Free ACCA Mock Test 137 — 20 Questions + Full Answers
Association of Chartered Certified Accountants · Accountancy students · Exams: Mar, Jun, Sep, Dec
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Applaa ACCA Mock Test 137
applaa-acca-mock-137.pdf · 20 questions
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8 of 20 shownCorrect answers highlighted in green. Full explanations included.
Vanguard Retail Ltd completed two projects during the year: 1) Purchased and installed a new warehouse conveyor belt system for £60,000, and 2) Had the exterior of the existing office block repainted for £6,000. How should these expenditures be classified?
- A.Both projects are Capital Expenditure.
- B.Warehouse system: Capital Expenditure (£60,000), Repainting: Revenue Expenditure (£6,000)
- C.Warehouse system: Revenue Expenditure (£60,000), Repainting: Capital Expenditure (£6,000)
- D.Both projects are Revenue Expenditure.
✓ Worked Explanation
Core Concept: Capital Expenditure vs. Revenue Expenditure Capital Expenditure (CapEx) creates or enhances a long-term non-current asset and is capitalised on the balance sheet, then depreciated over its useful life. Revenue Expenditure (RevEx) relates to day-to-day operations, maintenance, or restoration and is expensed immediately in profit or loss. Step-by-Step Resolution: 1. Warehouse Conveyor Belt System (£60,000): - This is a *new* asset installed to generate future economic benefits. I
A retail store, Omega Foodstuffs plc, purchased inventories for a gross total of £1,200 inclusive of standard-rate VAT at 20%. What are the net purchase cost and the input VAT amount recoverable by Omega Foodstuffs plc?
- A.Net Cost: £1,000, VAT Recoverable: £200
- B.Net Cost: £1,200, VAT Recoverable: £240
- C.Net Cost: £960, VAT Recoverable: £240
- D.Net Cost: £1,000, VAT Recoverable: £0 (VAT is non-recoverable on inventories)
✓ Worked Explanation
Core Concept: Extracting VAT from a VAT-Inclusive (Gross) Price When a price is VAT-inclusive, you must use the VAT fraction to extract the tax element. You cannot simply multiply the gross price by 20% - that would over-calculate the VAT because you would be applying the rate to an amount that already contains VAT. Step-by-Step Resolution: 1. Identify the Problem: The gross (VAT-inclusive) price is £1,200. Standard rate VAT = 20%. 2. Apply the VAT Fraction: Net = Gross ÷ (1 + VAT rate) = £1,20
For the year ended 31 December, Nova Tech Solutions Ltd paid rent of £37,500. At the year-end, the company had an outstanding electricity invoice of £3,125 which has not yet been paid. What are the adjusting entries required at the year-end to record this accrual?
- A.Debit Accruals £3,125, Credit Electricity Expense £3,125
- B.Debit Electricity Expense £3,125, Credit Accruals (Liabilities) £3,125
- C.Debit Cash £3,125, Credit Electricity Expense £3,125
- D.Debit Electricity Expense £3,125, Credit Prepayments (Assets) £3,125
✓ Worked Explanation
Core Concept: Accruals (Expenses Incurred but Not Yet Paid) Under the accruals concept (IAS 1), expenses must be recognised in the period they are *incurred*, not when they are *paid*. An accrual is a current liability - the business owes this amount but hasn't yet paid the invoice. Step-by-Step Resolution: 1. Identify the Issue: The electricity expense of £3,125 was incurred during the accounting year but remains unpaid at year-end. 2. Apply the Accruals Concept: The expense belongs to this ye
The trial balance of Crown Paper Ltd balanced perfectly. However, it was later discovered that a purchase of equipment costing £18,000 was entered into the repairs and maintenance account. What type of error has occurred?
- A.Error of Omission
- B.Error of Commission
- C.Error of Principle
- D.Error of Reversal
✓ Worked Explanation
Core Concept: The Six Types of Accounting Errors There are six classic types of bookkeeping errors. Some cause the trial balance to disagree; others do not. This question tests recognition of errors that *hide* behind a balanced trial balance - meaning both sides are still equal, but the accounting treatment is fundamentally wrong. Step-by-Step Resolution: 1. Analyse the Error: Equipment (a non-current asset / capital expenditure) was posted to Repairs & Maintenance (a revenue expense accou
A bookkeeper at Alpha Properties Ltd prepared a trial balance which failed to agree, with the credit side exceeding the debit side by £450. A suspense account was opened. Which of the following errors, when corrected, could explain this difference?
- A.A purchase invoice for £225 was completely omitted from the books.
- B.A cash payment of £225 to a supplier was debited to the purchases account but not credited to the cash account.
- C.Sales of £225 were recorded by debiting Receivables Control and debiting Sales Account.
- D.A purchase return of £225 was debited to the Purchase Returns account and credited to Receivables Control.
✓ Worked Explanation
Core Concept: Trial Balance Errors and the Suspense Account A trial balance fails to agree when a transaction is posted with unequal debits and credits. The difference is placed in a suspense account until the error is found and corrected. Errors that cause the trial balance to fail include: single-sided entries, casting errors, and transposition errors on one side only. Step-by-Step Resolution: 1. Analyse the Symptom: Credits exceed debits by £450. This means the debit side is £450 *too small*
For the year ended 31 December, Vanguard Retail Ltd paid rent of £18,000. At the year-end, the company had an outstanding electricity invoice of £1,500 which has not yet been paid. What are the adjusting entries required at the year-end to record this accrual?
- A.Debit Accruals £1,500, Credit Electricity Expense £1,500
- B.Debit Electricity Expense £1,500, Credit Accruals (Liabilities) £1,500
- C.Debit Cash £1,500, Credit Electricity Expense £1,500
- D.Debit Electricity Expense £1,500, Credit Prepayments (Assets) £1,500
✓ Worked Explanation
Core Concept: Accruals (Expenses Incurred but Not Yet Paid) Under the accruals concept (IAS 1), expenses must be recognised in the period they are *incurred*, not when they are *paid*. An accrual is a current liability - the business owes this amount but hasn't yet paid the invoice. Step-by-Step Resolution: 1. Identify the Issue: The electricity expense of £1,500 was incurred during the accounting year but remains unpaid at year-end. 2. Apply the Accruals Concept: The expense belongs to this ye
A retail store, Pinnacle Consulting Ltd, purchased inventories for a gross total of £4,800 inclusive of standard-rate VAT at 20%. What are the net purchase cost and the input VAT amount recoverable by Pinnacle Consulting Ltd?
- A.Net Cost: £4,000, VAT Recoverable: £800
- B.Net Cost: £4,800, VAT Recoverable: £960
- C.Net Cost: £3,840, VAT Recoverable: £960
- D.Net Cost: £4,000, VAT Recoverable: £0 (VAT is non-recoverable on inventories)
✓ Worked Explanation
Core Concept: Extracting VAT from a VAT-Inclusive (Gross) Price When a price is VAT-inclusive, you must use the VAT fraction to extract the tax element. You cannot simply multiply the gross price by 20% - that would over-calculate the VAT because you would be applying the rate to an amount that already contains VAT. Step-by-Step Resolution: 1. Identify the Problem: The gross (VAT-inclusive) price is £4,800. Standard rate VAT = 20%. 2. Apply the VAT Fraction: Net = Gross ÷ (1 + VAT rate) = £4,80
The trial balance of Apex Trading Ltd balanced perfectly. However, it was later discovered that a purchase of equipment costing £8,400 was entered into the repairs and maintenance account. What type of error has occurred?
- A.Error of Omission
- B.Error of Commission
- C.Error of Principle
- D.Error of Reversal
✓ Worked Explanation
Core Concept: The Six Types of Accounting Errors There are six classic types of bookkeeping errors. Some cause the trial balance to disagree; others do not. This question tests recognition of errors that *hide* behind a balanced trial balance - meaning both sides are still equal, but the accounting treatment is fundamentally wrong. Step-by-Step Resolution: 1. Analyse the Error: Equipment (a non-current asset / capital expenditure) was posted to Repairs & Maintenance (a revenue expense accou
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Paper Info
- Exam
- ACCA
- Mock number
- 137 of 250
- Questions
- 20
- Format
- Multiple Choice (MCQ)
- Sections
- 1
- Audience
- Accountancy students
- Timing
- Exams: Mar, Jun, Sep, Dec
- Copyright
- Applaa Proprietary
Sections Covered
- Financial Accounting
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