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TABLE OF CONTENTS

CAMBRIDGE A LEVEL ACCOUNTING February 2022···············································

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CAMBRIDGE A LEVEL ACCOUNTING November 2020·········································· 32
CAMBRIDGE A LEVEL ACCOUNTING November 2019·········································· 50
CAMBRIDGE A LEVEL ACCOUNTING November 2018········································· 70
A LEVEL CAMBRIDGE A LEVEL ACCOUNTING November 2017··························· 90
CAMBRIDGE A LEVEL ACCOUNTING November 2016······································· 108
CAMBRIDGE A LEVEL ACCOUNTING June 2020················································ 126
CAMBRIDGE A LEVEL ACCOUNTING June 2019··············································· 145
CAMBRIDGE A LEVEL ACCOUNTING June 2018················································ 163
CAMBRIDGE A LEVEL ACCOUNTING JUNE 2017·············································
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Accounting Multiple
choice Past Paper
March 2022
Cambridge A LEVEL

Questions and Answers

EXPLAINED
3

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 4 2

1 Which actions are taken in respect of the totals of a three-column cash book at the end of an
accounting period?

cash and bank discount

columns columns

A balanced balanced
B balanced totalled
C totalled balanced
D totalled totalled

2 Which item is an example of capital expenditure?

A cost of repairs to an office building

B cost of repainting business name on delivery van
C legal cost paid to purchase an office building
D legal cost to collect outstanding receivables

3 On 1 July 2021, Tim bought a delivery van for $10 000. He paid an additional $900 to have racks
fitted inside, and $800 for a year’s insurance.

Tim provides for depreciation at the rate of 10% per annum. A full year’s depreciation is charged
in the year of acquisition.

What was the total for expenses recorded in Tim’s income statement in respect of the van for the
year ended 30 September 2021?

A $1290 B $1690 C $2100 D $2500

4 A business has a year end of 31 December. It purchased a non-current asset on 1 January 2020
for $100 000. The asset was depreciated using the reducing balance method at 20% per annum.
It was sold for $40 000 on 1 January 2022.

What was the loss on disposal?

A $20 000 B $24 000 C $40 000 D $60 000

5 What is entered in the sales ledger control account?

1 cash sales
2 increase in provision for doubtful debts
3 returns inwards

A 1 and 2 B 1 and 3 C 2 and 3 D 3 only

© UCLES 2022 9706/12/F/M/22

 5 3

6 A trial balance included a suspense account. The bank balance of $28 412 had mistakenly been
entered as an overdraft and placed on the credit side as $28 142.

There had also been an addition error and the debit side of the trial balance had been undercast
by $450.

Which entry in the suspense account will correct these errors?

A credit $56 104

B debit $56 104
C credit $57 004
D debit $57 004

7 Which statement is correct?

A The balance on the irrecoverable debts account is carried down to the next accounting
period.
B The balance on the irrecoverable debts account is treated as an expense in the income
statement.
C The balance on the provision for doubtful debts account is calculated before the deduction of
irrecoverable debts.
D The balance on the provision for doubtful debts account is not included in a trial balance.

8 The following information is available for a business at 31 December 2021.

general expenses in arrears 1 January 420

general expenses in advance 1 January 240
general expenses in arrears 31 December 720
general expenses in advance 31 December 120

Total amount paid during the year ended 31 December 2021 is $11 500.

What is the amount to be included in the income statement for general expenses for the year
ended 31 December 2021?

A $10 240 B $10 720 C $11 080 D $11 920

9 When would the year end value of inventory need to be adjusted?

1 when inventory has not yet been paid for

2 when selling price has fallen below cost
3 when the owner has recorded taking goods for his own use during the year

A 1 and 2 B 2 and 3 C 2 only D 3 only

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 6 4

10 A business had a draft profit for the year of $250 000.

The following errors were then discovered.

1 Depreciation charged was $25 000. The figure should have been $40 000.
2 Closing inventory for the period was undervalued by $10 000.

What was the correct profit for the year?

A $225 000 B $245 000 C $255 000 D $275 000

11 A capital account for a sole trader contained three entries, in addition to the opening and closing
balances.

What did these entries represent?

debit side credit side

A capital introduced drawings, loss for the year

B capital introduced, drawings profit for the year
C drawings, loss for the year capital introduced
D profit for the year capital introduced, drawings

12 The year end of a business is 31 December 2021.

On 5 January 2022, inventory was counted and valued at cost, $30 000.

The following was then discovered.

1 Goods purchased and received after the year end, costing $1500, had been
included in the valuation.
2 It included goods returned by a customer after the year end. They had a selling price
of $900 which included a mark-up of 25% during the year.
3 Some goods included in the inventory, costing $500, were damaged. They can be
sold for $300 after repairs costing $100.

Which value of inventory should be included in the financial statements at 31 December 2021?

A $27 480 B $27 525 C $28 275 D $29 270

© UCLES 2022 9706/12/F/M/22

 7 5

13 A sole trader provided the following information for the year ended 31 December.

non-current assets increased by 25 000

current assets increased by 10 000
current liabilities increased by 12 500
additional capital introduced during the year 20 000
drawings for the year 13 000

What was the profit for the year ended 31 December?

A $10 500 B $14 500 C $15 500 D $29 500

14 Which rule does not apply in the absence of a partnership agreement?

A Interest on partners’ loans is charged at 6% per annum.

B No interest on capital is charged.
C No salaries are paid to partners.
D Profits and losses are shared equally between the partners.

15 P and Q are in partnership sharing profits and losses equally. On 1 January 2021, the
partnership had net assets of $410 000. At that date, R was admitted into the business on the
following terms.

1 Net assets to be revalued to $480 000.

2 Goodwill was valued at $50 000 but will not be retained in the books of account.
3 Profits and losses will now be shared P 40%, Q 40% and R 20%.

What was the change in Q’s capital immediately after R’s admission?

A decrease by $33 000

B decrease by $40 000
C increase by $33 000
D increase by $40 000

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 8 6

16 X and Y are in partnership, sharing residual profits and losses equally. Partners are charged 2%
interest on their drawings. Y is entitled to a salary of $10 000.

The partners’ drawings for the year were as shown.

X 12 000
Y 8 000

The profit for the year was $52 000.

How much did each partner receive as a share of residual profits?

A $10 800 B $11 200 C $20 800 D $21 200

17 Which statements are correct?

1 Dividends can be paid out of the general reserve.

2 Rights issues can be made from the share premium account.
3 The general reserve can be created from retained earnings.

A 1 and 2 B 1 and 3 C 1 only D 2 and 3

18 A limited company had the following balances on 1 January 2021.

revaluation reserve 20 000

retained earnings 142 000

Profit for the year ended 31 December 2021 was $105 000.

The revaluation reserve, $20 000, was created two years ago from a revaluation of a property.
The same property was revalued on 31 December 2021 with a revaluation loss of $35 000.

On 1 August 2021 an interim dividend, $40 000, was paid.

On 31 December 2021 a final dividend, $55 000, was proposed.

What was the value of retained earnings at 31 December 2021?

A $117 000 B $137 000 C $172 000 D $192 000

© UCLES 2022 9706/12/F/M/22

 9 7

19 The bank balance of a limited company was $390 000 before the following transactions took
place.

1 An issue of 500 000 new shares of $0.50 each was made at a premium of $0.25
per share.
2 A debenture for $100 000 was repaid.
3 A bonus issue of 100 000 shares of $0.50 each was made.

What was the bank balance after these transactions?

A $540 000 B $665 000 C $715 000 D $865 000

20 What might cause a decrease in a company’s non-current asset turnover?

A increase in expenses
B increase in sales revenue
C purchase of new non-current assets
D selling non-current assets

21 The following information for a limited company at 31 December 2021 is available.

ordinary share capital 300 000

retained earnings 110 000
8% debenture 100 000

Retained earnings at 1 January 2021 were $82 000. An interim dividend of $45 000 was paid on
1 May 2021.

What was the return on capital employed for the year ended 31 December 2021?

A 6.83% B 7.06% C 14.31% D 15.88%

22 Which statements about stepped costs are correct?

1 fixed within a range of activity levels

2 fixed whatever the level of activity
3 include fixed costs only
4 include both fixed and variable costs

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

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 10 8

23 A production worker is paid $15 per hour for working 8 hours a day.

Overtime is paid at the rate of time and a fifth (basic pay plus 20%).

A productivity bonus is also paid at the rate of $21 per unit for each unit produced in excess of
12 units per day.

Last Friday, the production worker worked 12 hours and assembled 14 units.

How much did he earn on Friday?

A $144 B $162 C $192 D $234

24 A retailer made the following purchases of inventory in October.

quantity unit price total cost

purchase
(units) $ $

5 Oct 50 500 25 000

12 Oct 50 500 25 000
23 Oct 150 525 78 750
128 750

There was no opening inventory for October.

The business uses the first-in first-out (FIFO) method to value its inventory.

In October, 200 units were sold for $900 each.

What was the gross profit for October?

A $76 667 B $77 000 C $77 500 D $96 250

25 A company has two departments in its factory. The details are shown.

budgeted fixed
budgeted
department overheads
hours
$

machining 180 000 6 000

assembly 90 000 10 000
total 270 000 16 000

What is the fixed overhead absorption rate per hour in the machining department?

A $11.25 B $16.875 C $30 D $45

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 11 9

26 What would cause overheads to be over-absorbed?

A Overhead absorbed is greater than overhead budgeted.

B Overhead absorbed is less than overhead budgeted.
C Overhead incurred is greater than overhead absorbed.
D Overhead incurred is less than overhead absorbed.

27 A company has the following information for producing 2000 units of a product.

sales revenue 85 000

direct materials 30 000
direct labour 14 000
direct expenses 2 500
other variable overheads 10 200
fixed overheads 8 000

What is the contribution to sales ratio?

A 23.88% B 33.29% C 45.29% D 54.71%

28 The following information is available about two products.

product 1 product 2
per unit per unit

material X 2 kilos 4 kilos

material Y 3 kilos 1 kilo
direct labour 3 hours 6 hours

Production is planned to be 100 units of each product.

700 kilos of material X and 400 kilos of material Y are available. A total of 800 direct labour hours
can be worked.

What are the limiting factors?

A direct labour only

B material X only
C material Y only
D all three inputs

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 12 10

29 A company provides the following information about its product.

selling price $100

variable cost per unit $40
fixed costs $21 600
break-even point 360 units

If the business changes its production method, contribution will increase by 10% and fixed costs
will increase by 5%.

What would be the effect on the break-even point?

A decrease by 16 units
B decrease by 18 units
C increase by 16 units
D increase by 18 units

30 What are possible limitations of a budgetary control system?

1 Budgets are based on estimates.

2 Budgets may lead to staff demotivation.
3 Budgets may prevent managers from being creative.

A 1 and 2 only B 1 and 3 only C 1, 2 and 3 D 2 and 3 only

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Answers
EXPLAINED
 14 4

1 Which actions are taken in respect of the totals of a three-column cash book at the end of an
accounting period?

cash and bank discount

columns columns

A balanced balanced
B balanced totalled
C totalled balanced
D totalled totalled

Answer B

The three-column cash book has an extra money column to record discounts, so it has
discounts, cash and bank columns on the debit side as well as on the credit side. This is to avoid
too many entries being made in the nominal (general) ledger, where discounts accounts are
maintained.

At the end of the year, the cash book should be balanced.The cash and bank columns in the
cash book are balanced. Note that discount columns are totalled. The discount columns are
MEMORANDOM columns only, they are not part of the double entry system.

2 Which item is an example of capital expenditure?

A cost of repairs to an office building

B cost of repainting business name on delivery van
C legal cost paid to purchase an office building
D legal cost to collect outstanding receivables

Answer C

Capital expenditure is expenditure which forms part of the cost of non-current assets.The
legal fees associated with the purchase of a property may be added to the purchase price
and classified as capital expenditure. The cost of the property in the statement of financial
position of the business will then include the legal fees.

Revenue expenditure is a short-term expense incurred to meet the operational costs of

running the business on a day-to-day basis.Cost of repairs and repainting are treated as
revenue expenditure.

Legal cost to collect outstanding receivables are not related to the purchase of a property.
 15 5
3 On 1 July 2021, Tim bought a delivery van for $10 000. He paid an additional $900 to have racks
fitted inside, and $800 for a year’s insurance.

Tim provides for depreciation at the rate of 10% per annum. A full year’s depreciation is charged
in the year of acquisition.

What was the total for expenses recorded in Tim’s income statement in respect of the van for the
year ended 30 September 2021?

A $1290 B $1690 C $2100 D $2500

Answer A

The purchase cost of the delivery van ($10 000) and the additional $900 to have racks fitted are
treated as capital expenditure. The total purchase cost is $ 10,900. ($10,000+$900).

The insurance needs to be paid every year and is thus treated as an expense in the income
statement. Insurance charge for 3 months (1 July to 30 September) will be included.

Depreciation is charged for full in the year of acquisition

Total expenses calculation:

$
Insurance (3/12)x800 200
Depreciation 0.1x10900 1090
Total 1290

4 A business has a year end of 31 December. It purchased a non-current asset on 1 January 2020
for $100 000. The asset was depreciated using the reducing balance method at 20% per annum.
It was sold for $40 000 on 1 January 2022.

What was the loss on disposal?

A $20 000 B $24 000 C $40 000 D $60 000

Answer B

Depreciation calculation
$
Year 1 0.2x100,000 20,000
Year 2 0.2x80,000 16,000
Total 36,000

The asset was sold for 40000

The net book value was [64000] (100000-36000)
Loss on disposal 24000
 16 6

5 What is entered in the sales ledger control account?

1 cash sales
2 increase in provision for doubtful debts
3 returns inwards

A 1 and 2 B 1 and 3 C 2 and 3 D 3 only

Answer D

The sales ledger control account is an account used to record the totals of the books of prime
entry, related to credit sales, to check the accuracy of the sales ledger. It is also known as the
total trade receivables account.

Cash sales are not included, they do not appear in the sales ledger as the sales ledger reserve
is reserved only for credit customers.

6 A trial balance included a suspense account. The bank balance of $28 412 had mistakenly been
entered as an overdraft and placed on the credit side as $28 142.

There had also been an addition error and the debit side of the trial balance had been undercast
by $450.

Which entry in the suspense account will correct these errors?

A credit $56 104

B debit $56 104
C credit $57 004
D debit $57 004

Answer C

$
Correcting bank balance * (28142+28412) 56554
Trial balance undercasted 450
Suspense account CREDITED 57004

*The bank balance mistakenly been entered as an overdraft, on the credit side at $28142. This is incorrect
Bank Account
$
Balance b/d 28142

The correct entry in the bank account is $28412 on the debit side. TWO entries must be made in the bank account to correct the previous error.
 17 7
DR Bank Account CR
$ $
Suspense account 28142 Balance b/d 28142
Suspense account 28412

The correct balance will now be shown on the bank account

DR Bank Account CR
$ $
(Wrong amount and Wrong
Suspense account 28142 Balance b/d 28142 side)
Suspense account 28412 balance c/d 28412

56554 56554
(Correct amount and
Correct side) Balance b/d 28412

Examiner report: Using suspense accounts always seems to cause problems. Looking at the data, to correct
the bank account there would need to be a debit entry of $28 142 to cancel the error and a further debit entry
of $28 412 to ensure the correct balance was entered. The undercast of $450 would also need a debit entry.
Thus the suspense account would need to be credited with the total of these three items, $57 004, being the
key C

7 Which statement is correct?

A The balance on the irrecoverable debts account is carried down to the next accounting
period.
B The balance on the irrecoverable debts account is treated as an expense in the income
statement.
C The balance on the provision for doubtful debts account is calculated before the deduction of
irrecoverable debts.
D The balance on the provision for doubtful debts account is not included in a trial balance.

Answer B

Irrecoverable debts are specific debts owed to a business which it decides are never going to
be paid. They are written off as an expense in the statement of profit or loss.

The provision for doubtful debts is calculated AFTER he deduction ofirrecoverable debts.
 18 8
8 The following information is available for a business at 31 December 2021.

general expenses in arrears 1 January 420

general expenses in advance 1 January 240
general expenses in arrears 31 December 720
general expenses in advance 31 December 120

Total amount paid during the year ended 31 December 2021 is $11 500.

What is the amount to be included in the income statement for general expenses for the year
ended 31 December 2021?

A $10 240 B $10 720 C $11 080 D $11 920

Answer D

General expenses account

$ $
balance b/d 240 balance b/d 420
Bank 11,500 Income statement* 11,920

balance c/d 720 balance c/d 120

12,460 12,460

balance b/d 120 balance b/d 720

*balancing figure

Prepayments are included in current assets in the statement of financial position. They are
assets, as they represent money that has been paid out in advance of the expense being
incurred. Prepayments are amounts paid for in advance.

Accruals are included in current liabilities, as they represent liabilities which have been incurred
but for which no invoice has yet been received. An accrual is when you pay for something in
arrears.
 19 9

9 When would the year end value of inventory need to be adjusted?

1 when inventory has not yet been paid for

2 when selling price has fallen below cost
3 when the owner has recorded taking goods for his own use during the year

A 1 and 2 B 2 and 3 C 2 only D 3 only

Answer C

Option 2: An adjustment will be required. Inventory is valued at cost and net realisable value,
whichever is lower

Net realisable value (NRV) is the estimated saleable value of the inventory in question, less a
reasonable estimate of costs associated with the completion and eventual sale of goods.

Cost includes, in addition to cost price, all those costs necessary to acquire the inventory and
convert it to a saleable condition.

Option 1 and 3 do not require adjustment.

10 A business had a draft profit for the year of $250 000.

The following errors were then discovered.

1 Depreciation charged was $25 000. The figure should have been $40 000.
2 Closing inventory for the period was undervalued by $10 000.

What was the correct profit for the year?

A $225 000 B $245 000 C $255 000 D $275 000

Answer B

$
Draft profit 250,000
Depreciation mistated ( 15,000) 40,000-25,000
Closing inventory undervalued 10,000
245,000
 20 10

11 A capital account for a sole trader contained three entries, in addition to the opening and closing
balances.

What did these entries represent?

debit side credit side

A capital introduced drawings, loss for the year

B capital introduced, drawings profit for the year
C drawings, loss for the year capital introduced
D profit for the year capital introduced, drawings

Answer C

A sole trader owns and runs a business, contributes the capital to start the enterprise, runs it with or without
employees, and earns the profits or stands the loss of the venture. The amounts invested in a business by the
owner are amounts that the business owes to the owner. This is a special kind of liability, called capital. It is a credit.

If the owner has made drawings, then the drawings account will be closed and a transfer made to the debit of the
capital account, therefore reducing the capital. The entry is:
» Debit: capital account
» Credit: drawings account
 21 11

12 The year end of a business is 31 December 2021.

On 5 January 2022, inventory was counted and valued at cost, $30 000.

The following was then discovered.

1 Goods purchased and received after the year end, costing $1500, had been
included in the valuation.
2 It included goods returned by a customer after the year end. They had a selling price
of $900 which included a mark-up of 25% during the year.
3 Some goods included in the inventory, costing $500, were damaged. They can be
sold for $300 after repairs costing $100.

Which value of inventory should be included in the financial statements at 31 December 2021?

A $27 480 B $27 525 C $28 275 D $29 270

Answer A

$
Inventory before adjustment 30,000
Less goods purchased after year end (1500)
Less goods returned after year end
900- (0.20* x 900) (720)
Damaged goods (500-200)** (300)
27480

Convert markup to margin*

Mark-up is the profit as a percentage of cost

Gross profit margin is the profit as a percentage of sales

Margin = Markup/ 1+ Markup (and Markup = Margin/ 1+Margin)

Margin = 0.25/(1+0.25)= 0.20

Margin=20%

Inventory should be valued at lower of cost or net realizable value**

Cost = $500
Net realizable value = $300 - $100 = $200
 22 12

13 A sole trader provided the following information for the year ended 31 December.

non-current assets increased by 25 000

current assets increased by 10 000
current liabilities increased by 12 500
additional capital introduced during the year 20 000
drawings for the year 13 000

What was the profit for the year ended 31 December?

A $10 500 B $14 500 C $15 500 D $29 500

Answer C

closing net assets = opening net assets + capital introduced + profit – drawings

Profit/(loss) = movement in net assets – capital introduced + drawings

$
non-current assets increase 25,000
current assets increase 10,000
LESS current liabilities increase (12,500)
LESS additional capital introduced (20,000)
during the year
drawings for the year 13,000
Profit 15,500

14 Which rule does not apply in the absence of a partnership agreement?

A Interest on partners’ loans is charged at 6% per annum.

B No interest on capital is charged.
C No salaries are paid to partners.
D Profits and losses are shared equally between the partners.

Answer A

If there is no agreement, the Partnership Act of 1890 lays down the following rules which must
apply:
• Partners should contribute equal amounts of capital.
• No partner should be entitled to interest on capital.
• No partner is entitled to a salary.
• No partner is to be charged interest on drawings.
• Residual profits or losses are to be shared equally.
• Any loan made to the partnership by a partner will carry interest at the rate of five per cent
per annum.
 23 13

15 P and Q are in partnership sharing profits and losses equally. On 1 January 2021, the
partnership had net assets of $410 000. At that date, R was admitted into the business on the
following terms.

1 Net assets to be revalued to $480 000.

2 Goodwill was valued at $50 000 but will not be retained in the books of account.
3 Profits and losses will now be shared P 40%, Q 40% and R 20%.

What was the change in Q’s capital immediately after R’s admission?

A decrease by $33 000

B decrease by $40 000
C increase by $33 000
D increase by $40 000

Answer D

Revaluation = $480,000 - $410,000 = $70,000

Q’s share of revaluation = 0.5x70,000= $35,000

Goodwill = $50,000
Q’s share of goodwill
0.5x$50,000=$25,000
0.4x$50,000= $20,000

Change in Q’s capital immediately after R’s admission

($25,000 - $20,000) + $35,000 = $40,000

16 X and Y are in partnership, sharing residual profits and losses equally. Partners are charged 2%
interest on their drawings. Y is entitled to a salary of $10 000.

The partners’ drawings for the year were as shown.

X 12 000
Y 8 000

The profit for the year was $52 000.

How much did each partner receive as a share of residual profits?

A $10 800 B $11 200 C $20 800 D $21 200

 24 14

Answer D

$
Profit for the year 52,000
LESS salary (10,000)
ADD interest on drawings
X 240
Y 160
Residual profit 42400

Share of residual profit

X 21,200
Y 21,200
42,400

17 Which statements are correct?

1 Dividends can be paid out of the general reserve.

2 Rights issues can be made from the share premium account.
3 The general reserve can be created from retained earnings.

A 1 and 2 B 1 and 3 C 1 only D 2 and 3

Answer B

1 General reserves can be used to pay dividends.

2 One common use of the share premium account is to 'finance' the issue of bonus shares.
3 General reserves are created by transferring some percentage (not prescribed) of current year’s profit
before paying the dividend whereas the remaining profits of the current year is added to retained earnings
each year.
 25 15

18 A limited company had the following balances on 1 January 2021.

revaluation reserve 20 000

retained earnings 142 000

Profit for the year ended 31 December 2021 was $105 000.

The revaluation reserve, $20 000, was created two years ago from a revaluation of a property.
The same property was revalued on 31 December 2021 with a revaluation loss of $35 000.

On 1 August 2021 an interim dividend, $40 000, was paid.

On 31 December 2021 a final dividend, $55 000, was proposed.

What was the value of retained earnings at 31 December 2021?

A $117 000 B $137 000 C $172 000 D $192 000

Answer D

$
Retained earnings 142,000
Profit for the year 105,000
Revaluation loss (35000-20000) (15,000)
Dividend paid (40,000)
192,000
 26 16

19 The bank balance of a limited company was $390 000 before the following transactions took
place.

1 An issue of 500 000 new shares of $0.50 each was made at a premium of $0.25
per share.
2 A debenture for $100 000 was repaid.
3 A bonus issue of 100 000 shares of $0.50 each was made.

What was the bank balance after these transactions?

A $540 000 B $665 000 C $715 000 D $865 000

Answer B

$
Bank balance 390,000
Share issue ( 500,000 x (0.25+0.50)) 375,000
Debenture repaid (100,000)

665,000

20 What might cause a decrease in a company’s non-current asset turnover?

A increase in expenses
B increase in sales revenue
C purchase of new non-current assets
D selling non-current assets

Answer C

Non current asset turnover = Sales x100

Non Current Asset

The purchase of non current asset turnover lead to a decrease in company’s non-current asset
turnover.

Let’s assume that initially the company incurs sales of $100 and has non current assets worth $1000.
The non current asset turnover is calculated as 10% (100/1000).

If the company still incurs sales of $100 but it’s non current assets increases to $ 2000. The non current
asset turnover is calculated as 5% (100/2000).

The non current asset turnover falls from 10% to 5% following the purchase of a non current asset.
 27 17

21 The following information for a limited company at 31 December 2021 is available.

ordinary share capital 300 000

retained earnings 110 000
8% debenture 100 000

Retained earnings at 1 January 2021 were $82 000. An interim dividend of $45 000 was paid on
1 May 2021.

What was the return on capital employed for the year ended 31 December 2021?

A 6.83% B 7.06% C 14.31% D 15.88%

Answer D

Profit (110,000-82,000+45,000+8000)* $81000

Capital employed (300,000+110,000+100,000) $510000

Return on Capital employed = Profit x 100

Capital employed

= (81,000/510,000)X100
= 15.88%

$
Retained earnings at start 82,000
Interim dividend paid (45,000)
Debenture interest (8,000)
Profit* Missing figure
Retained earnings at end 110,000

Examiner’s report: The numerator for the calculation of ROCE is the profit from operations. In
this case the change in retained earnings was $110 000 – $82 000 + $45 000 + $8000, giving a
total of $81 000 as the numerator. Most candidates did not add back the debenture interest of
$8000. Had they done so they would have identified the key D.
 28 18

22 Which statements about stepped costs are correct?

1 fixed within a range of activity levels

2 fixed whatever the level of activity
3 include fixed costs only
4 include both fixed and variable costs

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

Answer D

Stepped costs remain fixed until a certain level of business activity is reached.

23 A production worker is paid $15 per hour for working 8 hours a day.

Overtime is paid at the rate of time and a fifth (basic pay plus 20%).

A productivity bonus is also paid at the rate of $21 per unit for each unit produced in excess of
12 units per day.

Last Friday, the production worker worked 12 hours and assembled 14 units.

How much did he earn on Friday?

A $144 B $162 C $192 D $234

Answer D

$
Basic pay($15x8) 120
Overtime(4x$18) 72
Productivity bonus($21x2) 42
234

24 A retailer made the following purchases of inventory in October.

quantity unit price total cost

purchase
(units) $ $

5 Oct 50 500 25 000

12 Oct 50 500 25 000
23 Oct 150 525 78 750
128 750

There was no opening inventory for October.

The business uses the first-in first-out (FIFO) method to value its inventory.

In October, 200 units were sold for $900 each.

 29 19
What was the gross profit for October?

A $76 667 B $77 000 C $77 500 D $96 250

Answer C

$
Sales (200 units x $900) 180,000
Purchases* (102,500)
Profit 77,500

Purchases calculation* $
(50 units x$500) 25,000
(50 units x$500) 25,000
(100 units x$525) 52,500
102,500

25 A company has two departments in its factory. The details are shown.

budgeted fixed
budgeted
department overheads
hours
$

machining 180 000 6 000

assembly 90 000 10 000
total 270 000 16 000

What is the fixed overhead absorption rate per hour in the machining department?

A $11.25 B $16.875 C $30 D $45

Answer C

The overhead absorption rate will take into account the number of machine hours required to produce each
unit of output.

Fixed overhead absorption rate = $180,000/6000

= $30
 30 20

26 What would cause overheads to be over-absorbed?

A Overhead absorbed is greater than overhead budgeted.

B Overhead absorbed is less than overhead budgeted.
C Overhead incurred is greater than overhead absorbed.
D Overhead incurred is less than overhead absorbed.
Answer D

Overhead recovery rates are based on predictions of future levels of activity and predicted (budgeted) levels of
overhead expenditure.Over absorption means that the overheads charged to the cost of sales are greater then the
overheads actually incurred.

27 A company has the following information for producing 2000 units of a product.

sales revenue 85 000

direct materials 30 000
direct labour 14 000
direct expenses 2 500
other variable overheads 10 200
fixed overheads 8 000

What is the contribution to sales ratio?

A 23.88% B 33.29% C 45.29% D 54.71%

Answer B

$
sales revenue 85,000
direct materials 30,000
direct labour 14,000
other variable overheads 10,200
direct expenses 2,500
Total variable costs 56,700
Contribution 28,300

Contribution/ Sales ratio = (28,300/85000) x 100

= 33.29%
 31 21
28 The following information is available about two products.

product 1 product 2
per unit per unit

material X 2 kilos 4 kilos

material Y 3 kilos 1 kilo
direct labour 3 hours 6 hours

Production is planned to be 100 units of each product.

700 kilos of material X and 400 kilos of material Y are available. A total of 800 direct labour hours
can be worked.

What are the limiting factors?

A direct labour only

B material X only
C material Y only
D all three inputs

Answer A

Required Available
Material X (kilos) 600* 700
Material Y (kilos) 400** 400
Direct labour (hours) 900*** 800

*(2x100)+(4x100)= 600 kilos

**(3x100)+(1x100)= 400kilos
***(3x100)+(6x100)= 900 hours
 32 22

29 A company provides the following information about its product.

selling price $100

variable cost per unit $40
fixed costs $21 600
break-even point 360 units

If the business changes its production method, contribution will increase by 10% and fixed costs
will increase by 5%.

What would be the effect on the break-even point?

A decrease by 16 units
B decrease by 18 units
C increase by 16 units
D increase by 18 units

Answer A

Break even point = Total fixed cost / Contribution per unit

= (21,600 * 1.05 ) / (60 * 1.1)
= 343.6 units (rounded to 344)

Decrease in break even = 360 - 344

= 16 units

30 What are possible limitations of a budgetary control system?

1 Budgets are based on estimates.

2 Budgets may lead to staff demotivation.
3 Budgets may prevent managers from being creative.

A 1 and 2 only B 1 and 3 only C 1, 2 and 3 D 2 and 3 only

Answer C

Budgets are only as good as the data being used. If data are inaccurate, the budget will be of little use.
Budgets might become an overriding goal. This could lead to a misuse of resources or incorrect
decisions being made. Budgets might act as a demotivator if they are imposed rather than negotiated.
33

Accounting Multiple
choice Past Paper
November 2020
Cambridge A LEVEL

Questions and Answers

EXPLAINED
34

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 35 2

1 The inclusion of unpaid loan interest in financial statements is in accordance with which
accounting concept?

A consistency
B going concern
C matching
D money measurement

2 What is depreciation?

A a means of allocating the cost of a non-current asset over its useful life
B a measure of the decrease in market value of a non-current asset
C an outflow of cash from the use of a non-current asset
D the expense spent on the non-current asset

3 A trader depreciates fixtures and fittings at the rate of 10% per annum on cost. On
1 January 2019 a purchase of new fixtures and fittings, $5000, was posted to the advertising
account in error.

What was the effect of this error on the trader’s capital account on 31 December 2019?

A overstated $4500
B overstated $5000
C understated $4500
D understated $5000

4 A company had a non-current asset which cost $370 000. The asset had a 10-year useful life and
an estimated residual value of $20 000. A full year’s charge for depreciation is made in every year
of use.

After four years the asset was sold. The loss on disposal was $30 000 and disposal costs were
$10 000.

What were the sale proceeds?

A $192 000 B $200 000 C $202 000 D $210 000

5 Which item is recorded on the debit side of a sales ledger control account?

A interest charged on overdue accounts of customers

B irrecoverable debts written off
C returns of goods supplied to credit customers
D total of cash sales
 36 3

6 A trader prepared a trial balance which did not balance. The difference was posted to a suspense
account.

The following errors have now been found.

1 The returns inwards account had been overcast by $90.

2 A payment of $200 for rent had been entered correctly in the cash book but had not
been posted to the rent account.

What was the opening balance on the suspense account?

A $110 credit
B $110 debit
C $290 credit
D $290 debit

7 How could a credit entry of $500 in X’s account have arisen in the books of account of Y?

A X bought goods from Y.

B X returned goods to Y.
C Y made a payment to X.
D Y returned goods to X.

8 An invoice for purchases was credited to the purchases account.

How will the balance on the purchases account be corrected?

A decrease by the value of the invoice

B decrease by twice the value of the invoice
C increase by the value of the invoice
D increase by twice the value of the invoice

[Turn over
 37 4

9 Rent is paid by a business monthly in advance on the first day of each month. The payments
during a financial year were as follows.

up to and including 1 June $500 per month

from 1 July $600 per month

Which amounts will appear in the financial statements for the year ended 31 October?

statement of financial
income statement
position

A $6300 $600 other receivables

B $6300 $600 other payables
C $6400 –
D $6500 –

10 What is the effect on profit for the year and net assets when accrued expenses are understated?

profit for the year net assets

A overstated overstated
B overstated understated
C understated overstated
D understated understated

11 Ali’s trade receivables at 31 December 2019 were $26 500. He knew that $400 of these were
irrecoverable.

He wished to maintain a provision for doubtful debts equal to 5% of the trade receivables.

At 1 January 2019 the balance of the provision for doubtful debts was $1200.

Which entry does Ali make in the provision for doubtful debts account at 31 December 2019?

A $105 credit
B $105 debit
C $125 credit
D $125 debit
 38 5

12 Adil and Bashir were in partnership sharing profits and losses in the ratio 2 : 1.

Chandra joins the partnership and profits and losses are now to be shared between Adil, Bashir
and Chandra in the ratio 3 : 2 : 1.

The balances of the partners’ capital accounts prior to Chandra joining the partnership are as
follows:

Adil 20 000
Bashir 10 000

Goodwill is to be valued at $36 000 and is not to be retained in the books of account.

What is the balance on Adil’s capital account after Chandra joined the partnership?

A $20 000 B $26 000 C $38 000 D $44 000

13 How is a loss on realisation recorded when a partnership is dissolved?

A Credit each partner’s capital account equally.

B Debit each partner’s capital account equally.
C Credit each partner’s capital account in the profit-sharing ratio.
D Debit each partner’s capital account in the profit-sharing ratio.

14 John and Brian are in partnership sharing profits and losses equally. John receives a salary of
$2000 per annum. Brian loaned the business $5000. He is entitled to interest of 5% per annum.

The profit for the year before appropriation was $24 000. During the year John took drawings of
$3000.

What will be the amount of residual profit Brian will receive for the year?

A $9375 B $10 875 C $11 000 D $11 250

15 A company issued 100 000 ordinary shares of $1 each at a premium of $2. The market value was
$4 per share.

Which statement is not correct?

A Capital reserves increased by $200 000.

B Cash and cash equivalents increased by $300 000.
C Ordinary share capital increased by $100 000.
D Revenue reserves increased by $400 000.

[Turn over
 39 6

16 Which item has no effect on the total equity of a limited company?

A bonus issue of shares

B dividends paid
C rights issue of shares
D upward revaluation of non-current assets

17 Information relating to W Limited for the year ended 31 December 2019 was as follows:

retained earnings at 1 January 2019 22 000

profit from operations 83 000
dividend paid 20 000
dividend proposed 15 000
bank loan interest 16 000

What was the amount of retained earnings at 31 December 2019?

A $32 000 B $47 000 C $54 000 D $69 000

18 Which financial information is not available for potential shareholders of a limited company?

A cash budget
B income statement
C notes to financial statements
D statement of changes in equity
 40 7

19 The following information is available.

$ $

revenue 600 000

opening inventory 46 000
purchases 244 000
290 000
closing inventory 50 000 240 000
gross profit 360 000
expenses 150 000
profit from operations 210 000

What was the rate of inventory turnover (in times)?

A 4.8 B 5 C 12 D 12.5

20 A company’s financial statements for the year ended 31 December showed the following:

issued share capital 150 000

non-current liabilities 280 000
reserves including retained earnings 250 000

The company’s profit from operations was $160 000 and the profit for the year was $120 000.

What was the company’s return on capital employed?

A 23.5% B 30.0% C 37.2% D 40.0%

21 Which cost can be classified as a fixed cost?

A bank overdraft interest

B piece rate labour cost
C sales commission
D telephone rental

[Turn over
 41 8

22 An employee works a 40-hour week at an hourly rate of $8.

She receives a bonus of 30% of the hourly rate for time saved producing each unit. The target
production time is 30 minutes per unit.

Last week she worked 40 hours and produced 90 units.

What were her gross earnings for the week?

A $320 B $332 C $360 D $416

23 A business uses the weighted average (AVCO) method to value its inventory.

It purchased the following units of inventory.

cost per unit total cost

units
$ $

100 36 3600
120 48 5760
80 54 4320

After these receipts it issued 250 units to production.

What was the value of the issue?

A $10 980 B $11 400 C $11 500 D $11 880

24 A business provides the following information.

number of overheads
month
machine hours $

April 34 000 493 000

May 67 000 625 000

The variable overhead rate per machine hour was $4.

What was the monthly fixed overhead cost?

A $132 000 B $136 000 C $268 000 D $357 000

 42 9

25 A business absorbs its fixed overheads using direct labour hours.

The following information is provided.

actual budgeted

overheads $600 000 $508 000

labour hours 14 300 12 700

Which statement is correct?

A Overheads were over absorbed by $28 000.

B Overheads were under absorbed by $28 000.
C Overheads were over absorbed by $92 000.
D Overheads were under absorbed by $92 000.

26 A company sells a single product for $24 per unit.

The variable cost is $8 per unit.

Fixed costs have been absorbed based on a normal activity level of 1000 units at $6 per unit.

What is the profit under marginal costing if the company makes and sells 1250 units?

A $10 000 B $12 500 C $14 000 D $20 000

27 A product has the following revenue and costs per unit.

selling price 40
marginal cost 22
fixed manufacturing overhead 6
non-manufacturing overhead 2

What is the contribution to sales ratio?

A 25% B 30% C 45% D 55%

28 Which statements about cost–volume–profit analysis are correct?

1 It applies over any time period.

2 It is suitable for any range of output.
3 Profits are calculated using marginal costing.

A 1 and 3 B 1 only C 2 and 3 D 3 only

[Turn over
 43 10

29 Total costs at two levels of production are as follows.

units $

10 000 230 000

16 000 320 000

Fixed costs will increase by $30 000 if more than 20 000 units are produced.

What are the total costs if 25 000 units are produced?

A $405 000 B $485 000 C $530 000 D $605 000

30 Which are benefits of a budgetary control system?

1 It can be used to control expenditure.

2 It can be used to record accounting transactions.
3 It can help when applying for a loan.
4 It can identify where improvements are required.

A 1, 2, 3 and 4
B 1 and 2 only
C 1, 3 and 4 only
D 3 and 4 only
44

Answers
EXPLAINED
 45

November 2020 Paper 1

Multiple Choice

1. The inclusion of unpaid loan interest in financial 4. A company had a non-current asset which cost
statements is in accordance with which account ­ ing $370 000. The asset had a 10-year useful life and an
concept? estimated residual value of $20 000 . A full year 's
charge for depreciation is made in every year of use.
A consistency
After four years the asset was sold. The loss on
B going concern
disposal was $30 000 and disposal costs were
C matching $10 000.
D money measurement What were the sale proceeds?
_ ___________________________________________

The matching concept is sometimes known as the A $192 000 B $200 000
accruals concept. The value of the resources used in C $202 000 D $210 000
any time period may be different from the price paid
to acquire the resources.
Answer C $370,000-$20,000
Annual depreciation = = $35,000
10
2. What is depreciation? Accumulated depreciation ($35,000 x 4) = $140,000
Net book value at the time of disposal ($370,000 -
A a means of allocating the cost of a non-cur $140,000) =$230,000
­ rent asset over its useful life
Net book value ($230,000) + disposal costs ($10,000)
B a measure of the decrease in market value of
- Sales proceeds (to be determined) =Loss ($30,000)
a non-current asset
Answer: D
C an outflow of cash from the use of a non
- current asset
D the expense spent on the non-current asset 5. Which item is recorded on the debit side of a
___________________________ _________________________ sales ledger control account?
A interest charged on overdue accounts of cus­
Depreciation is the apportioning of the tomers
cost of a non-current asset over its useful B irrecoverable debts written off
economic life. Answer: A C returns of goods supplied to credit customers
. D total of cash sales
________________________________________________________

3. A trader depreciates fixtures and fittings at the The interest charged on overdue accounts of customers
rate, of 10% per annum on cost. On 1 January 2019 will increase receivables . It will be debited in the sales
a purchase of new fixtures and fittings, $ ledger control account
5000, was posted to the advertising account in Answer. A
error.
What was the effect of this error on the trader'
6. A trader prepared a trial balance which did not
s capital account on 31 December 2019?
balance. The difference was posted to a suspense
A overstated $4500 account.
B overstated $5000 The following errors have now been found.
C understated $4500
1 The returns inwards account had been
D understated $5000 overcast by $90.
___________________________________ 2 A payment of $200 for rent had been
Advertising expenses: overstated entered correctly in the cash book but
had not been posted to the rent account.
Profit : understated by $5000.

Fixtures & fittings: Not depreciated

Profit is overstated by $500 ($5000 x 10%)

Overall profit is understated by $4500

Answer C
 46
What was the opening balance on the suspense
account?
A $110 credit B $110 debit ______ _________________________________________________

C $290 credit D $290 debit

Rent is paid in same month so there is no prepayment
involved
Error 1: debit column overstated by $90 $500 x 8 month = $4000
Error 2: debit column understated by $200 $600 x 4 month = $2400
Overall: debit column is understated by $ 110 Total expenses is $6400 ($4000 + $2400)
without any accrual or prepayment
The opening balance on the suspense account was $110 Answer. C

Answer. B
10. What is the effect on profit for the year and net
assets when accrued expenses are understated?
profit for the year net assets
7. How could a credit entry of $500 in X’s account
A overstated overstated
have arisen in the books of account of Y?
B overstated understated
A X bought goods from Y.
C understated overstated
B X returned goods to Y.
C Y made a payment to X. D understated understated

D Y returned goods to X. _____________________________ ___________________________

_________________________________________________________
(Accrued expenses are normally added to expenses and is a
Goods returned by X would be debited to sales return current liability)
account and credited to X account in the books of Y Accrued expenses : Understated
Answer: B
Profit: Overstated
Net assets: Overstated
8. An invoice for purchases was credited to
Useful formulas:
the purchases account.
Total revenue- Total expenses = Profit
How will the balance on the purchases account
be corrected? Net assets = total assets - total liabilities
A decrease by the value of the invoice
Answer A
B decrease by twice the value of the invoice
C increase by the value of the invoice
11. Ali’s trade receivables at 31 December 2019 were $26
D increase by twice the value of the invoice
500. He knew that $400 of these were irrecoverable. He wished
_________________________________________________________
to maintain a provision for doubtful debts equal to 5% of
Purchases was credited instead of being debited the trade receivables. At 1 January 2019 the balance of the
The purchases account should be debited twice: provision for doubtful debts was $1200.
-once to record omitted debit entry and Which entry does Ali make in the provision for doubtful
debts account at 31 December 2019?
-once to write off wrong credit entry.
The balance on the purchases account will be corrected by
increasing by twice the value of the invoice A $105 credit B $105 debit
Answer: D
C $125 credit D $125 debit
_____________________ __________ _________________
9. Rent is paid by a business monthly in advance on the first
day of each month . The payments during a financial year Step 1: Calculate Provision for doubtful debts
were as follows. ($26,500 - $400) x 5% = $1305
Step 2: Calculate Increase in Provision for doubtful
up to and including 1 June $500 per month debts
from 1 July $600 per month ($1305 - $1200) = $105
Which amounts will appear in the financial state­ This will be credited to provision for doubtful debts as a
ments for the year ended 31 October? contra asset will increase.
Answer. A
income statement statement of financial position
A $6300 $600 other receivables 12. Adil and Bashir were in partnership sharing profits
B $6300 $600 other payables and losses in the ratio 2:1.
C $6400 - Chandra joins the partnership and profits and
losses are now to be shared between Adil, Bashir
D $6500 -
and Chandra in the ratio 3:2:1.
The balances of the partners’ capital accounts
prior to Chandra joining the partnership are as
follows:
47

15. A company issued 100 0 00 ordinary shares of $1 each at a

s premium of $2. The market value was $4 per share.
Adil 20000 Which statement is not correct?
Bashir 10000
A Capital reserves increased by $200 000.
Goodwill is to be valued at $36 000 and is not to B Cash and cash equivalents increased by $300 000.
be retained in the books of account. C Ordinary share capital increased by $100 000.
What is the balance on Adil’s capital account after D Revenue reserves increased by $400 000
Chandra joined the partnership?
A $20 000 B $26 000
C $38 000 D $44 000 Cashandcashequivalents
Issue of shares increase cash by $300,000 (100,000 X $[1+2])
Ordinary share capital
Capital $20,000
Share capital increases by $100,000 (100,000 X $1)
Add share of goodwill($36,000 x 2/3) $24,000 Capital reserves
Less share of goodwill written off ($36,000x3/6) ( $18,000) Share premium increases by $200,000 (100,000 X $2)
Answer: D
$26,000
Answer. B

13. How is a loss on realisation recorded when a 16. Which item has no effect on the total equity of a
partnership is dissolved? limited company?

A Credit each partner 's capital account equally . A bonus issue of shares
B Debit each partner ’s capital account equally .
B dividends paid
C Credit each partner’s capital account in the
profit-sharing ratio. C rights issue of shares
D Debit each partner’s capital account in D upward revaluation of non-current assets
the profit-sharing ratio. _________________

_________________________________________________________ A bonus issue does not change the total equity

position in the balance sheet of the company.
Loss on realisation will decrease capital. Answer A
It is debited in the capital account as per
profit sharing ratio. Answer D
17. Information relating to W Limited for the year ended
31 December 2019 was as follows:
14 . John and Brian are in partnership sharing profits and
losses equally . John receives a salary of $2000 per
s
annum. Brian loaned the business $5000. He is entitled to retained earnings at 1 January 2019 22000
interest of 5% per annum. profit from operations 83000
The profit for the year before appropriation was $24 000. dividend paid 20 000
During the year John took drawings of $3000.
dividend proposed 15000
What will be the amount of residual profit Brian
will receive for the year? bank loan interest 16000

What was the amount of retained earnings at 31

A $9375 B $10 875 December 2019?
C $11 000 D $11 250
A $32 000 B $47 000
___________EXPLANA TION
C $54 000 D $69 000
Note: The Interest on Brian's loan is an income ______________________________________________________
statement item. It is is already deducted from the Profit
of $24,000 Profit for the year = profit from operations ($83,000)
-bank loan interest ($16,000)

Step 1: Calculate Residual profit Retained earnings at start ($22,000) + Profit for the year
($24,000 - $2000) = $22,000 ($ 67 ,000 ) - Dividends paid ($20 ,000 ) = $69 ,000

Step 2: Calculate Brian's share Residual Note : Proposed dividends are not to be taken into account
Answer. D
profit
$22,000 x1/2=$11000
Answer. C
 48

18. Which financial information is not available

for potential shareholders of a limited company?
Step 1: Calculate Capital employed
A cash budget = $ 150.000 + $280,000 + $250,000
B income statement
C notes to financial statements Step 2: Calculate Return on capital employed
= $160,000/$680,000 x 100 = 23.5% Answer. A
D statement of changes in
equity
_________________________________________________________ 21. Which cost can be classified as a fixed cost ?
Budgets are for internal use only. A bank overdraft interest
Answer. A B piece rate labour cost
C sales commission
19. The following information is available. D telephone rental

s s Fixed costs do not change with levels of business activity.

They are sometimes called period costs as they are time
revenue 600 000 based. Telephone rental is time based cost.
opening inventory 46000 Answer: D
purchases 244 000
290000 22. An employee works a 40-hour week at an hourly
closing inventory 50 000 240000 rate of $8.
gross profit 360000 She receives a bonus of 30% of the hourly rate for time
saved producing each unit. The target pro­ duction time
expenses 150000
is 30 minutes per unit.
profit from operations 210000
Last week she worked 40 hours and produced 90
units.
What was the rate of inventory turnover (in times)?
What were her gross earnings for the week?
A 4.8 B5
A $320 B $332
C 12 D 12.5
C $360 D $416
________________________________________________________
____________

$46,000 +$50,000 .
Average inventory = = $48,000 Time required to produce 90 units = (90x30)/60 = 45 hours
2
Saved time
Rate of inventory turnover = cost of sales $240,000
Average inventory $48,000 (45 - 40) = 5 hours
=5 Gross earnings for the week
= (40 hours X $8) + Bonus (5 hours X $8 X 30%) = $332.
Answer: B Answer: B

20. A company’s financial statements for the year 23. A business uses the weighted average (AVCO)
ended 31 December showed the following: method to value its inventory.
It purchased the following units of inventory.
s
issued share capital 150000 cost per unit total cost
units
$ $
non-current liabilities 280000
100 36 3600
reserves including retained earnings 250000
120 48 5760
The company’s profit from operations was $160 80 54 4320
000 and the profit for the year was $120 000.
What was the company’s return on capital em­ After these receipts it issued 250 units to
ployed? production.
What was the value of the issue?
A 23.5% B 30.0%
C 37.2% D 40.0% A $10 980 B $11400
C $11 500 D S11 880
49

26. A company sells a single product for $24 per unit.

. $3600+ $5760 + $4320 . The variable cost is $8 per unit.
Average cost =---------------------------- = $45.60
Fixed costs have been absorbed based on a
100 + 120 + 80
normal activity level of 1000 units at $6 per unit.
Value of issue = 250 units x $45.60 = $11,400
What is the profit under marginal costing if the
Answer: B
company makes and sells 1250 units?
A $10 000 B $12 500
24. A business provides the following information.
C $14 000 D $20 000
number of overheads _____________________________________________
month
machine hours $ Th e fixed cost is $6000 (1000 units x $6) and will remain same at
April 34 000 493000 any activity level.
May 67000 625000 Total contribution = 1250 units x ($24 - $8) = $20,000
The variable overhead rate per machine hour was Total profit = $20,000 - $6000 = $14,000
Answer: C
$4.
What was the monthly fixed overhead cost?
27. A product has the following revenue and costs
A $132 000 B $136 000
per unit.
C $268 000 D $357 000
______ __________________________________________________ s
Fixed overheads = Total overheads ($493,000) - selling price 40

Variable overheads (34,000 hours X $4) = $357,000 marginal cost 22

Answer D fixed manufacturing overhead 6
non-manufacturing overhead 2

25. A business absorbs its fixed overheads using direct What is the contribution to sales ratio?
labour hours.
k 25% B 30%
The following information is provided.
C 45% D 55%
actual budgeted _________________________________________________________

overheads $600000 $508000 Unit contribution = selling pace ($40) - marginal

labour hours 14 300 12700 cost ($22) = $18
$18
Contribution to sales =------x 100 = 45%
Which statement is correct? $40
Answer. C
A Overheads were over absorbed by $28 000.
B Overheads were under absorbed by $28 000.
28. Which statements about cost-volume-profit
C Overheads were over absorbed by $92 000.
analysis are correct?
D Overheads were under absorbed by $92 000.
1 It applies over any time period.
2 It is suitable for any range of output.
3 Profits are calculated using marginal
costing.
Step 1 : Calculate Overhead A 1 and 3 B 1 only
absorption rate C 2 and 3 D 3 only

Budgeted overheads ($508,000)

Cost-volume-profit (CVP) analysis is a way to find
Budgeted hours (12,700) out how changes in variable and fixed costs affect a
Overhead absorption rate = $40 per labour hour firm's profit. Companies can use CVP to see how
many units they need to sell to break even (cover all
costs) or reach a certain minimum profit margin.
Step 2: Calculate Absorbed Overheads
Profits are calculated using marginal costing. Answer D
Actual hours(l4,300) x OAR($40) = $572,000

Step 3: Calculate under absorption

Under Absorption = Actual overheads ($600,000) >
absorbed overheads ($572,000)
________ Answer: B
 50

29. Total costs at two levels of production are as fol

lows.

units s
10000 230000
16000 320000

Fixed costs will increase by $30 000 if more than

20 000 units are produced.
What are the total costs if 25 000 units are pro-
duced?
A $405 000 B $485 000
C $530 000 D $605 000

,, , .., Change in total cost

Unit variable cost =------- - ----------------
Change in activity
= $320,000-$230,000 = $15
16,000-10,000
Total fixed cost = Total cost ($230,000) - Total variable
cost(10,000 x $15) = $80,000
Total cost for 25,000 units = Total variable cost (25,000 x
$15) + Total fixed cost ($80,000 + $30,000)
= $485,000
Answer B

30. Which are benefits of a budgetary control system?

1 It can be used to control expenditure.
2 It can be used to record accounting trans­
actions.
3 It can help when applying for a loan.
4 It can identify where improvements are
required.
A 1, 2, 3 and 4 B 1 and 2 only
C 1,3 and 4 only D 3 and 4 only
_________________________________________________________

Budgetary control delegates financial planning to

managers . It evaluates their performance by
continuously comparing actual results achieved by their
departments against those set in the budget .Budgetary
control system deals with forecast / future information . It
doesn’t relate to actual transactions of business.
Answer C
51

Accounting Multiple
choice Past Paper
November 2019
Cambridge A LEVEL

Questions and Answers

EXPLAINED
52

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 53 2

1 Which concept requires that profits should be based on recognising revenues and their related
expenses for an accounting period?

A consistency
B matching
C materiality
D prudence

2 A business buys a non-current asset and decides to apply the straight-line method of
depreciation. The accountant forgets to include an estimate of scrap value in the calculation.

Which statements are correct?

1 The annual depreciation charge is too high.

2 The annual depreciation charge is too low.
3 There is likely to be a loss on disposal in the future.
4 There is likely to be a profit on disposal in the future.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

3 The table gives information relating to the non-current assets of a business.

net book value at the end of the year 25 000

net book value at the beginning of the year 16 000
depreciation charge for the year 5 000
additions at cost during the year 22 000

What is the net book value of disposals during the year?

A $8000 B $14 000 C $18 000 D $24 000

4 The accounting year of a company ends on 31 December. It purchased a warehouse for

$100 000 on 1 January 2013. The warehouse had an estimated useful economic life of 25 years.
The company’s accounting policy is to depreciate the warehouse using the straight-line method.
On 1 January 2018, the warehouse was revalued at $120 000.

What was the depreciation charge for the year ended 31 December 2018?

A $4000 B $4800 C $5000 D $6000

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 54 3

5 A company prepared a sales ledger control account. The balance did not agree with the total of
the sales ledger balances, which were $42 650. The following was discovered.

1 An irrecoverable debt of $500 in the general journal has not been recorded in the
sales ledger.
2 The sales journal has been incorrectly added and must be reduced by $750.
3 The sales ledger control account includes the discount received of $400. It should
have been discount allowed, $600.
4 Sales to J Brown, $640, have not been entered in his account.

What was the correct total of the sales ledger balances?

A $41 700 B $41 840 C $42 510 D $42 790

6 The correction of which error would require an entry in the suspense account?

A $100 paid for vehicle repairs were debited to the vehicles account.
B A sales invoice for $45 was omitted from the sales journal.
C Drawings of $60 were debited in the cash book and were credited to the drawings account.
D Wages, $150, were correctly recorded in the wages account and debited in the cash book.

7 The table shows information for a business at 31 March 2019.

inventory 16 100
trade payables 5 200
other payables 2 000

The information excludes the purchase of $3700 of goods. These goods were delivered on
31 March 2019, but the invoice states that legal title to the goods does not pass until payment is
received.

Which values should appear in the statement of financial position on 31 March 2019?

inventory trade payables other payables

$ $ $

A 16 100 5200 2000

B 16 100 5200 5700
C 19 800 5200 5700
D 19 800 8900 2000

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 55 4

8 A business has valued some of its closing inventories at cost. Their net realisable value is lower
than cost.

What is the effect of this error on financial statements?

profit for the year current assets

A no effect no effect
B overstated overstated
C understated understated
D no effect overstated

9 The following balances were extracted from a trial balance at 31 March 2019.

total trade receivables 84 600

provision for doubtful debts at 1 April 2018 2 835
irrecoverable debt 1 600

There was a decrease in the provision for doubtful debts, $280, for the year ended
31 March 2019.

What was the amount of net trade receivables at 31 March 2019?

A $79 885 B $80 445 C $81 485 D $82 045

10 A business had the following assets and liabilities at the start of the year.

a motor car valued at $2500

inventory which cost $4000 with a sales value of $5800
bank overdraft of $500
a loan to a friend from the business bank account of $1000

What was the capital account balance at the start of the year?

A $5000 B $7000 C $8000 D $8800

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 56 5

11 A sole trader had the following transactions.

returns outwards 2750

carriage inwards 4820
goods for own use 1460

What was the total effect of these transactions on the cost of sales?

A $610 increase
B $3530 increase
C $6110 decrease
D $9030 decrease

12 A sole trader’s personal expenses had been paid out of the business bank account and included
in his income statement.

What was the effect of this on the profit and capital?

profit capital

A no effect no effect
B no effect overstated
C understated no effect
D understated understated

13 A warehouse was damaged by fire on 31 March and some of the inventory was destroyed. The
following information is available.

inventory at cost on 1 January 6 000

inventory at cost on 31 March after fire 3 200
sales during the period 14 700
purchases during the period 9 500

The business uses a mark-up of 33.33%.

What was the value of the inventory destroyed?

A $1275 B $1800 C $2000 D $2500

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 57 6

14 P and Q are in partnership. R was admitted as a partner on 1 July 2018, and the profit and loss
sharing ratio among P, Q and R was 2 : 2 : 1 respectively.

For the purpose of R’s admission, the partners agreed:

goodwill would be valued at $20 000, but not retained in the books of account
R would introduce cash, $40 000, and motor vehicle, $10 000
R would be entitled to an annual salary, $5000.

What was R’s capital account balance immediately after his admission?

A $36 000 B $46 000 C $51 000 D $54 000

15 Hilary and Lee commenced in partnership on 1 January 2018. There was no partnership
agreement. They provided the following information.

Hilary Lee
$ $

capital contributions 5000 6000

loan to partnership – 1000

Profit for the year ended 31 December 2018 before the loan interest was $8850.

What was Lee’s share of the profit?

A $4400 B $4425 C $4800 D $4827

16 L, M and N are in partnership sharing profits and losses equally.

L retired when the credit balances on her capital and current accounts were $100 000 and
$40 000.

Partnership assets were revalued upwards by $60 000.

L took half of the amount due to her on retirement. The other half was left as a loan to the
business.

How much was L paid from the partnership bank account on her retirement?

A $20 000 B $40 000 C $60 000 D $80 000

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 58 7

17 The directors of a limited company recently made a rights issue of one ordinary share for every
three held at a premium of $0.50 per share. The rights issue was fully subscribed.

The statement of financial position showed the following information after the rights issue was
made.

$000

issued share capital: (shares of $1 each) 1200

share premium 300

Which amount was debited to the company’s bank account when the rights issue was made?

A $300 000 B $400 000 C $450 000 D $600 000

18 A company’s year end is 31 December. During the year ended 31 December 2018 it paid the
following dividends:

$
final dividend for the year ended 31 December 2017 15 000
interim dividend for the year ended 31 December 2018 8 000

On 1 February 2019 it declared a final dividend of $10 000 for the year ended 31 December 2018.

How much should be recorded for dividends in the statement of changes in equity for the year ended
31 December 2018?

A $8000 B $18 000 C $23 000 D $33 000

19 Which information would an investor gain by looking at the financial statements of a business?

1 identifying future trading prospects

2 identifying the amount of future dividends
3 identifying that the entity is a going concern

A 1 and 2 B 1 only C 2 and 3 D 3 only

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 59 8

20 The following information is available for a limited company.

profit from operations 40 475

profit for the year 26 380
10% debenture (2025) 75 000
100 000 shares ($1 each) 100 000
retained earnings at the end of the year 135 679

What was the return on capital employed?

A 8.49% B 11.19% C 13.03% D 17.17%

21 A manufacturing business has provided the following information about a product.

units total cost

produced $

8 000 37 000
14 000 53 500

What is the variable cost per unit?

A $2.75 B $3.82 C $4.11 D $4.63

22 The following information relates to the inventory of a business.

date purchases unit cost sales unit selling price

2 June 1000 units $12

12 June 1000 units $13
18 June 800 units $18
28 June 1000 units $14

Estimated unit selling price at 30 June is $20.

There was no opening inventory.

What was the value of closing inventory at 30 June using FIFO?

A $24 600 B $28 600 C $29 400 D $44 000

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 60 9

23 Inventory cost prices are rising for a business. The company uses AVCO rather than FIFO to
value its inventory.

What is the effect on inventory valuation and profit of using AVCO rather than FIFO?

inventory
profit
valuation

A higher higher
B higher lower
C lower higher
D lower lower

24 A company calculates its profit using marginal costing as $90 000 for a month.

Opening inventory was 4000 units and closing inventory 6000 units.

The fixed production overhead absorption rate is $20 per unit.

What is the profit under absorption costing?

A $10 000 B $50 000 C $130 000 D $170 000

25 A manufacturing business has provided the following information.

budgeted labour hours 12 000

budgeted overhead absorption rate $7.50 per labour hour
actual overhead cost $101 250
actual labour hours 15 000

What is the over or under absorption of overheads?

A $11 250 under absorbed

B $11 250 over absorbed
C $20 250 under absorbed
D $20 250 over absorbed

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 61 10

26 A business has the following information relating to its single product.

selling price per unit 30

variable cost per unit 14
total cost per unit 24

What is its contribution to sales ratio?

A 20% B 46.67% C 53.33% D 80%

27 A company makes three products for which the following details are given.

product X product Y product Z

$ $ $

selling price per unit 40 48 72

direct material per unit 18 24 30
direct labour per unit 10 6 18

The same material is used to make all three products and it costs $2.00 per kilo.

There is a shortage of material.

In which order should the products be made to achieve maximum profit?

first last

A X Y Z
B Y Z X
C Z X Y
D Z Y X

28 Last month a company made and sold 10 000 units and earned a contribution of $20 per unit.

Its final profit, after deducting total fixed costs, was $120 000.

This month its sales volume has increased by 20%, its contribution per unit has increased by 5%
and its total fixed costs have increased by 15%.

What is its profit this month?

A $118 000 B $148 000 C $160 000 D $172 000

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 62 11

29 Which statements about cost–volume–profit analysis are correct?

1 Fixed costs remain constant over a range of activity.

2 Profits are calculated on an absorption costing basis.
3 Sales revenue increases in direct proportion to output.
4 There is only one product or constant sales mix.

A 1 and 2 only
B 1, 2, 3 and 4
C 1, 3 and 4 only
D 2, 3 and 4 only

30 Why do businesses prepare budgets?

1 to communicate plans
2 to improve coordination
3 to plan annual operations
4 to plan long-term strategies

A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4

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63

Answers
EXPLAINED
64

November 2019 Paper 1

Multiple Choice

1. Which concept requires that profits should be What is the net book value of disposals during the
based on recognising revenues and their related year?
expenses for an accounting period?
A $8000 B $14 000
A consistency B matching C $18 000 D $24 000
C materiality D prudence
_ ______________________________________________________
Net book value at start ($16 ,000 ) + additions ($22 ,000 ) -
Matching concept requires revenue earned should be matched disposals at net book value (???) - depreciation charge for the
with expenses incurred in same financial period irrespective of year ($5000) = net book value at end ($25,000)
cash movement. Ansiver: A
Answer: B

4 . The accounting year of a company ends on 31

2. A business buys a non -current asset and decides to December . It purchased a warehouse for $100 000
apply the straight -line method of depreciation . The on 1 January 2013 . The warehouse had an esti ­
accountant forgets to include an estimate of scrap mated useful economic life of 25 years. The company
value in the calculation. ’s accounting policy is to depreciate the warehouse
Which statements are correct? using the straight -line method . On 1 January 2018 ,
the warehouse was revalued at $120 000.
1 The annual depreciation charge is too
What was the depreciation charge for the
high.
year ended 31 December 2018?
2 The annual depreciation charge is too
low.
A $4000 B $4800
3 There is likely to be a loss on disposal
in the future. C $5000 D $6000
4 There is likely to be a profit on disposal
in the future. $120,000
= $6000
A 1 and 3 B 1 and 4 20
C 2 and 3 D 2 and 4 Note: Total life is 25 years, at the start of 2018.
Remaining life is 20 years, so revalued amount to be
allocated over 20 years.
Scrap value is deducted from cost to get depreciable
Answer: D
amount, which is then allocated over life.
If scrap value is not deducted then depreciable amount
will be higher thus resulting in higher depreciation. 5. A company prepared a sales ledger control ac­
Similarly higher depreciation would result in lower net count. The balance did not agree with the total of
book value thus resulting in profit on disposal. the sales ledger balances, which were $42 650.
Answer; B The following was discovered.
1 An irrecoverable debt of $500 in the
3. The table gives information relating to the non- general journal has not been recorded
current assets of a business. in the sales ledger.
2 The sales journal has been incorrectly
$ added and must be reduced by $750.
net book value at the end of the year 25000 3 The sales ledger control account includes
net book value at the beginning of the year 16000 the discount received of $400. It should
have been discount allowed, $600.
depreciation charge for the year 5 000
4 Sales to J Brown, $640, have not been
additions at cost during the year 22000 entered in his account.
65

What was the correct total of the sales ledger ________________________________________________________

balances? Substance over form requires to consider reality instead of strict
A $41 700 B $41 840 legal approach . Goods have been bought so to be included in
inventory & trade payables
C $42 510 D $42 790
Answer: D

$42,650 - $500 (bad debts) + $640 (sales) = $42,790 Error 2 and

8. A business has valued some of its closing
3 did not affect sales ledger balances, instead they are related to inventories at cost. Their net realisable value
control account balance is lower than cost.
Answer: D
What is the effect of this error on
financial statements?
6. The correction of which error would require
an entry in the suspense account? profit for the year current assets
A no effect no effect
A $100 paid for vehicle repairs were debited
to the vehicles account. B overstated overstated
B A sales invoice for $45 was omitted from C understated understated
the sales journal.
D no effect overstated
C Drawings of $60 were debited in the cash book and ________________________________________________________
were credited to the drawings account.
Inventory which appears in both cost of sales &
D Wages, $150, were correctly recorded in the
current assets is overvalued.
wages account and debited in the cash book
Answer: B
.
________________________________________________________

Error 1 is error of principle i.e. not affecting trial balance 9. The following balances were extracted from a
trial balance at 31 March 2019.
Error 2 is error of omission i.e. not affecting trial balance
Error 3 is complete reversal of entry i.e. not $
affecting trial balance total trade receivables 84600
Error 4 caused error in cash book only while wages provision for doubtful debts at 1 April 2018 2 835
are correctly recorded, thus causing suspense account
irrecoverable debt 1 600
Anstver: D

There was a decrease in the provision for doubtful

7. The table shows information for a business at 31 debts, $280, for the year ended 31 March 2019.
March 2019. What was the amount of net trade receivables at
31 March 2019?
$
A $79 885 B $80 445
inventory 16100
C $81 485 D $82 045
trade payables 5 200
_ ________________________________________ _
other payables 2000
Irrecoverable debt appeared in trial balance so already written
The information excludes the purchase of $3700 off provision for doubtful debts at year end ($2835 - $280) = $
of goods. These goods were delivered on 31 2555
March 2019, but the invoice states that legal title Net trade receivables at year end ($84,600 - $2555)
to the goods does not pass until payment is = $82,045
received. Answer: D
Which values should appear in the statement of
financial position on 31 March 2019?
10. A business had the following assets and
inventory trade payables other payables liabilities at the start of the year.
$ $ $ a motor car valued at $2500
A 16100 5200 2000 inventory which cost $4000 with a sales value
B 16100 5200 5700 of $5800

C 19800 5200 5700 bank overdraft of $500

a loan to a friend from the business bank
D 19800 8900 2000
account of $1000
66

What was the capital account balance at the start 13. A warehouse was damaged by fire on 31 March
of the year? and some of the inventory was destroyed. The
following information is available.
A $5000 B $7000
C $8000 D $8800 $
inventory at cost on 1 January 6000
Loan to a friend is asset, not liability. inventory at cost on 31 March after fire 3200
Assets ($2500 + $4000 + $1000) - liabilities ($500) sales during the period 14700
= $7000
purchases during the period 9500
Answer: B
The business uses a mark-up of 33.33%.
11. A sole trader had the following transactions. What was the value of the inventory destroyed?
A $1275 B $1800
$
C $2000 D $2500
returns outwards 2750
carriage inwards 4820
goods for own use 1460

What was the total effect of these transactions on

the cost of sales? Mark up = 1/3
Margin = 1/4
A $610 increase B $3530 increase Cost of sales = 3/4 of sales
C $6110 decrease D $9030 decrease Inventory destroyed = $6000+$9500-$(14700x3/4)-$3200 = $1275
________________________________________________________

Return outwards & goods withdrawn are deducted from Answer: A

purchases thus resulting decrease in cost of sales.
Carriage inwards are added in purchases thus increas
­ ing cost of sales.
$4820 - $2750 - $1460 = $610 increase
Answer: A

14. P and Q are in partnership. R was admitted as a

12. A sole trader’s personal expenses had been paid out partner on 1 July 2018, and the profit and loss
of the business bank account and included in his sharing ratio among P, Q and R was 2:2:1
income statement. respectively.
What was the effect of this on the profit For the purpose of R’s admission, the partners
and capital? agreed:
goodwill would be valued at $20 000, but not
profit capital
retained in the books of account
A no effect no effect R would introduce cash, $40 000, and motor
B no effect overstated vehicle, $10 000
C understated no effect R would be entitled to an annual salary, $5000.
D understated understated What was R’s capital account balance immedi­
ately after his admission?
____
A $36 000
Sole trader ’s personal expenses are not business expenses . If
included in income statement then expenses are overstated and B $46 000
profit is understated. C $51 000
Capital remains unaffected as both profit and D $54 000
drawings increases and cancel each other’s affect.
Answer: C
67

Capital account
P Q R P Q R
Goodwill 8000 8000 4000 Cash 40,000
Balance c/d 46,000 Motor vehicle 10,000
Note: salary appears in appropriation account and
current account
Answer: B

15. Hilary and Lee commenced in partnership on 1 17. The directors of a limited company recently made
January 2018. There was no partnership agree­ a rights issue of one ordinary share for every
ment. They provided the following information. three held at a premium of $0.50 per share. The
rights issue was fully subscribed.
Hilary Lee
The statement of financial position showed the
$ $
following information after the rights issue was
capital contributions 5000 6000 made.
loan to partnership 1000
$000
Profit for the year ended 31 December 2018
before the loan interest was $8850. issued share capital: (shares of $1 each) 1200
What was Lee’s shareof the profit? share premium 300

A $4400 B $4425 Which amount was debited to the company’s bank

C $4800 D $4827 account when the rights issue was made?
________________________________________________________ A $300 000 B $400 000
As per partnership act 1890 Interest on loan is payable @5% per C $450 000 D $600 000
annum and profits arc to be shared equally.
Profit for the year ($8850 - (S1000 x 5%)] = $8800 Let’s Assume number of shares before rights issue is X
Lee’s share of Profit for the year = $8800 x i - $
X + 1/3 x = 1,200,000 => X = 900,000
4400
2 Number of shares to be issued as rights
Answer: A

issue = 900,000x1/3 = 300,000

16. L, M and N are in partnership sharing profits
and losses equally. Issue price per share ($1 + $0 50) = $1.50 per share
L retired when the credit balances on her capital
and current accounts were $100 000 and $40 000. Amount debited in bank = (300,000 shares x $1.50)
= $450,000
Partnership assets were revalued upwards by
Answer: C
$60 ooo.
L took half of the amount due to her on retirement .
The other half was left as a loan to the business. How
much was L paid from the partnership bank account
on her retirement?
A $20 000 B $40 000
C $60 000 D $80 000
Capital account
L M N L M N
Bank 80,000 Balance b/d 100,000
Loan 80,000 Current account 40,000
Revaluation 20,000 20,000 20,000
160,000 160,000
Answer: D
68

18. A company’s year end is 31 December. During EXPLANA77ON

the year ended 31 December 2018 it paid the
Capital employed = $75,000 + $100,000 + $135,679
following dividends:
= $310,679
$
Profit from operations
final dividend for the year ended 15 000 ROCE = xlOO
Capital employed
31 December 2017
$40,475
interim dividend for the year ended 8 000 x 100 = 13.03%
$310,679
31 December 2018
Answer: C
On 1 February 2019 it declared a final dividend of
$10 000 for the year ended 31 December 2018.
21. A manufacturing business has provided the
How much should be recorded for dividends in
following information about a product.
the statement of changes in equity for the year
ended 31 December 2018? units total cost
A $8000 B $18 000 produced $
C $23 000 D $33 000 8 000 37 000
________________________________________________________ 14 000 53 500
Dividends paid during the financial year i.e. $15,000 + $8000 = What is the variable cost per unit?
$23,000 are to be included in the statement of changes in equity.
A $2.75 B $3.82
Answer: C
C $4.11 D $4.63
___________________________________________________

19. Which information would an investor gain by look­ ,, change in total cost
ing at the financial statements of a business? Variable cost per unit =-------------------------------
change in units
1 identifying future trading prospects
2 identifying the amount of future dividends $53,500-$37,000 _
3 identifying that the entity is a 14,000-8000
going concern
Answer: A

A 1 and 2 B 1 only
C 2 and 3 D 3 only 22. The following information relates to the
inventory of a business.
_____________ ________ _
unit selling
Financial statements arc based on historical data only. date purchases unit cost sales
price f
Statements 1 & 2 are future information
2 June 1000 units $12
Answer: D
12 June 1000 units $13
18 June 800 units $18
20. The following information is available for a limited
company. 28 June 1000 units $14

Estimated unit selling price at 30 June is $20.

$
There was no opening inventory.
profit from operations 40475
What was the value of closing inventory at 30
profit for the year 26380 June using FIFO?
10% debenture (2025) 75 000
A $24 600 B $28 600
100000 shares ($1 each) 100000
C $29 400 D $44 000
retained earnings at the end of the year 135 679 ________________________________________________________

What was the return on capital employed? 800 units sold on 18 June is from 1000 units @$
12 each.
A 8.49% B 11.19%
Closing inventory consist of 200 units @$12,
C 13.03% D 17.17%
1000 units @13 and 1000 units @14
Answer: C
69

23. Inventory cost prices are rising for a business . The What is the over or under absorption of overheads?
company uses AVCO rather than FIFO to value its
A $11 250 under absorbed
inventory.
B $11 250 over absorbed
What is the effect on inventory valuation and
profit of using AVCO rather than FIFO? C $20 250 under absorbed
D $20 250 over absorbed
inventory
profit ________________________________________________________
valuation
A higher higher Absorbed overheads (15,000 X $7.50) = $112,500

B higher lower Over absorbed overheads ($112,500 - $101,250

) = $11,250
C lower higher
It is over absorption because absorbed overheads
D lower lower exceeds actual overheads
________________________________________________________ Answer: B

Lower Inventory valuation because average cost

using AVCO will be lower than latest prices. 26. A business has the following information relating
Lower Inventory valuation increases cost of sales to its single product.
thus decreasing profit
$
Answer: D
selling price per unit 30
variable cost per unit 14
24. A company calculates its profit using
marginal costing as $90 000 for a month. total cost per unit 24
Opening inventory was 4000 units and closing What is its contribution to sales ratio?
inventory 6000 units.
A 20% B 46.67%
The fixed production overhead absorption rate is
$20 per unit. C 53.33% D 80%
________________________________________________________
What is the profit under absorption costing?
Unit contribution = $30 - $14 = $16
A $10 000 B $50 000
$16
C $130 000 D $170 000 Contribution to sales ratio =---------- x 100 = 53.33%
$30
Answer. C

Marginal profit 890,000

Difference in closing inventory 120,000 27. A company makes three products for which
the following details are given.
Difference in opening inventory (80,000)
product X product Y product Z
Absorption profit 130,000
$ $ $

Inventory value differs due to fixed production selling price per unit 40 48 72
overheads which arc included in case of absorption direct material per unit 18 24 30
and excluded in case of marginal.
direct labour per unit 10 6 18
Answer: C
The same material is used to make all three
products and it costs $2.00 per kilo.
25. A manufacturing business has provided the
There is a shortage of material.
following information.
In which order should the products be made to
budgeted labour hours 12 000 achieve maximum profit?
budgeted overhead absorption $7.50 per labour
first -------------► last
rate hour
A X Y Z
actual overhead cost $101 250
B Y Z X
actual labour hours 15000
C Z X Y
D z Y X
70

________________________________________________________

Material is limiting factor so ranking should be based Statement 2 is false because profit is calculated using
on contribution per kilo Marginal costing
Answer. C
No. of kilos per unit:

30. Why do businesses prepare budgets?

1 to communicate plans
2 to improve coordination
3 to plan annual operations
X Y Z 4 to plan long-term strategies
Unit contribution $12 $18 $24 A 1, 2 and 3 B 1, 2 and 4
$12 $18 $24 C 1,3 and 4 D 2, 3 and 4
Contribution per kilo
9 12 15 ________________________________________________________

=$1.33 =$15 =$1.6 Budgets are short term financial plans so 4th point
3 2 1 is incorrect
Ranking
Answer: A
Answer: D

28. Last month a company made and sold 10 000

units and earned a contribution of $20 per unit.
Its final profit, after deducting total fixed costs, was
$120 000.
This month its sales volume has increased by
20%, its contribution per unit has increased by 5%
and its total fixed costs have increased by 15%.
What is its profit this month?
A $118 000 B $148 000
C $160 000 D $172 000
________________________________________________________

Last month contribution (10,000 X $20) = $200,000

Last month Fixed cost ($200,000 - $120,000) = $80,
000
This month sales volume (10,000 X 120%) = 12,000
This month unit contribution ($20 X 105%) = $21
This month profit [(12,000 X $20) - $80,000] = $160,000
Answer: C

29. Which statements about cost - volume - profit

analysis are correct?
1 Fixed costs remain constant over a range
of activity.
2 Profits are calculated on an absorption
costing basis.
3 Sales revenue increases in direct
proportion to output.
4 There is only one product or constant sales
mix.
A 1 and 2 only B 1, 2, 3 and 4
C 1, 3 and 4 only D 2, 3 and 4 only
71

Accounting Multiple
choice Past Paper
November 2018
Cambridge A LEVEL

Questions and Answers

EXPLAINED
72

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 73 2

1 A company does not include in the financial statements the value of skills gained by its
employees from training programmes.

Which accounting concept is being applied?

A consistency
B materiality
C money measurement
D substance over form

2 Which non-current asset is most likely to be depreciated using the revaluation method?

A loose tools
B motor vehicles
C office equipment
D plant and machinery

3 A trader purchased a motor vehicle costing $36 000 on 1 July 2016. The estimated useful life of
the motor vehicle was five years and the estimated residual value was $6000. Depreciation is
provided on a month-by-month basis using the straight-line method.

The motor vehicle was sold on 31 March 2018 for $22 500.

What was the profit or loss on disposal of the motor vehicle?

A $900 loss B $900 profit C $3000 loss D $3000 profit

4 The following is an extract from the statement of financial position for a company at
31 December 2016.

accumulated
cost net book value
depreciation
$ $
$

non-current assets 250 000 95 000 155 000

The assets have a residual scrap value of $12 500.

The company’s policy is to provide depreciation using the reducing balance method at a rate of
25% per annum.

What was the depreciation charge for the year ended 31 December 2017?

A $35 625 B $38 750 C $59 375 D $62 500

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 74 3

5 A business sells a non-current asset for cash. The disposal account includes entries for the cost
of the asset and the sales proceeds.

Which books of prime entry are used?

cost sales proceeds

A cash book general journal

B cash book sales journal
C general journal cash book
D purchases journal cash book

6 A trader has extracted the following information from his books of account at 31 March 2018.

purchase ledger balances at 1 March 2018 32 100

credit purchases for March 26 400
cheques paid to credit suppliers in March 29 700
contra to sales ledger 600
discount received 400

What was the closing balance on the purchases ledger control account at 31 March 2018?

A $27 800 B $29 800 C $29 000 D $34 400

7 The table shows extracts from a business’s bank reconciliation.

balance per cash book at 31 December 2075 debit

balance per bank statement at 31 December 2250 credit
bank charges per bank statement not entered in cash book 150
outstanding cheques not presented at the year end 325

What is the bank balance to be shown in the financial statements?

A $1600 B $1925 C $2075 D $2225

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 75 4

8 Bank interest income, $1800, had been correctly entered in the bank account but recorded as
interest expense.

Which entries in the ledger will correct the error?

account to account to
$ $
be debited be credited

A interest expense 1800 suspense 1800

B interest income 1800 suspense 1800
interest expense 1800

C suspense 1800 interest income 1800

D suspense 3600 interest income 1800
interest expense 1800

9 A company has the following balances.

trade receivables at 31 December 2017 125 400

provision for doubtful debts at 1 January 2017 1 800

During the year ended 31 December 2017 debts of $20 500 had been written off. The company
provides for doubtful debts at a rate of 5% of trade receivables at each year end.

Which expense for doubtful debts was included in the income statement for the year ended
31 December 2017?

A $3445 B $4470 C $5245 D $6270

10 How are purchases calculated when proper accounting records have not been kept?

A sales × (1 – margin) – closing inventory + opening inventory

B sales × (1 – margin) + closing inventory – opening inventory

C sales × (1 – mark-up) – closing inventory + opening inventory

D sales × (1 – mark-up) + closing inventory – opening inventory

11 The draft financial statements for a business included an inventory valued at $550 000.

This valuation included damaged items which originally cost $50 000. These could be sold for
$15 000 provided that $5000 is spent on repairs.

What is the correct inventory valuation?

A $490 000 B $500 000 C $510 000 D $515 000

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 76 5

12 A trader took out a 6% bank loan of $30 000 on 1 November 2017, to be repaid in full in 10 years’
time. Interest is to be paid annually. No interest had been paid by 30 April 2018.

How should this be recorded in the statement of financial position at 30 April 2018?

current non-current
liabilities liabilities
$ $

A 0 30 000
B 900 30 000
C 1 800 30 000
D 30 900 0

13 Which items would not be in the appropriation account for a partnership?

1 interest on capital
2 interest on a partner’s loan
3 share of profit on revaluation of assets
4 share of residual profit

A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

14 X and Y had been in partnership sharing profit and losses in the ratio of 1 : 2 respectively.

Z was later admitted to the partnership.

It was agreed that the goodwill is valued at $120 000. No goodwill account is to be retained in the
books of account.

Profit and losses were to be shared between X, Y and Z in the ratio of 2 : 1 : 1 respectively.

What was the effect of the goodwill adjustment in X’s capital account?

A decreased by $20 000

B decreased by $60 000
C increased by $20 000
D increased by $60 000

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 77 6

15 J and K shared profits equally.

Their capital account balances were J $400 000 and K $160 000.

L was admitted as a partner. The three partners then shared profits equally.

On admission of L as a partner, assets were increased in value by $210 000. L paid in capital
equal to the average new capital balances of J and K.

What was the capital paid in by L?

A $175 000 B $280 000 C $350 000 D $385 000

16 The statement of financial position of a business on 31 December 2017 showed the following.

retained earnings 136 000

general reserves 28 000
share premium 55 000

During the year ended 31 December 2017 the business had made a profit for the year of $25 000
and had transferred $10 000 to the general reserve.

What was the total of revenue reserves on 1 January 2017?

A $101 000 B $139 000 C $149 000 D $194 000

17 A company provides the following information.

ordinary shares of $0.50 each 84 000

retained earnings 50 000
134 000

The following transactions then take place.

1 The company makes a rights issue of one new ordinary share for every two held, at
$1.30. The issue was fully subscribed.
2 A bonus issue of two new ordinary shares for every three held was then made.

What is the maximum possible balance of the retained earnings after these transactions?

A $8400 B $16 800 C $33 200 D $41 600

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 78 7

18 The financial data relates to two businesses.

X Y

trade receivable turnover (days) 90 40

trade payable turnover (days) 50 70
liquid (acid test) ratio 3:1 1:1
current ratio 4.5 : 1 6.2 : 1

Which statement about the comparison of the two businesses’ performance is correct?

A X has better credit control system.

B X has higher profitability.
C Y has better credit control system.
D Y has higher profitability.

19 A company’s financial statements show the following.

profit before interest 125 378

profit for the year 120 426
200 000 ordinary shares $1 each 200 000
retained earnings 191 982
debentures 150 000

What is the return on capital employed (ROCE)?

A 22.22% B 23.13% C 30.72% D 31.99%

20 A company’s income statement shows the following.

revenue 460 000

cost of sales 120 000
administration expenses 54 000
distribution costs 47 000
finance charges 7 000

What is the operating expenses to revenue ratio?

A 21.96% B 23.48% C 48.04% D 49.57%

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 79 8

21 To make a single unit of output a business requires material costing $1000.

When 20 items are produced, the total cost of the material is $20 000.

What best describes this cost?

A fixed cost
B semi variable cost
C stepped cost
D variable cost

22 A business has the following total overheads for two different output levels.

total overheads output

$ (units)

200 000 20 000

216 000 30 000

What is the total fixed overhead cost?

A $16 000 B $48 000 C $168 000 D $216 000

23 A retailer uses the FIFO method for inventory valuation. The following information is available.

June $

1 opening inventory 300 units at $12 per unit 3 600

10 purchased 1000 units at $12.50 per unit 12 500
21 sold 1200 units for $16 each 19 200
28 purchased 700 units at $13 per unit 9 100

What was the value of the inventory at 30 June?

A $6000 B $9850 C $10 080 D $10 350

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 80 9

24 A business manufactures 175 units of a product each month.

The following information is available for the month.

Per unit $

revenue 580
variable costs 230
fixed overheads 90

What is the break-even point in units?

A 45 units B 61 units C 88 units D 160 units

25 When is marginal costing less useful than absorption costing?

A when choosing to make or buy a product

B when dealing with a limiting factor
C when producing a special order
D when valuing closing inventory

26 A company manufactures a single product with a selling price of $75 per unit. The table shows
the costs based on sales and production volume of 8000 units.

direct costs 158 000

variable manufacturing overheads 74 000
fixed manufacturing overheads 80 000
variable selling overheads 20 000
fixed administration overheads 100 000

If absorption costing is applied, what is the gross profit on each unit sold?

A $21.00 B $36.00 C $43.50 D $46.00

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 81 10

27 A company has the following revenue information for a month.

actual revenue 510 000

break-even revenue 555 000
budgeted revenue 570 000

What was its margin of safety during the month?

A –$60 000
B –$45 000
C +$45 000
D +$60 000

28 A business provides the following information.

budgeted overhead costs $280 000

budgeted labour hours 25 000
budgeted machine hours 20 000
actual overhead cost $336 000
actual labour hours 35 000
actual machine hours 30 000

What is the over-absorption or under-absorption of overheads?

A $56 000 over absorbed

B $56 000 under absorbed
C $84 000 over absorbed
D $84 000 under absorbed

29 A business provides the following budgeted information.

contribution to sales ratio 60%

budgeted sales $240 000
budgeted production units 40 000

What is the contribution per unit?

A $3.60 B $3.75 C $9.60 D $10.00

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 82 11

30 Which statement identifies an advantage to a business of financial planning?

A Not all managers are aware of business financial planning.

B Specialist knowledge is required to prepare the financial plans.
C The financial plans provide targets for managers to achieve.
D Time and cost is required to prepare the financial plans.

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83

Answers
EXPLAINED
84 A Level Accouhtihg November 2018 Paper 1 O page 1

November 2018 Paper 1

Multiple Choice

1. A company does not include in the financial state­ 4. The following is an extract from the statement of
ments the value of skills gained by its employees financial position for a company at 31 December
from training programmes. 2016.
Which accounting concept is being applied? accumulated net book
cost
A consistency depreciation value
B materiality $ $ $
C money measurement non-current assets 250000 95000 155000
D substance over form The assets have a residual scrap value of
________________________________________________________EXPLANATION $12 500.
Money measurement concept states that only financial The company’s policy is to provide depreciation
(measurable in money terms) transactions can be using the reducing balance method at a rate of
recorded. 25% per annum.
Ansiver: C
What was the depreciation charge for the year
ended 31 December 2017?
2. Which non-current asset is most likely to be A $35 625 B $38 750
depreciated using the revaluation method?
C $59 375 D $62 500
A loose tools ________________________________________________________EXPLANATION
B motor vehicles Depreciation = NBV x Depreciation rate
C office equipment Depreciation = $155,000 x 25% = $38,750
D plant and machinery
Answer: B
______________ EXPLANATION

Loose tools are low value items held in large quantity.

5. A business sells a non-current asset for cash. The
Answer. A disposal account includes entries for the cost of
the asset and the sales proceeds.
3. A trader purchased a motor vehicle costing Which books of prime entry are used?
$36 000 on 1 July 2016. The estimated useful life
of the motor vehicle was five years and the esti­ cost sales proceeds
mated residual value was $6000. Depreciation is A cash book general journal
provided on a month-by-month basis using the
B cash book sales journal
straight-line method.
c general journal cash book
The motor vehicle was sold on 31 March 2018 for
$22 500. D purchases journal cash book
What was the profit or loss on disposal of the _____________ __________________________________________ EXPLANA1 TON
motor vehicle?
Cash book records all transactions relating to cash,
A $900 loss B $900 profit bank and cash discounts so sales proceeds received in
c $3000 loss D $3000 profit cash is recorded in cash book. Writing off cost of
EXPLANATION
disposed off assets i.e. Dr Disposal account and Cr
Asset account cannot be recorded in other five books
($36000-$6000) of prime entry so its recorded in General journal.
Depreciation per month is $500
60 Answer C

Accumulated depreciation (21 months x $500) is

$10500.
Net book value ($36,000 - $10,500) $25,500
Loss = $25,500 - $22,500 = $3,000
Answer: C
85 November 2018 Paper 1 O page 2

6. A trader has extracted the following information

account to account to
from his books of account at 31 March 2018. $ $
be debited be credited
$ A interest expense 1800 suspense 1800
purchase ledger balances at 1 March 2018 32100 B interest income 1800 suspense 1800
credit purchases for March 26400 interest expense 1800
cheques paid to credit suppliers in March 29700 C suspense 1800 interest income 1800
contra to sales ledger 600 D suspense 3600 interest income 1800
interest expense 1800
discount received 400
________________________________________________________ EXPLANATION
What was the closing balance on the purchases
ledger control account at 31 March 2018? Dr - Suspense account (this error caused suspense
account balance on credit column in trial balance).
A $27 800 B $29 800
Cr - Bank interest expenses (wrongly debited)
C $29 000 D $34 400
________________EXPLANATION
Cr - Interest income (omitted to be credited)
Answer: D
Opening payables ($32,100) + Credit purchases
($26,400) - Payments ($29,700) - Contra to sales led­
ger ($600) - Discount received ($400) = closing 9. A company has the following balances.
payables ($27,800)
Answer. A
$
trade receivables at 31 December 2017 125400
provision for doubtful debts at 1 January 2017 1 800
7. The table shows extracts from a business’s bank
reconciliation. Dunng the year ended 31 December 2017 debts
of $20 500 had been written off. The company
$ provides for doubtful debts at a rate of 5% of trade
balance per cash book at 31 December 2075 debit receivables at each year end.
balance per bank statement at 31 December 2250 credit Which expense for doubtful debts was included in
bank charges per bank statement not the income statement the year ended 31 De-
150 cember 2017?
entered in cash book
outstanding cheques not presented at the A $3445 B $4470
325
year end
C $5245 D $6270
What is the bank balance to be shown in the EXPLANATION
financial statements?
New provision ($125,400 x 5%) - Opening provision
A $1600 B $1925 ($1,800) = $4,470
C $2075 D $2225 Answer: B

_______________________________________________________ EXPLANATION

Balance as per updated cash book ($2075 - $150) 10. How are purchases calculated when proper
$1925 is shown in financial statements as current asset. accounting records have not been kept?
Alternatively it can be calculated as follows: A sales x (1 - margin) - closing inventory +
Balance as per bank statement ($2250) - not presented opening inventory
cheques ($325) = $1925 B sales x (1 - margin) + closing inventory -
opening inventory
Answer: B
C sales x (1 - mark-up) - closing inventory +
opening inventory
8. Bank interest income, $1800, had been correctly D sales x (1 - mark-up) + closing inventory -
entered in the bank account but recorded as in­ opening inventory
terest expense.
________________________________________________________ EXPLANATION
Which entries in the ledger will correct the error?
l - margin = Cost of sales as a percentage of sales
Cost of sales + Closing inventory - Opening inventory
= Purchases
Answer: B
 November 2018 Paper 1 O page 3
86
11. The draft financial statements for a business in­ ________________________________________________________ EXPLANATION
cluded an inventory valued at $550 000. Interest on partner’s loan appears in income statement
This valuation included damaged items which origi­ and partner’s current account.
nally cost $50 000. These could be sold for Revaluation profit appears in revaluation account and
$15 000 provided that $5000 is spent on repairs. partner’s capital account.
What is the correct inventory valuation? Answer.- C

A $490 000 B $500 000

14. X and Y had been in partnership sharing profit
C $510 000 D $515 000
and losses in the ratio of 1 :2 respectively.
________________________________________________________ EXPLANATION
Z was later admitted to the partnership.
Inventory excluding damaged ($550,000 - $50,000) It was agreed that the goodwill is valued at
= $500,000 $120 000. No goodwill account is to be re­
Net reliable value of damaged inventory tained in the books of account.
($15,000 - $5,000) is $10,000 Profit and losses were to be shared between X, Y
Damaged inventory is to be valued at net realisable and Z in the ratio of 2 :1 :1 respectively.
value What was the effect of the goodwill adjustment in
Inventory valuation ($500,000 + $10,000) = $510,000 X’s capital account?
Answer; C A decreased by $20 000
B decreased by $60 000
12. A trader took out a 6% bank loan of $30 000 on C increased by $20 000
1 November 2017, to be repaid in full in 10 years’ D increased by $60 000
time. Interest is to be paid annually. No interest EXPLANATION
had been paid by 30 April 2018.
How should this be recorded in the statement of
Share of goodwill ($120,000xlj credited into X’s
financial position at 30 April 2018?
capital account that increases capital account balance.
current non-current
liabilities liabilities Share of goodwill written off ($ 120,000 x is debited
$ $
A 0 30000 in X’s capital account that decreases capital account
balance.
B 900 30000 Ansiver: A

C 1800 30000
D 30900 0 15. J and K shared profits equally.
_____________________________________ EXP LANA I1ON Their capital account balances were J $400 000
and K $160 000.
Loan is payable after 10 years so it is a Non current
L was admitted as a partner. The three partners
liability
then shared profits equally.
Accrued Six month’s Ioan interest (loan was taken
On admission of L as a partner, assets were in­
six months before year end) i.e.
creased in value by $210 000. L paid in capital
equal to the average new capital balances of J
$30,000 x 6% x6/12= $900 is current liability and K.
What was the capital paid in by L?
A $175 000 B $280 000
C $350 000 D $385 000
13. Which items would not be in the appropriation
_______________________EXPIANA HON
account for a partnership?
Capital account balance after adjusting revaluation profit
1 interest on capital
2 interest on a partner’s loan
J ($400,000 + $105,000) $505,000
K ($160,000 + $105,000) $265,000
3 share of profit on revaluation of assets
4 share of residual profit L has to pay average of ($505000 +$262000) /2
A 1 and 2 B 1 and 4
=$385000 Answer: D
C 2 and 3 D 3 and 4
87 November 2018 Paper 1 page 4

16. The statement of financial position of a business ________________________________________________________ EXPLANATION

on 31 December 2017 showed the following.
No. of shares issued as Rights issue, 168,000 x 1/2 = 84,000
$
retained earnings 136000
Premium on Rights issue, 84,000 x $0.80 = $67,200
general reserves 28000 No. of shares issued as bonus issue,
share premium
(168,000 +84.000) x2/3 = 168,000
55000
Reserves needed to finance bonus issue,
During the year ended 31 December 2017 the busi­ (168.000 X $0.50) = $84000
ness had made a profit for the year of $25 000 $67,200 will be financed from share premium and remaining ($
and had transferred $10 000 to the general re­ 84,000 - $67,200) $16,800 from Retained earnings.
serve.
Retained earnings balance, ($50,000 -
What was the total of revenue reserves on 1 Janu­ $16,800) = $33,200
ary 2017?
A $101 000 B $139 000
C $149 000 D $194 000 Answer: C
EXPLANATION

Revenue Reserves as at 31 December 2017 ($136,000 18. The financial data relates to two businesses.
+ $28,000) totalled $164,000
Profit increases retained earnings and revenue reserves X Y
by $25,000. trade receivable turnover (days) 90 40
So total revenue reserves at 1 January 2017 were trade payable turnover (days) 50 70
($164,000 - $25,000) $139,000.
liquid (acid test) ratio 3:1 1:1
Transfer to general reserves increases general reserves
and decreases retained earnings so total reserves current ratio 4.5:1 6.2:1
remain unaffected. Share premium is capital reserve. Which statement about the comparison of the two
Ansiver: B businesses’ performance is correct?
A X has better credit control system.
17. A company provides the following information. B X has higher profitability.
C Y has better credit control system.
$
D Y has higher profitability.
ordinary shares of $0.50 each 84000
________________________________________________________ EXPLANATION
retained earnings 50000
None of the ratios relate to profitability.
134000
Y has short collection period and long payment period
The following transactions then take place. Answer: C

1 The company makes a rights issue of one

new ordinary share for every two held, at
$1.30. The issue was fully subscribed. 19. a company's financial statements show the
following.
2 A bonus issue of two new ordinary shares
for every three held was then made.
$
What is the maximum possible balance of the profit before interest 125378
retained earnings after these transactions?
profit for the year 120426
A $8400 B $16 800 200000
200 000 ordinary shares $1 each
C $33 200 D $41 600
retained earnings 191982
debentures 150000
What is the return on capital employed (ROCE)?
A 22.22% B 23.13%
C 30.72% D 31.99%
88 November 2018 Paper 1 page 5

________________________________________________________ EXPLANATION EXPLANATION

ROCE Profit from operations

=
Change in total cost
Variable cost per unit = —-----------------------
Capital employed Change in activity
Capital employed = $200,000 + $191,982 + $150,000
($216,000-$200,000)
= $541,982 Variable cost per unit =
(30,000-20,000)
Answer: B
Variable cost per unit = $1.60 per unit
Fixed cost = Total cost ($200000) - Total variable costs
20. A company’s income statement shows the (20,000 x $1.60) = $168,000
following. Answer: C

$
23. A retailer uses the FIFO method for inventory
revenue 460000 valuation. The following information is available.
cost of sales 120000
June $
administration expenses 54000
1 opening inventory 300 units at $12 per unit 3600
distribution costs 47000
10 purchased 1000 units at $12.50 per unit 12500
finance charges 7000
21 sold 1200 units for $16 each 19200
What is the operating expenses to revenue ratio? 28 purchased 700 units at $13 per unit 9100
A 21.96% B 23.48%
What was the value of the inventory at 30 June?
C 48.04% D 49.57%
A $6000 B $9850
________________________________________________________ EXPLANATION
C $10 080 D $10 350
Operating expenses ($54,000 + $47,000) = $101,000
EXPLANATION
Operating expenses
Opening inventory (300 @ $12) $3600
Revenue
Answer: A
Purchases (1000 @ $12.50) $12500
Sales (300 @ $12) + (900 @ $12.50)

21. To make a single unit of output a business

Remaining inventory (100 @ $12.50) $1250
requires material costing $1000. Purchase (700 @ $13) $9100
Remaining inventory ($1250 + $9100) $10350
When 20 items are produced, the total cost of the
material is $20 000. Answer: D

What best describes this cost?

A fixed cost B semi variable cost 24. A business manufactures 175 units of a product
each month.
C stepped cost D variable cost
The following information is available for the
_____________________________ EXP LAN A TION
month.
Variable cost per unit is constant and total variable
Per unit $
costs increase with an increase in activity in same
direction & proportion. revenue 580
Answer: D variable costs 230
fixed overheads 90
22. A business has the following total overheads for What is the break-even point in units?
two different output levels.
A 45 units B 61 units
total overheads output C 88 units D 160 units
$ (units) _______________________________________________ ________ EXPLANATION

200000 20 000 Unit contribution ($580 - $230) = $350

216000 30 000
Break even point = Total Fixed cost
What is the total fixed overhead cost? ($90x175/$350)
Answer: A
A $16 000 B $48 000
C $168 000 D $216 000
89 A Level tieaoiMTMG __________ November 2018 Paper 1 O page 6

25. When is marginal costing less useful than absorp­ 28. A business provides the following information.
tion costing?
budgeted overhead costs $280000
A when choosing to make or buy a product
budgeted labour hours 25 000
B when dealing with a limiting factor
budgeted machine hours 20 000
C when producing a special order
actual overhead cost $336000
D when valuing closing inventory
________________________________________________________ EXPLANATION actual labour hours 35 000

Inventory is valued using Absorption costing actual machine hours 30000

Answer: D What is the over-absorption or under-absorption
of overheads?
26. A company manufactures a single product with a A $56 000 over absorbed
selling price of $75 per unit. The table shows the B $56 000 under absorbed
costs based on sales and production volume of
C $84 000 over absorbed
8000 units.
D $84 000 under absorbed
$ _____ _________________________________ _ ^OPLANATION

direct costs 158000 Labour hours being more than machine hours so OAR
variable manufacturing overheads 74000 is calculated on the basis of labour hours.
fixed manufacturing overheads 80000 $280,000 .
OAR = ----------- labour hours
variable selling overheads 20000 25,000
fixed administration overheads 100000 Absorbed overheads = OAR ($11.20) X Actual Activity
(35000 labour hours) = $392,000
If absorption costing is applied, what is the gross
Over absorption = Absorbed overheads ($392,000)
profit on each unit sold?
- Actual overheads ($336,000) = $56,000
A $21.00 B $36.00
Answer. A
C $43.50 D $46.00
________ ________________ ___________________ EXPLANATION

Total cost of production, 29. A business provides the following budgeted infor­
mation.
($158,000 + $74,000 + $80,000) = $312,000
^ contribution to sales ratio 60%
Total cost per
1
unit $312000/8000 = $39
budgeted sales $240000
Gross profit per unit ($75 - $39) = $36 budgeted production units 40000
Answer. B
What is the contribution per unit?
A $3.60 B $3.75
27. A company has the following revenue information
for a month. C $9.60 D $10.00
__ __________________________________ IXPLANATION
$
Contribution ($240,000 x 60%) = $144,000
actual revenue 510000
break-even revenue 555000 IT . .. . $144,000
Unit contribution------------------- =$3.60
budgeted revenue 570000 40,000 units
Ansiver- A
What was its margin of safety during the month?
A -$60 000 B -$45 000
C + $45 000 D + $60 000
___________________EXPLANATION

Break even revenue - Actual revenue, its negative

because Break even revenue is more than Actual
revenue.
Answer: B
90
A Level Accdua/tmg November 2018 Paper 1 & page 7

30. Which statement identifies an advantage to a busi­

ness of financial planning?
A Not all managers are aware of business
financial planning.
B Specialist knowledge is required to prepare
the financial plans.
C The financial plans provide targets for
managers to achieve.
D Time and cost is required to prepare the
financial plans.
EXPLANATION

Financial planning sets targets to achieve

Answer: C
91

Accounting Multiple
choice Past Paper
November 2017
Cambridge A LEVEL

Questions and Answers

EXPLAINED
92

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 93 2

1 Which item is classed as revenue expenditure?

A installation costs of machinery

B legal fees on the purchase of premises
C number plates on a new motor vehicle
D redecorating office premises

2 What is the purpose of depreciation?

A to allocate the cost of the assets over their lives

B to improve liquidity ratios of the business
C to provide sufficient funds to replace the assets
D to show the assets at their market values

3 A company’s year end is 30 April. It purchases a factory in May 2014 at a cost of $200 000. The
factory will be depreciated over 20 years. A full year’s depreciation is charged in the year of
purchase.

In May 2017 the factory is revalued at $300 000.

How much should be included in the revaluation reserve account?

A $100 000 B $120 000 C $130 000 D $140 000

4 A business has a year end of 31 December. It purchased a non-current asset on 1 January 2014
for $100 000. It was depreciated using the reducing balance method at 20% per annum. It was
sold for $40 000 on 1 January 2016.

What was the loss on disposal?

A $20 000 B $24 000 C $40 000 D $60 000

5 Why does a business keep a sales ledger control account?

1 It helps deter fraud.

2 It helps with the preparation of financial statements.
3 It identifies doubtful debt easily.
4 It predicts the sales for the coming year.

A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4

 94 3

6 A sales ledger control account had a debit balance of $38 600. The total of individual sales ledger
debit balances was $36 500. The only errors found were as follows.

An irrecoverable debt had been recorded in the ledger of Smith but not the control account.

The sales journal was undercast by $1500.

A contra of $1750 had been correctly recorded in the control account but only $1250
recorded in the ledgers.

What was the value of the irrecoverable debt?

A $100 B $1100 C $3100 D $4100

7 The following information is available.

provision for doubtful debts at the beginning of the year 6 250

trade receivables at the end of the year 93 750

Provision for doubtful debts is to be maintained at 6% of trade receivables.

Which effect will the provision for doubtful debts have on profit for the year in the income
statement?

A decrease by $625
B decrease by $5625
C increase by $625
D increase by $5625

8 At 31 December the following information is available about a company’s banking transactions.

balance at bank per bank statement 22 650

uncleared deposits 3 110
unpresented cheques 6 290
bank credit recorded twice by bank in error 650

Which value for bank should be recorded in the statement of financial position at 31 December?

A $18 820 B $20 120 C $25 180 D $26 480

[Turn over
 95 4

9 Hedley has 100 items of inventory in his warehouse and five more with a customer on a sale or
return basis. He provides the following information.

$ per unit

historic cost paid 60

selling price 85
current replacement cost 65

Which value should appear in the statement of financial position for inventory?

A $6000 B $6300 C $6825 D $8500

10 A business does not keep complete accounting records. The following information is known for
the year.

capital at start 52 000

capital at end 55 000
drawings 13 000
capital introduced 25 000

What is the profit or loss for the year?

A loss $9000
B profit $9000
C loss $15 000
D profit $15 000

11 A business has 500 items of inventory at a cost price of $3 each. The selling price per unit is
based on a mark-up of 20%. Before sale, the items need to be repaired at a total cost of $400.

What is the net realisable value of the inventory?

A $1400 B $1475 C $2200 D $2275

 96 5

12 The following information is available for the year ended 31 December 2016.

revenue 75 000
purchases 32 000
carriage inwards 5 400
carriage outwards 4 500
inventory at 1 January 2016 6 300
inventory at 31 December 2016 7 600

What was the gross profit for the year ended 31 December 2016?

A $36 300 B $37 200 C $38 900 D $39 800

13 A partnership maintains capital accounts and current accounts.

Which statements are correct?

1 The capital accounts show the total amount owed to each partner.
2 The capital accounts represent the retained earnings of the business.
3 The capital and current accounts equal the net assets.

A 1 and 2 B 1 and 3 C 2 only D 3 only

14 X, Y and Z had been in partnership, sharing profits and losses in the ratio of 2 : 2 : 1.

On 1 January 2017, Y retired. The balances of his capital and current accounts were as shown.

capital account current account

$50 000 $6400 debit

Y took over a motor van at an agreed value of $3800. The net book value of the motor van was
$4800.

Goodwill was valued at $30 000.

The value of all other assets at 1 January 2017 would remain unchanged.

How much cash was Y entitled to when he retired?

A $51 400 B $51 800 C $55 200 D $64 200

[Turn over
 97 6

15 S and T are in partnership, sharing profits and losses in the ratio 2 : 1. The balances on their
capital accounts at 31 March 2017 were:

capital account S 40 000

capital account T 20 000
60 000

On 1 April 2017 the partners decide to change the profit-sharing ratio to 3 : 2. Goodwill is to be
valued at $30 000 and is not to be retained in the books of account.

What is the new balance of T’s capital account?

A $18 000 B $20 000 C $22 000 D $30 000

16 A partnership provides the following financial information for the year ended 30 June 2017.

profit from operations 240 000

bank interest payable 21 000
interest on capital 15 000
drawings 50 000
partnership salaries 45 000

What is the residual balance of profits to be appropriated between the partners?

A $109 000 B $154 000 C $159 000 D $204 000

17 Which accounting entry could record the issue of bonus shares?

debit credit

A bank share capital

B general reserve share capital
C general reserve share premium
D share capital general reserve
 98 7

18 From which accounts can a company pay dividends?

1 general reserve
2 retained earnings
3 revaluation reserve
4 share capital

A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4

19 A company provides the following data on 1 January 2016.

10% debentures (2020) 200 000

bank loan (2017) 130 000
bank loan (2018) 10 000
bank overdraft 24 000

What is the total value of non-current liabilities at 31 December 2016?

A $154 000 B $210 000 C $340 000 D $364 000

20 Calculation of which ratio does not include revenue?

A gross margin
B mark-up
C non-current asset turnover
D profit margin

[Turn over
 99 8

21 Bradshaw does not keep proper books of account. The following information is available for the
year.

cost of sales $750 000

mark-up 20%
cash sales $300 000
trade receivables $46 000

What are total sales and trade receivables turnover?

trade
total sales
receivables
$
turnover (days)

A 900 000 19
B 900 000 28
C 937 500 18
D 937 500 27

22 The financial statements of a company showed the following.

current liabilities 15 000

non-current liabilities 40 000
ordinary shares 120 000
general reserve 10 000
retained earnings 46 000
interest paid 11 000

Profit for the year was $23 000.

What was the return on capital employed?

A 10.65% B 13.07% C 15.74% D 19.32%

23 Which item is an indirect cost?

A carriage inwards
B production materials
C wages of machine operators
D wages of stores staff
 100 9

24 The following information is forecast for next period.

units

opening inventory 54 275

closing inventory 60 120
$

profit using marginal costing 300 600

profit using absorption costing 390 780

What is the overhead absorption rate per unit?

A $5.00 B $6.50 C $7.20 D $15.43

25 A business has total fixed costs of $240 000. Products have a unit selling price of $25 and a unit
variable cost of $15.

How many units need to be sold to break even?

A 6000 B 9600 C 16 000 D 24 000

26 The table contains information provided by a company.

budgeted direct labour hours 8000

actual direct labour hours worked 7500
budgeted overhead expenditure $104 000
actual overhead expenditure $112 500

What is the over or under recovery of overheads?

A $8500 over recovered

B $8500 under recovered
C $15 000 over recovered
D $15 000 under recovered

[Turn over
 101 10

27 The diagram illustrates the cost behaviour of a typical telephone invoice.

total cost
$

0 level of activity

Which term best describes the behaviour of this cost?

A fixed
B semi-variable
C stepped
D variable

28 Which statements about the limitations of marginal costing are correct?

1 Finance costs are not included in the manufacturing overheads.

2 Variable cost per unit changes at different levels of activity.
3 Some costs may be semi-variable costs.

A 1 and 2 B 1 only C 2 and 3 D 3 only

29 A product has a variable cost of $31.32 per unit. Total fixed costs are $93 600.

When production is 13 000 units the margin of safety is 5000 units.

What is the selling price per unit?

A $36.52 B $38.52 C $43.02 D $50.04

30 Why is planning important to a business?

1 to ensure that the business always makes a profit

2 to employ the correct number of workers
3 to reduce the risk of running out of inventory

A 1 and 2 B 1 only C 2 and 3 D 3 only

102

Answers
EXPLAINED
 November 2017 Paper 1
103
Multiple Choice

1. Which item is classed as revenue expenditure?

4. A business has a year end of 31 December. It
A installation costs of machinery purchased a non-current asset on 1 January 2014
B legal fees on the purchase for $100 000. It was depreciated using the reduc­
of premises ing balance method at 20% per annum. It was
sold for $40 000 on 1 January 2016.
C number plates on a new motor vehicle
What was the loss on disposal?
D redecorating office premises
________________________________________________________ A $20 000 B $24 000

Revenue expenditure is expenditure incurred in the day-to-day C $40 000 D $60 000
running of the business .Revenue expenditure is normally ___________________________________________________
recurring , compared to the one -off nature of most capital
expenditure. Redecorating office premises is an example. Step 1: Calculate Net book value at 1 Jan 2016
Capital expenditure is the amount spent by a business to $100,000 x 80% x 80% = $64,000
acquire, improve or extend the life of non-current assets such as
property , equipment and machinery . The one-off costs incurred Step 2: Calculate loss on disposal
. in the acquisition of non-current assets should also be included as Sale price - Net book value
capital expenditure , for example , transportation costs, legal fees $40,000- $64,000 = - $24,000 (loss)
and installation costs. Answer D Answer B

2. What is tho purpose of depreciation?

A to allocate the cost of the assets over their 5. Why does a business keep a sales ledger control
lives account?
B to improve liquidity ratios of the business 1 It helps deter fraud.
C to provide sufficient funds to replace the as 2 It helps with the preparation of financial
­ sets statements.
D to show the assets at their market values 3 It identifies doubtful debt easily.
4 It predicts the sales for the coming year.
________________________________________________________

Depreciation is the apportioning of the cost of

a non-current asset over its useful economic
A 1 and 2 B 1 and 3
life.
C 2 and 3 D 2 and 4
Answer A
________________________________________________________

The sales ledger control account is an account used to

3. A company ’s year end is 30 April. It purchases a factory
record the totals of the books of prime entry, related to
in May 2014 at a cost of $200 000. The factory will be
depreciated over 20 years. A full year’s depreciation is credit sales, to check the accuracy of the sales ledger. It
charged in the year of purchase. is also known as the total trade receivables account .
In May 2017 the factory is revalued at $300 000. How Control accounts are used to check the accuracy of the
much should be included in the revaluation entries made in each of the sales ledgers and help deter
reserve account? fraud .It helps with the preparation of financial statements .
A $100 000 B $120 000 Answer A

C $130 000 D $140 000

6. A sales ledger control account had a debit balance of $

________________________________________________________
38 600 . The total of individual sales ledger debit
Step 1: Calculate net book value at the time balances was $36 500. The only errors found were as
of revaluation follows.

Annual depreciation = $200,000/20 = $10,000 An irrecoverable debt had been recorded in

the ledger of Smith but not the control account.
NBV= [ $200,000 - ($10,000 x 3)] = $170,000 The sales journal was undercast by $1500.
A contra of $1750 had been correctly
Step 2: Calculate amount to be included in recorded in the control account but only $1250
the revaluation reserve account recorded in the ledgers.
What was the value of the irrecoverable debt?
Revalued amount ($300,000) -Net book value ($170,
A $100 B $1100
000) =$130,000
C $3100 D $4100

The profit on revaluation is credited to revaluation reserve.

Answer C
Sales ledger balance must be adjusted by $500 ( the
104
difference between $ 1250 and $1750)
Step 1: Calculate the adjusted sales ledger balance
Balance as per bank statement $22,650
$36,500 - $500 = $36,000
Add not credited deposits $3110
Step 2: Calculate the adjusted sales ledger Less unpresented cheques ($6,290)
control account balance (without adjusting Less bank credit recorded twice ($650)
irrecoverable debts)
Balance as per updated Cash book $18,820
$38,600 + $1500 = $40,100
Answer A
The difference between sales ledger balances
($36,000) and control account balance ($40,100)
9. Hedley has 100 items of inventory in his ware­
issue to irrecoverable debts $4100.
house and five more with a customer on a sale or
Answer D return basis. He provides the following informa­
tion.
7. The following information is available. $ per unit
$ historic cost paid 60
provision for doubtful debts at the selling price 85
beginning of the year 6250
current replacement cost 65
trade receivables at the end of the year 93750
Which value should appear in the statement of
Provision for doubtful debts is to be maintained
financial position for inventory?
at 6% of trade receivables.
Which effect will the provision for doubtful debts have A $6000 B $6300
on profit for the year in the income statement? C $6825 D $8500
_________________________________________________________
A decrease by $625
B decrease by $5625 Inventory should be valued at ‘the lower
C increase by $625 of cost and net realisable value’
D increase by $5625 The cost is ($60) of inventory is lower than
A provision for doubtful debts is the estimated amount of the it's net realisable value ($85).
proportion of trade receivables that will turn out to be an Inventory (100 + 5) 105 units are valued at $60 each.
irrecoverable debt.
105 units x $60 = $6300
Provision for doubtful debts to be maintained
Answer B
$93,750 x 6% = $5625
Decrease in provision
10. A business does not keep complete accounting records
$6250 - $5625 = $625 A decrease in provision will increase profit
. The following information is known for the year.
Answer: C

$
8. At 31 December the following information is avail­ capital at start 52000
able about a company’s banking transactions.
capital at end 55000
s drawings 13000
balance at bank per bank statement 22 650 capital introduced 25000
uncleared deposits 3110
What is the profit or loss for the year?
unpresented cheques 6290
A loss $9000 B profit $9000
bank credit recorded twice by bank in error 650
C loss $15 000 D profit $15 000
__________________________________________
Which value for bank should be recorded in the _
statement of financial position at 31 December? Closing capital + drawings -additional capital -
A $18 820 B $20 120 opening capital = profit / loss
C $25 180 D $26 480 $55,000 + $13,000 - $25,000 - $52,000 = - $9000 loss
Answer A

Closing capital

Deduct Opening capital

Retained profit xxxxxxxxxxxx

Add Drawings

xxxxxxxxxxxx

Deduct Capital introduced

Profit (loss) for the year xxxxxxxxxxxx

105
11. A business has 500 items of inventory at a cost
price of $3 each. The selling price per unit is Partners ’ capital accounts show deliberate injections of
based on a mark-up of 20%. Before sale, the capital into the business ; plus any goodwill adjustments ;
items need to be repaired at a total cost of $400. plus any profits or losses arising on a revaluation of assets
(generally on the admission or the retirement of a partner).
What is the net realisable value of the inventory?
A $1400 B $1475
Partners ’ current accounts record entries relating to each
C $2200 D $2275 partner's share of the profits of the business in the current
Selling price ($3 + 20%($3)) = $3.60 year. The current account would also be used to adjust for
any errors made in the profit share in previous years.
Net realizable value (500 x $3.60) - $400 = $1400
Answer: D
The overriding principle that should be used at all times
is that inventory should be valued at the lower of cost or 14. X, Y and Z had been in partnership, sharing prof­
net realisable value. its and losses in the ratio of 2 : 2 : 1.

The net realisable value of $1400 is less than cost On 1 January 2017, Y retired. The balances of his
price (500 x $3) $1500. capital and current accounts were as shown.
Answer: A
capital account current account
12. The following information is available for the year $50000 $6400 debit
ended 31 December 2016.
Y took over a motor van at an agreed value of
$ $3800. The net book value of the motor van was
revenue 75000 $4800.
purchases 32000 Goodwill was valued at $30 000.

5400 The value of all other assets at 1 January 2017

carriage inwards
would remain unchanged.
carriage outwards 4500
How much cash was Y entitled to when he re-
inventory at 1 January 2016 6300 tired?
inventory at 31 December 2016 7 600 A $51 400 B $51 800
C $55 200 D S64 200
What was the gross profit for the year ended 31
December 2016? Capital account $50,000

A $36 300 B $37 200 Less current account debit balance ($6400)
C $38 900 D $39 800 Less share of loss on motor van taken over (400)

$75,000 - [6300 + 32,000 + 5400 - 7600]=$38, ([$1000x2]/5)

900
Less motor van ($3800)
Note : Carriage outward is not used for Gross Plus share of goodwill [$30 000 x 2]/5 12 000
Profit calculation.
Answer: C Cash entitled to Y $51400
Answer: A
15. S and T are in partnership, sharing profits and
losses in the ratio 2:1. The balances on their
capital accounts at 31 March 2017 were:

$
capital account S 40000
capital account T 20000
60 000

On 1 April 2017 the partners decide to change the

profit-sharing ratio to 3 : 2. Goodwill is to be val­
13. A partnership maintains capital accounts and ued at $30 000 and is not to be retained in the
current accounts. books of account.
Which statements are correct? What is the new balance of T’s capital account?
1 The capital accounts show the total A $18 000 B $20 000
amount owed to each partner. C $22 000 D $30 000
2 The capital accounts represent the
retained earnings of the business.
3 The capital and current accounts equal
the net assets.

A 1 and 2
B 1 and 3
C 2 only
D 3 only
106

Revenue reserves are portions of profits earned by a

company 's normal operations which are then set aside
Revenue reserves such as general reserves and retained
Capital Account ($20,000)
+ Share of goodwill ([$30,000x1]/3) earnings can be used to pay dividends.
- Share of goodwill written off ([$30,000x2]/5) Answer: A
=$18,000
19. A company provides the following data on 1 Janu­
Answer: A ary 2016.

16. A partnership provides the following financial

s
information for the year ended 30 June 2017. 10% debentures (2020) 200000
bank loan (2017) 130000
$
bank loan (2018) 10000
profit from operations 240000
bank overdraft 24000
bank interest payable 21000
interest on capital 15000 What is the total value of non-current liabilities at
drawings 50000 31 December 2016?

partnership salaries 45000 A $154 000 B $210 000

C $340 000 D $364 000
What is the residual balance of profits to be ap­
___ __________________________________ __
propriated between the partners?
A $109 000 B $154 000 Bank loan due in 2017 : current liability
C $159 000 D $204 000 Bank overdraft : current liability
_________________________________________________________ Bank loan (2018) : non-current liabilities
Debentures (2020): non-current liabilities
Profit from operations ($240 ,000 ) - interest on capital Answer. B
($15,000) - partnership salaries ($45, 000)- bank interest
($21,000 ) = $159,000
20. Calculation of which ratio does not include revenue?
Answer C
A gross margin
B mark-up
17. Which accounting entry could record
the issue of bonus shares? C non-current asset turnover
D profit margin
debit credit
A bank share capital __________________ _

B general reserve share capital

C general reserve share premium
D share capital general reserve
Markup is gross profit as a percentage of cost of sales.
Answer B
A bonus issue is an increase in the share capital of the
company along with a decrease in other reserves.
21. Bradshaw does not keep proper books of account.
Answer. B The following information is available for the year.
cost of sales $750000
mark-up 20%
18. From which accounts can a company pay divi­ cash sales $300000
dends?
trade receivables $46 000
1 general reserve
2 retained earnings What are total sales and trade receivables turn­
over?
3 revaluation reserve
4 share capital total sales trade receivables turnover
$ (days)
A 1 and 2 B 1 and 3
A 900 000 19
C 2 and 3 D 2 and 4
B 900000 28
C 937500 18
D 937500 27
Gross profit ($750,000 x 20%) = $150,000
Total sales revenue 24. The following information is forecast for next pe­
107 riod.
($750,000 + $150,000) = $900,000
units

Credit sales ($900,000 - $300,000) = $600,000 opening inventory 54 275

closing inventory 60120
Trade receivables turnover $
($46,000/$600,000)x365 = 27.9 round to 28 Answer: B
profit using marginal costing 300 600
profit using absorption costing 390780
22. The financial statements of a company showed
the following. What is the overhead absorption rate per unit?

S A $5.00 B $6.50

current liabilities 15000 C $7.20 D $15.43

_________________________________________________________
non-current liabilities 40000
ordinary shares 120000 Step 1 : Calculate the difference in profit
general reserve 10000 ($390,780 - $300,600) = $90, 180
retained earnings 46 000
Step 2: Calculate the difference in inventories
interest paid 11 000
(60120-54275)= 5845 units
Profit for the year was $23 000.
What was the return on capital employed? The difference in profits is due to difference in valuation of
inventories. Difference in inventories is due to inclusion of fixed
A 10.65% B 13.07%
production costs in case of absorption costing.
C 15.74% D 19.32%
________ ________________________________________________ Step 3: Calculate the overhead absorption rate

Capital employed = non -current liabilities ($40 ,000 ) + difference in profits/ difference in inventories . = overhead
ordinary shares ($120 ,000 ) + general reserve ($10,000 ) absorption rate
+ retained earnings ($46,000) = $216,000
$90180/5845 =$15.428 (round to 15.43)
Profit from operation = profit from the year ($23,000) + _______________________ __________ Answer D
interest($11,000)= $34,000

ROCE= (Profit from operations/ Capital employed )x100

A business has total fixed costs of $240 000 . Products have a unit
= $34,000/$216,000 = 15.74%
Answer: C

selling price of $25 and a unit variable cost of $15.

23. Which item is an indirect cost?
A carriage inwards How many units need to be sold to break even?
B production materials
C wages of machine operators A 6000
D wages of stores staff B 9600
________________________________________________________
C 16 000
Indirect costs are items of expenditure
that cannot easily be identified with a D 24 000
Answer: D
specific saleable cost unit. e.g wages Step 1: Calculate unit contribution
of stores staff
Unit contribution ($25 - $15) = $10

Step 2: Calculate Break even point

BEP (units) = total fixed costs / unit contribution $240000/$10= 24000 units
Answer D

26. The table contains information provided by a com­

pany.

budgeted direct labour hours 8000

actual direct labour hours worked 7500
budgeted overhead expenditure $104 000
actual overhead expenditure $112500

What is the over or under recovery of overheads?

A $8500 over recovered
B $8500 under recovered
C $15 000 over recovered
D $15 000 under recovered
108
_____________________________________________________
Break even point (units) = current activity (13,000 units) - margin of
( $104,000) safety (5000 units)
Overhead absorption rate - --------- ------
8000 hours
Break even point (units) = 8000 units
= $13 per labour hour
Absorbed overheads (7500 hours X $13 ) = $97, 500 Break even point (8000 units)= Fixed cost ($93,600) /unit
Under recovery = excess of actual overheads over contribution(to be determined)
absorbed overheads. Unit contribution = $11.70
Under recovery ($112,500 - $97,500) = $15,000 Selling price $43.02 = Unit contribution ($11.70) + variable
Answer: D
costs ($31.32)
Answer: C

27. The diagram illustrates the cost behaviour of a

typical telephone invoice. 30. Why is planning important to a business?
1 to ensure that the business always makes
a profit
2 to employ the correct number of workers
3 to reduce the risk of running out of
inventory
A 1 and 2
B 1 only
Which term best describes the behaviour of this C 2 and 3
cost? D 3 only
A fixed B semi-variable
C stepped D variable
Planning helps in allocation of resources and inventory
_________________________________________________________
management.
Semi variable costs are costs that cannot be classified as
either fixed costs or variable costs because they contain an Answer: C
element of both.
Answer: B

28. Which statements about the limitations of mar­

ginal costing are correct?
1 Finance costs are not included in the
manu facturing overheads.
2 Variable cost per unit changes at different
levels of activity.
3 Some costs may be semi-variable costs.

A 1 and 2 B 1 only
C 2 and 3 D 3 only

Marginal costing assumes costs to be either fixed or variable i.e. no semi

variable costs , whereas semi variable costs may exist. An example of a
semi-variable cost is the charge for consumption of electricity.
The standing charge is a fixed cost — it is charged at a fixed rate that is
not dependent on the amount of electricity used. The variable cost part
is based on the number of units consumed during the period.
Answer D

29. A product has a variable cost of $31.32 per unit.

Total fixed costs are $93 600.
When production is 13 000 units the margin of
safety is 5000 units.
What is the selling price per unit?
A $36.52 B $38.52
C $43.02 D $50.04
109

Accounting Multiple
choice Past Paper
November 2016
Cambridge A LEVEL

Questions and Answers

EXPLAINED
110

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
111
2

1 Which transaction applies the matching concept?

A A machine acquired on long-term rental is included in non-current assets.

B Computer equipment is depreciated over two years.
C A building is revalued following a fall in property prices.
D A waste-paper basket is treated as revenue expenditure.

2 A disposal account is used to record the sale of a non-current asset.

Which transactions are recorded on the credit side of the disposal account?

A cost, loss on disposal and sale proceeds

B cost, profit on disposal and sale proceeds
C depreciation, loss on disposal and sale proceeds
D depreciation, profit on disposal and sale proceeds

3 The following information was available for the disposal of a machine.

accumulated depreciation 45 000

profit on disposal 8 100
sale proceeds 75 600

What was the original cost of the machine?

A $22 500 B $38 700 C $112 500 D $128 700

4 A printing company installed a large printing press.

Which costs are capital expenditure in the first year of its operation?

1 installation of the press

2 depreciation of the press
3 repairs to the press
4 upgrades to the press

A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

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3

5 The year-end balance in the cash book was $23 780. This was different from the balance on the
bank statement. The difference was due to the following items.

bank charges 216

a customer’s cheque which was dishonoured 1375
a bank error meant a cheque was incorrectly 560
debited to the bank account

What should be the value of bank in the statement of financial position?

A $21 629 B $22 189 C $25 371 D $25 931

6 At the end of the year, the balance on a firm’s sales ledger control account was $12 900. The total
of the customers’ accounts in sales ledger was $11 900.

The following errors were then discovered.

1 A customer’s account had been undercast by $700.

2 A contra with a supplier in the purchases ledger of $200 had only been entered in
the sales ledger control account.
3 The discount allowed column in the cash book totalled $500. This had not been
posted to the nominal ledger.
What was the correct balance on the sales ledger control account?

A $11 200 B $11 400 C $12 000 D $12 400

7 A suspense account has a balance of $450 debit.

What has caused this balance in the suspense account?

A motor expenses of $225, correctly entered in the cash book, and posted to motor expenses
as a credit
B motor expenses of $225, entered in the cash book as a receipt and posted to motor
expenses as a credit
C motor expenses of $450, correctly entered in the cash book, and posted to motor vehicles as
a debit
D motor expenses of $675, entered in the cash book as a credit of $225 and posted to motor
expenses as $225 debit

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4

8 An item of capital expenditure has been incorrectly treated as revenue expenditure in the
financial statements of a business.

What is the effect of this error on the financial statements of the business?

assets profit

A overstated overstated
B overstated understated
C understated overstated
D understated understated

9 A company pays or receives the following amounts on the last day of its financial year.

deposit paid to a supplier 6500

rental income received in advance 8000
loan repayment 3000
payment for last month’s sales commission 900

Which of these amounts will be included as other receivables in the statement of financial
position?

A $6500 B $14 500 C $17 500 D $18 400

10 A sole trader provides the following information.

start of year end of year

$ $

total assets 100 000 135 000

total liabilities excluding owner’s capital (35 000) (40 000)

During the year the owner took drawings of $18 000.

What was the profit for the year?

A $12 000 B $30 000 C $35 000 D $48 000

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5

11 A trader did not keep full accounting records. The following information was available for 2015.

trade payables on 1 January 32 785

trade payables on 31 December 43 630
payments to suppliers during the year 72 830
discounts received during the year 3 450

What was the value of purchases?

A $58 535 B $65 435 C $80 225 D $87 125

12 A partnership admits a new partner.

Which statement is correct?

A Profits will always be shared equally following the new partner’s admission.
B The new partner will always benefit if assets are later revalued upwards.
C The new partner must always contribute capital to the partnership.
D The new partner will always pay for a share of partnership goodwill.

13 X, Y and Z are in partnership sharing the profits and losses in the ratio of 2 : 2 : 1.

At 31 December the following information is available.

X Y Z
$ $ $

capital account balances 100 000 100 000 50 000

current account balances 20 000 15 000 (5 000)

On 31 December Z retires from the partnership. Total assets are revalued upwards by $45 000.
There is no goodwill.

How much will Z be paid on his retirement?

A $54 000 B $59 000 C $60 000 D $65 000

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6

14 The following information relates to a partnership.

profit from operation 90 000

loan interest 3 200
interest on drawings 6 000
drawings 40 000
interest on capital 11 000

What is the residual profit to be appropriated amongst the partners?

A $41 800 B $69 800 C $81 800 D $91 800

15 A partnership earned an average profit during the year of $15 000 per month.

Halfway through the year D and E were joined by a new partner F and profits were shared
equally before and after the change. In the first half of the year D transferred his private vehicle to
the partnership at a valuation of $12 000. D’s drawings amounted to $60 000 during the year.

What was the increase in D’s current account balance during the year?

A $15 000 B $30 000 C $75 000 D $87 000

16 How would a transfer to general reserve and the issue of shares at a premium affect the revenue
reserves of a limited company?

transfer to issue of shares

general reserve at a premium

A decrease decrease
B decrease increase
C no effect increase
D no effect no effect

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7

17 A company is formed with the issue of 100 000 6% non-cumulative preference shares of $1 each
and 300 000 ordinary shares of $1 each issued at a premium of $0.20.

It earned profits of $3000, $16 000 and $31 000 in the first three years of trading. The directors
wish to pay an ordinary dividend of 5% each year when possible.

What value of ordinary dividends does the company actually pay in years 2 and 3?

year 2 year 3
$ $

A 7 000 15 000
B 7 000 18 000
C 10 000 15 000
D 10 000 18 000

18 A company had an issued share capital of 400 000 ordinary shares of $1 each. It then made a
bonus issue of one share for every five held. This was later followed by a rights issue of one
share for every three held.

What was the balance on the share capital account after these transactions?

A $480 000 B $533 333 C $613 333 D $640 000

19 Which action will increase the equity of a limited company?

A creating a general reserve

B issuing bonus shares
C issuing debentures
D issuing non-redeemable preference shares

20 Which action leaves the value of working capital unchanged?

A disposal of a non-current asset

B issuing shares for cash
C purchasing goods for resale on credit
D writing off an irrecoverable debt

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8

21 Owusu Limited has a constant level of annual sales and a constant gross margin. Each year the
inventory increases.

Which effects does this have on the inventory holding period and on inventory turnover?

inventory holding inventory turnover

(in days) (times)

A decrease decrease
B decrease increase
C increase decrease
D increase increase

22 A business uses the AVCO method of inventory valuation.

The following transactions took place.

1 March purchased 1000 units at $65 per unit

2 March purchased 1200 units at $66 per unit
4 March sold 1850 units at $68 per unit

What was the value of closing inventory?

A $22 750 B $22 941 C $23 100 D $23 800

23 A manufacturing company employs 20 workers who are paid a basic rate of $30 per hour for a
40-hour week. To meet a special order, the workers each worked 50 hours and were paid a
premium of 40% over basic rate for the overtime.

What was the value of wages paid to meet the special order?

A $30 000 B $32 400 C $33 600 D $42 000

24 A manufacturing business is currently operating at full capacity.

As part of an expansion programme to increase production capacity, the business intends to

employ an additional factory supervisor.

How are total supervisory salaries classified?

A fixed cost
B semi-variable cost
C stepped cost
D variable cost

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9

25 In a manufacturing business the following could occur.

1 Actual overheads paid are less than budgeted overheads.

2 Actual overheads paid are more than budgeted overheads.
3 Actual units produced are less than budgeted units.
4 Actual units produced are more than budgeted units.

Which situations would result in an under absorption of overhead expenditure?

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

26 A company makes and sells a single product for $12 per batch.

The variable cost is $4 per batch.

Fixed costs have been absorbed based on a normal activity level of 1000 batches at
$3 per batch.

What is the profit under marginal costing if the company makes and sells 1500 batches?

A $6000 B $7500 C $9000 D $12 000

27 The following information was provided about a product.

selling price per unit $50

variable cost per unit $26
total fixed costs $10 000
demand 1800 units

If the selling price increases only demand changes.

When the selling price increased by $4 profit fell by $1200.

What was the decrease in demand?

A 214 units
B 300 units
C 571 units
D 657 units

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119
10

28 A business that uses flexible budgets shows the following:

units of output 100 000 110 000

total fixed and variable costs $400 000 $425 000

What are fixed costs?

A $125 000 B $150 000 C $250 000 D $275 000

29 A company makes a product for which the following information is given.

per unit
$

selling price 100

direct materials 40
direct labour 30

Total fixed costs are $40 000.

Planned production is 1000 units.

Which action should the company take to break-even?

A decrease direct labour cost by 30%
B decrease direct material cost by 25%
C increase direct labour cost by 30%
D increase direct materials cost by 25%

30 What is the objective of a system of budgetary planning and control?

A to determine next year’s production

B to determine next year’s profits
C to motivate the manufacturing staff
D to provide a system for communication, coordination and control

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Answers
EXPLAINED
121
122
123
124
125
126
127

Accounting Multiple
choice Past Paper
June 2020
Cambridge A LEVEL

Questions and Answers

EXPLAINED
128

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 129 2

1 A business depreciates its non-current assets. It then includes them in the statement of financial
position at the net book value.

Which concept is the business following?

A duality
B prudence
C realisation
D substance over form

2 Which item is capital income?

A bank interest received

B proceeds from sale of business premises
C rental income from property
D sale of inventory to a customer

3 A company purchased a machine on 1 April 2017 for $25 000. It was depreciated at 20% per
annum using the straight-line method. A full year’s depreciation is charged in the year of
purchase but none in the year of sale. On 30 June 2019 the machine was sold for $12 500. The
company year-end is 31 December.

What was the profit or loss on the disposal of the machine?

A $1250 loss
B $1250 profit
C $2500 loss
D $2500 profit

4 Why do businesses charge depreciation on their non-current assets?

A to ensure that sufficient cash is available to replace the assets

B to show the realisable value of the assets in the statement of financial position
C to spread the cost of the assets over their estimated useful life
D to show when the assets must be replaced
 130 3

5 A trader’s trial balance did not agree at the end of the financial period and a suspense account
was opened.

The following errors were discovered.

1 No entry had been made in the books of account for a purchase of inventory, $650.
2 Purchase of a vehicle by cheque had been credited to bank but debited to motor
expenses.
3 The discount received of $300 had been correctly recorded in the purchases ledger
control account and was debited to discount allowed account.
4 The purchases account for the year had been incorrectly totalled.

Which errors would affect the suspense account?

A 1, 2 and 3
B 1 and 3 only
C 2 and 4 only
D 3 and 4 only

6 The following financial information is available for a business.

draft profit for the year 12 650

closing capital 52 780

The following error has been discovered.

Private fuel costs, $1930, had been charged in the business motor expenses account.

What are the correct figures for the year?

profit for the year closing capital

$ $

A 10 720 50 850
B 10 720 54 710
C 14 580 52 780
D 14 580 54 710
 131 4

7 A sales ledger control account has a closing balance of $21 000.

It was discovered that a contra entry with the purchases ledger control account for $700 had
been incorrectly entered on the wrong side of the sales ledger control account.

What was the correct sales ledger control account balance?

A $19 600 B $20 300 C $21 700 D $22 400

8 A sole trader does not keep a complete set of books of account. He believes a staff member has
stolen some cash.

Which items will not be needed to calculate the amount missing?

1 cash in hand at the beginning and end of the year

2 owner’s drawings taken from the bank
3 cheques received from customers
4 totals of cash sales and cash purchases

A 1 and 4 B 2 and 3 C 2 only D 3 only

9 A business provides the following information.

trade provision for

receivables doubtful debts
$ $

31 December 2018 46 200 1386

31 December 2019 48 100 1924

Which statement must be correct?

A The rate of provision for doubtful debts has decreased.

B The rate of provision for doubtful debts has increased.
C The value of irrecoverable debts incurred has decreased.
D The value of irrecoverable debts incurred has increased.

10 On 1 March a company has prepaid $3600 for 12 months’ travel costs. It also has an outstanding
hotel bill of $180.

During March it pays the outstanding hotel bill and a further $700 for airline tickets for the month.

At 31 March it has an outstanding hotel bill of $220.

What is the correct cost of travel in the income statement for March?

A $920 B $1220 C $1400 D $4520

 132 5

11 A business owner provided the following information at the end of his first year of trading.

closing inventory 15 000

total payments to suppliers 60 000
amount owing to suppliers 5 000
total receipts from customers 85 000
amount owed by customers 10 000

What was the gross profit for the year?

A $10 000 B $15 000 C $25 000 D $45 000

12 How should interest charged on a partner’s drawings account be treated?

A credited to the appropriation account

B credited to the income statement
C debited to the appropriation account
D debited to the income statement

13 X, Y and Z were in partnership, sharing profits equally. When Z retired from the business the
assets were revalued. Goodwill was also valued but was not retained in the books of accounts.

Which statement about Z’s retirement is correct?

A Only X and Y’s capital accounts will be adjusted for the revaluation.
B Only X and Y’s capital accounts will be adjusted for goodwill.
C The balance on Z’s current account will form part of her retirement settlement.
D Z may only be paid in cash for her share on retirement.
 133 6

14 L and M are in partnership, sharing profits and losses in the ratio of 3 : 2. They have the following
current account balances.

L M
$ $

31 March 2019 3 000 credit 4500 debit

31 March 2020 14 200 credit 6200 debit

The balances at 31 March 2020 are after taking into account the following.

L M
$ $

interest on drawings 1 000 1 500

interest on capital 3 000 2 000
drawings 10 000 15 000

What was the residual profit to be shared between L and M for the year ended 31 March 2020?

A $24 000 B $27 000 C $29 000 D $32 000

15 How is unpaid debenture interest recorded in the financial statements of a company at the year
end?

1 a current liability in the statement of financial position

2 a non-current liability in the statement of financial position
3 an expense in the income statement
4 an item in the statement of changes in equity

A 1 and 3 B 1 only C 2 and 3 D 2 and 4

 134 7

16 On 1 December 2019 a company’s statement of financial position included the following.

ordinary shares of $5 each 2 500 000

share premium 850 000
retained earnings 710 000

2019

15 December paid an ordinary share interim dividend of $0.15 per share

23 December made a bonus issue of 25 000 ordinary shares

Reserves were kept in their most flexible form.

What were the balances on the revenue reserves and capital reserves accounts after these
transactions?

revenue reserves capital reserves

$ $

A 335 000 725 000

B 335 000 825 000
C 635 000 725 000
D 635 000 825 000

17 A business sells goods at a uniform mark-up of 25%.

The following information is available.

sales revenue 120 000

opening inventory 18 000
purchases 95 000
returns outwards 2 000

What is the value of closing inventory?

A $15 000 B $19 000 C $21 000 D $25 000

 135 8

18 The rate of inventory turnover of a company has been calculated for two successive periods.

current period 5.6 times

previous period 4.8 times

The following statements have been made about the change.

1 Inventory is moving more slowly in the current period.

2 Inventory is moving more quickly in the current period.
3 Management of inventory has been more efficient in the current period.

Which statements may explain the change?

A 1 and 3 B 1 only C 2 and 3 D 2 only

19 The following items appear on a statement of financial position.

inventory 20 000
cash and cash equivalents 3 500
trade payables 11 000
provision for doubtful debts 500

The current ratio is 3 : 1.

How much do the trade receivables owe?

A $9500 B $10 000 C $12 000 D $12 500

20 Which costs are indirect?

1 bought-in components used in a finished product

2 materials used for factory maintenance
3 raw materials used in a finished product
4 spare parts bought for factory machinery

A 1, 2 and 3 B 1, 2 and 4 C 2 and 4 only D 3 and 4

 136 9

21 A business provided the following information.

budgeted overheads $20 000

budgeted direct labour hours 2000
direct labour rate $20 per hour

A job used materials costing $45 and 6 hours of direct labour.

Overheads are charged on the basis of direct labour hours used.

What was the cost of the job before adding any profit?

A $105 B $165 C $180 D $225

22 A business has produced the following estimates of labour costs for next month.

units produced 600 800 1100

total labour cost $5690 $6170 $6890

What was the monthly fixed labour cost?

A $480 B $1200 C $2640 D $4250

23 Why are service centre costs apportioned to production departments?

A to act as a check on service centre managers

B to ascertain whether service centres are cost effective
C to ensure the service centre costs are included in selling prices
D to minimise the total costs of service centres
 137 10

24 The following data were available for a department for July.

budget actual

direct labour hours 40 000 41 950

machine hours 60 000 60 900
overheads $480 000 $499 200

What was the over or under absorption of overheads for July?

A $4200 over absorbed

B $4200 under absorbed
C $12 000 over absorbed
D $12 000 under absorbed

25 Which statements about marginal costing are correct?

1 It cannot be used as a basis to calculate contribution.

2 It is useful for decision-making.
3 It recognises the importance of fixed costs.

A 1 and 2 B 2 and 3 C 2 only D 3 only

26 A company with fixed costs of $50 000 and a contribution to sales ratio of 40% makes a profit of
$30 000.

What are the total costs?

A $130 000 B $170 000 C $175 000 D $200 000

27 What is not an assumption made in cost–volume–profit analysis?

A Unit fixed cost is constant.

B Unit selling price is constant.
C Unit variable cost is constant.
D Units produced are all sold.
 138 11

28 The actual output for a business is lower than that forecast.

Which costs would normally still be the same as forecast?

1 fixed cost per unit

2 total fixed cost
3 total variable cost
4 variable cost per unit

A 1 and 2 B 2 and 3 C 2 and 4 D 3 and 4

29 A manufacturer produces a single product. The following information is available.

selling price per unit 14

variable costs per unit 8
fixed costs per annum 96 000

There are plans to reduce the selling price by $3 per unit and to reduce variable costs by $1 per
unit. Fixed costs will remain unchanged.

What will be the new break-even point?

A 9600 units
B 12 000 units
C 24 000 units
D 48 000 units

30 A company has recently introduced a system of budgetary control.

Workers have given the following reasons for failing to achieve the budget targets.

1 ‘We need more training.’

2 ‘The budget is unrealistic.’
3 ‘The budget needs to be changed to reflect actual conditions.

Which reasons should be considered when evaluating a worker’s performance?

A 1, 2 and 3
B 2 and 3 only
C 2 only
D 3 only
139

Answers
EXPLAINED
140

June 2020 Paper 1

Multiple Choice

1. A business depreciates its non-current assets. It 4. Why do businesses charge depreciation on

then includes them in the statement of financial their non-current assets?
position at the net book value.
A to ensure that sufficient cash is available
Which concept is the business following? to replace the assets
A duality B to show the realisable value of the assets
B prudence in the statement of financial position
C realisation C to spread the cost of the assets over
their estimated useful life
D substance over form
D to show when the assets must be replaced
____________________________________
_________________________ ________________________
Prudence requires that revenues and profits are only included
in the accounts when they are realised or their realisation Depreciation is the apportioning of the
is reasonably certain. This prevents profits from cost of a non-current asset over its useful
being overstated.
Answer; B
economic life.
2. Which item is capital income? Answer. C

A bank interest received

B proceeds from sale of business premises 5. A trader ’s trial balance did not agree at the end of the
C rental income from property financial period and a suspense account was opened.
D sale of inventory to a customer The following errors were discovered.

1 No entry had been made in the books of

Capital income is income received from the sale of non
account for a purchase of inventory, $650.
-current assets of the business, such as the proceeds
received from selling a motor vehicle 2 Purchase of a vehicle by cheque had
Answer. B
been credited to bank but debited to motor
expenses.
3 The discount received of $300 had been
3. A company purchased a machine on 1 April 2017 correctly recorded in the purchases led­
for $25 000. It was depreciated at 20% per annum ger control account and was debited to
using the straight-line method. A full year’s depre­ discount allowed account.
ciation is charged in the year of purchase but
4 The purchases account for the year had
none in the year of sale. On 30 June 2019 the
been incorrectly totalled.
machine was sold for $12 500. The company year-
end is 31 December. Which errors would affect the suspense account?
What was the profit or loss on the disposal of the A 1,2 and 3 B 1 and 3 only
machine?
C 2 and 4 only D 3 and 4 only
________________________________________________________
A $1250 loss B $1250 profit
C $2500 loss D $2500 profit Error 1 is error of omission, error 2 is error of principle,
and both are errors do not affect the suspense account

Answer. D

Accumulated depreciation
6. The following financial information is available for
($25,000 X 20% X 2) = $ 10,000 a business.

$
Net book value draft profit for the year 12650
closing capital 52 780
Cost ($25,000) - Accumulated depreciation ($ 10,000)

Loss

Net book value ($15,000) - Sale value ($12,500) =

$2500

Answer: C
 141
The following error has been discovered.
Private fuel costs, $1930, had been charged in
9. A business provides the following information.
the business motor expenses account.
What are the correct figures for the year? trade provision for
receivables doubtful debts
profit for the year closing capital $ $
$ $
31 December 2018 46200 1386
A 10720 50850
31 December 2019 48100 1924
B 10720 54 710
Which statement must be correct?
C 14 580 52 780
D 14 580 54710 A The rate of provision for doubtful debts
has decreased.
_________________________________________________________
B The rate of provision for doubtful debts
Private fuel cost treated as expenses has increased.
Business expenses : overstated C The value of irrecoverable debts incurred
Profit : understated. has decreased.
D The value of irrecoverable debts incurred
has increased.
Private fuel costs are treated as drawings. Profit
is understated but capital is not affected.
Answer- C
Rate of provision at 31 December

7. A sales ledger control account has a 2018 ($1386/$46200) x 100 = 3%

closing balance of $21 000.
Rate of provision at 31 December 2019
It was discovered that a contra entry with the pur ­
chases ledger control account for $700 had been
incorrectly entered on the wrong side of the sales $1924/$48100= 4%
ledger control account. Answer B
What was the correct sales ledger control
account balance?
10. On 1 March a company has prepaid $3600 for 12
A $19 600 B $20 300
months’ travel costs. It also has an outstanding
C $21 700 D $22 400 hotel bill of $180.
____________ __________ _____ ______ _____________
During March it pays the outstanding hotel bill
Because receivables is wrongly increased it should be and a further $700 for airline tickets for the month.
decreased by double amount. ($21000 -$[2x700]) At 31 March it has an outstanding hotel bill of
$220.
Answer: A
What is the correct cost of travel in the income
statement for March?
8. A sole trader does not keep a complete set of books of
A $920 B $1220
account . He believes a staff member has stolen some
cash. C $1400 D $4520
Which items will not be needed to
calculate the amount missing? Outstanding bill of $180 on 1 March represents
1 cash in hand at the beginning and end of February’s expense
the year
2 owner's drawings taken from the bank Travel cost = ($3600/12) + $700 + $220 = $1220
3 cheques received from customers
Answer B
4 totals of cash sales and cash purchases

A 1 and 4 B 2 and 3
C 2 only D 3 only
_____ ________ ____________________________________

Transactions 2 & 3 relate to bank account instead

of cash.
Answer: B
 142

11. A business owner provided the following 14. L and M are in partnership, sharing profits and
information at the end of his first year of losses in the ratio of 3 :2. They have the following
trading. current account balances.

s L M
$ $
closing inventory 15000
31 March 2019 3000 credit 4500 debit
total payments to suppliers 60 000
31 March 2020 14200 credit 6200 debit
amount owing to suppliers 5000
total receipts from customers 85 000 The balances at 31 March 2020 are after taking
into account the following.
amount owed by customers 10000

What was the gross profit for the year? L M

$ $
A $10 000 B $15 000
interest on drawings 1000 1500
C $25 000 D $45 000
interest on capital 3000 2000
_________________________________________________________
drawings 10000 15000

Sales ($85,000 + $10,000) - purchases ($60,000 + $ 5000) + What was the residual profit to be shared between
closing inventory ($15,000) = Gross profit L and M for the year ended 31 March 2020?
Answer. D
A $24 000 B $27 000

12 . How should interest charged on a partner 's C $29 000 D $32 000
drawings account be treated ?
A credited to the appropriation account Current account
B credited to the income statement L M L M
C debited to the appropriation account Balance b/d 4500 Balance b/d 3000
D debited to the income statement Interest on Interest on
_____________________________________________ drawings
1000 1500
capital 3000 2000

Interest on drawings is added to profit by Drawing 10,000 15,000 Share of profit 19,200 12,800
crediting the appropriation account and then Balance c/d 14,200 Balance c/d 6200
debited in the current account.
Residual profit = $19,200 + $12,800 = $32,000
Answer. A
Answer: D

13. X, Y and Z were in partnership, sharing profits

equally. When Z retired from the business the 15. How is unpaid debenture interest recorded in the
assets were revalued. Goodwill was also valued financial statements of a company at the year
but was not retained in the books of accounts. end?
Which statement about Z*s retirement is correct 1 a current liability in the statement of finan­
cial position
? A Only X and Y’s capital accounts will be ad­
justed for the revaluation. 2 a non-current liability in the statement of
financial position
B Only X and Y’s capital accounts will be
adjusted for goodwill. 3 an expense in the Income statement

C The balance on Z’s current account will form 4 an item in the statement of changes in
part of her retirement settlement. equity

D Z may only be paid in cash for her share A 1 and 3 B 1 only

on retirement. C 2 and 3 D 2 and 4
_________________________________________________________

Retiring partner’s total investment i.e. capital + Unpaid interest on debentures is an accrued expense. It is
current + loan, must be settled at the time of retirement. recorded as follows.
Z’s capital account should also be adjusted for revalu Income statement: expense
­ ation & goodwill. Statement of financial position: current liabilities
Answer: C Answer A
 143

16. On 1 December 2019 a company’s statement of 18. The rate of inventory turnover of a company has
financial position included the following. been calculated for two successive periods,
current period 5.6 times
$
previous period 4.8 times
ordinary shares of $5 each 2 500000
share premium 850000 The following statements have been made about
the change.
retained earnings 710000
1 Inventory is moving more slowly in the
2019 current period.

15 December 2 Inventory is moving more quickly in the

paid an ordinary share interim
dividend of $0.15 per share current period.
3 Management of inventory has been more
23 December made a bonus issue of 25000
efficient in the current period.
ordinary shares
Which statements may explain the change?
Reserves were kept in their most flexible form.
What were the balances on the revenue reserves A 1 and 3 B 1 only
and capital reserves accounts after these transac­ C 2 and 3 D 2 only
tions? ____ ___________________________________________________

revenue reserves capital reserves Increase in rate of inventory turnover indicates that the
$ $ business is able to sell more often & more quickly .
A 335 000 725 000 Management of inventory has been more efficient in the
current period. Answer: C
B 335 000 825 000
C 635 000 725 000 19. The following items appear on a statement of
D 635 000 825 000 financial position.
_________________________________________________________
$
Interim dividends of $75,000 (500,000 shares x $0.15) is
paid from retained earnings , so the remaining retained inventory 20000
earning is $635,000 cash and cash equivalents 3500
The bonus issue of $125 ,000 (25,000 shares X $5) is trade payables 11 000
financed from share premium . The remaining share provision for doubtful debts 500
premium is $725, 000
Answer: C
The current ratio is 3 :1.
How much do the trade receivables owe?
17. A business sells goods at a uniform mark-up of A $9500 B $10 000
25%. C $12 000 D $12 500
The following information is available. ________________________________________________________

$ Current assets ($11,000 x 3) = $33,000

sales revenue 120000
opening inventory 18000 Total Current assets ($33,000) - Inventory ($20,000)
purchases 95000
- Cash ($3500) = $9500
returns outwards 2000
$9500 + Provision for doubtful debts ($500) =
What is the value of closing inventory? Trade receivables ($10,000)
A $15 000 B $19 000
C $21 000 D $25 000 Answer: B
_________________________________________________________

A 25% markup rate produces a gross margin 20. Which costs are indirect?
percentage of only 20%. 1 bought-ln components used in a finished
Margin = Markup / (1+Markup) product
= 0.25 / (1+0.25) 2 materials used for factory maintenance
= 0.20 3 raw materials used in a finished product
4 spare parts bought for factory machinery
Cost of sales= 20 % Sales ($120,000) x 80% A 1, 2 and 3 B 1, 2 and 4
Cost of sales= $96,000 C 2 and 4 only D 3 and 4

Opening inventory ($18 ,000 ) + Purchases ($95 ,000 ) -

return outwards ($ 2000 ) - closing inventory (to be
determined) = Cost of sales ($96,000) Answer A
144

______________ ______________ C to ensure the service centre costs are

included in selling prices
Indirect costs are items of expenditure that
cannot easily be identified with a specific D to minimise the total costs of service centres
saleable cost unit. _________________________________________________________

Selling price must be based on total cost of business

Answer: C

Answer: C
21. A business provided the following information.

budgeted overheads $20000 24. The following data were available for a depart
budgeted direct labour hours 2000 ­ ment for July.

direct labour rate $20 per hour budget actual

direct labour hours 40000 41 950
A job used materials costing $45 and 6 hours of
direct labour. machine hours 60000 60900
Overheads are charged on the basis of direct overheads $480000 $499 200
labour hours used.
What was the over or under absorption of
What was the cost of the job before adding any
overheads for July?
profit?
A $4200 over absorbed
A $105 B $165
B $ 4200 under absorbed
C $180 D $225
________________________________________________________
C $ 12 000 over absorbed
D $ 12 000 under absorbed
Overhead absorption rate ________________________________________________________

Budgeted overheads ($20,000 . Production is capital intensive , machine hours > labour hours , so
=----- - ------------------- ----- :---- - = $10 per labour hour
Budgeted
) labour hours (2000) overheads absorption rate should be based on machine hours.
Cost of the job = Material ($45) + labour (6 hours Overheads absorption rate
X $20) + overheads (6 hours X $10) = $225 Budgeted overheads ($480,000)
Answer. D Budgeted machine hours (60,000 )
= $8 per machine hour
22. A business has produced the following estimates
Absorbed Overheads (60 ,900 hours x $8) = $487 ,200
of labour costs for next month.
Actual overheads ($499 ,200 ) > Absorbed Overheads ($ 487,200)
units produced 600 800 1100
= under absorption of $12,000
total labour cost $5690 $6170 $6890

What was the monthly fixed labour cost? Answer. D

A $480 B $1200
C $2640 D $4250 25. Which statements about marginal costing are correct?
________________________________________________________
1 It cannot be used as a basis to calculate contribution.
2 It is useful for decision-making.
Variable cost per unit 3 It recognises the importance of fixed costs
Change in total cost ($6170 - $5690) .
Change in activity ($800 - $600)
A 1 and 2 B 2 and 3
C 2 only D 3 only
Fixed cost
Total cost ($5690) -
Total variable cost (600 X $2.4) =$4250 _________________________________________________________

Marginal costing is a decision-making technique used

Answer D
by management accountants. It is based on the extra
costs incurred and the extra revenue generated by the
production and sale of an additional unit of output.
23. Why are service centre costs apportioned to Marginal costing makes a clear distinction between
production departments? fixed and variable costs. When using marginal costing
, no attempt is made to allocate or apportion any fixed
A to act as a check on service centre managers costs incurred by cost centres or cost units. Answer: C

B to ascertain whether service centres are cost

effective
 145

26. A company with fixed costs of $50 000 and a 29. A manufacturer produces a single product. The
contribution to sales ratio of 40% makes a profit following information is available.
of $30 000.
What are the total costs?
s
selling price per unit 14
A $130 000 B $170 000
variable costs per unit 8
C $175 000 D $200 000
________________ ________________________________________
fixed costs per annum 96 000

Calculate contribution There are plans to reduce the selling price by $3

per unit and to reduce variable costs by S1 per
unit. Fixed costs will remain unchanged.
Profit ($30,000) + fixed costs ($50,000) = Total contri­
bution ($80,000) What will be the new break-even point?
A 9600 units B 12 000 units
Calculate sales C 24 000 units D 48 000 units
Total contribution ($80,000) = _______________________________ _________________________
40% of sales
New selling price ($14 - $3) = $11
Sales = $200,000 New variable cost ($8 - $1) = $7
New unit contribution ($11 - $7) = $4
Calculate total cost
$96 000
Total cost = Sales ($200,000) - Total profit ($30,000) New Break even =---------- = 24,000 units
$4
= $170 000 Answer B
Answer. C

30. A company has recently introduced a system of

27. What is not an assumption made in cost-volume-
budgetary control.
profit analysis?
Workers have given the following reasons for
A Unit fixed cost is constant. failing to achieve the budget targets.
B Unit selling price is constant.
1 'We need more training.’
CUnit variable cost is constant.
2 The budget is unrealistic.’
DUnits produced are all sold.
3 The budget needs to be changed to
_____________________________________________ __________
reflect actual conditions.
Unit fixed cost is assumed to be constant. Which reasons should be considered
Answer A
when evaluating a worker’s performance?
28. The actual output for a business is lower than A 1,2 and 3 B 2 and 3 only
that forecast.
C 2 only D 3 only
Which costs would normally still be the same _________ ______________________________________________
as forecast?
The ability to achieve targets is associated with
1 fixed cost per unit
2 total fixed cost
training.
3 total variable cost Answer A

4 variable cost per unit

A 1 and 2 B 2 and 3
C 2 and 4 D 3 and 4
__________ _____________________________________________

Total fixed cost and Variable cost per unit

remain same at different activity levels
Fixed cost per unit increases with a decrease in
activity. Total variable costs decreases with a decrease
in activity
Answer C
146

Accounting Multiple
choice Past Paper
June 2019
Cambridge A LEVEL

Questions and Answers

EXPLAINED
147

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 148 2

1 Which concept is identified by the accounting equation assets = capital + liabilities?

A business entity
B duality
C going concern
D realisation

2 What are causes of depreciation on non-current assets?

1 change in its cost of repair

2 change in its market value
3 changes in technology

A 1 and 2 B 1 only C 2 and 3 D 3 only

3 June purchased a new machine. She depreciated it at a rate of 40% per annum using the
reducing balance method. After two years its net book value was $3600.

What was the purchase price of the machine?

A $7056 B $9216 C $10 000 D $22 500

4 The following information relates to the motor vehicles of a business.

1 January 2018 31 December 2018

$ $

net book value 398 000 480 000

During 2018 the following occurred.

1 Additional motor vehicles costing $195 000 were purchased.

2 A motor vehicle (original cost $80 000) was sold for $24 000 at a profit of $2000.

What was the depreciation charge for 2018?

A $87 000 B $89 000 C $91 000 D $113 000

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 149 3

5 A book-keeper compared the business bank statement with the cash book. He then updated the
cash book and finally prepared a bank reconciliation statement.

Why was the bank reconciliation statement prepared?

A to ensure no transactions had been omitted from the cash book

B to establish the value of unpresented cheques
C to explain the difference between the cash book balance and the bank statement balance
D to find out if any cheques had been dishonoured

6 On 31 December 2018, a business had the following balances.

sales ledger 12 800

sales ledger control account 15 200

Which error explains the difference between the two figures?

A A credit balance of $1200 was brought forward as a debit balance in the sales ledger control
account.
B An irrecoverable debt of $2400 was omitted in a customer’s personal account in the sales
ledger.
C Purchases returns, $1200, were wrongly entered on the debit side of the sales ledger control
account.
D Sales returns, $1200, were entered twice in a customer’s personal account in the sales
ledger.

7 The provision for doubtful debts at 1 January 2018 was $1580.

Trade receivables at 31 December 2018 were $44 750. This included a debt of $12 500,
considered irrecoverable.

The provision for doubtful debts was to be maintained at a rate of 5%.

Which entry for doubtful debts was included in the income statement for the year ended
31 December 2018?

A $32.50 expense
B $32.50 income
C $657.50 expense
D $657.50 income

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 150 4

8 Which statements about valuing inventory are correct?

1 Any charges for carriage inwards should be included in its cost.

2 Cost should always be compared with the net realisable value.
3 Cost should always be compared with replacement price.

A 1, 2 and 3 B 1 and 2 only C 1 and 3 only D 2 and 3 only

9 A sole trader calculated a draft profit for the year of $56 750.

He then discovered that discounts received of $580 and discounts allowed of $665 had been
recorded on the wrong sides of their respective accounts.

What is the correct profit for the year?

A $56 580 B $56 665 C $56 835 D $56 920

10 Which item will not appear in the income statement of a sole trader?

A accounting charges
B bank loan interest
C director’s fee
D rental charge for machinery

11 X and Y are in partnership sharing profits and losses in the ratio 2 : 1.

Z will be admitted with the following new arrangements.

Profit and loss sharing ratio will be 2 : 1 : 2 respectively.

Goodwill is valued at $90 000. Z will pay the partners for his share of the goodwill.

How much will Z pay X?

A $18 000 B $24 000 C $45 000 D $60 000

12 D, E and F are in partnership, sharing profits in the ratio 2 : 2 : 1.

D is allowed an annual salary of $10 000.

E has made a loan to the partnership on which the partnership pays interest of $5000 each year.

Profit for the year before appropriation was $150 000.

What was F’s total share of profit for the year?

A $27 000 B $28 000 C $29 000 D $30 000

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 151 5

13 L and M had been in partnership sharing profits and losses equally. P was admitted to the
partnership and the partners continued to share profits and losses equally. Goodwill was valued
at $48 000 but the partners agreed that no goodwill account would be retained in the books of
account.

What were the accounting entries to record the goodwill?

A debit L capital account $16 000, debit M capital account $16 000, credit P capital account
$32 000
B debit P capital account $32 000, credit L capital account $16 000, credit M capital account
$16 000
C debit L capital account $8000, debit M capital account $8000, credit P capital account
$16 000
D debit P capital account $16 000, credit L capital account $8000, credit M capital account
$8000

14 Which items do not appear in a statement of changes in equity?

1 dividend paid
2 dividend proposed
3 loan interest

A 1 and 2 only B 1, 2 and 3 C 1 only D 2 and 3 only

15 On 1 January a company’s equity included 100 000 $1 ordinary shares.

The directors of the company then did the following:

1 March Made a rights issue of 20 000 ordinary shares at $1.25 each. The rights
issue was fully subscribed.
1 June Made a bonus issue of 5000 ordinary shares.
1 July Paid an interim dividend of $0.10 on all of the shares in issue at that
date.

By how much did the bank account increase as a result of these transactions?

A $12 500 B $17 500 C $30 000 D $37 000

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 152 6

16 The following balances are extracted from the books of J Limited.

30 April 2019 30 April 2018

$ $

ordinary shares of $0.50 each 700 000 500 000

share premium 90 000 50 000

How many ordinary shares have been issued during the year ended 30 April 2019?

A 200 000 B 240 000 C 400 000 D 480 000

17 Which action will increase a company’s current ratio?

A making an issue of bonus shares

B making a rights issue of shares
C increasing the provision for doubtful debts
D reducing the rate of depreciation on non-current assets

18 A trader wishes to set a selling price.

How does he use a mark-up?

A by adding a percentage to the cost

B by adding a percentage to the selling price
C by deducting a percentage from the cost
D by deducting a percentage from the selling price

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 153 7

19 The following information is available for the year ended 31 December 2018.

revenue 800 000

cost of sales (175 000)
gross profit 625 000
distribution costs (95 000)
administrative expenses (35 000)
profit from operations 495 000
finance costs (5 000)
profit for the year 490 000

What was the operating expenses to revenue ratio?

A 16.25% B 16.88% C 21.88% D 38.13%

20 On 1 January 2018 a business expected to have sales for the year ended 31 December 2018 of
$450 000.

Its non-current assets at that date were $306 000.

On 1 July 2018 it purchased new machinery at a cost of $180 000, in order to increase its sales
by an extra $20 000 each month.

What was the rate of non-current asset turnover in 2018? (Ignore depreciation.)

A 1.17 times
B 1.42 times
C 1.44 times
D 1.74 times

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 154 8

21 A business uses the First In First Out (FIFO) method to value its inventory.

The following inventory transactions took place during a month. There was no opening balance.

receipts issues
date
units $ per unit units

1 July 100 15.50

6 July 100 15.60
10 July 80
20 July 50 15.80
25 July 100

What was the value of inventory at the end of the month?

A $1085 B $1092 C $1102 D $1106

22 A business has two production departments: assembly and machinery. The following budgeted
information is available.

assembly machinery

labour hours 5600 1350

machine hours 1200 6900
overheads $75 000 $80 000

What is the overhead absorption rate for the assembly department?

A $13.39 per labour hour

B $19.14 per machine hour
C $22.30 per labour hour
D $62.50 per machine hour

23 A shortage caused a business to pay more for its purchases of raw materials.

What is the effect of this?

break-even point marginal cost contribution

A decrease decrease increase

B decrease decrease decrease
C increase decrease increase
D increase increase decrease

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 155 9

24 Which statement best describes a stepped fixed cost?

A It changes in direct proportion to changes in output.

B It changes in proportion to changes in prime cost.
C It remains at a constant amount until output changes significantly.
D It represents a constant amount of total cost.

25 A company produces less than it sells in a particular period.

Which statement is correct?

A Reported profit is the same whether absorption or marginal costing is used.

B Reported profit is the difference between absorption and marginal costing closing
inventories.
C Reported profit is lower using absorption costing.
D Reported profit is lower using marginal costing.

26 Which statements are true about the preparation of a break-even chart?

1 Costs are easily classified into fixed and variable.

2 Fixed costs always change as output changes.
3 The break-even point is clearly seen.

A 1 and 2 only B 1, 2 and 3 C 2 and 3 only D 3 only

27 When a company had sales revenue of $600 000, its variable costs were $300 000.

At the break-even point, its sales were $400 000.

How much profit did it make when sales were $600 000?

A $100 000 B $200 000 C $300 000 D $400 000

28 A company provided the following information.

total sales $400 000

production and sales (units) 10 000
total costs $250 000
total fixed costs $60 000

What was the contribution to sales ratio?

A 37.5% B 47.5% C 52.5% D 62.5%

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 156 10

29 Last year a company sold 2000 units and made a contribution of $50 per unit. Profit, after
deducting total fixed costs, was $60 000.

This year:

sales volume increased by 10%

contribution per unit decreased by 5%
total fixed costs increased by 25%.

What was the company’s profit this year?

A $45 000 B $54 500 C $60 000 D $64 500

30 Why do businesses prepare budgets?

1 to communicate plans
2 to control activities
3 to improve co-ordination
4 to prepare their annual financial statements

A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4

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157

Answers
EXPLAINED
158

June 2019 Paper 1

Multiple Choice

1. Which concept is identified by the accounting During 2018 the following occurred.
equation assets = capital + liabilities? 1 Additional motor vehicles costing
A business entity B duality $195 000 were purchased.
C going concern D realisation 2 A motor vehicle (original cost $80 000)
_______________________________________________________ was sold for $24 000 at a profit of $2000.

Left side of equation shows resources of a What was the depreciation charge for 2018?
business and right side shows who provided them. A $87 000 B $89 000
Answer: B C $91 000 D $113 000
____________________________________________

2. What are causes of depreciation on non-current Net book value at start ($398,000) + additions
assets? ($195,000)-disposal at NBV ($22,000) - depreciation
.(??) = Net book value at end ($480,000)
1 change in its cost of repair
Answer: C
2 change in its market value
3 changes in technology
5. A book -keeper compared the business bank state ­
A 1 and 2 B 1 only
ment with the cash book. He then updated the cash
C 2 and 3 D 3 only book and finally prepared a bank reconcili ­ ation
________________________________________________________ statement.
Repair is another expense due to asset usage , market Why was the bank reconciliation statement
value may increase. Depreciation is a process of allo­ cation of prepared?
cost not valuation. A to ensure no transactions had been
Answer: D omitted from the cash book
B to establish the value of unpresented cheques
3. June purchased a new machine. She depreci­ ated it at C to explain the difference between the cash book
a rate of 40% per annum using the reducing balance balance and the bank statement balance
method. After two years its net book value was $3600 D to find out if any cheques had been
. dishonoured
What was the purchase price of the machine?
A $7056 B $9216 Bank reconciliation statement is prepared to explain
C $10 000 D $22 500 the difference between updated cash book and bank
statement balance.
____________________________________________________
Answer: C
If rate of depreciation is 40% then net book value is
60% of cost.
Cost x 60% x 60% = $3600 6. On 31 December 2018, a business had the
Answer. C
following balances.

$
4. The following information relates to the
motor vehicles of a business. sales ledger 12 800

1 January 2018 31 December 2018 sales ledger control account 15200

$ $ Which error explains the difference between the
net book value 398 000 480000 two figures?
159

A A credit balance of $1200 was brought forward as a 9. A sole trader calculated a draft profit for the year
debit balance in the sales ledger control account. Of $56 750.
B An irrecoverable debt of $2400 was omitted in a He then discovered that discounts received of $580
customer’s personal account in the sales ledger. and discounts allowed of $665 had been recorded
on the wrong sides of their respective accounts.
C Purchases returns , $1200 , were wrongly entered
on the debit side of the sales ledger control What is the correct profit for the year?
account. A $56 580 B $56 665
D Sales returns, $1200, were entered twice in a C $56 835 D $56 920
customer’s personal account in the sales _____________ _
ledger.
________________________________________________________ $56,750 + ($580 X 2) - ($665 X 2) = $56,580
Answer: A
By treating credit balance of $1200 as debit balance , Sales
ledger control account balance is overstated by $2400.
Answer: A 10. Which item will not appear in the income
statement of a sole trader?
7. The provision for doubtful debts at 1 January 2018 A accounting charges
was $1580. B bank loan interest
Trade receivables at 31 December 2018 were $44 C director’s fee
750 . This included a debt of $12 500 , consid ­ ered
irrecoverable. D rental charge for machinery
_______________________________________________________
The provision for doubtful debts was to be
maintained at a rate of 5%. Director’s fee is an expense of limited company
Which entry for doubtful debts was included Answer. C
in the income statement for the year ended
31 December 2018?
11. X and Y are in partnership sharing profits and
A $32.50 expense B $32.50 income C $657. losses in the ratio 2:1.
50 expense D $657.50 income Z will be admitted with the following new
________________________________________________________
arrangements.

Outstanding receivables ($44 ,750 - $12 ,500 ) = $32 ,250 Profit and loss sharing ratio will be 2 : 1 : 2
respectively.
Provision to be maintained ($32,250 X 5%) = $ 1612.5 Increase
Goodwill is valued at $90 000. Z will pay the
in Provision ($1612.5 - $1580) = $32.50 to be shown as expense partners for his share of the goodwill.
in income statement.
How much will Z pay X?
A $18 000 B $24 000
Answer: A
C $45 000 D $60 000

8. Which statements about valuing inventory are X's share of goodwill when recorded :
correct?
$90,00x 2/3 = $60,000
1 Any charges for carriage inwards should
be included in its cost.
X*s share of goodwill when written off :
2 Cost should always be compared with the
net realisable value.
$90,000 X 2/5 = $36,000
3 Cost should always be compared with
replacement price.
Net difference to be paid by Z to X :
A 1,2 and 3 B 1 and 2 only ($60,000 - $36,000) = $24,000
C 1 and 3 only D 2 and 3 only
Alternatively, X's sacrifice ratio (old ratio -
Cost is the sum of expenditures incurred to bring goods into
new ratio)
saleable condition , including carriage inwards . Inventory is Answer: B
valued at the lower of cost and net realisable value is 4/15 x will receive $90,000 x 4/15 = $24,000

Answer- B
160

12. D, E and F are in partnership, sharing profits in 14. Which items do not appear in a statement of
the ratio 2:2:1. changes in equity?
D is allowed an annual salary of $10 000. 1 dividend paid
E has made a loan to the partnership on which 2 dividend proposed
the partnership pays interest of $5000 each year. 3 loan interest
Profit for the year before appropriation was
$150 000. A 1 and 2 only B 1,2 and 3

What was F’s total share of profit for the year? C 1 only D 2 and 3 only
________________________________________________________
A $27 000 B $28 000
Proposed dividends , awaiting approval , do not appear in any
C $29 000 D $30 000
financial statements. Loan interest appears in income statement
_____________________________________ ___________________
Answer: D
Residual Profit ($150,000 - $10,000) = $140,000

15. On 1 January a company’s equity included

Share of residual profit($140,000 x 1/5) = $28,000
100 000 $1 ordinary shares.
The directors of the company then did the follow
Note: loan interest is already deducted in
­ ing:
income statement
Answer: B
1 March Made a rights issue of 20 000
ordinary shares at $1.25 each. The
rights issue was fully sub­ scribed.
13. L and M had been in partnership sharing profits and 1 June Made a bonus issue of 5000
losses equally . P was admitted to the partner ­ ship ordinary shares.
and the partners continued to share profits and losses 1 July Paid an interim dividend of $0.10
equally . Goodwill was valued at $48 000 but the on all of the shares in issue at
partners agreed that no goodwill account would be that date.
retained in the books of account.
By how much did the bank account increase as
What were the accounting entries to record the
goodwill? a result of these transactions?

A debit L capital account $16 000 , debit M capital

account $16 000 , credit P capital account $32
000 A $12 500 B $17 500
B debit P capital account $32 000 , credit L capital C $30 000 D $37 000
account $16 000 , credit M capital account $16 ________________________________________________________

000 Rights issue increased Bank by (20,000 X $1.25) = $25,000

C debit L capital account $8000, debit M capital Interim dividends decreased bank by,
account $8000, credit P capital account $16 (100,000 + 20,000 + 5000) = 125,000 shares X $0.10 = $12,500
000
Overall bank increase by ($25,000- $12,500) = $12,500
D debit P capital account $16 000, credit L
capital account $8000, credit M Answer: A
capital
account $8000
Capital account
L M P L M P
Goodwill 16,000 16,000 16,000 Goodwill 24,000 24,000

L & M’s capital accounts are net credited by $8000

P’s capital is debited by $16,000
Answer: D
161

16. The following balances are extracted from 19. The following information is available for the year
the books of J Limited. ended 31 December 2018.

30 April 2019 30 April 2018 $

$ $ revenue 800000
ordinary shares 700000 500000 cost of sales (175 000)
of $0.50 each
gross profit 625 000
share premium 90000 50000
distribution costs (95 000)
How many ordinary shares have been issued administrative expenses (35 000)
during the year ended 30 April 2019?
profit from operations 495 000
A 200 000 B 240 000
finance costs (5000)
C 400 000 D 480 000
profit for the year 490000
________________________________________________________

Change in share capital $200,000 represent face value What was the operating expenses to revenue ratio?
of shares issued A 16.25% B 16.88%
No. of shares X $0.50 = $200 ,000 C 21.88% D 38.13%

No. of shares
=$200,000/$0.50 = 400,000 Operating expense ($95,000 + $35,000)
Revenue ($800,000)
Answer: C Answer: A

17. Which action will increase a company’s current 20. On 1 January 2018 a business expected to have
ratio? sales for the year ended 31 December 2018 of
$450 000.
A making an issue of bonus shares
Its non-current assets at that date were $306 000.
B making a rights issue of shares
On 1 July 2018 it purchased new machinery at a
C increasing the provision for doubtful debts
cost of $180 000, in order to increase its sales by
D reducing the rate of depreciation on non- an extra $20 000 each month.
current assets
What was the rate of non-current asset turnover in
________________________________________________________
2018? (Ignore depreciation.)
A, C and D are non cash items. Rights issue means
A 1.17 times B 1.42 times
issue of shares for cash.
C 1.44 times D 1.74 times
Answer. B

Total sales $450,000 + ($20,000 x 6) = $570,000

18. A trader wishes to set a selling price.
Total Non current assets $306,000 + $180,000 =
How does ho use a mark-up?
$486,000
A by adding a percentage to the cost Answer. A

B by adding a percentage to the selling price

C by deducting a percentage from the cost D 21. A business uses the First In First Out (FIFO) method
by deducting a percentage from the selling to value its inventory.
price The following inventory transactions took place
________________________________________________________ during a month. There was no opening balance.

Mark up is profit as a percentage of cost price. receipts issues

date
Answer: A units $ per unit units
1 July 100 15.50
6 July 100 15.60
10 July 80
20 July 50 15.80
25 July 100
162

What was the value of inventory at the end of the 24. Which statement best describes a stepped
month? fixed cost?
A $1085 B $1092 A It changes in direct proportion to changes
C $1102 D $1106 in output.
_____ __________________________________________________
B It changes in proportion to changes in
Total purchases 250 units prime cost.
Total issued 180 units C It remains at a constant amount until output
Inventory 70 units consisting of 20 units @$15.60 and changes significantly.
50 units @$15.80 D It represents a constant amount of total cost.
Answer: C ________________________________________________________

Stepped cost is a fixed cost which increases due to

22. A business has two production departments : assembly increase in capacity
and machinery . The following budgeted information is Answer: C
available.

25. A company produces less than it sells in a particu

assembly machinery ­ lar period.
labour hours 5600 1350 Which statement is correct?
machine hours 1200 6900
A Reported profit is the same
overheads $75000 $80 000 whether absorption or marginal costing
is used.
What is the overhead absorption rate for
B Reported profit is the difference between
the assembly department?
absorption and marginal costing closing
A $13.39 per labour hour inventories.
B $19.14 per machine hour C Reported profit is lower using
C $22.30 per labour hour absorption costing.
D Reported profit is lower using
D $62.50 per machine hour
marginal costing.
________________________________________________________
________________________________________________________
Assembly is labour intensive
If production is less than sales, it means there
So OAR is calculated on the basis of labour hours was opening inventory.
$75,000 Inventory valuation using Absorption costing is more
OAR = = $13.39
5600 than marginal costing.
Answer: A Higher opening inventory using Absorption will
result in lower profit.
Answer: C
23. A shortage caused a business to pay more for its
purchases of raw materials.
What is the effect of this? 26. Which statements are true about the preparation
of a break-even chart?
break-even point marginal cost contribution 1 Costs are easily classified into fixed and
A decrease decrease increase variable.
B decrease decrease decrease 2 Fixed costs always change as
C output changes.
increase decrease increase
3 The break-even point is clearly seen.
D increase increase decrease
A 1 and 2 only B 1,2 and 3
C 2 and 3 only D 3 only
Increase in material cost increases marginal (variable ________________________________________________________
) cost
Increase in variable cost decreases contribution Its difficult to split fixed costs and variable cost.
per unit Fixed costs are assumed to remain same at different
Decrease in contribution per unit increases break- activity levels
even point Answer: D
Answer: D
163

27. When a company had sales revenue of $600 000, ________________________________________________________

its variable costs were $300 000. Last year’s Total contribution (2000 units x $50) = $100,000
At the break-even point, its sales were $400 000. Last year’s Total fixed costs ($ 100,000 - $60,000) = $40,000
How much profit did it make when sales were
This year’s total contribution (2200 units X $47.5) = $104,500
$600 000?
This year’s profit ($104,500 - $50,000) = $54,500
A $100 000 B $200 000 ■
__________________________________________________________Answer. B
C $300 000 D $400 000
______________
30. Why do businesses prepare budgets?
1 to communicate plans
2 to control activities
contribution ($600,000 - $300,000) = $300,000
contribution to sales ratio= $300,000/$600,000 = 50% 3 to improve co-ordination 4 to prepare their
total fixed costs = $200,000 annual financial
profit=($600,000 x 50%) - $200,000 = $100,000 statements

A 1, 2 and 3 B 1, 2 and 4 D
Answer: A
C 1, 3 and 4 2, 3 and 4

28. A company provided the following information.

Financial statements are based on historical (actual)
total sales $400000 information
production and sales (units) 10 000 Answer: A

total costs $250 000

total fixed costs $60000

What was the contribution to sales ratio?

A 37.5% B 47.5%
C 52.5% D 62.5%
________________________________________________________

Total variable costs ($250,000 - $60,000) = $190,

000 Total contribution ($400,000 - $190,000) = $210,000

$210,000
Contribution to sales ratio = x 100 = 52.5%
$400,000

Answer: C

29. Last year a company sold 2000 units and

made a contribution of $50 per unit. Profit, after
deducting total fixed costs, was $60 000.
This year:
sales volume increased by 10%
contribution per unit decreased by 5%
total fixed costs increased by 25%.
What was the company’s profit this year?
A $45 000 B $54 500
C $60 000 D $64 500
164

Accounting Multiple
choice Past Paper
June 2018
Cambridge A LEVEL

Questions and Answers

EXPLAINED
165

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 166 2

1 The owner of a business has been told that work completed for a customer should be recorded in
the books of account although the invoice has not yet been sent to the customer.

Which accounting concepts are being applied?

1 matching
2 materiality
3 realisation

A 1 and 2 B 1 and 3 C 2 only D 2 and 3

2 Adam’s financial year ends on 31 December 2017.

On 1 January 2017 the net book value of machinery was $20 000.

On 30 June 2017 he purchased a new machine for $6000. He paid 50% of the cost in cash and
the balance by part exchange of an old machine, which had a net book value of $2500 on that
date.

He depreciates his machinery by 20% per annum on the net book value calculated on a time
basis.

What is the net book value of the machinery shown in the statement of financial position on
31 December 2017?

A $18 400 B $18 800 C $19 150 D $20 800

3 A business has an accounting year-end of 31 March. It purchased a car on 1 April 2014 for
$15 000. The car was sold on 30 September 2017 for $5000.

Depreciation is charged at 20% per annum. A full year’s depreciation is charged in the year of
purchase. No depreciation is charged in the year of sale.

What was the profit or loss on disposal?

A loss of $500
B loss of $1000
C profit of $500
D profit of $1000
 167 3

4 The accounting year-end for a company is 31 October.

The table shows the company’s telephone invoice received on 2 December for the three months
ended 30 November.

telephone calls to 30 November 1041

rental of equipment for the period from 1 September to 30 November 156

Which accrual should the company make in the financial statements for the year ended
31 October?

A $399 B $798 C $1093 D $1197

5 A business created a provision for doubtful debts at 31 December 2016. The provision was
calculated as a percentage of the trade receivables at each year end as follows.

trade provision for

year ended receivables doubtful debts
$ %

31 December 2016 32 500 10

31 December 2017 34 300 5

Which entry in the provision for doubtful debts account for the year ended 31 December 2017
was required?

A $1535 credit
B $1535 debit
C $1715 credit
D $1715 debit

6 Errors can exist in the preparation of both the sales ledger and the sales ledger control account.

Which error would require an adjustment in the sales ledger control account only to correct it?

A sales journal being overcast

B sales transaction amount originally entered incorrectly
C sales transaction omitted completely
D sales transaction recorded in wrong customer account

[Turn over
 168 4

7 The trial balance of a business did not balance. The following errors were found.

1 The total of the purchases journal of $33 030 had been posted to the purchases
account in the general ledger as $33 000.
2 Discount received of $50 had been entered on the debit side of the discount
received account.

What was the original balance on the suspense account?

A $20 credit
B $20 debit
C $70 credit
D $70 debit

8 The bank column of a cash book showed a credit balance of $5000. There were unpresented
cheques amounting to $1500. The bank statement showed bank charges, $700, which were not
recorded in the cash book.

What is the balance on the bank statement?

A $4200 credit
B $4200 debit
C $5800 credit
D $5800 debit

9 During the financial year a business paid $295 000 to its trade payables, after taking a cash
discount of $15 000.

At the start of the year the trade payables balance was $25 000. At the end of the year $32 000
was owed to trade payables.

What was the amount of credit purchases made during the year?

A $288 000 B $302 000 C $303 000 D $317 000

10 What would not result in goodwill?

A good reputation of a business

B selling high quality products
C selling products above market value
D skill of the workforce
 169 5

11 At the beginning of the financial year inventory was valued at $15 000. During the year, sales of
$21 000 and purchases of $18 000 were made. Unfortunately, all inventory was stolen on the last
day of the financial year.

Goods are marked up by 50% to calculate selling price.

What is the cost of the stolen inventory?

A $7500 B $11 000 C $19 000 D $22 500

12 A business does not keep complete accounting records. All transactions are in cash.

Which item will not be required in order to calculate the owner’s cash drawings?

A non-current assets purchased

B opening capital account
C purchases
D sales

13 The following summarised information has been taken from the statement of financial position of
a partnership.

non-current assets 42 000

capital accounts 36 000
current accounts (debit) 6 000
current liabilities 8 000
non-current liabilities 15 000

What is the value of current assets?

A $5000 B $6000 C $11 000 D $23 000

[Turn over
 170 6

14 X and Y had been in partnership for some years when Z was admitted as a partner.

On that date the premises account was debited with $120 000 following a revaluation.

Profits were shared equally both before and after Z’s admission.

What were the credit entries recording the revaluation?

A capital accounts X $40 000, Y $40 000, Z $40 000

B capital accounts X $60 000, Y $60 000
C current accounts X $40 000, Y $40 000, Z $40 000
D current accounts X $60 000, Y $60 000

15 Which company reserves may not be used to pay dividends?

1 general reserve
2 retained earnings
3 revaluation reserves
4 share premium

A 1, 2 and 3 B 1 and 2 only C 2 and 3 only D 3 and 4

16 A company issued 50 000 ordinary shares of $0.50 each at a price of $0.60 each.

What were the accounting entries for the issue?

debit $ credit $

A bank 30 000 share capital 25 000

share premium 5 000
B bank 25 000 share capital 30 000
share premium 5 000
C share capital 30 000 bank 30 000
D share capital 25 000 bank 30 000
share premium 5 000
 171 7

17 What could be used to fund a bonus issue of shares?

1 general reserve
2 retained earnings
3 share premium

A 1, 2 and 3
B 1 and 2 only
C 1 and 3 only
D 3 only

18 The following is an extract from an income statement.

revenue 180 000

costs of goods sold (75 000)
distribution costs (8 000)
administrative expenses (22 000)
profit from operations 75 000
debenture interest (2 500)
profit for the year 72 500

What was the operating expenses to revenue ratio?

A 16.7% B 18.1% C 58.3% D 59.7%

[Turn over
 172 8

19 The following information is available for the year ended 31 December 2017.

$000

revenue 640
cost of sales 350
machinery at net book value 120
land and buildings at net book value 90
motor vehicles at net book value 20
current assets 50
equity 210

What was the non-current assets turnover?

A 1.26 times
B 2.29 times
C 2.78 times
D 3.05 times

20 A baker receives one order for 350 loaves of bread.

Which costing method will the baker use?

A absorption costing
B batch costing
C job costing
D unit costing

21 A business pays a salesman a basic salary, plus commission based on how much he sells.

Which type of cost is the salesman’s total earnings?

A fixed
B semi-variable
C stepped
D variable
 173 9

22 Which cost is treated as variable cost of a motor transport company?

A advertising
B driver insurance
C fuel
D vehicle licence

23 Adam is paid $4 per hour and his expected output is 500 units per week. He is also paid a bonus
$1 for every 20 perfect units made above the total of 500.

In one week he worked for 40 hours and made 880 units, but 40 were faulty and were scrapped.

How much was Adam paid for the week?

A $177 B $179 C $202 D $204

24 A business values their inventory using the AVCO method. The inventory on 1 June 2017 was
100 units valued at $2.40 each.

The following took place.

June 5 purchased 40 units at $2.50 per unit

7 sold 60 units at $3.50 per unit

What was the value of the inventory on 8 June 2017 to the nearest dollar?

A $194 B $196 C $200 D $224

25 The following budgeted information is available for a hotel for the next financial year.

fixed overheads $192 000

direct costs $240 000
number of guests 2400
average guest stay 4 nights

What is the overhead absorption rate per guest night?

A $20 B $45 C $80 D $180

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 174 10

26 The costs of producing 1000 units of a product are as follows.

direct materials 20 000

direct labour 10 500
direct expenses 1 600
variable overheads 11 300
fixed overheads 7 500

The selling price is $60 per unit and 1000 units are sold.

What is the contribution to sales ratio?

A 15.17% B 27.67% C 30.33% D 46.50%

27 A business produces a single product. The following information is available for a month.

budgeted sales quantity 200 units

selling price per unit $40
variable cost per unit $24
budgeted monthly fixed costs $800

The business plans to rent a machine which will increase monthly fixed costs by $1200 to $2000
and reduce variable costs to $20 per unit.

What would be the effect of this on the margin of safety?

A decrease by 50 units
B decrease by 90 units
C increase by 50 units
D increase by 90 units

28 A business hires machinery at a cost of $700 per machine per month. Each machine can produce
1000 units a month. A maximum of 10 machines can fit into the factory. The factory rent is $4900
per month. Other costs amount to $2 per unit.

What is the unit cost if 8500 units are produced in a month?

A $3.19 B $3.23 C $3.28 D $3.32

 175 11

29 The direct material cost of 20 000 units is $8000. 400 direct labour hours are required at a cost of
$6000. Overheads are absorbed at 150% of the cost of direct labour.

What is the cost per unit?

A $0.40 B $0.70 C $0.85 D $1.15

30 Why might a business prepare a budget?

A to determine the amount of bank loan it needs

B to determine the skills of labour force
C to identify its market share
D to identify the quality of its products
176

Answers
EXPLAINED
177
178
179
180
181
182
183

Accounting Multiple
choice Past Paper
June 2017
Cambridge A LEVEL

Questions and Answers

EXPLAINED
184

Time: 1 hour
Questions
Cambridge A LEVEL

There are thirty questions

on this paper. Answer all
questions.
 185 2

1 When a businessman introduces capital into his business, the transaction is debited in the cash
book and credited to his capital account.

Of which accounting concept is this an example?

A business entity
B going concern
C matching
D prudence

2 Which are examples of the accounting equation?

1 capital + assets = liabilities

2 capital = assets + liabilities
3 capital = assets – liabilities

A 1 and 3 B 1 only C 2 and 3 D 3 only

3 Amitav purchased a van costing $20 000. He provided an old van with a net book value of $8000
in part exchange. There was a profit on disposal of $1500.

What was the cash outflow arising from the purchase?

A $9500 B $10 500 C $12 000 D $13 500

4 The net book value of a company’s non-current assets was as follows.

at 1 January 2016 100 000

at 31 December 2016 80 000

During 2016 assets were sold for $20 000, realising a profit on disposal of $5000.

Depreciation charged for 2016 was $8000.

What was the expenditure on new assets in 2016?

A $3000 B $5000 C $8000 D $15 000

 186 3

5 The following errors were found after a suspense account was opened.

1 Motor repairs of $400 were credited to the motor vehicle at cost account.
2 A payment for electricity was debited in the electricity account as $2500 instead
of $5200.
3 A $450 cash purchase of goods for resale had been completely omitted from
the books.
4 Discount allowed of $50 had been debited to the discounts received account.

Which items would be entered in the suspense account?

A 1 and 2 B 2 and 3 C 2 and 4 D 3 and 4

6 Which items appear in a sales ledger control account?

1 cash discount allowed

2 credit sales
3 payments to trade payables
4 returns inwards

A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4

7 The following information is extracted from the statement of financial position of a business at
31 December 2016.

bank loan (repayable 2025) 16 200

other payables 1 880
bank overdraft 11 600
capital 20 710
drawings 19 100
inventory 14 610
other receivables 1 420
trade payables 14 110
trade receivables 9 050

What is the value of the net current liabilities?

A $1590 B $2510 C $18 710 D $20 320

[Turn over
 187 4

8 The following items are recorded in the cash book of a business but not yet recorded in its bank
statement.

$
cheques drawn 3000
amounts banked 250

The cash book shows a bank balance of $2600 credit.

What is the balance on the bank statement?

A $150 credit
B $150 debit
C $400 credit
D $400 debit

9 Finn provides the following information.

capital at the start of the year 19 800

profit for the year 24 000
drawings (cash) 19 500
drawings (goods for own use) 1 100
private vehicle transferred to business use 6 000

What was Finn’s capital at the end of the year?

A $23 200 B $24 300 C $29 200 D $31 400

 188 5

10 A business provides the following information.

year 1 year 2
$ $

profit for the year 30 000 40 000

cost of goods sold 240 000 320 000

The owner then discovers that at the end of year 1 the value of inventory was overstated by
$2000.

What are the correct profits for the year and cost of goods sold figures?

year 1 year 2
profit for cost of profit for cost of
the year goods sold the year goods sold
$ $ $ $

A 28 000 238 000 42 000 322 000

B 28 000 242 000 40 000 320 000
C 28 000 242 000 42 000 318 000
D 32 000 238 000 38 000 318 000

11 Sam was unable to conduct a physical count of inventory at 31 December 2016.

On 3 January 2017 inventory had been sold to Abdul for $11 950. The cost price of this inventory
had been $9560.

On 4 January 2017 inventory had been returned by Sita. It had been sold for $2390. The cost
price of this inventory was $1912.

Sam valued his inventory at 5 January 2017 at cost, $59 750.

What was the value of inventory at 31 December 2016?

A $50 190 B $52 012 C $67 398 D $69 310

12 Which item is not taken into account when a partner joins a partnership?

A balances on the partners’ current accounts

B capital introduced by the new partner
C changes in the profit sharing ratio
D goodwill

[Turn over
 189 6

13 Ali, Bharti and Chan were in partnership sharing profit and losses in the ratio 3 : 2 : 1. Bharti retired
from the partnership on 30 June 2016.

The following were the balances available at 30 June 2016.

Ali ($) Bharti ($) Chan ($)

capital accounts 60 000 Cr 40 000 Cr 20 000 Cr
current accounts 18 650 Cr 6 100 Dr 8 950 Cr

On her retirement, Bharti retained a partnership motor vehicle at an agreed valuation of $4000.

Goodwill was valued at $39 000.

How much was payable to Bharti on her retirement?

A $33 900 B $42 900 C $46 900 D $50 900

14 A partnership maintains both capital and current accounts for its partners.

What is the correct accounting entry for recording interest on capital for partner X?

account to account to
be debited be credited

A appropriation X’s capital

B appropriation X’s current
C X’s capital appropriation
D X’s current appropriation

15 Which statement describes the treatment of purchased goodwill for a limited company?

A a tangible non-current asset that can be amortised

B a tangible non-current asset that can be depreciated
C an intangible non-current asset that can be amortised
D an intangible non-current asset that can be depreciated
 190 7

16 A company’s equity is made up as shown.

100 000 ordinary shares of $0.25 each 25 000

share premium 3 000
retained earnings 8 000

The following took place.

1 A bonus issue of one ordinary share for every five held was made.
2 Six months later a rights issue of one ordinary share for every four held was made.
The shares were issued at $0.30 each.

By how much did the company’s equity increase as a result of these transactions?

A $5000 B $6000 C $7500 D $9000

17 Which statement about ordinary shares is correct?

A dividends on ordinary shares are an appropriation of profit

B dividends on ordinary shares are paid at the same rate each year
C ordinary shares are never issued at a premium
D the holders of ordinary shares are creditors of a company

18 Who are internal users of accounting information?

A customers
B directors
C lenders
D shareholders

[Turn over
 191 8

19 A company provides the following information.

profit from operations 16 000

finance costs 4 000
ordinary share capital ($1 shares) 50 000
non-current liabilities 4 000
retained earnings 20 000

What is the return on capital employed?

A 16.22% B 17.14% C 21.62% D 22.86%

20 The following financial information is available for a business. All purchases and sales are made
on credit.

purchases 121 980

revenue 209 980
trade payables 45 448
trade receivables 28 765

What is the average collection period?

A 50 days B 79 days C 86 days D 136 days

21 How are stepped costs best described?

A costs that are always variable

B costs that have both a fixed and variable element
C fixed costs that are always the same amount at any level of output
D fixed costs which increase in total once a certain level of output is reached
 192 9

22 Jamal uses the AVCO system to value his inventory. He provides the following information:

March 1 no opening inventory

6 60 units were purchased at $120 per unit
17 100 units were purchased at $116 per unit
23 110 units were sold for $150 per unit

What was the cost of sales for March?

A $5875 B $12 925 C $13 000 D $18 800

23 A business makes wedding dresses. Each machinist is paid $30 a day and each supervisor $40 a
day. Each supervisor can work with up to 10 machinists and each machinist can produce one
wedding dress a day.

If 95 wedding dresses a day are produced, what is the daily labour cost?

A $2850 B $3210 C $3230 D $3250

24 Which statement best describes variable costs?

A costs that are the same in total up to a certain level then increase with output
B costs that are the same in total over any output level
C costs that are constant per unit as output increases
D costs that increase per unit as output increases

25 A company manufactures and sells chairs. The following per unit information is available.

selling price 25
direct material and labour 12
other variable production costs 3
variable selling costs 2
fixed costs 4

The company has the option of buying in the chairs for resale instead of making them.

At which purchase price would the company’s profit be unchanged?

A $15 B $17 C $19 D $21

[Turn over
 193 10

26 The budgeted income statement of J Limited shows the following.

sales 400 000

variable costs 240 000
fixed costs 132 000
profit for the year 28 000

What is the margin of safety in dollars?

A $70 000 B $160 000 C $268 000 D $330 000

27 The following details are supplied by a company for the month of August.

budgeted machine hours 36 000

budgeted overheads $162 000
actual machine hours 36 500
actual overheads $155 000

What is the under or over absorption of the overheads?

A $2250 over absorbed

B $2250 under absorbed
C $9250 over absorbed
D $9250 under absorbed

28 A company has fixed costs of $40 000 per month. It provided the following information.

March units April units

production 30 000 15 000

Total production costs for March were $90 000.

What were the total production costs for April?

A $45 000 B $65 000 C $70 000 D $110 000

 194 11

29 A company’s profits using marginal costing and absorption costing principles were identical.

Which statement is true about the company’s production units?

A they were greater than break-even units

B they were greater than the sales units
C they were the same as the break-even units
D they were the same as the sales units

30 Which statement is not a reason why a business prepares budgets?

A to ensure coordination of the business activities

B to identify potential problems in the future
C to identify the responsibilities of managers
D to prepare the financial statements for the year
195

Answers
EXPLAINED
 196

Multiple Choice Answers

CAMBRIDGE A LEVEL ACCOUNTING

June 2017 Paper 1

1 . When a businessman introduces capital into his business , 4. The net book value of a company’s non-current
the transaction is debited in the cash book and credited to assets was as follows.
his capital account.
$
Of which accounting concept is this an example ?
at 1 January 2016 100000
A business entity at 31 December 2016 80000
B going
During 2016 assets were sold for $20 000,
concern
realising a profit on disposal of $5000.
Depreciation charged for 2016 was $8000.
C matching What was the expenditure on new assets in 2016?
D prudence A $3000 B $5000
c $8000 D $15 000
__________________ _
Business entity concept is one of the accounting concepts that states
that business and the owner are two separate entities and Step 1 : Calculate the Net book value (NBV) of
therefore , should be considered separate from each other.
the disposed off van
Answer A
= Sale price ($20,000) - Profit ($5000) = $15000

2. Which are examples of the accounting equation? Step 2: Calculate expenditure on new assets
1 capital + assets = liabilities NBV at start ($100,000) + Additions (to be determined)
2 capital = assets + liabilities - Disposal at NBV ($15,000) - Depreciation for the year
($8000) = NBV at year end ($80,000)
3 capital = assets - liabilities
A 1 and 3 B 1 only
________________________ _______________________________ Answer- A
C 2 and 3 D 3 only

The accounting formula is 5. The following errors were found after a suspense
assets - liabilities = capital (equity) account was opened.
Answer: D 1 Motor repairs of $400 were credited to the motor
vehicle at cost account.
2 A payment for electricity was debited in the
3. Amitav purchased a van costing $20000. He pro­
electricity account as $2500 instead of $
vided an old van with a net book value of $8000 in part
5200.
exchange. There was a profit on disposal of $1500.
3 A $450 cash purchase of goods for re­ sale had
What was the cash outflow arising from the pur- been completely omitted from the books.
chase?
4 Discount allowed of $50 had been deb­ ited to
the discounts received account.
A $9500 B $10 500
Which items would be entered in tho suspense
C $12 000 D $13 500 account?

A 1 and 2 B 2 and 3
Step 1: calculate price of the van C 2 and 4 D 3 and 4
_________________________________________________________

Error 1
Net book value + Profit
= NBV ($8000 ) + Profit ($ 1500 ) Correct: Motor repairs should have been debited
Incorrect: Motor vehicle has been credited .

Effect: The total of credit column exceeds Total of debit column

by $800
Step 2: calculate the cash outflow Error 2

Incorrect: Electricity account has been debited as

$ 2500
Cost of new van ($20,000) - part exchange ($9500) Correct: It should have been $5200

= $10,500 Effect: The total of debit column is understated by $2700.

Error 3 & 4
Answer B
They do not affect trial balance agreement. Answer A
197
6. Which items appear in a sales ledger control
account? $2600
Balance as per Cash book (Credit)
1 cash discount allowed Add deposit not credited $250
2 credit sales Less, not presented cheques $3000
3 payments to trade payables Balance as per bank statement (Credit) $150
4 returns inwards
Note; Because $150 is a negative figure, the
A 1,2 and 3 B 1,2 and 4 bank statement balance is a credit.
C 1, 3 and 4 D 2, 3 and 4 Answer: A

The sales ledger control account is used to monitor the 9. Finn provides the following information.
amounts owed by customers to a business.
Answer B
s
capital at the start of the year 19800
profit for the year 24 000
7. The following information is extracted from the
statement of financial position of a business at 31 drawings (cash) 19500
December 2016. drawings (goods for own use) 1 100
private vehicle transferred to business use 6 000
$
What was Ann’s capital at the end of the year?
bank loan (repayable 2025) 16200
A $23 200 B S24 300
other payables 1 880
bank overdraft 11600 C $29 200 D $31 400
_________________________________________________________
capital 20710
Capital at start $19,800
drawings 19100
Profit for the year $24,000
inventory 14610 Less Drawings ($19,500 + $1100)
other receivables 1420 Additional capital $6000
Capital at end $29,200
trade payables 14110
trade receivables 9050 Answer C

What is the value of the net current liabilities? 10. A business provides the following information.
A $1590 B $2510
year 1 year 2
C $18 710 D $20 320 $ $
_______________________________________________________
profit for the year 30 000 40000
Step 1: Calculate current
cost of goods sold 240000 320000
liabilities (1880 + 11,600 + 14,110)
The owner then discovers that at the end of year
Step 2: Calculate current 1 the value of inventory was overstated by $2000.
assets (14,610 + 1420 + 9050) What are the correct profits for the year and cost
of goods sold figures?
Step 3: Calculate net current liabilities
year 1 year 2

Net current liabilities= Current Liabilities - Current profit for cost of profit for cost of
the year goods sold the year goods sold
Assets Answer B $ $ $ $
A 28000 238 000 42000 322 000
8. The following items are recorded in the cash book of B 28000 242000 40 000 320000
a business but not yet recorded in its bank statement.
C 28000 242 000 42 000 318000
$ D 32000 238000 38 000 318000
cheques drawn 3000
amounts banked 250

The cash book shows a bank balance of $2600

credit.
What is the balance on the bank statement?
A $150 credit B $150 debit
C $400 credit D $400 debit
Useful formulas:

Gross profit=Sales−Cost of sales

198of sales = Opening inventory + purchases - Closing inventory
Cost

YEAR 1: Before rectification: 13. Ali, Bharti and Chan were in partnership sharing
Closing inventory :overstated profit and losses in the ratio 3:2:1. Bharti retired
Cost of sales ($240000): understated from the partnership on 30 June 2016.
Profits ($30 000): overstated . The following were the balances available at
30 June 2016.
YEAR 1: After rectification
Ali (S) Bharti ($) Chan ($)
Cost of sales will increase to $242,000
Profits will decrease to $28,000. capital accounts 60 000 Cr 40 000 Cr 20 000Cr
current accounts 18 650 Cr 6100 Dr 8950 Cr
YEAR 2: Before rectification On her retirement, Bharti retained a partnership
Opening inventory : overstated motor vehicle at an agreed valuation of $4000.
Cost of sales ($320000) :overstated Goodwill was valued at $39 000.
Profits ($40000): understated . How much was payable to Bharti on her retire­
ment?
YEAR 2 : After rectification A $33 900 B $42 900
Cost of sales will decrease to $318,000 C $46 900 D $50 900
Profits will increase to $42, 000. ___________________
Answer: C
Capital account ($40,000) - current account ($6100) -
Motor vehicle ($4000) + share of goodwill($39000x2)/6
11. Sam was unable to conduct a physical count of
Answer B
inventory at 31 December 2016.
On 3 January 2017 inventory had been sold to Abdul for
$ 11 950 . The cost price of this inventory had been $ 14. A partnership maintains both capital and current
9560. accounts for its partners.
On 4 January 2017 inventory had been returned by Sita. What is the correct accounting entry for recording
It had been sold for $ 2390 . The cost price of this interest on capital for partner X?
inventory was $1912.
Sam valued his inventory at 5 January 2017
at cost, $59 750. account to account to
be debited be credited
What was the value of inventory at 31
December 2016? A appropriation X’s capital
A $50 190 B $52 012 B appropriation X’s current
C $67 398 D $69 310 C X's capital appropriation
_________________________________________________________
D X’s current appropriation
Inventory at 5 Jan 17 $59,750 _____________ ____________________________ ____ _
Less Sales return at cost price ($1912)
Plus sales at cost $9560 Interest on capital is payable to partners in a
Value of inventory at 31 Dec16 $67,398 partnership. It is treated as a liability and appears on
the credit side of the current account.
Answer C
Answer: B

12. Which item is not taken into account when 15. Which statement describes the treatment of pur­
a partner joins a partnership? chased goodwill for a limited company?
A balances on the partners A a tangible non-current asset that can be am­
current accounts ortised
B capital introduced by the new B a tangible non-current asset that can be de­
partner preciated
C changes in the profit sharing ratio C an intangible non-current asset that can be
amortised
D goodwill
D an intangible non-current asset that can be
_______________________________________________________
depreciated
A partnership is an arrangement between two or more
people to oversee business operations and share its
profits and liabilities . Revaluation , goodwill ,
capital introduction and capital withdrawal relate to
capital accounts.
Answer A
 199

An intangible asset is an asset that is not physical in

nature. Goodwill is an example of an intangible asset.
It is an intangible non-current asset that can be
amortised Dividend is appropriation of profit which is
Answer: C arrived after providing for all expenses
including interest.
Answer A
16. A company’s equity is made up as shown.

S
18. Who are internal users of accounting information?
100000 ordinary shares of $0.25 each 25000
A customers B directors
share premium 3000
C lenders D shareholders
retained earnings 8000
_________________________________________________________

The following took place. Internal users are people within a business organization who use
1 A bonus issue of one ordinary share for financial information.Internal users includes management of the
every five held was made. company and directors.
Answer B
2 Six months later a rights issue of one
ordinary share for every four held was
made. The shares were issued at $0.30
each. 19. A company provides the following information.
By how much did the company’s equity increase
$
as a result of these transactions?
profit from operations 16000
A $5000 B $6000
finance costs 4 000
C S7500 D $9000
ordinary share capital ($1 shares) 50000
non-current liabilities 4 000
Effect of bonus issue
retained earnings 20 000
Equity: No effect
Share Capital: increase What is the return on capital employed?
Reserves: decreases A 16.22% B 17.14%
C 21.62% D 22.86%

Effect of rights issue

Equity: Increase Capital Employed = $50,000 + $4000 + $20,000 = $74,000
Share capital and Share premium : Increase
ROCE = ($16,000/74,000) x 100 = 21.62%
Original share = 100,000 shares
Answer: C
Bonus issue =(100,000x1/5)= 20,000 shares

Right issue=(120,000x1/4)= 30,000 shares 20 . The following financial information is available for a business . All
purchases and sales are made on credit.

Ordinary share capital increases by

$7500 (30,000 x $0.25 )
s
purchases 121 980
Share Premium increase by
$1500 (30,000 x $0.05) Answer D revenue 209980
trade payables 45448
17. Which statement about ordinary shares is correct?
trade receivables 28 765
A dividends on ordinary shares are an appro­
priation of profit What is the average collection period?
B dividends on ordinary shares are paid at the
A 50 days B 79 days
same rate each year
C 86 days D 136 days
C ordinary shares are never issued at a pre­
mium
D the holders of ordinary shares are creditors of
a company
 200 To produce 95 dresses, 95 machinists and 10 supervisors
are needed. Note: there cannot be 9.5 supervisors!
$28 765
x 365 = 50 days Calculate direct labour cost
$209 980 (95 x $30) + (10 x $40) = $3250
Answer: A
Answer: D

21. How are stepped costs best described?

24. Which statement best describes variable costs?
A costs that are always variable
A costs that are the same in total up to a certain
B costs that have both a fixed and variable el level then increase with output
­ ement
B costs that are the same in total over any out
C fixed costs that are always the same amount ­ put level
at any level of output
C costs that are constant per unit as output in
D fixed costs which increase in total once a cer­ ­ creases
tain level of output is reached
D costs that increase per unit as output increases
_____________________________ ____________
Step costs are expenses that are constant for a given level of
The variable cost of production is a constant amount per unit
activity, but increase or decrease once a threshold is crossed. produced. As the volume of production and output increases,
variable costs will also increase.
Answer C
Answer: D

22. Jamal uses the AVCO system to value his inven 25. A company manufactures and sells chairs.
­ tory. He provides the following information: The following per unit information is available.

March 1 no opening inventory

6 60 units were purchased at $120 per unit
s
selling price 25
17 100 units were purchased at $116 per unit
direct material and labour 12
23 110 units were sold for $150 per unit
other variable production costs 3
What was the cost of sales for March? variable selling costs <a 2
A $5875 B $12 925 fixed costs 4
C $13 000 D $18 800
The company has the option of buying in the
_________
chairs for resale instead of making them.
Average cost= (60 x $120)+(100 x116) At which purchase price would the company’s profit
160 be unchanged?
Average cost 160 units @ $117.5 A $15 B $17
Units sold 110 C $19 D $21
_________________________________________________________
Cost of 110 sold units (110 X $117.5) = $12,925
Answer. B Costs incurred regardless whether the chairs are
bought or produced:

23. A business makes wedding dresses. Each ma­ Total fixed costs
chinist is paid $30 a day and each supervisor $40 Variable selling costs
a day. Each supervisor can work with up to 10
machinists and each machinist can produce one If the purchase price equals to the variable cost of
wedding dress a day.
production ($12 + $3), the company 's profit would be
If 95 wedding dresses a day are produced, what
same the profit in both cases. Answer. A
is the daily labour cost?
A $2850 B $3210
C $3230 D $3250
201
26. The budgeted income statement of J Limited 28. A company has fixed costs of $40 000 per month.
shows the following. It provided the following information.

S March units April units |

sales 400000 ( production 30 000 15000
variable costs 240 000
Total production costs for March were $90 000.
fixed costs 132000
What were the total production costs for April?
profit for the year 28 000
A $45 000 B $65 000
What is the margin of safety in dollars? C $70 000 D $110 000
_________________________________________________________
A $ 70 000 B =$160 000
C $268 000 D $330 000 Step 1: Calculate Total variable costs in March
= Total costs ($90,000) - Fixed costs ($40,000)
Step 1: Calculate C/S ratio
Step 2: Calculate Variable cost per unit
=160,000/400,000 = 0.4 $50,000
Variable costs per unit = -----------
Step 2: Calculate Break even point in dollars ($) 30,000

Total fixed costs ($132,000) Step 3: Calculate total production cost

Total costs (April) = Fixed costs ($40,000) + Total variable
C/S ratio (0.4) costs ($1.66667 x 15,000)
Answer: B

Step 3: Calculate Margin of safety (Dollars)

Answer A 29. A company’s profits using marginal costing and
= Sales ($400,000) - BEP ($330,000) absorption costing principles were identical. Which
27. The following details are supplied by a company statement is true about the company’s pro­
for the month of August. duction units?
A they were greater than break-even
budgeted machine hours 36000
units
budgeted overheads $162000
B they were greater than the sales units
actual machine hours 36500
C they were the same as the break-even
actual overheads $155000 units
What is the under or over absorption of the D they were the same as the sales units
overheads? ____________________________________
A $2250 over absorbed Marginal and absorption profits differ due to different
B $2250 under absorbed inventory valuation .
C $9250 over absorbed If production units and sales units equal, there will be no
D $9250 under absorbed inventory . Marginal and absorption profits would be
________________________________________________________ equal
Step 1: Calculate Overheads Answer D

absorption rate 30. Which statement is not a reason why

a business prepares budgets?
Budgeted overheads ($162,000) A to ensure coordination of the business
Budgeted machine hours (36,000) activi ­ ties
B to identify potential problems in the future
Step 2: Calculate Absorbed overheads
C to identify the responsibilities of managers
= OAR ($4.50) x Actual machine hours (36,500)
D to prepare the financial statements for the year
Step 3: Determine over absorption _________________________________________________________

Absorbed overheads ($164,250) > Actual overheads Budgets are typically forward-looking in nature.
($155,000), Income is based on projections and estimates for the
The Over absorption is $9250. periods they cover, as are expenses.Financial
Answer: C
statements arc prepared at year end using
historical data.

Answer D