FINAL EXAM

ACADEMIC YEAR 2023 – 2024

SUBJECT: FINANCIAL ACCOUNTING

MOCK FINAL TEST

Time allowed: 90 minutes

Full Name:

Student No:

DOB:

Section A – Multiple Choice Questions (15 questions each worth 0.2 marks, total 3 marks)

Answer the following questions by selecting the appropriate answer.

Question 1
A sole trader borrows £10,000 from a bank. Which element(s) of the accounting equation will change
due to this transaction?
A. Capital and liabilities
B. Assets only
C. Assets and capital
D. Capital and liabilities

Question 2
A sole trader had trade receivables of £2,700 at 1 May. During May, he made cash sales of £7,200,
credit sales of £16,500 and received £15,300 from his credit customers. The balance on his trade
receivables account at the end of May was:
A. £3,900
B. £1,500
C. £8,700
D. £11,100

Question 3
What will be the effect of understating the current year’s closing inventory on a company’s financial
statements if the error remains uncorrected?
The current year’s profit will be understated but there will be no effect on next year’s
A. profit.
B. The current year’s profit will be overstated and next year’s profit will be understated.
C. The current year’s profit will be understated and next year’s profit will be overstated.
D. None of the above

Question 4
A rent prepayment of £960 was treated as an accrual in a sole trader’s statement of profit or loss at the
year end. As a result, the profit was:
A. understated by £1,920
B. understated by £960
C. overstated by £1,920
D. overstated by £960

Question 5
What will be the effect of understating the current year’s closing inventory on a company’s financial
statements if the error remains uncorrected?
A. The current year’s profit will be overstated and next year’s profit will be understated.
The current year’s profit will be understated but there will be no effect on next year’s
B. profit.
C. The current year’s profit will be understated and next year’s profit will be overstated.
D. None of the above

Question 6
On 1 April Amara had a balance of £100 (the imprest amount) in petty cash. At the end of April, she
has vouchers totalling £38, a receipt for a refund for stationery of £4 and a note to say that an employee
was reimbursed £12 in respect of postage costs but no voucher was issued. How much does Amara
need to reinstate her imprest balance at 30 April?
A. £54
B. £46
C. £66
D. £34

Question 7
A business compiling its financial statements for the year to 31 July each year pays rent quarterly in
advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from
£60,000 per year to £72,000 per year as from 1 October 20X3. What figure should be included as the
rent expense in the statement of profit or loss for the year ended 31 July 20X4?
A. £70,000
B. £69,000
C. £62,000
D. £63,000

Question 8
A business sublets part of its office accommodation. The rent is received quarterly in advance on 1
January, 1 April, 1 July and 1 October. The annual rent has been £24,000 for some years, but it was
increased to £30,000 from 1 July 20X5. What amounts for this rent should appear in the company’s
financial statements for the year ended 31 January 20X6?
Statement of profit or loss: £27,000; Statement of financial position: £2,500 accrued
A. income
Statement of profit or loss: £27,500; Statement of financial position: £5,000 accrued
B. income
Statement of profit or loss: £27,000; Statement of financial position: £2,500 deferred
C. income
 Statement of profit or loss: £27,500; Statement of financial position: £5,000 deferred
D. income

Question 9
Which of the following is an aspect of relevance, according to the IASB’s Conceptual Framework?
A. A Neutrality
B. B Free from error
C. C Completeness
D. D Materiality

Question 10
During 20X4, Bibi paid a total of £60,000 for rent, covering the period from 1 October 20X3 to 31
March 20X5. What figures in respect of rent should be included in the financial statements for the year
ended 31 December 20X4?
A. Statement of profit or loss: £50,000; Statement of financial position: £15,000 Accrual
B. Statement of profit or loss: £40,000; Statement of financial position: £15,000 Prepayment
C. Statement of profit or loss: £40,000; Statement of financial position: £10,000 Prepayment
D. Statement of profit or loss: £50,000; Statement of financial position: £10,000 Accrual

Question 11
Which of the following should be accounted for as capital expenditure?
A. B The repair of a window in a building
B. C The purchase of a vehicle by a garage for resale
C. A The annual cost of painting a factory floor
D. D Legal fees incurred on the purchase of a building

Question 12
At 31 December 20X8 Blue Anchor plc has an insurance prepayment of £250. During 20X9 they pay
£800 in respect of various insurance contracts. The closing accrual for insurance is £90. What is the
charge for insurance that should be included in the statement of profit or loss for the year ended 31
December 20X9?
A. £960
B. £460
C. £800
D. £1,140

Question 13
Which, if either, of these comments is correct? (1) According to the IASB’s Conceptual Framework,
financial information must be either relevant or faithfully represented if it is to be useful. (2)
Materiality means that only items having a physical existence may be recognised as assets.
A. 2 only
B. Both of them
C. Neither of them
D. 1 only

Question 14
 Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the year to
30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales of £89,400
excluding VAT. There was no change in the figures for opening and closing inventory in the statements
of financial position as at 30 June 20X6 and 20X7. What was Plym plc’s gross profit for the year ended
30 June 20X7?
A. £19,800
B. £4,900
C. £31,400
D. £16,500

Question 15
A company has sublet part of its offices and in the year ended 30 November 20X3 the rent receivable
was: Rent was received quarterly in advance on 1 January, April, July, and October each year. What
amounts should appear in the company’s financial statements for the year ended 30 November 20X3?
Statement of profit or loss: £9,900; Statement of financial position: £2,000 in other
A. payables
Statement of profit or loss: £9,900; Statement of financial position: £1,000 in other
B. payables
Statement of profit or loss: £9,600; Statement of financial position: £1,000 in other
C. payables
Statement of profit or loss: £9,600; Statement of financial position: £2,000 in other
D. receivables

Section B – Short Answer Question (Choose 2 out of 4 questions, each question worth 1.5 marks,
total 3 marks)

Answer the following question

Question 1
When is financial information deemed to be material? Explain with 2 examples.

Question 2
Explain how a credit note is used? Is it a source document?

Question 3
Explain the difference between capital expenditure and revenue expenditure with 2
examples?

Question 4
Explain what what an imprest system is with examples.

Section C – Long Questions (1 question, total 4 marks)

The following is the trial balance of Hexham plc at 31 March 20X8:

 Credit
Account Description Debit (£)
(£)
Sales 1,150,000
Inventories at 1 April 20X7 75,000
Purchases 465,000
Distribution costs 220,000
Administrative expenses 340,000
Irrecoverable debts expense 36,000
Loan interest paid 8,000
Land and buildings cost 600,000
Plant and equipment cost 340,000
Land and buildings accumulated depreciation at 1 Apr 20X7 96,000
Plant and equipment accumulated depreciation at 1 Apr 20X7 63,000
Trade receivables 60,000
Allowance for receivables 5,000
Bank 24,000
Equity share capital (£1 shares) 400,000
Share premium 100,000
Bank loan 200,000
Retained earnings 61,000
Equity dividends paid 15,000
Trade payables 54,000
Advance deposits from customers 6,000
Total 2,159,000 2,159,000

The following adjustments have yet to be accounted for:

(1) Hexham plc holds two lines of inventory at 31 March 20X8. Details are as follows:

Total Selling
Item
Cost (£) Price (£)
CX100 16,200 15,000
BY200 76,000 83,600

(2) Hexham plc paid an annual insurance premium of £16,800 for the year 1 September 20X7 to 31

August 20X8. This payment is included in administrative expenses.

(3) The company’s depreciation policy is as follows:

Buildings Straight-line over 50 years

Plant and equipment 10% straight-line

The cost of the land was £200,000, and all non-current assets are assumed to have zero residual

values.
There were no additions to or disposals of non-current assets during the year ended 31 March 20X8.

Depreciation on buildings is charged to administrative expenses, and depreciation on plant and equipment
is charged to cost of sales.

(4) At the year end, trade receivables include a balance of £4,800 which is considered irrecoverable.
Hexham plc wishes to adjust the allowance for receivables at 31 March 20X8 to £2,760. The company
presents irrecoverable debts as other operating expenses on the face of the statement of profit or loss.

(5) The bank loan was received on 1 July 20X7 and is repayable in full in five years. Interest is charged at
a fixed rate of 8% per annum.

(6) Income tax for the year ended 31 March 20X8 is estimated at £10,000.

(7) Hexham plc products come with a six-month warranty. Management estimates that 5% of warranties
will be invoked, at a cost of £15,000 to Hexham plc. Provisions are charged to other operating expenses.

(8) Hexham plc paid rent of £25,000 on 27 March 20X8 which covers the period 1 April 20X8 to 30 June
20X8. This amount has been included in administrative expenses.

Requirement

Prepare the statement of profit or loss for Hexham plc for the year ended 31 March 20X8 and the
statement of financial position at that date.