ACCA

Financial Accounting
Mock Exam 3

Mock Exam – Introduction

Time: 2 hours
The Mock exam has 37 questions. Section A has 35, Section B has 2 question.

The test includes time for you to read questions. At the end of the test you are allowed to transfer your
answers to an Answer Sheet.

During exam it is not allowed to use dictionary, electronic devices, and cheat sheet. Candidate may only
talk to invigilator. Except Question Booklet additional paper are not given. It is not allowed to take Booklet.

Name _____________________________________________________________________
Surname _____________________________________________________________________
Exam date _____________________________________________________________________

Good luck!
 Financial Accounting Mock Exam 3

Section A
1. Jason has received payment for a debt that had 4. Albert Co is preparing financial statements for the
been written off as irrecoverable. year ended 31 May 20X0. The tax charge has been
What debit and credit should be used to record the estimated as $112,500 for the year. In the previous
correct journal entry for this transaction? financial year, the tax expense was estimated to be
$99,400 and the company actually paid $102,600 when
A) Debit – Cash the tax expense was agreed with the tax authorities.
Credit – Receivables control account
B) Debit – Cash
What should the tax expense be in the statement of
Credit – Irrecoverable debts
profit or loss for the year ended 31 May 20X0?
C) Debit – Irrecoverable debts
Credit – Irrecoverable debts
A) 115,700$
D) Debit – Receivables control account
B) 114,800$
Credit – Irrecoverable debts
C) 116,900$
D) 113,300$

2. Daisy Co owns a non-current asset which cost

$75,000 on 1 June 20X6. It had a useful life of 10 years
5. On 31 May 20X0, Charmaine counted her closing
and an expected residual value of $5,000. Non-current
assets are depreciated using the straight line method. inventory for the year ended 31 May 20X0. Its valuation
at cost amounted to $459,204. Several days later, she
On 1 June 20X8, Daisy Co estimated that the remaining
realised that she had included inventory of $5,130 which
life of the asset was now only five years with an expected
residual value of $3,000. was in the despatch area and was to be returned to the
What should the depreciation charge be for the financial supplier as it was faulty. Additionally, certain inventory
year ending 31 May 20X9? items with a cost of $6,700 were obsolete and only had
a net realisable value of $6,150.
A) 11,500$
B) 12,500$
C) 11,600$ What should the adjustments be to profit and closing
D) 13,200$ inventory in the financial statements for the year ended
31 May 20X0?
A) Profit - Increase by 5,680$
3. Anders is analysing his financial statements for
Closing inventory- Reduce by 5,680$
the year ended 31 May 20X0. He has not yet made
adjustments for the following:
B) Profit - Reduce by 5,680$
(1) Electricity expenses for the three months to
Closing inventory- Reduce by 5,680$
31 May 20X0 are estimated to be $250

(2) Insurance of $528 for the 12 months to 31 C) Profit - Reduce by 5,680$

December 20X0 was paid on 1 January 20X0 Closing inventory- Increase by 5,680$
What is the net impact on profit when the appropriate
adjustments are made? D) Profit - Increase by 5,680$
Closing inventory- Increase by 5,680$
A) Decrease of $558
B) Decrease of $58
C) Increase of $30
D) Increase of $58
 Financial Accounting Mock Exam 3

6. Katie sold goods with a list price of $18,500 to Marta 8. Which of the following would cause the totals of the
debit column and the credit column of a trial
on 22 May 20X0. Katie allows a trade discount of 15%.
balance not to agree?

What accounting entry should Katie make in the (1) A sale of $600 was recorded only as a credit in
the sales account
statement of profit or loss to record the total revenue in
respect of this sale? (2) A purchase invoice was recorded as a debit of
$965 in the purchases account and a credit
of $956 in payables
A) $15,725 Credit
B) $2,775 Debit (3) A payment of $440 was omitted from the ledger
accounts entirely
C) $2,775 Credit
D) $15,725 Debit
A) 1, 2 and 3
B) 1 and 3 only
7. On 1 January 20X9, Shelter Co had 100,000 $1 C) 2 and 3 only
ordinary shares. On 1 April 20X9, Shelter Co issued D) 1 and 2 only
50,000 $1 ordinary shares for $1.25 per share and on 1
9. Which of the following is the correct accounting
October 20X9, made a bonus issue of $20,000 $1 equation?
ordinary shares.
A) Assets - liabilities = opening capital - drawings +
profit
On 1 January 20X9, Shelter Co had $65,000 outstanding in B) Assets + liabilities = opening capital - drawings +
bank loans which had increased to $92,000 by the end of profit
C) Net assets + liabilities = closing capital
the financial year.
D) Assets + liabilities = opening capital + profit –
drawings
On 1 January 20X9, Shelter Co had non-current asset
10.Dresden Co makes all sales on credit. At 30
investments of $40,000. Shelter Co purchased a further
November 20X9, the total receivables balance
$10,000 of investments during the year and received amounted to $136,400.
$3,000 of interest income on investments.
In the statement of cash flows for the year ended 31 The following information has come to light a few days
after the 30 November 20X9 year end.
December 20X9, what is the net cash flow from financing
(1) Fred Willis, who owed Dresden Co $44,300 at the
activities?
year end, has been declared bankrupt. The
liquidators have stated that the maximum Dresden
A) $109,500 inflow Co will receive is $18,000 of the debt owed
B) $89,500 inflow
(2) Flora Bailey, who owed Dresden Co $22,500 at
C) $82,500 inflow the year end, has left the country and has no
D) $35,500 inflow intention of ever settling her debt
Following the principles in IAS 10, Events after the
Reporting Period, what should Dresden Co include in
the statement of financial position for receivables at 30
November 20X9?
A) 88,000$
B) 87,600$
C) 86,600$
D) 85,500$
 Financial Accounting Mock Exam 3

11.The following information relates to a business's 13. Emily's payables ledger control account shows
bank balance at 30 November 20X7:
a balance of $24,903 which does not agree with the
$
payables ledger. She has found three errors:
Debit balance in cash book 25,050
(1) A purchase invoice has been entered into the
Cheques not yet presented at bank 8,612
purchase day book as $594 rather than $495
Deposits not yet cleared at bank 11,665 (2) The purchase day book has been undercast by $200
Cheques paid to suppliers on 29 November 2,157
(3) Discounts received of $150 from credit suppliers
not yet recorded in the cash book
have not been entered in the control account
Cheque received on 27 November recorded 620
What is the corrected payables ledger control account
twice in the cash book
balance?
Cheque received on 1 December 20X7 1,019
A) $25,004
What is the correct bank balance to be included in the B) $24,854
financial statements at 30 November 20X7?
C) $24,654
A) 22,275$ D) $24,952
B) 22,273$
C) 23,500$ 14. Which of the following statements about petty
D) 21,569$ cash is/are true?
(1) If a business makes all of its sales on credit, it has no
12. Project Bear, a project to improve Polar's need to maintain a petty cash book
production process, commenced on 10 January 20X7. (2) If petty cash transactions are very small, they do not
need to be recorded
In the year ended 30 November 20X7, the following costs
have been incurred relating to Project Bear. (3) Petty cash records should be compared to the bank
statement to confirm that payments made from
$
petty cash are recorded
Improvements and alteration to the 265,500
production process A) 1 and 2 only
B) None of the statements are true
Initial feasibility study into the possibility of 84,650
improving the production process C) 3 only
D) 1, 2 and 3
Materials used in testing the process before 11,900
it started production
15. Which of the following statements is true?
A) Issued shares are included in the statement of
The improvement project meets the criteria for
financial position at their market value
capitalisation in IAS 38 Intangible Assets.
B) Preference shares give the holders a right to vote
What amount should be capitalised as development at company meetings
expenditure in the year ended 30 November 20X7? C) Holders of ordinary shares will always receive an
annual dividend
A) $362,050 D) Redeemable preference shares are disclosed as
B) $265,500 a liability in the statement of financial position
C) $277,400
D) $0
 Financial Accounting Mock Exam 3
16.The following are Hubble's transactions for the 18. The share capital and reserves of Bondai on 1
month of May:
January 20X8 were as follows:
$
Opening payables 64,199 $
Opening receivables 84,122 Share capital ($1 shares) 52,000
Purchases 122,914 Share premium 21,000
Purchase returns 6,192 Retained earnings 25,659

Sales 154,610 98,659

Sales returns 8,112

On 1 April 20X8, Bondai issued 1,500 shares in a bonus
Cash paid to suppliers 100,032
issue utilising the share premium account.
Cash received from customers 132,011
Contra between purchase ledger and sales 2,912 On 1 May 20X8, Bondai issued 5,000 $1 shares for $1.50
ledger per share.
What is the balance of share capital and share premium
All sales and purchases are made on credit. after both share transactions have taken place?
What should the balance on the purchase ledger control
account be at the end of May?
A) Share capital – 58,500$
A) 77,977$ Share premium – 22,000$
B) 78,779$
B) Share capital – 57,500$
C) 73,444$
Share premium – 22,000$
D) 70,500$
C) Share capital – 23,500$
Share premium – 57,000$
D) Share capital – 58,500$
17. Elliot bought land and buildings for $300,000 on
Share premium – 22,000$
1 January 20X3 which included $50,000 for the land. The
assets had a useful life of 50 years.
19. Which TWO of the following statements about
On 1 January 20X7, Elliot revalued the assets to their IAS 2 Inventories are correct?
current value. The valuation was $800,000 in total, A) Inventory should be valued at the lower of cost
including $110,000 for the land. and net realisable value
B) The costs of purchase of inventory should
There was no change in the remaining useful life of the include any import duties paid, less any trade
assets after revaluation. discounts received
What should the balance on the revaluation surplus be C) Variable production overheads should not be
immediately after the revaluation? included in the cost of inventory
D) Average cost and last in first out (LIFO) are both
A) 510,000$ acceptable methods of arriving at the cost of
B) 520,000$ inventory
C) 550,000$
D) 540,000$
 Financial Accounting Mock Exam 3

20. Florida Co had an on-going litigation claim 22. Mary has the following ledger balances in her
which had been brought against the company for general ledger:
damage to a public road allegedly caused by one of its $
lorries. At 1 October 20X2, Florida Co had disclosed a Capital 6,260
contingent liability of $120,000.
Cash at bank 890
Discounts received 2,300
Due to new developments in the court case, the latest
correspondence with the solicitors at 30 September 20X3 Expenses 15,910
suggests it is now probable that Florida Co will lose and Non-current assets (carrying amount) 31,845
have to pay damages of $150,000.
Opening inventory 4,820
What is the impact of the above provision on the total
statement of profit or loss expense for the year ended Purchases 71,470
30 September 20X3? Payables 6,930
Receivables 15,870
A) Nil
B) $30,000 Sales 125,470
C) $150,000
D) $120,000 What is the balance required in a suspense account to
make Mary's trial balance agree?
21. ABK Co bought a property on 31 December 20X3 A) $155 Cr
for $340,000. At the date of purchase, ABK estimated the B) $155 Dr
useful life of the property to be 32 years. C) $1,445 Cr
D) $1,445 Dr
On 31 December 20X5, the property was revalued to
$410,000. There was no change in its useful life.
23.Which of the following errors would lead to the
creation of a suspense account?
On 30 June 20X7, ABC Co sold the property for $485,000.
A) A transposition error
B) A compensating error
ABK Co depreciates property on a straight line basis, with
C) An error of principle
a proportional charge in the years of purchase and
D) An error of omission
disposal.
What is the profit on disposal of the property that should
be recorded in ABK Co's financial statements at 31 24. Which of the following statements describes a
December 20X7? suspense account?
A) An account used to record period end adjustments
such as accruals and prepayments
A) 95,500$
B) A ledger account which records non-standard
B) 90,000$
accounting entries
C) 86,000$
C) A temporary account used when the business is not
D) 110,000$ sure where an accounting entry should be posted
D) An account used to record the balances extracted
from the ledger accounts at the period end
 Financial Accounting Mock Exam 3

25. Carmela purchased goods for resale in March of 27. Which of the following statements is true?
$86,000. All sales are at a gross margin of 20%.
Carmela had opening inventory of $22,000 and A) The analysis of financial statements using ratios
closing inventory of $16,000. provides useful information when compared
with previous performance or industry averages
What should Carmela's revenue be for March?
B) An entity's management will not assess an
entity's performance using financial ratios
A) 116,000$
B) 125,000$ C) Ratios based on historical data can predict the
C) 115,000$ future performance of an entity
D) 124,000$ D) The interpretation of an entity's financial
statements using ratios is only useful for
potential investors
26.The draft financial statements of a limited company
include the following assets and liabilities at the end
28. Below is an extract of ADC Co's trial balance.
of an accounting period.

Dr ($) Cr ($)
Current assets: $
Cash at bank 2,500
Inventory 184,100
Receivables 3,750
Trade receivables 139,300
Allowances for receivables 550
Total current assets 323,400
Irrecoverable debts 200

Current liabilities: What entries would be made in ADC Co's statement of

financial position in relation to these items?
Bank overdraft 18,500
Trade payables 174,200 A) Current assets $3,400
Accruals 9,300 Current liabilities $2,500
B) Current assets $3,200
Total current liabilities 202,000 Current liabilities $2,500
C) Current assets $3,750
Which of the following is the company's Quick (Acid
Current liabilities $2,850
Test) Ratio?
D) Current assets $3,750
Current liabilities $3,050
A) 1.60: 1
B) 0.91: 1
C) None of these
D) 0.69: 1
 Financial Accounting Mock Exam 3

29. Colin has not kept accounting records for his first 32. Which of the following statements about
year of trading. He has purchased $65,000 of goods
disclosure notes is/are correct?
during the year and has $5,000 of goods left in
inventory at the end of the year. All sales are made at
a mark-up on cost of 40%. (1) IAS 37 Provisions, Contingent Liabilities and
Contingent Assets requires remote contingent
What is Colin's gross profit for his first year of trading? liabilities to be disclosed if they are material
(2) IAS 2 Inventories requires the disclosure of the
A) 29,000$ amount of inventories carried at net realisable
B) 30,000$ value
C) 28,000$ (3) IAS 16 Property, Plant and Equipment requires
D) 29,500$ disclosure of whether an independent valuer was
involved in the valuation of revalued assets
30.The auditor of Four Co, a manufacturing company,
has noted an increase in total sales value but a A) 1 and 3
decrease in the company's gross profit percentage B) 2 only
for 20X9, as compared to the previous year. C) 1 and 2
D) 2 and 3

Which of the following is consistent with, and adequately

explains, the decrease? 33.On 3 December, a credit customer returned goods
of $3,500 to Gerry. Gerry returned goods of $4,100
A) Sales volumes have decreased as compared to to his credit supplier on 2 December.
20X8
B) Sales commission payable to the company's sales What is Gerry's correct journal entry to record these
force increased in relation to sales values as
two returns?
compared to 20X8
C) During 20X9, Four Co increased the early
A) Dr Payables $4,100 Cr Returns $4,100
settlement discounts previously granted
outwards
D) During 20X9, due to a scarcity of supply the
company had to pay higher prices when Dr Returns $3,500 Cr $3,500
purchasing components inwards Receivables

B) Dr Payables $3,500 Cr Returns $3,500

31.Which of the following organisations provides outwards
guidance to the International Accounting Standards
Dr Returns $4,100 Cr Receivables $4,100
Board on the implications of proposed standards for inwards
users and preparers of financial statements?
C) Dr Returns $4,100 Cr Payables $4,100
A) The International Financial Reporting Standards outwards
Foundation Dr $3,500 Cr Returns $3,500
B) The International Financial Reporting Standards Receivables inwards
Advisory Council
C) The International Financial Reporting Standards D) Dr Returns $3,500 Cr Payables $3,500
Interpretations Committee outwards
D) The International Federation of Accountants Dr $4,100 Cr Returns $4,100
Receivables inwards
 Financial Accounting Mock Exam 3

34. Which of the following statements about 35.Which of the following statements regarding the
directors are true?
qualitative characteristics of financial information
(1) The directors of a company are responsible for is FALSE?
the preparation of the financial statements of A) Information will only be useful if it is relevant and
that company faithfully represented
(2) The directors and external auditors of a company B) Information is verifiable if different,
have joint responsibility for the governance of knowledgeable and independent observers could
that company
reach consensus that a particular depiction is a
(3) The directors of a company must act honestly in faithful representation
what they consider to be the best interests of C) Understandability means that points that are too
their fellow directors
complex for non-expert users should be excluded
A) 1 only
D) If information is timely then its usefulness is
B) 2 and 3
enhanced
C) 1 and 3
D) 1 and 2

Section B
36. Background
Claus, a limited liability company, acquired 75% of Rolph's voting share capital on 1 October 20X1 for $1.50 per
share.

Rolph's share capital comprised 1 million $1 ordinary shares.

Task 1 (4 marks)

Complete the following sentences:

36.1 Claus has acquired A) controlling interest B) significant influence in Rolph.

36.2 Therefore Rolph must be accounted for in the consolidated financial statements as at 31 March 20X2 as …

A) a subsidiary;
B) an associate
C) a trade investment
36.3 The cost of the investment in Rolph will appear in ….

A) the consolidated statement of financial position of Claus Group only

B) the individual statement of financial position of Claus only
C) the individual statement of financial position of Rolph only
D) both the individual and the consolidated statements of financial position of Claus Group
 Financial Accounting Mock Exam 3
36.4 The formula for calculating the cost of the investment is ….

A) 1m x 75% x $1.50
B) 1m x 25% x $1.50
C) 1m x $1.50
D) 1m x $1

36.5 Any investment income Claus receives from Rolph will be recorded in….

A) the individual accounts of Claus only

B) both the individual accounts of Claus and the consolidated accounts of Claus Group
C) the consolidated accounts for Claus Group only
D) the individual accounts of Rolph only

Task 2 (8 marks)

Claus purchased 75% of the voting capital of Rolph on 1 October 20X1.

The following additional information relates to the year ended 31 March 20X2:

Statement of financial position as at 31 March 20X2

Claus Rolph
$'000 $'000
Non-current assets
Property, plant and equipment 3,270 1,565
Investments 1,125 0

Current assets
Inventory 300 162
Receivables 161 262
Cash 102 0
4,958 1,989
Equity
Share capital 3,000 1,000
Retained earnings 1,616 690

Non-current liabilities 150 200

Current liabilities
Payables 192 71
Overdraft 0 28
4,958 1,989
 Financial Accounting Mock Exam 3

NOTES:

(1) On 1 October 20X1 Rolph's retained earnings were $475,000.

(2) At the date of acquisition, the fair value of Rolph's property, plant and equipment was
equal to its carrying amount with the exception of Rolph's land which had a fair value of
$200,000 in excess of its carrying amount. The fair value has not been reflected in
Rolph's individual financial statements.
(3) Included in Claus' receivables is a balance of $11,000 due from Rolph. This agrees with
the corresponding figure shown in Rolph's balances.

Complete the following extracts from the consolidated statement of financial position as at 31 March
20X2:

$'000

36.6 Property, plant and equipment

36.7 Receivables

36.8 Share capital

36.9 Retained earnings A) 1,616 + (75% x (690 - 475))

B) 1,616 + (75% x 690)
C) 1,616 + 690
D) 1,616
36.10 Payables

Revaluation surplus

Task (3 and 4) (3 marks)

The following year, trading between Claus and Rolph continues. There is no change to Claus' shareholding in
Rolph.
Claus makes sales of $240,000 to Rolph during the year, at a mark up of 60%. 30% of the items have been sold
to a third party by the year end.
 Financial Accounting Mock Exam 3
Task 3 (2 marks)

What is the journal entry in the consolidated statement of financial position to record the elimination of the
unrealised profit?

. Debit Credit No debit or

credit
36.11 Inventory A B C
36.12 Group retained earnings A B C

Task 4 (1 marks)

36.13 What is the amount of the unrealised profit in inventory at the year end?

$ '000

37. Background

Extracts from the trial balance of Desmond, a limited liability company, for the year ended 30 September 20X8 are
shown below:

$'000 $'000
Intangible assets 50
Plant at cost at 1 October 20X7 176
Plant accumulated depreciation at 1 October 20X7 88
Buildings at cost at 1 October 20X7 580
Buildings accumulated depreciation at 1 October 20X7 48
Inventory at 30 September 20X8 60
Trade receivables 256
Allowance for receivables at 1 October 20X7 8

The intangible assets were purchased on 1 April 20X8 and have a useful life of five years from that
date. Amortisation is calculated on a monthly basis.

Task 1 (3 marks)

37.1 What is the carrying amount of intangible assets at 30 September 20X8?

$ '000
 Financial Accounting Mock Exam 3
37.2 How will this balance be classified in the statement of financial position?
A) Non-current liabilities
B) Non-current assets
C) Current liabilities
D) Current assets
E) Equity and reserves

Task 2 (4 marks)

On 30 September 20X8, Desmond disposed of an item of plant for $12,000. The plant originally cost $24,000 and
had accumulated depreciation of $9,000 at 1 October 20X7.

37.3 Plant is depreciated at 25% per annum using the reducing balance method. A full year's depreciation is
charged in the year of acquisition and no depreciation is charged in the year of disposal.
What is the profit or loss on disposal of the plant?

$ '000 37.4 A) Profit B) Loss

Task 3 and 4 (5 marks)

The buildings were revalued on 1 October 20X7 to $620,000.

Task 3 (2 marks)

What is the journal entry to record the revaluation of buildings?

. Debit Credit No debit or
credit
37.5 Revaluation surplus A B C
37.6 Buildings - accumulated depreciation A B C
37.7 Buildings - cost A B C

Task 4 (3 marks)

The buildings are depreciated at 5% per annum on cost or valuation. Desmond’s policy is to make an annual
transfer of the excess depreciation from the revaluation surplus to retained earnings.

37.8 What is the depreciation expense to be charged in the statement of profit or loss for the year ended 30
September 20X8?
$ '000

37.9 What amount should be transferred for excess depreciation from the revaluation surplus to retained earnings
for the year ended 30 September 20X8?

$ '000
 Financial Accounting Mock Exam 3
Task 5 (3 marks)

The trade receivables balance has been reviewed at the year end and the following adjustments are required:

(1) An irrecoverable debt of $6,000 is to be written off.

(2) The allowance for receivables needs to be adjusted to 2% of the remaining receivables.
37.10 Complete the following statements:

The irrecoverable debt will __________ the net profit for the year.

A) Increase
B) Reduce
C) Not impact

37.11 The impact of the movement in the allowance for receivables for the year ended 30 September 20X8 will
__________ A) Increase B) Reduce C) Not impact 37.12 the net profit for the year by ____________$

End of Question Paper