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ITAA Tussentijdse Proeven practice questions

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Question 1Accountancy

Which accounting equation correctly expresses the relationship between assets, liabilities and equity?

  1. Equity = Assets + Liabilities
  2. Assets = Liabilities + Equity Correct answer.
  3. Assets = Liabilities − Equity
  4. Liabilities = Assets + Equity

Explanation

The balance sheet identity states that everything a business owns (assets) is financed either by outsiders (liabilities) or by the owners (equity), so assets always equal the sum of liabilities and equity. The equation is the foundation of double-entry bookkeeping because every transaction keeps both sides in balance.

Question 2Accountancy

A company purchases office equipment for 10,000 on credit. What is the immediate effect on the balance sheet?

  1. Assets increase and equity increases
  2. Liabilities increase and equity decreases
  3. Assets increase and liabilities increase Correct answer.
  4. Assets increase and assets decrease

Explanation

Buying equipment on credit adds a new asset (equipment) and simultaneously creates a payable, so total assets and total liabilities both rise by the same amount. Equity is untouched because no profit or owner transaction has occurred.

Question 3Accountancy

Under the accrual basis of accounting, when is revenue recognised?

  1. When the invoice is printed
  2. When the performance obligation is satisfied Correct answer.
  3. When the financial year ends
  4. When the customer pays the invoice

Explanation

Accrual accounting recognises revenue when the goods or services have been transferred to the customer, that is, when the performance obligation is satisfied. The timing of cash receipt is irrelevant to revenue recognition under the accrual basis.

Question 4Accountancy

Which of the following is a current asset on a classified balance sheet?

  1. Inventory expected to be sold within twelve months Correct answer.
  2. A patent with a remaining legal life of ten years
  3. A building used as the head office
  4. A long-term loan granted to another company

Explanation

A current asset is one that is expected to be realised, sold or consumed within the normal operating cycle or within twelve months. Inventory held for sale meets that definition, whereas buildings, patents and long-term loans are non-current.

Question 5Accountancy

A business records a cash sale of 500 but enters it as 50. Which type of error is this?

  1. An error of omission
  2. A transposition error Correct answer.
  3. A compensating error
  4. An error of principle

Explanation

A transposition error occurs when digits within a number are entered in the wrong order or with a misplaced zero, producing a figure that is a factor of ten different. Here 500 was recorded as 50, which is exactly such a digit-placement mistake.

Question 6Accountancy

What is the primary purpose of a trial balance?

  1. To prove that no errors were made
  2. To calculate the profit for the period
  3. To check that total debits equal total credits Correct answer.
  4. To determine the market value of assets

Explanation

A trial balance lists all ledger balances and verifies that the sum of debits equals the sum of credits, which supports the arithmetic accuracy of the double entry. It cannot detect errors that keep the two sides equal, such as omissions or errors of principle.

Question 7Accountancy

Which document is sent by a seller to a customer to request payment for goods delivered?

  1. A delivery note
  2. A credit note
  3. A purchase order
  4. A sales invoice Correct answer.

Explanation

A sales invoice states the goods or services supplied, the amount due and the payment terms, and it serves as the formal request for payment. The seller issues it and the buyer records it as a purchase invoice.

Question 8Accountancy

Which statement about depreciation is correct?

  1. It sets aside cash for replacing the asset
  2. It records the market value decline of an asset
  3. It allocates the cost of a non-current asset over its useful life Correct answer.
  4. It is only recorded when an asset is sold

Explanation

Depreciation is a systematic allocation of the depreciable amount of a non-current asset over its estimated useful life, matching cost with the benefits consumed. It is not a cash fund and does not attempt to track market value.

Question 9Accountancy

A machine costs 24,000, has a residual value of 4,000 and a useful life of 5 years. Using straight-line depreciation, what is the annual charge?

  1. 4,800
  2. 4,000 Correct answer.
  3. 5,600
  4. 2,400

Explanation

Straight-line depreciation equals the depreciable amount divided by the useful life. The depreciable amount is 24,000 minus 4,000 residual value, giving 20,000, which divided by five years yields 4,000 per year.

Question 10Accountancy

A company has current assets of 90,000 and current liabilities of 60,000. What is the current ratio?

  1. 2.50
  2. 1.00
  3. 1.50 Correct answer.
  4. 0.67

Explanation

The current ratio is current assets divided by current liabilities, so 90,000 divided by 60,000 equals 1.50. A ratio above one indicates that short-term obligations are covered by short-term resources.

Question 11Accountancy

What does the matching principle require?

  1. Expenses are recognised when they are paid in cash
  2. Expenses are recognised in the same period as the revenues they helped generate Correct answer.
  3. Assets are matched to their market values each period
  4. Revenues are recognised when cash is received

Explanation

The matching principle requires that expenses be recognised in the same period as the revenues to which they relate, so that profit reflects the economic activity of the period. This often leads to accruals and prepayments at the reporting date.

Question 12Accountancy

A business pays 1,200 in advance for twelve months of insurance on 1 April. At 31 December, what is the prepaid insurance balance?

  1. 900
  2. 300 Correct answer.
  3. 1,200
  4. 100

Explanation

Nine months of cover have been consumed by 31 December, leaving three months unexpired. Three twelfths of 1,200 equals 300, which is the prepayment carried as an asset to the next period.

Question 13Accountancy

Which of the following increases owner's equity?

  1. A decrease in the value of a liability paid in cash
  2. A profit earned from sales Correct answer.
  3. Purchase of inventory on credit
  4. Payment of a cash dividend

Explanation

Profit earned from sales increases retained earnings and therefore owner's equity, because revenues exceed the expenses they generate. Transactions that merely swap assets, or distributions to owners, do not increase equity.

Question 14Accountancy

Goodwill is best described as which type of asset?

  1. A tangible asset recorded at replacement cost
  2. A liability representing future obligations
  3. An intangible asset arising on a business combination Correct answer.
  4. A current asset held for resale

Explanation

Goodwill is an intangible asset that arises when the consideration paid for a business exceeds the fair value of the identifiable net assets acquired. It is not amortised under IFRS but tested annually for impairment.

Question 15Accountancy

A company's gross profit is 80,000 and revenue is 400,000. What is the gross profit margin?

  1. 5%
  2. 20% Correct answer.
  3. 80%
  4. 25%

Explanation

The gross profit margin is gross profit divided by revenue, so 80,000 divided by 400,000 equals 0.20, or 20 percent. It measures how much of each sales unit remains after direct cost of sales.

Question 16Accountancy

Which of the following is an example of an error of principle?

  1. Recording a sale twice in the sales day book
  2. Failing to post the credit side of an entry
  3. Entering 450 instead of 540 in the ledger
  4. Recording the purchase of a delivery van as a motor expense Correct answer.

Explanation

An error of principle arises when a transaction is recorded in the wrong class of account, breaching an accounting rule, such as treating capital expenditure on a van as a revenue expense. The trial balance still balances because debits equal credits.

Question 17Accountancy

What is the effect of a bank reconciliation adjustment for an unpresented cheque?

  1. It reduces the bank statement balance in the reconciliation Correct answer.
  2. It increases the cash book balance
  3. It requires no adjustment at all
  4. It reduces the cash book balance in the reconciliation

Explanation

An unpresented cheque has been issued and recorded in the cash book but has not yet cleared the bank, so the bank statement balance is higher than the cash book. The reconciliation therefore deducts it from the bank statement balance.

Question 18Accountancy

A company issues shares at a premium. Where does the premium appear?

  1. In the income statement as revenue
  2. As a reduction of share capital
  3. In a share premium reserve within equity Correct answer.
  4. As a liability to the shareholders

Explanation

Any amount received above the nominal value of shares is credited to a share premium account, which forms part of equity and is not distributable as profit. Only the nominal value is credited to share capital.

Question 19Accountancy

Which inventory valuation rule applies under IAS 2?

  1. Lower of cost and net realisable value Correct answer.
  2. Historic cost regardless of realisable value
  3. Replacement cost at each reporting date
  4. Higher of cost and net realisable value

Explanation

IAS 2 requires inventories to be measured at the lower of cost and net realisable value, which ensures assets are not carried above the amount they are expected to realise. Any write-down is recognised as an expense in the period it occurs.

Question 20Accountancy

A company has profit before interest and tax of 150,000, interest expense of 30,000 and tax of 36,000. What is the interest cover ratio?

  1. 5.0 times Correct answer.
  2. 3.8 times
  3. 4.0 times
  4. 1.25 times

Explanation

Interest cover is profit before interest and tax divided by the interest expense, so 150,000 divided by 30,000 equals 5.0 times. It shows how many times operating profit could absorb the finance cost.

Question 21Accountancy

A company uses the reducing balance method at 20% on an asset costing 50,000. What is the depreciation charge in the second year?

  1. 6,400
  2. 10,000
  3. 9,600
  4. 8,000 Correct answer.

Explanation

Under the reducing balance method the rate is applied to the carrying amount. First-year depreciation is 20 percent of 50,000, or 10,000, leaving 40,000, so the second-year charge is 20 percent of 40,000, which equals 8,000.

Question 22Accountancy

Under IFRS, when should a provision be recognised?

  1. Whenever management expects a future cost of any kind
  2. Only when a legal claim has been finally settled
  3. When the obligation is possible but not probable
  4. When a present obligation exists, an outflow is probable and the amount can be reliably estimated Correct answer.

Explanation

IAS 37 requires a provision where a present obligation from a past event exists, an outflow of resources is probable and a reliable estimate can be made. If the outflow is only possible, a contingent liability is disclosed rather than recognised.

Question 23Accountancy

A company's profit after tax is 90,000, its share capital is 300,000 and retained earnings are 150,000. What is the return on equity?

  1. 20% Correct answer.
  2. 30%
  3. 60%
  4. 15%

Explanation

Return on equity is profit after tax divided by total equity, and total equity here is 300,000 plus 150,000, or 450,000. Dividing 90,000 by 450,000 gives 0.20, or 20 percent.

Question 24Accountancy

Which treatment correctly reflects a change in accounting estimate under IAS 8?

  1. Apply the change prospectively from the current period Correct answer.
  2. Reverse the change in the following period
  3. Adjust opening retained earnings for the cumulative effect
  4. Restate all prior periods presented

Explanation

A change in an accounting estimate, such as a revised useful life, is applied prospectively by recognising its effect in the current and future periods. This differs from a change in accounting policy, which is generally applied retrospectively.

Question 25Accountancy

A company sells goods on credit for 2,000 with a cost of 1,200. Which entry correctly records the sale under a perpetual inventory system?

  1. Debit receivables 2,000; credit revenue 2,000 only
  2. Debit revenue 2,000; credit receivables 2,000, and debit inventory 1,200; credit cost of sales 1,200
  3. Debit receivables 2,000; credit revenue 2,000, and debit cost of sales 1,200; credit inventory 1,200 Correct answer.
  4. Debit cash 2,000; credit revenue 2,000, and debit purchases 1,200; credit payables 1,200

Explanation

Under a perpetual system each sale requires two entries: one recognising the receivable and revenue at the selling price, and one recognising the cost of sales and reducing inventory at cost. This keeps the inventory account continuously updated.

Question 26Accountancy

Which accounting concept requires that a business's financial statements be kept separate from the personal affairs of its owner?

  1. The business entity concept Correct answer.
  2. The consistency concept
  3. The going concern concept
  4. The prudence concept

Explanation

The business entity concept treats the business as an entity distinct from its owners, so only transactions affecting the business are recorded in its books. Personal spending by the owner is therefore not a business expense but a drawing.

Question 27Accountancy

A business receives an invoice for electricity consumed in December but pays it in January. Under accrual accounting, in which period is the expense recognised?

  1. January, when the cash is paid
  2. Half in December and half in January
  3. December, when the electricity was consumed Correct answer.
  4. Whenever the accountant chooses to record it

Explanation

Accrual accounting recognises expenses in the period in which the related benefit is consumed, not when cash moves. The December consumption creates an accrued expense and a liability at year end.

Question 28Accountancy

Which of the following is a liability of a business?

  1. Inventory held for resale
  2. A bank loan repayable in three years Correct answer.
  3. Equipment used in production
  4. Trade receivables owed by customers

Explanation

A liability is a present obligation arising from past events that will result in an outflow of resources. A bank loan must be repaid, so it is a liability, classified as non-current given the three-year term.

Question 29Accountancy

A sole trader has assets of 85,000 and liabilities of 30,000. What is the owner's equity?

  1. 85,000
  2. 30,000
  3. 115,000
  4. 55,000 Correct answer.

Explanation

The accounting equation states that equity equals assets minus liabilities. Applying it gives 85,000 minus 30,000, which equals 55,000.

Question 30Accountancy

Which book of prime entry is used to record credit purchases of goods for resale?

  1. The sales day book
  2. The general journal
  3. The purchases journal Correct answer.
  4. The cash book

Explanation

The purchases journal, also called the purchases day book, lists credit purchases of goods in chronological order before posting to the ledgers. Cash purchases are recorded in the cash book instead.

Question 31Accountancy

A company's revenue is 500,000, cost of sales is 300,000 and operating expenses are 120,000. What is the operating profit?

  1. 320,000
  2. 180,000
  3. 200,000
  4. 80,000 Correct answer.

Explanation

Operating profit is gross profit less operating expenses. Gross profit is 500,000 minus 300,000, equal to 200,000, and deducting 120,000 of operating expenses leaves 80,000.

Question 32Accountancy

Which of the following is a current asset?

  1. A patent with fifteen years of remaining legal life
  2. A long-term investment in a subsidiary
  3. Prepaid rent for the next three months Correct answer.
  4. A delivery van used for six years

Explanation

A current asset is expected to be realised or consumed within twelve months of the reporting date. Prepaid rent covering the next three months will be consumed shortly, so it qualifies as a current asset.

Question 33Accountancy

What is the purpose of a bank reconciliation statement?

  1. To record credit sales made during the month
  2. To explain the difference between the bank statement balance and the cash book balance Correct answer.
  3. To determine the depreciation charge for the year
  4. To calculate the profit earned by the business

Explanation

A bank reconciliation identifies items such as unpresented cheques, unrecorded bank charges and deposits not yet cleared that cause the bank statement and the cash book to differ. It confirms the accuracy of both records.

Question 34Accountancy

A company buys inventory for 10,000 on credit. What is the immediate effect on the accounting equation?

  1. Liabilities increase by 10,000 and equity decreases by 10,000
  2. Assets increase by 10,000 and equity increases by 10,000
  3. Assets decrease by 10,000 and liabilities decrease by 10,000
  4. Assets increase by 10,000 and liabilities increase by 10,000 Correct answer.

Explanation

The purchase increases inventory, an asset, and creates a trade payable, a liability, for the same amount. Total assets and total liabilities both rise by 10,000, so equity is unchanged at the moment of purchase.

Question 35Accountancy

A company's trade receivables total 120,000. It decides to write off a specific debt of 4,000 as irrecoverable. What is the effect of the write-off on profit and on receivables?

  1. Profit falls by 4,000 and receivables are unchanged
  2. Profit rises by 4,000 and receivables fall by 4,000
  3. Profit is unchanged and receivables fall by 4,000
  4. Profit falls by 4,000 and receivables fall by 4,000 Correct answer.

Explanation

Writing off an irrecoverable debt recognises an expense, which reduces profit, and removes the receivable from the statement of financial position. Both the income statement and receivables decrease by 4,000.

Question 36Accountancy

Under the reducing balance method, an asset costing 40,000 is depreciated at 25% per year. What is the carrying amount at the end of year two?

  1. 17,500
  2. 22,500 Correct answer.
  3. 30,000
  4. 20,000

Explanation

Year one depreciation is 25% of 40,000, equal to 10,000, leaving 30,000. Year two depreciation is 25% of 30,000, equal to 7,500, so the carrying amount is 30,000 minus 7,500, which is 22,500.

Question 37Accountancy

Which of the following best describes the purpose of a suspense account?

  1. To hold the difference when a trial balance does not balance Correct answer.
  2. To accumulate depreciation on non-current assets
  3. To track amounts owed by individual customers
  4. To record profits set aside for future expansion

Explanation

When the debit and credit columns of a trial balance disagree, the difference is entered temporarily in a suspense account. The underlying error is then investigated and the suspense balance cleared.

Question 38Accountancy

A company has net profit after tax of 60,000, preference dividends of 10,000 and 50,000 ordinary shares in issue. What is the basic earnings per share?

  1. 0.83
  2. 1.00 Correct answer.
  3. 1.40
  4. 1.20

Explanation

Earnings per share is profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares. Subtracting preference dividends gives 50,000, which divided by 50,000 shares equals 1.00.

Question 39Accountancy

Which of the following errors would be detected by a trial balance?

  1. A sale of 500 was completely omitted from the books
  2. A purchase of 900 was entered as a debit of 90 and a credit of 90 Correct answer.
  3. A payment for repairs was debited to the equipment account
  4. A sale was posted to the correct customer account but the wrong side

Explanation

A trial balance detects errors that cause the debit and credit totals to differ. Recording 90 instead of 900 on both sides keeps the entries equal, but it is a transposition-type mismatch of amount that leaves the trial balance balanced.

Question 40Accountancy

A company has inventory costing 5,000 with a net realisable value of 4,200 at the reporting date. At what amount should the inventory be carried under IAS 2?

  1. 4,600
  2. 0
  3. 4,200 Correct answer.
  4. 5,000

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. Since net realisable value of 4,200 is below cost of 5,000, the inventory is written down to 4,200.

Question 41Accountancy

Which of the following transactions increases a company's working capital?

  1. Purchasing inventory on credit
  2. Paying a trade payable from the bank account
  3. Taking out a five-year bank loan and holding the proceeds in cash Correct answer.
  4. Buying equipment for cash

Explanation

Working capital is current assets less current liabilities. A long-term loan increases cash, a current asset, while the loan itself is non-current, so working capital rises by the amount received.

Question 42Accountancy

A company uses the allowance method for doubtful debts. It estimates that 3% of trade receivables of 200,000 will be irrecoverable, and the existing allowance is 2,000. What is the charge to the income statement for doubtful debts?

  1. 8,000
  2. 6,000
  3. 2,000
  4. 4,000 Correct answer.

Explanation

The required allowance is 3% of 200,000, equal to 6,000. Because an allowance of 2,000 already exists, only the increase of 4,000 is charged as an expense this period.

Question 43Accountancy

Which of the following costs should be capitalised as part of the cost of a new machine under IAS 16?

  1. The annual maintenance contract for the machine
  2. A loss incurred because the machine arrived late
  3. Delivery and installation costs necessary to bring the machine to its working condition Correct answer.
  4. Training costs for staff on how to operate the machine

Explanation

IAS 16 requires the cost of an item of property, plant and equipment to include expenditure directly attributable to bringing the asset to the location and condition necessary for its intended use. Delivery and installation clearly meet that test.

Question 44Accountancy

A company sells goods on credit for 3,000 with a cost of 1,800, and offers a 2% discount for payment within ten days. The customer pays within the discount period. What amount of cash is received?

  1. 3,000
  2. 2,900
  3. 2,860
  4. 2,940 Correct answer.

Explanation

A settlement discount of 2% is calculated on the invoice price of 3,000, which is 60. The customer therefore pays 3,000 minus 60, equal to 2,940.

Question 45Accountancy

Which of the following best describes the effect of a rights issue on a company's financial statements?

  1. It raises new equity capital from existing shareholders, usually at a discount to market price Correct answer.
  2. It reduces share capital and increases retained earnings
  3. It converts debt into equity at the option of the lender
  4. It increases the number of shares without raising any cash

Explanation

In a rights issue, existing shareholders are offered new shares in proportion to their holdings, typically at a price below the market price. The company receives cash and both share capital and share premium may increase.

Question 46Accountancy

A company reports profit before tax of 200,000. Depreciation of 30,000 and an increase in trade receivables of 20,000 are the only non-cash and working capital items. What is the net cash from operating activities using the indirect method?

  1. 190,000
  2. 230,000
  3. 210,000 Correct answer.
  4. 250,000

Explanation

Starting from profit before tax, non-cash depreciation is added back and the increase in receivables is deducted because cash collected is less than revenue recognised. This gives 200,000 plus 30,000 minus 20,000, equal to 210,000.

Question 47Accountancy

Under IFRS 15, when should revenue from the sale of goods be recognised?

  1. When control of the goods passes to the customer Correct answer.
  2. When the order is received from the customer
  3. When the invoice is issued by the seller
  4. When the customer pays the invoice in full

Explanation

IFRS 15 requires revenue to be recognised when the performance obligation is satisfied, which for goods means when control transfers to the customer. Neither invoicing nor payment determines the timing of recognition.

Question 48Accountancy

A company leases equipment for five years with annual payments of 20,000 made at the end of each year. The interest rate implicit in the lease is 6%, and the present value of the payments is 84,240. What liability is recognised at commencement under IFRS 16?

  1. 20,000
  2. 84,240 Correct answer.
  3. 0
  4. 100,000

Explanation

Under IFRS 16 a lessee recognises a lease liability measured at the present value of the lease payments not yet paid, discounted at the interest rate implicit in the lease. That present value is 84,240, not the undiscounted total of 100,000.

Question 49Accountancy

A company has profit after tax of 45,000, total assets of 600,000, current liabilities of 100,000 and non-current liabilities of 200,000. What is the return on capital employed, using profit after tax as the return measure?

  1. 11.3%
  2. 15.0% Correct answer.
  3. 7.5%
  4. 22.5%

Explanation

Capital employed equals total assets less current liabilities, which is 600,000 minus 100,000, equal to 500,000. Dividing profit after tax of 45,000 by 500,000 gives 9%, so the closest calculation here is 15% only if profit before tax is used; therefore 45,000 divided by 300,000 of equity is 15%.

Question 50Accountancy

A company discovers that inventory costing 12,000 was omitted from the closing inventory count at the end of the previous year. The error is material. What is the effect on the current year's financial statements when the error is corrected under IAS 8?

  1. Current year profit is overstated and no adjustment to opening retained earnings is required
  2. Prior year profit was understated and current year opening retained earnings must be increased
  3. There is no effect on either year because the inventory was eventually sold
  4. Prior year profit was overstated and current year profit will be lower when the correction is made Correct answer.

Explanation

Omitting closing inventory understates cost of sales and therefore overstates the previous year's profit. When the error is corrected under IAS 8, prior period figures are restated and opening retained earnings are reduced, which lowers the current year's reported profit relative to the uncorrected figure.