ICAEW CFAB ACCOUNTING (AG) - CH. 5

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.

Requirement : Which two of the following statements about Anchor Ltd are correct?

• 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.

• The opening balance on the profit and loss ledger account for the next reporting period is £4,000 credit.

• Anchor Ltd has reported a loss for the year of £4,000.

• 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.

• Anchor Ltd has reported a profit for the year of £4,000.

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

• Purchases

• Bank overdraft

• Delivery outwards

• Drawings

Which of the TWO following is the objectives of trial balance?

• assists to determine the mathematical correctness of the book-keeping work done during the period

• to have a balance between debt and equity

• presents to the businessman a consolidated list of all ledger balances

• to record all the financial transactions of a business

Which of the following accounts will be transferred to statement of profit or loss?

• Non-current asset

• Capital account

• Admin Expenses

• Current liability

Which of the following accounts will be transferred to statement of financial position?

• Purchases

• Distribution cost

• Trade receivables

• Revenue

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

• The statement of profit or loss ledger account is a list of all the balances extracted from the business’s accounts.

• Loss for the year is a credit entry in the statement of profit or loss ledger account.

• 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.

• The balances on asset and liability accounts are summarised in an additional ledger account known as the statement of financial position ledger account.

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.

Requirement : What was Plym plc’s gross profit for the year ended 30 June 20X7?

• £19,800

• £31,400

• £4,900

• £16,500

Answer explanation

Revenue 89,400

Purchases (69,600 × 5/6)

(58,000)

Gross profit 31,400

Which of the following items will appear in the statement of profit or loss?

• Purchases

• Current Liabilities

• Current Assets

• Capital account

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

• Land

• Cash

• Receivables

• Prepayments

The following are balances on the accounts of London, 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

Requirement : What is the balance on London’s capital account?

• £66,000

• £59,000

• £62,000

• £64,000

Answer explanation

98,000 - 36,000