Grade 12F Unit Test (3rd semester)

1. One of the MAIN purposes of financial accounting is to

• A. ensure that current assets can cover all expenses
• B. account for all non-monetary items in financial statements
• C. monitor the functions of the board of directors of a company
• D. provide useful information for planning and decision-making

2. What would be the advantage (benefit) of having all countries adopt and follow the same accounting standards?

• A. Consistency
• B. Comparability
• C. Absorbed preparation costs
• D. Eliminating the need for external auditing

3. On 15 January 2017, R. Sammy's advertising agency collected $6 000 from clients who were billed for jobs done in December 2016. using the accrual basis of accounting, how should the accounts be affected by the transactions on 15 January 2017?

• A. Increase: Cash Increase: Service revenue
• B. Increase: Cash Decrease: Accounts receivable
• C. Increase: Service revenue Decrease: Fees earned
• D. Increase: Cash Increase: Accounts receivable

4. The idea that a business will continue to operate for the indefinite future or until the benefit of the non-current assets can be realised in the normal course of operations is known as the

• A. objectivity principle
• B. business entity principle
• C. going concern principle
• D. revenue recognition principle

5. Internal controls are used in business to

• A. produce correct financial statments and deter employee dishonesty
• B. enhance the accuracy and reliability of accounting records and prevent fraud
• C. establish responsibility and conduct independent checks on employee performance
• D. safegaurd business assets and enhance the accuracy and realibility of accounting records.

Item 6 refers to the following statement. "One limitations of financial information is the use of estimates in the financial statements". 6. Which of the following show evidence of such estimates?

• D. I, II and III
• I. Machinery to be depreciated by 20% on its cost
• II. Corporation tax is to be 30% of net income.
• III. Allowance for doubtful debt to be 5% of net sales.
• A. I and II only

7. The historical cost principle states that

• A. transactions involving assets are recorded at acqusition cost
• B. assets shouldbe recorded initially at cost and then adjusted as market value changes
• C. the private activities of the owner of a business shoul not be incorporated into the activities of the business.
• D. only transactions that are capable of being expressed in monetary terms should be included in the accounting records.

8. The newly formed Daryl Inc. was billed $8 000 by t=its attorneys for organizational costs. The attorneys agreed to accept 6 000 shares of $1 par value common stock in full settlement of their bill. Shares of Daryl Inc., being new, had no established market value. The amount to be credited to common stock in the books is

• A. $ 0
• B. $2 000
• C. $6 000
• D. $8 000

9. Which of the following reserves is available for distribution as cash dividends?

• A. Sinking fund
• B. Share premium
• C. General reserve
• D. Revaluation reserve

10. Which representation of the fundamentals accounting equation is INCORRECT?

• A. Assets - Liabilities = Owners's Equity
• B. Owners' Equity + Liabilities = Assets
• C. Assets - Owener's Equity = Liabilities
• D. Liabilities + Assets + owners' Equity