Deck 30: The Final Financial Statements of Limited Companies

Question 1

Which of the following is not regarded as other comprehensive income?

A) Profits on the disposal of non-current assets
B) Holding gains on the revaluation of non-current assets
C) Exchange differences on translating foreign operations
D) Taxation on holding gains

Answer 1

Profits on the disposal of non-current assets

Question 2

Which of the following best reflects a contingent asset?

A) A possible asset that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity
B) A probable obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation
C) A present obligation arising from past events the settlement of which is expected to result in an inflow of economic benefits
D) An outflow of uncertain timing or amount

Answer 2

A possible asset that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity

Question 3

A company has 100,000, equity shares and £100,000 5% preference shares at a nominal value of 50p each. The directors decide to declare a dividend of 5p per equity share.
The total amount to be paid in dividends in the year amounts to:

A) £5,000
B) £10,000
C) £12,500
D) £15,000

Answer 3

£10,000

Question 4

A company has £600,000, 12% debentures which were issued at par. The company pays interest half yearly. The final instalment is outstanding at the end of the year. Which of the following is correct?

A) The interest charge in the income statement will be £36,000
B) The interest charge in the income statement will be £72,000
C) The interest charge in the income statement will be £108,000
D) The statement of financial position will contain an interest accrual of £72,000

Question 5

A company has £1,000,000, equity shares at a nominal value of £1.00 each and 100,000 5% preference shares at a nominal value of 50p each. The directors decide to pay a dividend of 5p per equity share.
The total amount to be paid in dividends in the year amounts to:

A) £5,000
B) £7,500
C) £55,000
D) £60,000

Question 6

Animo Ltd. has a turnover of £500,000 and pre-tax profits of £50,000. It financial statements are prepared each year to 31 December. The following comes to light in respect of the year ended 31 December 20X1.
The company wrote off research and development costs of £300,000 in the year as the project has had to be abandoned.
How should this be treated in the financial statements of Animo Ltd?

A) It should be treated as an exceptional item and disclosed separately on the face of the income statement and explained in the notes
B) It should be included as other comprehensive income in the comprehensive income statement
C) It should be posted directly to reserves
D) It should be treated as a discontinued activity

Question 7

A company has £25,000,000, equity shares at a nominal value of £5.00 each and 50,000 5% preference shares at a nominal value of £2.50 each. The directors paid a dividend of 10p per equity share in the year and are going to propose an equity dividend of 5p per share at the AGM.
The total amount to be included as a distribution from reserves in the year is:

A) £3,756,250
B) £506,250
C) £2,506,250
D) £756,250

Question 8

At the end of the year, the accountant has calculated that the income tax charge for the year should be
£250,000. An opening accrual for taxation of £25,000 is still outstanding. The double entry to record
The tax charge is as follows:

A) Dr. Income tax expense account £250,000 Cr. Taxation payables account £250,000
B) Dr. Taxation payables account £250,000 Cr. Income tax expense account £250,000
C) Dr Income tax expense account £275,000 Cr. Taxation payables account £275,000
D) Dr. Income tax payables account £275,000 Cr. Income tax expense account £275,000

Question 9

At the end of the year, the accountant has calculated that the income tax charge for the year should be £250,000. An opening accrual for taxation of £25,000 is still outstanding as no payments were made to the tax authorities in the year.
What will the taxation creditor in the statement of financial position be at the end of the year?

A) £25,000
B) £225,000
C) £250,000
D) £275,000

Question 10

Which of the following is not classed as an administration expense in the income statement of a company?

A) Auditor fees
B) Wages clerk salary
C) Depreciation on plant and machinery
D) Stationery

Question 11

Which of the following is not allocated to the generic heading selling and distribution expenses in the income statement?

A) Loss on the sale of the sales representatives car
B) Commission paid for sales made
C) Repairs to the lorries
D) Discount received

Question 12

Which of the following is not classed as a finance cost in company financial statements?

A) Dividends paid to ordinary shareholders
B) Dividend paid to preference shareholders
C) Coupons paid to debenture holders
D) Interest paid on a bank loan

Question 13

In the income statement, items have to be presented in a set order. Which of the following is in the correct order?

A) Gross profit, finance costs, taxation, profit for the year
B) Gross profit, taxation, finance costs, profit for the year.
C) Sales, distribution costs, gross profit, finance costs, profit for the year
D) Sales, cost of sales, taxation, finance costs, profit for the year

Question 14

Which of the following is not likely to lead to a prior year adjustment under IAS 8, wherein the opening reserves of the current year are adjusted and the comparatives amended in light of the new, more accurate information?

A) A change in accounting treatment caused by the introduction of a new accounting standard (material impact)
B) A change in accounting treatment caused by a change in accounting policy (rare) (material impact)
C) A material error being discovered in the previous years financial statements, which meant that a purchase of goods had been analysed into administration costs.
D) A material error being discovered in the previous years financial statements which meant that the purchase of a large machine had been recorded as a purchase of goods for resale.