Form 5 BAFS Practice Paper: Financial Accounting, Cost Accounting And Financial Management (12 Questions, 100 Marks, 75 Minutes)

Form 5 BAFS Practice Paper: Financial Accounting, Cost Accounting and Financial Management (12 questions, 100 marks, 75 minutes)

2026-11-05

Form 5 BAFS – 12 questions – 100 marks – 75 minutes

Form 5 BAFS practice paper: 12 questions, 100 marks, 75 minutes on the accounting equation, depreciation and break-even analysis, with full answers and marking points.

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Paper details　Form 5 BAFS practice paper: 12 questions, 100 marks, 75 minutes with answers covering financial accounting, cost accounting and financial management.

Section A: Financial Accounting (Q1-Q4, 34 marks)

Answer all questions; show all workings and state the units in every answer.

#	Question	Answer and marking notes
1	1. A sole proprietorship has total assets of $850,000 and total liabilities of $320,000 at 31 December 2025. (a) Using the accounting equation, calculate the owner’s capital. (3 marks) (b) Give one example of a current asset and one example of a non-current liability. (3 marks) (c) The business then buys equipment for $50,000 cash. Explain the effect on the three elements of the accounting equation. (3 marks)	Answer: (a) Capital = assets − liabilities = $850,000 − $320,000 = $530,000. (3 marks: equation 1, substitution 1, answer 1) (b) Current asset: inventory or trade receivables (1.5 marks); non-current liability: a five-year bank loan or bonds payable (1.5 marks). (c) Cash falls by $50,000 and equipment rises by $50,000, so total assets are unchanged; liabilities and capital are unchanged and the accounting equation still balances. (3 marks)
2	2. A company buys a machine for $480,000 at the start of the year. It has an estimated useful life of 5 years and a residual value of $30,000. Straight-line depreciation is used. (a) Calculate the annual depreciation expense. (3 marks) (b) Calculate the net book value after two years. (3 marks) (c) Give two reasons why the straight-line method suits this machine. (3 marks)	Answer: (a) Annual depreciation = ($480,000 − $30,000) ÷ 5 = $90,000. (3 marks: formula 1, working 1, answer 1) (b) Accumulated depreciation = $90,000 × 2 = $180,000; net book value = $480,000 − $180,000 = $300,000. (3 marks) (c) The machine gives up benefit evenly over its life, so an equal annual charge is simple and the residual value and useful life can be estimated reliably. (3 marks, 1.5 each)
3	3. A shop has opening inventory of $60,000, purchases of $240,000, closing inventory of $75,000 and sales of $360,000 for the year. (a) Calculate the cost of goods sold. (3 marks) (b) Calculate the gross profit and the gross profit margin. (3 marks) (c) Explain how a change in the inventory valuation method affects this year’s profit. (3 marks)	Answer: (a) Cost of goods sold = $60,000 + $240,000 − $75,000 = $225,000. (3 marks) (b) Gross profit = $360,000 − $225,000 = $135,000; gross margin = $135,000 ÷ $360,000 = 37.5%. (3 marks, 1.5 each) (c) If prices rise and FIFO is used, closing inventory is higher and cost of goods sold is lower, so profit rises; a weighted average method gives a lower profit. The method must be applied consistently. (3 marks)
4	4. A company has trade receivables of $400,000 at the year end and decides to recognise an allowance for doubtful debts at 5%. (a) Calculate the amount of the allowance for doubtful debts. (3 marks) (b) Calculate the net trade receivables. (2 marks) (c) Give two measures to control credit risk. (2 marks)	Answer: (a) Allowance for doubtful debts = $400,000 × 5% = $20,000. (3 marks) (b) Net trade receivables = $400,000 − $20,000 = $380,000. (2 marks) (c) Check customers’ credit records and set credit limits before granting credit; offer cash discounts for early payment and send statements regularly. (2 marks, 1 each)

Section B: Cost Accounting (Q5-Q8, 33 marks)

Amounts must be shown in $ with thousands separators; ratios in the form “:1” to two decimal places.

#	Question	Answer and marking notes
5	5. A factory has these costs: factory rent, direct materials and electricity (a fixed monthly charge plus a charge per unit used). (a) Classify each cost as fixed, variable or semi-variable. (3 marks) (b) Explain why direct materials are a variable cost. (3 marks) (c) Explain why fixed cost per unit falls as output rises. (3 marks)	Answer: (a) Factory rent is a fixed cost (1 mark); direct materials are a variable cost (1 mark); electricity is a semi-variable cost (1 mark). (b) Material usage rises in direct proportion to output and is nil when production stops, so the cost per unit stays broadly constant while the total varies with output. (3 marks) (c) Total fixed cost does not change within the relevant range, so the same amount is spread over more units and the fixed cost per unit falls. (3 marks)
6	6. A product sells for $120, has a variable cost of $72 per unit and annual fixed costs of $240,000. (a) Calculate the contribution per unit. (3 marks) (b) Calculate the break-even point in units. (3 marks) (c) Calculate the profit if 6,000 units are sold. (2 marks)	Answer: (a) Contribution per unit = $120 − $72 = $48. (3 marks) (b) Break-even units = $240,000 ÷ $48 = 5,000 units. (3 marks) (c) Profit = (6,000 − 5,000) × $48 = $48,000. (2 marks)
7	7. Manufacturers may use different costing methods. (a) Explain the production situations suited to job costing and to process costing. (3 marks) (b) Give two examples each of direct costs and indirect costs. (3 marks) (c) Explain why manufacturing overhead is absorbed using a predetermined rate. (2 marks)	Answer: (a) Job costing suits production by order or batch with different specifications, such as heavy machinery or custom furniture (1.5 marks); process costing suits continuous mass production of identical units, such as chemicals or drinks (1.5 marks). (b) Direct costs: direct materials and direct labour (1.5 marks); indirect costs: factory rent, machine depreciation or factory manager’s salary (1.5 marks). (c) Actual overhead is only known at the period end, while products are completed during the period and need pricing, costing and inventory valuation. (2 marks)
8	8. A department budgeted to produce 8,000 units at a variable cost of $45 per unit with fixed costs of $200,000. It actually produced 7,500 units at a total cost of $545,000. (a) Prepare a flexible budget total cost for 7,500 units. (3 marks) (b) Calculate the total cost variance and state whether it is favourable or adverse. (3 marks) (c) Give one possible cause of the variance. (2 marks)	Answer: (a) Flexible budget total cost = 7,500 × $45 + $200,000 = $337,500 + $200,000 = $537,500. (3 marks) (b) Total cost variance = actual $545,000 − budget $537,500 = $7,500 adverse. (3 marks: working 2, label 1) (c) Possible cause: material prices rose, or waste and inefficiency increased variable costs above budget. (2 marks)

Section C: Financial Management (Q9-Q12, 33 marks)

Marks are given for correct workings, clear steps and sound business judgement.

#	Question	Answer and marking notes
9	9. A company has current assets of $600,000 (including inventory of $180,000) and current liabilities of $250,000. (a) Calculate the current ratio. (3 marks) (b) Calculate the quick ratio. (3 marks) (c) Comment on the company’s short-term liquidity using both ratios. (3 marks)	Answer: (a) Current ratio = $600,000 ÷ $250,000 = 2.4:1. (3 marks) (b) Quick ratio = ($600,000 − $180,000) ÷ $250,000 = 1.68:1. (3 marks) (c) Both ratios exceed 1, so short-term liquidity is sound; inventory is about 30% of current assets, yet the quick ratio of 1.68 means current liabilities can still be met even if inventory is slow to sell. (3 marks)
10	10. A company plans to invest $500,000 in equipment that will generate net cash inflows of $125,000 a year for 5 years. (a) Calculate the payback period. (3 marks) (b) If the company requires payback within 3 years, what is the minimum annual net cash inflow? (3 marks) (c) Give one weakness of the payback method. (2 marks)	Answer: (a) Payback period = $500,000 ÷ $125,000 = 4 years. (3 marks) (b) Minimum annual net cash inflow = $500,000 ÷ 3 = $166,667 (rounded up). (3 marks) (c) It ignores cash flows after the payback date and ignores the time value of money, so a profitable long-term project may be rejected. (2 marks)
11	11. A company needs to raise $2,000,000 and is considering a bank loan or issuing new shares. (a) If the loan carries 6% interest a year, calculate the annual interest expense. (3 marks) (b) If new shares are issued at $10 each, calculate the number of shares needed. (3 marks) (c) Give one risk of debt financing. (2 marks)	Answer: (a) Annual interest = $2,000,000 × 6% = $120,000. (3 marks) (b) Shares needed = $2,000,000 ÷ $10 = 200,000 shares. (3 marks) (c) Interest and principal must be repaid on schedule; weak operating cash flow can lead to default and threaten going concern, and interest reduces profit. (2 marks)
12	12. A business may raise funds internally or externally. (a) Give three internal sources of funds. (3 marks) (b) Give two types of external financing with one example each. (3 marks) (c) Explain why the cost of retained earnings is usually lower. (2 marks)	Answer: (a) Internal sources: retained earnings, sale of surplus assets, and tighter control of inventory and receivables to release cash. (3 marks, 1 each) (b) External financing: equity finance (issuing new shares) and debt finance (bank loan or bonds). (3 marks) (c) Retained earnings are shareholders’ existing funds, so no issue costs, underwriting fees or interest are incurred; the cost of capital is therefore usually lower. (2 marks)

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