ACCA FA Financial Accounting: mock exams and practice questions

Sample question 1 · A · Context and purpose of financial reporting

Corvane Co is deciding whether to supply raw materials to Pellow Co on 60-day credit terms. Which aspect of Pellow Co's financial statements is Corvane Co most likely to focus on?

1. A The trend in Pellow Co's dividend per share over the last five years and the prospects for future dividends
2. B The average remuneration paid to Pellow Co's employees and the security of employment it offers
3. C The amount of Pellow Co's taxable profit, to confirm it is paying the correct amount of tax
4. D Pellow Co's liquidity, in particular whether its current assets are sufficient to pay its payables as they fall due

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Answer: D. Different users need different information. Suppliers and other trade payables want to know whether amounts owing to them will be paid when due, so they focus on liquidity (cash, current ratio, quick ratio, payables payment period). Investors focus on returns and dividends, employees on stability and pay, and the tax authorities on taxable profits.

Sample question 2 · B · Qualitative characteristics

Merrow Co's reporting date is 31 December 20X6. Which of the following meets the Conceptual Framework definition of a liability of Merrow Co at that date?

1. A A purchase order placed with a supplier on 20 December 20X6 for goods to be delivered and paid for in February 20X7
2. B Operating losses that the directors expect Merrow Co to make during the year ending 31 December 20X7
3. C An amount owed to a supplier for goods delivered to Merrow Co on 18 December 20X6, payable in January 20X7
4. D Planned spending on a staff training programme that the board approved on 10 December 20X6 to run in 20X7

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Answer: C. Under the Conceptual Framework, a liability is a present obligation of the entity to transfer an economic resource as a result of past events. Goods already received create such an obligation. An unfulfilled purchase order, expected future losses and an internal spending decision do not create a present obligation at the reporting date.

Sample question 3 · C · Double entry and accounting systems

Tarrant Co returned faulty goods to a supplier and received a credit note for them. In which book of prime entry should Tarrant Co first record the credit note?

1. A Sales returns day book
2. B Purchase day book
3. C Purchase returns day book
4. D Cash book

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Answer: C. Credit notes received from suppliers are first recorded in the purchase returns day book. Its totals are then posted: Dr Payables ledger control account, Cr Purchase returns, with the individual entries posted to the suppliers' accounts in the payables ledger.