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1

How does a trader use the information provided by financial statements?

5. Preparation of financial statements  →  5.1. Sole traders

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2

The balances remaining on the books of a business after the preparation of the income statement included the following: $ 10 000 3 300 4 650 8 000 2 000 loan from XYY Finance wages due rent prepaid trade receivables trade payables motor vehicles provision for depreciation of motor vehicles D $17 270 C $15 270 What was the total of the liabilities?

1. The fundamentals of accounting  →  1.2. The accounting equation

5. Preparation of financial statements  →  5.6. Incomplete records

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3

Jameel’s financial year ends on 31 December. On 1 January 2021 he brought down a debit balance on his stationery account. What does this balance represent?

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

3. Verification of accounting records  →  3.1. The trial balance

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4

Alex issued credit notes in August and entered them in the correct book of prime entry. How was the total of this book of prime entry recorded in the nominal ledger at the end of August?

2. Sources and recording of data  →  2.3. Books of prime entry

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5

Which business documents are used as sources of information to make entries in the cash book?

2. Sources and recording of data  →  2.2. Business documents

4. Accounting procedures  →  4.3. Other payables and other receivables

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6

What is the double entry for recording a cheque payment to a credit supplier?

2. Sources and recording of data  →  2.1. The double entry system of book-keeping

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7

A book-keeper made two errors which cancelled each other out. Which type of error did he make?

3. Verification of accounting records  →  3.1. The trial balance

3. Verification of accounting records  →  3.2. Correction of errors

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8

The totals of a trial balance did not agree and $200 was debited to a suspense account. The book-keeper then checked the books and found the following two errors. 1. A sales invoice for $700 had been recorded in the sales journal as $770. 2. The sales journal had been totalled incorrectly. What error was made when the sales journal was totalled?

3. Verification of accounting records  →  3.2. Correction of errors

3. Verification of accounting records  →  3.1. The trial balance

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9

A trader took some goods from the business for his own use. He credited the purchases account with the cost price of the goods, $200, and credited the sales account with the selling price, $300. Which entries did he make to correct the error?

3. Verification of accounting records  →  3.2. Correction of errors

2. Sources and recording of data  →  2.1. The double entry system of book-keeping

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10

What would result in the cash book balance being lower than the bank statement balance?

3. Verification of accounting records  →  3.3. Bank reconciliation

2. Sources and recording of data  →  2.3. Books of prime entry

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11

The bank statement of a business showed a credit balance of $280 on 31 December. At that date there were unpresented cheques of $312. A standing order of $20 had been incorrectly entered as $22 on the bank statement. What was the balance in the bank column of the cash book on 31 December?

3. Verification of accounting records  →  3.3. Bank reconciliation

2. Sources and recording of data  →  2.3. Books of prime entry

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12

A business keeps a complete set of books of accounts. What is not used as a source of information for making entries in control accounts?

3. Verification of accounting records  →  3.4. Control accounts

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13

Which item would not appear in the purchases ledger control account?

3. Verification of accounting records  →  3.4. Control accounts

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14

The cost of repairs to machinery was debited to the machinery account. What was the effect of this error?

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

5. Preparation of financial statements  →  5.6. Incomplete records

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15

Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on the reducing balance basis. Which journal entry records the depreciation for the year ended 31 December 2019?

4. Accounting procedures  →  4.2. Accounting for depreciation and disposal of non-current assets

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16

A trader sold one of his vehicles. What is the journal entry to remove the total depreciation on the vehicle sold?

4. Accounting procedures  →  4.2. Accounting for depreciation and disposal of non-current assets

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17

Why is it important to match costs and revenues?

4. Accounting procedures  →  4.3. Other payables and other receivables

1. The fundamentals of accounting  →  1.1. The purpose of accounting

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

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18

Devendra prepared the following journal entry. credit $ debit $ irrecoverable debts Tobias Which statement is correct?

4. Accounting procedures  →  4.4. Irrecoverable debts and provision for doubtful debts

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19

Alex purchased goods costing $1000. She planned to resell the goods at a mark-up rate of 25%. These goods were unsold at the year end and were found to be damaged. Alex estimated that they could be sold for $600. What value should be shown...

4. Accounting procedures  →  4.5. Valuation of inventory

5. Preparation of financial statements  →  5.6. Incomplete records

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20

'Unlimited liability’ is one of the disadvantages of operating as a sole trader. What is the correct explanation of unlimited liability?

5. Preparation of financial statements  →  5.1. Sole traders

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21

Which item is a current asset?

4. Accounting procedures  →  4.3. Other payables and other receivables

5. Preparation of financial statements  →  5.5. Manufacturing accounts

4. Accounting procedures  →  4.2. Accounting for depreciation and disposal of non-current assets

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22

Where is interest on drawings entered in the accounting records of a partnership business?

5. Preparation of financial statements  →  5.2. Partnerships

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23

T Limited was formed on 1 April 2019. A total of 220 000 shares of $2 each were issued and shareholders were asked to pay 75% of the share value immediately and 25% on 1 April 2020. By 1 June 2019 holders of 190 000 shares had paid the amount due. What was the paid up capital on 1 June 2019?

5. Preparation of financial statements  →  5.3. Limited companies

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

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24

Which items would appear in the statement of changes in equity of X Limited for the year ended 30 June 2020?

5. Preparation of financial statements  →  5.3. Limited companies

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25

A company’s financial year ends on 31 March. On 31 March 2021 trade receivables were $45 000. On 31 March 2022 trade receivables were $41 000. An irrecoverable debt of $1000 is yet to be written off at 31 March 2022. The provision for doubtful debts is to be maintained at 5%. What is the effect of the irrecoverable debt and the adjustment to the provision for doubtful debts on the profit for the year ended 31 March 2022?

4. Accounting procedures  →  4.4. Irrecoverable debts and provision for doubtful debts

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26

A club received subscriptions from members totalling $12 600 in the year ended 30 April 2019. The following information was available. at 30 April 2019 $ at 30 April 2018 $ – subscriptions paid in advance subscriptions in arrears Which amount appeared in the income and expenditure account for subscriptions for the year ended 30 April 2019?

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

5. Preparation of financial statements  →  5.4. Clubs and societies

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27

Which statements about the accumulated fund of a society are correct?

5. Preparation of financial statements  →  5.4. Clubs and societies

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28

A manufacturing company provided the following information. $ 186 000 75 000 45 000 32 000 24 000 18 000 cost of raw materials direct wages machinery depreciation factory supervisor’s salary factory rent machinery repairs What was the prime cost of manufacturing?

5. Preparation of financial statements  →  5.5. Manufacturing accounts

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29

Sam’s work in progress was $6500 at the start of the year and $11 200 at the end of the year. When Sam prepared his manufacturing account, he forgot to make the adjustment for work in progress. How did this omission affect the cost of production and the gross profit?

5. Preparation of financial statements  →  5.5. Manufacturing accounts

4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts

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30

Roshan’s sales for his first year of trading were $55 000. His gross profit margin was 20%. The closing inventory was $3200. D $47 200 C $44 450 What were the purchases for the year?

4. Accounting procedures  →  4.5. Valuation of inventory

5. Preparation of financial statements  →  5.6. Incomplete records

6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios

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31

Miriam does not maintain a full set of accounting records. Only the purchases for the year and asset and liability values at the year end are known. Which financial statements can be prepared using this information?

5. Preparation of financial statements  →  5.6. Incomplete records

5. Preparation of financial statements  →  5.3. Limited companies

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32

Abhinav provided the following information. year ended 31 December 2020 $ year ended 31 December 2019 $ 124 000 120 000 112 500 115 500 purchases cost of sales $ inventory January 2019 31 December 2019 31 December 2020 What was the rate of inventory turnover for the year ended 31 December 2020?

4. Accounting procedures  →  4.5. Valuation of inventory

6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios

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33

Miranda’s gross margin fell from 25% in year 1 to 15% in year 2. What may have caused this?

5. Preparation of financial statements  →  5.6. Incomplete records

6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios

4. Accounting procedures  →  4.5. Valuation of inventory

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34

Ralph wants to compare the accounting ratios for his business with the accounting ratios of his brother’s business. What would prevent Ralph from making a meaningful comparison?

6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios

6. Analysis and interpretation  →  6.3. Inter-firm comparison

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35

Which statement correctly describes the principle of realisation?

5. Preparation of financial statements  →  5.1. Sole traders

1. The fundamentals of accounting  →  1.1. The purpose of accounting

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