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CIMA BA3 Fundamentals of Financial Accounting Exam Practice Test

Demo: 58 questions
Total 393 questions

Fundamentals of Financial Accounting Questions and Answers

Question 1

Which of the following would be a role of the financial accountant?

Options:

A.

Meeting management reporting requirements

B.

Monitoring actual results to expected results

C.

Meeting external reporting requirements

D.

Producing budgets for the future

Question 2

A sole trader made a net profit of $8000 for the year.

During the year, inventory increased by $500, receivables decreased by $800 and payables increased by $2400.

This would result in:

Options:

A.

An increase in cash flow of $10100

B.

A decrease in cash flow of $10100

C.

An increase in cash flow of $10700

D.

A decrease in cash flow of $10700

Question 3

The issue of a company's shares for more than their normal value results in the creation of a

Options:

A.

General reserve.

B.

Suspense account.

C.

Goodwill account.

D.

Share premium account.

Question 4

Entity HJ is a small business. In the period. Entity Hj earned revenue of £24,300, had opening inventories of £1,500 and closing inventories of £8,000. Purchases came to £13,200.

What was Entity Hj's gross profit or loss for this period?

Options:

A.

£17,600 profit

B.

£6,700 loss

C.

£17,600 loss

D.

£6,700 profit

E.

£31,000 profit

Question 5

XYZ's computerized accounting system automatically updates the non-current asset register when additions to property, plant and equipment are made A machine costing $120,000, with a useful life of five years and an estimated residual value of $12,000 is acquired at the year end.

Which of the following statements is correct in relation to the recording of this asset in the non-current asset register?

Options:

A.

The journal entry to record the cost is Dr Asset $120,000 and Cr Bank $120,000 The five year useful life is recorded

B.

There is no journal entry but the cost of $120,000, the five year useful life and estimated residual value of $12 000 are recorded

C.

There is no journal entry but the cost of $120,000 and the five year useful life are recorded

D.

The journal entry to record the cost is Dr Asset $120,000 and Cr Bank $120,000 The five year useful life and estimated residual value of $12,000 are recorded

Question 6

A company had a gross profit margin of 40%. Sales for the period were $280,000 and opening and closing inventories were $18,000 and $16,000 respectively.

Purchases for the period were therefore

Options:

A.

$114,000

B.

$170,000

C.

$110,000

D.

$166,000

Question 7

Which of the following is an example of a transaction that affects profit, but does not affect cash?

Options:

A.

Purchase of raw materials

B.

Cost of electricity consumed in the period

C.

Profit and loss on disposal of a non-current asset

D.

Interest on bank loans

Question 8

A liability may best be defined as:

Options:

A.

An obligation to transfer economic benefits as a result of past transactions or events

B.

A resource which may be used to derive income in the future

C.

A person or entity owing money to the business

D.

The amount of money withdrawn from the business by the owners

Question 9

Refer to the Exhibit.

On 1 May year 1 a company pays insurance of $1,800 for the period to 30 April year 2

What is the charge to the income statement and the entry in the statement of financial position for year 1 ended 30 November?

Options:

A.

A

B.

B

C.

C

D.

D

Question 10

The draft accounts of KenDoo Ltd for the year ended 31 August 2006 showed a net profit of $10000.

During the audit, the following errors and omissions were discovered.

(a) Items valued at $3100 had been completely omitted from the closing stock figure.

(b) Accrual of electricity bill for $200 and insurance prepayment of $500 had been omitted.

(c) Equipment costing $12000, acquired on 1 September 2005, had been debited to the purchases acccount. (KenDoo Ltd depreciates equipment at 15% on the straight line basis).

Due to materiality, the directors of KenDoo Ltd agreed to adjust the accounts accordingly.

Incorporating the above adjustments, the revised net profit is

Options:

Question 11

Company X is a private limited oil company. Which of the following are relevant for Company X's integrated report?

Options:

A.

Risk of oil prices falling

B.

Risk of share prices falling

C.

Risk posed by competing oil companies and sustainable energy sources

D.

Need for report to be concise

Question 12

Which of the following is the final document in the audit trail?

Options:

A.

Receipt

B.

Purchase order

C.

Invoice

D.

Credit note

Question 13

LMN's totals for its sales day book and its cash receipts book for the month ended 31 January 20X6 are as follows

What is the total value for sales that LMN will post to the sales account in the nominal ledger for January 20X6?

Options:

A.

$51,000

B.

$45,000

C.

$36,000

D.

$30,000

Question 14

Which of the following is not an external user of financial statements?

Options:

A.

auditor

B.

shareholder

C.

creditor

D.

director

Question 15

An invoice to Sammy has been entered in the sales day book as $85 instead of $58.

To correct the position, which of the following procedures should be adopted?

Options:

A.

Debit Receivables $27, Credit Sales $27 and increase the balance owing by Sammy

B.

Debit Receivables $27, Credit Sales $27 and decrease the balance owing by Sammy

C.

Debit Sales $27, Credit Receivables $27 and increase the balance owing by Sammy

D.

Debit Sales $27, Credit Receivables $27 and decrease the balance owing by Sammy

Question 16

Which one of the following will not be found in a statement of changes in equity?

Options:

A.

General reserve

B.

Ordinary shares

C.

Debentures

D.

Share premium account

Question 17

A trial balance is extracted from the ledger accounts at the end of each accounting period.

Which of the following will a trial balance do?

Options:

A.

Prove the ledger account balances are correct

B.

Highlight any errors of omission

C.

Show that debit and credit balances agreed

D.

Highlight errors of principle

Question 18

Which of the following transactions affects profit but does not affect cash?

Options:

A.

Issue of share capital

B.

Payments to trade payables

C.

Purchase of non-current assets

D.

Sales of goods on credit

Question 19

An extract from PQ's statement of profit or loss for the year ended 31 March 20X6 is shown below:

What is the mark-up percentage that PQ applies in arriving at its selling price? Give your answer to one decimal place

Options:

Question 20

FGH has extracted its trial balance from its nominal ledger for the year ended 31 March 20X6 The items below have a value greater than SNil Which are debit and which are credit balances?

Options:

Question 21

What will be the effect on the financial statements if the closing inventory figure is decreased?

Options:

A.

An increase in cost of sales, an increase in gross profit and a decrease in the inventory figure in the statement of financial position.

B.

A decrease in cost of sales, a decrease in gross profit and a decrease in the inventory figure in the statement of financial position.

C.

A decrease in cost of sales, an increase in gross profit and a decrease in the inventory figure in the statement of financial position.

D.

An increase in cost of sales, a decrease in gross profit and a decrease in the inventory figure in the statement of financial position.

Question 22

The IASB's Framework for the Preparation and Presentation of Financial Statements identifies four possible measurement bases for use in financial statements

Which of the following are those bases?

Options:

A.

historical cost, resale value, realizable value , present value

B.

historical cost, current cost, realizable value, present value

C.

historical cost, modified historical cost, realizable value, present value

D.

historical cost, modified historical cost, realizable value, current cost

Question 23

An asset may best be defined as:

Options:

A.

An obligation to transfer economic benefits as a result of past transactions or events

B.

A resource which may be used to derive income in the future

C.

A person or entity to whom money is owed by the business

D.

The amount of money invested in the business by the shareholders

Question 24

Who is responsible for ensuring that internal control systems operate efficiently?

Options:

A.

External auditors

B.

Directors

C.

Shareholders of the company

D.

Creditors

Question 25

A company has a debt/equity ratio of 50%. If the company's total equity is $750,000, what is the gearing ratio for the company?

Options:

A.

33.33%

B.

200%

C.

50%

D.

Impossible to tell from information provided.

Question 26

CDE, an entity registered for sales tax, purchases a piece of equipment for cash on 31 December 20X6 for $30,000 including sales tax. The sales tax rate is 20%. What is the journal entry required to record this transaction in the nominal ledger?

Place the labels in the corresponding position in the table below:

Options:

Question 27

Refer to the Exhibit.

A company operates a FIFO system of inventory valuation. The following information is available for the month of April:

The closing value of inventory at the end of the month of April is

Options:

Question 28

The total of the debit column of a trial balance is $800 bigger than the credit column.

Which of the following is the entry recorded in the suspense account?

Options:

A.

$800 Debit

B.

$1,600 Debit

C.

$1,600 Credit

D.

$800 Credit

Question 29

AB sold a machine for $15,000 The machine had originally cost $160,000 and al the dale of disposal had a carrying value of $26,000.

The journal entry lo record this disposal is:

A)

B)

C)

D)

Options:

A.

Option A

B.

Option B

C.

Option C

D.

Option D

Question 30

A company issues $100,000 12% Loan stock (debentures) on 1 July when the year end is 31 December

The finance cost to be charged to the income statement in year 1 is $

Options:

Question 31

A ledger account is opened with a credit balance of $400. During the period the account is credited with $5,800 and debited with $6,500

What balance will open this account in the following period?

Options:

A.

$300 Credit

B.

$300 Debit

C.

$1,100 Credit

D.

$1,100 debit

Question 32

The formula for calculating payables days is

Options:

A.

cost of goods sold divided by payables x 365

B.

payables divided by purchases x 365

C.

purchases divided by payables x 365

D.

payables divided by cost of goods sold x 365

Question 33

In times of rising prices, the 'FIFO' method of inventory valuation, when compared to the 'Average Cost' method of inventory valuation, will usually produce:

Options:

A.

A lower profit and a lower closing inventory value

B.

A lower profit and a higher closing inventory value

C.

A higher profit and a lower closing inventory value

D.

A higher profit and a higher closing inventory value

Question 34

IAS 2 Inventories does not permit the use of the last in. first out (LIFO) method of valuing inventory In a time of rising prices, which of the following is a reason for this?

Options:

A.

Purchases are overstated

B.

Closing inventory is understated.

C.

Cost of sales are understated

D.

Gross profit is overstated

Question 35

What is the balance of the trading account?

Options:

A.

The gross profit

B.

The revenue value

C.

The closing inventories total

D.

The total income

Question 36

An organization’s cash book has an opening balance in the bank column of $4,850 credit.

The following transactions then took place:

(a) Cash sales of $14,500, including VAT of $1,500.

(b) Receipts from customers of debts of $24,000.

(c) Payments to creditors of debts of $18,000, less 5% cash discount.

(d) Dishonored cheques from customers amounting to $2,500.

The resulting balance in the bank column of the cash book should be:

Options:

A.

$12,550 debit

B.

$14,050 debit

C.

$19,050 credit

D.

$23,750 credit

Question 37

Which one of the following internal controls is designed to prevent errors and fraud?

Options:

A.

Confirmation of payables balances with suppliers.

B.

Requiring cheques over a certain amount to be signed by two signatories.

C.

Bank reconciliations.

D.

External audit.

Question 38

Which of the following is an example of where the materiality convention should be applied?

Options:

A.

Sales to a customer in September, but for which the cash was not received until October.

B.

Inventory of stationery items remaining at the year end.

C.

A proposed change in the method of depreciation of non-current assets.

D.

A two-year construction contract.

Question 39

In a cash flow statement, which one of the following would not be found under the section "cash flows from operating activities"?

Options:

A.

Taxation paid

B.

Interest received

C.

Interest paid

D.

Profit on disposal of non-current assets

Question 40

Refer to the Exhibit.

A company had previously written off one of their receivables that had been declared bankrupt. The administrators of the bankruptcy have now sent a cheque to the company for the full amount originally outstanding. The company now needs to record this receipt.

Which of the following is the correct double entry?

Options:

A.

A

B.

B

C.

C

D.

D

Question 41

Accounting standards are needed so that financial statements will fairly and consistently describe financial performance.

What are accounting standards an example of?

Options:

A.

Principles based accounting

B.

Cash accounting

C.

Cost accounting

D.

Rules based accounting

Question 42

Which of the following are kinds of performance ratios?

Options:

A.

Gross profit margin

B.

Return on capital ratios

C.

Quick ratio

D.

Working capital cycle

Question 43

Which one of the following would not be classified as an efficiency ratio?

Options:

A.

Non-current asset turnover ratio

B.

Inventories days

C.

Payables days

D.

Current ratio

Question 44

In the year ended 31 December 20X1, XYZ receives an email confirming that a major customer has gone into liquidation and will be unable to pay its suppliers.

Which of the following is the impact of adjusting for this event?

Options:

A.

Profits increase and allowance increases.

B.

Receivables decrease and allowance increases

C.

Receivables unchanged and profits decrease

D.

Receivables decrease and profits decrease

Question 45

Which of the following statements is NOT correct?

Options:

A.

A receipts and payments account is the equivalent of an income statement.

B.

A receipts and payments account is the equivalent of a cash book summary.

C.

A receipts and payments account does not include depreciation of non-current assets.

D.

An income and expenditure account is the equivalent of an income statement.

Question 46

The sales ledger control account shows a balance of £236,725, whilst the individual customer balances total £231,472.

One possible explanation for the difference between the two may bE.

Options:

A.

An invoice for £5,253 has been recorded in the sales ledger but not in the sales day book

B.

A payment for £5,253 has been recorded in the cashbook but not in the sales ledger

C.

The sales day book has been overcast by £5,253

D.

The sales daybook has been undercast by £5,253

Question 47

A company is preparing its accounts to 30 November. The latest gas bill received by the company was dated 30 September and included usage charges for the quarter 1 June to 31 August of $5,700 and a service charge of $1,200 for the quarter 1 October to 31 December. It is estimated that the gas bill for the following quarter will be a similar amount.

What will be the amount of the accrual shown in the accounts at 30 November 2006?

Options:

A.

$5,300

B.

$3,400

C.

$3,800

D.

$4,900

Question 48

Refer to the exhibit.

The following is an extract from the trial balance of a business for its most recent year:

Net profit before tax has already been calculated as being £27m. Income tax of £5m is to be provided, and a final dividend of 30p per share is declared.

Using some or all of the figures above, the correct figure of retained profit for the year is

Options:

Question 49

Refer to the exhibit.

Jordan has the following assets and liabilities at 1 January:

What is the capital balance at 1 January?

Options:

A.

$38,000

B.

$14,000

C.

$22,000

D.

$18,000

Question 50

Which THREE of the following internal controls are procedures to help detect errors?

Options:

A.

Spot checks

B.

Segregation of duties

C.

Authorization procedures

D.

Safeguarding assets

E.

Comparison of records with external evidence

F.

Reconciliations

Question 51

Refer to the Exhibit.

Which of the following would be shown in the trial balance for the bank ledger account?

Options:

A.

$20 Debit

B.

$1,070 Debit

C.

$20 Credit

D.

$1,070 Credit

Question 52

External auditors report their opinion to the members of the company after their independent examination of the financial statements.

Which THREE of the following should be included in their opinion?

Options:

A.

If the statement of financial position gives a true and fair view

B.

If the company is successful

C.

If the financial statements have been prepared in accordance with legislation

D.

If the financial statements have been prepared by a qualified accountant

E.

If the income statement gives a true and fair view

F.

If the financial statements are free from fraud

Question 53

Refer to the Exhibit.

Accounting information is required for a wide range of users both internal and external. Each user has a different need for the information.

Which of the following is the correct combination of user and need?

Options:

A.

A

B.

B

C.

C

D.

D

Question 54

DE has the following incomplete non-current register extract at 301 at December 20X7:

What is the useful economic life (UEL) (in years) of this asset which should be entered into the non-current asset register?

Options:

Question 55

A trial balance should be extracted from the ledger accounts prior to preparing the final accounts because:

Options:

A.

It confirms the arithmetical accuracy of the entries made in the ledger accounts

B.

It proves that the entries made in the ledger accounts are all correct

C.

It provides a summary of assets and liabilities

D.

It shows where errors have been made

Question 56

Which of the following methods of inventory valuation is not acceptable in the UK for financial reporting purposes?

Options:

A.

Periodic weighted average

B.

Weighted average

C.

First In First Out (FIFO)

D.

Last in First Out (LIFO)

Question 57

VWX is registered for sales tax in Country B A sales invoice to its mam customer shows the following information:

What journal entry will WVX process to record this transaction in its nominal ledger?

A)

B)

C)

D)

Options:

A.

Option A

B.

Option B

C.

Option C

D.

Option D

Question 58

Refer to the Exhibit.

A club receives the following fees in its first two years of operations:

Entrance fees are to be recognized over a period of 5 years while life membership fees are to be credited over a period of 10 years.

The total amount of fees which will be recognized in the income and expenditure account for each of the two years is:

Options:

A.

Year 1 - £27000 Year 2 - £38500

B.

Year 1 - £27000 Year 2 - £44500

C.

Year 1 - £27000 Year 2 - £45500

D.

Year 1 - £36000 Year 2 - £49000

Demo: 58 questions
Total 393 questions