AAT L3 Final Accounts Preparation 4

Question 1

Which financial statement shows the assets and liabilities of a business at a specific point in time?

Accepted Answer

Statement of financial position

Answer

The statement of financial position (balance sheet) is a snapshot at a specific date, showing assets, liabilities, and equity. It is a position statement, not a period statement.

Question 2

For a limited company, retained earnings brought forward plus profit for the year minus dividends paid equals:

Accepted Answer

Retained earnings carried forward

Answer

Retained earnings c/f = retained earnings b/f + profit for the year − dividends paid. This movement in retained earnings is part of the statement of changes in equity.

Question 3

The going concern concept means financial statements are prepared on the assumption that:

Accepted Answer

The business will continue trading for the foreseeable future

Answer

The going concern basis assumes the entity will continue in operation for the foreseeable future, so assets are valued at cost less depreciation rather than liquidation values.

Question 4

Depreciation for the year is treated in the final accounts as:

Accepted Answer

An expense in the income statement

Answer

Annual depreciation is an expense charged to the income statement (profit or loss), reducing net profit; the accumulated depreciation reduces the carrying amount of the non-current asset in the balance sheet.

Question 5

Interest on partners' capitals is credited to partners because:

Accepted Answer

It compensates partners for the use of their capital investment in the business

Answer

Interest on capital recognises that partners' capital is tied up in the business; it compensates partners with different capital balances for the relative size of their investment before the remaining profit is shared.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Final Accounts Preparation 4