Financial Accounting Quiz II

Which of the following are differences between sole traders and limited liability companies?

i. A sole traders’ financial statements are private; a company’s financial statements are sent to shareholders and may be publicly filed

ii. Only companies have capital invested into the business

iii. A sole trader is fully and personally liable for any losses that the business might make; a company’s shareholders are not personally liable for any losses that the company might make.

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only
• 1, 2 and 3

The IASB’s Framework for the preparation and presentation of financial statements gives qualitative characteristics that make financial information reliable.

Which of the following are examples of those qualitative characteristics?

• Faithful representation, neutrallity, and prudence
• Neutrality, comparability and true and fair view
• Prudence, comparability and accruals
• Neutrality, accruals and going concern

Which of the following documents should accompany a payment made to a supplier?

• Supplier statement
• Remittance advice
• Purchase invoice

The business entity concept requires that a business is treated as being separate from its owners. Is this statement true or false?

• True
• False

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

i) Carriage inwards

ii) Carriage outwards

iii) Depreciation of factory plant

iv) General administrative overheads

• All four items
• 1, 2 and 4 only
• 2 and 3 only
• 1 and 3 only

A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X5 the company had 700 engines in inventory, valued at $190 each. During the year ended 30 April 20X6 the following transactions took place:

1 July Purchased 500 engines At $220 each

1 November Sold 400 engines For $160,000

1 February Purchased 300 engines At $230 each

15 April Sold 250 engines For $125,000

What is the value of the company’s closing inventory of engines at 30 April 20X6?

• $188500

• $195500

• $166000

• $106000

What is the correct double entry to record the depreciation charge for a period?

• DR Depreciation expense

  CR Accumulated depreciation

• DR Accumulated depreciation

  CR Depreciation expense

At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6 trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivables to the equivalent of 5 per cent of the trade receivables based on past events.

What figure should appear in the income statement for the year ended 30 June 20X6 for these items?

• $61000

• $22000

• $24000

• $23850

The following bank reconciliation statement has been prepared by a trainee accountant:

Overdraft per bank statement 3,860

less: Outstanding cheques 9,160

add: Deposits credited after date 16,690

Cash at bank as calculated above 21,990

What should be the correct balance per the cash book?

• $21,990 balance at bank as stated
• $3,670 balance at bank
• $11,390 balance at bank
• $3,670 overdrawn

In preparing a company’s bank reconciliation statement at March 20X6, the following items are causing the difference between the cash book balance and the bank statement balance:

I) Bank charges $380

ii) Error by bank $1,000 (cheque incorrectly debited to the account)

iii) Lodgements not credited $4,580

iv) Outstanding cheques $1,475

v) Direct debit $350

vi) Cheque paid in by the company and dishonoured $400.

Which of these items will require an entry in the cash book?

• 2, 4 and 6
• 1, 5 and 6
• 3, 4 and 5
• 1, 2 and 3