The Statement of Financial Position

30. Which of the following statements is correct? A. Financial Accounting is a legal requirement. It is concerned with producing the accounts of an entity, and is produced for stakeholders. Management accounting is not a legal requirement, and is for use within the company. B. Financial Accounting is a legal requirement. It is concerned with the financing of the entity. Management accounting is also a legal requirement, and together they are used to produce the accounts of the entity. C....

29. Suppose a company purchases a van for £21,000 with the intention of using it for three years and selling it for £6,000 at the end of the three years. The company uses straight line depreciation. Which of the following statements is correct? A. The annual depreciation charge is £7,000 B. The annual depreciation charge is £21,000 C. The annual depreciation charge is £5,000 D. The annual depreciation charge is £15,000   Answer : C Depreciation (simplified, straight line method) is the...

26. Which of the following statements is correct? A. The bank balance is always a current asset, whether it is “in credit” on the statement or “overdrawn” B. If the bank account is “in credit” on the statement then it must be a current asset C. If the bank account is “overdrawn” on the statement then it is a current asset D. If the bank account is “in credit” on the statement then it is a liability   Answer : B Double entry terminology is the opposite of the bank statement, because the...

27. Which of the following statements is correct? A. “Equity” is the original money invested in the business that belonged to the owners of the business. B. “Equity” is money that the business has used to grow – for example the original investment from owners or money from the sale of shares, and any loans made to the business C. “Equity” is the value of the business D. “Equity” is made up of not only the original investment in the business, but also any profits that were retained over the...

26. Which of the following statements is correct? A. The bank balance is always a current asset, whether it is “in credit” on the statement or “overdrawn” B. If the bank account is “in credit” on the statement then it must be a current asset C. If the bank account is “overdrawn” on the statement then it is a current asset D. If the bank account is “in credit” on the statement then it is a liability   Answer : B Double entry terminology is the opposite of the bank statement, because the...

25. The accounting equation can be stated as: A. Owner's Equity = Assets - Liabilities B. Assets + Liabilities = Owner's Equity C. Liabilities = Owner's Equity + Assets D. Assets = Liabilities - Owner's Equity    Answer : A

24. Which of the following statements is false? A. A successful business is usually worth the statement of financial position figure for its net assets B. A statement of financial position shows you how a company has been financed C. A balance can indicate whether a company has excessive liabilities D. All of the above statements are false   Answer : A

23. The statement of financial position of Rosie Ltd. includes the following entries: inventory £25,000, trade receivables £12,000, cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000, short-term borrowing £800 and £8,200 current tax payable). Calculate the liquidity ratio. A. 0.9: 1 B. 1:1 C. 0.4:1 D. 1.9:1    Answer : A

22. The statement of financial position of Rosie Ltd. includes the following entries: inventory £25,000, trade receivables £12,000, cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000, short-term borrowing £800 and £8,200 current tax payable). Calculate the current ratio. A. 0.9: 1 B. 1:1 C. 0.4:1 D. 1.9:1   Answer : D

21. If a company has long-term borrowings of £12,000 and equity of £138,000, what is its gearing ratio? A. 7.7% B. 8.7% C. 9.7% D. 8%   Answer : B

20. If non-current assets are £250,000, current assets £70,000, long-term borrowing £50,000 and current liabilities £10,000, what is the value of owner's equity? A. £240,000 B. £260,000 C. £120,000 D. £270,000   Answer : B

19. Which of the following statements is correct? A. Some current assets, such as inventory, are not easily turned into cash B. Some current assets, such as trade receivables, are not easily turned into cash C. Some long-term assets, such as land and buildings, are easily turned into cash D. Some long-term assets, such as fixtures and fittings, are easily turned into cash   Answer : A

18. Which of the following statements is true? A. The value of a company is likely to be very different from the total net value of the individual assets and liabilities reported on the statement of financial position B. The value of a company is identical to the total net value of the individual assets and liabilities reported on the statement of financial position C. The value of a company is identical to retained earnings, as reported on the statement of financial position D. The value of a...

17. A company with a high current ratio is said to have: A. Few liquid assets B. High current liabilities and low current assets C. High current assets and low current liabilities D. High long-term borrowing    Answer : C

16. A company is said to be 'high geared' when: A. It has a low amount of long-term debt B. It has a high amount of long-term debt C. It has a low amount of current assets D. It has a high amount of owner's equity    Answer : B

15. Which of the following statements is correct? A. Assets are future cash outflows B. Liabilities are future cash inflows C. Assets are the sum of liabilities and owner's equity D. Assets are the difference between liabilities and owner's equity     Answer : C

14. Corporation tax payable would be classified as: A. Equity on statement of financial position B. Liability on statement of financial position C. Asset on statement of financial position D. Expense on income statement    Answer : B

13. An example of a long-term liability is: A. Current taxation payable B. Mortgage C. Proposed dividend D. Accumulated depreciation   Answer : B

12. An example of a current liability is: A. Retained earnings B. Accumulated depreciation C. Owner's equity D. Bank overdraft    Answer : D

11. An example of a long-term asset is: A. Cash B. Inventory C. Fixtures and fittings D. Prepayments    Answer : A

10. An example of a current asset is: A. Inventory B. Equipment C. Retained earnings D. Owner's equity   Answer : A

9. If liabilities increase £3,000 during a given period and owner's equity decreases £1,000 during the same period, the assets must have: A. Increased by £3,000 B. Increased by £2,000 C. Decreased by £3,000 D. Decreased by £2,000 Answer : B

8. Inventory, trade receivables and cash are classified as: A. Current liabilities B. Long-term assets C. Current assets D. Long-term liabilities Answer : C

7. The accounting equation can be stated as: A. Assets = Liabilities + Owner's Equity B. Assets + Liabilities = Owner's Equity C. Liabilities = Owner's Equity + Assets D. Assets = Liabilities - Owner's Equity   Answer : A

6. The main purpose of financial accounting information is to: A. Provide financial information for taxation purposes B. Provide financial information to managers C. Provide financial information for external users, such as shareholders and creditors D. Provide financial information to customers Answer : C

5. Management accounting is primarily concerned with producing financial statements for shareholders and creditors. FALSE

4. Revenue from sales decrease assets and decrease equity. FALSE

3. Non-current liabilities include long-term borrowings such as mortgages. TRUE

2. Non-current assets include inventories and trade receivables. FALSE

1. What a company owns is known as assets and what a company owes is known as expenses. FALSE