Mix 1 (FFA)

‘Which of the following statements are true?

1. Accounting can be described as the recording and summarising of transactions.

2. Financial accounting describes the production of a statement of financial position and

statement of profit or loss for internal use.

• 1 only

• 2 only

• Both 1 and 2

• Neither 1 nor 2

Which of the following statements does NOT explain the distinction between financial statements and management accounts?

• Financial statements are primarily for external users and management accounts are primarily for internal users.

• Financial statements are normally produced annually and management accounts are normally produced monthly.

• Financial statements are more accurate than management accounts.

• Financial statements are audited by an external auditor and management accounts do not normally have an external audit.

Which of the following aspects of financial and non-financial performance and position based upon information in the annual financial statements is likely to be of most relevance or interest to a potential investor?

• The carrying amount of property, plant and equipment in the statement of financial position

• Solvency

• Whether the company has developed new products to sell

• Current and future profitability

Which of the following statements best explains the historical cost principle?

• It is represented by the cost of an asset when it was purchased

• It is represented by the cost of replacing an asset

• It is represented by the current market value of an asset

• It is represented by net realisable value of an asset

An item of inventory was purchased for $500. It is expected to be sold for $1,200 although

$250 will need to be spent on it in order to achieve the sale. To replace the same item of inventory would cost $650.

At what value should this item of inventory be included in the financial statements?

Answer explanation

The inventory should be valued at the lower of cost and NRV.

Cost is $500 and NRV is ($1,200 — $250) = $950. The correct valuation is therefore $500.

• Closing inventory is $19.50 higher when using the FIFO method instead of the periodic weighted average.

• Closing inventory is $19.50 lower when using the FIFO method instead of the periodic weighted average.

• Closing inventory is $17.50 higher when using the FIFO method instead of the periodic weighted average.

• Closing inventory is $17.50 lower when using the FIFO method instead of the periodic weighted average.

Newell Co’s receivables account shows a balance at the end of the year of $58,200 before

making the following adjustments:

(i) Newell Co decides to write off debts amounting to $8,900 as it believes they are irrecoverable.

(i) Newell Co also decides to make specific allowance for Carroll’s debt of $1,350, Jay’s debt of $750 and Mai's debt of $1,416.

Newell Co’s allowance for receivables at the previous year end was $5,650.

What is the charge to the statement of profit or loss in respect of the above information?

Answer explanation

• $19,300

• $20,200

• $20,800

• $20,700