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GENERAL REVISION
MULTIPLE-CHOICE
TEST
This test should be preceded by a thorough revision of the whole course.
In items 1-48, state which option best answers the question.
1 Reasons for giving special consideration to cash accounting procedures include all of the following except the a. security problems involved b. large number of transactions involved c. possibility of fraud d. reliance on different accounting principles rather than on non--cash transactions 2 The profit or loss for a bar operated by a social club would be calculated in the club's a. trading account b. profit and loss account c. receipts and payments account d. income and expenditure account
3 If shares are sold by a company for more than their par value, they are said to have been issued at a a. discount b. premium c. bonus d. surplus
4 The term factory overheads does not include a. factory lighting b. foremen's salaries c. depreciation of machinery d. cost of raw materials
5 Working capital is a. current assets minus current liabilities b. total assets minus total liabilities c. current assets minus total liabilities d. total assets minus current liabilities
6 Invoices received for goods purchased on credit from s uppl iers would first b e ente red in the a. purchases day book b. sales day book c. purchases account d. sales account
7 The total of the discount column on the credit side of a three-column cash book is taken to the a. debit of discount-allowed accou nt b. debit of discount-received account c. credit of discount-allowed account d. credit of discount-received account
8 A trader buys goods for £500 less 20% trade discount and 10 % cash discount one month. If he settles three months later, he would pay a. £ b. £
c. £
d. £
9 John is paid £8 an hour for a forty-hour week. Overtime is paid at time-and-a-half and all work on Sundays at double time. Last week John worked six hours overtime plus two hours on Sunday. His gross earnings for the week were
a. £
b. £ c. £ d. £ 10 A company's profit remaining after tax appropriations is usually a. added to capital in the balance sheet b. divided between the shareholders as dividends c. partly paid out as dividends , and the remainder credited to capital account d. partly paid out as dividends , and the remainder added to reserves
11 The object of a manufacturing account is to find the a. prime cost b. cost of production c. factory overhead cost d. profit on manufacture
12 Which of the following accounts is not a personal account? a. Mechanical Diggers Ltd b. A. Johnson c. Returns-in d. Scottish Trading Ltd
13 During its first year of operation, a company purchased
stock as follows :
10 Jan 31 July 30 Nove mber
1000 tonnes at £5 per tonne 2000 tonnes at £10 per tonne 500 tonn es at £20 pe r tonne
Generalrevision
At 31 Decemberthe firmhad 3000 tonnes^ in stock.The value of this stock on a^ FIFO^ basisis a. £ b. £ c. £ d. £
14 Atrader'sbookdebtsamount to £10 000 withanexisting bad-debtsprovisionof£ 1200. To adjust the provision^ to 10% ofbookdebts, thetraderwouldneedto a. debitprofitandloss account with £ b.creditprofitandloss account with £ 1000 c. debitprofitandloss account with £ 1000 d.creditprofitandloss account with £
15 Acompany'ssalesfor theyearamountedto £39 000 and thisrepresentedamark-upof 30% oncost. If the averagestock-holding was £12 000, the rateofturnover wouldbe a. 2. b.2. c. 3. d. 4.
16 Voting rights atcompany meetingsarenormallyheldby a. ordinary shareholders b.preference shareholders c. debentureholders c. ordinary and^ preference^ shareholders
17 The normalorderof liquidity in listing^ the^ following is a. vehicles, machinery, office equipment,premises b.premises,machinery, office equipment,^ vehicles c. office equipment, machinery, vehicles,premises d.premises,vehicles, machinery,^ officeequipment
18 Acredit balancein thebankaccount in afirm'sledger indicates a a. long-term liability b. currentasset c. currentliability d. fixed asset
19 A trial balance will not show up a. a castingerrorin cash^ account b. the^ omission of a transaction from^ thedaybooks c. an entry on the wrong sideofanaccount d. areversalof figures in a balancecarriedforward
20 Atrader purchased goodsfor £ 1000 subject to 25% tradediscountand 10% cash discountonemonth.^ If^ he payswithin a week, the cash^ discount^ willbe a. £ b. £ c. £ d. £
21 The following entry appearedin the last balance sheet of a firm:
Machinery
Cost £ 10000
Accumulated depreciation £ 4000
Net £ 6000
It is the^ practice^ of^ the^ firm to^ depreciate^ machinery^ at 20% perannum^ diminishing^ balance.^ The figure that will
appearfor accumulateddepreciationin the next balance sheetwillbe a. £ b. £ c. £ d. £
22 Acreditbalancein apartner'scurrentaccount ispartof thefirm's a. currentliabilities b. capital c. long-term liabilities d. assets
23 If ashareholdersells his shares,^ the capital of the companywillbe a. increased b.decreased c. improved d. unaffected
24 Long-term liabilities^ normally^ include
a. proprietor'scapital b. loansecuredbydebentures c. bank^ overdraft d.tradecreditors
25 The mainpurposeof thedaybooks is to a. speedupthe location oferrors b.provideacheck onledgerpostings c. summarise entriesof a similartype d.providetotals for control accounts
26 Copies ofcreditnotesissuedwouldbeenteredin the a. returns-inday book b. sales day book c. returns-outday book d.purchases day book
27 Voluntary^ deductions^ fromworkers'^ wages^ donot^ include a. tradeunion subscriptions b. national insurance contributions c. holiday fund d. private^ pension^ scheme^ deductions 28 Debentures arenormally listed in company balance sheetsunder a. issued capital b.reserves andprovisions c. long-term liabilities d.currentliabilities
29 Ifone partneris allocated a salary, the profits available for distribution willbe a. morethan the net profit b. less than the net profit c. the same as the net profit d. unaffected
30 A firm's liabilities include a. prepaid rent b. trade debtors c. bank overdraft d. trade investments
31 Which of the following require knowledge of subjects
other than accountancy? a. recording of financial transactions b. calculation of profits and losses c. summaries of financial position d. guidance on financial policy
General revision
In questions 49-60, answer
A if option 1 only is correct
B if option 3 only is correct
C if only options 1 and 2 are correct
D if options 1, 2 and 3 are all correct
49 A company's memorandum of association specifies the
l. total amount of shares it has power to issue
2. name of the company
3. voting rights of shareholders
50 A partner's current account shows
l. profits due to him for the accounting year in question
2. interest due to him on loans and on capital
3. salary due to, and drawings made by, him during the
year
51 A business that maintains control accounts is able to
l. locate errors more quickly
2. obtain total figures for creditors and debtors
3. extract a trial balance on the general ledger alone
52 The disadvantages of partnership organisation include
l. unlimited liability
2. no perpetual succession
3. no legal entity for the business
53 A trial balance will not identify
l. transactions omitted from day books
2. undercasting of the debit side of bank account by £
coupled with the posting of an amount for £4236 to the
purchases account as £
3, a credit sale of £206 entered by mistake in the
purchases day book
54 The term limited liability means that
l. the company is not fully liable for its debts
2. liability is limited to the shareholders
3. shareholders' liability is limited to amounts unpaid
on shares
55 In its annual report and accounts, a company must disclose
l. depreciation written off during the year
2. the accumulated depreciation to date
3. the current value of each main group of assets
56 Distribution expenses include
l. office salaries
2. advertising
3. carriage outwards
57 A reduction in working capital will result from
l. an increase in bank overdraft used to pay for office
equipment
2. a decrease in cash resulting from paying rates in
advance
3. a receipt of cash from trade debtors
58 Which of the following can never have a credit balance?
l. personal accounts of customers
2. bank account
3. cash account
59 A credit entry in a cash account and a debit entry in the
bank account indicate
l. payment of cash into the bank
2. payment of bank charges
3. drawing of cash from the bank
60 A firm's profitability is indicated by the ratio of
l. net profit to sales
2. expenses to sales
3. gross profit to net profit
Expressing One Number as
a Percentage of .Another
Example
Coping with
Percentages
Percentages are used a lot in accounting work and it is essential that
you understand them. This appendix is meant for those who need to
revise the processes involved.
Generally, you can calculate percentages by using a pocket calculator.
Most examining boards now accept their use, but the regulations of
your particular board should be checked before the examination. Also,
you should understand how the calculation is done: this will help you
to use the calculator more effectively. It will assist you in situations
where you may not be able to use your calculator, and it will enable
you to avoid some of the errors that can arise in calculator work, and
to be able to guess if the answer a calculator gives is roughly correct
or if you have pressed the wrong button.
This is done by expressing the one number as a fraction of the other
and multiplying by 100 / l. If done arithmetically, cancel if possible
before working out the answer, but remember that it is easy to divide
by 10 or 100 - the numbers simply move one or two places respectively
to the right of the decimal point.
Express 25 as a percentage of 300 (correct to one decimal place).
25 .]..00' 25
~ l 3
Accounting applications
Profit often needs to be expressed as a percentage of capital, and the
various expenses as percentages of turnover.
Problems
1 Express the following as a percentage of 300 correct to one decimal
place: (i) 15, (ii) 18, (iii) 30, (iv) 70, (v) 95, (vi) 120, (vii) 130,
(viii) 200, ( ix) 250, ( x) 300.
2 The capital of a firm is £400 000. Its profits last year were £33 000.
What was the percentage return on capital?
3ll
Example
Find 33~ %of£ 150.
Copingwithpercentages
Problems
6 Find 21% ofthe following amounts: (i)^ £150,^ (ii)^ £350,^ (iii)^ £500,
(iv) £750, (v) £1000.
7 Find 34% of the following amounts:(i)£47, (ii) £63,(iii)£^ 142.50,
(iv) £273.25, (v) £816.42.
8 Whatisthe profit if:
(i)^ the cost price of^ an articleis£24and mark-upis^ 20%^ ofcost;
(ii) the selling priceis^ £360^ and the profit marginis15%?
Note
Often, in accounting work, figures^ like^ 12!%^ or^ 33-l%^ are used, which
reduce to simple fractions, and the answers to problems are then easily
found arithmtically. Remember that: 10% =^ 1/10;^ 121%^ =^ 1/8;
20%=1/5; 25%=1/4;^ 33-l%=1/3;^ 50%=1/2;^ 66f%=2/3;
33~% = 1/3. One-thirdof£ 150 =£50.
Increasing^ orDecreasinga
Numberbya Given
Percentage
Example
Increase^ £690^ by18%.
Problems
9 Find 12!% of: (i) £16, (ii)^ £240,^ (iii)£^ 130,^ (iv)^ £480,^ (^ v)^ £150.
10 Find 33-l% of: (i) £21, (ii) £45, (iii) £240,^ (iv)^ £330,^ (^ v) £422.
11 Find (i) 66f% of 240; (ii) 50%^ of^ 160;^ (iii)^ 75%^ of^ 440;
(iv) 20% of 910; (v) 133-l% of 480.
12 Find the profit^ if^ it is:
(i) 50% of the cost price of £300;
( ii) 33-l% of the selling price of^ £450.
Doesanything significant strike you^ about^ youranswers^ to^12 (i)and (^ ;;^ )^?
When the percentageisgiven^ ofa^ known^ figure
There are two^ basic^ methods.^ Either^ the^ percentage increase^ (or
decrease) needed can be calculated and added to (or subtracted from)
the original figure, or the given percentage can^ be^ added to (or subtracted
from) 100% and that percentage found of the original figure.
(i) 18% of £690 = £124.20. So^ increasing^ £690^ by18%^ gives^ £(690^ +^ 124.20) = £814.20.
(ii) An increase of 18% means^ 118% of^ £690^ has^ tobefound. 118% of^ £690^ = £814.20.
Accounting applications
It is often necessary^ to^ obtain selling price^ by^ increasing cost price^ by
a given percentage, or to obtain cost price^ by^ reducing selling price^ by
a given percentage.
AppendixA
Examples
Problems
13 Increase: (i) £140 by 10%; (ii) 3126 by 17%; (iii) 348 by32%;
(iv) £748 by 214%.
14 Decrease: (i) 429 by5%;(ii) £12m by 42.5%; (iii) 333 by 25%;
(iv) 412.39 by 37%.
15 Find selling priceifprofitis 40% ofcost price of £35.
16 Find cost priceifprofitis24% of selling price of £216.
Whenthe percentageisgiven ofan unknown figure
Q!Iestions are often set in accounting examinations in which the profit
isgivenasa percentage of cost but only the selling priceisgiven, or
the profitisgivenasa percentage of selling price but only the cost
priceisgiven. Itisessential to appreciate that profit will NOT bethe
same percentageofcost as itisofselling price.
( i) Cost priceis £580 andprofit is^ 24%^ of^ selling price.Find the selling price.
(ii) Sellingpriceis £85, profit is 333% on cost. Find costprice.
Sellingprice=£85 000 = 1333% of costprice.
Sinceprofit=24% ofselling^ price,the^ cost price(£580) mustbe76% of^ the^ selling^ price. So sellingpriceequals:
100 300 Cost price=£85 000 x--= £85 000 x - 1333 400 = £
100
£580 x-=£763.16(tonearest penny)
76
Note
If 1331% isapproximated to 133.3%, then the correct answerisnot
obtained. (Check it for yourself on a calculator!) Hence the arithmetic
procedure should be followed using actual numbers and not decimal
approximations, even on a calculator, i.e. multiply by 300 and divide
by 400 (in effect x 3 and -;- 4) in the above case.
Problems
17 Find selling price if the costis^ £300^ and the profitis16%^ of^ selling
pnce.
18 Find the cost price if the selling priceis£52 and the profit is 25%
of cost price.
19 Ifthe mark-upis25% and the selling price^ is^ £85, find cost price.
20 Ifthe profit marginis 40% and the costis £320, find selling price.
Answers to problems
1 (i) 5%, (ii) 6%, (iii) 10%,^ (iv)23.3%, (v) 31.7%, (vi)^ 40%,
(vii) 43.3%, (viii) 66.7%, (ix) 83.3%, (x)^ 100%.
3 (i) 5.9%, (ii) 15.0%, (iii) 18.1%, (iv) 34.9%, (v) 56.2%,
(vi) 63.6%, (vii) 69.2%, (viii) 84.2%, (ix) 108.6%, (x) 122.3%.
4 5.9%.
Example I
Using Graphs and
Charts
The use of charts and diagrams can simplify the presentation of data,
and make them easier to understand, but there are some basic rules
that should always be observed.
(i) Each diagram should be suitably titled, labelled and-unless it
is obvious from the context-the source should always be stated.
A key should always be given where appropriate.
(ii) The total actual amounts concerned should always be given,
particularly when percentages are plotted.
(iii) If bar charts or pie charts are used (i.e. two-dimensional
diagrams), then the area of the diagram has to be proportional
to the amount it represents.
( iv) Attempts to represent data in three dimensions, for example by
the use of a block chart or pictogram, need to ensure that the
volume is proportional to the amount represented.
( v) Explanations or additional details can be given in the form of
footnotes.
A number of computer software packages readily convert tabular data
into various forms of diagrams. Before using a package, check that it
is one that obeys the above rules.
The balance sheet of British Aerospace at 31 December 1988 can be summarised as follows:
£m % £m %
Fixed assets 2506 38.6 Capital 2114 32.
Current assets 3988 63.4 Liabilities:
long-term 1435 22.
current 2945 45.
-- (^) --
This information can be presented in a number of ways.
BDCIIDT
A comparison of total assets with total liabilities of British Aerospace for year ended 31 December 1988.
(Source: Annual Report and Accounts, British Aerospace, 1988.)
Using graphs andcharts
£m 8000
6000
4000
2000
Fixedassets
Currentassets
Assets Total £6494 m
Capital
Long-term Iiabi Iities
Current liabilities
Liabilities Total £6494 m
Note: Capital representsthe total sumduetoshareholders.Although not a liability in theordinarysense,
it nevertheless representsasourceof funds similar to those obtained from creditors.
PIE CHART
A comparison of total assets with total liabilities of BritishAerospaceforyear ended 31 December1988.
(Source: Annual Report and Accounts, British Aerospace, 1988.)
Total £6494 m (^) Total £6494 m
Note: Although this diagram shows thepercentagefigures, it could equally wellbeusedtorepresentthe
actual figures.
Example Z
Additional information can oftenbe used to provide comparisons between years. The balance sheet of
British Aerospace at 31 December 1987 canbesummarised as follows:
£m % £m %
Fixed assets 996 23.0 Capital 1019 23.
Current assets 3333 77.0 Liabilities:
long-term 978 22.
current 2332 53.
Where Thereis Only One
Entry in the Account
Example
One Entry on Each Side
Comingto Same Total
Example
May 4 Sales
Two (^) or More Entries on
Either or Both Sides
Balancing Accounts-
The Rules
When accounts are prepared in the'T'format-which is the usual practice where manually kept accounts areconcerned-definiteand clearcut rules exist regarding how they should be balanced. These rules must be followed ifconfusion and mistakes are to be avoided. This balancing is carried out at the endofeach page; it can also be undertaken at any other time when the balance is required. Theway in which an account is balanced depends upon the number ofentries in the account, and the main rules are as follows:
Thefigure in the account can be left as it stands, since it is already clear what the balance is.
Capital account
May 1 Balance b/f 500000
Since there (^) is no balance to carry down, and itisobvious the two sides come to the same total, it is only necessary to put a 'double underline' (the 'full stop' of book-keeping' under each figure. The double underline means that the figures above the line are not added to any figures that may subsequently be entered in the account.
A.&C. Ltd 24 000 May 30 Bank (^24000) --
The account must be totalled. If they 'balance' (i.e. come to the same total), there will be no balance to carry down. If one side (^) is greater than the other, then the balance must be inserted on the lightest side, and the two sides totalled (this 'proves' the balance). The balance is then
carried down to the new period on the other side of the account where
Appendix C
Examples
May^4 Bank
21 Bank
May 31 Balance
May 2 Sales
May 9 Sales
May 11 Sales
May 20 Sales
May 25 Sales
Jun 1 Balance
c/d
b/d
itissaid to have been broughtdown. Ifthe balanceistaken over the
page, the terms carried^ forward^ and^ broughtforward^ are used instead.
Note that the balance, after it has been carried down, sums up the
true meaningofthe account at the date the balancing^ was^ undertaken.
Itisimportant that the totalsofthe two sides should be entered at
the same level, evenifthis means leaving a gap on one side.
DeltaLtd
60000 May Purchases 90000
--
PrestwickContainersLtd
36000 May 5 Purchases 19000
16 Purchases 17000
Jun 1 Balance b/d^36000
OmegaLtd
5000 May^15 Bank^8000
3000 20 Bank 2000
2000 31 Balance c/d 10000
--^ --
Notes
1 It isusually convenient to date balances that have been^ 'brought
down' for the first dayofthe new period.
2 Balances are carried downsothat further transactions can be posted
to the same account. Students sometimes obtain the false impression
from class examples that accounts are finished with once the balances
have been carried down.
Index
Drawings of cash^ 114, 171 Drawings of goods 114- 115, 171
Entity convention 16 Equity shares 240- Errors correction of 33-34, 271- types of 272- Exempt firms(VAT) 209 Exempt goods(VAT)^208 Expenditureandincome 56-60, 103- Expense/sales^ ratios 128-
Factory cost of goods produced 258, 260 Factory overheads^257 FIFO (first-in, first- out) 119 Fixed assets 39- Fixed instalment (straight line) depreciation 143- 144 Floating (circulating) capital 39- Folio columns 89 Fund accumulated^ 13,^224 consolidated 224
Goods accounting for 65- drawings of 114- Goodwill 234-235, 298 Graphs and charts 316- 318 Gross profit^65
Historical costs 1 07- 108, 131
lmprest system 185- Income^ and^ expenditure, nature of^ 56-60, 103- Income and expenditure accounts 221- Incomplete records 288- 293 Inflation 131- Insolvency 113 Inter-firm^ comparisons 131 Interest 241, 245
Journal 90-
Ledger balancing rules 319- 320 general procedures 19-24,28,166- 171 interpretation of balances 59- self-balancing 279 types of account 20- 22 Uabilities current 40, 248- defined 13 long-term 40, 248- Uability contingent 250 limited 239- LIFO (last-in, last- out) 119- Uquidity of assets 14 Loan account, partner 230- Loan capital 241
Manufacturing accounts 256- Materiality 162- Materiality convention 163 Mechanised accounting 6 Memorandum of association 240
Net profit 55 Net realisable value 121 NIC (National insurance contributions) 200 Nominal accounts 59 Note and coin analysis 202-
Objectivity convention 131 Ordinary shares 240- Original documents 5 Overheads, factory 257 Overtrading 41
Par value, share 241 Partnership accounts 230- goodwill in 234- Partnership Act 230- Partnership agreement 230- Percentage calculations 311- Personal accounts 59 Petty cash 185- Pie charts 316-
Preference shares^ 240- 241 Premium, share 241 Prepayments 1 06-1 07, 169 Principle, errors of 273 Profit calculation of 56- and capital 125- defined 55-1 03 gross 65 interpretation of 125- net^55 partners' appropriation 232 Profit and loss, accounting for 56-58,^166 Profit and loss account 56, 166 company 247- complications 81- Profit/sales (turnover) ratio 128 Provisions bad debts 150- depreciation 142-143, 170 Prudence convention 7 4 Purchases 65 Purchases day book 88- 89 Purchases, accounting procedure 66
Quick ratio (acid test) 42- Quoted companies 240
Rate of turnover of debtors and creditors 130- Rate of turnover of stock 129- Ratios cash 43, 44 current 41-42, 43 expense/sales 128- profit/sales (turnover) 128 quick (acid test) 42- 43, 44 return on capital employed 127 return on capital invested 125- 127 return on total assets 128- Real^ accounts^59 Receipts and^ payments accounts 219-
Reconciliation accounting 191- 194 Retained earnings 247, 250 Returnon^ capital employed^127 Returnon capital invested 125- Returnon total assets 127- Returns^ and^ allowances 77-80, 168- Returns day books 90 Revenue, defined 168 Revenueand capital 158-163, 167 Revenue reserves 250 Rights issues 241 Running balance accounts 21
Salaries and wages 85, 198- Sale of asset 144- Sale of firm 296- Sales accounting procedures 66- nature of 65 Sales day books 90 Schedule D tax 205 Self-balancing ledgers 279- Share issue 240, 244 Share premium 241 Shares, company^ 240- 241, 244- Single entry 288 Solvency 41-42, 43- Statements, reconciliation 191- Statements of affairs 12,288- Statements of assets and liabilities 5 Statutory deductions (wages) 199- Stock consumed 168 rate of turnover 129- 130 trading 68- valuation 71-72, 118- 122 Stock and issued capital 240 Stocktaking, delayed 121- Straight line depreciation 143- 144 Subscriptions, clubs and societies 222, 223
Suspense accounts 273- 274, 276
Tax 200, 205-210^ 241- 242, 247 Trade discount 81-82, 209 Trading account clubs and societies 223- general principles
65-71, n-80,
166 Transactions 29,159- 161,167- Transport costs^ 80-81, 168 Trend analysis 131 Trial balances 32- Turnover rate of debtors and creditors 130- stock 129-
Turnover and profit 128-
Unquoted companies 240
Valuation, stock 118- 122 Value added tax^ 206- Voluntary deductions (wages) 200
Index
Wage payment procedures 201- Wages and salaries 85, 198- Windingup 296- Work-in-progress^ 257- 258 Working capital 41, 248
Zero-rated goods(VAT) 208-
