ACCA FA · Chapter 11
Preparing financial statements, events after the reporting period and incomplete records MCQs with Answers
12 multiple-choice questions on Preparing financial statements, events after the reporting period and incomplete records for ACCA FA Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under IAS 1 Presentation of Financial Statements, which of the following is presented in other comprehensive income?
- A) Interest received on a bank deposit
- B) Dividends paid to shareholders
- C) A gain on the revaluation of property
- D) A profit on disposal of equipment
Show answer & explanation
Answer: C) A gain on the revaluation of property
Revaluation gains on property, plant and equipment are recognised in other comprehensive income and accumulated in the revaluation surplus. Profits on disposal and interest received are part of profit or loss. Dividends paid are a transaction with owners shown in the statement of changes in equity.
Question 2
At the year end, a company has a bank loan of $120,000 which is repayable in equal annual instalments of $20,000, the next of which is due in eight months. How should the loan be presented in the statement of financial position?
- A) Non-current liabilities $120,000
- B) Current liabilities $40,000; non-current liabilities $80,000
- C) Current liabilities $20,000; non-current liabilities $100,000
- D) Current liabilities $120,000
Show answer & explanation
Answer: C) Current liabilities $20,000; non-current liabilities $100,000
IAS 1 classifies a liability as current if it is due to be settled within twelve months of the reporting date. Only the next instalment of $20,000 falls due within twelve months, so it is current, and the remaining $100,000 is non-current.
Question 3
A company estimates its income tax for the current year at $46,000. The tax liability for the previous year was estimated at $38,000, but was settled during the current year for $41,000. What is the income tax expense in the statement of profit or loss for the current year?
- A) $49,000
- B) $43,000
- C) $46,000
- D) $87,000
Show answer & explanation
Answer: A) $49,000
The previous year's liability was under-provided by $41,000 - $38,000 = $3,000, which is charged in the current year. Tax expense = $46,000 + $3,000 = $49,000. The liability in the statement of financial position is the current estimate of $46,000. Treating the difference as an over-provision gives $43,000.
Question 4
Under IAS 10 Events after the Reporting Period, which of the following events after the year end is an ADJUSTING event?
- A) A fire destroys a warehouse
- B) The market value of the company's investments falls significantly
- C) A major customer that owed money at the year end goes into liquidation
- D) The company issues new ordinary shares
Show answer & explanation
Answer: C) A major customer that owed money at the year end goes into liquidation
Adjusting events provide evidence of conditions that existed at the reporting date. The customer's liquidation confirms that the receivable was already impaired at the year end. The fire, the share issue and the fall in market value all relate to conditions arising after the reporting date, so they are non-adjusting events.
Question 5
How should a material non-adjusting event after the reporting period be treated in the financial statements?
- A) Disclose the nature of the event and an estimate of its financial effect in the notes
- B) Recognise a provision for its effect
- C) Ignore it, as it occurred after the reporting date
- D) Adjust the amounts in the financial statements
Show answer & explanation
Answer: A) Disclose the nature of the event and an estimate of its financial effect in the notes
Non-adjusting events do not change the amounts recognised at the reporting date. However, if they are material, IAS 10 requires disclosure of the nature of the event and an estimate of its financial effect (or a statement that an estimate cannot be made), so that users are not misled.
Question 6
After the reporting date but before the financial statements are authorised for issue, the directors declare an ordinary dividend. How should this be treated?
- A) It is recognised as a current liability
- B) It is deducted from retained earnings at the reporting date
- C) It is recognised as an expense in profit or loss
- D) It is not recognised as a liability but is disclosed in the notes
Show answer & explanation
Answer: D) It is not recognised as a liability but is disclosed in the notes
IAS 10 states that dividends declared after the reporting period are not a liability at the reporting date, because no obligation existed then. They are disclosed in the notes to the financial statements and are recognised in the period in which they are declared.
Question 7
At its year end, a company held inventory that had cost $18,000. After the year end, but before the financial statements were authorised, the inventory was sold for $14,500, with selling costs of $500. What write-down, if any, is required in the financial statements?
- A) A write-down of $14,000
- B) A write-down of $4,000
- C) No write-down; disclose the sale in the notes
- D) A write-down of $3,500
Show answer & explanation
Answer: B) A write-down of $4,000
The sale after the year end provides evidence of the net realisable value of inventory held at the reporting date, so it is an adjusting event. NRV = $14,500 - $500 = $14,000. Write-down = $18,000 - $14,000 = $4,000. Ignoring selling costs gives $3,500.
Question 8
A shop's inventory was partly destroyed by a flood. Records show opening inventory of $22,000, purchases of $139,000 and sales of $180,000. The shop sells all goods at a mark-up of 25% on cost. Undamaged inventory at the date of the flood was valued at $12,500. What was the cost of inventory lost in the flood?
- A) $13,500
- B) $5,625
- C) $17,000
- D) $4,500
Show answer & explanation
Answer: D) $4,500
Cost of sales = $180,000 x 100/125 = $144,000. Expected inventory = $22,000 + $139,000 - $144,000 = $17,000. Inventory lost = $17,000 - $12,500 = $4,500. Treating 25% as a margin gives a cost of sales of $135,000, expected inventory of $26,000 and a loss of $13,500.
Question 9
A business does not keep a full set of records. Receivables were $18,400 at the start of the year and $21,300 at the end. During the year, cash received from customers was $164,500, irrecoverable debts of $1,200 were written off, and discounts allowed were $900. What were the credit sales for the year?
- A) $165,300
- B) $169,500
- C) $206,300
- D) $167,400
Show answer & explanation
Answer: B) $169,500
Using the receivables account: credit sales = closing receivables + cash received + irrecoverable debts + discounts allowed - opening receivables = $21,300 + $164,500 + $1,200 + $900 - $18,400 = $169,500. Ignoring the write-offs and discounts gives $167,400.
Question 10
A shopkeeper banks her takings each week after paying some expenses in cash. During the year, $96,000 was banked, wages of $14,400 were paid from takings and she took $6,000 from takings as drawings. Cash in the till was $1,200 at the start of the year and $900 at the end. What were her total cash takings for the year?
- A) $116,700
- B) $116,400
- C) $110,100
- D) $116,100
Show answer & explanation
Answer: D) $116,100
Total takings = amounts banked + payments from takings + closing cash - opening cash = $96,000 + $14,400 + $6,000 + $900 - $1,200 = $116,100. Ignoring the till balances gives $116,400, reversing them gives $116,700, and omitting drawings gives $110,100.
Question 11
In a statement of profit or loss, where should carriage outwards be presented?
- A) As a finance cost
- B) As a deduction from revenue
- C) As a distribution cost
- D) As part of cost of sales
Show answer & explanation
Answer: C) As a distribution cost
Carriage outwards is the cost of delivering goods to customers, so it is a selling and distribution expense. Carriage inwards, in contrast, is part of the cost of purchases and is included in cost of sales.
Question 12
A company's retained earnings at the start of the year were $210,000. During the year it made a profit of $64,000 and paid dividends of $18,000. Its property was revalued upwards by $30,000, and a transfer of $2,000 was made from the revaluation surplus to retained earnings for the excess depreciation. What are the retained earnings at the end of the year?
- A) $256,000
- B) $294,000
- C) $258,000
- D) $288,000
Show answer & explanation
Answer: C) $258,000
Retained earnings = $210,000 + $64,000 - $18,000 + $2,000 = $258,000. The $30,000 revaluation gain is credited to the revaluation surplus, not retained earnings. Including it gives $288,000, and omitting the transfer gives $256,000.