ACCA F3 Practice Kit | PakAccountants.com

CHAPTER

1

Types of Business Business Transactions

 ACCA F3

PRACTICE KIT By:

Financial  Accounting  Accounting

Hasaan Fazal

UPDATED FOR

2014-15 EXAMS

CHAPTER

1

Types of Business Transactions

 ACCA F3 Financial  Accounting  Accounting

By: Hasaan Fazal

PRACTICE KIT

1

ACCA –Types  F3of |Business Practice Questions Transactions CHAPTER TABLE OF CONTENTS Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22

Accounting and Business Basics Regulatory Framework Accounting Concepts and Conventions Source documents and Journals Accounts and Ledgers Trial Balance and Financial Statements Sales Tax (VAT) Valuation of inventory Non- Current Assets (Tangible) Non-Current Assets (Intangible) Accruals and Prepayments Bad Debts and Provisions for Bad Debts Provisions and Contingencies Control Accounts Bank Reconciliation Statements Rectification of Errors Financial Statements Statements – Sole Traders Financial Statements Statements – Partnerships Events after Reporting Date Financial Statements Statements – Companies Incomplete Records Statement of Cash Flows

Kit

CHAPTER

1

Types of Business Transactions

ABOUT THE AUTHOR

Hasaan Fazal, a student of Chartered Accountancy (ICAP) himself, is enjoying teaching accountancy, accountancy, auditing and economics subjects to different professional qualifications qualifications like CAT, ACCA etc. He is thankful to ALLAH that because of His mercy he founded ACCA LIVE which is Pakistan’s first website conducting online classes for CAT and ACCA students globally. Besides teaching on ACCA LIVE, he also runs his blog as a hobby where many of his e-books, notes, practice pr actice questions, mock exams, exam tips and video lectures are available for free. He also invites feedback from students, visitors and teachers to help make this publication and others even better.

About the book Although this publication has been written keeping the students studying paper 3 of ACCA course, however, the students of other professional qualifications like CA, CIMA and ACCA etc. who want to test their financial accounting accounting and business basics can also consult this Practice P ractice Questions Kit. This book is divided in different chapters according to ACCA F3 syllabus so that students can practice the questions pertaining to specific topic easily. Every question on this book is internally linked for easy access of student. For example, if students wants to know the t he answer then with just a click the book will scroll automatically to open the t he page where answer for such question is. We have separated the answers and their explanations, usually which are kept together. This has done again for students’ convenience as sometime they just want to know the correct answer and want to think about the concept

behind it on their own. Therefore, if student presses the answer button the only correct choice or answer will be presented and if student presses explanation then both answer and the explanation will be given. Buttons used in the documents and their t heir corresponding meanings are as follows:

..A..

When this button is clicked the document will scroll to the answer of corresponding q uestion

…E.. Clicking this button will open the answer and the explanation of the underlying concept

.. ..Q ..

This button will bring the student back to the corresponding question

How to add more questions? As this Practice Questions Kit is provided free of cost so that students can benefit from it without getting worried about their finances. Therefore, we need your help to help other students  so that they can also learn, practice and become successful in their lives. So, let others know about this and having more students reading this book will keep us motivated as well.

So, it’s that simple. More you share by sharing it with your friends and

everyone you know. Help others to get a help for yourself!  © PakAccountants.com 2011 This book is provided FREE of cost online. This book is for students and for students only for their individual use.

CHAPTER

1

 Accounting  Accounting and Business Business Basics Basics

CHAPTER

1

 Accounting and and Business Basics

CHAPTER

1

 Accounting  Accounting and Business Business Basics Basics

1 Financial accounting is about: A. B. C. D.

Financial reports Financial information Financial transactions All of the above

2 Financial information means: A. B. C. D.

Any information related to banking Any information related to money Any information related to currency None of the above

3 Business transaction means: I. A business activity that initiates accounting process II. A business activity that has implications on five elements of financial statements III. Any business activity IV. Any business activity which has tax implications A. B. C. D.

II and IV only III only I and II only I, II and IV only

4 In most of the companies, liability of the owners is limited to the amount: A. B. C. D.

Available in the bank account of the company Invested in the company Of authorized capital Of the assets owned by the shareholders in the company

5 “Sharing ownership with general public is much easier”

This statement holds true for which type of organization? A. Partnerships B. Companies

CHAPTER

1

 Accounting  Accounting and Business Business Basics Basics

C. Sole traders D. Not for profit organizations

6 Which of the following users might be more interested in the liquidity position of the t he company?

A. B. C. D.

I. Trade creditors and lenders II. Tax authorities III. Customers IV. Prospective investors I and III only II and III only I, II and IV only I and IV only

7 General purpose financial statements mean: A. B. C. D.

Statements for general public Statements for general users Statements for general use All of the above

8 The purpose of statement of financial position is to provide information about: A. B. C. D.

The position of different business units in the market mar ket The position of economic resources business holds The position of inventory in the market The position financial statements

9 Tick the statement that correctly defines the t erm “Capital”

t he business  Total of resources provided by the owner at the start of the  Total residual interest of  Total amount by

owners in the business

which assets exceed liabilities of the business i.e. Net worth

CHAPTER

1

 Accounting  Accounting and Business Business Basics Basics

10 Tick in the correct category for each item specified: Item

Premises Salaries of staff Loan from bank Amount owed to Mr. Abc Amount owed by Mr. Cde Office furniture Overdraft from bank Bank charges on withdrawals Stock of goods Fee earned during the month Cash in hand Money owed to us by the bank Goods bought on credit Cash at bank Debtors Lenders

Asset

Liability

Income

Expense

CHAPTER

1

Bookkeeping

CHAPTER

1

Bookkeeping

CHAPTER

1

Bookkeeping

1 Calculate the missing figures in the accounting equation Assets: 2,400 Assets: 10,450 Assets: ?

Liabilities: 1,200 Liabilities: ? Liabilities: 44,400

Capital: ? Capital: 8,750 Capital: 65,000

2 The following information relates to the business Mr. Sadiq Ameen that he just started. In last few weeks he bought furniture for his office worth Rs.3,100, equipments Rs.4,200, motor car Rs.10,000 and had 300 dollars in cash till and 1,200 in the bank account maintained for business specifically. He has not paid half of the sum for the furniture bought and also owes 1,200 towar ds motor car. One of his customer owes him 500. What is the amount of capital?

3 Compute the value and indicate the increase/decrease effect on capital in the following cases:

Effect on Capital Assets increased by: 10,000 Liabilities increased by: 10,000 Assets decreased by 23,000 Liabilities decreased by 23,000 Assets increased by 12,300 Liabilities decreased by 4,100 Assets decreased by 2,300 Liabilities increased by 3,200

CHAPTER 3

1

Bookkeeping

Mention which component of accounting equation will increase or decrease in following tr ansactions. Mention “A” for asset, “L” for liability and “C” for capital and “X” for no effect. Transactions

Increase

Decrease

Bought furniture and paid through cheque Bought machinery on credit Owner put additional money in personal bank account Received a loan from bank Owner put his personal car in business Paid back the creditor in cash Received the cheque from the debtor Owner withdraws some money from cash till Deposited extra cash in bank account from cash till Owner paid some liabilities of the business from his pocket Returned the computer bought few days back on credit Sold some office furniture and received money in cash Customer returned few items from the t he package sold on credit Sent an IOU to the supplier against the goods received Received a promissory note from customers against goods sold 4 Correct the write word from the brackets that corresponds with the effects mentioned on the right. “↑” means increase “↓” means decrease and “×” means no change [Bought/sold] machinery on credit [Invested/Withdrawn] [Invested/Withdrawn] some money [in/from] the business [Borrowed/Lent] some money from Mr. Bilal Purchased inventory on cash [cash / credt] [Paid/received] cash [to/from] Mr. Hussain Goods returned [to supplier purchased / by customer sold] on credit Deposited cash from [cash till / personal cash] in business bank account Goods [Purchased/withdrawn] [Purchased/withdrawn] worth 1,000 Owner paid [personal / business] bills through cheque

Assets ↑  Assets ↓ Assets × Assets ↑  Assets ↑  Assets ↓ Assets × Assets ↓ 

Liabilities ↑

Capital ↑

Liabilities ↓

Capital ↓

Liabilities × Liabilities ↑ Liabilities ↑ Liabilities ↓

Capital × Capital ↓

CHAPTER

2

Types of Business Documents

CHAPTER

2

Regulatory Framework

CHAPTER

2

Regulatory Framework

Questions for this chapter will be available availab le soon

CHAPTER

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

CHAPTER

3

 Accounting Concepts and Qualitative Characteristics of Financial Information

CHAPTER 1

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

Financial accounting is about: A. B. C. D.

Financial reports Financial information Financial transactions All of the above

2 How many principal qualitative characteristics of financial statements are in total? A. B. C. D.

Five Four Nine Many

3 What are underlying assumptions of financial statements? A. B. C. D.

Prudence and consistency Accruals and going concern Accruals and prudence Going concern and profitability

4 The objective of financial statements is to provide information about entity’s:

A. B. C. D.

Financial position Financial performance Changes in financial position All of the above

5 IAASB Framework deals with: A. B. C. D.

Objectives of financial statements Qualitative characteristics of financial statements Definition, recognition and measurement of elements of financial statements All of the above

CHAPTER 6

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

Which of the following set of elements is used to ascertain financial position of the entity? A. B. C. D.

Income and expense Income, Expense and Equity Asset, Liability and Equity Asset, Equity, Income and Expense

7 Assets are resources: A. B. C. D.

Used in producing or converting other goods to be sold by entity Used to exchange with other assets Used to pay liabilities All of the above

8 Liabilities represent entity’s:

A. B. C. D.

Past obligations Present obligations Future obligations All of the above

9 Entities settle their obligations by: A. B. C. D.

Incurring expenses Giving up the resources Earning income None of the above

10 Income is defined as: I. II. III. A. B. C. D.

Inflow of additional assets Decrease in the liabilities Inflow of additional capital by owners I, II I, III I, II, III III

CHAPTER 11

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

Incurrence of expenses may result in decrease of equity  

True False

12 Which of the following is not an element of financial statements? A. B. C. D.

Revenue Expense Asset Owner

13  _______ is frequently frequently used as a measure of performance performance A. B. C. D.

Residual interest Profit Income Gains

14 Accounting concept of substance over form enhances: A. B. C. D.

Relevance Reliability Comparability Neutrality

15 Financial information means: A. B. C. D.

Any information related to banking Any information related to money Any information related to currency None of the above

CHAPTER 16

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

Business transaction means: I. II. III. IV. A. B. C. D.

A business activity that initiates accounting process A business activity that has implications on five elements of financial statements Any business activity Any business activity which has tax implications II and IV only III only I and II only I, II and IV only

17 In most of the companies, liability of the owners is limited to the amount: A. B. C. D.

Available in the bank account of the company Invested in the company Of authorized capital Of the assets owned by the shareholders in the company

18 Which of the following users might be more interested in the liquidity position of the company? I. II. III. IV. A. B. C. D.

Trade creditors and lenders Tax authorities Customers Prospective investors

I and III only II and III only I, II and IV only I and IV only

19 General purpose financial statements mean: A. B. C. D.

Statements for general public Statements for general users Statements for general use All of the above

CHAPTER 20

3

 Accounting  Accounting concepts concepts and Qualitative Qualitative characte characteristics ristics of Financial Information

The purpose of statement of financial position is to provide information about: A. B. C. D.

The position of different business units in the market The position of economic resources business holds The position of inventory in the market mar ket The position financial statements

CHAPTER

4

Source documents and Journals

Area 2’s title

CHAPTER

4

Source Documents and Journals

CHAPTER 1

4

Source documents and Journals

Remittance advice is sent by: A. B. C. D.

Customer to supplier Customer to the banker of supplier Customer to his own banker Customer to his own accounting department

..A..|  ..E.. 2 Remittance advice must: A. B. C. D.

Specify the invoice number(s) for which payment is made Specify the order number(s) for which payment is made Specify the dispatch note number(s) for which payment is made Specify the GRN number(s) for which payment is made

..A..|  ..E.. 3 Which of the following statements show the correct flow of documents? i. ii. iii. A. B. C. D.

Order > Dispatch note > invoice > receipt Tender > Quotation > Order Order > debit note > invoice i only i and ii only ii and iii only I, ii and iii

..A..|  ..E.. 4 Internal auditor of Sangsung Co is analyzing the correctness of payables for month ended November. He thinks that one of the best ways of confirming the accuracy of payables is by asking our creditors regarding such information. Which of the following document will auditor ask the creditors to send? A. B. C. D.

Debit and credit notes for the month of November Invoices issued in November Statement of account for November Cash receipts raised in November

..A..|  ..E..

CHAPTER 5

4

Source documents and Journals

Ajwa Ltd requires store shelves for storing dates. In order to know the prices of racks with different shapes and sizes, which document do you think t hink company should ask the supplier to send? A. B. C. D.

Order Debit Note Material requisition note Quotation

..A..|  ..E.. 6 Palladium Plc’s cashier received 430 cash from Mr. Platinum, a debtor. Which document should be

raised by the cashier of Palladium Plc on receiving money? A. B. C. D.

Cheque Receipt Invoice Deposit slip

..A..|  ..E.. 7 Which of the following will not appear on Purchase invoice? I. II. III. IV. A. B. C. D.

Trade discount given in percentage Amount of sales tax Purchase order number Net amount owed to customer by the supplier

I only IV only III and IV only I and IV only

..A..|  ..E..

CHAPTER 8

4

Source documents and Journals

Mr. Wood is a supervisor in finishing department of a furniture company. He was supervising the repair work in grinding machine. He is satisfied with the work and now requires money from the cashier so that he can pay to the repair man. Which document do you think he will use for this purpose? A. B. C. D.

Cheque book Cash receipt Cheque requisition note Payslip

..A..|  ..E.. 9 Mr. Good luck’s PC broke down while processing payroll of the month. To recover the system and

putting the payroll process system online, Mr. Good luck took some help from freelance IT troubleshooter to whom he gave $25. Which document should he use to ask for reimbursement of amount paid by him? A. B. C. D.

Paying in slip Receipt Petty cash claim Cheque requisition note

..A..|  ..E.. 10 Which of the following information is part of Purchase order? I. II. III. IV. V.

A. B. C. D.

Mode of payment and goods delivery Quantity of goods Per unit price of goods Trade discount on each item Total VAT included in purchase amount

II and III only I, IV and V only I, II and III only II and V only

..A..|  ..E..

CHAPTER 11

4

Source documents and Journals

Payslip is a document on which: A. B. C. D.

Cash deposited in the bank account is mentioned Salary paid to the employee is written wr itten Record for making any kind of payment is kept None of the above

..A..|  ..E.. 12 Summer, a customer of Autumn, has returned goods purchased earlier costing 50 to Autumn on credit. Which document do you think Summer should issue in respect of this return? A. B. C. D.

Credit note Debit note Dispatch note Invoice

..A..|  ..E.. 13 Which of the following statements show the correct flow of documents? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Invoice > Debit Note > Receipt Invoice > Cheque > Receipt Quotation > Purchase Order > Acknowledgemen A cknowledgementt Sales order > Delivery Note > Invoice Invoice > cheque requisition note > receipt Purchase order > Statement of account > Delivery note Delivery note > Remittance advice > Receipt Tender > Receipt > Delivery Note Receipt > Cash > Sales order Purchase order > material requisition note > Tender Invoice > Petty cash claim > Receipt

..A..|  ..E..

CHAPTER 14

4

Source documents and Journals

Petty cash claim is usually authorized after checking: A. B. C. D.

Nature of expense Supporting documents accompanying the claim form The amount of claim against maximum the maximum limit of claim All of the above

..A..|  ..E.. 15 Salary slip or payslip contains the details about: A. B. C. D.

Gross salary PAYE deductions Net pay All of the above

..A..|  ..E.. 16 Match the items in left column with write explanations given in the right column 1. 2. 3. 4. 5.

2% 10 n30 2/10 net 30 30 days net COD 30 days month end date of invoice

..A..|  ..E.. 17 If the settlement term states: “Net 30 days” then it means:

A. B. C. D.

Customer has 30 working days to pay the invoice Customer has 30 calendar days to pay the invoice Customer has 30 official days to pay the invoice Customer has 30 days net of holidays

..A..|  ..E..

CHAPTER 18

4

Source documents and Journals

Mr. Billionaire received the following invoice from Invoice and Invoice Company on June 19, 2 010:

Invoice and Invoice Company Invoice No: 12547

Date: 17/June/2010

Customer: Mr. Billionaire

Order No: 25-587-AF

Address: 123 – Bright Street, Luck turn, Ideal City. S# 1 2 3

Description  – Item code Gold ring (dolphin) – 198A Diamond ring (Fine cut)  – 54AB Platinum-emerald ring  – 418C

Quantity 2 1 3

Per unit price 1,500 1,280 1,350 Total Discount Net Tax 15% Net

Total 3,000 1,280 4,050 8,330 330 8,000 1,200 9,200

*Terms: 10% 5 net 15 from the date of invoice

Mr. Billionaire paid the invoice on June 23, 2010. What should be the amount he would have paid? A. B. C. D.

7,200 8,000 9,200 7,497

..A..|  ..E.. 19 How much days will Time and Clock Co have to pay the invoice that it has received on January 10, 2011 under the following situations of payment terms. Also mention the due date. Payment terms 10 Days net 30 Days net 15 days month end date of invoice 2% 5 n 10 5%/14 n 30

Total days till final settlement

Due Date

..A..|  ..E..

CHAPTER 20

4

Source documents and Journals

Mark the points indicated in the following invoice

Invoice and Invoice Company 87 – Copper angle mount, Global Round

Invoice No: 12547

Date: 17/June/2010

Mr. Billionaire 123 – Bright Street, Luck turn, Ideal City. S# 1 2 3

Description  – Item code Gold ring (dolphin) – 198A Diamond ring (Fine cut)  – 54AB Platinum-emerald ring  – 418C

Order No: 25-587-AF

Quantity 2 1 3

Per unit price 1,500 1,280 1,350 Total Discount Net Tax 15% Net

Total 3,000 1,280 4,050 8,330 330 8,000 1,200 9,200

*Terms: 10% 5 net 15 from the date of invoice * E & OE

Write the number of the correct description in the bubbles above: 1. A person on which invoice has been drawn 2. Company’s name 3. Amount payable 4. Cash discount 5. Sales order number 6. Invoice number 7. Date of purchase 8. Trade discount 9. Errors and omissions expected 10. Excluded items returnable on executive’s decision 11. Sales order number 12. Terms of payment 13. Supplier’s address

..A..|  ..E..

CHAPTER 21

4

Source documents and Journals

Find out the amounts of missing boxes using available information under each row. Total Retail price

1500 2500

Trade discount

300 550 5% 10%

4200

Sales tax 15% (rounded to nearest cent)

180 315 742.50

 Amount invoiced

1380 5692.50

800

Payment terms

Total days to final settlement

If paid in 13 days then amount actually paid

Cash discount earned

2% 5 n 30 5% 14 n 60 Net 30 10% 10 n 45 3% 15 n 30

..A..|  ..E.. Production Hall of Hawl Trucks ltd assembles mining machinery. On a certain day super visor felt a need of another 500 units of ball bearings. What do you think is a proper way of getting these 500 units from the store? A. B. C. D.

Approach purchase department after raising purchasing requisition on his own Approach store manager and ask him to issue material requisition Approach production manager and ask him to issue material requisition Go to store and pick the required number of stock

22 & 23 Production manager of “Cleaner n Clearer Plc” found some material scattered all over the production

hall. He asked the junior worker to collect all the unnecessary raw material and submit them with the store manager. 22 Which document will be raised by the production manager? 22 Which A. B. C. D.

Debit note Material sent note Material return note Good dispatch note

23 Where the store manager will record the receipt? 23 Where A. B. C. D.

Store ledger card Goods received note Material holding note None of the above

CHAPTER

4

Source documents and Journals

24, 25 & 26 Happy teeth are renowned for producing hairline teeth braces. The store department found some units in the store which are not up to quality standards and were received last week. Supplier accepted the return. Which document do you think will be raised by: 24 The 24  The store department? 25 The purchase department? 26 The 26  The accounting department?

27 Bubble Gum Co. is purchasing gelatin from a particular supplier for last 10 1 0 years. But today purchase manager received a fax that supplier will not be able to entertain the orders any more as they are changing their line of business. Now purchase manager is finding a new supplier that will give the most competent. What do you think Purchase manager should do to find out the new supplier? A. B. C. D.

Issue short tender notice Raise quotation Issue prospective of the company Advertise purchase order

28 Some of the material purchased by Mega hertz Ltd is found not according to the order specification. Invoice regarding the goods have already been received and now the adjusting debit note will be issued by ______________ A. B. C. D.

Purchase department Store Accounts department Dispatch department

CHAPTER 29

4

Source documents and Journals

“Caps Lock Ltd” is a customer of “Shift Co”. Shift Co. allows a cash discount if 10% if the customer pays

his balance within 10 days of purchase. Caps Lock Ltd has bought few items from Shift Co during a month. Following is the extract from Caps Lock Ltd Purchase day book:

Purchase Day Book 2010 July 01 July 04 July 11 July 16 July 18 July 23 July 27

M. Lancer M. Sarah Shift Co Shift Co A. Samia O. Hayat Shift Co

Invoice # 236-1/120 10550/121 S-AA-01/122 S-AA-12/123 S10(s)12/124 A1987-05/125 S-BB-15/126

Folio

Amount ($) 150 263 750 1500 325 840 260

Accounts department has raised a remittance advice to be sent to Shift Co. The invoices that have been listed are as follows:  

S-AA-01 S-BB-15

Compute the amount that will be sent with the remittance r emittance advice

30 “Careful Ltd” maintains the records on periodic basis. An expert accountant was at leave therefore one

of his assistant has been asked to make entries in the Purchase journal. If you are that junior accountant, what document will you ask to be provided so that you can make entries in the Purchase journal? A. B. C. D.

Remittance advice Goods dispatch note Invoice Receipt

31 Discount on the face of invoice is called: A. B. C. D.

Trade discount Cash discount Early payment discount All of the above

CHAPTER 32

4

Source documents and Journals

In most of the books of journal entries the folio column is used for: A. B. C. D.

Cross referencing to other book of journal entries where entry has been completed Cross referencing to the ledgers where entries has been posted Cross referencing to the journal entry used to adjust the error Cross referencing to trial balance

33 The letter “C” written in folio column means:

A. B. C. D.

Correction Contra Consolidation Cash book

34 Source document required to record entry in Sales Day book is: A. B. C. D.

Debit note Credit note Invoice Material requisition note

35 Cash sales are recorded in: A. B. C. D.

General journal Sales day book Cash book Sales ledger

36 Plantronics Ltd is known for making audio equipments. For different equipments they need electric coils which they purchase from different suppliers. Recently Plantronics Ltd has purchased 3,000 units of coils on credit. The accountant will record the debit and credit affects in ledgers as: Debit

A. a. b. c.

Purchase day book Purchase ledger General ledger General ledger

Credit

Sales day book Creditors ledger Cash book Purchase ledger

CHAPTER 37

4

Source documents and Journals

Journal entry (prime entry) for fixed asset bought is entered in _________ A. B. C. D.

General journal Purchases journal Purchases ledger General ledger

38 Complete the following table by marking for increase,  for decrease and Assets

0 for no affect

Capital

Liabilities

39 Complete the following table by marking for increase,  for decrease and

0 for no affect in the

accounting equation columns and writing the name of the account to be debited or credited in the effects coloumn. Assets

Capital

Liabilities

Debit

Credit

CHAPTER

5

 Accounts and Ledgers Ledgers

Chapter 5 title and content

CHAPTER

5

 Accounts and Ledgers

CHAPTER 1

5

 Accounts and Ledgers Ledgers

Journal entry for fixed asset bought is posted in __________ A. B. C. D.

General ledger Purchases ledger Sales ledger Cash book

CHAPTER

6

Trial balance and Financial Statements

Chapter 6 title and content

CHAPTER

6

Trial Balance and Financial Statements

CHAPTER 1

6

Trial balance and Financial Statements

We prepare trial balance to: A. B. C. D.

Complete the accounting cycle Close ledger accounts Check the accuracy of accounts All of the above

CHAPTER

7

Sales Tax

Chapter 7 title and content

CHAPTER

7

Sales Tax (Value added tax)

CHAPTER 1

7

Sales Tax

Sales tax is calculated on such sales value that is: A. B. C. D.

Gross of trade discount but net of cash discount Gross of trade discount and gross of cash discount Net of trade discount but gross of cash discount Net of trade discount and net of o f cash discount

2 Sales tax account is maintained in: A. B. C. D.

General ledger Purchases ledger Sales ledger None of the above

3 What is the correct way of calculating sales tax? A. B. C. D.

Retail price + VAT  – Trade discount Retail price + Trade discount  – VAT Retail price + Trade discount + VAT Retail price – Trade discount + VAT

4 Calculate the amount of sales tax payable by Mr. S under tthe he following case. Assume the tax rate is 17.5% Sales to Mr. O 470 (inclusive of tax) Sales to Mr. C (exclusive of tax)

5 Purchase account DOES NOT include sales tax as it is: A. B. C. D.

Recoverable from tax authorities Not an expense Receivable from tax authorities All of the above

6 If output tax exceeds input tax than: A. Tax is receivable B. Tax is payable

CHAPTER

7

Sales Tax

C. Tax is refundable D. Tax is adjustable

7 If Mr. B purchased “Alpha” worth 10,550 (inclusive of tax) and sold “Beta” worth 20,000 (exclusive of

tax) than calculate:    

Input tax Tax payable if any to tax authorities Amount that is recorded in sales ledger Amount that is recorded in purchases ledger

NOTE: Assume tax rate of 10% for both input and output tax purposes

8 Stung which is a registered for sales tax bought furniture on credit terms at a cost of $8000 plus sales tax of $1200. What should be the entry to record this in the books?

9 If Mr. Tax has sold goods worth 260,000 of which 20% sales were on cash and purchased goods worth 211,500 of which 30% were on credit than what amounts will be recorded in:    

Sales account Purchases account Account payables Account receivables

NOTE: sales and purchases were exclusive and inclusive of tax respectively. Assume tax rate is 10% for

both input and output tax purposes

10 Soldier is registered for sales tax. During the month, he sells goods with a tax exclusive price of 1600 to Commando on credit. As Commando is buying a large quantity of goods, Soldier reduced the price by 5%. He also offered a discount of another 2% if Commando pays with in 10days. Commando was unable to pay within 10 days. If sales tax is charged at 17.5% what amount should Soldier charge on this transaction?

11 A business sold goods that had a net value of $600 to Lucid. What entries are required to record this transaction if sales tax is payable at 17.5%?

CHAPTER 12

7

Sales Tax

Laker returned goods that had a net value of 200. What entries are required to record this tr ansaction if sales tax is payable at 17.5%?

13 Which of the following is correct? 1. 2. 3. 4. A. B. C. D.

Sales tax is a form of indirect tax If input tax exceeds output tax the difference is payable to tax authorities Sales tax is included in the reported sales and purchases of the business Sales tax cannot be recovered on some purchases

1 and 4 1 and 2 2 and 3 3 and 4

CHAPTER

8

Valuation of Inventory

Chapter 8 title and content

CHAPTER

8

Valuation of Inventory

CHAPTER 1

8

Valuation of Inventory

The records of the company show the following: Opening stock Production Closing stock

1200 8,000 10,000

The increased closing stock over the sum of production and opening inventory is due to: A. B. C. D.

Sales return Purchases return Scrap None of the above

2 ACCA LIVE manufactures PC case. To complete one pc case t hey need certain amount of alloy and plastic. Following information details the purchases and issues made during the year to production hall by ACCA LIVE store: Purchases:

Jan 1 Jan 5 Jan 10 Jan 15 Jan 20 Jan 26 Jan 30

Quantity 100 250 120 180 250 160 300

Rate 60 75 63 72 66 55 61

Issues:

Jan 2 Jan 7 Jan12 Jan 17 Jan 23 Jan 29 Jan 31

Quantity 80 200 150 200 260 100 300

Calculate the value of closing stock using short cut method under:  FIFO LIFO   AVCO

CHAPTER 3

8

Valuation of Inventory

Which of the following statement is correct? I. II. III. IV.

A. B. C. D.

Both carriage inward and carriage outward are included in gross profit calculation Carriage inwards are deducted from cost purchases whereas carriage outwards are deducted from selling costs Carriage inwards are debited in profit and loss account whereas carriage outwards are credited If carriage outwards are overcastted then net profit understates whereas overcastting in carriage inwards causes net profit to overcast.

II only III only III and IV only None of them

4 Few days back fire broke out in one of Sprinklers Ltd godown. According to initial investigation fire damaged stock piles of two different products, rain and ice. It is estimated that 40% and 30% of rain and ice respectively are completely destroyed. According to store ledger card the cost of total inventory which was present at godown before fire broke are as follows:  

Rain Ice

143,000 256,000

After inspection it is estimated that Net realizable value of left over stock of o f both products is:  

Rain Ice

90,000 165,000

Required: A. Compute the value of loss recognized as write w rite down adjustment B. At what value Rain and Ice should be valued?

CHAPTER

9

Non-current Assets (Tangible)

Chapter 9 title and content

CHAPTER

9

Non-current Assets (Tangible)

CHAPTER 1

9

Non-current Assets (Tangible)

Black Stone Ltd bought two buildings. Building A for 250,000 and Building B for 120, 000. Building A is expected to last for 10 years where building B is expected to be useful for five years. Calculate per year depreciation for both buildings.

2 Alert Book Plc has several assets including a plant. Company uses reducing balance method to depreciate the plant at the rate of 20%. The cost of the plant at the time of acquisition was 240,000. What is the depreciation for the first three years?

3 BlackSoldiers make computer games. Recently they bought a mini-frame computer to run the simulation process needed to analyze artificial intelligence (A.I.) system performance in game against human reactions. It cost 2 million and they are expecting that it will be in use for next 4 years w here its disposal value at that time will be only 250,000. What is the depreciation of the equipment at the end of third year?

4 A sole trader bought some office equipments two years back for 50,000 with an expected scrap value of 2,500. Equipment is depreciated using reducing balance method at 30%. What is the depreciation charge at the end of third year of its use?

5 A company has three motor vehicles where each vehicle was expected to last 5 years at the time of acquisition. The details about the year they acquired and the t he cost are as follows: 1. Toyota: bought 1 January 2008 for 6,000 2. Nissan: bought 30 June 2009 for 7,300 3. Honda: bought 15 October 2010 for 4,300 If the scrap value of the assets is nil then calculate the depreciation charge for the year ended 31 December 2012 under:  

Straight line method Reducing balance method

Remember company has the policy of charging full depreciation on the assets available at the end of year.

CHAPTER 6

9

Non-current Assets (Tangible)

A company bought office equipment worth 500,000. If the equipment is depreciated at the rate of 15% then prepare accumulated depreciation account for the first five years under:  

Straight line method Diminishing balance method

7 An accountant of Rubber Monkeys Ltd is preparing quarter ended financial records. He is given g iven the following information from the previous quarter. 31 March 2011 Machinery a/c balance: 160,000 31 March 2011 Accumulated Depreciation Depreciation – Machinery a/c balance: 45,000 During the quarter company bought new machinery costing 74,000 with a residual value of 5,500. If the company is depreciating machinery assets on monthly basis using diminishing balance method at the rate of 20% then prepare the following for three months of quarter ended 30 June 2011.  

Machinery account Accumulated Depreciation account

8 Fun n Joy Ltd is dong event management business. At the start of the year they had the following assets: Audio Equipments Vehicle Furniture

255,500 125,000 330,000

During the year company made the following acquisitions: 



March 15, 2011 - Two DSLR cameras so that facilities of event coverage can also be provided provided which cost the company 50,000. October 20, 2011 - Company also bought two vehicles to cater the increasing demand where each vehicle worth 15,000. Registration fee of both cars amounted to 2,500. It is also obligatory for the companies to have their vehicles insured before they can be used under local laws. Insurance cost amounted to 1,500.

Chief accountant has issued the instructions that these newly bought cameras will be categorized under “Equipments” category in financial statements.

Company records depreciation on monthly basis as follows: 

Audio equipments 20% at cost

CHAPTER  

9

Non-current Assets (Tangible)

Vehicle 25% at reducing balance method Furniture at 15% straight line basis.

Prepare the following for the year ended 31 December 2011: 1. Accounts of each asset separately including accumulated depreciation account for each asset 2. Extracts from Income statement and Statement of financial position

9 At the start of the financial year 2011, the building account had a balance of 43,000 and accumulated depreciation account had 26,600. During the year company purchased a building for 35,000 on 13 September 2011. In connection to this new building company has incurred following cost: 1. 2. 3. 4. 5.

Legal fee 2,000 Paint 800 Wiring 2,600 Electricity cost in wiring process Labour cost of wiring

550 1300

Company also carried out some repair work on existing building which is as follows: 1. Painting 2. 2 additional rooms

300 4200

Further information revealed that labour employed for wiring purposes on new machinery was company’s own staff. Amount paid to labour for appreciation of good work was 150 which is included in 1300. Besides this amount nothing has been paid in addition to their normal wages. Company depreciates the asset on reducing balance method at the rate of 20%. In case a new asset is purchased during the year then depreciation is calculated on t he basis of months used during the year starting from the first day of the month subsequent to the month of purchase. Prepare: 1. 2. 3. 4.

Building account Accumulated Depreciation account  – Building Extracts from income Statement Extracts from Statement of Financial Position

10 A company is using two assets for three years which were bought for 100,000 each. At t he time of acquisition their useful life was estimated to be 10 1 0 years each with no residual value. During fourth year

CHAPTER

9

Non-current Assets (Tangible)

of their use, fair market value of one and second was found to be 150,000 and 50 respectively. What is the amount of revaluation and the depreciation charge at the end of fourth year? y ear?

11 A company has two different assets; office equipments and office furniture with carrying values 64,000 and 85,000 respectively at the start of financial period. During the year office equipment was valued and its fair market value was 10,000 more than its original price when it was bought three years back. However, office furniture was assessed for revaluation at the end of year where fair market value was 85,000. Company depreciates office equipment on the basis of hours used and o ffice furniture is depreciated using reducing balance method at 15%. It is estimated that during a year equipment is used for 5,000 hours where office equipment, when bought, had an expected life of 40,000 hours. Draw up 1. Office equipment account and office furniture account 2. Accumulated depreciation accounts of office equipment and furniture 3. Relevant extracts from Income Statement and Balance Sheet

12 Change depreciation method is a change in: A. B. C. D.

Accounting policy Accounting estimate Accounting presentation All of the above

13 Which of the following statement is true regarding selection of depreciation method? I. II. III.

A. B. C. D.

Entity is free to choose any depreciation method they think suitable Entity can use only those depreciation methods that are mentioned in International Accounting Standards Entity can use any depreciation method that conforms to the rate at which benefits are rendered from the asset

I only II only II and III only None of the above

CHAPTER 14

9

Non-current Assets (Tangible)

Tick the correct statement(s) In reducing balance method: 

Higher depreciation expense is charged in earlier years of useful life



Higher depreciation expense is charged in later years of useful life



Depreciation expense increases over time due to reducing balance



Depreciation expense decreases over time due to reducing balance

CHAPTER

10

Non-current Assets (Intangible)

Chapter 10 title and content

10

CHAPTER

Non-current Assets (Intangible)

CHAPTER

10

Non-current Assets (Intangible)

Questions for this chapter will be available availab le soon

CHAPTER

11

 Accruals and Prepayments Prepayments

Chapter 11 title and content

CHAPTER

11

 Accruals and Prepayments

CHAPTER

11

 Accruals and Prepayments Prepayments

Questions for this chapter will be available availab le soon

CHAPTER

12

Bad debts and Provisions for Bad debts

Chapter 12 title and content

CHAPTER

12

Bad Debts and Provisions for BD

CHAPTER 1

12

Bad debts and Provisions for Bad debts

Wind mill Co sells calculators. Following is the figure of debtors for 2010 and 2011 respectively. 160,000 180,000 If the opening balance of provisions for doubtful debt a/c is 3,400 and the provisions are made at 4% a year. Find out the following: 1. Closing balances of provision a/c for 2010 and 2011 2. Amounts to be recorded in profit and loss a/c in the year 2010 and 2011

2 ABC bought 10,000 worth of goods from Old manufacturers and promised to pay within 2 months. After the payment was due, ABC was unable to make the payment and it has been concluded that money owed by ABC is not recoverable. What is the journal entry to record this event?

3 XYZ bought 20,000 worth of the goods from NEW manufacturers and promised to pay within 1 month. At the date when the payment was due, XYZ was unable to make the whole payment and was able to pay out only 30% of his debt. Remaining is found irrecoverable. What is the journal entry to record this event?

4 Learning Publishers has total receivables of 9,000. Until this year company was not maintaining any provision for doubtful debts. Due to recent r ecent events of irrecoverable debts, management is of the view that provision should be made for irrecoverable debts at 5% of total receivables. What is the total provision of doubtful debts for this year?

5 Friends Engineering is a private limited company engaged in manufacturing electronic appliances. Management is constantly monitoring the irrecoverable debts and has concluded that provision rate should be left unchanged i.e. 8%. If the total debtors of the company amount to 330,000 and the opening provision was 10,400 then what is the provision for this year? Also calculate the amount to be recorded in profit and loss account

6 Fuchs Ltd is renowned for its automobile products. Due to stringent credit controls and strict recovery policy, company has managed to improve its losses towards irrecoverable debts. Because of this, company has decided to decrease its provision rate from 8% to 6%. If the total debtors of the company are 150,000 and the opening provision is 4,500 then what is the total provision for this year and the amount to be adjusted in profit and loss account?

CHAPTER 7

12

Bad debts and Provisions for Bad debts

Total Lubricants (Pvt) Ltd manufactures automobile lubricants. Recent financial crisis also had a bad impact on the sales of the company. Due to higher risk and depriving economic conditions, management has decided to be strict towards recoveries of debts. Also it has been decided that provision for irrecoverable debts should maintained at the higher rate i.e. 10% (instead of 6% last year). If the total debtors of the company amount to 350,000 and the opening provision is 42,000 then calculate this year’s provision and the amount to be transferred to profit and loss account.

8 Thermite PLC manufactures heating appliances. appliances. It sold 15,600, 25,400 and 21,900 worth of goods to Mr. Hot, Mr. Heat and Mr. Summer. During the year Mr. Heat and Mr. Summer returned 1,500 and 2,100 worth of goods. Before, the accounting year ended, Mr. Hot paid 5,600, Mr. Heat paid 6,124 and Mr. Summer paid 5,440. Thermite PLC has decided to make a provision for doubtful debts for the first time and has settled a provision rate of 6%. Required: 1. The amount of provision 2. The expense to be recorded in Profit & Loss a/c

9 Freeze PLC manufactures cooling and refrigerating appliances. During the year it sold 50,200 and 6 3,000 worth of goods to Mr. Cold and Mr. Winter. During the year Mr. Cold and Mr. Winter returned 2,300 and 3,660 wor th of goods and before the year ended, Mr. Cold paid back 23,400 and Mr. Winter paid 33,800 towards his account. Freeze PLC maintains the provision at the rate of 8%. If the opening provision is 3,600 then find out: 1. The amount of provision for current year ended 2. The expenses to be recorded in Profit and Loss a/c

10 Sweet n Sour Ltd is engaged in catering business. Its total receivables by the end of the year are 250,000. At year end it was discovered that one of his debtors got bankrupted and will not be able to pay anything. The total he owed was 15,600. If the provision is maintained at 4.5% and the opening provision is 6,500 then: 1. What is the total expense that will be recorded in profit and loss a/c? 2. What is the provision for the year ended?

CHAPTER 11

12

Bad debts and Provisions for Bad debts

Italian Spaghetti Ltd is engaged in event management business. During the year the total turnover of the company was 2 million out of which 60% is still receivable from different clients. During the year two its clients got bankrupted. First client that owed 50,200 is found unable to pay anything whereas, the second paid just 40% of total debt owed which amounted to 124,000. If the provision for doubtful debt is maintained at 15% of o f total receivables and the opening provision is 220,300 then: What is the increase or decrease in the provision for this year?

12 Gingerbread cuisines’ accountant is calculating provision for this year. He is confused in the  given

situation which is as follows: Total debtors of the company amounted to 260,000. Provision for doubtful debt is made at 5.5%. By the end of the year it was found that liquidity of one of the debtors has worsened and it is expected that he will not be able to pay 55% of his total debt towards the company. Total debt owed by him is 33,500. Being an accounts manager, assist the accountant in calculating provision by calculating: 1. Closing provision for this year 2. Total provision expense (adjustment) recorded in profit and loss a/c if the opening balance of provision a/c is 50,000

13 Éclair Foods is preparing its financial statements. Total debtors for this period ended are found to be 550,000. During the year one customer got liquidated and only 20% of this total debt i.e. 43,000 was recovered. No adjustment has been made yet to record this. Also, investigations revealed that two of of the debtor’s are not paying since long and recovery team is of the view that one customer who owes

33,000 will pay just 10,000 and the t he second will return only 45% of his total owing i.e. 42,000. The provision for irrecoverable debt is maintained at 12% of the total debtors. Required: 1. Provision to be recorded in P&L a/c and SoFP?

CHAPTER 14

12

Bad debts and Provisions for Bad debts

Crystal clear is preparing the financial statements for last quarter. The debtors raised so far 300,000. After the preparation of trial balance, it was discovered that one of the customer has bankrupted who owed 25,000. This has not been adjusted yet. Also, another debtor made the payment of 15,600 which has not been treated. Provision for discount is maintained at 2.5% and provision for bad debts is maintained at 5%. If the opening balance of provision for discount and doubtful debts is 7,000 and 5,400 respectively then calculate: 1. 2. 3. 4.

This period’s provision for discount

This period ended provision for doubtful debts Net expense to be recorded in the income statement Net debtors to be reported r eported in SoFP (after adjusting all the provisions)

CHAPTER

13

Provisions and Contingencies

Chapter 13 content and title

13

CHAPTER

Provisions and Contingencies

CHAPTER

13

Provisions and Contingencies

Questions for this chapter will be available availab le soon

CHAPTER

14

Control Accounts

Chapter 14 title and content

14

CHAPTER

Control  Accounts

CHAPTER

14

Control Accounts

Questions for this chapter will be available availab le soon

CHAPTER

15

Bank Reconciliation Statements

Chapter 15 content and title

15

CHAPTER

Bank Reconciliation Statements

CHAPTER

15

Bank Reconciliation Statements

Questions for this chapter will be available availab le soon

CHAPTER

16

Rectification of Errors

Chapter 16 content and title

16

CHAPTER

Rectification of Errors

CHAPTER

16

Rectification of Errors

Questions for this chapter will be available availab le soon

CHAPTER

17

Financial Statements – Sole Traders

Chapter 17 content and title

17

CHAPTER

Financial Statements

(Sole Traders)

CHAPTER

17

Financial Statements – Sole Traders

Questions for this chapter will be available availab le soon

CHAPTER

18

Financial Statements – Partnerships

Chapter 18 content and title

18

CHAPTER

Financial Statements

(Partnerships)

CHAPTER

18

Financial Statements – Partnerships

Questions for this chapter will be available availab le soon

CHAPTER

19

Events after Reporting date

Chapter 19 title and content

19

CHAPTER

Events after Reporting Date

CHAPTER

19

Events after Reporting date

Questions for this chapter will be available availab le soon

CHAPTER

20

Financial Statements – Companies

Chapter 20 title and content

20

CHAPTER

Financial Statements

(Companies)

CHAPTER

20

Financial Statements – Companies

Questions for this chapter will be available availab le soon

CHAPTER

21

Incomplete Records

Chapter 21 title and content

21

CHAPTER

Incomplete Records

CHAPTER

21

Incomplete Records

Questions for this chapter will be available availab le soon

CHAPTER

22

Statements of Cash Flows

Chapter 22 content and title

22

CHAPTER

Statements of Cash Flows

CHAPTER

22

Statements of Cash Flows

Questions for this chapter will be available availab le soon