Revision 2024

1. Financial Accounting 4ACCN008C-n Semester 1, 2024/2025

Revision

2. Final exam

Section A – 60 marks:
20 multiple choice questions(3 marks per 1 question)
Section B –40 marks:
2 open ended questions
All questions are compulsory
They cover all topics
Duration 2 hours 30 minutes

3. Final exam

The students are permitted to bring into the examination room:
Non-Programmable Calculator
Black or blue pen
Ruler
All answers must be written in the answer book provided.
Black or Blue pen only must be used for written answers and for all
drawings and sketches.
The use of pencils or erasable pens is not permitted.

4.

Introduction to Accounting
IFRS structure, accounting concepts(matching, historical cost, business entity,
consistency, accrual basis)
Accounting cycle 1:categories of accounts, double entry
rules
Double-entry rules, types of accounts,
Accounting cycle 2:journals, ledgers, trial balance
balancing-off accounts, books of original entries, suspense account
Accounting cycle 3:Stock
COGS, FIFO, AVCO methods
Accounting cycle 4:Depreciation
Depreciation, Straight-line method, reducing balance method
Accounting cycle 5:Accruals and prepayments, bad
debts, provision for doubtful debt
Allowance for doubtful debt, bad debt, accrued expenses, accrued revenues, prepaid
expenses, prepaid revenues
Profit and Loss Statement
Preparation of Profit and Loss Statement(Hint*:Seminar 7, Question 3 2),Bank
reconciliation
Balance Sheet
Preparation of Balance Sheet
Cash flow statement
Preparation of CFS (Hint*:Seminar 9, Question 8)
Consolidated simple financial statements
Goodwill, Associate, Subsidiary
Interpretation of financial statements
ratios

5. The Scope of FA

Collect information
regarding financial
transactions
Stage 1
Express in monetary
terms
Record in accounting
journals
Summarize and present such
financial information in
financial statements
Stage 2
Balance
Sheet
Stage 3
Profit and
Loss Account
Cash flow
statement
Analyze and interpret
financial statements

6. 1.The body to which the International Accounting Standards Board is responsible is:

A IFRS Advisory Council
B IFRS Interpretations Committee
C IFRS Foundation
D All of the above
6

7. Accounting standards

•The FA syllabus is
concerned
with
International
Financial
Reporting
Standards
(IFRSs).
•IFRSs are produced by
the
International
Accounting Standards
Board (IASB).
•The IASB operates under
the oversight of the IFRS
Foundation.
https://www.ifrs.org/

8. 2.Which accounting concept states that the expenses incurred during a period are recorded in the same period in which the

related revenues are earned?
A The materiality concept
B The matching concept
C The duality concept
D The business entity concept
A

9. 3.A business sells $300 worth of goods to a customer; the customer pays $200 in cash immediately and will pay the remaining

$100 in 15 days' time.
What is the double entry to record the purchase in the customer's accounting
records?
A Debit purchases $300, credit cash $300
B Debit purchases $300, credit payables $100, credit cash $200
C Debit payables $100, debit cash $200, credit purchases $300
D Debit cash $300, credit payables $100, credit purchases $200

10.

Categories of Assets
A
S FIXED ASSETS
S
E
T
S CURRENT ASSETS
TANGIBLE
INTANGIBLE
FINANCIAL
CASH
STOCK
DEBTORS
PREPAYMENTS
INVESTMENTS

11.

Categories of Liabilities
L
I
A
B
I
L
I
T
I
E
S
BANK OVERDRAFT
ACCOUNTS PAYABLE
SHORT-TERM
(CURRENT)
ACCRUED TAX
PAYROLL
CURRENT PORTION OF
LONG-TERM DEBT
BOND
LONG -TERM
MORTGAGE
DEBENTURE

12.

Owner’s equity
Issued Share Capital
(at par value)
Preferred
Share
Capital
Ordinary
Share
Capital
Reserves
General Reserve
Specific
Reserves
Share Premium
Account
Retained Profits

13. Revenues

Turnover (sales)
Profits on sale of fixed assets
Interest receivable
Investment income
Discounts received
Share of profit from associated companies

14. Expenses

Expenses are usually seen as being the costs incurred in earning
the revenues that are recognized during that period
Cost of Sales (COGS)
Depreciation
Losses from the sale of fixed assets
Discounts allowed
Increase in provision

15. Rules of Accounting

Rules of Accounting
DEBIT
CREDIT
ASSETS
+
-
LIABILITIES
-
+
CAPITAL
-
+
REVENUES
-
+
EXPENSES
+
-
A+E =L+C+R

16. Rules of Debit and Credit

Capital (Owner’s equity)
Liabilities
Assets
Debit
Credit
Debit
Credit
Debit
Credit
+
Increase
Left
Normal bal.
Decrease
Right
Decrease
Left
+
Increase
Right
Normal bal.
Decrease
Left
+
Increase
Right
Normal bal.
Revenues
Expenses
Debit
Credit
Debit
Credit
Decrease
Left
+
Increase
Right
Normal bal.
+
Increase
Left
Normal bal.
Decrease
Right
16

17. Example of Trial Balance

PP DESIGN
Trial Balance
February 28, 2010
Name of Accounts
Debit
Bank
13,550
Cash
5,550
Equipment
8,000
Office Supplies
500
Artsy Co
3,000
Prompt Supplier
Credit
0
Capital
25,000
Sales
9,000
Discount received
50
Rent expenses
1,200
Salary expenses
2,000
Utilities expenses
250
Total
34,050
34,050

18. 4.Where a transaction is entered into the correct ledger accounts, but the wrong amount is used, what is the error known as?

A An error of omission
B An error of original entry
C An error of commission
D An error of principle

19.

Type of error
ERRORS CAN FALL INTO TWO
CATEGORIES:
ERRORS WHERE THE TRIAL
BALANCE STILL BALANCES
ERRORS WHERE THE TRIAL
BALANCE DOES NOT BALANCE
This shows that whilst the trial balance provides useful control
mechanism for detecting errors, a balanced trial balance does not
guarantee the accuracy of the financial statements.
19

20.

Errors where the Trial Balance still balances
Error of omission - no debit or credit entries were made for a
particular transaction; completely missed the transaction
For example: Cash sale of $100 was not recorded
Sales
Dr
Cash
Cr
Dr
100
100
Cr

21.

Errors where the Trial Balance still balances
Complete reversal of entries – entries were made in the wrong side of
the accounts; a transaction requires a debit entry in account A and a
credit entry in account B but account A was credited and account B was
debited instead
For example: cash sale of $200 has been debited to sales and credited to
bank.
Cash
Sales
Dr
Cr
Dr
Cr
200
400
400
200
Bal.c/f 200
Bal. c/f 200
400
400
400
Bal. b/f 200
Bal. b/f 200
400

22.

Errors where the Trial Balance still balances
Error of accounting principle – a transaction may have been entered in
the wrong type of account.
For example: The purchase of a new delivery van for $15,000 may have
been debited to the purchases account instead of the delivery vans
account.
Purchases
Cash
Dr
Cr
15 000
Dr
15 000
Cr
15 000
Delivery van
Dr
Cr
15 000

23.

Errors where the Trial Balance still balances
Error of original entry – the original figure was incorrectly entered in
both accounts.
For example:
A cash sale of $76 has been recorded as $67
Cash
Dr
67
9
76
Sales
Cr
Dr
Cr
67
9
76

24. Errors where the Trial Balance still balances

Error of commission – entries were made on the correct
sides of the accounts but to the wrong personal account.
For example: credit sales for $10,000 to C Green were
incorrectly recorded in the accounts of K Green.
Sales
Dr
K Green
Cr
10 000
Dr
10 000
Cr
10 000
C Green
Dr
10 000
Cr
24

25. 5.What journals are required to correct the error and eliminate the suspense account?

A credit balance of $81 in the rent income account had been incorrectly
extracted on the list of balances as a debit balance.
* They have posted Dr rent income 81, Dr bank 81, Cr suspense a/c 162
25

26. Suspense accounts

A suspense account is an account in which debits or credits are held temporarily until
sufficient information is available for them to be posted to the correct accounts.
There are two main reasons why suspense accounts may be created.
1. On the extraction of trial balance the debits are not equal to the credits and the difference
is put to the suspense account.
2. When a bookkeeper performing double entry is not sure where to post one side of an entry
they may debit or credit a suspense account and leave the entry there until its ultimate
destination is clarified.
For example: A cash payment might be made and must obviously be credited to cash. But the
bookkeeper may not know what the payment is for, and so will not know which account to
debit.
The balance on the suspense account must be cleared before final accounts can be prepared

27. 6.What should be the correct balance per the cash book?

The following bank reconciliation statement has been prepared by a trainee
accountant:
$
Overdraft per bank statement
5,340
Less: Unpresented cheques
10,550
5,210
Add: Outstanding lodgements
25,600
Cash at bank
30,810
A $20,390 balance at bank
B $30,810 balance at bank as stated
C $9,710 balance at bank
D $9,710 overdrawn

28. Bank reconciliations

In theory, the entries appearing on a business's bank statement should be
exactly the same as those in the business cash book. The balance shown by
the bank statement should be the same as the cash book balance on the
same date.
Our Company
Bank
( Business)
(e.g.OFB,Kapitalbank, etc.)
Cash Book
Bank statement
A bank reconciliation is a comparison of a bank statement (sent monthly,
weekly or even daily by the bank) with the cash book. Differences between
the balance on the bank statement and the balance in the cash book will be
errors or timing differences, and they should be identified and satisfactorily
explained.
28

29. Why might your own estimate of your bank balance be different from the amount shown on your bank statement?

There are three common explanations:
Error. Errors in calculation, or recording income and payments, are more likely to have been
made by you than by the bank, but it is conceivable that the bank has made a mistake too.
Bank charges or bank interest. The bank might deduct charges for interest on an overdraft
or for its services, which you are not informed about until you receive the bank statement.
Timing differences These items have been recorded in the cash book , but due to the bank
clearing process have not yet been recorded in the bank statement
Outstanding/ unpresented cheques- cheques sent to suppliers but not yet cleared by the bank.
Outstanding/uncleared lodgements- cheques received by the business but not yet cleared by
the bank
29

30. 7.What is the value of the company's closing inventory of TV sets on 31 December 2020?

A company values its inventory using the FIFO method. On 1 January 2020
the company had 550 TV sets in inventory, valued at $350 each. During the
year ended 31 December 2020 the following transactions took place:
1 March
Purchased 300 TV sets at $370 each
1 June
Sold 570 TV sets for $228,000
1 August
Purchased 480 TV sets at $400 each
15 December
Sold 115 TV sets for $48,300
A $227,650
B $253,050
C $242,450
D $267,850

31. Cost of goods sold (COGS)

COGS is the cost of acquiring or
manufacturing the products that a
company sells during a period, so
the only costs included in the
measure are those that are directly
tied to the production of the
products, including the cost of labor,
materials, and manufacturing
overhead.

32. Cost of Goods Sold (COGS)

COGS =
= Opening Stock
Add Purchases
Less Return Outwards (purchase returns)
Add Carriage Inwards
Cost of the goods available for sale
Less Closing Stock

33. Valuation of stock - FIFO

• In
FIFO(first-in-first-out),
the
assumption is made for costing
purposes that the first items of
inventory received are the first
items to be sold.
• Thus every time a sale is made,
the COGS is identified as
representing the cost of the oldest
goods remaining in inventory.

34. Valuation: Average cost

• Under the weighted average cost formula, the cost of each item is
determined from the weighted average of the cost similar items at the
beginning of the period and the cost of similar items purchased or produced
during the period.
Average cost per unit = Total
cost of inventory / No. of units
in inventory

35. 8.The amount of accumulated depreciation on December 31, 2020, if the straight-line method of depreciation is used is:

Saga Innovations Company purchased agricultural equipment on January 1, 2017, for
$500,000. The equipment has an estimated residual value of $50,000 and an estimated
useful life of 10 years.
A $180,000
B $45,000
C $90,000
D $200,000
35

36. Calculating Depreciation

(i) straight-line method - the depreciation charge is constant over the life of
the asset.
Historical Cost Residual Value
Useful Economic Life
*The residual value, also known as
salvage value, is the estimated value of a fixed
asset at the end of its useful life.

37.

Depreciation
(ii) reducing balance method – the depreciation charge is higher in the
earlier years of the life of the asset.
This method might be used when a business expects to gain more benefit
from the asset in the earlier years of its use.
In the first year the percentage is applied to cost but in subsequent years it is
applied to the asset’s net book value (NBV) -(alternatively known as written
down value).
Depreciation charge per year= NBV*depreciation factor
*NBV= Historical cost- Accumulated depreciation

38. 9.What figure should appear in the statement of profit or loss for the year ended 31 December 2020 for these items?

On 31 December 2019 a company's allowance for receivables was $15,000.
On 31 December 2020 trade receivables totaled $653,000. It was decided to
write off debts totaling $43,000. The receivables allowance was to be
adjusted to an amount equivalent to 7% of the trade receivables based on
past events.
A $45,710
B $27,700
C $70,700
D $88,710

39. Bad & doubtful debts

Bad & doubtful debts
• Bad debt – highly unlikely it will be paid/recovered; long-time owing and
proven to be bad.
• Doubtful debts – are the debt that are likely to be bad but have not yet
been proven to be so.

40. Bad & doubtful debts

Bad & doubtful debts
Writing off a bad debt completely removes the debt from the accounting
books
And the double entry will be:
Dr Bad debt (it is an expense account)
Cr Debtors (reduce the debtor figure by the amount of the bad debt)
The balance of Bad Debts account is then transferred to Profit and Loss
account at the end of accounting period.

41. Bad & doubtful debts

Bad & doubtful debts
On 5 January, we sold $200 and $50 of pens to Chumi and Chiki
respectively. However, at the year end, Chumi only managed to pay $120
and Chiki business already went bankrupt.
Debtor Chumi
Sales
Dr
Cr
05-Jan
05-Jan
Cr
200
31-Dec
31-Dec
120
80
Bad debt
Cash
Dr
31-Dec 120
200
50
Dr
05-Jan
Debtor Chiki
Cr
Dr
31-Dec
31-Dec
Cr
50
80
Dr
05-Jan
50
Cr
31-Dec
50

42. Bad & doubtful debts

Bad & doubtful debts
Writing off a bad debt completely removes the debt from the accounting books
And the double entry will be:
Dr Bad debts (it is an expense account)
Cr Debtors (reduce the debtor figure by the amount of the bad debt)
The balance of Bad Debts account is then transferred to Profit and Loss
account at the end of accounting period.
Balance Sheet
Dr
Fixed assets
xxx
Current Assets
Debtors
Cr
250
130
PROFIT & LOSS ACCOUNT
Revenue:
Expenses:
Bad debts
130
xxx

43. Provision for doubtful debts

Why do we need provision?
How do you decide how much to provide?
The estimated figure can be made:
i) By looking at each debt, and deciding to what extent it will be bad;
ii) By estimating, on the basis of experience, what percentages(%) of the total amount due
from the remaining debtors will ultimately prove to be bad debts.
Ageing Schedule for Doubtful Debts
Period debt owing
Amount ($)
Estimated % doubtful
Provision for doubtful
debts ($)
Less than 1 mth
5,000
1
50
1 – 2 months
3,000
3
90
2 – 3 months
800
4
32
3 months – 1 year
200
5
10
Over 1 year
160
20
32
9,160
214

44. Provision for doubtful debts

Sales
Dr
Cr
9160
Accounts receivable
Dr
Cr
9160
Represented in balance sheet as:
Current assets:
Bad and doubtful debt expenses
Dr
Cr
214
Provision for doubtful debt
Dr
Cr
214
Accounts receivable
Provision for doubtful debt
Net accounts receivable
Dr
$ 9,160
Cr
$ 214
$8,946

45.

Provision for doubtful debts
On 31 December 2018 (year in which provision is first made), debtors amounted to
$10,000 and provision(allowance) for bad and doubtful debts is 2% or $200.
The accounting entries would be as follows:
Dr Bad and doubtful debts expenses (P&L statement) $200
Cr Provision(allowance) for bad and doubtful debts(Balance Sheet) $200

46. Provision for d. debts

Increasing the provision: suppose that at the end of the following year, 31
December 2019, debtors had risen to $12,000 but the provision is still kept at
2%, or $240. Since a provision of $200 had been brought forward from 2018, in
2019 a provision for the additional $40 only should be made.
The accounting entries on 31 December 2019 would be as follows:
Dr Change(Increase) in Provision for doubtful debt (P and L
Statement) $40
Cr Provision for bad and doubtful debts(Balance Sheet) $40

47. Provision for d. debts

Reducing the provision: suppose that at the end of the following year, 31
December 2020, debtors fell to $10,500 but the provision remained at 2%, or $210.
Since a provision of $240 had been brought forward from 2019, the provision in
2020 needs to be reduced by $30 .
The accounting entries on 31 December 2020 would be as follows:
Dr Provision for bad and doubtful debts (Balance Sheet) $30
Cr Change(Decrease) in Provision for doubtful debt (P and L Statement) $30

48. Profit & Loss Account

Profit & Loss Account
Trading account section – to calculate the gross profit
(excess of sales over the cost of goods sold).
Sales
Less: Returns Inwards (Sales Returns)
(Net sales)
X
Add: Opening stock
Add: Purchases
Less: Returns outwards (purchases returns)
Add: Carriage inwards
Less: Closing stock
Add: Wages (warehouse and workshop)
Cost of sales/Cost of goods sold
GROSS PROFIT
X

49. Profit & Loss Account

Profit & Loss Account
Helps to calculate the net profit (excess of gross profit and other revenues over all other
expenses)
Wages and salaries
Advertising and sales promotion
Depreciation
Bad debts
Provision for bad and doubtful debts (increase/decrease)
Discounts allowed
Directors’ remuneration
OPERATING PROFIT
Dividends receivable..
Income from other fixed assets investments **
PROFIT BEFORE INTEREST AND TAX (PBIT/ EBIT)
Debenture Interest payable
Loan interest payable
PROFIT BEFORE TAX (PBT)
Taxation …
PROFIT AFTER TAX (PAT)

50.

Profit & Loss Account
It shows how the net profits are to be appropriated, used or distributed.
Dividends paid:
On ordinary shares
On Preference shares
Transfer to various reserves
Retained profits for the year
Add Retained profit from previous year b/f
Retained profit c/f

51. 10.Which of the following corrections need to be made to the calculation?  

10.Which of the following corrections need to
be made to the calculation?
A draft statement of cash flows contains the following calculation of cash flows from operating activities:
$000
Profit before tax
12,358
Depreciation
335
Increase in inventories
528
Increase in trade and other receivables
445
Decrease in trade payables
(388)
Net cash inflow from operating activities
13,278
1Depreciation should be deducted, not added
2 Increase in inventories should be deducted, not added
3 Increase in receivables should be deducted, not added
4 Decrease in payables should be added, not deducted
A 2 and 4
B 1 and 3
C 2 and 3
D 1 and 4

52. Cash Flow Statement

Financial statement provides a reconciliation between the amount of profit
generated during a period, and the amount by which cash balances have
increased or decreased during that period

53.

Income
statement for
2020
Cash flow
statement for
2020
Balance sheet
at 31.12.2019
Balance sheet
at 31.12.2020

54.

Sources of Cash:
Uses of Cash:
Operating profit
Losses
Sales of fixed
assets/investments
Increase in creditors
Purchase of fixed
assets/investments
Decrease in creditors
Increase in stock
Increase in debtors
Buying-back (redeeming) of
shares
Loans repaid
Payment of dividends
Decrease in stock
Decrease in debtors
Capital introduced
Loans received

55. Cash Flow Statement

56. Reconciliation of Operating Profit

Operating Profit
Depreciation charges
Loss/(profit) on sale of tangible fixed assets
(Increase)/decrease in stock
(Increase)/decrease in debtors
Increase/(decrease) in creditors
Increase/(decrease) in provision for bad and doubtful debt
1. Net cash inflow/outflow from operating activities

57. 11.Which of the following companies are subsidiaries of Pineapple Co?

Orange Co: Pineapple Co owns 83% of the non-voting preference shares of Orange
Melon Co: Pineapple Co owns 67% of the ordinary share capital of Melon Co;
however Melon Co is located overseas and is subject to tax in that country.
Banana Co: Pineapple Co has four representatives on the board of directors of
Banana Co. Each director can cast 11 votes each out of the total of 50 votes at
board meetings.
A Melon Co, Banana Co
B Orange Co, Melon Co, Banana Co
C Orange Co, Banana Co
D Orange Co, Melon Co

58. Group and Consolidation

Consolidation means presenting the results, assets and liabilities of a group of companies
as if they were one company.
You will probably know that many large companies actually consist of several companies
controlled by one central or administrative company. Together, these companies are called a
group

59. How does a group arise?

The central company, called a parent, generally owns most (>50%) or all of
the shares in the other companies, which are called subsidiaries (A
subsidiary is an entity controlled by another entity).
The parent company usually controls the subsidiary by owning most of the
shares in that company, but share ownership is not always the same as
control, which can arise in other ways.
Example: Pizza Hut, Taco Bell & KFC –subsidiaries, Yum! Brand Inc. – parent
company of these subsidiaries

60.

A company will be treated as a subsidiary if another business entity :
(a) holds more than half the voting power.
(b) has power over more than half the voting rights by virtue of an agreement with other
investors.
(c) has power to govern the financial and operating policies of the entity under a statute or
agreement.
(d) has power to appoint or remove the majority of the members of the board of
directors.
(e) has power to cast the majority of votes at meetings of the board of directors.

61. Associates

An associate is an entity over which another entity exerts significant influence. Associates
are accounted for in the consolidated statements of a group using the equity method.
The key criterion here is significant influence. This is the 'power to participate in the financial
and operating policy decisions of the investee but which is not control or joint control of those
policies.‘ (IAS 28)

62. Existence of significant influence

Representation on the board of directors (or equivalent) of the investee
Participation in the policy making process
Material transactions between investor and investee
Interchange of management personnel
Provision of essential technical information

63. 12.What is goodwill in the consolidated statement of financial position?

On 1 January 2020 Hitech Co acquired 5,500,000 of the 8,000,000 $2 ordinary
shares of Pencil Co, paying $ 14,000,000 cash. On that date the fair value of Pencil
Co net assets was $12,450,000. The market price of the shares held by the noncontrolling shareholders just before the acquisition was $3.
A $5,950,000
B $1,550,000
C $9,050,000
D $11,000,000

64. Goodwill & NCIs

Goodwill & NCIs
Goodwill
$
Fair value of consideration transferred
$
X
Plus fair value of NCI at acquisition
X
Less net acquisition-date fair value of identifiable assets acquired and
liabilities assumed:
Ordinary share capital
X
Share premium
X
Retained earnings at acquisition
X
Fair value adjustments at acquisition X
(X)
Goodwill
X

65.

Good preparation is main prerequisite for good mark
in exam