Basic Accounting Practice Exam
Course Introduction
Basic Accounting introduces the fundamental concepts and principles of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the interpretation of financial information for decision-making. Students will gain practical skills in journalizing, posting, and preparing balance sheets and income statements, providing a solid foundation for further studies in accounting and finance. Throughout the course, emphasis is placed on accuracy, ethical standards, and the role of accounting in business operations.
Recommended Textbook
Accounting An Introduction 6th Edition by Peter Atrill
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14 Chapters
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Page 2
Chapter 1: Introduction to Accounting
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Sample Questions
Q1) Businesses tend to resist providing forecast data to those outside the organisation mainly because:
A) of fear of the loss of competitive advantage.
B) it is too difficult.
C) the data is inaccurate.
D) it is too costly.
Answer: A
Q2) Which statement is correct?
A) Financial reports are prepared for internal users whereas management reports are prepared for external users.
B) Financial reports are produced at more frequent intervals than management reports.
C) Financial reports reflect past performance whereas management reports are concerned with the future as well as the past.
D) Financial reports provide more forecast data than management reports.
Answer: C
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Page 3
Chapter 2: Measuring and Reporting Financial Position
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Sample Questions
Q1) The assumption that means accountants ignore inflation is:
A) the stable monetary unit assumption.
B) the going concern assumption.
C) the monetary assumption.
D) the prudence assumption.
Answer: A
Q2) Calculate equity.Cash at bank $3,400; inventory $1,200; accounts receivable $2,500; accounts payable $1,700; loan from ABC bank $3,500.
A) $8,900.
B) $5,300.
C) $1,900.
D) $12,300.
Answer: C
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4
Chapter 3: Measuring and Reporting Financial Performance
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Sample Questions
Q1) Bad debts:
A) are sales where the customer returns the goods.
B) occur when debtors do not pay their accounts.
C) is just another term for doubtful debts.
D) are all of the above.
Answer: B
Q2) Calculate gross profit if sales are $90,000,inventory at beginning is $5,600,purchases of inventory are $30,500 and inventory at end is $4,900.
A) $41,000.
B) $31,200.
C) $58,800.
D) $59,500.
Answer: C
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Chapter 4: Introduction to Limited Companies
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Sample Questions
Q1) Which of the following is unlikely to be a reserve found in a company's statement of financial position.?
A) Asset replacement.
B) Foreign currency.
C) Acquisition.
D) All of the above are likely to be found.
Q2) An audit fee expense will most likely be found in the statement of financial performance for a:
A) sole proprietorship.
B) partnership.
C) company.
D) Both B and C.
Q3) In a company statement of financial position,the balance of retained profit at the end of the period is equal to:
A) profit for the period.
B) retained profit at the beginning of the period plus profit minus dividends declared.
C) profit less losses.
D) retained profit at the beginning of the period plus profit.
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Chapter 5: Regulatory Framework for Companies
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Sample Questions
Q1) Goodwill on consolidation is classified in the statement of financial position as a/an:
A) current asset.
B) tangible asset.
C) intangible asset.
D) non-current liability.
Q2) Why might a subsidiary company retain their own identity?
A) Maintain their market identity.
B) Enable the parent company to retain a limited liability status.
C) Allow their staff to remain autonomous.
D) All of the above.
Q3) Which of the following are sources of regulation applicable to publicly listed companies in Australia?
A) ASX rules.
B) Company law.
C) International accounting standards.
D) All of the above.
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Chapter 6: Measuring and Reporting Cash Flows
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Sample Questions
Q1) The rule for converting credit sales to cash received from debtors is:
A) income - accounts receivable at the beginning + accounts receivable at the end = cash received.
B) income + accounts receivable at the beginning - accounts receivable at the end = cash received.
C) income + or - accounts receivable at the beginning + or - accounts receivable at the end = cash received.
D) none of the above.
Q2) Calculate cash from operating activities using the following information:
Profit \(\$ 148,000\).
Depreciation \(\$ 40,000\).
Inventory increased by \(\$ 10,000\).
A) $148,000.
B) $178,000.
C) $188,000.
D) $98,000.
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Chapter 7: Corporate Social Responsibility and Sustainability Accounting
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Sample Questions
Q1) Which of these is an argument against corporate social responsibility?
A) It is too costly.
B) It is too difficult.
C) Business is about building wealth for its shareholders, not helping society.
D) All of the above.
Q2) Which Australian company has often been criticised in the news over its apparent lack of social responsibility in relation to employees working with asbestos?
A) BHP Billiton
B) James Hardie
C) Rio Tinto
D) Enron
Q3) The GRI Guidelines relating to reporting content covers the areas of sustainability context and:
A) materiality.
B) completeness.
C) shareholder inclusiveness.
D) All of the above.
Q4) Give four reasons why a business might engage in activities that are less profitable to itself but which are beneficial to society.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) Solvent Ltd has a quick ratio of 1.2:1 and its current liabilities amount to $200,000.If it purchased $40,000 of inventory on credit,its new quick ratio would be:
A) unable to be calculated.
B) higher.
C) unaffected by the transaction.
D) lower.
Q2) Using the formula,gearing ratio = long-term liabilities/ (shareholders' funds + long-term liabilities)× 100/1,calculate the gearing ratio from the following information.Long-term liabilities $18m,Shareholders' funds $14m.
A) 128%.
B) 56%.
C) 78%.
D) 44%.
Q3) The adequacy of the gross profit margin depends on:
A) selling price.
B) buying price.
C) total expenses.
D) Both A and B.
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Chapter 9: Costvolumeprofit Analysis and Relevant Costing
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Sample Questions
Q1) The following information relates to component AHB2 manufactured by Aquarius Electronics.
\(\begin{array} { l l r } \text { Internal Manufacturing cost: } & \text { Direct materials } & \$ 30 \\ \text { (per unit) } & \text { Direct labour } & 18 \\ & \text { Variable manufacturing overhead } & 9 \\ & \text { Fixed manufacturing overhead } & \underline { 17 } \\ & & \underline { 74 }\\ \text { External acquisition price (per unit) }&&\$54 \end{array}\)
REQUIRED:
a)Based on the financial data presented,should Aquarius continue to manufacture the part or source it from the external supplier?
b)What other factors need to be taken into account?
Q2) Which of theses would be considered a fixed cost?
A) Cost of fuel for a transport company.
B) Laundry costs to wash towels used by a hairdresser.
C) Insurance premium.
D) Materials used in production.
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Chapter 10: Full Costing
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Sample Questions
Q1) Refer to the information above.The indirect costs incurred in providing a haircut only to a client would be:
A) all costs mentioned above.
B) shampoo and conditioner, electricity and gas.
C) electricity and gas and depreciation of equipment.
D) shampoo and conditioner, electricity and gas, and depreciation of equipment.
Q2) Which of these is an example of a product cost centre for a furniture manufacturer?
A) Human resources.
B) Assembly.
C) Accounting.
D) Canteen.
Q3) In a competitive market,a supplier will use which type of pricing approach?
A) Cost plus.
B) Target pricing.
C) Target costing.
D) Market price.
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Chapter 11: Budgeting
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Sample Questions
Q1) The reconciliation between budgeted profit and actual profit can be summarised as:
A) budgeted profit minus all favourable variances plus all adverse variances equals actual profit.
B) actual profit plus all favourable variances plus all adverse variances equals budgeted profit.
C) actual profit plus all favourable variances minus all adverse variance equals budgeted profit.
D) budgeted profit plus all favourable variances minus all adverse variance equals actual profit.
Q2) One of the approaches to setting budgets is known as the 'top down' approach.This is best described as:
A) production budget set first and working from this to other budgets.
B) budget targets set at the lowest level of management.
C) setting the sales forecast and working from this to other budgets.
D) budget targets set by senior management.
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13
Chapter 12: Capital Investment Decisions
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Sample Questions
Q1) Which of the following are practical issues that need to be considered when using investment appraisal methods?
A) Irrelevant costs.
B) Taxation.
C) Interest payments.
D) Both B and C.
Q2) To calculate the Accounting Rate of Return,it is necessary to determine annual profit.Annual profit is calculated on a/an:
A) market value basis.
B) cash basis.
C) accrual basis.
D) current cost basis.
Q3) All of the investment appraisal methods below use cash flows exclusively except:
A) accounting rate of return.
B) payback.
C) internal rate of return.
D) net present value.
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14
Chapter 13: The Management of Working Capital
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Sample Questions
Q1) Wonderland has a plant that manufactures computer chips.Expected demand for these chips in March 2015 is 52,000 units.Wonderland estimates the cost per purchase order to be $25.The monthly holding cost for one chip is 5c.
REQUIRED:
A)i)Compute the economic order quantity for the chips.
ii.Compute the number of orders in March 2015.
B)List the motives for holding cash in a business.
C)Name at least four factors that influence the length of the credit period in a business.
Q2) Because of uncertainty of demand,a firm may choose to hold an additional amount of inventory called:
A) reorder stock.
B) economic order quantity stock.
C) safety stock.
D) transit stock.
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Chapter 14: Financing the Business
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Sample Questions
Q1) Which factor should be taken into account when deciding between debt and equity finance?
A) The effect on earnings per share.
B) The security available.
C) The purpose of the finance.
D) All of the above.
Q2) Which statement about retained profits and dividends is true?
A) Dividends and retained profits are two sides of the same coin.
B) In Australia, industrial companies, on average, pay out about 30% of their earnings as dividends.
C) On average, dividends are a relatively small component of return on shares compared to capital gains.
D) All of the statements are true.
Q3) All are ways in which a firm's internal sources of finance can be increased except:
A) delay payments to accounts payable.
B) increase inventory levels.
C) retain more profits.
D) cut the dividend rate.
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