AAT Level 3 - Final Accounts Preparation Exam Questions with correct Answers

What types of organisations are there? (5) - ANSWER Sole Traders Partnerships Limited Liability Partnership Companies Not For Profit What are sole traders? - ANSWER A business owned and managed by one person What is a partnership? - ANSWER A business owned and managed by more than one person What is a limited liability partnership? - ANSWER A business owned and managed by more than one person but partners have limited liabaility What are companies? - ANSWER A business that is a separate legal entity from its owners What is a not for profit organisation? - ANSWER A business which is not conducted primarily to make a profit What entities are unincorporated? - ANSWER Sole Traders Partnerships What does unincorporated mean? - ANSWER No legal distinction between the business and its owners Do unincorporated entities need to file accounts? - ANSWER They aren't required to but need to keep records in order to complete tax returns What are the owners of a company called? - ANSWER Shareholders What are the 2 types of companies? - ANSWER Public Limited Company (PLC) Private Limited Company (Ltd) What are PLC's? - ANSWER Companies that may raise capital from the public on the stock exchange How are LLP's taxed? - ANSWER They are not taxed as a whole just the members are taxed like if they are self employed What do directors do? - ANSWER Manage the company on behalf of the shareholders All UK registered companies must comply with Companies Act 2006. True or False? - ANSWER True Who's responsible for keeping proper accounting records? - ANSWER Directors Partnerships have to meet the filing deadline. True or False? - ANSWER True-ish - They probably do but ideally they have to file the accounts as soon as possible after the year end because the profit needs to be shared. Who grants a charity their status? - ANSWER Charity Commission What additional financial statements do charities file? - ANSWER Statement of Financial Activities (SOFA) Annual Report to the Charity Commission Income and Expenditure Account What is the SORP? - ANSWER Statement of Recommended Practice - Supplements the regular accounting standards and other legal and regulatory requirements What are key features of a LLP? - ANSWER Must be registered with the Registrar of Companies Name must end in LLP Must file annual returns and accounts; where applicable audit too Designated members are responsible for administration and filing Not subject to CT Must comply with provisions of the Companies Act What is a profession? - ANSWER An occupation that requires extensive training and study of specialised knowledge What are the AAT Code of Professional Ethics? - ANSWER Integrity - Honesty Objectivity - Not Bias Professional Competence and Due Care - Working within your skill level Confidentiality Professional Behaviour What are threats? - ANSWER Self Interest Self Review Advocacy Familiarity Intimidation What are the key risks affecting data? - ANSWER Human Error Technical Malfunction Deliberate/Malicious Action Hacking What code forms the basis of the AAT code? - ANSWER IESBA - International Ethics Standards Board What are the 3 methods that an be used to derive missing financial information? - ANSWER Using General Ledger Accounts Using A Cost Structure Using The Accounting Equation What errors allow the trial balance to balance? - ANSWER Error of Commission Error of Omission Error of Principle Error of Reversal Error of Original Entry What is the basis of margin? - ANSWER Sales (100%) = COGS (75%) + Profit (25%) What is the basis of mark up? - ANSWER Sales (125%) = COGS (100%) + Profit (25%) What is the COGS formula? - ANSWER COGS = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory What is the accounting equation? - ANSWER Capital = Assets - Liabilities Capital = Assets + Drawings - Profit - Liabilities Net Assets should equal Closing Capital. True or False? - ANSWER True Drawings of goods are recorded at sales value. True or False? - ANSWER False - At Cost What is gross profit? - ANSWER The profit from the business' trading activity What is profit for the year? - ANSWER Gross Profit - Expenses + Income What is net assets? - ANSWER The assets - liabilities What is net current assets? - ANSWER Current Assets - Current Liabilities What goes in the financed by section? - ANSWER Opening Capital + Profit for Year - Drawings = Closing Capital What is an appropriation account for? - ANSWER To share the profit/loss for the year among the partners What are the key components of partnership accounts that aren't required for sole traders? - ANSWER Appropriation Account Capital Account Current Account Financing Section of SOFP What areas does the partnership agreement cover? - ANSWER Capital PSR Salaries Interest on Capital Commission Paid to Partners Drawings Interest on Drawings If the partners do not have a formal partnership agreement, the Partnership Act 1890 applies. True or False? - ANSWER True When preparing an appropriation account, what do you plus and minus from the profit/loss for the year before applying the PSR? - ANSWER Minus Salary, Interest on Capital and Commission Add Interest on Drawings What are current accounts used for? - ANSWER To record each partner's day to day transaction with the business. What is included in the current account? - ANSWER Salary Commission Interest on Capital Interest on Drawings Share of Profit/Loss Drawings Bal BD Bal CD What are capital accounts used for? - ANSWER To record the long term capital that the partners pay into the partnership. What is included in the capital account? - ANSWER Bal BD Bal CD Bank (Capital Contributions) For partnerships, what do you include in the financed by section? - ANSWER Capital Account Current Account Generally are current and capital accounts debits or credits? - ANSWER Credit What happens when a partner retires? - ANSWER They will be allocated their share of the profits and then the balance on the current account will be transferred to the capital account which is thus what the business owes the individual and is paid either in cash or through a loan. What is goodwill? - ANSWER The excess of the value of a business over its individual assets and liabilities What affects goodwill? - ANSWER The reputation of the busin