VIETSOURCING TRAINING CENTRE

Mock Test 2
Accounting

Time allowed: 90 minutes

This question paper is divided into two sections:
Section A_ ONE scenario-based question
Section B_ 24 multiple choice questions
All questions are compulsory.

Date: ..............................................................................................
Student’s name: ..............................................................................
Class:…………………………………………………………………….
Email: ............................................................................................
Tel No: ...........................................................................................

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Total marks:

Good luck to you./.

 ICAEW – Accounting
Mock Test 2

SECTION A
Cranberry plc
The following trial balance was extracted from the nominal ledger of Cranberry plc on
31 December 20X8:
 £  £
Revenue 2,180,000
Inventories at 1 January 20X8 91,000
Purchases 935,000
Distribution costs 395,000
Administrative expenses 543,000
Loan interest paid 24,000
Land and buildings cost 450,000
Plant and equipment cost 460,000
Land and buildings accumulated depreciation at
1 January 20X8 208,000
Plant and equipment accumulated depreciation at
1 January 20X8 246,000
Trade receivables 340,000
Bank 64,000
Ordinary share capital (£1 shares) 180,000
Share premium 60,000
Bank loan 400,000
Retained earnings 9,000
Trade payables 54,000
Dividends paid        35,000                  
 3,337,000  3,337,000
The following additional information is relevant.
(1) Cranberry plc paid an annual insurance premium of £24,000 for the year 1 June
20X8 to 31 May 20X9. This payment is included in administrative expenses.
(2) During the year the company made a 1 for 10 bonus issue of its ordinary shares
from the share premium. No entries have been made in respect of this.
(3) The income tax charge for the period has been estimated at £28,000.

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Mock Test 2

(4) Freehold land and buildings include £150,000 for the land. Buildings are
depreciated on a straight-line basis over 10 years. Plant is depreciated on a straight-line
basis at a rate of 15%
Depreciation is apportioned as follows:
Cost of sales 70%
Distribution costs 10%
Administrative expenses 20%
(5) The bank loan received on 1 July 20X8 is repayable in full in eight years. Interest
is charged at a fixed rate of 6% per annum.
(6) Closing inventories at cost amounted to £105,000.
(7) Cranberry plc are currently defending an action by a former employee in respect of
unfair dismissal. The legal advisors believe that this action will be successful. The
employee is seeking £10,000 in compensation. Provisions are charged to
administrative expenses.
(8) A payment was made to a supplier that was recorded in the accounting records as
£32,200. When the electronic banking report was downloaded, it was discovered that
the correct amount is £33,200.
(9) A customer of Cranberry plc is in financial difficulties. Management believe that
there is a low prospect that any of the £12,000 debt will be paid by the customer and
the amount requires to be written off as irrecoverable. Irrecoverable debts are charged
to administrative expenses.
Requirement
Prepare the statement of profit or loss for Cranberry plc for the year ended 31
December 20X8 and the statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X8
£
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year

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Mock Test 2

Statement of financial position at 31 December 20X8

£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets

EQUITY AND LIABILITIES

Equity
Ordinary share capital
Share premium
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Provisions
Income tax payable
Total equity and liabilities

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Mock Test 2

SECTION B
1. A sole trader has paid for his own personal car to be repaired out of the business
bank account. The amount of the repairs has been added by the bookkeeper to the
owner's drawings balance.
Of which generally accepted accounting concept is this an example?
A. Prudence
B. Business entity
C. Substance over form
D. Duality

2. Which of the following should be classified as capital expenditure?

A. Repairs to motor vans
B. Depreciation of machinery
C. Extension to premises
D. Purchase of motor vans for resale

3. Mr Bliss owns a business and often uses his own personal bank account to pay some
business expenses. Mr Bliss wishes to include all expenses shown in his personal bank
account as business expenses, but his accountant has explained that only some of the
amounts may be included.
Which of the following is the main reason why not all of Mr Bliss' expenses can be
included?
A. Mr Bliss has not recorded the full details of some of the expenditure and,
because of this uncertainty, it is more prudent not to include them in the
financial statements.
B. There are a large number of immaterial payments which would take a long time
to examine.
C. The personal expenses of the owner are separate from those of the business and
are not relevant to the statement of profit or loss.
D. To be consistent with last year's financial statements only payments above £500
are included in the statement of profit or loss.

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Mock Test 2

4. The following data has been extracted from the payroll records of Scan Ltd for the
month of March.
£
PAYE 18,400
Employer's NIC 12,100
Employees' NIC 10,400
Net amount paid to employees 109,000
What is Scan Ltd's wages expense for the month of March?
A. £149,900
B. £137,800
C. £92,300
D. £80,200

5. Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated
for the month of March that £300 should be deducted as PAYE and that National
Insurance amounts to £150 for employees' NIC and £160 for employer's NIC.
What accounting entry should Anthony make in the salaries expense account?
A. Credit £1,050
B. Debit £1,500
C. Debit £1,660
D. Credit £610

6. Which three of the following nominal ledger accounts would normally have a
credit balance on a trial balance?
A. Asset
B. Liability
C. Income
D. Expense
E. Capital
F. Delivery outwards

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Mock Test 2

7. Goods invoiced at £25 had been returned by Samson Ltd to its supplier for a full
refund. The only accounting entry made for the return was to debit the purchases
account and credit the suspense account with £52.
Which of the following journal entries should be made to correctly record the
return in the nominal ledgers?
A. Dr Suspense £52; Cr Purchases £52
B. Dr Suspense £52; Cr Trade payables £52
C. Dr Suspense £52; Dr Trade payables £25; Cr Purchases £77
D. Dr Trade payables £27; Cr Purchases £27

8. Peach plc's draft accounts show a loss of £19,200 for the year. On investigation you
discover the following.
(1) The closing inventory balance includes items costing £1,300 which were correctly
recorded as sold shortly before the year end.
(2) Bank charges of £200 have not been recorded.
(3) Petty cash has not been accounted for in the final month of the year. A total of
£100 was withdrawn from the bank on the last day of the year to maintain the imprest
amount. All petty cash used in the period was in respect of administrative expenses
incurred.
What is the loss for the year after adjusting for these items?
A. £20,800
B. £18,200
C. £17,600
D. £18,300

9. The cost of inventory shown in Quarry Co's statement of financial position at

31 December 20X7, valued on the FIFO basis, was £8,660. Had the inventory been
valued on an average costing (AVCO) basis it would have been £7,410.
What is the effect of adopting the AVCO valuation on Quarry Co's financial
statements for the reporting period ended 31 December 20X7?
A. Decrease profits and increase current assets by £1,250
B. Increase profits and decrease current assets by £1,250
C. Decrease profits and decrease current assets by £1,250
D. Increase profits and increase current assets by £1,250

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 ICAEW – Accounting
Mock Test 2

10. An inventory listing shows the following details

1 May 50 units in inventory at a cost of £15 per unit
7 May 100 units purchased at a cost of £20 per unit
14 May 80 units sold
21 May 50 units purchased at a cost of £25 per unit
28 May 60 units sold
What is the value of inventory at 31 May using the FIFO method?
A. £900
B. £950
C. £1,450
D. £1,500

11. Gardentime Ltd imports garden furniture. The furniture is transported by ship to
Portsmouth and then taken by truck to a warehouse in Bristol. The company is unsure
whether the following expenses should be included in the cost of inventory:
(1) Shipping costs to Portsmouth
(2) Purchase price of furniture
(3) Breakdown costs of a delivery truck which broke down between Portsmouth and
Bristol while transporting furniture
(4) Import duties
Which of the costs should be included in the cost of inventory in Gardentime
Ltd's statement of financial position?
A. (1), (2) and (3) only
B. (2), (3) and (4) only
C. (1), (2) and (4) only
D. (1), (3) and (4) only

12. On 1 April 20X7 Midge's allowance for receivables stood at £5,558. During the
year:
(1) Cash of £900 was received from a credit customer whose debt had been written off
many years ago.
(2) A debt of £2,100 was deemed irrecoverable and was to be written off.

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 ICAEW – Accounting
Mock Test 2

At 31 March 20X8 Midge determined that the allowance for receivables needed to be
£7,170.
What is the charge for irrecoverable debts expense in Midge's statement of profit
or loss for the year ended 31 March 20X8?
A. £3,712
B. £2,812
C. £1,612
D. £712

13. The annual insurance premium for a sole trader for the period 1 July 20X7 to 30
June 20X8 is £22,000, which is 10% more than the previous year. Insurance premiums
are paid on 1 July.
What is the statement of profit or loss charge for insurance for the year ended 31
December 20X7?
A. £19,800
B. £20,000
C. £21,000
D. £22,000

14. Freesia Ltd has a year end of 31 December 20X6 and pays an annual rent on its
factory premises. For the period 1 April 20X5 to 31 March 20X6, the annual rental
charge was £200,000 per year. On 1 April 20X6, the rental charge was increased by
10% per annum.
What is the journal entry to transfer the balance on the rent expense account to
the profit and loss ledger account when preparing the financial statements for the
year ended 31 December 20X6?
A. Dr Profit and loss ledger account £215,000; Cr Rent expense £215,000
B. Dr Rent expense £215,000; Cr Profit and loss ledger account £215,000
C. Dr Rent expense £200,000; Cr Profit and loss ledger account £200,000
D. Dr Profit and loss ledger account £200,000; Cr Rent expense £200,000

15. A business' statement of profit or loss for the year ended 31 December 20X4
showed a profit for the year of £101,400. It was later found that £20,000 paid for the
purchase of a motor van on 1 January 20X4 had been debited to motor expenses
account. It is the company's policy to depreciate motor vans at 25% per year.

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 ICAEW – Accounting
Mock Test 2

What is the profit for the year after adjusting for this error?
A. £86,400
B. £121,400
C. £116,400
D. £96,400

16. On 1 June 20X8 Yogi's business traded in a car which it had bought on 1 June
20X6 for £6,000. The business had been depreciating the car using the reducing
balance method at the rate of 50% per annum. The new car cost £12,200 and Yogi paid
the garage the balance of £11,800 via bank transfer. Yogi's year end is 31 May.
What was the profit or loss on sale of the old car?
A. £2,600 loss
B. £1,500 loss
C. £1,100 loss
D. £400 profit

17. Which of the following describes why depreciation is charged on non-current

assets?
A. To ensure that the statement of financial position value equates to market value
B. To ensure that there are enough funds available to replace the asset
C. To ensure that the asset has no value when it is disposed of
D. To spread the cost of the asset over its useful life

18. A company has a balance of £5,000 (debit) on its income tax account at 31
December 20X1 relating to the income tax payable on the 20X0 profits. The
company's estimated income tax liability for the year to 31 December 20X1 is
£30,000.
The income tax expense in the statement of profit or loss for the year ended
31 December 20X1 is:
A. £5,000
B. £25,000
C. £30,000
D. £35,000

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 ICAEW – Accounting
Mock Test 2

19. Wanda Ltd provides a warranty on goods sold which allows customers to return
faulty goods within one year of purchase. At 30 November 20X5, Wanda Ltd had a
warranty provision of £6,548. During the year to 30 November 20X6, the cost of
warranty claims was £3,720. At 30 November 20X6, the warranty provision was
calculated as £7,634.
What is the amount of the warranty expense that should be included in Wanda
Ltd's statement of profit or loss for the year to 30 November 20X6?
A. £7,634
B. £1,086
C. £4,806
D. £2,634

The following information for Michael plc is relevant for questions 20 and 21.
Michael plc
Statement of profit or loss for the year ended 30 September 20X9
   £'000    £'000
Revenue    600
Cost of sales      120
Gross profit  480
Administrative expenses:
Staff costs    50
Depreciation    140
Loss on disposal     15
Interest payable   25
 230
Profit before tax   250
Income tax expense 50
Profit for the year 200

Michael plc
Statements of financial position as at 30 September

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 ICAEW – Accounting
Mock Test 2

  20X9   20X8
  £'000   £'000   £'000   £'000
Non-current assets
Cost   1,886   1,550
Depreciation    350   225
  1,536   1,325
Current assets
Inventories   30   25
Trade receivables  45   30
Cash and cash equivalents    35   50
 110  105
1,646 1,430
Equity   
Ordinary share capital  1,114   887
Retained earnings   250     227
 1,364  1,114
Liabilities
Current liabilities
Trade payables   20   10
Accruals  12 6
  32 16
Non-current liabilities
Long-term loans    250    300
1,646 1,430
During the year, Michael plc paid £390,000 for a new piece of machinery.

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 ICAEW – Accounting
Mock Test 2

20. What is the cash generated from operations?

A. £401,000 inflow
B. £426,000 inflow
C. £434,000 inflow
D. £409,000 inflow

21. What is the net cash inflow or outflow arising from the purchase and sale of
non-current assets?
A. £390,000 outflow
B. £375,000 outflow
C. £211,000 outflow
D. £366,000 outflow

22. At 20 December 20X5, Racy Ltd reviewed its debtors just before its year end of
31 December 20X5. The following information was discovered.
(1) A cheque for £171 from Dominic plc was found in a drawer. The debt had been
written off in 20X5 and the cashier had not known what to do with the cheque when it
arrived. It was banked on its discovery on 20 December.
(2) Several customers had taken advantage of cash discount of a total of £331 that they
were not expected to take advantage of when the invoices were recorded. The
discounts taken have not been recorded in the ledger accounts.
Ignoring the effects of VAT, which four accounting entries should Racy Ltd
make?
A. Debit cash at bank £171
B. Credit cash at bank £171
C. Debit cash at bank £331
D. Credit cash at bank £331
E. Debit debtors £171
F. Credit debtors £171
G. Debit debtors £331
H. Credit debtors £331
I. Debit bad debts expense £171
J. Credit bad debts expense £171
K. Debit bad debts expense £331
L. Credit bad debts expense £331

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 ICAEW – Accounting
Mock Test 2

M. Debit sales £171

N. Credit sales £171
O. Debit sales £331
P. Credit sales £331

23. On 1 April 20X7 a sole trader paid £6,380 in local property taxes for the year
ending 31 March 20X8. This was an increase of 10% on the charge for the previous
year.
What is the correct charge for local property taxes in her profit and loss account
for the year ended 31 December 20X7?
A. £4,640
B. £6,220
C. £6,235
D. £6,540

24. The following balances appear on a sole trader's initial trial balance.
(1) Opening stock
(2) Rental income
(3) Capital introduced
(4) Drawings
(5) Local property tax paid
Which of the above are debit balances?
A. (1), (2) and (3) only
B. (1), (4) and (5) only
C. (2), (3), (4) and (5) only
D. (1), (2), (3), (4) and (5)

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