Deck 4: Applying Accounting Conventions

Question 1

Daniel's accounting records for the financial year ended 30 April 20X6 included the following information: What was Daniel's net profit for the financial year ended 30 April 20X6?

A)£755
B)£6305
C)£8055
D)£6555

Answer 1

£8055

Question 2

Which one of the following statements is correct? In the statement of profit or loss, discounts allowed are:

A)Deducted from expenses.
B)Added to gross profit.
C)Added to expenses.
D)Added to cost of sales.

Answer 2

Added to expenses.

Question 3

Arthur sells goods on credit, requiring payment within 30 days.He offers a 0.5% discount for early payment.One of his customers, Smart Moves Limited, takes advantage of the discount and transfers a payment of £3980 to settle a debt of £4000. How is the discount of £20 dealt with in Arthur's statement of profit or loss?

A)Added to expenses.
B)Deducted from revenue.
C)Added to cost of sales
D)Deducted from cost of sales.

Answer 3

Added to expenses.

Question 4

Timurlane's accounting records included the following information in respect of the 20X3 financial year: What was Timurlane's net profit for the year?

A)£13 438
B)£26 838
C)£30 438
D)£4876

Question 5

Trisha's accounting records for the year ended 31 August 20X2 included the following information: What was Trisha's net profit for the year ended 31 August 20X2?

A)£7714
B)£4570
C)£5730
D)£1269

Question 6

Morwenna sells computer spares.She sells a consignment of 100 modems to Max.Some of the modems are faulty and Max returns them to Morwenna. Which two of the following statements about Morwenna's and Max's accounting for the returns are correct?
A. Morwenna's sales returns are increased
B. Max's sales returns are increased
C. Morwenna's purchases returns are increased
D. Max's purchases returns are increased

A)A + C
B)A + D
C)A + B
D)B + C

Question 7

Jacquetta prepares her financial statements to 31 August each year.In the year ended 31 August 20X7 she has received and paid the following gas bills: Jacquetta estimates that gas charges for the period 1.8.X7 - 31.8.X7 will be about £60.
What figure for gas expense should be included in Jacquetta's accounts to 31 August 20X7?

A)£2079
B)£2280
C)£2400
D)£2139

Question 8

Ailsa runs a stationery supply business.Her accounting records for the year ended 31 December 20X4 included the following totals: What was Ailsa's net profit for 20X4?

A)£12 990
B)£34 410
C)£29 810
D)£31 690

Question 9

In the month of April 20X4, Gilbert allows discounts to his customers for early payment totaling £180.He receives similar discounts from his suppliers of £180.Which of the following describes the effect of these discounts on the major statement of profit or loss categories?

A)No effect
B)£180 added to expenses in respect of discounts allowed; £180 added to gross profit in respect of discounts received.
C)£180 deducted from revenue in respect of discounts allowed; £180 deducted from cost of sales in respect of discounts received.
D)£180 deducted from expenses in respect of discounts allowed; £180 added to gross profit in respect of discounts received.

Question 10

Ambrose pays a subscription to a trade association annually in advance on 1 January each year.Payments on 1 January 20X1, 20X2 and 20X3 were: What figure will appear in Ambrose's statement of profit or loss for the year ended 30 April 20X2 in respect of the subscription (to the nearest £)?

A)£4350
B)£4400
C)£4500
D)£4550

Question 11

Vijay's accounting records for the year ended 30 June 20X8 included the following totals: What was Vijay's net profit for the year ended 30 June 20X8?

A)£118 383
B)£105 143
C)£83 343
D)£99 597

Question 12

Barry imports goods for onward sale to retailers.At the end of his trading year ended 31 March 20X3, his accounting records showed the following relevant details: What was Barry's gross profit for the year ended 31 March 20X3?

A)£254 016
B)£235 154
C)£208 354
D)£272 878

Question 13

Buffy makes a gross margin of 27.2% (worked on the basis of revenue less returns) in the month of July 20X2.The following information is relevant to her trading account for that month: What is the figure for Buffy's purchases returns for July 20X2?

A)£300
B)£1290
C)£0
D)£950

Question 14

Danny's trading account figures for February 20X1 are as follows: What is Danny's gross profit for the month?

A)£32 996
B)£33 691
C)£31 279
D)£32 071

Question 15

Sue prepares a monthly trading account.Relevant figures for June 20X6 are as follows: What is Sue's gross profit for the month of June 20X6?

A)£5102
B)£3188
C)£5254
D)£3036

Question 16

Amber's accounting records include the following totals in respect of expenses for the year ended 31 July 20X4: In addition, Amber estimates that an accrual of £400 is required in respect of telephone charges.Of the business rates total, £2000 is prepaid, and rental expense includes a prepayment of £850.
What is the total of Amber's expenses for inclusion in her statement of profit or loss for the year ended 31 July 20X4?

A)£38 090
B)£37 190
C)£33 190
D)£34 090

Question 17

Silva supplies electrical goods to retailers.She buys and sells on credit and both receives and allows discounts for early settlement.The following figures relate to her statement of profit or loss for the quarter ended 30 June 20X9: What was Silva's gross profit for the quarter?

A)£240 600
B)£224 000
C)£233 950
D)£230 650

Question 18

Bella supplies scented candles to department stores.She sends a consignment with a sales value of £4000 to a customer.25% of the consignment is rejected and sent back because of poor quality.The cost to Bella of these goods was £3000.Which one of the following statements is correct? Bella must record:

A)£1000 as sales returns
B)£250 as purchases returns
C)£1000 as purchases returns
D)£250 as sales returns

Question 19

Anya's accounting records for the year ended 31 January 20X2 included the following totals: What was Anya's net profit for the year ended 31 January 20X2?

A)£31 295
B)£32 653
C)£7969
D)£25 689

Question 20

Bobbie's business made revenue of £280 500 in the 20X1 financial year.2% by value of the goods sold were returned.He allowed £2280 to his customers for early payment.Purchases were recorded at a total of £159 590.Bobbie also paid import duties of £3604, and received discounts for early settlement of £1580.Opening inventory was £10 200 and closing inventory was £12 200.Expenses were £50 600 and drawings were £17 000. What was Bobbie's net profit for the 20X1 financial year?

A)£62 396
B)£63 796
C)£45 396
D)£73 616

Question 21

Which one of the following statements is correct? Recognition of income and expenses occurs at the point when:

A)The annual accounts are prepared.
B)The quarterly VAT return is due.
C)Goods or services are supplied.
D)Goods or services are paid for.

Question 22

Kylie runs a heating system supply business.Her closing inventory at her 31 December year end is £32 447, valued at cost.This figure includes a total cost of £2400 in respect of 20 immersion heating units which cost Kylie £120 each some months earlier.This type of unit is now becoming obsolete and Kylie has decided to sell them off at £50 per unit in the New Year. Her opening inventory was £29 955.Revenue for the year was £162 250 and purchases were £122 483.Kylie incurred import duties of £3350 in respect of a consignment of Japanese boilers.
What was Kylie's gross profit for the year ended 31 December, applying the rules of inventory valuation?

A)£39 909
B)£43 259
C)£40 309
D)£37 509

Question 23

Navinder's business supplies computer parts on credit to many customers.On average, Navinder has found that 0.7% by value of his trade receivables amounts will not be settled.Therefore, he makes a general allowance in his accounts each year of 0.7% of trade receivables at the year end. Navinder's trade receivables at his 31 December 20X5 and 20X6 year ends were:
Assuming that there are no other transactions relating to Navinder's bad and doubtful trade receivables in 20X6 what is the doubtful trade receivables expense in his statement of profit or loss for the year ended 31 December 20X8?

A)£2429.70
B)£5134.50
C)£275.10
D)£2704.80

Question 24

Arkady makes an accrual for accounting and tax advisory fees in his financial statements for the year ended 31 May 20X8..Which one of the following statements correctly describes the effects of the accrual on his statement of financial position?

A)Capital is increased and both assets and liabilities are decreased.
B)Capital is decreased and liabilities are decreased.
C)Capital is increased and assets are increased.
D)Capital is decreased and liabilities are increased.

Question 25

Dolly's year end trade receivables at 31 August 20X9 totaled £38 470.She is currently in the process of taking legal action against a customer who owes her £1070 (included in the total of £38 470).She feels that there is only a limited chance of her succeeding in this action and so she decides to make a specific allowance against the whole amount.Apart from this item, Dolly expects, on the basis of past experience, that 98.5% of her trade receivables by value will be settled.The general allowance for bad trade receivables made at 31 August 20X8 was £330.There was no specific allowance at that date. Assuming that there are no other transactions during the year ended 31 August 20X9 relating to Dolly's bad and doubtful trade receivables, what was the total of her doubtful trade receivables expense in her statement of profit or loss for the year ended 31 August 20X9 (i.e.including both specific and general allowances)?

A)£1301
B)£1631
C)£1961
D)£839

Question 26

The following details are relevant to Lucrezia's current assets at 31 December 20X3: Inventory: her inventory at cost totals £29 030.Of this amount £2600 relates to items that are rapidly becoming obsolete.Lucrezia has been looking round for possible purchasers and thinks she has agreed a deal with a trader who will pay her £1000 for these items.
Trade receivables: Lucrezia's trade receivables total £22 450.Usually, her trade receivables are settled reliably and quickly.However, there has been a general downturn in the economy and she has decided to make an allowance of 2% for the first time.
Cash: cash at bank is £8850.
There are no other current assets.
What is the total value of Lucrezia's current assets at 31 December 20X3 for inclusion in her statement of financial position?

A)£57 281
B)£59 179
C)£58 179
D)£58 281

Question 27

Dilbert sells goods on credit to almost 400 customers.He knows from experience that a few of his customers will not pay up, but it is generally difficult to determine in advance which ones will prove to be bad payers. At Dilbert's year end, 30 September 20X4, his trade receivables total was £85 520.He discovered just after the year end that one of his oldest customers, Farebrother, had gone bankrupt.At 30 September 20X4, Farebrother owed Dilbert £1820 and it seemed highly unlikely that Dilbert would ever recover it.Reviewing his list of trade receivables, Dilbert identified two other amounts, of £180 and £263, that had been owed for over a year, and he decided that a specific allowance was required in respect of these amounts.Dilbert had never previously had to make an allowance for specific trade receivables.
He decided to continue to make his usual 1% allowance against the remainder of the trade receivables outstanding at 30 September 20X4.The general allowance at 30 September 20X3 was £750.
What was the net value of trade receivables in Dilbert's statement of financial position at 30 September 20X4 (to the nearest £)?

A)£82 424
B)£84 665
C)£82 863
D)£83 174

Question 28

In order to calculate profit with a reasonable degree of precision, it is important to match income and expenses in the statement of profit or loss.This is an accounting convention known as which of the following?

A)The accruals convention.
B)The profit convention.
C)The realization convention.
D)The recognition convention.

Question 29

Which one of the following statements is correct?

A)Prepayments are included as part of liabilities in the statement of financial position.
B)Accruals are included as part of liabilities in the statement of financial position.
C)Accruals reduce the amount of expenses for inclusion in the statement of profit or loss.
D)Prepayments reduce the amount of expenses for inclusion in the statement of profit or loss.

Question 30

Silvia is a market trader who deals in shoes.At 31 October 20X4 her closing inventory is valued at a cost of £13 750.Closing inventory includes a batch of shoes which cost Silvia £800 earlier in the year.This particular range of shoes has not sold well, and Silvia estimates that she will need to discount it heavily in order to shift it.She estimates that she can probably sell the batch of inventory for £300. What is the value of Silvia's closing inventory at 31 October 20X4, applying the rules of inventory valuation?

A)£14 550
B)£13 250
C)£13 750
D)£14 250