Chapter 2 Self-test questions

. What is the Accounting Equation?

Total Assets + Total Liabilities = Equity

Total Assets + Equity = Total Liabilities

Total Assets = Equity – Total Liabilities

Total Assets – Total Liabilities = Equity

. Paola has non-current liabilities of £200,000, current assets of £150,000, current liabilities of £125,000 and non-current assets of £250,000. What is Paola's capital account balance?

£75,000

£125,000

£175,000

£725,000

. The statement of financial position shows the market value of an organisation.

True

False

. Non-current assets are: Please select all that apply.

Held for short term use within the business.

Not purchased for resale in the normal course of business.

Retained within the business for periods of more than one year.

Constantly changing over the course of the trading cycle.

. Which one of the following would not be recognised as a trade and other receivables figure in the statement of financial position?

Money owed by a customer.

A business expense paid in advance.

Goods held for resale.

A tax refund due from the government.

. Fabia has property, plant and equipment of £231,000, a long-term loan of £100,000, trade payables of £50,000, a taxation refund due of £1,000, inventory of £25,000, a bank overdraft of £12,000 and trade receivables of £68,000. What is the figure for Fabia's total assets?

£162,000

£163,000

£324,000

£325,000

. The statement of financial position shows the financially measurable resources and the financially measureable obligations of an entity at a single point in time.

True

False

. Which of the following would be classified as current liabilities in the statement of financial position? Please select all that apply.

A trade payable.

Repayment of borrowings due within the next 12 months.

Repayment of borrowings due more than 12 months after the year end date.

Taxation on profits for the year.

. In which one of the following circumstances will an entity not recognize a liability?

When there is a past event giving rise to an obligation.

When an obligation can be avoided.

When a faithful representation of the monetary value of the obligation can be made.

When the settlement of the obligation is expected to result in the transfer of an economic resource..

. Which one of the following statements is not correct?

The statement of financial position shows all the assets and liabilities of an entity at the financial year end

Current assets are short term assets that are constantly changing.

Non-current liabilities are due for payment more than 12 months after the statement of financial position date.

Assets – liabilities = equity.

. A company buys inventory for cash. What is the effect of this transaction on the balances in the company's statement of financial position?

Increase inventory, increase cash

Decrease inventory, increase cash

Increase inventory, decrease cash

Decrease inventory, decrease cash

. Total assets + total liabilities = net assets

True

False

. The International Accounting Standards Board defines an asset as:

A right that has the potential to produce economic benefits.

A present economic resource not purchased for resale in the normal course of business.

A present economic resource controlled by the entity as a result of past events.

A present obligation of the entity to transfer an economic resource as a result of past events.

. At 1 October 2020, Maria's capital account balance was £41,372. During the financial year to 30 September 2021, Maria paid £20,000 of her own money into her business bank account, made a profit of £22,145 and withdrew £2,000 from the business bank account each month for her own personal expenses. What is the balance on Maria's capital account at 30 September 2021?

£15,227

£59,517

£81,517

£107,517

. The distinction between non-current and current assets comes down to one of time.

True

False

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