SKANS School of

Accountancy

FFA/F3-
FINANCIAL ACCOUNTING

EXAM PACK

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Table of Contents:

Chapter Name Page no.

1 Basic Accounting 3
2 Control Accounts 5
3 BRS 7
4 Correction of Errors 8
5 Accruals & Prepayments 11
6 Bad & Doubtful Debt 12
7 Inventory (IAS-2) 14
8 IAS-16 17
9 Sole trader, Final a/c, Incomplete records 20
10 Regulatory Framework 23
11 Limited Companies 25
12 IAS & Disclosure Notes 28
13 Cash flows 31
14 Ratios 33
15 Consolidation 37
Solution

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 BASIC ACCOUNTING
(Chapter 1)
1. This is an extract from Karnal's trial balance for the year end 30th June 20X9.
Opening Inventory $19,500
Closing Inventory $22,250
Purchases $325,000
Carriage Inwards $8,250
Distribution Cost $28,125
Administration Salaries $96,750
Depreciation $31,400
Depreciation is split equally between cost of sales and distribution expenses.
What should be the cost of sales figure shown in Karnal's income statement for the year ended 30th
June 20X8? $____________

2. Which of the following transactions have been correctly recorded?

a) Sales returns
Dr. Sales accounts Cr. Return inwards account
b) Contra agreement with branch and Co.
Dr. Personal account in sales ledger Cr. Personal account in Purchases ledger
c) Owner withdraws goods
Dr. Purchase account Cr. Capital account
d) For own use
Irrecoverable debt recovered Dr. Cash account Cr. Receivable expense

3. A business has the balance at the bank $2,500 at the start of the month. During the month, it paid for
materials invoiced at $1,000 less trade discount of 20% and settlement discount of 10%. It received a
cheque from credit customer in respect of an invoice for $200, subject to a settlement discount of 5%.
What is the balance at the bank at the end of the month?
a) $1,980
b) $1,900
c) $1,970
d) $1,700

4. Joseph makes credit sales of $12,400 and cash sales of $900, before any discounts. He receives sales
returns of $500 and allows trade discounts of $70.
What amount should be recorded as sales revenue in the income statement?
a) $13,300
b) $12,800
c) $13,730
d) $12,730

5. Which TWO statements are true of the duality concept?

1) The number of debit and credit entries must be equal
2) The value of debit and credit entries must be equal
3) Each transaction has both debit and credit entries
4) Each transaction must have only two entries
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4
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6. ABC sold goods on credit to XYZ. The selling price was $15,000 and they originally cost $10,000. ABC
does not keep perpetual inventory records.
What entries should be made by ABC in its records for this sale?
a) Dr. Receivables $15,000 Cr. Inventory $10,000 Cr. Profit $5,000
b) Dr. Sales $15,000 Cr. Receivables $15,000
c) Dr. Sales $15,000 Cr. Inventory $10,000 Cr. Profit $5,000
d) Dr. Receivables $15,000 Cr. Sales $15,000

7. The statement of comprehensive income shows the revenue generated by the company less the cash
spent on overheads costs. Is the statement true or false?
a) True
b) False

8. Amy maintains a sale daybook and sales return daybook. In her first month of trading, the following
transactions took place:
 Sales on credit to X $1,000
 Sales on credit to Y $2,500
 Cash sales to Z $800
 Sales return from X $120
What is the total of the sales daybook at the end of the month?

9. Which of the following could be a part of the integrated accounting system?

1 General ledger
2 Payroll
3 Purchase ledger
a) 1, 2 and 3
b) 2 and 3
c) 1 and 3
d) 1 and 2

10. Which books of prime entry should the following transactions be entered into?
Cashbook Sales Petty Purchase
Daybook Cashbook Daybook
 The company sends a customer an invoice of $100.
 Stationary of $10 purchased on cash.
 A company receives an invoice for $200 from a supplier.
 The company pays a supplier $450.

11. The financial statements are used by different user groups for different reasons.
For each user group what is their primary area of interest?
Profitability Liquidity
 Banks
 Shareholders

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 CONTROL ACCOUNTS
(Chapter 2)

1. Which of the following is a possible correct entry on the accounts receivables ledger control account?
a) Credit with the total sales figure excluding sales tax.
b) Debit with the total sales figure excluding sales tax.
c) Credit with the total sales figure including sales tax.
d) Debit with the total sales figure including sales tax.

2. Magasin is a small business which is preparing its financial statements for the year ended 31 October
20X6. Personal account of its only credit customer, Shaun, contains the following information for year:
$
Opening balance at 1 January 20X6 24,500
Cash received 102,300
Discount allowed 3,100
Interest on overdue payments 1,600
Credit sales 133,700
Contra agreements 8,200
When preparing the trial balance at the year end, what amount would Magasin show as owed by
Shaun? $____________

3. The accounts payable ledger control account of a business showed a balance at the yearend of
$285,000. This did not agree with the total of the list of purchase ledger balances at the year end and
subsequent checking found that
1) Discounts received of $3,000 had been entered on the wrong side of the control account.
2) Returns outwards had been overstated by $10,000.
What will be the balance on the accounts payable ledger control account following correction of the
above errors?
a) $288,000
b) $292,000
c) $269,000
d) $289,000

4. Accounts payable control account

Cash paid to credit suppliers $103,400 B/F $376,780
Contra with receivables $10,000 Cash received from customers $183,200
Cash purchases $52,000
Credit purchases $124,300
C/F $635,600 Discount received $12,800
$749,000 $749,000

What should be the balance on accounts payable control account, after the necessary adjustments
have been made? $____________

5. Which of the following should be identified by reconciling supplier statement to the payables ledger?
1. Cheque payment in transit
2. Invoices sent but not yet received.
a) 2 only
b) 1 only
c) 1 and 2

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6. Vana received a monthly statement from one of its suppliers showing amount owing to them of
$5300. Vana's records however showed that $7,500 was owed and so an investigation was carried out
which found that:
 A contra entry for $800 had been omitted from Vana's records.
 A credit note received for $500 received by Vana for goods returned had not been entered on
Vana's records.
 A recent purchase of $400 had been posted to the wrong side of the payables ledger account in
Vana's records.
After adjusting for the above items what discrepancy remains between the supplier's statement
and the Vana's records? $____________

7. Sandy discovered errors when reconciling the balances in the purchase ledger control account with
the list of balances from the purchase ledger.
Which of the following need an entry in the payables ledger control account?
YES NO
 The purchase daybook total was overcast by $10.
 A payment of $90 was made in full settlement of a $100 balance owing. This was
correctly recorded in the control account but only $90 was posted in the purchase ledger.
 A credit note received for $110 was entered in the supplier's account as $100.
 A credit purchase was totally omitted from the accounting records.

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 BRS
(Chapter 3)

1. Punit has identified the following reasons for his cashbook balance of $1,200 debit being different
from the balance on the bank statement:
1) Uncleared lodgements of $400
2) The bank has mistakenly recorded a direct debit payment of $300 twice
3) Unpresented cheques of $200
What is the balance on Punit’s bank statement, prior to any of the above items being adjusted?
$____________

2. Where would the following items be identified when preparing bank reconciliation statement?
It is on the bank statement It is in the cash book but not
but not In the cash book on the bank statement
 A direct debit
 An un-presented cheque

3. Smith received a bank statement which shows a balance of $3500 debit. Smith's bookkeeper notes
the following:
Total cheques sent to supplier for $3100, out of which 230 have not been presented to the bank at
the due date of the bank statement.
The bank has charged interest of $34 which is not recorded in the cashbook.
Direct debits of $450 of supplier have been paid into the bank and not recorded in the cashbook.
A payment of $75 has been paid out of the bank account due to a bank error.
What should the overdraft balance be on Smith's cashbook, prior to these items have been dealt with?
$____________

4. Which TWO of the following items, defined when preparing bank reconciliation require an adjusting
entry in the cash book?
a) Cheques lodged last week have not been cleared by the bank.
b) A cheque paid into the bank and has just been dishonored by the bank.
c) Bank charges of $154 were charged by the bank.
d) The bank has credited interest to the account in error.

5. When preparing a bank reconciliation, which two of the following will necessitate a correcting entry
to cash book?
A Outstanding lodgments
B Unpresented cheques
C Bank charges
D interest charges

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 CORRECTION OF ERRORS
(Chapter 4)
1. A company prepared its trial balance and discovered that the total debit column and the credit
column do not agree. A suspense account was opened for the difference. It was subsequently
discovered that the rent invoice for $420 had been recorded in the rent expense account as $240.
What journal entry is required to correct this error?
a) Dr. Rent $180 Cr. Suspense $180 (being correction of error of transposition)
b) Dr. Suspense $ 180 Cr. Rent $180 (being correction of error of transposition)
c) Dr. Rent $180 Cr. Suspense $180 (being correction of error of commission)
d) Dr. Suspense $180 Cr. Rent $180 (being correction of error of commission)

2. The trial balance of a business did not balance, so a suspense account was opened. Subsequent
checking found that the purchases account had been overcast by $200 and the interest income
account had been under-cast by $100. How should these errors be corrected?
a) Dr. Suspense $100 Dr. Interest income $100 Cr. Purchases $200
b) Dr. Purchases $200 Dr. Interest income $100 Cr. Suspense $300
c) Dr. Purchases $200 Cr. Suspense $100 Cr. Interest income $100
d) Dr. suspense $300 Cr. Purchases $200 Cr. Interest income $100

3. Rent paid of $200 has been credited to the rent expense account. The debit side of the trial balance
has been over cast by the $100.
The yearend bank balance of $860 at the bank has been entered on the trial balance as a debit of
$680.
What is the debit balance of suspense account as a result of these errors? $____________

4. Rent paid of $200 has been credited to the rent expense account. The debit side of the trial balance
has been overcast by $100.
The yearend bank balance of $860 at bank had been entered on the trial balance as a debit of $800.
What is the debit balance on the suspense account as a result of these errors? $____________

5. Joseph's final trial balance did not balance and he set up a suspense account for the difference. He
then discovered that rent of $500 paid by cheque has been credited to both the bank account and the
rent account.
Which of the following journal entries will correct this?
a) Dr. Rent account $1,000 Cr. Suspense account $1,000
b) Dr. Rent account $1,000 Cr. Bank account $1,000
c) Dr. Suspense account $1,000 Cr. Rent account $1,000
d) Dr. Rent account $500 Cr. Suspense account $500

6. The debit and credit columns, of XYZ's trial balance did not agree. A debit balance of $25,950 was
entered in a suspense account and the following errors were subsequently identified.
1) A cheque received for $1,900 had been correctly posted to the cash account and posted to the
receivables ledger as $9,100.
2) Rent paid of $6,500 had been posted correctly to the cash account and posted to the rent
expense account as $650.
3) No entries had been made to reflect a cash sale of $1,000.
What is the remaining debit balance on the suspense account after making adjustments for the
above errors? $____________

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7. The trial balance was not balance so a suspense account was opened for the purpose. Subsequent
checking found that the purchase account had been overcast by $200 and the interest income
account had been under cast by $100. How should these errors be corrected?
a) Dr. Suspense account $300 Cr. Purchases $200 Cr. Interest income $100
b) Dr. Purchases $200 Dr. Interest income $100 Cr. Suspense account $300
c) Dr. Suspense account $100 Dr. Interest income $100 Cr. Purchases 200
d) Dr. Purchases $200 Cr. Suspense account $100 Cr. Interest income $100

8. Which of the following errors would give rise to the creation of suspense account?
a) Cash received from a credit customer of $200 had been incorrectly recorded as $400 in the relevant
accounts.
b) A credit sale for $500 had been debited to the account of J Smith and should have been entered in the
account of B Smith.
c) Purchase of a motor van for $10,000 for making deliveries had been entered in the motor expense
account.
d) A credit purchase of $690 had been entered in the-purchase account correctly but had been entered
in the payables account as $960.

9. When the financial statements of Kotka were prepared for the year ended 31 December 20X6, the
following errors were found in the underlying accounting records. Kotka maintains receivables and
payables ledger control accounts.
1. The purchase of a new computer for $ 30,000 had been omitted from the accounting records.
2. The sale of goods on credit for $ 2,000 to C. Jaipur & Co had been incorrectly debited to the
personal account of D. Jaipur & Co.
3. The purchase of goods on credit of $ 1,000 from D. Kuche & Co. had only been entered in the
purchase account. No entry had been made in the personal account of the supplier or the
payables ledger control account.
Which of these errors would cause the trial balance NOT to balance?
a) 3 only
b) 2 only
c) 1 only
d) None of the errors

10. A company received a settlement discount of $35 from a supplier. Amount was debited to discount
received account and correctly recorded in payables ledger control account. What is impact on profit?
a) Overstated by $70
b) No effect
c) Understated by $70

11. Charles has recorded the purchase of vehicles as motor expenses. This has resulted in the
misstatement of both motor expenses and depreciation within the income statement
What impact will this error have on Charles profit?
Profit overstated Profit understated
 Depreciation misstatement
 Motor expense misstatement

12. The closing inventory in Frodo's financial statement has been overstated by $70,000
What is the effect of this error?
a) The current year's profit will be overstated and there will be no effect on next year's profit
b) The current year's profit will be understated and there will be no effect on next year's profit
c) The current year's profit will be overstated and next year's profit will be understated
d) The current year's profit will be understated and next year's profit will be overstated
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 ACCRUALS & PREPAYMENTS
(Chapter 5)
1. Roger is preparing his financial statements for the year ended 31 October 20X8. Roger has included
within his expenses office rental of $ 36,000 paid on 1 February 20X8 for the following 20 months.
What is the effect of this error on Roger’s net profit?
a) $ 19,800 understated
b) $ 16,200 understated
c) $ 16,200 overstated
d) $ 19,800 overstated

2. The statement of comprehensive income for the year ended 31st May 20X6 showed $15,000 for
insurance. Payments for insurance during the year totaled $17,500, and there was a prepayment for
insurance at 1st June 20X5 of $1,250.
What is the prepayment for insurance as at 31st May 20X6? $____________

3. A company made the following payments for computer rentals.

$4,500 for the 3 months ended 28th February 20X8.
$9,450 for the 6 months ended 31st August 20X8.
$10,200 for the 6 months ended 28th February 20X9.
What should the charge for computer rental be in the income statement for the year ended 31st
December 20x8? $____________

4. Company is preparing its final accounts for the year ended 31st December 20X8 and has not included
telephone bill received in January 20X9, relating to phone calls made in Dec 20X8, in final accounts.
If the cost is recorded in the financial statements for the year to 31st December 20X9 how will the net
profit be affected for 20X8 and 20X9?
a) 20X8 overstated 20X9 understated
b) 20X8 understated 20X9 overstated
c) 20X8 understated 20X9 understated
d) 20X8 overstated 20X9 overstated

5. Fred prepares his accounts to 31 December each year. On 1 January 2006 the amount prepaid for
insurance was $360. During 2006 Fred made the following payments:
Date Particulars $
1 April Motor Vehicle insurance for year ended 31 March 2007 240
1 June Plant Insurance for year ended 31 May 2007 960
What amount should be included in the income statement for the year ended 31 December 2006 for
insurance?
a) $1,100
b) $1,020
c) $740
d) $380

6. The statement of comprehensive income for the year ended 31 august 2006 shows $14,000 for motor
expenses. Payments for motor expenses during the year totaled $13,300 and there was an accrued at
1 September 2005 of $2,200.
What is the accrual for motor expenses as at 31 august 2006? $_____________

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 BAD & DOUBTFUL DEBTS
(Chapter 6)
1. Jody was owed $500 from a customer who has gone bankrupt. Jody has been informed that she will
receive 50c for every $1 owed. Jody also needs to increase her allowance for receivables by $275.
How much will Jody’s profit be reduced by, when the items have been accounted for?
$____________

2. Beryl has forgotten to record the decrease of $18,000 in her receivables allowance in her accounts for
the year ended 315t December 20x9
How will Beryl's profit for the year and net assets at the yearend be affected by this?
a) Profit – overstated Net assets – overstated
b) Profit – understated Net assets – understated
c) Profit - understated Net assets – overstated
d) Profit – overstated Net assets – understated

3. Receivables at 31st December 2006 $36,000

Allowance at 31st December 2005 $1,460
On reviewing the receivables account it was found that an irrecoverable debt of $800 has not been
written off and the recovery of a debt of $240 previously written off had not yet been entered in the
books. The company wishes to make an allowance for receivables of 6% at the year end.
What is the net charge to the income statement for the year ended 31st December 2006 in respect of
receivables? $____________

4. Bert has the profit of $28,000 for the year ended 31 October 2006. He has not yet recorded the
following items:
 He has irrecoverable debts of $450.
 His allowance for receivables at 1 November 2005 is $ 1,570 and he wants the closing allowance
to amount to be $ 1,070
 He has received $320 in relation to a debt that was written off in the prior accounting period
What is the net profit for the year ended 31 October 2006 after adjusting for those items?
a) $28,050
b) $27,370
c) $28,370
d) $27,870

5. Which TWO of the following functions are the aged receivables analyses used for?
a) Reconciling the receivables ledgers and receivables control accounts
b) Calculating the closing receivables balances
c) Calculating the allowance for receivables
d) Identifying potential irrecoverable debts

6. What is the effect on statement of financial position of an increase in allowance for receivables?
a) Increase in current liabilities
b) Increase in current assets
c) Increase in current l liabilities
d) Increase in current assets

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 INVENTORY (IAS-2)
(Chapter 7)
1. Lee purchased some inventory at a cost of $100,000 (excluding sales tax). It cost $3,000(excluding
sales tax) to transport the inventory to Lee’s premises and he paid $10,000 non-recoverable sales tax.
In addition when the inventory is sold it will cost Lee $1,000 to deliver the item to his customer’s
premises. Lee always makes a large profit on his transactions and he always offers free deliveries to
his customers.
At what value should the inventory be included in Lee’s financial statements?
a) $103,000
b) $114,000
c) $113,000
d) $112,000

2. An agricultural tractor supplier held the following tractors at the financial year end.
Historical Cost Replacement Cost NRV
$ $ $
Tractor 1 14,000 16,000 13,000
Tractor 2 20,000 18,000 19,000
Tractor 3 17,000 15,000 20,000
In accordance with IAS-2 Inventories, what figure should appear for the year-end inventories in the
financial statements of the business?
a) $ 52,000
b) $ 49,000
c) $ 46,000
d) $ 51,000

3. In accordance with IAS-2 Inventories, which FOUR of the following expenses must be excluded from
inventory costs?
1) Import duties
2) Plant depreciation
3) Carriage outwards
4) Abnormal wastage
5) Selling costs
6) Storage costs for finished goods
7) Direct labour
a) 1, 2, 3, 4
b) 2, 4, 6, 7
c) 1, 3, 5, 7
d) 3, 4, 5, 6

4. A manufacturing business calculated cost of its closing inventory as follows:

$
Direct Material Cost 200,000
Direct Labour Cost 180,000
Share of storage cost for finished goods 20,000
Share of indirect factory overheads 60,000
Share of selling costs 85,000
545,000

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 According to IAS-2 inventories, what figures should be used as the cost of closing inventories?
a) $440,000
b) $545,000
c) $200,000
d) $380,000

5. MAGDA purchased some raw material inventory from a supplier at a purchase price of $ 2,000.
The raw materials have been converted into finished goods inventory by the process. The process cost
$3,500 made up of $2,000 direct labour, $1,200 electricity cost and $300 attributable production
overheads. The finished goods will be sold for $8,000.
What is the value of finished goods inventory to be shown in MAGDA's financial statement.
$____________
6. ABC purchased 1,000 units of inventory with the following cost details:
Purchase per unit $5 per unit
Non-recoverable import tax $500
Transport cost $1,000
Trade discount 5% of the price
Selling cost $1 per unit
What is the cost of inventories according to IAS-2 Inventories? $____________

7. O'Leary builders and merchants has made the following purchases and sales of sand in October 2002:
Purchases:

Date Tons Purchase price per ton

3 October 50 $8
17 October 50 $9
31 October 50 $10
Sales:

Date Tons Sale price per ton

5 October 20 $15
8 October 20 $15
18 October 20 $15
28 October 30 $15

There was no sand held on 1 October 2002.

Using the FIFO method for valuing inventory, at what value should the sand be shown in O'Leary's
statements of financial position at 31 October 2002?
$____________

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 IAS-16
(Chapter 8)

1. In 2007 a company spent $500,000 on new machinery and incurred delivery costs for this machinery
of $10,000. In order to use the new machinery in productions the company has spent a further $5,000
on parts.
What should be the cost of the machinery capitalized in the statement of financial position?
a) $510,000
b) $530,000
c) $515,000
d) $505,000

2. A company’s financial statements for the year to 31 December 20X5 included a building at its net
book value of $ 280,000. At that date, it was half-way through its estimated useful life of 50 years. On
1 January 20X6 it was revalued to $360,000. The company has a policy of straight-line depreciation.
There was no amendment to the building’s useful life.
Which figure will appear for accumulated depreciation in the statement of financial position as at 31
December 20X6?
a) $11,200
b) $291,200
c) $294,400
d) $14,400

3. The following are the details of the non-current assets of a new business:
Milling machine Motor car
Original cost $ 56,000 $ 27,000
Expected years of economic use 10 years 3 years
Estimated residual value $ 5,000 $ 3,000
Depreciation method Straight line 50% reducing balance
A full year’s depreciation is charged in the year of acquisition.
What is the depreciation charge of the business in year two?
a) $ 18,600
b) $ 11,100
c) $ 11,850
d) $ 12,350

4. A company bought an asset on 1 January 20X4 for $200,000. Depreciation is charged on a reducing
balance basis at 20%. On 1 January 20X7 the asset is revalued to market value of $250,000.
How much should be recorded in the revaluation reserve at 1 January 20X7?
a) $ 50,000
b) $ 170,000
c) $ 147,600
d) $ 122,000

5. On 1st Jan 20X6 a business purchased a motor vehicle. The vehicle cost $10,000 and has a residual
value of $2,000. Depreciation is calculated using the reducing balance method at 20% per annum.
Which of the following should appear in the trial balance as at 31st December 20X7?
a) Depreciation expense Dr. $2,000
b) Accumulated Depreciation Dr. $3,600
c) Accumulated Depreciation Cr. $3,600
d) Motor Vehicle Dr. $8,000
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6. A company purchased a non current asset on 1st January 20x6 for $80,000. The Co. depreciates non
currents assets on a straight line basis over 5 years. On 1st January 20X7 a modification costing
$10,000 was made to the non currents asset to extend its useful life by 1 year and routing
maintenance costing $5,000 was also carried out.
Which amount should be charged for depreciation for the year to 31st December 20x7?
a) $16,667
b) $17,400
c) $21,000
d) $14,800

7. The statement of financial position of a business as at 31st December 20x6 shows the followings.
Buildings: $
Cost 90,000
Less accumulated Depreciation 36,000
Carrying amount 54,000
On 1 January 20x7 the buildings were revalued to $150,000 but their remaining useful life was not
st

changed. It was decided to incorporate this revaluation in the accounts. The firm has been
depreciating the building over 50 years on a straight line basis.
What is the depreciation charged for the year ended 31st December 20x7?
a) $3,800
b) $7,500
c) $3,000
d) $5,000

8. ABC purchased an item of machinery on 1st January 20x3 for $40,000 and expected its useful life to be
eight years. On 1st January 20x6 a review of the condition of the machinery indicated that its useful
life is likely to be only two years from 1st January 20x6. What should the depreciation charge be in the
income statement for the year ended 31st December 20x6? $____________

9. Are the following statements about non-current assets true or false?

True False
 When non-current assets are sold, the cost and accumulated
depreciation relating to the assets are eliminated from the ledger accounts.
 When land is revalued upward, the deprecation charge will increase.

10. A company bought a machine on 1 November 2002 for $22,000. It had an expected useful life of
seven years and an estimated residual value of $1,000. On 1 May 2006 the machine was disposed of
for $9,000. The company policy for depreciating machinery is straight line with proportionate charge
in the year of acquisition and disposal.
The business has a year end of 31 December. What would be the profit or loss on disposal of the
machine?
a) Profit of $1,000
b) Loss of $2,500
c) Profit of $2,500
d) Loss of $1,000

11. An asset was purchased for $80,000 on 1 January 2005 when its useful life was estimated to be ten
years with a residual value of $10,000. A straight line depreciation policy was selected. On 1 January
2008 the directors reviewed the useful life of the asset and found that it had a remaining life of eight
years. There was no change to the residual value.
What should the depreciation be for the year ended 31 December 2008? $____________

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12. ABC purchased a building on 1 January 2002 for $500,000 (of which land cost $200,000) with an
expected useful life of 50 years. Depreciation is charged on a straight line basis. On 1 January 2005 the
building was revalued to $800,000 (including the land of $350,000).
What is the total amount credited to the revaluation reserve at 1 January 2005 in respect of the land
and buildings? $____________

13. A company purchased a non-currents asset on 1 January 2006 for $90,000. The company depreciates
non-current assets on a straight line basis over five years. On 1 January 2007 a modification costing
$10,000 was made to the non-current asset to extend its useful life by one year and routine
maintenance costing $5,000 was also carried out.
What amount should be charged for depreciation for the year to 31 December 2007? $____________

14. ABC purchased an item of machinery on 1 January 2003 for $ 40,000 and expected its useful life to be
8 years. On 1 January 2006 a review of the condition of the machinery indicated that its useful life is
likely to be only two years from 1 January 2006.
What should the depreciation charge be in the income statement for the year ended 31 December
2006? $____________

15. A company disposed of a motor vehicle on 1 January 2007 which originally cost $12,000 when bought
on 1 January 2004. It had been depreciated at 25% on straight line basis. The motor vehicle was
traded in for a new one costing $ 20,000 with the balance of $18,400 being paid by cheque.
What is the loss on disposal of the old motor vehicle? $____________

16. Charlie’s machinery at cost ledge account is as follows:

Machinery- Cost
1 Jan 20X6 B/d $500 1 feb 20X6 Disposal $300
31 Dec c/d $300
The co. policy is to charge depreciation at 20% using straight line method. A full year is made in the
year of acquisition and none in the year of disposal. None of the asset have been held for more than 5
years.
What is the depreciation charged for the year ended 31st Dec 20X6? $____________

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 SOLE TRADE, INCOMPLETE RECORDS
(Chapter 9)
1. Which of the following would give a mark-up on cost of 40%?
a) Sales are $201,600 and cost of sales is $144,000
b) Sales are $201,600 and gross profit is $80,640
c) Sales are $240,000 and gross profit is $96,000
d) Sales are $240,000 and cost of sales is $144,000

2. John reduces his inventory level by $12,000 during the year and makes sales of $ 540,000. His markup
on cost is 20%.
What are his purchases during the year? $____________

3. A sole trader only keeps limited accounting records and the following information is available for the
year ended 31 March 20X8:
Opening payables $34,560
Purchases $296,430
Good returned to credit supplier $2,000
Closing payables $42,650
Cash paid to credit suppliers $278,450
What is the value of the settlement discounts received by the sole trader? $____________

4. A fire in the offices of OYEZ media on 22nd March 20X6 destroyed various accounting records. From
the records that were salvaged, the following credit sales information relating to the period from the
31st December 20X5 until 22nd March 20X6 is available.
1. Cash received for credit customers $76,100
2. Contra entries with payables ledger $3,400
3. Discount allowed to credit customers $5,200
4. Interest charged on overdue accounts $3,200
On 31st December 20X5, the trade receivables amounted to $65,800 and on 22nd March 20X6 they
were $69,400.
What is the credit sale revenue for the period from 31st December 20X5 until 22nd March 20X6?
$____________
5. Joe had the following transactions regarding sales this month:
 Cash sales of $4,560 were made
 Cash of $7,890 was received relating to sales made in the previous months
 Goods were sold to customers on credit of $8,650
 Bad debt of $670 were written off
What revenue figure should be reported this month?
a) $13,210
b) $13,860
c) $12,540
d) $20,430

6. Helen has set up a new business. The following balances are recorded in her books:
Initial capital $10,000
Bank over draft $10,000
Motorcar $6,000
Her only other asset is office furniture. She has no other liabilities.
What is the book value of her office furniture? $____________

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 REGULATORY FRAME WORK
(Chapter 10)
1. Which of the following is an underlying assumption of the IASB's conceptual framework?
a) Materiality
b) Comparability
c) Timeliness
d) Going Concern

2. Which organization is directly responsible for 'developing, in the public interest, a single set of high
quality, understandable and enforceable global accounting standards'?
a) IFRS interpretation committee
b) IFRS advisory council
c) IFRS foundation
d) International Accounting Standard Board

3. Which of the following tasks is performed by the International Accounting Standards Committee
Foundation (IASCF)?
a) Oversight of the International Accounting Standard Board
b) Producing ethical guidance for the accounting profession

4. Which of the following is/are purposes of International Financial Reporting Standards?

1. To aid compatibility of financial statements produced in different countries.
2. To assist in producing the financial statements which give a true-and fair view.
a) 2 only
b) 1 and 2
c) 1 only

5. What does IFRIC stand for?

a) International Financial Reporting Interpretation Code
b) International Federation of Reporting Institutes Committee
c) International Financial Reporting Interpretations Committee

6. According to IASB's framework for the preparation and presentation of the financial statements, what
are the four qualitative characteristics of financial statements?
a) Understandability, relevance, reliability, comparability
b) Understandability, consistency, materiality, going concern
c) Relevance, reliability, completeness, going concern

7. The IASB's framework for preparation and presentation of financial statements defines the elements
of financial statements:
What is the definition of equity according to the IASB's framework?
a) The residual amount found by deducting all of the liabilities of the entity from all of the entity's assets.
b) A resource controlled by the entity as a result of the past events and from which future economic
benefits are exposed to flow to the entity.
c) An entity's present obligation arising from pa.st events, the settlement of which is expected to result
in outflow of economic benefits.
d) Increase in economic benefit during the period those results in equity, other than those relating to
contribution from owners.

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8. Faraz owns plant and machinery. It is depreciated over five years on a straight line basis. He always
uses this method of depreciation.
Which principle qualitative characteristic of financial statements is this an example of?
a) Prudence
b) Relevance
c) Consistency

9. Information should only be disclosed if it is capable of influencing the economic decisions of users.
Which accounting concept is being applied here?
a) Comparability
b) Reliability
c) Neutrality
d) Relevance

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 LIMITED COMAPNIES
(Chapter 11)
1. The current tax charge is an estimate at the year end, which means that under- and over-provisions
can arise in subsequent accounting periods.
How are under- and over-provisions dealt with in the income tax expense?
Deduct from current tax charge Add to current tax charge
Under -provision from previous year
Over-provision from previous year

2. JYP Co. has 50,000 $1 shares, each issued at $1.50. During the year JYP Co. made a one for ten rights
issue at a price of $2.
What is the balance on the share capital and share premium account at the end of the year?
a) Share capital $26,250 share premium $53,750
b) Share capital $55,000 share premium $30,000
c) Share capital $80,000 share premium $5,000
d) Share capital $27,500 share premium $52,500

3. Which TWO of the following items may be shown on the face of the statement of changes in equity?
1) Taxation
2) Dividends
3) Operating expenses
4) Issue of share capital
5) Interest payable
a) 1 and 2
b) 2 and 3
c) 2 and 4
d) 1 and 5

4. ABC has a year end of 31 December and $ 50,000 25c ordinary share capital. A dividend of 3c per
share for the year to 31 December 20X7 was paid on 5 February 20X8. A dividend of 4c per share for
the year to 31 December 20X8 was proposed on 21 January 20X9.
What amount of dividend should be included in the statement of changes in equity for the year ended
31 December 20X8? $____________

5. ABC’s equity at 31 January 20X8 was as follows:

$000
Ordinary share capital ($ 0.50 per share) 400
Share premium 250
Retained earnings 700
1350
On 30 June 20X8 there was a one for eight rights issue at $ 1.10.
The following statements relate to ABC’s equity after the rights issue.
Are the following statements true or false?
TRUE FALSE
50,000 new shares will have been issued
Share premium account balance will be $ 310,000

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6. Which of the following items is reported as a movement in retained earnings in the statement of
changes in equity?
YES NO
Noncurrent asset revaluation surpluss
Ordinary dividends paid

7. MNO has 400,000 $1 ordinary shares at 1st January 20X4, and balance on share premium account is
$235,000. On 31st March 20X4 50,000 ordinary shares were issued at $2.50 each. On 30th September
20X4 there was a one for three bonus issue, utilizing the share premium account.
What is the balance on the share premium account as at 31st December 20X4? $____________

8. EGRET, limited liability Co., made a profit before tax of $235,000 for the year ended 30th June 20X8.
The tax charged for the year was $84,500 and the Co. transferred $10,000 from profit to a general
reserve. It paid a final ordinary dividend of $38,000 for the prior year on 18th May 20x8 which had
been proposed on 1st July 20x7 and on 1st July 20x8, a final dividend of $39,500 for the current year
was proposed. No interim dividends were paid or proposed.
What amount in EGRET's retained earnings reserves increased by for the year ended 30th June 20X8?
$____________

9. Mary has shares in a limited liability company and has paid for them in full. She has owned the shares
for many years company has gone into liquidation and is being wound up.
What is the limit of Mary's liability?
a) An amount to be determined by the courts
b) Mary's share of the company's debts
c) The amount paid for the shares
d) The cumulative value of all dividend income received

10. Are the following statements true or false?

TRUE FALSE
 Bonus issues of share capital are a useful way of raising finance.
 A bonus issue of share capital will cause the market value of
each share to decrease.

11. JKL, a limited liability company, has 300,000 50c ordinary shares in issue at 1st January 20x5. On 31st
March 20x5 200,000 shares were issued for $1.25 each. On 30th September 20x5 there was a two for
five bonus issue.
What is the balance of JKL's share capital as shown on the face of the statement of financial position
as at 31st December 20x5?
a) $700,000
b) $770,000
c) $350,000
d) $560,000

12. Are the following statements true or false?

TRUE FALSE
 In a right issue, the rights price will usually be lower
than the market price immediately prior to the right issue
A right issue of shares is the most expensive way of raising finance.

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13. Volga, a limited liability company had the following capital structure:
Ordinary share capital $0.50 each $1,000,000
Share premium $400,000
Retained earnings $2,600,000
The company wishes to make a 1 for 2 bonus issue.
What is the company's capital structure after recording this bonus issue?
a) Ordinary share capital $0.50 each $1,000,000
Share premium $400,000
Retained earnings $2,600,000
b) Ordinary share capital $0.50 each $1,500,000
Share premium $0
Retained earnings $2,500,000
c) Ordinary share capital $0.50 each $1,500,000
Share premium $400,000
Retained earnings $2,600,000

14. What reserve is created or increased when shares are issued at above their nominal value?
a) Bonus share reserves
b) Share premium reserves
c) Revaluation reserve
d) Retained earnings reserve

15. A company has 50,000 5% irredeemable preference share of $1 each arid 40,000 ordinary shares of
$1 each. Final dividends of 5c per ordinary share for the previous year plus the preference dividend
have been paid during the current year.
What are the total dividends for the year to be deducted from retained earnings?
$____________

16. Would the following be a movement in the equity in the statement of financial position?
Movements YES NO
Purchase of non-current assets
Revaluation

17. Which of the following define a right issue?

A A share issue for no consideration
B A share issue giving the new shareholders the entitlement to enhanced dividend
C A issue of share in proportion to profits
D An issue of shares to existing shareholders in proportion to their existing shareholding

18. Which of the following are advantages to the owner of a business of operating as an unincorporated
business as opposed to an incorporated business
1 Legal separation of the entity from the owners
2 Unlimited liability
A 1 and 2
B 2 only
C 1 only
D None

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 IAS & Disclosures
(Chapter 12)
1. According to IAS-1, presentation of financial statements, which TWO of the following items MUST be
presented on the face of the income statements?
1) Finance costs
2) Disposal of investments
3) Tax expense
4) Write down of property, plant and equipment to recoverable amounts
a) 1 and 2
b) 1 and 3
c) 3 and 4
d) 1 and 4

2. Aragon’s reporting date is 31 December 20X5. The financial statements were authorized for issue on 2
June 20X6. Which TWO of the following events after the reporting period, should be adjusted in the
financial statements for the year ended 31 December 20X5?
1) The declaration of an equity dividend of 1c per share on 26 January 20X6 in respect of the year
ended 31 December 20X5.
2) The imposition of significant fine on 16 March 20X6 for health and safety breaches in May 20X5.
3) The bankruptcy of a significant customer on 3 April 20X6, with a balance outstanding at the end of
the reporting period.
4) Impairment value of land and buildings due to ground subsidence which occurred on 3 Feb 20X6.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

3. XYZ has a year end of 31 December 20X6 and its financial statements were authorized for issue on 10
February 20X7. On 5 January 20X7 some items of inventory, which had been valued at cost of
$ 55,000 were sold for $ 40,000. On 10 January 20X7 a fire in the finished goods warehouse destroyed
inventory which was valued at $ 25,000. According to IAS-10, Events after the reporting period, what
is the decrease in the profit figure for 20X6 as a result of these events? $____________

4. Which of the following statements regarding events after the reporting period is true?
a) Adjusting events are those events that provide additional evidence of conditions existing at the
reporting date
b) Adjusting events concern conditions which only exist between the reporting date and date of financial
statements are approved by the directors
c) Non-adjusting events must always be disclosed in the notes to the financial statements
d) Non-adjusting events provide additional evidence of conditions existing at the reporting date

5. Are the following events which occurred between the reporting date and the date when the financial
statements are authorized by the directors, adjusting or non-adjusting events?
Adjusting Non-Adjusting
 Making a new issue of shares.
 Purchasing a new motor vehicle.
 Selling inventory providing evidence that the value has reduced
since the year end due to accident damage arising post year end.
 Receiving a letter from the government informing them that the business
has been fined $ 10,000 for a pollution incident during the financial year.
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6. Which TWO of the following occurring after the reporting date and before the financial statements
are approved by the directors would be considered adjusting events?
1) The sale of inventory at a price less than carrying value due to a crash in the world market prior to
the reporting date.
2) The discovery of an accounting error that occurred after the year end.
3) The declaration and approval of the final dividend for the year end.
4) The settlement one week after the year end of a court case which confirms an amount to be
refunded to a customer, which has been disputed for six months.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

7. The financial year end of the TQR is 30 April 2007. Are the following events, which were discovered
before the authorization of issue of the final accounts on 31 May 2007, adjusting or non adjusting
events after the reporting periods?
Event Adjusting Non-Adjusting
 A fire on 18 May burnt down one of TQR's ware house
causing a significant loss of inventory.
 A contingent liability previously disclosed in the financial
statement was settled in court on 2 May 2007 TQR has to
make large payment in settlement.
 TQR installed a new computer system costing $40,000,000 on 14 May 2007.
 A customer who owed $23,784 at the yearend has been declared
bankrupt on 22 May 2007 and TQR believes they will receive none
of the outstanding debt.

8. Which of the following are true regarding disclosure of events after the reporting period?
1) Non adjusting events re disclosed if non-disclosure would affect the ability of users to make
proper evaluations and decisions.
2) Any new information received between the end of the reporting period and the financial
statements are authorized for issue relating to conditions existing before the end of the reporting
period, does not need to be disclosed or adjusted.
a) Statement 1 only
b) Statement 1 and Statement 2
c) Neither statement is true
d) Statement 2 only

9. According to IAS-37 Provisions, contingent liabilities and contingent assets, should the following
situations result in the recognition of a provision?
Yes No
 A manufacturer gives warranties to its customers. The terms of the warranty
require the company to make good any defects in its products that arise within two
years of the date of sale. Past experience shows that around two percent of sales
each year will result in claims under the warranty.
 A coal mining company operates in a country where there is no legislation requiring
the company to make good environmental damage. The company causes
environmental damage but has a widely published policy of making good this
damage. It normally adheres to this policy.

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10. Are the following statements true or false according to IAS-37 Provision, contingent assets and
contingent liabilities?
True False
 A contingent liability should be disclosed by note even if the possibility of an
outflow is remote.
 A contingent asset should be disclosed by note only if the inflow of benefits is
probable.

9. According to IAS 37, provisions, contingent liabilities and contingent assets, which TWO of the
following statements are true?
1) Contingent assets are included in the statement of financial position when their receipt is usually
certain.
2) Contingent assets should be disclosed by note if their receipt is possible.
3) Contingent assets are never required to be disclosed in the notes to the accounts.
4) Contingent assets should be disclosed in the notes if their receipt is probable.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

11. Which TWO of the following are examples of “intangible assets”?

1) Goodwill
2) Capitalized development costs
3) Revalued property
4) Inventory held for sale
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

12. Vinnie, a limited company, commenced a development project on 1 January 20X5. During the year
ended 31 December 20X5, materials costing $20,000 were used on the development. A member of
staff was hired on the salary of $15,000 p.a. on 1 January 20X5 to work exclusively on the
development.
If the capitalization criteria in IAS-38 Intangible Assets are met, what amount for development cost
should be capitalized in 20X5? $____________

13. A Co. spend $20,000 researching a new rubber moulding technique, $30,000 developing a new tyre
which will go into production in one year's time and $40,000 developing a dye for tyres which will be
used in future years as a marketing tool as it is unlikely to be commercially viable. Which amounts
should be expensed in statement of comprehensive income and capitalized in statement of financial
position in relation to these transactions in accordance with IAS 38 intangible assets?
a) Statement of comprehensive income $90,000 Statement of financial position Nil
b) Statement of comprehensive income $90,000 Statement of financial position $20,000
c) Statement of comprehensive income $60,000 Statement of financial position $30,000
d) Statement of comprehensive income $50,000 Statement of financial position $40,000

14. Trend spent $4.5m developing a new mp3 player, which commenced sale on 1 January 2006. It was
decided to amortize development cost at the rate of 40% on a reducing balance basis. On 1 January
2007 the mp3 player had not been as successful as anticipated and $300,000 of development cost
was written off.
What is the amortization for the year ended 31 December 2007? $____________
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 CASH FLOWS
(Chapter 13)

1. Which TWO of the following would increase cash flows from investing activities in a statement of cash
flows?
1) Interest received
2) Repayment of loan
3) Proceeds of sale of equipment
4) Proceeds of issue of shares
a) 1 and 2
b) 1 and 3
c) 3 and 4
d) 1 and 4

2. ABC has profit before tax of $100,000.

Depreciation is $45,000; there was an increase in inventories of $10,000, a decrease in receivables of
$15,000 and a decrease in payables of $8,000.
Using the indirect method, what is the cash flow from operating activities?
$____________
3. City Co. prepared the following for cash from operating activities.
$000
Profit from operations 2,380
Depreciation 520
Loss on disposal (75)
Increase in provision for negligence claim 30
Increase in receivables (50)
Increase in inventory 40
Increase in payables 50
2,895
The following criticism of the calculation have been made
1) The loss on disposal should be added back not deducted.
2) Increase in receivables inventory and payables should all be added.
3) Increase in provision for negligence claim should be deducted not added
Which of the above criticisms are correct?
a) 1 only
b) 1 and 3
c) 2 only
d) 2 and 3

4. Bella is preparing her statement of cash flow using the indirect method. The profit of $82,000 needs
to be adjusted to arrive at 'Net cash from operating activities'. The following figures relate to Bella's
non-current assets:
Depreciation $11,400
Profit on disposal of plant and equipment $4,500
Proceeds on disposal of plant and equipment $7,700
Amortization of intangible assets $2,100
Purchase of vehicles $10,200
What figure should be included in Bella's statement of cashflows for net cash from the operating
activities given the above information?
$____________
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 5. Suzie was preparing her statement of cash flow. The following figures are extract from her workings:
Dividend received $30,000
Repayment of borrowings $45,000
Increase in the bank overdraft $22,000
Proceeds of sale of non-current assets $49,000
Purchase of non-current assets $19,000
Income tax paid during the year $8,000
Issue of new share capital $12,000
What is the total cash flow from 'Financing activities' for statement of cash flow prepared under the
IAS-7?
a) $55,000 outflow
b) $3,000 outflow
c) $277000 inflow
d) $33,000 outflow

6. A company made the profit for the year of $18,750 after accounting for the depreciation of $1,250.
During the year non-current assets were purchased for $8,000, receivables increased by $ 1,000,
inventories decreased by $18,000 and payables increased by $350.
According to IAS 7 statements of cash flows, what should be the increase in cash and cash equivalents
during the year?

$____________
7. The financial statements used by different user groups for different person:
For each user group what is their primary area of interest?
USER Profitability Liquidity
Banks
Shareholders

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 RATIOS
(Chapter 14)
1. A company has undervalued its closing inventory at the year end.
How will this error affect the current and quick (acid test) ratios?
No effect Understate
Current ratio
Quick (acid test) ratio

2. The following information has been extracted from the statement of comprehensive income of
Tranlol Co for the year ended 30 September 20X5:
$
Profit from operations 210,000
Interest payable (30,000)
180,000
Taxation (40,000)
Profit for the year 140,000
Tranlol Co has also paid an ordinary dividend $20,000.
What is the interest cover of Tranlol Co?
a) 4 times
b) 6 times
c) 7 times
d) 4.67 times

3. The finance director of Ash Co. is concerned about the efficiency of the credit control department.
Which ratio would help the finance director monitor this?
a) Accounts payable payment period
b) Return on capital employed
c) Accounts receivables collection period
d) Gearing

4. The following information relates to Ronger Co. for the year ended 30 September 20X2:
$
Trade accounts receivables 60,000
Sales revenue 300,000
Cost of sales 210,000
Closing inventory 40,000
Trade payables 30,000
Bank overdraft 50,000
What is the accounts receivables collection period, in days, of Roger Co? _________days

5. Which TWO of the following are features of an efficient credit control process for a business?
1) Identifying potential new credit customers
2) Dispatching invoices and statements promptly
3) Negotiating selling prices
4) Setting credit limits for credit customers
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 2 and 4

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6. Return on capital employed (ROCE) can be broken down into two key accounting ratios.
Which of the following make up ROCE?
a) Profit margin and net asset turnover.
b) Profit margin and gearing.
c) Current ratio and net asset turnover.
d) Gearing and current ratio.

7. What type of information does the gearing ratio provide to the users of financial statements?
a) Financial structure of the business
b) Gross margin earned on revenue
c) Whether current assets cover current liabilities
d) Efficiency of the business in using its resources

8. A company calculates its accounts payable payment period as follows,

Closing trade payables x 365
Purchases
Which of the following factors will cause the accounts payables payment period in days to be higher
compared to previous years?
1) An extension of the credit period offered to its customers
2) Poor long-term financial management resulting in the use of extended trade credit from suppliers
3) Two major suppliers offering significant cash discount for early payment.
a) 1 and 3 only
b) 2 only
c) 2 and 3 only
d) 1, 2 and 3

9. A company's statement of comprehensive income for the year ended 31st March 20x0 is below:
$000
Profit from operations 1,200
Finance cost (200)
Profit before tax 1,000
Income tax expense (400)
Profit after tax 600
Extracts from its statement of financial position at 31st March 20x0 showed the following:
$000
Share capital 8,000
Retained earnings 1,200
Equity 9,200
Noncurrent Liabilities
10% Loan notes 2,000
What is the return on capital employed for the year ended 31st March 20x0?
a) 10.7%
b) 8.9%
c) 6.5%
d) 5.6%

10. The only assets and liabilities of a company, at its year end were as follows:
Inventory $4,000
Trade receivables $23,000
Cash $1,000
Bank overdraft $2,000

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 Trade payables $12,000
Bank loan repayable in 12 months $2,000
Bank loan repayable after 12 months $4,000
Which is the correct set of ratios from the above information?
a) Current Ratio: 1.40:1 Quick Ratio: 1.20:0
b) Current Ratio: 1.75:1 Quick Ratio: 1.50:1
c) Current Ratio: 1.40:1 Quick Ratio: 1.50:1
d) Current Ratio: 1.75:1 Quick Ratio: 1.20:1

11. Extracts from accounts of Blackhorse a limited liability company, for the year ended 30 June 2003 are
as follows:
Receivables $140,000
Payables $210,000
Credit sales $1,050,000
Cash sales $70,000
Purchases $840,000
Which of the following are the correct receivables days (or receivable collection period) and payables
days (or payables collection period)?
a) Receivable days-48.7 Payable days-91.25
b) Receivable days-7.5 Payable days-4
c) Receivable days- 45.6 Payable days- 68.4
d) Receivable days-13.3 Payable days- 25

12. Which one of the following would cause a company's gearing ratio to increase?
a) Making a rights issue of equity shares.
b) Making a bonus issue of shares.
c) Issuing long term loans.
d) Paying dividends on its equity shares.

13. Cash is essential to the success of any business. The working capital cycle can be used to monitor the
flow of cash through a business.
How is the cash (working capital) cycle calculated?
a) Inventory days + receivable days + payable days
b) Inventory days + receivable days - payable days
c) Inventory days - receivable days + payable days
d) Inventory days - receivable days - payable days

14. A company's account receivables collection period has decreased from 35 days to 30 days.
Which TWO of the following are reasons for this?
1) There has been a down turn in trade through the year.
2) Performance in credit control department deteriorated during the year.
3) A substantial debt was written off in the last quarter, due to a major customer going bankrupt.
4) The company has offered an increased cash discount to customers over the last quarter.

a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

15. Which of following TWO users of financial statements would be interested in the interest cover ratio?
1) A member customer when deciding whether to place a significant order
2) A bank when deciding whether to renew a loan arrangement
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 3) A manager responsible for the control of the operating costs
4) An investor concerned about the amount of equity dividend he will receive
a) 1 and 2
b) 2 and 3
c) 2 and 4
d) 1 and 4

16. Below is the data from the financial statements of Smith for the year ended 31st December 20X9.
$000
Credit purchases 1,300
Cash purchases 400
Total purchases 1,700
Trade payables 820
Accrued interest 20
Total Payables 840
What is the trade payables payment period for the Smith for the year ended 31st December 20x9?
a) 230.2 days
b) 176.1 days
c) 235.8 days
d) 180.4 days

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 CONSOLIDATION
(Chapter 15)

1. Amber Co. owns 90% of Blue Co. Extracts from the Statement of Financial Position of the two
companies as at 31 December 20X0 are as follows:
Amber Co Blue co
$ $
Inventory 165 45
Receivables 295 165
Cash at bank 100 300
Payables 275 245

As at 31 December 20X0 Blue Co. owes Amber Co. $55.

What is the current asset figure to be reported in the consolidated financial statements of Amber
group? $______________

2. Gordon Co. has owned 80% of Marsden Co. for several years. During the year Marsden Co. sold goods
with a sale value of $200,000 to Gordon Co. at a markup of 25%. Gordon Co. held half of these goods
in inventory at the year end.
What amount should be deducted from consolidated inventory at the year end?
a) $25,000
b) $20,000
c) $40,000
d) $50,000

3. During 20X0 S Co. sold goods to T Co, its subsidiary. The goods cost S Co. $140,000 and S Co. charged
a markup of 35%. T Co. had sold 70% of the goods by 31 December 20X0. The cost of sales figure in S
Co’s and T Co’s respective statements for 20X0 was $790,000 and $430,000.
What is the cost of sales?
a) $1,178,000
b) $1,163,300
c) $1,016,300
d) $1,045,700

4. Amber Co. acquired 80% of Blake Co. on 30 September 20X0. Amber Co’s revenue for the year ended
31 December 20X0 was $2,800,900. Blake Co’s revenue for the same period was $1,400,200.
What is the consolidated revenue for Amber group for the year ended 31 December 20X0?
a) $3,921,060
b) $3,150,950
c) $4,201,100
d) $3,080,940

5. On 1 August 20X9 H Co. acquired 80% of S Co’s 200,000 $1 ordinary share capital. The year-end of
both companies is 31 December. At 1 January 20X9 S Co had retained earnings of $320,000 and made
a profit for the year ended 31 December 20X9 of $48,000. Assume profits accrue evenly throughout
the year.
What are the nest assets of S Co. at the acquisition date?
a) $ 548,000
b) $ 348,000
c) $ 248,000
d) $ 520,000
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6. Chanty Co. acquired 30,000 ordinary shares and $ 10,000 of the 4% loan stock in Exbig Co. which is
financed as follows:
$1 ordinary shares $50,000
4% loan stock $40,000
Retained earnings $10,000
For the purpose of preparing consolidated financial statements, what is Chanty Co’s interest in Exbig
Co?
a) 60%
b) 50%
c) 85%
d) 30%

7. The following extracts are from the statement of financial position of Chester Co and its subsidiary
Leicester Co as at 31 December 20X1.
Chester Co Leicester Co
Inventory $ 21,000 $ 8,000
Receivables $ 61,000 $ 19,000
During the year Chester Co sold goods to Leicester Co. for $ 15,000 including a profit of $ 2,250.
Leicester Co. has still goods in its inventory and has not yet paid Chester for them.
What should be the total amount of current assets included in Chester Co’s consolidated statement of
financial position as at 31 December 20X1? $______________

8. A Co. owns 90% of the shares in B Co. and 30% of shares in C Co. None of the C Co's other
shareholders have a controlling interest.
What relationships do B Co. and C Co. have with A Co.?
Subsidiary Associate
B Co.
C Co.

9. H Co. acquired 70% of the ordinary share capital of S company on 1st January 20x9. At that date, S
Co.'s retained earnings were $10,000 and its share capital was $40,000. The fair value of non-
controlling interest was $12,000, resulting in the goodwill at acquisition of $10,000.
What was the purchase consideration paid by the H Co. at 1st January 20x9 on the acquisition of S CO.?
$____________

10. MOSS acquired 90% of ordinary share capital of HOLME Co., when HOLME Co. shares had a market
price of $2.20 per share. The fair value of non controlling interest at the date of acquisition was
$22,000. At the date of acquisition the equity section of HOLME's Co.'s statement of financial position
was as follows.
Share Capital ($1 shares) $100,000
Retained earnings $68,000
Revaluation reserves $12,000
$180,000
What is the value of good will on acquisition of HOLME Co.?
a) $62,000
b) $40,000
c) $52,000
d) $18,000

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11. DROTA Co. acquired 90% of STEFAN Co. for $360,000 on 1st January 20x6. At that date STEFAN equity
was as follows.

Ordinary shares $100,000

Retained earnings $220,000
Total Equity $320,000
Good will on the acquisition was STEFAN was $100,000.
What is the fair value of NCI in STEFAN Co. at acquisition?
a) $140,000
b) $60,000
c) $40,000
d) $80,000

12. IAS 27 consolidated and separate financial statements states that control can usually be assumed
when the parents owns more than half (over 50%) of the voting power of an entity unless it can
clearly be shown that such owner ship does not constitutes control.
In which TWO of the following situations would control exist when the parent owns less than 50% of
the voting power of the entity?
1) The parent has owned shares in the entity since incorporation.
2) The parent has power to govern the financial and the operating policies of the entity by statute or
under an agreement.
3) The parent has power to appoint or remove a majority of the members of the board of directors.
4) There is only one other investor in the shares of the entity.
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4

13. The Jack Group has purchased 35% of voting share capital of Vera Co.
How should the investment in Vera Co be accounted for in the consolidated statement of financial
position of the Jack Group?
a) Include the investment at cost plus 35% of Vera Co's retained earnings
b) Add the assets and liabilities of Vera Co to those of Jack Group
c) Include the investment at cost plus 35% of Vera Co's post acquisition retained earnings
d) Include the investment in Vera Co at cost in non-current assets

14. The following are extracts from the income statement of Burke Co and its 100% owned subsidiary
Dickson Co. for the year ended 31st December 20x1.
Burke Co. Dickson Co.
$ $
Revenue 110,000 75,000
Cost of sales (82,500) (52,500)
27,500 22,500
During the year Burke Co. sold goods costing $12,000 to Dickson Co. for $15,000. Dickson Co had sold
these goods on to third parties prior to the year end.
What should be the revenue and cost of sales recorded in Burke Co.'s consolidated income statement
for the year ended 31st December 20x1?
a) Revenue $170,000, Cost of sales $120,000
b) Revenue $173,000, Cost of sales $120,000
c) Revenue $170,000, Cost of sales $123,000
d) Revenue $173,000, Cost of sales $123,000

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15. Which FOUR of the following would be included in the consolidated statement of comprehensive
income?
1) Share of profits of associate
2) Sales made to subsidiaries
3) Non-controlling interest
4) Dividends from subsidiary
5) Revenue of parent and subsidiary
6) Dividends from external investments
a) 1,2,3,4
b) 1,3,5,6
c) 2,4,5,6
d) 1,2,5,6

16. Agro Co purchased 51,000 Jason Co's ordinary shares on 1st June 2000. The purchase consideration
composed:
 $1.25 cash per share acquired
 Three shares in Agro Co for every two shares acquired in Jason Co. Agro Co's shares have nominal
value of $1 and fair value of $ 2.30
What is the total amount of consideration transfer red on the acquisition of Jason Co? $____________

17. IAS 28 investments in Associates define an associate.

Which of the following is the definition of an associate?
a) An entity in which an investor has control.
b) An entity in which an investor has significant influence but not control or joint control.
c) An entity in which an investor has joint control.
d) An entity in which an investor has control or joint control.

18. Triangle Co has the following investments:

Company % of ordinary share capital Number of seats on the board
Square Co 49% 4 from 5
Circle Co 20% 2 from 5
Rectangle Co 51% 4 from 6
Oval Co 30% None
In addition triangle Co provides additional technical information to both Rectangle Co and Oval Co.
Which TWO of the above investments would be accounted for as associates in the consolidated
financial statements?
a) Rectangle Co
b) Oval Co
c) Square Co
d) Circle Co

19. On 1 January 2009 H Co acquired 80% ordinary share capital of S Co. the acquisition of S Co was done
via share exchange of two shares in H Co for every four shares in S Co. S Co had 200,000 $1 shares at
the date of acquisition.
How many new shares will H Co issue as a result of acquisition?
a) 320,000
b) 80,000
c) 100,000
d) 160,000

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20. Significant influence is the power to participate in the financial and operating policy decisions of the
investee but has no control over those policies.
What type of relationship does the above statement indicates?
a) A non-controlling asset
b) An associate
c) A subsidiary
d) A trade investment

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