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Name: ____________________ Date: ____________
1.Easy
An accrued expense (accrual) is:
AA cost that will never be paid
BIncome received before it is earned
CAn expense incurred in the period but not yet paid
DAn expense paid in advance that relates to next year
2.Easy
A bad debt is:
AA debt owed to a supplier that is overdue
BA receivable that the company does not expect to collect
CAny loan taken out by a company that is currently making losses
DA loan with a high interest rate
3.Easy
In double-entry bookkeeping, every transaction:
AIncreases both assets and expenses equally
BIs recorded with equal debits and credits
CMust involve cash
DIs recorded only once
4.Medium
On 1 October a company pays €12,000 rent for the next 12 months. Its year ends on 31 December. What is the rent expense for this year?
A€12,000
B€9,000
C€1,000
D€3,000
5.Medium
Which error will NOT be revealed by a trial balance?
AA debit posted without a matching credit
BA balance copied to the wrong column
CA wrongly added ledger column
DA sale left out of the books entirely
6.Medium
Under IAS 38, how are research and development costs treated?
ABoth are always expensed immediately
BResearch is capitalised; development is expensed
CResearch is expensed; development is capitalised only when strict criteria are met
DBoth are always capitalised as intangible assets
7.Hard
Company P buys 70% of the voting shares of S and gains control. How does P report S in its group accounts?
AAdd only 70% of each of S's assets, liabilities, income and expenses
BShow one equity-method investment line for its 70% share of S
CConsolidate 100% of S line by line and show a non-controlling interest
DKeep the investment at cost and report only the dividends received from S
8.Hard
A company borrows at 5% interest to invest in assets that earn 12%. What is the likely effect on return on equity?
AROE rises and financial risk falls
BROE rises, but financial risk also increases
CROE stays the same, because debt is not equity
DROE falls, because interest is an expense
Answer key
1. C · An expense incurred in the period but not yet paid
2. B · A receivable that the company does not expect to collect
3. B · Is recorded with equal debits and credits
4. D · €3,000
5. D · A sale left out of the books entirely
6. C · Research is expensed; development is capitalised only when strict criteria are met
7. C · Consolidate 100% of S line by line and show a non-controlling interest
8. B · ROE rises, but financial risk also increases
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