ACCOUNTING AND FINANCIAL MANAGEMENT
(ACF102) IDENTITY THREE FORMATIVE ASSESSMENT 1
NEW 2026-2027 UPDATE ALL COMPREHENSIVE WELL
ELABORATED REAL QUESTIONS AND A DETAILED
BREAKDOWN OF ALL CORRECT VERIFIED ANSWERS
EXAM PLUS CERTIFIED RATIONALES | COMPLETE TEST
SOLUTION | PASSED AND REWARDED WITH
DISTINCTION FOR ORIGINALLY GRADE A+ BRAND
NEW!!!
Section A: Financial Accounting – Cash, Receivables, and Accruals (Questions
1–20)
Question 1
Which of the following is classified as a current asset in the statement of financial
position?
A) Motor vehicles
B) Trade receivables
C) Long-term loan
D) Retained earnings
Correct Answer: B
Rationale: Trade receivables are amounts owed by customers and are expected to
be collected within the normal operating cycle, typically within 12 months. Motor
vehicles are non-current assets, long-term loans are non-current liabilities, and
retained earnings form part of equity.
,Question 2
Under the accrual basis of accounting, revenue is recognised when:
A) Cash is received from the customer
B) The goods or services are delivered, regardless of when cash is received
C) The customer places an order
D) The invoice is printed
Correct Answer: B
Rationale: The accrual basis recognises revenue when the performance
obligation is satisfied—that is, when goods or services are transferred to the
customer—not necessarily when cash changes hands. Cash basis accounting
would recognise revenue only upon receipt of cash.
Question 3
A company has cash sales of R50,000 and credit sales of R120,000. It collected
R90,000 from credit customers during the year. What is the amount of revenue to
be recognised under the accrual basis?
A) R50,000
B) R140,000
C) R170,000
D) R90,000
Correct Answer: C
Rationale: Under the accrual basis, revenue includes both cash sales (R50,000)
and credit sales (R120,000), totalling R170,000, regardless of the amount
collected. The R90,000 collected is a cash flow item, not a revenue recognition
item.
Question 4
Which of the following best describes the allowance for doubtful debts?
A) A liability account representing amounts owed to suppliers
B) A contra-asset account that reduces the carrying amount of trade receivables
,C) An expense account shown in the statement of comprehensive income
D) A reserve account classified as equity
Correct Answer: B
Rationale: The allowance for doubtful debts is a contra-asset account presented
as a deduction from gross trade receivables in the statement of financial position,
reflecting the estimated amount that will not be collected.
Question 5
A company has gross trade receivables of R200,000 and an allowance for doubtful
debts of R8,000. What is the net realisable value of trade receivables?
A) R208,000
B) R200,000
C) R192,000
D) R8,000
Correct Answer: C
Rationale: Net realisable value = Gross trade receivables – Allowance for
doubtful debts = R200,000 – R8,000 = R192,000. This is the amount expected to
be collected.
Question 6
Which method of accounting for bad debts records the expense only when a
specific account is identified as uncollectible?
A) Allowance method
B) Direct write-off method
C) Percentage of sales method
D) Aging of receivables method
Correct Answer: B
Rationale: The direct write-off method recognises bad debt expense only when a
particular account is deemed uncollectible. It does not attempt to match the
expense with the related revenue period, which is a limitation under accrual
accounting.
, Question 7
A prepayment (prepaid expense) arises when:
A) A company pays for goods or services before receiving them
B) A company receives cash before delivering goods or services
C) A company owes money to a supplier
D) A company has unpaid wages at year-end
Correct Answer: A
Rationale: A prepayment is an asset created when a company pays in advance
for benefits to be received in a future period. It is gradually expensed as the
benefit is consumed. Option B describes unearned revenue (a liability).
Question 8
An adjusting entry for accrued expenses will:
A) Increase an expense and decrease a liability
B) Increase an expense and increase a liability
C) Decrease an expense and increase an asset
D) Decrease a liability and increase an asset
Correct Answer: B
Rationale: Accrued expenses represent expenses incurred but not yet paid. The
adjusting entry debits the expense account (increasing expenses) and credits the
accrued expenses payable account (increasing liabilities).
Question 9
Which of the following is an example of an accrued revenue?
A) Cash received in advance from a customer
B) Interest earned but not yet received
C) A prepayment for insurance
D) A purchase of inventory on credit
(ACF102) IDENTITY THREE FORMATIVE ASSESSMENT 1
NEW 2026-2027 UPDATE ALL COMPREHENSIVE WELL
ELABORATED REAL QUESTIONS AND A DETAILED
BREAKDOWN OF ALL CORRECT VERIFIED ANSWERS
EXAM PLUS CERTIFIED RATIONALES | COMPLETE TEST
SOLUTION | PASSED AND REWARDED WITH
DISTINCTION FOR ORIGINALLY GRADE A+ BRAND
NEW!!!
Section A: Financial Accounting – Cash, Receivables, and Accruals (Questions
1–20)
Question 1
Which of the following is classified as a current asset in the statement of financial
position?
A) Motor vehicles
B) Trade receivables
C) Long-term loan
D) Retained earnings
Correct Answer: B
Rationale: Trade receivables are amounts owed by customers and are expected to
be collected within the normal operating cycle, typically within 12 months. Motor
vehicles are non-current assets, long-term loans are non-current liabilities, and
retained earnings form part of equity.
,Question 2
Under the accrual basis of accounting, revenue is recognised when:
A) Cash is received from the customer
B) The goods or services are delivered, regardless of when cash is received
C) The customer places an order
D) The invoice is printed
Correct Answer: B
Rationale: The accrual basis recognises revenue when the performance
obligation is satisfied—that is, when goods or services are transferred to the
customer—not necessarily when cash changes hands. Cash basis accounting
would recognise revenue only upon receipt of cash.
Question 3
A company has cash sales of R50,000 and credit sales of R120,000. It collected
R90,000 from credit customers during the year. What is the amount of revenue to
be recognised under the accrual basis?
A) R50,000
B) R140,000
C) R170,000
D) R90,000
Correct Answer: C
Rationale: Under the accrual basis, revenue includes both cash sales (R50,000)
and credit sales (R120,000), totalling R170,000, regardless of the amount
collected. The R90,000 collected is a cash flow item, not a revenue recognition
item.
Question 4
Which of the following best describes the allowance for doubtful debts?
A) A liability account representing amounts owed to suppliers
B) A contra-asset account that reduces the carrying amount of trade receivables
,C) An expense account shown in the statement of comprehensive income
D) A reserve account classified as equity
Correct Answer: B
Rationale: The allowance for doubtful debts is a contra-asset account presented
as a deduction from gross trade receivables in the statement of financial position,
reflecting the estimated amount that will not be collected.
Question 5
A company has gross trade receivables of R200,000 and an allowance for doubtful
debts of R8,000. What is the net realisable value of trade receivables?
A) R208,000
B) R200,000
C) R192,000
D) R8,000
Correct Answer: C
Rationale: Net realisable value = Gross trade receivables – Allowance for
doubtful debts = R200,000 – R8,000 = R192,000. This is the amount expected to
be collected.
Question 6
Which method of accounting for bad debts records the expense only when a
specific account is identified as uncollectible?
A) Allowance method
B) Direct write-off method
C) Percentage of sales method
D) Aging of receivables method
Correct Answer: B
Rationale: The direct write-off method recognises bad debt expense only when a
particular account is deemed uncollectible. It does not attempt to match the
expense with the related revenue period, which is a limitation under accrual
accounting.
, Question 7
A prepayment (prepaid expense) arises when:
A) A company pays for goods or services before receiving them
B) A company receives cash before delivering goods or services
C) A company owes money to a supplier
D) A company has unpaid wages at year-end
Correct Answer: A
Rationale: A prepayment is an asset created when a company pays in advance
for benefits to be received in a future period. It is gradually expensed as the
benefit is consumed. Option B describes unearned revenue (a liability).
Question 8
An adjusting entry for accrued expenses will:
A) Increase an expense and decrease a liability
B) Increase an expense and increase a liability
C) Decrease an expense and increase an asset
D) Decrease a liability and increase an asset
Correct Answer: B
Rationale: Accrued expenses represent expenses incurred but not yet paid. The
adjusting entry debits the expense account (increasing expenses) and credits the
accrued expenses payable account (increasing liabilities).
Question 9
Which of the following is an example of an accrued revenue?
A) Cash received in advance from a customer
B) Interest earned but not yet received
C) A prepayment for insurance
D) A purchase of inventory on credit
