Mirchawala’s Hub of Accountancy

Mock Exam: 3
Question#1:
Jason has received payment for a debt that had been written off as irrecoverable.
What debit and credit should be used to record the correct journal entry for this transaction?
Cash Receivables control account Irrecoverable debts
Debit
Credit
Question#2:
Daisy Co owns a non-current asset which cost $75,000 on 1 June 20X6. It had a useful life of 10 years
and an expected residual value of $5,000. Non-current assets are depreciated using the straight line
method.
On 1 June 20X8, Daisy Co estimated that the remaining life of the asset was now only five years with an
expected residual value of $3,000.
What should the depreciation charge be for the financial year ending 31 May 20X9 $_____?
Question#3:
Anders is analyzing his financial statements for the year ended 31 May 20X0. He has not yet made
adjustments for the following:
(1)Electricity expenses for the three months to 31 May 20X0 are estimated to be $250
(2)Insurance of $528 for the 12 months to 31 December 20X0 was paid on 1 January 20X0
What is the net impact on profit when the appropriate adjustments are made?
A. Decrease of $558
B. Increase of $58
C. Decrease of $58
D. Increase of $30
Question#4:
Albert Co is preparing financial statements for the year ended 31 May 20X0. The tax charge has been
estimated as $112,500 for the year. In the previous financial year, the tax expense was estimated to be
$99,400 and the company actually paid $102,600 when the tax expense was agreed with the tax
authorities.
What should the tax expense be in the statement of profit or loss for the year ended 31 May 20X0
$______?
Question#5:
On 31 May 20X0, Charmaine counted her closing inventory for the year ended 31 May 20X0. Its
valuation at cost amounted to $459,204. Several days later, she realized that she had included inventory
of $5,130 which was in the dispatch area and was to be returned to the supplier as it was faulty.
Additionally, certain inventory items with a cost of $6,700 were obsolete and only had a net realizable
value of $6,150.
What should the adjustments be to profit and closing inventory in the financial statements for the
year ended 31 May 20X0?
Increase by $5,680 Reduce by $5,680
Profit
Closing inventory

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Question#6:
Katie sold goods with a list price of $18,500 to Marta on 22 May 20X0. Katie allows a trade discount of
15%.
What accounting entry should Katie make in the statement of profit or loss to record the total
revenue in respect of this sale?
A. $15,725 Credit
B. $2,775 Debit
C. $15,725 Debit
D. $2,775 Credit
Question#7:
On 1 January 20X9, Shelter Co had 100,000 $1 ordinary shares. On 1 April 20X9, Shelter Co issued 50,000
$1 ordinary shares for $1.25 per share and on 1 October 20X9, made a bonus issue of $20,000 $1
ordinary shares.
On 1 January 20X9, Shelter Co had $65,000 outstanding in bank loans which had increased to $92,000 by
the end of the financial year.
On 1 January 20X9, Shelter Co had non-current asset investments of $40,000. Shelter Co purchased a
further $10,000 of investments during the year and received $3,000 of interest income on investments.
In the statement of cash flows for the year ended 31 December 20X9, what is the net cash flow from
financing activities?
A. $109,500 inflow
B. $89,500 inflow
C. $82,500 inflow
D. $35,500 inflow
Question#8:
Which of the following would cause the totals of the debit column and the credit column of a trial
balance not to agree?
(1)A sale of $600 was recorded only as a credit in the sales account
(2)A purchase invoice was recorded as a debit of $965 in the purchases account and a credit of $956 in
payables
(3)A payment of $440 was omitted from the ledger accounts entirely
A. 1 and 2 only
B. 2 and 3 only
C. 1, 2 and 3
D. 1 and 3 only
Question#9:
Which of the following is the correct accounting equation?
A. Assets - liabilities = opening capital - drawings + profit
B. Net assets + liabilities = closing capital
C. Assets + liabilities = opening capital + profit – drawings
D. Assets + liabilities = opening capital - drawings + profit
Question#10:
Dresden Co makes all sales on credit. At 30 November 20X9, the total receivables balance amounted to
$136,400.
The following information has come to light a few days after the 30 November 20X9 year end.

(1)Fred Willis, who owed Dresden Co $44,300 at the year end, has been declared bankrupt. The
liquidators have stated that the maximum Dresden Co will receive is $18,000 of the debt owed

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(2)Flora Bailey, who owed Dresden Co $22,500 at the year end, has left the country and has no intention
of ever settling her debt
Following the principles in IAS 10, Events after the Reporting Period, what should Dresden Co include
in the statement of financial position for receivables at 30 November 20X9 $______?
Question#11:
The following information relates to a business's bank balance at 30 November 20X7:
$
Debit balance in cash book 25,050
Cheques not yet presented at bank 8,612
Deposits not yet cleared at bank 11,665
Cheques paid to suppliers on 29 November not yet recorded in the cash book 2,157
Cheque received on 27 November recorded twice in the cash book 620
Cheque received on 1 December 20X7 1,019
What is the correct bank balance to be included in the financial statements at 30 November 20X7
$_____?
Question#12:
Project Bear, a project to improve Polar's production process, commenced on 10 January 20X7.In the
year ended 30 November 20X7, the following costs have been incurred relating to Project Bear.
$
Improvements and alteration to the production process 265,500
Initial feasibility study into the possibility of improving the production process 84,650
Materials used in testing the process before it started production 11,900
The improvement project meets the criteria for capitalization in IAS 38 Intangible Assets.
What amount should be capitalized as development expenditure in the year ended 30 November
20X7?
A. $362,050
B. $277,400
C. $0
D. $265,500
Question#13:
Emily's payables ledger control account shows a balance of $24,903 which does not agree with the
payables ledger. She has found three errors:
(1)A purchase invoice has been entered into the purchase day book as $594 rather than $495
(2)The purchase day book has been undercast by $200
(3)Discounts received of $150 from credit suppliers have not been entered in the control account
What is the corrected payables ledger control account balance?
A. $24,952
B. $24,854
C. $25,004
D. $24,654
Question#14:
Which of the following statements about petty cash is/are true?
(1)If a business makes all of its sales on credit, it has no need to maintain a petty cash book
(2)If petty cash transactions are very small, they do not need to be recorded
(3)Petty cash records should be compared to the bank statement to confirm that payments made from
petty cash are recorded
A. 1, 2 and 3 C. 3 only
B. None of the statements are true D. 1 and 2 only

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Question#15:
Which of the following statements is true?
A. Holders of ordinary shares will always receive an annual dividend
B. Issued shares are included in the statement of financial position at their market value
C. Redeemable preference shares are disclosed as a liability in the statement of financial position
D. Preference shares give the holders a right to vote at company meetings
Question#16:
The following are Hubble's transactions for the month of May:
$
Opening payables 64,199
Opening receivables 84,122
Purchases 122,914
Purchase returns 6,192
Sales 154,610
Sales returns 8,112
Cash paid to suppliers 100,032
Cash received from customers 132,011
Contra between purchase ledger and sales ledger 2,912
All sales and purchases are made on credit.
What should the balance on the purchase ledger control account be at the end of May $_____?
Question#17:
Elliot bought land and buildings for $300,000 on 1 January 20X3 which included $50,000 for the land.
The assets had a useful life of 50 years.
On 1 January 20X7, Elliot revalued the assets to their current value. The valuation was $800,000 in total,
including $110,000 for the land.
There was no change in the remaining useful life of the assets after revaluation.
What should the balance on the revaluation surplus be immediately after the revaluation$______?
Question#18:
The share capital and reserves of Bondai on 1 January 20X8 were as follows:
$
Share capital ($1 shares) 52,000
Share premium 21,000
Retained earnings 25,659
98,659
On 1 April 20X8, Bondai issued 1,500 shares in a bonus issue utilizing the share premium account.
On 1 May 20X8, Bondai issued 5,000 $1 shares for $1.50 per share.
What is the balance of share capital and share premium after both share transactions have taken
place? $22,000 $23,500 $57,000 $58,500
Share premium
Share capital
Question#19:
Which TWO of the following statements about IAS 2 Inventories are correct?
A. Average cost and last in first out (LIFO) are both acceptable methods of arriving at the cost of
inventory
B. Variable production overheads should not be included in the cost of inventory
C. Inventory should be valued at the lower of cost and net realizable value
D. The costs of purchase of inventory should include any import duties paid, less any trade discounts
received

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Question#20:
Florida Co had an on-going litigation claim which had been brought against the company for damage to
a public road allegedly caused by one of its lorries. At 1 October 20X2, Florida Co had disclosed a
contingent liability of $120,000.
Due to new developments in the court case, the latest correspondence with the solicitors at 30
September 20X3 suggests it is now probable that Florida Co will lose and have to pay damages of
$150,000.
What is the impact of the above provision on the statement of profit or loss for the year ended 30
September 20X3?
A. $150,000
B. $120,000
C. $30,000
D. Nil
Question#21:
ABK Co bought a property on 31 December 20X3 for $340,000. At the date of purchase, ABK Co
estimated the useful life of the property to be 32 years.
On 31 December 20X5, the property was revalued to $410,000. There was no change in its useful life.
On 30 June 20X7, ABK Co sold the property for $485,000.
ABK Co depreciates property on a straight line basis, with a proportional charge in the years of purchase
and disposal.
What is the profit on disposal of the property that should be recorded in ABK Co's financial
statements at 31 December 20X7$______?
Question#22:
Mary has the following ledger balances in her general ledger:
$
Capital 6,260
Cash at bank 890
Discounts received 2,300
Expenses 15,910
Non-current assets (carrying amount) 31,845
Opening inventory 4,820
Purchases 71,470
Payables 6,930
Receivables 15,870
Sales 125,470
What is the balance required in a suspense account to make Mary's trial balance agree?
A. $155 Cr
B. $155 Dr
C. $1,445 Cr
D. $1,445 Dr
Question#23:
Which of the following errors would lead to the creation of a suspense account?
A. An error of omission
B. An error of principle
C. A compensating error
D. A transposition error

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Question#24:
Which of the following statements describes a suspense account?
A. An account used to record the balances extracted from the ledger accounts at the period end
B. A temporary account used when the business is not sure where an accounting entry should be
posted
C. A ledger account which records non-standard accounting entries
D. An account used to record period end adjustments such as accruals and prepayments
Question#25:
Carmela purchased goods for resale in March of $86,000. All sales are at a gross margin of 20%. Carmela
had opening inventory of $22,000 and closing inventory of $16,000.
What should Carmela's revenue be for March $______?
Question#26:
The draft financial statements of a limited company include the following assets and liabilities at the end
of an accounting period.
Current assets: $
Inventory 184,100
Trade receivables 139,300
Total current assets 323,400
Current liabilities:
Bank overdraft 18,500
Trade payables 174,200
Accruals 9,300
Total current liabilities 202,000
Which of the following is the company's Quick (Acid Test) Ratio?
A. 1.60: 1
B. None of these
C. 0.69: 1
D. 0.91: 1
Question#27:
Which of the following statements is true?
A. Ratios based on historical data can predict the future performance of an entity
B. The analysis of financial statements using ratios provides useful information when compared with
previous performance or industry averages
C. An entity's management will not assess an entity's performance using financial ratios
D. The interpretation of an entity's financial statements using ratios is only useful for potential
investors
Question#28:
Below is an extract of ADC Co's trial balance.

Dr ($) Cr ($)
Cash at bank 2,500
Receivables 3,750
Allowances for receivables 550
Irrecoverable debts 200

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What entries would be made in ADC Co's statement of financial position in relation to these items?

A. Current assets $3,750

Current liabilities $3,050
B. Current assets $3,750
Current liabilities $2,850
C. Current assets $3,200
Current liabilities $2,500
D. Current assets $3,400
Current liabilities $2,500
Question#29:
Colin has not kept accounting records for his first year of trading. He has purchased $65,000 of goods
during the year and has $5,000 of goods left in inventory at the end of the year. All sales are made at a
mark-up on cost of 40%.
What is Colin's gross profit for his first year of trading $______?
Question#30:
The auditor of Four Co, a manufacturing company, has noted an increase in total sales value but a
decrease in the company's gross profit percentage for 20X9, as compared to the previous year.
Which of the following is consistent with, and adequately explains, these events?
A. Sales commission payable to the company's sales force increased in relation to sales values as
compared to 20X8
B. Sales volumes have decreased as compared to 20X8
C. During 20X9, due to a scarcity of supply the company had to pay higher prices when purchasing
components
D. During 20X9, Four Co increased the early settlement discounts previously granted to credit
customers
Question#31:
Which of the following organizations provides guidance to the International Accounting Standards
Board on the implications of proposed standards for users and preparers of financial statements?
A. The International Federation of Accountants
B. The International Financial Reporting Standards Advisory Council
C. The International Financial Reporting Standards Foundation
D. The International Financial Reporting Standards Interpretations Committee
Question#32:
Which of the following statements about disclosure notes is/are correct?
(1)IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires remote contingent liabilities
to be disclosed if they are material
(2)IAS 2 Inventories requires the disclosure of the amount of inventories carried at net realizable value
(3)IAS 16 Property, Plant and Equipment requires disclosure of whether an independent valuer was
involved in the valuation of revalued assets
A. 1 and 3
B. 2 and 3
C. 2 only
D. 1 and 2

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Question#33:
On 3 December, a credit customer returned goods of $3,500 to Gerry. Gerry returned goods of $4,100 to
his credit supplier on 2 December.
What is Gerry's correct journal entry to record these two returns?
A. Dr Payables $4,100 Cr Returns outwards $4,100
Dr Returns inwards $3,500 Cr Receivables $3,500
B. Dr Payables $3,500 Cr Returns outwards $3,500
Dr Returns inwards $4,100 Cr Receivables $4,100
C. Dr Returns outwards $4,100 Cr Payables $4,100
Dr Receivables $3,500 Cr Returns inwards $3,500
D. Dr Returns outwards $3,500 Cr Payables $3,500
Dr Receivables $4,100 Cr Returns inwards $4,100
Question#34:
Which of the following statements about directors are true?
(1)The directors of a company are responsible for the preparation of the financial statements of that
company
(2)The directors and external auditors of a company have joint responsibility for the governance of that
company
(3)The directors of a company must act honestly in what they consider to be the best interests of their
fellow directors
A. 1 and 2
B. 1 and 3
C. 2 and 3
D. 1 only
Question#35:
Which of the following statements from the Conceptual Framework for Financial Reporting regarding
the qualitative characteristics of financial information is FALSE?
A. If information is timely then its usefulness is enhanced
B. Understandability means that points that are too complex for non-expert users should be excluded
C. Information is verifiable if different knowledgeable and independent observers could reach
consensus that a particular depiction is a faithful representation
D. Information will only be useful if it is relevant and faithfully represented
“Section B”
Question#36:
Claus, a limited liability company, acquired 75% of Rolph's voting share capital on 1 October 20X1 for
$1.50 per share.
Rolph's share capital comprised 1 million $1 ordinary shares.
Task 1: 4 Marks
Complete the following sentences:
Claus has acquired a _____ (significant influence/controlling interest) in Ralph. Therefore Ralph must be
accounted for in the consolidated financial statements as at 31 March 20X2 as ______ (A trade
investment/an associate/A subsidiary)
The cost of the investment in Ralph will appear in________
A. The consolidated SOFP of Claus Group only

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B. The individual SOFP of Claus only

C. The individual SOFP of Ralph only
D. Both the individual and consolidated SOFP of Claus Group
The formula for calculating the cost of the investment is _______
A. 1m×75%×$1 C. 1m×$1.50
B. 1m×$1 D. 1m×75%×$1.50
Any investment income Claus receives from Ralph will be recorded in_____
A. The individual accounts of Claus only
B. The individual accounts for Ralph only
C. The consolidated accounts for Claus Group only
D. Both the individual accounts of Claus and the consolidated accounts of Claus Group
Task 2: 8 Marks
Claus purchased 75% of the voting capital of Ralph on 1 October 20X1.
The following additional information relates to the year ended 31 March 20X2:
Statement of financial position as at 31 March 20X2
Claus Ralph
$'000 $'000
Non-current assets
Property, plant and equipment 3,270 1,565
Investments 1,125 0

Current assets
Inventory 300 162
Receivables 161 262
Cash 102 0
4,958 1,989
Equity
Share capital 3,000 1,000
Retained earnings 1,616 690

Non-current liabilities 150 200

Current liabilities
Payables 192 71
Overdraft 0 28
4,958 1,989
NOTES:

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(1)On 1 October 20X1 Rolph's retained earnings were $475,000.

(2)At the date of acquisition, the fair value of Rolph's property, plant and equipment was equal to its
carrying amount with the exception of Rolph's land which had a fair value of $200,000 in excess of its
carrying amount. The fair value has not been reflected in Rolph's individual financial statements.
(3)Included in Claus' receivables is a balance of $11,000 due from Ralph. This agrees with the
corresponding figure shown in Rolph's balances.
Complete the following extracts from the consolidated statement of financial position as at 31 March
20X2:
$'000
Property, plant and equipment ______
Receivables ______
Share capital ______
Retained earnings ______
A. 1,616
B. 1616+690
C. 1,616+(75%×(690-475))
D. 1,1616+(75%×690)
Payables ______
Revaluation surplus ______
A. 0
B. 1,765
C. 200
D. 150
Task 3 and 4: 3 Marks
The following year, trading between Claus and Ralph continues. There is no change to Claus'
shareholding in Ralph.
Claus makes sales of $240,000 to Ralph during the year, at a markup of 60%.
30% of the items have been sold to a third party by the year end.
Task 3: 2 Marks
What is the journal entry in the consolidated statement of financial position to record the elimination
of the unrealized profit?
Debit Credit No debit or credit
Non-controlling interest
Group retained earnings
Inventory
Goodwill: Net assets at acquisition
Task 4: 1 Marks
What is the amount of the unrealized profit in inventory at the yearend $_____ '000?

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Question#37:
Extracts from the trial balance of Desmond, a limited liability company, for the year
ended 30 September 20X8 are shown below:

$'000 $'000
Intangible assets 50
Plant at cost at 1 October 20X7 176
Plant accumulated depreciation at 1 October 20X7 88
Buildings at cost at 1 October 20X7 580
Buildings accumulated depreciation at 1 October 20X7 48
Inventory at 30 September 20X8 60
Trade receivables 256
Allowance for receivables at 1 October 20X7 8
The intangible assets were purchased on 1 April 20X8 and have a useful life of five years from that date.
Amortization is calculated on a monthly basis.
Task 1: 3 Marks
What is the carrying amount of intangible assets at 30 September 20X8 $____ '000?
How will this balance be classified in the statement of financial position_____?
A. Equity
B. Current Assets
C. Non- current liabilities
D. Current liabilities
E. Non-current assets
Task 2: 4 Marks
On 30 September 20X8, Desmond disposed of an item of plant for $12,000. The plant originally cost
$24,000 and had accumulated depreciation of $9,000 at 1 October 20X7.
Plant is depreciated at 25% per annum using the reducing balance method. A full year's depreciation is
charged in the year of acquisition and no depreciation is charged in the year of disposal.
What is the profit or loss on disposal of the plant $____’000 (Profit/Loss)?
What is the correct calculation for the depreciation expense on the remaining plant for the year
ended 30 September 20X8 ______ (all figures are in $'000)?
A. ((176-24)-(88-9))×25%
B. (176-15)×25%
C. (176-88)×25%
D. ((176+24)-(88+9))×25%
Task 3 and 4: 5 Marks
The buildings were revalued on 1 October 20X7 to $620,000.

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Task 3: 2 Marks
What is the journal entry to record the revaluation of buildings?
Debit Credit No debit or credit
Buildings - cost
Depreciation expense
Buildings - accumulated depreciation
Revaluation surplus
Task 4: 3 Marks
The buildings are depreciated at 5% per annum on cost or valuation. Desmond's policy is to make an
annual transfer of the excess depreciation from the revaluation surplus to retained earnings.
What is the depreciation expense to be charged in the statement of profit or loss for the year ended
30 September 20X8 $____’000?
What amount should be transferred for excess depreciation from the revaluation surplus to retained
earnings for the year ended 30 September 20X8 $_____’000?
Task 5: 3 Marks
The trade receivables balance has been reviewed at the year end and the following adjustments are
required:
(1)An irrecoverable debt of $6,000 is to be written off.
(2)The allowance for receivables needs to be adjusted to 2% of the remaining receivables.
Complete the following statements:
The irrecoverable debt will______ the net profit for the year
A. Reduce
B. Increase
C. Not impact
The impact of the movement in the allowance for receivables for the year ended 30 September 20X8
will_____ (Reduce/increase/not impact) the net profit for the year by_____
A. $3,040
B. $0
C. $5,000
D. $2,880
E. $3,000

End Paper
(!) Best of Luck (!)

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