AQA A-Level Accounting: Accounting for limited companies (7127) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.16, Accounting for limited companies, of the AQA A-level Accounting (7127) specification (version 1.1, October 2026, A-level exams June 2019 onwards). The qualification is not tiered and the specification places section 3.16 in the content assessed by Paper 1. Use a calculator throughout. All businesses and figures are invented.

Learn the content with the study guide and the revision notes. For the income statement, statement of changes in equity and statement of financial position, use the section 3.7 practice questions. See also the AQA A-level Accounting hub, the 7127 checklist and the free diagnostics.

Questions

1. State the three headings under which IAS7 classifies cash flows. [3]

2. Explain two differences between a rights issue and a bonus issue. [4]

3. Orrin Valves Ltd has 800,000 ordinary shares of £0.50 each. It makes a 1 for 5 rights issue at £1.10 per share, fully taken up. Calculate the number of new shares, the cash received and the amounts credited to share capital and share premium. [3]

4. Pentland Weave Ltd has 400,000 ordinary shares of £0.25 each and a share premium of £60,000. It makes a 1 for 4 bonus issue using the share premium.

(a) Calculate the amount transferred to share capital and the share premium remaining. [2] (b) State the effect of the bonus issue on total equity and on cash. [2]

5. Kestrel Freight Ltd owns a building that cost £250,000. Accumulated depreciation is £40,000. The building is revalued to £300,000.

(a) Calculate the revaluation surplus. [2] (b) Prepare the journal entries to record the revaluation (narratives not required). [3] (c) The remaining useful life is 25 years. Calculate the annual depreciation from next year, using the straight-line method. [1]

6. Corran Ltd’s tax charge for the year is £21,300. Tax payable was £17,800 at the start of the year and £21,300 at the end. Its 7% debentures of £90,000 were in issue all year. Accrued debenture interest was £1,575 at the start of the year and £3,150 at the end. Calculate the tax paid and the debenture interest paid. [4]

7. For each item, state where it appears in a statement of cash flows prepared using the indirect method, and whether it is added or deducted: depreciation; profit on sale of equipment; proceeds from sale of equipment; increase in trade receivables; repayment of debentures; a bonus issue. [6]

8. Brindle Cartons Ltd’s delivery vehicles at 1 January 2025: cost £140,000; accumulated depreciation £56,000. During 2025 it sold a vehicle that cost £24,000 (accumulated depreciation £15,000) for £7,200, and bought a vehicle for £36,000. Depreciation is 20% a year on the cost of vehicles held at the year end.

(a) Prepare the schedule of non-current assets for delivery vehicles for the year ended 31 December 2025. [7] (b) Calculate the profit or loss on disposal. [2]

9. Information for Saltmere Ltd for the year ended 30 June 2026:

	£
Profit from operations	74,800
Depreciation charge	31,600
Profit on disposal of equipment	1,400
Proceeds from sale of equipment	6,900
Purchase of non-current assets	88,000
Debenture interest charge	4,200
Tax charge	13,600
Dividends paid	35,000

	1 July 2025 £	30 June 2026 £
Inventory	52,000	47,500
Trade receivables	38,200	45,700
Trade payables	29,400	24,900
Accrued debenture interest	0	1,050
Tax payable	11,900	13,600
Cash and cash equivalents	8,300	34,650

During the year Saltmere issued 40,000 ordinary shares of £1 at £1.50 each, made a bonus issue of £50,000 from share premium and revalued land upwards by £40,000.

Prepare the statement of cash flows for the year ended 30 June 2026 using the indirect method. [12]

10. Halberd Tools Ltd has asked a supplier for £40,000 of trade credit. The supplier plans to decide using only Halberd’s latest published accounts. Evaluate this approach. [6]

11. Explain two reasons why international accounting standards are important to investors. [4]

12. State the purpose of each element of a company’s published accounts: the auditor’s report; the notes to the accounts; the statement of cash flows; the directors’ report. [4]

Answers

1. Operating activities [1]; investing activities [1]; financing activities [1]. [3] Examiner insight: Use the IAS7 headings exactly; “trading” or “capital” activities will not earn the mark.

2. A rights issue raises cash, because shareholders pay for the shares [1], so total equity increases [1]. A bonus issue raises no cash: shares are issued free [1] by converting reserves into share capital, so total equity is unchanged [1]. [4] Examiner insight: For “explain”, develop each difference by giving its effect (on cash or equity); a bare list of features is weaker.

3. New shares 800,000 / 5 = 160,000; cash 160,000 x £1.10 = £176,000 [1]. Share capital 160,000 x £0.50 = £80,000 [1]. Share premium 160,000 x £0.60 = £96,000 [1]. [3] Examiner insight: Check that capital plus premium equals the cash received; £80,000 + £96,000 = £176,000.

4. (a) New shares 400,000 / 4 = 100,000; transfer 100,000 x £0.25 = £25,000 [1]. Share premium remaining 60,000 - 25,000 = £35,000 [1]. (b) Total equity: no change [1]. Cash: no effect [1]. [4] Examiner insight: The transfer is at nominal value, never at market price.

5. (a) Carrying amount 250,000 - 40,000 = £210,000 [1]; surplus 300,000 - 210,000 = £90,000 [1]. (b) Dr Building £50,000 [1]; Dr Provision for depreciation £40,000 [1]; Cr Revaluation reserve £90,000 [1]. (c) 300,000 / 25 = £12,000 [1]. [6] Examiner insight: Crediting the surplus to the income statement or retained earnings is a common slip; it belongs in the revaluation reserve.

6. Tax paid = 17,800 + 21,300 - 21,300 [1] = £17,800 [1]. Interest charge 7% x 90,000 = £6,300 [1]; interest paid 1,575 + 6,300 - 3,150 = £4,725 [1]. [4] Examiner insight: Write out opening + charge - closing, so your method is visible even if a figure is misread.

7. Depreciation: operating, added back [1]. Profit on sale: operating, deducted [1]. Proceeds: investing, inflow [1]. Increase in receivables: operating, deducted [1]. Repayment of debentures: financing, outflow [1]. Bonus issue: not shown, as no cash is involved [1]. [6] Examiner insight: In this answer each mark needs both the heading and the direction (added, deducted, inflow, outflow).

8. (a)

Delivery vehicles	£
Cost at 1 January 2025	140,000
Additions	36,000
Disposals	(24,000)
Cost at 31 December 2025	152,000
Depreciation at 1 January 2025	56,000
Charge for the year	30,400
On disposals	(15,000)
Depreciation at 31 December 2025	71,400
Carrying amount at 1 January 2025	84,000
Carrying amount at 31 December 2025	80,600

Additions and disposals at cost [1]; closing cost £152,000 [1]; charge 20% x 152,000 = £30,400 [1]; depreciation on disposal £15,000 deducted [1]; closing depreciation £71,400 [1]; opening carrying amount £84,000 [1]; closing carrying amount £80,600 [1]. (b) Carrying amount 24,000 - 15,000 = £9,000 [1]; loss = 9,000 - 7,200 = £1,800 [1]. [9] Examiner insight: Base the charge on the closing cost, after the addition and the disposal; charging 20% on the opening £140,000 gives £28,000 and throws out every closing figure.

9.

Saltmere Ltd: Statement of cash flows
for the year ended 30 June 2026
                                              £          £
Cash flows from operating activities
Profit from operations                              74,800
Depreciation                                        31,600
Profit on disposal of equipment                     (1,400)
Decrease in inventories                              4,500
Increase in trade receivables                       (7,500)
Decrease in trade payables                          (4,500)
Cash generated from operations                      97,500
Interest paid (0 + 4,200 - 1,050)                   (3,150)
Tax paid (11,900 + 13,600 - 13,600)                (11,900)
Net cash from operating activities                  82,450

Cash flows from investing activities
Purchase of non-current assets          (88,000)
Proceeds from sale of equipment           6,900
Net cash used in investing activities              (81,100)

Cash flows from financing activities
Proceeds from share issue (40,000 x £1.50) 60,000
Dividends paid                          (35,000)
Net cash from financing activities                  25,000

Net increase in cash and cash equivalents           26,350
Cash and cash equivalents at 1 July 2025             8,300
Cash and cash equivalents at 30 June 2026           34,650

Depreciation added and profit on disposal deducted [1]; inventory +£4,500 [1]; receivables (£7,500) [1]; payables (£4,500) [1]; cash generated from operations £97,500 [1]; interest paid £3,150 [1]; tax paid £11,900 [1]; net operating cash £82,450 [1]; net investing (£81,100) [1]; share issue £60,000 [1]; dividends paid (£35,000), with bonus issue and revaluation excluded [1]; net increase £26,350 reconciling £8,300 to £34,650 [1]. [12] Examiner insight: Including the £50,000 bonus issue or £40,000 revaluation loses marks and stops the closing balance from agreeing.

10. For: published accounts are audited, so they are more reliable [1]; the supplier can calculate liquidity, such as the current ratio and trade payable days, to judge whether Halberd pays on time [1]; the statement of cash flows shows whether operations generate cash [1]. Against: the figures are historical and may be months old, so liquidity may have changed [1]; the year-end position may be window dressed, and payment records with other suppliers are not shown [1]. Judgement: useful as a starting point, but the supplier should also seek trade references or a credit rating and start with a lower limit [1]. [6] Examiner insight: Points must relate to a supplier’s concern (being paid); generic limitations with no link to the question score less.

11. Comparability: companies, including those in different countries, use the same rules [1], so investors can compare performance fairly when choosing where to invest [1]. Reliability: fewer choices of method limit creative accounting [1], so investors can have more confidence in reported profit and assets [1]. [4] Examiner insight: Each reason needs a consequence for the investor to earn its second mark.

12. Auditor’s report: an independent opinion on whether the accounts give a true and fair view [1]. Notes: explain and break down the figures, including accounting policies [1]. Statement of cash flows: shows where cash came from and how it was used [1]. Directors’ report: the directors’ account of the company’s year [1]. [4] Examiner insight: “Gives information” is too vague to earn a mark; say what the element tells the reader.

Where marks are usually lost

• Proceeds from a sale added in operating activities instead of the profit or loss on disposal.
• Signs reversed on working-capital changes.
• Tax or interest charge used as the amount paid.
• Bonus issues and revaluations shown as cash flows.
• Bonus shares valued at market price instead of nominal value.
• Revaluation surplus taken to the income statement.
• Depreciation on disposals not removed in the schedule of non-current assets.
• Evaluation answers with no judgement, or with limitations not linked to the stakeholder named.

Next steps

• Recap with the revision notes.
• Re-read the study guide for any weak area.
• AQA A-level Accounting hub and 7127 checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA A-level Accounting (7127) specification, version 1.1, October 2026, for A-level exams June 2019 onwards, published by AQA – section 3.16, Accounting for limited companies.