All Free Accounting MCQs with Answers

• A. The lower of cost and fair value
• B. The higher of fair value less costs of disposal and value in use
• C. The higher of historical cost and residual value
• D. The lower of carrying amount and value in use

Explanation: Recoverable amount is the higher of fair value less costs of disposal and value in use.

• A. Its original cost without any depreciation
• B. The carrying amount that would have existed without the impairment
• C. Its current market value in every case
• D. Its original residual value plus the impairment loss

Explanation: A reversal cannot increase the asset above the carrying amount that would have resulted if no impairment had been recognized.

• A. Charge them immediately as administrative expense
• B. Include them in the initial cost of the production line
• C. Deduct them from the asset's residual value
• D. Record them as revenue from the production line

Explanation: Directly attributable costs necessary to bring an asset to the location and condition required for operation form part of its initial…

• A. When it is purchased with cash only
• B. When benefits are probable and cost is measurable reliably
• C. When its market value rises above original cost
• D. When management expects it to last for one year

Explanation: Recognition requires probable future economic benefits and a cost that can be measured reliably.

• A. The pattern in which its economic benefits are consumed
• B. The amount of cash paid for the asset
• C. The market price of the asset at year end
• D. The date on which the asset was purchased

Explanation: The depreciation method should reflect how the asset's economic benefits are consumed.

• A. When funds finance an asset requiring substantial preparation
• B. When funds are borrowed for any routine office expense
• C. When interest is paid after the asset is sold
• D. When the asset is acquired without any preparation

Explanation: Borrowing costs may be capitalized when they are directly attributable to a qualifying asset that takes a substantial period to get ready…

• A. In profit or loss for the reporting period
• B. In share capital as a reduction of issued capital
• C. In revenue as an increase in operating income
• D. In inventory as part of the production cost

Explanation: A downward revaluation is normally recognized in profit or loss when no earlier surplus exists for the same asset.

• A. Every transaction affects one account only
• B. Every transaction has equal debit and credit effects
• C. Every transaction is recorded only in the cash book
• D. Every transaction must involve a cash payment

Explanation: Double entry records the two-sided effect of each financial transaction.

• A. Cash sale of goods
• B. Credit sale of goods
• C. Credit purchase of machinery
• D. Return of goods to a supplier

Explanation: The sales day book records credit sales of goods dealt in by the business.

• A. Cash purchases of office furniture
• B. Credit purchases of goods for resale
• C. Credit sales of goods to customers
• D. Cash payments made to suppliers

Explanation: The purchases day book records credit purchases of goods bought for resale.

• A. Goods returned by a customer
• B. Goods returned to a supplier
• C. Cash received from a customer
• D. Discount allowed to a customer

Explanation: The purchases returns book records goods sent back to suppliers after credit purchases.

• A. Only a journal function
• B. Only a ledger function
• C. Both a book of prime entry and a ledger
• D. Both a trial balance and a balance sheet

Explanation: The cash book is a book of prime entry because cash and bank transactions are first recorded in it.

• A. A contra entry
• B. An opening entry
• C. A closing entry
• D. A rectifying entry

Explanation: The transaction affects two columns of the same cash book: cash decreases and bank increases.

• A. Purchases day book
• B. Sales day book
• C. Cash book
• D. Purchases returns book

Explanation: A credit sale of goods is first entered in the sales day book. Ali's personal account is later debited and the sales account is credited…

• A. Debit side
• B. Credit side
• C. Both sides equally
• D. It is not posted to the sales account

Explanation: Sales represent income, so the sales account normally has a credit balance.

• A. Credit sale of trading goods
• B. Credit purchase of trading goods
• C. Transfer of an amount from one account to another
• D. Credit sale of goods to a regular customer

Explanation: The journal proper is used for entries that do not fit the specialised subsidiary books, including transfer and adjustment entries.

• A. The opening petty cash balance
• B. The total cash sales of the period
• C. The amount spent during the period
• D. The closing bank balance

Explanation: Under the imprest system, the petty cashier receives enough money to restore the float to its fixed amount.

• A. To record transactions first in chronological order
• B. To summarise balances after ledger posting
• C. To calculate the final profit or loss
• D. To show the financial position at year-end

Explanation: A book of prime entry is the first formal accounting record of a transaction, usually based on a source document.

• A. A supplier's invoice
• B. A customer's receipt
• C. A bank pay-in slip
• D. A petty cash voucher

Explanation: A supplier sends an invoice to record goods supplied on credit, and the buyer uses it as evidence of the purchase.

• A. Goods returned by credit customers
• B. Goods returned to credit suppliers
• C. Goods bought for immediate cash payment
• D. Assets sold for more than their book value

Explanation: The sales returns book records goods sent back by customers from earlier credit sales.