Ffa12efmq A Low Res

FIA FFA / ACCA PAPER F3
Financial Accounting
Final Mock Examination
Question Paper
Time allowed
2 hours
ALL 50 questions are compulsory and MUST be attempted.
Instructions:
Please attempt this exam under test conditions.
Take a few moments to review the notes on the inside of this page titled, Tackling Multiple Choice Questions
before attempting this exam.
DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
FFFA12 EFM Questions

This examination has been prepared for examinations from February 2013 to January 2014
FFA/F3 FINANCIAL ACCOUNTING
QUESTIONS
Tackling Multiple Choice Questions

MCQs are part of all FIA exams and Papers F1 F3 of the ACCA qualification. The questions in the paper
based exams are all MCQ and a large proportion of questions in the CBE are also MCQ.
The MCQs in your exam contain four possible answers. You have to choose the option that best answers the
question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and
correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam.
You may wish to follow the approach outlined below, or you may prefer to adapt it.
Step 1
Skim read all the MCQs and identify what appear to be the easier questions.
Step 2
Attempt each question starting with the easier questions identified in Step 1. Read the
question thoroughly. You may prefer to work out the answer before looking at the options, or
you may prefer to look at the options at the beginning. Adopt the method that works best for
you.
Step 3
Read the four options and see if one matches your own answer. Be careful with numerical
questions as the distracters are designed to match answers that incorporate common errors.
Check that your calculation is correct. Have you followed the requirement exactly? Have you
included every stage of the calculation?
Step 4
You may find that none of the options matches your answer.
Re-read the question to ensure that you understand it and are answering the
requirement
Eliminate any obviously wrong answers
Consider which of the remaining answers is the most likely to be correct and select the
option
Step 5
If you are still unsure make a note and continue to the next question
Step 6
Revisit unanswered questions. When you come back to a question after a break you often find
you are able to answer it correctly straight away. If you are still unsure have a guess. You are
not penalised for incorrect answers, so never leave a question unanswered!
After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the
exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the
requirement and options carefully do not assume that it is identical.
1
This examination has been prepared for examinations
from February 2013 to January 2014
Answer all questions - Use the answer sheet at the end of this exam to
record your answers
1
Bill, a sole trader, set up business on 1 October 20X8 with $30,000 of his own money. During the year
to 30 September 20X9 he won $50,000 on the lottery and paid $30,000 of this into his business. He
took cash drawings of $5,000 during the year and at 30 September 20X9 the net assets of the business
totalled $59,000.
What was the profit or loss of the business for the year ended 30 September 20X9?
$4,000 profit
$6,000 profit
$16,000 loss
$6,000 loss
(2 marks)
Which of the following statements about associates is correct?

(1)
Associates are accounted for in consolidated financial statements using the equity method.
(2)
A company must hold 20% or less of the voting rights of another company for it to be classed as
an associate.
(3)
An associate is an entity in which the investor has significant influence.
(4)
When an associate is accounted for in group accounts, only the groups share of the associates
profit before tax is added to the group profit.
1, 3 and 4
2, 3 and 4
1 and 3
3 and 4
(2 marks)
A business has sales of $100,000 during a year. Opening inventory was $15,000 and purchases were
$75,000. If the gross profit was $15,000, what was closing inventory?
A
$5,000
$10,000
$25,000
$55,000
(2 marks)
The total of the balances in a company's trade receivables ledger is $800 more than the debit balance
on its trade receivables control account. Which one of the following errors could by itself account for the
discrepancy?
A
One receivables ledger account with a credit balance of $800 has been treated as a debit
balance.
Settlement discounts totalling $800 have been omitted from the nominal ledger.
The sales day book has been undercast by $800.
The cash receipts book has been undercast by $800.
2
(2 marks)
QUESTIONS
When reviewing the nominal ledger, the trade receivables account was as follows:
RECEIVABLES LEDGER CONTROL ACCOUNT
Balance b/d
Sales
$
150
2,000
???
Cash received
Balance c/d
$
75
1,875
200
The narration for the $75 entry was illegible. What could the entry have been?
(1)
(2)
(3)
(4)
Contra
Irrecoverable debt write off
Doubtful debt allowance
Returns outwards
1 only
1 or 2 only
2 or 3 only
Any of them
(2 marks)
Steves working capital ratios are as follows:

20X1
20X2
Quick ratio
1.0
0.8
Payables days
29
37
Receivables days
63
42
Inventory turnover
28
20
Which of the following statements is correct?
The cash operating cycle has lengthened in 20X2.
Steve has taken advantage of early settlement discounts offered by suppliers in 20X2.
Steve is taking longer to sell his inventory in 20X2.
Steve has offered early settlement discounts to customers in 20X2.
(2 marks)
Which of the following statements about non-controlling interests is correct?

(1)
Non-controlling interest is the equity in a subsidiary which is not attributable to the parent
company.
(2)
Non-controlling interest is accounted for using the equity method.
(3)
Non-controlling interest is shown in the statement of financial position at its fair value at
acquisition plus the non-controlling interests share of pre-acquisition retained earnings and other
reserves.
1 and 3
2 and 3
1 only
2 only
(2 marks)
3
On 1 December 20X8 Gilbert's payables ledger control account had a balance of $3,200 (credit).
During the month the following transactions occurred:
$
2,500
300
3,300
750
Payments to suppliers
Cash purchases
Purchases on credit
Returns outwards
What is the balance on the control account as at 31 December 20X8?
$1,850
$3,250
$3,350
$4,750
(2 marks)
A company has prepared draft accounts for the year ended 31 March 20X9 incorporating the managing
director's bonus of 4% of net profit.
It has now been discovered that the draft accounts omitted trade discounts allowed to customers of
$100, cash discounts allowed from suppliers of $400 and a rent prepayment of $200.
What is the adjustment required to the income statement in respect of these errors?
10
$480 Cr
$680 Cr
$500 Cr
$630 Cr
(2 marks)
A trader has budgeted sales for the coming year of $275,000. He achieves a constant mark-up of 25%.
He plans to reduce his inventory level by $14,000 over the year.
What will his purchases for the year be?
11
$192,250
$206,000
$206,250
$220,000
(2 marks)
Harry has been unable to calculate his business' profit or loss for the year ended 31 December 20X8 as
fire destroyed most of his accounting records. He has, however, been able to provide the following
information.
(1)
Net assets at 31 December 20X7 were $23,000 and $32,500 at 31 December 20X8.
(2)
He introduced capital during the year of $4,000 cash.
(3)
He took cash drawings of $2,500 and goods with a selling price of $800; the cost of the goods
was $750.
What was Harry's profit or loss for the year ended 31 December 20X8?
A
$8,750 profit
$1,750 loss
$9,800 profit
$2,750 loss
4
(2 marks)
QUESTIONS
12
The following information is available for the year ended 31 December 20X8 for Ski, a well-run
company:
$
1,000
2,000
8,000
10,000
12,000
14,000
9,000
6,000
7,000
Opening cash
Closing cash
Opening balance on the trade payables control account
Closing balance on the trade payables control account
Opening balance on the trade receivables control account
Closing balance on the trade receivables control account
Cash paid to trade accounts payable in the period
Opening inventory
Closing inventory
Mark-up of 10%
Assuming the information above is complete, what was the sales figure for the period?
13
14
15
$6,600
$10,000
$11,000
$13,200
(2 marks)
Which of the following errors could result in a suspense account being required to 'balance' the trial
balance?
A
Cash received from credit customers treated as a cash sale.
A supplier's invoice for $32 recorded as $23 in the purchases account.
Payments to suppliers of $647 recorded as $674 in the payables ledger.
One page omitted from the purchase day book.
(2 marks)
Jennas receivables collection period has changed from 54 days to 41 days. Which of the following
reasons could explain this?
A
Jenna has taken advantage of early settlement discounts offered by suppliers.
Some key suppliers have decreased their payment terms from 60 days to 30 days.
Jennas payment terms for customers have been increased from 30 days to 60 days.
Early settlement discounts have been offered to customers.
(2 marks)
A car has a list price of $23,500 but the garage gives the company a trade discount of $2,350. In
settlement the garage accepts a cheque for $18,000, together with an old company car on which it
grants a trade-in allowance of $3,150. How much should the company capitalise?
A
$21,150
$23,500
$18,000
$20,350
(2 marks)
5
16
17
Which of the following errors would result in a trial balance imbalance?

(1)
The discounts allowed balance was listed as a credit on the trial balance.
(2)
Drawings for the last month of the year had been posted to the sundry expenses account.
(3)
A contra settlement had been recorded only in the receivables and payables ledgers.
(3) only
(1) only
(1) and (2)
(1), (2) and (3)
(2 marks)
During the year ended 30 June 20X9 Joy purchased $84,300 of inventory for resale. Over the year,
inventory held fell by $4,100. She used a mark up of 25%.
What was the gross profit for the year?
18
$26,734
$29,467
$22,100
$20,050
(2 marks)
Orange acquired 75% of the voting shares of Green. Green had the following equity at the date of
acquisition:
$
Ordinary shares
750,000
Retained earnings
325,000
The cost of the investment was $975,000 and the fair value of the non-controlling interest at acquisition
was $225,000.
What was the goodwill on acquisition of Orange?
A
$100,000
$125,000
312,500
$393,750
6
(2 marks)
QUESTIONS
19
Extracts from a company's statements of financial position show the following non-current assets.
30 June
Intangible assets
Development expenditure
Property, plant and equipment
Freehold property
Plant and machinery
Fixtures and fittings
20X8
$
20X9
$
60,000
95,000
750,000
320,000
105,000
1,230,000
370,000
90,000
The expenditure for the year on development projects had been $55,000. The building element of the
freehold property was depreciated by $6,000 and then revalued on 30 June 20X9 by $95,000. Plant
and machinery with a carrying amount of $14,000 was disposed of in November 20X8 for $8,000.
Depreciation on the other plant and machinery for the year amounted to $37,000. Depreciation of
$35,000 has been charged on fixtures and fittings.
What is the total figure relating to non-current assets included in the reconciliation of profit before tax to
cash flows from operating activities?
20
$84,000
$92,000
$98,000
$104,000
(2 marks)
There is $100 in the cash till at the year-end for Demon, but the accountant had discovered that some
cash has been stolen. At the beginning of the year there was $50 in the cash till and receivables were
$2,000. Total sales for the year were $230,000. Receivables at the end of the year were $3,000.
Cheques banked from credit sales were $155,000, and cash sales of $50,000 have been banked.
How much cash was stolen during the year?
21
$23,950
$24,050
$24,150
$30,040
(2 marks)
An extract from a business' income statement is:

$
Sales
Opening inventory
Purchases
21,000
80,000
101,000
5,000
Closing inventory
$
115,200
96,000
19,200
What is the mark up achieved?
A
16.6%
20%
24%
69.4%
(2 marks)
7
22
The current liabilities of A include the following:

20X8
$25,000
Taxation payable
20X7
$20,000
The tax charge in the income statement for the year ended 20X8 is $27,000.
What figure would the statement of cash flows for the year ended 20X8 show for taxation paid?
23
24
$32,000
$22,000
$27,000
$25,000
(2 marks)
Which of the following would feature in the statement of changes in equity?

(1)
Share premium
(2)
Warranty provision
(3)
Revaluation surplus
(4)
Retained earnings
All of them
1, 2 & 3 only
1, 3 & 4 only
2, 3 and 4 only
(2 marks)
The trial balance of Z failed to agree, the totals being: debit $836,200
credit $819,700
A suspense account was opened for the amount of the difference and the following errors were found
and corrected:
(1)
The totals of the cash discount columns in the cash book had not been posted to the discount
accounts. The figures were discount allowed $3,900 and discount received $5,100.
(2)
A cheque for $19,000 received from a customer was correctly entered in the cash book but was
posted to the receivables ledger control account as $9,100.
What will be the remaining balance on the suspense be after the correction of these errors?
25
$25,300 credit
$7,700 credit
$27,700 debit
$5,400 credit
(2 marks)
Which of the following statements about discounts is correct?

(1)
Trade discounts received should be deducted from the gross sales price.
(2)
Settlement discounts received are deducted from the cost of purchases.
1 only
2 only
1 and 2
Neither
8
(2 marks)
QUESTIONS
26
27
28
29
Which of the following can be included in the cost price of inventories?

(1)
Distribution costs incurred when selling the finished inventories
(2)
Directly attributable handling costs incurred when purchasing the raw materials
(3)
Salesmens wages incurred when selling the finished inventories
(4)
Fixed production overheads incurred when manufacturing the inventories
A
1, 2 and 4
2 and 4
1 and 3
1, 3 and 4
(2 marks)
Which of the following would be classified as cash and cash equivalents in accordance with IAS 7
Statement of cash flows?
(1)
Petty cash held in the petty cash tin
(2)
Bonds redeemable in three weeks time
(3)
Current account balance at the bank
(4)
Ordinary shares held in another company
1 and 3
1, 2 and 3
2 and 4
1, 3 and 4
(2 marks)
Which of the following statements about material errors is correct?

(1)
Material errors relating to prior periods should be corrected through net profit or loss of the
current period.
(2)
IAS 8 Accounting policies, changes in accounting estimates and errors requires various
disclosures to be made in respect of material prior period errors, including the nature of the error
and the amount of the correction for the current period and the prior period.
1 only
2 only
1 and 2
Neither
(2 marks)
Which of the following is a correct representation of the business equation?

A
Opening net assets = Closing net assets + drawings profit capital introduced
Closing net assets = Opening net assets + capital introduced profit + drawings
Capital introduced = Closing net assets + drawings + profit opening net assets
Profit = Closing net assets + drawings + capital introduced opening net assets
(2 marks)
9
30
31
Marigold purchased 80% of the 100,000 $1 ordinary shares in Amber for $162,000 when Ambers
retained earnings were $28,000. The fair value of the non-controlling interest was $35,000. What is
the value of goodwill arising on acquisition of Amber?
A
$19,000
$54,000
$69,000
$89,000
(2 marks)
Sam owns a business selling timber to trade customers only. During the year ended 30 June 20X6, a
salesman from one of Sams biggest trade customers tripped over some unstacked timber and fell on the
warehouse floor. Shortly before the year-end, Sam received a letter from the solicitor of the customer,
stating that it was going to take Sam to court as a result of the accident. The letter stated that if Sam
wanted to come to an arrangement out of court, the customer was willing to settle for $25,000;
otherwise the customer would be claiming $50,000. Sams solicitor has advised him to settle out of
court as there is a good chance of the case coming to court and Sam losing.
How much should Sam include as a provision in the accounts for the year ended 30 June 20X6?
32
33
Nil
$25,000
$50,000
$75,000
(2 marks)
Which of the following statements about share capital is correct?

(1)
Authorised share capital is the maximum amount of share capital that a company is empowered
to issue.
(2)
The amount of authorised share capital cannot be changed.
(3)
The amount of issued capital cannot exceed the amount of authorised capital.
1, 2 and 3
1 and 3
2 and 3
1 and 2
(2 marks)
Which of the following must be disclosed for a revalued tangible non-current asset?
(1)
Whether an independent valuer was used
(2)
The qualifications and experience of the valuer
(3)
The basis used to revalue the assets
(4)
A comparison of the depreciation charge based on revalued amount and cost.
1, 2 and 3
2, 3 and 4
1 and 3
2 and 4
10
(2 marks)
10
QUESTIONS
34
Purple Co has the following amounts on its statement of financial position at the year-end.
$
Tangible non-current assets
133,750
Intangible assets
15,800
Inventory
27,400
Receivables
17,430
Cash at bank and in hand
3,200
Bank overdraft
1,500
Trade payables
34,340
Five year bank loan
50,000
Provisions
5,700
What is Purple Cos debt ratio?
35
18.1%
45.9%
46.3%
74.6%
(2 marks)
Pink Co acquired 80% of the ordinary share capital of Turquoise Co some years ago. The following
information relates to Turquoise Co for the year ended 31 December 20X1.
$
Sales revenue
265,000
Cost of sales
88,000
Administration expenses
45,000
Taxation
12,000
What is the profit attributable to the non-controlling interest in the consolidated income statement?
36
$24,000
$26,400
$96,000
$105,600
(2 marks)
Simran has two business bank accounts for her companys use: one is a current account and the other is
a high-interest deposit account. At the year-end, the current account shows a balance of $2,750
overdrawn and her deposit account shows a balance of $4,780. How will these balances be disclosed in
the companys statement of financial position at the year-end?
A
Current asset $4,780
Current liability $2,750
Current liability nil
Current asset nil
Current liability $2,030
Current liability nil

(2 marks)
11
37
Which of the following events does not require adjustment in the year-end financial statements?
A
A customer owing $45,000 at the year-end becomes bankrupt shortly after the year-end.
A fire three days after the year-end has destroyed all the companys financial records.
The tax rate for the previous tax year has been amended.
A material amount of inventory held at the year-end has become obsolescent due to technological
changes just after the year-end.
(2 marks)
38
Lilac acquired 80% of Magenta three years ago. During the current financial year, Magenta sold goods
to Lilac for $63,000. The profit on this sale was 10% of selling price. At the year-end, 30% of these
goods remain unsold in the inventories of Lilac. What is the provision for unrealised profit?
A
$1,512
$1,890
$3,528
$4,410
(2 marks)
39
Which of the following is the correct definition of cash equivalents in accordance with IAS 7 Statement
of cash flows?
A
Cash equivalents are cash on hand and demand deposits.
Cash equivalents are cash on hand and short-term, highly liquid investments readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
Cash equivalents are demand deposits and short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value.
(2 marks)
12
12
QUESTIONS
40
The following extracts are from Daljits financial statements:

$
Profit before interest and tax
24,500
(875)
Interest
Profit before tax
23,625
Tax
(1,270)
Profit after tax
22,355
Share capital
50,000
Reserves
33,200
83,200
Loan liability
4,750
Bank overdraft
2,000
89,950
What is Daljits return on capital employed?
41
24.8%
26.9%
27.9%
29.4%
(2 marks)
The following information relates to Brown Co:

Brown Co owns 51% of the ordinary shares of Yellow Co.
Brown Co owns 25% of Red Co and has the power to appoint and remove a majority of the members of
the board of directors.
Brown Co owns 21% of Blue Co and has representation on Blue Cos board of directors.
Which of the companies are subsidiaries of Brown Co?
A
Yellow Co
Yellow Co, Red Co and Blue Co
Red Co and Blue Co
Yellow Co and Red Co
(2 marks)
13
42
Extracts from the financial statements of Hamilton are set out below:
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20X8
$'000
Revenue
Cost of sales
Gross profit
Profit on sale of non-current assets
Expenses
Depreciation
$'000
300
(150)
150
75
225
15
30
(45)
180
Net profit
Balances at 31 December
20X1
$'000
70
Net current assets
20X0
$'000
50
What is the figure in the statement of cash flows of Hamilton for the year ended 31 December 20X8 in
respect of net cash flow from operating activities?
A
$95,000
$115,000
$245,000
$265,000
(2 marks)
43
Raj produces his accounts to 30 June each year. His business premises are rented and he has to pay
rent quarterly in arrears on 1 February, 1 May, 1 August and 1 November each year.The quarterly rent
payments are $2,250. Raj pays an annual insurance charge on the premises of $1,800 at the start of
each calendar year. What amounts will be shown in Rajs statement of financial position for the year
ended 30 June 20X1?
A
Current assets $1,500
Current liabilities $900
Current assets $900
Current liabilities $1,500
Current assets $2,400
Current liabilities nil
Current assets nil
Current liabilities $2,400

(2 marks)
44
Which of the following would be classified within non-current assets on the statement of financial
position?
(1)
Property held for resale by a property development business
(2)
Research costs in a pharmaceutical business
(3)
Offices owned and used by a business
(4)
Laptops that are usually sold off to staff when they are five years old
1 and 4
3 and 4
2 and 3
1 and 2
(2 marks)
14
14
QUESTIONS
45
Jack is a sole trader and had assets of $223,700 and liabilities of $52,500 on 1 January 20X1.
During the year ended 31 December 20X1 he paid himself wages of $640 per month. At 31 December
20X1, Jack had assets of $264,230 and liabilities of $69,750, and had made a profit of $13,490.
How much capital did Jack introduce into his business in the year ended 31 December 20X1?
A
$7,890
$17,470
$29,090
$44,450
(2 marks)
46
47
Which of the following are assumptions under which financial statements are produced?
(1)
Going concern
(2)
Faithful representation
(3)
Accruals
(4)
Consistency
1 and 2
1 and 3
2 and 4
3 and 4
(2 marks)
The carrying amount of Mikes property, plant and equipment is $112,000 at 1 January 20X8. During
the financial year, a delivery van costing $18,000 was purchased and a plot of land was sold for
$55,000. The depreciation charge for the year was $17,540.
What is the carrying amount at 31 December 20X8?
A
$21,460
$57,460
$92,540
$166,540
(2 marks)
48
Which of the following statements about partnerships is/are true?

(1)
A partnership is an arrangement between individuals to carry on business in common with a view

to profit.
(2)
If a partnership wants to raise more funds, it can issue shares.
(3)
A partnership does not have a separate legal identity from its owners, the partners.
1 only
1 and 2 only
1 and 3 only
All three statements are true
(2 marks)
15
49
50
Which of the following actions can improve a businesss cash flow?

(1)
Improving debt collection
(2)
Paying suppliers early to take account of early settlement discounts
(3)
Increasing selling prices to customers buying on credit by 5%
(4)
Offering early settlement discounts to customers
1, 2 and 4
2 and 3
1 and 4
2, 3 and 4
(2 marks)
Which of the following statements about ordinary and preference shares is correct?
A
Preference shares have priority over ordinary shares in the event of a liquidation.
Both preference and ordinary shares carry voting rights.
Ordinary shares carry a right to a fixed dividend.
Preference shares may be cumulative, and are always redeemable, unlike ordinary shares.
(2 marks)
End of question paper
16
16
QUESTIONS
FINANCIAL ACCOUNTING FINAL MOCK EXAM

ANSWER SHEET
Question
Options (circle one option only)
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QUESTIONS
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Student self-assessment
Having completed this paper take a few minutes to consider what you did well and what you found difficult.
Use this as a basis to focus your future study on effectively improving your performance.
Common problems
Future emphasis if you answer Yes
Timing and planning

Did you finish too early?
Y/N
Go back and check your answers.
Did you overrun?
Y/N
Focus on allocating your time better.

Practise questions under strict timed conditions.
If you get behind, move on to the next question.
Interpreting the questions?
Y/N
Learn subject jargon (interactive text index).

Read questions carefully noting all the parts.
Practise as many questions as possible.
Understanding the subject?
Y/N
Review your notes/text.

Work through easier examples first.
Contact FIA queries for help.
Remembering the notes/text?
Y/N
Quiz yourself constantly as you study. You need to develop

your memory as well as your understanding of a subject.
Content
Did you struggle with:
Note here any thoughts on your performance which could help you on the big day.
20
20
QUESTIONS
21
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22
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FIA FFA / ACCA PAPER F3

Financial Accounting
Final Mock Examination
Marking scheme and solutions
FFFA12 EFM Solutions

This examination has been prepared for examinations from February 2013 to January 2014
Commentary
The questions in this exam are of exam standard and cover the whole syllabus.
Marking scheme
2 marks for each correct answer
Total marks 100
ANSWERS
$
30,000
30,000
(5,000)
4,000
59,000
Net assets 1.10.X8

Capital introduced
Drawings
profit
2
An associate is an entity in which the investor has significant influence. Associates are accounted
for using the equity method of accounting. A company must hold 20% or more of the voting
rights of another company for it to be classed as an associate. When an associate is accounted
for in group accounts, only the groups share of the associates profit after tax is added to the
group profit.
Sales are $100,000 and gross profit $15,000. So cost of sales is $85,000. Opening inventory
plus purchases total $90,000. So closing inventory must be $5,000 ($90,000 $5,000 =
$85,000).
The total of sales invoices in the day book is debited to the control account. If the total is
understated by $800, the debits in the control account will also be understated by $800.
Options B and D would have the opposite effect: credit entries in the control account would be
understated. Option A would lead to a discrepancy of 2 800 = $1,600.
A doubtful debt allowance is not entered in the receivables ledger control account. Returns
outwards are returns to suppliers and are shown in the payables ledger control account, not the
receivables ledger control account.
Steve has offered early settlement discounts to customers in 20X2 and this has reduced the
receivables days significantly.
Associates are accounted for using the equity method. Non-controlling interest is shown at its fair
value plus the non-controlling interests share of post-acquisition retained earnings and other
reserves.
B
PAYABLES LEDGER CONTROL ACCOUNT
Cash
Returns outwards
Bal c/d
$
2,500
750
3,250
6,500
$
3,200
3,300
6,500
A
$
Profit adjustment
Discounts allowed
Discounts from suppliers
Rent prepayment
Increase in profit
$500 @ 4%
10
Bal b/d
Purchases
(100)
400
200
500
(20)
480 Cr
B
$
100
Cost of sales = 275,000
125
Less reduction in inventory
220,000
(14,000)
206,000
1
11
Using the accounting equation

$
32,500
Net assets at 31.12.X8
$
23,000
Opening capital
(= opening net assets)
Capital introduced
Profit (balancing figure)
Drawings (2,500 + 750)
4,000
8,750
(3,250)
32,500
Goods drawn by proprietor are taken at cost

12
C
Purchases
Cash paid
Trade payables b/f
Trade payables c/f
Purchases
$
9,000
(8,000)
10,000
11,000
Cost of sales
Opening inventory
Purchases
6,000
11,000
17,000
(7,000)
10,000
Closing inventory
Sales
110
10,000
100
11,000
13
C will only affect the payables ledger and A and D will not cause an imbalance.
14
Receivables collection period relates to the receivables balance and therefore to credit sales, so A
and B are incorrect. C is incorrect, because if Jenna increased the payment terms from 30 to 60
days, the receivables collection period would also have increased.
15
A
$
18,000
3,150
21,150
Price paid
Trade in allowance
16
17
$
Purchases for the year
Plus fall in held inventory
Cost of sales
84,300
4,100
88,400
125% = Sales $110,500
$110,500 $88,400 = $22,100
Profit
2
2210222
ANSWERS
18
B
Goodwill on acquisition of Orange:
$
975,000
225,000
Consideration
Non-controlling interest
Less fair value of net assets:
Ordinary shares
(750,000)
Retained earnings at acqn
(325,000)
125,000
Goodwill
19
D
FREEHOLD PROPERTY
INTANGIBLE ASSETS
b/f
60
Addn
55
115
Amort
c/f
b/f
Reval
Addn
20
95
115
1,236
Addn
320
101
421
b/f
Disposals
Depn
c/f
Depn
c/f
1,230
1,236
FIXTURES AND FITTINGS
PLANT & MACHINERY

b/f
750
95
391
14
37
370
421
Addn
105
20
125
Depn
35
c/f
90
125
Items which would be shown in the reconciliation

Depreciation/amortisation (20 + 6 + 37 + 35)
Loss on disposal of plant and machinery (8 - 14)
20
$'000
98
6
104
A
CASH
$
B/d
Cash sales
50
74,000
Bank
Theft
C/d
74,050
RECEIVABLES
$
2,000
Bank
C/d
156,000
158,000
B/d
Credit sales ()
Total sales
Credit sales
Cash sales
21
$
50,000
23,950
100
74,050
$
155,000
3,000
158,000
230,000
(156,000)
74,000
19,200
100 = 20%
96,000
3
22
B
tax paid
Balance c/d
23
24
TAXATION PAYABLE
$
22,000
Balance b/d
25,000
Income statement
47,000
$
20,000
27,000
47,000
A provision is a liability and does not feature in the equity section of the statement of financial
position, and so cannot feature in the statement of changes in equity.
$
16,500
3,900
(5,100)
(9,900)
5,400
Suspense account
Discount allowed
Discount received
Transposition of cash received
25
Trade discounts received should be deducted from the cost of purchases. Settlement discounts
received are included as other income of the period.
26
Selling costs (eg salesmens wages and distribution costs) are specifically excluded by IAS 2 from
the cost of inventories.
27
The bonds redeemable in three weeks time are classified as a cash equivalent.
28
A material error relating to a prior period should be corrected by adjusting the opening balance of
retained earnings and restating comparatives.
29
Closing net assets = opening net assets + profit + capital introduced - drawings
30
C
$
Consideration
Fair value of NCI
162,000
35,000
Less fair value of net assets:

Share capital
Retained earnings at acqn
Goodwill
31
32
33
34
(100,000)
(28,000)
69,000
Sam should recognise a provision of $25,000 as this is the amount he will most likely have to
pay as a result of the incident.
The debt ratio is calculated as total debts over total assets. All debts are included, even those
payable over more than one year. The bank overdraft must not be netted off against the cash at
bank and in hand balance.
Purples debt ratio = (1,500 + 34,340 + 50,000 + 5,700)/(133,750 + 15,800 + 27,400 +
17,430 + 3,200) = 91,540/197,580 = 46.3%
35
Profit attributable to non-controlling interest = 20% (265,000 88,000 45,000 12,000)

= $24,000
36
Bank balances must not be netted off. The overdraft must be shown as a current liability in the
statement of financial position, whereas the positive balance in the deposit account will be shown
as a current asset.
37
4
4210242
ANSWERS
38
Profit on sale of goods to Lilac = 63,000 10% = $6,300

PUP = 6,300 30% = $1,890
39
40
Return on capital employed (ROCE) = profit before interest and tax/ capital employed 100%
ROCE = 24,500/87,950 100% = 27.9%
The capital employed figure does not include the bank overdraft (only long-term liabilities).
41
42
Yellow Co and Red Co are subsidiaries of Brown Co. Yellow Co is a subsidiary because Brown Co
owns 51% of the ordinary shares of Yellow Co. Red Co is a subsidiary of Brown Co because even
though Brown Co only owns 25% of the voting rights of Red Co, it has control because it can
appoint or remove a majority of the members of the board of directors of Red Co. Blue Co is not a
subsidiary of Brown Co it would be treated as an associate of Brown Co.
$'000
180
(75)
30
(20)
115
PBT
Profit on sale of non-current asset
Depreciation
Movement in net current assets
43
As rent is paid in arrears, an accrual for the last two months of the financial year must be made
of $1,500 (2,250/3 2). The insurance has been prepaid for six months ($900) so there will be
a prepayment of $900 at the year-end.
44
Property held for resale by a property development business would be treated as inventory as it is
for re-sale. Research costs cannot be capitalised in accordance with IAS 38 and so would be
expensed. Offices owned and used by a business would be capitalised. Laptops usually sold to
staff when they reach five years old would be capitalised as non-current assets as they are not
held for resale, they are just sold at the end of their useful lives.
45
Since closing net assets = opening net assets + capital introduced + profit drawings, then
capital introduced = closing net assets opening net assets profit + drawings.
$
Closing net assets
194,480
Opening net assets
(171,200)
Profit
Drawings
Capital introduced
46
47
(13,490)
7,680
17,470
$
Opening carrying amount
Additions (van)
18,000
Disposals (land)
(55,000)
Depreciation charge
(17,540)
Closing carrying amount

48
112,000
57,460
Partnerships cannot issue shares, only companies can.
5
49
50
Improving debt collection and offering customers early settlement discounts will improve cash
flow. Paying suppliers early rather than using the full extent of their payment terms will not
improve cash flow, neither will increasing selling prices to customers buying on credit by 5%.
6
6210262
ANSWERS
7
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FIA FFA / ACCA PAPER F3

ALL 50 questions are compulsory and MUST be attempted.

FFFA12 EFM Questions

FFA/F3 FINANCIAL ACCOUNTING

Tackling Multiple Choice Questions

Eliminate any obviously wrong answers

FFA/F3 FINANCIAL ACCOUNTING

Which of the following statements about associates is correct?

An associate is an entity in which the investor has significant influence.

The sales day book has been undercast by $800.

The cash receipts book has been undercast by $800.

Steves working capital ratios are as follows:

Which of the following statements is correct?

The cash operating cycle has lengthened in 20X2.

Steve is taking longer to sell his inventory in 20X2.

Steve has offered early settlement discounts to customers in 20X2.

Which of the following statements about non-controlling interests is correct?

Non-controlling interest is accounted for using the equity method.

FFA/F3 FINANCIAL ACCOUNTING

He introduced capital during the year of $4,000 cash.

Cash received from credit customers treated as a cash sale.

A supplier's invoice for $32 recorded as $23 in the purchases account.

Payments to suppliers of $647 recorded as $674 in the payables ledger.

One page omitted from the purchase day book.

Jenna has taken advantage of early settlement discounts offered by suppliers.

Early settlement discounts have been offered to customers.

FFA/F3 FINANCIAL ACCOUNTING

Which of the following errors would result in a trial balance imbalance?

(1) and (2)

(1), (2) and (3)

An extract from a business' income statement is:

FFA/F3 FINANCIAL ACCOUNTING

The current liabilities of A include the following:

Which of the following would feature in the statement of changes in equity?

Which of the following statements about discounts is correct?

Settlement discounts received are deducted from the cost of purchases.

Which of the following can be included in the cost price of inventories?

Petty cash held in the petty cash tin

Bonds redeemable in three weeks time

Current account balance at the bank

Ordinary shares held in another company

Which of the following statements about material errors is correct?

Which of the following is a correct representation of the business equation?

FFA/F3 FINANCIAL ACCOUNTING

Which of the following statements about share capital is correct?

The amount of authorised share capital cannot be changed.

Whether an independent valuer was used

The qualifications and experience of the valuer

The basis used to revalue the assets

A comparison of the depreciation charge based on revalued amount and cost.

Current asset $4,780

Current liability $2,750

Current asset $2,030

Current liability nil

Current asset nil

Current liability $2,030

Current asset $7,530

Current liability nil

FFA/F3 FINANCIAL ACCOUNTING

Cash equivalents are cash on hand and demand deposits.

The following extracts are from Daljits financial statements:

Profit after tax