Question

i) Why is depreciation charged against income in a business’ income statement?
a) To match the wearing out of the asset over its estimated useful life.
b) To try and increase the business’ profits.
c) To increase the value of a business’ assets.
d) To provide a source of funds for the eventual replacement of the asset.

ii) A trader makes a profit on disposal of a non-current asset. This will have the following impact on the trader’s Statement of Financial Position.
a) Decrease cash, increase capital, decrease non-current assets.
b) Increase cash, decrease capital, increase non-current assets.
c) Decrease cash, decrease capital, increase non-current assets.
d) Increase cash, increase capital, decrease non-current assets.

iii) Which of the following terms is NOT a desirable characteristic of accounting information?
a) Reliability.
b) Understandability.
c) Accuracy.
d) Relevance.

iv) The asset turnover ratio may be affected by;
a) An issue of new shares.
b) Failure to collect receivables
c) Revaluation of inventory
d) Leasing plant and machinery instead of buying it.

v) Share capital = £600,000
Profit before finance costs and tax = £1,000,000
Long term loans = £2,000,000
Retained earnings = £3,400,000. What is return on capital employed? Choose the nearest.
a) 17%
b) 25%
c) 39%
d) 167%

vi) 2019 receivables were £16,254, whilst 2020 receivables were £18,250. What impact will this have on the 2013 Statement of Cash Flows? Choose the nearest number.
a) A cash inflow of £16,254.
b) Nil impact.
c) A cash outflow of £1,996.
d) A cash inflow of £1,996.

vii) A company buys its inventory of raw material from an overseas supplier. The raw material is a fungible asset and its price fluctuates wildly. In the month of January, the following transactions were recorded;
2 January; bought 30kg at £1/kg
4 January; bought 50kg at £1.20/kg
7 January; bought 40kg at £1.80/kg
10 January – sold 60kg for £120.
There was no opening inventory.
The value of inventory sold, using AVCO (WEIGHTED AVERAGE) was nearest to;
a) £45
b) £81
c) £66
d) £96

viii) Long term debt is £1,000,000 whilst non-current assets are worth £4,000,000. Equity is worth £9,000,000. Gearing is (choose the nearest number).
a) 7.7%
b) 10%
c) 11%
d) 56%

ix) A company has 100,000 ordinary shares, worth £1 each. Earnings per share is 8.5p, and the current market price of its shares is 76p each. What is its Price-Earnings Ratio?
a) 0.112
b) 76
c) 1.32
d) 8.9

x) In preparing the Statement of Cash Flows for a business, what should be done with the depreciation shown in the Income Statement?
a) Should be ignored.
b) Should be added to operating profit.
c) Should be deducted from operating profit
d) Should be transferred to “Investing Activities”.

Answer 1

Answer:

Why is depreciation charged against income in a business’ income statement?

a) To match the wearing out of the asset over its estimated useful life.

b) To try and increase the business’ profits.

c) To increase the value of a business’ assets.

d) To provide a source of funds for the eventual replacement of the asset.

Explanation:

a) Should be ignored.

b) Should be added to operating profit.

c) Should be deducted from operating profit

d) Should be transferred to “Investing Activities”.