UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level

PRINCIPLES OF ACCOUNTS 7110/12

Paper 1 Multiple Choice May/June 2012
1 hour
Additional Materials: Multiple Choice Answer Sheet
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There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

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This document consists of 8 printed pages.

IB12 06_7110_12/2RP
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1 Which task would not be carried out by an accountant?

A comparing one year’s results with those of previous years

B interpreting the accounting records
C preparing financial statements
D recording the financial transactions

2 Jane made a payment to a supplier for goods bought on credit. Jane does not have a bank
overdraft.

What is the effect on the accounting equation?

A decrease capital and decrease assets

B decrease liabilities and decrease assets
C increase assets and decrease liabilities
D increase liabilities and decrease capital

3 Anna keeps a full set of accounting records.

Goods purchased by Anna from Winston were returned before they were paid for.

Where will Anna record the return of goods?

A cash book and purchases ledger

B general ledger only
C general ledger and purchases ledger
D purchases ledger only

4 What is true about a statement of account issued by a business?

1 It is a source document for the purchases journal.

2 It is a source document for the sales journal.
3 It is sent by a customer to a supplier.
4 It is sent by a supplier to a customer.

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

5 Hasina buys radios from Nazneen at a list price of $10 each. Hasina bought 12 radios and was
offered 20 % trade discount and 4 % cash discount. Two radios were faulty and returned to
Nazneen.

What was the total of the credit note issued by Nazneen?

A $15.36 B $16.00 C $19.20 D $20.00

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6 A trader posts the total of her purchases returns journal to the ledger at the end of each month.

On 30 April 2012 the purchases returns journal showed the following totals.

gross trade net

discount
2012 $ $ $

April 30 totals for month 1200 240 960

Which entry should be made in the purchases returns account on 30 April 2012?

A credit $960
B credit $1200
C debit $960
D debit $1200

7 On 1 January Sudip borrowed $15 000 from the bank at an interest rate of 8 % per annum.

On 1 August the loan was increased to $24 000.

How much interest was Sudip charged for the year ended 31 December?

A $1000 B $1500 C $1920 D $2000

8 On 31 March 2012, Ahmed’s bank statement showed a credit balance of $2500. Ahmed found
that a cheque issued for $90 and a deposit of $500 had not been included on the bank statement.

What was the balance at bank shown in Ahmed’s cash book on 31 March 2012?

A $1910 B $2090 C $2910 D $3090

9 Which item is recorded in the general journal before it is entered in the ledger?

A bad debt written off

B cash sales
C equipment purchased by cheque
D purchases returns

10 Which account could have a credit balance?

A bank
B carriage inwards
C carriage outwards
D cash

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11 What is a trial balance?

A a list of balances remaining on the books of a business at a certain date

B a list of the transactions of a business for the year
C a statement of the assets, liabilities and capital of a business at a certain date
D a summary showing the profit made by a business

12 Which is an error of omission?

A rent paid in cash not entered in the rent account

B rent paid not entered in the cash book or the rent account
C rent paid not included in the income statement
D rent paid not included in the trial balance

13 John’s financial year ends on 31 December. He pays his annual insurance premium on 1 July. He
provided the following information.

insurance premium paid on 1 July 2010 2400

insurance premium paid on 1 July 2011 3000

How much was transferred from the insurance account to the income statement for the year
ended 31 December 2011?

A $2400 B $2700 C $3000 D $4200

14 Raminder maintains a provision for doubtful debts of 2 ½ % of the trade receivables.

On 1 January the balance on the provision account was $1075. The trade receivables at
31 December amounted to $41 000.

Which entry will Raminder make on 31 December to adjust the provision for doubtful debts?

debit $ credit $

A income statement 50 provision for doubtful debts 50

B income statement 1025 provision for doubtful debts 1025
C provision for doubtful debts 50 income statement 50
D provision for doubtful debts 1025 income statement 1025

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15 A company purchased a new computer system.

What would be recorded as revenue expenditure?

A computer hardware
B computer software
C ink cartridges
D inkjet printers

16 What is depreciation?

A an entry to write off the cost of a non-current asset when it is scrapped

B a reserve to finance the purchase of future non-current assets
C a reserve to pay for repairs which increase with the non-current asset’s age
D a system of matching the benefits of using a non-current asset with its cost

17 A machine costing $60 000 is depreciated by 25 % per annum on the reducing (diminishing)
balance method.

What was the depreciation charge for the second year?

A $11 250 B $15 000 C $26 250 D $30 000

18 Lisa’s trial balance failed to balance and a suspense account was opened.

It was found that the return of goods, $20, by Zaffar, a customer, had been correctly entered in
the sales returns account, but had been incorrectly debited to Zaffar’s account.

Which journal entry corrects this error?

debit credit
$ $

A suspense 20
Zaffar 20
B Zaffar 20
suspense 20
C suspense 40
Zaffar 40
D Zaffar 40
suspense 40

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19 What would be entered in a purchases ledger control account?

A cash purchases
B discounts allowed
C refund to credit customer
D returns outward

20 Which statement is correct?

A cost of goods sold – gross profit – sales returns = revenue

B cost of goods sold – gross profit + sales returns = revenue

C cost of goods sold + gross profit – sales returns = revenue

D cost of goods sold + gross profit + sales returns = revenue

21 When might goodwill appear in a balance sheet?

A when a trader plans to retire and close his business

B when it has been purchased
C when the market value of non-current assets is higher than net book value
D when the workforce is highly skilled

22 A trader provided the following information.

non-current assets 25 000

current assets 12 000
current liabilities 9 000
non-current liabilities 10 000

What was the capital employed?

A $18 000 B $28 000 C $38 000 D $56 000

23 At the end of his financial year Tom owes $150 rent.

How will the adjustment for this amount affect Tom’s financial statements?

A decrease expenses and increase current assets

B decrease expenses and increase current liabilities
C increase expenses and increase current assets
D increase expenses and increase current liabilities

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24 Amina and Sabena are in partnership.

How is interest on drawings recorded in the ledger?

A credit capital account

B credit current account
C debit capital account
D debit current account

25 Which would appear in a receipts and payments account?

A depreciation
B donations
C inventory
D subscriptions owing by members

26 A trader does not keep a full set of accounting records.

How is the profit for the year calculated?

A closing capital less opening capital less capital introduced plus drawings
B closing capital less opening capital less drawings
C closing capital less opening capital plus capital introduced
D closing capital less opening capital plus capital introduced less drawings

27 A manufacturing business provided the following information.

direct expenses 6 000

direct labour 15 000
direct materials 20 000
office expenses 4 000
factory heating and lighting 10 000
selling expenses 8 000

What was the prime cost of production?

A $41 000 B $45 000 C $51 000 D $63 000

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28 Anne works 40 hours and is paid $5 per hour. She pays income tax at 20 %, national insurance at
10 % and pension contributions at 5 %.

What is her gross pay?

A $130 B $140 C $160 D $200

29 A trader provided the following information.

$ $

revenue 60 000
opening inventory 15 000
purchases 30 000
45 000
closing inventory 10 000 35 000
gross profit 25 000

What was the rate of inventory turnover?

A 2.5 times B 2.8 times C 3.5 times D 4.8 times

30 Loose tools are shown in a balance sheet at valuation.

Which accounting principle is being applied?

A consistency
B going concern
C materiality
D prudence

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