Chapter 2_ Statement Of Financial Position And Statement Of Profit And Loss.pdf

Financial accounting F3 acca Practice questions Financial accounting F3 acca Practice questions Financial accounting F3 acca Practice questions

The Statement of Financial

Position and Statement of Profit or

Loss

Prepared for Educational Purposes

August 14, 2025

Contents

2 Part 2: Answers with Detailed Explanations 9

1

1 Part 1: List of Questions

This section contains 50 multiple-choice questions based on the Statement of Fi-nancial Position (Balance Sheet) and Statement of Profit or Loss (Income State-ment)

1 Which of the following calculates a trader’s net profit for a period?

a Closing net assets + drawings + capital introduced - opening net assets

b Closing net assets - drawings + capital introduced - opening net assets

c Closing net assets - drawings - capital introduced - opening net assets

d Closing net assets + drawings - capital introduced - opening net assets

2 The purpose of a Statement of Financial Position is to show:

a The amount the business could be sold for as a going concern

b The amount the business could be sold for in liquidation

c A clear and definite estimate of what a business is really worth

d The assets of the business and the claims against those assets

3 A grocery business has net assets of $64,800 at 31 January 2008 and the net profit for the year to 31 January 2008 was $30,600 On 31 August 2007 the proprietor introduced additional capital of $7,200 He also withdrew $960 per month and on 24 December 2007 withdrew goods amounting to $840 What were the net assets at 1 February 2007?

a $39,360

b $13,920

c $51,720

d $50,040

4 Which of the following are differences between sole traders and limited liability companies? (1) A sole traders’ financial statements are private; a company’s financial statements are sent to shareholders and are publicly filed (2) Only companies have capital invested into the business (3) A sole trader is fully and personally liable for any losses that the business might make; a company’s shareholders are not personally liable for any losses that the company might make

a 1, 2 and 3

b 1 and 2 only

c 2 and 3 only

d 1 and 3 only

5 On 1 July 2012 a business had net assets of $23,000 At 30 June 2013 they had total assets of $34,000 and total liabilities of $8,000 During the year the owner had introduced $2,000 more capital, and had taken drawings of

$500 per month What was the profit for the year ended 30 June 2013?

a $5,000

b $7,000

c $9,000

d $11,000

6 The statements prepared to indicate the profit and loss, and financial posi-tion of a business are called:

a Trial balances

b Financial statements

c Bank reconciliation statements

d All of the above

7 Profit and loss account shows the:

a Profit earned or loss suffered by the business

b Total capital employed

c Profit and loss through the sale of assets

d None of the above

8 Expenses related to the sale of goods are shown in the:

a Trading account

b Trading profit and loss account

c Balance sheet

d Profit and loss account

9 The credit side of a profit and loss account records:

a Indirect income

b Indirect expenses

c Direct income

d Direct expenses

10 Revenue expenditure is recorded in the:

a Trading account

b Profit and loss account

c Balance sheet

d None of the above

11 Loss on sale of an old car is debited to the:

a Car account

b Profit and loss account

c Depreciation account

d None of the above

12 The profit and loss account reveals the:

a Cost of goods sold during a particular period

b The financial results of a business during a particular date

c The financial position of the business for a period

d The financial results of the business for a period

13 Excess of debit in the profit and loss account is known as:

a Gross loss

b Gross profit

c Net loss

d Net profit

14 Profit and loss account is also known as:

a Statement of earnings

b Statement of income

c Statement of operations

d None of the above

15 A company that manufactures cars is preparing its profit and loss account Under which heading will it include production labour costs?

a Cost of sales

b Distribution costs

c Interest payable and similar charges

d Administrative expenses

16 Net loss in a profit and loss account should be:

a Added to liabilities

b Deducted from liabilities

c Added to capital

d Deducted from capital

17 The provision for bad debts is created by:

a Deducting

b Adding

c Debiting

d Crediting

18 Which of the following are included in the profit and loss account?

a Depreciation

b Wages and salaries

c Freight and carriage on sales

d All of the above

19 The term financial statement covers:

a Balance sheet

b Posting

c Entry

d None of the above

20 The

isastatementthatshowsthef inancialstatusof acompanyatanygiventime.

21 Balance sheet

22 Trading account

23 Profit and loss account

24 Both a and c

Which of the following is NOT one of the four basic financial statements?

a The balance sheet

b The audit report

c The income statement

d The statement of cash flows

Which of the following is true regarding the income statement?

a The income statement is sometimes called the statement of operations

b The income statement reports revenues, expenses, and liabilities

c The income statement only reports revenue for which cash was received at the point of sale

d The income statement reports the financial position of a business at a par-ticular point in time

Which of the following is false regarding the balance sheet?

a The accounts shown on a balance sheet represent the basic accounting equa-tion for a particular business

b The retained earnings balance shown on the balance sheet must agree with the ending retained earnings balance shown on the statement of retained earnings

c The balance sheet summarizes the net changes in specific account balances over a period of time

d The balance sheet reports the amount of assets, liabilities, and stockholders’ equity of a business at a point in time

Which of the following regarding retained earnings is false?

a Retained earnings is increased by net income

b Retained earnings is a component of stockholders’ equity on the balance

c Retained earnings is an asset on the balance sheet

d Retained earnings represents earnings not distributed to stockholders in the form of dividends

Which of the following is not one of the items required to be shown in the head-ing of a financial statement?

a The financial statement preparer’s name

b The title of the financial statement

c The financial reporting date or period

d The name of the business entity

Which of the following statements regarding the statement of cash flows is false?

a The statement of cash flows separates cash inflows and outflows into three major categories: operating, investing, and financing

b The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of the same period

c The total increase or decrease in cash shown on the statement of cash flows must agree with the ”bottom line” (net income or net loss) reported on the income statement

d The statement of cash flows covers a period of time

Which of the financial statement provides the profit or loss the business earned, and also lists the types and amounts of the revenues and expenses?

a Statement of changes in equity

b Balance sheet

c Income statement

d Statement of cash flow

e Statement of financial position

Which one of the following statements regarding the statement of financial po-sition is false?

a It was formerly known as the balance sheet

b It reports the assets and liabilities at a point in time

c It is based on the accounting equation

d It shows the profit for the period

Which of the following is not a characteristic of an asset?

a It is controlled by the business

b It provides future economic benefits

c It is a result of past events

d It is always tangible

Which of the following would be a liability for a business?

a Inventory

b Trade receivables

c Bank overdraft

d Prepayments

Clive’s business has paid telephone bills amounting to £21,500 during his finan-cial year, which ended on 30 September After the year end, he receives a bill for the three months ended 31 October amounting to £6,600 Which of the following

is true?

a Accrued expense of £4,400

b Prepaid expense of £4,400

c Accrued expense of £2,200

d No adjustment needed

Which one of the following would be classified as a current asset for a furniture retailer?

a Delivery vans

b Shop fittings

c Inventory of furniture

d Computer equipment

Chandra’s bakery business has the following account balances at 30 September: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000, and a bank overdraft of £1,090 Chandra’s capital account as at 30 September is:

a £33,360

b £32,360

c £33,460

d £34,360

Sean has prepared his financial statements for the year ended 31 March, which show a net profit of £30,000, current assets of £234,400 and a total assets figure

of £710,500 He has since discovered that the inventory figure he used was un-derstated as he left out closing inventory valued at £10,100 from his workings Which of the following statements is true?

a Net profit increases by £10,100, total assets increase by £10,100

b Net profit decreases by £10,100, total assets decrease by £10,100

c No change to net profit, total assets increase by £10,100

d Net profit increases by £10,100, no change to total assets

Lu’s statement of profit or loss for his first year of trading to 30 September showed

a charge for insurance of £9,000 Lu actually paid £13,000 for insurance during that financial year Which of the following statements is true?

a Prepayment of £4,000

b Accrual of £4,000

c Prepayment of £9,000

d Accrual of £13,000

Sofia pays rent in advance for her business Her trial balance at the business year-end, 31 December 2021, shows a figure of £8,750 for rent During 2021, she had paid rent of £1,875 for the three months ended 29 February 2022 Her financial statements for the year ended 31 December 2021 should show:

a Rent expense £6,875, prepayment £1,875

b Rent expense £8,750, no prepayment

c Rent expense £10,625, accrual £1,875

d Rent expense £6,875, accrual £1,875

Which of the following is not deducted in arriving at a company’s operating profit?

a Cost of sales

b Administrative expenses

c Finance costs

d Distribution costs

Which of the following items would not form part of the shareholders’ equity of

a company on the statement of financial position?

a Share capital

b Retained earnings

c Debentures

d Revaluation reserve

Which one of the following would not be included in a full set of company finan-cial statements?

a Statement of financial position

b Statement of profit or loss

c Trial balance

d Statement of changes in equity

Which of the following statements is likely to be true, for a company making profits?

a The operating profit will be less than the profit for the year

b The profit for the year will be less than the retained profit

c The retained profit will be greater than the operating profit

d The operating profit will be greater than the profit for the year

Issa plc issues 30,000 £1 shares at £1.30 for each share Which of the following statements is true?

a Share capital increases by £30,000, share premium by £9,000

b Share capital increases by £39,000, no share premium

c Share capital increases by £30,000, retained earnings by £9,000

d Share premium increases by £39,000

Sheba Ltd’s statement of financial position shows ordinary share capital of £150,000 and share premium of £50,000 at the beginning of a financial year If the ordi-nary share capital is £250,000 and share premium is £120,000 at the end of the financial year, how much did the ordinary share issue raise?

a £170,000

b £100,000

c £70,000

d £200,000

Twisters Ltd made a profit for the year ended 31 March 2023 of £30,000 Dur-ing that year the company had paid preference dividends on 100,000 5% pref-erence shares In addition, an ordinary dividend of 4 pence per share was paid

on 200,000 ordinary shares What was the retained profit for the year ended 31 March 2023?

a £17,000

b £22,000

c £25,000

d £30,000

Junior plc is a company that, during the year ended 31 December 2023, paid

£25,000 debenture interest and paid an ordinary dividend of 8 pence per share

on 1 million £1 ordinary shares The retained profit for the year was £160,000 What was Junior plc’s profit for the year?

a £265,000

b £240,000

c £185,000

d £105,000

Which of the following would be an entry in the statement of changes in equity?

a Dividends paid

b Purchase of inventory

c Payment of suppliers

d Receipt from customers

During the year ended 30 June 2024, a company’s revaluation reserve increased from £300,000 to £380,000 as a result of a property revaluation At the start of

that financial year, the company’s property had been valued at £810,000 As-suming that no property was disposed of during the year, which of the following statements is true?

a Property is now valued at £890,000

b Property is now valued at £1,190,000

c Property is now valued at £730,000

d No change in property value

Which of the following is NOT associated with the income statement?

a Profit and loss statement

b Statement of operations

c Statement of financial position

d Earnings statement

The income statement heading will specify which of the following?

a A point in time

b A period of time

c The company’s net assets

d The company’s liabilities only

Amounts earned by a company in its main operating activities are known as:

a Revenues

b Expenses

c Gains

d Losses

A company disposes of equipment that it no longer uses in its business The amount received by the company is more than the amount the asset is carried

at in the accounting records The company will report a(n):

a Loss

b Gain

c Expense

d Revenue

2 Part 2: Answers with Detailed Explanations

1 d Closing net assets + drawings - capital introduced - opening net assets

Ex-planation: The net profit is calculated using the formula: Profit = (Closing

net assets - Opening net assets) + Drawings - Capital introduced This rear-ranges to Closing net assets + Drawings - Capital introduced - Opening net assets This reflects changes in net assets adjusted for owner transactions

2 d The assets of the business and the claims against those assets

Explana-tion: The Statement of Financial Position (balance sheet) presents assets,

liabilities, and equity at a specific point in time, showing what the business owns (assets) and what is owed (liabilities and equity claims)

3 a $39,360 Explanation: Using the formula Closing net assets = Opening

net assets + Profit + Capital introduced - Drawings Drawings = ($960 × 12)

+ $840 = $11,520 + $840 = $12,360 Rearrange: Opening = $64,800 - $30,600

- $7,200 + $12,360 = $39,360

4 d 1 and 3 only Explanation: Statement (2) is incorrect because both sole

traders and companies have capital invested Statements (1) and (3) high-light key differences in privacy of financial statements and liability

5 b $7,000 Explanation: Closing net assets = $34,000 - $8,000 = $26,000.

Drawings = $500 × 12 = $6,000 Profit = Closing net assets - Opening net

assets - Capital introduced + Drawings = $26,000 - $23,000 - $2,000 + $6,000

= $7,000

6 b Financial statements Explanation: Financial statements include the

profit and loss account and balance sheet, which indicate profitability and financial position

7 a Profit earned or loss suffered by the business Explanation: The profit

and loss account summarizes revenues and expenses to show net profit or loss over a period

8 d Profit and loss account Explanation: Selling expenses are indirect and

appear in the profit and loss account, not the trading account which han-dles direct costs

9 a Indirect income Explanation: The credit side records incomes not

di-rectly from sales, such as interest or discounts received

10 b Profit and loss account Explanation: Revenue expenditures (recurring

costs) are charged to the profit and loss account as expenses

11 b Profit and loss account Explanation: Losses from asset sales are

non-operating and debited to the profit and loss account

12 d The financial results of the business for a period Explanation: It shows

net profit or loss from operations over a specific time frame

13 c Net loss Explanation: When debits (expenses) exceed credits (incomes),

it results in a net loss

14 b Statement of income Explanation: The profit and loss account is

syn-onymously called the income statement

15 a Cost of sales Explanation: Production labor is a direct cost included in

cost of sales on the profit and loss account

16 d Deducted from capital Explanation: Net loss reduces the owner’s equity

or capital on the balance sheet

17 c Debiting Explanation: Provision for bad debts is an expense, debited to

the profit and loss account

18 d All of the above Explanation: These are typical operating expenses