ACCA Fundamentals Level Paper F3 Financial Accounting (International) Course Test 2

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ALL TWENTY FIVE questions are compulsory and MUST be attempted

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ACF3CT10(D) INT Course Test 2 Questions

AC210-F3(CT2)INT

ACF3CT10(D) INT Course Test 2 Questions

ALL TWENTY FIVE questions are compulsory and MUST be attempted

Please write your answer on lined paper with one answer per line
1 Cadillac Co pays local taxes in 10 equal instalments starting in May each year. The local taxes for the year to 31 March 20X9 were $18,900. The business is preparing its financial statements for the year ended 31 January 20X9. What is the prepayment of local taxes at 31 January 20X9? $ (2 marks) 2 Matts accounts at 30 November 20X8 show a closing Trade Receivables balance of $29,000. He wants to implement a general allowance of 2% of trade receivables at the year end but he has not yet dealt with the following items: He has discovered Duncan went bankrupt on 29/11/X8. His balance of $650 is included at the year end. Matt received $300 from Becks Limited, for a debt which he had written off on 26 May 20X7. He wishes to specifically provide for 60% of the debt of $800 due from Cat. What is the amount to be charged to the Income Statement in regard to Bad & Doubtful debts for the year ended 30 November 20X8? A B C D 3 $1410 $1381 $1981 $1387

(2 marks)

A company's bank statement shows an overdraft of $2,605 at 31 March 20X9. The statement includes bank charges of $46 which have not yet been recorded in the company's cash book. The statement does not include cheques for $780 paid to suppliers, nor an amount of $320 received from a customer; both of these amounts appear in the bank statement for April 20X9. If the company prepares a statement of financial position at 31 March 20X9, what should the figure for the bank overdraft be? $ (2 marks)

Cameron had receivables totalling $55,000 at the year end 30 June 20X9. He has decided to write off two debts of $1,300 and $2,150 respectively and to make a specific allowance for $5,600. The company's policy is to make a general allowance of 2%. The balance on this allowance at 1 July 20X8 was $8,540. What is the closing receivables allowance? $ (2 marks)

A company receives news that a major customer has been declared bankrupt. His debt had been allowed for earlier in the year. The entries now required are A B C D Debit allowance for receivables, credit trade receivables Debit irrecoverable debts written off, credit trade receivables Debit irrecoverable debts written off, credit allowance for receivables Debit allowance for receivables, credit irrecoverable debts written off

(2 marks)

ACF3CT10(D) INT Course Test 2 Questions

A gas accrual for $400 was treated as a prepayment in a sole trader's income statement. As a result the profit was A B C D Understated by $800 Understated by $400 Overstated by $800 Overstated by $400

(2 marks)

A business has received telephone bills as follows: Date received Quarter to 30 November Quarter to 28 February Quarter to 31 May Quarter to 31 August Quarter to 30 November Quarter to 28 February 20X7 20X8 20X8 20X8 20X8 20X9 December 20X7 March 20X8 June 20X8 September 20X8 December 20X8 March 20X9 Amount of bill $ 739.20 798.00 898.80 814.80 840.00 866.00 Date paid January 20X8 April 20X8 June 20X8 October 20X8 January 20X9 March 20X9

What is the charge for telephone in the income statement for the year ended 31 December 20X8? $ (2 marks) 8 Anthony's business bank statement showed an overdrawn balance of $5,250 on 31 October 20X8. When this was reconciled to the cash book, the following differences were noted: $ Unpresented cheques 1,070 Uncleared lodgements 1,240 Standing order for insurance premium not entered in the cash book 890 Overdraft interest not recorded in the cash book 80 Credited in error to Anthony's account by the bank 300 What was the original balance on Anthony's cash book at 31 October 20X8? $ (2 marks) 9 When performing a reconciliation between the bank statement and a business cash book, which of the following would require an entry into the cash book? 1 2 3 4 5 A B C D 10 Deposits credited after date Direct debit on bank statement only Bank charges Bank error Cheque presented after date 2, 3 and 4 2 and 3 1 and 5 All of them

(2 marks)

As at 31 December 20X8 a company's bank statement shows an overdraft of $1,500. The statement includes bank charges of $30 which have not yet been recorded in the company's cash book. On 29 December 20X8 the company had paid a cheque of $500 to a supplier and banked $200 received from a trade receivable; neither of these items appear in the bank statement. What should the bank balance on the company's statement of financial position be at 31 December 20X8? $ (2 marks)

ACF3CT10(D) INT Course Test 2 Questions

11

Enigma has reduced its allowance for receivables by $600. Which of the following statements is correct? A B Net profit increases by $600 Gross profit increases by $600 (1 mark)

12

The trial balance of Putney and Co as at 31 May 20X9 includes the following: Receivables Allowance for receivables (a percentage based on past experience) Subsequently a review of the receivables ledger reveals the following: Debts totalling $985 are considered irrecoverable and are to be written off. There is some doubt over the recoverability of another receivable, Carter, owing $1,400. The company wishes to make a specific allowance for this. A percentage allowance of 2% of good debts is to be maintained. What is the irrecoverable debt expense to be included in the income statement for the year ended 31 May 20X9? A B C D $757 $2385 $1140 $1092 $ 40,235 $ 2,050

(2 marks)

13

Which one of the following is correct regarding the recording of an Accrual and a Prepayment in the first instance? A B C D An Accrual decreases an expense and a Prepayment increases an expense An Accrual increases an expense and a Prepayment decreases an expense An Accrual and a Prepayment both increase an expense An Accrual and a Prepayment both decrease an expense

(2 marks)

14

Broken Limited sets up a warranty provision each year, and last year it was $250,000. Historically they have found 65% of televisions have no faults, 25% have minor faults and the remainder have to be replaced. The associated costs based on this years sales would be: All Minor repairs $450,000 All replaced $900,000 What would be the double entry made in regards to the warranty provision this year? A B C D DR Warranty Expense $202500 DR Warranty Provision $220500 DR Warranty Provision $47500 DR Warranty Expense $47500 CR Warranty Provision $202,500 CR Warranty Expense $202500 CR Warranty Expense $47500 CR Warranty Provision $47500

(2 marks)

15

A local taxes (rates) prepayment of $475 was treated as an accrual in preparing a trader's income statement. As a result, his profit was A B C D Understated by $950 Overstated by $950 Understated by $475 Overstated by $475

(2 marks)

ACF3CT10(D) INT Course Test 2 Questions

16

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that material contingent assets and liabilities, existing at the end of the reporting period, should be treated as follows: A B C D Contingent assets and contingent liabilities must always be disclosed in the financial statements Contingent assets must always be accrued and contingent liabilities must always be disclosed in the financial statements Contingent liabilities must always be disclosed (unless remote) and contingent assets must sometimes be disclosed in the financial statements Contingent liabilities must always be either accrued or disclosed and contingent assets must always be disclosed in the financial statements (2 marks)

17

Disaster's trial balance shows a trade receivables account balance of $50,000. However, no adjustment has been made for the following items. $3,250 from J Crisis & Sons who have gone into liquidation, the amount is considered irrecoverable debts of $500 + $1,500 which are to be specifically allowed for cash received from P Chaos of $2,500 which had previously been written off cash received from T Ruin of $1,700 which had previously been allowed for (2 marks)

What is the revised trade receivables account balance? $

18

Arthur sets up his demolition business from scratch on 1 January 20X9. During the year he: (a) (b) (c) (d) (e) (f) (g) (h) Buys a warehouse Pays legal expenses on the purchase Buys three wrecking machines Rents office premises Builds an extension to the warehouse Pays wages Repairs the warehouse roof Writes off a damaged machine

Which items represent capital expenditure? A B C D 19 (a), (b), (c) and (e) (a), (b), (c), (e), (g) and (h) (a) and (c) All of them

(2 marks)

For Morgan the direct cost of production of each unit of inventory is $46 (including carriage inwards of $11 and import duties of $1 on the raw materials element). Production overheads amount to $15 per unit. Currently the goods can only be sold if they are modified at a cost of $17 per unit. The selling price of each modified unit is $80 and selling costs are estimated at 10% of selling price. At what value should each unmodified unit of inventory be included in the statement of financial position? $ (2 marks)

ACF3CT10(D) INT Course Test 2 Questions

20

The cashbook of Danger Limited showed a debit balance brought down of $1740 at 31 July 20X9. The cash book showed cheques paid to suppliers that had not yet cleared totalling $360, and cheques received from customers not yet cleared of $180. On reconciliation, the bank statement showed a cleared cheque paid to a supplier of $90 had been recorded on the debit side of the cash book at $60. What balance was shown on the bank statement at 31 July 20X9 before reconciliation? $ (2 marks)

21

A sole trader who runs a newsagent's business makes up his accounts each year to 31 May. His rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October. Local taxes (rates) are paid in arrears. His annual rental for the calendar years 20X6 and 20X7 was $4,800 and $5,400 respectively but on 1 January 20X8 this was increased to $6,600 per annum. During the year ended 31 May 20X8 he paid $4000 for rates. He had the following amounts in his accounts: Year ended 31 May 20X6 Year ended 31 May 20X7 Accrued rates $400 Accrued rates $600

He also received a bill on 5th July 20X8 for $600 for the period 1 April 20X8 to 30 June 20X8. In preparing his accounts for the year ended 31 May 20X8, what would be the charge to the income statement from his rent and local taxes account? $ (2 marks) 22 Which regulatory body is responsible for issuing guidance on how to apply International Financial Reporting Standards and how to account for new Financial Reporting Issues? A B C 23 Standards Advisory Council International Financial Reporting Interpretations Committee International Accounting Standards Board

(1 mark)

On 1 January 20X4 Goblin bought a machine for $63,000. It was estimated that the machine's useful life would be 7 years and its residual value $7,000. Two years later the useful life was revised to four remaining years with a residual value of $7,000. At 31 December 20X8 the machine was sold for $30,000. Goblin charges a full years depreciation in the year of acquisition and no depreciation in the year of disposal. What is the profit or loss on disposal? A B C D $3,000 loss $7,000 profit $3,000 profit $7,000 loss

(2 marks)

ACF3CT10(D) INT Course Test 2 Questions

24

A sole trader is preparing her accounts for the year ended 30 June 20X9. During the year she paid the following invoices for rent: Invoice 25 Invoice 26 Invoice 27 Invoice 28 Invoice 29 Amount $250 $100 $350 $500 $300 Date paid 28 June 20X8 2 July 20X8 4 October 20X8 1 January 20X9 1 May 20X9

The Balance sheet as at 30 June 20X8 showed a rent prepayment of $150. At 30 June 20X9 there was accrued rent of $200. What is the correct charge for rent in her income statement for the year ended 30 June 20X9? A B C D 25 $1850 $900 $1300 $1600

(2 marks)

A business held the following goods in inventory as at 31 December 20X7: Manufacturing costs incurred $ 1,700 2,200 2,500 6,400 Costs to complete $ 1,000 1,200 500 2,700 Expected selling & distribution costs $ 140 170 170 480 Expected selling prices $ 2,900 3,400 3,800 10,100

Type A Type B Type C

At what total value should this inventory be shown in the company's statement of financial position? $ (2 marks)

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ACF3CT10(D) INT Course Test 2 Questions

ACCA Fundamentals Level Paper F3 Financial Accounting (International) Course Test 2

Suggested solutions and guidance

ACF3CT10(D) INT Course Test 2 Solutions

AC210-F3(CT2)INT

ACF3CT10(D) INT Course Test 2 Solutions

Answers
1 $1,260 9 instalments paid ($1,890 9) Charge for 10 months ($18,900 10/12) Prepayment 2 B Bad and Doubtful Debts Duncan Cat General $ 650 480 551 Becks To P&L () $ 300 1,381 $ 17,010 (15,750) 1,260

60% x 800 <<29,000 (650) (800) 27,550 2% = 551 3 $3,065

Bank balance per bank statement Unpresented cheques Outstanding lodgements per statement of financial position 4 $6,519 Specific allowance 2% allowance Closing allowance Receivables Less irrecoverable debts written off Less specific allowance 5 6 7 A C

$ (2,605) OD (780) 320 (3,065)

$ 5,600 919 6,519 55,000 (3,450) (5,600) 45,950 2% = 919

A charge has already been made to irrecoverable debts. The receivable is now being removed from the ledger. Increase profit by 2 $400.

$3,374.27 (2/3 798.00) + 898.80 + 814.80 + 840.00 + (1/3 866.00).

ACF3CT10(D) INT Course Test 2 Solutions

$4,410 credit Cash Book Balance c/d $ 5,380 Balance b/d Standing order Interest $ 4,410 890 80 5,380 $ (5,250) (1,070) 1,240 (300) (5,380)

5,380

Balance per bank statement Less unpresented cheques Add uncleared lodgements Less bank error Balance per amended cash book 9 10 B $1,800 credit Balance per bank statement Less unpresented cheque Add unrecorded lodgement 11 12 A $1,092 $ Irrecoverable debt w/o Specific allowance Percentage allowance: Receivables Irrecoverable debts w/o Specific allowance

$ (1,500) (500) 200 (1,800)

This $600 reduction will be credited back to the irrecoverable debts expense account and so increase net profit. $ 985 1,400

40,235 (985) (1,400) (37,850) 757 (2,050) (1,293) 1,092

2% provision c/f Allowance b/f Decrease in percentage allowance 13 14 B C 25% $450,000 + (100% - 65% - 25%) $900,000 = Existing provision Reduction in provision required 15 16 A C It was debited instead of credited, so the effect is doubled. Contingent liabilities must be disclosed Contingent assets are only disclosed if they are probable.

$202,500 ($250,000) $47,500

ACF3CT10(D) INT Course Test 2 Solutions

17

$45,050 Balance per trial balance Less irrecoverable debt written off Less cash received from T Ruin $ 50,000 (3,250) (1,700) 45,050

Note: P. Chaos will either be adjusted to irrecoverable debts or (if over one year ago) as income received from irrecoverable debts in the income statement 18 19 A $55 Cost Direct cost Production overheads 46 15 61 $ 80 (17) (8) 55 Legal expenses on the purchase can be capitalised $

Net realisable value Sales price Less modification costs Less selling costs (80 x 10%) Lower $55. 20 $1770 Cashbook Balance Brought down $ 1,740 1,740 Bank statement Uncleared payments Uncleared receipts Adjusted balance 21 $9,700 Rent 1 June 20X7 to 31 December 20X7 = 7/12 $5,400 1 January 20X8 to 31 May 20X8 = 5/12 $6,600 Local taxes Cash paid in the year Prior year accrual Current year accrual (2/3 x $600) $3,800 local taxes + $5,900 rent Cheque correction Balance carried down $ 150 1,590 1,740

<- $60 + $90

$ 1,770 (360) 180 1,590

$ 3,150 2,750 5,900 $ 4,000 (600) 400 3,800

ACF3CT10(D) INT Course Test 2 Solutions

22 23

B C 1.1.20X4 cost $63,000 Depreciation charge =

$63,000 $7,000 = 8,000 7

NBV after two years 31.12.X5 = $47,000 Useful life revised to four years Depreciation = $47,000 $7,000 = $10,000 4 $ 30,000 (27,000) 3,000 $ 100 350 500 300 1250 150 200 1600

NBV 31.12.X7 = $47,000 $20,000 = $27,000 Proceeds Less NBV Profit 24 D Cash paid in year

Prior year Prepayment Current year Accrual 25 $6,230

Cost $ 1,700 2,200 2,500 NRV $ 1,760 2,030 3,130

A B C

Lower $ 1,700 2,030 2,500 6,230

ACF3CT10(D) INT Course Test 2 Solutions

ACF3CT10(D) INT Course Test 2 Solutions

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ACF3CT10(D) INT Course Test 2 Solutions