ists asafactor of production? = nist garded by €000 {2% Men te fatosing wou Be 8 - Demand B Enterprise © Supply D Innovation f sof scale? (whic oe towing a source ‘of economies A The introduction of a new product © _ duking © The employment of skill in production D_ Cost savings resulting from new production techniques XL 24 The marginal propensity to consume measures: m ‘A The relationship between changes in consumption and changes in consumer utility The proportion of househeld incomes spent on consumer goods © The proportion of total national income spent on consumer goods D__The relationship between changes in income and changes in consumption - L tee, Depo Ry Reco eso Depo tem L ee ee, FA TRerecesson phase ofthe business cyl will normaly be Accompanied by all ofthe following except: ‘A Arisein the rate of inflation 8 Afallin the level of national output ‘An improvement in the trade balance D Arise in the level of unemployment MIT TaD ee Bases nd tc: een ik Scanned with CamScannerGs. Which of the following Rising import prices Increase in wages Increases in indirect taxation A 8 é High consumer expendi {© Wish consumer expenciture such that aggregate demand exceeds aggregate supply lo 6 23. Which ofthe folowing are effects of reduced interest rates? @ consumer spending wi increase tO) Business investment will be encouraged 3 Saving will increase A Tonly and 2 only 2and 3 only D 1,2end3 Lo ée A To raise short-term interest rates in the money markets B_ To support the exchange rate for the county's currency © _Toccontrol growth in the money supply To alter rates of taxation Lo 6 Cpr There monet a ane ‘Scanned with CamScanner@ supply side’ economics concerns: A The behaviour of the microeconomic supply curve B The supply of factors of production in response to changing levels of factor rewards The behaviour of the aggregate supply curve in connection with the levels of prices, incomes and employment D__ The effect that an increase in the supply of money has on inflation Loe, 32 Ifthe government wishes to increase consumer spending, it could increase the rate of: @ income tax B Corporation tax Import duties 2 Social security payments 10 6 Scanned with CamScannerIntervention by regulation moti the goveen MENT to impos ated by the wish to nye kim nit on busines omnes es carbon emissions isan example of i enti "atk fale caused ty B Equity Market imperfection © Externalities, 10 6b, 64 The government recently passed ry ulations affecting the way in which car hte com anes must address certain health and satetyirec Within thei business Spee Viele amar alae n iNeSs. In anticipation of th the UK car hire busi Procedures and technology that Speedy Hite pic's respoy Ch ce B Entrenchment these Ne Fegulations the company actualy put m place mich exceed these new government reget ee itis cleat nse to the nev regulations has been one of: Mere compliance D_ Full compliance Lo 6d 3 Femdale ple is a multinational company. It has recently been charged. with being in breach of the Competition Act 1998 in respect of collusive behaviour in its UK operations. found guilty, tne ‘company could, amongst other sanctions, face afine of: \4 Up to 10% of annual worldwide revenues B Up to 10% of annual UK revenues C Up to 20% of annual worldwide revenues D Up to 20% of annual UK revenues Losd ope 1: em auton of bse Scanned with CamScannerfon cigacetes to raise VENUE 10 finaneg Jidering placing an aditonal tax on wvernment is considering pl 4 Trego Which ofthe following stating healthcare benefits. The demand for cigarettes is price inela | The tax on c m a pated in the years to co i nich revenue as anticipated in 1x on cigarettes may not raise as mu hin because the demand for cigarettes is likely to become more elastic over tin yecause th i not ase much revenue either nthe short term or the Jang term since demang B__Thistax will not raise m price inelastic tes wil just lower thei sway because sellers of cigarettes cg nue can be raised in this Way Bae eee © Dake amount of the taxand, therefore, the price of cigarettes to consumers wll ot chang the amo , evenwue, botl in the short term and in the long term, beca, Q _Tisisavery good way to raise revenue, both inthe shi J there are no substitutes for cigarethes lou —~ 5 German pc hasbeen charged unde the Compton Ael 1998 with ening nto an ies a competitive agreement with one of ils closest competitors, The company will be charged with breaching: Chapter 4 of the Competition Act 1998 Lo eg § Government intervention in a market economy can lead to an increase in economic welfare if It sets a good's maximum price above its equilbrium price ‘The market mechanism has failed to alow for externalities It sets a good's minimum price above its equlibrium price ‘The demand for inferior goods rises as incomes increase sas The Fenno products manufactured inthe UK buts also importe Frac enment has recently decided to apply an import queta on imports ofthe product from, France ata level below the current level of imports. This action wile the effect of A ‘Only French suppliers suffering a lower price 8 Both UK and French supplies suffering a ower price Ke only Uk supplies enjoying a higher price Beth UK and French suppliers enoying a higher price low HE Busnes a Fc Cue Scanned with CamScannerMarket impertec Extemality Asymmetric informati Inequity The Competition Act 1998, Prohibits age 7 competion, including abuse ofa peace Busines practices and conduct that damage dominant posi are particularly likely to be considered ve ant peaon, Gxamples of specific types of conduct that include which THREE of the follminan 2” #05 where the busines isin a dominant poston Imposing transfer pricing ditions to equivalent transact Manage. Calon wansacton, thereby placing certain ‘Ataching unrelated supplementary conditions to contracts Providing public goods on behalf ofthe government 10 Inwhich of the following circumstances would a cartel be MOST likely to operate? ‘A Amarket with a undiiferentiated product and a large number of producers B Amarket with differentiated products and few producers © Amarket with a large number of producers and where demand for the product is inelastic |B Amarket with few producers and an undifferentiated product Lo 6b, éd 11 Supporters of anti-monopoly enforcement argue that the real gain from such enforcement is ‘A That it encourages fitms to engage in research, which leads to new products being produced B_ Thatit serves to deter firms from engaging in such practices as collusion, price-fixing and deceptive advertising ) it firrs to produce efficiently BP sncieane ted from the fines paid by those individuals who are found guy of anti- D_ The revenue germs which can be used for socially worthwhile causes monopoly vil eo Chopra elit tes Ea Scanned with CamScannerre based on the proposition that the best WaY to ninonopoly las a 12. Antiemonopoly Caer Arno sie Pelton tecened competion © Pibleownersip D olgenst \ = —— ments have been made poly legislation and market regulation, Iation is undertaken to compensate for lack of competition, ang ‘undertaken to promote competition Jon is undertaken to promote competition and ra fr lack of competition ition and market 13 The following staten about anti-monoy Statement 1 Antimonopoly legis! ‘market regulation is ket Statement 2 Anti-monopoly eaisat regulation is undertaken to compensate legislation is undertaken to promote comp: Statement 3 Anti-monopoly 19 undertaken to promote competition regulation is als Are these statements true or false? Statement 3 Statement 1 Statement 2 A Tue False True 8 The False False Cc False True True D- False Twe False 10 6b, 64 14 Any measures taken by gos to redistribute ernment ribute wealth are a form of gover ‘aimed at addressing problems concerned with: Seema ‘A Asymmetric information Market imperfection C Lack of equity D Externalities LO 6b, 6 15 Itis reported that por ‘wo large listed companies recently colluded with each other to fix the price of product they both sellin the UK market. Collusion of eis an example of market failure due y H) IK llusion of this type is an example et A External costs 8 CC Market power D Resource immobility 10 6b, |] Duss and hace: Quon ak Scanned with CamScannerweberaft ple, which has investigated under Ch; The following 16 ‘Apter 1 of the Competition cite has received notice that itis being Activity 1 Limiting production marty Activity 2 Agreeing with another o f "Ganisation to limit competition cthity 3 Restricting technica developments ome ich of the activ Wwrch of he acts may, nddualy, nave ‘Given rise to such a notice? A Activity 1 only 8 Activity 2 only Activity 3 only D. Activities 1, 2 and 3 LO 6b, 6d 17, The Fenno product is manufactured in the UK but is also imported into the UK from France. The UX government has recently decided to apply an import quota on imports of the product from France at 2 level below the current level of imports. This action will have the effect of: ‘A Only French suppliers suffering a lower price B Both UK and French suppliers suffering a lower price © Only UK suppliers enjoying a higher price D__ Both UK and French suppliers enjoying a higher price Lo 6f Chup 4: tenant en Scanned with CamScannerpyc Le lidsieteltsteya yee) NST 39 1 BCE * An organisation isa social arran, performance and, in 7 that Ment that pursues collective goals, that controls its own other options are addition, ty ‘allway abet a Hemi) Separating it from its environment. The i | oo '¢ an organisation to increase productivi 2D Profit-oriented organisations shoul aim t : organisations, such as chatitis, should any ne ise shareholder wealth. Non-profit oriented aim to provide goods and/or services. ‘ SAMPLE PAPER A Batisticing is . 6) 5 when managers are not maximising wealth for owners (hich they should in fact, be doing) but ar i Pet, be Going) but are merely making enough profits to keep ovmess sisted Beyord that ths atten simply eons Caused bythe separation of nership and con ss agency Problem Listed under the broad headin products; develop a product range; invest in research and development; and/or provide Products of a certain quality ata certain price level I he were concentrating on employees and management to suppor his primary objective then he might aim to reduce labour 19 of product development, Joe might choose to bring in new SC _Todouble the share price within the next 10 years is most likely to be the primary business objective. The other three options would be typical secondary objectives for Avernanche plc in pursuit of the primary objective. 6 8 William Baumol argued that businesses act to maximise sales revenue whenever managers are rewarded or revered for the size ofthe organisation for which they work rather than its profitability or relative performance. 7 A Organisations whose primary objective is to make profits for their owners are classified as 8 ABE S = specific; M = measurable; A = achievable; ‘The secondary objective is specif: market share isa manageable feature ofthe organisation; aoe eeeries 20% 5 a quantifiable yardstick of attainment; time-bound: the deactine to cae itte the objectives within the yar. There no indcain of fctrs that might aaesee dhether the secondary objective is ether achievable or relevant. is sions of the business's basi function and 9 AB The mission statement and vision are general expressions of I panos! hese sere respectively, whist shareholder wealth maximisation would rank as the Primary objective of any organisation classified asa business 10 BCD yur value to the customer? 11 A.C The two groups mos The Pe ean, Customers want product ofa certain aye a edd _ Pr employees’ objectives include ob Secuy, good conditions of delivery and goo sel 5 work and job satisfaction: ime-bound = relevant; answer the following fundamental questions: What i our etl r? What do we want our business to become? ‘SAMPLE PAPER cope cnticcn tines EE Scanned with CamScanner12 13 14 15, going ths ei ual) a the charily sees The primary objective (C) is the provision of nia mn " would be an example ofa secondary objective CO) 8 ign, . f its basi in the itself at some future time, whilst mission (B) is its Bs nae representation in th em Trade unions are the stakeholders mos likely to pres (0 Wy company’s affairs. jsation of shareholder ple wi be the rt of The primary business objective of a profit-seeking ives that will be P' SAMPLE PAPER wealth (A). The other statements are secondary object this primary objective. report. Tiss the definition of sustainability asset out in the Brundtland 2 ‘Scanned with CamScanner,ter 2: Managing a business Referent power (8) i individual power based on identification with, admiration of or respect for the individual. This can be summed up as power based on force of personality. Legitimate power (A) is based on agreement and commonly held values which allow one person to have power over another person. It normally arses from position and derives from our cultural system of rights, obligations and duties in which a ‘position’ is accepted by people as being legitimate. Coercive power (C) enables a person to mediate punishments for others for example, to dismiss, suspend, reprimand them, or make them carry out unpleasant tasks. Expert power (0) is based upon one person perceiving that the other person has expert knowledge of a given subject (often based on possession of formal qualifications) and is a recognised authority in a given situation, ‘The company’s procedures allow the manager to authorise lendings up to £1m. This is legitimate power (C) — power given by his position and bank procedures. Referent power (A) - sometimes called personal power - is capable of influencing the behaviour of others. Trust, respect, charm and enthusiasm are all attributes that allow us to influence people without apparently imposing on them. Expert power (8) is the power that belongs to an individual because of his/her expertise, Reward power is power to grant promotion or pay increases (0). Authority isthe exercise of power for the proper purpose. Booking the business class seat is ‘not within Cerise’s authority, but she has had the power to persuade Malcolm nevertheless to bbook the seat. Delegation of authority (C) occurs where a superior gives to a subordinate the discretion to make decisions within a certain sphere of influence. ‘Accountability cannot be delegated so (8) and (D) are incorrect. Some power must be transferred by delegation ifthe person isto be able to accomplish the task for which they have been given authority and responsibilty Delegation embraces both authority and responsibilty. Authority can be delegated readily, bbut many problems of delegation stem from failure to provide the necessary information and resources in order to achieve expected results, or from fallure to delegate sufficient power for subordinates to fulfil their responsible. Line authority refers to the relationship that exists between a manager and his/her direct staff, and occurs in most organisations. This line runs in an uninterrupted series of steps and is based on the scalar chain principle of hierarchy in which there isa clear line of authority from the top of the organisation to the bottom. Essentially, the scalar chain is used to implement decision-making and the issue of instructions. {functional relationship means that a manager has authority in certain areas over another department. The IT manager could have functional authority overall other departments when. defining rules for internet and email use, (C) saline manager; (0) isa project manager; and (A) isa staff manager. -Mintzbero’s managerial oles ae interpersonal, informational and decisional. This is a simple Decision (A) for Andrew. The disseminator role (C) would form part ofthe informational role (©) and involves distributing information to staff either as fact or as information involving some interpretation and integration. The interpersonal role (B) relates to such matters as listening to employee or giving feedback Charlize is describing her interpersonal role (8) as a manager ~ representing her team in her capacity a thei leader as well as interacting with managers of other teams within the compary. ‘The forming stage (A) is associated primarily with seeking to define the purpose of the (achieved at lst weeks meeting, butte storming stage (8) is where conf fist arcs > particularly concerning competition for chosen roles. Once such conflicts have been addressed, the group will norm (C) and then, hopefully, perform (0), Scanned with CamScannerand high on «jt Robert Quinn, vaien an 0 h ww Acorting aaa Jignal goat’ culture (B). An Intern’ ‘one in which ‘ a vs mas, mito make internal envionment Te id unchanging, and there are defined methods, rules and procedures aoa et aatates, Secutly, stability and order motivate staff, In an open systems culture ! facie weasre, Sal ca soon ly quot, censtdy aed variety, Ins oan Feet eanuieO) ihe blsnet locks nwa aiming to maintain its existence and the wel. being of stall Stalf are motivated by a sense of belonging, 11 A the marketing mix comprises four variables (A): product, price, promotion and place. The ‘matheting mi not the same as the sales mix (B) nor ist the same as the communications ‘mix (). [Lis alo a broader concept than mere product features and benefits (C). SAMPLE PAPER 121 The marketing orientation looks outwards and is concerned with ascertaining and supplying customets’ requirements, Marketing is about supplying what the customer wants (B). The her statements show features ofslesorientation and productorientaion ~ a concentration on sling rather than marketing and a concentration on what we as a company have to offer () rater than on vat the customer wants or needs Instead of finding out what the Snorer vrants, such a company would be trying to sell whatever items it happens to have in “tote (A) or whatever Pemble sa thought innovative (D). Instead ofa product-centred ‘rake aN 2 philosophy, the marketing approach ia customer-entred ‘sense and respond? philosophy. SAMPLE PAPER hich authority arises in giving specialist advice to another manager ‘you have no line authori ity (©) and, therefore, no authority to make iat other department, 13°C staff function is one in vi or department over vihich Or influence decisions in th M4 BCE cine underlying competencies and sis as well as communication patterns, are all Selina cover varabes inthe mode, Formal goals (A) ood ‘organisation design (D) are vert variables 5 6 Market segmentation means. ‘using segmentation bases su then target all the s we pany (A) is a reference to its Mmissior a Tinhncaeaan matting, Rveing (ahs one ae ae rn fs just one ofthe four marketing mix varigbies ren ich iy ” A TWadvertsing is addresses the goods (A). & them in and encourage the Posh promotion (8) involves convincing trade ine, chan an Tigmber: to ‘push’ the product through the ditetnns 9, athena objecting prom Good example of a combinat nto Hinance: ee bak Ey Bess Scanned with CamScannerB 24 25 26 people, work is as nat i ‘esponsibility and people will exerelse to which they are committed, ‘Working conditions and relations with the boss are both hygiene factors. Challenging ‘a motivating factor. Dividing a marke simila into homogeneous groups of potential customers who may be treated ly for marketing purposes isthe process of market segmentation (0). The marketing imix comprises the 4 or the 7 Ps, while the marketing orientation describes the focus of the firm as.a whole, Market research is the process of finding oul more about a particular market ‘or market segment, A business which accepts the needs of potential customers as the basis for its operations, and whose success seen as being dependent on developing and marketing products that satisy those needs would be described as having a marketing orientation (A). sales orientation (B) is found in businesses that see their main purpose as being just to sell more of the products or services which they already have avallable. 4 product orientation (C) usually means that the business focuses on the product and its features and elfectively forgets what itis that the Customer needs and wants, while a business with a production orientation (O) is just preoccupied with making as many units as possible; customer needs are subordinated to the desire to increase output. The main influences are costs, competitors, customers and corporate objectives (C). The Concepts in A and D are those of the marketing mix, while those in B relate to operations ‘management. High volume lends itself to Harris p's capital-intensive operation, with specialisation of work and wellestablished systems for getting the work done. Unit costs should therefore be low @. SAMPLE PAPER Research into products which have obvious commercial or practical use is called applied research (C). Market research (A) is into the market itsel, not the product, while process research (D) is into processes rather than products, The aim of pure research (8) isto obtain ‘new scientific or technical knowledge or understanding, There is no obvious commercial or practical end in view. ‘The four elements ofthe procurement mix are quantity, quay, price and lead time (8). Price, produc, place and promotion (A) are the four elements of the product marketing mix, while volume, variety, variation in demand and visibility (C) are the four Vs of operations ‘management. Costs, competitors, customers and corporate objectives (D) are the four Cs of pricing. Scanned with CamScannerat Valbercriee Mire tained pels who are al moe with he i elaborate support sta rating core is the key part because it will have an technstctre Thee cates and the war to comps tobe ieee organisations revolwng ened StUCtUe (A) is characteristic of smal young ingle entrepreneur or small manag yement tez i bureaucracy (8) works on fe ee . pod meee technostuctue is the ey i peeled are wetted Set of ules and procedures. The atten manager Thee angen ee ee at itself as possible Noes are © is where the middle line seeks as much autonomy for managers lower downs pull split into smal sel-managed units with autonomy gen to @ ase line, {he support staff (A) cary out the ancillary activities that are neither part of the core nor the fechnostructure. Support staff have no role in the direct activities of the organisation: these activities include such things as catering and public relations. The middle line (8) represents that part of the organisation where the middle managers operate. Its role isto turn the instructions of the strategic apex into activities forthe operating core. The ideology (C) is what binds the organisation together. It represents the organisational values and beliefs, which Provide a common focus forall the other elements. Functional division (C) and matrix (F) structures are both types of organisational structure, and scalar chain (0) ithe reporting chan, The function of the technostructure isto standardise work processes (C), for example by producing technical specifications and procedures manuals. The strategic apex, which represents the higher management of the organisation, will ensure the organisation follows its mission (A). The support staff provide ancillary services (8) to the operating core. The middle line, representing the managers between the operating core and the strategic apex, will control the work of the operating core (D). 5 A Machine bureaucracy depends primarily on the standardisation of its operating work processes (A) for co-ordination. Because of that the technostructure, which houses the analysts (technocrats) who do the standardising, emerges as the key part of the structure, When the operating core exerts a pull towards standardised skils (8), itis generally a professional bureaucracy. In a divsionalised structure, a good deal of power is delegated to market-based units in the middle line (C), whose efforts are coordinated by the Standardisation of outputs through the extensive use of performance control systems. ‘adhocracy coordinates primarily by mutual adjustment among all of its parts, calling especially for the collaboration of its support staf (0). ‘work into particular tasks (D). (Chapter 3: Organisational and business structures RN —_—<—$—$—$—r ‘Scanned with CamScanner112 eat 7 ¢ ject ‘matrix structure would involve employees within the pro} 1d a projes ersor an More than one superior — for example, a functional ee hat a eesti breaks the principle of unity of command (C), which bi son why @ Mat en 3 bss Ther 08 ean be gi teport to, or receive orders om, nly on boss, Th ay Eye principe that should contravene the principle of aur and spore ye eneialntetest of fant actin Si, tron prewil over that ofthe general est Us oanbaon ele ge eae encourages), wich Principle that personnel should not be isolated (cohesion should be oil he idea in tis mati setting. 8 BCE st leader. y ployee should have to re (©) the larger the Decenttalisation depends on workforce ability (8), company size (C) tion (9, aehich san arte to cenralse and flctive communication (), which san ingredient of effective delegation, Centaeaton ad decentralisation re Sake SxugnL 0 which authority for decision-making is either retained atthe top OF delegated to lower levels W the manageme tralised. "nt style is authoritarian (A), the organisation will be more cent wer level ow technological ehange (0) means that there ite need to decentraise, Lo managers do not need to be familiar with changing technology. 2 A employees are all {ook ater many subordinates (a wider span of conto) se thy canal be handed ins mene eat face sar problems. high geographical cspersion of employees (B) equites arrows aott © supervise which along with frequent time-consuming problems (C), Sugg saa’ sPan of control would be more appropriate. Where the manager is engaged in large mounts of non-superisory work (0), the narrower the span of contrl fs iely t be 10 ADE Ja: flat organisation implies looking after many subordinates, so delegation will be {RURE Upon Frequently (A). The verical flow of information benerer the top and bottom of {he company follows a shorter, more efiient route mn Wide, fiat organisation (D), so contro no key t0 be improved. Looking after meny employees implies large spans of re requires more co-ordination and consultation before decisions are taken, 11 AM there are many subordinates to supervise, as there Would be in a wide, lat organisation, it Cor ee iticul to give each enough individual time (A) High management overhead costs (2) internal communication difcuities (C) and superiors noe delegating enough work to staff (©) are problems associated with tall, narrow organisations structures, 12 ABE Person without any effect on the Feet at all~ this is known as perpetual succesion (A). distin from its owners —it has a separate legal and public, are subject to stringent regulations larger companies, the requirement to have an audit (2) Withdraw difficult as it provides a butter for creditors. A limited company’s abil the lability of the owners (sharcholders) that i limited, Because financi 'y is unlimited (€) — itis they are not private (C).. lal statements are fled ‘Business and Flnance: Answer Banc rN Scanned with CamScanner sor wil le to carrying out the same or similar tasks (A), a supervisor will be more abl‘A The company could be dese innovation being suppressed (statement ft Initiative ancl openness 10 new ideas an ways of doling things. concemed swith Completing the task efficiently (statement ll) ~ task speelficath Isa evtne of bureau des, a ate geal Irak cv Into nara f wwork/texponsibility 40.5 to secu the henelts of specalsation, tn bi Feat from mnistakes (statement It) die 10 the lack of feedback (expectally up 15 BCE Intimes of change, the Theory ¥ manager (B) recognises that thy complement those of the organisation and commitment fs # function of the “intrins associated with their achievement (Father than just extrinsic rewards/punishments). The capacity Yo exercise imagination, ingenuity andl creativity i the solution of erganisational problems needs to be widely rather than nartowly distributed in the workforce, Wide, flat organisations (C) tend to be flexible and employees are willing to orm teams to tackle issues, Wide, flat organisations also imply «large amount of delegation (F) is needed. iployees! objectives vail * rewards 16 C — Agroup structure (A) implies one company awning one oF more subsidiaries. A joint venture 8) implies that a third party busines is set up andl ovmed by the joint ventures. strategic: alliance (C) is fatty informal co-operation, while a licensing agreement (D) involves giving permission to another company to manufacture or sella produc, oF to use a brand name, In this circumstance, there is no new separate legal company, as would be expected for a joint venture, and no evidence of alicensing agreement. The two companies have instead agreed {o enter into a loose and probably shor(-term strategic alliance. © 17 C Only the limited liability partnership (C) necessarily exists as an entity separate from its ‘owners. A.general partnership (B) isnot a separate legal entity from the partners. A joint ‘venture between two limited lability companies (A) is usually a limited company but does not necessarily have to be established in that way. A strategic alfance (D) isan informal | contractual or minorlly cross shareholding arrangement. Normally no separate company is formed. 18 AB Alloating charge (which gives lenders secur for their loan) cannot be created over the business ofa sole trader (A), but it can be over the assets of a limited company. This could hhinder her abilty to raise finance. Currently, Angela has unlimited liability (B) and with the increasing financial commitments of the business it might be better for her personally to seek limited liability, though the business will still have unlimited liability for its own debts (C). AS a sole trader, the business's labilly Is not distinct from her own, Filing financial statements at ‘Companies House (D), and the rules that apply to the business's constitution (E), do not apply to Angela as she s nol operating as a company. ‘SAMPLE PAPER 19. B Partners capital represents partners stakes, or ownership, of a business. So do shares. In the absence of cash changing hands, the shares must therefore match the partners’ capital ‘amounts (8), which are unlikely to be in the profit-sharing ratio 3:2:1. A business which trades a5 a company may be no dillerent from a partnership in any other way than in one important fact: while partners as owners take all the risk in the business having (generally) unlimited liability for the debts of the business, the owners of a company (its shareholders) have limited liabiliy for its debts beyond any amount they may stil owe for the shares they hold, The creditors ofthe business wil be inthe sane postion after incorporation (C), Dividends will be pald according to shares held (0). MD Scanned with CamScannera 2 B 24 25 A statgi allance (Cs an informal or weak contractual agreement bwWeeH Eat tcensing Agreement (A) would be mere formalin nature (based on 2 legaly va i twansre adherence agreement), whet aol verre (2) veil neatly aheys HPO formation of a separate company, with the investing companies taking a fins pclae shareholders and with management being provided as agreed. A group struct imply the establishment of a new company that would be controlled by one of the two companies. fale managements par ofboth marketing and operations, so would be hanced by i Rumbert Insurance itself, not by the Regional Office. Financial reporting, and tek a ; development, are centralised at Head Office so again would not be provided by t Sie Office, Periodic management accounts would be provided by the Regional Office as a] neither marketing/operations, nor are they related to strategic direction, RED or consoled financial reporting, oa A strategic alliance ~ No separate legal identity limited liability partnership ~ Separate legal identity A registered company ~ Separate legal identity A strategic alliance is an informal or weak ct minority cross-shareholdin from the owners. Both cor ontractual agreement between parties or a 19 arrangement, neither of which imply a separate legal identity mpanies and limited liability partnerships are separate legal entities. prevents him from employing staff Personal lability for any failure {t prevents him from obtaining a loan business to fiends and family Itallows him to issue shares in his ‘As sole trader he can raise loans and employ staff so nelther of these statements is true. He Cannot issue shares to anyone as there is no limited company, so ths statement i false, As a sole trader he does have the disadvantage of personal liailty, ‘SAMPLE PAPER Shareholders do not have an automatic right to be a director orto be involved in trata ment (C). The partners’ individual shareholdings wll be determined by an agreement Uhat snot necessary related to the existing partnership agreement (8). The concep of perpetual succession means that the company will not dissolve upon the death of ¢ shareholder (D), SAMPLE PAPER. Buy Secateur Ltd - Group structure Form a project team Strategic aliance With Secateur Ltd as equal partner — joint venture Sell Secateur Lid the rights to market ~ Licensing agreement Purchasing the company will make it part ofa group; forming a project team isa form of ‘tate allance, while sling Seateur the marketing ghtsinretun fra fees a eens {aoreement, Picateur Ltd would be a separate legal ent owned 50:50 by the wo compass and this isthe most usual form of joint venture. A strategic alliance is more informal, SAMPLE PAPER ‘Scanned with CamScannerHome computers would be used interchange, reletted 10 aso by A ptcuie manta yO ee bbe (). Laptop or desktop computers werkt cs en 3 veson of hoe comp AGE be examples of product form (A). Options (B) and (D) ate analyses the task Cor m means of methods of analysing the co ct) ervormens al assessing potential growth strates ‘ BB Acelsa demographic pelea T environment = roenvironment, (Fa ategies ofthe company, mo" actor that falls uider the Soc = technological, L = legal i 4 C__Afunctional strategy (A) woul b we ill be (with the role ofthe marketing function ite wan the company. Competite strategy (C) sconce vith hw the ‘anne carne ce Sure of competi advange (cox orientation) and extent of co Scope (broad of narrow), Proxuemarket strategy (D) fs concetned with ov the sess will grow (Ansolt's Matix) Business strategy (B) is concerned in particu the marketing mix would be adjusted in due course fa competitive strategy of was decided upon, spect of PESTEL analysis (HP cone vit how ferentiation SAMPLE PAPER Low initial capital costs (A) reduce risk in a project by decreasing the break-even pr allowing time to build up a large customer base. This can encourage new entrants. The relatively concentrated customer base (8) however means that existing players have a distinct advantage and it also gives the customers higher bargaining power, so makes the sector less attractive to new entrants. (C) may inerease rivalry but it does not affect new entrants; (O) has no effect. Low levels of competition in an industry make it more attractive for new entrants. High capital costs involve risk and fund raising challenges which can act as a batier to new entrants, In terms of Mendelow’s matrix, this stakeholder clearly possesses both a high level of interest in the company’s affairs and a high level of power (influence) over them. In such circumstances, the recommended strategy is one of treating the stakeholder concerned as a key player. 8 _D__ The exclusivity ofthe holidays indicates an emphasis on generating competitive advantage through differentiation rather than low cost, whist their specialist nature and precise target market (age 60+) indicate a focus strategy rather than a broad competitive scope. 9 C With low market share ofa high growth market, the Pluton would be classified as a Question mark within the BCG matrix, for which the possible recommended strategies are Build or Harvest. Option (A) relates to.a Dog, option (8) to a Cash Cow and option (0) to a Star. 10. The companys introducing a new product but clearly targeted at the same market as its ‘enisting products, hence growth by means of product development, 11 BCD Gerry Johnson and Kevan Scholes recommend evaluating strategies against the following criteria Suitability ~ does the strategy fit the strengths, objectives and image of the company? Feasibility ~ does the company have the necessary resources to pursue the strategy effectively? ‘Acceptability ~is the strategy acceptable to the company’s stakeholders? Scanned with CamScanner |12 3 4 15 16 v7 18 19 20 a 23 24 sly a Cash Cow. The Wiha high market share in a lwfno growth market, the 2100 ea ial ag {Wo strategy options are Hold (which implies continuing to SuPP* restment in the product and Fantan ts postion or Harvest (which implies running down Invest ota lust managing the product for cashflow during its final yeas). The Prone’ ay {0 rule out the Hold strategy (withdraw investment), hence Harves root recct when © The decline phase but the diagram op CB). There {that will be (A) Sales growth is never guaranteed ~ the introduction ore usually 10 years is a vast range of mature phase lengths and it cannot be said that they tare usually (©). The maturity phase is the phase during which profits from the product maximised (C), starts after the maturity phase ends, work in the B In the positioning-based view of strategic planning (B) the competitive forces at industry are the driving force behind strategy. In the resource-based view oe eeteage Cali Planning (C), the business's strategic capabilities are the driving force behin neat pP¢ars to be adopting a formal rather than an emergent approach (A) and the evidence of gap analysts (0). 8 Milward Ltd is consistent reaction profile (8), CDE ly aggressive in its responses to competitor actions ~ a ‘tiger Differentiation means distinguishing your products and services from competitors’ offerings in ‘ways that target customers will value. Therefore, better products using superior component, Parts (), distinctive branding (D) and improved features and benefits (C) can all help. Options (A) and (8) would most likely underpin a competitive strategy based on low cost, father than differentiation, C The companies offer distinctly different products that satisfy different needs but which are highly likely to be competing for the same disposable income. They ae, therefore, generic competitors (C), ADE (®) and (C) are both support activities in the value chain model, ‘A Astrategic plan sets out the busin the operational plan which 3 business plan sets out the m. required, ess's overall objectives and how to achieve them, but itis pecities what is expected of each function in a business. A arket(s) to be served, how they will be served and the finance SAMPLE PAPER C Strengths and weaknesses (A) would be revealed by a SWOT analysis; the structure of an industry would be revealed by a Five Forces Analysis (8); and helping to identiy the relative levels of interest and power (D) refers to stakeholder mapping, A PESTEL analysis (C) reveals the key influences in the organisation's macro-environment (rather than its matket or task environment) ° Training store staff's very much an operational sue that does not constitute a corporate strategy, but offering its capability to other supermarkets is a fundamental long-term ‘directional’ decision which commits the company's resources, 8 _Aconcentration of customers will increas rivalry since the power of customers is thereby increased, Removal of government subsidies creates a more level playing field amongst, competitors hence also increasing rivalry. ‘SAMPLE PAPER Focusing on matching its internal strengths and weaknesses with its external opportunities and threats means that the business sees strategy as being about its position (A) in its environment and its market, according to Henty Mintzberg, > C__Itis the maturity stage of an industry's ite cycle that can last fr a very long time. During this stage competition would be expected to be most intense (C). In the growth stage (8) there i still market enough for everyone, while inthe introduction (A) and decline (D) stages there are far fewer participants in the industry. Scanned with CamScannertna highly. ompany, the high risk. tf business activity Appetite for risk (D) isthe exter means that you prefer to take nt to Which, the investme le there are to i 7 Bie aces CHF athens offering different risks, a rsk-seeking investor wil always prefer ruta er ne there are wo ivesimens in iflerent tums, Investor will always prefer the one with the hi n, tun, regardless of the risk With the higher return, not a lower return, 7B Gros risks a function ofthe loss or impact and its probability, before any control measures are implemented. sani hia iinet 8 C__Thisis clearly a regulatory (or legal) sk, which isa form of event sk, 9B Allthe outcomes andthe probabiliyof them occuring are known, As a result, there is no uncertainty, only risk, 10 D__Arisk averse investor will always choose the lowest rik investments, whatever their potential return, 11 C_Riskexposure is simply the measure ofthe way a business is faced by risks, whether financial, business, event etc. 12. 8 First the company should see if the risk can be avoided if not, it should ty to reduc it having reduced it as far ass feasible, it should explore the posses for sharing the risk (eg Using insurance), Final it must accept the emaiing rik, 13. 8 Where arse falls into the low impact, high probabiity quadrant of the sk map the mast, appropriate response i sk reduction, focusing on reducing the ikeinood ofthe adverse event occuring. 14 C__ Management controls include all aspects of management that ensure the business is property planned, contoled and ed, including the organisation's structure. 45. C_ Insurance transfers rk (C),In return for an insurance premium, the insurance company agrees to take onan agreed proportion ofthe financial burden ofa risk. 16 A These risks are to do with the operations of the business ~ a process going wrong, a valued employee leaving, a regulation being broken. 17. C__Thenature of the imaging business changed through new technology bringing innovations. Te company’s main busines radically fel because ofthis it suffered product risk a form of busines isk wA Both changes (machinery and borrowing) increase the company’s liquidity risk, a type of financial risk as they increase the amounts (fixed overheads and interest) that have to be paid hhowever much revenue is achieved. They both mean that the company is more exposed if theres a downturn in demand for its products, a _ copes tintin amma Scanned with CamScanner19 20 2 22 honour their contract specific type of Jer analyses and meas aed (1). The esk then D The failure ofa participant in the business's SUP “obsigations is classified as systemic risk which isa s B Following risk awareness and identification (3), the ri risk (2) andl assesses how it can be responded to and contro and reported (4), isk still exist 50 iti B Clearly the company isnot retaining the rsk by outsourcing (D). aay a cipact: insta voided (C), and outsourcing does not necessary reduce the pro! i {he risk is transferred (8) i 7 ‘onditions it A. Business risk arses from the nature ofthe business, it operations and ee and operational operates i; this includes strategy, enterprise and product rks. Financ! al risk, which includes event and process risks, are separate types of risk: enna a 4 Scanned with CamScannerea Pee se ORE yy ‘ectial information (C) helps staf deal wth short-term ives and term sues on information (B) is concemed with day-to-dey inves, 5 . Sates oncems than both tactical and operational tormation (0) tas barge hrelps staff involved in ibeicaeei pisces eon Planning iteration wperialiy 7 ligase FD heated >is what management spear. ance that a values aceurele Wor reonths in 2 rance that all transactions have a 6B The manager's comments ares achieved by preventing accidental or deli destruction of data in the data defined by the log-in detai will aid detection (B) and deterrenc of accuracy of what the user enters fe eny transaction can be traced to the perpe (©). The log can do little about correction, comp! been re data. Much of the internal data wil arise from transactions that ha 9A. Strategic information is used by an organisations senior management to plan itso future Therefore, much use is made of estimates (A) about future sales, costs etc. Baca Strategie planning is undertaken at a level removed rom day-to-operations the informatie Sra liely to be very detailed (8). Characters (C) and () ae very much astacated with ‘operational information. 10 EF ‘This is based on the ACCURATE model of good information. Information doesnot nesd fo fe Tr ea infact, too much detail could deract from it by undermining is ease of use. Nor feasts have to be immediate (8) it ony needs to be available wine itis required 1 ely). oes tmp ots of information and this can obscure the important information which Could undermine both relevance and ease of use 11 A. The datais both acurate and complete, 5025 data it must be clase as got! 0a. However, The reports completely inappropriate forthe sales director too much detail, no Sygregeton, not pariculrly evant so als the ACCURATE requirements of being easy to tae, user-targeted, relevant or costbenefici [12 ope All extern be na infor 13. C These terms are par decision-making rub 14 B The major problem withthe internet is uncertinty regarding whether the source fa reliable one, e whether it is authoritative al information wil be missed or ignored by ths closed system. Therefore, there will mation about competitors, legislation or share price. st of an expert system. The knowledge base contains the expert's set of jes and the inference engine applies the rules to the given circumstances, 5 Copter 6: Introduction vo inancistietormation ARE a. Scanned with CamScanner19 20 a 22 23 24 26 BC states that finar ‘management's stewardship accountable to shareholders, ‘When financial information influences the decisions of ‘Authorisation, in this context, is defined as the fact that changes can only be made: accountable individuals. tis one of the ACIANA qualities of a secure system. Non-repudiation refers to the fact that information should not be open to being rejected by is recipients on the grounds of faults in the information system. Itis one of the ACIANA qualities of a secure system, Its lack of timeliness, undermines usefulness ‘The high level of regulation does not undermine usefulness ‘The high level of aggregation it contains undermines usefulness By definition financial statements are produced some months after a company’s financial year end s0 the information they contain is not timely; lack of timeliness undermines relevance, even though figures may thereby be a more faithful representation. The evel of aggregation in the igures can abscure important details and so undermine usclulnes, The level of regulation, however, adds to fathtul representation and comparability, both of which acl to rather than detract from their usefulness. Ta be effective, information processing should meet the CATIVA criteria — accuracy, timeliness, inalterabilty, ve ACIANA qualities of information syst completeness, ifiabilty and assessabilty, Non-repudiation is one of the fems security Extemal users do not have access to m Financial reporting does provide infor ‘company, such as investors (8) but it These are the fundamental qualtative characteristics, The enhancing qualitative characteristics se nderstandabilty, comparabiity, veriabiity and timeliness financial statements demonstrate atleast the fundamental characteristics then investors vil be able te rely on them in making their decisions; this reliance is enhanced i the further characteristics are also, displayed, janagement accounting information (A) and (C), ‘mation to both managers and people outside the ‘snot confidential (0), General purpose financial statements are used by investors, payables (creditors) anal management. Good quality information must be accurate (A) and timely (C), and valuable information must bbe accessible (B), but to be both good quality and valuable it Must be relevant (D), SAMPLE PAPER An information system which combines data and analytical models or data analysis tools to help with semi-structured and unstructured problem solving and decision making in an Setational context sa decision support system (B). An expert support system (A) i sophisticated database that pools data from intemal and external sources and makes Information available to senior managers in an easy-to-use form so they can make strategic, lunstructured decisions. A knowledge work system (C) facilitates the creation and integration of new knowledge into an organisation while an ofice automation system (0) increase, the productivity of data and information workers Scanned with CamScanner10 ensuring that resOUrces are properly cont task of recording financial ansactions ed © stenareship is par ofthe finance funtion’ Cention ofthe nance function genera ternal reporting and cash ly works very wel for erpporing the ng and cash management bu ti often found to elas ealtester : ‘organisational objectives wh useful in terms of on performance to managers. When it comes to intemal reporting asury mana wn tunitn cpl ars ne ‘with managing the funds of a business, namely cash ard equity france long-term investments, short-term and long-term debt MEF ‘Management accounts are internal accounts used for managing the business. Financ reporting tegulted by accounting standards and statute (8) and report on historical results Bai see a8 Nid by shareholders (C). Therefore, management accounts can 1ook foe as is (A), will probably have a cashflow forecast (E)- a statement of cash istorical summary of cash flows and forms part ofthe financial statements ~ and will almost certainly have budgetary information (F) to assist planning. Financial reporting involves preparing financial information including the financial staternents, tax and regulatory reporting. Managers have stewardship over resources owed bythe shareholder, so the shareholders {© use the financial statements to assess the quality and effectiveness of their stewardship Shareholders own shares (which are risky investments in the hope of earsing a satifactony akurn. Community representatives (A) employees (B) and managers (0) have other pare interests. ‘SAMPLE PAPER CC Record-keeping and stewardship (A) relates to double-entry bookkeeping planning/control {@) snot» function of fancial staements wich essential ook back Pat financial performance and postion. Financial statements are ot primarily aimed at an internal aervance (O), whichis the roe of management accounting, External @POnNE financial reporting (C) producing financial statements wich ae ‘used primarily by external users. A Management accounting liven nt by rules or standards thy he need to meet the Manager reqirernents of managers (A within an organisation who use he information to Pian, contra, make decons and emritor performance SAMPLE PAPER The balanced scorecard is a performance measurement tool (0) focused on a variety of performance measures important to 2 business rather than purely financial ones. SAMPLE PAPER ACD say contro system should have these three major components However, while identification Aa tins rom the plan (@) spar of the contol proces, where there ae deviations from Shan a decion has tobe made a to whether to adjust the plan (eg it was not achievable) or pla formance (9 it was sub-standard) 30th stage is part ofthe flow Up Measuring an the Pievel of performance (Eis useful but becomes valuable information only when fs used sae wy the planned performance, Devsing 2 plan (is where the whole exercise begins Tat any plan needs targets and standards to act as performance indicators ‘Scanned with CamScanneru 12 B 4 15 to which objectives have been Effectiveness is the measure of achievement and the extent .d the resources used to produce attained (3). Efficiency isthe relationship between outputs an those outputs. An efficient operation produces the maximum output for any given set of resource inputs (2); or it has minimum inputs for any given quantity and quality of output. Economy means abtaining the appropriate quantity and quality of inputs at the lowest cost (1). An activity would not be economig, if, for example, there was over-staffing oF failure to purchase materials of requisite quality at the lowest available price. SAMPLE PAPER. High quality might be more important than costs, high margins might be more important than revenue. We cannot therefore state that either low costs or high sales revenue will always be CSFs, SAMPLE PAPER Economy is measured by the success of the team or work group in controlling its costs (D), The amount of resources used forthe tasks that have been achieved (A) would be a measure of efficiency. Effectiveness would be measured by the organisation's performance in achieving its goals and targets (B). Team member satisfaction and the motivational climate cannot be used to measure economy (C). guigity, not risk and return, is the main concer for the entity's suppliers. Risk and return, not solvency, are the main concem of the entity's shareholders. SAMPLE PAPER The triple bottom line measures an organisation's performance in terms of its achievement of sustainability goals relating to social, economic and environmental factors. Scanned with CamScannersy its] oe Ea SITS ITe i etarr rena] tales 2 A Allbusinesses face a trade-off of between yield greater profitability and being li reais ren OAlsiaddy maser ne Periie rade-off by 7 os of caret es The eu and debe een es 83 lc the oer ee ure rather than current ee is concemed with long-term capital ts and i (©) isa financing decision unrelated to es em versus long-term borrowing trade-off being profitable 3. A The transactions motive means h rent day-to-d: ea Ee s that a business holds cash to meet its current day-to-day 42 enatnering the matuly schedule of fhaning means puting n place lange term inweing baa ae with its financiers which would thereby provide a stand-by (0). snatirity schedule mr et or cea ‘equivalents (A) would be unhelpful. Shortening the ing would in ik of faces not being re threatening the availa 1g would increase the risk of facilities not being renewed, further bility of standby funds (8). Investing i ing in non-current assets (C) would reduce cash or absorb borrowing capacity so would not assis at all 5 A An aggressive policy implies financing long-term needs with short-term funds which would reduce liquidity but increase profitability (A) due to the cheaper short-term debt relative to long-term debt: decreased liquidity = increased risk. 6 C Statements 1 and 3 accurately describe the fiduciary and the bailor/bailee relationships respectively. Statement 2 is inaccurate as it states that the charge is over the customer's liabilities, when in fact it would be over the customer's assets. SAMPLE PAPER 7 ¢ The capital markets consist of primary markets and secondary markets. New securities are issued on primary markets (C) whilst secondary markets (B) allow investors to buy existing securities or sell securities that they hold, Money markets (D) provide short term debt financing and investment. Futures markets (A) provide standardised futures contracts to buy ‘or sella particular commodity or financial instrument at a pre-determined price in the future. & —C__ Venture capitalists often will want a place on the board to secure their investment, so (2) is false. They are very likely however to realise their investment by seling their shares following flotation on the stock exchange (1), and they would normally expect a company's existing ‘owners to bear a substantial part of the risk (3). SAMPLE PAPER 9D Financial intermediary is the general term for anyone who carries out ths function. Business angels, merchant bankers and venture capitalists may all act as financial intermediaries. 10D Money market. AIM and the London Stock Exchange are both examples of capital mackets, 11. D__ The Bank of England (A) is the UK central bank, and the Financial Reporting Council (8) and Financial Conduct Authority (C) are regulators. A unit trust is an institutional investor, along with pension funds and insurance companies for example. 12 C Venture capital is generally most appropriate for new investments with above average risk, Renovation of an existing facility s a part of the ongoing activity of the business, and is Unlikely to have much impact on the overall level of returns Iti therefore unlikely to be appropriate for a venture capital investment, Cpe Bsn an era tae E Scanned with CamScanner“4 1s 16 v7 19 20 2 22 23 a 2s 26 a ino need to underwrite, Ay ince the issue price reflegy did only be necessary i im price. Itis and so theee J uncteroriting 5h nverwriting Wo" we ini ie je shares fs arranged in the red in an tntroduction (A) sn wl tesa ceived by the market, UN No new shares offer for sale by tender (B) shares a pe the ey-subsciption & 5 here will be under net thos thre. sk that ee pa ting In Ny since al the Sees Alcs CP) Mn etn wl usually be underwritten, vctlee issue process. Al " ain the Issue, ¢ SAMPLE abe shares are being oe This isto ensue th exercised. sufficient funds ave ease yo used to obtain a new stock ht the only one of these methods which cannot Be Atights issue isthe only 0 eee panks and other financial Prudential contr (0) resto the regatta an oto os not raalon by easury etc. Its financial intermed ct nstitutions by the Bank of England, the Treasury rable ewisinen orortnies and ocean elas (4 termed is esti ‘opportunities and their associated risks a 8 al : lr individuals by creating an investment portfalio. tion (6) over theprblem a matching thine pss for ich company rind with the time periods over which investors wish to invest. Ics are quoted Shares become mote realy marketable when they are quoted. Not al pes 2 re que companies () andl quote companies face increased dcosure requirements (A) 9ot reduced ones. The size of dividend does not depend on whether a company is qi . Under a finance lease, the risks and rewards of ownership are transferred to the lessee, who will therefore normally be responsible for maintenance. Cash generated from retained earings (A) isthe source of finance that the majority of companies prefer traditionally. This is because itis simple, no recourse has to be made to the shareholders, and the control structure of the company is unaffected. New share issues (B) are ‘expensive and risky. They are normally only undertaken when large amounts of new capital are required. Rights issues (C) are cheaper and easier to arrange than new share issues, However they must be priced attractively to ensure that enough shareholders will exercise their rights to make the issue a success. Bank borrowings (D) are a major source of finance since debt finance is generally cheaper and easier to arrange than equity, but it lacks the simplicity of using cash from retained earnings, aacPereting lease i a shortterm contract which may not las for the full life ofthe asset. The lessor owns the asset. A, B and Dare all common features of finance leases. Venture capital can be appropriate for a management buyout. Venture capital is high risk (a), fg, ot normally available to listed companies (8). It normally takes the tory ofequity finance, although it may take the form of debt finance (D), Y iabtepety mortgage (0) i general fora tem longer than Five years, andl thi long-term source of finance. ” Nis therefore a terest is only paid on the amount borrowed, not on the full facility, This is a letter of credit. A bill of exchange (A) is drawn by one party Y on anoth necessarily by a bank). An export guarantee (B) is insurance against defoulte “ bankers draft (C) isa cheque drawn by a bank on one ofits oom bank accounts. POS: A SAMPLE Deciding what credit limits the client should give customers, anes Short-term cash surpluses will not normally be invested in equi associated with achieving a return over a short period, Owing to the risks A this stage in their lives people generally a to build up their retirement their children are grown their expenditure i not so high, and they have generat 29% As bought property and established careers, Q,ileady PLE PAPER ‘An individual with a high priority short to medium-term financial objective ang invest in respect ofthis will want to minimise risk and will accept a lower return ney to Aye FeSult SAMPLE PAPER Scanned with CamScannersl pape Commer paper source core ratings. aN fo banks and compaie vith Year are traded in the money markt, Pec only. The bond can be sold in a capital ‘market and a secondary mare se longer ines aes normaly But not aay tigher than the shorter rate se Bank of England's Financial Policy Commitee seek the UX financial system asa vi mo temic risks in t iy a wihole. Its Monetary Policy Committee (B) aims Rluence the quantity and price of money in the Uk conan Bank of petal prudential Regulation Authority (is part ofthe ‘twin peaks equltony tage forte financial services industry, the other part being the Financial Conduct ‘Austhariy (8) wich is independent of the Bank of England, ctr uns and peo ne | ‘Scanned with CamScannerfessional se accountancy profession is concerned with providing measurement, disclosure or proton 1 ‘of assurance about financial information that helps managers, investors, au ¥ , tax authorities and Stee decision makers make resource allocation decisions. . (A) relates to financial reporting; (C) to management accounting; and (O) to financial management. : SAMPLE PAPER. 2 8 Expenses are matched with revenue eared under this basis of accounting becaus transactions and other events are recognised when they occur rather than ven the rl cash-flow is either paid or received. (A), (C) and (D) all relate in some way to cash flavs. SAMPLE PAPER. According to fundamental accounting principles, when there is uncertainty caution must be exercised s0 a8 not to overstate assets nor understate liabilities ~ the prudence principle. When an amount i insigificant in the specific context it can be omitted ~ the materiality principle (A). Companies are allowed to change accounting polices i by so doing a fairer presentation js achieved (C). The inventory valuation method(s) used should be disclosed in the nates to the financial statements (D).. itis assumed that the company will continue on long enough to carry out its Going objectives and commitments, so non-current assets are shown at cost less concern depreciation ‘Avery large company’s financial statements have the amounts rounded to the Materiality nearest £1,000 5B The accounting principle that states that an item in the financial statements would make a difference if its omission or misstatement would mislead the reader of the financial statements under consideration is the materiality principle. 6B Accrued revenue is revenue that, as atthe reporting date, has been earned but not yet received: If It was included it would boost the revenue figure, it would therefore boost the retained earnings figure and it would boost the current assets figure (as this is where accrued revenue is recorded) 7B Thecconsistency principe states a company should use the same accounting methods and procedures from period to period. SAMPLE PAPER 8 ACE Some areas of public practice are ‘reserved’ and so there are specific additional requirements for professional accountants engaged in ther, The three areas are statutory audit, investment business and insolvency work. Integrity - John has clearly breached the code by submitting a false application. He has acted neither with honesty nor integrity. He has, in fact, cheated and in fact, cheated and possi yer other candidates who could have been better qualfied, oo Scanned with CamScanner10 8 nD 28 BC WA SA 16 8 WA eB 19 8 ym acientis and value safitin the form of goods, services or hospitality fro Receiving a bet I receipts are declared, including their origin Jed all rmissible provi vane = Jnould not accept hospitality from clients because accepting such You should not ac threatens objectivity fits such as gilts, h you are prohibited from accepting most ben rorely Im onder to accept ths typeof hospitality from a client itis vity of the senior Accepting such a large amount of hospitality clearly threatens the object te AT partner. It might have been in order to accept a gift or hospitality of no circumstances. ing is in relation to ‘The main breach of the ICAEW Code of Ethics that she is proposing is in i confidentiality including improper disclosure and improper use of information. Encroachment, intimacy and self-promotion are incorrect. ‘An objective attitude towards a client i subject to selfinterest or familiarity threats True sa consequence of family or other close personal or business relationships ‘Where a close personal relationship exists between a professional accountant and False someone in a client organisation, that person can continue to act for the company providing sufficient safeguards ae in place A professional accountant should not personally take part in a company audit if they True have worked for that company within two years ofthe period of the audit isin breach of ethical principles in two ways. Her objectivity is threatened by her close Personal relationship with the managing director. In addition, itis in breach of the Code for hher to be involved in the audit of a business in which she has recently been employed or served as an officer. ‘There isa self-interest threat and an advocacy threat to Dark & Co. Attending the social event may be inappropriate as Dark & Co as auditor may be seen as Supporting Sports Galore Ltd in this venture — the advacacy threat. Gordon owning shares in the company may create a sel interest threat — he may be more interested in the value of the shares than providing a ‘correct’ opinion on the financial statements. Revenue is recorded when goods or services are delivered wh nether or not cash has been received. ‘The ICAEW Code of Ethics isa framework ot ethics-based approach, which is the opposite of the compliance, rule- or tick-box-based ;Pproach seen In other jurisdictions such as the US ‘The fundamental principles form the bedrock of professional does not mean thatthe principles are easy (B). Taking the apy and/or of following rules (D) isthe exact opposite of what ths ‘represent, judgements and practice (A). It proach of mere compliance (C) ¥e fundamental principles Appbing accounting princes ian aspect of techrical competence Dispinaty procedin are relevant when there has been a failure of technical competence and/or professional a responstily. The professions interest has no impact. Tee Companies Act 2006 states that a company secretary of a pl shall be a member of ICAEW (or certain other bodies) or a solicitor or barrister, SAMPLE PAPER B uses and Fiance: aes ak Scanned with CamScannersole practitioners can be af may be recognised. The other stat Enforcement of contracts is cleatly a legal 11 © Girector of legal services, ny legal mater cD a’ ‘The fundamental principles established by the ICAEW Code integrity rn ‘of Ethics professional competence and due care, confidently and roesonal beac SAMPLE PAPER. obje ssmcmspmeet | Scanned with CamScannerACen SECS e cate] TEgtilation Oe CRISS IGY rey aay i 10 unified voice to g (oa) A consent order (Cis offered w n there is a to involve options (A) or (8), Publicity ung under a Disciplina lea consent ond, Pat si not 0 serosa A consent Comm OrGEFMOUld be exactly the same The Department may refer the Matter straight t 0 ‘the ‘Accountancy ‘Scheme in these cir : ‘repo tWvestigation Committee) {hen cases might be referney to the Financial Reporting Council (C) nor the p, this context, The term ‘accountant’ has no epic Poston in law (A) There is no fe seeonntant to be a paid up memise Of the CCAB bodies (8). She Sccountant and, because she ie ‘ealstered for supervision under Tegulations, she can offer all accountancy se levels of co rviC®s except in the mpetence are demanded (Cb) ‘gal requirement for an can call herself an the money laundering "reserved areas where specific jovernment No (it should be professional cor Confidentiality — Yes Reliability - No (it should be integrity) Courtesy —No (it ‘Anyone is free to advertise as an ‘accountant’ accountancy services, with and offer the full range of No Ro exceptions i TEAR members are open to competition from anyone, whether Professionally qualified or not, who chooses toenter th There ino legal requirement for an accountant to be one of the CCAB bodies 2 paid-up member of ‘ChAPLE 10: Suture and seme —— ‘Scanned with CamScanneri << 2A wa “aA 15 B 16 c WA 18 D Fue Dealing with profesional misconduct hy is members us y legislative changes , wider statutory True ‘Acting as adviser to the government on nece served activi Confirming eligibility for the performance of reserved act powers delegated by the government joer to the government on ‘he Financial Reporting Counc isthe body that acts as an adser to the 9 necessary legislative changes : 5 ds Division. SANAPLE PAPER The FRC consists of Conduct Division and the C codes and Standards Division. : woot poner Tue Protect the public from being misled or from suffering fram abuse of power through knowledge or monopoly False competition so as to maintain eguarded Protect the profession's vested interests fr public confidence that the public interest is b ing sa Regulation of professions should specifically not protect the profession’ vested interest competition. Tribunal hearings are normally open to the public except in exceptional circurnstances where the Tribunal decides that this would not be in the interests of justice. A Tribunal hearing is less formal than court proceedings but is subject tothe False same restrictions as a court might have in accepting evidence. The accountant or firm which is the subject of the complaints entitled to Trye attend and be legally represented at the hearings and will have a full ‘opportunity to defend any complaints, present evidence and challenge any evidence against them, Rules of evidence are less strict than in a court. pete pm Yes Exclude the firm from membership of the ICAEW Yes _Offes an unpublicised caution No Take away the firm's practising certificate Yes ‘The offering of an unpublicised caution isa course of action open to the Investigation Committee at an earlier stage in the disciplinary process. Has departed from guidance True Has brought ICAEW into disrepute True Is in breach of a principle False ‘The third option should refer to the breach of a bye-lawe rather than a principle. The FRC, via the Conduct Division's Financial Reporting Review Panel, investigates departures from relevant accounting standards by large companies such as those listed on the LSE, SAMPLE Pa PER Scanned with CamScanner‘The Financial Reporting Councit’s prof ; ess 19 pvesigats special those eases thane repens tam ins Conduct Division Porta fecting the public interest. itis . SAMPLE PAPER Scanned with CamScannerf Penns oso Rte Py sustainability and ethics nee (09, ©) and (©) are all characteristics Household preference for e equity finance is likely to d of bat ‘Quity (more rig dominate the fin based financial systems ) rather than bar a nk deposit 'oncing of businesses, ae i LE PAPER cor eer mes the The separation of own i. ership and See ache a tl cess sa tion errs en hee mags asthe ag 78 The practices and procedures for uyng to ensue ng to ensure that oe eee company is run Does not match A set of relationships between a company’s man: ein, Shareholders aah epee age 8 OMEEN/S Mangement is bow Doe ach 8B This definition ofthe aim of corporate governance isthe broadest posible perspective ~the public policy perspective. 98 ‘The fist statement is fase — Germany has a twos system comprising a management board and a supervisory board, which isthe second statement. eB ) should read transparent and efficient markets, not reporting, (C) should read all shareholders, not just major shareholders. (0) should read timely rather than realtime. 11 A. The first statement is true as set out by the International Society of Business, Economics and Ethics. The second statement is false ~ social responsibilty is measured by how far the “organisation protects the interests of those who have non-contractual relationships, such as ‘the public at large. 12. A Corporate ethics are principally moulded by society's expectations. 13 C__Asawhistleblower she would be protected by the Public Interest Disclosure Act. 14 BCD (@), ©) and () all relate to @ generic financial system. Governance structures and regulators ‘may of may not exist within a particular system, but they are by no means basic elements of ie 18 BCE ‘The lack of codes of practice and regulation contribute to rather than detract from the efficiency of markets in resource allocation 16 A The OECD (B) produced its Principles of Corporate Governance, but it doesnot have UK responsiblity forthe promotion of high standards of corporate governance, The CCAB (C) ‘and the Bank of England (D) have no such responsibility Cini commmacorasenpaty asian ates Scanned with CamScanner7 8 18 AD 9 A Rather than simply looking to do the minimum required, tt in relation to all stakeholders not merely shareholders. ic Jem’, in which refers to the classic ‘agency probe ve ro managers (28 agents) = eft ofthe owners. Corporate gers act as the owners ‘SAMPLE PAPER ‘The stewardship approach requires that directors should act ata siesin te company's bs interests, not in their own, This isa resolution of the agency problem. Allowing share jolders to see detailed accounting ecords on request, holding monthly meetings to answer shareholders’ queries and consulting shareholders over dificult management decisions are not factors that are required by the stewardship approach, though a company can choose to enforce such procedures if it wants, ‘SAMPLE PAPER ‘The separation of ownership and control investors (shareholders) who own the company delega responsibilty for running the business for the ultimate b ‘governance is fundamentally concerned with ensuring that the mana ‘would want them to. Scanned with CamScanner. PPG ei) « governance oP > satsying himself on the inte i = - information ‘SHY of the companys financial Responsible Fepoting onthe petormsne othe company Determining appropriate levels of remuny Satisfying himself that finanei management are robust and 'd Responsible. at controls and systems of ig. defensible Responsible monitor the reporting of peforman ce by th cca den rt todo ie prrnennthemsehves. These ule are ser ne inthe sp Principle A¢ (leadership: non. AS Jumpers pe isn the FTSE 350, the Listing Rules ‘mean thatthe Code apps so Falke {he company must not depart from any of te requirements \ Jumpers ple went on to statutory requirement in the FTSE 100, compliance with the Code woul The Code applies to all FTSE 350 cor expected to comply with the main provisions is allowed provided it is applied via the Listing Rules, mpanies by virtue of the Li principles, non-comy . FTSE 100 the Code is Not statute ‘A company should seek to improve corporate governance by ensuing thatthe chaitman and chief executive ae ferent incvidualsin order to prevent one person from having unfettered powers of decision in line with main principle A2 (leadership: division ofresponsiltis of the Code. ‘This is set out in principles supporting main principle B6 (elfectiveness: evaluation) of the Code. Design remuneration to promate the long-term succes ofthe company: True (main principle 1: remuneration: level and components of remuneration). Establish a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual dectos: True (main principle D2: remuneration procedure). Obtain the auditor's approval ofthe remuneration set: False (the auditors are not required to ‘approve the remuneration though they should ensure that there is appropriate disclosure in the financial statements). This is set out in provisions supporting main principle 02 (remuneration: procedure) of the Code. ‘Scanned with CamScani idbea \ fake ner10 " 12 B 4 1s 16 7 18 19 annual report ‘Non-executive directors of FTSE 350 companies, once appointed, oe ri submitted for re-election every three years’. This is not true ~ in the FTSE 350 they must be submitted for annual clection just like executive directors (principle supporting main principle B7 effectiveness; re-election) True “The board's responsiblity to present a fair, balanced and understandable assessment of company performance extends not only to annual financial statements but also to interim reports’. Thisis in the principles supporting main principle C1 (accountability: financial and business reporting) ‘Directors’ service contracts should not exceed three years’. This is not true asthe False Code recommends that contract or notice periods should not exceed one year, if a longer period is agreed for a new director then this should be reduced to one year cr less as soon as possible (provisions supporting main principle D1: level and ‘components of remuneration) _ —— a ort should st a False “The annual report should state the company’s business model but its strategy for delivering the objectives of the company may remain confidential’. This is not true - provisions supporting main principle C1 on accountability (financial and business reporting) state that both the business model and the strategy should be in the This is set out in provisions supporting main principle E2 (relations with shareholders: constructive use of the AGM) of the Code. This is set out in provisions supporting C3 (accountability: audit committee and auditors) of the Code. SAMPLE PAPER The company can be flexible in how it applies the UK Corporate Governance Code (C). Non- FTSE 350 companies may depart even from the main principles in particular circurnstances provided their non-compliance is explained (A). The company will be expected to adhere to the requirements of the Code by virtue of being listed (8) and (0). The directors have to state that the financial statements are prepared on the going concern basis, if this is the case. They must also state whether there are any material uncertainties about the company’s ability to continue as a going concer for at least 12 months from the date of approval of the financial statements ‘This is set out in provisions supporting main principle B1 (effectiveness: the composition of the board) of the Code. Both the directors and the management have responsibilty as senior management to protect the company against fraud and irregularity Provisions supporting main principle C3 (accountability: audit committee and auditors) of the Code clearly state that the requirement is for independent non-executive directors, with at least one member of the committee needing to have recent and relevant financial experience, but not all of them. ' The entire board is responsible: main principle C2 (accountability: risk management and internal control) of the Code. As fulltime executive director of a FTSE 100 company, the guidance is that she should not be permitted to take on the chairmanship of another FTSE 100 company. This revision is sot out in provisions supporting main principle B3 (effectiveness: commitment) of the Code This is set out in provisions supporting main principle C3 (accountability: and auditors) of the Code. This is set out in provisions supporting main principle D1 (remuneration: level and ‘components of remuneration) of the Code. Scanned with CamScannerItis the shareholders who actually vote to appot usually on the recommendation of the audit committee (8) a 0. director (D) may be heavily involved in the conduct of the audit but should involved in appointment except as a member of the board. ‘A Aneeffectve internal aut function has, asa fundamental requirement, to maintain its 23 independence at all times. ‘SAMPLE PAPER Scanned with CamScannerfs 13; The economic peanuts iM esa eye] finance ‘a With normal goods, a rise in in nos Comes wi ‘opposed oa fallin demand for intron uo SO™ Ned by a in this a es have no effet inthis conten lor goods. The existence. ofc waa ie ements and substi tates the price substitution effect. towards the relatively hese coer goed ela . , A Kfpotatoes are a Giffen . 3 good, the 3 jaan teen ¥en an increase in the price of potatoes will cause an i 4 € Complement re goods that ted tobe bought and used og and for one is likely to cause ani 1nd used together, 50 that an increase substitutes rather than complements, nn “emand forthe other. 8), (8) and ‘ae Is com 50 Wet eemlement tthe hy tendo be consumed gt 0 an fr also 6 D0 Beh Frakes aka honey Demand for an inferior good will fall with rises in income as Facing nto ar aul gpd at yc no af h ioher ecre, Geran fo re ou pea tet cont nc ‘Annormal good which has become increasingly unfashionable will see its demand curve sift to the left, a fall in market price and a fallin quantity supplied. 8 B Witha natural monopoly, fixed costs will be high, marginal costs will below (8) and ‘economies of scale (rather than scope) provide an effective barier to entry. 9 C__ Negative externalities (C) are an example of market fallure because they represent situations where the private costs of an activity dif from the social costs af the activity, Economic ‘Booms (A) and Giffen goods (D) are not market failures. No market failures apparent ()- 10D Zero cross-clasticity means the goods are unrelated. 11 A +0,065/-0.04 =-1.625 12. B Aprice below the market equilibrium price will attract demand but deter suppliers. A A B ‘Avertical straight line implies thatthe supply of the Ledo fixed whatever price is offered 4 When factor costs rise demand contracts (moves along the demand curve) since the price toes up, and the supply curve shits tothe let (contracts). i is sellers. The earlier issues ne key eiferentiator here isthe large number of Competing . 15 A The diferentes here red yah menepE ss Co ihe Terge numipe of sellers inthe market that delines this market specifically as monopolistic ‘competition. 16 BCE i Jvas they supply but only if they i takers meaning that they can sellas mud Supls ed er ce, ied Pes) we imperfection creating imperfect rather than perfect competition. i i the market forthe product growing, enabling omies of scale arise by virtue of : oo ee ins cer eo eH OS aM 18 B Proportional change in quanti demanded = 40/150 x 100 = 26.6% proportional change in price = 149 «100 = 11.19% pep =-26.6/11-1 =-240 SAMPLE PAPER ceavmeenenemasnecsson | Scanned with CamScanner19 20 a 2 23 24 25 26 27 28 29 30 31 32 > ed to supply at that price so supply will increase, whilst at a price 7 irs will be encoura f Suppliers will be librium price demand will fall. above the market equi vite the ca With normal goods, if incomes rise demand for the product val rise and this be te ca i regardless of the existence of either substitutes or complement hic bho The basic economic problem is one of allocating scarce resources and econo! ty of how those scarce resources are or should be used. si menogeny Enterprise is one of the four factors of production, along with labour (including J land and capital i he Technical improvements (D) could apply at any scale of operations ae aay obiain employment of skills (C) and the introduction of a new product (A) fof ips acale discounts because of the size of orders (bulk buying, B) is a direct result of large operations. ‘The relationship between changes in income and changes in consumption. kt cessior ‘When an economy booms, it reaches a turning point and goes into ee 7 | fhe deepens into a depression, Eventually, there is ‘another turning point in the ec h business cycle goes into recovery and then back into boom, and so on, Recession and declining demand go together. Inflation and declining demand do nat. The trade balance is likly to improve due to a decrease in demand for imports 8, C and D wil al be measures which reduce the demand for goods and services. Public expenditure (D) represents the government's own demand. Bank lending (C) is largely used {or gPending on goods and services by the people who borrow the money. Higher Value added tax (8) could increase total spending on goods and services inclusive ofthe tax, but ‘Benuling net of tax wil fal and ths should result in a reduction in demandt-pull inflation Lower interest rates (A) is likely to result in higher consumer borrowing and even stronger demand-pull inflation Aggregate demand exceeding aggregate supply is an example of demand pull inflation, pam interest rates will encourage spending rather than saving. Investment wil be encouraged because the opportunity cost of investing is reduced, Fiscal policy is concerned withthe government’ tax income, expenditure and borrowing (to make up the difference between income and expenditure), Itis aggregate supply in the economy which is at issue, SAMPLE PAPER Higher taxation will tend to reduce consumer spending, Higher import tariffs mi erat Consumer expenditure on imports inclusive of tarifs, but the volume an {arff value of imports purchased will fall. Higher social secur more cash to spend, ight result in \d the net-of- 'y payments will give consumers Scanned with CamScannerlity is an adverse so¢ Anexternal 8 Social cons minimise. “quence ‘ innovation in this context is where uk of nes procedutes and technologies so tigger the advantage in an industry ‘nnovation effect’ asa basis for eS behaviour given enough time, Chapter T of the Competition Act 1998 special Government intervention in a ma the market mechanism has failed it in lic welfare if : to allow for externalities. The minimum or maximum price aby fi ities. The government setting 2 hea ove the equilibrium pric ie Dasha inferior goods falls as incomesrise. "PCE WOU beinefectie, Deman Fon ly deals with anti-competitive agreements 70 Restricting supply (via quota) wil cause the price to rise, SAMPLE PAPER ‘A Monopoly is the antithesis of perfect competition and is, therefore, a market imperfection. 9 BD Imposing unfair purchase or selling prices would be considered as an abuse where the ‘business is in a dominant position but transfer pricing (A) refers to the pricing of goods and services within a mult-divsional organisation, particulary in regard to cross-border transactions. D_ Accartel is most likely where there are few producers in the market, each of them producing a similar product. NB “The main effect of anti-monopoly enforcement is deterrence ~ there is litte innovation effect. 128 “Tending towards a perfect market through increased competition should lead to allocative efficiency and lower prices. 13D Thefirst and third statements are false, but the second statement is true - anti jonopoly legislation favours competition, but where competition is not possible, then market regulation is used to compensate for the lack of competition 14 C__ Redistribution of wealth isan attempt to address lack of equity 15. C Collusion is an example of market power exerted by afew suppliers SAMPLE PAPER 16 B__ Limiting production markets ~ No (this isan abuse of a dominant position, covered by Chapter Il of the Act) ‘Agreeing with another organisation to limit competition - Yes, Restricting technical developments - No (this again is an abuse of a dominant position) 17 D__ Restricting supply (via quota) will cause the price to rise Scanned with CamScanner