2006 Foja Ia
2006 Foja Ia
of Pages = 06
No. of Questions = 20
SUBJECT NUMBER - 11
Instructions
PAPER A - MULTIPLE CHOICE QUESTIONS
(iv) Please read the instructions given reverse side of the OMR
paper before commencing to mark the answers.
Amanda Traders reviewed their debtor’s ledger as at the year end and identified Rs 34,600 relating to
customers who are unlikely to settle. A provision was made for this amount. The following statements
were made by the accounts executive justifying the need for a provision.
A - “Since it was unlikely that payment would be received from these customers it was prudent for
the company to make a provision”
B - “In order to faithfully show the actual amount receivable it is necessary to make a provision for
customers identified as likely to pay.”
C - “Rs 34,600 is a material amount and a provision should be made for material amounts.”
D - “ The auditors would have made me make the provision any way. So why wait for them to raise
the issue?”
Which of these statements reflects the application of a desirable characteristic of financial statements?
Identify one of the underlying assumptions on which financial statements are prepared and one of the
principal qualitative characteristics, which makes the financial statements useful for the user.
(1) Financial statements are prepared on the assumption that an enterprise is a going concern and one
of the principal qualitative characteristics of a useful set of financial statements is that financial
statements should be prepared on an accrual basis.
(2) Financial statements are prepared on an accrual accounting basis and one of the principal
qualitative characteristic of a useful financial statement is that it should be comparable.
(3) Financial statements are prepared on the basis of prudence and one of the principal qualitative
characteristic of useful set of financial statements is that it should be reliable.
(4) Financial statements are prepared on the basis of materiality and one of the principal qualitative
characteristic of useful set of financial statements is that it should be understandable.
(2 marks)
Question No. 03
During a debate on the uses of financial statements the following statements were made about the
objectives of financial statements. Which of the statement is most appropriate.
A - “The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise.”
B - “The objective of financial statements is to provide a faithful record of transactions which are
understandable and reliable.”
C - “The objective of financial statements is to provide all the information any user of such statements
may require”
D - “The objective of financial statements is to provide information in a prudent manner keeping in
mind the requirements of comparability and reliability.”
(1) Statement A.
(2) Statements A & C.
(3) Statements A & D.
(4) Statements B & D
(2 marks)
(2)
Question No. 04
The users of financial statements include present and potential investors, employees, lenders, suppliers,
government and the public. Each of these users has different information needs about the company.
Identify which of the following statements can be considered an information need of an investor ;
A sole trader sold goods costing Rs. 250, 000 for Rs. 300, 000 to Peiris & Co. Peiris & Co. returned
Rs. 50, 000 worth of sales to the sole trader. The source documents relevant to sales and sales returns are
respectively,
A – Deposits made directly to the bank account by a customer but not recorded in the cash book.
B – Cheque payments made but not presented by the recipient.
C – The omission of a payment to a supplier in the creditors ledger.
D – The omission of a receipt from a customer in the cash book.
(1) A, B & C
(2) A, C & D
(3) A&C
(4) A, B & D
(2 marks)
Question No. 07
(1) Increase.
(2) Decrease.
(3) Remain the same.
(4) Any one of the above.
(3) (2 marks)
Question No. 08
A receipt of Rs. 4,560 from T.A Peiris & Co was correctly recorded in the cash book and the debtors
control account, but credited to T.B Peiris & Co, a supplier in the creditors ledger. Assuming no other
errors this should result in;
A - The debtors control account is higher by Rs. 4,560 than the aggregation of the individual debtors
accounts.
B - The creditors control account is higher by Rs. 4,560 than the aggregation of the individual
creditors accounts
C - The debtors control account is lower by Rs. 4,560 than the aggregation of the individual debtors
accounts.
D - The creditors control account is lower by Rs. 4,560 than the aggregation of the individual
creditors accounts
(1) A&B
(2) B&C
(3) C&D
(4) A&D
(2 marks)
Question No. 09
A payment of Rs 655 was recorded as a receipt in the cash book but was correctly recorded in the
creditor’s ledger. Assuming no other errors this should result in:
(1) The trial balance will not balance by a sum of Rs 655 and the cash balance will be overstated by
Rs 655
(2) The trial balance will not balance by a sum of Rs 655 and the creditors account will be overstated
by Rs 655
(3) The trial balance will not balance by a sum of Rs1,310 and the cash balance will be overstated by
a sum of Rs 1,310
(4) The trial balance will not balance by Rs 1,310 and the creditors balance will be overstated by a
sum of Rs 1,310
(2 marks)
Question No. 10
The bookkeeper of a furniture selling business recorded Rs.300,000 worth of furniture purchased for resale
in the furniture account. Also he recorded Rs.450,000 worth of credit sales in the books as Rs. 150,000.
The types of errors done by the bookkeeper are respectively,
(1) An error of commission and an error of omission
(2) A compensating error and an error of omission
(3) An error of principle and an error of original entry.
(4) An error of principle and an error of commission
(2 marks)
Question No. 11
The creditors control account balance did not reconcile with the aggregate of the individual creditors
accounts. Which of the following could not have resulted in the difference?
(1) An amount paid to a creditor was recorded correctly in the creditors control account and was
credited to the individual creditors account.
(2) A purchase on credit was recorded correctly in the creditors control account but was debited to the
individual creditors account
(3) A purchase return was credited to the creditors control account and the individual creditors
account
(4) A purchase return was credited to the creditors control account and debited to the individual
creditors account.
(2 marks)
Question No. 13
The Bookkeeper of Apex Ltd. found the following errors in the books for the year ended 31st March 2005,
after preparing the trial balance.
- A purchase invoice for Rs.15, 000 has not been entered in the books.
- Salaries paid to the employees have been written as Rs.12, 000 in the salary account while the
correct value amounted to Rs.120, 000. The correct value has been recorded in the Cash book.
- Rs.1, 500 worth of discounts received from the suppliers had been recorded in the discounts
received account as a debit amount.
How much is the balance of Suspense account, before rectifying these errors?
In order to ensure that all sales invoices are accounted for, the most effective control a business is most
likely to implement is to:
Question No. 15
A payment of Rs 8,756 to ‘Bimal Traders’ was recorded as a payment of Rs 8,765 to ‘Nimal Traders’ in
the cash book, creditors control account and the creditors sub ledger. Which of the following statements
are correct
(1) The trial balance will balance but the bank reconciliation will identify the error.
(2) The trial balance and the bank reconciliation will identify the error.
(3) The trial balance, bank reconciliation and creditors control account will identify the error.
(4) Only the trial balance will identify this error
(2 marks)
Question No. 17
Chandana rented out a warehouse for 12 months commencing 1 July 2004 and paid Rs. 240,000 in advance
(Non-refundable). However, due to the loss of customer orders Chandana did not require the use of the
warehouse and to avoid incurring administration costs handed it back to the landlord by 31 December
2004. As at 31 March 2005 how much was outstanding in the Rent Paid in Advance Account?
(1) Rs 120,000.
(2) Rs 60,000.
(3) Rs 240,000.
(4) None of the above.
(2 marks)
Question No. 18
Which one of the following criteria need not necessarily be true when recognising a liability in an entity’s
balance sheet?
(1) It has arisen as a result of a past transaction or event.
(2) There should be legal obligations
(3) Entity has to transfer economic benefits
(4) There should be legal or other obligations
(2 marks)
Question No. 20
A Ltd., a VAT registered gem & jewellery exporter, purchased raw materials on credit from XYZ Ltd. on
1 December 2005 at a price of Rs. 250,700 inclusive of VAT at 15% and sold 40% of this goods to PQR
Ltd. at Kandy for Rs.124,600 plus VAT. The balance was exported.