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Questions and Answers of Accounting and Finance

The directors of Machiq Limited (see previous case studies) staged a miraculous reappearance after vanishing at a product test organised by their arch business rival, Esmeralda (a.k.a. Mrs Eadale).
Talbot plc manufactures car alarms, and its trading results for the year ended 31 October 2014 are as follows:£000 £000 Revenue (800,000 alarms) 7,200 Costs:Materials: direct, variable 1,600
The following information relates to The Rural Art Gallery, which Gina Bruin has established to help rural craftspeople to sell their products to the tourist trade. Gina is submitting a business plan
A manufacturing company makes a single product. The sales forecast for September is 11,800 units. Each unit uses 10 kg of material A and 6 kg of material B. Material A costs £6.50 per kg and B costs
13.2 When preparing a budget, an organisation must first consider its limiting factors and key factor. Explain what you understand by the terms ‘limiting factor’ and ‘key factor’and identify
A company is producing its forecast income statement. Which one of the following will not be taken into account when producing the information?(a) Accruals(b) Prepayments(c) Cash flow(d) Depreciation
Using the information in question 7 above, if actual sales for product K in March are 2,904, what is the percentage variance from the budgeted sales for that month?(a) - 4,(b) + 20(c) + 6(d) - 25,
A company is preparing a cash flow forecast. In January it forecasts its net cash inflow as £90,000, but in February it forecasts a net cash outflow of £75,000. If it starts on 1 January with a
A master budget is:(a) Last year’s budget to be used as the basis for this year’s(b) This year’s actual results to be compared with the forecast results(c) Only the cash budget, as that is the
Ali plc has three products: K, L and M. Sales in January are expected to total 5,000 units, in the ratio 5:4:1 respectively. Sales are expected to grow at 10% per month for each product. What will be
Which one of the following will be written mainly in financial terms?(a) Plans for the product design(b) Workforce requirements(c) Planned changes to the way products will be marketed(d) Bank
Which one of the following would not be regarded as a limiting factor for a firm?(a) The lack of ability of the managing director(b) An unexpected order from an established customer(c) A shortage of
Zero-based budgeting:(a) Ignores previous budgets(b) Assumes zero inflation is to be added to last year’s budget to arrive at this year’s figures(c) Uses previous budgets as the basis for the
A company produces a direct labour budget (a variable cost) for January, on the basis of an expected 5,000 hours working, showing a forecast wage bill of £60,000. The actual hours worked in January
Management by exception refers to:(a) Management absences from work(b) The investigation of major deviations from forecasts(c) Exceptional management skills(d) The preparation of the master budget
From the above flexed budget for Kumquat plc for January, if actual sales were 20%higher than forecast, and the actual material cost was £185,000, was the actual performance better or worse than
Kumquat plc (see Activities 13.2 and 13.3) allows its customers to pay in the month following sale, but pays its own suppliers two months after purchase. Relevant forecasts for January are as
Kumquat plc (see Activity 13.2) uses two basic raw materials – Dructose and Zitamint –to make its products. Ingredients are mixed in the following quantities to make one unit of each
Match possible limiting factors on the left to the related business activity on the right:(a) Shortage of skilled researchers 1 Exporting(b) Lack of overseas representatives 2 Product development(c)
Understand the relative importance of revenue (turnover), profit and cash
Appreciate the importance of good working capital management to ensure liquidity
Prepare a cash flow statement based on past transactions
Be aware of the relevant International Accounting Standard relating to cash flow statements
The statements of financial position of Ampersand plc as at 31 May 2012 and 31 May 2013 are as follows:2013 2012£000 £000 £000 £000 £000 £000 Non- current assets(depreciated value)54,000 47,000
If ‘Taxation’ is shown on the cash flow statement, it is likely to be:(a) The taxation paid this year on the current year’s profit(b) The taxation payable next year on this year’s profit(c)
Depreciation is added back to profit when arriving at the cash flow from operating activities because:(a) Depreciation is only an estimated amount(b) Depreciation does not affect profit(c)
Working capital is defined as:(a) Non-current assets less current liabilities(b) Total equity(c) Current assets less current liabilities(d) Non-current assets plus current assets
Which one of the following best describes an insolvent business?(a) One that can’t pay its bills(b) One with more current liabilities than non-current assets(c) One that is dependent on long-term
If cash is the ‘lifeblood of a business’, does that make it more important than profit?
‘A company that regularly shows net cash outflows in its annual cash flow statements will inevitably fail’. Discuss.
Non-accountants don’t understand jargon such as ‘profit’, ‘assets’ or ‘equity’, nor the various adjustments required by the accruals principle. They do, however, understand‘cash’.
From the following information, calculate the cash flow from operating activities for each column.A B C D£ £ £ £Operating profit before interest 36,620 29,937 20,060 Operating loss before
The statements of financial position of Asterix plc as at 31 May 2013 and 31 May 2012 are as follows:31 May 2013 31 May 2012£000 £000 £000 £000 Non-current assets (net book value) 43,000 32,000
Machiq Limited (see previous case studies) was formed on 1 July 2014 and has been making increasing profits. By 30 June 2016 it reports the following summarised income statements and statements of
Understand the need for public limited companies to publish information
Undertake preliminary research prior to analysing company accounts
Identify and appraise the key components of an annual report
Distinguish between, and compute, a vertical and horizontal analysis of financial information and make an interpretation of the data revealed by the analysis
Prepare ratios within five main groupings and analyse the data revealed
Understand concerns regarding the validity of accounting information
Calculate the following:(a) 6,815 as a percentage of 27,260.(b) 3,720 as a percentage of 1,200.(c) The increase from 3,120 to 11,232 as a percentage of the former figure.(d) The decrease from 16,040
The higher the gross margin, the higher will be the mark-up percentage. For example, a gross margin of 50% results in a mark-up of 100%, whilst a gross margin of 25%means a mark-up of 33.3,.If a
On 3 July 2016, Marvin, the founder of Machiq Limited (see previous case studies), was sorting through the morning’s correspondence. After reading one particular letter, he immediately summoned his
If a company is described as a ‘going concern’, it is:(a) About to close down(b) Not about to close down(c) A company that people are concerned about(d) A rapidly expanding company
A company sells £150,000 of goods during the year, having been owed £12,000 by customers at the start of the year and £18,000 at the end of the year. What revenue figure will be shown in the
Which one of the following is a fundamental qualitative characteristic of financial statements?(a) Comparability(b) Verifiability(c) Faithful Representation(d) Timeliness●An owner of a business had
In the accounting equation, assets plus expenses equals:(a) Liabilities + Equity + Income(b) Liabilities + Equity - Income(c) Liabilities - Equity + Income(d) Liabilities - Equity - Income
6 Why, if a business has money in the bank, does it appear as a debit balance in the business’s ledger?(a) It is a mistake – it should be a credit balance(b) It is showing that the bank owes the
7 A business pays a cheque for £4,100 for a van, of which £150 is for road tax. What would be the correct bookkeeping entries?(a) Dr Van £4,100, Cr Bank £4,100(b) Dr Bank £4,100, Cr Van £3,950,
8 A cash float is:(a) A predetermined amount of petty cash which is paid out at regular intervals(b) Cash used only for buying non-current assets(c) A predetermined amount needed to meet petty cash
9 Which one of the following is not a current asset?(a) Accrual(b) Prepayment(c) Inventory(d) Cash
10 A financial period:(a) Is the same as a financial year(b) Is the same as the date of the statement of financial position(c) Always ends on 31 December(d) Can be as long or as short as the business
11 Inventory is usually valued in a statement of financial position at:(a) Selling price(b) Lower of cost and net realisable value(c) Lower of cost and gross realisable value(d) Lower of selling
12 A business has a combined rent and rates account. During the year ended 31 December 2014, the business had an opening rent prepayment of £200 and an opening rates accrual of £300. During the
13 A non-current asset which cost £60,000 has been owned for three years. It is depreciated at 40% p.a. on the diminishing balance method. What is its depreciated value at the end of the third year
14 Which of the following would be direct (prime) costs of a furniture manufacturer?(a) Depreciation of woodworking machinery(b) Wood used to make furniture(c) Electricity used to heat the factory(d)
15 In a manufacturing business, what is work in progress?(a) Partly completed goods(b) Goods in transit to a customer(c) Raw materials(d) Work about to start on manufacturing goods
16 Assets are usually divided between:(a) Urgent and non-urgent(b) Current and long-term(c) Medium-term and long-term(d) Non-current and current
17 A car which cost £14,000 is part-exchanged for a new car exactly three years after its purchase. Cars are depreciated on the straight line basis over five years, assuming a residual value of 10%
18 Theoretical inventory valuation methods such as FIFO would be used where:(a) Inventory can be priced by looking at invoices(b) Inventory is always sold in a set order, for example oldest inventory
19 The trade receivables balances included within the total of current assets on a statement of financial position should be:(a) All the balances in the Receivables Ledger(b) Only the good debts of
20 Which one of the following is a disadvantage of a limited liability partnership (LLP)?(a) The LLP’s members have limited liability for the debts of the partnership(b) The LLP has to publish
21 Why might a partnership charge interest on partners’ drawings?(a) Because they want to increase the money taken out by partners(b) To deter partners from taking excessive amounts from the
22 A convertible loan is:(a) A loan issued by a company which can be converted into shares at a later date(b) Money borrowed to buy the managing director a convertible car(c) Raw materials lent to
23 A liability found in a limited company’s statement of financial position but not a sole proprietorship’s statement of financial position is:(a) Corporation tax(b) Payables(c) Accruals(d)
24 A holder of a preference share has the following advantages over an ordinary shareholder:(a) A dividend which will increase if profits increase(b) A greater number of votes for each share held(c)
25 A bonus issue by a company has the following effect:(a) Existing shareholders are given more shares(b) Existing shareholders are given the right to buy more shares(c) Non-shareholders are invited
26 A share premium is:(a) The amount shareholders pay for a share(b) The increase in value in a share after it is sold(c) The difference between the stock market price of a share and the nominal
27 Complete the saying ‘Turnover is vanity, profit is sanity, but cash is …’(a) Calamity(b) Banality(c) Reality(d) Quality
28 Which one of the following is not a component of the working capital cycle?(a) Share capital(b) Trade receivables(c) Inventory(d) Trade payables
29 Which of the following pairs both result in a positive cash flow?(a) Decrease in inventory and decrease in trade payables(b) Increase in inventory and increase in trade payables(c) Increase in
30 If a company shows revenue £60,000 and gross profit £12,000, which of the following calculations are correct?(a) Mark-up 20%, gross margin 25%(b) Mark-up 400%, gross margin 5%(c) Mark-up 33%,
31 Which one of the following statements is always true?(a) The directors of a company own the company(b) The auditors of a company produce the financial statements(c) The company’s reserves are
32 If a company has much more borrowed capital than equity capital, which of the following statements is always true?(a) If interest rates rise, the company will have to close(b) The company will
33 If the directors of a plc need to raise money for the company, which of the following would not achieve that effect?(a) A bonus issue of shares(b) A rights issue of shares(c) A new issue of shares
34 A company has net current assets of £20,000, including inventory valued at £22,000.The total of current assets is £60,000 and the current ratio is 1.5:1. What is the acid test ratio?(a) 2:1(b)
35 A limited company with a share capital of 500,000 ordinary shares of £1 each makes a rights issue on a ‘3 for 2’ basis at £3 each. What effect will this have on the total equity after all
36 What does a sole proprietor’s ‘unlimited liability’ mean?(a) The owner may lose his or her personal assets if the business fails(b) The owner is not insured against the risks of running the
37 A limited company has a very high gearing level. If interest rates increase, but no other changes take place, which one of the following statements is certain?(a) The company will cease trading(b)
38 If a company has a net margin of 20%, which of the following statements is certain about that company?(a) The company’s non-current assets exceed its current assets(b) The company can pay all
39 If a company’s p/e ratio this year is 17, whereas last year it was 11, which of the following statements is certain?(a) The company has made more profit this year(b) The company’s share price
40 If a company’s shares are stated to have a dividend cover of five times, which of the following statements is certain about that company?(a) The share price is five times its dividend(b) The
The trial balance of Aubrey Locke, a sole proprietor, at 31 May 2014 is as follows:Dr Cr £ £Bank 3,840 Cash 120 Forklift truck: cost 20,000 Forklift truck: depreciation to 31 May 2013 4,500 Motor
Wilma Tonbridge started a business on 1 January 2013, with her own capital of £10,000 and an interest-free long-term loan of £20,000 from a friend. Her business retails Tonies, which are luxury
The management of Hove Ltd has calculated the following statistics from its results for the year ended 31 December 2014. Equivalent average figures from a relevant trade association are also
The owner or owners of a small enterprise can choose between various forms of business organisation, including sole proprietorship and limited company status.(a) Explain the advantages and
Which one of the following must publish annual financial information?(a) Limited liability companies(b) Sole proprietorships(c) ‘Conventional’ partnerships(d) Private individuals
3 Horizontal analysis is:(a) The calculation of the relative weighting of components within a financial statement in a particular financial period(b) The comparison of the current year’s figures
5 If total net assets are £45,600, current liabilities £12,700, inventory £3,900 and noncurrent assets £29,000, what is the acid test (quick assets) ratio?(a) 2:1(b) 2.3:1(c) 1.5:1(d) 1.75:1
7 A company starts its year with inventory of £2m and ends with £3m. If it had an overall cost of sales of £12.5m, what was its inventory turnover in days?(a) 85 days(b) 1,825 days(c) 73 days(d)
10 One of the criticisms of accounting information has been:(a) The information is always incorrect(b) Accountants never follow rules and regulations(c) Inflation is not adequately reflected within
8.1 Obtain an annual report of a trading company (see Further research at the end of this chapter). Produce a vertical and horizontal analysis of the company’s income statement, statement of
8.2 The management of Rodington Limited pays particular attention to the ratios and percentages which they calculate from their annual accounts. For the year ended 31 December 2014, they have listed
8.3 The statements of financial position of Dorrington Ltd and Rowton Ltd at 31 May 2014 were as follows:Dorrington Rowton £000 £000 Non-current assets 125 204 Current assets:Inventory 85 120 Trade
The sales director of Kangaroo plc is an expert at selling the company’s products, but at directors’ meetings, he is often confused by many of the terms that the finance director uses. In brief,
Prepare a horizontal and vertical analysis of Tibberton plc.
Calculate the relevant ratios within the five groupings of: Profitability, efficiency, longterm liquidity and solvency, short-term liquidity and solvency, and investors’ ratios.8.8# Summarise your
Define management accounting and appreciate its scope
Understand the classification of costs
Analyse costs by function, type, behaviour and time

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