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Accounting Concepts Multiple Choice Questions
1 There is great uncertainty about the continuance of a business. This has
caused the proprietor to make a large reduction in the valuation of the
yearend inventory. Which accounting concept does this illustrate?
A going concern B matching C materiality D substance
over form
2 The treasurer of a club has decided not to include subscriptions owing by
members in the statement of financial position at the year-end.
Which accounting concept is being applied?
A accruals B going concern C money measurement D
prudence
3 Accountants prefer the commercial reality of a transaction to a strictly
legal approach. This is an example of
A consistency. B materiality. C prudence.
D substance over form
4 A sole trader pays private expenses from the business bank account and
records them as drawings.
Which accounting principle is applied?
A business entity B going concern C matching D
prudence
5 A business values obsolete inventory at net realisable value. Which
accounting principle has been applied?
A consistency B going concern C materiality
D prudence
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6 A pocket calculator costs $9.50 and has a useful life of 5 years. The
bookkeeper has decided to treat the purchase of the calculator as revenue
expenditure. Which accounting concept has been applied?
A accruals B materiality C prudence D
substance over form
7 What does the ‘going concern’ principle mean?
A a business is profitable
B a business will continue to operate for the foreseeable future
C the assets of a business exceed its liabilities
D the assets of a business should be valued at disposal value
8 When a businessman introduces capital into his business, the transaction
is debited in the Cash Book and credited to his Capital account. Of which
accounting principle is this an example?
A entity B going concern C matching D
prudence
9 A company does not include the value of skills gained by its employees
from training programmes in its financial statements.
Which accounting principle is being applied?
A consistency B materiality C money measurement
D substance over form
10 Of which concept is the writing off of a bad debt an example?
A going concern B matching C prudence D
substance over form
11 A company purchases machinery on hire purchase over four years but
does not own the machinery until the final payment has been made. At the
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end of year 1 the company shows the machinery in its statement of
financial position as a non current asset and also records the liability for the
amount still owed. Which accounting principle is being applied?
A consistency B materiality C prudence D
substance over form
12 Businesses anticipate losses but not profits in preparing their annual
accounts. Which accounting concept is being applied here?
A accruals B consistency C going concern D
prudence
13 What is an example of the application of the concept of accounting for
substance over form?
A accounting for inventory losses
B recording an asset acquired under a hire purchase agreement as a non
current asset
C recording the premium on the issue of ordinary shares in a share
premium account
D writing off a debt from a customer in liquidation
14 A business sells its freehold property to a bank and agrees to
repurchase them in five years’ time. The business continues to use the
property on lease from the bank. The property remain in the statement of
financial position of the business. What is the reason for this accounting
treatment?
A the asset must be treated in the same way from year to year
B the commercial reality of the transaction is that the business still owns
the asset
C the cost of the asset must be matched with the periods expected to
benefit from its use
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D the income from the sales proceeds must not be anticipated
15 A company excludes from its statement of financial position machinery
for which spare parts are no longer obtainable. Which concept is being
applied by the company?
A going concern B materiality C prudence D
substance over form
16 Which accounting policies illustrate the matching principle?
1 charging depreciation on non-current assets
2 revaluing non-current assets on a regular basis
3 using the reducing balance method of depreciation
A 1, 2 and 3 B 1 and 2 only C 1 and 3 only D 2
and 3 only
17 An item of inventory originally cost $5 000, but has deteriorated badly
and is written down to its estimated net realisable value of $2 000. Which
accounting principle has been applied?
A consistency B materiality C prudence D
substance over form
18 A company changes from the straight-line method of depreciation to the
reducing balance method.
Which accounting principle has not been applied?
A consistency B going concern C historic cost D
materiality
19 What should a company prepare to forecast its state as a going concern
at the end of next year?
A cash budget C forecast statement of financial position
B cash flow statement D forecast income statement
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