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SCHOOL OF ACCOUNTING & FINANCE

AF101: INTRODUCTION TO ACCOUNTING &


FINANCIAL MANAGEMENT PART 1

MID-SEMESTER TEST – SEMESTER 1, 2015


FACE TO FACE MODE

Time Allowed 2 hours plus 10 minutes reading

80 marks (Weight: 25% of overall course grade)

INSTRUCTIONS
1. This test has TWO (2) compulsory sections.
SECTION QUESTION MARKS
A MULTIPLE CHOICE – 20 Questions 20
B PROBLEM SOLVING 60
TOTAL 80

2. Answer all questions in the answer booklet provided.


3. Non-programmable calculators may be used, but are not provided.
SECTION A MULTIPLE CHOICE QUESTIONS 20 MARKS

1. According to the Conceptual Framework which statement concerning the recognition of


liabilities is not true?

a. All liabilities that meet the definition of a liability should be recognised in the
accounting records.
b. A recognition criteria is that it is probable that a sacrifice of future economic benefits
will be required.
c. A recognition criteria is that the amount of the liability must be able to be measured
reliably.
d. Liabilities that do not satisfy the recognition criteria can be recognised in the notes
attached to the accounts.

2. Which statement relating to the Conceptual Framework’s concept of understandability that


is not true?

a. In preparing financial statements it should be prepared in the most simplistic way for
everyone to understand.
b. Information about complex matters should be included in the reports if it is
considered relevant.
c. It is expected that users of financial statements will be willing to study the
information with reasonable diligence.

d. Every attempt should be made to communicate information in the most effective


manner.

3. Changing from straight line to reducing balance depreciation in one year, then back to
straight line in the next, and then back again to reducing balance, is a violation of the
qualitative characteristic of:

a. relevance.
b. comparability.
c. materiality.
d. timeliness.

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4. Lolo Ltd makes all of its purchases on credit; 50% are paid in the month of purchase; 30%
during the month following the purchase and 20% in the second month following the
purchase. Given the following data, determine the cash paid to creditors during month three.
Month 1 2 3
Credit Purchases $80 000 $50 000 $70 000

a. $85 000
b. $50 000
c. $66 000
d. $70 000

5. Trinty Ltd makes all sales on credit, with 60% of the payment received in the month of sale
and 40% in the month following sale. Budgeted sales are
February $100 000
March $120 000
What is the estimated amount received from debtors in March?

a. $220 000
b. $120 000
c. $108 000
d. $112 000

6. If the petty cash fund was not reimbursed at the time the financial statements were prepared:

a. petty cash asset would be overstated and expenses understated.


b. expenses would be understated and equity overstated.
c. petty cash expenses would be overstated and bank would be understated.
d. expenses would be overstated and petty cash asset would be understated.

7. The 30 April bank reconciliation of Yoyo Ltd was prepared using the information below.
Outstanding deposit $750
Ledger bank balance $4350 Dr (adjusted)
Unpresented cheques $530
What was the bank statement balance at 30 April?

a. $4130 Cr
b. $3070 Dr
c. $4350 Cr
d. $5630 Dr

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8. Freedom Auto Ltd had an unadjusted bank account ledger balance at 31 May of $750 Dr.
The bank statement at the same date showed a balance of $1090 Cr. Bank service charges
for the month were $20 and outstanding cheques totaled $400. The bank statement revealed
that the bank had collected dividends for the firm of $120 and a deposit of $150 is not yet
recorded on the statement. What is the corrected bank account ledger balance at 31 May?

a. $1190
b. $650
c. $850
d. $1000

9. The Swiss Sweets Ltd had an unadjusted ledger bank balance at 31 March of $28 000 Dr.
The bank statement for the month shows a balance of $16 300 Cr. It also shows bank
charges of $255 and dividends directly paid into the bank of $500. Deposits not yet
credited are $14 545 and unpresented cheques are $2600. What is the cash at bank ledger
balance at 31 March?

a. $28 245
b. $40 190
c. $39 945
d. $23 045

10. Triple Ripple Ltd makes all of its purchases on credit; 50% are paid in the month of
purchase, 30% during the month following the purchase and 20% in the second month
following the purchase.
Month 1 Month 2 Month 3
Purchases $10 000 $12 000 $8000

The budgeted balance of creditors at the end of month 3 is:

a. $6400.
b. $12 400.
c. $9600.
d. $8000.

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11. Highland Ltd makes all sales on credit, with 75% of the payment received in the month of
sale, 20% in the month following the sale and 5% never collected.

Budgeted sales are:


October $80 000
November $90 000

What is the estimated amount received from debtors in November?

a. $170 000
b. $83 500
c. $67 500
d. $90 000

12. If beginning inventory was $25 000, purchases during the period totaled $50 000, freight-
in was $1000 and ending inventory was $19 000, calculate the cost of sales?

a. $55 000
b. $50 000
c. $56 000
d. $57 000

13. Linkages Ltd uses a periodic inventory system with the specific identification method of
cost assignment.
Date Units Unit cost
$
Beginning inventory July 1 1000 9
Purchase 12 2000 11
Purchase 26 1000 12

On 27 July 500 units from beginning inventory and 1000 units from the 12 July purchase
were sold. What was the value of ending inventory at 31 July?

a. $20 500
b. $23 000
c. $27 500
d. $28 500

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14. Free Fusions Ltd uses the FIFO assumption with the periodic inventory method.

Units Unit Total


cost cost
Beginning inventory 12 $10 $120
Purchase 10 $12 $120
Purchase 6 $11 $66

Sales during year were 16 units. What was the value assigned to the closing stock of this item at
the end of the period?

a. $66
b. $138
c. $120
d. $144

15. Seattle Co. uses a periodic inventory system with the weighted average method of cost
assignment. The following data are available.

Date Units Unit Cost Total


Cost
Beginning inventory Jan 1 2000 $6 $12 000
Purchase Mar 13 4000 $7 $28 000
Purchase June 20 6000 $8 $48 000
Ending inventory Dec 31 1000
The cost of the ending inventory to the nearest dollar is:

a. $7333.
b. $8333.
c. $8000.
d. $6000.

16. The essence of the perpetual method of accounting for inventory is:

a. a stocktake is performed.
b. all movements in each item of stock are tracked via detailed inventory records.
c. cost of sales is calculated at the end of the accounting period.
d. it is useful for high value, low volume items.

17. Under the FIFO method sales returns are costed back into inventory at:

a. the original cost price that was attached to the original sale.
b. an average cost price.
c. a price determined by the accountant.
d. the most recent cost price attached to a sale.

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18. Under the International Accounting Standard (IAS) 2 ‘Inventories’ the costing method that
is not permitted is:

a. LIFO.
b. weighted/moving average.
c. FIFO.
d. specific identification.

19. These are the purchases and sales of the stock ‘Shock Absorbers’ during the month of
August in a spare parts shop. A perpetual inventory system is used.
Balance on hand 1 August: 10 units @ $10 each.
Purchases:
Aug 3 10 units @ $12
Aug 12 6 units @ $13
Aug 25 12 units @ $10
Sales:
Aug 7 14 units
Aug 27 10 units
The value of the stock of ‘Shock Absorbers’ at 31 August using the FIFO method of
costing inventory is:
a. $140
b. $168
c. $146
d. $182

20. The inventory on hand at year-end for Highland Ltd is:

Inventory Number Original Current Net Current


Item of Units Unit Cost Selling Price Replacement
per Unit Cost per Unit
$ $ $
A 10 40 60 50
B 8 70 60 65
At what amount should Highland Ltd report ending inventory if the lower of cost or net
realisable value rule is applied to individual items?
a. $960
b. $880
c. $1020
d. $1160

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SECTION B PROBLEM SOLVING QUESTIONS 60 MARKS

QUESTION 31 PERPETUAL Vs. PERIODIC INVENTORY SYSTEMS 30 Marks

Lights Pacific Ltd buys lightning lamps for $80 each and sells them for $140 each. On 1 April,
86 lightning lamps were in inventory. Lights Pacific Ltd completed the transactions below during
April.

Apr. 2 Purchased 140 lightning lamps on account. Terms: 2/10, n/30.

4 Sold 80 lightning lamps on account. Terms: 3/10, n/30, DDP acquirer’s warehouse.
Paid freight cost of $60.

8 Returned 30 of the lightning lamps purchased on 2 April and paid the amount due on
the lightning lamps retained in stock.

10 A customer returned 11 of the lightning lamps sold on 4 April. The lightning lamps
were found to be defective and were not returned to stock.

12 Purchased 72 lightning lamps on credit. Terms: 2/10, n/30, DDP supplier’s


warehouse.

13 Received payment from customer for the amount due on 4 April sale.

23 Paid the supplier the amount owed for the 12 April purchase.

A physical inventory count taken on 30 April 2015 showed 190 lightning lamps in stock.

REQUIRED:
In two columns and assuming GST 10%, prepare general journal entries to record the
transactions assuming:

1. a perpetual inventory system is used

2. a periodic inventory system is used.

[Narrations are not required.]

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QUESTION 32 ACCOUNTING CYCLE 30 Marks

The trial balance of Marist Enterprises as at the year ended 30 April, 2015 was as follows:

Marist Enterprises
Unadjusted Trial Balance as at 30 April 2015

Debit Credit
$ $
Cash at Bank 7 780
Accounts Receivable 21 700
GST receivable 2 600
Prepaid rent 2 100
Prepaid insurance 2 730
Office supplies 4 020
Office equipment 12 200
Accumulated dep. – office equipment 2 470
Accounts payable 2 800
Unearned fees 1 100
Loan payable-due 2016 9 200
GST payable 8 060
Capital 16 600
Drawings 52 000
Fees revenue 138 400
Salaries expense 57 200
Telephone expense 6 100
Rent expense 10 200
$178 630 $178 630

The following additional information is available at the end of the financial year. IGNORE GST

1. Interest owing on the loan payable, charged at 5% on the balance owing at the end April.

2. A physical count of office supplies on 30 April shows $560 of unused supplies on hand.

3. Marist Enterprises has provided services for half the amount in the Unearned Fees account by the
end of the financial year.

4. At March 31st, Marist Enterprises had paid up its rent of $700 per month to their landlord for the
months of April, May and June.

5. Of prepaid insurance, 80% has expired in the current financial year.

6. The office assistant earns $280 a day. He will be paid in May for the 5-day period ending 2nd May.

7. The telephone expense for April of $670 has not been recorded or paid. No tax invoice has been
issued.

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REQUIRED:

A. Write the journal entries to record all the necessary balance day adjustments. Narrations
are not required. Clearly show any necessary calculations.
(9.5 marks)
B. Assume that closing journal entries are raised at the end of April. Close only the
necessary entries.
Narrations are not required.
(9 marks)
C. Using the journal entries in (B) above, construct and balance 1 Ledger Account, which
will calculate Net Profit for the period. Use the T-account format.

(5.5 marks)
D. Prepare appropriate reversing journal entries. Narrations are not required.
(3 marks)

E. Briefly explain what type of adjusting entries needs to be reversed, when and why.
(3 marks)

~The End~

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