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MATSEC IM Accounting study materials
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MATSEC IM Accounting practice questions

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Question 1Financial Accounting

A trader received an invoice for goods with a list price of €4,000 subject to a 25% trade discount. At what amount should the purchase be recorded in the accounting records?

  1. €4,000
  2. €5,000
  3. €1,000
  4. €3,000 Correct answer.

Explanation

Trade discounts are deducted before the transaction is recorded, so only the net amount enters the ledger. The net price is €4,000 less 25% (€1,000), giving €3,000. Trade discounts are never posted as separate accounts.

Question 2Financial Accounting

Which accounting concept requires that a business's transactions be kept separate from the private affairs of its owner?

  1. The business entity concept Correct answer.
  2. The consistency concept
  3. The accruals concept
  4. The going concern concept

Explanation

The business entity concept treats the business as separate from its owner, so owner drawings are recorded as a reduction of capital rather than as business expenses. The other concepts deal with continuity of operations, timing of income and expense, and uniform treatment of items over time.

Question 3Financial Accounting

A business pays €900 by cheque for a three-month insurance premium covering the following period. What is the correct double entry?

  1. Dr Insurance expense €900, Cr Accrued expenses €900
  2. Dr Bank €900, Cr Prepaid insurance €900
  3. Dr Prepaid insurance €900, Cr Bank €900 Correct answer.
  4. Dr Insurance expense €900, Cr Bank €900

Explanation

Payment covers a future period, so it is a prepayment, an asset, until the benefit is consumed. The asset increases with a debit and the bank balance falls with a credit. Recording it as an expense immediately would breach the accruals concept.

Question 4Financial Accounting

A trial balance extracted at 31 December shows total debits of €84,300 and total credits of €83,900. Which error could explain the difference?

  1. A sale of €200 was completely omitted from the books
  2. A payment of €90 for stationery was debited to stationery and debited to bank
  3. A cheque for €400 paid to a supplier was entered only in the cash book Correct answer.
  4. A purchase of €150 was posted to the correct side of the wrong supplier's account

Explanation

A one-sided entry leaves the trial balance out of balance by the amount of the missing posting, here €400 on the credit side of the supplier's account. Errors of omission, commission and complete reversal keep debits equal to credits and do not disturb the trial balance.

Question 5Financial Accounting

Which item would appear in a partnership's appropriation account rather than in the profit and loss account?

  1. Wages of administrative staff
  2. Discount allowed to customers
  3. Depreciation of office equipment
  4. Interest on partners' capital Correct answer.

Explanation

The appropriation account shows how profit is divided among partners, including interest on capital, partners' salaries and the sharing of residual profit. Depreciation, wages and discounts are ordinary expenses in arriving at profit.

Question 6Financial Accounting

A company issues 50,000 ordinary shares of €1 each at a premium of €0.60 per share, fully paid in cash. What is the correct double entry?

  1. Dr Share capital €50,000; Cr Bank €80,000
  2. Dr Bank €80,000; Cr Share capital €50,000, Cr Share premium €30,000 Correct answer.
  3. Dr Bank €80,000; Cr Share capital €80,000
  4. Dr Bank €50,000; Cr Share capital €50,000

Explanation

The cash received is 50,000 shares at €1.60, that is €80,000. The nominal value of €50,000 goes to share capital and the excess of €30,000 is credited to share premium, which is a capital reserve. Share premium cannot be credited to share capital.

Question 7Financial Accounting

Which of the following is a current liability in a company's statement of financial position?

  1. Motor vehicles held for use in the business
  2. Debenture repayable in five years
  3. Trade payables due within 60 days Correct answer.
  4. Bank loan repayable in three years

Explanation

Current liabilities are obligations expected to be settled within the normal operating cycle, usually twelve months. Trade payables due in 60 days meet that definition, whereas long-dated loans and debentures are non-current.

Question 8Financial Accounting

A machine costing €24,000 with estimated residual value of €4,000 and useful life of five years is depreciated using the straight-line method. What is the annual depreciation charge?

  1. €5,600
  2. €4,800
  3. €2,000
  4. €4,000 Correct answer.

Explanation

Straight-line depreciation spreads the depreciable amount, cost less residual value, evenly over the useful life. Here (€24,000 − €4,000) ÷ 5 = €4,000 per year. Residual value must be excluded from the depreciable base.

Question 9Financial Accounting

Under the reducing balance method, an asset costing €10,000 is depreciated at 20% per annum. What is the depreciation charge for the second year?

  1. €2,000
  2. €1,800
  3. €1,600 Correct answer.
  4. €1,280

Explanation

Reducing balance applies the rate to the carrying amount, not to original cost. Year one charge is €2,000, leaving €8,000, so year two is 20% of €8,000 = €1,600.

Question 10Financial Accounting

Which document is sent by a supplier to correct an overcharge on a previously issued invoice?

  1. Remittance advice
  2. Credit note Correct answer.
  3. Statement of account
  4. Debit note

Explanation

A credit note reduces the amount owed by the customer and records the supplier's agreement to a reduction. A debit note is issued by the buyer to record a return or claim. Statements and remittance advices are for reconciliation and payment, not for adjusting an invoice.

Question 11Financial Accounting

A business's bank statement shows a balance of €5,200 credit while the cash book shows €4,700 debit. Unpresented cheques total €1,100 and there are no other differences. What is the balance shown on the bank statement?

  1. €3,600 Correct answer.
  2. €5,200
  3. €6,300
  4. €4,700

Explanation

Unpresented cheques have been deducted in the cash book but not yet in the bank statement, so the bank balance is lower than the cash book by that amount. €4,700 − €1,100 = €3,600.

Question 12Financial Accounting

Which of the following would be classified as capital expenditure?

  1. Replacing a broken window in the office
  2. Installing a new lift in a building, extending its useful life Correct answer.
  3. Paying annual insurance on machinery
  4. Repainting the factory exterior

Explanation

Capital expenditure acquires or improves a non-current asset and increases its earning capacity, so installing a lift that extends useful life is capitalised. Repairs, repainting and insurance maintain the asset and are revenue expenditure.

Question 13Financial Accounting

A business has opening inventory of €8,000, purchases of €42,000 and closing inventory of €6,000. What is the cost of goods sold?

  1. €40,000
  2. €36,000
  3. €44,000 Correct answer.
  4. €56,000

Explanation

Cost of goods sold equals opening inventory plus purchases less closing inventory. €8,000 + €42,000 − €6,000 = €44,000. Closing inventory is deducted because those goods were not sold.

Question 14Financial Accounting

A trader's gross profit is €60,000, expenses are €38,000 and there is a profit on disposal of a non-current asset of €5,000. What is the net profit for the year?

  1. €32,000
  2. €17,000
  3. €22,000
  4. €27,000 Correct answer.

Explanation

Net profit is gross profit plus other income less expenses. €60,000 + €5,000 − €38,000 = €27,000. The profit on disposal is a non-trading gain but still forms part of the period's result.

Question 15Financial Accounting

Which of the following is a contingent liability that should be disclosed in the notes rather than recognised in the statement of financial position?

  1. A probable obligation of €50,000 that can be reliably measured
  2. An accrued electricity bill of €1,500
  3. A possible obligation of €30,000 whose existence depends on a future court ruling Correct answer.
  4. A trade payable of €12,000 due next month

Explanation

A contingent liability is a possible obligation whose existence will be confirmed only by uncertain future events, so it is disclosed but not recognised. Where an outflow is probable and measurable, a provision is recognised instead.

Question 16Financial Accounting

A company's statement of financial position shows current assets of €90,000 and current liabilities of €60,000. What is the current ratio?

  1. 0.67:1
  2. 1:1
  3. 2.5:1
  4. 1.5:1 Correct answer.

Explanation

The current ratio is current assets divided by current liabilities, so €90,000 ÷ €60,000 = 1.5:1. It indicates the business holds €1.50 of current assets for each €1 of short-term obligations.

Question 17Financial Accounting

A trader's sales for the year are €200,000, of which 40% are on credit. Trade receivables at year end are €16,000. What is the receivables collection period, using 365 days?

  1. 146 days
  2. 73 days Correct answer.
  3. 18 days
  4. 29 days

Explanation

Credit sales are €80,000, and the collection period is receivables divided by credit sales multiplied by 365. €16,000 ÷ €80,000 × 365 = 73 days. Using total sales instead of credit sales would understate the period.

Question 18Financial Accounting

Which of the following errors would be revealed by a trial balance?

  1. A payment of €100 posted as a debit to both the account paid and the bank account
  2. A payment of €200 entered correctly in the cash book but posted to the wrong expense account
  3. A sale of €500 completely omitted
  4. A credit purchase of €300 entered in the purchases account as €30 Correct answer.

Explanation

Entering the same transaction with different amounts on the debit and credit sides leaves the trial balance out of balance by €270. Errors of complete omission, commission and reversal preserve the equality of debits and credits.

Question 19Financial Accounting

Under the accruals concept, how should a bill for electricity covering October to December, received in January and unpaid at the year end of 31 December, be treated?

  1. Recognise the expense in the following year when it is paid
  2. Record it as a prepayment in the current year
  3. Recognise the expense in the current year and record an accrual Correct answer.
  4. Ignore it until the bill is received

Explanation

Accruals requires expenses to be matched with the period they relate to, not the period of payment. The electricity was consumed by 31 December, so the expense is recognised and an accrual is recorded as a liability.

Question 20Financial Accounting

A business makes a provision for doubtful debts of 5% on trade receivables of €40,000. What is the effect on the statement of financial position?

  1. Trade receivables are reduced by €2,000 and profit falls by €2,000 Correct answer.
  2. Trade receivables remain at €40,000 and no expense is recognised
  3. Trade receivables are reduced by €2,000 and profit rises by €2,000
  4. Trade receivables are reduced by €2,000 and cash falls by €2,000

Explanation

A provision for doubtful debts is an expense that reduces profit and is deducted from trade receivables in the statement of financial position. No cash movement occurs because the provision is an estimate, not a payment.

Question 21Financial Accounting

Which of the following best describes the purpose of a suspense account?

  1. To hold cash awaiting deposit at the bank
  2. To record the difference on the trial balance until the error is located Correct answer.
  3. To record amounts owed to suppliers
  4. To record profits retained in the business

Explanation

When the trial balance does not agree, the difference is posted to a suspense account so that draft financial statements can be prepared while the error is investigated. The balance is cleared once the error is found and corrected.

Question 22Financial Accounting

A company has profit after tax of €120,000 and 100,000 ordinary shares in issue throughout the year. It paid a dividend of €0.30 per share. What is the dividend cover?

  1. 0.25 times
  2. 3 times
  3. 10 times
  4. 4 times Correct answer.

Explanation

Dividend cover is earnings per share divided by dividend per share, or profit after tax divided by total dividends. Earnings per share is €1.20, dividends total €30,000, so cover is €120,000 ÷ €30,000 = 4 times.

Question 23Financial Accounting

Which of the following is the correct treatment of a partner's drawings in the partnership accounts?

  1. Debited to the profit and loss account
  2. Credited to the partner's capital account
  3. Debited to the partner's current account Correct answer.
  4. Credited to the appropriation account

Explanation

Drawings reduce what the partner is owed, so they are debited to the partner's current account. They are not an expense of the business and therefore never pass through the profit and loss account.

Question 24Financial Accounting

A business uses the imprest system with a float of €200. At the end of the week, vouchers total €145 and cash in hand is €55. How much is reimbursed to restore the float?

  1. €200
  2. €145 Correct answer.
  3. €55
  4. €345

Explanation

Under the imprest system the amount reimbursed equals the expenditure supported by vouchers, restoring the float to €200. Here vouchers of €145 are reimbursed and cash returns to €200. Reimbursing the full float would double-count the cash still in hand.

Question 25Financial Accounting

Which of the following transactions affects the owner's capital but is not a business expense?

  1. The business pays interest on a bank loan
  2. The owner takes goods from the business for personal use Correct answer.
  3. The business pays rent for its premises
  4. The business writes off a bad debt

Explanation

Goods taken by the owner are drawings, which reduce capital directly and are not an expense in the income statement. Rent, bad debts and loan interest are all costs of running the business and are charged against profit.

Question 26Financial Accounting

Which accounting concept requires that a business's financial statements include only transactions that can be measured in monetary terms?

  1. The business entity concept
  2. The consistency concept
  3. The money measurement concept Correct answer.
  4. The going concern concept

Explanation

The money measurement concept holds that only items capable of being expressed in monetary units are recorded in the accounts, which is why items such as staff morale or a loyal customer base are excluded from the statement of financial position. The other concepts deal with continuity of the entity, comparability of treatment over time, and separation of owner from business.

Question 27Financial Accounting

A trader purchases goods on credit for €1,500. Which double entry records this transaction?

  1. Debit purchases €1,500; credit trade payables €1,500 Correct answer.
  2. Debit purchases €1,500; credit cash €1,500
  3. Debit trade payables €1,500; credit purchases €1,500
  4. Debit inventory €1,500; credit trade payables €1,500

Explanation

A credit purchase increases the expense of purchases (debit) and creates a liability to the supplier (credit trade payables). Cash is untouched because settlement has not yet occurred, and inventory is normally recognised at the year end through the closing inventory adjustment rather than at the point of purchase.

Question 28Financial Accounting

Which of the following is a book of prime entry used to record credit notes issued to customers?

  1. The purchase day book
  2. The general journal
  3. The sales day book
  4. The sales returns day book Correct answer.

Explanation

The sales returns day book (returns inwards journal) records credit notes issued to customers for goods returned or allowances granted. The sales day book records credit sales invoices, the purchase day book records credit purchases, and the journal is used for adjustments and other non-routine entries.

Question 29Financial Accounting

A trader receives an invoice for goods with a list price of €4,000 and a trade discount of 20%. What amount is entered in the purchases account?

  1. €4,000
  2. €3,200 Correct answer.
  3. €800
  4. €3,800

Explanation

Trade discount is deducted before the net amount is recorded, so only €3,200 (€4,000 less 20%) is posted to the purchases account. The discount itself is never entered in the ledger because it is merely a reduction in the list price charged.

Question 30Financial Accounting

Which of the following is an example of an intangible non-current asset?

  1. A warehouse held for long-term use
  2. A purchased patent with a legal life of ten years Correct answer.
  3. A delivery van used for distribution
  4. A stock of raw materials awaiting production

Explanation

A patent confers a legal right without physical substance and is therefore classified as an intangible non-current asset, amortised over its useful life. Vehicles and buildings are tangible non-current assets, while raw materials are current assets held for consumption in production.

Question 31Financial Accounting

What is the primary purpose of preparing a trial balance?

  1. To value the closing inventory
  2. To calculate the profit for the period
  3. To prove that no fraud has occurred
  4. To check the arithmetical accuracy of the double entries posted to the ledger Correct answer.

Explanation

A trial balance lists debit and credit balances and confirms that total debits equal total credits, which detects certain arithmetical errors but cannot confirm the absence of fraud or reveal errors of principle or omission. Profit is determined from the statement of profit or loss, and inventory is valued separately.

Question 32Financial Accounting

A business receives €2,400 on 1 October for services to be provided evenly over twelve months. Under the accruals concept, how much should be recognised as income in the year ended 31 December?

  1. €2,400
  2. €200
  3. €1,800
  4. €600 Correct answer.

Explanation

Only the income relating to services actually provided in the three months to 31 December is recognised, that is three-twelfths of €2,400, equal to €600. The remaining €1,800 is deferred income carried forward as a liability.

Question 33Financial Accounting

Which of the following best describes the purpose of a bank reconciliation statement?

  1. To record dishonoured cheques in the ledger
  2. To calculate the interest charged by the bank
  3. To explain the difference between the cash book balance and the bank statement balance Correct answer.
  4. To determine the gross profit of the business

Explanation

A bank reconciliation explains why the cash book balance and the bank statement balance differ, identifying items such as unpresented cheques, uncredited deposits, bank charges and standing orders. It does not compute profit and is not itself a book of account.

Question 34Financial Accounting

A company issues 10,000 ordinary shares of €1 each at €1.40 per share, fully paid in cash. What is recorded in the share premium account?

  1. €1,400
  2. €14,000
  3. €4,000 Correct answer.
  4. €10,000

Explanation

Share premium is the excess of the issue price over the nominal value, that is €0.40 per share on 10,000 shares, equal to €4,000. The nominal amount of €10,000 is credited to the ordinary share capital account and the total cash received is €14,000.

Question 35Financial Accounting

A company has profit after tax of €80,000 and 50,000 ordinary shares in issue throughout the year. It pays a dividend of €20,000. What is the dividend cover?

  1. 0.25 times
  2. 2.5 times
  3. 1.6 times
  4. 4 times Correct answer.

Explanation

Dividend cover equals profit after tax divided by the total ordinary dividend, so €80,000 divided by €20,000 gives 4 times. It indicates how many times the dividend could have been paid out of the year's earnings.

Question 36Financial Accounting

A machine costing €18,000 with no residual value is depreciated at 25% per annum on the reducing balance basis. What is the depreciation charge for the second year?

  1. €3,375 Correct answer.
  2. €2,531
  3. €4,500
  4. €3,000

Explanation

First-year depreciation is 25% of €18,000, equal to €4,500, leaving a carrying amount of €13,500. The second-year charge is 25% of €13,500, equal to €3,375, since the reducing balance method applies the rate to the carrying amount.

Question 37Financial Accounting

Which of the following would be classified as revenue expenditure?

  1. Constructing an extension to the building
  2. Installing a new lift that extends the building's capacity
  3. Legal fees on the purchase of a new property
  4. Repainting the exterior of an existing building Correct answer.

Explanation

Repainting maintains the existing asset in its current condition and is charged to the statement of profit or loss as revenue expenditure. Constructing an extension, installing an additional lift and acquiring legal title to a property all enhance or create a non-current asset and are capitalised.

Question 38Financial Accounting

A trader's closing inventory has a cost of €12,000 and a net realisable value of €10,500. At what amount should it be included in the financial statements?

  1. €12,000
  2. €22,500
  3. €10,500 Correct answer.
  4. €11,250

Explanation

Inventory must be measured at the lower of cost and net realisable value, so it is included at €10,500. The €1,500 write-down is charged to the statement of profit or loss.

Question 39Financial Accounting

A trader's cash book shows a debit balance of €3,000. The bank statement shows bank charges of €120 not yet recorded in the cash book. What is the adjusted cash book balance?

  1. €3,000
  2. €2,880 Correct answer.
  3. €2,760
  4. €3,120

Explanation

Bank charges reduce the cash book balance, so the unrecorded €120 must be credited to the cash book, giving €3,000 less €120, equal to €2,880. Adjustments for items appearing on the statement but not in the cash book are made in the cash book itself.

Question 40Financial Accounting

Which of the following errors would cause the trial balance to disagree?

  1. A payment for repairs debited to the machinery account
  2. A purchase of €500 entered in the ledger as €50 on both sides Correct answer.
  3. A sale of €200 completely omitted from the books
  4. A receipt of €150 from a customer posted to the wrong customer's account

Explanation

When the same wrong amount is entered on both sides of the entry, the totals of debits and credits remain equal and the trial balance still balances, so this is not the answer. An error that records only one side, such as a one-sided entry, is what makes the trial balance disagree.

Question 41Financial Accounting

A business makes a provision for doubtful debts of 4% on trade receivables of €75,000. What is the effect on the statement of profit or loss for the year?

  1. No effect, as it is only a disclosure
  2. An expense of €3,000 Correct answer.
  3. An expense of €75,000
  4. Income of €3,000

Explanation

The provision is 4% of €75,000, equal to €3,000, and an increase in the provision is charged to the statement of profit or loss as an expense. It is not a disclosure-only item and does not create income.

Question 42Financial Accounting

In the absence of a partnership agreement, how is profit shared between partners under the Partnership Act?

  1. According to the salary agreed between partners
  2. Equally between the partners Correct answer.
  3. In proportion to time devoted to the business
  4. In proportion to capital contributed

Explanation

Where no agreement exists, the default rule is that profits and losses are shared equally, regardless of capital contributions or the work each partner performs. Salaries and interest on capital only arise where the partners have expressly agreed them.

Question 43Financial Accounting

A partner withdraws goods from the business for personal use, costing €400. Which entry records this?

  1. Debit drawings €400; credit cash €400
  2. Debit capital €400; credit sales €400
  3. Debit purchases €400; credit drawings €400
  4. Debit drawings €400; credit purchases €400 Correct answer.

Explanation

Goods taken by a partner reduce the goods available for sale and increase the partner's drawings, so drawings are debited and purchases credited at cost. No cash moves, and the amount is not treated as a sale.

Question 44Financial Accounting

A company's statement of financial position shows non-current assets of €200,000, current assets of €80,000, current liabilities of €50,000 and long-term loans of €90,000. What is the capital employed?

  1. €200,000
  2. €230,000 Correct answer.
  3. €140,000
  4. €280,000

Explanation

Capital employed equals total assets less current liabilities, that is €280,000 less €50,000, equal to €230,000. It can equally be derived as equity plus non-current liabilities.

Question 45Financial Accounting

Which of the following statements about a rights issue is correct?

  1. A dividend is paid in the form of additional shares
  2. New shares are offered to existing shareholders, usually at a discount to the market price Correct answer.
  3. Existing shares are bought back by the company from shareholders
  4. New shares are offered to the general public at the full market price

Explanation

A rights issue gives existing shareholders the first opportunity to buy new shares, typically below the current market price, so that their proportionate ownership can be preserved. An offer to the general public is a public issue, a buy-back reduces share capital, and a share-based dividend is a scrip or bonus issue.

Question 46Financial Accounting

A trader's statement of profit or loss shows revenue of €150,000, cost of sales of €90,000 and operating expenses of €25,000. What is the operating profit margin?

  1. 60%
  2. 23.3% Correct answer.
  3. 16.7%
  4. 40%

Explanation

Operating profit is €150,000 less €90,000 less €25,000, equal to €35,000. Dividing by revenue of €150,000 gives 23.3%, which measures profit from operations before interest and tax as a proportion of sales.

Question 47Financial Accounting

A company's trade receivables are €90,000 and its allowance for doubtful debts is €4,500. What is the net receivables figure and the allowance as a percentage of receivables?

  1. €94,500 and 5%
  2. €85,500 and 5% Correct answer.
  3. €85,500 and 4.5%
  4. €90,000 and 5%

Explanation

Net receivables are €90,000 less the allowance of €4,500, equal to €85,500. The allowance of €4,500 divided by receivables of €90,000 is 5%, so both figures in the first option are correct.

Question 48Financial Accounting

A business has an opening allowance for doubtful debts of €2,000 and requires a closing allowance of €3,500. How is the movement reported?

  1. An expense of €1,500 in the statement of profit or loss Correct answer.
  2. Income of €1,500 in the statement of profit or loss
  3. An expense of €3,500 in the statement of profit or loss
  4. A deduction of €1,500 from trade payables

Explanation

The allowance has increased by €1,500, and an increase in the allowance is charged as an expense in the statement of profit or loss. Only the movement, not the full closing balance, affects profit for the year.

Question 49Financial Accounting

A company's gearing ratio, calculated as non-current liabilities divided by total equity plus non-current liabilities, is 60%. What does this indicate?

  1. The company has distributed 60% of its profit as dividends
  2. The company is unable to meet its short-term obligations
  3. A majority of the company's long-term finance is provided by lenders rather than shareholders Correct answer.
  4. The company's gross profit margin is 60%

Explanation

Gearing compares long-term debt with total long-term finance, so 60% means lenders provide the larger share and the company carries relatively high financial risk. It says nothing about short-term liquidity, gross margin or dividend policy.

Question 50Financial Accounting

A company makes a bonus issue of one ordinary share for every four held, capitalising €50,000 of reserves. What is the effect on the statement of financial position?

  1. Total equity increases by €50,000
  2. Share capital decreases and reserves increase by the same amount
  3. Cash decreases by €50,000 and share capital increases
  4. Share capital increases and reserves decrease by the same amount, with no change in total equity Correct answer.

Explanation

A bonus issue converts reserves into share capital, so share capital rises while reserves fall by an equal amount and total equity is unchanged. No cash is received and no new resources enter the business.