Foundation Level
Financial Accounting Fundamentals
1 FAFN
23 May 2001
Day 3 morning
INSTRUCTIONS TO CANDIDATES
Read this page before you look at the questions
You are allowed three hours to answer this question paper.
Answer the ONE question in section A (this has 25 sub-questions).
Answer the TWO questions in section B.
Answer ONE question ONLY from section C.
Write your examination number in the boxes provided on the front of the answer book.
Write FAFN on the line marked "Subject" on the front of the answer book.
Write your examination number on the special answer sheet for section A which is on page 3 of
this question paper booklet.
Detach the sheet from the booklet and insert it into your answer book before you hand this in.
Do NOT write your name or your student registration number anywhere on your answer book.
Tick the appropriate boxes on the front of the answer book to indicate which questions you have
answered.
TURN OVER
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FAFN 2 May 2001
SECTION A 50 MARKS
ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH
Question One
1.1 The fundamental objective of an external audit of a limited company is to
A give advice to shareholders.
B detect fraud and errors.
C measure the performance and financial position of a company.
D provide an opinion on the financial statements.
1.2 A receives goods from B on credit terms and A subsequently pays by cheque. A then
discovers that the goods are faulty and cancels the cheque before it is cashed by B.
How should A record the cancellation of the cheque in his books?
A Debit creditors Credit returns outwards
B Credit bank Debit creditors
C Debit bank Credit creditors
D Credit creditors Debit returns outwards
1.3 The profit of a business may be calculated by using which one of the following formulae?
A Opening capital - drawings +capital introduced - closing capital
B Closing capital +drawings - capital introduced - opening capital
C Opening capital +drawings - capital introduced - closing capital
D Closing capital - drawings +capital introduced - opening capital
1.4 The turnover in a company was 2 million and its debtors were 5% of turnover. The
company wishes to have a provision for doubtful debts of 4% of debtors, which would
make the provision 33% higher than the current provision.
What figure would appear in the profit and loss account in respect of doubtful debts?
A debit 1,000. B credit 1,000. C debit 1,333. D credit 1,333.
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.
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May 2001 3 FAFN
1.5 Which one of the following should be accounted for as capital expenditure?
A The cost of painting a building.
B The replacement of windows in a building.
C The purchase of a car by a garage for re-sale.
D Legal fees incurred on the purchase of a building.
1.6 A business purchases a machine on credit terms for 15,000 plus value added tax (VAT)
at 15%. The business is registered for VAT. How should this transaction be recorded in
the books?
Dr Cr
A Machinery 15,000
Creditors 15,000
B Machinery 17,250
Creditors 17,250
C Machinery 15,000
VAT 2,250
Creditors 17,250
D Machinery 17,250
VAT 2,250
Creditors 15,000
1.7 Which one of the following statements most closely expresses the meaning of true and
fair?
A There is only one true and fair view of a companys financial statements.
B True and fair is determined by compliance with accounting standards.
C True and fair is determined by compliance with company law.
D True and fair is largely determined by reference to generally accepted accounting practice.
1.8 On 1 May 2000, A Ltd pays a rent bill of 1,800 for the period to 30 April 2001. What are
the charge to the profit and loss account and the entry in the balance sheet for the year
ended 30 November 2000?
A 1,050 charge to profit and loss account and prepayment of 750 in the balance sheet.
B 1,050 charge to profit and loss account and accrual of 750 in the balance sheet.
C 1,800 charge to profit and loss account and no entry in the balance sheet.
D 750 charge to profit and loss account and prepayment of 1,050 in the balance sheet.
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FAFN 4 May 2001
1.9 S Ltd exchanged stock for a delivery vehicle with T Ltd. The stock had cost S Ltd 10,000
and the normal selling price was 12,000; the delivery vehicle had cost T Ltd 9,000 and
the normal selling price was 13,000.
How should S Ltd value the vehicle in its balance sheet?
A 9,000. B 10,000. C 12,000. D 13,000.
1.10 Zs bank statement shows a balance of 825 overdrawn. The bank statement includes
bank charges of 50, which have not been entered in the cash book. There are
unpresented cheques totalling 475 and deposits not yet credited of 600. The bank
statement incorrectly shows a direct debit payment of 160, which belongs to another
customer.
The figure for the bank balance in the balance sheet should be
A 590 overdrawn.
B 540 overdrawn.
C 790 overdrawn.
D 840 overdrawn.
1.11 There is 100 in the cash till at the year end at F Ltd, but the accountant has discovered
that some cash has been stolen. At the beginning of the year there was 50 in the cash till
and debtors were 2,000. Total sales in the year were 230,000. Debtors at the end of the
year were 3,000. Cheques banked from credit sales were 160,000 and cash sales of
50,000 have been banked.
How much cash was stolen during the year?
A 18,950. B 19,000. C 19,050. D 20,950.
1.12 A car was purchased for 12,000 on 1 April 1997 and has been depreciated at 20% each
year straight line, assuming no residual value. The company policy is to charge a full
years depreciation in the year of purchase and no depreciation in the year of sale. The car
was traded in for a replacement vehicle on 1 August 2000 for an agreed figure of 5,000.
What was the profit or loss on the disposal of the vehicle for the year ended 31 December 2000?
A Loss 2,200. B Loss 1,400. C Loss 200. D Profit 200.
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May 2001 5 FAFN
1.13 A company includes in stock goods received before the year end, but for which invoices
are not received until after the year end. This is in accordance with
A the historical cost convention.
B the accruals concept.
C the consistency concept.
D the materiality concept.
1.14 I Ltd operates the imprest system for petty cash. At 1 J uly there was a float of 150, but it
was decided to increase this to 200 from 1 August onwards. During J uly, the petty
cashier received 25 from staff for using the photocopier and a cheque for 90 was
cashed for an employee. In J uly, cheques were drawn for 500 for petty cash.
How much cash was paid out as cash expenses by the petty cashier in J uly?
A 385. B 435. C 515. D 615.
1.15 Which one of the following sentences does NOT explain the distinction between financial
accounts and management accounts?
A Financial accounts are primarily for external users and management accounts are
primarily for internal users.
B Financial accounts are normally produced annually and management accounts are
normally produced monthly.
C Financial accounts are more accurate than management accounts.
D Financial accounts are audited by an external auditor and management accounts do not
normally have an external audit.
1.16 The movement on the plant and machinery account for X Ltd is shown below: