Question 1

The effect on the statement of financial position when the owner contributes her private vehicle for the exclusive use of the business is:

Accepted Answer

A)  increase asset vehicle; increase equity.
B)  increase asset vehicle; decrease equity.
C)  increase asset vehicle; increase owner's drawings.
D)  none of the above. A

Question 2

The accounting convention that the objectivity principle provides support for is:

Accepted Answer

A)  historic cost.
B)  prudence (conservatism) .
C)  relevance.
D)  accounting period. A

Question 3

Which of these assets, which could be listed on a statement of financial position, is likely not to translate into future economic benefits?

Accepted Answer

A)  Large inventories of spare parts
B)  Accounts receivable that have been outstanding for several months
C)  Inventory that has been on the shelves for over a year
D)  All of the above D

Question 4

There is a growing tendency for many non-current assets to be valued on the basis of market values. The item which is most likely to be valued at market value is:

Accepted Answer

A)  the assets of a life insurer.
B)  goodwill.
C)  motor vehicles.
D)  accounts receivable.

Question 5

In the accounting equation, claims on the business are of two broad types:

Accepted Answer

A)  bills payable and bills receivable.
B)  liabilities and equity.
C)  loans to and loans from outsiders.
D)  accounts receivable and accounts payable.

Question 6

Application of the (prudence)conservatism assumption can produce:

Accepted Answer

A)  higher profits.
B)  higher values for assets.
C)  higher amounts for liabilities.
D)  lower amounts for expenses.

Question 7

The recognition criteria for liabilities includes:

Accepted Answer

A)  future obligation.
B)  probability of occurrence.
C)  reliability of measurement.
D)  Both B and C.

Question 8

Which statement about current value is true?

Accepted Answer

A)  Current value can only be defined one way.
B)  An accounting system could be produced based on current value rather than historical cost.
C)  The second-hand sale value of an asset is not an example of current value.
D)  Current values are based on transactions.

Question 9

Intangible assets have no physical substance but still provide expected future benefits. Which of the following is not an intangible asset?

Accepted Answer

A)  Newspaper masthead
B)  Goodwill
C)  Patent
D)  None of the above, i.e., all are intangible assets

Question 10

The accounting convention that means only those transactions that are capable of being expressed in monetary terms are recorded, is the:

Accepted Answer

A)  money measurement convention.
B)  historical cost convention.
C)  conservatism convention.
D)  reliability convention.

Question 11

Under the accounting standards, which alternative measure of value is not permitted to be used for valuing assets?

Accepted Answer

A)  Historical cost
B)  Net realisable value
C)  Fair value
D)  None of the above, i.e., all are permitted methods in some circumstances

Question 12

Which aspect of business performance does the statement of financial position directly provide insight into?

Accepted Answer

A)  Cash flows
B)  Profitability
C)  Share price
D)  The relative proportions of funds contributed by owners and outsiders

Question 13

If reported profits are reduced by $6 000 in year one because of the operation of conservatism:

Accepted Answer

A)  profits in later years will be unaffected.
B)  profits in later years must be $5 000 lower.
C)  profits in later years will be $6 000 higher.
D)  none of the above.

Question 14

You are provided with the statement of financial position at the beginning of the period for a firm of accountants. You are also given four of the transactions that have occurred during the period.
REQUIRED:
a)Complete the table to show how each transaction affects the accounts shown.
b)Calculate the figures in the final column of the table from which the statement of financial position at the end of the period can be prepared.
 $\begin{array}{|r|r|r|r|r|r|r|}
\hline &\text { Beginning } & \text { Transaction } & \text { Transaction } & \text { Transaction } & \text { Transaction } & \text { Ending } \
&\text { Balance } & 1 & 2 & 3 & 4 & \text { Balance }\&\text { Sheet }&&&&&\text { Sheet }\\hline \text { Assets } & \$ & \$ & \$ & \$& \$& \$ \
\hline \text { Cash } & 10000 & & & \\hline \text { accounts } & \
\text { receivable } & 5500 \\hline \text { Plant \& } & \
\text { Equip } & \underline{50000} \
\hline&65,000\\hline \text { Liabilities } & \
\hline \text { accounts } & \
\text { payable } & 6000 \\hline \text { Equity } & \underline{59500} \
\hline & \underline{65500}\
\hline
\end{array}$ Transactions for the period:
1. Collected $3 000 from debtors
2. Paid accounts payable $6 000
3. Owner paid in additional capital contribution of $10 000
4. Purchased on credit $2 000 of additional plant.

Accepted Answer

The answer of You are provided with the statement of...

Question 15

What is another name for accounts receivable?

Accepted Answer

A)  Debtors
B)  Receivables
C)  Accounts payable
D)  Both A and B

Question 16

Identify the current liability.

Accepted Answer

A)  Wages owing
B)  Loan from B Buy (due in 4 months) 
C)  Bill payable (due in 2 years) 
D)  Both A and B

Question 17

Despite the uncertainty in relation to the exact amount to be paid and the actual timing of the payment, which of the following is still regarded as a liability?

Accepted Answer

A)  Deposit on services received in advance
B)  Provision for employee bonuses
C)  Accounts payable
D)  Money borrowed from an associate company

Question 18

The accounting convention which results in the anticipation of losses but not of profits is:

Accepted Answer

A)  matching.
B)  prudence (conservatism) .
C)  going concern.
D)  none of the above.

Question 19

If liabilities are $55 000 and assets are $123 600, equity is:

Accepted Answer

A)  $178 400
B)  $68 600
C)  $178 600
D)  $68 400

Question 20

The statement of financial position assists users in terms of:

Accepted Answer

A)  assessing the value of a business.
B)  determining the liquidity of a business.
C)  the effectiveness of wealth generation.
D)  All of the above.

Exam 2: Measuring and Reporting Financial Position