Accounting principles and procedures L1

Question 1

Explain your understanding of the term tax depreciation (2)

Answer 1

• Tax depreciation is where the declining value of the asset is offset against a companies taxable profit
• Can be used on items such as vehicles, machinery, tools, buildings

Question 2

What are overheads and give examples (4)

Answer 2

• The operating costs of a business that are incurred on an ongoing basis
• Overheads can be fixed or variable
• Example of fixed overhead is rent on office buildings
• Example of variable overhead is delivery or utility charges

Question 3

Why does a business keep company accounts (3)

Answer 3

• Record and measure a companies profitability
• Tax calculations including calculating taxable deductions
• Legislation requires companies to keep an accurate record

Question 4

What are capital allowances (1)

Answer 4

• Allow tax payers to gain tax relief by using their expenditure to be deducted from their taxable income

Question 5

What is the difference between an income statement and balance sheet

Answer 5

An income statement reports how a company performed during a specific period, a balance sheet reports what a company owns at a specific date

Question 6

Explain how accounting principles have become standardised - 2

Answer 6

• They have become standardised through bodies such as International Accounting Standards Board
• The bodies develop and maintain accounting standards which provide the framework for financial reporting

Question 7

Why are management accounts important

Answer 7

They provide internal financial information to help make decisions about strategy and investment

Question 8

How much would you budget for emergency property repairs

Answer 8

5% of the annual rent for emergency repairs