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ACCA PAPER F3

RESULTS

Financial Accounting (International Stream)

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Course Examination 1

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Exam Identification Code

AC27 F3(1) (INT)

For office use only: Production code: ACF3CE07(INT)

ACCA Fundamentals Level

Paper F3
Financial Accounting
(International Stream)
Course Examination 1
Question Paper
Time allowed

2 hours

ALL FIFTY questions are compulsory and MUST be attempted

Instructions:
Please attempt this exam under test conditions and attach the frontsheet complete with your name and
address to your script. The completed package should be sent to BPP Professional Education.
Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now!
before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS

Get into good exam habits now!

Take a moment to focus on the right approach for this exam.

Effective exam technique

The following steps are recommended for answering multiple choice and objective test questions.

Step 1

Note down how long you should allocate to each question. For this paper you will be
answering 50 questions in 120 minutes, so you will be spending on average 2.5 minutes on
each 2 mark question and 1 minute on each 1 mark question. Remember however that you will
not be expected to spend an equal amount of time on each of them and that some can be
answered instantly but others will take time to work out.

Step 2

Attempt each question. Read the question thoroughly.

Step 3

To answer a multiple choice question 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.

Step 4

If you are unsure of 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, continue to the next question. Likewise if you are nowhere near
working out which option is correct after a couple of minutes, leave the question and come
back to it later.

Step 6

Revisit questions you are uncertain about. 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!

ALL FIFTY questions are compulsory and MUST be

attempted
Please write your answer on lined paper with one answer per line
1

Cadillac Co pays local taxes in 10 equal instalments starting in May each year. The local taxes for the
year to 31 March 20X1 were $18,900. The business is preparing its financial statements for the year
ended 31 January 20X1.
The prepayment of local taxes at 31 January 20X1 is:
A
B
C
D

Historic cost
Lower of cost and net realisable value

(1 mark)

Which of the following is the best description of the function of the books of prime entry in a standard
double entry bookkeeping system?
A

Books of prime entry record amounts owed to/from individual suppliers and customers

Books of prime entry are used to list similar transactions with the totals being posted to the
nominal ledger

Books of prime entry are used to record cash transactions

Books of prime entry are used to summarise credit transactions

(2 marks)

A debit balance of $3,000 brought down on A Co's account in B Co's books means that
A
B
C
D

(2 marks)

According to IAS 2, inventory is valued under which basis?

A
B

$630
$1,260
$2,850
$3,420

A Co is owed $3,000 by B Co
B Co has sold $3,000 of goods to A Co
B Co is owed $3,000 by A Co
A Co has sold $3,000 of goods to B Co

(2 marks)

Which of the following statements is true?

A

The accruals concept plays a pervasive role in the selection of accounting policies, in
accordance with IAS 1.

Accruals bear no relation to the normal costs included in an income statement and purely
represent payments made in advance for services.

Prepayments are a credit balance in the balance sheet and show payments made in advance.
(1 mark)

Which of the following statements is incorrect?

A
B
C
D

If the trial balance (list of account balances) does not balance an error must have been made
The opening inventory balance is included in the trial balance
Proprietor's drawings are shown on the trial balance
The closing inventory balance is included in the trial balance
(2 marks)

If a purchase return of $130 has been wrongly entered on the debit side of the sales returns account,
but correctly entered in the supplier's account, the totals on the trial balance would show
A
B
C
D

The debit side to be $260 more than the credit side

The debit side to be $130 more than the credit side
The debit side to be $130 less than the credit side
The debit and credit sides to be equal in value

(2 marks)

Stingray Co has opening trade accounts payable of $24,183 and closing trade accounts payable of
$34,655. Purchases for the period totalled $254,192 ($31,590 relating to cash purchases).
What were total payments recorded in the payables control account for the period?
A
B
C
D

11

(2 marks)

A business sells a non-current asset for $55,000. The asset originally cost $100,000 and accumulated
depreciation is $45,000. What is the profit or loss on disposal?
A
B
C

10

$243,710
$233,084
$212,130
$264,674

$10,000 profit
No gain or loss
$10,000 loss

(1 mark)

Which one of the following occurrences might explain the existence of a credit balance on an
individual trade receivable's account?
A

The bookkeeper failed to make a posting from the returns inwards books to the receivables
ledger

The bookkeeper failed to post an invoice from the sales day book to the receivables ledger

The customer took advantage of a settlement discount and paid less than the full amount
invoiced

The bookkeeper posted a total from the returns inwards book to the receivables control
account twice by mistake
(2 marks)

The entries required to correctly reflect inventory and cost of sales in the financial accounts for the
first year of trading are:
A

Debit inventory (B/S)

Debit trading a/c

- closing inventory
- opening inventory

Credit trading a/c

Credit inventory (B/S)

- closing inventory
- opening inventory

Debit trading a/c

Debit inventory (B/S)

- closing inventory
- opening inventory

Credit inventory (B/S)

Credit trading a/c

- closing inventory
- opening inventory

Debit inventory (B/S)

- closing inventory

Credit payables

- closing inventory

Debit inventory (B/S)

- closing inventory

Credit trading a/c

- closing inventory
(2 marks)

12

A company's bank statement shows an overdraft of $2,605 at 31 March 20X1. The statement includes
bank charges of $46 which have not yet been recorded in the company's cash book. The statement
does not include cheques for $780 paid to suppliers, nor an amount of $320 received from a
customer; both of these amounts appear in the bank statement for April 20X1.

If the company prepares a balance sheet at 31 March 20X1, the figure for the bank overdraft should
be
A
B
C
D
13

$2,748
$2,794
$3,065
$3,660

(2 marks)

Cameron had receivables totalling $55,000 at the year end 30 June 20X1. He has decided to write off
two debts of $1,300 and $2,150 respectively and to make a specific allowance for $5,600. The
company's policy is to make a general allowance of 2%. The balance on this allowance at 1 July 20X0
was $8,540.
What is the closing receivables allowance?
A
B
C
D

14

(2 marks)

A company receives news that a major customer has been declared bankrupt. His debt had been
allowed for earlier in the year. The entries now required are
A
B
C
D

15

$1,131
$6,519
$6,619
$15,159

Debit allowance for receivables, credit trade receivables

Debit irrecoverable debts written off, credit trade receivables
Debit irrecoverable debts written off, credit allowance for receivables
Debit allowance for receivables, credit irrecoverable debts written off

(2 marks)

Octopus bought a car on 1 January 20X0 for $20,000 and decided to depreciate it at 30% per annum
on a reducing balance basis. It was disposed of during the year ended 31 December 20X2 for
$12,000. Octopus does not charge depreciation in the year of disposal.
What is the net effect on the income statement for y/e 31 December 20X2?
A
B
C
D

16

Increase of $2,200
Decease of $2,200
Increase of $12,000
Decrease of $12,000

(2 marks)

Clanger & Sons have an accounting year ended 31 December 20X1. At that date the balance on the
receivables ledger control account was $65,000, but the total of the individual accounts in the
receivables ledger came to $63,620.
Upon investigation the following facts were discovered:
1

The sales day book total for week 49 had been overcast by $300.

A credit balance of $210 on Cabbage's accounts in the receivables ledger had been incorrectly
treated as a debit entry, when balancing off his account.

A payables ledger contra of $1,500 has been entered in Sprout's account in the receivables
ledger but no other entry had been made.

The adjusted balance on the receivables ledger control account is

A
B
C
D

$62,780
$64,700
$63,620
$63,200

(2 marks)

17

Which of the following would cause an error in only the receivables ledger control account when
carrying out a control account reconciliation?
A
B
C
D

18

Miscasting the total of the sales day book

Transposition error in filling in the receivables ledger from the cash book
Customer cheque dishonoured by bank
Entry omitted from the sales day book

(2 marks)

Trade receivables of Aztec Co settle their accounts according to the following pattern:
20% pay in the month of sale and are granted a 5% settlement discount by Aztec Co.
40% pay in the month following the month of sale and are granted a 2% settlement discount.
40% pay two months after the date of sale and receive no discount.
Recent sales levels have been as follows:
$
24,000
28,000
35,000

March 20X1
April 20X1
May 20X1

The amount of cash received from credit customers in May 20X1 is

A
B
C
D
19

$26,090
$26,220
$27,170
$32,040

(2 marks)

Demolition Co purchases a machine for $15,000. After incurring transportation costs of $1,300 and
spending $2,500 on installing the machine the company are disappointed when it breaks down and
costs $600 to repair. Depreciation is charged at 10% per annum with a full year's charge in the year of
acquisition.
At what net book value will the machine be shown in Demolition's balance sheet at the year end?
A
B
C
D

20

(2 marks)

A gas accrual for $400 was treated as a prepayment in a sole trader's income statement. As a result
the profit was
A
B
C
D

21

$10,080
$16,920
$17,460
$13,500

Understated by $800
Understated by $400
Overstated by $800
Overstated by $400

(2 marks)

Boomerang Co had 200 units in inventory at 30 November 20X1 valued at $800. During December it
made the following purchases and sales.
2/12
5/12
12/12
15/12
21/12
28/12

Purchased
Sold
Purchased
Purchased
Sold
Sold

1,000
700
800
300
400
500

@
@
@
@
@
@

$5 each
$7.50 each
$6.20 each
$6.60 each
$8.00 each
$8.20 each

Which of the following combinations is correct for closing inventory valuation?

A
B
C
D
22

AVCO
$4,095
$4,095
$2,740
$2,740

(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
B

23

FIFO
$4,460
$3,220
$3,220
$4,460

$5,000
$10,000

(1 mark)

A business has received telephone bills as follows:

Date received
Quarter to 30 November
Quarter to 28 February
Quarter to 31 May
Quarter to 31 August
Quarter to 30 November
Quarter to 28 February

20X0
20X1
20X2
20X3
20X4
20X5

December 20X0
March 20X1
June 20X1
September 20X1
December 20X1
March 20X2

Amount of bill
$
739.20
798.00
898.80
814.80
840.00
866.00

Date paid
January 20X1
April 20X1
June 20X1
October 20X1
January 20X2
March 20X2

In the income statement for the year ended 31 December 20X1 the charge for telephone should be
A
B
C
D
24

(2 marks)

International Financial Reporting Standards are set by which body?

A
B

25

$3,407.60
$3,374.27
$3,250.80
$3,463.60

IASB
IASCF

(1 mark)

Anthony's business bank statement showed an overdrawn balance of $5,250 on 31 October 20X1.
When this was reconciled to the cash book, the following differences were noted:
$
Unpresented cheques
1,070
Uncleared lodgements
1,240
Standing order for insurance premium not entered in the cash book
890
Overdraft interest not recorded in the cash book
80
Credited in error to Anthony's account by the bank
300
What was the original balance on Anthony's cash book at 31 October 20X1?
A
B
C
D

$4,450 credit
$4,410 credit
$2,940 credit
$1,670 debit

(2 marks)

26

Which one of the following would not be classified amongst current liabilities in the accounts of a
business?
A
B
C
D

27

(2 marks)

What transaction is represented by the entries: debit rent, credit landlord?

A
B
C
D

28

Accrued interest charges

An allowance for receivables
Bank overdraft
Trade payable

The receipt of rental income by the business

The issue of an invoice for rent to a tenant
The receipt of a bill for rent payable by the business
The payment of rent by the business

(2 marks)

Which of the following conditions would preclude any part of the development expenditure to which it
relates from being capitalised?
A
B
C

The development is incomplete

The benefits from the completed development are expected to be less than its cost
Funds are unlikely to be available to complete the development.
(1 mark)

29

Cataract Co purchases a machine for which the supplier's list price is $28,000. Cataract pays $23,000
in cash and trades in an old machine which has a net book value of $8,000. It is the company's policy
to depreciate such machines at the rate of 10% per annum on cost.
What is the net book value of the machine after one year?
A
B
C
D

30

$18,000
$25,200
$20,700
$22,200

(2 marks)

A company buys a machine on 31 August 20X0 for $22,000. It has an expected life of seven years and
an estimated residual value of $1,000. On 30 June 20X4 the machine is disposed of for $9,000. The
company's year end is 31 December. Its accounting policy is to charge depreciation using the straight
line method with a proportionate charge in the years of acquisition and disposal.
Calculate the profit or loss on disposal of the machine which will appear in the income statement for
the year ended 31 December 20X4.
A
B
C
D

31

Loss of $1,750
Loss of $1,500
Loss of $2,000
Profit of $1,500

(2 marks)

The following information relates to Camberwell's year-end inventory of finished goods.

Inventory category 1
Inventory category 2
Inventory category 3

Direct costs of
materials and
labour
$
2,470
9,360
1,450
13,280

Production
overheads
incurred
$
2,100
2,730
850
5,680

Expected selling
and distribution
overheads
$
480
150
190
820

Expected
selling price
$
5,800
12,040
2,560
20,400

At what amount should finished goods inventory be stated in the company's balance sheet?
A
B
C
D

$13,280
$18,730
$18,760
$19,650
(2 marks)

32

In a period of rapid inflation, which method of valuing inventory issues will give the lower gross profit
figure?
A
B

33

34

FIFO
AVCO

(1 mark)

The total of the balances in a company's 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 marks)

Which of the following best explains what is meant by 'capital expenditure'.

Capital expenditure is expenditure:
A
B
C
D

35

On non-current assets, including repairs

On expensive items, ie those over $12,000
Relating to the acquisition or improvement of non-current assets.
On items relating to share capital

(2 marks)

Vernon Vinyl purchased some new equipment on 1 April 20X1 for his mobile disco for $6,000. The
estimated scrap value of the new equipment in 5 years' time is estimated to be $400. Vernon charges
depreciation on the straight line basis, with a proportionate charge in the period of acquisition.
What should the depreciation charge for the plant be in Vernon's accounting period of twelve months
to 30 September 20X1?
A
B
C
D

36

$560
$1,120
$600
$1,200

(2 marks)

Which of the following best explains the imprest system of petty cash control?
A
B
C
D

Each month an equal amount of cash is transferred into petty cash

The exact amount of expenditure is reimbursed at intervals to maintain a fixed float
Petty cash must be kept under lock and key
The petty cash total must never fall below the imprest amount
(2 marks)

37

38

When performing a reconciliation between the bank statement and a business cash book, which of the
following would require an entry into the cash book?
1.
2.
3.
4.
5.

Deposits credited after date

Direct debit on bank statement only
Bank charges
Bank error
Cheque presented after date

A
B
C
D

2, 3 and 4
2 and 3
1 and 5
All of them

(2 marks)

The inventory counters of Crocodile Co, inform you that there are 6,000 items of product A, and 2,000
of product B, these cost $10 and $5 respectively. They also tell you the following information:
Product A 500 of these were found to be defective and would be sold at a cut price of $8.
Product B 100 of these were also to be sold for $4.50 with selling expenses of $1.50 each.
What figure should appear in Crocodile's balance sheet for inventory?
A
B
C
D

39

(2 marks)

In double-entry bookkeeping, which of the following statements is true?

A
B
C

40

$64,000
$63,800
$68,800
$63,300

Credit entries decrease liabilities and increase income

Debit entries decrease income and increase assets
Credit entries decrease expenses and increase assets

(1 mark)

A business held the following goods in inventory as at 31 December 20X0:

Type A
Type B
Type C

Manufacturing
costs incurred
$
1,700
2,200
2,500
6,400

Costs to
complete
$
1,000
1,200
500
2,700

Expected selling &

distribution costs
$
140
170
170
480

Expected selling
prices
$
2,900
3,400
3,800
10,100

At what total value should this inventory be shown in the company's balance sheet?
A
B
C
D

$6,860
$6,230
$6,400
$9,260

(2 marks)

10

41

As at 31 December 20X1 a company's bank statement shows an overdraft of $1,500. The statement
includes bank charges of $30 which have not yet been recorded in the company's cash book. On 29
December 20X1 the company had paid a cheque of $500 to a supplier and banked $200 received from
a trade receivable; neither of these items appear in the bank statement.
The bank balance on the company's balance sheet at 31 December 20X1 should be
A
B
C
D

42

43

$1,800 credit
$1,530 credit
$1,200 credit
$1,200 debit

(2 marks)

Which of the following are books of prime entry?

(1)
(2)
(3)
(4)

Petty cash book

Journal book
Receivables ledger
Register of property, plant and equipment

A
B
C
D

(1) only
(1) and (2) and (4)
(1) and (2)
All of the above

(2 marks)

Derek, a sole trader, purchased a van on 1 October 20X0 for a total cost of $22,000 by paying
$17,500 cash and trading in an old van. The old van had cost $20,000 and the related accumulated
depreciation was $14,200.
What is the effect of the above on the income statement for the year ended 31 December 20X0?
A
B
C
D

44

Loss of $1,300
Profit of $5,000
Profit of $1,300
Loss of $5,800

(2 marks)

A business received the following invoice from one of its suppliers of inventory.
Invoice 7035
Date 20 December 20X0
$
1,000
(50)
950
A further discount of $50 will be allowed if payment is received within
14 days.
Goods 100 @ $10
Less: trade discount

11

What entry should be made on receipt of this invoice? (Ignore sales tax)

A
B
C

Debit
$
900

Purchases
Trade payables

Credit
$
900

Purchases
Trade payables

950
950

Purchases
Discount received
Trade payables

1,000

Purchases
Discount received
Trade payables

950

50
950
50
900
(2 marks)

45

On 1 December 20X0 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 20X0?

A
B
C
D
46

$2,850
$3,250
$3,550
$4,350

(2 marks)

Enigma has reduced its allowance for receivables by $600.

Which of the following statements is correct?
A
B

47

Net profit increases by $600

Gross profit increases by $600

(1 mark)

The trial balance of Putney and Co as at 31 May 20X0 includes the following:

Receivables
Allowance for receivables (a percentage based on past
experience)

$
40,235

$
2,050

Subsequently a review of the receivables ledger reveals the following:

Debts totalling $985 are considered irrecoverable and are to be written off. There is some doubt over
the
Recoverability of another receivable, Carter, owing $1,400. The company wishes to make a specific
allowance for this. A percentage allowance of 2% of good debts is to be maintained.

12

What irrecoverable debt expense will the income statement for the year ended 31 May 20X0 include?
A
B
C
D
48

$1,092
$2,385
$985
$1,140

(2 marks)

On 1 April 20X0 a sole trader paid $3,080 in rent for the year ending 31 March 20X1. This was an
increase of 10% on the charge for the previous year.
What is the correct charge for rent in her income statement for the year ended 31 December 20X0?
A
B
C
D

49

(2 marks)

The accounting equation can be rewritten as:

A
B
C
D

50

$2,772
$2,926
$3,010
$3,080

Assets + profits drawings liabilities = closing capital

Assets liabilities drawings = opening capital + profit
Opening capital + profit drawings liabilities = assets
Assets liabilities opening capital + drawings = profit

(2 marks)

Which of the following statements about intangible assets is correct?

A
B
C

According to IAS 38, research costs may be capitalised

According to IAS 38, development costs must be capitalised if certain conditions are met
Intangible assets include property, plant and equipment
(1 mark)

End of Question Paper

13

Student self-assessment
Having completed this exam, 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, especially those you were

unsure of.

Did you overrun?

Y/N

Focus on allocating your time better.

Practise questions under strict timed conditions.
If you get behind move on.

Interpreting the questions?

Y/N

Learn subject jargon (look at key terms in your Study Text).

Read questions carefully.
Practise as many questions as possible.

Understanding the subject?

Y/N

Review your notes/text.

Work through easier examples first.
Classroom students please contact your tutor for further help.
Home Study students please contact ACCA queries for further
help (accaqueries@bpp.com).

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.

14

ACCA Fundamentals Level

Paper F3
Financial Accounting
(International Stream)
Course Examination 1

Suggested solutions and guidance

ACF3CE07(INT)

AC27 F3(1) (INT)

Guidance on improving your exam performance

To help improve your performance you should focus on these key areas.
1

Terminology
This paper tests your understanding of a large number of key terms and definitions. Learning as many
of these as you can will help save you time in the exam which you can use to answer questions that
require more thought. Your Study Text provides you with assistance by highlighting these terms and
definitions.

Question spotting
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particular way. Ensure you are able to answer questions across the syllabus in a number of question
styles as this will maximise the number of questions that you will be able to attempt successfully.

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the syllabus wrong. This is your cue to revise these areas fully, learn from your mistakes, AND NEVER
REPEAT THEM!

Answers
1

$
17,010
(15,750)
1,260

9 instalments paid ($1,890 9)

Charge for 10 months ($18,900 10/12)
Prepayment
2

The balance represents the outstanding amount ie sales less cash received.

Prepayments are a debit balance in the balance sheet.

Closing inventory is an adjustment to the initial trial balance.

It has effectively been debited twice.

Payments
Bal c/d

TRADE PAYABLES
$
Bal b/d
212,130
34,655 Purchases
($254,192 $31,590)

$
24,183

222,602

246,785

246,785
34,665

Bal b/d
9

Net book value is $55,000 ($100,000 $45,000). So the proceeds are the same as NBV and so
there is no gain or loss.

10

A would cause a debit balance. Note that this is the ledger not the control account.

11

As it is the first year there will be no opening inventory.

12

$
(2,605) OD
(780)
320
(3,065)

Bank balance per bank statement

Unpresented cheques
Outstanding lodgements
per balance sheet
13

$
5,600
919
6,519

Specific allowance
2% allowance
Closing allowance
Receivables
Less irrecoverable debts written off
Less specific allowance
14

55,000
(3,450)
(5,600)
45,950 2% = 919

A charge has already been made to irrecoverable debts. The receivable is now being removed
from the ledger.

15

A
$
14,000
9,800

31.12.X0 NBV
31.12.X1 NBV
Proceeds
NBV
Profit
16

12,000
(9,800)
2,200

B/f

17

18

RLCA
$
65,000 SDB overcast
Contra
c/f
65,000

The receivables ledger control account is posted from the daybook total but the receivables
ledger is posted from the individual daybook entries. Thus this error would only impact the
RLCA.
$
May sales
(20% 35,000 95%)
April sales
(40% 28,000 97%)
March sales
(40% 24,000 100%)

19

6,650
10,920
9,600
27,170

$
18,800
(1,880)
16,920

Cost (15,000 + 1,300 + 2,500)

Depreciation (10% 18,800)
NBV
20

$
300
1,500
63,200
65,000

Increase profit by 2 $400.

21

A
FIFO

$
2,480
1,980

400 @ $6.20
300 @ $6.60

4,460
AVCO

200
1,000
1,200
(700)
500
800
300
1,600
(900)
700

@ $4
@ $5
@ $4.83

800
5,000
5,800
(3,381)
2,419
4,960
1,980
9,359
(5,264)
4,095

@ $6.20
@ $6.60
@ $5.85

22

Sales are $100,000 and gross profit $15,000. So cost of sales are $85,000. Opening inventory
plus purchases total $90,000. So closing inventory must be $5,000 ($90,000 $5,000 =
$85,000).

23

(2/3 798.00) + 898.80 + 814.80 + 840.00 + (1/3 866.00).

24

25

Balance c/d

CASH BOOK
$
5,380
Balance b/d
Standing order
Interest
5,380

$
4,410
890
80
5,380
$
(5,250)
(1,070)
1,240
(300)
(5,380)

Balance per bank statement

Less unpresented cheques
Add uncleared lodgements
Less bank error
Balance per amended cash book
26

An allowance for receivables is disclosed as a deduction from trade receivables.

27

Options A and B are ruled out because they relate to rental income, which would be a credit
(not a debit) in a rent account. Option D is ruled out because there is no entry made in the
bank account and therefore no payment can yet have been made.

28

A
B
C

29

is clearly nonsense. You capitalise costs during the development and therefore the
development is incomplete
is not so clear. It covers the situation where you can capitalise some of the costs, up to
the amount of future revenue but not all. The rest will be written off.
the project will not be completed. No income is therefore likely. On grounds of
prudence the costs will be written off.

The cost of the machine is $28,000. Cataract has paid $23,000 in cash and has evidently
agreed a trade-in value of $5,000 for the old machine. (The asset's NBV is irrelevant.) After one
year, the net book value of the new machine is 90% of $28,000 = $25,200.
5

30

The depreciable amount is $(22,000 1,000) = $21,000. This is to be written off over seven
years (or 84 months). The monthly depreciation charge is therefore $250.
$
22,000
11,500
10,500
9,000
1,500

Cost of asset
Accumulated depreciation (46 months $250)
Net book value at date of disposal
Proceeds on disposal
Loss on disposal
31

In this example, cost includes both direct materials/labour and also production overheads.
NRV is expected selling price less expected selling costs.
Lower of
Cost
NRV
cost/NRV
$
$
$
Category 1
4,570
5,320
4,570
Category 2
12,090
11,890
11,890
Category 3
2,300
2,370
2,300
18,760

32

If prices are rising, the closing inventory will be lower if AVCO is used. This will produce a
higher cost of sales figure and so a lower gross profit.

33

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.

34

Repairs are revenue expenses.

35

36

37

38

6,000 400
5
Depreciation charge for year $1,120
This year 6/12 = $560

Cost of equipment

The fixed float is known as the imprest amount.

60,000
(1,000)
59,000
10,000
(200)
68,800

Product A:
6,000 $10 =
Less: 500 $2 ($10 $8) =
Product B:
2,000 $5 =
Less: 100 $2 ($5 $3) =

39

40

Debit entries decrease income and increase assets.

Cost
$
1,700
2,200
2,500

A
B
C

NRV
$
1,760
2,030
3,130

Lower
$
1,700
2,030
2,500
6,230

41

$
(1,500)
(500)
200
(1,800)

Balance per bank statement

Less unpresented cheque
Add unrecorded lodgement
42

43

A
DISPOSAL
$
Cost

20,000

$
Accumulated
depreciation
Trade in allowance
loss

20,000
44

45

14,200
4,500
1,300
20,000

The settlement discount does not apply until payment is made.

PLCA
Cash
Returns outwards
Bal c/d

$
2,500
750
3,250
6,500

$
3,200
3,300

Bal b/d
Purchases

6,500

46

This $600 reduction will be credited back to the irrecoverable debts expense account and so
increase net profit.

47

Expenses of $1,092
$
Irrecoverable debt w/o
Specific allowance
Percentage allowance:
Receivables
Irrecoverable debts w/o
Specific allowance

40,235
(985)
(1,400)
(37,850)

2% provision c/f
Allowance b/f
Decrease in percentage allowance
48

757
(2,050)
(1,293)
1,092

$
2,310
700
3,010

$3,080 9/12
$3,080 100/110 3/12
49

50

$
985
1,400

Remember: assets liabilities = closing capital