MBA Lec 4

The statement of profit or loss

• reports the assets, liabilities and equity at a specific point in time

• summarises the change in retained earnings over a specific period of time

• presents the income and expenses of an entity for a specific period of time

• reports the changes in assets, liabilities and equity over a period of time

Preparing financial statements on the basis of recognising transactions when they occur is referred to as

• accrual accounting

• management accounting

• cash accounting

• financial accounting

Cars Ltd serviced a motor vehicle on 30 April and issued the invoice to the owner when the motor vehicle was picked up at the end of the day. The owner sends a cheque to Cars Ltd on 2 May which is received and banked by Cars Ltd on 6 May. On what date will Cars Ltd recognise income?

• 2nd May

• 6th May

• 30th April

• 31st May

Machinery is purchased for $140 000. It is estimated that it has a useful life of 5 years and a residual value of $20 000. Using the straight-line method, calculate the amount of annual depreciation to be charged

• $12000

• $24000

• $28000

• $14000

An owner contributes $88 000 to expand the business. What effect would this transaction have on the business?

• Increase income

• Increase expense

• Increase capital

• Decrease income

Of the following transactions, which should be recorded as income?

• Harry’s Hats sold inventory on credit for $3000

• Chandler & Co Plumbing’s owner contributes $10 000 of personal funds to the business

• M. Witham borrowed $80 000 from the bank

• T. O’Toole pays $5500 for goods sold to her on credit last month

Which of the following would not be classified as an administrative expense?

• Salaries and wages of sales staff

• Stationery

• Depreciation of office equipment

• Rent of office

If sales revenue is $600 000 and cost of sales is $450 000, what is the gross profit margin?

• 67%

• 75%

• 25%

• 33%

Office supplies are purchased in bulk and recorded as an asset. They are used by staff on a daily basis. An expense recognising the use of the office supplies will normally be recorded:

• when the supplies are purchased

• at the end of the accounting period when an end-of-period adjustment is prepared for supplies used

• on a daily basis when supplies are taken from storage

• when supplies are paid for

Under the current accounting standards, which of the following items is not included in the measurement of profit in the statement of profit or loss?

• Loss on the disposal of non-current assets

• Gain on asset revaluation

• Cost of sales

• Dividends received