Chapter 6

The primary difference between deferred and accrued expenses is that deferred expenses have
1. Been incurred and accrued expenses have not
2. Not been incurred and accrued expenses have been incurred
3. Been recorded and accrued expenses have not been incurred
4. Not been recorded and accrued expenses have been incurred
Deferred expenses are ordinarily reported on the statement of financial position as
1. Assets
2. Liabilities
3. Equity
4. Unearned income
Deferred income is ordinarily reported on the statement of financial position as
1. Current assets
2. Liabilities
3. Non-current assets
4. Prepaid expenses
A provision for post-employment benefits, like pensions, should be accrued
1. When the employee retires
2. When the employee is hired
3. When the employee is in service and is earning a salary
4. At year-end, for the pensions to be paid the following year
The balance in the rent expense account before adjustment at the end of the year is €20,000, which represents four months’ prepaid rent paid on December 1. The adjustment required on December 31 is
1. Increase of Rent expense, €15,000; decrease Deferred expenses €15,000
2. Increase Deferred expenses, €15,000; decrease Rent expense, €15,000
3. Increase Rent expense €5,000; decrease Deferred expenses, €5,000
4. Increase Deferred expenses, €5,000; decrease Rent expense, €5,000
A business pays weekly salaries of €20,000 on Friday for a five-day week ending on that day. The adjustment necessary at the end of the fiscal period ending on Thursday is
1. Decrease Salaries Payable, €16,000; decrease Cash €16,000
2. Increase Salary expense, €16,000; increase Cash, €16,000
3. Increase Salary expense, €16,000; increase Salaries payable, €16,000
4. Increase Salary expense, €16,000; decrease Salaries payable, €16,000
The general term employed to indicate an expense that has not been paid and has not yet been recognized in the account by a routine entry is:
1. Capital
2. Deferral
3. Accrual
4. Inventory
If there is a balance in the unearned fee account after year-end adjustments are made, it represents a
1. Deferral
2. Accrual
3. Cost
4. Revenue
Accrued revenues would appear on the statement of financial position as
1. Assets
2. Liabilities
3. Equity
4. Prepaid expenses
Accrued expenses are ordinarily reported on the statement of financial position as
1. Current assets
2. Liabilities
3. Non-current assets
4. Unearned revenue
According to IAS 37, a provision will be recognised if
1. A company has a present obligation as a result of a past event
2. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
3. A reliable estimate can be made of the amount of the obligation
4. All of the above have to apply
The following statement is an extract from IAS 37: “a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company”. It defines a
1. Deferred liability
2. Contingent liability
3. Provision
4. Ordinary liability
With regard to a pending litigation, it is probable that Omega Company will receive a compensation regarding suffered damages. At the end of the reporting period, Omega Company was still waiting for the final court decision, and the amount of the compensation are still unknown. How is this event dealt with in the preparation of its financial statements?
1. Since there is no certainty regarding the receipt of a compensation, do not recognise or disclose in the financial statements
2. As the receipt of damages is probable, recognise it as an asset in the financial statements
3. Disclose in the financial notes as it is possible that the entity will receive the compensation and the court decision is out of its control
4. Recognise as a deferred asset in the balance sheet and reclassify as a non-current asset when the court decision is known
An impairment loss occurs when
1. The recoverable amount of an asset exceeds the carrying amount
2. The carrying amount of an asset exceeds the recoverable amount
3. The asset has a zero residual value
4. The recoverable amount of an asset exceeds its initial cost
Tangible long-term assets have to be tested for impairment
1. At each reporting date
2. Every six months
3. Each time market prices change
4. When there is an indication for impairment
The cost of an impairment is treated as a... (n)
1. Depreciation cost
2. Extraordinary cost
3. Purchase cost
4. Write-down cost
A cash-generating-unit is
1. A group of assets used together
2. A set of cash flow generating activities
3. A consolidated entity
4. None of the above
An allowance for doubtful debts will be included on the statement of financial position under the caption
1. Equity
2. Investments
3. Non-current assets
4. Current assets
An allowance for doubtful debts will be recorded for the amount equal to
1. The carrying amount of the receivables inclusive of VAT-taxes
2. The carrying amount of the receivables exclusive of VAT-taxes
3. The difference between the carrying amount and the recoverable amount of the receivables
4. The recoverable amount of the receivables
At 1 January 20X1, the company paid an insurance premium (prepayment) of £9,600. Assume no insurance payments were made during the year and insurance expense on the income statement for the year is £2,200, as a result of a proper accounting adjustment at the end of the year. Deferred insurance costs on the 31 December 20X1 statement of financial position would be
1. £ 9,600
2. £ 7,400
3. £ 2,200
4. £11,800
5. None of the above

Chapter 6

Quiz