Financial Accounting
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?
## True 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
With which ONE of the following qualities is the concept of freedom from error most closely associated?
## faithful representation
A business that underestimates its bad debts in its financial statements would be:
## overstating performance and assets
The reducing balance method will write off more depreciation over the life of a non-current asset than the straight line method.
##False
Which ONE of the following bodies issues the financial reporting standards that must be followed by most UK listed companies?
##international
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 Is it:
(i) and (ii)
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)
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 and 2
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 and 2
Dreyfus Retail Co incurred the following expenses during the year: 1.Sales commission 2.Insurance 3.Rent payable 4.Cost of sales Which TWO of the above are most likely to be matched to the period to which they relate rather than to the sales generated?
2 and 3
The following information relates to Solano Co for Year 8. Equity at start of year 100,000 Expenses 92,000 Current liabilities at end of the year 199,000 Sales revenue 274,000 Current assets at end of the year 365,000 Noncurrent assets at end of the year 366,000
250,000
Consider the overall effects on CapitaliaCapitalia of selling antiques on credit for £62,000 and incurring expenses totaling £34,000. What is Capitalia's profit or loss?
28,000
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?
310,000
A business buys a machine for £14,250 and estimates its residual value at £3,380. It is depreciating the asset over a 10 year period by the straight line method. What is the total depreciation charge after three years have elapsed from the purchase date?
3261
A business buys a machine for £13,245 and estimates its residual value at £3,258. It is depreciating the asset over a three-year period by the straight-line method. What is the total depreciation charge after three years have elapsed from the purchase date?
9,987
Which ONE of the following best describes an expense?
A trading event that causes a reduction in capital
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?
Accrual and "matching" have the same effect.
Which ONE of the following would be recognised as an expense in the current financial period?
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.
A key difference between management accounting and financial accounting reports is that management accounting reports tend to:
Be forward looking Management accounting reports often provide information concerning future performance as well as past performance, unlike financial accounting reports that reflect the performance of the business for the past period.
Which ONE of the following would not decrease if a business decided to increase its depreciation charges for the financial period?
Cash
_________ is enhanced by treating items that are basically the same in the same manner for accounting purposes.
Comparability
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?
Correct Correct
Consider the following equations: 1. Sales revenueminus−Cost of salesequals=Operating expensesplus+Operating profit 2. Operating profitplus+Non-operating incomeequals=Profit for the yearplus+Non-operating expenses Are the above equations correct or incorrect?
Correct Correct
The various user groups for accounting information use that information in different ways. Match the user group shown in the left column with the corresponding usage shown in the right column, choosing the appropriate letter in the drop-down menu.
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?
Which one of the following is not the task of the board of directors?
Day to day business decisions
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
A statement of financial position covers a particular financial period - usually a year.
False
The reducing balance method will write off more depreciation over the life of a non-current asset than the straight line method.
False
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)?
False False
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
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)?
False True Financial accounting may include forward-looking information, even though this is not its main focus.
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)?
False True
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?
False False Financial accounting focuses on financial information with great emphasis on objective, verifiable evidence. Management accounting reports tend to contain financial and non-financial information and often use information that cannot be verified.
An international financial reporting standard concerning depreciation states that: 1. The straight-line method should be used to depreciate all tangible non-current assets. 2. The reducing-balance method should be used to depreciate all intangible non-current assets. Are the above statements true or false?
False False Does not specify either
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 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?
False True Management accounting reports are defined in length and detail by internal management.
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?
False True Statement 1 is false; not all companies must have their annual financial reports audited (the exception is small companies). Statement 2 is true; all limited companies must lodge a copy of their annual financial reports with the Registrar of Companies who is based in Companies House.
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?
False True The partners of a business usually have unlimited liability. Partnerships are not recognised in law as separate entities, and so contracts with third parties must be entered into in the individual names.
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 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
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?
Goodwill
_______ is the difference between sales revenue and cost of sales.
Gross profit
A business buys £1,000 of inventories on credit. What is the dual effect of this transaction?
Increase trade payables and increase inventories
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
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
The calculation of operating profit may include three of the following four expenses. Which is the one that is not included?
Loan interest
Which one of the following is an internal user of financial information?
Management
Which user group usually has most control over the range and content of information it receives?
Managers
Which ONE of the following is not an element of the quality of faithful representation?
Materiality
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
The ___________ convention in accounting underpins the requirement to report inventories at the lower of cost or market value.
Prudence
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
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
What is the 'carrying amount' of a depreciating non-current asset?
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?
The value of the asset it has replaced
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?
To either depreciate or not depreciate
Generally speaking, the higher the level of risk, the higher the expected return from an investment.
True
Consider the following statements: 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. Which of the above statements are correct (true/false)?
True False
Consider the following statements concerning depreciation. An international financial reporting standard concerning depreciation states that: 1. The useful life of an asset should be reviewed annually. 2. The residual value of an asset should be reviewed annually. Are the above statements true or false?
True True
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?
True True
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?
True True Financial accounting reports reflect the performance and position of the business from the past. In essence, they are backward looking. Financial accounting reports tend to be general purpose, compared to often specific purpose management accounting reports. Next Question
Consider the following statements: 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. Which of the above statements are correct (true/false)?
True False
The conventional view of depreciation is that it is necessary because:
a portion of the cost of non-current assets is matched with the income they help generate
Accounting for depreciation is concerned with __________ the expense of owning the asset.
allocating
The text states that accounting is concerned with collecting __________ and _________ financial information.
analysing, communicating
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 ___________.
behaviour
The __________ convention says that the business and the owner(s) are separate, for accounting purposes.
business entity
Which one of the following conventions says the business and the owner(s) are separate for accounting purposes?
business entity
'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
According to Peter Drucker, an eminent management thinker, the purpose of a business is to:
create and keep a customer
Accounting exists primarily to help user __________.
decision-making
The study of business investment and financing decisions is known as:
financial accounting
_______ is the difference between sales revenue and cost of sales.
gross profit
Which ONE of the following is not a condition that should be applied to determine whether a liability is a current liability?
it is due to be settled within a year after the date of the relevant statement of financial position
The calculation of operating profit may include three of the following four expenses. Which is the one that is not included?
loan interest
The _________ convention identifies which expenses are charged to the income statement for a particular period.
matching
To be relevant, accounting information must cross a threshold of __________
materiality
Which of the following is equal to ownership interest if it is assumed that there are no non-current liabilities?
non-current (fixed) assets+current assets−current liabilities
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
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
The increasingly turbulent and competitive environment in which businesses operate has led to the introduction of _____________ management.
strategic
A manufacturing business which sells goods on credit would normally recognise revenue when:
the goods are delivered to, and accepted by, the customer
A business begins the year with opening inventories of pound£14,560. During the year it purchases goods for pound£73,820 and sells goods for pound £89,630. The business makes a uniform gross profit of 20 per cent on sales. What is the closing inventories figure for the year?
£16,676
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?
£73,200
JK Builders Co purchases a new excavator costing pound£40,000. Its expected useful life is ten years, at which point it is anticipated that the excavator will have a residual value of pound£6,000. If the straight line method of depreciation is used, what is the carrying amount of the excavator at the end of four years?
26,400
Not-for-profit organisations have ___________ user groups to private-sector businesses. These groups use accounting information for ___________ purposes.
similar, decision-making