Extracted initial trial balance of Summer plc at 31 March 20X8 is as follow

Equity share capital (£1 shares): 400,000

Share premium: £100,000

Retained earnings (opening): £61,000

Equity dividend paid: £15,000

Profit for the year: £55,440

Retained earnings to be presented in the SOFP is

Any under-provision from the previous reporting period increases the tax expense for subsequent reporting period

In the course of preparing a statement of cash flows, the following figures are to be included in the calculation of net cash flows from operating activities

Depreciation charges: 900,000

Impairment losses: 80,000

Profit on sale of non-current assets: 40,000

Increase in inventories: 130,000

Decrease in trade receivables: 100,000

Increase in trade payables: 80,000

What will the net effect of these items be in the statement of cash flows

On 1 June 20X1 Quandry bought a non-current asset for £50,000 which had an estimated useful life of 10 years and a residual value of £2,000. Quandry's depreciates its non-current assets on a straight line basis. Quandry's reporting period is the 12 months ended 31 December.

On 1 January 20X4 the accountant determined that the asset's remaining useful life should be revised to eight years from that date with no residual value. An impairment review at that date shows that the recoverable amount of the asset is considered to be only £25,000.

What is the total depreciation and impairment loss charge for this asset in 20X4? 

The called-up share capital of the company is the par value of the shares that have actually been issued to shareholders

If there are changes in expected use of assets (estimated useful life or revaluation), the remaining carrying amount is depreciated under the new method and only current and future periods are affected

The following extracts are taken from the financial statements of Radio for the years ended 31 March 20X4 and 20X5: (unit:  £)

Statement of financial position extract:

                                                                20X5      20X4

Inventories:                                      310,600     363,700

Trade receivables                           312,000     299,500

Trade payables                              277,200      269,400

Statement of profit or loss extract: 

Profit from operations: 797,200

Finance charge:  (15,000)

Profit before tax: 782,200

Income tax:  (219,000)

Profit for the period: 563,200

What is the cash generated from operations to be included in the statement of cash flows for the year ended 31 March 20X5?

Yvette purchased some plant on 1 January 20X0 for £38,000. The payment for the plant was correctly entered in the cash at bank account but was incorrectly entered on the debit side of the plant repairs account.

Yvette charges depreciation monthly on the straight-line basis over five years and assumes no scrap value at the end of the life of the asset.

How will Yvette's profit for the year ended 31 March 20X0 be affected by the error?

In the Statement of financial position under IFRS, bank overdrafts, which are technically repayable on demand, are called…

When a share is issued at a premium to their par value, the excess over par value should be recorded at share premium item

The retained earnings at 30 June 20X6 are £1,080,000. The profit for the year is £455,000. What was the total dividend paid during the year? 

Finance costs include: interest payable on bank loans and overdrafts; and interest on debt securities

In the Statement of financial position under IFRS, all tangible assets (including land and buildings) are combined under the heading…

The statement of changes in equity is an optional financial statement

Which THREE of the following would be included in current liabilities in a company's financial statements? 

There are 6 steps in the recognition of revenue

At 30 June 20X2 Brandon plc's capital structure was as follows:

500,000 equity shares of 25p each: £125,000

Share premium: £100,000

In the year ended 30 June 20X3 the company made a 1 for 2 rights issue at £1 per share and this was taken up in full. Later in the year the company made a 1 for 5 bonus issue, using the share premium for the purpose.

What was Brandon plc's capital structure at 30 June 20X3? 

In the Statement of financial position under IFRS, cash in hand and at bank are combined as 

Journal entry to remove excess provision is: Dr. Expenses/ Cr. Current liabilities

A company is preparing its financial statements for the year ending 31 March 20X7. The initial trial balance has the following figures relating to tax:

Income tax payable at 1 April 20X6: £14,300

Income tax paid during the year ended 31 March 20X7:  £12,700

 The estimated income tax liability for the year ended 31 March 20X7 is £15,600.

What is the income tax figure for inclusion in the company's statement of profit or loss for the year ended 31 March 20X7? 

Irredeemable preference share is the shares in which the company is entitled to buy back from its shareholders 

The issue price is the price at which the share was originally issued by the company to raise capital

In the Statement of financial position under IFRS, income tax payable is shown as a separate item under current liabilities

According to IAS 36 – Impairment of assets, when an impairment loss is recognized, the asset’s remaining useful life and residual value should be reviewed and revised.

Cost of sales includes: Purchase, wage of production staffs, wages of distribution staffs and depreciation of production NCA 

Sanders plc issued 50,000 equity shares of 25p each at a premium of 50p per share. The cash received was correctly recorded but the full amount was credited to the share capital account. Which of the following journals corrects this error? 

Other income includes: dividend received, interest received, insurance claimed proceeds and proceed from share issuance

Directly attributable cost of a PPE includes: purchase price, delivery cost, professional fee, testing and installation cost and staff training costs

The retained earnings of Zippy plc at 1 January 20X8 were £926,450. The retained earnings at 31 December 20X8 are £1,426,980. During the year, Zippy plc paid a dividend of £312,000 and made a bonus issue of 500,000 25p ordinary shares from retained earnings.

What is Zippy plc's profit for the year ended 31 December 20X8? 

Share premium may be reduced by a bonus of issue

Bonus issue: new shares are offered to existing owners in proportion to their existing shareholding, usually at a discount to the current market value

Beehive plc bought a car on 1 January 20X7 for £5,000 and decided to depreciate it at 30% per annum on a reducing balance basis. It was disposed of on 1 January 20X9 for £3,000.

The net effect on the statement of profit or loss for the year ended 31 December 20X9 is a credit of

Which THREE of the following would be included in current liabilities in a company's financial statements? 

At 30 June 20X5 Meredith plc had the following balances:

Equity shares of £1 each: 100

Share premium: 80

During the year ended 30 June 20X6, the following transactions took place:

1 September 20X5: A 1 for 2 bonus issue of equity shares, using the share premium.

1 January 20X6: A 2 for 5 rights issue at £1.50 per share, taken up fully paid.

What are the balances on each account at 30 June 20X6? 

An extract from a statement of cash flows prepared by a trainee accountant is shown below:

Cash flows from operating activities:

Profit before tax: £28

Depreciation: £(9)

Decrease in inventories: £13

Increase in trade receivables: £(4)

Increase in trade payables: £(8)

Cash generated from operations: £20

 Which of the following criticisms of this extract are correct?

A. Depreciation charges should have been added, not deducted

B. Decrease in inventories should have been deducted, not added

C. Increase in trade receivables should have been added, not deducted

D. Increase in trade payables should have been added, not deducted

Bonus issue could increase cash inflow for the company

Any over-provision from the previous reporting period reduces the tax expense for subsequent reporting period

In the Statement of financial position under UKGAAP, trade receivables and any other receivables (including VAT due) are combined as…

A bank overdraft is treated as a current liability in the SOFP

In the UK GAAP balance sheet, trade payables and other payables (including VAT, PAYE/NIC and sales commission owed, interest payable and accruals) are combined as…

In the UK GAAP profit and loss account, income is equivalent to revenue

In the UK GAAP balance sheet, tangible fixed assets are equivalent to non-current assets

Any balance owed to HMRC in respect of VAT or PAYE is disclosed as other payables, not as tax payable

In the UK GAAP balance sheet, creditors falling due after more than one year are equivalent to current liabilities

At 31 December 20X8 the capital structure of Pilot Ltd was as follows:

- 200,000 ordinary shares of £0.50 each 100,000

- Share premium account £360,000

During 20X9, the company made a 1 for 2 bonus issue, using the share premium account for the purpose, and later issued for cash another 120,000 shares at £1.60 per share.

Calculate the balances on the company’s share capital and premium accounts as at 31 December 20X9.

A company made an issue for cash of 1,000,000 50p shares at a premium of 30p per share. Which of the following journal entries correctly records the issue?

The equity capital of a limited liability company comprises:

The following figures relating to tax of Plot plc are provided:

- Tax payable at 1 April 2010 £28,600

- Tax paid during the year ended 31 March 2011 £25,400

- The estimated tax liability for the year ended 31 March 2011 is £31,200

Calculate the tax expense in the statement of profit or loss and the tax due at 31 March 2011 which will be included in the SFP.

A company buys a machine on 31 August 20X0 for £22,000. It has an expected life of seven years and an estimated residual value of £1,000. On 30 June 20X4 the machine is disposed of for £9,000. The company's year-end is 31 December. Its accounting policy is to charge depreciation using the straight-line method with a proportionate charge in the years of acquisition and disposal.

What is the profit or loss on disposal of the machine which will appear in the statement of profit or loss for the year ended 31 December 20X4?

Which of the following statements is correct?

Which of the following items could appear as items in a company’s statement of cash flows?

1. A bonus issue of shares

2. A rights issue of shares

3. Revaluation of non-current assets

4. Dividends paid

An employee dismissed in August 20X3 began an action for damages for wrongful dismissal in October 20X3.

She is claiming £100,000 in damages. Aluki is resisting the claim and the company’s lawyers have advised that the employee has a 30% chance of success in her claim.

The financial statements currently include a provision for the £100,000 claim.

How should this claim be accounted for in the financial statements for the year ended 30 September 20X3

The cash generated from operations of a company is shown below:

Profit before tax: £8,640

Depreciation charges: £(2,160)

Proceeds of sale of non-current assets: £360

Increase in inventories: £(330)

Increase in trade payables: £440

The following criticisms of the above extract have been made:

1. Depreciation charges should have been added, not deducted.

2. Increase in inventories should have been added, not deducted.

3. Increase in trade payables should have been deducted, not added.

4. Proceeds of sale of non-current assets should not appear in this part of the statement of cash flows. 

Which of these criticisms are valid? 

Sunil started business on 1 December 20X3 with cash of £5,000. He has not yet prepared a full set of financial statements. As at the end of his first reporting period, 30 November 20X4, he has cash at bank of £1,726. He made sales of £33,498 during the period and paid expenses in cash of £19,385. He has no outstanding creditors at the end of the period, and has no fixed assets or stock, but one customer owes him £2,387.

 Assuming Sunil made no other capital injections but took drawings of £15,000 in the period, identify his profit for the 12 month reporting period to 30 November 20X4 and his net assets at the end of the period on an accrual basis. 

Once development costs have been capitalised, the asset should be amortised in accordance with the accruals concept over its finite life.

Repairing cost of an item of manufacturing equipment has been recorded as capital expenditure. In this case, non-current asset will be understated.

John bought a car to use for his business. He made some enhancements to it by adding some extra equipment such as a new music system & LCD display. In this case, the costs should be treated as revenue expenditure

When preparing financial statements under IFRS, dividends paid and proposed should be included in the statement of comprehensive income.

When preparing financial statements under IFRS, the statement of comprehensive income must show separately any material profit or loss from operations discontinuing during the year.

When preparing financial statements under IFRS, a material profit or loss on the sale of part of the entity must appear in the statement of comprehensive income as an extraordinary item.

A business may appear profitable on its statement of profit or loss, however if its cash outflow exceeds its cash inflow over a prolonged period then it will not survive.

Sanders plc issued 50,000 equity shares of 25p each at a premium of 50p per share. The cash received was correctly recorded but the full amount was credited to the share capital account. The journal entry to correct this error is

DEBIT Share premium    £25,000

 CREDIT Share capital    £25,000 

The asset register showed a total carrying amount of £67,460. A non-current asset costing £15,000 had been sold for £4,000, making a loss on disposal of £1,250.

The balance on the asset register after accounting for the disposal is

At the beginning of September, Barney & Co were owed £200 in rent. At the end of September, they were owed £400. £800 cash for rent was received during September. What entry will be made in the statement of profit or loss for September for rent receivable?

In the year ended 31 December 20X7 Bobby traded in for £3,430 a vehicle costing £6,000 on 1 November 20X5 against the cost (£4,800) of a replacement vehicle. The balance due for the new vehicle has been paid in cash and debited to the cost of vehicles account and credited to cash at bank.

What net adjustment is required to the company's cost of vehicles account as a result of this transaction?

Which of the following statements about intangible assets in public company financial statements are correct?

1. Internally generated goodwill should not be capitalised

2. Purchased goodwill should normally be amortised through the statement of profit or loss

3. Development expenditure must be capitalised if certain conditions are met

Arcording to IAS 36 – Impairment of assets, the recoverable amount of an asset is the higher of its market value and its fair value less cost to disposal

A firm made the following rent payments.

·               £9,000 for the six months ended 31 March 20X6

·               £15,000 for the six months ended 30 September 20X6

·               £11,196 for the 12 months ended 30 September 20X7

The charge to the statement of profit or loss for the 12-month reporting period ended 31 December 20X6 was: 

A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven years and a residual value of £1,000. On 30 June 20X4 the machine is sold for £9,000 cash which has been recorded correctly in the cash at bank account, however a suspense account was opened to record the other side of the transaction. The company's accounting policy is to charge depreciation monthly using the straight-line method, with depreciation charged in the month of purchase but not the month of disposal.

What journal entry is required to correctly record the disposal of the machine and to remove the suspense account?

A company purchased a car for £18,000 on 1 January 20X0. The car was traded in on 1 January 20X2. The new car has a list price of £30,000 and the garage offered a part-exchange allowance of £5,000.

The company provides depreciation on cars using the reducing balance method at a rate of 25% per annum. What loss on disposal will be recognised in the statement of profit or loss for the year ended 31 December 20X2?

Marcellus acquired new premises at a cost of £375,000 on 1 January 20X1. Marcellus paid the following further costs during the year ended 31 December 20X1.

Costs of initial adaptation: 20,850

Legal costs relating to purchase: 1,800

Monthly cleaning contract: 14,400

Office furniture: 9,750

What amount should appear as the cost of premises in the company's statement of financial position at 31 December 20X1? 

On 1 January 20X4 Joffa plc purchased a new machine at a cost of £96,720. Delivery costs were £3,660 and internal administration costs of £9,450 were incurred. At that time Joffa plc planned to replace the machine in five years, when it would have no value, and to depreciate the machine on a straight-line basis.

Joffa plc decides on 1 January 20X6 that the machine only has one remaining year of useful life. There is no change to the residual value at the end of its life.

How much depreciation will be charged in respect of this machine in Joffa plc's statement of profit or loss for the year ended 31 December 20X6?

When an impairment loss is recognized, the asset’s remaining useful life and residual value should be reviewed and revised.

Beta plc purchased some plant and equipment on 1 July 20X1 for £20,000. The scrap value of the plant at the end of its 10-year useful life is £2,000. Beta plc's policy is to charge depreciation monthly on the straight-line basis.

The journal entry to record the depreciation charge on the plant in Beta's statement of profit or loss for the reporting period of 12 months ending 30 September 20X1 should be:

Depreciation is the systematic allocation of the cost of an asset, less its residual value over its useful life

In the year ended 31 December 20X4, B Ltd received cash of £318,600 from subscribers to its website. Detail of subscriptions in advance and in arrears at the beginning and end of 20X4 are as follows:

31/12/20X4:

Subscriptions received in advance: 28,400

Subscriptions owing: 18,300

31/12/20X3:

Subscriptions received in advance: 24,600

Subscriptions owing: 16,900

All subscriptions owing were subsequently received.

What figure for subscriptions income should be included in the statement of profit or loss of B Ltd for 20X4?

ABC, whose reporting period is the 12 months ended 31 December, has charged depreciation monthly at the rate of 10% per annum on cost on an item of plant bought on 1 September 20X0 costing £30,000. The depreciation method was changed from straight line to 10% reducing balance at the end of 20X3.

The depreciation charge on this asset for 20X5 was

Your firm bought a machine for £5,000 on 1 January 20X1, when it had a useful life of four years and a residual value of £1,000. Straight-line depreciation is to be applied on a monthly basis. On 31 December 20X3, the machine was sold for £1,600.

The amount to be entered in the 20X3 statement of profit or loss for profit or loss on disposal is

On 5 May 20X8 Portals pays a rent bill of £1,800 for the 18 months ended 30 June 20X9. What is the charge in the statement of profit or loss and the entry for rent in the statement of financial position in respect of the 12 month reporting period ended 31 March 20X9? 

The year-end of Murphy plc is 30 November 20X1. The company pays for its gas by a standing order of £600 per month. It had an opening accrual of £400 and a closing accrual of £500.

What is the correct charge for gas to be included in Murphy Plc's statement of profit or loss for the year ended 30 November 20X11. The year-end of Murphy plc is 30 November 20X1. The company pays for its gas by a standing order of £600 per month. It had an opening accrual of £400 and a closing accrual of £500.

What is the correct charge for gas to be included in Murphy Plc's statement of profit or loss for the year ended 30 November 20X1

Cataract plc purchases a machine for which the supplier's list price is £56,000. Cataract plc pays 46,000 in cash and trades in an old machine, which has a carrying amount of £16,000. It is the company’s policy to depreciate machines at the rate of 10% per annum on cost.

What is the carrying amount of the machine after one year?

On 1 January 20X5 a company purchased some plant.

The invoice showed:

Cost of plant: 48,000

Delivery to factory: 400

One year warranty covering breakdown during 20X5: 800

Modifications costing £2,200 were necessary to enable the plant to be installed.

What amount should be capitalised for the plant in the company’s accounting records?

The following information relates to the disposal of two machines by Paddock. 

Machine 1: Cost: 30,000, Disposal proceeds: 22,500; Profit/(loss) on disposal: 7,500

Machine 2: Cost: 35,000, Disposal proceeds: 20,000; Profit/(loss) on disposal: (10,000)

What was the total carrying amount of both machines sold at the date of disposal? 

Derek plc purchased a van on 1 October 20X0 for a total cost of £22,000 by paying £17,500 cash and trading in an old van. The old van had cost £20,000 and the related  accumulated depreciation was £14,200.

The loss on disposal of the old van in Derek plc s statement profit or loss for the year ended 31 December 20X0 is

Materials purchased and used by Pola & Co for repairs to office buildings have been included in the draft financial statements as purchases. The necessary amendment will: 

A business with a reporting period of the 12 months ended 30 June buys a non-current asset on 1 July 20X3 for £200,000. Depreciation is charged at 15% per annum on the reducing balance basis. On 30 June 20X5 the asset was sold for £54,800. What was the loss on sale of the asset? 

Journal entry to set up accrual is: Dr. Accrual/ Cr. Expenses

The journal entry to reverse prepayments at the beginning of the subsequent period is: Dr Expenses/Cr Prepayments

Accrued income arises when income has been received in arrears at the end of the reporting period

Journal entry to set up prepayment is: Dr. Expenses/ Cr. Prepayment

The basic principle behind accrual accounting is to record revenues and expenses regardless of payment

Residual value is the estimated amount that the entity would obtain from disposing of the asset, after deducting estimated disposal cost

Journal entry to set up prepayment is: Dr. Prepayment/ Cr. Expenses

Deferred income arises when income has been received in arrears at the end of the reporting period

Accruals are expenses incurred but not yet paid

Prepayments are expenses which have been paid in one reporting period, but are not charged against profit until a later period, because they relate to that later period.

According to IAS 08 – Accounting policies, changes in accounting estimates, and errors, change from one depreciation method to another is considered a change in accounting policy

Cost of advertising and irrecoverable debt expenses should be included in distribution costs

Par value is the price at which the share was originally issued by the company to raise capital

The issued share capital of the company is the par value of the shares that have actually been issued to shareholders

The called-up share capital of the company is the par value of the shares that have actually been issued to shareholders

In the UK GAAP balance sheet, trade receivables and any other receivables (including VAT due) are combined as…

In a partnership, the journal entry for accrued interest on a partner's loan is

DEBIT Interest expense

CREDIT Current account 

In a partnership, the journal entry for partner's drawings is:

DEBIT Drawings accounts 

CREDIT Current accounts  

In a partnership, each partner's total profit share is accounted for as follows

DEBIT Profit and loss account

CREDIT Capital accounts (balance sheet)

In a partnership, the current account increases when the partnership makes profits.

In a partnership, the current account decreases when the partnership makes profits.

Rights issues of shares do not feature in statements of cash flows