LOBJ18 0007008 - Question bank of Accounting PDF

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ACCOUNTINGThe Institute of Chartered Accountants in England and WalesFor exams in 2019Electronic Question Bank icaewii Accounting ICAEW 2019The publishers are grateful to the IASB for permission to reproduce extracts from the International Financial Reporting Standards including all International Ac...

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The Institute of Chartered Accountants in England and Wales

ACCOUNTING

For exams in 2019

Electronic Question Bank www.icaew.com

The publishers are grateful to the IASB for permission to reproduce extracts from the International Financial Reporting Standards including all International Accounting Standards, SIC and IFRIC Interpretations (the Standards). The Standards together with their accompanying documents are issued by: The International Accounting Standards Board (IASB) 30 Cannon Street, London, EC4M 6XH, United Kingdom. Email: [email protected] Web: www.ifrs.org Disclaimer: The IASB, the International Financial Reporting Standards (IFRS) Foundation, the authors and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise to the maximum extent permitted by law. Copyright © IFRS Foundation

All rights reserved. Reproduction and use rights are strictly limited. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IFRS Foundation. Contact the IFRS Foundation for further details. The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the 'Hexagon Device', 'IFRS Foundation', 'eIFRS', 'IAS', 'IASB', 'IFRS for SMEs', 'IASs', 'IFRS', 'IFRSs', 'International Accounting Standards' and 'International Financial Reporting Standards', 'IFRIC' 'SIC' and 'IFRS Taxonomy' are Trade Marks of the IFRS Foundation. Further details of the Trade Marks including details of countries where the Trade Marks are registered or applied for are available from the Licensor on request.

© ICAEW 2019

ii

Accounting

ICAEW 2019

Contents Page Title

Questions

Answers

1

Introduction to accounting

3

131

2

The accounting equation

5

132

3

Recording financial transactions

8

133

4

Ledger accounting and double entry

11

134

5

Preparing basic financial statements

16

136

6

Errors and corrections to accounting records and financial statements

19

137

7

Cost of sales and inventories

26

140

8

Irrecoverable debts and allowance for receivables

34

144

9

Accruals and prepayments

38

146

10

Non-current assets and depreciation

44

148

11

Company financial statements

54

152

12

Company financial statements under IFRS

59

154

13

Statement of cash flows

84

187

14

Company financial statements under UK GAAP

99

201

15

Sole trader and partnership financial statements under UK GAAP

103

203

Additional question practice

111

207

16

ICAEW 2019

Contents

iii

iv

Accounting

ICAEW 2019

Question Bank ICAEW provides the electronic question banks to give you access to additional questions not ordinarily available to students. The questions are designed to aid learning rather than revision and so should not be considered exam-standard. The published question bank contains exam-standard questions and can be ordered from www.gillards.com/icaew

2

Accounting: Electronic Question Bank

ICAEW 2019

Chapter 1: Introduction to accounting 1

2

Which one of the following should be accounted for as capital expenditure? A

The cost of redecorating the business's head office

B

The cost of replacing some roof tiles on a building

C

The cost of a computer purchased for resale by a computer sales business

D

The cost of delivery paid when purchasing a new manufacturing machine

LO 1a

Which of the following items should be treated as a capital item in the financial statements of a large shop? (1) Purchase of fixed shelving units (2) Payment of wages (3) Repairs to fixed shelving units

3

A

(1) only

B

(1) and (2) only

C

(2) and (3) only

D

(1), (2) and (3)

LO 1a

Which of the following items should be treated as revenue items in an entity's financial statements? (1) Payment of local property tax (2) Purchase of premises (3) Alteration of premises to configure them to be ready for use in the business (4) External audit fee

4

A

(1) and (2) only

B

(2) and (3) only

C

(3) and (4) only

D

(1) and (4) only

LO 1a

Which of the following should be classified as capital expenditure? A

Repairs to motor vans

B

Depreciation of machinery

C

Extension to premises

D

Purchase of motor vans for resale

ICAEW 2019

LO 1a

Chapter 1: Introduction to accounting

3

5

Which of the following is a consideration in the application of ICAEW's Code of Ethics? A

6

Whether or not the activity is remunerated

B

That the client or employer is an ICAEW member, student, affiliate or member firm

C

If an action brings discredit to the profession

D

Whether or not the activity is an accounting or assurance engagement

LO 1b

Ned is considering two issues in the course of preparing his financial statements. Issue 1:

Non-current assets are valued at cost less depreciation.

Issue 2:

Expenses incurred but for which invoices have not yet been received are included in the financial statements.

Which accounting characteristic or principle is relevant to each of these issues?

7

8

A

Issue 1: Verifiability; Issue 2 Accruals

B

Issue 1: Accruals; Issue 2 Verifiability

C

Both issues: Verifiability

D

Both issues: Accruals

LO 1d; 3a, b, c

The auditor of James plc is insistent that great care is taken in estimating the amounts of accruals and prepayments each year. This is justified primarily by which accounting concept? A

Going concern

B

Maturity

C

Consistency

D

Matching

LO 1d; 3a, b, c

Mr Bliss owns a business. Although most of the business expenses are paid by cash, Mr Bliss on certain occasions uses his own personal bank account to pay some business expenses. His accountant has asked to see his personal bank statements so that some of these amounts may be included as expenses in the statement of profit or loss. Mr Bliss is confused about this and asks 'If you are going to use my personal bank statement to prepare the financial statements, why don't you include all payments as expenses instead of only some of them?' The main reason why the accountant does not include all of the expenses is because:

4

A

Mr Bliss has not recorded the full details of some of the expenditure and, because of this uncertainty, it is more prudent not to include them in the financial statements.

B

there are a large number of immaterial payments which would take a long time to examine.

C

the personal expenses of the owner are separate from those of the business and are not relevant to the statement of profit or loss.

D

to be consistent with last year's financial statements only payments above £500 are included in the statement of profit or loss. LO 1d; 3a, b, c

Accounting: Electronic Question Bank

ICAEW 2019

Chapter 2: The accounting equation 1

2

3

The capital of a sole trader would change as a result of: A

a trade payable being paid by a transfer from the business bank account

B

raw materials being paid for from petty cash

C

non-current assets being purchased for cash

D

the owner taking goods from the inventory of the business

LO 1d

The purpose of a statement of financial position is to show: A

an estimate of what a business is really worth

B

the amount the business could be sold for as a going concern

C

the amount the business could be sold for in a liquidation

D

the assets of the business and the related liabilities

LO 3a

A sole trader received £2,500 from a credit customer for goods which had been sold on credit. The sole trader has an overdraft with his bank of £5,000. Which element(s) of the accounting equation will change due to this transaction?

4

A

Assets only

B

Liabilities only

C

Capital only

D

Assets and liabilities only

LO 1d; 3a

A sole trader purchases goods on credit for £400. Which element(s) of the accounting equation will change due to this transaction? A

Assets and liabilities only

B

Assets and capital only

C

Capital and liabilities only

D

Assets only

ICAEW 2019

LO 1d; 2a

Chapter 2: The accounting equation

5

5

A sole trader takes out a loan of £5,000 from the bank. Which element(s) of the accounting equation will change due to this transaction?

6

A

Assets and liabilities only

B

Assets and capital only

C

Capital and liabilities only

D

Assets only

LO 1d; 3a

A sole trader sold goods for cash for £1,000 which had cost £700. Which element(s) of the accounting equation will change due to this transaction?

7

A

Assets and liabilities only

B

Assets and capital only

C

Capital and liabilities only

D

Assets only

LO 1d; 3a

A sole trader has paid for his own personal car to be repaired out of the business bank account. The amount of the repairs has been added by the bookkeeper to the owner's drawings balance. Of which generally accepted accounting concept is this an example?

8

6

A

Prudence

B

Separate entity

C

Substance over form

D

Duality

LO 1d

Which of the following items should be treated as capital expenditure in the accounts of a sole trader? A

£1,000 drawings made by the proprietor to buy himself a new kitchen at home

B

£1,000 spent on purchasing a new computer for his secretary in order to deal with business administration

C

£1,000 on purchasing a motorbike for resale

D

£1,000 paid to a painter for redecorating his office

Accounting: Electronic Question Bank

LO 3a

ICAEW 2019

9

The statements of financial position of Gazhal's business at 31 December 20X2 and 20X1 showed the following.

Non-current assets Current assets Current liabilities

31 December 20X2 £ 32,500 17,500 12,500

31 December 20X1 £ 45,000 30,000 12,500

Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the business. What was the profit or loss of Gazhal's business for the year? A

Profit of £20,000

B

Profit of £30,000

C

Loss of £20,000

D

Loss of £30,000

ICAEW 2019

LO 1d; 3a

Chapter 2: The accounting equation

7

Chapter 3: Recording financial transactions 1

A business paid out £23,550 in net wages to its employees. In respect of these wages, the following amounts were shown in the statement of financial position. PAYE payable National Insurance payable – employees' – employer's

£ 4,620 2,830 2,640

What were the employees' gross wages before deductions?

2

3

A

£28,170

B

£30,810

C

£31,000

D

£33,640

LO 1c

Which of the following is a source document that would be entered into the accounting system? A

Debit note

B

Delivery note

C

Purchase order

D

Sales invoice

LO 1c

Which of the following best explains the imprest system of petty cash control? A

The system ensures that there is always sufficient petty cash available

B

The amount of petty cash in total must never fall below the imprest amount

C

Each month an equal amount of cash is transferred into petty cash

D

At any time petty cash in the box plus petty cash vouchers equals the imprest amount LO 1c

4

Nozam maintains an imprest amount of £250 in petty cash. At the end of the month, he has vouchers totalling £112, a receipt for a refund of £9 and a note to say that an employee took £10 to buy stationery for which a voucher has not been prepared. How much does Nozam need to withdraw from the business bank account to reinstate his imprest balance at the end of the month?

8

A

£113

B

£93

C

£137

D

£127

Accounting: Electronic Question Bank

LO 1c

ICAEW 2019

5

The following data has been extracted from the payroll records of a business for the month of May 20X7. Net amount paid to employees PAYE Employer's NIC Employees' NIC

£ 114,000 38,000 15,600 13,400

The wage expense for the month is:

6

7

A

£181,000

B

£152,000

C

£143,000

D

£114,000

LO 1c

Fred sells goods on credit to Keira for £2,400. £50 of these goods are defective and Keira returns them to Fred. What document would Keira issue to Fred? A

Invoice

B

A request for a credit note

C

Credit note

D

A request for an invoice

LO 1c

The following data has been extracted from the payroll records of Scan Ltd for the month of March. PAYE Employer's NIC Employees' NIC Net amount paid to employees

£ 18,400 12,100 10,400 109,000

Scan Ltd's wages expense for the month is:

8

A

£149,900

B

£137,800

C

£92,300

D

£80,200

LO 1c, d

When a purchase invoice is received from a supplier, which of the following documents might the invoice be checked against? A

Sales order

B

Debit note

C

Goods received note

D

Credit note

ICAEW 2019

LO 1c

Chapter 3: Recording financial transactions

9

9

Meghan downloads a transaction report showing her bank transactions for the day. The report shows a payment of £860, which the computerised accounting system has not been able to match to a transaction. Which of the following transactions is most likely to have resulted in the payment of £860? A

A bank transfer received from a credit customer to settle an invoice

B

An amount paid to purchase new office furniture

C

An amount withdrawn to restore the petty cash to its imprest amount of £100

D

A bank transfer paid to an electricity supplier in respect of the monthly invoice received LO 1c

10

Cooks Ltd has a petty cash float with an imprest amount of £250. At the end of March vouchers in the petty cash box totalled £144 and the amount of cash remaining in the box was £86. Which of the following explains the difference? A

A petty cash voucher for £20 is missing.

B

An employee was given £20 too little when making a petty cash claim.

C

An employee reimbursed petty cash with £20 in respect of postage stamps used, but no voucher was prepared.

D

A voucher for £20 was put in the box but no payment was made to the employee. LO 1c

10

Accounting: Electronic Question Bank

ICAEW 2019

Chapter 4: Ledger accounting and double entry 1

2

3

4

All Peter's sales carry VAT at the standard rate of 20%. A customer is sold goods on credit for £2,400 exclusive of VAT. The double entry to record this transaction is: A

Dr Trade receivables £2,880, Cr Sales £2,400, Cr VAT £480

B

Dr Sales £2,400, Dr VAT £480, Cr Trade receivables £2,880

C

Dr Trade receivables £2,400, Dr VAT £480, Cr Sales £2,880

D

Dr Sales £2,880, Cr Trade receivables £2,400, Cr VAT £480

LO 1d; 2c

What transaction is represented by the entries: debit non-current assets account, credit trade payables? A

The receipt of money from sale of a non-current asset

B

The issue of an invoice for the sale of a non-current asset

C

Receipt of an invoice for the purchase of a non-current asset

D

Payment for a non-current asset

LO 1d; 2c

In double-entry bookkeeping, which of the following statements is true? A

Credit entries decrease expenses and increase assets

B

Debit entries decrease expenses and increase assets

C

Credit entries decrease liabilities and increase income

D

Debit entries decrease income and increase assets

LO 1d

Identify whether the following statements are true or false. Statement 1: A credit balance of £100 brought down on George's receivables ledger in Guy's accounting records means that George owes money to Guy. Statemen...