Accounting and Finance for Managers
Textbook Exam Questions
Course Introduction
Accounting and Finance for Managers introduces key principles and practices essential for effective financial decision-making in a business context. The course covers fundamental accounting concepts, financial statement analysis, budgeting, cost management, and the use of financial information in planning and controlling organizational activities. It also explores the basics of financial management, including capital budgeting, investment appraisal, and understanding financial markets.
Emphasizing real-world applications, this course equips managers with the tools to interpret financial reports, assess business performance, and make informed strategic decisions that drive organizational success.
Recommended Textbook
Accounting Understanding and Practice 4th Edition by Danny Leiwy
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Chapter 1: The Statement of Financial Position Balance
Sheetand What It Tells Us
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Sample Questions
Q1) The statement of financial position of Rosie Ltd.includes the following entries: inventory £25,000,trade receivables £12,000,cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000,short-term borrowing £800 and £8,200 current tax payable).Calculate the current ratio.
A) 0.9: 1
B) 1:1
C) 0.4:1
D) 1.9:1
Answer: D
Q2) What a company owns is known as assets and what a company owes is known as expenses.
A)True
B)False
Answer: False
Q3) A company with a high current ratio is said to have:
A) Few liquid assets
B) High current liabilities and low current assets
C) High current assets and low current liabilities
D) High long-term borrowing
Answer: C
Page 3
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Chapter 2: The Income Statement Profit and Loss Account
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Sample Questions
Q1) If purchases for the year are £18,250,closing stock £7,275 and cost of goods sold
£17,525,what was the opening stock?
A) £6,500
B) £7,950
C) £28,550
D) £7,225
Answer: A
Q2) Which of the following are ways in which managers can manipulate the income statement in order to show a higher profit?
A) Bringing forward the recognition of sales
B) Overstate closing inventory
C) Make repairs and maintenance look like capital expenditure
D) All of the above
Answer: D
Q3) Profit = revenue + expenses
A)True
B)False
Answer: False
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4
Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) Shareholders wealth consists of two sources:
A) Dividends and share price
B) Profit and share price
C) ROCE and dividends
D) Growth and dividends
Answer: A
Q2) Financial accounting can measure the "true value" of a company
A)True
B)False
Answer: False
Q3) According to ASB's Statement of Principles for Financial Reporting,what 4 objectives should financial accounting statements meet?
A) Accruals, capital maintenance, understandability and relevance
B) Relevance, reliability, comparability and understandability
C) Prudence, relevance, accruals and comparability
D) True and fair view, capital maintenance, reliability and prudence
Answer: A
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Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Q1) If dividend per share remained the same but the share price increased,what effect would this have on dividend yield?
A) The earnings per share (EPS) component of dividend yield would increase
B) Dividend yield would not be effected
C) Dividend yield would increase
D) Dividend yield would decrease
Q2) If a company reported a profit for the year of £90m,share capital of £200m and a share price of £9.00 - what is the earnings per share (EPS)?
A) 20p per share
B) 10p per share
C) 45p per share
D) 22p per share
Q3) Which of the following ratios considers the relationship between inventory and cost of sales?
A) Inventory turnover ratio
B) Trade payables ratio
C) Cost of sales turnover ratio
D) Trade receivables ratio
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Chapter 5: How the Stock Market Assesses Company Performance
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Sample Questions
Q1) Total profit divided by dividend is known as:
A) Price earnings ratio
B) Dividend cover
C) Dividend yield
D) Earnings per share
Q2) Which of the following statements is false?
A) On a cash flow statement, investors expect to see a positive figure for cash generated from operating activities
B) On a cash flow statement, investors expect to see a positive figure for cash generated from investing activities
C) On a cash flow statement, investors expect to see a negative figure for cash generated from investing activities
D) On a cash flow statement, investors are interested in whether a company has increased/decreased borrowings
Q3) A balanced portfolio can eliminate unsystematic risk
A)True
B)False
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Page 7
Chapter 6: Cash Flow Statements: Understanding and Preparation
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Q1) Which of the following statements is false?
A) An increase in trade receivables is treated as an outflow of cash
B) Interest paid is an outflow of cash
C) An increase in trade payables is treated as an outflow of cash
D) An increase in inventory is treated as an outflow of cash
Q2) Which of the following would not be included on the operating activity section of a cash flow statement?
A) Payment to suppliers
B) Purchase of inventory
C) Payment of loan
D) Payment of tax
Q3) Which of the following statements is correct?
A) Interest paid is an inflow of cash
B) Taxation paid is an inflow of cash
C) Decrease in trade payables is an outflow of cash
D) A reduction in inventory is treated as an inflow of cash
Q4) The statement of financial position and income statement are based on the accruals concept
A)True
B)False
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Q1) "Minority interest" refers to the owners of shares which have no voting rights
A)True
B)False
Q2) A company with interest cover of 10 is less safe than a company with interest cover of 2
A)True
B)False
Q3) Which of the following are potential indicators of financial distress?
(i) A sudden drop in share price
(ii) Increased turnover
(iii) Increased gearing ratio
(iv)Fall in profits
A) All of them could indicate financial problems
B) None of these factors would cause much concern, especially in isolation
C) (i), (iii) and (iv) are bad news, but increased turnover would be good news
D) (i) and (iv) are indicators, but (ii) and (iii) are improvements to the financial position
Q4) A one-off loss is likely to be a major problem for company
A)True
B)False
9
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Chapter 8: Current Issues in Financial Reporting
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Sample Questions
Q1) According to IAS 37 (provisions,contingent liabilities and contingent assets)for a provision to be recognized there must be:
A) A proven outflow of economic resources which has been independently valued
B) A probable outflow of economic resources which has been independently valued
C) A probable outflow of economic resources of which a reliable estimate can be made
D) A definite outflow of economic resources of which an accurate valuation can be made
Q2) Which of the following statements would normally be associated with a "right wing" proposal to curtail creative accounting practice?
A) Remove legislation and public involvement in company accounting
B) Develop more rigorous legislation and public involvement in company accounting
C) Develop more rigorous regulation and public involvement in audit practice
D) Statements B & C are both correct
Q3) A company can reduce its reported salary expense by paying some employees with share options instead of money
A)True
B)False
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Chapter 9: Bookkeeping to Trial Balance
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Q1) Which of the following is an example of an accrual?
A) Purchase of inventory
B) Payment for rent in advance
C) Wages incurred but not yet paid
D) All of the above
Q2) Which of the following accounts would be increased with a debit?
A) Inventory
B) Capital
C) Sales
D) Accounts payable
Q3) The Accounting Equation regarding the Statement of Financial Position is:
A) Capital + Assets = Liabilities
B) Assets - Liabilities = Capital
C) Capital = Assets + Liabilities
D) Income - Expenses = Profit
Q4) A prepayment is considered to be:
A) An asset which will be consumed in a future period
B) An expense in the current year
C) A future liability
D) An expense incurred in one year but paid for in the following
Page 11
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Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) In drawing up a Trial Balance,the following figures are shown:
\[\begin{array} { | l | l | l | }
\hline \text { Accaunt } & \text { Dr } & \text { Cr } \\
\hline \text { Bank } & & 1,800 \\
\hline \text { Cash } & & 200\\
\hline
\end{array}\]
What can be deduced from the extract above?
A) There is a total of £2,000 in the business - £1,800 at the bank, and £200 in the cash tin
B) There is an overdraft of £1,800 at the bank and the cash tin is owed £200
C) The bank is showing as overdrawn by £1,800. The cash account must be incorrect
D) The bank balance is £1,800 "in credit" meaning there is £1,800 at the bank. The cash tin is owed £200
Q2) If a bad debt is written off,the accounting adjustment will be:
A) Dr: Bad debt expense Cr: Provision for bad debts
B) Dr: Provision for bad debts Cr: Bad debt expense
C) Dr: Bad debt expense Cr: Trade receivables
D) Dr: Trade receivables
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Chapter 11: Financing a Business
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Q1) Which of the following statements is false?
A) Investors may view companies with high levels of debt as too risky
B) It is not easy to borrow money secured on land and buildings
C) The more a company gets into debt, the more difficult it becomes to borrow
D) High levels of borrowing can effect the share price
Q2) Which of the following statements is correct?
A) Preference shares carry additional voting rights
B) Preference shares carry a fixed rate of interest
C) Preference shares are more risky than ordinary shares
D) If no dividend is paid on preference shares, dividend can be still paid on ordinary shares
Q3) There is no requirement for a company to pay a dividend on ordinary shares
A)True
B)False
Q4) The total figure for equity on the balance sheet includes all of the following except:
A) Share capital
B) Share premium
C) Retained profits
D) Preference share capital
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Chapter 12: Management of Working Capital
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Q1) Which of the following statements is false?
A) Trade payables, if managed appropriately, can be a cost-free source of finance
B) An excessive delay in paying creditors is a good way to extend a cost-free source of finance
C) Deferment in the payment of taxes is one way of addressing liquidity problems
D) None of the above statements are false
Q2) Which of the following is normally associated with an attempt to address "overtrading"?
A) Reduce overdraft
B) Extend trade receivables
C) Delay payments to creditors
D) Increase inventory
Q3) One way of addressing the solvency problems associated with overtrading is to try and pay creditors more quickly
A)True
B)False
Q4) High levels of working capital are associated with insolvency
A)True
B)False
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Chapter 13: Introduction to Management Accounting
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Q1) A manufacturing account shows the opening inventory of finished goods minus manufacturing costs of the finished goods plus the closing inventory of finished goods
A)True
B)False
Q2) Financial accounting is predominantly forward looking and includes forecast and plans,while management accounting is about recording past events
A)True
B)False
Q3) Which of the following statements is false?
A) There are no formal requirements for producing and presenting management accounting information
B) Financial accounting information is intended mainly for users outside the organization (such as shareholders and creditors)
C) Companies are not legally required to produce financial accounting information
D) Management accounting information is often private, whereas financial accounting information is public
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Chapter 14: Investment Appraisal
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Sample Questions
Q1) ARR is expressed as:
A)\(\frac {\text { Total annual profit }} { \text { Total invested} }\) \( \times 100\)
B)\(\frac {\text { Average annual profit }} { \text {Amount initially invested } }\) \( \times 100\)
C)\(\frac {\text { Amount initially invested }} { \text { Average annual profit} }\) \( \times 100\)
D)\(\frac {\text { IRR}} { \text {Amount initially invested } }\)\( \times 100\)
Q2) The net present value (NPV)decision rule is:
A) Accept the project if the NPV is < 0
B) Reject the project if the NPV is > 0
C) Accept the project if the NPV is > 0
D) Accept the project if the NPV = 0
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Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) A budget includes all of the following except:
A) A plan, quantified in monetary terms
B) A plan outlining income generated and/or expenditure incurred during a period of time
C) A plan which guarantees future profit
D) A plan outlining capital employed in obtaining a given objective
Q2) Which of the following is false?
A) Receipts from sales on the cash budget will different from sales reported in the income statement
B) A cash budget may include receipts such as the issue of shares
C) An income statement shows payment of expenses when payment is actually made
D) An income statement shows money as a receipt when it is earned
Q3) The most important part of budgeting is:
A) The budget itself
B) Review of actual results against the budget
C) Knowing how much each manager has available to spend in their department
D) Communication between managers and finance in setting the budget
Q4) A cash budget does not include tax and interest to be paid
A)True
B)False
Page 17
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Chapter 16: Absorption Costing
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Q1) The amount of overheads charged to jobs during the year is likely to be different from the amounts actually incurred
A)True
B)False
Q2) The manufacturing plant at Daydream plc has three departments.The budgets for each department are shown below:
\[\begin{array} { l c c c }
& \text { A } & \text { B } & \text { C } \\
\text { Production Overheads } & £ 3 \mathrm {~m} & £ 6 \mathrm {~m} & £ 30
\mathrm {~m} \\
\text { Hours worked } & 1 \mathrm {~m} & 1 \mathrm {~m} & 1 \mathrm {~m} \\
\text { Direct wages } & £ 12 \mathrm {~m} & £ 16 \mathrm {~m} & £ 20 \mathrm {~m}
\end{array}\]
Calculate the production overhead for each department.
A) A= £12 per hour; B = £16 per hour; C = £20 per hour
B) A= £0.25 per hour; B = £0.36 per hour; C = £1.50 per hour
C) A= £3 per hour; B = £6 per hour; C = £30 per hour
D) A= £4 per hour; B = £2.67 per hour; C = £0.66 per hour
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Chapter 17: Marginal Costing and Decision-Making
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Q1) The break-even point can be expressed as:
A) Fixed costs/contribution per unit
B) Fixed costs-variable costs/contribution
C) Fixed costs - variable costs
D) Contribution/fixed costs
Q2) It is known that a factory has some fixed and some variable costs.In one month,the output was 12,000 units and the cost £30,000.The following month,output had increased to 15,000 units and the cost was £36,000.
How much are the fixed and variable elements of production?
A) The fixed costs are £6,000 and the variable costs are £2 per unit
B) The variable costs are £2.50 in month 1 and £2.40 in month 2
C) The fixed costs are £6,000 and the variable costs are £0.50 per unit
D) The variable costs are £0.40 in month 1 and £0.42 in month 2
Q3) "Contribution" is defined as:
A) The amount of profit a product generates
B) The fixed costs that are incurred regardless of the volume of product made
C) The variable costs of a product
D) Selling Price - Direct Costs
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19
Chapter 18: Standard Costing and Variance Analysis
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Q1) The direct labour rate variance can be expressed as:
A) Actual hours x (actual rate - standard rate)
B) Standard rate x (actual hours - standard hours)
C) Actual hours x (standard rate x standard hours)
D) Standard rate x (actual hours/standard hours)
Q2) Which of the following is likely to cause an adverse fixed overhead variance?
A) Unexpectedly large maintenance expense
B) Inflation
C) "Fixed overheads" were not as fixed as first thought and increased as production increased
D) All of the above
Q3) Direct materials usage variance can be expressed as:
A) Actual quantity x (standard price - actual quantity)
B) Actual quantity x (standard price x standard quantity)
C) Standard price x (actual quantity x standard quantity)
D) Standard price x (actual quantity - standard quantity)
Q4) The sales margin volume variance measures the effect of a change in sales price
A)True
B)False
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Chapter 19: Incomplete Records
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Q1) The assets and liabilities of Angus & Co.at 31st Dec were as follows:
\[\begin{array} { l c }
\text { Inventory } & 110,950 \\
\text { Trade receivables } & 12,600 \\
\text { Trade payables } & 18,000 \\
\text { Accruals } & 750 \\
\text { Prepayments } & 850 \\
\text { Bank balance } & £ 8,000
\end{array}\]
What is the capital at 31st December
A) £151,150
B) £151,250
C) £113,650
D) £113,450
Q2) Not every debit has a credit
A)True
B)False
Q3) Debits are increases to assets and expenses
A)True
B)False
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