Mock Examination

: CAT Paper TT6 p

Drafting Financial Statements

Session Set by : June 2011 : Ms Yeo Ai Ling

Your Lecturer Ms Edith Quek Ms Yeo Ai Ling

Your Mailing Address : ______________________________________ ______________________________________ Your Contact Number : ______________________________________

I wish to have my script marked by my lecturer and collect the marked script at the SAA-GE Reception Counter have th marked script returned t me b mail h the k d i t t d to by il (Please submit your script latest by 6th May 2011 for marking)
SAA GLOBAL EDUCATION CENTRE PTE LTD
Company Registration No. 201001206N 20 Aljunied Road, #01-04, CPA House, Singapore 389805 Tel: (65) 6744 9700 Fax: (65) 6744 9796 Website: www.saa.org.sg Email: acca@saa.org.sg

CAT Programme TT6 Drafting Financial Statements

Online Mock Test

1. If a shareholder in a limited liability company sells his shares to another private investor for less than he paid for them, the share capital of the company will: a) Remained unchanged b) Increase by the nominal value of the shares c) Increase by the amount received for the shares d) Decrease by the nominal value of the shares ( )

2. Which of the following items should be included when calculating the cost of an item of inventory? a) Carriage outwards b) Insurance on the shipment of inventory c) Selling price ( )

3. Which one of the following options is not an advantage of the IASB Framework document? a) It is consistent with US GAAP b) It demands that accounts contain relevant information c) It helps to reduce the scope for individual judgement and potential subjectivity d) A coherent conceptual framework can suggest solutions to many issues ( )

4. Which one of the following is included in the Statement of Cash Flows under the heading Cash Flows from Investing Activities? a) Dividends received b) Dividends paid c) Repayment of borrowings d) Adjustment for depreciation and amortisation ( )

5. Which class of stakeholders takes the greatest investment risks? a) Ordinary shareholders b) Preferred shareholders c) Bondholders d) Both preferred and ordinary shareholders take equal risks

6. Which of the following statements is false? a) Partners salaries do not appear in the income statement b) Goods taken by a partner for his or her own use should be treated as drawings c) A current account is used to record the profits retained in the business by a partner d) Loan interest paid to a partner is an appropriation of profit ( )

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7. Which method of inventory valuation is used when issues are assumed to be taken from inventory in the order in which they were received? a) First in first out b) Last in first out c) Periodic weighted average ( )

8. A business purchased a copier and estimated that it has an expected life of three years. The copier, which cost $99, was charged as an expense in the income statement for the period in which they were purchased. Which accounting convention does this treatment reflect? a) Going concern b) Historic cost c) Duality d) Materiality ( )

9. Which body is responsible for setting accounting standards? a) The International Financial Reporting Interpretations Committee b) The Government c) The International Accounting Standards Board d) The Standards Advisory Committee

10. A ________________________ results in a reduction in the amount of reserves held by a company. a) Share split b) Rights issue of shares c) Bonus issue of shares d) A new share issue ( )

11. The two main underlying assumptions referred to in the Framework are: a) Objectivity and prudence b) Accruals and going concern c) Accruals and historical cost d) Consistency and materiality

12. Ace Co. has the following share capital for the years 2008 and 2009. 2008 2009 ($000) ($000) $1 share capital ordinary share 1,200 2,000 Share premium 100 400 1,300 2,400 During the year, the company had a 1-for-3 bonus issue capitalising its general reserve, followed by an issue at full market price. What is the cash proceed from the issue of shares? a) $400,000 b) $500,000 c) $700,000 d) $800,000 ( )

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13. The IASB response to the problem of developing a conceptual framework for accounting was to introduce its Framework document. Which one of the following options is a benefit which accrues from having a conceptual framework? a) The task of developing and implementing standards will become easier b) The information needs of all user groups will be better served c) Accounting standards will develop in a more coherent fashion d) A variety of accounting presentation of transactions will emerge ( )

14. Mac & Ronald has issued share capital of $40,000 made up of shares with nominal value (par value) of 25. It paid a dividend of 5 per share on 2nd Feb 2009 in respect of year ended 31st Dec 2008. This dividend was announced in December 2008. On 3rd July 2009, it paid an interim dividend of 2 per share. At the end of 2009, it proposed a final dividend of 6 per share in respect of the year ended 31 December 2009. All proposed dividends were declared before the year-end. Dividends would be paid in April of the following year. What would be the charge for dividends in 2009 as shown in the Statements of Changes in Equity? a) $11,200 b) $12,800 c) $17,600 d) $20,800 ( )

15. If $20,000 is owed by customers at the beginning of the year, $15,000 is owed at the end and credit sales are $100,000, what is the amount of cash received from customers for the year? a) $95,000 b) $120,000 c) $100,000 d) $105,000 ( )

16. Which is a possible explanation for a company reporting a net loss but enjoys a positive cash inflow from its operating activities? a) A decrease in trade receivables b) An increase in trade receivables c) The sale of non-current assets for cash d) The issue of share capital ( )

17. The _______________ convention is designed to provide guidance concerning the recognition of expenses. a) Duality b) Historic cost c) Realisation d) Matching ( )

18. What are the four key characteristics that accounting information should possess? a) Relevance, timeliness, completeness, reliability b) Relevance, comparability, reliability, comprehensibility c) Relevance, comparability, completeness, timeliness d) Relevance, consistency, reliability, prudence ( TT6DraftingFinancialStatements

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19. The primary objective of the cash flow statement is to show the profit or loss on operating, investing and financing activities a) False b) True ( )

20. Owners of _________ have limited liabilities. a) Sole proprietorships b) Partnerships c) Companies d) Sole proprietorships and partnerships

21. Which of the following statements are correct? a) If certain criteria are met, research expenditure must be recognised as an intangible asset. b) Capitalised development expenditure must be amortised over a period not exceeding five years. c) Capitalised development costs are shown in the statement of financial position under the heading of Non-current assets ( )

22. Patrick has correctly completed the reconciliation between the balance on the payables control account in his general ledger and the list of balances from the payables ledger. Are the following statements correct? (i) The reconciliation confirms that the balance on each suppliers account is correct. (ii) The reconciliation provides confirmation that the balance on the payables control account is correctly stated. a) Both (i) and (ii) are correct b) Only (i) is correct c) Only (ii) is correct d) Neither (i) nor (ii) is correct ( )

23. Which of the following statements is true? a) VAT output tax is an operating expense b) VAT output tax is a tax on sales c) VAT output tax is a tax on purchases d) VAT output tax is a form of tax prepaid to the government

24. Tammys draft year end accounts were prepared including a prepayment for rent of $970. The prepayment should have been $1,170. When the error is corrected, how will net profit be affected? a) Net profit will decrease by $200 b) Net profit will increase by $200 c) Net profit will decrease by $1,170 d) Net profit will increase by $1,170 ( )

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25. How should a contingent liability be included in a companys financial statements if the likelihood of a transfer of economic benefits to settle it is remote? a) Disclosed by note with no provision being made b) No disclosure or provision is required ( )

26. Which of the following are characteristics of partnerships? a) Difficult to raise funds and easy to recruit talent b) Shared control and increased skills and resources c) No personal liability and shared risks d) Easy to transfer ownership and raise funds

27. When the trial balance is extended, in which column should the value of opening inventory be entered? a) Income statement debit b) Income statement credit c) Statement of financial position debit d) Statement of financial position credit ( )

28. A computerised accounting system operates using principle of double entry accounting. Is this statement true or false? a) False b) True ( )

29. Ace and Beez are in partnership. Their draft income statement reports a profit of $75,862. However, interest on drawings (Ace $2,754; Beez $3,156) and interest on loan from Beez of $1,346 have not been included. What is the correct profit for the year? a) $68,606 b) $74,516 c) $75,862 d) $80,426 ( )

30. Which of the following would result from a decrease in the allowance for receivables? a) An increase in gross profit b) A reduction in gross profit c) An increase in net profit d) A reduction in net profit ( )

31. Nate was invoiced for $100 less 5% trade discount and a settlement discount of 2.5%. His supplier is not VAT registered. If he pays the invoice late, how much will he pay? a) $92.50 b) $92.63 c) $95.00 d) $97.50 ( )

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32. The closing inventory is valued at $41,875. This includes some items which costs $1,960 and which are damaged in transit. It will cost $360 to repair them and they can then be sold for $1,200. They could be replaced for $500. What is the correct inventory valuation? a) $40,255 b) $40,415 c) $40,755 d) $41,875 ( )

33. A VAT registered business sends out a sales invoice for goods with a list price of $1,239.77. A trade discount of 10% is given and a settlement discount of 5% offered. The goods rated for VAT at 17.5%. What is the VAT charge on the invoice? a) $185.50 b) $195.26 c) $205.03 d) $207.19 ( )

34. Should details of material adjusting or material non-adjusting events after the balance sheet date be disclosed on the notes to financial statements according to IAS 10 Events After the Balance Sheet Date? a) Adjusting events b) Non-adjusting events ( )

35. Alice sold a machine which cost $15,000. Depreciation is charged at an annual rate of 20% on written down value. After three years the machine was sold for $7,400, what is the profit or loss on disposal? a) A profit of $280 b) A loss of $280 c) A profit of $1,400 d) A loss of $1,400 ( )

36. The sales day book of David has been overcast by $800 and the purchase day book has been undercast by $1,100. David maintains purchase and sales ledger control accounts as part of the double entry bookkeeping system. The effect of correcting these errors will be to make adjustments to the a) Control accounts, with no effect on profit b) Control accounts, with a decrease in profit of $1,900 c) Ledger balances of the individual debtors and creditors, with no effect on profit d) Ledger balances of the individual debtors and creditors, with a decrease in profit of $1,900 ( )

37. Which one of the following accounting concepts explains how depreciation should be charged to the Income Statement? a) Consistency b) Prudence c) Matching d) Going concern ( )

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38. From the following figures, what is the closing inventory using FIFO method? Sold Bought March 100 at $16 each December 130 at $24 each September 220 at $19 each a) $3,040 b) $3,310 c) $3,120 d) $3,610 (

39. Paul has incorrectly classified an item of revenue expenditure as capital expenditure. When the error is corrected, how will the profit and capital be affected? a) Net profit will increase and capital will reduce b) Net profit will reduce and capital will increase c) Net profit will increase and capital will increase d) Net profit will reduce and capital will reduce ( )

40. Nicole calculated her receivables allowance at 31 December 2009 should be $890. At 31 December 2008, her receivables allowance was $770. How should the movement in the receivables allowance be recorded in the income statement? a) A charge of $890 b) A credit of $890 c) A charge of $120 d) A credit of $120 ( )

41. Changes in the long-term liabilities and equity appear in the __________ section of the statement of cash flow. a) Operating activities b) Investing activities c) Financing activities d) Do not appear as they are non-cash items ( )

42. The balance on a purchase ledger control account on 1 January 2009 was $4,270. Purchases made during the month were: credit $16,000, cash $2,150. Payments made to creditors were cheques $17,610. The balance on the purchase ledger control account on 31 January 2009 was: a) $1,840 b) $2,660 c) $3,990 d) $4,810 ( )

43. What is the correct double entry to record a decrease in provision? a) DR Expense CR Provision b) DR Provision CR Expense

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44. Tom is preparing a reconciliation between the total of the list of balances from his receivables, which is $36,802 and the balance on the receivables control in his ledger is $38,842. He has found the following errors: (i) A debit balance of $1,200 was omitted from the list of balances (ii) A credit balance for $375 was recorded in the day book as an invoice (iii) The total of the sales invoices in the sales day book was overstated by $90 a) What is the value of receivables in his balance sheet? b) $38,002 c) $38,377 d) $38,752 e) $38,842 ( )

45. The book-keeper made two errors in recording the following: (i) The Purchases Journal was undercast by $100 (ii) A purchase priced at $250 was wrongly entered as $200 in the invoice. At the close of the period, 31 December 2009, the correct balance from the Purchases Ledger totaled $8,000. What would be the balance on the Purchases Ledger Control Account on 31 December 2009 as a result of the two errors? a) $8,150 b) $7,900 c) $8,100 d) $7,850 ( )

46. Faye Inc earns a gross profit margin of 20%. The sales revenue during the year amounted to $167,000. If the inventory level has reduced by $1,000 during the year, what is the amount of purchases? a) $132,600 b) $133,600 c) $134,600 d) None of the above ( )

47. During a period of inflation, the LIFO method of stock valuation will lead to __________ reported profits for a period and __________ stock values at the end of the year than FIFO method of stock valuation a) Higher higher b) Higher lower c) Lower higher d) Lower lower ( )

48. When reconciling operating profit after tax with net cash flow from operating activities, which adjustment is not correct? a) Add back depreciation b) Add a decrease in current asset c) Add a decrease in current liability d) Deduct a gain on the sale of an asset ( )

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49. If transactions are supported by adequate evidence the qualitative characteristics of relevance is more likely to be satisfied a) False b) True ( )

50. Which of the following errors would give rise to a difference on an entitys trial balance? a) Failure to record a $11,000 credit sales transaction b) The opening balance on the trade receivables control account of $212,000 was brought down as $221,000 c) A purchases returns of $110 was recorded as $100 in the purchase returns day book ( )

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