1.

A machine was purchased for £7,500 with an estimated useful life of five years and
an estimated second hand value of £1,500 at the end of that time. Depreciation is
charged using the straight line method. The written down value of the asset at the
end of Year 3 is:
Multiple Choice
• £3,000
• £3,500
• £3,900
• £4,300

Depreciation expense per year = (7900-1500)/5 = 1200

Total depreciation expense for three years = 3 years x £1,200/year = £3,600
Written down value = £7,500 - £3,600 = £3,900

Entities charge depreciation each year:

Multiple Choice
• To ensure there is enough money in the firm to replace the asset.
• To spread the cost of the asset over its working life.
• To reduce the profit and thus the dividends they can pay to shareholders.
• Because the law states they must depreciate all assets held.

An entity buys an asset for £1,000 and depreciates it using the reducing balance method.
Which of the following amounts would be the second year's depreciation charge at 10% per
annum?
Multiple Choice
• £80
• £81
• £90
• £100
Carrying value at beginning of year 2 = £1,000 - (10% x £1,000) = £900
Depreciation charge for year 2 = 10% x £900 = £90

The net book value of a non-current asset represents:

Multiple Choice
• The replacement value of that asset.
• Its market value on a going concern basis.
• Its realisable value in a forced sale.
• Its undepreciated cost.

Depreciation is:
Multiple Choice
• A way of setting aside money to provide for the eventual replacement of non-current
assets.
• A way of writing off the cost of non-current assets over their estimated revenue-
generating period.
• The fall in value of non-current assets over their estimated useful economic lives.
• The writing off of the cost of non-current assets over their estimated useful economic
lives in ever decreasing amounts.

The sale of equipment costing £8,000, with accumulated depreciation of £6,700 and a sale
price of £2,000, would result in a:
Multiple Choice
• Gain of £2,000.
• Gain of £700.
• Loss of £700.
• Loss of £600.

The balance at cost of an asset in the ledger is £500. The balance on the provision for
depreciation account of the asset is £400. If the asset is sold for £50 the double entry
should be:

The cost of an entity's assets three years ago was £24,000. Depreciation was charged at the
rate of 10% per annum using the straight line method. The firm decided to change its
method to reducing balance at 10% per annum with retrospective effect. The total
difference in the profits over the three years would be:
Multiple Choice
£669
£696
£966
£969

A car cost £8,000. It is to be depreciated at 30% per annum on the reducing balance basis.
During year four the car was sold for £3,000. A full year's depreciation is charged in the year
of purchase, with none in the year of sale.
The profit or loss on disposal is:
Multiple Choice
• Loss £87.
• Loss £2,000.
• Profit £256.
• Profit £1,200.
The balance on an entity's plant and machinery account on 1 January 20X2 was £5,000.
During that year the following transactions took place on the dates shown:-
1 May 20X2 Plant which had originally cost £750, was sold
1 September 20X2 New machinery costing £3,000 was purchased
If depreciation is calculated at a rate of 10% per annum, on a strict time basis, using the
straight line basis, the depreciation charge on plant and machinery for the year to 31
December 20X2, to the nearest pound is:
Multiple Choice
• £525.
• £550.
• £600.
• £625.

Able has the following balances in his non-current asset accounts as at the beginning an end
of the financial year as follows:
Non current assets at cost:
01/01/X0 £30,500
31/12/X0 £47,000
Accumulated depreciation:
01/01/X0 £12,300
31/12/X0 £15,700
During the year one of the non-current assets was sold for £4,100 resulting in a profit on
sale of £2,300. The accumulated depreciation in respect of this asset was £3,900. This was
the only non-current asset disposed of during the year. It is B. Able's practice to charge a full
year's depreciation in the year of purchase and sale.

The cost of the non-current asset sold was:

Multiple Choice
• £5,700.
Correct
• £8,300.
• £4,100.
• £5,000.

Able has the following balances in his non-current asset accounts as at the beginning an end
of the financial year as follows:
Non current assets at cost:
01/01/X0 £30,500
31/12/X0 £47,000
Accumulated depreciation:
01/01/X0 £12,300
31/12/X0 £15,700
During the year one of the non-current assets was sold for £4,100 resulting in a profit on
sale of £2,300. The accumulated depreciation in respect of this asset was £3,900. This was
the only non-current asset disposed of during the year. It is B. Able's practice to charge a full
year's depreciation in the year of purchase and sale.
The depreciation charge for the year ending 31/12/X0 was:
Multiple Choice
• £500.
• £11,700.
• £7,300.
• £7,500.

Able has the following balances in his non-current asset accounts as at the beginning an end
of the financial year as follows:
Non current assets at cost:
01/01/X0 £30,500
31/12/X0 £47,000
Accumulated depreciation:
01/01/X0 £12,300
31/12/X0 £15,700
During the year one of the non-current assets was sold for £4,100 resulting in a profit on
sale of £2,300. The accumulated depreciation in respect of this asset was £3,900. This was
the only non-current asset disposed of during the year. It is B. Able's practice to charge a full
year's depreciation in the year of purchase and sale.

Amounts spent on non-current assets in the year to 31/12/X0 were:

Multiple Choice
• £10,800.
• £13,100.
• £16,500.
• £22,200.

Tom Ltd. bought a new machine. The cost of the machine was £10,000. The installation
costs were £1,000 and the employees received specific training on how to use this particular
machine, at a cost of £200. Before using the machine to make parts, a test was performed,
and the oil and initial parts required for this test cost £50. It costs £100 to insure the
machine for the year.
What should the cost of the machine be in the balance sheet?
Multiple Choice
• £10,000
• £11,000
• £11,250
• £11,350

A non-current asset register showed a net book value of £134,920. A non-current asset
costing £30,000 had been sold for £8,000, making a loss on disposal of £2,500. No entries
had been made in the non-current asset register for this disposal.
The balance on the non-current asset register is:
Multiple Choice
• £102,420.
• £107,420.
• £115,420.
• £124,420.

X Ltd bought a new printing machine. The machine cost £160,000. The installation costs
were £10,000 and the employees received a training course on how to use the machine
(cost £4,000). Before using the machine for normal day-to-day activities the installers
undertook a test to ensure the machine worked, this test utilised paper and ink worth
£2,000.
At what value will the machine be included in the statement of financial position?
Multiple Choice
• £160,000
• £170,000
• £174,000
• 176

A car was purchased by a tile retailer in May 20W9 for £30,300 (including road tax for the
year to 20X0 of £300). The business has a 31 December year end. The car was traded in on
the 1st August 20X2 for £15,000.
The entity's accounting policy in respect of the depreciation of cars is to apply a 25%
reducing balance method, with a full year's depreciation being charged in the year of
purchase and none in the year of sale.
Given this information, what was the profit/loss on the trade-in during the year ended 31st
December 20X2?
Multiple Choice
• Profit of £2,154
• Profit of £2,344
• Profit of £5,364
• Profit of £5,508

Replacement shelving (£500) was recorded as fixtures and fittings. As a result:

Multiple Choice
• Profit is overstated by £500 and non-current assets are overstated by £500.
• Profit is understated by £500 and non-current assets are understated by £500.
• Profit is understated by £500 and non-current assets are overstated by £500.
• Profit is overstated by £500 and non-current assets are understated by £500.

The following is an extract from the trial balance for an entity:

Dr. Cr.
Motor vehicles £25,000
Provision for depreciation for motor vehicles £10,937.50

It is company policy to depreciate motor vehicles using a 25% reducing balance method.
This year's depreciation has not yet been adjusted for.
What is the balance on the provision for depreciation account after the depreciation
adjustment has been made?
Multiple Choice
• £14,062.50
• £14,453.10
• £10,546.90
• £3,515.60

The following is an extract from the trial balance for an entity:

Dr. Cr.
Motor vehicles £70,000
Provision for depreciation for motor vehicles £30,000

It is company policy to depreciate motor vehicles using a 25% straight line method. This
year's depreciation has not yet been adjusted for.
What is the balance on the provision for depreciation account after the depreciation
adjustment has been made?
Multiple Choice
• £17,500
• £22,500
• £40,000
• £47,500

Annual depreciation = (25% x £70,000) = £17,500

£30,000 + £17,500 = £47,500

A lorry was purchased in 20X8 for £48,000 and depreciated by 20% using the reducing
balance method. It is the entity's policy to charge a full year's depreciation in the year of
purchase and none in the year of sale. In the second month of 20Y1 it was sold for £24,000.
This resulted in:
Multiple Choice
• A loss on disposal of £4,800.
• A loss on disposal of £576.
• A profit on disposal of £4,800.
• A profit on disposal of £576.

Which of the following statements is correct?

Multiple Choice
• Buying new premises is a revenue expenditure
• Buying a new car is capital expenditure
• The cost of using a car is a capital expenditure
• Statements A and B are both correct
Which of the following statements is correct?
Multiple Choice
• The distinction between capital expenditure and revenue expenditure is always clear
• Sometimes the distinction between capital expenditure and revenue expenditure is
not clear
• Buying a new car is revenue expenditure
• Statements B and C are both correct

Which of the following statements is correct?

Multiple Choice
• Capital expenditure appears on the statement of profit or loss, not the statement of
financial position
• Revenue expenditure appears on the statement of profit or loss, not the statement
of financial position
• Revenue expenditure does not appear on the statement of profit or loss
• Capital expenditure is not associated with depreciation

Depreciation is not a process of valuing assets

Group starts
True

Which of the following statements is false?

Multiple Choice
• A depreciation expense is not paid out in cash
• Depreciation is not a process for valuing assets
• A depreciation expense is paid out in cash
• A provision for depreciation is a bookkeeping entry, not an allocation of cash

A company has sold a car for £13,000. The book value at the date of sale was £3,000. The
original cost of the car was £20,000. The journal entry to record the sale of the car is:

Multiple Choice
• Dr Non-current assets £13,000
Dr Loss on disposal £7,000
Cr Bank £20,000
• Dr Bank £13,000
Dr Loss on disposal £7,000
Cr Non current assets £20,000

• Dr Bank £13,000
Cr Loss on disposal £7,000
Dr Non current asset £20,000

• Dr Accumulated depreciation £17,000

Dr Bank £13,000
Cr Gain on disposal (P or L account) £10,000
Cr Non current asset cost £20,000

If a company buys a machine for £12,000 with an estimated useful life of 4 years and a
residual value of £4,000, what is the annual depreciation charge if calculated on a straight
line basis?
Multiple Choice
• £2,000
• £4,000
• £1,000
• £3,000

If a company purchases a machine for £60,000 and charges depreciation at 10% on a

diminishing balance basis, what is the depreciation charge in the forth year?
Multiple Choice
• £5,042
• £4,374
• £6,000
• £4,860

Which of the following are ways in which managers can manipulate the statement of profit
or loss in order to show a higher profit?
Multiple Choice
• Bringing forward the recognition of sales
• Overstate closing inventory
• Make repairs and maintenance look like capital expenditure
• All of the above

Which of the following is not an essential characteristic of an asset?

Multiple Choice
• provision of future economic benefits to the entity
• acquired as a result of a past transaction
• controlled by the entity
• owned by the entity

When an item passes the definition tests of an asset and is included on a company’s
statement of financial position, that asset is said to be:
Multiple Choice
• reported
• disclosed
• recognised
• realised
Which of the following criteria can never apply to a current asset?
• It is cash or a cash equivalent.
• It is expected to be realised within 12 months after the statement of financial
position date
 • It is held primarily for the purpose of being traded
• It is expected to be retained for several accounting periods

A motor car held by a car dealership for sale to customers is a non-current asset. False

A company buys a new machine from abroad at an invoice price of £20,000. Transportation
costs amounted to £2,000 and installation costs a further £1,500. The company was
granted a discount of £1,000 for early payment. The cost of the asset to be recognised in
the financial statements would be:
Multiple Choice
• £19,000
• £21,000
• £23,500
• £22,500

A company acquired an investment property on 1 April 20X9 costing £500,000. In addition,

legal fees and stamp duty amounted to £29,000. At the company’s year end of 31 March
20Y0, the investment property was valued by independent surveyors at £620,000. If
company policy is to carry investment properties at fair value, the company will carry the
property at:
Multiple Choice
• £500,000
• £529,000
• £620,000
• £649,000

A company has the following information relating to non-current assets in the year to 31
December 20X9. Which would not be recognised as an asset at 31 December 20X9?
Multiple Choice
• Spent £400,000 on new machinery which was delivered in March 20X9
• Took delivery of a van on 30 November 20X9. The invoice was not paid until 31
January 20Y0
• Placed on order on 15 December 20X9 for 2 cars. The cars will be delivered in
February 20Y0.
• Spent £120,000 fitting new guards to its production line in November 20X9 following
a request by the Health & Safety Executive.

A company self builds a new administrative headquarters building. Which of the following
costs would be capitalised in determining the cost of the new building?
Multiple Choice
• Advertising and promotional costs
• Staff training costs
• Costs of opening the new building
• Cost of site preparation
The brochure price of an asset is £25,000. As a result of obtaining a trade discount, a
company purchases the asset for £22,500. In addition, the company was granted a discount
of £2,250 by the supplier for prompt settlement of the invoice. The asset should be
recorded at a cost of :
Multiple Choice
• £20,250
• £22,500
• £22,750
• £25,000

Depreciation refers to the periodic allocation of the net cost of a non-current asset over its
useful life:
True

Which depreciation method, if any, is recommended to be adopted under IAS 16, Property,
Plant & Equipment?
• Sum of the digits method
• Reducing balance method
• Straight line method
• No particular method is recommended

A machine is purchased at a cost of £10,000 with an estimated life of 4 years and no scrap
value. Depreciation is charged using the straight line method. The depreciation charge in
year 2 is:
Multiple Choice
• £625
• £2,500
• £5,000
• £7,500

A machine costing £5,000 is to be depreciated over 5 years on the straight-line basis

assuming a scrap value of £500. The net book value of the machine at the end of Year 3 is:
Multiple Choice
• £900
• £2,000
• £2,300
• £2,700

A motor vehicle purchased at a cost of £18,000 is depreciated at 25% per annum using the
reducing balance method of providing for depreciation. The depreciation charge in Year 2
is:
Multiple Choice
• £1,125
• £9,000
• £3,375
 • £4,500

A machine was purchased for £7,500 with an estimated useful life of five years and an
estimated second hand value of £1,500 at the end of that time. Depreciation is charged
using the straight line method. The written down value of the asset at the end of Year 3 is:
Multiple Choice
• £3,000
• £3,500
• £3,900
• £4,300

At 1 April 20X9 a company had non-current assets costing £20,580 and accumulated
depreciation £4,800. During the year to 31 March 20Y0 assets costing £4,530 were
purchased. Depreciation is calculated using the reducing balance basis at
20%. Accumulated depreciation for inclusion in the balance sheet at 31 March 20Y0 would
be:
Multiple Choice
• £8,862
• £9,822
• £10,782
• £12,978

The trial balance of a company at the beginning of Year 1 shows motor vehicles at cost of
£40,000 and accumulated depreciation of £14,400. Depreciation is at 20% per annum using
the reducing balance method. What will be the net book value of motor vehicles shown in
the statement of financial position at the end of Year 1 after allowing for this year’s
depreciation?
Multiple Choice
• £22,400
• £20,480
• £19,520
• £17,600

A company had fixtures and fittings at 1 January 20X9 with a net book value of £41,952
comprising cost of £71,344 less accumulated depreciation of £29,392. During the year
fittings costing £5,944 were purchased. Depreciation is charged on the reducing balance
basis at 15% per annum with a full year’s charge in the year of purchase. The depreciation
charge for the year ended 31 December 20X9 would be:
Multiple Choice
• £6,292
• £7,184
• £5,300
• £11,593

YEAR 1
1. The balance on trade receivables at the year end is £126,000.
 2. Two of the balances in the sales ledger have to be written off. One is
£5,400 the other is £6,600.
3. The company is to provide 5 per cent for a provision for irrecoverable
receivables and 6 per cent for a provision for discounts.

YEAR 2
The sales in the year were £10,100 lower than the cash received in the year
(consider the impact of this on the closing balance).
1. One of the debts that had been written off last year (£6,600) is now
recoverable.
2. At the end of this year the auditor has identified £500 of the sales ledger
balances as bad debts. These should be written off.
3. The provision for discounts should be increased to 12 per cent.
4. The provision for irrecoverable receivables should be adjusted to 3 per
cent.

Required:
Prepare the transactions in the sales ledger and the general ledger accounts
and the extract entries from the statement of comprehensive income and
statement of financial position for the two years.

An increase in the provision for irrecoverable debts results in:

Multiple Choice
• A decrease in current liabilities.
• An increase in net profit.
• An increase in working capital.
• A decrease in working capital.

Which of the following statements about trade receivables, irrecoverable debts and
allowances for irrecoverable debts is incorrect?
• Trade receivables usually appear as a current asset in the statement of financial
position.
• Allowances for irrecoverable debts usually have a debit balance in the ledger.
• The trade receivables account usually has a debit balance in the ledger.
• An increase in the allowance for irrecoverable receivables account will reduce the
profit of the entity.

ncreases in the allowance for irrecoverable debts account will affect the statement of profit
or loss as follows:
Multiple Choice
• The statement of profit or loss will be credited with the movement and the amount
will appear under expenses.
• The statement of profit or loss will be debited with the movement and the amount
will appear under expenses.
• The statement of profit or loss will be credited with the new balance on the
allowance for irrecoverable debts account under expenses.
 • The statement of profit or loss will be debited with the new balance on the
allowance for irrecoverable debts account under expenses.

Entities make allowances for irrecoverable debts in order to:

Multiple Choice
• Avoid having any irrecoverable debts.
• Get their credit customers to pay more quickly.
• Keep the trade receivables figure approximately the same value each year.
• Obtain a ‘true and fair' trade receivables figure for the statement of financial
position.

To make an allowance for irrecoverable debts the correct procedure is to:

Multiple Choice
• Dr. Allowance for irrecoverable debts account Cr. Irrecoverable debts account.
• Dr. Trade receivables account Cr. Allowance for irrecoverable debts account.
• Dr Allowance for irrecoverable debts account Cr. Statement of profit or loss account.
• Dr. Statement of profit or loss account Cr. Allowance for irrecoverable receivables
account.

A company has been informed that a credit customer has just been declared bankrupt. The
balance on his account was £1,000. Which of the following is the correct double entry?
Multiple Choice
• Dr. Irrecoverable receivables a/c £1,000
Cr. Trade receivables a/c £1,000
• Dr. Trade receivables a/c £1,000
Cr. Irrecoverable receivables a/c £1,000
• Dr. Allowance for irrecoverable debts a/c £1,000
Cr. Trade receivables a/c £1,000
• Dr. Trade receivables a/c £1,000
Cr. Allowance for irrecoverable debts a/c £1,000

The entity has trade receivables of £5,000 and an allowance for irrecoverable debts account
of £450. The entity wishes to increase its allowance to 10% of the trade receivables. The
correct procedure would be to:

On 31 December the following balances existed in an entity's books. Trade receivables

£3,000, irrecoverable debts written off £50, allowance for irrecoverable debts £200. The
entity requires an allowance for irrecoverable debts to be made of 10% of the trade
receivables. It should:
At 31 March 20X1, the totals of the balances from Anna Company's personal ledgers were
Trade receivables £151,000 Dr £1,200 Cr
Trade payables £2,000 Dr £229,000 Cr
The following adjustments are to be made
Increase the allowance for irrecoverable debts from £15,000 to £28,000. Provide for a late
invoice from a trade supplier for purchases £120,000

At 31 March 20X1, the totals of the balances from Anna Company's personal ledgers were
Trade receivables £151,000 Dr £1,200 Cr
Trade payables £2,000 Dr £229,000 Cr
The following adjustments are to be made
Increase allowance for irrecoverable debts from £15,000 to £28,000. Provide for a late
invoice from a trade supplier for purchases £120,000

In Anna Company's statement of financial position at 31 March 20X1 net trade receivables
should be:
Multiple Choice
• £121,800
• £125,000Correct
• £136,800
• £153,000

At 31 March 20X1, the totals of the balances from Anna Company's personal ledgers were
Trade receivables £151,000 Dr £1,200 Cr
Trade payables £2,000 Dr £229,000 Cr
The following adjustments are to be made
Increase the allowance for irrecoverable debts from £15,000 to £28,000. Provide for a late
invoice from a trade supplier for purchases £120,000

In Anna Company's statement of financial position at 31 March 20X1 net trade payables
should be:
Multiple Choice
• £147,000
• £349,000
• £350,200
• £107,000

When an irrecoverable debt recovered is not adjusted for:

Multiple Choice
 • Profits are overstated and current assets are overstated.
• Profits are overstated and current assets are understated.
• Profits are understated and current assets are overstated.
• Profits are understated and current assets are understated.

A company has been informed that a credit customer has just been declared bankrupt,
though it is probable that the customer's trade payables will get 50p for every pound
outstanding, when the assets of his business are sold. The balance on his account was
£1,000. Which of the following is the correct double entry to deal with this information?
Multiple Choice
• Dr. Irrecoverable debts a/c £1000
Cr. Trade receivables a/c £1,000
• Dr. Irrecoverable debts a/c £500
Cr. Trade receivables a/c £500
• Dr. Allowance for irrecoverable debts a/c £1,000
Cr. Trade receivables a/c £1,000
• Dr. Allowance for irrecoverable debts a/c £500
Cr. Trade receivables a/c £500

The trade receivables balance at the start of the year was £10,000. At the end of the year
this had increased to £22,500. At the end of the year it came to the attention of the
directors that B. Quiet a credit customer with a balance of £2,500 is bankrupt. It has always
been the company policy to provide an allowance for irrecoverable debts of 10%.

What will the balance on the allowance for irrecoverable debts and the irrecoverable debts
accounts be at the end of the year?
Multiple Choice
• Provision for doubtful debts £4,750;
Bad debts £0
• Allowance for irrecoverable debts £4,750;
Irrecoverable debts £0
• Allowance for irrecoverable debts £2,250;
Irrecoverable debts £2,500
• Allowance for irrecoverable debts £2,000;
Irrecoverable debts £2,500

The trade receivables balance at the start of the year was £10,000. At the end of the year
this had increased to £22,500. At the end of the year it came to the attention of the
directors that B. Quiet a credit customer with a balance of £2,500 is bankrupt. It has always
been the company policy to provide an allowance for irrecoverable debts of 10%.

Which of the following is the correct entry to the statement of profit and loss account in
respect of irrecoverable and the allowance for irrecoverable debts accounts for the period?
Multiple Choice
 • Increase in the allowance for irrecoverable debts account £4,750; irrecoverable
debts £0
• Increase in the allowance for irrecoverable debts £2,250; irrecoverable debts £2,500
• Increase in the allowance for irrecoverable debts £1,250; irrecoverable debts £2,500
• Increase in the allowance for irrecoverable debts £1,000; irrecoverable debts £2,500

The trade receivables balance at the start of the year was £10,000. At the end of the year
this had increased to £22,500. At the end of the year it came to the attention of the
directors that B. Quiet a credit customer with a balance of £2,500 is bankrupt. It has always
been the company policy to provide an allowance for irrecoverable debts of 10%.

What is the balance of the trade receivables account at the end of the year?
Multiple Choice
• £18,000
• £17,750
• £18,750
• £20,000

The balance on an entity's trade receivables account is £36,000. It is company policy to

maintain an allowance for irrecoverable debts of 10% of trade receivable balances in
addition to any specific amounts that are noted. You are told that two credit customers
(Alfie who has a balance owing of £1,500 and Wilfred who has a balance owing of £2,500)
are experiencing financial difficulties due to the recession.
Given this information what will the balance on the allowance for irrecoverable debts be at
the end of the year?
Multiple Choice
• £3,600
• £4,000
• £7,200
• £7,600

A debt of £60,000 was written off as irrecoverable by Jack Jones. Subsequently the customer
was wound up and Jack Jones received £10,000.
What is the double entry for this subsequent payment?
Multiple Choice
• Dr. Irrecoverable debts ledger account £50,000
Cr. Trade receivables ledger £50,000
• Dr. Trade receivables ledger £50,000
Cr. Irrecoverable debts ledger account £50,000
• Dr. Irrecoverable debts ledger account £10,000
Cr. Bank account £10,000
• Dr. Bank account £10,000
Cr. Irrecoverable debts ledger account £10,000

Where a company makes both a specific allowance of £5,000 and a general allowance of
10% for bad debts, which of the following statements is correct.
Multiple Choice
• The general allowance is calculated first based on receivables then the specific
allowance is added to it to determine the allowance for irrecoverable debts for the
period.
• The specific allowance is deducted from payables then the general allowance is
calculated on this reduced amount to determine the allowance for
irrecoverable debts for the period.
• The specific allowance is deducted from receivables then the general allowance is
calculated on this reduced amount to determine the allowance for
irrecoverable debts for the period.
• The general allowance is calculated first based on payables then the specific
allowance is added to it to determine the allowance for irrecoverable debts for the
period.

B. Builder had an allowance for irrecoverable debts at the start of the year of £5,000. At
year end he had receivables of £100,000 and decided to make a 2% allowance for
irrecoverable debts.
What entries should be made to the accounts?
Multiple Choice
• Dr. Allowance for irrecoverable debts £3,000
Cr. Statement of profit or loss £3,000
• Dr. Statement of profit or loss £3,000
Cr. Allowance for irrecoverable debts £3,000
• Dr. Allowance for irrecoverable debts £2,000
Cr. Statement of profit or loss £2,000
• Dr. Statement of profit or loss £2,000
Cr. Allowance for irrecoverable debts £2,000

Which of the following statements is NOT correct?

Multiple Choice
• In calculating the general allowance any irrecoverable debts and specific
allowanced should be deducted from trade receivables first.
• The balance carried down at the end of the period on the allowance for
irrecoverable debts is the amount of the new allowance.
• Entries for specific allowances are made in the accounts of the credit customers to
which they relate.
• Movements in the allowance for irrecoverable debts are charged or credited to the
statement of profit or loss.

An expense prepayment is:

Multiple Choice
• Expenses paid in advance.
• Income received in advance.
• Expenses paid in arrears.
• Income received in arrears.
Another name for income received in advance is:
Multiple Choice
• Income receivable.
• Income due.
• Deferred income.
• Income received in arrears.

A debit balance on the rates account after the yearly transfer to the income statement
indicates:
Multiple Choice
• An asset and an accrual.
• An asset and a prepayment.
• A liability and an accrual.
• A liability and a prepayment.

Tom Limited has a year end - 30/11/X2. The business pays for its Rent by standing order of
£120 per month. However, the cost can vary per month depending on the sales made by
Tom Limited. On 01/12/X1, the statement from the landlord showed that Tom Limited had
overpaid by £40. The business received rent bills for the four quarters commencing on
01/12/X1 and ending on 30/11/X2 for £260, £280, £420 and £400.
Identify the correct entry that should appear in the statement of profit or loss for Tom
Limited for the year ended 30/11/X2.
Multiple Choice
• £1,360
• £1,400
• £1,440
• £1,480

An entity records all transactions relating to the expense for rent in 20X1. On 1 January 20X1
there was an accrual of £900 in respect of rent. On 31 December 20X1 there was a rent
accrual of £1,100. During the year, £4,800 was paid in respect of rent.
The expense for rent for the year appearing the income statement account was:
Multiple Choice
• £4,600.
• £4,800.
• £5,000.
• £5,900.

A firm records all transactions relating to the expense rates in 20X1.

On 1 January 20X1 there was a prepayment of £600 in respect of rates. On 31 December
20X1 there was rates prepaid of £700. During the year £3,100 was paid in respect of rates.
The total expense for rates for the year appearing the statement of profit or loss account
was:
Multiple Choice
 • £3,000.
• £3,100.
• £3,200.
• £3,700.

During its first financial year, ended 31 December 20X2, an entity paid £3,000 in respect of
insurance premiums. All premiums were paid in advance and, except for the following,
related to policies with renewal dates coinciding with the firm's accounting year end date.
Policy A Policy B
Annual premium £240 £1,200
Renewal date 30 June 20X3 30 April 20X3
Premium paid 1 July 20X2 1 May 20X2
The firm's insurance expense for 20X2 was:
Multiple Choice
• £2,280.
• £2,480.
• £2,580.
• £3,000.
• Alex owns a business and pays her business telephone rental quarterly in advance.
£25 is paid for on 01/11/X1, 01/02/X2, 01/05/X2, 01/08/X2 and 28/10/X2. What is
the charge that should appear in the statement of profit or loss account in respect of
telephone rental for the year ended 31/10/X2?
• Multiple Choice
• £125 with a prepayment of £25 in the statement of financial position
• £100 with a prepayment of £25 in the statement of financial position
• £100 with an accrual of £25 in the statement of financial position
• £125 with an accrual of £25 in the statement of financial position

During the year to 31 October 20X1, car fuel bills of £8,540 were paid. A delivery worth £130
had yet to be invoiced. Car fuel in inventory at 1 October 20X1 was £1,250 and there were
invoices outstanding for £170. At 31 October 20X1, the inventory of car fuel was valued at
£980. The car fuel to be charged to the statement of profit or loss account for the year to 31
October 20X1 is:
Multiple Choice
• £8,510.
• £9,110.
• £8,850.
• £8,770.

A company's year end is 30th November 20X2. The company pays for its electricity by
standing order at £1,200 per month. On 1st December 20X1, the statement from the
electricity supplier showed that the company had overpaid by £400. The company received
four electricity bills for the quarters commencing 1st December 20X1 and ending on 30
November 20X2 for £2,600, £2,800, £4,200 and £4,000. Which of the following is the correct
electricity charge for the company for the year ended 30th November 20X2?
Multiple Choice
 • £13,600
• £14,000
• £14,400
• £14,800

A company's year end is 30th November 20X2. The company pays for its electricity by
standing order at £1,200 per month. On 1st December 20X1, the statement from the
electricity supplier showed that the company had overpaid by £400. The company received
four electricity bills for the quarters commencing 1st December 20X1 and ending on 30
November 20X2 for £2,600, £2,800, £4,200 and £4,000. Which of the following is the correct
balance owing on the electricity supplier's account as at 30th November 20X2?
Multiple Choice
• Overpayment of £400
• Overpayment of £800
• Over payment of £1,200
• Underpayment of £400

The telephone account for the year ended 30 June 20X2 was as follows:
Opening balance for telephone accrued at 1 July 20X1 £6,000
Payments made during the year:
1 August 20X1 for the period to 31 July 20X2 £12,000
1 November 20X1 for the period to 31 October 20X2 £14,400
1 February 20X2 for the period to 31 January 20X2 £18,000
30 June for the period to 30 April 20X2 £16,800
Expense during the year was £66,400
Which of the following is the appropriate entry for telephone in the statement of financial
position at 30 June 20X2?
Multiple Choice
• £Nil
• Accrued £5,600
• Prepaid £5,600
• Accrued £11,200

The year end is 30/09/X0

Paid for insurance on 15/09/X0 for the period from 01/09/X0 to 31/08/X1 of £2,400.
What is the closing adjustment in the insurance account to reflect this information at the
year end?
Multiple Choice
• A prepayment of 0.5/12 of £2,400
• A prepayment of 11.5/12 of £2,400
• A prepayment of 1/12 of £2,400
• A prepayment of 11/12 of £2,400

The year end is 30/09/X0

Paid for rates on 01/08/X0 for the period from 01/08/X0 to 31/12/X0 of £600.
What is the closing adjustment to reflect this information at the year end?
Multiple Choice
• An accrual of 2/5 of £600
• An accrual of 3/5 of £600
• A prepayment of 2/5 of £600
• A prepayment of 3/5 of £600

The year end is 30 April 20X1.

Paid a £120 electricity bill on 28th February for the period 01/01/X1 to 31/03/X1.
Paid a £150 electricity bill on 28th July for the period 01/04/X1 to 30/06/X1.
What is the overall charge which should affect the ‘Heat and light' account within the year
30 April 20X1 from the above two transactions?
Multiple Choice
• A charge of £270
• A charge of £220
• A charge of £170
• A charge of £120

The year end is 30 April 20X0.

Paid a phone bill on 30/07/X0 amounting to £1,200 for the period 15/04/X0 to 15/07/X0.
What is the overall charge which should affect the statement of profit or loss account
‘Telephone' within the year 30 April 20X0 resulting from this information?
Multiple Choice
• A charge of £200
• A charge of £400
• A charge of £800
• A charge of £1,000

At the start of the year there was £300 worth of oil in the oil tank and an outstanding
invoice for £180. During the year payments for oil of £2,900 were made. At the year end
there was £280 worth of oil in the oil tank and an outstanding invoice for £100. The oil
charge for the year should be:
• Multiple Choice
• £2,840.
• £2,820.
• £2,880.
• £2,900.

An entity's year end is 31/12/X2. The statement received from the telephone company in
the previous year indicated that at 31/12/X1 £280 had been overpaid in the previous year.
During the year to 31/12/X2 the following transactions took place:
Invoice received 15/01/X2: Telephone for the period 01/10/X1 to 31/12/X1: £1,200
Invoice received 15/04/X2: Telephone for the period 01/01/X2 to 31/03/X2: £1,600
Invoice received 15/07/X2: Telephone for the period 01/04/X2 to 30/06/X2: £2,000
Invoice received 15/10/X2: Telephone for the period 01/07/X2 to 30/09/X2: £2,100
Invoice received 15/01/X2: Telephone for the period 01/10/X2 to 31/12/X2: £1,800
The company makes a direct debit payment to the telephone company of £700 per month
(on the 25th of each month).
The charge in the statement of profit or loss for the year will be:
Multiple Choice
• £7,500.
Correct
• £8,400.
• £8,500.
• £7,400.
Explanation
The 4 invoices cover the year fully. £1,600 + £2,000 + £2,100 + £1,800 = £7,500

An entity’s year end is 31/12/X2. The statement received from the telephone company in
the previous year indicated that at 31/12/X1 £280 had been overpaid in the previous
year. During the year to 31/12/X2 the following transactions took place

Invoice received 15/01/X2:Telephone for the period 01/10/X1 to 31/12/X1: £1,200

Invoice received 15/04/X2: Telephone for the period 01/01/X2 to 31/03/X2: £1,600
Invoice received 15/07/X2: Telephone for the period 01/04/X2 to 30/06/X2: £2,000
Invoice received 15/10/X2: Telephone for the period 01/07/X2 to 30/09/X2: £2,100
Invoice received 15/01/X2: Telephone for the period 01/10/X2 to 31/12/X2: £1,800
The company makes a direct debit payment to the telephone company of £700 per month
(on the 25th of each month).
The amount shown in the statement of financial position at 31/12/X2 will be:
Multiple Choice
• £900 prepayment.
• £3,580 accrual.
• £1,180 prepayment.
• £1,180 accrual.

At the start of the year an agent for a product owed the company £800 commission for sales
targets met by the company in the previous year. This year the company made the targets
again. The agent for the product paid £12,000 over the course of the year, but still owes the
company £500 at the year end. What amount will appear in the statement of profit or
loss for the year?
Multiple Choice
• £11,700
• £12,000
• £12,300
• £12,500

Which of the following items could give rise to the recognition of accrued expenses?
Multiple Choice
• Sales, interest receivable, taxes payable
• Sales, interest payable, rent
• Salaries, rent, insurance
• Salaries, interest payable, interest receivable
In which of the following cases would a company recognise a liability?
Multiple Choice
• A commitment (but not a legally binding contract) to buy equipment next year
• A remote possibility of court action arising from the sale of a defective product
• A guarantee to support the bank overdraft of a subsidiary company where there is
very little likelihood of being called upon to meet the guarantee
• Repairs to a factory are made before the year end but the invoice from the
contractor is not received until two months after the year end

A company with a year end of 31 December 20X9 receives a telephone bill on 14 February
20Y0 for the 3 months to 31 January 20Y0. The company should account for the amount of
the bill relating to 31 December 20X9 as:
Multiple Choice
• A trade payable
• An accrual
• A prepayment
• A provision