ACCA f3 financial accounting BPP revision kit 2017

k p p s s BPP Learning Media is dedicated k to supporting aspiring business professionals k o o o o with top-qualityelearning b material as they study for demanding eprofessional b e e r r exams, often F whilst working full time BPP Learning Media’sF commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success k p s ok o b e k p s ok Fr BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • DO YOU KNOW? Checklists to test your knowledge of Financial Accounting topics • A bank of exam-standard MCQs with answers, covering the syllabus • Two mock exams including the FFA/F3 Specimen exam F Fr o b e e k p s ok February 2016 £15.00 eb e r F FI32RK16 (POL).indd 1-3 o k p s ok o eb e r F k p s ok o b e re F k p s ok o b e re F ACCA Approved Practice & Revision Kit For exams from September 2016 to 31 August 2017 o b e e Contact us o b e re k p s ok Practice & Revision Kit Fre One of a suite of products supporting Foundations in Accountancy FFA Financial Accounting and ACCA Paper F3 Financial Accounting, for use independently or as part of a package, this Kit is targeted at Foundations in Accountancy exams from September 2016 to 31 August 2017 and contains: k p s ok Financial Accounting Foundations in Accountancy FFA / ACCA Paper F3 Financial Accounting This Kit provides material specifically for the practice and revision stage of your studies for Foundations in Accountancy FFA Financial Accounting and ACCA Paper F3 Financial Accounting that has been comprehensively reviewed by the ACCA examining team This unique review ensures that the questions, solutions and guidance provide the best and most effective resource for practising and revising for the exam Foundations in Accountancy FFA /ACCA F3 ACCA approved content k provider ACCA APPROVED CONTENT PROVIDER k p s Foundations in Accountancy FFA / k o o ACCA e Paper eb F3 r F Financial Accounting k p s ook eb e r F k p s ok o b e Fre Free access to our Exam Success siteks.pk o o b eLooke inside Fr For exams from September 2016 to 31 August 2017 eb e r F o k p s ok k p s ook b e Fre 18/02/2016 13:08 ACCA APPROVED CONTENT PROVIDER pk ks o o eb o b e re k p s ok re F F As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for exams on demand) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods k p s ok k p s ook To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F5 Study Text) for your access code Once you have received your code, please follow the instructions below: o b e re F b e Fre To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password k p s ok k p s k o o eb Select the paper you wish to access o eb e r F n Enter the code you received when prompted You will only have to this once for each paper you are studying eb e r F k p s ook Fre e e r F b k p s ook k p s k o o eb Foundations inF Accountancy Fre o b e re k p s ok P R A C T I C E k p FFA ACCA s.pk s k k o o bo bo e e e e & Paper F3 Fr Fr Financial Accounting R E V I S k p I.pk s s k k o o o o O eb eb e r Welcome to BPP Learning Media's Practice & Revision Kit for F3/FFA In this re F F Practice & Revision Kit, which has been reviewed by the ACCA examination team, N we:  Include Do you know? Checklists to test your knowledge and understanding of topics  Provide you with two mock exams including the Specimen Exam June 2014  Provide the ACCA’s exam answers to the Specimen Exam June 2014 as an additional revision aid K I T FOR EXAMS FROM SEPTEMBER 2016 TO 31 AUGUST 2017 F o b e re k p s ok k p s ok F o b e re F3/FFA FOUNDATIONS OF FINANCIAL ACCOUNTING k p s k o o eb k p s ok First edition May 2011 Fifth edition March 2016 A note about copyright ISBN 9781 4727 4593 Previous ISBN 9781 4727 3534 e-ISBN 9781 4727 4638 What does the little © mean and why does it matter? Fre British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by o b e re F Your market-leading BPP books, course materials and e-learning materials not write and update themselves People write them on their own behalf or as employees of an organisation that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: www.bpp.com/learningmedia Printed in the United Kingdom by Ricoh UK Limited Unit Wells Place Merstham RH1 3LG Dear Customer o o b ee k p s k Fr Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media The contents of this book are intended as a guide and not professional advice Although every effort has been made to ensure that the contents of this book are correct at the time of going to press, BPP Learning Media makes no warranty that the information in this book is accurate or complete and accept no liability for any loss or damage suffered by any person acting or refraining from acting as a result of the material in this book k p s ok We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated o b e re F  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or e-mailing them to your friends is a breach of copyright k p s ook b e Fre You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? 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Copyright © IFRS Foundation All rights reserved Reproduction and use rights are strictly limited No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IFRS Foundation Contact the IFRS Foundation for further details k p s ok o b e re F BPP Learning Media is grateful to the IASB for permission to reproduce extracts from the International Financial Reporting Standards including all International Accounting Standards, SIC and IFRIC Interpretations (the Standards) The Standards together with their accompanying documents are issued by: The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the “Hexagon Device”, “IFRS Foundation”, “eIFRS”, “IAS”, “IASB”, “IFRS for SMEs”, “IASs”, “IFRS”, “IFRSs”, “International Accounting Standards” and “International Financial Reporting Standards”, “IFRIC” “SIC” and “IFRS Taxonomy” are Trade Marks of the IFRS Foundation The International Accounting Standards Board (IASB) 30 Cannon Street, London, EC4M 6XH, United Kingdom Email: info@ifrs.org Web: www.ifrs.org Further details of the Trade Marks including details of countries where the Trade Marks are registered or applied for are available from the Licensor on request Disclaimer: The IASB, the International Financial Reporting Standards (IFRS) Foundation, the authors and the publishers not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise to the maximum extent permitted by law o b e re © BPP Learning Media Ltd 2016 ii F k p s ok k p s ok F o b e re CONTENTS k p s k o o Contents eb e r F o b e re k p s ok F Page Finding questions Question index v Topic index viii Helping you with your revision x Using your BPP Practice & Revision Kit xi Passing the F3/FFA exam xii Approach to examining the syllabus xii Tackling Multiple Choice Questions xiii Using your BPP products xiv Questions and answers Questions Answers 171 k p s Exam practice ok bo e e Fr k p s ook b e Fre Mock exam – Specimen Exam June 2014  Questions 239  Answers 253 ACCA’s exam answers to Specimen Exam June 2014 261 Mock exam  Questions 271  Answers 285 Review form o b e re k p s ok F F o b e re k p s ok o b e re F k p s ok k p s ok F o b e re iii F3/FFA FOUNDATIONS OF FINANCIAL ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re iv F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re QUESTION INDEX k p s k o o Question index eb e r F o b e re k p s ok F Time allocation Page Marks Mins Question Answer 28 34 171 26 31 11 171 Part A: The context and purpose of financial reporting The context and purpose of financial reporting Questions 1.1 to 1.14 Part B: The qualitative characteristics of financial information The qualitative characteristics of financial information Questions 2.1 to 2.13 k p s ook k p s ook Part C: The use of double entry and accounting systems Double entry bookkeeping b e Fre Questions 3.1 to 3.19 b e Fre 17 172 43 20 173 16 19 27 175 38 46 28 176 Questions 7.1 to 7.19 38 46 34 178 Questions 8.1 to 8.20 40 48 39 180 Questions 4.1 to 4.18 38 46 36 Part D: Recording transactions and events Sales tax Questions 5.1 to 5.8 Inventory Questions 6.1 to 6.19 Tangible non-current assets k p s ok k p s ok Intangible non-current assets Questions 9.1 to 9.14 o b e e Accruals and prepayments Fr Questions 10.1 to 10.14 28 34 43 28 34 Fr 47 183 40 48 51 185 26 31 55 187 26 31 58 188 o b e e 182 Receivables and payables Questions 11.1 to 11.20 Provisions and contingencies Questions 12.1 to 12.13 Capital structure and finance costs Questions 13.1 to 13.13 F o b e re k p s ok k p s ok F o b e re v F3/FFA FOUNDATIONS OF FINANCIAL ACCOUNTING Fre k p s k o o eb Time allocation Fre ebo Marks Mins 15 k p s ok Page Question Answer 18 65 189 40 48 66 190 30 36 71 193 34 41 75 194 20 24 Part E: Preparing a trial balance 15 mark question: trial balance Question 14.1 Control accounts Questions 15.1 to 15.20 Bank reconciliations Questions 16.1 to 16.15 Correction of errors Questions 17.1 to 17.17 Suspense accounts k p s ook b ree Questions 18.1 to 18.10 F b ree 80 196 F Part F: Preparing basic financial statements 15 mark questions: preparing basic financial statements Questions 19.1 to 19.7 k p s ook 105 126 85 197 32 38 93 206 20 24 97 208 18 22 100 208 18 22 102 Incomplete records Questions 20.1 to 20.16 Company financial statements Questions 21.1 to 21.10 Disclosure notes Questions 22.1 to 22.9 Events after the reporting period Questions 23.1 to 23.9 o b e re Statements of cash flows k p s ok F Questions 24.1 to 24.20 k p s ok 209 o b e re 40 48 F 105 209 60 72 113 211 54 65 116 217 Part G: Preparing simple consolidated financial statements 15 mark questions: preparing simple consolidated financial statements Questions 25.1 to 25.4 Consolidated financial statements Questions 26.1 to 26.27 vi F o b e re k p s ok k p s ok F o b e re QUESTION INDEX Fre k p s k o o eb Time allocation Fre ebo Marks Mins 15 k p s ok Page Question Answer 18 127 220 22 26 128 221 Mixed bank 1: Questions 29.1 to 29.19 38 46 130 222 Mixed bank 2: Questions 30.1 to 30.20 40 48 136 223 Mixed bank 3: Questions 31.1 to 31.19 38 46 142 226 Mixed bank 4: Questions 32.1 to 32.18 36 43 147 228 40 48 Mixed bank 6: Questions 34.1 to 34.18 36 43 Mixed bank 7: Questions 35.1 to 35.18 Part H: Interpretation of financial statements 15 mark question: interpretation of financial statements Question 27.1 Interpretation of financial statements Questions 28.1 to 28.11 Mixed banks k p s ook b ree Mixed bank 5: Questions 33.1 to 33.20 k p s ook b ree 153 230 158 232 36 F 43 163 233 Mock exam (Specimen Exam June 2014) 100 120 239 253 Mock exam 100 120 271 285 F Mock exams o b e re k p s ok F F o b e re k p s ok o b e re F k p s ok k p s ok F o b e re vii F3/FFA FOUNDATIONS OF FINANCIAL ACCOUNTING k p s k o o Topic Index eb e r F o b e re k p s ok F Listed below are the key F3/FFA syllabus topics and the numbers of the questions in this Kit covering those topics If you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful Syllabus topic Question numbers Analytical procedures 52, 89, 90, 91 Audit documentation 28, 29 Audit evidence 17, 18, 74, 99 Audit planning 8, 9, 18, 26, 30 Audit procedures 78, 79, 88, 101 Audit reports (+ auditor’s opinion) 111, 112, 113, 114, 115, 116, 117, 118, 119, 120 Audit risk 11, 12, 13, 14, 15 k p s ook eeb Fr 24, 25 Audit strategy 34 Auditor’s responsibilities 5, 6, 97, 98 Bank confirmation letter 88, 96 CAATs 22, 23, 24, 25, 103 Code of Ethics 2,4 Control environment 37, 38, 54 Estimates 76, 77 Ethics 2, 4, 97 Experts 16 Deficiencies in internal control 45 Financial statement assertions 75, 100, 102 Going concern 107, 108, 109 o b e e Independence Fr viii k p s ok 28 b e Fre Audit software k p s ok o b e re F Inherent risk 10, 36, 68 Internal controls 39, 40, 41, 67, 69, 70, 71 Inventory 48, 49, 50, 80, 81, 82, 83, 84 Letter of representation 110, 117 Materiality 19, 20 Non-current assets 60, 66, 92, 95, 61 Objectivity Payables 87, 104 Procurement 55 Provisions 93, 94 k p s ok Purchases controls 51, 52, 53, 55, 56 Questionnaires 65 F o b e re k p s ook F o b e re k p s ok F3/FFA FINANCIAL ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re 284 F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re MOCK EXAM // ANSWERS k p s k o o eb SECTION A A Fre C A B o b e re All three criteria must be present F The existence of a transposition error should always be revealed by a trial balance Errors of omission and commission may or may not be revealed, depending on the nature of the error and whether the error has resulted fin a mismatch between debt and credit entries in the nominal ledger accounts An error of omission is never revealed, because there have been no entries in the nominal ledger for the omitted item Matic Co is a subsidiary of Nooma Co, so the results of Matic Co should be consolidated on a line by line basis with the results of Nooma Co Original cash book figure Adjustment re charges Adjustment re dishonoured cheque k p s ok D $88,000 Cost of machine Installation Delivery Testing o o b ee Fr k p s k 2,490 (50) (140) 2,300 k p s ook $ 80,000 5,000 2,000 1,000 88,000 b e Fre C A is the definition of a liability, B is the definition of an asset and D is the definition of income according to the Conceptual framework A Relevance is a qualitative characteristic The other options are accounting concepts B $31,000 Cost Net realisable value Lower of cost & NRV $ 10 20 A B C o b e re F $ 8 20 k p s ok F o b e re $ 8 21 Units Value 500 1,250 850 $ 4,000 10,000 17,000 31,000 k p s ok o b e re F k p s ok k p s ok F o b e re 285 F3/FFA FINANCIAL ACCOUNTING B k p s k o o eb $781 profit Fre Cost 20X1 Depreciation 10,000 2,500 7,500 1,875 5,625 1,406 4,219 5,000 781 20X2 Depreciation 20X3 Depreciation 20X4 Part exchange Profit 10 F A Amount written off Allowance for receivables at 31 December 20X3 5%  $(620,000 – 30,000) Allowance for receivables at January 20X3 Reduction in allowance for receivables Combined expense 11 o b e re $ k p s ook eb e r F C $ $ 30,000 29,500 35,000 k p s ook (5,500) 24,500 b $35,000 Output tax = k p s ok 235,000  17.5 117.5 e Fre ($36,000/10)  3/12 12 A $900 13 B This is the ratio of current assets to current liabilities C is wrong as the five year bank loan would not normally be included with current liabilities A is the quick ratio (excludes inventory) 14 C It is a loan note It is not a preference share because it is secured An overdraft does not have a fixed return or a fixed repayment date and is not secured 15 A $ Fair value of consideration Net assets at acquisition as represented by Share capital Retained earnings Revaluation surplus Fair value adjustment 16 Fr o b e e C k p s ok Goodwill $250,000 Bal b/f Sales (balancing figure) $ 1,200,000 100,000 550,000 150,000 80,000 k p s ok o b e e Fr RECEIVABLES LEDGER CONTROL ACCOUNT $ 100,000 Bank 250,000 Discounts allowed Returns Bal c/f 350,000 (880,000) 320,000 $ 225,000 5,000 12,750 107,250 350,000 Discounts received refer to purchases and go in the payables ledger control account 17 286 B Ratios can be used to analyse financial performance, and to make comparisons of performance over time and between different businesses in the same industry, but they cannot usually provide a reliable indicator of insolvency, especially if they are prepared only once a year F o b e re k p s ok k p s ok F o b e re MOCK EXAM // ANSWERS 18 D Fre 19 k p s k o o eb $1,148,200 C $’000 1.8 o b e re Unrealised profit (15,000  25/125  60%) F Inventory (750 + 400 – 1.8) k p s ok 1,148.2 Quick ratio = current assets excluding inventories / current liabilities The quick ratio does not include inventories or long term loans, so A and B will have no effect An increase in payables would reduce the quick ratio 20 A B and C are errors of principle, D is an error of omission 21 B $63,000 22 C Carrying value at the end of year 3: 100,000 – (100,000  3/10) = $70,000 Carrying value at the end of year 5: 70,000 – (70,000  2/20) $90 k p s ook b 23 e Fre C Ledger balance Add back: disallowed discount returns goods cash in transit Total balance As stated by the supplier Unreconciled difference $ 260 80 270 830 1,440 1,350 90 $120,000 $ 120,000 80,000 40,000 Carrying amount at 31 December 20X1 (250,000 – 50,000) Additions 200,000 35,000 235,000 (80,000) (15,000) 140,000 Carrying amount of disposals (balancing figure) Depreciation Carrying amount at 31 December 20X2 (185,000 – 45,000) C 25 B k p s ook b e Fre Sale proceeds (balancing figure) Carrying amount (see below) Profit on sale 24 = $63,000 The International Accounting Standards Board is responsible for issuing IFRSs Fr o b e e k p s ok k p s ok o b e e Fair value of NCI at acquisition Plus NCI’s share of post-acquisition retained earnings (and other reserves) ((800 – 100)  5% + 100  5%) NCI at reporting date (31 December 20X1) Fr $ 45,000 10,000 55,000 26 C An investor must have significant influence over the investee in order for the investee to be classified as an associate, therefore is correct If the investor owns between 20% and