Edexcel A-Level Accounting: Limited companies (YAC11) – 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 topic 2.1, Limited companies, from Unit 2: Corporate and Management Accounting of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2 (September 2018). They test outcomes 2.1.1 to 2.1.15, all Unit 2 (A2) only. Learn the methods in the study guide; see also the course hub, checklist and free diagnostics. All businesses and figures are invented.

Questions

1. Explain the difference between a capital reserve and a revenue reserve, giving one example of each. [4]

2. Trelawn Optics plc has 900,000 ordinary shares of 0.50 each, share premium 120,000, general reserve 75,000 and retained earnings 310,000. It makes a 2 for 5 bonus issue, using the whole share premium first and then the general reserve.

(a) Prepare the journal entry for the bonus issue. [3] (b) Explain how the bonus issue affects total equity and the expected share price. [2]

3. Brackenhurst plc has 2,400,000 ordinary shares of 1.00 each and a share premium account of 150,000. It makes a 3 for 10 rights issue at 1.35, fully taken up.

(a) Prepare the ordinary share capital account and the share premium account, balancing both. [4] (b) State one reason a company might choose a rights issue rather than an issue to the general public. [1]

4. Explain two differences between ordinary shares and debentures. [4]

5. Penrock Ltd’s long-term finance:

	2025	2026
Equity	1,260,000	1,350,000
Debentures	540,000	900,000

Calculate the gearing ratio for each year and comment on the change. [5]

6. At its year end, Saltcote Chemicals plc faces two legal claims. Lawyers say Claim A will probably succeed (estimated cost 45,000) and Claim B possibly (20,000). Explain how each should be treated in the financial statements. [4]

7. Wyvernmoor plc’s profit from operations was 486,000, after an exceptional impairment of 64,000. It had 7% debentures of 400,000 all year. Tax is 20% of profit before tax. A division closed during the year made a loss after tax of 71,900.

(a) Prepare the statement of profit or loss from profit from operations to profit for the year. [4] (b) Explain why showing discontinued operations separately is useful to an investor. [2] (c) State why the impairment is disclosed separately. [1]

8. Skelbrook Brewing plc’s equity at 1 June 2025: ordinary shares of 1.00, 700,000; share premium 85,000; revaluation reserve 120,000; foreign exchange reserve 18,000; general reserve 40,000; retained earnings 265,000. During the year to 31 May 2026:

• 50,000 own shares bought back at par out of distributable profits, and cancelled
• exchange gain of 14,000 on translating its overseas branch (a foreign operation)
• land revalued upwards by 30,000; profit for the year 182,000
• dividend of 0.08 per share paid on the shares in issue after the buy-back
• 25,000 transferred to the general reserve.

Prepare Skelbrook’s statement of changes in equity for its year to 31 May 2026. [9]

9. (a) Explain the role of the auditor in corporate governance. [2] (b) State two items included in a Directors’ Report. [2]

10. Holmrook Ltd’s statement of financial position: premises 260,000; vehicles 45,000; inventory 38,000; trade receivables 31,000; bank 12,000; trade payables 26,000; bank loan 40,000. Equity: ordinary shares of 1.00, 250,000; retained earnings 70,000.

Glendower Plastics plc buys the business, taking all assets except bank, and the trade payables, at agreed values: premises 300,000; vehicles 39,000; inventory 35,000; trade receivables 29,500; trade payables 26,000. Glendower pays 70,000 cash and issues 160,000 ordinary shares of 0.50 each, valued at 2.10. Holmrook repays its loan and pays the remaining cash to shareholders.

(a) Calculate the goodwill on the purchase. [3] (b) Prepare the realisation account in Holmrook’s books. [4] (c) Prepare the sundry shareholders account in Holmrook’s books. [3] (d) Prepare the journal entry in Glendower’s books to record the purchase. [2]

11. Caldbeck Ltd and Ellerbeck Ltd merge into a new company, Northfell plc, which issues ordinary shares of 1.00 at 1.50 to their shareholders.

Carrying values	Caldbeck	Ellerbeck
Property	240,000	150,000
Plant	70,000	70,000
Inventory	60,000	41,000
Trade receivables	64,000	36,000
Bank	21,000	17,000
Trade payables	(45,000)	(29,000)

Agreed values differ as follows: Caldbeck’s property 300,000 and inventory 52,000; Ellerbeck’s plant 58,000 and trade receivables 33,000. Agreed goodwill: Caldbeck 48,000, Ellerbeck 30,000.

(a) Prepare Caldbeck’s revaluation account. [3] (b) Calculate the purchase price of each company. [2] (c) Calculate the number of Northfell shares issued to each company’s shareholders. [2] (d) Prepare Northfell’s statement of financial position after the merger. [3]

Answers

1. A capital reserve cannot be paid out as a cash dividend; it protects the capital base [1], for example share premium [1]. A revenue reserve arises from profits and can be distributed [1], for example the general reserve [1]. [4] Examiner insight: An example alone is not an explanation; say what each reserve can be used for.

2. (a) New shares = 900,000 × 2/5 = 360,000 [1]; nominal value = 360,000 × 0.50 = 180,000 [1]. Dr Share premium 120,000; Dr General reserve 60,000; Cr Ordinary share capital 180,000 [1]. (b) Total equity stays at 955,000, because reserves are only reclassified as share capital [1]. With more shares and no new resources, the market price per share would be expected to fall [1]. [5] Examiner insight: A bank entry in a bonus issue journal shows the transaction has been misunderstood.

3. (a) New shares = 2,400,000 × 3/10 = 720,000; cash 972,000 [1]. Share capital account: balance b/d 2,400,000; bank 720,000; balance c/d 3,120,000 [1]. Share premium account: balance b/d 150,000; bank (720,000 × 0.35) 252,000 [1]; balance c/d 402,000 [1]. (b) It is usually cheaper to arrange, and shareholders who take up their rights keep their share of control [1]. [5] Examiner insight: Show each c/d balance on the debit side; a list of figures is not a ledger account.

4. Shareholders are owners; debenture holders are lenders [1], so shares are equity and debentures a non-current liability [1]. Ordinary dividends depend on the directors and on profit [1], but debenture interest must be paid regardless, as a finance cost [1]. [4] Examiner insight: “Explain” needs both sides of each difference plus a consequence, not a two-word contrast.

5. 2025: 540,000 ÷ (1,260,000 + 540,000) × 100 [1] = 30.0% [1]. 2026: 900,000 ÷ (1,350,000 + 900,000) × 100 [1] = 40.0% [1]. Gearing has risen: more interest is due whatever the profit, raising the risk to ordinary shareholders [1]. [5] Examiner insight: A comment needs a consequence; “gearing went up” just repeats the calculation.

6. Claim A meets the IAS 37 conditions: present obligation from a past event, probable outflow, reliable estimate [1]. A provision of 45,000 is charged to profit or loss and shown as a liability [1]. Claim B’s outflow is only possible: a contingent liability, not recorded [1] but disclosed in a note [1]. [4] Examiner insight: Give the reason (probable versus possible), not just the treatment.

7. (a)

Profit from operations	486,000
Finance costs (7% × 400,000)	(28,000) [1]
Profit before tax	458,000
Tax (20%)	(91,600) [1]
Profit for the year from continuing operations	366,400 [1]
Loss for the year from discontinued operations	(71,900)
Profit for the year	294,500 [1]

(b) The closed division will not recur [1], so forecasts should start from continuing profit of 366,400 [1]. (c) It is material and unusual, so it should not be mistaken for normal performance [1]. [7] Examiner insight: Label each subtotal with its IAS name; unlabelled figures earn little.

8.

	Share capital	Share premium	Revaluation	Foreign exchange	Capital redemption	General	Retained earnings	Total
At 1 June 2025	700,000	85,000	120,000	18,000	–	40,000	265,000	1,228,000
Buy-back	(50,000) [1]							(50,000)
Transfer on buy-back					50,000		(50,000) [1]	–
Exchange gain				14,000 [1]				14,000
Revaluation			30,000 [1]					30,000
Profit for the year							182,000 [1]	182,000
Dividend (650,000 × 0.08)							(52,000) [1]	(52,000)
Transfer						25,000	(25,000) [1]	–
At 31 May 2026	650,000	85,000	150,000	32,000	50,000	65,000	320,000 [1]	1,352,000 [1]

[9] Examiner insight: Transfers between reserves have a nil total; if your total column moves on a transfer, an entry is one-sided.

9. (a) The auditor is independent of the directors and reports to shareholders [1]; its true and fair opinion checks the directors’ stewardship [1]. (b) Any two of: names of the directors [1]; the recommended dividend; political donations; employee matters [1]. [4] Examiner insight: The directors, not the auditor, prepare the statements.

10. (a) Agreed net assets = 300,000 + 39,000 + 35,000 + 29,500 − 26,000 = 377,500 [1]. Consideration = 160,000 × 2.10 + 70,000 = 406,000 [1]. Goodwill = 28,500 [1].

(b) Realisation account

Dr		Cr
Premises, vehicles, inventory, receivables	374,000 [1]	Trade payables	26,000 [1]
Sundry shareholders: profit on realisation	58,000 [1]	Glendower Plastics plc	406,000 [1]
	432,000		432,000

(c) Sundry shareholders account

Dr		Cr
Shares in Glendower	336,000 [1]	Ordinary share capital, retained earnings	320,000
Bank (12,000 + 70,000 − 40,000)	42,000 [1]	Realisation profit	58,000 [1]
	378,000		378,000

(d) Dr premises 300,000, vehicles 39,000, inventory 35,000, trade receivables 29,500, goodwill 28,500 (432,000) [1]; Cr trade payables 26,000, ordinary share capital 80,000, share premium 256,000, bank 70,000 (432,000) [1]. [12] Examiner insight: Valuing the shares at 0.50 instead of 2.10 distorts goodwill, realisation profit and share premium together.

11. (a) Revaluation account: Cr property 60,000 [1]; Dr inventory 8,000 [1]; the balance, a net gain of 52,000, is debited here and credited to sundry shareholders [1]. (b) Caldbeck: agreed net assets 462,000 + goodwill 48,000 = 510,000 [1]. Ellerbeck: 270,000 + 30,000 = 300,000 [1]. (c) Caldbeck: 510,000 ÷ 1.50 = 340,000 shares [1]. Ellerbeck: 300,000 ÷ 1.50 = 200,000 shares [1]. (d) Non-current assets: goodwill 78,000; property 450,000; plant 128,000; total 656,000 [1]. Current assets: inventory 93,000; trade receivables 97,000; bank 38,000; total 228,000. Total assets 884,000, less trade payables 74,000 [1]. Equity: ordinary shares 540,000 + share premium 270,000 = 810,000, equal to net assets [1]. [10] Examiner insight: Divide by the issue price (1.50), not the nominal value.

Where marks are usually lost

• Bonus issue journals that include bank.
• Rights issue cash credited wholly to share capital, with no share premium.
• Dividends deducted in the statement of profit or loss rather than the statement of changes in equity.
• Gearing divided by equity alone.
• Provisions confused with reserves; contingent liabilities recorded instead of disclosed.
• Discontinued results split across revenue and expenses instead of one line.
• Agreed values used in the vendor’s realisation account instead of carrying values.

Next steps

• Revision notes
• Study guide
• Edexcel A-Level Accounting hub
• Printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018 (first teaching September 2015), Pearson Education Limited. Unit 2, topic 2.1: Limited companies.