Jessy Chong (JC): T6/FFA

Which of the following statements is true?

The directors of accompany are liable for any losses of the company

A sole trader business is owned by shareholders and operated by the proprietor

Partners are liable for losses in a partnership in proportion to their profit share ratio

A company is run by directors on behalf of its members

Which of the following best describe management accounts?

Management accounts are mandatory accounts which reflect the past performance of a business and are prepared in accordance with strict accounting requirements

Management accounts are normally prepared monthly on a rolling basis and include details of past performance as well as budgets and forecasts

Management accounts are required by law and include sufficient details for managers control the business and prepare for the future

Management accounts include information computed to be relevant to managers and are generally prepared annually

Which of the following best explains why employees are interested in the financial statements of their employer?

To compare the business with its competitors in order to decide whether to seek employment with one of those competitors

To assess the effect of the business on the local economy, community and environment

To assess whether the business will continue into the foreseeable future

To assess the profitability of the business in order to decide whether to invest in it

Which of the following user groups require the most detailed financial information?

The management

Investors and potential investors

Government agencies

Which of the following statements are true?

Accounting can be described as the recording and summarising of transactions

Financial accounting describes the production of a statement of financial position and income statement for internal use

1 only

2 only

The main aim of financial accounting is to:

Record all transactions in the books of account

Provide management with detailed analyses of costs

Present the financial results to the organisation by means of recognised statements

Calculate profit

Which one of the following sentences does NOT explain the distinction between financial accounts and management accounts?

Financial accounts are primarily for external users and management accounts are primarily for internal users

Financial accounts are normally produced annually and management accounts are normally produced monthly

Financial accounts are more accurate than management accounts

Financial accounts are audited by external auditor and management accounts do not normally have an external audit

The following information relates to Minnie’s hairdressing business in the year ended 31 August 20x7:

Expenses

Opening inventory

Closing inventory

Purchases

Gross profit

Inventory drawings of shampoo

7,100

1,500

900

12,950

12,125

What is the sales figure for the business?

$32,700

$25,600

$25,675

$25,750

An asset is:

An item owned by an entity

An item controlled by an entity

Arthur had net assets of $19,000 at 30 April 20X7. During the year to 30 April 20X7, he introduced $9,800 additional capital into the business. Profits were $8,000, of which he withdrew $4,200.

What was the balance on Arthur’s capital account at 1 May 20X6?

$5,400

$13,000

$16,600

$32,600

The capital of a business would change as a result of:

a supplier being paid by cheque

raw materials being purchased on credit

non-current assets being purchased on credit

wages being paid in cash

A draft statement of financial position has been prepared for Lollipop, a sole trader. It is now discovered that a loan due for repayment by Lollipop fourteen months after the reporting date has been included in trade payables.

The necessary adjustment will:

have no effect on net current assets

increase net current assets

reduce net current assets

increase current assets but reduce net current assets

The profit of a business may be calculated by using which one of the following formulae?

Opening capital – drawings + capital introduced – closing capital

Closing capital + drawings – capital introduced – opening capital

Opening capital + drawings – capital introduced – closing capital

Closing capital – drawings + capital introduced – opening capital

Which accounting concept requires that amounts of goods taken from inventory by the proprietor of a business are treated as drawings?

Accruals

Prudence

Separate entity

Substance over form

The following information is available about Andrew’s business at 30 September 20X6:

Motor van

Loan (repayable in 4 equal annual instalments starting 1 January 20x7)

Receivables

Bank balance (a debit on the bank statement)

Provision for depreciation

Payables

Inventory

Petty cash

Rent due

Allowance for receivables

14,000

100,000

23,800

3,250

7,000

31,050

12,560

150

1,200

1,500

What are the correct figures for current liabilities and current assets?

Current liabilities

Current assets

34,300

35,010

32,250

38,260

57,250

38,260

60,500

35,010

The following transactions relate to Max’s business:

1 May

2 May

3 May

5 May

7 May

Purchase of goods for resale on credit

Max injects long term capital into the business

Payment of rent made

Max withdraws cash from the business

Sales made on credit

$300

$1,400

$750

$400

$1,200

(goods originally cost $600)

At the start of the week, the assets of the business were $15,700 and liabilities amounted to $11,200.

At the end of the week, what is the amount of Max’s capital?

$5,350

$1,400

$850

$1,000

Oscar runs a sole trader business selling computers. On 12 January 20X7, he employed his daughter as an administrator for the business and took a computer from the store room for her to use in the office.

What is the double entry for this transaction?

Dr Drawings

Cr Cost of sales

Dr Non-current assets

Cr Cost of sales

Dr Cost of sales

Cr Drawings

Dr Cost of sales

Cr Non-current assets

Which of the following items appear on the same side of the trial balance?

Drawings and accruals

Carriage outwards and prepayments

Carriage inwards and rental income

Opening inventory and purchase returns

The double-entry system of book-keeping normally results in which of the following balances on the ledger accounts?

Debit balances:

Credit balances:

Assets and revenues

Liabilities, capital and expenses

Revenues, capital and liabilities

Assets and expenses

Liabilities, capital and revenues

Assets, expenses and capital

Liabilities and revenues

The most important reason for producing a trial balance prior to preparing the final accounts is:

it confirms the accuracy of the ledger accounts

it provides all the figures necessary to prepare the final accounts

it shows that the ledger accounts contain debit and credit entries of an equal value

it enables the accountant to calculate any adjustments required

Sasha has prepared a draft income statement for her business:

Sales

Cost of sales

Opening inventory

Purchases

Closing inventory

13,400

145,000

14,200

256,800

(144,200)

Gross profit

Expenses

112,600

(76,000)

Net profit

36,600

Sasha has not yet recorded the following items:

· Carriage in of $2,300

· Discounts received of $3,900

· Discounts allowed of $1,950

After these amounts are recorded, what are the revised gross and net profits of Sasha’s business?

Gross profit

Net profit

108,350

36,250

108,350

28,450

110,300

28,450

110,300

36,250

Elijah started the month with a positive balance of $1,780 on his bank account. What is the balance after the following transactions in June?

Elijah withdraws $200 per week to cover living expenses.

A settlement discount of $30 is taken by a customer on a sale of $600.

An amount of $400 is received from a credit customer.

Bankings of $1,200 from petty cash.

$3,750

$3,150

$3,180

$2,580

After corrections, what should be the balance on the following account?

Bank

Overdraft at start of month

Reimbursement of petty cash float

Receipts from customers

1,340

4,400

Returns of goods purchased for cash

Payments to credit suppliers

Rental income

Payment of electricity bill

Balance c/f

990

1,300

700

2,745

5,785

$2,665

$2,765

$5,345

$2,675

Andrea started a taxi business by transferring her car, worth $5,000, into the business.

What are the accounting entries required to record this?

Dr Capital $5,000, Cr Car $5,000

Dr Car $5,000, Cr Drawings $5,000

Dr Car $5,000, Cr Capital $5,000

An item of inventory was purchased for $500. It is expected to be sold for $1,200 although $250 will need to be spent on it in order to achieve the sale. To replace the same item of inventory would cost $650. How should the inventory be valued in the accounts?

$500

$750

$950

$650

Appleby buys and sells inventory during the month of August as follows:

Opening inventory

4 August

8 August

10 August

18 August

20 August

Sales

Purchases

Sales

Purchases

Sales

100 units

20 units

140 units

90 units

200 units

Sales

$2.52/units

$2.56/units

$2.78/unit

The periodic weighted average for the month is calculated as follows:

Total value of inventory (opening inventory plus purchase costs during the month) divided by total units (opening inventory plus purchase costs during the month).

Which of the following statements is true?

Closing inventory is $19.50 higher when using the FIFO method instead of the

periodic weighted average

Closing inventory is $19.50 lower when using the FIFO method instead of the periodic

weighted average

Closing inventory is $17.50 higher when using the FIFO method instead of the

periodic weighted average

Closing inventory is $17.50 lower when using the FIFO method instead of the periodic

weighted average

In the year ended 31 August 20X4, Aplus’ records show closing inventory of 1,000 units compared to 950 units of opening inventory. Which of the following statements is true assuming that prices have fallen throughout the year?

Closing inventory and profit are higher using FIFO rather than AVCO.

Closing inventory and profit are lower using FIFO rather than AVCO.

Closing inventory is higher and profit lower using FIFO rather than AVCO.

Closing inventory is lower and profit higher using FIFO rather than AVCO.

David performs an inventory count on 30 December 20X6 ahead of the 31 December year end. He counts 1,200 identical units, each of which cost $50. On 31 December, David sold 20 of the units for $48 each. What figure should be included in David’s statement of financial position for inventory at the year end?

$60,000

$59,000

$57,600

$56,640

Which of the following statements about the treatment of inventory and work in progress in financial statements are correct?

(1)

Inventory should be valued at the lower of cost, net realisable value and replacement cost.

(2)

In valuing work in progress, materials costs, labour costs and variable and fixed production overheads must be included.

(3)

Inventory items can be valued using either first in, first out (FIFO) or weighted average cost.

(4)

A company’s financial statements must disclose the accounting policies used in measuring inventories.

All four statements are correct

1, 2 and 3 only

2, 3 and 4 only

1 and 4 only

Kiera’s interior design business received a delivery of fabric on 29 June 20X6, which was included in inventory at 30 June 20X6. The invoice for the goods was recorded in July 20X6.

What effect will this have on the business?

Profit for the year ended 30 June 20X6 will be overstated.

Inventory at 30 June 20X6 will be understated

Profit for the year ended 30 June 20X7 will be overstated.

Inventory at 30 June 20X6 will be overstated.

1 and 2

2 and 3

1 only

1 and 4

What journal entry is required to record goods taken from inventory by the owner of a business?

Dr Drawings Cr Purchases

Dr Sales Cr Drawings

Dr Drawings Cr Inventory

A business had an opening inventory of $180,000 and a closing inventory of $220,000 in its financial statements for the year ended 31 December 20X5.

Which of the following entries for these opening and closing inventory figures are made when completing the financial records of the business?

Debit

Credit

Inventory account

Income statement

180,000

180,00

Income Statement

Inventory account

220,000

Income statement

Inventory account

180,000

Inventory account

Income statement

220,000

Inventory account

Purchases account

40,000

Purchases account

Inventory account

40,000

Ajay’s annual inventory count took place on 7 July 20X6. The inventory value on this date was $38,950. During the period from 30 June 20X6 to 7 July 20X6, the following took place:

Sales

Purchases

$6,500

$4,250

The mark up is 25% on cost.

What is Ajay’s inventory value at 30 June 20X6?

$38,000

$39,900

$41,200

$39,575

Inventory movements for product X during the last quarter were as follows:

January

February

March

Purchases

Sales

Purchases

Sales

10 items at $19.80 each

10 items at $30 each

20 items at $24.50

5 items at $30 each

Opening inventory at 1 January was 6 items valued at $15 each.

Gross profit for the quarter, using the continuous weighted average cost method, would be:

$135.75

$155.00

$174.00

$483.00

Your firm values inventory using the weighted average cost method. At 1 October 20X8, there were 60 units in inventory valued at $12 each. On 8 October, 40 units were purchased for $15 each, and a further 50 units were purchased for $18 each on 14 October. On 21 October, 75 units were sold for $1,200.

The value of closing inventory at 31 October 20X8 was:

$900

$1,020

$1,110

$1,125

Percy Pilbeam is a book wholesaler. On each sale, commission of 4% is payable to the selling agent.

The following information is available in respect of total inventories of three of his most popular titles at his financial year-end:

Henry VII – Shakespeare

Dissuasion – Jane Armstrong-Siddeley

Pilgrim’s Painful Progress – John Bunion

Cost

2,280

4,080

1,280

Selling price

2,900

4,000

1,300

What is the total value of these inventories in Percy’s statement of financial position?

$7,368

$7,400

$7,560

$7,640

An organisation’s inventory at 1 July is 15 units at $3.00 each. The following movements occur:

3 July 20x4

8 July 20x4

12 July 20x4

5 units sold at $3.30 each

10 units bought at $3.50 each

8 units sold at $4.00 each

Closing inventory at 31 July, using the FIFO method of inventory valuation, would be

$31.50

$36.00

$39.00

$41.00

What would be the effect on a company’s profit of discovering inventory with cost of $1,250 and a net realisable value of $1,000, assuming that the same inventory had not been included in the original inventory count?

An increase of $1,250

An increase of $1,000

A decrease of $250

No effect at all

S & Co sell three products – Basic, Super and Luxury. The following information was available at the year end:

Original cost

Estimated selling price

Selling and distribution costs

Units in inventory

Basic

$ per unit

Units

200

Super

$ per unit

Units

250

Luxury

$ per unit

Units

150

The value of inventory at the year end should be:

$4,200

$4,700

$5,700

$6,150

In times of rising prices, the valuation of inventory using the First In First Out method, as opposed to the Weighted Average Cost method, will result in which ONE of the following combinations?

Cost of sales

Profit

Closing inventory

Lower

Higher

Lower

Higher

Lower

Higher

Lower

Higher

Lower

Erin is registered for sales tax. During May, she sells goods with a tax exclusive price of $600 to Kyle on credit. As Kyle is buying a large quantity of goods, Erin reduces the price by 5%. She also offers a discount of another 3% if Kyle pays within 10 days. Kyle does not pay within the 10 days.

If sales tax is charged at 17.5%, what amount should Erin charge on this transaction?

$96.76

$101.85

$99.75

$105.00

At 1 December 20X5, Laurel owes the authorities $23,778. During the month of

December, she recorded the following transactions:

· Sales of $800,000 exclusive of 17.5% sales tax.

· Purchases of $590,790 inclusive of sales tax.

What is the balance on Laurel’s sales tax account at the end of December?

$54,937

$60,389

$75,788

$163,778

If Sales (including sales tax) amounted to $27,612.50, and Purchases (excluding sales tax) amounted to $18,000, the balance on the sales tax account, assuming all items are subject to tax at 17.5%, would be:

$962.50 Dr

$962.50 Cr

$1,682.10 Dr

$1,682.10 Cr

In the quarter ended 31 March 20X2, Chas had taxable sales, net of sales tax, of $90,000 and taxable purchases, net of sales tax, of $72,000.

If the rate of sales tax is 10%, how much sales tax is due?

$1,800 receivable

$2,000 receivable

$1,800 payable

$2,000 payable

A summary of the transactions of Ramsgate, who is registered for sales tax at 17.5%, shows the following for the month of August 20X9.

Outputs $60,000 (exclusive of tax)

Inputs $40,286 (inclusive of tax)

At the beginning of the period Ramsgate owed $3,400 to the authorities, and during the period he has paid $2,600 to them.

At the end of the period the amount owing to the authorities is:

$3,700

$3,930

$4,400

$5,300

The sales account is:

credited with the total of sales made, including sales tax

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%?

Dr Lucid $600, Dr Sales tax $105, Cr Sales $705

Dr Lucid $705, Cr Sales tax $105, Cr Sales $600

Dr Lucid $600, Cr Sales tax $105, Cr Sales $600

Dr Sales $600, Dr Sales tax $105, Cr Lucid $705

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

Dr Returns inward $200, Dr Sales tax $35, Cr Laker $235

Dr Returns inward $235, Cr Sales tax $35, Cr Laker $200

Dr Purchases $200, Dr Sales tax $35, Cr Laker $235

Dr Laker $235, Cr Returns inward $200, Cr Sales tax $35

Stung, which is registered for the purposes of sales tax, bought furniture on credit terms at a cost of $8,000, plus tax of $1,200.

What is the correct account entry?

Furniture

Supplier

9,200

Furniture

Sales tax

Supplier

8,000

1,,200

6,800

Furniture

Sales tax

Supplier

8,000

1,200

9,200

Furniture

Supplier

8,000

Which of the following statements are true?

Sales tax is a form of indirect taxation.

If input tax exceeds output tax the difference is payable to the 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

Jessy Chong (JC)

Wednesday, August 17, 2016

T6/FFA - Homework 1

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