Practice Test 2 - Solutions PDF

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Warning: TT: undefined function: 32Paper FABFOUNDATIONS IN ACCOUNTANCYAccountant inBusinessPractice Test 2Jan-Jun 2020Time allowed: 2 hoursThis paper is divided into two sections:Section A – ALL 46 questions are compulsory andMUST be attemptedSection B – ALL SIX questions are compulsory andMUST be a...

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Accountant in Business Practice Test 2 Jan-Jun 2020

Time allowed: 2 hours This paper is divided into two sections: Section A – ALL 46 questions are compulsory and MUST be attempted Section B – ALL SIX questions are compulsory and MUST be attempted

Do not open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper FAB

FOUNDATIONS IN ACCOUNTANCY

Section A – ALL 46 questions are compulsory and MUST be attempted. 1.

Which of the following writers argued that the manager of a business has one basic function, namely economic performance? A Mintzberg B Drucker C Mayo According to Drucker, management can only justify its existence and its authority by the economic results it produces. (1 mark)

2.

Frida has attended a personal development programme on which she participated in an exercise based on the Blake and mouton managerial grid. One conclusion of the exercise is that she demonstrates a ‘5.5’ leadership style. What does the outcome of the exercise demonstrate? A

Frida is a team player and achieves a high level of harmony in the working group sometimes at the expense of achieving results B Frida optimizes the effectiveness of her team by achieving the highest level of morale and task accomplishment C Frida is entirely focused on getting the job done and pays minimal attention to team maintenance needs D Frida balances the need to get the job done with the need to maintain the team A 5.5 rating on Blake and Mouton’s managerial grid is designated middle of the road indicating that Frida balances the need to get work out with maintaining team morale. (2 marks) 3.

Country X has no legislation on diversity in employment but enforces highly effective equal pay laws. JKL Co has a recruitment and selection policy that explicitly commits the company to diversity in employment. PQR Co has no policy in this respect and is not committed to diversity in employment. Are each of the following statements true or false? (Tick at the appropriate box) True

False

(i) Assuming that there is perfect knowledge of job opportunities and no barriers to movement of the workforce PQR Co will pay lower wages and salaries than JKL Co False (ii) PQR Co is exposed to greater risk of skills shortages than JKL Co True If there are no barriers to movement of the workforce then PQR Co will need to pay the going rate for the job (as the country has highly effective equal pay laws). Therefore, PQR Co will not necessary pay lower wages than JKL Co. However, if PQR Co is seen by the workforce as not being committed to diversity then it could well have problems employing some sections of the workforce. Therefore, PQR Co is exposed to a greater risk of skills shortages than JKL Co.

(2 marks) 4.

An audit firm needs one of its two trainee accountants to attend an inventory count at the weekend but neither of them wants to do it both claiming they are busy. They are both aware that the other one does not want to attend the count, and this is creating tension between them. The audit manager, who believes that integration and collaboration are the best responses to handling conflict, has been asked to resolve the situation. Which of the following is the manager’s approach MOST likely to be? A B

The arbitrarily select one of the trainees to attend the inventory count To explain that the firm has to have a representative at the count so the trainees must be prepared to modify their own wishes for the benefit of the firm C To ignore the issue believing it to be trivial, in the hope that the trainees will resolve the dispute amongst themselves D To suggest that whichever trainee attends this count will be exempt from attending the next two with the other trainee having to attend them When management responses to conflict are based on integration and collaboration emphasis is placed on the task at hand. Individuals are encouraged to accept the need to modify their views for the sake of the task. The other management response styles described in the options would be: • Ignoring the issue denial • Arbitrarily selecting one of the accountant dominance • Exemption from the next counts compromise (2 marks) 5.

The meaning of a message can be lost at the coding and decoding stages. What is the name given to this process? A Noise B Distortion C Feedback Distortion occurs when the meaning of a message is lost at the coding or decoding stage. (1 mark)

6.

An accountant has been approached by a company to provide it with advice. The company is not currently a client, but is in direct competition with one of the accountant’s existing clients. What should the accountant do in this instance? A B C D

Accept the new engagement provided they first tell their existing client about the potential new engagement Accept the new engagement provided they feel they have sufficient professional competence to do the work required Not accept the new engagement Accept the new engagement provided they tell the potential new client about their existing client

Accountants (particularly members of a professional body such as ACCA) should not accept engagement, which lead, or could lead, to a conflict of interest arising in the advice given to both clients. In this case the two companies are direct competitors so by acting for both of them the accountant could face a conflict of interest. For example, the new client could ask the accountant to advise on a project which would be detrimental to the existing client making it impossible for the accountant to remain impartial and uphold the best interests of both clients at the same time, (2 marks) 7.

Which TWO of the following statements about Corporate Code of Ethics are true? A

They only relate to the way staff deal with colleagues and other staff within an organisation B They should identify the minimum acceptable standards of behavior and conduct of employees C A company does not need them if it always complies with the relevant laws and regulations D They promote respect and integrity within an organisation Corporate Code of Ethics identify how employees are expected to behave not only towards each other, but also in relation to external parties such as customers and suppliers. Therefore, the option about the Code only relating to dealings with colleagues is incorrect because it suggests the codes have a solely internal focus. Establishing minimum acceptable standards of behavior is a vital part of a Code of Ethics. Promoting an environment of respect based on integrity and trust is one of the key benefits of having a Code of Ethics in an organization. It is important to recognize that acting lawfully and acting ethically are not the same thing. A company (or an individual) may be acting within the law, but still be acting unethically. (2 marks) 8.

Which of the following can be considered as a distinguishing mark of the accountancy profession? A The accountant’s responsibility to satisfy the needs of their individual employers B It acceptance of its responsibility to act in the public interest C Its acceptance of its responsibility to uphold the law D The accountant’s responsibility to satisfy the needs of their individual clients A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Accordingly a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer, but also to consider the wider public interest. (2 marks)

9.

Which TWO of the following are most likely to raise ethical problems or concerns for a company? A B C

The health and safety inspector feels that the fire exits from its factory are very poorly identified and could make the factory unsafe in the event of a fire It promotes diversity and equal opportunities amongst its workforce A human rights group has recently exposed that one of the company’s main suppliers is using child labour and is paying its staff very low wages

D

Recent customer surveys have voted the company’s product as the worst value for money among its competitors A company has a duty to provide its staff with a healthy and safe workplace. If there are concerns about the safety of a factory this questions whether the company is fulfilling its duty to its staff. The human rights group has exposed that the supplier is using immoral employment practices even though employing child labour may not necessarily be illegal in the country concerned. Because the practices are immoral the purchasing company should not be seen to support them. (2 marks) 10. Which TWO of the following are characteristics of a relativist approach to ethics? A What is right in one situation may not be right in another B Ethics are linked to cultural beliefs C There is a set of moral rules which always right Relativism suggests that a wide variety of acceptable ethical beliefs exist, and that moral statements are subjective. (2 marks) 11. Which of the following is an organisation feature of a co-operative business? A Staffing by volunteers as well as full time employees B Finance from grants or contracts C Distribution of surplus profits in proportion to purchase Co-operative businesses are owned and run by their workers or customers, who share the profits. The other points are features of non-governmental organisations (NGOs) (1 mark) 3.

An organisation is aiming to keep a stakeholder satisfied. According to Mendelow’s grid, what level of interest and power does this stakeholder have? (Tick at the appropriate box) Low level (i) Interest

High level

/

(ii) Power / (2 marks) 12. Which of the following principles is usually recommended for inclusion in legislation on data protection? A B C

All personal data held by data users should be updated by checking this data with the subject at regular intervals All personal data held by data users should be adequate for the purpose of the data user but not excessive All personal data held by data users should be reviewed regularly and automatically deleted after a specified period of time

D

The data user should provide the data subject with regular and detailed information on the data held Best practice recommends that all personal data held by data users should be adequate for the purpose of the data user but not excessive. (2 marks) 13. Which of the following measures might a government introduce to increase consumer demand in the economy? A Strict credit control B A policy of high interest rate C Reduced levels of taxation Cuts in taxation would stimulate demand in the economy because companies and households would have more after-tax income to spend or invest. (1 mark) 14. Which type of goods has a cross-elasticity of demand of -1? A B C D

Unrelated goods Homogenous goods Perfect substitutes Perfect complements (2 marks)

15. Which of the following is a characteristic of the informal organisation? A It evolves over time and can change rapidly B It is made up of individuals at the same level in the organisation C Information flows more slowly than through the formal organisation D Communication flows are mainly upward and downward The informal organisation has the advantage of being able to evolve over time and can change rapidly if necessary, where the formal organisation may have rigid set procedures and lengthy lines of communication. (2 marks) 16. Which TWO of the following are DISADVANTAGES of a tall organisation? A Rigid supervision may block employee initiative B Managers only have limited time to supervise each employee C Decision making and responses tend to be slow In tall organisations rigid supervision can be imposed, blocking initiative. Decision-making responses are slow, as the strategic apex is further away. (2 marks) 17. XYZ Co manufactures plastic boxes. It employs 120 people and is managed in the following way. Operational staffs are employed because of their specialist skills and for the application of these skills they are answerable to a specialist training manager. They are allocated to particular manufacturing teams working on different types of boxes. Each type of box has a different manager who manages its production. In the course of a working week an individual employee can work on the manufacture of more than one type of box.

Which type of the following organizational structures is described for XYZ Co in the statement above? A Matrix B Functional C Divisional D Geographical A matrix structure splits an organization in two ways, often a functional split on one axis and a product/customer/project split on the other. Employees have more than one line of authority in XYZ Co each of the workers reports to two different managers (a product manager and a training manager) indicating a matrix structure. (2 marks) 18. The hierarchy developed by Robert Anthony suggests that business control is exercised primarily by managers at which level of the organisation? A Operational B Strategic C Tactical D Divisional Anthony’s hierarchy suggests that managers at the tactical level exercise business control. (2 marks) 19. Which of the following describes a proactive strategy for corporate social responsibility? A Looking to minimise additional obligations arising from faults reported by customers B Recalling faulty products before customers become aware of the faults C Dealing with situations after the public become aware of them A proactive strategy means taking full responsibility for actions, taking action to deal with situations before they are forced to. (1 mark) 20. Government in many countries are encouraging improved standards of corporate governance, focusing mainly on public companies whose securities are listed on recognized capital markets. Why are best practices in corporate governance of special importance to these companies? A B C D

Public companies are subject to less stringent regulation than other types of commercial organization Public companies are subject to a greater degree of separation between those who manage the company and those who own it Public companies have institutional investors and have greater ethical responsibilities to these investors than to personal investors All other types of business organisations are already subject to and fully implement high standards of corporate governance

Corporate governance is of special importance to public companies because of the greater degree of separation between those who manage the company and those who own it. Public companies are subject to a higher degree of regulation than other types of commercial organization and they have ethical responsibilities to all their investors equally. Other types of business organization are not subject to corporate governance at all i.e. sole traders and partnerships. (2 marks) 21. Analysis of cost and revenues of different products would assists the marketing department in respect of which activity? A Differentiating the technical features of products from those of competitors B Calculating the maximum discounts that sales personnel are permitted to offer C Targeting sales efforts towards the most appropriate socio-economic groups D Determining production bonuses to be paid The analysis of costs and revenues from different products would give details of the profitability of each range of products and so would assist the marketing department in calculating the maximum discounts that sales personnel are permitted to offer. This type of costing analysis would not help in differentiating the technical features from those of competitors and would give no information about socio-economic groups who might buy the products. The marketing department is concerned with sales and so would have no interest in determining production bonuses. (2 marks) 22. Which of the following statements concerning external audit is CORRECT? A External auditors report to shareholders on the stewardship of directors B External audit is designed to add value and improve an organisation’s operations C External auditors are often employees of the company The purpose of external audit is to give a professional and independent opinion of the financial statement and the way they have been prepared – this includes whether or not directors have acted properly as agents of the shareholders. (1 mark) 23. In relation to fraud prevention, which of the following statements is correct in respect of the role of the external auditor? A

The external auditor must ensure that all internal systems are capable of detecting every types of fraud B The external auditor has primary responsibility for preventing and detecting fraud and is accountable to the shareholders for this C The external auditor’s procedures should provide reasonable assurance that misstatements arising from fraud will be detected D The work of the external auditor has nothing to do with fraud prevention, so the external auditor has no responsibility in this respect The external auditor’s procedures should provide reasonable assurance that misstatement arising from fraud will be detected. (2 marks)

24. It has been discovered that the financial accounts of PQR Co included a deliberately understated depreciation figure that gave a misleading impression of the company’s performance to its shareholders. The potential consequence of this is which of the following? A The directors may be prosecuted for fraud B The audit committee may be sued for misrepresentation C The company may be prosecuted as a separate legal entity D The internal auditor may be sued by the shareholders for negligence The directors are responsible for the production of the financial accounts and have to take responsibility for any errors. As the accounts have been deliberately manipulated to give a misleading impression, the directors may be prosecuted for fraud. (2 marks) 25. BTH Co has just had to recruit some additional staff to clear a backlog of orders in its warehouse and the operations director is concerned about the impact this will have on BTH Co’s staff costs compared to the budgeted figure. Which TWO of the following reports would it be most useful for the operations directo to look at? A BTH Co’s wages and salaries cost schedules B The cost schedules for BTH Co’s administration costs as a whole C Variance reports for wages and salaries D Variance reports for BTH Co’s administration costs as a whole The operations director is specifically interest in the impact that recruiting extra staff is having on staff costs. These staff costs will primarily be wages and salary costs, so looking at the wages and salary schedules will allow the director to see what BTH Co’s actual staff costs currently are. Reviewing the variance reports for wages and salaries will then allow the director to see how the current actual costs compare to the budgeted figures. (2 marks) 26. Which of the following is an example of standing data recorded in a payroll system? A Tax reference number issued by the tax authority B Total salary received in the year to date C Total deductions from gross income each month D Pension contributions deducted from salary Standing data is permanent data that does not change, such as the tax reference number issued by the tax authority. (2 marks) 27. Which TWO of the following would be classified as standing data in the payroll system? A B C

Rate of pay Name and address Gross pay to date

Standing data does not change in the short term – an employee’s name/address and rate of pay meets this definition, whilst gross pay to date increases each week/month. (1 mark) 28. Which of the following is a non-discretionary control? A Access to a database is password protected B Orders must be signed by a manager before processing C Staff must be checked against national criminal records prior to employment A non-discretionary control is one provided automatically by the...