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Lending Skills > Accounting Principles > Flashcards

Accounting Principles Flashcards

1
Q

What will the impact on the financial statements be if the depreciation charge on a fixed asset is too low?

  • Profit too low and balance sheet value of asset too low
  • Profit too high and balance sheet value of asset too low
  • Profit too low and balance sheet value of asset too high
  • Profit too high and balance sheet value of asset too high
A

Profit too high and balance sheet value of asset too high

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2
Q

The Accounts for a Company include a pension fund deficit. Which one of the following statements can be deduced from this?

  • The Company has provided a defined benefit scheme
  • The Company has provided a defined contribution scheme
  • The pension fund deficit is a provision with no impact on future repayment capacity
  • Further information is needed to determine whether a defined contribution or defined benefit scheme has been provided
A

The Company has provided a defined benefit scheme

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3
Q

The Audit report in the Accounts for a Company is unqualified. What does this mean?

  • That the financial statements are 100% accurate
  • That all of the business’ transactions have been verified by the Auditors
  • That the financial statements are a fair representation of trading performance over the year
  • That the Accounts are free from significant error and the impact does not exceed 20%
A

That the financial statements are a fair representation of trading performance over the year

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4
Q

Which one of the following statements about expenses is correct?

  • All expenses must be accounted for in the Profit & Loss Account
  • In certain cases, expenses may be capitalised as assets on the Balance Sheet
  • Expenses must be shown in the Profit & Loss Account and Cash Flow Statement in the same accounting period
  • Revenue and capital Expenditure are accounted for in the Profit & Loss Accounts in the same way
A

In certain cases, expenses may be capitalised as assets on the Balance Sheet

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5
Q

For which one of the following would the annual cost normally be attributed to depreciation?

  • Goodwill
  • Leasehold
  • Patent
  • Royalty
A

Leasehold

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6
Q

Which one of the following would be a typical working capital profile for a manufacturing business?

  • Stock £100K, Trade Debtors £60K, Trade Creditors £180K
  • Stock £5K, Trade Debtors £110K, Trade Creditors £30K
  • Stock £100K, Trade Debtors £5K, Trade Creditors £180K
  • Stock £100K, Trade Debtors £60K, Trade Creditors £5K
A

Stock £100K, Trade Debtors £60K, Trade Creditors £180K

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7
Q

Which one of the following would be a typical working capital profile for a service business?

  • Trade Debtors £60K, Trade Creditors £180K, Stock £100K
  • Trade Creditors £30K, Stock £5K, Trade Debtors £110K
  • Trade Debtors £5K, Trade Creditors £180K, Stock £100K
  • Trade Debtors £60K, Stock £5K, Trade Creditors £5K
A

Trade Creditors £30K, Stock £5K, Trade Debtors £110K

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8
Q

A company has decided to finance an asset on operating lease as opposed to a bank loan. Which one of the following statements is correct?

  • Gearing calculated on Balance Sheet debt will increase
  • Both the assets and lease liability will appear in the Balance Sheet
  • Asset Utilisation calculated on the Balance Sheet figures will be improved
  • The lease commitment will be fully excluded from the financial statements
A

Asset Utilisation calculated on the Balance Sheet figures will be improved

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9
Q

What will be the impact on the Financial Statements if the depreciation charge on a fixed asset is too high?

  • Profit too high and Balance Sheet value of Asset too high
  • Profit too low and Balance Sheet value of Asset too high
  • Profit too high and Balance Sheet value of Asset too low
  • Profit too low and Balance Sheet value of Asset too low
A

Profit too low and Balance Sheet value of Asset too low

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10
Q

Which one of the following would be classed as accrued income?

  • Rent received in advance
  • Sales payment received in advance
  • Interest earned but not received
  • Payment made in advance
A

Interest earned but not received

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11
Q

Demand for a product is reducing and the company has reduced the selling price to generate sales. Stock is now valued at net realisable value which is lower than cost. Which one of the following statements is correct?

  • Cost of Sales will decrease
  • Operating Margin will increase
  • Closing Stock valuation will increase
  • Gross Margin will fall
A

Gross Margin will fall

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12
Q

A company has an investment in an associate company. An associate company is defined as an investment of between:-

  • 10% and 25%
  • 10% and 50%
  • 15% and 25%
  • 20% and 50%
A

20% and 50%

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13
Q

Which one of the following statements about deferred tax is correct?

  • It is an additional tax collected by HMRC from companies that make a profit over a defined figure
  • It arises because of the timing differences between capital allowances and depreciation
  • It is used by large companies to smooth out timing differences between VAT inputs and outputs
  • It is a tax levied on purchases of plant and machinery using HP finance
A

It arises because of the timing differences between capital allowances and depreciation

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14
Q

The two principles ways that stock is valued in the financial statements for a manufacturing business are:-

  • Cost and market value
  • Cost and Net Realisable Value
  • Market Value and Net Realisable Value
  • Market Value and Selling Price
A

Cost and Net Realisable Value

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15
Q

Deferred Income is:-

  • Income which has been earned but not yet received
  • Income that relates to sales made in a previous accounting period
  • Income that relates to non-core activities
  • Income which has been received but not yet earned
A

Income which has been received but not yet earned

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16
Q

Current accounting regulations stipulate that dividends should be:-

  • Charged as a deduction against revenue reserves
  • Charged as a deduction against share capital
  • Included on the face of the Profit & Loss Account
  • Included in the Balance Sheet as a Long Term Liability
A

Charged as a deduction against revenue reserves

17
Q

Where in the published accounts would you expect to find the depreciation rates a company uses for its fixed assets?

  • Balance Sheet within Fixed assets
  • Accounting Policies note
  • Profit & Loss Account within Operating Expenses
  • The Directors Report on operations
A

Accounting Policies note

18
Q

A company has sold a Fixed Asset during the year. What figure will be included in the Cash Flow Statement?

  • Total Sale Proceeds
  • Sales proceeds less original cost
  • Sales proceeds less book value
  • Profit or Loss arising on sale
A

Total Sale Proceeds

19
Q

The purpose of providing for Depreciation on a Fixed Asset is to:-

  • Take full advantage of available tax allowances
  • Include the market value of the Asset in the balance Sheet
  • Spread the cost of the Asset over its expected useful life
  • Ensure the Profit and Loss Account accurately reflects taxable profits
A

Spread the cost of the Asset over its expected useful life

20
Q

A Company has 100% ownership of Subsidiary A and 75% ownership of Subsidiary B. Subsidiary A makes a profit of £100K and Subsidiary B makes a profit of £60K. What is the profit attributable to the ordinary shareholders of the Parent Company?

  • £100K
  • £115K
  • £145K
  • £160K
A

£145K

21
Q

Which one of the following may be a benefit to a company of holding investments in a related company as opposed to an Associated company?

  • The Financial results of the related company are fully incorporated within the consolidated Accounts
  • Sales made by the related company are included in the consolidated Profit and Loss but Assets and Liabilities are not included in the Balance Sheet
  • Amounts due to and amounts due from the related company are shown as a net figure in the consolidated Accounts
  • The Financial results of the related company are excluded from the consolidated Accounts
A

The Financial results of the related company are excluded from the consolidated Accounts

22
Q

What percent stake does a parent company need to have in another for it to be considered a subsidiary?

A

More than 50%

23
Q

What is a related company?

A

A separate company which someone in management has a link to

24
Q

What percent stake would a company have to have in another company for it to be considered an investment?

A

Less than 10%

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