Accounting Midterm

The ​ ___________ convention in accounting underpins the requirement to report inventories at the lower of cost or market value.

prudence

An asset that has physical substance is said to be a​ __________ one.

tangible

Consider the following​ statements: 1. Relevance cannot make accounting information useful. 2. Faithful representation cannot make accounting information useful. Are the above statements true or​ false?

1. False 2. False (fundamental to the usefulness of accounting info)

Consider the following​ statements: 1. Normally, the benefits of accounting information are more difficult to assess than the costs. 2. Normally, the costs of producing accounting information are not difficult to assess. Are the above statements true or​ false?

1. True 2. False

Consider the following​ statements: 1. The threshold of materiality will vary from one business to the next. 2. Accounting information possessing only the quality of relevance will still be useful to users. Are the above statements true or​ false?

1. True 2. False (must have both)

Accounting information should possess ___ fundamental qualities if it is to be useful to users and there are ___ further​ qualities, which, if​ present, can enhance its usefulness.

2, 4

During the financial year ended 31 December 2017 a business made a single payment for trade subscriptions. The payment of ​£2,400 was for the​ six-month period ended 31 March 2017 If subscriptions paid in advance at the beginning of 2017 were ​£300, what figure is shown in the income statement for the year to 31 December 2017?

300 + 2400 - 1200 (half) = 1500

JK Builders Co purchases a new excavator costing £​40,000. Its expected useful life is ten​ years, at which point it is anticipated that the excavator will have a residual value of £​6,000. If the reducing balance method of depreciation is​ used, applying an annual depreciation rate of​ 15%, what is the annual depreciation charge in Year​ 2?

40000 x .15 = 6000 40000-6000= 34000 34000 x .15= 5100

If the net assets of a business totalled £540,000 and its liabilities totalled £​316,800, its total assets would amount​ to:

540,000 + 316,800 = 856,800

Some intangible assets are similar to tangible assets. They have a clear and separate identity and the cost of acquiring them can be reliably measured. Which intangible asset listed below is normally least likely to meet the above​ description? A. Goodwill B. Copyright C. Trademarks D. Patents

A. Goodwill Some intangible assets are quite​ different; they lack a clear and separate identity and reflect a variety of attributes which are part of the essence of the business. Goodwill and product brands are often seen as examples of assets that lack a clear and separate identity.

The extended accounting equation can be correctly written​ as:

Assets =Equity + (Revenue−Expenses) + Liabilities

Which ONE of the following best describes an​ expense? A. Cash paid out in order to generate revenue B. A trading event that causes a reduction in capital C. Expenditure incurred in carrying out business operations D. Expenditure that should be matched with receipts for the period

B. A trading event that causes a reduction in capital

International Accounting Standard 2​ 'Inventories' allows the use​ of: A. FIFO or LIFO B. AVCO or FIFO C. LIFO or AVCO D. FIFO only

B. AVCO or FIFO does not permit LIFO

Which ONE of the following assets is most likely to have an indefinite​ life? A. Fixtures and fittings B. Property C. Patent D. Motor vans

B. Property

Initially, non-current assets are reported at their​ _____________. A. realisable value B. historic cost C. fair value D. recoverable amount

B. historic cost

Which ONE of the following types of​ non-current assets is exempt from routine depreciation​ (or amortisation) charges over​time? A. Revalued assets B. Assets for which there is no active market C. Assets with indefinite lives D. Intangible assets

C. Assets with indefinite lives Assets with indefinite lives are exempt from routine depreciation​ (or amortisation) charges over time.

The generally accepted key financial objective of a business is assumed to be which one of the​ following?

Enhancing the wealth of the owners of the business

Which ONE of the following is the accounting​ equation?

Equity + Liabilities = Assets OR Assets - Liabilities = Equity

An international accounting standard disallows the use of more than one costing method when deducing the cost of total inventories held. The cost of all inventories must be derived using the same costing​ method.' Is the above statement true or​ false?

False

It is normally very easy to assess the impact of accounting on​ decision-making. Is this statement true or​ false?

False

A statement of financial position aims to meet various user needs. Which ONE of the following user needs does it not aim to​ meet?

Revealing how profit for the period was generated

Capitalia Co began the financial year with rent payable owing of £700. During the​ year, the business paid £3,600 in rent and at the end of the year the business had paid £800 rent in advance. What was the rent payable expense for the year to be shown in the income​ statement?

The full calculation is ​£3,600 −(£800+£700​)= ​£2,100.

Businesses are free to choose their accounting year. True or false?

True

The way to adjust purchases in order to arrive at the cost of sales figure is​ to:

add opening inventories and subtract closing inventories

The text states that accounting is concerned with collecting ​ __________ and ​ _________ financial information.

analyzing, communicating

A key difference between management accounting and financial accounting reports is that management accounting reports tend​ to:

be forward looking

Deciding whether to produce an item of accounting information is a question of balancing the​ __________ against the​ ______.

benefits, costs

The​ __________ convention says that the business and the​ owner(s) are​ separate, for accounting purposes.

business entity

​_________ is enhanced by treating items that are basically the same in the same manner for accounting purposes.

comparability

The Shropshire Magazine sells an annual subscription for the 12 monthly magazines mailed out each year. The company collects cash in advance and then mails out the magazines to subscribers each month. What is the amount of revenue the magazine should record for the magazines mailed out from January to March? The Devon magazine should record revenue after ___, not when ____ The amount of revenue equals ___ of the annual subscription

it mails out magazines, it collects cash from subscribers 1/4

graph shows that the written down value falls evenly over the​asset's life under the ___

straight line method.

The increasingly turbulent and competitive environment in which businesses operate has led to the introduction of​ _____________ management.

strategic

Which quality provides assurance to users that the accounting information supplied faithfully represents what it is supposed to​ represent?

verifiability

Accounting is usually divided between the major strands of financial accounting and management accounting. Match the function shown in the left column to the corresponding strand of accounting shown in the​ drop-down list in the right column.

1. Complying with regulatory requirements = financial accounting 2. Forecasting future information = management accounting 3. Budgeting and business planning = management accounting 4. Reporting to lenders = financial accounting 5. Reporting to shareholders = financial accounting 6. Producing monthly reports for senior management = management accounting 7. Controlling costs = management accounting

Consider the following statements. 1. The role of the chair is to lead the management team. 2. The role of the chief executive is to lead the board of directors. Which of the above statements are correct​ (true/false)?

1. False 2. False

Consider the following statements. 1. Financial accounting information does not include expectations concerning the future. 2. Management accounting information is free from regulations from external sources. Which of the above statements are correct​ (true/false)?

1. False 2. True

Consider the following statements. 1. In the​ past, accounting systems were biased in favour of providing information to managers. 2. Managers have greater access to financial information than other users. Are the above statements true or​ false?

1. False 2. True

Consider the following statements. 1. The quality of understandability means that accounting information should be capable of being understood by those who have not studied accounting. 2. The quality of faithful representation means that accounting information should be free from bias. Are the above statements true or​ false?

1. False 2. True

Consider the following two statements concerning limited​ companies: 1. All limited companies must have their annual financial reports audited. 2. All limited companies must lodge a copy of their annual financial reports with the Registrar of Companies. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following two statements concerning management​ accounting: 1. Management accounting reports tend to have longer reporting intervals than financial accounting reports. 2. Management accounting reports tend to be more detailed than financial accounting reports. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following two statements concerning​ partnerships: 1. The partners of a business normally have limited liability. 2. Partnerships are not recognised as separate legal entities. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following​ statements: 1. The purpose of accounting is to prepare financial reports for users on a regular basis. 2. There is normally no close substitute for information contained in accounting reports. Which of the above statements are correct​ (true/false)?

1. False 2. True

Consider the following two statements concerning business​ partnerships: 1. Documents of incorporation must be prepared in order to create a partnership. 2. Partnership annual financial reports must be audited. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2.False

Consider the following two statements concerning management​ accounting: 1. Management accounting tends to place more emphasis on providing​ objective, verifiable information than financial accounting. 2. Management accounting tends to place less emphasis on providing reports of a​ non-financial nature than financial accounting. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2.False

The various types of business units have a number of advantages and disadvantages. Match the advantage or disadvantage shown in the left column to the corresponding type of business unit shown in the​ drop-down list in the right column.

1. The most difficulty in fund raising: Sole proprietorship 2. Greater possibility of raising​ funds, but no limited liability: Partnership 3. Greater possibility of raising​ funds, but no limited liability: Limited Company 4. Absolute control rests with one​ individual, but no limited liability: Sole Proprietorship 5. Most protection for the owners of the business: Limited company 6. The most flexibility concerning how the business is run: Sole proprietorship 7. Annual financial reports are available for public inspection: Limited Company

1. Businesses tend to produce accounting information that exceeds the minimum requirements required by accounting regulations. 2. Accounting reports are usually designed to be understood by everyone.

1. True 2. False

Consider the following two statements concerning financial​ accounting: 1. Financial accounting reports are more general purpose in nature than management accounting reports. 2. Financial accounting reports tend to be more backward looking than management accounting reports. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. True 2. True

In Chapter​ 1, it has been stated that accounting can be seen​ as: 1. A form of​ service; 2. Part of a​ business's total information system. Are the above statements true or​ false?

1. True 2. True

Consider the following​ statements: 1. Timeliness cannot make accounting information useful. 2. Comparability cannot make accounting information useful. Are the above statements true or​ false?

1. True 2. True (only enhance it)

Consider the following​ statements: 1. Verifiability cannot make accounting information useful. 2. Understandability cannot make accounting information useful. Are the above statements true or​ false?

1. True 2. True (only enhance it)

Once assets are __1__ the frequency of __2__ then becomes an important issue as assets recorded at​ out-of-date values can mislead users. Using​ out-of-date revaluations on the statement of financial position is problematic. It lacks the objectivity and verifiability of __3__ ; it also lacks the realism of __4__. Revaluations should therefore be frequent enough to ensure that the net book​ value, or __5__ of the revalued asset does not differ materially from its __6__ at the statement of financial position date.

1. revalued 2. revaluation 3. historic cost 4. current values 5. carrying amount 6. fair value

Jayantha commenced business on 1 January 2018 with equity of £95,000. During the year ending on 31 December 2018 he paid​ £93,000 to purchase goods for sale​ (all of which were​ sold) and £32,450 for various expenses. He received £139,250 from the sale of goods. Jayantha has drawn £13,000 in cash and introduced a motor car valued at ​£11,000 to the business. What is​ Jayantha's equity at 31 December 2018​?

95000-93000-32450+139,250-13000+11000= 106,800 equity at end of year

During the most recent accounting​ period, a business sold inventories that it had originally purchased for pound£​1,000 for pound£​1,500 on credit. How would this transaction affect the statement of financial position of the​ business? A. Decrease inventories £​1,000, increase trade receivables £​1,500, increase equity £500 B. Decrease inventories £​1,500, increase trade receivables £​1,500 C. Decrease inventories £​1,500, increase trade receivables £​1,500, increase equity £500 D. Decrease inventories £​1,000, increase trade receivables £​1,500, decrease equity £500

A. Decrease inventories £​1,000, increase trade receivables £​1,500, increase equity £500

Bellino Co incurred significant expenditure relating to each of the items mentioned below. To comply with the accounting​ rules, which ONE of these items should not be shown as an asset in the statement of financial​ position? A. Internally generated goodwill B. License to broadcast radio programmes C. Patent held relating to a new device D. Copyright ownership relating to a new book

A. Internally generated goodwill

Which ONE of the following transactions made by a business will have an effect on the equity figure in the statement of financial​position? A. The sale of inventories at a loss B. The purchase of a motor car on credit C. The receipt of cash from trade receivables D. The repayment of a loan

A. The sale of inventories at a loss

The following information relates to JJ Manufacturers as at 31 August 20 2017: £ Plant and equipment ​25,600 Trade payables ​6,400 Cash ​1,200 Drawings for the period to 31 August 2017 ​7,600 Profit for the period to 31 August 2017 ​9,500 Inventories ​8,800 Trade receivables ​10,300 What was the​ owner's equity at the beginning of the financial year to 31 August 2017​?

Assets-Liabilities=Equity Non-current assets: 25,600 PLUS: current assets: Trade receivables 10,300 Inventories 8,800 Cash 1200 LESS: current liabilities Trade payables (6,400) Less: profit for the period (9500) PLUS: drawing for the period 7600 -------------------------------------- Equity at beginning of period = 37600

How should managers deal with risk when setting​ objectives?

Balance it against likely returns

Accounting can only be useful if it is capable of affecting​ people's ___________.

Behavior

Which ONE of the following transactions made by a business will have an effect on the equity figure in the statement of financial​position? A. The receipt of a loan to purchase equipment B. The payment of trade payables C. The introduction of the​ owner's motor car into the business D. The purchase of inventories on credit

C. The introduction of the​ owner's motor car into the business (also will increase assets)

Black​ Co, a​ manufacturer, has listed the following amounts in its statement of financial​ position: Cash £​10,000 Buildings £​75,000 Trade payables £​25,000 Loans payable within one year £​15,000 Trade receivables £​55,000 Plant and equipment £​30,000 Inventories £​60,000 What is the amount of total current​ assets?

Current assets: Cash (10,000) + Trade receivables (55,000) + Inventories (60,000) = 125,000

Which ONE of the following cannot be a current​ liability? A. Trade payables B. A loan repayable in 6​ months' time C. Bank overdraft D. Trade receivables

D. Trade receivables

You own the business Green's Grocers​, for which you need a bank loan to purchase equipment. When evaluating your loan​ request, the banker asks about the assets and liabilities of your business. In​ particular, the banker wants to know the amount of your capital. Which definition below describes​ assets, liabilities and​ equity? Show the relationship between​ assets, liabilities and equity.

Equity is: the​ owner's claim to the assets of the business. Assets are: the economic resources of a business that are expected to benefit the business in the future. Liabilities are: amounts payable to outsiders.

At the year​ end, the total assets of a business were £​189,000 and total liabilities were £​126,000. During the​ year, the owner withdrew £10,000 and introduced a further £18,000 in equity. The business began the year with total assets of £​180,000 and total liabilities of £112,000. What is the profit​ (loss) for the​ year?

Equity=Assets-Liabilities Equity at start of the year: Assets 180,000 - Liabilities (112,000) = Equity 68,000 Adjustments: Drawings - (10,000) + New equity 18,000 = Adjusted equity for beginning of the year 76,000 Equity at end of year: Assets 189,000 - Liabilities (126,000) = Equity 63,000 63,000 - 76,000 = 13,000 Loss

With which ONE of the following qualities is the concept of freedom from error most closely​ associated?

Faithful representation

With which ONE of the following qualities is the concept of neutrality most closely​ associated?

Faithful representation

What are the TWO fundamental qualities of accounting​ information?

Faithful representation and relevance

A statement of financial position covers a particular financial period − usually a year. True or False?

False (it's a snapshot in time)

Which area of study is most closely associated with acquiring and deploying the​ short-term and​ long-term finance required by a​ business?

Financial management

Which one of the following is not one of the four sequential stages of an accounting information​ system?

Information correcting

Which ONE of the following indicates an outward focus of management​ accounting?

It directs attention to the strengths and weaknesses of competitors

Which one of the following is not a condition that should be applied to determine whether an asset is a current​ asset?

It is held principally for investment in the current period

Which one of the following is used as a criterion for deciding whether a resource should be regarded as an asset for accounting​ purposes?

It must arise from a past transaction or event

Which user group usually has most control over the range and content of information it​ receives? A. Investment analysts B. Managers C. Lenders D. Suppliers

Managers

Which one of the following is not the task of the board of​ directors?

Managing the business on a day-to-day basis (CEO usu does)

Which ONE of the following is not an element of the quality of faithful​ representation? A. Freedom from error B. Completeness C. Neutrality D. Materiality

Materiality

Vierra decided to start a small business in order to help pay her living expenses while studying at university. As the weather forecast suggested that it would be a wet​ winter, she decided to buy and sell umbrellas on her local high street. She began on 1 November by investing​ £100 cash of her own money to buy 50 umbrellas for​ £2 each. On the same​ day, she was able to sell 30 umbrellas for​ £4 each. The closing balance of cash at the end of the​ day's trading on 1 November was _______ The profit​ (loss) generated by the business during 1 November is ______ The​ owner's equity in the business at the end of the​ day's trading on 1 November is _____

Opening balance (0) + Cash from sales (120) = Closing balance (120)? 2. profit (loss) = sales revenue (30 x 4) - cost of goods sold (30 x 2)= 60 3. owner's equity= cash (closing balance) 120 + inventories (20 x 2)= equity 160

Ash Co has the following assets and liabilities at the year​ end: £ 1. Trade payables 16,000 2. Cash at bank 23,000 3. Equipment 63,000 4. Longterm loan 50,000 5. Inventories 40,000 6. Bank overdraft 15,000 7. Property 75,000 8. Trade receivables 21,000 9. Fixtures and fittings 13,000 10. Motor vans 18,000 During the​ year, the business made a profit of £​64,000 and the owner injected £​60,000 into the business. The​ owner's equity at the beginning of the year was £​120,000. How much did the owner withdraw during the​ year?

Total assets−Total liabilities​ = Equity at year end ​£253,000−​£81,000 ​= £172,000 Equity at beginning of the year​ + profit for the year​ + equity introduced−equity withdrawn​ = Equity at end of year ​ £120,000 +​ £64,000 + ​£60,000minus−X ​= £172,000 ​ £120,000 +​ £64,000 + ​£60,000minus−​£172,000 ​= X ​£72,000 = X

Generally​ speaking, the higher the level of​ risk, the higher the expected return from an investment.

True

Accounting information is​ ______when various, independent experts are able to reach a consensus that it provides a faithful portrayal.

Verifiable

According to Peter​ Drucker, an eminent management​ thinker, the purpose of a business is​ to:

create and keep a customer

The two broad classes of accounting are management accounting and​ __________ accounting.

financial

The study of business investment and financing decisions is known​ as:

financial management

4 sequential stages of the accounting information system

first stage: info identification 2: info recording 3: info analysis 4: info reporting (1&2 concerned w/ preparation, last 2 concerned w/ info collected)

To be​ relevant, accounting information must cross a threshold of​ __________

materiality

In order for a piece of financial information to have the quality of faithful​ representation, it should possess various characteristics. Which of the following is ONE of these​characteristics?

neutrality (must have completeness, neutrality, and free from error)

To be (reliable, verifiable, relevant) accounting information should make a difference. It should be capable of influencing user (attitudes, needs, decisions). To do​ this, it must help to (predict future events, analyse financial information, provide accurate information), or help to (communicate financial, interpret financial, confirm) past events, or do both. To be (verifiable, reliable, relevant), accounting information must also cross a threshold of (comparability, materiality, understandability).

relevant, decisions predict future events, confirm past relevant, materiality

Not-for-profit organisations have​ ___________ user groups to​ private-sector businesses. These groups use accounting information for​ ___________ purposes.

similar, decision-making

random: Namek Co reported sales revenue for the current year of​ £450,000. Opening inventories were​ £90,000 and closing inventories were​ £130,000. The gross profit for the period was 40 per cent of sales revenue. What were the purchases during the current​ year?

£​90,000+P−£​130,000=£​270,000 P=£​310,000

Consider the following forms of​ business: 1. Sole proprietorship 2. Partnership 3. Limited company Which of the above businesses do not normally require formal procedures to set them​ up?

1 & 2

A business buys a machine for £29,593 and estimates its residual value at £3,839. It is depreciating the asset over a four-year period by the​ straight-line method. What is the total depreciation charge after three years have elapsed from the purchase ​date?

(29,593-3,839)/4 = 6438.5 6438.5 x 3= 19,316

A business began the year with prepaid rent of £300. During the​ year, the business paid £​3,200 in rent​ and, at the end of the​year, the business had paid £500 rent in advance. What was the rent payable expense for the​ year?

(Opening prepayment + Rent paid in the year) - Closing prepayment (300+3200)-500=3000

Redbrick paid £7,216 for rent during the current year. At the beginning of the​ year, £738 had been brought forward as prepaid for​ rent, and at the end of the​ year, £1,547 had been prepaid. How much would be shown as the expense for rent in the income statement for the current​ period?

(Opening prepayment + Rent paid in the year) - Closing prepayment (738 + 7216) - 1547 = 6407

Miller Engineering classified various items on its statement of financial position as​ follows: Item Classification (i) Trade receivables Current asset (ii) Owners equity Noncurrent liability (iii) Equipment Noncurrent asset (iv) Inventories Noncurrent asset Which of the above items are correctly​ classified?

(i) and (iii)

​Lucchese's Ices classified various items on its statement of financial position as​ follows: Item Classification ​(i) Work in progress: Current asset ​(ii) Owner's drawings: Current liability ​(iii) Office equipment: Non-current asset ​(iv) Long-term loans to employees: Non-current liability Which of the above items are correctly​ classified?

(i) and (iii)

`Which of the following changes have occurred to management accounting as a result of changes in the competitive​ environment? ​(i) More​ outward-looking ​(ii) More concerned with finding new ways of managing costs ​(iii) More subject to external regulation

(i) and​ (ii)

A trader who commenced business on 1 January Year 9 reports the purchases and sales revenue for the year to 31 December Year 9 as £​456,800 and £​479,500 respectively. The gross profit was​ 20% of sales. What is the closing inventories​ figure?

0+​456,800+x=​383,600 x=​73,200

Consider the following​ statements: Revenue should not be recognised​ until: 1. the amount can be measured​ reliably; 2. the economic benefits to be received are certain. Which of the above statements are​ correct?

1 only Only statement 1 is​ correct; revenue should not be recognised until the amount can be measured reliably.

Salvatore decided to start a small business in order to help pay for a forthcoming holiday. As there was an imminent threat of a strike by power company​ workers, he decided to buy and sell oil lamps on his local high street. He began on 1 May by investing £150 cash of his own money to buy 30 lamps for £5 each. On the same​day, he was able to sell 24 lamps for £8 each. The closing balance of cash at the end of the​ day's trading on 1 May was _______ The profit​ (loss) generated by the business during 1 May is ______ The​ owner's equity in the business at the end of the​ day's trading on 1 May is _____

1. 192 2. profit (loss) = sales revenue (24 x 8) - cost of goods sold (24 x 5) = 72 3. owner's equity= cash (closing balance) 192 + inventories (6 x 5) = equity 222

Consider the following​ equations: 1. Sales revenue−Cost of sales=Operating expenses+Operating profit 2. Operating profit+​Non-operating income=Profit for the year+​Non-operating expenses Are the above equations correct or​ incorrect?

1. Correct 2. Correct Another way to express gross profit

Consider the following statements concerning depreciation. An international financial reporting standard on depreciations states that the depreciation method chosen​ should: 1. Reflect the loss in value over the​ asset's life. 2. Be reviewed at least annually. Are the above statements true or​ false?

1. False 2. True The relevant standard states that the depreciation method should reflect the pattern of economic benefits consumed.

the order of items in the standard layout for a statement of financial position.

1. Noncurrent assets 2. Current assets ​3. Equity ​4. Noncurrent liabilities ​5. Current liabilities

the order of assets for a manufacturer that uses the standard layout for its statement of financial position.

1. Property ​2. Plant and equipment ​3. Motor vans ​4. Inventories ​5. Trade receivables ​6. Cash

Consider the following​ transactions: 1. The receipt of £​3,000 from a trade receivable. 2. The repayment of a loan £​10,000. 3. The introduction of a motor car £​20,000 by the owner. 4. Consumption of inventories by the owner £​8,000.

1. Trade receivables will DECREASE and CASH will INCREASE by 3000 2. Loan will DECREASE and CASH will DECREASE by 10000 3. Motor car will INCREASE and EQUITY will INCREASE by 20,000 4. Inventory will DECREASE and EQUITY will DECREASE by 8,000

Operating profit for a period can be calculated as​ follows: 1. Operating profit=Sales−cost of sales−operating expenses 2. Operating profit=Profit for the year−​non-operating income+​non-operating expenses Are the above statements true or​ false?

1. True 2. True

Consider the following​ transactions: 1. The revaluation of property held as a​ non-current asset from £​300,000 to £​345,000. 2. The payment of a trade payable £​2,000. 3. The withdrawal of cash by the owner £​1,500. 4.Purchase of inventories on credit £​7,000. Fill in the blanks below to show the two aspects of these transactions. 1. Property will __ and __ will __ by ___ 2. Trade payables will __ and __ will __ 2000 3. Cash will __ and __ will __ by 1500 4. Inventories will __ and __ will __ by 7000

1. increase, equity, increase, £45,000 2. decrease, cash, decrease, 3. decrease, equity, decrease ​4. increase, trade payables, increase

Identify the most likely method of recognising revenue for businesses that provide the services below by using the​ drop-down menus. 1. Internet Services 2. Building a skyscraper 3. Legal work on a house purchase 4. Installing satellite dishes

1. recognized evenly over time 2. recognized at each stage of completion 3. recognized after the complete service has been provided 4. recognized after the complete service has been provided

Prepayments and accruals are often confused by students. Do you know their effect on the financial​ statements? 1. A closing prepayment occurs because payments have been made in ___ financial period which are related to the ___ financial period. 2. A closing prepayment has the effect of ___ expense shown in the income statement of the current financial​ period, and will be shown as a ___ in the closing statement of financial position. 3. A closing accrual is shown as a ___ in the closing statement of financial​ position, and has the effect of ___ the expense shown in the income statement of the current financial period.

1. this, next 2. decreasing, current asset 3. current liability, increasing

After the accountant of Stallone Retailers had prepared the financial statements for the year ended 31 December Year​ 6, the following errors came to​ light: 1. A motor van purchased for £​8,000 during the year had been charged to motor running expenses. The motor van should be charged with depreciation at the rate of 20 per cent of cost. 2. Closing​ inventories, which had been used in calculating gross​ profit, had been overvalued by​ £3,000. 3. The owner had withdrawn £​4,000 from the business in the form of goods acquired for​ resale, which had not been recorded. 4. An​ interest-free loan of £​2,200 from a relative of the owner was repaid during the year but this was not recorded. The profit for the year before these errors were discovered was £​112,000. What is the profit for the year after adjusting for these​ errors?

112,000 1. motor van adjustment (-8000+1600) = 6400 2. closing inventories = (3000) 3. drawings adjustment= 4000 4. nothing 112,000+6400-3000+4000= 119,400

At 31 December Year​ 1, James White and Co carried out its annual physical inventories​ check, counting 25 CD​ players, each of which had cost pound£100. During Year​ 2, further purchases were made as​ follows: Month CD players purchased Unit price pound£ March. 5. 100 May. 10. 110 June 8. 115 September. 6. 120 November. 2. 125 Annual sales totalled 52 CD​ players, at total sales revenue of £​9,350. Dates of sale are not recorded. If the First In First Out​ (FIFO) method of inventories valuation is​ used, what is the amount of closing​ inventories?

490 4​ remained, 2​ @ £125, and 2​ @ £120.

A business received rent from a tenant amounting to £​38,000 during the year. The tenant had prepaid £​4,000 by the beginning of the year and the rent receivable for the year is £​36,000. What is the amount outstanding at the year​ end?

6000 prepaid The prepayment has increased by 2000

After the accountant of Seagal Plastics Co had prepared the financial statements for the year ended 31 December Year​ 8, the following errors came to​ light: 1. Rent paid of £​2,000 was treated as rent received. 2. A depreciation charge of £​4,000 should have been £​5,000. 3. An outstanding amount of £​1,500 for stationery purchased towards the end of the year had not been taken into account. 4. A bad debt of £​10,000 had been deducted from the sales revenue figure rather than treated as an expense. The profit for the year before these errors were discovered was £​85,000. What is the profit for the year after adjusting for these​ errors?

85,000-4000-1000-1500=78,500 The bad debt error will lead to an incorrect sales figure being used but with no effect on profit.

A business intends to change its accounting policies regarding inventories for the forthcoming year. It intends to switch from the AVCO to the FIFO method of inventories costing. Prices of goods purchased are expected to rise during the forthcoming year. If prices​ rise, what will be the effect of the change in accounting​ policy? A. An increase in profit and an increase in the value of the closing inventories held B. A decrease in profit and a decrease in the value of closing inventories held C. A decrease in profit and an increase in the value of closing inventories held D. An increase in profit and a decrease in the value of closing inventories held

A. An increase in profit and an increase in the value of the closing inventories held The FIFO method of inventory costing assumes that inventories acquired earliest are first to be used.​ Therefore, increases in the price of goods purchased during the year will increase the value of closing inventories. The higher value of the closing inventory will therefore reduce cost of sales and therefore increase reported profit.

With reference to inventory​ valuations, 'cost'​ means: A. the expenditure required to bring an item of inventory to its present location and condition B. the average price paid for an item of inventory sold in the year C. the cost of replacing an item of inventory D. the selling price less any costs needed to enable the sale to be made

A. the expenditure required to bring an item of inventory to its present location and condition IAS definition

Accounting for depreciation is concerned with​ __________ the expense of owning the asset.

Allocating Depreciation attempts to reflect the usage of a​ non-current asset over its life.

A machine acquired at a cost of £​250,000 is expected to be in use for five years. It is expected to have a residual value of £​25,000. It is to be depreciated using the straight line method over its useful life. What is the carrying amount of the asset after the end of two​ years?

Annual depreciation=​(cost−residual value)/useful life.

In determining the profit of an​ entity, which of the following measurement principles states that revenue and expenses are recognised as they are earned or​ incurred, and not as money is received or​ paid? A. Completeness B. Accruals C. Consistency D. Prudence

B. Accruals Accrual and "matching" have the same effect.

Which ONE of the following reflects the effect on the accounting equation of a purchase of an item of plant and equipment for​cash? A. Assets​ decrease: owner's equity increases B. Assets​ unchanged: owner's equity unchanged C. Assets​ increase: owner's equity decreases D. Assets​ decrease: owner's equity unchanged

B. Assets​ unchanged: owner's equity unchanged

​_______ is the difference between sales revenue and cost of sales. A. Profit for the year B. Gross profit C. Total profit D. Operating profit

B. Gross profit Gross profit does not include any operating expenses.

A business decides to revalue its property from the existing figure of pound£​150,000 to pound£​175,000. How would this affect the statement of financial​ position? A. Increase property by £​25,000, increase liabilities by £​25,000 B. Increase property by £​25,000, increase equity by £​25,000 C.Increase property by £​25,000, increase cash by £​25,000 D. Increase property by £​175,000, increase profits by £​175,000

B. Increase property by £​25,000, increase equity by £​25,000

Which ONE of the following best describes a​ non-current asset? A. It has a physical substance B. It does not meet the definition of a current asset C. It is held for a fixed term D. It will be held for more than one year

B. It does not meet the definition of a current asset

The calculation of operating profit may include three of the following four expenses. Which is the one that is not ​included? A. Depreciation B. Loan interest C. Insurance D. Rent payable

B. Loan interest Loan interest is a​ non-operating expense.

Which of the following is equal to ownership interest if it is assumed that there are no​ non-current liabilities? A. Non-current assets​ + current assets B. Non-current assets​ + current assets−current liabilities C. Current assets​ + current liabilities D. Non-current assets​ + current liabilities

B. Non-current assets​ + current assets−current liabilities

What is the​ 'carrying amount' of a depreciating​ non-current asset? A. The cost​ (or fair​ value) of the asset less the current​ year's depreciation B. The cost​ (or fair​ value) of the asset less the accumulated depreciation on that asset C. The current market value of the asset D. The cost​ (or fair​ value) of the asset

B. The cost​ (or fair​ value) of the asset less the accumulated depreciation on that asset

Which ONE of the following is not one of the four components needed to calculate depreciation of a newly acquired ​non-current (fixed)​ asset? A. The original cost​ (or fair​ value) of the asset B. The value of the asset it has replaced C. The depreciation method to be used D. The estimated residual​ (disposal) value E. The useful life of the asset

B. The value of the asset it has replaced

A business holds inventories for use in production. When preparing its financial​ statements, which ONE of the following reporting choices is permitted under accounting​ rules? A. To switch between costing methods from one year to the next B. To employ either the First In First Out method or the weighted average cost method C. To value either at cost or net realisable value D. To employ either the First In First Out method or the Last In First Out method

B. To employ either the First In First Out method or the weighted average cost method

Which ONE of the following best describes operating profit for a​ period? A. Sales revenue less cost of sales B. Wealth generated from normal activities of the business C. Operating receipts less operating payments D. Sales revenue less total expenses

B. Wealth generated from normal activities of the business

The conventional view of depreciation is that it is necessary​ because: A. cash needs to be set aside to replace the​ non-current asset B. a portion of the cost of​ non-current assets is matched with the income they help generate C. non-current assets can be reported at the amount they are worth D. it will help to provide a conservative figure of profit for the year

B. a portion of the cost of​ non-current assets is matched with the income they help generate

Which one of the following conventions says the business and the​ owner(s) are separate for accounting​ purposes?

Business entity

Which ONE of the following would be recognised as an expense in the current financial​ period? A. A payment made in the current financial period to hire a machine that will be used at the beginning of the next financial period. B. An invoice for​ printing, owing at the end of the previous financial​ period, but paid in the current financial period. C. An invoice received for gas used in the last quarter of the current financial​ period, but which is not paid until the next financial period. D. A cash payment made during the current financial​ period, but relating to the first three​ months' rent due for the next financial period.

C. An invoice received for gas used in the last quarter of the current financial​ period, but which is not paid until the next financial period. The accruals concept tells us that an invoice relating to expenses incurred in the current period should be included even if it is unpaid.

A business buys £​1,000 of inventories on credit. What is the dual effect of this​ transaction? A. Decrease trade payables and increase inventories B. Increase trade receivables and increase inventories C. Increase trade payables and increase inventories D. Decrease cash and increase inventories

C. Increase trade payables and increase inventories

Which ONE of the following is not an​ asset? A. Motor vehicle B. Building C. Loan received to buy equipment D. Computer

C. Loan received to buy equipment

What would be the effect of a business overstating the value of its closing​ inventories? A. Overstating its performance and understating its assets B. Understating its performance and understating its assets C. Overstating its performance and overstating its assets D. Understating its performance and overstating its assets

C. Overstating its performance and overstating its assets

A business owns equipment for use in its​ factory, which has an estimated life of ten years. When preparing its financial​statements, which ONE of the following choices is prohibited by accounting​ rules? A. To report the equipment at either cost or at fair value B. To depreciate using either the straight line method or the reducing balance method C. To either depreciate or not depreciate D. To either hold the asset until the end of its useful life or to dispose of it before then

C. To either depreciate or not depreciate In line with international financial reporting​ standards, depreciation must be applied to this​ non-current asset with a finite life.

Uriah Sponge is a bad debtor of Coppermeadow​ Co, with an amount due of pound£​4,000. When the debt is written​ off, the effect will​be: A. sales revenue decreases and expenses increase B. sales revenue decreases and trade receivables decrease C. trade receivables decrease and expenses increase D. trade receivables decrease and expenses decrease

C. trade receivables decrease and expenses increase When the bad debt is written​ off, trade receivables will be​ reduced, and expenses increased​ (by creating an expense known as​ 'bad debts written​ off') by the amount of the bad debt.

CHAP 2

CHAP 2

CHAPTER 3

CHAPTER 3

What do users care about?

Customers: Are there sufficient financial resources to complete an​ order? Competitors: How well is the opposition doing? Employees: Can the business continue to offer​ employment? Government: Is there tax due on business​ profits? Suppliers: Can the business pay for goods bought on​ credit? Lenders: Can the business repay loans and​ interest? Owners: Should more shares be​ bought, or should some be​ sold? Managers: How can the business become more financially​ efficient? Investment analysts: Should they advise clients to buy or sell​ shares? Community representatives: What impact does the business have on the​ environment?

Barbata Co has decided to revalue its head office buildings. The accounting rules state that where a business revalues a​ non-current asset: A. All other​ non-current assets must also be revalued B. All other​ non-current and current assets must also be revalued C. No other assets held need be revalued D. Assets within that particular group of​ non-current assets must also be revalued

D. Assets within that particular group of​ non-current assets must also be revalued To maintain a fair value all other assets within that particular group of​ non-current assets must also be revalued.

Which ONE of the following statements is​ correct? A. Where the historic cost of a​ non-current asset is lower than its current market​ value, historic cost cannot be used as a valuation method B. All​ non-current assets must be depreciated​ (or amortised) C. Where a​ non-current asset held by a business is revalued at fair​ value, all​ non-current assets must be revalued D. Intangible​ non-current assets are rarely revalued

D. Intangible​ non-current assets are rarely revalued ​Non-current assets with indefinite​ lives, for​ example, property or purchased​goodwill, are not subject to routine depreciation over time. When a​ non-current asset is​ revalued, all assets within that particular group must be revalued​ (not all​non-current assets). Where the historic cost of a​ non-current asset is lower than its current​ value, the historic cost can still be used as a​ valuation, but this may not be the most useful option​ [or other suitable​ word] to users of accounts. It is correct that intangible​ non-current assets are rarely revalued.

Which ONE of the following is not a condition that should be applied to determine whether a liability is a current​ liability? A. There is no right to defer settlement beyond a year after the date of the statement of financial position. B. It is held principally for trading purposes. C. It is expected to be settled within the​ business's normal operating cycle. D. It is due to be settled within a year of incurring the liability.

D. It is due to be settled within a year of incurring the liability.

Which ONE of the following describes the depreciation method where each​ year's expense over the life of the asset is the​same? A. Reducing balance method B. Depreciable amount method C. Residual value method D. Straight line method

D. Straight line method

Which ONE of the following correctly describes the potential loss in value as a result of the carrying amount of an asset being more than that which could be recovered from the continued use of the​ asset, or its​ sale? A. Once a​ non-current asset has been revalued at fair​ values, it must be revalued annually thereafter B. Non-current assets with infinite lives must be tested every three years for impairment C. Internally generated goodwill should be shown at its fair value D. Where the net realisable value of inventories falls below their historic​ cost, it is the former value that must be used

D. Where the net realisable value of inventories falls below their historic​ cost, it is the former value that must be used

A business that underestimates its bad debts in its financial statements would​ be: A. understating its performance and overstating its assets B. understating its performance and understating its assets C. overstating its performance and understating its assets D. overstating its performance and overstating its assets

D. overstating its performance and overstating its assets The effect would be to overstate the assets​ (trade receivables) on the statement of financial position and to overstate profit in the income​ statement, as the revenue that has been recognised will not result in any future benefit

One consequence of an upward revaluation of a​ non-current asset with an indefinite life is that​ the_________ will increase. A. cash balance B. liabilities C. depreciation charge D. owner's equity

D. owner's equity This represent an unrealized gain and can not be distributed.

The reducing balance method will write off more depreciation over the life of a​ non-current asset than the straight line method. True or False

False

Consider the following two statements concerning accounting​ conventions: 1. The dual aspect convention holds that for every increase in​ assets, there is a corresponding increase in liabilities. 2. The prudence convention places greater emphasis on recognising expected losses than expected profits. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

False, True

Consider the following two statements concerning accounting​ conventions: 1. The business entity convention holds that each business should be regarded as having a separate legal existence. 2. The going concern convention supports the use of current market values when valuing​ assets, where a business is expected to fail. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

False, True Statement 1 is false. This convention holds that the business and its owners should be treated as quite separate and distinct. The​ business, however, is not regarded as a separate legal​ entity-which only applies to limited companies. Statement 2 is true.

Which convention holds​ that, where there is no expectation of a need to sell off the assets of a​ business, they should continue to be shown at their recorded​ values?

Going concern

Only ONE of the following statements correctly describes the effect of a transaction on the financial statements. Which​ one? A. Goods purchased on credit £​2,000 will increase inventories by £​2,000 and increase trade payables by £​2,000 Your answer is correct. B. A debtor who pays an amount owed £​1,000 will result in an increase in sales by £​1,000 and an increase in cash by F3 this figure should be​ £2000 C. The payment of a trade payable by £​3,000 will decrease the claims​ (payables) by £​3,000 and decrease equity by £​3,000 D. The purchase of a motor van for £​10,000 cash will increase the assets​ (motor van) by £​10,000 and decrease equity by F2 this figure should be​ £3000

Goods purchased on credit £​2,000 will increase inventories by £​2,000 and increase trade payables by £​2,000

John commenced business on 1 January Year 9. During the year ending on 31 December Year​ 9, he bought a quantity of leather briefcases at a uniform cost and sold​ 5,800 of them at £50 each. An inventories check on 31 December Year 9 established that he holds 650 unsold briefcases.​ John's gross profit for the year was £​116,000. How much was the cost of each​ briefcase?

Gross profit=sales revenue-cost of sales 5800 x 50 = 290,000-116,000=174,000 174,000/5,800= 30

In recent​ decades, which one of the following has not resulted in the business environment becoming more turbulent and​ competitive?

Increasing regulation of domestic markets

What is the third stage of an accounting information​ system?

Information analysis

Which one of the following is the second stage of an accounting information​ system?

Information recording

Klim Carpets receives an order from a customer for a carpet in March. The business sends an invoice to the customer requesting payment for the carpet in April. Payment is received from the customer in May. The customer collects the carpet from the​ business's warehouse in June. In which month should the sale to the customer be​ recorded?

June In June the customer will have received and accepted the carpet. At this​ point, ownership and control of the carpet will pass to the customer.

Which inventories costing method is not permitted under the relevant international accounting standards on​ inventories? A. Last In First Out B. First In First Out C. Average Cost

Last In First Out

Which one of the following is an internal user of financial​ information? A. Management B. Tax authorities C. Suppliers D. Lenders

Management

The ​ _________ convention deals with the extent to which other conventions are strictly​ followed, where the amounts concerned are insignificant.

Materiality The materiality convention deals with the extent to which other conventions are strictly​ followed, where the amounts concerned are insignificant

Consider the following two​ statements: 1. Revenue from​ long-term construction contracts should not be recognised until the contract is completed. 2. Revenue from providing services should not be recognised until the cash is received. Which of the above statements are​ correct?

Neither 1 or 2 Revenue is allowed to be recognised as a stage of the contract is​ completed: the revenue for the stage be recognised in the reporting period the stage is completed in and the customer is billed.

Namek Co reported sales revenue for the current year of​ £450,000. Opening inventories were​ £90,000 and closing inventories were​ £130,000. The gross profit for the period was 40 per cent of sales revenue. What were the purchases during the current​ year?

Opening inventories (90,000) + Purchases - closing inventories (130,000) = Cost of goods sold (450,000 x .40 = 180,000 --> 450,000-180,000= 270,000) 90,000 + P - 130,000 = 270,000 P= 310,000

One purpose of accounting information is to help certain users assess how effectively the managers are running the business and to make judgements about likely levels of risk and return in the future. Which user group is most likely to use accounting information for this​ purpose?

Owners

A street vendor sells a magazine at the corner of a local high street £2 per copy that cost £1 per copy from the magazine publisher. The vendor began the day with 20 magazines in stock and £10 in cash. By the end of the​ day, he had sold 18 magazines and purchased for cash an additional 15 magazines for the following day. What is the difference​ (in £​s) between the profit for the day and the cash held at the end of the​ day?

Profit is the difference between what the magazines were sold for and what they cost​ (18 magazines sold at a profit of £1 each equals £18 total​ profit). The cash at the end of the day is what he started​ with, plus the cash from what he​ sold, less the cash he paid for​ tomorrow's magazines £10 +sales of £36 −purchases of £15 = £​31). The difference is therefore​ (cash £​31-profit £18 equals= £​13).

After the accountant of Merkel Engineering Co had prepared the draft financial statement for the year ended 31 March Year​ 5, the following errors came to​ light: 1. A trade receivable of​ £3,500 was recorded as outstanding at the year end but had been paid in full during the year. 2. A credit sale for​ £5,400 had been incorrectly recorded as​ £4,500. 3. The insurance expense had been adjusted for an accrual of​ £1,000 rather than for a prepayment of​ £1,000 at the end of the year. 4. Interest charges of​ £800 had been treated as interest received. The profit for the year before these errors were discovered was​ £68,000. What is the profit for the year after adjusting for these​ errors?

Profit is therefore £​(68,000+900+​2,000−​1,600) = £​69,300

Consider the overall effects on Prentiss of selling antiques on credit for ​£61,000 and incurring expenses totalling ​£40,000. What is Prentiss​'s profit or​ loss?

Profit of 21,000 Sales - cost of sales = gross profit

Kelly started a business with £​95,000 equity invested. During the​ year, she withdrew £​15,000 in cash and £​5,000 in goods for her own use. At the end of the first year she had an equity balance of £​85,000. What was the​ profit/loss for the​ year?

Profit: 10,000 The equity balance went down by £​10,000 after she had withdrawn a total of £​20,000 from the business. The business must therefore have made a profit of £​10,000 ​(opening balance ​£95,000+£​10,000 profit−£​20,000 goods and cash withdrawn=£​85,000 closing​ balance).

When valuing inventories at the lower of cost or net realisable​ value, which one of the following conventions is being​ applied? A. Consistency B. Prudence C. Materiality D. Accruals

Prudence Net realisable value is the amount for which the inventory items can be​ sold, less any further costs that may be necessary to complete the goods and any costs involved in selling and distributing the goods. If this value is less than cost​ price, the inventory must be valued at the lower amount as a result of the prudence concept.

Which ONE of the following qualities is most concerned with influencing​ users' decisions concerning the prediction of future events and the confirmation of past​ events?

Relevance

With which ONE of the following qualities is the concept of materiality most closely​ associated?

Relevance

Workout Warehouse​, a health and fitness​club, gains a client who prepays £390 for a package of six physical training sessions. Workout Warehouse collects the £390 in advance and will provide the training later. After two training ​sessions, what should Workout Warehouse report on its income​statement?

Revenue of 130

Jill commenced business on 1 January Year 9 with equity in cash of £​10,000. During the year ending on 31 December Year 9 she paid £​12,000 for​ furniture, £​92,400 for purchasing goods for sale and £​31,450 for various expenses​ (excluding depreciation). She received £​139,250 from the sale of goods. By the year end Jill had sold out of all but £​2,500 of goods purchased during the year and she wishes to write off the cost of furniture over 10 years using the straight line method. The estimated residual value of the furniture is £400. What is​ Jill's profit for the​ year?

Sales Revenue: 139,250 Cost of Sales: Purchases: 92,400 Closing inventory: 2500 Total: 89,900 Gross Profit= 139,250-89,900= 49,350 Expenses: 31,450 Depreciation: 1,160* 32,610 Gross Profit-expenses and depreciation= --> Operating profit= 16,740 *depreciation furniture cost - residual value/useful life (12,000-400)/10= 1,160

Which ONE of the following best describes what the statement of financial position​ reports?

The assets​ of, and the claims​ against, the business

In​ theory, accounting information should be produced until the point​ where:

The cost of providing it is no longer less than the benefits

A business begins the year with opening inventories of £​14,560. During the year it purchases goods for £​73,820 and sells goods for £​89,630. The business makes a uniform gross profit of 20 per cent on sales. What is the closing inventories figure for the​ year?

The gross profit is​ £17,926 (89,630 x .20) and the cost of goods sold is ​(£89,630−​17,926)= ​£71,704. The closing inventories will be opening inventories ​(£14,560)+purchases ​(£73,820)−cost of goods sold ​(£71,704)=​£16,676.

revenue

The revenue principle says to record revenue when it has been earned but not before. This occurs when the business has delivered a good or service to the customer.

After the accountant of Samaras Co had prepared the financial statements for the year ended 31 January Year​ 7, the following errors came to​ light: 1. A motor van purchased at cost of​ £12,000 and with accumulated depreciation at the beginning of the year of​ £4,000 had been depreciated at 20 per cent using the reducing balance method rather than the​ straight-line method of depreciation. 2. The payment of​ £1,500 for a trade payable had been treated as a cash purchase. 3. Withdrawals by the owner of​ £3,000 during the year had been treated as part of the salaries and wages expense. 4. Bank charges of​ £400 during the year had been treated as interest charges. The profit for the year before these errors were discovered was​ £42,000. What is the profit for the year after adjusting for these​ errors?

The revised profit will therefore be £​(42,000−800+​1,500+​3,000)=£​45,700.

Lisa Jackson wishes to know how well her business performed during April. An income statement will answer this question. Write the formula used for measuring profit or loss in the income statement.

Total Revenues - Total Expenses = Profit (or loss)

Magpie CoMagpie Co has the following assets and liabilities at the year​ end: £ 1. Trade payables 46,788 2. Cash at bank 45,344 3. Equipment 113,900 4. Longterm loan 87,040 5. Inventories 63,301 6. Bank overdraft 50,454 7. Property 131,927 8. Trade receivables 39,283 9. Fixtures and fittings 20,348 10. Goodwill 16,891 During the​ year, the business made a profit of ​£59,414. There were no injections or withdrawals of funds by the owner during the year. What was the​ owner's equity at the beginning of the​ year?

Total assets (cash, equipment, inventory, property, trade receivables, fix&fit, goodwill) − Total liabilities​ (trade payables, loan, overdraft) = Equity at year end ​£430,994 − £184,282 ​= ​£246,712 Equity at year end minus− profit for the year​ = Equity at beginning of year ​ £246,712−£59,414= ​£187,298

​'Intangible, non-current assets with indefinite lives should be tested for impairment on an annual​ basis.' Is the above statement true or​ false?

True An international accounting standard requires this treatment.

​'Intangible non-current assets are not normally revalued to fair​ values.' Is the above statement true or​ false?

True Revaluations can only occur where there is an active​ market, thereby permitting fair values to be properly determined. This kind of market rarely exists for intangible assets.

If the level of inventories alters during the​ year, the cost of sales for the year cannot equal purchases. True or false

True because cost of sales =opening inventories+purchases−closing inventories.

Over the life of a business the total profits will be the same whichever inventories costing method is employed. True or false

True the difference in inventories costing method is time dependent. Over the life of the business this time difference will unwind and total profits will be equal whichever inventories costing method is chosen.

​'Assets are defined as a resource _____ the entity as a result of past events and from which ____ economic benefits are expected to flow to the​ entity'.

controlled by, future

Accounting exists primarily to help user​ __________.

decision-making

Students who are new to accounting often get confused about the various formulae associated with a statement of financial position. Answer each of these questions by using the​ drop-down lists.

extended accounting equation: Assets = Equity + Profit (or - Loss) + Liabilities

Accounting can be seen as part of the total​ __________ system of the business.

information

Which branch of accounting is most concerned with the collection of detailed financial data for use in planning and controlling an​ entity?

management accounting

The​ _________ convention identifies which expenses are charged to the income statement for a particular period.

matching matching comes from the accruals convention

Given​ non-current assets of £​40,000, current assets of £​12,000, current liabilities of £​5,000, and​ non-current liabilities of £​10,000, owner's equity will​ be:

non-current assets 40,000 + current assets 12,000 - current liabilities (5000) - non-current liabilities (10000) = equity 37,000

What is included in non-current assets? current assets? current liabilities? non-current liabilities? Finally, once we have added the assets together and deducted all the​ liabilities, the accounting equation tells us that the total net assets must ​equal:

non-current assets: plant and machinery, computer equipment current assets: inventories, trade receivables, cash at bank current liabilities: trade payables non-current liabilties: long-term loan must equal: equity

As a management accountant you would be primarily concerned​ with:

preparing plans and forecasts for the future activities of the business

When an asset value is​ impaired, the general rule is to reduce the asset on the statement of financial position to its ​__________ ​ ___________ What are the missing​ words?

recoverable amount

The historic cost convention in accounting is often defended on the grounds that it provides users with more​ ______________ information than a system of accounting based on current values.

reliable

A trader who commenced business on 1 January Year 9 reports the purchases and sales for the year to 31 December Year 9 as £​426,500 and £​688,400 respectively. The total administration expenses were £​112,200 and interest payable was £​2,500. The cost of goods remaining unsold at the year end was £​72,400. What is the operating profit in the first year of​ operation?

sales revenue 688,400 - purchases (426,500) + goods remaining unsold 72,400 = gross profit 334,300 - admin expenses (112,200) = operating profit 222,100

historic cost convention

that acquisition cost should be used as the basis of valuation.

A manufacturing business which sells goods on credit would normally recognise revenue​ when: A. the cash is received from the customer B. an order is received from a customer C. the goods are produced D. the goods are delivered​ to, and accepted​ by, the customer

the goods are delivered​ to, and accepted​ by, the customer Revenue would normally be recognised when the goods are delivered​ to, and accepted​ by, the​ customer, that​ is, ownership and control of the items has passed to the buyer.

intangible assets include...

trade receivables, patents, trademarks, copyrights, franchises, and goodwill

Gladstone paid ​£8,419 for oil during the current year. At the beginning of the​ year, ​£884 was owing for oil​, and at the end of the ​year, ​£1,254 was owing for oil. How much would be shown as the oil expense in the income statement for the current​ period?

​(Oil paid in the year​+ Closing​accrual)- Opening accrual (8419+1254)-884=8789