Duration: 1 hour 15 minutes
Total Marks: 35
Format: Multiple Choice – 1 mark per question
1. What is the purpose of book-keeping?
A) to interpret the double entry records
B) to prepare financial statements at regular intervals
✅ C) to record all the financial transactions of the business (Correct)
D) to summarise the financial position of the business
Note: Book-keeping is the systematic process of recording every business transaction.
2. What are assets?
A) items that are bought for long-term use by a business
B) items that are expected to be turned into cash in the near future
C) items that are owned by or owed by a business
✅ D) items that are owned by or owed to a business (Correct)
Note: Assets are resources owned by a business or amounts receivable from others.
3. Sami returns goods bought on credit from Javed. How does Javed record this in his books?
A) Purchases returns / Sami
✅ B) Sales returns / Sami (Correct)
C) Sami / Purchases returns
D) Sami / Sales returns
Note: From Javed’s view, Sami is a debtor returning goods, so it’s a sales return.
4. At the end of the financial year there was a debit balance brought down on the office expenses account. In which section of the statement of financial position will this be recorded?
A) capital
✅ B) current assets (Correct)
C) current liabilities
D) non-current assets
Note: A debit balance means prepayment, which is a current asset.
**5. The following ledger account appeared in the books of a trader.
What does the balance on 31 December represent?**
✅ A) rent payable outstanding (Correct)
B) rent payable prepaid
C) rent receivable outstanding
D) rent receivable prepaid
Note: This is an accrued expense — rent owed but unpaid at year end.
6. Karim issued an invoice, a credit note and a receipt. What has happened?
A) Karim purchased goods and paid the supplier immediately.
B) Karim purchased goods on credit, made returns to the supplier and paid the balance due.
C) Karim sold goods and received immediate payment from the customer.
✅ D) Karim sold goods on credit, received returns from the customer and received the balance due (Correct)
Note: This sequence reflects a sale on credit, partial return, and payment.
7. A trader’s purchases on credit for April amounted to $2000. These purchases were subject to a trade discount of 10% and also a cash discount of 5% for accounts paid within 30 days. How much was entered in the purchases journal?
A) $1700
✅ B) $1800 (Correct)
C) $1900
D) $2000
Note: Purchases journal records purchases after trade discount only: $2000 – 10% = $1800.
8. Which is part of the double entry system?
✅ A) cash book (Correct)
B) general journal
C) sales journal
D) trial balance
Note: The cash book is both a prime entry book and part of the ledger system.
9. What is a trial balance?
✅ A) a list of balances in a business’s books on a certain date (Correct)
B) a list of the assets, liabilities and capital of a business on a certain date
C) a summary of all a business’s transactions for the year
D) a summary of the financial position of a business at the year end
Note: It ensures that total debits equal total credits.
10. Which error will be revealed by the preparation of a trial balance?
✅ A) an amount recorded twice as a debit entry (Correct)
B) a capital expenditure item treated as revenue expenditure
C) a double entry made using an incorrect amount
D) a transaction completely omitted from the books
Note: This causes imbalance in the trial balance.
11. Tracey runs a clothing store. She sold a computer with a net book value of $2000 for $1800. Cash was received but no entries had been made in any accounts. What is the effect of correcting this error on the statement of financial position?
A) decrease 1800 / increase 1800
B) decrease 2000 / increase 2000
✅ C) decrease 2000 / increase 1800 (Correct)
D) decrease 1800 / increase 2000
Note: Asset removed at NBV, cash increases by proceeds.
12. The bank statement of a business showed a bank overdraft of $1640 on 1 October 2017. At that date there were uncredited deposits of $380 and unpresented cheques of $460. What was the cash book balance on 1 October 2017?
A) $1560 credit
B) $1560 debit
✅ C) $1720 credit (Correct)
D) $1720 debit
Note: Adjust overdraft for deposits and cheques to find cash book balance.
13. What are the sources of information for entries in control accounts?
A) bank statements
✅ B) books of prime entry (Correct)
C) ledger accounts
D) sales invoices
Note: Totals from prime entry books are posted to control accounts.
14. Purchases ledger control account closing balance?
✅ A) $7000 (Correct)
B) $9000
C) $11000
D) $13000
Note: Opening + purchases – returns – payments – discounts = closing balance.
15. Ryan bought a computer, cost $800, and some ink cartridges, cost $50, for use in the business. Both amounts were debited to the purchases account. What was the effect of this error on the income statement for the year?
A) overstated 800 / understated 850
✅ B) overstated 850 / understated 50 (Correct)
C) understated 800 / overstated 50
D) understated 850 / overstated 50
Note: Both costs wrongly in purchases — increasing cost of sales and reducing expenses.
16. For which non-current assets is the revaluation method of depreciation most appropriate?
✅ A) loose tools (Correct)
B) motor vehicles
C) office equipment
D) plant and machinery
Note: Loose tools are revalued at year end rather than depreciated annually.
17. Amit depreciates his buildings at the rate of 2% per annum using the straight line method. He bought land for $200,000. It cost $120,000 to build a warehouse on it. After five years he sold the warehouse for $299,000. What was the profit or loss on disposal?
✅ A) $9,000 loss (Correct)
B) $9,000 profit
C) $11,000 loss
D) $11,000 profit
Note: NBV exceeds selling price, creating a loss.
18. Why should accrued expenses be shown in the financial statements of a business?
A) to show the correct total of current assets
✅ B) so that the total income of a period is matched against the total costs of that period (Correct)
C) to show how much customers owe the business
D) to show the amount owed to credit suppliers
Note: This is the matching principle in action.
19. A trader sold goods to Zahid on credit. Zahid was unable to pay and the balance was written off. Which entries will the trader make?
A) irrecoverable debts / Zahid
✅ B) irrecoverable debts / sales (Correct)
C) sales / Zahid
D) Zahid / irrecoverable debts
Note: Marking scheme uses sales credit, though in practice many credit receivables.
20. Provision for doubtful debts at 5% of trade receivables. On 1 Jan 2016, trade receivables = $3500, provision = $175. Income statement debited with $15 for provision. How much did the trade receivables owe on 31 Dec 2016?
A) $3040
B) $3200
C) $3610
✅ D) $3800 (Correct)
Note: Figure given is before provision is deducted.
21. Which group contains only trading businesses?
A) driving school, motor insurance agency, vehicle repair business
B) driving school, motor insurance agency, petrol station
C) motor parts shop, vehicle repair business, car dealership
✅ D) motor parts shop, petrol station, car dealership (Correct)
Note: All are engaged in buying and selling goods.
22. Which statement is correct?
A) cost of goods sold – gross profit – sales returns = revenue
B) cost of goods sold – gross profit + sales returns = revenue
C) cost of goods sold + gross profit – sales returns = revenue
✅ D) cost of goods sold + gross profit + sales returns = revenue (Correct)
Note: This rearrangement of trading account formula includes sales returns.
23. How is capital employed calculated?
A) current assets – current liabilities
B) non-current assets + current assets
✅ C) owner’s capital + non-current liabilities (Correct)
D) owner’s capital + total liabilities
Note: Represents total long-term funding in the business.
24. Which should be entered in the appropriation account of a partnership?
✅ A) interest on partners’ capital (Correct)
B) interest on partners’ loans
C) partners’ drawings
D) all of the above
Note: Appropriation account allocates profit between partners.
25. Meena and Khan are in partnership, sharing profits and losses equally. Interest on capital at 5%. Capitals: Meena $10,000; Khan $20,000. Profit $28,000. How much credited to Meena’s current account?
A) $13,250
✅ B) $13,750 (Correct)
C) $14,000
D) $14,250
Note: Meena’s interest = $500; profit share = $13,250; total = $13,750.
26. Zed Ltd data: share capital $200,000; general reserve $30,000; retained earnings $15,000; 10% debentures $20,000. What was the value of equity?
A) $215,000
B) $230,000
✅ C) $245,000 (Correct)
D) $265,000
Note: Equity = capital + reserves + retained earnings.
27. DX Ltd retained earnings $45,000 → $75,000. Profit $80,000. Total dividend?
A) $30,000
B) $35,000
C) $45,000
✅ D) $50,000 (Correct)
Note: Dividend = profit – increase in retained earnings.
28. A club: receipts $21,600; payments $20,000; depreciation $1,250; closing fund $15,800. Opening fund?
A) $12,950
B) $14,200
✅ C) $15,450 (Correct)
D) $16,150
Note: Work backwards from closing fund adding surplus/deficit and depreciation.
29. Rent of premises paid in advance, outstanding subscriptions from members – where will these appear?
✅ A) current asset / current asset (Correct)
B) current liability / current liability
C) current asset / current liability
D) current liability / current asset
Note: Both are assets for the organisation.
30. Which is an indirect cost?
A) carriage inwards
✅ B) factory rent (Correct)
C) production materials
D) production wages
Note: Indirect cost = overhead not directly linked to specific units.
31. Trader’s profit for year ended 31 July 2017?
A) $6,000
B) $13,500
C) $17,500
✅ D) $21,000 (Correct)
Note: Closing capital – opening capital + drawings = profit.
32. Revenue $189,000; purchases $125,000; GP% on cost 25%. GP?
A) $31,250
✅ B) $37,800 (Correct)
C) $47,250
D) $64,000
Note: GP = 25% × cost of sales (purchases ± stock adjustment).
33. Donald’s inventory turnover = 10; opening $800; closing $1000. Purchases?
A) $8,800
B) $9,000
✅ C) $9,200 (Correct)
D) $10,800
Note: Average inventory × turnover = COGS; adjust for stock change to get purchases.
34. What is the going concern principle?
✅ A) Accounting records are prepared assuming that the business will continue to operate in the foreseeable future (Correct)
B) Income/expenses accounted same as before
C) Profit not anticipated, losses recorded immediately
D) Revenue/costs recognised when earned/incurred
Note: Going concern assumes no intention to close.
35. Which accounting objective is being applied when financial information affects business decisions?
A) comparability
✅ B) relevance (Correct)
C) reliability
D) understandability
Note: Relevant information influences decisions.