FAFN - Revision 2

1. a) b) c) d) 2. Which of the following statements is incorrect? Fixed assets will have a useful life of more than one year Capital invested in a business is usually invested for more than one year Current liabilities are payable within one year Current assets will result in future benefits lasting more than one year What is the correct ledger entry for sales of goods on credit? Option: A B C D a) Option A 3. a) b) c) d) 4. Debit Sales account Debtors account Sales account Stock account b) Option B Credit Debtors account Sales account Stock account Sales account c) Option C d) Option D

Which of the following statements is correct? A debit entry is required to record an increase in assets A debit entry is required to record a decrease in capital A debit entry is required to record a decrease in liabilities A debit entry is required to record a decrease in assets

A company has debtors of 72000, which represents 72 debtors days, and creditors of 51000, which represents 51 creditors days. What would be the effect on cash, if debtors days and creditors days were reduced to 66 days and 45 days respectively? a) An increase of 6000 c) A reduction of 12000 b) No effect d) An increase of 12000

5. a) b) c) d) 6.

The valuation of stock in a manufacturing company will consist of: All direct costs plus a share of production overheads Direct material and direct labour only Direct material, direct labour and direct expenses only All direct costs plus a share of production and non-production overheads For financial accounting purposes, stock should be valued at: a) Higher of cost and net realisable value c) Lower of cost and net present value b) Higher of cost and net present value d) Lower of cost and net realisable value

7. a) b) c) d)

Which of the following formulae should Ruvini use to compute the current years net profit? Opening capital drawings + capital introduced closing capital Opening capital drawings capital introduced - closing capital Closing capital + drawings capital introduced opening capital Closing capital drawings + capital introduced opening capital

8.

The following information relates to a Zaneers business at its year end: 000s 105000 3500 700 11900 3850 1400 10500 17500 1750 2625 1400 2100 14000 b) 30800000 c) 29225000 d) 28525000

Data: Sales Stocks at beginning of year: Raw materials Work-in-progress Finished goods Stocks at end of year: Raw materials Work-in-progress Finished goods Purchases of raw materials Returns inwards Returns outwards Carriage inwards Carriage outwards Direct labour a) 29925000

The prime cost of goods manufactured during the year is:

9. Thilinis business has the following capital and long-term liabilities: Data: 10% Debentures Issued share capital Share premium Retained profits Previous Year millions 200 150 30 220 Current Year millions 240 180 108 72

It calculates its gearing ratio as the proportion of debt to total capital. At the end of the current year, its gearing ratio, compared with that of the previous year, is: a) The same as the previous year b) Higher, resulting in grater risk for shareholders c) Lower, resulting in greater security for shareholders d) Higher, resulting in grater security for shareholders 10. A companys cashbook has an opening balance of 4860 debit. The following transactions then took place: (i) Cash sales - 23500, including VAT of 3500 (ii) Receipts from customers - 18600 (iii) Payments to creditors 12400, less cash discounts of 240 (iv) Bank Charges - 260 What will be the resulting balance in the cashbook? a) 21340 credit b) 31040 debit 11. a) b) c) d) c) 34540 debit d) 24580 credit

Which of the following transactions would be classified as a revenue transaction? Purchase of stock for resale Issue of share capital Purchase of plant and machinery Payments made to creditors

12. Uma and Shifara Ltd has the following manufacturing figures: Data: Prime cost 105000 Factory overheads 14000 Opening Work in progress 9975 Factory cost of good completed 113750 Calculate the Closing work in progress in 13. The bookkeeper of Fernando Ltd has absconded with the petty cash. The following was available: Data: Petty cash balance at 1 January 2001 1750 Total sales for the year 66500 Credit customers owed at 1 January 2001 1470 Credit customers owed at 31 December 2001 175 Cheque banked from credit customers 18200 Expenses paid from till 11025 Cash receipts lodged in the bank 15085 How much has Suthas, the bookkeeper stolen during the year? 14. A company has the following current assets and liabilities at its most recent year end: Data: millions Current assets: Stock 1455 Debtors 570 Bank 60 2085 Current liabilities: Creditors 630 When measured against standard acceptable levels for liquidity, the company can be said to have: a) Ideal current and acid test ratios b) A high current ratio and low acid test ratio c) An ideal acid test ratio, but a high current ratio d) An ideal current ratio, but a low acid test ratio 15. A business has three fixed assets. (i) Asset 1 will be used to manufacture components over a 4 year period, after which it will be scrapped; the total contract is for 1 million components, to be produced in different quantities each year. (ii) Asset 2 is a motorcar for Sajith, the director; it is expected to be kept for 3 years, and will travel 20000 miles each year. (iii) Asset 3 is a mobile truck used for transporting goods around the factory; it is expected to be kept for 20 years. Which one of the following combinations of depreciation methods, would be the most reasonable for the above three assets? Option: Asset 1 Asset 2 Asset 3 A Straight line Mileage travelled Reducing balance B Quantity produced Reducing balance Straight line C Quantity produced Mileage travelled Straight line D Quantity produced Mileage travelled Reducing balance a) Option A b) Option B c) Option C d) Option D

16. a) b) c) d) 17.

The correct journal entries for subscriptions paid in advance is: Debit: Debtors Debit: Subscriptions accounts Debit: Cash Debit: Debtors Credit: Cash Credit: Creditors Credit: Creditors Credit: Subscription accounts

Which of the following items would not be classified as a current asset? a) Land and Buildings b) Cash c) Stock d) Debtors

18.

External Auditors report their findings to: a) Shareholders of the company c) Debtors + b) Creditors d) Internal Auditors

19.

Which of the following methods of stock valuation is not acceptable in the United Kingdom for financial reporting purposes? a) Periodic weighted average c) Weighted average b) Last in First Out (LIFO) d) First in First Out (FIFO)

20.

Tharshinis businesss bank balances increased by 3 million during its last financial year. During the same period, it issued shares of 9 million and repaid a debenture of 6.75 million. It purchased fixed assets for 1,800000 and charged depreciation of 900000. Net current assets (other than the bank balance) increased by 5.175 million. What is its profit for the year (to one decimal place)?

21.

The record of how the profit or loss account of a company has been allocated to distributions and reserve is found in the: a) Capital account c) Reserves account b) Profit and loss account d) Appropriation account

22.

You have been asked to prepare the sales ledger control account got Dilan Ltd for the month of October, using the following information: Information: Discount allowed 1700 Cash and cheques from customers 106200 Customers' cheques dishonoured 1400 Sales daybook total 96225 Returns inward daybook total 675 According to the accounts the opening debtor balance was 165625 What is the closing balance as at the end of October?

23. a) b) c) d) 24.

Which of the following statements is correct? A credit entry is required to record an increase in expenses A debit entry is required to record an increase in income A debt entry is required to record a decrease in expenses A credit entry is required to record an increase in income The Accounting Standards Board is responsible for: a) Producing Financial Reporting Standards c) Producing International Accounting Standards b) Producing the Companies Act d) Governing the activities of the external auditors

25.

Which of the following is not an eternal user of financial statements: a) Shareholder b) auditor c) creditor d) director

26. a) b) c) d) 27.

Which one of the following is an error of original entry? An invoice for 746 debited and credited to the correct accounts, but for 476 An electricity bill debited and credited to the correct accounts but duplicated A credit sale debited to the bank account and credited to the sale account The purchase of a fixed asset debited to the stock account and credited to the suppliers account.

The reducing balance method of depreciating fixed assets is more appropriate than the straight line method when: a) b) c) d) The asset is expected to decrease in value by a fixed percentage of cost each year The expected life of the asset is short The asset is expected to decrease in value less in later years than in the early years of its life The asset is expected to decrease in value more in later years than in the early years of its life.

28.

Which one of the following attributes is the most important for any code to possess, in order to be of use in an accounting system: a) Unique b) Secret c) Understandable d) Concise

29.

Danushka organisations trial balance at the end of the month was out of agreement, with the debit side totaling 500 less then the credit side. A suspense account was opened for this amount. During the next month, the following errors were discovered. (i) The purchase returns day book had been under cast by 50 (ii) Rent payable of 400 had been credited to the rent receivable account (iii) A fixed asset, with a net book value of 700 had been disposed of at a loss of 80; all entries had been correctly recorded except that the sale proceeds had been omitted from the disposals account. Following the correction of these errors, the balance on the suspense account would be which one of the following. a) Debit 30 b) Credit 230 c) Debit 270 d) Credit 130

30.

Asiris company sells goods on a sale or return basis two weeks before the end of the current financial year. The final date for return or payment in full is two weeks after the end of the financial year. The costs include the purchases of stocks, which have already been paid for, and delivery charges to the customer which are still outstanding at the end of the year. The associated revenues and expenses of the transaction should be dealt with in the profit and loss account by: a) Including revenues and all costs in the current financial year b) Including all revenues and all costs in the next financial years. c) Including all delivery charges in the current financial year, and revenue and revenue and cost of stock sold in the next financial year d) Including all costs in the current financial year all revenues in the next financial year

31. (i) (ii) (iii) (iv)

An organizations cashbook has an opening balance in the bank column of 4850 credit. The following transactions then took place: Cash sales of 14500, including VAT of 1500 Receipts from customers of debts of 24000 Payments to creditors of debts of 18000, less 5% cash discount Dishonoured cheques from customers mounting o 2500 b) 14050 debit c) 23750 credit d) 12550 debit

The resulting balance in the bank column of the cashbook should be which one of the following? a) 19050 credit

32.

The petty cash imprest is restored to 250 at the end of each week, The following amounts are paid out of petty cash during week 12: (i) (ii) (iii) (iv) Stationery - 35.25 (including VAT @17.5%) Traveling costs - 63.75 Office refreshments - 32.25 Sundry creditors - 60.00 plus VAT 17.5%

What is the amount required to restore though imprest to 250.00? 33. A companys profit and loss account for the most recent year showed the following: Data: Net profit before interest and tax millions 24 (2) 22 (6) 16 millions 80 12 92 20

Less Interest Less Corporation tax

Retained profit for the year Data: Share capital Reserves 10% debenture

In the balance sheet at the previous year end showed the following capital:

What is the Return on Average Total Capital employed for the current year? 34. a) b) c) d) 35. Which on of the following statements is true? External auditors are employed by the management Eternal auditors are employed by the stakeholders Internal auditors are employed by the management Internal auditors are employed by the stakeholders

If closing sock at the end of a accounting period is overvalued by 750 and no adjustments is made, the net profit in the following accounting period will be: a) b) c) d) 1500 overstated 1500 understated 750 understated 750 overstated Which of the following items would not be classified as a fixed asset? a) b) c) d) Fixtures and fittings Stock Plant and machinery Land and buildings

36.

37.

A company has authorised capital of 100000 5% preference shares if 2 each and 500000 ordinary shares of 0.20p each. All of the preference shares have been issued, and 400000 ordinary shares have been issued at 0.45p each. Interim dividends of 0.10 p per ordinary share plus half the preference dividend have been paid during the current year. A final dividend of 0.20p per ordinary share is proposed. What is the total of dividends payable for the year?

38.

A fixed asset was purchased for 240000 at the beginning of Year 1, with an expected life of 7 years and a residual value of 50000. It was depreciated by 20% per annum using the reducing balance method. At the beginning of Year 4 it was sold for 100000. The result of this was: a) A profit on disposal of 58571 b) A profit on disposal of 50000 c) A profit on disposal of 22880 d) A loss on disposal on 2720

39. a) b) c) d) 40. a) b) c) d)

The purpose of charging depreciation in the profit and loss account is: To ensure that the funds will be available for eventual replacement of fixed assets To comply with the prudence concept To allocate the cost of acquiring fixed assets over the accounting periods to benefit from their use. To reduce the figure shown in the balance sheet from the cost of fixed assets. The valuation of stock in a manufacturing company will consist of: Direct material, direct labor and direct expenses only Direct material and direct labour only All direct costs plus a share of production and non production overheard All direct costs plus a share of production overheads

41. A decrease in the provisions for receivables would result in A A decrease in net profit B A decrease in working capital C An increase in liabilities D An increase in working capital 42. On 1st August 2007 aa customer owed $14320. During August the sales made to the customer amounted to $8,220 and goods returned amounted to $1,430. A cheque of $7,985 was received from the customer, but it was subsequently dishonoured. The amount outstanding in the customers account at the month end is. 43. Goodwill is the difference between? 44. Give three examples of intangible assets.