UNIVERSITY OF LAW PSC FINANCIAL AND BUSINESS SKILLS EXAM — 2026/2027
Professional Skills Course | SRA-Regulated Solicitor Training Competency Assessment
Practice Study Set: 50 Questions
Testing Time: 90 minutes (open-book)
Passing Score: 60% (30/50 correct on practice set)
Format: MCQ, SATA, Calculation-Based, and Scenario-Based Items
Assessment: Mixed-format (MCQ max 30% of marks + written application sections)
Aligned: SRA Principles, SRA Accounts Rules, University of Law PSC Curriculum
Select the single best answer unless otherwise indicated. For Select All That Apply questions, choose all
correct options. Apply financial management principles, SRA regulatory requirements, and professional
judgment aligned with University of Law PSC competency standards. This is an open-book examination.
Domain 1: Financial Statements & Accounting Principles (Q1–Q6)
1. Under UK GAAP (FRS 102), which of the following is the correct order of items on a
company balance sheet from top to bottom?
A) Current assets, non-current assets, current liabilities, non-current liabilities, equity
B) Non-current assets, current assets, current liabilities, non-current liabilities, equity
C) Non-current assets, current assets, equity, non-current liabilities, current liabilities
D) Equity, non-current assets, current assets, current liabilities, non-current liabilities
Correct Answer: B
Rationale: Under FRS 102 and the Companies Act 2006 format, the balance sheet presents non-current
assets first, then current assets, followed by current liabilities, non-current liabilities, and finally equity.
This ordering reflects increasing liquidity of assets and then claims against the business.
2. A company has revenue of £500,000, cost of sales of £200,000, and operating expenses of
£150,000. What is the net profit?
A) £300,000
B) £150,000
C) £350,000
D) £50,000
Correct Answer: B
Rationale: Gross profit = Revenue – Cost of sales = £500,000 – £200,000 = £300,000. Net profit = Gross
profit – Operating expenses = £300,000 – £150,000 = £150,000. The profit and loss account follows this
sequential deduction of costs.
3. Under IAS 7 / FRS 102, which of the following cash flows would be classified as an investing
activity?
A) Receipt of interest on a bank deposit
B) Proceeds from the sale of property, plant, and equipment
C) Repayment of a bank loan
D) Cash received from trade receivables
Correct Answer: B
Rationale: Investing activities relate to the acquisition and disposal of long-term assets and investments.
Proceeds from selling property, plant, and equipment is an investing cash inflow. Receipt of interest can be
operating or investing under IAS 7; loan repayment is financing; trade receivables collection is operating.
4. Which of the following statements correctly distinguishes accruals basis accounting from
cash basis accounting?
1
, A) Under the accruals basis, revenue is recognised only when cash is received
B) Under the accruals basis, expenses are matched to the period in which the related revenue is
recognised, regardless of when cash is paid
C) Cash basis accounting produces a more accurate picture of profitability than accruals basis
D) The accruals basis is only used by small businesses below the VAT threshold
Correct Answer: B
Rationale: The accruals (matching) principle requires that expenses are recognised in the same period as
the revenues they help generate, regardless of cash timing. Option A describes cash basis. Option C is
incorrect because accruals accounting generally provides a more accurate profitability picture. Option D is
wrong as large entities use accruals accounting.
5. A company purchases machinery for £60,000 with an estimated residual value of £6,000
and a useful life of 6 years. Using the straight-line method, what is the annual depreciation
charge?
A) £10,000
B) £9,000
C) £8,000
D) £7,500
Correct Answer: B
Rationale: Straight-line depreciation = (Cost – Residual value) / Useful life = (£60,000 – £6,000) / 6 =
£54, = £9,000 per annum. This is the most common depreciation method and spreads the
depreciable amount evenly over the asset's useful life.
6. A company purchases equipment for £40,000 and applies reducing balance depreciation at
25% per annum. What is the carrying amount at the end of Year 2?
A) £22,500
B) £30,000
C) £25,000
D) £24,000
Correct Answer: A
Rationale: Year 1 depreciation = £40,000 × 25% = £10,000; carrying amount = £30,000. Year 2
depreciation = £30,000 × 25% = £7,500; carrying amount = £22,500. The reducing balance method
applies the depreciation rate to the carrying amount each year, resulting in higher charges in earlier years.
Domain 2: Business Finance & Capital Structure (Q7–Q11)
7. Which of the following is a characteristic of ordinary shares but NOT preference shares?
A) Fixed dividend rate
B) Priority in liquidation
C) Voting rights at general meetings
D) Cumulative dividend entitlement
Correct Answer: C
Rationale: Ordinary shares carry voting rights that allow shareholders to influence company decisions at
general meetings. Preference shares typically do not carry voting rights (except in limited circumstances
where their rights are affected). Fixed dividends, liquidation priority, and cumulative entitlements are
features of preference shares.
8. A company issues £1,000,000 of 6% debentures secured against its property. Which of the
following statements is correct?
A) The debenture holders are owners of the company and have voting rights
B) Interest payments on debentures are tax-deductible for the company
C) Debenture holders rank behind ordinary shareholders in liquidation
D) The company has no obligation to repay the principal
Correct Answer: B
2
Professional Skills Course | SRA-Regulated Solicitor Training Competency Assessment
Practice Study Set: 50 Questions
Testing Time: 90 minutes (open-book)
Passing Score: 60% (30/50 correct on practice set)
Format: MCQ, SATA, Calculation-Based, and Scenario-Based Items
Assessment: Mixed-format (MCQ max 30% of marks + written application sections)
Aligned: SRA Principles, SRA Accounts Rules, University of Law PSC Curriculum
Select the single best answer unless otherwise indicated. For Select All That Apply questions, choose all
correct options. Apply financial management principles, SRA regulatory requirements, and professional
judgment aligned with University of Law PSC competency standards. This is an open-book examination.
Domain 1: Financial Statements & Accounting Principles (Q1–Q6)
1. Under UK GAAP (FRS 102), which of the following is the correct order of items on a
company balance sheet from top to bottom?
A) Current assets, non-current assets, current liabilities, non-current liabilities, equity
B) Non-current assets, current assets, current liabilities, non-current liabilities, equity
C) Non-current assets, current assets, equity, non-current liabilities, current liabilities
D) Equity, non-current assets, current assets, current liabilities, non-current liabilities
Correct Answer: B
Rationale: Under FRS 102 and the Companies Act 2006 format, the balance sheet presents non-current
assets first, then current assets, followed by current liabilities, non-current liabilities, and finally equity.
This ordering reflects increasing liquidity of assets and then claims against the business.
2. A company has revenue of £500,000, cost of sales of £200,000, and operating expenses of
£150,000. What is the net profit?
A) £300,000
B) £150,000
C) £350,000
D) £50,000
Correct Answer: B
Rationale: Gross profit = Revenue – Cost of sales = £500,000 – £200,000 = £300,000. Net profit = Gross
profit – Operating expenses = £300,000 – £150,000 = £150,000. The profit and loss account follows this
sequential deduction of costs.
3. Under IAS 7 / FRS 102, which of the following cash flows would be classified as an investing
activity?
A) Receipt of interest on a bank deposit
B) Proceeds from the sale of property, plant, and equipment
C) Repayment of a bank loan
D) Cash received from trade receivables
Correct Answer: B
Rationale: Investing activities relate to the acquisition and disposal of long-term assets and investments.
Proceeds from selling property, plant, and equipment is an investing cash inflow. Receipt of interest can be
operating or investing under IAS 7; loan repayment is financing; trade receivables collection is operating.
4. Which of the following statements correctly distinguishes accruals basis accounting from
cash basis accounting?
1
, A) Under the accruals basis, revenue is recognised only when cash is received
B) Under the accruals basis, expenses are matched to the period in which the related revenue is
recognised, regardless of when cash is paid
C) Cash basis accounting produces a more accurate picture of profitability than accruals basis
D) The accruals basis is only used by small businesses below the VAT threshold
Correct Answer: B
Rationale: The accruals (matching) principle requires that expenses are recognised in the same period as
the revenues they help generate, regardless of cash timing. Option A describes cash basis. Option C is
incorrect because accruals accounting generally provides a more accurate profitability picture. Option D is
wrong as large entities use accruals accounting.
5. A company purchases machinery for £60,000 with an estimated residual value of £6,000
and a useful life of 6 years. Using the straight-line method, what is the annual depreciation
charge?
A) £10,000
B) £9,000
C) £8,000
D) £7,500
Correct Answer: B
Rationale: Straight-line depreciation = (Cost – Residual value) / Useful life = (£60,000 – £6,000) / 6 =
£54, = £9,000 per annum. This is the most common depreciation method and spreads the
depreciable amount evenly over the asset's useful life.
6. A company purchases equipment for £40,000 and applies reducing balance depreciation at
25% per annum. What is the carrying amount at the end of Year 2?
A) £22,500
B) £30,000
C) £25,000
D) £24,000
Correct Answer: A
Rationale: Year 1 depreciation = £40,000 × 25% = £10,000; carrying amount = £30,000. Year 2
depreciation = £30,000 × 25% = £7,500; carrying amount = £22,500. The reducing balance method
applies the depreciation rate to the carrying amount each year, resulting in higher charges in earlier years.
Domain 2: Business Finance & Capital Structure (Q7–Q11)
7. Which of the following is a characteristic of ordinary shares but NOT preference shares?
A) Fixed dividend rate
B) Priority in liquidation
C) Voting rights at general meetings
D) Cumulative dividend entitlement
Correct Answer: C
Rationale: Ordinary shares carry voting rights that allow shareholders to influence company decisions at
general meetings. Preference shares typically do not carry voting rights (except in limited circumstances
where their rights are affected). Fixed dividends, liquidation priority, and cumulative entitlements are
features of preference shares.
8. A company issues £1,000,000 of 6% debentures secured against its property. Which of the
following statements is correct?
A) The debenture holders are owners of the company and have voting rights
B) Interest payments on debentures are tax-deductible for the company
C) Debenture holders rank behind ordinary shareholders in liquidation
D) The company has no obligation to repay the principal
Correct Answer: B
2
