This activity contains 52 questions.

Which of the following is correct: Where accounting records are maintained on

accrual basis:
     Income should be accounted on accruals basis and expenditure on payments basis
   Income should be accounted for only when received
   Expenditure should be accounted for only to the extent they have been paid for
   Income and expenditure relating to the accounting period should be fully accounted for even
if income is still to be received and expenditure is yet to be paid for.

An accrued expense amounting to £18,000 was overlooked when ascertaining

the profit for the year. The effect of this error is that:
     Net profit is not affected but liability is understated
   Net profit is overstated and liability understated
   Net profit as well as liability are overstated
   Net profit as well as liability are understated

Expenses relevant to the accounting period which remain unpaid by period end
should be:
     included with expenses paid and shown as an asset at the period end
   deducted from amount already paid and shown as a liability at the period end
   included in with expenses paid and shown as a liability at the period end
   ignored until they are paid for in the next period.

Staff salary remaining unpaid as at the year-end should be accounted for as:

     Debit Salary accrued account and credit Staff salary account

   Debit Staff salary account and credit Salary accrued account
   Debit Pre-paid Salary account and credit Staff salary account
   Debit Staff salary account and credit Cash account

As at 1st January 2010 salary outstanding was £128,400. Though during the year
ended 31st December 2010 £598,800 was paid as salary , as at 31st December
2010 salary amounting to £142,900 remained unpaid. What is the salary expense
to be written off in the Statement of income for the year ended 31st December
2010?
     £598,800
   £613,300
   £741,700
   £584,300

Rent prepaid as at the commencement of the year was £8,000. Having agreed to
pay rent at £4,000 per month, the business was able to pay during the year only
£28,000. What is the position at the year-end?
     Rent accrued is £12,000.
   Rent accrued is £20,000.
   Rent pre-paid is £12,000.
   Rent prepaid is £4,000.
 Rent paid for eight months up to 28th February 2010 amounts to £32,000. Since
then rent has been increased by 20%. The rent written off as an expense in the
Income statement for the year ended 30th June 2010 and stated as accrued on
the Statement of financial position as at that date would be:
     Expense: £51,200; Accrued: £19,200.
   Expense: £38,400; Accrued: £6,400.
   Expense: £48,000; Accrued: £16,000.
   Expense: £57,600; Accrued: £25,600.

Having agreed on a monthly rent of £4,000 for business premises, three months
rent was in arrears as at 1st January 2010, though £44,000 was paid as rent
during the year to 31st December 2010. What will appear as rent accrued on the
Statement of financial position as at 31 December 2010.
     £12,000
   £8,000
   £16,000
   £24,000

Camilus pays rent regularly quarterly in advance on 1st March, 1st June, 1st
September and 1st December. Annual rent, agreed at £180,000, has been
increased to £240,000 from 1st July 2010. An additional £10,000 was paid on 1
July 2010. The amount to be expensed in the year to 31.12.2010 and reported as
Pre-paid as at that date would be:
     Expense: £210,000; Prepaid: £55,000.
   Expense: £210,000; Prepaid: £40,000.
   Expense: £240,000; Prepaid: £60,000.
   Expense: £180,000; Prepaid: £70,000.

Romulus pays rent regularly quarterly in arrears on 31st March, 30th June, 30th
September and 31st December. Annual rent, agreed at £240,000, was increased
to £300,000 from 1st July 2010. The amount to be expensed in the year to 31st
August 2011 and reported as accrued as at that date would be:
     Expense: £240,000; Accrued: £50,000.
   Expense: £300,000; Accrued: £50,000.
   Expense: £290,000; Accrued: £60,000.
   Expense: £200,000; Accrued: £60,000.

The year-end trial balance as at 31st March 2011 reports a debit balance of
£9,800 in the Insurance account. This figure includes £6,000 paid on 1st January
2011 as insurance for the year ended 31st December 2011. Ascertain the amount
to be charged in the Income Statement as insurance for the year ended 31st
March 2011.
     £9,800
   £5,300
   £6,000
   £15,800
 A Transporter's trial balance at year end on 31 December 2010 reports the
balance in Motor Vehicle Maintenance account as £216,500. This amount includes
£27,000 paid on 1 August 2010 for servicing the fleet of vehicles over three years
from that date. The amounts to be expensed in 2010 and reported as prepaid as
at the year-end are:
     Expense: £189,500; Prepayment : £27,000.
   Expense: £239,750; Prepayment : £23,250.
   Expense: £193,250; Prepayment : £23,250.
   Expense: £216,500; Prepayment : £27,000.

If an accrual as at year-end of £1,500 was treated as a prepayment, the net

profit for the year would be:
     understated by £3,000.
   overstated by £3,000.
   understated by £1,500.
   overstated by £1,500.

A loan of £30,000 at 6% interest per year, was given to a member of staff, in the
previous year. No interest has been received during the year. The accounting
entries for accruing interest income are:
     Debit Interest receivable account and credit Staff loan account
   Debit Interest receivable account and credit Interest earnings account
   Debit Staff Loan account and credit Interest earnings account
   Debit Cash account and credit Interest earning account

A retailer paid £75,000 as rent and treated the whole amount as expenditure for
the year, overlooking the fact that the amount was for a five year period
commencing from the beginning of that year. The effect of this error would be:
     Net profit and current assets are overstated by £60,000.
   Net profit and current assets are understated by £75,000.
   Net profit and current assets are understated by £60,000.
   Net profit and current liabilities will be understated by £75,000.

After reporting the profit for the year it is found that £13,200 of stationery
reported as an asset by the year end has in fact been fully used. The effect of the
correction of this error would be:
     The gross profit would decrease by £13,200 but net profit would remain unchanged.
   The gross profit will remain unchanged but net profit will decrease by £13,200.
   The gross profit and net profit would both decrease by £13,200.
   The gross profit as well as net profit would both increase by £13,200.

A business earns income by renting out properties. During the year ended 31
December 2010 it received £38,400 as rent. This amount includes £5,400
received as advance for 2011. During 2011 it received £34.500 as rent and a
third of this amount relates to 20x6. The financial statements for the year ended
31 December 2010 should report:
     Rental income: £44,500; Rent in arrears: £11,500.
   Rental income: £49,900; Rent in arrears: £11,500.
   Rental income: £49,900; Rent in arrears: £11,500.
   Rental income: £38,400; Rent in arrears: None.
 A business sublets three apartments in its office premises, each at £500 per
month. During the year ended 30 June 2011 it received £18,500 as rent. This
includes rent received in advance on one apartment for six months to 31
December 2011. As at 30th June 2011 :
     Current asset: £2,500; Deferred income: £3,000
   Current asset: £18,500; Deferred income: None
   Current asset: £3,000; Deferred income: £2,500
   Current asset: None; Deferred income: None

In addition to the information stated as 7.18 above, you are informed that as at
30 June 2010 Rent in arrears was £2,500 and Rent received in advance £1,500.
Identify The related current asset and deferred income as at 30th June 2011 :
     Current asset: £3,000; Deferred income: £2,500.
   Current asset: £2,500; Deferred income: £3,000.
   Current asset: £500; Deferred income: None.
   Current asset: £3,500; Deferred income: £3,000.

Stated below is information relating to rental income of a business. During the

year to 31 December 2011 £74,500 was received as rent.
As at 31st December 2010 2011
Rent received in advance £4,500 £6,000
Rent in arrears £18,000 £24,000
The rental income for the year ended 31 December 2006 would be:
     £106,000.
   £70,000.
   £79,000.
   £43,000.

A part of office premises has been sublet. The rent agreed at £9,000 per year,
until 31st March 2011, has been increased to £12,000 per year since then. Rent is
regularly received half yearly in advance on 1st October and 1st April. Items
appearing in the financial statement for the year ended 31.12.2011will be:
     Income: £10,500; Deferred income: 0.
   Income: £11,250; Deferred income: £3,000.
   Income: £12,000; Deferred income: £2,250.
   Income: £9,000; Deferred income: £3,000.

The most compelling reason for accounting for depreciation is:

     to match a portion of the depreciable cost of the asset against the income generated by it
   to build up resources for the purpose of replacing the non-current assets
   because that is a requirement of company law
   to write down the non-current assets to what it is worth by the end of the period

Which of the following describes the balance in the Accumulated depreciation

account:
     Depreciation expense written off in an accounting period
   a liability account
    None of the above
   The cumulative sum of all depreciation expenses from the date of asset's acquisition to the
present date.

Accumulated depreciation should be shown on the Statement of financial

position:
     as part of owner's equity.
   as a deduction from the cost of corresponding fixed assets.
   as a current liability.
   as a deduction from current assets.

What do you understand when one refers to as "net book value" of a non current
asset?
     The current worth of the asset
   The cost less accumulated depreciation up to the date of reporting
   The cost of the asset less amount expensed as depreciation in the current period
   The cost of the asset

Which of the following would you include within the cost of sale

     Depreciation of machinery used in production effort

   Depreciation of vehicles
   Depreciation of office equipment
   Depreciation of furniture

A wholesale dealer who uses his fleet of vehicles for delivering his goods to
customers, reports his net profit for the year without accounting for depreciation
of his vehicles. The effect is:
     Gross profit as well as net profit are understated.
   Gross profit is not affected but net profit is overstated.
   Gross profit is not affected but net profit is understated.
   Gross profit as well as net profit are overstated.

Joe Pickard, a shoe maker, reports his profit without accounting for depreciation
of machinery. As a result:
     Gross profit as well as net profit are overstated.
   Gross profit as well as net profit are understated.
   Gross profit is not affected but net profit is overstated.
   Gross profit is not affected but net profit is understated.

     £12,000
   £36,000
   £48,000
   £44,000
 A manufacturer owns three machines - the first acquired on 1.1.2006 for
£110,000, the second on 1.7.2008 for £90,000, and the third on 1.10.2010 for
£130,000. He expects to use each machine for ten years and realise the scrap for
£10,000. Using the straight-line method what is his depreciation for the year
ended 31.12.2010.
     £33,000
   £21,000
   £30,000
   £12,000

Speedlink owns three trucks acquired as stated on the left. They expect to use
each truck for five years and sell the scrap at 10% of the cost. Their policy is to
write off the depreciable cost equally over the five year's of each truck's
economic life. Calculate the depreciation to be written off in the year ended 31st
December 20010.
Date Cost
1.7.2005 £48,000
1.1.2007 £36,000
1. 4.2010 £60,000
The rental income for the year ended 31 December 2006 would be:
     £21,600
   £18,000
   £22,320
   £19,380

A firm owns a fleet of vehicles acquired at a total cost of £264,800. Accumulated

depreciation up to the beginning of the current year is £112,400. Vehicles are
depreciated at 20% per annum using the straight-line method. The written down
value of the vehicles by the end of the current year would be
     £152,400.
   £52,960.
   £211,840.
   £99,440.

A builder owns three cranes, particulars of which are stated on the right. As at 31
December Year 5 these are reported on the balance sheet at £99,000. The cranes
are depreciated at 20% per annum, using the straight-line method and
calculating depreciation for the months of use. Crane "B" was sold on 30 June
Year 6.
Crane Acquired on Cost
"A" 1. 4. Year 1 £60,000
"B" 1. 7. Year 3 £40,000
"C" 1.10. Year 5 £80,000
The depreciation for Year 6 would be:
     £23,000.
   £19,800.
   £36,000.
   £32,000.
 An extract of the year end trial balance is shown on the right. A new machine had
been acquired for £180,000 on 1st September 2010. Machinery is depreciated at
10% of cost with proportionate depreciation in the year of acquisition.
Trial balance as at 30th £'000 £'000
June 2011
Machinery at cost 860 -
Acc. depreciation to - 216
30.6.2010
The financial statements for the year ended 30th June 2011 will report:
     Depreciation: £86,000; Written Down Value: £561,000.
   Depreciation: £83,000; Written Down Value: £561,000.
   Depreciation: £64,400; Written Down Value: £579,600.
   Depreciation: £86,000; Written Down Value: £558,000.

A firm owns a fleet of vehicles acquired at a total cost of £480,000. Accumulated

depreciation up to the beginning of the current year is £212,400. Vehicles are
depreciated at 25% per annum using the reducing balance method. The written
down value of the vehicles by the end of the current year would be:
     £147,600.
   £66,900.
   £267,600.
   £200,700.

A trader depreciates his vehicles at 40% per annum using the reducing balance
method, with time proportionate depreciation in the year of acquisition. In
addition to vehicles acquired on 1 July 2010 for £180,000, he acquired a vehicle
on 1 May 2011 for £60,000. His depreciation for year ended 31.12.2011 will be:
     £81,600.
   £83,200.
   £73,600.
   £59,200.

Gateway owns three trucks acquired as stated on the left. They depreciate their
trucks at 25% per year, using the reducing balance method and time
apportioning the year of acquisition.
Date Cost
1. 7.2008 £48,000
1. 1.2009 £36,000
1. 4.2011 £60,000
What will be the depreciation to written off in the Income Statement for the year
ended 31st December 2011?
     £25,126
   £22,219
   £25,969
   £36,000

     £25,000.
   £31,563.
   £23,750.
   £21,563.
 An extract of the year end trial balance is shown on the right. A new machine had
been acquired for £180,000 on 1st September 20x5. Machinery is depreciated at
25% on reducing balance method with proportionate depreciation in the year of
acquisition.
Trial balance as at 30th £'000 £'000
June 2011
Machinery at cost 920 -
Acc. depreciation to - 424
30.6.2010
The financial statements for the year ended 30th June 2011 will report:
     Depreciation: £116,500; Written Down Value: £379,500.
   Depreciation: £157,750; Written Down Value: £338,250.
   Depreciation: £112,750; Written Down Value: £383,250.
   Depreciation: £161,500; Written Down Value: £514,500.

A machine acquired for £180,000 on 1st January 2008 is expected to have an

economic life of five years and a residual value of £30,000. The machine is
depreciated using the sum of the year's digits method. The depreciation for the
year ended 31 December 2011 would be:
     £20,000.
   £30,000.
   £24,000.
   £10,000.

A machine was acquired for £160,000 on 1st July 20x2 and another for £200,000
on 1st January 2010. The economic life of each machine is estimated at four
years and the residual value 10% of cost. Machinery is depreciated using the sum
of the year's digits method. The depreciation for the year to 31.December 2006
would be
     £61,200.
   £54,000.
   £62,000.
   £68,400.

When preparing its financial statements, if a business deliberately under-

estimates the allowance required to cover doubtful debts, it would be:
     overstating its performance and understating its liability.
   overstating its performance and understating its assets.
   overstating its performance as well as its liability.
   overstating its performance as well as its assets.

A trade debt of £12,400 is to be written off as bad and the Allowance for doubtful
debts increased from £38,200 to £41,900. The amount to be written off against
the profit for the year as bad and doubtful debts would be:
     £12,400.
   £54,300.
   £8,700.
   £16,100.

A trade debt as at 30th June 2011 amounted to £418,400. Allowance for doubtful
debts brought forward as at 1st July 2010 was £18,800. The proprietor wishes
that a debt of £3,400 should be written off and the Allowance adjusted to cover
 5% of debts receivables as at 30th June 2011. Calculate the expense for the
year.
     £1,450
   £5,350
   £20,920
   £3,400

Trade receivables as at 1st April 2010 were £382,400. During the year ended
31st March 20x6, Sales and Sales Returns amounted to £859,600 and £18,400
respectively; while £659,800 was received from credit customers and £8,200 was
written off as bad. A allowance for doubtful debts is maintained at 4% of debts
outstanding. Calculate the expenditure written off in the year to 31 March 2011.
     £8,200
   £22,224
   £15,128
   £6,928

Trade debts receivables as at 1 January 2011 were £474,500. During the year
ended 31 December 2011, Sales and Sales Returns amounted to £728,400 and
£11,500 respectively, while £752,200 was received from credit customers and
£9,800 was written off as bad. A allowance for doubtful debts is maintained at
3% of debts outstanding. Calculate the expenditure written off in the year to 31
Dec.2011.
     £11,153
   £9,800
   £22,682
   £8,447

As at 31 December 2011 trade debtors were £1,238,740 and the Allowance for
doubtful debts was £39,420. £29,460 of trade debts have been written off
already in the year. The age analysis debtors and percentage allowance usually
provided are stated on the right.

The bad debts expensed in the year to 31 December 2011 would be:
     £25,230.
   £35,190.
   £33,690.
   £4,230.

     £12,827
   £1,227
   £18,627
   £23,573