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Questions and Answers of Accounting and Finance

Which of the following would be considered valid reasons for analysing costs?1 To keep costs down 2 To plan ahead 3 To establish appropriate selling prices 4 To compare with competitors’ costs 5 To
Are the following costs fixed, variable or semi-fixed?(a) Metered water supply, part paid by a fixed rental, part by usage(b) Royalties paid to an author, as a percentage of the sale price of
Which of the following costs would be likely to ‘step up’ over time?(a) An increase in selling and distribution costs if a new product line is introduced(b) The salary of the company’s managing
Which of the following is not considered to be part of the role of the management accountant?(a) Formulating strategy for management(b) Optimising a firm’s resources(c) Acting as an auditor on
2 Which one of the following would be considered a direct cost of a car factory?(a) The cost of a marketing campaign(b) Power used to light the offices(c) Wages paid to production line workers(d) The
3 Which of the following would not be considered a valid reason for analysing cost data?(a) To help evade taxation(b) To maximise profitability(c) To set selling prices(d) To help efficiency
4 Direct costs are also referred to as:(a) Prime costs(b) Variable costs(c) Fixed costs(d) Semi-fixed costs
5 Indirect costs are also referred to as:(a) Semi-fixed costs(b) Prime costs(c) Overhead costs(d) Fixed costs
6 The classification of costs according to whether they are direct or indirect is referred to as analysis by:(a) Function(b) Behaviour(c) Time(d) Type
7 The formula ‘total production cost + selling and administration overhead’ refers to:(a) Total manufacturing cost(b) Total cost(c) Prime cost(d) Factory indirect cost
8 Which of the following is another term for ‘semi-fixed cost’?(a) Semi-direct cost(b) Semi-variable cost(c) Semi-indirect cost(d) Semi-prime cost
A fashion company pays a designer a royalty of 5% on the selling price of every dress based on her design. Such a cost would be classified as a:(a) Semi-variable cost(b) Fixed cost(c) Semi-fixed
Which one of the following would be considered a step cost?(a) A cost which is fixed in the short term but in the long run may change(b) A cost which does not tend to change over time(c) A cost which
From the following forecast data for Cosysnooze, a company that makes duvets, calculate the following:(a) Total fixed costs(b) Total variable costs(c) Fixed cost per duvet(d) Variable cost per
9.2 Referring to the information in question 9.1, what do you think would be a reasonable selling price for one duvet? If Cosysnooze aims to achieve a net profit margin of 10%, what price would it
9.3# The X-Audio company manufactures digital radios. The management accountant has produced the following forecast information for the next year:£ % variable Raw materials 283,420 100 Direct labour
Referring to the information in question 9.3, what do you think would be a reasonable selling price for one radio? If X-Audio aims to achieve a net profit margin of 40%, what price would it charge
When Trixie started to analyse the financial information of Machiq Limited (see previous case studies) following Esmeralda’s takeover bid, she realised that although the company as a whole appeared
Understand the principles of absorption (total) costing
Understand what is meant by the absorption of costs and explain the difference between the allocation and the apportionment of costs
Understand the costing method known as activity-based costing (ABC)
Understand the principles of marginal costing and the role of the‘contribution’
Contrast absorption and marginal costing
Distinguish between specific order costing and operation costing
Apply specific costing techniques to job, batch, contract, process and service costing
Which two of the following would be reasons for allocating overheads to cost centres?(a) To analyse the efficiency of each key section of the firm(b) To distinguish between direct and indirect
Look at the following costs and then choose what you think would be the most suitable basis of apportionment.Costs(a) Rent(b) Depreciation of computers(c) Insurance(d) Heating(e) Personnel(f) Power
A company with three different product lines, X, Y and Z, selling for £6, £5 and £4 each respectively, incurs a £9,000 advertising cost to get the company’s name publicised.Unit sales of the
A company produces 2,000 units of Yogies and 800 units of Zeldas each month.Direct materials cost £2 per unit for Yogies and £4 per unit for Zeldas. One hour of direct labour charged at £16 per
Acme Shirts Limited has produced the following analysis of its product range:Shirt range Formal Sports Casual Total£000 £000 £000 £000 Revenue (A) 340 200 300 840 Direct materials 60 50 70 180
Lexicon Ltd manufactures two products, Gribbs and Huttles. Gribbs require 1 direct labour hour and Huttles require 2 direct labour hours in a single production cost centre. Three overhead generating
Using the same data for Lexicon Ltd (see Activity 10.6), calculate the product cost for Gribbs and Huttles using the activity-based costing (ABC) technique.
Look back at the Acme Shirts Limited problem in Activity 10.5. What conclusion can be drawn regarding the Sports Shirt division if marginal costing techniques are used?
Some of the following would be considered ‘jobs’, whereas others would be considered‘long-term contracts’. Decide which is the most appropriate category for each of the following:(a) A
Woofer Ltd manufactures pencils in batches of 50,000. During March, Batch no. 711 was poorly finished, resulting in only 44,000 pencils being completed. The remainder were scrapped. Costs were as
Squaretree Ltd’s Choc-o-crunch production line has three processes: baking, chocolate covering and wrapping. In June, 500,000 Choc-o-crunches were produced. Details of each process’s costs for
A hospital has incurred costs of £3,600,000 during July and 8,000 patient-beds have been occupied during the month. What is the cost per patient bed?
Match the service industries on the left to the most appropriate service cost unit on the right:(a) Hotel 1 Dog-days(b) Airline 2 Meals served(c) Caterer 3 Rooms occupied(d) Laundry 4 Garments
Identify the characteristics of sole proprietorships, partnerships (including limited liability partnerships) and limited companies
Appreciate the different long- and short-term financing possibilities for various types of business organisation?
Distinguish between rights issues and bonus issues?
Understand the meaning of ‘published accounts’?
Give a basic definition of a ‘group’ of companies?
Assume that Gilbert and Bufton (see Activity 6.1) started the year with capital account balances of £25,900 and £15,750 respectively. During the year, Gilbert drew out £35,000 from the partnership
Look at today’s share price for SuperGroup plc. Has the share price risen or fallen since the share issue?
Prepare a ‘published’ version of Salamanca Ltd’s income statement as shown in the answer to Activity 6.3.
A bond is:(a) Another name for share capital(b) A loan usually secured on a company’s assets(c) A loan convertible into shares at some future time(d) A preference share
If a new company has issued 200,000 ordinary shares of 20p nominal value at a price of£2, what will be the values of the share capital and share premium?(a) Share capital £40,000, Share premium
What is a major difference between a distributable reserve and a non-distributable reserve?(a) Non-distributable reserves can be used to pay a dividend but distributable reserves cannot(b)
Disraeli and Gladstone are partners, sharing profits and losses in the ratio 2:1. They have agreed that Disraeli should receive a salary of £9,000 and that interest on both partners’ opening
From the following trial balance of Morse Ltd, prepare an income statement for the year ended 31 December 2013 and a statement of financial position at that date (not in a form suitable for
A limited company’s total equity in its statement of financial position was as follows:£ £Equity Share capital 100,000 Share premium 75,000 Asset revaluation reserve 140,000 Retained earnings
Pembroke Limited was putting the finishing touches to its statement of financial position at the end of its first financial year, 30 September 2013. The only part of the statement of financial
Marvin and Chiquita (see previous case studies) have been working very successfully together, so on 1 July 2013, the start of Marvin’s third year in business, they decided to form a
Make adjustments when non-current assets are sold
Understand and apply key methods of inventory valuation
Understand why provisions for doubtful debts are needed and make adjustments for bad and doubtful debts
Amy has been in business as a commercial photographer for several years. At 1 January 2014 her non-current assets and total depreciation balances were as follows:Cost £ Total depreciation £Pintax
A retailer of pet fish looks in the fish tank at the end of his first financial year, 31 December, and counts 500 goldfish. All the fish are bought from the same supplier, but prices change
Use the FIFO (First In First Out) method to value the goldfish at 31 December (see Activity 5.2).
As a comparison, use the LIFO (Last In First Out) method to value the goldfish at 31 December.
Calculate the gross profit for the year, using each of the three inventory valuation methods. Assume that each goldfish is sold for £10 and that no goldfish died during the year.
Tariq owed £650 to the Canberra Carpet Company. Despite many reminders and phone calls, Tariq refused to pay. The company has now heard that Tariq has left the area with no forwarding address and
Two years later, on 1 December 2016, the managing director of the Canberra Carpet Company gets an e-mail from Tariq. It says: ‘Made a fortune in the Icelandic Goldfields! Sorry about the unpaid
Assume that the Texas Tea Company’s doubtful debts were as follows:2014 (no doubtful debts)2015 Total doubtful debts = £6,900 2016 Total doubtful debts = £8,200 2017 Total doubtful debts =
Barker Biscuits, a company which started on 1 January 2014, had identified the following balances on its Receivables Ledger:As at 31 December: 2014 £ 2015 £ 2016 £Total trade receivables
A profit on the disposal of a non-current asset is included within the financial summaries by:(a) Including the profit as Income within the income statement(b) Showing the profit as an Expense within
What is the effect of overvaluing closing inventory on the current year’s profit?(a) Decreases the gross profit and operating profit(b) Increases the gross profit but decreases operating profit(c)
Why can LIFO not be used to compute profits under accounting standards?(a) It results in irrelevant and out-dated inventory values(b) It would result in high profits, and the International Accounting
A company bought 50 dresses at £40 each. Normal selling price is £60 each but the dresses are now thought to be old-fashioned and have to be shortened at a cost of £5 each. What should be their
Mumbai Limited is owed £400 by Bangalore plc. Mumbai Limited now regards Bangalore plc as a bad debtor. What will be the effect of ‘writing off’ the debt as bad?(a) No effect on profit, but
A business starts its year with £800 in a provision for doubtful debts. At the end of the year, trade receivables total £12,000 of which £600 are considered doubtful. What is the effect on the
A non-current liability is:(a) A liability due for payment within 12 months(b) The same as a prepayment(c) A liability due for payment after more than 12 months(d) The same as an accrual
Straits Liners is a shipping company which at 1 January 2014 owned the following vessels: The Invisible, bought for £450,000 on 1 July 2009 The Submersible, bought for £600,000 on 1 August
Martha started business on 1 October 2010 buying and selling memory sticks. Each year in October she placed an order for memory sticks with the Mystic Memory Stick Company. During her first four
Trimmings plc manufactures textiles which are sold to fashion designers to be made into garments.Although the majority of textiles in inventory at 31 May 2014 were likely to be sold at prices
(a) Explain the circumstances where a theoretical inventory valuation method may have to be used to value inventory.(b) A company in the building industry is about to value its inventory of steel
Bickley Brothers sell luxury picnic hampers from their prestigious shop in London.When the firm’s accountant drew up the list of Receivables Ledger balances at the business’s year-end, 31 May
The receivables ledger of Caraway plc included the following balances:Total Receivables Ledger balances £89,600 Bad debts included within that total £2,700 Doubtful debts identified at the end of
As Marvin (see previous case studies) entered the second year of his business, things appeared to be going well. His fame was spreading and he was invited to appear on 1 July 2012 at the prestigious
Aneka Patel’s trial balance at 31 May 2014 was as follows:Dr Cr £ £Advertising 18,563 Bad debts 5,835 Bank overdraft 14,852 Bank interest paid 5,231 Equity at 1 June 2013 100,000 Dr Cr £ £Cash
From the following trial balance and attached notes, prepare an income statement for the year ended 30 September 2014 and a statement of financial position as at that date.Felicity Frankton Trial
From the following trial balance and attached notes, prepare an income statement for the year ended 31 December 2013 and a statement of financial position as at that date.Patrick Cooper Trial balance
Marvin (see previous case studies) celebrated two years in business on 30 June 2013. At that date, his versatile assistant, Chiquita, produced the following trial balance:Case study Marvin’s second
Management accounting is:(a) Used to make the business more cost-efficient(b) Required by government legislation(c) Used only by people outside the business(d) Used to prepare a trial balance
Which of the following is an underlying assumption of accounting?(a) Prepayment basis(b) Bad debts(c) Gone Concern(d) Accrual basis
Current assets include:(a) Inventory, trade receivables and prepayments(b) Inventory, trade receivables and accruals(c) Inventory, trade payables and prepayments(d) Inventory, trade payables and
‘Drawings’ is shown on a sole proprietor’s statement of financial position as:(a) An addition to the equity account(b) A deduction from the equity account(c) A current liability(d) A current
The double-entry equation can be written as:(a) Assets - Expenses = Liabilities + Equity + Income(b) Assets + Expenses = Liabilities - Equity + Income(c) Assets + Expenses = Liabilities + Equity -
Which of the following will result in a change in equity?(a) A non-current asset bought by the business for £10,000(b) A profit made by the organisation(c) A payment received from a customer(d) A
A grocer buys a delivery van from Homer Motors for £9,000 by bank transfer. The effect on the grocer’s business is to:(a) Increase a non-current asset (the delivery van) and decrease a current
Another name for the impersonal ledger is the:(a) Payables ledger(b) General ledger(c) Receivables ledger(d) Cash ledger
A petty cash float is:(a) The amount of petty cash left after all the payments for a period have been made(b) The amount of petty cash paid out during a specific period(c) The amount drawn from the
A jam factory pays £3 for a stapler for use in its office. How would this be shown in the financial summaries?(a) As a non-current asset in the statement of financial position(b) As purchases in the
During a month a business spends £195 on petty cash items and pays into petty cash a£5 note which the owner had borrowed in the previous month. There was a cash float of £200 at the start of the
What is amortisation?(a) The equivalent of depreciation for intangible non-current assets(b) A system of controlling petty cash(c) The process of controlling bad and doubtful debts(d) The process of
Which one of the following is not an acceptable stock valuation method?(a) LIFO (Last In First Out)(b) Invoice price(c) FIFO (First In First Out)(d) AVCO (Average Cost)
A company has 25 digital radios in its inventory which it bought for £50 each. Each radio is normally sold for £100, but due to a slight cosmetic fault, the company will have to reduce the selling
Relating to the closing inventory for a financial period, which of the following is true?(a) The value is shown only in the income statement (as part of the cost of sales calculation)(b) The value is
A business installs a machine costing £40,000. The machine is expected to last for 5 years and have an estimated residual value of £4,000. What is the machine’s depreciated value at the end of 2

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