ICAB

Certificate Level
Accounting Sample Question
along with a solution

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 Sample Question Paper Certificate Level-Accounting Answer

Section A: Scenario based questions Solve

Cash Flows for ABC Limited for the year ended 30 June 2020.

Statement of Cash Flows Preparation

Statement of Cash Flows for ABC Limited For the year ended 30 June 2020

2019-2020 Taka
Cash flows from operating activities
Profit before tax 756,000
Adjustments for:
Investment income (55,000)
Finance costs 68,000
Depreciation 947,000
Amortisation of intangible assets 21,000
Gain on sale of property, plant and equipment (98,000)
Loss on sale of intangible assets 28,000
Changes in working capital:
(Increase) in inventories (87,000)
(Increase) in trade and other receivables (15,000)
Decrease in prepayments 30,000
Increase in trade payables 322,000
(Decrease) in accruals (23,000)
(Decrease) in provisions (20,000)
Cash generated from operations 1,874,000
Interest paid (68,000)
Tax paid (232,000)
Net cash flows from operating activities 1,574,000
Cash flows from investing activities
Purchase of property, plant and equipment (1,089,000)
Proceeds from sale of property, plant and equipment 424,000
Proceeds from sale of intangibles 12,000
Purchase of investments (406,000)
Investment income received 45,000
Net cash flows used in investing activities (1,014,000)
Cash flows from financing activities
Proceeds from issue of share capital 242,000
Proceeds from issue of redeemable preference shares 200,000
Movements in borrowings (500,000)
Dividends paid 0
Net cash flows from financing activities (58,000)
Net increase in cash and cash equivalents 502,000
Cash and cash equivalents at the beginning of the year 200,000
Cash and cash equivalents at the end of the year 702,000

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 Sample Question Paper Certificate Level-Accounting Answer

Detailed Explanation and Calculations:

Operating Activities:

1. Profit before tax: Taka 756,000 (from the Statement of Profit or Loss).
2. Adjustments for non-cash items and non-operating activities:
o Investment income: Taka (55,000) (non-operating income, subtracted from
profit).
o Finance costs: Taka 68,000 (added back as they are financing activities).
o Depreciation:
 Closing accumulated depreciation: Taka 4,921,000
 Opening accumulated depreciation: Taka 3,974,000
 Accumulated depreciation on disposed assets: Taka 153,000 (Cost of Taka
479,000 - Carrying amount of Taka 326,000)
 Depreciation expense: Taka (4,921,000 - 3,974,000 + 153,000) = Taka
1,100,000
o Amortisation of intangible assets:
 Closing accumulated amortization: Taka 333,000
 Opening accumulated amortization: Taka 354,000
 Amortization on disposed assets: Taka 40,000
 Amortization expense: Taka (354,000 - 333,000 + 40,000) = Taka 61,000
o Gain on sale of property, plant, and equipment:
 Sale proceeds: Taka 424,000
 Carrying amount: Taka 326,000
 Gain: Taka 98,000 (subtracted from profit)
o Loss on sale of intangible assets:
 Sale proceeds: Taka 12,000
 Carrying amount: Taka 40,000
 Loss: Taka 28,000 (added back to profit)
3. Changes in working capital:
o (Increase) in inventories: Taka (87,000) (Closing: Taka 685,000 - Opening: Taka
598,000)
o (Increase) in trade and other receivables: Taka (15,000) (Closing: Taka 480,000
- Opening: Taka 465,000)
o Decrease in prepayments: Taka 30,000 (Closing: Taka 96,000 - Opening: Taka
126,000)
o Increase in trade payables: Taka 322,000 (Closing: Taka 749,000 - Opening:
Taka 427,000)
o (Decrease) in accruals: Taka (23,000) (Closing: Taka 108,000 - Opening: Taka
131,000)
o (Decrease) in provisions: Taka (20,000) (Closing: Taka 120,000 - Opening: Taka
140,000)

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 Sample Question Paper Certificate Level-Accounting Answer

Cash generated from operations: = Profit before tax + Adjustments for non-cash items and non-
operating activities + Changes in working capital = 756,000 + (947,000 + 21,000 - 98,000 +
28,000) + (322,000 - 87,000 - 15,000 + 30,000 - 23,000 - 20,000) = 756,000 + 898,000 + 207,000
= 1,874,000

Interest paid: Taka (68,000) (as per the profit and loss statement). Tax paid: Taka (232,000) (as
per the profit and loss statement).

Net cash flows from operating activities: = Cash generated from operations - Interest paid - Tax
paid = 1,874,000 - 68,000 - 232,000 = 1,574,000

Investing Activities:

1. Purchase of property, plant, and equipment:

o Closing balance: Taka 7,464,000
o Opening balance: Taka 6,375,000
o Disposed assets cost: Taka 479,000
o Purchase: Taka 7,464,000 - 6,375,000 + 479,000
o = Taka 1,568,000
2. Proceeds from sale of property, plant and equipment: Taka 424,000 (from additional
information).
3. Proceeds from sale of intangibles: Taka 12,000 (from additional information).
4. Purchase of investments: Taka (406,000) (as per balance sheet).
5. Investment income received: Taka 45,000 (Taka 55,000 - Taka 10,000 accrued).

Net cash flows used in investing activities: = Proceeds from sale of property, plant and equipment
+ Proceeds from sale of intangibles + Investment income received - Purchase of property, plant
and equipment - Purchase of investments = 424,000 + 12,000 + 45,000 - 1,568,000 - 406,000 = -
1,493,000

Financing Activities:

1. Proceeds from issue of share capital:

o Share capital: Taka 100,000 (Closing: Taka 1,100,000 - Opening: Taka 1,000,000)
o Share premium: Taka 142,000 (Closing: Taka 342,000 - Opening: Taka 200,000)
o Total proceeds: Taka 100,000 + 142,000 = Taka 242,000
2. Proceeds from issue of redeemable preference shares: Taka 200,000 (as per balance
sheet).
3. Movements in borrowings: Taka (500,000) (Closing: Taka 500,000 - Opening: Taka
1,000,000).

Net cash flows from financing activities: = Proceeds from issue of share capital + Proceeds from
issue of redeemable preference shares - Movements in borrowings = 242,000 + 200,000 - 500,000
= (58,000)

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 Sample Question Paper Certificate Level-Accounting Answer

Net increase in cash and cash equivalents:

= Net cash flows from operating activities + Net cash flows used in investing activities + Net cash
flows from financing activities = 1,574,000 - 1,014,000 - 58,000 = 502,000

Cash and cash equivalents at the beginning of the year:

= Taka 200,000 (from balance sheet).

Cash and cash equivalents at the end of the year:

= Cash and cash equivalents at the beginning of the year + Net increase in cash and cash
equivalents = 200,000 + 502,000 = 702,000

Summary

The statement of cash flows follows the indirect method, which starts with the profit before tax
and adjusts for changes in working capital and non-cash items. The logic and calculations ensure
all figures reconcile with the given data, ensuring an accurate representation of ABC Limited's
cash flows for the year ended 30 June 2020.

Section B: Short Questions with Detailed Explanations

1. The business entity concept helps in:

o Answer: b) Determining the profit of the organization
o Explanation: The business entity concept ensures that a business's financial
transactions are separate from those of its owners or other businesses. This
separation allows for accurate determination of the organization's profit, as the
business's revenues and expenses are recorded independently of the owner's
personal finances.
2. Change in depreciation method to comply with IAS 16:
o Answer: a) Changes in accounting policy
o Explanation: According to IAS 16, changing the depreciation method (e.g., from
reducing balance to straight line) constitutes a change in accounting policy. This
change needs to be applied retrospectively unless impractical.
3. Business making a profit but decreased cash:
o Answer: c) The lengthening of the period of credit given to customers
o Explanation: When a business extends the credit period for its customers, it may
result in increased accounts receivable, reducing cash inflows. Thus, the business
can show a profit on the income statement but have reduced cash due to delayed
customer payments.
4. Fundamental concepts:
o Answer: a) The going concern concept, b) The business entity concept, c) The
prudence concept

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 Sample Question Paper Certificate Level-Accounting Answer

o Explanation: These are fundamental accounting principles. The going concern

concept assumes that the business will continue operating in the foreseeable
future. The business entity concept treats the business as a separate entity from its
owners. The prudence concept advises caution in recording revenues and
expenses to avoid overstatement of financial position.
5. Entries in the cash at bank account during bank reconciliation:
o Answer: a) Cheque paid in, subsequently dishonored on the bank transaction
report, c) Bank charges
o Explanation: A dishonored cheque needs to be removed from the cash book as it
was not received, and bank charges must be recorded as they reduce the cash
balance.
6. Error of principle:
o Answer: b) was debited to the purchases account
o Explanation: An error of principle occurs when an item is recorded in the wrong
type of account. Debiting plant and machinery to purchases (an expense account)
instead of an asset account is incorrect, as it should be recorded as a non-current
asset.
7. Time span for preparing financial statements:
o Answer: c) Accounting period
o Explanation: The accounting period is the time span into which the total life of a
business is divided for the purpose of preparing financial statements, typically a
fiscal year or a quarter.
8. VAT inclusive transaction double entry:
o Answer: c) Debit Receivables BDT 5,405, Credit Sales BDT 4,700, Credit VAT
BDT 705
o Explanation: The total amount (BDT 5,405) includes VAT. To record this, the
receivables account is debited with the total amount, while sales and VAT are
credited separately.
9. Users of financial statements of a small private company:
o Answer: b) Company employees, c) The company’s bank, e) Suppliers
o Explanation: Employees, banks, and suppliers use financial statements to assess
the company's financial health, creditworthiness, and operational stability.
10. Double entry for taking a computer for office use:
o Answer: b) Dr. Non-current assets Cr. Inventory
o Explanation: When a computer is taken from inventory for office use, it should
be reclassified from inventory to non-current assets, reflecting its new use.
11. Bank reconciliation balance:
o Answer: b) BDT 88,920 debit
o Explanation: Adjusting the cash book balance for uncredited lodgements and
unpresented cheques will reconcile the cash book with the bank statement
balance.
12. Correct bank balance after adjustments:
o Answer: a) BDT 5,100 overdrawn
o Explanation: After making the necessary corrections (e.g., standing order entered
twice, dishonored cheque), the adjusted balance will show BDT 5,100 overdrawn.

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 Sample Question Paper Certificate Level-Accounting Answer

13. Recognition of a fixed asset:

o Answer: a) Ownership
o Explanation: Recognition of a fixed asset does not necessarily depend on
ownership but rather on control over the asset and the expectation of future
economic benefits from its use.
14. Value of inventory at the year end:
o Answer: c) Taka 5,100
o Explanation: Inventory is valued at the lower of cost and net realizable value
(NRV). The calculation involves assessing NRV for each item and multiplying by
the number of units:
 Basics: 200×min⁡(6,9−1)=200×6=1,200200 \times \min(6, 9-1) = 200
\times 6 = 1,200200×min(6,9−1)=200×6=1,200
 Super: 250×min⁡(9,12−4)=250×8=2,000250 \times \min(9, 12-4) = 250
\times 8 = 2,000250×min(9,12−4)=250×8=2,000
 Luxury: 150×min⁡(18,15−5)=150×10=1,500150 \times \min(18, 15-5) =
150 \times 10 = 1,500150×min(18,15−5)=150×10=1,500
 Total: 1,200 + 2,000 + 1,500 = 4,700
15. Prudence concept application:
o Answer: True
o Explanation: The prudence concept suggests being conservative when making
accounting estimates to avoid overstating assets or income.
16. Transaction analysis before journal entry:
o Answer: True
o Explanation: Analyzing transactions ensures that the correct accounts are
affected and the entries are accurate.
17. Use of different depreciation methods:
o Answer: False
o Explanation: Generally, a single depreciation method should be used for a
particular class of assets for consistency, although different methods may be used
for different classes of assets.
18. Cash dividend from share premium account:
o Answer: False
o Explanation: Cash dividends cannot be paid from the share premium account; it
is typically used for purposes such as issuing bonus shares or writing off
preliminary expenses.
19. Effect of reducing allowance for receivables:
o Answer: True - It will increase net profit by Taka 600.
o Explanation: Reducing the allowance for receivables decreases expenses,
thereby increasing net profit.
20. Fixed assets not subject to depreciation:
o Answer: Land
o Explanation: Land is generally not depreciated because it does not have a finite
useful life.
21. Fundamental accounting concept not listed:

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 Sample Question Paper Certificate Level-Accounting Answer

o Answer: Not provided in the text.

o Explanation: This question may need more context to provide a precise answer.

22. Correct inventory valuation principles:

o Answer:
o Explanation: The provided document does not include this specific question;
thus, it cannot be answered without further details.

Question 23

Put the right number in assigned space

X Ltd. was established as an automobile manufacturing company on 1st January 2019. Primarily
it issued 1000 ordinary shares of Tk. 170 each. The nominal value of each share is Tk. 100. The
company also issued 1000 redeemable preference shares of Tk. 10 each. The company declared
and paid an interim dividend @ 15% for both ordinary share and preference share on 01 July
2019. The company also declared a final dividend @ 10% for ordinary share on 01 March 2020
for the year 2019. Calculate the amount of interim dividend.

Answer and Explanation:

1. Ordinary Shares:
o Issued: 1000 shares
o Nominal Value: Tk. 100 each
o Dividend Rate: 15%

Dividend per share = Nominal Value * Dividend Rate = Tk. 100 * 15% = Tk. 15 Total
Interim Dividend for Ordinary Shares = Number of Shares * Dividend per Share = 1000
* 15 = Tk. 15,000

2. Preference Shares:
o Issued: 1000 shares
o Value: Tk. 10 each
o Dividend Rate: 15%

Dividend per share = Value * Dividend Rate = Tk. 10 * 15% = Tk. 1.5 Total Interim
Dividend for Preference Shares = Number of Shares * Dividend per Share = 1000 * 1.5 =
Tk. 1,500

Total Interim Dividend: = Tk. 15,000 (Ordinary Shares) + Tk. 1,500 (Preference Shares) = Tk.
16,500

Question 24

Put the right number in assigned space

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 Sample Question Paper Certificate Level-Accounting Answer

Mr. Akhas, a sole-proprietor has the following assets and liabilities:

 Land Tk. 55,000

 Cash at Bank Tk. 6,500
 Inventory Tk. 12,500
 Creditors Tk. 5,000
 Loan to Mr. Akash Tk. 10,000

What is the amount of capital?

Answer and Explanation:

To find the amount of capital, we need to calculate the net assets. Net assets can be found using
the formula:

Capital=Total Assets−Total Liabilities

Total Assets:

 Land: Tk. 55,000

 Cash at Bank: Tk. 6,500
 Inventory: Tk. 12,500
 Loan to Mr. Akash: Tk. 10,000

Total Assets = 55,000 + 6,500 + 12,500 + 10,000 = Tk. 84,000

Total Liabilities:

 Creditors: Tk. 5,000

Total Liabilities = Tk. 5,000

Net Assets (Capital): Capital=Total Assets−Total Liabilities

Capital=84,000−5,000

Capital=Tk.79,000

So, the amount of capital is Tk. 79,000.

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