26 At 31 December 2004 a company’s capital structure was as follows:
$
Ordinary share capital
(500,000 shares of 25c each) 125,000
Share premium account 100,000
In the year ended 31 December 2005 the company made a rights issue of 1 share for every 2 held at $1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 31 December 2005?
Ordinary share capital Share premium account
$ $
A 450,000 125,000
B 225,000 250,000
C 225,000 325,000
D 212,500 262,500
(2 marks)
27 The inventory value for the financial statements of Q for the year ended 31 May 2006 was based on an inventory count on 4 June 2006, which gave a total inventory value of $836,200.
Between 31 May and 4 June 2006, the following transactions took place:
$
Purchases of goods 8,600
Sales of goods (profit margin 30% on sales) 14,000
Goods returned by Q to supplier 700
What adjusted figure should be included in the financial statements for inventories at 31 May 2006?
A $838,100
B $853,900
C $818,500
D $834,300
(2 marks)
28 In preparing a company’s bank reconciliation statement at March 2006, the following items are causing the difference between the cash book balance and the bank statement balance:
(1) Bank charges $380
(2) Error by bank $1,000 (cheque incorrectly debited to the account)
(3) Lodgements not credited $4,580
(4) Outstanding cheques $1,475
(5) Direct debit $350
(6) Cheque paid in by the company and dishonoured $400.
Which of these items will require an entry in the cash book?
A 2, 4 and 6
B 1, 5 and 6
C 3, 4 and 5
D 1, 2 and 3
(2 marks)
29 At 31 December 2005 the following require inclusion in a company’s financial statements:
(1) On 1 January 2005 the company made a loan of $12,000 to an employee, repayable on 1 January 2006, charging interest at 2 per cent per year. On the due date she repaid the loan and paid the whole of the interest due on the loan to that date.
(2) The company has paid insurance $9,000 in 2005, covering the year ending 31 August 2006.
(3) In January 2006 the company received rent from a tenant $4,000 covering the six months to 31 December 2005.
For these items, what total figures should be included in the company’s balance sheet at 31 December 2005?
Current assets Current liabilities
$ $
A 10,000 12,240
B 22,240 nil
C 10,240 nil
D 16,240 6,000
(2 marks)
30 How should a contingent liability be included in a company’s financial statements if the likelihood of a transfer of economic benefits to settle it is remote?
A Disclosed by note with no provision being made
B No disclosure or provision is required
(1 mark)
31 Which of the following material events after the balance sheet date and before the financial statements are approved are adjusting events?
(1) A valuation of property providing evidence of impairment in value at the balance sheet date.
(2) Sale of inventory held at the balance sheet date for less than cost.
(3) Discovery of fraud or error affecting the financial statements.
(4) The insolvency of a customer with a debt owing at the balance sheet date which is still outstanding.
A 1, 2, 3 and 4
B 1, 2 and 4 only
C 3 and 4 only
D 1, 2 and 3 only.
(2 marks)
32 Alpha received a statement of account from a supplier Beta, showing a balance to be paid of $8,950. Alpha’s payables ledger account for Beta shows a balance due to Beta of $4,140.
Investigation reveals the following:
(1) Cash paid to Beta $4,080 has not been allowed for by Beta
(2) Alpha’s ledger account has not been adjusted for $40 of cash discount disallowed by Beta.
What discrepancy remains between Alpha’s and Beta’s records after allowing for these items?
A $690
B $770
C $9,850
D $9,930
(2 marks)
33 The business entity concept requires that a business is treated as being separate from its owners.
Is this statement true or false?
A True
B False
(1 mark)
34 Theta prepares its financial statements for the year to 30 April each year. The company pays rent for its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was $84,000 per year until 30 June 2005. It was increased from that date to $96,000 per year.
What rent expense and end of year prepayment should be included in the financial statements for the year ended 30 April 2006?
Expense Prepayment
A $93,000 $8,000
B $93,000 $16,000
C $94,000 $8,000
D $94,000 $16,000
(2 marks)
35 Which of the following items could appear in a company’s cash flow statement?
(1) Surplus on revaluation of non-current assets
(2) Proceeds of issue of shares
(3) Proposed dividend
(4) Dividends received
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
(2 marks)
36 What is the role of the International Financial Reporting Interpretations Committee?
A To create a set of global accounting standards
B To issue guidance on the application of International Financial Reporting Standards
(1 mark)
37 Q’s trial balance failed to agree and a suspense account was opened for the difference. Q does not keep receivables and payables control accounts. The following errors were found in Q’s accounting records:
(1) In recording an issue of shares at par, cash received of $333,000 was credited to the ordinary share capital account as $330,000
(2) Cash $2,800 paid for plant repairs was correctly accounted for in the cash book but was credited to the plant asset account
(3) The petty cash book balance $500 had been omitted from the trial balance
(4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motor vehicles account as $87,400.
Which of the errors will require an entry to the suspense account to correct them?
A 1, 2 and 4 only
B 1, 2, 3 and 4
C 1 and 4 only
D 2 and 3 only
(2 marks)
38 Mountain sells goods on credit to Hill. Hill receives a 10% trade discount from Mountain and a further 5% settlement discount if goods are paid for within 14 days. Hill bought goods with a list price of $200,000 from Mountain. Sales tax is at 17.5%.
What amount should be included in Mountain’s receivables ledger for this transaction?
A $235,000
B $211,500
C $200,925
D $209,925
(2 marks)
39 A computerised accounting system operates using the principle of double entry accounting.
Is this statement true or false?
A False
B True
(1 mark)
40 A company receives rent from a large number of properties. The total received in the year ended 30 April 2006 was $481,200.
The following were the amounts of rent in advance and in arrears at 30 April 2005 and 2006:
30 April 2005 30 April 2006
$ $
Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
What amount of rental income should appear in the company’s income statement for the year ended 30 April 2006?
A $486,500
B $460,900
C $501,500
D $475,900
(2 marks)
41 Annie is a sole trader who does not keep full accounting records. The following details relate to her transactions with credit customers and suppliers for the year ended 30 June 2006:
$
Trade receivables, 1 July 2005 130,000
Trade payables, 1 July 2005 60,000
Cash received from customers 686,400
Cash paid to suppliers 302,800
Discounts allowed 1,400
Discounts received 2,960
Contra between payables and receivables ledgers 2,000
Trade receivables, 30 June 2006 181,000
Trade payables, 30 June 2006 84,000
What figure should appear in Annie’s income statement for the year ended 30 June 2006 for purchases?
A $331,760
B $740,800
C $283,760
D $330,200
(2 marks)
42 The bookkeeper of Field made the following mistakes:
Discounts allowed $3,840 was credited to the discounts received account
Discounts received $2,960 was debited to the discounts allowed account
Which journal entry will correct the errors?
DR CR
A Discounts allowed $7,680
Discounts received $5,920
Suspense account $1,760
B Discounts allowed $880
Discounts received $880
Suspense account $1,760
C Discounts allowed $6,800
Discounts received $6,800
D Discounts allowed $3,840
Discounts received $2,960
Suspense account $880
(2 marks)
43 Which of the following statements are correct?
(1) Materiality means that only items having a physical existence may be recognised as assets.
(2) The substance over form convention means that the legal form of a transaction must always be shown in financial statements even if this differs from the commercial effect.
(3) The money measurement concept is that only items capable of being measured in monetary terms can be recognised in financial statements.
A 2 only
B 1, 2 and 3
C 1 only
D 3 only
(2 marks)
44 The total of the list of balances in Valley’s payables ledger was $438,900 at 30 June 2006. This balance did not agree with Valley’s payables ledger control account balance. The following errors were discovered:
1 A contra entry of $980 was recorded in the payables ledger control account, but not in the payables ledger.
2 The total of the purchase returns daybook was undercast by $1,000.
3 An invoice for $4,344 was posted to the supplier’s account as $4,434.
What amount should Valley report in its balance sheet as accounts payable at 30 June 2006?
A $436,830
B $438,010
C $439,790
D $437,830
(2 marks)
45 Which of the following statements are correct?
(1) A cash flow statement prepared using the direct method produces a different figure for operating cash flow from that produced if the indirect method is used.
(2) Rights issues of shares do not feature in cash flow statements.
(3) A surplus on revaluation of a non-current asset will not appear as an item in a cash flow statement
(4) A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing Activities in a cash flow statement.
A 1 and 4
B 2 and 3
C 3 only
D 2 and 4
(2 marks)
46 Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computer showed the following costs related to the purchase:
$
Computer 890
Additional memory 95
Delivery 10
Installation 20
Maintenance (1 year) 25
1,040
Sales tax (17.5%) 182
Total 1,222
How much should Gareth capitalise as a non-current asset in relation to the purchase?
A $1,222
B $1,040
C $890
D $1,015
(2 marks)
47 A and B are in partnership sharing profits and losses in the ratio 3:2 respectively. Profit for the year was $86,500. The partners’ capital and current account balances at the beginning of the year were as follows:
A B
$ $
Current accounts 5,750CR 1,200CR
Capital accounts 10,000CR 8,000CR
A’s drawings during the year were $4,300, and B’s were $2,430.
What should A’s current account balance be at the end of the year?
A $57,650
B $51,900
C $61,950
D $53,350
(2 marks)
48 What is the correct double entry to record the depreciation charge for a period?
A DR Depreciation expense
CR Accumulated depreciation
B DR Accumulated depreciation
CR Depreciation expense
(1 mark)
49 A company values its inventory using the first in, first out (FIFO) method. At 1 May 2005 the company had 700 engines in inventory, valued at $190 each.
During the year ended 30 April 2006 the following transactions took place:
2005
1 July Purchased 500 engines at $220 each
1 November Sold 400 engines for $160,000
2006
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
What is the value of the company’s closing inventory of engines at 30 April 2006?
A $188,500
B $195,500
C $166,000
D $106,000
(2 marks)
50 A company’s motor vehicles at cost account at 30 June 2006 is as follows:
What opening balance should be included in the following period’s trial balance for motor vehicles – cost at 1 July 2006?
A $36,750 DR
B $48,750 DR
C $36,750 CR
D $48,750 CR
(2 marks)
