1 The owner of a business purchased a camera to take some photographs of her family.
She wishes to include it as an asset in the financial statements of the business. Her accountant says that she should not do this.
...
1 The owner of a business purchased a camera to take some photographs of her family.
She wishes to include it as an asset in the financial statements of the business. Her accountant says that she should not do this.
Which accounting principle is the accountant applying?
A business entity
B consistency
C going concern
D realisation
2 What are the characteristics of non-current assets?
1 They are not intended for resale.
2 They provide future economic benefits.
3 They prevent the company from going out of business.
A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
3 A business has a year end of 31 December. It depreciates its motor vehicles over four years using the straight-line method. A full year’s depreciation is charged in the year of purchase, but none in the year of sale.
A motor vehicle purchased on 1 July 2016 for $18 000 had an estimated residual value of $4000. The motor vehicle was sold for $5000 on 31 December 2019.
What was the profit or loss on disposal?
A $1000 loss B $1000 profit C $2500 loss D $2500 profit
4 The following information is available in respect of the purchase of a new machine.
$
machine cost 80 000
less 10% trade discount 8 000
72 000
delivery cost 1 200
installation cost 1 800
annual maintenance cost 4 000
The business plans to keep the machine for 5 years. It is expected to be sold for $5000. What will be the annual depreciation charge using the straight-line method?
A $13 400 B $14 000 C $14 800 D $15 600
5 What does the debit side closing balance carried down and the credit side opening balance brought down represent in a sales ledger control account?
debit side closing balance carried down credit side opening balance brought down
A B C
D owing from customers owing from customers owing to customers
owing to customers owing from customers owing to customers owing from customers
owing to customers
6 The trial balance of a business did not agree and a suspense account was opened.
The following errors were then discovered.
1 The sales journal total of $9150 had been credited to both the sales account and the sales ledger control account.
2 The purchases journal total of $3450 had been entered correctly in the purchases account but as $3350 in the purchases ledger control account.
3 Motor expenses of $6450 paid by cheque had only been entered in the bank account.
What was the opening balance in the suspense account?
A $15 700 credit B $15 700 debit C $24 650 credit D $24 650 debit
7 A bank statement showed an overdraft of $750. The following was then discovered.
1 A cheque issued in payment of rent for $570 had not been presented.
2 A cheque for $624 received was not shown on the bank statement.
3 The bank statement included a bank charge of $50 which had not been entered in the cash book.
What amount of overdraft should appear in the statement of financial position?
A $646 B $696 C $754 D $1894
8 What is a purpose of financial statements?
A to aid managers to manage the business
B to allow the owner to take drawings
C to ensure a profit is made
D to ensure accuracy of the double entry
9 An electricity accrual of $375 was treated as a prepayment when preparing a trader’s income statement.
What was the effect of this on the profit for the year?
A overstated by $375 B overstated by $750 C understated by $375 D understated by $750
10 The draft financial statements of a business show a profit for the year of $64 000 before taking account of the following:
1 the reduction of the provision for doubtful debts by $300
2 the purchase of office stationery costing $2400 which has not been entered in the books; only one-sixth of this stationery was used by the year end.
What is the corrected profit for the year?
A $61 900 B $63 900 C $64 100 D $64 300
11 A company receives rental income from letting out two properties. Total rental income received from these two properties for the year ended 31 December 2019 was $55 000.
Further information relating to these two properties was as follows.
property 1 property 2
$ $
rent received in advance
1 January 2019 1840
31 December 2019 720
rent receivable in arrears
1 January 2019 2120
31 December 2019 1100
What was the total amount of rental income shown in the income statement for the year ended 31 December 2019?
A $54 340 B $54 900 C $55 100 D $55 660
12 Finn provided the following information.
$
capital at the start of the year 19 800
profit for the year 24 000
drawings (cash) 19 500
drawings (goods for own use) 1 100
private vehicle transferred to business use 6 000
What was Finn’s capital at the end of the year?
A $23 200 B $24 300 C $29 200 D $31 400
13 What would be recorded in a partnership appropriation account?
1 interest on capital
2 interest on drawings
3 interest on loan by partner to partnership
4 interest on bank overdraft
A 1, 2 and 3 B 1 and 2 only C 2, 3 and 4 D 3 and 4 only
14 X and Y were in partnership and shared their profits equally. On 1 March 2019, Z is admitted as a partner.
In future they will share profits in the ratio X, Y and Z, 3 : 2 : 1. The net assets valued at $20 000 have lost $8000 in value. Goodwill is valued at $9000 but will not be retained in the books of account.
What will the entries in the capital accounts of Y be to record these changes?
debit
$ credit
$
A B C D 4500
4500
6000
7000 9000
7000
4500
4500
15 The statement of financial position showed the following balances at 31 December 2019.
L
$ M
$
capital accounts
current accounts 20 000
1 000 debit 10 000
2 500 credit
Net assets at 1 January 2019 were $14 000.
Property had been revalued upwards by $12 000 during the year ended 31 December 2019. No drawings had been made during the year.
What was the profit for the year ended 31 December 2019?
A $2500 B $5500 C $14 500 D $17 500
16 ‘Shareholders are entitled to a fixed annual dividend with any unpaid dividends being paid out of future profits.’
What does this statement describe? A cumulative preference shares B debentures
C ordinary shares
D participating preference shares
17 Which statements about a bonus issue of ordinary shares are correct?
1 It will generate extra funds for the company.
2 The company’s liquidity is not affected.
3 Shareholders can sell their bonus shares.
A 1 and 2 B 1 only C 2 and 3 D 3 only
18 The following information is available for T Limited.
30 June 2018 30 June 2019
$ $
retained earnings 94 000 148 000
general reserve 50 000 65 000
accrued loan interest 3 000 1 000
During the year ended 30 June 2019, T Limited made the following payments.
$
dividend 60 000
loan interest 27 000
What was the profit from operations for the year ended 30 June 2019?
A $104 000 B $114 000 C $129 000 D $154 000
19 Which ratio tells managers how long it takes to receive payment for goods sold on credit?
A current ratio
B liquid (acid test) ratio
C trade payables turnover
D trade receivables turnover
20 The following information is available for G Limited for the year ended 31 December 2019.
$
share capital 275 000
long-term bank loan 180 000
current liabilities 120 000
profit from operations 244 000
bank loan interest 34 000
retained earnings including profit for the year 400 000
What was the return on capital employed?
A 21.54% B 24.56% C 25.03% D 28.54%
21 A company has been asked to prepare a quotation to print 100 leaflets for a customer. The total cost of direct materials, direct labour and a share of overheads is $820 and a profit of 25% on cost has been added.
Which costing method is this an example of?
A absorption costing
B job costing
C marginal costing
D unit costing
22 Which expense for a business may be classified as a stepped cost?
A direct labour
B direct materials
C factory rent
D telephone
23 The inventory movements of a business in a three-month period are shown.
date receipts issues units
units per unit
January 100 $5
January 200 $6
February 50
March 200
The business uses the first in first out (FIFO) method of inventory valuation. What was the value of inventory at the end of March?
A $250 B $275 C $283 D $300
24 A company uses absorption costing based on predetermined absorption rates.
Which statement about absorption rates is correct?
A They will be based on budgeted costs and outputs.
B They will be calculated only when actual costs and outputs are known.
C They will be changed each time outputs and costs change.
D They will be set for a period of more than one year.
25 A business absorbs fixed overheads using direct labour hours.
The following information is provided.
actual budgeted
overheads $525 000 $525 000
direct labour hours 16 300 15 000
indirect labour hours 2700 2500
Which statement is correct?
A Overheads were over absorbed by $45 000. B Overheads were under absorbed by $45 000. C Overheads were over absorbed by $45 500. D Overheads were under absorbed by $45 500.
26 The data relate to the production of three products.
product X
$ product Y
$ product Z
$
contribution per unit
fixed overhead per unit 160
125 175
130 190
160
labour hours per unit 1 1.25 0.75
The company is experiencing a shortage of labour.
In which order should the products be ranked to maximise profit?
1 2 3
A B C
D X Y Z
Z Y X X
Y Z Z Y
X
27 A company has the following budgeted information for May.
$
selling price (per unit) 120
variable costs (per unit) 80
total fixed costs 56 000
The company is planning to buy a new machine which will reduce the variable costs by 20% and increase fixed costs by 20%.
What is the change in break-even sales in units?
A increase by 200 units B decrease by 200 units C increase by 700 units D decrease by 700 units
28 What does cost–volume–profit analysis assume causes costs to change?
1 production methods
2 sales mix
3 sales volume
A 1 and 2 B 1 only C 2 and 3 D 3 only
29 A business has a sales revenue of $400 000 and total fixed cost of $140 000. Its contribution to sales ratio is 40%.
What is the sales revenue if profit for the year increases by $40 000?
A $360 000 B $450 000 C $480 000 D $500 000
30 Budgetary control systems have just been introduced by a company but employees have not achieved their targets.
Reasons given for this are as follows:
1 The budget was unrealistic.
2 Actual trading conditions differed from budget assumptions.
3 The workforce needs more training.
Which reasons should be considered when evaluating employees’ performance?
A 1, 2 and 3 B 1 and 2 only C 2 and 3 only D 3 only
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