Month: May 2019

When preparing the financial statements of an entity, the going concern concept should be applied, only if the entity concerned…?

Select ONE answer:

1. is not expected to incur losses in the foreseeable future.
2. will never be wound up.
3. is expected to continue in operational existence for the foreseeable future at a level of activity not significantly less than its current level of activity.
4. is not expected to be able to continue operating.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 3

1. The going concern concept is concerned with the existence (survival) of a firm, not its profitability. Obviously, a firm will not survive if it repeatedly incurs losses over the long- term. However, many firms incur losses on an occasional basis but remain in business because of the more frequent years in which they earn profits.
2. The going concern concept is concerned with the foreseeable future. not with eternity.
3. Correct
4. A firm which is not expected to be able to continue operating is not a going concern. and therefore, the going concern concept should not be applied in this case.

 

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The value of a firm’s stock at the end of an accounting period is found by?

Select ONE answer:

1. stocktaking.
2. looking in the stock account in the nominal (general) ledger.
3. deducting the total of the firm’s purchases from that of its sales.
4. deducting the firm’s cost of, sales from the total of its sales.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Stocktaking means counting the quantity of each item in stock, valuing each item individually and adding all of the individual values together to get the total value of stock.
2. There isn‘t a stock account in the nominal (general) ledger.
3. Sales – Purchases is not equal to stock.
4. Sales – Cost of Sales = Gross Profit (not the value of stock).

 

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Tom set up a business on 1 January.

He bought fixed assets costing £53,000 and stock costing £6,600.  He had financed these in advance of commencing business with a personal loan of £25,000 from his brother and a business loan from a bank.

On 31 December of the same year, his net assets totalled £37,200.  His net profit for the year was £21,100.

Tom’s drawings during the year were?

Select ONE answer:

1. £1,300
2. £8,900
3. £16,100
4. £18,500

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – Amount of the business bank loan = (£53,000 + £6,600) – £25,000 = £34,600. Capital at 1 January = Assets at 1 January – Liabilities at 1 January = (£53,000 + £6,600) – £34,600 :- £25,000. This £25,000 could also be viewed as Tom’s personal interest in the business (the loan he got from his brother). Capital at 31 December = Assets at 31 December – Liabilities at 31 December. This is equal to net assets at 31 December = £37,200. But, Capital at 31 December = Capital at 1 January + Net profit for the year – Drawings during the year. Therefore, £37,200 = £25,000 + £21,100 – Drawings during the year. Therefore, drawings during the year = £8,900.
3. Not correct
4. Not correct

 

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If, in the accounts of a sole trader, £2,500 was debited to the purchases account instead of being debited to the drawings account, then….?

Select ONE answer:

1. gross profit would be overstated.
2. the total of expenses would be understated.
3. net profit would be understated.
4. capital would be understated.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Purchases (and therefore the cost of sales) would be overstated. Therefore, gross profit would be understated.
2. There would not be any effect on the total expenses.
3. Correct – Purchases would be overstated because there would be a debit entry in the purchases account which shouldn’t be there. As the purchases figure is one of the components of the cost of sales figure, the cost of sales figure would also be overstated. Therefore, gross profit and consequently net profit would be understated.
4. Closing capital (after deducting drawings) would be overstated because the amount of drawings deducted would be understated (because a debit entry has been omitted from the drawings account).

 

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The proprietor of a firm took some of the firm’s stock for his own use without paying for it.

As he considered this to be his ‘right‘, he did not record this transaction.

The result of this is that when final accounts are prepared for the firm…?

Select ONE answer:

1. both its net profit and its closing stock will be overstated.
2. its net profit will be understated and its closing stock will be unaffected.
3. both its net profit and its closing stock will be understated.
4. its net profit will be overstated and its closing stock will be unaffected.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – The correct double-entry to record stock withdrawn from a firm by the proprietor, without him’ paying for it, is to debit the drawings account and credit the purchases account. If these entries are not made, then the figure for drawings in the balance sheet will be understated and the purchases figure in the trading account will be overstated, thus overstating the cost of sales and understating both the gross profit and the net profit. The closing stock figure will not be affected as this figure is arrived at as a result of stocktaking at the balance sheet date.
3. Not correct
4. Not correct

 

This work is licensed under a Creative Commons Attribution 4.0 International License.