ACCOUNTING June 2002

SECTION ONE (Compulsory) Answer all six questions in this section. Each question carries 10 marks.
Question 1 (Total: 10 marks) Read and state whether the following statement are TURE (T) or FALSE (F). For false statements you are required to corrected statements. Write all answers on the answer sheets.

1.1 A “Carriage Outwards” account normally has a debit balance.

1.2 “Long Term Investment” is an item of shareholders’ fund.

1.3 “Cash basis accounting” means that accounts only record items which have realizable values in cash.

1.4 A “Purchases” account records only items which were bought for resale.

1.5 “Share Premium” is a capital profit. 1.6 A “quick ratio” tests the liquidity of a business.

1.7 A variable cost is a cost which changes according to market conditions.

Question 2 (Total: 10 marks) Read the following statements and choose the correct answers by writing the alphabetical letter on the answer sheets.

2.1 A “relevant cost” is
(a) a cost which has been paid
(b) a future cost which is associated with the decision at hand.
(c) a future cost which must be incurred if a firm is to continue in business.
(d) a fixed cost in a project

2.2 Provision for doubtful debts is
(a) an account recording all debts which are doubtful in collection.
 (b) a current liability.
(c) a current asset.
(d) a reduction in the value of an asset.

2.3 A cash flow statement
(a) shows the amounts of money in cash, or near cash form, received and paid out by a firm from trading during a period.
(b) shows the amounts of money in cash, or near cash form, received and paid out by a firm from all activities during a period.
(c) shows the change in financial positions of a firm during a period.
(d) shows a firm’s cash transactions during a period.