Answer Multiple Choice With Explanations

Question 1 Part A

(i) On 1 January a sole trader had capital of 25,000. During the year, he withdrew 23,000 for his own use and, at 31 December, he had capital of 31,000. If he did not introduce any new capital during the year, his net profit for the year was:

a) 23,000

b) 29,000

c) 17,000

d) 32,000

(ii) The following information relates to a sole trader.

Total of all assets at 1 June 2,300

Total of all liabilities at 1 June 2,500

Net profit earned during June 1,000

Capital introduced during June 5,000

Drawings during June 700

The sole trader's capital at 30 June was:

a) 5,300

b) 5,100

c) 5,600

d) 5,500

(iii) Carriage inwards is included in the cost of sales calculation because

a) it is a cost associated with the purchase of goods.

b) carriage outwards is shown as an expense in the profit and loss account.

c) it should not be shown in the statement of financial position (balance sheet).

d) None of the above.

(iv)) A sole trader incurred a loss of 10,000 during his most recent accounting period, yet had more money in his bank account at the end of the period than he had at the beginning of it. Which of the following, on its own, could explain this?

a) The introduction of 15,000 new capital during the period.

b) The purchase of Non-current assets during the period.

c) His customers taking longer than normal to pay the amounts they owe to him.

d) An increase in the amount of his Inventory over the course of the period.

(v) Tom set up a business on 1 January. He bought Non-current assets costing 53,000 and Inventory costing 6,600. He had financed these in advance of commencing business with a personal loan of 25,000 from his brother and a business loan from a bank. On 31 December of the same year his net assets totalled 37,200. His net profit for the year was 21,100.

Tom's drawings during the year were:

a) 8,900

b) 16,100

c) 18,500

d) 1,300

(vi) The going concern concept means that, when preparing accounts

a) unless there is specific information to the contrary, the firm for which the accounts are being prepared should be assumed to continue in operational existence for the foreseeable future at a level of activity not significantly less than the current level of activity.

b) profit should not be anticipated and losses should be provided for as soon as they are foreseen.

c) revenues and costs are recognised as they are earned or incurred, not as money is received or paid.

d) items should normally be accounted for in a manner consistent with the way in which they were accounted for in previous years.

(vii) The accruals concept

a) applies to assets and liabilities only.

b) is not a fundamental accounting concept.

c) applies to revenues, expenses, assets and liabilities.

d) applies to revenues and expenses only.

(viii) The Sales Daybook is used to record

a) the names, addresses, credit terms and other details regarding Accounts receivable.

b) money received from Accounts receivable.

c) invoices issued to customers in respect of goods sold on credit.

d) None of the above.

(ix) A firm which purchased five items on credit at a cost of 80 each, less 25% trade discount, is entitled to deduct a cash discount of 5% if it pays for them, in full, within 14 days of the invoice date. If the firm pays within the above two-week period, it will have to pay:

a) 285

b) 280

c) 260

d) None of the above.

(x) Which of the following is revenue expenditure?

a) The transfer of surplus funds from a bank current account to a bank deposit account.

b) The introduction of additional capital by a proprietor.

c) The cost of acquiring machinery for continuing use in the business.

d) The cost of advertising a mid-season sale.

(XI) 'Obsolescence' means

a) the decline in the book value of non-current assets as a result of them being depreciated using the straight-line method of depreciation.

b) the decline in the book value of non-current assets as a result of them being depreciated using the reducing balance method of depreciation.

c) the decline in the value of non-current assets as a result of them becoming outdated by technological improvement and invention.

d) None of the above.

(XII) A firm bought a non-current asset for 500,000. The asset has an estimated useful economic life of ten years and an estimated scrap value of 50,000. If the asset is depreciated at the rate of 20% per annum, using the reducing balance method, the depreciation charge, in relation to this asset alone, in the second year of its life will be:

a) 80,000

b) 45,000

c) 72,000

d) 90,000

(XIII) On 31 March the balance brought down on a firm's bank account in its ledger was 3,600, credit. At the same date, outstanding cheques amounted to 1,400 and outstanding lodgements amounted to 2,000. A cheque for 500, received from a debtor, was subsequently dishonoured. The receipt of the cheque had been correctly recorded but no entry has yet been made in the accounting records in respect of it being dishonoured. On the basis of the above information, the balance on the firm's bank statement at 31 March was:

a) 4,200 overdrawn.

b) 3,500 credit.

c) 4,700 overdrawn.

d) 3,700 credit.

(XIV) In the Statement of Financial Position (balance sheet) of a sole trader, prepayments should be shown as

a) part of current assets.

b) a deduction from current liabilities.

c) a deduction from capital.

d) part of accounts payable.

(XV) If a 500 salaries accrual was inadvertently treated as a prepayment, net profit would be

a) overstated by 500.

b) overstated by 1,000.

c) understated by 1,000.

d) understated by 500.

(XVI) If an accumulated provision for depreciation account is in use then the entries for the year's depreciation would be:

a) Credit Provision for Depreciation Account, debit Profit and Loss Account

b) Credit Asset Account, debit Provision for Depreciation Account

c) Debit Asset Account, credit Profit and Loss Account

d) Credit Profit and Loss Account, debit Provision for Depreciation Account

(XVII) Cash, accounts receivables, inventories, deposits, prepaid expenses

a) are current assets on the balance sheet

b) are liabilities on the balance sheet

c) are classifications of stockholders' equity

d) None of the above

(XVIII) Given opening capital of 16,500, closing capital as 11,350 and drawings were 3,300, then:

a) Loss for the year was 8,450

b) Loss for the year was 1,850

c) Profit for the year was 1,850

d) Profit for the year was 8,450

(XIX) Which one of the following would be classified as a current asset for a furniture retailer?

a) Property

b) Furniture held for resale

c) Bank overdraft

d) Shop fittings

(XX) The debit side of a company's trial balance totals $800 more than the credit side. Which one of the following errors would fully account for the difference?

a) $400 paid for plant maintenance has been correctly entered in the cash book and credited to the plant asset account.

b) Discount received $400 has been debited to discount allowed account

c) A receipt of $800 for commission receivable has been omitted from the records

d) The petty cash balance of $800 has been omitted from the trial balance.