Question Chapter 5 Accounting for adjustments

29 Jun Question Chapter 5 Accounting for adjustments

Question
Chapter 5

Accounting for adjustments

1.A business has the following items in its accounts at its year end 31 December 2001

£000

Opening stock at 1 January 2001 5

Closing stock at 31 December 2001 10

Purchases for 2001 90

Purchase returns in 2001 2

Which is the correct figure for cost of goods sold in 2001?

(a) £85 000.

(b) £83 000.

(c) £95 000.

(d) £93 000.

2.The following figures relate to the rent and rates payable expense for a business in 2001.

£000

Rent paid in advance at 1 January 2001 5

Rates in arrears at 1 January 2001 2

Payments in 2001 35

Rates paid in advance at 31 December 2001 4

Rent in arrears at 31 December 2001 6

Which is the correct figure for rent and rates expense in the profit and loss account for the year

ended 31 December 2001?

(a) £34 000.

(b) £35 000.

(c) £36 000.

(d) £40 000.

3.A company owns some land and buildings for which the following details are relevant:

Cost of land £50 000; cost of buildings £100 000; estimated life of buildings 20 years; estimated residual

value of buildings £2000; estimated residual value of land £50 000.

The company uses the straight line depreciation method.

Which is the correct annual depreciation charge for this asset?

(a) £4000.

(b) £4900.

(c) £7400.

(d) £7500.

4.A company has trade debtors at its year end amounting to £218 000. One of the debtors, value

£8000, is now known to be uncollectable.The company takes a 5% provision for bad debts each year

and last year’s provision amounted to £2000.Which figure will appear in the profit and loss account

as the total bad debt charge for the year?

(a) £18 900.

(b) £18 500.

(c) £16 500.

(d) £10 500.

5.Which of the following accounting concepts are being followed when a company operates a provision

for bad debts account?

(a) Consistency, prudence, accruals, going concern.

(b) Accruals, consistency, going concern.

(c) Prudence, consistency, going concern.

(d) Prudence, accruals, going concern.

6.The double entry required to write off a specific bad debt is:

(a) Debit sales, credit trade debtor.

(b) Debit profit and loss, credit trade debtor.

(c) Debit trade debtor, credit profit and loss.

(d) Debit profit and loss, credit provision for bad debts.

7. A company has calculated that it has made a net loss of £107 000 for the year before the following

additional adjustments:

£000

Depreciation of plant 15

Write off bad debts amounting to 3

Reduce the provision for bad debts by 1

Accrue for outstanding wages amounting to 4

Which is the corrected net loss taking account of the above adjustments?

(a) £116 000.

(b) £127 000.

(c) £128 000.

(d) £130 000.

Chapter 6

Company accounts

1.XYZ Ltd has a net profit before tax of £267 000, taxation amounts to £87 000, a dividend on ordinary

share capital of £45 000 has been declared and the company will transfer £50 000 to a capital reserve.

What is the retained profit figure for the year?

(a) £180 000.

(b) £135 000.

(c) £85 000.

(d) £267 000.

2.XYZ Ltd issues 500 000 new ordinary £1 shares at an issue price of £1.50 and makes a bonus issue of

new shares amounting to 50 000 £1 ordinary shares.The company also increases its authorized ordinary

share capital by 550 000 £1 ordinary shares. By how much will the balance sheet ordinary

share capital account increase?

(a) £800 000.

(b) £550 000.

(c) £750 000.

(d) £1 350 000.

3.An ordinary share dividend is:

(a) Part of the company profits used to reward the shareholders for their investment.

(b) Interest on money lent to the company by its shareholders.

(c) An expense of running the company.

(d) The directors’ remuneration.

4.XYZ Ltd has declared an ordinary share dividend of £200 000 at 31.12.2001.Which of the following

correctly explains the accounting entries for the dividend at the year end?

(a) Expense in profit and loss account, creditor on the balance sheet.

(b) Appropriation of profit, reserve on the balance sheet.

(c) Appropriation of profit, current liability on the balance sheet.

(d) Expense in profit and loss account, reserve on the balance sheet.

5.Statements of Standard Accounting Practice and Financial Reporting Standards should be

complied with when preparing the final accounts of a limited company because:

(a) The Companies Act 1985 demands that they are used.

(b) The auditors will insist they are followed.

(c) The directors are under a legal obligation to ensure they are followed.

(d) They ensure that the accounts present a ‘true and fair view’.

6.Below is shown a draft summarized balance sheet of XYZ Ltd at 31.12.2001 before certain adjustments