ACCOUNTING

A company changes from the straight-line method of depreciation to the reducing balance method.

Which accounting principle has not been applied?

• consistency
• going concern
• historic cost
• materiality

A company purchased a lorry for $50000 on 1 January 2015. It has an estimated residual value of $10 000 and a four-year life. The company charges depreciation monthly on a straight-line basis.

What will the charge for depreciation be for the year to 30 June 2015?

• $5000
• $6250
• $10000
• $12500

A book-keeper compared the business bank statement with the cash book. He then updated the cash book and finally prepared a bank reconciliation statement.  

Why was the bank reconciliation statement prepared?

• to ensure no transactions had been omitted from the cash book.
• to establish the value of unpresented cheques.
• to explain the difference between the cash book balance and the bank statement  balance.
• to find out if any cheques had been dishonoured.

A company’s trial balance showed trade receivables of $14 600 and an existing provision for doubtful debts of $470.
It was discovered that the trade receivables included an irrecoverable debt of $500. A contra entry of $400 was also to be made.
The provision for doubtful debts is to be maintained at 5% of trade receivables.

Which amount for doubtful debts was charged in the income statement?

• $215
• $235
• $470
• $685

Which statement about ordinary shares is not correct?

• Shareholders receive return on investment before other investor groups.
• They are the riskiest form of investment.
• They carry a variable rate of dividends.
• They entitle the shareholder to part ownership.

An investor owns 10 000 5% preference shares in Howdo Limited.
One year Howdo Limited does not have enough profits to pay the preference dividend.
The investor expects the profits to improve and he thinks the directors will pay the outstanding dividend in the following year.  

Which type of preference shares does the investor own?

• cumulative
• non-cumulative
• participating
• redeemable

The issued ordinary share capital of a company at the beginning of a period was $240 000 (nominal value $0.60 per share).
A rights issue of one share for every five held was made during the period at a price of $0.90 per share. At that time the market price was $1.10 per share.  
What was the issued ordinary share capital after the rights issue?

• $292500
• $312000
• $328000
• $288000

Which action will improve the current ratio?

• providing a cash discount to trade receivables
• requesting a longer payment period from suppliers
• selling non-current assets for cash
• increasing a bank overdraft

A company is classifying its costs. It discovers that for any level of output between 10 000 and 15 000 units the freight cost per unit is always the same figure of $2 per unit.  

Of which type of cost is this an example?

• fixed cost
• semi variable cost
• stepped cost
• variable cost

Why is depreciation provided on non-current assets?

• so that they are shown at market value
• so that the cost is allocated to periods that benefit from them
• so that there is enough cash in the business to replace them
• so that the entity concept is applied