Month: December 2019

A sole trader rents the premises from which he operates and does not pay or receive any other rent.

On 1 January 1995 the rent account in his ledger showed accrued rent payable of £2,500.

During 1995 the trader paid rent totalling £12,750 including all bills in respect of 1995 and one bill for £3,750 in respect of the three months ended on 31 January 1996.

The charge for rent, in the profit and loss account for 1995 was:

Select ONE answer:

1. £9,000
2. £11,500
3. £12,750
4. £14,000

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
   Dr Bank £12,750
   Cr Balance b/d £2,500
   Cr Profit and Loss £9,009
   Cr Balance c/d (£3,750 / 3 prepaid) £1,250
   Total £12,750
2. Not correct
3. Not correct
4. Not correct

 

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

A firm which commenced business on 1 January 1994 rents the premises from which it operates. During 1995 the firm paid rent of £1,320.

This was 10% more than the total rent expense for 1994 – only half of which was paid by 31 December 1994.

If there is no accrual or prepayment in respect of rent at 31 December 1995, the rent expense for the year then ended is:

Select ONE answer:

1. £600
2. £720
3. £1,200
4. £1,320

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
   £1,320 = 1994 expense + 10%.
   Therefore, 1994 expense = (£1,320/ 110 * 100) = £1,200.
   Only half of the 1994 expense (£600) was paid in 1994.
   Therefore, the other half (£600) was due at 1 January 1995.
   As there is no accrual or prepayment at 31 December 1995, the £1,320 paid has to be made up of the £600 in respect of 1994 and the balance – £720 – in respect of the full expense for 1995.
3. Not correct
4. Not correct

 

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

During 1994 an employee borrowed £10,000 from the firm where he worked at a simple interest rate of 10% per annum, fixed for the three years over which the loan was to be repaid in equal monthly installments.

On 1 January 1995, the employee had paid £100 interest in advance. On 31 December 1995, the employee was in arrears with his interest payments to the extent of £300.

The figure for interest receivable on this loan in the firm’s profit and loss account for 1995, is:

Select ONE answer:

1. £850
2. £1,000
3. £1,150
4. £1,250

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 – In accordance with the accruals concept, the income figure to be shown in the profit and loss account is the income earned during the period covered by the profit and loss account, irrespective of whether received or not 2 £10,000 * 10% = £1,000
3. Not correct
4. Not correct

 

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

On 1 January 1995. a new firm, whose financial year-end is 31 December, rented premises at a cost of £10,000 per annum. payable quarterly in arrears.

Four payments, each of £2,500, were made on 31 March 1995, 2 July 1995, 4 October 1995 and 6 January 1996.

The rent figure in the preliminary trial balance as at 31 December 1995 should be:

Select ONE answer:

1. £7,500
2. £10,000
3. £12,500
4. £30,000

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 – The figure shown in the preliminary trial balance is the balance on the rent account before any adjustments are made in respect of accruals or prepayments at the end of the accounting period. This consists of any opening balance plus the payments made prior to the date of the preliminary trial balance. As this firm is new, there is no opening balance. Therefore, the figure in the trial balance will be £0 + three payments of £2,500 each = £7,500.
2. Not correct
3. Not correct
4. Not correct

 

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

If a £500 salaries accrual was inadvertently treated as a prepayment, net profit would be . . .

Select ONE answer:

1. overstated by £500.
2. understated by £500.
3. overstated by £1,000.
4. understated by £1,000.

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. Not correct
2. Not correct
3. Correct – For example, if, before any accrual or prepayment adjustments were made, net profit was £2,000 then, by accruing £500 in respect of wages, net profit would be £1,500 whereas by recording a prepayment of £500 in respect of wages net profit would be £2,500 — a difference of £1,000 (overstated).
4. Not correct

 

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