1 A company issued one million ordinary $1 shares at a premium of 50c per share.

The proceeds were correctly recorded in the cash book, but were incorrectly credited to the sales account. Which of the following journal entries will correct the error? Debit Credit $ $ A Sales 1,500,000 Share capital 1,000,000 Share premium 500,000 B Share capital 1,000,000 Share premium 500,000 Sales 1, 500,000 C Sales 1,500,000 Share capital 1,500,000 D Share capital 1,500,000 Sales 1,500,000

2 Which one of the following would cause a companys gross profit percentage on sales to fall? A A reduction in the total value of goods returned to suppliers. B An increase in the costs of delivery of goods to customers. C A decline in average inventory levels. D An increase in theft of inventory by customers and staff 3 Where, in a companys financial statements complying with International accounting standards, should you find dividends paid? 1 Income statement 2 Balance sheet 3 Cash flow statement 4 Statement of changes in equity. A 1 and 3 B 2 and 3 C 1 and 4 D 3 and 4 10 At 1 January 2006, a companys capital structure was as follows: $ Ordinary share capital 2,000,000 shares of 50c each 1,000,000 Share premium account 1,400,000

In January 2006 the company issued 1,000,000 shares at $140 each. In September 2006 the company made a bonus issue of 1 share for every 3 held using the share premium account. What were the balances on the companys share capital and share premium accounts after these transactions?

Share capital $ A 4,000,000 B 3,200,000 C 2,000,000 D 2,000,000

Share premium $ 800,000 600,000 1,800,000 1,300,000

16 Which of the following statements about the requirements of IAS 37 Provisions, contingent liabilities and contingent assets are correct? 1 A contingent asset should be disclosed by note if an inflow of economic benefits is probable. 2 No disclosure of a contingent liability is required if the possibility of a transfer of economic benefits arising is remote. 3 Contingent assets must not be recognised in financial statements unless an inflow of economic benefits is virtually certain to arise. A All three statements are correct B 1 and 2 only C 1 and 3 only D 2 and 3 only 17 Which of the following statements are correct, according to IAS 10 Events after the balance sheet date? 1: Details of all adjusting events must be disclosed by note to the financial statements. 2: A material loss arising from the sale, after the balance sheet date, of inventory valued at cost at the balance sheet date must be reflected in the financial statements. 3: If the market value of investments falls materially after the balance sheet date, the details must be disclosed by note. 4: Events after the balance sheet date are those that occur between the balance sheet date and the date when the financial statements are authorised for issue. A 1 and 2 only B 1, 3 and 4 C 2 and 3 only D 2, 3 and 4 19 Which one of the following statements is correct? A The prudence concept requires assets to be understated and liabilities to be overstated. B To comply with the law, the legal form of a transaction must always be reflected in financial statements. C If a non-current asset initially recognised at cost is revalued, the surplus must be credited in the income statement.

D In times of rising prices, the use of historical cost accounting tends to understate assets and overstate profits. 23 Where, in a companys financial statements complying with International accounting standards, should you find the proceeds of non-current assets sold during the period? A Cash flow statement and balance sheet B Statement of changes in equity and balance sheet C Income statement and cash flow statement D Cash flow statement only 24 Which of the following events would reduce a companys gearing? 1 An issue of loan notes 2 A rights issue of equity shares 3 A bonus issue of equity shares A 1 and 2 B 1 and 3 C 3 only D 2 only June 06 5 Which of the following events after the balance sheet date would normally qualify as adjusting events according to IAS 10 Events after the balance sheet date? 1 The bankruptcy of a credit customer with a balance outstanding at the balance sheet date. 2 A decline in the market value of investments. 3 The declaration of an ordinary dividend. 4 The determination of the cost of assets purchased before the balance sheet date. A 1, 3, and 4 B 1 and 2 only C 2 and 3 only D 1 and 4 only 8 Which of the following statements about accounting concepts and conventions are correct? (1) The money measurement concept requires all assets and liabilities to be accounted for at historical cost. (2) The substance over form convention means that the economic substance of a transaction should be reflected in the financial statements, not necessarily its legal form. (3) The realisation concept means that profits or gains cannot normally be recognised in the income statement until realised. (4) The application of the prudence concept means that assets must be understated and liabilities must be overstated in preparing financial statements. A 1 and 3 B 2 and 3 C 2 and 4

D 1 and 4.

11 Which of the following statements are correct? 1 A company might make a rights issue if it wished to raise more equity capital. 2 A rights issue might increase the share premium account whereas a bonus issue is likely to reduce it. 3 A bonus issue will reduce the gearing (leverage) ratio of a company. 4 A rights issue will always increase the number of shareholders in a company whereas a bonus issue will not. A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4 12 Which of the following statements are correct? (1) Contingent assets are included as assets in financial statements if it is probable that they will arise. (2) Contingent liabilities must be provided for in financial statements if it is probable that they will arise. (3) Details of all adjusting events after the balance sheet date must be given in notes to the financial statements. (4) Material non-adjusting events are disclosed by note in the financial statements. A 1 and 2 B 2 and 4 C 3 and 4 D 1 and 3 17 Which of the following statements are correct? (1) All non-current assets must be depreciated. (2) If goodwill is revalued, the revaluation surplus appears in the statement of changes in equity. (3) If a tangible non-current asset is revalued, all tangible assets of the same class should be revalued. (4) In a companys published balance sheet, tangible assets and intangible assets must be shown separately. A 1 and 2 B 2 and 3 C 3 and 4 D 1 and 4 21 Which of the following items must be disclosed in a companys published financial statements? 1 Authorised share capital 2 Movements in reserves 3 Finance costs 4 Movements in non-current assets A 1, 2 and 3 only B 1, 2 and 4 only C 2, 3 and 4 only

D All four items Dec 05 2 Evon, a limited liability company, issued 1,000,000 ordinary shares of 25c each at a price of $110 per share, all received in cash. What should be the accounting entries to record this issue? A Debit: Cash $1,100,000 Credit: Share capital $250,000 Share premium $850,000 B Debit: Share capital Share premium $250,000 $850,000 Credit: Cash $1,100,000

C Debit: Cash $1,100,000 Credit: Share capital $1,100,000 D Debit: Cash $1,100,000 Credit: Share capital $250,000 Retained earnings $850,000 4 At 1 July 2004 a limited liability companys capital structure was as follows: $ Share capital 1,000,000 shares of 50c each 500,000 Share premium account 400,000 In the year ended 30 June 2005 the company made the following share issues: 1 January 2005 A bonus issue of one share for every four in issue at that date, using the share premium account. 1 April 2005 A rights issue of one share for every ten in issue at that date, at $150 per share. What will be the balances on the companys share capital and share premium accounts at 30 June 2005 as a result of these issues? Share capital Share premium account $ $ A 687,500 650,000 B 675,000 375,000 C 687,500 150,000 D 687,500 400,000 15 Which of the following statements about intangible assets are correct? 1: If certain criteria are met, research expenditure must be recognised as an intangible asset. 2: Goodwill may not be revalued upwards. 3: Internally generated goodwill should not be capitalised. A 2 and 3 only

B 1 and 3 only C 1 and 2 only D All three statements are correct

16 Which of the following events between the balance sheet date and the date the financial statements are authorised for issue must be adjusted in the financial statements? 1 Declaration of equity dividends. 2 Decline in market value of investments. 3 The announcement of changes in tax rates. 4 The announcement of a major restructuring. A 1 only B 2 and 4 C 3 only D None of them 22 Which of the following items may appear in a companys statement of changes in equity, according to IAS 1 Presentation of financial statements? 1 Unrealised revaluation gains. 2 Dividends paid. 3 Proceeds of equity share issue. 4 Profit for the period. A 2, 3 and 4 only B 1, 3 and 4 only C All four items D 1, 2 and 4 only June 03 10 Which of the following statements about the valuation of inventory are correct, according to IAS2 Inventories? (1) Inventory items are normally to be valued at the higher of cost and net realisable value. (2) The cost of goods manufactured by an enterprise will include materials and labour only. Overhead costs cannot be included. (3) If LIFO (last in, first out) is used to value inventory, additional disclosures must be made in the financial statements. (4) Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation to actual cost. A 1, 3 and 4 only B 1 and 2 only C 3 only D 3 and 4 only.

14 Listed below are some comments on accounting concepts. (1) In achieving a balance between relevance and reliability, the most important consideration is satisfying as far as possible the economic decision-making needs of users. (2) Materiality means that only items having a physical existence may be recognised as assets. (3) The substance over form convention means that the legal form of a transaction must always be shown in financial statements, even if this differs from the commercial effect. Which, if any, of these comments is correct, according to the IASBs Framework for the Preparation and Presentation of Financial Statements? A 1 only B 2 only C 3 only
D None of them.

15 Which of the following explanations of the prudence concept most closely follows that in the IASBs Framework for the Preparation and Presentation of Financial Statements? A The application of a degree of caution in exercising judgement under conditions of uncertainty B Revenue and profits are not recognised until realised, and provision is made for all known liabilities C All legislation and accounting standards have been complied with D Understatement of assets or gains and overstatement of liabilities or losses. 16 In times of rising prices, what effect does the use of the historical cost concept have on a companys asset values and profit? A Asset values and profit both understated B Asset values and profit both overstated C Asset values understated and profit overstated D Asset values overstated and profit understated. 18 At 31 December 2001 the capital structure of a company was as follows: $ Ordinary share capital 100,000 shares of 50c each 50,000 Share premium account 180,000 During 2002 the company made a bonus issue of 1 share for every 2 held, using the share premium account for the purpose, and later issued for cash another 60,000 shares at 80c per share. What is the companys capital structure at 31 December 2002? Ordinary share capital Share premium account $ $ A 130,000 173,000 B 105,000 173,000 C 130,000 137,000 D 105,000 137,000