CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

MOCK ASSESSMENT 2

MOCK ASSESSMENT C2

710

Illustrative computer-based assessment 2: Questions

Question 1

A business is normally said to have earned revenue when:

(A) an order has been placed.

(B) a customer is legally obliged to pay for goods delivered.

(C) cash has been received.

(D) goods have been manufactured and placed in inventories.

Which convention does this comply with? Convention...........

Question 2

The following information relates to NI Ltd at 30 June 20X6.

$

Balance per cashbook – credit balance 5,200

Unpresented cheques 1,100

Bank charges not entered in the cash book 400

Receipts not yet credited by the bank 1,700

Dishonoured cheques not yet entered in the cash book 600

The balance shown on the bank statement at 30 June 20X6 was:

$ ..................

Question 3

The following information relates to NBV Ltd for the year ended 31 July 20X5.

$’000

Prime cost 370

Carriage outwards 90

Depreciation delivery vehicles 50

Factory indirect overheads 560

Increase in WIP 65

Decrease in inventories of ﬁ nished goods 40

The factory cost of goods completed for the year ended 31 July 20X5 is:

$ ..................

Question 4

An external auditor carried out the following tests:

(A) review of internal control.

(B) review of systems.

(C) vouching a purchase invoice.

(D) inspecting a non-current asset.

Which of the above are compliance tests?

MOCK ASSESSMENT 2

711

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 5

The following information relates to CT plc.

Machinery $’000

Cost at 1 January 20X4 90

Additions 30

Disposal (20)

Cost at 31 December 20X4 100

Accumulated depreciation at 1 January 20X4 20

Depreciation charge 5

Disposal (3)

Accumulated depreciation at 31 December 20X4 22

The proﬁ t on disposal of a machine was $3,000.

The cash ﬂ ow from investing activities of CT plc for the year ended 31 December 20X4

would include:

$.................. inﬂ ow/outﬂ ow..................

Question 6

The accountant at SL Ltd is preparing quarterly ﬁ nancial statements on the 31 July 20X3

for the quarter ended 31 July 20X3. The last quarterly gas bill, payable in arrears, received

by SL Ltd was dated 31 May 20X3 and amounted to $2,800. The accountant, when pre-

paring the quarterly ﬁ nancial statements for the quarter ended 30 April had expected the

May gas bill to be $2,100. The accountant expects the gas bill for the quarter ended 31

August 20X3 to be $3,900. Gas bills are paid on the day they are received. All under/over

estimates on accruals are charged within the period.

The charge to the income statement for gas in the quarter to 31 July 20X3 should be:

$..................

Question 7

IT plc has a policy that all items of equipment which cost less than $1,000 are charged to

an expense account rather than a non-current asset account. This is an example of the con-

vention of:

(A) money measurement.

(B) prudence.

(C) going concern.

(D) materiality.

Question 8

Internal auditors report to the:

(A) government.

(B) external auditors.

(C) shareholders.

(D) management.

MOCK ASSESSMENT 2

MOCK ASSESSMENT C2

712

Question 9

KP Ltd is preparing ﬁ nancial statements for the year ended 30 June 20X3. Rent is payable

quarterly in advance on 1 February, 1 May, 1 August and 1 November. The annual charge

for rent was $3,600 and $4,800 for the year ended 31 January 20X3 and 20X4, respec-

tively. The ﬁ nancial statements should show:

Rent expense  $.................. Accrual  $.................. Prepayment  $..................

Question 10

DOB Ltd purchased a machine costing $20,000 on 1 August 20X2. The company esti-

mated that the asset had a useful life of 4 years and an expected residual value of $2,000.

The company uses the straight-line method of depreciation. The company’s ﬁ nancial year

end is 30 November. It is the company’s policy to charge a full year’s depreciation in the

year of purchase and none in the year of disposal. On 1 November 20X5 the asset was sold

for $5,500. The proﬁ t or loss on disposal in the year ended 30 November 20X5 was:

$................... Proﬁ t/loss..................

Question 11

The following information is an extract from the ﬁ nancial statements of FWD plc for the

years ended 31 August 20X2 and 20X3.

20X3 20X2

$’000 $’000

Inventories 22 16

Receivables 18 20

Bank 14 12

54 48

Payables (14) (18)

40 30

The statement of cash ﬂ ows of FWD plc for the year ended 31 August 20X3 should

include in the cash ﬂ ow from operations:

$.................. inﬂ ow/outﬂ ow..................

Question 12

Which of the following entries would not affect the totals in the trial balance agreeing?

(A) An invoice for $250 for rent has been omitted from the ledgers.

(B) A cash sale has been recorded as debit cash sales, credit cash.

(C) An invoice for vehicle expenses has been charged to the vehicle non-current asset

account.

(D) A payment received from a supplier has been posted to the personal account twice.

MOCK ASSESSMENT 2

713

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 13

Which of the following are not intangible non-current assets?

(A) Goodwill

(B) Trademark

(C) Investment

(D) Patent

(E) Brand

(F) Leasehold property

Question 14

ASB Ltd bought computer equipment on the 1 January 20X1 for $32,000 and estimated

that it would have a useful life of 5 years and would have a residual value of $4,000. ASB

Ltd uses the straight-line method of depreciation. On the 31 December 20X2 it now con-

siders that the remaining life is only 2 years and that the residual value will be nil.

The depreciation charge for the year ended 31 December 20X3 and 20X4 should be:

$..................

Question 15

A company has a quick (acid) test ratio of 2:1. Current assets include inventories of

$12,000 and trade receivables of $4,000. Trade payables are $8,000.

The bank balance is:

$.................. Debit/credit balance..................

Question 16

Which one of the following does not help in the prevention of fraud and errors?

(A) Reconciliations

(B) Suspense accounts

(C) Organisation of staff

(D) Authorisation procedures

Question 17

The FRC cycling club started in January 20X2 and the following fees were received in the

years ended 31 December 20X2 and 20X3.

20X2 20X3

$ $

Joining fees 11,000 13,000

Annual fees 8,000 10,000

Life membership fees 7,000 5,000

26,000 28,000

MOCK ASSESSMENT 2

MOCK ASSESSMENT C2

714

Joining fees are recognised over a period of 4 years and life membership fees are recognised

over 10 years.

The total amount of fees in the income and expenditure statement for the year ended

31 December 20X3 should be:

$ ..................

Question 18

IAS plc declared a ﬁ nal dividend of 5% for the year ended 28 February 20X3. The nomi-

nal value of the shares is 25¢. X bought 800 shares at a price of $5 in December 20X2 and

the shares were valued at a price of $8 on 28 February 20X3.

X will receive a ﬁ nal dividend of:

$ ..................

Question 19

The internal ﬁ nancial statements of GH Ltd value inventories at replacement cost. The

warehouse manager has produced the following schedule for the values of the three items

(X1, X2 and X3) in inventories at the year end.

First in/ﬁ rst out Net realizable value Replacement cost

$’000 $’000 $’000

X1 15 25 35

X2 10 6 3

X3 14 16 15

39 47 53

At what value should the inventories be stated in the statutory ﬁ nancial statements?

$ ..................

Question 20

The job descriptions of staff in the credit control department are normally segregated

because:

(A) work is completed more efﬁ ciently.

(B) lower salaries can be paid.

(C) it motivates staff to perform better.

(D) it facilitates internal control.

Question 21

The management accounts within a limited company are determined by:

(A) the directors.

(B) the shareholders.

(C) company law and accounting standards.

(D) company law.

MOCK ASSESSMENT 2

715

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 22

When the historical cost convention is applied, the capital of an entity is measured in

terms of:

(A) money.

(B) money, adjusted for inﬂ ation.

(C) fair value.

(D) operating capability.

Question 23

If work in progress increases during an accounting period, then:

(A) prime cost will increase.

(B) prime cost will decrease.

(C) the factory cost of goods completed will increase.

(D) the factory cost of goods completed will decrease.

Question 24

The following information was extracted from the pay slip of JS, who received her net

salary in cash, for the month ended 31 January 20X5.

$

Gross salary of 5,000

Tax deducted 500

Employer’s social security tax 400

Employee’s social security tax 350

Employer’s contribution to pension fund 190

Employee’s contribution to pension fund 210

Voluntary deduction for payment to charity 30

Tax, social security tax, pension fund contributions and payments to charity are all payable

in February 20X5.

The charge to the income statement, the balance on the payroll control account and the

net pay for JS’s salary for January was:

Charge to income statement Balance on payroll control A/c Net pay

$.................. $.................. $..................

Question 25

In January 20X4, JR began trading as a car valeting service. He introduced small items

of equipment with an estimated cost of $3,600. During the year ended December 20X4,

he purchased new items of equipment for $1,700 and sold some items for $300. On 31

December, JR estimated the cost of his small items of equipment at $3,900.

Using the revaluation method, the depreciation charge for the year ended 31 December

20X4 was:

$ ..................

MOCK ASSESSMENT 2

MOCK ASSESSMENT C2

716

Question 26

After the income statement for EH Ltd had been prepared, it was found that accrued expenses

of $1,500 had been omitted and that closing inventories had been overvalued by $500.

The effect of these errors is an:

overstatement/understatement of proﬁ t .................. $..................

Question 27

A sales ledger control account at 1 June had an opening balance of $20,000. During

June, sales were $180,000, being credit sales of $170,000 and cash sales of $10,000. Total

receipts from cash and credit customers was $165,000. During the month, it was rec-

ognised that $3,000 of receivables were bad and that a further $5,000 may not be paid.

During the month, there was a contra of $2,000 between the sales and purchase control

accounts and customers returned goods at a value of $6,000.

The balance on the sales ledger control account at 30 June was:

$ ..................

Question 28

Which of the following would you expect to see in a statement of changes in equity?

Y e s N o

Dividends

Total comprehensive income

for the year

Directors ’ salaries

Revaluation of property

Taxation

Question 29

CAD Ltd uses the weighted average cost formula for valuing inventories. On 1 April there

were 80 units in inventory valued at $17 each. On 6 April, 30 units were purchased for

$19 each; and on 20 April, 45 units were purchased for $20 each. On 25 April, 100 units

were sold for $3,000. The value of the closing inventories at 30 April was:

$ ..................

Question 30

The following information related to M plc for the year ended 31 July 20X9:

$

Prime cost 164,000

Factory overheads 227,000

Opening work in progress at 1 August 20X8 82,000

Factory cost of goods completed 342,000

The closing work in progress at 31 July 20X9 was:

$ ..................

MOCK ASSESSMENT 2

717

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 31

VIP Ltd is registered for sales tax and received an invoice from a legal ﬁ rm for $6,000 plus

sales tax. The rate of sales tax on the services was 17.5%. The correct journal entries are:

Account Dr Cr

$ $

Question 32

E Ltd received an invoice for the purchase of non-current asset equipment which was cred-

ited to the correct supplier’s ledger account but debited to the equipment repairs account

instead of the equipment account. The effect of not correcting this error on the ﬁ nancial

statements would be:

(A) proﬁ t would be overstated and non-current assets would be understated.

(B) proﬁ t would be overstated and non-current assets would be overstated.

(C) proﬁ t would be understated and capital would be overstated.

(D) proﬁ t would be understated and non-current assets would be understated.

Question 33

The accountant at URP Ltd is preparing the annual ﬁ nancial statements. The company is

in dispute with one of its suppliers which is currently the subject of a court case for a claim

against the company for $300,000. URP Ltd has also made a claim against its insurance

company for $200,000 and is waiting to hear if the insurance company will pay up.

The accountant has decided to accrue for the legal claim for $300,000 but to ignore the

insurance claim of $200,000.

The accounting convention which underlies these decisions is:

.......... convention

Question 34

The return on capital employed for ETC plc is 22% and the net asset turnover ratio is

4 times.

The operating proﬁ t margin is:

.................. %

Question 35

Which of the following would not help detect errors in a computerised accounting system?

(A) Control accounts.

(B) Passwords.

(C) Batch processing.

(D) Coding systems.

MOCK ASSESSMENT 2

MOCK ASSESSMENT C2

718

Question 36

The total cost of salaries charged to a limited company’s income statement is:

(A) cash paid to employees.

(B) net pay earned by employees.

(C) gross pay earned by employees.

(D) gross pay earned by employees plus employer’s social security tax contributions.

Question 37

The trading account for SUV Ltd for the year ended 31 July 20X8 was:

Trading Account for the year ended 31 July 20X8

$’000

Sales 300

Opening inventories 25

Purchases 125

Closing inventories (30)

Cost of good sold 120

Gross proﬁ t 180

The trade payables at 31 July 20X8 was $28,000.

The trade payables days at 31 July 20X8 was:

.................. days

Question 38

The following is the aged receivables analysis for Z Ltd at 30 April 20X3.

Age of debt Less than 1 month 1–2 months 2–3 months Over 3 months

Amount ($) 18,000 30,000 14,000 12,000

The company makes an allowance for receivables as follows:

Allowance 0% 1% 8% 15%

The allowance for receivables at 1 May 20X2 brought forward was $6,000.

The entry for the allowance for receivables in the income statement for the year ended

30 April 20X3 and the net receivables ﬁ gure in the statement of ﬁ nancial position at that

date should be:

Income statement Statement of

ﬁ nancial position

$.................. debit/credit.................. $..................

MOCK ASSESSMENT 2

719

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 39

The following information relates to companies X plc and Y plc, who are competitors sell-

ing carpets.

X plc Y plc

Gross proﬁ t percentage 25% 20%

Which of the following are possibly true based on the information provided?

(A) X plc has a higher selling price.

(B) X has lower purchasing costs.

(C) Y plc has lower closing inventories.

(D) Y plc has more closing inventories.

Question 40

Which of the following are accounting conventions and which are qualitative characteris-

tics of ﬁ nancial statements?

Accounting convention Qualitative characteristic

Timely

Material

Relevant

Objective

Complete

Question 41

On 1 October 20X6, LED Ltd owed a supplier $1,300. During the month of October,

LED Ltd:

●

purchased goods for $1,800 and the supplier offered a 4% discount for payment within

the month.

●

LED Ltd returned goods valued at $170 which had been purchased in September 20X6.

●

sent a cheque to the supplier for payment of the goods delivered in October.

The balance on the supplier’s account at the end of October 20X6 is:

$..................

Question 42

The main advantage of using a sales ledger control account is that:

(A) it ensures that the trial balance will always balance.

(B) it helps with credit control.

(C) it helps in detecting errors.

(D) double-entry bookkeeping is not necessary.

CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

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