Question

TRUE OR FALSE

1. When a depreciable asset is sold, a loss arises if the sales proceeds exceed the net book value.(TRUE OR FALSE )
2. Variable costs are costs that change with the level of activity (unit volumes).(TRUE OR FALSE )
3.         Revenue should be recorded in the same period as the cash is received.(TRUE OR FALSE )
4.         For a service business, revenue should be recorded as soon as a contract is signed and agreed.(TRUE OR FALSE )
5.         The payment of rent in 2019 will decrease assets and will reduce 2019 net income.(TRUE OR FALSE )

Answer 1

1. When a depreciable asset is sold, a loss arises if the sales proceeds exceed the net book value.---False

Gain will arise if sales proceeds are more than book value.

2. Variable costs are costs that change with the level of activity (unit volumes).True

Variable cost change with level of activity. When activity level increase total variable cost increase because variable cost remain same at unit level.

3. Revenue should be recorded in the same period as the cash is received.False

Revenue should be recorded in the period when revenue is earned not when cash is received. This is because of the accrual nature of accounting.

4. For a service business, revenue should be recorded as soon as a contract is signed and agreed.False

Revenue is recorded when service is rendered or sometimes in part when service is completed in parts say contruction of a building.

5. The payment of rent in 2019 will decrease assets and will reduce 2019 net income.True

Payment of rent will decrease cash so asset decreases. It also decrease income because rent is recorded as an expense in income statement which decreases net income.