Financial Accounting (Test with Answers)

In-class test Version 1 1. The concept that requires transactions to be recorded in the time period in which they occur, regardless of when the actual cash flows for the transaction are received. A The consistency concept B The accruals concept C The business entity concept D The prudence concept (5 marks) 2. Which concept states that an accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled? A The matching concept B The materiality concept C The accruals concept D The money measurement concept (5 marks) 3. What is NOT true about the role of the IFRS Interpretations Committee? A to interpret the application of International Financial Reporting Standards (IFRSs) B to control the accountancy profession C to provide timely guidance on financial reporting issues not specifically addressed in IFRSs, within the context of the IASB’s Conceptual Framework D to ensure consistent accounting practices throughout the world (5 marks) 4. Which groups of people are most likely to be interested in the financial statements of a sole trader? 1 Shareholders of the company 2 The business's bank manager 3 The tax authorities 4 Financial analysts A B C D 1 and 2 only 2 and 3 only 2, 3 and 4 only 1, 2 and 3 only (5 marks) 5. In which book of prime entry should company record credit notes in respect of goods which have been sent back by customers? A The sales returns day book B The sales day book C The purchase returns day book D The purchase day book (5 marks) In-class test 6. A company's trade receivables account at 31 December 2020 is as follows: TRADE RECEIVABLES ACCOUNT $ $ Balance b/d 25,000 Cash at bank 45,200 Sales 28,500 Balance c/d 8,300 53,500 53,500 What was the balance for trade receivables in the trial balance at 1 January 2021? A $53,500 DR B $53,500 CR C $8,300 DR D $8,300 CR (6 marks) 7. A company sells $550 worth of goods to a customer; the customer pays $350 in cash immediately and will pay the remaining $200 in 15 days' time. What is the double entry to record the purchase in the customer's accounting records? A Debit payables $200, debit cash $200, credit purchases $550 B Debit purchases $550, credit payables $200, credit cash $350 C Debit cash $550, credit payables $200, credit purchases $350 D Debit purchases $550, credit cash $550 (6 marks) 8. At 30 September 2020 Aziz's trial balance included the following balances: $ Equipment at cost 100,235 Accumulated depreciation 21,465 Rent prepayment 1,500 Trade receivables 28.300 Trade payables 15,800 Tax payable 12,350 Cash at bank 48,500 What is the value of Aziz's current assets at 30 September 2020? A $76,800 B $78,300 C $78,770 D $42,150 (6 marks) In-class test 9. Emily Co has the following transactions: 1 Payment of $1,000 to Blackberry Co for a cash purchase 2 Payment of $520 to Sharp Co in respect of an invoice for goods purchased last month What are the correct ledger entries to record these transactions? A Dr Cash $1,520 Cr Purchases $1,520 B Dr Purchases $1,520 Cr Cash $1,520 C Dr Purchases $1,000 Dr Trade Payables $520 Cr Cash $1,520 D Dr Cash $1,520 Cr Trade Payables $520 Cr Purchases $1,000 (7 marks) 10. A business values its inventory using the first in, first out (FIFO) method. At 1 January 2020 the company had 800 refrigerators in inventory, valued at $520 each. During the year ended 31 December 2020 the following transactions took place: 3 January Purchased 100 refrigerators at $525 each 15 January Sold 150 refrigerators for $93,000 1 March Purchased 700 refrigerators at $530 each 25 July Sold 600 refrigerators for $372,000 18 November Sold 100 refrigerators for $63,500 What is the value of the company's closing inventory of refrigerators at 31 December 2020? A $390,000 B $397,500 C $397,250 D None of these figures (10 marks=4 marks for correct answer; 6 marks for calculations) Answer: 800+100-150+700-600-100=750 units (3 marks) 700*$530+50*$525=$397,250 (3 marks) 11. The information below relates to inventory item. March 1 600 units held in opening inventory at a cost of $15 per unit 22 200 units purchased at a cost of $20 per unit 29 300 units sold at a selling price of $35 per unit Under AVCO, what is the value of inventory held for item at the end of March 31? A $10,000 B $7,500 C $8,125 D $8,750 (10 marks=4 marks for correct answer; 6 marks for calculations) Answer: Average cost per unit= (600*$15+200*$20)/ (600+200)=$16,25 (2 marks) 600+200-300=500units. (2 marks) Closing inventory ($)= 500*$16.25=$8,125(2 marks) In-class test 12. A long-term asset (cost $325,000, depreciation $250,000) is given in part exchange for a new asset costing $540,000. The agreed trade-in value was $83,000. Which of the following will be included in the statement of profit or loss? A B C D A profit on disposal $8,000 A loss on disposal $8,000 A loss on purchase of a new asset $215,000 A profit on disposal $ 242,000 (10 marks=4 marks for correct answer; 6 marks for calculations) Answer: Net book value: $325 000-$250 000=$75 000 (3 marks) Profit=83,000-75,000=$8,000 (3 marks) 13. Dorothy Co acquired equipment on credit for $92,000 on 31 December 2019.. The equipment had a residual value of $11,000. Dorothy Co has a policy of depreciating equipment using the reducing balance method at 15% per annum. What are the correct ledger entries to record the purchase of the equipment and what is the depreciation charge for 2020 (in Profit and Loss Statement) for the equipment in the year ended 31 December 2020? A B C D Dr Equipment 92,000, Cr Accounts payable 92,000, depr.charge:12,150 Dr Equipment 92,000, Cr Accounts receivable 92,000, depr.charge:13,800 Dr Accounts payable 92,000, Cr Equipment 92,000, depr.charge:9,000 Dr Equipment 92,000, Cr Accounts payable 92,000, depr.charge:13,800 (10 marks=5 marks for correct answer, 5 marks for calculations) Answer: Depreciation charge= (92,000-11,000)*15%=12,150 (5 marks) 14. Which of the following is NOT true about “Wave” accounting system? A “Sales” is used for sales on credit by invoicing B “Purchases” is used for purchases on credit when billed C “Add income” is used for sales on credit D “Add expense” is used for purchases on cash (5 marks) 15. In which section of the Chart of accounts in “Wave” accounting system an accountant should create a Trade payables account? A Assets B Liabilities C Revenues D Expenses (5 marks)