Tag: Financial Accounting

The following statement applies to the use of the positive or negative method of direct confirmation of receivables.

For this statement, select whether it applies to a situation where the positive method should be used, to a situation where the negative method could be used, it depends on the size of the business, or it should be referred to a more senior auditor.

• A small number of large balances is involved.

Select ONE answer:

1. Depends on the size of the business
2. Positive method
3. Negative method
4. Consult a senior colleague

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 negative method of direct confirmation of receivables (i.e., only receiving responses by exception) could be used when a substantial number of misstatements is not expected and there is no need to believe that respondents will disregard these requests. In other circumstances the positive method should be used.
3. Not correct
4. Not correct

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

The following statement applies to the use of the positive or negative method of direct confirmation of receivables.

For this statement, select whether it applies to a situation where the positive method should be used, to a situation where the negative method could be used, it depends on the size of the business, or it should be referred to a more senior auditor.

• The assessed risk of material misstatement is high.

Select ONE answer:

1. Positive method
2. Negative method
3. Consult a senior colleague
4. Depends on the size of the business

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 negative method of direct confirmation of receivables (i.e., only receiving responses by exception) could be used when a substantial number of misstatements is not expected and there is no need to believe that respondents will disregard these requests. In other circumstances the positive method should be used.
2. Not correct
3. Not correct
4. Not correct

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

Direct confirmation of trade receivables provides evidence in respect of which ONE of the following assertions?

Select ONE answer:

1. Completeness
2. Occurrence
3. Accuracy, valuation and allocation
4. Rights and obligations

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 – Accuracy, valuation and allocation is not supported as we have no evidence that these receivables intend to pay. Completeness is not supported, as the list of receivables provided by the client is subject to direct confirmation (i.e., the test is for existence and ownership (= rights and obligations) on that list). Occurrence is a financial statement assertion that affects classes of transactions and not account balances.

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

Direct confirmation of trade receivables provides evidence in respect of which ONE of the following assertions?

Select ONE answer:

1. Completeness
2. Occurrence
3. Existence
4. Accuracy, valuation and allocation

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 – Accuracy, valuation and allocation is not supported as we have no evidence that these receivables intend to pay. Completeness is not supported as it is the list of receivables provided by the client that is subject to direct confirmation (i.e., the test is for existence and ownership (= rights and obligations) from that list). Occurrence is a financial statement assertion that affects classes of transactions and not account balances.
4. Not correct

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

Management should compare the cost and net realisable value for each item of inventory.

Which ONE of the following circumstances could result in net realisable value being HIGHER than cost?

Select ONE answer:

1. An increase in the cost of raw materials, which cannot be passed on to the customer
2. Trade discounts from suppliers
3. Errors in production
4. An increase in production overheads

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 – Trade discounts from suppliers would REDUCE cost
3. Not correct
4. Not correct

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