Financial Management

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The conventional view of depreciation is that it is necessary because:

A portion of the cost of noncurrent assets is matched with the income they help generate

International Accounting Standard 2 Inventories' allows the use of

AVCO or FIFO

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?

Accruals

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?

An increase in profit and an increase in the value of the closing inventories held.

J. Singh & Co has total trade receivables of £850,200 at the end of the most recent year. It is considered that £30,600 of the trade receivables will not pay and that a further 4 per cent of the remainder are doubtful. The allowance for trade receivables at the beginning of the year was £17,500.Which ONE of the following will represent the net allowance for trade receivables to be shown in the income statement?

15284

A business values its inventories using a First In First Out (FIFO) approach. Inventories movements and prices of product D over the current year are shown here: What is the value of the closing inventories?

379 units @ 10; and 389 units @ 8

At the year end £504 800 is due from customers and £26 400 is the allowances for receivables. A debt of £6 800 is to be written off and the allowances for receivables adjusted to cover 5% of trade receivables outstanding. The net charge for receivables in the income statement for the year would be:

5300

At the end of its financial year, Liverton Ltd has the following trade receivables: a, Which of the following will represent the net amount of trade receivables to be shown on the statement of financial position at the end of the year?

603136

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

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

Which ONE of the following represents the main purpose of charging depreciation in an income statement?

Charge a fair share of the costs of using the asset to each period in which the noncurrent asset is used

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

FALSE

____is the difference between sales revenue and cost of sales.

Gross profit

Which inventories costing method is not permitted under the relevant international accounting standards on inventories?

Last In First Out

When valuing inventories at the lower of cost or net realisable value. which one of the following conventions is being applied?

Prudence

Strongman's Gym, a health and fitness club, gains a client who prepays £510 for a package of six physical training sessions. Strongman's Gym collects the £510 in advance and will provide the training later. After two training sessions, what should Strongman's Gym report on its income statement?

Revenue of £170

Which one of the following describes the depreciation method where each year's expense over the life of the asset is the same?

Straight line method

If the level of inventories alters during the year, the cost of sales for the year cannot equal purchases

TRUE

Over the life of a business the total profits will be the same whichever inventories costing method is employed?

TRUE

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?

£160,000

The Staffordshire Magazine sells 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. Requirements: 1. Apply your knowledge of accounting principles to determine when the Staffordshire Magazine should record revenue for this situation.

The Staffordshire Magazine should record revenue after it mails out magazines when it collects cash from subscribers

The graph shown opposite charts the written down value of a noncurrent (fixed) asset against time. Which depreciation method is shown here?

The method shown is straight line method

The graph shown opposite charts depreciation per year against time. Which depreciation method is shown here?

The method shown is the straight line method

Which one of the following is not one of the four components needed to calculate depreciation of a newly acquired noncurrent (fixed) asset?

The value of the asset it has replaced

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

allocating

With reference to inventory valuations, 'Cost' means:

expenditure required to bring an item of inventory to its present location and condition

The convention deals with which expenses are charged to the income statement for a particular period.

matching

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

materiality

When preparing its financial statements, if a business under-estimates the allowances for trade receivables, it would be:

overstating its performance as well as its assets

Uriah Sponge is a bad debtor of Coppermeadow Co, with an amount due of £4000. When the debt is written off, the effect will be:

receivables decrease and expenses decrease

What is the 'carrying amount of a depreciating noncurrent asset?

the cost (or fair value) of the asset less the accumulated depreciation on that asset

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 at the start of a financial period had allowances for receivables of £4000. By the end of the year, trade receivables totalled £62000 which included £3000 regarded as bad and a further £6000 considered doubtful. Relevant entries in the year-end statement of financial position are:

trade receivables £59000 less allowances for receivables £6000

Which ONE of the following best describes an expense?

trading event that causes a reduction in capita

Which one of the following best describes operating profit for a period?

wealth generated from normal activities of the business

During the financial year ended 31 December 2009, a business paid a trade subscription of £2,400 for the 6 months ended 31 March 2010. If subscriptions paid in advance at the beginning of the year were £300, what figure is shown in the income statement for the year to 31 December 2009?

£1,500

Jill commenced business on 1 January 2009 with equity in cash of £10,000. During the year ending on 31 December 2009 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?

£16,740.00

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?

£16.68

JK Builders Co purchases a new excavator, costing £40 000. Its expected useful life is 10 years, at which point it is anticipated that the excavator will have a residual value of £6 000. If the straight-line method of depreciation is used, what is the carrying of the excavator at the end of four years?

£26 400

John commenced business on 1 January 2009. During the year ending on 31 December 2009, he bought a quantity of leather brief cases at a uniform cost and sold 5,800 of them at £50 each.An inventories check on 31 December 2009 established that he holds 650 unsold brief cases. John's gross profit for the year was £116,000. How much was the cost of each brief case?

£30

A business buys a machine for £18,485 and estimates its residual value at £3,952. It is depreciating the asset over a 9 year period by the straight line method. What is the total depreciation charge after three years have elapsed from the purchase date?

£4,844

JK Builders Co purchases a new excavator, costing £40 000. Its expected useful life is 10 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 per cent, what is the annual depreciation charge in Year 2?

£5,100

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?

£6,000 prepaid

P. Patel & Co has total trade receivables of £650,400 at the end of the most recent year. It is considered that £22,200 of the trade receivables will not pay and that a further 2 per cent of the remainder are doubtful. The Which ONE of the following will represent the net amount of trade receivables to be shown on the statement of financial position at the year end?allowance for trade receivables at the beginning of the year was £12,500.

£615,636

P. Patel & Co has total trade receivables of £650,400 at the end of the most recent year. It is considered that £22,200 of the trade receivables will not pay and that a further 2 per cent of the remainder are doubtful. The allowance for trade receivables at the beginning of the year was £12,500. Which ONE of the following will represent the net amount of trade receivables to be shown on the statement of financial position at the year end?

£615,636

A trader who commenced business on 1 January 2009 reports the purchases and sales revenue for the year to 31 December 2009, as £456,800 and £479,500 respectively. The gross profit was 20% of sales. What is the closing inventories figure?

£73,200


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