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O Level Principles of Accounts Practice Paper 1

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Questions

TuitionGoWhere Exam Practice (AI) - Principles of Accounts O-Level

School: TuitionGoWhere Secondary School (AI)
Subject: Principles of Accounts
Level: O-Level
Paper: Practice Paper (Version 1 of 5)
Duration: 1 hour 15 minutes
Total Marks: 60
Name: ___________________________
Class: ______________
Date: ______________

Instructions

Answer all questions in the spaces provided.
Show all workings clearly. Marks will be awarded for correct method and final answers.
Use the inventory costing methods FIFO and AVCO where stated.
Round monetary values to 2 decimal places where applicable.

Section A: Basic Inventory Calculations (Questions 1–5) [12 marks]

1. [2 marks] Calculate the cost of sales for the month of March 2025 using the following:

Opening inventory: $4,200
Purchases: $11,500
Closing inventory: $3,800

2. [1 mark] State the formula for cost of sales.

3. [2 marks] A business had opening inventory of $6,000, closing inventory of$ 7,500, and cost of sales of $22,000. Calculate the purchases for the year.

4. [3 marks] Prepare the inventory account (T-account) for April 2025:

Opening balance 1 Apr: $3,000
Purchases 10 Apr: $5,000
Issues 20 Apr: $4,200 Show balance c/d and b/d.

5. [4 marks] Explain, with reference to an accounting concept, how inventory is valued in the financial statements.

Section B: FIFO and AVCO Methods (Questions 6–12) [24 marks]

6. [3 marks] The following purchases and issues occurred in June 2025:

1 Jun: Opening inventory 100 units @ $5
5 Jun: Purchase 200 units @ $6
12 Jun: Issue 150 units
20 Jun: Purchase 100 units @ $7
25 Jun: Issue 200 units

Using FIFO, calculate the closing inventory value at 30 Jun.

7. [3 marks] Using the same data as Question 6, calculate the closing inventory value at 30 Jun using AVCO (weighted average cost, recalculated after each purchase).

8. [2 marks] State one reason why FIFO and AVCO may give different closing inventory values.

9. [3 marks] A company uses FIFO. Opening inventory: 50 units @ $10. Purchase: 100 units @$ 12. Issue: 80 units. Calculate the cost of the issue and the closing inventory.

10. [3 marks] A company uses AVCO. Opening: 200 units @ $4. Purchase: 300 units @$ 5. Issue: 250 units. Calculate the issue cost and closing inventory value.

11. [4 marks] Compare the effect of FIFO and AVCO on reported profit during a period of rising prices. Explain your answer.

12. [6 marks] The following transactions for July 2025:

1 Jul: Opening 80 units @ $9
8 Jul: Purchase 120 units @ $10
15 Jul: Issue 100 units
22 Jul: Purchase 100 units @ $11
28 Jul: Issue 150 units

(a) Calculate closing inventory using FIFO. [3]
(b) Calculate closing inventory using AVCO. [3]

Section C: Analysis and Interpretation (Questions 13–17) [14 marks]

13. [2 marks] Calculate the days sales in inventory for the year ended 31 Dec 2024:

Cost of sales: $73,000
Opening inventory: $8,000
Closing inventory: $9,000

14. [2 marks] Using the same figures as Q13, calculate the inventory turnover ratio.

15. [3 marks] A business has cost of sales $120,000, opening inventory$ 10,000, closing inventory $14,000. Calculate days sales in inventory for 2023 and 2024 if 2024 closing is$ 16,000 and 2024 cost of sales $130,000 (2023 opening =$ 9,000).

16. [4 marks] Explain how a high days sales in inventory may affect a company's liquidity. Use accounting reasoning.

17. [3 marks] Suggest two measures a business could take to reduce its days sales in inventory.

Section D: Integrated Application (Questions 18–20) [10 marks]

18. [3 marks] A shop's records show:

Opening inventory (1 Jan): $5,000
Purchases: $40,000
Closing inventory (31 Dec): $6,000
Revenue: $70,000

Calculate gross profit for the year.

19. [3 marks] Using the data below, prepare a extract of the inventory section of the Statement of Financial Position as at 31 Dec 2025:

Closing inventory: $12,500 (valued at lower of cost and net realisable value; cost$ 12,500, NRV $11,800)

20. [4 marks] A retailer is deciding between FIFO and AVCO. During inflation, which method would show lower tax? Explain with calculation logic using a simple example (open 100 @ $2, buy 100 @$ 3, sell 150).

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Answers

TuitionGoWhere Exam Practice (AI) - Principles of Accounts O-Level

Answer Key (Version 1 of 5)

Total Marks: 60

Section A: Basic Inventory Calculations

1. [2 marks]
Cost of sales = Opening inventory + Purchases − Closing inventory
= $4,200 +$ 11,500 − $3,800 =$ 12,000
Marks: 1 for formula use, 1 for correct answer.

2. [1 mark]
Cost of Sales = Opening Inventory + Purchases − Closing Inventory
(accept "Cost of goods sold = ...")
Mark: 1 for correct formula.

3. [2 marks]
Purchases = Cost of sales + Closing inventory − Opening inventory
= $22,000 +$ 7,500 − $6,000 =$ 23,500
Marks: 1 for rearrangement, 1 for answer.

4. [3 marks]
Inventory Account (T-account):

              Inventory
--------------------------------
Dr | Cr
1 Apr  Bal b/d  3,000 | 20 Apr Issue  4,200
10 Apr Pur. 5,000 | 30 Apr Bal c/d 3,800
      ---------- | ----------
      8,000     | 8,000
1 May  Bal b/d  3,800 |

Marks: 1 format, 1 entries, 1 balancing.

5. [4 marks]
Inventory is valued at the lower of cost and net realisable value (LCNRV). This applies the prudence concept: do not overstate assets or profit. Cost = purchase cost; NRV = expected selling price − costs to sell. If NRV < cost, write down to NRV.
Marks: 2 for concept (prudence/LCNRV), 2 for explanation.

Section B: FIFO and AVCO Methods

6. [3 marks] FIFO
Issues: 150 from opening (100@ $5, 50@$ 6); 200 from remaining (150@ $6, 50@$ 7).
Closing: 50@ $7 =$ 350.
Marks: 1 layering, 2 answer.

7. [3 marks] AVCO
After 5 Jun: avg = (1005+2006)/300 = $5.67. After issue 150: bal [email protected]. After 20 Jun: avg = (150*5.67+100*7)/250 =$ 6.20. Issue 200 → closing [email protected] = $310.
Marks: 2 steps, 1 answer.

8. [2 marks]
Prices change over time; FIFO uses oldest costs for issues, AVCO spreads cost → different closing values.
Mark: 2 for valid reason.

9. [3 marks] FIFO
Issue 80 from opening (50@ $10, 30@$ 12) = $500+$ 360= $860. Closing 70@$ 12=$840.
Marks: 1 issue, 2 closing.

10. [3 marks] AVCO
Avg after pur = (2004+3005)/500= $4.60. Issue 250*4.60=$ 1,150. Closing [email protected]=$1,150.
Marks: 1 avg, 1 issue, 1 closing.

11. [4 marks]
Rising prices: FIFO issues oldest (lower) cost → higher gross profit, higher tax. AVCO smoother, lower profit. Explanation with logic.
Marks: 2 comparison, 2 reasoning.

12. [6 marks]
(a) FIFO: issue 100 (80@9,20@10); issue 150 (100@10,50@11); closing 50@11= $550. [3] (b) AVCO: after 8 Jul avg=$ 9.60; after issue bal [email protected]; after 22 Jul avg=(1009.6+10011)/200= $10.30; issue [email protected]; closing [email protected]=$ 515. [3]

Section C: Analysis and Interpretation

13. [2 marks]
Avg inv = (8000+9000)/2=$8,500. DSI = 365/(73000/8500)=42.51 days.
Marks: 1 avg/turnover, 1 DSI.

14. [2 marks]
ITR = 73000/8500 = 8.59 times.
Marks: 1 calc, 1 answer.

15. [3 marks]
2023: avg=(9000+14000)/2=11500; ITR=120000/11500=10.43; DSI=34.99.
2024: avg=(14000+16000)/2=15000; ITR=130000/15000=8.67; DSI=42.10.
Marks: 1 each year + rounding.

16. [4 marks]
High DSI = inventory held long → cash tied up → lower liquidity. Less cash for liabilities.
Marks: 2 effect, 2 reasoning.

17. [3 marks]

Improve stock control / JIT. 2. Discounts for fast sales / better demand forecasting.
Marks: 1.5 each.

Section D: Integrated Application

18. [3 marks]
COS=5000+40000-6000=39000. GP=70000-39000=31000.
Marks: 1 COS, 2 GP.

19. [3 marks]
Inventory shown at $11,800 (LCNRV lower). Extract: Current Assets: Inventory$ 11,800.
Marks: 1 rule, 2 value.

20. [4 marks]
FIFO: issue 150 (100@2,50@3)=350; closing 50@3=150. AVCO: avg=2.5; issue 375; closing 125. FIFO lower closing → higher COS → lower profit → lower tax.
Marks: 2 example, 2 conclusion.