FF015 Quiz 1

Which of the following is the correct definition of net realisable value, in accordance with IAS 2 inventories?

• Selling price

• Selling price less estimated cost to completion

• Selling price less selling costs

• Selling price less estimated cost to completion and selling costs

Which of the following statements about a trial balance is/are correct?

(i) If the total of the debit balances equals the total of the credit balances, no errors have been made

in posting to the general ledger.

(ii) The trial balance always records non-current assets at market value.

• (i) only

• (ii) only

• Both (i) and (ii)

• Neither (i) nor (ii)

Leandra recently started trading as an on-line designer handbag store. Her understanding is that inventory should always be valued at cost. At the year-end, she valued her inventory of handbags at $15,700, being the cost price of the bags she had left in stock. However, this included handbags costing $6,350 which were manufactured by a designer who has fallen from favour in the fashion world. Leandra subsequently decided to reduce the selling price of these to 10% of their cost price.

What was the correct value of the inventory at the year-end?

• $9,350

• $9,985

• $15,065

• $15,700

Prisha has prepared her year-end accounts but is unsure what to do in respect of a customer who came into her shop recently and slipped on the floor. The customer is threatening to sue Prisha for $5,000 as a result of the injuries sustained from the fall. Prisha has offered to pay $250, although her lawyer thinks it is very unlikely that the claim will succeed.

What amount should Prisha include as a provision in her accounts?

• $Nil

• $250

• $2,500

• $5,000

How should carriage costs be treated in the statement of profit or loss when the purchaser pays?

• As purchases costs

• As selling and distribution costs

• As sundry income

• As discounts received

According to IAS 2 Inventories inventory must be valued at the lower of cost and net realisable value.

Which of the following can be included in cost?

(i) Cost of purchase

(ii) Cost of selling

(iii) Cost of conversion

(iv) Cost of storage

• (i) and (ii)

• (i) and (iii)

• (ii) and (iv)

• (ii) and (iii)

Morph's art and craft business has suffered some bad publicity as a result of a customer claiming to be suffering from skin rashes as a result of using a new brand of paint sold in Morph's shop. The customer wrote to Morph in November 20X3, threatening to take him to court and claiming damages of $5,000. Morph's lawyer has advised him that if the case goes to court, he is likely to have to pay the customer $3,000.

What amount should Morph include as a provision in his accounts for the year ended 31 December 20X3?

• $Nil

• $5,000

• $3,000

• $8,000

Archibald, a market trader, employs his wife in the business at a monthly salary of $450. She has not received the salary since October 20X1. The business accounts are prepared for the year ended 31 December 20X2.

How should the amount owing to her should be included in Archibald's accounts?

• A credit in the statement of profit or loss; receivable in the statement of financial position

• A debit in the statement of profit or loss; payable in the statement of financial position

• A credit in the statement of profit or loss; payable in the statement of financial position

• A debit in the statement of profit or loss; receivable in the statement of financial position

Nutan has prepared her year-end accounts for the year ended 31 December 20X1 but has forgotten to make adjustments for the rental charge of the photocopier and telephone charges. She pays the rental charge on the photocopier monthly in advance, paying $150 each month. The telephone bill for the quarter ended 31 January 20X2 is $270.

What adjustments are required to correct these?

• Prepayment of $150; accrual of $180

• Prepayment of $150; accrual of $90

• Accrual of $150; prepayment of $180

• Accrual of $150; prepayment of $90

George has built his own garage for his car repair business.

Which of the following costs can he capitalise in respect of the garage?

(i) Bricks and cement

(ii) Costs of employing Arthur to help with the building work

(iii) Insurance costs for the garage

(iv) Repair costs for the garage door

• (i) and (ii) only

• (i), (ii) and (iii)

• (ii), (iii) and (iv)

• (i) and (iii) only