ACA Accounting (Certificate Level) 2 — Questions and Answers
Question 1: Under FRS 102, when should revenue from the sale of goods be recognised?
- When the invoice is issued
- When cash is received
- When the significant risks and rewards of ownership have transferred to the buyer (Correct answer)
- When the goods are manufactured
Correct answer: When the significant risks and rewards of ownership have transferred to the buyer
FRS 102 Section 23 states that revenue from the sale of goods is recognised when the significant risks and rewards of ownership are transferred, the amount can be measured reliably, and it is probable that economic benefits will flow to the entity.
Question 2: A company prepays £6,000 for a 12-month insurance policy on 1 October. What amount should appear as an expense in the financial statements for the year ended 31 December?
- £6,000
- £1,500 (Correct answer)
- £4,500
- £3,000
Correct answer: £1,500
Only 3 months of the 12-month policy fall within the accounting period (October, November, December). The expense is £6,000 × 3/12 = £1,500. The remaining £4,500 is carried forward as a prepayment (current asset).
Question 3: Which of the following is classified as a current liability?
- A 10-year bank loan
- Trade payables due within 30 days (Correct answer)
- A motor vehicle used in the business
- Share premium account
Correct answer: Trade payables due within 30 days
Trade payables due within 30 days are obligations expected to be settled within the normal operating cycle and therefore classified as current liabilities under FRS 102. A 10-year loan is non-current, a motor vehicle is a non-current asset, and share premium is equity.
Question 4: A machine costs £20,000 with an estimated useful life of 5 years and a residual value of £2,000. Using the straight-line method, what is the annual depreciation charge?
- £4,000
- £3,600 (Correct answer)
- £4,400
- £5,000
Correct answer: £3,600
Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£20,000 − £2,000) ÷ 5 = £3,600 per year. The residual value is deducted because the asset is not depreciated below its expected scrap value.
Question 5: Under the accruals concept, when should an electricity bill for December be recorded if it is received and paid in January?
- January, when paid
- December, when the expense was incurred (Correct answer)
- February, at the end of the next quarter
- Only when the annual accounts are prepared
Correct answer: December, when the expense was incurred
The accruals concept (matching principle) under FRS 102 requires expenses to be recognised in the period in which they are incurred, not when cash is paid. The December electricity usage must be accrued in December's financial statements.
Question 6: What is the double entry to record a cash sale of goods for £500?
- Debit Sales £500, Credit Cash £500
- Debit Cash £500, Credit Sales £500 (Correct answer)
- Debit Cash £500, Credit Purchases £500
- Debit Sales £500, Credit Bank £500
Correct answer: Debit Cash £500, Credit Sales £500
Cash is received (asset increases = debit) and revenue is earned (income increases = credit). Therefore, debit Cash £500 and credit Sales £500 correctly records the transaction using double-entry bookkeeping.
ACA Accounting (Certificate Level) 2
Under FRS 102, when should revenue from the sale of goods be recognised?