Robin’s Business Had Total Assets at the Start of the Year

question 11

Multiple Choice

Robin’s business had total assets at the start of the year amounting to £140 000 of which £80 000 related to current assets. Robin disposed of a fixed asset which had been purchased for £30 000 and on which £16 000 depreciation had been charged for £15 000 and bought a replacement asset for £26 000. He charged £11 000 depreciation on his assets in the year.
- what would be the effect of all the transactions during the year on total profit and on the cash flow statement?

• A) Total profit would be reduced by £10000 and the cash flow statement would show a net outflow of £26000
• B) Total profit would be reduced by £11000 and the cash flow statement would show a net outflow of £26000
• C) Total profit would be reduced by £10000 and the cash flow statement would show a net outflow of £11000
• D) Total profit would be reduced by £11000 and the cash flow statement would show a net outflow of £15000

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Definitions:

Reliability

The degree to which the result of a measurement, calculation, or specification can be depended on to be accurate.

Construct Validity

Evidence that a test measures a specific concept or trait. Construct validity includes an analysis of a test through one or more of the following methods: experimental design, factor analysis, convergence with other instruments, and/or discrimination with other measures.

Factor Analysis Validity

A statistical method used to examine whether a set of survey or test items correlates with underlying constructs, thereby validating the measure's theoretical assumptions.

Criterion-related Validity

The degree to which a test's outcomes correlate with other measures that assess similar constructs, determining how well one measure predicts an outcome based on another measure.