MOCK EXAM 6
PART I:
The following are the draft financial statement for Vernet Company for the year
ended March 31, 20X5.
Vernet Company
Statement of profit or loss
For the year ended March 31, 20X5
£
Revenue 5,650,500
Cost of sales (3,460,600)
Gross profit 2,189,900
Administrative expenses (978,800)
Distribution costs (256,000)
Profit from operations 955,100
Finance charge (89,000)
Profit before tax 866,100
Income tax expense (297,600)
Profit for the period 568,500
Vernet Company
Comparative Statements of Financial Position
March 31
20X7 20X6
£ £
ASSETS
Non-current assets
Property, plant and equipment 4,360,400 2,950,300
Investments 172,000 156,000
4,532,400 3,106,300
Current assets
Inventories 460,600 365,100
Trade receivables 269,000 244,500
Government bonds 105,000 100,000
Cash 180,000 20,200
1,014,600 729,800
Total assets 5,547,000 3,836,100
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 3,000,000 1,800,000
Share premium account 1,050,000 850,000
Retained earnings 142,500 74,500
4,192,500 2,724,500
Non-current liabilities
Loan 556,000 472,000
Preference shares (redeemable ) 150,000 0
706,000 472,000
Current liabilities
Trade payables 348,500 289,600
Taxation 300,000 350,000
648,500 639,600
Total equity and liabilities 5,547,000 3,836,100
Additional information:
1. During the year Vernet Company made a 1 for 10 bonus issue of its ordinary
shares. It subsequently issued further shares at the market price.
2. An impairment review at March 31, 20X5 identified a fall in the recoverable
amount of certain non current investments. As a result, an impairment loss of
£12,000 was identified and written off to administrative expenses.
3. During the year Vernet Company acquired plant and equipment for cash of
£2,057,000. In addition, plant and equipment with a fair value of £600,000
was acquired through a long term loan. The depreciation charge for the year,
charged to cost of sales, was £750,600. A loss on sale of plant of £55,000 was
made during the year.
4. Interest payable of £10,000 has been included in trade payables at year end.
The corresponding figure in 20X4 was £5,000.
5. The government bonds are highly liquid and management has decided to
class them as cash equivalents.
6. Vernet Company issued £150,000 redeemable preference share during the
year.
7. Included in trade payables is £10,000 in relation to the acquisition of long
term investments.
Requirement: Prepare a statement of cash flows for the year ended March 31,
20X5.
Cash flows from operating activities
Profit before tax
Investment income
Finance cost
Depreciation
Amortization of intangible assets
Impairment
Gain/loss on sale of PPE
Gain/loss on sale of intangibles
Movement in inventories
Movement in trade receivables
Movement in prepayments
Movement in trade payables
Movement in accruals
Movement in provisions
Cash generated from operations
Tax paid
Interest paid
Net cash from/used in operating activities
Cash flows from investing activities
Purchase of PPE
Purchase of intangible assets
Purchase of investments
Proceeds from sale of PPE
Proceeds from sale of intangibles
Interest received
Net cash from/used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Dividend paid
Movement in borrowings
Net cash from/used in financing activities
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at year end of year
PART II:
Question 1
Burgess does not keep a creditors control account nor a purchases day book. Burgess’s
bookkeeper has discoverred that, in respect of an invoice for £2,606 from Lever, total
settlement discount of £52 was available. In error two cheques were sent to the supplier,
both in settlement of the invoice. The first cheque was for £2,606 and the second was for
£2,554. Both cheques were cashed by Lever. The first cheque was fully recorded by
Burgess, the second cheque was recorded only in the payments column of Burgess’s cash
book.
Which of the following journals will be entered in Burgress’s nominal ledger accounts in
order to correct these items?
A Debit Lever £2,554, Credit Suspense £2,554
B Debit Cash £2,606, Credit Lever £2,554, Credit Discounts received £52
C Debit Suspense £2,554, Debit Discounts received £52, Credit Lever £ 2,606
D Debit Lever £ 2,606, Credit Shuspense £2,554, Credit Discounts received £52
Question 2:
Which of the following errors would still result in a balanced trial balance?
A The opening inventory balance was omitted from the nominal ledger
B A transposition error was made when posting cash received from a credit customer
to the receivables ledger
C The discounts received balance was listed as a debit on the trial balance
D The total column of the cash payments book was miscast
Question 3
Bouncy Balls plc has 40 units of its special spongy balls in inventory as at 30 November
20X7. The product costs £5 per unit to manufacture and can be sold for £15 per unit. Haft
of the units in inventory at the year end have been damaged and will require rectification
work costing £10 per unit before they can be sold. Selling costs are £1 per unit.
The value of inventory at 30 November 20X7 is
A £160
B £180
C £200
D £600
Question 4
At the end of the first year of trading on 30June 20X1 Waddy Ltd’s net assets are
£207,594. It has share capital of £50,000 made up of 25p equity shares issured at 40p
each, and a retained profits reserve of £107,594.
In relation to Waddy Ltd’s balance sheet at 30 June 20X1 which of the fllowing
statements could be true?
A It has a general reserve of £50,000
B It has share premium of £100,000
C It has a general reserve of £20,000
D It has share premium of £50,000
Question 5
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.
The VAT rate is 20%. What amount of VAT should have been charged on the invoice?
A £180
B £190
C £200
D £210
Question 6
A business has an accrual for electricity at 1 January 20X7 of £215 and has paid electicity
bills of £3,420 during the year to 31 December 20X7. At 31 December 20X7 there is an
accrual for electricity of £310.
The electricity charge in the statement of profit or loss for the year ended 31 December
20X7 is
A £2,895
B £3,325
C £3,515
D £3,945
Question 7
At 1 July 20X7 Leak plc owed £524,925 to suppliers plus £9,653 to staff in respect of
bonuses. In the year to 31 June 20X8 it paid trade suppliers £1,249,506, and £34,682 in
staff bonuses. Leak plc also posted £1,987,345 to its trade payables control account from
the purchases day book, and received discounts of £12,824. At the end of the period it
processed a contra with the receivables ledger of £8,236, and calculated that it owed staff
bonuses of £12,762.
In its statement of financial position as at 30 June 20X8 Leak plc will have a figure for
trade and other payables of:
A £1,267,352
B £1,241,704
C £1,258,176
D £1,283,824
Question 8
The following information relates to a bank reconciliation. The balance in the cash book
before taking the items below into account was £8,970 overdrawn.
(i) Bank charges of £550 on the bank statement have not been entered in the cash
book.
(ii) The bank has credited the account in error with £425 which belongs to another
customer.
(iii) Cheque payments totalling £3,257 have been entered in the cash book but have not
been presented for payment.
(iv) Cheques totalling £5,380 have been correctly entered on the debit side of the cash
book but have not been paid in at the bank.
What was the overdrawn balance as shown by the bank statement?
A £6,990
B £10,650
C £11,200
D £11,625
Question 9
At 31 December 20X2 the following matters require inclusion in a company’s financial
statements:
1 On 1 January 20X2 the company made a loan of £12,000 to an employee,
replayable on 30 April 20X3, charging interest at 2% per year. On the due date
she repaid the loan and paid the whole of the interest due on the loan to that date.
2 the company has paid insurance £9,000 in 20X2, covering the year ending 31
August 20X3.
3 In January 20X3 the company received rent from a tenant £4,000 covering the six
months to 31 December 20X2
For these items, what total figures should be included in the company’s statement of
financial position at 31 December 20X2?
Current assets Current liabilities
A £22,000 £240
B £22,240 £0
C £10,240 £0
D £16,240 £6,000
Question 10
As at 30 September 20X6 Madeley plc has a negative cash book balance of £2,643. Its
bank statement show a debit balance of £9,647. The following matters are discovered.
1 Madeley plc’s cashier prepared a paying in slip with a total value of £5,016 and
paid this into the bank on 30 September 20X6 with cash and cheques. No
amount in respect of this appears on the month-end bank statement. Madeley plc
has since been notified by the bank that the paying in slip total was overcast by £90.
2 Madeley plc recorded and presented for payment at its bank a cheque for £1,988
from Reaney plc on 26 September 20X6, and this appeared on the bank statement
on 27 September. On 30 September the bank statement shows that it was returned
unpaid; Madeley plc was informed of this by letter on 1 October 20X6.
3 The company held notes and coin at 30 September 20X6 of £160.
In Madeley plc’s statement of financial position as at 30 September 20X6 its figure for
current liabilities in relation to the overdraft will be:
A £565
B £745
C £4,721
D £4,881
Question 11
A supplier sends you a statement showing a balance outstanding of £14,350. Your own
records show a balance outstanding of £14,500.
The reason for this difference could be that
A The supplier sent an invoice for £150 which you have not yet received
B The supplier has allowed you £150 cash discount which you omitted to enter
in your ledgers
C You have paid the supplier £150 which he has not yet accounted for
D You have returned goods worth £150 which the supplier has not yet accounted for
Question 12
At its year end of 31 July 20X1 Hussar plc has in its draft financial statements a figure for
trade receivables of £578,645, an allowance for receivables in respect of Cusack plc as at
1 August 20X0 of £1,200 and a charge for irrecoverable debts expense of £3,290. You are
told that:
1 Cusack plc’s account was settled in full in the year.
2 An allowance of £250 is required against the account of Dancer plc.
3 A cheque for £89 was received at 31 July 20X1 in respect of an amount written off
two years previously, but only the cash book has been updated for this
In its completed financial statements as at 31 July 20X1 Hussar plc will shown:
A Charge for irrecoverable debts of £2,251 and trade receivables net of allowance of
£578,395
B Charge for irrecoverable debts of £2,340 and trade receivables net of allowance of
£577,606
C Charge for irrecoverable debts of £2,340 and trade receivables net of
allowance of £578,395
D Charge for irrecoverable debts of £3,451 and trade receivables net of allowance of
£578,395
Question 13
The cash book shows a bank balance of £5,675 overdrawn at 31 August 20X5. It is
subsequently discovered that a standing order payment for £125 have been entered twice,
and that a dishonoured cheque for £450 has been debited in the cash book instead of
credited.
The correct bank balance should be
A £5,100 overdrawn
B £6,000 overdrawn
C £6,250 overdrawn
D £6,450 overdrawn
Question 14
The closing inventory of Epsilon amounted to £284,000 at cost at 30 September 20X1,
the date of the statement of financial position. This totall includes the following two
inventory lines.
1 500 items which had cost £15 each and which were included at £7,500. These
items were found to have been defective at the date of the statement of financial
position. Remedial work after that date cost £1,800 and they were then sold
shortly afterwards for £20 each. Selling expenses were £400
2 100 items which had cost £10 each. After the date of the statement of financial
position they were sold for £8 each, with selling expenses of £150
The figure which should appear in Epsilon’s statement of financial position for inventory
is
A £283,650
B £284,350
C £284.650
D £291,725
Question 15
Alpha received a statement from its supplier Beta, showing a balance to be paid of
£8,950. Alpha’s payables ledger account for Beta shows a balance due to Beta of £4,140
Investigation reveals the following:
1 Cash paid to Beta £4,080 has not been recorded by Beta.
2 Alpha has not adjusted the ledger account for £40 of cash discount disallowed by
Beta.
3 Goods returned by Alpha £380 have not been recorded by Beta.
What discrepancy remains between Alpha’s and Beta’s records after allowing for these
items?
A £9,310
B £390
C £310
D £1,070
Question 16
At 1 January 20X5 Tandem plc had allowances in its ledger accounts in respect of two
customers’ debts: Basnet plc for £1,425 and Ost plc for £950. On 30 June 20X5 Basnet
plc’s liquidator informed Tandem plc that it would pay £200 only, so Tandem plc decided
to write off the remainder of the balance. At 31 December 20X5 Ost plc had paid £500 of
its debt outstanding at 31 December 20X4. Tandem plc wishes to maintain the allowance
for the remainder of the balance.
What is the figure for irrecoverable debts included in administrative expenses in Tandem
plc’s statement of profit or loss for the year ended 31 December 20X5?
A £700 credit
B £650 credit
C £650 debit
D £700 debit
Question 17
At 31 October 20X7 Osba plc had a receivables control account with a balance of
£381,255. This balance was £782 more than the total on its list of receivables balances at
the same date.
Correction of which of the following errors would, alone, reconcile the two balances?
A A cheque received from Ellite plc for £391 had been recorded on the debit side of
Ellite plc’s account. Correct entries were made in the nominal ledger
B The total column in the sales day boook had been overcast by £782
C A customer returned some goods to Osba plc on 30 November 20X7. These
had originally been invoiced at £782. Osba plc recorded a credit note in the
sales day book which was debited to the customers’s account
D An invoice to Plion plc for £391 had been recorded in the sales day book as a
credit note
Question 18
As its year end of 28 February 20X6 Stope plc has in its draft financial statements a
figure for trade receivables of £47,533, and an allowance for receivables in respect of
Invincible plc of £500 at 28 February 20X5.
Invincible plc has worsening financial difficulties, and of its balance of £10,380 at 28
February 20X6, the directors of Stope plc expect to receive only 25% within one month.
They wish to create an allowance for the remaining balance. They also identify an
amount of £508 from Hup Ltd as being irrecoverable. In its completed financial
statements as at 28 February 20X6 Stope plc will show
A Allowance for receivables of £500 and a charge in respect of irrecoverable debts
of £8,293
B Allowance for receivables of £2,595 and a charge in respect of irrecoverable debts
of £2,603
C Allowance for receivables of £7,785 and a charge in respect of irrecoverable
debts of £7,793
D Allowance for receivables of £8,285 and a charge in respect of irrecoverable debts
of £8,293
Question 19
Jared plc is preparing its financial statements for the 12-month reporting period ended 30
June 20X9. Its initial trial balance includes:
A balance for administrative expenses paid in the reporting period (including rent)
of £44,064.
A balance for prepayment of rent at 1 July 20X8 £4,215.
On 31 May 20X9 Jared plc paid its quarterly rent in advance of £4,215.
In Jared plc’s statement of profit or loss for the year ended 30 June 20X9 the figure for
administrative expenses will be
A £35,013
B £43,515
C £44,064
D £45,915
Question 20
Hywel plc’s trial balance includes a total for all the receivables ledger accounts as listed
out at the year end. The receivables ledger is part of the double entry system. The trial
balance fails to agree and a suspense account is opened. The difference is due to the
following errors in Hywel plc’s ledger accounts:
1 The balance on Markham plc’s receivables ledger account is £9,890. This is
incorrectly recorded in the trial balance as £9,980
2 A discount allowed to Umberto of £33 was debited to his receivables ledger
account.
3 The sales account is overcast by £110
Three journals are draffed to correct these errors. Together these journals should
A Credit the suspense account with £110
B Debit the suspense account with £86
C Credit the suspense account with £46
D Debit the suspense account with £46
Question 21
Vernon plc purchsed some new equipment on 1 April 20X1 for £6,000. The scrap value
of the new equipment in 5 years’time is estimated to be £300. Vernon charges
depreciation montly on the straight line basis.
What is the depreciation charge for the equipment in Vernon plc’s reporting period of
twelve months to 30 September 20X1?
A £570
B £1,140
C £600
D £1,200
Question 22
In relation to books of original entry and double entry bookkeeping for an entity which is
registered for VAT, which one of the following statements is correct?
A The payables ledger column in the cash payments book is debited to the purchases
account in the nominal ledger
B Purchases and VAT in the purchases day book are recorded in the nominal
ledger as debit entries to the purchases and VAT accounts and as a credit
entry in the payables control account
C The cash receipt recorded in the petty cash book when the petty cash is topped up
is recorded as a debit entry in the main cash book
D VAT recorded in the cash book in respect of purchases is credited to the VAT
account
Question 23
A car has a list price of £23,500 but the garare gives Ride plc a 10% trade discount. In
settlement the garage accepts a cheque for £18,000, together with an old company car.
The amount to be capitalised by Ride plc for the new car is:
A £16,200
B £18,000
C £21,150
D £23,500
Question 24
An extract from a business’s statement of profit or loss is as follows:
£ £
Revenue 115,200
Opening inventory 21,000
Purchases 80,000
Closing inventory (5,000)
(96,000)
19,200
The mark-up achieved is
A 14.8%
B 16.7%
C 20.0%
D 83.3%
