Accounting Level 3 Practice Examination
Comprehensive Multiple-Choice Questions & Detailed
Explanations
Section 1: Practice Questions
Question 1
A trader purchases a machinery asset for £12,000. Installation costs are £1,500, and initial
testing costs are £500. Annual routine maintenance is budgeted at £800. What is the
initial capital cost of the machinery in the Statement of Financial Position?
A) £12,000
B) £13,500
C) £14,000
D) £14,800
Question 2
Under the accrued concept, how should a business treat an unpaid electricity bill of £450
for the current financial period?
A) Include £450 as an expense in the Income Statement and as a current liability in the
Statement of Financial Position.
B) Omit the £450 from the Income Statement until paid, but show it as a liability.
C) Charge the £450 directly to the capital account as a drawing.
D) Record £450 as an asset because the power has already been used.
Question 3
Partner A and Partner B share profits in a 3:2 ratio. Capital salaries are £10,000 to Partner
A and £5,000 to Partner B. Net trading profit before salary allocations is £65,000. What is
Partner B’s total share of residual profit?
A) £30,000
B) £25,000
C) £26,000
D) £20,000
,Question 4
Which cost behavior pattern is characterized by remaining constant in total within a
relevant range of activity, but decreasing per unit as activity increases?
A) Variable Cost
B) Fixed Cost
C) Semi-Variable Cost
D) Stepped-Fixed Cost
Question 5
A company manufactures a single product with a selling price of £50, variable costs of
£30 per unit, and total fixed costs of £40,000. What is the break-even point in units?
A) 800 units
B) 2,000 units
C) 1,333 units
D) 5,000 units
Question 6
Which spreadsheet function returns the relative position of an item in an array that
matches a specified value?
A) VLOOKUP
B) INDEX
C) XLOOKUP
D) MATCH
Question 7
A business registered for VAT purchases goods for £2,000 exclusive of VAT at a
standard rate of 20%. How is the input VAT of £400 recorded in the buyer's ledger?
A) Debit VAT Control Account £400
B) Credit VAT Control Account £400
C) Debit Purchases Account £400
D) Credit Cash Account £400
Question 8
In a manufacturing account, how is prime cost calculated?
A) Direct materials + Factory overheads
B) Direct materials + Direct labor + Factory overheads
, C) Direct materials + Direct labor + Direct expenses
D) Total production cost - Work in progress adjustment
Question 9
If opening inventory is £15,000, closing inventory is £21,000, and purchases are £80,000,
what is the Cost of Goods Sold (COGS)?
A) £86,000
B) £116,000
C) £75,000
D) £74,000
Question 10
When calculating net realisable value (NRV) for inventory valuation under IAS 2, which
formula must be applied?
A) Estimated selling price minus estimated costs of completion and selling costs
B) Historical cost minus trade discounts received
C) Replacement cost minus estimated selling expenses
D) Selling price plus estimated costs of completion
Question 11
An asset was purchased for £20,000 and depreciated at 20% per annum using the
reducing balance method. What is its carrying amount at the end of Year 2?
A) £12,000
B) £12,800
C) £16,000
D) £15,000
Question 12
A partner contributes a vehicle worth £8,000 to the partnership business. Which journal
entry correctly records this transaction?
A) Debit Capital Account £8,000, Credit Motor Vehicles £8,000
B) Debit Motor Vehicle Expenses £8,000, Credit Capital Account £8,000
C) Debit Motor Vehicles £8,000, Credit Capital Account £8,000
D) Debit Current Account £8,000, Credit Motor Vehicles £8,000
Comprehensive Multiple-Choice Questions & Detailed
Explanations
Section 1: Practice Questions
Question 1
A trader purchases a machinery asset for £12,000. Installation costs are £1,500, and initial
testing costs are £500. Annual routine maintenance is budgeted at £800. What is the
initial capital cost of the machinery in the Statement of Financial Position?
A) £12,000
B) £13,500
C) £14,000
D) £14,800
Question 2
Under the accrued concept, how should a business treat an unpaid electricity bill of £450
for the current financial period?
A) Include £450 as an expense in the Income Statement and as a current liability in the
Statement of Financial Position.
B) Omit the £450 from the Income Statement until paid, but show it as a liability.
C) Charge the £450 directly to the capital account as a drawing.
D) Record £450 as an asset because the power has already been used.
Question 3
Partner A and Partner B share profits in a 3:2 ratio. Capital salaries are £10,000 to Partner
A and £5,000 to Partner B. Net trading profit before salary allocations is £65,000. What is
Partner B’s total share of residual profit?
A) £30,000
B) £25,000
C) £26,000
D) £20,000
,Question 4
Which cost behavior pattern is characterized by remaining constant in total within a
relevant range of activity, but decreasing per unit as activity increases?
A) Variable Cost
B) Fixed Cost
C) Semi-Variable Cost
D) Stepped-Fixed Cost
Question 5
A company manufactures a single product with a selling price of £50, variable costs of
£30 per unit, and total fixed costs of £40,000. What is the break-even point in units?
A) 800 units
B) 2,000 units
C) 1,333 units
D) 5,000 units
Question 6
Which spreadsheet function returns the relative position of an item in an array that
matches a specified value?
A) VLOOKUP
B) INDEX
C) XLOOKUP
D) MATCH
Question 7
A business registered for VAT purchases goods for £2,000 exclusive of VAT at a
standard rate of 20%. How is the input VAT of £400 recorded in the buyer's ledger?
A) Debit VAT Control Account £400
B) Credit VAT Control Account £400
C) Debit Purchases Account £400
D) Credit Cash Account £400
Question 8
In a manufacturing account, how is prime cost calculated?
A) Direct materials + Factory overheads
B) Direct materials + Direct labor + Factory overheads
, C) Direct materials + Direct labor + Direct expenses
D) Total production cost - Work in progress adjustment
Question 9
If opening inventory is £15,000, closing inventory is £21,000, and purchases are £80,000,
what is the Cost of Goods Sold (COGS)?
A) £86,000
B) £116,000
C) £75,000
D) £74,000
Question 10
When calculating net realisable value (NRV) for inventory valuation under IAS 2, which
formula must be applied?
A) Estimated selling price minus estimated costs of completion and selling costs
B) Historical cost minus trade discounts received
C) Replacement cost minus estimated selling expenses
D) Selling price plus estimated costs of completion
Question 11
An asset was purchased for £20,000 and depreciated at 20% per annum using the
reducing balance method. What is its carrying amount at the end of Year 2?
A) £12,000
B) £12,800
C) £16,000
D) £15,000
Question 12
A partner contributes a vehicle worth £8,000 to the partnership business. Which journal
entry correctly records this transaction?
A) Debit Capital Account £8,000, Credit Motor Vehicles £8,000
B) Debit Motor Vehicle Expenses £8,000, Credit Capital Account £8,000
C) Debit Motor Vehicles £8,000, Credit Capital Account £8,000
D) Debit Current Account £8,000, Credit Motor Vehicles £8,000
