CIMA BA3 · Chapter 11
Incomplete records, not-for-profit organisations and manufacturing accounts MCQs with Answers
12 multiple-choice questions on Incomplete records, not-for-profit organisations and manufacturing accounts for CIMA BA3 Fundamentals of Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A trader's sales for the year were $120,000 and she earns a gross profit margin of 25%. Opening inventory was $14,000 and purchases were $92,500. What was closing inventory?
- A) $10,500
- B) $16,500
- C) $30,000
- D) $106,500
Show answer & explanation
Answer: B) $16,500
Cost of sales = $120,000 x 75% = $90,000. Closing inventory = opening inventory + purchases - cost of sales = $14,000 + $92,500 - $90,000 = $16,500.
Question 2
A fire destroyed most of a business's inventory. Sales up to the date of the fire were $168,000, opening inventory was $21,000 and purchases were $125,000. Goods are sold at a mark-up of 40% on cost. Inventory that survived the fire was valued at $9,000. What was the cost of the inventory destroyed?
- A) $17,000
- B) $26,000
- C) $36,200
- D) $45,200
Show answer & explanation
Answer: A) $17,000
With a mark-up of 40% on cost, cost of sales = $168,000 x 100/140 = $120,000. Inventory that should have been held = $21,000 + $125,000 - $120,000 = $26,000. Inventory destroyed = $26,000 - $9,000 surviving = $17,000.
Question 3
A shop owner banks takings after paying wages and her own drawings in cash. Cash in hand was $400 at the start of the year and $600 at the end. Cash takings were $62,000, amounts banked were $48,500 and wages paid in cash were $8,200. What were her cash drawings?
- A) $5,100
- B) $5,300
- C) $6,300
- D) $13,300
Show answer & explanation
Answer: A) $5,100
Cash available = opening $400 + takings $62,000 = $62,400. Less bankings $48,500, wages $8,200 and closing cash $600. Drawings = $62,400 - $48,500 - $8,200 - $600 = $5,100.
Question 4
Trade receivables were $7,300 at the start of the year and $9,100 at the end. During the year cash received from credit customers was $84,600 and an irrecoverable debt of $500 was written off. What were credit sales for the year?
- A) $83,300
- B) $86,400
- C) $86,900
- D) $101,500
Show answer & explanation
Answer: C) $86,900
Using a receivables account: credit sales = closing receivables + cash received + irrecoverable debts - opening receivables = $9,100 + $84,600 + $500 - $7,300 = $86,900.
Question 5
What is a receipts and payments account of a club?
- A) A statement of the club's assets and liabilities at the period end
- B) A statement matching income earned with expenditure incurred for the period
- C) A summary of the club's cash and bank transactions for the period
- D) A list of the members who owe subscriptions
Show answer & explanation
Answer: C) A summary of the club's cash and bank transactions for the period
A receipts and payments account is simply a summary of the cash book. It ignores accruals and prepayments and makes no distinction between capital and revenue items, unlike an income and expenditure account.
Question 6
In the financial statements of a not-for-profit organisation such as a sports club, what is the equivalent of a business's capital account?
- A) The receipts and payments account
- B) The subscriptions account
- C) The life membership fund
- D) The accumulated fund
Show answer & explanation
Answer: D) The accumulated fund
The accumulated fund represents the members' interest in the net assets of the club. It is increased by surpluses and reduced by deficits, in the same way that a trader's capital is changed by profits and losses.
Question 7
A club received subscriptions of $14,600 during the year. At the start of the year subscriptions in arrears were $300 and subscriptions in advance were $450. At the end of the year subscriptions in arrears were $200 and subscriptions in advance were $700. All arrears are expected to be collected. What is the subscriptions income for the year?
- A) $13,950
- B) $14,250
- C) $14,600
- D) $14,950
Show answer & explanation
Answer: B) $14,250
Subscriptions income = cash received - opening arrears (last year's income) + opening advance (this year's income received last year) + closing arrears - closing advance = $14,600 - $300 + $450 + $200 - $700 = $14,250.
Question 8
In an income and expenditure account, what is an excess of income over expenditure called?
- A) A net profit
- B) A gross profit
- C) The accumulated fund
- D) A surplus
Show answer & explanation
Answer: D) A surplus
Not-for-profit organisations describe the excess of income over expenditure as a surplus and the excess of expenditure over income as a deficit, rather than profit or loss. The surplus is added to the accumulated fund.
Question 9
A manufacturer provides the following data for the year: opening raw materials $6,000; purchases of raw materials $48,000; closing raw materials $7,500; direct labour $36,000; direct expenses (royalties) $2,500; factory overheads $21,000. What is the prime cost?
- A) $82,500
- B) $85,000
- C) $86,500
- D) $106,000
Show answer & explanation
Answer: B) $85,000
Raw materials used = $6,000 + $48,000 - $7,500 = $46,500. Prime cost = direct materials + direct labour + direct expenses = $46,500 + $36,000 + $2,500 = $85,000. Factory overheads are added after prime cost.
Question 10
A manufacturer's prime cost for the year is $85,000 and factory overheads are $21,000. Work in progress was $4,200 at the start of the year and $5,800 at the end. What is the production cost of goods completed?
- A) $83,400
- B) $104,400
- C) $106,000
- D) $107,600
Show answer & explanation
Answer: B) $104,400
Production cost of goods completed = prime cost + factory overheads + opening WIP - closing WIP = $85,000 + $21,000 + $4,200 - $5,800 = $104,400.
Question 11
In a manufacturing business, where is depreciation of factory machinery shown?
- A) As a factory overhead in the manufacturing account
- B) As a direct expense in the calculation of prime cost
- C) As an administrative expense in the statement of profit or loss
- D) As a deduction from closing inventory of finished goods
Show answer & explanation
Answer: A) As a factory overhead in the manufacturing account
Depreciation of factory machinery is an indirect production cost, so it is a factory overhead added to prime cost in the manufacturing account. It is not traceable to particular units, so it is not a direct expense. Depreciation of office equipment would be an administrative expense.
Question 12
A sole trader who has not kept full records provides the following at the start of the year: premises $80,000; equipment $12,000; inventory $9,400; receivables $5,100; cash at bank $2,300; trade payables $6,800; bank loan $25,000. What is her opening capital?
- A) $72,400
- B) $77,000
- C) $102,000
- D) $108,800
Show answer & explanation
Answer: B) $77,000
Opening capital = total assets - total liabilities. Assets = $80,000 + $12,000 + $9,400 + $5,100 + $2,300 = $108,800. Liabilities = $6,800 + $25,000 = $31,800. Capital = $108,800 - $31,800 = $77,000.