Chapter 3 Multiple-choice questions

. Which one of the following statements regarding the statement of financial position is false?

It was formerly known as the balance sheet.

It shows the assets and liabilities of a business at a certain point in time.

It shows the average assets and liabilities of a business over the last financial period.

It shows how much the owner has invested in the business.

. Which of the following is not a characteristic of an asset?

It will bring future economic benefits to the business.

It is owned by the business.

It can be held by the business for a short period of time.

It must have a physical substance.

. Which of the following would be a liability for a business?

The amount it has paid for the electricity used.

Trade receivables.

A charitable donation the business plans to make in the future.

Trade payables.

. Clive's business has paid telephone bills amounting to £21,500 during his financial year, which ended on 30 September. After the year end, he receives a bill for the three months ended 31 October amounting to £6,600. Which of the following is true?

The business should accrue £4,400 for telephone expenses at the year end.

The business should accrue £2,200 for telephone expenses at the year end.

The business should accrue £25,900 for telephone expenses at the year end.

The business will have pre-paid telephone expenses of £4,400 at the year end.

. Which of the following statements regarding the going concern concept is true?

The going concern concept assumes that the business will never fail.

The going concern concept assumes that the business will continue for the foreseeable future.

The going concern concept applies where it appears that the business will not continue to exist for more than the next 12 months.

The going concern concept only applies if the business is trading profitably.

. Which one of the following would be classified as a current asset for a furniture retailer?

Property.

Furniture held for resale.

Bank overdraft.

Shop fittings.

. Lu's statement of profit or loss for his first year of trading to 30 September showed a charge for insurance of £9,000. Lu actually paid £13,000 for insurance during that financial year.
Which of the following statements is true?

Insurance had been prepaid by £4,000 at the year end.

Insurance of £4,000 had been accrued for at the year end.

Insurance of £9,000 had been accrued for at the year end.

Insurance of £9,000 had been prepaid at the year end.

. Sofia pays rent in advance for her business. Her trial balance at the business year-end, 31 December 2021, shows a figure of £8,750 for rent. During 2021, she had paid rent of £1,875 for the three months ended 29 February 2022.
Her financial statements for the year ended 31 December 2021 should show:

The rent expense deducted in arriving at the profit or loss for the year would be £7,500 and a pre-payment of £1,250 would be included on the statement of financial position.

The rent expense deducted in arriving at the profit or loss for the year would be £8,125 and a pre-payment of £625 would be included on the statement of financial position.

The rent expense deducted in arriving at the profit or loss for the year would be £8,750 and no pre-payment for rent would be included on the statement of financial position.

The rent expense deducted in arriving at the profit or loss for the year would be £9,375 and an accrual of £625 for rent owing would be shown on the statement of financial position.

. Chandra's bakery business has the following account balances at 30 September: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000, and a bank overdraft of £1,090. Chandra's capital account as at 30 September is:

£35,540.

£38,660.

£38,360.

£33,360.

. Sean has prepared his financial statements for the year ended 31 March, which show a net profit of £30,000, current assets of £234,400 and a total assets figure of £710,500.
He has since discovered that the inventory figure he used was understated as he left out closing inventory valued at £10,100 from his workings.
Which of the following statements is true:

The revised current assets figure will be £224,300.

The revised total assets figure will be £740,500.

The value of closing inventory figure does affect the profit for the year or the net assets.

The revised profit for the year should be £40,100.

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