Question 1

What is the major purpose of depreciation?

Accepted Answer

A) to provide for the replacement of the asset. 
B) to spread the cost of the asset over its useful life, so that the cost of using it up is matched against income earned. 
C) to adjust the asset to its expected market value. 
D) none of the above. 
A) to provide for the replacement of the asset. 
B) to spread the cost of the asset over its useful life, so that the cost of using it up is matched against income earned. 
C) to adjust the asset to its expected market value. 
D) none of the above.

Question 2

On 31 December 2016, a new machine with a useful life of 6 years and an estimated residual value of zero was purchased by a business at a cost of $36,000. The amount of depreciation expense charged for the year ended 31 December 2018, using the reducing-balance method at a rate of 30% per annum, is:

Accepted Answer

A) $6,300. 
B) $7,560. 
C) $9,820. 
D) $1,800. 
A) $6,300. 
B) $7,560. 
C) $9,820. 
D) $1,800.

Question 3

A driver started a business on 1st of January 2018, hiring out his limousine for special occasions. Current regulations require the business to purchase a license that will expire after two years. The cost of the license is $16,000. Calculate the amount of license expense to be included in the income statement for the 6 months ended 30 June 2018.

Accepted Answer

A) $6,000. 
B) $4,000. 
C) $3,000. 
D) $12,000. 
A) $6,000. 
B) $4,000. 
C) $3,000. 
D) $12,000.

Question 4

What is the expense in the statement of financial performance which represents the purchase price of the goods that have been sold?

Accepted Answer

A) payments for stock. 
B) cost of sales. 
C) sales. 
D) merchandise. 
A) payments for stock. 
B) cost of sales. 
C) sales. 
D) merchandise.

Question 5

Under the accrual accounting approach, at which stage of the operating cycle would income be recognised by a timber yard from the sale of timber on credit?

Accepted Answer

A) Goods delivered to and accepted by customer. 
B) Money received from customer. 
C) Money banked by business. 
D) Order received from customer. 
A) Goods delivered to and accepted by customer. 
B) Money received from customer. 
C) Money banked by business. 
D) Order received from customer.

Question 6

If equity at the beginning of the period is $100,000 and at the end of the period is $100,000 and additional capital of $20,000 is paid into the business by the owner during the period, profit or loss is:

Accepted Answer

A) profit $10,000. 
B) loss $30,000. 
C) loss $20,000. 
D) profit $30,000. 
A) profit $10,000. 
B) loss $30,000. 
C) loss $20,000. 
D) profit $30,000.

Question 7

Calculate the goods available for sale if sales are $7,000, inventory at beginning is $3,400, inventory at end is $2,100 and purchases of inventory are $5,600.

Accepted Answer

A) $6,900. 
B) $18,100. 
C) $12,500. 
D) $9,000. 
A) $6,900. 
B) $18,100. 
C) $12,500. 
D) $9,000.

Question 8

Which depreciation method best matches the pattern by which 1. a building and 2. a motor vehicle, contribute to income?

Accepted Answer

A) 1. reducing-balance; 2. straight-line 
B) 1. reducing-balance; 2. reducing-balance 
C) 1. straight-line; 2. reducing-balance 
D) 1. straight-line; 2. straight-line 
A) 1. reducing-balance; 2. straight-line 
B) 1. reducing-balance; 2. reducing-balance 
C) 1. straight-line; 2. reducing-balance 
D) 1. straight-line; 2. straight-line

Question 9

At year-end, it was forgotten to adjust the asset prepaid rent for the $7,000 rent expense used-up during the year. This will result in an:

Accepted Answer

A) understatement of assets and an overstatement of profit and equity. 
B) understatement of assets, profit, and equity. 
C) overstatement of liabilities and an understatement of profit and equity. 
D) overstatement of assets, profit, and equity. 
A) understatement of assets and an overstatement of profit and equity. 
B) understatement of assets, profit, and equity. 
C) overstatement of liabilities and an understatement of profit and equity. 
D) overstatement of assets, profit, and equity.

Question 10

Which statement best describes the straight-line method of deprecation?

Accepted Answer

A) Depreciation is a fixed percentage of the carrying value of the asset. 
B) Depreciation is allocated equally over each year of the asset's life. 
C) Depreciation expense is greater at the beginning of the asset's life. 
D) Both A and C. 
A) Depreciation is a fixed percentage of the carrying value of the asset. 
B) Depreciation is allocated equally over each year of the asset's life. 
C) Depreciation expense is greater at the beginning of the asset's life. 
D) Both A and C.

Question 11

At year-end, it was forgotten to accrue a $5,000 expense. This will result in an:

Accepted Answer

A) understatement of assets, profit, and equity. 
B) understatement of liabilities and an overstatement of profit and equity. 
C) overstatement of liabilities and an understatement of profit and equity. 
D) overstatement of assets, profit, and equity. 
A) understatement of assets, profit, and equity. 
B) understatement of liabilities and an overstatement of profit and equity. 
C) overstatement of liabilities and an understatement of profit and equity. 
D) overstatement of assets, profit, and equity.

Question 12

In calculating depreciation, the life of an asset refers to its:

Accepted Answer

A) physical life. 
B) legal life. 
C) useful life. 
D) technological life. 
A) physical life. 
B) legal life. 
C) useful life. 
D) technological life.

Question 13

The recognition criteria that must be satisfied under the Conceptual Framework for income to be included in the profit report is:

Accepted Answer

A) Probable that the inflow of resources has occurred. 
B) Inflow of resources able to be reliably measured. 
C) Income must be matched with expenses. 
D) Both A and B. 
A) Probable that the inflow of resources has occurred. 
B) Inflow of resources able to be reliably measured. 
C) Income must be matched with expenses. 
D) Both A and B.

Question 14

Choose the statement that best describes the effects of the LIFO inventory valuation method compared to FIFO or average cost.

Accepted Answer

A) During periods of falling prices, LIFO gives the highest gross profit and the lowest closing inventory value. 
B) During periods of rising prices, LIFO gives the highest gross profit and the lowest closing inventory value. 
C) During periods of rising prices, LIFO gives the lowest gross profit and the lowest closing inventory value. 
D) None of the above. 
A) During periods of falling prices, LIFO gives the highest gross profit and the lowest closing inventory value. 
B) During periods of rising prices, LIFO gives the highest gross profit and the lowest closing inventory value. 
C) During periods of rising prices, LIFO gives the lowest gross profit and the lowest closing inventory value. 
D) None of the above.

Question 15

Which statement best describes the way the reducing balance method charges depreciation?

Accepted Answer

A) Yearly depreciation is lower at the beginning of the asset's life. 
B) Yearly depreciation is greater at the beginning of the asset's life. 
C) Yearly depreciation is the same in each year of the asset's life. 
D) Yearly depreciation expense is greater at the end of the asset's life. 
A) Yearly depreciation is lower at the beginning of the asset's life. 
B) Yearly depreciation is greater at the beginning of the asset's life. 
C) Yearly depreciation is the same in each year of the asset's life. 
D) Yearly depreciation expense is greater at the end of the asset's life.

Question 16

The method of inventory valuation that assumes earliest inventory acquired comprises the stock of inventory at the end of the period is the:

Accepted Answer

A) reducing-balance method. 
B) FIFO method. 
C) average cost method. 
D) LIFO method. 
A) reducing-balance method. 
B) FIFO method. 
C) average cost method. 
D) LIFO method.

Question 17

The effect on the accounting reports of the current year of not taking into account a bad debt would be:

Accepted Answer

A) to overstate the asset accounts receivable. 
B) to overstate profit. 
C) Both A and B. 
D) Neither A nor B. 
A) to overstate the asset accounts receivable. 
B) to overstate profit. 
C) Both A and B. 
D) Neither A nor B.

Question 18

If doubtful debts are overestimated:

Accepted Answer

A) profit for the current year will be overstated. 
B) profit for following years will be overstated. 
C) profit for the following years will be understated. 
D) profit over the total life of the business will be understated. 
A) profit for the current year will be overstated. 
B) profit for following years will be overstated. 
C) profit for the following years will be understated. 
D) profit over the total life of the business will be understated.

Question 19

A forklift had a purchase price of $18,000, delivery costs of $2,000, a physical life of 6 years and a useful life of 4 years. Estimated residual value is zero. The annual depreciation charge using the straight-line method is:

Accepted Answer

A) $1,667. 
B) $3,000. 
C) $2,500. 
D) $5,000. 
A) $1,667. 
B) $3,000. 
C) $2,500. 
D) $5,000.

Question 20

How are prepaid expenses classified in the statement of financial position?

Accepted Answer

A) current asset. 
B) non-current asset. 
C) non-current liability. 
D) current liability. 
A) current asset. 
B) non-current asset. 
C) non-current liability. 
D) current liability.

What is the major purpose of depreciation?

On 31 December 2016, a new machine with a useful life of 6 years and an estimated residual value of zero was purchased by a business at a cost of $36,000. The amount of depreciation expense charged for the year ended 31 December 2018, using the reducing-balance method at a rate of 30% per annum, is:

What is the expense in the statement of financial performance which represents the purchase price of the goods that have been sold?

Under the accrual accounting approach, at which stage of the operating cycle would income be recognised by a timber yard from the sale of timber on credit?

If equity at the beginning of the period is $100,000 and at the end of the period is $100,000 and additional capital of $20,000 is paid into the business by the owner during the period, profit or loss is:

Calculate the goods available for sale if sales are $7,000, inventory at beginning is $3,400, inventory at end is $2,100 and purchases of inventory are $5,600.

Which depreciation method best matches the pattern by which 1. a building and 2. a motor vehicle, contribute to income?

At year-end, it was forgotten to adjust the asset prepaid rent for the $7,000 rent expense used-up during the year. This will result in an:

Which statement best describes the straight-line method of deprecation?

At year-end, it was forgotten to accrue a $5,000 expense. This will result in an:

In calculating depreciation, the life of an asset refers to its:

The recognition criteria that must be satisfied under the Conceptual Framework for income to be included in the profit report is:

Choose the statement that best describes the effects of the LIFO inventory valuation method compared to FIFO or average cost.

Which statement best describes the way the reducing balance method charges depreciation?

The method of inventory valuation that assumes earliest inventory acquired comprises the stock of inventory at the end of the period is the:

The effect on the accounting reports of the current year of not taking into account a bad debt would be:

If doubtful debts are overestimated:

A forklift had a purchase price of $18,000, delivery costs of $2,000, a physical life of 6 years and a useful life of 4 years. Estimated residual value is zero. The annual depreciation charge using the straight-line method is:

How are prepaid expenses classified in the statement of financial position?

Introduction to Accounting

Measuring and Reporting Financial Position

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

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Exam 3: Measuring and Reporting Financial Performance

What is the major purpose of depreciation?

What is the expense in the statement of financial performance which represents the purchase price of the goods that have been sold?

Under the accrual accounting approach, at which stage of the operating cycle would income be recognised by a timber yard from the sale of timber on credit?

If equity at the beginning of the period is $100,000 and at the end of the period is $100,000 and additional capital of $20,000 is paid into the business by the owner during the period, profit or loss is:

Calculate the goods available for sale if sales are $7,000, inventory at beginning is $3,400, inventory at end is $2,100 and purchases of inventory are $5,600.

Which depreciation method best matches the pattern by which 1. a building and 2. a motor vehicle, contribute to income?

At year-end, it was forgotten to adjust the asset prepaid rent for the $7,000 rent expense used-up during the year. This will result in an:

Which statement best describes the straight-line method of deprecation?

At year-end, it was forgotten to accrue a $5,000 expense. This will result in an:

In calculating depreciation, the life of an asset refers to its:

The recognition criteria that must be satisfied under the Conceptual Framework for income to be included in the profit report is:

Choose the statement that best describes the effects of the LIFO inventory valuation method compared to FIFO or average cost.

Which statement best describes the way the reducing balance method charges depreciation?

The method of inventory valuation that assumes earliest inventory acquired comprises the stock of inventory at the end of the period is the:

The effect on the accounting reports of the current year of not taking into account a bad debt would be:

If doubtful debts are overestimated:

A forklift had a purchase price of $18,000, delivery costs of $2,000, a physical life of 6 years and a useful life of 4 years. Estimated residual value is zero. The annual depreciation charge using the straight-line method is:

How are prepaid expenses classified in the statement of financial position?

Introduction to Accounting

Measuring and Reporting Financial Position

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters