Question

- During the year ended 31 December, the business made sales of merchandises of £45,000 and purchases of merchandises of £25,000. The inventory of merchandises at the beginning of the year was valued at £8,000 and, at 31 December, £4,500. The gross profit for the year was:
a) £16,500.
b) £23,500.
c). £20,000.
d) None of these amounts

- If a firm purchases an Equipment (Fixed assets), net income decreases by the amount of the equipment purchase
a)True
b)False

- Which one of the following events will reduce the cash balances of a business?   
a)Dividend proposed pending shareholder approval
b)Purchase of stock on credit
c)Purchase of fixed assets on interest free credit
d)Suppliers paid amounts owed

- Which of the following is a cash outflow?   
a)Creation of a provision
b)Sale of a fixed assets
c)Payment of dividends
d)Depreciation

- A company has a negative cash flow from operating activities. What could explain this negative cash-flow?   
a)A substantial investment in new fixed assets
b)The repayment of a loan
c)A sudden increase in credit sales
d)High levels of dividend

- The basic business equation is
a)Fixed assets + current assets – Current Liabilities = Equity + Total liabilities
b)Fixed assets + current assets – Dividends = Equity + Total liabilities – Net income
c)Fixed assets + current assets = Equity + Total liabilities
d)Total Assets – Capital = Equity + Total liabilities

Answer 1

1. a) 16,500

Explanation:

Gross profit = Sales - Cost of goods sold

= Sales -( opening stock + purchases - closing stock)

= 45000-(8000+25000-4500)

   =45000 - 28,500

= 16,500

2. b)False

Explanation:

Purchase of Fixed assets will not affect the net income but it will effect the cashflows of the business

3. d) Suppliers paid amount owed

Explanation:

Payment to supplier will decrease the cash balance

4. c) payment of dividend

5. c) sudden increase in credit sales

Explanation:

Sales is an operating and activity and the other activities activities given in remaining options are finance and investment activities

6. a) Fixed assets +current assets - current liabilites = Equity + Total Liabilities