BPP F3 Exam Kit 2020 - Financial Accounting PDF

   F3 - BPP Exam Kit 2020 - Financial Accounting Financial Accounting www.ACCAGlobalBox.com Foundations in...

   F3 - BPP Exam Kit 2020 - Financial Accounting Financial Accounting www.ACCAGlobalBox.com Foundations in P R Accountancy / A C T ACCA I C A E C C Financial Accounting & A (FA) R G L O E B V A I L S B I O O X. Welcome to BPP Learning Media's Practice & Revision Kit for FFA/FA. In this Practice & Revision Kit, which has been reviewed by the ACCA examining team, we: N  Include Do you know? Checklists to test your knowledge and understanding C of topics O  Provide you with two mock exams including the Specimen Exam K M  Provide the ACCA's exam answers to the Specimen Exam as an additional revision aid I T FOR EXAMS FROM 1 SEPTEMBER 2019 TO 31 AUGUST 2020 www.ACCAGlobalBox.com  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING First edition May 2011 A note about copyright Eighth edition February 2019 Dear Customer ISBN 9781 5097 2414 7 What does the little © mean and why does it matter? Previous ISBN 9781 5097 1755 2 e-ISBN 9781 5097 2441 3 Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write British Library Cataloguing-in-Publication Data them on their own behalf or as employees of an organisation A catalogue record for this book that invests in this activity. Copyright law protects their is available from the British Library livelihoods. 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BPP Learning Media strives to contents of this book are correct at the time of going to press, BPP make our materials available at prices students can afford by Learning Media makes no warranty that the information in this book is local printing arrangements, pricing policies and partnerships accurate or complete and accept no liability for any loss or damage which are clearly listed on our website. A tiny minority ignore suffered by any person acting or refraining from acting as a result of this and indulge in criminal activity by illegally photocopying our the material in this book. material or supporting organisations that do. If they act illegally and unethically in one area, can you really trust them? We are grateful to the Association of Chartered Certified Accountants Copyright © IFRS Foundation for permission to reproduce past examination questions. The suggested solutions in the practice answer bank have been prepared All rights reserved. Reproduction and use rights are strictly by BPP Learning Media Ltd, except where otherwise stated. limited. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or BPP Learning Media is grateful to the IASB for permission to hereafter invented, including photocopying and recording, or in reproduce extracts from the International Financial Reporting any information storage and retrieval system, without prior Standards including all International Accounting Standards, SIC and permission in writing from the IFRS Foundation. Contact the IFRIC Interpretations (the Standards). The Standards together with IFRS Foundation for further details. their accompanying documents are issued by: The IFRS Foundation logo, the IASB logo, the IFRS for SMEs The International Accounting Standards Board (IASB) 30 Cannon logo, the "Hexagon Device", "IFRS Foundation", "eIFRS", "IAS", Street, London, EC4M 6XH, United Kingdom. Email: [email protected] "IASB", "IFRS for SMEs", "IASs", "IFRS", "IFRSs", "International Web: www.ifrs.org Accounting Standards" and "International Financial Reporting Standards", "IFRIC" "SIC" and "IFRS Taxonomy" are Trade Marks Disclaimer: The IASB, the International Financial Reporting Standards of the IFRS Foundation. (IFRS) Foundation, the authors and the publishers do not accept Further details of the Trade Marks including details of countries responsibility for any loss caused by acting or refraining from acting in where the Trade Marks are registered or applied for are reliance on the material in this publication, whether such loss is available from the Licensor on request. caused by negligence or otherwise to the maximum extent permitted by law. © BPP Learning Media Ltd 2019 www.ACCAGlobalBox.com ii  CONTENTS Contents Page Finding questions Question index.............................................................................................................................. v Helping you with your revision...................................................................................................... viii Using your BPP Practice & Revision Kit........................................................................................... ix Passing the FFA/FA exam............................................................................................................... x Approach to examining the syllabus................................................................................................. x Tackling Multiple Choice Questions................................................................................................. xi Using your BPP products.............................................................................................................. xii Questions and answers A Questions.................................................................................................................................... 3 Answers.................................................................................................................................. 177 C Exam practice C Mock exam 1 – ACCA Specimen Exam  Questions......................................................................................................................... 245 A  Answers........................................................................................................................... 259 ACCA's exam answers to Specimen Exam................................................................................... 267 G Mock exam 2  Questions......................................................................................................................... 275 L  Answers........................................................................................................................... 289 O Review form B A L B O X. C O M www.ACCAGlobalBox.com iii  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING www.ACCAGlobalBox.com iv  QUESTION INDEX Question index Time allocation Page Marks Mins Question Answer Part A: The context and purpose of financial reporting The context and purpose of financial reporting Questions 1.1 to 1.14 28 34 5 177 Part B: The qualitative characteristics of financial information The qualitative characteristics of financial information Questions 2.1 to 2.13 26 31 11 178 Part C: The use of double entry and accounting systems A Double entry bookkeeping C Questions 3.1 to 3.19 38 46 17 179 C Questions 4.1 to 4.18 36 43 20 180 A Part D: Recording transactions and events Sales tax G Questions 5.1 to 5.8 16 19 27 182 L Inventory O Questions 6.1 to 6.19 38 46 28 183 B Tangible non-current assets A Questions 7.1 to 7.19 38 46 34 186 Questions 8.1 to 8.20 40 48 39 188 L Intangible non-current assets Questions 9.1 to 9.12 24 34 44 191 B Accruals and prepayments O Questions 10.1 to 10.15 30 36 47 192 X Receivables and payables. Questions 11.1 to 11.20 40 48 51 194 C Provisions and contingencies O Questions 12.1 to 12.13 26 31 55 197 M Capital structure and finance costs Questions 13.1 to 13.14 28 34 59 198 www.ACCAGlobalBox.com v  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Time allocation Page Marks Mins Question Answer Part E: Preparing a trial balance 15 mark question: trial balance Question 14.1 15 18 65 200 Control accounts Questions 15.1 to 15.20 40 48 66 201 Bank reconciliations Questions 16.1 to 16.15 30 36 72 204 Correction of errors Questions 17.1 to 17.18 36 44 76 205 Suspense accounts Questions 18.1 to 18.13 26 31 80 207 Part F: Preparing basic financial statements 15 mark questions: preparing basic financial statements Questions 19.1 to 19.7 105 126 87 208 Incomplete records Questions 20.1 to 20.16 32 38 97 214 Company financial statements Questions 21.1 to 21.10 20 24 101 216 Disclosure notes Questions 22.1 to 22.9 18 22 103 217 Events after the reporting period Questions 23.1 to 23.9 18 22 105 218 Statements of cash flows Questions 24.1 to 24.21 42 51 108 218 Part G: Preparing simple consolidated financial statements 15 mark questions: preparing simple consolidated financial statements Questions 25.1 to 25.4 60 72 117 220 Consolidated financial statements Questions 26.1 to 26.27 54 65 124 223 www.ACCAGlobalBox.com vi  QUESTION INDEX Time allocation Page Marks Mins Question Answer Part H: Interpretation of financial statements 15 mark question: interpretation of financial statements Question 27.1 15 18 135 226 Interpretation of financial statements Questions 28.1 to 28.11 22 26 136 227 Mixed banks Mixed bank 1: Questions 29.1 to 29.19 38 46 138 227 Mixed bank 2: Questions 30.1 to 30.20 40 48 143 229 A Mixed bank 3: Questions 31.1 to 31.19 38 46 149 231 C Mixed bank 4: Questions 32.1 to 32.17 34 43 155 233 C Mixed bank 5: Questions 33.1 to 33.20 40 48 160 235 A Mixed bank 6: Questions 34.1 to 34.18 36 41 165 237 Mixed bank 7: Questions 35.1 to 35.18 36 43 170 239 Mock exams G Mock exam 1 (ACCA Specimen Exam) 100 120 245 259 L Mock exam 2 100 120 275 289 O B A L B O X. C O M www.ACCAGlobalBox.com vii  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Helping you with your revision BPP Learning Media – ACCA Approved Content Provider As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use revision materials reviewed by the ACCA examining team. By incorporating the ACCA examining team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Practice & Revision Kit provides excellent, ACCA-approved support for your revision. These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the material properly covers the syllabus and study guide outcomes, used by the examining team in setting the exams, in the appropriate breadth and depth. The review does not ensure that every eventuality, combination or application of examinable topics is addressed by the ACCA Approved Content. Nor does the review comprise a detailed technical check of the content as the Approved Content Provider has its own quality assurance processes in place in this respect. Selecting questions We provide signposts to help you plan your revision, including a full question index. Attempting mock exams There are two mock exams that provide practice at coping with the pressures of the exam day. We strongly recommend that you attempt them under exam conditions. Mock exam 1 is the ACCA Specimen Exam. Mock exam 2 reflects the question styles and syllabus coverage of the exam. www.ACCAGlobalBox.com viii  USING YOUR BPP PRACTICE AND REVISION KIT Using your BPP Practice & Revision Kit Aim of this Practice & Revision Kit To provide the practice to help you succeed in the examination for FA Financial Accounting. To pass the examination you need a thorough understanding in all areas covered by the syllabus and teaching guide. Recommended approach  Make sure you are able to answer questions on everything specified by the syllabus and teaching guide. You cannot make any assumptions about what questions may come up in your exam. The examining team aims to discourage 'question spotting'.  Learning is an active process. Use the DO YOU KNOW? Checklists to test your knowledge and understanding of the topics covered in FA Financial Accounting by filling in the blank spaces. A Then check your answers against the DID YOU KNOW? Checklists. Do not attempt any questions C if you are unable to fill in any of the blanks – go back to your BPP Interactive Text and revise first. C  When you are revising a topic, think about the mistakes that you know that you should avoid by A writing down POSSIBLE PITFALLS at the end of each DO YOU KNOW? Checklist.  Once you have completed the checklists successfully, you should attempt the questions on that topic. All sections have a selection of OBJECTIVE QUESTIONS (including Multiple Choice G Questions). Make good use of the HELPING HANDS provided to help you answer the questions. L  There is a mark allocation for each question. Each mark carries with it a time allocation of 1.2 minutes. A 2 mark question should therefore be completed in 2.4 minutes. O  70% of the exam consists of objective questions, including Multiple Choice Questions. You B should attempt each bank of objective test questions to ensure you are familiar with their styles and to practise your technique. Ensure you read Tackling Multiple Choice Questions on page xi A to get advice on how best to approach them. L  Once you have completed all of the questions in the body of this Practice & Revision Kit, you should attempt the MOCK EXAMS under examination conditions. Check your answers against our answers to find out how well you did. B O X. C O M www.ACCAGlobalBox.com ix  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FA FINANCIAL ACCOUNTING Passing the FA exam FA Financial Accounting aims to develop your knowledge and understanding of the underlying principles, concepts and regulations relating to financial accounting. You will need to demonstrate technical proficiency in the use of double entry techniques, including the preparation of basic financial statements for incorporated and unincorporated entities, as well as simple consolidated financial statements for group entities. You also need to be able to conduct a basic interpretation of financial statements. If you plan to progress through the ACCA qualification, the skills you learn at FA will be built upon in the exams FR Financial Reporting and SBR Strategic Business Reporting. To access Foundations in Accountancy syllabi, visit the ACCA website www2.accaglobal.com/students/fia The exam All questions in the exam are compulsory. This means you cannot avoid any topic, but also means that you do not need to dedicate time in the exam deciding which questions to attempt. There are thirty-five objective test questions in the exam, including a mixture of MCQs and other types of objective questions (for example, number entry, multiple response and multiple response matching) in the CBE. This means that the examining team is able to test most of the syllabus at each sitting, so you need to have revised right across the syllabus for this exam. Revision This Practice and Revision kit has been reviewed by the FA examining team and contains the ACCA Specimen Exam, so if you just work through it to the end you would be very well prepared for the exam. It is important to tackle questions under exam conditions. Allow yourself just the number of minutes shown next to the questions in the index and don't look at the answers until you have finished. Then correct your answer and go back to the Interactive Text for any topic you are having trouble with. Try the same questions again a week later – you will be surprised how much better you are getting. Doing the questions like this will really show you what you know, and will make the exam experience less worrying. Doing the exam If you have diligently done your revision you can pass this exam. There are a couple of points to bear in mind:  Read the question properly.  Don't spend more than the allotted time on each question. If you are having trouble with a question leave it and carry on. You can come back to it at the end. Approach to examining the syllabus FA is a two-hour exam. The exam is structured as follows: No of marks Section A – 35 compulsory objective questions of 2 marks each 70 Section B – 2 compulsory multi-task questions of 15 marks each 30 100 www.ACCAGlobalBox.com x  TACKLING MULTIPLE CHOICE QUESTIONS Tackling Multiple Choice Questions MCQs are part of all Foundations in Accountancy exams and the first three ACCA exams (AB, MA and FA). MCQs may feature in the CBE, along with other types of question. The MCQs in your exam contain four possible answers. You have to choose the option that best answers the question. The three incorrect options are called distractors. There is a skill in answering MCQs quickly and correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam. You may wish to follow the approach outlined below, or you may prefer to adapt it. Step 1 Skim read all the MCQs and identify what appear to be the easier questions. Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read the question thoroughly. You may prefer to work out the answer before looking at the A options, or you may prefer to look at the options at the beginning. Adopt the method that works best for you. C C Step 3 Read the four options and see if one matches your own answer. Be careful with numerical questions as the distractors are designed to match answers that incorporate A common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation? G Step 4 You may find that none of the options matches your answer. L  Re-read the question to ensure that you understand it and are answering the requirement O  Eliminate any obviously wrong answers B  Consider which of the remaining answers is the most likely to be correct and A select the option L Step 5 If you are still unsure make a note and continue to the next question Step 6 Revisit unanswered questions. When you come back to a question after a break you B often find you are able to answer it correctly straight away. If you are still unsure have a O guess. You are not penalised for incorrect answers, so never leave a question unanswered! X After extensive practice and revision of MCQs, you may think that you recognise a question when you sit. the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar C read the requirement and options carefully – do not assume that it is identical. Although it may be similar to one you have done previously, it may not be exactly the same. O M www.ACCAGlobalBox.com xi  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Using your BPP products This Practice & Revision Kit gives you the question practice and guidance you need in the exam. Our other products can also help you pass:  Interactive Text introduces and explains the knowledge required for your exam  Passcards provide you with clear topic summaries and exam tips You can purchase these products by visiting www.bpp.com/learning-media. www.ACCAGlobalBox.com xii  A C C A G L O B A L Questions B O X. C O M www.ACCAGlobalBox.com 1  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING www.ACCAGlobalBox.com 2  QUESTIONS Do you know? – The context and purpose of financial reporting Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt, you should go back to your BPP Interactive Text and revise first.  F……..…… r ……..… is a way of recording, analysing and summarising financial data.  F…....... entities of whatever size or nature exist to make a p…...  N........….. entities exist for the achievement of specific objectives rather than to make a profit.  P………….. is the excess of ……………… over expenditure. When e…………… exceeds ………………… the business is running at a l…….  A s……… t…………… is a business owned and run by one individual, perhaps employing one or two assistants and controlling their work.  L ……… l………… status means that the business's debts and the personal debts of the business's owners (shareholders) are legally separate. A  ………………… are arrangements between individuals to carry on business in common with a view to C profit. Partnerships are governed by a ………………… ……………. C  Financial accounting is mainly a method of reporting the …………..… …………..… and ………....… ………....… of a business. Financial accounts provide ………....… information. A  There are various groups of people who need ………………. about the activities of a business.  Those charged with g……………… of a company are responsible for the preparation of the financial statements. G  The statement of financial position is simply a list of all the a………… owned and all the l…………… L owed by a business as at a particular date. O  An ……… is a present economic resource controlled by an entity as a result of past events. B  A ………….... is a present obligation of the entity to transfer an economic resource as a result of past events. A  E…………. is the residual interest in the assets of the entity after deducting all its liabilities. L  A statement of profit or loss is a record of ………………… generated and ………………… incurred over a given period. B  Accounting standards were developed to try to address s……………y  The IASB develops …………… …….……. …….……. …….……. O  The main objectives of the IFRS Foundation are to: X – …………. a single set of high quality, understandable, enforceable and globally accepted I…... through its standard-setting body, the I…… C – Promote the …...… and rigorous application of those standards – Take account of the financial reporting needs of emerging economies and ……… and …………. O ………. entities M – Bring about c……………… of national accounting standards and IFRSs to high quality solutions. www.ACCAGlobalBox.com 3  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Did you know? – The context and purpose of financial reporting Could you fill in the blanks? The answers are in bold. Use this page for revision purposes as you approach the exam.  Financial reporting is a way of recording, analysing and summarising financial data.  For-profit entities of whatever size or nature exist to make a profit.  Not-for-profit entities exist for the achievement of specific objectives rather than to make a profit.  Profit is the excess of income over expenditure. When expenditure exceeds revenue, the business is running at a loss.  A sole tradership is a business owned and run by one individual, perhaps employing one or two assistants and controlling their work.  Limited liability status means that the business's debts and the personal debts of the business's owners (shareholders) are legally separate.  Partnerships are arrangements between individuals to carry on business in common with a view to profit. Partnerships are governed by a partnership agreement.  Financial accounting is mainly a method of reporting the financial performance and financial position of a business. Financial accounts provide historical information.  There are various groups of people who need information about the activities of a business.  Those charged with governance of a company are responsible for the preparation of the financial statements.  The statement of financial position is simply a list of all the assets owned and all the liabilities owed by a business as at a particular date.  An asset is a present economic resource controlled by an entity as a result of past events.  A liability is a present obligation of the entity to transfer an economic resource as a result of past events.  Equity is the residual interest in the assets of the entity after deducting all its liabilities.  A statement of profit or loss is a record of income generated and expenditure incurred over a given period.  Accounting standards were developed to try to address subjectivity.  The IASB develops International Financial Reporting Standards (IFRSs).  The main objectives of the IFRS Foundation are to: – Develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards (IFRSs) through its standard-setting body, the IASB – Promote the use and rigorous application of those standards – Take account of the financial reporting needs of emerging economies and small and medium- sized entities (SMEs) – Bring about convergence of national accounting standards and IFRSs to high quality solutions. www.ACCAGlobalBox.com 4  QUESTIONS 1 The context and purpose of financial reporting 34 mins 1.1 Who issues International Financial Reporting Standards? A The IFRS Advisory Committee B The stock exchange C The International Accounting Standards Board D The government (2 marks) 1.2 Which groups of people are most likely to be interested in the financial statements of a sole trader? 1 Shareholders of the company 2 The business's bank manager 3 The tax authorities 4 Financial analysts A 1 and 2 only A B 2 and 3 only C 2, 3 and 4 only C D 1, 2 and 3 only (2 marks) C 1.3 Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false. A A supplier of goods on credit is True False interested only in the statement of financial position, ie an G indication of the current state L of affairs. The objective of financial True False O statements is to provide information about the financial B position, performance and A changes in financial position of an entity that is useful to a L wide range of users in making economic decisions. (2 marks) B 1.4 Which of the following are advantages of trading as a limited liability company? O 1 Operating as a limited liability company makes raising finance easier because additional shares X can be issued to raise additional cash.. 2 Operating as a limited liability company is more risky than operating as a sole trader because the shareholders of a business are liable for all the debts of the business whereas the sole trader is C only liable for the debts up to the amount he has invested. O A 1 only B 2 only M C Both 1 and 2 D Neither 1 or 2 (2 marks) www.ACCAGlobalBox.com 5  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING 1.5 Which of the following best describes corporate governance? A Corporate governance is the system of rules and regulations surrounding financial reporting. B Corporate governance is the system by which companies and other entities are directed and controlled. C Corporate governance is carried out by the finance department in preparing the financial statements. D Corporate governance is the system by which an entity monitors its impact on the natural environment. (2 marks) 1.6 Identify which of the following statements are true or false. 1 The directors of a company are ultimately responsible for the preparation of financial statements, even if the majority of the work on them is performed by the finance department. 2 If financial statements are audited, then the responsibility for those financial statements instead falls on the auditors instead of the directors. 3 There are generally no laws surrounding the duties of directors in managing the affairs of a company. A 1 only B 2 only C 2 and 3 only D 1 and 3 only (2 marks) 1.7 Which ONE of the following statements correctly describes the contents of the Statement of Financial Position? A A list of ledger balances shown in debit and credit columns B A list of all the assets owned and all the liabilities owed by a business C A record of income generated and expenditure incurred over a given period D A record of the amount of cash generated and used by a company in a given period (2 marks) 1.8 Which ONE of the following statements correctly describes the contents of the Statement of Profit or Loss? A A list of ledger balances shown in debit and credit columns B A list of all the assets owned and all the liabilities owed by a business C A record of income generated and expenditure incurred over a given period D A record of the amount of cash generated and used by a company in a given period (2 marks) 1.9 Which of the following are TRUE of partnerships? 1 The partners' individual exposure to debt is limited. 2 Financial statements for the partnership by law must be produced and made public. 3 A partnership is not a separate legal entity from the partners themselves. A 1 and 2 only B 2 only C 3 only D 1 and 3 only (2 marks) www.ACCAGlobalBox.com 6  QUESTIONS 1.10 Which of the following statements is/are true? 1 Directors of companies have a duty of care to show reasonable competence in their management of the affairs of a company. 2 Directors of companies must act honestly in what they consider to be the best interest of the company. 3 A Director's main aim should be to create wealth for the shareholders of the company. A 1 and 2 only B 2 only C 1, 2 and 3 D 1 and 3 only (2 marks) 1.11 Which of the following statements is/are true? 1 The IFRS Interpretations Committee is a forum for the IASB to consult with the outside world. 2 The IFRS Foundation produces IFRSs. The IFRS Foundation is overseen by the IASB. A 3 One of the objectives of the IFRS Foundation is to bring about convergence of national accounting C standards and IFRSs. C A 1 and 3 only B 2 only A C 2 and 3 only D 3 only (2 marks) 1.12 What is the role of the IASB? G A Oversee the standard setting and regulatory process L B Formulate international financial reporting standards O C Review defective accounts D Control the accountancy profession (2 marks) B 1.13 Which ONE of the following is NOT an objective of the IFRS Foundation? A A Through the IASB, develop a single set of globally accepted International Financial Reporting L Standards (IFRSs) B Promote the use and rigorous application of International Financial Reporting Standards (IFRSs) C Ensure International Financial Reporting Standards (IFRSs) focus primarily on the needs of B global, multi-national organisations O D Bring about the convergence of national accounting standards and IFRSs (2 marks) X 1.14 Which ONE of the following statements correctly describes how International Financial Reporting. Standards (IFRSs) should be used? A To provide examples of best financial reporting practice for national bodies who develop their own C requirements O B To ensure high ethical standards are maintained by financial reporting professionals internationally M C To facilitate the enforcement of a single set of global financial reporting standards D To prevent national bodies from developing their own financial reporting standards (2 marks) (Total = 28 marks) www.ACCAGlobalBox.com 7  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING www.ACCAGlobalBox.com 8  QUESTIONS Do you know? – The qualitative characteristics of financial information Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt, you should go back to your BPP Interactive Text and revise first.  In preparing financial statements, accountants follow certain fundamental a………………  The IASB's C………..l F……………k provides the basis for its IFRSs.  The main underlying assumption is ………. ……….  The Conceptual Framework states that ………………… characteristics are the attributes that make the information provided in financial statements useful to users.  The four enhancing qualitative characteristics are …………………, …………………, ………………… and …………………..  Other important qualitative characteristics and concepts include m…………………, p………….., c……………… and the business …………… concept. A  A …………… …… between qualitative characteristics is often necessary, the aim being to achieve an C appropriate balance to meet the objective of financial statements. C A G L O B A L B O X. C O M www.ACCAGlobalBox.com 9  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Did you know? – The qualitative characteristics of financial information Could you fill in the blanks? The answers are in bold. Use this page for revision purposes as you approach the exam.  In preparing financial statements, accountants follow certain fundamental assumptions.  The IASB's Conceptual Framework provides the basis for its IFRSs.  The main underlying assumption is going concern.  The Conceptual Framework states that qualitative characteristics are the attributes that make the information provided in financial statements useful to users.  The four enhancing qualitative characteristics are understandability, verifiability, timeliness and comparability.  Other important qualitative characteristics and concepts include materiality, prudence, consistency and the business entity concept.  A trade off between qualitative characteristics is often necessary, the aim being to achieve an appropriate balance to meet the objective of financial statements. www.ACCAGlobalBox.com 10  QUESTIONS 2 The qualitative characteristics of financial information 31 mins 2.1 Which accounting concept should be considered if the owner of a business takes goods from inventory for their own personal use? A The materiality concept B The accruals concept C The going concern concept D The business entity concept (2 marks) 2.2 Sales revenue should be recognised when goods and services have been supplied; costs are incurred when goods and services have been received. Which accounting concept governs the above? A The business entity concept B The materiality concept A C The accruals concept D The duality concept (2 marks) C 2.3 Which accounting concept states that omitting or misstating this information could influence users of the C financial statements? A A The consistency concept B The accruals concept C D The materiality concept The going concern concept (2 marks) G L 2.4 According to the IASB's Conceptual Framework for Financial Reporting, which TWO of the following are part of faithful representation? O 1 It is neutral B 2 It is relevant 3 It is presented fairly A 4 It is free from material error L A 1 and 2 B 2 and 3 C D 1 and 4 3 and 4 (2 marks) B 2.5 Which of the following accounting concepts means that similar items should receive a similar accounting O treatment? X A Conformity. B Accruals C Matching C O D Consistency (2 marks) 2.6 Listed below are some characteristics of financial information. M 1 Relevance 2 Consistency 3 Faithful representation 4 Accuracy Which TWO of these are qualitative characteristics of financial information according to the IASB's Conceptual Framework for Financial Reporting? A 1 and 2 B 2 and 4 C 3 and 4 D 1 and 3 (2 marks) www.ACCAGlobalBox.com 11  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING 2.7 Which ONE of the following statements describes faithful representation, a qualitative characteristic of faithful representation? A Revenue earned must be matched against the expenditure incurred in earning it. B Having information available to decision-makers in time to be capable of influencing their decisions. C The presentation and classification of items in the financial statements should stay the same from one period to the next. D Financial information should be complete, neutral and free from error. (2 marks) 2.8 Listed below are some comments on accounting concepts. 1 Financial statements always treat the business as a separate entity. 2 Materiality means that only items having a physical existence may be recognised as assets. 3 Provisions are estimates and therefore can be altered to make the financial results of a business more attractive to investors. Which, if any, of these comments is correct, according to the IASB's Conceptual Framework for Financial Reporting? A 1 only B 2 only C 3 only D None of them (2 marks) 2.9 Which of the following statements about accounting concepts and the characteristics of financial information are correct? 1 The concept of accruals requires transactions to be reflected in the financial statements once the cash or its equivalent is received or paid. 2 Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. 3 Based on faithful representation, it may sometimes be necessary to exclude material information from financial statements due to difficulties establishing an accurate figure. A 1 only B 1 and 2 only C 2 only D 2 and 3 only (2 marks) 2.10 The IASB's Conceptual Framework for Financial Reporting gives six qualitative characteristics of financial information. What are these six characteristics? A Relevance, Faithful representation, Comparability, Verifiability, Timeliness and Understandability B Accuracy, Faithful representation, Comparability, Verifiability, Timeliness and Understandability C Relevance, Faithful representation, Consistency, Verifiability, Timeliness and Understandability D Relevance, Comparability, Consistency, Verifiability, Timeliness and Understandability (2 marks) 2.11 Which one of the following is NOT a qualitative characteristic of financial information according to the Conceptual Framework for Financial Reporting? A Faithful representation B Relevance C Timeliness D Accruals (2 marks) www.ACCAGlobalBox.com 12  QUESTIONS 2.12 According to the IASB Conceptual Framework which of the following is NOT an objective of financial statements? A Providing information regarding the financial position of a business B Providing information regarding the performance of a business C Enabling users to assess the performance of management to aid decision making D Providing reliable investment advice (2 marks) 2.13 Identify, by indicating the relevant box in the table below, whether each of the following statements is correct or incorrect. Companies should never Correct Incorrect change the presentation or classification of items in their financial statements, even if there is a significant change in the nature of operations. A Companies should create Correct Incorrect provisions in times of company C growth to be utilised in more difficult times, to smooth C profits. A (2 marks) 2.14 Which of the following statements about prudence is correct? G A Prudence requires assets to be carried at their lowest possible valuation B When prudence is applied, income is not recognised until the cash has been received L C D A prudent decision will mean lower expenditure Prudence does not allow for overstatement of liabilities (2 marks) O (Total = 28 marks) B A L B O X. C O M www.ACCAGlobalBox.com 13  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING www.ACCAGlobalBox.com 14  QUESTIONS Do you know? – The use of double entry and accounting systems Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt, you should go back to your BPP Interactive Text and revise first.  Business transactions are recorded on s………. d……………. Examples include sales and purchase orders, ……….. and ……….. ………..  Books of ……….. ……….. are books in which we first record transactions.  The main books of prime entry are: (a) ……… day book (b) …………… day book (c) ……… ……… day book (d) …………… …………… day book (e) J………l (f) (g) ……… book ……… ……… book A  Entries in the ……… ……… are totalled and analysed before posting to the n……… ledger. C  The ………..……….. and ………..……….. ledgers contain the personal accounts of individual C customers and suppliers. They do not normally form part of the double-entry system. A  The b……….. e……… concept means that a business is always treated separately from its owner(s).  The accounting equation is: ………… = …………… + LIABILITIES – ………..…… + PROFIT  Trade accounts payable are l……….…… Trade accounts receivable are a………. G  In double entry bookkeeping every transaction is recorded ……… so that every ……… is balanced by a L ………. O  A debit entry will: B – …………… an asset – …………… a liability A – …………… an expense L  A credit entry will: – …………… an asset – …………… a liability B – …………… income O  A trial balance can be used to test the ……… of the double entry accounting records.  A ……… and ……… ledger account is opened up to gather all items relating to income and expenses. X When rearranged, the items make up the …………………………………. C O M www.ACCAGlobalBox.com 15  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING Did you know? – The use of double entry and accounting systems Could you fill in the blanks? The answers are in bold. Use this page for revision purposes as you approach the exam.  Business transactions are recorded on source documents. Examples include sales and purchase orders, invoices and credit notes.  Books of prime entry are books in which we first record transactions.  The main books of prime entry are: (a) Sales day book (b) Purchase day book (c) Sales returns day book (d) Purchase returns day book (e) Journal (f) Cash book (g) Petty cash book  Entries in the day books are totalled and analysed before posting to the nominal ledger.  The receivables and payables ledgers contain the personal accounts of individual customers and suppliers. They do not normally form part of the double-entry system.  The business entity concept means that a business is always treated separately from its owner(s).  The accounting equation is: ASSETS = CAPITAL + LIABILITIES – DRAWINGS + PROFIT  Trade accounts payable are liabilities. Trade accounts receivable are assets.  In double entry bookkeeping every transaction is recorded twice so that every debit is balanced by a credit.  A debit entry will:  Increase an asset  Decrease a liability  Increase an expense  A credit entry will:  Decrease an asset  Increase a liability  Increase income  A trial balance can be used to test the accuracy of the double entry accounting records.  A profit and loss ledger account is opened up to gather all items relating to income and expenses. When rearranged, the items make up the statement of profit or loss. www.ACCAGlobalBox.com 16  QUESTIONS 3 Double entry bookkeeping I 46 mins 3.1 Which one of the following can the accounting equation can be rewritten as? A Assets + profit – drawings – liabilities = closing capital B Assets – liabilities – drawings = opening capital + profit C Assets – liabilities – opening capital + drawings = profit D Assets – profit – drawings = closing capital – liabilities (2 marks) 3.2 A trader's net profit for the year may be computed by using which of the following formulae? A Opening capital + drawings – capital introduced – closing capital B Closing capital + drawings – capital introduced – opening capital C Opening capital – drawings + capital introduced – closing capital D Opening capital – drawings – capital introduced – closing capital (2 marks) 3.3 The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000 A during the year and withdrew goods for his private use which had cost $2,200. C If net assets at the beginning of 20X7 were $101,700, what were the closing net assets? C A B $35,000 $39,400 A C $168,400 D $180,000 (2 marks) G 3.4 The profit made by a business in 20X7 was $35,400. The proprietor injected new capital of $10,200 during the year and withdrew a monthly salary of $500. L If net assets at the end of 20X7 were $95,100, what was the proprietor's capital at the beginning of the O year? $_________ (2 marks) B A 3.5 A sole trader took some goods costing $800 from inventory for his own use. The normal selling price of the goods is $1,600. L Which of the following journal entries would correctly record this? DEBIT CREDIT $ $ B A Inventory account Purchases account 800 800 O B Drawings account 800 X Purchases account 800. C Sales account Drawings account 1,600 1,600 C D Drawings account 800 O Sales account 800 (2 marks) M 3.6 A business can make a profit and yet have a reduction in its bank balance. Which ONE of the following might cause this to happen? A The sale of non-current assets at a loss B The charging of depreciation in the statement of profit or loss C The lengthening of the period of credit given to customers D The lengthening of the period of credit taken from suppliers (2 marks) www.ACCAGlobalBox.com 17  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING 3.7 The net assets of Altese, a trader, at 1 January 20X2 amounted to $128,000. During the year to 31 December 20X2 Altese introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 20X2 Altese's net assets totalled $184,000. What is Altese's total profit or loss for the year ended 31 December 20X2? A $54,000 profit B $54,000 loss C $42,000 loss D $58,000 profit (2 marks) 3.8 Jones Co has the following transactions: 1 Payment of $400 to J Bloggs for a cash purchase 2 Payment of $250 to J Doe in respect of an invoice for goods purchased last month What are the correct ledger entries to record these transactions? A DEBIT Cash $650 CREDIT Purchases $650 B DEBIT Purchases $650 CREDIT Cash $650 C DEBIT Purchases $400 DEBIT Trade Payables $250 CREDIT Cash $650 D DEBIT Cash $650 CREDIT Trade Payables $250 CREDIT Purchases $400 (2 marks) 3.9 T Tallon had the following transactions: 1 Sale of goods on credit for $150 to F Rogit 2 Return of goods from B Blendigg originally sold for $300 in cash to B Blendigg What are the correct ledger entries to record these transactions? A DEBIT Receivables $150 DEBIT Sales Returns $300 CREDIT Sales $150 CREDIT Cash $300 B DEBIT Sales $150 DEBIT Cash $300 CREDIT Receivables $150 CREDIT Sales Returns $300 C DEBIT Receivables $450 CREDIT Sales $150 CREDIT Sales Returns $300 D DEBIT Sales Returns $300 DEBIT Sales $150 CREDIT Cash $450 (2 marks) 3.10 Which of the following documents should accompany a return of goods to a supplier? A Debit note B Remittance advice C Purchase invoice D Credit note (2 marks) www.ACCAGlobalBox.com 18  QUESTIONS 3.11 Which of the following are books of prime entry? 1 Sales day book 2 Cash book 3 Journal 4 Purchase ledger A 1, 2 and 3 only B 1, 2 and 4 only C 3 and 4 only D All of them (2 marks) 3.12 In which book of prime entry will a business record debit notes in respect of goods which have been sent back to suppliers? A The sales returns day book B The cash book C The purchase returns day book A D The purchase day book (2 marks) C 3.13 A company's motor vehicles at cost account at 30 June 20X6 is as follows: C MOTOR VEHICLES – COST $ $ A Balance b/d 150,500 Disposal 85,000 Additions 120,950 Balance c/d 186,450 271,450 271,450 G What opening balance should be included in the following period's trial balance for motor vehicles – cost L at 1 July 20X6? A $271,450 DEBIT O B $271,450 DEBIT B C $186,450 CREDIT D $186,450 DEBIT (2 marks) A 3.14 A company's trade payables account at 30 September 20X1 is as follows: L TRADE PAYABLES ACCOUNT $ 21,600 Balance b/d $ 14,000 B Cash at bank Balance c/d 11,900 Purchases 19,500 O 33,500 33,500 What was the balance for trade payables in the trial balance at 1 October 20X0? X A $14,000 DEBIT. B $14,000 CREDIT C C $11,900 DEBIT D $11,900 CREDIT (2 marks) O 3.15 Which of the following would be recorded in the sales day book? M A Cash received B Sales invoices C Credit notes received D Trade discounts (2 marks) www.ACCAGlobalBox.com 19  Download FREE ACCA STUDY MATERIALs from "www.ACCAGlobalBox.com" FFA/FA FINANCIAL ACCOUNTING 3.16 Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false. A debit records an increase in True False liabilities. A debit records a decrease in True False assets. A credit records an increase in True False liabilities. A credit records an decrease in True False capital. (2 marks) 3.17 How is the total of the purchases day book posted to the nominal ledger? A Debit purchases, Credit cash B Debit payables control, Credit purchases C Debit cash, Credit purchases D Debit purchases, Credit payables control (2 marks) 3.18 Which one of the following statements about an imprest system of petty cash is correct? A An imprest system for petty cash controls small cash expenditures because a fixed amount is paid into petty cash at the beginning of each period. B The imprest system provides a control over petty cash spending because the amount of cash held in petty cash at any time must be equal to the value of the petty cash vouchers for the period. C An imprest system for petty cash can operate without the need for petty cash vouchers or receipts for spending. D An imprest system for petty cash helps with management of small cash expenditures and reduces the risk of fraud. (2 marks) 3.19 Which one of the following pr