Accounting Fundamentals
Mock Exam
Course Introduction
Accounting Fundamentals introduces students to the essential principles and practices of financial accounting. The course covers foundational topics such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and basic accounting terminology. Students will learn how to record business transactions, manage accounts, and understand the importance of maintaining accurate financial records for decision-making purposes. By the end of the course, students will gain practical skills in interpreting financial information and an understanding of the regulatory environment of accounting.
Recommended Textbook
Accounting Understanding and Practice 4th Edition by Danny Leiwy
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492 Verified Questions
492 Flashcards
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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) Revenue from sales decrease assets and decrease equity.
A)True
B)False Answer: False
Q2) Non-current assets include inventories and trade receivables.
A)True
B)False
Answer: False
Q3) An example of a current liability is:
A) Retained earnings
B) Accumulated depreciation
C) Owner's equity
D) Bank overdraft
Answer: D
Q4) Inventory,trade receivables and cash are classified as:
A) Current liabilities
B) Long-term assets
C) Current assets
D) Long-term liabilities
Answer: C
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Chapter 2: The Income Statement Profit and Loss Account
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Sample Questions
Q1) 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
Q2) If opening stock is £2,000,purchases for the year £12,000 and closing inventory
£3,000,what is the cost of goods sold?
A) £13,000
B) £7,000
C) £11,000
D) £17,000
Answer: C
Q3) Revenue is:
A) The amount received from borrowing
B) The amount of cash received from sales
C) The amount of cash received from sales and the disposals of fixed assets
D) The amount of sales that have been made during a period
Answer: D
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Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) Which of the following statements is false?
A) Lenders are often provided with more information than is included on the financial statements of a company
B) It would be impractical to expand financial statements to include all the information that different user groups want
C) It is a legal requirement for companies to provide relevant financial accounting information to each of the user groups defined by the IASB
D) Shareholders and lenders want to know about the future prospects of a company
Answer: C
Q2) If a company buys goods for £50,and then sells half of these for £100.How much profit would be recognised?
A) £25
B) £50
C) £75
D) £100
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) One way to improve return on capital employed (ROCE)is to reduce costs and increase sales
A)True
B)False
Q3) Financial strength/solvency ratios include:
A) Return on shareholders funds, asset turnover and gross profit ratio
B) Stock turnover ratio, debtor ratio and creditor ratio
C) Price earnings ratio, dividend cover and dividend yield
D) Current ratio, quick ratio and capital gearing ratio
Q4) If a supplier was interested in whether or not they will be paid on time,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
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Chapter 5: How the Stock Market Assesses Company Performance
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Sample Questions
Q1) A balanced portfolio can eliminate unsystematic risk
A)True
B)False
Q2) The following information is available for companies A,B,C and D:
\[\begin{array} { l c r r r }
& \text { A } & { \text { B } } & \text { C } & { \text { D } } \\
\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\
\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\
\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\
\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000
\end{array}\]
Which company has the lowest price/earnings ratio?
A) A
B) B
C) C
D) D
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Chapter 6: Cash Flow Statements: Understanding and Preparation
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Sample Questions
Q1) Not all revenues are receipts of cash
A)True
B)False
Q2) The redemption of a loan would appear on the cash flow statement as a:
A) Financing activity
B) Operating activity
C) Investing activity
D) Debt activity
Q3) 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
Q4) The annual depreciation expense is an outflow of cash
A)True
B)False
Q5) All receipts of cash are treated as revenues
A)True
B)False
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Sample Questions
Q1) The International Accounting Standards Board (IASB)require companies to publish information related to business or geographical segments
A)True
B)False
Q2) "Minority interest" refers to the owners of shares which have no voting rights
A)True
B)False
Q3) High levels of debt in a company is always a cause for concern
A)True
B)False
Q4) Which of the following would you associate with the Director's report?
A) Cash flow statement
B) Five year summary
C) Business review
D) Balance sheet
Q5) Which of the following would not form part of the financial statements?
A) Statement of changes in equity
B) Cash flow statement
C) Income statement
D) Directors' remuneration report
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Chapter 8: Current Issues in Financial Reporting
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Sample Questions
Q1) It is easier to generate "fictitious" cash flow figures than to produce "fictitious" profit figures
A)True
B)False
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) 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
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Chapter 9: Bookkeeping to Trial Balance
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Sample Questions
Q1) 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
Q2) 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
Q3) Which of the following statements about double-entry bookkeeping is correct?
A) Recording a transaction on the left hand side of an account is called debiting it
B) Recording a transaction on the right hand side is debiting it
C) If an account has more debited to it than credited to it, it is said to have a credit balance
D) If an account has more credited to it than debited to it, it is said to have a debit balance
Q4) In general,a sales account has a credit balance
A)True
B)False
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Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) 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
Q2) Closing inventory appears twice in the final accounts,as a debit on the balance sheet and a credit on the income statement
A)True
B)False
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Page 12
Chapter 11: Financing a Business
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Sample Questions
Q1) 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
Q2) A business can raise finance by selling assets that it owns and then leasing them back again
A)True
B)False
Q3) 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
Q4) Preference shares are excluded in the calculation of earnings per share
A)True
B)False
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Chapter 12: Management of Working Capital
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Sample Questions
Q1) 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
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) If trade receivables is reduced,the amount of capital employed is reduced and profitability is increased
A)True
B)False
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14
Chapter 13: Introduction to Management Accounting
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Sample Questions
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) Operating expenses are period costs,which means they must be charged as an expense during the period in which they are incurred
A)True
B)False
Q3) Knowing the cost of producing a product helps determine the price to be charged for it
A)True
B)False
Q4) Standard costing is the most appropriate approach where actual costs do not fluctuate much
A)True B)False
Q5) Companies are not legally required to produce management accounting information
A)True B)False
Page 15
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Chapter 14: Investment Appraisal
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Sample Questions
Q1) Which of the following is correct?
A) Payback is based on profit as opposed to cash flow
B) Payback is based on cash flow as opposed to profit
C) Payback shows the internal rate of return (IRR) of the project
D) None of the above statements are correct
Q2) ROI stands for:
A) Residual or Other Income
B) Return On Investment
C) Revenue Over Investment
D) Revenue Only Income
Q3) Which of the following would be a reason for preferring £100 now as opposed to £100 in 1 years time?
A) Risk
B) Interest lost
C) Inflation
D) All of the above
Q4) A project with a high IRR might have a lower NPV
A)True
B)False
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Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) A fixed budget is most practical where levels of production and sales fluctuate
A)True
B)False
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) Which of the following is not an advantage of zero-based budgeting?
A) Easy to apply
B) Helps identify inefficient operations
C) Can increase staff motivation towards greater efficiency
D) Ensures alternatives, such as outsourcing, are considered
Q4) A cash budget includes receipts that don't appear in the income statement
A)True
B)False
Q5) A cash budget does not include tax and interest to be paid
A)True
B)False
17
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Chapter 16: Absorption Costing
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Sample Questions
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) A company uses a machine hour absorption rate.
During one month,the budgeted overheads are £24,000 and the budgeted machine hours are 6,400 hours.
The actual overheads incurred are £25,000.The actual machine hours operated were 6,250.
What is the total over/under absorption of overhead in the month,comparing the actual cost to the budget?
A) The overhead is UNDER absorbed by £1,000
B) The overhead is UNDER absorbed by £585.94 (to the nearest penny)
C) The overhead is UNDER absorbed by £1,562.50
D) The overhead is UNDER absorbed by £562.50
Q3) Direct labour costs are wages and employment costs charged directly to particular jobs as well as maintenance staff costs
A)True
B)False
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Page 18
Chapter 17: Marginal Costing and Decision-Making
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Sample Questions
Q1) Spellbound company make a sell 500,000 "wandies" a year for £15 each.Fixed costs are £350,000 a year and variable costs are £12 per unit.
By how much can the existing level of sales fall before the company starts to make a loss?
A) £5,750,000
B) £7,150,000
C) £1,150,000
D) £1,750,000
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
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Chapter 18: Standard Costing and Variance Analysis
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Q1) The LAH company produces product BG,which includes variable overhead standard cost of 5 hours at £15 per hour,based on a budget production of 3,000 units.The actual results for the last period were as follows:
\[\begin{array} { l r }
\text { Production } & 3,100 \\
\text { Hours incurred } & 16,000 \\
\text { Variable overhead } & £ 235,00
\end{array}\]
Calculate the variable overhead cost variance.
A) £5,000 favorable
B) £5,000 adverse
C) £7,500 favorable
D) £7,500 adverse
Q2) Fixed overhead expenditure variance can be expressed as:
A) Actual fixed overhead - budget fixed overhead
B) Actual fixed overhead/budget fixed overhead
C) Actual fixed overhead x budget fixed overhead
D) Budget fixed overhead/actual fixed overhead
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Chapter 19: Incomplete Records
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Sample Questions
Q1) Tom's bank statements show he had an opening bank balance of £3,000 and a closing bank balance of £7,000.Tom knows he paid £5,000 to suppliers and that he took drawings of £1,200.Calculate what Tom received from debtors.
A) £13,200
B) £5,000
C) £9,800
D) £10,200
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 sold at a margin of 60%?
A) £12,875
B) £8,000
C) £8,240
D) £12,360
Q3) Not every debit has a credit
A)True
B)False
Q4) Debits are increases to assets and expenses
A)True
B)False
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