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33 A company values its inventory using the FIFO method. At 1 May 20X5 the company had 700 engines in inventory, valued at $190 each. During the year ended 30 April 20X6 the following transactions took place: 20X5 1 July Purchased 500 engines at $220 each 1 November Sold 400 engines for $160,000 20X6 1 February Purchased 300 engines at $230 each 15 April Sold 250 engines for $125,000 What is the value of the company's closing inventory of engines at 30 April 20X6? $188,500 $195,500 $166,000 $106,000 34 Amy is a sole trader and had assets of $569,400 and liabilities of $412,840 on 1 January 20X8. During the year ended 31 December 20X8 she paid $65,000 capital into the business and she paid herself wages of $800 per month. At 31 December 20X8, Amy had assets of $614,130 and liabilities of $369,770. What is Amy's profit for the year ended 31 December 20X8? A $32,400 B $23,600 C $22,800 $87,800 35 Bumbly Co extracted the trial balance for the year ended 31 December 20X7. The total of the debits exceeded the credits by $300. Which of the following could explain the imbalance? A Sales of $300 were omitted from the sales day book Returns inward of $150 were extracted to the debit column of the trial balance Discounts received of $150 were extracted to the debit column of the trial balance The bank ledger account did not agree with the bank statement by a debit of $300 (70 marks30 The IASB's Conceptual Framework for Financial Reporting identifies characteristics which make financial information faithfully represent what it purports to represent. Which of the following are examples of those characteristics? (1) Accruals (2) Completeness 3) Going concern (4) Neutrality A 1 and 2 B 2 and 4 C 2 and 3 1 and 4 31 The following control account has been prepared by a trainee accountant: Receivables ledger control account $ $ Opening balance 308,600 Cash 147,200 Credit sales 154,200 Discounts allowed 1,400 Cash sales 88,100 Interest charged on overdue accounts 2,400 Contras 4,600 Irrecoverable debts 4,900 Allowance for receivables 2,800 Closing balance 396,800 555,500 555,500 What should the closing balance be when all the errors made in preparing the receivables ledger control account have been corrected? $395,200 $304,300 $309,500 $307,100 32 Which of the following material events after the reporting date and before the financial statements are approved are adjusting events? (1) A valuation of property providing evidence of impairment in value at the reporting date. 2) Sale of inventory held at the reporting date for less than cost. 3) Discovery of fraud or error affecting the financial statements. (4) The insolvency of a customer with a debt owing at the reporting date which is still outstanding. A 1, 2 and 4 only 1, 2, 3 and 4 C 1 and 4 only 2 and 3 only27 Prior to the financial year end of 31 July 20X9, Cannon Co has received a claim of $100,000 from a supplier for providing poor quality goods which have damaged the supplier's plant and equipment. Cannon Co's lawyers have stated that there is a 20% chance that Cannon will successfully defend the claim. Which of the following is the correct accounting treatment for the claim in the financial statements for the year ended 31 July 20X9? A Cannon should neither provide for nor disclose the claim Cannon should disclose a contingent liability of $100,000 Cannon should provide for the expected cost of the claim of $100,000 Cannon should provide for an expected cost of $20,000 28 Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computer showed the following costs related to the purchase: $ Computer 890 Additional memory 95 Delivery 10 Installation 20 Maintenance (1 year) 25 1,040 Sales tax (17-5%) 182 Total 1,222 How much should Gareth capitalise as a non-current asset in relation to the purchase? $1,193 $1,040 $1,222 $1,015 = 29 The following bank reconciliation statement has been prepared by a trainee accountant: $ Overdraft per bank statement 3,860 Less: Unpresented cheques 9,160 5,300 Add: Outstanding lodgements 16,690 Cash at bank 21,990 What should be the correct balance per the cash book? $21,990 balance at bank as stated $3,670 balance at bank $11,390 balance at bank $3,670 overdrawn24 The following extracts are from Hassan's financial statements: Profit before interest and tax 10,200 Interest (1,600) Tax (3,300) Profit after tax 5,300 Share capital 20,000 Reserves 15,600 35,600 Loan liability 6,900 42,500 What is Hassan's return on capital employed? 15% 29% 24% 12% 25 Which of the following statements about sales tax is/are true? (1) Sales tax is an expense to the ultimate consumer of the goods purchased (2) Sales tax is recorded as income in the accounts of the entity selling the goods A 1 only 2 only Both 1 and 2 Neither 1 nor 2 26 Q's trial balance failed to agree and a suspense account was opened for the difference. Q does not keep receivables and payables control accounts. The following errors were found in Q's accounting records: (1) In recording an issue of shares at par, cash received of $333,000 was credited to the ordinary share capital account as $330,000 (2) Cash of $2,800 paid for plant repairs was correctly accounted for in the cash book but was credited to the plant asset account (3) The petty cash book balance of $500 had been omitted from the trial balance (4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motor vehicles account as $87,400. Which of the errors will require an entry to the suspense account to correct them? 1, 2 and 4 only 1, 2, 3 and 4 1 and 4 only 2 and 3 only17 At 30 June 20X5 a company's allowance for receivables was $39,000. At 30 June 20X6 trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivables to the equivalent of 5% of the trade receivables based on past events. What figure should appear in the statement of profit or loss for the year ended 30 June 20X6 for receivables expense A $61,000 B $52,000 $22,000 $37,000 18 The total of the list of balances in Valley's payables ledger was $438,900 at 30 June 20X6. This balance did not agree with Valley's payables ledger control account balance. The following errors were discovered: (1) A contra entry of $980 was recorded in the payables ledger control account, but not in the payables ledger. (2) The total of the purchase returns daybook was undercast by $1,000. 3) An invoice for $4,344 was posted to the supplier's account as $4,434. What amount should Valley report in its statement of financial position for accounts payable at 30 June 20X6? $436,830 $438,010 $439,790 $437,830 19 According to IAS 2 Inventories, which TWO of the following costs should be included in valuing the inventories of a manufacturing company? (1) Carriage inwards (2) Carriage outwards (3) Depreciation of factory plant (4) General administrative overheads A 1 and 4 B 1 and 3 C 3 and 4 2 and 3 20 Prisha has not kept accurate accounting records during the financial year. She had opening inventory of $6,700 and purchased goods costing $84,000 during the year. At the year end she had $5,400 left in inventory. All sales are made at a mark up on cost of 20%. What is Prisha's gross profit for the year? $13,750 $17,060 $16,540 $20,67513 A company's motor vehicles cost account at 30 June 20X6 is as follows: Motor vehicles - cost $ $ Balance byf 35,800 Disposal 12,000 Additions 12,950 Balance c/f 36,750 48,750 48,750 What opening balance should be included in the following period's trial balance for Motor vehicles - cost at 1 July 20X6? $36,750 Dr $48,750 Dr $36,750 Cr $48,750 Cr 14 Which TWO of the following items must be disclosed in the note to the financial statements for intangible assets (1) The useful lives of intangible assets capitalised in the financial statements (2) A description of the development projects that have been undertaken during the period (3) A list of all intangible assets purchased or developed in the period (4) Impairment losses written off intangible assets during the period A 1 and 4 B 2 and 3 C 3 and 4 1 and 2 15 Which of the following statements are correct? (1) Capitalised development expenditure must be amortised over a period not exceeding five years. (2) Capitalised development costs are shown in the statement of financial position under the heading of non-current assets (3) If certain criteria are met, research expenditure must be recognised as an intangible asset. A 2 only B 2 and 3 C 1 only 1 and 3 16 The following transactions relate to Rashid's electricity expense ledger account for the year ended 30 June 20x9: $ Prepayment brought forward 550 Cash paid 5,400 Accrual carried forward 650 What amount should be charged to the statement of profit or loss in the year ended 30 June 20X9 for electricity? $6,600 $5,400 $5,500 $5,3009 Which of the following statements is/are correct? (1) A statement of cash flows prepared using the direct method produces a different figure to net cash from operating activities from that produced if the indirect method is used 2) Rights issues of shares do not feature in a statement of cash flows 3) A surplus on revaluation of a non-current asset will not appear as an item in a statement of cash flows (4) A profit on the sale of a non-current asset will appear as an item under cash flows from investing activities in the statement of cash flows A 1 and 3 only B 3 and 4 only C 2 and 4 only D 3 only 10 A company receives rent from a large number of properties. The total received in the year ended 30 April 20X6 was $481,200. The following were the amounts of rent in advance and in arrears at 30 April 20X5 and 20X6: 30 April 20X5 30 April 20X6 $ $ Rent received in advance 28,700 31,200 Rent in arrears (all subsequently received) 21,200 18,400 What amount of rental income should appear in the company's statement of profit or loss for the year ended 30 April 20X6? $486,500 $460,900 $501,500 $475,900 11 Which of the following are differences between sole traders and limited liability companies? (1) A sole trader's financial statements are private and never made available to third parties; a company's financial statements are sent to shareholders and may be publicly filed (2) Only companies have share capital (3) A sole trader is fully and personally liable for any losses that the business might make (4) Drawings would only appear in the financial statements of a sole trader 1 and 4 only 2, 3 and 4 2 and 3 only 1, 3 and 4 12 Which of the following statements is true? The interpretation of an entity's financial statements using ratios is only useful for potential investors Ratios based on historical data can predict the future performance of an entity The analysis of financial statements using ratios provides useful information when compared with previous performance or industry averages D An entity's management will not assess an entity's performance using financial ratios5 Which TWO of the following errors would cause the total of the debit column and the total of the credit column of a trial balance not to agree? (1) A transposition error was made when entering a sales invoice into the sales day book 2) A cheque received from a customer was credited to cash and correctly recognised in receivables 3) A purchase of non-current assets was omitted from the accounting records (4) Rent received was included in the trial balance as a debit balance A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4 6 At 31 December 20X5 the following require inclusion in a company's financial statements: (1) On 1 January 20X5 the company made a loan of $12,000 to an employee, repayable on 1 January 20X6, charging interest at 2% per year. On the due date she repaid the loan and paid the whole of the interest due on the loan to that date. (2) The company paid an annual insurance premium of $9,000 in 20X5, covering the year ending 31 August 20X6. (3) In January 20X6 the company received rent from a tenant of $4,000 covering the six months to 31 December 20X5. For these items, what total figures should be included in the company's statement of financial position as at 31 December 20X5? A Current assets $10,000 Current liabilities $12,240 B Current assets $22,240 Current liabilities $nil Current assets $10,240 Current liabilities $nil Current assets $16,240 Current liabilities $6,000 7 A company's statement of profit or loss for the year ended 31 December 20X5 showed a net profit of $83,600. It was later found that $18,000 paid for the purchase of a motor van had been debited to the motor expenses account. It is the company's policy to depreciate motor vans at 25% per year on the straight line basis, with a full year's charge in the year of acquisition. What would the net profit be after adjusting for this error? A $106,100 B $70,100 C $97,100 $101,600 8 Xena has the following working capital ratios: 20X9 20X8 Current ratio 1.2:1 1-5:1 Receivables days 75 days 50 days Payables days 30 days 45 days Inventory turnover 42 days 35 days Which of the following statements is correct? Xena's liquidity and working capital has improved in 20X9 Xena is receiving cash from customers more quickly in 20X9 than in 20X8 Xena is suffering from a worsening liquidity position in 20X9 Xena is taking longer to pay suppliers in 20X9 than in 20X8