Foundations in Accountancy/ACCA
Financial Accounting (FFA/FA)
Mock examination 2
Marking scheme and solutions
For exams from September 2022 to
August 2023
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FINANCIAL ACCOUNTING (FFA/FA)
2
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ANSWERS
Commentary
The questions in this exam are of exam standard and cover the whole syllabus.
Marking scheme
Section A: 2 marks for each correct answer
Max marks 70
Section B
Question 36
Marks
Task 1
Consideration transferred
Cash
Shares
Non-controlling interest
Total cost of investment
Equity share capital
Retained earnings
Total fair value of Silver's net assets
Goodwill
0.5
1
0.5
0.5
0.5
0.5
0.5
1
5
Task 2
Share capital
Share premium
Retained earnings
Non-controlling interest
1
1
1
1
4
Task 3
0.5 marks for each factor correctly classified as identifying or not identifying
an investment in a subsidiary
4
Task 4
1 mark for identifying correctly whether each statement is true or false
2
15
Total
Question 37
Task 1
Task 2
Task 3
0.25 marks for each item correctly classified as on the SOFP or not
2 marks for correctly identifying the correct statement
0.5 marks each for correctly identifying whether account is to be
debited/credited
1 mark for correct calculation of the profit or loss charge
Task 4
1 mark for correct double entry for accrual
1 mark for correct calculation of accrual
Task 5
0.25 marks for each correct debit/credit
1.5 marks for calculation of plant depreciation
1 mark for calculation of buildings depreciation
Total
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Marks
4
2
2
1
3
1
1
2
1.5
1.5
1
4
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FINANCIAL ACCOUNTING (FFA/FA)
Section A
1
The correct answers are:


Settlement discount received
Returns outwards
Settlement discount received will be credited to the payables ledger control account.
Returns outwards are returns to suppliers and are shown in the payables ledger control account.
Cash purchases do not give rise to payables, so do not appear in this control account.
Trade discounts are deducted in preparing the invoice, so have already been accounted for in purchases.
2
Operating cycle
increased
Pay suppliers more promptly to obtain settlement
discounts
o
Buy inventory in larger orders to obtain trade discounts
o
Offer early settlement discounts to customers
Operating cycle
reduced
o
The cash operating cycle is inventory holding period plus accounts receivable collection period less
accounts payable payment period.
Reducing the payables payment period and increasing the inventory holding period will lengthen the cash
cycle. Persuading customers to pay more quickly will reduce the accounts receivable collection period
and so reduce the operating cycle.
3
$4,600
Balance b/d
Sales on credit
4
RECEIVABLES LEDGER CONTROL ACCOUNT
$
4,100
Receipts from customers
3,500
Returns inward
_____
Balance c/d
7,600
$1,440 debit
$
Profit adjustment:
Irrecoverable debts
Sales returns
Electricity accrual
Decrease in profit before tax
Amendment to tax charge (1,800  20%)
5
$31,000 drawings
Net assets 1.04.X2
Capital introduced
Profit
Drawings (bal)
Net assets 31.03.X3
(400)
(600)
(800)
(1,800)
360
(1,440) DR
$
47,000
30,000
35,000
(31,000)
81,000
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$
2,200
800
4,600
7,600
ANSWERS
6
The correct answer is: Supplier payments in the cash book have been undercast by $300.
The total of supplier payments is posted to the control account. This undercast means that the balance in
the control account will be higher than the balance in the payables ledger, because the individual
payments will have been posted to the payables ledger accounts.
Option 1 would lead to the payables ledger being $600 higher than the balance on the control account.
Options 2 and 3 would lead to the payables ledger balance being $300 higher than the balance on the
control account.
7
$348,000
$
275,000
(14,000)
261,000
Purchases
Less increase in inventory
Cost of sales
Sales = 261,000  100/75 = 348,000
8
$3,700 profit
Using the accounting equation
Opening capital
(= opening net assets)
Capital introduced
Profit (balancing figure)
Drawings (5,000 + (1,500  100/125))
$
23,000
4,000
3,700
(6,200)
24,500
Goods drawn by the proprietor are taken at cost.
9
Investing activities
Financing activities
Repayment of a long-term loan
o
Sale of non-current assets
o
Issue of ordinary shares
10
o
The correct answer is: Sale of a non-current asset debited to the asset account.
This transaction should have been credited to the asset account because the asset amount is reduced by
the sale.
Option 3 will not cause an imbalance, because it does not affect the debit/credit balances (the payables
ledger is outside the double-entry system). Options 1 and 4 would not cause an imbalance because they
would result in an equal debit and credit entry.
11
The correct answers are:

Statements of cash flows will show the same total for cash flows from operating activities
regardless of whether the indirect or the direct method is used.

Loss on sale of non-current assets will be added to cash flows from operating activities when
using the indirect method.
Ordinary shares held in another company are classified as investments. They do not meet the liquidity
requirements to be considered as cash equivalents. Bonus issues do not involve the movement of cash
so do not appear in the statement of cash flows.
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FINANCIAL ACCOUNTING (FFA/FA)
12
Increase
Reduce
An increase in inventories
o
A reduction in receivables
o
Interest payable
o
An increase in inventories ties up more cash so reduces net cash from operating activities. A reduction in
receivables means more cash has been received, so net cash from operating activities is increased.
Interest payable does not involve an outflow of cash, so is added back in order to calculate net cash from
operating activities.
13
$229,840
$
168,600
8,200
176,800
Purchases for the year
Plus fall in inventory held
Cost of sales
Sales = $176,800  130% = $229,840
14
$31,015
CASH
$
B/d
Cash sales
75
74,000
$
43,000
31,015
60
74,075
Bank
 Theft
C/d
74,075
RECEIVABLES
$
1,500
Bank
C/d
106,000
107,500
B/d
Credit sales ()
Total sales
Credit sales
 Cash sales
15
$
105,000
2,500
107,500
180,000
(106,000)
74,000
20%
20,200/101,000  100 = 20%
16
In statement of
changes in equity
Share capital
Not in statement of
changes in equity
o
Taxation payable
o
Revaluation surplus
o
Allowance for receivables
o
Taxation payable is a liability and does not feature in the equity section of the statement of financial
position, and so cannot feature in the statement of changes in equity. The allowance for receivables is
deducted from receivables in the statement of financial position.
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ANSWERS
17
$7,000 credit
Cash sales
Supplier payment
Balance
SUSPENSE ACCOUNT
$
12,000
Initial difference
10,000
7,000
29,000
Balance c/d
$
29,000
29,000
7,000
18
$
157,000
3,000
49,000
(29,000)
180,000
Balance at 31.12.X5
Excess depreciation transfer
Profit for the year
Dividends paid (bal)
Balance at 31.12.X6
19
The correct answers are:

Directly attributable handling costs incurred when purchasing the raw materials

Variable production overheads
Selling and storage costs (eg warehousing costs and export duties) are specifically excluded by IAS 2
from the cost of inventories.
20
True
Limited liability makes it easier to raise finance.
False
o
Shareholders in a limited liability company are
personally responsible for the debts of the business.
o
A limited liability company can raise finance through a share issue or by issuing loan notes.
Shareholders are only responsible for any amount outstanding on their shares.
21
Closing net assets = Opening net assets + profit + capital introduced  drawings
22
$280,000
$
160,000
120,000
280,000
8%  $2m
2%  $6m
Warranty provision
23
The correct answers are:


Relevance
Timeliness
Materiality and consistency are accounting concepts but not identified in the Conceptual Framework as
either a fundamental or enhancing qualitative characteristic.
24
The correct answers are:

The cost of preparing the land prior to construction

Legal costs arising from the land purchase
The sales tax will be recoverable so not added to the cost of the warehouse. Staff training costs cannot
*be included in the cost of an asset.
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FINANCIAL ACCOUNTING (FFA/FA)
25
23.4%
The gearing ratio is calculated as total debts over equity plus total debts.
Equity is equivalent to net assets = 146,230 + 10,200 + 30,270 + 18,500 + 1,100 – 31.340 – 40,000 – 4,300
= 130,660
Cabbage's gearing ratio = 40,000/(130,660 + 40,000) % = 23.4%
26
$18,000
$
78,000
(21,000)
(6,000)
18,000
69,000
Carrying amount 31.3.X2
Depreciation
Disposal (7,000 – 1,000)
Purchases (bal)
Carrying amount 31.3.X3
27
The correct answer is: It was discovered that a line of inventory held off-site had significantly deteriorated
over the past few months and was no longer saleable.
This amount will have been included in year-end inventory, but deterioration was already in progress at
the year end, so the year-end inventory amount should be adjusted.
The other options all concern issues that arose after the year end. The customer who declared
bankruptcy after the year end did not place an order, so there was no receivable at the year end.
28
30.5%
Return on capital employed (ROCE) = profit before interest and tax/ capital employed  100%.
ROCE = 23,500/76,950  100% = 30.5%
The capital employed figure does not include the bank overdraft (only long-term liabilities).
29
$2,300
$
(360)
540
560
560
600
400
2,300
Accrual b/f reversed
31.1.X5
30.4.X5
31.7.X5
31.10.X5
Accrual Nov/Dec X5 (600  2/3)
30
In NCAs
An internally created and very successful brand name
A patent acquired cheaply from a failed business
Not in NCAs
o
o
Cars held in the showroom of a dealership
o
Shares held by a parent company in relation to a
subsidiary
o
An internally-generated brand name cannot be capitalised. The patent can be capitalised because it was
acquired for consideration (however low). Cars held in a showroom will be treated as inventory and
shares held in another company (including shares held by a parent company in relation to a subsidiary)
will be classified as a non-current asset investment.
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ANSWERS
31
$5,655
RECEIVABLES
$
127,500
169,000
Balance b/f
Credit sales
Cash received
Irrecoverable debts
Balance
296,500
Allowance for receivables:
$
108,000
1,400
187,100
296,500
$
5,100
4,255
9,355
B/f
Profit or loss charge (bal)
C/f (187,100  5%)
Total profit or loss charge = 4,255 + 1,400 = 5,655.
32
$1,019
Cash book
$
15,100
(1,240)
Balance
Direct debits
Unpresented cheques
Lodgement not credited
Bank statement
$
12,708
(432)
565
12,841
13,860
Remaining difference = $13,860 – $12,841 = $1,019
33
$1,545
$
2,250
(705)
1,545
Output tax (17,250  15/115)
Input tax ((11,200 – 6,500)  15%)
Amount payable
34
The correct answers are:


Paying off a long-term loan
Cutting all senior management salaries
Paying off a long-term loan will reduce capital employed and so increase the ratio. Cutting salaries will
increase profit and so increase the return on capital.
Revaluing assets and issuing shares will both increase capital employed and so reduce the ratio.
35
Accounts receivable collection period = 242,000/850,000  365 = 104 days
Accounts payable payment period = 167,000/525,000  365 = 116 days
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FINANCIAL ACCOUNTING (FFA/FA)
Section B
Question 36
Task 1
$'000
Consideration transferred on acquisition:
Cash
Shares
Fair value of non-controlling interest
Total cost of investment
Fair value of net assets at acquisition:
Equity share capital
Retained earnings (610,000 + (240,000  6/12))
Total net assets
Goodwill
280
420
190
890
Add
50
730
780
110
Task 2
Share capital
(600,000  $1) + (3  $1  70,000) = $810,000
Share premium
$150,000 + (3  $1  70,000) = $360,000
Retained reserves
$850,000 + $540,000 + (70%  6/12  $240,000) = $1,474,000
Non-controlling interest
$190,000 + (30%  6/12  $240,000) = $226,000
Task 3
Subsidiary
Control
Not subsidiary
o
Greater than 50% of preference shares and debt being held
by the investor
o
Greater than 50% of voting equity shares being held by the
investor
o
100% of the equity shares being held by an investor
o
Significant influence
o
50% of all shares and debt being held by an investor
o
Existence of non-controlling interest
o
Greater than 60% of the preference shares being held by
the investor
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o
ANSWERS
Task 4
True
Non-controlling interest must be measured at fair value.
If a subsidiary is acquired during an accounting period, the consolidated statement
of profit or loss will include revenue and expenses for the whole year, which will be
removed through the non-controlling interest.
False


The non-controlling interest may also be measured at its proportionate share of the subsidiary's net assets.
Revenue and expenses are time-apportioned, for example if a subsidiary is acquired four months into the year
only 8/12 of revenue and expenses are consolidated. The profit for the period is then allocated between the
parent and the non-controlling interest.
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FINANCIAL ACCOUNTING (FFA/FA)
Question 37
Task 1
On SFP
Revenue
Purchases
Inventory at 1 July 20X4
Cash
Trade payables
Trade receivables
Buildings at cost
Buildings, accumulated depreciation, 1 July 20X4
Plant at cost
Plant, accumulated depreciation, 1 July 20X4
Bank balance
Administrative expenses
Allowance for receivables, at 1 July 20X4
Retained earnings at 1 July 20X4
$1 ordinary shares
Share premium account
Not on SFP
















Task 2
The correct answer is: Closing inventories in the statement of financial position should be credited with $20,000
at 20 June 20X5.
The sale was made after the year end but provides evidence that inventory was overvalued at the year end.
Task 3
DR
Trade receivable
Administrative expenses
Allowance for receivables
Revenue
CR
Neither DR nor CR




The amount included in the statement of profit or loss after the allowance is increased to 6% of trade receivables
is $27,000 ((950,000  6%) – 30,000).
Task 4
The double entry to post the year end adjustments for energy costs is:
DR
Accrual
Administrative expenses
CR


The amount to be posted within the year end adjustment double entry above is $30,000 (45,000  2/3).
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ANSWERS
Task 5
DR
Administrative expenses
Cost of sales
Buildings cost
Plant cost
Buildings accumulated depreciation
Plant accumulated depreciation
CR
Neither DR nor CR






Depreciation charge for the year ended 30 June 20X5:
Plant $82,500 ((660,000 – 330,000)  25%)
Buildings $111,000 (2,220,000  5%)
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FINANCIAL ACCOUNTING (FFA/FA)
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