ACCA AK Financial Accounting 4

Question 1

Under IAS 2, inventories should be measured at:

Accepted Answer

The lower of cost and net realisable value

Answer

IAS 2 requires inventories to be measured at the lower of cost and net realisable value (NRV). If NRV falls below cost, a write-down is recognised.

Question 2

Which of the following is the correct accounting entry for bad debt written off?

Accepted Answer

Debit bad debt expense, Credit receivables

Answer

When a specific debt is written off: Debit bad debt expense (or allowance for doubtful debts) and Credit trade receivables, removing the irrecoverable amount from the books.

Question 3

The accounting equation is:

Accepted Answer

Assets = Liabilities + Equity

Answer

The fundamental accounting equation is: Assets = Liabilities + Equity. This must always balance, reflecting double-entry bookkeeping.

Question 4

Gross profit is calculated as:

Accepted Answer

Revenue − Cost of sales

Answer

Gross profit = Revenue − Cost of sales. It represents profit before deducting operating expenses such as administration, distribution and finance costs.

Question 5

Which of the following is NOT a component of equity on the statement of financial position?

Accepted Answer

Long-term bank loan

Answer

Long-term bank loans are non-current liabilities, not equity. Equity comprises share capital, share premium, retained earnings and other reserves.

ACCA Applied Knowledge Practice Test

ACCA Applied Knowledge Practice Test

ACCA AK Financial Accounting 4