Course Introduction
Principles of Accounting Final
Test Solutions
Principles of Accounting introduces students to the fundamental concepts and practices of financial and managerial accounting. The course covers the accounting cycle, recording transactions, preparing and interpreting financial statements, and understanding the role of accounting information in decision-making for businesses. Topics include assets, liabilities, equity, revenues, expenses, and the principles and regulations governing the preparation of accounting records and reports. This foundational knowledge equips students with the skills necessary to analyze financial data, ensure transparency, and support effective business management.
Recommended Textbook
Accounting An Introduction 6th Edition by Peter Atrill
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14 Chapters
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Page 2
Chapter 1: Introduction to Accounting
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Sample Questions
Q1) An advantage of a partnership compared to a sole proprietorship is:
A) mutual agency.
B) sharing of profits.
C) greater access to funds.
D) Both B and C.
Answer: C
Q2) Which statement is incorrect?
A) A budget defines precise targets, e.g., level of sales, levels of inventory.
B) A budget is expressed in monetary terms.
C) A budget is a short-term plan.
D) A budget summarises past information.
Answer: D
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Page 3
Chapter 2: Measuring and Reporting Financial Position
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Sample Questions
Q1) If reported profits are reduced by $5,000 in year one because of the operation of conservatism:
A) profits in later years will be unaffected.
B) profits in later years must be $5,000 higher.
C) profits in later years will be $5,000 lower.
D) none of the above.
Answer: B
Q2) Published statement of financial positions in Australia are mostly presented in which format?
A) Horizontal format.
B) Parallel format.
C) Vertical format.
D) 'T' format.
Answer: C
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Chapter 3: Measuring and Reporting Financial Performance
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Sample Questions
Q1) If inventory item X has a cost of $49,000 and a net realisable value of $60,000 while inventory item Y has a cost of $2,000 and a net realisable value of $500,closing inventory will be valued at:
A) $60,000.
B) $62,000.
C) $51,000.
D) $49,500.
Answer: D
Q2) Choose the statement which best describes the straight-line method of depreciation.
A) Depreciation is a fixed percentage of the carrying value of the asset.
B) Depreciation is allocated equally over each year of the asset's life.
C) Depreciation expense is greater at the beginning of the asset's life.
D) Both A and C.
Answer: B
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Chapter 4: Introduction to Limited Companies
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Sample Questions
Q1) Sovereign Ltd has an issued capital of 300,000,000 shares sold at $2 each.Aman holds 6,000 shares.If Sovereign Ltd makes a 1 for 3 bonus issue,how many bonus shares will Aman acquire?
A) 4,000 shares.
B) 1,800 shares.
C) 2,000 shares.
D) 9,000 shares.
Q2) Limited liability means:
A) the liability of shareholders for company debts is normally limited to the amount they have paid for their shares.
B) the liability of directors for company debts is limited.
C) if the company fails, the creditors may have to bear greater losses than if they were dealing with a non-company.
D) Both A and C.
Q3) The main stock exchange in Australia is the:
A) NASDAQ.
B) ASX.
C) DAX.
D) ASIC.
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Page 6
Chapter 5: Regulatory Framework for Companies
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Sample Questions
Q1) Which of the following organisations would be most likely to elect to order their assets on the statement of financial position according to liquidity?
A) Retailer.
B) Credit union.
C) Manufacturer.
D) Builder.
Q2) If a company's investment in another company is between 20% and 50%,the company invested in is typically known as a/an:
A) subsidiary company.
B) associate company.
C) parent company.
D) holding company.
Q3) In a statement of financial position,subclassifications such as reserves,provisions and inventories are generally reported:
A) in the financial statement itself.
B) in the director's report.
C) as notes to the main financial statements.
D) These items do not have to be reported at all.
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Chapter 6: Measuring and Reporting Cash Flows
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Sample Questions
Q1) The item that is not classified as a cash flow from investing activities is:
A) payment for shares to be held as an investment.
B) cash purchase of office furniture.
C) receipt from the sale of premises.
D) dividends paid to investors.
Q2) A transaction that would not appear in a statement of cash flows is:
A) the creation of an allowance for doubtful debts.
B) the upward revaluation of an asset.
C) a bonus issue of shares.
D) all of the above.
Q3) Company F received $20,000 in cash in repayment of a loan made to L Lee.In the statement of cash flows of Company F,the $20,000 would appear as:
A) an investing outflow.
B) an investing inflow.
C) a financing outflow.
D) a financing inflow.
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8
Chapter 7: Corporate Social Responsibility and Sustainability Accounting
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Sample Questions
Q1) Which of these is an argument against corporate social responsibility?
A) It is too costly.
B) It is too difficult.
C) Business is about building wealth for its shareholders, not helping society.
D) All of the above.
Q2) Give four reasons why a business might engage in activities that are less profitable to itself but which are beneficial to society.
Q3) The essence of triple bottom line reporting is:
A) pollution control.
B) social responsibility.
C) sustainable development.
D) wealth creation.
Q4) Which of these is an example of an environmental disclosure in an annual report?
A) Implementation of tree planting schemes.
B) Introduction of environmental audits.
C) Sponsoring environmental achievement awards.
D) All are examples.
Q5) Briefly outline the essence of the balance scorecard approach.
Page 9
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Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) The ratios that are specifically concerned with assessing the returns and performance of shares held for investment purposes are the:
A) liquidity ratios.
B) gearing ratios.
C) investment ratios.
D) efficiency ratios.
Q2) Which of these is not an efficiency ratio?
A) Current ratio.
B) Average settlement period for accounts receivable.
C) Asset turnover period.
D) Average inventory turnover period.
Q3) Dividends announced during the period divided by the number of shares on issue is the formula for:
A) the dividend yield ratio.
B) the dividend per share ratio.
C) the dividend payout ratio.
D) the return on dividends ratio.
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Page 10
Chapter 9: Costvolumeprofit Analysis and Relevant Costing
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Sample Questions
Q1) An example of a semi-fixed (semi-variable)cost is:
A) cost of telephone calls.
B) total telephone account, both calls and rental.
C) cost of telephone rental.
D) none of the above.
Q2) A business may prefer to make a product that it could subcontract at a cheaper price because:
A) they may be concerned that having gained their business, the subcontractor could increase the price charged.
B) by subcontracting the business, they may find supply is less reliable.
C) by subcontracting the business, they may lose control over quality.
D) all of the above.
Q3) If the sales output of a firm increases,what will be the impact on the break-even point?
A) Increase.
B) Reduce.
C) No change.
D) Equal the margin of safety.
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Chapter 10: Full Costing
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Sample Questions
Q1) Activity-based costing is likely to be most beneficial to firms with which characteristics?
A) Has a multi-product range that use resources differently.
B) Manufactures a single product.
C) Has a multi-product range that use similar processes.
D) Is set-up as a public company.
Q2) Service cost centre costs are assigned to:
A) individual customers.
B) corporate headquarters.
C) production cost centres.
D) units of output directly.
Q3) When revenues and costs are dealt with on a departmental basis,each department is known as a:
A) cost centre.
B) overhead centre.
C) job centre.
D) collection centre.
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Chapter 11: Budgeting
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Sample Questions
Q1) A budget can help in decision-making by:
A) identifying excesses or shortages of cash.
B) predicting purchase requirements for raw materials.
C) identifying future resource constraints.
D) all of the above.
Q2) Refer to the table above.Calculate the total cash sales for the three months,January,February and March.
A) $256,000.
B) $960,000.
C) $2,848,000.
D) $712,000.
Q3) A budget is best defined as:
A) a forecast for a future period of time.
B) a prediction for a future period.
C) a non-financial plan for a future period of time.
D) a financial plan for a future period of time.
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Chapter 12: Capital Investment Decisions
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Sample Questions
Q1) Refer to the table above.The annual depreciation charge for the project is:
A) $300,000.
B) $250,000.
C) $150,000.
D) $200,000.
Q2) Which of these costs would not be relevant to an investment decision to replace an existing asset with a newer model capable of increasing production?
A) Disposal value of existing asset.
B) Future operating costs of existing asset.
C) Trade-in value of existing asset.
D) Carrying amount of asset to be replaced.
Q3) Which of the following would be a reason for preferring $100 now rather than $100 in one year's time?
A) Risk.
B) Interest lost.
C) The effects of inflation.
D) All of the above.
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Chapter 13: The Management of Working Capital
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Sample Questions
Q1) A firm has annual credit sales of $2m,an average debtor's balance of $300,000 and works 365 days a year.The average settlement period for accounts receivable is:
A) 66.7 days.
B) 15 days.
C) 150 days.
D) 54.7 days.
Q2) Which statement concerning trade credit is true?
A) One business's trade creditor is the other's trade debtor.
B) In a period of inflation, it is better to pay off goods bought on credit faster.
C) In most businesses, an extra charge is made to those who choose to pay on credit.
D) All of the statements are true.
Q3) If sales are $850,000,the cost of sales is $500,000 and average inventory is $55,000,the average time taken to sell inventory in days is:
A) 40.15 days.
B) 23.6 days.
C) 11 days.
D) 33 days.
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Chapter 14: Financing the Business
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Sample Questions
Q1) A firm with high business risk should ideally finance using:
A) high debt.
B) little debt.
C) no debt.
D) none of the above.
Q2) Select the correct statement.
A) To remain competitive, it is usually best for a firm to take longer to collect money owing by accounts receivable.
B) By exercising tighter control over accounts receivable, it may be possible for a firm to release funds for other purposes.
C) By lessening control over accounts receivable, it may be possible for the firm to make accounts receivable balances available for other purposes.
D) None of the statements is correct.
Q3) The underlying rationale of Australian Securities Exchange is:
A) to enable stockbrokers to charge commission on buying and selling shares.
B) to enable investors to sell their shares easily.
C) to enable companies to raise new capital.
D) Both B and C.
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