Unit 5 Assessment exercises

Multiple choice questions 4 A business provides the following information.

1 A trader provides the following information at the $

end of her financial year. inventory:  1 January   20 000
non-current assets $160 000 inventory:  31 December   60 000
current assets $40 000 purchases 280 000
current liabilities $20 000 sales 500 000
return on capital employed (ROCE) 15% What was its rate of inventory turnover for the
year?
What was her profit for the year?
A 5.5 times C 7 times
A $21 000 C $27 000
B 6 times D 12.5 times
B $24 000 D $30 000

5 Kingsley has the following assets and liabilities.

2 A business provides the following information.
$
revenue $40 000
inventory 16 800
gross profit 25% of revenue
trade receivables 18 600
profit for the year 10% of revenue
cash    800
How much were the expenses?
trade payables  7200
A $4000 C $6000
bank overdraft  3400
B $4500 D $10 000
What is Kingsley’s current ratio?

3 Two businesses, X and Y, are of a similar size and are A 5.50 : 1 C 1.83 : 1
in the same industry. They provide the following B 3.42 : 1 D 1.13 : 1
information.

X Y 6 Inventory at 31 December was overstated by

percentage of gross profit to 22 25 $10 000.
revenue What was the effect on the gross profit for the
percentage of profit for the year 11  8 following year ended 31 December?
to revenue A $10 000 understated
What does this show? B $10 000 overstated
A X controlled its expenses better than Y C $20 000 understated
B Y controlled its expenses better than X D $20 000 overstated
C Revenue at X exceeded revenue at Y
D Revenue at Y exceeded revenue at X

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7 A trader’s sales are $200 000, the cost of revenue is 13 Ravi’s profit to revenue increased from 12% to
$145 000 and expenses are $25 000. 15%.
What is the profit for the year as a percentage of What could this be due to?
sales?
A Business overheads increased.
A 12.5% C 27.5% B Business overheads decreased
B 15% D 72.5% C Purchases increased
D Sales decreased
8 What does the rate of inventory turnover measure?
A average inventory held during the financial year 14 A business values its inventory at the lower of cost
or net realisable value. Which accounting principle
B number of times the average inventory held is
is being applied?
purchased
C number of times the average inventory held is A going concern
sold B materiality
D value of inventory at the end of the financial C money measurement
year D prudence

9 Which is the best indicator of the liquidity of a 15 A sole trader and a large limited company purchase
business? identical office equipment. The sole trader treats it
as a non-current asset and the limited company
A working capital ratio (current ratio) treats it as an expense. Which accounting principle
B quick ratio is being applied?
C return on capital employed A accounting entity
D value of current assets B materiality
C money measurement
10 Which financial ratio shows how well a business D prudence
controls its expenses?
A current ratio 16 Daliya applies the historical cost principle and
B percentage of gross profit to revenue records all her non-current assets at their actual
C percentage of profit for the year to revenue cost. What is an advantage of applying this
principle?
D rate of inventory turnover
A Cost is factual and can be independently
checked
11 What is included in the current ratio but not the B It is easy to compare assets bought at different
quick ratio? times
A bank C trade receivables C It provides for the effects of inflation
B cash D inventory D Non-current assets are recorded at a realistic
value

12 Which of the following is a measure of profitability?

17 Which accounting principle is applied when a
A current ratio business uses the same method of depreciation each
B quick ratio year?
C rate of inventory turnover A consistency C going concern
D return on capital employed B dual aspect D historical cost

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18 Assets and liabilities were recorded in the accounts 22 Aadarsh is preparing his financial statements.
at the actual amount of each transaction.
What should he do to observe the principle of
Which accounting principle was applied? prudence?
A accounting entity A include all foreseeable losses
B consistency B include all foreseeable revenue
C historical cost C show expenses as low as possible
D money measurement D show prepayments as expenses

19 What is meant by the money measurement 23 Pavaan’s accounting year ends on 31 December.
principle?
He carried forward the closing inventory on
A double entry accounts must be maintained 31 December so it became the opening inventory at
B non-current assets are shown at cost less a the start of his next accounting year.
provision for depreciation Which accounting principle is he applying?
C profit or loss is calculated by deducting cash paid
A business entity
from cash received
B consistency
D accounts contain only items which have a
monetary value C going concern
D money measurement

20 Farrah receives a cheque from a tenant on 10

December 2013. The rent is due to the business for 24 What is meant by duality or dual aspect?
the period 1 January to 31 March 2014. A for every entry in the cash book there must be a
How should this be treated in Farrah’s financial corresponding entry in the bank statement
statements for the year ended 31 December 2013? B for every receivable there must be a payable
A prepaid expense C accrued expense C there are two aspects to every transaction
B prepaid income D accrued income D there are two sides to every statement of
financial position

21 Anya has applied the straight line method of

depreciation on her motor vehicles. She wishes to 25 Jonathan purchased a non-current asset on credit.
use the reducing balance method for the current He made an entry in both the non-current asset
year. account and a payable account for the supplier.
Which accounting concept advises Anna against Which accounting principle did he apply?
changing the method of depreciation she has A consistency C dual aspect
adopted?
B going concern D matching
A consistency C historical cost
B going concern D matching

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