Accounting for Business Final
Exam Questions
Course Introduction
Accounting for Business provides students with a foundational understanding of accounting principles and their application in real-world business settings. The course covers essential topics such as the accounting cycle, financial statement preparation, analysis, and interpretation, as well as the role of accounting information in decision-making processes. Students will learn to record business transactions, manage financial records, and utilize accounting data to support strategic planning and operational control. Emphasis is placed on developing analytical skills and understanding the ethical and regulatory environment in which accounting operates, preparing students for success in diverse business environments.
Recommended Textbook
Accounting Understanding and Practice 4th Edition by Danny Leiwy
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Page 2
Chapter 1: The Statement of Financial Position Balance
Sheetand What It Tells Us
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Sample Questions
Q1) Which of the following statements is correct?
A) Assets are future cash outflows
B) Liabilities are future cash inflows
C) Assets are the sum of liabilities and owner's equity
D) Assets are the difference between liabilities and owner's equity
Answer: C
Q2) Corporation tax payable would be classified as:
A) Equity on statement of financial position
B) Liability on statement of financial position
C) Asset on statement of financial position
D) Expense on income statement
Answer: B
Q3) An example of a long-term asset is:
A) Cash
B) Inventory
C) Fixtures and fittings
D) Prepayments
Answer: C
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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) If a company purchases a machine for £60,000 and charges depreciation at 10% on a diminishing balance basis,what is the depreciation charge in the forth year?
A) £5,042
B) £4,374
C) £6,000
D) £4,860
Answer: B
Q3) Depreciation is not a process of valuing assets
A)True
B)False
Answer: True
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4
Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) During the year,the total amount for equity can change because:
A) Additional shares are issued
B) Property has been revalued
C) Dividends are paid
D) All of the above
Answer: D
Q2) Which of the following is false?
A) A company's statement of financial position should only include the assets that it owns
B) An asset is a resource controlled by the enterprise as the result of past events from which economic benefits are expected to flow
C) A company's statement of financial position should include all the assets that it controls
D) A company's statement of financial position may include financial assets, including shares it owns in another company
Answer: A
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Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Sample Questions
Q1) The gearing ratio relates long-term borrowing to equity
A)True
B)False
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) The return on capital employed (ROCE)shows how "solvent" a company is
A)True
B)False
Q4) One way of assessing if debt is too high is to compare it with equity
A)True
B)False
Q5) One way to improve return on capital employed (ROCE)is to reduce costs and increase sales
A)True
B)False
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Chapter 5: How the Stock Market Assesses Company Performance
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Q1) The following information is available for companies A,B,C and D: \[\begin{array} { l c c r r }
& \mathbf { A } & \mathbf { B } & \mathbf { C } & { \mathbf { D } } \\
\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\
\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\
\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\
\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000 \end{array}\]
Which company has the highest dividend per share?
A) A
B) B
C) C
D) D
Q2) Which of the following can influence a companies share price?
A) Other companies in the same sector reporting poor results
B) Scandal and gossip
C) Financial journalist offering share tips to readers
D) All of the above
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Chapter 6: Cash Flow Statements: Understanding and Preparation
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Q1) Which of the following statements is false?
A) Payment for inventory not sold until the next period, is an example of a payment of cash which is not an expense
B) Borrowing money is an example of a receipt of cash which is not revenue
C) Discount allowed to customers for prompt payment, is an expense that is treated as a payment of cash
D) Depreciation is an expense which is not a payment of cash
Q2) Which of the following statements is false?
A) Not all revenues are receipts of cash
B) Some receipts of cash do not add to profits
C) Not all expenses are payments of cash
D) All payments of cash are expenses
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) Not all revenues are receipts of cash
A)True
B)False
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Q1) Which of the following is not included in the calculation of a Z-Score?
A) Working capital
B) Cash Flow
C) Market value of equity
D) Sales
Q2) When a company is in financial distress,creditors may suffer direct financial loss,but shareholders can not loose their investment because they have limited liability
A)True
B)False
Q3) A one-off loss is likely to be a major problem for company
A)True
B)False
Q4) According to Altman (1983)the amount of working capital in relation to total assets is an important component in predicting the failure of a company,while measures of return on capital employed (ROCE)can not help predict failure
A)True
B)False
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Chapter 8: Current Issues in Financial Reporting
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Q1) According to the Centre for Social and Environmental Accounting Research (CSEAR),which of the following is not an aspect of social reporting?
A) Investigating the social effects of current accounting practice
B) Investigating how to ameliorate the adverse affects of accounting practice
C) Reporting political and charitable donations
D) Studying other possible ways of providing accounts of organizations
Q2) In what way has IFRS 3 made accounting for goodwill open to manipulation by managers?
A) Requires goodwill to be treated as an expense on the income statement
B) Requires goodwill to be treated as a one-off gain in the income statement
C) Requires goodwill to be subject to an annual impairment review
D) Requires goodwill to be treated as an asset on the balance sheet and amortized
Q3) If a company leases an asset instead of buying it,should it show the asset on the Statement of Financial Position?
A) No. The lease payments are shown as an expense on the Income Statement.
B) Yes, but only if it was sold and then leased back.
C) Yes, if the company is using the asset as if it was its own
D) No. The asset remains the property of the lessor
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10
Chapter 9: Bookkeeping to Trial Balance
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Q1) A cash account shows all receipts of cash on the right hand side and all payments of cash on the left hand side
A)True
B)False
Q2) P.Rudd company received and paid an electricity bill for £300.How would this transaction be recorded?
A) Debit cash and credit retained earnings
B) Debit electricity and credit retained earnings
C) Debit electricity and credit cash
D) Debit cash and credit electricity
Q3) In general,an asset account has a debit balance
A)True
B)False
Q4) Which of the following is expected to have a debit balance?
A) Trade payables
B) Trade receivables
C) Sales
D) All of the above
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Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) If an electricity prepayment is increased,the accounting adjustment will be:
A) Dr: Electricity Cr: Prepayments
B) Dr: Prepayments Cr: Electricity
C) Dr: Prepayments Cr: Trade payables
D) Dr: Trade payables
Q2) The following information is available from the trial balance of Powerage Ltd as at 31 Dec Year 2:
\[\begin{array} { l c c }
& \text { Debit } & \text { Credit } \\
&£& £ \\
\text { Sales revenue }&& 260,000\\
\text { Inventory at 31st Dec Year 1 } & 9,000 \\
\text { Purchases } & 29,000 & \end{array}\]
Closing inventory as at 31st Dec year 2 is £6,000.Calculate the gross profit.
A) £238,000
B) £32,000
C) £228,000
D) £244,000
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Chapter 11: Financing a Business
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Sample Questions
Q1) If a business has both Ordinary Shares and Preference Shares,which of the following statements are correct?
(i)Ordinary Shareholders have the right to vote at the AGM,but Preference Shareholders do not
(ii)Ordinary Shareholders will always get higher dividends
(iii)Preference Shareholders receive the same dividend year on year
(iv)Ordinary Shareholders are paid first upon liquidation of the company
A) All of them are true
B) (i), (ii) and (iii) are true
C) (i) and (iii) are true
D) (ii) and (iv) are true
Q2) A "rights issue" refers to the issue of shares which give the owners of these shares additional voting rights at the Annual General Meeting
A)True
B)False
Q3) A business can raise finance by selling assets that it owns and then leasing them back again
A)True
B)False
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Page 13
Chapter 12: Management of Working Capital
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Q1) If two companies had the same amount of fixed assets and the same profit,the company with the lower amount of working capital would have a higher return on capital employed (ROCE)
A)True
B)False
Q2) The definition of "Working Capital" is:
A) Non-Current Assets - Non-Current Liabilities
B) Bank + Cash
C) Non-Current Assets + Current Assets - Current Liabilities
D) Current Assets - Current Liabilities
Q3) Which of the following statements is correct?
A) Economic order quantity is the quantity at which the annual inventory holding cost is equal to the annual ordering cost
B) Economic order quantity is the quantity at which annual inventory holding cost has been maximized
C) Economic order quantity is the quantity at which annual inventory ordering costs is minimized
D) Economic order quantity is the amount at which inventory costs are offset by sales
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14
Chapter 13: Introduction to Management Accounting
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Sample Questions
Q1) The cost of Direct Materials in a manufacturing account refers to:
A) The direct materials that were purchased for the production in the period
B) The direct materials that were used for production in the period
C) The direct materials that were issued from stores during the period
D) All the materials used in production - including items such as oil or spare parts for machines
Q2) 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
Q3) Production expenses which become part of the costs of finished goods are charged as an expense in the period in which they are incurred
A)True
B)False
Q4) Absorption costing requires fixed costs to be separated from variable costs in order to aid decision making
A)True
B)False
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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 internal rate of return (IRR)calculates the discount rate at which the net present value (NPV)of the project is zero
A)True B)False
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16
Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) Which of the following statements are correct,with regards to budgeting?
(i) The budget must be set centrally
(ii)Budgets should never be exceeded
(iii)There are financial rules governing the layout and calculations of a budget,eg once set,a budget cannot be altered
A) (ii) only
B) (ii) and (iii)
C) They are all false
D) They are all true
Q2) An approach to producing a budget which is based on the previous years budget is called:
A) Planning, programming budgeting system (PPBS)
B) Zero-based budgeting (ZBB)
C) Incremental budget
D) Performance budget
Q3) Which of the following is not an advantage usually associated with budgeting?
A) Can be used to motivate staff
B) Can be used to evaluate performance
C) Encourages managers to "spend up to budget"
D) Helps identify "limiting factors", such as production capacity
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Chapter 16: Absorption Costing
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Sample Questions
Q1) A small company has one factory but produces several different products. It has direct material and direct labour costs which are allocated to the different products directly.
The factory is machine intensive,rather than labour intensive. It also has overheads such as rent,rates and electricity costs.
As well as the factory,it also has a staff canteen and a maintenance department. Which of the following statements about Absorption Costing is INCORRECT?
A) Where possible, costs should be directly allocated, such as direct material and direct labour in producing each product.
B) Costs that cannot be allocated may be apportioned, for example rent based on floor area.
C) Other overheads such as maintenance and canteen costs may be absorbed using machine hours.
D) Overheads that are incurred in overhead areas cannot be absorbed - eg maintenance of the canteen
Q2) The amount of overheads charged to jobs during the year is likely to be different from the amounts actually incurred
A)True
B)False
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Page 18
Chapter 17: Marginal Costing and Decision-Making
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Sample Questions
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) Which of the following statements is false?
A) One of the limitations of marginal costing is that it is difficult to assess profitability when there are limiting factors such as machine capacity
B) Marginal costing can identify the minimum selling price that would not produce a loss
C) Marginal costing focuses on how costs will behave as a result of changes in the volume of production
D) Marginal costing focuses on the contribution each product can make towards fixed costs and towards profit
Q3) Which of the following equations is correct?
A) Contribution = sales - variable costs
B) Contribution = sales + variable costs
C) Contribution = fixed costs - profit
D) Contribution = sales - profit
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Chapter 18: Standard Costing and Variance Analysis
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Q1) The Standard Cost Card for a batch of 3,000 bottles of shampoo includes the following:
1,500 litres of liquid S at £0.30 per litre
1)5kg of powder P at £1.20 per kg
A batch of 3,000 bottles had the following usage:
1,700 litres of liquid S which cost £476 and 1.2kg of powder which cost £1.80
What are the material price and usage variances for the liquid?
A) The Usage Variance is £30 Favourable and the Price Variance is £56 Adverse
B) The Usage Variance is £56 Adverse and the Price Variance is £30 Favourable
C) The Usage Variance is £60 Adverse and the Price Variance is £34 Favourable
D) The Usage Variance is £34 Adverse and the Price Variance is £60 Favourable
Q2) Variable overhead price variance can be expressed as:
A) Actual quantity x (actual price + standard price)
B) Actual price x ( actual price - standard price)
C) Actual quantity x (actual price - standard price)
D) Standard price x ( actual quantity - standard quantity)
Q3) An adverse variable overhead cost variance might mean that some item of variable overhead,such as cleaning costs,has cost more than expected
A)True
B)False
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Chapter 19: Incomplete Records
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Q1) At the beginning of the financial year,trade receivables are £4,560 and trade payables are £3,780.Cash received from receivables in the year are £38,240 and cash paid to payables are £18,040.Closing receivables are £2,268 and closing payables are £4,040.
What are the sales of the business in the year?
A) £40,508
B) £22,080
C) £35,948
D) £18,300
Q2) At the end of the year,Terraplane company has inventory in hand at a selling price of £20,600.What was the cost of inventory assuming inventory is marked up at 60%?
A) £12,875
B) £8,000
C) £8,240
D) £12,360
Q3) Assets = Liabilities - Capital
A)True
B)False
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21