FA-2

Practice Test Set 1

1. 'A business should apply the same accounting treatment to similar items from one accounting period
to the next.'

What accounting principle is described by the statement above?
a. Materiality
b. Consistency
c. Going concern
d. Business entity


2. Which of the following statements describes the qualitative characteristic 'relevance'?
a. Information which is unbiased
b. Information which can easily be understood
c. Information which is free from material error
d. Information which is capable of making a difference in the decisions made by users


3. Which of the following statements is correct?
a. Financial statements do not provide useful information to lenders
b. Financial statements of a sole trader must be prepared by a qualified accountant
c. All the information needs of the owner are met by the financial statements
d. Financial statements are intended to meet the needs of a number of user groups


4. Agnes sold some items of inventory which she had bought for $2,622 for $1,950 in cash.

How are her assets and capital affected by the sale?
a. Assets reduced by $672, Capital reduced by $672
b. Assets increased by $1,950, Capital reduced by $672
c. Assets increased by $672, Capital increased by $2,622
d. Assets reduced by $2,622, Capital reduced by $672


5. Which of the following statements describes current assets?
a. Assets which are expected to be converted into cash in the short term
b. Assets which are used to conduct the organisation's current business
c. Assets which are currently located on the business premises
d. Assets which are not expected to be converted into cash in the short term

1

6. In the general ledger what should the balance on the receivables ledger control account (also known
as the receivables account) show?

a. The total amount owed by the business to its suppliers
b. The total amount due to the business from its customers
c. The difference between the amount owed to suppliers and due from customers
d. The total amount received from customers during the accounting period

7. Estelle has prepared the following journal entry:

Dr Cash $500
Cr T Simpkins $500

What is the correct narrative for the journal entry?
a. Cash received from T Simpkins
b. Cash purchase from T Simpkins
c. Cash paid to T Simpkins
d. Cash sale to T Simpkins

8. A company has the following ledger accounts:
Receivables Control Account
$ $
Table and chair sales 3,000
Table Sales
$ $
Receivables control account 2,250
Chair Sales
$ $
Receivables control account 750

Which of the following accounting entries would result in the amounts shown in these accounts?

a. Dr Receivables control account $3,000
Cr Table sales $2,250
Cr Chair sales $750

b. Dr Table sales $2,250
Dr Chair sales $750
Cr Receivables control account $3,000

c. Dr Table sales returns $2,250
Dr Chair sales returns $750
Cr Receivables control account $3,000

d. Dr Receivables control account $3,000
Cr Table sales $3,000
2

9. Which of the following is the correct journal entry to record a credit note issued to a customer for
goods returned?
a. Dr Cash, Cr Sales returns
b. Dr Trade receivables, Cr Sales returns
c. Dr Sales returns, Cr Cash
d. Dr Sales returns, Cr Trade receivables


10. When goods are sold to a customer on credit what accounting entries should be made?

a. Dr Sales account
Cr Cash account

b. Dr Sales account
Cr Trade receivables account

c. Dr Trade receivables account
Cr Sales account

d. Dr Cash account
Cr Sales account


11. Tony returned items to his supplier of office stationery and his supplier sent him a credit note.

What entries are required in Tony's general ledger?

a. Dr Trade payables
Cr Goods for resale - return

b. Dr Goods for resale - returns
Cr Trade payables

c. Dr Office stationery
Cr Trade payables

d. Dr Trade payables
Cr Office stationery

3

12. Rosario sold goods to Dino on credit. Two weeks later Dino returned the goods.

What general ledger entry should Rosario make to record the return of the goods?

a. Dr Receivables
Cr Sales return

b. Dr Sales returns
Cr Receivables

c. Dr Payables
Cr Purchase returns

d. Dr Purchase returns
Cr Payables



13. In Sally's cash receipts book for July the trade receivables column showed a total of $2,500.
What does this amount represent?
a. The discounts allowed to credit customers for July
b. The amount invoiced to customers during July
c. The amount paid by credit customers during July
d. The amount owed to Sally by customers at the end of July

14. Since Petra commenced trading the cost of the items she sells has increased. Petra is trying to decide
how her profit for the year will be affected by the method she uses to value her inventory.

Which TWO of the following statements are correct?
a. Petra should value inventory on the basis that reports the lowest profit
b. First-in first-out will report a lower profit than weighted average
c. Weighted average will report a lower profit than first-in first-out
d. Profit for the year is affected by the method of inventory valuation

15. Bill uses the first-in first-out method of inventory valuation. At 1 May 20X8 he had 60 units in inventory
at a total value of $1,320. The movement on his inventory in May 20X8 was:
Receipts 14 May 120 units at $22.20
26 May 150 units at $22.30
Sales 18 May 90 units
28 May 80 units

What is the value of Bill's inventory at 31 May 20X8?

$

4

16. When carrying out a reconciliation between the non-current assets in her asset register and the assets
which she can physically identify Wilma could not find one of the assets which is recorded in her asset
register.

Could each of the following reasons explain the discrepancy?
Yes No
The supplier's invoice has not yet been received ¡ ¡
No record was made when the asset was sold ¡ ¡
Please select two answers.

17. In which of the following circumstances would an entry be made in the non-current asset register?
(1) When an asset is traded-in
(2) When an asset is scrapped

a. Both 1 and 2
b. 2 only
c. Neither 1 nor 2
d. 1 only



18. On 1 January 20X8 Paul purchased plant and equipment costing $90,000. Paul's depreciation policy is
to use a straight line basis over 10 years assuming a nil residual value.

What will be the effect on Paul's profit and net assets for the year end December 20X8 if he changes
to a depreciation policy of a reducing balance basis at 30% per annum?
a. Profit will increase by $9,000 and net assets will increase by $9,000
b. Profit will increase by $18,000 and net assets will decrease by $18,000
c. Profit will decrease by $18,000 and net assets will increase by $18,000
d. Profit will decrease by $18,000 and net assets will decrease by $18,000

19. Joan has traded in a non-current asset. The entries in her journal include:

Dr Non-current assets at cost
Cr Asset disposal

What aspect of the transaction is recorded by this entry?
a. Cash proceeds from disposal of the old non-current asset
b. Cash payment for purchase of the new non-current asset
c. Transfer of the original cost of the old non-current asset on disposal
d. Trade-in value of the old non-current asset

5

20. Chimwe purchased a new non-current asset, and paid for this by cheque. At the same time a bank loan
was raised to provide some of the funds needed for the purchase.

What entry correctly records the purchase of the non-current asset?

a. Dr Bank
Cr Non-current assets

b. Dr Non-current assets
Cr Bank

c. Dr Non-current assets
Cr Bank loan

d. Dr Bank loan
Cr Non-current assets

21. Which of the following statements is correct?

a. Accrued expenses increase the value of liabilities
b. Prepaid expenses reduce the value of assets
c. A prepayment arises when the expense is incurred before it is paid
d. An accrued expense is recorded when the payment is made




22. Vikki is preparing her final accounts for the year to 31 October 20X8. The most recent invoice in her
records for electricity was a charge of $1,647 for the three months to 31 August 20X8.

What post trial balance adjustment should Vikki make?
a. $549 accrual
b. $1,098 accrual
c. $549 prepayment
d. $1,098 prepayment


23. Jerome's receivables ledger has balances totalling $57,840. He has decided to write off an
irrecoverable debt of $320. His receivables allowance at the last year end was $1,368. He has
calculated that this should be revised to $1,247.

What is the resulting charge to Jerome's statement of profit or loss?

$

6

24. Ethel's trial balance includes the following balances:

$
Trade receivables 136,853 Dr
Receivables allowance 14,862 Cr

If no further entries are needed how should the current asset and current liability balances be
reported on Ethel's statement of financial position?
. nil $14,862 $121,991 $136,853
Current asset ¡ ¡ ¡ ¡
Current liability ¡ ¡ ¡ ¡


25. Mikel has been contacted by a customer because a part he supplied has damaged one of the
customer's machines. The customer has asked Mikel to pay costs of $5,500.

Mikel's offer to pay $3,000 has been refused by the customer leading to legal action. Mikel's solicitor
has told him that the court case will not take place until late 20X1, and that it is almost certain that he
will be required to pay $4,000.

What provision should Mikel make in his statement of financial position at 20 April 20X0?
a. $3,000
b. $5,500
c. nil
d. $4,000


26. During the year to 30 April 20X8 Trevor wrote off a debt of $563 as irrecoverable.

If in the year to 30 April 20X9 Trevor receives the $563 which was written off how will his financial
statements for that year be affected by the receipt?
a. His profit will be increased by $563
b. His receivables balance will be reduced by $563
c. His receivables balance will be increased by $563
d. His profit will be reduced by $563

7

27. On 23 May 20X7 Julie used cash to pay the rent on her business premises for the three months to 31
August 20X7 in advance.

On 23 May 20X7 how is Julie's accounting equation affected by this transaction?

a. Assets unchanged
Liabilities reduced
Capital reduced

b. Assets unchanged
Liabilities unchanged
Capital unchanged

c. Assets reduced
Liabilities unchanged
Capital reduced

d. Assets reduced
Liabilities unchanged
Capital unchanged

28. Simeon has the following ledger balances in his general ledger at 30 September 20X8:

$
Capital 6,260
Cash at bank 890
Expenses 17,410
Non-current assets (carrying amount) 31,845
Opening inventory 4,820
Purchases 71,470
Payables 6,930
Receivables 15,870
Sales 129,270

Simeon thinks there could be an error in the ledger as he thinks he may have posted only one side of a
journal entry.
What is the total of the credit side of Simeon's trial balance?
$

8

29. What is the purpose of a trial balance?
a. To highlight certain errors that may have occurred in the double entry accounting system
b. To keep a record of the total value of a number of similar but individual items in the ledger
accounts
c. To use instead of a set of final accounts if the business is small
d. To keep the assets and liabilities of the business separate from the personal assets and liabilities
of the business owners

30. Does each of the following require an entry in a suspense account?
. Yes No
A customer paid $190 to settle an invoice with a value of $109 ¡ ¡
The debit and credit totals of the trial balance did not agree ¡ ¡

31. Gayle paid for office cleaning in cash. She made the following entries in her general ledger:

Dr Trade payables
Cr Office cleaning expenses

Which accounts require an entry to correct this?
a. Office cleaning expenses and trade payables only
b. Office cleaning expenses and cash only
c. Office cleaning expenses, cash and trade payables
d. Cash and trade payables only

32. Wasim has prepared the following receivables reconciliation:

$
Total of list of balances 19,738
Discount not recorded in personal account (29)
Balance on receivables control account 19,709
Invoice not recorded in day book 1,627
21,336
Contra with payables ledger not recorded (2,628)
18,708

What value should be reported in Wasim's statement of financial position for receivables?

$

33. Shari is carrying out the reconciliation between the balance on her trade payables control account in
her general ledger and the list of balances in her purchase ledger. She has found the following errors:

(1) A credit balance on a supplier's account has been listed as a debit balance
(2) An invoice was recorded in the purchase day book for the wrong value
(3) No record has been made of discount received from a supplier

9

Which of these errors require an entry in the trade payables control account in the general ledger?
a. 1 and 2 only
b. 1, 2 and 3
c. 2 and 3 only
d. 1 and 3 only

34. When preparing the reconciliation between the balance on the receivables ledger control account in
her general ledger and the total of the list of balances from the personal ledger Avril discovered the
following errors:

(1) An invoice for $375 was entered in the daybook as a credit note
(2) An addition error meant that a customer's balance was understated in the personal ledger
(3) Avril agreed to offset a balance in the receivables ledger against a balance in the payables ledger,
but no entries were made

Which of the errors require an entry in the general ledger?
a. 1, 2 and 3
b. 1 and 3 only
c. 2 and 3 only
d. 1 and 2 only

35. Are each of the following statements true or false?
. True False
If there is a difference between the balance on the receivables ledger ¡ ¡
control account and the total of the list of balances from the
receivables ledger the balance on the control account is always correct

The receivables ledger control account balance must be correct if it ¡ ¡
agrees with the total of the list of balances from the receivables
ledger

36. Elaine is preparing her bank reconciliation and has noted some errors.
Does each of these errors require an entry in the bank account in her general ledger?
. Yes No
The bank has levied charges on her account ¡ ¡
A cheque payable to S Wright has not been presented at the bank ¡ ¡

37. Do each of the following correctly describe why a bank reconciliation is prepared?
. Yes No
To identify errors in the entries in the cash book ¡ ¡

To identify entries which have been generated by the bank, but not recorded ¡ ¡
in the cash book

10

38. The bank account in Trish's general ledger has a credit balance of $358.

The difference between this balance and the balance on her bank statement is due to:
(1) Trish incorrectly recorded the value of a cheque paid to a supplier for $245 as $254
(2) A lodgement of $283 has still to be credited by the bank
(3) The bank charged interest of $104 on her overdraft
After correcting the bank account in Trish's general ledger, which of the above items should appear
as an adjustment on the reconciliation statement?

a. 1,2 and 3
b. 2 only
c. 1 and 2 only
d. 1 only

39. Val has extended and totalled her extended trial balance, but has not entered the profit or loss for the
period. The total of the statement of financial position debit column is less than the total of the
statement of financial position credit column.

Which of the following is correct?
a. Val has made a profit, and the total of the statement of profit or loss debit column will be less than the
total of the statement of profit or loss credit column
b. Val has made a profit, and the total of the statement of profit or loss debit column will be greater than
the total of the statement of profit or loss credit column
c. Val has made a loss, and the total of the statement of profit or loss debit column will be greater than
the total of the statement of profit or loss credit column
d. Val has made a loss, and the total of the statement of profit or loss debit column will be less than the
total of the statement of profit or loss credit column

40. The totals of Kara's extended trial balance are:

Statement of profit or loss Statement of financial position
Debit Credit Debit Credit
$122,182 $113,528 $122,173 $130,827

What is Kara's result for the year?
a. A loss of $8,645
b. A profit of $8,654
c. A profit of 8,645
d. A loss of $8,654

41. When the trial balance is extended in which column should the value of opening inventory be
entered?
a. Statement of profit or loss Cr
b. Statement of profit or loss Dr
c. Statement of financial position Dr
d. Statement of financial position Cr

11

42. At 31 October 20X6 Gina Dobbs owed her suppliers $13,856. During the year to 31 October 20X7 her
payments to suppliers totalled $95,886 and at 31 October 20X7 she owed $11,552.

What is the value of Gina's credit purchases for the year to 31 October 20X7?

$

43. In the year to 30 November 20X7 Grace Smith obtained a 25% mark up on all her sales.

Her sales for the year totalled $120,600. Her opening inventory was valued at $9,340 and her closing
inventory was valued at $11,855.

What was the value of Grace's purchases for the year to 30 November 20X7?

$

44. In the year to 31 May 20X9 Ina's sales were $174,820 and her cost of sales was $139,856.

What were her gross profit margin and mark up?
. 20% 25%
Mark up ¡ ¡
Margin ¡ ¡

45. At 1 November 20X8 the value of Claudia's net assets was $127,554. At 31 October 20X9 the value was
$174,529. During the year to 31 October 20X9 Claudia introduced $35,000 of capital and her drawings
were $17,150.

What was Claudia's profit for the year to 31 October 20X9?

$


46. Bill obtains a 25% margin on all his sales. In the year to 31 March 20X0 he bought goods with a total
value of $69,000. His closing inventory cost $3,000 less than his opening inventory.

What is the value of Bill's sales in the year to 31 March 20X0?

$

12

47. P and Q are in partnership sharing profits equally.

On 30 June 20X5 R joined the partnership and it was agreed that from that date all three partners
should share equally in the profit.

In the year ended 31 December 20X5 the profit amounted to $300,000, accruing evenly over the year,
after charging an irrecoverable debt of $30,000 which it was agreed should be borne equally by P and
Q only.


What should P's total profit share be for the year ended 31 December 20X5?

$

48. Which of the following items should be included in the calculation of the net profit for a partnership?
(1) Interest on a loan from a partner
(2) Salaries for employees
(3) Salaries for partners
a. 1 and 3 only
b. 2 and 3 only
c. 1 and 2 only
d. 1, 2 and 3

49. Alec and Carl are in partnership sharing profits and losses in the ratio 3:2. The statement of profit or
loss for the year to 31 October 20X8 reports a profit of $98,500.

Interest on capital has been calculated as:

$
Alec 7,900
Carl 5,100

Both capital and current accounts are maintained in the books of the partnership. Neither partner
made any drawings in the year to 31 October 20X8.

What is the increase in the balance on Carl's current account in the year to 31 October 20X8?

$

13

50. James and Claude are in partnership sharing profit in the ratio 3:2. On 1 June 20X7 they decide to
admit Ramón as a partner and change the profit sharing ratio to 3:2:1 to James, Claude and Ramón
respectively.

Their capital account balances were as follows on 1 June 20X7:

James Claude
($) ($)
Capital accounts 68,000 52,000
Cr Cr

The goodwill of the partnership has been valued at $36,000. Ramón pays $14,000 into the partnership.
This includes $6,000 for his share of goodwill. Goodwill is not recorded in the accounts.
What is James' capital balance immediately after Ramon has been admitted as a partner?
a. $71,600
b. $68,000
c. $89,600
d. $54,400

14