Financial Accounting Mock Exam Dinesh Kumar

Multiple Choice Questions

Allowed time: 30 minutes Total marks : 20 marks

ICMAP – Hyderabad Total Questions : 15

Q1 At 1 May 2010 Purcell Co purchased 75% of Lord Co’s 10 million $1 ordinary shares for $8,000,000.
At that date Lord Co had identifiable net assets with a fair value of $8,750,000. The fair value of the non-
controlling interest in Lord Co at acquisition was $3,000,000.

What was the total goodwill at 1 May 2010?

A $2,250,000
B $1,437,500
C $1,250,000
D $750,000

Q2 Which of the following statements is correct?

A Contingent liabilities should never be disclosed
B Contingent liabilities should always be disclosed as a note
C Contingent liabilities should be disclosed as a note, unless their occurrence is remote
D Contingent liabilities should always be provided for in the financial statements

Q3 Which of the following material events, occurring after the reporting period but before the
financial statements are approved, are adjusting events according to IAS 10 Events after the reporting
period?

(i) Discovery of a fraud affecting the yearend financial statements

(ii) Major acquisition of another business
(iii) Inventory held at the reporting date was sold for less than cost

A (i), (ii) and (iii)

B (i) and (ii) only
C (ii) only
D (i) and (iii) only
Q4 At 1 June 2009, Jevan Co’s capital structure was as follows:
$
Ordinary share capital (1,000,000 shares of 50c each) 500,000
Share premium account 400,000
In July 2009 Jevan Co made a rights issue of 1 share for every 4 held at $1 per share. This was fully taken
up.
In October 2009 Jevan Co made a bonus issue of 1 share for every 5 held, using the share premium
account to finance the issue. All shares in issue qualifi ed for the bonus issue.

What is the company’s capital structure at 31 May 2010?

Ordinary share capital Share premium account
$ $
A 625,000 525,000
B 750,000 650,000
C 750,000 400,000
D 1,000,000 400,000

Q 5 XYX Co’s non-current assets had written down values of $368,400 and $485,000 at the beginning
and end of the year respectively. Depreciation for the year was $48,600. Assets originally costing
$35,000, with a carrying amount of $18,100 were sold in the year for $15,000.

What were the additions to non-current assets in the year?

A $183,300
B $200,200
C $49,900
D $180,200

Q 6 A business purchased equipment on 1 May 2009 for $10,000. It has a depreciable life of four years
and a residual value of $2,000. Depreciation is charged straight-line on a monthly basis.

What was the carrying amount of the equipment in the financial statements at 31 October 2010?
A $3,000
B $6,000
C $7,000
D $6,250

Q 7 Which of the following items could appear in a company’s statement of cash flows?
(i) Surplus on revaluation of non-current assets
(ii) Repayment of long-term borrowing
(iii) Bonus issue of shares
(iv) Interest received

A (i) and (ii)

B (iii) and (iv)
C (i) and (iii)
D (ii) and (iv)
Q 8 Which of the following statements are correct?
(i) The development costs of a product are capitalised so that they can be matched with the future
revenue flows from the product.
(ii) Research costs on the future market potential prior to launching a new product, can be capitalised.
(iii) Brands developed by a business can never be capitalised by the business within its own financial
statements.

A (i) and (ii) only

B (ii) and (iii) only
C (i) and (iii) only
D (i), (ii) and (iii)

Q 9 Which of the following statements are correct?

(i) A liability is a present obligation, arising from past events, the settlement of which is expected to
result in an outflow of economic resources.
(ii) An uncertain liability may be called a provision.
(iii) A contingent liability is recognised in the financial statements.

A (i) only
B (i) and (ii) only
C (ii) and (iii) only
D (i), (ii) and (iii)

Q 10 Which of the following statements about the treatment of inventory of finished goods in
financial statements are correct?
(1) Inventory should be valued at the lower of cost and net realisable value.
(2) Inventory costs may include costs such as import duties and freight.
(3) Inventory costs include fi xed and variable production overheads.
(4) A company’s financial statements must disclose the accounting policies used in measuring
inventories.
A All four statements are correct.
B (1), (2) and (3) only
C (2), (3) and (4) only
D (1) and (4) only

Q 11 A company acquired a machine for $80,000 on 1 December 2007. It is estimated to have an

economic life of four years with no residual value. It is company policy to depreciate machinery using
the sum of the years’ digits method.

What is the depreciation expense for the year ending 30 November 2009?
A $20,000
B $8,000
C $24,000
D $16,000
Q 12 Which of the following statements about the requirements of IAS 37 Provisions, Contingent
Liabilities and Contingent Assets are correct?

1. Contingent assets and liabilities should not be recognised in the financial statements.
2. A contingent asset should only be disclosed in the notes to a financial statement where an inflow of
economic benefits is probable.
3. A contingent liability may be ignored if the possibility of it crystallising is remote.

A All three statements are correct

B 1 and 2 only
C 1 and 3 only
D 2 and 3 only

Q 13 Which of the following should appear in a company’s statement of changes in equity?

1 Amortisation of capitalised development costs
2 Dividends paid
3 Total comprehensive income for the year

A 1, 2 and 3
B 1 and 3 only
C 1 and 2 only
D 2 and 3 only

Q 14 which of the following four statements are correct?

A If all the conditions specified in IAS 38 Intangible assets are met, the directors can chose whether to
capitalise the expenditure or not

B Amortisation of capitalised development expenditure will appear as an item in a company’s statement

of changes in equity.

C Capitalised development costs are shown in the statement of financial position as non-current assets.

D Capitalised development expenditure must be amortised over a period not exceeding five years.

Q 15 In times of rising prices, what effect does the use of the historical cost concept have on a
company’s asset values and profit?

A Asset values and profit both understated

B Asset values and profit both overstated
C Asset values understated and profit overstated
D Asset values overstated and profit understated.

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