CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

REVISION QUESTIONS C2

570

Question 4

4.1 It is important to produce a trial balance prior to preparing the ﬁ nancial statements

because:

(A) it conﬁ rms the accuracy of the ledger accounts.

(B) it provides all the ﬁ gures necessary to prepare the ﬁ nancial statements.

(C) it shows that the ledger accounts contain debit and credit entries of an equal

value.

(D) it enables the accountant to calculate any adjustments required.

4.2 The accumulated fund represents:

(A) the total of the shareholders ’ investment in a company.

(B) the carrying amount of net assets in a not-for-proﬁ t organisation.

(C) the excess of income over expenditure in a not-for-proﬁ t organisation.

(D) the bank balances of an organisation.

4.3 A computerised accounts package would be most useful in maintaining:

(A) the ledger accounts.

(B) the books of prime entry.

(C) a register of non-current assets.

(D) the inventories records.

4.4 An error of original entry would occur if the purchase of goods for resale was:

(A) debited and credited to the correct accounts using the incorrect amount in both

cases.

(B) credited to the purchases account and debited to the supplier’s account.

(C) debited to a non-current asset account.

(D) entered correctly in the purchases account, but entered in the supplier’s account

using the wrong amount.

4.5 The reducing-balance method of depreciating non-current assets is more appropriate

than the straight-line method when:

(A) there is no expected residual value for the asset.

(B) the expected life of the asset is not capable of being estimated.

(C) the asset is expected to be replaced in a short period of time.

(D) the asset is consumed less in later years than in the early years of use.

4.6 Your organisation paid $240,500 in net wages to its employees during the year.

Employees ’ tax and social security tax amounted to $64,000 and employer’s social

security tax was $22,000. Employees had contributed $12,500 to a pension scheme.

The amount to be charged against proﬁ ts for the year, in respect of wages, is:

$………

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

571

FUNDAMENTALS OF FINANCIAL ACCOUNTING

4.7 Your organisation has received a statement of account from one of its suppliers,

showing an outstanding balance due to them of $1,350. On comparison with your

ledger account, the following is determined:

●

your ledger account shows a credit balance of $260;

●

the supplier has disallowed cash discount of $80 due to late payment of an

invoice;

●

the supplier has not yet allowed for goods returned at the end of the period of

$270;

●

cash in transit of $830 has not been received by the supplier.

Following consideration of these items, the unreconciled difference between the

two records is:

$………

4.8 A statement of cash ﬂ ows can best be described as:

(A) a statement showing the effects of proﬁ t on cash resources.

(B) a statement of cash inﬂ ows and outﬂ ows from operating activities.

(C) a statement showing the movement in working capital.

(D) a statement showing the inﬂ ows and outﬂ ows of cash.

4.9 Your organisation’s trial balance at 31 October 20X9 is out of agreement, with the

debit side totalling $500 less than the credit side. During November, the following

errors are discovered:

●

the sales journal for October had been undercast by $150;

●

rent received of $240 had been credited to the rent payable account;

●

the allowance for receivables, which decreased by $420, had been recorded in the

allowance for receivables account as an increase.

Following the correction of these errors, the balance on the suspense account

would be:

Dr/Cr $

……… ………

4.10 On 1 November 20X9, your organisation purchased, on credit from XYZ Ltd,

ofﬁ ce equipment with a catalogue price of $1,000, less trade discount of 20 per

cent and cash discount of 5 per cent, if paid for within 14 days. The correct journal

entry to record the purchase on 1 November (ignoring sales tax) is:

Debit ($) Credit ($)

A O f ﬁ ce equipment 1,000

XYZ Ltd 750

Discount received 250

B O f ﬁ ce equipment 1,000

XYZ Ltd 760

Discount received 240

C O f ﬁ ce equipment 800

XYZ Ltd 800

D O f ﬁ ce equipment 800

XYZ Ltd 760

Discount received 40

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

REVISION QUESTIONS C2

572

4.11 The following sales ledger control account contains some inaccurate entries:

Sales ledger control account

$ $

Opening receivables 14,500 Credit sales 53,500

Discounts allowed 350 Returns 1,400

Receipts from receivables 51,200 Contra to purchase ledger 500

The correct closing receivables ﬁ gure should be:

$………

4.12 The following information relates to a business at its year end:

$’000

Sales 600

Inventories at beginning of year

Raw materials 20

Work in progress 4

Finished goods 68

Inventories at end of year

Raw materials 22

Work in progress 8

Finished goods 60

Purchases of raw materials 100

Returns inwards 10

Returns outwards 15

Carriage inwards 8

Carriage outwards 12

Direct labour 80

The prime cost of goods manufactured during the year is:

$………

4.13 An increase in the gross proﬁ t margin of a business is most likely to be due to

which one of the following combinations:

Selling price per unit Quantity sold Cost per unit

A increased no change increased

B no change increased no change

C no change no change decreased

D decreased increased increased

4.14 A business has the following capital and long-term liabilities:

31.10.X8 ($m) 31.10.X9 ($m)

12% debentures 20 40

Issued share capital 15 30

Share premium 3 18

Retained earnings 22 12

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

573

FUNDAMENTALS OF FINANCIAL ACCOUNTING

On 31 October 20X9, its gearing ratio, compared with that on 31 October 20X8, has:

(A) risen, resulting in greater risk for shareholders.

(B) risen, resulting in greater security for shareholders.

(C) fallen, resulting in greater security for shareholders.

(D) remained the same.

4.15 A business has the following trading accounts:

Year ended

31 October 20X8

Year ended

31 October 20X9

$’000 $’000 $’000 $’000

Sales 2,000 2,650

Less : cost of sales

Opening inventories 75 85

Purchases 1,260 1,330

1,335 1,415

Less : closing inventories (85) (115)

(1,250) (1,300)

Gross proﬁ t 750 1,350

During the year ended 31 October 20X9, inventories days, compared with that for

the year ended 31 October 20X8, have:

(A) increased, with a possible beneﬁ cial effect on liquidity.

(B) increased, with a possible detrimental effect on liquidity.

(C) decreased, with a possible detrimental effect on liquidity.

(D) decreased, with a possible beneﬁ cial effect on liquidity.

(Total marks  30)

Question 5

5.1 In times of rising prices, the historical cost convention results in:

(A) inventories being valued at cost price if this is higher than their net realisable

value.

(B) non-current assets being valued at their original cost, with no adjustment for

depreciation.

(C) proﬁ ts being overstated and statement of ﬁ nancial position values being

under stated.

(D) proﬁ ts being understated and statement of ﬁ nancial position values being

over stated.

5.2 An organisation’s non-current asset register showed a carrying amount of $271,200.

The non-current asset account in the nominal ledger showed a carrying amount

of $251,200. The difference could be due to not having removed from the non-

current asset register a disposed asset that had:

(A) disposal proceeds of $30,000 and a proﬁ t on disposal of $10,000.

(B) disposal proceeds of $30,000 and a carrying amount of $10,000.

(C) disposal proceeds of $30,000 and a loss on disposal of $10,000.

(D) disposal proceeds of $10,000 and a carrying amount of $10,000.

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

REVISION QUESTIONS C2

574

5.3 An organisation restores its petty cash balance to $250 at the end of each month.

During October, the total expenditure column in the petty cash book was calculated

as being $210, and hence the imprest was restored by this amount. The analysis col-

umns, which had been posted to the nominal ledger, totalled only $200. This error

would result in:

(A) the trial balance being $10 higher on the debit side.

(B) the trial balance being $10 higher on the credit side.

(C) no imbalance in the trial balance.

(D) the petty cash balance being $10 lower than it should be.

5.4 The stewardship function is carried out by:

(A) the internal auditors.

(B) the external auditors.

(C) the treasurer of a not-for-proﬁ t organisation.

(D) the management of an organisation.

5.5 An increase in inventories of $500, a decrease in the bank balance of $800 and an

increase in payables of $2,400, will result in:

(A) an increase in working capital of $2,700.

(B) a decrease in working capital of $2,700.

(C) an increase in working capital of $2,100.

(D) a decrease in working capital of $2,100.

5.6 On 1 November 20X8, a club’s membership subscriptions account showed a debit

balance of $200 and a credit balance of $90. During the year ended 31 October

20X9, subscriptions received amounted to $4,800. On 31 October 20X9, subscrip-

tions paid in advance amounted to $85, and subscriptions in arrears, and expected to

be collected, amounted to $50.

The amount to be transferred to the income and expenditure statement in respect of

subscriptions for the year ended 31 October 20X9 is:

$………

5.7 The accumulated fund represents:

(A) the bank balances of an organisation.

(B) the carrying amount net assets in a not-for-proﬁ t organisation.

(C) the excess of receipts over payments in a not-for-proﬁ t organisation.

(D) the total of shareholders ’ funds.

5.8 A sole trader’s income statement for the year ended 31 October 20X9 was drawn up

as follows:

$ $

Gross proﬁ t 87,000

Less : expenses

Own wages 18,000

Assistant’s wages 8,000

General expenses 16,000

(42,000)

Net proﬁ t 45,000

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

575

FUNDAMENTALS OF FINANCIAL ACCOUNTING

All wages were paid by cheque from the business bank account. During the year,

the sole trader had paid his private telephone bills of $800 from the business bank

account, and recorded these as ‘ drawings ’ . He had also paid $2,700 from his private

funds for petrol (of which one-third was for private use), but had made no entries

in his accounts for these payments.

His capital at 1 November 20X8 was $28,000. His capital at 31 October 20X9 is:

$………

5.9 The following information is given for the year ended 31 October 20X0:

$

Purchases of raw materials 56,000

Returns inwards 4,000

Increase in inventories of raw materials 1,700

Direct wages 21,000

Carriage inwards 2,500

Production overheads 14,000

Decrease in work in progress 5,000

The value of factory cost of goods completed is:

$………

5.10 Your organisation uses the weighted average cost formula for inventories. During

September 20X 0, the following inventory details were recorded:

Opening balance 60 units valued at $4 each

6 September Purchase of 100 units at $4.80 each

9 September Sale of 80 units

12 September Purchase of 120 units at $5 each

23 September Sale of 50 units

The value of the inventory on 30 September 20X0 was:

$………

5.11 Goodwill is most appropriately classed as:

(A) a ﬁ ctitious asset.

(B) a semi-non-current asset.

(C) a tangible asset.

(D) an intangible asset.

5.12 The reducing-balance method of depreciating non-current assets is more appropri-

ate than the straight-line method when:

(A) the expected life of the asset is short.

(B) the asset is expected to decrease in value by a ﬁ xed percentage of cost each year.

(C) the expected life of the asset cannot be estimated accurately.

(D) the asset is expected to be consumed less in later years than in the early years

of its life.

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

REVISION QUESTIONS C2

576

5.13 An increase in the allowance for receivables would result in:

(A) a decrease in working capital.

(B) an increase in working capital.

(C) an increase in liabilities.

(D) an increase in net proﬁ t .

5.14 The gross proﬁ t mark-up is 60 per cent where sales are $240,000 and:

(A) cost of sales is $96,000.

(B) gross proﬁ t is $144,000.

(C) gross proﬁ t is $150,000.

(D) cost of sales is $150,000.

5.15 Revenue reserves would increase if a company:

(A) issues shares at a premium.

(B) makes a transfer from retained earnings to general reserves.

(C) retains proﬁ ts.

(D) increases its current bank balances.

(Total marks  30)

Question 6

The trial balance of OBX plc for the year ended 30 April 20X6 showed the following

totals:

Debit $723,626 Credit $721,405

The totals included the sales ledger control account balance of $104,637.

A suspense account was opened for the difference. The proﬁ t for the year ended 30 April

20X6 was then calculated as being $227,642 and the suspense account balance was dealt

with by including it on the statement of ﬁ nancial position as appropriate.

Later investigation revealed the following:

1. An invoice of $46 for stationery had been entered in the stationery account as $64, but

was correctly entered in the payable’s account.

2. One of the pages of the sales daybook had been incorrectly totalled as $2,463 instead of

$2,643, and a credit sale of $325 had been omitted from another page.

3. Discounts allowed of $950 had been omitted from the sales ledger control account.

4. Bank interest received of $220 had been correctly entered in the revenue account but

had not been entered in the cash book.

5. A contra entry between the sales and purchase ledgers of $426 had been debited to the

sales ledger control account and credited to the purchase ledger control account.

6. During the year, a non-current asset costing $3,000 was sold for $750. Its carrying

amount at the date of disposal was $920. The proceeds were entered in the cash book,

but no other entries regarding the disposal were made.

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

577

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Requirements

(a) Insert the missing items into the suspense account given below to record the correc-

tion of the above errors, carrying down any unresolved balance.

Suspense account

$ $

(7 marks)

(b) Insert the missing items into the sales ledger control account given below in order to

calculate the corrected balance after the adjustment for the errors now discovered.

Sales ledger control account

$ $

Balance at 30 April 20X6 104,637

(7 marks)

(c) Insert the missing items below in order to calculate the revised net proﬁ t after the cor-

rection of the errors.

$

P r o ﬁ t as originally calculated 227,642

Revised net proﬁ t

(6 marks)

(Total marks  20)

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

REVISION QUESTIONS C2

578

Question 7

M Kingston & Co. Ltd received the following statement of account from Wang & Son on

31 January 20X6:

Wang & Son Statement of account

Date: 31 January 20X6

To: M Kingston & Co. Ltd

High Lane

KE3 2DE

Date Reference Debits Credits Balance

20X6 $ $ $

1 Jan. Balance b/f 3,000 Dr

13 Jan. (a) Invoice 01256 1,000 4,000 Dr

15 Jan. (b) Cash received 2,800

(c) Invoice 01287 3,600 4,800 Dr

16 Jan. (d) Credit Note 0062 50 4,750 Dr

20 Jan. (e) Invoice 01364 500 5,250 Dr

28 Jan. (f) Invoice 01395 800 6,050 Dr

30 Jan. (g) Credit Note 0070 100 5,950 Dr

The account of Wang & Son in the ledger of M Kingston & Co. Ltd is as follows:

Wang & Son

20X6 $ 20X6 $

13 Jan. (h) Cash 2,800 1 Jan. Balance b/f 3,000

(i) Discount 200 15 Jan. Invoice 01256 1,000

18 Jan. (j) Credit Note 0062 150 17 Jan. Invoice 01287 3,600

30 Jan. (k) Cash 1,400 22 Jan. Invoice 01364 500

31 Jan. (l) Debit Note 65 300

Balance c/d 3,250

8,100 8,100

PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)

579

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Requirements

(a) Insert the missing items below in order to reconcile the two balances.

$

Balance per supplier’s statement 5,950

Adjustments:

Add/less *:

Corrected balance

Balance per ledger 3,250

Add/less *:

Correct balance

*Delete as appropriate.

(8 marks)

(b) Match the following descriptions to the letters (a) to (l).

(i) This is an invoice from Wang to Kingston. It will have been entered in Wang’s

records as soon as it was issued, but has not yet been received by Kingston.

Letter __________

(ii) This is a credit note issued by Wang and entered in its records at once; it has not

yet been received by Kingston. Letter __________

(iii) This is cash discount that has been deducted by Kingston upon payment of the

outstanding balance at the beginning of January, ignored or disallowed by Wang.

Letter__________

(iv) This is cash paid by Kingston at the end of the month, and entered in its ledger

account at once; it has not yet been received by Wang. Letter __________

(v) This is a debit note issued by Kingston perhaps due to goods returned; credit note

not yet received by Wang. Letter __________

(10 marks)

(c) The correct ﬁ gure to be shown in the statement of ﬁ nancial position of M Kingston &

Co. Ltd is $

and is a current asset/liability (delete as appropriate).

(2 marks)

(Total marks  20)

CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

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