FINANCIAL ACCOUNT FOUNDATION LEVEL WEEK 7 QUESTIONS CONTACT NUMBER 08038400843 CONTACT HOURS FOR CALLS WEDNESDAYS AND THURSDAYS, 6PM TO 7PM MID DIET MOCK MULTIPLE CHOICE QUESTIONS 1 A business purchases a vehicle for N10 000. The business depreciates its non-current (fixed) assets at 20 % using the diminishing value method. What is the depreciation charge for year 2? A N1600 B N2000 C N6400 D N8000 2 An item of capital expenditure has been incorrectly treated as revenue expenditure in the accounts of a business. What is the effect of this error on the accounts of the business? Assets profit A overstated overstated B overstated understated C understated overstated D understated understated 3 Which of the following items will be debited to accounts in the purchases ledger? 1 discount allowed 2 payments to suppliers 3 purchases 4 purchases returns A 1 and 2 B 2 and 3 www.starrygoldacademy.com Page 1
C 2 and 4 D 3 and 4 4 The personal spending of the owner of a business is not recognized as a business expense. Which accounting principle is being applied? A business entity B consistency C money measurement D prudence 5 A business obtained a machine by means of a hire purchase agreement. It showed the machine in its balance sheet at the cash price of N30 000 although only N10 000 has been repaid. Which accounting principle is involved? A accruals B materiality C prudence D substance over form 6 The table shows information from the books of a business at 30 April 2010. Details N Credit sales invoiced during financial year 79 000 Goods sent to customers on 28 April 2010 and invoiced 4 May 2010 6 100 Goods sent to customers during April 2010 on sale or return basis but not sold by 30 April 2010 8 300 What is the amount of sales for the year ended 30 April 2010? A N76 800 B N85 100 C N85 300 D N93 400 7 Which error will cause an entry in the suspense account? A a transposition error when transferring a ledger account balance to the trial balance www.starrygoldacademy.com Page 2
B an error of commission where the wrong account is used for a transaction but it is the correct type of account C an error of omission D an error of principle 8 The table shows transactions relating to an inventory (stock) item during a period. Number of units per unit Bought 100 cost N16 Sold 60 selling price N25 Of the remaining units, 20 are damaged and can only be sold for N10 each. What is the profit for the period? A N220 B N300 C N420 D N540 9. Which of the following is a limitation of the money measurement concept? A. An efficient management is not disclosed B. There is no basis for comparison C. Inter period comparison is impossible D. It does not allow for choice of method E. It does not allow for performance measurement 10. An expense be classified as revenue expenditure if it A. Contributes to the operating income of the business B. Adds to or reduces the capital of the business C. Necessitates the injection of an additional capital D. Adds to or improves the value of fixed assets E. Necessitates calling a general meeting for shareholders approval 11. The accounting concept that says every debit entry must have a corresponding credit entry is A. Going concern B. Duality concept C. Historical cost concept D. Money measurement concept E. Consistency concept www.starrygoldacademy.com Page 3
12. Which of the following source documents is received from a supplier of goods in relation to goods returned by a customer? A. Returned invoice B. Return inward note C. Credit note D. Debit note E. Return outward note 13. Which of the following does not belong to the group? A. Going concern concept B. Realisation concept C. Matching concept D. Entity concept E. Profitability concept 14. Which of the following errors would affect a Trial Balance? A. Error of commission B. Error of original entry C. Casting error D. Error of omission E. Error of principle 15. The first phase of recording financial transactions in the books of accounts is the A. Preparation of Trial Balance B. Analysis of financial statements C. Writing of source documents D. Drawing of trading account E. Wooing customers to buy goods 16. The basis of valuation of inventory is A. Lower of cost or net realisable value B. Lower of cost and market value C. Lower of cost and net realisable value D. Lower of average cost and market value E. Lower of average cost and net realisable value 17. Which of the following is NOT an asset? A. Goodwill B. Prepayment C. Stock/Inventory D. Accruals www.starrygoldacademy.com Page 4
E. Bills receivables 18. Which of the following is NOT an item of property, plant and equipment (with reference to 1AS 16)? A. Motor Vehicle B. Business Premises C. Plant D. Office Machinery E. Investment Property 19. Each of the following is a qualitative characteristic of financial information EXCEPT A. Reliability B. Relevance C. Completeness D. Going Concern E. Materiality 20. Which type of company uses the abbreviation Plc? A. Private companies only B. Public and private companies C. Public companies only D. All companies incorporated by shares E. Companies limited by guarantee www.starrygoldacademy.com Page 5
STRUCTURED QUESTIONS QUESTION 1 Depreciation may be thought of as the difference between the cost of an asset and the amount received from it on disposal. The following extract from the schedule of non-current (fixed) assets applies to the year ended 30 April 2009. Non-current (fixed) assets Machinery Motor vehicles N000 N000 Cost at 1 May 2008 4200 3200 Additions during year 1200 800 Disposals during year (700) (1000) Cost at 30 April 2009 4700 3000 Depreciation at 1 May 2008 1560 840 Add charge for year 470 750 Less disposals for year (520) (800) Depreciation at 30 April 2009 1510 790 Net book value at 30 April 2009 3190 2210 During the year ended 30 April 2010 the following took place: 1 New machinery costing N900 000 was purchased on 1 November 2009. Machinery, which had cost N400 000 on 1 July 2005, was sold for N200 000 in December 2009. 2 Three new motor vehicles were purchased on 1 April 2010 for N280 000 each. Two motor vehicles, which had been purchased on 1 March 2007, for N200 000 each, were taken in part-exchange. The partexchange allowance for each vehicle was N60 000. 3 One vehicle which had been purchased for N360 000 on 31 January 2009 was involved in an accident on 2 December 2009. The insurance company decided that it could not be repaired and gave compensation of N210 000. Depreciation is charged for the full year on all non-current (fixed) assets held at the yearend, using the straight-line method. No depreciation is charged on a non-current (fixed) asset in the year of disposal. Rates of depreciation have remained constant since the business began trading. REQUIRED www.starrygoldacademy.com Page 6
(a) (i) Calculate the profits or losses on disposals during the year ended 30 April 2010. (ii) Prepare a schedule of non-current (fixed) assets for the year ended 30 April 2010, using the layout given at the beginning of the question. (b) (i) State three causes of depreciation. (ii) Give an example of a non-current (fixed) asset for which each cause given in (b)(i) above might be appropriate. (c) State four factors which must be taken into account when deciding how much depreciation to charge. www.starrygoldacademy.com Page 7
QUESTION 2 During the month of June 2009 Rukevwe, an accountant, carried out the following transactions: June 2009 (i) Invested N400,000 to start an accounting firm on 1 June 2009. (ii) Bought stationery for cash N30,000 on 2 June 2009. (iii) Bought furniture from Erhuvwu & Co. on account N200,000 on the 8 June 2009. (iv) Received N250,000, being fees earned during the period, 24 June 2009. (v) Paid office rent for June N50,000 on 25 June 2009. (vi) Paid salary to his assistant N20,000 on 26 June 2009. (vii) Paid N120,000 to Erhuvwu & Co. on account on 27 June 2009. (viii) Withdrew N40,000 for personal use on 28 June 2009. Required: (a) Prepare Journal entries to reflect the above transactions? (12 Marks) (b) Explain the concept of money measurement? (3 Marks) QUESTION 3 (a) Summarize FIVE of the uses of accounting information. (b) State FIVE of the people who are likely to be interested in accounting information indicating TWO reasons why each of them is interested. QUESTION 4 a. Explain the term Conceptual Framework in relation to International Financial Reporting Standards (IFRS). (4 Marks) b. Define Assets and Liabilities (2 Marks) c. The International Accounting Standards Board s framework for the preparation of financial statements requires that entities should comply with certain accounting concepts and underlying assumptions which include: i. Substance over form; ii. Materiality; iii. Comparability; and iv. Going concern. www.starrygoldacademy.com Page 8
Explain briefly the meaning of these concepts (4 Marks) d. Discuss the information needs of the following users of a company s financial statements: i. Lenders; ii. Suppliers; iii. Customers ; iv. Employees; and v. Government and its agencies. (5 Marks) www.starrygoldacademy.com Page 9
QUESTION 5 Write short notes on the contributions of the following bodies to the development of accounting: (a) African Accounting Council (AAC). (3 Marks) (b) International Federation of Accountants (IFAC). (5 Marks) (c) International Accounting Standards Committee (IASC). (7 Marks) (Total 15 marks) www.starrygoldacademy.com Page 10