Financial accounting worksheet with answers

Under IAS 2, inventory is measured at:

1. AThe higher of cost and current replacement cost
2. BIts original cost, whatever happens
3. CThe lower of cost and net realisable value
4. DIts expected selling price

The gross profit margin is calculated as:

1. AGross profit ÷ total assets × 100
2. BNet profit ÷ revenue × 100
3. CRevenue ÷ cost of sales × 100
4. DGross profit ÷ revenue × 100

Information is "material" in financial reporting when:

1. AIt exceeds one million euros
2. BLeaving it out or misstating it could influence users' decisions
3. CIt relates to physical materials and inventory
4. DIt has been checked by the tax authority

A machine costs €10,000 and is depreciated at 20% a year on the reducing balance. What is the depreciation charge in year 2?

1. A€1,800
2. B€4,000
3. C€2,000
4. D€1,600

Why can a profitable company run out of cash?

1. AProfitable companies never pay taxes
2. BCash is not recorded in accounting
3. CProfit always equals cash
4. DProfit includes credit sales and non-cash items, while cash may be tied up in receivables and inventory

Which depreciation method charges the same amount every year?

1. AStraight-line
2. BReducing balance
3. CUnits of production
4. DSum-of-the-years'-digits

Tax rules allow faster depreciation of a machine than the company uses in its accounts. What arises under IAS 12?

1. AA deferred tax asset
2. BNo tax effect at all
3. CA refund of current tax paid
4. DA deferred tax liability

Budgeted overhead is €200,000 for 40,000 machine hours. Actual hours are 42,000 and actual overhead is €205,000. What is the result?

1. AOverhead exactly absorbed
2. BOverhead under-absorbed by €10,000
3. COverhead under-absorbed by €5,000
4. DOverhead over-absorbed by €5,000