ACCOUNTING The Institute of Chartered Accountants in England and Wales For exams in 2019 Electronic Question Bank www.icaew.comii Accounting ICAEW 2019
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Further details of the Trade Marks including details of countries where the Trade Marks are registered or applied for are available from the Licensor on request. © ICAEW 2019ICAEW 2019 Contents iii Contents Title Page Questions Answers 1 Introduction to accounting 3 131 2 The accounting equation 5 132 3 Recording financial transactions 8 133 4 Ledger accounting and double entry 11 134 5 Preparing basic financial statements 16 136 6 Errors and corrections to accounting records and financial statements 19 137 7 Cost of sales and inventories 26 140 8 Irrecoverable debts and allowance for receivables 34 144 9 Accruals and prepayments 38 146 10 Non-current assets and depreciation 44 148 11 Company financial statements 54 152 12 Company financial statements under IFRS 59 154 13 Statement of cash flows 84 187 14 Company financial statements under UK GAAP 99 201 15 Sole trader and partnership financial statements under UK GAAP 103 203 16 Additional question practice 111 207iv Accounting ICAEW 2019Question Bank ICAEW provides the electronic question banks to give you access to additional questions not ordinarily available to students. The questions are designed to aid learning rather than revision and so should not be considered exam-standard. The published question bank contains exam-standard questions and can be ordered from www.gillards.com/icaew2 Accounting: Electronic Question Bank ICAEW 2019ICAEW 2019 Chapter 1: Introduction to accounting 3 Chapter 1: Introduction to accounting 1 Which one of the following should be accounted for as capital expenditure? A The cost of redecorating the business's head office B The cost of replacing some roof tiles on a building C The cost of a computer purchased for resale by a computer sales business D The cost of delivery paid when purchasing a new manufacturing machine LO 1a 2 Which of the following items should be treated as a capital item in the financial statements of a large shop? (1) Purchase of fixed shelving units (2) Payment of wages (3) Repairs to fixed shelving units A (1) only B (1) and (2) only C (2) and (3) only D (1), (2) and (3) LO 1a 3 Which of the following items should be treated as revenue items in an entity's financial statements? (1) Payment of local property tax (2) Purchase of premises (3) Alteration of premises to configure them to be ready for use in the business (4) External audit fee A (1) and (2) only B (2) and (3) only C (3) and (4) only D (1) and (4) only LO 1a 4 Which of the following should be classified as capital expenditure? A Repairs to motor vans B Depreciation of machinery C Extension to premises D Purchase of motor vans for resale LO 1a4 Accounting: Electronic Question Bank ICAEW 2019 5 Which of the following is a consideration in the application of ICAEW's Code of Ethics? A Whether or not the activity is remunerated B That the client or employer is an ICAEW member, student, affiliate or member firm C If an action brings discredit to the profession D Whether or not the activity is an accounting or assurance engagement LO 1b 6 Ned is considering two issues in the course of preparing his financial statements. Issue 1: Non-current assets are valued at cost less depreciation. Issue 2: Expenses incurred but for which invoices have not yet been received are included in the financial statements. Which accounting characteristic or principle is relevant to each of these issues? A Issue 1: Verifiability; Issue 2 Accruals B Issue 1: Accruals; Issue 2 Verifiability C Both issues: Verifiability D Both issues: Accruals LO 1d; 3a, b, c 7 The auditor of James plc is insistent that great care is taken in estimating the amounts of accruals and prepayments each year. This is justified primarily by which accounting concept? A Going concern B Maturity C Consistency D Matching LO 1d; 3a, b, c 8 Mr Bliss owns a business. Although most of the business expenses are paid by cash, Mr Bliss on certain occasions uses his own personal bank account to pay some business expenses. His accountant has asked to see his personal bank statements so that some of these amounts may be included as expenses in the statement of profit or loss. Mr Bliss is confused about this and asks 'If you are going to use my personal bank statement to prepare the financial statements, why don't you include all payments as expenses instead of only some of them?' The main reason why the accountant does not include all of the expenses is because: A Mr Bliss has not recorded the full details of some of the expenditure and, because of this uncertainty, it is more prudent not to include them in the financial statements. B there are a large number of immaterial payments which would take a long time to examine. C the personal expenses of the owner are separate from those of the business and are not relevant to the statement of profit or loss. D to be consistent with last year's financial statements only payments above £500 are included in the statement of profit or loss. LO 1d; 3a, b, cICAEW 2019 Chapter 2: The accounting equation 5 Chapter 2: The accounting equation 1 The capital of a sole trader would change as a result of: A a trade payable being paid by a transfer from the business bank account B raw materials being paid for from petty cash C non-current assets being purchased for cash D the owner taking goods from the inventory of the business LO 1d 2 The purpose of a statement of financial position is to show: A an estimate of what a business is really worth B the amount the business could be sold for as a going concern C the amount the business could be sold for in a liquidation D the assets of the business and the related liabilities LO 3a 3 A sole trader received £2,500 from a credit customer for goods which had been sold on credit. The sole trader has an overdraft with his bank of £5,000. Which element(s) of the accounting equation will change due to this transaction? A Assets only B Liabilities only C Capital only D Assets and liabilities only LO 1d; 3a 4 A sole trader purchases goods on credit for £400. Which element(s) of the accounting equation will change due to this transaction? A Assets and liabilities only B Assets and capital only C Capital and liabilities only D Assets only LO 1d; 2a6 Accounting: Electronic Question Bank ICAEW 2019 5 A sole trader takes out a loan of £5,000 from the bank. Which element(s) of the accounting equation will change due to this transaction? A Assets and liabilities only B Assets and capital only C Capital and liabilities only D Assets only LO 1d; 3a 6 A sole trader sold goods for cash for £1,000 which had cost £700. Which element(s) of the accounting equation will change due to this transaction? A Assets and liabilities only B Assets and capital only C Capital and liabilities only D Assets only LO 1d; 3a 7 A sole trader has paid for his own personal car to be repaired out of the business bank account. The amount of the repairs has been added by the bookkeeper to the owner's drawings balance. Of which generally accepted accounting concept is this an example? A Prudence B Separate entity C Substance over form D Duality LO 1d 8 Which of the following items should be treated as capital expenditure in the accounts of a sole trader? A £1,000 drawings made by the proprietor to buy himself a new kitchen at home B £1,000 spent on purchasing a new computer for his secretary in order to deal with business administration C £1,000 on purchasing a motorbike for resale D £1,000 paid to a painter for redecorating his office LO 3aICAEW 2019 Chapter 2: The accounting equation 7 9 The statements of financial position of Gazhal's business at 31 December 20X2 and 20X1 showed the following. 31 December 31 December 20X2 20X1 £ £ Non-current assets 32,500 45,000 Current assets 17,500 30,000 Current liabilities 12,500 12,500 Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the business. What was the profit or loss of Gazhal's business for the year? A Profit of £20,000 B Profit of £30,000 C Loss of £20,000 D Loss of £30,000 LO 1d; 3a8 Accounting: Electronic Question Bank ICAEW 2019 Chapter 3: Recording financial transactions 1 A business paid out £23,550 in net wages to its employees. In respect of these wages, the following amounts were shown in the statement of financial position. £ PAYE payable 4,620 National Insurance payable – employees' 2,830 – employer's 2,640 What were the employees' gross wages before deductions? A £28,170 B £30,810 C £31,000 D £33,640 LO 1c 2 Which of the following is a source document that would be entered into the accounting system? A Debit note B Delivery note C Purchase order D Sales invoice LO 1c 3 Which of the following best explains the imprest system of petty cash control? A The system ensures that there is always sufficient petty cash available B The amount of petty cash in total must never fall below the imprest amount C Each month an equal amount of cash is transferred into petty cash D At any time petty cash in the box plus petty cash vouchers equals the imprest amount LO 1c 4 Nozam maintains an imprest amount of £250 in petty cash. At the end of the month, he has vouchers totalling £112, a receipt for a refund of £9 and a note to say that an employee took £10 to buy stationery for which a voucher has not been prepared. How much does Nozam need to withdraw from the business bank account to reinstate his imprest balance at the end of the month? A £113 B £93 C £137 D £127 LO 1cICAEW 2019 Chapter 3: Recording financial transactions 9 5 The following data has been extracted from the payroll records of a business for the month of May 20X7. £ Net amount paid to employees 114,000 PAYE 38,000 Employer's NIC 15,600 Employees' NIC 13,400 The wage expense for the month is: A £181,000 B £152,000 C £143,000 D £114,000 LO 1c 6 Fred sells goods on credit to Keira for £2,400. £50 of these goods are defective and Keira returns them to Fred. What document would Keira issue to Fred? A Invoice B A request for a credit note C Credit note D A request for an invoice LO 1c 7 The following data has been extracted from the payroll records of Scan Ltd for the month of March. £ PAYE 18,400 Employer's NIC 12,100 Employees' NIC 10,400 Net amount paid to employees 109,000 Scan Ltd's wages expense for the month is: A £149,900 B £137,800 C £92,300 D £80,200 LO 1c, d 8 When a purchase invoice is received from a supplier, which of the following documents might the invoice be checked against? A Sales order B Debit note C Goods received note D Credit note LO 1c10 Accounting: Electronic Question Bank ICAEW 2019 9 Meghan downloads a transaction report showing her bank transactions for the day. The report shows a payment of £860, which the computerised accounting system has not been able to match to a transaction. Which of the following transactions is most likely to have resulted in the payment of £860? A A bank transfer received from a credit customer to settle an invoice B An amount paid to purchase new office furniture C An amount withdrawn to restore the petty cash to its imprest amount of £100 D A bank transfer paid to an electricity supplier in respect of the monthly invoice received LO 1c 10 Cooks Ltd has a petty cash float with an imprest amount of £250. At the end of March vouchers in the petty cash box totalled £144 and the amount of cash remaining in the box was £86. Which of the following explains the difference? A A petty cash voucher for £20 is missing. B An employee was given £20 too little when making a petty cash claim. C An employee reimbursed petty cash with £20 in respect of postage stamps used, but no voucher was prepared. D A voucher for £20 was put in the box but no payment was made to the employee. LO 1cICAEW 2019 Chapter 4: Ledger accounting and double entry 11 Chapter 4: Ledger accounting and double entry 1 All Peter's sales carry VAT at the standard rate of 20%. A customer is sold goods on credit for £2,400 exclusive of VAT. The double entry to record this transaction is: A Dr Trade receivables £2,880, Cr Sales £2,400, Cr VAT £480 B Dr Sales £2,400, Dr VAT £480, Cr Trade receivables £2,880 C Dr Trade receivables £2,400, Dr VAT £480, Cr Sales £2,880 D Dr Sales £2,880, Cr Trade receivables £2,400, Cr VAT £480 LO 1d; 2c 2 What transaction is represented by the entries: debit non-current assets account, credit trade payables? A The receipt of money from sale of a non-current asset B The issue of an invoice for the sale of a non-current asset C Receipt of an invoice for the purchase of a non-current asset D Payment for a non-current asset LO 1d; 2c 3 In double-entry bookkeeping, which of the following statements is true? A Credit entries decrease expenses and increase assets B Debit entries decrease expenses and increase assets C Credit entries decrease liabilities and increase income D Debit entries decrease income and increase assets LO 1d 4 Identify whether the following statements are true or false. Statement 1: A credit balance of £100 brought down on George's receivables ledger in Guy's accounting records means that George owes money to Guy. Statement 2: A debit balance of £500 on Guy's drawings account means that Guy has withdrawn £500 in the period. A Statement 1 is true and Statement 2 is false. B Statement 1 is false and Statement 2 is true. C Both statements are true. D Both statements are false. LO 1c, d12 Accounting: Electronic Question Bank ICAEW 2019 5 Reece has opening trade receivables of £42,100 and closing trade receivables of £38,600. Sales for the period totalled £186,190 (£13,400 of which were cash sales). Receipts recorded in trade receivables for the period were: A £169,290 B £176,290 C £182,690 D £189,690 LO 1d 6 Kirsty purchased goods on credit from her supplier for £1,500 inclusive of VAT at the standard rate of 20%. The double entry to record this transaction is: A Dr Trade payables £1,500, Cr Purchases £1,200, Cr VAT £300 B Dr Purchases £1,200, Dr VAT £300, Cr Trade payables £1,500 C Dr Trade payables £1,500, Cr Purchases £1,250, Cr VAT £250 D Dr Purchases £1,250, Dr VAT £250, Cr Trade payables £1,500 LO 1d; 2c 7 Destiny plc offers a 5% early settlement discount to any customers who pay within 10 days of receiving an invoice. It sold goods totalling £1,240 on credit to a customer who is expected to take advantage of the early settlement discount. You should ignore the effects of VAT. What is the correct double entry to record the sale? A Dr Trade receivables £1,240, Cr Revenue £1,240 B Dr Trade receivables £1,178, Cr Revenue £1,178 C Dr Revenue £1,240, Cr Trade receivables £1,240 D Dr Revenue £1,178, Cr Trade receivables £1,178 LO 1d; 2cICAEW 2019 Chapter 4: Ledger accounting and double entry 13 8 Which of the following could be a credit entry in trade receivables? A Credit sales B Cash sales C Cash received from credit customers D Early settlement discounts received from suppliers that were not expected to be taken at the date of purchase LO 1c, d 9 Millwood purchased goods on credit from Horwich. At the point of recording the invoice from Horwich, Millwood did not intend to take the early settlement discount offered, however, Millwood later decided that it would take the discount and so paid within the required timeframe. What double entry should Millwood make to record the payment to Horwich? A Dr Cash at bank, Cr Purchases, Cr Trade payables B Dr Purchases, Dr Trade payables, Cr Cash at bank C Dr Trade payables, Cr Purchases, Cr Cash at bank D Dr Cash at bank, Dr Purchases, Cr Trade payables LO 1d; 2c 10 A business received the following invoice from one of its suppliers: Invoice: 4015 Date: 15 May 20X9 £ Goods 200 @ £20 4,000 Less Trade discount (1,000) 3,000 What entries will be made in the nominal ledger to record this invoice? (Ignore VAT) A Dr Purchases £4,000, Cr Trade payables £4,000 B Dr Purchases £3,000, Cr Trade payables £3,000 C Dr Trade payables £3,000, Cr Purchases £3,000 D Dr Trade payables £4,000, Cr Purchases £4,000 LO 1d; 2c 11 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales and purchases are on credit and are liable to VAT at 20%. What amount is recorded in Apricot plc's sales account? A £7,560 B £31,500 C £37,800 D £45,360 LO 1d; 2c 12 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales and purchases are on credit and are liable to VAT at 20%.14 Accounting: Electronic Question Bank ICAEW 2019 What amount is recorded in Apricot plc's purchases account? A £7,560 B £31,500 C £37,800 D £45,360 LO 1d; 2c 13 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales and purchases are on credit and are liable to VAT at 20%. What amount is recorded in Apricot plc's trade receivables? A £7,560 B £31,500 C £37,800 D £45,360 LO 1d; 2c 14 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales and purchases are on credit and are liable to VAT at 20%. What amount is recorded in Apricot plc's trade payables? A £7,560 B £31,500 C £37,800 D £45,360 LO 1d; 2c 15 Milo is a trader and is registered for VAT. During the quarter to 30 June 20X8 he made the following transactions. £ Purchase of inventory 25,200 Purchase of new car for use in the business 14,400 Payments to HMRC 9,420 Sales 100,800 All the above purchases and sales are inclusive of VAT at 20%. At 1 April 20X8 Milo owed HMRC £2,000. What was Milo's liability at 30 June 20X8 in respect of VAT? A £2,780 B £4,820 C £5,180 D £7,700 LO 1d 16 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the month of March that £300 should be deducted as PAYE and that National Insurance amounts to £150 for employees' NIC and £160 for employer's NIC. What accounting entry should Anthony make to the salaries expense account?ICAEW 2019 Chapter 4: Ledger accounting and double entry 15 A Credit £1,050 B Debit £1,500 C Debit £1,660 D Credit £610 LO 1d; 2c 17 Anthony pays his one assistant a monthly gross salary of £1,500. He has calculated for the month of March that £300 should be deducted as PAYE and that National Insurance amounts to £150 for employees' NIC and £160 for employer's NIC. What accounting entry should Anthony make to the HMRC payable account? A Credit £1,050 B Debit £1,500 C Debit £1,660 D Credit £610 LO 1d; 2c 18 Which of the following statements is correct? A A debit entry increases a liability; A debit entry decreases an asset B A debit entry increases a liability; A credit entry decreases an asset C A credit entry increases a liability; A debit entry decreases an asset D A credit entry increases a liability; A credit entry decreases an asset LO 1d; 2c 19 Which of the following statements is correct? A A debit entry increases an asset; A debit entry decreases capital B A debit entry increases an [Show Less]