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Accounting Concepts Multiple Choice Questions

1 There is great uncertainty about the continuance of a business. This has
caused the proprietor to make a large reduction in the valuation of the
yearend inventory. Which accounting concept does this illustrate?
A going concern B matching C materiality D substance
over form

2 The treasurer of a club has decided not to include subscriptions owing by

members in the statement of financial position at the year-end.
Which accounting concept is being applied?
A accruals B going concern C money measurement D
prudence

3 Accountants prefer the commercial reality of a transaction to a strictly

legal approach. This is an example of
A consistency. B materiality. C prudence.
D substance over form

4 A sole trader pays private expenses from the business bank account and
records them as drawings.
Which accounting principle is applied?
A business entity B going concern C matching D
prudence

5 A business values obsolete inventory at net realisable value. Which

accounting principle has been applied?
A consistency B going concern C materiality
D prudence

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6 A pocket calculator costs $9.50 and has a useful life of 5 years. The
bookkeeper has decided to treat the purchase of the calculator as revenue
expenditure. Which accounting concept has been applied?
A accruals B materiality C prudence D
substance over form

7 What does the ‘going concern’ principle mean?

A a business is profitable
B a business will continue to operate for the foreseeable future
C the assets of a business exceed its liabilities
D the assets of a business should be valued at disposal value

8 When a businessman introduces capital into his business, the transaction

is debited in the Cash Book and credited to his Capital account. Of which
accounting principle is this an example?
A entity B going concern C matching D
prudence

9 A company does not include the value of skills gained by its employees
from training programmes in its financial statements.
Which accounting principle is being applied?
A consistency B materiality C money measurement
D substance over form

10 Of which concept is the writing off of a bad debt an example?

A going concern B matching C prudence D
substance over form

11 A company purchases machinery on hire purchase over four years but

does not own the machinery until the final payment has been made. At the

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end of year 1 the company shows the machinery in its statement of

financial position as a non current asset and also records the liability for the
amount still owed. Which accounting principle is being applied?
A consistency B materiality C prudence D
substance over form

12 Businesses anticipate losses but not profits in preparing their annual

accounts. Which accounting concept is being applied here?
A accruals B consistency C going concern D
prudence

13 What is an example of the application of the concept of accounting for

substance over form?
A accounting for inventory losses
B recording an asset acquired under a hire purchase agreement as a non
current asset
C recording the premium on the issue of ordinary shares in a share
premium account
D writing off a debt from a customer in liquidation

14 A business sells its freehold property to a bank and agrees to

repurchase them in five years’ time. The business continues to use the
property on lease from the bank. The property remain in the statement of
financial position of the business. What is the reason for this accounting
treatment?
A the asset must be treated in the same way from year to year
B the commercial reality of the transaction is that the business still owns
the asset
C the cost of the asset must be matched with the periods expected to
benefit from its use

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D the income from the sales proceeds must not be anticipated

15 A company excludes from its statement of financial position machinery

for which spare parts are no longer obtainable. Which concept is being
applied by the company?
A going concern B materiality C prudence D
substance over form

16 Which accounting policies illustrate the matching principle?

1 charging depreciation on non-current assets
2 revaluing non-current assets on a regular basis
3 using the reducing balance method of depreciation
A 1, 2 and 3 B 1 and 2 only C 1 and 3 only D 2
and 3 only

17 An item of inventory originally cost $5 000, but has deteriorated badly

and is written down to its estimated net realisable value of $2 000. Which
accounting principle has been applied?
A consistency B materiality C prudence D
substance over form

18 A company changes from the straight-line method of depreciation to the

reducing balance method.
Which accounting principle has not been applied?
A consistency B going concern C historic cost D
materiality

19 What should a company prepare to forecast its state as a going concern

at the end of next year?
A cash budget C forecast statement of financial position
B cash flow statement D forecast income statement

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