Quiz 3 – CFAB 6

1. 6. 11. 16. 21. 26.

2. 7. 12. 17. 22. 27.
3. 8. 13. 18. 23. 28.
4. 9. 14. 19. 24. 29.
5. 10. 15 20. 25. 30.

1. Which of the following are advantages of trading as a limited liability company?

1 Operating as a limited liability company makes raising finance easier because additional shares
can be issued to raise additional cash.
2 Operating as a limited liability company is more risky than operating as a sole trader because
the shareholders of a business are liable for all the debts of the business whereas the sole trader is
only liable for the debts up to the amount he has invested.
A 1 only
B 2 only
C Both 1 and 2
D Neither 1 or 2

2. Identify which of the following statements are true or false.

1. The directors of a company are ultimately responsible for the preparation of financial
statements, even if the majority of the work on them is performed by the finance department.
2. If financial statements are audited, then the responsibility for those financial statements
instead falls on the auditors instead of the directors.
3. There are generally no laws surrounding the duties of directors in managing the affairs of
a company.
A 1 only
B 2 only
C 2 and 3 only
D 1 and 3 only

3. Which of the following statements is/are true?

1 Directors of companies have a duty of care to show reasonable competence in
their management of the affairs of a company.
2 Directors of companies must act honestly in what they consider to be the best interest of the

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company.
3 A Director's main aim should be to create wealth for the shareholders of the company.
A 1 and 2 only
B 2 only
C 1, 2 and 3
D 1 and 3 only

4. Which accounting concept should be considered if the owner of a business takes goods
from inventory for their own personal use?
A The materiality concept
B The accruals concept
C The going concern concept
D The business entity concept

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 concept governs the above?
A The business entity concept
B The materiality concept
C The accruals concept
D The duality concept

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
C The materiality concept
D The going concern concept

7. According to the IASB's Conceptual Framework for Financial Reporting, which TWO
of the following are part of faithful representation?
1 It is neutral
2 It is relevant
3 It is presented fairly
4 It is free from material
error A 1 and 2

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 B 2 and 3
C 1 and 4
D 3 and 4

8. Which of the following accounting concepts means that similar items should receive
a similar accounting treatment?
A Conformity
B Accruals
C Matching
D Consistency

9. Listed below are some characteristics of financial information.

1 Relevance
2 Consistency
3 Faithful representation
4 Accuracy
Which TWO of these are qualitative characteristics of financial information according to the
IASB's Conceptual Framework for Financial Reporting?
A 1 and 2
B 2 and 4
C 3 and 4
D 1 and 3

10. Which ONE of the following statements describes faithful representation, a qualitative
characteristic of faithful representation?
A Revenue earned must be matched against the expenditure incurred in earning it.
B Having information available to decision-makers in time to be capable of influencing
their decisions.
C The presentation and classification of items in the financial statements should stay the
same from one period to the next.
D Financial information should be complete, neutral and free from error.

11. Listed below are some comments on accounting concepts.

1 Financial statements always treat the business as a separate entity.
2 Materiality means that only items having a physical existence may be recognised as assets.
3 Provisions are estimates and therefore can be altered to make the financial results of a business

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more attractive to investors.
Which, if any, of these comments is correct, according to the IASB's Conceptual Framework for
Financial Reporting?
A 1 only
B 2 only
C 3 only
D None of them
12. Which of the following statements about accounting concepts and the characteristics of
financial information are correct?
1 The concept of accruals requires transactions to be reflected in the financial statements
once the cash or its equivalent is received or paid.
2 Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements.
3 Based on faithful representation, it may sometimes be necessary to exclude material
information from financial statements due to difficulties establishing an accurate
figure.
A 1 only
B 1 and 2 only
C 2 only
D 2 and 3 only

13. The IASB's Conceptual Framework for Financial Reporting gives six
qualitative characteristics of financial information. What are these six
characteristics?
A Relevance, Faithful representation, Comparability, Verifiability, Timeliness and
Understandability
B Accuracy, Faithful representation, Comparability, Verifiability, Timeliness and
Understandability
C Relevance, Faithful representation, Consistency, Verifiability, Timeliness and
Understandability
D Relevance, Comparability, Consistency, Verifiability, Timeliness and
Understandability

14. Which one of the following is NOT a qualitative characteristic of financial information
according to the Conceptual Framework for Financial Reporting?
A Faithful representation
B Relevance
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C Timeliness

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 D Accruals

15. According to the IASB Conceptual Framework which of the following is NOT an
objective of financial statements?
A Providing information regarding the financial position of a business
B Providing information regarding the performance of a business
C Enabling users to assess the performance of management to aid decision making
D Providing reliable investment advice

16. Identify whether each of the following statements is TRUE or FALSE.

A. Companies should never change the presentation or classification of items in their
financial statements, even if there is a significant change in the nature of operations.
B. Companies should create provisions in times of company growth to be utilised in more
difficult times, to smooth profits.

17. 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

18. A trader's net profit for the year may be computed by using which of the
following formulas?
A Opening capital + drawings – capital introduced – closing capital
B Closing capital + drawings – capital introduced – opening capital
C Opening capital – drawings + capital introduced – closing capital
D Opening capital – drawings – capital introduced – closing capital

19. The profit earned by a business in 20X7 was £72,500. The proprietor injected new
capital of £8,000 during the year and withdrew goods for his private use which had cost
£2,200.
If net assets at the beginning of 20X7 were £101,700, what were the closing net assets?
A £35,000
B £39,400
C £168,400
D £180,000

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20. The profit made by a business in 20X7 was £35,400. The proprietor injected new
capital of £10,200 during the year and withdrew a monthly salary of £500.
If net assets at the end of 20X7 were £95,100, what was the proprietor's capital at the beginning
of the year?
£ (2 marks)
21. A sole trader took some goods costing £800 from inventory for his own use. The normal
selling price of the goods is £1,600.
Which of the following journal entries would correctly record this?
DEBIT CREDIT
£ £
A. Inventory account 800
Purchases account 800
B Drawings account 800
Purchases account 800
C Sales account 1,600
Drawings account 1,600
D Drawings account 800
Sales account 800 (2 marks)
22. A business can make a profit and yet have a reduction in its bank balance. Which ONE
of the following might cause this to happen?
A The sale of non-current assets at a loss
B The charging of depreciation in the statement of profit or loss
C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers

23. The net assets of Altese, a trader, at 1 January 20X2 amounted to £128,000. During the
year to 31 December 20X2 Altese introduced a further £50,000 of capital and made
drawings of £48,000. At 31 December 20X2 Altese's net assets totalled £184,000.
What is Altese's total profit or loss for the year ended 31 December 20X2?
A £54,000 profit
B £54,000 loss
C £42,000 loss
D £58,000 profit

24. Jones Co has the following transactions:

1 Payment of £400 to J Bloggs for a cash purchase

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2 Payment of £250 to J Doe in respect of an invoice for goods purchased last month
What are the correct ledger entries to record these transactions?
A DEBIT Cash £650
CREDIT Purchases £650
B DEBIT Purchases £650
CREDIT Cash £650
C DEBIT Purchases £400
DEBIT Trade Payables £250
CREDIT Cash £650
D DEBIT Cash £650
CREDIT Trade Payables £250
CREDIT Purchases £400
25. T Tallon had the following transactions:
1 Sale of goods on credit for £150 to F Rogit
2 Return of goods from B Blendigg originally sold for £300 in cash to B Blendigg
What are the correct ledger entries to record these transactions?
A DEBIT Receivables £150
DEBIT Sales Returns £300
CREDIT Sales £150
CREDIT Cash £300
B DEBIT Sales £150
DEBIT Cash £300
CREDIT Receivables £150
CREDIT Sales Returns £300
C DEBIT Receivables £450
CREDIT Sales £150
CREDIT Sales Returns £300
D DEBIT Sales Returns £300
DEBIT Sales £150
CREDIT Cash £450
26. Which of the following documents should accompany a return of goods to a supplier?
A Debit note
B Remittance advice
C Purchase invoice
D Credit note

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EXERCISE 3.1
The following information is relevant for Questions 4.1 and 4.2.
On 1 May 20X9 Marshall's cash book showed a cash balance of £224 and an overdraft of £336.
During the week ended 6 May the following transactions took place.
May 1 Sold £160 of goods to P Dixon on credit.
May 1 Withdrew £50 of cash from the bank for business use.
May 2 Purchased goods priced at £380 from A Clarke, on credit, less 15% trade discount.
May 2 Repaid a debt of £120 owing to R Hill, taking advantage of a 10% settlement discount.
The payment was by cheque.
May 3 Sold £45 of goods for cash.
May 4 Sold £80 of goods to M Maguire on credit, offering a 12,5% discount if payment made
within 7 days. Marshall expects Maguire to take up this discount.
May 4 Paid a telephone bill of £210 by cheque.
May 4 Purchased £400 of goods on credit from D Daley.
May 5 Received a cheque from H Larkin for £180.
May 5 Sold £304 of goods to M Donald on credit.
May 5 Purchased £135 of goods from Honour Co by cheque.
May 6 Received a cheque from D Randle for £482.
May 6 Purchased £100 of goods on credit from G Perkins
29. What is the total of the sales day book?
30. What is the total of the purchases day book?

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Quiz 3- Answer
1. A 6. C 11. A 16. F-F 21. B 26. A
2. A 7. C 12. C 17. C 22. C
3. C 8. D 13. A 18. B 23. A
4. D 9. D 14. D 19. D 24. C
5. C 10. D 15. D 20. 55,500 25.A

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