A.

MULTIPLE-CHOICE QUESTIONS
1. The following trade payables account contains some errors. All goods are purchased
on credit.

What would be the closing trade payables balance when the errors have been
corrected?
A £325,200 B £350,400 C £333,600 D £410,400

2. Muse plc began trading on 1 January 20X8 and had zero inventories at that date.
During 20X8 it made purchases of £455,000, incurred delivery inwards of £24,000,
and delivery outwards of £29,000. Closing inventories at 31 December 20X8 were
£52,000. What is the amount of cost of sales for the year ended 31 December 20X8?
A £456,000 B £427,000 C £432,000 D £531,000

3. Mickey Ltd has calculated the cost of inventory using the average cost (AVCO)
method. At 1 June 20X8, there were 60 units in inventory at a cost of £12 each. On 8
June, 40 units were purchased for £15 each, and a further 50 units were purchased for
£18 each on 14 June. On 21 June, 75 units were sold for £20.00 each. What is the
carrying amount of closing inventory at 30 June 20X8?
A £1,110 B £1,010 C £900 D £1,125

4. Sahara plc sells three products: Basic, Super and Luxury. The following information
was available at the year end.

What is the value of inventory at the year end?

A £3,600 B £4,700 C £5,100 D £6,150
 5. According to the IASB’s Conceptual Framework, which of the following are
enhancing qualitative characteristics?
A Comparability, understandability, timeliness, verifiability
B Consistency, prudence, measurability, verifiability
C Consistency, reliability, measurability, timeliness
D Materiality, understandability, measurability, reliability

6. Information about an entity’s assets and liabilities at a point in time is primarily

provided in:
A the statement of profit or loss C retained earnings
B the statement of financial position D the statement of cash flows

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

A Credit entries decrease liabilities and increase income.
B Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.
D Debit entries decrease expenses and increase assets.
8. Crimson plc paid an invoice from a credit supplier and took advantage of the early
settlement discount offered. When the invoice was received and recorded, Crimson plc
did not expect to take the discount. The journal entry to record the payment of the
invoice is:
A Debit Payables, Credit Purchases, Credit Cash at bank account
B Debit Payables, Credit Cash at bank account
C Debit Cash at bank account, Debit Purchases, Credit Payables
D Debit Cash at bank account, Credit Purchases, Credit Payables
9. A payment has been received from a credit customer in settlement of an invoice.
The customer was expected to take advantage of an early settlement discount offered;
however, payment was not made within the required timeframe and the discount was
not taken. The correct double entry to record the receipt of funds from the customer in
full settlement of the invoice is:
A. Debit Cash at bank, Credit Receivables, Credit Revenue
B. Debit Cash at bank, Debit Revenue, Credit Payables
C. Debit Receivables, Debit Revenue, Credit Cash at bank
D. Debit Receivables, Credit Revenue, Credit Cash at bank
10. Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers
for a total of £89,436 excluding VAT and purchases goods from suppliers for a total of
£86,790 including VAT. What is the net amount shown in Gerrard Ltd’s VAT account at
the end of April?
A £3,422 debit B £2,452 debit C £3,422 credit
D £2,452 credit
 11. A sole trader is £5,000 overdrawn at his bank and receives £1,000 from a credit
customer in respect of its account. Which element(s) of the accounting equation
will change due to this transaction?
A Liabilities only C Assets only
B Assets and liabilities D Assets, liabilities and capital

12. Which of the following best explains the imprest system of petty cash?
A Each month an equal amount of cash is transferred into petty cash.
B Petty cash must be kept under lock and key.
C The exact amount of petty cash expenditure is reimbursed at intervals to maintain a
fixed float.
D The petty cash total must never fall below the imprest amount.

13. Which of the following statements concerning the preparation of financial statements
is true?
A The balances on income and expense accounts are brought down at the end of the
accounting period to be carried forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger
account known as the statement of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted
from the business's accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.

14. Statement 1: A sole trader purchases goods on credit. Only assets will change due to
this transaction.
Statement 2: A debit balance of £3,000 brought down on America Ltd's account in
Brazil Ltd's accounting records means that Brazil Ltd owes America Ltd £3,000.
Are they true or fales?
A (1) and (2) are true C (1) is true, (2) is false
B (1) and (2) are false D (1) is false, (2) is true

15. Which of the following are source documents that contain information that will be
entered into a business's accounting system?
A Goods received note C Invoice to a customer.
B Purchase order to a supplier D Delivery note to a customer

16. George is owed £6,780 by a customer, Linda. George offers a discount to his
customers of 2% if they pay within 10 days. At the date the sale is made, Linda is
expected to settle pay within 10 days, which she subsequently does. What following
is/are the correct description?
(1) Sale originally recognised net amount, as discount was expected to be granted.
(2) On settlement date, the discount was received as expected. Cash received greater
than the receivable.
 A (1) true, (2) false B (1) true, (2) true C (1) false, (2) true D (1) false,
(2) false
17. A sole trader increases the business's number of motor vehicles by adding their own
car to the business's fleet. Which element(s) of the accounting equation will change
due to this transaction?
A Assets only B Capital only C Assets and liabilities
D Assets and capital

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

A Credit entries decrease liabilities and increase income.
B Debit entries decrease expenses and increase assets.
C Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.

19. Winn Ltd has opening trade payables of £24,183 and closing trade payables of
£34,655. Purchases for the period totalled £254,192 of which £31,590 related to cash
purchases. Total payments recorded in the payables ledger for the period were:
A £233,074 B £243,720 C £212,130 D £264,664

20. What is the correct double entry to record an invoice raised to a credit customer who is
not expected to take advantage of an early settlement discount?
A Debit Revenue, Credit Receivables C Debit Revenue, Credit Payables
B Debit Payables, Credit Revenue D Debit Receivables, Credit
Revenue

21. An error of principle would occur if plant and machinery purchased:

A was debited to the purchases account
B was omitted from the accounting records
C was debited to the equipment account
D was debited to the correct account but with the wrong amount

22. Incorrectly recording the purchase of stationery by debiting the computer equipment
account would result in:
A an understatement of profit and an understatement of non-current assets
B an overstatement of profit and an overstatement of non-current assets
C an understatement of profit and an overstatement of non-current assets
D an overstatement of profit and an understatement of non-current assets

23. Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers
for a total of £89,436 excluding VAT and purchases goods from suppliers for a total
of £86,790 including VAT. What is the net amount shown in Gerrard Ltd's VAT
account at the end of April?
 A £3,422 debit B £2,452 debit C £2,452 credit
D £3,422 credit

25. The accounting equation is correctly expressed as:

A Assets + profits – drawings – liabilities = closing capital
B Assets – liabilities – drawings = opening capital + profit
C Assets – liabilities – opening capital + drawings = profit
D Opening capital + profit – drawings – liabilities = assets

26. A sole trader purchases goods on credit. Which element(s) of the accounting
equation will change due to this transaction?
A Assets and liabilities B Assets and capital C Capital and
liabilities D Assets only

27. A sole trader sells goods for cash for £500 which had cost £300. Which element(s)
of the accounting equation will change due to this transaction?
A Assets and liabilities B Assets and capital C Capital and
liabilities D Assets only

28. Which of the following is a source document that would be entered into the
accounting system?
A Debit note B Credit note C Sales order D
Purchase order

29. A business has the following payroll costs for a month:

Gross pay £38,600 ; Employees’ national
insurance £3,100
PAYE £5,400 ; Employer’s national
insurance £3,500
What is the wages cost to the business for the month?
A £38,600 B £42,100 C £47,100 D £50,600

30. An error of commission is one in which:

A a transaction has not been recorded
B one side of a transaction has been recorded in the wrong account, and that account
is of the same class as the correct account
C one side of a transaction has been recorded in the wrong account, and that account
is of a different class to the correct account
D a transaction has been recorded using the wrong amount

31. 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.
B. CONSTRUCTED RESPONSE QUESTIONS
Question 1
On 1 January 20X9, Large Stores had goods in inventory valued at £6,000. During 20X8 it
purchased supplies costing £60,000. Sales for the year to 31 December 20X8 amounted to £90,000.
The cost of goods in inventory on 31 December 20X8 was £22,500.
Prepare Longines Food Stores' statement of profit and loss (extract) for the year.

Question 2
A business has inventories with a total selling price of £5,000.
What is the cost of inventory assuming the business operates:
(1) on a margin of 35%?
(2) on a mark-up of 35%?
Question 3
The two situations are separately:
(1) A debit balance of £25,000 in a suspense account. On reviewing the exception report, the bookkeeper
identified the amount as a purchase of machinery for £25,000. The amount had been correctly recorded in
cash at bank but the other side of the transaction had not been matched by the accounting system.
(2) The business’s exception report showed £265 received in the business bank account, and correctly
recorded in cash at bank, could not be matched by the accounting system and so had been posted to a
suspense account. The bookkeeper discovered that receipt was in respect of sales invoice for £295 on
which the customer had unexpected taken prompt payment discount of $30. The customer had paid within
the required timeframe and so was entitled to take the discount.
Requirement: Record the transaction to correct the suspense account according to two above situations?

Question 4
Theo plc
The following trial balance was extracted from the nominal ledger of Theo plc on 31 December 2021.

Initial TB
£ £
Buildings – cost/value 42,365
Plant and machinery – cost/value 14,000
Buildings – accumulated depreciation 16,276
Plant and machinery – accumulated depreciation 3,600
6% bank loan repayable in 15 years 6,850
Trade receivable 411
Revenue 65,413
Purchases 27,481
Distribution costs 1,857
Administrative expenses 2,235
Inventories as at 1 Jan 2021 3,790
Further information:
(1) The inventories at the close of business on 31 December 2021 were valued at £4,067.
(2) The company calculated the finance cost for the year from the 15-year bank loan.
(3) The income tax charge for the year has been calculated as £874.
Requirement:
1. Determine Cost of sales for the year ended 31 December 2021
4. Calculate the Finance cost for the year from the 15-year bank loan