ACCA Applied Skills Practice Questions — All Questions

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

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

Each transaction records equal debits and credits.

The accounting equation is:

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

Assets equal liabilities plus equity.

A trial balance is prepared to:

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

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

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

• a.First year only
• b.Sale date
• c.Purchase month
• 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 labor
• b.Variable overhead
• c.Fixed production overhead✓
• d.Direct materials

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

Contribution is calculated as sales less:

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

Contribution = sales - variable costs.

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

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

Sunk costs are past and irrelevant to future decisions.

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

• a.Fixed cost
• b.Standard cost
• c.Sunk 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.Continue operating for the foreseeable future✓
• b.Be sold immediately
• 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.Cash changes hands
• b.The year ends
• c.Tax is due
• d.Earned or incurred, not when cash is received or paid✓

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.Length
• c.Optimism
• d.Faithful representation✓

Relevance and faithful representation are the fundamental qualitative characteristics.

Prudence in accounting means:

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

Prudence exercises caution so assets/income are not overstated.

An external audit provides:

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

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.Speeds up the audit
• c.Guarantees a clean opinion
• d.Increases audit fees

Independence underpins objectivity and the value of the opinion.

Materiality in auditing refers to:

• a.The audit fee
• b.Whether a misstatement could influence users' decisions✓
• c.The physical size of documents
• 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.No evidence exists at all
• b.Everything is perfect
• c.There is a material but not pervasive misstatement or scope limitation✓
• d.The auditor is paid late

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

Working capital is defined as:

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

Working capital = current assets - current liabilities.

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

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

Positive-NPV projects increase shareholder value.

Discounting future cash flows reflects the principle that:

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

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