SECTION A MULTIPLE CHOICE QUESTIONS
1. Which of the following best explains what is meant by `capital
expenditure’?
Capital expenditure is expenditure:
A. On the repair and maintenance of non-current assets
B. On expensive assets
C. Relating to the issue of share capital
D. Relating to the acquisition or improvement of non-current assets
2. A sole trader had opening capital of K10,000 and closing capital of K4,500.
During the period the owner introduced capital of K4,000 and withdrew
K8,000 for her own use.
Her profit or loss during the period was:
A K9,500 loss
B K1,500 loss
C K7,500 profit
D K17,500 profit
3. The accounting equation can be rewritten
A. Assets plus profit less drawings less liabilities equals closing capital
B. Assets less liabilities less drawings equals opening capital plus profit
C. Assets less opening less opening capital plus drawings equals profit
D. Opening capital plus profit less drawings less liabilities equals assets
4. Which of the following is the correct format for the accounting equation?
A. Assets + Liabilities = Capital
B. Assets + Capital =Liabilities
C. Assets – Liabilities = Assets
D. Liabilities – Capital =Assets
5. Which of the following transactions is revenue expenditure?
A. Expenditure resulting in improvements to property
B. Expenditure on the heat and light
C. Purchasing non-current assets
D. Repaying a bank overdraft
6. Which of the following would be recorded in the purchases day book?
A. Discounts received
B. Purchasing invoices
C. Trade discounts
D. Credit notes received
7. Which one of the following is not a book of prime entry?
A. The petty cash book
B. The sales returns day book
C. The trade receivable ledge
D. The cash book
8. A book of prime entry is one in which:
A. The rules of double –entry bookkeeping do not apply
B. Ledger accounts are maintained
C. Transactions are entered prior to being recorded in the ledger
account
D. Subsidiary accounts are kept
9. The total of the sales day book is the nominal ledge as:
DEBIT
A. Trade receivables
CREDIT
Trade receivables
control account
B Trade receivables
Trade receivables
control account
C Sales account
Trade receivables
Control account
D Trade receivables control account
Sales account
10.Which of the following postings from the cashbook payments side is
wrong?
A. The total of the cash paid column to the debit of the cash control
account
B. The total of the discounts column to the credit of the discounts
received account
C. The total of the discounts column to the debit of the payables control
account
D. The total of the cash paid column to the credit of the cash control
account
11. (i) A debit entry in the cashbook will increase an overdraft
(ii) A debit entry in the cashbook will increase a bank balance.
Are these statement true?
A. Both true
B. Both false
C. (1) true and (2) false
D. (1) false and (2) true
12. Rent paid on 1 October 20X2 for the year to 30 September 20X3 was
K1,200, and rent paid on 1 October 20X3 for the year to 30 September 20X4
was K1,600.
Rent payable, as shown in the statement of profit or loss for the year
ended 31 December 20X3 would be:
A. K1,200
B. K1,600
C. K1,300
D. K1,500
13.Which of the following will not result in a debit entry in the accounts?
A. Increase in expense
B. Increase in revenue
C. Decrease in liabilities
D. Increase in assets
14.Which of the following best describes income
A. Money withdrawn by a sole trader
B. Monies earned from the sale of goods and services during the period
C. Interest received during the period from bank deposits
D. Cash received during the year from trade receivables
15.Which of the following statements is correct?
A. A credit entry is required to record an increase in expenses
B. A credit entry is required to record an increase in expense
C. A debit entry is required to record an increase in income
D. A debit entry is required to record a decrease in expenses
16.Which of the following transactions will result in a reduction in assets?
(i) Payments to suppliers
(ii) Receipt of cash from customers
(iii) Repayment of a bank loan
(iv) Interest payment
A. (i) and (iii)
B. (i) and (i)
C. (i), (ii), (iii) and (iv)
D. (i), (iii) and (iv)
17.A company uses the imprest system to control its petty cash, keeping a
float of K50.00. Since the cash was last replenished it had the following
transactions:
(i) K12.50 to the milkman
(ii) K10.OO on taxis
(iii) K5.70 on stationary
(iv) K20.00 advance taken by the director for a taxi fare returned unused
(v) K18.50 to the cleaner
How much should now be drawn out of the bank?
A.
B.
C.
D.
K50.00
K41.70
K46.70
K31.70
18.A credit balance of K917,000 brought down on Y`s account in the X means
that:
A. X owes Y K917,000
B. Y owes X K917,000
C. X has paid Y K917,000
D. X is owed K917,000 by Y
19.A credit balance on a ledge account indicates:
A. An asset or an expense
B. A liability or an expense
C. An amount owing to the organization
D. A liability or a revenue
20.The double entry system of bookkeeping normally results in which of the
following balances on the ledger accounts?
Debit balances
A.
B.
C.
D.
Assets and revenues
Revenues, capital and liabilities
Assets and expenses
Assets, expenses and capital
Credit balances
Liabilities, capital and expenses
Assets and expenses
Liabilities, capital and revenues
Liabilities and revenues
21.The historical cost convention:
A. Fails to take account of changing price level over time
B. Records only past transactions
C. Values all assets at their cost to the business, without any adjustment
for depreciation
D. Has been replaced in accounting records by of current cost
accounting
22.Sales revenue should be recognized when goods and services have been
supplied; costs are incurred when goods and services have been received.
The accounting concept which governs the above is the above is the:
A.
B.
C.
D.
Consistency concept
Materiality concept
Accruals concept
Going concern concept
23.Which of the following statements provides the best definition of the
objective of accounting?
A. To provide useful information to users
B. To record, categorize and summarize financial transactions
C. To calculate the taxation due to the government
D. To calculate the amount of dividend to shareholders
24. Which of the following is not an accounting concept
A.
B.
C.
D.
Materiality
Consistency
Depreciation
Accruals
25.Making allowances for receivables and valuing inventory on the same basis in
each accounting period are examples of which accounting concepts
Allowance for receivables
A.
B.
C.
D.
Accruals
Accruals
Fair presentation
Materiality
Inventory Valuation
Consistency
Going Concern
Consistency
Going concern
26. Which basic accounting concept is being followed when a charge is made for
depreciation
A.
B.
C.
D.
Accruals
Consistency
Going concern
Materiality
27 If at the end of the financial year, a company makes a charge against the
profits for stationary consumed but not yet invoiced, this adjust is accordance
with the concept of
A.
B.
C.
D.
Materiality
Accruals
Consistency
Objectivity
28 Who issues international financial reporting standards?
A.
B.
C.
D.
The accounting profession
The government
The International Accounting Standards Board
The stock exchange
29. Which of the following lists the four enhancing qualitative characteristics of
the financial statements as defined in the IASB’s Conceptual Framework for
Financial Reporting?
A.
B.
C.
D.
Relevance, Faith representation, materiality and going concern
Comparability, verifiability, timeliness and understandability
Relevance, Comparability, verifiability and going concern
Timeliness, Understandability, materiality and faithful
representation
30.Which of the following is not an external user of financial statement?
A.
B.
C.
D.
Shareholder
Director
Trade payables
Auditor
SECTION B ANSWER ALL THE QUESTIONS
Question 1
The IASBs Conceptual Framework for Financial Reporting sets out the concepts
underlying the preparation and presentation of financial statement for external
users. Based on the conceptual framework, you are required to answer the
following questions
a) Sate the objective of financial reporting 2 marks
b) List any users of financial statements and briefly their information needs
marks
c) Identify and explain the qualitative characteristics of financial statements
8marks
d) Define the 5 elements of financial statements 5marks
QUESTION 2
As at 30.3.20X7, your business has the following balances on its ledger accounts.
Accounts Balance
K’000
Bank
12,000
Cash at bank
11,700
Capital
13,000
Local business taxes
1,800
Trade payables
11,200
Purchases
12,400
Revenue
14,600
Sundry payables
1,620
Trade receivables
12,000
Bank loan interest
1,400
5
Other expenses
Vehicles
11,020
2,020
During the day the business made the following transactions.
a) Bought materials for K1,000,000 half for cash and half on credit
b) Made K1,040,000 revenue, K800,000 of which was for credit
c) Paid wages to shop assistants of K260,000 in cash
You are required to draw up a trial balance showing the balances as at the end of
31.03.X7 20 Marks