Section A: Multiple Choice Questions (30 MARKS)

Answer  ALL  30  multiple  choice questions below and each question is worth 1 mark. Please select only ONE answer per question and write your choice of answers in the answer sheet provided in CAPITAL LETTER.

1.       Which of the following are forms of limited liability companies?

(i) Sole trader limited companies

(ii) Private limited companies

(iii)Public limited companies

Is it

(a) (i) only

(b) (ii) only

(c) (i) and (ii)

(d) (ii) and (iii)

2.       Which of the following statements is/are correct?

(i) Shareholders of a company appoint the directors of that company.

(ii) The shares of all limited companies are listed on the Stock Exchange. (iii)Directors exercise day-to-day control of a company’s affairs.

(iv)Companies do not make accounting information available to the public. Is it

(a) (iv) only

(b) (iii) only

(c) (i) and (iii) only

(d) (ii) and (iv) only

3.      Which of the following is a correct statement of the accounting equation? (a) Assets plus liabilities equals ownership interest.

(b) Assets minus liabilities equals ownership interest.

(c) Assets equals liabilities minus ownership interest.

(d) Assets equals liabilities equals ownership interest.

4.       Which of the following is normally NOT a current asset?

(a) Cash

(b) Inventory (stock)

(c) Vehicles

(d) Trade receivables (debtors)

5.       Which of the following is equal to ownership interest if it is assumed that there are no long-term liabilities?

(a) Current assets + current liabilities

(b) Non-current (fixed) assets + current assets

(c) Non-current (fixed) assets + current liabilities

(d) Non-current (fixed) assets + current assets - current liabilities.

6.       Which of the following reflects the effect on the accounting equation of a purchase of an item of plant and equipment, for cash?

(a) Assets increase: ownership interest decreases.

(b) Assets decrease: ownership interest increases.

(c) Assets decrease: ownership interest unchanged.

(d) Assets unchanged: ownership interest unchanged.

7.       Which of the following economic actions  reduces the amount of ownership interest?

(a) A payment of administration wages

(b) A receipt of cash from trade receivables (debtors)

(c) A receipt of a loan from the owner’s brother

(d) A payment of cash to creditors

The following information about Day 1 applies to questions 8 and 9.

Day 1

T Harding & Co has commenced business as a domestic appliance repair engineers with a start-up cash balance of $15,000, contributed by the owner, T Harding. On   Day 1, T Harding & Co purchased a van costing $5,000, for cash. On the same day the business acquired repair parts costing $8,000, on credit.

In answering these questions you may find it helpful to enter the transactions of Day 1 in a worksheet of the following type:

8.       What is the amount of current assets at the end of Day 1?

(a) $5,000

(b) $8,000

(c) $15,000

(d) $18,000

9.       What is the amount of ownership interest at the end of Day 1?

(a) $10,000

(b) $15,000

(c) $23,000

(d) $28,000

10.     Which of the following economic actions increases the amount of current assets?

(a) A receipt of cash from customers

(b) A purchase of raw material on credit

(c) A purchase of raw material for cash

(d) A payment to suppliers

The following information applies to questions 11 to 14.

The following are business transactions of a retailer:

Purchased 150 items of cost $4 each for cash.

Delivered 110 items to customers for cash at a selling price of $6.50 per item.

11.     What is the amount of total sales of the retailer?

(a) $440

(b) $600

(c) $715

(d) $875

12.     What is the total cost of goods sold for the retailer?

(a) $440

(b) $600

(c) $715

(d) $875

13.     What is the total profit of the retailer?

(a) $115

(b) $275

(c) $440

(d) $875

14.     What is the value of the closing inventory (stock) of the retailer?

(a) Nil

(b) $160

(c) $275

(d) $440

15.     The accounting purpose of depreciation is that it

(i) produces cash for non-current (fixed) asset replacements;

(ii) is an allocation of the cost of non-current (fixed) assets over their period of use;

(iii)is a part of the cost of financial charges;

(iv)is a measure of the consumption of a non-current (fixed) asset. Which of the above statements is/are correct?

(a) (i) and (ii) only

(b) (i) and (iii) only

(c) (ii) and (iii) only

(d) (ii) and (iv) only

The following information applies to questions 16 and 17.

A major electronics company has acquired a green field site to build a new factory. The land costs $1.5 million, together with professional fees of $100,000. The site

requires remedial work costing $500,000 on old mine shafts before any building can  commence. The company plans a massive advertising drive to promote the factory    and to recruit skilled personnel. An initial package of $400,000 has been agreed with their advertising agents for this purpose.

16.     How much of this expenditure will be regarded as an expense in the income statement (profit and loss account)?

(a) $100,000

(b) $400,000

(c) $500,000

(d) $900,000

17.     What is the cost of the land in the company’s statement of financial position (balance sheet)?

(a) $1.5 million

(b) $1.6 million

(c) $2.0 million

(d) $2.1 million

18.     Which of the following statement(s) is/are correct?

(i) An increase in the estimated useful life of a non-current (fixed) asset reduces the annual depreciation charge.

(ii) A reduction in the estimated residual value of a non-current (fixed) asset decreases the annual depreciation charge.

(iii)If the sales proceeds of a non-current (fixed) asset are greater than its net book value, this indicates insufficient charge for depreciation in the income statements (profit and loss accounts) of previous years.

Is it

(a) (i) only

(b) (ii) only

(c) (i) and (ii) only

(d) (i), (ii) and (iii)

19.     The following is a list of non-current (fixed) assets:

(i) Plant and equipment

(ii) Patents

(iii)Shares in subsidiary companies

(iv)Trade marks

Which of the above are classed as intangible assets?

(a) (i) and (ii)

(b) (ii) and (iii)

(c) (ii) and (iv)

(d) (iii) and (iv)

20.     In calculations of depreciation, which of the following factors is known with greatest certainty?

(a) Residual value

(b) Useful life of asset

(c) The accuracy of the depreciation method in reflecting the physical depreciation

(d) Acquisition cost

21.     Which of the following would be included in a statement of financial position (balance sheet) under the heading ‘inventory’ (‘stock’)?

(i) Raw materials

(ii) Bank deposits

(iii)Finished goods

(iv)Investments

Is it

(a) (i) only

(b) (i) and (ii)

(c) (i) and (iii)

(d) (iii) and (iv)

22.     Which of the following events results in an increase in working capital? (a) The sale of finished goods to customers on credit terms

(b) The acquisition of raw materials on credit

(c) The transfer of raw materials into production

(d) The payment of suppliers

The following information applies to questions 23 to 28.

On 31 December Year 1, James White and Co carried out its annual physical

stocktaking counting 25 DVD players, each of which had cost $100. During Year 2, further purchases were made as follows:

Annual sales totalled 52 DVD players at total sales revenue of $9,350. Dates of sale are not recorded.

23.     What is the amount of purchases during Year 2?

(a) $2,500

(b) $4,740

(c) $5,500

(d) $7,240

24.     What is the total cost to be allocated between closing inventory (stock) and cost of sales?

(a) $2,240

(b) $4,759

(c) $7,240

(d) $9,940

25.     If the first-in, first-out (FIFO) method of inventory (stock) valuation is used, what is the amount of closing inventory (stock)?

(a) $1,740

(b) $1,750

(c) $2,500

(d) $5,500

26.     If the first-in, first-out (FIFO) method of inventory (stock) valuation is used, what is the amount of cost of sales?

(a) $1,740

(b) $2,500

(c) $5,500

(d) $7,240

27.     If the average cost method of inventory (stock) valuation is used, what is the cost per DVD player at closing inventory (stock)?

(a) $109.70

(b) $114.00

(c) $120.60

(d) $122.50

28.     If the last-in, first-out (LIFO) method of inventory (stock) valuation is used, what is the amount of closing inventory (stock)?

(a) $1,400

(b) $1,470

(c) $1,540

(d) $1,680

29.      Which of the following items would appear in the current liabilities section of a statement of financial position (balance sheet)?

(a) Increase in the provision for doubtful debts

(b) Salespersons’ commission expense of the current year

(c) Accumulated depreciation

(d) Bank overdraft

30.      Which of the following will not normally be found under the heading ‘Liabilities due after one year’?

(a)    Deferred taxation

(b) Unsecured loan

(c) Bank overdraft

(d) Provision for reorganisation costs