Fundamentals of Accounting Final Exam
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and practices of accounting, including the recording, classification, and interpretation of financial transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, understanding debits and credits, and the use of accounting information in decision-making. Through conceptual and practical approaches, students learn how to analyze transactions, manage financial records, and apply accounting concepts to real-world business scenarios, laying a strong foundation for advanced study in accounting and related fields.
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) If liabilities increase £3,000 during a given period and owner's equity decreases £1,000 during the same period,the assets must have:
A) Increased by £3,000
B) Increased by £2,000
C) Decreased by £3,000
D) Decreased by £2,000
Answer: B
Q2) Which of the following statements is correct?
A) Some current assets, such as inventory, are not easily turned into cash
B) Some current assets, such as trade receivables, are not easily turned into cash
C) Some long-term assets, such as land and buildings, are easily turned into cash
D) Some long-term assets, such as fixtures and fittings, are easily turned into cash
Answer: A
Q3) Non-current liabilities include long-term borrowings such as mortgages.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Income Statement Profit and Loss Account
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Q1) A company buys 500 units of stock at a cost of £22 per unit.During the year,it sells 450 units at a price of £30 per unit.What is the "cost of goods sold" on the Income Statement?
A) £11,000
B) £9,900
C) £13,500
D) £3,600
Answer: B
Q2) If a company buys a machine for £12,000 with an estimated useful life of 4 years and a residual value of £4,000,what is the annual depreciation charge if calculated on a straight line basis?
A) £2,000
B) £4,000
C) £1,000
D) £3,000
Answer: A
Q3) Revenue is the amount received in cash during an accounting period
A)True
B)False
Answer: False
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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) Goodwill is an intangible asset
B) Goodwill is the excess of the price paid for the business, acquired over the net fair value of identifiable assets
C) According to IFRS 3, internally generated goodwill must be shown as an asset on the statement of financial position
D) Goodwill is recognized only where it is the result of a transaction
Answer: C
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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5
Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Q1) The return on capital employed (ROCE)shows how "solvent" a company is A)True
B)False
Q2) The price earnings ratio,dividend cover and dividend yield provide information on:
A) Stock market performance
B) Liquidity
C) Profitability
D) Utilization of assets
Q3) 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
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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Q1) A high price/earnings (P/E)ratio indicates that a company is profitable
A)True
B)False
Q2) Dividend per share expressed as a % of current share price is known as:
A) Dividend cover
B) Price/earnings ratio
C) Dividend yield
D) Earnings per share
Q3) Current share price divided by earnings per share is known as:
A) Price/earnings ratio
B) Dividend yield
C) Dividend cover
D) Market capitalization
Q4) 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) An increase in working capital would appear on the cash flow statement as a:
A) Financing activity
B) Operating activity
C) Investing activity
D) Debt activity
Q2) Using the following information,calculate the cash flow from investing activities: Disposal of fixed assets for £9,000,with a gain of £1,000; purchase of machine for £11,000; pay-off mortgage £3,000; dividends paid £20,000
A) £4,000 net cash outflow from investing activities
B) 24,000 net cash outflow from investing activities
C) 5,000 net cash inflow from investing activities
D) 5,000 net cash outflow from investing activities
Q3) The annual depreciation expense is an outflow of cash
A)True
B)False
Q4) The statement of financial position and income statement are based on the accruals concept
A)True
B)False
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Q1) The International Accounting Standards Board (IASB)require companies to publish information related to business or geographical segments
A)True
B)False
Q2) A company is about to buy another company,but this would result in "negative goodwill".For example,Company A pays £2m for Company S which has net assets of £3m.However,the fair value of the net assets of S is actually only £2.1m Which of the following is the correct treatment of this situation?
A) Revalue the assets of S to reflect the "fair value" of them prior to purchase
B) Show negative goodwill £1m on the consolidated Statement of Financial Position
C) Show the loss on purchase £1m on the Income Statement of A
D) Write off the loss of £1m in company A prior to purchase
Q3) A one-off loss is likely to be a major problem for company
A)True
B)False
Q4) Deferred taxation is a "liability" that may never have to be paid
A)True
B)False
Page 9
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Chapter 8: Current Issues in Financial Reporting
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Q1) Which of the following statements would normally be associated with a "right wing" proposal to curtail creative accounting practice?
A) Remove legislation and public involvement in company accounting
B) Develop more rigorous legislation and public involvement in company accounting
C) Develop more rigorous regulation and public involvement in audit practice
D) Statements B & C are both correct
Q2) A company can reduce its reported salary expense by paying some employees with share options instead of money
A)True
B)False
Q3) Which of the following is not a measure to improve auditor independence?
A) Audit fees set by an independent body
B) Prohibit senior audit rotation, to enable auditors to work more closely with management
C) Prohibit auditors from undertaking non-audit services for their clients
D) Auditors appointed by independent body
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Chapter 9: Bookkeeping to Trial Balance
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Q1) 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
Q2) Which of the following is expected to have a credit balance?
A) Trade payables
B) Trade receivables
C) Rent
D) Inventory
Q3) In a trial balance,if the totals of all the debts equals the totals of all the credits,you can be certain that no errors have been made
A)True
B)False
Q4) A creditor account of £10,500 represents:
A) An expense
B) An asset
C) A liability
D) A sale
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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 cost of goods sold
A) £38,000
B) £32,000
C) £228,000
D) £44,000
Q2) If a bad debt is written off,the accounting adjustment will be:
A) Dr: Bad debt expense Cr: Provision for bad debts
B) Dr: Provision for bad debts Cr: Bad debt expense
C) Dr: Bad debt expense Cr: Trade receivables
D) Dr: Trade receivables
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Page 12
Chapter 11: Financing a Business
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Q1) Which of the following statements is false?
A) Investors may view companies with high levels of debt as too risky
B) It is not easy to borrow money secured on land and buildings
C) The more a company gets into debt, the more difficult it becomes to borrow
D) High levels of borrowing can effect the share price
Q2) A company can reduce its share capital by buying back some of its own shares
A)True
B)False
Q3) 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
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Page 13
Chapter 12: Management of Working Capital
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Q1) High levels of working capital are associated with insolvency
A)True
B)False
Q2) A company can limit the amount of credit allowed to customers in which of the following ways?
A) Impose a time limit for payment
B) Limit the amount of credit available for each customer
C) Estimate the maximum total receivable figure the company can afford to finance
D) All of the above
Q3) Economic order quantity means:
A) Ordering small quantities at frequent intervals
B) Ordering large quantities less frequently
C) Outsourcing inventory management
D) To balance inventory ordering costs and holding costs
Q4) 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 company uses "Standard Costing".If the standard variable cost of making one unit is £0.32 and the budgeted production is 10,000 units but company produced 12,000 units,the expected variable cost would be:
A) £3,200
B) £0.32
C) £3,840
D) £640
Q2) Prime Cost is part of the production cost,also called the manufacturing cost or factory cost.
Prime Cost includes:
A) All costs associated with the production of a product, or the running of a factory
B) Direct material costs only
C) All material costs and all labour costs
D) Direct materials and direct labour costs
Q3) Comparing planned costs with actual costs is associated with:
A) Variance analysis
B) Flexible analysis
C) Break-even analysis
D) Costing analysis
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Page 15
Chapter 14: Investment Appraisal
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Q1) Which of the following statements considering investment appraisal methods are correct?
(i)Payback Period is based on Cashflow,not profits
(ii)ARR is based on cashflow,not profits
(iii)Discounted Cashflow includes the Time Value of Money in the calculation
A) They are all correct
B) (i) is false. (ii) and (iii) are correct
C) (i) and (iii) are correct. (ii) is false
D) They are all false
Q2) The accounting rate of return (ARR)calculation uses accounting profits as opposed to cash flows
A)True
B)False
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
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Page 16
Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) A typical set of budgets in an organization will include:
A) Sales budget, production budget and direct materials budget
B) Direct labour budget, production overhead budget and distribution budget
C) Budget income statement, capital expenditure budget and cash budget
D) All of the above
Q2) 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
Q3) A cash budget includes receipts that don't appear in the income statement
A)True
B)False
Q4) 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
Page 17
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Chapter 16: Absorption Costing
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Q1) The FlyOnTheWall company made the following purchases of camera components: \[\begin{array} { l l l l r }
\text { Date } & \text { Units } & \text { Cost price per unit } & \text { Amount } & \text { Total } \\
1 \text { st Feb } & 800 & £ 10 & 8,000 & 8,000 \\
15 \text { th Feb } & 1,000 & f 9 & 9,000 & 17,000 \\
25 \text { th Feb } & 6,000 & £ 11 & 6,600 & 23,600 \end{array}\]
The company took out a job on the 27th February,using 1,200 components.Show the price charged for the job under the average price approach
A) £11,800
B) £12,000
C) £11,600
D) £12,800
Q2) Production overheads include the costs of operating a production facility that can be charged directly to individual products or customers
A)True
B)False
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Page 18
Chapter 17: Marginal Costing and Decision-Making
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Q1) The results of AB/CB company are as follows:
\[\begin{array} { l c c }
\text { Sales } & 15,000 \text { units at } £ 45 \text { each } & 675,000 \\
\text { Variable costs at } & £ 37.50 \text { each } & 562,500 \\
\text { Fixed costs } & & 67,500 \\
\text { Profit } & & 45,000 \end{array}\]
How many more units do they need to sell to make a profit of £75,000?
A) 90 units
B) 667 units
C) 1467 units
D) 4000 units
Q2) The MoneyTalks company produces and sells 125,000 units a year for £50 each.Variable costs are £40 and annual fixed costs are £600,000.
Calculate the break-even point in units.
A) 60,000 units
B) 6,666 units
C) 40,540 units
D) £112,000 units
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Page 19
Chapter 18: Standard Costing and Variance Analysis
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Q1) 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)
Q2) Which of the following statements is INCORRECT?
A) Variances are often inter-related and must never be considered in isolation
B) Standards are difficult to set
C) A favourable sales variance is always good news
D) Variances are useful for monthly reporting to various managers across the business
Q3) Direct labour efficiency variance can be expresses as:
A) Standard hours x (actual rate - standard rate)
B) Standard rate x (actual hours - standard hours)
C) Standard rate x (actual hours + standard hours)
D) Actual rate x (actual hours - standard hours)
Q4) The sales margin volume variance measures the effect of a change in sales price
A)True
B)False
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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 sold at a margin of 50%?
A) £5,250
B) £8,000
C) £3,000
D) £7,000
Q2) 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
Q3) It is essential that every business keeps a complete record of ALL transactions
A)True
B)False
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21