financial accounting multiple choice Test A 2016, answers PDF

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This is the financial accounting multiple choice exam answers. This test contributes to 25% of your overall grade for this module. ...

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Financial Accounting

Multiple Choice Question Test A (Answers)

Instructions to students: Time allowed 40 minutes Your tutor will confirm when there are 10 minutes left for the remainder of the test Place a circle around the letter of the option you believe to be the correct answer Multiple answers will not be accepted, place a cross through the letter of discarded answers Attachments: Ratios are provided

Module (FN163 / FN165 / ML188)

Student name (full name)

Student number

Seminar group

Finance tutor name

Test date (dd/mm/yy)

Marks / Percentage (staff only)

January 2016

Page 1

Financial Accounting

1

Multiple Choice Question Test A (Answers)

Financial statements are prepared mainly for: A) Internal users of financial information B) External users of financial information C) Creditors of the business D) Managers of the business

2

The fundamental accounting equation is: A) Assets = Expenses + Income B) Assets = Cash + Equity C) Assets = Equity + Liabilities D) Assets = Expenses + Equity

3

The Income Statement shows: A) The financial position of the business B) The financial performance of the business C) The cash coming in and out of the business during a period of time D) The value of the business

4

The Statement of Financial Position: A) Shows the financial performance of the business B) Shows the cash flow of the business C) Shows the assets and liabilities of a business D) Measures the stock of a business

5

The Statement of Cash Flows tells us A) How much profit the business has made during an accounting period B) The financial position of the business at a point in time C) The forecast cash movements over a period of time D) How much cash has been received and paid during an accounting period

January 2016

Page 2

Financial Accounting

Multiple Choice Question Test A (Answers)

The information below relates to questions 6 to 9. Extracts from an income statement for the year ended 31 December 2015: £000 Sales revenue

25,000

Cost of sales

(11,500)

Administrative expenses Finance income Finance costs Taxation

6

(2,300) 400 (150) (1,356)

The Gross Profit is: A) 10,094 B) 11,200 C) 11,450 D) 13,500

7

The Operating Profit is: A) 13,500 B) 11,450 C) 11,200 D) 10,094

8

The Gross Profit Margin is: A) 46% B) 54% C) 45% D) 40%

9

The Operating Profit Margin is: A) 46% B) 54% C) 45%

January 2016

Page 3

Financial Accounting

Multiple Choice Question Test A (Answers)

D) 40%

The information below relates to questions 10 and 11. Non-Current Assets

40,000

Current Assets Trade Receivables Inventory Cash in Bank

10,000 4,000 6,000

Current Liabilities Trade Payables Short-Term Loan

7,000 3,000

Shareholders’ Equity Share Capital Retained Earnings

10

36,000 14,000

The Current Ratio figure is: A) 6:1 B) 2:1 C) 1.6:1 D) 1:2

11

The Quick Ratio figure is: A) 2:1 B) 6:1 C) 1:2 D) 1.6:1

12

The historical cost of a non-current asset less accumulated depreciation is the: A) Net book value of a non-current asset B) Market value of a non-current asset C) Fair value of a non-current asset D) Recoverable amount of a non-current asset

13

Which of the following is NOT an example of an intangible asset:

January 2016

Page 4

Financial Accounting

Multiple Choice Question Test A (Answers)

A) Franchise rights B) Land C) Patents D) Goodwill

The information below relates to questions 14 and 15.

ABC Limited financial results summary for the year ended 2015: Operating Profit

£60,000

Net Profit

14

£24,000

Long Term Loan s

£140,000

Shareholders funds

£400,000

What is the Return on Capital Employed? A) 4% B) 6% C) 15% D) 11%

15

What is the Gearing Ratio? A) 15% B) 74% C) 26% D) 17% The information below relates to questions 16 and 17. ABC Ltd purchases a new printer for £850. The printer is expected to have a useful life of 5 years and a residual value of £100.

16

Using the straight-line depreciation method calculate the amount to be expensed each year. A) £650 B) £150 C) £170 D) £850

17

What is the written down value (WDV) of the printer at the end of year 3?

January 2016

Page 5

Financial Accounting

Multiple Choice Question Test A (Answers)

A) £300 B) £350 C) £400 D) £550

18

Depreciation is intended to: A) Reduce the cost of an asset over its expected useful life B) Reduce the profit so not as much tax is paid C) Pay for the replacement of an asset D) None of the above

19

If a business pays rent in advance for 6 months, it will be treated as: A) Current asset B) Long term liability C) Non-current asset D) Current liability

20

An accrual arises as a result of: A) A business paying money in advance for services yet to be received B) A business planning to use services in the future C) A business providing services for which it has not been paid D) A business being provided with a service for which no supplier invoice has been received

21

Which of the following statements is true? A) Cash flow is linked to the Statement of Financial Position and Income Statement B) Cash flow is linked only to the Statement of Financial Position C) Cash flow is linked only to the Income Statement D) Cash flow is not linked to the Statement of Financial Position or Income Statement

22

The cash flow direct method calculates cash generated from operations from A) Operating profit B) Analysis of all receipts and payments relating to operating activities C) Changes in working capital D) Analysis of the changes in cash and overdraft levels

January 2016

Page 6

Financial Accounting

23

Multiple Choice Question Test A (Answers)

Of the transactions identified below (A to D), which correctly shows the effect on both profit and cash: Effect on: Profit

Cash

A)

Buying inventories on credit

decrease

decrease

B)

Public issue of shares

none

increase

C)

Accrual for rent payable

decrease

decrease

D)

Depreciating a non-current asset

decrease

decrease

The information below relates to questions 24 and 25. Transactions recorded during the financial year: Sales (cash)

£30,000

Sales (credit)

£5,000

Wages paid for the year

£15,600

Rent paid for five quarters (15 months) Cash paid for machinery (non-current asset)

24

£5,000 £18,000

The profit/loss for the period is: A) £14,400 B) (£3,600) C) £15,400 D) (£2,600)

25

The cash flow for the period is:

January 2016

Page 7

Financial Accounting

Multiple Choice Question Test A (Answers)

A) (£3,600) B) (£8,600) C) (£7,600) D)

January 2016

£9,400

Page 8

Financial Accounting

Multiple Choice Question Test A (Answers)

PROFITABILITY 1. Gross profit margin = Gross profit

x 100

Sales A measure of the profitability of the business after all direct costs associated with sales 2. Overheads/turnover = Overheads

x 100

Sales A measure of the proportion of sales represented by overheads of the business 3. Operating profit margin = Net profit (before finance costs)

x 100

Sales A measure of the profitability of the business 4. Return on capital employed = Net profit (before finance costs)

x 100

Capital A measure of how effectively the business uses its net assets to generate profit

FINANCIAL RISK 1. Gearing ratio = Debt (non-current liabilities)

x 100

Equity + Debt A measure of long term debt’s contribution to the overall long term capital structure. 2. Interest cover = Net profit (before finance costs) Interest payable A measure of the operating profit available to cover interest payable.

January 2016

Page 9

Financial Accounting

Multiple Choice Question Test A (Answers)

LIQUIDITY 1. Current ratio Current assets Current liabilities A measure of a business’s ability to meet its short term obligations/payments as they fall due 2. Quick ratio (Acid test) Current assets less Inventory Current liabilities A more stringent measure of a business’s ability to meet its short term obligations/payments as they fall due

EFFICIENCY 1. Inventory (stock) turnover Average stock

x 365

Cost of sales A measure of how effectively a business manages its stock Average stock = Opening stock + Closing stock 2 2. Debtor collection period Accounts receivable

x 365

Credit sales A measure of how effective a business is in collecting its debts 3. Creditor payment period Accounts payable

x 365

Credit purchases A measure of how quickly a business pays its suppliers

January 2016

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