ACCA AK Financial Accounting 3 — Questions and Answers
Question 1: Which financial statement shows the financial position of a business at a specific point in time?
- Statement of profit or loss
- Statement of cash flows
- Statement of financial position (Correct answer)
- Statement of changes in equity
Correct answer: Statement of financial position
The statement of financial position (balance sheet) is a snapshot of assets, liabilities and equity at a specific date, unlike the income statement which covers a period.
Question 2: Non-current assets are defined as assets that:
- Are expected to be converted to cash within 12 months
- Have a net book value above £1,000
- Are held for use in the business for more than one accounting period (Correct answer)
- Are funded by long-term loans
Correct answer: Are held for use in the business for more than one accounting period
Non-current (fixed) assets are held for use in operations over more than one accounting period. They are not intended for resale in the ordinary course of business.
Question 3: The straight-line method of depreciation allocates:
- Higher depreciation in the early years of an asset's life
- An equal amount of depreciation each year (Correct answer)
- Depreciation based on the asset's usage
- Lower depreciation as the asset ages
Correct answer: An equal amount of depreciation each year
Straight-line depreciation = (Cost − Residual value) ÷ Useful life. The same charge is allocated each year over the asset's useful life.
Question 4: Which of the following adjustments is made at the year-end for an 'accrued expense'?
- Debit prepayments, Credit expenses
- Debit expenses, Credit accruals (liability) (Correct answer)
- Debit accruals, Credit bank
- Debit income, Credit accruals
Correct answer: Debit expenses, Credit accruals (liability)
An accrued expense is a cost incurred but not yet paid. The year-end adjustment is: Debit expenses (to recognise the cost) and Credit accruals (a current liability).
Question 5: Trade receivables on the statement of financial position are shown:
- At gross value before any allowance for doubtful debts
- At net realisable value after deducting any allowance for doubtful debts (Correct answer)
- At original invoice value plus interest
- At the lower of cost and net realisable value
Correct answer: At net realisable value after deducting any allowance for doubtful debts
Trade receivables are presented net of any allowance (provision) for doubtful debts, giving the amount expected to be collected (net realisable value).
Question 6: Which of the following is a current liability?
- 10-year bank loan
- Property held as investment
- Trade payables due within 30 days (Correct answer)
- Goodwill arising on acquisition
Correct answer: Trade payables due within 30 days
Trade payables due within 30 days are obligations to be settled within the normal operating cycle or within 12 months, making them current liabilities.
ACCA AK Financial Accounting 3
Which financial statement shows the financial position of a business at a specific point in time?