Final Finance Exam

Section 1 [30 marks]: Answer all questions

  1. Which accounting concept should be considered if the owner of a business takes goods from inventory for his own personal use?
  2. The substance over form concept
  3. The accruals concept
  4. The going concern concept
  5. The business entity concept

[1 mark]

Explain your answer:

[2 marks]

  1. Listed below are some characteristics of financial information.
  2. Relevance
  3. Comparability
  4. Faithful representation
  5. Timeliness

Which of these are fundamental characteristics, according to the IASB’s Conceptual Framework for Financial Reporting?

  1. 1 and 2 only
  2. 2 and 4 only
  3. 3 and 4 only
  4. 1 and 3 only

[1 mark]

Explain your answer:

[2 marks]

 

  1. The IASB’s Conceptual Framework for Financial Reporting gives four enhancing qualitative characteristics. What are these four characteristics?
  2. Consistency, understandability, faithful representation, substance over form
  3. Accruals basis, going concern concept, consistency, true and fair view
  4. Faithful representation, comparability, understandability, relevance
  5. Comparability, timeliness, understandability, verifiability

[1 mark]

Explain your answer:

[2 marks]

 

  1. A sole proprietor took some goods costing £800 from inventory for his own use. The normal selling price of the goods is £1,600.

Which of the following journal entries would correctly record this?

    DR £ CR £
A Inventory
Purchases
  800 800
B Drawings
Purchases
  800 800
C Sales
Drawings
1600 1600
D Drawings
Sales
  800 800

[1 mark]

Explain your answer:

[2 marks]

 

  1. What is the purpose of charging depreciation in accounts?
  1. To allocate the cost of a non-current asset over the accounting periods expected to benefit from its use
  2. To ensure that funds are available for the eventual replacement of the asset
  3. To reduce the cost of the asset in the statement of financial position to its estimated value
  4. To account for the wear and tear of the asset over its economic life

[1 mark]

Justify your answer:

[2 marks]

 

  1. J.J. Moodle purchased an asset for £100,000 on 1 January 2011. Its useful economic life (UEL) was estimated at 5 years and it was depreciated using the reducing balance method at a rate of 40%. On 1 January 2013, J.J. Moodle decided to change the method depreciating company non-current assets to straight line.

What amount should be reported as the carrying value/net book value of the asset as at 31 December 2013?

  1. £24,000
  2. £76,000
  3. £16,000
  4. £40,000

[1 mark]

Show all workings:

[2 marks]

 

  1. Mr. Twum’s trial balance at 31 October 2019 includes the following balances:

Trade receivables £75,943
Allowance for receivables £4,751

Bad-Debt £500

How would these balances appear in Mr Twum’s balance sheet/statement of financial position as at 31 October 2019?

  1. An asset of £71,192
  2. An asset of £70,692
  3. An asset of £75,943 and a liability of £5,251
  4. An asset of £75,943 and a liability of £4,751

1 mark]

Show all workings:

[2 marks]

 

 

 

  1. A trial balance comprises of debit and credit balances

Which of the statements below is correct?

  1. Every debit balance represents an expense
  2. Assets are represented by debit balances
  3. Liabilities are represented by debit balances
  4. Income is included in the list of debit balances

[1 mark]

Explain your answer:

[2 marks]

 

  1. A business values its inventory using the first in first out (FIFO) approach. At 1 July 2018 the business had 700 items in inventory, valued at £190 each.

During the year ended 30 June 2019 the following transactions took place

July 2018                   Purchased 500 items at £220 each
November 2018        Sold 400 items for £160,000
February 2019           Purchased 300 items at £230 each
May 2019                   Sold items for £125,000

What is the value of the company’s closing inventory of items at 30 June 2019?

  1. £188,500
  2. £195,500
  3. £166,000
  4. None of the above

[1 mark]

Show all workings (any format):

[2 marks]

 

 

 

 

 

  1. As an accounting trainee, you have been asked to prepare a statement of financial position for a business. The cost of the items in closing inventory is £41,875. This include some items which originally cost £1,960 but were damaged in transit.  You have been advised that it will cost £360 to repair the items, and they can be sold for £1,200.

What is the correct amount for inventory that will be reported in the final accounts?

  1. £39,915
  2. £40,755
  3. £41,515
  4. £42,995

[1 mark]

 

Show all workings:

[2 marks]

 

[Section 1 Total: 30 marks]

 

 

 

 

 

END OF SECTION 1 (Contd…below)

 

 

 

 

 

Section 2 [40 marks]:    Answer all questions

  1. The trial balance extract below belongs to Mr Smith, a sole proprietor

TRIAL BALANCE AS AT 30 June 2018

    DR £ CR £
  Purchases & Sales 82,350 138,078
  Carriage 5,144  
  Drawings 7,800  
  Rent & Insurance 6,622  
  Postage 3,001  
  Advertising 1,330  
  Wages 26,420  
  Irrecoverable/Bad-debts    877  
  Allowance for doubtful receivables   130
  Receivables & Payables 12,120 6,471
  Cash 177  
  Bank 1,002  
  Inventory as @ 1 July 2017 11,927  
  Equipment at cost 58,000  
  Accumulated depreciation   19,000
  Capital   53,091
  Total 216,770 216,770

The following information/adjustments as at 30 June 2018 is also available.

  • Rent accrued is £210
  • Insurance has been prepaid by £880
  • £2,211 of carriage represents carriage inwards on purchases
  • Equipment is depreciated at 15% per annum using the straight line method
  • The allowance for doubtful receivables is to be increased by £40
  • Closing inventory is valued at £13,551.

 

Required [Please show ‘WORKING’ for all adjustments]

  1. Prepare a statement of profit or loss (income statement) for the year ended 30 June 2018

 

[20 marks ]

 

 

  1. Prepare a statement of financial position (balance sheet) as at 30 June 2018.

[20 marks ]

 

[Section 2 Total: 40 marks ]

 

END OF SECTION 2 (Contd…below)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Section 3 [30 marks]

Answer all questions

  1. Siri Limited’s bookkeeper is on holiday, and you have been called in to complete the reconciliation of the bank statements to the cashbook for the month of March 2019.

The records you have found are as follows:

 

£                                                                     £

Opening balance b/d             4,120                          Payments                   46,560

Receipts                                 45,320                        Closing balance c/d    2,880

49,440                                                            49,440

 

The bank statement is showing a bank credit balance of £2,848 at 31st March 2019.

On investigation, you discover that:

  1. The last page of the paying-in book shows a deposit of £1904 which has not been credited by the bank but has been included in the cash book.
  2. Two cheques paid to suppliers Tom and Peter for £642 and £1200, respectively, have not yet been presented to the bank.
  3. Dividends received of £189 are shown on the bank statement but not entered in the cash book
  4. Bank charges of £105 shown on the bank statement have not been entered in the cash book.
  5. A cheque for £54 from a Bob the customer was banked last month but has been returned by the bank marked ’refer to drawer’. It has not been written back in the cash book.

 

Required:

You are required to make any corrections or adjustments to the cashbook which you think is necessary, and to prepare a bank reconciliation statement as at 31st March 2019.

[Total 15 marks]

 

  1. The following information has been extracted from the books of Nike Manufacturing for the month of September 2019
  Sales ledger balances as at 1 Sept 2019 £ 10321
  Purchase ledger balances as at 1 Sept 2019    11,233
1 Credit sales for September    70,213
2 Credit purchase for September    64,565
3 Cash sales    5,435
4 Cash purchases    9,879
5 Cash and bank receipts in respect of credit sales  59,977
6 Dishonoured cheques    765
7 Setoffs from sales ledger against purchase ledger balances 756
8 Returns inwards 1,123
9 Bad debts 10,121
10 Payments made for credit purchases 59,808
11 Discount allowed 1,432
12 Discount received 433
13 Returns outwards 765
14 Allowance for doubtful debt 500
  Sales ledger balances as at 30 Sept 2019 8,890
  Purchase ledger balances as at 30 Sept 2019 ?

 

Required:                                                                                

  1. Draw the ‘sales ledger control account’ for Sept 2019 and comment on difference in the balance, if any.                              [6.25 marks]

 

  1. Draw the ‘purchase ledger control account’ for Sept 2019 and comment on the balance.                                                                           [5.25 marks]

 

  • For items 1-14, please write the name of the ‘Book of Original Entry’ each item relates to.                                                           [3.5 marks]

 

[Total 15 marks]

      [Section 3 Total: 30 marks]

END OF EXAM