CIE A-Level Accounting 9706 Paper 1 Practice (30 MCQs with answers) | Exam technique

Q 1 · Double entry [1]

Goods bought on credit for resale are recorded as:

A. Debit purchases and credit trade payables

B. Debit trade payables and credit purchases

C. Debit cash and credit purchases

D. Debit purchases and credit cash

Answer A

A credit purchase increases purchases (an expense) and trade payables (a liability). Expenses increase on the debit side, liabilities on the credit side.

Q 2 · Capital [1]

A sole trader has total assets of $84,500 and total liabilities of $23,400. Capital is:

A. $107,900

B. $61,100

C. $84,500

D. $23,400

Answer B

Capital = assets – liabilities = 84,500 – 23,400 = 61,100.

Q 3 · Depreciation: straight line [1]

Machinery cost $48,000, estimated residual value $6,000, useful life 4 years. Annual depreciation under the straight-line method is:

A. $6,000

B. $9,000

C. $10,500

D. $12,000

Answer C

(48,000 – 6,000) / 4 = 10,500.

Q 4 · Depreciation: reducing balance [1]

Equipment costing $20,000 is depreciated at 25% per annum on the reducing-balance basis. Its carrying amount after two years is:

A. $15,000

B. $5,000

C. $10,000

D. $11,250

Answer D

Year 1: 20,000 x 25% = 5,000, carrying amount 15,000. Year 2: 15,000 x 25% = 3,750, carrying amount 11,250.

Q 5 · Disposal of non-current assets [1]

A motor vehicle costing $30,000 with accumulated depreciation of $22,500 is sold for $9,000. The profit or loss on disposal is:

A. Loss $7,500

B. Profit $1,500

C. Loss $1,500

D. Profit $9,000

Answer B

Carrying amount = 30,000 – 22,500 = 7,500; proceeds 9,000, so a profit of 1,500.

Q 6 · Accruals and prepayments [1]

Rent paid during the year was $33,000, of which $3,000 relates to next year. This year’s rent expense is:

A. $30,000

B. $33,000

C. $36,000

D. $3,000

Answer A

The prepaid part belongs to next year, so this year bears 33,000 – 3,000 = 30,000.

Q 7 · Accrued expenses [1]

Wages paid during the year were $47,600 and $2,400 was still owing at the year end. This year’s wages expense is:

A. $45,200

B. $47,600

C. $2,400

D. $50,000

Answer D

The unpaid part belongs to this year: 47,600 + 2,400 = 50,000.

Q 8 · Inventory valuation: FIFO [1]

Opening inventory was 200 units at $10 each; 300 units were bought at $12 each and 250 units were sold. Closing inventory under FIFO is:

A. $5,600

B. $2,500

C. $3,000

D. $2,600

Answer C

The first 200 units sold came from opening inventory (2,000) and the next 50 from the new purchase (600); the 250 units left are all from the second batch: 250 x $12 = 3,000.

Q 9 · Inventory valuation: weighted average [1]

Opening inventory was 100 units at $4 each; 200 units were bought at $7 each and 120 units were sold. Closing inventory on a weighted average basis is:

A. $1,080

B. $720

C. $1,800

D. $1,200

Answer A

Total cost 400 + 1,400 = 1,800 over 300 units, an average of $6.00; the 180 units left cost 1,080.

Q 10 · Lower of cost and net realisable value [1]

Inventory cost $5,600, estimated selling price $6,000 and estimated selling costs $850. Valued at the lower of cost and net realisable value, inventory is stated at:

A. $6,000

B. $450

C. $5,150

D. $5,600

Answer C

Net realisable value = 6,000 – 850 = 5,150, below cost of 5,600, so inventory is stated at 5,150 after a write-down of 450.

Q 11 · Provision for doubtful debts [1]

Trade receivables are $96,000 and a provision of 5% is required; the existing provision is $5,400. The provision adjustment charged to this year’s income statement is:

A. A decrease of $5,400

B. A decrease of $600

C. An increase of $600

D. An increase of $4,800

Answer B

Required provision 96,000 x 5% = 4,800, which is 600 below the existing 5,400, so 600 is written back and credited to the income statement.

Q 12 · Bank reconciliation [1]

The cash book shows a debit balance of $4,250; unpresented cheques are $1,800, lodgements not yet credited are $2,600 and bank charges of $50 are not yet in the cash book. The bank statement balance is:

A. $8,600

B. $8,650

C. $3,350

D. $3,400

Answer D

Adjust the cash book: 4,250 – 50 = 4,200. Then statement = 4,200 + 1,800 (unpresented) – 2,600 (not credited) = 3,400.

Q 13 · Payables ledger control account [1]

The payables ledger control account opens with a credit balance of $7,500; purchases were $62,000, payments $58,000 and discounts received $1,200. The closing balance is:

A. $10,300

B. $11,500

C. $12,700

D. $4,500

Answer A

7,500 + 62,000 – 58,000 – 1,200 = 10,300; discounts received are debited to the control account.

Q 14 · Suspense account [1]

The debit column of a trial balance totals $900 less than the credit column. The suspense account should be:

A. Credited with $900

B. Debited with $1,800

C. Not used at all

D. Debited with $900

Answer D

The debit total is short, so $900 is entered on the debit side of the suspense account to make the trial balance agree.

Q 15 · Capital and revenue expenditure [1]

Machinery costing $18,000 was wrongly written off as repairs. The effect on this year’s financial statements is:

A. No effect on either profit or non-current assets

B. Profit understated by $18,000 and non-current assets understated by $18,000

C. Profit overstated by $18,000 and non-current assets overstated by $18,000

D. Profit understated by $18,000 with no effect on non-current assets

Answer B

Capital expenditure treated as revenue raises expenses and understates profit, while the machine is never capitalised, so non-current assets are understated by the same $18,000.

Q 16 · Gross profit margin [1]

Revenue is $240,000 and cost of sales $156,000. The gross profit margin is:

A. 30%

B. 25%

C. 35%

D. 65%

Answer C

Gross profit = 240,000 – 156,000 = 84,000; margin = 84,000 / 240,000 = 35%.

Q 17 · Mark-up [1]

Goods costing $60,000 are priced at a mark-up of 25% on cost. Revenue is:

A. $15,000

B. $75,000

C. $80,000

D. $60,000

Answer B

A mark-up of 25% gives 60,000 x 1.25 = 75,000.

Q 18 · Current ratio [1]

Current assets are $84,000 and current liabilities $35,000. The current ratio is:

A. 1.4 : 1

B. 0.42 : 1

C. 2.4 : 1

D. 2.0 : 1

Answer C

84,000 / 35,000 = 2.4, that is 2.4 : 1.

Q 19 · Inventory turnover [1]

Cost of sales is $156,000 and average inventory is $26,000. Inventory turnover is:

A. 6 times

B. 5 times

C. 7 times

D. 60 times

Answer A

156,000 / 26,000 = 6 times, roughly once every 61 days.

Q 20 · Return on capital employed [1]

Operating profit is $54,000 and capital employed $450,000. Return on capital employed is:

A. 8.3%

B. 20%

C. 5.4%

D. 12%

Answer D

54,000 / 450,000 = 12%.

Q 21 · Marginal costing [1]

Selling price is $40 per unit, variable cost $24 per unit and fixed costs are $96,000. Break-even sales volume is:

A. 2,400 units

B. 8,000 units

C. 6,000 units

D. 4,000 units

Answer C

Unit contribution 40 – 24 = 16; 96,000 / 16 = 6,000 units.

Q 22 · Margin of safety [1]

Budgeted sales are 8,000 units and break-even sales 6,000 units. The margin of safety is:

A. 1,500 units (18.75%%)

B. 2,000 units (25%)

C. 2,000 units (33.3%)

D. 6,000 units (75%)

Answer B

8,000 – 6,000 = 2,000 units; 2,000 / 8,000 = 25%.

Q 23 · Overhead absorption [1]

Budgeted production overheads are $120,000 and budgeted machine hours 15,000. An order using 320 machine hours absorbs:

A. $2,560

B. $2,400

C. $1,600

D. $3,200

Answer A

Absorption rate = 120,000 / 15,000 = $8.00 per machine hour; 320 x 8 = 2,560.

Q 24 · Over and under absorption [1]

Actual production overheads for the year were $121,500 and overheads absorbed were $118,000. The result is:

A. Over-absorbed by $3,500

B. Under-absorbed by $121,500

C. Over-absorbed by $118,000

D. Under-absorbed by $3,500

Answer D

Absorbed is lower than actual by 121,500 – 118,000 = 3,500, so overheads are under-absorbed and cost of sales is increased.

Q 25 · Flexible budgets [1]

The budget was 5,000 units at $12 of material each; actual output was 5,400 units. The flexed budget for material is:

A. $64,800

B. $60,000

C. $67,500

D. $5,400

Answer A

The flexible budget uses actual output: 5,400 x 12 = 64,800.

Q 26 · Partnership appropriation [1]

Partnership profit is $96,000; salaries are $30,000 for A and $18,000 for B; interest on capital is 10% on capitals of $100,000 and $60,000; the remainder is shared 3:2. A’s total share is:

A. $52,000

B. $59,200

C. $49,200

D. $56,000

Answer B

Remainder = 96,000 – 30,000 – 18,000 – 10,000 – 6,000 = 32,000; A receives salary 30,000 + interest 10,000 + 3/5 of 32,000 = 59,200.

Q 27 · Share issues [1]

A company issues 200,000 shares of $1 nominal value at $1.60 each. The share premium is:

A. $320,000

B. $200,000

C. $60,000

D. $120,000

Answer D

Premium per share is 0.60, so 200,000 x 0.60 = 120,000; total proceeds 320,000.

Q 28 · Dividends [1]

There were 150,000 shares in issue and an interim dividend of $0.04 per share was paid; a final dividend of $0.06 per share is proposed at the year end. Total dividends paid this year are:

A. $9,000

B. $24,000

C. $6,000

D. $15,000

Answer C

Interim dividend paid: 150,000 x 0.04 = 6,000. The proposed final dividend of 9,000 is not yet paid at the year end, so it is not included.

Q 29 · Cost classification [1]

Direct material is $42,000, direct labour $58,000 and production overheads $24,000. Production cost is:

A. $66,000

B. $124,000

C. $100,000

D. $82,000

Answer B

Prime cost = 42,000 + 58,000 = 100,000; production cost = 100,000 + 24,000 = 124,000.

Q 30 · Investment appraisal: payback [1]

A machine costs $90,000 and generates net cash inflows of $30,000 each year. The payback period is:

A. 3 years

B. 2 years

C. 3.5 years

D. 4.5 years

Answer A

90,000 / 30,000 = 3 years, so cumulative inflows equal the cost at the end of year 3.