$4.$ Test Your Knowledge Exercise $2$

$1.$ An increase in a company's gearing will bring about a corresponding increase in

a$.$ Financial Distress

b$.$ R$.$O$.$N$.$A$.$

c$.$ Interest Cover

d$.$ R$.$O$.$E

$2.$ What can we assume if the gross profit decreases from one year to the next, but operating

profit actually goes up$?$

a$.$ That interest payments have increased

b$.$ That depreciation has got out of control

c$.$ That we have enjoyed increased efficiency with expenses

d$.$ That shareholders are withdrawing excessive dividends

$3.$ Which of the following is the most correct definition of depreciation?

a$.$ The lose in value of an asset over time

b$.$ The writing off of the amount spent on an asset over its expected useful life

c$.$ The expensing of capital expenditure over multiple financial periods

d$.$ The writing down of assets through the income statement

$4.$ The liquidity ratios are best described as

a$.$ An indicator of the efficiency of the company's cash management

b$.$ A predictor of a company's ability to meet its S$-$T debt

c$.$ A measure of whether the company is insolvent or not

d$.$ A guideline on whether a company can increase their gearing

$5.$ The operating profit of ABC Ltd has increased over that of last year, but their E$.$A$.$T$.$ has

come down. If we know that tax has remained the same, we could assume that

a$.$ Their interest bill has decreased

b$.$ They have geared up

c$.$ Their gross margins are down

d$.$ They have retired interest bearing debt

$6.$ If $20000$ new Rl$\mathrm{.}00$ shares were issued at a premium of Rl$\mathrm{.}70,$ what is the total amount of

money that the company would receive?

a$.14000$

b$.20000$

c$.34000$

d$.54000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Accounting and Finance for Non$-$financial Managers $-$ Justin Spencer$-$Young $2022$

$8$

$7.$ Creditors are taking an average of $33\mathrm{.}8$ days to be paid and cost of sales for the year

amounted to $32440,$ calculate the creditor's total value $($to the nearest Rand$)$

a$.89$

b$.960$

c$.1842$

d$.3004$

$8.$ Which of the following would not result in an increase in cash flows?

a$.$ The disposal of fixed assets

b$.$ An increase in creditors

c$.$ A rise in stock holdings

d$.$ A new share issue

$9.$ When preparing a cash flow statement, we start with the operating profit then add back the

non$-$cash items. These may include which two items

a$.$ General & Admin costs and Depreciation

b$.$ Amortisation and Staff Costs

c$.$ Selling Costs and Cost of Sales

d$.$ Amortisation and Depreciation

$10.$ The process of charging income$-$generating units with centralised indirect costs is known

as

a$.$ Marginal costing

b$.$ Carrying Head Office

c$.$ Overhead allocation

d$.$ Break$-$even Analysis

$11.$ If debtors on the balance sheet amount to $14320$ and this had grown to $28550$ by the

next balance sheet; the cash flow statement would record this as

a$.$ An outflow of $14320$

b$.$ An inflow of $14320$

c$.$ An outflow of $14230.$

d$.$ An inflow of $14230$

$12.$ The marginal cost is best described as

a$.$ The cost of protecting your GP margin

b$.$ The cost of producing one more thing

c$.$ The effect of outsourcing on profitability

d$.$ Per unit contribution