Professional, Practical, Proven Academy 2019/2020 Advanced Financial Accounting Lecture 15 MCQs
Multiple Choice Questions Question 2 10 Questions = 15 marks 2
Aug 19 – 1 Section 24 of FRS 102 deals with Government grants. Which of the following is true in relation to Government Grants (a) A government grant that relates to assets is never recognised until it is actually received (b) When a government grant becomes repayable, it should be recognised as a liability when the repayment meets the definition of a liability. (c) A government grant that relates to revenue expenditure is recognise in the income statement as other income when it is received (d) No disclosures are required in the financial statements for government grants. 3
Aug 19 – 1 Section 24 of FRS 102 deals with Government grants. Which of the following is true in relation to Government Grants (a) A government grant that relates to assets is never recognised until it is actually received (b) When a government grant becomes repayable, it should be recognised as a liability when the repayment meets the definition of a liability. (c) A government grant that relates to revenue expenditure is recognise in the income statement as other income when it is received (d) No disclosures are required in the financial statements for government grants. 4
Aug 19 – 2 Snowfall Ltd completed their inventory count at 31 December 2018 and valued their closing inventory at €/£150,000. However, on further investigation it was found that the following three items were excluded in error from the inventory valuation. Item A. This has a sales value of €/£15,000 and the company charges a • mark-up of 20% on this product. Item B: Cost €/£5,000. This product can be sold for €/£6,000 but the • company will incur selling costs of €/£300 Item C: This was received free as part of a promotion. The usual • purchase price for this item is €/£3,000 and it can be sold for €3,800 . What is the correct value to apply to closing inventory in the financial statements for the year ended 31 December 2018? 5
Aug 19 – 2 Snowfall Ltd completed their inventory count at 31 December 2018 and valued their closing inventory at €/£150,000. However, on further investigation it was found that the following three items were excluded in error from the inventory valuation. Item A. This has a sales value of €/£15,000 and the company charges a • mark-up of 20% on this product. Item B: Cost €/£5,000. This product can be sold for €/£6,000 but the • company will incur selling costs of €/£300 Item C: This was received free as part of a promotion. The usual • purchase price for this item is €/£3,000 and it can be sold for €3,800 . What is the correct value to apply to closing inventory in the financial statements for the year ended 31 December 2018? £/€ 167,500 6
Aug 19 – 7 On 1 January 2018 Snow Ltd entered into a three-year operating lease. This required annual rental payments, in advance, of €/£10,000 in 2018, €/£12,000 in 2019 and €/£17,000 in 2020. During 2018, the payment of €/£10,000 was made. For the year ended 31 December 2018, which of the following statement is true? (a) Recognise an expense of €/£39,000 in the income statement (b) Recognise an expense of €/£10,000 in the income statement and a liability of €/£ 25,000 in the statement of financial position (c) Recognise an expense of €/£13,000 in the income statement and an accrual of €/£ 3,000 in the statement of financial position. (d) Recognise an expense of €/£13,000 in the income statement and a prepayment of € /£3,000 in the statement of financial position 7
Aug 19 – 7 On 1 January 2018 Snow Ltd entered into a three-year operating lease. This required annual rental payments, in advance, of €/£10,000 in 2018, €/£12,000 in 2019 and €/£17,000 in 2020. During 2018, the payment of €/£10,000 was made. For the year ended 31 December 2018, which of the following statement is true? (a) Recognise an expense of €/£39,000 in the income statement (b) Recognise an expense of €/£10,000 in the income statement and a liability of €/£ 25,000 in the statement of financial position (c) Recognise an expense of €/£13,000 in the income statement and an accrual of €/£ 3,000 in the statement of financial position. (d) Recognise an expense of €/£13,000 in the income statement and a prepayment of € /£3,000 in the statement of financial position 8
Aug 19 – 8 Tom and Mary are in partnership. Profit and losses are shared in the ratio of 60% for Mary and 40% for Tom. At 1 January 2018, the following were the balances on their capital and current accounts: Tom Mary Capital account 100,000 - credit 150,000- credit Current account 20,000 – debit 20,000- credit The partnership agreement provides that interest on capital is to be allowed at 10% per annum. Drawings for the year were Tom €/£10,000 and Mary €/£12,000. Interest on drawings is charged at 5%. The income statement showed a profit for the year of €/£65,000 . What is the correct closing balance in Tom’s current account at 31 December 2018? 9
Aug 19 – 8 Tom and Mary are in partnership. Profit and losses are shared in the ratio of 60% for Mary and 40% for Tom. At 1 January 2018, the following were the balances on their capital and current accounts: Tom Mary Capital account 100,000 - credit 150,000- credit Current account 20,000 – debit 20,000- credit The partnership agreement provides that interest on capital is to be allowed at 10% per annum. Drawings for the year were Tom €/£10,000 and Mary €/£12,000. Interest on drawings is charged at 5%. The income statement showed a profit for the year of €/£65,000 . What is the correct closing balance in Tom’s current account at 31 st Dec 18? (a) €/£4,060 – debit ( b) €/£5,940 – credit (c) €/£8,060 – credit ( d) €/£15,500 – debit 10
Aug 19 – 10 Cash received from the sale of a piece of property, plant and equipment is presented under which of the following in the Statement of Cash flows? (a) Cash flows from operating activities (b) Cash flows from investing activities (c) Cash flows from financing activities (d) Cash flows from personal activity 11
Aug 19 – 10 Cash received from the sale of a piece of property, plant and equipment is presented under which of the following in the Statement of Cash flows? (a) Cash flows from operating activities (b) Cash flows from investing activities (c) Cash flows from financing activities (d) Cash flows from personal activity 12
May 19 – 2 TAA Ltd entered into a finance leasing arrangement, for a piece of equipment, with AB Ltd on 1 January 2018. The terms of the leasing arrangement included the following: • The lease was for a four -year period. • The equipment has a useful life of 5 years • TAA Ltd is required to make annual payments in advance of €/£50,000 on the 1 January each year • On 1 January 2018 the equipment had a fair value of €/£165,600 which was also equal to the present value of the minimum lease payments. • The interest rate implicit in the lease is 8 % What value will be presented in the income statement as the interest charge on the finance lease for the year ended 31 December 2018? (a) €/£ 4,000 ( b) €/£9,248 (c) €/£ 12,750 ( d) €/£50,000 13
May 19 – 2 TAA Ltd entered into a finance leasing arrangement, for a piece of equipment, with AB Ltd on 1 January 2018. The terms of the leasing arrangement included the following: • The lease was for a four -year period. • The equipment has a useful life of 5 years • TAA Ltd is required to make annual payments in advance of €/£50,000 on the 1 January each year • On 1 January 2018 the equipment had a fair value of €/£165,600 which was also equal to the present value of the minimum lease payments. • The interest rate implicit in the lease is 8 % What value will be presented in the income statement as the interest charge on the finance lease for the year ended 31 December 2018? (a) €/£ 4,000 ( b) €/£9,248 (c) €/£ 12,750 ( d) €/£50,000 14
May 19 – 5 DC Ltd purchased a piece of factory equipment on 1 July 2015 for €/£30,000. The equipment had an estimated useful life of 6 years and an estimated residual value of €/£ 6,000. Depreciation is charged on a straight-line basis over the useful life of the asset, based on the number of months the asset is in use. On 31 December 2018 DC Ltd sold the machine for €/£18,000. What was the profit or loss on disposal when the asset was sold in December 2018? (a) Profit of €/£2,000 (b) Profit of €/£3,000 (c) Profit of €/£4,600 (d) Profit of €/£5,000 15
May 19 – 5 DC Ltd purchased a piece of factory equipment on 1 July 2015 for €/£30,000. The equipment had an estimated useful life of 6 years and an estimated residual value of €/£ 6,000. Depreciation is charged on a straight-line basis over the useful life of the asset, based on the number of months the asset is in use. On 31 December 2018 DC Ltd sold the machine for €/£18,000. What was the profit or loss on disposal when the asset was sold in December 2018? (a) Profit of €/£2,000 (b) Profit of €/£3,000 (c) Profit of €/£4,600 (d) Profit of €/£5,000 16
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