Section 3: Practice questions
Section 3: Practice questions
1 ‘Profit is regarded as being earned when the legal title of the goods or services passes
from the seller to the buyer.’ Which accounting principle does this statement describe?
A going concern B matching
C money measurement D realisation
2 Which accounting objective requires that the information in financial statements is free
from bias and free from significant errors?
A comparability B relevance
C reliability D understandability
3 A trader paid operating expenses during his financial year. There was the amount accrued
at the start of the year and a prepayment at the end of the year.
What is the formula for calculating the operating expenses for the year?
A amount paid + opening accrual + closing prepayment
B amount paid + opening accrual – closing prepayment
C amount paid – opening accrual + closing prepayment
D amount paid – opening accrual – closing prepayment
4 Why should non-current assets be depreciated?
A to apply the money measurement principle 185
B to charge the cost of using them against income
C to ensure money will be available to replace them
D to ensure the profit for the year is not understated
5 Dogma’s credit customer, Sophie, paid her account on 20 May by cheque. On 28 May
Dogma was notified that the bank had dishonoured this cheque.
What entries would Dogma make on 28 May?
Account to be debited Account to be credited
A bank Sophie
B irrecoverable debts bank
C irrecoverable debts Sophie
D Sophie bank
Cambridge IGCSE and O Level Accounting
6 Anais owns a general store. She makes payments of both capital and revenue items and
has both capital and revenue receipts.
a Complete the following table by placing a tick (✓) to indicate how each item could
be classified.
Capital Revenue Capital Revenue
expenditure expenditure receipt receipt
Loan from AB Limited
Purchase of additional
premises
Legal fees for purchase of
additional premises
Insurance of additional
premises
Cash sales
Purchase of inventory
Proceeds of sale of old motor
vehicle at book value
Discount received
186
When calculating her profit for the year ended 29 February 20–4, Anais discovered some
errors had been made in the accounting records.
Error 1 Redecorating of the original premises had been debited to the premises account.
Error 2 Payment of loan interest had been debited to the loan account.
Error 3 Commission received had been credited to the sales account.
Error 4 Proceeds of sale of office fixtures at book value had been credited to the
sales account.
b Complete the following table by placing a tick (✓) to indicate the effect of each error
on the profit for the year.
Effect on the profit for the year
Error Overstated Understated No effect
error 1
error 2
error 3
error 4
Section 3: Practice questions
7 Nazeer is a trader. He provided the following information about his inventory at
30 November 20–8:
Inventory code Number of units in Cost per unit Selling price per unit
number inventory $ $
BD20 300 1.50 2.30
BD23 119 0.95 0.80
BD29 410 1.78 1.85
Nazeer had to pay carriage inwards on inventory code number BD20 at the rate of $5 per
100 units (not included in the cost per unit shown in the table).
a Explain the meaning of the following terms used in connection with inventory valuation:
i cost
ii net realisable value
b Name one accounting principle Nazeer should apply when valuing his inventory.
c Calculate the total value of Nazeer’s inventory on 30 November 20–8.
After the preparation of the financial statements for the year ended 30 November 20–8
Nazeer discovered that the inventory had been understated by $15.
d Complete the following table by placing a tick (✓) to show the effect of this error.
Overstated Understated No effect
current assets at 30 November 20–8 187
profit for the year ended 30 November 20–8
gross profit for the year ended 30
November 20–9
8 Karima’s financial year ends on 31 December.
She maintains one combined account for rates and insurance.
On 1 January 20–4 she owed $560 for 4 months’ rates and had paid 6 months’ insurance,
$580, in advance.
During the year ended 31 December 20–4 Karima made the following payments:
$
February 28 Rates for 8 months by cheque 1 120
April 30 Rates for 5 months by cheque 700
July 1 Insurance for 12 months by credit transfer 1 200
a Prepare the rates and insurance account for the year ended 31 December 20–4.
Balance the account and bring down the balances on 1 January 20–5.
b Prepare relevant extracts from the statement of financial position on 31 December 20–4.
c Explain why it is important to make adjustments for accrued and prepaid expenses at
the end of the financial year.
Cambridge IGCSE and O Level Accounting
9 Tanvir is a trader. His financial year ends on 31 December.
Tanvir purchases all of his office stationery from Tabitha. He provided the following
information for the year ended 31 December 20–8:
$
January 1 Inventory of stationery 44
April 1 Purchased stationery on credit from Tabitha 313
18 Returned damaged stationery to Tabitha 22
June 1 Paid amount owing to Tabitha by cheque
December 31 Inventory of stationery 65
a Prepare the following ledger accounts for the year ended 31 December 20–8:
i Tabitha account
ii Stationery account
The accounts should be balanced, totalled or transferred to the income statement
as appropriate.
Tanvir is supplied with electricity by EE Limited. He pays by bank transfer after receipt
of invoices which are issued every six months by EE Limited.
Tanvir provided the following information relating to the year ended 31 December 20–8:
$
188 January 1 Balance owing to EE Limited for electricity supplied 239
30 Paid balance owing to EE Limited by bank transfer
July 1 Received an invoice from EE Limited for electricity supplied 445
August 2 Paid balance owing to EE Limited by bank transfer
December 31 Estimate of amount of electricity used since July 388
b Prepare the following ledger accounts for the year ended 31 December 20–8.
i EE Limited account
ii Electricity expense account
The accounts should be balanced, totalled or transferred to the income statement
as appropriate.
10 Chibuzo’s financial year ends on 31 December. He depreciates his motor vehicles at 20%
per annum on the cost of motor vehicles held at the end of each financial year.
Chibuzo provided the following information:
1 January 20–7 Purchased motor vehicle A for $15 000 and motor vehicle B for $18 000
1 July 20–9 Motor vehicle A was sold for $8 600. On the same date motor vehicle C
was purchased for $21 000
a Calculate the profit or loss on disposal of motor vehicle A.
b Calculate the depreciation charge for motor vehicles for the year ended 31 December 20–9.
Section 3: Practice questions
Chibuzo provided the following additional information for the year ended
31 December 20–9:
$
Revenue 108 200
Wages 10 300
Rent and rates 2 100
Purchases 81 140
Inventory 1 January 20–9 5 410
Administration and selling expenses 2 230
Commission receivable 2 050
Provision for doubtful debts 1 January 20–9 540
Additional information:
1 On 31 December 20–9
Inventory 5 550
Wages accrued 120
Rates prepaid 300
Commission receivable outstanding 420
Provision for doubtful debts to be reduced to 450
2 Office equipment was valued at $4 320 on 1 January 20–9. Office equipment, $1 200,
was purchased during the year. No office equipment was disposed of during the 189
year. On 31 December 20–9 the office equipment was valued at $5 250.
c Prepare the income statement for the year ended 31 December 20–9.
11 Nadia’s financial year ends on 31 August. She depreciates her office fixtures by 25% per
annum on cost. Depreciation is calculated from the date of purchase. No depreciation is
charged in the year of disposal.
a Name and explain two accounting principles Nadia is observing by depreciating her
office fixtures.
On 1 September 20–3 the following balances appeared in Nadia’s ledger:
$
Office fixtures at cost 4 500
Provision for depreciation of office fixtures 2 100
On 1 December 20–3 Nadia purchased additional office fixtures, $2 400, on credit from
AB Limited.
On 1 March 20–4 Nadia sold office fixtures for $120 which was received in cash. The
office fixtures had been purchased on 1 September 20–0 for $1 000.
b Write up the office fixtures account, the provision for depreciation of office fixtures account
and the disposal of office fixtures account for the year ended 31 August 20–4. Balance the
accounts where necessary and bring down the balances on 1 September 20–4.
c Prepare a relevant extract from Nadia’s statement of financial position on
31 August 20–4.
Cambridge IGCSE and O Level Accounting
12 Charlotte maintains a provision for doubtful debts at 2_21% of her trade receivables at the
end of each financial year.
a Explain the meaning of each of the following terms:
i irrecoverable debt
ii provision for doubtful debts
b Explain how Charlotte is observing the accounting principle of prudence by
maintaining a provision for doubtful debts.
c Name one other accounting principle Charlotte is observing by maintaining a
provision for doubtful debts.
d Suggest two ways in which Charlotte may reduce the possibility of irrecoverable debts.
At the end of her financial year on 31 July 20–3 Charlotte provided the following information:
$
On 1 August 20–2 Trade receivables 8 400
During the year ended 31 July 20–3 Debts written off as irrecoverable 167
On 31 July 20–3 Trade receivables 7 546
It was decided to write off a debt as
irrecoverable 66
The provision for doubtful debts should be maintained at 2_2 % of the trade receivables.
1
e Prepare the provision for doubtful debts account for the year ended 31 July 20–3.
Balance the account and bring down the balance on 1 August 20–3.
190
f Prepare relevant extracts from the income statement for the year ended 31 July 20–3.
g Prepare a relevant extract from the statement of financial position at 31 July 20–3.
13 Sharif is a trader. He maintains a full set of accountings records. His financial year ends
on 30 April.
The balances on his ledger accounts on 30 April 20–7 included the following:
$
Sales 49 750
Rent receivable 2 000
Irrecoverable debts 960
Provision for doubtful debts 1 400
Stationery and office expenses 3 210
Inventory (1 May 20–6) 4 520
Office fixtures at cost 14 500
Provision for depreciation of office fixtures 5 800
Disposal of office fixtures account –
Section 3: Practice questions
a Open an account for each of the items and enter the balance on 30 April 20–6.
Sharif provided the following additional information on 30 April 20–7.
1 Inventory was valued at $4 970.
2 Inventory of stationery was valued at $45.
3 Rent receivable outstanding amounted to $400.
4 $116 owed by Halijah should be written off as irrecoverable.
5 The provision for doubtful debts should be increased by $100.
6 Office fixtures were sold on 28 April. The proceeds of sale, $780, had been debited
in the cash book, but no other entries had been made. The fixtures originally cost
$2 000 and had been depreciated by $800.
7 The remaining office fixtures should be depreciated by 10% per annum on cost.
b Record this information in the accounts opened in a. Close the accounts by balancing
or by making a transfer to the income statement.
14 Priti is a trader. Her financial year ends on 31 March. Her trial balance on 31 March 20–4
was as follows:
$ $
Capital 390 000
Drawings 54 000
Trade receivables 49 270
191
Trade payables 43 500
Bank 21 335
Premises at cost 300 000
Fixtures and fittings at cost 35 000
Motor vehicles at cost 24 000
Provision for depreciation of fixtures and fittings 14 000
Provision for depreciation of motor vehicles 10 500
Provision for doubtful debts 2 360
Revenue 644 000
Inventory 1 April 20–3 36 000
Purchases 528 850
Sales returns 1 050
Carriage inwards 750
Commission receivable 1 030
Rates and insurance 10 400
Wages 39 400
Administration expenses 1 105 335 1 105 390
1 105 390 1 105 390
Cambridge IGCSE and O Level Accounting
Additional information:
1 At 31 March 20–4:
Inventory was valued at $41 050.
Commission receivable outstanding amounted to $110.
Insurance prepaid amounted to $180.
Rates accrued amounted to $260.
Wages accrued amounted to $1 600.
2 A debt of $150 should be written off as irrecoverable and the provision for doubtful
debts should be maintained at 5% of the remaining trade receivables.
3 Fixtures and fittings are being depreciated at 20% per annum using the straight
line method.
4 Motor vehicles are being depreciated at 25% per annum using the reducing
balance method.
a Prepare the income statement for the year ended 31 March 20–4.
b Prepare the statement of financial position at 31 March 20–4.
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