Applied Knowledge
Financial
Accounting
(FA/FFA)
Mock Exam 1 – Questions
Time allowed:
2 hours
This examination is divided into TWO sections:
Section A


35 questions, each worth 2 marks
70 marks in total
Section B


2 questions, each worth 15 marks
30 marks in total
All questions are compulsory
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Section A
This section of the exam contains 35 questions, each worth 2 marks.
This exam section is worth 70 marks in total.
All questions are compulsory.
1
Botox receives rent for subletting part of its office premises to a number of tenants. During
the year Botox received cash of $378,600 from its tenants.
Details of rent in advance and in arrears at the beginning and end of the year are as follows:
20X5
$
38,400
28,300
Rent received in advance
Rent owing by tenants
20X4
$
34,600
26,900
All rent owing was subsequently received.
What figure for rental income should be included in Botox’s profit or loss for the
year?
$
2
The following statements relates to goods despatched notes.
i)
ii)
Goods despatched note are completed by the customer on delivery of the product.
Goods despatched notes are primarily used to check that the products delivered
are the products ordered.
Which of the following statement(s) is/are true?
A
B
C
D
3
i) only
ii) only
Both i) and ii)
None of the above
The plant and equipment at cost account of a business for the year ended 30 June 20X5
was as follows:
Plant and equipment – cost
20X4
$
1 July
Balance
576,000
20X5
1 Jan
Cash-purchase of plant 384,000
20X4
30 Sept Transfer disposal
account
20X5
30 Jun Balance
$
144,000
816,000
─────
─────
─────
─────
960,000
960,000
The company’s policy is to charge depreciation at 20% per year on the straight line basis,
with proportionate depreciation in the years of purchase and disposal.
What should be the depreciation charge for the year ended 30 June 20X5?
A
B
C
D
$163,200
$153,600
$146,400
$132,000
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2
4
An entity’s draft financial statements for the year ended 30 June 20X5 showed a profit of
$91,300. It was later found that $21,000 paid for the purchase of a motor van had been
debited to motor expenses account. It is the company’s policy to depreciate motor vans at
20% per year, with a full year’s charge in the year of acquisition.
What is the profit for the year after adjusting for this error?
$
5
Carol had receivables of $598,600 at 30 November 20X5. Her loss allowance for receivables
at 1 December 20X4 was $12,460 and she wishes to change that to 2% of receivables at
30 November 20X5. On 29 November 20X5 she received $635 in full settlement of a debt
that she had written off in the year ended 30 November 20X4.
What total amount should be recognised for receivables in the statement of profit
of loss for the year ended 30 November 20X5?
A
B
C
D
6
$1,123 credit
$488 credit
$147 debit
$11,972 debit
Which TWO of the following costs should be included in valuing the inventories of
a manufacturing company, according to IAS 2 “Inventories”?
Carriage outwards
Non-recoverable taxes on purchases
Salary of factory supervisor
Abnormal amounts of wasted materials
7
The inventory value for the financial statements of Cutie-Q for the year ended 31 December
20X5 was based on an inventory count on 4 January 20X6, which gave a total inventory
value of $119,460. Between 31 December and 4 January 20X6, the following transactions
had taken place:
$
Purchases of goods
1,230
Sales of goods (at 30% mark-up on cost)
1,820
Goods returned by Cutie-Q to supplier
200
What adjusted figure should be included in the financial statements for
inventories at 31 December 20X5?
A
B
C
D
$119,304
$119,704
$119,830
$120,250
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3
8
Johnsons uses the imprest method of accounting for petty cash. The petty cash was
counted and there was $57.22 in hand. The following petty cash slips were found for the
following:
$
16.35
12.00
18.23
20.20
Stamps
Sale of goods to staff
Coffee and tea purchase
Birthday cards for staff
What is Johnsons’ imprest amount (to two decimal places)?
$
9
The following receivables ledger account prepared by a trainee accountant contains a
number of errors:
Receivables ledger account
$
Opening balance
Cash from credit customers
Contras against payables
476,230
287,450
7,020
─────
770,700
─────
$
Credit sales
294,760
Discounts allowed
2,190
Irrecoverable debts written off
18,420
Interest charged on overdue
accounts
1,700
Closing balance
453,630
─────
770,700
─────
At the point of sale, customers are not expected to take advantage of settlement discounts.
What should the closing balance on the receivables account be after the errors in
it have been corrected?
A
B
C
D
10
$442,990
$454,210
$457,610
$471,650
Tulip Co acquired 70% of the voting share capital of Daffodil Co on 1 September 20X4. The
following extracts are from the individual statements of profit or loss of the two companies
for the year ended 28 February 20X5:
Tulip
Daffodil
$
$
Revenue
61,000
23,000
Cost of sales
(42,700)
(13,800)
─────
─────
Gross profit
18,300
9,200
─────
─────
What should be the consolidated gross profit for the year ended 28 February
20X5?
$
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4
11
The following bank reconciliation statement has been prepared for a company:
$
27,600
11,900
─────
39,500
18,100
─────
21,400
─────
Overdraft per bank statement
Add: Deposits credited after date
Less: Outstanding cheques presented after date
Overdraft per cash ledger
Assuming the amount of the overdraft per the bank statement of $27,600 is
correct, what should be the balance in the cash ledger?
A
B
C
D
12
$2,400 overdrawn
$21,400 overdrawn as stated
$33,800 overdrawn
$57,600 overdrawn
Which TWO of the following statements concerning intangible non-current assets
are true?
Intangible assets have no physical form
Research costs may be capitalised as intangible non-current assets
Development expenditure may be capitalised as intangible non-current assets
Intangible assets remain in non-current assets at cost
13
A sole trader fixes his prices by adding 50% to the cost of all goods purchased. On 30 June
a fire destroyed a significant amount of inventory and all inventory records.
The trading account for the year ended 30 June included the following figures:
$
Sales
Opening inventory at cost
Purchases
Closing inventory at cost
340,640
698,080
───────
1,038,720
491,020
───────
Gross profit
$
675,000
547,700
───────
127,300
───────
Using this information, what inventory loss has occurred?
A
B
C
D
$28,340
$97,700
$146,550
$210,200
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5
14
A company has an opening inventory balance on 1 January 20X8 of 20 items with a total
value of $120. During January the following inventory movements occurred:
Date
2 January 20X8
9 January 20X8
16 January 20X8
Description
Purchase
Issue
Purchase
Quantity
40
50
40
Unit Price
$6.30
$6.50
A cumulative weighted average method of inventory valuation is used.
What value will be given to the closing inventory at 31 January 20X8?
$
15
Aubrey made a profit for the year of $345,687 and has closing net assets of $435,195.
During the financial year, $40,000 cash and $20,000 in non-current assets were introduced
as capital. Drawings of $6,000 were taken out of the business each month.
What was the opening balance of net assets?
A
B
C
D
16
$768,882
$121,508
$101,508
$35,508
Which TWO of the following statements about qualitative characteristics are
correct?
Information may be excluded if it is too difficult for certain users to understand
Materiality is a fundamental qualitative characteristic
Neutral depiction of financial information can influence the decisions of users
Consistent measurement, classification and presentation of similar items help to
achieve comparability
17
A limited liability company issued 75,000 equity shares of $0.50 each at a premium of $0.25
per share. The cash received was correctly recorded but the full amount was credited to
the share capital account.
Which of the following journal entries is needed to correct this error?
A
B
C
D
18
Debit
Share premium account
Share capital account
Share capital account
Share capital account
$
18,750
37,500
18,750
37,500
Credit
Share capital account
Share premium account
Share premium account
Cash
$
18,750
37,500
18,750
37,500
Which of the following provides advice to the International Accounting Standards
Board (IASB) as well as informing the IASB of the implications of proposed
standards for users and preparers of financial statements?
A
B
C
D
The Standards Advisory Council
The Monitoring Board
The IFRS Foundation trustees
The IFRS Interpretations Committee
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6
19
The statement of financial position of Cartwright, a limited liability company, shows closing
retained earnings of $320,568. The statement of profit or loss showed profit of $79,285.
Cartwright paid last year’s final dividend of $12,200 during the current year and proposed
a dividend of $13,500 at the year end. This had not been approved by the shareholders at
the end of the year.
What is the opening retained earnings balance?
A
B
C
D
20
$241,283
$253,483
$254,783
$387,653
In the year ended 31 October 20X5, Galleon Co purchased non-current assets with a cost
of $140,000, financing them partly with a new loan of $120,000. Galleon Co also disposed
of non-current assets with a carrying amount of $50,000 making a loss of $3,000. Cash of
$18,000 was received from the disposal of investments during the year.
What should be Galleon Co’s net cash flow from investing activities according to
IAS 7 “Statement of Cash Flows”?
A
B
C
D
21
$45,000
$48,000
$69,000
$75,000
In finalising the financial statements of a company for the year ended 30 June
20X5, which TWO of the following material matters should be disclosed as nonadjusting events after the reporting period?
A receipt of $295,000 in July 20X5 from a major customer whose debt had been
written off in 20X3.
The sale in August 20X5 for $350,000 of inventory items included in the statement of
financial position at cost, $500,000.
A warehouse included in the financial statement at $2,500,000 was seriously damaged
by flooding in July 20X5. Warehouse operations were resumed later in August 20X5
but the value of the building had fallen to $1,500,000.
The company issued 1,000,000 equity shares of $1 in August 20X5.
22
Are the following disclosures required in the notes to the financial statements,
according to IAS 38 “Intangible Assets”?
REQUIRED
NOT REQUIRED


not


Impairment losses written off intangible assets during
the period


The aggregate amount of research and development
expenditure recognised as an expense during the period


The amortisation methods used
A description
recognised
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of
significant
intangible
assets
7
23
Which TWO of the following statements about goodwill are correct, in accordance
with International Financial Reporting Standards?
Goodwill represents the future economic benefits arising from assets acquired in a
business combination that are not individually identified and separately recognised
Goodwill may only be revalued to a figure in excess of cost if there is relevant and
reliable evidence to support the revaluation
The period over which goodwill is amortised must be disclosed in a note to the financial
statements
Internally-generated goodwill cannot be recognised as an intangible asset
24
25
Are each of the following a role of the audit committee or a role of the board of
directors?
AUDIT
COMMITTEE
BOARD OF
DIRECTORS
Monitoring of the integrity of the financial statements


Presenting a balanced and understandable assessment of the
company’s position


Reviewing the internal controls and risk management systems


Maintaining a sound system of internal control


Mo gives his customers a 12-month warranty on their purchases. In the past, 5% of
customers have successfully claimed on this warranty. At the end of 20X4, the provision
for warranties was $60,000. At the end of 20X5 Mo believes the provision should be
$55,000.
What is the accounting entry needed to reflect the new provision?
A
B
C
D
26
DR Expenses $5,000. CR Provisions $5,000
DR Provisions $5,000. CR Expenses $5,000
DR Expenses $55,000. CR Provisions $55,000
DR Provisions $55,000. CR Other income $55,000
Maxwell received a statement from one of its suppliers, Rica, showing a balance due of
$2,650. The amount due according to Maxwell’s payables ledger account for Rica was only
$265. Comparison of the statement and the ledger account revealed the following
differences:
(1)
Rica has not allowed for goods returned by Maxwell with a sales value of $265.
(2)
Maxwell made a contra entry, reducing the amount due to Rica by $1,800, for a
balance due from Rica in Maxwell’s receivables ledger. No such entry has been
made in Rica’s records.
(3)
A payment sent by Maxwell for $320 has not been reflected in Rica’s statement.
What difference remains between the two companies’ records after adjusting for
these items?
A
B
C
D
$0
$265
$530
$640
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8
27
Which TWO of the following statements are correct for material items?
The nature and amount of all adjusting events after the reporting period must be
disclosed in the notes to the financial statements
Contingent liabilities are disclosed unless the possibility of loss is remote
A contingent asset should be recognised as an asset in the financial statements when
the inflow of economic benefits is virtually certain
The receipt after the reporting date of a material debt, which had been written-off as
irrecoverable, must be disclosed as a non-adjusting event in the notes to the financial
statements
28
A company has made a gross profit of $600,000 for the year ended 31 December 20X5,
which represented a mark-up of 50%. Opening inventory was $120,000 and closing
inventory was $180,000.
What was the rate of average inventory turnover (to one decimal place)?
times
29
Charles entered into the following transactions:
(1)
Sale of goods on credit to Cody with a list price of $3,200. He allowed a 10%
trade discount and a further 2% discount on the trade price for payment within
seven days, Charles expected Cody to take advantage of the discount offered.
(2)
A credit sale to Mary allowing a 5% trade discount on the list price of $640.
How much revenue should be initially recognised as a result of the above
transactions?
A
B
C
D
30
$3,488
$3,430
$3,424
$3,840
The following information is available for the year ended 31 October 20X5:
Property
Cost as at 1 November 20X4
Accumulated depreciation as at 1 November 20X4
$
102,000
(20,400)
─────
81,600
─────
On 1 November 20X4, the company had revalued the property to $150,000.
The company’s policy is to charge depreciation on a straight-line basis over 50 years. On
revaluation there was no change to the overall useful economic life. It has also chosen not
to make an annual transfer of the excess depreciation on revaluation between the
revaluation surplus and retained earnings.
What should be the balance on the revaluation surplus and the depreciation
charge as shown in the financial statements for the year ended 31 October 20X5?
A
B
C
D
Depreciation
charge
$
3,750
3,750
3,000
3,000
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Revaluation
surplus
$
68,400
48,000
68,400
48,000
9
31
The following balances have been extracted from Grim’s financial statements for the year
ended 31 December 20X5:
$000
Inventory
50
Trade receivables
70
Cash at bank
10
Trade payables
88
Interest payable
7
What is Grim’s quick ratio?
A
B
C
D
32
33
Are the following statements comparing sole traders and limited liability
companies true or false?
TRUE
FALSE
Only companies have capital invested into the business


A sole trader’s financial statements are private; a company’s
financial statements are sent to shareholders and may be
publicly filed


A sole trader is fully and personally liable for any losses of the
business; a company’s shareholders are not personally liable for
any losses of the company


Extracts from the financial statements of Miller Co for the year ended 31 October 20X5 are
shown below:
$000
Revenue
475
Cost of sales
(342)
────
Gross profit
133
Expenses
(59)
Finance cost
(26)
────
Profit before tax
48
────
What is the interest cover ratio for the year ended 31 October 20X5?
A
B
C
D
34
0.80
0.84
0.91
1.37
5.12 times
2.85 times
1.85 times
0.35 times
Are the following items required to be disclosed in the notes to the financial
statements?
YES
NO
(1)
Useful lives of assets or depreciation rates used


(2)
Increases in asset values as a result of revaluations in
the period


(3)
Depreciation expense for the period


(4)
Reconciliation of carrying amounts of non-current
assets at the beginning and end of period


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10
35
Carter Co has non-current assets with a carrying amount of $2,500,000 on 1 December
20X4.
During the year ended 30 November 20X5, the following occurred:

Depreciation of $75,000 was charged to profit or loss

Land and buildings with a carrying amount of $1,200,000 were revalued to
$1,700,000

An asset with a carrying amount of $120,000 was disposed of for $150,000.
The carrying amount of non-current assets at 30 November 20X5 was $4,200,000.
What amount should be shown for the purchase of non-current assets in the
statement of cash flows for the year ended 30 November 20X5?
$
000
(70 marks)
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11
Section B
This section of the exam contains 2 questions, each worth 15 marks.
This exam section is worth 30 marks in total.
Both questions are compulsory
36
Background
Petrotrest purchased 55% of the equity share capital of Sputnik on 1 September 20X2 when the
reserves of Sputnik were $632,000. At 31 August 20X5 the two companies have the following
statements of financial position:
Petrotrest
Sputnik
Assets
Non-current assets, at carrying amount
Property, plant and equipment
Investment: Shares in Sputnik at cost
Current assets
Total assets
Equity and liabilities
Equity share capital ($1 shares)
Retained earnings
Current liabilities
Total equity and liabilities
$000
$000
16,056
6,120
14,238
─────
36,414
─────
3,672
5,364
─────
9,036
─────
21,420
6,570
─────
27,990
8,424
─────
36,414
─────
5,200
1,550
─────
6,750
2,286
─────
9,036
─────
Additional information:
On acquisition the fair value of Sputnik’s land was $600,000; on that date the carrying amount of
land was $500,000. At 31 August 20X5 the fair value of Sputnik’s land had increased by a further
$50,000. Petrotrest applies the cost model of IAS 16 Property, Plant and Equipment to all its noncurrent assets.
Non-controlling interest is valued at fair value; the share price of one Sputnik share can be taken to
give fair value. On acquisition the market price of one Sputnik share was $2.10, and as at 31 August
20X5 the market price of one Sputnik share is $2.70.
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12
Task 1
12 marks
Use the information above to complete the following financial statement:

Statement of financial position as at 31 August 20X5
Statement of financial position for the year ended 31 August 20X5
Consolidated statement of financial position at 31 August 20X5
Consolidated statement of financial position for the year ended 31 August 20X5
$000
Non-current assets
Property, plant and equipment
Goodwill

Cost + Non-controlling interest
Cost – Net assets on acquisition
Cost + Non-controlling interest – Net assets on acquisition
Cost + Non-controlling interest – Net assets at the reporting date
Investment: Shares in Sputnik
Current assets
______
Total assets
______
Equity and liabilities
Share capital
Retained earnings
Revaluation surplus

0
50
55
83
100
150
______
Non-controlling interest

(45% × 5,200 × $2.10)
(45% × 5,200 × $2.10) + (45% × 1,550)
(45% × 5,200 × $2.10) + (45% × (1,550 – 632))
(45% × 5,200 × $2.70) + (45% × (1,550 – 632))
______
Total equity
Current liabilities
______
Total equity and liabilities
______
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13
Task 2
1 mark
Are the following statements regarding the method of accounting for investments true or
false?
TRUE
FALSE
Subsidiaries are consolidated in full


Associates are equity accounted


Task 3
2 marks
On 1 September 20X6 Petrotrest acquired 75% of the equity shares of Samara through a 3-for-4
share-for-share exchange. Samara had 200,000 shares of $0.50 each in issue. On the date of
acquisition the share price of one share in Samara was $2 and the share price of one share in
Petrotrest was $2.40.
What was the fair value of the consideration transferred?
$
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000
14
37
Background
McMoy Co, a limited liability company, has an accounting year end of 31 August. The accountant is
preparing the financial statements as at 31 August 20X5. A trial balance has been extracted.
Task 1
5 marks
Do each of the following items belong on the Statement of Financial Position (SOFP) as at
31 August 20X5?
Account
$000
Equity shares ($0.50 each)
8% redeemable preference shares ($1 each)
Land and buildings at cost
Fixtures and fittings
– cost
– depreciation at 1 September 20X4
Motor vehicles
– cost
– depreciation at 1 September 20X4
Revenue
Purchases
Inventory at 1 September 20X4
10% Loan notes (repayable 20Y8)
Share premium
Retained earnings 1 September 20X4
Interest paid
Distribution costs
Administration expenses
Trade receivables
Allowance for trade receivables at 1 September 20X4
Trade payables
Balance at bank
The following further information is available:
3,420
80
64
2,480
496
Belongs on SOFP
2,000
500
55
24
4,410
700
230
182
35
654
714
400
48
────
8,391
────
(1)
Inventory at 31 August 20X5 amounted to $507,000.
(2)
Depreciation is to be charged at 20% per annum as follows:


$000
15
275
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
[YES/NO]
────
8,391
────
fixtures and fittings – on a straight line basis (an administration expense);
motor vehicles – on a reducing balance basis (a distribution expense).
(3)
Distribution wages totalling $8,000 were unpaid at 31 August 20X5.
(4)
Office supplies (stationery, etc) amounted to $14,000 on 31 August 20X5.
(5)
The loss allowance for trade receivables (an administrative expense) should be 5% of
amounts owed by customers.
(6)
The preference dividend and an ordinary dividend of $0.05 per share were declared on 29
August 20X5.
(7)
Provision should be made for the current year’s income tax expense of $105,000.
(8)
The loan notes were issued during 20X3.
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15
Task 2
6 marks
Using the information above, calculate the following amounts for the statement of profit
or loss of McMoy Co for the year ended 31 August 20X5, in accordance with IAS 1
Presentation of Financial Statements.
Cost of sales
$
Distribution costs
$
Administration expenses
$
Finance costs
$
Task 3
2 marks
Complete the following:
The amount that should be shown for total current liabilities in the statement of financial position of
McMoy Co as at 31 August 20X5 is $
000.
Task 4
2 marks
Should each of the following items be included in a statement of changes in equity of a
limited liability company in accordance with IAS 1 Presentation of Financial Statements?
YES
NO
Gain on disposal of a revalued asset


Issue of equity share capital


Dividend on equity shares


Dividend on redeemable preference shares


Redemption of preference shares


Revaluation surplus


Share of profit of associates


Transfer to retained earnings


End of Questions
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16