AAT L3 Advanced Bookkeeping 2

Question 1

Accrued expenses at the year end are recorded as:

Accepted Answer

Debit expense account, Credit accruals (liability)

Answer

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:

Accepted Answer

A current asset

Answer

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?

Accepted Answer

Cost less accumulated depreciation

Answer

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?

Accepted Answer

Straight-line method

Answer

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:

Accepted Answer

Proceeds from disposal exceed the net book value of the asset

Answer

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.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Advanced Bookkeeping 2