CAF-1 · Chapter 12

Incomplete Records MCQs with Answers

15 multiple-choice questions on Incomplete Records for CAF-1 Financial Accounting and Reporting. Try each one before revealing the answer and explanation.

1. Question 1

   Which of the following is the most common reason a business might have 'incomplete records'?

   • A) The business operates as a multinational corporation.
   • B) Lack of keeping proper accounting records or unforeseen events like theft or asset destruction.
   • C) The business uses a fully automated ERP system.
   • D) The entity is required by law to strictly maintain double-entry bookkeeping.
   Show answer & explanation

   Answer: B) Lack of keeping proper accounting records or unforeseen events like theft or asset destruction.

   Small businesses frequently encounter challenges where financial data is incomplete due to a lack of keeping proper accounting records or unforeseen events like theft, asset destruction, or loss of records.

2. Question 2

   In the absence of a complete double-entry system, an entity can determine its opening or closing capital by preparing which of the following?

   • A) A Statement of Cash Flows.
   • B) A Statement of Affairs.
   • C) A Statement of Changes in Equity.
   • D) A Bank Reconciliation Statement.
   Show answer & explanation

   Answer: B) A Statement of Affairs.

   When records are incomplete, an entity often prepares a 'Statement of Affairs'—which lists assets and liabilities at a specific date—to determine the opening or closing capital (net assets).

3. Question 3

   Incomplete records are most commonly associated with which type of entities?

   • A) Public listed companies.
   • B) Government departments.
   • C) Small businesses.
   • D) Non-profit organizations exclusively.
   Show answer & explanation

   Answer: C) Small businesses.

   Incomplete records are typically encountered by small businesses that may not have the resources, systems, or expertise to maintain a full double-entry accounting framework.

4. Question 4

   If a retailer sells goods at a 'mark-up' of 25% on cost, what is the equivalent gross profit 'margin' on sales?

   • A) 20%
   • B) 25%
   • C) 33.3%
   • D) 15%
   Show answer & explanation

   Answer: A) 20%

   A mark-up is calculated on cost. A 25% mark-up means if Cost is 100, Profit is 25, making Sales 125. The margin (Profit divided by Sales) is 25/125, which equals 20%.

5. Question 5

   When dealing with incomplete records, how can the Cost of Sales be mathematically derived if the sales figure and the gross profit margin percentage are known?

   • A) Cost of Sales = Sales × (100 + margin) / 100
   • B) Cost of Sales = Sales × (100 - margin) / 100
   • C) Cost of Sales = Sales × margin / 100
   • D) Cost of Sales = Sales + Gross Profit
   Show answer & explanation

   Answer: B) Cost of Sales = Sales × (100 - margin) / 100

   When the profit margin is given as a percentage of sales, the formula to find the cost of goods sold from the sales figure is: Cost = Sales × (100 - margin) / 100.

6. Question 6

   To calculate the missing figure for 'Credit Sales' during the year, an accountant reconstructing incomplete records would most likely prepare a T-account for:

   • A) Trade Payables (Creditors).
   • B) Inventory.
   • C) Trade Receivables (Debtors).
   • D) Accrued Expenses.
   Show answer & explanation

   Answer: C) Trade Receivables (Debtors).

   The Trade Receivables (Debtors) account is reconstructed by entering opening/closing balances and cash received from customers, allowing the missing 'Credit Sales' figure to be derived as the balancing amount.

7. Question 7

   A trader’s opening trade receivables were Rs. 200,000 and closing trade receivables were Rs. 300,000. During the year, cash received from customers amounted to Rs. 1,000,000. Assuming no bad debts, what was the value of credit sales?

   • A) Rs. 900,000
   • B) Rs. 1,100,000
   • C) Rs. 1,300,000
   • D) Rs. 1,500,000
   Show answer & explanation

   Answer: B) Rs. 1,100,000

   Using the receivables control account: Cash Received (1,000,000) + Closing Receivables (300,000) - Opening Receivables (200,000) = Credit Sales of Rs. 1,100,000.

8. Question 8

   An entity has opening trade payables of Rs. 500,000 and closing trade payables of Rs. 800,000. It paid Rs. 4,000,000 to suppliers during the year in cash. What is the value of credit purchases?

   • A) Rs. 3,700,000
   • B) Rs. 4,300,000
   • C) Rs. 4,500,000
   • D) Rs. 4,800,000
   Show answer & explanation

   Answer: B) Rs. 4,300,000

   Using the payables control account: Cash Paid (4,000,000) + Closing Payables (800,000) - Opening Payables (500,000) = Credit Purchases of Rs. 4,300,000.

9. Question 9

   How is the net profit or loss calculated using the net assets (capital) approach when full income and expense records are missing?

   • A) Closing Net Assets + Opening Net Assets
   • B) Closing Net Assets - Opening Net Assets - Capital Introduced + Drawings
   • C) Closing Net Assets - Opening Net Assets + Capital Introduced - Drawings
   • D) Total Assets - Total Liabilities
   Show answer & explanation

   Answer: B) Closing Net Assets - Opening Net Assets - Capital Introduced + Drawings

   Under the net assets approach, the Net Profit for the year is equal to: Closing Net Assets - Opening Net Assets - Additional Capital Introduced + Drawings.

10. Question 10

    At the start of the year, a business had net assets of Rs. 600,000, and at year-end, net assets were Rs. 900,000. During the year, the owner introduced Rs. 150,000 in new capital and withdrew Rs. 80,000 for personal use. What was the net profit for the year?

    • A) Rs. 230,000
    • B) Rs. 370,000
    • C) Rs. 150,000
    • D) Rs. 80,000
    Show answer & explanation

    Answer: A) Rs. 230,000

    Using the capital reconciliation formula: Net Profit = Closing Net Assets (900,000) - Opening Net Assets (600,000) - Capital Introduced (150,000) + Drawings (80,000) = Rs. 230,000.

11. Question 11

    A warehouse fire destroyed a portion of inventory. Opening inventory was Rs. 200,000 and purchases were Rs. 800,000. Based on the sales and margin, the Cost of Goods Sold was Rs. 850,000. The undamaged inventory counted after the fire was Rs. 50,000. What was the cost of the inventory destroyed?

    • A) Rs. 100,000
    • B) Rs. 150,000
    • C) Rs. 50,000
    • D) Rs. 200,000
    Show answer & explanation

    Answer: A) Rs. 100,000

    Expected closing inventory = Opening (200,000) + Purchases (800,000) - COGS (850,000) = Rs. 150,000. Since only Rs. 50,000 remained physically, the destroyed inventory is Rs. 150,000 - 50,000 = Rs. 100,000.

12. Question 12

    If a business owner suspects that an employee has been stealing cash from the till, which account should the accountant reconstruct to find the missing 'stolen' figure?

    • A) Retained Earnings account.
    • B) Inventory account.
    • C) Cash/Bank account.
    • D) Trade Payables account.
    Show answer & explanation

    Answer: C) Cash/Bank account.

    To determine missing cash (e.g., from theft or unrecorded drawings), an accountant reconstructs the Cash/Bank account by mapping all known cash inflows and outflows. The unexplainable shortfall represents the stolen amount.

13. Question 13

    An entity has opening inventory of Rs. 100,000, purchases of Rs. 500,000, and closing inventory of Rs. 80,000. What is the Cost of Goods Sold (COGS) for the period?

    • A) Rs. 680,000
    • B) Rs. 520,000
    • C) Rs. 480,000
    • D) Rs. 600,000
    Show answer & explanation

    Answer: B) Rs. 520,000

    COGS is calculated using the standard trading account formula: Opening Inventory (100,000) + Purchases (500,000) - Closing Inventory (80,000) = Rs. 520,000.

14. Question 14

    Which of the following items would normally be DEBITED to a reconstructed Trade Payables (Creditors) control account?

    • A) Credit purchases for the year.
    • B) Cash paid to suppliers.
    • C) Opening balance of payables.
    • D) Interest charged by suppliers for late payment.
    Show answer & explanation

    Answer: B) Cash paid to suppliers.

    In a Trade Payables control account, payments made to suppliers reduce the liability, so they are recorded on the debit side. Purchases and opening balances increase the liability and are recorded on the credit side.

15. Question 15

    If a company applies a uniform mark-up of 20% on cost, and its total Cost of Goods Sold is Rs. 200,000, what is the expected Sales Revenue?

    • A) Rs. 240,000
    • B) Rs. 220,000
    • C) Rs. 250,000
    • D) Rs. 160,000
    Show answer & explanation

    Answer: A) Rs. 240,000

    With a 20% mark-up on cost, Sales is equal to Cost + (Cost × Mark-up). Thus, 200,000 + (200,000 × 0.20) = Rs. 240,000.