Secondary 4 Principles of Accounts Accounting Concepts Quiz

Secondary 4 Principles of Accounts Quiz - Accounting Concepts (Answer Key)

Total Marks: 40
Topic: Accounting Concepts
Level: Secondary 4
Caveat: This quiz is syllabus-first content generated from LLM-inferred templates. Past-paper evidence for Accounting Concepts was weak (only 2 blocks in Stage 2-1); no claim is made that these questions are exam-derived.

Section A: Multiple-Choice (1 mark each)

1. B — Accrual concept
Teaching note: The accrual concept records income when earned and expenses when incurred, not when cash moves. Prudence is about caution, going concern about continuity, consistency about same methods.

2. B — Going concern concept
Teaching note: Going concern assumes the business will not be liquidated soon, so assets are recorded at historical cost not break-up value.

3. B — Business entity concept
Teaching note: The business is a separate accounting unit from its owner; personal spending is drawings, not a business expense.

4. B — Prudence concept
Teaching note: Prudence says do not overstate assets or profit; lower of cost and NRV avoids overvaluing stock.

5. A — Consistency concept
Teaching note: Same policy each year aids comparison; e.g. use FIFO every year unless a justified change.

Section B: Short Structured Questions (2 marks each)

6. Accounting equation: Assets = Capital + Liabilities.
Components: Assets (what business owns), Capital (owner's interest), Liabilities (what business owes).
[1 mark equation, 1 mark components]

7. Accrual concept: Revenue and expenses are recorded when earned/incurred, not when cash is received/paid.
[2 marks for clear sentence]

8. Example: Owner pays shop rent from business bank account, not from his own wallet; or records personal phone bill as drawings, not expense.
[2 marks for valid example showing separation]

9. Going concern lets us show assets at cost less depreciation, not forced-sale value; users see true operating position.
[2 marks: 1 for explanation, 1 for SFP link]

10. Prudence: Be cautious; do not overstate profit/assets. Example: create allowance for doubtful debts.
[1 mark definition, 1 mark example]

11. Materiality: Information is material if its omission or error would affect user decisions; trivial items may be ignored.
[2 marks]

12. At historical cost — the amount paid to acquire them including delivery and installation.
[2 marks]

13. Consistent policies let users compare results year to year and spot real changes, not accounting changes.
[2 marks]

14. Business entity concept violated. The $500 is owner's drawings, not a business expense; mixing them misstates profit.
[1 mark concept, 1 mark explanation]

15. Accrual matches income to period earned; e.g. credit sale counted this year though cash next year, so profit is accurate.
[2 marks]

Section C: Extended Structured Questions (3 marks each)

16. Matching concept: Expenses are matched to revenue they helped earn in the same period.
Example: If $1,200 insurance prepaid for Jan–Dec next year, only the part relating to this year's trading is expense; rest is prepayment (asset).
[1 mark definition, 2 marks example/application]

17. Prudence concept applies. NRV = $80 (selling price after repair) < cost$150, so value at $80 (lower of cost and NRV). Not$200 selling price, not $150 cost.
[1 mark concept, 2 marks correct valuation + reason]

18. Going concern: business continues operating. If NOT going concern, must NOT use historical cost and depreciation; instead show break-up/realisable values.
[1 mark definition, 2 marks on what not to do]

19. Consistency says keep method; prudence says be cautious. Example: changing inventory method to show lower profit (prudence) breaks consistency. Conflict when cautious reporting needs a policy change.
[3 marks: identifies both, example]

20. Disagree. The equation shows resources = claims; business entity concept is shown because Capital is separate from owner's personal wealth. Equation itself is dual aspect, not proof of entity separation.
[1 mark stance, 2 marks reasoning]