Which of the following statements is true?

A. The directors of a company are liable for any losses of the company
B. A sole trader business is owned by shareholders and operated by the proprietor
C. Partners are liable for losses in a partnership in proportion to their profit share ratio
D. A company is run by directors on behalf of its members
ANSWER: D

Which of the following user groups require the most detailed financial information?
A. The management
B. Investors and potential investors
C. Government agencies
D. Employees

ANSWER: A

Which of the following statements are true?

1 Accounting can be described as the recording and summarising of transactions.
2 Financial accounting describes the production of a statement of financial position and income
statement for internal use.
A. 1 only
B. 2 only
C. Both 1 and 2
D. None
ANSWER: A

An asset is:

A. An item owned by an entity

B. An item controlled by an entity
C. An item that is owed by the entity
D. A short term liability

ANSWER: B

Arthur had net assets of $19,000 at 30 April 20X7. During the year to 30 April 20X7, he introduced
$9,800 additional capital into the business. Profits were $8,000, of which he withdrew $4,200. What was
the balance on Arthur’s capital account at 1 May 20X6?

A. $5,400
B. $13,000
C. $16,600
D. $32,600

ANSWER: A
The profit of a business may be calculated by using which one of the following formulae?

A. Opening capital – drawings + capital introduced – closing capital

B. Closing capital + drawings – capital introduced – opening capital
C. Opening capital + drawings – capital introduced – closing capital
D. Closing capital – drawings + capital introduced – opening capital

ANSWER: B

Which accounting concept requires that amounts of goods taken from inventory by the proprietor of a
business are treated as drawings?

A. Accruals
B. Prudence
C. Separate entity
D. Substance over form

ANSWER: C

The following information is available about Andrew’s business at 30 September 20X6:

Motor van 14,000

Loan (repayable in 4 equal annual installments starting 1 January 20X7) 100,000
Receivables 23,800
Bank balance (a debit on the bank statement) 3,250
Provision for depreciation 7,000
Payables 31,050
Inventory 12,560
Petty cash 150
Rent due 1,200
Allowance for receivables 1,500

What are the correct figures for current liabilities and current assets?

Current liabilities Current assets

$ $
A. 34,300 35,010
B. 32,250 38,260
C. 57,250 38,260
D. 60,500 35,010
ANSWER: D
Oscar runs a sole trader business selling computers. On 12 January 20X7, he employed his daughter as
an administrator for the business and took a computer from the store room for her to use in the
office.
What is the double entry for this transaction?

A. Dr Drawings Cr Cost of sales

B. Dr Non-current assets Cr Cost of sales
C. Dr Cost of sales Cr Drawings
D. Dr Cost of sales Cr Non-current assets
ANSWER: B

Andrea started a taxi business by transferring her car, worth $5,000, into the business.
What are the accounting entries required to record this?

A. Dr Capital $5,000, Cr Car $5,000

B. Dr Car $5,000, Cr Drawings $5,000
C. Dr Car $5,000, Cr Capital $5,000
D. Dr Drawings $5,000, Cr Car $5,000
ANSWER: C

Who issues International Financial Reporting Standards?

A. The IFRS Advisory Committee
B. The stock exchange
C. The International Accounting Standards Board
D. The government
ANSWER: C

Which groups of people are most likely to be interested in the financial statements of a sole trader?
1 Shareholders of the company
2 The business’s bank manager
3 The tax authorities
4 Financial analysts
A. 1 and 2 only
B. and 3 only
C. 2, 3 and 4 only
D. 1, 2 and 3 only
ANSWER: B

Which of the following best describes corporate governance?

A. Corporate governance is the system of rules and regulations surrounding financial reporting.
B. Corporate governance is the system by which companies and other entities are directed and
controlled.
C. Corporate governance is carried out by the finance department in preparing the financial
statements.
 D. Corporate governance is the system by which an entity monitors its impact on the natural
environment.
ANSWER: B

Which ONE of the following statements correctly describes the contents of the Statement of Profit or
Loss?
A. A list of ledger balances shown in debit and credit columns
B. A list of all the assets owned and all the liabilities owed by a business
C. A record of income generated and expenditure incurred over a given period
D. A record of the amount of cash generated and used by a company in a given period
ANSWER: C

Which of the following statements is/are true?

1 Directors of companies have a duty of care to show reasonable competence in their
management of the affairs of a company.
2 Directors of companies must act honestly in what they consider to be the best interest of the
company.
3 A Director’s main aim should be to create wealth for the shareholders of the company.
A. 1 and 2 only
B. only
C. 1, 2 and 3
D. 1 and 3 only
ANSWER: C

What is the role of the IASB?

A. Oversee the standard setting and regulatory process
B. Formulate international financial reporting standards
C. Review defective accounts
D. Control the accountancy profession
ANSWER: B

Sales revenue should be recognised when goods and services have been supplied; costs are incurred
when goods and services have been received.

Which accounting concept governs the above?

A. The business entity concept
B. The materiality concept
C. The accruals concept
D. The duality concept
ANSWER: C

Which of the following accounting concepts means that similar items should receive a similar accounting
treatment?
A. Going concern
 B. Accruals
C. Matching
D. Consistency
ANSWER: D

Which one of the following is not a qualitative characteristic of financial information according to the
Conceptual framework for Financial Reporting?
A. Faithful representation
B. Relevance
C. Timeliness
D. Accruals
ANSWER: D

The profit made by a business in 20X7 was $35,400. The proprietor injected new capital of $10,200
during the year and withdrew a monthly salary of $500.

If net assets at the end of 20X7 were $95,100, what was the proprietor's capital at the beginning of the
year?
A. $50,000
B. $55,500
C. $63,900
D. $134,700
ANSWER: B

A business can make a profit and yet have a reduction in its bank balance. Which ONE of the following
might cause this to happen?
A. The sale of non-current assets at a loss
B. The charging of depreciation in the statement of profit or loss
C. The lengthening of the period of credit given to customers
D. The lengthening of the period of credit taken from suppliers
ANSWER: C

Which of the following documents should accompany a return of goods to a supplier?

A. Debit note
B. Remittance advice
C. Purchase invoice
D. Credit
ANSWER: A

Which of the following are books of prime entry?

1 Sales day book
2 Cash book
3 Journal
4 Purchase ledger
 A. 1 and 2 only
B. 1, 2 and 3 only
C. 1 only
D. All of them
ANSWER: B

How is the total of the purchases day book posted to the nominal ledger?
A. Debit purchases, Credit cash
B. Debit payables control, Credit purchases
C. Debit cash, Credit purchases
D. Debit purchases, Credit payables control
ANSWER: D

A business sells $100 worth of goods to a customer, the customer pays $50 in cash immediately and will
pay the remaining $50 in 30 days' time.
What is the double entry to record the purchase in the customer’s accounting records?
A. Debit cash $50, credit payables $50, credit purchases $50
B. Debit payables $50, debit cash $50, credit purchases $100
C. Debit purchases $100, credit payables $50, credit cash $50
D. Debit purchases $100, credit cash $100
ANSWER: C