# Principles of Accounting | Study Mode

Question 1
A

?7000

B

?10000

C

?22000

D

?15000

##### Explanation

Capital Employed is the difference between the total assets and current liabilities of the company

Question 2
A
Sales department
B
Production department
C
Purchase department
D
##### Explanation

Advertising expenses are expenses incurred in order to enhance the sales of the companys product/services

Question 3
A
1:1
B
2:3
C
1:2
D
3:2
##### Explanation

Acid test ratio measures the liquidity position of a company after deduction stock (inventory) from current assets

Formula: current assets less inventory/current liabilities

18000 - 4000/14000 = 1 : 1

Question 4
A
Price above or below the stipulated price
B
Any price but not below the transfer price
C
Cost price
D
A price that is equal to the mark up
##### Explanation

Cost plus mark up is a pricing strategy in which the selling price is determined by adding a specific amount mark up to a product unit cost

Question 5
A
Accountant general
B
Finance minister
C
Auditor general
D
Permanent secretory.
##### Explanation

Appropriation is the amount that government reserves for a particular purpose. Public expenditure is the spending made by government of a country on collective needs

Question 6
A
#20,500
B
#23,000
C
#28,000
D
#27,000
##### Explanation

Average stock is the calculating the addition of stock at the beginning and at the end of the financial period and dividing the value by two.

It is the average value of products kept for sale during an accounting period.

Therefore:

Average stock = opening stock + closing stock/2

= 32000 + 9000/2

= 41000/2

=? 20500

Question 7
A
#61,000
B
#62,000
C
#58,000
D
#57,000
##### Explanation

Cost of goods sold is the direct costs attributable to the production of the goods sold in a company.

Cost of goods available for sale (32000 + 39000) = 71000

Less closing stock = 9000

Cost of goods sold = 7100 - 9000

= 62000

Question 8
A
B
call in arrears
C
forfeiture
D
shares
##### Explanation

is the amount called by the company which is not paid by the shareholders before the due date fixed for payment

Question 9
A
Goodwill account and credit partners capital account
B
Cash account and credit goodwill account
C
Goodwill account and credit cash account
D
Partners capital account and credit goodwill account
##### Explanation

When goodwill is raised in the books at full value, the entry is

Dr Goodwill Account

Cr Old partners capital account (old ratio)

When the raised goodwill is written off, entry will be:

Dr All partners capital account

Cr Goodwill accounts

Note: goodwill written off includes new partners in the new profit sharing ratio

Question 10
A
#40,000
B
#41,500
C
#41,700
D
48,500
##### Explanation

Trading, profit and loss account for the month ended 31/1/95

For the month ended 31/1/95

? ?

Sales 8200

Cost of sales:

Purchases 15000

Closing stock(10000) (5000)

Gross profit8200

Gross profit b/d 8200

Sales commission 500

Rent 1000 (1500)

Net profit1700

WORKINGS:

Rent paid for 12 months 12000

Rent paid for one month

12000 x 1/12(1000)

Prepaid rent11000

Balance sheet as at 31/1/95

Noncurrent asset:

Furnishing 10000

Ceiling fan1500 11500

Current asset:

Cash (see cash account) 9200

Inventory 10000

Prepaid rent (see above) 11000 30200

41700

Capital 40000

Net profit (see p&l) 1,700

41700

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