AAT L3 Final Accounts Preparation 5

Question 1

The prudence concept in accounting requires that:

Accepted Answer

Losses and liabilities are recognised as soon as they are probable; profits only when realised

Answer

Profits are recognised as early as possible

Answer

All assets are valued at their current replacement cost

Answer

Revenues match costs in every period

Question 2

The income statement of a limited company presents:

Accepted Answer

Revenue, gross profit, operating profit, profit before tax, and profit after tax

Answer

Only net profit and dividends

Answer

A summary of cash inflows and outflows

Answer

Only operating expenses

Question 3

In partnership accounts, a 'salary' allowance for a partner is:

Accepted Answer

An appropriation from the net profit, NOT a business expense

Answer

A deductible expense before calculating net profit

Answer

Subject to income tax via PAYE

Answer

Paid only if there is sufficient profit

Question 4

An entity's current ratio is 1.5:1. This means:

Accepted Answer

The entity has £1.50 of current assets for every £1.00 of current liabilities

Answer

The entity has £1.50 of equity for every £1 of debt

Answer

Current liabilities exceed current assets

Answer

Total assets are 1.5 times total liabilities

Question 5

If a business has a net profit margin of 15%, it means:

Accepted Answer

15 pence of every £1 of revenue is retained as net profit

Answer

15% of sales are returned by customers

Answer

The gross profit is 15% of cost of sales

Answer

Variable costs are 15% of total costs

Question 6

Share capital on a balance sheet represents:

Accepted Answer

The nominal value of all shares issued to shareholders

Answer

The market value of all shares issued

Answer

The total cash received from issuing shares

Answer

The total retained earnings of the company