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Free Questions › ACCA › Financial Accounting
Free ACCA Financial Accounting Practice Questions & Answers
400 exam-style Financial Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 151
Goods sold for £1,200 inclusive of 20% VAT. What is the VAT amount and net revenue?
Select an option first.
Correct answer: A — VAT £200; Net revenue £1,000
Explanation: A is correct. VAT-inclusive price £1,200. VAT = £1,200 × 20/120 = £200. Net revenue = £1,200 − £200 = £1,000. B applies 20% to the inclusive price incorrectly. C and D use wrong calculations.
Question 152
A VAT-registered business buys goods for £600 plus 20% VAT. What amount is recorded as 'purchases'?
Select an option first.
Correct answer: C — £600 (net, excluding VAT which is recovered separately)
Explanation: C is correct. Input VAT (£120) is recoverable from HMRC — recorded in a VAT account, not in purchases. Purchases recorded at £600 net. A includes VAT. B is just the VAT. D uses wrong amount.
Question 153
What is a trade discount and how is it recorded?
Select an option first.
Correct answer: B — A reduction in the list price given at the time of sale — only the net price after discount is recorded; no separate accounting entry for the discount
Explanation: B is correct. Trade discount: straightforward price reduction — only the net price is recorded. No separate journal. A describes a settlement discount. C and D are other discount types.
Question 154
What is a settlement (cash) discount and how does it differ from a trade discount?
Select an option first.
Correct answer: B — A discount offered as an incentive for early payment — if taken, it IS recorded (reduces revenue or creates discount allowed expense)
Explanation: B is correct. Settlement discount: offered for early payment. If taken: record reduced cash, reduced receivable, and discount allowed expense (or reduced revenue). Different accounting treatment from trade discounts. C and D are incorrect.
Question 155
Inventory should be measured at:
Select an option first.
Correct answer: B — The lower of cost and net realisable value (NRV)
Explanation: B is correct. IAS 2: inventory at lower of cost and NRV. If NRV < cost, write down and expense the difference. A uses selling price. C ignores the NRV test. D is replacement cost (not IAS 2).
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Question 156
What does FIFO stand for and what does it assume?
Select an option first.
Correct answer: B — First In, First Out — earliest purchased goods sold first; closing inventory valued at most recent costs
Explanation: B is correct. FIFO: oldest goods sold first. Closing inventory = most recent purchases. In rising prices, FIFO gives higher closing inventory and higher profit than AVCO. A reverses FIFO. C and D are invented.
Question 157
What is the 'weighted average cost' (AVCO) method?
Select an option first.
Correct answer: B — A new average cost per unit calculated after each purchase, then used to cost issues and value closing inventory
Explanation: B is correct. AVCO: after each purchase, a new weighted average unit cost is calculated. Issues and closing inventory costed at this average, smoothing price fluctuations. A is not a recognised method. C describes LIFO (not permitted under IAS 2). D is not recognised.
Question 158
Opening inventory £8,000, purchases £42,000, closing inventory £10,000. What is cost of goods sold?
Select an option first.
Correct answer: A — £40,000
Explanation: A is correct. Cost of sales = Opening + Purchases − Closing = £8,000 + £42,000 − £10,000 = £40,000. B adds closing inventory. C and D use wrong calculations.
Question 159
What is depreciation and what is its accounting purpose?
Select an option first.
Correct answer: B — The systematic allocation of the depreciable amount of an asset over its useful life — matching the cost to the periods that benefit from its use
Explanation: B is correct. Depreciation (IAS 16): an allocation — not cash (A), not market values (C). D describes capital allowances (tax). Depreciation applies the accruals/matching concept.
Question 160
Machine costs £25,000, residual value £1,000, useful life 4 years. Annual straight-line depreciation?
Select an option first.
Correct answer: C — £6,000
Explanation: C is correct. SL = (Cost − Residual) ÷ Life = (£25,000 − £1,000) ÷ 4 = £6,000. A divides full cost by 4 (ignoring residual). B uses wrong divisor. D is cost ÷ 2.
Question 161
What is the 'reducing balance' method of depreciation?
Select an option first.
Correct answer: B — A fixed percentage of the asset's carrying amount at the start of each period — higher charges early, lower later
Explanation: B is correct. Reducing balance: each year the % applies to the net book value (cost minus accumulated depreciation). Front-loaded — suitable for assets losing value quickly. A is straight-line. C and D are wrong.
Question 162
Vehicle costs £18,000, 25% reducing balance. Depreciation charge in year 2?
Select an option first.
Correct answer: B — £3,375
Explanation: B is correct. Year 1: 25% × £18,000 = £4,500. NBV: £13,500. Year 2: 25% × £13,500 = £3,375. A is year 1. C doubles year 1 incorrectly. D is year 3.
Question 163
What is 'accumulated depreciation' and where does it appear?
Select an option first.
Correct answer: B — Total depreciation charged on an asset since acquisition — deducted from cost in the SFP to give net book value
Explanation: B is correct. Accumulated depreciation = total of all annual charges since purchase. SFP: Cost − Accumulated dep = NBV. Current year charge is in P&L. A is only current year. C is a sinking fund. D is disposal accounting.
Question 164
Machine (cost £30,000, accumulated depreciation £12,000) sold for £22,000. Profit or loss on disposal?
Select an option first.
Correct answer: B — £4,000 profit
Explanation: B is correct. NBV = £30,000 − £12,000 = £18,000. Proceeds = £22,000. Profit = £22,000 − £18,000 = £4,000. A uses cost instead of NBV. C and D reverse the sign or use wrong numbers.
Question 165
What is an intangible asset?
Select an option first.
Correct answer: B — An identifiable, non-monetary asset without physical substance — examples include patents, trademarks, customer lists, computer software, and purchased goodwill
Explanation: B is correct. Intangibles (IAS 38): non-physical, identifiable, non-monetary. Examples: patents, trademarks, copyrights, licences, customer relationships. A and C are wrong. D is not the definition.
Question 166
Under IAS 38, when can development costs be capitalised?
Select an option first.
Correct answer: B — Only when all six criteria are met: technical feasibility, intention to complete, ability to use/sell, probable economic benefits, adequate resources, reliable measurement of expenditure
Explanation: B is correct. IAS 38: research always expensed. Development capitalised only if all six criteria met. A is too permissive. C is too late. D gives management too much discretion.
Question 167
What is goodwill and when is it recognised?
Select an option first.
Correct answer: B — Only purchased goodwill arising on acquisition (excess of consideration over fair value of identifiable net assets) — internally generated goodwill is NEVER recognised
Explanation: B is correct. Purchased goodwill (IFRS 3): recognised on business combinations. Internally generated goodwill CANNOT be recognised (IAS 38 prohibition). A and D confuse market and book value. C is internally generated — not recognised.
Question 168
What is an 'accrual' (accrued expense)?
Select an option first.
Correct answer: B — An expense incurred in the current period but not yet invoiced or paid — recognised now as an expense and a current liability
Explanation: B is correct. Accruals: recognised when incurred (accruals concept). If a December utility bill hasn't been received: Debit Utility Expense, Credit Accruals (liability). A is a prepayment. C is a provision. D is deferred income.
Question 169
What is a 'prepayment' and how does it arise?
Select an option first.
Correct answer: B — An amount paid in advance for goods or services that will benefit a future period — shown as a current asset
Explanation: B is correct. Prepayment: cash paid for a benefit extending beyond the current period. E.g., 12-month insurance paid 1 October — 9 months (Jan–Sep) is a prepayment at 31 December. A describes an accrual. C and D are other advance payments.
Question 170
Annual insurance £6,000 paid 1 October, year end 31 December. Prepayment at year end?
Select an option first.
Correct answer: B — £4,500
Explanation: B is correct. Oct–Dec = 3 months expense = 3/12 × £6,000 = £1,500 (P&L). Jan–Sep of next year = 9 months prepaid = 9/12 × £6,000 = £4,500 (asset carried forward). A is the expense charged, not the prepayment. C is the full premium. D is wrong.
Question 171
What is 'accrued income' and how is it recorded?
Select an option first.
Correct answer: B — Income earned in the current period but not yet received or invoiced — Debit Accrued Income (asset); Credit Income
Explanation: B is correct. Accrued income: applies accruals concept to revenue. If interest earned but not yet credited: Debit Accrued Income (current asset), Credit Interest Income. A is deferred income. C is an allowance. D is one specific example.
Question 172
What is 'deferred income'?
Select an option first.
Correct answer: B — Cash received in advance for goods or services not yet delivered — shown as a liability until the performance obligation is satisfied
Explanation: B is correct. Deferred income (IFRS 15 contract liability): customer pays before performance. Cash → Cash asset; Deferred Income → Liability. Revenue recognised only when goods/services delivered. A, C and D are incorrect.
Question 173
What is an 'allowance for doubtful debts'?
Select an option first.
Correct answer: B — A reduction in the reported value of trade receivables to reflect the estimated amount that may not be collected — without identifying specific uncollectable debts
Explanation: B is correct. Allowance: reduces carrying amount of receivables (e.g., aged analysis shows 5% may not be collected). No specific customer identified. A is a physical cash reserve (not required). C is a specific write-off. D is also a specific write-off.
Question 174
Journal entry to create an allowance for doubtful debts for the first time?
Select an option first.
Correct answer: B — Debit Bad Debt Expense; Credit Allowance for Doubtful Debts
Explanation: B is correct. Creating the allowance: Debit Bad Debt Expense (P&L charge) and Credit Allowance for Doubtful Debts (contra to receivables on SFP). A reverses debit/credit. C brings in cash incorrectly. D is the wrong direction.
Question 175
Customer debt of £800 confirmed irrecoverable. Write-off journal entry?
Select an option first.
Correct answer: C — Debit Bad Debt Expense £800; Credit Trade Receivables £800
Explanation: C is correct. Bad debt write-off: Debit Bad Debt Expense (P&L) £800; Credit Trade Receivables £800 (remove the asset). If a specific allowance existed, debit allowance instead. A is used when a specific allowance was set aside. B brings in cash. D increases receivables.
Question 176
£500 previously written off as bad debt is recovered. Journal entries?
Select an option first.
Correct answer: B — First reverse the write-off (Debit Trade Receivables £500; Credit Bad Debt Expense £500), then record cash receipt (Debit Cash £500; Credit Trade Receivables £500)
Explanation: B is correct. Two steps: (1) reinstate the receivable (reverse the write-off) for audit trail; (2) record cash collection. A skips step 1. C credits the wrong account. D is opposite direction.
Question 177
What is a bank reconciliation and its purpose?
Select an option first.
Correct answer: B — A comparison of the cash book with the bank statement — identifying timing differences and errors — used as an internal control to detect errors and fraud
Explanation: B is correct. Bank reconciliation: reconciles the business's cash book with the bank's records. Timing differences (unpresented cheques, deposits in transit) or errors explain differences. Regular reconciliation deters fraud. A and C are different documents. D is a cash budget.
Question 178
Cash book shows £3,500 (Dr). Bank statement shows £4,200. Unpresented cheque £700 identified. Is the reconciliation complete?
Select an option first.
Correct answer: B — Yes — Bank statement £4,200 less unpresented cheque £700 = £3,500 = cash book balance. Complete.
Explanation: B is correct. Bank statement £4,200 − Unpresented cheque £700 = £3,500 = cash book ✓. The cheque has been recorded in the cash book but not yet cleared at the bank. The reconciliation is complete.
Question 179
What is a control account (total account)?
Select an option first.
Correct answer: B — A summary ledger account recording totals of all transactions posted to a subsidiary ledger — its balance should equal the sum of all individual account balances, providing an arithmetic check
Explanation: B is correct. Control accounts (SLCA, PLCA) summarise all postings to individual customer/supplier accounts. SLCA balance = total trade receivables = sum of all individual customer balances. Discrepancy signals an error. A, C and D misuse the term.
Question 180
Under IAS 16, what are the two models available for PPE after initial recognition?
Select an option first.
Correct answer: B — Cost model and revaluation model
Explanation: B is correct. IAS 16: (1) Cost model — cost less accumulated depreciation and impairment; (2) Revaluation model — fair value at revaluation date less subsequent depreciation. Applied to the whole class of assets. A, C and D are not IAS 16 options.
More free ACCA topics
Management Accounting401
Corporate and Business Law400
Performance Management400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
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