Accountancy

Correct answer: B

I is incorrect: Authorisation control → Approval by an appropriate responsible person. It ensures transactions are permitted before execution. II is incorrect: Physical verification → Checking recorded assets against actual existence. Differences require investigation.

Correct answer: A

It measures the earnings cushion for interest payments.

Correct answer: C

I is correct: Segregation of duties → Splitting authorisation, custody and recording roles. It reduces opportunities for undetected error or misuse. II is correct: External audit opinion → Conclusion on financial statements within the audit scope. It is not a guarantee that no fraud or error exists anywhere.

Correct answer: D

It describes collection-related asset turnover.

Correct answer: B

I is correct: Debt-equity ratio → Debt divided by equity under the stated definition. Definitions of debt should be consistent when comparing ratios. II is correct: Internal audit → Independent appraisal within an organisation's governance framework. It evaluates controls, risks and operations.

Correct answer: C

Timing items and unrecorded entries are common causes.

Correct answer: D

I is correct: Segregation of duties → Splitting authorisation, custody and recording roles. It reduces opportunities for undetected error or misuse. II is incorrect: Internal audit → Independent appraisal within an organisation's governance framework. It evaluates controls, risks and operations.

Correct answer: C

It applies a stricter liquidity test.

Correct answer: D

I is incorrect: Audit trail → Traceable sequence linking transactions and supporting records. It enables review from source to ledger and back. II is correct: Bank reconciliation → Explaining differences between internal and bank records. Timing items and unrecorded entries are common causes.

Correct answer: C

It ensures transactions are permitted before execution.

Correct answer: A

I is correct: Debt-equity ratio → Debt divided by equity under the stated definition. Definitions of debt should be consistent when comparing ratios. II is incorrect: Inventory turnover → Cost of goods sold divided by average inventory. It indicates how often average inventory is consumed or sold.

Correct answer: B

Documents support occurrence and validity of transactions.

Correct answer: C

I is incorrect: Bank reconciliation → Explaining differences between internal and bank records. Timing items and unrecorded entries are common causes. II is incorrect: Physical verification → Checking recorded assets against actual existence. Differences require investigation.

Correct answer: B

It evaluates controls, risks and operations.

Correct answer: D

I is correct: Bank reconciliation → Explaining differences between internal and bank records. Timing items and unrecorded entries are common causes. II is incorrect: Gross profit ratio → Gross profit divided by sales revenue. Multiplication by 100 expresses it as a percentage.

Correct answer: D

I is correct: Depreciation recorded using an accumulated account → Debit depreciation expense and credit accumulated depreciation. The credit is a contra-asset rather than a cash payment. II is incorrect: Rent paid for the current period → Debit rent expense and credit cash. The payment relates to a consumed current-period service.

Correct answer: B

The irrecoverable asset is removed.

Correct answer: C

I is correct: Goods sold on credit under a periodic inventory system → Debit trade receivable and credit sales. Revenue is recognised and the customer owes the business. II is incorrect: Interest earned but not yet received → Debit interest receivable and credit interest income. Accrual recognises income before collection.

Correct answer: B

Performance releases the previously recorded liability.

Correct answer: C

I is incorrect: Cash collected from an existing debtor → Debit cash and credit trade receivable. One asset replaces another without creating new revenue. II is correct: Cash introduced by the owner → Debit cash and credit capital. The business receives an asset and owes a greater residual interest to its owner.

Correct answer: D

I is incorrect: Rent paid for the current period → Debit rent expense and credit cash. The payment relates to a consumed current-period service. II is incorrect: Wages earned by workers but unpaid → Debit wages expense and credit wages payable. Accrual accounting recognises the expense when incurred.

Correct answer: C

The liability and cash balance both fall.

Correct answer: B

I is incorrect: Goods bought for cash under a periodic inventory system → Debit purchases and credit cash. Purchases increase while cash decreases. II is correct: Depreciation recorded using an accumulated account → Debit depreciation expense and credit accumulated depreciation. The credit is a contra-asset rather than a cash payment.

Correct answer: D

Receipt alone does not mean the service revenue has been earned.

Correct answer: B

I is incorrect: A bad debt written off without a prior allowance → Debit bad debt expense and credit the receivable. The irrecoverable asset is removed. II is incorrect: Interest earned but not yet received → Debit interest receivable and credit interest income. Accrual recognises income before collection.