IGCSE Accounting: Preparation of Financial Statements — Practice Questions

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus covers only trading and service businesses in 5.1 and limits drawings adjustments to goods taken by the owner for own use; for limited companies it excludes cumulative and non-cumulative preference shares, rights issues, share premium and capital redemption reserve but requires the difference between redeemable and non-redeemable preference shares (the 2027-2029 syllabus lists none of these); and for incomplete records it does not ask why businesses keep them or what their advantages are. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

These are original practice questions written in the style of Cambridge IGCSE Accounting (0452) assessment objectives. They are not taken from any past paper and are not endorsed by Cambridge International.

Use these questions alongside the Preparation of Financial Statements study guide and revision notes. Accounting 0452 is not tiered, so every question below applies to all candidates.

Short-answer questions

Cambridge IGCSE Accounting 0452 question papers are not divided into lettered sections, so the questions below are grouped only by length.

1. State two advantages of operating as a sole trader. [2]

2. State the heading under which each of the following appears in a sole trader’s statement of financial position: (i) goodwill; (ii) a bank loan repayable in five years’ time; (iii) insurance paid in advance; (iv) a motor vehicle; (v) wages owing; (vi) the owner’s investment in the business. [3]

3. Explain two differences between a partner’s capital account and a partner’s current account. [2]

4. State the meaning of (a) “limited liability” and (b) “equity” for a limited company. [2]

5. Explain two differences between a club’s receipts and payments account and its income and expenditure account. [2]

6. Give two reasons why a small sole trader might not keep a full double entry system, and one disadvantage of not doing so. [3]

Longer questions

7. Calculate the depreciation for the year ended 31 December 2027 in each case.

(a) A machine bought on 1 January 2026 for $16,000 is depreciated at 12.5% per year using the straight-line method. Calculate the depreciation for 2027 and the carrying value at 31 December 2027. [2] (b) A van bought on 1 January 2026 for $24,000 is depreciated at 20% per year using the reducing balance method. Calculate the depreciation for 2027 and the carrying value at 31 December 2027. [2] (c) Loose tools were valued at $2,300 on 1 January 2027. Tools costing $650 were bought during the year, and the tools were valued at $2,150 on 31 December 2027. Calculate the depreciation using the revaluation method. [1]

8. Nadia Rahman, a sole trader, has calculated a draft profit for the year ended 31 December 2027 of $24,600. She then finds that the following have not been taken into account:

• (i) goods costing $400 taken for her own use;
• (ii) rent payable of $500 owing at 31 December 2027;
• (iii) insurance of $360 paid in advance for 2028, which was charged in full as an expense;
• (iv) commission receivable of $250 earned but not yet received;
• (v) a debt of $300 to be written off as irrecoverable; the allowance for irrecoverable debts, currently $280, is to be 5% of the remaining trade receivables. Trade receivables before the write-off were $6,300;
• (vi) Nadia’s private electricity bill of $180, paid by the business and charged to the electricity account.

(a) Calculate the corrected profit for the year, showing each adjustment. [8] (b) Drawings recorded so far are $15,000. Calculate Nadia’s corrected drawings. [1] (c) Explain the effect of item (ii) on the statement of financial position. [2] (d) At 31 December 2027 inventory was $8,100, bank $2,150 and trade payables $4,900. Prepare the current assets and current liabilities sections of Nadia’s statement of financial position. [4]

9. Chen and Dara are partners. Their partnership agreement provides:

• fixed capital accounts: Chen $50,000; Dara $30,000;
• interest on capital at 4% per year;
• a salary for Dara of $6,000 per year;
• interest on drawings for the year: Chen $250; Dara $150;
• the balance of profits and losses shared equally;
• interest at 5% per year on Chen’s loan of $8,000 to the partnership, paid by bank transfer.

The profit for the year ended 31 December 2027 before charging loan interest was $30,400. On 1 January 2027 Dara’s current account had a credit balance of $400. Dara’s drawings for the year were $14,000.

(a) Calculate the profit for the year after charging the interest on Chen’s loan. [1] (b) Prepare the appropriation account for the year ended 31 December 2027. [5] (c) Prepare Dara’s current account for the year ended 31 December 2027. [3] (d) Explain why it is important for Chen and Dara to have a partnership agreement. [2]

10. Lakeview Printers Ltd provides the following for the year ended 31 December 2027.

• At 1 January 2027: ordinary shares of $1 each, fully paid, $120,000; 5% preference shares of $1 each, fully paid, $40,000; general reserve $15,000; retained earnings $28,000.
• During the year 30,000 ordinary shares of $1 each were issued at $1 each and fully paid.
• Profit from operations was $41,800. The company has $30,000 of 6% debentures; the full year’s interest was paid.
• $5,000 was transferred to the general reserve.
• Dividends paid: the full preference dividend for the year, and an ordinary dividend of $0.08 per share on the 150,000 ordinary shares in issue at 31 December 2027.

(a) Calculate the profit for the year. [2] (b) Prepare the statement of changes in equity for the year ended 31 December 2027. [6] (c) State two differences between ordinary shares and debentures. [2] (d) Another company issued 80,000 ordinary shares of $1 each and has called up $0.75 per share. All amounts called up have been paid except $0.25 per share on 2,000 shares. Calculate the issued, called-up and paid-up share capital. [3]

11. A manufacturer provides the following for the year ended 31 December 2027: inventory of raw materials 1 January $3,200, 31 December $2,700; purchases of raw materials $28,500; direct factory wages $19,000; total factory overheads $11,400; work in progress 1 January $1,800, 31 December $2,400.

(a) Give one example of a direct cost and one example of an indirect cost in a manufacturing business. [2] (b) Calculate the prime cost. [2] (c) Calculate the factory cost of production. [1]

12. Hillside Walking Club provides the following information.

                                 1 January 2027   31 December 2027
                                              $                  $
Subscriptions in arrears                     90                120
Subscriptions in advance                    150                210
Equipment                                 2,600
Bank                                        740
Rent owing                                   60

Subscriptions received during 2027 were $4,860.

(a) Prepare the subscriptions account for the year ended 31 December 2027, showing the amount transferred to the income and expenditure account. [4] (b) Calculate the accumulated fund at 1 January 2027. [2] (c) Explain why subscriptions received in advance are shown as a current liability. [1] (d) State what the accumulated fund represents. [1]

13. Structured question in the style of Paper 2. [20]

Rosa Diaz is a sole trader who buys and sells goods. She does not keep a full set of accounting records. The following information is available.

                                  1 January 2027   31 December 2027
                                               $                  $
Fixtures and fittings (cost)              12,000             12,000
Inventory                                  7,500              8,500
Trade receivables                          5,200              6,000
Rent paid in advance                         400                  -
Bank                                       3,100              6,300
Trade payables                             4,300              4,700
Electricity owing                              -                250

Summary of bank transactions for the year ended 31 December 2027:

Receipts                               $   Payments                          $
Receipts from credit customers    71,200   Payments to credit suppliers 52,600
Cash sales banked                  6,000   Rent                          4,400
Additional capital introduced      3,000   Electricity                   1,750
                                           General expenses              7,750
                                           Drawings                     10,500

Fixtures and fittings are to be depreciated at 10% per year on cost. No fixtures were bought or sold during the year, and no depreciation had been charged on them before 1 January 2027.

(a) Prepare Rosa’s statement of affairs at 1 January 2027, showing her opening capital. [3] (b) Calculate: (i) credit sales for the year; (ii) purchases for the year. [4] (c) Prepare Rosa’s statement of profit or loss for the year ended 31 December 2027. [6] (d) Calculate Rosa’s capital at 31 December 2027, and use the change in capital to check her profit for the year. [3] (e) Calculate: (i) the mark-up; (ii) the rate of inventory turnover. [2] (f) Advise Rosa whether she should keep a full double entry system in future. Justify your answer. [2]

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Answers

1. Any two of: the owner keeps all the profit; the owner has full control and can make decisions quickly; the business is easy and cheap to set up; the owner’s financial affairs can be kept private [2, 1 mark each].

2. (i) intangible assets; (ii) non-current liabilities; (iii) current assets (other receivables); (iv) non-current assets; (v) current liabilities (other payables); (vi) capital [3, 1 mark for every two correct].

3. A capital account records the long-term capital the partner has invested and usually stays fixed, whereas a current account changes each year [1]. The current account is credited with interest on capital, salary and share of profit and debited with drawings and interest on drawings, and can have a debit balance; the capital account normally has a credit balance [1].

4. (a) Shareholders can lose only the amount they have paid, or agreed to pay, for their shares; their private possessions cannot be used to pay the company’s debts [1]. (b) The shareholders’ interest in the company: share capital plus reserves, equal to total assets less total liabilities [1].

5. Any two explained, for example: a receipts and payments account is a summary of cash and bank transactions, whereas an income and expenditure account shows income and expenditure for the period after adjustments for accruals, prepayments and depreciation [1]; a receipts and payments account includes capital items such as buying equipment and ends with a cash or bank balance, whereas an income and expenditure account includes only revenue items and ends with a surplus or deficit [1].

6. Reasons, any two: the owner lacks accounting knowledge; full records take too much time; the cost of a bookkeeper or software; a small business may feel a record of cash and bank is enough [2, 1 mark each]. Disadvantage, any one: no trial balance, so errors are not detected; fraud is harder to detect; profit cannot be found accurately without reconstructing figures; lenders or tax authorities may not accept the figures [1].

7. (a) Depreciation 12.5% x $16,000 = $2,000 [1]; carrying value $16,000 – (2 x $2,000) = $12,000 [1]. (b) 2026: 20% x $24,000 = $4,800; 2027: 20% x ($24,000 – $4,800) = $3,840 [1]; carrying value $24,000 – $4,800 – $3,840 = $15,360 [1]. (c) $2,300 + $650 – $2,150 = $800 [1].

8. (a)

                                                          $
Draft profit                                         24,600
(i)   Add Goods for own use (purchases reduced)         400
(ii)  Less Rent owing                                  (500)
(iii) Add Insurance prepaid                             360
(iv)  Add Commission receivable                         250
(v)   Less Irrecoverable debt                          (300)
      Less Increase in allowance (300 - 280)            (20)
(vi)  Add Private electricity removed from expenses     180
Corrected profit for the year                        24,970

Goods for own use +400 [1]; rent –500 [1]; insurance +360 [1]; commission +250 [1]; irrecoverable debt –300 [1]; allowance 5% x ($6,300 – $300) = $300, increase of $20 deducted [1]; private electricity +180 [1]; corrected profit $24,970 [1]. (b) $15,000 + $400 + $180 = $15,580 [1]. (c) Other payables (current liabilities) increase by $500 [1]; profit, and so capital, is $500 lower, so the statement still balances [1]. (d)

Current assets                                    $          $
  Inventory                                               8,100
  Trade receivables                           6,000
  Less Allowance for irrecoverable debts        300
                                                          5,700
  Other receivables (360 + 250)                             610
  Bank                                                    2,150
                                                         16,560
Current liabilities
  Trade payables                                          4,900
  Other payables                                            500
                                                          5,400

Inventory $8,100 and bank $2,150 [1]; trade receivables $6,000 less allowance $300 = $5,700 [1]; other receivables $610 and total current assets $16,560 [1]; trade payables $4,900, other payables $500, total $5,400 [1].

9. (a) Loan interest 5% x $8,000 = $400; profit for the year $30,400 – $400 = $30,000 [1]. The loan interest is an expense in the statement of profit or loss, not an appropriation. (b)

Chen and Dara
Appropriation account for the year ended 31 December 2027
                                               $          $
Profit for the year                                   30,000
Add Interest on drawings
  Chen                                       250
  Dara                                       150
                                                         400
                                                      30,400
Less Interest on capital
  Chen (4% x 50,000)                       2,000
  Dara (4% x 30,000)                       1,200
                                           3,200
Less Partner's salary
  Dara                                     6,000
                                                       9,200
                                                      21,200
Balance of profit shared
  Chen (1/2)                              10,600
  Dara (1/2)                              10,600
                                                      21,200

Profit $30,000 with interest on drawings $400 added [1]; interest on capital $2,000 and $1,200 [1]; Dara’s salary $6,000 [1]; balance $21,200 [1]; $10,600 to each partner [1]. (c)

Dara Current account
2027                           $     2027                            $
31 Dec Drawings           14,000     1 Jan  Balance b/d            400
31 Dec Interest on                   31 Dec Interest on capital  1,200
       drawings              150     31 Dec Salary               6,000
31 Dec Balance c/d         4,050     31 Dec Share of profit     10,600
                          18,200                                18,200
2028
                                     1 Jan  Balance b/d          4,050

Credit side: balance b/d $400, interest on capital $1,200, salary $6,000 and share of profit $10,600 [1]; debit side: drawings $14,000 and interest on drawings $150 [1]; balance c/d $4,050 and brought down on 1 January 2028 [1]. (d) The agreement sets out in advance the rules both partners have accepted, such as the profit-sharing ratio, interest on capital and Dara’s salary [1], so it is clear how profit is to be shared and disputes between the partners are less likely [1].

10. (a) Debenture interest 6% x $30,000 = $1,800 [1]; profit for the year $41,800 – $1,800 = $40,000 [1]. (b)

Lakeview Printers Ltd
Statement of changes in equity for the year ended 31 December 2027
                          Ordinary  Preference   General   Retained     Total
                             share       share   reserve   earnings
                           capital     capital
                                 $           $         $          $         $
At 1 January 2027          120,000      40,000    15,000     28,000   203,000
Ordinary shares issued      30,000                                     30,000
Profit for the year                                          40,000    40,000
Transfer to general reserve                        5,000     (5,000)        -
Preference dividend paid                                     (2,000)   (2,000)
Ordinary dividend paid                                      (12,000)  (12,000)
At 31 December 2027        150,000      40,000    20,000     49,000   259,000

Opening balances [1]; shares issued $30,000 [1]; profit for the year $40,000 [1]; transfer of $5,000 shown in both reserve columns [1]; preference dividend 5% x $40,000 = $2,000 and ordinary dividend 150,000 x $0.08 = $12,000 [1]; closing balances totalling $259,000 [1]. (c) Any two of: shareholders are owners, debenture holders are lenders; ordinary dividends vary and need not be paid, debenture interest is fixed and must be paid; ordinary shares are equity, debentures are a non-current liability; ordinary shareholders usually have voting rights, debenture holders do not; debentures are repaid on an agreed date [2, 1 mark each]. (d) Issued share capital 80,000 x $1 = $80,000 [1]; called-up share capital 80,000 x $0.75 = $60,000 [1]; paid-up share capital $60,000 – (2,000 x $0.25) = $59,500 [1].

11. (a) Direct cost, any one: raw materials; wages of workers who make the product [1]. Indirect cost, any one: factory rent; factory power; supervisors’ wages; depreciation of factory machinery [1]. (b) Cost of raw materials consumed $3,200 + $28,500 – $2,700 = $29,000 [1]; prime cost $29,000 + $19,000 = $48,000 [1]. (c) $48,000 + $11,400 + $1,800 – $2,400 = $58,800 [1].

12. (a)

Subscriptions account
2027                           $     2027                            $
1 Jan  Balance b/d            90     1 Jan  Balance b/d            150
31 Dec Income and                    31 Dec Bank                 4,860
       expenditure         4,830     31 Dec Balance c/d            120
31 Dec Balance c/d           210
                           5,130                                 5,130
2028                                 2028
1 Jan  Balance b/d           120     1 Jan  Balance b/d            210

Opening balances $90 debit and $150 credit [1]; bank $4,860 [1]; closing balances $210 debit (c/d) and $120 credit (c/d), brought down on the correct sides [1]; income and expenditure $4,830 [1]. (b) Assets $2,600 + $740 + $90 = $3,430; liabilities $150 + $60 = $210 [1]; accumulated fund $3,430 – $210 = $3,220 [1]. (c) The club has received money for 2028 and owes those members their membership for 2028, so it is an amount owed within twelve months [1]. (d) The club’s equivalent of capital: its total assets less total liabilities [1].

13. (a)

Rosa Diaz
Statement of affairs at 1 January 2027
                                                $          $
Assets
  Fixtures and fittings                                12,000
  Inventory                                  7,500
  Trade receivables                          5,200
  Other receivables: rent paid in advance      400
  Bank                                       3,100
                                                       16,200
                                                       28,200
Less Liabilities
  Trade payables                                        4,300
Capital at 1 January 2027                              23,900

Assets totalling $28,200, including the rent paid in advance [1]; trade payables $4,300 deducted [1]; capital $23,900 [1]. (b) (i) Credit sales = $71,200 + $6,000 – $5,200 [1] = $72,000 [1]. (ii) Purchases = $52,600 + $4,700 – $4,300 [1] = $53,000 [1]. (c)

Rosa Diaz
Statement of profit or loss for the year ended 31 December 2027
                                                $          $
Revenue (72,000 + 6,000)                               78,000
Less Cost of sales
  Inventory 1 January 2027                   7,500
  Purchases                                 53,000
                                            60,500
  Less Inventory 31 December 2027            8,500
                                                       52,000
Gross profit                                           26,000
Less Expenses
  Rent (4,400 + 400)                         4,800
  Electricity (1,750 + 250)                  2,000
  General expenses                           7,750
  Depreciation: fixtures (10% x 12,000)      1,200
                                                       15,750
Profit for the year                                    10,250

Revenue $78,000 [1]; cost of sales $52,000 using opening inventory, purchases and closing inventory [1]; gross profit $26,000 [1]; rent $4,800 [1]; electricity $2,000 and general expenses $7,750 [1]; depreciation $1,200 and profit for the year $10,250 [1]. (d) Closing capital = fixtures $10,800 + inventory $8,500 + trade receivables $6,000 + bank $6,300 – trade payables $4,700 – other payables $250 = $26,650 [1]. Profit = $26,650 – $23,900 + drawings $10,500 – capital introduced $3,000 [1] = $10,250, which agrees with the statement of profit or loss [1]. (e) (i) Mark-up = $26,000 / $52,000 x 100 = 50% [1]. (ii) Average inventory ($7,500 + $8,500) / 2 = $8,000; rate of inventory turnover = $52,000 / $8,000 = 6.5 times [1]. (f) Either decision, justified [2, 1 mark for the advice and 1 mark for a justification]. For example: Rosa should keep full double entry records, because a trial balance would help her detect errors and she would have accurate figures for profit, receivables and payables without reconstructing them each year. Or: she could continue as she is, because her business is small and full records would cost time and money, provided her bank records and invoices are kept carefully enough to prepare statements that lenders and tax authorities will accept.

A note on exam technique for this topic

Before writing any statement, list the adjustments and mark each one twice: where it goes in the statement of profit or loss and where it goes in the statement of financial position. Most unbalanced statements come from an adjustment used only once — an accrual added to an expense but not shown as an other payable, or goods for own use taken from purchases but not added to drawings. Show your workings beside each figure (for example “Rent (4,400 + 400)”), so that a reader can follow your method even if an early figure is wrong. For partnerships, decide first whether an item belongs in the statement of profit or loss (interest on a partner’s loan, with the ordinary expenses) or the appropriation account (interest on capital and drawings, salaries and the profit share); for companies, whether it belongs in the statement of profit or loss (debenture interest) or the statement of changes in equity (dividends and transfers to reserves). With incomplete records, find the capital figures and the missing sales and purchases before starting the statement, and use the change in capital as a check on your profit when both can be calculated. The syllabus says that only its listed ratio formulas are accepted in candidate responses, so use mark-up, gross profit margin and rate of inventory turnover exactly as they are set out there.