D Recording transactions and events

Written by Fahad Mirza (ACCA)

ACCA · Financial Accounting · 16 questions

Name: ____________________ Date: ____________

A business sells goods on credit for $2,400 before sales tax at 20 percent. What is the entry?
- A Debit receivables $2,400, credit revenue $1,920, credit sales tax $480
- B Debit receivables $2,400, credit revenue $2,400
- C Debit receivables $2,880, credit revenue $2,400, credit sales tax $480
- D Debit receivables $2,880, credit revenue $2,880
Inventory item: cost $12,000, expected selling price $15,000 and selling costs of $4,000. At what amount is it included in inventories?
- A $11,000
- B $12,000
- C $4,000
- D $15,000
Opening inventory was 200 units at $5. 300 units were then bought at $6 each. 350 units were sold. What is the value of closing inventory using FIFO?
- A $750
- B $1,050
- C $900
- D $840
Which cost is excluded from the cost of inventories?
- A Storage costs of finished goods
- B Delivery costs of bringing materials to the factory
- C Import duty on raw materials
- D Direct labour in production
Which of these is capital expenditure?
- A Installation costs of a new machine
- B Insurance of the machine for the year
- C The cost of cleaning the machine
- D Routine repairs to a machine
An asset cost $40,000 and has accumulated depreciation of $25,000. It is sold for $18,000. What is the result?
- A A gain of $3,000
- B A loss of $3,000
- C A loss of $7,000
- D A gain of $18,000
A machine costing $60,000 is depreciated at 25 percent a year on the reducing balance. What is the depreciation charge for year 2?
- A $30,000
- B $15,000
- C $45,000
- D $11,250
An asset cost $90,000 and is depreciated straight line over 6 years with no residual value. After 3 years its remaining useful life is re-estimated as 5 more years. What is the annual charge from year 4?
- A $18,000
- B $9,000
- C $15,000
- D $11,250
Which statement about research and development under IAS 38 is correct?
- A All research and development costs are expensed
- B All research and development costs are capitalised
- C Research costs are expensed, and development costs are capitalised only if the recognition criteria are met
- D Research costs are capitalised if the project looks promising
Insurance of $4,800 for 12 months from 1 September is paid in September. What is the prepayment at 31 December?
- A $0
- B $3,200
- C $1,600
- D $4,800
An irrecoverable debt is written off. What is the entry?
- A Debit bank, credit receivables
- B Debit receivables, credit irrecoverable debts expense
- C Debit irrecoverable debts expense, credit receivables
- D Debit allowance for irrecoverable debts, credit revenue
Receivables are $80,000 and the allowance is to be 5 percent of receivables. The opening allowance was $3,000. What is the charge to profit or loss for the allowance?
- A $3,000
- B $4,000
- C $7,000
- D $1,000
Which condition must be met for a provision to be recognised under IAS 37?
- A There is a present obligation from a past event, a probable outflow and a reliable estimate
- B The entity intends to spend money in the future
- C The outflow is possible but not probable
- D The entity cannot estimate the amount at all
A company issues 100,000 $1 shares at $1.50 each for cash. What is the entry?
- A Debit bank $150,000, credit share premium $150,000
- B Debit bank $150,000, credit share capital $150,000
- C Debit bank $150,000, credit share capital $100,000, credit share premium $50,000
- D Debit bank $100,000, credit share capital $100,000
A company with 400,000 $1 shares makes a 1 for 4 bonus issue, using share premium. What is the entry?
- A Debit bank $100,000, credit share capital $100,000
- B Debit retained earnings $400,000, credit bank $400,000
- C Debit share capital $100,000, credit share premium $100,000
- D Debit share premium $100,000, credit share capital $100,000
How are dividends on redeemable preference shares treated?
- A As finance costs
- B As a deduction from equity
- C As an operating expense
- D As revenue

Answer key

1. C, 2. A, 3. C, 4. A, 5. A, 6. A, 7. D, 8. B, 9. C, 10. B, 11. C, 12. D, 13. A, 14. C, 15. D, 16. A

Revenue excludes sales tax, which is owed to the tax authority. The customer owes the full amount.
Inventories are valued at the lower of cost and net realisable value. NRV = $15,000 - $4,000 = $11,000, which is lower than cost.
FIFO uses the most recent cost for what is left: 150 units x $6 = $900. Weighted average would give $840.
Storage of finished goods is normally an expense, unless needed in the production process.
Costs needed to bring an asset to its working condition are added to its cost.
Carrying amount = $40,000 - $25,000 = $15,000. Gain = $18,000 - $15,000 = $3,000.
Year 1 is $15,000, so the carrying amount is $45,000. Year 2 is 25 percent of $45,000.
The carrying amount after 3 years is $45,000. Spread over the 5 remaining years, this gives $9,000 a year.
Research is always an expense. Development is an asset only when criteria such as technical feasibility and probable benefits are met.
Four months have passed, so 8 months of $400 remain unused: $3,200.
The receivable is removed (credit) and the loss is an expense (debit).
The new allowance is $4,000. It rises by $1,000, and only the increase is charged.
All three conditions are needed. A possible obligation is a contingent liability.
Share capital is recorded at the nominal value and the excess is share premium.
A bonus issue converts reserves to share capital without any cash. 400,000 / 4 = 100,000 new shares.
Redeemable preference shares are liabilities, so their dividends are finance costs.