Related Posts:

1. Introduction to cost accounting – MCQs quiz

2. Process Costing MCQs
3. Cost Concept, Analysis and Classifications MCQs
4. Accounting and Finance MCQs Test 2
5. Accounting and Finance MCQs Test 3
6. Accounting and Finance MCQs Test 4
7. Accounting and Finance MCQs Test 5
8. Accounting and Finance MCQs Test 6
9. Error in balancing an account
10.Accounting Principle and Concepts MCQs Test

1 Introduction to cost accounting – MCQs quiz

1. Financial Accounting is concerned with the:

recording of business expenses and revenues
recording of the cost of products and services
recording of day-to-day business transactions
none of the above
2. The nature of financial accounting is:
historical
forward-looking
analytical
social
3. The main object of cost accounting is:
to record day-to-day transactions of the business
to reveal managerial efficiency
to ascertain true cost of products and services
to determine tender price
4. Cost accounting emerged mainly on account of:
Statutory requirements
Competition in the market
Labour unrest
Limitations of financial accounting
5. Advantages of cost accounting system accrue:
only to workers
 only to government
only to consumers
to management, workers, consumers and government
6. Cost Accounting is applied to:
Public undertakings only
Large business enterprises only
Small business enterprises only
Manufacturing and services concerns
7. A colliery company employes:
Contract Costing
Batch Costing
Operating Costing
Single Costing
8. Marginal Costing is concerned with:
Fixed Costs
Variable Costs
Semi-fixed Costs
None of the above three
9. A biscuit manufacturing concern employes:
Operating costing
Departmental Costing
Batch Costing
Contract Costing

2 Process Costing MCQs

1. The monetary value attributed to normal losses in a process should be:

A share of the process cost according to the stage of completion of the losses.
A nill value with no other monetary adjustment under any circumstances.
A full share of process cost on the same as good output.
A nill share of process costs which have been reduced by the scrap value of the
normal loss.
2. Details for the past month of a continuous process are:
 Opening W.I.P. (400 units) (60% complete)

Closing W.I.P. (600 units) (20% complete)

Unit started 1,000
Unit finished 800
3. An abnormal gain in a process occurs in which of the following
situations?
When actual losses are greater than the normal loss level.
When costs are reduced through increased machine speed.
When actual losses are less than the normal level.
When the process output is greater than planned.
4. Where process scrap is recycled for use in conjunction with new material
as well as being so externally, which of. the following is most likely to be
the value at which is debited to the process?
At the same price as it sold externally.
At the cost of normal losses.
At the cost attached to abnormal losses.
Nil value.
5. Which of the following is the best explanation of the relevance of
equivalent production units in process costing?
A means of equalising production charged into stock each period.

The conversion partly completed units into an equivalent number of completed

units in order that costs may be shared on an equitable basis.
The expression of losses in terms of an equivalent number of units of good
production in order that their value may be calculated.
A means by which the output achieved may be compared with the equivalent
quantity budgeted for the period under review.
6. Purchased materials are added in the second department of a three department
process, this order does not increase the number of units produced in the second
department and would:
Not change the amount transferred to the next department.
Decrease total work in process inventory.
Increase the factory overhead portion of the ending work-in-process inventory.
Increase total unit cost.
7. The physical flow of units into and out of departments is shown on the:
Quantities schedule.
 Equnulent production schedule.
Cost of account for schedule.
Cost of Accounted for schedule.
8. Purchased materials are added in the second department of a three-
department process; this increases
the number of units produced in the second department and would always:
Change the direct labor cost percentage in the ending work-in-process
inventory.
Cause no adjustment to the unit cost transferred in from the first department.
Increase total units costs.
Decrease total ending work-in-process inventory.

9. An equivalent unit of material or conversion cost is equal to:

The amount of material conversion cost necessary to complete one unit of
production.
A unit of work-in-process inventory.
The amount of material or conversion cost necessary to start a unit of
production into work
in process inventory.
Fifty percent of material or conversion cost of a unit to finished goods inventory
(assuming
a linear production pattern).

3 Cost Concept, Analysis and Classifications

1. Which cost system description applies to the manufacture of 20

engraved doors for the new clubhouse at a golf course?
Contract
Process
Batch
Service
2. An important feature of a cost centre is that:
It uses only monetary information
It has clearly defined boundaries
It must be one specific location only
It must be an area of a business through which products pass
3. Prime cost may be correctly defined as:
The sum of direct materials and direct labor cost with all other costs excluded.
The total of all cost items which can be directly charged to product units.
The total cost incurred in producing a finished unit.
The sum of the large cost items in a product cost.
4. Which of the following is a cost behavior-oriented approach to
production costing?
Absorption Costing
Marginal Costing
Process Costing
Job Order Costing

5. In a process costing system, the unit cost is computed for a:

Job
Department
Batch of goods
Category of goods
6. The cost of goods sold under a periodic cost accumulation system is
equal to the:
Cost of goods available for less ending finished goods inventory.
Cost of goods available for sale plus beginning finished goods inventory.
Cost of goods manufactured plus beginning finished goods inventory.
Cost of goods sold manufactured less beginning finished goods inventory.
7. The cost of goods manufactured, under a periodic cost accumulation
system, is equal to the:
Beginning finished goods inventory plus purchase.
Beginning work-in-process plus cost of goods in process during the year.
Cost of goods put into production plus beginning work-in-process less ending
work-in-process.
Cost of goods sold less beginning work-in-process.
8. For external financial statement purpose, inventories must be reported
at:
Standard Costs
Actual Costs
 Period Costs
Direct Costs
9. The term “Conversion costs” refers to:
Manufacturing costs incurred to produce units of output.
All costs associated with manufacturing other than direct labor costs and raw
material costs.
Costs which are associated with marketing, shipping, warehousing and billing
activities.
The sum of direct labor cost and all factory overhead costs.
The sum of raw material costs and direct labor costs.
10. The term “Prime COsts” refers to:
Manufacturing costs incurred to produce unit of output.
All costs associated with manufacturing other than direct labor costs and raw
material costs.
Costs which are predetermined and should be attained.
The sum of direct labor costs and all factory overhead costs.
The sum of direct material costs and direct labor costs.
11. The term “variable costs” refers to:
All costs which are likely to respond to the amount of attention devoted to
them by a specified manager.
All costs which are associated with marketing, shipping, warehousing and
billing activities.
All costs which do not change in total for a given period of time and relevant
range but become progressively smaller on a per unit basis as volume increases.
All manufacturing costs incurred to produce units of output.
All costs which fluctuate in total in response to small change in the rate of
utilization of capacity.
12. The term “Cost” refers to:
An asset that has given benefit and is now expired.
The price of product sold or services rendered.
The value of the sacrifice made to acquire goods or services.
An asset that has not given benefit and is now expired.
The present value of future benefits.
13. The term “Sunk Costs” refers to:
Past costs that are now irrevocable.
 Costs that are directly influenced by unit manager.
Costs that should be incurred in a particular production process.
Costs that may be eliminated if some economic activity is changed or deleted.
Benefits lost from rejecting the next best alternative.
14. The process of charging factory overhead to work-in-process based on
a predetermined application rate multiplied by actual input is known as:
Normal costing
Standard costing
Actual costing
Product costing

4 Accounting and Finance Test 1

1 Goods bought on credit by X from Y are returned before they are paid for. X keeps a full
double entry system.
Where will X record the return of goods?

 cash book and sales ledger

 general ledger only
 general ledger and purchase ledger
 purchase ledger only

Explanation
Return of credit purchases involves the following entry:
Debit Trade payable
Credit Purchase returns
We know that trade payables’ accounts are kept in Purchases ledger; whereas all impersonal
accounts (including purchases returns) are maintained in general ledger so both will be used to
record the transaction.

2 A firm buys goods on credit.

Which document does the firm use to record this?

 credit note
 purchase invoice
 sales invoice
 supplier's statement
Explanation
As evident from the name, purchase invoice will be used to record purchases of goods.

3 X sends back $800 of faulty goods to Y.

In which book of prime entry would Y record this transaction?

 general journal
 sales journal
 purchases returns journal
 sales returns journal

Explanation
As X is returning goods to Y so for Y this is a sale return and will be entered in sales return
journal.

4 A supplier offers the following discounts.

Trade discounts of 12.5% off list prices and cash discounts of 3%.
What is the lowest amount that will be paid for goods with a list price of $1 600?

 $1 358
 $1 400
 $1 552
 $1 600
 Explanation
$

List price of goods 1 600

Trade discount ($1 600 x 12.5%) (200)

Purchase price of goods 1 400

Cash discounts ($1 400 x 3%) (42)

Cash to be paid for goods 1358

5 X Ltd receives a cheque for $100, records it in the Cash Book and banks it on the same day.
A statement sent by the bank that day does not show this $100.
How is this $100 shown on the bank reconciliation statement?

 as an uncredited deposit added to the bank statement balance

 as an uncredited deposit deducted from the bank statement balance
  as an unpresented cheque added to the bank statement balance
 as an unpresented cheque deducted from the bank statement balance

Explanation
When a cheque is banked then bank account is debited in the business books and as this
cheque is not shown in bank statement so it means that this cheque is not credited in bank
books (uncredited cheque) so it will have to be added to the credit balance of bank statement.

6 A bookkeeper discovers that an amount paid to a supplier has been wrongly entered in
another supplier’s account.
Which book of original entry will the bookkeeper use when correcting this error?

 cash book
 general journal
 purchase day book
 sales day book

Explanation
“2” option is correct. Cash book (“1” option) is used to record receipts and payments of cash and
bank. Purchases day book (“3” option) records credit purchases whereas sales day book (“4”
option) is used to record credit sales.

7 A supplier’s account in a customer’s books, has a credit balance of $8 000. What does this
mean?

 the customer owes the supplier $8 000

 the customer has paid the supplier $8 000
 the supplier has paid $8 000
 the supplier owes $8 000

Explanation
“D” option shows that amount is payable by the supplier to the customer whereas opposite is
true. “B” and “C” options are the examples of accounting transactions (not balances).

8 Bob returns goods bought on credit from Tariq.

Which ledger account entries record this in Tariq’s books?

 A
  B
 C
 D

Explanation
Although for Bob this return is Purchases return but for Tariq this is Sales return so when
Bob will return the goods, then sales income of Tariq will decrease (debited) with decrease
in amount receivable from Bob (credited).

9 Which error will be discovered by the preparation of a trial balance?

 capital expenditure treated as revenue expenditure

 an incorrect amount entered as both a debit and a credit
 complete omission of a transaction
 an incorrect amount entered twice as a debit

Explanation
The errors discovered through preparation of a trial balance are those errors which do not
comply with the double entry concept or amounts entered on debit and credit sides are different
from each other. So under this reasoning “D” option is correct which states that double amount
was entered on the debit side.

10 Premises are purchased on 1 January 2009 using a bank loan repayable on 1 January 2019.
How will this have affected the balance sheet on 1 January 2009?

 increased non-current assets, decreased current liabilities

 increased non-current assets, increased current liabilities
 increased non-current assets, increased non-current liabilities
 decreased non-current assets, increased non-current liabilities

11 Which of the following is an item of revenue expenditure?

 dividend paid
 payments for major building improvements
 purchase of machinery
 rent paid

Explanation
“D” option is correct. Items in “B” and “C” options are capital expenditures whereas dividend
paid (“A” option) is an appropriation of profits.

12 What is the main purpose of charging depreciation?

  to provide funds for asset replacement
 to reduce the cost of repairing assets
 to show the assets at their realisable values in the balance sheet
 to spread the cost of an asset over its useful life

13 On 1 January a machine is bought for $12 800. Two methods of depreciating the machine
being considered as follows:

How will the year’s net profit be affected if the reducing balance method is used rather than the
straight-line method?

 It will be increased by $200

 It will be increased by $500
 It will be decreased by $640
 It will be decreased by $1 340

Explanation

So because of increase in depreciation by $1 340, net profit will decrease by the same
amount.

14 At the start of the year a car was purchased for $5 000. By the end of the year it was written
down to $4 500 in the books. It was then revalued at the end of the second year at $3 800.
Which value will appear in the Balance Sheet at the end of year 2?

 $3 300
 $3 800
 $4 500
 $5 000

Explanation
As it is revalued at the end of the second year at $3 800 so it will be shown at the same value.
Moreover out of remaining two values, cost (“D” option) is given at start of year 1 and book
value after depreciation (“C” option) is given at thé end of year 1 whereas balance sheet is to be
prepared at the end of year 2 when asset was revalued.
15 Details of an electricity account are given.

What amount will appear in the Income statement in 2019 for electricity?

 $9 800
 $10 000
 $10 200
 $11 800

16 Lee maintains a Bad Debts account and a separate Provision for Doubtful Debts account.
He wishes to write off an amount due from Tan that had not been previously provided for.
What entries will Lee make?

 A
 B
 C
 D

17 The table shows information about a business at 31 December 2018.

The Provision for Doubtful Debts at 31 December 2018 is to be of trade receivables.

What is the entry in the Income statement for the Provision for Doubtful Debts?

 $24 debit
 $24 credit
 $326 debit
 $326 credit
Explanation

Because of decrease in provision for doubtful debt by $24, Profit will increase by $24 and will
have a credit entry.

18 Goods sold on credit to Knight are wrongly debited to Smith’s account.

Which journal entry corrects this error?

 A
 B
 C
 D

Explanation

19 Which item will appear on the credit side of a Trade payables Ledger Control account?
 cheques paid
 discount received
 goods purchased
 purchase returns

Explanation
“C” is the right option as when goods are purchased they increase the liability towards the trade
payables whereas the remaining three options decrease trade payables’ balances and are
debited in the trade payables control account.

20 What is the purpose of control accounts?

 to calculate total accruals and prepayments

 to calculate total trade receivables and trade payables
  to calculate total purchases and sales
 to calculate total receipts and payments

Explanation
B option is correct. As in control accounts only credit purchases and credit sales are shown so
“C” option is not correct. “D” option is also incorrect as total receipts and payments are shown in
cashbook.

21 X Ltd. has the following balance sheet summary.

The non-current assets are valued at $180 000, the net current assets at $20 000. The business
is acquired for $225 000.
What is the payment for Goodwill?

 $25 000
 $45 000
 $75 000
 $105 000

22 After a trader’s net profit has been calculated, it is discovered that the closing inventory was
undervalued by $1000.
What is the effect of correcting the error?

 A
 B
 C
 D
Explanation
Correction of under valuation of closing inventory will have the following effects.

23 The balance on the bank account in a cash book is $1 200 credit.

How is this shown in the Balance Sheet?

 as a current asset
 as a current liability
 as a non-current liability
 as owner's drawings

The Correct answer is (option 2).

24 How is working capital calculated?

 total assets less total liabilities

 current assets less current liabilities
 owner's capital less drawings
 total non-current assets plus current assets

The Correct answer is (option 2).

25 At what value is inventory stated in a company’s Balance Sheet?

 cost price
 net realisable value
 the greater of net realisable value or cost price
 the lower of net realisable value or cost price

26 A Company has capital of $24 400. Its assets are $16 100 and its current liabilities are $4
500. There are no non-current liabilities.
What is the amount of its current assets?

 $8 300
 $11 600
  $12 800
 $28 900

Explanation

27 How should the Goodwill resulting from the admission of a new partner be treated if it is to
be
retained in the books?

 apportioned among old partners in old profit-sharing ratios

 apportioned among all partners in new profit-sharing ratios
 apportioned equally among all partners
 apportioned equally among old partners

Explanation
As business earns goodwill mainly due to the efforts of its old partners so any benefit arising on
creation of goodwill on partnership change is apportioned between old partners in Old profit
sharing ratios.

28 A trader’s sales for the year were $128 000, and his purchases cost $84 000. The inventory
at the beginning of the year was $15 700 and the inventory at the end was $16 300. He had to
return S1 300 of goods to his suppliers.
What is his gross profit for the year?

 $42 100
 $44 300
 $44 600
 $45 900
Explanation

29 A business calculates its net profit at $25 000. It is later found that two items had been
omitted.

What is the correct net profit?

 $23 000
 $23 800
 $25 400
 $27 000

Explanation

30 The current account of a partner of a business is prepared from the following information.

What is the balance of the account on 31 December?

 $3 000 Cr
 $2 600 Cr
 $1 000 Cr
 $1 000 Dr
Explanation

31 In a partnership a separate capital account and current account is kept for each partner.
What are the accounting entries for interest on a loan from a partner?

 A
 B
 C
 D

Explanation
Interest on partner’s loan is a genuine expense of the business its payment is not dependent
upon making of the profits. Moreover interest on loan is not an appropriation so is debited in the
income statement as an expense. Moreover as it does not create a permanent or long-term
change in the amounts owed by the firm to the partners so is credited to the partner’s current
account.

32 The following information is taken from a trader’s accounts.

What is the trader’s net profit for the year ?

 nill
 $3 000
 $6 000
 $11 000
Explanation
As we know from the “Financed by” section of a sole trader.

33 Some of the accounting records of X have been partially destroyed by fire. The remaining
records show sales for the year of $85 240. X has a gross profit riargin of 20%.
What is the cost of sales for the year?

 $17 048
 $21 310
 $63 930
 $68 192

Explanation

Note: Gross profit margin means gross profit as a % of sales.

34 During the year an orchestral society bought $10 000 of new musical instruments, paying by
cheque.
Where will this item appear?

 balance sheet only

 income and expenditure account and balance sheet
 income and expenditure account and receipts and payments account.
 receipts and payments account and balance sheet

Explanation
As an asset has been purchased through payment by cheque so the payment will be shown in
the receipts and payments ascount and asset will be shown in the balance sheet.

35 A company is formed with an authorized share capital of 10 million shares of $0.50 each. 6
million shares are issued as fully paid, and two months later another 1 million shares are issued
and $0.30 per share is called up.
What is the issued share capital of the company?

 $3.3 million
 $3.5 million
  $5.3 million
 $7.0 million

36 A company makes furniture

What will be treated as a direct cost in the company’s manufacturing account?

 depreciation of vehicles that deliver the furniture

 insurance of the machinery used to make the furniture
 transport costs of bringing in the raw materials to make the furniture
 wages of workers maintaining the factory machinery

Explanation
“C” option is correct which represents carriage inwards, and as you know it is added in
purchases which ultimately increases the direct material cost.

37 A firm’s manufacturing costs are shown in the table.

20 000 units are manufactured during the year.

What is the prime cost?

 $100 000
 $200 000
 $300 000
 $320 000

Explanation

38 A business with sales of $125 000 sells its goods at a 25% markup on cost. It has overheads
of $10 000.
What is the net profit as a percentage of sales?

 10%
 12%
 17%
 22%
Explanation

39 The table shows the gross and net profits as percentages of sales for four businesses.
From this information, which business controls its overheads most efficiently?

 A
 B
 C
 D

Explanation

As total overhead expense of business “D” as a % of sales is the lowest so it is controlling its
overheads most efficiently.

40 A business does not adjust its final accounts for a prepayment of insurance.
What is the effect of this on the profit?

 A
  B
 C
 D

Explanation
When deduction of prepayment from an expense is omitted then it will increase the respective
income statement expense, which will ultimately understate profits. On the other hand, as there
is no change in any trading section of income statement item so gross profit will not be affected
due to this error.

Accounting and Finance Test 2

1 H buys goods on credit from J. The goods are unsuitable and H returns them to J. What is
the name of the document, which H sends to J with the goods?

 credit note
 debit note
 invoice
 statement of account

Explanation:
As H is buyer of goods so when he returns goods to J; then he Will send J a debit note to
indicate
that J’s account has been debited.

2 Why is the General journal used to correct errors in the ledger?

 to avoid making alterations in the ledger to complete the double entry to provide a
record explaining ledger entries to save the book-keeper's time
 to complete the double entry
 to provide a record explaining ledger entries
 to save the book-keeper's time

3 Which book of prime entry is part of the double entry system?

 cash book
 general journal
 purchases journal
 sales journal

Explanation:
Option “A” is correct as it has two sides of debit and credit and also acts as an account.
4 In which of the following will cash discount allowed be first recorded?

 cash book
 general journal
 ledger
 sales journal

Explanation:
Cash book is the book to record transactions relating to cash in hand, cash at bank and cash
discounts.

5 A cash book has separate columns for bank and cash transactions.
At 1 March the balance on the cash account was $200. Transactions during March were:

Cash banked $30

Checque drawn for cash $70

What was the balance on the cash account at the end of March?

 $100
 $160
 $170
 $240

6 A cash book (bank column) showed a balance of $1973 (credit) at 31 March. The following
items
did not appear in the bank statement at that date:

Unpresented cheques $942

Cheques banked $865

What was the balance on the bank statement at 31 March?

 $1896 (credit)
 $1896 (debit)
 $2050 (credit)
  $2050 (debit)

Explaination

7 The discount column on the debit Qf the cashbook totaled $842. It was posted to the
Discount Received Account.
The discount column on the credit side of the cashbook totaled $613 “and was posted to the
Discount Allowed Account.
Which entries correct these errors?

 Credit Discount Allowed Account ($229) Credit Discount Received Account ($229)
 Debit Discount Allowed Account ($229) Credit Discount Received Account ($229)
 Debit Discount Allowed Account ($229) Debit Discount Received Account ($229)
 Debit Discount Received Account ($229) Credit Discount Allowed Account ($229)
Explaination

8 The owner of a business takes inventory for her own use.

What are the ledger account entries to record this?

 debit drawings, credit purchases

 debit drawings, credit inventory
 debit capital, credit sales
 debit inventory, credit drawings

9 In a business’s books, the ledger account of J Brown, a customer, shows a debit balance of
$450.
What does this mean?

 Brown has paid $450 to the business

 Brown owes the business $450
 the business has paid Brown $450
 the business owes Brown $450
Explaination
Question shows position (balance) of an account at a particular date. “A” and “C” options are
examples of accounting transactions and do not represent balances, whereas “D” option
represents a liability on part of the business. Moreover debit balance indicates an asset
(receivable) so “B” option is correct.

10 A suspense account was opened with a credit balance of $840.

Which error caused this?

 A cheque of $420 received from a customer was debited to his account

 Discounts allowed, $420, was debited twice in the Discounts Allowed Account
 Goods costing $420 taken by the owner of the business for own use were credited
to his Drawings Account
 Rent received, $420, was credited twice in the Rent Receivable Account

Explaination
“A” option is correct as it involves the following effects:

11 A truck cost $8 000. The price included $36 for petrol. The total payment of $8 000 was
debited
the Truck Account.
What is the effect on the Income statement and Balance Sheet?

 no effect (Income Statement) no effect (Balance Sheet)

 profit overstand by $36 (income statement) non-current assets overstand by $36
(balance sheet)
 profit overstated by $36 (income statement) non-current assets understated by $36
(blance sheet)
 profit understated by $36 (income statement) non-current assets understated by
$36 (balance sheet)

Explaination
The error of wrong inclusion of petrol expense in the truck account has the following effects.
12 A bookkeeper mistakenly treats a capital expenditure item as revenue expenditure. What is
the
effect of this error?

 gross profit is understated

 total assets are overstated
 net profit is overstated
 total assets are understated

INCORRECT
<img class=”alignnone size-full wp-image-54″ src=”https://www.playaccounting.com/wp-
content/uploads/2016/01/sad.png” alt=”sad” width=”32″ height=”32″ /> Your answer is incorrect.
The Correct answer is (option 4).
Explaination
Effects of this error are

13 X and C have to obtain two machines to make one of their products. Machines P and Q
may be
purchased or, if preferred, similar machines may be hired. The table shows details of the
machines.

All the machines will produce the same revenue each year.
Which choice of machines will produce the greatest net profit in the first year?

 P and Q (Purchase) - (Rent)

 P (Purchase) 1 machine (Rent)
 Q (Purchase) 1 machine (Rent)
 - (Purchase) 2 machines (Rent)
Explaination

As annual cost of machine Q is lowest so it should be chosen with one of the rental machines
which have costs lower than machine P; so “3” option is correct.
14 A vehicle costing $20 000 is depreciated by 20% per annum on the diminishing balance
method.
What is the depreciation charge at the end of the second year?

 $3,200
 $4,000
 $6,400
 $8,000

15 A machine bought two years ago for $20 000 is sold for •$13 000. Plant and Machinery is
depreciated by 10% on cost.
What is the balance on the Provision for Depreciation of Plant and Machinery Account after this
sale, if provision for depreciation before this sale was $28 000?

 $22,000
 $24,000
 $26,000
 $28,000

Explaination

16 What happens to the balance of the Bad Debts Account at the end of a financial year?

 transferred to the Trading section of income statement.

 shown as a deduction from trade receivables in the Balance Sheet
 transferred to the Profit and Loss section of income statement
 entered in the Cash Book as an expense
Explaination
 “C” option is correct as like all other Income statement items bad debts are closed to
Income statement

17 A social club’s receipts and payments account for 1996 showed rent paid as $4 000. On 1
January
1996 rent owed by the club was $800. On 31 December 1996 Rent owed by the club was
$1000.
What is the amount charged for rent in the income and expenditure account for 1996?

 $4,000
 $4,200
 $4,800
 $5,000

Explaination

18 A business rented premises to a tenant from 1 April 1996 for $10 000 a year. Rent received
by the
business was $5 000 on 1 May 1996 and $5 000 on 1 November 2018.1n the business’s
Income
statement for the year ended 31 December 2018, what is the amount shown for rent?

 $7,500 debit
 $7,500 credit
 $10,000 debit
 $10,000 credit

Explaination
Realisation and Matching concepts state that income is recorded in the books when it is earned
whether received or not. As rental receipt of $10 000 covers a period of 12 months from 1 April
2018 to 31 March 1997 whereas business year ends on 31 December 2018. So up to that date
rent of only 9 months have expired i.e. from 1 April 2018 to 31 December 2018; so $7 500
($10000 x %) will be reported as rental income for the year. As income has a credit nature so it
will be shown in the income statement as a credit entry.

19 A business allowed Smith, a customer, $30 cash discount. This was entered correctly in the
Discount Allowed Account, but omitted from Smith’s account. A suspense account was opened.
Which correcting entries are required to close the suspense account?

 debit Smith's account $30, credit suspense account $30

  debit suspense account $30, credit Discount Allowed Account $30
 debit suspense account $30, credit Smith's account $30
 debit Smith's account $30, credit Discount Allowed Account $30

CORRECT

Awesome! your answer is correct.

Explaination

20 Which item would not appear in a Sales Ledger Control Account?

 discounts allowed
 interest charged on overdue accounts
 provision for bad debts
 sales returns
Explaination
“C” is the right option. As provision for bad debts is created out of profits i.e. when it
increases; profit reduces and vice-e-versa for the contrary. So it is not recorded in the
total trade receivables account or sales ledger control account.

21 What is the purpose of control accounts?

 to calculate the sales and purchases

 to find errors quickly
 to make the trial balance balanced
 to prevent errors
Explaination
There are many other items in the trial balance in addition to control account items so it
cannot help to make the trial balance balanced on its own (“3” option), As errors would
have already incurred so control accounts cannot prevent errors (“4” option). Errors in
the personal accounts and in the books of prime entry can be detected by comparing
their respective balances so “2” option is correct.

22 Inventory at 31 December 2017 overstated by $6 000.

What was the effect on the gross profit for the year to 31 December 2018?

 S6 000 overstated
 $6 000 understated
 $12 000 overstated
 nil effect
Explaination
Inventory at 31 December 2017 will be the opening inventory of 2018. So its overstatement will
increase cost of sales of 2018 to which it is added which will ultimately understate profits by $6
000.
23 The table shows data relating to two departments of the same business.

Head office expenses will not be reduced by the closure of a department.

Which action will result in the highest profit?

 close department 1
 close department 2
 close both departments
 keep both departments open

Explaination
Department 1 should not be closed as it is generating positive profits Of $20 000 whereas
although department 2 is not producing any profit but if it is closed then head office expenses of
S30 000 allotted to the department 2 will be charged to department 1 which will reduce existing
profits of S20000 ($20 000 + Nil) to a loss of $10 OOO ($20 000 – $30 000).

24 A Trial Balance showed:

The Provision is to be maintained at 5% of Trade receivables.

How would the Provision be shown in the Balance Sheet?

 a liability of $1,100
 a deduction from receivables of $1,100
 a liability of $1,250
 a deduction from receivables of $1,250
Explaination
Provision for bad debts is a contra asset so it is deducted from trade receivables.
Moreover its
amount be S1 250 (S25 000 5%); so “4” option is correct.
25 A business had working capital of $6 000 at 31 January. On 2 February, trade receivables
paid $1
150 in full settlement of debts $1 200, and damaged inventory costing $200 was written off.
What was the working capital at close of business on 2 February?

 $4,600
 $5,750
 $6,950
 $7,150
Explaination

26 How is an invoice for an expense owing shown in the Balance Sheet?

 current asset
 non-current asset
 current liability
 non-current liability

Explaination
Expense owing means expense, which has been incurred, but payment for it is yet to be made;
so it is a liability. Moreover as its amount is payable within one year so is shown as a current
liability.
27 How are non-current assets normally recorded in a balance sheet?

 at book value
 at cost
 at replacement cost
 at scrap value

28 If partners do not have any agreement, how should profits or losses be shared?

 equally
 equally after interest has been allowed on •capital
 in proportion to the amount of time that the partners work
 in the ratio of the partners' individual capitals
29 A manufacturer buys a machine for $20 000. Its estimated life is five years with a scrap
value of
$10 000. Depreciation is charged on the straight-line method.
What is the percentage rate of depreciation on an annual basis?

 5%
 10%
 20%
 50%

30 Bill and Ben are in partnership sharing profit; and losses in the ratio 3:2. Bill receives a
salary of
$12,000 per year. The firm’s net profit for the year is $52,000.
What are the amounts to be credited to the partners’ Current Accounts?

 Bill $26,000, Ben $26,OOO

 Bill $31 200, Ben $20 800
 Bill $36 000, Ben $16 OOO
 Bill $24 000, Ben $16 OOO

CORRECT

Awesome! your answer is correct.

Explaination
Amounts to be credited to the partner’s current accounts will be

31 Which of the following is similar to a club’s receipts and payments account?

 a balance sheet
 a cash or bank account
  an income and expenditure account
 an income statement
Explaination
“2” option is correct as cash or bank account also shows details of receipts and
payments Of cash.

32 The following information is taken from a sole trader’s accounts:

Opening Capital $12 000
Closing Capital $13 800
Net Profit $3 000
What are the trader’s drawings?

 $1 200
 $1 800
 $4 800
 $22 800

Explaination

As through “Financed by” section of a sale trader; we know

As we have amounts of three items given in the above formula, so we can interpolate the
figures to find out amount of drawings i.e.

33 What is a limited company’s authorized capital?

 capital the company is allowed to raise

 issued capital plus loan capital
 paid up share capital
 shares issued

34 What is the main reason for preparing a manufacturing account?

 to calculate the cost of overheads

 to calculate the cost of production
 to calculate the cost of raw materials used
 to calculate the prime cost
Explaination
 “2” option is correct as is also the answer (last item) of the manufacturing account;
whereas the remaining items are simply used to calculate cost of production.

35 A manufacturing business extracts the following information from its books:

Direct materials $14 000
Direct labour $11 000
Indirect expenses $4000
What is the amount of prime cost?

 $18 000
 $21 000
 $25 000
 $29 000

Explaination

36 The policy of a manufacturing company is to state its profit fairly.

On which basis should its inventory of finished goods is valued in its accounts?

 prime cost, $20 000

 cost of production, $50 000
 cost of similar goods bought from another supplier, $55 000
 price at which goods were transferred from the factory to the warehouse, $60 000

Explaination
Obviously inventory should be recorded at that cost, which has actually been incurred to bring
them in a saleable condition i.e., cost of production.

37 A firm’s sales are $100 000, the expenses are $30 000 and the net profit is $20 000.
What is the gross profit as a percentage of the sales?

 10%
 50%
 70%
 80%
38 A trader made the following forecasts for the business for the next financial year:
Average inventory at cost: $80 000
Rate of inventory turnover: 6 times
Gross profit margin as a percentage of cost: 25%
What are the forecast sales for the next financial year?

 $120 000
 $480 000
 $576 000
 $600 000

39 Business X is managed by its owner. It pays rent for its premises. Business Y owns its
premises. The owner employs a manager to run the business for him. The table shows data
relating to the two businesses.

Which profit figures allow a proper comparison of the two businesses to be made?

 Business X ($82 000), Business Y ($60 000)

 Business X ($82 000), Business Y ($100 000)
 Business X ($100 000), Business Y ($100 000)
 Business X ($82 000), Business Y ($118 000)

INCORRECT

Your answer is incorrect. The Correct answer is (option 1).

Explaination
For a proper comparison, both businesses should have same facilities. As Business X is not
paying manager’s salary, if salary would had been paid profit figure would be $82 000 ($100
000 — $18 000). Likewise Business Y is not paying rent of premises, if rent would had been
paid, profit figure would be $60 000 ($100 000 – $40 000); so “1” option is correct.
40 What is the meaning of the money measurement concept?

 accounts are kept on the double entry basis

 assets are normally shown at cost price
 only items with monetary value are included in the accounts
 profits are calculated on the basis of cash received less cash paid