ACA Accounting (Certificate Level) 2

Question 1

Under FRS 102, when should revenue from the sale of goods be recognised?

Accepted Answer

When the significant risks and rewards of ownership have transferred to the buyer

Answer

FRS 102 Section 23 states that revenue from the sale of goods is recognised when the significant risks and rewards of ownership are transferred, the amount can be measured reliably, and it is probable that economic benefits will flow to the entity.

Question 2

A company prepays £6,000 for a 12-month insurance policy on 1 October. What amount should appear as an expense in the financial statements for the year ended 31 December?

Accepted Answer

£1,500

Answer

Only 3 months of the 12-month policy fall within the accounting period (October, November, December). The expense is £6,000 × 3/12 = £1,500. The remaining £4,500 is carried forward as a prepayment (current asset).

Question 3

Which of the following is classified as a current liability?

Accepted Answer

Trade payables due within 30 days

Answer

Trade payables due within 30 days are obligations expected to be settled within the normal operating cycle and therefore classified as current liabilities under FRS 102. A 10-year loan is non-current, a motor vehicle is a non-current asset, and share premium is equity.

Question 4

A machine costs £20,000 with an estimated useful life of 5 years and a residual value of £2,000. Using the straight-line method, what is the annual depreciation charge?

Accepted Answer

£3,600

Answer

Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£20,000 − £2,000) ÷ 5 = £3,600 per year. The residual value is deducted because the asset is not depreciated below its expected scrap value.

Question 5

Under the accruals concept, when should an electricity bill for December be recorded if it is received and paid in January?

Accepted Answer

December, when the expense was incurred

Answer

The accruals concept (matching principle) under FRS 102 requires expenses to be recognised in the period in which they are incurred, not when cash is paid. The December electricity usage must be accrued in December's financial statements.

ACA ICAEW Practice Test

ACA ICAEW Practice Test

ACA Accounting (Certificate Level) 2