Accounting for Decision Making
Midterm Exam
Course Introduction
Accounting for Decision Making is a course designed to equip students with the essential concepts and tools of financial and managerial accounting as they pertain to effective decision making in business environments. Students learn how to interpret and analyze financial statements, understand cost behavior, and apply accounting information to planning, control, and strategic decision contexts. Emphasis is placed on using accounting data to solve real-world problems such as budgeting, performance evaluation, and resource allocation. Through case studies and practical examples, the course fosters analytical skills necessary to support informed managerial decisions and drive organizational success.
Recommended Textbook
Accounting Business Reporting for Decision Making 6th Edition by Jacqueline Birt
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Chapter 1: Introduction to Accounting and Business Decision Making
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Q1) Companies operating in Australia and overseas must follow which accounting standards?
A) Both IFRS and local GAAP.
B) Local generally accepted accounting principles only.
C) IFRS only.
D) FASB.
Answer: A
Q2) Which of the following are differences between management and financial accounting?
I.Types of reports produced.
II.The users of reports.
III.The format of reports.
IV.Frequency of reports.
A) I and III only.
B) II, III and IV only.
C) I and II only.
D) all of the above.
Answer: D
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Chapter 2: Accounting in Society
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Q1) Which of the following elements of triple bottom line reporting
A)Environmental performance.
B)Economic performance.
C)Social performance.
D)None of the above.
Answer: A
Q2) Deontological theories are concerned with an accountant's sense of duty.Which of the following philosophies is part of this group of theories?
A) Kantianism.
B) Ethical egoism.
C) Psychological egoism.
D) Utilitarianism.
Answer: A
Q3) A commonly accepted part of business sustainability is to ensure the maximisation of _________________ value.
Answer: shareholder
Q4) Ethically,businesses are obliged to act in the way expected of them by
Answer: society
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Chapter 3: Business Structures
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Q1) Which financial statement is concerned with an entity at a point in time?
A) Statement of financial position.
B) Statement of cash flows.
C) Profit and loss statement.
D) Comprehensive income statement.
Answer: A
Q2) Which of the following statements is not true for a 'no-liability' company?
A) If the company becomes insolvent shareholders are still required to pay any outstanding amounts owed on their shares.
B) In Australia, no-liability companies are solely mining companies.
C) The shareholders are not liable for the outstanding debts of the company.
D) The company's operations are of a risky nature.
Answer: A
Q3) A partnership has the following characteristics:
A) easy transfer of ownership and no personal liability.
B) harder to raise funds and gives the owner full control.
C) shared control, increased skills and resources.
D) separate taxation requirements and substantial government regulation.
Answer: C
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Page 5
Chapter 4: Business Transactions
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Q1) The double-entry method of accounting refers to the practice by accountants of:
A) dual recording of every transaction whereby the total debited to one or more accounts in a transaction equals the total credited to one or more accounts for the same transaction.
B) placing a double underline beneath each journal entry.
C) double-counting certain types of transactions.
D) double-checking every journal entry.
Q2) The ___________ ___________ accounting method requires each transaction to have at least two effects on the accounting equation.
Q3) Which of the following statements about a trial balance is not true?
A) It has a debit and a credit column.
B) It is used to check the accuracy of the ledger or journal entries.
C) It is prepared at the end of the accounting period.
D) It will detect all errors in the ledger accounts.
Q4) Occurrences that have the potential to affect the entity in some way,but that will not be recorded as business transactions until an exchange of goods or services takes place between the entity and an outside party are known as ______________
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Chapter 5: Balance Sheet
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Q1) _______________ decisions are decisions relating to an entity's mix of debt and equity.
Q2) A characteristic essential to all assets is:
A) a result of a past event.
B) a resource controlled by the entity.
C) a present economic resource.
D) all of the above.
Q3) Which of the following statements regarding equity is not true?
A) It is increased by profit.
B) It can be increased by additional contributions by the owners.
C) It is defined independently of assets and liabilities.
D) It includes the retained earnings of the entity.
Q4) A factor to be considered before recognising an asset in the balance sheet is the ______________ of an inflow of an economic benefit.
Q5) Which of the following statements concerning goodwill is true?
A) Internally generated goodwill cannot be recognised.
B) Goodwill must be tested for impairment at least annually.
C) Goodwill is an unidentifiable intangible asset.
D) All of the above.
Q6) ________________ assets are non-monetary assets without physical form.
Page 7
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Chapter 6: Statement of Profit or Loss and Statement of Changes in Equity
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Q1) For a retailing or manufacturing entity,gross profit is equal to sales less:
A) purchases.
B) all expenses.
C) cost of sales.
D) all expenses other than cost of sales.
Q2) Two expenses that are recognised under accrual accounting but which do not involve any cash flows _________ and _________.
Q3) Which of the following statements relating to the presentation of the statement of profit or loss by non-reporting entities is not true?
A) There is no prescribed format.
B) The statement of profit or loss must be prepared in accordance with the AASB accounting standards.
C) The purpose of the statement of profit or loss is to report the profit or loss for the entity for the reporting period.
D) Income is usually more detailed and less aggregated than that prepared for a reporting entity.
Q4) The main expense incurred by a retail business is __________ of __________.
Q5) The statement of profit or loss measures an entity's financial _________.
Page 8
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Chapter 7: Statement of Cash Flows
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Q1) A net total cash outflow in investing activities is considered ____________(normal or abnormal)for a healthy growing business.
Q2) Which of the following cash flow ratios is used to determine an entity's solvency?
A) Debt coverage ratio.
B) Free cash flow ratio.
C) Cash adequacy ratio.
D) Cash flow ratio.
Q3) The ___________ method of preparing a statement of cash flows adjusts an entity's profit or loss for the effects of non-cash transactions and deferrals or accruals of operating activities.
Q4) Changes in non-current liabilities and equity in the balance sheet appear in the statement of cash flows under:
A) the reconciliation of operating profit with cash flow from operating activities.
B) operating activities.
C) investing activities.
D) financing activities.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) Fernvale Pty Ltd has a current ratio of 2:1 with total current liabilities of $30 000.If Fernvale Pty Ltd's inventory is $7 500,the quick ratio is:
A) 2.67:1
B) 1.75:1
C) 2.25:1
D) 1.6:1
Q2) The gross profit margin is calculated as gross profit divided by _____________ _____________.
Q3) A financial institution contemplating giving a loan to an entity would be most interested in:
A) the entity's ability to generate cash flows. B) an entity's ability to generate profits. C) an entity's ability to pay its employees. D) an entity's ability to pay its suppliers.
Q4) It is argued that the cash flow ratio is a better measure of ________ than the current ratio as it uses cash flows generated over the whole reporting period rather than at a particular point in time.
Q5) Return on equity measures the profit generated compared to the _____________ investment.
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Chapter 9: Budgeting
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Q1) At the end of February,Brayden Pty Ltd reviewed its performance for the month and noted the following:
\(\begin{array}{|l|r|r|}
\hline \text{ Account } & \text{ Budget } & \text{ Actual } \\
\hline \text{ Sales }& \$ 125000 & \$ 132000 \\
\hline\text{ Advertising expense} & \$ 5000 &\$ 3800\\ \hline\text{ Wages expense }&\$ 12000 &\$ 13500 \\ \hline \end{array}\)
The respective variances will be reported as:
A) $7000 U, $1200 U, $1500 F.
B) $7000 F, $1200 F, $1500 U.
C) $7000 U, $1200 F, $1500 U.
D) $$7000 F, $1200 U, $1500 U.
Q2) The government's Department of Education and Training would be unlikely to prepare which type of budget?
A) Production budget.
B) Expenses budget.
C) Cash budget.
D) Program budget.
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Chapter 10: Costvolumeprofit Analysis
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Q1) Which of the following statements is correct when assessing profitability with resource limitations?
A) Most businesses are not limited by market demand.
B) The most profitable result will be to maximise production of the product with the highest contribution margin per unit of the limiting factor.
C) The most profitable result will be to minimise production of the product with the highest overall contribution margin.
D) Limiting factors only relate to labour hours.
Q2) Windmill Pty Ltd makes miniature windmills for gardens.If the selling price per windmill is $100,the contribution margin ratio is 40%,and total fixed costs are $25 000,how many windmills must they sell to achieve a desired profit of $20 000?
A) 1125
B) 200
C) 625
D) 500
Q3) If variable costs are 75% of sales and fixed costs are $500 000,the break-even sales revenue will be ____________________.
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Chapter 11: Costing and Pricing in an Entity
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Q1) Which of these businesses is likely to operate a job costing system?
A) Pottery workshop.
B) Public accounting office.
C) Small printing business.
D) All are likely to operate a job costing system.
Q2) The first step,from those below,in the process of allocating indirect costs is to:
A) identify a cost driver that has a strong correlation to the cost pool.
B) calculate the indirect cost rate per cost driver.
C) determine the number of indirect cost pools.
D) allocate the indirect costs to each cost object.
Q3) Under Australia accounting standards,which of the following are inventoriable product costs?
A) Depreciation of office equipment.
B) Salesmen's salaries.
C) Manufacturing costs.
D) Administration costs.
Q4) ________________ pricing is the practice of setting low prices when new products are introduced to increase market share.
Q5) A cost object is an object that has a __________________ measurement of cost.
Page 13
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Chapter 12: Capital Investment
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Q1) Uncertainty in finance:
A) is defined as the unmeasurable variation in outcomes.
B) can be measured with a degree of confidence.
C) is defined as measurable variation in outcomes.
D) none of the options explain uncertainty in finance.
Q2) Which of the following statements is true when projects with IRRs greater than the entity's cost of capital are accepted?
A) The projects will enhance the wealth of the owners.
B) The projects will make additional returns over and above the cost of finance.
C) The projects will return the cost of finance.
D) All of the statements are true.
Q3) When presented with the choice of multiple profitable projects,which of the following statements is true?
A) The project with the highest NPV may not be the best project when capital is limited.
B) The entity should choose to undertake all the profitable projects at the one time.
C) The entity should choose the project with the lowest NPV.
D) None of the options are true.
Q4) The ___________ (shorter/longer)a payback period is,the greater the risk.
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Page 14
Chapter 13: Financing the Business
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Q1) Costs involved in managing cash include:
A) no interest earned on cheque accounts.
B) merchant fees for debit cards.
C) keeping cash secure from thieves.
D) all of the above.
Q2) For interest-only loans the _______________amount is repaid in full at the end of the loan term.
Q3) Storage and display costs,insurance costs,deterioration and obsolescence are all examples of (ordering/holding)_____________ inventory costs.
Q4) A key feature of portfolio investment is:
A) there is direct investment of capital.
B) the investor has limited control over the Australian entity's key policies.
C) the investor has no control over the Australian entity's key policies.
D) the investor has full control over key policies of the Australian entity.
Q5) The level of debtors is determined by:
A) credit policies.
B) the level of credit sales.
C) collection policies and procedures.
D) all of the options are used to determine the level of debtors.
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Chapter 14: Performance Measurement
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Q1) If an investment is $400 000,credit sales are $350 000 and cash sales are $200 000,the investment turnover ratio is:
A) 0.73 times.
B) 0.88 times.
C) 1.38 times.
D) 2 times.
Q2) Which of the following is an example of a non-financial employee performance measure?
A) All of these items are examples of a non-financial employee performance measure.
B) Staff educational qualifications.
C) Workers' compensation claims.
D) Percentage of absenteeism.
Q3) With executive remuneration packages,long-term performance is rewarded by:
A) an annual bonus based on achievement of profit targets.
B) fixed salary and superannuation.
C) incentives such as share option plans.
D) a company car.
Q4) A ______________ statement is a short statement that sets out the overall philosophy and objectives of an entity.
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