?
A.
B.
C.
D.
Approach purchase department after raising purchasing requisition on his own
Approach store manager and ask him to issue material requisition
Approach production manager and ask him to issue material requisition
Go to store and pick the required number of stock
22 & 23
Production manager of “Cleaner n Clearer Plc” found some material scattered all over the production
hall. He asked the junior worker to collect all the unnecessary raw material and submit them with the
store manager.
22 Which document will be raised by the production manager?
A.
B.
C.
D.
Debit note
Material sent note
Material return note
Good dispatch note
23 Where the store manager will record the receipt?
A.
B.
C.
D.
Store ledger card
Goods received note
Material holding note
None of the above
CHAPTER
4
Source documents and Journals
24, 25 & 26
Happy teeth are renowned for producing hairline teeth braces. The store department found some units
in the store which are not up to quality standards and were received last week. Supplier accepted the
return. Which document do you think will be raised by:
24 The store department?
25 The purchase department?
26 The accounting department?
27
Bubble Gum Co. is purchasing gelatin from a particular supplier for last 10 years. But today purchase
manager received a fax that supplier will not be able to entertain the orders any more as they are
changing their line of business.
Now purchase manager is finding a new supplier that will give the most competent. What do you think
Purchase manager should do to find out the new supplier?
A.
B.
C.
D.
Issue short tender notice
Raise quotation
Issue prospective of the company
Advertise purchase order
28
Some of the material purchased by Mega hertz Ltd is found not according to the order specification.
Invoice regarding the goods have already been received and now the adjusting debit note will be issued
by ______________
A.
B.
C.
D.
Purchase department
Store
Accounts department
Dispatch department
CHAPTER
4
Source documents and Journals
29
“Caps Lock Ltd” is a customer of “Shift Co”. Shift Co. allows a cash discount if 10% if the customer pays
his balance within 10 days of purchase. Caps Lock Ltd has bought few items from Shift Co during a
month. Following is the extract from Caps Lock Ltd Purchase day book:
Purchase Day Book
2010
July 01
July 04
July 11
July 16
July 18
July 23
July 27
M. Lancer
M. Sarah
Shift Co
Shift Co
A. Samia
O. Hayat
Shift Co
Invoice #
236-1/120
10550/121
S-AA-01/122
S-AA-12/123
S10(s)12/124
A1987-05/125
S-BB-15/126
Folio
Amount ($)
150
263
750
1500
325
840
260
Accounts department has raised a remittance advice to be sent to Shift Co. The invoices that have been
listed are as follows:


S-AA-01
S-BB-15
Compute the amount that will be sent with the remittance advice
30
“Careful Ltd” maintains the records on periodic basis. An expert accountant was at leave therefore one
of his assistant has been asked to make entries in the Purchase journal.
If you are that junior accountant, what document will you ask to be provided so that you can make
entries in the Purchase journal?
A.
B.
C.
D.
Remittance advice
Goods dispatch note
Invoice
Receipt
31
Discount on the face of invoice is called:
A.
B.
C.
D.
Trade discount
Cash discount
Early payment discount
All of the above
CHAPTER
4
Source documents and Journals
32
In most of the books of journal entries the folio column is used for:
A.
B.
C.
D.
Cross referencing to other book of journal entries where entry has been completed
Cross referencing to the ledgers where entries has been posted
Cross referencing to the journal entry used to adjust the error
Cross referencing to trial balance
33
The letter “C” written in folio column means:
A.
B.
C.
D.
Correction
Contra
Consolidation
Cash book
34
Source document required to record entry in Sales Day book is:
A.
B.
C.
D.
Debit note
Credit note
Invoice
Material requisition note
35
Cash sales are recorded in:
A.
B.
C.
D.
General journal
Sales day book
Cash book
Sales ledger
36
Plantronics Ltd is known for making audio equipments. For different equipments they need electric coils
which they purchase from different suppliers.
Recently Plantronics Ltd has purchased 3,000 units of coils on credit. The accountant will record the
debit and credit affects in ledgers as:
A.
a.
b.
c.
Debit
Purchase day book
Purchase ledger
General ledger
General ledger
Credit
Sales day book
Creditors ledger
Cash book
Purchase ledger
CHAPTER
4
Source documents and Journals
37
Journal entry (prime entry) for fixed asset bought is entered in _________
A.
B.
C.
D.
General journal
Purchases journal
Purchases ledger
General ledger
38
Complete the following table by marking
for increase,  for decrease and 0 for no affect
Assets
Capital
Liabilities
39
Complete the following table by marking
for increase,  for decrease and 0 for no affect in the
accounting equation columns and writing the name of the account to be debited or credited in the
effects coloumn.
Assets
Capital
Liabilities
Debit
Credit
CHAPTER
5
Accounts and Ledgers
Chapter 5 title and content
CHAPTER
5
Accounts and
Ledgers
CHAPTER
5
Accounts and Ledgers
1
Journal entry for fixed asset bought is posted in __________
A.
B.
C.
D.
General ledger
Purchases ledger
Sales ledger
Cash book
CHAPTER
6
Trial balance and Financial Statements
Chapter 6 title and content
CHAPTER
6
Trial Balance and
Financial
Statements
CHAPTER
6
Trial balance and Financial Statements
1
We prepare trial balance to:
A.
B.
C.
D.
Complete the accounting cycle
Close ledger accounts
Check the accuracy of accounts
All of the above
CHAPTER
7
Sales Tax
Chapter 7 title and content
CHAPTER
7
Sales Tax
(Value added tax)
CHAPTER
7
Sales Tax
1
Sales tax is calculated on such sales value that is:
A.
B.
C.
D.
Gross of trade discount but net of cash discount
Gross of trade discount and gross of cash discount
Net of trade discount but gross of cash discount
Net of trade discount and net of cash discount
2
Sales tax account is maintained in:
A.
B.
C.
D.
General ledger
Purchases ledger
Sales ledger
None of the above
3
What is the correct way of calculating sales tax?
A.
B.
C.
D.
Retail price + VAT – Trade discount
Retail price + Trade discount – VAT
Retail price + Trade discount + VAT
Retail price – Trade discount + VAT
4
Calculate the amount of sales tax payable by Mr. S under the following case.
Assume the tax rate is 17.5%
Sales to Mr. O 470 (inclusive of tax)
Sales to Mr. C (exclusive of tax)
5
Purchase account DOES NOT include sales tax as it is:
A.
B.
C.
D.
Recoverable from tax authorities
Not an expense
Receivable from tax authorities
All of the above
6
If output tax exceeds input tax than:
A. Tax is receivable
B. Tax is payable
CHAPTER
7
Sales Tax
C. Tax is refundable
D. Tax is adjustable
7
If Mr. B purchased “Alpha” worth 10,550 (inclusive of tax) and sold “Beta” worth 20,000 (exclusive of
tax) than calculate:




Input tax
Tax payable if any to tax authorities
Amount that is recorded in sales ledger
Amount that is recorded in purchases ledger
NOTE: Assume tax rate of 10% for both input and output tax purposes
8
Stung which is a registered for sales tax bought furniture on credit terms at a cost of $8000 plus sales tax
of $1200. What should be the entry to record this in the books?
9
If Mr. Tax has sold goods worth 260,000 of which 20% sales were on cash and purchased goods worth
211,500 of which 30% were on credit than what amounts will be recorded in:




Sales account
Purchases account
Account payables
Account receivables
NOTE: sales and purchases were exclusive and inclusive of tax respectively. Assume tax rate is 10% for
both input and output tax purposes
10
Soldier is registered for sales tax. During the month, he sells goods with a tax exclusive price of 1600 to
Commando on credit. As Commando is buying a large quantity of goods, Soldier reduced the price by
5%. He also offered a discount of another 2% if Commando pays with in 10days. Commando was unable
to pay within 10 days.
If sales tax is charged at 17.5% what amount should Soldier charge on this transaction?
11
A business sold goods that had a net value of $600 to Lucid. What entries are required to record this
transaction if sales tax is payable at 17.5%?
CHAPTER
7
Sales Tax
12
Laker returned goods that had a net value of 200. What entries are required to record this transaction if
sales tax is payable at 17.5%?
13
Which of the following is correct?
1.
2.
3.
4.
A.
B.
C.
D.
Sales tax is a form of indirect tax
If input tax exceeds output tax the difference is payable to tax authorities
Sales tax is included in the reported sales and purchases of the business
Sales tax cannot be recovered on some purchases
1 and 4
1 and 2
2 and 3
3 and 4
CHAPTER
8
Valuation of Inventory
Chapter 8 title and content
CHAPTER
8
Valuation of
Inventory
CHAPTER
8
Valuation of Inventory
1
The records of the company show the following:
Opening stock
Production
Closing stock
1200
8,000
10,000
The increased closing stock over the sum of production and opening inventory is due to:
A.
B.
C.
D.
Sales return
Purchases return
Scrap
None of the above
2
ACCA LIVE manufactures PC case. To complete one pc case they need certain amount of alloy and
plastic. Following information details the purchases and issues made during the year to production hall
by ACCA LIVE store:
Purchases:
Jan 1
Jan 5
Jan 10
Jan 15
Jan 20
Jan 26
Jan 30
Quantity
100
250
120
180
250
160
300
Rate
60
75
63
72
66
55
61
Issues:
Jan 2
Jan 7
Jan12
Jan 17
Jan 23
Jan 29
Jan 31
Quantity
80
200
150
200
260
100
300
Calculate the value of closing stock using short cut method under:
 FIFO
 LIFO
 AVCO
CHAPTER
8
Valuation of Inventory
3
Which of the following statement is correct?
I.
II.
III.
IV.
A.
B.
C.
D.
Both carriage inward and carriage outward are included in gross profit calculation
Carriage inwards are deducted from cost purchases whereas carriage outwards are
deducted from selling costs
Carriage inwards are debited in profit and loss account whereas carriage outwards are
credited
If carriage outwards are overcastted then net profit understates whereas overcastting in
carriage inwards causes net profit to overcast.
II only
III only
III and IV only
None of them
4
Few days back fire broke out in one of Sprinklers Ltd godown. According to initial investigation fire
damaged stock piles of two different products, rain and ice. It is estimated that 40% and 30% of rain and
ice respectively are completely destroyed.
According to store ledger card the cost of total inventory which was present at godown before fire broke
are as follows:


Rain
Ice
143,000
256,000
After inspection it is estimated that Net realizable value of left over stock of both products is:


Rain
Ice
90,000
165,000
Required:
A. Compute the value of loss recognized as write down adjustment
B. At what value Rain and Ice should be valued?
CHAPTER
9
Non-current Assets (Tangible)
Chapter 9 title and content
CHAPTER
9
Non-current Assets
(Tangible)
CHAPTER
9
Non-current Assets (Tangible)
1
Black Stone Ltd bought two buildings. Building A for 250,000 and Building B for 120,000. Building A is
expected to last for 10 years where building B is expected to be useful for five years. Calculate per year
depreciation for both buildings.
2
Alert Book Plc has several assets including a plant. Company uses reducing balance method to
depreciate the plant at the rate of 20%. The cost of the plant at the time of acquisition was 240,000.
What is the depreciation for the first three years?
3
BlackSoldiers make computer games. Recently they bought a mini-frame computer to run the simulation
process needed to analyze artificial intelligence (A.I.) system performance in game against human
reactions. It cost 2 million and they are expecting that it will be in use for next 4 years where its disposal
value at that time will be only 250,000.
What is the depreciation of the equipment at the end of third year?
4
A sole trader bought some office equipments two years back for 50,000 with an expected scrap value of
2,500. Equipment is depreciated using reducing balance method at 30%. What is the depreciation
charge at the end of third year of its use?
5
A company has three motor vehicles where each vehicle was expected to last 5 years at the time of
acquisition. The details about the year they acquired and the cost are as follows:
1. Toyota: bought 1 January 2008 for 6,000
2. Nissan: bought 30 June 2009 for 7,300
3. Honda: bought 15 October 2010 for 4,300
If the scrap value of the assets is nil then calculate the depreciation charge for the year ended 31
December 2012 under:


Straight line method
Reducing balance method
Remember company has the policy of charging full depreciation on the assets available at the end of
year.
CHAPTER
9
Non-current Assets (Tangible)
6
A company bought office equipment worth 500,000. If the equipment is depreciated at the rate of 15%
then prepare accumulated depreciation account for the first five years under:


Straight line method
Diminishing balance method
7
An accountant of Rubber Monkeys Ltd is preparing quarter ended financial records. He is given the
following information from the previous quarter.
31 March 2011 Machinery a/c balance: 160,000
31 March 2011 Accumulated Depreciation – Machinery a/c balance: 45,000
During the quarter company bought new machinery costing 74,000 with a residual value of 5,500.
If the company is depreciating machinery assets on monthly basis using diminishing balance method at
the rate of 20% then prepare the following for three months of quarter ended 30 June 2011.


Machinery account
Accumulated Depreciation account
8
Fun n Joy Ltd is dong event management business. At the start of the year they had the following assets:
Audio Equipments
Vehicle
Furniture
255,500
125,000
330,000
During the year company made the following acquisitions:


March 15, 2011 - Two DSLR cameras so that facilities of event coverage can also be provided
which cost the company 50,000.
October 20, 2011 - Company also bought two vehicles to cater the increasing demand where
each vehicle worth 15,000. Registration fee of both cars amounted to 2,500. It is also obligatory
for the companies to have their vehicles insured before they can be used under local laws.
Insurance cost amounted to 1,500.
Chief accountant has issued the instructions that these newly bought cameras will be categorized under
“Equipments” category in financial statements.
Company records depreciation on monthly basis as follows:

Audio equipments 20% at cost
CHAPTER


9
Non-current Assets (Tangible)
Vehicle 25% at reducing balance method
Furniture at 15% straight line basis.
Prepare the following for the year ended 31 December 2011:
1. Accounts of each asset separately including accumulated depreciation account for each asset
2. Extracts from Income statement and Statement of financial position
9
At the start of the financial year 2011, the building account had a balance of 43,000 and accumulated
depreciation account had 26,600.
During the year company purchased a building for 35,000 on 13 September 2011. In connection to this
new building company has incurred following cost:
1.
2.
3.
4.
5.
Legal fee
2,000
Paint
800
Wiring
2,600
Electricity cost in wiring process
Labour cost of wiring
550
1300
Company also carried out some repair work on existing building which is as follows:
1. Painting
2. 2 additional rooms
300
4200
Further information revealed that labour employed for wiring purposes on new machinery was
company’s own staff. Amount paid to labour for appreciation of good work was 150 which is included in
1300. Besides this amount nothing has been paid in addition to their normal wages.
Company depreciates the asset on reducing balance method at the rate of 20%. In case a new asset is
purchased during the year then depreciation is calculated on the basis of months used during the year
starting from the first day of the month subsequent to the month of purchase.
Prepare:
1.
2.
3.
4.
Building account
Accumulated Depreciation account – Building
Extracts from income Statement
Extracts from Statement of Financial Position
10
A company is using two assets for three years which were bought for 100,000 each. At the time of
acquisition their useful life was estimated to be 10 years each with no residual value. During fourth year
CHAPTER
9
Non-current Assets (Tangible)
of their use, fair market value of one and second was found to be 150,000 and 50 respectively. What is
the amount of revaluation and the depreciation charge at the end of fourth year?
11
A company has two different assets; office equipments and office furniture with carrying values 64,000
and 85,000 respectively at the start of financial period.
During the year office equipment was valued and its fair market value was 10,000 more than its original
price when it was bought three years back. However, office furniture was assessed for revaluation at the
end of year where fair market value was 85,000.
Company depreciates office equipment on the basis of hours used and office furniture is depreciated
using reducing balance method at 15%. It is estimated that during a year equipment is used for 5,000
hours where office equipment, when bought, had an expected life of 40,000 hours.
Draw up
1. Office equipment account and office furniture account
2. Accumulated depreciation accounts of office equipment and furniture
3. Relevant extracts from Income Statement and Balance Sheet
12
Change depreciation method is a change in:
A.
B.
C.
D.
Accounting policy
Accounting estimate
Accounting presentation
All of the above
13
Which of the following statement is true regarding selection of depreciation method?
I.
II.
III.
A.
B.
C.
D.
Entity is free to choose any depreciation method they think suitable
Entity can use only those depreciation methods that are mentioned in International
Accounting Standards
Entity can use any depreciation method that conforms to the rate at which benefits are
rendered from the asset
I only
II only
II and III only
None of the above
CHAPTER
9
Non-current Assets (Tangible)
14
Tick the correct statement(s)
In reducing balance method:




Higher depreciation expense is charged in earlier years of useful life
Higher depreciation expense is charged in later years of useful life
Depreciation expense increases over time due to reducing balance
Depreciation expense decreases over time due to reducing balance
CHAPTER
10
Non-current Assets (Intangible)
Chapter 10 title and content
10
CHAPTER
Non-current Assets
(Intangible)
CHAPTER
10
Non-current Assets (Intangible)
Questions for this chapter will be available
soon
CHAPTER
11
Accruals and Prepayments
Chapter 11 title and content
CHAPTER
11
Accruals and
Prepayments
CHAPTER
11
Accruals and Prepayments
Questions for this chapter will be available
soon
CHAPTER
12
Bad debts and Provisions for Bad debts
Chapter 12 title and content
CHAPTER
12
Bad Debts and
Provisions for BD
CHAPTER
12
Bad debts and Provisions for Bad debts
1
Wind mill Co sells calculators. Following is the figure of debtors for 2010 and 2011 respectively.
160,000
180,000
If the opening balance of provisions for doubtful debt a/c is 3,400 and the provisions are made at 4% a
year. Find out the following:
1. Closing balances of provision a/c for 2010 and 2011
2. Amounts to be recorded in profit and loss a/c in the year 2010 and 2011
2
ABC bought 10,000 worth of goods from Old manufacturers and promised to pay within 2 months. After
the payment was due, ABC was unable to make the payment and it has been concluded that money
owed by ABC is not recoverable. What is the journal entry to record this event?
3
XYZ bought 20,000 worth of the goods from NEW manufacturers and promised to pay within 1 month.
At the date when the payment was due, XYZ was unable to make the whole payment and was able to
pay out only 30% of his debt. Remaining is found irrecoverable. What is the journal entry to record this
event?
4
Learning Publishers has total receivables of 9,000. Until this year company was not maintaining any
provision for doubtful debts. Due to recent events of irrecoverable debts, management is of the view
that provision should be made for irrecoverable debts at 5% of total receivables. What is the total
provision of doubtful debts for this year?
5
Friends Engineering is a private limited company engaged in manufacturing electronic appliances.
Management is constantly monitoring the irrecoverable debts and has concluded that provision rate
should be left unchanged i.e. 8%. If the total debtors of the company amount to 330,000 and the
opening provision was 10,400 then what is the provision for this year? Also calculate the amount to be
recorded in profit and loss account
6
Fuchs Ltd is renowned for its automobile products. Due to stringent credit controls and strict recovery
policy, company has managed to improve its losses towards irrecoverable debts. Because of this,
company has decided to decrease its provision rate from 8% to 6%. If the total debtors of the company
are 150,000 and the opening provision is 4,500 then what is the total provision for this year and the
amount to be adjusted in profit and loss account?
CHAPTER
12
Bad debts and Provisions for Bad debts
7
Total Lubricants (Pvt) Ltd manufactures automobile lubricants. Recent financial crisis also had a bad
impact on the sales of the company. Due to higher risk and depriving economic conditions, management
has decided to be strict towards recoveries of debts. Also it has been decided that provision for
irrecoverable debts should maintained at the higher rate i.e. 10% (instead of 6% last year). If the total
debtors of the company amount to 350,000 and the opening provision is 42,000 then calculate this
year’s provision and the amount to be transferred to profit and loss account.
8
Thermite PLC manufactures heating appliances. It sold 15,600, 25,400 and 21,900 worth of goods to Mr.
Hot, Mr. Heat and Mr. Summer.
During the year Mr. Heat and Mr. Summer returned 1,500 and 2,100 worth of goods. Before, the
accounting year ended, Mr. Hot paid 5,600, Mr. Heat paid 6,124 and Mr. Summer paid 5,440.
Thermite PLC has decided to make a provision for doubtful debts for the first time and has settled a
provision rate of 6%.
Required:
1. The amount of provision
2. The expense to be recorded in Profit & Loss a/c
9
Freeze PLC manufactures cooling and refrigerating appliances. During the year it sold 50,200 and 63,000
worth of goods to Mr. Cold and Mr. Winter.
During the year Mr. Cold and Mr. Winter returned 2,300 and 3,660 worth of goods and before the year
ended, Mr. Cold paid back 23,400 and Mr. Winter paid 33,800 towards his account.
Freeze PLC maintains the provision at the rate of 8%. If the opening provision is 3,600 then find out:
1. The amount of provision for current year ended
2. The expenses to be recorded in Profit and Loss a/c
10
Sweet n Sour Ltd is engaged in catering business. Its total receivables by the end of the year are 250,000.
At year end it was discovered that one of his debtors got bankrupted and will not be able to pay
anything. The total he owed was 15,600. If the provision is maintained at 4.5% and the opening
provision is 6,500 then:
1. What is the total expense that will be recorded in profit and loss a/c?
2. What is the provision for the year ended?
CHAPTER
12
Bad debts and Provisions for Bad debts
11
Italian Spaghetti Ltd is engaged in event management business. During the year the total turnover of the
company was 2 million out of which 60% is still receivable from different clients. During the year two its
clients got bankrupted. First client that owed 50,200 is found unable to pay anything whereas, the
second paid just 40% of total debt owed which amounted to 124,000.
If the provision for doubtful debt is maintained at 15% of total receivables and the opening provision is
220,300 then:
What is the increase or decrease in the provision for this year?
12
Gingerbread cuisines’ accountant is calculating provision for this year. He is confused in the given
situation which is as follows:
Total debtors of the company amounted to 260,000. Provision for doubtful debt is made at 5.5%. By the
end of the year it was found that liquidity of one of the debtors has worsened and it is expected that he
will not be able to pay 55% of his total debt towards the company. Total debt owed by him is 33,500.
Being an accounts manager, assist the accountant in calculating provision by calculating:
1. Closing provision for this year
2. Total provision expense (adjustment) recorded in profit and loss a/c if the opening balance of
provision a/c is 50,000
13
Éclair Foods is preparing its financial statements. Total debtors for this period ended are found to be
550,000. During the year one customer got liquidated and only 20% of this total debt i.e. 43,000 was
recovered. No adjustment has been made yet to record this. Also, investigations revealed that two of
the debtor’s are not paying since long and recovery team is of the view that one customer who owes
33,000 will pay just 10,000 and the second will return only 45% of his total owing i.e. 42,000.
The provision for irrecoverable debt is maintained at 12% of the total debtors.
Required:
1. Provision to be recorded in P&L a/c and SoFP?
CHAPTER
12
Bad debts and Provisions for Bad debts
14
Crystal clear is preparing the financial statements for last quarter. The debtors raised so far 300,000.
After the preparation of trial balance, it was discovered that one of the customer has bankrupted who
owed 25,000. This has not been adjusted yet. Also, another debtor made the payment of 15,600 which
has not been treated.
Provision for discount is maintained at 2.5% and provision for bad debts is maintained at 5%.
If the opening balance of provision for discount and doubtful debts is 7,000 and 5,400 respectively then
calculate:
1.
2.
3.
4.
This period’s provision for discount
This period ended provision for doubtful debts
Net expense to be recorded in the income statement
Net debtors to be reported in SoFP (after adjusting all the provisions)
CHAPTER
13
Provisions and Contingencies
Chapter 13 content and title
13
CHAPTER
Provisions and
Contingencies
CHAPTER
13
Provisions and Contingencies
Questions for this chapter will be available
soon
CHAPTER
14
Control Accounts
Chapter 14 title and content
14
CHAPTER
Control
Accounts
CHAPTER
14
Control Accounts
Questions for this chapter will be available
soon
CHAPTER
15
Bank Reconciliation Statements
Chapter 15 content and title
15
CHAPTER
Bank Reconciliation
Statements
CHAPTER
15
Bank Reconciliation Statements
Questions for this chapter will be available
soon
CHAPTER
16
Rectification of Errors
Chapter 16 content and title
16
CHAPTER
Rectification of
Errors
CHAPTER
16
Rectification of Errors
Questions for this chapter will be available
soon
CHAPTER
17
Financial Statements – Sole Traders
Chapter 17 content and title
17
CHAPTER
Financial Statements
(Sole Traders)
CHAPTER
17
Financial Statements – Sole Traders
Questions for this chapter will be available
soon
CHAPTER
18
Financial Statements – Partnerships
Chapter 18 content and title
18
CHAPTER
Financial Statements
(Partnerships)
CHAPTER
18
Financial Statements – Partnerships
Questions for this chapter will be available
soon
CHAPTER
19
Events after Reporting date
Chapter 19 title and content
19
CHAPTER
Events after
Reporting Date
CHAPTER
19
Events after Reporting date
Questions for this chapter will be available
soon
CHAPTER
20
Financial Statements – Companies
Chapter 20 title and content
20
CHAPTER
Financial Statements
(Companies)
CHAPTER
20
Financial Statements – Companies
Questions for this chapter will be available
soon
CHAPTER
21
Incomplete Records
Chapter 21 title and content
21
CHAPTER
Incomplete
Records
CHAPTER
21
Incomplete Records
Questions for this chapter will be available
soon
CHAPTER
22
Statements of Cash Flows
Chapter 22 content and title
22
CHAPTER
Statements of Cash
Flows
CHAPTER
22
Statements of Cash Flows
Questions for this chapter will be available
soon