Q: Paul started a business with £400 cash, bought wrapping paper for £400, and sold three-quarters for £450. What is the profit for Monday?

$$450 - (\frac{3}{4} \times 400) = 450 - 300 = 150$$

Q: Which of the following best describes the accounting equation?

$$\text{Assets} = \text{Equity} + \text{Liabilities}$$

Question 1

Which of the following best describes the purpose of the statement of financial position?

Accepted Answer

To show the assets of a business and the claims on those assets at a specific point in time

Question 2

Paul started a business with £400 cash, bought wrapping paper for £400, and sold three-quarters for £450. What is the profit for Monday?

Accepted Answer

$$450 - (\frac{3}{4} 	imes 400) = 450 - 300 = 150$$

Question 3

Which of the following is NOT a characteristic required for an item to be recognized as an asset in the statement of financial position?

Accepted Answer

It must be a tangible item

Question 4

A business has total assets of £200,000 and total liabilities of £120,000. What is the equity?

Accepted Answer

$$200,000 - 120,000 = 80,000$$

Question 5

Which accounting convention requires that assets are shown at their original purchase price?

Accepted Answer

Historic cost convention

Question 6

Which of the following transactions will affect the equity of a business?

Accepted Answer

Received £8,000 from cash sale of inventories costing £7,000

Question 7

A company buys a motor van for £5,000 using cash. What is the effect on the accounting equation?

Accepted Answer

Total assets remain unchanged

Question 8

Which of the following best describes the dual aspect convention?

Accepted Answer

Each transaction has two aspects, both of which affect the statement of financial position

Question 9

A business has the following balances at year end: Assets £189,000, Liabilities £126,000, Owner withdrew £10,000 and introduced £18,000. Assets at start of year were £180,000, Liabilities £112,000. What is the profit for the year?

Accepted Answer

£13,000 (profit)

Question 10

Which of the following is an example of an intangible asset?

Accepted Answer

Patents

Question 11

How are current assets normally arranged on the statement of financial position?

Accepted Answer

In order of liquidity, starting with the most liquid

Question 12

Which accounting convention underpins the requirement to report inventories at the lower of cost or market value?

Accepted Answer

Prudence

Question 13

A business decides to revalue its property from £150,000 to £175,000. How would this affect the statement of financial position?

Accepted Answer

Increase property by £25,000, increase equity by £25,000

Question 14

Which of the following best describes the accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Equity} + 	ext{Liabilities}$$

Question 15

Which of the following is a limitation of the statement of financial position?

Accepted Answer

It only includes items that can be measured in monetary terms

Question 16

Which of the following is NOT a current liability?

Accepted Answer

Long-term borrowings

Question 17

Which statement about the business entity convention is correct?

Accepted Answer

The business and its owner are treated as separate and distinct for accounting purposes

Question 18

A company has the following balances: Cash £10,000, Buildings £75,000, Trade payables £25,000, Loans payable within one year £15,000, Trade receivables £55,000, Plant and equipment £30,000, Inventories £60,000. What is the total current assets?

Accepted Answer

£125,000

Question 19

Which of the following best describes impairment of an asset?

Accepted Answer

A significant fall in the value of an asset, requiring its carrying value to be reduced to the recoverable amount

Measuring and Reporting Financial Position: Study Notes for Financial Accounting Students

Study Guide - Practice Questions

Study Guide - Flashcards