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Q1: Which of the following is a record of all the account balances at the year end, and is used to prepare the final accounts

View Answer

Answer: A trial balance

Q2: During the year ended 31 December, the business made sales of £45,000 and purchases of £25,000. The inventory at the beginning of the year was valued at £8,000 and, at 31 December, £4,500. The gross profit for the year was

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Answer: £16,500.

Q3: If the sale of a motor van for £25,000 by a hotel company is included in its sales, which of the following statements is correct

View Answer

Answer: Both gross profit and net profit will be overstated by £25,000.

Q4: If drawings of £18,000 made by an owner were treated as a revenue expense, which of the following statements is correct

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Answer: Net profit will be understated by £18,000.

Q5: Which one of the following statements regarding the statement of financial position is false

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Answer: It shows the average assets and liabilities of a business over the last financial period.

Q6: Which of the following is not a characteristic of an asset

View Answer

Answer: It must have a physical substance.

Q7: Which of the following would be a liability for a business

View Answer

Answer: Trade payables

Q8: Clive’s business has paid telephone bills amounting to £21,500 during his financial year, which ended on 30 September 2015. After the year end, he receives a bill for the three months ended 31 October 2015 amounting to £6,600. Which of the following is true

View Answer

Answer: The business should accrue £4,400 for telephone expenses at the year end.

Q9: Which of the following statements regarding the going concern concept is true

View Answer

Answer: The going concern concept assumes that the business will continue for the foreseeable future.

Q10: Which one of the following would be classified as a current asset for a furniture retailer

View Answer

Answer: Furniture held for resale

Q11: Lu’s statement of profit or loss for his first year of trading to 30 September 2015 showed a charge for insurance of £9,000. Lu actually paid £13,000 for insurance during that financial year. Which of the following statements is true

View Answer

Answer: Insurance had been prepaid by £4,000 at the year end.

Q12: Sofia pays rent in advance for her business. Her trial balance at the business year-end, 31 December 2015, shows a figure of £8,750 for rent. During 2015, she had paid rent of £1,875 for the three months ended 29 February 2016. Her financial statements for the year ended 31 December 2016 should show

View Answer

Answer: The rent expense deducted in arriving at the profit or loss for the year would be £7,500 and a pre-payment of £1,250 would be included on the statement of financial position.

Q13: Chandra’s bakery business has the following account balances at 30 September 2015: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000 and a bank overdraft of £1,090. Chandra’s capital account as at 30 September 2015 is

View Answer

Answer: £33,360.

Q14: Sean has prepared his financial statements for the year ended 31March 2016, which show a net profit of £30,000, current assets of £234,400 and a total assets figure of £710,500. He has since discovered that the inventory figure he used was understated as he left out closing inventory valued at £10,100 from his workings. Which of the following statements is true

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Answer: The revised profit for the year should be £40,100.

Q15: Which of the following facts regarding the statement of financial position would not be true

View Answer

Answer: It is unnecessary to make any estimates or judgements when preparing a statement of financial position.

Q16: For an asset owned for more than one year, the depreciation charge for the year, calculated using the reducing-balance basis at the rate of 35%, would be arrived at as follows

View Answer

Answer: 35% x (cost of the asset – accumulated depreciation).

Q17: Misha bought a machine for £39,000, which she expects to have a useful life of four years and a residual value of £4,000 at the end of that time. If depreciation is to be provided on the straight-line basis, the net book value after two years will be

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Answer: £21,500.

Q18: Bruno buys two motor vans costing £41,000 in total. They are depreciated on the reducing-balance basis at the rate of 40% per annum. Which of the following statements is true

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Answer: The NBV of the vans after two years will be £14,760 and the depreciation charge for year 2 will be £9,840

Q19: Matt bought a delivery van for £14,000 on 1 July 2016. It is expected to have a useful life of 4 years and a value at the end of that time of £3,000. If depreciation is to be provided at 30% on the reducing-balance basis, the depreciation charge for the year ended 30 June 2017 will be

View Answer

Answer: £2,940.

Q20: Which of the following interpretations of the prudence concept is not true

View Answer

Answer: The prudence concept requires preparers of accounts to anticipate all income.

Q21: Dilip’s account balances at the business year end show a figure for trade receivables of £103,100. Included in this figure is an amount of £6,500 owed by Reece, which will not be received. Dilip usually creates a provision for doubtful debts of 2% of trade receivables. The figure for trade receivables on the statement of financial position at the year end should be

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Answer: £94,668.

Q22: If the trial balance at Laurie’s year end shows trade receivables of £19,900 and bad debts of £600 written off during the year, which of the following statements is true

View Answer

Answer: The statement of profit or loss should include a bad debt expense of £600 and trade receivables of £19,900 should be included on the statement of financial position.

Q23: If an asset cost £27,000 and the annual depreciation charge calculated using the straight-line method is £6,750 per annum, then depreciation is being charged at the rate of

View Answer

Answer: 25%.

Q24: Eva has purchased a machine for £300,000. She will depreciate it either at 20% on the straight-line basis or at 30% on the reducing-balance basis. Which method will lead to the highest combined profits in the first two years that the machine is owned

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Answer: The straight-line basis will lead to the highest combined profits.

Q25: Which of the following is true of ordinary shares

View Answer

Answer: The ordinary shareholders are repaid last if the company is wound up.

Q26: Which of the following is true of preference shares

View Answer

Answer: The preference dividend has to be paid before the ordinary dividend can be paid.

Q27: If Hegarty Ltd has issued 250,000 £1 ordinary shares and an ordinary dividend of 5 pence per share is paid, the dividend paid would be

View Answer

Answer: £12,500.

Q28: A company with limited funds wishes to pay preference dividends, debenture interest and ordinary dividends during a financial year. In what order should the company plan to make the payments

View Answer

Answer: Debenture interest, preference dividend, ordinary dividend.

Q29: Which of the following is not true of a stock exchange

View Answer

Answer: It is a place where companies can be formed.

Q30: Which of the following is a characteristic of a debenture

View Answer

Answer: Debentures are long-term loans.

Q31: Which of the following is not a source of funding for a company

View Answer

Answer: An increase in the company’s share price

Q32: Blanc plc has 200,000 4% £1 preference shares and 600,000 £1 ordinary shares in issue. If the company pays an ordinary dividend of 6 pence per share during the year ended 31 December 2017, the total dividends payable that year would be

View Answer

Answer: £44,000.

Q33: Twisters Ltd paid debenture interest of £210,000 on 6% debentures. Assuming no debenture issue was made during the year, what is the amount of debentures in issue during the year

View Answer

Answer: £3,500,000

Q34: Twisters Ltd paid a preference dividend of £30,000 on 600,000 £1 preference shares. What rate of dividend attaches to the preference shares, assuming the full preference dividend was paid during the year

View Answer

Answer: 0%

Q35: Which of the following is not deducted in arriving at a company’s operating profit

View Answer

Answer: Taxation

Q36: Which of the following items would not form part of the shareholders’ equity of a company on the statement of financial position

View Answer

Answer: Trade payables

Q37: Which one of the following would not be included in a full set of company financial statements

View Answer

Answer: The cash budget

Q38: Which of the following statements is likely to be true, for a company making profits

View Answer

Answer: Retained profits at the year end will be greater than retained profits at the beginning of the year.

Q39: Issa plc issues 30,000 £1 shares at £1.30 for each share. Which of the following statements is true

View Answer

Answer: Ordinary share capital will increase by £30,000 and share premium will increase by £9,000.

Q40: Sheba Ltd’s statement of financial position shows ordinary share capital of £150,000 and share premium of £50,000 at the beginning of a financial year. If the ordinary share capital is £250,000 and share premium is £120,000 at the end of the financial year, how much did the ordinary share issue raise

View Answer

Answer: £170,000

Q41: Twisters Ltd made a profit for the year ended 31 March 2017 of £30,000. During that year the company had paid preference dividends on 100,000 5% preference shares. In addition, an ordinary dividend of 4 pence per share was paid on 200,000 ordinary shares. What was the retained profit for the year ended 31 March 2017

View Answer

Answer: £17,000

Q42: Junior plc is a company that, during the year ended 31 December 2017, paid £25,000 debenture interest and paid an ordinary dividend of 8 pence per share on 1 million £1 ordinary shares. The retained profit for the year was £160,000. What was Junior plc’s profit for the year

View Answer

Answer: £240,000

Q43: Which of the following would be an entry in the statement of changes in equity

View Answer

Answer: Revaluation gain

Q44: During the year ended 30 June 2018, a company’s revaluation reserve increased from £300,000 to £380,000 as a result of a property revaluation. At the start of that financial year, the company’s property had been valued at £810,000. Assuming that no property was disposed of during the year, which of the following statements is true

View Answer

Answer: The property’s revalued amount was £890,000.

Q45: Which one of the following is not a category of cash flows required to be shown on the statement of cash flows

View Answer

Answer: Cash flows from taxation

Q46: If a company changes from offering 30 days’ credit to customers to offering 50 days credit, which of the following statements is correct

View Answer

Answer: Cash generated from operations will decrease.

Q47: If a company issues 1 million £1 shares at £1.30 per share, what will be the effect on the statement of cash flows

View Answer

Answer: Cash flows from financing activities will increase by £1.3 million.

Q48: Which one of the following courses of action will increase the bank balance of a company

View Answer

Answer: Taking longer to pay suppliers.

Q49: Dessy plc made an operating profit of £185,500 after charging depreciation of £31,200. During that year, trade payables increased by £26,600 and inventory increased by £40,300. There was no change to trade receivables. Assuming that no other factors affected it, the cash generated from operations would have been

View Answer

Answer: £203,000.

Q50: Which one of the following would be categorised as a cash flow from investing activities

View Answer

Answer: Proceeds from sale of equipment

Q51: Which of the following would not be revealed by a company’s statement of cash flows

View Answer

Answer: Whether the company has exceeded its overdraft limit during the year

Q52: Lydia buys and sells ladies’ handbags for cash. She buys them for £20 each and sells them for £35 each. During March, her first month of trading, she bought 50 handbags and had 10 handbags remaining in inventory at the month end. Ignoring any other expenses or payments, which of the following statements is true for March

View Answer

Answer: The business made a gross profit for the month of £600 and its bank balance increased by £400 as a result of trading. Increase in bank balance = receipts (40 x £35) – payments for purchases (50 x £20) = £400.

Q53: Lydia buys and sells ladies’ handbags. She buys for cash and sells on one month’s credit. She pays £20 for each bag and sells them for £35 each. During March, her first month of trading, she bought 50 handbags and had 10 handbags remaining in inventory at the month end. Ignoring any other expenses or payments, which of the following statements is true for March

View Answer

Answer: The business made a gross profit for the month of £600 and its bank balance increased by £1,400 as a result of trading.

Q54: Which one of the following would reduce the cash balances of a business and not reduce the profit for the year

View Answer

Answer: Dividends paid

Q55: The return on capital employed ratio is

View Answer

Answer: a measure of operating profit compared to capital employed.

Q56: Tom Ltd generated sales of £55,000. He made a gross profit of £22,000, and his operating profit was £8,000. His capital employed was £80,000. Calculate Tom’s return on capital employed

View Answer

Answer: 0%

Q57: Williams Ltd has current assets of £55,000, which includes inventory worth £15,000. Current liabilities are £35,000 and overall net assets are £120,000. What is the acid test ratio for Williams Ltd

View Answer

Answer: 1.14:1

Q58: Corn is a computer manufacturer who supplies large electrical superstores on credit. Bean is a food retailer who makes cash sales. Which of the following is not true

View Answer

Answer: Corn is likely to have a lower current and acid test ratio than Bean.

Q59: Ned Ltd’s trade receivable days have been getting shorter in recent years. Which of the following actions is likely to result in trade receivables days getting longer

View Answer

Answer: Negotiating longer credit terms with the company’s main customer

Q60: Ayrton Ltd’s trading account for the year ended 31 December 2018 was as follows: All sales and purchases were made on credit and at 31 December 2018, trade receivables were £22,000 and trade payables were £19,000. Which of the following statements is true

View Answer

Answer: On average, debts are collected in 36 days and on average, Ayrton Ltd pays suppliers in 50 days.

Q61: Which one of the following ratios is not a working capital management ratio

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Answer: Return on capital employed

Q62: Which one of the following is not true of the current ratio

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Answer: The acid test ratio will always be greater than the current ratio.

Q63: Claudia Ltd had the following ratios at 31 December 2016 and 31 December 2015: Which one of the following statements is true

View Answer

Answer: Claudia Ltd is collecting in its debts from customers more quickly in 2016 than in 2015.

Q64: If trade receivable days are 42 days, trade payables days 28 and inventory days 16, what is the working capital cycle in days

View Answer

Answer: 30 days

Q65: If Dan Ltd issues shares with a £1 nominal value, for £1.50 per share, then the gearing proportion and the current ratio will be affected as follows

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Answer: Gearing will reduce and the current ratio will increase.

Q66: A common definition for gearing is

View Answer

Answer: Long-term loans, divided by ordinary share capital plus reserves plus long term loans

Q67: An extract from Joy Plc’s Statement of financial position as at 30 September 2018 is given below: The gearing proportion at 30 September 2018 was:”

View Answer

Answer: 19%.

Q68: Ruth Plc has a gearing proportion of 40% at 30 September 2016. Which of the following statements is true

View Answer

Answer: Repayment of a short-term loan will not affect the gearing proportion.

Q69: Two competitor companies, Pan Ltd and Puck Ltd, have the following ratios at 31 December 2018: Which of the following statements is true

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Answer: Puck’s capital structure is less risky than Pan’s but it can cover its interest obligations more easily.

Q70: Steve Plc has the following information for the year to 30 June: What are the earnings per share for Steve Plc as at 30 June

View Answer

Answer: 23 pence

Q71: Steve Plc has the following information for the year to 30 June: What is the price to earnings ratio for Steve Plc as at 30 June

View Answer

Answer: 8.3 times

Q72: Steve plc has the following information for the year to 30 June: What is the dividend yield ratio for Steve Plc as at 30 June

View Answer

Answer: 0.03%

Q73: Steve Plc has the following information for the year to 30 June: What is the dividend cover ratio for Steve Plc as at 30 June

View Answer

Answer: 3.8 times

Q74: Which of the following is not a limitation of ratio analysis

View Answer

Answer: Ratios highlight underlying trends.

Q75: Which of the following costs would be a fixed cost for Carl; a confectionery manufacturer

View Answer

Answer: Supervisor’s salary

Q76: Which of the following is a definition for variable costs

View Answer

Answer: Costs that vary directly with the number of units produced

Q77: Luke is arranging for a party to be held in the students’ union. The use of the hall will be free but security costs of £300 will have to be met. The cost of the main band will be £2,500 and the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every ticket holder will be given a bottle of water, worth £1 per bottle. What are the total fixed costs for this event

View Answer

Answer: £3,250

Q78: Luke is arranging for a party to be held in the students’ union. The use of the hall will be free but security costs of £300 will have to be met. The cost of the main band will be £2,500 and the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every ticket holder will be given a bottle of water, worth £1 per bottle. What is the break-even number of tickets for this event

View Answer

Answer: 233 tickets

Q79: Luke is arranging for a party to be held in the students’ union. The use of the hall will be free but security costs of £300 will have to be met. The cost of the main band will be £2,500 and the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every ticket holder will be given a bottle of water, worth £1 per bottle. If Luke sells 400 tickets as he anticipates, what profit will he make

View Answer

Answer: £2,338

Q80: Which of the following is a definition of break-even point

View Answer

Answer: The situation where neither a profit or a loss is made

Q81: If the contribution per unit is £25 and the break-even point is 80,000 units. Which of the following statements could NOT be true

View Answer

Answer: To make a profit of £500,000, 95,000 units would have to be sold

Q82: Which of the following is the least secure margin of safety for a business to have

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Answer: A margin of safety of 3,000 units and a percentage margin of safety of 20%

Q83: Jenny expects to produce and sell 7,000 units at £15 each. Each unit will cost her £9 to produce and fixed costs will be £60,000 per annum. What is the break-even point in units

View Answer

Answer: 10,000 units

Q84: Which of the following is not an underlying assumption of break-even analysis

View Answer

Answer: Raw materials unit costs may diminish with increased output.

Q85: Which definition best describes indirect costs

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Answer: Indirect costs are those costs which cannot be directly associated with a product or service.

Q86: The management accounting technique that spreads indirect manufacturing costs fairly across the range of products is called

View Answer

Answer: Absorption costing.

Q87: What would happen to a blanket rate if production volumes were increased

View Answer

Answer: The unit cost of a product would decrease.

Q88: A business absorbs overheads on a direct labour hourly basis, which were budgeted at 2,500 labour hours with overheads of £56,500. Actual results were 2,350 hours with actual overheads of £54,050. Calculate the over or under recovery

View Answer

Answer: £940 under recovery

Q89: A company had an under recovery of overheads of £200,000 with a budgeted overhead of £1,000,000. If its estimated overhead hours were 20,000 and its actual overhead hours were 22,000, calculate the actual overhead cost

View Answer

Answer: £1,300,000

Q90: In absorption costing, what are the allocated costs

View Answer

Answer: The costs that can be directly associated with a department

Q91: What would be the most appropriate way of apportioning depreciation costs across different manufacturing departments in a business

View Answer

Answer: Value of buildings and equipment

Q92: A company manufactures high-quality china plates, which are hand-painted. It has a budgeted overhead of £20,000, taking 150 machine hours and 800 direct labour hours. Each plate uses £3 of direct materials, 0.25 labour hours at £10 per hour and 0.2 machine hours. What is the cost of a plate

View Answer

Answer: £11.75 (£20,000/800 total labour hours x 0.25 hours per plate) = £11.75.

Q93: Which of the following factors is considered to have influenced the development of activity-based costing

View Answer

Answer: Increase in overhead costs as a proportion of total product costs

Q94: Which of the following is not considered to be a benefit of activity-based costing

View Answer

Answer: Reduced complexity of calculating costs

Q95: Which is the mostly likely purpose of budgeting

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Answer: Planning and control of an organization’s income and expenditure

Q96: Which of the following budgets would not form part of the master budget

View Answer

Answer: Sales budget

Q97: Which of the following is not a functional budget

View Answer

Answer: Cash budget

Q98: A crockery company makes china cups and saucers. How much clay would they need to buy if: – a cup uses 100g of clay
– a saucer uses 150g of clay
– it plans to make 450,000 cups and 280,000 saucers
– there is no opening inventory
– it would like to have closing inventories of 4,000kg of clay

View Answer

Answer: 91,000kg

Q99: Calculate the production budget from the following data: sales 89,350 units; opening inventory 23,864 units; closing inventory 33,156 units

View Answer

Answer: 98,642 units

Q100: A business plans to make 15,000 coats per annum, each taking the 1.5 direct labour hours. If the direct labour rate is $8 per hour and a pay rise of 15% is awarded halfway through the year, what is the total annual direct labour budget

View Answer

Answer: $193500