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P R A C T I C PAPER F3 E FINANCIAL ACCOUNTING & (INTERNATIONAL STREAM) R E V In this Janaury 2010 new edition I x We discuss the best strategies for revising and taking your ACCA exams x We show you how to be well prepared for the 22010 exams S x We give you lots of great guidance on tackling questions I x We show you how you can build your own exams x We provide you with three mock exams including the PPilot paper O x We provide the AACCA examiner's answers as well as our own to the Pilot Paper as an N additional revision aid ThiNganHang.comOur i-Pass product also supports this paper. K I T FOR EXAMS IN 2010 ThiNganHang.com
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First edition 2007 Fourth edition January 2010 ISBN 9780 7517 8049 9 (previous ISBN 9780 7517 6655 4) British Library Cataloguing-in-Publication Data All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in A catalogue record for this book any form or by any means, electronic, mechanical, is available from the British Library photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd. Published by We are grateful to the Association of Chartered Certified BPP Learning Media Ltd Accountants for permission to reproduce past BPP House, Aldine Place examination questions. The answers to past examination London W12 8AA questions have been prepared by BPP Learning Media Ltd. www.bpp.com/learningmedia Printed in the United Kingdom ThiNganHang.com © Your learning materials, published by BPP Learning BPP Learning Media Ltd Media Ltd, are printed on paper sourced from sustainable, managed forests. 2010 ii ThiNganHang.com
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Contents Page Finding questions Question index ................................................................................................................................................................. iv Using your BPP Learning Media Practice and Revision Kit......................................... vi Passing F3 General exam support from BPP Learning Media............................................................................................................ vii Revising F3 ..................................................................................................................................................................... vii Tackling multiple choice questions ................................................................................................................................ viii Tackling objective test questions...................................................................................................................................... ix Exam information .............................................................................................................................................................. x The computer based examination...................................................................................................................................... x Questions and answers Multiple choice questions .................................................................................................................................................1 Objective test questions ..................................................................................................................................................91 Answers to multiple choice questions ...........................................................................................................................113 Answers to objective test questions...............................................................................................................................159 Exam practice Mock exam 1 x Questions ............................................................................................................................................................177 x Answers...............................................................................................................................................................191 Mock exam 2 x Questions ............................................................................................................................................................199 x Answers...............................................................................................................................................................209 Mock exam 3 (Pilot paper) x Questions ............................................................................................................................................................219 x Answers...............................................................................................................................................................237 ACCA examiner's answers x Pilot paper ...........................................................................................................................................................241 Review form & free prize draw ThiNganHang.com Contents iii ThiNganHang.com
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Question index The headings in this checklist/index indicate the main topics of questions, but questions often cover several different topics. Questions set under the old syllabus Preparing Financial Statements (PFS) paper are included because their style and content are similar to those that appear in the Paper F3 exam. The questions have been amended to reflect the current exam format. Time Page number Multiple choice questions allocation Marks Mins Question Answer Part A: Accounting concepts 1 Preparation question: Accounting concepts (PFS 12/05) – – 3 115 2 Accounting concepts I 18 24 3 116 3 Accounting concepts II 15 20 4 116 Part B: Inventories 4 Preparation question: Sampi – – 6 116 5 Inventories 16 22 7 117 Part C: Non-current assets 6 Preparation question: Riffon (PFS 12/03) – – 9 118 7 Tangible non-current assets 17 23 10 119 8 Intangible non-current assets 10 13 12 119 Part D: Adjustments to accounts 9 Preparation question: XY ledger accounts – – 14 120 10 Preparation question: Kate’s Coffee House – – 14 121 11 Preparation question: Irrecoverable debts – – 15 122 12 Adjustments to accounts 20 27 15 123 Part E: Control accounts 13 Preparation question: Scimitar – – 17 124 14 Control accounts 20 27 18 125 Part F: Bank reconciliationsThiNganHang.com 15 Preparation question: Cain – – 21 126 16 Preparation question: George – – 22 127 17 Bank reconciliations 19 25 22 127 Part G: Errors 18 Preparation question: Choctaw (PFS 6/05) – – 25 128 19 Journal entries and suspense accounts I 16 22 26 129 20 Journal entries and suspense accounts II 18 24 28 130 iv Question index ThiNganHang.com
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Time Page number allocation Marks Mins Question Answer Part H: Incomplete records 21 Preparation question: Altese (PFS 6/03) – – 30 130 22 Incomplete records 18 24 31 131 Part I: Partnerships 23 Preparation question: PDQ & Co – – 33 132 24 Preparation question: Leon and Mark (PFS 6/06) – – 34 133 25 Partnerships 24 32 34 133 Part J: Company financial statements 26 Preparation question: bonus issue – – 38 135 27 Preparation question: rights issue – – 38 135 28 Preparation question: Shuswap (PFS 6/05) – – 39 136 29 Company financial statements I 17 23 40 137 30 Company financial statements II 18 24 42 138 31 Events after the reporting period 8 11 45 138 Part K: Statements of cash flows 32 Preparation question: Sioux (PFS 6/05) – – 46 139 33 Statements of cash flows 16 22 47 140 Part L: Mixed banks 34 Mixed bank I 42 56 50 140 35 Mixed bank II (PFS Pilot Paper) 40 53 53 142 36 Mixed bank III (PFS 6/05) 40 53 58 144 37 Mixed bank IV (PFS 12/05) 40 53 63 146 38 Mixed bank V (PFS 6/06) 38 51 69 148 39 Mixed bank VI (PFS 12/06) 38 51 75 150 40 Mixed bank VII (PFS 6/07) 44 59 80 152 41 Mixed bank VIII (FA 12/07, FA 6/08) 11 15 86 154 42 Mixed bank IX (FA 12/08, FA 6/09) 12 16 88 156 43 Accounting principles and regulation44 Preparing financial accountsObjective test questionsThiNganHang.com1136 1550 9394 161161 45 Accounting conventions and standards 24 32 100 165 46 Final accounts and statements of cash flows 24 32 104 170 Mock exam 1 – Paper-based exam Mock exam 2 - Computer-based exam Mock exam 3 - (Pilot paper) Question index v ThiNganHang.com
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Using your BPP Learning Media Practice and Revision Kit Tackling revision and the exam You can significantly improve your chances of passing by tackling revision and the exam in the right ways. Our advice is based on feedback from ACCA examiners. We focus on Paper F3; we discuss revising the syllabus, how to approach different types of question and ways of obtaining easy marks Selecting questions We provide a full question index to help you plan your revision Making the most of question practice At BPP Learning Media we realise that you need more than just questions and simple answers to get the most from your question practice. We include workings and explanations to show you how we arrived at the right answer and why the wrong answers were incorrect. Attempting mock exams There are three 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 reflects the question styles and syllabus coverage of the paper-based exam. Mock exam 2 reflects what you will see in a computer-based exam. Mock exam 3 is the Pilot paper. To help you get the most out of doing these exams, we provide help with each answer. The examiner's answers to the Pilot paper are included at the back of the kit. Using your BPP Learning Media products This Kit gives you the question practice and guidance you need in the exam. Our other products can also help you pass: x Learning to Learn Accountancy gives further valuable advice on revision x Passcards provide you with clear topic summaries and exam tips x Success CDs help you revise on the move x i-Pass CDs offer tests of knowledge against the clock You can purchase these products by visiting www.bpp.com/mybpp. You can view demonstrations of i-Learn and i-Pass products by visiting www.bpp.com/acca/study- materials/#ilearn. Scroll down the page until you find the sections for i-Learn and i-Pass and click on the appropriate ‘View demo’ button.ThiNganHang.com vi Using your BPP Learning Media Practice and Revision Kit ThiNganHang.com
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Passing F3 General exam support from BPP Learning Media BPP Learning Media is committed to giving you the best possible support in your quest for exam success. With this in mind, we have produced guidance on how to revise and techniques you can apply to improve your chances of passing the exam. This guidance can be found on the BPP Learning Media web site at the following link: www.bpp.com/acca/examtips/Revising-for-ACCA-exams.doc A paper copy of this guidance is available by e-mailing learningmedia@bpp.com Revising F3 Topics to revise The examiner will test every area of the syllabus so you must revise all topics. Selective revision will limit the number of questions that you can answer and reduce your chance of passing. Although the Paper F3 exam does not require you to submit written workings, it is still essential that you practise the steps involved in different techniques. If you are familiar with these steps, you will be more confident about tackling any question on the topic. But do not spend too long on any one topic – it will probably only feature in a few questions. Question practice - paper based or computer based? You may take Paper F3 as a paper based exam or a computer based exam. It is very much a personal choice which one you choose – however your final revision should be tailored towards your choice of exam. You can find general details about computer based exams on page x. The computer based exam contains a mixture of multiple choice and objective test questions, whilst the paper based exam contains only multiple choice questions. Before you decide on the mode of exam you might prefer, it is a good idea to have a look at multiple choice and objective test question banks in this kit to get a feel for the different styles of questions you might be faced with. Mock Exam 1 and Mock Exam 3 (the Pilot paper) are paper based (multiple choice questions only), Mock Exam 2 contains the style of questions you might face in a computer based exam (even though it is on paper!). (i) Paper based exams If you choose the paper based route, your revision must include the following: x Read ‘Tackling multiple choice questions’ on page viii x Attempt all the multiple choice and objective test questions in this kit (you can never get enough question practice!) (ii)ThiNganHang.comxxComputer based examsDo Mock Exam 1 and Mock Exam 3 (the Pilot paper) under exam conditionsIf time allows, do Mock Exam 2 for additional question practice. If you decide to take the exam on computer, you must include the following in your revision plan: x Read ‘Tackling multiple choice questions’ on page viii and ‘Tackling objective test questions’ on page ix x Attempt all the multiple choice and objective test questions in this kit x Do Mock Exam 2 in this kit under exam conditions x If time allows, do Mock Exam 1 for additional question practice. Passing F3 vii ThiNganHang.com
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Tackling multiple choice questions The MCQs in your exam will contain four or five possible answers. You have to choose the option that best answers the question. The three or four incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By practising MCQs you can develop this skill, giving yourself 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 which appear to be the easier questions. Step 2 Work out how long you should allocate to each MCQ bearing in mind the number of marks available. Remember that the examiner will not expect you to spend an equal amount of time on each MCQ; some can be answered instantly but others will take time to work out. Step 3 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 options, or you may prefer to look at the options at the beginning. Adopt the method that works best for you. You may find 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, read the requirement and options carefully – do not assume that it is identical. Step 4 Read the options and see if one matches your own answer. Be careful with numerical questions, as the distracters are designed to match answers that incorporate common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation? Step 5 You may find that none of the options matches your answer. x Re-read the question to ensure that you understand it and are answering the requirement x Eliminate any obviously wrong answers x Consider which of the remaining answers is the most likely to be correct and select that option Step 6 If you are still unsure, continue to the next question. Likewise if you are nowhere near working out which option is correct after a couple of minutes, leave the question and come back to it later. Make a note of any questions for which you have submitted answers, but you need to return to later. The computer will list any questions for which you have not submitted answers. Step 7 Revisit unanswered questions and other questions you're uncertain about. When you come back to a question after a break, you often find you can answer it correctly straightaway. If you are still unsure, have a guess. You are not penalised for incorrect answers, so never leave a question unanswered! ThiNganHang.com viii Passing F3 ThiNganHang.com
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Tackling objective test questions What is an objective test question? An objective test (OT) question is made up of some form of stimulus, usually a question, and a requirement to do something. x MCQs. Read through the information on page viii about MCQs and how to tackle them. x True or false. You will be asked if a statement is true or false. x Data entry. This type of OT requires you to provide figures such as the answer to a calculation, words to fill in a blank, single word answers to questions, or to identify numbers and words to complete a format. x Interpretation. You may be asked to interpret or analyse graphical data. x Multiple response. These questions provide you with a number of options and you have to identify those that fulfil certain criteria. x Listing. You may be asked to list items in rank order. x Matching. This OT question format could ask you to classify particular costs into one of a range of cost classifications provided, to match descriptions of variances with one of a number of variances listed, and so on. OT questions in your exam If you are sitting your exam on computer your exam will contain different types of OT questions. It is not certain how many questions in your exam will be MCQs and how many will be other types of OT, nor what types of OT you will encounter in your exam. For maximum preparation, attempt all the different types of OT questions in this kit. Dealing with OT questions Again you may wish to follow the approach we suggest, or you may be prepared to adapt it. Step 1 Work out how long you should allocate to each OT, taking into account the marks allocated to it. Remember that you will not be expected to spend an equal amount of time on each one; some can be answered instantly but others will take time to work out. Step 2 Attempt each question. Read the question thoroughly, and note in particular what the question says about the format of your answer and whether there are any restrictions placed on it. Step 3 Read any options you are given and select which ones are appropriate. Check that your calculations are correct. Have you followed the requirement exactly? Have you included every stage of the calculation? Step 4 You may find that you are unsure of the answer. ThiNganHang.comxx chooseRe-read the question to ensure that you understand it and are answering the requirementEliminate any obviously wrong options if you are given a number of options from which to Step 5 If you are still unsure, continue to the next question. The computer will list any questions for which you have not submitted answers. Step 6 Revisit unanswered questions and other questions you are uncertain about. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect answers, so never leave a question unanswered! Passing F3 ix ThiNganHang.com
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Exam information Format of the exam Paper-based exam (2 hours) Number of marks 40 2-mark MCQs 80 10 1-mark MCQs 10 90 Computer based exam (2 hours) 50 OTQs (40 2-mark questions and 10 1-mark questions) 9909900 90 The pass mark for both papers is 50%. 90 The computer based examination In 2002, ACCA introduced computer based examinations (CBE) (in addition to the conventional paper based examinations). Computer based examinations must be taken at ACCA Approved Computer Examination Centres. A full list of approved centres can be found on the ACCA website using the following link: http://www.accaglobal.com/students/exams/cbes/preparing How does CBE work? x Questions are displayed on a monitor and candidates enter their answers directly onto the computer x When the candidate has completed their examination (two hours are allowed), the computer automatically marks the file containing the candidate's answers x Candidates are provided with a certificate showing their results before leaving the examination room x The CBE Licensed Centre uploads the results to ACCA (as proof of the candidate's performance). Benefits x Flexibility as a CBE and resits can be sat at any time, with no restrictions on number of sittings. x Instant feedback as the computer displays the results at the end of the CBE x Results are notified to ACCA within 48 hours x Extended closing date periods (see the ACCA website for further information). ThiNganHang.com x Passing F3 ThiNganHang.com
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1 Preparation question: Accounting concepts (PFS December 2005) State four accounting concepts, and explain how each one contributes to fair presentation in the financial statements. 2 Accounting concepts I 24 mins 1 Which one of the following statements is true of the historical cost convention? A It fails to take account of changing price levels over time B It records only past transactions C It values all assets at their cost to the business, without any adjustment for depreciation D It has been replaced in accounting records by a system of current cost accounting (2 marks) 2 Which one of the following is the main aim of accounting? A To maintain ledger accounts for every asset and liability B To provide financial information to users of such information C To produce a trial balance D To record every financial transaction individually (2 marks) 3 Which accounting concept or convention which, in times of rising prices, tends to understate asset values and overstate profits? A The going concern concept B The prudence concept C The realisation concept D The historical cost convention (2 marks) 4 Which accounting concept which requires assets to be valued at their net book value, rather than their 'break-up' value? A The materiality concept B The going concern concept C The historical cost convention D The business entity convention (2 marks) 5 Which one of the following can the accounting equation can be rewritten as? A Assets plus profit less drawings less liabilities equals closing capital B Assets less liabilities less drawings equals opening capital plus profit C Assets less liabilities less opening capital plus drawings equals profit (1 mark) 6 ThiNganHang.comWhich accounting concept should be considered if the owner of a business takes goods from inventory for his own personal use? A The prudence concept B The capitalisation concept C The money measurement concept D The separate entity concept (2 marks) 7 Assets are usually valued under which basis? A Replacement cost B Historical cost C Net realisable value (1 mark) Multiple choice questions 3 ThiNganHang.com
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8 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 prudence concept B The materiality concept C The accruals concept D The dual aspect concept (2 marks) 9 Which accounting concept requires that foreseen losses should be anticipated and taken into account immediately? A The consistency concept B The accruals concept C The prudence concept D The going concern concept (2 marks) 10 A sale should be recognised when the goods or services have been provided and the invoice sent out, rather than when the sale is agreed. Which accounting concept does this illustrate? A The realisation concept B The consistency concept C The going concern concept D The materiality concept (2 marks) (Total = 18 marks) 3 Accounting concepts II 20 mins 1 Listed below are some characteristics of financial information. 1 Neutrality 2 Prudence 3 Completeness 4 Timeliness Which of these characteristics contribute to reliability, according to the IASB's Framework for the Preparation and Presentation of Financial Statements? A 1, 2 and 3 only B 1, 2 and 4 only C 1, 3 and 4 only D 2, 3 and 4 only (2 marks) 2 Which of the following statements about accounting concepts are correct? 1 The money measurement concept is that only items capable of being measured in monetary terms ThiNganHang.com2 The prudence concept means that understating of assets and overstating of liabilities is desirable incan be recognised in financial statements.preparing financial statements. 3 The historical cost concept is that assets are initially recognised at their transaction cost. 4 The substance over form convention is that, whenever legally possible, the economic substance of a transaction should be reflected in financial statements rather than simply its legal form. A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4 (2 marks) 4 Multiple choice questions ThiNganHang.com
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3 Listed below are some comments on accounting concepts. 1 In achieving a balance between relevance and reliability, the most important consideration is satisfying as far as possible the economic decision-making needs of users. 2 Materiality means that only items having a physical existence may be recognised as assets. 3 The substance over form convention means that the legal form of a transaction must always be shown in financial statements, even if this differs from the commercial effect. Which, if any, of these comments is correct, according to the IASB's Framework for the Preparation and Presentation of Financial Statements? A 1 only B 2 only C 3 only D None of them (2 marks) 4 Which of the following explanations of the prudence concept most closely follows that in the IASB's Framework for the Preparation and Presentation of Financial Statements? A The application of a degree of caution in exercising judgement under conditions of uncertainty B Revenue and profits are not recognised until realised, and provision is made for all known liabilities C All legislation and accounting standards have been complied with (1 mark) 5 In times of rising prices, what effect does the use of the historical cost concept have on a company's asset values and profit? A Asset values and profit both understated B Asset values and profit both overstated C Asset values understated and profit overstated D Asset values overstated and profit understated (2 marks) 6 Which of the following statements about accounting concepts and policies is/are correct? 1 The effect of a change to an accounting policy should be disclosed as an extraordinary item if material. 2 Information in financial statements should be presented so as to be understood by users with a reasonable knowledge of business and accounting. 3 Companies should create hidden reserves to strengthen their financial position. 4 Consistency of treatment of items from one period to the next is essential to enhance comparability between companies, and must therefore take precedence over other accounting concepts such as prudence. A 1 and 4 B 2 and 3 C 3 and 4 D 2 only (2 marks) 7 ThiNganHang.comWhich of the following most closely describes the meaning of prudence, as the term is defined in the IASB's Framework for the Preparation and Presentation of Financial Statements? A Ensuring that accounting records and financial statements are free from material error. B The use of a degree of caution in making estimates required under conditions of uncertainty. C Understating assets and gains and overstating liabilities and losses. D Ensuring that financial statements comply with all accounting standards and legal requirements (2 marks) Multiple choice questions 5 ThiNganHang.com
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8 Which, if any, of the following statements about accounting concepts and the characteristics of financial information are correct? 1 The concept of substance over form means that the legal form of a transaction must be reflected in financial statements, regardless of the economic substance. 2 The historical cost concept means that only items capable of being measured in monetary terms can be recognised in financial statements. 3 It may sometimes be necessary to exclude information that is relevant and reliable from financial statements because it is too difficult for some users to understand. A 1 and 2 only B 2 and 3 only C 1 and 3 only D None of these statements are correct (2 marks) (Total = 15 marks) 4 Preparation question: Sampi Sampi is a manufacturer of garden furniture. The company has consistently used FIFO (first in, first out) in valuing inventory, but it is interested to know the effect on its inventory valuation of using weighted average cost instead of FIFO. At 28 February 20X8 the company had a inventory of 4,000 standard plastic tables, and has computed its value on each basis as: Unit cost Total value $ $ Basis FIFO 16 64,000 Weighted average 13 52,000 During March 20X8 the movements on the inventory of tables were as follows. Received from factory: Production cost Number of units per unit $ Date 8 March 3,800 15 22 March 6,000 18 Sales: Number of units Date 12 March 5,000 18 March 2,000 24 March28 MarchOn a FIFO basis the inventory at 31 March 20X8 was $32,400.ThiNganHang.com3,0002,000 Required Compute what the value of the inventory at 31 March 20X8 would be using weighted average cost. (In arriving at the total inventory values you should make calculations to two decimal places (where necessary) and deal with each inventory movement in date order.) 6 Multiple choice questions ThiNganHang.com
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5 Inventories 22 mins 1 A fire on 30 September 20X2 destroyed some of a company's inventory and its inventory records. The following information is available: $ Inventory 1 September 20X2 318,000 Sales for September 20X2 612,000 Purchases for September 20X2 412,000 Inventory in good condition at 30 September 20X2 214,000 Standard gross profit percentage on sales is 25% Based on this information, what is the value of the inventory lost? A $96,000 B $271,000 C $26,400 D $57,000 (2 marks) 2 Which of the following costs may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company? 1 Carriage inwards 2 Carriage outwards 3 Depreciation of factory plant 4 Finished goods storage costs 5 Factory supervisors' wages A 1 and 5 only B 2, 4 and 5 only C 1, 3 and 5 only D 1, 2, 3 and 4 only (2 marks) 3 The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700. The following items were included at cost in the total: 1 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds. 2 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in February 20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each. What should the inventory value be according to IAS 2 Inventories after considering the above items? A $281,200 B $282,800 4 ThiNganHang.comA company values its inventory using the first in, first out (FIFO) method. At 1 May 20X2 the company hadCD None of these$329,200 (2 marks) 700 engines in inventory, valued at $190 each. During the year ended 30 April 20X3 the following transactions took place: 20X2 1 July Purchased 500 engines at $220 each 1 November Sold 400 engines for $160,000 Multiple choice questions 7 ThiNganHang.com
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20X3 1 February Purchased 300 engines at $230 each 15 April Sold 250 engines for $125,000 What is the value of the company's closing inventory of engines at 30 April 20X3? A $188,500 B $195,500 C $166,000 D None of these figures (2 marks) 5 Which of the following statements about the valuation of inventory are correct, according to IAS 2 Inventories? 1 Inventory items are normally to be valued at the higher of cost and net realisable value. 2 The cost of goods manufactured by an entity will include materials and labour only. Overhead costs cannot be included. 3 LIFO (last in, first out) cannot be used to value inventory. 4 Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation to actual cost. A 1, 3 and 4 only B 1 and 2 only C 3 and 4 only (1 mark) 6 A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X3, leading to an inventory value at cost at this date of $483,700. Between 1 November 20X3 and 4 November 20X3 the following transactions took place: 1 Goods costing $38,400 were received from suppliers. 2 Goods that had cost $14,800 were sold for $20,000. 3 A customer returned, in good condition, some goods which had been sold to him in October for $600 and which had cost $400. 4 The company returned goods that had cost $1,800 in October to the supplier, and received a credit note for them. What figure should appear in the company's financial statements at 31 October 20X3 for closing inventory, based on this information? A $458,700 B $505,900 C $508,700 D $461,500 (2 marks) 7 In preparing its financial statements for the current year, a company's closing inventory was understated by $300,000. ThiNganHang.comWhat will be the effect of this error if it remains uncorrected?AB The current year's profit will be overstated and next year's profit will be understatedThe current year's profit will be understated but there will be no effect on next year's profit C The current year's profit will be understated and next year's profit will be overstated D The current year's profit will be overstated but there will be no effect on next year's profit (2 marks) 8 Multiple choice questions ThiNganHang.com
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8 At 30 September 20X3 the closing inventory of a company amounted to $386,400. The following items were included in this total at cost: 1 1,000 items which had cost $18 each. These items were all sold in October 20X3 for $15 each, with selling expenses of $800. 2 Five items which had been in inventory since 1973, when they were purchased for $100 each, sold in October 20X3 for $1,000 each, net of selling expenses. What figure should appear in the company's statement of financial position at 30 September 20X3 for inventory? A $382,600 B $384,200 C $387,100 D $400,600 (2 marks) 9 According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing company? 1 Carriage inwards 2 Carriage outwards 3 Depreciation of factory plant 4 General administrative overheads A 1, 2 and 4 only B 2 and 3 only C 1 and 3 only (1 mark) (Total = 16 marks) 6 Preparation question: Riffon (PFS December 2003) The accounting records of Riffon, a limited liability company included the following balances at 30 June 20X2: $'000 Office buildings – cost 1,600 – accumulated depreciation (10 years at 2% per year) 320 Plant and machinery – cost (all purchased in 20X0 or later) 840 – accumulated depreciation – (straight line basis at 25% per year) 306 During the year ended 30 June 20X3 the following events occurred: 20X2 1 July It was decided to revalue the office building to $2,000,000, with no change to the estimate of its remaining useful life. 1 October20X31 AprilThiNganHang.comPlant which had cost $240,000 and with accumulated depreciation at 30 June 20X2 of $180,000 wasNew plant costing $200,000 was purchased. sold for $70,000. It is the company's policy to charge a full year's depreciation on plant in the year of acquisition and none in the year of sale. Multiple choice questions 9 ThiNganHang.com
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