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Business Accounting

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Business Accounting Q1. A supermarket based in Hounslow pays a supplier, Patel Wholesale Ltd, the amounts owed in cash. The entries in the supermarket account should be: A. Debit: Purchases, Credit: Cash B. D ...

Business Accounting Q1. A supermarket based in Hounslow pays a supplier, Patel Wholesale Ltd, the amounts owed in cash. The entries in the supermarket account should be: A. Debit: Purchases, Credit: Cash B. Debit: Cash, Credit: Patel Wholesale Ltd C. Debit: Patel Wholesale Ltd, Credit: Cash D. Debit: Cash, Credit: Purchases Answer: C, The cash account is giving up an amount of cash in order to pay amounts owed to Patel Wholesale Ltd. The cash account is the giving account, and so it must be credited. Q2. A business changes from depreciating its vehicles at 25% on a straight line basis to 10%. What will be the effect of this change on profit? A. Decrease Profits B. Increase Profits C. No Effect D. No change in profits Answer: B, since expenses will decline, net profits will rise. Q3. Which of the following equations properly represents a derivation of the fundamental accounting equation? A. Assets + liabilities = owner's equity. B. Assets = owner's equity C. Cash = Assets D. Assets – Liabilities = Owners Equity Answer: D, Assets=Liabilities + Equity, here you have liabilities on the right hand side. Q5. For a company Gross profits are £145m, opening stock is £10m closing stock is £13m and purchases are £8m, what are Revenues? A. £119m B. £135m C. £150m D. £139m Answer: C, CoS are: £10m + £8m - $13m = £5m, Revenues = £145m +£5m = £150m Q6. On the 1st Jan 2001, an oil rig has an original value of £50m and has an expected life span of 15 years. Using the straight line depreciation method, what is its net book value at 31st Dec 2004? A. £13.3m B. £36.7m C £33.3m D.£16.7m Answer: B, £50m/15years = £3.33m (annual depreciation), 4 years of depreciation = 4x 3.33 = £13.33m, NBV = £50m - £13.33m = £36.7m Q7. Enterprise Analytics Ltd based in Oxford, England, signed a three-year rental agreement, on 1st September 2001 for £9,300. The agreement covers its building for the next three years. Enterprise Analytics Ltd debited prepaid rent to record the payment. The 31st December 2001 adjusted entry includes a credit to: A. Rent expense of £1033.33 B. Prepaid rent of £775.00 C. Prepaid rent of £1033.33 D. Rent expense of £775.00 Answer: C, If a single payment was made for 3 years then the prepaid rent after 4 months of the rental agreement has expired is 32

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