Chapter 1: Introduction to accounting
1 Which one of the following should be accounted for as capital expenditure?
A The cost of redecorating the
... [Show More] business's head office
B The cost of replacing some roof tiles on a building
C The cost of a computer purchased for resale by a computer sales business
D The cost of delivery paid when purchasing a new manufacturing machine LO 1a
2 Which of the following items should be treated as a capital item in the financial statements of a
large shop?
(1) Purchase of fixed shelving units
(2) Payment of wages
(3) Repairs to fixed shelving units
A (1) only
B (1) and (2) only
C (2) and (3) only
D (1), (2) and (3) LO 1a
3 Which of the following items should be treated as revenue items in an entity's financial
statements?
(1) Payment of local property tax
(2) Purchase of premises
(3) Alteration of premises to configure them to be ready for use in the business
(4) External audit fee
A (1) and (2) only
B (2) and (3) only
C (3) and (4) only
D (1) and (4) only LO 1a
4 Which of the following should be classified as capital expenditure?
A Repairs to motor vans
B Depreciation of machinery
C Extension to premises
D Purchase of motor vans for resale LO 1a
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5 Which of the following is a consideration in the application of ICAEW's Code of Ethics?
A Whether or not the activity is remunerated
B That the client or employer is an ICAEW member, student, affiliate or member firm
C If an action brings discredit to the profession
D Whether or not the activity is an accounting or assurance engagement LO 1b
6 Ned is considering two issues in the course of preparing his financial statements.
Issue 1: Non-current assets are valued at cost less depreciation.
Issue 2: Expenses incurred but for which invoices have not yet been received are included
in the financial statements. Which accounting characteristic or principle is relevant to each of these issues?
A Issue 1: Verifiability; Issue 2 Accruals
B Issue 1: Accruals; Issue 2 Verifiability
C Both issues: Verifiability
D Both issues: Accruals LO 1d; 3a, b, c
7 The auditor of James plc is insistent that great care is taken in estimating the amounts of
accruals and prepayments each year. This is justified primarily by which accounting concept?
A Going concern
B Maturity
C Consistency
D Matching LO 1d; 3a, b, c
8 Mr Bliss owns a business. Although most of the business expenses are paid by cash, Mr Bliss
on certain occasions uses his own personal bank account to pay some business expenses.
His accountant has asked to see his personal bank statements so that some of these amounts
may be included as expenses in the statement of profit or loss. Mr Bliss is confused about this
and asks 'If you are going to use my personal bank statement to prepare the financial
statements, why don't you include all payments as expenses instead of only some of them?' The main reason why the accountant does not include all of the expenses is because:
A Mr Bliss has not recorded the full details of some of the expenditure and, because of this
uncertainty, it is more prudent not to include them in the financial statements. B there are a large number of immaterial payments which would take a long time to
examine. C the personal expenses of the owner are separate from those of the business and are not
relevant to the statement of profit or loss. D to be consistent with last year's financial statements only payments above £500 are
included in the statement of profit or loss. LO 1d; 3a, b, c
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Chapter 2: The accounting equation
1 The capital of a sole trader would change as a result of:
A a trade payable being paid by a transfer from the business bank account
B raw materials being paid for from petty cash
C non-current assets being purchased for cash
D the owner taking goods from the inventory of the business LO 1d
2 The purpose of a statement of financial position is to show:
A an estimate of what a business is really worth
B the amount the business could be sold for as a going concern
C the amount the business could be sold for in a liquidation
D the assets of the business and the related liabilities LO 3a
3 A sole trader received £2,500 from a credit customer for goods which had been sold on credit.
The sole trader has an overdraft with his bank of £5,000.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Liabilities only
C Capital only
D Assets and liabilities only LO 1d; 3a
4 A sole trader purchases goods on credit for £400.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 2a
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5 A sole trader takes out a loan of £5,000 from the bank.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 3a
6 A sole trader sold goods for cash for £1,000 which had cost £700.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 3a
7 A sole trader has paid for his own personal car to be repaired out of the business bank
account. The amount of the repairs has been added by the bookkeeper to the owner's
drawings balance.
Of which generally accepted accounting concept is this an example?
A Prudence
B Separate entity
C Substance over form
D Duality LO 1d
8 Which of the following items should be treated as capital expenditure in the accounts of a sole
trader?
A £1,000 drawings made by the proprietor to buy himself a new kitchen at home
B £1,000 spent on purchasing a new computer for his secretary in order to deal with
business administration
C £1,000 on purchasing a motorbike for resale
D £1,000 paid to a painter for redecorating his office LO 3a
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9 The statements of financial position of Gazhal's business at 31 December 20X2 and 20X1
showed the following.
31 December 31 December
20X2 20X1
£ £
Non-current assets 32,500 45,000
Current assets 17,500 30,000
Current liabilities 12,500 12,500
Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the
business.
What was the profit or loss of Gazhal's business for the year?
A Profit of £20,000
B Profit of £30,000
C Loss of £20,000
D Loss of £30,000 LO 1d; 3a
8 Accounting: Electronic Question Bank ICAEW 2019
Chapter 3: Recording financial
transactions
1 A business paid out £23,550 in net wages to its employees. In respect of these wages, the
following amounts were shown in the statement of financial position.
£
PAYE payable 4,620
National Insurance payable – employees' 2,830
– employer's 2,640
What were the employees' gross wages before deductions?
A £28,170
B £30,810
C £31,000
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