I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

subsidiary relationship exists? 

A Control 

B 

Greater than 50% of the preference shares held by an investor 

C Significant 

influence 

D 

50% of all shares held by an investor 

(2 marks) 

Total marks for the question 

(15 marks) 

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PRACTICE ANSWER BANK 

 

511 

1 

C 

A sole trader also invests capital in their business. 

2 

C 

The board of directors are responsible for the preparation of financial statements. Even 

though the financial statements may be physically prepared by the finance department, 

the board of directors still has responsibility for them. The auditors are not responsible for 

the financial statements; they are responsible for the annual audit and producing an audit 

report. 

3 

B 

A company has a separate legal identity to its owners. Unless the partners have formed a 

limited liability partnership, the partners are jointly liable for the debts of the business.   

4 

D 

1 and 3 are advantages of trading as a limited liability company. Publishing annual 

financial statements and the requirement for an audit are disadvantages of trading as a 

limited liability company.  

5 

B 

A director's main aim should be to create wealth for the shareholders of the company. The 

shareholders are the owners of the company and the directors are managing the affairs of 

the company on their behalf. This can lead to a conflict of interest and short-termism 

where the directors put their own interests (ie short-term profits and earning bonuses) 

ahead of the interests of the shareholders. Every company should consider its contribution 

to society; this is known as corporate social responsibility. However, this is not the main 

aim of a director.  

6 

B 

The IASB is responsible for developing and issuing IFRSs. An objective of the IFRS 

Foundation is to take account of the financial reporting needs of small and medium-sized 

entities. The IFRS Advisory Council provides a forum for the IASB to consult with the 

national accounting standard setters, academics and other interested parties.  

7 

C 

The IASB is responsible for developing and issuing IFRSs. 

8 

C 

The fourth enhancing qualitative characteristic is verifiability. 

9 D Information 

is material if its omission or misstatement could affect the decisions of the 

users of accounts. The substance over form convention means that transactions are 

accounted for in accordance with their substance and not merely their legal form.  

10 

D 

The fundamental qualitative characteristics are relevance and faithful representation.  

11 

B 

The exact amount of expenditure is reimbursed at intervals to maintain a fixed float. 

12 

B 

Under the imprest system, a reimbursement is made of the amount of the vouchers (or 

payments made) for the period.  

13 

B 

A remittance advice gives details of the invoices covered by the payment. 

14 

A 

Supplier statements are statements sent out by suppliers listing all the transactions on a 

customer's account. Petty cash vouchers are vouchers issued in the petty cash imprest 

system for payments made from petty cash.  

15 

C 

Credit notes received from suppliers are recorded in the purchase returns day book. 

16 

A 

The business entity concept is also known as the separate entity concept. 

17 

B 

A is incorrect as the debits and credits don't equal each other, C is incorrect as the debits 

and credits are the wrong way round and D is incorrect as the debits and credits are the 

wrong way round and the credit sale has been ignored.  

18 

C 

You are recording the transaction in Cheddar's books – Cheddar is the seller, so the double 

entry is Dr receivables, Cr sales $500.  

19 

A 

A credit increases a liability, increases income or decreases an asset.  

20 

B 

The account has a debit balance. 

21 

A 

A debit balance brought down on the cash T-account represents an asset. 

22 

A 

Balance carried down from the previous period shows debits exceed credits and so it is a 

debit balance brought down for the new period. 

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             PRACTICE ANSWER BANK