C37FF2

HERIOT-WATT UNIVERSITY
SCHOOL OF MANAGEMENT AND LANGUAGES
____________

Students Name
Student Identification
Number.
This question paper must be handed to the lecturer before leaving the
examination room

Finance and Financial Reporting

March 2014
MULTIPLE CHOICE TEST
(40 minutes)
Students should attempt ALL questions
Please answer on the Multiple Choice Test Answer Sheet
provided.
1

Each question carries equal marks.

Choose only one answer for each question.
1.

As asset is a resource held by a business. For a particular item to be treated

as an asset, for accounting purposes, it should have certain essential
characteristics. Which one of the following is NOT one of the essential
characteristics?
A.
B.
C.
D.

2.

it is probable that the item will generate future economic benefit

the business has a right to control the item
the business has legal title of the item
the item can be reliably measured in financial terms

A current asset is an asset that is expected to be realised within .

after the balance sheet date
Which of the following phrases completes the above statements?
A. six months
B. nine months
C. twelve months
D. eighteen months

The following information relates to questions 3 to 4 inclusive

Black and Partners has listed the following amounts in its statement of financial
position:

Bank overdraft
5,000
Buildings
285,000
Trade payables
10,000
Trade receivables
23,000
Taxes payable within 1 year
15,000
Plant & equipment
31,000
Share capital (par value @25p) 250,000
Retained profits
266,000
Debentures
43,000
Inventories
250,000
3.

What is the amount of total current liabilities?

A 25,000
B. 30,000
C. 275,000
D. None of the above

4.

What is the market value of Black and Partners?

A. 250,000
B. 516,000
C. 559,000
D. None of the above

5.

The following are business transactions of a retailer:

Purchased 200 items of cost 4 each for cash. Total 800.
Delivered 120 items to credit customers at a selling price of 7 per item. Total
840.
Collection of cash from credit customers for 90 items at the selling price of 7
per item. Total 630.
What is the total revenue and the outstanding amount of receivables?
A. Total revenue 840: Receivables 210
B. Total revenue 840: Receivables 630
C. Total revenue 630: Receivables 210
D. Total revenue 630: Receivables 630

6.

A prepayment arises when an item of expense of the benefit being

received.
Which of the following phrases correctly completes the above sentence?
A. is paid in advance
B. is received in advance
C. is not paid in advance
D. is reclaimed in advance

7.

Which of the following methods of inventory valuation will result in the highest
cost of sales during a period of falling prices and constant or rising volumes of
inventories?
A. Weighted-average cost
B. Last-in, first-out (LIFO)
C. Average cost for period purchases
D. First-in, first-out (FIFO)

8.

Which one of the following statements is false?

A
B
C
D

9.

Cash is the lifeblood of a business and without it the business will die
A profitable company will never run out of cash
Rapidly expanding companies can sometimes face a cash shortage
If cash outflows exceed cash inflows on an on-going basis, the business will
eventually run out of cash

The Depreciation expense has which of the following effects on cash flows:
A. decreases operating cash flows
B. decreases investment cash flows
C. decreases financing cash flows
D. no cash flow impact

The following information relates to questions 10 to 12 inclusive

Eds Enterprises Ltd
Income statement for year ended 31 December Year 7
m
Sales
320
Cost of sales
(190)
Gross profit
130
Administration and selling expenses
(50)
Operating profit
80
Debenture interest
( 4)
Profit before taxation
76
Taxation
( 15)
Profit for the period
61
Dividends paid by Eds Enterprises Ltd in Year 7 16m
Statement of financial position as at 31 December Year 7
m
Non-current assets
Current assets:
Inventories
Trade receivables
Cash
Total assets

100
23
10

Share Capital and Reserves

Issued share capital: ordinary shares of
@25 pence
Retained profits
10% Debentures
Current liabilities
Trade payables
Taxation
Total equity and liabilities

m
416

133
549
125
351
476
40

18
15

33
549

Market price per share at 31 December Year 7 was 1.20 per share

10. What is the operating profit margin?

A. 25%
B. 42%
C. 61%
D. 131%
11.

What is the return on ordinary shareholders' funds?

A. 12.8%
B. 16.0%
C. 48.8%
D. 60.8%

12. What is the trade receivables settlement period? (Assume that the amount of
opening and closing receivables are the same)
A. 15.3 days
B. 26.2 days
C. 44.2 days
D. 137.6 days
13. Which of the following statements best describes a limited liability company?
A. In law, it is regarded as having a separate existence from its owners
B. It is normally owned and managed by the same persons
C. It is normally a non-profit making organization
D. It is normally owned by just one person
14. You have been asked to provide finances to a company. Which one of the
following forms of finance should offer you the lowest rate of return together
with the lowest risk?
A. An unsecured loan
B. Preference shares
C. A secured loan
D. Ordinary shares
15. Which of the following is NOT a characteristic of a preference share?
A. Unpaid dividend accrues until it can be paid
B. Do not usually have voting rights unless dividends fall into arrears
C. It is more like debt than a share in its characteristics
D. Ranks last for payment in the event of company liquidation

16. A company has 2,000,000 ordinary shares of 50p in issue. The current market
price is 5.00 per share. The directors are about to make a bonus issue of
500,000 shares. What is the expected market price per share after the bonus
issue?
A. 0.40
B. 4.00
C. 5.00
D. 20.00
17. Company A owns 60% of the ordinary share capital of company B. Which one
of the following is the correct description of the investment in the company As
statement of financial position?
A. A non-current asset investment
B. An associated company
C. An intangible asset
D. A joint venture
18. Which of the following is NOT correct about bonus issues:
A. The total number of shares in the company will increase
B. The market value of the company will increase
C. The share price of the company will decrease
D. The equity (book value) of the company will remain the same
19. Company X enters into an agreement with the owner of an asset, Company Y,
giving Company X the right to use the asset over a period of time, in return for
a regular series of payments. Legal ownership of the asset will not change
hands. Which type of medium-term company finance is this arrangement?
A. credit sale
B. leasing
C. hire purchase
D. trade credit
20. A company has 4,000,000 shares with market price 1.80 each. Through a
rights issue, shareholders are offered 1 share at 1.5 for every 5 shares held.
What is the ex-rights price?
A. 1.50
B. 1.75
C. 1.80
D. 2.10

No marks are deducted for wrong answers.

Multiple Choice Test Answer Sheet
Students Name
Student Identification number.
For each question place a tick ( ) in the appropriate column
A

Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Question 7
Question 8
Question 9
Question 10
Question 11
Question 12
Question 13
Question 14
Question 15
Question 16
Question 17
Question 18
Question 19
Question 20

Heriot-Watt University
School of Management and Languages: Accountancy, Economics and Finance
Multiple Choice Test Answer Sheet
Students Name
Student Identification number.
For each question place a tick ( ) in the appropriate column

Question 1

Question 2

Question 3

Question 4
Question 5

Question 6

Question 7

Question 8

Question 9
Question 10

Question 11

Question 12
Question 13

Question 14

Question 15

Question 16
Question 17

Question 18

Question 19

Question 20