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Question Bank - qb accy

icaew (University of Wollongong in Dubai)

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Chapter 1: Introduction to accounting

1 Which of the following best explains what is meant by 'capital expenditure'?
Capital expenditure is expenditure:
A on non-current assets, including repairs and maintenance
B on expensive items over £10,000
C on the acquisition of non-current assets, or improvement in their earning capacity
D on items relating to owners' capital
LO 1d

2 Which of the following should be accounted for as capital expenditure?

A The annual cost of painting a factory floor
B The repair of a window in a building
C The purchase of a vehicle by a garage for re-sale
D Legal fees incurred on the purchase of a building
LO 1d

3 Which of the following items should be treated as capital expenditure in the financial
statements of a sole trader?
A £500 taken by the proprietor to buy himself a music system
B £800 spent on purchasing a new PC to replace his secretary's old one
C £2,000 on purchasing a machine for resale
D £150 paid to a painter for redecorating his office
LO 1d

4 Which of the following is an aspect of relevance, according to the IASB's Conceptual

Framework?
A Neutrality
B Free from error
C Completeness
D Materiality
LO 1a

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5 According to the IASB's Conceptual Framework, which of the following are enhancing
qualitative characteristics?
A Comparability, understandability, timeliness, verifiability
B Consistency, prudence, measurability, verifiability
C Consistency, reliability, measurability, timeliness
D Materiality, understandability, measurability, reliability
LO 1a

6 In relation to the business of a sole trader, which two of the following does the government
and its agencies need to be able to do?
A Establish levels of tax revenue
B Assess whether the business will continue in existence
C Produce national statistics
D Assess the owner's stewardship
E Take decisions about their investment
LO 1a

7 Information about an entity's financial position is primarily provided in:

A the statement of profit or loss
B the statement of financial position
C retained earnings
D the statement of cash flows
LO 1a

8 According to the IASB's Conceptual Framework, information on which two of the following
areas can help users identify the reporting entity's financial strengths and weaknesses?
A The economic resources it controls
B Its financial performance in the past
C The demographic structure of the local economy
D The entity's claims (the entity's liabilities)
E Its management structure
LO 1a

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9 According to IAS 1, Presentation of Financial Statements which two of the following are
objectives of financial statements?
A To show the results of management's stewardship of the resources entrusted to it
B To provide a basis for valuing the entity
C To provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions
D To facilitate comparison of financial performance between entities operating in
different industries
E To assist management and those charged with governance in making timely economic
decisions about deployment of the entity's resources
LO 1a

10 Information is relevant if it is capable of making a difference in the decisions made by users.

According to the IASB's Conceptual Framework, financial information is capable of making
a difference in decisions if it has which of the following?
1 Predictive value
2 Comparative value
3 Historic value
4 Confirmatory value

A 1 and 3 only
B 2 and 4 only
C 1 and 4 only
D 2 and 3 only
LO 1d

11 The accounting principle which, in times of rising prices, tends to understate asset values
and overstate profits, is:
A going concern
B accruals
C consistency
D historical cost
LO 1d

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12 Which of the following statements about accounting concepts and the characteristics of
financial information is correct?
A Financial statements are required to give a true and fair view. These terms have clear
definitions which are included in IAS 1, Presentation of Financial Statements.
B The historical cost concept means that only items capable of being measured in
monetary terms can be recognised in financial statements.
C 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.
D A specific disclosure requirement of an IFRS Standard need not be satisfied if the
information is immaterial.
LO 1d

13 Listed below are two comments on accounting conventions.

1 According to the IASB's Conceptual Framework, financial information must be either
relevant or faithfully represented if it is to be useful.
2 Materiality means that only items having a physical existence may be recognised as
assets.
Which, if either, of these comments is correct?
A 1 only
B 2 only
C Both of them
D Neither of them
LO 1d

14 Which of the following is the best description of fair presentation in accordance with IAS 1,
Presentation of Financial Statements?
A The financial statements are accurate.
B The financial statements are as accurate as possible given the accounting systems of
the organisation.
C The directors of the company have stated that the financial statements are accurate
and correctly prepared.
D The financial statements are reliable in that they reflect the effects of transactions, other
events and conditions.
LO 1d

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15 Which of the following definitions for the going concern concept in accounting is the
closest to the definition given in IAS 1, Presentation of Financial Statements?
A The directors do not intend to liquidate the entity or to cease trading in the
foreseeable future.
B The entity is able to pay its debts as and when they fall due.
C The directors expect the entity's assets to yield future economic benefits.
D Financial statements have been prepared on the assumption that the entity is solvent
and would be able to pay all creditors in full in the event of being wound up.
LO 3b

16 According to IAS 1, Presentation of Financial Statements, compliance with IFRS Standards

will normally ensure that:
A the entity's inventory is valued at net realisable value
B the entity's assets are valued at their break-up value
C the entity's financial statements are prepared on the assumption that it is a going
concern
D the entity's financial position, financial performance and cash flows are presented fairly
LO 1d, 3b

17 The directors of Lagon plc wish to omit an item from the company's financial statements on
the grounds that it is commercially sensitive. Information on the item would influence the
users of the information when making economic decisions. According to IAS 1, Presentation
of Financial Statements the item is said to be:
A neutral
B prudent
C material
D understandable
LO 1a

18 Which three of the following are fundamental principles of the IESBA Code of Ethics for
Professional Accountants?
A Integrity
B Objectivity
C Independence
D Confidentiality
E Courtesy
LO 1b

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19 Which of the following statements is correct?

A The ICAEW Code of Ethics applies to its members only.
B The ICAEW Code of Ethics applies to its members and employees of member firms
only.
C The ICAEW Code of Ethics applies to its members, employees of member firms and
ICAEW students.
D The ICAEW Code of Ethics applies to its members, employees of member firms,
ICAEW students and all other members of UK accountancy bodies.
LO 1b

20 Which of the following statements best describes ethical guidance in the UK?
A Ethical guidance provides a set of rules which must be followed in all circumstances.
B Ethical guidance is a framework containing a combination of rules and principles, the
application of which is dependent on the professional judgement of the accountant
based on the specific circumstances.
C Ethical guidance provides a set of principles which can be applied at the discretion of
the accountant.
D Ethical guidance is a series of legal requirements.
LO 1b

21 There are two main approaches to a code of professional ethics: a rules-based ethical code
and a code based upon a set of principles.
Indicate whether the following statements are true or false.
A code based upon a set of principles requires a professional accountant to comply with a
set of specific rules.
A True
B False
A rules-based code requires a professional accountant to identify, evaluate and address
threats to compliance with fundamental ethical principles.
C True
D False
The ICAEW uses a rules-based approach.
E True
F False
LO 1b

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Chapter 2: The accounting equation

1 The accounting equation can be written as:
A Assets + profits – drawings – liabilities = closing capital
B Assets – liabilities – drawings = opening capital + profit
C Assets – liabilities – opening capital + drawings = profit
D Opening capital + profit – drawings – liabilities = assets
LO 1d

2 The capital of a sole trader would change as a result of:

A a credit customer paying by bank transfer
B raw materials being purchased on credit
C non-current assets being purchased on credit
D personal petrol being paid for out of the business's petty cash
LO 1d, 3a

3 A business can make a profit and yet have a decreased bank balance. Which 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
LO 1d, 3a, 3b

4 The purpose of the financial statement that lists an entity's total assets and total
capital/liabilities is to show:
A the financial performance of the entity over a period of time
B the amount the entity could be sold for in liquidation
C the amount the entity could be sold for as a going concern
D the financial position of the entity at a particular moment in time
LO 3b, 3a

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5 A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit customer
in respect of its account.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Liabilities only
C Assets only
D Assets, liabilities and capital
LO 1d

6 A sole trader purchases goods on credit.

Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only
LO 1d

7 A sole trader borrows £10,000 from a bank.

Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only
LO 1d

8 A sole trader sells goods for cash for £500 which had cost £300.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only
LO 1d

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9 A sole trader increases the business's number of motor vehicles by adding his own car to
the business's fleet.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Capital only
C Assets and capital
D Assets and liabilities
LO 1d

10 Which three of the following are elements of financial statements as identified by the IASB’s
Conceptual Framework?
A Income
B Expenses
C Profits
D Losses
E Obligations
F Resources
G Equity
LO 1d

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Chapter 3: Recording financial transactions

1 A business paid out £12,450 in net wages to its employees. In respect of these wages, the
following amounts were shown in the statement of financial position.
£
PAYE payable 2,480
National Insurance payable – employees' 1,350
– employer's 1,500
No other deductions were made.
Employees' gross wages, before deductions, were:
A £12,450
B £27,450
C £16,280
D £17,780
LO 1d

2 Which of the following is a source document that would be entered into the accounting
system?
A Debit note
B Credit note
C Sales order
D Purchase order
LO 1c

3 Which of the following best explains the imprest system of petty cash?
A Each month an equal amount of cash is transferred into petty cash.
B The exact amount of petty cash expenditure is reimbursed at intervals to maintain a
fixed float.
C Petty cash must be kept under lock and key.
D The petty cash total must never fall below the imprest amount.
LO 1c, 1d

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4 On 1 April Amara had a balance of £100 (the imprest amount) in petty cash. At the end of April
she has vouchers totalling £38, a receipt for a refund for stationery of £4 and a note to say that
an employee was reimbursed £12 in respect of postage costs but no voucher was issued.
How much does Amara need to reinstate her imprest balance at 30 April?
A £34
B £46
C £54
D £66
LO 1c

5 The following data has been extracted from the payroll records of Kleen Ltd for the month
of February 20X1.
£
PAYE 17,000
Employer's NIC 7,500
Employees' NIC 6,000
Cash paid to employees 50,000
The wage expense for the month is:
A £50,000
B £56,000
C £74,500
D £80,500
LO 1c, 1d

6 When a purchase invoice is received from a supplier which two of the following documents
would the invoice be checked to?
A Sales order
B Purchase order
C Remittance advice
D Goods received note
E Credit note
LO 1c

7 George purchases goods on credit from Hardeep for £1,000. £100 of these goods are
defective and George returns them to Hardeep. What document would Hardeep issue to
George in respect of the returned goods?
A Invoice
B Remittance advice
C Credit note
D Delivery note
LO 1c

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8 Oscar downloads his bank transaction report for the day. The report shows a cash payment
of £412 which the computerised accounting system has not been able to match to a
transaction.
The unmatched payment is most likely the result of:
A the purchase of a new laptop for £412
B payment to a regular credit supplier for an invoice totalling £412
C a receipt from a credit customer in respect of an invoice for £450 on which a prompt
payment discount of £38 was taken
D the payment of net wages of £412 which is consistent with the payroll ledger
LO 1c

9 A business has the following payroll costs for a month:

£
Gross pay 112,450
Income tax deducted 15,800
Employees' national insurance 9,810
Employer's national insurance 11,200
What is the net amount paid to employees for the month?
A £75,640
B £91,440
C £102,640
D £86,840
LO 1c, 1d

10 The petty cash float in a business has an imprest amount of £200. At the end of March
vouchers in the petty cash box totalled £136 and the amount of cash remaining in the box
was £54.
Which of the following explains the difference?
A A petty cash voucher for £10 is missing.
B An employee was given £10 too little when making a petty cash claim.
C An employee reimbursed petty cash with £10 in respect of postage stamps used, but
no voucher was prepared.
D A voucher for £10 was put in the box but no payment was made to the employee.
LO 1c

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11 A business has the following payroll costs for a month:

£
Gross pay 38,600
Income tax 5,400
Employees' national insurance 3,100
Employer's national insurance 3,500
What is the wages cost to the business for the month?
A £38,600
B £42,100
C £47,100
D £50,600
LO 1c, 1d

12 Which two of the following are source documents that contain information that will be
entered into a business's accounting system?
A Goods received note
B Invoice to a customer
C Purchase order to a supplier
D Cheque to a supplier
E Delivery note to a customer
LO 1c

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Chapter 4: Ledger accounting and double entry

1 Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate
of 20%. Richard sells a customer goods on credit for £4,800 exclusive of VAT.
What is the double entry to record this ?
A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760
B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
LO 1d, 2c

2 What transaction is represented by the entries: Debit rent, Credit landlord?

A The receipt of rental income by the business
B The issue of an invoice for rent to a tenant
C The receipt of an invoice for rent payable by the business
D The payment of rent by the business
LO 1d, 2d

3 In double-entry bookkeeping, which of the following statements is true?

A Credit entries decrease liabilities and increase income.
B Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.
D Debit entries decrease expenses and increase assets.
LO 1d

4 A debit balance of £3,000 brought down on A Ltd's account in B Ltd's books means that B
Ltd owes A Ltd £3,000.
A True
B False
LO 1d

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5 Crimson plc paid an invoice from a credit supplier and took advantage of the early
settlement discount offered. When the invoice was received and recorded, Crimson plc did
not expect to take the discount.
The journal entry to record the payment of the invoice is:
A Debit Payables, Credit Purchases, Credit Cash at bank account
B Debit Payables, Credit Cash at bank account
C Debit Cash at bank account, Debit Purchases, Credit Payables
D Debit Cash at bank account, Credit Purchases, Credit Payables
LO 1d

6 Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655.
Purchases for the period totalled £254,192 (£31,590 relating to cash purchases).
Total payments recorded in the payables ledger for the period were:
A £212,130
B £233,074
C £243,720
D £264,664
LO 1d, 2c

7 What is the correct double entry to record an invoice raised to a credit customer who is not
expected to take advantage of an early settlement discount?
A Debit Revenue, Credit Receivables
B Debit Payables, Credit Revenue
C Debit Receivables, Credit Revenue
D Debit Revenue, Credit Payables
LO 1d, 2c

8 Which of the following could be a debit entry in the payables account?

A Output VAT
B Cash purchases total
C Payments made to suppliers
D Early settlement discounts given to customers
LO 1d, 2c

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9 A payment has been received from a credit customer in settlement of an invoice. The
customer was expected to take advantage of an early settlement discount offered, however,
payment was not made within the required timeframe and the discount was not taken.
The correct double entry to record the receipt of funds from the customer in full settlement
of the invoice is:
A Debit Cash at bank, Credit Receivables, Credit Revenue
B Debit Cash at bank, Debit Revenue, Credit Payables
C Debit Receivables, Debit Revenue, Credit Cash at bank
D Debit Receivables, Credit Revenue, Credit Cash at bank
LO 1d, 2c

10 A business which is registered for VAT received the following invoice from one of its VAT
registered suppliers:

Invoice: 7035
Date: 20 December 20X0
£
Goods: 100 @ £10 1,000
Less trade discount (50)
950

A further discount of £50 will be allowed if payment is received within 14 days.

Assume the business is not expected to make the payment within 14 days and the VAT rate
is 20%.
What amount of VAT should have been charged on the invoice?
A £180
B £190
C £200
D £210
LO 1c

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Chapter 5: Preparing basic financial statements

1 Anchor Ltd is preparing its financial statements. After transferring the balances on all the
income and expense ledger accounts to the profit and loss ledger account, the total credits
in the profit and loss ledger account exceed the total debits by £4,000.
Which two of the following statements about Anchor Ltd are correct?
A Anchor Ltd has made a loss for the year of £4,000.
B Anchor Ltd has made a profit for the year of £4,000.
C To begin to calculate the closing capital account balance, Anchor Ltd should credit the
capital account and debit the profit and loss ledger account with £4,000.
D The opening balance on the profit and loss ledger account for the next reporting
period is £4,000 credit.
E The closing balance on the profit and loss ledger account of £4,000 should be
deducted from the capital account to give the profit for the year.
LO 3c

2 Which of the following would be classified as a non-current asset?

A Cash
B Prepayments
C Land
D Receivables
LO 3c

3 Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a
total of £89,436 excluding VAT and purchases goods from suppliers for a total of £86,790
including VAT.
What is the net amount shown in Gerrard Ltd's VAT account at the end of April?
A £3,422 debit
B £2,452 debit
C £3,422 credit
D £2,452 credit
LO 3c

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4 Which of the following statements concerning preparation of financial statements is true?

A The balances on income and expense accounts are brought down at the end of the
accounting period to be carried forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger
account known as the statement of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted from
the business's accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.
LO 3c

5 A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of
£7,200, credit sales of £16,500 and received £15,300 from his credit customers.
The balance on his trade receivables account at the end of May was:
A £1,500
B £3,900
C £8,700
D £11,100
LO 3c

6 Which of the following would be a credit balance in the trial balance?

A Bank overdraft
B Drawings
C Purchases
D Delivery outwards
LO 1f

7 Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the
year to 30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales
of £89,400 excluding VAT. There was no change in the figures for opening and closing
inventory in the statements of financial position as at 30 June 20X6 and 20X7.
What was Plym plc's gross profit for the year ended 30 June 20X7?
A £19,800
B £4,900
C £31,400
D £16,500
LO 3c

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8 Violet had an opening trade payables balance of £3,450 on 1 December. During the month
of December, she sold goods totalling £6,780 to customers on credit, purchased goods
totalling £5,100 from suppliers on credit and made cash purchases of £400. She also
received £3,900 from credit customers and made payments to credit suppliers of £4,200.
What was the balance on Violet's trade payables account at the end of December?
A £4,350
B £6,330
C £4,750
D £2,550
LO 3c

9 The following are balances on the accounts of Luigi, a sole trader, as at the end of the
current financial year and after all entries have been processed and the profit for the year
has been calculated.
£
Non-current assets 85,000
Trade receivables 7,000
Trade payables 3,000
Bank loan 15,000
Accumulated depreciation, non-current assets 15,000
Inventory 4,000
Accruals 1,000
Prepayments 2,000
Bank overdraft 2,000

What is the balance on Luigi's capital account?

A £59,000
B £66,000
C £62,000
D £64,000
LO 3c

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