Accounting for Managers Test Questions
Course Introduction
Accounting for Managers introduces the fundamental principles and practices of accounting from a managerial perspective. The course emphasizes the role of accounting information in organizational decision-making, planning, and control. Topics include financial statements analysis, budgeting, cost behavior, performance measurement, and the use of accounting data to make strategic business decisions. By integrating real-world case studies and practical examples, the course equips managers with the skills to interpret accounting information, allocate resources effectively, and contribute to the financial health and success of their organizations.
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) What a company owns is known as assets and what a company owes is known as expenses.
A)True
B)False
Answer: False
Q2) Which of the following statements is true?
A) The value of a company is likely to be very different from the total net value of the individual assets and liabilities reported on the statement of financial position
B) The value of a company is identical to the total net value of the individual assets and liabilities reported on the statement of financial position
C) The value of a company is identical to retained earnings, as reported on the statement of financial position
D) The value of a company is equal to current assets, less current liabilities
Answer: A
Q3) Non-current liabilities include long-term borrowings such as mortgages.
A)True
B)False
Answer: True
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Chapter 2: The Income Statement Profit and Loss Account
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Sample Questions
Q1) A company buys in a unit at a cost of £2 per unit.The selling price is £3 per unit.Which of the following statements is correct?
A) Mark up is 67%; Margin is 150%.
B) Mark up is 150%; Margin is 67%
C) Mark-up is 50%; Margin is 33%
D) Mark-up is 33%; Margin is 50%
Answer: C
Q2) If the cost of goods sold was £8,000 for goods which eventually sold for £20,000,what is mark-up?
A) 40%
B) 60%
C) 150%
D) 250%
Answer: C
Q3) A company made the following transactions last year:
A) Operating Profit is £32,000
B) Operating Profit is £19,000
C) Operating Profit is £11,000
D) Operating Profit is £27,000
Answer: C
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Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) Which of the following statements is correct?
A) In a period of rising prices, cost of sales is overstated
B) In a period of rising prices, return on capital employed (ROCE) is understated
C) In a period of rising prices, asset values are understated
D) In a period of rising prices, depreciation is overstated
Answer: D
Q2) Which of the following is NOT generally recognised as being an asset in the financial statements of a company?
A) Goodwill following the sale of a business
B) Plant & Machinery used in the business bought on a hire purchase contract
C) Stock held for resale
D) Skills and qualifications of Staff
Answer: D
Q3) The measurement of profit is useful:
A) As a guide to dividend decisions
B) As a basis for taxation
C) Statements A and B are both correct
D) None of the above
Answer: C
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Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Sample Questions
Q1) A gearing ratio of above 50% suggests:
A) The company is profitable
B) The company is over-reliant on borrowing
C) The company is financed mostly by equity
D) The company is almost bankrupt
Q2) If a company was interested in calculating how long it takes to receive payment from customers,which of the calculations would they make?
A) Trade receivables/sales revenue x 365
B) Sales revenue/trade receivables x 365
C) Trade payables/cost of sales x 365
D) Cost of sales/trade payables x 365
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
Q4) The return on capital employed (ROCE)shows how "solvent" a company is A)True B)False
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Chapter 5: How the Stock Market Assesses Company Performance
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Q1) Which of the following statements is correct?
A) You can buy shares by directly contacting the company you want to buy shares in B) It is usually quite difficult to buy the shares of unlisted companies
C) It is difficult for investors to make profits when share prices are rising
D) All of the above statements are correct
Q2) The only factor that influences a companies share price is the profit it has made A)True
B)False
Q3) 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
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Page 7
Chapter 6: Cash Flow Statements: Understanding and Preparation
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Sample Questions
Q1) If the opening balance on accounts receivable was £35,000 with a closing balance of £15,000 and the income statement reported revenue of £180,000,what is the cash collected from customers?
A) £195,000
B) £200,000
C) £20,000
D) £145,000
Q2) The cash flow statement reports inflows and outflows of cash under which three headings?
A) Operating activities, investing activities and expense activities
B) Operating activities, investing activities and equity activities
C) Operating activities, investing activities and finance activities
D) Operating activities, investing activities and debt activities
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
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Sample Questions
Q1) The following segmental information is provided for Powerage Ltd. \(\begin{array}{lcccc} &\text { Audio America } & \text { Audio Europe } & \text { Visual America } & \text { Visual Europe } \\ &£ \mathrm{m}&£ \mathrm{m}&£ \mathrm{m}&£ \mathrm{m}\\\\
\text { Sales } & 600 & 360 & 70 & 120 \\
\text { Operating profit } & 18 & 20 & 17 & 16 \\
\text { Net operating assets } & 240 & 300 & 30 & 40 \end{array}\)
Which segment would you suggest needs to become more profitable?
A) Audio America
B) Audio Europe
C) Visual America
D) Visual Europe
Q2) A company with interest cover of 10 is less safe than a company with interest cover of 2
A)True
B)False
Page 9
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Chapter 8: Current Issues in Financial Reporting
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Sample Questions
Q1) Creative accounting is sometimes used to:
A) Reduce reported losses
B) Manipulate accounting ratios
C) Make management look successful
D) All of the above
Q2) "Ethics" and an "Ethics Policy Statement" drawn up by the company must follow which rules in the UK?
A) There are no RULES, merely guidelines set out in the Corporate Social Responsibility Code
B) There are strict rules and legislation laid out in the Corporate Social Responsibility Code
C) There are legal requirements laid out in the Sarbanes-Oxely Act
D) There are no RULES, but there are guidelines set out in the Sarbanes-Oxely Act
Q3) Which of the following would be an appropriate approach to detecting questionable accounting treatment?
A) Compare the amount of tax a company pays with their reported profit figures
B) Compare the company's asset with their liabilities
C) Compare the company's dividend yield with their P/E ratio
D) Compare the company's share price with their reported profit
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Page 10
Chapter 9: Bookkeeping to Trial Balance
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Sample Questions
Q1) A business begins with £5,000 capital which is paid into the bank.
£1,000 is then spent on goods for resale,paying by cheque.
Half of these are then sold for £2,000 cash.
£3,000 is spent on a van,paying by cheque.
The double entry transaction for the sale of the goods is:
A) Debit CASH £2,000. Credit GOODS £500
B) Debit CASH £2,000. Credit GOODS £2,000
C) Debit CASH £2,000. Credit SALES £2,000
D) Debit SALES £2,000. Credit CASH £2,000
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
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Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) When there is an increase in a provision for bad debt,the amount of the increase is included as an expense on the income statement
A)True
B)False
Q2) A Sole Trader owns a company vehicle which cost £10,000 at the beginning of year 1,and is depreciated at 25% reducing balance method.In year 2,the end of year accounts are being drawn up.Which of the following is the correct adjustment for the depreciation of the vehicle?
A) Annual Depreciation charge of £2,500 shown in the income Statement. On the Statement of Financial Position, the Carrying Amount of the vehicle is £7,500
B) Annual Depreciation charge of £2,500 shown in the income Statement. On the Statement of Financial Position, the Carrying Amount of the vehicle is £5,000
C) Annual Depreciation charge of £4,375 shown in the income Statement. On the Statement of Financial Position, the Carrying Amount of the vehicle is £5,625
D) Annual Depreciation charge of £1,875 shown in the Income Statement. On the Statement of Financial Position, the Carrying Amount of the vehicle is £5,625
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Chapter 11: Financing a Business
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Sample Questions
Q1) Dividend Policy decides what proportion of the profits to pay out as dividends. Which of the following is the best policy?
(i) Pay out all profits as dividends
(ii) Pay out no profit as dividend,but use all the profit to expand the company
(iii)Pay out the same £ value as dividends every year
A) (i) is the best, as it rewards shareholders for their investment.
B) Something between (i) and (ii) is the best, as it allows shareholders to receive some dividend and the company to retain earnings to grow. (ii) is unfair to the shareholder.
C) (iii) is best, as it allows shareholders to plan for the dividend received.
D) None of them are "best". It depends upon what shareholders prefer.
Q2) Large company agrees to pay £1,750,000 to take over small company.Large company's shares have a market value of £1.75.The £1,750,0000 is paid by the issue of 1 million £1 shares.
What additional share capital will Large report?
A) £1,750,000
B) £1,000,000
C) £750,000
D) £0
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Chapter 12: Management of Working Capital
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Sample Questions
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) From the following statement of financial position extract of RiffRaff plc,calculate the working capital:
\[\begin{array} { l c } & £ 000 \\
\text { Non-current assets } & 210 \\
\text { Non-current liabilities } & \\
10 \% \text { debentures } & 100 \\
\text { Equity } & \\
\quad \text { Share capital } & 90 \\
\text { Retained earnings } & 60
\end{array}\]
A) £110,000
B) £(40,000)
C) £40,000
D) £60,000
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Page 14
Chapter 13: Introduction to Management Accounting
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Sample Questions
Q1) In a manufacturing account an inventory adjustment is made to direct materials in respect of how much was purchased (as opposed to how much was consumed)
A)True
B)False
Q2) Standard costing is the most appropriate approach where actual costs do not fluctuate much
A)True
B)False
Q3) A company rents warehouses for storage.Each warehouse is capable of storing up to 400 units,and costs £500 per month.For 250 units,the cost would be £500.For 500 units,the cost would be £1,000.
This is an example of:
A) A Fixed Cost
B) A variable cost
C) A semi-variable cost
D) A stepped cost
Q4) A small or new business can cope without management accounting
A)True B)False
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Chapter 14: Investment Appraisal
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Sample Questions
Q1) Which of the following statements is correct?
A) There is no clear relationship between ROCE and cost of capital to be used for discounted cash flow (DCF)
B) The P/E ratio is a good indication of investors expectations and can be easily converted into a cost of capital of capital figure
C) If a companies dividend yield is high this means that shareholders expectations are high and future dividends are expected to grow
D) All of the above are correct
Q2) In order to convert a future cash flow into a present value,you need to:
A) Divide by a discount factor
B) Divide by the current investment rate
C) Multiply by a discount factor
D) Multiply by the current investment rate
Q3) Which of the following statements is correct?
A) Payback is complex to calculate
B) Payback gives a better indication of return than NPV
C) The longer the payback period the less risk associated with the project
D) The shorter the payback period the less risk associated with the project
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Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) Which of the following is not a disadvantage usually associated with budgeting?
A) Encourages "budget slack"
B) Discourages delegation and the identification of management responsibility
C) In practice, it is often difficult to come to an agreement about the organizations objectives
D) Can often be a "paperwork exercise" not fully understood by mangers
Q2) 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
Q3) ZBB is:
A) Zero Based Budgeting. Every budget is built from scratch.
B) Zero Based Budgeting. Used in not-for-profit organisations where profit should be zero.
C) Zion Budgeting Basis. A technique originally developed by a group of American Corporations
D) Zero Budgeting Bias. A technique where there is no bias in the budgeting process.
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Page 17
Chapter 16: Absorption Costing
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Sample Questions
Q1) The budget of Daydream plc shows total production overheads of £39m.They plan to work 3m hours and total labour cost for the year are £48m.
Calculate the production overhead rate per hour.
A) £16 per hour
B) £13 per hour
C) £1.20 per hour
D) £3 per hour
Q2) A "Cost-Plus" pricing approach is:
A) A costing system that involves working out the cost of one unit and adding on extra for the selling price in order to make a profit
B) A costing system that includes the basic direct costs of the product, plus all of the overheads of running the factory as a separate cost total
C) The direct cost of producing the products sold in the month plus the cost of any unsold inventory
D) Used in job costing - for example the cost of the raw materials plus the labour required for a building job
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Chapter 17: Marginal Costing and Decision-Making
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Q1) Which of the statements is correct?
A) In the short term direct labour costs may be more like fixed costs
B) In the long run most fixed costs behave more like variable costs
C) If production is to increase above existing production capacity , then fixed costs will have to increase
D) All of the above statements are correct
Q2) "Contribution" can be defined as sales minus variable costs
A)True
B)False
Q3) Marginal costing information can only be presented for business as a whole and not for each product
A)True
B)False
Q4) In practice,direct material costs per unit might decrease as output increases because of:
A) Economies of bulk buying
B) Employees become more efficient at their job
C) Increased manufacturing capacity
D) All of the above
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Chapter 18: Standard Costing and Variance Analysis
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Sample Questions
Q1) Direct materials price variance can be expressed as:
A) Actual quantity x (actual price - standard price)
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)
Q2) LR Kinncaid Company assembles steel components for trains.The standard labour cost per unit is:
3 hours @ £3.20 per hour
The actual results for last period were:
\[\begin{array} { l l }
\text { Production } & 6,000 \text { components } \\
\text { Hours } & 33,000 \\
\text { Wage rate (per hour) } & £ 3.25
\end{array}\]
Calculate the direct labour efficiency variance
A) £48,000 favorable
B) £48,000 adverse
C) £1,650 favorable
D) £1,650 adverse
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Page 20
Chapter 19: Incomplete Records
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Q1) At the end of the year,NewBiscuit company has inventory in hand at a selling price of £10,500.What was the cost of inventory assuming inventory is marked up at 50%?
A) £5,250
B) £8,000
C) £3,000
D) £7,000
Q2) Assets = Liabilities - Capital
A)True
B)False
Q3) Robert's bank statements show he had an opening bank balance of £13,000 and a closing bank balance of £16,000.Robert knows he paid £12,000 to suppliers and that he took drawings of £3,000.Calculate what Robert received from debtors.
A) £18,000
B) £8,000
C) £31,000
D) £13,000
Q4) Debits are increases to liabilities and revenues
A)True
B)False
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