AAT Level 4 - Professional Diploma in Accounting Drafting Financial Statements Questions and Answers

Question 1

A UK limited company is preparing its Statement of Cash Flows for the year ended 31 December under FRS 102, using the indirect method.
Which of the following items should be added back to profit before tax when calculating net cash flow from operating activities?

Accepted Answer

Depreciation charge for the year

Answer

Increase in inventories

Answer

Profit on disposal of a non-current asset

Answer

Decrease in trade payables

Question 2

Under FRS 102, a company revalues a piece of property, plant, and equipment upwards for the first time, resulting in a gain. Where should this revaluation gain be recognised in the financial statements?

Accepted Answer

In other comprehensive income and credited to a revaluation reserve

Answer

As a separate line item in the profit and loss account

Answer

Directly in retained earnings

Answer

As a deferred income liability on the statement of financial position

Question 3

Which of the following statements is a mandatory component of a complete set of financial statements for a UK company that is NOT eligible for small or micro-entity reporting exemptions, according to the Companies Act 2006 and FRS 102?

Accepted Answer

Statement of Changes in Equity

Answer

Statement of Director's Remuneration

Answer

Environmental Impact Report

Answer

Five-Year Financial Summary

Question 4

A company acquires a new machine on the first day of its financial year for £100,000. The company's accounting policy is to depreciate machinery over 10 years on a straight-line basis. For tax purposes, the company can claim a 100% first-year capital allowance. The corporation tax rate is 25%. What is the deferred tax implication at the year-end?

Accepted Answer

A deferred tax liability of £22,500

Answer

A deferred tax asset of £2,500

Answer

A deferred tax liability of £25,000

Answer

No deferred tax implication arises

Question 5

According to the Companies Act 2006, who has the primary legal responsibility for the preparation of a company's financial statements and ensuring they give a true and fair view?

Accepted Answer

The directors of the company

Answer

The external auditors

Answer

The company secretary

Answer

The shareholders

Question 6

A UK parent company is preparing consolidated financial statements. It owns 80% of a subsidiary. During the year, the subsidiary sold goods to the parent company for £50,000, which had cost the subsidiary £30,000. At the year-end, all of these goods remained in the parent company's inventory. What is the correct consolidation adjustment for the unrealised profit?

Accepted Answer

Debit Group Cost of Sales £20,000, Credit Group Inventory £20,000

Answer

Debit Group Revenue £50,000, Credit Group Cost of Sales £50,000

Answer

Debit Non-controlling Interest £4,000, Credit Group Inventory £4,000

Answer

Debit Group Retained Earnings £16,000, Credit Group Inventory £16,000

A UK limited company is preparing its Statement of Cash Flows for the year ended 31 December under FRS 102, using the indirect method.Which of the following items should be added back to profit before tax when calculating net cash flow from operating activities?

A UK limited company is preparing its Statement of Cash Flows for the year ended 31 December under FRS 102, using the indirect method.
Which of the following items should be added back to profit before tax when calculating net cash flow from operating activities?