Accounting concepts and principles Banker

1. (a) Bilal owns a mobile phone repair shop in Rawalpindi. He pays the electricity bill for his family home from his own savings account, and it is not recorded anywhere in the shop's books. Which accounting concept is being applied?A business entityB dualityC going concernD money measurement [1]

1. (a) A bookshop values a box of last year's diaries at their expected selling price of $140 less selling costs of $20, because this is lower than their cost of $310. Which concept requires this?A consistencyB matchingC prudenceD realisation [1]

1. (a) Which item would NOT be recorded in the books of a software company because of the money measurement concept?A a laptop bought on credit from a supplierB the loyalty and good morale of its programmersC a loan received from a bankD an amount owed by a customer who is unlikely to pay [1]

Nadia runs a printing business in Karachi. She has owned a large printing press for three years.

1. (a) State what is meant by the going concern concept. [2]
2. (b) Explain how the going concern concept affects the value of non-current assets in a statement of financial position. [2]

1. (a) Explain the money measurement concept. [2]
2. (b) State two items of value to a business that are not recorded because of this concept. [2]

1. (a) Explain the duality concept. [2]
2. (b) Kamran buys a delivery van costing $14,500 on credit from Pak Motors. State the two effects of this transaction on the accounting equation. [2]

Farah's bakery has a year end of 30 June. On 1 July 2026 electricity of $780 was owing for June 2026. During the year to 30 June 2027 she paid electricity bills of $9,640. On 30 June 2027 electricity of $1,120 was owing.

1. (a) Name the accounting concept that requires the electricity expense to include amounts not yet paid. [1]
2. (b) Calculate the electricity expense to be shown in the statement of profit or loss for the year ended 30 June 2027. [3]

Ali Traders bought land in 2004 for $85,000. A valuer says it is worth $410,000 today. The business has never revalued the land.

1. (a) State the historical cost concept. [1]
2. (b) State one advantage and one disadvantage of using historical cost for the land bought by Ali Traders. [2]

Saima runs a dental clinic in Peshawar. Her year ends on 31 December. On 1 January 2026 insurance of $2,400 had been prepaid for January to September 2026. On 1 October 2026 she paid $3,600 for twelve months' insurance to 30 September 2027.

1. (a) Calculate the insurance expense for the year ended 31 December 2026. [3]
2. (b) State the amount of the prepayment at 31 December 2026 and where it appears in the statement of financial position. [2]

1. (a) State the realisation concept. [2]
2. (b) A customer orders goods on 3 March, receives them on 9 March and pays on 20 April. State the date on which the revenue is recognised. [1]

1. (a) A large hotel company buys a waste-paper bin for $18. It is expected to last five years, but the cost is charged in full to the statement of profit or loss as general expenses. Which concept justifies this treatment?A historical costB materialityC going concernD prudence [1]

1. (a) A furniture maker's year ends on 31 December 2026. A customer ordered a table on 10 December 2026 and paid in full on 2 January 2027. The table was delivered to and accepted by the customer on 29 December 2026. In which year should the sale be recognised, and which concept applies?A year ended 31 December 2026; realisationB year ended 31 December 2027; realisationC year ended 31 December 2026; going concernD year ended 31 December 2027; matching [1]

Omar sells solar lamps. On the last day of his financial year he sent lamps to a retailer on sale or return. The retailer had not accepted them by the year end. Omar included the lamps in revenue at their selling price of $4,800, which is cost plus 20%. They were not included in closing inventory. His draft profit for the year was $41,350.

1. (a) Explain why the treatment of these goods breaks the realisation concept. [2]
2. (b) Calculate the corrected profit for the year. [3]

At the end of her financial year, Hina, a clothing retailer in Lahore, has the following inventory.Item Cost $ NRV $Cotton shirts 6,200 9,100Silk scarves 3,450 2,800Leather belts 1,980 1,650Denim jackets 7,400 11,200

1. (a) Calculate the value of closing inventory. [3]
2. (b) Identify the accounting concept you have applied and explain why it is applied item by item rather than to the total. [2]

Zubair Engineering bought a machine two years ago for $48,000. It has been depreciated at 10% per year on cost (straight-line). For year 3 the accountant proposes to use 20% per year on the reducing balance instead.

1. (a) Explain the consistency concept. [2]
2. (b) Calculate the depreciation for year 3 under the existing method and under the proposed method. [3]
3. (c) State the effect on profit for year 3 if the method is changed, and state one condition under which a change of method is acceptable. [2]

1. (a) Explain the materiality concept. [2]
2. (b) A stapler costing $25 is material to a small corner shop but not to a multinational bank. Explain this statement. [2]
3. (c) State two items, other than small value equipment, for which materiality affects the accounting treatment. [2]

Rashid owns a grocery shop. During the year he took goods costing $650 from the shop for his family's use, and paid his home electricity bill of $420 from the business bank account. Both amounts were recorded as business expenses: the goods remained in purchases and the bill was debited to the shop's electricity account. His draft profit for the year was $38,200.

1. (a) Calculate the corrected profit for the year. [3]
2. (b) State how each item should be recorded, and name the concept that has been broken. [3]

Crescent Textiles Limited has made losses for three years and its bank has warned it may withdraw the overdraft.

1. (a) State two indicators that a company may not be a going concern. [2]
2. (b) Explain two effects on the financial statements if a company is no longer a going concern. [4]

1. (a) For each situation, name the accounting concept that is applied or broken.(i) A taxi company changes from straight-line to reducing balance depreciation each year, choosing whichever gives the higher profit.(ii) The owner records the business's van at the price paid, not its current market value.(iii) A wholesaler makes an allowance for a customer who has entered liquidation.(iv) Commission earned in the final week of the year is included in income although it will be received next month. [4]
2. (b) Explain why the treatment in (i) could mislead users of the financial statements. [2]

A wholesaler in Faisalabad has trade receivables of $64,000 at the year end. It keeps an allowance for irrecoverable debts of 2.5% of trade receivables. The allowance brought forward is $1,250.

1. (a) Calculate the amount to be charged to the statement of profit or loss for the allowance for irrecoverable debts. [2]
2. (b) State the net figure for trade receivables in the statement of financial position. [1]
3. (c) Name the concept that requires an allowance for irrecoverable debts and explain why. [2]

Kareem is thinking of lending money to a small manufacturing business and is studying its financial statements for the last four years.

1. (a) Explain two reasons why the consistency concept is important to users of financial statements. [4]

1. (a) A trader's financial year ends on 31 March 2027. Rent of $1,850 per month is payable for a shop. During the year she paid $20,350, which covered April 2026 to February 2027. What rent expense should appear in the statement of profit or loss for the year ended 31 March 2027?A $18,500B $20,350C $22,200D $24,050 [1]

1. (a) Which statements about accounting concepts are correct?1 The consistency concept means that a business can never change its depreciation method.2 The going concern concept supports valuing non-current assets at cost less depreciation rather than at their forced-sale value.3 The duality concept means that every transaction has two equal and opposite effects.4 The money measurement concept means that the skill of a business's workforce is shown as an asset.A 1 and 2B 1 and 4C 2 and 3D 3 and 4 [1]

Tariq has decided to close his electronics shop next month. His draft statement of financial position shows: inventory $26,000; equipment (carrying amount) $40,000; trade receivables $15,000; cash $3,800; trade payables $21,400.If the shop closes: the inventory can be sold for $17,500; the equipment for $22,000; and 10% of the trade receivables will not be collected. Cash and payables are unchanged.

1. (a) Calculate Tariq's capital (net assets) on the going concern basis. [1]
2. (b) Calculate Tariq's capital if the business is no longer a going concern, and the decrease in capital. [4]
3. (c) Explain why the going concern concept no longer applies to Tariq's business. [2]

1. (a) Explain how the prudence concept and the realisation concept work together when a business values its closing inventory. [3]
2. (b) Discuss whether too much prudence can conflict with the aim of giving a true and fair view. [4]

Jamal Kitchens' year ends on 30 June. On 20 June 2027 a customer ordered an industrial oven for $8,000 and paid a deposit of $2,000. The oven, which cost Jamal $5,000, was still in the warehouse on 30 June and was delivered on 5 July 2027. The bookkeeper recorded the full $8,000 as revenue, set up a trade receivable for $6,000, and left the oven out of closing inventory. Draft profit was $63,400.

1. (a) Explain, with reference to the realisation concept, why this sale should not be included in revenue for the year ended 30 June 2027. [2]
2. (b) Calculate the corrected profit for the year. [2]
3. (c) Explain how the deposit of $2,000 should be shown in the statement of financial position at 30 June 2027, and state the other correction needed to that statement. [3]

The conceptual framework used for international financial reporting sets out the qualitative characteristics that make financial information useful to investors, lenders and other creditors.

1. (a) Explain the two fundamental qualitative characteristics of useful financial information. [4]
2. (b) Name two enhancing qualitative characteristics and explain how one of them helps an investor comparing two companies. [3]

Sofia's draft profit for the year is $54,300. The following have been discovered:1 Revenue includes goods with a selling price of $3,000 sent on sale or return and not yet accepted. They cost $2,250 and are not in closing inventory.2 Closing inventory includes goods at cost $1,800 which can only be sold for $1,100.3 Rent expense includes $1,500 paid for the first month of next year.4 The school fees of Sofia's daughter, $2,400, were paid from the business bank account and charged to general expenses.

1. (a) For each item, name the accounting concept that has not been applied. [4]
2. (b) Prepare a statement showing the corrected profit for the year. [5]

Indus Agro Limited revalued its land upwards by $30,000 during the year. The land was not sold. The accountant included the gain in the statement of profit or loss, giving a draft profit for the year of $72,000.

1. (a) Calculate the corrected profit for the year. [1]
2. (b) Explain, with reference to accounting concepts, why the revaluation gain should not be included in the profit for the year. [3]
3. (c) The managing director argues that showing the land at $30,000 more makes the statements more useful. Evaluate this argument. [3]

Leila owns a shoe shop in Islamabad. At her year end she has 1,200 pairs of shoes that cost $14 each and normally sell for $22 each. She wants to apply for a bank loan and proposes to value her closing inventory at selling price to show a higher profit.

1. (a) Calculate the amount by which profit would be overstated if Leila used her proposed valuation. [2]
2. (b) Advise Leila whether she should value her closing inventory at selling price. Justify your answer. [5]