CIMA

CERTIFICATE IN BUSINESS ACCOUNTING

PAPER C2
FUNDAMENTALS OF FINANCIAL ACCOUNTING

COURSE TEST 2
QUESTION PAPER

Answer all questions

CMC2CT10(N) CT2 Questions

CC210 C2 CT (2)

CMC2CT10(N) CT2 Questions

You must attempt all questions.

Each correct answer will score two marks. No deduction will be made for wrong answers.
An answer sheet is provided on the last page of this test. You must indicate your answer in the box provided.
No workings should be submitted on the answer sheet
1

At 31.12.20X7 Blue Anchor plc has an insurance prepayment of $250. During the year they pay $800 in
respect of various insurance contracts. The closing accrual for insurance is $90.
The income statement charge for insurance for the year ended 31.12.20X8 is $

Which of the following items should be treated as capital expenditure in the accounts of a sole trader?
A

$500 drawings made by the proprietor to buy himself a colour television

$200 spent on purchasing a new typewriter to replace his secretary's old one

$2,000 on purchasing a micro-computer for resale

$150 paid to a painter for decorating his office

At 31 March 20X7, accrued rent payable was $300. During the year ended 31 March 20X8, rent paid was
$4,000, including an invoice for $1,200 for the quarter ended 30 April 20X8.
What is the income statement charge for rent payable for the year ended 31 March 20X8?
A

$3,300

$3,900

$4,100

$4,700

Constains plc has an insurance prepayment of $320 at 31 March 20X8. During the year ended 31 March
20X8 Constains paid two insurance bills, one for $1,300 and one for $520. The charge for the year in the
accounts for insurance was $1,760. The prepayment at 31 March 20X7 was $

Automat Ltd purchases a machine for which the supplier's list price is $18,000. Automat pays $13,000 in
cash and trades in an old machine which has a net book value of $8,000. It is the company's policy to
depreciate such machines at the rate of 10% per annum on cost.
The net book value of the machine after one year is $

The annual insurance premium for B Ltd for the period 1 July 20X8 to 30 June 20X9 is $13,200, which is
10% more than the previous year. Insurance premiums are paid on 1 July.
The income statement charge for insurance for the year ended 31 December 20X8 is $

Beehive bought a car on 1.1.06 for $10,000 and decided to depreciate it at 30% per annum on a reducing
balance basis. It was disposed of during the year ended 31 December 2008 for $6,000. Beehive does not
charge depreciation in the year of disposal.
The net effect on the income statement for y/e 31.12.2008 is an/a
of $

increase/decrease

A gas accrual for $400 was treated as a prepayment in a sole traders income statement
As a result the profit was
by $
overstated/understated

CMC2CT10(N) CT2 Questions

Ben Ltd purchased a machine for $120,000 on 1 October 20X8. The estimated useful life is 4 years with a
residual value of $4,000. Ben Ltd uses the straight line method for depreciation and charges depreciation
on a monthly basis.
The charge for depreciation for the year ended 31 December 20X8 is $

10

A business has received telephone bills as follows:

Period
Qtr to 30 November
Qtr to 28 February
Qtr to 31 May
Qtr to 31 August
Qtr to 30 November
Qtr to 28 February

20X7
20X8
20X8
20X8
20X8
20X9

Invoice received
December
March
June
September
December
March

20X7
20X8
20X8
20X8
20X8
20X9

Amount of bill
$
739
798
899
815
840
966

Date paid
January
April
June
October
January
March

20X8
20X8
20X8
20X8
20X9
20X9

In the income statement for the year ended 31 December 20X8 the charge for telephone should be $
11

Mac McMusic purchased some new equipment on 1 April 2008 for his mobile disco for $5,000. The
estimated scrap value of the new equipment in 5 years' time is estimated to be $400. Mac charges
depreciation on a straight line basis with a proportionate charge in the period of acquisition.
The depreciation charge for the plant for the year ended 30 September 2008 should be $

12

Which one of the following should be accounted for as capital expenditure?

A

The cost of painting a factory floor

The replacement of windows in a building

The purchase of a motor vehicle by a garage for re-sale

Legal fees incurred on the purchase of a building

CMC2CT10(N) CT2 Questions

FUNDAMENTALS OF FINANCIAL ACCOUNTING COURSE

TEST 2
Answer Sheet
Name: ..........................................................................
Student number: ....................................................

1
2
3
4
5
6
7

of

by

9
10
11
12

CMC2CT10(N) CT2 Questions

Date: ..........................................................................

CMC2CT10(N) CT2 Questions

BPP House, Aldine Place, London W12 8AA

Tel: 0845 0751 100 (for orders within the UK)
Tel: +44 (0)20 8740 2211
Fax: +44 (0)20 8740 1184
www.bpp.com/learningmedia

CIMA
CERTIFICATE IN BUSINESS ACCOUNTING
PAPER C2
FUNDAMENTALS OF FINANCIAL ACCOUNTING

COURSE TEST 2
SOLUTIONS

CMC2CT10(N) CT2 Solutions

CC210 C2 CT (2)

CMC2CT10(N) CT2 Solutions

SOLUTIONS TO COURSE TEST 2

1

$1,140

$260

$16,200

$12,600

Increase of $1,100

Overstated by $800

$7,250

10

$3,408

11

$460

12

CMC2CT10(N) CT2 Solutions

WORKINGS
1

$1,140
Insurance
Reverse prepayment
Cash
Accrual

$
250
800
90
1,140

IS

1,140
1,140

Rent
$
4,000

Cash

4,000
4

$
300

Reverse accrual
Prepayment
(1/3 x 1,200)
IS

400
3,300
4,000

$260
Insurance Expense
Prepayment reversal

$
260

Cash

1,300

Cash

520

IS

1,760

Prepayment

320

2,080
5

2,080

$16,200
The cost of the machine is $18,000. Automat has paid $13,000 in cash and has evidently agreed a tradein value of $5,000 for the old machine but this is irrelevant. After one year, the net book value of the new
machine is 90% of $18,000 = $16,200.

Insurance premium: 1 Jan X8 30 June X8

100/

110

x 13,200 x 6/12 =

6,000

Insurance premium 1 July X8 31 Dec X8

= 13,200 x 6/12 =

6,600
12,600

CMC2CT10(N) CT2 Solutions

Increase of $1,100
Cost 1.1.06
Depreciation 31/12/06
(30% x 10,000)
NBV
Depreciation 31/12/07
(30% x 7,000)
NBV
Proceeds
Profit

10,000
(3,000)
7,000
2,100
4,900
6,000
1,100

To correct error, must decrease profit by 2 $400 profit overstated by $800

120,000 - 4,000
= 29,000 pa
4 yrs
29,000 x 3/12 = $7,250

2
1
798) + 899 + 815 + 840 + ( 966) = $3,408
3
3

10

11

$460
Depreciation charge for year =

5,000 400
= $920
5

This year 6/12 x $920 = $460

12

CMC2CT10(N) CT2 Solutions

CMC2CT10(N) CT2 Solutions

BPP House, Aldine Place, London W12 8AA

Tel: 0845 0751 100 (for orders within the UK)
Tel: +44 (0)20 8740 2211
Fax: +44 (0)20 8740 1184
www.bpp.com/learningmedia