CIMA Fundamentals of Financial Accounting 2 — Questions and Answers
Question 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?
- $50,000
- $52,000
- $55,000 (Correct answer)
- $53,000
Correct 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.
Question 2: Which accounting concept requires that financial statements be prepared on the assumption that the business will continue to operate indefinitely?
- Accruals concept
- Consistency concept
- Going concern concept (Correct answer)
- Prudence concept
Correct 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.
Question 3: A business has net assets of $120,000 and total liabilities of $80,000. What is the total equity?
- $40,000 (Correct answer)
- $120,000
- $200,000
- $80,000
Correct 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.
Question 4: Under the perpetual inventory system, the cost of goods sold is recorded:
- Only at the end of the accounting period
- Each time a sale is made (Correct answer)
- When cash is received from customers
- When goods are ordered from suppliers
Correct 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.
Question 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:
- $6,667
- $6,000 (Correct answer)
- $5,333
- $7,000
Correct answer: $6,000
Annual depreciation = (Cost − Residual value) ÷ Useful life = ($40,000 − $4,000) ÷ 6 = $6,000.
Question 6: Which of the following is a characteristic of a liability?
- A resource controlled by the entity
- A present obligation arising from past events (Correct answer)
- An equity interest held by shareholders
- Future economic benefits flowing to the entity
Correct 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.
Question 7: If a company's quick ratio is 1.5 and current liabilities are $60,000, what are the quick assets (liquid assets)?
- $90,000 (Correct answer)
- $40,000
- $60,000
- $150,000
Correct answer: $90,000
Quick ratio = Quick assets ÷ Current liabilities, so Quick assets = 1.5 × $60,000 = $90,000.
CIMA Fundamentals of Financial Accounting 2
A company purchases machinery for $50,000, pays $2,000 for delivery, and $3,000 for installation.
What is the correct cost to capitalize?