1. Which groups of people are most likely to be interested in the financial statements of a sole trader?

1Shareholders of the company

2 The business’s bank manager
3 The tax authorities
4 Financial analysts

A 1 and 2 only
B 2 and 3 only
C 2, 3 and 4 only
D 1, 2 and 3 only

2. Which of the following statements is/are true?

1 The shareholder needs a statement of financial prospects, ie an indication of future progress.

However, the supplier of goods on credit needs a statement of financial position, ie an indication
of the current state of affairs.
2 The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decisions.

A 1 only
B 2 only
C Both 1 and 2
D Neither 1 or 2

3. Which of the following are advantages of trading as a limited liability company?

1 Operating as a limited liability company makes raising finance easier because additional shares
can be issued to raise additional cash.
2 Operating as a limited liability company is more risky than operating as a sole trader because the shareholders of
a business are liable for all the debts of the business whereas the sole trader is only liable for the debts up to the
amount he has invested.

A 1 only
B 2 only
C Both 1 and 2
D Neither 1 or 2

4. Which accounting concept should be considered if the owner of a business takes goods from inventory for
his own personal use?

A The substance over form concept

B The accruals concept
C The going concern concept
D The business entity concept
5. Sales revenue should be recognized when goods and services have been supplied; costs are incurred when
goods and services have been received.

Which accounting concept governs the above?

A The substance over form concept

B The materiality concept
C The accruals concept
D The duality concept

6. Which accounting concept states that omitting or misstating this information could influence users of the
financial statements?

A The consistency concept

B The accruals concept
C The materiality concept
D The going concern concept

7. According to the IASB's Conceptual Framework for Financial Reporting, which TWO of the following
are part of faithful representation?

1 It is neutral
2 It is relevant
3 It is presented fairly
4 It is free from material error

A 1 and 2
B 2 and 3
C 1 and 4
D 3 and 4

8. Which of the following accounting concepts means that similar items should receive a similar accounting
treatment?

A Going concern
B Accruals
C Substance over form

9. Which of the following statements about accounting concepts are correct?

1 The accruals concept requires that revenue earned must be matched against the expenditure
incurred in earning it.
2 The prudence concept means that understating of assets and overstating of liabilities is desirable
in preparing financial statements.
3 The reliability concept means that even if information is relevant, if it is very unreliable, it may be
misleading to recognise it in the financial statements.
4 The substance over form convention is that, whenever legally possible, the economic substance
of a transaction should be reflected in financial statements rather than simply its legal form.

A 1, 2 and 3
B 1, 2 and 4
C 1, 3 and 4
D 2, 3 and 4

10. Listed below are some comments on accounting concepts.

1 In achieving a balance between concepts, the most important consideration is satisfying as far as
possible the economic decision-making needs of users.
2 Materiality means that only items having a physical existence may be recognised as assets.
3 The substance over form convention means that the legal form of a transaction must always be
shown in financial statements, even if this differs from the commercial effect.

Which, if any, of these comments is correct, according to the IASB's Conceptual Framework for
Financial Reporting?

A 1 only
B 2 only
C 3 only
D None of them

11. Which, if any, of the following statements about accounting concepts and the characteristics of financial
information are correct?

1 The concept of substance over form means that the legal form of a transaction must be reflected
in financial statements, regardless of the economic substance.
2 Information is not material if its omission or misstatement could influence the economic decisions
of users taken on the basis of the financial statements.
3 It may sometimes be necessary to exclude information that is relevant and reliable from financial
statements because it is too difficult for some users to understand.

A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D None of these statements are correct

12. Which one of the following is not a qualitative characteristic of financial information according to the
Conceptual framework for Financial Reporting?

A Going concern
B Relevance
C Timeliness
D Accruals

13. The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000
during the year and withdrew goods for his private use which had cost $2,200.

If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?
A $35,000
B $39,400
C $168,400
D $180,000

14. A trader's net profit for the year may be computed by using which of the following formulae?
A Opening capital + drawings – capital introduced – closing capital
B Closing capital + drawings – capital introduced – opening capital
C Opening capital – drawings + capital introduced – closing capital
D Opening capital – drawings – capital introduced – closing capital

15. The profit made by a business in 20X7 was $35,400. The proprietor injected new capital of $10,200
during the year and withdrew a monthly salary of $500.
If net assets at the end of 20X7 were $95,100, what was the proprietor's capital at the beginning of the
year?
A $50,000
B $55,500
C $63,900
D $134,700

16. A sole trader took some goods costing $800 from inventory for his own use. The normal selling price of
the goods is $1,600.

Which of the following journal entries would correctly record this?

Dr Cr
$ $

A Inventory account 800

Purchases account 800
B Drawings account 800
Purchases account 800
C Sales account 1,600
Drawings account 1,600
D Drawings account 800
Sales account 800

17. A business can make a profit and yet have a reduction in its bank balance. Which ONE of the following
might cause this to happen?
A The sale of non-current assets at a loss
B The charging of depreciation in the statement of profit or loss
C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers

18. The net assets of Altese, a trader, at 1 January 20X2 amounted to $128,000. During the year to 31
December 20X2 Altese introduced a further $50,000 of capital and made drawings of 48,000. At 31
December 20X2 Altese's net assets totalled $184,000.

What is Altese's total profit or loss for the year ended 31 December 20X2?
A $54,000 profit
B $54,000 loss
C $42,000 loss
D $58,000 profit

19. In which book of prime entry will a business record debit notes in respect of goods which have been
sent back to suppliers?

A The sales returns day book

B The cash book
C The purchase returns day book
D The purchase day book

20. Mew Ling has the following transactions:

1 Receipt of cash from R Singh in respect of an invoice for goods sold three weeks ago
2 Receipt of cash from S Kalu for cash sales
What are the ledger entries required to record the above transactions?
A Dr Cash
Cr Sales

B Dr Cash
Cr Sales
CrTrade Receivables

C Dr Sales
Cr Cash

D Dr Trade Receivables
Dr Sales
Cr Cash

21. Are the following statements about debit entries true or false?

1 A debit entry in the cash book will increase an overdraft in the accounts.
2 A debit entry in the cash book will increase a bank balance in the accounts.
A Both true
B Both false
C 1 true and 2 false
D 1 false and 2 true

22. Tin Co purchases $250 worth of metal from Steel Co. Tin Co agrees to pay Steel Co in 60 days
time.What is the double entry to record the purchase in Steel Co’s books?

A Debit sales $250, credit receivables $250

B Debit purchases $250, credit payables $250
C Debit receivables $250, credit sales $250
D Debit payables $250, credit purchases $250

23. The following totals appear in the day books for March 20X8.

$
Sales day book 40,000
Purchases day book 20,000
Returns inwards day book 2,000
Returns outward day book 4,000

Opening and closing inventories are both $3,000. What is the gross profit for March 20X8?
A $22,000
B $24,000
C $20,000
D $18,000

24. A trial balance is made up of a list of debit balances and credit balances. Which of the following
statements is correct?

A Every debit balance represents an expense.

B Assets are represented by debit balances.
C Liabilities are represented by debit balances.
D Income is included in the list of debit balances.
 25. At 31 October 20X6 Roger's trial balance included the following balances:

$
Machinery at cost 12,890
Accumulated depreciation 8,950
Inventory 5,754
Trade receivables 11,745
Trade payables 7,830
Bank overdraft 1,675
Cash at bank 150
What is the value of Roger's current assets at 31 October 20X6?
A $17,649
B $17,499
C $15,974
D $13,734

26. W is registered for sales tax. The managing director has asked four staff in the accounts department
why the output tax for the last quarter does not equal 20% of sales (20% is the rate of tax). Which
one ofthe following four replies she received was not correct?

The company had some exports that were not liable to sales tax.
B The company made some sales of zero-rated products.
C The company made some sales of exempt products.
D The company sold some products to businesses not registered for sales tax.

27. Alana is not registered for sales tax purposes. She has recently received an invoice for goods for
resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575.

What is the correct entry to be made in Alana’s general ledger in respect of the invoice?
A Dr Purchases $500, Dr Sales tax $75, Cr Payables $575
B Dr Purchases $575, Cr Sales tax $75, Cr Payables $500
C Dr Purchases $500, Cr Payables $500
D Dr Purchases $575, Cr Payables $575

28. A business commenced with capital in cash of $1,000. Inventory costing $800 plus sales tax is
purchased on credit, and half is sold for $1,000 plus sales tax, the customer paying in cash at once.

The sales tax rate is 20%.

What would the accounting equation after these transactions show?
A Assets $1,800 less Liabilities $200 equals Capital $1,600
B Assets $2,200 less Liabilities $1,000 equals Capital $1,200
C Assets $2,600 less Liabilities $800 equals Capital $1,800
D Assets $2,600 less Liabilities $1,000 equals Capital $1,600

29. 5.7 Which of the following correctly describe the entry in the sales account for a sale for a sales tax
registered trader?

A Credited with the total of sales made, including sales tax

B Credited with the total of sales made, excluding sales tax
C Debited with the total of sales made, including sales tax
D Debited with the total of sales made, excluding sales tax

30. Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to
$18,000. What is the balance on the sales tax account, assuming all items are subject to sales tax at
17.5%?
A $962.50 debit
B $962.50 credit
C $1,682.10 debit
D $1,682.10 credit

31. The inventory value for the financial statements of Global Inc for the year ended 30 June 20X3 was
based on a inventory count on 7 July 20X3, which gave a total inventory value of $950,000. Between
30 June and 7 July 20X6, the following transactions took place.

$
Purchase of goods 11,750
Sale of goods (mark up on cost at 15%) 14,950
Goods returned by Global Inc to supplier 1,500

What figure should be included in the financial statements for inventories at 30 June 20X3?
A $952,750
B $949,750
C $926,750
D $958,950

32. Which of the following costs may be included when arriving at the cost of finished goods inventory
for inclusion in the financial statements of a manufacturing company?

1 Carriage inwards
2 Carriage outwards
3 Depreciation of factory plant
4 Finished goods storage costs
5 Factory supervisors' wages

A 1 and 5 only
B 2, 4 and 5 only
C 1, 3 and 5 only
D 1, 2, 3 and 4 only
 33. The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700.

The following items were included at cost in the total:

1 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in
manufacture, they were all sold after the reporting date at 50% of their normal price. Selling
expenses amounted to 5% of the proceeds.
2 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in
February 20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They were
sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above items?
A $281,200
B $282,800
C $329,200
D None of these

34. What is the purpose of charging depreciation in accounts?

A To allocate the cost of a non-current asset over the accounting periods expected to benefit from
its use
B To ensure that funds are available for the eventual replacement of the asset
C To reduce the cost of the asset in the statement of financial position to its estimated market value
D To account for the ‘wearing-out’ of the asset over its life

35. An asset register showed a carrying value of $67,460. A non-current asset costing $15,000 had been
sold for $4,000, making a loss on disposal of $1,250. No entries had been made in the asset register for
this disposal.

What is the correct balance on the asset register?

A $42,710
B $51,210
C $53,710
D $62,210

36. An organisation's asset register shows a carrying value of $145,600. The non-current asset account in
the nominal ledger shows a carrying value of $135,600. The difference could be due to a disposed
asset not having been deducted from the asset register. Which one of the following could represent
that asset?

A Asset with disposal proceeds of $15,000 and a profit on disposal of $5,000

B Asset with disposal proceeds of $15,000 and a carrying value of $5,000
C Asset with disposal proceeds of $15,000 and a loss on disposal of $5,000
D Asset with disposal proceeds of $5,000 and a carrying value of $5,000

37. Which one of the following would occur if the purchase of computer stationary was debited to the
computer equipment at cost account?

A An overstatement of profit and an overstatement of non-current assets

B An understatement of profit and an overstatement of non-current assets
C An overstatement of profit and an understatement of non-current assets
D An understatement of profit and an understatement of non-current assets