ACCA Applied Skills Practice Questions — All Questions

Under double-entry bookkeeping, every debit must have an equal:

• a.Asset
• b.Credit✓
• c.Expense
• d.Liability

Each transaction records equal debits and credits.

The accounting equation is:

• a.Assets = Liabilities + Equity✓
• b.Assets = Revenue - Expenses
• c.Equity = Assets + Liabilities
• d.Cash = Assets - Revenue

Assets equal liabilities plus equity.

A trial balance is prepared to:

• a.Calculate tax
• b.Value inventory
• c.Check that total debits equal total credits✓
• d.Forecast cash

A trial balance verifies the ledger's debits equal its credits.

Depreciation spreads the cost of a non-current asset over its:

• a.Purchase month
• b.First year only
• c.Sale date
• d.Useful economic life✓

Depreciation allocates an asset's cost over its useful life.

Under marginal costing, which cost is treated as a period cost?

• a.Direct materials
• b.Fixed production overhead✓
• c.Direct labor
• d.Variable overhead

Marginal costing writes off fixed production overhead as a period cost.

Contribution is calculated as sales less:

• a.Variable costs✓
• b.All costs
• c.Fixed costs
• d.Tax

Contribution = sales - variable costs.

A cost that has already been incurred and is irrelevant to a decision is a:

• a.Variable cost
• b.Opportunity cost
• c.Sunk cost✓
• d.Marginal cost

Sunk costs are past and irrelevant to future decisions.

The value of the next-best alternative forgone is the:

• a.Fixed cost
• b.Sunk cost
• c.Standard cost
• d.Opportunity cost✓

Opportunity cost is the benefit given up by choosing one option over another.

The going concern assumption means financial statements assume the entity will:

• a.Be sold immediately
• b.Continue operating for the foreseeable future✓
• c.Stop trading next month
• d.Never pay tax

Going concern assumes continued operation for the foreseeable future.

Under the accruals concept, revenue and costs are recognized when:

• a.Earned or incurred, not when cash is received or paid✓
• b.Cash changes hands
• c.The year ends
• d.Tax is due

Accruals recognize items when earned/incurred regardless of cash timing.

Which is a fundamental qualitative characteristic of useful financial information (IFRS Framework)?

• a.Complexity
• b.Optimism
• c.Faithful representation✓
• d.Length

Relevance and faithful representation are the fundamental qualitative characteristics.

Prudence in accounting means:

• a.Overstating profits
• b.Ignoring losses
• c.Recognizing gains early
• d.Not overstating assets or income, and not understating liabilities✓

Prudence exercises caution so assets/income are not overstated.

An external audit provides:

• a.Absolute assurance of no fraud
• b.Reasonable assurance that statements are free of material misstatement✓
• c.A guarantee of future profits
• d.Tax advice only

An audit gives reasonable (not absolute) assurance about material misstatement.

Auditor independence is important because it:

• a.Supports objectivity and credibility of the audit opinion✓
• b.Increases audit fees
• c.Speeds up the audit
• d.Guarantees a clean opinion

Independence underpins objectivity and the value of the opinion.

Materiality in auditing refers to:

• a.The physical size of documents
• b.The audit fee
• c.Whether a misstatement could influence users' decisions✓
• d.The number of staff

An item is material if it could influence the economic decisions of users.

A modified (qualified) audit opinion is issued when:

• a.Everything is perfect
• b.No evidence exists at all
• c.The auditor is paid late
• d.There is a material but not pervasive misstatement or scope limitation✓

A qualified opinion reflects a material-but-not-pervasive issue.

Working capital is defined as:

• a.Non-current assets
• b.Current assets minus current liabilities✓
• c.Total equity
• d.Long-term debt

Working capital = current assets - current liabilities.

Under the NPV investment rule, a project is accepted if its NPV is:

• a.Positive✓
• b.Negative
• c.Zero always rejected
• d.Equal to the payback

Positive-NPV projects increase shareholder value.

Discounting future cash flows reflects the principle that:

• a.Cash never changes value
• b.Inflation is irrelevant
• c.Money has time value✓
• d.Profits equal cash

Discounting applies the time value of money to future cash flows.