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Fundamentals of Financial Accounting Flashcards

7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Fundamentals of Financial Accounting flashcards as text

  1. A company purchases machinery for $50,000, pays $2,000 for delivery, and $3,000 for installation. What is the correct cost to capitalize?

    Answer: $55,000

    Under IAS 16, the cost of an asset includes purchase price plus all directly attributable costs to bring it to working condition, so $50,000 + $2,000 + $3,000 = $55,000.

  2. Which accounting concept requires that financial statements be prepared on the assumption that the business will continue to operate indefinitely?

    Answer: Going concern concept

    The going concern concept assumes the entity will continue operating for the foreseeable future, justifying the use of historical cost rather than liquidation values.

  3. A business has net assets of $120,000 and total liabilities of $80,000. What is the total equity?

    Answer: $40,000

    Equity = Net assets − Liabilities is incorrect; here net assets already equals total assets minus total liabilities, so equity = $120,000 − $80,000 = $40,000.

  4. Under the perpetual inventory system, the cost of goods sold is recorded:

    Answer: Each time a sale is made

    The perpetual inventory system updates inventory and COGS continuously with each transaction, unlike the periodic system which calculates COGS only at period end.

  5. Straight-line depreciation on an asset costing $40,000 with a residual value of $4,000 and a useful life of 6 years gives an annual depreciation charge of:

    Answer: $6,000

    Annual depreciation = (Cost − Residual value) ÷ Useful life = ($40,000 − $4,000) ÷ 6 = $6,000.

  6. Which of the following is a characteristic of a liability?

    Answer: A present obligation arising from past events

    Per the IASB Conceptual Framework, a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources.

  7. If a company's quick ratio is 1.5 and current liabilities are $60,000, what are the quick assets (liquid assets)?

    Answer: $90,000

    Quick ratio = Quick assets ÷ Current liabilities, so Quick assets = 1.5 × $60,000 = $90,000.