ACCOUNTING June 2002
SECTION ONE (Compulsory) Answer all six questions in this section. Each question carries 10 marks.
Question 1 (Total: 10 marks) Read and state whether the following statement are TURE (T) or FALSE (F). For false statements you are required to corrected statements. Write all answers on the answer sheets.

1.1 A “Carriage Outwards” account normally has a debit balance.

1.2 “Long Term Investment” is an item of shareholders’ fund.

1.3 “Cash basis accounting” means that accounts only record items which have realizable values in cash.

1.4 A “Purchases” account records only items which were bought for resale.

1.5 “Share Premium” is a capital profit. 1.6 A “quick ratio” tests the liquidity of a business.

1.7 A variable cost is a cost which changes according to market conditions.

Question 2 (Total: 10 marks) Read the following statements and choose the correct answers by writing the alphabetical letter on the answer sheets.

2.1 A “relevant cost” is
(a) a cost which has been paid
(b) a future cost which is associated with the decision at hand.
(c) a future cost which must be incurred if a firm is to continue in business.
(d) a fixed cost in a project

2.2 Provision for doubtful debts is
(a) an account recording all debts which are doubtful in collection.
(b) a current liability.
(c) a current asset.
(d) a reduction in the value of an asset.

2.3 A cash flow statement
(a) shows the amounts of money in cash, or near cash form, received and paid out by a firm from trading during a period.
(b) shows the amounts of money in cash, or near cash form, received and paid out by a firm from all activities during a period.
(c) shows the change in financial positions of a firm during a period.
(d) shows a firm’s cash transactions during a period.
2.4 A sole trader’s capital at a particular date equals
(a) the amount of cash he has in the business.
(b) his net assets at cost in the business.
(c) all his assets in the business at realizable values.
(d) all his assets at book values in the business less all liabilities of the business.

2.5 A balance sheet shows
(a) all assets of a firm at market values and all its liabilities at a particular date.
(b) all known assets and all known liabilities and capital of a firm at a particular date.
(c) estimated values of all assets, capital and liabilities of a firm at a particular date.
(d) all assets, all liabilities and proprietors’ fund at book values of a firm at a particular date.

2.6 A “liquid asset” means
(a) an asset in cash or readily convertible to cash.
(b) an asset which has not a physical form.
(c) an investment which is realizable at any time.
(d) a current asset other than trading stock

2.7 A machine bought for resale is
(a) a capital expenditure
(b) a trading stock item
(c) a fixed asset
(d) a production cost

2.8 A “break-even” sales volume means
(a) a sale volume which will produce no profit or loss
(b) a minimum sales volume which will produce the target profit.
(c) a sales volume which is very close to budget.
(d) a sales volume which is below the break-even point.

2.9 A dividend paid by a company is
(a) an appropriation of profits.
(b) a capital expenditure.
(c) a revenue expenditure.
(d) a return on capital

2.10 Capital profits mean
(a) profits derived from the use of capital
(b) profits derived from the use of fixed assets.
(c) returns on capital.
(d) profits from disposal of fixed assets.