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1. Which one of the following statements is true of the historical cost convention?
A. It fails to take account of changing price levels over time
B. It records only past transactions
C. It values all assets at their cost to the business, without any adjustment for
depreciation
D. It has been replaced in accounting records by a system of current cost accounting

2. Which one of the following is the main aim of accounting?

A. To maintain ledger accounts for every asset and liability

B. To provide financial information to users of such information
C. To produce a trial balance
D. To record every financial transaction individually

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3. Which accounting concept or convention which, in times of rising prices, tends to

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understate asset values and overstate profits?

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A. The going concern concept
B. The prudence concept
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C. The realisation concept
D. The historical cost convention
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4. Which accounting concept should be considered if the owner of a business takes

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goods from inventory for his own personal use?

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A. The fair presentation concept

B. The accruals concept
C. The going concern concept
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D. The business entity concept

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5. Sales revenue should be recognised when goods and services have been supplied;
costs are incurred when goods and services have been received. Which accounting
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concept governs the above?

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A. The business entity concept

B. The materiality concept
C. The accruals concept
D. The duality concept
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6. Which accounting concept states that omitting or misstating this information could
influence users of the financial statements?
A. The consistency concept
B. The accruals concept

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C. The materiality concept

D. The going concern concept

7. Which one of the following can the accounting equation can be rewritten as?
A. Assets + profit – drawings – liabilities = closing capital
B. Assets – liabilities – drawings = opening capital + profit
C. Assets – liabilities – opening capital + drawings = profit
D. Assets – profit – drawings = closing capital – liabilities (2 marks)

8. A trader's net profit for the year may be computed by using which of the following
formulae?

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A. Opening capital + drawings – capital introduced – closing capital

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B. Closing capital + drawings – capital introduced – opening capital

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C. Opening capital – drawings + capital introduced – closing capital

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D. Opening capital – drawings – capital introduced – closing capital

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9. A business can make a profit and yet have a reduction in its bank balance. Which
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ONE of the following might cause this to happen?

A. The sale of non-current assets at a loss

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B. The charging of depreciation in the statement of profit or loss

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C. The lengthening of the period of credit given to customers

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D. The lengthening of the period of credit taken from suppliers

10. Which of the statements below correctly states the purpose of the asset register?
A. An internal control to ensure details of all assets are readily available in the event
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of loss or theft
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B. To ensure the organisation is aware of the age of plant and machinery

C. An internal control to ensure information relating to non-current assets in the
nominal ledger and the financial statements is correct
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D. To enable the organisation to comply with IAS 16 Property, plant and equipment
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11. Which one of the following statements correctly defines non-current assets?

A. Assets that are held for use in the production of goods or services and are
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expected to be used during more than one accounting period

B. Assets which are intended to be used by the business on a continuing basis,
including both tangible and intangible assets that do not meet the IASB definition of
a current asset
C. Non-monetary assets without physical substance that are controlled by the entity
and from which future benefits are expected to flow

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D. Assets in the form of materials or supplies to be consumed in the production

process

12. 7.15 Which of the following statements are correct?

1. IAS 16 Property, plant and equipment requires entities to disclose the purchase
date of each asset.
2. The carrying amount of a non-current asset is the cost or valuation of that asset
less accumulated depreciation.
3. IAS 16 Property, plant and equipment permits entities to make a transfer from the
revaluation surplus to retained earnings for excess depreciation on revalued assets.
4. Once decided, the useful life of a non-current asset should not be changed.

A. 1, 2 and 3

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B. 2 and 3 only

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C. 2 and 4 only

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D. 1, 2 and 4 only

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13. Which of the following should be disclosed for tangible non-current assets according
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to IAS 16 Property, plant and equipment?

1. Depreciation methods used and the total depreciation allocated for the period
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2. A reconciliation of the carrying amount of non-current assets at the beginning and

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end of the period

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3. For revalued assets, whether an independent valuer was involved in the valuation
4. For revalued assets, the effective date of the revaluation

A. 1, 2 and 4 only
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B. 1 and 2 only
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C. 1, 2, 3 and 4
D. 1, 3 and 4 only
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14. Which of the following should be included in the reconciliation of the carrying
amount of tangible noncurrent assets at the beginning and end of the accounting
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period?
1. Additions
2. Disposals
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3. Depreciation
4. Increases/decreases from revaluations

A. 1 and 3 only
B. 1, 2, and 3 only
C. 1, 3 and 4
D. 1, 2, 3 and 4

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15. Which of the following best explains what is meant by 'capital expenditure'?

A. Expenditure on non-current assets, including repairs and maintenance

B. Expenditure on expensive assets
C. Expenditure relating to the issue of share capital
D. Expenditure relating to the acquisition or improvement of non-current assets (2
marks)

16. Which of the following costs would be classified as capital expenditure for a
restaurant business?

A. A replacement for a broken window

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B. Repainting the restaurant

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C. An illuminated sign advertising the business name

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D. Cleaning of the kitchen floors

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17. Which one of the following costs would be classified as revenue expenditure on the
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invoice for a new company car?

A. Road tax
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B. Number plates
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C. Fitted stereo radio

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D. Delivery costs

18. Which one of the following assets may be classified as a non-current asset in the
financial statements of a business?
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A. A tax refund due next year

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B. A motor vehicle held for resale

C. A computer used in the office
D. Cleaning products used to clean the office floors
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19. Which of the following items should be included in current assets?

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(i) Assets which are not intended to be converted into cash

(ii) Assets which will be converted into cash in the long term
(iii) Assets which will be converted into cash in the near future
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A. (i) only
B. (ii) only
C. (iii) only
D. (ii) and (iii)
20. According to IAS 38 Intangible assets, which of the following statements is/are
correct?

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1. Capitalised development expenditure must be amortised over a period not

exceeding five years.
2. If all the conditions specified in IAS 38 are met, development expenditure may be
capitalised if the directors decide to do so.
3. Capitalised development costs are shown in the statement of financial position
under the heading of non-current assets.
4. Amortisation of capitalised development expenditure will appear as an item in a
company's statement of changes in equity.
A. 3 only
B. 2 and 3
C. 1 and 4
D. 1 and 3

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those who ask.”
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