Q: According to the basic accounting equation, which formula correctly expresses the relationship between assets, liabilities, and owner's equity?

$$\text{Assets} = \text{Owner's Equity} + \text{Liabilities}$$

Q: A company purchased equipment for R100,000 on 1 January 2023. The equipment is depreciated at 20% per annum using the diminishing balance method. What is the depreciation expense for the second year (2024)?

$$\text{Depreciation} = R80,000 \times 20\% = R16,000$$

Q: A partnership agreement states that profits are to be shared in the ratio 3:2 between Partner A and Partner B. If the profit for the year is R50,000, how much does Partner B receive?

$$R50,000 \times \frac{2}{5} = R20,000$$

Q: A company has sales of R500,000 and cost of goods sold of R350,000. What is the gross profit percentage?

$$\frac{R500,000 - R350,000}{R500,000} \times 100 = 30\%$$

Question 1

Which of the following best describes the primary purpose of financial accounting within a business?

Accepted Answer

To produce financial statements that communicate the financial performance and position of an entity to external and internal users.

Question 2

According to the basic accounting equation, which formula correctly expresses the relationship between assets, liabilities, and owner's equity?

Accepted Answer

$$	ext{Assets} = 	ext{Owner's Equity} + 	ext{Liabilities}$$

Question 3

Which qualitative characteristic of financial statements ensures that information faithfully represents the economic events it purports to depict?

Accepted Answer

Faithful representation

Question 4

A company purchased equipment for R100,000 on 1 January 2023. The equipment is depreciated at 20% per annum using the diminishing balance method. What is the depreciation expense for the second year (2024)?

Accepted Answer

$$	ext{Depreciation} = R80,000 	imes 20\% = R16,000$$

Question 5

Which of the following is NOT considered a user of financial statements?

Accepted Answer

Competitors

Question 6

A business receives R12,000 in advance for services to be rendered over the next 6 months. At the end of the first month, how much should be recognized as income?

Accepted Answer

$$R2,000$$

Question 7

Which inventory valuation method calculates the cost of inventory based on the average cost of all units available for sale during the period?

Accepted Answer

Weighted Average Cost (WAC)

Question 8

A company has current assets of R150,000 and current liabilities of R100,000. What is the current ratio?

Accepted Answer

$$\frac{R150,000}{R100,000} = 1.5:1$$

Question 9

Which of the following best describes the accrual principle in accounting?

Accepted Answer

Income and expenses are recognized when they are earned or incurred, regardless of when cash is exchanged.

Question 10

A partnership agreement states that profits are to be shared in the ratio 3:2 between Partner A and Partner B. If the profit for the year is R50,000, how much does Partner B receive?

Accepted Answer

$$R50,000 	imes \frac{2}{5} = R20,000$$

Question 11

Which of the following is a disadvantage of the Payback Period method for investment appraisal?

Accepted Answer

It ignores the time value of money.

Question 12

A company issues 10,000 ordinary shares at R5 each. What is the total share capital raised?

Accepted Answer

$$10,000 	imes R5 = R50,000$$

Question 13

Which of the following ratios measures a company's ability to pay its short-term obligations using its most liquid assets?

Accepted Answer

Quick ratio (acid-test ratio)

Question 14

If a company has net income of R120,000 and 40,000 ordinary shares outstanding, what is the earnings per share (EPS)?

Accepted Answer

$$\frac{R120,000}{40,000} = R3.00$$

Question 15

Which of the following is NOT a component of working capital?

Accepted Answer

Property, plant, and equipment

Question 16

A company is considering a project with the following cash flows: Initial investment R50,000; Year 1: R20,000; Year 2: R20,000; Year 3: R20,000. What is the payback period?

Accepted Answer

2.5 years

Question 17

Which of the following best describes the concept of 'materiality' in financial reporting?

Accepted Answer

Only transactions above a certain monetary threshold that could influence users' decisions are reported.

Question 18

A company has sales of R500,000 and cost of goods sold of R350,000. What is the gross profit percentage?

Accepted Answer

$$\frac{R500,000 - R350,000}{R500,000} 	imes 100 = 30\%$$

Question 19

Which of the following is a reason for holding cash balances in a business?

Accepted Answer

To meet speculative opportunities and emergencies

Question 20

Which formula is used to calculate the Economic Order Quantity (EOQ)?

Accepted Answer

$$EOQ = \sqrt{\frac{2DS}{H}}$$

Financial Planning and Reporting 201: Module Guide and Study Notes

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