Chapter 4 Multiple-choice questions

. Which of the following facts regarding the statement of financial position would not be true?

It is unnecessary to make any estimates or judgements when preparing a statement of financial position.

The statement of financial position reveals how a business is funded.

Intangible assets are often missing from the statement of financial position.

The statement of financial position separately identifies long-term and short-term assets and liabilities.

. For an asset owned for more than one year, the depreciation charge for the year, calculated using the reducing-balance basis at the rate of 35%, would be arrived at as follows:

35% x cost of the asset.

35% x (cost of the asset - accumulated depreciation).

35% x accumulated depreciation.

35% x (cost of the asset + accumulated depreciation).

. Misha bought a machine for £39,000, which she expects to have a useful life of four years and a residual value of £4,000 at the end of that time. If depreciation is to be provided on the straight-line basis, the net book value after two years will be:

£17,500.

£19,500.

£21,500.

£30,250.

. Bruno buys two motor vans costing £41,000 in total. They are depreciated on the reducing-balance basis at the rate of 40% per annum. Which of the following statements is true?

The NBV of the vans after one year will be £24,600 and the depreciation charge for year 2 will be £16,400.

The NBV of the vans after two years will be £14,760 and the depreciation charge for year 2 will be £9,840.

The NBV of the vans after one year will be £14,760 and the depreciation charge for year 2 will be £16,400.

The NBV of the vans after two years will be £24,600 and the depreciation charge for year 2 will be £9,840.

. Matt bought a delivery van for £14,000 on 1 July 2022. It is expected to have a useful life of 4 years and a value at the end of that time of £3,000. If depreciation is to be provided at 30% on the reducing-balance basis, the depreciation charge for the year ended 30 June 2024 will be:

£2,940.

£1,260.

£4,200.

£2,310.

. Which of the following interpretations of the prudence concept is not true:

The prudence concept requires preparers of accounts to anticipate all income.

The prudence concept requires preparers of accounts to anticipate all costs.

The prudence concept requires preparers of accounts to take a cautious approach to accounts preparation.

The prudence concept underpins the need for businesses to create a provision for doubtful debts.

. Dilip's account balances at the business year end show a figure for trade receivables of £103,100. Included in this figure is an amount of £6,500 owed by Reece, which will not be received. Dilip usually creates a provision for doubtful debts of 2% of trade receivables.
The figure for trade receivables on the statement of financial position at the year end should be:

£94,538.

£101,038.

£107,408.

£94,668.

. If the trial balance at Laurie's year end shows trade receivables of £19,900 and bad debts of £600 written off during the year, which of the following statements is true?

The statement of profit or loss should include a bad debt expense of £600 and trade receivables of £19,300 should be included on the statement of financial position.

The statement of profit or loss should include no bad debt expense and trade receivables of £19,900 should be included on the statement of financial position.

The statement of profit or loss should include no bad debt expense and trade receivables of £19,300 should be included on the statement of financial position.

The statement of profit or loss should include a bad debt expense of £600 and trade receivables of £19,900 should be included on the statement of financial position.

. If an asset cost £27,000 and the annual depreciation charge calculated using the straight-line method is £6,750 per annum, then depreciation is being charged at the rate of:

67.5%.

25%.

6.75%.

40%.

. Eva has purchased a machine for £300,000. She will depreciate it either at 20% on the straight-line basis or at 30% on the reducing-balance basis.
Which method will lead to the highest combined profits in the first two years that the machine is owned?

The straight-line basis will lead to the highest combined profits.

The reducing-balance basis will lead to the highest combined profits.

The choice of depreciation method does not affect the combined profit figures.

Both the straight-line basis at 20% per annum and the reducing-balance basis at 30% per annum will lead to the same combined profit figure for the first two years.

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