Ch.3 The Statement Of Profit Or Loss Verified Test Bank 2e - Question Bank | Intro to Accounting 2e P. Scott by Peter Scott. DOCX document preview.
Chapter 3: The Statement of Profit or Loss
Test Bank
Type: multiple choice question
Title: Chapter 03 Question 01
1) Fred runs a general store and has the following statement of profit or loss balances in his books at 31 December 2021: opening inventory: £25,000, wages: £45,000, sales: £275,000, purchases: £130,000, heat and light: £15,000, closing inventory: £28,700. What is Fred’s gross profit for the year ended 31 December 2021?
a. £88,700
Heading reference: Statement of profit or loss by nature
b. £103,700
Heading reference: Statement of profit or loss by nature
c. £141,300
Heading reference: Statement of profit or loss by nature
d. £148,700
Heading reference: Statement of profit or loss by nature
Type: multiple choice question
Title: Chapter 03 Question 02
2) If sales are £200,000, opening inventory is £20,000, purchases for the year are £100,000 and gross profit is £110,000, what is the figure for closing inventory?
a. £10,000
Heading reference: Statement of profit or loss by nature
b. £30,000
Heading reference: Statement of profit or loss by nature
c. £80,000
Heading reference: Statement of profit or loss by nature
d. £90,000
Heading reference: Statement of profit or loss by nature
Type: multiple choice question
Title: Chapter 03 Question 03
3) On 31 August 2021, the following balances for the financial year have been extracted from Jatinder’s books: Sales: £357,000, Purchases: £225,000, Value of goods returned by customers: £3,500, Closing inventory: £32,000, Value of goods returned to suppliers: £4,300, Opening inventory: £28,200. What is Jatinder’s gross profit for the year ended 31 August 2021?
a. £132,300
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
b. £135,800
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
c. £136,600
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
d. £140,100
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 04
4) At 31 March 2022, the following balances for the financial year have been extracted from Rupinder’s books: Sales: £435,000, Purchases: £278,000, Quantity discounts received: £1,800, Closing inventory: £41,500, Discounts allowed not taken up by customers: £2,900, Opening inventory: £37,800. What is Rupinder’s gross profit for the year ended 31 March 2022?
a. £160,700
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
b. £162,500
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
c. £163,600
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
d. £165,400
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 05
5) Which one of the following would not form part of the gross profit calculation?
a. Sales
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
b. Purchases
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
c. Irrecoverable debts
Heading reference: Further adjustments to the statement of profit or loss
d. Sales returns
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple response question
Title: Chapter 03 Question 06
6) Which of the following are taken into account when calculating gross profit? Please select all that apply.
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
a. The allowance for receivables
b. Purchase returns
c. Closing inventory
d. Discounts allowed not taken up
Type: multiple choice question
Title: Chapter 03 Question 07
7) Hassan’s purchases for the financial year ended 30 September 2021 were £375,000. At 30 September 2020, his closing inventory was £35,200 and his inventory at 30 September 2021 has been valued at £37,800. Purchase returns during the year amounted to £5,730 and discounts received from suppliers totalled up to £1,875. What is Hassan’s cost of sales for the year ended 30 September 2021?
a. £364,795
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
b. £366,670
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
c. £368,545
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
d. £372,400
Heading reference: Statement of profit or loss by nature, Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 08
8) In the year ended 31 August 2021, Marina made total sales of £552,000. Her sales returns were £22,500. She allowed her customers discounts of £2,500, 40% of which were not taken up. Her cost of sales for the year was £386,000. What was Marina’s gross profit for the year ended 31 August 2021?
a. £142,500
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
b. £143,500
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
c. £144,500
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
d. £146,000
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 09
9) Gross profit = (sales – sales returns + discounts allowed not taken up) – (opening inventory + purchases – purchases returns – discounts received – closing inventory) a. True
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
b. False
Heading reference:
Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 10
10) Ismail’s sales for the financial year totalled up to £500,000. Opening inventory at the start of the financial year was valued at £60,000 while closing inventory had a value of £75,000. Purchase returns during the financial year amounted to a total of £5,000 and gross profit for the financial year was £220,000. What were Ismail’s purchases during the financial year?
a. £260,000
Heading reference:
Cost of sales
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
b. £270,000
Heading reference:
Cost of sales
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
c. £290,000
Feedback You have incorrectly rearranged the gross profit calculation to determine the purchases. As sales – (opening inventory + purchases – closing inventory – purchase returns) = gross profit, then purchases = sales – (gross profit + (opening inventory – closing inventory – purchase returns)). Purchases are thus £500,000 (sales) – (£220,000 (gross profit) + (£60,000 (opening inventory) – £75,000 (closing inventory) – £5,000 (purchase returns)) = £300,000. Your calculation is as follows: £500,000 (sales) –£220,000 (gross profit) – £60,000 (opening inventory) + £75,000 (closing inventory) – £5,000 (purchase returns) = £290,000. Using £290,000 as purchases produces a gross profit figure of £230,000 which ≠ the £220,000 gross profit given in the question.
Heading reference:
Cost of sales
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
d. £300,000
Heading reference:
Cost of sales
Statement of profit or loss by nature
Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 11
11) Joseph has been trading for many years as an accountant. At 1 May 2021, his clients owed him £125,000 in unpaid fees. During the year to 30 April 2022, Joseph’s clients paid him £800,000 in cash and at the end of his financial year on 30 April 2022 unpaid fees amounted to £150,000. What figure for revenue should Joseph recognize in his statement of profit or loss for the year ended 30 April 2022?
a. £775,000
Heading reference: Determining the amount of income or expense
b. £800,000
Heading reference: Determining the amount of income or expense
c. £825,000
Heading reference: Determining the amount of income or expense
d. £950,000
Heading reference: Determining the amount of income or expense
Type: multiple choice question
Title: Chapter 03 Question 12
12) Marios sells goods online. At 1 January 2021 his customers owed him £12,000. During the year ended 31 December 2021, Marios received £150,000 in cash from customers but paid out £1,000 in refunds for goods returned. At 31 December 2021, Marios is owed £10,000 by his customers. What revenue figure should Marios recognize in his statement of profit or loss for the year ended 31 December 2021?
a. £147,000
Heading reference: Determining the amount of income or expense, Sales returns
b. £148,000
Heading reference: Determining the amount of income or expense, Sales returns
c. £149,000
Heading reference: Determining the amount of income or expense, Sales returns
d. £150,000
Heading reference: Determining the amount of income or expense, Sales returns
Type: multiple choice question
Title: Chapter 03 Question 13
13) Revenue in the statement of profit or loss is calculated as:
a. Sales – sales returns – discounts allowed not taken up
Heading reference: Income in the statement of profit or loss, Sales returns
b. Sales – sales returns + discounts allowed not taken up
Heading reference: Income in the statement of profit or loss, Sales returns
c. Sales – sales returns
Heading reference: Income in the statement of profit or loss, Sales returns
d. Sales + sales returns
Heading reference: Income in the statement of profit or loss, Sales returns
Type: multiple choice question
Title: Chapter 03 Question 14
14) Fatima had trade receivables of £152,000 at 1 December 2021. During the year to 30 November 2022 she received cash of £795,000 and made cash refunds to her customers of £12,000. At 30 November 2022, her trade receivables were £146,000. What revenue figure should Fatima recognize in her statement of profit or loss for the year ended 30 November 2022?
a. £777,000
Heading reference: Determining the amount of income or expense, Sales returns
b. £789,000
Heading reference: Determining the amount of income or expense, Sales returns
c. £795,000
Heading reference: Determining the amount of income or expense, Sales returns
d. £801,000
Heading reference: Determining the amount of income or expense, Sales returns
Type: multiple choice question
Title: Chapter 03 Question 15
15) Martin pays his business rates at quarterly intervals during the year. He paid £2,100 on 1 April 2021, £2,400 on 1 July 2021, £2,800 on 1 October 2021, £3,000 on 1 January 2022 and £3,300 on 1 April 2022. How much business rates expense should Martin recognize in his statement of profit or loss for the financial year ended 31 May 2022?
a. £10,300
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
b. £11,100
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
c. £11,500
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
d. £13,600
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Type: multiple choice question
Title: Chapter 03 Question 16
16) Michelle pays her business electricity bills in arrears. On 7 September 2021 she paid the bill relating to June, July and August 2021. This bill amounted to £990. She then paid £1,100 for the three months to 30 November 2021 on 7 December 2021, £1,350 for the three months to 28 February 2022 on 8 March 2022 and £1,000 for the three months to 31 May 2022 on 8 June 2022. The electricity bill for the three months to 31 August 2022 came to £1,020 and was paid on 10 September 2022. Michelle’s trading year runs from 1 July to 30 June each year. What was Michelle’s electricity expense charge in her statement of profit or loss for the financial year ending 30 June 2022?
a. £5,460
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
b. £4,470
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
c. £4,450
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
d. £4,440
Heading reference:
Determining the amount of income or expense
The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Type: multiple choice question
Title: Chapter 03 Question 17
17) Paolo pays his annual rates bill by 10 monthly instalments starting on 1 April each year. He pays £450 a month from 1 April 2020 to 1 January 2021. From 1 April 2021 he pays £500 a month for the ten payments ending on 1 January 2022. What amount should Paolo charge in his statement of profit or loss for his rates expense for the financial year ended 30 September 2021?
a. £4,500
Heading reference: The accruals basis of accounting
b. £4,750
Heading reference: The accruals basis of accounting
c. £5,000
Heading reference: The accruals basis of accounting
d. £5,700
Heading reference: The accruals basis of accounting
Type: multiple choice question
Title: Chapter 03 Question 18
18) Mary rents a workshop from which she conducts her manufacturing business. At 1 September 2020 Mary had paid rent in advance of £2,200. During the next 12 months, Mary paid out £12,300 in rent. At 31 August 2021, Mary owed £1,500 in rent for the financial year to 31 August 2021. Mary now needs to determine the annual rent expense for the year to 31 August 2021. Which one of the following calculations will enable Mary to determine the correct annual rent expense that she should record in her statement of profit or loss for the financial year?
a. Prepayment at 1 September 2020 + payments made during the year – accrual at 31 August 2021.
Heading reference: The accruals basis of accounting
b. Prepayment at 1 September 2020 – payments made during the year + accrual at 31 August 2021.
Heading reference: The accruals basis of accounting
c. Prepayment at 1 September 2020 – payments made during the year – accrual at 31 August 2021.
Heading reference: The accruals basis of accounting
d. Prepayment at 1 September 2020 + payments made during the year + accrual at 31 August 2021.
Heading reference: The accruals basis of accounting
Type: multiple choice question
Title: Chapter 03 Question 19
19) Pankaj Limited has an accrual for motor expenses at 1 October 2021. Payments of motor expenses are made regularly during the year. At 30 September 2022, Pankaj Limited has a prepayment of motor expenses. Which one of the following calculations will enable Pankaj Limited to determine the correct motor expenses charge in the statement of profit or loss for the financial year to 30 September 2022?
a. Payments made during the year + accrual at 1 October 2021 + prepayment at 30 September 2022.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
b. Payments made during the year + accrual at 1 October 2021 – prepayment at 30 September 2022.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
c. Payments made during the year – accrual at 1 October 2021 – prepayment at 30 September 2022.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
d. Payments made during the year – accrual at 1 October 2021 + prepayment at 30 September 2022.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Type: multiple choice question
Title: Chapter 03 Question 20
20) Esther Limited has an accrual for telephone expenses at 1 May 2021. Payments of telephone expenses are made regularly during the year. At 30 April 2022, Esther Limited has an accrual for telephone expenses. Which one of the following calculations will enable Esther Limited to determine the correct telephone expenses charge in the statement of profit or loss for the financial year to 30 April 2022?
a. Payments made during the year + accrual at 30 April 2022 – accrual at 1 May 2021.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
b. Payments made during the year – accrual at 30 April 2022 + accrual at 1 May 2021.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
c. Payments made during the year + accrual at 30 April 2022 + accrual at 1 May 2021.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
d. Payments made during the year – accrual at 30 April 2022 – accrual at 1 May 2021.
Heading reference: The accruals basis of accounting
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Type: true-false
Title: Chapter 03 Question 21
21) Known irrecoverable debts are deducted from trade receivables after the allowance for receivables has been calculated.
a. True
Heading reference: Further adjustments to the statement of profit or loss
b. False
Heading reference: Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 22
22) Irrecoverable debts and the movement in the allowance for receivables are charged as an expense in the statement of profit or loss to distribution and selling costs.
a. True
Heading reference: Further adjustments to the statement of profit or loss
b. False
Heading reference: Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 23
23) The allowance for receivables is calculated as a percentage of trade receivables after deducting known irrecoverable debts.
a. True
Heading reference: Further adjustments to the statement of profit or loss
b. False
Heading reference: Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 24
24) Only the annual increase or decrease in the allowance for receivables is deducted from trade receivables in the statement of financial position, while the entire allowance for receivables is charged to administration expenses in the statement of profit or loss.
a. True
Heading reference: Further adjustments to the statement of profit or loss
b. False
Heading reference: Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 25
25) The annual expense for irrecoverable debts and the increase or decrease in the allowance for receivables for the financial year is charged (or credited) to revenue (sales).
a. True
Heading reference: Further adjustments to the statement of profit or loss
b. False
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 26
26) Farzana Limited has trade receivables at 30 September 2021 of £275,000. Of these trade receivables, there is a known irrecoverable debt of £15,000. The directors also want to create an allowance for receivables of 5% of the remaining trade receivables. At 30 September 2020, the allowance for receivables was £17,000. What is the total charge to the statement of profit or loss for irrecoverable debts and the allowance for receivables for the year ended 30 September 2021?
a. £11,000
Heading reference: Further adjustments to the statement of profit or loss
b. £13,000
Heading reference: Further adjustments to the statement of profit or loss
c. £13,750
Heading reference: Further adjustments to the statement of profit or loss
d. £15,000
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 27
27) Anand has total trade receivables at 30 April 2021 of £425,000. Of this total, £15,000 consists of irrecoverable debts. At the current year-end Anand wishes to create an allowance for receivables of 7%. At 30 April 2020, the allowance for receivables was £25,000. What is the increase in the allowance for receivables which will be charged to the statement of profit or loss for the year ended 30 April 2021?
a. £3,700
Heading reference: Further adjustments to the statement of profit or loss
b. £15,000
Heading reference: Further adjustments to the statement of profit or loss
c. £18,700
Heading reference: Further adjustments to the statement of profit or loss
d. £28,700
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 28
28) At 31 December 2021, Puggles Limited has total trade receivables of £795,000. There is a known irrecoverable debt included in this figure of £25,000. The directors of Puggles Limited wish to create an allowance for receivables of 4% at the current year end. The allowance for receivables at 31 December 2020 was £27,000. How much will Puggles Limited charge to the statement of profit or loss as an expense in respect of both irrecoverable debts and the allowance for receivables in the financial statements for the year ended 31 December 2021?
a. £21,200
Heading reference: Further adjustments to the statement of profit or loss
b. £28,800
Heading reference: Further adjustments to the statement of profit or loss
c. £29,800
Heading reference: Further adjustments to the statement of profit or loss
d. £55,800
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 29
29) At 31 October 2021, Froggles Limited has total trade receivables of £852,000. There is a known irrecoverable debt included in this figure of £12,000. The directors of Froggles Limited wish to create an allowance for receivables of 6% at the current year end. The allowance for receivables at 31 October 2020 was £65,600. What is the reduction in the allowance for receivables that will be credited to the statement of profit or loss for the year ended 31 October 2021?
a. £3,200
Heading reference: Further adjustments to the statement of profit or loss
b. £12,000
Heading reference: Further adjustments to the statement of profit or loss
c. £14,480
Heading reference: Further adjustments to the statement of profit or loss
d. £15,200
Feedback You have correctly deducted the known irrecoverable debt from the total trade receivables to give trade receivables to be used in the allowance for receivables calculation of £840,000 (£852,000 total trade receivables – £12,000 known irrecoverable debt). 6% x £840,000 = £50,400. Deducting the allowance for receivables at 31 October 2020 of £65,600 gives a net decrease in the allowance of £15,200 (£65,600 – £50,400). This is therefore the decrease in the allowance for receivables that will be credited to administration expenses in the statement of profit or loss for the year ended 31 October 2021.
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 30
30) At 31 August 2021, Moggles Limited has total trade receivables of £650,000. There is a known irrecoverable debt included in this figure of £25,000. The directors of Moggles Limited wish to create an allowance for receivables at 31 August 2021 of 3% of year end trade receivables. The allowance for receivables at 31 August 2020 was £22,000. What is the total charge to the statement of profit or loss in respect of both irrecoverable debts and the allowance for receivables for the year ended 31 August 2021?
a. £6,250
Heading reference: Further adjustments to the statement of profit or loss
b. £18,750
Heading reference: Further adjustments to the statement of profit or loss
c. £21,750
Heading reference: Further adjustments to the statement of profit or loss
d. £25,000
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 31
31) At 30 April 2021, Jamie has total trade receivables of £552,000. There is a known irrecoverable debt of £27,000 and Jamie wishes to create an allowance for receivables of 6% of trade receivables at 30 April 2021. The allowance for receivables at 1 May 2020 stood at £27,900. What is the net figure for trade receivables that Jamie will disclose in her statement of financial position at 30 April 2021?
a. £525,000
Heading reference: Further adjustments to the statement of profit or loss
b. £518,880
Heading reference: Further adjustments to the statement of profit or loss
c. £497,100
Heading reference: Further adjustments to the statement of profit or loss
d. £493,500
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 32
32) Bob has trade receivables of £422,000 at 30 September 2021. This trade receivables figure includes a known irrecoverable debt of £18,000. At 30 September 2020, Bob had set up an allowance for receivables of £20,000. At 30 September 2021, Bob wishes to create an allowance for receivables of 4% of year end trade receivables. What is the net figure that Bob will disclose in his statement of financial position for trade receivables at 30 September 2021?
a. £384,000
Heading reference: Further adjustments to the statement of profit or loss
b. £387,840
Heading reference: Further adjustments to the statement of profit or loss
c. £405,120
Heading reference: Further adjustments to the statement of profit or loss
d. £407,840
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 33
33) Moya has trade receivables at 31 July 2021 of £380,000 after deducting a known irrecoverable debt of £9,500 and creating a 5% allowance for receivables. What is the total value of Moya’s trade receivables before she created the 5% allowance for receivables and before she deducted the known irrecoverable debt?
a. £389,500
Heading reference: Further adjustments to the statement of profit or loss
b. £400,000
Heading reference: Further adjustments to the statement of profit or loss
c. £409,500
Heading reference: Further adjustments to the statement of profit or loss
d. £410,000
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 04 Question 34
34) Jane has trade receivables at 31 August 2021 of £715,000. There are known irrecoverable debts at that date amounting to £35,000. Jane had an allowance for receivables of £32,000 at 31 August 2020. Jane wishes to create an allowance for receivables at 31 August 2021 of 5% of year end trade receivables. What is the net figure that Jane will disclose in her statement of financial position for trade receivables at 31 August 2021?
a. £644,250
Heading reference: Further adjustments to the statement of profit or loss
b. £646,000
Heading reference: Further adjustments to the statement of profit or loss
c. £648,000
Heading reference: Further adjustments to the statement of profit or loss
d. £678,000
Heading reference: Further adjustments to the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 35
35) Nikki has trade receivables at 31 December 2021 of £552,000 after deducting a known irrecoverable debt of £23,000 and making an 8% allowance for receivables. What is the total value of Nikki’s trade receivables before she made the 8% allowance for receivables and before she deducted the known irrecoverable debt?
a. £575,000
Heading reference: Further adjustments to the statement of profit or loss
b. £600,000
Heading reference: Further adjustments to the statement of profit or loss
c. £623,000
Heading reference: Further adjustments to the statement of profit or loss
d. £625,000
Heading reference: Further adjustments to the statement of profit or loss
Type: true-false
Title: Chapter 03 Question 36
36) When calculating depreciation on the reducing balance basis, residual value is always deducted from cost when calculating the annual depreciation expense.
a. True
Heading reference: Residual value and the annual depreciation charge
b. False
Heading reference: Residual value and the annual depreciation charge
Type: true-false
Title: Chapter 03 Question 37
37) Straight line depreciation is calculated as (cost – residual value) ÷ the number of years in which an asset will be used in the business.
a. True
Heading reference: Depreciation, Residual value and the annual depreciation charge
b. False
Heading reference: Depreciation, Residual value and the annual depreciation charge
Type: multiple choice question
Title: Chapter 03 Question 38
38) Sarah Limited owns motor vehicles with a cost of £60,000 and an estimated residual value of £10,000. At 30 November 2020, £20,000 of depreciation had been provided on these motor vehicles. Sarah Limited also owns plant and machinery with a cost of £100,000 and an estimated residual value of £5,000. Plant and machinery accumulated depreciation at 30 November 2020 was £35,000. Sarah Limited depreciates motor vehicles at 20% per annum on the straight-line basis while plant and machinery is depreciated on the reducing balance basis at the rate of 25% per annum. What will the total depreciation charge on these assets be for the year ended 30 November 2021?
a. £26,250
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £28,250
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £33,750
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £35,750
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 39
39) Ellie Limited has just set up in business. The directors have acquired the following non-current assets. The cost, estimated residual value and the depreciation rates to be applied to each class of assets are shown in the table below. What is the total depreciation charge that Ellie Limited will recognize in its statement of profit or loss for its first year of operations?
Cost | Residual value | Depreciation Basis | |
£ | £ | ||
Motor vehicles | 120,000 | 30,000 | 25% straight line |
Equipment | 200,000 | 60,000 | 30% reducing balance |
a. £64,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £72,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £82,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £90,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 40
40) Caroline Limited’s depreciation policy is as follows:
Motor vehicles are depreciated at the rate of 25% reducing balance.
Plant and equipment is depreciated at the rate of 20% straight line.
At 30 April 2021, Caroline Limited has the following non-current assets:
Motor vehicles: cost: £150,000, accumulated depreciation: £66,000.
Plant and equipment: cost: £220,000, estimated residual value: £20,000, accumulated depreciation: £80,000.
What will the depreciation charge for the year ended 30 April 2022 be on each of these two classes of non-current assets?
a. Motor vehicles depreciation: £37,500, Plant and equipment depreciation: £44,000.
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. Motor vehicles depreciation: £37,500, Plant and equipment depreciation: £40,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. Motor vehicles depreciation: £21,000, Plant and equipment depreciation: £44,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. Motor vehicles depreciation: £21,000, Plant and equipment depreciation: £40,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 41
41) At 31 December 2021, TC Limited has plant and equipment with a carrying amount of £225,000. Depreciation charged in the year to 31 December 2021 was £75,000 and the depreciation policy of the company is to depreciate plant and equipment at the rate of 20% straight line. The directors estimated that the plant and equipment would have a residual value of £50,000 at the date the assets were acquired. What is the original cost of the plant and equipment?
a. £300,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £350,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £375,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £425,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 42
42) Dibble Limited purchased plant and equipment on 1 December 2018. The directors estimated that the plant and equipment would have a useful life of 5 years and a residual value of £31,000. The plant and equipment has been depreciated on a reducing balance basis at a rate of 40% per annum. During the year ended 30 November 2021, depreciation of £57,600 was charged on this plant and equipment and the asset had a carrying amount on 30 November 2021 of £86,400. What was the original cost of this plant and equipment?
a. £266,667
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £400,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £431,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £900,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 43
43) Shakil buys a new computer system for his business on 1 July 2021 at a cost of £30,000. He decides to depreciate the new computer system at a rate of 30% reducing balance. He estimates that the new computer system will have a residual value of £5,000 at the end of its useful life. What will the carrying amount of the new computer system be at 30 June 2024?
a. £7,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £10,290
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £13,575
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £14,700
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 44
44) Benny buys equipment at a cost of £60,000 to use in his business on 1 September 2019. Benny decides that the asset will have a useful life of 4 years and that it will have a residual value of £6,000. Benny’s policy is to depreciate non-current assets on the straight-line basis, charging depreciation on non-current assets from the month of purchase. What will the equipment’s carrying amount be at 31 December 2021?
a. £25,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £27,375
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £28,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £31,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 45
45) Tom buys machinery costing £66,000 for use within his business on 1 October 2020. Tom’s financial year end is 31 December each year. Tom estimates that the machinery will have a useful life of 5 years and a residual value of £6,000. Tom uses the straight-line basis of depreciation to allocate the cost of non-current assets to his statement of profit or loss and charges depreciation on a monthly basis. How much depreciation will have been charged on this machinery by 31 December 2022?
a. £24,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £27,000
c. £29,700
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £39,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 46
46) Katerina pays £200,000 to acquire plant and equipment for use in her business on 1 April 2020. She decides that the plant and equipment will have a useful life of four years and a residual value of £36,000. Katerina’s policy is to depreciate plant and equipment at 35% reducing balance. What will the carrying amount of the plant and equipment be at 31 March 2022?
a. £60,000
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £84,500
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £85,200
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £105,290
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 47
47) Which of the following statements does not describe the function of depreciation?
a. Depreciation is an application of the accruals basis of accounting, matching the cost of using non-current assets in the business to the accounting periods benefiting from their use.
Heading reference: What depreciation is and what depreciation is not
b. Depreciation is a deduction from the cost of a non-current asset which is charged as an expense each year in the statement of profit or loss.
Heading reference: What depreciation is and what depreciation is not
c. Depreciation represents a loss in value of non-current assets and aims to provide a realistic current market value for non-current assets at each statement of financial position date.
Heading reference: What depreciation is and what depreciation is not
d. Depreciation is an allocation of the cost of non-current assets to the accounting periods benefiting from their use.
Heading reference: What depreciation is and what depreciation is not
Type: multiple response question
Title: Chapter 03 Question 48
48) Which of the following statements about depreciation are true? Please select all that apply.
Heading reference: What depreciation is and what depreciation is not
a. Depreciation is an application of the accruals basis of accounting.
b. Depreciation is a way of saving up for a replacement asset.
c. Depreciation is not a cash flow.
d. Depreciation is a deduction from the cost of a non-current asset that is charged as an expense in the statement of profit or loss each year.
Type: multiple response question
Title: Chapter 03 Question 49
49) Which of the following statements accurately describe what depreciation does not do? Please select all that apply.
Heading reference: What depreciation is and what depreciation is not
a. Depreciation does not represent the allocation of the cost of non-current assets to the accounting periods benefiting from the use of those assets by an organization.
b. Depreciation does not represent a loss in value of a non-current asset.
c. Depreciation is not a way of providing a current value for non-current assets at each statement of financial position date.
d. Depreciation is not a way of saving up for a replacement asset.
Type: true-false
Title: Chapter 03 Question 50
50) Depreciation is applied in such a way as to provide current values for non-current assets in each statement of financial position.
a. True
Heading reference:
What does the statement of financial position show?
What the statement of financial position does not show
What depreciation is and what depreciation is not
b. False
Heading reference:
What does the statement of financial position show?
What the statement of financial position does not show
What depreciation is and what depreciation is not
Type: true-false
Title: Chapter 03 Question 51
51) Depreciation represents allocation not valuation.
a. True
Heading reference: What depreciation is and what depreciation is not
b. False
Heading reference: What depreciation is and what depreciation is not
Type: multiple choice question
Title: Chapter 03 Question 52
52) Siobhan buys a new van on 1 September 2019 for use in her delivery business. The van cost £22,000 and Siobhan estimates that she will be able to sell the van at the end of its useful life for £6,000. The van is to be depreciated over four years on the straight-line basis. On 31 August 2021, Siobhan sells the van for £12,000. What is the profit or loss that she makes on this sale?
a. £2,000 loss
Heading reference: Profits and losses on disposal of non-current assets
b. £2,000 profit
Heading reference: Profits and losses on disposal of non-current assets
c. £1,000 loss
Heading reference: Profits and losses on disposal of non-current assets
d. £1,000 profit
Heading reference: Profits and losses on disposal of non-current assets
Type: multiple choice question
Title: Chapter 03 Question 53
53) Marwan purchased equipment 3 years ago for £60,000. Marwan estimated that the residual value of the equipment would be £15,000 and he has depreciated the asset at the rate of 30% on the reducing balance basis. He has now sold the asset for £22,000. What was the profit or loss on the disposal of this asset?
a. £8,435 loss
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
b. £8,435 profit
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
c. £1,420 loss
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
d. £1,420 profit
Heading reference:
Depreciation
Residual value and the annual depreciation charge
Profits and losses on disposal of non-current assets
Methods of depreciation: straight line and reducing balance
Type: multiple choice question
Title: Chapter 03 Question 54
54) Ellie Limited has the following statement of profit or loss figures for the financial year ended 31 May 2021: Cost of sales: £157,000, Finance expense: £5,000, Finance income: £2,000, Revenue: £252,000, Distribution and selling costs: £30,000, Administration expenses: £25,000. What is Ellie Limited’s operating profit for the year ended 31 May 2021?
a. £37,000
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
b. £40,000
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
c. £65,000
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
d. £95,000
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
Type: multiple choice question
Title: Chapter 03 Question 55
55) In published financial statements, profit before tax =
a. Revenue – cost of sales.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
b. Operating profit + finance income (interest receivable) – finance expense (interest payable).
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
c. Gross profit – distribution and selling costs – administration expenses.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
d. Revenue – cost of sales – distribution and selling costs – administration expenses + finance income (interest receivable) – finance expense (interest payable) – income tax.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
Type: multiple choice question
Title: Chapter 03 Question 56
56) Fadia Limited has the following statement of profit or loss figures for the financial year ended 30 November 2021: Finance expense: £4,000, Finance income: £500, Distribution and selling costs: £45,500, Administration expenses: £58,000, Income tax: £8,000, Profit for the year: £25,000. What is Fadia Limited’s operating profit for the year ended 30 November 2021?
a. £29,500
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
b. £33,000
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
c. £36,500
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
d. £140,000
Heading reference:Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
Type: multiple choice question
Title: Chapter 03 Question 57
57) Which one of the following statements about the statement of profit or loss is not true?
a. Income in the statement of profit or loss represents all the revenue earned during the financial period.
Heading reference: Introduction, Different categories of profit
b. Income – expenditure = the profit or loss for the financial period.
Heading reference: Introduction
c. Expenditure in the statement of profit or loss represents just the cash paid out for expenses during the financial period.
Heading reference: Introduction
d. Expenditure in the statement of profit or loss represents all the expenses incurred during the financial period.
Heading reference: Introduction
Type: multiple response question
Title: Chapter 03 Question 58
58) Which of the following statements are true? Please select all that apply.
Heading reference:
Definitions
Income in the statement of profit or loss
Expenditure in the statement of profit or loss
a. Profits and losses on the sale of non-current assets are included as part of revenue in the statement of profit or loss.
b. Expenses represent decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
c. Finance income and finance expense are excluded from the trading part of the statement of profit or loss.
d. Income represents increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
Type: true-false
Title: Chapter 03 Question 59
59) Revenue in the statement of profit or loss includes all the income of an entity for an accounting period.
a. True
Heading reference: Income in the statement of profit or loss
b. False
Heading reference: Income in the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 60
60) Which one of the following statements is not true?
a. Revenue – cost of sales = gross profit.
Heading reference:Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
b. Cost of sales = the costs incurred directly in the making or buying in of the products sold.
Heading reference: Cost of sales
c. Operating profit = gross profit – distribution and selling costs – administration expenses + finance income.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
d. Profit for the year = all the income for the year – all the expenditure for the year.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account, Different categories of profit
Type: multiple response question
Title: Chapter 03 Question 61
61) Which of the following statements are not true? Please select all that apply.
Heading reference:
Different categories of profit
Determining the amount of income or expense
Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Residual value and the annual depreciation charge
a. Profit before tax = all the income for the year – all the expenditure for the year.
b. Cash received from a trade receivable increases sales and increases cash.
c. A prepayment is an expense paid in advance of the accounting period to which it relates.
d. Cost – residual value = carrying amount.
Type: true-false
Title: Chapter 03 Question 62
62) Accounts produced on a cash received and cash paid basis lack comparability.
a. True
Heading reference: The accruals basis of accounting
b. False
Heading reference: The accruals basis of accounting
Type: true-false
Title: Chapter 03 Question 63
63) If most of the economic benefits represented by a non-current asset will be used up in the early years of the non-current asset’s useful life, then straight line depreciation would be the most suitable method of depreciation to apply to this asset.
a. True
Heading reference: Which depreciation method is most appropriate in practice?
b. False
Heading reference: Which depreciation method is most appropriate in practice?
Type: multiple choice question
Title: Chapter 03 Question 64
64) Which one of the following statements is true?
a. Irrecoverable debts are deducted from sales.
Heading reference: Irrecoverable debts
b. Discounts received are recorded as sales in the statement of profit or loss.
Heading reference: Discounts received (quantity discounts)
c. Closing inventory is valued at selling price.
Heading reference: Closing inventory
d. Purchase returns are deducted from cost of sales.
Heading reference: Purchase returns
Type: multiple choice question
Title: Chapter 03 Question 65
65) Which one of the following statements is not true?
a. There are three sources of income in the statement of profit or loss.
Heading reference: Income in the statement of profit or loss
b. Depreciation is a deduction from the cost of non-current assets charged as an expense in the statement of profit or loss in each accounting period in which the asset is used within the business to generate income and cash.
Heading reference: Depreciation
c. The income statement records large irregular costs as exceptional expenditure.
Heading reference: Terminology: statement of profit or loss/income statement/statement of financial performance/profit and loss account
d. Cost + depreciation = carrying amount.
Heading reference: Depreciation
Type: multiple choice question
Title: Chapter 03 Question 66
66) During the financial year ended 31 July 2021, O R Egon Enterprises, a mining company, sold its head office building for £25m. The head office building had originally been acquired twenty years ago at a cost of £15m. O R Egon Enterprises depreciate buildings on the straight-line basis over 50 years. How much profit on this transaction will O R Egon Enterprises recognise as revenue in its statement of profit or loss for the financial year ended 31 July 2021?
a. £Nil
Heading reference: Income in the statement of profit or loss
b. £10m
Heading reference: Income in the statement of profit or loss
c. £16m
Heading reference: Income in the statement of profit or loss
d. £25m
Heading reference: Income in the statement of profit or loss
Type: multiple choice question
Title: Chapter 03 Question 67
67) The Tiny Tennis Club leases its club house and tennis courts from the local council. At 1 October 2020, the club had paid rent in advance on the club house and tennis courts of £1,500. During the financial year to 30 September 2021, the club paid rent on the club house and tennis courts of £15,400. At 30 September 2021, the club owed rent on the club house and tennis courts of £3,200. What is the charge for rent of the club house and tennis courts that the tennis club will present in its statement of profit or loss for the financial year ended 30 September 2021?
a. £13,700
Heading reference: Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
b. £15,400
Heading reference: Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
c. £17,100
Heading reference: Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
d. £20,100
Heading reference: Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position
Type: multiple choice question
Title: Chapter 03 Question 68
68) Recognizing closing inventory as a deduction from cost of sales and as an asset in the statement of financial position is an application of which accounting principle?
a. Accruals
Heading reference: The accruals basis of accounting, Closing inventory
b. Business entity
Heading reference: The accruals basis of accounting, Drawings and the business entity convention
c. Prudence
Heading reference: The accruals basis of accounting, The allowance for receivables
d. Realisation
Heading reference: The accruals basis of accounting, Closing inventory
Type: multiple choice question
Title: Chapter 03 Question 69
69) A sports club buys maintenance machinery for £500,000. The club’s directors estimate that the maintenance machinery will have a four year useful life. At the end of the four years, the directors expect the club will be able to sell the maintenance machinery for £100,000. Depreciation will be charged on the maintenance machinery over its four year useful life. If the sports club sells the maintenance machinery for £160,000 after 3½ years, what will the carrying amount of this maintenance machinery be at this time?
a. £10,000
Heading reference: Depreciation, Residual value and the annual depreciation charge
b. £62,500
Heading reference: Depreciation, Residual value and the annual depreciation charge
c. £150,000
Heading reference: Depreciation, Residual value and the annual depreciation charge
d. £160,000
Heading reference: Depreciation, Residual value and the annual depreciation charge
Type: multiple choice question
Title: Chapter 03 Question 70
70) Charging depreciation on non-current assets will:
a. Increase the carrying amount of non-current assets, decrease the depreciation expense.
Heading reference: Depreciation
b. Decrease the carrying amount of non-current assets, increase the depreciation expense.
Heading reference: Depreciation
c. Increase the carrying amount of non-current assets, increase the depreciation expense
Heading reference: Depreciation
d. Decrease the carrying amount of non-current assets, decrease the depreciation expense
Heading reference: Depreciation