Introduction to Company Accounts

Question 1

What is the primary reason companies must prepare accounts?
A. To calculate dividend payments
B. To apply for loans
C. Because it is required by statute
D. To avoid income tax liability

Answer 1

C. Because it is required by statute
Explanation: Under the Companies Act 2006, all companies are legally required to prepare annual accounts to present a true and fair view of their financial position.

Question 2

Which of the following appears in the Statement of Changes in Equity, not the Profit and Loss Account?
A. Salaries paid to employees
B. Depreciation of assets
C. Corporation tax charge
D. Dividends paid to shareholders

Answer 2

D. Dividends paid to shareholders
Explanation: Dividends are appropriations of profit and are recorded in the Statement of Changes in Equity, not the Profit and Loss Account.

Question 3

XYZ Ltd has a year-end date of 30 June. It is a private company. By which date must its accounts be filed at Companies House?
A. 30 November
B. 31 December
C. 31 March of the next year
D. 30 April of the next year

Answer 3

D. 30 April of the next year
Explanation: Private companies must file accounts within 9 months after the end of the accounting reference period (s 442(2)(a) CA 2006).

Question 4

Which of the following is a unique feature of company accounts compared to those of sole traders or partnerships?
A. Accruals adjustments
B. Statement of changes in equity
C. Use of trial balances
D. Expense tracking

Answer 4

B. Statement of changes in equity
Explanation: Unlike sole traders and partnerships, companies have shareholders and must include a Statement of Changes in Equity to track items like dividends and retained profits.

Question 5

Alpha Ltd’s trial balance includes income, expenses, and asset accounts. Which of the following adjustments would not be made in the company’s Profit and Loss Account?
A. An increase in prepayments
B. Depreciation of equipment
C. Corporation tax
D. Dividend declared to shareholders

Answer 5

D. Dividend declared to shareholders
Explanation: Dividends are not an expense of the business and are excluded from the Profit and Loss Account. They are shown in the Statement of Changes in Equity.

Question 6

Ben is reviewing the Balance Sheet of a company. He sees a section called ‘Equity and Reserves’. What is most likely to be included here?
A. Debtors and creditors
B. Long-term loans
C. Share capital and retained earnings
D. Prepayments

Answer 6

C. Share capital and retained earnings
Explanation: The bottom section of the balance sheet for a company reflects the ownership structure – including share capital, reserves, and retained earnings.

Question 7

A company reduces the value of one of its fixed assets due to market changes, without disposing of the asset. This adjustment would typically be made to:
A. The income section of the Profit and Loss Account
B. The drawings account
C. The Statement of Changes in Equity
D. The balance sheet through an impairment adjustment

Answer 7

D. The balance sheet through an impairment adjustment
Explanation: A reduction in asset value without a sale is recognised through an impairment adjustment, affecting the asset’s value on the Balance Sheet.

Question 8

Which statement best explains why tax appears in a company’s Profit and Loss Account but not in the accounts of a sole trader?
A. Sole traders are exempt from tax
B. Sole traders include tax in drawings
C. Companies have separate legal personality and pay tax directly
D. Sole traders are taxed through the corporation

Answer 8

C. Companies have separate legal personality and pay tax directly
Explanation: Because companies are legal entities in their own right, they are responsible for paying corporation tax. Sole traders pay personal tax instead.