AAT L3 Advanced Bookkeeping 2 — Questions and Answers
Question 1: Accrued expenses at the year end are recorded as:
- Debit accruals (liability), Credit expense account
- Debit expense account, Credit accruals (liability) (Correct answer)
- Debit cash, Credit expense account
- Debit prepayment, Credit expense account
Correct answer: Debit expense account, Credit accruals (liability)
Accrued expenses are costs incurred but not yet paid. The double entry is debit the expense account (to increase the expense in the income statement) and credit accruals (a current liability on the balance sheet).
Question 2: A prepayment is classified in the balance sheet as:
- A non-current asset
- A current liability
- A current asset (Correct answer)
- A non-current liability
Correct answer: A current asset
Prepayments are amounts paid in advance for goods or services not yet received. They represent an asset — a future economic benefit — and are classified as current assets on the balance sheet.
Question 3: Which of the following is the correct definition of 'net book value' of a non-current asset?
- The original cost of the asset
- The replacement cost of the asset
- Cost less accumulated depreciation (Correct answer)
- The market value of the asset
Correct answer: Cost less accumulated depreciation
Net book value (NBV) = cost of the asset minus total accumulated depreciation to date. It represents the carrying amount of the asset in the balance sheet.
Question 4: Which depreciation method results in an equal charge to the income statement each year?
- Reducing balance method
- Revaluation method
- Straight-line method (Correct answer)
- Units of production method
Correct answer: Straight-line method
The straight-line method spreads the depreciable amount (cost minus residual value) equally over the asset's useful life, resulting in a constant annual charge.
Question 5: On disposal of a non-current asset, a profit on disposal arises when:
- The asset is disposed of before its useful life ends
- Proceeds from disposal exceed the net book value of the asset (Correct answer)
- The accumulated depreciation exceeds the original cost
- The asset is donated to charity
Correct answer: Proceeds from disposal exceed the net book value of the asset
Profit on disposal = proceeds minus net book value. If the proceeds received are greater than the carrying amount (NBV), a profit is recognised in the income statement.
Question 6: The purpose of the journal in bookkeeping is to:
- Replace the cash book for daily transactions
- Record unusual transactions or corrections not recorded elsewhere (Correct answer)
- Calculate the trial balance
- Summarise the sales ledger balances
Correct answer: Record unusual transactions or corrections not recorded elsewhere
The journal is used to record unusual, one-off, or correcting entries that do not originate from the primary daybooks (sales, purchases, cash), such as opening entries, error corrections, and year-end adjustments.
AAT L3 Advanced Bookkeeping 2
Accrued expenses at the year end are recorded as: