Accounting Chapter 10 - Past Year MCQ

The following payments were made by John when he purchased a machine. How much should have been debited to the machinery account?

• $10 900
• $11 200
• $12 100
• $12 500

When preparing his financial statements, a trader valued his inventory at cost. He then found that 10 units of inventory, costing $12 per unit, were damaged. If he spent $2 per unit on repairs, he could sell them for $9 each. What was the effect on the income statement of the incorrect inventory valuation?

• Gross profit - overstated $30
• Gross profit - overstated $50 | Profit for the year - overstated $50
• Gross profit - understated $30
• Gross profit - understated $50 | Profit for the year - understated $50

Which accounting policy requires that the information in financial statements is free from significant errors and bias?

• comparability
• consistency
• reliability
• understandability

Which item should be treated as capital expenditure?

• the annual depreciation on office premises
• the cost of building an office extension
• the cost of repairing office equipment
• the purchase of a new computer for resale

Stephanie’s major competitor has invested in a new machine for making goods more cheaply. Stephanie knows this will affect her sales but did not record this in her accounting records. Which accounting principle is Stephanie applying?

• going concern
• materiality
• money measurement
• prudence

A trader has purchased new business premises. What are examples of capital expenditure? 1 cost of heating and lighting the new premises 2 cost of purchasing the new premises 3 legal costs of purchasing the new premises 4 office furniture purchased for use in the new premises

• 1 and 2 only
• 1, 2 and 4
• 2, 3 and 4
• 3 and 4 only

Charlie is a car dealer. Joe wanted a new car and went to Charlie’s car showroom. On Monday Joe took a car for a test drive and decided to buy it. On Tuesday Joe arranged to pay for the car by cheque. On Wednesday Joe collected the car and received an invoice. On Thursday Joe’s cheque was cleared by the bank. On which day was Charlie able to account for the profit on the sale?

• Monday
• Tuesday
• Wednesday
• Thursday

Which accounting objective requires that financial information is provided in time for a decision to be made?

• comparability
• relevance
• reliability
• understandability

Which statements about capital expenditure are correct? 1 It is money spent on day-to-day business operations 2 It is money spent on purchasing non-current assets. 3 It is recorded in the statement of financial position. 4 It includes expenses relating to non-current assets.

• 1 and 3
• 1 and 4
• 2 and 3
• 2 and 4

Why would a bakery business not include a value for inventory of stationery in the statement of financial position?

• It was expected it would be used in the next few months.
• It was purchased regularly and paid for in cash.
• It was not for resale.
• It was of very low value.