Senior Secondary (HKDSE) · Business, Accounting and Financial Studies

Financial statements : Practice Questions

4 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Financial statements .

9 questions25 marksFree, no account
Question 1
1 mark

What is the main purpose of an Income Statement (also known as a Statement of Profit or Loss and Other Comprehensive Income)?

Question 2
1 mark

In the Statement of Financial Position of a partnership, which of the following items represents a current liability?

Question 3
1 mark

Which of the following items would be correctly classified as a current asset on a company's Statement of Financial Position?

Question 4
1 mark

Which of the following represents the two primary financial statements that summarise a business's economic activities and financial health?

Question 5
2 marks

Name two main financial statements typically prepared by a business at the end of an accounting period.

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Question 6
3 marks

Distinguish between a capital expenditure and a revenue expenditure, providing one example for each type that would typically appear in a business's financial statements.

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Question 7
5 marks

Explain how the accounting concept of prudence (conservatism) impacts the recognition of assets and liabilities in the Statement of Financial Position and the reporting of profit in the Income Statement.

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Question 8
3 marks

Green Mart Co. is a small retail business.


(a) Explain the primary purpose of preparing an Income Statement (Statement of Profit or Loss and Other Comprehensive Income) for Green Mart Co. at the end of its financial year.


(b) Identify one typical revenue account and one typical expense account that Green Mart Co. would report in its Income Statement, and briefly explain why each is classified as such.

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Question 9
8 marks

Mr. Lee operates a sole proprietorship business, Lee's Tech Solutions, selling electronic gadgets. His accounting year ends on 30 June. The following Trial Balance was extracted from his books as at 30 June 2023:


Lee's Tech Solutions
Trial Balance as at 30 June 2023

ParticularsDebit ($$)Credit ($$)
Capital200,000
Drawings25,000
Sales400,000
Purchases250,000
Sales Returns8,000
Purchases Returns5,000
Salaries Expense70,000
General Expenses36,000
Administration Expenses15,000
Delivery Van (at cost)120,000
Accumulated Depreciation - Delivery Van30,000
Equipment (at cost)40,000
Accumulated Depreciation - Equipment8,000
Trade Receivables60,000
Trade Payables35,000
Cash at Bank49,000
Cash in Hand5,000
Total678,000678,000


Additional Information as at 30 June 2023:
1. Inventory at 30 June 2023 was valued at $$50,000$$.
2. General expenses of $$3,000$$ were prepaid.
3. Salaries expense of $$5,000$$ was accrued.
4. Depreciation is to be provided as follows:
a. Delivery Van: $$15\%$$ per annum on cost.
b. Equipment: $$20\%$$ per annum using the reducing balance method.
5. A provision for doubtful debts is to be created at $$4\%$$ of trade receivables.


Required:
Prepare for Lee's Tech Solutions for the year ended 30 June 2023:
(a) An Income Statement.
(b) A Statement of Financial Position.

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