Financial Accounting

Which of the following items appear on the same side of the trial balance?

• Capital and Sales

• Purchases and Discounts received

• Motor expenses and Loan account

• Accrued income and Accumulated depreciation

Andy has started a business and transferred his computer, worth $1,500 into the business.

What are the accounting entries to record this?

• Dr Capital Cr Computer equipment

• Dr Computer equipment Cr Capital

• Dr Computer equipment Cr Drawings

• Dr Drawings Cr Computer equipment

The closing inventory of Epsilon amounted to $284,000 at 30 September 20X4, the statement of financial position date. This total includes two inventory lines about which the inventory taker is uncertain.

(1) 500 items which had cost $15 each and which were included at $7,500. These items were found to have been defective at the statement of financial position date. Remedial work after the statement of financial position date cost $1,800 and they were then sold for $20 each. Selling expenses were $400.

(2) 100 items which had cost $10 each. After the statement of financial position date they were sold for $8 each, with selling expenses of $150.

• $283,650

• $283,800

• $292,150

• $283,950

According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing entity?

(1) Carriage inwards

(2) Carriage outwards

(3) Depreciation of factory plant

(4) General administrative overheads

• All four items

• (1), (2) and (4) only

• (2) and (3) only

• (1) and (3) only

• $4,500

• $3,950

• $4,200

• $2,700

What is the main purpose of financial accounting?

• To record all transactions in the books of account

• To provide management with detailed analyses of costs

• To enable preparation of financial statements that provides information about an entity’s financial performance and position

• To calculate profit or loss for an accounting period

Which of the following statements best defines a liability?

• A liability is an obligation arising from a past transaction or event.

• A liability is a legally binding amount owed to a third party.

• A liability is an obligation arising from a past transaction or event which is expected to be settled by an outflow of economic benefits.

• A liability is anything which results in an outflow of economic benefits from an entity

Which of the following statements best explains the principle of faithful representation in relation to the preparation of the annual financial statements?

• Transactions are presented any way that is considered appropriate.

• Transactions are presented in such a way as to maximise profit for the year.

• Transactions are presented in such a way to maximise asset values in the statement of financial position.

• Transactions are presented to reflect their commercial substance of a transaction rather than their legal form.

Closing inventory may be valued using first‐in, first‐out (FIFO) or average cost (AVCO). Which of the following statements is true assuming that prices have fallen throughout the year?

• Closing inventory and profit are higher using FIFO rather than AVCO

• Closing inventory and profit are lower using FIFO rather than AVCO

• Closing inventory is higher and profit lower using FIFO rather than AVCO

• Closing inventory is lower and profit higher using FIFO rather than AVCO

What would be the effect on an entity’s profit for the year of discovering that inventory with cost of $1,250 and a net realisable value of $1,000 had been omitted from the original inventory valuation?

• An increase of $1,250

• An increase of $1,000

• A decrease of $250

• No effect at all