IGCSE Accounting 0452 Paper 1 Practice Paper | 10 Financial Accounting Questions, 100 Marks

The following balances were extracted from the books of a sole trader on 31 March 2026: purchases $84,600; purchases returns $1,900; sales $168,400; sales returns $2,400; wages $31,200; rent $18,000; insurance $6,600; motor vehicles $96,000; trade receivables $42,800; bank $12,500; drawings $24,000; general expenses $9,300; provision for doubtful debts $1,600; loan $60,000. (a) Calculate the capital balance on 31 March 2026, using capital as the balancing figure. (b) Calculate the total of the debit and credit columns of the trial balance and explain why the two totals must agree.

Answer: (a) Debit total = 84,600 + 2,400 + 31,200 + 18,000 + 6,600 + 96,000 + 42,800 + 12,500 + 24,000 + 9,300 = $327,400. Credits excluding capital = 168,400 + 1,900 + 1,600 + 60,000 = $231,900. Capital = 327,400 – 231,900 = $95,500. (b) Debit total = credit total = $327,400. Every transaction is recorded with equal debits and credits, so the accounting equation assets + expenses + drawings = liabilities + capital + revenue holds after each entry and the sum of debit balances always equals the sum of credit balances. If the totals differ, the difference is entered in a suspense account and the book-keeping error is traced. 4 marks for the calculation, 3 for the capital balance, 3 for the explanation, 2 for the totals.

A business bought a machine on 1 January 2024 for $120,000. It is expected to last 6 years and to have a residual value of $12,000. (a) Using the straight-line method, calculate the annual depreciation and the net book value after three years. (b) Using the reducing balance method at 25% per year, calculate the depreciation charge for each of the first three years and the net book value after three years. (c) State the effect of each method on the profit of the first year.

Answer: (a) Annual depreciation = (120,000 – 12,000) / 6 = $18,000; depreciation for three years = $54,000 and net book value = 120,000 – 54,000 = $66,000. (b) Reducing balance: year 1 120,000 x 25% = $30,000, net book value $90,000; year 2 90,000 x 25% = $22,500, net book value $67,500; year 3 67,500 x 25% = $16,875, net book value $50,625. (c) In year 1 the reducing balance charge of $30,000 exceeds the straight-line charge of $18,000, so profit is $12,000 lower; later charges fall each year, whereas the straight-line method spreads an equal charge and gives a more stable profit. 3 to 4 marks per part, with workings and units.

On 31 May 2026 the bank column of a trader cash book showed a debit balance of $14,320. A comparison with the bank statement showed: unpresented cheques $3,150; lodgements not yet credited by the bank $4,800; bank charges $180 not entered in the cash book; a standing order paid by the bank $900 not entered in the cash book; a credit transfer from a customer $1,200 not entered in the cash book. (a) Prepare the corrected cash book bank balance. (b) Calculate the balance on the bank statement at 31 May and show the reconciliation.

Answer: (a) Corrected cash book balance = 14,320 – 180 – 900 + 1,200 = $14,440. (b) Bank statement balance = corrected cash book balance + unpresented cheques – lodgements not credited = 14,440 + 3,150 – 4,800 = $12,790. Unpresented cheques have been paid by the trader but not yet deducted by the bank, so the bank statement balance is higher; lodgements have been received by the trader but not recorded by the bank, so the bank statement balance is lower; bank charges and the standing order must be entered by the trader while the credit transfer was already entered by the bank, so the cash book is corrected first and the timing items then reconcile the two records. 1 to 2 marks per adjustment, 3 marks for the reconciliation statement.

A trial balance had a difference of $450 which was entered in the debit side of a suspense account. Three errors were later found: (i) the sales day book was undercast by $450; (ii) purchases returns of $300 were entered on the debit side of the purchases returns account; (iii) purchases discount of $90 was completely omitted. (a) Prepare the journal entries to correct each error, stating the accounts and the debit and credit to the suspense account. (b) Calculate the final balance on the suspense account and state whether it is shown as an asset or a liability.

Answer: (a)(i) Debit sales $450, credit suspense $450. (ii) Purchases returns should have been credited and were debited, so the difference is twice the amount: debit suspense $600, credit purchases returns $600. (iii) Debit suspense $90, credit purchases discount $90. (b) The suspense account began with a debit of $450, then a credit of $450, then a debit of $690, giving a credit balance of $240. A credit balance means expenses were overstated or income understated, so it is shown as a liability in the statement of financial position; a debit balance would be an asset. 2 marks per journal, 3 for the balance, 1 for the classification.

A company reported: revenue $480,000; cost of sales $312,000; operating expenses $108,000; capital employed $300,000; current assets $156,000 including inventory $48,000; current liabilities $78,000. (a) Calculate the gross profit margin, net profit margin and return on capital employed, as percentages to one decimal place. (b) Calculate the current ratio and the quick ratio to two decimal places and comment on short-term liquidity.

Answer: (a) Gross profit = 480,000 – 312,000 = $168,000; net profit = 168,000 – 108,000 = $60,000. Gross profit margin = 168,000 / 480,000 x 100 = 35.0%; net profit margin = 60,000 / 480,000 x 100 = 12.5%; ROCE = 60,000 / 300,000 x 100 = 20.0%. (b) Current ratio = 156,000 / 78,000 = 2.00; quick ratio = (156,000 – 48,000) / 78,000 = 108,000 / 78,000 = 1.38. A current ratio of 2.00 and a quick ratio near 1.4 show that current assets cover short-term liabilities, but inventory is 30.8% of current assets, so slow-moving or obsolete stock would weaken liquidity; inventory turnover should also be monitored. 2 marks per ratio, 2 for the comment.

A trader reported opening inventory $36,000; purchases $268,000; purchases returns $8,000; carriage inwards $12,000; closing inventory $44,000. (a) Calculate the cost of sales. (b) Explain why carriage inwards is added to purchases while purchases returns are deducted.

Answer: (a) Cost of sales = opening inventory + purchases – purchases returns + carriage inwards – closing inventory = 36,000 + 268,000 – 8,000 + 12,000 – 44,000 = $264,000. (b) Carriage inwards is the cost of bringing goods to the warehouse and is part of the cost of acquiring inventory, so it is added to purchases; purchases returns are goods sent back to suppliers, so that cost is no longer borne by the business and is deducted. Both adjustments change the cost of goods available for sale, and if they are ignored both cost of sales and gross profit are misstated. 3 marks for the calculation, 2 for the answer, 1.5 per explanation.

Profit before year-end adjustments was $84,600. The following had not been adjusted: (i) rent paid includes $6,000 relating to next year; (ii) wages of $4,500 are unpaid; (iii) insurance paid includes $1,800 relating to next year. (a) Calculate the adjusted profit. (b) State how each item is treated in the statement of financial position.

Answer: (a) Adjusted profit = 84,600 + 6,000 (prepaid rent reduces the expense) – 4,500 (accrued wages increase the expense) + 1,800 (prepaid insurance reduces the expense) = $87,900. (b) Prepaid rent of $6,000 and prepaid insurance of $1,800 are current assets (prepayments) which become expenses next year; accrued wages of $4,500 are a current liability (accrual) settled next year. Without the adjustments both the expenses and the profit of the year would be misstated. 4 marks for the calculation, 2 for the answer, 1 per treatment.

At 31 December 2025 trade receivables totalled $96,000. Bad debts of $4,000 are to be written off; a provision for doubtful debts of 5% of the remaining receivables is required; the provision account already carried a credit balance of $3,800. (a) Calculate the provision required at the year end. (b) Calculate the bad debts expense charged to the income statement, including the write-off and the change in the provision.

Answer: (a) Receivables after the write-off = 96,000 – 4,000 = $92,000; provision required = 92,000 x 5% = $4,600. (b) The provision must rise from $3,800 to $4,600, an increase of $800; with bad debts written off of $4,000 the total expense is $4,800. If the provision had fallen, the reduction would be credited to the income statement as income. 4 marks for the calculation, 2 for the answer, 2 for the expense.

A business incurred: (i) factory extension $12,000; (ii) repainting of the factory $2,400; (iii) purchase of a delivery van $18,000; (iv) annual servicing of the van $900; (v) installation and testing of a new machine $3,600. (a) Classify each item as capital or revenue expenditure and give a reason. (b) If all the items had been treated as revenue expenditure, calculate the effect on the profit for the year and on total assets.

Answer: (a) Capital expenditure: (i) $12,000, (iii) $18,000 and (v) $3,600, total $33,600, because the extension lengthens the useful life or raises capacity, and the van and the machine installation cost are incurred to acquire the assets and bring them into working condition. Revenue expenditure: (ii) $2,400 and (iv) $900, total $3,300, because repainting and servicing only maintain the assets in their existing condition. (b) Expenses would be overstated by $33,600, so profit would be understated by $33,600; non-current assets and total assets would be understated by $33,600, and capital would be understated by the same amount. 1 mark per classification, 2 for reasons, 2 for the effects.

A trader provides only the following: net sales for the year $250,000; gross profit margin is 25% mark-up on cost; operating expenses $60,000. (a) Calculate the cost of sales and the gross profit. (b) Calculate the net profit and explain why the gross profit margin differs from the net profit margin.

Answer: (a) A mark-up of 25% means selling price = cost x 1.25, so cost of sales = 250,000 / 1.25 = $200,000 and gross profit = 250,000 – 200,000 = $50,000. (b) Net profit = 50,000 – 60,000 = -$10,000, a net loss. The gross profit margin measures only the relationship between selling price and cost of sales, so it tests pricing and stock control; the net profit margin deducts wages, rent and depreciation as well and measures overall profitability, so it is lower than the gross margin and the gap shows how well expenses are controlled. 4 marks for the calculation, 2 for net profit, 2 for the explanation.