Leaving Certificate Accounting Theory Practice Test

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• Over-absorption of overheads occurs when:
• Which of the following is NOT a limitation of ratio analysis?
• Sensitivity Analysis is also known as 'what-if' analysis. It examines the effect on profit brought about by changes in the following: selling price; sales volume; variable costs; fixed costs.
• What record-keeping practice is recommended to prepare an accurate trading and profit and loss account?
• When ordinary shares are issued at a premium, which journal entry records the transaction?
• Which statement best defines an exceptional item?
• In impairment testing, which statement correctly describes the recoverable amount?
• Under which model is a fixed asset revaluation permitted, and how does it affect depreciation?
• What is the purpose of a partnership agreement?
• Which statement correctly defines cash and cash equivalents?
• Accruals are revenues or expenses recognized before cash is received or paid.
• Which of the following is a purpose of product costing?
• Explain the concept of a proposed dividend and when it becomes a liability.
• Which of the following is a reason for a public limited company to publish its annual report and accounts?
• What is a typical responsibility of the management accountant within an organisation?
• Which statement best describes how an auditor safeguards shareholders' interests?
• Which statement accurately describes depreciation under the cost model for PPE?
• Net profit percentage indicates how much each euro of sales contributes to the business after expenses have been deducted. A fall in net profit percentage is most likely caused by which of the following?
• What is the nature of EU regulation of the presentation of accounts?
• Which agency regulates the production, content and presentation of company financial statements through listing rules?
• A rising liquidity ratio could indicate prudent management, but if it rises significantly above 1:1, which could be an issue?
• Which of the following is a typical disclosure in the notes to the financial statements?
• Which of the following is a purpose of product costing?
• If issue costs reduce the share premium, how is this treated in the equity section?
• Outline the term reapportionment of overheads.
• Which of the following is a user of financial information?
• Which statement about gearing is correct?
• Which statement about going concern is correct?
• Which of the following is an example of an error that affects the balancing of a Trial Balance?
• Which statement is true about limitations of ratio analysis?
• Regulation of financial statements ensures what for external users such as banks and investors?
• What is reversal of entries in accounting?
• Which type of error occurs when an error on the debit side is compensated by an equal error on the credit side elsewhere?
• Which of the following is a consequence of high gearing?
• Why is auditor independence important to shareholders?
• Prudence concept states what?
• What is a bonus issue and how is it recorded?
• A revaluation surplus is recognised in equity as part of the revaluation surplus when it happens how?
• Which of the following is a direct financial benefit of low gearing?
• Which of the following is a key benefit of double entry bookkeeping?
• Under the accruals concept, which statement is true?
• Name two key internal control practices and their importance.
• After the errors are corrected, what happens to the suspense account balance?
• What is the monetary unit assumption in accounting and its significance?
• Which of the following describes LCNRV for inventories?
• Which of the following is a potential benefit of high stock turnover?
• Which statement describes absorption costing?
• What is an audit?
• When a new partner is admitted with an agreed profit-sharing ratio, which option is NOT a typical accounting step?
• Under marginal costing, variable costs may decrease due to economies of scale or increase due to higher costs, meaning they are not strictly constant.
• What is the primary purpose of a suspense account in double-entry bookkeeping?
• Under accruals, which item would be included in the current year's accounts?
• What does the acid test ratio exclude from current assets?
• When is a suspense account used in relation to the trial balance?
• In financing a loan, investment, or purchase for a service firm, which approach is suggested as non-recurring and to build a positive bank balance?
• What is the primary objective of financial statements?
• Indefinite‑lived intangible assets are not amortised; when are they tested for impairment?
• If impairment occurs, what is the effect on the asset and the income statement?
• Under IFRS 16, depreciation of the right‑of‑use asset is generally over which period?
• Going concern means what?
• Service department costs are re-apportioned between production departments because overheads can only be recovered by being included as part of the cost of production.
• Which of the following is a purpose of product costing?
• Under a revaluation of PPE, where does the surplus go?
• Explain revenue recognition at a point in time versus over time, including controls criteria under IFRS 15.
• How does prudence affect asset valuation and income recognition?
• Production in a period usually equals sales.
• Which of the following is an impairment indicator that may require a write-down of a fixed asset?
• Which of the following is an example of a controllable cost?
• If a company has high gearing, what is the likely implication for risk and credit metrics?
• In marginal costing, fixed costs are charged to the period in which they occur and are not carried forward to the next period.
• Under the Financial Reporting Standards, cash flows are presented under standard headings for which activities?
• What is an error of commission?
• What does the entity concept require?
• Which statement correctly contrasts partnerships and companies in terms of liability and legal status?
• What is the regular use of the Contribution Sales Ratio?
• Which of the following is a purpose of product costing?
• Under the revaluation model, how are increases in carrying amount treated when there have been previous decreases?
• Which statement best distinguishes share capital and share premium?
• Explain capital expenditure versus revenue expenditure with examples.
• Allocation, Apportionment and Absorption are three methods of costing. Which statement correctly defines allocation?
• Which term describes the reallocation of service department costs to production departments when overheads can only be recovered through production?
• What is the main objective of an audit under the Companies Acts?
• If a Contingent Liability is possible but unlikely, what is the proper accounting treatment?
• Solvency is commonly assessed using which ratio as a guide?
• Which statement best describes the duality principle in accounting?
• Outline the treatment of contingent assets in financial statements.
• What is a rights issue and how is it recorded?
• Which of the following describes an error of original entry in double-entry bookkeeping?
• What is the purpose of notes to the financial statements and give three common disclosures?
• What is the primary purpose of a Directors' Report?
• Discuss the limitations of financial statements for decision-making and how users should supplement them.
• What is going concern and how does it influence asset valuation and liability recognition?
• If gross profit percentage decreases, which could be a cause?
• Which statement describes apportionment?
• The phrase 'true and fair view' in financial statements means that the statements present what?
• Which statement correctly differentiates liquidity from solvency?
• Why are overhead absorption rates typically based on budgeted figures rather than actual costs?
• When a Contingent Liability is probable, what should be done?
• If Connolly's accounts are prepared using the double-entry system, which information would be available?
• Explain what constitutes a material misstatement and how it is addressed in financial reporting and auditing.
• How are identifiable intangible assets recognized and distinguished between finite and infinite lives?
• How are exceptional items treated in the income statement compared with ordinary items?
• What is entered in the suspense account to help balance the trial balance?
• How are government grants treated when related to asset purchases and what is their effect on income?
• Which of the following is an example of an exceptional item?
• What is a Financial Reporting Standard?
• Which argument against a 15% fee increase to clear the overdraft would be most reasonable?
• What is meant by a non-cash item?
• Why is goodwill not amortised in financial statements?
• Product costing helps ascertain the values of closing stock for the preparation of final accounts.
• Which of the following is a responsibility of the Directors of a plc?
• An unqualified auditor's report is known as a clean report; which statement best describes it?
• Which statement about accruals in practice is correct?
• Which of the following is a reason for a PLC to publish its annual report and accounts?
• What is the typical accounting treatment for a share issue with premium and for issue costs?
• Distinguish between cost and fair value measurement for PPE under IAS 16 and discuss implications for depreciation.
• Which statement best explains why faster stock turnover can increase profitability?
• Which statement about depreciation is accurate?
• Overtrading is defined as financing too high a sales volume with too little working capital. Which statement best describes overtrading?
• Which statement best defines accounting concepts?
• Which of the following is a common base for overhead absorption rates?
• Which statement best describes the purpose of preparing a Trial Balance?
• What is the main activity of the Accounting Standards Board and how has it influenced cash flow statements?
• Under the going concern assumption, which practice is justified in asset valuation and liability recognition?
• Name the three main responsibilities of the management accountant in relation to planning, controlling and decision making.
• Which item is an example of cash and cash equivalents?
• What is the purpose of a trial balance?
• Which method can be used to separate mixed costs into fixed and variable components?
• Which of the following is a non-cash expense?
• Which are the two fundamental qualitative characteristics that make financial information useful?
• What is net realisable value (NRV) and how is it used in inventory valuation?
• Which statement best contrasts how profits are distributed in partnerships versus companies?
• Name and describe three common inventory valuation methods.
• Two types of errors are not revealed by the Trial Balance. Which pair is correct?
• Why should a business keep records of drawings?
• What is the typical treatment of share issue costs?
• In double-entry bookkeeping, a transaction must:
• Which statement most accurately describes gross profit percentage?
• A bonus issue involves transferring amounts from reserves to share capital. What is the effect on the balance sheet?
• Which of the following is a step to solve a liquidity problem?
• Name two limitations of ratio analysis in evaluating financial performance and explain why they matter.
• What is a step fixed cost?
• Distinguish between an expense and a loss and provide examples.
• Which statement best describes non-adjusting events after the reporting period?
• Which statement is true regarding audits for large public companies under company law?
• Which statement best differentiates revenue reserves and capital reserves?
• Which body must accountants observe when preparing financial statements for publication?
• Under the Financial Reporting Standards, cash flows should be presented under standard headings according to what?
• Explain the treatment of events after the reporting period and classify them as adjusting or non-adjusting.
• What is the role of an external auditor and why is independence essential?
• Define gearing and explain its significance for financial risk and sustainability.
• Gearing compares fixed-interest debt to total capital. Which description best describes total capital employed?
• Calculate annual straight-line depreciation for a fixed asset costing 12,000, residual value 2,000, useful life 5 years.
• Which ratio best indicates long-term financial risk from debt relative to owner's funds?
• Which statement best describes presenting expenses by function in the income statement?
• Which of the following is a method to reduce gearing?
• Why are owner transactions excluded from the business's financial statements?
• When impairment occurs, how does it affect the asset and the income statement?
• What is meant by re-apportionment of overheads?
• In adjusting entries, which statement is true regarding accruals and prepayments?
• What documents are typically included with the annual report of a PLC?
• Which statement correctly describes accrual basis accounting vs cash basis for revenue recognition?
• In marginal costing, fixed costs are assumed to remain the same within a relevant range. What is a real limitation of this assumption?
• Distinguish between provisions and contingent liabilities and give examples.
• The consistency concept requires what practice?
• Which body regulates the production, content and presentation of company financial statements?
• Proposed dividends become a liability when declared; paid dividends reduce what?
• Which topic is not typically governed by a partnership agreement?
• What does IFRS 16 require for lessee accounting regarding lease liabilities and right-of-use assets on initial recognition?
• Why is it necessary to transfer service department costs to production departments?
• Which statement about company annual reporting is correct?
• When shareholders subscribe to a rights issue and pay cash, which journal entry records the transaction?
• Why might management choose to change accounting policies and how should such changes be addressed to maintain comparability?
• Which of the following is a primary purpose of cash flow statements?
• What best describes an accounting concept?
• An error of principle arises when an item is posted to the incorrect class of account. Which option best describes this error?
• Which of the following describes why proper regulation of financial statements is important?
• When a new partner is admitted into a partnership and goodwill is recognized, which statement best describes the correct accounting treatment?
• Which are the two fundamental qualitative characteristics of financial information?
• Which description matches the 'by nature' format of the income statement?