Homework 7 (Answer)

1	D	21	C	41	B	61	D
2	C	22	B	42	A	62	A
3	D	23	C	43	B	63	B
4	B	24	A	44	C	64	C
5	C	25	C	45	A	65	D
6	D	26	A	46	B	66	D
7	D	27	B	47	A	67	D
8	C	28	C	48	A	68	D
9	C	29	B	49	D	69	A
10	B	30	C	50	A	70	D
11	D	31	D	51	C	71	C
12	D	32	C	52	A	72	C
13	A	33	D	53	B	73	C
14	C	34	A	54	B	74	A
15	C	35	C	55	D	75	D
16	D	36	C	56	D	76	A
17	C	37	D	57	B	77	D
18	B	38	D	58	C	78	D
19	C	39	A	59	D	79	B
20	D	40	B	60	D	80	D

Homework 7

1

A fire in the offices of Lewis has destroyed most of the accounting records. The following information has been retrieved:                                                                                 $ Sales                                                                      630,000 Opening inventory                                          24,300 Closing inventory                                             32,750 Opening payables                                            29,780 Closing payables                                               34,600 Gross profit for the period should represent a mark up of 40%. What was the total cash paid to suppliers in the year?

A

$463,270

B

$381,630

C

$391,270

D

$453,630

2

Pioneer’s annual inventory count took place on 6 January 20X6. The value of inventory on this date was $32,780. During the period from 31 December 20X5 to 6 January 20X6, the following events occurred: Sales                                                  $8,600 Purchases                                       $4,200 The value of inventory at 31 December 20X5 was $34,600. What is the gross margin of Pioneer?

A

70%

B

72%

C

30%

D

43%

3

Harry has a mark up of 25% on cost of sales. The following information is also available:                                                                                 $ Receivables at start of year                         6,340 Receivables at end of year                           5,200 Cash at start of year                                        620 Cash at end of year                                         500 Total cash payments                                       16,780 The only receipts during the year consisted of cash and cheques received from customers. What is the gross profit for the year?

A

$3,880

B

$3,152

C

$3,560

D

$3,104

4

During September, Edel had sales of $148,000, which made a gross profit of $40,000. Purchases amounted to $100,000 and opening inventory was $34,000. The value of closing inventory was:

A

$24,000

B

$26,000

C

$42,000

D

$54,000

5

The gross profit mark-up is 40% where:

A

sales are $120,000 and gross profit is $48,000

B

sales are $120,000 and cost of sales is $72,000

C

sales are $100,800 and cost of sales is $72,000

D

sales are $100,800 and cost of sales is $60,480

6

From the following information, calculate the value of purchases:                                                                                 $ Opening trade payables                                142,600 Cash paid                                                             542,300 Discounts received                                          13,200 Goods returned                                               27,500 Closing trade payables                                   137,800

A

$302,600

B

$506,400

C

$523,200

D

$578,200

7

You are given the following information: Receivables at 1 January 20X3                                                                                                    $10,000 Receivables at 31 December 20X3                                                                                            $9,000 Total receipts during 20X3 (including cash sales of $5,000)                                             $85,000 Sales during 20X3 amount to:

A

$81,000

B

$86,000

C

$79,000

D

$84,000

8

P is a sole proprietor whose accounting records are incomplete. All the sales are cash sales and during the year $50,000 was banked, including $5,000 from the sale of a business car. He paid $12,000 wages in cash from the till and withdrew $2,000 per month as drawings. The cash in the till at the beginning and end of the year was $300 and $400 respectively. What were the sales for the year?

A

$80,900

B

$81,000

C

$81,100

D

$86,100

9

Many of the records of G have been destroyed by fire. The following information is available for the period under review.

i

Sales totalled $480,000.

ii

Inventory at cost was opening $36,420, closing $40,680.

iii

Trade payables were opening $29,590, closing $33,875.

iv

Gross profit for the period should represent a mark-up on cost of 50%.

What was the total for the period of cash paid to suppliers?

A

$239,975

B

$315,715

C

$319,975

D

$328,545

10

Pike runs an angling shop in the south of Spain. He spends all of his spare time fishing and consequently has kept no accounting records in the year ended 31 August 20X5. He knows that he has taken $6,800 cash out of his business during the year plus bait which cost the business $250. He can also remember putting his $20,000 winnings on the Spanish lottery into the business in March. Pike knows that at the last year end his business had assets of $40,000 and liabilities of $14,600. He has also calculated that the assets of the business at 31 August 20X5 are worth $56,000, and the liabilities $18,750. What profit or loss has Pike made in the year?

A

$1,100 profit

B

$1,100 loss

C

$1,350 profit

D

$1,350 loss

1

Ives makes and sells hand made pottery. He keeps all finished items in a storeroom at the back of his workshop on the banks of the River Flow. In August 20X5, freak weather conditions led to extensive flooding, and Ives lost pottery which had cost $3,400 and had a retail value of $5,750. Ives was insured for loss of inventory due to flooding. What double entry is required to record the loss of inventory?

Dr

Cr

A

Expense (IS) $5,750

Cost of sales (IS) $5,750

B

Current asset (B/S) $5,750

Cost of sales (IS) $5,750

C

Expense (IS) $3,400

Cost of sales (IS) $3,400

D

Current asset (B/S) $3,400

Cost of sales (IS) $3,400

12

Karen and Jamie are in partnership running a training consultancy. In the year ended 30 September 20X6, the business made a profit of $180,000. The partnership agreement states that Karen is to receive a salary of $25,000 and the remaining profit is shared in the ratio 3:5. During the year, Karen took $20,000 in drawings and Jamie $60,000. What amount should be credited to Karen’s current account for the year?

A

$20,000

B

$58,125

C

$63,125

D

$83,125

13

George, Freddie and Julian are in partnership running an adventure holidays business. During the year ended 30 September 20X6, the business made a profit of $250,000. The partnership agreement states that partners receive 5% interest on their capital balance at the start of the year and then share the profits in the ratio 1:2:3. Other information relating to the partnership is as follows:

Capital b/f Current account b/f Cash withdraw from business

George $ 100,000 15,600 Cr 12,800

Freddie $ 110,000 31,200 Cr 25,000

Julian $ 95,000 13,000 Dr 34,000

On 31 January 20X6, Julian paid an income tax bill of $12,400 from the business bank account. What is the balance on Julian’s current account at the year end?

A

$62,725 Cr

B

$75,125 Cr

C

$88,725 Cr

D

$101,125 Cr

184

What is the correct treatment of interest charged on partners’ drawings in preparing a partnership’s financial statements?

A

Credited as income in the income statement

B

Debited as an expense in the income statement

C

Added to total profit in calculating partners’ profit shares

15

Jeremy and Nicky are in partnership. They share profits equally after charging a salary of $40,000 per year for Jeremy and interest on capital at 5% per year. At 1 January 20X6 their capital balances were: Jeremy                         $200,000 Nicky                             $100,000 On 1 July 20X6, Nicky introduced a further $100,000 capital and Jeremy’s salary was discontinued. The partnership profit for the year ended 31 December 20X6 was $337,500. What was Jeremy’s total profit share for the year ended 31 December 20X6?

A

$182,500

B

$178,750

C

$180,000

D

$190,000

16

Albus and Brio are in partnership, sharing profits in the ratio 3:2 and preparing their accounts to 30 June each year. On 1 January 20X6, Corbin joined the partnership and the profit sharing ratio became 4:3:3 (A:B:C). Profits for the year ended 30 June 20X6 were:                                                                                 $ Six months ended 31.12.X5                         300,000 Six months ended 30.6.X6                            450,000 An irrecoverable debt of $50,000 was written off in the six months ended 30 June X6 in computing the $450,000 profit. It was agreed that this should be borne by Albus and Brio only, in their original profit sharing ratios. What is Albus’s total profit share for the year ended 30 June 20X6?

A

$330,000

B

$310,000

C

$340,000

D

$350,000

17

Which of the following is NOT true of a partnership?

A

Partners have joint and several liability

B

Partners have unlimited liability

C

Each partner is liable only for those losses which arise from contracts negotiated by themselves

D

Partners are not protected from the creditors of a business

18

Which of the following are usually covered by a partnership agreement?

1

Arrangements for dissolution of partnership

2

How profit is to be shared amongst partners

3

Preparation and audit of accounts

4

List of approved suppliers

A

All 4

B

1, 2 and 3

C

1 and 2

D

2 only

19

Lewis and Hamilton are in partnership, trading as ‘Grease lightning mechanics’. They have made a profit of $14,750 in the year ended 31 May 20X5. The partnership agreement provides for a salary of $12,000 to Lewis and interest on capital at 3%. Remaining profits are shared in the ratio 1:4. At the start of the year, Lewis had invested $10,000 in the business and Hamilton $20,000. What share of profit does Hamilton receive?

A

$370

B

$1,480

C

$2,080

D

$12,670

20

Woody and Buzz are in partnership running a toyshop. They have not had a successful year and have reported a loss of $56,000 in the year ended 30 September 20X8. Their partnership agreement states the following: ·        A salary of $9,000 for Woody and $12,000 for Buzz. ·        Interest on drawings above $10,000 in the year at 5%. ·        Interest on capital at 10%. ·        The balance of the profits to be shared equally. Woody has invested $30,000 in the business and Buzz $15,000. Woody took $14,000 drawings on 1 July 20X8 and Buzz took $8,000 on 1 April 20X8. What is Woody’s share of the loss?

A

$28,738 loss

B

$28,800 loss

C

$28,825 loss

D

$28,775 loss

21

Pat and Ajay and Meera are in partnership. The terms of their agreement are as follows: ·        Interest on capital at 4%. ·        Ajay to receive a salary of $16,000. ·        Profit share 5:3:2. ·        Guaranteed minimum profit share of $6,000 for Meera. At the start of the year, capital balances were as follows: Pat                                 $14,000 Ajay                               $10,000 Meera                          $8,000 On 1 September 20X4, Ajay put an extra $5,000 into the business. In the year ended 28 February 20X5, the business made a profit of $42,000 What amount should be credited to Ajay’s current account for the year in respect of profits?

A

$23,886

B

$23,508

C

$23,602.50

D

$23,817.96

22

Fleurie, Beaune and Argento are in partnership as wine merchants. The details of their partnership agreement are as follows: ·        Fleurie and Beaune are entitled to a salary of $15,000. ·        Interest on capital is paid at 6%. ·        Remaining profits are shared in the ratio 3:2:4. Beaune has also made a loan to the business of $20,000 on 1 July 20X8. This attracts interest at a rate of 8%. Any accrued loan interest is to be adjusted through the current account. At 1 October 20X7, balances stood at:                                         Current                         Capital Fleurie                          $23,000 Cr                                       $18,000 Beaune                        $10,000 Dr                                       $20,000 Argento                       $12,000 Dr                                       $30,000 For the year ended 30 September 20X8, the business made a profit of $76,393 (before loan interest). What is the balance on Beaune’s current account at the end of the year?

A

$35,114 Cr

B

$15,914 Cr

C

$15,114 Cr

D

$35,914 Cr

23

Orla, Anya and Chloe run a ladies’ accessories shop. They have been in partnership for many years, splitting profits in the ratio 3:2:5. They decide to admit Lulu as a partner on 1 January 20X6, at which date goodwill is valued at $30,000. After the admission of Lulu, profits will be split 4:3:6:2. On 1 January 20X6 (prior to accounting for the admission), capital and current account balances were as follows:                                         Capital      Current                                         $                                      $ Orla                                50,000                           24,300 Anya                              40,000                           13,250 Chloe                            70,000                           20,500 After accounting for the admission without using a goodwill account, what is the balance on Orla’s capital and current accounts?

Capital $

Current $

A

50,000

23,300

B

50,000

25,300

C

51,000

24,300

D

49,000

24,300

24

Macy, Bloomingdale and Saks have been in partnership for several years, sharing profits in the ratio 2:1:4. Macy would now like to take a step back from the business and to reflect her lesser involvement, and Bloomingdale’s greater involvement, the profit sharing ratio is to be changed to 1:3:5. The value of the goodwill is $63,000. What is the impact of the transaction on Bloomingdale’s total capital (current and capital accounts) balance as a result of the transaction if no goodwill account is maintained?

A

$12,000 debit

B

$12,000 credit

C

$9,000 credit

D

$9,000 debit

25

Odd and Job are in partnership and share profits in the ratio 2:3. On 1 June 20X7, a new partner, Mann joins the business, introducing $12,000 capital. The following also take place on this date: ·        Goodwill is valued at $40,000. ·        The profit share ratio is revised to 3:6:1. ·        Property is revalued upwards by $35,000. If Odd’s capital account had a balance of $45,000 credit prior to adjusting the accounts, what is the balance after adjustment, assuming that a goodwill account is used?

A

$61,000 Cr

B

$63,000 Cr

C

$75,000 Cr

D

$49,000 Cr

26

Which of the following are true?

1

When there is a change in the structure of a partnership, the assets of the business are normally revalued

2

Partnership goodwill can be calculated as a multiple of the previous year’s profit

3

Partnership goodwill is only considered when a new partner joins or an old partner leaves the partnership.

A

1 and 2

B

1 and 3

C

2 and 3

D

All 3

27

Ami, Kami and Shati have been in partnership for several years. Their total profit share at the end of the year has been established as follows:                                         $ Ami                                18,000 Kami                              20,000 Shati                              25,000 Their profit share for the year is 1:2:3. Ami is guaranteed a minimum profit share of $21,000. What is the profit share for all the partners after adjusting for the guaranteed minimum share?

Ami $

Kami $

Shati $

A

21,000

19,000

26,500

B

21,000

18,800

23,200

C

21,000

20,000

25,000

D

21,000

21,200

26,800

28

The following information is relevant to Wimbledon:                                                                                 $ Opening inventory                                          12,500 Closing inventory                                             17,900 Purchases                                                           199,000 Distribution costs                                             35,600 Administrative expenses                              78,800 Audit fee                                                                                 15,200 Carriage in                                                           3,500 Carriage out                                                       7,700 Depreciation                                                      40,000 Depreciation is to be split in the ratio 30:70 between the office and factory. What is the cost of sales?

A

$233,600

B

$221,600

C

$225,100

D

$237,100

29

Brown has $100,000 50c shares and $400,000 8% irredeemable preference shares in issue. A dividend of 3c per ordinary share and half of the preference dividend were paid during the year. Which of the following statements are true?

1

An ordinary dividend of $3,000 is paid during the year.

2

A preference dividend of $16,000 is accrued at the year end.

A

1 only

B

2 only

C

Neither 1 nor 2

D

Both 1 and 2

30

At 1 October 20X6, Ozber’s capital was structured as follows:                                                                                 $ Ordinary shares of 25c                                   100,000 Share premium                                                 30,000 On 10 January 20X7, in order to raise finance for expansion, there was a 1 for 4 rights issue at $1.15. The issue was fully taken up. This was followed by a 1 for 10 bonus issue on 1 June 20X7. What is the balance on the share premium account after these transactions?

A

$17,500

B

$21,250

C

$107,500

D

$120,000

31

Where in a company’s financial statements complying with International accounting standards, should you find dividends paid?

1

Statement of comprehensive income

2

Statement of financial position

3

Statement of cash flows.

4

Statement of changes in equity

A

1 and 3

B

2 and 3

C

1 and 4

D

3 and 4

32

Where in the financial statements should tax on profit for the current period, and unrealised surplus on revaluation of properties, be separately disclosed?

Tax on profit for the current period

Unrealised surplus on revaluation of properties

A

Statement of comprehensive income

Statement of cash flows

B

Statement of changes in equity

Statement of comprehensive income

C

Statement of comprehensive income

Statement of comprehensive income

33

The following information is available about a company’s dividends:

Sept 20X5

Final dividend for the year ended 30 June 20X5 paid (declared August 20X5)

$100,000

March 20X6

Interim dividend for the year ended 30 June 20X6 paid

$40,000

Sept 20X6

Final dividend for the year ended 30 June 20X6 paid (declared August 20X6)

$120,000

What figures, if any, should be disclosed in the company’s statement of comprehensive income for the year ended 30 June 20X6 and its statement of financial position at that date?

Statement of comprehensive income

Statement of financial position

A

$160,000 deduction

$120,000

B

$140,000 deduction

Nil

C

Nil

$120,000

D

Nil

Nil

34

Which of the following statements are correct?

1

A company might make a rights issue if it wished to raise more equity capital.

2

A rights issue might increase the share premium account whereas a bonus issue is likely to reduce it.

3

A rights issue will always increase the number of shareholders in a company whereas a bonus issue will not.

4

A bonus issue will result in the market value of each share increasing

A

1 and 2

B

1 and 3

C

2 and 3

D

2 and 4

35

Florabundi, a limited liability company, shows an overprovision of $3,400 on its tax liability account at the end of the year ended 31 December 20X8 before accounting for that year’s tax charge. It estimates tax on profits for the year to be $67,900. What amounts should be shown in the financial statements for the year ended 31 December 20X8 in respect of tax?

Statement of comprehensive income

Statement of financial position

A

$67,900 tax charge

$67,900 tax payable

B

$64,500 tax charge

$64,500 tax payable

C

$64,500 tax charge

$67,900 tax payable

D

$71,300 tax charge

$67,900 tax payable

36

Classify the following assets and liabilities as current or non-current in Albatross, a limited liability company’s accounts:

1

A sale has been made on credit to a customer. They have agreed to terms stating that payment is due in 12 months time.

2

A bank overdraft facility of $30,000 is available under an agreement with the bank which extends 2 years.

3

A company has bought a small number of shares in another company which it intends to trade

4

A bank loan has been taken out with a repayment date 5 years hence.

Current

Non-current

A

2 and3

1 and 4

B

3 only

1, 2 and 4

C

1, 2 and 3

4

D

1 and 3

2 and 4

37

Extracts from the accounting records of Andratx, a company, relating to the year ended 31 December 20X6 are as follows: Revaluation surplus                                                                                                                                            $230,000 Ordinary interim dividend paid                                                                                                                      $12,000 Profit before tax                                                                                                                                                  $178,000 Estimated tax liability for year                                                                                                                        $45,000 8% $1 Preference shares                                                                                                                                  $100,000 Underprovision for tax in previous year                                                                                                     $5,600 Proceeds of issue of 2,000 $1 ordinary Shares                                                                                         $5,000 Final ordinary dividend proposed                                                                                                                 $30,000 What is the total change reported in the statement of changes in equity for the year?

A

$312,400

B

$356,000

C

$348,000

D

$342,400

38

Which of the following statements are true of a preference share?

1

They carry voting rights.

2

Their dividend is paid out in priority to an ordinary dividend.

3

Their dividend is related to profits.

A

All 3

B

1 and 2

C

2 and 3

D

2 only

39

Bangeroo, a company, issues 100,000 3% $1 redeemable preference shares during the year ended 30 September 20X8 at 98c per share. What is the correct entry to account for this transaction?

Debit $

Credit $

A

Cash

98,000

Liability

98,000

B

Cash Share premium

98,000 2,000

Share capital

100,000

C

Cash

98,000

Share capital

98,000

D

Cash Statement of comprehensive income

98,000 2,000

Share capital

100,000

40

The nominal value paid by the shareholder plus further amounts that they have agreed to pay in the future’ best describes:

A

Paid up share capital

B

Called up share capital

C

Authorised share capital

D

Issued share capital

41

Argonaut, a company, issues $400,000 12% loan notes for $380,000 on 1 August 20X6. What accounting entries are required in the year ended 30 September 20X6?

A

Dr               Cash Cr                Non-current liabilities And Dr               Interest Cr                Current liabilities

$400,000 $400,000 $7,600 $7,600

B

Dr               Cash Cr                Non-current liabilities And Dr               Interest Cr                Current liabilities

$380,000 $380,000 $8,000 $8,000

C

Dr               Cash Cr                Non-current liabilities And Dr               Interest Cr                Current liabilities

$400,000 $400,000 $8,000 $8,000

D

Dr               Cash Cr                Non-current liabilities And Dr               Interest Cr                Current liabilities

$380,000 $380,000 $7,600 $7,600

42

Which of the following are advantages of a bonus issue?

1

It is the cheapest way for a company to raise finance through the issuing of shares.

2

It makes the shares in the company more marketable.

3

The total reserves of the business will increase.

4

Issued share capital is brought more into line with assets employed in the company

A

2 and 4

B

1 and 2

C

3 and 4

D

1 and 3

43

The share premium and revaluation reserves are revenue reserves, however the accumulated profits and general reserves are capital reserves. The above statement is:

A

True

B

False

44

Ribblesdale prepares its accounts to a 30 September year end. Its accounts for the year ended 30 September 20X8 are approved on 12 January 20X9 and issued on 20 February 20X9. Which of the following is an adjusting event after the reporting period?

A

A flood destroys inventory which cost $1,700 on 3 December 20X8.

B

A credit customer with an outstanding balance at the year end was declared bankrupt on 20 January 20X9.

C

Inventory valued at a cost of $800 in the year end accounts was sold for $650 on 11 January 20X9.

D

An ordinary dividend of 4c per share was declared on 1 December 20X8.

45

Which of the following requires a provision per IAS 37?

1

A retail outlet has a policy of providing refunds over and above the statutory requirement to do so. This policy is well publicised.

2

A customer has made a legal claim against a company, claiming that faulty goods sold to them caused damage to   their property. The company’s lawyers have advised that the claim will possibly succeed.

A

1 only

B

2 only

C

1 and 2

D

Neither

46

How should the purchase of a right to manufacture a patented product for the next ten years be accounted for?

A

Tangible non-current asset

B

Intangible non-current asset

C

Current asset

47

An intangible asset is:

A

an asset with no physical substance

B

an asset generated internally by a business

C

a purchased asset which has no physical substance

D

an asset which can not be used to generate profits in the business

48

Which of the following statements about the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are correct?

1

A contingent asset should be disclosed by note if an inflow of economic benefits is probable.

2

No disclosure of a contingent liability is required if the possibility of a transfer of economic benefits arising is remote

3

Contingent assets must not be recognised in financial statements unless an inflow of economic benefits is virtually certain to arise

A

All three statements are correct

B

1 and 2 only

C

1 and 3 only

D

2 and 3 only

49

Which of the following statements are correct according to IAS 10 Events After the Reporting Period?

1

Details of all adjusting events must be disclosed by note to the financial statements.

2

A material loss arising from the sale, after the reporting date of inventory valued at cost at the statement of financial position date must be reflected in the financial statements.

3

If the market value of investments falls materially after the reporting date, the details must be disclosed by note.

4

Events after the reporting date are those that occur between the statement of financial position date and the date when the financial statements are approved.

A

1 and 2 only

B

1, 3 and 4

C

2 and 3 only

D

2, 3 and 4

50

The following items have to be considered in finalising the financial statements of Quidditch, a limited liability company:

1

The company gives warranties on its products. The company’s statistics show that about 5% of sales give rise to a warranty claim.

2

The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the guarantee is assessed as possible.

What is the correct action to be taken in the financial statements for these items?

Create a provision

Disclose by note only

No action

A

1

2

B

1

2

C

1 and 2

D

1 and 2

51

Geranium is engaged in the following research and development projects:

Project 1

It is applying a new technology to the production of heat resistant fabric. The project is intended to last for a further 18 months after which the fabric will be used in the production of uniforms for the emergency services.

Project 2

It is considering whether a particular substance can be used as an appetite suppressant. If this is the case, it is expected be sold worldwide in chemists and pharmacies.

Project 3

It is developing a material for use in kitchens which is self cleaning and germ resistant. A competitor is currently developing a similar material and for this reason Geranium are unsure whether their project will be completed.

The costs associated with which of these projects can be capitalised?

A

Projects 1, 2 and 3

B

Projects 1 and 2

C

Project 1 only

D

Projects 1 and 3

52

Merlot, a limited liability company, is engaged in a number of research and development projects:

Project A

A project to investigate the properties of a chemical compound

Project B

A project to develop a new process which will save time in the production of widgets. This project was started on 1 January 20X5 and met the capitalisation criteria on 31 August 20X5.

Project C

A development project which was completed on 30 June 20X5. Related costs in the statement of financial position at the start of the year were $290,000. Production and sales of the new product commenced on 1 September and are expected to last 36 months.

Costs for the year ended 31 December 20X5 are as follows:                                                                                                     $ Project A                                                                                                     34,000 Project B costs to 31 August                                            78,870 Project B costs from 31 August                                      27,800 Project C costs to 30 June                                                 19,800 What amount is expensed to the statement of comprehensive income in respect of these projects in the year ended 31 December 20X5?

A

$147,292

B

$68,422

C

$66,222

D

$145,092

53

Romulus, a company, makes two changes to accounting practice at the end of 20X7:

1

It changes the way in which it depreciates motor vehicles from 20% straight line to 25% reducing balance.

2

It starts to capitalise interest costs where allowed in accordance with the relevant standard. Previously it had adopted a policy of writing off all interest costs to the statement of comprehensive income.

What is the correct way to account for these two changes?

1

2

A

Do not adjust opening reserves

Do not adjust opening reserves

B

Do not adjust opening reserves

Adjust opening reserves

C

Adjust opening reserves

Adjust opening reserves

D

Adjust opening reserves

Do not adjust opening reserves

54

Details of two of Clooney’s transactions in the year ended 31 August 20X7 are as follows:

1

It has sold a food processing machine to a customer, Pitt. The machine has been delivered and Clooney will undertake specialist installation within the next month.

2

It has sold a number of food mixers to another customer, Damon, on credit. These have been delivered but Damon has not yet paid

For which of the transactions should revenue be recognised?

A

1 only

B

2 only

C

Both 1 and 2

D

Neither 1 nor 2

55

Which of the following is not a condition that must be met in order to record revenue from the rendering of services?

A

The amount can be measured reliably

B

Stage of completion of the work can be measured reliably

C

Costs incurred for the transaction can be measured reliably

D

The seller has passed on effective control of the service being performed

56

Extracts from the accounts of Deuce showed balances as follows:                                                             20X9                              20X8 $1 Share capital                             300,000                         120,000 Share premium                             260,000                         100,000 A bonus issue of 1 share for every 12 held at the 20X8 year end occurred during the year and loan notes of $300,000 were issued at par. Interest of $12,000 was paid during the year. What is the net cash inflow from financing activities?

A

$480,000

B

$605,000

C

$617,000

D

$640,000

57

Nobus is producing its statement of cash flows for the year ended 31 December 20X5. The accountant has identified the following balances in the financial statements:                                                                                                                         $ Interest accrual b/f                                                                                                     4,900 Interest accrual c/f                                                                                  1,200 Interest payable                                                                                       20,000 Interest receivable                                                                                  13,000 Preference dividend payable b/f                                                      120,000 Preference dividends payable c/f                                                     140,000 Dividends (statement of changes in equity)                                 600,000 What is the net cash flow from investing activities?

A

($10,700)

B

$13,000

C

($603,700)

D

($590,700)

58

Which of the following items could appear as items in a company’s statement of cash flows?

1

A bonus issue of shares

2

A rights issue of shares

3

The revaluation of non-current assets

4

Dividends paid

A

All four items

B

1, 3 and 4 only

C

2 and 4 only

59

A draft statement of cash flows contains the following:                                                                                                                         $m Profit before tax                                                                                      22 Depreciation                                                                                              8 Increase in inventories                                                                          (4) Decrease in receivables                                                                        (3) Increase in payables                                                                               (2)                                                                                                                         –– Net cash inflow from operating activities                                      21                                                                                                                         –– Which of the following corrections needs to be made to the calculations?

1

Depreciation should be deducted, not added

2

Increase in inventories should be added, not deducted

3

Decrease in receivables should be added, not deducted

4

Increase in payables should be added, not deducted

A

1 and 2

B

1 and 3

C

2 and 4

D

3 and 4

60

Where, in a company’s financial statements complying with International accounting standards, should you find the proceeds of non-current assets sold during the period?

A

Statement of cash flows and statement of financial position

B

Statement of changes in equity and statement of financial position

C

Statement of comprehensive income and cash flow statement

D

Statement of cash flows only

61

The figures below have been prepared for inclusion in the statement of cash flows of Bamboo.                                                                                                                                             $ Tax and dividends paid                                                                                              87,566 Increase in payables                                                                                                   13,899 Decrease in inventory                                                                                                8,900 Redemption of loans                                                                                                  300,000 Increase in receivables                                                                                              6,555 Reduction in cash and cash equivalents                                                             3,211 Depreciation charge                                                                                                   10,600 Payments to acquire non-current assets                                                           47,999 Proceeds from sale of non-current assets                                                        13,100 What is the cash generated from operations?

A

$331,688

B

$338,110

C

$425,676

D

$419,254

62

A business’s bank balance increased by $750,000 during its last financial year. During the same period it issued shares, raising $1 million and repaid a loan of $750,000. It purchased non-current assets for $200,000 and charged depreciation of $100,000. Receivables and inventory increased by $575,000. Its profit for the year was:

A

$1,175,000

B

$1,275,000

C

$1,325,000

D

$1,375,000

63

A business had non-current assets with a book value of $50,000 at the start of the financial year. During the year the business sold assets that had cost $4,000 and had been depreciated by $1,500. Depreciation for the year was $9,000. The book value of assets at the end of the financial year was $46,000. How much cash has been invested in noncurrent assets during the year?

A

$4,000

B

$7,500

C

$9,000

D

$10,000

64

A business has made a profit of $8,000 but its bank balance has fallen by $5,000. This could be due to:

A

depreciation of $3,000 and an increase in inventories of $10,000

B

depreciation of $6,000 and the repayment of a loan of $7,000

C

depreciation of $12,000 and the purchase of new non-current assets for $25,000

D

the disposal of a non-current asset for $13,000 less than its book value

65

A company made a profit for the year of $18,750, after accounting for depreciation of $1,250. During the year, non-current assets were purchased for $8,000, receivables increased by $1,000, inventories decreased by $1,800 and payables increased by $350. The increase in cash and bank balances during the year was:

A

$10,650

B

$10,850

C

$12,450

D

$13,150

66

A statement of cash flows prepared in accordance with the indirect method reconciles profit before tax to cash generated from operations. Which of the following lists of items consists only of items that would be ADDED to profit before tax?

A

Decrease in inventory, depreciation, profit on sale of non-current assets

B

Increase in payables, decrease in receivables, profit on sale of non-current assets

C

Loss on sale of non-current assets, depreciation, increase in receivables

D

Decrease in receivables, increase in payables, loss on sale of non-current assets

67

In relation to statements of cash flows, which, if any, of the following are correct? Statement

1

The direct method of calculating net cash from operating activities leads to a different figure from that produced by the indirect method, but this is balanced elsewhere in the statement of cash flows.

2

A company making high profits must necessarily have a net cash inflow from operating activities

3

Profits and losses on disposals of non-current assets appear as items under investing activities in the statement of cash flows.

A

Statement 1 only

B

Statement 2 only

C

Statement 3 only

D

None of the statements

68

The movement on the plant and machinery account for X is shown below:                                                                                                                         $ Cost b/f                                                                                                        10,000 Additions                                                                                                     2,000 Disposals                                                                                                     (3,000) Cost c/f                                                                                                        9,000 Depreciation b/f                                                                                       2,000 Charge for the year                                                                                 1,000 Disposals                                                                                                     (1,500) Depreciation c/f                                                                                       1,500 Carrying value b/f                                                                                    8,000 Carrying value c/f                                                                                     7,500 The profit on the sale of the machine was $500. What figures would appear in the statement of cash flows of X under the heading of ‘Investing activities’?

A

Movement on plant account $500 and profit on disposal of $500

B

Movement on plant account $500 and proceeds on sale of plant $2,000

C

Purchase of plant $2,000 and profit on disposal of $500

D

Purchase of plant $2,000 and proceeds on sale of plant $2,000

69

Which of the following is not an advantage of the statement of cash flows?

A

It highlights the effect of non-cash transactions

B

It helps an assessment of the liquidity off a business

C

The numbers within it cannot be manipulated through the adoption of beneficial accounting policies

D

It helps users to estimate future cash flows

70

Grainger is calculating its cash flow using the direct method, and has found the following information: Cash sales                                                                                                   $212,500 Cash purchases                                                                                         $4,600 Cash expenses                                                                                          $11,200 Payables at start of year                                                                       $12,300 Payables at end of year                                                                         $14,300 Credit purchases                                                                                      $123,780 Wages and salaries due at start of year                                          $1,500 Wages and salaries due at end of year                                           $2,300 Wages and salaries expense                                                               $34,600 Inventory at start of year                                                                     $23,000 Inventory at end of year                                                                       $17,800 All sales are made for cash. What is the cash generated from operations by Grainger?

A

$35,520

B

$46,320

C

$74,920

D

$41,120

71

Howard, a limited liability company, provides the following extracts from the statement of financial position for the years ended 31December:                                                                                 20X6                              20X7                                                                                 $000                               $000 Accumulated profits                                       72,000                           82,000 10% Loan notes                                                30,000                           40,000 Tax payable                                                        12,000                           15,000 Dividends payable                                           1,200                             1,600 (All declared and proposed before the year end.) There was no adjustment for under/over provision for tax in the year ended 31 December 20X7.  No interim dividends were paid during the year. The additional 10% loan notes were issued on 1 January 20X7. What is the operating profit (profit before interest and tax) for the year ended 31 December 20X7?

A

$29,600

B

$27,200

C

$30,600

D

$102,600

72

The Standards Advisory Council are responsible for:

1

issuing guidance in relation to emerging issues

2

advising the IASB on major standard-setting projects

A

1 and 2

B

1 only

C

2 only

D

Neither 1 nor two

73

Which of the following assumptions underlie the Framework for the presentation and preparation of financial statements?

A

Accruals and consistency

B

Prudence and going concern

C

Accruals and going concern

D

Consistency and prudence

74

Which of the following are true?

1

International accounting standards are effective only if adopted by national regulatory bodies.

2

Accounting standards provide guidance on accounting for all types of transaction.

A

1 only

B

2 only

C

1 and 2

D

Neither

75

Which one of the following statements is correct?

A

The prudence concept requires assets to be understated and liabilities to be overstated

B

To comply with the law, the legal form of a transaction must always be reflected in financial statements

C

If a non-current asset initially recognised at cost is revalued, the surplus must be credited in the statement of cash flows

D

In times of rising prices, the use of historical cost accounting tends to understate assets and overstate profits

76

Which of the following characteristics of financial information contribute to reliability according to the IASB’s Framework for the Preparation and Presentation of Financial Statements?

1

Completeness

2

Prudence

3

Neutrality

4

Faithful representation

A

All four items

B

1, 2 and 3 only

C

1, 2 and 4 only

D

2, 3 and 4 only

77

An item of inventory which had cost $5 was sold for $7. It cost the company $6 to replace the item. At the time of the sale the $6 was the item’s:

A

historical cost

B

net realisable value

C

economic value

D

current cost

78

The accounting concept which dictates that non-current assets should be valued at cost less accumulated depreciation, rather than at their enforced saleable value, is:

A

Understandability

B

Relevance

C

Comparability

D

Going concern

79

Inventories should be valued at the lower of cost and net realisable value. Which ONE of the following accounting concepts governs this?

A

Comparability

B

Prudence

C

Going concern

80

Which of the following pairs of accounting concepts are most likely to be in conflict with one another?

A

Comparability and understandability

B

Accruals basis and going concern

C

Comparability and reliability

D

Relevance and reliability