CIMA Fundamentals of Financial Accounting 5

Question 1

Which of the following best describes the prudence concept in financial accounting?

Accepted Answer

Assets and revenues should not be overstated, and liabilities and expenses should not be understated

Answer

Prudence means exercising caution so that assets and income are not overstated and liabilities and expenses are not understated, avoiding overoptimism in financial reporting.

Question 2

A machine costing $30,000 with accumulated depreciation of $18,000 is sold for $14,000. The profit or loss on disposal is:

Accepted Answer

Profit of $2,000

Answer

Net book value = $30,000 − $18,000 = $12,000; Profit on disposal = $14,000 − $12,000 = $2,000.

Question 3

Under IAS 7, which of the following is classified as a financing activity in the statement of cash flows?

Accepted Answer

Payment of dividends to shareholders

Answer

IAS 7 classifies dividend payments as financing activities (under the allowed alternative) because they are transactions with the entity's financiers.

Question 4

If opening inventory is $20,000, purchases are $80,000, and closing inventory is $15,000, what is the cost of goods sold?

Accepted Answer

$85,000

Answer

COGS = Opening inventory + Purchases − Closing inventory = $20,000 + $80,000 − $15,000 = $85,000.

Question 5

Which of the following correctly describes the matching concept?

Accepted Answer

Expenses should be recognized in the same period as the revenues they helped generate

Answer

The matching concept (part of the accruals basis) requires that expenses be recognized in the accounting period in which the related revenue is earned.

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA Fundamentals of Financial Accounting 5