Tag: AQA

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

 

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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

 

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Which of the following statements is correct?

Select ONE answer:

1. The accounting concept which gives rise to adjustments at the end of an accounting period in respect of accruals and prepayments is the consistency concept.
2. A prepayment adjustment should be made in respect of each expense which is overpaid at the year-end.
3. Revenue should not be shown in the profit and loss account unless the associated money has been received.
4. None of the above.

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 – The accounting concept which gives rise to adjustments at the end of an accounting period in respect of accruals and prepayments is the accruals concept.
2. Correct
3. Not correct – Revenue should be shown in the profit and loss account even when the associated payment has not been received so long as the revenue relates to the current accounting period and payment is likely to be received. For example, credit sales, where payment has not yet been received are included in the profit and loss account as well as cash sales, where payment has been received. The amount not yet received is shown as debtors in the balance sheet.
4. Not correct

 

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Advertising expenditure paid by a firm during its first year in business but relating to a subsequent accounting period should be shown in the financial statements for the current accounting period . . .

Select ONE answer:

1. as a prepayment in the balance sheet and as an expense in the profit and loss account.
2. as a deduction from the figure for the bank in the balance sheet and as revenue in the profit and loss account.
3. as a prepayment in the balance sheet and as a deduction from the total of advertising expenditure paid in the profit and loss account.
4. as an accrual in the balance sheet and as revenue in the profit and loss account.

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 – Any expense paid in advance is a prepayment. In accordance with the accruals concept, the amount to be shown in the profit and loss account in relation to any expense is the amount of the expense relevant to that period. In this case, the relevant amount is less than the amount paid, by the amount of the prepayment.
4. Not correct

 

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The effect of the year-end adjustment required in respect of rates prepaid is . . .

Select ONE answer:

1. to decrease the figures shown in the balance sheet for both creditors and prepayments.
2. to decrease both the rates expense shown in the profit and loss account and the figure shown in the balance sheet for prepayments.
3. to increase the figures shown in the balance sheet for both prepayments and creditors.
4. to increase the figure shown in the balance sheet for prepayments and to decrease the rates expense shown in the profit and loss account.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Prepayments, being money paid for benefits yet to be received, are assets. As they are amounts paid in respect of future accounting periods, the expense to be shown in the profit and loss account for a period will be less than the amount paid during that period, by the amount of the prepayment (an application of the accruals concept).

 

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