ICAEW ACA Certificate Level · Accounting Fundamentals

Preparing financial statements

36 practice questions, each with the answer and an explanation.

Practise Preparing financial statements now

Random questions from this topic, one at a time. You see the answer and the explanation straight after each one.

All 36 questions

  1. A sole trader has the following for the year: sales £180,000, sales returns £4,000, opening inventory £12,000, purchases £96,000, purchases returns £2,500, carriage inwards £1,500 and closing inventor…
  2. Using the gross profit of £84,000, a sole trader's other items are: wages £31,000, rent £12,000, depreciation £5,400, irrecoverable debts £900 and discounts received £1,200. What is the net profit?
  3. A sole trader began the year with capital of £50,000, made a net profit of £35,900, took drawings of £18,000 and introduced a further £5,000 of capital during the year. What is the closing capital?
  4. Where is carriage outwards (the cost of delivering goods to customers) shown in a sole trader's financial statements?
  5. At the year end a business has total assets of £120,000 and total liabilities of £45,000. What is the owner's capital?
  6. A sole trader's balances at the year end are: freehold property £180,000, vehicles at carrying amount £24,000, inventory £18,500, trade receivables £31,200, allowance for receivables £1,560, bank over…
  7. A business has a bank loan of £120,000 repayable in four equal annual instalments, with the first due within the next 12 months. How is the loan shown in the statement of financial position?
  8. A and B share profits after interest on capital at 5% a year and a salary of £12,000 to B. Residual profits are shared A 3 : B 2. Capital balances are A £100,000 and B £60,000. Profit for the year is…
  9. Two partners have no partnership agreement. Under the Partnership Act 1890 which rule applies?
  10. A and B share profits 3 : 1. They admit C and the new ratio is A 2 : B 1 : C 1. Goodwill is valued at £40,000 and is not to be kept in the books. What is the net effect on A's capital account of the g…
  11. A partner in a business lends it £40,000 as a loan, and there is no agreement on interest. What does the Partnership Act 1890 provide?
  12. In a partnership's financial statements, what is the purpose of each partner's current account?
  13. A company issues 200,000 ordinary shares of £1 nominal value at £1.80 each for cash. What are the credit entries?
  14. A company with 400,000 ordinary shares of £1 makes a 1 for 4 bonus issue funded from the share premium account. What is the entry?
  15. A company with 500,000 ordinary shares of £1 nominal makes a 1 for 5 rights issue at £1.50 per share, and all rights are taken up. What is the increase in share premium?
  16. A company's retained earnings at the start of the year were £120,000. Profit for the year was £45,000 and dividends paid during the year were £20,000. What is the closing balance of retained earnings?
  17. A company estimates its corporation tax for the current year at £48,000. In the previous year it provided £50,000, but the final settlement was £52,500. What is the tax charge in the statement of prof…
  18. Land is carried at its cost of £200,000. The directors revalue it at £260,000 under IAS 16's revaluation model. Where is the gain of £60,000 recognised?
  19. A company issues redeemable preference shares that carry a fixed 6% dividend and must be redeemed for cash after five years. How should they be shown in the financial statements?
  20. An asset has a carrying amount of £500, a fair value less costs of disposal of £380 and a value in use of £420. What impairment loss is recognised under IAS 36?
  21. A company reports profit for the year of £80,000 and a revaluation gain on land of £60,000. What is total comprehensive income?
  22. How is an interim ordinary dividend paid during the year shown in the financial statements?
  23. A company has £200,000 of 8% loan notes. Interest is paid on 31 March and 30 September each year. The year end is 31 December. What is the finance cost for the year and the accrual at the year end?
  24. A company has total assets of £500,000, share capital of £200,000, share premium of £40,000, non-current liabilities of £90,000 and current liabilities of £60,000. What are its retained earnings?
  25. A company has 2,000,000 ordinary shares of 50p each and declares a dividend of 4p per share. What is the total dividend?
  26. Which of the following reserves is not available for distribution as a dividend?
  27. A business that keeps only cash records received £480,000 from customers during the year. Trade receivables were £60,000 at the start and £75,000 at the end. What were credit sales for the year, assum…
  28. During the year a business paid its suppliers £310,000. Trade payables were £40,000 at the start of the year and £52,000 at the end. What were purchases on credit for the year?
  29. A product costs £90 and is sold for £150. What are its mark-up on cost and its gross margin on sales?
  30. A business invoices a customer £2,000 and offers a 3% settlement discount for payment within 10 days. The customer pays within the period. What is the cash received and how is the discount treated?
  31. A company spends £300,000 on research into a new product and then £500,000 on development after the project meets all the IAS 38 capitalisation criteria. What is the correct treatment?
  32. A business buys equipment on credit for £8,000. What is the effect on the accounting equation?
  33. Which of the following items would be classified as a current asset?
  34. Which of the following is shown as a finance cost in the statement of profit or loss?
  35. A company's equity at the start of the year was £600,000. During the year it made a profit of £90,000, recognised a revaluation gain of £30,000 in other comprehensive income, paid dividends of £40,000…
  36. A company's audit fee of £12,000 for the current year has not been invoiced and will be paid next year. What is the correct entry at the year end?

Keep practising

More ICAEW ACA Certificate Level topics

All ICAEW ACA Certificate Level practice →

Preparing financial statements in other exams

Ready for the full ICAEW ACA Certificate Level test?

Take a mock testICAEW ACA Certificate Level hub